Note H - Income Taxes

9 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Income Tax Disclosure [Text Block]

H

. Income Taxes

The effective tax rate for the

three

months ended

March

 

31,

2017

was an expense of

29.0%

and the effective tax rate for the

nine

months ended

March

31,

2017

was an expense of

29.9%.

The rate differs from the U.S. federal statutory rate of

34%

primarily due to the favorable impact of foreign earnings taxed at less than the U.S. statutory rate.

To determine our quarterly provision for income taxes, we use an estimated annual effective tax rate, which is based on expected annual

income, statutory tax rates and tax planning opportunities available in the various jurisdictions to which we are subject. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rate from quarter to quarter.  There were no significant discrete items for the

three

and

nine

months ended

March

31,

2017.

We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized.

  In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  During the

three

and

nine

months ended

March

31,

2017,

there was no change to our valuation allowance.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates, for each of the jurisdictions in which we operate, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended

June

 

30,

2013

and forward are subject to examination by the U.S. tax authorities and our years for the fiscal year ended

June

30,

2008

and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended

June

 

30,

2015

and forward are subject to examination by the Swiss tax authorities.

We do not record U.S. income tax expense for NAIE

’s retained earnings that are declared as indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested in NAIE is based on the actual deployment of such earnings in NAIE’s assets and our expectations of the future cash needs of our U.S. and foreign entities. Currently income tax laws are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore.

It is our policy to establish reserves based on management

’s assessment of exposure for certain positions taken in previously filed tax returns that

may

become payable upon audit by tax authorities. The tax reserves are analyzed quarterly and adjustments are made as events occur that we believe warrant adjustments to the reserves. There were

no

adjustments to reserves in the

nine

months ended

March

31,

2017.