Tech Data 2014 Annual Report Download - page 65

Table of Contents
$8.7 million , respectively, for the fiscal years ended January 31, 2014, 2013 and 2012. The gains and losses on the Company’s foreign currency
forward contracts are largely offset by the change in the fair value of the underlying hedged assets or liabilities.
The notional amount of forward exchange contracts is the amount of foreign currency to be bought or sold at maturity. Notional amounts are
indicative of the extent of the Company’s involvement in the various types and uses of derivative financial instruments and are not a measure of
the Company’s exposure to credit or market risks through its use of derivatives. The estimated fair value of derivative financial instruments
represents the amount required to enter into similar offsetting contracts with similar remaining maturities based on quoted market prices.
The Company’s average notional amounts of derivative financial instruments outstanding during the fiscal years ended January 31, 2014 and
2013 are $1.6 billion and $1.8 billion , respectively, with average maturities of 28 days and 27 days, respectively. As discussed above, under the
Company’s hedging policies, gains and losses on the derivative financial instruments would be expected to be largely offset by the gains and
losses on the underlying assets or liabilities being hedged.
The Company’s foreign currency forward contracts are also discussed in Note 11 – Fair Value Measurements.
NOTE 13 — COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases logistics centers, office facilities and certain equipment under non-cancelable operating leases, which expire at various
dates through fiscal 2026. Fair value renewal and escalation clauses exist for a substantial portion of the operating leases. Rental expense for all
operating leases, including minimum commitments under IT outsourcing agreements, totaled $55.5 million , $51.5 million and $56.5 million in
fiscal years 2014, 2013 and 2012, respectively. Future minimum lease payments at January 31, 2014, under all such leases, including minimum
commitments under IT outsourcing agreements, for succeeding fiscal years and thereafter are as follows (in thousands):
Synthetic Lease Facility
The Company has a synthetic lease facility with a group of financial institutions under which the Company leases certain logistics centers and
office facilities from a third-party lessor. During June 2013, the Company replaced the previous Synthetic Lease Facility with a new lease
agreement that expires in June 2018 (the "Synthetic Lease"). 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 is
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.
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 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, the Company has guaranteed the lessor a percentage of the cost of each property, in the aggregate amount of approximately $133.8
million . Future minimum lease payments under the Synthetic Lease are approximately $2.7 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 7 - Debt. As of January 31, 2014, the Company was in compliance with all such covenants.
Contingencies
Prior to fiscal 2004, one of the Company’s subsidiaries, located in Spain, was audited in relation to various 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
Fiscal year:
2015
$
56,300
2016
47,900
2017
31,800
2018
28,500
2019
22,700
Thereafter
46,800
Total payments
$
234,000