NOTE 16 – BUSINESS COMBINATION

Pericom Semiconductor Corporation

On November 24, 2015, we completed our acquisition of Pericom Semiconductor Corporation (“Pericom”) pursuant to the Agreement and Plan of Merger dated as of September 2, 2015 (the “Merger Agreement”), as amended on November 6, 2015, by Amendment No. 1 (the “Merger Agreement Amendment”). Under the Merger Agreement and the Merger Agreement Amendment and in accordance with the General Corporation Law of the State of California (1) PSI Merger Sub, Inc., a California corporation and wholly-owned subsidiary of the Company, was merged with and into Pericom, with Pericom continuing as the surviving corporation and a wholly-owned subsidiary of the Company, and (2) each outstanding share of common stock, without par value, of Pericom (other than shares owned by Pericom or certain of its affiliates or shares held by Pericom shareholders who have perfected their appraisal rights in accordance with applicable California law) was automatically converted into the right to receive $17.75 in cash per share, without interest. The aggregate consideration was approximately $403 million including the value of Pericom equity awards paid out or converted to Diodes equity awards pursuant to the Merger Agreement and Merger Agreement Amendment.

The table below sets forth the estimated purchase price and related costs for Pericom:

Cash consideration for shares outstanding	$	391,123
Cash consideration for vested stock awards, including taxes of $88		7,371
Value of Diodes stock to be issued in exchange for unvested Pericom employee stock awards.		4,680
Total purchase price	$	403,174

The results of operations of Pericom are included in our consolidated financial statements from November 24, 2015. The consolidated revenue and earnings of Pericom included in our consolidated financial statements for the year ended December 31, 2015 was approximately $15 million and $(1) million, respectively, which include acquisition accounting adjustments. The purpose of the acquisition was to further our strategy of expanding market and growth opportunities through selected strategic acquisitions.

Under the acquisition accounting guidelines we were required to record all assets acquired and liabilities assumed at fair value, and recognize intangible assets and goodwill of the acquired business. The table below sets forth the preliminary fair value assigned to the assets and liabilities acquired in the Pericom acquisition. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma condensed combined balance sheet and statements of earnings. U.S. GAAP permits companies to complete the final determination of the fair values of assets and liabilities up to one year from the acquisition date. The size and breadth of the Pericom acquisition will necessitate the use of this one year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date including (i) changes in fair values of fixed assets and inventories, (ii) changes in allocations of intangible assets such as trademarks and in process research and development and developed technology, as well as goodwill, and (iii) other changes to assets and liabilities. The final allocation may also result in changes to amortization periods assigned to the assets. Any potential adjustments made could be material in relation to the preliminary values. A final determination of the allocation of the purchase price to the assets acquired and liabilities assumed has not been completed and the following table is considered preliminary.

	November 24, 2015
	Acquisition
	Method
Assets acquired:
Cash and cash equivalents	$	48,806
Short-term investments		72,537
Accounts receivable		22,740
Inventory		22,488
Prepaid expenses and other current assets		5,793
Fixed assets		72,210
Intangible assets		156,700
Goodwill		54,304
Other long-term assets		16,069
Total assets acquired	$	471,647

Liabilities assumed:
Accounts payable	$	16,925
Accrued liabilities and other		8,818
Income tax payable		1,498
Deferred tax liability		29,077
Other liabilities		12,155
Total liabilities assumed		68,473
Total net assets acquired	$	403,174

Total net assets acquired, net of cash acquired	$	354,368

The fair value of the significant identified intangible assets was estimated by using the market approach, income approach and cost approach valuation methodologies. Inputs used in the methodologies primarily included projected future cash flows, discounted at a rate commensurate with the risk involved. The total amount of intangible assets acquired subject to amortization expense was $141 million, with a weighted-average amortization period 11.6 years. We also acquired approximately $11 million of in process research and development. Goodwill arising from the acquisition is attributable to future income from new customer contracts, synergy of combined operations, the acquired workforce and future technology that has yet to be designed or even conceived.

We estimated the fair value of acquired receivables to be $23 million with a gross contractual amount of $25 million. We expected to collect substantially all of the acquired receivables. We evaluated and adjusted the acquired inventory for a reasonable profit allowance, which is intended to permit us to report only the profits normally associated with the activities following the acquisition as it relates to the work-in-progress and finished goods inventory. As such, we increased fair value of the inventory acquired from Pericom by approximately $6 million. Subsequent to the closing date of the acquisition we expensed that increase into cost of goods sold, of which approximately $3 million was recorded in the fourth quarter of 2015 and $3 million will be recorded in the first quarter of 2016 as the acquired work-in-progress and finished goods inventory is sold.

The table below sets for the unaudited pro forma consolidated results of operations for the years ended December 31, 2015 and December 31, 2014 as if the acquisition of Pericom had occurred at January 1, 2014:

	Twelve Months Ended		Twelve Months Ended
	December 31, 2015		December 31, 2014
Net revenues	$	960,019	$	1,020,585
Net income attributable to common stockholders	$	40,180	$	52,934
Earnings per share—Basic	$	0.82	$	1.10
Earnings per share—Diluted	$	0.80	$	1.07

The unaudited pro forma consolidated results of operations do not purport to be indicative of the results that would have been obtained if the above acquisition had actually occurred as of the dates indicated or of those results that may be obtained in the future. The unaudited proforma consolidated results for December 31, 2015, exclude $10 million of acquisition related costs and $8 million of costs from Diodes restricted stock grants and change-in-control agreements for Pericom employees, and include additional amortization and depreciation of $12 million, additional interest expense of $11 million and additional income tax expense of $1 million. These unaudited pro forma consolidated results of operations were derived, in part, from the historical consolidated financial statements of Pericom and other available information and assumptions believed to be reasonable under the circumstances. Pericom will be conformed to Diodes’ reporting calendar.

BCD Semiconductor Manufacturing Limited

On March 5, 2013, we completed the acquisition of all the outstanding ordinary shares, par value $0.001 per share, of BCD (the “Shares”), including Shares represented by American Depository Shares (“ADSs”), which were cancelled in exchange for the right to receive $1.33-1/3 in cash per Share, without interest. Each ADS represented six Shares and was converted into the right to receive $8.00 in cash, without interest. The aggregate consideration was approximately $155 million, excluding acquisition costs, fees and expenses. In addition, a $5 million retention plan for BCD employees, payable at the 12, 18 and 24 month anniversaries of the acquisition, was established. The employee retention plan was intended to benefit us and not the selling shareholders, and therefore was excluded from the determination of the purchase price. The acquisition was funded by drawings on our revolving senior credit facility. The purchase price for BCD and related costs were estimated as follows:

Purchase price (cost of shares)	$	154,735
Acquisition related costs (included in selling, general and administrative expenses)		2,075
Total purchase price	$	156,810

The results of operations of BCD are included in the consolidated financial statements from March 1, 2013. The consolidated revenue and earnings of BCD included in our consolidated financial statements for the year ended December 31, 2013 were approximately $155 million and $6 million, respectively, which include acquisition accounting adjustments. The purpose of the acquisition was to further our strategy of expanding market and growth opportunities through select strategic acquisitions.

Under the accounting guidance for step acquisitions, we were required to record all assets acquired and liabilities assumed at fair value, and recognize goodwill of the acquired business. The step acquisition guidelines also require us to remeasure the preexisting investment in BCD at fair value, and recognize any gains or losses from such remeasurement. The fair value of our interest immediately before the closing date was $7 million, which resulted in us recognizing a non-cash gain of approximately $4 million within other income (expense) for the year ended December 31, 2013. The shares of BCD common stock were valued under the fair value hierarchy as a Level 1 Input.

The following summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed at the date of acquisition:

	March 1, 2013
	Acquisition
	Method
Assets acquired:
Cash and cash equivalents	$	29,819
Accounts receivable, net		20,862
Inventory		42,909
Prepaid expenses and other current assets		27,205
Property, plant and equipment, net		99,390
Deferred tax assets		1,612
Other long-term assets		5,497
Other intangible assets		17,200
Goodwill		2,518
Total assets acquired	$	247,012

Liabilities assumed:
Lines of credit	$	17,336
Accounts payable		34,758
Accrued liabilities and other		16,703
Deferred tax liability		5,055
Other liabilities		18,425
Total liabilities assumed		92,277
Total net assets acquired, net of cash acquired	$	154,735

The fair value of the significant identified intangible assets was estimated by using the market approach, income approach and cost approach valuation methodologies. Inputs used in the methodologies primarily included projected future cash flows, discounted at a rate commensurate with the risk involved. The total amount of intangible assets acquired subject to amortization expense was $17 million, which had a residual value of zero and weighted-average amortization period of 6 years. Goodwill arising from the acquisition is attributable to future income from new customer contracts, synergy of combined operations, the acquired workforce and future technology that has yet to be designed or even conceived. In addition, goodwill is not deductible for income tax purposes.

We estimated the fair value of acquired receivables to be $21 million with a gross contractual amount of $21 million. We expected to collect substantially all of the acquired receivables. We evaluated and adjusted the acquired inventory for a reasonable profit allowance, which is intended to permit us to report only the profits normally associated with the activities following the acquisition as it relates to the work-in-progress and finished goods inventory. As such, we increased the inventory acquired from BCD by approximately $5 million, and recorded that increase into cost of goods sold, of which approximately $2 million was recorded in the first quarter of 2013 and $3 million was recorded in the second quarter of 2013 as the acquired work-in-progress and finished goods inventory was sold.

The following unaudited pro forma consolidated results of operations for the year ended December 31, 2013 have been prepared as if the acquisition of BCD had occurred at January 1, 2012:

	Twelve Months Ended
	December 31,
	2013
Net revenues	$	847,947
Net income attributable to common stockholders	$	25,513
Earnings per share—Basic	$	0.55
Earnings per share—Diluted	$	0.54