Avnet 2014 Annual Report Download - page 28

Gain on Legal Settlement, Bargain Purchase and Other
During fiscal 2014, the Company received award payments and recognized a gain on legal settlement of $22.1 million before tax, $13.5
million after tax and $0.09 per share on a diluted basis.
During fiscal 2013, the Company recognized a gain on bargain purchase and other of $31.0 million
before tax, which consisted of (i) a
gain on bargain purchase related to the acquisition of Internix of $32.7 million before and after tax and $0.23
per share on a diluted basis, which
was partially offset by (ii) a loss of $1.7 million before and after tax and $0.01
per share on a diluted basis as a result of the divestiture of a small
business in the TS Asia region.
During fiscal 2012, the Company recognized a gain on bargain purchase related to the acquisition of Unidux of $4.3 million
before and
after tax and $0.03 per share on a diluted basis. In addition, the Company recognized other expenses of $1.4 million before tax, $0.9 million
after
tax and $0.01 per share on a diluted basis related to the impairment 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.
Income Tax Provision
Avnet’s effective tax rate on income before income taxes was 22.2% in fiscal 2014 as compared with an effective tax rate of 18.1%
in
fiscal 2013 . Included in the fiscal 2014 effective tax rate is a net tax benefit of $43.8 million
, which is comprised primarily of (i) a tax benefit of
$33.4 million
for the release of valuation allowances against deferred tax assets that were determined to be realizable, primarily related to a legal
entity in EMEA (discussed further below), and (ii) a net tax benefit of $7.0 million
resulting from losses related to an investment in a foreign
subsidiary. The fiscal 2014 effective tax rate is higher than the fiscal 2013
effective tax rate primarily due to a lower amount of tax benefits from
audit settlements in fiscal 2014 as compared to fiscal 2013, partially offset by a greater tax benefit from the valuation allowances released in
fiscal 2014 as compared with the amount released in fiscal 2013.
As of the end of fiscal 2014, the Company had a partial valuation allowance against significant net operating loss carry-
forward deferred
tax assets related to a legal entity in EMEA due to, among several other factors, a history of losses in that entity. In recent fiscal years, such
entity has been experiencing improved earnings, which required the partial release of the valuation allowance to the extent the entity has
projected future taxable income. In fiscal 2014 and fiscal 2013, the Company determined a portion of the valuation allowance for such 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 reduced upon the partial release of the valuation allowance, net of the U.S. tax expense. In fiscal 2014 and 2013, the
valuation allowance released associated with this EMEA legal entity was $33.6 million and $27.1 million
, respectively, net of the U.S. tax
expense associated with the release. Excluding the benefit in both fiscal years related to the release of the tax valuation allowance associated
with such EMEA legal entity, the effective tax rate for fiscal 2014 and fiscal 2013 would have been 27.0% and 23.0% , respectively.
The Company will continue to evaluate the need for a valuation allowance against these deferred tax assets and will adjust the valuation
allowance as deemed appropriate which, if reduced, could result in a significant decrease to the effective tax rate in the period of the adjustment.
Avnet’s effective tax rate on income before income taxes was 18.1% in fiscal 2013 compared with an effective tax rate of 28.3%
in fiscal
2012 . The fiscal 2013 effective tax rate is lower than the fiscal 2012
effective tax rate primarily due to the fiscal 2013 effective tax rate
including a net tax benefit of $50.4 million, which is comprised of (i) a tax benefit of $41.6 million for the reversal of previously established
valuation allowances against deferred tax assets that were now determined to be realizable, a portion of which related to a legal entity in EMEA
(discussed further above), (ii) net favorable audit settlements resulting in a benefit of $33.2 million, partially offset by (iii) a tax expense of $24.4
million primarily related to the establishment of a valuation allowance against deferred tax assets that were determined to be unrealizable during
fiscal 2013.
Avnet's effective tax rate is primarily a function of the tax rates in the numerous jurisdictions in which it does business applied to the mix
of income before taxes. The effective tax rate may vary year over year as a result of changes in tax requirements in these jurisdictions,
management's evaluation of its ability to generate sufficient taxable income to offset net operating loss carry-
forwards and the establishment of
liabilities for unfavorable outcomes of tax positions taken on certain matters that are common to multinational enterprises and the actual outcome
of those matters.
Net Income
As a result of the factors described in the preceding sections of this MD&A, the Company’s net income in fiscal 2014 was $545.6 million
,
or $3.89 per share on a diluted basis, compared with net income of $450.1 million , or $3.21 per share on a diluted basis, in fiscal 2013
and
$567.0 million , or $3.79 per share on a diluted basis, in fiscal 2012 .
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