Avnet 2011 Annual Report Download - page 28

Table of Contents
Other income, net, was $10.7 million in fiscal 2011 as compared with other expense, net, of $2.5 million in fiscal 2010 due
primarily to foreign currency exchange gains compared with losses in the prior year and higher interest income earned as compared
with the prior year. Other income, net, was $2.5 million in fiscal 2010 as compared with other expense, net, of $11.6 million in fiscal
2009 primarily related to the negative impacts of foreign currency exchange losses.
Gain on Bargain Purchase and Other
During the first quarter of fiscal 2011, the Company acquired Unidux, a Japanese publicly traded company, through a tender
offer in which the Company obtained over 95% of the controlling interest. After reassessing all assets acquired and liabilities assumed,
the consideration paid was below the fair value of the acquired net assets and, as a result, the Company recognized a gain on bargain
purchase of $31.0 million pre-
and after tax and $0.20 per share on a diluted basis. In addition, the Company recognized other charges
of $2.0 million pre-
tax, $1.4 million after tax and $0.01 per share on a diluted basis primarily related to an impairment of buildings in
EMEA and recognized a loss of $6.3 million pre-
tax, $3.9 million after tax and $0.02 per share on a diluted basis related to the write
down of prior investments in smaller technology start-up companies.
Gain on Sale of Assets
During fiscal 2010 and 2009, the Company recognized a gain on 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 amounted to $8.8 million pre-
tax,
$5.4 million after tax and $0.03 per share on a diluted basis in fiscal 2010 and $14.3 million pre-
tax, $8.7 million after tax and $0.06
per share in fiscal 2009.
Income Tax Provision
Avnet’
s effective tax rate on income before income taxes was 23.2% in fiscal 2011 as compared with 29.9% in fiscal 2010. The
fiscal 2011 effective tax rate was primarily impacted by the release of a tax reserve (valuation allowance) on certain deferred tax
assets that were determined to be realizable as discussed further below, and, to a lesser extent, net favorable tax audit settlements,
partially offset by changes to existing tax positions. Excluding the benefit related to the release of a tax reserve, the effective tax rate
for fiscal 2011 would have been 30.6%. Going forward, the Company expects its fiscal year 2012 effective tax rate to be more in the
range of this adjusted rate rather than the effective tax rate experienced in fiscal 2011. The fiscal 2010 effective tax rate was impacted
primarily by changes to estimates for existing tax positions and net favorable tax audit settlements, offset by a reserve established
against certain deferred tax assets.
Prior to fiscal 2011, the Company had a full reserve against significant tax assets related to a legal entity in EMEA due to, among
several other factors, a history of losses in that entity. Recently, the legal entity has been experiencing improved earnings which
required the partial release of the reserve to the extent the entity had taxable income during each of the first three quarters of fiscal
2011 and, therefore, positively impacted (decreased) the Company’
s effective tax rate. During the fourth quarter of fiscal 2011, the
Company determined a portion of the tax reserve related to this entity was no longer required due to the expected continuation of
improved earnings in the future and, as a result, the Company’
s effective tax rate was positively impacted (decreased) upon the release
of the tax reserves. The Company will continue to evaluate the need for a reserve against the tax assets associated with this legal entity
and may release additional reserve in the future.
Avnet’
s effective tax rate on income before income taxes was 29.9% in fiscal 2010 as compared with an effective tax rate on the
loss before taxes of 3.2% in fiscal 2009. The fiscal 2010 effective tax rate was impacted by changes to estimates for existing tax
positions, net favorable tax audit settlements, offset by a charge to establish a reserve against certain deferred tax assets. The effective
tax rate in fiscal 2009 was negatively impacted by the non-
deductibility of substantially all of the impairment charges and changes to
existing tax positions, partially offset by a net tax benefit of $21.7 million, or $0.14 per share, related primarily to the release of tax
reserves due to the settlement of certain tax audits in Europe. Excluding these items, the effective tax rate for fiscal 2009 would have
been 28.6%.
Avnet’
s effective tax rate is primarily a function of the tax rates in the numerous jurisdictions in which it does business applied to
the mix of pre-
tax book income. The effective tax rate may vary year over year as a result of changes in tax requirements in the
jurisdictions in which the Company does business and management
’
s evaluation of its ability to generate sufficient taxable income to
offset net operating loss carry-
forwards as well as the establishment of reserves for unfavorable outcomes of tax positions taken on
certain matters that are common to multinational enterprises and the actual outcome of those matters.
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