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Investments in Unconsolidated Entities

9 Months Ended

May 31, 2012

Investments in Unconsolidated Entities

Investments in Unconsolidated Entities

4. Investments in Unconsolidated Entities

The Company’s unconsolidated entities are joint ventures that the Company accounts for as investments on an equity or cost method basis. The equity method investments consist of SILQ (Malaysia) Sdn. Bhd. (“SILQ”), China SemiLEDs, and SS Optoelectronics Co., Ltd. (“SS Optoelectronics”). The Company’s ownership interest and investments in unconsolidated entities as of May 31, 2012 and August 31, 2011 consist of the following (in thousands, except percentages):

		Percentage Ownership		May 31, 2012			August 31, 2011
Equity method investments:
China SemiLEDs		49%		$	8,671		$	13,434
SILQ		50%		604			833
SS Optoelectronics		49%		250			253
Cost method investments		Various		1,049			1,059
Total investments in unconsolidated entities				$	10,574		$	15,579

There were no dividends received from unconsolidated entities through May 31, 2012.

Equity Method Investments—The following joint ventures are partially owned by the Company or its wholly owned subsidiaries; however, the Company has determined it does not control the entities but can exercise significant influence over the operating and financial policies of the joint ventures. The Company accounts for these joint ventures using the equity method of accounting.

In December 2009, the Company entered into an agreement to establish China SemiLEDs in Guangdong, China for the purposes of conducting research and development and producing LED epitaxial wafers and chips to be sold in China. The Company contributed $14.7 million to acquire a 49% ownership interest in China SemiLEDs. The excess of the Company’s share of net assets of China SemiLEDs over the carrying value of this investment was $6.6 million as of May 31, 2012. This negative basis difference is being amortized to income and the investment in China SemiLEDs over the weighted average useful life of the tangible assets used in the operations of China SemiLEDs, which is 11 years beginning in the period those assets are put in place and ready for their intended use. Such amortization commenced during the year ended August 31, 2011. For the three and nine months ended May 31, 2012, the Company recorded an increase of $167 thousand and $501 thousand, respectively, to the Company’s investment in China SemiLEDs and a corresponding reduction in the Company’s equity in the net loss of China SemiLEDs.

In September 2009, the Company, through a wholly owned subsidiary, contributed $570 thousand to form SILQ, a joint venture in Malaysia. In April 2011, the Company participated in SILQ’s capital increase and contributed $662 thousand. The Company and the other investor in the joint venture each hold a 50% ownership and voting interest in SILQ’s common stock. The Company entered into the joint venture agreement that established SILQ to design, manufacture and sell lighting fixtures and systems.

In December 2009, the Company, through a wholly owned subsidiary, entered into the joint venture agreement that established SS Optoelectronics to facilitate sales of the Company’s LED chips to the other investor in the joint venture. In November 2010, the Company made a determination to dissolve the joint venture in accordance with the joint venture agreement when the joint venture did not receive approval from the Hsinchu Science Park Administration of its application for entry into the Hsinchu Science Park. In December 2011, the dissolution of SS Optoelectronics was approved by the Company’s wholly owned subsidiary and the other shareholder. Management does not expect that dissolving this joint venture will have a material impact on the Company’s interim consolidated financial statements.

The fair value of the Company’s investments in the non-marketable stock of its equity method investees is not readily available. These investments are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.

The following is a summary of the financial information for China SemiLEDs and the Company’s other equity method investees (in thousands):

		May 31, 2012									August 31, 2011
Summary Balance Sheet Information		China SemiLEDs			Others			Total			China SemiLEDs			Others			Total
Current assets		$	18,443		$	1,505		$	19,948		$	24,236		$	1,959		$	26,195
Noncurrent assets		63,553			529			64,082			63,620			538			64,158
Current liabilities		18,610			304			18,914			13,874			285			14,159
Noncurrent liabilities		32,266			—			32,266			32,139			—			32,139
Shareholders’ equity		31,120			1,730			32,850			41,843			2,212			44,055

		Three Months Ended May 31,
		2012									2011
Summary Statement of Operations Information		China SemiLEDs			Others			Total			China SemiLEDs			Others			Total
Revenues, net		$	452		$	454		$	906		$	43		$	67		$	110
Gross profit (loss)		(3,629		)	91			(3,538		)	(1,301		)	(13		)	(1,314		)
Loss from operations		(5,181		)	(27		)	(5,208		)	(2,750		)	(156		)	(2,906		)
Net loss		(4,661		)	(98		)	(4,759		)	(2,324		)	(165		)	(2,489		)

		Nine Months Ended May 31,
		2012									2011
Summary Statement of Operations Information		China SemiLEDs			Others			Total			China SemiLEDs			Others			Total
Revenues, net		$	811		$	576		$	1,387		$	43		$	116		$	159
Gross profit (loss)		(8,685		)	21			(8,664		)	(1,301		)	(4		)	(1,305		)
Loss from operations		(11,937		)	(338		)	(12,275		)	(4,369		)	(502		)	(4,871		)
Net loss		(10,679		)	(271		)	(10,950		)	(3,754		)	(520		)	(4,274		)

Cost Method Investments—The Company held investments in non-marketable common stock of three unaffiliated companies with a cost of $1,049 thousand and $1,059 thousand as of May 31, 2012 and August 31, 2011, respectively. The fair value of these investments is not readily available. These investments are assessed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable.

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is. It also includes certain corporate joint ventures are partially owned by the reporting entity or its wholly-owned subsidiaries, and certain noncontrolled corporations where reporting entities can exercise significant influence over the operating and financial policies of joint ventures. Such investments are accounted for under the equity and cost method of accounting.

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