Arrow Electronics 2011 Annual Report Download - page 18

16
position, liquidity, or results of operations. The litigation is currently suspended while the company engages in a court-facilitated
mediation with E.ON AG. The mediation commenced in December 2009 and is ongoing.
The company was named as a defendant in several suits related to the Norco facility, all of which were consolidated for pre-trial
purposes. In January 2005, an action was filed in the California Superior Court in Riverside County, California (Gloria Austin, et
al. v. Wyle Laboratories, Inc. et al.). Approximately 90 plaintiff landowners and residents sued a number of defendants under a
variety of theories for unquantified damages allegedly caused by environmental contamination at and around the Norco site. Also
filed in the Superior Court in Riverside County were Jimmy Gandara, et al. v. Wyle Laboratories, Inc. et al. in January 2006, and
Lisa Briones, et al. v. Wyle Laboratories, Inc. et al. in May 2006; both of which contain allegations similar to those in the Austin
case on behalf of approximately 20 additional plaintiffs. All of these matters have now been resolved to the satisfaction of the
parties.
The company was also named as a defendant in a lawsuit filed in September 2006 in the United States District Court for the Central
District of California (Apollo Associates, L.P., et anno. v. Arrow Electronics, Inc. et al.) in connection with alleged contamination
at a third site, an industrial building formerly leased by Wyle Laboratories, in El Segundo, California. The lawsuit was settled,
though the possibility remains that government entities or others may attempt to involve the company in further characterization
or remediation of groundwater issues in the area.
Impact on Financial Statements
The company believes that any cost which it may incur in connection with environmental conditions at the Norco, Huntsville, and
El Segundo sites and the related litigation is covered by the contractual indemnifications (except, under the terms of the
environmental indemnification, for the first $.5 million), discussed above. The company believes that recovery of costs incurred
to date associated with the environmental clean-up of the Norco and Huntsville sites, is probable. Accordingly, the company
increased the receivable for amounts due from E.ON AG by $4.8 million during 2011 to $49.0 million. The company's net costs
for such indemnified matters may vary from period to period as estimates of recoveries are not always recognized in the same
period as the accrual of estimated expenses.
As successor-in-interest to Wyle, the company is the beneficiary of various Wyle insurance policies that covered liabilities arising
out of operations at Norco and Huntsville. Certain of the insurance carriers implicated in the Riverside County litigation have
undertaken substantial portions of the defense of the company, and the company has recovered approximately $13.0 million from
them to date. However, the company has sued certain other umbrella liability policy carriers because they have yet to make
payment on claims filed by the company. These disputes generally relate to the umbrella liability policy carriers' proportional
share of the total liability as opposed to the applicability of coverage.
The company believes strongly in the merits of its positions regarding the E.ON AG indemnity and the liabilities of the insurance
carriers.
Also included in the proceedings against E.ON AG is a claim for the reimbursement of pre-acquisition tax liabilities of Wyle in
the amount of $8.7 million for which E.ON AG is also contractually liable to indemnify the company. E.ON AG has specifically
acknowledged owing the company not less than $6.3 million of such amounts, but its promises to make payments of at least that
amount were not kept. The company also believes that the recovery of these amounts is probable.
In connection with the acquisition of Wyle, the company acquired a $4.5 million tax receivable due from E.ON AG (as successor
to VEBA) in respect of certain tax payments made by Wyle prior to the effective date of the acquisition, the recovery of which
the company also believes is probable.
The receivable for amounts due from E.ON AG for the previously mentioned tax and environmental matters and related litigation
are included in "Other Assets" on the company's consolidated balance sheets. The company's basis for the conclusion that recovery
of these amounts are probable is based upon its determination that it has appropriate legal rights to seek reimbursement under the
indemnification agreement with E.ON AG, as well as the company's ability to seek reimbursement under the various Wyle insurance
policies. The timing of the collection of these amounts is contingent upon resolution of the court-facilitated mediation or litigation
with E.ON AG, the completion of settlement agreements with certain insurers, and the resolution of litigation currently pending
with certain other insurance carriers. The resolution of these matters could likely take several years.