What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-11 · 178 added, 128 removed, 433 unchanged (41% of the section changed)

7 unchanged sentences

Accounts receivable, net of allowances of $ 3,234 and $ 4,866 at

March 31, 2020 and December 31, 2019, respectively

June 30, 2020 and December 31, 2019, respectively

Prepaid expenses and other

23 unchanged sentences

51,598,528 and 51,206,969 , issued and outstanding

at March 31, 2020 and December 31, 2019, respectively

at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Retained earnings

Treasury stock at cost, 1,480,840 and 1,457,206 , issued and outstanding at

March 31, 2020 and December 31, 2019, respectively

Treasury stock at cost, 1,482,915 and 1,457,206 , at June 30, 2020 and

December 31, 2019, respectively

Accumulated other comprehensive loss

7 unchanged sentences

Three Months Ended

Six Months Ended

Cost of goods sold

9 unchanged sentences

Interest expense

Foreign currency gain (loss), net

Total other income (expense)

Foreign currency loss, net

Total other expense

Income before income taxes and noncontrolling interest

9 unchanged sentences

Three Months Ended

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

Unrealized loss on swaps and collars, net of tax

Unrealized foreign currency (loss) gain, net of tax

Six Months Ended

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

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

Unrealized foreign currency gain (loss), net of tax

Comprehensive income

9 unchanged sentences

Noncontrolling

Balance, December 31, 2018

Balance, March 31, 2020

Total comprehensive income

Noncontrolling interests

Acquisition of non-controlling interest

Contributions from noncontrolling interests

Dividends to noncontrolling interest

1 unchanged sentence

Share-based compensation

Deferred compensation plan

Tax related to net share settlement

Balance, March 31, 2019

Balance, June 30, 2020

Balance, December 31, 2019

Total comprehensive income

Acquisition of non-controlling interest

Contributions from noncontrolling interests

4 unchanged sentences

Tax related to net share settlement

Balance, June 30, 2020

Balance, March 31, 2019

Total comprehensive income

Common stock issued for share-based plans

Share-based compensation

Tax related to net share settlement

Balance, June 30, 2019

Balance, December 31, 2018

Total comprehensive income

Noncontrolling interests

Dividends to noncontrolling interest

Common stock issued for share-based plans

Share-based compensation

Tax related to net share settlement

Balance, June 30, 2019

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

2 unchanged sentences

(In thousands)

Three Months Ended

Operating Activities

Six Months Ended

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions

15 unchanged sentences

Purchases of property, plant and equipment

Purchases of short-term investments

Purchase of equity securities

Proceeds from maturity of short-term investments

Purchases of short-term investments

Additional acquisition of noncontrolling interest

Net cash and cash equivalents used in investing activities

19 unchanged sentences

property, plant and equipment

Dividend payable to noncontrolling interest

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

Three Months Ended

The company’s restricted cash primarily consisted of the cash required to be on deposit under contractual agreements with banks to support the outstanding loan and import/export guarantees.

Six Months Ended

Current assets:

31 unchanged sentences

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, 2020 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2020.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2020.

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.

5 unchanged sentences

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

In March 2020, the Financial Accounting Standards Board issued Accounting Standards (“FASB”) Update (“ASU”) No.

2020-04 Reference Rate Reform (Topic 848) .

2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU No.

2020-04 is optional and may be elected over time as reference rate reform activities occur.

During the second quarter of 2020;

the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

Application of these expedients preserves the presentation of derivatives consistent with past presentation.

The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-13, which requires measurement and recognition of expected credit losses for financial assets held.

1 unchanged sentence

2016-13 effective January 1, 2020.

The adoption of ASU No 2016-13 did not have a material impact on our consolidated financial statements and related disclosures.

In March 2020, the FASB issued optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

The Company is currently evaluating the impact that this guidance will have on its financial statements and related disclosures.

The adoption of ASU No.

2016-13 did not have a mat erial impact on our consolidated financial statements and related disclosures.

NOTE 2 – Earnings per Share

1 unchanged sentence

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, 2020 and 2019 we paid no dividends on our Common Stock.

During the three and six month ended June 30, 2020 and 2019 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

Six Months Ended

Earnings (numerator)

9 unchanged sentences

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

March 31, 2020

June 30, 2020

December 31, 2019

7 unchanged sentences

Foreign currency translation adjustment

Balance at March 31, 2020

Balance at June 30, 2020

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

9 unchanged sentences

Amortization expense

Three months ended March 31

Three months ended June 30,

Six months ended June 30,

NOTE 5 – Income Tax Provision

1 unchanged sentence

Three Months Ended

Six Months Ended

Domestic pre-tax income

4 unchanged sentences

Earnings per share impact of tax holidays:

The decrease in the effective tax rate for the three months ended March 31, 2020 when compared to the three months ended March 31, 2019, is primarily attributable to a decrease in non-U.S.

The decrease in the effective tax rate for the three and six months ended June 30, 2020 when compared to the three and six months ended June 30, 2019, is primarily attributable to a decrease in non-U.S.

withholding taxes and a net increase in favorable U.S.

13 unchanged sentences

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in interest expense.

As of March 31, 2020, the gross amount of unrecognized tax benefits was approximately $ 38.4 million.

As of June 30, 2020, the gross amount of unrecognized tax benefits was approximately $ 39.6 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.

4 unchanged sentences

NOTE 6 – Share-Based Compensation

All share-based compensation is for share grants.

All share-based compensation is attributable to share grants.

All outstanding stock options are fully vested, and all expense related to stock options has been recognized in previous periods.

No cash proceeds were received from stock option exercises during the three months ended March 31, 2020.

Approximately $ 1.1 million of cash proceeds were received from stock option exercises during the six months ended June 30, 2020.

The table below sets forth the line items where share-based compensation expense was recorded:

Three Months Ended

Six Months Ended

Cost of goods sold

5 unchanged sentences

Restricted stock grants are measured based on the fair market value of the underlying stock on the date of grant, and compensation expense is recognized on a straight-line basis over the requisite four-year service period.

During the second quarter of 2020, in connection with the retirement of a member of the Company’s board of directors, the Company modified that director’s unvested RSU grants to vest upon his retirement.

The shares subject to the modified grants will be released to that board member as if they were vesting under the original vesting timeline.

In connection with this modification, the Company recorded additional expense of approximately $ 1.7 million.

Performance stock units (“PSUs”) are measured based on the fair market value of the underlying stock on the date of grant and compensation expense is recognized over the three-year performance period, with adjustments made to the expense to recognize the probable payout percentage.

PSUs will vest upon the Company achieving a cumulative 3 -year non-GAAP operating income target for the applicable periods.

As of March 31, 2020, total unrecognized share-based compensation expense related to share grants was approximately $ 45.4 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.2 years.

As of June 30, 2020, total unrecognized share-based compensation expense related to share grants was approximately $ 43.5 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.1 years.

NOTE 7 – Segment Information and Net Sales

3 unchanged sentences

Our primary operations include operations in Asia, North America and Europe.

During the three months ended March 31, 2020 and 2019, no customer accounted for 10 % or more of our revenue.

During the three months ended June 30, 2019, one customer, a broad-based global distributor that sells to thousands of different end users, accounted for 10 % or $ 31.5 million of our net sales.

No customer accounted for 10% or greater of our net sales during any other period presented.

No customer accounted for 10% or more of our outstanding accounts receivable at any point in the periods presented in this report.

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

Three Months Ended June 30, 2020

North America

Intercompany elimination

Three Months Ended June 30, 2019

North America

Intercompany elimination

As of and for the

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

North America

2 unchanged sentences

As of and for the

Three Months Ended March 31, 2019

Six Months Ended June 30, 2019

North America

6 unchanged sentences

Further, most of our contracts are fixed-price arrangements, and are short term in nature, ranging from days to several months.

The tables below set forth revenue for the Company disaggregated into geographic locations based on shipment and by type (direct sales or Distributor ) for the three months ended March 31, 2020 and 2019:

The tables below set forth net sales for the Company disaggregated into geographic locations based on shipment and by type (direct sales or Distributor ) for the three months and six months ended June 30, 2020 and 2019:

Three Months Ended

Net Sales by Region

March 31, 2020

March 31, 2019

Total net sales

2 unchanged sentences

Total net sales

Revenue from products shipped to China was $ 138.9 million and $ 151.5 million for the three months ended March 31, 2020 and 2019, respectively.

Six Months Ended

Net Sales by Region

Total net sales

Net Sales by Type

Distributor sales

Total net sales

Net sales from products shipped to China was $ 152.4 million and $ 160.3 million for the three months ended June 30, 2020 and 2019, respectively and $ 291.3 million and $ 311.8 million for the six months ended June 30, 2020 and 2019, respectively.

NOTE 8 – Debt

Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $ 165.5 million.

Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted, repayable on demand, terminable by the lender at any time and contain no restrictive covenants.

Interest payments are due monthly on outstanding amounts under the credit lines.

The unused and available credit under the various facilities as of June 30, 2020, was approximately $ 101.4 million, net of a $ 63.7 million advanced under our foreign credit lines and $ 0.4 million credit used for import and export guarantee.

In connection with our Asia credit facilities $ 51.4 million of cash deposits have been restricted in support of a corresponding loan amount.

On May 29, 2020 , the Company, Diodes Holding B.V.

(the “Foreign Borrower” and, collectively with the Company, the “Borrowers”), and certain subsidiaries of the Company as guarantors, entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) that amends and restates that certain Amended and Restated Credit Agreement dated as of October 26, 2016 (as amended, modified and/or supplemented from time to time prior May 29, 2020, the “Existing Credit Agreement”).

Certain capitalized terms used in this description of the Credit Agreement have the meanings given to them in the Credit Agreement.

The Company analyzed this amendment pursuant to the guidance in ASC No.

470-50, Debt—Modifications and Extinguishments.

The Company determined that certain lenders had changes in cash flows which were substantially different as a result of the amendment, which resulted in a debt extinguishment of $ 52.2 million and a loss on extinguishment and third-party fees of $ 0.7 million being expensed in the three-month period ended June 30, 2020.

The Credit Agreement rebalances the Company’s existing senior credit facilities under the Existing Credit Agreement from (x) aggregate credit facilities of $ 500,000,000 , consisting of (A) a $ 250,000,000 revolving senior credit facility, which included a $ 10,000,000 swing line sublimit, a $ 10,000,000 letter of credit sublimit, and a $ 20,000,000 alternative currency sublimit, and (B) a $ 250,000,000 term loan to (y) aggregate credit facilities of $ 670,000,000 consisting of (A) an acquisition draw term commitment of $ 340,000,000 (the “Acquisition Draw Term Commitment”), (B) an initial term commitment of $ 180,000,000 (the “Initial Term Commitment” and, together with the Acquisition Draw Term Commitment, the “Term Loan”) and (C) a $ 150,000,000 revolving

s enior credit facility (the “Revolver”), which includes a $ 20,000,000 uncommitted swing line submit, a $ 10,000,000 letter of credit sublimit, and a $ 40,000,000 alternative currency sublimit.

The Revolver and the Term Loan mature on May 29, 2023 (the “Maturity Date”).

Both the term loan portion and the revolving portion of the Credit Agreement bear an interest rate at LIBOR or similar other indices plus a specified margin.

The Company plans to use a portion of the proceeds available under the Revolver and the Term Loan (i) to finance the Company’s previously announced acquisition of Lite-On Semiconductor Corporation, (ii) to refinance certain existing indebtedness of the Borrowers and their subsidiaries under the Existing Credit Agreement and (iii) for working capital, capital expenditures, and other lawful corporate purposes, including, without limitation, financing permitted acquisitions.

The Credit Agreement contains certain financial and non-financial covenants, including, but not limited to, a maximum Consolidated Leverage Ratio, a minimum Consolidated Fixed Charge Coverage Ratio, and restrictions on liens, indebtedness, investments, fundamental changes, dispositions, and restricted payments (including dividends and share repurchases).

These covenants are generally similar to the corresponding covenants in the Existing Credit Agreement, except that certain amounts permitted as exceptions to negative covenants restricting liens, indebtedness, investments, dispositions and restricted payments have been revised, and additional exceptions to certain negative covenants have been added, including increased capacity for certain intercompany Indebtedness and Investment (including existing Lite-On Indebtedness), and the right to enter into certain securitization transactions and receivables facilities, subject to limitations set forth in the Credit Agreement.

Furthermore, under the Credit Agreement, restricted payments, including dividends and share repurchases, are permitted in certain circumstances, including while the pro forma Consolidated Leverage Ratio is, both before and after giving effect to any such restricted payment, at least 0.25 to 1.00 less than the maximum permitted under the Credit Agreement.

In addition to the liquidity provided by the Credit Agreement, our 51 % owned subsidiary, ERIS Technology Corporation (“ERIS”), borrowed $ 13.7 million through a short-term loan and $ 27.0 million on a long-term basis from local Taiwan banks.

The ERIS debt matures in periods from 2020 through 2033 .

Borrowings outstanding as of June 30, 2020 and December 31, 2019, are set forth in the table below:

Current Amount

Interest Rate

Short-term debt

Libor + Margin

Various during 2020 - 2021

Long-term debt

Notes payable to Bank of Taiwan

Variable, 1.3% base

Notes payable to Bank of China Trust Company

Taibor 3 month rate + 0.5%

Notes payable to Bank of China Trust Company

Taibor 3 month rate + 0.5%

Notes payable to E Sun Bank

1-M deposit rate plus 0.08%

Term loan and revolver

Libor plus margin

Total long-term debt

Current portion of long-term debt

Unamortized debt costs

Total long-term debt, net of current portion

NOTE 9 – Commitments and Contingencies

Purchase commitments – As of March 31, 2020, we had approximately $ 38.7 million in non-cancelable purchase contracts related to capital expenditures, primarily related to our manufacturing facilities in Asia.

As of March 31, 2020, we also had a commitment to purchase approximately $ 52.5 million of wafers to be used in our manufacturing process.

Purchase commitments – As of June 30, 2020, we had approximately $ 26.8 million in non-cancelable purchase contracts related to capital expenditures, primarily related to our manufacturing facilities in Asia.

As of June 30, 2020, we also had a commitment to purchase approximately $ 29.8 million of wafers to be used in our manufacturing process.

These wafer purchases will occur during 2020.

Defined Benefit Plan - We have a contributory defined benefit plan that covers certain employees in the United Kingdom.

As of March 31, 2020, the unfunded liability for this defined benefit plan was approximately $ 14.0 million.

We are obligated to make annual contributions, each year through December 2029, of approximately GBP 2 million (approximately $ 2.4 million based on a GBP:

As of June 30, 2020, the unfunded liability for this defined benefit plan was approximately $ 28.7 million.

An actuarial valuation was performed as of March 31, 2019, resulting in a deficit of approximately GBP 26.7 million (approximately $ 27.9 million based on a GBP:

USD exchange rate of 1.2 :1).

The current annual contributions were set with regard to the funding position as of April 2016, and must be reviewed by the Trustees at least every three years.

A review as of April 2019 is underway and the outcome of the review could result in a change in the amount of the payment or the period over which payment is required.

As a result of this valuation we have agreed to a revised schedule of contributions of GBP 2.0 million (approximately $ 2.4 million based on a GBP:

USD exchange rate of 1.2 :1) to be paid in annual installments with

effect from April 1, 2020 to address the deficit revealed by the valuation (with the first payment made by March 31, 2021, and payments to be made by December 31 each year thereafter).

These contributions, together with the assumed asset outperformance, are expected to eliminate the deficit by December 31, 2028.

Further, we will pay GBP 0.2 million in annual installments effective April 1, 2020 to cover expenses.

Contingencies – From time to time, we are involved in various legal proceedings that arise in the normal course of business.

12 unchanged sentences

We use foreign currency forward agreements to manage this exposure.

At March 31, 2020, we had outstanding foreign currency forward contracts that are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities;

these instruments are not designated for hedge accounting treatment in accordance with ASC 815.

At June 30, 2020, and December 31, 2019, we had $ 93.0 million and $ 105.9 million, respectively, outstanding foreign currency forward contracts that are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities;

these instruments are not designated for hedge accounting treatment in accordance with ASC No.

The fair value of these instruments approximates zero .

The table below sets forth outstanding foreign currency forward contracts at March 31, 2020 and December 31, 2019:

Notional Amount

Effective Date

Maturity Date

Weighted Average Foreign Exchange Rate

Balance Sheet Hedge Designation

Non-designated

Notional Amount

Effective Date

Maturity Date

Weighted Average Foreign Exchange Rate

Balance Sheet Hedge Designation

December 2019

February 2020

Non-designated

December 2019

February 2020

Non-designated

December 2019

February 2020

Non-designated

December 2019

February 2020

Non-designated

December 2019

February 2020

Non-designated

December 2019

February 2020

Non-designated

February 2020

Non-designated

GBP = British Pound Sterling

USD = United States Dollar

CNY = Chinese Yuan Renminbi

JPY = Japan Yen

TWD = Taiwan dollar

Hedges of Interest Rate and Net Investment Risk - The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.

1 unchanged sentence

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The table below sets forth information related to the number and the notional amount of our interest rate related derivative instruments at March 31, 2020 and December 31, 2019:

Number of Instruments

Notional Amount

Interest rate swaps and collars

The table below sets forth the fair value of the Company’s interest rate related derivative financial instruments as well as their classification on our condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019:

Other Current Assets

2 unchanged sentences

Interest rate swaps and collars

The tables below set forth the effect of the Company’s derivative financial instruments on our condensed consolidated statements of income for the three months ended March 31, 2020 and 2019:

The tables below set forth the effect of the Company’s derivative financial instruments on our condensed consolidated statements of income for the three and six months ended June 30, 2020 and 2019:

Amount of Gain or (Loss) Recognized in OCI on Derivative

7 unchanged sentences

Interest expense

Cross currency swaps

Interest income

Six Months Ended

Interest rate swaps and collars

Interest expense

1 unchanged sentence

Interest income

We estimate that $ 0.6 million of net derivative gains included in accumulated other comprehensive income (“AOCI”) as of March 31, 2020 will be reclassified into expense within the following 12 months.

No gains or losses were reclassified from AOCI into earnings as a result of forecasted transactions that failed to occur during three months ended March 31, 2020 or 2019.

Amount of (Loss) or Gain Recognized in Net Income

We estimate that $ 0.6 million of net derivative gains included in accumulated other comprehensive income (“AOCI”) as of June 30, 2020 will be reclassified into expense within the following 12 months.

No gains or losses were reclassified from AOCI into earnings as a result of forecasted transactions that failed to occur during three and six months ended June 30, 2020 or 2019.

Amount of Gain or (Loss) Recognized in Net Income

Location of Gain or (Loss) Recognized in Net Income

3 unchanged sentences

Foreign currency loss, net

As of March 31, 2020 and December 31, 2019, the Company had no t posted any collateral related to these agreements.

Six Months Ended

Foreign currency forward contracts

Foreign currency loss, net

As of June 30, 2020 and December 31, 2019, the Company had no t posted any collateral related to these agreements.

NOTE 11 – Leases

3 unchanged sentences

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

Operating lease expense

6 unchanged sentences

The table below sets forth supplemental balance sheet information related to leases.

March 31, 2020

In our condensed consolidated balance sheets, ROU assets are included in other long-term assets while lease liabilities are located in accrued liabilities and other for the current portion and other long-term liabilities for the non-current portion:

June 30, 2020

December 31, 2019

18 unchanged sentences

The table below sets forth supplemental cash flow and other information related to leases:

Three Months Ended

March 31, 2020

March 31, 2019

Six Months Ended

June 30, 2020

June 30, 2019

Cash paid for the amounts included in the measurements of lease liabilities:

5 unchanged sentences

The table below sets forth information about lease liability maturities:

March 31, 2020

June 30, 2020

Operating Leases

11 unchanged sentences

We offset our obligations under the Deferred Compensation Plan primarily by investing in the actual underlying investments.

At March 31, 2020 and December 31, 2019, these investments totaled approximately $ 10.0 million and $ 12.9 million, respectively.

At June 30, 2020 and December 31, 2019, these investments totaled approximately $ 11.2 million and $ 12.9 million, respectively.

NOTE 13 – Related Parties

We conduct business with a related party company, Lite-On Semiconductor Corporation and its subsidiaries and affiliates (collectively, “LSC”), and Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”).

LSC is our largest stockholder, owning approximately 15 % of o ur ou t s t a nd i n g C o m m on S toc k as of March 31, 2020, a n d i s a m e m ber of t he L ite- On G r o u p o f c o m p a n ies .

LSC is our largest stockholder, owning approximately 15 % of o ur ou t s t a nd i n g C o m m on S toc k as of June 30, 2020, a n d i s a m e m ber of t he L ite- On G r o u p o f c o m p a n ies .

On August 8, 2019, we announced that we entered into an agreement with LSC pursuant to which the Company shall acquire LSC.

1 unchanged sentence

This amount is subject to change, based on the Taiwan dollar to United States dollar exchange rate at closing.

The acquisition received LSC stockholder approval on October 25, 2019, and we anticipate completing the acquisition in the second half of 2020, subject to customary closing conditions and regulatory approvals.

We expect to fund the purchase price of the transaction primarily with proceeds from an anticipated new bank financing arrangement.

Raymond Soong, the Chairman of our Board of Directors, is the Chairman of LSC, and is the Chairman of Lite-On Technology Corporation (“LTC”), a significant shareholder of LSC.

We expect to fund the purchase price of the transaction primarily with proceeds from the Credit Agreement.

Raymond Soong, the former Chairman of our Board of Directors, is the Chairman of LSC, and is the Chairman of Lite-On Technology Corporation (“LTC”), a significant shareholder of LSC.

Chen, our former President and Chief Executive Officer and currently the Vice Chairman of our Board of Directors, is also Vice Chairman of LSC and a board member of LTC.

Keh-Shew Lu, our President and Chief Executive Officer and a member of our Board of Directors, is a board member of LTC, and a board member of Nuvoton.

Keh-Shew Lu, Chairman of our Board of Directors, President and Chief Executive Officer, is a board member of LTC, and a board member of Nuvoton.

We consider our relationships with LSC and Nuvoton to be mutually beneficial, and we plan to continue our strategic alliance with LSC and Nuvoton.

4 unchanged sentences

We sell products to, and purchase inventory from Keylink.

In addition, our subsidiaries in China lease their manufacturing facilities in Shanghai from, and subcontract a portion of our manufacturing process (metal plating and environmental services) to, Keylink.

In addition, our subsidiaries in China lease their manufacturing facilities in Shanghai from, and subcontract a portion of our

manufacturing process (metal plating and environmental services) to, Keylink.

We also pay fees for plating and rental services and consulting to Keylink.

The aggregate amounts paid to Keylink for the three months ended March 31, 2020 and 2019 were approximately $ 3.1 million and $ 3.9 million, respectively.

The aggregate amounts paid to Keylink for the th ree months ended June 30, 2020 and 2019 were approximately $ 3.8 million and $ 3.9 million, respectively.

The aggregate amounts paid to Keylink for the six months ended June 30, 2020 and 2019 were approximately $ 6.9 million and $ 7.8 million, respecti vely.

I n a dd itio n, Chengdu Ya Guang Electronic Company Limited (“ Y a G u a ng”) is our 2 % joint venture partner in one of our Chengdu assembly and test facilities and i s o ur 5 % j o i nt v e n t ure p a r t n e r i n ou r other C h eng du asse m bly a nd tes t facility ;

1 unchanged sentence

We also purchase materials from Jiyuan Crystal Photoelectric Frequency Technology Ltd (“JCP”), a frequency control product manufacturing company in which we have made an equity investment and account for that investment using the equity method of accounting.

T he Au d i t C o mmitte e o f t he Bo a rd r e view s al l relate d part y transaction s for pot e n tia l conflic t o f i n teres t s i tuation s o n a n ongoin g basis , al l i n accord a nc e wit h su c h procedure s a s t h e Audi t Committe e m ay a d opt fr om t i m e t o time.

The Audit C ommittee of t he Bo a rd r e views all related party transactions for pot e ntial conflict of i nterest s i tuations on a n ongoing basis, all in accord a nce with su c h procedures as t he Audit Committee m ay adopt from time to time.

The table below sets forth net sales to and purchases from related parties:

Three Months Ended

Six Months Ended

The table below sets forth accounts receivable from, and accounts payable to, related parties:

13 unchanged sentences

The second tranche will be paid on June 30, 2021, provided Savitech achieves previously agreed-to revenue levels.

If revenue levels are not achieved the Company will pay less than the maximum $ 8.6 million, but regardless of the amount paid, will still acquire at least 51 % of Savitech.

The Company recorded the purchase of Savitech as a business acquisition and will consolidate Savitech into their operat ions, based on the voting model, with a non-controlling interest related to the interest Diodes does not own in Savitech.

The Company purchased Savitech in order to increase the Company’s integrated circuit business.

If revenue levels are not achieved the Company will pay less than the maximum $ 8.6 million, but regardless of the amount paid for the second tranche, the Company will still acquire at least 51 % of Savitech.

The Company recorded the purchase of Savitech as a business acquisition and will consolidate Savitech into its operations, based on the vot ing model, with a non-controlling interest related to the interest the Company does not own in Savitech.

The Company made its investment in Savitech in order to increase the Company’s integrated circuit business.

Total purchase consideration recorded was $ 13.9 million.

1 unchanged sentence

The Company also incurred acquisition costs of approximately $ 0.1 million that were recognized in selling, general and administrative expense.

The table below sets forth the preliminary fair value of the assets and liabilities recorded in the acquisition and the corresponding line item in which the item is recorded in our condensed consolidated balance sheet at the date of acquisition.

The acquisition accounting is not final as deferred taxes, the contingent consideration payment and goodwill are being finalized.

We expect the acquisition accounting to be finalized in the second or third quarter of 2020.

The table below sets forth the fair value of the ass ets and liabilities recorded in the acquisition and the corresponding line item in which the item is recorded in our condensed consolidated balance sheet at the date of acquisition.

The acquisition accounting is not final as deferred taxes, the contingen t consideration payment and goodwill are being finalized.

We expect the acquisition accounting to be finalized in the third quarter of 2020.

Cash and cash equivalents

3 unchanged sentences

Accrued liabilities and other

Other long-term liabilities

Noncontrolling interest

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements