AVNET INC Income Taxes Disclosure

9. Income taxes

The components of income tax expense (“tax provision”) are included in the table below.

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The tax provision is computed based upon income before income taxes from both U.S. and foreign operations. U.S. income before income taxes was $34.0 million, $186.6 million, and $250.8 million in fiscal 2025, 2024, and 2023, respectively, and foreign income before income taxes was $216.6 million, $445.6 million, and $732.1 million, in fiscal 2025, 2024, and 2023, respectively.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the "IRA"). The IRA includes various tax provisions, including a 15% corporate minimum income tax rate ("CAMT"). The CAMT is effective for tax periods beginning with fiscal 2024. The company has determined that there is no CAMT liability in fiscal 2025, but will continue to monitor.

On July 4, 2025, the U.S. government enacted the One Big Beautiful Bill Act (the “OBBB”). The bill includes extensions of current tax provisions and makes many significant tax changes. Most of the provisions enacted by the OBBB takes effect in fiscal year 2026 while a few provisions were retroactive to fiscal 2025. The company expects no material adverse impact related to the OBBB; however, the Company will continue to monitor developments and evaluate any potential future impacts.

The Organization for Economic Co-operation and Development (OECD) has enacted a new global minimum tax framework known as Pillar Two. These rules have been agreed to by most OECD members. The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of Pillar Two rules. The Company was subject to Pillar Two rules starting in fiscal 2025. As of June 28, 2025, Pillar Two taxes do not have a significant impact on the Company’s income tax expense. The Company is continuing to monitor the relevant developments and evaluate the potential impacts.

The Company asserts that all its unremitted foreign earnings are permanently reinvested, and any unrecorded liabilities related to this assertion are not material.

Reconciliations of the U.S. federal statutory income tax rate to the effective income tax rates are as follows:

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Tax on foreign income represents the tax rate impact of the difference between foreign rates and the U.S. federal statutory rate applied to foreign income or loss and foreign income taxed in the U.S. at rates other than its statutory rate.

Avnet’s effective tax rate on income before income taxes was 4.1% in fiscal 2025 as compared with an effective tax rate of 21.1% on fiscal 2024 income before income taxes. Included in the fiscal 2025 effective tax rate are tax benefit related to tax attribute carryforwards, tax expense related to the increase to valuation allowances against the deferred tax assets, tax audit settlements, and U.S. state taxes.

The Company applies the guidance in ASC 740 Income Taxes, which requires management to use its judgment to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances. As part of this analysis, the Company examines all available evidence on a jurisdiction-by-jurisdiction basis and weighs the positive and negative evidence when determining the need for full or partial valuation allowances. The evidence considered for each jurisdiction includes, among other items: (i) the historic levels and types of income or losses over a range of time periods, which may extend beyond the most recent three fiscal years depending upon the historical volatility of income in an individual jurisdiction; (ii) expectations and risks associated with underlying estimates of future taxable income, including considering the historical trend of down-cycles in the Company’s served industries; (iii) jurisdictional specific limitations on the utilization of deferred tax assets, including when such assets expire; and (iv) prudent and feasible tax planning strategies.

The significant components of deferred tax assets and liabilities, included in “Other assets” on the consolidated balance sheets, are as follows:

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The change in valuation allowances in fiscal 2025 from fiscal 2024 was related to a $22.2 million increase resulting from true ups related to prior years, and a $15.2 million increase resulting from changing foreign exchange rates.

As of June 28, 2025, the Company had net operating and capital loss carry-forwards of approximately $1.20 billion, of which $13.6 million will expire during fiscal 2026 and fiscal 2027, $209.9 million have expiration dates ranging from fiscal 2028 to fiscal 2044, and the remaining $976.5 million have no expiration date. A significant portion of these losses are not expected to be realized in the foreseeable future and have valuation allowances against them. The carrying value of the Company’s net operating and capital loss carry-forwards depends on the Company’s ability to generate sufficient future taxable income in certain tax jurisdictions.

Estimated liabilities for unrecognized tax benefits are included in “Accrued expenses and other” and “Other liabilities” on the consolidated balance sheets. These contingent liabilities 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. As of June 28, 2025, unrecognized tax benefits were $120.5 million. The estimated liability for unrecognized tax benefits included accrued interest expense and penalties of $28.0 million and $29.6 million as of the end of fiscal 2025 and 2024, respectively.

Reconciliations of the beginning and ending liability balances for unrecognized tax benefits, excluding interest and penalties, are as follows:

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The evaluation of uncertain income tax positions requires management to estimate the ability of the Company to sustain its position with applicable tax authorities and estimate the final benefit to the Company. If the actual outcomes differ from the Company’s estimates, there could be an impact on income tax expense in the period in which the position is settled, the applicable statutes 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 beyond the Company’s control. The effects of settling tax positions with tax authorities and statute expirations may significantly impact the estimate for unrecognized tax benefits. Within the next twelve months, the Company estimates that approximately $13.2 million of these liabilities for unrecognized tax benefits will be settled by the expiration of the statutes of limitations or through settlements with the tax authorities. The cash payment related to the settlement of these contingencies is expected to be immaterial.

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 2016. The years remaining subject to audit, by major jurisdiction, are as follows:

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