Tech Data 2013 Annual Report Download - page 80

Table of Contents
Synthetic Lease Facility
The Company has a synthetic lease facility (the “Synthetic Lease”) with a group of financial institutions under which the Company leases certain
logistics centers and office facilities from a third-
party lessor. During the second quarter of fiscal 2009, the Company renewed its existing Synthetic
Lease with a new lease agreement that was set to expire in June 2013 (see below for information on new lease agreement commencing in June
2013). Properties leased under the Synthetic Lease are located in Clearwater and Miami, Florida; Fort Worth, Texas; Fontana, California; Suwanee,
Georgia; Swedesboro, New Jersey; and South Bend, Indiana. The Synthetic Lease has been accounted for as an operating lease and rental payments
are calculated at the applicable LIBOR rate plus a margin based on the Company's credit ratings.
During the first four
years of the lease term, the Company may, at its option, purchase any combination of the properties, at an amount equal to each
of the property's cost, as long as the lease balance does not decrease below a defined amount. During the last year of the lease term, until 180 days
prior to the lease expiration, the Company may, at its option, i) purchase a minimum of two of the properties, at an amount equal to each of the
property's cost, ii) exercise the option to renew the lease for a minimum of two of the properties or iii) exercise the option to remarket a minimum
of two
of the properties and cause a sale of the properties. If the Company elects to remarket the properties, it has guaranteed the lessor a percentage
of the cost of each property, in the aggregate amount of approximately $124.7 million (the “residual value”). The Company's residual value
guarantee related to the Synthetic Lease has been recorded at the estimated fair value of the residual guarantee.
The sum of future minimum lease payments under the Synthetic Lease at January 31, 2013, which are included in the future minimum lease
payments presented above, was approximately $0.8 million .
During June 2013, the Company replaced its existing Synthetic Lease with a new lease agreement that expires in June 2018 (the "2013 Synthetic
Lease"). The principal terms of the 2013 Synthetic Lease are substantially the same as the predecessor lease agreement. Upon not less than 30 days'
notice, the Company, at its option, may purchase one
or any combination of the properties, at an amount equal to each of the property's cost, as long
as the lease balance does not decrease below a defined amount. Upon not less than 270 days, nor more than 360 days, prior to the lease expiration,
the Company, at its option, may, i) purchase a minimum of two of the properties, at an amount equal to each of the property's cost, ii) exercise the
option to renew the lease for a minimum of two of the properties or iii) exercise the option to remarket a minimum of two of the properties and
cause a sale of the properties. If the Company elects to remarket the properties, the Company has 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 and the 2013 Synthetic Lease contain covenants that must be complied with, similar to the covenants described in certain of
the credit facilities discussed in Note 8 - Debt. As of January 31, 2013, the Company was in compliance with all such covenants; however, the
Company has subsequently entered into certain waiver agreements in connection with the Company’s restatement discussed in Note 2 -
Restatement of 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.
Contingencies
Prior to fiscal 2004, one of the Company’s subsidiaries, located in Spain, was audited in relation to various value added tax (“VAT”) matters. As a
result of those audits, the Spanish subsidiary received notices of assessment from the Regional Inspection Unit of Spain's taxing authority that
allege the subsidiary did not properly collect and remit VAT. The Spanish subsidiary appealed these assessments to the Madrid Central Economic
Administrative Courts beginning in March 2010. Following the administrative court proceedings the matter was appealed to the Spanish National
Appellate Court. During the fourth quarter of fiscal year 2014, the Spanish National Appellate Court issued an opinion upholding the assessment for
several of the assessed years. Although the Company believes that the Spanish subsidiary's defense to the assessments has solid legal grounds and is
continuing to vigorously defend its position by appealing to the Spanish Supreme Court, the risk that the assessments will be upheld has
significantly increased. The Spanish National Appellate Court opinion represents a subsequent event that occurred prior to the issuance of the fiscal
2013 financial statements in relation to a loss contingency that existed as of January 31, 2013. As a result, of this subsequent event, which is
unrelated to the restatement discussed in Note 2 - Restatement of Consolidated Financial Statements, the Company has increased its accrual for
costs associated with this matter by recording a charge of $41.0 million in the fiscal 2013 Consolidated Statement of Income, including $29.5
million recorded in "value added tax assessment" to cover the assessment and various penalties and $11.5 million recorded in "interest expense" for
interest that could be assessed. The Company estimates the total exposure for these assessments (including previously recorded amounts), including
various penalties and interest, is approximately $55.6 million , which is included in "accrued expenses and other liabilities" in the Consolidated
Balance Sheet at January 31, 2013.
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