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Income Taxes
12 Months Ended
Jun. 30, 2014
Income Taxes
NOTE 5 - Income Taxes
 
The provision for income taxes is comprised of the following (in thousands):
 
 
 
For the Years Ended June 30,
 
 
 
2014
 
2013
 
Current income taxes:
 
 
 
 
 
 
 
Federal
 
$
76
 
$
(89)
 
State
 
 
31
 
 
32
 
 
 
 
107
 
 
(57)
 
Deferred income tax provision
 
 
424
 
 
244
 
Provision for income taxes
 
$
531
 
$
187
 
 
A reconciliation of the U.S. Federal statutory income tax rate to our actual effective tax rate on earnings before income taxes is as follows (dollars in thousands):
 
 
 
For the Years Ended June 30,
 
 
 
2014
 
 
2013
 
 
 
Amount
 
% of
Pre-tax
Income
 
 
Amount
 
% of
Pre-tax
Income
 
Tax at Federal statutory rate
 
$
1,362
 
 
34.0
%
 
$
1,091
 
 
34.0
%
Increases (decreases) in taxes resulting from:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Meals and entertainment
 
 
63
 
 
1.6
%
 
 
59
 
 
1.8
%
State income taxes, net of Federal income tax benefit
 
 
20
 
 
0.5
%
 
 
21
 
 
0.6
%
Foreign source income not subject to tax
 
 
(837)
 
 
(20.9)
%
 
 
(740)
 
 
(23.0)
%
R&D Credit refund
 
 
(144)
 
 
(3.6)
%
 
 
(221)
 
 
(6.9)
%
Other, net
 
 
67
 
 
1.7
%
 
 
(23)
 
 
(0.7)
%
Effective tax rate
 
$
531
 
 
13.3
%
 
$
187
 
 
5.8
%
 
Deferred tax assets and deferred tax liabilities at June 30, 2014 and 2013 are as follows (in thousands):
 
 
 
Current Deferred Tax Assets
(Liabilities)
 
Long-term Deferred Tax
Assets (Liabilities)
 
 
 
2014
 
2013
 
2014
 
2013
 
Accounts receivable
 
$
25
 
$
24
 
$
 
$
 
Inventories
 
 
406
 
 
385
 
 
336
 
 
455
 
Accrued Liabilities
 
 
308
 
 
233
 
 
64
 
 
29
 
Stock based compensation expense
 
 
 
 
 
 
139
 
 
137
 
Goodwill
 
 
 
 
 
 
1,324
 
 
1,623
 
R&D credit
 
 
 
 
 
 
451
 
 
360
 
Property, plant and equipment
 
 
 
 
 
 
(527)
 
 
(575)
 
Other deferred tax liabilities
 
 
 
 
 
 
(782)
 
 
(503)
 
 
 
 
739
 
 
642
 
 
1,005
 
 
1,526
 
Valuation allowance
 
 
 
 
 
 
 
 
 
Net deferred tax assets
 
$
739
 
$
642
 
$
1,005
 
$
1,526
 
 
The Company has identified the United States and New York State as its major tax jurisdictions. The fiscal 2008 and forward years are still open for examination.
 
During the year ending June 30, 2014 the Company increased its reserve for uncertain income tax positions by $16,000. As of June 30, 2014 the Company has a long-term accrued income tax liability of $169,000. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes. As of June 30, 2014, the Company had accrued interest totaling $0 and $169,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period. The Company uses the flow through method to account for investment tax credits earned on eligible research and development expenditures. Under this method, the investment tax credits are recognized as a reduction to income tax expense.
 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
 
 
 
Tax
 
Interest
 
Total
 
Balance of gross unrecognized tax benefits as of July 1, 2013
 
$
153
 
$
 
$
153
 
Increases to unrecognized tax benefits resulting from the generation of additional R&D credits
 
 
16
 
 
 
 
16
 
Balance of gross unrecognized tax benefits as of June 30, 2014
 
$
169
 
$
 
$
169
 
 
Napco US plans to permanently reinvest a substantial portion of its foreign earnings and as such has not provided US corporate taxes on the permanently reinvested earnings. As of June 30, 2014, the Company had no undistributed earnings of foreign subsidiaries.