Note 6. Investments in Privately-held Companies

We have made strategic investments in private companies located in China in order to gain access to raw materials at a competitive cost that are critical to our substrate business.

Our investments are summarized below (in thousands):

	Investment Balance as of
Company	December 31, 2014		December 31, 2013		Accounting Method	Ownership Percentage
Beijing JiYa Semiconductor Material Co., Ltd	$	3,331	$	3,331	Consolidated	46%
Nanjing Jin Mei Gallium Co., Ltd		592		592	Consolidated	83%
Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd		1,346		1,346	Consolidated	70%
	$	5,269	$	5,269
Donghai County Dongfang High Purity Electronic Materials Co., Ltd.	$	1,723	$	1,900	Equity	46%
Xilingol Tongli Germanium Co. Ltd		5,351		4,692	Equity	25%
Emeishan Jia Mei High Purity Metals Co., Ltd		1,021		945	Equity	25%
	$	8,095	$	7,537

Our ownership of Beijing JiYa Semiconductor Material Co., Ltd. (JiYa) is 46%. We continue to consolidate JiYa as we have significant influence in management and have majority control of the board. Our Chief Executive Officer is chairman of the JiYa board and two other of our employees are also members of the board.

Our ownership of Nanjing Jin Mei Gallium Co., Ltd. (Jin Mei) is 83%. We continue to consolidate Jin Mei as we have significant influence in management and have majority control of the board. Our Chief Executive Officer is chairman of the Jin Mei board and two other of our employees are also members of the board.

Our ownership of Beijing BoYu Semiconductor Vessel Craftwork Technology Co., Ltd (BoYu) is 70%. We continue to consolidate BoYu as we have a significant influence in management and have majority control of the board. Our Chief Executive Officer is chairman of the BoYu board and two other of our employees are also members of the board.

Although we have representation on the boards of directors of each of these companies, the daily operations of each of these companies are managed by local management and not by us. Decisions concerning their respective short term strategy and operations, any capacity expansion and annual capital expenditures, and decisions concerning sales of finished product, are made by local management with some inputs from us.

During 2014, 2013 and 2012, the three consolidated joint ventures generated $3.0 million, $3.5 million and $7.4 million of income, respectively, of which $691,000, $1.1 million and $3.0 million, respectively was allocated to minority interests, resulting in $2.3 million, $2.4 million and $4.4 million, respectively to our net income.

For the three equity investment entities that are not consolidated, the investment balances are included in “other assets” in our consolidated balance sheets and totaled $8.1 million and $7.5 million as of December 31, 2014 and 2013, respectively. We own 46% of the ownership interests in one of these companies and 25% in each of the other two companies. These three companies are not considered variable interest entities because:

•

all three companies have sustainable businesses of their own;

•

our voting power is proportionate to our ownership interests;

•

we only recognize our respective share of the losses and/or residual returns generated by the companies if they occur; and

•

we do not have controlling financial interest in, do not maintain operational or management control of, do not control the board of directors of, and are not required to provide additional investment or financial support to any of these companies.

These three equity investment entities generated for AXT equity earnings of $569,000, $270,000 and $379,000 for the years ended December 31, 2014, 2013, and 2012, respectively, and was recorded as “equity in earnings of unconsolidated joint ventures” in the consolidated statements of operations.

Net income recorded from all of the consolidated joint ventures and these equity investment entities was $2.9 million, $2.6 million and $4.7 million for the years ended December 31, 2014, 2013 and 2012, respectively.

We also maintain minority investments indirectly in privately-held companies by our consolidated joint ventures. These minority investments are accounted for under the equity method in the books of our consolidated joint ventures. As of December 31, 2014 and 2013, our consolidated joint ventures included these minority investments in “other assets” in the consolidated balance sheets with a carrying value of $4.0 million and $3.4 million, respectively.

All the minority investment entities that accounted for under the equity method had the following summarized operating information (in thousands) for the years ended December 31, 2014, 2013 and 2012, respectively.

	Years Ended December 31,						Our share for the Years Ended December 31,

	2014		2013		2012		2014		2013		2012
Net Revenue	$	47,824	$	41,257	$	32,858	$	11,887	$	10,240	$	8,091
Gross profit		21,436		13,836		11,057		5,340		3,328		2,643
Operating income		9,046		8,174		6,310		2,059		1,820		1,409
Net income		6,765		6,315		5,665		1,528		1,377		1,281

All the minority investment entities that accounted for under the equity method had the following summarized balance sheet information (in thousands) as of December 31, 2014 and 2013, respectively.

	As of December 31,
	2014		2013
Current assets	$	31,482	$	22,139
Noncurrent assets		39,275		38,941
Current liabilities		19,923		15,289
Noncurrent liabilities		169		2,296

All the minority investment entities that are not consolidated and accounted for under the equity method generated for AXT equity earnings of $1.5 million, $1.4 million and $1.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. Dividends received from these minority investment entities were $325,000, $396,000 and $277,000 for the years ended December 31, 2014, 2013 and 2012, respectively. Undistributed retained earnings relating to our investments in all these minority investment entities were $6.5 million and $5.3 million as of December 31, 2014 and 2013, respectively.