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, 1997
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $0.66 2/3 AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's Common Stock outstanding as of June 30,
1997, was 5,682,461 including 717,115 shares of treasury stock.
THIS REPORT INCLUDES A TOTAL OF 22 PAGES
THE EXHIBIT INDEX IS ON PAGE 20
2
DIODES INCORPORATED
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Condensed Balance Sheets at June 30, 1997 and
December 31, 1996 3-4
Consolidated Condensed Statements of Income for the three months and
six months ended June 30, 1997 and June 30, 1996 5
Consolidated Condensed Statements of Cash Flows for the six months
ended June 30, 1997 and June 30, 1996 6
Notes to Consolidated Condensed Statements for the three months ended
June 30, 1997 and June 30, 1996 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations for the three months and six months ended June 30, 1997
and June 30, 1996 8-15
PART II - OTHER INFORMATION
Items 1 through 6 17
Signature 19
Index to Exhibits 20
2
3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL INFORMATION
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
CURRENT ASSETS
Cash $ 4,501,000 $ 1,820,000
Accounts receivable
Customers 9,735,000 7,901,000
Related party 140,000 376,000
Other 189,000 352,000
----------- -----------
10,064,000 8,629,000
Less allowance for doubtful receivables 212,000 253,000
----------- -----------
9,852,000 8,376,000
Inventories 13,054,000 13,268,000
Deferred income taxes 1,426,000 1,426,000
Prepaid expenses and other 1,196,000 345,000
----------- -----------
Total current assets 30,029,000 25,235,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 4,773,000 4,628,000
ADVANCES TO RELATED PARTY VENDOR 2,723,000 2,631,000
OTHER ASSETS 59,000 52,000
----------- -----------
TOTAL ASSETS $37,584,000 $32,546,000
=========== ===========
3
4
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
CURRENT LIABILITIES
Due to bank $ 1,000,000 $ --
Accounts payable
Trade 3,361,000 2,303,000
Related party 1,688,000 2,250,000
Accrued liabilities
Compensation and payroll tax 1,288,000 1,292,000
Other accrued liabilities 1,868,000 810,000
Income taxes payable 462,000 223,000
Current portion of long-term debt 1,036,000 954,000
----------- -----------
Total current liabilities 10,703,000 7,832,000
LONG-TERM DEBT, net of current portion 3,768,000 4,288,000
MINORITY INTEREST IN JOINT VENTURE 1,223,000 962,000
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -
par value $1.00 per share;
1,000,000 shares authorized; no shares
issued and outstanding at December 31, 1996 and
June 30, 1997 -- --
Common stock - par value $0.66 2/3 per share;
9,000,000 shares authorized; 5,675,794 shares and
5,682,461 issued and outstanding at December 31, 1996
and June 30, 1997, respectively 3,789,000 3,784,000
Additional paid-in capital 5,776,000 5,768,000
Retained earnings 14,107,000 11,694,000
----------- -----------
23,672,000 21,246,000
Less:
Treasury stock - 717,115 shares of common stock at cost 1,782,000 1,782,000
----------- -----------
Total stockholders' equity 21,890,000 19,464,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,584,000 $32,546,000
=========== ===========
4
5
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
NET SALES $ 15,541,000 $ 13,450,000 $ 32,031,000 $ 26,656,000
COST OF GOODS SOLD 10,854,000 9,995,000 22,642,000 19,488,000
------------ ------------ ------------ ------------
Gross profit 4,687,000 3,455,000 9,389,000 7,168,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,050,000 2,552,000 6,079,000 5,009,000
------------ ------------ ------------ ------------
Income from operations 1,637,000 903,000 3,310,000 2,159,000
OTHER INCOME (EXPENSE)
Interest income 88,000 42,000 133,000 89,000
Interest expense (97,000) (149,000) (200,000) (272,000)
Minority interest in joint
venture earnings (158,000) 11,000 (248,000) 11,000
Commissions and other 113,000 57,000 202,000 178,000
------------ ------------ ------------ ------------
(54,000) (39,000) (113,000) 6,000
INCOME BEFORE INCOME TAXES 1,583,000 864,000 3,197,000 2,165,000
PROVISION FOR INCOME TAXES 354,000 309,000 784,000 762,000
------------ ------------ ------------ ------------
NET INCOME $ 1,229,000 $ 555,000 $ 2,413,000 $ 1,403,000
============ ============ ============ ============
EARNINGS PER SHARE
PRIMARY $ 0.23 $ 0.11 $ 0.45 $ 0.27
FULLY-DILUTED $ 0.23 $ 0.11 $ 0.45 $ 0.27
============ ============ ============ ============
Weighted average shares
outstanding
Primary 5,435,581 5,224,618 5,391,507 5,226,401
Fully-diluted 5,435,581 5,224,618 5,416,450 5,226,401
============ ============ ============ ============
See accompanying notes
5
6
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
----------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,413,000 $ 1,403,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 446,000 135,000
Increase (decrease) in allowance for
doubtful accounts (41,000) 59,000
(Increase) decrease in operating assets:
Accounts receivable (1,435,000) (1,246,000)
Inventories 214,000 (215,000)
Prepaid expenses and other (851,000) (454,000)
(Decrease) increase in operating liabilities:
Accounts payable 496,000 (1,514,000)
Accrued liabilities 1,054,000 1,876,000
Income taxes payable 239,000 (616,000)
Minority interest in joint venture 261,000 1,201,000
----------- -----------
Net cash provided by operating activities 2,796,000 629,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (578,000) (4,811,000)
Acquisition of other assets (99,000) (1,067,000)
----------- -----------
Net cash used by investing activities (677,000) (5,878,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit, net 1,082,000 1,566,000
Proceeds from (repayments of) long-term obligations (520,000) 3,980,000
----------- -----------
Net cash provided by financing activities 562,000 5,546,000
----------- -----------
INCREASE IN CASH $ 2,681,000 $ 297,000
CASH AT BEGINNING OF PERIOD $ 1,820,000 $ 478,000
----------- -----------
CASH AT END OF PERIOD $ 4,501,000 $ 775,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-Cash Investing Activities
Purchase of equipment on accounts payable $ -- $ --
=========== ===========
Conversion of joint venture investment to plant and
equipment $ -- $ 1,878,000
=========== ===========
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 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 in Form 10-K for the calendar year ended December
31, 1996.
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 Kai Hong joint venture in which the Company
has a 70% controlling interest. All significant intercompany balances and
transactions have been eliminated.
NOTE B - INCOME TAXES
The Company accounts for the income taxes using an asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for tax effect of differences between the financial statement and tax
bases of assets and liabilities. Accordingly, the Company has recorded a net
deferred tax asset of $1,426,000 resulting from temporary differences in bases
of assets and liabilities. This deferred tax asset results primarily from
inventory reserves and expense accruals which are not currently deductible for
income tax purposes.
The income tax expense as a percentage of pre-tax income
differs from the statutory combined federal and state tax rates. The primary
reasons for this difference is (i) in accordance with Chinese tax policy,
earnings of the Kai Hong joint venture are not subject to tax for the first 2
years upon commencement of profitable operations, and (ii) earnings of the
Company's subsidiary in Taiwan are subject to tax at a lower rate than in the
U.S.
7
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the
matters addressed in this Item 2 constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties,
including those discussed below under the heading "Factors That May Affect
Future Results" and elsewhere in this Report on Form 10-Q, that could cause
actual results to differ materially from those anticipated by the Company's
management. The Private Securities Litigation Reform Act of 1995 (the "Act")
provides certain "safe harbor" provisions for forward-looking statements. All
forward-looking statements made on this Quarterly Report on Form 10-Q are made
pursuant to the Act.
GENERAL
The Company's net sales increased approximately 15.5% to $15.5
million for the three months ended June 30, 1997 from $13.5 million in the same
period ended June 30, 1996 primarily due to an increase in customer demand
resulting in an increase in the number of units shipped.
In April 1997, the Company announced that definitive
agreements had been executed pursuant to which a controlling interest in its
major shareholder, Lite-On Power Semiconductor Corporation ("LPSC"), part of the
Lite-On Group of the Republic of China, will be transferred to Vishay
Intertechnology, Inc. ("Vishay") through a newly formed joint venture. The
transaction was consummated in July 1997.
The transfer was made in connection with a new joint venture
between Vishay and the Lite-On Group involving the worldwide discrete power
semiconductor business of LPSC and the Asian passive component business of
Vishay. Vishay will hold a 65% controlling interest in the joint venture, and
the Lite-On Group will hold the other 35%. The joint venture will own 100% of
LPSC. At the time the definitive agreement was announced, LPSC held 40.2% of the
outstanding shares of Diodes Incorporated.
In July, General Instrument Corporation announced that it
would acquire the discrete semiconductor business of ITT Intermetall ("ITT"),
one of the Company's major suppliers. As a result of this announcement, ITT has
notified the Company of their intent to terminate their distribution agreement
with the Company under the terms of the contract.
The Company will continue its strategic plan of locating
alternate sources of its products, including those provided by ITT. Alternate
sources include but are not limited to the Kai Hong joint venture and other
sourcing agreements in place as well as those in negotiations. The Company
anticipates that the effect of the ITT sale 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.
One of the Company's primary strategic programs was the
formation of the Kai Hong joint venture, formed in the first half of 1996. The
Kai Hong joint venture, in which the Company has invested $2.8 million in a
SOT-23 manufacturing facility on mainland China, has continued to contribute
positively to the Company's bottom line throughout the first half of 1997, as
well as to provide replacements for a portion of the ITT product line.
The Kai Hong joint venture continued the Company's commitment
to creating first class quality, on time delivery, and satisfying customers'
requirements by receiving ISO9000 certification in July 1997.
8
9
The Company's net income increased approximately 121.4% to
$1.2 million for the three months ended June 30, 1997 from $848,000 in the same
period ended June 30, 1996. This was due primarily to the 15.5% increase in net
sales combined with a 4.5 percentage point increase in gross profit margin due
to increased profits from the Kai Hong joint venture, offset by a 0.7 percentage
point increase in selling, general, and administrative expenses ("SG&A") as a
percentage of net sales.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
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 JUNE 30, INCREASE (DECREASE)
--------------------------- ------------------
1997 1996 '96 TO '97
------ ------ ----------
Net sales 100.0 % 100.0 % 15.5 %
Cost of goods sold (69.8) (74.3) 8.6
------ ------ ------
Gross profit 30.2 25.7 35.7
SG&A (19.7) (19.0) 19.5
------ ------ ------
Income from operations 10.5 6.7 81.3
Interest expense, net (0.0) (0.8) (91.6)
Other income (0.3) 0.5 (166.2)
------ ------ ------
Income before taxes 10.2 6.4 83.2
Income taxes 2.3 2.3 14.6
------ ------ ------
Net income 7.9 4.1 121.4
====== ====== ======
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.
1997 1996
---- ----
NET SALES $ 15,541,000 $ 13,450,000
The Company's net sales increased approximately $2.1 million
or 15.5%, for the three months ended June 30, 1997 compared to the same period
last year, due primarily to an increase in customer demand resulting in an
increase in the number of units shipped.
9
10
1997 1996
---- ----
GROSS PROFIT $ 4,687,000 $ 3,455,000
GROSS MARGIN PERCENTAGE 30.2% 25.7%
The Company was able to increase its gross profit margin to
30.2% for the three months ended June 30, 1997 compared to 25.7% for the same
period a year ago, primarily as a result of increased profits from its Kai Hong
joint venture, as well as continued improvements in inventory management.
1997 1996
---- ----
SG&A $ 3,050,000 $ 2,552,000
The Company's SG&A for the three months ended June 30, 1997
increased approximately $498,000 or 19.5% compared to the same period last year,
due primarily to: (i) an increase of approximately $105,000 in sales commissions
paid on the 15.5% increase in net sales, (ii) approximately $171,000 in
operating expenses associated with the Kai Hong manufacturing facility which
commenced operations in the second quarter of 1996, and (iii) $110,000
associated with new marketing programs and personnel. The Company's SG&A as a
percentage of net sales increased to 19.7% for the three months ended June 30,
1997 from 19.0% for the same period last year.
1997 1996
---- ----
INCOME FROM OPERATIONS $ 1,637,000 $ 903,000
The Company's 1997 comparative increase in operating profit of
approximately $734,000, or 81.3%, is primarily the result of the Company's 15.5%
increase in net sales and 35.7% increase in gross profit, offset by a 19.5%
increase in SG&A.
1997 1996
---- ----
INTEREST INCOME $ 88,000 $ 42,000
INTEREST EXPENSE $ 97,000 $ 149,000
The Company's interest income for the three months ended June
30, 1997 increased 109.5% compared to the same period last year as the Company
is advancing funds under its Kai Hong and FabTech agreements. Interest income is
primarily the interest charged to FabTech under the Company's loan agreement as
well as earnings on it's cash balances. The Company's interest expense for 1997
decreased $52,000 or 34.9%, as a result of approximately $ 4.0 million short
term notes being paid. Interest expense is primarily the result of the $2.8
million investment in the Kai Hong joint venture and the $2.7 million loan
advanced to a related party, FabTech.
1997 1996
---- ----
MINORITY INTEREST IN JOINT VENTURE $ (158,000) $ 11,000
The Company's minority interest in joint venture for the three
months ended June 30, 1997 is the minority investor's share of the joint
venture's net income for the period. The joint venture investment is eliminated
in consolidation of the Company's financial statements and the activities of Kai
Hong are included therein.
1997 1996
---- ----
OTHER INCOME $ 113,000 $ 57,000
The Company's other income for the three months ended June 30,
1997 increased approximately $56,000, or 98.2%, compared to other income for the
same period in 1996 primarily as a result of increased commissions earned by the
Company's Taiwan subsidiary on drop shipment sales in Asia.
10
11
1997 1996
---- ----
INCOME TAXES $ 354,000 $ 309,000
The Company's income taxes for the three months ended June 30,
1997 increased approximately $45,000, or 14.6%, compared to income taxes for the
same period last year. The Company's effective tax rate in the current quarter
decreased to 22.4% from 35.8% as a result of the net income in China of the Kai
Hong joint venture, which under Chinese tax law is not taxed for the first two
years upon commencing profitable operation.
1997 1996
---- ----
NET INCOME $ 1,229,000 $ 555,000
EARNINGS PER SHARE $ 0.23 $ 0.11
The Company's net income for the three months ended June 30,
1997 increased approximately $674,000 or 121.4%, compared to the same period in
1996 due to the 15.5% increase in net sales and 35.7% increase in gross profit.
Earnings per share increased approximately 109.1% for the three months ended
June 30, 1997, compared to the same period in 1996. The number of common and
common equivalent shares outstanding for the three months ended June 30, 1997
increased 4.0% compared to the same period last year, due primarily to stock
options issued.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
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
SIX MONTHS ENDED JUNE 30, INCREASE (DECREASE)
-------------------------- -------------------
1997 1996 '96 TO '97
------ ------ -----------
Net sales 100.0 % 100.0 % 20.2 %
Cost of goods sold (70.7) (73.1) 16.2
----- ----- -----
Gross profit 29.3 26.9 31.0
SG&A (19.0) (18.8) 21.4
----- ----- -----
Income from operations 10.3 8.1 53.3
Interest expense, net (0.2) (0.7) (63.4)
Other income (0.1) 0.7 (124.3)
----- ----- -----
Income before taxes 10.0 8.1 47.7
Income taxes 2.5 2.8 2.9
----- ----- -----
Net income 7.5 5.3 72.0
===== ===== =====
11
12
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.
1997 1996
---- ----
NET SALES $ 32,031,000 $ 26,656,000
The Company's net sales increased approximately $5.4 million
or 20.2% for the six months ended June 30, 1997 compared to the same period last
year and was primarily attributed to an increase in customer demand resulting in
an increase in the number of units shipped. Throughout most of 1996, the
industry experienced a substantial decrease in demand, combined with excess
inventory among the Company's customers which negatively affected the Company's
net sales and gross profit margins.
1997 1996
---- ----
GROSS PROFIT $ 9,389,000 $ 7,168,000
GROSS MARGIN PERCENTAGE 29.3% 26.9%
The Company's gross profit for the six months ended June 30,
1997 increased approximately $2.2 million or 31.0% compared to the same period
last year, primarily due to the 20.2% increase in net sales, as well as
increased demand and improved inventory control. The gross margin percentage
increased 2.4 percentage points.
1997 1996
---- ----
SG&A $ 6,079,000 $ 5,009,000
The Company's SG&A for the six months ended June 30, 1997
increased approximately $1.1 million or 21.4% compared to the same period last
year, due primarily to: (i) an increase of approximately $270,000 in sales
commissions paid on the 20.2% increase in net sales, (ii) approximately $235,000
in operating expenses associated with the Kai Hong manufacturing facility which
commenced operations in the second quarter of 1996, and (iii) $219,000
associated with new marketing programs and personnel. The Company's SG&A as a
percentage of net sales increased to 19.0% for the six months ended June 30,
1997 from 18.8% for the same period last year.
1997 1996
---- ----
INCOME FROM OPERATIONS $ 3,310,000 $ 2,159,000
The Company's 1997 comparative increase in operating profit of
approximately $1.2 million, or 53.3%, is primarily the result of the Company's
20.2% increase in net sales and 31.0% increase in gross profit, offset by a 0.2
percentage point increase in SG&A as a percentage of net sales.
1997 1996
---- ----
INTEREST INCOME $ 133,000 $ 89,000
INTEREST EXPENSE $ 200,000 $ 272,000
The Company's interest income for the six months ended June
30, 1997 increased approximately $44,000, or 49.4%, compared to the same period
last year as the Company is advancing funds under its Kai Hong and FabTech
agreements. Interest income is primarily the interest charged to FabTech under
the Company's loan agreement. The Company's interest expense for 1997 decreased
$72,000 or 26.5%. Interest expense is primarily the result of the $2.8 million
investment in the Kai Hong joint venture and the $2.7 million loan advance to a
related party, FabTech.
12
13
1997 1996
---- ----
MINORITY INTEREST IN JOINT VENTURE $ (248,000) $ 11,000
The Company's minority interest in joint venture for the six
months ended June 30, 1997 is the minority investor's share of the joint
venture's net income for the period. The joint venture investment is eliminated
in consolidation of the Company's financial statements and the activities of Kai
Hong are included therein.
1997 1996
---- ----
OTHER INCOME $ 202,000 $ 178,000
The Company's other income for the six months ended June 30,
1997 increased approximately $24,000, or 13.5%, compared to other income for the
same period in 1996 primarily as a result of increased commissions earned by the
Company's Taiwan subsidiary on drop shipment sales in Asia.
1997 1996
---- ----
INCOME TAXES $ 784,000 $ 762,000
The Company's income taxes for the six months ended June 30,
1997 decreased approximately $22,000, or 2.9%, compared to income taxes for the
same period last year. The Company's effective tax rate in the current quarter
decreased to 24.5% from 35.2% as a result of the net income in China of the Kai
Hong joint venture, which under Chinese tax law is not taxed for the first two
years upon commencing profitable operation.
1997 1996
---- ----
NET INCOME $ 2,413,000 $ 1,403,000
EARNINGS PER SHARE $ 0.45 $ 0.27
The Company's net income for the six months ended June 30,
1997 increased approximately $1.0 million or 72.0%, compared to the same period
in 1996 due to the 20.2% increase in net sales and 31.0% increase in gross
profit, offset in part by an increase in SG&A as a percentage of net sales of
0.2 percentage points. Earnings per share increased approximately 66.7% for the
six months ended June 30, 1997, compared to the same period in 1996. The number
of fully-diluted common and common equivalent shares outstanding for the six
months ended June 30, 1997 increased 3.6% compared to the same period last year,
due primarily to stock options issued.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the six months ended
June 30, 1997 was $2.8 million compared to cash provided by operating activities
of $629,000 for the six months ended June 30, 1996. The primary source of cash
flows from operations for the six months ended June 30, 1997 was net income of
$2.4 million. The primary use of cash flow from operations was a $1.4 million
increase in accounts receivable. Accounts receivable increased 16.6% on a 20.2%
increase in net sales as the Company continues to closely monitor its credit
policy while, at times, providing more flexible terms when necessary. The ratio
of the Company's current assets to current liabilities on June 30, 1997 was 2.8
to 1 compared to a ratio of 3.2 to 1 as of December 31, 1996.
Cash used by investing activities was $677,000 for the six
months ended June 30, 1997, compared to $5.9 million for the same period in
1996. The primary investments were approximately $220,000 for computer system
upgrades as well as approximately $300,000 for additional manufacturing
equipment at Kai Hong.
13
14
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. The venture parties have made a significant equity contribution to
the joint venture and a portion of the cost of developing the project is debt
financed. The Kai Hong operation is in full production with its existing
equipment and, beginning in the first quarter of 1997, is making a positive
contribution to the Company's bottom line. The joint venture agreement allows
for additional production expansion in phases according to market demand.
The Company's Taiwan and Kai Hong manufacturing facilities
receive wafers from FabTech, among others. Output from the FabTech facility
includes wafers, which may be used in the production of such products as
Schottky barrier diodes, fast recovery epitaxial diodes (FREDs), and other
widely used value-added products. Schottky barrier diodes are employed in the
manufacture of the power supplies found in personal computers,
telecommunications devices and myriad other applications where high frequency,
low forward voltage and fast recovery are required.
Both the Kai Hong and FabTech 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 costs.
Cash provided by financing activities was $562,000 as of June
30, 1997, compared to cash provided of $5.5 million for the same period in 1996.
The Company uses its credit facility to fund the advances to FabTech and Kai
Hong as well as to support its operations. The Company believes that the
continued availability of this credit facility, together with internally
generated funds, will be sufficient to meet the Company's currently foreseeable
operating cash requirements. The Company's cash balance at June 30, 1997
increased approximately $2.7 million, or 147.3%, compared to the December 31,
1996 cash balance primarily as a result of net income.
In August 1996, the Company obtained a $22.6 million credit
facility with a major bank consisting of: a working capital line of credit up to
$9 million, term commitment notes providing up to $9.5 million for plant
expansion and advances to vendors, and letters of credit of $4.1 million for Kai
Hong. Interest on outstanding borrowings under the credit agreement is payable
monthly at LIBOR plus a negotiated margin. Fixed borrowings require payments of
interest only for six months from the date of distribution and fixed principal
plus interest payments for sixty months thereafter. The agreement has certain
covenants and restrictions which, among other matters requires the maintenance
of certain financial ratios and operating results, as defined in the agreement.
The Company was in compliance as of June 30, 1997. The working capital line of
credit expires August 3, 1998 and contains a sublimit of $2 million for issuance
of commercial and stand-by letters of credit. The weighted average interest rate
on outstanding borrowings was 6.8% for the six months ended June 30, 1997.
As of June 30, 1997, $4.6 million is outstanding under the
term note commitment. The Company may borrow the remaining $4.9 million
available under the term note commitment through September 30, 1997. The Company
also has two guaranty agreements which guarantee term loans made by a major bank
to Shanghai Kaihong Electronics Co., Ltd. (Kai Hong) (to assist in establishing
a credit record with the bank) and the minority investor of the Kai Hong joint
venture (as per the Kai Hong joint venture agreement) for $1.0 million and
$850,000, respectively. In the event that the Company shall be required to pay
any amount whatsoever to any person pursuant to, in connection with or as a
result of or relating to the guaranty, the Company shall have the right, in its
sole and absolute discretion, to purchase from the minority investor, and the
minority investor hereby sells and assigns to the Company, that portion of the
minority investor's shares of the capital stock of Shanghai Kaihong Electronics
Co., Ltd. obtained by dividing (x) the amount so paid by the Company by (v) the
aggregate amount theretofor required to be paid by the minority investor to
Shanghai Kaihong Electronics Co., Ltd. for the purchase of such shares, in
cancellation of the minority investor's obligations to reimburse for the Company
for such amount so paid by the Company.
The Company's total working capital increased 11.0% to $19.3
million as of June 30, 1997 from $17.4 million as of December 31, 1996. The
Company believes that its working capital position will be sufficient for its
requirements in the foreseeable future.
14
15
As of June 30, 1997, 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 0.66 at June 30, 1997 from 0.62 at December 31, 1996.
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
Except for the historical information contained herein, the
matters addressed in this Item 2 constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties,
including those discussed below under the heading "Factors That May Affect
Future Results" and elsewhere in this Report on Form 10-Q, that could cause
actual results to differ materially from those anticipated by the Company's
management. The Private Securities Litigation Reform Act of 1995 (the "Act")
provides certain "safe harbor" provisions for forward-looking statements. All
forward-looking statements made on this Quarterly Report on Form 10-Q are made
pursuant to the Act.
All forward-looking statements contained in this Form 10-Q are
subject to, in addition to the other matters described in this Report on Form
10-Q, a variety of significant risks and uncertainties. The following discussion
highlights some of these risks and uncertainties. Further, from time to time,
information provided by the Company or statements made by its employees may
contain forward-looking information. There can be no assurance that actual
results or business conditions will not differ materially from those set forth
or suggested in such forward-looking statements as a result of various factors,
including those discussed below.
There are many factors that could cause the events in such
forward looking statements to not occur, including, but not limited to, general
or specific economic conditions, fluctuations in product demand, the
introduction of new products, the Company's ability to maintain customer
relationships, technological advancements, impact of competitive products and
pricing, growth in targeted markets, risks of foreign operations, the ability
and willingness of the Company's customers to purchase products provided by the
Company, the perceived absolute or relative overall value of these products by
the purchasers, including the features, quality, and price in comparison to
other competitive products, the level of availability of products and
substitutes and the ability and willingness of purchasers to acquire new or
advanced products, and pricing, purchasing, financing, operating, advertising
and promotional decisions by intermediaries in the distribution channels which
could affect the supply of or end-user demands for the Company's products, the
amount and rate of sales growth and the Company's selling, general and
administrative expenses, difficulties in obtaining materials, supplies and
equipment, difficulties of delays in the development, production, testing and
marketing of products including, but not limited to, failure to ship new
products and technologies when anticipated, the failure of customers to accept
these products or technologies when planned, defects in products, any failure of
economies to develop when planned, the acquisition of fixed assets and other
assets, including inventories and receivables, the making or incurring of any
expenditures, the effects of and changes in trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations and social and economic conditions, such as trade restriction or
prohibition, inflation and monetary fluctuation, import and other charges or
taxes, the ability or inability of the Company to obtain or hedge against
foreign currency, foreign exchange rates and fluctuations in those rates,
intergovernmental disputes as well as actions affecting frequency, use and
availability, the costs and other effects of legal investigations, claims and
changes in those items, developments or assertions by or against the Company
relating to intellectual property rights, adaptations of new, or changes in,
accounting policies and practices in the application of such policies and
practices and the effects of changes within the Company's organization or in
compensation benefit plans, and activities of parties with which the Company has
an agreement or understanding,
15
16
including any issues affecting any investment or joint venture in which the
Company has an investment, and the amount, and the cost of financing which the
Company has, and any changes to that financing, and any other information
detailed from time to time in the Company's filings with the United States
Securities and Exchange Commission.
16
17
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 6, 1997, the election of members of the
Board of Directors. The directors were each elected to serve until the 1997
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:
Michael R. Giordano, For: 4,600,490
Director Withheld: 30,208
David Lin, For: 4,559,665
Director Withheld: 31,033
M.K. Lu, For: 4,600,365
Director Withheld: 30,333
Shing Mao, For: 4,600,690
Director Withheld: 30,008
Michael A. Rosenberg, For: 4,599,890
Director Withheld: 30,808
Leonard M. Silverman, For: 4,600,065
Director Withheld: 30,633
Raymond Soong, For: 4,600,665
Director Withheld: 30,033
The Company also submitted to a vote of its security holders
at an annual meeting of shareholders on June 6, 1997, the appointment of Moss
Adams LLP as the Company's independent certified public accountants for the
fiscal year ending December 31, 1997. The result of the tabulation was 2,400,093
shares voted in favor of the proposal and no shares voted against or abstained
from voting on the proposal. No broker non-votes with respect to this proposal
were received.
17
18
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
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
18
19
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 August 11, 1997
- ---------------------
JOSEPH LIU
Vice President,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
19
20
INDEX TO EXHIBITS
EXHIBIT - 11 COMPUTATION OF EARNINGS PER SHARE Page 21
EXHIBIT - 27 FINANCIAL DATA SCHEDULE Page 22
20
1
DIODES INCORPORATED AND SUBSIDIARIES
EXHIBIT - 11
COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
PRIMARY
Weighted average number of common
shares outstanding 4,962,855 4,958,679 4,960,779 4,958,638
Assumed exercise of stock options 472,726 265,939 430,728 267,763
---------- ---------- ---------- ----------
5,435,581 5,224,618 5,391,507 5,226,401
Net income $1,229,000 $ 555,000 $2,413,000 $1,403,000
========== ========== ========== ==========
Primary earnings per share $ 0.23 $ 0.11 $ 0.45 $ 0.27
========== ========== ========== ==========
FULLY-DILUTED
Weighted average number of common
shares outstanding 4,962,855 4,958,679 4,960,779 4,958,638
Assumed exercise of stock options *472,726 *265,939 455,671 *267,763
---------- ---------- ---------- ----------
5,435,581 5,224,618 5,416,450 5,226,401
Net income $1,229,000 $ 555,000 $2,413,000 $1,403,000
========== ========== ========== ==========
Fully diluted earnings per share $ 0.23 $ 0.11 $ 0.45 $ 0.27
========== ========== ========== ==========
* No further effect given to common stock equivalents as their effect would be
anti-dilutive.
21
5
3-MOS
DEC-31-1997
APR-01-1997
JUN-30-1997
4,501,000
0
10,064,000
212,000
13,054,000
30,029,000
7,040,000
2,267,000
37,584,000
10,703,000
0
0
0
3,789,000
18,101,000
37,584,000
15,541,000
15,541,000
10,854,000
3,050,000
0
0
9,000
1,583,000
354,000
1,229,000
0
0
0
1,229,000
0.23
0.23
