Income Taxes

6 Months Ended

Dec. 31, 2013

Note 15: Income Taxes

	Three Months Ended December 31,										Six Months Ended December 31,
	2013					2012					2013					2012

	Amount		Tax Rate %			Amount		Tax Rate %			Amount		Tax Rate %			Amount		Tax Rate %

Income tax expense	$	2,135		34	%	$	1,064		53	%	$	3,540		35	%	$	3,106		48	%

Income tax expense for the six months ended December 31, 2013 resulted from an annual effective tax rate of 39%, reduced by recording foreign tax credits upon completion of a full foreign tax credit study. Income tax expense for the six months ended December 31, 2012 did not include federal research and development credits due to expiration of the credit, which was not renewed until the third quarter.

The Company issubject to U.S. federal income tax, as well as income tax in multiple state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax audit or tax adjustments for years prior to June 30, 2007, except to the extent there are NOLs and credits arising from any of those years. Those years are subject to audit at the time the NOLs or credits available from those years are utilized. The Company is no longer subject to state and foreign income tax audit or tax adjustments for years prior to June 30, 2006.

In the normal course of business, we analyze for uncertain tax positions and adjust unrecognized tax benefits or liabilities accordingly. For the three and six months ended December 31, 2013, we recognized additional liabilities for uncertain tax positions of $148 and $192, respectively. We are not aware of any tax positions that would create a material adjustment to unrecognized tax benefits during the next twelve months.

As previously reported, the Company has been performing a review of its tax accounts, assisted by outside consultants as appropriate. As a result of that review, the Company reported in its earnings press release for the second quarter of fiscal 2014 that, subsequent to the issuance of the financial information for the period ended December 31, 2012, the Company’s management identified certain errors in the Company’s accounting for income taxes. Upon completion of this review, the Company identified two errors in addition to the errors reported in its earnings press release, all of which the Company determined to be immaterial to the financial information:

(1)

An overstatement in recorded tax expense related to certain transactions with foreign subsidiaries, partially offset by an understatement in tax expense recorded in a reduction of reserves against uncertain tax positions related to transfer pricing. The Company’s deferred tax assets were understated for tax benefits that had not historically been captured from transactions between Zygo and their foreign subsidiaries, primarily related to its German subsidiary ZygoLot. For the six month period ended December 31, 2012, the correction of the two errors aggregated to a decrease in income tax expense of $0.7 million with a corresponding decrease in deferred tax liabilities. The three month period ended December 31, 2012 was not affected by this adjustment as all of the activity related to the first quarter of fiscal 2013.

	(2)	An overstatement of recorded state research and development tax credits, which are available for use to offset future state taxes on capital. Zygo had incorrectly recorded these State credits within its tax accounts for States where Zygo pays tax on capital, not on income. As a result, the previously recorded deferred tax assets related to these credits was reversed. For three and six months ended December 31, 2012, the correction of the error resulted in an increase to income tax expense of $0.2 million and $0.4 million, respectively, with a corresponding decrease to deferred tax assets.

	(3)	An error in accounting for the tax basis of fixed assets acquired in the Company’s acquisition of the Richmond, California operations in November 2010. The tax basis of the fixed assets acquired that was used in the calculation of the deferred tax accounts since the acquisition date was overstated and as a result understated the associated deferred tax liability. The calculated tax basis did not include a basis adjustment for a future discount liability recorded as part of the original acquisition. For three and six months ended December 31, 2012, the correction of the error resulted in an increase in income tax expense of $0.5 million and $1.7 million, respectively, with a corresponding decrease in deferred tax assets.


	(4)	An understatement in the recording of the Company’s net operating loss carryforward related to excess tax benefits on shared based compensation. The unrecognized excess tax benefits in certain years were not recorded in accordance with the same methodology in which the Company had elected on the date of adoption of FAS 123R. The correction of the error resulted in an increase to the deferred tax asset related to the net operating loss carryforward and an increase to additional paid-in capital of $1.4 million as of June 30, 2013.


	(5)	An error in the recognition of uncertain tax positions against a net operating loss carryforward related to an acquisition. The Company’s uncertain tax positions were understated by $1.1 million and therefore were corrected to reflect the uncertainty on the availability of an acquired net operating loss carryforward. As of June 30, 2013, the correction of the error resulted in an increase in other long-term liabilities of $1.1 million with a corresponding decrease in retained earnings.

The Company’s management has evaluated these errors on the previously reported financial information on the basis of quantitative and qualitative considerations and does not believe the errors are material to the previously issued financial information. However, because correction of these amounts in the current period would be significant to the current statement of operations, they have been corrected by immaterial restatement of the previously reported amounts. The table below provides a reconciliation of the restated balances to the amounts previously reported:

(Amounts in thousands, except per share amounts)

Fiscal 2013	Six Months Ended December 31, 2012						Three Months Ended December 31, 2012
Condensed Consolidated Statements of Operations	As Previously Reported			As Restated			As Previously Reported			As Restated

Income tax expense	$	(1,756	)	$	(3,106	)	$	(323	)	$	(1,064	)
Net Income attributable to Zygo Corporation		3,967			2,617			1,579			838

Basic Earnings per Share	$	0.22		$	0.14		$	0.09		$	0.05
Diluted Earnings Per Share	$	0.21		$	0.14		$	0.08		$	0.04


Fiscal 2013	At June 30, 2013
Condensed Consolidated Balance Sheet	As Previously Reported		As Restated

Deferred income taxes - Asset - Current	$	7,261	$	8,631
Total current assets	$	163,633	$	165,003
Deferred income taxes - Asset - Long Term	$	14,967	$	10,490
Total assets	$	218,220	$	215,113
Other long term liabilities	$	4,997	$	3,769
Total liabilities	$	32,336	$	31,108
Additional paid-in capital	$	180,324	$	181,694
Retained earnings	$	30,104	$	26,855
Total shareholders’ equity - Zygo Corporation	$	183,841	$	181,962
Total equity	$	185,884	$	184,005
Total liabilities and equity	$	218,220	$	215,113

Fiscal 2013	Six Months Ended December 31, 2012
Condensed Consolidated Statement of Cash Flows	As Previously Reported			As Restated

Cash provided by operating activites - Net income including noncontrolling interest	$	4,676		$	3,326

Adjustments to reconcile net income to cash - Deferred income taxes	$	(2,105	)	$	(939	)

Adjustments to reconcile net income to cash - Accounts payable, accrued expenses and taxes payable	$	(1,575	)	$	(1,391	)

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References+ Details

ZYGO CORP 10-Q