<PAGE> 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 SEPTEMBER 30, 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 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 2, 1998 was 6,164,352 including 717,115 shares of
treasury stock.
THIS REPORT INCLUDES A TOTAL OF 25 PAGES
THE EXHIBIT INDEX IS ON PAGE 18
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL INFORMATION
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,406,000 $2,325,000
Accounts receivable
Customers 9,489,000 10,342,000
Related party 421,000 213,000
Other 1,169,000 916,000
----------- -----------
11,079,000 11,471,000
Less allowance for doubtful receivables 128,000 74,000
----------- -----------
10,951,000 11,397,000
Inventories 13,338,000 13,525,000
Deferred income taxes 1,101,000 1,096,000
Prepaid expenses and other 1,566,000 806,000
----------- -----------
Total current assets 28,362,000 29,149,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 10,828,000 5,165,000
ADVANCES TO RELATED PARTY VENDOR 2,958,000 2,821,000
OTHER ASSETS 1,212,000 1,219,000
----------- -----------
TOTAL ASSETS $43,360,000 $38,354,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Due to bank $ 2,297,000 $1,000,000
Accounts payable
Trade 2,571,000 4,567,000
Related party 1,474,000 952,000
Accrued liabilities 2,057,000 1,988,000
Income taxes payable 688,000 912,000
Current portion of long-term debt 1,729,000 1,031,000
----------- -----------
Total current liabilities 10,816,000 10,450,000
LONG-TERM DEBT, net of current portion 5,038,000 3,226,000
MINORITY INTEREST IN JOINT VENTURE 536,000 225,000
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; 5,764,352 and 5,701,019
shares issued and outstanding at September 30, 1998
and December 31, 1997, respectively 3,843,000 3,801,000
Additional paid-in capital 6,027,000 5,813,000
Retained earnings 18,882,000 16,621,000
----------- -----------
28,752,000 26,235,000
Less:
Treasury stock - 717,115 shares of common stock
at cost 1,782,000 1,782,000
----------- -----------
Total stockholders' equity 26,970,000 24,453,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $43,360,000 $38,354,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 14,646,000 $ 16,939,000 $ 45,784,000 $ 48,969,000
COST OF GOODS SOLD 11,032,000 12,517,000 34,172,000 35,159,000
------------ ------------ ------------ ------------
Gross profit 3,614,000 4,422,000 11,612,000 13,810,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,811,000 2,569,000 8,543,000 8,647,000
------------ ------------ ------------ ------------
Income from operations 803,000 1,853,000 3,069,000 5,163,000
OTHER INCOME (EXPENSE)
Interest income 65,000 73,000 214,000 206,000
Interest expense (150,000) (98,000) (404,000) (298,000)
Minority interest in
joint venture earnings (3,000) (42,000) (6,000) (290,000)
Commissions and other 72,000 159,000 321,000 361,000
------------ ------------ ------------ ------------
(16,000) 92,000 125,000 (21,000)
INCOME BEFORE INCOME TAXES 787,000 1,945,000 3,194,000 5,142,000
PROVISION FOR INCOME TAXES 233,000 604,000 933,000 1,388,000
------------ ------------ ------------ ------------
NET INCOME $ 554,000 $ 1,341,000 $ 2,261,000 $ 3,754,000
============ ============ ============ ===========
EARNINGS PER SHARE
BASIC $ 0.11 $ 0.27 $ 0.45 $ 0.76
DILUTED $ 0.11 $ 0.24 $ 0.42 $ 0.69
============ ============ ============ ===========
Number of shares used in
computation
Basic 5,047,237 4,977,033 5,022,939 4,966,256
Diluted 5,231,630 5,539,699 5,366,861 5,450,771
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,261,000 $ 3,754,000
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 790,000 712,000
Minority interest earnings 6,000 290,000
Interest income accrued on advances to vendor (137,000) (141,000)
Changes in operating assets:
Accounts receivable 446,000 (2,337,000)
Inventories 187,000 680,000
Prepaid expenses and other assets (753,000) (628,000)
Changes in operating liabilities:
Accounts payable (1,474,000) 876,000
Accrued liabilities 69,000 758,000
Income taxes payable (224,000) 842,000
----------- -----------
Net cash provided by operating activities 1,171,000 4,806,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (6,458,000) (732,000)
----------- -----------
Net cash used by investing activities (6,458,000) (732,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit, net 1,297,000 1,000,000
Net proceeds from the issuance of capital stock 256,000 62,000
Minority interest capital contribution 305,000 13,000
Proceeds from (repayments of) long-term obligations 2,510,000 (703,000)
----------- -----------
Net cash provided by financing activities 4,368,000 372,000
----------- -----------
INCREASE (DECREASE) IN CASH (919,000) 4,446,000
CASH AT BEGINNING OF PERIOD 2,325,000 1,820,000
----------- -----------
CASH AT END OF PERIOD $ 1,406,000 $ 6,266,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 190,000 $ 233,000
=========== ===========
Income taxes $ 757,000 $ 1,263,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
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 $1,101,000 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.
Under Federal tax law foreign earnings are taxed when funds are
distributed by foreign subsidiaries to the parent Company. A temporary
difference between financial and tax reporting exists for profits earned at the
foreign subsidiary level not distributed to the parent. As of September 30, 1998
the Company had undistributed earnings at its Taiwanese subsidiary which, at
effective Federal and State tax rates, less applicable credits for foreign taxes
paid, results in a deferred tax liability. Management has not recognized a
deferred tax liability for undistributed earnings because it considers earnings
accumulated and undistributed through September 30, 1998 to be permanent
reinvestments of capital in Taiwan.
NOTE C - ADVANCES TO RELATED PARTY VENDOR
Under a compensation-trade agreement the Company has advanced
$2.5 million in cash and equipment to a related party vendor, FabTech
Incorporated, a wholly owned subsidiary of LPSC. Interest accrues monthly at the
Company's borrowing rate with total accrued interest of approximately $475,000
as of September 30, 1998. Amounts advanced, including interest, are payable
beginning after 1998 and expiring February 2001 when any outstanding balances
become due on demand. The compensation-trade agreement allows the Company to
recover interest and principal due by deducting a fixed amount per unit for
products purchased from the vendor.
6
<PAGE> 7
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 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.
Since the beginning of 1998, the Company's operations have been
adversely affected by a slowdown throughout the electronics industry that has
included the semiconductor segment. Over-capacity, lower average selling prices,
and higher customer inventory levels have contributed to the decreased demand.
In the first nine months of 1998, the Company significantly
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,
primarily at its U.S. operations.
One of the Company's primary strategic programs has been the
formation of the KaiHong joint venture. The KaiHong joint venture, in which the
Company has invested in a SOT-23 manufacturing facility on mainland China,
provides replacements for a portion of the parts previously purchased from ITT.
Due to the success of the first phase of KaiHong, the Company's Board of
Directors 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. In the second
quarter of 1998, due to the market slowdown, management re-evaluated the KaiHong
expansion, and determined to continue proceeding with a scaled-down version of
the expansion.
Currently, the Company is in negotiations to become a significant
supplier to a European customer. Should negotiations prove successful, this
increased demand will warrant KaiHong's expansion as originally planned. The
total capital required is approximately $18 million. As of October 31, 1998, the
Company has invested approximately $12.5 million in the KaiHong joint venture.
The Company's credit facility as well as KaiHong's own 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 in foreign currencies (e.g., a portion of the equipment
purchases for the KaiHong expansion), 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
7
<PAGE> 8
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.
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 has developed 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. This 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 Y2K compliance.
Confirmation has been requested from the Company's primary processing vendors
and major customers that plans are being developed to address processing of
transactions in the year 2000. Management estimates the Y2K compliance expense
at approximately $250,000 over the next twelve months. The Company's Y2K
compliance plans call for testing of all critical systems by the end of 1998.
The Company presently believes that, with modifications to existing software and
upgrades to Y2K compliant software, Y2K will not pose significant operational
problems for the Company's computer systems, as so modified and upgraded.
However, if such modifications and upgrades are not completed timely, Y2K may
have a material impact on the operations of the Company.
8
<PAGE> 9
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
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.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENT OF NET SALES DOLLAR INCREASE
THREE MONTHS ENDED SEPTEMBER 30, (DECREASE)
-------------------------------- ------------------
1998 1997 `97 TO `98
------------ ------------- -------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% (13.5)%
Cost of goods sold (75.3) (73.9) (11.9)
----- ----- -----
Gross profit 24.7 26.1 (18.3)
SG&A (19.2) (15.2) 9.4
----- ----- -----
Income from operations 5.5 10.9 (56.7)
Interest expense, net (0.6) (0.1) 240.0
Other income 0.5 0.7 (41.0)
----- ----- -----
Income before taxes 5.4 11.5 (59.5)
Income taxes 1.6 3.6 (61.4)
----- ----- -----
Net income 3.8 7.9 (58.7)
===== ===== =====
</TABLE>
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company for the
three months ended September 30, 1998 compared to the three months ended
September 30, 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 $ 14,646,000 $ 16,939,000
- ---------
Net sales decreased approximately $2.3 million, or 13.5%, for the
three months ended September 30, 1998 compared to the same period last year, due
primarily to a decrease in units sold of approximately 6.2%. This decrease in
units sold is comprised of a decrease in units sold in North America of
approximately 17.3%, partly offset by an increase in units sold in the Far East
of 50.5%. Average selling prices in the third quarter of 1998 decreased
approximately 8.0%, which represents a decrease in average selling price in the
Far East of approximately 38.7%, partly offset by an increase in the North
American average selling price of approximately 1.8% compared to the same period
in 1997.
9
<PAGE> 10
1998 1997
---- ----
GROSS PROFIT $ 3,614,000 $ 4,422,000
- ------------
GROSS PROFIT MARGIN PERCENTAGE 24.7% 26.1%
- ------------------------------
Gross profit decreased approximately $800,000, or 18.3%, and
gross profit margin decreased to 24.7% from 26.1%, for the three months ended
September 30, 1998 compared to the same period a year ago, due primarily to
market pricing pressures. Gross profit margin was also negatively affected by an
increase in the percentage of the Company's sales to larger distributors at
lower gross profit margins.
1998 1997
---- ----
SG&A $ 2,811,000 $ 2,569,000
- ----
SG&A for the three months ended September 30, 1998 increased
approximately $242,000, or 9.4%, compared to the same period last year, due
primarily to consulting fees paid to the minority investor of the KaiHong joint
venture. In July 1998, the Company entered into a consulting agreement with the
minority investor (the "Consultant") in the KaiHong joint venture. In order to
be assured of the continued association and services of the Consultant and in
order to take advantage of her experience, knowledge and abilities in the
Company's manufacturing business, it is in the Company's best interest to retain
the Consultant under the terms and conditions set forth in this agreement (see
the Consulting Agreement filed herein).
SG&A as a percentage of net sales increased to 19.2% for the
three months ended September 30, 1998 from 15.2% for the same period last year.
1998 1997
---- ----
INTEREST INCOME $ 65,000 $ 73,000
- ---------------
INTEREST EXPENSE $150,000 $ 98,000
- ----------------
Net interest expense for the three months ended September 30,
1998 increased approximately $60,000 compared to the same period last year due
primarily to increased debt to finance the KaiHong expansion. 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 is primarily the result of the term loan by which the Company is
financing (i) the investment in the KaiHong joint venture and (ii) the $2.8
million advanced to FabTech.
1998 1997
---- ----
MINORITY INTEREST IN JOINT VENTURE $ (3,000) $ (42,000)
- ----------------------------------
Minority interest in joint venture represents the minority
investor's share of the KaiHong joint venture's net income for the period. The
decrease in the joint venture earnings for the three months ended September 30,
1998 is primarily the result of lower unit sales as well as pricing pressures.
The joint venture investment is eliminated in consolidation of the Company's
financial statements and the activities of KaiHong are included therein. As of
September 30, 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.
10
<PAGE> 11
1998 1997
---- ----
COMMISSIONS AND OTHER INCOME $ 72,000 $ 159,000
- ----------------------------
Other income for the three months ended September 30, 1998
decreased approximately $87,000, or 54.7%, compared to the same period last
year, due primarily to currency exchange fluctuation at the Company's Taiwan
subsidiary. Commissions earned by the Company's Taiwan subsidiary on drop
shipment sales in Asia for the three months ended September 30, 1998 were flat
compared to the same period last year.
1998 1997
---- ----
INCOME TAXES $ 233,000 $ 604,000
- ------------
Income tax expense for the three months ended September 30, 1998
decreased approximately $371,000, or 61.4%, compared to the same period last
year. The Company's effective tax rate in the current quarter decreased to 29.6%
from 31.1% for the same period last year, as a result of the increase in net
income from the Company's Taiwan operations, which are taxed at a lower rate
than that of the U.S. operations.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
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.
<TABLE>
<CAPTION>
PERCENTAGE DOLLAR
PERCENT OF NET SALES INCREASE
NINE MONTHS ENDED SEPTEMBER 30, (DECREASE)
-------------------------------- ------------------
1998 1997 `97 TO `98
-------------------------------- ------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% (6.5)%
Cost of goods sold (74.6) (71.8) (2.8)
--------- ------ ----------
Gross profit 25.4 28.2 (15.9)
SG&A (18.7) (17.7) (1.2)
--------- ------ ----------
Income from operations 6.7 10.5 (40.6)
Interest expense, net (0.4) (0.1) 106.5
Other income 0.7 0.1 343.7
--------- ------ ----------
Income before taxes 7.0 10.5 37.9
Income taxes 2.1 2.8 (32.8)
--------- ------ ----------
Net income 4.9 7.7 (39.8)
========= ====== ==========
</TABLE>
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company for the
nine months ended September 30, 1998 compared to the nine months ended September
30, 1997. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this quarterly
report.
11
<PAGE> 12
1998 1997
---- ----
NET SALES $ 45,784,000 $ 48,969,000
- ---------
Net sales decreased approximately $3.2 million, or 6.5%, for the
nine months ended September 30, 1998 compared to the same period last year, due
primarily to a decrease in average selling prices of approximately 9.9%. Far
East pricing pressures resulted in a decrease in average selling prices of
approximately 26.9%, while in North America, pricing pressures lowered average
selling prices by approximately 6.1% compared to the same period last year.
Decreased average selling prices were partly offset by an increase in units sold
of approximately 3.4%, which represents an increase in units sold in the Far
East of approximately 38.8%, partially offset by a decrease in units sold of
approximately 3.5% in North America compared to the same period in 1997. Also
contributing to the decrease in sales was lost sales of approximately $2.2
million due to a design change at one of the Company's larger customers.
1998 1997
---- ----
GROSS PROFIT $ 11,612,000 $ 13,810,000
- ------------
GROSS PROFIT MARGIN PERCENTAGE 25.4% 28.2%
- ------------------------------
Gross profit decreased approximately $2.2 million, or 15.9%, and
gross profit margin decreased to 25.4% from 28.2%, for the nine months ended
September 30, 1998 compared to the same period a year ago, due primarily to
market pricing pressures resulting in lower manufacturing profits at the
Company's facilities in Asia, as well as inventory write-downs to reflect
current market value. Gross profit margin was also affected by an increase in
the percentage of the Company's sales to larger distributors, primarily in the
first quarter.
1998 1997
---- ----
SG&A $ 8,543,000 $ 8,647,000
- ----
SG&A for the nine months ended September 30, 1998 decreased
approximately $104,000, or 1.2%, compared to the same period last year, due
primarily to a decrease in operating expenses associated with tightened controls
of the Company's expenses as well as consulting fees paid to the minority
investor of the KaiHong joint venture (see the Consulting Agreement filed
herein).
SG&A as a percentage of net sales increased to 18.7% for the nine
months ended September 30, 1998 from 17.1% for the same period last year.
1998 1997
---- ----
INTEREST INCOME $ 214,000 $ 206,000
- ---------------
INTEREST EXPENSE $ 404,000 $ 298,000
- ----------------
Net interest expense for the nine months ended September 30, 1998
increased approximately $98,000 compared to the same period last year due
primarily to increased debt to finance the KaiHong expansion. 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 is primarily the result of the term loan by which the Company is
financing (i) the investment in the KaiHong joint venture and (ii) the $2.8
million advanced to FabTech.
12
<PAGE> 13
1998 1997
---- ----
MINORITY INTEREST IN JOINT VENTURE $ (6,000) $ (290,000)
- ----------------------------------
Minority interest in joint venture represents the minority
investor's share of the KaiHong joint venture's net income for the period. The
earnings of the joint venture for the nine months ended September 30, 1998 have
been negatively affected by lower unit sales as well as by pricing pressures.
1998 1997
---- ----
COMMISSIONS AND OTHER INCOME $ 321,000 $ 361,000
- ----------------------------
Other income for the nine months ended September 30, 1998
decreased approximately $40,000, or 11.1%, compared to the same period last
year, due primarily to currency exchange losses at the Company's Taiwan
subsidiary, partly offset by increased commissions earned by the Company's
Taiwan subsidiary on drop shipment sales in Asia.
1998 1997
---- ----
INCOME TAXES $ 933,000 $ 1,388,000
- ------------
Income tax expense for the nine months ended September 30, 1998
decreased approximately $455,000, or 32.8%, compared to the same period last
year. The Company's effective tax rate for the nine months ended September 30,
1998 increased to 29.2% from 27.0% 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.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months ended
September 30, 1998 was approximately $1.5 million compared to approximately $4.8
million for the nine months ended September 30, 1997. The primary source of cash
flows from operating activities for the nine months ended September 30, 1998 was
net income of approximately $1.3 million and a decrease in accounts receivable
of approximately $446,000, while the primary use of cash flows from operating
activities was a decrease in accounts payable of approximately $1.5 million. Due
to the slowdown in the semiconductor industry, the Company is directing its
efforts into reducing current inventory levels, while still providing the
service and delivery that customers demand. The primary sources of cash flows
from operating activities for the nine months ended September 30, 1997 was net
income of approximately $3.8 million, while the primary use of cash flows from
operating activities was approximately $1.3 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
September 30, 1998 was 2.62 to 1 compared to a ratio of 2.79 to 1 as of December
31, 1997.
Cash used by investing activities was approximately $6.5 million
for the nine months ended September 30, 1998, compared to approximately $732,000
for the same period in 1997. The primary investments in 1998 was for additional
manufacturing equipment at the KaiHong manufacturing facility.
Cash provided by financing activities was approximately $4.1
million as of September 30, 1998, compared to approximately $359,000 for the
same period in 1997, as the Company continues to use its credit facilities.
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
13
<PAGE> 14
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, require the maintenance of certain financial ratios
and operating results, as defined in the agreement. The Company is in
compliance. 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 6.9% for the nine months ended September 30, 1998. As of
September 30, 1998, approximately $6.6 million is outstanding under the term
note commitment.
The Company uses its credit facility primarily to fund the
advances to KaiHong and FabTech 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.
In July 1998, the Company replaced two previously filed
guarantees to Shanghai Kaihong Electronics Co., Ltd. and the minority investor
of the KaiHong joint venture for $1.0 million and $850,000, respectively, as
well as a $1.0 million letter of credit, with a $3.0 million guarantee. The
Company reserves the right, at any time or from time to time, on one month prior
written notice to the bank, to reduce the maximum amount guaranteed hereunder or
to terminate this guaranty; provided, however, that the Company shall in any
event remain liable as guarantor for all obligations of the borrower outstanding
at the effective date of any such notice to the bank.
The Company's total working capital decreased approximately 6.4%
to $17.5 million as of September 30, 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 September 30, 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 0.59 at September 30, 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.
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 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 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
14
<PAGE> 15
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.
15
<PAGE> 16
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
The proxy materials for the 1998 annual meeting of stockholders
held on June 5, 1998 were mailed to stockholders of the Company
on May 1, 1998. Stockholder proposals to be presented at the
1999 annual meeting of stockholders must be received at the
Company's executive offices at 3050 East Hillcrest Drive,
Westlake Village, California, 91362, addressed to the attention
of the Corporate Secretary by January 1, 1999 in order to be
considered for inclusion in the proxy materials relating to such
meeting. Recently, the Securities and Exchange Commission
amended its rule governing a company's ability to use
discretionary proxy authority with respect to stockholder
proposals which were not submitted by the stockholders in time
to be included in the proxy statement. As a result of that rule
change, in the event a stockholder proposal is not submitted to
the Company prior to March 15, 1999, the proxies solicited by
the Board of Directors for the 1999 annual meeting of
stockholders will confer authority on the holders of the proxy
to vote the shares in accordance with their best judgment and
discretion if the proposal is presented at the 1999 annual
meeting of stockholders without any discussion of the proposal
in the proxy statement for such meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.26 - Consulting Agreement between the Company
and J.Y. Xing
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
16
<PAGE> 17
None
17
<PAGE> 18
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 11, 1998
CARL WERTZ
Chief Financial Officer and Secretary
(Duly Authorized Officer and Principal Financial and
Chief Accounting Officer)
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT 10.26 CONSULTING AGREEMENT BETWEEN THE
COMPANY AND J.Y. XING Page 19
EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE Page 24
EXHIBIT 27 FINANCIAL DATA SCHEDULE Page 25
</TABLE>
19
<PAGE> 1
EXHIBIT 10.26
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made and effective as of the twenty-first
day of July, 1998, by and between Diodes Incorporated, a Delaware corporation
(the "Company"), and J.Y. Xing (the "Consultant"), with respect to the following
facts:
A. The Company desires to be assured of the continued association and
services of the Consultant in order to take advantage of her experience,
knowledge and abilities in the Company's business, and is willing to retain the
Consultant, and the Consultant desires to be so retained, on the terms and
conditions set forth in this Agreement.
B. The Consultant from time to time in the course of her relationship with
the Company may learn trade secrets and other confidential information
concerning the Company, and the Company desires to safeguard such trade secrets
and confidential information against unauthorized use and disclosure.
ACCORDINGLY, on the basis of the representations, warranties and
covenants contained herein, the parties hereto agree as follows:
1. CONSULTING SERVICES
1.1 Retention. The Company hereby retains the Consultant as a
consultant, and the Consultant hereby accepts such appointment, on the terms and
conditions set forth below, to perform during the term of this Agreement such
services as are required hereunder.
1.2 Duties. The Consultant shall render such services to the
Company, and shall perform such duties and acts, as reasonably may be requested
by the Company in connection with maintaining the relationship of Shanghai
KaiHong Electronics Co., Ltd., a joint venture in which the Company has a
principal interest, with all national, provincial and local governmental
agencies in the People's Republic of China.
1.3 Performance of Duties. The Consultant shall devote such time,
ability and attention to the Company's business as may be necessary for her to
discharge her duties hereunder in a professional and businesslike manner.
1.4 Relationship. The Consultant shall be an independent
contractor of the Company. Nothing in this Agreement shall be construed to give
the Consultant any rights as an employee, agent, partner or joint venturer of
the Company or to entitle the Consultant to control in any manner the business
of the Company or to incur any debt, liability or obligation on behalf of the
Company.
1.5 Products. The Consultant hereby acknowledges and agrees that
the results, proceeds and products of the consulting services rendered by the
Consultant hereunder are, and will be created by the Consultant as, a "work for
hire" specifically ordered or commissioned by the Company and, accordingly, are
the exclusive and valuable property of the Company. The Company shall have the
exclusive right to use, refrain from using, change, modify, add to, subtract
from, exploit or otherwise turn to account any such results, proceeds or
products in such manner and in any and all media, whether now known or hereafter
devised, throughout the universe, in perpetuity, as the Company in its sole
discretion shall determine. The Consultant hereby waives any and all so-called
"moral rights" of authors in connection with any such results, proceeds or
products. To the extent that any of such results, proceeds or products shall not
be deemed to be a work for hire, the Consultant hereby assigns to the Company,
and authorizes the Company to exploit in its sole discretion, perpetually,
exclusively and throughout the universe her entire right, title and interest in
and to the same.
1.6 Prior Services. From time to time after January 1, 1998, the
Consultant has rendered certain services to the Company. As the total
consideration for such services, the Company shall pay to the Consultant U.S.
$120,000, receipt of which hereby is acknowledged by the Consultant.
20
<PAGE> 2
2. COMPENSATION
2.1 Compensation. As the total consideration for the services
which the Consultant renders hereunder, the Consultant shall be entitled to the
following:
(i) a monthly consulting fee in the amount of U.S. $15,000
payable in advance on the first day of each month, commencing on September 1,
1998 and ending on December 1, 1999;
(ii) reimbursement of any and all reasonable and documented
expenses (including, but not limited to, air fare, car rental, lodging, meals,
business telephone and related travel expenses) incurred by the Consultant from
time to time in the performance of her duties hereunder, provided that each such
expense shall be in accordance of the Company's budgets, policies and
procedures, as the same may be amended from time to time, and shall have been
approved in advance by an authorized representative of the Company in each
instance.
3. TERM AND TERMINATION
3.1 Term. The term of the Consultant's appointment as a
consultant of the Company shall commence on the date hereof and shall terminate
on December 31, 1999 (the "Term").
3.2 At Will Relationship. The Consultant and the Company each
hereby acknowledges and agrees that, except as expressly set forth in Section
3.2, (i) the Consultant's relationship with the Company under this Agreement is
AT WILL and can be terminated at the option of either the Consultant or the
Company in its sole and absolute discretion, for any or no reason whatsoever,
with or without cause, (ii) no representations, warranties or assurances have
been made concerning the length of such relationship or the amount of
compensation to be received by the Consultant and (iii) after the termination of
her relationship with the Company, the Consultant shall have no right, title or
interest in or claim to any revenues received by the Company from any person for
any goods sold or services rendered by the Company to such person, whether or
not the Consultant was the cause, in whole or in part, for such person to
purchase such goods from the Company or to retain the Company to perform such
services.
3.3 Duties Upon Termination. In the event that the Consultant's
relationship with the Company under this Agreement is terminated, neither the
Company nor the Consultant shall have any remaining duties or obligations
hereunder, except that (i) the Company shall promptly pay to the Consultant, or
her estate, all reimbursable expenses incurred by the Consultant hereunder as of
such date pursuant to Section 2.1 and such compensation as is due to the
Consultant pursuant to Section 2.1(i) pro rated through the date of termination,
(ii) the Consultant and the Company shall continue to be bound by Section 4
hereof and (iii) in the event the Company terminates the Consultant's
relationship with the Company under Section 1.1 without cause, then the Company
shall continue to provide to the Employee such compensation as would have been
due pursuant to Section 2.1(i) had such termination not occurred until the end
of the Term. The Consultant's relationship with the Company shall be deemed to
have been terminated by the Company without cause unless it shall have been
terminated by the Company as the result of the Consultant's continued and
willful failure or refusal to substantially perform her duties in accordance
with this Agreement after the Consultant first shall have received written
notice from the Company specifying the acts or omissions alleged to constitute
such breach and the same continues after the Consultant shall have had
reasonable opportunity to correct such breach. If the Consultant terminates her
relationship with the Company as the result of the breach by the Company of any
material term of this Agreement, such relationship shall be deemed to have been
terminated by the Company without cause.
4. INTELLECTUAL PROPERTY
4.1 Trade Secrets. The Consultant shall not, without the prior
written consent of the Company's Board of Directors in each instance, disclose
or use in any way, either during the Term or thereafter, except as required in
the course of such relationship, any confidential business or technical
information or trade
21
<PAGE> 3
secret of the Company acquired (i) prior to the date hereof from the Company or
(ii) in the course of such relationship, whether or not patentable,
copy-rightable or otherwise protected by law, and whether or not conceived of or
prepared by her (collectively, the "Trade Secrets"), including, without
limitation, any information concerning customer lists, products, formulas,
procedures, operations, investments, financing, costs, employees, purchasing,
accounting, marketing, merchandising, sales, salaries, pricing, profits and
plans for future development, the identity, requirements, preferences, practices
and methods of doing business of specific parties with whom the Company
transacts business, and all other information which is related to any product,
service or business of the Company, other than information which is generally
known in the industry in which the Company transacts business or is acquired
from public sources; all of which Trade Secrets are the exclusive and valuable
property of the Company.
4.2 Tangible Items. All files, accounts, records, documents,
books, forms, notes, reports, memoranda, studies, compilations of information,
correspondence and all copies, abstracts and summaries of the foregoing, and all
other physical items related to the Company, other than a merely personal item,
whether of a public nature or not, and whether prepared by the Consultant or
not, are and shall remain the exclusive property of the Company and shall not be
removed from the premises of the Company, except as required in the course of
rendering consulting services to the Company, without the prior written consent
of the Company in each instance, and the same shall be promptly returned to the
Company by the Consultant on the expiration or termination of her relationship
with the Company or at any time prior thereto upon the request of the Company.
4.3 Solicitation of Employees. During the term of her
relationship with the Company and for one (1) year thereafter (such period not
to include any period of violation hereof by the Consultant or period which is
required for litigation to enforce this paragraph and during which the
Consultant is in violation hereof), the Consultant shall not, directly or
indirectly, either for her own benefit or purposes or the benefit or purposes of
any other person employ or offer to employ, call on, solicit, interfere with or
attempt to divert or entice away any employee or independent contractor of the
Company (or any person whose employment or status as an independent contractor
has terminated within the twelve (12) months preceding the date of such
solicitation) in any capacity if that person possesses or has knowledge of any
Trade Secrets of the Company.
4.4 Injunctive Relief. The Consultant hereby acknowledges and
agrees that it would be difficult to fully compensate the Company for damages
resulting from the breach or threatened breach of the foregoing provisions and,
accordingly, that the Company shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunction,
permanent injunctions or any other remedies available to the Company for
enforcement of such provisions without the necessity of proving actual damages
or posting any bond or other undertaking in connection therewith. This provision
with respect to injunctive relief shall not, however, diminish the Company's
right to claim and recover damages.
4.5 "Company." As used in this Section 4, the term "Company"
shall mean Diodes Incorporated and all persons controlling, controlled by or
under common control with the Company including, but not limited to, Shanghai
KaiHong Electronics Co., Ltd.
5. MISCELLANEOUS
5.1 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable.
5.2 Successors and Assigns. All of the terms, provisions and
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, successors
and assigns. Notwithstanding the foregoing, neither this Agreement nor any
rights hereunder shall be assigned, pledged, hypothecated or otherwise
transferred by the Consultant without the prior written consent of the Company
in each instance.
22
<PAGE> 4
5.3 Governing Law. The validity, construction and interpretation
of this Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
5.4 Consent to Jurisdiction. Each party hereto, to the fullest
extent it may effectively do so under applicable law, irrevocably (i) submits to
the exclusive jurisdiction of any court of the State of California or the United
States of America sitting in the City of Los Angeles over any suit, action or
proceeding arising out of or relating to this Agreement, (ii) waives and agrees
not to assert, by way of motion, as a defense or otherwise, any claim that it is
not subject to the jurisdiction of any such court, any objection that it may now
or hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum,
(iii) agrees that a judgment in any such suit, action or proceeding brought in
any such court shall be conclusive and binding upon such party and may be
enforced in the courts of the United States of America or the State of
California (or any other courts to the jurisdiction of which such party is or
may be subject) by a suit upon such judgment and (iv) consents to process being
served in any such suit, action or proceeding by mailing a copy thereof by
registered or certified air mail, postage prepaid, return receipt requested, to
the address of such party specified in or designated pursuant to Section 5.7.
Each party agrees that such service (i) shall be deemed in every respect
effective service of process upon such party in any such suit, action or
proceeding and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to such party.
5.5 Headings. Section and subsection headings are not to be
considered part of this Agreement and are included solely for convenience and
reference and in no way define, limit or describe the scope of this Agreement or
the intent of any provisions hereof.
5.6 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, relating to the subject matter of this
Agreement. No supplement, modification, waiver or termination of this Agreement
shall be valid unless executed by the party to be bound thereby. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
5.7 Notice. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, (ii) if mailed, one (1) week
after having been placed in the United States mail, registered or certified,
postage prepaid, addressed to the party to whom it is directed at the address
set forth on the signature pages below or (iii) if given by telex or telecopier,
when such notice or other communication is transmitted to the telex or
telecopier number specified on the signature pages below and the appropriate
answer back or telephonic confirmation is received. Either party may change the
address to which such notices are to be addressed by giving the other party
notice in the manner herein set forth.
5.8 Attorneys' Fees. In the event any party takes legal action to
enforce any of the terms of this Agreement, the unsuccessful party to such
action shall pay the successful party's expenses, including attorneys' fees,
incurred in such action.
5.9 Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the Company or the
Consultant any rights or remedies under or by reason of this Agreement.
23
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first set forth above.
DIODES INCORPORATED
By /s/ Carl Wertz
Carl Wertz
Authorized Representative
3050 East Hillcrest Drive
Suite 200
Westlake Village, California 91362
Telecopier Number: (805) 446-4850
By /s/ J.Y. Xing
J.Y. Xing
9712 63rd Drive
Apartment 10D
Rego Park, New York 11374
24
<PAGE> 1
DIODES INCORPORATED AND SUBSIDIARIES
EXHIBIT - 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
BASIC
Weighted average number of
common shares outstanding 5,047,237 4,977,033 5,022,939 4,966,256
Net income $ 554,000 $1,341,000 $2,261,000 $3,754,000
========== ========== ========== ==========
Basic earnings per share $ 0.11 $ 0.27 $ 0.45 $ 0.76
========== ========== ========== ==========
DILUTED
Weighted average number of
common shares outstanding 5,047,237 4,977,033 5,022,939 4,966,256
Assumed exercise of stock options 184,393 562,666 343,922 484,515
---------- ---------- ---------- ----------
5,231,630 5,539,699 5,366,861 5,450,771
Net income $ 554,000 $1,341,000 $2,261,000 $3,754,000
========== ========== ========== ==========
Diluted earnings per share $ 0.11 $ 0.24 $ 0.42 $ 0.69
========== ========== ========== ==========
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,406,000
<SECURITIES> 0
<RECEIVABLES> 11,079,000
<ALLOWANCES> 128,000
<INVENTORY> 13,338,000
<CURRENT-ASSETS> 28,362,000
<PP&E> 13,828,000
<DEPRECIATION> 3,000,000
<TOTAL-ASSETS> 43,360,000
<CURRENT-LIABILITIES> 10,816,000
<BONDS> 0
0
0
<COMMON> 3,843,000
<OTHER-SE> 23,127,000
<TOTAL-LIABILITY-AND-EQUITY> 43,360,000
<SALES> 14,646,000
<TOTAL-REVENUES> 14,646,000
<CGS> 11,032,000
<TOTAL-COSTS> 2,811,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,000
<INCOME-PRETAX> 787,000
<INCOME-TAX> 233,000
<INCOME-CONTINUING> 554,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 554,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
