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, 1996
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 No.)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 446-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares of the registrant's Common Stock outstanding as of
November 7, 1996, was 5,675,794 including 717,115 shares of treasury stock.
THIS REPORT INCLUDES A TOTAL OF 23 PAGES
THE EXHIBIT INDEX IS ON PAGE 21
2
DIODES INCORPORATED
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets at September 30, 1996 and
December 31, 1995 3-4
Consolidated Condensed Statements of Income for the three months and
nine months ended September 30, 1996 and September 30, 1995 5
Consolidated Condensed Statements of Cash Flows for the nine months
ended September 30, 1996 and September 30, 1995 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three months and nine months ended
September 30, 1996 and September 30, 1995 8-18
PART II - OTHER INFORMATION
Items 1 through 6 19
Signature 20
Index to Exhibits 21
2
3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
CURRENT ASSETS
Cash S1,464,000 $478,000
Accounts receivable
Customers 9,630,000 7,794,000
Related party and other 331,000 427,000
---------- ---------
9,961,000 8,221,000
Less allowance for doubtful receivables 238,000 177,000
---------- ---------
9,723,000 8,044,000
Inventories 14,041,000 16,295,000
Deferred income taxes 893,000 893,000
Prepaid expenses and other 875,000 173,000
---------- ----------
Total current assets 26,996,000 25,883,000
PROPERTY, PLANT, AND EQUIPMENT - at cost, net 4,635,000 1,527,000
---------- ----------
INVESTMENT IN JOINT VENTURE -- 1,878,000
OTHER ASSETS
Advances to affiliated entity 2,587,000 --
Other assets 883,000 75,000
----------- -----------
TOTAL ASSETS $35,101,000 $29,363,000
=========== ===========
See accompanying notes
3
4
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
CURRENT LIABILITIES
Notes payable $3,000,000 $3,916,000
Accounts payable 3,278,000 6,075,000
Accrued liabilities 3,672,000 1,954,000
Income taxes payable 112,000 637,000
Current portion of long-term debt 37,000 38,000
---------- ----------
Total current liabilities 10,099,000 12,620,000
LONG-TERM OBLIGATION, less current maturities 5,215,000 244,000
MINORITY INTEREST IN JOINT VENTURE 1,130,000 --
STOCKHOLDERS' EQUITY
Class A convertible preferred stock - par value $1 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; 5,675,794 and 5,675,619
shares issued and outstanding at September 30, 1996
and, December 31, 1996, respectively. 3,784,000 3,784,000
Additional paid-in capital 5,768,000 5,768,000
Retained earnings 10,887,000 8,729,000
---------- ----------
20,439,000 18,281,000
Less: Treasury stock - 717,115 common shares, at cost 1,782,000 1,782,000
---------- ----------
Total stockholders' equity 18,657,000 16,499,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,101,000 $29,363,000
=========== ===========
See accompanying notes
4
5
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- -----------------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $14,394,000 $15,356,000 $41,050,000 $44,134,000
Cost of goods sold 10,893,000 10,924,000 30,381,000 31,621,000
----------- ----------- ----------- -----------
Gross profit 3,501,000 4,432,000 10,669,000 12,513,000
Selling, general and
administrative expenses 2,388,000 2,483,000 7,397,000 7,363,000
------------ ----------- ----------- ------------
Income from operations 1,113,000 1,949,000 3,272,000 5,150,000
Other income (expense)
Interest income 55,000 3,000 144,000 22,000
Interest expense (149,000) (76,000) (421,000) (120,000)
Commissions and other 88,000 190,000 265,000 388,000
Minority interest in joint
venture 71,000 -- 83,000 --
------------ ----------- ----------- -----------
65,000 117,000 71,000 290,000
Income before income taxes 1,178,000 2,066,000 3,343,000 5,440,000
Provision for income taxes 423,000 805,000 1,185,000 2,074,000
------------ ----------- ----------- -----------
Net income $ 755,000 $ 1,261,000 $ 2,158,000 $ 3,366,000
============ =========== =========== ===========
Earnings per share
Primary $ 0.14 $ 0.24 $ 0.40 $ 0.65
Fully-diluted $ 0.14 $ 0.24 $ 0.40 $ 0.64
============ =========== =========== ===========
Weighted average shares outstanding
Primary 5,235,179 5,276,127 5,390,866 5,206,042
Fully-diluted 5,293,366 5,276,127 5,390,866 5,255,624
============ =========== =========== ===========
See accompanying notes
5
6
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,158,000 $ 3,366,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 224,000 238,000
Increase in allowance for doubtful accounts 61,000 34,000
Gain on sale of property, plant and equipment, net -- (73,000)
(Increase) decrease in operating assets:
Accounts receivable (1,740,000) (3,795,000)
Inventories 2,254,000 (5,256,000)
Prepaid taxes, expenses and other (702,000) (652,000)
(Decrease) increase in operating liabilities:
Accounts payable (2,797,000) 344,000
Accrued liabilities 1,718,000 1,064,000
Income taxes payable (525,000) (231,000)
Deferred compensation payable -- (14,000)
Minority interest in joint venture earnings (83,000) --
------------ ----------
Net cash provided (used) by operations 568,000 (4,975,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,454,000) (289,000)
Proceeds from sale of equipment -- 147,000
Acquisition of other assets (808,000) --
Advances to affiliates (2,587,000)
Minority interest contribution to joint venture 1,213,000 --
------------ ----------
Net cash provided (used) by investing activities (3,636,000) (142,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (payments) on line of credit, net (917,000) 3,551,000
Proceeds from issuance of stock -- 344,000
Proceeds from (repayments of) long-term obligations 4,971,000 (39,000)
------------ ----------
Net cash provided (used) by financing activities 4,054,000 3,856,000
INCREASE (DECREASE) IN CASH $ 986,000 $(1,261,000)
CASH AT BEGINNING OF PERIOD $ 478,000 $ 1,733,000
------------ ------------
CASH AT END OF PERIOD $ 1,464,000 $ 472,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-Cash Investing Activities
Conversion of joint venture investment to plant and
equipment $ 1,878,000 $ --
============ ============
See accompanying notes
6
7
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 instructions 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 year ended
December 31, 1995.
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 Shanghai Kai Hong Electronics Co., Ltd.
("Kai Hong") joint venture in which the Company has a 70% controlling interest.
All significant inter-company balances and transactions have been eliminated.
NOTE B - INCOME TAXES
Income taxes are accounted for using an asset and liability method.
This method requires the recognition of deferred tax assets and liabilities for
both the expected future tax impact of differences between the financial
statement and tax basis of assets and liabilities, and for the expected future
tax benefit to be derived from tax loss carryforwards. Additionally, this
method requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets.
Accordingly, the Company has recorded a net deferred tax asset
resulting from net deductible temporary differences in the amount of $893,000.
This deferred tax asset results primarily from inventory reserves and expense
accruals which are not currently deductible for federal income tax purposes.
7
8
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
addressed in this Item 2 constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements are subject to a variety of risks and uncertainties, including those
discussed below under the heading "Factors That May Affect Future Results" and
elsewhere in this Report on Form 10-Q, that could cause actual results to
differ materially from those anticipated by the Company's management. The
Private Securities Litigation Reform Act of 1995 (the "Act") provides certain
"safe harbor" provisions for forward-looking statements. All forward-looking
statements made on this Quarterly Report on Form 10-Q are made pursuant to the
Act.
FINANCIAL CONDITION
Net sales for the three months and nine months ended September 30,
1996 were, $14.4 million and $41.1 million, respectively, representing
decreases of approximately 6.3% and 7.0%, respectively, compared to the same
periods in 1995. Primary earnings per share were $0.14 and $0.40 for the three
months and nine months ended September 30, 1996, representing decreases of
41.7% and 38.5%, respectively, compared to the same periods in 1995. Although
net sales and earnings were below that of last year, they showed considerable
improvement over the immediately preceding quarter as earnings per share
increased 27.3% on a 7.0% increase in net sales. Price erosion due to
continuing excess inventories throughout the industry adversely affected the
Company's net sales and gross margins in the third quarter of 1996. Gross
profit margins for the three and nine months ended September 30, 1996 were
24.3% and 26.0%, respectively versus 28.9% and 28.4% in the comparable periods
in 1995, primarily due to industry-wide pricing pressures. With decreased
sales and competitive pricing, there can be no assurance that the Company will
be able to maintain these gross profit margins.
The Semiconductor Industry Association has reported that book-to-bill
ratios (the dollar value of new orders scheduled versus the dollar value of
orders shipped) throughout the industry fell in early 1996, reaching a nine
year low in March. In the third quarter of 1996, the Company continued to
experience a decrease in orders compared to the same period last year,
primarily due to a slow down in the personal computer and related industries.
Although the industry book-to-bill ratio is recovering somewhat, there can be
no assurance that such recovery will continue or be maintained. However, based
upon higher than forecasted October 1996 net sales, and provided industry
conditions continue to improve, the Company is cautiously optimistic that it
will continue to see improvements in net sales.
Selling, general and administrative expenses ("SG&A") for the three and
nine months ended September 30, 1996, as a percentage of net sales, was 16.6%
and 18.0%, respectively, versus 16.2% and 16.7% for the comparable periods last
year, and 19.0% and 18.8% for the comparable
8
9
periods last quarter, respectively. Planned increases in SG&A accounted for the
majority of the increase including three items in particular: (i) higher
promotional expenses for a new product line of leading-technology surface-mount
(SO-8) power MOSFETs; (ii) additional operating costs associated with the
Company's controlling interest in Kai Hong, a previously-announced investment on
mainland China for the manufacture of SOT-23 related parts; and (iii) ongoing
costs associated with the Company's goal of achieving ISO 9002 certification.
The ISO 9002 certification includes a subcontractor qualification program and is
designed to maximize product quality, enhance customer service, and strengthen
the Company's image in the marketplace.
The Company has been successful in controlling total inventory and
overhead expenses, which have been reduced by 13.8% since the beginning of the
year, and 6.4% since last quarter, respectively.
The Company has used approximately $3.3 million ($2.8 million as
equity contribution and $500,000 as a short-term loan) of its credit line to
fund equity contribution for the previously announced Kai Hong joint venture.
The Kai Hong facility is operational, has begun shipping product, and the first
phase is expected to be at full capacity in the fourth quarter of 1996. The
Company's third quarter and year-to-date net interest expense increased $21,000
and $179,000, respectively, from the comparable periods last year.
In accordance with generally accepted accounting principles, the
Company has accounted for this majority owned joint venture on a consolidated
basis. During the first half of 1996, the Kai Hong joint venture has
capitalized pre-operating and start-up costs of approximately $755,000 which
are classified in the consolidated balance sheet as "Other assets".
9
10
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
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.
PERCENT OF NET SALES PERCENTAGE DOLLAR
THREE MONTHS ENDED SEPTEMBER 30, INCREASE (DECREASE)
-------------------------------- -------------------
1996 1995 '95 TO '96
---- ---- ----------
Net sales 100.0% 100.0% (6.3)%
Cost of goods sold (75.7) (71.1) (0.3)
----- ----- -----
Gross profit 24.3 28.9 (21.0)
Operating expenses (16.6) (16.2) (3.8)
----- ----- -----
Income from operations 7.7 12.7 (42.9)
Interest expense, net (0.6) (0.5) 28.8
Other income and
Minority interest 1.1 1.3 (16.3)
----- ----- -----
Income before taxes 8.2 13.5 (43.0)
Income taxes 3.0 5.3 (47.5)
----- ----- -----
Net income 5.2 8.2 (40.1)
===== ===== =====
The following discussion explains in greater detail the consolidated
operating results and financial condition of the Company. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this quarterly report.
1996 1995
---- ----
NET SALES $ 14,394,000 $ 15,356,000
The Company's $962,000 or 6.3% decrease in net sales for the three
months ended September 30, 1996, compared to the three months ended September
30, 1995, was primarily attributed to price erosion due to continuing excess
inventories throughout the industry. The Semiconductor Industry Association
has reported that book-to-bill ratios throughout the industry fell in early
1996, reaching a nine year low in March. In the fourth quarter of 1995, the
Company experienced a slowing of orders, primarily due to a slow down in the
personal computer and related industries. Although the industry book-to-bill
ratio is recovering somewhat, there can be no assurance that such recovery will
continue or be maintained. However, based upon higher than forecasted October
1996 net sales, and provided industry conditions continue to improve, the
Company is cautiously optimistic that it will continue to see improvements in
net sales.
10
11
1996 1995
---- ----
GROSS PROFIT $ 3,501,000 $ 4,432,000
GROSS PROFIT MARGIN PERCENTAGE 24.3% 28.9%
The Company's gross profit for the three months ended September 30,
1996 decreased approximately $931,000 or 21.0%. This decrease was primarily
due to the 6.3% decrease in net sales and industry-wide pricing pressures, as
well as to inventory reserves recorded by the Company. As a percentage of net
sales, the Company's gross profit decreased to 24.3% from 28.9% for the
comparable periods in 1995, primarily due to industry-wide pricing pressures.
1996 1995
---- ----
SG&A $ 2,388,000 $ 2,483,000
The Company's SG&A for the three months ended September 30, 1996
decreased approximately 3.8% compared to the same period last year. This
$95,000 decrease was primarily attributable to cost controls, partly offset by
planned increases in SG&A including three items in particular: (i) higher
promotional expenses for a new product line of leading-technology surface-mount
(SO-8) power MOSFETs; (ii) additional operating costs associated with the
Company's controlling interest in Kai Hong, a previously-announced investment
on mainland China for the manufacture of SOT-23 type products; and (iii)
ongoing costs associated with the Company's goal of achieving ISO 9002. ISO
9002 certification includes a subcontractor qualification program and is
designed to maximize product quality, enhance customer service, and strengthen
the Company's image in the marketplace.
SG&A as a percentage of net sales increased from 16.2% for the three
months ended September 30, 1995 to 16.6% in the comparable period in 1996. The
Company continues to manage SG&A by implementing cost controls, but believes
that the industry-wide slowdown is temporary and thus will continue to
implement its plan for future growth.
1996 1995
---- ----
INCOME FROM OPERATIONS $ 1,113,000 $ 1,949,000
The Company's fiscal 1996 comparative decrease in income from
operations of approximately $836,000, or 42.9%, is primarily the net result of
the Company's 6.3% decrease in net sales, 21.0% decrease in gross profit, and
0.4 percentage point increase in SG&A as a percentage of net sales.
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12
1996 1995
---- ----
INTEREST INCOME $ 55,000 $ 3,000
INTEREST EXPENSE $ 149,000 $ 76,000
The Company's interest income for the three months ended September 30,
1996 increased approximately $52,000 compared to the same period last year as
the Company is advancing funds to FabTech and Kai Hong. The interest income is
primarily the interest charged to FabTech under the Company's loan agreement.
The Company's interest expense for 1996 increased $73,000 or 96.1%, primarily
as a result of an increase in the Company's usage of its credit facility to
finance additional agreements, primarily FabTech and Kai Hong.
1996 1995
---- ----
OTHER INCOME AND
MINORITY INTEREST IN JOINT VENTURE $ 159,000 $ 190,000
The Company's other income for the three months ended September 30,
1996 decreased approximately $31,000 or 16.3% primarily as a result
of a 53.7% decrease in commissions earned by the Company's Taiwan subsidiary on
drop shipment sales in Asia as well as the discontinuation of commissions from
ITT.
The minority interest in joint venture represents the Company's 70%
controlling interest in the Kai Hong joint venture. All of the Kai Hong joint
venture earnings are consolidated within the Company's financial statements.
The $71,000 represents the minority investor's share of the joint venture loss.
1996 1995
---- ----
NET INCOME $ 755,000 $ 1,261,000
PRIMARY EARNINGS PER SHARE $ 0.14 $ 0.24
The Company's net income for the three months ended September 30, 1996
decreased 40.1% or approximately $506,000 compared to the same period in 1995.
Primary earnings per share decreased approximately 41.7% for the three months
ended September 30, 1996, compared to the three months ended September 30,
1995. Decreases in both net income and earnings per share are primarily
attributable to a 6.3% decrease in net sales, a 0.4 percentage point decrease
in SG&A as a percentage of net sales, combined with a $21,000 increase in net
interest expense.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
1995.
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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.
PERCENT OF NET SALES PERCENTAGE DOLLAR
NINE MONTHS ENDED SEPTEMBER 30, INCREASE (DECREASE)
------------------------------- -------------------
1996 1995 '95 TO '96
---- ---- -----------
Net sales 100.0% 100.0% (7.0)%
Cost of goods sold (74.0) (71.6) (3.9)
----- ----- -----
Gross profit 26.0 28.4 (14.7)
Operating expenses (18.0) (16.7) 0.5
----- ----- -----
Income from operations 8.0 11.7 (36.5)
Interest expense, net (0.7) (0.2) 182.7
Minority interest and
Other income 0.8 0.8 (10.3)
----- ----- -----
Income before taxes 8.1 12.3 (38.5)
Income taxes 2.8 4.7 (42.9)
----- ----- -----
Net income 5.3 7.6 (35.9)
===== ===== =====
The following discussion explains in greater detail the consolidated
operating results and financial condition of the Company. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere in this quarterly report.
1996 1995
---- ----
NET SALES $ 41,050,000 $ 44,134,000
The Company's 7.0% decrease in net sales for the nine months ended
September 30, 1996, compared to the nine months ended September 30, 1995, was
primarily attributed to a decline in customer demand resulting in a decrease in
the number of units shipped, as well as price erosion, both due to continuing
excess inventories throughout the industry. Although the industry book-to-bill
ratio is recovering somewhat, there can be no assurance that such recovery will
continue or be maintained. However, based upon higher than forecasted October
1996 net sales, and provided industry conditions continue to improve, the
Company is cautiously optimistic that it will continue to see improvements in
net sales.
13
14
1996 1995
---- ----
GROSS PROFIT $ 10,669,000 $ 12,513,000
GROSS PROFIT MARGIN PERCENTAGE 26.0% 28.4%
The Company's gross profit for the nine months ended September 30,
1996 decreased approximately $1.8 million or 14.7%. This decrease was
primarily due to the 7.0% decrease in net sales as well as industry-wide
pricing pressures, and inventory reserves recorded by the Company. As a
percentage of net sales, the Company's gross profit decreased to 26.0% from
28.4% for the comparable period in 1995, primarily due to industry-wide pricing
pressures.
1996 1995
---- ----
SG&A $ 7,397,000 $ 7,363,000
The Company's SG&A for the nine months ended September 30, 1996
increased approximately 0.5% compared to the same period last year. This
$130,000 increase was primarily attributable to planned increases in SG&A
including three items in particular: (i) higher promotional expenses for a new
product line of leading-technology surface-mount (SO-8) power MOSFETs; (ii)
additional operating costs associated with the Company's controlling interest
in Kai Hong, a previously-announced investment on mainland China for the
manufacture of SOT-23s; and (iii) ongoing costs associated with the Company's
goal of achieving ISO 9002 certification by year-end, partly offset by cost
controls. ISO 9002 certification includes a subcontractor qualification
program and is designed to improve product quality, enhance customer service,
and strengthen the Company's image in the marketplace.
The total SG&A as a percentage of net sales increased from 16.7% in
1995, to 18.0% in 1996. The Company continues to manage SG&A by implementing
cost controls, but believes that the industry-wide slowdown is temporary and
thus will continue to implement its plan for future growth.
1996 1995
---- ----
INCOME FROM OPERATIONS $ 3,272,000 $ 5,150,000
The Company's fiscal 1996 comparative decrease in income from
operations of approximately $1.9 million or 36.5%, is primarily the net result
of the Company's 7.0% decrease in net sales, a 14.7% decrease in gross profit
and 1.3 percentage point increase in SG&A as a percentage of net sales.
1996 1995
---- ----
INTEREST INCOME $ 144,000 $ 22,000
INTEREST EXPENSE $ 421,000 $ 120,000
14
15
The Company's interest income for the nine months ended September 30,
1996, increased approximately $122,000 compared to the same period last year as
the Company is advancing funds to FabTech and Kai Hong. The interest income is
primarily the interest charged to FabTech under the Company's loan agreement.
The Company's interest expense for 1996 increased $301,000, primarily as a
result of an increase in the Company's usage of its credit facility to finance
additional agreements, primarily FabTech and Kai Hong.
1996 1995
---- ----
OTHER INCOME AND
MINORITY INTEREST IN JOINT VENTURE $ 348,000 $ 388,000
The Company's other income for the nine months ended September 30,
1996 decreased approximately $40,000 or 10.3% primarily as a result of a 31.7%
decrease in commissions earned by the Company's Taiwan subsidiary on drop
shipment sales in Asia as well as the discontinuation of commissions from ITT.
The minority interest in joint venture represents the Company's 70%
controlling interest in the Kai Hong joint venture. All of the Kai Hong joint
venture earnings are consolidated within the Company's financial statements.
The $83,000 represents the minority investor's share of the joint venture loss.
1996 1995
---- ----
NET INCOME $ 2,158,000 $ 3,366,000
PRIMARY EARNINGS PER SHARE $ 0.40 $ 0.65
The Company's net income for the nine months ended September 30, 1996
decreased 35.9% or approximately $1.2 million compared to the same period in
1995. Primary earnings per share decreased approximately 38.5% for the nine
months ended September 30, 1996, compared to the same period in 1995.
Decreases in both net income and earnings per share are primarily attributable
to a 7.0% decrease in net sales, a 1.3 percentage point increase in SG&A as a
percentage of net sales, combined with a $179,000 increase in net interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
15
16
Cash provided by operating activities for the nine months ended
September 30, 1996 was $568,000 compared to cash used by operating activities
of $5.0 million for the comparable period in 1995. The primary sources of cash
flows for the nine months ended September 30, 1996 was a $2.2 million net
income and an inventory reduction of $2.3 million, while the primary use was a
$1.1 million net decrease in accounts payable and accrued liabilities.
Accounts receivable increased 20.9% as the Company has experienced a
slight slowing trend in cash receipts in both U.S. and overseas operations.
The Company, through refined customer service has, in some cases, extended
terms to assist customers. The Company's inventories have decreased 13.8% as
the Company's continues its commitment to provide timely delivery of product to
customers while controlling inventory levels.
The ratio of the Company's current assets to current liabilities on
September 30, 1996, was 2.7 to 1 compared to a ratio of 2.1 to 1 as of December
31, 1995.
Cash used by investing activities was $3.6 million for the nine months
ended September 30, 1996, compared to $142,000 in 1995. The Company has
provided approximately $3.3 million ($2.8 million as equity contribution and
$500,000 as a short-term loan) to Kai Hong - for the construction of a new
facility for the manufacture of SOT-23 related parts; and loaned approximately
$2.6 million to FabTech - to be used in upgrading, reconfiguring, and starting
up operations at an existing wafer fabrication facility. The Company has a 70%
interest in the Kai Hong joint venture, is responsible for production and
management, and currently receives 100% of the production. Additional capital
contributions will be made in several phases over three years. Both alliances
are indicative of the Company's desire to participate in the sourcing of
advanced-technology discrete components, and to enhance its ability to procure
products in a timely fashion and at reasonable cost.
Cash provided by financing activities was $4.1 million as of September
30, 1996, compared to $3.9 million in 1995. Long-term obligations increased
from $244,000 at December 31, 1995 to $5.2 million as of September 30, 1996.
The Company used its credit facility to fund the advances to FabTech and Kai
Hong as well as for working capital.
In August 1996, the Company entered into a banking agreement with
Union Bank of California who will provide a credit facility of $23 million.
The credit facility, will be used for working capital, financing for the Kai
Hong joint venture, as well as for future growth. As collateral security, the
Company has granted to the lender a lien in all of its property, other than
real property. The Company is subject to certain restrictive covenants,
including, but not limited to, prohibitions on certain mergers or sales of
assets, restrictions as to incurring additional liens or indebtedness,
limitations on certain capital expenditures in excess of $1.0 million,
restrictions on the making of loans, guarantees, investments and advances, and
restrictions on the retirement of the Company's stock. The credit agreement
was filed with the Company's second quarter 1996 Form 10-Q.
The Company anticipates it will continue to utilize such credit
facility to support its operations. The Company believes that the continued
availability of this credit facility and internally generated funds will be
sufficient to meet the Company's currently foreseeable operating cash
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17
requirements. The Company's cash balance at September 30, 1996 increased
$986,000 compared to the December 31, 1995 balance.
Property, plant and equipment increased approximately $3.1 million
since December 31, 1995 primarily due to property, plant, equipment and
machinery at the Kai Hong facility.
The Company changed the accounting method for the Kai Hong joint
venture from an equity method at December 31, 1995 (which resulted in a single
line item "Investment in Joint Venture" of $1.8 million) to a full
consolidation presentation, when the Kai Hong agreement was changed from a
compensation trade agreement to a joint venture effective March 18, 1996.
The Company's total working capital increased 27.1% to $16.9 million
as of September 30, 1996 from $13.3 million as of December 31, 1995, and
Company believes that its working capital position will be sufficient for its
requirements for the foreseeable future.
As of September 30, 1996, the Company has no material plans or
commitments for capital expenditures other than disclosed in the Kai Hong and
FabTech agreements previously mentioned. 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 increased to 0.88 at September 30,
1996 from 0.78 at December 31, 1995. The Company anticipates this ratio may
increase as the Company continues to use its credit facilities to fund
additional sourcing opportunities.
FACTORS THAT MAY AFFECT FUTURE RESULTS
All forward-looking statements contained in this Item 2 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. The Company cautions the reader that
there can be no assurance that actual results or business conditions will not
differ materially from those projected 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, 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
17
18
products and substitutes, 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, the amount and rate of growth and 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, 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, and 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, adaptations of new, or changes in, accounting policies and
practices, in the application of such policies and practices, the effects of
changes within the Company's organization, 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.
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19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no matters to be reported under this heading.
ITEM 2. CHANGES IN SECURITIES
There are no matters to be reported under this heading.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no matters to be reported under this heading.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There are no matters to be reported under this heading.
ITEM 5. OTHER INFORMATION
There are no matters to be reported under this heading.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
for the three months and nine months
ended September 30, 1996 and
September 30, 1995
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIODES INCORPORATED (Registrant)
/s/ Joseph Liu November 7, 1996
- ---------------------------------------------
JOSEPH LIU
Vice President,
Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
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21
INDEX TO EXHIBITS
EXHIBIT - 11 Computation of Earnings Per Share
for the three months and nine months ended
September 30, 1996 and September 30, 1995 Page 22
EXHIBIT - 27 Financial Data Schedule Page 23
21
1
DIODES INCORPORATED AND SUBSIDIARIES
EXHIBIT - 11
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY
Weighted average number of common
shares outstanding 4,958,679 4,949,050 4,958,652 4,855,058
Assumed exercise of stock options 276,500 327,077 432,214 350,984
---------- ---------- ---------- ----------
5,235,179 5,276,127 5,390,866 5,206,042
Net income $ 755,000 $1,261,000 $2,158,000 $3,366,000
=========== ========== ========== ==========
Primary earnings per share $ 0.14 $ 0.24 $ 0.40 $ 0.65
=========== ========== ========== ==========
FULLY-DILUTED
Weighted average number of common
shares outstanding 4,958,679 4,949,050 4,958,652 4,855,058
Assumed exercise of stock options 334,687 327,077 432,214 400,566
---------- ---------- ---------- ----------
5,293,366 5,276,127 5,390,866 5,255,624
Net income $ 755,000 $1,261,000 $2,158,000 $3,366,000
=========== ========== ========== ==========
Fully-diluted earnings per share $ 0.14 $ 0.24 $ 0.40 $ 0.64
=========== ========== ========== ==========
22
5
9-MOS
DEC-31-1996
JUL-01-1996
SEP-30-1996
1,464,000
0
9,961,000
238,000
14,041,000
26,996,000
6,246,000
1,611,000
35,101,000
10,099,000
0
0
0
3,784,000
16,655,000
35,101,000
14,394,000
14,394,000
10,893,000
13,281,000
0
0
149,000
1,178,000
423,000
755,000
755,000
0
0
755,000
0.14
0.14
