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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, 2020

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)

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

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  ☒

The number of shares of the registrant’s Common Stock outstanding as of May 4, 2020 was 51,486,679.

Table of Contents

	Page
Part I – Financial Information
Item 1. Financial Statements	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	32
Part II – Other Information
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3. Defaults Upon Senior Securities	34
Item 4. Mine Safety Disclosures	34
Item 5. Other Information	34
Item 6. Exhibits	35
Signatures	36

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,
	2020			2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	269,516		$	258,390
Short-term investments		2,859			4,825
Accounts receivable, net of allowances of $4,855 and $4,866 at   March 31, 2020 and December 31, 2019, respectively		243,746			260,322
Inventories		232,184			236,472
Prepaid expenses and other		48,141			49,950
Total current assets		796,446			809,959
Property, plant and equipment, net		456,122			469,574
Deferred income tax		16,994			17,516
Goodwill		149,666			141,318
Intangible assets, net		121,218			119,523
Other long-term assets		79,820			81,494
Total assets	$	1,620,266		$	1,639,384
Liabilities
Current liabilities:
Line of credit	$	13,397		$	13,342
Accounts payable		112,075			122,148
Accrued liabilities and other		88,327			100,571
Income tax payable		15,642			16,156
Current portion of long-term debt		34,676			33,105
Total current liabilities		264,117			285,322
Long-term debt, net of current portion		46,011			64,401
Deferred tax liabilities		16,348			16,333
Other long-term liabilities		111,501			120,545
Total liabilities		437,977			486,601
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;  51,450,808 and 51,206,969, issued and outstanding   at March 31, 2020  and December 31, 2019,  respectively		35,289			35,111
Additional paid-in capital		427,543			427,262
Retained earnings		810,126			789,958
Treasury stock at cost, 1,480,840 and 1,457,206, issued and outstanding at   March 31, 2020 and December 31, 2019, respectively		(38,457	)		(37,768	)
Accumulated other comprehensive loss		(109,472	)		(108,139	)
Total stockholders' equity		1,125,029			1,106,424
Noncontrolling interest		57,260			46,359
Total equity		1,182,289			1,152,783
Total liabilities and stockholders' equity	$	1,620,266		$	1,639,384
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,
	2020			2019
Net sales	$	280,717		$	302,293
Cost of goods sold		184,875			189,882
Gross profit		95,842			112,411
Operating expenses
Selling, general and administrative		42,215			43,688
Research and development		23,678			22,170
Amortization of acquisition related intangible assets		4,221			4,484
Other operating (income)		(124	)		(54	)
Total operating expense		69,990			70,288
Income from operations		25,852			42,123
Other income (expense)
Interest income		273			875
Interest expense		(1,245	)		(2,145	)
Foreign currency gain (loss), net		75			(64	)
Other income		1			1,245
Total other income (expense)		(896	)		(89	)
Income before income taxes and noncontrolling interest		24,956			42,034
Income tax provision		4,556			10,298
Net income		20,400			31,736
Less net (income) attributable to noncontrolling interest		(232	)		(20	)
Net income attributable to common stockholders	$	20,168		$	31,716
Earnings per share attributable to common stockholders:
Basic	$	0.39		$	0.63
Diluted	$	0.38		$	0.62
Number of shares used in earnings per share computation:
Basic		51,335			50,398
Diluted		52,422			51,462

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,
	2020			2019
Net income	$	20,400		$	31,736
Unrealized gain (loss) on defined benefit plan, net of tax		9,719			(6,029	)
Unrealized loss on swaps and collars, net of tax		(1,438	)		(3,909	)
Unrealized foreign currency (loss) gain, net of tax		(9,614	)		4,936
Comprehensive income		19,067			26,734
Less: Comprehensive income attributable to noncontrolling interest		(232	)		(20	)
Total comprehensive income attributable to common stockholders	$	18,835		$	26,714

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
	Shares		Amount		Shares			Amount			capital			earnings		loss			equity			interest			equity
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
Balance, December 31, 2019		52,664	$	35,111		(1,457	)	$	(37,768	)	$	427,262		$	789,958	$	(108,139	)	$	1,106,424		$	46,359		$	1,152,783
Total comprehensive income		-		-		-			-			-			20,168		(1,333	)		18,835			232			19,067
Contributions from noncontrolling interests		-		-		-			-			-			-		-			-			10,777			10,777
Dividends to noncontrolling interest		-		-		-			-			-			-		-			-			(108	)		(108	)
Common stock issued for share-based plans		268		178		-			-			(178	)		-		-			-			-			-
Share-based compensation		-		-		-			-			4,237			-		-			4,237			-			4,237
Deferred compensation plan		-		-		(24	)		(689	)		689			-		-			-			-			-
Tax related to net share settlement		-		-		-			-			(4,467	)		-		-			(4,467	)		-			(4,467	)
Balance,  March 31, 2020		52,932	$	35,289		(1,481	)	$	(38,457	)	$	427,543		$	810,126	$	(109,472	)	$	1,125,029		$	57,260		$	1,182,289

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,
	2020			2019
Operating Activities
Net income	$	20,400		$	31,736
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions
Depreciation		22,809			22,157
Amortization of intangible assets		4,221			4,484
Share-based compensation expense		4,693			4,476
Deferred income taxes		17			31
Other		741			(221	)
Changes in operating assets:
Change in accounts receivable		16,139			12,874
Change in inventory		2,550			(200	)
Change in other operating assets		(1,022	)		2,605
Changes in operating liabilities:
Change in accounts payable		(9,160	)		(11,201	)
Change in accrued liabilities		(12,105	)		(4,874	)
Change in income tax payable		3,853			5,678
Change in other operating liabilities		539			2,344
Net cash flows provided by operating activities		53,675			69,889
Cash flows from investing activities
Acquisitions, net of cash received		591			-
Purchases of property, plant and equipment		(14,208	)		(18,639	)
Purchases of short-term investments		(1,523	)		(3,153	)
Purchase of equity securities		(6,129	)		-
Proceeds from maturity of short-term investments		3,467			3,982
Other		244			658
Net cash and cash equivalents used in investing activities		(17,558	)		(17,152	)
Cash flows from financing activities
Advances on lines of credit and short-term debt		3,647			3,568
Repayments of line of credit and short-term debt		(3,498	)		(1,461	)
Taxes paid related to net share settlement		(4,467	)		(645	)
Proceeds from long-term debt		82,331			85,000
Repayments of long-term debt		(98,884	)		(83,089	)
Net proceeds from issuance of common stock		-			6,667
Repayment of and proceeds from finance lease obligation		(223	)		(293	)
Dividend distribution to noncontrolling interests		(108	)		-
Other		(195	)		(120	)
Net cash and cash equivalents (used in) provided by financing activities		(21,397	)		9,627
Effect of exchange rate changes on cash and cash equivalents		(3,315	)		(1,890	)
Change in cash and cash equivalents, including restricted cash		11,405			60,474
Cash and cash equivalents, beginning of period, including restricted cash		259,507			241,833
Cash and cash equivalents, end of period, including restricted cash		270,912		$	302,307

-7-

Supplemental Cash Flow Information
Interest paid during the period	1,068	$	2,095
Taxes paid during the period	6,091	$	4,323
Non-cash investing and financing activities: