9. Income taxes

The components of income tax expense (“tax provision”) are included in the table below. The tax provision for deferred income taxes results from temporary differences arising primarily from net operating losses, inventories valuation, receivables valuation, certain accrued amounts and depreciation and amortization, net of any changes to valuation allowances.


	Years Ended
	June 27, 2015		June 28, 2014		June 29, 2013
	(Thousands)
Current:
Federal	$	41,757	$	71,714	$	17,212
State and local		4,496		8,038		7,034
Foreign		76,363		91,415		84,965
Total current taxes		122,616		171,167		109,211
Deferred:
Federal		39,246		11,305		2,619
State and local		5,264		3,810		2,390
Foreign		(26,074)		(30,759)		(15,028)
Total deferred taxes		18,436		(15,644)		(10,019)
Income tax expense	$	141,052	$	155,523	$	99,192

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 $180.6 million, $235.4 million and $174.0 million, and foreign income before income taxes was $532.3 million, $465.7 million and $375.3 million in fiscal 2015, 2014 and 2013, respectively.

Reconciliations of the federal statutory tax rate to the effective tax rates are as follows:


	Years Ended
	June 27, 2015		June 28, 2014		June 29, 2013
Federal statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	1.6		1.3		1.1
Foreign tax rates, net of valuation allowances	(8.8)		(9.3)		(7.2)
Release of valuation allowance, net of U.S. tax expense	(7.2)		(4.8)		(6.4)
Change in contingency reserves	0.5		(0.1)		0.4
Tax audit settlements	(2.3)		(0.6)		(6.0)
Other, net	1.0		0.7		1.2
Effective tax rate	19.8	%	22.2	%	18.1	%

Foreign tax rates represents the impact of the difference between foreign and federal statutory rates applied to foreign income or loss and also includes the impact of valuation allowances established against the Company’s otherwise realizable foreign deferred tax assets, which are primarily net operating loss carry-forwards.

Avnet’s effective tax rate on income before income taxes was 19.8% in fiscal 2015 as compared with an effective tax rate of 22.2% in fiscal 2014. Included in the fiscal 2015 effective tax rate is a net tax benefit of $55.1 million, which is comprised primarily of (i) a tax benefit of $51.6 million for the release of a valuation allowance against deferred tax assets that were determined to be realizable, related to a legal entity in EMEA, and (ii) a net tax benefit of $16.2 million primarily related to favorable audit settlements, partially offset by $7.6 million of tax expense primarily related to newly established valuation allowances. The fiscal 2015 effective tax rate is lower than the fiscal 2014 effective tax rate primarily due to a greater tax benefit from the valuation allowance released in fiscal 2015 as compared with the amount released in fiscal 2014.

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 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 risk associated with underlying estimates of future taxable income, including considering the historical trend of down-cycles in the electronic components and computer products industries; and (iii) prudent and feasible tax planning strategies.

As of the end of fiscal 2015, the Company released the remaining valuation allowance against significant net deferred tax assets related to a legal entity in EMEA. In recent fiscal years, such entity experienced improved earnings, which resulted in the partial release of the valuation allowance to the extent it is more likely than not that the entity will recognize its net deferred tax assets (primarily deferred taxes related to net operating loss carry-forwards). Due to the profitability for this entity in the current year and the projections for the future, management has concluded a full release of the valuation allowance is appropriate.

No provision for U.S. income taxes has been made for approximately $3.06 billion of cumulative unremitted earnings of foreign subsidiaries at June 27, 2015 because those earnings are expected to be permanently reinvested outside the U.S. A hypothetical calculation of the deferred tax liability, assuming those earnings were remitted, is not practicable.

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


	June 27,		June 28,
	2015		2014
	(Thousands)
Deferred tax assets:
Federal, state and foreign net operating loss carry-forwards	$	249,385	$	336,334
Inventories valuation		16,806		18,442
Receivables valuation		16,989		26,022
Various accrued liabilities and other		14,427		(1,673)
		297,607		379,125
Less — valuation allowances		(111,381)		(182,123)
		186,226		197,002
Deferred tax liabilities:
Depreciation and amortization of property, plant and equipment		(67,828)		(46,294)
Net deferred tax assets	$	118,398	$	150,708

The change in valuation allowances in fiscal 2015 from fiscal 2014 was primarily due to (i) a net reduction of $93.9 million primarily due to the above mentioned release of a valuation allowance in EMEA, $51.6 million of which impacted the effective tax rate while the remainder was offset in deferred income taxes, and (ii) a $33.1 million reduction primarily due to foreign currency changes on valuation allowances previously established in various foreign jurisdictions, partially offset by a net expense of $23.2 million primarily related to previously established valuation allowances in various foreign jurisdictions.

As of June 27, 2015, the Company had foreign net operating loss carry-forwards of approximately $932.8 million, of which $21.1 million will expire during fiscal 2016 and 2017, substantially all of which have full valuation allowances, $204.2 million have expiration dates ranging from fiscal 2018 to 2035 and the remaining $707.5 million have no expiration date. The carrying value of the Company’s foreign net operating loss carry-forwards is dependent upon the Company’s ability to generate sufficient future taxable income in certain foreign tax jurisdictions. In addition, the Company considers historic levels of income or losses, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing a tax for valuation allowances.

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. The change in such liabilities during fiscal 2015 was primarily due to favorable audit settlements, which are included in the “reductions for tax positions taken in prior periods” caption in the following table. As of June 27, 2015, unrecognized tax benefits were $103.9 million, of which approximately $69.0 million, if recognized, would favorably impact the effective tax rate and the remaining balance would be substantially offset by valuation allowances. As of June 28, 2014, unrecognized tax benefits were $128.2 million, of which approximately $112.2 million, if recognized, would favorably impact the effective tax rate, and the remaining balance would be substantially offset by valuation allowances. The estimated liability for unrecognized tax benefits included accrued interest expense and penalties of $22.6 million and $25.3 million, net of applicable state tax benefits, as of the end of fiscal 2015 and 2014, respectively.

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


	June 27, 2015		June 28, 2014
	(Thousands)
Balance at beginning of year	$	128,221	$	123,930
Additions for tax positions taken in prior periods, including interest		7,713		15,966
Reductions for tax positions taken in prior periods, including interest		(17,810)		(880)
Additions for tax positions taken in current period		4,233		8,364
Reductions related to settlements with taxing authorities		(243)		(14,250)
Reductions related to the lapse of applicable statutes of limitations		(6,028)		(7,571)
Adjustments related to foreign currency translation		(12,163)		2,662
Balance at end of year	$	103,923	$	128,221

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 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 whose timing the Company cannot 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, management estimates that approximately $18.1 million of these liabilities for unrecognized tax benefits will be settled by the expiration of the statutes of limitations or through agreement with the tax authorities for tax positions related to valuation matters and positions related to acquired entities; such matters are common to multinational companies. The expected cash payment related to the settlement of these contingencies is approximately $3.0 million.

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 2008. The years remaining subject to audit, by major jurisdiction, are as follows:


Jurisdiction		Fiscal Year
United States (Federal and state)		2012 - 2015
Taiwan and Germany		2010 - 2015
Hong Kong and United Kingdom		2009 - 2015
Netherlands and Singapore		2008 - 2015
Belgium		2014 - 2015