Discontinued operations

6 Months Ended

Dec. 31, 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 (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 such agreement, the assets and liabilities of the Company’s TS and associated businesses being sold to the Buyer (the “TS business”) were classified as held for sale. 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 December 31, 2016, the TS business continues to be a reportable segment, as discussed further 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 payments received for such transition services will be reflected as a reduction to the 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 December 31, 2016, and July 2, 2016, are as follows:

	December 31,		July 2,
	2016		2016
	(Thousands)
Receivables, less allowances of $35,649 and $39,356, respectively	$	2,832,218	$	2,205,213
Inventories		271,080		296,310
Prepaid and other current assets		59,401		59,948
Total current assets		3,162,699		2,561,471
Property, plant and equipment, net		152,439		159,449
Goodwill		648,157		659,368
Intangible assets, net		49,616		55,826
Other assets		40,576		24,424
Total assets	$	4,053,487	$	3,460,538
Accounts payable	$	2,114,323	$	1,643,004
Accrued expenses and other		164,796		161,225
Total current liabilities		2,279,119		1,804,229
Other Long-term liabilities		53,527		43,769
Total liabilities	$	2,332,646	$	1,847,998

Summarized results of the TS business discontinued operations for the second quarters and six months ended December 31, 2016, and January 2, 2016 are as follows:

	Second Quarters Ended				Six Months Ended
	December 31,		January 2,		December 31,		January 2,
	2016		2016		2016		2016
	(Thousands)				(Thousands)
Sales	$	2,453,262	$	2,686,975	$	4,375,464	$	5,128,084
Cost of sales		2,199,235		2,413,865		3,928,164		4,619,667
Gross profit		254,027		273,110		447,300		508,417
Selling, general and administrative expenses		158,356		175,973		324,381		357,469
Restructuring, integration and other expenses		3,316		7,139		7,540		20,579
Operating income		92,355		89,998		115,379		130,369
Interest and expense, net		(10,635)		(5,891)		(10,630)		(14,197)
Income from discontinued operations before income taxes		81,720		84,107		104,749		116,172
Income tax expense		10,967		30,236		32,841		40,971
Income from discontinued operations, net of taxes	$	70,753	$	53,871	$	71,908	$	75,201

Sales in the second quarter and six months 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 $14.1 million and $12.3 million of corporate expenses specific to or benefiting the TS business for the second quarters ending December 31, 2016, and January 2, 2016, respectively, and $26.6 million and $27.4 million for the first six months ending December 31, 2016, and January 2, 2016, respectively. Corporate costs related to general overhead were not allocated to the TS business. Subsequent to the first quarter of fiscal 2017, depreciation and amortization of the TS business long-lived assets has ceased due to the TS business being classified as held for sale. 

Upon completion of the sale, a portion of the proceeds will be used to pay taxes related to the gain on sale.