Edgar Filing: ALPHA & OMEGA SEMICONDUCTOR Ltd

Document

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, 2019

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 every Interactive Data File required to be submitted 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, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer x	Non-accelerated filer o
		(Do not check if a smaller reporting company)
Smaller reporting company x	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares	AOSL	The NASDAQ Global Select Market

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, 2019: 24,291,812

Alpha and Omega Semiconductor Limited

Form 10-Q

Fiscal Second Quarter Ended March 31, 2019

TABLE OF CONTENTS



		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:	1
	Condensed Consolidated Balance Sheets as of March 31, 2019 and June 30, 2018 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2019 and 2018 (Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended March 31, 2019 and 2018 (Unaudited)	4
	Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended March 31, 2019 and 2018 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2019 and 2018 (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	44
	Signatures	45

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, 2019			June 30, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	139,144		$	131,535
Restricted cash	261			189
Accounts receivable, net	28,410			33,755
Inventories	107,930			90,182
Other current assets	37,104			29,551
Total current assets	312,849			285,212
Property, plant and equipment, net	391,638			331,656
Intangible assets, net	16,911			16,591
Deferred income tax assets	4,977			4,892
Restricted cash - long-term	2,084			—
Other long-term assets	12,259			28,698
Total assets	$	740,718		$	667,049
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	92,246		$	92,661
Accrued liabilities	40,736			49,841
Income taxes payable	2,100			2,211
Short-term debt	26,571			3,811
Deferred margin	—			1,665
Capital leases	9,593			4,491
Total current liabilities	171,246			154,680
Long-term debt	62,499			26,786
Income taxes payable - long-term	790			924
Deferred income tax liabilities	1,325			713
Capital leases - long-term	48,380			56,791
Other long-term liabilities	10,993			993
Total liabilities	295,233			240,887
Commitments and contingencies (Note 11)
Equity:
Preferred shares, par value $0.002 per share:
Authorized: 10,000 shares, issued and outstanding: none at March 31, 2019 and June 30, 2018	—			—
Common shares, par value $0.002 per share:
Authorized: 100,000 shares, issued and outstanding: 30,935 shares and 24,289 shares, respectively at March 31, 2019 and 30,400 shares and 23,860 shares, respectively at June 30, 2018	62			61
Treasury shares at cost, 6,646 shares at March 31, 2019 and 6,540 shares at June 30, 2018	(66,240		)	(64,790		)
Additional paid-in capital	230,234			220,244
Accumulated other comprehensive income (loss)	(563		)	440
Retained earnings	122,940			122,639
Total Alpha and Omega Semiconductor Limited shareholder's equity	286,433			278,594
Noncontrolling interest	159,052			147,568
Total equity	445,485			426,162
Total liabilities and equity	$	740,718		$	667,049

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands except par value per share)

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

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,
	2019			2018			2019			2018
Revenue	$	109,067		$	102,902		$	339,064		$	311,656
Cost of goods sold	83,438			75,769			251,322			228,911
Gross profit	25,629			27,133			87,742			82,745
Operating expenses
Research and development	11,417			9,966			35,401			27,393
Selling, general and administrative	17,947			16,486			58,403			46,857
Total operating expenses	29,364			26,452			93,804			74,250
Operating income (loss)	(3,735		)	681			(6,062		)	8,495
Interest income and other income (loss), net	124			(234		)	460			(354		)
Interest expense	(1,719		)	(105		)	(4,915		)	(136		)
Net income (loss) before income taxes	(5,330		)	342			(10,517		)	8,005
Income tax expense	625			830			1,886			32
Net income (loss) including noncontrolling interest	(5,955		)	(488		)	(12,403		)	7,973
Net loss attributable to noncontrolling interest	(4,400		)	(2,139		)	(11,719		)	(5,269		)
Net income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(1,555	)	$	1,651		$	(684	)	$	13,242
Net income (loss) per common share attributable to Alpha and Omega Semiconductor Limited
Basic	$	(0.06	)	$	0.07		$	(0.03	)	$	0.55
Diluted	$	(0.06	)	$	0.07		$	(0.03	)	$	0.53
Weighted average number of common shares attributable to Alpha and Omega Semiconductor Limited used to compute net income (loss) per share
Basic	24,084			23,795			23,938			23,914
Diluted	24,084			24,755			23,938			24,916

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in thousands)

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,
	2019			2018			2019			2018
Net income (loss) including noncontrolling interest	$	(5,955	)	$	(488	)	$	(12,403	)	$	7,973
Other comprehensive income, net of tax
Foreign currency translation adjustment	4,495			5,198			(1,800		)	9,246
Comprehensive income (loss)	(1,460		)	4,710			(14,203		)	17,219
Noncontrolling interest	(2,184		)	360			(12,516		)	(871		)
Comprehensive income (loss) attributable to Alpha and Omega Semiconductor Limited	$	724		$	4,350		$	(1,687	)	$	18,090

See accompanying notes to these condensed consolidated financial statements.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited, in thousands)



	Common Shares		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total AOS Shareholders' Equity			Noncontrolling Interest			Total Equity
Balance, December 31, 2018	$	61	$	(66,283	)	$	227,818		$	(2,842	)	$	124,538		$	283,292		$	161,236		$	444,528
Exercise of common stock options and release of RSUs	1		—			(1		)	—			—			—			—			—
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		43			—			—			(43		)	—			—			—
Withholding tax on restricted stock units	—		—			(1,743		)	—			—			(1,743		)	—			(1,743		)
Issuance of shares under ESPP	—		—			—			—			—			—			—			—
Repurchase of common shares under shares repurchase program	—		—			—			—			—			—			—			—
Share-based compensation	—		—			4,160			—			—			4,160			—			4,160
Net loss	—		—			—			—			(1,555		)	(1,555		)	(4,400		)	(5,955		)
Impact on retained earnings related to ASC 606 adoption	—		—			—			—			—			—			—			—
Cumulative translation adjustment	—		—			—			2,279			—			2,279			2,216			4,495
Contributions from noncontrolling interest	—		—			—			—			—			—			—			—
Balance, March 31, 2019	$	62	$	(66,240	)	$	230,234		$	(563	)	$	122,940		$	286,433		$	159,052		$	445,485



	Common Shares		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total AOS Shareholders' Equity			Noncontrolling Interest			Total Equity
Balance, June 30, 2018	$	61	$	(64,790	)	$	220,244		$	440		$	122,639		$	278,594		$	147,568		$	426,162
Exercise of common stock options and release of RSUs	1		—			109			—			—			110			—			110
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		51			—			—			(51		)	—			—			—
Withholding tax on restricted stock units	—		—			(1,946		)	—			—			(1,946		)	—			(1,946		)
Issuance of shares under ESPP	—		—			1,168			—			—			1,168			—			1,168
Repurchase of common shares under shares repurchase program	—		(1,501		)	—			—			—			(1,501		)	—			(1,501		)
Share-based compensation	—		—			10,659			—			—			10,659			—			10,659
Net loss	—		—			—			—			(684		)	(684		)	(11,719		)	(12,403		)
Impact on retained earnings related to ASC 606 adoption	—		—			—			—			1,036			1,036			—			1,036
Cumulative translation adjustment	—		—			—			(1,003		)	—			(1,003		)	(797		)	(1,800		)
Contributions from noncontrolling interest	—		—			—			—			—			—			24,000			24,000
Balance, March 31, 2019	$	62	$	(66,240	)	$	230,234		$	(563	)	$	122,940		$	286,433		$	159,052		$	445,485

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited, in thousands)



	Common Shares		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings			Total AOS Shareholders' Equity			Noncontrolling Interest			Total Equity
Balance, December 31, 2017	$	60	$	(55,799	)	$	212,771		$	2,455	$	120,023		$	279,510		$	113,542		$	393,052
Exercise of common stock options and release of RSUs	—		—			465			—		—			465			—			465
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		83			—			—		(53		)	30			—			30
Withholding tax on restricted stock units	—		—			(1,999		)	—		—			(1,999		)	—			(1,999		)
Issuance of shares under ESPP	—		—			—			—		—			—			—			—
Repurchase of common shares under shares repurchase program	—		(5,994		)	—			—		—			(5,994		)	—			(5,994		)
Share-based compensation	—		—			3,931			—		—			3,931			—			3,931
Net income (loss)	—		—			—			—		1,651			1,651			(2,139		)	(488		)
Impact on retained earnings related to ASC 606 adoption	—		—			—			—		—			—			—			—
Cumulative translation adjustment	—		—			—			2,699		—			2,699			2,499			5,198
Contributions from noncontrolling interest	—		—			—			—		—			—			42,000			42,000
Balance, March 31, 2018	$	60	$	(61,710	)	$	215,168		$	5,154	$	121,621		$	280,293		$	155,902		$	436,195


	Common Shares		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income		Retained Earnings			Total AOS Shareholders' Equity			Noncontrolling Interest			Total Equity
Balance, June 30, 2017	$	59	$	(49,836	)	$	206,332		$	306	$	113,909		$	270,770		$	27,779		$	298,549
Exercise of common stock options and release of RSUs	1		—			1,168			—		—			1,169			—			1,169
Reissuance of treasury stock upon exercise of common stock options and release of RSUs	—		142			—			—		(50		)	92			—			92
Withholding tax on restricted stock units	—		—			(2,248		)	—		—			(2,248		)	—			(2,248		)
Issuance of shares under ESPP	—		—			1,439			—		—			1,439			—			1,439
Repurchase of common shares under shares repurchase program	—		(12,016		)	—			—		—			(12,016		)	—			(12,016		)
Share-based compensation	—		—			8,477			—		—			8,477			—			8,477
Net income (loss)	—		—			—			—		13,242			13,242			(5,269		)	7,973
Impact on retained earnings related to ASC 606 adoption	—		—			—			—		(5,480		)	(5,480		)	—			(5,480		)
Cumulative translation adjustment	—		—			—			4,848		—			4,848			4,398			9,246
Contributions from noncontrolling interest	—		—			—			—		—			—			128,994			128,994
Balance, March 31, 2018	$	60	$	(61,710	)	$	215,168		$	5,154	$	121,621		$	280,293		$	155,902		$	436,195

See accompanying notes to these condensed consolidated financial statements.

Table of Contents

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



	Nine Months Ended March 31,
	2019			2018
Cash flows from operating activities
Net income (loss) including noncontrolling interest	$	(12,403	)	$	7,973
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	24,159			21,818
Share-based compensation expense	10,659			8,477
Deferred income taxes, net	252			(638		)
Loss (gain) on disposal of property and equipment	(8		)	26
Changes in assets and liabilities:
Accounts receivable, net	5,122			(517		)
Inventories	(17,748		)	(14,218		)
Other current and long-term assets	(2,399		)	(16,255		)
Accounts payable	6,039			6,492
Income taxes payable	(245		)	(1,731		)
Accrued and other liabilities	9,728			2,830
Net cash provided by operating activities	23,156			14,257
Cash flows from investing activities
Purchases of property and equipment excluding JV Company	(31,402		)	(35,585		)
Purchases of property and equipment in JV Company	(58,509		)	(87,088		)
Purchase of intangible assets	(405		)	(14,034		)
Proceeds from sale of property and equipment	21			6
Net cash used in investing activities	(90,295		)	(136,701		)
Cash flows from financing activities
Proceeds from investment by noncontrolling interest	24,000			128,994
Withholding tax on restricted stock units	(1,946		)	(2,248		)
Proceeds from exercise of stock options and ESPP	1,278			2,700
Payment for repurchases of common shares	(1,501		)	(12,016		)
Proceeds from borrowings	67,479			13,150
Repayments of borrowings	(9,393		)	—
Principal payments on capital leases	(2,440		)	(623		)
Net cash provided by financing activities	77,477			129,957
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(573		)	2,004
Net increase in cash, cash equivalents and restricted cash	9,765			9,517
Cash, cash equivalents and restricted cash at beginning of period	131,724			115,929
Cash, cash equivalents and restricted cash at end of period	$	141,489		$	125,446

Supplemental disclosures of non-cash investing and financing information:
Property and equipment purchased but not yet paid	$	50,767		$	66,563
Re-issuance of treasury stock	$	51		$	50

See accompanying notes to these condensed consolidated financial statements.

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 personal computers, flat panel TVs, LED lighting, smart phones, battery packs, quick chargers, home appliances, 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, China, and South Korea.

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, 2018. 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 periods presented have been included in the interim periods. Operating results for the nine months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. The condensed consolidated balance sheet at June 30, 2018 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, 2018.

Joint Venture

In March 2016, the Company executed an agreement with two strategic investment funds owned by the Municipality of Chongqing, China (the "Chongqing Funds") to form a joint venture, (the "JV Company"), for a new state-of-the-art power semiconductor packaging, testing and wafer fabrication facility in Liangjiang New Area of Chongqing (the "Joint Venture"). The initial capitalization of the Joint Venture under the agreement was $330.0 million, which includes cash contributions from the Chongqing Funds and contributions of cash, equipment and intangible assets from the Company. In August 2018, the Company invested an additional $25.0 million in cash contribution to the JV Company, after which resulted the Company owned 54.4%, and the Chongqing Funds owned 45.6%, of the equity interest in the JV Company. At the end of December 2018, the Chongqing Funds invested an additional $24.0 million in cash contribution to the JV Company, after which the Company owned 50.9%, and the Chongqing Funds owned 49.1%, of the equity interest in the JV Company. The Joint Venture is accounted for under the provisions of the consolidation guidance since the Company has a controlling financial interest.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. To the extent there are material differences between these estimates and actual results, the Company's condensed 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, allowance for doubtful accounts, inventory reserves, warranty accrual, income taxes, share-based compensation, and useful lives for property, plant and equipment and intangible assets.

Share-based Compensation Expense

The Company recognizes expense related to share-based compensation awards that are ultimately expected to vest based on estimated fair values on the date of grant. The fair value of restricted share units is based on the market value of the Company's common share on the date of grant. For restricted stock awards subject to market conditions, the fair value of each

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model. The fair value of stock options is estimated on the date of grant using the Black-Scholes option valuation model. Share-based compensation expense is recognized on the accelerated attribution basis, net of estimated forfeitures, over the requisite service period of the award, which generally equals the vesting period.

Fair Value of Financial Instruments

The fair value of cash equivalents is 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.

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 (loss) consists of cumulative foreign currency translation adjustments. Total comprehensive income (loss) is presented in the condensed consolidated statements of comprehensive income (loss).

Recent Accounting Pronouncements

Recently Issued Accounting Standards not yet adopted

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15”). These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contact with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standard Updates ("ASU") ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13”). ASU 2018-13 amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU No. 2018-13 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2018, the FASB issued ASU 2018-07, "Compensation -Stock Compensation: Improvement to Nonemployees Share-Based Payment Accounting ("ASU 2018-07"), which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted, but no earlier than our adoption of ASC 606. The Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases. Both finance and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding liability on its balance sheet, with differing methodology for income statement recognition. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. The Company will adopt this standard in the first quarter of 2020, using the modified retrospective transition method and recording a cumulative-effect balance sheet adjustment. The Company is currently in the process of measuring the right-of-use assets and lease liabilities that will be recorded on the date of adoption for the qualified leases. While the impact on the Company’s results of operations is being evaluated we expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption. The impact of this ASU is non-cash in nature and will not affect the Company’s cash flows.

Recently Adopted Accounting Standards

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should be presented in the form of a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed with the SEC. The Company's first presentation of changes in stockholders' equity has been included in its Form 10-Q for the quarter ending March 31, 2019.

In May 2017, the FASB issued ASU 2017-09, "Compensation -Stock Compensation: Scope of Modification Accounting ("ASU 2017-09"). ASU 2017-09 is an update to the existing guidance to clarify when modification accounting would be applied for a change to the terms or conditions of a share-based award. Under this new guidance, modification accounting is required only if the fair value, a vesting condition, or the classification of the award changes as a result of the change in terms or conditions. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The Company does not regularly modify the terms and conditions of its share-based awards and the adoption of this guidance had no impact on its financial statements.

In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows: Restricted Cash ("ASU 2016-18"). ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted and requires retrospective adoption. The Company adopted this standard effective July 1, 2018. The reclassified restricted cash balances from investing activities to changes in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows were not material for all periods presented.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows under Topic 230. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, entities must apply the guidance retrospectively to all periods presented. There was no impact on the Company's consolidated financial statements upon the adoption of this standard.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance.

The change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors. Sales to these distributors are governed under the terms of agreements providing extended price protection and other return rights, and were historically deferred under the previous accounting guidance until the related product was sold to the end customer. Under ASC 606, the transaction price takes into consideration the effect of variable consideration such as price adjustments and returns rights, which are estimated and recorded at the time the goods are delivered. Accordingly, the Company recognizes revenue

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

under ASC 606 at the time of shipment or delivery to these two distributors, adjusted for estimates of the price adjustments and product returns based on historical data and other available information. Revenue from other non-U.S. distributors and direct customers, which consists of the majority of the Company's total revenue, is recognized at the time of shipment or delivery to the distributors and direct customers. Accordingly, revenue recognition with these distributors and direct customers remains unchanged upon adoption of ASC 606. See "Note 2 - Revenue" for additional information on the impact of the adoption of the new standard on the Company’s consolidated financial statements.

2. Revenue

Impact from the Adoption of the New Revenue Standard:

On July 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to all contracts. Results for reporting periods beginning after July 1, 2018 were presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under ASC 605.

The change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors. Sales to these distributors are governed under terms of agreements providing extended price protection and other return rights. The Company recorded a net increase to opening retained earnings of $1.0 million as of July 1, 2018 due to the cumulative impact of adopting ASC 606, with a corresponding $1.6 million decrease in deferred margin, a $0.2 million decrease in accounts receivables, a $0.1 million increase in current accrued liabilities, and a $0.3 million increase in deferred tax liabilities. Effective July 1, 2018, the Company recognized revenue at the time of shipment or delivery to these two distributors, adjusted for estimates of the price adjustments and return rights based on historical data and other available information. Based on the Company's assessment, only minimal changes were required to the Company's existing policies, processes, and controls to support the standard's measurement and disclosure requirements.

The following tables compare the amounts reported in the condensed consolidated statements of income and condensed consolidated balance sheet to the amounts had the previous revenue recognition guidance been in effect:



	As of March 31, 2019
	As Reported		Adjustment			Balances Without Adoption
	(in thousands)
Accounts receivable, net	$	28,410	$	134		$	28,544
Accrued liabilities	$	40,736	$	(101	)	$	40,635
Deferred margin	$	—	$	1,670		$	1,670
Income taxes payable	$	2,100	$	(39	)	$	2,061
Deferred income tax liabilities	$	1,325	$	(291	)	$	1,034
Retained earnings	$	122,940	$	(1,105	)	$	121,835



	Three Months Ended March 31, 2019									Nine Months Ended March 31, 2019
	As Reported			Adjustment			Balances Without Adoption			As Reported			Adjustment			Balances Without Adoption
	(in thousands)									(in thousands)
Revenue	$	109,067		$	(21	)	$	109,046		$	339,064		$	(329	)	$	338,735
Cost of goods sold	$	83,438		$	(91	)	$	83,347		$	251,322		$	(205	)	$	251,117
Gross profit	$	25,629		$	70		$	25,699		$	87,742		$	(124	)	$	87,618
Income tax expense	$	625		$	6		$	631		$	1,886		$	(39	)	$	1,847
Net loss including noncontrolling interest	$	(5,955	)	$	64		$	(5,891	)	(12,403		)	$	(85	)	$	(12,488	)

New Revenue Recognition Policy Including Significant Judgments and Estimates

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As a result of the adoption of the new revenue standard on July 1, 2018, at the beginning of the first quarter of fiscal year 2019, the Company determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, a performance obligation is satisfied.

The Company has written contracts with combination of agreements and purchase orders with all customers including certain general terms and conditions. Often purchase orders entail merchandises, quantities and prices, which define the performance obligations of each party and are approved or accepted by the Company. The Company’s contracts with customers do not typically include extended payment terms. Payment terms vary by contract type and type of customer and generally range from 30 to 60 days.

The Company’s performance obligations are to deliver the requested goods or services to customers according to the agreed shipping terms. As such, there is no material difference in regards to performance obligations vs. “deliverables” under ASC 606 vs. the legacy revenue guidance. The Company recognizes revenue when the performance obligation is satisfied.

The majority of the Company’s total revenue is from non-U.S. distributors and direct customers, which is recognized at the time of shipment or delivery to distributors and direct customers. Accordingly, revenue recognition with these distributors and direct customers remains unchanged upon adoption of ASC 606. As noted above, the change for the Company under ASC 606 relates to the timing of revenue recognition with two U.S.-based distributors. Sales to these distributors are governed under the terms of agreements providing extended price protection and other return rights, and were historically deferred under the previous accounting guidance until the related product was sold to end customers. Under ASC 606, the transaction price takes into consideration the effect of variable consideration such as price adjustments and return rights, which are estimated and recorded at the time the goods are delivered.

Because all of the Company’s performance obligations relate to contracts with a duration of less than one year, the Company elected to apply the optional exemption practical expedient provided in ASC 606 and, therefore, is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

The Company adjusts the transaction price for variable consideration. Variable consideration primarily represents adjustments related to stock rotation rights and price adjustments provided to our distributors. As a practical expedient, the Company recognizes the incremental costs of obtaining a contract, specifically commission expenses that have a period of benefit of less than twelve months, as an expense when incurred. Additionally, the Company has adopted an accounting policy to recognize shipping costs that occur after control transfers to the customer as a fulfillment activity.

The Company warrants its products to be free of defects generally for a period of one year. The Company estimates its warranty costs based on historical warranty claim experience and includes such costs in cost of goods sold. Warranty expenses and the accrued warranty liability were not material as of March 31, 2019.

The following table presents the Company's revenue information by geographical location based on the country or region to which the products were shipped. 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 a global presence, revenue by geographical location is not necessarily representative of the geographical distribution of sales to end user markets.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	Three Months Ended March 31,				Nine Months Ended March 31,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Hong Kong	$	87,143	$	84,632	$	265,914	$	252,302
China	18,834		15,849		63,991		52,122
South Korea	260		243		568		831
United States	1,684		1,358		5,624		4,050
Other countries	1,146		820		2,967		2,351
	$	109,067	$	102,902	$	339,064	$	311,656

The following is a summary of revenue by product type:



	Three Months Ended March 31,				Nine Months Ended March 31,
	2019		2018		2019		2018
	(in thousands)				(in thousands)
Power discrete	$	89,936	$	83,982	$	275,485	$	252,754
Power IC	17,631		15,685		56,430		49,540
Packaging and testing services	1,500		3,235		7,149		9,362
	$	109,067	$	102,902	$	339,064	$	311,656

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Net Income (Loss) Per Common Share Attributable to Alpha and Omega Semiconductor Limited

The following table presents the calculation of basic and diluted net income (loss) per share attributable to common shareholders:



	Three Months Ended March 31,					Nine Months Ended March 31,
	2019			2018		2019			2018
	(in thousands, except per share data)
Numerator:
Net income (loss) attributable to Alpha and Omega Semiconductor Limited	$	(1,555	)	$	1,651	$	(684	)	$	13,242

Denominator:
Basic:
Weighted average number of common shares used to compute basic net income (loss) per share	24,084			23,795		23,938			23,914
Diluted:
Weighted average number of common shares used to compute basic net income per share	24,084			23,795		23,938			23,914
Effect of potentially dilutive securities:
Stock options, RSUs and ESPP shares	—			960		—			1,002
Weighted average number of common shares used to compute diluted net income per share	24,084			24,755		23,938			24,916
Net income (loss) per share attributable to Alpha and Omega Semiconductor Limited:
Basic	$	(0.06	)	$	0.07	$	(0.03	)	$	0.55
Diluted	$	(0.06	)	$	0.07	$	(0.03	)	$	0.53

The following potential dilutive securities were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive:



	Three Months Ended March 31,		Nine Months Ended March 31,
	2019	2018	2019	2018
	(in thousands)		(in thousands)
Employee stock options and RSUs	2,225	165	2,220	167
ESPP	891	381	988	157
Total potential dilutive securities	3,116	546	3,208	324

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. 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 and review 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 requirements, while sales to new customers or customers with low credit ratings are usually made on an advance payment basis. The Company considers its trade accounts receivable 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 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 more than 10% of the respective total consolidated amounts:



	Three Months Ended March 31,				Nine Months Ended March 31,
Percentage of revenue	2019		2018		2019		2018
Customer A	26.8	%	25.9	%	28.4	%	28.1	%
Customer B	36.2	%	37.0	%	37.3	%	34.8	%



	March 31, 2019		June 30, 2018
Percentage of accounts receivable	March 31, 2019		June 30, 2018
Customer A	19.4	%	17.1	%
Customer B	18.1	%	35.5	%
Customer C	14.1	%	10.6	%

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Balance Sheet Components

Accounts receivable, net:



	March 31, 2019			June 30, 2018
	(in thousands)
Accounts receivable	$	51,260		$	52,687
Less: Allowance for price adjustments	(22,820		)	(18,902		)
Less: Allowance for doubtful accounts	(30		)	(30		)
Accounts receivable, net	$	28,410		$	33,755

Inventories:



	March 31, 2019		June 30, 2018
	(in thousands)
Raw materials	$	57,094	$	47,097
Work in-process	38,954		35,243
Finished goods	11,882		7,842
	$	107,930	$	90,182

Other current assets:



	March 31, 2019		June 30, 2018
	(in thousands)
VAT receivable	$	30,277	$	17,601
Other prepaid expenses	2,940		2,121
Prepaid insurance	227		906
Prepaid maintenance	665		556
Prepayment to supplier	1,057		227
Prepaid income tax	745		761
Custom deposit	161		5,749
Lease financing cost	994		960
Other receivable	38		670
	$	37,104	$	29,551

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Property, plant and equipment, net:



	March 31, 2019			June 30, 2018
	(in thousands)
Land	$	4,877		$	4,877
Building	34,263			4,325
Manufacturing machinery and facility equipment	330,212			273,737
Equipment and tooling	19,800			16,605
Computer equipment and software	28,510			25,686
Office furniture and equipment	3,037			2,314
Leasehold improvements	22,570			21,355
Land use rights	8,958			9,089
	452,227			357,988
Less: accumulated depreciation	(247,709		)	(225,184		)
	204,518			132,804
Equipment and construction in progress	187,120			198,852
Property, plant and equipment, net	$	391,638		$	331,656

Intangible assets, net:



	March 31, 2019			June 30, 2018
	(in thousands)
Patents and technology rights	$	18,037		$	17,633
Trade name	268			268
Customer relationships	1,150			1,150
	19,455			19,051
Less: accumulated amortization	(2,813		)	(2,729		)
	16,642			16,322
Goodwill	269			269
Intangible assets, net	$	16,911		$	16,591

Intangible assets of patents and technology rights are primarily related to a license agreement that the Company entered into with STMicroelectronics International N.V. (“STMicro”) on September 5, 2017, pursuant to which STMicro granted the Company a world-wide, royalty-free and fully-paid license to use its technologies to develop, market and distribute certain digital multi-phase controller products, which have been offered by STMicro. This agreement allows the Company to develop and market products in a new market for digital power products, primarily in the computer server segment. As of March 31, 2019, the Company recorded $16.2 million of intangible assets related to STMicro. The Company begins amortizing such license fees when the technology has met the Company's qualification and is ready for its intended use in production.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Other long-term assets:



	March 31, 2019		June 30, 2018
	(in thousands)
Prepayments for property and equipment	$	6,040	$	17,599
Investment in a privately held company	700		700
Lease financing costs	1,987		1,922
VAT long-term receivable	—		3,396
Customs deposit	1,220		1,589
Other long-term deposits	909		2,252
Office leases deposits	991		853
Other	412		387
	$	12,259	$	28,698

Accrued liabilities:



	March 31, 2019		June 30, 2018
	(in thousands)
Accrued compensation and benefits	$	14,525	$	18,484
Warranty accrual	653		535
Stock rotation accrual	1,723		1,750
Accrued professional fees	1,660		1,922
Accrued inventory	1,094		667
Accrued facilities related expenses	3,934		2,163
Accrued financing lease costs	744		1,510
Accrued property, plant and equipment	8,874		18,145
Other accrued expenses	7,529		4,665
	$	40,736	$	49,841

The activities in the warranty accrual, included in accrued liabilities, are as follows:



	Nine Months Ended March 31,
	2019			2018
	(in thousands)
Beginning balance	$	535		$	1,866
Additions (reductions)	229			(1,203		)	*
Utilization	(111		)	(52		)
Ending balance	$	653		$	611

* Released a specific warranty reserve of approximately $1.0 million due to expired warranty period.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The activities in the stock rotation accrual, included in accrued liabilities, are as follows:



	Nine Months Ended March 31,
	2019			2018
	(in thousands)
Beginning balance	$	1,750		$	1,871
Additions	3,589			2,147
Utilization	(3,616		)	(2,244		)
Ending balance	$	1,723		$	1,774

Other long-term liabilities:



	March 31, 2019		June 30, 2018
	(in thousands)
Deferred rent	$	85	$	238
Customer deposits	10,000		—
Other	908		755
Other long-term liabilities	$	10,993	$	993

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6. Bank Borrowings

Short-term borrowing

On March 21, 2019, the JV Company entered into an one-year loan agreement with China Everbright Bank in China to provide a loan for Chinese Renminbi (RMB) 20 million, or $3.0 million based on currency exchange rate between RMB and U.S. Dollars on March 31, 2019 at fixed interest rate of 5.44% per annum. Interest payments are due monthly with the entire principal due on March 21, 2020. As of March 31, 2019, the outstanding balance under the loan was 20 million RMB (equivalent of $3.0 million based on the currency exchange rate as of March 31, 2019).

On November 29 and December 4, 2018, the JV Company entered into two one-year loan agreements with China Merchant Bank in China to provide loans for RMB 80 million and 20 million, respectively, or $14.5 million in total based on currency exchange rate between RMB and U.S. Dollars on December 31, 2018 at varying interest rates. Interest payments are due monthly and quarterly with the entire principal due not later than December 18 and December 5, 2019, respectively. As of March 31, 2019, the outstanding balances under the loans were 80 million RMB and 20 million (equivalent of $14.9 million in total based on the currency exchange rate as of March 31, 2019).

On November 16, 2018, the Company's subsidiary in China entered into a line of credit facility with Industrial and Commercial Bank of China, which expires on September 30, 2019. The purpose the credit facility is to provide short-term borrowings. The Company can borrow up to approximately RMB 72.0 million or $10.3 million based on currency exchange rate between RMB and U.S. Dollars on November 16, 2018. As of March 31, 2019, there was no outstanding balance under the line of credit.

Credit Facilities

On May 9, 2018 (the “Effective Date”), the JV Company entered into a lease finance agreement and a security agreement (the “Agreements”) with YinHai Leasing Company and China Import/Export Bank (the “Lenders”). Pursuant to the Agreements, the Lenders agree to provide an aggregate of RMB 400.0 million, or $62.8 million based on the currency exchange rate between RMB and U.S. Dollars on the Effective Date, of financing to the JV Company (the “Lease Financing”). In exchange for the Lease Financing, the JV Company agrees to transfer title of its assembly and testing equipment to the Lenders, and the Lenders lease such equipment to the JV Company under a five-year lease arrangement, pursuant to which the JV Company makes quarterly lease payments to the Lenders consisting of principal and interest based on a repayment schedule mutually agreed by the parties. The interest under the Lease Financing is accrued based on the China Base Rate multiplied by 1.15, or 5.4625% on the Effective Date. Under the Agreements, at the end of the five-year lease term, the Lenders agree to sell such equipment back to the JV Company for a nominal amount (RMB 1). The JV Company’s obligations under the Lease Financing are secured by the land and building owned by the JV Company (the “Collateral”). The proceeds from the Lease Financing will be used primarily for the acquisition and installation of the 12-inch fabrication equipment and other expenses of the JV Company relating to the completion of the fabrication facility located in Chongqing. The Agreements contain customary representation, warranties and covenants, including restrictions on the transfer of the Collateral. The Agreements also contain customary events of default, including but are not limited to, failure to make payments and breach of material terms under the Agreements. The Agreements include certain customary closing conditions, including the payment of deposit by the JV Company. As of March 31, 2019, the outstanding balance under the Agreement was 388.0 million RMB (equivalent of $57.8 million based on the currency exchange rate as of March 31, 2019), which was recorded under short-term and long-term capital lease liabilities.

Capital lease liabilities include financing leases, computer software and exclusive technology rights. Future minimum lease payments are as follows (in thousands):

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Year ending June 30,
2019 (Remaining)	$	2,809
2020	14,540
2021	18,200
2022	17,310
2023	12,547
Total minimum lease payments	65,406
Less amount representing interest	(7,433		)
Total capital lease liabilities	$	57,973

Reported as:	March 31, 2019
Capital lease - short-term	$	9,593
Capital lease - long-term	48,380
	$	57,973

Long-term debt

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of 200 million RMB (approximately $29.8 million based on currency exchange rate between RMB and U.S. Dollars on March 31, 2019). The loan will mature on February 28, 2020. The JV Company drew down 190 million RMB (approximately $28.3 million based on the currency exchange rate between RMB and U.S. Dollars on March 31, 2019) in March 2019. Interest is accrued based on the China Base Rate plus 10%. The loan requires quarterly interest payments, along with the principal payments, over 72 months commencing in October 2019. The obligation under this loan agreement is secured by the buildings and certain equipment owned by the JV Company. As a condition of the loan arrangements, 14 million RMB (approximately $2.1 million) of cash is held as restricted cash by the JV Company as a compensating balance at the JV Company's bank until the principal is paid. As of March 31, 2019, the outstanding balance of the loan was 190 million RMB (equivalent of $28.3 million based on the currency exchange rate as of March 31, 2019).

On May 1, 2018, Jireh Semiconductor Incorporated ("Jireh"), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in an amount of $17.8 million. The obligation under the loan agreement is secured by certain real estate assets of Jireh and guaranteed by the Company. The loan has a five-year term and matures on June 1, 2023. Beginning June 1, 2018, Jireh made consecutive monthly payments of principal and interest to the Bank. The outstanding principal shall accrue interest at a fixed rate of 5.04% per annum on the basis of a 360-day year. 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. The Company was in compliance with these covenants as of March 31, 2019. As of March 31, 2019, the outstanding balance of the term loan was $17.0 million.

On August 15, 2017, Jireh entered into a credit agreement with the Bank that provided a term loan in an amount up to $30.0 million for the purpose of purchasing certain equipment for the Company's fabrication facility located in Oregon. The obligation under the credit agreement is secured by substantially all assets of Jireh and guaranteed by the Company. The credit agreement has a five-year term and matures on August 15, 2022. In January 2018 and July 2018, Jireh drew down the loan in the amount of $13.2 million and $16.7 million, respectively. Beginning in October 2018, Jireh was required to pay to the Bank on each payment date, the outstanding principal amount of the loan in monthly installments. The loan accrues interest based on an adjusted London Interbank Offered Rate ("LIBOR") as defined in the credit agreement, plus specified applicable margin in the range of 1.75% to 2.25%, based on the outstanding balance of the loan. The credit agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio. The Company was in compliance with these covenants as of March 31, 2019. As of March 31, 2019, the outstanding balances of the term loan were $26.1 million.

Maturities of short-term debt and long-term debt were as follows (in thousands):

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Year ending June 30,
2019 (Remaining)	$	2,085
2020	27,096
2021	9,829
2022	15,188
2023	22,876
Thereafter	12,206
Total principal of debt	89,280
Less: debt issuance costs	(210		)
Total principal of debt, less debt issuance costs	$	89,070

Reported as:	March 31, 2019
Short-term debt	$	26,571
Long-term debt	62,499
	$	89,070

7. Joint Venture

On March 29, 2016, the Company entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), pursuant to which the Company and the Chongqing Funds formed a joint venture, (the “JV Company”), for the purpose of constructing and operating a power semiconductor packaging, testing and 12-inch wafer fabrication facility in the Liangjiang New Area of Chongqing, China (the “JV Transaction”). As of September 30, 2018, the Company owned 54.4%, and the Chongqing Funds owned 45.6%, of the equity interest in the JV Company. At the end of December 2018, the Chongqing Funds invested additional $24.0 million in cash contribution to the JV Company, which resulted in the Company owning 50.9%, and the Chongqing Funds owning 49.1%, of the equity interest in the JV Company. The JV Company commenced small mass production of wafer assembly and testing during the quarter ended September 30, 2018. During the quarter ended March 31, 2019, the JV Company continued the production ramp at the assembly and testing facility and produced customer samples from the 12-inch wafer fabrication facility.

As part of the JV Transaction, the JV Company entered into an Engineering, Procurement and Construction Contract (the “EPC Contract”) with The IT Electronics Eleventh Design & Research Institute Scientific and Technological Engineering Corporation Limited (the “Contractor”), effective as of January 10, 2017 (the "Effective Date"), pursuant which the Contractor was engaged to construct the manufacturing facility contemplated under the JV Agreement. The total price payable under the EPC Contract is Chinese Renminbi (RMB) 540.0 million, or approximately $78.0 million based on the currency exchange rate between RMB and U.S. Dollars on the Effective Date, which consists of $2.8 million (RMB 19.5 million) of design fees and $75.2 million (RMB 520.5 million) of construction and procurement fees (including compliance with safety and aesthetic requirements). As of March 31, 2019, the JV Company paid approximately $71.5 million (RMB 480.0 million), and expects to pay the remaining of $8.9 million (RMB 60.0 million) in the near term.

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. Shareholders' Equity and Share-based Compensation

Share Repurchase

In September 2017, the Board of Directors approved a new repurchase program (the “Repurchase Program”), that allows the Company to repurchase its common shares from the open market pursuant to a pre-established Rule 10b5-1 trading plan or through privately negotiated transactions up to an aggregate of $30.0 million. The amount and timing of any repurchases under the Repurchase Program depend on a number of factors, including but not limited to, the trading price, volume, availability of the Company's common shares and the amount of available cash reserve. Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity.

During the nine months ended March 31, 2019, the Company repurchased an aggregate of 111,509 shares from the open market, for a total cost of $1.5 million, excluding fees and related expenses, at an average price of $13.43 per share. Since the inception of the prior repurchase program in 2010, the Company repurchased an aggregate of 6,784,648 shares from the open market including shares purchased in a dutch tender offer for a total cost of $67.3 million, at an average price of $9.92 per share, excluding fees and related expenses. No repurchased shares have been retired. Of the 6,784,648 repurchased shares, 138,828 shares with a weighted average repurchase price of $10.41 per share, were reissued at an average price of $5.55 per share pursuant to option exercises and vested restricted share units. As of March 31, 2019, approximately $13.4 million remained available under the Repurchase Program.

Time-based Restricted Stock Units ("TRSU")

The following table summarizes the Company's TRSU activities for the nine months ended March 31, 2019:



	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, 2018	919,023		$	15.14	1.62	$	13,086,888
Granted	479,346		$	11.30
Vested	(463,633	)	$	13.15
Forfeited	(31,750	)	$	13.34
Nonvested at March 31, 2019	902,986		$	14.19	1.77	$	13,644,118
TRSUs vested and expected to vest	809,820				1.71	$	12,236,385

The Board approved the incentive bonus plan (the “Plan”) for the calendar year commencing January 1, 2018 pursuant to which each executive officer of the Company who continues in service through the end of the calendar year would be eligible to receive an incentive award, based on the level of attainment of certain specified Company performance goals. The Company recorded $1.0 million of such RSUs expense during the nine months ended March 31, 2019.

Market-based Restricted Stock Units ("MSUs")

During the quarter ended September 30, 2018, the Company granted 1.3 million market-based restricted stock units ("MSUs") to certain personnel. The number of shares to be earned at the end of performance period is determined based on the Company’s achievement of specified stock prices and revenue thresholds during the performance period from January 1, 2019 to December 31, 2021 as well as the recipients remaining in continuous service with the Company through such period. The MSUs vest in four equal annual installments after the end of each performance period. The Company estimated the grant date fair values of its MSUs with derived service periods of 4.5 to 7.5 years using a Monte-Carlo simulation model with the following assumptions: Risk-free interest rate of 2.7%, expected term of 3.5 years, expected volatility of 38.8% and dividend yield of 0%. The Company recorded approximately $0.1 million and $0.5 million of expense for these MSUs during the three and nine months ended March 31, 2019.

The following table summarizes the Company's MSUs activities for the nine months ended March 31, 2019:

ALPHA AND OMEGA SEMICONDUCTOR LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	Number of Performance-based Restricted Stock Units	Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Recognition Period (Years)
Nonvested at June 30, 2018	—	$	—