Avnet 2012 Annual Report Download - page 57

Table of Contents
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 $320,333,000 , $273,287,000 and $241,029,000
and foreign income before income taxes was
$470,449,000 , $597,679,000 and $344,054,000 in fiscal 2012 , 2011 and 2010 , respectively.
Reconciliations of the federal statutory tax rate to the effective tax rates are as follows:
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.
Avnet’s effective tax rate on income before income taxes was 28.3% in fiscal 2012 as compared with an effective tax rate of 23.2%
in
fiscal 2011 . Included in the fiscal 2012 effective tax rate is a net tax benefit of $8,616,000
, which is comprised of (i) a tax benefit of
$30,785,000
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 $22,170,000
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.
During fiscal 2012, the Company had a partial valuation allowance against significant tax assets related to a legal entity in EMEA due to,
among several other factors, a history of losses in that entity. Since fiscal 2010, the entity has been experiencing improved earnings which
required the partial release of the valuation allowance to the extent the entity has projected taxable income. In each of fiscal 2012 and 2011, the
Company determined a portion of the valuation allowance for this legal 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 valuation allowance, net of the U.S. tax expense. In fiscal 2012 and 2011, the tax reserves released associated with this EMEA
legal entity were $22,127,000 and $64,215,000
, respectively, net of the U.S. tax expense associated with the release. The Company will
continue to evaluate the need for a valuation allowance against these tax assets and will adjust the valuation allowance as deemed appropriate
which, when adjusted, will result in an impact to the effective tax rate. Factors that are considered in such an evaluation include historic levels
of income, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies.
Excluding the benefit in both fiscal years related to the release of the tax valuation allowance associated with the EMEA legal entity, the
effective tax rate for fiscal 2012 would have been 31.1% as compared with 30.6% for fiscal 2011.
Avnet’s effective tax rate on income before income taxes was 23.2% in fiscal 2011 as compared with an effective tax rate of 29.9%
in
fiscal 2010
. As compared with fiscal 2010, the fiscal 2011 effective tax rate was primarily impacted by a net tax benefit related to the release of
a tax valuation allowance on certain deferred tax assets which were determined to be realizable (as discussed above) and, to a lesser extent, net
favorable tax audit settlements, partially offset by changes to existing tax positions.
The Company is in the final stages of two audits by the U.S. Internal Revenue Service, one of which relates to the Company and one of
which relates to the pre-acquisition period of an acquired entity. As a result, it is reasonably possible that within the
54
Years Ended
June 30, 2012
July 2, 2011 July 3, 2010
Federal statutory rate
35.0
%
35.0
%
35.0
%
State and local income taxes, net of federal benefit
1.8
1.5
1.2
Foreign tax rates, net of valuation allowances
(5.4
)
(5.3
)
(6.6
)
Release of valuation allowance, net of U.S. tax expense (as discussed below)
(2.8
)
(7.4
) —
Change in contingency reserves
0.5
1.4
2.6
Tax audit settlements
(1.0
)
(0.4
)
(1.6
)
Other, net
0.2
(1.6
)
(0.7
)
Effective tax rate
28.3
%
23.2
%
29.9
%