10-Q 1 diod-10q_20160930.htm FORM 10-Q diod-10q_20160930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

Or

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

For the transition period from                      to                     .

Commission file number: 002-25577

 

DIODES INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

95-2039518

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

4949 Hedgcoxe Road, Suite 200

Plano, Texas

 

75024

(Address of principal executive offices)

 

(Zip code)

(972) 987-3900

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

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

The number of shares of the registrant’s Common Stock outstanding as of November 4, 2016 was 48,902,131.

 

 


 


 

 

Table of Contents

 

 

 

 

 


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

September 30,

 

 

December 31,

 

 

2016

 

 

2015

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

220,526

 

 

$

218,435

 

Short-term investments

 

34,766

 

 

 

64,685

 

Accounts receivable, net of allowances of $2,670 and $2,625 at

  September 30, 2016 and December 31, 2015, respectively

 

239,278

 

 

 

218,496

 

Inventories

 

204,251

 

 

 

202,832

 

Prepaid expenses and other

 

40,691

 

 

 

46,103

 

Total current assets

 

739,512

 

 

 

750,551

 

Property, plant and equipment, net

 

415,618

 

 

 

439,340

 

Deferred income tax

 

50,702

 

 

 

45,120

 

Goodwill

 

131,661

 

 

 

132,913

 

Intangible assets, net

 

180,232

 

 

 

196,409

 

Other

 

34,715

 

 

 

34,494

 

Total assets

$

1,552,440

 

 

$

1,598,827

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

90,548

 

 

$

86,463

 

Accrued liabilities

 

71,758

 

 

 

77,801

 

Income tax payable

 

-

 

 

 

5,117

 

Current portion of long-term debt

 

10,300

 

 

 

10,282

 

Total current liabilities

 

172,606

 

 

 

179,663

 

Long-term debt, net of current portion

 

407,052

 

 

 

453,738

 

Deferred tax liabilities

 

32,219

 

 

 

32,276

 

Other long-term liabilities

 

97,150

 

 

 

90,153

 

Total liabilities

 

709,027

 

 

 

755,830

 

 

 

 

 

 

 

 

 

Commitments and contingencies (See Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

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

  shares issued or outstanding

 

-

 

 

 

-

 

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

  48,816,264 and 48,148,077, issued and outstanding at September 30, 2016

  and December 31, 2015,  respectively

 

32,856

 

 

 

32,404

 

Additional paid-in capital

 

353,539

 

 

 

344,086

 

Retained earnings

 

528,947

 

 

 

514,280

 

Treasury stock, at cost, 466,010 shares held at September 30, 2016

  and December 31, 2015

 

(11,009

)

 

 

(11,009

)

Accumulated other comprehensive loss

 

(105,735

)

 

 

(84,416

)

Total stockholders' equity

 

798,598

 

 

 

795,345

 

Noncontrolling interest

 

44,815

 

 

 

47,652

 

Total equity

 

843,413

 

 

 

842,997

 

Total liabilities and stockholders' equity

$

1,552,440

 

 

$

1,598,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-3-


 

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net sales

$

250,694

 

 

$

208,888

 

 

$

710,077

 

 

$

634,522

 

Cost of goods sold

 

170,071

 

 

 

147,252

 

 

 

490,417

 

 

 

439,536

 

Gross profit

 

80,623

 

 

 

61,636

 

 

 

219,660

 

 

 

194,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

38,321

 

 

 

34,669

 

 

 

119,165

 

 

 

98,282

 

Research and development

 

17,088

 

 

 

13,745

 

 

 

52,247

 

 

 

40,644

 

Amortization of acquisition related intangible assets

 

5,117

 

 

 

1,828

 

 

 

15,379

 

 

 

5,630

 

Other operating expenses

 

144

 

 

 

1,421

 

 

 

184

 

 

 

1,556

 

Total operating expenses

 

60,670

 

 

 

51,663

 

 

 

186,975

 

 

 

146,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

19,953

 

 

 

9,973

 

 

 

32,685

 

 

 

48,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

321

 

 

 

153

 

 

 

1,075

 

 

 

695

 

Interest expense

 

(3,684

)

 

 

(781

)

 

 

(9,880

)

 

 

(2,602

)

Loss on securities carried at fair value

 

-

 

 

 

(91

)

 

 

-

 

 

 

(145

)

Other income (expense)

 

(959

)

 

 

974

 

 

 

(1,494

)

 

 

626

 

Total other income (expense)

 

(4,322

)

 

 

255

 

 

 

(10,299

)

 

 

(1,426

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and noncontrolling interest

 

15,631

 

 

 

10,228

 

 

 

22,386

 

 

 

47,448

 

Income tax provision

 

4,097

 

 

 

6,593

 

 

 

5,941

 

 

 

16,179

 

Net income

 

11,534

 

 

 

3,635

 

 

 

16,445

 

 

 

31,269

 

Less net income attributable to noncontrolling interest

 

(886

)

 

 

(798

)

 

 

(1,778

)

 

 

(2,222

)

Net income attributable to common stockholders

$

10,648

 

 

$

2,837

 

 

$

14,667

 

 

$

29,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.22

 

 

$

0.06

 

 

$

0.30

 

 

$

0.60

 

Diluted

$

0.21

 

 

$

0.06

 

 

$

0.30

 

 

$

0.59

 

Number of shares used in earnings per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

48,814

 

 

 

48,586

 

 

 

48,496

 

 

 

48,114

 

Diluted

 

49,922

 

 

 

49,564

 

 

 

49,565

 

 

 

49,351

 

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

 

 

 

-4-


 

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income

$

11,534

 

 

$

3,635

 

 

$

16,445

 

 

$

31,269

 

Foreign currency translation adjustment

 

1,546

 

 

 

(11,954

)

 

 

(6,246

)

 

 

(13,205

)

Unrealized (loss) gain on defined benefit plan, net of tax

 

(9,571

)

 

 

1,852

 

 

 

(14,732

)

 

 

4,487

 

Unrealized foreign currency loss, net of tax

 

(359

)

 

 

(343

)

 

 

(342

)

 

 

(444

)

Comprehensive income (loss)

 

3,150

 

 

 

(6,810

)

 

 

(4,875

)

 

 

22,107

 

Less: Comprehensive income attributable to noncontrolling interest

 

(886

)

 

 

(798

)

 

 

(1,778

)

 

 

(2,222

)

Total comprehensive income (loss) attributable to common stockholders

$

2,264

 

 

$

(7,608

)

 

$

(6,653

)

 

$

19,885

 

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

 

 

 

-5-


DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Nine Months Ended

 

 

September 30,

 

 

2016

 

 

2015

 

Cash flows from operating activities

$

74,935

 

 

$

98,453

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

(Increase) decrease in restricted cash

 

(311

)

 

 

527

 

Purchases of property, plant and equipment

 

(47,054

)

 

 

(94,994

)

Proceeds from sales of property, plant, and equipment

 

84

 

 

 

129

 

Purchase of equity securities

 

-

 

 

 

(4,553

)

Proceeds from sales of equity securities

 

-

 

 

 

3,968

 

Purchases of short-term investments

 

(17,482

)

 

 

(36,784

)

Proceeds from maturity of short-term investments

 

46,352

 

 

 

23,156

 

Purchase of TF Semiconductor Solutions, net of cash acquired

 

-

 

 

 

(1,033

)

Other

 

(1,400

)

 

 

304

 

Net cash and cash equivalents used in investing activities

 

(19,811

)

 

 

(109,280

)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Advances on lines of credit and short-term debt

 

9,000

 

 

 

1,713

 

Taxes paid related to net share settlement

 

(2,528

)

 

 

-

 

Repayments on lines of credit and short-term debt

 

(9,000

)

 

 

(2,512

)

Debt issuance costs

 

(435

)

 

 

(1,158

)

Proceeds from long-term debt

 

23,500

 

 

 

-

 

Repayments of long-term debt

 

(70,714

)

 

 

(47,216

)

Net proceeds from issuance of common stock

 

5

 

 

 

9,906

 

Repayment of capital lease obligation and other

 

(4,116

)

 

 

(178

)

Net cash and cash equivalents used in financing activities

 

(54,288

)

 

 

(39,445

)

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

1,255

 

 

 

(3,973

)

Increase (decrease) in cash and cash equivalents

 

2,091

 

 

 

(54,245

)

Cash and cash equivalents, beginning of period

 

218,435

 

 

 

243,000

 

Cash and cash equivalents, end of period

$

220,526

 

 

$

188,755

 

 

 

 

 

 

 

 

 

Supplemental disclosure

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

 

 

Property, plant and equipment purchased on accounts payable

$

7,459

 

 

$

(24,907

)

 

 

 

 

 

 

 

 

Acquisition of TF Semiconductor Solutions:

 

 

 

 

 

 

 

Total assets acquired

$

-

 

 

$

8,697

 

Total liabilities assumed

$

-

 

 

$

86

 

 

 

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

 

 

 

-6-


 

DIODES INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

Nature of Operations

Diodes Incorporated, together with its subsidiaries (collectively, the “Company,” “we” or “our”), (Nasdaq: DIOD), is a leading global manufacturer and supplier of high-quality, application-specific standard products within the broad discrete, logic, analog and mixed-signal semiconductor markets. We serve the consumer electronics, computing, communications, industrial, and automotive markets. Our products include diodes, rectifiers, transistors, MOSFETs, protection devices, function-specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching and linear voltage regulators, and voltage references along with special function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers. Our corporate headquarters and Americas’ sales office are located in Plano, Texas and Milpitas, California. Design, marketing, and engineering centers are located in Plano; Milpitas; Taipei; Taoyuan City and Zhubei City, Taiwan; Manchester, England; and Neuhaus, Germany. Our wafer fabrication facilities are located in Kansas City, Missouri and Manchester, with an additional facility located in Shanghai, China. We have assembly and test facilities located in Shanghai, Jinan, Chengdu, and Yangzhou, China, as well as in Hong Kong, Neuhaus and Taipei. Additional engineering, sales, warehouse, and logistics offices are located in Taipei; Hong Kong; Manchester; Shanghai; Shenzhen, China; Seongnam-si, South Korea; and Munich, Germany, with support offices throughout the world. On November 24, 2015, we completed our acquisition of Pericom Semiconductor Corporation (“Pericom”).  Pericom is not included in the Company’s 2015 results presented in this Form 10-Q.

Basis of Presentation

The condensed consolidated financial data at December 31, 2015 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”) on March 11, 2016 (“Form 10-K”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, operating results and cash flows in conformity with GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Form 10-K.  All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the operating results for the period presented have been included in the interim period. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2016.

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

 

Recently Issued Accounting Pronouncements

 

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

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

-7-


 

ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16"). This standard eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. These changes became effective for fiscal years beginning after December 31, 2015. We adopted this standard in the first quarter of 2016 and had adjustments to the previously reported fair values recorded related to the Pericom transaction.  See Note 11 for additional information related to these adjustments. Adoption of this standard had no impact on the consolidated statements of operations.  

ASU No. 2016-16, Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory.  This standard requires that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.  Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The amendments in this standard are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods.  The Company is evaluating the effect this new standard will have on its financial statements.

 

NOTE 2 – Earnings per Share

Earnings per share (“EPS”) are calculated by dividing net income attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted EPS are calculated similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-dilutive. A total of 1.7 million and 2.0 million stock options and stock awards outstanding during the three months ended September 30, 2016 and 2015, respectively, and 1.9 million and 0.9 million stock options and stock awards during nine months ended September 30, 2016 and 2015, respectively, were excluded from the calculation because the effect was anti-dilutive.  

The table below sets forth the reconciliation between net income and the weighted average shares outstanding used for calculating basic and diluted EPS for the three and nine months ended September 30, 2016 and 2015:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Earnings (numerator)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

10,648

 

 

$

2,837

 

 

$

14,667

 

 

$

29,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares (denominator)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

48,814

 

 

 

48,586

 

 

 

48,496

 

 

 

48,114

 

Dilutive effect of stock options and stock awards outstanding

 

1,108

 

 

 

978

 

 

 

1,069

 

 

 

1,237

 

Adjusted weighted average common shares outstanding (diluted)

 

49,922

 

 

 

49,564

 

 

 

49,565

 

 

 

49,351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.22

 

 

$

0.06

 

 

$

0.30

 

 

$

0.60

 

Diluted

$

0.21

 

 

$

0.06

 

 

$

0.30

 

 

$

0.59

 

 

 

 

NOTE 3 – Inventories

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

 

 

September 30, 2016

 

 

December 31, 2015

 

Raw materials

$

86,427

 

 

$

86,103

 

Work-in-progress

 

45,323

 

 

 

46,061

 

Finished goods

 

72,501

 

 

 

70,668

 

Total

$

204,251

 

 

$

202,832

 

 

 

 


-8-


 

NOTE 4 – Goodwill and Intangible Assets

The table below sets forth the changes in goodwill:

 

Balance at December 31, 2015

$

132,913

 

Pericom measurement period adjustments (See Note 11)

 

2,741

 

Foreign currency translation adjustment

 

(3,993

)

Balance at September 30, 2016

$

131,661

 

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

 

September 30,

 

 

December 31,

 

 

2016

 

 

2015

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

Gross carrying amount

$

232,047

 

 

$

232,047

 

Reclassification from intangible assets with indefinite lives

 

700

 

 

 

-

 

Accumulated amortization

 

(64,146

)

 

 

(48,828

)

Foreign currency translation adjustment

 

(8,289

)

 

 

(7,725

)

Total

 

160,312

 

 

 

175,494

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

Gross carrying amount

 

21,703

 

 

 

21,703

 

Reclassification to intangible assets subject to amortization

 

(700

)

 

 

-

 

Foreign currency translation adjustment

 

(1,083

)

 

 

(788

)

Total

 

19,920

 

 

 

20,915

 

Total intangible assets, net

$

180,232

 

 

$

196,409

 

 

Amortization expense related to intangible assets subject to amortization was approximately $5.1 million and $15.4 million for the three and nine months ended September 30, 2016, respectively. Amortization expense related to intangible assets subject to amortization was approximately $1.8 million and $5.6 million for the three and nine months ended September 30, 2015, respectively.

 

NOTE 5 – Income Tax Provision

 

              Income tax expense for the three and nine months ended September 30, 2016 was $4.1 million and $5.9 million, respectively.  Income tax expense for the three and nine months ended September 30, 2015 was $6.6 million and $16.2 million, respectively, resulting in an effective income tax rate of 26.5% for the nine months ended September 30, 2016, compared to 34.1% for the same period last year. The decrease in the effective tax rate over these comparable nine month periods is primarily attributable to a significant change in the proportion of income generated in North America, Europe and Asia, and in both periods the effective tax rates were lower than the U.S. statutory rate of 35%, principally from the impact of income from lower-taxed jurisdictions.

For the nine months ended September 30, 2016, the Company reported domestic and foreign pre-tax (loss)/income of approximately $(25.5) million and $47.9 million, respectively. Funds repatriated from foreign subsidiaries to the U.S. may be subject to federal and state income taxes. The Company intends to permanently reinvest overseas all of its earnings from its foreign subsidiaries, except to the extent such undistributed earnings have previously been subject to US tax; accordingly, deferred U.S. taxes are not recorded on undistributed foreign earnings.

The impact of tax holidays decreased our tax expense by approximately $5.1 million for the nine months ended September 30, 2016 and $1.6 million for the nine months ended September 30, 2015. The benefit of the tax holidays on both basic and diluted earnings per share for both the nine months ended September 30, 2016 and 2015 was approximately $0.10 and $0.03, respectively. The increase in the impact of tax holidays over these comparable nine month periods is primarily attributable to an increase in income generated by Chinese subsidiaries that qualify for a reduced income tax rate.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2007, or for the 2010 tax year.  The Company is no longer subject to China income tax examinations by tax authorities for tax years before 2005. With respect to state and local jurisdictions and countries outside of the U.S. (other than China), with limited exceptions, the Company is no longer subject to income tax audits for years before 2006. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties, if any, have been provided for in the Company’s reserve for any adjustments that may

-9-


 

result from tax audits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in interest expense. As of September 30, 2016, the gross amount of unrecognized tax benefits was approximately $28.5 million.

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

 

NOTE 6 – Share-Based Compensation

The table below sets forth the line items where share-based compensation expense was recorded for the three and nine months ended September 30, 2016 and 2015:

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Cost of goods sold

$

172

 

 

$

99

 

 

$

609

 

 

$

345

 

Selling, general and administrative

 

2,901

 

 

 

3,713

 

 

 

10,237

 

 

 

10,307

 

Research and development

 

684

 

 

 

287

 

 

 

1,991

 

 

 

1,003

 

Total share-based compensation expense

$

3,757

 

 

$

4,099

 

 

$

12,837

 

 

$

11,655

 

 

The table below sets forth share-based compensation expense by type for the three and nine months ended September 30, 2016 and 2015:

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Stock options

$

304

 

 

$

517

 

 

$

1,212

 

 

$

1,999

 

Share grants

 

3,453

 

 

 

3,582

 

 

 

11,625

 

 

 

9,656

 

Total share-based compensation expense

$

3,757

 

 

$

4,099

 

 

$

12,837

 

 

$

11,655

 

 

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

There were no cash proceeds received from stock option exercises during the nine months ended September 30, 2016. 

The table below sets forth a summary of stock option activity for the nine months ended September 30, 2016:

Stock Options

 

Shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (years)

 

 

Aggregate Intrinsic Value

 

Outstanding at January 1, 2016

 

 

2,063

 

 

$

23.03

 

 

 

3.9

 

 

$

4,111

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited or expired

 

 

(210

)

 

 

22.39

 

 

 

-

 

 

 

-

 

Outstanding at September 30, 2016

 

 

1,853

 

 

$

23.10

 

 

 

3.6

 

 

$

2,712

 

Exercisable at September 30, 2016

 

 

1,726

 

 

$

22.86

 

 

 

3.5

 

 

$

2,712

 

 

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

As of September 30, 2016, total unrecognized share-based compensation expense related to unvested stock options, net of estimated forfeitures, was approximately $1.5 million, before income taxes, and is expected to be recognized over a weighted average period of approximately one year.

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

-10-


 

The table below sets forth a summary of restricted stock awards and restricted stock units for the nine months ended September 30, 2016:

 

Share Grants

 

Shares

 

 

Weighted Average Grant-Date Fair Value

 

 

Aggregate Intrinsic Value

 

Non-vested at January 1, 2016

 

 

2,679

 

 

$

23.51

 

 

$

61,247

 

Granted

 

 

873

 

 

 

18.60

 

 

 

-

 

Vested

 

 

(789

)

 

 

19.54

 

 

 

15,227

 

Forfeited

 

 

(57

)

 

 

20.59

 

 

 

-

 

Non-vested at September 30, 2016

 

 

2,706

 

 

$

21.05

 

 

$

57,742

 

 

As of September 30, 2016, total unrecognized share-based compensation expense related to non-vested restricted stock awards and restricted stock units, net of estimated forfeitures, was approximately $49.2 million, before income taxes, and is expected to be recognized over a weighted average period of approximately three years.

 

NOTE 7 – Segment Information and Enterprise-Wide Disclosure

 

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

 

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

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

Asia

 

 

North America

 

 

Europe

 

 

Consolidated

 

Total sales

 

$

239,447

 

 

$

30,067

 

 

$

38,451

 

 

$

307,965

 

Intercompany elimination

 

 

(37,228

)

 

 

(5,726

)

 

 

(14,317

)

 

 

(57,271

)

Net sales

 

$

202,219

 

 

$

24,341

 

 

$

24,134

 

 

$

250,694

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

Asia

 

 

North America

 

 

Europe

 

 

Consolidated

 

Total sales

 

$

194,642

 

 

$

33,880

 

 

$

40,380

 

 

$

268,902

 

Intercompany elimination

 

 

(27,874

)

 

 

(15,015

)

 

 

(17,125

)

 

 

(60,014

)

Net sales

 

$

166,768

 

 

$

18,865

 

 

$

23,255

 

 

$

208,888

 

 

As of and for the Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

 

Asia

 

 

North America

 

 

Europe

 

 

Consolidated

 

Total sales

 

$

671,252

 

 

$

91,176

 

 

$

121,501

 

 

$

883,929

 

Intercompany elimination

 

 

(107,268

)

 

 

(21,390

)

 

 

(45,194

)

 

 

(173,852

)

Net sales

 

$

563,984

 

 

$

69,786

 

 

$

76,307

 

 

$

710,077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

$

341,320

 

 

$

58,408

 

 

$

15,890

 

 

$

415,618

 

Total assets

 

$

956,647

 

 

$

422,041

 

 

$

173,752

 

 

$

1,552,440

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the Nine Months Ended