Accounting Changes and Error Corrections

3 Months Ended

Sep. 30, 2013

Accounting Changes and Error Corrections [Abstract]

Accounting Changes and Error Corrections [Text Block]

The condensed consolidated financial statements are unaudited and reflect all adjustments (consisting of normal recurring adjustments) and accruals, which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013. The results of operations for the three months ended September 30, 2013are not necessarily indicative of the results for the entire fiscal year ending June 30, 2014, or any future interim period.

The income tax rates utilized for interim financial statement purposes for the three months ended September 30, 2013are based on estimates of income and utilization of tax credits for the entire fiscal year ending June 30, 2014.

During the quarter ended September 30, 2013, the Company identified an error in its liability for income taxes. The error arose during the Company’s fiscal year ended June 30, 2009 upon the execution and subsequent borrowing under a debt agreement with a bank. The debt agreement included a pledge by the Company of all the assets of its foreign subsidiary in China. Under Section 956(a) of the Internal Revenue Code, a pledge of assets of a foreign subsidiary requires that the value of the subsidiary’s earnings and profits be included in gross taxable income of the Company. Based on this, the Company should have included income in its gross taxable income in fiscal 2009 in an amount equal to the cumulative earnings and profits from the China subsidiary from its inception through the date of the borrowing in fiscal 2009. The resulting error in fiscal 2009 was an understatement of its income tax liability and an overstatement of its net income totaling $2.7 million. The total effect of the error as of June 30, 2011 totaled $3.4 million, which includes interest expense from fiscal years 2010 and 2011 and an income tax penalty. The interest expense incurred and not recorded in fiscal years 2012 and fiscal 2013 was not material to the consolidated financial statements in those years.

In accordance with accounting guidance found in Accounting Standards Codification (“ASC”) 250-10, Accounting Changes and Error Corrections and Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 99, Materiality, the Company assessed the materiality of the error and concluded that the error was not material to any of its previously issued consolidated financial statements included in the Form 10-K for the year ended June 30, 2013. As permitted by the accounting guidance found in ASC 250-10 and SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company has revised the accompanying condensed consolidated balance sheet as of the earliest period presented (June 30, 2013), to decrease retained earnings by $3.4 million and to increase income taxes payable by the same amount. The following table presents the effect of this revision on the Company’s condensed consolidated balance sheet as of June 30, 2013 (in thousands):

	Retained earnings			Income taxes payable		Other current liabilites
Beginning balance, as previously reported	$	158,182		$	-	$	1,900
Prior-period adjustment		(3,435	)		3,435
Reclassification					345		(345	)
Beginning balance, as restated	$	154,747		$	3,780	$	1,555

As indicated above, the Company previously included income taxes payable in other current liabilities on the condensed consolidated balance sheet as of June 30, 2013. As a result of this revision, the Company has reclassified income taxes payable from other current liabilities as of June 30, 2013. No adjustments were required to be made to the accompanying condensed consolidated statements of income, comprehensive income, or cash flows for the three month period ended September 30, 2012.