4444wNN
29.9
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2020
Or
☐ | 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: 002-25577
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware |
| 95-2039518 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification Number) |
4949 Hedgcoxe Road, Suite 200, Plano, Texas |
| 75024 |
(Address of principal executive offices) |
| (Zip code) |
(972) 987-3900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, Par Value $0.66 2/3 | DIOD | The NASDAQ Stock Market LLC |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
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| |||
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
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Emerging growth company |
| ☐ |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s Common Stock outstanding as of November 3, 2017May 4, 2020 was 49,390,130.51,486,679.
Table of Contents
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk | 32 | |
32 | ||
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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PARTPART I—FINANCIAL INFORMATION
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| September 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
| ||||
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||
| (Unaudited) |
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 201,226 |
|
| $ | 247,802 |
| $ | 269,516 |
|
| $ | 258,390 |
|
Short-term investments |
| 12,737 |
|
|
| 29,842 |
|
| 2,859 |
|
|
| 4,825 |
|
Accounts receivable, net of allowances of $3,218 and $2,141 at September 30, 2017 and December 31, 2016, respectively |
| 230,460 |
|
|
| 217,217 |
| |||||||
Accounts receivable, net of allowances of $4,855 and $4,866 at March 31, 2020 and December 31, 2019, respectively |
| 243,746 |
|
|
| 260,322 |
| |||||||
Inventories |
| 211,412 |
|
|
| 193,483 |
|
| 232,184 |
|
|
| 236,472 |
|
Prepaid expenses and other |
| 45,644 |
|
|
| 44,438 |
|
| 48,141 |
|
|
| 49,950 |
|
Total current assets |
| 701,479 |
|
|
| 732,782 |
|
| 796,446 |
|
|
| 809,959 |
|
Property, plant and equipment, net |
| 446,052 |
|
|
| 401,988 |
|
| 456,122 |
|
|
| 469,574 |
|
Deferred income tax |
| 64,129 |
|
|
| 56,047 |
|
| 16,994 |
|
|
| 17,516 |
|
Goodwill |
| 133,538 |
|
|
| 129,412 |
|
| 149,666 |
|
|
| 141,318 |
|
Intangible assets, net |
| 161,122 |
|
|
| 174,876 |
|
| 121,218 |
|
|
| 119,523 |
|
Other |
| 34,269 |
|
|
| 33,447 |
| |||||||
Other long-term assets |
| 79,820 |
|
|
| 81,494 |
| |||||||
Total assets | $ | 1,540,589 |
|
| $ | 1,528,552 |
| $ | 1,620,266 |
|
| $ | 1,639,384 |
|
|
|
|
|
|
|
|
|
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|
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Liabilities |
|
|
|
|
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Current liabilities: |
|
|
|
|
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|
|
|
|
|
|
|
|
|
Line of credit | $ | 13,397 |
|
| $ | 13,342 |
| |||||||
Accounts payable | $ | 111,689 |
|
| $ | 87,600 |
|
| 112,075 |
|
|
| 122,148 |
|
Accrued liabilities and other |
| 94,436 |
|
|
| 71,562 |
|
| 88,327 |
|
|
| 100,571 |
|
Income tax payable |
| - |
|
|
| 11,855 |
|
| 15,642 |
|
|
| 16,156 |
|
Current portion of long-term debt |
| 19,067 |
|
|
| 14,356 |
|
| 34,676 |
|
|
| 33,105 |
|
Total current liabilities |
| 225,192 |
|
|
| 185,373 |
|
| 264,117 |
|
|
| 285,322 |
|
Long-term debt, net of current portion |
| 306,687 |
|
|
| 413,126 |
|
| 46,011 |
|
|
| 64,401 |
|
Deferred tax liabilities |
| 28,617 |
|
|
| 28,213 |
|
| 16,348 |
|
|
| 16,333 |
|
Other long-term liabilities |
| 85,209 |
|
|
| 81,373 |
|
| 111,501 |
|
|
| 120,545 |
|
Total liabilities |
| 645,705 |
|
|
| 708,085 |
|
| 437,977 |
|
|
| 486,601 |
|
|
|
|
|
|
|
|
|
|
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Commitments and contingencies (See Note 8) |
|
|
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|
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|
|
|
|
|
|
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Stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; no shares issued or outstanding |
| - |
|
|
| - |
| |||||||
Common stock - par value $0.66 2/3 per share; 70,000,000 shares authorized; 49091693 and 48,219,376, issued and outstanding at September 30, 2017 and December 31, 2016, respectively |
| 33,501 |
|
|
| 32,919 |
| |||||||
Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; 0 shares issued or outstanding |
| - |
|
|
| - |
| |||||||
Common stock - par value $0.66 2/3 per share; 70,000,000 shares authorized; 51,450,808 and 51,206,969, issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
| 35,289 |
|
|
| 35,111 |
| |||||||
Additional paid-in capital |
| 375,134 |
|
|
| 354,574 |
|
| 427,543 |
|
|
| 427,262 |
|
Retained earnings |
| 563,338 |
|
|
| 530,215 |
|
| 810,126 |
|
|
| 789,958 |
|
Treasury stock, at cost, 1,157,206 shares held at September 30, 2017 and December 31, 2016 |
| (29,023 | ) |
|
| (29,023 | ) | |||||||
Treasury stock at cost, 1,480,840 and 1,457,206, issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
| (38,457 | ) |
|
| (37,768 | ) | |||||||
Accumulated other comprehensive loss |
| (89,707 | ) |
|
| (112,666 | ) |
| (109,472 | ) |
|
| (108,139 | ) |
Total stockholders' equity |
| 853,243 |
|
|
| 776,019 |
|
| 1,125,029 |
|
|
| 1,106,424 |
|
Noncontrolling interest |
| 41,641 |
|
|
| 44,448 |
|
| 57,260 |
|
|
| 46,359 |
|
Total equity |
| 894,884 |
|
|
| 820,467 |
|
| 1,182,289 |
|
|
| 1,152,783 |
|
Total liabilities and stockholders' equity | $ | 1,540,589 |
|
| $ | 1,528,552 |
| $ | 1,620,266 |
|
| $ | 1,639,384 |
|
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The accompanying notes are an integral part of these condensed consolidated financial statements. | The accompanying notes are an integral part of these condensed consolidated financial statements. |
| The accompanying notes are an integral part of these condensed consolidated financial statements. |
|
-3-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||||
| September 30, |
|
| September 30, |
| March 31, |
| |||||||||||||||||
| 2017 |
|
|
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||||
Net sales | $ | 285,247 |
|
|
| $ | 250,694 |
|
| $ | 785,774 |
|
| $ | 710,077 |
| $ | 280,717 |
|
| $ | 302,293 |
| |
Cost of goods sold |
| 188,900 |
|
|
|
| 170,071 |
|
|
| 525,377 |
|
|
| 490,417 |
|
| 184,875 |
|
|
| 189,882 |
| |
Gross profit |
| 96,347 |
|
|
|
| 80,623 |
|
|
| 260,397 |
|
|
| 219,660 |
|
| 95,842 |
|
|
| 112,411 |
| |
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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| ||
Operating expenses |
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
| ||
Selling, general and administrative |
| 43,525 |
|
|
| 38,321 |
|
|
| 122,912 |
|
|
| 119,165 |
|
| 42,215 |
|
|
| 43,688 |
| ||
Research and development |
| 20,379 |
|
|
| 17,088 |
|
|
| 58,215 |
|
|
| 52,247 |
|
| 23,678 |
|
|
| 22,170 |
| ||
Amortization of acquisition related intangible assets |
| 4,694 |
|
|
| 5,117 |
|
|
| 14,098 |
|
|
| 15,379 |
|
| 4,221 |
|
|
| 4,484 |
| ||
Impairment of fixed assets |
| 1,993 |
|
|
| - |
|
|
| 1,993 |
|
|
| - |
| |||||||||
Restructuring expense |
| 2,039 |
|
|
| - |
|
|
| 6,108 |
|
|
| - |
| |||||||||
Other operating expenses |
| - |
|
|
|
| 144 |
|
|
| 169 |
|
|
| 184 |
| ||||||||
Total operating expenses |
| 72,630 |
|
|
|
| 60,670 |
|
|
| 203,495 |
|
|
| 186,975 |
| ||||||||
Other operating (income) |
| (124 | ) |
|
| (54 | ) | |||||||||||||||||
Total operating expense |
| 69,990 |
|
|
| 70,288 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from operations |
| 23,717 |
|
|
| 19,953 |
|
|
| 56,902 |
|
|
| 32,685 |
|
| 25,852 |
|
|
| 42,123 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Interest income |
| 389 |
|
|
| 321 |
|
|
| 992 |
|
|
| 1,075 |
|
| 273 |
|
|
| 875 |
| ||
Interest expense |
| (3,561 | ) |
|
|
| (3,684 | ) |
|
| (10,493 | ) |
|
| (9,880 | ) |
| (1,245 | ) |
|
| (2,145 | ) | |
Foreign currency loss, net |
| (1,312 | ) |
|
|
| (1,439 | ) |
|
| (6,734 | ) |
|
| (2,045 | ) | ||||||||
Foreign currency gain (loss), net |
| 75 |
|
|
| (64 | ) | |||||||||||||||||
Other income |
| 597 |
|
|
|
| 480 |
|
|
| 1,128 |
|
|
| 551 |
|
| 1 |
|
|
| 1,245 |
| |
Total other income (expense) |
| (3,887 | ) |
|
|
|
| (4,322 | ) |
|
| (15,107 | ) |
|
| (10,299 | ) |
| (896 | ) |
|
| (89 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Income before income taxes and noncontrolling interest |
| 19,830 |
|
|
| 15,631 |
|
|
| 41,795 |
|
|
| 22,386 |
|
| 24,956 |
|
|
| 42,034 |
| ||
Income tax provision |
| 5,052 |
|
|
|
| 4,097 |
|
|
| 11,651 |
|
|
| 5,941 |
|
| 4,556 |
|
|
| 10,298 |
| |
Net income |
| 14,778 |
|
|
|
| 11,534 |
|
|
| 30,144 |
|
|
| 16,445 |
|
| 20,400 |
|
|
| 31,736 |
| |
Less net income attributable to noncontrolling interest |
| (328 | ) |
|
|
|
| (886 | ) |
|
| (1,298 | ) |
|
| (1,778 | ) | |||||||
Less net (income) attributable to noncontrolling interest |
| (232 | ) |
|
| (20 | ) | |||||||||||||||||
Net income attributable to common stockholders | $ | 14,450 |
|
|
| $ | 10,648 |
|
| $ | 28,846 |
|
| $ | 14,667 |
| $ | 20,168 |
|
| $ | 31,716 |
| |
|
|
|
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Earnings per share attributable to common stockholders: |
|
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Basic | $ | 0.29 |
|
|
| $ | 0.22 |
|
| $ | 0.59 |
|
| $ | 0.30 |
| $ | 0.39 |
|
| $ | 0.63 |
| |
Diluted | $ | 0.29 |
|
|
| $ | 0.21 |
|
| $ | 0.58 |
|
| $ | 0.30 |
| $ | 0.38 |
|
| $ | 0.62 |
| |
Number of shares used in earnings per share computation: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| |
Basic |
| 49,057 |
|
|
|
| 48,814 |
|
|
| 48,633 |
|
|
| 48,496 |
|
| 51,335 |
|
|
| 50,398 |
| |
Diluted |
| 50,416 |
|
|
|
| 49,922 |
|
|
| 50,061 |
|
|
| 49,565 |
|
| 52,422 |
|
|
| 51,462 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-4-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income | $ | 14,778 |
|
| $ | 11,534 |
|
| $ | 30,144 |
|
| $ | 16,445 |
|
Unrealized (loss) on defined benefit plan, net of tax |
| (1,135 | ) |
|
| (9,571 | ) |
|
| (2,517 | ) |
|
| (14,732 | ) |
Unrealized gain on interest rate swap, net of tax |
| 180 |
|
|
| - |
|
|
| 60 |
|
|
| - |
|
Unrealized foreign currency gain (loss), net of tax |
| 8,249 |
|
|
| 1,187 |
|
|
| 25,416 |
|
|
| (6,588 | ) |
Comprehensive income (loss) |
| 22,072 |
|
|
| 3,150 |
|
|
| 53,103 |
|
|
| (4,875 | ) |
Less: Comprehensive income attributable to noncontrolling interest |
| (328 | ) |
|
| (886 | ) |
|
| (1,298 | ) |
|
| (1,778 | ) |
Total comprehensive income attributable to common stockholders | $ | 21,744 |
|
| $ | 2,264 |
|
| $ | 51,805 |
|
| $ | (6,653 | ) |
| Three Months Ended |
| |||||
| March 31, |
| |||||
| 2020 |
|
| 2019 |
| ||
Net income | $ | 20,400 |
|
| $ | 31,736 |
|
Unrealized gain (loss) on defined benefit plan, net of tax |
| 9,719 |
|
|
| (6,029 | ) |
Unrealized loss on swaps and collars, net of tax |
| (1,438 | ) |
|
| (3,909 | ) |
Unrealized foreign currency (loss) gain, net of tax |
| (9,614 | ) |
|
| 4,936 |
|
Comprehensive income |
| 19,067 |
|
|
| 26,734 |
|
Less: Comprehensive income attributable to noncontrolling interest |
| (232 | ) |
|
| (20 | ) |
Total comprehensive income attributable to common stockholders | $ | 18,835 |
|
| $ | 26,714 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-5-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
|
| Common stock |
|
| Treasury stock |
|
| Additional paid-in |
|
| Retained |
|
| Accumulated other comprehensive |
|
| Total Diodes Incorporated Stockholders' |
|
| Noncontrolling |
|
| Total |
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| capital |
|
| earnings |
|
| loss |
|
| equity |
|
| interest |
|
| equity |
| ||||||||||
Balance, December 31, 2018 |
|
| 51,678 |
|
| $ | 34,454 |
|
|
| (1,457 | ) |
| $ | (37,768 | ) |
| $ | 399,915 |
|
| $ | 636,708 |
|
| $ | (101,846 | ) |
| $ | 931,463 |
|
| $ | 45,969 |
|
| $ | 977,432 |
|
Total comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 31,716 |
|
|
| (5,002 | ) |
|
| 26,714 |
|
|
| 20 |
|
|
| 26,734 |
|
Noncontrolling interests |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,755 |
|
|
| 2,755 |
|
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (121 | ) |
|
| (121 | ) |
Common stock issued for share-based plans |
|
| 376 |
|
|
| 250 |
|
|
| - |
|
|
| - |
|
|
| 6,417 |
|
|
| - |
|
|
| - |
|
|
| 6,667 |
|
|
| - |
|
|
| 6,667 |
|
Share-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,476 |
|
|
| - |
|
|
| - |
|
|
| 4,476 |
|
|
| - |
|
|
| 4,476 |
|
Tax related to net share settlement |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (645 | ) |
|
| - |
|
|
| - |
|
|
| (645 | ) |
|
| - |
|
|
| (645 | ) |
Balance, March 31, 2019 |
|
| 52,054 |
|
| $ | 34,704 |
|
|
| (1,457 | ) |
| $ | (37,768 | ) |
| $ | 410,163 |
|
| $ | 668,424 |
|
| $ | (106,848 | ) |
| $ | 968,675 |
|
| $ | 48,623 |
|
| $ | 1,017,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 |
|
| 52,664 |
|
| $ | 35,111 |
|
|
| (1,457 | ) |
| $ | (37,768 | ) |
| $ | 427,262 |
|
| $ | 789,958 |
|
| $ | (108,139 | ) |
| $ | 1,106,424 |
|
| $ | 46,359 |
|
| $ | 1,152,783 |
|
Total comprehensive income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 20,168 |
|
|
| (1,333 | ) |
|
| 18,835 |
|
|
| 232 |
|
|
| 19,067 |
|
Contributions from noncontrolling interests |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 10,777 |
|
|
| 10,777 |
|
Dividends to noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (108 | ) |
|
| (108 | ) |
Common stock issued for share-based plans |
|
| 268 |
|
|
| 178 |
|
|
| - |
|
|
| - |
|
|
| (178 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Share-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,237 |
|
|
| - |
|
|
| - |
|
|
| 4,237 |
|
|
| - |
|
|
| 4,237 |
|
Deferred compensation plan |
|
| - |
|
|
| - |
|
|
| (24 | ) |
|
| (689 | ) |
|
| 689 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Tax related to net share settlement |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (4,467 | ) |
|
| - |
|
|
| - |
|
|
| (4,467 | ) |
|
| - |
|
|
| (4,467 | ) |
Balance, March 31, 2020 |
|
| 52,932 |
|
| $ | 35,289 |
|
|
| (1,481 | ) |
| $ | (38,457 | ) |
| $ | 427,543 |
|
| $ | 810,126 |
|
| $ | (109,472 | ) |
| $ | 1,125,029 |
|
| $ | 57,260 |
|
| $ | 1,182,289 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
-56-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Nine Months Ended |
| Three Months Ended |
| ||||||||||
| September 30, |
| March 31, |
| ||||||||||
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||
Cash flows from operating activities | $ | 106,340 |
|
| $ | 74,935 |
| |||||||
Operating Activities |
|
|
|
|
|
|
| |||||||
Net income | $ | 20,400 |
|
| $ | 31,736 |
| |||||||
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions |
|
|
|
|
|
|
| |||||||
Depreciation |
| 22,809 |
|
|
| 22,157 |
| |||||||
Amortization of intangible assets |
| 4,221 |
|
|
| 4,484 |
| |||||||
Share-based compensation expense |
| 4,693 |
|
|
| 4,476 |
| |||||||
Deferred income taxes |
| 17 |
|
|
| 31 |
| |||||||
Other |
| 741 |
|
|
| (221 | ) | |||||||
Changes in operating assets: |
|
|
|
|
|
|
| |||||||
Change in accounts receivable |
| 16,139 |
|
|
| 12,874 |
| |||||||
Change in inventory |
| 2,550 |
|
|
| (200 | ) | |||||||
Change in other operating assets |
| (1,022 | ) |
|
| 2,605 |
| |||||||
Changes in operating liabilities: |
|
|
|
|
|
|
| |||||||
Change in accounts payable |
| (9,160 | ) |
|
| (11,201 | ) | |||||||
Change in accrued liabilities |
| (12,105 | ) |
|
| (4,874 | ) | |||||||
Change in income tax payable |
| 3,853 |
|
|
| 5,678 |
| |||||||
Change in other operating liabilities |
| 539 |
|
|
| 2,344 |
| |||||||
Net cash flows provided by operating activities |
| 53,675 |
|
|
| 69,889 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in restricted cash |
| 555 |
|
|
| (311 | ) | |||||||
Acquisitions, net of cash received |
| 591 |
|
|
| - |
| |||||||
Purchases of property, plant and equipment |
| (81,877 | ) |
|
| (47,054 | ) |
| (14,208 | ) |
|
| (18,639 | ) |
Purchases of short-term investments |
| (9,744 | ) |
|
| (17,482 | ) |
| (1,523 | ) |
|
| (3,153 | ) |
Purchase of equity securities |
| (6,129 | ) |
|
| - |
| |||||||
Proceeds from maturity of short-term investments |
| 27,891 |
|
|
| 46,352 |
|
| 3,467 |
|
|
| 3,982 |
|
Other |
| (1,238 | ) |
|
| (1,316 | ) |
| 244 |
|
|
| 658 |
|
Net cash and cash equivalents used in investing activities |
| (64,413 | ) |
|
| (19,811 | ) |
| (17,558 | ) |
|
| (17,152 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances on lines of credit and short-term debt |
| 2,383 |
|
|
| 9,000 |
|
| 3,647 |
|
|
| 3,568 |
|
Repayments of line of credit and short-term debt |
| (3,498 | ) |
|
| (1,461 | ) | |||||||
Taxes paid related to net share settlement |
| (277 | ) |
|
| (2,528 | ) |
| (4,467 | ) |
|
| (645 | ) |
Repayments on lines of credit and short-term debt |
| (395 | ) |
|
| (9,000 | ) | |||||||
Debt issuance costs |
| (99 | ) |
|
| (435 | ) | |||||||
Proceeds from long-term debt |
| 7,500 |
|
|
| 23,500 |
|
| 82,331 |
|
|
| 85,000 |
|
Repayments of long-term debt |
| (109,607 | ) |
|
| (70,714 | ) |
| (98,884 | ) |
|
| (83,089 | ) |
Net proceeds from issuance of common stock |
| 6,880 |
|
|
| 5 |
|
| - |
|
|
| 6,667 |
|
Repayment of capital lease obligation |
| (533 | ) |
|
| (19 | ) | |||||||
Dividend distribution to noncontrolling interest |
| (5,754 | ) |
|
| (4,615 | ) | |||||||
Repayment of and proceeds from finance lease obligation |
| (223 | ) |
|
| (293 | ) | |||||||
Dividend distribution to noncontrolling interests |
| (108 | ) |
|
| - |
| |||||||
Other |
| 2,056 |
|
|
| 518 |
|
| (195 | ) |
|
| (120 | ) |
Net cash and cash equivalents used in financing activities |
| (97,846 | ) |
|
| (54,288 | ) | |||||||
Net cash and cash equivalents (used in) provided by financing activities |
| (21,397 | ) |
|
| 9,627 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
| 9,343 |
|
|
| 1,255 |
|
| (3,315 | ) |
|
| (1,890 | ) |
Change in cash and cash equivalents |
| (46,576 | ) |
|
| 2,091 |
| |||||||
Cash and cash equivalents, beginning of period |
| 247,802 |
|
|
| 218,435 |
| |||||||
Cash and cash equivalents, end of period | $ | 201,226 |
|
| $ | 220,526 |
| |||||||
|
|
|
|
|
|
|
| |||||||
Supplemental disclosure |
|
|
|
|
|
|
| |||||||
Non-cash financing activities: |
|
|
|
|
|
|
| |||||||
Decrease (increase) in accounts payable related to the purchase of property, plant and equipment | $ | (10,919 | ) |
| $ | 7,459 |
| |||||||
Change in cash and cash equivalents, including restricted cash |
| 11,405 |
|
|
| 60,474 |
| |||||||
Cash and cash equivalents, beginning of period, including restricted cash |
| 259,507 |
|
|
| 241,833 |
| |||||||
Cash and cash equivalents, end of period, including restricted cash |
| 270,912 |
|
| $ | 302,307 |
|
-7-
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
Interest paid during the period |
| 1,068 |
|
| $ | 2,095 |
|
Taxes paid during the period |
| 6,091 |
|
| $ | 4,323 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
Accounts payable balance related to the purchase of property, plant and equipment | $ | 8,847 |
|
| $ | 9,886 |
|
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown above:
| Three Months Ended | ||
| March 31, | ||
| 2020 |
| 2019 |
Current assets: |
|
|
|
Cash and cash equivalents | $269,516 |
| $301,167 |
Restricted cash (included in other current assets) | 1,396 |
| 1,140 |
Total cash, cash equivalents and restricted cash | $270,912 |
| $302,307 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
-68-
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – NatureSummary of Operations Basis of Presentation and Recently IssuedSignificant Accounting PronouncementsPolicies
NatureSummary of Operations
Diodes Incorporated, together with its subsidiaries (collectively, the “Company,” “we” or “our”) (Nasdaq: DIOD), is a leading global manufacturer and supplier of high-quality, application-specific standard products within the broad discrete, logic, analog and mixed-signal semiconductor markets. We serve the consumer electronics, computing, communications, industrial, and automotive markets. Our products include diodes, rectifiers, transistors, MOSFETs, protection devices, function-specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching and linear voltage regulators, and voltage references along with special function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers. We also have timing, connectivity, switching, and signal integrity solutions for high-speed signals. Our corporate headquarters and Americas’ sales officeoffices are located in Plano, Texas and Milpitas, California. Design, marketing, and engineering centers are located in Plano; Milpitas; Taipei, Taoyuan City and Zhubei City, Taiwan; Manchester,Oldham, England; and Neuhaus, Germany. Our wafer fabrication facilities are located in Manchester, with an additional facility located inOldham and Shanghai, China. We are in the process of shutting down our Lee’s Summit, Missouri wafer fabrication facility (“KFAB”)China and transferring its wafer fabrication operation to other Company-owned wafer fabrication plants and external foundries (See Note 11).Greenock, Scotland. We have assembly and test facilities located in Shanghai, Jinan Chengdu, and Yangzhou,Chengdu, China, as well as in Hong Kong, Neuhaus and Taipei. Additional engineering, research and development, sales, warehouse, and logistics offices are located in Taipei; Hong Kong; Manchester;Oldham; Shanghai; Shenzhen and Yangzhou, China; Seongnam-si, South Korea; Munich, Germany; and Munich, Germany,Tokyo, Japan, with support offices throughout the world.
Basis of Presentation
The condensed consolidated financial data at December 31, 20162019 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20162019 filed with the Securities and Exchange Commission (“SEC”) on February 27, 201712, 2020 (“Form 10-K”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, operating results and cash flows in conformity with 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 our Form 10-K. 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 operating results for the period presented have been included in the interim period. Operating results for the three and nine months ended September 30, 2017March 31, 2020 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2017.2020.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. As permitted under GAAP, interim accounting for certain expenses, including income taxes, are based on full year forecasts. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates taking into consideration discrete items occurring in a quarter.
Dollar amounts and share amounts are presented in thousands, except per share amounts, unless otherwise noted. Certain prior year’s balances may have been reclassified to conform to the current financial statement presentation.
Recently Issued Accounting Pronouncements
TheIn June 2016, the Financial Accounting Standards Board (“FASB”) issued the following Accounting Standards UpdatesUpdate (“ASU”) No. 2016-13, which could have potential impact on the Company’srequires measurement and recognition of expected credit losses for financial statements:
assets held. We adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard sets forth a five-step revenue recognition model which replaces the current revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance. To further assist with2016-13 effective January 1, 2020. The adoption and implementation of ASU 2014-09, the FASB issued the following ASUs:
•ASU 2016-08 (Issued March 2016) — Principal versus Agent Consideration (Reporting Revenue Gross versus Net)
-7-
•ASU 2016-10 (Issued April 2016) — Identifying Performance Obligations and Licensing
•ASU 2016-12 (Issued May 2016) — Narrow-Scope Improvements and Practical Expedients
•ASU 2016-20 (Issued December 2016) — Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
This standard is effective in the first quarter of 2018. We will adopt this standard using the modified retrospective method. We have established a cross-functional coordinated implementation team to implement ASU 2014-09. We have completed our initial diagnostic assessment and are in the process of identifying and implementing changes to our systems and processes to meet the reporting and disclosure requirements. We continue to engage outside consultants to assist us in determining the effect this standard will have on our financial statements, to assist us in making necessary changes in our accounting practices and to assist us in making certain we are capturing the necessary detail to fulfill the disclosure requirements promulgated in this standard.
Based upon our initial assessment we believe the key revenue streams will be distribution and OEM sales, which combined comprise the majority of our business. The Company has not identified any contracts with customers containing multiple performance obligations. The Company has identified a number of variable consideration components within our contracts with customers and is in process of quantifying the overall impact related to the consideration to which the entity is entitled. The Company expects adoption of this new standard willNo 2016-13 did not have a material impact on its income statementour consolidated financial statements and balance sheet.related disclosures.
ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) - In February 2016,March 2020, the FASB issued ASU 2016-02, which amendsoptional guidance for a limited period of time to ease the potential burden in accounting treatment for leases.(or recognizing the effects of) reference rate reform on financial reporting. The amendments areguidance is effective for fiscal years beginning afterall entities as of March 12, 2020 through December 15, 2018, including interim periods within those fiscal years. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Early adoption is permitted.31, 2022. The Company is currently evaluating the impact that the adoption of ASU 2016-02 maythis guidance will have on its consolidated financial statements and has not elected early adoption as of the period ended September 30, 2017. During the second quarter of 2017 we engaged outside accounting consultants to assist us in the implementation of this new standard. The Company is in the process of assessing its outstanding leases.
ASU No. 2016-09, Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting - In March 2016, the FASB issued guidance to simplify the accounting for share-based payment transactions by requiring all excess tax benefits and deficiencies to be recognized in income tax expense or benefit in earnings, thus eliminating the requirement to classify the excess tax benefit and deficiencies as additional paid-in capital. Under the new guidance, an entity makes an accounting policy election to either estimate the expected forfeiture awards or account for forfeitures as they occur. We adopted ASU No. 2016-09 during the first quarter of 2017 and as a result will account for forfeitures as they occur. The effect of the adoption related to the income tax portion was an increase of $4.8 million to retained earnings and to deferred income tax assets. The effect of the adoption related to forfeitures was an increase to additional paid in capital of $0.8 million, an increase to deferred tax assets of $0.3 million and a decrease to retained earnings of $0.5 million.
ASU No. 2017-09, Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting - In May 2017, the FASB issued guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. We early adopted this standard in the third quarter of 2017. Adoption of this standard had no impact on the Company’s financial statements.
ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities – In August 2017, the FASB issued guidance that eliminates the requirement to separately measure and report hedge ineffectiveness. The guidance is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim period or fiscal period before the effective date. The Company adopted ASU No. 2017-12 during the third quarter of 2017. In accordance with ASU 2017-12, the Company recognizes all reclassifications out of other comprehensive income (other than those related to a hedged transaction becoming probable of not occurring) in the same income statement line item in which the earnings effect of the hedged item is being presented, which is consistent with the Company’s current policy. Adoption of this standard had no impact on the Company’s financial statements.
disclosures.
-89-
NOTE 2 – Earnings per Share
Earnings per share (“EPS”) is calculated by dividing net income attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted EPS is calculated similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-dilutive. A total of 0.7 million and 1.7 million stock options and stock awards outstanding duringDuring the three months ended September 30, 2017March 31, 2020 and 2016, respectively, and 0.7 million and 1.9 million stock options and stock awards outstanding during the nine months ended September 30, 2017 and 2016, respectively, were excluded from the calculation because the effect was anti-dilutive. 2019 we paid 0 dividends on our Common Stock.
The table below sets forth the reconciliation between net income (loss) and the weighted average shares outstanding used for calculating basic and diluted EPS for the three and nine months ended September 30, 2017 and 2016:EPS:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| September 30, |
|
| September 30, |
| March 31, |
| |||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||||
Earnings (numerator) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders | $ | 14,450 |
|
| $ | 10,648 |
|
| $ | 28,846 |
|
| $ | 14,667 |
| $ | 20,168 |
|
| $ | 31,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
| 49,057 |
|
|
| 48,814 |
|
|
| 48,633 |
|
|
| 48,496 |
|
| 51,335 |
|
|
| 50,398 |
|
Dilutive effect of stock options and stock awards outstanding |
| 1,359 |
|
|
| 1,108 |
|
|
| 1,428 |
|
|
| 1,069 |
|
| 1,087 |
|
|
| 1,064 |
|
Adjusted weighted average common shares outstanding (diluted) |
| 50,416 |
|
|
| 49,922 |
|
|
| 50,061 |
|
|
| 49,565 |
|
| 52,422 |
|
|
| 51,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | 0.29 |
|
| $ | 0.22 |
|
| $ | 0.59 |
|
| $ | 0.30 |
| $ | 0.39 |
|
| $ | 0.63 |
|
Diluted | $ | 0.29 |
|
| $ | 0.21 |
|
| $ | 0.58 |
|
| $ | 0.30 |
| $ | 0.38 |
|
| $ | 0.62 |
|
|
|
|
|
|
|
|
| |||||||||||||||
Stock options and stock awards excluded from EPS calculation because the effect would be anti-dilutive |
| 58 |
|
|
| 58 |
|
NOTE 3 – Inventories
The table below sets forth inventories which are stated at the lower of cost or marketnet realizable value:
| September 30, 2017 |
|
| December 31, 2016 |
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
Finished goods | $ | 59,403 |
|
| $ | 66,930 |
| $ | 53,747 |
|
| $ | 62,900 |
|
Work-in-progress |
| 50,881 |
|
|
| 45,408 |
|
| 48,684 |
|
|
| 55,082 |
|
Raw materials |
| 101,128 |
|
|
| 81,145 |
|
| 129,753 |
|
|
| 118,490 |
|
Total | $ | 211,412 |
|
| $ | 193,483 |
| $ | 232,184 |
|
| $ | 236,472 |
|
NOTE 4 – Goodwill and Intangible Assets
The table below sets forth the changes in goodwill:
Balance at December 31, 2016 | $ | 129,412 |
|
Foreign currency translation adjustment |
| 4,126 |
|
Balance at September 30, 2017 | $ | 133,538 |
|
Balance at December 31, 2019 | $ | 141,318 |
|
Savitech acquisition (see Note 13 for additional information) |
| 10,755 |
|
Foreign currency translation adjustment |
| (2,407 | ) |
Balance at March 31, 2020 | $ | 149,666 |
|
-910-
The table below sets forth the value of intangible assets, other than goodwill:
| September 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
| 2017 |
|
| 2016 |
|
| 2020 |
|
| 2019 |
| ||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount | $ | 234,533 |
|
| $ | 232,747 |
|
| $ | 248,897 |
|
| $ | 239,975 |
|
Accumulated amortization |
| (83,354 | ) |
|
| (69,247 | ) |
|
| (128,672 | ) |
|
| (124,452 | ) |
Foreign currency translation adjustment |
| (8,259 | ) |
|
| (8,442 | ) |
|
| (8,247 | ) |
|
| (9,842 | ) |
Total |
| 142,920 |
|
|
| 155,058 |
|
|
| 111,978 |
|
|
| 105,681 |
|
Intangible assets with indefinite lives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount |
| 19,217 |
|
|
| 21,003 |
|
|
| 10,412 |
|
|
| 14,883 |
|
Foreign currency translation adjustment |
| (1,015 | ) |
|
| (1,185 | ) |
|
| (1,172 | ) |
|
| (1,041 | ) |
Total |
| 18,202 |
|
|
| 19,818 |
|
|
| 9,240 |
|
|
| 13,842 |
|
Total intangible assets, net | $ | 161,122 |
|
| $ | 174,876 |
|
| $ | 121,218 |
|
| $ | 119,523 |
|
The table below sets forth amortization expense related to intangible assets subject to amortization for the three and nine months ended September 30, 2017 and 2016:amortization:
Amortization expense |
| 2017 |
|
| 2016 |
| ||
Three months ended September 30, |
| $ | 4,694 |
|
| $ | 5,117 |
|
Nine months ended September 30, 2017 |
| $ | 14,098 |
|
| $ | 15,379 |
|
Amortization expense |
| 2020 |
|
| 2019 |
| ||
Three months ended March 31 |
| $ | 4,221 |
|
| $ | 4,484 |
|
NOTE 5 – Income Tax Provision
The table below sets forth information related to our income tax expense:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| September 30, |
|
| September 30, |
| March 31, |
| |||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||||
Domestic pre-tax income (loss) | $ | (27,783 | ) |
| $ | (7,274 | ) |
| $ | (63,026 | ) |
| $ | (25,520 | ) | |||||||
Domestic pre-tax income | $ | 5,268 |
|
| $ | 12,486 |
| |||||||||||||||
Foreign pre-tax income | $ | 47,613 |
|
| $ | 22,905 |
|
| $ | 104,821 |
|
| $ | 47,906 |
| $ | 19,688 |
|
| $ | 29,548 |
|
Income tax provision | $ | 5,052 |
|
| $ | 4,097 |
|
| $ | 11,651 |
|
| $ | 5,941 |
| $ | 4,556 |
|
| $ | 10,298 |
|
Effective tax rate |
| 25.5 | % |
|
| 26.2 | % |
|
| 27.9 | % |
|
| 26.5 | % |
| 18.3 | % |
|
| 24.5 | % |
Impact of tax holidays on tax expense | $ | (733 | ) |
| $ | (2,992 | ) |
| $ | (2,553 | ) |
| $ | (5,099 | ) | $ | (1,074 | ) |
| $ | 277 |
|
Earnings per share impact of tax holidays |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Earnings per share impact of tax holidays: |
|
|
|
|
|
|
| |||||||||||||||
Basic | $ | 0.01 |
|
| $ | 0.06 |
|
| $ | 0.05 |
|
| $ | 0.10 |
| $ | 0.02 |
|
| $ | (0.01 | ) |
Diluted | $ | 0.01 |
|
| $ | 0.06 |
|
| $ | 0.05 |
|
| $ | 0.10 |
| $ | 0.02 |
|
| $ | (0.01 | ) |
The decrease in the effective tax rate for the three months ended September 30, 2017March 31, 2020 when compared to the three months ended September 30, 2016,March 31, 2019, is primarily attributable to an immaterial expense for various discrete items. Thea decrease in non-U.S. withholding taxes and a net increase in the effective tax rate over the nine months ended September 30, 2017 when comparedfavorable U.S. permanent differences.
Our undistributed foreign earnings continue to the nine months ended September 30, 2016 is primarily attributable to changesbe indefinitely reinvested in the proportion of income generated in North America, Europe and Asia, and the impact of ASU 2016-09foreign operations, with limited exceptions related to the treatmentearnings of equity based compensation. In both periods the effectivecertain European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax, rates were lower than the U.S. statutory rate of 35%, principally from the impact of income from lower-taxed jurisdictions.
Funds repatriated from foreign subsidiaries to the U.S.but may be subject to federal and state incomenon-U.S. withholding taxes. The Company intends to permanently reinvest overseas all of its earnings from its foreign subsidiaries, except to the extent such undistributed earnings have previously been subject to US tax; accordingly, deferred U.S. taxes are not recorded on undistributed foreign earnings.
The Company filesWe file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Company isWe are no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2007,2012, or for the 20102015 tax year. The Company isWe are no longer subject to China income tax examinations by tax authorities for tax years before 2005.2009. With respect to state and local jurisdictions and countries outside of the U.S. (other than China), with limited exceptions, the Company is no longer subject to income tax audits for years before 2006.2014. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties, if any, have been provided for in the Company’s reserve for any adjustments that may
-10-
result from currently pending tax audits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in interest expense. As of September 30, 2017,March 31, 2020, the gross amount of unrecognized tax benefits was approximately $31.5$38.4 million.
-11-
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.
In response to the outbreak of the novel strain of coronavirus (“COVID-19”) pandemic, the United States Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted on March 27, 2020. We do not expect the CARES Act to have a material impact on our financial statements because we do not qualify for most of the relief provisions prescribed in the Cares Act. We will continue to assess the impacts of the CARES Act and any other legislation adopted by the United States government or other applicable governmental agencies in response to COVID-19 as additional guidance is published by the relevant authorities.
NOTE 6 – Share-Based Compensation
All share-based compensation is for share grants. All outstanding stock options are fully vested, and all expense related to stock options has been recognized in previous periods. NaN cash proceeds were received from stock option exercises during the three months ended March 31, 2020. The table below sets forth the line items where share-based compensation expense was recorded for the three and nine months ended September 30, 2017 and 2016:recorded:
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| |||||||||||||||
| September 30, |
|
| September 30, |
| March 31, |
| |||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||||
Cost of goods sold | $ | 152 |
|
| $ | 172 |
|
| $ | 462 |
|
| $ | 609 |
| $ | 273 |
|
| $ | 125 |
|
Selling, general and administrative |
| 4,050 |
|
|
| 2,901 |
|
|
| 11,348 |
|
|
| 10,237 |
|
| 3,711 |
|
|
| 3,637 |
|
Research and development |
| 760 |
|
|
| 684 |
|
|
| 2,117 |
|
|
| 1,991 |
|
| 709 |
|
|
| 715 |
|
Total share-based compensation expense | $ | 4,962 |
|
| $ | 3,757 |
|
| $ | 13,927 |
|
| $ | 12,837 |
| $ | 4,693 |
|
| $ | 4,477 |
|
The table below sets forth share-based compensation expense by type for the three and nine months ended September 30, 2017 and 2016:
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Stock options | $ | 168 |
|
| $ | 304 |
|
| $ | 767 |
|
| $ | 1,212 |
|
Share grants |
| 4,794 |
|
|
| 3,453 |
|
|
| 13,160 |
|
|
| 11,625 |
|
Total share-based compensation expense | $ | 4,962 |
|
| $ | 3,757 |
|
| $ | 13,927 |
|
| $ | 12,837 |
|
Stock Options. Approximately $6.9 million in cash proceeds was received from stock option exercises during the nine months ended September 30, 2017.
As of September 30, 2017, total unrecognized share-based compensation expense related to unvested stock options was approximately $0.4 million, before income taxes, and is expected to be recognized over a weighted average period of less than 1 year.
Share Grants.Grants – Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year period. We also haveAll new grants are granted under the Company’s 2013 Equity Incentive Plan, and there will be 0 additional share grants thatunder the 2001 Omnibus Equity Incentive Plan. Restricted stock grants are measured based on the fair market value of the underlying stock on the date of grant, and compensation expense is recognized on a straight-line basis over the requisite four-year service period.
Performance stock units (“PSUs”) are measured based on the fair market value of the underlying stock on the date of grant and compensation expense is recognized over the three-year performance based thatperiod, with adjustments made to the expense to recognize the probable payout percentage. PSUs will vest upon achievement of certain performance criteria. During the nine months ended September 30, 2017, the Company modifiedachieving a performance-based award previously granted to our Chief Executive Officer. The effect was to replace a performance-based grant covering 700,000 shares of the Company’s common stock with a performance-based grant covering 62,905 shares of the Company’s common stock and a restricted stock grant covering 62,905 of the Company’s common stock. If certain performance criteria are metcumulative 3-year non-GAAP operating income target for the performance-based grant, Dr. Lu will receive 200% of that award or 125,810 shares. The incremental expense if Dr. Lu received 200% of the performance-based grant award is approximately $3.3 million. The incremental expense of the restricted stock grant is approximately $1.7 million.applicable periods.
As of September 30, 2017,March 31, 2020, total unrecognized share-based compensation expense related to share grants was approximately $36.9$45.4 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.62.2 years.
-11-
NOTE 7 – Segment Information and Enterprise-Wide DisclosureNet Sales
Segment Reporting. For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various manufacturing and distribution facilities. We aggregate our products because the products are similar and have similar economic characteristics, use similar production processes and share the same customer type. Our primary operations include operations in Asia, North America and Europe. During the three months ended September 30, 2017, oneMarch 31, 2020 and 2019, 0 customer accounted for 10.3%10% or $29.3 millionmore of our revenue. ThisNaN customer did not accountaccounted for 10% or greater of our revenue for the nine months ended September 30, 2017 or 10% or greatermore of our outstanding accounts receivable at September 30, 2017.any point in the periods presented in this report.
-12-
The tables below set forth net sales based on the location of the subsidiary producing the net sale.
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
September 30, 2017 |
| Asia |
|
| North America |
|
| Europe |
|
| Consolidated |
| ||||||||||||||||||||
Total sales |
| $ | 263,088 |
|
| $ | 31,320 |
|
| $ | 47,307 |
|
| $ | 341,715 |
| ||||||||||||||||
Intercompany elimination |
|
| (37,475 | ) |
|
| (4,061 | ) |
|
| (14,932 | ) |
|
| (56,468 | ) | ||||||||||||||||
Net sales |
| $ | 225,613 |
|
| $ | 27,259 |
|
| $ | 32,375 |
|
| $ | 285,247 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
September 30, 2016 |
| Asia |
|
| North America |
|
| Europe |
|
| Consolidated |
| ||||||||||||||||||||
Total sales |
| $ | 239,447 |
|
| $ | 30,067 |
|
| $ | 38,451 |
|
| $ | 307,965 |
| ||||||||||||||||
Intercompany elimination |
|
| (37,228 | ) |
|
| (5,726 | ) |
|
| (14,317 | ) |
|
| (57,271 | ) | ||||||||||||||||
Net sales |
| $ | 202,219 |
|
| $ | 24,341 |
|
| $ | 24,134 |
|
| $ | 250,694 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
As of and for the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
September 30, 2017 |
| Asia |
|
| North America |
|
| Europe |
|
| Consolidated |
| ||||||||||||||||||||
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three Months Ended March 31, 2020 |
| Asia |
|
| North America |
|
| Europe |
|
| Consolidated |
| ||||||||||||||||||||
Total sales |
| $ | 731,982 |
|
| $ | 122,072 |
|
| $ | 134,132 |
|
| $ | 988,186 |
|
| $ | 301,863 |
|
| $ | 168,172 |
|
| $ | 59,001 |
|
| $ | 529,036 |
|
Intercompany elimination |
|
| (111,963 | ) |
|
| (44,547 | ) |
|
| (45,902 | ) |
|
| (202,412 | ) |
|
| (116,921 | ) |
|
| (104,464 | ) |
|
| (26,934 | ) |
|
| (248,319 | ) |
Net sales |
| $ | 620,019 |
|
| $ | 77,525 |
|
| $ | 88,230 |
|
| $ | 785,774 |
|
| $ | 184,942 |
|
| $ | 63,708 |
|
| $ | 32,067 |
|
| $ | 280,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| $ | 372,153 |
|
| $ | 52,737 |
|
| $ | 21,162 |
|
| $ | 446,052 |
|
| $ | 364,624 |
|
| $ | 24,110 |
|
| $ | 67,388 |
|
| $ | 456,122 |
|
Total assets |
| $ | 1,017,801 |
|
| $ | 301,763 |
|
| $ | 221,025 |
|
| $ | 1,540,589 |
|
|
| 1,208,572 |
|
|
| 197,178 |
|
|
| 214,516 |
|
| $ | 1,620,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Nine Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
September 30, 2016 |
| Asia |
|
| North America |
|
| Europe |
|
| Consolidated |
| ||||||||||||||||||||
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three Months Ended March 31, 2019 |
| Asia |
|
| North America |
|
| Europe |
|
| Consolidated |
| ||||||||||||||||||||
Total sales |
| $ | 671,252 |
|
| $ | 91,176 |
|
| $ | 121,501 |
|
| $ | 883,929 |
|
| $ | 273,900 |
|
| $ | 101,280 |
|
| $ | 51,052 |
|
| $ | 426,232 |
|
Intercompany elimination |
|
| (107,268 | ) |
|
| (21,390 | ) |
|
| (45,194 | ) |
|
| (173,852 | ) |
|
| (73,597 | ) |
|
| (37,916 | ) |
|
| (12,426 | ) |
|
| (123,939 | ) |
Net sales |
| $ | 563,984 |
|
| $ | 69,786 |
|
| $ | 76,307 |
|
| $ | 710,077 |
|
| $ | 200,303 |
|
| $ | 63,364 |
|
| $ | 38,626 |
|
| $ | 302,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| $ | 341,320 |
|
| $ | 58,408 |
|
| $ | 15,890 |
|
| $ | 415,618 |
|
| $ | 387,264 |
|
| $ | 28,402 |
|
| $ | 25,549 |
|
| $ | 441,215 |
|
Total assets |
| $ | 956,647 |
|
| $ | 422,041 |
|
| $ | 173,752 |
|
| $ | 1,552,440 |
|
| $ | 1,163,989 |
|
| $ | 222,696 |
|
| $ | 226,313 |
|
| $ | 1,612,998 |
|
-12-
Geographic InformationDisaggregation of Net Sales.We disaggregate net sales from contracts with customers into direct sales and distribution sales (“Distributors”) and by geographic area.Direct sales customers consist of those customers using our product in their manufacturing process, and Distributors are those customers who resell our products to third parties. We deliver our products to customers around the world for use in consumer electronics, computing, communications, industrial and automotive. Further, most of our contracts are fixed-price arrangements, and are short term in nature, ranging from days to several months.
The tables below set forth revenue for the amount of netCompany disaggregated into geographic locations based on shipment and by type (direct sales that were derived from (shipped to) customers located inor Distributor) for the following countries:three months ended March 31, 2020 and 2019:
| Net Sales for the |
|
|
|
|
|
|
|
|
| |||||
| Three Months Ended |
|
| Percentage of |
| ||||||||||
| September 30, |
|
| Net Sales |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
China | $ | 156,924 |
|
| $ | 148,567 |
|
|
| 55 | % |
|
| 59 | % |
United States |
| 25,706 |
|
|
| 21,802 |
|
|
| 9 | % |
|
| 9 | % |
Korea |
| 17,422 |
|
|
| 15,993 |
|
|
| 6 | % |
|
| 6 | % |
Germany |
| 21,756 |
|
|
| 14,737 |
|
|
| 8 | % |
|
| 6 | % |
Singapore |
| 17,252 |
|
|
| 12,497 |
|
|
| 6 | % |
|
| 5 | % |
Taiwan |
| 15,966 |
|
|
| 12,424 |
|
|
| 6 | % |
|
| 5 | % |
All others (1) |
| 30,221 |
|
|
| 24,674 |
|
|
| 10 | % |
|
| 10 | % |
Total | $ | 285,247 |
|
| $ | 250,694 |
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Sales for the |
|
|
|
|
|
|
|
|
| |||||
| Nine Months Ended |
|
| Percentage of |
| ||||||||||
| September 30, |
|
| Net Sales |
| ||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
China | $ | 433,145 |
|
| $ | 411,512 |
|
|
| 55 | % |
|
| 58 | % |
United States |
| 70,361 |
|
|
| 62,460 |
|
|
| 9 | % |
|
| 9 | % |
Korea |
| 50,785 |
|
|
| 43,452 |
|
|
| 6 | % |
|
| 6 | % |
Germany |
| 58,210 |
|
|
| 47,963 |
|
|
| 7 | % |
|
| 7 | % |
Singapore |
| 43,840 |
|
|
| 35,657 |
|
|
| 6 | % |
|
| 5 | % |
Taiwan |
| 49,584 |
|
|
| 44,413 |
|
|
| 6 | % |
|
| 6 | % |
All others (1) |
| 79,849 |
|
|
| 64,620 |
|
|
| 11 | % |
|
| 9 | % |
Total | $ | 785,774 |
|
| $ | 710,077 |
|
|
| 100 | % |
|
| 100 | % |
|
| Three Months Ended | |||||||
Net Sales by Region |
| March 31, 2020 |
|
| March 31, 2019 |
|
| ||
Asia |
| $ | 210,805 |
|
| $ | 224,289 |
|
|
Europe |
|
| 46,931 |
|
|
| 38,394 |
|
|
Americas |
|
| 22,981 |
|
|
| 39,610 |
|
|
Total net sales |
| $ | 280,717 |
|
| $ | 302,293 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales by Type |
|
|
|
|
|
|
|
|
|
Direct sales |
| $ | 99,544 |
|
| $ | 86,358 |
|
|
Distributor sales |
|
| 181,173 |
|
|
| 215,935 |
|
|
Total net sales |
| $ | 280,717 |
|
| $ | 302,293 |
|
|
|
|
Revenue from products shipped to China was $138.9 million and $151.5 million for the three months ended March 31, 2020 and 2019, respectively.
-13-
NOTE 8 – Commitments and Contingencies
Purchase commitments – As of September 30, 2017,March 31, 2020, we had approximately $36.8$38.7 million in non-cancelable purchase contracts related to capital expenditures, primarily related to Asiaour manufacturing facilities.
facilities in Asia. As of March 31, 2020, we also had a commitment to purchase approximately $52.5 million of wafers to be used in our manufacturing process. These wafer purchases will occur during 2020.
Defined Benefit Plan - We have a contributory defined benefit plan that covers certain employees in the United Kingdom. As of September 30, 2017,March 31, 2020, the unfunded liability for this defined benefit plan was approximately $32.3$14.0 million. We are obligated to make annual contributions, each year through December 2029, of approximately GBP 2 million (approximately $2.6$2.4 million based on a GBP:USD exchange rate of 1.3)1.2:1). The trustees are requiredcurrent annual contributions were set with regard to review the funding position every three years, and the most recent review was carried out as of April 5, 2016. The2016, and must be reviewed by the Trustees at least every three years. A review as of April 2019 is underway and the outcome of athe review cancould result in a change in the amount of the payment.payment or the period over which payment is required.
Contingencies –From time to time, we are involved in various legal proceedings that arise in the normal course of business. While we intend to defend any lawsuit vigorously, we presently believe that the ultimate outcome of any current pending legal proceeding will not have any material adverse effect on our consolidated financial position, cash flows or operating results. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact on our business and operating results for the period in which the ruling occurs or future periods. Based on information available, we evaluate the likelihood of potential outcomes.outcomes of all pending disputes. We record thean appropriate liability when the amount of any liability associated with a pending dispute is deemed probable and reasonably estimable. In addition, we do not accrue for estimated legal fees and other directly related costs as they are expensed as incurred. The Company is not currently a party to any pending litigation that the Company considers material.
Note 9 – Derivative Financial Instruments– At September 30, 2017
We use derivative instruments to manage risks related to foreign currencies, interest rates and the Company had approximately $40.2 millionnet investment risk in our foreign subsidiaries. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.
Hedges of Foreign Currency Risk - We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency hedges, whichforward agreements to manage this exposure. At March 31, 2020, we had outstanding foreign currency forward contracts that are intended to offset approximately 25%preserve the economic value of foreign currency denominated monetary assets and liabilities; these instruments are not designated for hedge accounting treatment in accordance with ASC 815. The fair value of these instruments approximates 0.
-14-
The table below sets forth outstanding foreign currency forward contracts at March 31, 2020 and December 31, 2019:
Notional Amount |
|
| Effective Date |
| Maturity Date |
| Index* | Weighted Average Foreign Exchange Rate |
|
| Balance Sheet Hedge Designation | ||
$ | 2,961 |
|
| March 2020 |
| May 2020 |
| EUR/GBP | 0.8848 |
|
| Non-designated | |
| 4,009 |
|
| March 2020 |
| May 2020 |
| EUR/USD |
| 1.1009 |
|
| Non-designated |
| 10,445 |
|
| March 2020 |
| May 2020 |
| GBP/USD |
| 1.2453 |
|
| Non-designated |
| 37,850 |
|
| March 2020 |
| May 2020 |
| USD/CNY |
| 7.1036 |
|
| Non-designated |
| 1,136 |
|
| March 2020 |
| May 2020 |
| USD/JPY |
| 107.2520 |
|
| Non-designated |
| 42,028 |
|
| March 2020 |
| May 2020 |
| USD/TWD |
| 29.9560 |
|
| Non-designated |
| 500 |
|
| January 2020 |
| July 2020 |
| USD/TWD | 30 |
|
| Non-designated | |
| 500 |
|
| January 2020 |
| January 2021 |
| USD/TWD | 29.976 |
|
| Non-designated | |
| 500 |
|
| March 2020 |
| May 2020 |
| USD/TWD | 30.355 |
|
| Non-designated | |
$ | 99,929 |
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
| Effective Date |
| Maturity Date |
| Index* | Weighted Average Foreign Exchange Rate |
|
| Balance Sheet Hedge Designation | ||
$ | 1,844 |
|
| December 2019 |
| February 2020 |
| EUR/GBP | 0.8471 |
|
| Non-designated | |
| 3,375 |
|
| December 2019 |
| February 2020 |
| EUR/USD | 1.123 |
|
| Non-designated | |
| 25,957 |
|
| December 2019 |
| February 2020 |
| GBP/USD | 1.3257 |
|
| Non-designated | |
| 39,340 |
|
| December 2019 |
| February 2020 |
| USD/CNY | 6.9762 |
|
| Non-designated | |
| 763 |
|
| December 2019 |
| February 2020 |
| USD/JPY | 108.732 |
|
| Non-designated | |
| 33,621 |
|
| December 2019 |
| February 2020 |
| USD/TWD | 20.988 |
|
| Non-designated | |
| 500 |
|
| January 2019 |
| January 2020 |
| USD/TWD | 30.635 |
|
| Non-designated | |
| 500 |
|
| October 2019 |
| February 2020 |
| USD/TWD | 30.571 |
|
| Non-designated | |
$ | 105,900 |
|
|
|
|
|
|
|
|
|
|
|
|
* EUR = Euro |
|
|
|
|
|
|
|
|
| ||||
GBP = British Pound Sterling |
|
|
|
|
|
|
|
|
| ||||
USD = United States Dollar |
|
|
|
|
|
|
| ||||||
CNY = Chinese Yuan Renminbi |
|
|
|
|
|
|
| ||||||
JPY = Japan Yen |
|
|
|
|
|
|
|
|
| ||||
TWD = Taiwan dollar |
|
|
|
|
|
|
|
|
|
Hedges of Interest Rate and Net Investment Risk -The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps, including interest rate collars, as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the Company's estimated foreign currency exposure. These foreign currency hedges contributed approximately $0.5 millionagreements without exchange of the underlying notional amount.The table below sets forth information related to the number and the notional amount of our interest rate related derivative instruments at March 31, 2020 and December 31, 2019:
|
| Number of Instruments |
| Notional Amount |
| |||||||
|
| 2020 |
| 2019 |
| 2020 |
|
| 2019 |
| ||
Interest rate swaps and collars |
| 9 |
| 9 |
| $ | 175,000 |
|
| $ | 200,000 |
|
-15-
The table below sets forth the fair value of the Company’s interest rate related derivative financial instruments as well as their classification on our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:
|
| Other Current Assets |
|
| Other Assets |
|
| Other Current Liabilities |
|
| Other Liabilities |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Interest rate swaps and collars |
| $ | - |
|
| $ | 194 |
|
| $ | - |
|
| $ | 36 |
|
| $ | 1,936 |
|
| $ | 51 |
|
| $ | 1,154 |
|
| $ | 127 |
|
The tables below set forth the effect of the Company’s derivative financial instruments on our condensed consolidated statements of income for the three months ended March 31, 2020 and nine months ended September 30,2019:
-13-
|
| Amount of Gain or (Loss) Recognized in OCI on Derivative |
|
| Location of Gain or (Loss) Reclassified from Accumulated OCI into Income |
| Amount of Gain or (Loss) Reclassified from Accumulated OCI into Net Income |
|
| Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion Excluded from Effectiveness Testing) |
| Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
| |||||||||||||||
Derivative Instruments Designated as Hedging Instruments |
|
|
|
|
|
|
|
| ||||||||||||||||||||
| March 31, |
|
|
| March 31, |
|
|
| March 31, |
| ||||||||||||||||||
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
| |||||||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps and collars |
| $ | (1,390 | ) |
| $ | (1,090 | ) |
| Interest expense |
| $ | (71 | ) |
| $ | (469 | ) |
| Interest expense |
| $ | - |
|
| $ | - |
|
Cross currency swaps |
| $ | - |
|
| $ | (2,350 | ) |
| N/A |
| $ | - |
|
| $ | - |
|
| Interest income |
| $ | - |
|
| $ | 455 |
|
2017. Currently allWe estimate that $0.6 million of our foreign currency hedges mature at each month end. The Company then has the option to enter into new foreign currency hedges. The Company plans to continue hedging its foreign currency risk.
The Company also has interest ratenet derivative agreements with a notional amount of $150.0 million and $220.0 million as of December 31, 2016 and September 30, 2017, respectively. During the third quarter of 2017, the Company entered into additional agreements to further hedge against the risk of interest rate volatility. The entire $220.0 million notional amount is accounted for as an effective cash flow hedge, with $2.4 million and $3.1 million recorded as assetsgains included in the condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively and$2.4 million and $2.3 million accrued in the accumulated other comprehensive income (“AOCI”) as of September 30, 2017March 31, 2020 will be reclassified into expense within the following 12 months. No gains or losses were reclassified from AOCI into earnings as a result of forecasted transactions that failed to occur during three months ended March 31, 2020 or 2019.
|
| Amount of (Loss) or Gain Recognized in Net Income |
|
| Location of Gain or (Loss) Recognized in Net Income | |||||
Derivative Instruments Not Designated as Hedging Instruments |
|
| ||||||||
|
| |||||||||
March 31, |
|
| ||||||||
2020 |
|
| 2019 |
|
| |||||
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
| $ | (2,147 | ) |
| $ | 430 |
|
| Foreign currency loss, net |
As of March 31, 2020 and December 31, 2016, respectively. For2019, the threeCompany had 0t posted any collateral related to these agreements.
-16-
NOTE 10 – Leases
The Company leases certain assets used in its business, including land, buildings and nine month ended September 30, 2017, $0.2 millionequipment. These leased assets are used for operational and $0.6 million have been recordedadministrative purposes.
The components of lease expense are set forth in the table below:
|
| Three Months Ended |
| Three Months Ended | ||
|
| March 31, 2020 |
| March 31, 2019 | ||
Operating lease expense |
| $ | 3,730 |
| $ | 3,704 |
Finance lease expense: |
|
|
|
|
|
|
Amortization of assets |
|
| 209 |
|
| 244 |
Interest on lease liabilities |
|
| 7 |
|
| 15 |
Short-term lease expense |
|
| 94 |
|
| 36 |
Variable lease expense |
|
| 711 |
|
| 618 |
Total lease expense |
| $ | 4,751 |
| $ | 4,617 |
The table below sets forth supplemental balance sheet information related to the interest expense account, respectively. leases:
|
| March 31, 2020 |
| December 31, 2019 |
Operating leases: |
|
|
|
|
Operating lease ROU assets |
| $53,933 |
| $57,427 |
|
|
|
|
|
Current operating lease liabilities |
| 11,633 |
| 12,554 |
Noncurrent operating lease liabilities |
| 24,713 |
| 27,545 |
Total operating lease liabilities |
| $36,346 |
| $40,099 |
|
|
|
|
|
Finance leases: |
|
|
|
|
Finance lease ROU assets |
| $2,507 |
| $3,396 |
Accumulated amortization |
| (1,671) |
| (1,924) |
Finance lease ROU assets, net |
| $836 |
| $1,472 |
|
|
|
|
|
Current finance lease liabilities |
| $818 |
| $903 |
Non-current finance lease liabilities |
| – |
| 138 |
Total finance lease liabilities |
| $818 |
| $1,041 |
|
|
|
|
|
Weighted average remaining lease term (in years): |
|
|
|
|
Operating leases |
| 4.3 |
| 4.4 |
Finance leases |
| 1.0 |
| 1.3 |
|
|
|
|
|
Weighted average discount rate: |
|
|
|
|
Operating leases |
| 3.8% |
| 3.8% |
Finance leases |
| 3.0% |
| 3.0% |
��
The table below sets forth supplemental cash flow and other information related to leases:
|
| Three Months Ended |
| Three Months Ended |
|
| March 31, 2020 |
| March 31, 2019 |
Cash paid for the amounts included in the measurements of lease liabilities: |
|
|
|
|
Operating cash outflows from operating leases |
| $4,018 |
| $4,277 |
Operating cash outflows from finance leases |
| 7 |
| 15 |
Financing cash outflow from finance leases |
| 223 |
| 293 |
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities incurred: |
|
|
|
|
Operating leases |
| 127 |
| 86 |
-17-
The table below sets forth information about lease liability maturities:
|
| March 31, 2020 | ||||
|
| Operating Leases |
| Finance Leases | ||
Remainder of 2020 |
| $ | 10,129 |
| $ | 691 |
2021 |
|
| 9,674 |
|
| 139 |
2022 |
|
| 8,000 |
|
| - |
2023 |
|
| 4,452 |
|
| - |
2024 |
|
| 2,379 |
|
| - |
2025 |
|
| 2,286 |
|
| - |
2026 and thereafter |
|
| 2,579 |
| - | |
Total lease payments |
|
| 39,499 |
|
| 830 |
Less: imputed interest |
|
| (3,153) |
|
| (12) |
Total lease obligations |
|
| 36,346 |
|
| 818 |
Less: current obligations |
|
| (11,633) |
|
| (818) |
Long-term lease obligations |
| $ | 24,713 |
| $ | - |
NOTE 911 – Employee Benefit Plans
Deferred Compensation
We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees and members of the Board of Directors. The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. We offset our obligations under the Deferred Compensation Plan primarily by investing in the actual underlying investments. These investments are classified as trading securitiesAt March 31, 2020 and are carried at fair value. At September 30, 2017,December 31, 2019, these investments totaled approximately $8.0 million. All gains$10.0 million and losses in these investments are materially offset by corresponding gains and losses in the Deferred Compensation Plan liabilities.
$12.9 million, respectively.
NOTE 10 12 – Related Parties
We conduct business with a related party company, Lite-On Semiconductor Corporation and its subsidiaries and affiliates (collectively, “LSC”), and Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”). LSC is our largest stockholder, owning approximately 16% 15%ofouroutstandingCommonStockasofSeptember 30,2017,March 31, 2020,andisamemberoftheLite-On Groupofcompanies. On August 8, 2019, we announced that we entered into an agreement with LSC pursuant to which the Company shall acquire LSC. The aggregate consideration payable by the Company, based on the December 31, 2019 exchange rate, is approximately $437 million. This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing. The acquisition received LSC stockholder approval on October 25, 2019, and we anticipate completing the acquisition in the second half of 2020, subject to customary closing conditions and regulatory approvals. We expect to fund the purchase price of the transaction primarily with proceeds from an anticipated new bank financing arrangement. Raymond Soong, the Chairman of theour Board of Directors, is the Chairman of LSC, and is the Chairman of Lite-On Technology Corporation (“LTC”), a significant shareholder of LSC. C.H. Chen, our former President and Chief Executive Officer and currently the Vice Chairman of theour Board of Directors, is also Vice Chairman of LSC and a board member of LTC. Dr. Keh-Shew Lu, our President and Chief Executive Officer and a member of our Board of Directors, is a board member of LTC, and a board member of Nuvoton. L.P. Hsu, a former member of our Board of Directors serves as a consultant to LTC, and is a supervisor of the board of Nuvoton. We consider our relationships with LSC and Nuvoton to be mutually beneficial, and we plan to continue our strategic alliance with LSC and Nuvoton. We purchase wafers from Nuvoton for use in our production process.
We also conduct business with Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (collectively, “Keylink”). Keylink is our 5% joint venture partner in our Shanghai assembly and test facilities. We sell products to, and purchase inventory from Keylink. In addition, our subsidiaries in China lease their manufacturing facilities in Shanghai from, and subcontract a portion of our manufacturing process (metal plating and environmental services) to, Keylink. We also pay afees for plating and rental services and consulting fee to Keylink. The aggregate amounts paid to Keylink for the three months ended September 30, 2017March 31, 2020 and 20162019 were approximately $4.5$3.1 million and $4.1$3.9 million, respectively. The aggregate amounts for these services for the nine months ended September 30, 2017 and 2016 were approximately $12.4 million and $12.5 million, respectively. Inaddition, Chengdu Ya Guang Electronic Company Limited (“YaGuang”)is our 2% joint venture partner in one of our Chengdu assembly and test facilities and isour5%5%jointventurepartnerinourotherChengduassemblyandtestfacilitiesfacility;however, we have no material transactions with Ya Guang. We also purchase materials from Jiyuan Crystal Photoelectric Frequency Technology Ltd (“JCP”), a frequency control product manufacturing company in which we have made an equity investment and account for that investment using the equity method of accounting.
The Audit -18-
TheAuditCommittee of ommitteeoftheBoardreviews all related party transactions viewsallrelatedpartytransactionsfor potential conflict of ntialconflictofinterest nterestsituations on tuationsonan ongoing ongoingbasis all in ,allinaccordance with ncewithsuch procedures as proceduresasthe Audit Committee heAuditCommitteemay adopt from time to adopt fromtime totime.
The table below sets forth net sales to and purchases from LSC, Nuvoton and Keylink:related parties:
-14-
Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
| ||||||||||||||||
| September 30, |
|
| September 30, |
| March 31, |
| |||||||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||||
LSC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 329 |
|
| $ | 275 |
|
| $ | 1,064 |
|
| $ | 552 |
| $ | 128 |
|
| $ | 188 |
|
Purchases | $ | 6,097 |
|
| $ | 4,867 |
|
| $ | 19,258 |
|
| $ | 16,794 |
| $ | 2,748 |
|
| $ | 4,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Nuvoton |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases | $ | 3,202 |
|
| $ | 2,827 |
|
| $ | 9,487 |
|
| $ | 8,449 |
| $ | 1,644 |
|
| $ | 1,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Keylink |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 2,690 |
|
| $ | 2,712 |
|
| $ | 6,925 |
|
| $ | 6,689 |
| $ | 3,985 |
|
| $ | 2,815 |
|
Purchases | $ | 1,069 |
|
| $ | 1,254 |
|
| $ | 3,090 |
|
| $ | 4,089 |
| $ | 405 |
|
| $ | 605 |
|
JCP |
|
|
|
|
|
|
| |||||||||||||||
Purchases | $ | 156 |
|
| $ | 160 |
| |||||||||||||||
|
|
|
|
|
|
|
|
The table below sets forth accounts receivable from, and accounts payable to, LSC, Nuvoton and Keylink:related parties:
| September 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
| ||||
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||
LSC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable | $ | 381 |
|
| $ | 301 |
| $ | 128 |
|
| $ | 184 |
|
Accounts payable | $ | 4,645 |
|
| $ | 4,333 |
| $ | 2,055 |
|
| $ | 2,154 |
|
Nuvoton |
|
|
|
|
|
|
| |||||||
Accounts payable | $ | 875 |
|
| $ | 1,055 |
| |||||||
Keylink |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable | $ | 5,176 |
|
| $ | 5,394 |
| $ | 25,536 |
|
| $ | 31,598 |
|
Accounts payable | $ | 5,172 |
|
| $ | 4,295 |
| $ | 22,100 |
|
| $ | 28,244 |
|
Nuvoton |
|
|
|
|
|
|
| |||||||
JCP |
|
|
|
|
|
|
| |||||||
Accounts payable | $ | 542 |
|
| $ | 950 |
| $ | 181 |
|
| $ | 173 |
|
|
|
|
|
|
|
|
|
Note 13 –Acquisitions
NOTE 11 – Restructuring CostsSavitech Acquisition
In
On February 2017,5, 2020, the Company announced its planentered into an agreement to transfer its wafer fabrication operationinvest up to approximately $14.2 million to acquire at KFAB to other Company-owned wafer fabrication plants and external foundries.least 51% of Savitech Corporation (“Savitech”), a fabless semiconductor design company located in Zhubei City, Taiwan. The Company ceased production operations at KFAB latewill make the investment in third quarter 2017 and plans to vacate the premises no later than November 15, 2017. Employees have been offered retention and standard severance packages. During the quarter ended March 2017,2 tranches. The first tranche of $5.6 million, which provided the Company received $6.0with a 33.6% ownership of Savitech, was made on March 4, 2020. The initial tranche was funded with cash on hand. The second tranche, currently recorded in other long-term liabilities, as shown in the table below, and currently valued at $7.3 million will increase the Company’s ownership to at least 51% of insurance proceedsSavitech. The second tranche will be paid on June 30, 2021, provided Savitech achieves previously agreed-to revenue levels. If revenue levels are not achieved the Company will pay less than the maximum $8.6 million, but regardless of the amount paid, will still acquire at least 51% of Savitech.
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The Company recorded the purchase of Savitech as a result ofbusiness acquisition and will consolidate Savitech into their operations, based on the fires sustained at the KFAB facility during 2016 of which $4.2 million is recorded in Cost of Goods Sold and $1.8 million is recorded in Other Income. During the third quarter of 2017, the Company recorded $2.0 million of asset impairmentvoting model, with a non-controlling interest related to the shut-downinterest Diodes does not own in Savitech. The Company purchased Savitech in order to increase the Company’s integrated circuit business. Total purchase consideration recorded was $12.9 million. The goodwill will not be tax deductible. The Company also incurred acquisition costs of KFAB.
Total KFAB shutdown costs are expected to be approximately $10$0.1 million to $12 million, on a pretax basis, which will be expensedthat were recognized in selling, general and paid throughout 2017.administrative expense. The table below sets forth the restructuring costs,preliminary fair value of the assets and liabilities recorded in restructuring expensethe acquisition and the corresponding line item in which the item is recorded in our condensed consolidated balance sheet at the date of acquisition. The acquisition accounting is not final as deferred taxes, the contingent consideration payment and goodwill are being finalized. We expect the acquisition accounting to be finalized in the Condensed Consolidated Statementssecond or third quarter of Operations,2020.
Cash and cash equivalents |
| $ | 6.2 |
|
Prepaid expenses and other |
|
| 0.7 |
|
Goodwill |
|
| 10.8 |
|
Intangible assets, net |
|
| 6.1 |
|
Other long-term assets |
|
| 0.3 |
|
Accrued liabilities and other |
|
| 0.4 |
|
Other long-term liabilities |
|
| 7.3 |
|
Noncontrolling interest |
|
| 10.8 |
|
Wafer Fabrication Facility Acquisition
On April 1, 2019, the Company completed the previously announced acquisition of a wafer fabrication facility located in Greenock, Scotland (“GFAB”). The Company recorded the purchase of GFAB as a business acquisition. The Company purchased GFAB in order to increase the Company’s wafer production capacity. Total consideration paid by the Company was $33.2 million and was funded by advances under the revolving portion of our long-term credit facility. The facility and assets were wholly acquired, and there is no remaining minority interest. The goodwill will not be tax deductible. The Company also incurred duringacquisition costs of approximately $0.6 million that were recognized in selling, general and administrative expense. Due to a lack of available data we are unable to provide historical financial pro forma data. The table below sets forth the three monthsfair value of the assets and nine months ended September 30, 2017:liabilities recorded in the GFAB acquisition and the corresponding line item in which the item is recorded in our condensed consolidated balance sheet.
| Three Months Ended |
| Nine Months Ended |
Early supply contract termination | $ - |
| $ 1,985 |
Cost of equipment relocation | 429 |
| 501 |
Asset retirement obligation | 701 |
| 935 |
Retention costs | 909 |
| 2,687 |
| $ 2,039 |
| $ 6,108 |
Property, plant and equipment, net | $ | 24.4 |
| |
Inventories |
| 3.6 |
| |
Prepaid expenses and other |
| 5.2 |
| |
Goodwill |
| 0.9 |
| |
Deferred tax liabilities |
|
| 1.0 |
|
-1520-
The table below sets forth the costs accrued related to the KFAB restructuring:
| Early Contract Termination |
| Retention Costs |
| Equipment Relocation |
| Total |
Beginning balance, January 1, 2017 | $ - |
| $ - |
| $ - |
| $ - |
Costs accrued | 1,985 |
| 2,687 |
| 501 |
| 5,173 |
Restructuring costs paid | (1,985) |
| (14) |
| (501) |
| (2,500) |
Balance at September 30, 2017 | $ - |
| $ 2,673 |
| $ - |
| $ 2,673 |
Based on continued negotiations with the landlord, we recorded an additional $1.4 million of asset retirement obligations related the KFAB restructuring. This asset retirement obligation is for the estimated amounts to be paid to contractors to remediate the KFAB facility upon vacating the property. The table below sets forth the asset retirement obligation related to the KFAB restructuring:
|
| ||||
|
| ||||
|
| ||||
|
|
In connection with the asset retirement obligation as of September 30, 2017, we have an asset with a net book value of $0.4 million in property, plant and equipment. During the three months and nine months ended September 30, 2017 amortization of the asset was $0.7 million and $0.9 million, respectively. The remaining balance will be amortized through the end of the lease.
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ItemItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as identified under the heading “Cautionary Statement for Purposes of the “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995” herein. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by our management. The Private Securities Litigation Reform Act of 1995 (the “Act”“PSLRA”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act.PSLRA. We undertake no obligation to publicly release the results of any revisions to our forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. Unless the context otherwise requires, the words “Diodes,” the “Company,” “we,” “us” and “our” refer to Diodes Incorporated and its subsidiaries. Dollar amounts and share amounts are presented in thousands, except per share amounts, unless otherwise noted.
This management’s discussion should be read in conjunction with the management’s discussion included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 (“Form 10-K”), previously filed with Securities and Exchange Commission (“SEC”) on February 27, 2017.12, 2020.
Factors Relevant to Our Results of Operations for the Three Months Ended September 30, 2017
During the third quarter of 2017, revenue was a record high of $285.2 million, an increase of 8.0% from the $264.2 million in the second quarter of 2017 and an increase of 13.8% from the $250.7 million in the third quarter of 2016;
Gross profit was a record high of $96.3 million, including $2.7 million of KFAB closure costs. This compares to $90.1 million of gross profit in the second quarter of 2017 and $80.6 million in the third quarter of 2016;
Gross profit margin was 33.8%. This compared to gross profit margin of 34.1% in the second quarter of 2017 and 32.2% in the third quarter of 2016;
We achieved record revenue in our computing and communications end markets, complimented by 30% year-over-year growth in both automotive and industrial;
Our automotive market reached 8% of revenue;
We achieved $40.9 million of cash flow from operations.
We continued the shutdown and relocation of KFAB;
We reduced our long-term debt $75.2 million; and
Looking forward we expect any future improvements in net income, if any, to result primarily from increases in sales volume and improvements in product mix, as well as manufacturing cost reduction in order to offset any reduction in the average selling prices of our products.
-17-
We are a leading global manufacturer and supplier of high-quality, application-specific standard products within the broad discrete, logic, analog and mixed-signal semiconductor markets. For detailed information, see Note 1 – NatureSummary of Operations Basis of Presentation and Recently IssuedSignificant Accounting Pronouncements,Policies, included in the condensed consolidated financial statements in Item 1 above. Our products are sold primarily throughout Asia, North America and Europe. We believe that our focus on application-specific standard products utilizing innovative, highly efficient packaging and cost-effective process technologies, coupled with our collaborative, customer-focused product development, provides us with a meaningful competitive advantage relative to other semiconductor companies.
Factors Relevant to Our Results of Operations for the Three Months Ended March 31, 2020
• | During the first quarter of 2020, net sales were $280.7 million, a decrease of 7.1% from the $302.3 million in the first quarter of 2019, and a decrease of 6.8% from the $301.2 million in the fourth quarter of 2019; |
• | Gross profit was $95.8 million, compared to $112.4 million of gross profit in the first quarter of 2019, and $109.4 million in the fourth quarter of 2019; |
• | Gross profit margin was 34.1%, compared to gross profit margin of 37.2% in the first quarter of 2019, and 36.3% in the fourth quarter of 2019; |
• | Net income was $20.2 million, or $0.38 per diluted share, compared to net income of $31.7 million, or $0.62 per diluted share, in the first quarter of 2019, and net income of $47.2 million, or $0.90 per diluted share in the fourth quarter or 2019; and |
• | Cash flow from operations was $53.7 million. Net cash flow was a positive $11.4 million, which includes a paydown of $16.6 million of long-term debt and $14.2 million of capital expenditures. |
Recent Developments
LSC Acquisition
In the third quarter of 2019 we entered into a Share Swap Agreement that provides for the acquisition of Lite-On Semiconductor Corporation (“LSC”) and its subsidiaries by the Company. At the effective date of the transaction, each share of LSC will be converted into the right to receive TWD $42.50 per share in cash, or approximately US $1.39 per share based on March 31, 2020 exchange rates. The aggregate consideration payable by the Company, based on the March 31, 2020 exchange rate, is approximately $426 million. This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing. The acquisition received LSC shareholder approval in October 2019, and Taiwan regulatory approval in March 2020. We anticipate completing the acquisition in the second half of 2020, subject to customary closing conditions and remaining regulatory approvals. We expect to fund the purchase price of the transaction primarily with proceeds from an anticipated new bank financing arrangement.
-21-
COVID-19
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, including the countries in which we operate. The duration and severity of the effects of COVID-19 are currently unknown.
Developments have been occurring rapidly with respect to the spread of COVID-19 and its impact on human health and businesses. New and changing government actions to address the COVID-19 pandemic have been occurring on a daily basis. We have been closely monitoring the COVID-19 pandemic and its impacts and potential impacts on our business. However, because developments with respect to the spread of COVID-19 and its impacts have been occurring so rapidly and because of the unprecedented nature of the pandemic, we are unable to predict the extent and duration of any possible adverse financial impact of COVID-19 on our business, financial condition and results of operations.
We remain focused on the safety and well-being of our stakeholders and on the service of our customers. We will continuously review and assess the rapidly-changing COVID-19 pandemic and its impacts on our customers, our suppliers and our business so that we can seek to address those impacts. In the first quarter of 2020, following the extended Chinese New Year, we delayed the start of our manufacturing production in China and at the end of the first quarter of 2020 we temporarily closed our wafer fabrication facilities located in the United Kingdom. Our operations in China and the United Kingdom have both resumed full production.
As of March 31, 2020, our cash, cash equivalents, and short-term investments were $272.4 million, and we had access to additional borrowing capacity of $250 million under the revolving portion our U.S. Credit Facility, which we believe assures us adequate liquidity to manage the impacts of the COVID-19 pandemic on our business to cover cash needs for working capital and capital expenditures for at least the next 12 months.
Please see “Risk Factors -The ultimate impact of the COVID-19 pandemic outbreak cannot be estimated at this time, but it may have a material adverse effect on our business, financial condition and results of operations.”in Item 1A of this Quarterly Report on Form 10-Q for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.
Results of Operations for the Three Months Ended September 30, 2017March 31, 2020 and 2016
2019
The following table below sets forth the percentage that certain items in the statementscondensed consolidated statement of operations bear toline items as a percentage of net sales.
| Percent of Net Sales |
| Percent of Net Sales |
| ||||||||||
| Three Months Ended September 30, |
| Three Months Ended March 31, |
| ||||||||||
| 2017 |
|
| 2016 |
| 2020 |
|
| 2019 |
| ||||
Net sales |
| 100 | % |
|
| 100 | % |
| 100 | % |
|
| 100 | % |
Cost of goods sold |
| (66 | ) |
|
| (68 | ) |
| (66 | ) |
|
| (63 | ) |
Gross profit |
| 34 |
|
|
| 32 |
|
| 34 |
|
|
| 37 |
|
Total operating expenses |
| 26 |
|
|
| 24 |
| |||||||
Total operating expense |
| 25 |
|
|
| 23 |
| |||||||
Income from operations |
| 8 |
|
|
| 8 |
|
| 9 |
|
|
| 14 |
|
Total other expense |
| (1 | ) |
|
| (2 | ) |
| - |
|
|
| - |
|
Income before income taxes and noncontrolling interest |
| 7 |
|
|
| 6 |
|
| 9 |
|
|
| 14 |
|
Income tax provision |
| (2 | ) |
|
| (2 | ) |
| (2 | ) |
|
| (3 | ) |
Net income |
| 5 |
|
|
| 4 |
|
| 7 |
|
|
| 11 |
|
Net income attributable to common stockholders |
| 5 |
|
|
| 4 |
|
| 7 |
|
|
| 11 |
|
-22-
The following table and discussion explains in greater detail our consolidated operating results and financial condition for the three months ended September 30, 2017,March 31, 2020, compared to the three months ended September 30, 2016.March 31, 2019. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this quarterly report (in thousands).Quarterly Report on Form 10-Q.
| Three Months Ended |
| Three Months Ended |
| ||||||||||||||||||||||||||
| September 30, |
|
|
|
|
|
|
|
|
| March 31, |
|
|
|
|
|
|
|
|
| ||||||||||
| 2017 |
|
| 2016 |
|
| Increase/(Decrease) |
|
| % Change |
| 2020 |
|
| 2019 |
|
| Increase/(Decrease) |
|
| % Change |
| ||||||||
Net sales | $ | 285,247 |
|
| $ | 250,694 |
|
| $ | 34,553 |
|
|
| 13.8 | % | $ | 280,717 |
|
| $ | 302,293 |
|
| $ | (21,576 | ) |
|
| (7.1 | %) |
Cost of goods sold |
| 188,900 |
|
|
| 170,071 |
|
|
| 18,829 |
|
|
| 11.1 | % |
| 184,875 |
|
|
| 189,882 |
|
|
| (5,007 | ) |
|
| (2.6 | %) |
Gross profit |
| 96,347 |
|
|
| 80,623 |
|
|
| 15,724 |
|
|
| 19.5 | % |
| 95,842 |
|
|
| 112,411 |
|
|
| (16,569 | ) |
|
| (14.7 | %) |
Total operating expenses |
| 72,630 |
|
|
| 60,670 |
|
|
| 11,960 |
|
|
| 19.7 | % | |||||||||||||||
Total operating expense |
| 69,990 |
|
|
| 70,288 |
|
|
| (298 | ) |
|
| (0.4 | %) | |||||||||||||||
Interest income |
| 389 |
|
|
| 321 |
|
|
| 68 |
|
|
| 21.2 | % |
| 273 |
|
|
| 875 |
|
|
| (602 | ) |
|
| (68.8 | %) |
Interest expense |
| (3,561 | ) |
|
| (3,684 | ) |
|
| (123 | ) |
|
| (3.3 | %) |
| (1,245 | ) |
|
| (2,145 | ) |
|
| (900 | ) |
|
| (42.0 | %) |
Foreign currency loss, net |
| (1,312 | ) |
|
| (1,439 | ) |
|
| (127 | ) |
|
| (8.8 | %) | |||||||||||||||
Foreign currency gain (loss), net |
| 75 |
|
|
| (64 | ) |
|
| (139 | ) |
|
| (217.2 | %) | |||||||||||||||
Other income |
| 597 |
|
|
| 480 |
|
|
| 117 |
|
|
| 24.3 | % |
| 1 |
|
|
| 1,245 |
|
|
| (1,244 | ) |
|
| (99.9 | %) |
Income tax provision |
| 5,052 |
|
|
| 4,097 |
|
|
| 955 |
|
|
| 23.3 | % |
| 4,556 |
|
|
| 10,298 |
|
|
| (5,742 | ) |
|
| (55.8 | %) |
Net sales increaseddecreased approximately $34.6$21.6 million for the three months ended September 30, 2017,March 31, 2020, compared to the same period last year. This decrease in net sales reflects the global economic slowdown caused by the COVID-19 pandemic. During the three months ended March 31, 2020, the Company delayed reopening its manufacturing facilities in China after the Chinese New Year period that was extended due to the COVID-19 pandemic. Our revenues are also negatively impacted during the first quarter of each year due to seasonality. Also as a result of the COVID-19 pandemic, late in March 2020, the Company temporarily shut down its manufacturing facilities in the United Kingdom. Despite the overall decrease in net sales, the Company experienced continued growth in the automotive and computing end markets during the three months ended March 31, 2020. For the three months ended March 31, 2020, the automotive market represented 11% of total sales.
The table below sets forth our revenue as a percentage of total revenue by end-user market for the three months ended March 31, 2020 and 2019:
| Three Months Ended |
| |||
| March 31, |
| |||
| 2020 |
|
| 2019 |
|
Industrial | 26% |
|
| 29% |
|
Communications | 23% |
|
| 23% |
|
Consumer | 23% |
|
| 23% |
|
Computing | 17% |
|
| 15% |
|
Automotive | 11% |
|
| 10% |
|
Cost of goods sold decreased approximately $5.0 million for the three months ended March 31, 2020, compared to the same period last year, due, to growth across all regions and end markets, continued growth at Pericom and continued improvements in product mix and utilization across the Company’s facilities.
Cost of goods sold increased approximately $18.8 million for the three months ended September 30, 2017, comparedpart, to the same period last year. A portiondecreased net sales during the first quarter of the increase in cost of goods sold was $2.7 million of KFAB inventory that was expensed, as it will not be used in the future, as well as other inventory that was scrapped.2020. As a percent of sales, cost of goods sold was 66%65.9% for the three months ended September 30, 2017March 31, 2020, compared to 68%62.8% for the same period last year. Average unit cost increased 11%approximately 13.0% for the three months ended September 30, 2017,March 31, 2020, compared to the same period last year, partiallyin part due to inventory write-offs.the shutdown of our manufacturing facilities due to the extended Chinese New Year period. For the three months ended September 30, 2017,March 31, 2020, gross profit increaseddecreased approximately 19.5%14.7% when compared to the same period last year. Gross profit margin for the three month periods ended September 30, 2017March 31, 2020 and 20162019 was 33.8%34.1% and 32.2%37.2%, respectively. The increasedecrease in gross
-18-
profit margin was related to improved utilization and product mix, specifically higher revenue contribution from North America, Europe and Pericom products.
reflects the 7.1% decrease in revenue.
Operating expenses for the three months ended September 30, 2017March 31, 2020, decreased approximately $0.3 million, or 0.4%, compared to the three months ended March 31, 2019. Selling, general and administrative expenses (“SG&A”) decreased approximately $1.5 million and research and development expenses (“R&D”) increased approximately $12.0$1.5 million, or 19.7%,each as compared to the same period last year. Selling, general and administrative expenses (“SG&A”) increased approximately $5.2 million and research and development expenses increased (“R&D”) approximately $3.3 million. Amortization of acquisition related intangibles decreased approximately $0.4$0.3 million, reflectingcompared to the full amortization of a portion of our intangible assets.same period last year. SG&A, as a percentage of sales, was 15.3%15.0% and 14.5% for the three months ended September 30, 2017March 31, 2020 and 2016.2019, respectively. R&D, as a percentage of sales, was 7.1%8.4% and 6.8%7.3% for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The three months ended September 30, 2017 included $4.0 million of restructuring and asset impairment related to the shut down and relocation of the KFAB facility.
-23-
Interest income was relatively flatdecreased 68.8% for the three months ended September 30, 2017March 31, 2020, compared to the same period last year, due to a reduction in short-term investments. Interest expense decreased 42.0% for the three months ended March 31, 2020, compared to the same period last year. The decrease in interest expense for the three months ended September 30, 2017March 31, 2020 was due to lower levels of debt partially offset by higheralong with lower interest rates on the floating rate portion of the borrowings to effect the Pericom acquisition. Expense related to foreign currency changes decreased $0.1 million reflecting currency hedges partially offset by losses due to stronger European currencies and the Taiwan dollar, when compared to the U.S. dollar.
our debt.
We recognized an income tax expense of approximately $5.1$4.6 million and $4.1$10.3 million for the three months ended September 30, 2017March 31, 2020 and 2016,2019, respectively. The increasedecrease in income taxes for 20172020 compared to 2016 is2019 was primarily attributable to thea decrease in pretax book income, a decrease in non-U.S. withholding taxes and a net increase in pretax net income.
Results of Operations for the Nine months Ended September 30, 2017 and 2016
The following table sets forth the percentage that certain items in the statements of operations bear to net sales.
| Percent of Net Sales | ||
| Nine Months Ended September 30, | ||
| 2017 |
| 2016 |
Net sales | 100% |
| 100% |
Cost of goods sold | (67) |
| (69) |
Gross profit | 33 |
| 31 |
Total operating expenses | 26 |
| 26 |
Income from operations | 7 |
| 5 |
Total other income (expense) | (2) |
| (2) |
Income before income taxes and noncontrolling interest | 5 |
| 3 |
Income tax provision | (1) |
| (1) |
Net income | 4 |
| 2 |
Net income attributable to common stockholders | 4 |
| 2 |
The following table and discussion explains in greater detail our consolidated operating results and financial condition for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this quarterly report (in thousands).
| Nine Months Ended | ||||||
| September 30, |
|
|
|
| ||
| 2017 |
| 2016 |
| Increase/(Decrease) |
| % Change |
Net sales | $ 785,774 |
| $ 710,077 |
| $ 75,697 |
| 10.7% |
Cost of goods sold | 525,377 |
| 490,417 |
| 34,960 |
| 7.1% |
Gross profit | 260,397 |
| 219,660 |
| 40,737 |
| 18.5% |
Total operating expenses | 203,495 |
| 186,975 |
| 16,520 |
| 8.8% |
Interest income | 992 |
| 1,075 |
| (83) |
| (7.7%) |
Interest expense | (10,493) |
| (9,880) |
| 613 |
| 6.2% |
Foreign currency loss, net | (6,734) |
| (2,045) |
| 4,689 |
| 229.3% |
Other income | 1,128 |
| 551 |
| 577 |
| 104.8% |
Income tax provision | 11,651 |
| 5,941 |
| 5,710 |
| 96.1% |
-19-
Net sales increased approximately $75.7 million for the nine months ended September 30, 2017, compared to the same period last year, due to growth across all regions and end markets, continued growth at Pericom and continued improvements in product mix and utilization across the Company’s facilities.
Cost of goods sold increased approximately $35.0 million for the nine months ended September 30, 2017, compared to the same period last year. A portion of the increase in cost of goods sold was $2.7 million of KFAB inventory that was expensed, as it will not be used in the future, and other inventory that was scrapped. Cost of goods was positively impacted in 2017 by receipt of $3.7 million of business interruption insurance and $0.5 million of inventory insurance recovery received related to the fire at KFAB. As a percent of sales, cost of goods sold was 66.9% for the nine months ended September 30, 2017 compared to 69.1% for the same period last year. Average unit cost increased 3% for the nine months ended September 30, 2017, compared to the same period last year, partially due to inventory write-off costs at KFAB. For the nine months ended September 30, 2017, gross profit increased approximately 18.5% when compared to the same period last year. Gross profit margin for the nine month periods ended September 30, 2017 and 2016 was 33.1% and 30.9%, respectively.
Operating expenses for the nine months ended September 30, 2017 increased approximately $16.5 million, or 8.8%, compared to the same period last year. SG&A and increased approximately $3.7 million and R&D increased approximately $6.0 million. Amortization of acquisition related intangibles decreased approximately $1.3 million reflecting the full amortization of a portion of our intangible assets. SG&A, as a percentage of sales, was 15.6% and 16.8% for the nine months ended September 30, 2017 and 2016, respectively. R&D, as a percentage of sales, was 7.4% for the nine months ended September 30, 2017 and 2016. The nine months ended September 30, 2017, included $8.1 million of restructuring and asset impairment related to the shut down and relocation of the KFAB facility.
Interest income decreased for the nine months ended September 30, 2017 due to a lower amount of invested funds. The increase in interest expense for the nine months ended September 30, 2017 is due to higher interest rates, partially offset by lower amounts of borrowed funds. Expense related to foreign currency changes increased $4.7million due to stronger European currencies and the Taiwan dollar, when compared to thefavorable U.S. dollar, partially offset by foreign currency hedges.
We recognized an income tax expense of approximately $11.7 million for the nine months ended September 30, 2017 and approximately $5.9 million for the nine months ended September 30, 2016. The increase in income taxes for 2017 compared to 2016 is attributable to the increase in pretax net income.
permanent differences.
Financial Condition
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, funds from operations and, if necessary, borrowings under our credit facilities.
Short-term debt
Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $162.8 million. At March 31, 2020, outstanding borrowings were $13.4 million and outstanding letters of credit were $0.4 million under the Asia credit facilities. Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted, repayable on demand, terminable by the lender at any time and contain no restrictive covenants. These credit facilities bear interest at LIBOR or similar indices plus a specified margin. Interest payments are due monthly on outstanding amounts under the credit lines.
Long-term debt
We currently have a U.S. banking credit facility (the “U.S. Credit Facility”) under which we may draw up to $250 million on a revolving basis, in addition to a $250 million term loan included in the U.S. Credit Facility.loan. The U.S. Credit Facility matures October 26, 2021. The remaining portion of the term loan portion of the U.S. Credit Facility is repayable in part through quarterly installments that increase over time from $3.1$7.8 million per quarter in the current yearfirst three quarters of the U.S. Credit Facility2020 to $9.4 million per quarter in the final year of the U.S. Credit Facility. We may, from time to time, request increases in the aggregate commitments under the U.S. Credit Facility of up to $200 million, subject to the lenders electing to increase their commitments or by means of the addition of new lenders, and subject to at least half of each increase in aggregate commitments being in the form of term loans, with the remaining amount of each increase being an increase in the amount of the revolving portion of the U.S. Credit Facility. The U.S. Credit Facility bears interest at LIBOR or similar indices plus a specified margin. The U.S. Credit Facility contains certain financial and non-financial covenants, including, but not limited to, a maximum consolidated leverage ratio, a minimum consolidated fixed charge coverage ratio, and restrictions on liens, indebtedness, investments, fundamental changes, dispositions, and restricted payments (including dividends and share repurchases). At September 30, 2017, we owed $326.5 millionThe obligations of the Company and the other borrowers under the U.S. Credit Facility $145.0 millionare secured by substantially all of which was drawn under the revolving portionassets of the Company, including controlling interests in its first-tier subsidiaries, and $181.5 millionby specified assets of which was outstanding under the term loan.
certain of its subsidiaries. In addition to our U.S. Credit Facility, we maintain credit facilities, with several financial institutionsour 51% owned subsidiary, ERIS Technology Corporation (“ERIS”), borrowed $13.4 million through our foreign entities worldwide totaling $66.1 million. As of September 30, 2017,a short term loan and $26.5 million on a long-term basis from local Taiwan banks in additionorder to make an investment. The ERIS debt has the U.S. Credit Facility, our Asia subsidiaries had unusedfollowing maturities: $0.2 million in 2020, $4.5 million in 2021, $4.9 million in 2022, $1.6 million in 2023, $12.6 million in 2024 and available credit lines of up to an aggregate of approximately $63.2$2.7 million with several financial institutions. In some cases, our foreign credit lines are unsecured, uncommitted and may be repayable on demand. Our foreign credit lines include two Taiwanese credit facilities that are collateralized by assets. Our foreign credit lines bear interest at LIBOR or similar indices plus a specified margin. At September 30, 2017, $1.9 million was outstanding on these credit lines. We also have a note payable to a bank located in Taiwan with a variable interest rate maturing July 6, 2021. At September 30, 2017, approximately $1.3 million was outstanding under this loan.
thereafter.
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The details of our borrowings outstanding as of March 31, 2020 are set forth in the table below:
Description | Amount outstanding | Interest Rate | Maturity Date | |||
Short-term debt: | ||||||
Foreign credit lines | $13,397 | Libor or other similar indices plus a specified margin | Various during 2020 - 2021 | |||
Long-term debt | ||||||
Notes payable to Bank of Taiwan | 4,135 | Two-year savings rate +1..3% | June 2033 | |||
Notes payable to CTBC Bank | 19,054 | TAIBOR 3 month rate +.05% | May 2024 | |||
Notes payable to East Sun Bank | 3,308 | 1-M deposit rate + 0.08% | December 2022 | |||
U.S. Credit facility: | ||||||
Revolving portion | - | Libor + a specified margin | October 2021 | |||
Term portion | 55,375 | Libor + a specified margin | October 2021 | |||
Total long-term debt | 81,872 | |||||
Less: Current portion of long-term debt | (34,676) | |||||
Less: Unamortized debt issuance costs | (1,185) | |||||
Total long-term debt, net of current portion | $46,011 |
Our primary liquidity requirements have been to meet our inventory and capital expenditure needs and to fund on-going operations. At September 30, 2017March 31, 2020 and December 31, 2016,2019, our working capital was $476.3$532.3 million and $547.4$524.6 million, respectively. We expect cash generated by our operations together with existing cash, cash equivalents, short-term investments and available credit facilities to be sufficient to cover cash needs for working capital and capital expenditures for at least the next 12 months.
Capital expenditures (including accrued capital expenditures) for the ninethree months ended September 30, 2017March 31, 2020 and 20162019 were $81.9$12.6 million and $47.1$16.3 million, respectively. Capital expenditures in 2017 relate to capacity expansion in our Shanghai and Chengdu assembly and test facilities as well as the eight inch fabrication equipment upgrade in our wafer fabrication facility in Shanghai. For the first ninethree months of 20172020 capital expenditures were approximately 10.4%4.5% of our net sales, which is abovein slightly below our capital spending target range of 5% to 9% of net sales, due to increased capital expenditures in our Asian operations.sales.
We intend to permanently reinvest overseas all of our earnings from our foreign subsidiaries, except to the extent such undistributed earnings have previously been subject to U.S. tax; accordingly, deferred U.S. taxes are not recorded onOur undistributed foreign earnings.earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of certain European and Asian subsidiaries. As of September 30, 2017,March 31, 2020, our foreign subsidiaries held approximately $203.8$143.6 million of cash, cash equivalents and investments of which approximately $129.6$21.4 million would be subject to a potential non-U.S. withholding and/or U.S. income tax if repatriated todistributed outside the U.S. as dividends.country in which the cash is currently held. Of this total, $9.2 million is held in China.
As of September 30, 2017,March 31, 2020, we had short-term investments totaling $12.7$2.9 million. These investments are highly liquid with maturity dates greater than three months at the date of purchase. We generally can access these investments in a relatively short time frame but in doing so we generally forfeit all earned and future interest income.
Share Repurchase Program
During 2015, our Board of Directors (“Board”) approved a stock repurchase program. The Board authorized the repurchase of up to an aggregate of $100.0 million of our outstanding Common Stock, $0.66 2/3 par value per share. The share repurchase program is expected to continue through the end of 2019 unless extended or shortened by the Board. Currently there is approximately $71.0 million available for repurchase of outstanding common stock under this publicly announced repurchase program. No shares were repurchased during the three months ended September 30, 2017.
Discussion of Cash Flow
Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are cash and cash equivalents, short-term investments and our credit facilities. Our primary cash and cash equivalents decreasedincreased from $247.8$258.4 million at December 31, 20162019 to $201.2$269.5 million at September 30, 2017.
March 31, 2020.
The table below sets forth a summary of the condensed consolidated statements of cash flows:
| Nine Months Ended September 30, | ||||
| 2017 |
| 2016 |
| Change |
Cash flows from operating activities | $ 106,340 |
| $ 74,935 |
| $ 31,405 |
Net cash and cash equivalents used in investing activities | (64,413) |
| (19,811) |
| (44,602) |
Net cash and cash equivalents used in financing activities | (97,846) |
| (54,288) |
| (43,558) |
Effect of exchange rate changes on cash and cash equivalents | 9,343 |
| 1,255 |
| 8,088 |
Net increase (decrease) in cash and cash equivalents | $ (46,576) |
| $ 2,091 |
| $ (48,667) |
| Three Months Ended March 31, |
| |||||||||
| 2020 |
|
| 2019 |
|
| Change |
| |||
Net cash flows provided by operating activities | $ | 53,675 |
|
| $ | 69,889 |
|
| $ | (16,214 | ) |
Net cash and cash equivalents used in investing activities |
| (17,558 | ) |
|
| (17,152 | ) |
|
| (406 | ) |
Net cash and cash equivalents (used in) provided by financing activities |
| (21,397 | ) |
|
| 9,627 |
|
|
| (31,024 | ) |
Effect of exchange rate changes on cash and cash equivalents |
| (3,315 | ) |
|
| (1,890 | ) |
|
| (1,425 | ) |
Net increase in cash and cash equivalents, including restricted cash | $ | 11,405 |
|
| $ | 60,474 |
|
| $ | (49,069 | ) |
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Operating Activities
Net cash flows provided by operating activities for the ninethree months ended September 30, 2017March 31, 2020 was $106.3$53.7 million. Net cash flowflows provided by operating activities for the three months ended March 31, 2020 resulted from net income of $20.4 million, depreciation and amortization of intangible assets of $27.0 million, share-based compensation of $4.7 million and an increase in noncash working capital accounts of $0.8 million. Net cash flows provided by operating activities for the three months ended March 31, 2019 was $69.9 million. Net cash flows provided by operating activities resulted from net income of $30.1$31.7 million, depreciation and amortization of $70.2intangible assets of $26.6 million, share-based compensation of $13.9$4.5 million and a decreasean increase in noncash working capital accounts of $7.7$7.3 million.
Investing Activities
Net cash provided by operating activities for the nine months ended September 30, 2016 was $74.9 million. Net cash flow provided by operating activities resulted from net income of $16.4 million, depreciation and amortization of $74.4 million and share-based compensation of $12.8 million. These cash and cash equivalents provided by operations were partially offset by a decrease in working capital.
Investing Activities
Net cash used in investing activities was $64.4$17.6 million for the ninethree months ended September 30, 2017, compared to netMarch 31, 2020. Net cash used in investing activities of $19.8 million for the same period last year. Netand cash equivalents used in investing activities was primarily due to the purchase of property, plant and equipment of $81.9$14.2 million and purchasesthe additional investment by the Company’s subsidiary ERIS in Yea-Shin of $6.1 million, bring ERIS’ ownership of Yea-Shin to approximately 97%. These outflows of cash were partially offset by net proceeds from the maturity of short-term investments of $9.7$1.9 million partially offset
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by $27.9 million of proceeds received uponfor the maturity of short-term investments. three months ended March 31, 2020. Net cash and cash equivalents used in investing activities duringfor the ninethree months ended September 30, 2016,March 31, 2019 was primarily due to the purchase of property, plant and equipment of $47.1$18.6 million, and purchasespartially offset by net proceeds received by the sale of short-term investments of $17.5 million, partially offset by proceeds received on the maturity of short-term investments of $46.4$0.8 million.
Financing Activities
Net cash and cash equivalents used in financing activities was $21.4 million for the three months ended March 31, 2020. Net cash used in financing activities was $97.8 million forin the ninethree months ended September 30, 2017, compared to net cash used in financing activities of $54.3 million in the same period last year. Net cash used in 2017March 31, 2020 consisted primarily of $16.6 million net repayments of long-term debt and taxes paid on net share settlement of $109.6$4.5 million. Net cash and cash equivalents provided by financing activities was $9.6 million for the three months ended March 31, 2019. Net cash and paymentcash equivalents provided in the three months ended March 31, 2019 consisted primarily of dividends to noncontrolling interests of $5.8 million, partially offset by proceeds from the issuance of commonCommon Stock related to stock option exercises of $6.9$6.7 million and increases under our line of credit and short-term debt of $3.6 million. Net
Use of Derivative Instruments and Hedging
We use interest rate swaps, foreign exchange forward contracts and cross currency swaps to provide a level of protection against interest rate risks and foreign exchange exposure.
Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps, including interest rate collars, as part of its interest rate risk management strategy. Interest rate swaps designated as cash usedflow hedges involve the receipt of variable amounts from a counterparty in 2016 consisted primarilyexchange for the Company making fixed-rate payments over the life of repaymentsthe agreements without exchange of long-term debt. the underlying notional amount.
Hedges of Foreign Currency Risk
We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency forward agreements to manage this exposure and to preserve the economic value of foreign currency denominated monetary assets and liabilities; these instruments are not designated for hedge accounting treatment in accordance with ASC 815. The fair value of our foreign exchange hedges approximates zero.
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements andor other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provide off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in leasing, swap agreements, or outsourcing of research and development services that could expose us to liability that is not reflected on the face of our financial statements.
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Contractual Obligations
There have been no material changes in any of our contractual obligationsContractual Obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019, filed with the SEC on February 27, 2016.
12, 2020.
Critical Accounting Policies
No material changes were made to the Company’sOur critical accounting policies as set forthare described in “Item 7.Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included and in the notes to our consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019 filed with the SEC on February 27, 2016.
12, 2020. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q in Note 1 – Summary of Operations and Significant Accounting Policies. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
Recently Issued Accounting Pronouncements
See Note 1 - NatureSummary of Operations Basis of Presentation and Recently IssuedSignificant Accounting PronouncementsPolicies, of the Notes to Condensed Consolidated Financial Statements, for detailed information regarding the status of recently issued accounting pronouncements.
Available Information
Our Internet address is http://www.diodes.com. Information included on, or accessible through, our website shall not be deemed to form a part of the Quarterly Report on Form 10-Q. We make available, free of charge through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).SEC. Our website also provides access to investor financial information, including SEC filings and press releases, as well as stock quotes and information on corporate governance compliance.
Cautionary Statement for Purposes of the “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995
Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.1934. We generally identify forward-looking statements by the use of terminology such as “may,” “will,” “could,” “should,” “potential,” “continue,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” or similar phrases or the negatives of such terms. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed under “Risks“Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, and in other reports we file with the SEC from time to time, that could cause actual results to differ materially from those anticipated by our management. The Private Securities Litigation Reform Act of 1995 (the “Act”)PSLRA provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act.PSLRA.
All forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to, in addition to the other matters described in this Quarterly Report on Form 10-Q, a variety of significant risks and uncertainties. The following discussion
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highlights some of these risks and uncertainties. Further, from time to time, information provided by us or statements made by our employees may contain forward-looking information. There can be no assurance that actual results or business conditions will not differ materially from those set forth or suggested in such forward-looking statements as a result of various factors, including those discussed below.
For more detailed discussion of these factors, see the “Risk Factors” discussion in Item 1A of our most recent Annual Report on Form 10-K as filed with the SEC and in Part II, Item 1A of this report.report The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.
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Risk Factors
RISKS RELATED TO OUR BUSINESS
The success of our business depends on the strength of the global economy and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating results and financial condition.
During times of difficult market conditions, our fixed costs combined with lower net sales and lower profit margins may have a negative impact on our business, operating results and financial condition.
Downturns in the highly cyclical semiconductor industry or changes in end-market demand could adversely affect our operating results and financial condition.
The semiconductor business is highly competitive, and increased competition may harm our business, operating results and financial condition.
One of our external suppliers is also a related party. The loss of this supplier could harm our business, operating results and financial condition.
Delays in initiation of production at facilities due to implementing new production techniques or resolving problems associated with technical equipment malfunctions could adversely affect our manufacturing efficiencies, operating results and financial condition.
We are and will continue to be under continuous pressure from our customers and competitors to reduce the price of our products, which could adversely affect our growth and profit margins.
Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales and may demand to audit our operations from time to time. A failure to qualify a product or a negative audit finding could adversely affect our net sales, operating results and financial condition.
Our customer orders are subject to cancellation or modification usually with no penalty. High volumes of order cancellation or reduction in quantities ordered could adversely affect our net sales, operating results and financial condition.
Production at our manufacturing facilities could be disrupted for a variety of reasons, including natural disasters and other extraordinary events, which could prevent us from producing enough of our products to maintain our sales and satisfy our customers’ demands and could adversely affect our operating results and financial condition.
New technologies could result in the development of new products by our competitors and a decrease in demand for our products, and we may not be able to develop new products to satisfy changes in demand, which would adversely affect our net sales, market share, operating results and financial condition.
We may be adversely affected by any disruption in our information technology systems, which could adversely affect our cash flows, operating results and financial condition.
We may be subject to claims of infringement of third-party intellectual property rights or demands that we license third-party technology, which could result in significant expense, reduction in our intellectual property rights and a negative impact on our business, operating results and financial condition.
We depend on third-party suppliers for timely deliveries of raw materials, manufacturing services, product and process development, parts and equipment, as well as finished products from other manufacturers, and our reputation with customers, operating results and financial condition could be adversely affected if we are unable to obtain adequate supplies in a timely manner.
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If we do not succeed in continuing to vertically integrate our business, we will not realize the cost and other efficiencies we anticipate, which could adversely affect our ability to compete, our operating results and financial condition.
Part of our growth strategy involves identifying and acquiring companies. We may be unable to identify suitable acquisition candidates or consummate desired acquisitions and, if we do make any acquisitions, we may be unable to successfully integrate any acquired companies with our operations, which could adversely affect our business, operating results and financial condition.
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We are subject to litigation risks, including securities class action litigation and intellectual property litigation, which may be costly to defend and the outcome of which is uncertain and could adversely affect our business and financial condition.
We are subject to many environmental laws and regulations that could result in significant expenses and could adversely affect our business, operating results and financial condition.
Our products, or products we purchase from third parties for resale, may be found to be defective and, as a result, warranty claims and product liability claims may be asserted against us and we may not have recourse against our suppliers, which may harm our business, reputation with our customers, operating results and financial condition.
We may fail to attract or retain the qualified technical, sales, marketing, finance and management/executive personnel required to operate our business successfully, which could adversely affect our business, operating results and financial condition.
We may not be able to achieve future growth, and any such growth may place a strain on our management and on our systems and resources, which could adversely affect our business, operating results and financial condition.
Obsolete inventories as a result of changes in demand for our products and change in life cycles of our products could adversely affect our business, operating results and financial condition.
If OEMsour direct sales customers do not design our products into their applications, our net sales may be adversely affected.
We are subject to interest rate risk that could have an adverse effect on our cost of working capital and interest expenses, which could adversely affect our business, operating results and financial condition.
Our hedging strategies may not be successful in mitigating our risks associated with interest rates or foreign exchange exposure or our counterparties might not perform as agreed.
We may have a significant amount of debt with various financial institutions worldwide. Any indebtedness could adversely affect our business, operating results, financial condition and our ability to meet payment obligations under such debt.
Restrictions in our credit facilities may limit our business and financial activities, including our ability to obtain additional capital in the future.
Our business benefits from certain Chinese government incentives. Expiration of, or changes to, these incentives could adversely affect our operating results and financial condition.
We operate a global business through numerous foreign subsidiaries, and there is a risk that tax authorities will challenge our transfer pricing methodologies or legal entity structures, which could adversely affect our operating results and financial condition.
The value of our benefit plan assets and liabilities is based on estimates and assumptions, which may prove inaccurate and the actual amount of expenses recorded in the consolidated financial statements could differ materially from the assumptions used.
Changes in actuarial assumptions for our defined benefit plan could increase the volatility of the plan’s asset value, require us to increase cash contributions to the plan and have a negative impact on our cash flows, operating results and financial condition.
Certain of our customers and suppliers require us to comply with their codes of conduct, which may include certain restrictions that may substantially increase our cost of doing business as well as have an adverse effect on our operating efficiencies, operating results and financial condition.
Compliance with government regulations and customer demands regarding the use of “conflict minerals” “conflict minerals” may result in increased costs and may have a negative impact on our business, operating results and financial condition.
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There are risks associated with previous and future acquisitions. We may ultimately not be successful in overcoming these risks or any other problems encountered in connection with acquisitions.
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If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal control over financial reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the trading price of our Common Stock.
Terrorist attacks, or threats or occurrences of other terrorist activities, whether in the U.S. or internationally, may affect the markets in which our Common Stock trades, the markets in which we operate and our operating results and financial condition.
System security risks, data protection breaches, cyber-attacks and other related cybersecurity issues could disrupt our internal operations, and any such disruption could reduce our expected net sales, increase our expenses, damage our reputation and adversely affect our stock price.
RISKS RELATED TO OUR INTERNATIONAL OPERATIONS
Our international operations subject us to risks that could adversely affect our operations.
We have significant operations and assets in China, the U.K., Germany, Hong Kong and Taiwan and, as a result, will be subject to risks inherent in doing business in those jurisdictions, which may adversely affect our financial performance and operating results.
Significant uncertainties related to changes in governmental policies and participation in international trading partnerships or economic unions currently exist, and, depending upon how such uncertainties are resolved, the changes could have a material adverse effect on us.
Tariffs or other restrictions imposed by the United States Trade Representative may affect our operations in the U.S., may disrupt our activities in the U.S., may have an adverse impact on our profitability and results of operations and may encourage the independent development in China of products and electronic components that will compete with or displace our products and components, resulting in an adverse impact on our Chinese business.
The U.K.’s exit from the European Union (“E.U.”) will continue to have uncertain effects and could adversely impact our business, results of operations and financial condition.
A slowdown in the Chinese economy could limit the growth in demand for electronic devices containing our products, which would have a material adverse effect on our business, operating results and prospects.
Economic regulation in China could materially and adversely affect our business, operating results and prospects.
We could be adversely affected by violations of the United States’ Foreign Corrupt Practices Act, the U.K.’s Bribery Act 2010, China’s anti-corruption campaign and similar worldwide anti-bribery laws.
We are subject to foreign currency risk as a result of our international operations.
China is experiencing rapid social, political and economic change, which has increased labor costs and other related costs that could make doing business in China less advantageous than in prior years. Increased labor costs in China could adversely affect our business, operating results and financial condition.
We may not continue to receive preferential tax treatment in Asia, thereby increasing our income tax expense and reducing our net income.
The distribution of any earnings of ourcertain foreign subsidiaries to the U.S. may be subject to U.S. federal and stateforeign income taxes, thus reducing our net income.
We could be adversely affected by the compromise or theft of our technology, know-how, data or intellectual property or a requirement that we yield rights in technology, know-how, data stored in foreign jurisdictions or intellectual property that we use in such foreign jurisdictions.
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RISKS RELATED TO OUR COMMON STOCK
Variations in our quarterly operating results may cause our stock price to be volatile.
We may enter into future acquisitions and take certain actions in connection with such acquisitions that could adversely affect the price of our Common Stock.
Our directors, executive officers and significant stockholders hold a substantial portion of our Common Stock, which may lead to conflicts with other stockholders over corporate transactions and other corporate matters.
We were formed in 1959, and our early corporate records are incomplete. As a result, we may have difficulty in assessing and defending against claims relating to rights to our Common Stock purporting to arise during periods for which our records are incomplete.
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Non-cash tender offers, debt equity swaps or equity exchanges to consummate our business activities are likely to have the effect of diluting the ownership interest of existing stockholders, including qualified stockholders who receive shares of our Common Stock in such business activities.
Anti-takeover effects of certain provisions of Delaware law and our Certificate of Incorporation and Bylaws, may hinder a take-over attempt.
Section 203 of Delaware General Corporation Law may deter a take-over attempt.
Certificate of Incorporation and Bylaw Provisions may deter a take-over attempt.
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ItemItem 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, filed with the SEC on February 27, 2017.12, 2020.
Item 4. Controls and Procedures.
Our Chief Executive Officer, Keh-Shew Lu, and Chief Financial Officer, Richard D. White,Brett R. Whitmire, with the participation of our management, carried out an evaluation, as of September 30, 2017,March 31, 2020, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).) Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be included in this report is:
• | recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms; and |
recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms; and
accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions on required disclosure.
• | accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions on required disclosure. |
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.
Changes in Controls over Financial Reporting
There was no change in our internal control over financial reporting, known to our Chief Executive Officer or Chief Financial Officer, that occurred in the three months ended September 30, 2017, whichMarch 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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The Company is not currently a party to any pending litigation that we consider material.
Fromtimetotime,weareinvolvedinvariouslegalproceedingsthatariseinthenormalcourseofbusiness.Whileweintendto defendanylawsuitvigorously,wepresentlybelievethattheultimateoutcomeofanypendinglegalproceedingwillnothave anymaterialadverseeffectonourfinancialposition,cashflowsoroperatingresults.However,litigationissubjecttoinherent uncertainties,andunfat the vorablerultilingscouldoccur.Anunfavorablerulingcouldincludemonetarydamate outcges,whichcouldimpactome of any current pending legal proceeding will not have any material adverse effect on our financial position, cash flows or operating results. However, litigation busis subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact our business and operating results for theperiodinwhich the period in which the ulingoccuruling occurs orfutureperiods.
ThereExcept as identified in the additional Risk Factor set out below, there have been no material changes from theto our risk factors from those disclosed in the “Risk Factors”"Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019, filed with the SECSecurities and Exchange Commission on February 27, 2017, other than the modification12, 2020.
The ultimate impact of the COVID-19 pandemic outbreak cannot be estimated at this time, but it may have a material adverse effect on our business, financial condition and results of operations.
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration, severity of its effects and ultimate impact to the world’s population and financial impact are currently unknown. National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and ordering businesses to close or limit operations and ordering people to stay at home (i.e., shelter in place).
Given these governmental actions, there is no assurance that we will be permitted to operate under every future government order or other restriction and in every location where we maintain operations and may be required to limit our operations at, or close, certain locations in the future. Any such long-term limitations or closures would have a material adverse impact on our ability to service our customers and on our business, financial condition and results of operations. In particular, any long-term limitations on, or long-term closures of, our manufacturing facilities in Asia or Europe would have a negative adverse impact on our ability to manufacture, sell and ship products and service customers and would have a material adverse impact on our business, financial condition and results of operations.In the first quarter of 2020, following risk factorthe extended Chinese New Year, we delayed the start of our manufacturing production in China and at the end of the first quarter of 2020 we temporarily closed our wafer fabrication facilities located in the United Kingdom. As of the date of this report, our operations in China and the United Kingdom have both resumed full production. However, we can provide no assurances that those facilities or any of our other facilities may not suffer similar closures or disruptions in the future.
While the Company has already experienced negative impacts from the COVID-19 pandemic to its results of operations, cash flows and financial condition, in light of the current level of uncertainty over the economic and operational impacts of COVID-19 we cannot reasonably estimate the total impact that COVID-19 will have on our results of operations, cash flows or financial condition at this time. Risks and complications in the Company’s business from COVID-19 include, but are not limited to, changes in ordering patterns and demand for our products and losses in efficiency due to travel limitations and regulations compelling employees to work from home. While the Company has not experienced a material increase in technology spending, if employees are forced to continue working remotely it could become necessary to increase information technology spending. Although the Company has not experienced a significant business disruption due to teleworking arrangements, the imposition of increased self-isolation protocols could negatively impact the ability of employees to travel to the Company’s production facilities and possibly create ongoing business disruptions. The limitations could negatively affect the Company’s ability to produce, sell and transport its products. The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the usereported amounts of foreign currency hedges intended to mitigateassets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; equity investment valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; the allowance for doubtful accounts; measurement of compensation cost for certain share-based awards and cash bonus plans; and pension plan assumptions. In addition, depending on the extent and duration of the COVID-19 pandemic, healthcare insurance premiums could increase, increasing our exposures to foreign currency fluctuations.healthcare costs.
-33-
We are subjectIn addition, the COVID-19 pandemic may cause disruptions, and in some cases severe disruptions, to foreign currency riskthe business and operations of our suppliers and customers as a result of our international operations.
We face exposure to adverse movements in foreign currency exchange rates, principally the Chinese Yuan, the Taiwanese dollar, the Euroquarantines, worker absenteeism as a result of illness or other factors, social distancing measures and the British Pound Sterling and, to a lesser extent, the Japanese Yen and the Hong Kong dollar. Our income and expenses are based on a mix of currencies and a decline in one currency relative to the other currencies could adversely affect our operating results. Furthermore, our operating results are reported in U.S. dollars, which is our reporting currency. In the event the U.S. dollar weakens against a foreign currency, we will experience a currency transaction loss, which could adversely affect our operating results. Also, fluctuations in foreign currency exchange rates may have an adverse impact and be increasingly influential to our overall sales, profits and operating results as amounts that are measured in foreign currency are translated back to U.S. dollars for reporting purposes. Our foreign currency risk may change over time as the level of activity in foreign markets grows and could have an adverse impact upon our financial results, especially if the portiontravel, health-related, business or other restrictions. Certain of our sales attributablecustomers and suppliers may in the future be required to Europe increases. We have taken,close down or operate at a lower capacity, which would adversely impact our business, financial condition and plan to continue to take, efforts to mitigateresults of operations. Because of the rapid onset of the COVID-19 pandemic, some of our foreign currency exposurecustomers could experience financial difficulties resulting in such customers being unable to pay for products they ordered from us before the COVID-19 pandemic emerged. There can be no assurance that any decrease in sales resulting from the COVID-19 pandemic will be offset by entering into foreign exchange hedging agreements with financial institutions to reduce exposures to some of the principal currencies in countries in which we conductincreased sales acquire raw materials, build products and make capital investments but these efforts may not be successful. In this regard, these hedging agreements do not cover all currencies in which we do business, do not eliminate foreign currency risk entirely for the currencies that they do cover, and involve costs and risks of their own in the form of transaction costs, credit requirements and counterparty risk.future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
-2834-
Number |
| Description |
| Form |
| Date of First Filing |
| Exhibit |
| Filed |
| Description |
| Form |
| Date of First Filing |
| Exhibit |
| Filed |
3.1 |
|
|
|
10-Q |
|
May 10, 2013 |
|
3.1 |
|
|
|
|
|
10-K |
|
February 20, 2018 |
|
3.1 |
|
|
3.2 |
|
|
|
8-K |
|
January 11, 2016 |
|
3.1 |
|
|
|
|
|
8-K |
|
January 11, 2016 |
|
3.1 |
|
|
4.1 |
|
Form of Certificate for Common Stock, par value $0.66 2/3 per share |
|
S-3 |
|
August 25, 2005 |
|
4.1 |
|
|
|
Form of Certificate for Common Stock, par value $0.66 2/3 per share |
|
S-3 |
|
August 25, 2005 |
|
4.1 |
|
|
10.1* |
|
2013 Equity Incentive Plan (As Amended and Restated on May 3, 2017) |
|
S-8 |
|
August 12, 2017 |
|
99.1 |
|
| ||||||||||
10.1 |
| Consent and Amendment No. 4 to Amended and Restated Credit Agreement |
|
|
|
|
|
|
|
X | ||||||||||
10.2 |
|
Consent and Amendment No. 5 to Amended and Restated Credit Agreement and Limited Waiver |
|
|
|
|
|
|
|
X | ||||||||||
31.1 |
|
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
X | |
31.2 |
| Certification Pursuant to Rule 13a-14(a) /15d-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
X |
32.1** |
|
|
|
|
|
|
|
|
|
X | ||||||||||
32.2** |
|
|
|
|
|
|
|
|
|
X | ||||||||||
32.1* |
|
|
|
|
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|
|
|
|
X | ||||||||||
32.2* |
|
|
|
|
|
|
|
|
|
X | ||||||||||
101.INS |
|
XBRL Instance Document |
|
|
|
|
|
|
|
X |
|
Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
X |
101.SCH |
|
XBRL Taxonomy Extension Schema |
|
|
|
|
|
|
|
X |
|
Inline XBRL Taxonomy Extension Schema |
|
|
|
|
|
|
|
X |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
|
|
|
|
X |
|
Inline XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
|
|
|
|
X |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
X |
|
Inline XBRL Taxonomy Extension Definition Linkbase |
|
|
|
|
|
|
|
X |
101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase |
|
|
|
|
|
|
|
X |
|
Inline XBRL Taxonomy Extension Labels Linkbase |
|
|
|
|
|
|
|
X |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase |
|
|
|
|
|
|
|
X |
|
Inline XBRL Taxonomy Extension Presentation Linkbase |
|
|
|
|
|
|
|
X |
104 |
| Cover Page Interactive Data File, formatted in Inline XBRL |
|
|
|
|
|
|
|
X |
* |
|
| A certification furnished pursuant to Item 601(b) |
PLEASE NOTE: It is inappropriate for investors to assume the accuracy of any covenants, representations or warranties that may be contained in agreements or other documents filed as exhibits to this Quarterly Report on Form 10-Q. In certain instances the disclosure schedules to such agreements or documents contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants. Moreover, some of the representations and warranties may not be complete or accurate as of a particular date because they are subject to a contractual standard of materiality that is different from those generally applicable to stockholders and/or were used for the purpose of allocating risk among the parties rather than establishing certain matters as facts. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts at the time they were made or otherwise.
-2935-
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DIODES INCORPORATED |
|
| (Registrant) |
|
|
|
|
| By: /s/ Keh-Shew Lu |
|
Date |
|
|
| President and Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
| By: /s/ |
|
Date |
|
|
| Chief Financial Officer |
|
| (Principal Financial Officer) |
|
|
|
|
|
| |
|
| |
|
-3036-