Tech Data 2013 Annual Report Download - page 51

Table of Contents
relationship management and enterprise-wide systems are amortized over seven to ten years based on their strategic fit and the Company’s
historical experience with such applications.
Product Warranty
The Company’s vendors generally warrant the products distributed by the Company and allow the Company to return defective products, including
those that have been returned to the Company by its customers. The Company does not independently warrant the products it distributes; however,
in several countries where the Company operates, the Company is responsible for defective product as a matter of law. The time period required by
law in certain countries exceeds the warranty period provided by the manufacturer. The Company is obligated to provide warranty protection for
sales of certain IT products within the European Union (“EU”) for up to two years as required under the EU directive where vendors have not
affirmatively agreed to provide pass-through protection. To date, the Company has not incurred any significant costs for defective products under
these legal requirements. The Company does warrant services with regard to products integrated for its customers. A provision for estimated
warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. To date, the Company has not incurred any
significant service warranty costs. Fees charged for products configured by the Company represented less than 10% of net sales for fiscal years
2013, 2012 and 2011.
Value Added Taxes
The majority of our international operations are subject to a value added tax ("VAT"), which is typically applied to all goods and services purchased
and sold. The Company's VAT liability represents VAT that has been recorded on sales to our customers and not yet remitted to the respective
governmental authorities and the Company's VAT receivable represents VAT paid on purchases of goods and services that will be collected from
future sales to our customers. At January 31, 2013 and 2012, the Company's VAT liability is approximately $236.0 million and $187.5 million ,
respectively, and is included in "accrued expenses and other liabilities" on the Company's Consolidated Balance Sheet. The Company's VAT
liability at January 31, 2013 excludes $55.6 million included in "accrued expenses and other liabilities" in the Company's Consolidated Balance
Sheet for assessments, including penalties and interest, related to various VAT matters in one of the Company's subsidiaries in Spain as discussed
further in Note 14 - Commitments and Contingencies. At January 31, 2013 and 2012, the Company's VAT receivable is approximately $90.9
million and $66.7 million , respectively, included in "prepaid expenses and other assets" on the Company's Consolidated Balance Sheet.
Income Taxes
Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the fiscal period that includes the enactment date. Deferred taxes have not been provided on the cumulative undistributed
earnings of foreign subsidiaries or the cumulative translation adjustment related to those investments because such amounts are expected to be
reinvested indefinitely.
The Company’s future effective tax rates could be adversely affected by earnings being lower than anticipated in countries with lower statutory
rates, changes in the relative mix of taxable income and taxable loss jurisdictions, changes in the valuation of deferred tax assets or liabilities or
changes in tax laws or interpretations thereof. The Company considers all positive and negative evidence available in determining the potential
realization of deferred tax assets, including the scheduled reversal of temporary differences, recent cumulative losses, recent and projected future
taxable income and prudent and feasible tax planning strategies. In making this determination, the Company places greater emphasis on recent
cumulative losses and recent taxable income due to the inherent lack of subjectivity associated with these factors. In addition, the Company is
subject to the continuous examination of its income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly
assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. To the
extent the Company were to prevail in matters for which accruals have been established or to be required to pay amounts in excess of such accruals,
the Company’s effective tax rate in a given financial statement period could be materially affected.
Concentration of Credit Risk
The Company’s financial instruments which are subject to concentrations of credit risk consist primarily of cash and cash equivalents, accounts
receivable and foreign currency exchange contracts. The Company’s cash and cash equivalents are deposited and/or invested with various financial
institutions globally that are monitored on a regular basis by the Company for credit quality.
The Company sells its products to a large base of value-added resellers, direct marketers, retailers and corporate resellers throughout North
America, South America and Europe. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.
The Company has obtained credit insurance, primarily in Europe, which insures a percentage
47