Commitments and Contingencies

Leases

The Company leases office and warehouse space under non-cancelable operating leases that expire through 2023. The Company also leases certain equipment under a capital lease that expires in 2020. Lease expense and future minimum lease payments under operating leases and the single capital lease are as follows:



	Fiscal Year Ended June 30,
	2017		2016		2015
	(in thousands)
Lease expense	$	8,703	$	7,394	$	6,168



	Operating Lease Payments		Capital Lease Payments		Total Payments
	(in thousands)
Fiscal Year Ended June 30,
2018	$	7,873	$	579	$	8,452
2019	5,939		579		6,518
2020	4,906		579		5,485
2021	3,952		—		3,952
2022	3,244		—		3,244
Thereafter	13,629		—		13,629
Total future minimum lease payments	39,543		1,737		41,280
Less: amounts representing interest on capital lease	—		50		50
Total future minimum principal lease payments	$	39,543	$	1,687	$	41,230

On July 6, 2016, the Company entered into an amended agreement to continue to lease approximately 741,000 square feet for distribution, warehousing and storage purposes in a building located in Southaven, Mississippi. The term of the lease is 135 months with 2 consecutive 5-year extension options.

The Company's existing capital lease expired in June 2017. On February 14, 2017, the Company modified 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 $1.7 million scheduled to begin on July 1, 2017. The lease term is 42 months with an expiration date during 2020.

The components of the Company's capital lease as of June 30, 2017 are as follows:



							Capital Lease Obligations
	Property & Equipment		Accumulated Depreciation		Net Book Value		Short-Term		Long-Term		Total
	(in thousands)
IT Infrastructure	$	1,687	$	—	$	1,687	$	553	$	1,134	$	1,687

Commitments and Contingencies

A majority of the Company’s net revenues in fiscal years 2017, 2016 and 2015 were received from the sale of products purchased from the Company’s ten largest vendors. The Company has entered into written 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. During the current year, the Company recognized $12.8 million in proceeds from a legal settlement, net of attorney fees, included in other income (expense), net on the Consolidated Income Statements.

Capital Projects

The Company expects total capital expenditures to range from $8.0 million to $11.0 million during fiscal year 2018 primarily for IT investments.

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, 2017 and 2016 for future pre-acquisition contingency settlements or to be released to the sellers, was $3.4 million and $3.5 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, 2017		June 30, 2016
	(in thousands)
Assets
Prepaid expenses and other assets (current)	$	2,212	$	2,346
Other assets (noncurrent)	$	—	$	—
Liabilities
Other current liabilities	$	2,212	$	2,346
Other long-term liabilities	$	—	$	—

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, 2017 is estimated to range as high as $3.3 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 sellers deposited $8.7 million and $1.3 million into the escrow account for the years ended June 30, 2017 and 2016. The amount available after the impact of foreign currency translation, as of June 30, 2017 and 2016 for future pre-acquisition contingency settlements or to be released to the sellers, was $13.0 million and $4.7 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, 2017		June 30, 2016
	(in thousands)
Assets
Prepaid expenses and other assets (current)	$	1,294	$	595
Other assets (noncurrent)	$	8,235	$	9,837
Liabilities
Other current liabilities	$	1,294	$	595
Other long-term liabilities	$	8,235	$	9,837

The amount of reasonably possible undiscounted pre-acquisition contingencies as of June 30, 2017 is estimated to range from $10.2 million to $29.9 million at this time, of which all exposures are indemnifiable under the share purchase agreement.