Business Combination

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Business Combination

NOTE 18 – 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 $403.2 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 twelve months ended December 31, 2015 was approximately $14.6 million and $(1.0) 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 values, adjustment and final values assigned to the assets and liabilities acquired in the Pericom acquisition.  The preliminary purchase price allocation was 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 necessitated 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.  The final accounting for the Pericom acquisition resulted in changes in the line items shown under the “Measurement Period Adjustment” column in the table below.

	Preliminary November 24, 2015		Measurement Period Adjustments			Adjusted November 24, 2015
Assets acquired:
Cash and cash equivalents	$	48,806	$	-		$	48,806
Short-term investments		72,537		-			72,537
Accounts receivable		22,740		-			22,740
Inventory		22,488		-			22,488
Prepaid expenses and other current assets		5,793		(1,622	)		4,171
Fixed assets		72,210		-			72,210
Intangible assets		156,700		-			156,700
Goodwill		54,304		2,741			57,045
Other long-term assets		16,069		-			16,069
Total assets acquired	$	471,647	$	1,119		$	472,766
Liabilities assumed:
Accounts payable	$	16,925	$	-		$	16,925
Accrued liabilities and other		8,818		695			9,513
Income tax payable		1,498		333			1,831
Deferred tax liability		29,077		91			29,168
Other liabilities		12,155		-			12,155
Total liabilities assumed		68,473		1,119			69,592
Total net assets acquired	$	403,174	$	-		$	403,174
Total net assets acquired, net of cash acquired	$	354,368	$	-		$	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 $11.4 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 $22.8 million with a gross contractual amount of $24.9 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 $6.1 million.  Subsequent to the closing date of the acquisition we expensed that increase into cost of goods sold, of which approximately $3.1 million was recorded in the fourth quarter of 2015 and $3.0 million 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 $10.0 million of acquisition related costs and $8.0 million of costs from Diodes restricted stock grants and change-in-control agreements for Pericom employees, and include additional amortization and depreciation of $12.0 million, additional interest expense of $11.0 million and additional income tax expense of $1.0 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.