Applied Films changes tax treatment of China JV

Applied Films Corporation has changed the tax treatment of the equity earnings from its China Joint Venture, known as STEC, the company said 16 September 2005. Since the inception of the China JV in 1…

Applied Films Corporation has changed the tax treatment of the equity earnings from its China Joint Venture, known as STEC, the company said 16 September 2005. Since the inception of the China JV in 1999, the company has viewed the earnings at the China JV as permanently re-invested. After considering the current business environment surrounding the China JV, including the dividends paid during the 2005 fiscal year, Applied Films says it no longer intends to re-invest its share of the China JV“s retained earnings in China. As a result of the decision, the company expects an impact of USD 0.01 per fully diluted share for both GAAP and Non-GAAP financial results for the 1Q of fiscal year 2006 ending 1 October 2005. These accrued taxes will become due upon receipt of dividends or other cash distributions of the undistributed earnings from the China JV. Because Applied Films no longer considers the earnings in the China JV permanently reinvested under the accounting guidance of APB 23 and SFAS 109, “Accounting for Income Taxes — Special Areas,” in the 4Q of fiscal 2005 the company accrued a non-cash increase to income tax expense of USD 4.8 million on the USD 13.0 million accumulated undistributed earnings of the China JV from its inception in 1999. This non-cash charge for income taxes net of an adjustment for a reduction of valuation allowances, changes the previously reported loss for the 4Q of fiscal 2005 from USD 3.0 million to USD 7.1 million and EPS from USD 0.20 to USD 0.48 per fully diluted share. In the future, the company will accrue income taxes quarterly at the US tax rate on the equity earnings of the China JV. Applied Films is a provider of thin film deposition equipment to the flat panel display, architectural glass, solar cell, and the consumer products packaging and electronics industries.