Deconsolidation of the JV Company and Equity Method Investment in Equity Investee

6 Months Ended

Dec. 31, 2021

Discontinued Operations and Disposal Groups [Abstract]

Deconsolidation of the JV Company and Equity Method Investment in Equity Investee

On December 1, 2021 (the “Effective Date”), Alpha & Omega Semiconductor (Shanghai) Ltd. (“AOS SH”) and Agape Package Manufacturing (Shanghai) Limited (“APM SH” and, together with AOS SH, the “Sellers”), each a wholly-owned subsidiary of the Company, entered into a share transfer agreement ("STA") with a third-party investor to sell a portion of the Company's equity interest in the JV Company which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing, China (the “Transaction”). The Transaction closed on December 2, 2021 (the “Closing Date”), which reduced the Company’s equity interest in the JV Company from 50.9% to 48.8%. Also, the Company’s right to designate directors on the board of JV Company was reduced to three (3) out of seven (7) directors, from four (4) directors prior to the Transaction. As a result of the Transaction and other factors, the Company no longer has a controlling financial interest in the JV Company and has determined that the JV Company was deconsolidated from the Company’s Consolidated Financial Statements effective as of the Closing Date.

In connection with the deconsolidation and in accordance with ASC 810-10-40-5, the Company recorded a gain on deconsolidation of $399.1 million during the three months ended December 31, 2021 in the Condensed Consolidated Statements of Operations. The gain on deconsolidation of the JV Company was calculated as follows:


	(in thousands)

Cash received for sales of shares in the JV Company	$	16,924
Fair value of retained equity method investment	393,124
Carrying amount of non-controlling interest	143,889
Cumulative translation adjustment removal	1,793
Carrying amount of net assets of the JV Company at December 1, 2021	(156,637)

Gain on deconsolidation of the JV Company	$	399,093

The Company retained significant influence over the operating and financial policies of the JV Company and measured the fair value of the retained investment based on their share of the fair value of the JV Company, which was calculated using the market approach based on the Transaction.

On December 24, 2021, the Company entered into a share transfer agreement with another third-party investor, pursuant to which the Company sold to this investor 1.1% of outstanding equity interest held by the Company in the JV Company. In addition, the JV Company adopted an employee equity incentive plan and issued an equity interest equivalent to 3.99% of the JV Company to exchange in cash. As a result of these two transactions, the Company owned 45.8% of the equity interest in the JV Company as of December 31, 2021. The net loss associated with these two sales of JV Company equity interest held by the Company were recorded in the three months ended December 31, 2021 as follows:


	(in thousands)
Gain on 1.1% equity interest sold	$	475
Loss on diluted equity interest due to employee equity incentive plan issued	(8,116)

Loss on changes on equity interest of the JV Company, net	$	(7,641)

The Company accounts for its investment in the JV Company as an equity method investment and reports its equity in earnings or loss of the JV Company on a three-month lag due to an inability to timely obtain financial information of the JV Company. Because the Company will record its equity in earnings or loss of the JV Company using lag reporting, there is no equity in earnings or loss of the JV Company included in the Company’s results of operations for the three and six months ended December 31, 2021. The Company plans to begin including its equity earnings or loss related to the JV Company in the three months ended March 31, 2022, at which time the Company expects to also provide summary financial information for the JV Company.

The Company recorded $29.3 million of deferred tax and $3.5 million of income tax payable associated with these transactions during the three months ended December 31, 2021.