0001387467-13-000061.txt : 20130506 0001387467-13-000061.hdr.sgml : 20130506 20130506145642 ACCESSION NUMBER: 0001387467-13-000061 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20130331 FILED AS OF DATE: 20130506 DATE AS OF CHANGE: 20130506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALPHA & OMEGA SEMICONDUCTOR Ltd CENTRAL INDEX KEY: 0001387467 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34717 FILM NUMBER: 13815704 BUSINESS ADDRESS: STREET 1: 475 OAKMEAD PARKWAY CITY: SUNNYVALE STATE: CA ZIP: 94085 BUSINESS PHONE: 408-830-9742 MAIL ADDRESS: STREET 1: 475 OAKMEAD PARKWAY CITY: SUNNYVALE STATE: CA ZIP: 94085 FORMER COMPANY: FORMER CONFORMED NAME: ALPHA & OMEGA SEMICONDUCTOR LTD DATE OF NAME CHANGE: 20070123 10-Q 1 aosl0331201310q.htm 10-Q AOSL 03.31.2013 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
(MARK ONE)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013

OR
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM              TO             
Commission file number 001-34717
__________________________
Alpha and Omega Semiconductor Limited
(Exact name of Registrant as Specified in its Charter)
Bermuda
77-0553536
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
Clarendon House, 2 Church Street
Hamilton HM 11, Bermuda
(Address of Principal Registered
Offices including Zip Code)
(408) 830-9742
(Registrant's Telephone Number, Including Area Code)
__________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  o
Accelerated filer  x
Non-accelerated filer  o
Smaller reporting company   o
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
Number of common shares outstanding as of April 30, 2013: 25,501,585.



Alpha and Omega Semiconductor Limited
Form 10-Q
Fiscal Third Quarter Ended March 31, 2013
TABLE OF CONTENTS
 
 
 
Page
Part I.
FINANCIAL INFORMATION
 
    Item 1.
 
 
 
 
 
    Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
    Item 3.
    Item 4.
Part II.
OTHER INFORMATION
 
    Item 1.
    Item 1A.
Risk Factors
    Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    Item 3.
Defaults Upon Senior Securities
    Item 4.
Mine Safety Disclosures
    Item 5.
Other Information
    Item 6.
Exhibits
 




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands except par value per share)
 
March 31,
2013
 
June 30,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
104,040

 
$
82,166

Restricted cash
201

 
236

Accounts receivable, net
29,812

 
38,850

Inventories
67,093

 
65,778

Deferred income tax assets
2,711

 
2,789

Other current assets
4,879

 
3,962

Total current assets
208,736

 
193,781

Property, plant and equipment, net
142,943

 
158,543

Intangible assets, net
599

 
1,028

Goodwill
269

 
269

Deferred income tax assets
10,574

 
10,061

Other long-term assets
957

 
2,475

Total assets
$
364,078

 
$
366,157

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Short term debt
$
3,571

 
$
3,571

Accounts payable
36,154

 
35,646

Accrued liabilities
15,124

 
21,026

Income taxes payable
3,011

 
2,349

Deferred margin
474

 
366

Capital leases
974

 
961

Total current liabilities
59,308

 
63,919

Long-term debt
14,537

 
16,429

Income taxes payable - long term
3,480

 
3,509

Deferred income tax liabilities
1,531

 
587

Capital leases - long term
347

 
1,085

Deferred rent
1,388

 
1,235

Total liabilities
80,591

 
86,764

 
 
 
 
Commitments and contingencies (Note 10)

 

Shareholders' equity:
 
 
 
Preferred shares, par value $0.002 per share:
 
 
 
Authorized: 10,000 shares; Issued and outstanding: none at March 31, 2013 and June 30, 2012

 

Common shares, par value $0.002 per share:
 
 
 
Authorized: 50,000 shares; Issued and outstanding: 25,718 shares and 25,492 shares at March 31, 2013 and 25,167 shares and 24,938 shares at June 30, 2012
51

 
50

Treasury shares at cost; 226 shares at March 31, 2013 and 229 shares at June 30, 2012
(2,054
)
 
(2,104
)
Additional paid-in capital
166,304

 
160,602

Accumulated other comprehensive income
979

 
972

Retained earnings
118,207

 
119,873

Total shareholders’ equity
283,487

 
279,393

Total liabilities and shareholders’ equity
$
364,078

 
$
366,157

See accompanying notes to these condensed consolidated financial statements.

1


ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share data)




 
Three Months Ended March 31,
 
 
Nine Months Ended March 31,
 
 
2013
 
2012
 
2013
 
2012
Revenue
$
75,015

 
$
83,858

 
$
260,224

 
$
248,019

Cost of goods sold
69,770

 
64,564

 
208,852

 
189,875

Gross profit
5,245

 
19,294

 
51,372

 
58,144

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Research and development
6,876

 
6,510

 
20,675

 
23,012

Selling, general and administrative
8,917

 
9,028

 
26,536

 
26,144

Impairment of long-lived assets
2,557

 

 
2,557

 

Total operating expenses
18,350

 
15,538

 
49,768

 
49,156

Operating income (loss)
(13,105
)
 
3,756

 
1,604

 
8,988

 
 
 
 
 
 
 
 
Interest income
22

 
21

 
59

 
85

Interest expense
(93
)
 
(135
)
 
(282
)
 
(206
)
Income (loss) before income taxes
(13,176
)
 
3,642

 
1,381

 
8,867

 
 
 
 
 
 
 
 
Income tax expense (benefit)
(3
)
 
1,038

 
2,894

 
2,650

Net income (loss)
$
(13,173
)
 
$
2,604

 
$
(1,513
)
 
$
6,217

 
 
 
 
 
 
 
 
Net income (loss) per share
 
 
 
 
 
 
 
Basic
$
(0.52
)
 
$
0.11

 
$
(0.06
)
 
$
0.25

Diluted
$
(0.52
)
 
$
0.10

 
$
(0.06
)
 
$
0.24

 
 
 
 
 
 
 
 
Weighted average number of common shares used to compute net income (loss) per share
 
 
 
 
 
 
 
Basic
25,467

 
24,675

 
25,266

 
24,578

Diluted
25,467

 
25,647

 
25,266

 
25,565


See accompanying notes to these condensed consolidated financial statements.



2


ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)


 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
(13,173
)
 
$
2,604

 
$
(1,513
)
 
$
6,217

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustment
(48
)
 
69

 
7

 
94

Total comprehensive income (loss)
$
(13,221
)
 
$
2,673

 
$
(1,506
)
 
$
6,311












































See accompanying notes to these condensed consolidated financial statements.


3


ALPHA AND OMEGA SEMICONDUCTOR LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)





 
Nine Months Ended March 31,
 
2013
 
2012
Cash flows from operating activities
 
 
 
Net income (loss)
$
(1,513
)
 
$
6,217

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
21,872

 
17,897

Amortization
429

 
429

Allowance for doubtful accounts

 
643

Share-based compensation expense
3,576

 
3,971

Deferred income taxes, net
510

 
354

Loss on disposal of property and equipment
138

 
2

Impairment of long-lived assets
2,557

 

Changes in working capital:
 
 
 
Accounts receivable
9,038

 
2,853

Inventories
(1,315
)
 
14,221

Other current and long-term assets
602

 
3,713

Accounts payable
5,442

 
(20,329
)
Income taxes payable
633

 
(1,488
)
Accrued and other liabilities
(5,716
)
 
2,342

Net cash provided by operating activities
36,253

 
30,825

 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of property and equipment
(14,046
)
 
(28,308
)
Restricted cash released (placed)
35

 
(25
)
Acquisition of Oregon fab

 
(21,330
)
Investment in a privately held company

 
(100
)
Net cash used in investing activities
(14,011
)
 
(49,763
)
 
 
 
 
Cash flows from financing activities
 
 
 
Proceeds from exercise of stock options and ESPP
2,255

 
1,313

Payment for repurchase of common shares
(5
)
 
(1,574
)
Proceeds from borrowings
250

 
26,800

Repayments of borrowings
(2,143
)
 
(14,698
)
Principal payments on capital leases
(726
)
 
(306
)
Net cash provided by (used in) financing activities
(369
)
 
11,535

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
1

 
39

Net increase (decrease) in cash and cash equivalents
21,874

 
(7,364
)
Cash and cash equivalents at beginning of period
82,166

 
86,708

Cash and cash equivalents at end of period
$
104,040

 
$
79,344

 
 
 
 
Supplemental disclosures of non-cash investing and financing information:
 
 
 
Property and equipment purchased but not yet paid
$
3,430

 
$
10,867

See accompanying notes to these condensed consolidated financial statements.

4

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. 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, LED lighting, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment. 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, as amended. 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 fiscal year ended June 30, 2012. 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 nine months ended March 31, 2013 are not necessarily indicative of the results that may be expected for other interim periods or the fiscal year ending June 30, 2013. The condensed consolidated balance sheet at June 30, 2012 is derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012.
Use of Estimates
The preparation of 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 stock rotation returns, price adjustments, inventory reserves, warranty accrual, income taxes, share-based compensation, and useful lives for property, plant and equipment and intangible assets.
Fair Value of Financial Instruments
The fair value of cash equivalents are based on observable market prices and have been categorized in Level 1 in the fair value hierarchy. Cash equivalents consist primarily of short term bank deposits. The carrying values of financial instruments such as cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to their short-term maturities. The carrying value of the company's debt is considered a reasonable estimate of fair value which is estimated by considering the current rates available to the Company for debt of the same remaining maturities, structure and terms of the debts.
Impairment of Long-Lived Assets

Long-lived assets or asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Factors that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. Where such factors indicate potential impairment, the recoverability of an asset or asset group is assessed by determining if the carrying value of the asset or asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life.  The impairment loss is measured based on the difference between the carrying amount and estimated fair value.


5

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


During the quarter ended March 31, 2013, in light of the unfavorable market conditions particularly relating to the accelerated decline of the personal computing (PC) market, the Company conducted an in-depth analysis of its strategic plan. In its review, the Company reconsidered the key assumptions in its overall strategic business and manufacturing capacity plans in light of the continued declines in the PC market. As a result, the Company revised its PC related revenue and volume outlook as well as manufacturing capacity requirements. These material changes in the Company's outlook and plans, which the Company was able to determine in the third quarter of fiscal 2013, triggered an impairment review of its long-lived assets.

The Company determined that the related estimated undiscounted cash flows were not sufficient to recover the carrying value of certain manufacturing machinery and equipment primarily for the packaging of its PC related products. The average remaining useful life of those impaired assets was approximately two years. The Company estimated the fair values of those long-lived assets based on net realizable values of similar machinery and equipment recently transacted by third-party used-machine brokers and recorded an asset impairment charge of approximately $2.6 million to reduce the related carrying amount to its estimated fair value as of March 31, 2013.

Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's accumulated other comprehensive income consists of cumulative foreign currency translation adjustments. Total comprehensive income (loss) is presented in the condensed consolidated statements of comprehensive income.
Recent Accounting Pronouncements
In March 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update ("ASU") 2013-05, Foreign Currency Matters (Topic 830) Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The new guidance requires that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. The cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale guidance in Section 830-30-40 still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. This treatment does not apply to an equity method investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains the equity method investment. The amendments in this ASU are effective prospectively for fiscal years and interim reporting periods within those years beginning after Dec. 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. The Company does not expect the adoption of this guidance to have any significant impact on the Company's consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02"Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income", which requires an entity to report, either on the face of the statement where net income is presented or in the notes, the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The guidance in ASU 2013-02 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. Early adoption is permitted. The Company does not expect the adoption of this guidance to have any significant impact on the Company's consolidated financial statements.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income: Presentation of Comprehensive Income. The new guidance requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. In December 2011, the FASB issued an amendment to this guidance to defer the requirement to present

6

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


such reclassification adjustments. The guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2011.
Effective July 1, 2012, the Company retrospectively adopted this new guidance by presenting total comprehensive income and the components of net income and other comprehensive income in two separate but consecutive statements. The adoption of this guidance resulted only in a change in how the Company presents other comprehensive income in the condensed consolidated financial statements and did not have any impact on its results of operations, financial position, or cash flows.


2. Net Income (Loss) Per Share
The following table presents the calculation of basic and diluted net income (loss) per share:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share data)
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
(13,173
)
 
$
2,604

 
$
(1,513
)
 
$
6,217

 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Weighted average number of common shares used to compute basic net income (loss) per share
25,467

 
24,675

 
25,266

 
24,578

Diluted:
 
 
 
 
 
 
 
Weighted average number of common shares used to compute basic net income (loss) per share
25,467

 
24,675

 
25,266

 
24,578

Effect of potentially dilutive securities:
 
 
 
 
 
 
 
Stock options, RSUs and ESPP shares

 
972

 

 
987

Weighted average number of common shares used to compute diluted net income (loss) per share
25,467

 
25,647

 
25,266

 
25,565

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.52
)
 
$
0.11

 
$
(0.06
)
 
$
0.25

Diluted
$
(0.52
)
 
$
0.10

 
$
(0.06
)
 
$
0.24

The following potential dilutive securities were excluded from the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Employee stock options and RSUs
4,119

 
2,531

 
3,218

 
2,708

ESPP to purchase common shares
858

 
233

 
453

 
373

Total potential dilutive securities
4,977

 
2,764

 
3,671

 
3,081



7

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


3. Concentration of Credit Risk and Significant Customers
The Company manages its credit risk associated with exposure to distributors and direct customers on outstanding accounts receivable 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 standards, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its 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 accounts receivable in the past. The Company closely monitors the aging of accounts receivable from its distributors and direct customers, and regularly reviews their financial positions, when available.
Summarized below are individual customers whose revenue or accounts receivable balances were 10% or higher than the respective total consolidated amounts:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
Percentage of revenue
2013
 
2012
 
2013
 
2012
Customer A
21.4
%
 
26.4
%
 
23.2
%
 
22.3
%
Customer B
45.5
%
 
37.4
%
 
43.5
%
 
40.9
%
Customer C
10.8
%
 
14.3
%
 
12.0
%
 
14.5
%
 
 
March 31,
2013
 
June 30,
2012
Percentage of accounts receivable
 
Customer A
10.6
%
 
34.1
%
Customer B
36.8
%
 
23.6
%
Customer C
19.9
%
 
20.4
%
Customer D
10.5
%
 
6.1
%


4. Balance Sheet Components
Accounts receivable:
 
March 31,
2013
 
June 30,
2012
 
(in thousands)
Accounts receivable
$
45,552

 
$
55,858

Less: Allowance for price adjustments
(14,988
)
 
(16,256
)
Less: Allowance for doubtful accounts
(752
)
 
(752
)
Accounts receivable, net
$
29,812

 
$
38,850


Inventories:
 
March 31,
2013
 
June 30,
2012
 
(in thousands)
Raw materials
$
15,338

 
$
27,856

Work in-process
40,365

 
28,188

Finished goods
11,390

 
9,734

 
$
67,093

 
$
65,778


8

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


During the three months ended March 31, 2013, the Company recorded an inventory write-down of $7.7 million related to excess and obsolete inventory primarily consisting of products relating to PC applications, and to a lesser extent, products for power supplies.
 
Property, plant and equipment:
 
March 31,
2013
 
June 30,
2012
 
(in thousands)
Land
$
4,950

 
$
4,950

Building
4,106

 
4,077

Manufacturing machinery and equipment
153,829

 
152,307

Equipment and tooling
10,004

 
9,910

Computer equipment and software
15,785

 
14,912

Office furniture and equipment
1,559

 
1,630

Leasehold improvements
23,032

 
22,463

 
213,265

 
210,249

Less accumulated depreciation
(80,208
)
 
(63,114
)
 
133,057

 
147,135

Equipment and construction in progress
9,886

 
11,408

Property, plant and equipment, net
$
142,943

 
$
158,543

Other long term assets:
 
March 31,
2013
 
June 30,
2012
 
(in thousands)
Prepayments for property and equipment
$
222

 
$
1,632

Investment in a privately held company
100

 
100

Deferred debt issuance cost
117

 
204

Office leases deposits
518

 
539

 
$
957

 
$
2,475

Accrued liabilities:
 
March 31,
2013
 
June 30,
2012
 
(in thousands)
Accrued salaries and wages
$
3,131

 
$
3,418

Accrued vacation
1,889

 
2,232

Accrued bonuses
851

 
4,258

Warranty accrual
974

 
1,556

Stock rotation accrual
1,510

 
2,032

Accrued professional fees
729

 
687

ESPP payable
784

 
313

Customer deposits
100

 
179

Other accrued expenses
5,156

 
6,351

 
$
15,124

 
$
21,026


9

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


    
The activities in the warranty accrual, included in accrued liabilities, is as follows:
 
Nine Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Beginning balance
$
1,556

 
$
664

Additions
117

 
743

Utilization
(699
)
 
(641
)
Ending balance
$
974

 
$
766

The activities in the stock rotation accrual, included in accrued liabilities, is as follows:
 
Nine Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Beginning balance
$
2,032

 
$
1,880

Additions
4,349

 
4,189

Utilization
(4,871
)
 
(3,817
)
Ending balance
$
1,510

 
$
2,252



5. Acquisition of Wafer Fabrication Facility

On January 31, 2012, the Company completed the acquisition of certain assets, including land, building, machinery and equipment and inventories, associated with a wafer fabrication facility located in Hillsboro, Oregon (the "Oregon fab") from Integrated Device Technology, Inc, ("IDT"), for a purchase price of $26.3 million in cash plus certain assumed liabilities of $0.5 million. The Company applied the related cash deposit of $5.0 million made during fiscal 2011 to the purchase price.

The acquisition was accounted for as a business combination and the financial results of operations of the acquired facility were included in the Company's consolidated statements of operations from the date of acquisition. In connection with the acquisition, the Company incurred certain acquisition related expenses of approximately $0.2 million, which were recorded in general and administrative expenses in the Company's condensed consolidated statements of operations for fiscal 2012.

The allocation of the total purchase consideration of $26.3 million based on the estimated fair values as of the acquisition date, is summarized in the following table (in thousands):
Land
$
4,950

Building
3,900

Machinery and equipment
15,564

Inventories
2,159

Accrued liabilities
(512
)
Goodwill
269

Total purchase consideration
$
26,330


Of the total purchase price paid at the time of acquisition, approximately $0.3 million has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible assets and is deductible for tax purposes. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible assets were the synergies in improved product research and development as well as product to market lead time and production operations that can be leveraged to enable the Company to build an enterprise value greater than the sum of its

10

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


parts. The Company is depreciating the building on a straight-line basis over an estimated useful life of 20 years and the machinery and equipment over an estimated useful life of 3 to 7 years.

The Company considered the additional proforma revenue and earnings disclosure as not practical given the assets acquired had been and will continue to be used primarily as a captive fabrication facility. Due to the lack of independently substantiated standalone historical financial statements of the acquired assets, retrospective application requires significant estimates of their related revenues, costs and expenses for the proforma financial information disclosure. It is impossible to distinguish objectively information about those estimates that would provide evidence of circumstances that existed on the dates at which those amounts would be recognized, measured, or disclosed under retrospective application, or such information would have been available when the financial statements for that prior period were issued. Furthermore, the wafers produced by the Oregon fab for the Company are different from those of IDT and the Company does not intend to continue to produce such wafers. Therefore, the retroactive proforma financial information would not provide meaningful information for investors.


6. Debt
On May 11, 2012, the Company entered into a loan agreement with a financial institution that provides a term loan of $20.0 million for general purposes and a $10.0 million non-revolving credit line for the purchase of equipment. Both the term loan and equipment line will mature in May 2015. The borrowings may be made in the form of either Eurodollar loans or Base Rate loans. Eurodollar loans accrue interest based on an adjusted London Interbank Offered Rate ("LIBOR") as defined in the agreement, plus a margin of 1.00% to 1.75%. Base Rate loans accrue interest at the highest of (a) the lender's Prime Rate, (b) the Federal Funds Rate plus 0.5% and (c) the Eurodollar Rate (for a one-month interest period) plus 1%; plus a margin of -0.5% to 0.25%. The applicable margins for both Eurodollar loans and Base Rate loans will vary from time to time in the foregoing ranges based on the cash and cash equivalent balances maintained by the Company and its subsidiaries with the lender. As of March 31, 2013, the outstanding balance of the term loan and the equipment line was $17.9 million and $0. Of the $17.9 million term loan, $3.6 million was included as short-term debt as of March 31, 2013.

The obligations under the loan agreement are secured by substantially all assets of two subsidiaries of the Company, including, but not limited to, certain real property and related assets located at the Oregon fab. In addition, the Company and certain subsidiaries of the Company have agreed to guarantee full repayment and performance of the obligations under the loan agreement. The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain on a consolidated basis specified financial ratios including total liabilities to tangible net worth, fixed charge coverage and current assets to current liabilities. As of March 31, 2013, the Company was in compliance with these covenants.
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 accounts receivable balance of such subsidiary, with an aggregated maximum amount of RMB 95 million (equivalent of $15.3 million based on the currency exchange rate as of March 31, 2013) to finance the subsidiary's working capital with a maximum of 120-day repayment term. The interest rate on each draw down varied and was indexed to the published LIBOR per annum. These lines expired in August 2012 and were renewed in November 2012 with substantially the same terms except the aggregated maximum available amount of these two lines of credit increased from RMB 80 million to RMB 95 million. As of March 31, 2013, there was no outstanding balance for these lines of credit.
During July 2012, the Company entered into a loan agreement with the State of Oregon for an amount of $250,000. The loan is required to be used for training new and re-training existing employees of the Oregon Fab. The loan bears a compound annual interest rate of 5.0% and is to be repaid in April 2014. The State may forgive the loan and unpaid interest if certain conditions primarily relating to hiring targets are met. As of March 31, 2013, the outstanding balance of the loan was $250,000.

11

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


7. 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. The Company accounts for treasury stock under the cost method. Shares repurchased are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity. From time to time, treasury shares may be reissued as part of the Company's stock-based compensation programs. Gains on re-issuance of treasury stock are credited to additional paid-in capital; losses are charged to additional paid-in capital to offset the net gains, if any, from previous sales or re-issuance of treasury stock. Any remaining balance of the losses are charged to retained earnings.
During the three and nine months ended March 31, 2013, the Company repurchased 0 and 600 shares, respectively, with weighted average repurchase price of $7.48 per share under the program. During the three and nine months ended March 31, 2013, the Company issued 2,600 and 4,000 shares, respectively, with weighted average repurchase cost of $13.80 per share for both periods, upon vesting of certain restricted stock units ("RSU").
As of March 31, 2013, the Company repurchased an aggregate of 241,770 shares for a total cost of $2.3 million, at an average repurchase price of $9.40 per share since inception of the program. Of the 241,770 repurchased shares, 15,800 shares with a weighted average repurchase price of $13.80 per share were reissued at an average price of $4.11 per share for option exercises and vested RSUs.
Stock Options
The following table summarizes the Company's stock option activities for the nine months ended March 31, 2013:
 
 
 
Weighted
 
 
 
 
 
Average
 
 
 
Number of
 
Exercise Price
 
Aggregate
 
Shares
 
Per Share
 
Intrinsic Value
Outstanding at June 30, 2012
4,214,652

 
$
10.00

 
$
6,758,645

Granted
209,400

 
8.38

 
 
Exercised
(365,542
)
 
3.90

 
1,732,864

Canceled or forfeited
(433,345
)
 
13.03

 
 
Outstanding at March 31, 2013
3,625,165

 
$
10.16

 
$
4,604,369


Information with respect to stock options outstanding and exercisable at March 31, 2013 is as follows:
 
Options Outstanding  
 
Options Vested and Exercisable  
 
Number Outstanding
 
Weighted-Average
Remaining Contractual Life (years) 
 
Weighted-Average
Exercise Price
 
Number Exercisable
 
Weighted-Average
Exercise Price
Total options outstanding
3,625,165

 
5.65
 
$
10.16

 
2,706,736

 
$
9.61

 
 
 
 
 
 
 
 
 
 
Options vested and expected to vest
3,547,483

 
5.59
 
$
10.13

 
 
 
 
Options expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options.

12

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The fair value of stock options granted were estimated at the date of grant using the Black-Scholes option valuation for the nine months ended March 31, 2013 with the following weighted average assumptions:
 
Nine Months Ended March 31,
 
2013
Volatility rate
49%
Risk-free interest rate
0.7% - 0.8%
Expected term
5.5 years
Dividend yield
0%
Restricted Stock Units ("RSU")
The following table summarizes the Company's RSU activities for the nine months ended March 31, 2013:
 
 
Number of Restricted Stock
Units
 
Weighted Average
Grant Date Fair
Value Per Share
 
Weighted Average
Remaining
Recognition
Period (Years)
 
Aggregate Intrinsic Value
Nonvested at June 30, 2012
449,378

 
$
10.33

  
2.26
  
$
4,111,809

Granted
250,365

 
8.66

  
 
  
 
Vested
(94,873
)
 
10.18

 
 
 
 
Forfeited
(39,650
)
 
10.95

  
 
  
 
Nonvested at March 31, 2013
565,220

 
$
9.57

  
2.07
 
$
5,019,154

RSUs vested and expected to vest
496,483

 
 
 
1.99
 
$
4,408,772

The fair value of RSU is estimated based on the market price of the Company's share on the date of grant.
Employee Share Purchase Plan
The Employee Share Purchase Plan (the "ESPP") was established in May 2010 upon the completion of the Company's initial public offering. The assumptions used to estimate the fair values of common shares issued under the ESPP were as follows:
 
Nine Months Ended March 31,
 
2013
Volatility rate
50%
Risk-free interest rate
0.1% - 0.3%
Expected term
1.3 years
Dividend yield
0%
Share-based Compensation Expense
The total share-based compensation expense related to stock options, ESPP and RSUs described above, recognized in the condensed consolidated statements of operations for the periods presented was as follows:


13

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
(in thousands)
Cost of goods sold
$
191

 
$
171

 
$
530

 
$
385

Research and development
353

 
285

 
1,024

 
916

Selling, general and administrative
678

 
840

 
2,022

 
2,670

 
$
1,222

 
$
1,296

 
$
3,576

 
$
3,971

Total unrecognized stock-based compensation expense as of March 31, 2013 was $6.2 million, which includes estimated forfeitures and is expected to be recognized over a weighted-average period of 1.6 years.

8. Income Taxes

The Company recognized income tax benefit of approximately $3,000 and income tax expense of $1.0 million for the three months ended March 31, 2013 and 2012, respectively. The Company recognized income tax expense of approximately $2.9 million and $2.7 million for the nine months ended March 31, 2013 and 2012, respectively. The effective tax rate was 0.0% and 28.5% for the three months ended March 31, 2013 and 2012, respectively. The estimated effective tax rate was 209.6% and 29.9% for the nine months ended March 31, 2013 and 2012, respectively. The effective tax rate for the three months ended March 31, 2013 was lower than that for same period of last year primarily due to the tax benefits of the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012 combined with lower projected earnings for the year. The effective tax rate for the nine months ended March 31, 2013 was higher than that for same period of last year primarily due to the changes in the mix of earnings in various geographic jurisdictions between the two periods, somewhat offset by the tax benefits from the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012.
    
The Company files its income tax returns in the United States and in various foreign jurisdictions. The tax years 2001 to 2012 remain open to examination by U.S. federal and state tax authorities. The tax years 2005 to 2012 remain open to examination by foreign tax authorities.
The Company's income tax returns are subject to examinations by the Internal Revenue Service and other tax authorities in various jurisdictions. In accordance with the guidance on the accounting for uncertainty in income taxes, 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 March 31, 2013, the gross amount of unrecognized tax benefits was approximately $7.3 million. If the Company's estimate 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 when 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.

9. Segment and Geographic Information
The Company is organized as, and operates in, one operating segment: the design, development and supply 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 to:

14

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
(in thousands)
Hong Kong
$
62,927

 
$
65,557

 
$
208,805

 
$
193,616

China
9,765

 
14,729

 
42,730

 
43,943

South Korea
1,162

 
2,252

 
4,822

 
6,416

United States
399

 
368

 
1,055

 
1,135

Other countries
762

 
952

 
2,812

 
2,909

 
$
75,015

 
$
83,858

 
$
260,224

 
$
248,019

        
The following is a summary of revenue by product type:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
(in thousands)
Power discrete
$
58,374

 
$
66,256

 
$
204,679

 
$
192,461

Power IC
12,252

 
12,756

 
39,719

 
39,036

Packaging and testing services
4,389

 
4,846

 
15,826

 
16,522

 
$
75,015

 
$
83,858

 
$
260,224

 
$
248,019

 
Long-lived assets, consisting of property, plant and equipment by geographical area are as follows:
 
March 31,
2013
 
June 30,
2012
 
(in thousands)
China
$
97,504

 
$
111,432

United States
44,194

 
46,730

Other countries
1,245

 
381

 
$
142,943

 
$
158,543


10. Commitments and Contingencies
Purchase Commitments
As of March 31, 2013 and June 30, 2012, the Company had approximately $23.7 million and $43.3 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials, wafers, spare parts and packaging and testing services; and approximately $0.8 million and $2.6 million of capital commitments for the purchase of property and equipment, respectively.
Contingencies and Indemnities
The Company is currently not a party to any material legal proceedings. The Company has in the past, and may from time to time in the future, becomes 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.
The Company is a party to a variety of agreements that it contracted with various third parties. Pursuant to these agreements, the Company may be obligated to indemnify another party to such an agreement with respect to certain matters. Typically, these obligations arise in the context of contracts entered into by the Company, under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations and covenants related to such matters as title to assets sold, certain intellectual property rights, specified environmental matters and certain income taxes. In these circumstances, payment by the Company is customarily conditioned on the other party making a claim

15

ALPHA AND OMEGA SEMICONDUCTOR LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claim. Further, the Company's obligations under these agreements may be limited in time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements. The Company has not historically paid or recorded any material indemnifications and no accrual has been made at March 31, 2013 and June 30, 2012.
The Company has agreed to indemnify its directors and certain employees as permitted by law and pursuant to its bye-laws, and has entered into indemnification agreements with its directors and executive officers. The Company has not recorded a liability associated with these indemnification arrangements, as it historically has not incurred any material costs associated with such indemnification obligations. Costs associated with such indemnification obligations may be mitigated by insurance coverage that the Company maintains, however, such insurance may not cover any, or may cover only a portion of, the amounts the Company may be required to pay. In addition, the Company may not be able to maintain such insurance coverage in the future.


16


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by the Company’s management. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. The Company undertakes no obligation to publicly release the results of any revisions to its forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. Unless the context otherwise requires, the words “AOS,” the “Company,” “we,” “us” and “our” refer to Alpha and Omega Semiconductor Limited and its subsidiaries.

This management’s discussion should be read in conjunction with the management’s discussion included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012, filed with the Securities and Exchange
Commission on August 31, 2012.
Overview

We are a designer, developer and global supplier of a broad portfolio of power semiconductors. Our portfolio of power semiconductors is extensive, with over 1,000 products, and has grown rapidly with the introduction of over 240 new products during the fiscal year ended June 30, 2012, and over 190 and 140 new products in the fiscal years 2011 and 2010, respectively. During the nine months ended March 31, 2013, we introduced an additional 156 new products. Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe would enable us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics. We have an extensive patent portfolio that consists of 309 patents and 209 patent applications in the United States as of March 31, 2013. We differentiate ourselves by integrating our expertise in technology, design and advanced packaging to optimize product performance and cost. Our portfolio of products targets high-volume applications, including portable computers, flat panel TVs, LED lighting, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.
Our business model leverages global resources, including research and development expertise in the United States and Asia, cost-effective semiconductor manufacturing in the United States and Asia and localized sales and technical support in several fast-growing electronics hubs. Our core research and development team, based in Silicon Valley, California and Hillsboro, Oregon, is complemented by our design center in Taiwan and process, and packaging and testing engineers in China. In January 2012, we completed the acquisition of a 200mm wafer fabrication facility located in Hillsboro, Oregon, (the "Oregon fab") from Integrated Device Technology, Inc ("IDT"). Given the highly unique nature of discrete power technology, this acquisition was critical for us to accelerate proprietary technology development, speed up new product introduction, reduce manufacturing costs and improve our long-term financial performance. To meet market demand, we allocate our wafer manufacturing requirements to in-house capacity for newer products and selected third-party foundries for more mature high volume products. Since the acquisition, we have created our next generation of low voltage MOSFET products, our Gen 5 AlphaMOS, developed a new technology platform, AlphaIGBT and introduced AlphaMOSII high voltage technology and new medium voltage products at the Oregon fab. Additionally, we have made significant progress in ramping up production at our Oregon fab since the acquisition. For assembly and test, we primarily rely upon our in-house facilities in China. In addition, we utilize subcontracting partners for industry standard packages. We believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology, product quality, cost and sales cycle time. We believe that our in-house packaging capability, together with the Oregon fab, position us to drive towards technology leadership in a broad range of power semiconductors.
Factors affecting our performance
Our performance is affected by several key factors, including the following:

The global, regional economic and PC market conditions: Because our products primarily serve consumer electronic applications, a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations. In particular, because a significant amount of our revenue is derived from sales of products in the personal

17


computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a significant decline or downturn in the PC markets can have a material adverse effect on our revenue and results of operations.  Our revenue from the PC markets accounted for approximately 47.6% and 51.4%of our total revenue for the three and the nine months ended March 31, 2013, respectively.

The increasing popularity of smaller, mobile computing devices such as tablets and smartphones with touch interfaces is rapidly changing the PC markets both in the United States and internationally.  A decrease in the rate of growth of or decline in the PC markets, due to continued growth of demands in tablets, worldwide economic conditions and/or industry inventory correction, have had a material negative impact on the demand for our products, revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures. In response to this trend, we have been executing and are continuing to execute strategies to diversify our product portfolio and penetrate into other market segments, which we believe would mitigate and eventually overcome the reduced demand resulting from the declining PC markets. However, if the rate of decline in the PC markets is faster than we expected, or if we cannot successfully diversify or introduce new products to keep pace with the declining PC markets, we may not be able to alleviate its negative impact, which will adversely affect our results of operations.

In light of the continuing decline of the PC markets, we conducted an impairment review of certain of our long-lived assets during the quarter ended March 31, 2013. Based on such review, we recorded a non-cash impairment charge of $2.6 million as the changed circumstances indicated that the carrying amount of certain long-lived assets, consisting of manufacturing machinery and equipment for the packaging of PC-related product, may not be recoverable (see "Impairment of Long-Lived Assets" below for more details). In addition, based on our periodic review of inventory as of Mach 31, 2013, we recorded a non-cash, non-recurring inventory valuation charge in the amount of $7.7 million for certain excess and obsolete inventory consisting of products relating to PC applications, and to a lesser extent, products for power supplies. We determined that this non-recurring inventory write-down was required primarily due to loss of market share with certain customers, including a major OEM with whom we conducted business indirectly, as well as the effect of the continuing decline of the PC market. Although we believe our current provisions related to inventories and long-lived assets are considered adequate, there is no assurance that we will not incur additional inventory write-downs or impairment charges given the rapid and unpredictable changes of computing and consumer markets in which we compete. Such charges could materially adversely affect our financial conditions and operating results.
Erosion of average selling price: Erosion of average selling prices of established products is typical in our industry. Consistent with this historical trend, we expect that average selling prices of our established products will continue to decline in the future. However, as a normal course of business, we seek to offset the effect of declining average selling prices by introducing new and higher value products, expanding existing products for new applications and new customers, and reducing manufacturing cost of existing products.
Product introductions and customers' product requirements: Our success depends on our ability to introduce products on a timely basis that meet or are compatible with our customers' specifications and performance requirements. Both factors, timeliness of product introductions and conformance to customers' requirements, are equally important in securing design wins with our customers. Recently we have introduced new mid- and high-voltage products as part of our business strategy to diversify our product portfolios and penetrate into new markets such as the telecommunications and industrial markets. Our failure to introduce products on a timely basis that meet customers' specifications and performance requirements and our inability to continue to expand our serviceable markets could adversely affect our financial performance, including loss of market shares with customers.
During the quarter ended March 31, 2013, we recorded a non-cash, non-recurring inventory valuation charge in the amount of $7.7 million for certain excess and obsolete inventory, consisting of products relating to PC applications, and to a lesser extent, products for power supplies.  Approximately $5.7 million of the $7.7 million non-recurring inventory write-down was attributable to newly developed products for desktop PC applications for a major OEM because these products were not compatible with its particular applications. We are working closely with the OEM to address these issues and implement solutions to prevent future occurrences. However, there is no guarantee that we will be able to resolve these issues fully and regain all or any related loss of market shares.
Distributor ordering patterns and seasonality: Our distributors place purchase orders with us based on their forecasts of end customer demand, and this demand may vary significantly depending on the sales outlooks and market and economic conditions of end customers. Because these forecasts may not be accurate, channel inventory held at our distributors may fluctuate significantly, which in turn may prompt distributors to make significant adjustments to their purchase orders placed with us. As a result, our revenue and operating results may fluctuate significantly from quarter to quarter. In addition, because our products are used in consumer electronics products, our revenue is subject to seasonality. Our sales seasonality is affected

18


by numerous factors, including global and regional economic conditions as well as the PC market conditions, revenue generated from new products, changes in distributor ordering patterns in response to channel inventory adjustments and end customer demand for our products and fluctuations in consumer purchase patterns prior to major holiday seasons. In recent periods, broad fluctuations in the semiconductor markets and the global and regional economic conditions, in particular the decline of the PC market conditions, have had a more significant impact on our results of operations than seasonality.
Manufacturing costs: Our gross margin may be affected by our manufacturing costs, including utilization of our own manufacturing facilities, pricing of wafers purchased from other foundries and semiconductor raw materials, which may fluctuate from time to time largely due to the market demand and supply. Capacity utilization affects our gross margin because we have certain fixed costs associated with our in-house packaging and testing facilities and our Oregon fab. If we are unable to utilize the capacity of our in-house manufacturing facilities at a desirable level, our gross margin may be adversely affected. In addition, the persistent decline of the PC markets as discussed above has led to reduced level of capacity utilization at our manufacturing facilities during the quarter ended March 31, 203. If we are not able to mitigate the negative impact of the declining PC markets, we may not be able to improve our factory utilization or offset the increasing manufacturing cost, which could have a material adverse effect on our gross margin.
Principal line items of statements of operations
The following describes the principal line items set forth in our condensed consolidated statements of operations:
Revenue
We generate revenue primarily from the sale of power semiconductors, consisting of power discretes and power ICs. Historically, a majority of our revenue was derived from power discrete products and a small amount was derived from power IC products. Because our products typically have three-year to five-year life cycles, the rate of new product introduction is an important driver of revenue growth over time. We believe that expanding the breadth of our product portfolio is important to our business prospects, because it provides us with an opportunity to increase our total bill-of-materials within an electronic system and to address the power requirements of additional electronic systems. In addition, a small percentage of our total revenue is generated by providing packaging and testing services to third-parties through one of our subsidiaries.
Our product revenue includes the effect of the estimated stock rotation returns and price adjustments that we expect to provide to our distributors. Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of products purchased by the distributor during a specified period. At our discretion or upon our direct negotiations with the original design manufacturers ("ODMs") or original equipment manufacturers ("OEMs"), we may elect to grant special pricing that is below the prices at which we sold our products to the distributors. In these situations, we will grant price adjustments to the distributors reflecting such special pricing. We estimate the price adjustments for inventory at the distributors based on factors such as distributor inventory levels, pre-approved future distributor selling prices, distributor margins and demand for our products.
Cost of goods sold
Our cost of goods sold primarily consists of costs associated with semiconductor wafers, packaging and testing, personnel, including share-based compensation expense, overhead attributable to manufacturing, operations and procurement, and costs associated with yield improvements, capacity utilization, warranty and inventory reserves. As the volume of sales increases, we expect cost of goods sold to increase.
Operating expenses
Our operating expenses consist of research and development expenses, selling, general and administrative expenses and impairment of long-lived assets. We expect that our total operating expenses will generally increase over time due to our belief that our business will continue to grow. However, our operating expenses as a percentage of revenue may fluctuate from period to period.
Research and development expenses.  Our research and development expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, expenses associated with new product prototypes, travel expenses, fees for engineering services provided by outside contractors and consultants, amortization of software and design tools, depreciation of equipment and overhead costs for research and development personnel. As we continue to invest significant resources in developing new technologies and products, we expect our research and development expenses to increase.

19


Selling, general and administrative expenses.  Our selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, share-based compensation expense, product promotion costs, occupancy costs, travel expenses, expenses related to sales and marketing activities, amortization of software, depreciation of equipment, maintenance costs and other expenses for general and administrative functions as well as costs for outside professional services, including legal, audit and accounting services. We expect our selling, general and administrative expenses to increase as we expand our business.
Impairment of Long-Lived Assets: Long-lived assets or asset groups are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. The recoverability of an asset or asset group is assessed by determining if the carrying value of the asset or asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life.  The impairment loss is measured based on the difference between the carrying amount and estimated fair value.
Income tax expense
We are subject to income taxes in various jurisdictions. Significant judgment and estimates are required in determining our worldwide income tax expense. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax regulations of different jurisdictions globally. We establish accruals for potential liabilities and contingencies based on a more likely than not threshold to the recognition and de-recognition of uncertain tax positions. If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that is more than likely to be realized upon settlement. If the actual tax outcome of such exposures is different from the amounts that were initially recorded, the differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Changes in the location of taxable income (loss) could result in significant changes in our income tax expense.
We record a valuation allowance against deferred tax assets if it is more likely than not that a portion of the deferred tax assets will not be realized, based on historical profitability and our estimate of future taxable income in a particular jurisdiction. Our judgments regarding future taxable income may change due to changes in market conditions, changes in tax laws, tax planning strategies or other factors. If our assumptions and consequently our estimates change in the future, the deferred tax assets may increase or decrease, resulting in corresponding changes in income tax expense. Our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses, the tax laws and regulations in each geographical region where we have operations, the availability of tax credits and carry-forwards and the effectiveness of our tax planning strategies.

20


Results of Operations
The following tables set forth statements of operations, also expressed as a percentage of revenue, for the three and nine months ended March 31, 2013 and 2012. Our historical results of operations are not necessarily indicative of the results for any future period.
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
(% of revenue)
 
(in thousands)
 
(% of revenue)
Revenue
$
75,015

 
$
83,858

 
100.0
 %
 
100.0
 %
 
$
260,224

 
$
248,019

 
100.0
 %
 
100.0
%
Cost of goods sold
69,770

 
64,564

 
93.0
 %
 
77.0
 %
 
208,852

 
189,875

 
80.3
 %
 
76.6
%
Gross profit
5,245

 
19,294

 
7.0
 %
 
23.0
 %
 
51,372

 
58,144

 
19.7
 %
 
23.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
6,876

 
6,510

 
9.2
 %
 
7.7
 %
 
20,675

 
23,012

 
7.9
 %
 
9.3
%
Selling, general and administrative
8,917

 
9,028

 
11.9
 %
 
10.8
 %
 
26,536

 
26,144

 
10.2
 %
 
10.5
%
Impairment of long-lived assets
2,557

 

 
3.4
 %
 
 %
 
2,557

 

 
1.0
 %
 
%
Total operating expenses
18,350

 
15,538

 
24.5
 %
 
18.5
 %
 
49,768

 
49,156

 
19.1
 %
 
19.8
%
Operating income (loss)
(13,105
)
 
3,756

 
(17.5
)%
 
4.5
 %
 
1,604

 
8,988

 
0.6
 %
 
3.6
%
Interest income
22

 
21

 
 %
 
 %
 
59

 
85

 
 %
 
%
Interest expense
(93
)
 
(135
)
 
(0.1
)%
 
(0.2
)%
 
(282
)
 
(206
)
 
(0.1
)%
 
%
Income (loss) before income taxes
(13,176
)
 
3,642

 
(17.6
)%
 
4.3
 %
 
1,381

 
8,867

 
0.5
 %
 
3.6
%
Income tax expense (benefit)
(3
)
 
1,038

 
 %
 
1.2
 %
 
2,894

 
2,650

 
1.1
 %
 
1.1
%
Net income (loss)
$
(13,173
)
 
$
2,604

 
(17.6
)%
 
3.1
 %
 
$
(1,513
)
 
$
6,217

 
(0.6
)%
 
2.5
%
Share-based compensation expense was allocated as follow:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
(% of revenue)
 
(in thousands)
 
(% of revenue)
Cost of goods sold
$
191

 
$
171

 
0.3
%
 
0.2
%
 
$
530

 
$
385

 
0.2
%
 
0.2
%
Research and development
353

 
285

 
0.5
%
 
0.3
%
 
1,024

 
916

 
0.4
%
 
0.4
%
Selling, general and administrative
678

 
840

 
0.9
%
 
1.0
%
 
2,022

 
2,670

 
0.8
%
 
1.1
%
Total
$
1,222

 
$
1,296

 
1.7
%
 
1.5
%
 
$
3,576

 
$
3,971

 
1.4
%
 
1.7
%
Revenue
The following is a summary of revenue by product type:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
(in thousands)
 
(in thousands)
 
(in percentage)
 
(in thousands)
 
(in thousands)
 
(in percentage)
Power discrete
$
58,374

 
$
66,256

 
$
(7,882
)
 
(11.9
)%
 
$
204,679

 
$
192,461

 
$
12,218

 
6.3
 %
Power IC
12,252

 
12,756

 
(504
)
 
(4.0
)%
 
39,719

 
39,036

 
683

 
1.7
 %
Packaging and testing services
4,389

 
4,846

 
(457
)
 
(9.4
)%
 
15,826

 
16,522

 
(696
)
 
(4.2
)%
 
$
75,015

 
$
83,858

 
$
(8,843
)
 
(10.5
)%
 
$
260,224

 
$
248,019

 
$
12,205

 
4.9
 %
Total revenue was $75.0 million for the three months ended March 31, 2013, a decrease of $8.8 million, or 10.5%, as compared to $83.9 million for the same period last year. The decrease was primarily due to the decrease in sales of $7.9 million, $0.5 million, and $0.5 million of power discrete, power IC products and packaging and testing services, respectively.

21


The decrease in sales of power discrete and power IC products was mainly a result of a 5.8% decrease in unit shipments, and a 5.1% decline in average selling prices as compared to the same period of last year, mainly due to the reduced demand for our products related to PC applications, and to a lesser extent, selling price erosion in the computing and consumer markets. Revenues in packaging and testing services for the three months ended March 31, 2013 decreased by $0.5 million as compared to the same period last year due to reduced demand.
Total revenue was $260.2 million for the nine months ended March 31, 2013, an increase of $12.2 million, or 4.9%, as compared to $248.0 million for the same period last year. The increase consisted of $12.2 million and $0.7 million increase in sales of power discrete and power IC products, respectively, primarily as a result of a 11.5% increase in unit shipments, partially offset by a 5.1% decrease in average selling price as compared to the same period of last year mainly due to a shift in product mix and, to a lesser extent, selling price erosion in the computing and consumer markets. The increase of total revenue was partially offset by a $0.7 million decrease in packaging and testing services due to reduced demand.
Cost of goods sold and gross profit
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
(in thousands)
 
(in thousands)
 
(in percentage)
 
(in thousands)
 
(in thousands)
 
(in percentage)
Cost of goods sold
$
69,770

 
$
64,564

 
$
5,206

 
8.1
 %
 
$
208,852

 
$
189,875

 
$
18,977

 
10.0
 %
  Percentage of revenue
93.0
%
 
77.0
%
 


 
 
 
80.3
%
 
76.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
$
5,245

 
$
19,294

 
$
(14,049
)
 
(72.8
)%
 
$
51,372

 
$
58,144

 
$
(6,772
)
 
(11.6
)%
  Percentage of revenue
7.0
%
 
23.0
%
 


 
 
 
19.7
%
 
23.4
%
 
 
 
 

Cost of goods sold was $69.8 million for the three months ended March 31, 2013, an increase of $5.2 million, or 8.1%, as compared to $64.6 million for the same period last year, primarily as a result of a $7.7 million non-recurring inventory write-down for certain excess and obsolete inventory consisting of newly developed products for desktop PC applications for a major OEM that were not compatible with its particular applications, and to a lesser extent, products for power supplies. The increase was partially offset by the impact of reduced unit shipments during the three months ended March 31, 2013. Gross margin decreased by 16.0 percentage points to 7.0% for the three months ended March 31, 2013 as compared to 23.0% for the same period of last year. The decrease in gross margin was primarily due to the negative impact of the $7.7 million non-recurring inventory write-down as well as lower factory utilization primarily due to the lower demand in the declining PC markets.

Cost of goods sold was $208.9 million for the nine months ended March 31, 2013, an increase of $19.0 million, or 10.0%, as compared to $189.9 million for the same period of last year primarily as a result of a $7.7 million non-recurring inventory write-down for certain excess and obsolete inventory consisting of newly developed products for desktop PC applications for a major OEM that were not compatible with its particular applications, and to a lesser extent, products for power supplies, as well as increased unit shipments. Gross margin decreased by 3.7 percentage points to 19.7% for the nine months ended March 31, 2013, as compared to 23.4% for the same period last year. The decrease in gross margin was primarily due to the non-recurring inventory write-down of $7.7 million, partially offset by tighter factory expense control as compared to the same period last year. We expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix, factory utilization, semiconductor wafer and raw material pricing, manufacturing labor cost and general economic and PC market conditions.

Research and development expenses
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
(in thousands)
 
(in thousands)
 
(in percentage)
 
(in thousands)
 
(in thousands)
 
(in percentage)
Research and development
$
6,876

 
$
6,510

 
$
366

 
5.6
%
 
$
20,675

 
$
23,012

 
$
(2,337
)
 
(10.2
)%
Research and development expenses were $6.9 million for the three months ended March 31, 2013, an increase of $0.4 million, or 5.6%, as compared to $6.5 million for the same period last year. The increase was primarily attributable to a $0.3 million increase in employee compensation and benefits primarily due to increase in headcount and a $0.1 million increase in share based compensation.

22


Research and development expenses were $20.7 million for the nine months ended March 31, 2013, a decrease of $2.3 million, or 10.2%, as compared to $23.0 million for the same period last year. The decrease was primarily attributable to a $3.4 million decrease in product prototyping engineering expenses, mainly related to engineering wafers expenses incurred during the nine months ended March 31, 2012 under the then new foundry agreement with IDT. The decrease was partially offset by a $0.9 million increase in employee compensation and benefits primarily due to increase in headcount and a $0.1 million increase in share-based compensation. We continue to invest significant resources in developing new technologies and new products utilizing our own fabrication and packaging facilities. However, we expect that our research and development expenses will fluctuate from time to time.
Selling, general and administrative expenses
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
(in thousands)
 
(in thousands)
 
(in percentage)
 
(in thousands)
 
(in thousands)
 
(in percentage)
Selling, general and administrative
$
8,917

 
$
9,028

 
$
(111
)
 
(1.2
)%
 
$
26,536

 
$
26,144

 
$
392

 
1.5
%
Selling, general and administrative expenses remained essentially flat at $8.9 million for the three months ended March 31, 2013, as compared to $9.0 million for the same period last year. It was primarily due to a $0.5 million increase in employee compensation and benefits mainly due to an increase in headcount, a $0.1 million increase in depreciation and amortization expenses primarily due to fixed assets acquired during current and prior quarters, and a $0.2 million increase in legal expenses due to increased legal consulting services; offset by a $0.2 million decrease in share based compensation primarily due to increased cancellations of stock options and other equity awards, a $0.1 million decrease in sales commission primarily due to decrease in sales and a $0.5 million bad debt expenses incurred in the third quarter of last year related to a service customer.
Selling, general and administrative expenses were $26.5 million for the nine months ended March 31, 2013, an increase of $0.4 million, or 1.5%, as compared to $26.1 million for the same period last year. The increase was primarily due to a $2.1 million increase in employee compensation and benefits mainly due to increase in headcount, a $0.4 million increase in depreciation and amortization expenses primarily due to fixed assets acquired during the nine months ended March 31, 2013, and a $0.5 million increase in legal expenses due to increased legal consulting services; partially offset by a $0.6 million decrease in share-based compensation due to increased cancellations of stock options and other equity awards, a $0.8 million decrease in accounting, Sarbanes-Oxley compliance and consulting fees as the related accounting and consulting activities decreased, a $0.2 million decrease in business taxes primarily due to a business tax refund of a subsidiary in China during the nine months ended March 31, 2013, a $0.2 million decrease in sales commission primarily due to decrease in sales and a $0.6 million bad debt expenses incurred last year related to a service customer.
Impairment of long-lived assets

During the quarter ended March 31, 2013, in light of the unfavorable market conditions particularly related to the accelerated decline of the PC market, we conducted an in-depth analysis of our strategic plan. In our review, we reconsidered the key assumptions in our overall strategic business and manufacturing capacity plans in light of the continued declines in the PC market. As a result, we revised our PC related revenue and volume outlook as well as our manufacturing capacity requirements. These material changes in our outlook and plans, which we were able to determine in the third quarter of fiscal 2013, triggered an impairment review of our long-lived assets.

We determined that the related estimated undiscounted cash flows were not sufficient to recover the carrying value of certain manufacturing machinery and equipment primarily for the packaging of our PC-related products due to the accelerated decline of the PC markets. The average remaining useful life of those impaired assets was approximately two years. We estimated the fair values of those long-lived assets based on net realizable values of similar machinery and equipment recently transacted by third-party used-machine brokers and recorded an asset impairment charge of approximately $2.6 million to reduce the related carrying amount to its estimated fair value as of March 31, 2013.

Interest income and expenses
Interest income was primarily related to interest earned from cash and cash equivalents. The interest income remain flat for the three months ended March 31, 2013 as compared to the same period last year. The decrease in interest income during the nine months ended March 31, 2013 as compared to the same period last year was primarily due to lower average interest rate.

23


Interest expense was primarily related to bank borrowings. The decrease in interest expenses for the three months ended March 31, 2013 as compared to the same period prior year was primarily due to less bank borrowings. The increase in interest expenses during the nine months ended March 31, 2013 was primarily due to an increase in bank borrowings, including the $20.0 million term loan obtained in May 2012 for working capital purposes as compared to the same period last year.
Income tax expense
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
(in thousands)
 
(in thousands)
 
(in percentage)
 
(in thousands)
 
(in thousands)
 
(in percentage)
Income tax expense (benefit)
$
(3
)
 
$
1,038

 
$
(1,041
)
 
(100
)%
 
$
2,894

 
$
2,650

 
$
244

 
9.2
%

We recognized income tax benefit of approximately $3,000 and income tax expense of approximately $1.0 million for the three months ended March 31, 2013 and 2012, respectively. The effective tax rate was 0.0% and 28.5% for the three months ended March 31, 2013 and 2012, respectively. Our effective tax rate for the three months ended March 31, 2013 was lower than that for same period of last year primarily due to the tax benefits of the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012 combined with lower projected earnings for the fiscal year 2013.

We recognized income tax expense of approximately $2.9 million and $2.7 million for the nine months ended March 31, 2013 and 2012, respectively. The estimated effective tax rate was 209.6% and 29.9% for the nine months ended March 31, 2013 and 2012, respectively. Our effective tax rate for the nine months ended March 31, 2013 was higher than that for the same period last year primarily due to the changes in the mix of earnings in various geographic jurisdictions between the two periods, somewhat offset by the tax benefits from the January 2013 reinstatement of the U.S. federal R&D credit retroactive to January 1, 2012.


24


Liquidity and Capital Resources

    Our principal need for liquidity and capital resources is to maintain working capital sufficient to support our operations and to make capital expenditures to finance the growth of our business. Currently, we primarily financed our operations through funds generated from operations and borrowings under our revolving lines of credit and term loans.

On May 11, 2012, we entered into a loan agreement with a financial institution that provides a term loan of $20.0 million for general purposes and a $10.0 million non-revolving credit line for the purchase of equipment. Both the term loan and equipment line will mature in May 2015. The borrowings may be made in the form of either Eurodollar loans or Base Rate loans. Eurodollar loans accrue interest based on an adjusted London Interbank Offer Rate ("LIBOR") as defined in the agreement, plus a margin of 1.00% to 1.75%. Base Rate loans accrue interest at the highest of (a) the lender's Prime Rate, (b) the Federal Funds Rate plus 0.5% and (c) the Eurodollar Rate (for a one-month interest period) plus 1%; plus a margin of -0.5% to 0.25%. The applicable margins for both Eurodollar loans and Base Rate loans will vary from time to time in the foregoing ranges based on the cash and cash equivalent balances maintained by us and our subsidiaries with the lender. As of March 31, 2013, the outstanding balance of the term loan and the equipment line was $17.9 million and $0, respectively.

The obligations under the loan agreement are secured by substantially all assets of two of our subsidiaries, including certain real property and related assets located at the Oregon fab. In addition, we and certain of our subsidiaries have agreed to guarantee full repayment and performance of the obligations under the loan agreement. The loan agreement contains customary restrictive covenants and includes certain financial covenants that require us to maintain on a consolidated basis specified financial ratios including total liabilities to tangible net worth, fixed charge coverage and current assets to current liabilities. As of March 31, 2013, we were in compliance with these covenants.
Two of our 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 accounts receivable of such subsidiary, with an aggregated maximum amount of RMB 95 million (equivalent of $15.3 million based on the currency exchange rate as of March 31, 2013) to finance the subsidiary's working capital with a maximum of 120-day repayment term. The interest rate on each draw down varied and indexed to the published LIBOR per annum. As of March 31, 2013, there was no outstanding balance under these two revolving lines of credit.
During July 2012, we entered into a loan agreement with the State of Oregon for an amount of $0.3 million. The loan is required to be used for training new and re-training existing employees of the Oregon fab. The loan bears a compound annual interest rate of 5.0% and is to be repaid in April 2014. The State may forgive the loan and unpaid interest if certain conditions primarily relating to hiring targets are met. As of March 31, 2013, the outstanding balance of the loan including accrued interest was $0.3 million.
On October 22, 2010, our board of directors authorized a $25.0 million share repurchase program. Under this repurchase program we 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 three and nine months ended March 31, 2013, the Company repurchased 0 shares and 600 shares, respectively, with weighted average repurchase price of $7.48 per share under the program. As of March 31, 2013, we repurchased an aggregate of 241,770 shares from the open market for a total cost of $2.3 million, at an average price of $9.40 per share, since inception of the program. Shares repurchased are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity.  As at March 31, 2013, of the 241,770 repurchased shares, 15,800 shares with a weighted average repurchase price of $13.80 per share, were reissued at an average price of $4.11 per share for option exercises and vested RSUs. 
We believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, including working capital and capital expenditures, for at least the next twelve months. In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our cash is insufficient to meet our needs, we may seek to raise capital through equity or debt financing. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and may include operating and financial covenants that would restrict our operations. We cannot be certain that any financing will be available in the amounts we need or on terms acceptable to us, if at all.


25


Cash and cash equivalents

As of March 31, 2013 and June 30, 2012, we had $104.0 million and $82.2 million of cash and cash equivalents, respectively. Our cash and cash equivalents primarily consisted of cash on hand and short-term bank deposits with original maturities of three months or less.
The following table shows our cash flows from operating, investing and financing activities for the periods indicated:
 
 
Nine Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Net cash provided by operating activities
$
36,253

 
$
30,825

Net cash used in investing activities
(14,011
)
 
(49,763
)
Net cash provided by (used in) financing activities
(369
)
 
11,535

Effect of exchange rate changes on cash and cash equivalents
1

 
39

 
 
 
 
Net increase (decrease) in cash and cash equivalents
$
21,874

 
$
(7,364
)
 
 
 
 
Cash flows from operating activities

Net cash provided by operating activities of $36.3 million for the nine months ended March 31, 2013 resulted primarily from net loss of $1.5 million, non-cash charges of $29.1 million and net change in working capital providing net cash of $8.7 million. The non-cash charges of $29.1 million included (a) $22.3 million of depreciation and amortization expenses, (b) $3.6 million of share-based compensation expense, (c) $0.5 million of net deferred income taxes, (d) $0.1 million of loss on disposal of property and equipment and (e) $2.6 million of impairment charges of long-lived assets during the quarter. The net change in working capital providing net cash of $8.7 million was primarily due to a (i) $9.0 million decrease in accounts receivable due to the timing of billings and collection of payments, (ii) $5.4 million increase in accounts payable primarily due to increase in inventory purchase and timing of payment, (iii) $0.6 million decrease in other current and long term assets primarily due to decrease in advance payments to suppliers, and (iv) $0.6 million increase in income taxes payable; partially offset by a (a) $1.3 million increase in inventories as we build up our inventories for the Oregon fab ramp up and (b) $5.7 million decrease in accrued and other liabilities primarily related to performance bonuses.

Net cash provided by operating activities of $30.8 million for the nine months ended March 31, 2012 resulted primarily from net income of $6.2 million, non-cash charges of $23.3 million and net change in working capital providing net cash of $1.3 million. The non-cash charges of $23.3 million included (a) $18.3 million of depreciation and amortization expenses, (b) $4.0 million of share-based compensation expense, (c) $0.6 million of allowance for doubtful accounts and (d) $0.4 million of net deferred income taxes. The net change in working capital providing net cash of $1.3 million was primarily due to a (i) $2.9 million decrease in accounts receivable due to the timing of billings and collection of payments, (ii) $14.2 million decrease in inventories as we reduced our inventories in response to changes in market condition, (iii) $3.7 million decrease in other current and long term assets primarily due to decrease in advance payments to suppliers and (iv) $2.3 million increase in accrued and other liabilities primarily related to expenses of the Oregon fab; partially offset by a (a) $20.3 million decrease in accounts payable primarily due to reduced inventory purchase and timing of payment, and (b) $1.5 million decrease in income taxes payable.
Cash flows from investing activities
    
Net cash used in investing activities of $14.0 million for the nine months ended March 31, 2013 was primarily attributable to purchase of property and equipment to increase our in-house production capacity.

Net cash used in investing activities of $49.8 million for the nine months ended March 31, 2012 was primarily attributable to $28.3 million for purchase of property and equipment to increase our in-house production capacity, $21.3 million of cash for the acquisition of the new Oregon fab in January 2012 and $0.1 million related to the investment in a privately held company.

26


Cash flows from financing activities
Net cash used in financing activities of $0.4 million for the nine months ended March 31, 2013 was primarily attributable to $1.9 million of net repayment to our borrowings and $0.7 million in payment of capital lease obligations; partially offset by a $2.3 million of proceeds from exercise of stock options and issuance of shares under the ESPP.

Net cash provided by financing activities of $11.5 million for the nine months ended March 31, 2012 was primarily attributable to $12.1 million of net proceeds from our revolving lines of credit and $1.3 million of proceeds from exercise of stock options and issuance of shares under ESPP, partially offset by $1.6 million for repurchase of our common shares under the share repurchase program and $0.3 million in payment of capital lease obligations.
Capital expenditures
Capital expenditures were $14.0 million and $28.3 million for the nine months ended March 31, 2013 and 2012, respectively. Our capital expenditures primarily consisted of the purchases of property and equipment. Capital expenditures for the nine months ended March 31, 2013 consisted primarily of purchases of equipment for the Oregon fab.  Following the acquisition of the Oregon fab, we used a combination of in-house capacity and third party foundries to satisfy our wafer manufacturing requirements.
Capital expenditures for the nine months ended March 31, 2012 primarily consisted of purchases of packaging and testing equipment for our two in-house packaging facilities and purchases of consigned equipment to a third-party foundry. We relied primarily on our in-house capacities for packaging and testing our products and expect to continue to do so in the future.
Commitments

As of March 31, 2013 and June 30, 2012, we had approximately $23.7 million and $43.3 million, respectively, of outstanding purchase commitments primarily for purchases of semiconductor raw materials and wafers.
As of March 31, 2013 and June 30, 2012, we had approximately $0.8 million and $2.6 million, respectively, of capital commitments for the purchase of property and equipment.
Off-Balance Sheet Arrangements
As of March 31, 2013, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii) arrangements.

Recent Accounting Pronouncements
See Note 1 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to the below commodity price risk disclosure, Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual Report on Form 10-K for the year ended June 30, 2012 contains market risks identified by the Company. There have been no material changes in the market risks we previously disclosed.

Commodity Price Risk

We are subject to risk from fluctuating market prices of certain commodity raw materials, particularly gold, that are used in our manufacturing process and incorporated into our end products. Supplies for such commodities may from time-to-time become restricted, or general market factors and conditions may affect the pricing of such commodities. Over the past few years, the price of gold increased significantly and certain of our supply chain partners assess surcharges to compensate for the rising commodity prices. We have been converting some of our products to use copper wires instead of gold wires. Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price changes for these raw materials. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would result in decreased margins for the products in which they are used and could have a material adverse effect on our net earnings. We also

27


may need to record losses for adverse purchase commitments for these materials in periods of declining prices. We do not enter into formal hedging arrangements to mitigate against commodity risk.

ITEM 4. CONTROLS AND PROCEDURES
Management's Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission ("SEC") and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2013, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitation on Effectiveness of Controls
It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. The design of any control system is based, in part, upon the benefits of the control system relative to its costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.


28



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are currently not a party to any material legal proceedings. We have 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, we could incur significant costs in the defense thereof or could suffer adverse effects on its operations.

ITEM 1A. RISK FACTORS

In addition to the risk factors below, Item 1A of Part I of our Annual Report on Form 10-K for the year ended June 30, 2012, filed with the SEC on August 31, 2012, as updated and supplemented by risk factors set forth in Item 1A of Part II of our Quarterly Report on Form 10Q filed since the filing of such Annual Report, contains risk factors identified by the Company. Except for the risk factors below, there have been no material changes to the risk factors we previously disclosed. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

The decline of personal computing (“PC”) markets may have a material adverse effect on our results of operations, and our efforts to diversify our products may not be sufficient to mitigate the impact of the declining PC markets.

A significant amount of our revenue is derived from sales of products in the PC markets such as notebooks, motherboards and notebook battery packs.  Our revenue from the PC markets accounted for approximately 47.6% and 51.4% of our total revenue for the three and the nine months ended March 31, 2013, respectively. The increasing popularity of smaller, mobile computing devices such as tablets and smartphones with touch interfaces is rapidly changing the PC markets both in the United States and abroad.  Recently, we experienced a significant reduction in the demand for our products due to the declining PC markets, particularly from our distributors and customers in Taiwan, which have negatively impacted our revenue and profitability.

The decline of the PC markets may also adversely affect our ability to adjust inventory levels in response to the lower shipments, which may negatively impact our gross margins. During the quarter ended March 31, 2013, we recorded a non-cash, non-recurring inventory valuation charge of $5.7 million primarily related to excess and obsolete inventory consisting of PC-related products that were not compatible with a particular OEM's applications and were deemed not saleable. Moreover, the continuing decline of the PC markets may reduce the capacity utilization of our manufacturing facilities or impair the value of our long-lived assets, including equipment and machinery used for the manufacturing and packaging of our products, which could have a material adverse effect on our results of operations. See the risk factor entitled “We may experience impairment of our long-lived assets, which would decrease our earnings and net worth” below.

As part of the growth strategy to diversify our product portfolio and in response to the rapid decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including power supplies, gaming console, smartphones, tablets, flat panel TVs, and industrial motor controls. We believe that this diversification strategy would mitigate the impact of reduced demand due to the declining PC markets. However, there is no guarantee that these diversification efforts will be successful. As a new entrant to some of these markets, we may face intense competition from existing and more established providers and encounter other unexpected difficulties, any of which may hinder or delay our efforts to achieve success. In addition, our new products may have long design and sales cycles, therefore if the rate of decline in the PC markets is faster than we expected, or if our diversification efforts fail to keep pace with the declining PC markets, we may not be able to alleviate its negative impact on our results of operations.

We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.

Accounting rules require that long-lived assets be tested for impairment under certain circumstances. The outcome of impairments testing could result in the write-down of all or a portion of the value of the long-lived assets. A write-down of our assets would, in turn, reduce our earnings and net worth. During the three months ended March 31, 2013, and as a result of the accelerated declining PC markets, we recorded a non-cash charge of approximately $2.6 million in long-lived assets primarily related to our packaging service machinery and equipment for our PC related products (see "Impairment of Long-Lived Assets" in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Quarterly

29


Report for more details). It is possible that we may be required to incur additional write-downs in the future, resulting in significant reductions to our earnings and net worth. Factors which may lead to additional material impairment of our long-lived assets include, but are not limited to:
 
A significant decrease in the market value of the asset such as manufacturing and packaging equipment;
A significant adverse change in the extent or manner in which the asset group is being used, or in its physical condition;
A significant adverse change in the legal factors or in the business climate that could affect the value of the asset, including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected to acquire or construct the asset;
A current period operating or cash flow loss or a projection or forecast that demonstrates continuing losses associated with the asset's use; and
A current expectation that more-likely-than-not, the asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Furthermore, our impairment review requires us to make estimates and projections regarding, but not limited to, future cash flows. If these estimates or projections change or proved to be incorrect, we may be required to record additional impairment charges on our long-lived assets.

If we are unable to introduce or develop new and enhanced products that meet or are compatible with our customer's product requirements in a timely manner, it may harm our business, financial position and operating results.

Our success depends upon our ability to develop and introduce new and enhanced products that meet or are compatible with our customer's specifications, performance standards and other product requirements in a timely manner. The development of new and enhanced products involves highly complex processes, and at times we have experienced delays in the introduction of new products. Successful product development and introduction of new products depends on a number of factors, including the accurate product specification; timely completion of design; achievement of manufacturing yields; timely response to changes in customers' product requirements; quality and cost-effective production; and effective marketing. Since many of our products are designed for specific applications, we must frequently develop new and enhanced products jointly with our customers. If we are unable to develop or acquire new products that meet or are compatible with our customer's specification and other product requirements in a timely manner, we may lose revenue or market shares with our customers, which could have a material adverse effect on our business, financial position and operating results.

During the quarter ended March 31, 2013, we recorded a non-cash, non-recurring inventory valuation charge in the amount of $7.7 million for certain excess and obsolete inventory, consisting of products relating to PC applications, and to a lesser extent, products for power supplies.  Approximately $5.7 million of the $7.7 million non-recurring inventory write-down was attributable to newly developed products for desktop PC applications for a major OEM because these products were not compatible with its particular applications and were deemed not saleable. We are working closely with the OEM to address these issues and implement solutions to prevent future occurrences. However, there is no guarantee that we will be able to resolve these issues fully and in a timely manner. Our failure to do so may adversely affect our ability to recover the related loss of revenue and market shares, which may harm our business, financial position and results of operations.

30


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2013, we made no sale of unregistered securities and no repurchase of shares under the $25.0 million share repurchase program authorized by our board of director on October 22, 2010.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION
 
Not applicable.



31


ITEM 6. EXHIBITS

10.31
Summary of Amended Fiscal Year 2013 Executive Incentive Plan
31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**
XBRL Instance
101.SCH**
XBRL Taxonomy Extension Schema
101.CAL**
XBRL Taxonomy Extension Calculation
101.DEF**
XBRL Taxonomy Extension Definition
101.LAB**
XBRL Taxonomy Extension Labels
101.PRE**
XBRL Taxonomy Extension Presentation


* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended ("the "Exchange Act") or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.


32


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
May 6, 2013
ALPHA AND OMEGA SEMICONDUCTOR LIMITED
 
 
By:
/s/        MARY L. DOTZ            
 
Mary L. Dotz
 
Chief Financial Officer
 
(Principal Financial Officer)

 


33
EX-10.31 2 exhibit1031-aosl331201310q.htm EXHIBIT 10.31 Exhibit 10.31 -AOSL 3.31.2013 10Q

Exhibit 10.31

ALPHA AND OMEGA SEMICONDUCTOR LIMITED


AMENDED FY 2013 EXECUTIVE INCENTIVE PLAN

The following is a summary of the operation of the Executive Incentive Plan (the “Plan”) established by Alpha and Omega Semiconductor Limited (the “Company”) for Fiscal Year 2013, as amended on February 12, 2013.

Participants

Executive officers and Vice Presidents.

Performance Bonus

Participants are eligible to receive a bonus based on the level of attainment of pre-specified corporate performance goals. The Company's compensation committee establishes the performance goals to be attained.

Performance Goals

The corporate performance goals for Fiscal Year 2013 are revenue and operating income (after bonus payout). The amount of bonus earned is based 50% on revenue achieved and 50% on the non-GAAP operating income (as determined by the management of the Company) achieved; however, a minimum of 80% of the target performance goal must be achieved for payout under that performance goal and no bonus will be paid under either performance goal if a minimum of 80% of the non-GAAP operating income target is not achieved.

Target Bonus Awards

The Company's compensation committee establishes the bonuses payable based on the level of attainment of the corporate performance goals. The target bonuses for each named executive officer for Fiscal Year 2013 are as follows: Chief Executive Officer: 100% of base salary; Chief Financial Officer, Chief Operating Officer and Vice President of Sales: 60% of base salary; Chief Accounting Officer: 40% of base salary. Based on level of performance attained, actual bonus payouts can range from 100% to 200% of base salary for the Chief Executive Officer; 60% to 120% of base salary for the Chief Financial Officer, Chief Operating Officer and Vice President of Sales; and 40% to 100% of base salary for the Chief Accounting Officer.

Payment of Bonus

A portion of the bonus is payable following the end of the first 6 months of Fiscal Year 2013 based on achievement of performance goals for such semi-annual period. The bonus payable based on full-year performance is then reduced by the bonus amount paid with respect to such semi-annual period. In the event that Company performance declines in the second half of the year such that no annual bonus would be payable for the fiscal year based on fiscal year performance, the participant is not required to repay any bonus payment received based on the performance for the first 6 months of the fiscal year. The participant must remain in employment with the Company through the last day of the performance periods to receive a bonus for that period.





EX-31.1 3 ex311-aosl331201310q.htm EXHIBIT 31.1 EX 31.1-AOSL 3.31.2013 10Q


Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mike F. Chang, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Alpha and Omega Semiconductor Limited (the "registrant");
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 6, 2013
 
/s/    Mike F. Chang   
Mike F. Chang
Chief Executive Officer



EX-31.2 4 ex312-aosl331201310q.htm EXHIBIT 31.2 EX 31.2-AOSL 3.31.2013 10Q


Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mary L. Dotz, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Alpha and Omega Semiconductor Limited (the "registrant");
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 6, 2013
 
/s/    Mary L. Dotz        
Mary L. Dotz
Chief Financial Officer



EX-32.1 5 ex321-aosl331201310q.htm EXHIBIT 32.1 EX 32.1-AOSL 3.31.2013 10Q


Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mike F. Chang, chief executive officer of Alpha and Omega Semiconductor Limited (the "Company"), certify for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,

a.
the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 31, 2013 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

b.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2013
 
/s/    Mike F. Chang    
Mike F. Chang
Chief Executive Officer





EX-32.2 6 ex322-aosl331201310q.htm EXHIBIT 32.2 EX 32.2-AOSL 3.31.2013 10Q


Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mary L. Dotz, chief financial officer of Alpha and Omega Semiconductor Limited (the "Company"), certify for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge,

a.
the Quarterly Report of the Company on Form 10-Q for the fiscal quarter ended March 31, 2013 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

b.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2013
 
                                 
/s/    Mary L. Dotz       
Mary L. Dotz
Chief Financial Officer



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