Item 1. Financial Statements
Item 1. Financial Statements.
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31,
December 31,
2021
2020
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
276,253
$
268,065
Restricted cash
54,848
52,464
Short-term investments
8,366
6,142
Accounts receivable, net of allowances of $ 3,442 and $ 3,806 at
March 31, 2021 and December 31, 2020, respectively
332,209
320,061
Inventories
289,972
307,062
Prepaid expenses and other
88,703
70,193
Total current assets
1,050,351
1,023,987
Property, plant and equipment, net
510,467
530,815
Deferred income tax
51,820
57,841
Goodwill
158,583
158,331
Intangible assets, net
106,570
110,591
Other long-term assets
112,551
97,892
Total assets
$
1,990,342
$
1,979,457
Liabilities
Current liabilities:
Lines of credit
$
67,624
$
140,563
Accounts payable
172,172
168,045
Accrued liabilities and other
159,486
160,117
Income tax payable
15,203
19,177
Current portion of long-term debt
18,353
21,860
Total current liabilities
432,838
509,762
Long-term debt, net of current portion
327,007
288,179
Deferred tax liabilities
34,561
34,598
Other long-term liabilities
138,956
130,795
Total liabilities
933,362
963,334
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; 44,600,001 and 44,276,194 , issued and outstanding
at March 31, 2021 and December 31, 2020, respectively
35,908
35,692
Additional paid-in capital
446,697
449,598
Retained earnings
927,498
888,046
Treasury stock at cost, 9,259,858 shares at March 31, 2021 and December 31, 2020
( 335,910
)
( 335,910
)
Accumulated other comprehensive loss
( 71,624
)
( 73,606
)
Total stockholders' equity
1,002,569
963,820
Noncontrolling interest
54,411
52,303
Total equity
1,056,980
1,016,123
Total liabilities and stockholders' equity
$
1,990,342
$
1,979,457
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
2021
2020
Net sales
$
413,121
$
280,717
Cost of goods sold
274,485
184,875
Gross profit
138,636
95,842
Operating expenses
Selling, general and administrative
58,676
42,215
Research and development
27,659
23,678
Amortization of acquisition related intangible assets
4,023
4,221
Other operating expense (income)
888
( 124
)
Total operating expense
91,246
69,990
Income from operations
47,390
25,852
Other income (expense)
Interest income
768
273
Interest expense
( 2,864
)
( 1,245
)
Foreign currency (loss) gain, net
( 1,279
)
75
Unrealized gain on investments
3,655
-
Other income
2,317
1
Total other income (expense)
2,597
( 896
)
Income before income taxes and noncontrolling interest
49,987
24,956
Income tax provision
9,434
4,556
Net income
40,553
20,400
Less net income attributable to noncontrolling interest
( 1,101
)
( 232
)
Net income attributable to common stockholders
$
39,452
$
20,168
Earnings per share attributable to common stockholders:
Basic
$
0.89
$
0.39
Diluted
$
0.87
$
0.38
Number of shares used in earnings per share computation:
Basic
44,408
51,335
Diluted
45,243
52,422
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months Ended
March 31,
2021
2020
Net income
$
40,553
$
20,400
Unrealized gain on defined benefit plan, net of tax
1,894
9,719
Unrealized gain (loss) on swaps and collars, net of tax
3,826
( 1,438
)
Unrealized foreign currency loss, net of tax
( 3,738
)
( 9,614
)
Comprehensive income
42,535
19,067
Less: Comprehensive income attributable to noncontrolling interest
( 1,101
)
( 232
)
Total comprehensive income attributable to common stockholders
$
41,434
$
18,835
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
Common stock
Treasury stock
Additional
paid-in
Retained
Accumulated
other comprehensive
Total Diodes
Incorporated stockholders'
Noncontrolling
Total
Shares
Amount
Shares
Amount
capital
earnings
loss
equity
interest
equity
Balance, December 31, 2020
53,536
$
35,692
( 9,260
)
$
( 335,910
)
$
449,598
$
888,046
$
( 73,606
)
$
963,820
$
52,303
$
1,016,123
Total comprehensive income
-
-
-
-
-
39,452
1,982
41,434
1,101
42,535
Net changes in noncontrolling interests
-
-
-
-
( 4
)
-
-
( 4
)
1,007
1,003
Common stock issued for share-based plans
324
216
-
-
538
-
-
754
-
754
Share-based compensation
-
-
-
-
5,858
-
-
5,858
-
5,858
Tax related to net share settlement
-
-
-
-
( 9,293
)
-
-
( 9,293
)
-
( 9,293
)
Balance, March 31, 2021
53,860
$
35,908
( 9,260
)
$
( 335,910
)
$
446,697
$
927,498
$
( 71,624
)
$
1,002,569
$
54,411
$
1,056,980
Balance, December 31, 2019
52,664
$
35,111
( 1,457
)
$
( 37,768
)
$
427,262
$
789,958
$
( 108,139
)
$
1,106,424
$
46,359
$
1,152,783
Total comprehensive income
-
-
-
-
-
20,168
( 1,333
)
18,835
232
19,067
Contributions from noncontrolling interests
-
-
-
-
-
-
-
-
10,777
10,777
Dividends to noncontrolling interest
-
-
-
-
-
-
-
-
( 108
)
( 108
)
Common stock issued for share-based plans
268
178
-
-
( 178
)
-
-
-
-
-
Share-based compensation
-
-
-
-
4,237
-
-
4,237
-
4,237
Stock buyback related to deferred compensation plan
-
-
( 24
)
( 689
)
689
-
-
-
Tax related to net share settlement
-
-
-
-
( 4,467
)
-
-
( 4,467
)
-
( 4,467
)
Balance, March 31, 2020
52,932
$
35,289
( 1,481
)
$
( 38,457
)
$
427,543
$
810,126
$
( 109,472
)
$
1,125,029
$
57,260
$
1,182,289
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
2021
2020
Cash flows from operating activities
Net income
$
40,553
$
20,400
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions
Depreciation
26,440
22,809
Amortization of intangible assets
4,023
4,221
Share-based compensation expense
6,122
4,693
Deferred income taxes
1,012
17
Investment gain
( 3,713
)
-
Other
425
741
Changes in operating assets:
Change in accounts receivable
( 12,993
)
16,139
Change in inventory
6,490
2,550
Change in other operating assets
2,899
( 1,022
)
Changes in operating liabilities:
Change in accounts payable
11,266
( 9,160
)
Change in accrued liabilities
( 8,310
)
( 12,105
)
Change in income tax payable
( 4,100
)
3,853
Change in other operating liabilities
( 1,918
)
539
Net cash flows provided by operating activities
68,196
53,675
Cash flows from investing activities
Acquisitions, net of cash received
-
591
Purchases of property, plant and equipment
( 17,179
)
( 14,208
)
Proceeds from maturity of short-term investments
2,085
3,467
Purchases of short-term investments
( 4,364
)
( 1,523
)
Purchase of equity securities
-
( 6,129
)
Other
9,059
244
Net cash and cash equivalents used in investing activities
( 10,399
)
( 17,558
)
Cash flows from financing activities
Advances on lines of credit and short-term debt
2,820
3,647
Repayments of lines of credit and short-term debt
( 75,696
)
( 3,498
)
Proceeds from long-term debt
215,000
82,331
Repayments of long-term debt
( 179,361
)
( 98,884
)
Net proceeds from issuance of common stock
754
-
Repayment of and proceeds from finance lease obligation
( 141
)
( 223
)
Taxes paid related to net share settlement
( 9,293
)
( 4,467
)
Dividend distribution to noncontrolling interests
-
( 108
)
Capital contribution from noncontrolling interests
1,003
-
Other
( 499
)
( 195
)
Net cash and cash equivalents used in financing activities
( 45,413
)
( 21,397
)
Effect of exchange rate changes on cash and cash equivalents
( 1,812
)
( 3,315
)
Change in cash and cash equivalents, including restricted cash
10,572
11,405
Cash and cash equivalents, beginning of period, including restricted cash
320,529
259,507
Cash and cash equivalents, end of period, including restricted cash
$
331,101
$
270,912
- 7 -
Supplemental Cash Flow Information
Interest paid during the period
$
2,704
$
1,068
Taxes paid during the period
$
12,284
$
6,091
Non-cash investing and financing activities:
Accounts payable balance related to the purchase of
property, plant and equipment
$
7,960
$
8,447
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 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
March 31,
2021
2020
Current assets:
Cash and cash equivalents
$ 276,253
$ 269,516
Restricted cash (included in other current assets)
54,848
1,396
Total cash, cash equivalents and restricted cash
$ 331,101
$ 270,912
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 8 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – Summary of Operations and Significant Accounting Policies
Summary of Operations
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; Milpitas; Taipei, Taoyuan City and Zhubei City, Taiwan; Shanghai, Yangzhou, China; Oldham, England; and Neuhaus, Germany. 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; Hong Kong; Oldham, UK; Shanghai, Shenzhen, Wuhan and Yangzhou, China; Seongnam-si, South Korea; 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, 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. They do not include all information and footnotes necessary for a fair presentation of financial position, operating results and cash flows in conformity with GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Form 10-K. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the operating results for the period presented have been included in the interim period. Operating results for the three months ended March 31, 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. Actual results could differ from these estimates. As permitted under GAAP, interim accounting for certain expenses, including income taxes, are based on full year forecasts. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates taking into consideration discrete items occurring in a quarter.
Dollar 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. E
- 9 -
NOTE 2 – Earnings per Share
Earnings per share (“EPS”) is calculated by dividing net income attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted EPS is calculated similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-dilutive. During the three months ended March 31, 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
March 31,
2021
2020
Earnings (numerator)
Net income attributable to common stockholders
$
39,452
$
20,168
Shares (denominator)
Weighted average common shares outstanding (basic)
44,408
51,335
Dilutive effect of stock options and stock awards outstanding
835
1,087
Adjusted weighted average common shares outstanding (diluted)
45,243
52,422
Earnings per share attributable to common stockholders
Basic
$
0.89
$
0.39
Diluted
$
0.87
$
0.38
Stock options and stock awards excluded from EPS
calculation because the effect would be anti-dilutive
-
58
NOTE 3 – Inventories
The table below sets forth inventories which are stated at the lower of cost or net realizable value:
March 31, 2021
December 31, 2020
Finished goods
$
81,973
$
85,506
Work-in-progress
78,095
73,466
Raw materials
129,904
148,090
Total
$
289,972
$
307,062
NOTE 4 – Goodwill and Intangible Assets
The table below sets forth the changes in goodwill :
Balance at December 31, 2020
$
158,331
Foreign currency translation adjustment
252
Balance at March 31, 2021
$
158,583
- 10 -
The table below sets forth the value of intangible assets, other than goodwill:
March 31,
December 31,
2021
2020
Intangible assets subject to amortization:
Gross carrying amount
$
246,687
$
245,176
Accumulated amortization
( 144,733
)
( 140,710
)
Foreign currency translation adjustment
( 7,799
)
( 7,781
)
Total
94,155
96,685
Intangible assets with indefinite lives:
Gross carrying amount
13,372
14,883
Foreign currency translation adjustment
( 957
)
( 977
)
Total
12,415
13,906
Total intangible assets, net
$
106,570
$
110,591
The table below sets forth amortization expense related to intangible assets subject to amortization:
Amortization expense
2021
2020
Three months ended March 31,
$
4,023
$
4,221
NOTE 5 – Income Tax Provision
The table below sets forth information related to our income tax expense:
Three Months Ended
March 31,
2021
2020
Domestic pre-tax income
$
7,069
$
5,268
Foreign pre-tax income
$
42,918
$
19,688
Income tax provision
$
9,434
$
4,556
Effective tax rate
18.9
%
18.3
%
Impact of tax holidays on tax expense
$
( 582
)
$
( 1,074
)
Earnings per share impact of tax holidays:
Basic
$
0.01
$
0.02
Diluted
$
0.01
$
0.02
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. Any future distributions of foreign earnings will not be subject to additional U.S. income tax, but may be subject to non-U.S. withholding taxes.
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2012, or for the 2015 tax year. We are no longer subject to China income tax examinations by tax authorities for tax years before 2010. With respect to state and local jurisdictions and countries outside of the U.S. (other than China), with limited exceptions, the Company is no longer subject to income tax audits for years before 2015. 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, 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.
- 11 -
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.
NOTE 6 – Share-Based Compensation
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
March 31,
2021
2020
Cost of goods sold
$
275
$
273
Selling, general and administrative
5,033
3,711
Research and development
814
709
Total share-based compensation expense
$
6,122
$
4,693
Share Grants – Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year period. All new grants are granted under the Company’s 2013 Equity Incentive Plan, and there will be no additional share grants under the 2001 Omnibus Equity Incentive Plan. 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.
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, 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
Segment Reporting. For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various manufacturing and distribution facilities. We aggregate our products because the products are similar and have similar economic characteristics, use similar production processes and share 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 Quarterly Report.
- 12 -
The tables below set forth net sales based on the location of the subsidiary producing the net sale.
As of and for the
Three Months Ended March 31, 2021
Asia
Americas
Europe
Consolidated
Total sales
$
471,069
$
246,827
$
60,174
$
778,070
Intercompany elimination
( 178,950
)
( 160,829
)
( 25,170
)
( 364,949
)
Net sales
$
292,119
$
85,998
$
35,004
$
413,121
Property, plant and equipment, net
$
400,149
$
24,539
$
85,779
$
510,467
Total assets
$
1,461,428
$
240,063
$
288,851
$
1,990,342
As of and for the
Three Months Ended March 31, 2020
Asia
Americas
Europe
Consolidated
Total sales
$
301,863
$
168,172
$
59,001
$
529,036
Intercompany elimination
( 116,921
)
( 104,464
)
( 26,934
)
( 248,319
)
Net sales
$
184,942
$
63,708
$
32,067
$
280,717
Property, plant and equipment, net
$
364,624
$
24,110
$
67,388
$
456,122
Total assets
$
1,208,572
$
197,178
$
214,516
$
1,620,266
Disaggregation of Net Sales. 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 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 ended March 31, 2021 and 2020:
Three Months Ended
March 31,
Net Sales by Region
2021
2020
Asia
$
334,976
$
210,805
Europe
48,386
46,931
Americas
29,759
22,981
Total net sales
$
413,121
$
280,717
Net Sales by Type
Direct sales
$
147,722
$
99,544
Distributor sales
265,399
181,173
Total net sales
$
413,121
$
280,717
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 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 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
- 13 -
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). 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 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:
March 31,
December 31,
Current Amount
Description
2021
2020
Interest Rate
Maturity
Short-term debt
$
67,624
$
140,567
Libor plus margin
Various during 2021
Long-term debt
Term loan and revolver
$
217,969
$
282,250
Libor plus margin
May 2024
Notes payable to Bank of Taiwan
4,067
4,154
Variable, 1.3% base
June 2033
Notes payable to Bank of China Trust Company
3,504
3,511
Taibor 3 month rate + 0.5%
December 2021
Notes payable to Bank of China Trust Company
16,678
16,714
Taibor 3 month rate + 0.5%
May 2024
Notes payable to E Sun Bank
3,504
3,511
1-M deposit rate plus 0.08%
December 2022
Notes payable to E Sun Bank
385
386
1-M deposit rate plus 0.08%
June 2027
Notes payable to E Sun Bank
1,717
1,721
1-M deposit rate plus 0.08%
June 2030
Notes payable to HSBC
100,000
-
Libor plus margin
January 2023
Total long-term debt
347,824
312,247
Less: Current portion of long-term debt
( 18,353
)
( 21,860
)
Less: Unamortized debt costs
( 2,464
)
( 2,208
)
Total long-term debt, net of current portion
$
327,007
$
288,179
NOTE 9 – Commitments and Contingencies
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 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: USD exchange rate of 1.4 :1). As a result of this valuation we have agreed to a revised schedule of contributions of GBP 2.0 million (approximately $ 2.8 million based on a GBP: 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
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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. While we intend to defend any lawsuit vigorously, we presently believe that the ultimate outcome of any pending legal proceeding will not have any material adverse effect on our consolidated financial position, cash flows or operating results. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact our business and operating results for the period in which the ruling occurs or future periods. Based on information available, we evaluate the likelihood of potential outcomes of all pending disputes. We record an appropriate liability when the amount of any liability associated with a pending dispute is deemed probable and reasonably estimable. In addition, we do not accrue for estimated legal fees and other directly related costs as they are expensed as incurred. The Company is not currently a party to any pending litigation that the Company considers material.
Note 10 – Derivative Financial Instruments
We use derivative instruments to manage risks related to foreign currencies, interest rates and the net investment risk in our foreign subsidiaries. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.
Hedges of Foreign Currency Risk - We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency forward agreements to manage this exposure. 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. 815. 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. To accomplish these objectives, the Company primarily uses interest rate swaps, including interest rate collars, as part of its interest rate risk management strategy. 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 March 31, 2021 and December 31, 2020:
Other Current Liabilities
2021
2020
Interest rate swaps and collars
$
1,130
$
1,626
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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
Location of Gain or (Loss) Reclassified from Accumulated OCI into
Income
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Net Income
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion Excluded from Effectiveness Testing)
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivative Instruments Designated as Hedging Instruments
March 31,
March 31,
March 31,
2021
2020
2021
2020
2021
2020
Three Months Ended
Interest rate swaps and collars
$
( 5
)
$
( 1,390
)
Interest expense
$
( 161
)
$
( 71
)
N/A
$
-
$
-
Cross currency swaps
$
3,163
$
-
N/A
$
-
$
-
Interest income
$
610
$
-
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
Location of Gain or (Loss) Recognized in Net Income
Derivative Instruments Not Designated as Hedging Instruments
March 31,
2021
2020
Three Months Ended
Foreign currency forward contracts
$
( 2,806
)
$
( 2,147
)
Foreign currency loss, net
As of March 31, 2021 and December 31, 2020, the Company had no t posted any collateral related to these agreements.
NOTE 11 – Leases
The Company leases certain assets used in its business, including land, buildings and equipment. These leased assets are used for operational and administrative purposes.
The components of lease expense are set forth in the table below:
Three Months Ended
March 31,
2021
2020
Operating lease expense
$
4,235
$
3,730
Finance lease expense:
Amortization of assets
211
209
Interest on lease liabilities
1
7
Short-term lease expense
245
94
Variable lease expense
1,129
711
Total lease expense
$
5,821
$
4,751
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The table below sets forth supplemental balance sheet information related to leases. 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:
March 31, 2021
December 31, 2020
Operating leases:
Operating lease ROU assets
$ 63,305
$ 54,457
Current operating lease liabilities
13,891
10,663
Noncurrent operating lease liabilities
32,722
27,041
Total operating lease liabilities
$ 46,613
$ 37,704
Finance leases:
Finance lease ROU assets
$ 2,545
$ 2,507
Accumulated amortization
( 2,515 )
( 2,298 )
Finance lease ROU assets, net
$ 30
$ 209
Current finance lease liabilities
$ 10
$ 149
Non-current finance lease liabilities
21
24
Total finance lease liabilities
$ 31
$ 173
Weighted average remaining lease term (in years):
Operating leases
6.7
7.6
Finance leases
3.0
0.6
Weighted average discount rate:
Operating leases
4.0 %
4.0 %
Finance leases
3.7 %
3.1 %
The table below sets forth supplemental cash flow and other information related to leases:
Three Months Ended
March 31, 2021
March 31, 2020
Cash paid for the amounts included in the measurements of lease liabilities:
Operating cash outflows from operating leases
$ 5,570
$ 4,018
Operating cash outflows from finance leases
1
7
Financing cash outflow from finance leases
141
223
ROU assets obtained in exchange for lease liabilities incurred:
Operating leases
11,640
127
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The table below sets forth information about lease liability maturities:
March 31, 2021
Operating Leases
Finance Leases
Remainder of 2020
$
11,683
$
9
2021
13,921
11
2022
9,015
10
2023
4,226
3
2024
4,042
-
2025
2,659
-
2026 and thereafter
8,536
-
Total lease payments
54,082
33
Less: imputed interest
( 7,469 )
( 2 )
Total lease obligations
46,613
31
Less: current obligations
( 13,891 )
( 10 )
Long-term lease obligations
$
32,722
$
21
NOTE 12 – Employee Benefit Plans
We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees and members of the Board of Directors. The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. We offset our obligations under the Deferred Compensation Plan primarily by investing in the actual underlying investments. 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 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. C.H. 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. Dr. 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 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, 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 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.
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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
March 31,
2021
2020
LSC
Net sales
$
-
$
128
Purchases
$
-
$
2,748
Nuvoton
Purchases
$
1,407
$
1,644
Keylink
Net sales
$
5,566
$
3,985
Purchases
$
479
$
405
JCP
Purchases
$
359
$
156
The table below sets forth accounts receivable from, and accounts payable to, related parties:
March 31,
December 31,
2021
2020
Nuvoton
Accounts receivable
$
-
$
10
Accounts payable
$
793
$
796
Keylink
Accounts receivable
$
38,049
$
35,365
Accounts payable
$
33,877
$
31,247
JCP
Accounts payable
$
408
$
357
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 :
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Assets
Cash and cash equivalents
$
4,172
Accounts receivable
219
Inventories, net
7,982
Property, plant and equipment
8,282
Deferred income tax
4,870
Other long-term assets
540
Assets classified as held for sale
26,065
Liabilities
Accounts payable
6,646
Accrued liabilities and other
1,792
Other long-term liabilities
29
Liabilities classified as held for sale
8,467
Net assets classified as held for sale (included in prepaid expenses and other)
$
17,598
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. U.S. 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
- 20 -
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
$
131,046
Accounts receivable
44,896
Inventories
55,710
Prepaid expenses and other current assets
11,447
Property, plant and equipment
67,952
Deferred income tax
15,732
Other long-term assets
26,037
Total assets acquired
352,820
Line of credit
88,508
Accounts payable
35,245
Accrued liabilities and other
48,992
Income tax payable
6,264
Deferred tax liabilities
8,941
Other long-term liabilities
10,783
Total liabilities assumed
198,733
Non-controlling interest
54
Net assets acquired
$
154,033
Savitech Acquisition
On February 5, 2020 , the Company entered into an agreement to invest up to approximately $ 14.2 million to acquire at least 51 % of Savitech Corporation (“Savitech”), a fabless semiconductor design company located in Zhubei City, Taiwan. 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 initial tranche was funded with cash on hand. 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 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. Total purchase consideration recorded was $ 13.9 million. The goodwill will not be tax deductible. 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 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.
Cash and cash equivalents
$
6.2
Prepaid expenses and other
0.7
Goodwill
13.9
Intangible assets, net
6.1
Other long-term assets
0.4
Accrued liabilities and other
9.9
Noncontrolling interest
11.8
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.