Tech Data 2015 Annual Report Download - page 73

Table of Contents
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. 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. During the second quarter of fiscal year 2015, the Madrid Central Economic
Administrative Court issued a decision revoking the penalties for certain of the assessed years. As a result of this decision, during the fiscal
year ended January 31, 2015 the Company decreased its accrual for costs associated with this matter by
$6.2 million , which is recorded in
“value added tax assessment” in the Consolidated Statement of Income. The Company believes that the Spanish subsidiary's defense to the
remaining assessments has solid legal grounds and is continuing to vigorously defend its position by appealing to the Spanish Supreme Court.
The Company estimates the total exposure for these assessments including various penalties and interest, is approximately $43.7 million and
$56.4 million at January 31, 2015 and 2014, respectively, which is included in "accrued expenses and other liabilities" in the Consolidated
Balance Sheet.
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 $24.6 million and $25.3 million at January 31, 2015 and 2014, respectively. The Brazilian
subsidiary has appealed the unfavorable ruling to the Supreme Court and Superior Court, Brazil's 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. 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, 2015 and 2014, the outstanding amount of guarantees under these arrangements totaled $5.5 million and $13.4 million ,
respectively. The Company believes that, based on historical experience, the likelihood of a material loss pursuant to the above guarantees is
remote.
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