What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-09 · 188 added, 242 removed, 392 unchanged (52% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets:

Cash and cash equivalents

Restricted cash

Short-term investments

Accounts receivable, net of allowances of $ 3,442 and $ 3,806 at

September 30, 2020 and December 31, 2019, respectively

March 31, 2021 and December 31, 2020, respectively

Prepaid expenses and other

5 unchanged sentences

Current liabilities:

Line of credit

Lines of credit

Accounts payable

15 unchanged sentences

44,600,001 and 44,276,194 , issued and outstanding

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

at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Retained earnings

Treasury stock at cost, 1,494,080 and 1,457,206 , at

September 30, 2020 and December 31, 2019, respectively

Treasury stock at cost, 9,259,858 shares at March 31, 2021 and December 31, 2020

Accumulated other comprehensive loss

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

9 unchanged sentences

Interest expense

Foreign currency loss, net

Total other expense

Foreign currency (loss) gain, net

Unrealized gain on investments

Total other income (expense)

Income before income taxes and noncontrolling interest

9 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

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

Unrealized 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

Unrealized foreign currency loss, net of tax

Comprehensive income

9 unchanged sentences

Noncontrolling

Balance, June 30, 2020

Total comprehensive income

Contributions from noncontrolling interests

Common stock issued for share-based plans

Share-based compensation

Deferred compensation plan

Tax related to net share settlement

Balance, September 30, 2020

Balance, December 31, 2020

Total comprehensive income

Acquisition of non-controlling interest

Contributions from noncontrolling interests

Dividends to noncontrolling interest

Common stock issued for share-based plans

Share-based compensation

Deferred compensation plan

Tax related to net share settlement

Balance, September 30, 2020

Balance, June 30, 2019

Total comprehensive income

Net changes in noncontrolling interests

Common stock issued for share-based plans

1 unchanged sentence

Tax related to net share settlement

Balance, September 30, 2019

Balance, March 31, 2021

Balance, December 31, 2019

Total comprehensive income

Noncontrolling interests

Contributions from noncontrolling interests

Dividends to noncontrolling interest

1 unchanged sentence

Share-based compensation

Stock buyback related to deferred compensation plan

Tax related to net share settlement

Balance, September 30, 2019

Balance, March 31, 2020

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

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

3 unchanged sentences

Deferred income taxes

Investment gain

Changes in operating assets:

Accounts receivable

Other operating assets

Change in accounts receivable

Change in inventory

Change in other operating assets

Changes in operating liabilities:

Accounts payable

Accrued liabilities

Income tax payable

Other operating liabilities

Change in accounts payable

Change in accrued liabilities

Change in income tax payable

Change in other operating liabilities

Net cash flows provided by operating activities

4 unchanged sentences

Purchases of short-term investments

Additional acquisition of noncontrolling interest

Purchase of equity securities

Net cash and cash equivalents used in investing activities

1 unchanged sentence

Advances on lines of credit and short-term debt

Repayments of line of credit and short-term debt

Taxes paid related to net share settlement

Repayments of lines of credit and short-term debt

Proceeds from long-term debt

2 unchanged sentences

Repayment of and proceeds from finance lease obligation

Taxes paid related to net share settlement

Dividend distribution to noncontrolling interests

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

Capital contribution from noncontrolling interests

Net cash and cash equivalents used in financing activities

Effect of exchange rate changes on cash and cash equivalents

9 unchanged sentences

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.

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

Nine Months Ended

September 30,

The Company’s restricted cash primarily consisted of the cash required to be on deposit under our Asia credit facilities to support outstanding loan and import/export guarantees.

As of March 31, 2021, restricted cash of $ 54.8 million was pledged as collateral for issuance of bank loans, bank acceptance notes and letters of credit .

During April 2021 $ 50.0 million of the restricted cash was released from all contractual restrictions, as the applicable loans were repaid in full.

Three Months Ended

Current assets:

7 unchanged sentences

Summary 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.

We also have timing, connectivity, switching, and signal integrity solutions for high-speed signals.

Our corporate headquarters and Americas’ sales offices are located in Plano, Texas and Milpitas, California.

Diodes Incorporated, together with its subsidiaries (collectively “Diodes”, the “Company,” “we” or “our” (Nasdaq:

DIOD), a Standard and Poor's Smallcap 600 and Russell 3000 Index company, 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.

The Company serves the consumer electronics, computing, communications, industrial, and automotive markets.

The Company’s products include diodes, rectifiers, transistors, MOSFETs, GPP bridges, GPP rectifiers, 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.

The Company also has timing, connectivity, switching, and signal integrity solutions for high-speed signals.

The Company’s corporate headquarters and Americas’ sales office are located in Plano, Texas, and Milpitas, California.

Design, marketing, and engineering centers are located in Plano;

Taipei, Taoyuan City and Zhubei City, Taiwan;

Shanghai, Yangzhou, China;

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;

Shenzhen and Yangzhou, China;

The Company’s wafer fabrication facilities are located in Oldham, Greenock, Scotland and Shanghai and Wuxi, China and Keelung and Hsinchu, Taiwan.

The Company has assembly and test facilities located in Shanghai, Jinan, Chengdu and Wuxi, China as well as in Neuhaus, Germany and Jhongli and Keelung, Taiwan.

Additional engineering, sales, warehouse, and logistics offices are located in Taipei, Taiwan;

Shanghai, Shenzhen, Wuhan and Yangzhou, China;

Seongnam-si, South Korea;

Munich, Germany;

and Tokyo, Japan, with support offices throughout the world.

and Munich, Frankfurt, Germany;

with support offices throughout the world.

Our pro duct focus is on high-growth end-user equipment markets such as satellite TV set-top boxes, portable DVD players, datacom devices, ADSL modems, power supplies, medical devices (non-life support devices/systems), PCs and notebooks, flat panel displays, digital cameras, mobile handsets, AC-to-DC and DC-to-DC conversion, Wireless 802.11 LAN access points, brushless DC motor fans, serial connectivity, and automotive applications.

Basis of Presentation

The condensed consolidated financial data at December 31, 2019 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 12, 2020 (“Form 10-K”).

The condensed consolidated financial data at December 31, 2020 are derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on February 22, 2021 (“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.

3 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 and nine months ended September 30, 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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2021.

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.

2 unchanged sentences

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

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.

We adopted ASU No.

2016-13 effective January 1, 2020.

The adoption of ASU No.

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

Dollar a mounts 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 condensed consolidated financial statement presentation.

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 and nine months ended September 30, 2020 and 2019 we paid no dividends on our Common Stock.

During the three months ended March 31, 2021 and 2020, 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

Nine Months Ended

September 30,

Earnings (numerator)

9 unchanged sentences

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

September 30, 2020

March 31, 2021

December 31, 2020

5 unchanged sentences

Balance at December 31, 2020

Savitech acquisition (see Note 14 for additional information)

Foreign currency translation adjustment

Balance at September 30, 2020

Balance at March 31, 2021

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

September 30,

Intangible assets subject to amortization:

8 unchanged sentences

Amortization expense

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

NOTE 5 – Income Tax Provision

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Domestic pre-tax income

4 unchanged sentences

Earnings per share impact of tax holidays:

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

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

permanent differences.

The increase in the effective tax rate for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020, is primarily attributable to a change in pre-tax earnings during the comparable periods.

Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of certain European and Asian subsidiaries.

10 unchanged sentences

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 September 30, 2020, the gross amount of unrecognized tax benefits was approximately $ 37.5 million.

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

As of March 31, 2021, the gross amount of unrecognized tax benefits was approximately $ 43.9 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.

In response to the outbreak of the novel strain of coronavirus (“COVID-19”) pandemic, the United States Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted on March 27, 2020.

We do not expect the CARES Act to have a material impact on our financial statements because we do not qualify for most of the relief provisions prescribed in the CARES Act.

We will continue to assess the impacts of the CARES Act and any other legislation adopted by the United States government or other applicable governmental agencies in response to COVID-19 as additional guidance is published by the relevant authorities.

NOTE 6 – Share-Based Compensation

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.

Approximately $ 2.0 million of cash proceeds were received from stock option exercises during the nine months ended September 30, 2020.

For the three months ended March 31, 2021, we recognized stock option expense of approximately $ 0.02 million.

This stock option expense is related to stock options granted by Savitech Corporation (“Savitech”) in Savitech stock to their employees.

We acquired a controlling interest in Savitech in 2020.

The remainder of our share-based compensation expense was related to share grants.

Approximately $ 0.8 million of cash proceeds were received from stock option exercises during the three months ended March 31, 2021.

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

Three Months Ended

Nine Months Ended

September 30,

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 September 30, 2020, total unrecognized share-based compensation expense related to share grants was approximately $ 50.8 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.2 years.

As of March 31, 2021, total unrecognized share-based compensation expense related to share grants was approximately $ 52.2 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.2 years.

NOTE 7 – Segment Information and Net Sales

1 unchanged sentence

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.

We aggregate our products because the products are similar and have similar economic characteristics, use similar production processes and share similar customer type.

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

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

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

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

Three Months Ended September 30, 2020

North America

Intercompany elimination

Three Months Ended September 30, 2019

North America

Intercompany elimination

As of and for the

Nine Months Ended September 30, 2020

North America

Three Months Ended March 31, 2021

Intercompany elimination

1 unchanged sentence

As of and for the

Nine Months Ended September 30, 2019

North America

Three Months Ended March 31, 2020

Intercompany elimination

1 unchanged sentence

Disaggregation of Net Sales.

We disaggregate net sales from contracts with customers into direct sales and distribution sales (“Distributors”) and by geographic area.

We disaggregate net sales with customers into direct sales and distribution sales (“Distributors”) and by geographic area.

Direct sales customers consist of those customers using our product in their manufacturing process, and Distributors are those customers who resell our products to third parties.

We deliver our products to customers around the world for use in consumer electronics, computing, communications, industrial and automotive.

We deliver our products to customers around the world for use in consumer electronics, computing, communications, industrial and automotive markets.

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 net sales for the Company disaggregated into geographic locations based on shipment and by type (direct sales or Distributor ) for the three months and nine months ended September 30, 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 ended March 31, 2021 and 2020:

Three Months Ended

September 30,

Net Sales by Region

3 unchanged sentences

Total net sales

Nine Months Ended

September 30,

Net Sales by Region

Total net sales

Net Sales by Type

Distributor sales

Total net sales

Net sales from products shipped to China was $ 161.6 million and $ 163.3 million for the three months ended September 30, 2020 and 2019, respectively, and $ 452.9 million and $ 475.1 million for the nine months ended September 30, 2020 and 2019, respectively.

Net sales from products shipped to China was $ 222.3 million and $ 138.9 million for the three months ended March 31, 2021 and 2020, respectively.

NOTE 8 – Debt

Short-term debt

Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $ 205.5 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.

Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted and contain no restrictive covenants.

These credit facilities bear interest at LIBOR or similar indices plus a specified margin.

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

The unused and available credit under the various facilities as of September 30, 2020, was approximately $ 86.2 million, net of a $ 70.7 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 $ 52.2 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 to 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 the amendment to the Existing Credit Agreement 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 to the Existing Credit Agreement, 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 nine-month period ended September 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

senior credit facility (the “Revolver”), which includes a $ 20,000,000 uncommitted swing line sublimit, a $ 10,000,000 letter of credit sublimi t, 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 unused and available credit under the various facilities as of March 31, 2021, was approximately $ 127.9 million, net of a $ 67.6 million advanced under our foreign credit lines and $ 0.5 million credit used for import and export guarantee.

In connection with our Asia credit facilities $ 54.8 million of cash

deposits have been restricted in support of a corresponding loan amount.

During April 2021 $ 50.0 million of the restricted cash was released from all contractual restrictions, as the applicable loans were repaid in full.

Long-term debt

The Company maintains a long-term credit facility (“Credit Agreement”) consisting of a term loan with a current balance of $ 218.0 million and a $ 150.0 million r evolving senior credit facility.

The Company used a portion of the proceeds available under the term commitment and the revolving senior credit facility to finance the Company’s acquisition of Lite-On Semiconductor Corporation.

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 $ 29.4 million on a long-term basis from local Taiwan banks.

The ERIS debt matures in periods from 2020 through 2033 .

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

September 30,

In addition to the credit facilities described above, our 51 % owned subsidiary, ERIS Technology Corporation (“ERIS”), has short-term debt of $ 13.3 million and long-term debt of $ 30.0 million from local Taiwan banks.

The ERIS debt matures in various periods from 2021 through 2033 .

Borrowings outstanding as of March 31, 2021 and December 31, 2020, are set forth in the table below:

Current Amount

1 unchanged sentence

Short-term debt

Libor + Margin

Libor plus margin

Various during 2021

Long-term debt

Term loan and revolver

Libor plus margin

Notes payable to Bank of Taiwan

2 unchanged sentences

Taibor 3 month rate + 0.5%

December 2021

Notes payable to Bank of China Trust Company

2 unchanged sentences

1-M deposit rate plus 0.08%

December 2022

Notes payable to E Sun Bank

2 unchanged sentences

1-M deposit rate plus 0.08%

Term loan and revolver

Notes payable to HSBC

Libor plus margin

4 unchanged sentences

NOTE 9 – Commitments and Contingencies

Purchase commitments – As of September 30, 2020, we had approximately $ 19.8 million in non-cancelable purchase contracts related to capital expenditures, primarily related to our manufacturing facilities in Asia.

As of September 30, 2020, we also had a commitment to purchase approximately $ 20.3 million of wafers to be used in our manufacturing process.

These wafer purchases will occur during 2020.

Purchase commitments – As of March 31, 2021, we had approximately $ 58.6 million in non-cancelable purchase contracts related to capital expenditures, primarily related to our manufacturing facilities in Asia.

As of March 31, 2021, we also had a commitment to purchase approximately $ 40.4 million of wafers to be used in our manufacturing process during 2021 and 2022.

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

As of September 30, 2020, the unfunded liability for this defined benefit plan was approximately $ 30.7 million.

As of March 31, 2021, the underfunded liability for this defined benefit plan was approximately $ 25.1 million.

An actuarial valuation was performed as of March 31, 2019, resulting in a deficit of approximately GBP 26.7 million (approximately $ 37.4 million based on a GBP:

2 unchanged sentences

USD exchange rate of 1.4 :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.

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 (approximately $ 0.3 million based on GBP:

USD exchange rate oat 1.4 :1 ) in annual installments 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 September 30, 2020, and December 31, 2019, we had $ 124.7 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;

At March 31, 2021 and December 31, 2020, we had $ 268.2 million and $ 276.2 million, respectively, of outstanding foreign currency forward agreements 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 .

We have recorded foreign currency forward agreements with a fair value of $ 0.2 on million our consolidated balance sheet.

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 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 September 30, 2020 and December 31, 2019:

Other Current Assets

Other Current Liabilities

Other Liabilities

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 and nine months ended September 30, 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 months ended March 31, 2021 and 2020:

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

4 unchanged sentences

Derivative Instruments Designated as Hedging Instruments

September 30,

Three Months Ended

3 unchanged sentences

Interest income

Nine Months Ended

Interest rate swaps and collars

Interest expense

Cross currency swaps

Interest income

We estimate that $ 0.6 million of net derivative gains included in accumulated other comprehensive income (“AOCI”) as of September 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 nine months ended September 30, 2020 or 2019.

We estimate that $ 0.4 million of net derivative gains included in accumulated other comprehensive income (“AOCI”) as of March 31, 2021 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 ended March 31, 2021 or 2020.

Amount of Gain or (Loss) Recognized in Net Income

1 unchanged sentence

Derivative Instruments Not Designated as Hedging Instruments

September 30,

Three Months Ended

1 unchanged sentence

Foreign currency loss, net

Nine Months Ended

Foreign currency forward contracts

Foreign currency loss, net

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

As of March 31, 2021 and December 31, 2020, the Company had no t posted any collateral related to these agreements.

NOTE 11 – Leases

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The components of lease expense are set forth in the table below:

September 30,

Three Months Ended

Operating lease expense

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In our condensed consolidated balance sheets, right of use (“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:

September 30, 2020

March 31, 2021

December 31, 2020

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

Nine Months Ended

September 30, 2020

September 30, 2019

Three Months Ended

March 31, 2021

March 31, 2020

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

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The table below sets forth information about lease liability maturities:

September 30, 2020

March 31, 2021

Operating Leases

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

At September 30, 2020 and December 31, 2019, these investments totaled approximately $ 11.7 million and $ 12.9 million, respectively.

At March 31, 2021 and December 31, 2020, these investments totaled approximately $ 13.2 million and $ 12.8 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 September 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.

The aggregate consideration payable by the Company, based on the September 30, 2020 exchange rate, is approximately $ 451.4 million.

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.

On September 22, 2020, we received approval from the China’s State Administration for Market Regulation (“SAMR”) to proceed with the acquisition.

LSC has initiated the process to terminate its listing on the Taiwan Stock Exchange and revoke its public offering with the Taiwan Financial Supervisory Commission.

With the exception of the remaining customary closing conditions, all other conditions to the acquisition’s closing have been satisfied, including the approvals from the Taiwan Fair Trade Commission, the Investment Commission of the Ministry of Economic Affairs and China’s National Development and Reform Commission and SAMR, and we anticipate completing the acquisition by the end of November 2020, subject to customary closing conditions.

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, 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.

We historically conducted business with a related party company, Lite-On Semiconductor Corporation (“LSC”), and its subsidiaries and affiliates.

LSC was also our largest stockholder, owning approximately 15 % of our outstanding Common Stock., prior to the close of the acquisition by Diodes.

On November 30, 2020, we acquired LSC and LSC is no longer a stockholder or related party, but instead it is a wholly owned subsidiary of ours.

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

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

Keh-Shew Lu, our current Chairman of the Board, President and Chief Executive Officer, is a board member of LTC and a board member of Nuvoton Technology Corporation (“Nuvoton”).

We purchase wafers from Nuvoton for use in our production process.

We also conduct business with Keylink International (B.V.I.) Inc.

and its subsidiaries and affiliates (collectively, “Keylink”).

We also conduct business with Nuvoton and its subsidiaries and affiliates.

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

We conduct business with Keylink International (B.V.I.) Inc.

and its subsidiaries and affiliates (“Keylink”).

Keylink is our 5 % joint venture partner in our Shanghai assembly and test facilities.

We sell products to, and purchase inventory from Keylink.

We sell products to, and purchase inventory from, companies owned by Keylink.

We sold products to companies owned by Keylink, totaling approximately 1 % of our net sales for the three months ended periods ended March 31, 2021 and March 30, 2020.

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 September 30, 2020 and 2019 were approximately $ 3.9 million and $ 3.7 million, respectively.

The aggregate amounts paid to Keylink for the nine months ended September 30, 2020 and 2019 were approximately $ 10.7 million and $ 11.5 million, respectively.

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 ;

h owe v er, we have no material transactions with Ya Guang.

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.

We also pay a consulting fee to Keylink.

The aggregate amounts paid to Keylink for the three months ended March 31, 2021 and, 2020 were approximately $ 4.3 million and $ 3.1 million, respectively.

In addition, Chengdu Ya Guang Electronic Company Limited (“Ya Guang”) is our 2 % joint venture partner in one of our Chengdu assembly and test facilities and our 5 % partner in our other Chengdu assembly and test facilities ;

however, we have no material transactions with Ya Guang, other than these joint ventures.

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 using the equity method of accounting.

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.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

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

September 30,

Accounts receivable

Accounts payable

Accounts receivable

Accounts payable

Note 14 –Acquisitions and Divestitures

Manufacturing Subsidiary Located in China

In March 2021 Diodes entered into an agreement to sell a manufacturing subsidiary in China for total consideration of approximately $ 18.0 million, which includes a combination of cash and equity.

The transaction is expected to close within the next twelve months and is subject to customary closing conditions and working capital adjustments.

Management determined that the disposal group met the held-for-sale criteria and reclassified the carrying value of the disposal group to assets held-for-sale, which is included in prepaid expenses and other in the consolidated balance sheet.

The Company recognized no gain or loss on the reclassification of the disposal group to held-for-sale.

A final determination of the value of the assets and liabilities divested has not been completed and the table below is considered preliminary.

The table below sets forth the major classes of assets and liabilities that have been classified as held-for-sale on the condensed consolidated balance sheet :

Cash and cash equivalents

Accounts receivable

Inventories, net

Property, plant and equipment

Deferred income tax

Other long-term assets

Assets classified as held for sale

Accounts payable

Accrued liabilities and other

Other long-term liabilities

Liabilities classified as held for sale

Net assets classified as held for sale (included in prepaid expenses and other)

LSC Acquisition

On November 30, 2020 , the Company closed on its previously announced acquisition of LSC, a Taiwan-based supplier of “green” power-related discrete and analog semiconductor devices.

The Company purchased LSC in order to include LSC’s “green” power-related semiconductor devices that are designed for power saving and low power dissipation to serve the power supply market, and to reacquire the 7,765,778 of the Company’s common shares owned by LSC, which was approximately 15 % of our outstanding shares prior to the close of such acquisition.

The reacquired shares were treated as a settlement of a pre-existing relationship and as a transaction separate and apart from the business combination along with the settlement of payables and receivables between the Company and LSC.

The reacquired shares are included in treasury stock on the Company’s balance sheet.

There was no gain or loss on the settlement of the payables and receivables between the Company and LSC.

The Company recorded the purchase of LSC as a business combination, with the Company owning 100 % of LSC.

LSC has been consolidated into the operations of the Company.

The purchase price per the Share Swap Agreement was 42.50 TWD per outstanding LSC share.

On November 30, 2020, the Company acquired the 307,371,139 outstanding shares of LSC for a total aggregate purchase price of approximately $ 453.4 million and total consideration of $ 154.0 million after adjustments for the settlement of pre-existing relationships.

A portion of the LSC purchase price was funded by borrowings under the Company’s Credit Agreement.

The table below sets forth the fair value of the LSC assets acquired and liabilities assumed based on relative fair value at the date of acquisition and the corresponding line item in the Company’s consolidated balance sheet at the date of acquisition.

During the period from January 1, 2021 and March 31, 2021, measurement period adjustments were made to inventories, property, plant and equipment, and accrued liabilities and other.

The adjustments represented a decrease to total assets acquired and a decrease to total liabilities assumed of $ 0.1 million.

GAAP permits companies to complete the final determination of the fair values during the measurement period following the acquisition date.

The size and breadth of the LSC acquisition will necessitate the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date including (i) changes in fair values of property, plant and equipment and inventories, (ii) changes in fair value of certain liabilities assumed and (iii) tax impact associated with any other changes in fair value.

Any potential adjustments made could be material in relation to the preliminary values.

A final determination of the LSC assets acquired and liabilities assumed has not been completed and the table below is considered preliminary.

The Company engaged a third party valuation specialist to assist with

the assessment of any intangibles assets acquired as part of the LSC acquisition, and it was determined that there were no intangible assets as a result of the LSC acquisition.

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Property, plant and equipment

Deferred income tax

Other long-term assets

Total assets acquired

Line of credit

Accounts payable

Note 14 –Acquisitions

Accrued liabilities and other

Income tax payable

Deferred tax liabilities

Other long-term liabilities

Total liabilities assumed

Non-controlling interest

Net assets acquired

Savitech Acquisition

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The Company will make the investment in two tranches.

The first tranche of $ 5.6 million, which provided the Company with a 33.6 % ownership of

Savitech, was made on March 4, 2020.

The first tranche of $ 5.6 million, which provided the Company with a 33.6 % ownership of Savitech, was made on March 4, 2020.

The initial tranche was funded with cash on hand.

The second tranche, currently recorded in other current liabilities, as shown in the table below, and currently valued at $ 8.5 million will increase the Company’ s ownership to at least 51 % of Savitech.

The second tranche, currently recorded in accrued liabilities and other, as shown in the table below, and currently valued at $ 8.5 million will increase the Company’s ownership to at least 51 % of Savitech.

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 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 voting model, with a non-controlling interest related to the interest the Company does not own in Savitech.

The Company recorded the purchase of Savitech as a business acquisition and now consolidates Savitech into its operations, based on the voting 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.

9 unchanged sentences

Noncontrolling interest

Wafer Fabrication Facility Acquisition

On April 1, 2019 , the Company completed the previously announced acquisition of a wafer fabrication facility located in Greenock, Scotland (“GFAB”).

The Company recorded the purchase of GFAB as a business acquisition.

The Company purchased GFAB in order to increase the Company’s wafer production capacity.

Total consideration paid by the Company was $ 33.2 million and was funded by advances under the revolving portion of our long-term credit facility.

The facility and assets were wholly acquired, and there is no remaining minority interest.

The goodwill will not be tax deductible.

The Company also incurred acquisition costs of approximately $ 0.6 million that were recognized in selling, general and administrative expense.

Due to a lack of available data we are unable to provide historical financial pro forma data.

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

Property, plant and equipment, net

Prepaid expenses and other

Deferred tax liabilities

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