Avnet 2013 Annual Report Download - page 58

Table of Contents AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 or
loss 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 18.1% in fiscal 2013 as compared with an effective tax rate of 28.3%
in
fiscal 2012 . Included in the fiscal 2013 effective tax rate is a net tax benefit of $50,376,000
, which is comprised of (i) a tax benefit of
$41,572,000
for the release of valuation allowance against deferred tax assets that were determined to be realizable, primarily related to a legal
entity in EMEA (discussed further below), (ii) net favorable audit settlements resulting in a benefit of $33,182,000
, partially offset by (iii) a tax
provision of $24,378,000
primarily related to the establishment of a valuation allowance against deferred tax assets that were determined to be
unrealizable during fiscal 2013 . The fiscal 2013 effective tax rate is lower than the fiscal 2012
effective tax rate primarily due to a favorable
impact from audit settlements and, to a lesser extent, a greater impact to the rate from the valuation allowance released in fiscal 2013
(as
discussed further below) as compared with the amount released in fiscal 2012
due to the reduced level of income and mix of income in the
current year. In fiscal 2012
, withholding tax related to legal entity reorganization resulted in an increase to the rate that does not exist in the
current year.
During fiscal 2013
, 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 2013 and 2012
, 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 2013 and 2012
, the valuation allowance released associated with this
EMEA legal entity was $27,055,000 and $22,127,000
, 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 2013 would have been 23.0% as compared with 31.1% for fiscal 2012 .
During fiscal 2013
, the Company's effective tax rate was favorably impacted primarily by the settlement of two audits by the U.S. Internal
Revenue Service ("IRS") for the Company and an acquired company. As a result, the Company recognized a tax benefit of $33,005,000
in fiscal
2013 .
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 . As compared with fiscal 2011 , the fiscal 2012
effective tax rate is higher than the fiscal 2011 effective tax rate primarily due to a
lower amount of valuation allowance released in fiscal 2012 as compared with the amount released in fiscal 2011, 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 withholding tax in fiscal 2012.
55
Years Ended
June 29, 2013
June 30, 2012 July 2, 2011
Federal statutory rate
35.0
%
35.0
%
35.0
%
State and local income taxes, net of federal benefit
1.1
1.8
1.5
Foreign tax rates, net of valuation allowances
(7.2
)
(5.4
)
(5.3
)
Release of valuation allowance, net of U.S. tax expense (as discussed below)
(6.4
)
(2.8
)
(7.4
)
Change in contingency reserves
0.4
0.5
1.4
Tax audit settlements
(6.0
)
(1.0
)
(0.4
)
Other, net
1.2
0.2
(1.6
)
Effective tax rate
18.1
%
28.3
%
23.2
%