0001564590-19-016602.txt : 20190507 0001564590-19-016602.hdr.sgml : 20190507 20190507170138 ACCESSION NUMBER: 0001564590-19-016602 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 78 CONFORMED PERIOD OF REPORT: 20190331 FILED AS OF DATE: 20190507 DATE AS OF CHANGE: 20190507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIODES INC /DEL/ CENTRAL INDEX KEY: 0000029002 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 952039518 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-25577 FILM NUMBER: 19804005 BUSINESS ADDRESS: STREET 1: 4949 HEDGCOXE ROAD STREET 2: SUITE 200 CITY: PLANO STATE: TX ZIP: 75024 BUSINESS PHONE: 972-987-3900 MAIL ADDRESS: STREET 1: 4949 HEDGCOXE ROAD STREET 2: SUITE 200 CITY: PLANO STATE: TX ZIP: 75024 10-Q 1 diod-10q_20190331.htm 10-Q diod-10q_20190331.htm

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29.9

 

 

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 March 31, 2019

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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.66 2/3

 

DIOD

 

The NASDAQ Stock Market LLC

The number of shares of the registrant’s Common Stock outstanding as of May 3, 2019 was 50,613,957.

 

 

 


 

 

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)

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

301,167

 

 

$

241,053

 

Short-term investments

 

6,751

 

 

 

7,499

 

Accounts receivable, net of allowances of $4,258 and $4,102 at

  March 31, 2019 and December 31, 2018, respectively

 

215,229

 

 

 

228,405

 

Inventories

 

216,569

 

 

 

215,435

 

Prepaid expenses and other

 

41,274

 

 

 

42,446

 

Total current assets

 

780,990

 

 

 

734,838

 

Property, plant and equipment, net

 

441,215

 

 

 

446,835

 

Deferred income tax

 

31,830

 

 

 

31,652

 

Goodwill

 

135,669

 

 

 

132,437

 

Intangible assets, net

 

133,506

 

 

 

137,935

 

Other

 

89,788

 

 

 

42,674

 

Total assets

$

1,612,998

 

 

$

1,526,371

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Line of credit

$

12,330

 

 

$

10,254

 

Accounts payable

 

107,078

 

 

 

117,808

 

Accrued liabilities and other

 

86,880

 

 

 

82,605

 

Income tax payable

 

21,452

 

 

 

15,744

 

Current portion of long-term debt

 

28,403

 

 

 

27,613

 

Total current liabilities

 

256,143

 

 

 

254,024

 

Long-term debt, net of current portion

 

187,378

 

 

 

186,143

 

Deferred tax liabilities

 

18,003

 

 

 

17,993

 

Other long-term liabilities

 

134,176

 

 

 

90,779

 

Total liabilities

 

595,700

 

 

 

548,939

 

 

 

 

 

 

 

 

 

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;

  50,596,756 and 50,221,035, issued and outstanding at March 31, 2019

  and December 31, 2018,  respectively

 

34,704

 

 

 

34,454

 

Additional paid-in capital

 

410,163

 

 

 

399,915

 

Retained earnings

 

668,424

 

 

 

636,708

 

Treasury stock, at cost, 1,457,206 shares held at March 31, 2019

  and December 31, 2018

 

(37,768

)

 

 

(37,768

)

Accumulated other comprehensive loss

 

(106,848

)

 

 

(101,846

)

Total stockholders' equity

 

968,675

 

 

 

931,463

 

Noncontrolling interest

 

48,623

 

 

 

45,969

 

Total equity

 

1,017,298

 

 

 

977,432

 

Total liabilities and stockholders' equity

$

1,612,998

 

 

$

1,526,371

 

 

 

 

 

 

 

 

 

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

 

 

March 31,

 

 

2019

 

 

 

 

2018

 

Net sales

$

302,293

 

 

 

 

$

274,512

 

Cost of goods sold

 

189,882

 

 

 

 

 

175,917

 

Gross profit

 

112,411

 

 

 

 

 

98,595

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

43,688

 

 

 

 

 

47,150

 

Research and development

 

22,170

 

 

 

 

 

20,200

 

Amortization of acquisition related intangible assets

 

4,484

 

 

 

 

 

4,767

 

Other operating income

 

(54

)

 

 

 

 

(462

)

Total operating expense

 

70,288

 

 

 

 

 

71,655

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

42,123

 

 

 

 

 

26,940

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

Interest income

 

875

 

 

 

 

 

514

 

Interest expense

 

(2,145

)

 

 

 

 

(2,757

)

Foreign currency loss, net

 

(64

)

 

 

 

 

(3,029

)

Other income

 

1,245

 

 

 

 

 

4,635

 

Total other expense

 

(89

)

 

 

 

 

(637

)

 

 

 

 

 

 

 

 

 

 

Income before income taxes and noncontrolling interest

 

42,034

 

 

 

 

 

26,303

 

Income tax provision

 

10,298

 

 

 

 

 

7,783

 

Net income

 

31,736

 

 

 

 

 

18,520

 

Less net (income) loss attributable to noncontrolling interest

 

(20

)

 

 

 

 

6

 

Net income attributable to common stockholders

$

31,716

 

 

 

 

$

18,526

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

$

0.63

 

 

 

 

$

0.38

 

Diluted

$

0.62

 

 

 

 

$

0.37

 

Number of shares used in earnings per share computation:

 

 

 

 

 

 

 

 

 

Basic

 

50,398

 

 

 

 

 

49,337

 

Diluted

 

51,462

 

 

 

 

 

50,622

 

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

 

 

March 31,

 

 

2019

 

 

2018

 

Net income

$

31,736

 

 

$

18,520

 

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

 

(6,029

)

 

 

435

 

Unrealized (loss) gain on swaps and collars, net of tax

 

(3,909

)

 

 

2,348

 

Unrealized foreign currency gain, net of tax

 

4,936

 

 

 

15,856

 

Comprehensive income

 

26,734

 

 

 

37,159

 

Less: Comprehensive income attributable to noncontrolling interest

 

(20

)

 

 

6

 

Total comprehensive income attributable to common stockholders

$

26,714

 

 

$

37,165

 

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

 


-5-


 

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)

 

 

 

Common stock

 

 

Treasury stock

 

 

Additional

paid-in

 

 

Retained

 

 

Accumulated

other comprehensive

 

 

Total Diodes

Incorporated Stockholders'

 

 

Noncontrolling

 

 

Total

 

(Amounts in thousands)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

equity

 

 

interest

 

 

equity

 

Balance, December 31, 2017

 

 

50,587

 

 

$

33,727

 

 

 

(1,457

)

 

$

(37,768

)

 

$

386,338

 

 

$

532,687

 

 

$

(83,480

)

 

$

831,504

 

 

$

42,414

 

 

$

873,918

 

Total comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

18,526

 

 

 

18,639

 

 

 

37,165

 

 

 

(6

)

 

 

37,159

 

Noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dividends to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,152

)

 

 

(1,152

)

Common stock issued for share-based plans

 

 

441

 

 

 

294

 

 

 

-

 

 

 

-

 

 

 

574

 

 

 

-

 

 

 

-

 

 

 

868

 

 

 

-

 

 

 

868

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,280

 

 

 

-

 

 

 

-

 

 

 

6,280

 

 

 

-

 

 

 

6,280

 

Tax related to net share settlement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,264

)

 

 

-

 

 

 

-

 

 

 

(7,264

)

 

 

-

 

 

 

(7,264

)

Balance, March 31, 2018

 

 

51,028

 

 

$

34,021

 

 

 

(1,457

)

 

$

(37,768

)

 

$

385,928

 

 

$

551,213

 

 

$

(64,841

)

 

$

868,553

 

 

$

41,256

 

 

$

909,809

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

51,678

 

 

$

34,454

 

 

 

(1,457

)

 

$

(37,768

)

 

$

399,915

 

 

$

636,708

 

 

$

(101,846

)

 

$

931,463

 

 

$

45,969

 

 

$

977,432

 

Total comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

31,716

 

 

 

(5,002

)

 

 

26,714

 

 

 

20

 

 

 

26,734

 

Noncontrolling interests

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,755

 

 

 

2,755

 

Dividends to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(121

)

 

 

(121

)

Common stock issued for share-based plans

 

 

376

 

 

 

250

 

 

 

-

 

 

 

-

 

 

 

6,417

 

 

 

-

 

 

 

-

 

 

 

6,667

 

 

 

-

 

 

 

6,667

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,476

 

 

 

-

 

 

 

-

 

 

 

4,476

 

 

 

-

 

 

 

4,476

 

Tax related to net share settlement

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(645

)

 

 

-

 

 

 

-

 

 

 

(645

)

 

 

-

 

 

 

(645

)

Balance, March 31, 2019

 

 

52,054

 

 

$

34,704

 

 

 

(1,457

)

 

$

(37,768

)

 

$

410,163

 

 

$

668,424

 

 

$

(106,848

)

 

$

968,675

 

 

$

48,623

 

 

$

1,017,298

 

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

 

 

-6-


 

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Net cash flows provided by operating activities

$

69,889

 

 

$

53,959

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

(18,639

)

 

 

(31,636

)

Purchases of short-term investments

 

(3,153

)

 

 

(237

)

Proceeds from maturity of short-term investments

 

3,982

 

 

 

1,027

 

Other

 

658

 

 

 

1,411

 

Net cash and cash equivalents used in investing activities

 

(17,152

)

 

 

(29,435

)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Advances on lines of credit and short-term debt

 

3,568

 

 

 

3,414

 

Repayments of line of credit and short-term debt

 

(1,461

)

 

 

-

 

Taxes paid related to net share settlement

 

(645

)

 

 

(7,264

)

Proceeds from long-term debt

 

85,000

 

 

 

91,000

 

Repayments of long-term debt

 

(83,089

)

 

 

(137,482

)

Net proceeds from issuance of common stock

 

6,667

 

 

 

866

 

Repayment of finance lease obligation

 

(293

)

 

 

(603

)

Other

 

(120

)

 

 

227

 

Net cash and cash equivalents provided by (used in) financing activities

 

9,627

 

 

 

(49,842

)

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(1,890

)

 

 

3,971

 

Change in cash and cash equivalents, including restricted cash

 

60,474

 

 

 

(21,347

)

Cash and cash equivalents, beginning of period, including restricted cash

 

241,833

 

 

 

205,202

 

Cash and cash equivalents, end of period, including restricted cash

$

302,307

 

 

$

183,855

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

Interest paid during the period

$

2,095

 

 

$

2,790

 

Taxes paid during the period

$

4,323

 

 

$

4,139

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

Decrease in accounts payable related to the purchase of

      property, plant and equipment

$

2,366

 

 

$

6,917

 

Increase in dividend accrued for noncontrolling interest

$

-

 

 

$

(1,000

)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the total of the same such amounts shown above:

 

Three Months Ended

 

March 31,

 

2019

 

2018

Current assets:

 

 

 

Cash and cash equivalents

$301,167

 

$182,411

Restricted cash (included in other current assets)

1,140

 

1,444

Total cash, cash equivalents and restricted cash

$302,307

 

$183,855

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

 

-7-


 

DIODES INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – Nature of Operations, Basis of Presentation, Recently Issued Accounting Pronouncements and Updates to Accounting Policies and Estimates

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 offices 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; Oldham, England; and Neuhaus, Germany. Our wafer fabrication facilities are located in Oldham and Shanghai, China and Greenock, Scotland. We have assembly and test facilities located in Shanghai, Jinan and Chengdu, China, as well as in Hong Kong, Neuhaus and Taipei. Additional engineering, research and development, sales, warehouse, and logistics offices are located in Taipei; Hong Kong; Oldham; Shanghai; Shenzhen and Yangzhou, China; Seongnam-si, South Korea; Munich, Germany; and Tokyo, Japan, with support offices throughout the world.

Basis of Presentation

The condensed consolidated financial data at December 31, 2018 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on February 21, 2019 (“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 months ended March 31, 2019 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2019.

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 may 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 on the Company’s financial statements:   

Recently Adopted Standards

ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) – In February 2016, the FASB issued ASU 2016-02, which amends the accounting treatment for leases and requires, among other things, lessees to recognize a right-of-use (“ROU”) asset and lease liability for most lease arrangements. The amendments were effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted ASU 2016-02 on January 1, 2019, using the modified retrospective transition approach, under which financial results reported in periods prior to 2018 are unchanged. We elected the following allowed practical expedients as permitted under the transition guidance within the new standard:

 

Not record leases with an initial term of 12 months on the balance sheet;

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Not separate non-lease components of leases from the lease components; and

 

Not reassess (1) the definition of a lease, (2) lease classification, and (3) initial direct costs for existing leases during transition.

 

 

 

Upon adoption of ASU 2016-02, the Company recorded ROU assets of $68.3 million, including land-use rights of $17.1 million previously recorded in other assets and $2.5 million previously recorded in property, plant and equipment and ROU liabilities of $50.4 million. For additional information related to the Company’s leases, see Note 10.    

ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07") - In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 was effective for the Company on January 1, 2019. The adoption of this standard did not have a material effect on our condensed consolidated financial statements or disclosures.

ASU No. 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”) -In August 2017, the FASB issued ASU No. 2017-12 to better align hedge accounting with risk management strategies, and as a result, more hedging strategies will be eligible for hedge accounting. Public business entities will have until the end of the first quarter in which a hedge is designated to perform an initial assessment of a hedge’s effectiveness. After initial qualification, the new guidance permits a qualitative effectiveness assessment for certain hedges instead of a quantitative test if the company can reasonably support an expectation of high effectiveness throughout the term of the hedge. An initial quantitative test to establish that the hedge relationship is highly effective is still required. The amendments are effective for fiscal years beginning after December 15, 2018 and the Company adopted the new standard January 1, 2019. The new standard had no impact on the Company’s financial statements.

On January 1, 2019, the Company adopted ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”. The amendments in this ASU permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under ASC 815, in addition to the currently permissible benchmark interest rates. This ASU provides the Company the ability to utilize the OIS rate based on SOFR as the benchmark interest rate on certain hedges of interest rate risk. The new standard had no impact on the Company’s financial statements.

Standards Effective in Future Years

The FASB has issued the following relevant standards, effective in future years, which are not expected to have a material impact on our consolidated condensed financial statements:

Standard No.

 

Standard Name

 

Standard Effective Date

2018-13

 

Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

 

January 1, 2020

2018-14

 

Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans

 

January 1, 2020

In April 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, that clarifies and improves areas of guidance related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and measurement of financial instruments (ASU 2016-01). The amendments generally have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. The Company is currently evaluating the impact this change will have on its consolidated financial statements and disclosures.    

All other issued and not yet effective accounting standards are not expected to be relevant to the Company.


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Updates to Accounting Policies and Estimates

Leases

The Company determines if an arrangement is a lease at inception. ROU assets are included in Other assets in the Company’s condensed consolidated balance sheets. Current ROU liabilities are included in Accrued liabilities and other and long-term ROU liabilities are included in Other long-term liabilities, in our condensed consolidated balance sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. To determine the present value of the lease payments, we estimate our incremental borrowing rate based on information available at the lease commencement date.

The Company’s lease term includes options to extend the lease when it is reasonably certain that it will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our leases typically do not contain any residual value guarantees.  For real estate, we account for the lease and non-lease components as a single lease component.

NOTE 2 – Earnings per Share

Earnings per share (“EPS”) is 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 is calculated similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-dilutive.  During the three months ended March 31, 2019 and 2018 we paid no dividends on our Common Stock.

The table below sets forth the reconciliation between net income and the weighted average shares outstanding used for calculating basic and diluted EPS:

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Earnings (numerator)

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

31,716

 

 

$

18,526

 

 

 

 

 

 

 

 

 

Shares (denominator)

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

50,398

 

 

 

49,337

 

Dilutive effect of stock options and stock awards outstanding

 

1,064

 

 

 

1,285

 

Adjusted weighted average common shares outstanding (diluted)

 

51,462

 

 

 

50,622

 

 

 

 

 

 

 

 

 

Earnings per share attributable to common stockholders

 

 

 

 

 

 

 

Basic

$

0.63

 

 

$

0.38

 

Diluted

$

0.62

 

 

$

0.37

 

 

 

 

 

 

 

 

 

Stock options and stock awards excluded from EPS

  calculation because the effect would be anti-dilutive

 

58

 

 

 

6

 

 

 

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NOTE 3 – Inventories

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

 

 

March 31, 2019

 

 

December 31, 2018

 

Finished goods

$

55,493

 

 

$

59,244

 

Work-in-progress

 

64,243

 

 

 

59,166

 

Raw materials

 

96,833

 

 

 

97,025

 

Total

$

216,569

 

 

$

215,435

 

 

 

NOTE 4 – Goodwill and Intangible Assets

The table below sets forth the changes in goodwill:

 

Balance at December 31, 2018

$

132,437

 

Acquisition

 

2,570

 

Foreign currency translation adjustment

 

662

 

Balance at March 31, 2019

$

135,669

 

The increase in goodwill is related to the preliminary purchase price accounting allocation of an investment in Canyon Semiconductor. This amount possibly will be changed when the purchase price allocation becomes final later in 2019.

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

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

Gross carrying amount

$

243,447

 

 

$

238,867

 

Accumulated amortization

 

(110,894

)

 

 

(106,410

)

Foreign currency translation adjustment

 

(8,270

)

 

 

(8,281

)

Total

 

124,283

 

 

 

124,176

 

Intangible assets with indefinite lives:

 

 

 

 

 

 

 

Gross carrying amount

 

10,303

 

 

 

14,883

 

Foreign currency translation adjustment

 

(1,080

)

 

 

(1,124

)

Total

 

9,223

 

 

 

13,759

 

Total intangible assets, net

$

133,506

 

 

$

137,935

 

 

The table below sets forth amortization expense related to intangible assets subject to amortization:

 

Amortization expense

 

2019

 

 

2018

 

Three months ended March 31

 

$

4,484

 

 

$

4,767

 

 

NOTE 5 – Income Tax Provision

 

The table below sets forth information related to our income tax expense:  

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

Domestic pre-tax loss

$

12,486

 

 

$

(9,372

)

 

Foreign pre-tax income

$

29,548

 

 

$

35,675

 

 

Income tax provision

$

10,298

 

 

$

7,783

 

 

Effective tax rate

 

24.5

%

 

 

29.6

%

 

Impact of tax holidays on tax expense

$

277

 

 

$

(812

)

 

Earnings per share impact of tax holidays:

 

 

 

 

 

 

 

 

Basic

$

(0.01

)

 

$

0.02

 

 

Diluted

$

(0.01

)

 

$

0.02

 

 

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              The decrease in the effective tax rate for the three months ended March 31, 2019 when compared to the three months ended March 31, 2018, is primarily attributable to an increase in estimated full year global pretax book income and a net decrease in unfavorable U.S. permanent differences.         

Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of European and Asian subsidiaries.  Any future distributions of foreign earnings will not be subject to additional U.S. income tax, but may be subject to non-U.S. withholding taxes.

 We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2008, or for the 2010 and 2011 tax years. We are no longer subject to China income tax examinations by tax authorities for tax years before 2008. 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 2013. 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 result from currently pending tax audits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in interest expense.  As of March 31, 2019, the gross amount of unrecognized tax benefits was approximately $34.0   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:

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Cost of goods sold

$

125

 

 

$

90

 

Selling, general and administrative

 

3,637

 

 

 

5,454

 

Research and development

 

715

 

 

 

736

 

Total share-based compensation expense

$

4,477

 

 

$

6,280

 

 

The table below sets forth share-based compensation expense by type:

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Stock options

$

-

 

 

$

191

 

Share grants

 

4,477

 

 

 

6,089

 

Total share-based compensation expense

$

4,477

 

 

$

6,280

 

 

Stock Options. Approximately $6.7 million in cash proceeds was received from stock option exercises during the three months ended March 31, 2019.

As of March 31, 2019, we had no unrecognized share-based compensation expense related to unvested stock options.  

Share Grants. Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year period.   We also have share grants that are performance-based and time-based that vest upon achievement of certain performance criteria over time.             

As of March 31, 2019, total unrecognized share-based compensation expense related to share grants was approximately $40.1 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.1 years.          

 

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NOTE 7 – Segment Information and Net Sales

Segment Reporting. 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.  During the three months ended March 31, 2019, no customer accounted for 10% or more or our net sales.  During the three months ended March 31, 2018, one customer, a broad-based global distributor that sells to thousands of different end users, accounted for 10.3% or $28.4 million of our net sales. This customer did not account for 10% or   greater of our outstanding accounts receivable at March 31, 2018.  

 

The tables below set forth net sales based on the location of the subsidiary producing the net sale.

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

Asia

 

 

North America

 

 

Europe

 

 

Consolidated

 

Total sales

 

$

273,900

 

 

$

101,280

 

 

$

51,052

 

 

$

426,232

 

Intercompany elimination

 

 

(73,597

)

 

 

(37,916

)

 

 

(12,426

)

 

 

(123,939

)

Net sales

 

$

200,303

 

 

$

63,364

 

 

$

38,626

 

 

$

302,293