Tech Data 2013 Annual Report Download - page 38

Table of Contents
properties, we have guaranteed the lessor a percentage of the cost of each property, in the aggregate amount of approximately $133.8 million.
Future annual lease payments under the 2013 Synthetic Lease are approximately $2.8 million per year.
The Synthetic Lease contains covenants that must be complied with, similar to the covenants described in certain of the credit facilities discussed in
Note 8 of Notes to Consolidated Financial Statements. As of January 31, 2013, the Company was in compliance with all such covenants, however,
the Company has entered into certain waiver agreements with respect to the Synthetic Lease and the 2013 Synthetic Lease in connection with the
Company’s restatement discussed in Note 2 of Notes to Consolidated Financial Statements. Each of the waiver agreements relates primarily to
representations that may have been incorrect when made, the Company’s potential failure to comply with certain covenants, including principally
financial reporting covenants, as well as the potential defaults and events of default that may have arisen or could arise as a result of the foregoing.
Guarantees
As is customary in the technology industry, to encourage certain customers to purchase product from us, we have arrangements with certain finance
companies that provide inventory financing facilities for our customers. In conjunction with certain of these arrangements, we have agreements
with the finance companies that would require us to repurchase certain inventory, which might be repossessed from the customers by the finance
companies. Due to various reasons, including among other items, the lack of information regarding the amount of saleable inventory purchased
from us still on hand with the customer at any point in time, our repurchase obligations relating to inventory cannot be reasonably estimated.
Repurchases of inventory by us under these arrangements have been insignificant to date. We also provide additional financial guarantees to finance
companies on behalf of certain customers. The majority of these guarantees are for an indefinite period of time, where we would be required to
perform if the customer is in default with the finance company related to purchases made from us. We review the underlying credit for these
guarantees on at least an annual basis. As of January 31, 2013 and 2012, the outstanding amount of guarantees under these arrangements totaled
$31.3 million
and $28.4 million, respectively. We believe that, based on historical experience, the likelihood of a material loss pursuant to the above
guarantees is remote.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a large global 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. It is our policy to utilize financial
instruments to reduce risks where internal netting cannot be effectively employed. Additionally, we do not enter into derivative instruments for
speculative or trading purposes. With respect to our internal netting practices, we will consider inventory as an economic hedge against foreign
currency exposure in accounts payable in certain circumstances. This practice offsets such inventory against corresponding accounts payable
denominated in currencies other than the functional currency of the subsidiary buying the inventory, when determining our net exposure to be
hedged using traditional forward contracts. Under this strategy, we would expect to increase or decrease our selling prices for product purchased in
foreign currencies based on fluctuations in foreign currency exchange rates affecting the underlying accounts payable. To the extent we incur a
foreign currency exchange loss (gain) on the underlying accounts payable denominated in the foreign currency, we would expect to see a
corresponding increase (decrease) in gross profit as the related inventory is sold. This strategy can result in a certain degree of quarterly earnings
volatility as the underlying accounts payable is remeasured using the foreign currency exchange rate prevailing at the end of each period, or
settlement date if earlier, whereas the corresponding increase (decrease) in gross profit is not realized until the related inventory is sold.
Our foreign currency exposure relates to our transactions in Europe, Canada and Latin America, where the currency collected from customers can
be different from the currency used to purchase the product. During fiscal 2013 and 2012, the underlying exposures are denominated primarily in
the following currencies: U.S. dollar, British pound, Canadian dollar, Chilean peso, Czech koruna, Danish krone, euro, Mexican peso, Norwegian
krone, Peruvian new sol, Polish zloty, Romanian leu, Swedish krona and Swiss franc. Our foreign currency risk management objective is to protect
our earnings and cash flows from the adverse impact of exchange rate changes through the use of foreign currency forward and swap contracts to
primarily hedge loans, accounts receivable and accounts payable. We are also exposed to changes in interest rates primarily as a result of our short-
term debt used to maintain liquidity and to finance working capital, capital expenditures and acquisitions. Interest rate risk is also present in the
forward foreign currency contracts. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash
flows and to minimize overall borrowing costs. To achieve our objective, we use a combination of fixed and variable rate debt. The nature and
amount of our long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other
factors. As of January 31, 2013, approximately 68% of our outstanding debt had fixed interest rates and all of our outstanding debt at January 31,
2012 was at variable rates of interes t. W e utilize various financing instruments, such as receivables securitization, leases, revolving credit
facilities, and trade receivable purchase facilities,
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