1
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 MARCH 31, 1998
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 (I.R.S. Employer
jurisdiction of Identification
organization) Number)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive (Zip code)
offices)
(805) 446-4800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $0.66 2/3 AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 outstanding as of March
31, 1998 was 5,724,352 including 717,115 shares of treasury stock.
THIS REPORT INCLUDES A TOTAL OF 25 PAGES
THE EXHIBIT INDEX IS ON PAGE 15
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PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL INFORMATION
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
--------------- --------------
(UNAUDITED)
CURRENT ASSETS
Cash $1,419,000 $2,325,000
Accounts receivable
Customers 10,284,000 10,342,000
Related party 501,000 213,000
Other 1,242,000 916,000
--------------- --------------
12,027,000 11,471,000
Less allowance for doubtful receivables 74,000 74,000
--------------- --------------
11,953,000 11,397,000
Inventories 14,299,000 13,525,000
Deferred income taxes 1,096,000 1,096,000
Prepaid expenses and other 978,000 806,000
--------------- --------------
Total current assets 29,745,000 29,149,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 6,474,000 5,165,000
ADVANCES TO RELATED PARTY VENDOR 2,871,000 2,821,000
OTHER ASSETS 1,226,000 1,219,000
--------------- --------------
TOTAL ASSETS $40,316,000 $38,354,000
=============== ==============
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
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
-------------- --------------
CURRENT LIABILITIES
Due to bank $1,619,000 $1,000,000
Accounts payable
Trade 3,705,000 4,567,000
Related party 2,201,000 952,000
Accrued liabilities 2,086,000 1,988,000
Income taxes payable 614,000 912,000
Current portion of long-term debt 1,031,000 1,031,000
-------------- --------------
Total current liabilities 11,256,000 10,450,000
LONG-TERM DEBT, net of current portion 3,050,000 3,226,000
MINORITY INTEREST IN JOINT VENTURE 231,000 225,000
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;
9,000,000 shares authorized; 5,724,352 and
5,701,019 shares issued and outstanding at
March 31, 1998 and December 31, 1997,
respectively 3,817,000 3,801,000
Additional paid-in capital 5,937,000 5,813,000
Retained earnings 17,807,000 16,621,000
-------------- --------------
27,561,000 26,235,000
Less:
Treasury stock - 717,115 shares of common 1,782,000 1,782,000
stock at cost
-------------- --------------
Total stockholders' equity 25,779,000 24,453,000
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,316,000 $38,354,000
============== ==============
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
MARCH 31,
-------------------------------
1998 1997
------------ ------------
NET SALES $ 16,804,000 $ 16,490,000
COST OF GOODS SOLD 12,412,000 11,789,000
------------ ------------
Gross profit 4,392,000 4,701,000
SELLING, GENERAL AND ADMINISTRATIVE 2,832,000 3,028,000
EXPENSES
------------ ------------
Income from operations 1,560,000 1,673,000
OTHER INCOME (EXPENSES)
Interest income 83,000 45,000
Interest expense (93,000) (103,000)
Minority interest in earnings of (5,000) (90,000)
joint venture
Commissions and other 133,000 89,000
------------ ------------
118,000 (59,000)
INCOME BEFORE INCOME TAXES 1,678,000 1,614,000
INCOME TAX PROVISION 492,000 430,000
------------ ------------
NET INCOME $ 1,186,000 $ 1,184,000
============ ============
EARNINGS PER SHARE
Basic $ 0.24 $ 0.24
============ ============
Diluted $ 0.22 $ 0.22
============ ============
Number of shares used in computation
Basic 4,998,422 4,958,679
============ ============
Diluted 5,452,486 5,341,469
============ ============
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)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,186,000 $ 1,184,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 254,000 235,000
Minority interest earnings 6,000 103,000
Interest income accrued on advances to vendor (50,000) (45,000)
Changes in operating assets:
Accounts receivable (556,000) (1,875,000)
Inventories (774,000) 1,186,000
Prepaid expenses and other assets (179,000) 79,000
Changes in operating liabilities:
Accounts payable 387,000 1,056,000
Accrued liabilities 98,000 686,000
Income taxes payable (298,000) 423,000
----------- -----------
Net cash provided by operating activities 74,000 3,032,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,573,000) (327,000)
Proceeds from (acquisition of) other assets 10,000 (94,000)
----------- -----------
Net cash used by investing activities (1,563,000) (421,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit, net 619,000 1,083,000
Net proceeds from the issuance of capital stock 140,000 --
Repayments of long-term obligations (176,000) (92,000)
----------- -----------
Net cash provided by financing activities 583,000 991,000
----------- -----------
INCREASE (DECREASE) IN CASH (906,000) 3,602,000
CASH AT BEGINNING OF PERIOD 2,325,000 1,820,000
----------- -----------
CASH AT END OF PERIOD $ 1,419,000 $ 5,422,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-Cash Investing Activities
Purchase of equipment on accounts payable $ -- $ 729,000
=========== ===========
Cash paid during the period for:
Interest $ 48,000 $ 63,000
=========== ===========
Income taxes $ 1,082,000 $ 661,000
=========== ===========
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, condensed financial
statements have been prepared in accordance with the instruction to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the financial position and results of operations have been
included. Operating results for interim periods are not necessarily indicative
of the results that may be expected for the full year. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the calendar year ended December
31, 1997.
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiary, Diodes Taiwan Co., Ltd. (a foreign
subsidiary), and the accounts of the KaiHong joint venture in which the Company
has a 95% controlling 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 $1,096,000 resulting from temporary differences in bases
of assets and liabilities. This deferred tax asset results primarily from
inventory reserves and 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 reasons for
this difference are (i) in accordance with Chinese tax policy, earnings of the
KaiHong joint venture are not subject to tax for the first two years upon
commencement of profitable operations, and (ii) earnings of the Company's
subsidiary in Taiwan are subject to tax at a lower rate than in the U.S.
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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 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 provider 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, Schottkys, diodes, rectifiers and bridges.
In July 1997, Vishay Intertechnology, Inc. ("Vishay") and the
Lite-On Group, a Taiwanese consortium, formed a joint venture -- Vishay/Lite-On
Power Semiconductor Pte., LTD. ("Vishay/LPSC") -- to acquire Lite-On Power
Semiconductor Corp. ("LPSC"), the Company's largest shareholder and a member of
the Lite-On Group of the Republic of China. Vishay, with worldwide sales
exceeding $1 billion, is the largest U.S. and European manufacturer of passive
electronic components. The Lite-On Group, with worldwide sales of almost $2
billion, is a leading manufacturer of power semiconductors, computer
peripherals, and communication products. The Vishay/LPSC joint venture includes
the worldwide discrete power semiconductor business of LPSC and the Asian
passive component business of Vishay. Vishay holds a 65% controlling interest in
the joint venture, and the Lite-On Group holds the other 35%.
The Company intends to continue to explore marketing methods to
use Vishay's resources combined with planned enhancements to its own engineering
and manufacturing capabilities, to develop ever more advanced products, to
enhance product quality, and to further enhance customer service. The
relationship with Vishay has provided opportunities for the Company to have its
products offered by some of the world's largest distributors.
In October 1997, the Company initially announced that its
discrete semiconductor products would be marketed under a single brand --
"Vishay/Lite-On Power Semiconductor" -- to capture the benefits of uniform brand
identity. Subsequently, in March 1998, Vishay acquired the semiconductor
business unit of Temic Telefunken Microelectronic GmbH Heilbronn, Germany
("Telefunken"). The Company is negotiating with Vishay for the North American
rights to offer the Telefunken product line. There can be no assurance that the
Company will be successful in obtaining such rights.
In July 1997, General Semiconductor Corporation, formerly General
Instrument Corporation, announced that it would acquire the discrete
semiconductor business of ITT, one of the Company's major suppliers. As a result
of this announcement, ITT notified the Company of their intent to terminate
their distribution agreement with the Company under the terms of the contract,
although the Company continues to receive product from the new owners of ITT.
The Company will continue its strategic plan of locating alternate sources of
its products, including those provided by ITT. While the sale of ITT may
negatively impact the Company's 1998 sales by approximately $3.0 million, it is
anticipated that the lost sales may be offset by the Company's projected
increase in sales as well as by new sources of products in 1998. Alternate
sources for ITT products include, but are not limited to, KaiHong and other
sourcing agreements in place as well as those under negotiation. The Company
continually evaluates alternative sources of its products to assure its ability
to deliver high quality, cost effective products.
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One of the Company's primary strategic programs was the formation
of the KaiHong joint venture, formed in the first half of 1996. The KaiHong
joint venture, in which the Company has invested in a SOT-23 manufacturing
facility on mainland China, contributed positively to the Company's bottom line
throughout 1997, and provides replacements for a portion of the parts previously
manufactured by ITT. Due to the success of the first phase of KaiHong as well as
prevailing market conditions, the Company's Board of Directors has approved
funding for further expansion of the joint venture. The equipment expansion will
allow for the manufacturer of additional SOT-23 packaged components as well as
other surface-mount packaging. The capital required for the second and third
phases of KaiHong is estimated at $14 million and the Company's credit facility
will be used to finance the additional manufacturing capacity.
The Company purchases products from foreign suppliers primarily
in United States dollars. To a limited extent, and from time to time, the
Company contracts (e.g., a portion of the equipment purchases for the KaiHong
expansion) in foreign currencies, and, accordingly, its results of 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, any substantial increase in the
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 currency are not significant enough to justify the costs inherent in
currency hedging.
The Company's imported products are also subject to United
States customs duties and, in the ordinary course of business, the Company, from
time to time, is subject to claims by the United States Customs Service for
duties and other charges. The Company attempts to reduce the risk of doing
business in foreign countries by, among other things, contracting in U.S.
dollars, and, when possible, maintaining multiple sourcing of product groups
from several countries.
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") and is developing an implementation plan to resolve the issue. Y2K is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. The could result in a major system failure or
miscalculations. The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test the systems for the Y2K compliance.
Confirmation has been requested from the Company's primary processing vendors
that plans are being developed to address processing of transactions in the year
2000. Management is in the process of assessing the Y2K compliance expense and
related potential effect on the Company's earnings. The Company presently
believes that, with modifications to existing software and conversions to new
software, Y2K will not pose significant operational problems for the Company's
computer systems, as so modified and converted. However, if such modifications
and conversions are not completed timely, Y2K may have a material impact on the
operations of the Company.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
The following table sets forth, for the periods indicated, the
percentage which certain items in the statement of income bear to net sales and
the percentage dollar increase (decrease) of such items from period to period.
PERCENTAGE
PERCENT OF NET SALES DOLLAR INCREASE
THREE MONTHS ENDED MARCH 31, (DECREASE)
---------------------------- ---------------
1998 1997 '97 TO '98
-------- -------- ---------------
Net sales 100.0% 100.0% 1.9%
Cost of goods sold (73.9) (71.5) 5.3
-------- -------- --------
Gross profit 26.1 28.5 (6.6)
Selling, general and administrative (16.8) (18.4) (6.5)
expenses
-------- -------- --------
Income from operations 9.3 10.1 (6.8)
Interest expense, net (0.1) (0.3) (84.4)
Commissions and other income 0.8 0.0 12,900.0
-------- -------- --------
Income before taxes 10.0 9.8 4.0
Income taxes 2.9 2.6 14.4
-------- -------- --------
Net income 7.1 7.2 0.2
======== ======== ========
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company for the
three months ended March 31, 1998 compared to the three months ended March 31,
1997. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this quarterly
report.
1998 1997
---- ----
NET SALES $ 16,804,000 $ 16,490,000
- ---------
Net sales increased approximately $314,000, or 1.9%, for the
three months ended March 31, 1998 compared to the same period last year, due
primarily to an increase in units sold of approximately 25.9% offset by a
decrease in the average selling price per unit of approximately 19.6%. The
increase in units sold was due to increased customer demand for the Company's
existing products, primarily in Asian markets.
1998 1997
---- ----
GROSS PROFIT $ 4,392,000 $ 4,701,000
- ------------
GROSS PROFIT MARGIN PERCENTAGE 26.1% 28.5%
- ------------------------------
Gross profit decreased approximately $309,000, or 6.6%, and gross
profit margin decreased to 26.1% from 28.5%, for the three months ended March
31, 1998 compared to the same period a year ago, primarily as a result of severe
pricing pressures, primarily in Asian markets.
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1998 1997
---- ----
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ("SG&A") $ 2,832,000 $ 3,028,000
-----------------
SG&A for the three months ended March 31, 1998 decreased
approximately $196,000, or 6.5%, compared to the same period last year, due
primarily to a decrease in operating expenses associated with improved cost
controls at the Company's U.S. operations. SG&A as a percentage of net sales
decreased to 16.8% for the three months ended March 31, 1998 from 18.4% for the
same period last year.
1998 1997
---- ----
INTEREST INCOME $ 83,000 $ 45,000
- ---------------
INTEREST EXPENSE $ 93,000 $ 103,000
- ----------------
Interest income for the three months ended March 31, 1998
increased approximately $38,000, or 84.4%, compared to the same period last
year. Interest income is primarily the interest charged to FabTech, a related
party, under the Company's loan agreement, as well as earnings on its cash
balances. The Company's interest expense for the three months ended March 31,
1998 decreased approximately $10,000, or 9.7%, primarily as a result debt
reduction. Interest expense is primarily the result of the term loan by which
the Company financed (i) the investment in the KaiHong joint venture and (ii)
the $2.8 million advanced to FabTech.
1998 1997
---- ----
MINORITY INTEREST IN JOINT VENTURE $ (5,000) $ (90,000)
- ----------------------------------
Minority interest in joint venture for the three months ended
March 31, 1998 represents the minority investor's share of the KaiHong joint
venture's net income for the period. The joint venture investment is eliminated
in consolidation of the Company's financial statements and the activities of
KaiHong are included therein. As of March 31, 1998, the Company had a 95%
controlling interest in the joint venture compared to 70% in the same period
last year. The Company increased its interest in KaiHong through an arrangement
in accordance with the original joint venture agreement and through the purchase
of a substantial portion of the minority interest in the fourth quarter of 1997.
1998 1997
---- ----
COMMISSIONS AND OTHER INCOME $ 133,000 $ 89,000
- ----------------------------
Other income for the three months ended March 31, 1998 increased
approximately $44,000, or 49.4%, compared to the same period last year, due
primarily to currency exchange gains at the Company's Taiwan subsidiary, partly
offset by decreased commissions earned by the Company's Taiwan subsidiary on
drop shipment sales in Asia.
1998 1997
---- ----
INCOME TAX PROVISION $ 492,000 $ 430,000
- --------------------
EFFECTIVE TAX RATE 29.3% 26.6%
Income tax expense for the three months ended March 31, 1998
increased approximately $62,000, or 14.4%, compared to the same period last
year. The Company's effective tax rate in the current quarter increased to 29.3%
from 26.6% for the same period last year, as a result of the decrease in net
income from the KaiHong joint venture, which under Chinese tax law is exempt
from tax for the first two years upon commencing profitable operation. Also
contributing to the effective tax rate increase was a decrease in the proportion
of the earnings of the Company's subsidiary in Taiwan, which are subject to a
lower tax rate than in the U.S.
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FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities for the three months ended
March 31, 1998 was approximately $74,000 compared to cash provided by operating
activities of approximately $3.0 million for the three months ended March 31,
1997. The primary source of cash flows from operating activities for the three
months ended March 31, 1998 was net income of approximately $1.2 million, while
the primary use of cash flows from operating activities was an increase in
inventories of approximately $774,000. The Company believes that its current
level of inventory is necessary to effectively service current and new customers
as well as to provide for managed growth. The primary sources of cash flows from
operating activities for the three months ended March 31, 1997 was net income of
approximately $1.2 million and a decrease in inventories of approximately $1.2
million, while the primary use of cash flows from operating activities was
approximately $1.9 million increase in accounts receivable. The Company
continues to closely monitor its credit policy while, at times, providing more
flexible terms primarily to its Asian customers, when necessary. The ratio of
the Company's current assets to current liabilities on March 31, 1998 was 2.64
to 1 compared to a ratio of 2.79 to 1 as of December 31, 1997.
Cash used by investing activities was approximately $1.6 million
for the three months ended March 31, 1998, compared to approximately $421,000
for the same period in 1997. The primary investments in 1998 was for additional
manufacturing equipment at KaiHong.
Cash provided by financing activities was approximately $583,000
as of March 31, 1998, compared to approximately $991,000 for the same period in
1997 as the Company continues to use its line of credit.
In March 1998, the Company amended an August 1996 loan agreement
whereby the Company obtained a $23 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 $14 million for plant expansion, advances to
vendors, and letters of credit for KaiHong. Interest on outstanding borrowings
under the credit agreement is payable monthly at LIBOR plus a negotiated margin.
The agreement has certain covenants and restrictions which, among other matters,
requires the maintenance of certain financial ratios and operating results, as
defined in the agreement. The Company was in compliance as of March 31, 1998.
The working capital line of credit expires June 30, 2000 and contains a sublimit
of $3.0 million for issuance of commercial and stand-by letters of credit. The
weighted average interest rate on outstanding borrowings was approximately 7.1%
for the three months ended March 31, 1998. As of March 31, 1998, approximately
$3.9 million is outstanding under the term note commitment.
The Company uses its credit facility to fund the advances to
FabTech and KaiHong as well as to support its operations. 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.
The Company's total working capital decreased approximately 1.1%
to $18.5 million as of March 31, 1998 from $18.7 million as of December 31,
1997. The Company believes that its working capital position will be sufficient
for its capital requirements in the foreseeable future.
As of March 31, 1998, the Company has no material plans or
commitments for capital expenditures other than for the KaiHong expansion.
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
credit and financial position will provide sufficient access to funds should an
appropriate investment opportunity arise and, thereby, assist the Company in
improving customer satisfaction and in maintaining or increasing product market
penetration.
The Company's debt to equity ratio was 0.55 at March 31, 1998
compared to 0.56 at December 31, 1997. The Company anticipates this ratio may
increase should the Company continue to use its credit facilities to fund
additional sourcing opportunities.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
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 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 Form 10-Q are
subject to, in addition to the other matters described in this 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, the
introduction of new products, the Company's ability to maintain customer
relationships, technological advancements, impact of competitive products and
pricing, growth in targeted markets, risks of foreign operations, the ability
and willingness of the Company's customers to purchase products provided by the
Company, the perceived absolute or relative overall value of these products by
the purchasers, including the features, quality, and price in comparison to
other competitive products, the level of availability of products and
substitutes and the ability and willingness of purchasers to acquire new or
advanced products, and pricing, purchasing, financing, operating, 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, the
amount and rate of sales growth and the Company's selling, general and
administrative expenses, difficulties in obtaining materials, supplies and
equipment, difficulties of delays in the development, production, testing and
marketing of products including, but not limited to, failure to ship new
products and technologies when anticipated, the failure of customers to accept
these products or technologies when planned, defects in products, any failure of
economies to develop when planned, the acquisition of fixed assets and other
assets, including inventories and receivables, the making or incurring of any
expenditures, the effects of and changes in trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations and social and economic conditions, such as trade restriction or
prohibition, inflation and monetary fluctuation, import and other charges or
taxes, the ability or inability of the Company to obtain or hedge against
foreign currency, foreign exchange rates and fluctuations in those rates,
intergovernmental disputes as well as actions affecting frequency, use and
availability, the costs and other effects of legal investigations, claims and
changes in those items, 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 or in
compensation benefit plans, and 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, and the amount, and the
cost of financing which the Company has, and any changes to that financing, and
any other information detailed from time to time in the Company's filings with
the United States Securities and Exchange Commission.
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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.
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 10.23 - Fifth Amendment to Loan Agreement
Exhibit 10.24 - Term Loan B Facility Note
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(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)
/s/ Joseph Liu May 11, 1998
- --------------------------------------------
JOSEPH LIU
Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT - 10.23 FIFTH AMENDMENT TO LOAN AGREEMENT Page 16
EXHIBIT - 10.24 TERM LOAN B FACILITY NOTE Page 19
EXHIBIT - 11 COMPUTATION OF EARNINGS PER SHARE Page 24
EXHIBIT - 27 FINANCIAL DATA SCHEDULE Page 25
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