Avnet 2007 Annual Report Download - page 65

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June 30,
2007
July 1,
2006
July 2,
2005
Years Ended
(Thousands)
Current:
Federal ......................................... $ 34,992 $ 3,483 $ (9,791)
State and local .................................... 10,685 7,016 (1,272)
Foreign ......................................... 48,271 48,932 18,849
Total current taxes ................................... 93,948 59,431 7,786
Deferred:
Federal ......................................... 49,561 48,989 29,901
State and local .................................... 3,265 1,481 6,452
Foreign ......................................... 46,778 1,699 27,381
Total deferred taxes .................................. 99,604 52,169 63,734
Provision for income taxes ............................. $193,552 $111,600 $71,520
The provision for income taxes noted above is computed based upon the split of income before income taxes
from U.S. and foreign operations. U.S. income before income taxes was $253,380,000, $130,452,000 and
$85,439,000 and foreign income before income taxes was $333,239,000, $185,695,000 and $154,320,000 in
fiscal 2007, 2006 and 2005, respectively.
A reconciliation between the federal statutory tax rate and the effective tax rate is as follows:
June 30,
2007
July 1,
2006
July 2,
2005
Years Ended
Federal statutory rate ....................................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal benefit ................. 1.8 2.0 1.4
Foreign tax rates, including impact of valuation allowances........... (5.0) (3.8) (3.9)
Change in contingency reserves (Note 8) ........................ 0.9 1.6 (2.3)
Other non-deductible expenses ................................ 0.3 0.4 0.4
Other, net ............................................... 0.0 0.1 (0.8)
Effective tax rate .......................................... 33.0% 35.3% 29.8%
Foreign tax rates generally consist of the impact of the difference between foreign and federal statutory rates
applied to foreign income (losses) and also include the impact of valuation allowances against the Company’s
otherwise realizable foreign loss carry-forwards.
The decrease in the fiscal 2007 effective tax rate over prior year is attributable to: (i) the mix of pre-tax income
towards the lower statutory tax rate jurisdictions; (ii) a similar dollar amount of net contingency reserves applied
against significantly higher pre-tax income; and (iii) the negative impact increasing prior year’s effective tax rate
related to the loss on the sale of an EM business for which no tax benefit was available. In addition, in fiscal 2006,
the Company recorded additional contingency reserves due to the recognition of tax exposures in the EMEA and
Asia regions, partially offset by the favorable settlement of a European audit. The Company reclassified certain
contingency reserves to the valuation allowance in fiscal 2005. The Company determines its valuation allowance
through an evaluation of relevant factors used to assess the likelihood of recoverability of the Company’s deferred
tax assets.
65
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)