ALPHA & OMEGA SEMICONDUCTOR LTD, 10-Q filed on 2/8/2012
Quarterly Report
Document and Entity Information
6 Months Ended
Dec. 31, 2011
Jan. 31, 2012
Entity Information [Line Items]
 
 
Entity Registrant Name
ALPHA & OMEGA SEMICONDUCTOR Ltd 
 
Entity Central Index Key
0001387467 
 
Current Fiscal Year End Date
--06-30 
 
Entity Filer Category
Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Dec. 31, 2011 
 
Document Fiscal Year Focus
2012 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
false 
 
Entity Common Stock, Shares Outstanding
 
24,625,052 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Jun. 30, 2011
Current assets:
 
 
Cash and cash equivalents
$ 97,260 
$ 86,708 
Restricted cash
79 
54 
Accounts receivable, net
34,805 
42,503 
Inventories
46,135 
65,251 
Deferred tax assets
1,824 
1,773 
Other current assets
2,197 
5,056 
Total current assets
182,300 
201,345 
Property and equipment, net
131,080 
127,839 
Intangible assets, net
1,314 
1,599 
Deferred tax assets
8,866 
9,048 
Other long-term assets
8,169 
7,607 
Total assets
331,729 
347,438 
Current liabilities:
 
 
Bank borrowings
10,700 
0 
Accounts payable
35,299 
64,678 
Accrued liabilities
13,496 
15,123 
Income taxes payable
1,543 
2,377 
Deferred margin
340 
495 
Capital leases - current portion
14 
306 
Total current liabilities
61,392 
82,979 
Income taxes payable - long term
3,154 
3,081 
Deferred income tax liabilities
24 
25 
Capital leases - long term portion
130 
130 
Deferred rent
1,109 
973 
Total liabilities
65,809 
87,188 
Commitments and contingencies (Note 10)
   
   
Preferred shares, par value $0.002 per share:
 
 
Authorized: 10,000 shares; Issued and outstanding: none at December 31, 2011 and June 30, 2011
0 
0 
Common shares, par value $0.002 per share:
 
 
Authorized: 50,000 shares; Issued and outstanding: 24,828 shares and 24,587 shares at December 31, 2011 and 24,612 shares and 24,562 shares at June 30, 2011
49 
49 
Treasury shares at cost; 241 shares at December 31, 2011 and 50 shares at June 30, 2011
(2,267)
(693)
Additional paid-in capital
156,610 
153,004 
Accumulated other comprehensive income
959 
934 
Retained earnings
110,569 
106,956 
Total shareholders’ equity
265,920 
260,250 
Total liabilities and shareholders’ equity
$ 331,729 
$ 347,438 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2011
Jun. 30, 2011
Common stock, par value
$ 0.002 
$ 0.002 
Common stock, shares authorized
50,000 
50,000 
Common stock, shares issued
24,828 
24,612 
Common stock, shares outstanding
24,587 
24,562 
Preferred stock, par value
$ 0.002 
$ 0.002 
Preferred stock, shares authorized
10,000 
10,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Treasury shares
241 
50 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2010
Revenue
$ 80,713 
$ 83,982 
$ 164,161 
$ 173,399 
Cost of goods sold
62,440 
60,786 
125,311 
126,058 
Gross profit
18,273 
23,196 
38,850 
47,341 
Operating expenses:
 
 
 
 
Research and development
8,108 
6,609 
16,502 
12,868 
Selling, general and administrative
7,833 
9,040 
17,116 
18,238 
Total operating expenses
15,941 
15,649 
33,618 
31,106 
Operating income
2,332 
7,547 
5,232 
16,235 
Interest income
25 
53 
64 
81 
Interest expense
(44)
(63)
(71)
(109)
Income on equity investment in APM
0 
882 
0 
1,768 
Gain on equity interest in APM
0 
836 
0 
836 
Income before income taxes
2,313 
9,255 
5,225 
18,811 
Income tax expense
839 
564 
1,612 
1,320 
Net income
$ 1,474 
$ 8,691 
$ 3,613 
$ 17,491 
Net income per share
 
 
 
 
Basic per share
$ 0.06 
$ 0.38 
$ 0.15 
$ 0.78 
Diluted per share
$ 0.06 
$ 0.36 
$ 0.14 
$ 0.73 
Weighted-average number of shares used in computing net income per share
 
 
 
 
Basic shares
24,538 
22,977 
24,529 
22,546 
Diluted shares
25,423 
24,437 
25,517 
24,049 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities
 
 
Net income
$ 3,613 
$ 17,491 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation
11,504 
6,300 
Amortization
286 
131 
Allowance for doubtful accounts
185 
0 
Share-based compensation expense
2,675 
2,772 
Income on equity investment in APM
0 
(1,768)
Gain on equity interest in APM
0 
(836)
Loss on disposal of property and equipment
2 
46 
Changes in working capital:
 
 
Accounts receivable
7,513 
(5,259)
Inventories
19,116 
(4,558)
Other current and long term assets
2,027 
1,670 
Deferred tax assets and liabilities
129 
(480)
Accounts payable
(21,795)
(1,768)
Account payable to APM
0 
1,277 
Income taxes payable
(762)
1,205 
Accrued and other liabilities
(1,724)
7,014 
Net cash provided by operating activities
22,769 
23,237 
Cash flows from investing activities
 
 
Purchase of property and equipment
(21,884)
(20,660)
APM Acquisition, net of cash acquired
0 
(1,285)
Additional investment in APM before the APM acquisition
0 
(1,831)
Deposit for manufacturing capacity
0 
(5,000)
Restricted cash released
(25)
628 
Investment in a privately held company
(100)
0 
Net cash used in investing activities
(22,009)
(28,148)
Cash flows from financing activities
 
 
Proceeds from exercise of share options
930 
2,208 
Payment for IPO related expenses
0 
(610)
Payment for repurchase of common shares
(1,574)
0 
Proceeds from bank borrowings
14,700 
10,570 
Repayments of bank borrowings
(4,000)
(11,654)
Principal payments on capital leases
(291)
(275)
Net cash provided by financing activities
9,765 
239 
Net increase (decrease) in cash and cash equivalents
10,525 
(4,672)
Cash and cash equivalents at beginning of period
86,708 
119,001 
Exchange gains on cash and cash equivalents
27 
83 
Cash and cash equivalents at end of period
97,260 
114,412 
Supplemental disclosures of non cash investing and financing information:
 
 
Property and equipment purchased within accounts payable and accrued liabilities
$ (7,488)
$ (4,366)
The Company and Its Significant Accounting Policies
The Company and Its Significant Accounting Policies
The Company and Significant Accounting Policies
The Company
Alpha and Omega Semiconductor Limited and its subsidiaries (the “Company”, "AOS", "we" or "us") design, develop and supply a broad range of power semiconductors. The Company's portfolio of products targets high-volume applications, including portable computers, flat panel TVs, smart phones, battery packs, portable media players, motor control and power supplies. The Company conducts its operations primarily in the United States of America (“USA”), Hong Kong, Macau, China, Taiwan, Korea and Japan.
Basis of Preparation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Securities and Exchange Commission Regulation S-X. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the period presented have been included in the interim period. Operating results for the three and six months ended December 31, 2011 are not necessarily indicative of the results that may be expected for other interim periods or the year ending June 30, 2012. The condensed consolidated balance sheet at June 30, 2011 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011.
Use of Estimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. To the extent there are material differences between these estimates and actual results, the Company's consolidated financial statements will be affected. On an ongoing basis, the Company evaluates the estimates, judgments and assumptions including those related to revenue recognition, inventory reserves, warranty reserve, income taxes, share-based compensation and useful lives for property and equipment and for intangible assets.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that allows entities to first assess qualitatively whether it is necessary to perform the two-step goodwill impairment test. If any entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative two-step goodwill impairment test is required. An entity has the unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not expect the adoption of these provisions to have a significant effect on its consolidated financial statements.
In June 2011, the FASB issued authoritative guidance that amends the presentation requirements for comprehensive income in financial statements. The guidance requires entities to report components of comprehensive income either as part of a single continuous statement of comprehensive income that would combine the components of net income and other comprehensive income, or in a separate, but consecutive, statement following the statement of income. The guidance is effective for interim and annual periods beginning after December 15, 2011 and is to be applied retrospectively. The Company does not expect the adoption of these provisions to have a significant effect on its consolidated financial statements.
Concentration of Credit Risk and Significant Customers
Concentration of Credit Risk and Significant Customers
Concentration of Credit Risk and Significant Customers
The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding trade receivables through the application of credit approvals, credit ratings and other monitoring procedures. In some instances, the Company also obtains letters of credit from certain customers.
Credit sales, which are mainly on credit terms of 30 to 60 days, are only made to customers who meet the Company's credit policy, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company's management considers the Company's financial assets to be of good credit quality because its key distributors and direct customers have long-standing business relationships with the Company and the Company has not experienced any significant bad debt write-offs of trade receivables in the past. The Company's management closely monitors the aging of receivables from its distributors and direct customers, and regularly reviews their financial positions, when available.
Summarized below are individual customers whose revenue or trade receivable balances were 10% or higher than the respective total consolidated amounts:
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
Percentage of revenue
2011
 
2010
 
2011
 
2010
Customer A
23.1 %
 
36.9
%
 
20.2
%
 
33.7
%
Customer B
40.5 %
 
31.1
%
 
42.7
%
 
34.4
%
Customer C
14.8 %
 
12.9
%
 
14.6
%
 
12.0
%
 
 
December 31, 2011
 
June 30,
2011
Percentage of trade receivables
 
Customer A
29.4
%
 
28.5
%
Customer B
22.9
%
 
32.7
%
Customer C
23.5
%
 
14.0
%
Segment and Geographic information
Segment and Geographic Information
Segment and Geographic Information
The Company is organized as, and operates in, one operating segment: design, development and marketing of power semiconductor products for computing, consumer electronics, communication and industrial applications. The chief operating decision-maker is the Chief Executive Officer. The financial information presented to the Company's Chief Executive Officer is on a consolidated basis, accompanied by information about revenue by customer and geographic region, for purposes of evaluating financial performance and allocating resources. The Company has one business segment, and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. Accordingly, the Company reports as a single operating segment.
The Company sells its products primarily to distributors in the Asia Pacific region, who in turn sell these products to end customers. Because the Company's distributors sell their products to end customers which may have global presence, revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets. The revenue by geographical location in the following tables is based on the country or region to which the products were shipped:
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2011
 
2010
 
2011
 
2010
 
(in thousands)
 
(in thousands)
Hong Kong
$
63,207

 
$
78,612

 
$
128,059

 
$
164,472

China
14,592

 
1,847

 
29,214

 
1,847

Korea
1,706

 
1,864

 
4,164

 
3,985

United States
366

 
529

 
767

 
1,224

Other countries
842

 
1,130

 
1,957

 
1,871

 
$
80,713

 
$
83,982

 
$
164,161

 
$
173,399

        
    
The following is a summary of revenue by product type:
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2011
 
2010
 
2011
 
2010
 
(in thousands)
 
(in thousands)
Power discrete
$
62,491

 
$
66,491

 
$
126,205

 
$
138,650

Power IC
12,967

 
15,644

 
26,280

 
32,902

Packaging and testing services
5,255

 
1,847

 
11,676

 
1,847

 
$
80,713

 
$
83,982

 
$
164,161

 
$
173,399

 
The location and net book value of the Company's property and equipment are as follows:
 
December 31,
2011
 
June 30,
2011
 
(in thousands)
China
$
118,691

 
$
116,955

United States
11,970

 
10,426

Other countries
419

 
458

 
$
131,080

 
$
127,839

Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Accounts receivable:
 
December 31,
2011
 
June 30,
2011
 
(in thousands)
Accounts receivable
$
53,261

 
$
61,768

Less: Allowance for price adjustments
(18,241
)
 
(19,235
)
Less: Allowance for doubtful accounts
(215
)
 
(30
)
Accounts receivable, net
$
34,805

 
$
42,503

Inventories:
 
December 31,
2011
 
June 30,
2011
 
(in thousands)
Raw materials
$
28,665

 
$
30,713

Work in-process
9,456

 
20,513

Finished goods
8,014

 
14,025

 
$
46,135

 
$
65,251

Property and equipment:
 
December 31,
2011
 
June 30,
2011
 
(in thousands)
Manufacturing machinery and equipment
$
114,807

 
$
107,555

Equipment and tooling
9,782

 
9,232

Computer equipment and software
12,372

 
11,906

Office furniture and equipment
1,453

 
1,597

Leasehold improvements
21,618

 
15,949

 
160,032

 
146,239

Less accumulated depreciation and amortization
(49,947
)
 
(38,617
)
 
110,085

 
107,622

Equipment and construction in progress
20,995

 
20,217

 
$
131,080

 
$
127,839

Other long term assets:
 
December 31,
2011
 
June 30,
2011
 
(in thousands)
Prepayment for acquisition of wafer fabrication assets
$
5,000

 
$
5,000

Prepayments for property and equipment
2,536

 
2,086

Investment in a privately held company
100

 
—

Deposits on office leases
533

 
521

 
$
8,169

 
$
7,607

Accrued liabilities:
 
December 31,
2011
 
June 30,
2011
 
(in thousands)
Accrued salaries and wages
$
3,176

 
$
2,322

Accrued vacation
1,221

 
1,383

Accrued bonuses
1,678

 
3,760

Warranty accrual
780

 
664

Stock rotation accrual
1,691

 
1,880

Accrued professional fees
424

 
1,101

ESPP payable
250

 
206

Customer deposits
397

 
204

Other accrued expenses
3,879

 
3,603

 
$
13,496

 
$
15,123

A summary of the warranty accrual, which was included in accrued liabilities, is as follows:
 
Six Months Ended
 
December 31,
 
2011
 
2010
 
(in thousands)
Beginning balance
$
664

 
$
1,275

Charged to costs
439

 
(114
)
Utilization
(323
)
 
(363
)
Ending balance
$
780

 
$
798

A summary of the stock rotation accrual, which was included in accrued liabilities, is as follows:
 
Six Months Ended
 
December 31,
 
2011
 
2010
 
(in thousands)
Beginning balance
$
1,880

 
$
513

Charged to statement of income
2,906

 
2,860

Utilization
(3,095
)
 
(1,918
)
Ending balance
$
1,691

 
$
1,455

Bank Borrowings
Bank Borrowings
Bank Borrowings
As of December 31, 2011, two of the Company's subsidiaries in China had revolving lines of credit that allow each of the subsidiaries to draw down, from time to time, up to 80% of the balance of such subsidiary's accounts receivable with a maximum amount of 40 million Chinese Renminbi (RMB) (equivalent of $6,313,000 based on the currency exchange rate as of December 31, 2011) to finance the subsidiary's accounts receivable on a maximum of 120-day repayment term. The interest rate on each drawdown varies and indexes to the published London Interbank Offered Rate per annum. As of December 31, 2011, the total outstanding balance for the lines of credit aggregated $10,700,000. The effective interest rate for the borrowings was in the range of 3.8% to 4.3% for the six months ended December 31, 2011. There was no outstanding borrowing balance at June 30, 2011.
Shareholders' Equity and Share-based Compensation
Shareholders' Equity and Share-based Compensation
Shareholders' Equity and Share-based Compensation
Shares Repurchase
On October 22, 2010, the Company's board of directors authorized a $25.0 million share repurchase program. Under this repurchase program the Company may, from time to time, repurchase shares from the open market or in privately negotiated transactions, subject to supervision and oversight by the board. During the six months ended December 31, 2011, the Company repurchased 191,170 shares from the open market for a total cost of $1,574,000, at an average price of $8.23 per share. As of December 31, 2011, the Company repurchased an aggregate of 241,170 shares for a total cost of $2,267,000, at an average price of $9.40 per share. Shares repurchased are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity.
Share Options
A summary of the status of share options granted under the Company's 2000 Share Plan and 2009 Share Options/Share Issuance Plan and changes during the six months ended December 31, 2011 and 2010 is presented as follows:
 
 
 
Weighted
 
Weighted
 
Aggregate
 
Number of
 
Average
 
Average Grant
 
Intrinsic Value
 
Options
 
Exercise Price
 
Date Fair Value
 
at Date of
 
Outstanding
 
Per Share
 
Per Share
 
Each Exercise
As of June 30, 2010
4,733,133

 
$
8.7

 
 
 
 
Options granted
43,500

 
11.81

 
$
5.54

 
 
Options exercised
(357,433
)
 
3.83

 
 
 
$
2,910,663

Options cancelled or forfeited
(63,564
)
 
12.3

 
 
 
 
As of December 31, 2010
4,355,636

 
9.08

 
 
 
 
 
 
 
 
 
 
 
 
As of June 30, 2011
4,461,875

 
9.56

 
 
 
 
Options granted
37,500

 
9.29

 
$
4.47

 
 
Options exercised
(98,574
)
 
2.78

 
 
 
$
625,715

Options cancelled or forfeited
(90,878
)
 
11.6

 
 
 
 
As of December 31, 2011
4,309,923

 
9.67

 
 
 
 

Information with respect to share options outstanding and share options exercisable at the end of the six months ended December 31, 2011 is presented as follows:
 
Options Outstanding  
 
Options Vested and Exercisable  
 
Number
Outstanding
 
Weighted-Average
Remaining Life (years) 
 
Weighted-Average
Exercise Price
 
Number
Outstanding  
 
Weighted-Average
Exercise Price  
Total options outstanding
4,309,923

 
5.67

 
$
9.67

 
3,091,938

 
$
8.20

 
 
 
 
 
 
 
 
 
 
Options vested and expected to vest
4,203,114

 
5.61

 
$
9.56

 
 
 
 
Options expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options.
Share option exercises were settled with newly issued common shares. The weighted average fair values of the options granted on the date of grant were determined using the Black-Scholes option pricing model. The significant inputs into the model for the six months ended December 31, 2011 and 2010 were as follows:
 
Six Months Ended
 
December 31,
 
2011
 
2010
Volatility rate
 
49%
 
49%
Risk-free interest rate
 
0.88%
 
1.0% - 2.2%
Expected option life
 
5.5 years
 
5.5 years
Dividend yield
 
0%
 
0%
Restricted Stock Units (the "RSU")
A summary of the RSU activity under the 2009 Share Options/Share Issuance Plan and changes during the six months ended December 31, 2011 and 2010 is presented as follows:
 
 
Restricted Stock
Units
 
Weighted Average
Grant Date Fair
Value Per Share
 
Weighted Average
Remaining
Recognition
Period (Years)
 
Aggregate Intrinsic Value
Outstanding at July 1, 2010
 
—

 
 
 
 
 
 
 
 
Awards granted
 
160,800

  
$
11.94

  
 
 
  
 
Awards released
 
—

 
 
 
 
 
 
 
 
Awards forfeited
 
(4,000
)
  
 
 
  
 
 
  
 
Outstanding at December 31, 2010
 
156,800

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at July 1, 2011
 
213,300

  
 
 
  
 
 
  
 
Awards granted
 
169,200

  
$
9.22

  
 
 
  
 
Awards released
 
(30,960
)
 
 
 
 
 
 
 
 
Awards forfeited
 
(17,200
)
 
 
 
  
 
 
  
 
Outstanding at December 31, 2011
 
334,340

  
 
 
  
 
2.54

 
$
2,444,025

 
 
 
 
 
 
 
 
 
 
 
Ending RSU vested and expected to vest
 
283,431

 
 
 
 
 
2.42

 
$
2,071,879

The estimated fair value of RSU is based on the market price of the Company's stock on the grant date.
Employee Stock Purchase Plan (the “ESPP”)
The Employee Stock Purchase Plan was established in May 2010 upon the completion of the Company's initial public offering. The fair values of common shares to be issued under the ESPP were determined using the Black-Scholes pricing model. The significant inputs into the model were as follows:
 
Six Months Ended
 
December 31,
 
2011
 
2010
Volatility rate
50%
 
50%
Risk-free interest rate
0.1% - 0.3%
 
 0.2% - 1.0%
Expected term
1.3 years
 
1.3 years
Dividend yield
0%
 
0%
  The total share-based compensation expenses, including the share options, the ESPP and the RSU described above, recognized in the condensed consolidated statement of income are as follows:
 
Three Months Ended
 
Six Months Ended
 
December 31,
 
December 31,
 
2011
 
2010
 
2011
 
2010
 
(in thousands)
 
(in thousands)
Cost of goods sold
$
133

 
$
159

 
$
214

 
$
296

Research and development expenses
372

 
331

 
631

 
718

Selling, general and administrative expenses
948

 
734

 
1,830

 
1,758

 
 
 
 
 
 
 
 
 
$
1,453

 
$
1,224

 
$
2,675

 
$
2,772

Total unrecognized compensation expense from the share options, the RSU and the ESPP as of December 31, 2011 was $6,936,000 including estimated forfeitures, which is expected to be recognized over a weighted-average period of 1.98 years.
Net Income Per Share
Net Income Per Share
Net Income Per Share
The following table presents the calculation of basic and diluted net income per share attributable to common shareholders:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2011
 
2010
 
2011
 
2010
 
(in thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net income - basic and diluted
$
1,474

 
$
8,691

 
$
3,613

 
$
17,491

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Weighted average shares of common share used in computing basic net income per share
24,538

 
22,977

 
24,529

 
22,546

Diluted:
 
 
 
 
 
 
 
Add weighted average effect of dilutive securities:
 
 
 
 
 
 
 
Share options, RSU and ESPP
885

 
1,460

 
988

 
1,503

Weighted average shares of common share used in computing diluted net income per share
25,423

 
24,437

 
25,517

 
24,049

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.06

 
$
0.38

 
$
0.15

 
$
0.78

Diluted
$
0.06

 
$
0.36

 
$
0.14

 
$
0.73

The following potential dilutive securities are not included in the above calculation because their effect was anti-dilutive for the periods indicated:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2011
 
2010
 
2011
 
2010
 
(in thousands)
 
(in thousands)
Share options to purchase common shares
618

 
1,614

 
779

 
1,700

ESPP to purchase common shares
886

 
359

 
443

 
309

Total potential dilutive securities
1,504

 
1,973

 
1,222

 
2,009

Comprehensive Income
Comprehensive Income
Comprehensive Income

The components of total comprehensive income are as follows:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2011
 
2010
 
2011
 
2010
 
(in thousands)
 
(in thousands)
Net income
$
1,474

 
$
8,691

 
$
3,613

 
$
17,491

Other comprehensive income (loss):
 
 
 
 
 
 
 
Currency translation differences
36

 
82

 
25

 
198

Total comprehensive income
$
1,510

 
$
8,773

 
$
3,638

 
$
17,689

Income Taxes
Income Taxes
Income Taxes

The Company recognized income tax expense of approximately $839,000 and $564,000 for the three months ended December 31, 2011 and 2010, respectively. The Company recognized income tax expense of approximately $1,612,000 and $1,320,000 for the six months ended December 31, 2011 and 2010, respectively. The estimated effective tax rate was 36.3% and 6.1% for the three months ended December 31, 2011 and 2010, respectively. The estimated effective tax rate was 30.9% and 7.0% for the six months ended December 31, 2011 and 2010, respectively. The effective tax rate for the three and six months ended December 31, 2011 was higher than the effective tax rate for the three and six months ended December 31, 2010 primarily due to a change in the mix of earnings in various geographic jurisdictions between the two periods.
    
The Company files federal and state income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2011 remain open to examination by U.S. federal and state tax authorities. The tax years 2005 to 2011 remain open to examination by material foreign tax authorities.
The Company is subject to ongoing tax examinations of our tax returns by the Internal Revenue Service and other tax authorities in various jurisdictions. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes. These assessments can require considerable estimates and judgments. As of December 31, 2011, the gross amount of unrecognized tax benefits was approximately $6,646,000. If the estimates of income tax liabilities proves to be less than the ultimate assessment, then a further charge to expense would be required. If events occur and the payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period in which the Company determines the liabilities are no longer necessary. The Company does not anticipate any material changes to its uncertain tax positions during the next twelve months.

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
As of December 31 and June 30, 2011, the Company had approximately $23,037,000 and $22,014,000 of outstanding purchase commitments for purchases of semiconductor raw materials, wafers and packaging and testing services, respectively, and approximately $1,784,000 and $5,170,000 capital commitments for the purchase of property and equipment, respectively.

The Company is currently not a party to any material legal proceedings. The Company had in the past, and may from time to time in the future, become involved in legal proceedings arising from the normal course of business activities. The semiconductor industry is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. Irrespective of the validity of such claims, the Company could incur significant costs in the defense thereof or could suffer adverse effects on its operations.
Guarantees
We indemnify our directors and certain employees as permitted by law, and have entered into indemnification agreements with our directors and executive officers. We have not recorded a liability associated with these indemnification arrangements, as we historically have not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that we maintain, however, such insurance may not cover any, or may cover only a portion of, the amounts we may be required to pay. In addition, we may not be able to maintain such insurance coverage in the future.
We also have indemnification clauses in various contracts that we enter into in the normal course of business, such as indemnifications in favor of customers in respect of liabilities they may incur as a result of purchasing our products should such products infringe the intellectual property rights of a third party. We have not historically paid out any material amounts related to these indemnifications, therefore, no accrual has been made for these indemnifications.
Acquisition of Wafer Fabrication Facility
Acquisitions of Wafer Fabrication Facility
Acquisitions of Wafer Fabrication Facility

On December 14, 2011 the Company entered into an agreement to acquire certain assets, including land, building, and equipment, associated with a wafer fabrication facility located in Hillsboro, Oregon from Integrated Device Technology, Inc, or IDT, for a purchase price of $26.0 million plus certain assumed liability. The Company previously paid a cash deposit of $5 million, which was applied to the purchase price. The purchase price is subject to adjustment based on changes in the value of certain inventory utilized in the maintenance and repair of the equipment located at the facility. The acquisition was completed on January 31, 2012.