Commitments and Contingencies

Leases

The Company leases office and warehouse space under non-cancelable operating leases that expire through 2020. The Company also leases certain equipment under a capital lease that expires in 2017. Lease expense and future minimum lease payments under operating leases and the single capital lease are as follows:



	Fiscal Year Ended June 30,
	2016		2015		2014
	(in thousands)
Lease expense	$	7,394	$	6,168	$	5,561



	Operating Lease Payments		Capital Lease Payments		Total Payments
	(in thousands)
Fiscal Year Ended June 30,
2017	$	6,828	$	248	$	7,076
2018	3,670		—		3,670
2019	1,825		—		1,825
2020	1,146		—		1,146
2021	478		—		478
Thereafter	28		—		28
Total future minimum lease payments	13,975		248		14,223
Less: amounts representing interest on capital lease	—		2		2
Total future minimum principal lease payments	$	13,975	$	246	$	14,221

On April 27, 2007, the Company entered into an agreement to lease approximately 593,000 square feet for distribution, warehousing and storage purposes in a building located in Southaven, Mississippi. On July 6, 2016, the Company entered into an amended lease agreement; see Note 16 - Subsequent Events for further information regarding the new lease terms effective for fiscal year 2017.

On June 3, 2014, the Company entered into an equipment lease transaction for certain information technology infrastructure located in the Greenville, South Carolina facility. The Company determined this lease qualifies as a capital lease and accordingly, has recorded a capital lease obligation equal to the present value of the minimum lease payments of $0.7 million. The lease term is 3 years with an expiration date during 2017.

The components of the Company's capital lease as of June 30, 2016 are as follows:



							Capital Lease Obligations
	Property & Equipment		Accumulated Depreciation		Net Book Value		Short-Term		Long-Term		Total
	(in thousands)
IT Infrastructure	$	731	$	487	$	244	$	246	$	—	$	246

Commitments and Contingencies

A majority of the Company’s net revenues in fiscal years 2016, 2015 and 2014 were received from the sale of products purchased from the Company’s ten largest vendors. The Company has entered into written distribution agreements with substantially all of its major vendors. While the Company’s agreements with most of its vendors contain standard provisions for periodic renewals, these agreements generally permit termination by either party without cause upon 30 to 120 days' notice.

The Company or its subsidiaries are, from time to time, parties to lawsuits arising out of operations. Although there can be no assurance, based upon information known to the Company, the Company believes that any liability resulting from an adverse determination of such lawsuits would not have a material adverse effect on the Company’s financial condition or results of operations.

In January 2013, through the Company's wholly-owned subsidiary Partner Services, Inc. ("PSI"), the Company filed a lawsuit in the U.S. District Court in Atlanta, Georgia against our former ERP software systems integration partner, Avanade, Inc. ("Avanade"). In June 2014, the parties reached a Settlement Agreement where both parties agreed to mutually dismiss all claims and counterclaims against the other in exchange for Avanade's payment to the Company of $15.0 million. The Company also reversed $2.0 million in accrued liabilities for unpaid invoices received from Avanade and paid a contingency fee of $1.5 million to the law firm who represented the Company in the lawsuit. The settlement, net of attorney fees and reversal of accrued liabilities is included in the legal recovery line item on the Consolidated Income Statements for the year ended June 30, 2014.

Capital Projects

The Company implemented a new Enterprise Resource Planning ("ERP") system in its European operations, excluding Imago ScanSource, in fiscal year 2015 and in its North American operations in fiscal year 2016. The Company intends to implement the ERP system in other geographies during fiscal year 2017 and expects capital expenditures for this project to approximate $1.5 million. The Company expects total capital expenditures to range from $3.0 million to $8.0 million during fiscal year 2017.

Pre-Acquisition Contingencies

During the Company's due diligence for the CDC acquisition, several pre-acquisition contingencies were identified regarding various Brazilian federal and state tax exposures. In connection with these contingencies, the Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition. During fiscal year 2016, the Company released $4.1 million from the escrow account to the sellers after the final earnout payment was made. The amount available after the impact of foreign currency translation, as of June 30, 2016 and 2015 for future pre-acquisition contingency settlements or to be released to the sellers, was $3.5 million and $8.4 million, respectively.

The table below summarizes the balances and line item presentation of CDC's pre-acquisition contingencies and corresponding indemnification receivables in the Company's consolidated balance sheet:



	June 30, 2016		June 30, 2015
	(in thousands)
Assets
Prepaid expenses and other assets (current)	$	2,346	$	3,156
Other assets (noncurrent)	$	—	$	69
Liabilities
Other current liabilities	$	2,346	$	3,156
Other long-term liabilities	$	—	$	69

The change in classification and amounts of the pre-acquisition contingencies is primarily due to foreign currency translation on a weaker Brazilian real against the U.S. dollar and the expiration of the statute of limitations for identified pre-acquisition contingencies. The amount of reasonably possible undiscounted pre-acquisition contingencies as of June 30, 2016 is estimated to range as high as $3.5 million at this time, of which all exposures are indemnifiable under the share purchase and sale agreement.

During the Company's due diligence for the Network1 acquisition, several pre-acquisition contingencies were identified regarding various Brazilian federal and state tax exposures. The Company recorded indemnification receivables that are reported gross of the pre-acquisition contingency liabilities as the funds were escrowed as part of the acquisition. The amount available after the impact of foreign currency translation, as of June 30, 2016 and 2015 for future pre-acquisition contingency settlements or to be released to the sellers, was $4.7 million and $3.2 million, respectively.

The table below summarizes the balances and line item presentation of Network1's pre-acquisition contingencies and corresponding indemnification receivables in the Company's consolidated balance sheet:



	June 30, 2016		June 30, 2015
	(in thousands)
Assets
Prepaid expenses and other assets (current)	$	595	$	520
Other assets (noncurrent)	$	9,837	$	10,769
Liabilities
Other current liabilities	$	595	$	520
Other long-term liabilities	$	9,837	$	10,769

The amount of reasonably possible undiscounted pre-acquisition contingencies as of June 30, 2016 is estimated to range from $9.9 million to $31.0 million at this time, of which all exposures are indemnifiable under the share purchase agreement.