Avnet 2011 Annual Report Download - page 64

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accruals for income tax contingencies (or accruals for unrecognized tax benefits) are included in “accrued expenses and other”
and “other long term liabilities”
on the consolidated balance sheet. These contingency reserves relate to various tax matters that result
from uncertainties in the application of complex income tax regulations in the numerous jurisdictions in which the Company operates.
The change to contingency reserves during fiscal 2011 is primarily due to the addition of acquired reserves as a result of fiscal 2011
acquisitions and favorable non-cash audit settlements both of which are included in the “
additions/reductions for tax positions taken in
prior periods”
captions in the following table. The change to contingency reserves during fiscal 2010 is primarily due to the
recognition of uncertainties in current year tax positions. In addition, the change to reserves in fiscal 2010 was also impacted by a
change to estimates for existing tax positions and favorable non-
cash audit settlements, both of which are included in the
“additions/reductions for tax positions taken in prior periods”
captions in the following table. As of July 2, 2011, unrecognized tax
benefits were $175,151,000, of which approximately $111,299,000, if recognized, would favorably impact the effective tax rate and
the remaining balance would be substantially offset by valuation allowances. As of July 3, 2010, unrecognized tax benefits were
$132,828,000, of which approximately $88,811,000, if recognized, would favorably impact the effective tax rate, and the remaining
balance would be substantially offset by valuation allowances. In accordance with the Company’
s accounting policy, accrued interest
and penalties, if any, related to unrecognized tax benefits are recorded as a component of income tax expense. The accrual for
unrecognized tax benefits included accrued interest expense and penalties of $24,640,000 and $18,308,000, net of applicable state tax
benefit, as of the end of fiscal 2011 and 2010, respectively.
A reconciliation of the beginning and ending accrual balance for unrecognized tax benefits is as follows:
The evaluation of income tax positions requires management to estimate the ability of the Company to sustain its position and
estimate the final benefit to the Company. To the extent that these estimates do not reflect the actual outcome there could be an impact
on the consolidated financial statements in the period in which the position is settled, the statute of limitations expire or new
information becomes available as the impact of these events are recognized in the period in which they occur. It is difficult to estimate
the period in which the amount of a tax position will change as settlement may include administrative and legal proceedings whose
timing the Company cannot control. The effects of settling tax positions with tax authorities and statute expirations may significantly
impact the accrual for income tax contingencies. Within the next twelve months, management estimates that approximately
$23,000,000 of tax contingencies will be settled primarily through agreement with the tax authorities for tax positions related to
valuation matters; such matters are common to multinational companies. The expected cash payment related to the settlement of these
contingencies is not significant.
The Company conducts business globally and consequently files income tax returns in numerous jurisdictions including those
listed in the following table. It is also routinely subject to audit in these and other countries. The Company is no longer subject to audit
in its major jurisdictions for periods prior to fiscal year 1999. The open years, by major jurisdiction, are as follows:
58
July 2, 2011
July 3, 2010
(Thousands)
Balance at beginning of year
$
132,828
$
135,891
Additions for tax positions taken in prior periods, including interest
40,218
32,723
Reductions for tax positions taken in prior periods, including interest
(16,837
)
(33,168
)
Additions for tax positions taken in current period
11,041
4,970
Reductions related to cash settlements with taxing authorities
(616
)
(96
)
Reductions related to the lapse of statute of limitations
(1,565
)
(2,006
)
Additions (reductions) related to foreign currency translation
10,082
(5,486
)
Balance at end of year
$
175,151
$
132,828
Jurisdiction Fiscal Year
Belgium
1999
–
2011
United States (federal and state) and Singapore
2004
–
2011
Hong Kong
2005
–
2011
Germany and Taiwan
2006
–
2011
United Kingdom
2007
–
2011
Netherlands
2008
–
2011