Discontinued Operations

3 Months Ended

Sep. 03, 2011

Discontinued Operations

Discontinued Operations

4. DISCONTINUED OPERATIONS

Arrow Transaction

On March 1, 2011, we completed the sale of the assets primarily used or held for use in, and certain liabilities of, our RF, Wireless and Power Division ("RFPD"), as well as certain other Company assets, including our information technology assets, to Arrow Electronics, Inc. ("Arrow") in exchange for $238.8 million, which included an estimated pre-closing working capital adjustment of approximately $27.0 million ("the Transaction.") The final purchase price is subject to a post-closing working capital adjustment.

On June 29, 2011, we received notification from Arrow seeking a post-closing working capital adjustment, which would reduce the purchase price by approximately $4.2 million. We recorded the working capital adjustment of $4.2 million in our results from discontinued operations during our fourth quarter of fiscal 2011. During the first quarter of fiscal 2012, we agreed to approximately $3.9 million of the proposed working capital adjustment and appropriately adjusted our results from discontinued operations during the first quarter. We expect to finalize the working capital adjustment during our second quarter of fiscal 2012.

Financial Summary – Discontinued Operations

Summary financial results for the first three months ended September 3, 2011, and August 28, 2010, are presented in the following table (in thousands):

	Three Months
	Sept 3, 2011			Aug 28, 2010
Net sales	$	875		$	99,634
Gross profit (loss)		(109	)		21,200
Selling, general, and administrative expenses		(317	)		12,750
Interest expense, net		—			167
Purchase price adjustment		(266	)		—
Income tax provision (benefit)		(2,128	)		360
Income from discontinued operations, net of tax	$	2,602		$	7,923

Net sales and gross profit (loss) for the three months ended September 3, 2011, reflect our financial results relating to the Manufacturing Agreement with Arrow that we entered into in connection with the Transaction. Pursuant to the three year agreement, we agreed to continue to manufacture certain RFPD products for Arrow. Selling, general, and administrative expenses reflect a benefit of $0.3 million for adjustments recorded due to changes in our estimates related to liabilities for our discontinued operations. Finally, in the first quarter of fiscal 2012, in connection with an examination by the Internal Revenue Service, we reduced our deferred tax liability by $2.1 million related to our un-repatriated foreign earnings based on a final determination of the amount of earnings and profits remaining in certain foreign subsidiaries after the Arrow transaction.

In accordance with ASC 205-20, the allocation of interest expense to discontinued operations of other consolidated interest that is not directly attributable to, or related to, other operations of the entity is permitted but not required. The consolidated interest that cannot be attributable to other operations of the entity is allocated based on the ratio of net assets to be sold or discontinued to the total consolidated net assets. We appropriately allocated approximately $0.2 million of interest expense to discontinued operations for the three months ended August 28, 2010, respectively, using the ratio of net assets that we sold or that became discontinued to total assets.

Assets and liabilities classified as discontinued operations on our unaudited consolidated balance sheets as of September 3, 2011, and May 28, 2011, include the following (in thousands):

	Sept 3, 2011		May 28, 2011
Accounts receivable	$	—	$	2,356
Inventories		1,548		1,152
Prepaid expenses and other assets		131		110
Current deferred income taxes		400		400
Discontinued operations - Assets	$	2,079	$	4,018
Accrued liabilities (1)	$	7,137	$	13,771
Long-term income tax liabilities		1,572		1,622
Discontinued operations - Liabilities	$	8,709	$	15,393

(1) Included in accrued liabilities as of September 3, 2011, is a working capital adjustment of $3.9 million, vacation/pension accruals of $1.5 million, and a payable to Arrow for cash collections of $3.6 million, offset by a receivable due to us from Arrow including $1.7 million for transition services, $1.2 million of prepaids, and $0.5 million of VAT. There is also $1.5 million of other accrued liabilities, including severance.

In accordance with ASC 230, Statement of Cash Flows, entities are permitted but not required to separately disclose, either in the statement of cash flows or footnotes to the financial statements, cash flows pertaining to discontinued operations. Entities that do not present separate operating cash flows information related to discontinued operations must do so consistently for all periods presented, which may include periods long after the sale or liquidation of the operation. We currently do not have cash balances that were specific to RFPD and as a result, we believe that it is appropriate not to present separate cash flows from discontinued operations on our statement of cash flows.