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EX-32.1 - EX-32.1 - DIODES INC /DEL/diod-ex321_9.htm
EX-10.1 - EX-10.1 - DIODES INC /DEL/diod-ex101_15.htm
EX-10.2 - EX-10.2 - DIODES INC /DEL/diod-ex102_387.htm
EX-32.2 - EX-32.2 - DIODES INC /DEL/diod-ex322_10.htm
EX-31.1 - EX-31.1 - DIODES INC /DEL/diod-ex311_8.htm
EX-31.2 - EX-31.2 - DIODES INC /DEL/diod-ex312_6.htm

 

 

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, 2016

Or

¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     .

Commission file number: 002-25577

 

DIODES INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

95-2039518

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

4949 Hedgcoxe Road, Suite 200

Plano, Texas

 

75024

(Address of principal executive offices)

 

(Zip code)

(972) 987-3900

(Registrant’s telephone number, including area code)

 

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   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨     No  x

The number of shares of the registrant’s Common Stock outstanding as of May 3, 2016 was 48,325,322.

 

 


 


 

 

Table of Contents

 

 

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

237,006

 

 

$

218,435

 

Short-term investments

 

43,051

 

 

 

64,685

 

Accounts receivable, net of allowances of $2,729 and $2,625 at

  March 31, 2016 and December 31, 2015, respectively

 

216,507

 

 

 

218,496

 

Inventories

 

204,976

 

 

 

202,832

 

Prepaid expenses and other

 

42,990

 

 

 

46,103

 

Total current assets

 

744,530

 

 

 

750,551

 

Property, plant and equipment, net

 

431,192

 

 

 

439,340

 

Deferred income tax, non-current

 

44,892

 

 

 

45,120

 

Goodwill

 

134,125

 

 

 

132,913

 

Intangible assets, net

 

191,071

 

 

 

196,409

 

Other

 

34,123

 

 

 

34,494

 

Total assets

$

1,579,933

 

 

$

1,598,827

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

87,429

 

 

$

86,463

 

Accrued liabilities

 

72,706

 

 

 

77,801

 

Income tax payable

 

2,680

 

 

 

5,117

 

Current portion of long-term debt

 

10,290

 

 

 

10,282

 

Total current liabilities

 

173,105

 

 

 

179,663

 

Long-term debt, net of current portion

 

439,948

 

 

 

453,738

 

Deferred tax liabilities

 

32,275

 

 

 

32,276

 

Other long-term liabilities

 

88,325

 

 

 

90,153

 

Total liabilities

 

733,653

 

 

 

755,830

 

 

 

 

 

 

 

 

 

Commitments and contingencies (See Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; no

  shares issued or outstanding

 

-

 

 

 

-

 

Common stock - par value $0.66 2/3 per share; 70,000,000 shares authorized;

  48,300,695 and 48,148,077, issued and outstanding at March 31, 2016

  and December 31, 2015,  respectively

 

32,512

 

 

 

32,404

 

Additional paid-in capital

 

346,131

 

 

 

344,086

 

Retained earnings

 

512,547

 

 

 

514,280

 

Treasury stock, at cost, 466,010 shares held at March 31, 2016

  and December 31, 2015

 

(11,009

)

 

 

(11,009

)

Accumulated other comprehensive loss

 

(81,612

)

 

 

(84,416

)

Total stockholders' equity

 

798,569

 

 

 

795,345

 

Noncontrolling interest

 

47,711

 

 

 

47,652

 

Total equity

 

846,280

 

 

 

842,997

 

Total liabilities and stockholders' equity

$

1,579,933

 

 

$

1,598,827

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

-3-


DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

Net sales

$

222,738

 

 

$

206,182

 

 

Cost of goods sold

 

158,518

 

 

 

142,269

 

 

Gross profit

 

64,220

 

 

 

63,913

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Selling, general and administrative

 

39,454

 

 

 

31,731

 

 

Research and development

 

18,149

 

 

 

13,309

 

 

Amortization of acquisition related intangible assets

 

5,131

 

 

 

1,922

 

 

Other operating expenses

 

31

 

 

 

48

 

 

Total operating expenses

 

62,765

 

 

 

47,010

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

1,455

 

 

 

16,903

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

456

 

 

 

298

 

 

Interest expense

 

(2,512

)

 

 

(1,064

)

 

Gain on securities carried at fair value

 

-

 

 

 

71

 

 

Other expense

 

(1,436

)

 

 

(244

)

 

Total other income (expense)

 

(3,492

)

 

 

(939

)

 

 

 

 

 

 

 

 

 

 

(Loss) income before income taxes and noncontrolling interest

 

(2,037

)

 

 

15,964

 

 

Income tax (benefit) provision

 

(552

)

 

 

4,187

 

 

Net (loss) income

 

(1,485

)

 

 

11,777

 

 

Less net income attributable to noncontrolling interest

 

(248

)

 

 

(645

)

 

Net (loss) income attributable to common stockholders

$

(1,733

)

 

$

11,132

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

$

(0.04

)

 

$

0.23

 

 

Diluted

$

(0.04

)

 

$

0.23

 

 

Number of shares used in (loss) earnings per share computation:

 

 

 

 

 

 

 

 

Basic

 

48,288

 

 

 

47,667

 

 

Diluted

 

48,288

 

 

 

48,978

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

-4-


 

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net (loss) income

$

(1,485

)

 

$

11,777

 

Foreign currency translation adjustment

 

2,881

 

 

 

(6,160

)

Unrealized loss on defined benefit plan, net of tax

 

(74

)

 

 

(1,813

)

Unrealized foreign currency loss, net of tax

 

(3

)

 

 

(498

)

Comprehensive income

 

1,319

 

 

 

3,306

 

Less: Comprehensive income attributable to noncontrolling interest

 

(248

)

 

 

(645

)

Total comprehensive income attributable to common stockholders

$

1,071

 

 

$

2,661

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

-5-


DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Cash flows from operating activities

$

25,453

 

 

$

38,568

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Decrease in restricted cash

 

3

 

 

 

486

 

Purchases of property, plant and equipment

 

(13,561

)

 

 

(23,539

)

Proceeds from sales of property, plant, and equipment

 

19

 

 

 

-

 

Purchases of short-term investments

 

(7,330

)

 

 

(24,985

)

Proceeds from maturity of short-term investments

 

29,289

 

 

 

10,007

 

Other

 

291

 

 

 

(148

)

Net cash and cash equivalents provided by (used in) investing activities

 

8,711

 

 

 

(38,179

)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Advances on lines of credit and short-term debt

 

-

 

 

 

965

 

Taxes paid related to net share settlement

 

(2,335

)

 

 

-

 

Repayments on lines of credit and short-term debt

 

-

 

 

 

(1,067

)

Debt issuance costs

 

(22

)

 

 

-

 

Proceeds from long-term debt

 

1,500

 

 

 

-

 

Repayments of long-term debt

 

(15,569

)

 

 

(23,071

)

Net proceeds from issuance of common stock

 

5

 

 

 

5,649

 

Repayment of capital lease obligation and other

 

(843

)

 

 

(88

)

Net cash and cash equivalents used in financing activities

 

(17,264

)

 

 

(17,612

)

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

1,671

 

 

 

(3,664

)

Increase (decrease) in cash and cash equivalents

 

18,571

 

 

 

(20,887

)

Cash and cash equivalents, beginning of period

 

218,435

 

 

 

243,000

 

Cash and cash equivalents, end of period

$

237,006

 

 

$

222,113

 

 

 

 

 

 

 

 

 

Supplemental disclosure

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

Property, plant and equipment purchased on accounts payable

$

697

 

 

$

(10,281

)

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

-6-


 

DIODES INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – Nature of Operations, Basis of Presentation and Recently Issued Accounting Pronouncements

Nature of Operations

Diodes Incorporated, together with its subsidiaries (collectively, the “Company,” “we” or “our”), (Nasdaq: DIOD), is a leading global manufacturer and supplier of high-quality, application-specific standard products within the broad discrete, logic, analog and mixed-signal semiconductor markets. We serve the consumer electronics, computing, communications, industrial, and automotive markets. Our products include diodes, rectifiers, transistors, MOSFETs, protection devices, function-specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching and linear voltage regulators, and voltage references along with special function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers. Our corporate headquarters and Americas’ sales office are located in Plano, Texas and Milpitas, California. Design, marketing, and engineering centers are located in Plano; Milpitas; Taipei; Taoyuan City, and Zhubei City, Taiwan; Manchester, England; and Neuhaus, Germany. Our wafer fabrication facilities are located in Kansas City, Missouri and Manchester, with an additional facility located in Shanghai, China. We have assembly and test facilities located in Shanghai, Jinan, Chengdu, and Yangzhou, China, as well as in Hong Kong, Neuhaus and Taipei. Additional engineering, sales, warehouse, and logistics offices are located in Taipei; Hong Kong; Manchester; Shanghai; Shenzhen, China; Seongnam-si, South Korea; and Munich, Germany, with support offices throughout the world.

Basis of Presentation

The condensed consolidated financial data at December 31, 2015 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”) on March 11, 2016 (“Form 10-K”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, operating results and cash flows in conformity with GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Form 10-K.  All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the operating results for the period presented have been included in the interim period. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2016.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. As permitted under GAAP, interim accounting for certain expenses, including income taxes, are based on full year forecasts. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates taking into consideration discrete items occurring in a quarter. Dollar amounts and share amounts are presented in thousands, except per share amounts, unless otherwise noted. Certain prior year’s balances have been reclassified to conform to the current financial statement presentation.

 

Recently Issued Accounting Pronouncements

 

The Financial Accounting Standards Board (“FASB”) issued the following Accounting Standards Updates (“ASU”) which could have potential impact to the Company’s financial statements:

ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost (“ASU 2015-03”). This standard requires that costs associated with the issuance of debt previously recorded as deferred assets on the balance sheet now are reported as a direct reduction of the related debt balance. This standard is effective for interim and annual periods beginning January 1, 2016, but early adoption is permitted. We adopted this standard in the first quarter of 2016 and applied the standard retrospectively to all prior periods presented. The adoption of ASU 2015-03 resulted in a $2.2 million retrospective reduction of both our other assets and long-term notes payable, net of current portion, as of December 31, 2015.  Adoption of this standard had no impact on the consolidated statements of operations.  

ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16"). This standard eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. These changes became effective for fiscal years beginning after

-7-


 

December 31, 2015. We adopted this standard in the first quarter of 2016 and had adjustments to the previously reported fair values recorded related to the Pericom transaction.  See Note 11 for additional information related to these adjustments. Adoption of this standard had no impact on the consolidated statements of operations.  

ASU No. 2016-07, Investments-Equity Method and Joint Ventures (Topic 323) (“ASU 2016-07”). The amendments in this update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted.  We are evaluating the effect that ASU 2016-07 will have on our consolidated financial statements and related disclosures.

ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”).  This standard is designed to make accounting for share-based payment transactions less complex for public and private companies. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.  We are evaluating the effect ASU 2016-09 will have on our consolidated financial statements and related disclosures.

 

NOTE 2 – Earnings per Share

Earnings per share (“EPS”) are calculated by dividing net income attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted EPS are calculated similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-dilutive. A total of 2.6 million and 0.5 million options and stock awards outstanding during the three months ended March 31, 2016 and 2015, respectively, were excluded from the calculation because the effect was anti-dilutive.  

The table below sets forth the reconciliation between net income and the weighted average shares outstanding used for calculating basic and diluted EPS for the three months ended March 31, 2016 and 2015:

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Earnings (numerator)

 

 

 

 

 

 

 

Net (loss) income attributable to common stockholders

$

(1,733

)

 

$

11,132

 

 

 

 

 

 

 

 

 

Shares (denominator)

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

48,288

 

 

 

47,667

 

Dilutive effect of stock options and stock awards outstanding

 

-

 

 

 

1,311

 

Adjusted weighted average common shares outstanding (diluted)

 

48,288

 

 

 

48,978

 

 

 

 

 

 

 

 

 

(Loss) earnings per share attributable to common stockholders

 

 

 

 

 

 

 

Basic

$

(0.04

)

 

$

0.23

 

Diluted

$

(0.04

)

 

$

0.23

 

 

 

 

-8-


 

NOTE 3 – Inventories

The table below sets forth inventories which are stated at the lower of cost or market value:

 

 

March 31, 2016

 

 

December 31, 2015

 

Raw materials

$

88,471

 

 

$

86,103

 

Work-in-progress

 

46,559

 

 

 

46,061

 

Finished goods

 

69,946

 

 

 

70,668

 

Total

$

204,976

 

 

$

202,832

 

 

 

NOTE 4 – Goodwill and Intangible Assets

The table below sets forth the changes in goodwill:

 

Balance at December 31, 2015

$

132,913

 

Pericom measurement period adjustments (See Note 11)

 

2,046

 

Foreign currency translation adjustment

 

(834

)

Balance at March 31, 2016

$

134,125

 

The table below sets forth the value of intangible assets, other than goodwill:

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

Gross carrying amount

$

232,047

 

 

$

232,047

 

Accumulated amortization

 

(53,898

)

 

 

(48,828

)

Foreign currency translation adjustment

 

(7,919

)

 

 

(7,725

)

Total

 

170,230

 

 

 

175,494

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

Gross carrying amount

 

21,703

 

 

 

21,703

 

Foreign currency translation adjustment

 

(862

)

 

 

(788

)

Total

 

20,841

 

 

 

20,915

 

Total intangible assets, net

$

191,071

 

 

$

196,409

 

 

Amortization expense related to intangible assets subject to amortization was approximately $5.1 million and $1.9 million for the three months ended March 31, 2016 and 2015, respectively.   

 

NOTE 5 – Income Tax Provision

 

Income tax (benefit) expense of approximately $(0.6) million and $4.2 million was recorded for the three months ended March 31, 2016 and 2015, respectively.  This resulted in an effective tax rate of 27.1% for the three months ended March 31, 2016, as compared to 26.2% for the same period last year.  The effective tax rate for the three months ended March 31, 2016 includes an immaterial benefit for various discrete items.  The Company’s effective tax rates for the three months ended March 31, 2016 and 2015 were lower than the U.S. statutory rate of 35%, principally from the impact of income from lower-taxed jurisdictions.

For the three months ended March 31, 2016, the Company reported domestic and foreign pre-tax (loss)/income of approximately $(10.0) million and $7.7 million, respectively. Funds repatriated from foreign subsidiaries to the U.S. may be subject to federal and state income taxes. The Company intends to permanently reinvest overseas all of its earnings from its foreign subsidiaries, except to the extent such undistributed earnings have previously been subject to US tax; accordingly, deferred U.S. taxes are not recorded on undistributed foreign earnings.

The impact of tax holidays decreased our tax expense by approximately $0.8 million for the three months ended March 31, 2016 and $1.0 million for the three months ended March 31, 2015. The benefit of the tax holidays on both basic and diluted earnings per share for both the three months ended March 31, 2016 and 2015 was approximately $0.02.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2007, or for the 2010 tax

-9-


 

year.  The Company is no longer subject to China income tax examinations by tax authorities for tax years before 2005. With respect to state and local jurisdictions and countries outside of the U.S. (other than China), with limited exceptions, the Company is no longer subject to income tax audits for years before 2006. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties, if any, have been provided for in the Company’s reserve for any adjustments that may result from tax audits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in interest expense. As of March 31, 2016, the gross amount of unrecognized tax benefits was approximately $27.2 million.

It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.

 

NOTE 6 – Share-Based Compensation

The table below sets forth the line items where share-based compensation expense was recorded for the three months ended March 31, 2016 and 2015:

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Cost of goods sold

$

201

 

 

$

123

 

Selling, general and administrative

 

3,704

 

 

 

3,205

 

Research and development

 

614

 

 

 

352

 

Total share-based compensation expense

$

4,519

 

 

$

3,680

 

 

Stock Options. Stock options generally vest in equal annual installments over a four-year period and expire eight years after the grant date.  Stock option expense was estimated on the date of grant using the Black-Scholes-Merton option pricing model.

There were no cash proceeds received from stock option exercises during the three months ended March 31, 2016.  Stock option expense was approximately $0.5 million and $1.0 million for the three months ended March 31, 2016 and 2015, respectively. 

The table below sets forth a summary of stock option activity for the three months ended March 31, 2016:

Stock Options

 

Shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (years)

 

 

Aggregate Intrinsic Value

 

Outstanding at January 1, 2016

 

 

2,063

 

 

$

23.03

 

 

 

3.9

 

 

$

4,111

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited or expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding at March 31, 2016

 

 

2,063

 

 

$

23.03

 

 

 

3.7

 

 

$

1,777

 

Exercisable at March 31, 2016

 

 

1,776

 

 

$

22.82

 

 

 

3.3

 

 

$

1,714

 

 

The aggregate intrinsic value in the table above is before applicable income taxes and represents the amount option holders would have received if all options had been exercised on the last business day of the period indicated, based on our closing stock price.

As of March 31, 2016, total unrecognized share-based compensation expense related to unvested stock options, net of estimated forfeitures, was approximately $2.2 million, before income taxes, and is expected to be recognized over a weighted average period of approximately one year.

Share Grants. Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year period.

Share grant expense for the three months ended March 31, 2016 and 2015 was approximately $4.0 million and $3.0 million, respectively.    


-10-


 

The table below sets forth a summary of restricted stock awards and restricted stock units for the three months ended March 31, 2016:

 

Share Grants

 

Shares

 

 

Weighted Average Grant-Date Fair Value

 

 

Aggregate Intrinsic Value

 

Non-vested at January 1, 2016

 

 

2,679

 

 

$

23.51

 

 

$

61,247

 

Granted

 

 

1

 

 

 

22.30

 

 

 

-

 

Vested

 

 

(263

)

 

 

20.73

 

 

 

5,477

 

Forfeited

 

 

(34

)

 

 

22.88

 

 

 

-

 

Non-vested at March 31, 2016

 

 

2,383

 

 

$

22.95

 

 

$

47,900

 

 

As of March 31, 2016, total unrecognized share-based compensation expense related to non-vested restricted stock awards and restricted stock units, net of estimated forfeitures, was approximately $31.1 million, before income taxes, and is expected to be recognized over a weighted average period of approximately three years.

 

NOTE 7 – Segment Information and Enterprise-Wide Disclosure

 

For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various manufacturing and distribution facilities. We aggregate our products because the products are similar and have similar economic characteristics, use similar production processes and share the same customer type.

 

Our primary operations include operations in Asia, North America and Europe.

 

The tables below set forth net sales based on the location of subsidiaries producing the net sales:

 

As of and for the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

Asia

 

 

North America

 

 

Europe

 

 

Consolidated

 

Total sales

 

$

209,750

 

 

$

31,858

 

 

$

40,279

 

 

$

281,887

 

Intercompany elimination

 

 

(32,850

)

 

 

(11,034

)

 

 

(15,265

)

 

 

(59,149

)

Net sales

 

$

176,900

 

 

$

20,824

 

 

$

25,014

 

 

$

222,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

Asia

 

 

North America

 

 

Europe

 

 

Consolidated

 

Total sales

 

$

191,289

 

 

$

39,241

 

 

$

43,121

 

 

$

273,651

 

Intercompany elimination

 

 

(30,839

)

 

 

(16,640

)

 

 

(19,990

)

 

 

(67,469

)

Net sales

 

$

160,450

 

 

$

22,601

 

 

$

23,131

 

 

$

206,182

 

 

-11-


 

Geographic Information

The tables below set forth the amount of net sales that were derived from (shipped to) customers located in the following countries:

 

 

Net Sales for the

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Percentage of

 

 

March 31,

 

 

Net Sales

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

China

$

128,882

 

 

$

121,767

 

 

 

58

%

 

 

59

%

United States

 

19,106

 

 

 

20,427

 

 

 

9

%

 

 

10

%

Korea

 

13,801

 

 

 

17,265

 

 

 

6

%

 

 

8

%

Germany

 

14,906

 

 

 

15,331

 

 

 

7

%

 

 

7

%

Singapore

 

12,079

 

 

 

14,176

 

 

 

5

%

 

 

7

%

Taiwan

 

13,886

 

 

 

4,284

 

 

 

6

%

 

 

2

%

All others (1)

 

20,078

 

 

 

12,932

 

 

 

9

%

 

 

7

%

Total

$

222,738

 

 

$

206,182

 

 

 

100

%

 

 

100

%

(1) 

Represents countries with less than 3% of the total net sales each.

 

NOTE 8 – Commitments and Contingencies

Purchase commitments – As of March, 2016, we had approximately $18.5 million in non-cancelable purchase contracts related to capital expenditures, primarily related to Asia manufacturing facilities.

 

Contingencies – From time to time, we are involved in various legal proceedings that arise in the normal course of business. While we intend to defend any lawsuit vigorously, we presently believe that the ultimate outcome of any current pending legal proceeding will not have any material adverse effect on our financial position, cash flows or operating results. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact on our business and operating results for the period in which the ruling occurs or future periods.  Based on information available, we evaluate the likelihood of potential outcomes. We record the appropriate liability when the amount is deemed probable and reasonably estimable. In addition, we do not accrue for estimated legal fees and other directly related costs as they are expensed as incurred.  Legal proceedings that we believe are material are disclosed below.

 

On September 15, 2014, the United States District Court for the Eastern District of Texas issued an order regarding the putative securities class action entitled Local 731 I.B. of T. Excavators and Pavers Pension Trust Fund v. Diodes, Inc., Civil Action No. 6:13- cv-00247 (E.D. Tex. filed Mar. 15, 2013) (the Class Action), granting defendants’ motion to dismiss the Class Action with prejudice. On October 13, 2014, plaintiffs filed a notice of appeal to the order dismissing the Class Action to the United States Court of Appeals for the Fifth Circuit. On January 13, 2016, the Court of Appeals issued an order and opinion affirming the dismissal of the Class Action with prejudice.  Plaintiffs-appellants did not file a petition for a writ of certiorari to the United States Supreme Court by the deadline of April 12, 2016, and therefore the case is concluded.  

 

On February 20, 2014, a purported stockholder derivative action was filed in the United States District Court for the Eastern District of Texas, entitled Persson v. Keh-Shew Lu, Case No. 4:14-cv-00108-RC-ALM (E.D. Tex. filed Feb. 20, 2014), on behalf of the Company against its directors, in which plaintiff alleges that the Board breached their fiduciary duties by allowing the Company to make allegedly misleading public statements in 2011 regarding the labor market in China and its impact on the Company’s business and prospects, by failing to maintain internal controls and by selling shares of Diodes stock while allegedly in possession of material nonpublic information regarding the labor market in China and its impact on the Company’s business and prospects. The complaint does not seek any damages or other relief from the Company. On April 17, 2014, the Court granted the parties unopposed motion to stay this action until such time that the Court rules on defendants motion to dismiss in the Class Action. On October 2, 2014, the Court granted the parties unopposed motion to extend the stay of this action until 30 days after either the expiration of the appeal period or a final decision by the highest court of appeals regarding the defendants motion to dismiss in the Class Action. The defendants intend to defend the action vigorously.

In the course of the restructuring of Diodes’ Asian and UK subsidiaries, Diodes may have inadvertently breached the Company’s credit agreement.  A borrowing on the swing line under the credit agreement also constituted technical breaches of the credit agreement. Any breaches that occurred as a result of these matters have been cured or waived, and the borrowing on the swing line has been repaid.

-12-


 

 

 

NOTE 9 – Employee Benefit Plans

Defined Benefit Plan

We have a contributory defined benefit plan that covers certain employees in the United Kingdom (“U.K.”). The net pension and supplemental retirement benefit obligations and the related periodic costs are based on, among other things, assumptions regarding the discount rate, estimated return on plan assets and mortality rates. These obligations and related periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method used to compute the pension liabilities and related expenses.

Net periodic benefit costs associated with the defined benefit plan were less than $1 million for both the three months ended March 31, 2016 and 2015. 

The tables below set forth the benefit obligation, the fair value of plan assets, and the funded status of our plan:

 

 

Defined Benefit Plan

 

Change in benefit obligation:

 

 

 

Balance at December 31, 2015

$

145,019

 

Service cost

 

72

 

Interest cost

 

1,375

 

Actuarial gain

 

4,344

 

Benefits paid

 

(1,108

)

Currency changes

 

(4,466

)

Benefit obligation at March 31, 2016

$

145,236

 

 

 

 

 

Change in plan assets:

 

 

 

Fair value of plan assets at December 31, 2015

$

116,386

 

Actual return on plan assets

 

5,686

 

Employer contribution

 

287

 

Benefits paid

 

(1,108

)

Currency changes

 

(3,581

)

Fair value of plan assets at March 31, 2016

$

117,670

 

Underfunded status at March 31, 2016

$

27,566

 

 

 

Based on an actuarial study performed as of March 31, 2016, the plan is underfunded and a liability is reflected in our consolidated financial statements as a long-term liability. The weighted-average discount rate assumption used to determine benefit obligations as of March 31, 2016 was 3.7%.

 

The following weighted-average assumptions were used to determine net periodic benefit costs for the three months ended March 31, 2016:

 

Discount rate

 

4.0

%

Expected long-term return on plan assets

 

6.0

%

 

  In the first quarter of 2015, based on the pension deficit, we adopted (as required every three years) an amended payment plan with the trustee of the defined benefit plan in which we will pay approximately GBP 2 million (approximately $3 million based on a USD:GBP exchange rate of 1.6:1) annually through 2030.)  

              

We also have pension plans in Germany and Asia for which the benefit obligation, fair value of the plan assets and the funded status amounts are deemed immaterial and therefore, are not included in the figures or assumptions above.

 

-13-


 

Deferred Compensation

We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees and members of the Board of Directors. The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. We offset our obligations under the Deferred Compensation Plan by investing in the actual underlying investments. These investments are classified as trading securities and are carried at fair value. At March 31, 2016, these investments totaled approximately $5.5 million. All gains and losses in these investments are materially offset by corresponding gains and losses in the Deferred Compensation Plan liabilities.

 

NOTE 10 Related Parties

We conduct business with two related party companies, Lite-On Semiconductor Corporation and its subsidiaries and affiliates (collectively, “LSC”), and Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”). LSC is our largest stockholder, owning approximately 17% of our outstanding Common Stock as of March 31, 2016, and is a member of the Lite-On Group of companies. Raymond Soong, the Chairman of the Board of Directors, is the Chairman of LSC, and is the Chairman of Lite- On Technology Corporation (“LTC”), a significant shareholder of LSC. C.H. Chen, our former President and Chief Executive Officer and currently the Vice Chairman of the Board of Directors, is also Vice Chairman of LSC and a board member of LTC. Dr. Keh-Shew Lu, our President and Chief Executive Officer and a member of our Board of Directors, is a board member of LTC, and a board member of Nuvoton. L.P. Hsu, a member of our Board of Directors serves as a consultant to LTC, and is a supervisor of the board of Nuvoton. We consider our relationships with LSC and Nuvoton to be mutually beneficial, and we plan to continue our strategic alliance with LSC and Nuvoton.

We also conduct business with two significant companies, Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (collectively, “Keylink”), and Chengdu Ya Guang Electronic Company Limited (“Ya Guang”). Keylink is our 5% joint venture partner in our Shanghai assembly and test facilities. In addition, Ya Guang is our 5% joint venture partner in our two Chengdu assembly and test facilities; however, we have no material transactions with Ya Guang. The Audit Committee of the Board reviews all related party transactions for potential conflict of interest situations on an ongoing basis, all in accordance with such procedures as the Audit Committee may adopt from time to time.

Lite-On Semiconductor Corporation – We sell semiconductor products to LSC and purchase semiconductor products from LSC for subsequent sale, making LSC one of our largest suppliers.

 

The table below sets forth net sales to, and purchases from, LSC:

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net sales

$

120

 

 

$

305

 

Purchases

$

5,210

 

 

$

6,723

 

 

Keylink International (B.V.I.) Inc. – We sell semiconductor products to Keylink and purchase semiconductor products from Keylink for subsequent sale. In addition, our subsidiaries in China lease their manufacturing facilities in Shanghai from, and subcontract a portion of our manufacturing process (metal plating and environmental services) to, Keylink. We also pay a fee to Keylink for consulting services.  The aggregate amounts for these services for both the three months ended March 31, 2016 and 2015 were approximately $4.1 million and $4.4 million, respectively.  

The table below sets forth net sales to, and purchases from, Keylink:

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net sales

$

1,911

 

 

$

2,365

 

Purchases

$

1,260

 

 

$

1,516

 

 

-14-


 

Nuvoton Technology Corporation – We purchase wafers from Nuvoton that we use in the production of finished goods.  The table below sets forth net purchases from Nuvoton:

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Purchases

$

2,947

 

 

$

3,434

 

 

The table below sets forth accounts receivable from, and accounts payable to, LSC, Keylink and Nuvoton:

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Accounts receivable

 

 

 

 

 

 

 

LSC

$

72

 

 

$

55

 

Keylink

 

6,010

 

 

 

4,112

 

 

$

6,082

 

 

$

4,167

 

Accounts payable

 

 

 

 

 

 

 

LSC

$

4,402

 

 

$

2,845

 

Keylink

 

5,181

 

 

 

5,147

 

Nuvoton

 

1,400

 

 

 

1,477

 

 

$

10,983

 

 

$

9,469

 

 

 

NOTE 11 – Pericom Semiconductor Corporation Acquisition

 

During the fourth quarter of 2015, we completed the acquisition of Pericom Semiconductor Corporation (“Pericom”).  The effect of the Pericom acquisition is reflected in our audited consolidated financial statements included in our Form 10-K filed with the SEC on March 11, 2016.   

During the first quarter of 2016 we continued to finalize our purchase price allocation during the measurement period and obtained new information related to the assets acquired and liabilities assumed of Pericom. The facts and circumstances existed at the date of acquisition and, if known, would have affected the measurement of the amounts recognized at that date. In accordance with ASC 805, Business Combinations, measurement period adjustments are not included in current earnings, but recognized as of the date of the acquisition with a corresponding adjustment to goodwill resulting from the change in preliminary amounts. As a result, we adjusted the preliminary allocation of the purchase price initially recorded at the acquisition date to reflect these measurement period adjustments. While significant progress was made during the first quarter, the allocation is still preliminary and subject to change.  The size and breadth of the Pericom acquisition will necessitate the use of the one year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date including (i) changes in fair values of fixed assets and inventories, (ii) changes in allocations of intangible assets such as trademarks and in process research and development and developed technology, as well as goodwill, and (iii) other changes to assets and liabilities. The final allocation may also result in changes to amortization periods assigned to the assets. Any potential adjustments made could be material in relation to the preliminary values. A final determination of the allocation of the purchase price to the assets acquired and liabilities assumed has not been completed and the following table is considered preliminary. These measurement period adjustments recorded in the first quarter of 2016 had no impact on our condensed consolidated statement of operations.

The table below sets forth the original preliminary fair values determined under the acquisition method as of November 24, 2015, the measurement period adjustments for the three months ended March 31, 2016 and the revised preliminary fair values as of November 24, 2015.

-15-


 

 

Preliminary

 

 

Measurement

 

 

Adjusted

 

 

November 24, 2015

 

 

Period Adjustments

 

 

November 24, 2015

 

Assets acquired:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

48,806

 

 

$

-

 

 

$

48,806

 

Short-term investments

 

72,537

 

 

 

-

 

 

 

72,537

 

Accounts receivable