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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
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: 1-5740
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 95-2039518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive offices) (Zip code)
(805) 446-4800
(Registrant's telephone number, including area code)
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 [X] No [ ]
The number of shares of the registrant's Common Stock, $0.66 2/3 par value,
outstanding as of November 13, 2000 (after the effect of a 3-for-2 stock
dividend payable on July 14, 2000) was 9,201,788, including 1,075,673 shares of
treasury stock.
THIS REPORT INCLUDES A TOTAL OF 35 PAGES
THE EXHIBIT INDEX IS ON PAGE 24
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INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors and Shareholders
Diodes Incorporated and Subsidiaries
We have reviewed the accompanying consolidated condensed balance sheet of Diodes
Incorporated and subsidiaries as of September 30, 2000, and the related
consolidated condensed statements of income and cash flows for the three and
nine months ended September 30, 2000. These financial statements are the
responsibility of the management of Diodes Incorporated and Subsidiaries.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Diodes Incorporated and
subsidiaries as of December 31, 1999, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended not
presented herein; and in our report dated January 28, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 1999, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Moss Adams LLP
- --------------------------------
Los Angeles, CA
October 17, 2000
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------- ------------
(UNAUDITED)
CURRENT ASSETS
Cash $ 3,557,000 $ 2,967,000
Accounts receivable
Customers 14,962,000 20,851,000
Related party 90,000 258,000
Other 300,000 241,000
----------- -----------
15,352,000 21,350,000
Less allowance for doubtful receivables 297,000 317,000
----------- -----------
15,055,000 21,033,000
Inventories 16,575,000 25,001,000
Deferred income taxes, current 1,700,000 1,715,000
Prepaid expenses and other current assets 762,000 775,000
----------- -----------
Total current assets 37,649,000 51,491,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 20,909,000 31,883,000
ADVANCES TO RELATED PARTY VENDOR 2,561,000 2,542,000
DEFERRED INCOME TAXES, non-current 146,000 146,000
OTHER ASSETS
Goodwill, net 969,000 936,000
Other 173,000 348,000
----------- -----------
TOTAL ASSETS $62,407,000 $87,346,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30,
1999 2000
----------- ------------
(UNAUDITED)
CURRENT LIABILITIES
Line of credit $ 3,237,000 $ 8,099,000
Accounts payable
Trade 7,716,000 9,382,000
Related party 1,821,000 2,894,000
Accrued liabilities 5,782,000 8,819,000
Income taxes payable 878,000 1,096,000
Current portion of long-term debt 2,312,000 2,912,000
----------- -----------
Total current liabilities 21,746,000 32,202,000
DEFERRED COMPENSATION 57,000 57,000
LONG-TERM DEBT, net of current portion 4,672,000 5,038,000
MINORITY INTEREST IN JOINT VENTURE 959,000 1,421,000
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -
par value $1.00 per share; 1,000,000
shares authorized;
no shares issued and outstanding -- --
Common stock - par value $0.66 2/3 per share;
30,000,000 shares authorized; 9,008,282 and 9,187,786
shares issued and outstanding at December 31, 1999
and September 30, 2000, respectively 6,006,000 6,123,000
Additional paid-in capital 5,886,000 6,358,000
Retained earnings 24,863,000 36,929,000
----------- -----------
36,755,000 49,410,000
Less:
Treasury stock - 1,075,673 shares of common stock at cost 1,782,000 1,782,000
----------- -----------
Total stockholders' equity 34,973,000 47,628,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,407,000 $87,346,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
NET SALES $ 21,750,000 $ 32,332,000 $ 56,011,000 $ 92,369,000
COST OF GOODS SOLD 15,862,000 21,211,000 41,784,000 62,322,000
------------ ------------ ------------ ------------
Gross profit 5,888,000 11,121,000 14,227,000 30,047,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,636,000 5,050,000 10,132,000 14,862,000
------------ ------------ ------------ ------------
Income from operations 2,252,000 6,071,000 4,095,000 15,185,000
OTHER INCOME (EXPENSE)
Interest income 87,000 128,000 226,000 323,000
Interest expense (141,000) (332,000) (444,000) (920,000)
Other 50,000 135,000 89,000 181,000
------------ ------------ ------------ ------------
(4,000) (69,000) (129,000) (416,000)
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 2,248,000 6,002,000 3,966,000 14,769,000
PROVISION FOR INCOME TAXES (510,000) (1,170,000) (647,000) (2,197,000)
MINORITY INTEREST IN JOINT VENTURE EARNINGS (54,000) (182,000) (120,000) (462,000)
------------ ------------ ------------ ------------
NET INCOME $ 1,684,000 $ 4,650,000 $ 3,199,000 $ 12,110,000
============ ============ ============ ============
EARNINGS PER SHARE
Basic $ 0.22 $ 0.57 $ 0.42 $ 1.50
Diluted $ 0.21 $ 0.50 $ 0.40 $ 1.31
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 7,571,237 8,101,667 7,570,983 8,053,675
Diluted 8,115,677 9,260,765 7,945,616 9,259,095
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 2000
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,199,000 $ 12,110,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,949,000 3,336,000
Minority interest earnings 120,000 462,000
Interest income accrued on advances to vendor (143,000) (143,000)
Changes in operating assets:
Accounts receivable (4,736,000) (5,978,000)
Inventories (722,000) (8,426,000)
Prepaid expenses and other assets (385,000) (170,000)
Changes in operating liabilities:
Accounts payable 3,835,000 2,739,000
Accrued liabilities 986,000 3,037,000
Income taxes payable (169,000) 218,000
----------- ------------
Net cash provided by operating activities 3,934,000 7,185,000
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (5,387,000) (14,310,000)
Minority interest of joint venture investment 96,000 --
Collections on note receivable 258,000 162,000
----------- ------------
Net cash used by investing activities (5,033,000) (14,148,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit, net 927,000 4,862,000
Net proceeds from the issuance of capital stock 9,000 589,000
Proceeds from (repayments of) long-term obligations (542,000) 966,000
Other -- (44,000)
----------- ------------
Net cash provided by financing activities 394,000 6,373,000
----------- ------------
DECREASE IN CASH (705,000) (590,000)
CASH AT BEGINNING OF PERIOD 2,416,000 3,557,000
----------- ------------
CASH AT END OF PERIOD $ 1,711,000 $ 2,967,000
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 218,000 $ 597,000
=========== ============
Income taxes $ 1,169,000 $ 1,994,000
=========== ============
The accompanying notes are an integral part of these financial statements.
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DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-QS. The
consolidated balance sheet, statement of operations and cash flows at and for
the periods ended September 30, 2000, have been reviewed by the Company's
independent auditors in accordance with the professional standards and
procedures as set forth in Statement of Auditing Standards No. 71 ("SAS 71").
SAS 71 procedures for conducting a review of interim financial information
generally are limited in inquiries and analytical procedures concerning
significant accounting matters relating to the financial information to be
reported. They do not include all information and footnotes necessary for a fair
presentation of financial position and results of operations and cash flows in
conformity with generally accepted accounting principles. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included
in the interim period. Operating results for the nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000.
The consolidated financial statements include the accounts of the
Company and its wholly-owned foreign subsidiary, Diodes Taiwan Co., Ltd.
("Diodes-Taiwan"), and the accounts of Shanghai KaiHong Electronics Co., Ltd.
("Diodes-China") in which the Company has a 95% interest. All significant
intercompany balances and transactions have been eliminated.
NOTE B - INCOME TAXES
The Company accounts for income taxes using an asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the tax effect of differences between the financial statement and
tax basis of assets and liabilities. Accordingly, the Company has recorded a net
deferred tax asset of $1,861,000 resulting from temporary differences in bases
of assets and liabilities. This deferred tax asset results primarily from
inventory reserves and certain expense accruals, which are not currently
deductible for income tax purposes.
The income tax expense as a percentage of pre-tax income differs
from the statutory combined federal and state tax rates. The primary reason for
this difference is that, in accordance with Chinese tax policy, earnings of
Diodes-China are not subject to tax for the first two years upon commencement of
cumulative profitable operations, which includes the 1999 and 2000 reporting
periods. As indicated below, deferred income taxes have not been provided on
earnings of Diodes-China.
As of September 30, 2000, accumulated and undistributed earnings
of Diodes-China are approximately $13.4 million. The Company has not recorded a
deferred tax liability (estimated to be $5.4 million) on these earnings since
the Company considers this investment to be permanent, and has no plans,
intentions or obligation to distribute all or part of that amount from China to
the United States. The Company will consider the need to provide deferred taxes
on future earnings of Diodes-China, as further investment strategies are
determined.
NOTE C - ADVANCES TO RELATED PARTY VENDOR
Under a compensation-trade agreement the Company has advanced
$2.5 million in cash to a related party vendor, FabTech Incorporated
("FabTech"), a wholly owned subsidiary of Lite-On Power Semiconductor
Corporation ("LPSC"), a principal shareholder of the Company. Interest accrues
monthly at LIBOR plus 1.1%. Outstanding principal and accrued interest as of
September 30, 2000 totaled $2,542,000.
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Amounts advanced, including interest, are payable through
February 2001 when any outstanding balances become due on demand, and are
secured by FabTech's accounts receivable. The compensation-trade agreement
allows the Company to recover interest and principal due by deducting a fixed
amount ($10.00) per unit for products (silicon wafers) purchased from FabTech.
FabTech may also repay its debt in cash. Through September 30, 2000, the Company
had collected $762,000 on the note, and expected this note to be collected,
including interest, no later than February 2001, according to the terms of the
agreement. Upon completion of the proposed acquisition of FabTech (See "Item 2 -
General") announced in October 2000, the loan amount, including accrued
interest, will be allocated to the acquisition purchase price.
NOTE D - STOCK SPLIT
On July 14, 2000 the Company effected a three-for-two stock split
for shareholders of record as of June 28, 2000. All share and per share amounts
in the accompanying financial statements reflect the effect of this stock split.
NOTE E - SEGMENT INFORMATION
Information about the Company's operations in the United States,
Taiwan, and China are presented below. Items transferred among the Company and
its subsidiaries are transferred at prices to recover costs plus an appropriate
mark up for profit. Inter-company revenues, profits and assets have been
eliminated to arrive at the consolidated amounts.
Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief decision maker, or decision-making group, in deciding how
to allocate resources and in assessing performance. The Company's chief
decision-making group consists of the President, Vice President of Sales and
Marketing, Chief Financial Officer, and Vice President of Far East Operations.
The operating segments are managed separately because each operating segment
represents a strategic business unit whose function and purpose differs from the
other segments.
For financial reporting purposes, the Company is deemed to
operate in three separate segments: North America, Taiwan, and China. All three
segments focus on discrete semiconductor devices. The North American segment
procures and distributes products primarily throughout North America and
provides management, warehousing and engineering support to the other two
segments. The Taiwan segment procures product from, and distributes product
primarily to, companies in Taiwan, Korea, Singapore, and Hong Kong. This segment
also procures product for, and distributes product to, the Company's North
American operations. The China segment manufactures product for, and distributes
product to, the North American and Taiwan segments, as well as Asia-Pacific
customers.
The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies in the
Company's annual report on Form 10-K. During the third-quarter of 2000, the
Company allocated corporate overhead costs to each subsidiary. The Company
evaluates performance based on stand-alone operating segment income. Revenues
are attributed to geographic areas based on the location of the market producing
the revenues.
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Shanghai
KaiHong Diodes-Taiwan Diodes
THREE MONTHS ENDED Electronics Corporation, Ltd. Incorporated Consolidated
SEPTEMBER 30, 1999 (China) (Taiwan) (United States) Segments
- ----------------------------- ------------ ---------------- --------------- ------------
Total sales $ 2,945,000 $ 13,136,000 $ 12,972,000 $ 29,053,000
Inter-segment sales (2,124,000) (4,306,000) (873,000) (7,303,000)
------------ ------------ ------------ ------------
Net sales $ 821,000 $ 8,830,000 $ 12,099,000 $ 21,750,000
Depreciation and amortization $ 611,000 $ 47,000 $ 65,000 $ 723,000
Interest expense (income), net $ (34,000) $ 2,000 $ 86,000 $ 54,000
Income tax provision (benefit) $ -- $ 494,000 $ (16,000) $ 510,000
Net income (loss) $ 1,087,000 $ 1,149,000 $ (552,000) $ 1,684,000
Segment assets $ 18,107,000 $ 15,778,000 $ 19,965,000 $ 53,850,000
============ ============ ============ ============
Shanghai
KaiHong Diodes-Taiwan Diodes
THREE MONTHS ENDED Electronics Corporation, Ltd. Incorporated Consolidated
SEPTEMBER 30, 2000 (China) (Taiwan) (United States) Segments
- ----------------------------- ------------ ---------------- --------------- ------------
Total sales $ 10,859,000 $ 18,786,000 $ 18,587,000 $ 48,232,000
Inter-segment sales (9,211,000) (5,803,000) (886,000) (15,900,000)
------------ ------------ ------------ ------------
Net sales $ 1,648,000 $ 12,983,000 $ 17,701,000 $ 32,332,000
Depreciation and amortization $ 1,128,000 $ 37,000 $ 84,000 $ 1,249,000
Interest expense (income), net $ 83,000 $ 2,000 $ 119,000 $ 204,000
Income tax provision (benefit) $ -- $ 469,000 $ 701,000 $ 1,170,000
Net income (loss) $ 3,447,000 $ 1,053,000 $ 150,000 $ 4,650,000
Segment assets $ 39,711,000 $ 22,891,000 $ 24,744,000 $ 87,346,000
============ ============ ============ ============
Shanghai
KaiHong Diodes-Taiwan Diodes
NINE MONTHS ENDED Electronics Corporation, Ltd. Incorporated Consolidated
SEPTEMBER 30, 1999 (China) (Taiwan) (United States) Segments
- ----------------------------- ------------ ---------------- --------------- ------------
Total sales $ 7,199,000 $ 31,951,000 $ 34,352,000 $ 73,502,000
Inter-segment sales (5,065,000) (10,348,000) (2,078,000) (17,491,000)
------------ ------------ ------------ ------------
Net sales $ 2,134,000 $ 21,603,000 $ 32,274,000 $ 56,011,000
Depreciation and amortization $ 1,653,000 $ 89,000 $ 207,000 $ 1,949,000
Interest expense (income), net $ (37,000) $ -- $ 255,000 $ 218,000
Income tax provision (benefit) $ -- $ 1,081,000 $ (435,000) $ 646,000
Net income (loss) $ 2,403,000 $ 2,228,000 $ (1,432,000) $ 3,199,000
Segment assets $ 18,107,000 $ 15,778,000 $ 19,965,000 $ 53,850,000
============ ============ ============ ============
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Shanghai
KaiHong Diodes-Taiwan Diodes
NINE MONTHS ENDED Electronics Corporation, Ltd. Incorporated Consolidated
SEPTEMBER 30, 2000 (China) (Taiwan) (United States) Segments
- ------------------ ------------ ---------------- --------------- ------------
Total sales $ 26,906,000 $ 53,519,000 $ 52,763,000 $ 133,188,000
Inter-segment sales (21,852,000) (16,656,000) (2,311,000) (40,819,000)
------------ ------------ ------------ -------------
Net sales $ 5,054,000 $ 36,863,000 $ 50,452,000 $ 92,369,000
Depreciation and amortization $ 2,957,000 $ 128,000 $ 251,000 $ 3,336,000
Interest expense (income), net $ 124,000 $ (8,000) $ 481,000 $ 597,000
Income tax provision (benefit) $ -- $ 1,847,000 $ 350,000 $ 2,197,000
Net income (loss) $ 8,770,000 $ 3,943,000 $ (603,000) $ 12,110,000
Segment assets $ 39,711,000 $ 22,891,000 $ 24,744,000 $ 87,346,000
============ ============ ============ =============
ITEM 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. Such
forward-looking statements are subject to a variety of risks and uncertainties,
including those discussed below under the heading "Factors That May Affect
Future Results" and elsewhere in this Quarterly Report on Form 10-Q, that could
cause actual results to differ materially from those anticipated by the
Company's management. The Private Securities Litigation Reform Act of 1995 (the
"Act") provides certain "safe harbor" provisions for forward-looking statements.
All forward-looking statements made on this Quarterly Report on Form 10-Q are
made pursuant to the Act.
GENERAL
Diodes Incorporated (the "Company") is a manufacturer and
distributor of high-quality discrete semiconductor devices to leading
manufacturers in the automotive, electronics, computing and telecommunications
industries. The Company's products include small signal transistors and MOSFETs,
transient voltage suppressors (TVSs), zeners, diodes, rectifiers and bridges.
The Company operates two Far East subsidiaries, Diodes-China
(QS-9000 and ISO-14001 certified) in Shanghai and Diodes-Taiwan (ISO-9000
certified) in Taipei. Diodes-China's manufacturing focus is on surface-mount
devices, such as SOT-23 and SOD-123, used in the communication and computer
industries and destined for wireless devices, notebook computers, pagers, PCMCIA
cards and modems, among others. Diodes-China's state-of-the-art facilities have
been designed to develop even smaller, higher-density products as electronic
industry trends to portable and hand-held devices continue.
The Company's products are sold primarily in North America and
Asia, both directly to original equipment manufacturers ("OEMs") (50% of total
sales for the nine months ended September 30, 2000) and through electronic
component distributors. For the nine months ended September 30, 2000,
approximately 55% and 45% of the Company's products were sold in North America
and the Far East, respectively. For the twelve months ended December 31, 1999,
approximately 56% and 44% of the Company's products were sold in North America
and the Far East, respectively, compared to 71% and 29% in 1998, respectively.
The increase in the percentage of sales in the Far East is expected to continue,
as the Company believes there is greater potential to increase market share in
that region.
In March 2000, Vishay Intertechnolgy, Inc. ("Vishay") agreed to
sell its 65% interest in the Vishay/LPSC joint venture to the Lite-On Group (a
Taiwanese consortium), the 35% owner. The Vishay/LPSC joint
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venture was formed in July 1997. LPSC, the Company's largest shareholder, is a
member of the Lite-On Group of Companies of the Republic of China. With
worldwide sales of almost $4.5 billion, the Lite-On Group of companies are
leading manufacturers of power semiconductors, computer peripherals, and
communication products. Because of this transaction, the Lite-On Group, through
LPSC, indirectly owns approximately 38% of the Company's Common Stock. The
Company considers its relationship with LPSC to be mutually beneficial and the
Company and LPSC will continue its strategic alliance as it has since 1991. The
Company will continue to compete, as it always has, with Vishay's Telefunken
division. Any overlap in comparable products is not expected to have any
material impact on the financial results of the Company.
Products are currently sold under the Diodes, Inc. brand name.
The Company has unified product lines under a single brand name in order to
establish brand name unity and consistency of product, and to capitalize on
brand name recognition, where possible. Although customers continue to recognize
Diodes brand products and view the Company as a separate vendor from Vishay, at
this time it is uncertain as to the effect that the Vishay/LPSC transaction will
have on brand recognition or major distributors. However, management believes
that with the Company's competitive pricing, internal manufacturing capabilities
and capacity, customer/applications engineering, and strong customer service
reputation, it has proven itself to be a valuable supplier, and as such the
impact of the Vishay/LPSC transaction is not anticipated to have a material
adverse impact on customer relations.
For financial reporting purposes, the Company is deemed to engage
in three industry segments: North America, Taiwan, and China. All three segments
focus on discrete semiconductor devices. The North American segment procures and
distributes products primarily throughout North America and provides management,
warehousing and engineering support. The Taiwan segment procures product from,
and distributes product primarily to, companies in Taiwan, Korea, Singapore, and
Hong Kong. This segment also procures product for, and distributes product to,
the Company's North American operations. The China segment manufactures product
for, and distributes product to, the North American and Taiwan segments, as well
as to Asia-Pacific customers. See Note E of "Notes to Consolidated Financial
Statements" for a description of the Company's adoption of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.
RECENT EVENTS
In March 2000, the Company appointed C.H. Chen as President and
Chief Executive Officer, replacing Michael Rosenberg who left the Company to
pursue other interests. From 1969 to 1990, Mr. Chen held various positions at
Texas Instruments, most recently as Vice President of Texas Instruments-Taiwan.
In 1990, he left Texas Instruments to found Dyna Image Corp., a Lite-On Group
company (now listed on the Taiwan OTC market) that has become the world's
leading supplier of contact image sensors (CISs), which are key components in
facsimile machines and scanners. Mr. Chen is currently the Vice Chairman and
President of Dyna Image Corp.
In June 2000, the Company's common stock commenced trading on the
Nasdaq Stock Market, National Market System, under the symbol "DIOD." In
addition, the Company effected a three-for-two stock split in the form of a 50%
stock dividend payable on July 14, 2000 to stockholders of record on June 28,
2000. Under the terms of this stock split, stockholders received a dividend in
the form of one additional share for every two shares held on the record date.
The dividend was paid in authorized but unissued shares of the common stock of
the Company. The number of outstanding shares of stock after the split was
increased from approximately 5.3 million to approximately 8.0 million shares,
net of treasury shares held. The par value of the stock was not affected by the
split and remains at $0.66 2/3 per share.
Also in June 2000, the Company announced it had retained Coffin
Communications Group to implement and manage its investor relations program.
This announcement, combined with the switch to Nasdaq and the stock split, is
part of the Company's on-going program to increase the Company's visibility and
communication with stockholders, and to ultimately contribute to enhanced
stockholder liquidity and value.
In October 2000, the Company moved its Taiwan manufacturing to
China. The Taiwan manufactured products were lower technology products, fairly
labor intensive, and the cost savings of moving the manufacturing to the
Company's qualified minority partner in Diodes-China were very attractive and
necessary to meet market demand. In connection with the manufacturing move, the
Company sold approximately $150,000 of
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equipment to the minority partner. Diodes-Taiwan continues as the Company's
Asia-Pacific sales, logistics and distribution center. Diodes-China participates
in final testing, inspection and packaging of these products, formerly
manufactured by Diodes-Taiwan.
WAFER FOUNDRY ACQUISITION
In October 2000, the Company signed a letter of intent to acquire
FabTech, Inc., a wafer foundry located in Lee's Summit, Missouri. FabTech will
be acquired from LPSC for approximately $25 million (in cash and debt assumed),
with an additional cash earn-out for meeting specified earnings targets over a
four-year period. The $25 million purchase price consists of approximately $6.5
million in cash and $18.5 million in debt assumption. The transaction, subject
to various closing conditions, is expected to be completed in early December
2000.
FabTech's 5-inch wafer foundry, specializing in Schottky
products, includes a 16,000 sq. ft. clean room within a 70,000 sq. ft.
manufacturing facility formerly owned by AT&T. FabTech currently has 210
employees and is expected to generate approximately $20 million in revenues in
year 2000. The acquisition will be bank financed and is expected to be accretive
to Diodes' earnings in 2001.
The acquisition of FabTech is a key element in the Company's
effort to become a vertically integrated manufacturer and supplier of discrete
semiconductors. This strategy is designed to enable the Company to accelerate
the development and introduction of new technology into its products. FabTech's
wafer foundry provides the Company with the manufacturing base and R&D team to
develop higher-margin, next-generation semiconductor products. Since 1996, the
Company and FabTech have worked closely together within a vendee-vendor
relationship.
FabTech currently has eight patents pending in technologies from
ruggedized Schottky devices to thirty-five hundred volt Ultra-Fast devices.
FabTech was founded in 1996 when LPSC acquired manufacturing equipment and
technology formerly owned by AT&T. FabTech's engineering staff includes eight
senior engineers, with over 190 collective years experience in the semiconductor
industry.
The Company intends to continue its strategic plan of locating
alternate sources of its products and raw materials, including those provided by
its major suppliers. Alternate sources include, but are not limited to,
Diodes-China, FabTech, and other sourcing agreements in place as well as those
that may be in negotiations. The Company anticipates that the effect of the loss
of any one of its major suppliers will not have a material adverse effect on the
Company's operations, provided that alternate sources remain available. The
Company continually evaluates alternative sources of its products to assure its
ability to deliver high-quality, cost-effective products.
INDUSTRY/COMPETITION
The discrete semiconductor industry has, for the last several
years, been subject to severe pricing pressures, compounded by the Asian
economic situation. Although manufacturing costs generally decreased during this
period, excess manufacturing capacity and over-inventory caused selling prices
to fall at a greater rate than manufacturing costs. Because of this competitive
environment, gross profit margins declined from 28.3% in 1995 to 26.4% in 1999.
Beginning in the second half of 1999, manufacturing profit from Diodes-China
coupled with an apparent easing of pricing pressures contributed to a gross
profit margin of 34.4% for the three months ended September 30, 2000 compared to
27.1% for the same period last year. There can be no assurance that these
improved margins can be maintained or improved upon in the future.
To compete in this highly competitive industry, in recent years,
the Company has committed substantial resources to the development and
implementation of two areas of operation: (i) sales and marketing, and (ii)
manufacturing. Emphasizing the Company's focus on customer service, additional
personnel and programs have been added. In order to meet customers' needs at the
design stage of end-product development, the Company has employed additional
applications engineers. These applications engineers work directly with
customers to assist them in "designing in" the correct products to produce
optimum results. Regional sales managers, working closely with manufacturers'
representative firms and distributors, have also been added in the U.S. and the
Far East to help satisfy customers' requirements. In addition, the Company has
developed relationships with major distributors who inventory and sell the
Company's products.
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Beginning in 1998, the Company increased the amount of product
shipped to larger distributors. Although these sales were significant in terms
of total sales dollars and gross margin dollars, they generally were under
agreements that resulted in lower gross profit margins for the Company when
compared to sales to smaller distributors and OEM customers. As the
consolidation of electronic component distributors continues, the Company
anticipates that a greater portion of its distributor sales will be to the
larger distributors, and thus may result in lower gross profit margins for this
sales channel.
DIODES-CHINA MANUFACTURING
Since 1997, the Company's manufacturing focus has primarily been
in the development and expansion of Diodes-China. To date, the Company and its
5% minority partner have increased property, plant and equipment at the facility
to approximately $36 million. The equipment expansion allows for the manufacture
of additional SOT-23 packaged components as well as other surface-mount
packaging, including the smaller SOD packages.
In April 2000, the Company announced an additional investment of
$9 million in Diodes-China that is expected to be in full production by the
first quarter of 2001. These investments, when completed, will bring the total
property, plant and equipment at the manufacturing facility to approximately $40
million. As the industry requires manufacturing of smaller and more efficient
products that meet the technical requirements of customers seeking to integrate
multiple technologies within one package, the Company will continue to increase
manufacturing capacity as worldwide demand warrants.
SILICON WAFERS
In 1999, Diodes-Taiwan began purchasing silicon wafers, a new
product line, from FabTech for resale to customers in the Far East.
Diodes-Taiwan also purchases wafers from LPSC, among others. Silicon wafer sales
for the three and nine months ended September 30, 2000 were $1.0 million and
$5.9 million compared to $909,000 and $2.3 million for the same periods in 1999,
respectively. Wafer sales for the twelve months ended December 31, 1999 were
$4,005,000. The gross margin percentage on sales of silicon wafers, though still
profitable, is below that of the Company's standard product lines. Silicon wafer
sales are a complementary service for some customers, rather than a focused
product line. As the operations of FabTech are integrated, the goal is to
increase the use of FabTech wafers in the Company's products, and to increase
the sales of silicon wafers to trade customers.
FOREIGN CURRENCY
Products from foreign suppliers are purchased primarily in United
States dollars. To a limited extent, and from time to time, the Company
contracts in foreign currencies (e.g., a portion of the equipment purchases for
the Diodes-China expansion), and, accordingly, the results of its operations
could be materially affected by fluctuations in currency exchange rates. Due to
the limited number of contracts denominated in foreign currencies and the
complexities of currency hedges, the Company has not engaged in hedging to date.
If the volume of contracts written in foreign currencies increases, and the
Company does not engage in currency hedging, a substantial increase in the
relative value of such currencies could have a material adverse effect on the
Company's results of operations. Management believes that the current contracts
written in foreign currencies are not significant enough to justify the costs
inherent in currency hedging.
TAXES
The Company's effective tax rate was 19.5% and 14.9% for the
three and nine months ended September 30, 2000, respectively, compared to 22.7%
and 16.3%, respectively, for the same periods last year. This compares to 19.3%
and 36.0% for the twelve months ended December 31, 1999 and 1998, respectively.
The decrease in the Company's effective tax rate is due primarily to the
increase in Diodes-China's contribution to net income at a tax rate of 0%
through year 2000. The Company is in the process of finalizing, with the Chinese
government, the tax rate for year 2001, but it is anticipated that the rate will
be zero. Based upon tax rates in the U.S. and Taiwan and the expected
profitability of each of the Company's three business segments during the
balance
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of the year, it is anticipated that for the twelve months of 2000, the
consolidated provision for income taxes will be in the range of 10-20% of
pre-tax income.
YEAR 2000 ISSUES
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000 Issue
("Y2K"). The total cost of Y2K compliance was not considered a material expense,
and to date, no significant operational problems for the Company's computer
systems have occurred as a result of Y2K. However, if problems surface that have
not yet been identified which will require substantial time and resources to
remedy, they could have a material adverse effect on the Company's business.
OTHER MATTERS
The Company has received a claim from one of its former U.S.
landlords regarding potential ground-water contamination at a site in which the
Company engaged in manufacturing from 1967 to 1973. The landlord has alleged
that the Company may have some responsibility for cleanup costs, which have not
yet been determined. Investigations into the landlord's allegations are ongoing,
however, the Company does not anticipate that this event will have a material
effect on its financial results, as the Company has adequately reserved for such
types of claims and the landlord has yet to establish any responsibility by the
Company.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
The following table sets forth, for the periods indicated, the
percentage that certain items in the statement of income bear to net sales and
the percentage dollar increase (decrease) of such items from period to period.
PERCENT OF NET SALES THREE PERCENTAGE DOLLAR
MONTHS ENDED SEPTEMBER 30, INCREASE (DECREASE)
-------------------------- ------------------
1999 2000 `99 TO `00
------ ------ ---------
Net sales 100.0 % 100.0 % 48.7 %
Cost of goods sold (72.9) (65.6) 33.7
------ ------ ------
Gross profit 27.1 34.4 88.9
Selling, general & administrative
expenses ("SG&A") (16.7) (15.6) 38.9
------ ------ ------
Income from operations 10.4 18.8 169.6
Interest expense, net (0.3) (0.6) 277.8
Other income 0.2 0.4 170.0
------ ------ ------
Income before taxes and minority 10.3 18.6 167.0
Income taxes (2.3) (3.6) 129.4
Minority interest (0.3) (0.6) 237.0
------ ------ ------
Net income 7.7 14.4 176.1
====== ====== ======
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company for the
three months ended September 30, 2000 compared to the three months ended
September 30, 1999. This discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
quarterly report.
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1999 2000
------------ -----------
NET SALES $ 21,750,000 $32,332,000
Net sales increased approximately $10.6 million, or 48.7%, for
the three months ended September 30, 2000, compared to the same period last
year, due primarily to a 47.0% increase in units sold as a result of an
increased demand for the Company's products, primarily in the Far East.
Diodes-China contributed trade sales of $1.6 million, compared to $821,000 in
the same period last year. The Company's average selling price ("ASP") was flat
compared to the same period last year, and decreased 7.5% from the second
quarter of 2000. In 1999, Diodes-Taiwan began purchasing silicon wafers, a new
product line, from FabTech, among others, for resale in the Far East. Sales of
silicon wafers for the three months ended September 30, 2000 were $1.0 million
compared to $1.2 million in the same period last year. Sales of silicon wafers
were $2.7 million in the second quarter of 2000. It is anticipated that
significant sales of silicon wafers may not continue beyond the second half of
2000 as the Company evaluates other, more profitable complementary products. As
the operations of FabTech are integrated, the goal is to increase the use of
FabTech wafers in the Company's products, thus decreasing the sales of silicon
wafers to trade customers.
1999 2000
----------- -----------
COST OF GOODS SOLD $15,862,000 $21,211,000
GROSS PROFIT $ 5,888,000 $11,121,000
GROSS PROFIT MARGIN PERCENTAGE 27.1% 34.4%
Gross profit rose approximately $5.2 million, or 88.9%, for the
three months ended September 30, 2000 compared to the same period last year. Of
the $5.2 million increase, approximately $2.8 million was due to the 48.7%
increase in sales, while $2.4 million was due to the increase in gross margin
percentage from 27.1% to 34.4%. Manufacturing profit at Diodes-China contributed
to the increase in gross margin percentage. Although gross profit margins
strengthened in the third quarter of 2000, pricing pressures continue to exist
on many of the Company's product lines, and there can be no assurance that
margins will continue to improve or be maintained.
1999 2000
----------- ----------
SG&A $ 3,636,000 $5,050,000
SG&A for the three months ended September 30, 2000 increased
approximately $1.4 million, or 38.9%, compared to the same period last year, due
primarily to increases in wage/benefits expenses due to additional sales and
engineering personnel, higher marketing and advertising expenses, and increased
sales commissions associated with increased sales. Also contributing to the SG&A
increase were legal reserves associated with the environmental issue as well as
costs associated with moving the manufacturing equipment from Diodes-Taiwan to
China. SG&A as a percentage of sales decreased to 15.6% from 16.7% in the
comparable period last year.
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1999 2000
-------- --------
INTEREST INCOME $ 87,000 $128,000
INTEREST EXPENSE $141,000 $332,000
NET INTEREST EXPENSE $ 54,000 $204,000
Net interest expense for the three months ended September 30,
2000 increased $150,000 versus the same period last year, due primarily to an
increased use of the Company's credit facility (at higher interest rates) to
support the expansion of Diodes-China. The Company's interest expense is
primarily the result of the term loan by which the Company is financing (i) the
investment in the Diodes-China manufacturing facility and (ii) the $2.5 million,
including accrued interest, advanced to FabTech. Interest income is primarily
the interest charged to FabTech, under the Company's formal loan agreement, as
well as earnings on its cash balances. Upon completion of the proposed
acquisition of FabTech announced in October 2000, the loan amount, including
accrued interest, will be deducted from the acquisition purchase price and the
loan dissolved.
1999 2000
-------- --------
OTHER INCOME $ 50,000 $135,000
Other income for the three months ended September 30, 2000
increased approximately $85,000 compared to the same period last year, due
primarily to currency exchange fluctuation at the Company's subsidiaries in
Taiwan and China.
1999 2000
--------- ----------
PROVISION FOR INCOME TAXES $ 510,000 $1,170,000
The Company's overall effective federal, state, and foreign tax
rate decreased to 19.5% for the three months ended September 30, 2000 from 22.7%
in the comparable period last year. Diodes-China will continue to benefit from
0% tax for the remainder of year 2000. The Company is in the process of
finalizing, with the Chinese government, the tax rate for year 2001, but it is
anticipated that the rate will be zero. Based upon tax rates in the U.S. and
Taiwan and the expected profitability of each of the Company's three business
segments during the balance of the year, it is anticipated that for the twelve
months of 2000, the consolidated provision for income taxes will be in the range
of 10-20% of pre-tax income.
1999 2000
--------- ---------
MINORITY INTEREST IN JOINT VENTURE $ (54,000) $(182,000)
Minority interest in joint venture represents the minority
investor's share of the Diodes-China joint venture's income for the period. The
increase in the joint venture earnings for the three months ended September 30,
2000 is primarily the result of increased sales, both internally and to external
customers. The joint venture investment is eliminated in consolidation of the
Company's financial statements, and the activities of Diodes-China are included
therein. As of September 30, 2000, the Company had a 95% controlling interest in
the joint venture.
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RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
The following table sets forth, for the periods indicated, the
percentage that certain items in the statement of income bear to net sales and
the percentage dollar increase (decrease) of such items from period to period.
PERCENT OF NET SALES NINE PERCENTAGE DOLLAR
MONTHS ENDED SEPTEMBER 30, INCREASE (DECREASE)
------------------------- ------------------
1999 2000 `99 TO `00
------ ------ ----------
Net sales 100.0 % 100.0 % 64.9 %
Cost of goods sold (74.6) (67.5) 49.2
------ ------ ------
Gross profit 25.4 32.5 111.2
Selling, general & administrative
expenses ("SG&A") (18.1) (16.1) 46.7
------ ------ ------
Income from operations 7.3 16.4 270.8
Interest expense, net (0.4) (0.6) 173.9
Other income 0.2 0.2 103.4
------ ------ ------
Income before taxes and minority 7.1 16.0 272.4
Income taxes (1.2) (2.4) 239.6
Minority interest (0.2) (0.5) 285.0
------ ------ ------
Net income 5.7 13.1 278.6
====== ====== ======
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company for the
nine months ended September 30, 2000 compared to the nine months ended September
30, 1999. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this quarterly
report.
1999 2000
------------ -----------
NET SALES $ 56,011,000 $92,369,000
Net sales increased approximately $36.4 million, or 64.9%, for
the nine months ended September 30, 2000 compared to the same period last year,
due primarily to a 55.8% increase in units sold as a result of an increased
demand for the Company's products, primarily in the Far East. Diodes-China
contributed trade sales of $5.1 million, compared to $2.1 million in the same
period last year. The Company's ASP increased 6.4% over the same period last
year, primarily in the Far East. There can be no assurance that ASP's will
continue to strengthen. In 1999, Diodes-Taiwan began purchasing silicon wafers,
a new product line, from FabTech, among others, for resale in the Far East.
Sales totaling $5.9 million of silicon wafers compared to $2.3 million in the
same period last year also contributed to the increase in sales. As the
operations of FabTech are integrated, the goal is to increase the use of FabTech
wafers in the Company's products, and increase the sales of silicon wafers to
trade customers.
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1999 2000
----------- -----------
COST OF GOODS SOLD $41,784,000 $62,322,000
GROSS PROFIT $14,227,000 $30,047,000
GROSS PROFIT MARGIN PERCENTAGE 25.4% 32.5%
Gross profit rose approximately $15.8 million, or 111.2%, for the
nine months ended September 30, 2000 compared to the same period last year. Of
the $15.8 million increase, approximately $9.2 million was due to the 64.9%
increase in sales, while $6.6 million was due to the increase in gross margin
percentage from 25.4% to 32.5%. Manufacturing profit at Diodes-China contributed
to the increase in gross margin percentage. Although gross profit margins
strengthened in the third quarter of 2000, pricing pressures continue to exist
on many of the Company's product lines, and there can be no assurance that
margins will continue to improve or be maintained.
1999 2000
------------ -----------
SG&A $ 10,132,000 $14,862,000
SG&A for the nine months ended September 30, 2000 increased
approximately $4.7 million, or 46.7%, compared to the same period last year, due
in part to separation compensation paid to the former President and Chief
Executive Officer in March 2000. Increases in wage/benefits expenses due to
additional sales and engineering personnel, higher marketing and advertising
expenses, and increased sales commissions contributed to the increase in SG&A,
as well. Also contributing to the SG&A increase were legal reserves associated
with the environmental issue as well as costs associated with moving the
manufacturing equipment from Diodes-Taiwan to China. SG&A as a percentage of
sales decreased to 16.1% from 18.1% in the comparable period last year.
1999 2000
-------- --------
INTEREST INCOME $226,000 $323,000
INTEREST EXPENSE $444,000 $920,000
NET INTEREST EXPENSE $218,000 $597,000
Net interest expense for the nine months ended September 30, 2000
increased approximately $379,000 versus the same period last year, due primarily
to an increased use of the Company's credit facility (at higher interest rates)
to support the expansion of Diodes-China. The Company's interest expense is
primarily the result of the term loan by which the Company is financing (i) the
investment in the Diodes-China manufacturing facility and (ii) the $2.5 million,
including accrued interest, advanced to FabTech. Interest income is primarily
the interest charged to FabTech, under the Company's formal loan agreement, as
well as earnings on its cash balances. Upon completion of the proposed
acquisition of FabTech announced in October 2000, the loan amount, including
accrued interest, will be deducted from the acquisition purchase price and the
loan dissolved.
1999 2000
-------- --------
OTHER INCOME $ 89,000 $181,000
Other income for the nine months ended September 30, 2000
increased approximately $92,000 compared to the same period last year, due
primarily to currency exchange fluctuation at the Company's subsidiaries in
Taiwan and China.
1999 2000
--------- ----------
PROVISION FOR INCOME TAXES $ 647,000 $2,197,000
The Company's overall effective federal, state, and foreign tax
rate decreased to 14.9% for the nine months ended September 30, 2000 from 16.3%
in the comparable period last year. Diodes-China will continue to benefit from
0% tax for the remainder of year 2000. The Company is in the process of
finalizing, with the Chinese government, the tax rate for year 2001, but it is
anticipated that the rate will be zero. Based upon tax rates
18
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in the U.S. and Taiwan and the expected profitability of each of
the Company's three business segments during the balance of the year, it is
anticipated that for the twelve months of 2000, the consolidated provision for
income taxes will be in the range of 10-20% of pre-tax income.
1999 2000
---------- ---------
MINORITY INTEREST IN JOINT VENTURE $ (120,000) $(462,000)
Minority interest in joint venture represents the minority
investor's share of the Diodes-China joint venture's income for the period. The
increase in the joint venture earnings for the nine months ended September 30,
2000 is primarily the result of increased sales, both internally and to external
customers. The joint venture investment is eliminated in consolidation of the
Company's financial statements, and the activities of Diodes-China are included
therein. As of September 30, 2000, the Company had a 95% controlling interest in
the joint venture.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months ended
September 30, 2000 was $7.2 million compared to cash provided of $3.9 million
for the same period in 1999. The primary sources of cash flows from operating
activities in 2000 were net income of $12.1 million and depreciation of $3.3
million. The primary use of cash flows from operating activities in 2000 was an
increase in inventories of $8.4 million and an increase in accounts receivable
of $6.0 million. The primary sources of cash flows from operating activities for
the nine months ended September 30, 1999 were an increase in accounts payable of
$3.8 million and net income of $3.2 million, while the primary use was a $4.7
million increase in accounts receivable. Inventory turns at September 30, 2000
were 3.4 times compared to 3.5 times at December 31, 1999. Accounts receivable
days at September 30, 2000 were 59 days compared to 56 days at December 31,
1999. The ratio of the Company's current assets to current liabilities on
September 30, 2000 was 1.60 to 1, compared to a ratio of 1.73 on December 31,
1999.
Cash used by investing activities for the nine months ended
September 30, 2000 was $14.1 million, compared to $5.0 million during the same
period in 1999. The primary investment in both years was for additional
manufacturing equipment at the Diodes-China manufacturing facility.
Cash provided by financing activities was $6.4 million for the
nine months ended September 30, 2000, compared to $394,000 for the same period
in 1999. The Company has a $26.5 million credit facility with a major bank
consisting of: a working capital line of credit up to $9 million and term
commitment notes providing up to $17.5 million for plant expansion, advances to
vendors, and letters of credit for Diodes-China. Interest on outstanding
borrowings under the credit agreement is payable monthly at LIBOR plus a
negotiated margin. Fixed borrowings require fixed principal plus interest
payments for sixty months thereafter. The agreement has certain covenants and
restrictions, which, among other matters, require the maintenance of certain
financial ratios and operating results, as defined in the agreement. The Company
was in compliance as of September 30, 2000. The Company has extended its working
capital line of credit through June 30, 2002, and has obtained an additional $10
million in term commitment notes. As of September 30, 2000, approximately $7.9
million is outstanding under the term note commitment, and the average interest
rate on outstanding borrowings was approximately 7.3%.
The Company has used its credit facility primarily to fund the
advances to Diodes-China and FabTech as well as to support its operations. At
September 30, 2000, amounts due from FabTech, including accrued interest, are
approximately $2.5 million, and the entire amount is due February 2001. In
connection with the proposed acquisition of FabTech (See "Item 2 - General"),
announced in October 2000, upon closing, the loan amount, including accrued
interest, will be deducted from the acquisition purchase price and the loan
dissolved. The Company believes that the continued availability of this credit
facility, together with internally generated funds, will be sufficient to meet
the Company's currently foreseeable operating cash requirements.
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In January 2000, the Company entered into an intercompany loan
agreement with Diodes-China for up to $6.0 million. In April 2000, Diodes-China
borrowed $3 million under the agreement. The interest rate charged by the
Company was equal to the Company's borrowing rate. In September, Diodes-China
repaid the loan in full.
Total working capital increased approximately 18.7% to $18.9
million as of September 30, 2000 from $15.9 million as of December 31, 1999. The
Company believes that its working capital position will be sufficient for growth
opportunities.
The Company's long-term debt to equity ratio decreased to 0.17 at
September 30, 2000, from 0.20 at December 31, 1999. The Company's total debt to
equity ratio increased to 0.83 at September 30, 2000, from 0.78 at December 31,
1999. It is anticipated that these ratios may increase as the Company continues
to use its credit facilities to fund additional sourcing and manufacturing
opportunities, including the proposed FabTech acquisition.
As of September 30, 2000, the Company has no material plans or
commitments for capital expenditures other than in connection with the expansion
at Diodes-China and the proposed FabTech acquisition. However, to ensure that
the Company can secure reliable and cost effective sourcing to support and
better position itself for growth, the Company is continuously evaluating
additional sources of products. The Company believes its financial position will
provide sufficient funds should an appropriate investment opportunity arise and
thereby, assist the Company in improving customer satisfaction and in
maintaining or increasing market share.
FACTORS THAT MAY AFFECT FUTURE RESULTS
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. Such forward-looking statements are subject to a variety of risks
and uncertainties, including those discussed below and elsewhere in this
Quarterly Report on Form 10-Q that could cause actual results to differ
materially from those anticipated by the Company's management. The Private
Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe
harbor" provisions for forward-looking statements. All forward-looking
statements made on this Quarterly Report on Form 10-Q are made pursuant to the
Act.
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 highlights some of these risks and uncertainties.
Further, from time to time, information provided by the Company or statements
made by its 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.
There are many factors that could cause the events in such
forward looking statements to not occur, including but not limited to:
- - general or specific economic conditions
- - fluctuations in product demand
- - introduction of new products
- - Company's ability to maintain customer relationships
- - technological advancements
- - impact of competitive products and pricing
- - change in growth in targeted markets
- - risks of foreign operations such as Diodes-China and Diodes-Taiwan
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- - ability and willingness of the Company's customers to purchase products
provided by the Company
- - perceived absolute or relative overall value of these products by the
purchasers, including the features, quality, and price in comparison to
other competitive products
- - level of availability of products and substitutes and the ability and
willingness of purchasers to acquire new or advanced products
- - pricing, purchasing, financing, operational, advertising and promotional
decisions by intermediaries in the distribution channels which could
affect the supply of or end-user demands for the Company's products
- - amount and rate of growth of the Company's selling, general and
administrative expenses
- - difficulties in obtaining materials, supplies and equipment
- - difficulties or delays in the development, production, testing and
marketing of products
- - failure to ship new products and technologies when anticipated
- - failure of customers to accept these products or technologies when
planned
- - defects in products
- - any failure of economies to develop when planned
- - acquisition of fixed assets and other assets, including inventories and
receivables
- - making or incurring of any expenditures
- - effects of and changes in trade, monetary and fiscal policies, laws and
regulations
- - other activities of governments, agencies and similar organizations
- - changes in social and economic conditions, such as trade restriction or
prohibition, inflation and monetary fluctuation, import and other
charges or taxes, especially at Diodes-China and Diodes-Taiwan
- - ability or inability of the Company to obtain or hedge against foreign
currency
- - foreign exchange rates and fluctuations in those rates
- - intergovernmental disputes
- - developments or assertions by or against the Company relating to
intellectual property rights
- - adaptations of new, or changes in, accounting policies and practices in
the application of such policies and practices and the effects of
changes within the Company's organization
- - changes in compensation benefit plans
- - activities of parties with which the Company has an agreement or
understanding, including any issues affecting any investment or joint
venture in which the Company has an investment
- - amount, and the cost of financing which the Company has, and any changes
to that financing
- - the sale of Vishay's 65% ownership in Vishay/LPSC to LPSC
- - the Company's ability to consummate the proposed acquisition of FabTech
- - any other information detailed from time to time in the Company's
filings with the United States Securities and Exchange Commission.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no matters to be reported under this heading.
ITEM 2. CHANGES IN SECURITIES
There are no matters to be reported under this heading.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no matters to be reported under this heading.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There are no matters to be reported under this heading.
ITEM 5. OTHER INFORMATION
There are no matters to be reported under this heading.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
Exhibit 99.11 Press release; Diodes, Inc. Launches Next Generation Product Lines
Exhibit 99.12 Press release; Forbes Magazine Names Diodes, Inc.
One of 200 Best Small Companies in U.S.
Exhibit 99.13 Diodes, Inc. Announces Conference Call
To Discuss Q3 Financial Results
Exhibit 99.14 Diodes, Inc. to Acquire Wafer Fab
Exhibit 99.15 Diodes, Inc. Reports Record Third Quarter Earnings
(b) Reports on Form 8-K
None
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SIGNATURE
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/ Carl Wertz November 13, 2000
- ----------------------------------------------------
CARL WERTZ
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal Financial and
Chief Accounting Officer)
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INDEX TO EXHIBITS
Exhibit 11 Computation Of Earnings Per Share Page 25
Exhibit 27 Financial Data Schedule Page 26
Exhibit 99.11 Press release; Diodes, Inc. Launches
Next Generation Product Lines Page 27
Exhibit 99.12 Press release; Forbes Magazine Names Diodes, Inc. Page 29
One of 200 Best Small Companies in U.S.
Exhibit 99.13 Diodes, Inc. Announces Conference Call Page 30
To Discuss Q3 Financial Results
Exhibit 99.14 Diodes, Inc. to Acquire Wafer Fab Page 31
Exhibit 99.15 Diodes, Inc. Reports Record Third Quarter Earnings Page 33
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