Tech Data 2013 Annual Report Download - page 81

Table of Contents
In December 2010, in a non-
unanimous decision, a Brazilian appellate court overturned a 2003 trial court which had previously ruled in favor of the
Company’s Brazilian subsidiary related to the imposition of certain taxes on payments abroad related to the licensing of commercial software
products, commonly referred to as “CIDE tax.” The Company estimates the total exposure where the CIDE tax, including interest, may be
considered due to be approximately $29.7 million
at January 31, 2013. The Brazilian subsidiary has appealed the unfavorable ruling to the Supreme
Court and Superior Court, the two highest appellate courts. Based on the legal opinion of outside counsel, the Company believes that the chances of
success on appeal of this matter are favorable and the Brazilian subsidiary intends to vigorously defend its position that the CIDE tax is not due.
However, due to the lack of predictability of the Brazilian court system, the Company has concluded that it is reasonably possible that the Brazilian
subsidiary may incur a loss up to the total exposure described above. The Company believes the resolution of this litigation will not be material to
the Company’s consolidated net assets or liquidity; however, it could be material to the Company’s operating results for any particular period,
depending upon the level of income for such period. In addition to the discussion regarding the CIDE tax above, the Company’s Brazilian
subsidiary has been undergoing several examinations of non-income related taxes. Given the complexity and lack of predictability of the Brazilian
tax system, the Company believes that it is reasonably possible that a loss may have been incurred. However, due to the early stages of the
examination, the complex nature of the Brazilian tax system and the absence of communication from the local tax authorities regarding these
examinations, the Company is currently unable to determine the likelihood of these examinations resulting in assessments nor estimate the amount
of loss, if any, that may be reasonably possible if such assessment were to be made.
The Company is subject to various other legal proceedings and claims arising in the ordinary course of business. The Company’s management does
not expect that the outcome in any of these other legal proceedings, individually or collectively, will have a material adverse effect on the
Company’s financial condition, results of operations, or cash flows.
Guarantees
As is customary in the technology industry, to encourage certain customers to purchase products from Tech Data, the Company has arrangements
with certain finance companies that provide inventory financing facilities to the Company’s customers. In conjunction with certain of these
arrangements, the Company would be required to purchase certain inventory in the event the inventory is repossessed from the customers by the
finance companies. As the Company does not have access to information regarding the amount of inventory purchased from the Company still on
hand with the customer at any point in time, the Company’s repurchase obligations relating to inventory cannot be reasonably estimated.
Repurchases of inventory by the Company under these arrangements have been insignificant to date. The Company believes that, based on
historical experience, the likelihood of a material loss pursuant to these inventory repurchase obligations is remote.
The Company provides additional financial guarantees to finance companies on behalf of certain customers. The majority of these guarantees are
for an indefinite period of time, where the Company would be required to perform if the customer is in default with the finance company related to
purchases made from the Company. The Company reviews 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. The
Company believes that, based on historical experience, the likelihood of a material loss pursuant to the above guarantees is remote.
NOTE 15 — SEGMENT INFORMATION
Tech Data operates predominately in a single industry segment as a distributor of technology products, logistics management, and other value-
added services. While the Company operates primarily in one industry, it is managed based on geographic segments: the Americas (including North
America and South America) and Europe. The Company assesses performance of and makes decisions on how to allocate resources to its operating
segments based on multiple factors including current and projected operating income and market opportunities. The Company does not
consider stock-based compensation expense in assessing the performance of its operating segments, and therefore the Company is reporting stock-
based compensation expense as a separate amount. The accounting policies of the segments are the same as those described in Note 1 - Business
and Summary of Significant Accounting Policies.
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