Discontinued operations

3 Months Ended

Oct. 01, 2016

Discontinued Operations and Disposal Groups

Discontinued operations

3. Discontinued operations

In September 2016, the Company entered into a definitive agreement to sell its TS business to Tech Data Corporation, a Florida corporation (the “Buyer”), for approximately $2.60 billion in a combination of $2.40 billion in cash and 2.8 million shares of the Buyer. The ultimate selling price and related sale proceeds will be adjusted for changes in certain net assets provided to the Buyer as of the closing date, as compared to certain net assets expected in the definitive agreement. As a result of the agreement, at October 1, 2016, the assets and liabilities of the Company’s TS business were classified as held for sale, and the TS business has been classified as  a discontinued operation for all periods presented as the sale of the TS business represents a strategic shift to Avnet. As of October 1, 2016, the TS business continues to be a reportable segment, as discussed in Note 13.  Upon completion of the sale of TS, which is expected to occur by the end of fiscal 2017, the Company expects to record a gain on sale as the selling price is in excess of the carrying value.  After completion of the sale of TS, the Company will provide certain customary transition services to the Buyer for a period of time, and the compensation received for such transition services will be reflected as a reduction to the underlying expenses incurred by the Company to provide such transition services.

Summarized assets and liabilities of the TS business, classified as held for sale as of October 1, 2016, and July 2, 2016, are as follows:

	October 1,		July 2,
	2016		2016
	(Thousands)
Receivables, less allowances of $36,452 and $39,356, respectively	$	1,945,304	$	2,171,442
Inventories		226,668		266,572
Prepaid and other current assets		57,487		59,948
Total current assets		2,229,459		2,497,962
Property, plant and equipment, net		153,194		159,449
Goodwill		661,812		659,368
Intangible assets, net		51,571		55,826
Other assets		35,551		24,424
Total assets	$	3,131,587	$	3,397,029
Accounts payable	$	1,253,698	$	1,617,087
Accrued expenses and other		148,475		161,225
Total current liabilities		1,402,173		1,778,312
Other Long-term liabilities		50,678		43,769
Total liabilities	$	1,452,851	$	1,822,081

Summarized results of the TS business discontinued operations for the three months ended October 1, 2016, and October 3, 2015 are as follows:

	October 1,		October 3,
	2016		2015
	(Thousands)
Sales	$	1,866,901	$	2,368,892
Cost of sales		1,676,458		2,140,672
Gross profit		190,443		228,220
Selling, general and administrative expenses		164,672		177,805
Restructuring, integration and other expenses		4,224		13,440
Operating income		21,547		36,975
Interest and other income (expense), net		5		(8,306)
Income from discontinued operations before income taxes		21,552		28,669
Income tax expense		21,295		9,403
Income from discontinued operations, net of taxes	$	257	$	19,266

Sales in the first quarter of fiscal 2016 included the impact of an extra week of sales as discussed further in Note 1.

Included within selling, general and administrative expenses of discontinued operations was $12.5 million and $15.1 million of Corporate expenses specific to or benefiting the TS business for the first quarters ending October 1, 2016, and October 3, 2015, respectively. Corporate costs related to general overhead were not allocated to the TS business. Also included in selling, general and administrative expenses of discontinued operations was $4.5 million and $4.6 million of amortization expense for the first quarters ending October 1, 2016, and October 3, 2015, respectively.

Included in income tax expense from discontinued operations in the first quarter of fiscal 2017, as discussed further in Note 8, was $17.0 million of deferred tax expense associated with the establishment of a non-cash deferred tax liability.  The establishment of such deferred tax liability was the result of the TS business being classified as held for sale, which impacted the Company’s historical assertion related to foreign earnings of the TS business being permanently reinvested.  Upon completion of the sale, the Company will incur cash taxes related to the gain on sale.