<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 JUNE 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from _______ to ________.
COMMISSION FILE NUMBER: 1-5740
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 95-2039518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive offices) (Zip code)
(805) 446-4800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock, $0.66 2/3 par value,
outstanding as of August 3, 2000 (after the effect of a 3-for-2 stock dividend
payable on July 14, 2000) was 9,175,285, including 1,075,673 shares of treasury
stock.
<PAGE> 2
INDEPENDENT ACCOUNTANT'S REPORT
Board of Directors and Shareholders
Diodes Incorporated and Subsidiaries
We have reviewed the accompanying consolidated condensed balance sheet of Diodes
Incorporated and subsidiaries as of June 30, 2000, and the related consolidated
condensed statements of income and cash flows for the three and six months ended
June 30, 2000. These financial statements are the responsibility of the
management of Diodes Incorporated and subsidiaries.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Diodes Incorporated and
subsidiaries as of December 31, 1999, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended not
presented herein; and in our report dated January 28, 2000, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 1999, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Moss Adams LLP
Los Angeles, CA
July 18, 2000
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL INFORMATION
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash $ 3,557,000 $ 3,209,000
Accounts receivable
Customers 14,962,000 19,277,000
Related party 90,000 26,000
Other 300,000 582,000
----------- -----------
15,352,000 19,885,000
Less allowance for doubtful receivables 297,000 319,000
----------- -----------
15,055,000 19,566,000
Inventories 16,575,000 21,601,000
Deferred income taxes, current 1,700,000 1,702,000
Prepaid expenses and other current assets 762,000 1,393,000
----------- -----------
Total current assets 37,649,000 47,471,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 20,909,000 24,787,000
ADVANCES TO RELATED PARTY VENDOR 2,561,000 2,493,000
DEFERRED INCOME TAXES, non-current 146,000 146,000
OTHER ASSETS
Goodwill, net 969,000 947,000
Other 173,000 151,000
----------- -----------
TOTAL ASSETS $62,407,000 $75,995,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES
Line of credit $ 3,237,000 $ 6,629,000
Accounts payable
Trade 7,716,000 10,143,000
Related party 1,821,000 2,814,000
Accrued liabilities 5,782,000 5,987,000
Income taxes payable 878,000 718,000
Current portion of long-term debt 2,312,000 2,313,000
----------- -----------
Total current liabilities 21,746,000 28,604,000
DEFERRED COMPENSATION 57,000 59,000
LONG-TERM DEBT, net of current portion 4,672,000 3,195,000
MINORITY INTEREST IN JOINT VENTURE 959,000 1,239,000
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -
par value $1.00 per share;
1,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock - par value $0.66 2/3 per share;
30,000,000 shares authorized; 9,008,281 and 9,167,784
shares issued and outstanding at December 31, 1999
and June 30, 2000, respectively 6,006,000 6,112,000
Additional paid-in capital 5,886,000 6,290,000
Retained earnings 24,863,000 32,278,000
----------- -----------
36,755,000 44,680,000
Less:
Treasury stock - 1,075,673 shares of common stock at cost 1,782,000 1,782,000
----------- -----------
Total stockholders' equity 34,973,000 42,898,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,407,000 $75,995,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 18,229,000 $ 32,600,000 $ 34,261,000 $ 60,037,000
COST OF GOODS SOLD 13,800,000 22,111,000 25,922,000 41,111,000
------------ ------------ ------------ ------------
Gross profit 4,429,000 10,489,000 8,339,000 18,926,000
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,376,000 5,270,000 6,496,000 9,812,000
------------ ------------ ------------ ------------
Income from operations 1,053,000 5,219,000 1,843,000 9,114,000
OTHER INCOME (EXPENSE)
Interest income 77,000 143,000 139,000 195,000
Interest expense (143,000) (372,000) (303,000) (588,000)
Other (9,000) 40,000 38,000 46,000
------------ ------------ ------------ ------------
(75,000) (189,000) (126,000) (347,000)
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 978,000 5,030,000 1,717,000 8,767,000
PROVISION FOR INCOME TAXES 120,000 535,000 137,000 1,027,000
MINORITY INTEREST IN JOINT VENTURE
EARNINGS (33,000) (175,000) (66,000) (280,000)
------------ ------------ ------------ ------------
NET INCOME $ 825,000 $ 4,320,000 $ 1,515,000 $ 7,460,000
============ ============ ============ ============
EARNINGS PER SHARE
Basic $ 0.11 $ 0.54 $ 0.20 $ 0.93
Diluted $ 0.10 $ 0.46 $ 0.19 $ 0.81
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 7,570,856 8,072,885 7,570,856 8,029,413
Diluted 7,904,228 9,340,505 7,871,879 9,250,361
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,515,000 $ 7,460,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,248,000 2,087,000
Minority interest earnings 66,000 280,000
Interest income accrued on advances to vendor (96,000) (94,000)
Changes in operating assets:
Accounts receivable (3,682,000) (4,511,000)
Inventories 1,760,000 (5,026,000)
Prepaid expenses and other assets (712,000) (589,000)
Changes in operating liabilities:
Accounts payable 2,754,000 3,420,000
Accrued liabilities 58,000 207,000
Income taxes payable (169,000) (160,000)
----------- -----------
Net cash provided by operating activities 2,742,000 3,074,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,708,000) (5,965,000)
Minority interest of joint venture investment 96,000 --
Collections on note receivable -- 162,000
----------- -----------
Net cash used by investing activities (1,612,000) (5,803,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit, net (706,000) 3,392,000
Net proceeds from the issuance of capital stock -- 510,000
Proceeds from (repayments of) long-term obligations 34,000 (1,476,000)
Other -- (45,000)
----------- -----------
Net cash provided (used) by financing activities (672,000) 2,381,000
----------- -----------
INCREASE (DECREASE) IN CASH 458,000 (348,000)
CASH AT BEGINNING OF PERIOD 2,415,000 3,557,000
----------- -----------
CASH AT END OF PERIOD $ 2,873,000 $ 3,209,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 164,000 $ 393,000
=========== ===========
Income taxes $ 579,000 $ 1,189,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying 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,
1999.
The consolidated financial statements include the accounts of the
Company and its wholly-owned foreign subsidiary, Diodes Taiwan Co., Ltd.
("Diodes-Taiwan"), and the accounts of Shanghai KaiHong Electronics Co., Ltd.
("Diodes-China") in which the Company has a 95% interest. All significant
intercompany balances and transactions have been eliminated.
NOTE B - INCOME TAXES
The Company accounts for income taxes using an asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the tax effect of differences between the financial statement and
tax basis of assets and liabilities. Accordingly, the Company has recorded a net
deferred tax asset of $1,848,000 resulting from temporary differences in bases
of assets and liabilities. This deferred tax asset results primarily from
inventory reserves and certain expense accruals, which are not currently
deductible for income tax purposes.
The income tax expense as a percentage of pre-tax income differs
from the statutory combined federal and state tax rates. The primary reason for
this difference is that in accordance with Chinese tax policy, earnings of
Diodes-China are not subject to tax for the first two years upon commencement of
cumulative profitable operations, which includes the 1999 and 2000 reporting
periods. As indicated below, deferred income taxes have not been provided on
earnings of Diodes-China.
As of June 30, 2000, accumulated and undistributed earnings of
Diodes-China is approximately $9.8 million. The Company has not recorded a
deferred tax liability (estimated to be $3.9 million) on these earnings since
the Company considers this investment to be permanent, and has no plans,
intentions or obligation to distribute all or part of that amount from China to
the United States. The Company will consider the need to provide deferred taxes
on future earnings of Diodes-China as further investment strategies are
determined.
NOTE C - ADVANCES TO RELATED PARTY VENDOR
Under a compensation-trade agreement the Company has advanced
$2.5 million in cash to a related party vendor, FabTech Incorporated
("FabTech"), a wholly owned subsidiary of Lite-On Power Semiconductor
Corporation ("LPSC"). Interest accrues monthly at LIBOR plus 1.1%. Outstanding
principal and accrued interest as of June 30, 2000 totaled $2,493,000.
Amounts advanced, including interest, are payable through
February 2001 when any outstanding balances become due on demand, and are
secured by FabTech's accounts receivable. The compensation-trade agreement
allows the Company to recover interest and principal due by deducting a fixed
amount ($10.00) per unit for products (silicon wafers) purchased from FabTech.
FabTech may also repay its debt in cash. Through June 30, 2000, the Company has
collected $762,000 in cash on the note, and expects this note to be collected,
including interest, no later than February 2001, according to the terms of the
agreement.
7
<PAGE> 8
NOTE D - STOCK SPLIT
On July 14, 2000 the Company issued a three-for-two stock split
for shareholders of record as of June 28, 2000. All share and per share amounts
in the accompanying financial statements reflect the effect of this stock split.
NOTE E - SEGMENT INFORMATION
Information about the Company's operations in the United States,
Taiwan, and China are presented below. Items transferred among the Company and
its subsidiaries are transferred at prices to recover costs plus an appropriate
mark up for profit. Inter-company revenues, profits and assets have been
eliminated to arrive at the consolidated amounts.
Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief decision maker, or decision-making group, in deciding how
to allocate resources and in assessing performance. The Company's chief
decision-making group consists of the President, Vice President of Sales and
Marketing, Chief Financial Officer, and Vice President of Far East Operations.
The operating segments are managed separately because each operating segment
represents a strategic business unit whose function and purpose differs from the
other segments.
For financial reporting purposes, the Company is deemed to
operate in three separate segments: North America, Taiwan, and China. All three
segments focus on discrete semiconductor devices. The North American segment
procures and distributes products primarily throughout North America and
provides management, warehousing and engineering support to the other two
segments. The Taiwan segment procures product from, and manufactures and
distributes product primarily to, companies in Taiwan, Korea, Singapore, and
Hong Kong. This segment also procures product for, and manufactures and
distributes product to, the Company's North American operations. The China
segment manufactures product for, and distributes product to, both the North
American and Taiwan segments. In 1997, the China segment began manufacturing
product for, and distributing product to, customers in China and the U.S.
The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies in the
Company's annual report on Form 10-K. The Company evaluates performance based on
stand-alone operating segment income. Revenues are attributed to geographic
areas based on the location of the market producing the revenues.
<TABLE>
<CAPTION>
Shanghai
KaiHong Diodes-Taiwan
THREE MONTHS ENDED Electronics Corporation, Ltd. Diodes Incorporated Consolidated
JUNE 30, 1999 (China) (Taiwan) (United States) Segments
------------------ ----------- ----------------- ------------------- ------------
<S> <C> <C> <C> <C>
Total sales $ 2,240,000 $ 10,509,000 $ 11,280,000 $ 24,029,000
Inter-segment sales (1,491,000) (3,971,000) (560,000) (6,022,000)
------------ ------------ ------------ ------------
Net sales $ 749,000 $ 6,538,000 $ 10,720,000 $ 18,007,000
Depreciation and amortization $ 732,000 $ (107,000) $ 71,000 $ 696,000
Interest expense (income), net $ (16,000) $ (5,000) $ 86,000 $ 65,000
Income tax provision (benefit) $ -- $ 284,000 $ (164,000) $ 120,000
Net income (loss) $ 627,000 $ 605,000 $ (407,000) $ 825,000
Segment assets $ 15,763,000 $ 14,559,000 $ 18,715,000 $ 49,037,000
============ ============ ============ ============
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
Shanghai
KaiHong Diodes-Taiwan
THREE MONTHS ENDED Electronics Corporation, Ltd. Diodes Incorporated Consolidated
JUNE 30, 2000 (China) (Taiwan) (United States) Segments
------------------ ----------- ----------------- ------------------- ------------
<S> <C> <C> <C> <C>
Total sales $ 9,418,000 $ 19,049,000 $ 18,485,000 $ 46,952,000
Inter-segment sales (7,361,000) (6,234,000) (756,000) (14,352,000)
------------ ------------ ------------ ------------
Net sales $ 2,057,000 $ 12,814,000 $ 17,729,000 $ 32,600,000
Depreciation and amortization $ 972,000 $ 45,000 $ 72,000 $ 1,089,000
Interest expense (income), net $ 44,000 $ (12,000) $ 197,000 $ 229,000
Income tax provision (benefit) $ -- $ 722,000 $ (187,000) $ 535,000
Net income (loss) $ 3,333,000 $ 1,500,000 $ (513,000) $ 4,320,000
Segment assets $ 32,526,000 $ 20,042,000 $ 23,427,000 $ 75,995,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Shanghai
KaiHong Diodes-Taiwan
SIX MONTHS ENDED Electronics Corporation, Ltd. Diodes Incorporated Consolidated
JUNE 30, 1999 (China) (Taiwan) (United States) Segments
---------------- ----------- ----------------- ------------------- ------------
<S> <C> <C> <C> <C>
Total sales $ 4,254,000 $ 18,173,000 $ 21,379,000 $ 43,806,000
Inter-segment sales (2,941,000) (6,042,000) (1,204,000) (10,187,000)
------------ ------------ ------------ ------------
Net sales $ 1,313,000 $ 12,131,000 $ 20,175,000 $ 33,619,000
Depreciation and amortization $ 1,199,000 $ (93,000) $ 142,000 $ 1,248,000
Interest expense (income), net $ (4,000) $ (2,000) $ 170,000 $ 164,000
Income tax provision (benefit) $ -- $ 588,000 $ (451,000) $ 137,000
Net income (loss) $ 1,251,000 $ 1,079,000 $ (815,000) $ 1,515,000
Segment assets $ 15,763,000 $ 14,559,000 $ 18,715,000 $ 49,037,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Shanghai
KaiHong Diodes-Taiwan
THREE MONTHS ENDED Electronics Corporation, Ltd. Diodes Incorporated Consolidated
JUNE 30, 2000 (China) (Taiwan) (United States) Segments
------------------ ----------- ----------------- ------------------- ------------
<S> <C> <C> <C> <C>
Total sales $ 16,047,000 $ 34,733,000 $ 34,176,000 $ 84,956,000
Inter-segment sales (12,641,000) (10,853,000) (1,425,000) (24,919,000)
------------ ------------ ------------ ------------
Net sales $ 3,406,000 $ 23,880,000 $ 32,751,000 $ 60,037,000
Depreciation and amortization $ 1,829,000 $ 91,000 $ 167,000 $ 2,087,000
Interest expense (income), net $ 41,000 $ (10,000) $ 362,000 $ 393,000
Income tax provision (benefit) $ -- $ 1,377,000 $ (350,000) $ 1,027,000
Net income (loss) $ 5,323,000 $ 2,890,000 $ (753,000) $ 7,460,000
Segment assets $ 32,526,000 $ 20,042,000 $ 23,427,000 $ 75,995,000
============ ============ ============ ============
</TABLE>
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the
matters addressed in this Item 2 constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties,
including those discussed below under the heading "Factors That May Affect
Future Results" and elsewhere in this Quarterly Report on Form 10-Q, that could
cause actual results to differ materially from those anticipated by the
Company's management. The Private Securities Litigation Reform Act of 1995 (the
"Act") provides certain "safe harbor" provisions for forward-looking statements.
All forward-looking statements made on this Quarterly Report on Form 10-Q are
made pursuant to the Act.
GENERAL
Diodes Incorporated (the "Company") is a manufacturer and
distributor of high-quality discrete semiconductor devices to leading
manufacturers in the automotive, electronics, computing and telecommunications
industries. The Company's products include small signal transistors and MOSFETs,
transient voltage suppressors (TVSs), zeners, diodes, rectifiers and bridges.
The Company's products are sold primarily in North America and
Asia, both directly to original equipment manufacturers ("OEMs") (53% of total
sales for the six months ended June 30, 2000) and through electronic component
distributors (47% of total sales for the six months ended June 30, 2000). For
the six months ended June 30, 2000, approximately 55% and 45% of the Company's
products were sold in North America and the Far East, respectively. For the
twelve months ended December 31, 1999, approximately 56% and 44% of the
Company's products were sold in North America and the Far East, respectively,
compared to 71% and 29% in 1998, respectively. The increase in the percentage of
sales in the Far East is expected to continue, as the Company believes there is
greater potential to increase market share in that region.
For financial reporting purposes, the Company is deemed to engage
in three industry segments: North America, Taiwan, and China. All three segments
focus on discrete semiconductor devices. The North American segment procures and
distributes products primarily throughout North America and provides management,
warehousing and engineering support. The Taiwan segment procures product from,
and manufactures and distributes product primarily to, companies in Taiwan,
Korea, Singapore, and Hong Kong. This segment also procures product for, and
manufactures and distributes product to the Company's North American operations.
The China segment manufactures product for, and distributes product to, both the
North American and Taiwan segments. In 1997, the China segment began
manufacturing product for, and distributing product to, customers in China and
North America. See Note E of "Notes to Consolidated Financial Statements" for a
description of the Company's adoption of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information.
In July 1997, Vishay Intertechnology, Inc. ("Vishay") and the
Lite-On Group, a Taiwanese consortium, formed a joint venture -- Vishay/Lite-On
Power Semiconductor Pte., LTD. ("Vishay/LPSC") -- to acquire Lite-On Power
Semiconductor Corp. ("LPSC"), the Company's largest shareholder and a member of
the Lite-On Group of the Republic of China. Vishay is the largest U.S. and
European manufacturer of passive electronic components and a major producer of
discrete semiconductors and power integrated circuits. The Lite-On Group, with
worldwide sales of almost $2 billion, is a leading manufacturer of power
semiconductors, computer peripherals, and communication products.
In March 2000, Vishay agreed to sell its 65% interest in the
Vishay/LPSC joint venture to the Lite-On Group, the 35% owner. Because of this
transaction, the Lite-On Group, through LPSC, its wholly-owned subsidiary,
indirectly owns approximately 38% of the Company's Common Stock. The Company
considers its
10
<PAGE> 11
relationship with LPSC to be mutually beneficial and the Company and LPSC will
continue its strategic alliance as it has since 1991. The Company will continue
to compete, as it always has, with Vishay's Telefunken division. The overlap in
comparable products is insignificant and is not expected to have any material
impact on the financial results of the Company.
Products are currently sold under the Diodes, Inc. brand name.
The Company has unified product lines under a single brand names in order to
establish brand name unity and consistency of product, and to capitalize on
brand name recognition, where possible. Although customers continue to recognize
Diodes brand products and view the Company as a separate vendor from Vishay, at
this time it is uncertain as to the effect that the Vishay/LPSC transaction will
have on brand recognition or major distributors. However, management believes
that with the Company's competitive pricing, internal manufacturing capabilities
and capacity, customer/applications engineering, and strong customer service
reputation, it has proven itself to be a valuable supplier, and as such the
impact of the Vishay/LPSC transaction is not anticipated to have a material
adverse impact on customer relations.
In March 2000, the Company appointed C.H. Chen as President and
Chief Executive Officer, replacing Michael Rosenberg who left the Company to
pursue other interests. From 1969 to 1990, Mr. Chen held various positions at
Texas Instruments, most recently as Vice President of Texas Instruments-Taiwan.
In 1990, he left Texas Instruments to found Dyna Image Corp., a Lite-On Group
company (now listed on the Taiwan OTC market) that has become the world's
leading supplier of contact image sensors (CISs), which are key components in
facsimile machines and scanners. Mr. Chen is currently the Vice Chairman and
President of Dyna Image Corp.
In June 2000, the Company's common stock commenced trading on the
Nasdaq Stock Market, National Market System, under the symbol "DIOD." In
addition, the Company effected a three-for-two stock split in the form of a 50%
stock dividend payable on July 14, 2000 to stockholders of record on June 28,
2000. Under the terms of this stock split in the form of a stock dividend,
stockholders received a dividend in the form of one additional share for every
two shares held on the record date. Fractional shares created by the stock
dividend were paid in cash. The dividend was paid in authorized but unissued
shares of the common stock of the Company. The number of outstanding shares of
stock after the split was increased from approximately 5.3 million to
approximately 8.0 million shares, net of treasury shares held. The par value of
the stock was not be affected by the split and remains at $0.66 2/3 per share.
Also in June 2000, the Company retained Coffin Communications
Group to implement and manage its investor relations program. This announcement,
combined with the switch to Nasdaq and the stock split, are part of the
Company's on-going program to increase the Company's visibility and
communication with stockholders, and ultimately contribute to enhanced
stockholder liquidity and value.
The Company's Far East subsidiaries, Diodes-Taiwan and
Diodes-China, both manufacture product for sale to North America and the Far
East. Diodes-Taiwan's manufacturing focuses on products such as axial Schottky
and MELF rectifiers. These "general use" products are destined for end products
in the automotive industry as well as for use in commercial appliances,
household lighting, and electric hand tools, among others. Diodes-China's
manufacturing primarily focuses on SOT-23 and SOD-123 products. These surface
mount devices ("SMDs") are used in the computer and telecommunications
industries and are destined for notebook computers, pagers, PCMCIA cards,
modems, and garage door transmitters, among others. Diodes-China's
state-of-the-art facilities have been designed to develop even smaller,
higher-density products as electronic industry trends to portable and hand-held
devices continue.
The discrete semiconductor industry has, for the last several
years, been subject to severe pricing pressures, compounded by the Asian
economic situation. Although manufacturing costs generally decreased during this
period, excess manufacturing capacity and over-inventory caused selling prices
to fall at a greater rate than manufacturing costs. Because of this competitive
environment, gross profit margins declined from 28.3% in 1995 to 26.4% in 1999.
Beginning in the second half of 1999, manufacturing profit from Diodes-China
coupled with an apparent easing of pricing pressures contributed to a gross
profit margin of 32.2% for the three months ended June 30, 2000 compared to
24.3% for the same period last year. There can be no assurance that these
improved margins can be maintained or improved upon in the future.
11
<PAGE> 12
To compete in this highly competitive industry, in recent years,
the Company has committed substantial resources to the development and
implementation of two areas of operation: (i) sales and marketing, and (ii)
manufacturing. Emphasizing the Company's focus on customer service, additional
personnel and programs have been added. In order to meet customers' needs at the
design stage of end-product development, the Company has employed additional
applications engineers. These applications engineers work directly with
customers to assist them in "designing in" the correct products to produce
optimum results. Regional sales managers, working closely with manufacturers'
representative firms and distributors, have also been added in the U.S. and the
Far East to help satisfy customers' requirements. In addition, the Company has
developed relationships with major distributors who inventory and sell the
Company's products.
Beginning in 1998, the Company increased the amount of product
shipped to larger distributors. Although these sales were significant in terms
of total sales dollars and gross margin dollars, they generally were under
agreements that resulted in lower gross profit margins for the Company when
compared to sales to smaller distributors and OEM customers. As the
consolidation of electronic component distributors continues, the Company
anticipates that a greater portion of its distributor sales will be to the
larger distributors, and thus may result in lower gross profit margins for this
sales channel.
Since 1997, the Company's manufacturing focus has primarily been
in the development and expansion of Diodes-China. To date, the Company and its
5% minority partner have increased property, plant and equipment at the facility
to approximately $28 million. The equipment expansion allows for the manufacture
of additional SOT-23 packaged components as well as other surface-mount
packaging, including the smaller SOD packages.
In December 1999, the Company announced it would invest an
additional $6.5 million in Diodes-China to expand its manufacturing capacity by
approximately 65%. The additional expansion, to be financed with cash flow and
existing credit facilities, is expected to be fully operational in the third
quarter of 2000. In April 2000, the Company announced an additional investment
of $9 million in Diodes-China that is expected to be in full production by the
first quarter of 2001. These investments, when completed, will bring the total
property, plant and equipment at the manufacturing facility to approximately $40
million. As the industry requires manufacturing of smaller and more efficient
products that meet the technical requirements of customers seeking to integrate
multiple technologies within one package, the Company will continue to increase
manufacturing capacity as worldwide demand warrants.
The Company intends to continue its strategic plan of locating
alternate sources of its products and raw materials, including those provided by
its major suppliers. Alternate sources include, but are not limited to,
Diodes-China and other sourcing agreements in place, as well as those in
negotiation. The Company anticipates that the effect of the loss of any one of
its major suppliers will not have a material adverse effect on the Company's
operations, provided that alternate sources remain available. The Company
continually evaluates alternative sources of its products to assure its ability
to deliver high-quality, cost-effective products.
In 1999, Diodes-Taiwan began purchasing silicon wafers, a new
product line, from FabTech for resale to customers in the Far East.
Diodes-Taiwan also purchases wafers from LPSC, among others. Silicon wafer sales
for the three and six months ended June 30, 2000 were $2.7 million and $4.9
million compared to $944,000 and $1.4 million for the same periods in 1999,
respectively. Wafer sales for the twelve months ended December 31, 1999 were
$4,005,000. The gross margin percentage on sales of silicon wafers, though still
profitable, is below that of the Company's standard product lines. Silicon wafer
sales are a complementary service for some customers, rather than a focused
product line. It is anticipated that significant sales of silicon wafers may not
continue beyond the second half of 2000 as the Company evaluates other, more
profitable complementary products.
Products from foreign suppliers are purchased primarily in United
States dollars. To a limited extent, and from time to time, the Company
contracts in foreign currencies (e.g., a portion of the equipment purchases for
the Diodes-China expansion), and, accordingly, 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
12
<PAGE> 13
volume of contracts written in foreign currencies increases, and the Company
does not engage in currency hedging, a substantial increase in the relative
value of such currencies could have a material adverse effect on the Company's
results of operations. Management believes that the current contracts written in
foreign currencies are not significant enough to justify the costs inherent in
currency hedging.
The Company's effective tax rate was 10.6% and 11.7% for the
three and six months ended June 30, 2000, respectively. This compares to 19.3%
and 36.0% for the twelve months ended December 31, 1999 and 1998, respectively.
The decrease in the Company's effective tax rate is due primarily to the
increase in Diodes-China's contribution to net income at a tax rate of 0%
through year 2000. From 2001 through 2003, Diodes-China will be taxed at 13.5%
(one-half of the current Chinese tax rate) and then at 27% thereafter. Based
upon tax rates in the U.S. and Taiwan and the expected profitability of each of
the Company's three business segments during the balance of the year, it is
anticipated that for the twelve months of 2000, the consolidated provision for
income taxes will be in the range of 10-20% of pre-tax income.
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000 Issue
("Y2K"). The total cost of Y2K compliance was not considered a material expense,
and to date, no significant operational problems for the Company's computer
systems have occurred as a result of Y2K. However, if problems surface that have
not yet been identified that will require substantial time and resources to
remedy, they could have a material adverse effect on the Company's business.
Net Sales, Cost of Goods Sold and Other Income for the three and
six months ended June 30, 1999 have been restated to be consistent with the
current presentation of certain transactions. In the past, profit realized on
drop shipments from Diodes-Taiwan was accounted for as "Commission Income" under
"Other Income". These shipments, which have become an increasingly significant
part of the Company's business, are now included in "Net Sales", with an
appropriate charge to "Cost of Goods Sold". The income derived from these
transactions is now included in Gross Profit. These changes have no effect on
Net Income and Earnings per Share. The increase to Net Sales and Gross Profit,
and the decrease in Other Income for the three months ended June 30, 1999 was
$222,000, $76,000, and $76,000, respectively. The increase to Net Sales and
Gross Profit, and the decrease in Other Income for the six months ended June 30,
1999 was $642,000, $146,000, and $146,000, respectively.
13
<PAGE> 14
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 2000
The following table sets forth, for the periods indicated, the
percentage that certain items in the statement of income bear to net sales and
the percentage dollar increase (decrease) of such items from period to period.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENT OF NET SALES DOLLAR INCREASE
THREE MONTHS ENDED JUNE 30, (DECREASE)
--------------------------- ---------------
1999 2000 '99 TO '00
----- ----- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 78.8%
Cost of goods sold (75.7) (67.8) 60.2
----- ----- -----
Gross profit 24.3 32.2 136.8
Selling, general & administrative
expenses ("SG&A") (18.5) (16.2) 56.1
----- ----- -----
Income from operations 5.8 16.0 395.6
Interest expense, net (0.4) (0.7) 247.0
Other income 0.0 0.1 544.4
----- ----- -----
Income before taxes and minority 5.4 15.4 414.3
Income taxes 0.7 1.6 345.8
Minority interest (0.2) (0.5) 430.3
----- ----- -----
Net income 4.5 13.3 423.6
===== ===== =====
</TABLE>
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company for the
three months ended June 30, 2000 compared to the three months ended June 30,
1999. This discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this quarterly
report.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
NET SALES $18,229,000 $32,600,000
</TABLE>
Net sales increased approximately $14.4 million, or 78.8%, for
the three months ended June 30, 2000 compared to the same period last year, due
primarily to a 62.8% increase in units sold, as a result of an increased demand
for the Company's products, primarily in the Far East. Diodes-China contributed
trade sales of $2.1 million, compared to $750,000 in the same period last year.
The Company's average selling price ("ASP") increased 8.8% over the same period
last year, primarily in the Far East, and increased 5.4% from the first quarter
of 2000. There can be no assurance that ASP's will continue to strengthen. In
1999, Diodes-Taiwan began purchasing silicon wafers, a new product line, from
FabTech, among others, for resale in the Far East. Sales totaling $2.7 million
of silicon wafers compared to $944,000 in the same period last year also
contributed to the increase in sales. It is anticipated that sales of silicon
wafers may not continue beyond the second half of 2000 as the Company evaluates
other, more profitable complementary products.
14
<PAGE> 15
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
COST OF GOODS SOLD $13,800,000 $22,111,000
GROSS PROFIT $ 4,429,000 $10,489,000
GROSS PROFIT MARGIN PERCENTAGE 24.3% 32.2%
</TABLE>
Gross profit rose approximately $6.1 million, or 136.8%, for the
three months ended June 30, 2000 compared to the same period last year. Of the
$6.1 million increase, approximately $3.5 million was due to the 78.8% increase
in sales, while $2.6 million was due to the increase in gross margin percentage
from 24.3% to 32.2%. Manufacturing profit at Diodes-China contributed to the
increase in gross margin percentage. Although gross profit margins strengthened
in the second quarter of 2000, pricing pressures continue to exist on many of
the Company's product lines, and there can be no assurance that margins will
continue to improve or be maintained.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
SG&A $3,376,000 $5,270,000
</TABLE>
SG&A for the three months ended June 30, 2000 increased
approximately $1.9 million, or 56.1%, compared to the same period last year, due
primarily to increases in wage/benefits expenses due to additional sales and
engineering personnel, higher marketing and advertising expenses, and increased
sales commissions. SG&A as a percentage of sales decreased to 16.2% from 18.5%
in the comparable period last year.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
INTEREST INCOME $ 77,000 $143,000
INTEREST EXPENSE $143,000 $372,000
NET INTEREST EXPENSE $ 66,000 $229,000
</TABLE>
Net interest expense for the three months ended June 30, 2000
increased $163,000 versus the same period last year, due primarily to an
increase use of the Company's credit facility (at higher interest rates) to
support the expansion of Diodes-China. The Company's interest expense is
primarily the result of the term loan by which the Company is financing (i) the
investment in the Diodes-China manufacturing facility and (ii) the $2.5 million,
including accrued interest, advanced to FabTech. Interest income is primarily
the interest charged to FabTech, under the Company's formal loan agreement, as
well as earnings on its cash balances.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
OTHER INCOME $(9,000) $40,000
</TABLE>
Other income for the three months ended June 30, 2000 increased
approximately $49,000 compared to the same period last year, due primarily to
currency exchange fluctuation at the Company's subsidiaries in Taiwan and China.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
PROVISION FOR INCOME TAXES $120,000 $535,000
</TABLE>
The Company's overall effective federal, state, and foreign tax
rate decreased to 10.6% for the three months ended June 30, 2000 from 12.3% in
the comparable period last year. Diodes-China will continue to benefit from 0%
tax for the remainder of year 2000. From 2001 through 2003, Diodes-China will be
taxed at 13.5% (one-half of the current Chinese tax rate) and at 27% thereafter.
Based upon tax rates in the U.S. and Taiwan and the expected profitability of
each of the Company's three business segments during the balance of the year, it
is anticipated that for the twelve months of 2000, the consolidated provision
for income taxes will be in the range of 10-20% of pre-tax income.
15
<PAGE> 16
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
MINORITY INTEREST IN JOINT VENTURE $(33,000) $(175,000)
</TABLE>
Minority interest in joint venture represents the minority
investor's share of the Diodes-China joint venture's income for the period. The
increase in the joint venture earnings for the three months ended June 30, 2000
is primarily the result of increased sales, both internal and to external
customers. The joint venture investment is eliminated in consolidation of the
Company's financial statements and the activities of Diodes-China are included
therein. As of June 30, 2000, the Company had a 95% controlling interest in the
joint venture.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
The following table sets forth, for the periods indicated, the
percentage that certain items in the statement of income bear to net sales and
the percentage dollar increase (decrease) of such items from period to period.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENT OF NET SALES DOLLAR INCREASE
SIX MONTHS ENDED JUNE 30, (DECREASE)
------------------------- ---------------
1999 2000 '99 TO '00
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 75.2%
Cost of goods sold (75.7) (68.5) 58.6
----- ----- -----
Gross profit 24.3 31.5 127.0
Selling, general & administrative
expenses ("SG&A") (19.0) (16.3) 51.0
----- ----- -----
Income from operations 5.4 15.2 394.5
Interest expense, net (0.5) (0.7) 139.6
Other income 0.1 0.1 21.1
----- ----- -----
Income before taxes and minority 5.0 14.6 410.6
Income taxes 0.4 1.7 649.6
Minority interest (0.2) (0.5) 324.2
----- ----- -----
Net income 4.4 12.4 392.4
===== ===== =====
</TABLE>
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company for the
six months ended June 30, 2000 compared to the six months ended June 30, 1999.
This discussion should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this quarterly report.
16
<PAGE> 17
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
NET SALES $34,261,000 $60,037,000
</TABLE>
Net sales increased approximately $25.8 million, or 75.2%, for
the six months ended June 30, 2000 compared to the same period last year, due
primarily to a 61.1% increase in units sold, as a result of an increased demand
for the Company's products, primarily in the Far East. Diodes-China contributed
trade sales of $3.4 million, compared to $1.3 million in the same period last
year. The Company's ASP increased 7.8% over the same period last year, primarily
in the Far East. There can be no assurance that ASP's will continue to
strengthen. In 1999, Diodes-Taiwan began purchasing silicon wafers, a new
product line, from FabTech, among others, for resale in the Far East. Sales
totaling $4.9 million of silicon wafers compared to $1.4 million in the same
period last year also contributed to the increase in sales. It is anticipated
that sales of silicon wafers may not continue beyond the second half of 2000 as
the Company evaluates other, more profitable complementary products.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
COST OF GOODS SOLD $25,922,000 $41,111,000
GROSS PROFIT $ 8,339,000 $18,926,000
GROSS PROFIT MARGIN PERCENTAGE 24.3% 31.5%
</TABLE>
Gross profit rose approximately $10.6 million, or 127.8%, for the
six months ended June 30, 2000 compared to the same period last year. Of the
$10.6 million increase, approximately $6.3 million was due to the 75.2% increase
in sales, while $4.3 million was due to the increase in gross margin percentage
from 24.3% to 31.5%. Manufacturing profit at Diodes-China contributed to the
increase in gross margin percentage. Although gross profit margins strengthened
in the first quarter of 2000, pricing pressures continue to exist on many of the
Company's product lines, and there can be no assurance that margins will
continue to improve or be maintained.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
SG&A $6,496,000 $9,812,000
</TABLE>
SG&A for the six months ended June 30, 2000 increased
approximately $3.3 million, or 51.0%, compared to the same period last year, due
primarily to separation compensation paid to the former President and Chief
Executive Officer in March 2000. Increases in wage/benefits expenses due to
additional sales and engineering personnel, higher marketing and advertising
expenses, and increased sales commissions also contributed to the increase in
SG&A. SG&A as a percentage of sales decreased to 16.3% from 19.0% in the
comparable period last year.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
INTEREST INCOME $139,000 $195,000
INTEREST EXPENSE $303,000 $588,000
NET INTEREST EXPENSE $164,000 $393,000
</TABLE>
Net interest expense for the six months ended June 30, 2000
increased $229,000 versus the same period last year, due primarily to an
increase use of the Company's credit facility (at higher interest rates) to
support the expansion of Diodes-China. The Company's interest expense is
primarily the result of the term loan by which the Company is financing (i) the
investment in the Diodes-China manufacturing facility and (ii) the $2.5 million,
including accrued interest, advanced to FabTech. Interest income is primarily
the interest charged to FabTech, under the Company's formal loan agreement, as
well as earnings on its cash balances.
17
<PAGE> 18
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
OTHER INCOME $38,000 $46,000
</TABLE>
Other income for the six months ended June 30, 2000 increased
approximately $8,000 compared to the same period last year, due primarily to
currency exchange fluctuation at the Company's subsidiaries in Taiwan and China.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
PROVISION FOR INCOME TAXES $137,000 $1,027,000
</TABLE>
The Company's overall effective federal, state, and foreign tax
rate increased to 11.7% for the six months ended June 30, 2000 from 1.7% in the
comparable period last year. Diodes-China will continue to benefit from 0% tax
for the remainder of year 2000. From 2001 through 2003, Diodes-China will be
taxed at 13.5% (one-half of the current Chinese tax rate) and at 27% thereafter.
Based upon tax rates in the U.S. and Taiwan and the expected profitability of
each of the Company's three business segments during the balance of the year, it
is anticipated that for the twelve months of 2000, the consolidated provision
for income taxes will be in the range of 10-20% of pre-tax income.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
MINORITY INTEREST IN JOINT VENTURE $(66,000) $(280,000)
</TABLE>
Minority interest in joint venture represents the minority
investor's share of the Diodes-China joint venture's income for the period. The
increase in the joint venture earnings for the six months ended June 30, 2000 is
primarily the result of increased sales, both internal and to external
customers. The joint venture investment is eliminated in consolidation of the
Company's financial statements and the activities of Diodes-China are included
therein. As of June 30, 2000, the Company had a 95% controlling interest in the
joint venture.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the six months ended
June 30, 2000 was $3.1 million compared to cash provided of $2.7 million for the
same period in 1999. The primary sources of cash flows from operating activities
in 2000 were net income of $7.5 million and an increase in accounts payable of
$3.4 million. The primary use of cash flows from operating activities in 2000
was an increase in inventories of $5.0 million and an increase in accounts
receivable of $4.5 million. The primary sources of cash flows from operating
activities for the six months ended June 30, 1999 were an increase in accounts
payable of $2.8 million and a decrease in inventories of $1.8 million, while the
primary use was a $3.7 million increase in accounts receivable. Inventory turns
at June 30, 2000 are 4.3 times compared to 3.5 times at December 31, 1999.
Accounts receivable days at June 30, 2000 are 52 days compared to 56 days at
December 31, 1999. The ratio of the Company's current assets to current
liabilities on June 30, 2000 was 1.66 to 1, compared to a ratio of 1.73 on
December 31, 1999.
Cash used by investing activities was $5.8 million as of June 30,
2000, compared to $1.6 million during the same period in 1999. The primary
investment in both years was for additional manufacturing equipment at the
Diodes-China manufacturing facility.
Cash provided by financing activities was $2.4 million for the
six months ended June 30, 2000, compared to a use of $672,000 for the same
period in 1999. The Company has a $23.1 million credit facility with a major
bank consisting of: a working capital line of credit up to $9 million and term
commitment notes providing up to $14 million for plant expansion, advances to
vendors, and letters of credit for Diodes-China. Interest on outstanding
borrowings under the credit agreement is payable monthly at LIBOR plus a
negotiated margin. Fixed
18
<PAGE> 19
borrowings require fixed principal plus interest payments for sixty months
thereafter. The agreement has certain covenants and restrictions, which, among
other matters, require the maintenance of certain financial ratios and operating
results, as defined in the agreement. The Company was in compliance as of June
30, 2000. The Company has extended its working capital line of credit through
June 30, 2002, and has obtained an additional $10 million in term commitment
notes. As of June 30, 2000, approximately $5.6 million is outstanding under the
term note commitment, and the average interest rate on outstanding borrowings
was approximately 7.4%.
The Company has used its credit facility primarily to fund the
advances to Diodes-China and FabTech as well as to support its operations. At
June 30, 2000, amounts due from FabTech, including accrued interest, are
approximately $2.5 million, and the entire amount is due February 2001. 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 January 2000, the Company entered into an intercompany loan
agreement with Diodes-China for up to $6.0 million. The interest rate charged by
the Company will be equal to the Company's borrowing rate. Diodes-China will
repay the loan by installment payments as cash flow allows, however, the total
outstanding balance, including accrued interest, will be payable in full on or
before December 31, 2003.
Total working capital increased approximately 18.6% to $18.9
million as of June 30, from $15.9 million as of December 31, 1999. The Company
believes that such working capital position will be sufficient for growth
opportunities.
The Company's long-term debt to equity ratio decreased to 0.13 at
June 30, 2000, from 0.20 at December 31, 1999. The Company's total debt to
equity ratio decreased to 0.77 at June 30, 2000, from 0.78 at December 31, 1999.
It is anticipated that these ratios may increase as the Company continues to use
its credit facilities to fund additional sourcing and manufacturing
opportunities.
As of June 30, 2000, the Company has no material plans or
commitments for capital expenditures other than in connection with the expansion
at Diodes-China. However, to ensure that the Company can secure reliable and
cost effective sourcing to support and better position itself for growth, the
Company is continuously evaluating additional sources of products. The Company
believes its financial position will provide sufficient funds should an
appropriate investment opportunity arise and thereby, assist the Company in
improving customer satisfaction and in maintaining or increasing market share.
FACTORS THAT MAY AFFECT FUTURE RESULTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the
matters addressed in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements are subject to a variety of risks
and uncertainties, including those discussed below and elsewhere in this
Quarterly Report on Form 10-Q that could cause actual results to differ
materially from those anticipated by the Company's management. The Private
Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe
harbor" provisions for forward-looking statements. All forward-looking
statements made on this Quarterly Report on Form 10-Q are made pursuant to the
Act.
All forward-looking statements contained in this Quarterly Report
on Form 10-Q are subject to, in addition to the other matters described in this
Quarterly Report on Form 10-Q, a variety of significant risks and uncertainties.
The following discussion highlights some of these risks and uncertainties.
Further, from time to time, information provided by the Company or statements
made by its employees may contain forward-looking information. There can be no
assurance that actual results or business conditions will not differ materially
from
19
<PAGE> 20
those set forth or suggested in such forward-looking statements as a result of
various factors, including those discussed below.
There are many factors that could cause the events in such
forward looking statements to not occur, including but not limited to:
- general or specific economic conditions
- fluctuations in product demand
- introduction of new products
- Company's ability to maintain customer relationships
- technological advancements
- impact of competitive products and pricing
- change in growth in targeted markets
- risks of foreign operations such as Diodes-China and Diodes-Taiwan
- ability and willingness of the Company's customers to purchase products
provided by the Company
- perceived absolute or relative overall value of these products by the
purchasers, including the features, quality, and price in comparison to other
competitive products
- level of availability of products and substitutes and the ability and
willingness of purchasers to acquire new or advanced products
- pricing, purchasing, financing, operational, advertising and promotional
decisions by intermediaries in the distribution channels which could affect
the supply of or end-user demands for the Company's products
- amount and rate of growth of the Company's selling, general and
administrative expenses
- difficulties in obtaining materials, supplies and equipment
- difficulties or delays in the development, production, testing and marketing
of products
- failure to ship new products and technologies when anticipated
- failure of customers to accept these products or technologies when planned
- defects in products
- any failure of economies to develop when planned
- acquisition of fixed assets and other assets, including inventories and
receivables
- making or incurring of any expenditures
- effects of and changes in trade, monetary and fiscal policies, laws and
regulations
- other activities of governments, agencies and similar organizations
- changes in social and economic conditions, such as trade restriction or
prohibition, inflation and monetary fluctuation, import and other charges or
taxes, especially at Diodes-China and Diodes-Taiwan
- ability or inability of the Company to obtain or hedge against foreign
currency
- foreign exchange rates and fluctuations in those rates
- intergovernmental disputes
- developments or assertions by or against the Company relating to intellectual
property rights
- adaptations of new, or changes in, accounting policies and practices in the
application of such policies and practices and the effects of changes within
the Company's organization
- changes in compensation benefit plans
- activities of parties with which the Company has an agreement or
understanding, including any issues affecting any investment or joint venture
in which the Company has an investment
- amount, and the cost of financing which the Company has, and any changes to
that financing
- the sale of Vishay's 65% ownership in Vishay/LPSC to LPSC
- any other information detailed from time to time in the Company's filings
with the United States Securities and Exchange Commission.
20
<PAGE> 21
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
The Company submitted to a vote of its security holders at an
annual meeting of shareholders on June 12, 2000, the election of members of the
Board of Directors. The directors were each elected to serve until the 2001
annual meeting or until their successors are elected and have qualified. The
results of the tabulation for each nominee for director of the Company is as
follows:
C.H. Chen, For: 4,698,280
Director Withheld: 402,784
Michael R. Giordano, For: 4,697,780
Director Withheld: 403,284
David Lin, For: 4,695,900
Director Withheld: 405,164
M.K. Lu, For: 4,697,180
Director Withheld: 403,884
Shing Mao, For: 4,697,780
Director Withheld: 403,284
Leonard M. Silverman, For: 4,697,780
Director Withheld: 403,284
Raymond Soong, For: 4,697,180
Director Withheld: 403,884
John M. Stich, For: 4,696,900
Director Withheld: 404,164
21
<PAGE> 22
The Company submitted to a vote of its security holders at an
annual meeting of shareholders on June 12, 2000, an amendment to Article Four of
the Company's Certificate of Incorporation to increase its authorized shares of
Common Stock from 9,000,000 to 30,000,000. The result of the tabulation was
4,430,787 shares voted in favor of the proposal, 657,635 shares voted against,
and 12,642 abstained from voting on the proposal. No broker non-votes with
respect to this proposal were received.
The Company also submitted to a vote of its security holders at
an annual meeting of shareholders on June 12, 2000, the appointment of Moss
Adams LLP as the Company's independent certified public accountants for the
fiscal year ending December 31, 2000. The result of the tabulation was 5,081,563
shares voted in favor of the proposal, 6,818 shares voted against, and 12,683
abstained from voting on the proposal. No broker non-votes with respect to this
proposal were received.
ITEM 5. OTHER INFORMATION
The proxy materials for the 2000 annual meeting of stockholders
held on June 12, 2000 were mailed to stockholders of the Company on May 5, 2000.
Under certain circumstances, stockholders are entitled to present proposals at
stockholder meetings. Any such proposal to be included in the proxy statement
for the 2001 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 4, 2001
in a form that complies with applicable regulations. 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, 2001, the proxies solicited by the
Board of Directors for the 2001 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 2001
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
<TABLE>
<S> <C>
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
Exhibit 99.5 Press release; Diodes Incorporated Retains Coffin Communications
Group as Investor Relations Counsel
Exhibit 99.6 Press release; John M. Stich Appointed to Board of Diodes
Incorporated
Exhibit 99.7 Press release; C.H. Chen Addresses Diodes Shareholders at Annual
Meeting
Exhibit 99.8 Press release; Diodes, Inc. Announces Move to NASDAQ and
Declares Three-for-Two Stock Split
Exhibit 99.9 Press release; Diodes, Inc. to Trade Ex-Dividend of Three-for-Two
Stock Split
Exhibit 99.10 Press release; Diodes, Inc. Posts Record Results
for Second Quarter 2000 -- Net Income Up 424%
</TABLE>
22
<PAGE> 23
(b) Reports on Form 8-K
None
23
<PAGE> 24
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 August 4, 2000
----------------------------------------------------
CARL WERTZ
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal Financial and
Chief Accounting Officer)
24
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit 11 Computation Of Earnings Per Share Page 26
Exhibit 27 Financial Data Schedule Page 27
Exhibit 99.5 Press Release; Diodes Incorporated Retains
Coffin Communications Group As Investor
Relations Counsel Page 28
Exhibit 99.6 Press Release; John M. Stich Appointed
To Board Of Diodes Incorporated Page 30
Exhibit 99.7 Press Release; C.H. Chen Addresses Diodes
Shareholders at Annual Meeting Page 32
Exhibit 99.8 Press Release; Diodes, Inc. Announces Move to
NASDAQ and Declares Three-for-Two Stock Split Page 35
Exhibit 99.9 Press release; Diodes, Inc. to Trade Ex-Dividend
of Three-for-Two Stock Split Page 37
Exhibit 99.10 Press release; Diodes, Inc. Posts Record Results
for Second Quarter 2000 -- Net Income Up 424% Page 38
</TABLE>
25
