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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 June 30, 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 August 4, 2020 was 51,831,464.

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	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	35
Item 4. Controls and Procedures	35
Part II – Other Information
Item 1. Legal Proceedings	36
Item 1A. Risk Factors	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3. Defaults Upon Senior Securities	37
Item 4. Mine Safety Disclosures	37
Item 5. Other Information	37
Item 6. Exhibits	38
Signatures	39

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

DIODES INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

	June 30,			December 31,
	2020			2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	503,206		$	258,390
Short-term investments		3,652			4,825
Accounts receivable, net of allowances of $3,234 and $4,866 at   June 30, 2020 and December 31, 2019, respectively		268,618			260,322
Inventories		255,828			236,472
Prepaid expenses and other		95,181			49,950
Total current assets		1,126,485			809,959
Property, plant and equipment, net		450,615			469,574
Deferred income tax		18,113			17,516
Goodwill		152,140			141,318
Intangible assets, net		118,076			119,523
Other long-term assets		71,734			81,494
Total assets	$	1,937,163		$	1,639,384
Liabilities
Current liabilities:
Line of credit	$	63,668		$	13,342
Accounts payable		138,692			122,148
Accrued liabilities and other		103,859			100,571
Income tax payable		6,064			16,156
Current portion of long-term debt		13,052			33,105
Total current liabilities		325,335			285,322
Long-term debt, net of current portion		282,271			64,401
Deferred tax liabilities		16,244			16,333
Other long-term liabilities		117,686			120,545
Total liabilities		741,536			486,601
Commitments and contingencies (See Note 9)
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;  51,598,528 and 51,206,969, issued and outstanding   at June 30, 2020  and December 31, 2019,  respectively		35,389			35,111
Additional paid-in capital		433,989			427,262
Retained earnings		831,159			789,958
Treasury stock at cost, 1,482,915 and 1,457,206, at  June 30, 2020 and   December 31, 2019, respectively		(38,660	)		(37,768	)
Accumulated other comprehensive loss		(118,492	)		(108,139	)
Total stockholders' equity		1,143,385			1,106,424
Noncontrolling interest		52,242			46,359
Total equity		1,195,627			1,152,783
Total liabilities and stockholders' equity	$	1,937,163		$	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						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Net sales	$	288,669		$	322,006		$	569,386		$	624,299
Cost of goods sold		187,177			200,018			372,052			389,900
Gross profit		101,492			121,988			197,334			234,399
Operating expenses
Selling, general and administrative		45,372			47,333			87,587			91,021
Research and development		21,322			21,707			45,000			43,877
Amortization of acquisition related intangible assets		4,021			4,536			8,242			9,020
Other operating (income)		(92	)		(104	)		(216	)		(158	)
Total operating expense		70,623			73,472			140,613			143,760
Income from operations		30,869			48,516			56,721			90,639
Other income (expense)
Interest income		168			633			441			1,508
Interest expense		(2,653	)		(2,011	)		(3,898	)		(4,156	)
Foreign currency loss, net		(3,600	)		(496	)		(3,525	)		(560	)
Other income		1,274			1,235			1,275			2,480
Total other expense		(4,811	)		(639	)		(5,707	)		(728	)
Income before income taxes and noncontrolling interest		26,058			47,877			51,014			89,911
Income tax provision		4,670			11,174			9,226			21,472
Net income		21,388			36,703			41,788			68,439
Less net income attributable to noncontrolling interest		(355	)		(419	)		(587	)		(439	)
Net income attributable to common stockholders	$	21,033		$	36,284		$	41,201		$	68,000
Earnings per share attributable to common stockholders:
Basic	$	0.41		$	0.72		$	0.80		$	1.35
Diluted	$	0.40		$	0.70		$	0.78		$	1.32
Number of shares used in earnings per share computation:
Basic		51,527			50,658			51,431			50,529
Diluted		52,569			51,620			52,517			51,566

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						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Net income	$	21,388		$	36,703		$	41,788		$	68,439
Unrealized (loss) gain on defined benefit plan, net of tax		(16,570	)		1,020			(6,851	)		(5,009	)
Unrealized gain (loss) on swaps and collars, net of tax		817			503			(621	)		(3,406	)
Unrealized foreign currency gain (loss), net of tax		6,733			(6,900	)		(2,881	)		(1,964	)
Comprehensive income		12,368			31,326			31,435			58,060
Less: Comprehensive income attributable to noncontrolling interest		(355	)		(419	)		(587	)		(439	)
Total comprehensive income attributable to common stockholders	$	12,013		$	30,907		$	30,848		$	57,621

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, 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
Total comprehensive income		-		-		-			-			-			21,033		(9,020	)		12,013			355			12,368
Acquisition of non-controlling interest		-		-		-			-			(1,225	)		-		-			(1,225	)		(4,928	)		(6,153	)
Contributions from noncontrolling interests		-		-		-			-			-			-		-			-			999			999
Dividends to noncontrolling interest		-		-		-			-			-			-		-			-			(1,444	)		(1,445	)
Common stock issued for share-based plans		150		100		-			-			965			-		-			1,065			-			1,065
Share-based compensation		-		-		-			-			7,441			-		-			7,441			-			7,441
Deferred compensation plan		-		-		(2	)		(203	)		203			-		-			-			-			-
Tax related to net share settlement		-		-		-			-			(938	)		-		-			(938	)		-			(938	)
Balance,  June 30, 2020		53,082	$	35,389		(1,483	)	$	(38,660	)	$	433,989		$	831,159	$	(118,492	)	$	1,143,385		$	52,242		$	1,195,627
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		-		-		-			-			-			41,201		(10,353	)		30,848			587			31,435
Acquisition of non-controlling interest		-		-		-			-			(1,225	)		-		-			(1,225	)		(4,928	)		(6,153	)
Contributions from noncontrolling interests		-		-		-			-			-			-		-			-			11,776			11,776
Dividends to noncontrolling interest		-		-		-			-			-			-		-			-			(1,552	)		(1,553	)
Common stock issued for share-based plans		418		278		-			-			787			-		-			1,065			-			1,065
Share-based compensation		-		-		-			-			11,678			-		-			11,678			-			11,678
Deferred compensation plan		-		-		(26	)		(892	)		892			-		-			-			-			-
Tax related to net share settlement		-