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Income Taxes | 12 Months Ended
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Jul. 02, 2011
Income Taxes [Abstract] |
Income taxes | 9. Income taxes The components of the provision for income taxes are indicated in the table below. The tax provision for deferred income taxes results from temporary differences arising principally from inventory valuation, accounts receivable valuation, net operating losses, certain accruals and depreciation, net of any changes to the valuation allowance.
|  | Years Ended |
|  | July 2, |  |  | July 3, |  |  | June 27, |
|  | 2011 |  |  | 2010 |  |  | 2009 |
|  | (Thousands) |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 64,476 |  |  | $ | 61,892 |  |  | $ | 69,835 |
State and local |  |  | 11,724 |  |  |  | 9,789 |  |  |  | 7,689 |
Foreign |  |  | 109,731 |  |  |  | 56,608 |  |  |  | 50,007 |
Total current taxes |  |  | 185,931 |  |  |  | 128,289 |  |  |  | 127,531 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 41,029 |  |  |  | 24,251 |  |  |  | (55,743 | )
State and local |  |  | 5,273 |  |  |  | 1,290 |  |  |  | (5,250 | )
Foreign |  |  | (30,336 | ) |  |  | 20,883 |  |  |  | (31,794 | )
Total deferred taxes |  |  | 15,966 |  |  |  | 46,424 |  |  |  | (92,787 | )
Provision for income taxes |  | $ | 201,897 |  |  | $ | 174,713 |  |  | $ | 34,744 |
The provision for income taxes noted above is computed based upon the split of income (loss) before income taxes from U.S. and foreign operations. U.S. income (loss) before income taxes was $273,287,000, $241,029,000 and ($733,915,000) and foreign income (loss) before income taxes was $597,679,000, $344,054,000 and ($361,053,000) in fiscal 2011, 2010 and 2009, respectively. A reconciliation between the federal statutory tax rate and the effective tax rate is as follows:
|  | Years Ended
|  | July 2, |  | July 3, |  | June 27,
|  | 2011 |  | 2010 |  | 2009
Federal statutory rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | (35.0 | )%
State and local income taxes, net of federal benefit |  |  | 1.5 |  |  |  | 1.2 |  |  |  | 0.3 |
Foreign tax rates, net of valuation allowances |  |  | (5.3 | ) |  |  | (6.6 | ) |  |  | (2.0 | )
Release of valuation allowance, net of U.S. tax expense (as discussed below) |  |  | (7.4 | ) |  |  | — |  |  |  | — |
Change in contingency reserves |  |  | 1.4 |  |  |  | 2.6 |  |  |  | 1.1 |
Tax audit settlements |  |  | (0.4 | ) |  |  | (1.6 | ) |  |  | (2.9 | )
Impairment charges |  |  | — |  |  |  | — |  |  |  | 41.9 |
Other, net |  |  | (1.6 | ) |  |  | (0.7 | ) |  |  | (0.2 | )
Effective tax rate |  |  | 23.2 | % |  |  | 29.9 | % |  |  | 3.2 | %
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 23.2% in fiscal 2011 as compared with an effective tax rate of 29.9% in fiscal 2010. As compared to 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 (reserve) on certain deferred tax assets which were determined to be realizable (discussed further below) and, to a lesser extent, net favorable tax audit settlements, partially offset by changes to existing tax positions. Excluding the benefit related to the release of the tax valuation allowance, the effective tax rate for fiscal 2011 would have been 30.6%. During fiscal 2011, the Company had a full tax 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. Recently, the entity has been experiencing improved earnings which has required the partial release of the valuation allowance to the extent the entity had taxable income during each of the first three quarters of fiscal 2011. Therefore, the release of valuation allowance, net of the U.S. tax expense, positively impacted the Company’s effective tax rate. In addition, during the fourth quarter of fiscal 2011, the Company determined a portion of the tax valuation allowance for this legal entity was no longer required due to the expected continuation of improved earnings in the future and, as a result, the Company’s effective tax rate was positively impacted (decreased) upon the release of the tax valuation allowance, net of the U.S. tax expense. The Company will continue to evaluate the need for a valuation allowance against these tax assets and may release additional valuation allowance associated with this entity in the future. 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. Avnet’s effective tax rate on income before income taxes was 29.9% in fiscal 2010 as compared with an effective tax rate of 3.2% in fiscal 2009. The fiscal 2009 effective tax rate was impacted by non-deductible impairment charges and a change to estimates for existing tax positions, net of favorable tax audit settlements of $21,672,000. Excluding the impact of these items, the effective tax rate for fiscal 2009 would have been 28.6%. The significant components of deferred tax assets and liabilities, included primarily in “other assets” on the consolidated balance sheets, are as follows:
|  | July 2, |  |  | July 3, |
|  | 2011 |  |  | 2010 |
|  | (Thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Inventory valuation |  | $ | 13,680 |  |  | $ | 8,276 |
Accounts receivable valuation |  |  | 27,916 |  |  |  | 24,264 |
Federal, state and foreign tax loss carry-forwards |  |  | 394,093 |  |  |  | 361,988 |
Various accrued liabilities and other |  |  | 57,686 |  |  |  | 101,254 |
|  |  | 493,375 |  |  |  | 495,782 |
Less — valuation allowance |  |  | (310,772 | ) |  |  | (331,423 | )
|  |  | 182,603 |  |  |  | 164,359 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation and amortization of property, plant and equipment |  |  | (43,302 | ) |  |  | (23,177 | )
Net deferred tax assets |  | $ | 139,301 |  |  | $ | 141,182 |
The change in the valuation allowance from fiscal 2010 to fiscal 2011 was a combination of (i) a reduction of $76,055,000 primarily due to the previously mentioned release of valuation allowance in EMEA, of which $64,215,000 impacted the effective tax rate and $11,840,000 did not impact the effective tax rate because deferred income taxes and income tax payables associated with the release of the valuation allowance were recorded which offset a portion of the benefit as a result of the release and (ii) an increase of $55,404,000 related primarily to the translation impact of foreign currency exchange rates and acquired valuation allowances. As of July 2, 2011, the Company had foreign net operating loss carry-forwards of approximately $1,333,787,000, of which $37,065,000 will expire during fiscal 2012 and 2013, substantially all of which have full valuation allowances, $289,220,000 have expiration dates ranging from fiscal 2014 to 2031 and the remaining $1,007,502,000 have no expiration date. The carrying value of the Company’s net operating loss carry-forwards is dependent upon the Company’s ability to generate sufficient future taxable income in certain tax jurisdictions. In addition, the Company considers historic levels of income, expectations and risk associated with estimates of future taxable income and on-going prudent and feasible tax planning strategies in assessing a tax valuation allowance. 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:
|  | 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 |
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:
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 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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