Tech Data 2014 Annual Report Download - page 66

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. The Company 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 $56.4 million , which is included in "accrued expenses and other
liabilities" in the Consolidated Balance Sheet at January 31, 2014.
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 $25.3 million at January 31, 2014. 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.
59