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   Notes to Consolidated Financial Statements (Continued)  .
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at July 1, 1995 and June 30, 1994 are
as follows:
(in thousands) 1995 1994
Deferred tax assets:
NOL carryforward $ 52,648 $ 53,646
Business credit carryforward 18,480 16,204
Reserves not currently deductible 12,479 13,952
Depreciation 1,919 —
All other 10,756 12,839
96,282 96,641
Valuation allowance (92,083) (95,024)
Total deferred tax assets $ 4,199 $ 1,617
Deferred tax liabilities:
Depreciation $ — $ 995
Leases 3,479 3,458
All other 16,532 12,732
Total deferred tax liabilities $ 20,011 $ 17,185
The net change in the total valuation allowance for the years ended July 1,
1995, June 30, 1994 and June 30, 1993 was a decrease of $2.9 million, and
increases of $14.8 and $18.4 million, respectively.
Reconciliation of the United States Federal statutory rate to the Company’s
effective tax rate is as follows:
1995 1994 1993
U.S. Federal statutory rate 35.0 % 35.0 % (34.0%)
State income taxes, net 0.2 0.7 0.7
Tax rate differential on international income (19.3) (34.7) (53.5)
NOL with no tax benefit realized — 10.2 78.9
Other (0.9) 3.8 7.9
Effective tax rate 15.0 % 15.0 % —%
Certain income of selected subsidiaries is taxed at substantially lower income
tax rates as compared with local statutory rates. The lower rates reduced income
taxes and increased net earnings by $33.2 million ($.65 per share, fully diluted),
$27.4 million ($.60 per share, fully diluted) and $8.6 million ($.27 per share,
fully diluted) in 1995, 1994 and 1993, respectively. These lower rates expire peri-
odically through 2005.
At July 1, 1995, the Company had Federal NOL carryforwards of $149.8
million and tax credit carryforwards of $18.5 million, which expire in 1996
through 2009.
Net undistributed earnings from international subsidiaries at July 1, 1995
were $206.5 million. The net undistributed earnings are intended to finance local
operating requirements. Accordingly, an additional United States tax provision has
not been made.