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Acquisitions and divestitures | 12 Months Ended
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Jul. 02, 2011
Acquisitions and divestitures [Abstract] |
Acquisitions and divestitures | 2. Acquisitions and divestitures Acquisitions During fiscal 2011, 2010 and 2009, the Company acquired sixteen businesses which are presented in the following table.
|  |  |  | Approximate |  |  |
|  |  |  | Annualized |  |  | Acquisition
Acquired Business |  | Group & Region |  | Revenues (1) |  |  | Date
|  |  |  | (Millions) |  |  |
Fiscal 2011 |  |  |  |  |  |  |  |
itX Group Ltd. |  | TS Asia/Pac |  | $ | 160 |  |  | January 2011
Center Cell |  | EM Americas |  |  | 5 |  |  | November 2010
Eurotone |  | EM Asia/Pac |  |  | 30 |  |  | October 2010
Broadband |  | EM Americas |  |  | 8 |  |  | October 2010
Unidux |  | EM Asia/Pac |  |  | 370 |  |  | July 2010
Tallard Technologies |  | TS Americas |  |  | 250 |  |  | July 2010
Bell Microproducts Inc. |  | EM & TS Americas |  |  | 3,021 |  |  | July 2010
|  | TS EMEA |  |  |  |  |  |
Fiscal 2010 |  |  |  |  |  |  |  |
Servodata HP Division |  | TS EMEA |  | $ | 20 |  |  | April 2010
PT Datamation |  | TS Asia/Pac |  |  | 90 |  |  | April 2010
Sunshine Joint Stock Company |  | TS Asia/Pac |  |  | 30 |  |  | November 2009
Vanda Group |  | TS Asia/Pac |  |  | 30 |  |  | October 2009
Fiscal 2009 |  |  |  |  |  |  |  |
Abacus Group plc |  | EM EMEA |  | $ | 400 |  |  | January 2009
Nippon Denso Industry Co., Ltd. |  | EM Asia/Pac |  |  | 140 |  |  | December 2008
Ontrack Solutions Pvt. Ltd. |  | TS Asia/Pac |  |  | 13 |  |  | July 2008
Horizon Technology Group plc |  | TS EMEA |  |  | 400 |  |  | June 2008
Source Electronics Corporation |  | EM Americas |  |  | 82 |  |  | June 2008
(1) |  | Represents the approximate annual revenue from the acquired businesses’ most recent fiscal year end prior to acquisition by Avnet and based upon average foreign currency exchange rates for those periods.
The Bell and Unidux acquisitions and purchase price are described further below. The remaining acquisitions completed during fiscal 2011 were acquired for an aggregate purchase price of $124,678,000, net of cash acquired. Also during fiscal 2011, the Company recognized restructuring and integration charges, and transaction and other costs associated with the acquisitions, all of which were recognized in the consolidated statement of operations and are described further in Note 17. Unidux, a Japanese publicly traded company, was acquired through a tender offer in which the Company obtained over 95% controlling interest. The non-controlling interest was recorded at fair value but was not material. The acquisition of the non-controlling interest in Unidux was completed during the second quarter of fiscal 2011. As mentioned, Unidux was a publicly traded company which shares were trading below its book value for a period of time. In a tender offer, Avnet offered a purchase price per share for Unidux that was above the prevailing trading price thereby representing a premium to the then recent trading levels. Even though the purchase price was below book value, 95% of the Unidux shareholders tendered their shares. As a result, the Company acquired Unidux net assets excluding cash of $163,770,000 for a purchase price of $132,780,000, net of cash acquired, and recognized a gain on bargain purchase of $30,990,000 pre- and after tax and $0.20 per share on a diluted basis. Prior to recognizing the gain, the Company reassessed the assets acquired and liabilities assumed in the acquisition. Bell On July 6, 2010, subsequent to fiscal year 2010, the Company completed its acquisition of Bell, a value-added distributor of storage and server products and solutions and computer components products, providing integration and support services to OEMs, VARs, system builders and end users in the U.S., Canada, EMEA and Latin America. Bell operated both a distribution and single tier reseller business and generated sales of approximately $3.0 billion in calendar 2009, of which 42%, 41% and 17% was generated in North America, EMEA and Latin America, respectively. The consideration for the transaction totaled $255,691,000 which consisted of $7.00 in cash for each share of Bell common stock outstanding, cash payment for Bell equity awards, and cash payments required under existing Bell change of control agreements, plus the assumption of $323,321,000 of Bell net debt. Of the debt acquired, Avnet repaid approximately $209,651,000 of debt (including associated fees) immediately after closing. As of the end of fiscal 2011, the Company had completed the integration of Bell into both the EM and TS operating groups and has achieved its anticipated cost saving synergies, for which the full impact of the cost savings benefit is expected to be reflected in the first quarter of fiscal 2012. Preliminary allocation of purchase price The Bell acquisition was accounted for as a purchase business combination. Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheet at their estimated fair values, using management’s estimates and assumptions, as of July 6, 2010 (see following table). As a result of the evaluation of the fair value of the acquired assets and assumed liabilities, the Company recognized $60,000,000 for an identifiable amortizable intangible asset (see Note 6). During the second quarter of fiscal 2011, the Company recognized a contingent liability of $18,000,000 for potential unpaid import duties associated with the former Bell Latin America business. Prior to the acquisition of Bell by Avnet, U.S. Customs and Border Protection (“CBP”) initiated a review of the importing process at one of Bell’s subsidiaries and identified compliance deficiencies. Subsequent to the acquisition of Bell by Avnet, CBP began a compliance audit to identify any duty owed as a result of the prior non-compliance. As of July 2, 2011, the Company continued to evaluate the potential exposure based upon further activities associated with the audit and the Company’s ability to obtain appropriate documentation for certain transactions under audit. The Company has evaluated projected duties, interest and penalties that potentially may be imposed as a result of the audit and, as further information has become available during the fourth quarter of fiscal 2011, the Company reduced the contingent liability from $18,000,000 to $10,000,000, which was recorded to goodwill. Depending on the ultimate resolution of the matter with CBP, the Company estimates the range of the potential exposure associated with this liability may be up to $73 million; however, the Company believes the contingent liability recorded is a reasonable estimate of the liability based upon facts available at this time. The Company acquired accounts receivable which were recorded at the estimated fair value amounts; however, adjustments to acquired amounts were not significant as book value approximated fair value due to the short term nature of accounts receivables. The gross amount of accounts receivable acquired was $381,805,000 and the fair value recorded was $363,589,000, which is expected to be collected.
|  | July 6, 2010 |
|  | (Thousands) |
Current assets |  | $ | 705,986 |
Property, plant and equipment |  |  | 13,022 |
Goodwill |  |  | 224,265 |
Identifiable intangible asset |  |  | 60,000 |
Other assets |  |  | 37,964 |
Total assets acquired |  |  | 1,041,237 |
Current liabilities, excluding current portion of long-term debt |  |  | 396,875 |
Long-term liabilities |  |  | 30,218 |
Total debt |  |  | 358,453 |
Total liabilities assumed |  |  | 785,546 |
Net assets acquired |  | $ | 255,691 |
The amount of goodwill associated with the Bell acquisition that is expected to be deductible for tax purposes is not significant. Significant synergies related to the integration of the acquired Bell business have resulted in operating cost reductions; such expense synergy savings were a primary driver of the excess of purchase price paid over the value of assets and liabilities acquired. Pro forma results Unaudited pro forma financial information is presented below as if the acquisition of Bell occurred at the beginning of fiscal 2010. The pro forma information presented below does not purport to present what actual results would have been had the acquisition in fact occurred at the beginning of fiscal 2010, nor does the information project results for any future period. In addition, the pro forma results exclude the impact of any synergies realized as a result of integration activity.
|  | Pro Forma Results |
|  | Twelve Months Ended |
|  | July 3, 2010 |
|  | (Thousands, except per |
|  | share data) |
Pro forma sales |  | $ | 22,291,579 |
Pro forma operating income |  |  | 660,769 |
Pro forma net income |  |  | 404,249 |
Pro forma diluted earnings per share |  | $ | 2.64 |
In order to create the pro forma results in the table above, the combined results for Avnet and Bell for the twelve months ended fiscal 2010 were adjusted for the following:
| • |  | $8,571,000 pre-tax, $6,074,000 after tax, or $0.04 per diluted share for fiscal 2010 of intangible asset amortization associated with the Bell acquisition; and
| • |  | $5,181,000 pre-tax, $3,168,000 after tax, or $0.02 per diluted share for fiscal 2010 for Bell transaction costs that were expensed upon closing.
Pro forma financial information is not presented for fiscal 2011 because the Bell acquisition occurred on July 6, 2010, which is three days after the beginning of the Company’s fiscal year 2011. The accompanying consolidated statement of operations for the first quarter of fiscal 2011 included sales of $781,135,000 related to the acquired Bell business. As of the end of the second quarter of fiscal 2011, the Company was in the process of integrating the Bell business into the Avnet existing business, which included IT systems integration, and administrative, sales and logistics operations integrations. As a result, after the first quarter of fiscal 2011, the Company was no longer able to identify the acquired Bell business separately from the on-going Avnet business. Prior year acquisition-related exit activity accounted for in purchase accounting Prior to fiscal 2010, certain restructuring charges were recognized as part of purchase accounting under previous accounting standards. During fiscal 2007 and 2006, the Company recorded certain exit-related liabilities through purchase accounting which consisted of severance for workforce reductions, non-cancelable lease commitments and lease termination charges for leased facilities, and other contract termination costs associated with the exit activities. During fiscal 2011, the Company paid $462,000 in cash associated with these reserves. In addition, the Company released $2,258,000 of lease reserves that were determined to be no longer required and recorded the credit to “restructuring, integration and other charges” rather than as a credit to goodwill because the goodwill was impaired in fiscal 2009 (see Note 6). As of July 2, 2011, the total remaining reserve was $2,827,000 which related primarily to facility exit costs and other contractual lease obligations which management expects to be substantially utilized by the end of fiscal 2013. Investments and divestitures The Company completed its divestiture of New ProSys Corp. (“ProSys”), a value-added reseller and provider of IT infrastructure solutions. Avnet acquired ProSys as part of the Bell acquisition on July 6, 2010, and announced its intention to sell this business at that time. Total consideration included a cash payment at closing, a short-term receivable and a three-year earn-out based upon ProSys’ anticipated results. As a result of the divestiture, the Company received cash proceeds of $19,108,000 and wrote off goodwill associated with the ProSys business (see Note 6). No gain or loss was recorded as a result of the divestiture. Also during fiscal 2011, the Company recognized a loss of $6,308,000 pre-tax, $3,857,000 after tax and $0.02 per share on a diluted basis included in “Gain on bargain purchase and other” related to the write down of prior investments in smaller technology start-up companies (see Notes 5 and 6 for other amounts included in “Gain on bargain purchase and other”). During fiscal 2010, the Company recognized a gain on the sale of assets as a result of certain earn-out provisions associated with the prior sale of the Company’s equity investment in Calence LLC. The gain on sale of assets was $8,751,000 pre-tax, $5,370,000 after tax and $0.03 per share on a diluted basis. In addition, the Company sold a cost method investment and received proceeds of approximately $3,034,000 in the second quarter of fiscal 2010. During fiscal 2009, the Company recognized a gain on the sale of assets amounting to $14,318,000 pre-tax, $8,727,000 after tax and $0.06 per share as a result of certain earn-out provisions associated with the prior sale of the Company’s equity investment in Calence LLC.

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