Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended January 31, 2003

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from              to             .

Commission File Number 0-14625

TECH DATA CORPORATION

(Exact name of Registrant as specified in its charter)

(Registrant’s Telephone Number, including Area Code): (727) 539-7429

Securities registered pursuant to Section 12(b) of the Act:

Common stock, par value $.0015 per share

Securities registered pursuant to Section 12(g) of the Act:

2% Convertible subordinated debentures due 2021

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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes x No ¨

Aggregate market value of the voting stock held by non-affiliates of the registrant as of March 31, 2003: $1,307,265,916.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant’s Proxy Statement for use at the Annual Meeting of Shareholders on June 3, 2003, is incorporated by reference in Part III of this Form 10-K to the extent stated herein.

PART I

ITEM 1.    Business

Overview

Tech Data Corporation (“Tech Data,” “we,” “our,” “us,” or the “Company”) is a leading distributor of information technology (“IT”) products, logistics management and other value-added services worldwide. We serve over 100,000 value-added resellers (“VARs”), direct marketers, retailers, corporate resellers, and Internet resellers in more than 80 countries throughout the United States, Europe, Canada, Latin America, the Caribbean, and the Middle East.

We offer a variety of products from manufacturers and publishers such as Adobe, Apple, Cisco, Computer Associates, Creative Labs, Epson, Hewlett-Packard, IBM, Intel, Iomega, Lexmark, Microsoft, Nortel Networks, NEC, Palm, Seagate, Sony, Symantec, 3Com, Toshiba, Viewsonic, and Western Digital. Products are generally shipped the same day the orders are received from regionally located logistics centers.

Customers are provided with a high level of service through the Company’s pre- and post-sale technical support, electronic commerce tools (including on-line order entry, product integration services and electronic data interchange (“EDI”) services), customized shipping documents and flexible financing programs. While we strive to provide our customers with the best service available, revenues generated from the direct sale of services contributed less than 10% to Tech Data’s overall net sales.

History

Tech Data was incorporated in 1974 to market data processing supplies such as tapes, disk packs, and custom and stock tab forms for mini and mainframe computers directly to end users. With the advent of microcomputer dealers, we made the transition to a wholesale distributor in 1984 by broadening our product line to include hardware products and withdrawing entirely from end-user sales. From 1989 to 1994, we expanded internationally through the acquisition of privately-held distribution companies in Canada and France.

In July 1998, we substantially enhanced our European presence with the acquisition of 83% of the voting common stock of Europe’s leading technology products distributor, Computer 2000 AG (“Computer 2000”). With a presence in significant geographic markets in Europe, the Middle East and Latin America, the purchase of Computer 2000 expanded Tech Data’s presence to its current level of 26 countries worldwide. In April 1999, all of the shares of Computer 2000 were integrated into Tech Data Germany AG (“Tech Data Germany”). Following the acquisition of Computer 2000, there remained a very small minority interest at Tech Data Germany. These interests were acquired in the third quarter of fiscal 2003.

In May 1999, we nearly doubled our Canadian business through the acquisition of Globelle Corporation (“Globelle”), a leading publicly-held Canadian distributor. The purchase of Globelle provided critical mass and provided a complementary product and geographic focus to our Canadian operations.

Subsequent to January 31, 2003, we expanded our presence in the European networking and communications market through the acquisition of Azlan Group PLC (“Azlan”).

Industry

The wholesale distribution model has proven to be well suited for both manufacturers and publishers of IT products (“vendors”) and resellers of those products. The large number of resellers makes it cost efficient for vendors to rely on wholesale distributors to serve this diverse customer base.

1

Similarly, due to the large number of vendors and products, resellers often cannot or choose not to establish direct purchasing relationships with vendors. As a result, they frequently rely on wholesale distributors, such as Tech Data, who can leverage purchasing costs across multiple vendors to satisfy a significant portion of their product procurement, logistics, financing, marketing and technical support needs.

Through collaborative supply chain management initiatives, we continue to advance the efficiency of the distribution model. By leveraging our infrastructure and logistics expertise, vendors benefit from a cost-effective alternative to selling directly to resellers or end-users. Our ability to provide a “virtual warehouse” of products for resellers means they no longer need to hold inventory, which reduces their costs and risks associated with handling products. In addition to enabling fast reseller access to a comprehensive hardware and software offering, we frequently ship products directly to end-users on behalf of our customers, thereby reducing the resellers’ costs of storing, maintaining, and shipping the products themselves. We facilitate this approach by personalizing shipping labels and packing documents with the resellers’ brand identities (e.g. logos), marketing messages and other specialized content.

The increasing utilization of electronic ordering and information delivery systems, including the ability to transact business over the Web, continues to have a significant impact on the cost efficiency of the wholesale distribution model. For example, we have established a more seamless supply chain in which end-user orders flow immediately from reseller Web sites to our logistics centers in closest proximity to the order destination. Advances like these are possible due to the financial and technical resources available to large-scale distributors such as ourselves, enabling a reduction in both our customers’ and our own transaction costs through more efficient purchasing and lower selling and delivery costs.

In summary, the IT distribution industry continues to address a broad spectrum of reseller and vendor requirements despite certain vendors such as Hewlett-Packard Company (“HP”) continuing with direct sales of certain products, predominantly in the U.S., to end-users and resellers. New products and emerging market opportunities have helped to offset the impact of vendor direct sales on IT distributors. Further, vendors continue to seek the logistics expertise of distributors to penetrate key markets like the small- and mid-sized business (“SMB”) sector, which rely on VARs—our primary customer base—to gain access to and support for new technology. The economies of scale and global reach of large industry-leading distributors are expected to continue to be significant competitive advantages in this marketplace.

Our fiscal 2003 results, like other companies in the technology industry, were negatively affected by the continued economic downturn. While economic conditions and IT market demand remain uncertain, companies in our industry have found ways to improve efficiency during the slowdown. These actions should help strengthen profit potential when a recovery in IT demand occurs.

Products and Vendors

We sell more than 75,000 products from the world’s leading peripheral, system and networking manufacturers and software publishers. These products are typically purchased directly from the manufacturer or software publisher on a non-exclusive basis. Conversely, our vendor agreements do not restrict us from selling similar products manufactured by competitors, nor do they require us to sell a specified quantity of product. As a result, we have the flexibility to terminate or curtail sales of one product line in favor of another due to technological change, pricing considerations, product availability, customer demand, or vendor distribution policies.

2

Our product line is continually strengthened in order to provide our customers with the latest technology products. However, from time to time, the demand for certain products that we sell exceeds the supply available from the manufacturer or publisher. In such cases, we generally receive an allocation of the available products. We believe that our ability to compete is not adversely affected by these periodic shortages and the resulting allocations.

It is our understanding that our vendor agreements are in the form customarily used by each manufacturer. Agreements typically contain provisions that allow termination by either party upon 30 days notice. In most instances, a vendor who elects to terminate a distribution agreement will repurchase from the distributor the vendor’s products carried in the distributor’s inventory.

Most of our vendor agreements also allow for stock rotation and price protection provisions. Stock rotation rights give us the ability, subject to certain limitations, to return for credit or exchange a portion of those inventory items purchased from the vendor. Price protection situations occur when a vendor credits us for declines in inventory value resulting from the vendor’s price reductions. Along with our inventory management policies and practices, these provisions reduce our risk of loss due to slow-moving inventory, vendor price reductions, product updates or obsolescence.

Sometimes the industry practices discussed above are not embodied in agreements and do not protect us in all cases from declines in inventory value. However, we believe that these practices provide a significant level of protection from such declines, although, no assurance can be given that such practices will continue or that they will adequately protect us against declines in inventory value. See also Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asset Management.

While we sell products in various countries throughout the world, and product categories may vary from region to region, over the past two years sales within our consolidated product categories have remained fairly consistent within the following ranges:

With the acquisition of Compaq Computer Corporation (“Compaq”) by HP in May 2002, sales of products sourced from the combined HP/Compaq entity accounted for 33%, 38%, and 39% of net sales in fiscal 2003, 2002, and 2001, respectively. HP continues to compete with distributors by selling directly to end-users and/or resellers in certain product categories, customer segments and/or geographies. Our net sales have been adversely affected by this trend, which has been primarily focused on HP’s computer systems business in the U.S. market. HP’s printer business through distribution has not been affected. In addition, Microsoft software accounted for 10% of our net sales in fiscal 2003. There were no other vendors that accounted for 10% or more of our net sales in 2003, 2002, or 2001.

Customers and Services

We purchase products directly from manufacturers and publishers in large quantities for sale to an active reseller base of more than 100,000 VARs, direct marketers, retailers, Internet resellers and corporate resellers. While we sell products in various countries throughout the world, and customer channels may vary from region to region, over the past two years sales within our consolidated customer channels have remained fairly consistent within the following ranges:

3

No single customer accounted for more than 5% of our net sales during fiscal 2003, 2002, or 2001.

The market for VARs is attractive because VARs generally rely on distributors as their principal source of computer products and financing. This reliance is due to VARs typically lacking the resources to establish a large number of direct purchasing relationships or stock significant product inventories. Direct marketers, retailers and corporate resellers may establish direct relationships with manufacturers and publishers for their more popular products, but utilize distributors as the primary source for other product requirements and the alternative source for products acquired directly. We have also developed special programs to meet the unique needs of direct marketers, retailers and Internet resellers.

In addition to a strong product offering, we provide resellers a high level of service through our pre- and post-sale technical support, suite of electronic commerce tools (including web order entry and EDI services), customized shipping documents, product configuration/integration services and flexible financing programs. We also provide services to our vendors by giving them the opportunity to participate in a number of special promotions, training programs and marketing services targeted to the needs of our resellers. While we believe that services such as these help to set us apart from our competition, they contribute less than 10% to our overall revenues.

We provide our vendors one of the largest bases of resellers throughout the United States, Europe, Canada, Latin America, the Caribbean, and the Middle East, delivering products to customers from our 29 regionally located logistics centers. Locating logistics centers near our customers enables us to deliver products on a timely basis, thereby reducing the customers’ need to invest in inventory. See Item 2—Properties for further discussion of our locations and logistics centers.

Sales and Electronic Commerce

Currently, our sales force consists of approximately 1,500 field and inside telemarketing sales representatives. Field sales representatives are located in major metropolitan areas. Each field representative is supported by inside telemarketing sales teams covering a designated territory. Our team concept provides a strong personal relationship between representatives of the customers and Tech Data. Territories with no field representation are serviced exclusively by the inside telemarketing sales teams. Customers typically call their inside sales teams on dedicated toll-free numbers or contact us through various electronic methods to place orders. If the product is in stock and the customer has available credit, customer orders are generally shipped the same day from the logistics facility nearest the customer.

Increasingly, customers rely upon our electronic ordering and information systems, in addition to our product catalogs and frequent mailings, as sources for product information, including availability and price. Our on-line computer system allows the inside sales teams to check current stocking levels in each of the six United States logistics centers. Likewise, inside sales teams in Europe, Canada, Latin America, the Caribbean, and the Middle East can check on stocking levels in their respective logistics centers. Through our website, most customers can gain remote access to our information systems to check product availability and pricing and to place orders. Certain of our larger customers have EDI services available whereby orders, order acknowledgments, invoices, inventory status reports, customized pricing information and other industry standard EDI transactions are consummated on-line, which improves efficiency and timeliness for ourselves and our customers. During fiscal 2003, approximately 34% ($5.4 billion) of our worldwide sales dollar volume originated from orders received electronically, up from approximately 29% ($5.0 billion) in fiscal 2002.

We also provide comprehensive training to our field and inside sales representatives regarding technical characteristics of products and our policies and procedures. In addition, this training program is supplemented by product seminars offered by manufacturers and publishers.

4

Competition

We operate in a market characterized by intense competition, based upon such factors as product availability, credit availability, price, delivery and various services and support provided by the distributor to the customer. We believe that we are well equipped to compete effectively with other distributors in all of these areas.

We compete against several distributors in the North American market, including Ingram Micro and Synnex. In Latin America, we compete against Ingram Micro and several regional and local distributors. Competition outside of the Americas includes Ingram Micro, Actebis and a variety of smaller regional and local distributors.

We also compete with manufacturers and publishers who sell directly to resellers and end-users. Nevertheless, we believe that in the majority of cases, manufacturers and publishers choose to sell products through distributors rather than directly because of the relatively small volume and high selling costs associated with numerous small orders. Management also believes that our prompt delivery of products and efficient handling of returns provide an important competitive advantage over manufacturers’ and publishers’ efforts to market their products directly.

Employees

On January 31, 2003, we had approximately 7,900 employees located as follows: United States – 2,900, Europe – 4,300, and all other regions – 700. Certain of our employees in various countries outside the United States are subject to laws providing representation rights to employees on management boards. We consider relations with our employees to be good.

Foreign and Domestic Operations and Export Sales

We operate predominantly in a single industry segment as a wholesale distributor of computer-based technology products and services. Therefore, the principal markets, products and services and methods of distribution from which each segment derives its revenues are essentially the same. The principal geographical areas in which we operate are the United States, Europe (including the Middle East) and other international areas, which include in-country operations in Canada, Brazil, Chile, Peru, Uruguay and export sales to Latin America and the Caribbean from the United States. In fiscal 2003, 2002, and 2001, 53%, 49%, and 45%, respectively, of our sales were derived from outside of the United States.

We closed our operations in Norway and Hungary during the first half of fiscal 2003. Operating losses incurred during the wind-down of these operations totaled less than $3.0 million, which has been reflected in operating income during fiscal 2003.

In addition, during the fourth quarter of fiscal 2003, we sold our operations in Argentina to local management and liquidated one of our European financing subsidiaries. With respect to the Argentina transaction, we took a charge of approximately $2.4 million on the sale, in addition to the realization of approximately $14.5 million in foreign currency exchange losses previously recorded in shareholders’ equity as accumulated other comprehensive income (loss). In connection with the liquidation of the European financing subsidiary, we repatriated approximately $70.0 million of capital, which resulted in the realization of approximately $11.2 million in foreign currency exchange gains previously recorded in shareholders’ equity as accumulated other comprehensive income (loss). The net effect of these transactions resulted in a total pre-tax loss of approximately $5.7 million, recorded within Loss on Disposition of Subsidiaries during fiscal 2003.

We continue to evaluate our risk exposure (e.g., risks surrounding currency rates, regulatory environments, political instability, etc.) around the world and consider actions necessary to reduce our overall risk. To the extent we decide to close additional operations, we may incur charges and operating losses related to such closures, as well as recognize a portion of our accumulated other comprehensive income (loss) as a non-operating foreign currency exchange gain or loss.

5

See Note 11 of Notes to Consolidated Financial Statements, for further information regarding the geographical distribution of our net sales, operating income and identifiable assets.

Additional Information Available

Our principal Internet address is www.techdata.com. We provide our annual and quarterly reports free of charge on www.techdata.com, as soon as reasonably practicable after they are electronically filed, or furnished to, the Securities and Exchange Commission (“ SEC”). We provide a link to all SEC filings where current reports on Form 8-K and any amendments to previously filed reports may be accessed, free of charge.

Executive Officers

Our executive officers as of April 17, 2003 are as follows:

Steven A. Raymund, Chairman of the Board of Directors and Chief Executive Officer, age 47, has been employed by the Company since 1981, serving as Chief Executive Officer since January 1986 and as Chairman of the Board of Directors since April 1991. He has a Bachelor of Science Degree in Economics from the University of Oregon and a Masters Degree from the Georgetown University School of Foreign Service.

Néstor Cano, President of Worldwide Operations, age 39, joined the Company (via Computer 2000) in July 1989 as a Software Product Manager and served in various management positions within the Company’s operations in Spain and Portugal from 1990 to 1995, after which time he was promoted to Regional Managing Director. In March 1999 he was appointed Executive Vice President of U.S. Sales and Marketing, and in January 2000 he was promoted to President of the Americas. He was promoted to President of Worldwide Operations in August 2000. Mr. Cano holds a PDG (Executive MBA) from IESE Business School in Barcelona and an Engineering Degree from Barcelona University.

Jeffery P. Howells, Executive Vice President and Chief Financial Officer, age 46, joined the Company in October 1991 as Vice President of Finance and assumed the responsibilities of Chief Financial Officer in March 1992. In March 1993, he was promoted to Senior Vice President and Chief Financial Officer and was promoted to Executive Vice President and Chief Financial Officer in March 1997. In 1998, Mr. Howells was appointed to the Company’s Board of Directors. From 1979 to 1991, he was employed by Price Waterhouse. Mr. Howells is a Certified Public Accountant and holds a Bachelor of Business Administration Degree in Accounting from Stetson University.

Graeme A. Watt, President of Europe, age 42, joined the Company (via Computer 2000) in January 1988 as Financial Controller for the United Kingdom and Ireland and was promoted to Managing Director in 1995. He was promoted to Regional Managing Director for Tech Data’s Computer 2000 Group in January 2000, and in August 2000 he was promoted to President of Europe. Prior to joining the Company, he was with Arthur Young for two years as a Chartered Accountant, where he gained his ACA (ICAEW) qualification. Mr. Watt holds a Bachelors Degree in Physiology from Edinburgh University.

Joseph A. Osbourn, Executive Vice President and Worldwide Chief Information Officer, age 55, joined the Company in October 2000. Prior to joining the Company, he was Senior Vice President and Chief Information Officer at Kmart Corporation from September 1999 to September 2000, Vice President of Information Services at Walt Disney World Company from September 1989 to September 1999, and with Price Waterhouse for ten years, most recently as a partner in Management Consulting Services. Mr. Osbourn holds a Masters Degree in Business Administration from Memphis State University and a Bachelors Degree in Physics from the University of Louisville.

6

Theresa A. Bazzone, Senior Vice President of U.S. Sales, age 56, joined the Company in November 1992 as Director, Software Product Marketing. During her 11 years with the Company, she has held various senior management positions with Tech Data including Vice President of Software Product Marketing as well as several Vice President and General Manager positions including Retail and Direct Marketing Sales, Strategic Business Development and Enterprise. In August 2002 she was promoted to her current role of Senior Vice President of U.S. Sales. Prior to joining the Company, she was employed by Corporate Software, Inc., from 1987 to 1992 serving in a variety of sales management positions. Ms. Bazzone attended Bentley College.

Patrick O. Connelly, Senior Vice President of Credit Services, age 57, joined the Company in August 1994 as Vice President of Credit Services, and in April 2001 he was promoted to Senior Vice President of Credit Services. Prior to joining the Company, he was employed by Unisys Corporation for nine years as Worldwide Director of Credit. Mr. Connelly holds a Masters Degree in Business Administration from the University of South Florida and Bachelor of Arts Degrees in History and French from the University of Texas at Austin.

Charles V. Dannewitz, Senior Vice President of Taxes, age 48, joined the Company in February 1995 as Vice President of Taxes and was promoted to Senior Vice President of Taxes in April 2000. Prior to joining the Company, he was employed by Price Waterhouse for 13 years, most recently as a Tax Partner. Mr. Dannewitz is a Certified Public Accountant and holds a Bachelor of Science Degree in Accounting from Illinois Wesleyan University.

Andreas Duerst, Senior Vice President of Central Europe, age 42, joined the Company in February 2000 as Managing Director of Swiss operations and was promoted to Senior Vice President of Central Europe in March 2003. Prior to joining the Company, Mr. Duerst was employed by Lucent Technologies from May 1995 to January 2000 as Managing Director of Central and Eastern Europe.

Andrew Gass, Senior Vice President of Northern Europe, age 38, joined the Company (via Computer 2000) in October 1995 as Finance and Operations Director of UK operations and was promoted to Deputy Managing Director in October 1998. From February 2000 to August 2001, Mr. Gass was a Managing Director at Sage Enterprise Solutions. He returned to the Company as Senior Vice President of Northern Europe in September 2001. Mr. Gass is a Chartered Accountant and holds a Bachelors Degree in Commerce from Edinburgh University.

Lawrence W. Hamilton, Senior Vice President of Human Resources, age 45, joined the Company in August 1993 as Vice President of Human Resources and was promoted to Senior Vice President of Human Resources in March 1996. Prior to joining the Company, he was employed by Bristol-Myers Squibb Company from 1985 to August 1993, most recently as Vice President—Human Resources and Administration of Linvatec Corporation (a division of Bristol-Myers Squibb Company). Mr. Hamilton holds a Bachelor of Arts Degree in Political Science from Fisk University and a Masters of Public Administration, Labor Policy from the University of Alabama.

William J. Hunter, Senior Vice President and Chief Financial Officer of Europe, age 43, joined the Company in April 1994 as Assistant Controller. In September 1996, he was promoted to Director of International Finance and in June 1997 became the Vice President and Controller for Europe. Effective June 1999, Mr. Hunter was promoted to Senior Vice President and Chief Financial Officer for Europe. Prior to joining the Company, he was employed by Price Waterhouse from January 1989 to April 1994. Mr. Hunter is a Certified Management Accountant and holds a Bachelor of Arts Degree in Philosophy from Tulane University and a Bachelor of Science Degree in Accounting from the University of South Florida.

7

Elio Levy, Senior Vice President of U.S. Marketing, age 55, joined the Company in October 1991 as Director of Software and was promoted to Vice President of Networking in January 1993. In January 1995, he was named Vice President of Marketing for Tech Data France and from January 1996 to June 1998 he served as President of Tech Data Canada. In April 1998, he returned to the Company’s U.S. operations as Vice President and General Manager of International Marketing and in November 1998 he assumed the role of Vice President and General Manager, Peripherals. In April 2000 he was promoted to his current role of Senior Vice President of Marketing. Mr. Levy holds a Bachelor of Science Degree in Business from the College of Charleston.

Yuda Saydun, Senior Vice President and President of Latin America, age 50, joined the Company in April 1993 as Vice President and General Manager—Latin America. In March 1997 he was promoted to Senior Vice President and General Manager—Latin America and in April 2000 was promoted to President of Latin America. Prior to joining the Company, he was employed by American Express Travel Related Services Company, Inc. from 1982 to April 1993, most recently as Division Vice President, Cardmember Marketing. Mr. Saydun holds a Bachelor of Science Degree in Political and Diplomatic Sciences from Universite Libre de Bruxelles and a Masters of Business Administration Degree, Finance/Marketing from the University of California, Los Angeles.

Lisa G. Thibodeau, Senior Vice President of U.S. Sales and Marketing Operations, age 44, joined the Company in March 1995 as Assistant Controller. She was promoted to the position of Vice President and U.S. Controller in September 1997. In June 2000, she was promoted to Senior Vice President of U.S. Sales and Marketing Operations. Prior to joining the Company, Ms. Thibodeau was employed from May 1989 to March 1995 at Walt Disney World Company, most recently as Finance Manager. Ms. Thibodeau is a Certified Public Accountant and holds a Masters Degree in Business Administration from Rollins College and a Bachelors Degree in Business Administration from the University of Massachusetts at Amherst.

William K. Todd, Jr., Senior Vice President of Logistics and Integration Services, age 58, joined the Company in June 1999 as Vice President and General Manager of Configuration and Assembly and was promoted to Senior Vice President of Logistics and Integration Services in April 2000. Prior to joining the Company, he was employed by Entex Information Services from September 1992 to June 1999 as the Senior Vice President of Distribution and Manufacturing. Mr. Todd holds a Bachelor of Science Degree in Business Management from New Hampshire College.

Joseph B. Trepani, Senior Vice President and Corporate Controller, age 42, joined the Company in March 1990 as Controller and held the position of Director of Operations from October 1991 through January 1995. In February 1995, he was promoted to Vice President and Worldwide Controller and to Senior Vice President and Corporate Controller in March 1998. Prior to joining the Company, Mr. Trepani was Vice President of Finance for Action Staffing, Inc. from July 1989 to February 1990. From 1982 to 1989, he was employed by Price Waterhouse. Mr. Trepani is a Certified Public Accountant and holds a Bachelor of Science Degree in Accounting from Florida State University.

David R. Vetter, Senior Vice President and General Counsel, age 44, joined the Company in June 1993 as Vice President and General Counsel and was promoted to Corporate Vice President and General Counsel in April 2000. In March 2003, he was promoted to his current position of Senior Vice President. Prior to joining the Company, he was employed by the law firm of Robbins, Gaynor & Bronstein, P.A. from 1984 to 1993, most recently as a partner. Mr. Vetter is a member of the Florida Bar and holds Bachelor of Arts Degrees in English and Economics from Bucknell University and a Juris Doctorate Degree from the University of Florida.

Gerard F. Youna, Senior Vice President of Southern Europe, age 49, joined the Company in 1989 as the Managing Director for Tech Data France. In 1999, he was promoted to Regional Managing

8

Director for France and Israel. In September 2000, he was promoted to Senior Vice President of Southern Europe. Mr. Youna received a degree in IT Engineering from the Institut Informatique d’Entreprise in Paris, France.

Benjamin B. Godwin, Corporate Vice President, Real Estate and Corporate Services, age 51, joined the Company in August 1997 as Vice President of Real Estate and Corporate Services and was promoted to Corporate Vice President in March 2003. Prior to joining the Company, he was President of Godwin Real Estate, Inc., a real estate brokerage and appraisal firm he founded in 1985. Mr. Godwin holds a Bachelor of Business Administration degree from Georgia State University.

Arthur W. Singleton, Corporate Vice President, Treasurer and Secretary, age 42, joined the Company in January 1990 as Director of Finance and was appointed Treasurer and Secretary in April 1991. In February 1995, he was promoted to Vice President, Treasurer and Secretary and was promoted to Corporate Vice President in April 2000. Prior to joining the Company, Mr. Singleton was employed by Price Waterhouse from 1982 to 1989. Mr. Singleton is a Certified Public Accountant and holds a Bachelor of Science Degree in Accounting from Florida State University.

ITEM 2.    Properties

Our worldwide executive offices are located in Clearwater, Florida. As of January 31, 2003, we operated a total of 29 logistics centers to provide our customers timely delivery of products. These logistics centers are located in the following principal markets: U.S.–6, Canada–2, Latin America–4, Europe–15, and the Middle East–2. We also operate training centers in 8 U.S. cities.

As of January 31, 2003, we leased or owned approximately 7.2 million square feet of space worldwide. The majority of our office facilities and logistics centers are leased. Our facilities are well maintained and are adequate to conduct our current business. We do not anticipate any material difficulty in renewing our leases as they expire or securing replacement facilities. We do have some excess capacity in our physical infrastructure given the decline in sales volume over the past two years.

ITEM 3.    Legal Proceedings

One of our European subsidiaries has been audited related to various VAT matters. As a result of those audits, the subsidiary has received notices of assessment that allege the subsidiary did not properly collect and remit VAT taxes. It is our opinion, based upon the opinion of outside legal counsel, that we have valid defenses related to these assessments. Although we are vigorously pursuing administrative and judicial action to challenge the assessments, no assurance can be given as to the ultimate outcome. The resolution of such assessments could be material to our operating results for any particular period, depending upon the level of income for such period.

We are subject to various other legal proceedings and claims arising in the ordinary course of business. We do not expect that the outcome in any of these other legal proceedings, individually or collectively, will have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 4.    Submission of Matters to a Vote of Security Holders

There have been no matters submitted to a vote of security holders during the last quarter of the fiscal year ended January 31, 2003.

9

PART II

ITEM 5.    Market for the Registrant’s Common Stock and Related Shareholder Matters

Our common stock is traded on the NASDAQ Stock Market under the symbol “TECD”. We have not paid cash dividends since fiscal 1983 and the Board of Directors does not intend to institute a cash dividend payment policy in the foreseeable future. The table below presents the quarterly high and low sale prices for our common stock as reported by the NASDAQ Stock Market, Inc. As of April 11, 2003, there were 520 holders of record. We believe that there are approximately 34,000 beneficial holders.

Equity Compensation Plan Information⁽¹⁾

The number of shares issuable upon exercise of outstanding options granted to employees and non-employee directors, as well as the number of shares remaining available for future issuance, under our equity compensation plans as of January 31, 2003 are summarized in the following table:

10

ITEM 6.    Selected Consolidated Financial Data

The following table sets forth certain selected consolidated financial data and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto appearing elsewhere in this annual report.

FIVE YEAR FINANCIAL SUMMARY

(In thousands, except per share data)

11

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Foreword

Certain statements within this Item and throughout this Annual Report on Form 10-K and the documents incorporated herein are “forward-looking statements” as described in the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks and uncertainties and actual results could differ materially from those projected. Factors that could cause actual results to differ materially include the following: intense competition both domestically and internationally; narrow profit margins; inventory risks due to shifts in market demand; dependence on information systems; credit exposure due to the deterioration in the financial condition of our customers; the general economy including the length and severity of the current economic downturn; the inability to obtain required capital; potential adverse effects of acquisitions; fluctuations in interest rates, foreign currency exchange rates and exposure to foreign markets; the impact of changes in income tax legislation; product supply and availability; dependence on independent shipping companies; changes in vendor terms and conditions; acts of war or terrorism; exposure to natural disasters; potential impact of labor strikes; volatility of common stock; and the accuracy of forecast data. Additional discussion of these and other factors affecting our business and prospects is contained in our periodic filings with the SEC, copies of which can be obtained at our Investor Relations website at www.techdata.com. Please refer to the cautionary statements and important factors discussed in Exhibit 99-A of our Annual Report on Form 10-K for the year ended January 31, 2003 for further information.

Results of Operations

The following table sets forth our Consolidated Statement of Income as a percentage of net sales for each of the three most recent fiscal years.

12

Non-GAAP Financial Information

The following reconciliation details the adjustments between results calculated using Generally Accepted Accounting Principles (“GAAP”) and the same results reported excluding special charges and the loss on disposition of subsidiaries (“non-GAAP information”). The non-GAAP information is included with the intention of providing investors a more complete understanding of our underlying operational results and trends, but should only be used in conjunction with results reported in accordance with GAAP (amounts in thousands except per share amounts).

Net Sales

The following table represents our net sales by geographic segment:

13

Like many companies in the IT industry, we experienced significant challenges in our business environment over the past two years, due primarily to negative macro-economic forces, a continued slowdown in the IT industry, competitive market conditions, and the direct sales efforts of certain vendors, primarily in the U.S. As a result, consolidated net sales for fiscal 2003 declined 8.5% compared to the prior year, after a 15.8% reduction in fiscal 2002.

The majority of the reduction in our sales for both years took place in the U.S. region, where revenue declined by 16.1% in fiscal 2003, after decreasing by 22.3% in fiscal 2002. Sales in the U.S. were mostly impacted by continued pressure on business capital spending, competition in the marketplace, and the decision of certain vendors to pursue a direct sales model.

In U.S. dollar terms, our fiscal 2003 international sales remained relatively flat year over year, but did decline by 7.9% in fiscal 2002. The slower decline in U.S. dollar sales of our international operations compared to the U.S. region caused the mix of international sales to grow over the past two years to approximately 53% of total sales compared to 49% in fiscal 2002 and 45% in fiscal 2001.

As a component of our international operations, Europe is by far the largest. In U.S. dollar terms, the European region grew sales by 2.3% during fiscal 2003, however, on a local currency basis, sales in the region fell by 5.1%. Exchange rates had the opposite effect in the prior year, where the decrease in European fiscal 2002 sales was 7.4% on a U.S. dollar basis, but only fell 4.9% in terms of local currency. Decreases seen in local currency sales in Europe for both years were due to both softness in the European IT market and competition in the marketplace.

Other international sales, which comprised only 6% of our consolidated revenue for fiscal 2003, experienced a 17.7% reduction in fiscal 2003, after a decrease of 10.5% in fiscal 2002. Other international sales in 2003 dropped due to economic pressures, along with intense competition in the Canadian region, while sales in Latin America fell more dramatically due to significant economic instability in those countries, along with management’s decision to scale back our operations in Brazil and Argentina. Sales in fiscal 2002 were affected mostly by lower overall demand and weaker currencies in Canada and Latin America.

Gross Profit

Our consolidated gross profit as a percentage of net sales (“gross margin”) dropped twelve basis points in fiscal 2003 compared to the prior year, after rising by three basis points during fiscal 2002 (as compared to fiscal 2001). The vast majority of the decrease in gross margin during fiscal 2003 was due to our European operations, which saw generally greater competitive margin pressures in an attempt to maintain market share. The three basis point increase in gross margin during fiscal 2002 was due to the positive effects of our margin improvement programs and an increase in the mix of international sales (which tend to have higher gross margins).

Operating Expenses

Selling, general and administrative expenses

During fiscal 2003 we continued to focus on stringent expense controls, reducing selling, general and administrative expenses (“SG&A”) by 9.6%, or $65.2 million from the prior year. Even as a percent of sales, SG&A decreased by five basis points from fiscal 2002, exhibiting the scalability of our business model. In order to achieve these expense reductions, among other actions, we maintained our focus on budgetary controls over all discretionary expenses, such as travel-related costs, consulting, and supplies. We also reduced our payroll and related costs, managing our number of employees down 8.1%.

14

Included in the $65.2 million in cost reductions above are $8.6 million related to the elimination of goodwill amortization, as required by Statement of Financial Accounting Standards (“SFAS” or “Statement”) No. 142, “Goodwill and Other Intangible Assets”. However, this reduction was offset almost entirely by the approximate $9.0 million that we expensed on harmonizing and upgrading our European information systems infrastructure during fiscal 2003.

During fiscal 2002 we began the process of adjusting costs to meet the lower demand for IT products and services, reducing SG&A by 7.6% or $55.4 million from the prior year. In order to counter the economic downturn, we significantly reduced our payroll and related costs, managing our number of employees down 18.1%. Likewise, we dramatically cut back on discretionary expenses such as travel-related costs, consulting and supplies. While these cost cutting measures were significant, they could not entirely offset the effect of the year-over-year sales decline and as a result SG&A, as a percentage of net sales, increased 35 basis points to 3.94% from 3.59% in the prior year. The greater mix of international sales in fiscal 2002 also contributed to the higher SG&A as a percentage of net sales, as the international model typically results in greater costs along with a higher gross margin (as previously discussed). In addition to those items mentioned above, SG&A was negatively affected by losses in Latin America during the fourth quarter; these operating losses were primarily related to currency devaluation and asset realization issues in Argentina and Brazil.

Special Charges

In addition to those items mentioned above, operating income was negatively affected in fiscal 2003 by a $328.9 million impairment to goodwill resulting from the application of SFAS No. 142. SFAS No. 142 revised the standards of accounting for goodwill by replacing the amortization of these assets with the requirement that they be reviewed annually for impairment, or more frequently if impairment indicators arise. At the end of fiscal 2003, we performed our annual test of goodwill to determine if there was impairment. This testing included the determination of each reporting unit’s fair value using market multiples and discounted cash flows modeling. Our reduced earnings and cash flow forecast, primarily due to the prolonged downturn in the economy, uncertain demand, and competitive industry conditions, resulted in the determination that a goodwill impairment charge was necessary. The $328.9 million non-cash charge was recorded in the fourth quarter of fiscal 2003.

Special charges of $27.0 million were recognized in fiscal 2002. These special charges related to the recording of: a) the write-off of previously capitalized software costs ($20.1 million); b) the impairment of certain Internet-related investments ($5.4 million) and; c) the write-off of development costs associated with a new German logistics center ($1.5 million), the construction of which has been indefinitely deferred. The remaining Internet-related investment had a carrying value of approximately $2.4 million at January 31, 2003 and 2002. Investments in these types of technologies are inherently risky and we could lose the remainder of our investment.

Loss on Disposition of Subsidiaries

Due to currency-related issues, political instability and continued economic concerns in the country, we decided to sell our operations in Argentina to local management in fiscal 2003. In addition, during the fourth quarter of fiscal 2003, we liquidated one of our European financing subsidiaries. With respect to the Argentina transaction, we took a charge of approximately $2.4 million on the sale, in addition to the realization of approximately $14.5 million in foreign currency exchange losses previously recorded in shareholders’ equity as accumulated other comprehensive income (loss). In connection with the liquidation of the European financing subsidiary, we repatriated approximately $70.0 million of capital, which resulted in the realization of approximately $11.2 million in foreign currency exchange gains previously recorded in shareholders’ equity as accumulated other comprehensive income (loss). The net effect of these transactions resulted in a total pre-tax loss of approximately $5.7 million, recorded within Loss on Disposition of Subsidiaries during fiscal 2003.

There were no significant dispositions of subsidiaries during fiscal 2002.

15

Interest Expense, Interest Income, and Foreign Currency Exchange Gains / Losses

Interest expense decreased 46.9% to $35.4 million in fiscal 2003 from $66.7 million in fiscal 2002. This decrease was the result of a significant reduction in our average outstanding indebtedness and a decline in our interest rates. The decrease in fiscal 2003 was slightly offset as a result of a $3.0 million premium payment related to the redemption of our $300.0 million 5% convertible subordinated debentures on December 12, 2002. The debentures, scheduled to mature on July 1, 2003, were redeemed at a price of 101% or $303.0 million. This redemption allowed us to take advantage of low interest rates and save approximately $2.8 million through the original maturity date. Interest income remained relatively flat at $11.4 million, increasing less than 1.0% over fiscal 2002.

We realized a net foreign currency exchange gain of $6.9 million in fiscal 2003 compared to a gain of $0.1 million in fiscal 2002. The fluctuation from prior year was attributable primarily to our operations in Europe, and to a lesser extent, our operations in Latin America. The European gain can be attributed to the strengthening of the Euro, as many of our payables are denominated in U.S. dollars and are not fully hedged, and the currency devaluation in Argentina, where we were in a net U.S. dollar monetary asset position during fiscal 2003. It continues to be our goal to minimize foreign currency exchange gains and losses through effective hedging techniques. Our foreign exchange policy prohibits entering into speculative transactions.

Interest expense decreased 32.4% to $66.7 million in fiscal 2002 from $98.8 million in fiscal 2001. This decrease was the result of a significant decrease in our average outstanding indebtedness and a decrease in rates. We were able to reduce our outstanding debt, net of cash, by over $990.4 million during fiscal 2002 due to dramatic improvements in our inventory management and the cash generated from other operating activities.

Interest income increased 74.1% to $11.3 million in fiscal 2002 from $6.5 million in fiscal 2001. The increase in interest income was primarily attributable to an increase in cash available for investment throughout the year.

We realized a net foreign currency exchange gain of $0.1 million in fiscal 2002 compared to a gain of $3.9 million in fiscal 2001.

Provision for Income Taxes

Our effective tax rate changed to (50.6%) in fiscal 2003 from 34% in fiscal 2002. The change in effective tax rate is primarily due to non-deductible special charges incurred during fiscal 2003. Due to an increase in our taxable income, the provision for income taxes increased 17.6% to $67.1 million in fiscal 2003 as compared to $57.1 million in fiscal 2002.

The provision for income taxes decreased 40.6% to $57.1 million in fiscal 2002 from $96.0 million in fiscal 2001. This decrease is attributable to the decrease in taxable income during the year combined with a decrease in our effective tax rate to 34% in fiscal 2002 from 35% in fiscal 2001. The decrease in our effective rate was primarily due to fluctuations and changes in the mix of taxable income within our various geographies and tax jurisdictions reported in each period.

Net Income and Earnings Per Share

As a result of the factors described above, net income in fiscal 2003 decreased 280.4% to a net loss of ($199.8) million, or ($3.55) per diluted share, compared to net income of $110.8 million, or $1.98 per diluted share in fiscal 2002. Excluding special charges and the loss on disposition of subsidiaries, net income increased 6.0% to $136.3 million, or $2.35 per diluted share in fiscal 2003 compared to $2.27 per diluted share in fiscal 2002.

16

For fiscal 2002, net income decreased 37.8% to $110.8 million or $1.98 per diluted share compared to $178.0 million or $3.14 per diluted share in fiscal 2001. Excluding special charges, net income decreased 27.8% to $128.6 million, or $2.27 per diluted share in fiscal 2002.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations are 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 on-going 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 following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. For further discussion of our significant accounting policies, refer to Note 1 of Notes to 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. 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 financial results.

Inventory

We value our inventory at the lower of its cost or market value. 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, foreign currency fluctuations for foreign-sourced product, and assumptions about future demand. Market conditions that are less favorable than those projected by management may require additional inventory write-downs that could have an adverse effect on our financial results.

Vendor Incentives

We receive incentives from vendors related to cooperative advertising allowances, 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 between ourselves and the vendor. Vendors generally require that we use their cooperative advertising allowances exclusively for advertising or other marketing programs. These restricted cooperative advertising allowances are recognized as a reduction of SG&A as the related marketing expenses are recognized; however, we are evaluating the impact of Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,” which, during fiscal 2004 will require reclassification of a portion of certain funds received from vendors from SG&A to gross profit, but will have no effect on net income. For further details, see Note 1 of Notes to Consolidated Financial Statements.

We record unrestricted volume rebates received as a reduction of inventory and recognize the incentives as a reduction of cost of products sold when the related inventory is sold. Amounts received or receivable from vendors that are not yet earned are deferred in the consolidated balance sheet.

17

In addition, we receive early payment discounts from certain vendors. We record early payment discounts received as a reduction of inventory and recognize the discount as a reduction of cost of products sold when the related inventory is sold.

Goodwill and Intangible Assets

The carrying value of goodwill is reviewed annually for impairment. Goodwill may also be reviewed more frequently if current events and circumstances indicate a possible impairment. An impairment loss is charged to expense in the period identified. As required by SFAS No. 142, we performed an annual test of goodwill to determine if there was impairment. This testing included the determination of each reporting unit’s fair value using market multiples and discounted cash flows modeling. Our reduced earnings and cash flow forecast, primarily due to the prolonged downturn in the economy, uncertain demand, and competitive industry conditions, resulted in the determination that a goodwill impairment charge was necessary. The $328.9 million non-cash charge was recorded in the fourth quarter of fiscal 2003. For further details on this impairment, see Note 4 of Notes to the Consolidated Financial Statements.

We examine the carrying value of our intangible assets with finite lives, which includes capitalized software and development costs and customer lists, as current events and circumstances warrant to determine whether there are any impairment losses. If indicators of impairment are present in intangible assets used in operations and future cash flows are not expected to be sufficient to recover the assets’ carrying amount, an impairment loss is charged to expense in the period identified. During fiscal 2002, we recorded a special charge of $20.1 million for the write-off of previously capitalized software costs.

Deferred Taxes

We record valuation allowances to reduce our deferred tax assets to the amount expected to be realized. In assessing the adequacy of recorded valuation allowances, we consider a variety of factors including, the scheduled reversal of deferred tax liabilities, future taxable income, and prudent and feasible tax planning strategies. In the event we determine we would be able to use a deferred tax asset in the future in excess of its net carrying value, an adjustment to the deferred tax asset would reduce income tax expense, thereby increasing net income in the period such determination was made. Likewise, should we determine that we are unable to use all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income tax expense, thereby reducing net income in the period such determination was made.

Contingencies

We accrue for contingent obligations, including estimated legal costs, when it is probable and the amount is reasonably estimable. As facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the financial statements. Estimates that are particularly sensitive to future changes include tax, legal, and other regulatory matters such as imports and exports, which are subject to change as events evolve and as additional information becomes available during the administrative and litigation process.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 revises the standards of accounting for goodwill and indefinite-lived intangible assets by replacing the regular amortization of these assets with the

18

requirement that they are reviewed annually for possible impairment, or more frequently if impairment indicators arise. Separable intangible assets that have finite lives will continue to be amortized over their estimated useful lives. We adopted SFAS No. 142 effective February 1, 2002, and during the first quarter of the fiscal year ended January 31, 2003, we finalized the required transitional impairment tests of goodwill and indefinite-lived intangible assets. Based on the results of the transitional impairment tests, no adjustments for impairment were necessary. Subsequently, at the end of fiscal 2003, we performed our annual impairment testing and determined the fair value of each reporting unit using market multiples and discounted cash flows modeling. Our reduced earnings and cash flow forecast, primarily due to the prolonged downturn in the economy, uncertain demand, and competitive industry conditions, resulted in the determination that a goodwill impairment charge was necessary. The $328.9 million non-cash charge was recorded in the fourth quarter of fiscal 2003.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which is effective for fiscal years beginning after May 15, 2002. Among other provisions, this Statement amends SFAS No. 13, “Accounting for Leases,” to eliminate any inconsistency between the reporting requirements for sale-leaseback transactions and certain lease modifications that have similar economic effects. Additionally, this Statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” as well as SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” as debt extinguishments are no longer classified as extraordinary items unless they meet the requirement in Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions” of being unusual and infrequently occurring. The adoption of SFAS No. 145 is not expected to have a material impact on our consolidated financial position and results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring),” as liabilities for these costs are now recognized when incurred rather than at the date an entity commits to an exit plan. The provisions of SFAS No. 146 were effective, on a prospective basis, for exit or disposal activities initiated by us after December 31, 2002, and did not have a material impact upon our consolidated financial position and results of operations.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 requires that a liability be recorded on the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN No. 45 requires disclosures about the guarantees that an entity has issued, including a rollforward of the entity’s product warranty liabilities. We applied the recognition provisions of FIN No. 45 prospectively to guarantees issued after December 31, 2002, which did not result in a material impact upon our consolidated financial position and results of operations. The disclosure provisions of FIN No. 45 were effective for financial statements issued after December 15, 2002 and are therefore included in the financial statements presented herein.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 requires prominent annual and interim disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation. The

19

disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002, and therefore, are included in the financial statements presented herein. While SFAS No. 148 allows for a voluntary change to the fair value based method of accounting for stock-based employee compensation, we continue to use the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations for those plans; therefore, we do not expect SFAS No. 148 to have a material impact upon our consolidated financial position and results of operations.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN No. 46 provides guidance on the identification of, and financial reporting for, entities over which control is achieved through means other than voting rights; such entities are known as variable interest entities (“VIEs”). FIN No. 46 applies to new entities that are created after the effective date, as well as to existing entities. For VIEs created before February 1, 2003, the recognition and measurement provisions of FIN No. 46 are effective for us no later than the beginning of the third quarter of fiscal 2003, while for VIEs created after January 31, 2003, the recognition and measurement provisions of FIN No. 46 are effective immediately. We are in the process of assessing what impact, if any, FIN No. 46 may have on our consolidated financial position and results of operations.

In January 2003, the EITF reached a consensus on Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” EITF Issue No. 02-16 provides guidance regarding how a reseller of a vendor’s products should account for cash consideration received from that vendor. We expect that contracts subject to this guidance will result in the reclassification of a portion of certain vendor funds from SG&A to gross profit, but will have no effect on net income. The provisions of EITF Issue No. 02-16 apply to vendor arrangements entered into after December 31, 2002, including modifications of existing arrangements. As no material modifications or new arrangements were entered into during January 2003, adoption of the provisions of EITF Issue No. 02-16 for new or modified arrangements after December 31, 2002 did not have a material impact upon our consolidated financial position and results of operations.

Impact of Inflation

We have not been adversely affected by inflation, as technological advances and competition within the microcomputer industry have generally caused the prices of the products we sell to decline. Management believes that most price increases could be passed on to our customers, as prices charged by us are not set by long-term contracts; however, as a result of competitive pressure, there can be no assurance that the full effect of any such price increases could be passed on to our customers.

Quarterly Data—Seasonality

Our quarterly operating results have fluctuated significantly in the past and will likely continue to do so in the future as a result of seasonal variations in the demand for the products and services offered by us. Our narrow operating margins may magnify the impact of these factors on our operating results. Specific historical seasonal variations in our operating results have included a reduction of demand in Europe during the summer months, increased Canadian government purchasing in the first quarter, and worldwide pre-holiday stocking in the retail channel during the September-to-November period. In addition, the product cycle of major products may materially impact our business, financial condition, or results of operations. See Note 12 of Notes to Consolidated Financial Statements for further information regarding our quarterly results.

20

Liquidity and Capital Resources

Net cash provided by operating activities of $125.0 million in fiscal 2003 was primarily attributable to decreases in inventories and accounts receivable. We continue to focus on maintaining strong asset turnover, as evidenced by maintaining our relatively low days of inventory supply of 23.9 days at the end of fiscal 2003, and 21.0 days at the end of fiscal 2002.

Net cash used in investing activities of $62.6 million during fiscal 2003 was primarily attributable to the expansion or upgrade of our management information systems, office facilities and equipment for our logistics centers, which included $29.3 million in costs related to harmonizing and upgrading our European systems infrastructure. Depending upon economic conditions, we expect to make capital expenditures of approximately $61.0 million during fiscal 2004 to further expand or upgrade our IT systems, logistics centers and office facilities, which includes $14.2 million to continue upgrading our European systems infrastructure. We continue to make significant investments to implement new IT systems and upgrade our existing IT infrastructure in order to meet our changing business requirements. These implementations and upgrades occur at various levels throughout the Company and include, but are not limited to, new operating and enterprise systems, financial systems, web technologies, customer relationship management systems and telecommunications. While we believe we will realize increased operating efficiencies as a result of these investments, unforeseen circumstances or complexities could have an adverse impact on our business.

Net cash used in financing activities of $181.3 million during fiscal 2003 reflects the proceeds from stock option exercises and purchases made through our Employee Stock Purchase Plan, borrowings on our revolving credit loans of $91.3 million, net of the redemption of the $300.0 million convertible debentures.

As of January 31, 2003, we maintain a $250.0 million revolving credit facility with a syndicate of banks that expires in May 2003. We intend to renew this credit facility for another three year period. We pay interest (average rate of 2.62% at January 31, 2003) under this revolving credit facility at the applicable eurocurrency rate plus a margin based on our credit ratings. Additionally, we currently maintain a $500.0 million Receivables Securitization Program with a syndicate of banks expiring in May 2003, which we intend to reduce to $400.0 million and renew for another year. We pay interest (average rate of 2.28% at January 31, 2003) on the Receivables Securitization Program at designated commercial paper rates plus an agreed-upon margin. In addition to these credit facilities, we maintain additional lines of credit and overdraft facilities totaling approximately $634.0 million.

The aforementioned credit facilities total approximately $1.4 billion, of which $188.3 million was outstanding at January 31, 2003. These credit facilities contain covenants that must be complied with on a continuous basis, including the maintenance of certain financial ratios, restrictions on payment of dividends and restrictions on the amount of common stock that may be repurchased annually. We were in compliance with all such covenants as of January 31, 2003. The ability to draw funds under these credit facilities is dependent upon sufficient collateral (in the case of the Receivables Securitization Program) and meeting the aforementioned financial covenants, which limits our ability to draw the full amount of these facilities. As of January 31, 2003, the maximum amount that could be borrowed under these facilities, in consideration of the availability of collateral and the financial covenants, was approximately $870.0 million. For a more detailed discussion of our credit facilities, see Note 5 of Notes to Consolidated Financial Statements.

In December 2001, we issued $290.0 million of convertible subordinated debentures due 2021. The debentures bear interest at 2% per year and are convertible into our common stock at any time, if the market price of the common stock exceeds a specified percentage, beginning at 120% and declining 1/2% each year until it reaches 110% at maturity, of the conversion price per share of

21

common stock, or in other specified instances. Holders may convert debentures into 16.7997 shares per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $59.53 per share. The debentures are convertible into 4,871,913 shares of our common stock. Holders have the option to require us to repurchase the debentures on any of the fourth, eighth, twelfth or sixteenth anniversary dates from the issue date at 100% of the principal amount plus accrued interest to the repurchase date. We have the option to satisfy any debentures submitted for repurchase in either cash and/or our common stock, provided that shares of common stock at the first purchase date will be valued at 95% of fair market value (as defined in the indenture) and at 97.5% of fair market value for all subsequent purchase dates. The debentures are redeemable in whole or in part for cash, at our option at any time on or after December 20, 2005. We will pay contingent interest on the debentures during specified six-month periods beginning on December 15, 2005, if the market price of the debentures exceeds specified levels. In addition, the dilutive impact of the $290.0 million of convertible subordinated debentures, due 2021, is excluded from the diluted earnings per share calculations due to the conditions for the contingent conversion feature not being met.

In August 2000, we filed a universal shelf registration statement with the SEC for $500.0 million of debt and equity securities. The net proceeds from any issuance are expected to be used for general corporate purposes, including capital expenditures, the repayment or refinancing of debt and to meet working capital needs. As of January 31, 2003, we had not issued any debt or equity securities under this registration statement, nor can any assurances be given that we will issue any debt or equity securities under this registration statement in the future.

On July 1, 1998, we issued $300.0 million of 5% convertible subordinated debentures due July 1, 2003, which were redeemed in December 2002 at a price of 101%, or $303.0 million, plus interest accrued to the redemption date. Unamortized deferred debt issuance costs associated with the issuance of the debentures were not significant. We believe that cash from operations, available and obtainable bank credit lines, and trade credit from our vendors will be sufficient to satisfy our working capital and capital expenditure requirements through fiscal 2004.

Principal maturities of long-term debt and amounts due under future minimum lease payments are as follows:

We lease certain logistics centers and office facilities under a five-year synthetic lease facility provided by a group of financial institutions, which expires in May 2005. The sum of future minimum lease payments under this lease facility at January 31, 2003 was approximately $6.5 million, which is included in the schedule above. In accordance with the terms of the synthetic lease facility and the

22

Internal Revenue Code, we claim tax deductions for interest and depreciation on the leased assets. The maximum funding of our leasing activities available under the synthetic lease facility is $140.0 million (of which we had utilized $130.5 million at January 31, 2003). The synthetic lease facility has an initial term of five years, with rent obligations commencing on the date construction of a discrete project is complete. At any time during the term of the lease, we may, at our option, purchase the property at approximately the amount expended by the lessor to purchase the land and construct the building (“purchase value”). If we elect not to purchase the property at the end of the lease, we have guaranteed a percentage of the purchase value. This guaranty approximated $113.6 million at January 31, 2003. See Note 10 of Notes to Consolidated Financial Statements for additional disclosure. We have also entered into other agreements to lease certain office space, logistics centers and equipment for varying periods. We expect that in the normal course of business, these leases will be renewed or replaced by other leases.

Asset Management

We manage our inventories by maintaining sufficient quantities to achieve high order fill rates while attempting to stock only those products in high demand with a rapid turnover rate. Inventory balances fluctuate as we add new product lines and when appropriate, we make large purchases, including cash purchases from manufacturers and publishers when the terms of such purchases are considered advantageous. Our contracts with most of our vendors provide price protection and stock rotation privileges to reduce the risk of loss due to manufacturer price reductions and slow moving or obsolete inventory. In the event of a vendor price reduction, we generally receive a credit for the impact on products in inventory, subject to certain limitations. In addition, we have the right to rotate a certain percentage of purchases, subject to certain limitations. Historically, price protection and stock rotation privileges as well as our inventory management procedures have helped to reduce the risk of loss of inventory value.

We attempt to control losses on credit sales by closely monitoring customers’ creditworthiness through our IT systems, which contain detailed information on each customer’s payment history and other relevant information. We have obtained credit insurance that insures a percentage of the credit extended by us to certain customers against possible loss. Customers who qualify for credit terms are typically granted net 30-day payment terms. We also sell products on a prepay, credit card, cash on delivery and floor plan basis.

Deferred Tax Assets

Deferred tax assets have been recorded for net operating loss carryforwards and other deductible temporary differences. Our deferred tax assets relate to subsidiary operations located in different countries with separate taxing jurisdictions. Although aggregate foreign operations generate pre-tax income, certain subsidiaries have a history of net operating losses.

The net change in the deferred income tax valuation allowance was an increase of $7.2 million at January 31, 2003. The valuation allowance primarily relates to foreign net operating loss carryforwards of $194.0 million. The majority of the net operating losses has an indefinite carryforward period with the remaining portion expiring in years 2004 through 2013. We evaluate a variety of factors in determining the realizability of deferred tax assets including the scheduled reversal of deferred tax liabilities, projected future taxable income, and prudent and feasible tax planning strategies.

Business Outlook

As we look ahead to fiscal 2004, the demand for IT products continues to be uncertain. This, coupled with competitive margin pressure, causes us to anticipate a year that will largely be driven by the pace of recovery in our industry and the economy. Although we expect to see some improvement

23

in many SG&A expenses, total SG&A expenses are expected to increase as we anticipate approximately $20 million – $25 million will be expensed on our investment in the harmonization and upgrade of our European information systems infrastructure. Due to the factors discussed above, net income (excluding the impact of special charges, loss on disposition of subsidiaries and excluding any expected accretive effect from the acquisition of Azlan) could decline by as much as 15% – 25% in fiscal 2004, compared to fiscal 2003.

Effective March 31, 2003, we completed our acquisition of Azlan, a UK-based European distributor of networking and communications products and provider of training and other value-added services. Shareholders of Azlan received 125 pence per ordinary share, resulting in total cash consideration of approximately 144.7 million pounds sterling (approximately $229 million), which we funded from our existing credit facilities. In their most recently reported six-month fiscal period, which ended September 30, 2002, Azlan generated sales of 298.6 million pounds sterling.

ITEM 7a.    Qualitative and Quantitative Disclosures About Market Risk

As a large international organization, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have a material impact on our financial results in the future. In the normal course of business, we employ established policies and procedures to manage our exposure to fluctuations in the value of foreign currencies using a variety of financial instruments. It is our policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed and not to enter into foreign currency derivative instruments for speculative or trading purposes. Our primary exposure relates to transactions in which the currency collected from customers is different from the currency used to purchase the product sold in Europe, Canada and Latin America. In addition, we have foreign currency risk related to debt that is denominated in currencies other than the U.S. dollar. Our foreign currency risk management objective is to protect our earnings and cash flows from the adverse impact of exchange rate changes. Foreign exchange risk is managed by using foreign currency forward, option and swap contracts to hedge intercompany loans, trade receivables and payables.

We have elected not to designate our foreign currency contracts as hedging instruments, and they are therefore marked to market with changes in their value recorded in the income statement each period. The underlying exposures are denominated primarily in the following currencies: U.S. dollar, Canadian dollar, Danish krone, euros, Swedish krona, Swiss franc, British pound, Polish zloty and Chilean peso.

The following table provides information about our foreign currency derivative financial instruments outstanding as of January 31, 2003 and 2002. The information is provided in United States dollar equivalents. For the foreign currency contracts, the table presents the notional amount (at contractual exchange rates) and the weighted average contractual foreign currency exchange rates. These contracts are generally for durations of 90 days or less.

24

Foreign Currency Contracts

Notional Amounts by Expected Maturity

Average Forward Foreign Currency Exchange Rate

(Dollar amounts in millions, except weighted average contract rates)