Avnet 2012 Annual Report Download - page 26

Table of Contents
Interest expense for fiscal 2011 was $92.5 million, up $30.7 million, or 49.7% from interest expense of $61.7 million in fiscal 2010. The
year
-over-
year increase in interest expense was due to an increase in debt used to fund the acquisitions of businesses and the increase in working
capital to support the significant growth in sales.
During fiscal 2012, the Company recognized $5.4 million of other expense as compared with other income of $10.7 million in the prior
year. The year
-over-
year increase in other expense was due primarily to foreign exchange losses in fiscal 2012 compared with foreign currency
exchange gains in the prior year.
Other income was $10.7 million in fiscal 2011 as compared with other expense 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.
Gain on Bargain Purchase and Other
During fiscal 2012, the Company recognized a gain on bargain purchase of $4.3 million pre-
and after tax and $0.03 per share on a diluted
basis. In January 2012, the Company acquired Unidux Electronics Limited, a Singapore publicly traded company, through a tender offer. After
assessing the 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 the gain.
In addition to the gain on bargain purchase mentioned above, during fiscal 2012, the Company recognized other charges of $1.4 million
pre-tax, $0.9 million after tax and $0.01 per share on a diluted basis related to the write-
down of an investment in a small technology company
and the write-off of certain deferred financing costs associated with the early termination of a credit facility (see Financing Transactions
for
further discussion).
During fiscal 2011, the Company acquired Unidux, a Japanese publicly traded company, through a tender offer. 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, the Company recognized a gain on sale of assets as a result of certain earn-
out provisions associated with the 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.
Income Tax Provision
Avnet's effective tax rate on income before income taxes was 28.3% in fiscal 2012 as compared with 23.2% in fiscal 2011. Included in the
fiscal 2012 effective tax rate is a net tax benefit of $8.6 million, which is comprised of (i) a tax benefit of $30.8 million for the release of tax
reserves (valuation allowance) against deferred tax assets that were determined to be realizable, primarily related to a legal entity in EMEA
(discussed further below), partially offset by (ii) a tax provision of $22.2 million related to changes in existing tax positions, withholding tax
related to legal entity reorganizations, the establishment of tax reserves against certain deferred tax assets and U.S. tax expense associated with
the release of the valuation allowance, partially offset by net favorable audit settlements. The fiscal 2012 effective tax rate is higher than the
fiscal 2011 effective tax rate primarily due to a lower amount of tax reserve released in fiscal 2012 as compared with the amount released in
fiscal 2011, as discussed further below, and, to a lesser extent, a more favorable impact from audit settlements and changes to existing tax
positions in fiscal 2012 as compared with fiscal 2011. These favorable impacts were partially offset by the withholding tax mentioned above.
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. In each of fiscal 2012 and 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 foreseeable future and, as a result, the Company's
effective tax rate was positively impacted (decreased) upon the release of the tax reserves. In fiscal 2012 and 2011, the tax reserves released
associated with this EMEA legal entity were $22.1 million and $64.2 million, respectively, net of the U.S. tax expense associated with the
release. The Company will continue to evaluate the need for a reserve against the tax assets associated with this legal entity and will adjust the
reserve as deemed appropriate which, when adjusted, will result in an impact to the effective tax rate. Excluding the benefit in both fiscal years
related to the release of the tax reserve associated with the EMEA legal entity, the effective tax rate for fiscal 2012 would have been 31.1% as
compared
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