Item 1. Financial Statements
Item 1. Financial Statements.
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
June 30,
December 31,
2021
2020
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
292,650
$
268,065
Restricted cash
2,268
52,464
Short-term investments
7,386
6,142
Accounts receivable, net of allowances of $ 3,822 and $ 3,806 at
June 30, 2021 and December 31, 2020, respectively
339,142
320,061
Inventories
304,128
307,062
Prepaid expenses and other
96,904
70,193
Total current assets
1,042,478
1,023,987
Property, plant and equipment, net
522,182
530,815
Deferred income tax
52,249
57,841
Goodwill
159,584
158,331
Intangible assets, net
102,677
110,591
Other long-term assets
113,799
97,892
Total assets
$
1,992,969
$
1,979,457
Liabilities
Current liabilities:
Lines of credit
$
60,239
$
140,563
Accounts payable
181,919
168,045
Accrued liabilities and other
182,385
160,117
Income tax payable
17,316
19,177
Current portion of long-term debt
18,346
21,860
Total current liabilities
460,205
509,762
Long-term debt, net of current portion
222,712
288,179
Deferred tax liabilities
34,761
34,598
Other long-term liabilities
132,294
130,795
Total liabilities
849,972
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; 44,730,897 and 44,276,194 , issued and outstanding
at June 30, 2021 and December 31, 2020, respectively
35,998
35,692
Additional paid-in capital
455,683
449,598
Retained earnings
982,872
888,046
Treasury stock at cost, 9,262,833 shares at June 30, 2021 and 9,259,858 shares at December 31, 2020
( 336,128
)
( 335,910
)
Accumulated other comprehensive loss
( 55,841
)
( 73,606
)
Total stockholders' equity
1,082,584
963,820
Noncontrolling interest
60,413
52,303
Total equity
1,142,997
1,016,123
Total liabilities and stockholders' equity
$
1,992,969
$
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
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Net sales
$
440,448
$
288,669
$
853,569
$
569,386
Cost of goods sold
280,646
187,177
555,131
372,052
Gross profit
159,802
101,492
298,438
197,334
Operating expenses
Selling, general and administrative
60,280
45,372
118,956
87,587
Research and development
29,987
21,322
57,646
45,000
Amortization of acquisition related intangible assets
4,060
4,021
8,083
8,242
Other operating expense (income)
118
( 92
)
1,006
( 216
)
Total operating expense
94,445
70,623
185,691
140,613
Income from operations
65,357
30,869
112,747
56,721
Other income (expense)
Interest income
818
168
1,586
441
Interest expense
( 2,017
)
( 2,653
)
( 4,881
)
( 3,898
)
Foreign currency (loss) gain, net
( 510
)
( 3,600
)
( 1,789
)
( 3,525
)
Unrealized gain on investments
5,261
-
8,916
-
Other income
1,837
1,274
4,154
1,275
Total other income (expense)
5,389
( 4,811
)
7,986
( 5,707
)
Income before income taxes and noncontrolling interest
70,746
26,058
120,733
51,014
Income tax provision
12,120
4,670
21,554
9,226
Net income
58,626
21,388
99,179
41,788
Less net income attributable to noncontrolling interest
( 3,252
)
( 355
)
( 4,353
)
( 587
)
Net income attributable to common stockholders
$
55,374
$
21,033
$
94,826
$
41,201
Earnings per share attributable to common stockholders:
Basic
$
1.24
$
0.41
$
2.13
$
0.80
Diluted
$
1.22
$
0.40
$
2.09
$
0.78
Number of shares used in earnings per share computation:
Basic
44,667
51,527
44,538
51,431
Diluted
45,380
52,569
45,327
52,517
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Net income
$
58,626
$
21,388
$
99,179
$
41,788
Unrealized gain (loss) on defined benefit plan, net of tax
4,961
( 16,570
)
6,855
( 6,851
)
Unrealized (loss) gain on swaps and collars, net of tax
( 2,027
)
817
1,799
( 621
)
Unrealized foreign currency gain (loss), net of tax
12,849
6,733
9,111
( 2,881
)
Comprehensive income
74,409
12,368
116,944
31,435
Less: Comprehensive income attributable to noncontrolling interest
( 3,252
)
( 355
)
( 4,353
)
( 587
)
Total comprehensive income attributable to common stockholders
$
71,157
$
12,013
$
112,591
$
30,848
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
Common stock
Treasury stock
Additional
paid-in
Retained
Accumulated
other comprehensive
Total Diodes
Incorporated stockholders'
Noncontrolling
Total
Shares
Amount
Shares
Amount
capital
earnings
loss
equity
interest
equity
Balance, March 31, 2021
53,860
$
35,908
( 9,260
)
$
( 335,910
)
$
446,697
$
927,498
$
( 71,624
)
$
1,002,569
$
54,411
$
1,056,980
Total comprehensive income
-
-
-
-
-
55,374
15,783
71,157
3,252
74,409
Net changes in noncontrolling interests
-
-
-
-
( 18
)
-
( 18
)
3,000
2,982
Dividends to noncontrolling interests
-
-
-
-
-
-
-
-
( 250
)
( 250
)
Common stock issued for share-based plans
-
-
-
-
1,259
-
-
1,259
-
1,259
Share-based compensation
134
90
-
-
8,280
-
-
8,370
-
8,370
Deferred compensation plan
-
-
( 3
)
( 218
)
218
-
-
-
-
-
Tax related to net share settlement
-
-
-
-
( 753
)
-
-
( 753
)
-
( 753
)
Balance, June 30, 2021
53,994
$
35,998
( 9,263
)
$
( 336,128
)
$
455,683
$
982,872
$
( 55,841
)
$
1,082,584
$
60,413
$
1,142,997
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
-
-
-
-
-
94,826
17,765
112,591
4,353
116,944
Net changes in noncontrolling interests
-
-
-
-
( 22
)
-
-
( 22
)
4,007
3,985
Dividends to noncontrolling interest
-
-
-
-
-
-
-
-
( 250
)
( 250
)
Common stock issued for share-based plans
458
306
-
-
1,797
-
-
2,103
-
2,103
Share-based compensation
-
-
-
-
14,138
-
-
14,138
-
14,138
Deferred compensation plan
-
-
( 3
)
( 218
)
218
-
-
-
-
-
Tax related to net share settlement
-
-
-
-
( 10,046
)
-
-
( 10,046
)
-
( 10,046
)
Balance, June 30, 2021
53,994
$
35,998
( 9,263
)
$
( 336,128
)
$
455,683
$
982,872
$
( 55,841
)
$
1,082,584
$
60,413
$
1,142,997
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
DIODES INCORPORATED AND SUBSIDIARIES (CONT.)
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
Common stock
Treasury stock
Additional
paid-in
Retained
Accumulated
other comprehensive
Total Diodes
Incorporated stockholders'
Noncontrolling
Total
Shares
Amount
Shares
Amount
capital
earnings
loss
equity
interest
equity
Balance, March 31, 2020
52,932
$
35,289
( 1,481
)
$
( 38,457
)
$
427,543
$
810,126
$
( 109,472
)
$
1,125,029
$
57,260
$
1,182,289
Total comprehensive income
-
-
-
-
-
21,033
( 9,020
)
12,013
355
12,368
Acquisition of noncontrolling interests
-
-
-
-
( 1,225
)
-
-
( 1,225
)
( 4,928
)
( 6,153
)
Contributions from noncontrolling interests
-
-
-
-
-
-
-
-
999
999
Dividends to noncontrolling interests
-
-
-
-
-
-
-
-
( 1,444
)
( 1,444
)
Common stock issued for share-based plans
150
100
-
-
965
-
-
1,065
-
1,065
Share-based compensation
-
-
-
-
7,441
-
-
7,441
-
7,441
Deferred compensation plan
-
-
( 2
)
( 203
)
203
-
-
-
-
-
Tax related to net share settlement
-
-
-
-
( 938
)
-
-
( 938
)
-
( 938
)
Balance, June 30, 2020
53,082
$
35,389
( 1,483
)
$
( 38,660
)
$
433,989
$
831,159
$
( 118,492
)
$
1,143,385
$
52,242
$
1,195,627
Balance, December 31, 2019
52,664
$
35,111
( 1,457
)
$
( 37,768
)
$
427,262
$
789,958
$
( 108,139
)
$
1,106,424
$
46,359
$
1,152,783
Total comprehensive income
-
-
-
-
-
41,201
( 10,353
)
30,848
587
31,435
Acquisition of noncontrolling interests
-
-
-
-
( 1,225
)
-
-
( 1,225
)
( 4,928
)
( 6,153
)
Contributions from noncontrolling interests
-
-
-
-
-
-
-
-
11,776
11,776
Dividends to noncontrolling interests
-
-
-
-
-
-
-
-
( 1,552
)
( 1,552
)
Common stock issued for share-based plans
418
278
-
-
787
-
-
1,065
-
1,065
Share-based compensation
-
-
-
-
11,678
-
-
11,678
-
11,678
Deferred compensation plan
-
-
( 26
)
( 892
)
892
-
-
-
-
-
Tax related to net share settlement
-
-
-
-
( 5,405
)
-
-
( 5,405
)
-
( 5,405
)
Balance, June 30, 2020
53,082
$
35,389
( 1,483
)
$
( 38,660
)
$
433,989
$
831,159
$
( 118,492
)
$
1,143,385
$
52,242
$
1,195,627
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30,
2021
2020
Cash flows from operating activities
Net income
$
99,179
$
41,788
Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions
Depreciation
53,105
45,685
Amortization of intangible assets
8,083
8,242
Share-based compensation expense
14,764
12,394
Deferred income taxes
1,194
( 2,317
)
Investment gain
( 9,075
)
-
Other
287
1,084
Changes in operating assets:
Change in accounts receivable
( 17,060
)
( 7,573
)
Change in inventory
( 2,451
)
( 19,770
)
Change in other operating assets
( 5,597
)
7,422
Changes in operating liabilities:
Change in accounts payable
19,456
16,767
Change in accrued liabilities
4,706
( 6,429
)
Change in income tax payable
( 2,332
)
( 10,159
)
Change in other operating liabilities
( 2,195
)
( 400
)
Net cash flows provided by operating activities
162,064
86,734
Cash flows from investing activities
Acquisitions, net of cash received
-
591
Purchases of property, plant and equipment
( 45,037
)
( 30,728
)
Proceeds from sale of property, plant and equipment
3,042
174
Proceeds from maturity of short-term investments
4,020
6,186
Purchases of short-term investments
( 5,160
)
( 5,051
)
Additional acquisition of noncontrolling interests
( 71
)
( 6,130
)
Other
6,532
910
Net cash and cash equivalents used in investing activities
( 36,674
)
( 34,048
)
Cash flows from financing activities
Advances on lines of credit and short-term debt
6,404
53,647
Repayments of lines of credit and short-term debt
( 88,307
)
( 3,498
)
Proceeds from long-term debt
315,006
589,331
Repayments of long-term debt
( 384,554
)
( 390,334
)
Net proceeds from issuance of common stock
2,103
1,066
Repayment of and proceeds from finance lease obligation
( 151
)
( 445
)
Taxes paid related to net share settlement
( 10,046
)
( 5,405
)
Dividend distribution to noncontrolling interests
( 250
)
( 108
)
Capital contribution from noncontrolling interests
4,003
-
Other
( 500
)
( 2,470
)
Net cash and cash equivalents (used in) provided by financing activities
( 156,292
)
241,784
Effect of exchange rate changes on cash and cash equivalents
5,291
644
Change in cash and cash equivalents, including restricted cash
( 25,611
)
295,114
Cash and cash equivalents, beginning of period, including restricted cash
320,529
259,507
Cash and cash equivalents, end of period, including restricted cash
$
294,918
$
554,621
- 8 -
Supplemental Cash Flow Information
Interest paid during the period
$
4,545
$
1,746
Taxes paid during the period
$
23,904
$
21,743
Non-cash investing and financing activities:
Accounts payable balance related to the purchase of
property, plant and equipment
$
16,081
$
7,569
Dividend payable to noncontrolling interest
$
-
$
1,454
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 June 30, 2021, restricted cash of $ 2.3 million was pledged as collateral for issuance of bank loans, bank acceptance notes and letters of credit .
Six Months Ended
June 30,
2021
2020
Current assets:
Cash and cash equivalents
$ 292,650
$ 503,206
Restricted cash (included in other current assets)
2,268
51,415
Total cash, cash equivalents and restricted cash
$ 294,918
$ 554,621
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 9 -
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, England, 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, England; 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 and six months ended June 30, 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.
- 10 -
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 and six months ended June 30, 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
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Earnings (numerator)
Net income attributable to common stockholders
$
55,374
$
21,033
$
94,826
$
41,201
Shares (denominator)
Weighted average common shares outstanding (basic)
44,667
51,527
44,538
51,431
Dilutive effect of stock options and stock awards outstanding
713
1,042
789
1,086
Adjusted weighted average common shares outstanding (diluted)
45,380
52,569
45,327
52,517
Earnings per share attributable to common stockholders
Basic
$
1.24
$
0.41
$
2.13
$
0.80
Diluted
$
1.22
$
0.40
$
2.09
$
0.78
Stock options and stock awards excluded from EPS
calculation because the effect would be anti-dilutive
6
8
3
3
NOTE 3 – Inventories
The table below sets forth inventories which are stated at the lower of cost or net realizable value:
June 30, 2021
December 31, 2020
Finished goods
$
81,106
$
85,506
Work-in-progress
84,951
73,466
Raw materials
138,071
148,090
Total
$
304,128
$
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
1,253
Balance at June 30, 2021
$
159,584
- 11 -
The table below sets forth the value of intangible assets, other than goodwill:
June 30,
December 31,
2021
2020
Intangible assets subject to amortization:
Gross carrying amount
$
246,687
$
245,176
Accumulated amortization
( 148,793
)
( 140,710
)
Foreign currency translation adjustment
( 7,636
)
( 7,781
)
Total
90,258
96,685
Intangible assets with indefinite lives:
Gross carrying amount
13,372
14,883
Foreign currency translation adjustment
( 953
)
( 977
)
Total
12,419
13,906
Total intangible assets, net
$
102,677
$
110,591
The table below sets forth amortization expense related to intangible assets subject to amortization:
Amortization expense
2021
2020
Three months ended June 30,
$
4,060
$
4,021
Six months ended June 30,
$
8,083
$
8,242
NOTE 5 – Income Tax Provision
The table below sets forth information related to our income tax expense:
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Domestic pre-tax income
$
18,577
$
7,707
$
25,645
$
12,975
Foreign pre-tax income
$
52,169
$
18,351
$
95,088
$
38,039
Income tax provision
$
12,120
$
4,670
$
21,554
$
9,226
Effective tax rate
17.1
%
17.9
%
17.9
%
18.1
%
Impact of tax holidays on tax expense
$
( 679
)
$
( 241
)
$
( 1,261
)
$
( 1,315
)
Earnings per share impact of tax holidays:
Basic
$
0.02
$
0.01
$
0.03
$
0.03
Diluted
$
0.02
$
0.01
$
0.03
$
0.03
The decrease in the effective tax rate for the three and six months ended June 30, 2021 when compared to the three and six months ended June 30, 2020, is primarily attributable to the 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 June 30, 2021, the gross amount of unrecognized tax benefits was approximately $ 45.9 million.
- 12 -
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 and six months ended June 30, 2021, we recognized stock option expense of approximately $ 0.02 million and $ 0.04 million, respectively. 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 $ 2.1 million of cash proceeds were received from stock option exercises during the six months ended June 30, 2021. The table below sets forth the line items where share-based compensation expense was recorded:
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Cost of goods sold
$
282
$
257
$
557
$
530
Selling, general and administrative
7,627
6,715
12,659
10,426
Research and development
734
729
1,548
1,438
Total share-based compensation expense
$
8,643
$
7,701
$
14,764
$
12,394
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. 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 June 30, 2021, total unrecognized share-based compensation expense related to share grants was approximately $ 53.9 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.1 years.
NOTE 7 – Segment Information and Net Sales
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.
- 13 -
The tables below set forth net sales based on the location of the subsidiary producing the net sale:
Three Months Ended June 30, 2021
Asia
Americas
Europe
Consolidated
Total sales
$
483,083
$
261,725
$
67,598
$
812,406
Intercompany elimination
( 176,404
)
( 167,318
)
( 28,236
)
( 371,958
)
Net sales
$
306,679
$
94,407
$
39,362
$
440,448
Three Months Ended June 30, 2020
Asia
Americas
Europe
Consolidated
Total sales
$
323,439
$
190,543
$
53,785
$
567,767
Intercompany elimination
( 133,552
)
( 121,545
)
( 24,001
)
( 279,098
)
Net sales
$
189,887
$
68,998
$
29,784
$
288,669
As of and for the
Six Months Ended June 30, 2021
Asia
Americas
Europe
Consolidated
Total sales
$
954,152
$
508,552
$
127,772
$
1,590,476
Intercompany elimination
( 355,354
)
( 328,147
)
( 53,406
)
( 736,907
)
Net sales
$
598,798
$
180,405
$
74,366
$
853,569
Property, plant and equipment, net
$
412,421
$
25,044
$
84,717
$
522,182
Total assets
$
1,423,099
$
350,339
$
219,531
$
1,992,969
As of and for the
Six Months Ended June 30, 2020
Asia
Americas
Europe
Consolidated
Total sales
$
625,302
$
358,715
$
112,786
$
1,096,803
Intercompany elimination
( 250,473
)
( 226,009
)
( 50,935
)
( 527,417
)
Net sales
$
374,829
$
132,706
$
61,851
$
569,386
Property, plant and equipment, net
$
355,704
$
24,435
$
70,476
$
450,615
Total assets
$
1,494,605
$
230,888
$
211,670
$
1,937,163
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.
- 14 -
The tables below set forth net sales for the Company disaggregated into geographic locations based on shipment and by type (direct sales or Distributor ):
Three Months Ended
June 30,
Net Sales by Region
2021
2020
Asia
$
353,312
$
223,056
Europe
54,056
43,145
Americas
33,080
22,468
Total net sales
$
440,448
$
288,669
Net Sales by Type
Direct sales
$
151,048
$
92,671
Distributor sales
289,400
195,998
Total net sales
$
440,448
$
288,669
Six Months Ended
June 30,
Net Sales by Region
2021
2020
Asia
$
687,937
$
433,861
Europe
102,442
90,076
Americas
63,190
45,449
Total net sales
$
853,569
$
569,386
Net Sales by Type
Direct sales
$
298,939
$
280,581
Distributor sales
554,630
288,805
Total net sales
$
853,569
$
569,386
Net sales from products shipped to China was $ 229.3 million and $ 152.4 million for the three months ended June 30, 2021 and 2020, respectively and $ 451.7 million and $ 291.3 million for the six months ended June 30, 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 $ 173.1 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 June 30, 2021, was approximately $ 111.8 million, net of a $ 60.2 million advanced under our foreign credit lines and $ 1.1 million credit used for import and export guarantee.
Long-term debt
The Company maintains a long-term credit facility (“Credit Agreement”) consisting of a term loan with a current balance of $ 114.7 million and a $ 150.0 million r evolving senior credit facility, of which nothing was drawn as of June 30, 2021. 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 $ 17.2 million and long-term debt of $ 28.6 million from local Taiwan banks. The ERIS debt matures in various periods from 2021 through 2033 .
- 15 -
Borrowings outstanding as of June 30, 2021 and December 31, 2020, are set forth in the table below:
June 30,
December 31,
Current Amount
Description
2021
2020
Interest Rate
Maturity
Short-term debt
$
60,239
$
140,567
Libor plus margin
Various during 2021 -2022
Long-term debt
Term loan and revolver
$
114,687
$
282,250
Libor plus margin
May 2024
Notes payable to Bank of Taiwan
2,574
4,154
Variable, 1.3% base
June 2033
Notes payable to Bank of China Trust Company
3,586
3,511
Taibor 3 month rate + 0.5%
December 2021
Notes payable to Bank of China Trust Company
16,727
16,714
Taibor 3 month rate + 0.5%
May 2024
Notes payable to E Sun Bank
3,586
3,511
1-M deposit rate plus 0.08%
December 2022
Notes payable to E Sun Bank
394
386
1-M deposit rate plus 0.08%
June 2027
Notes payable to E Sun Bank
1,757
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
243,311
312,247
Less: Current portion of long-term debt
( 18,346
)
( 21,860
)
Less: Unamortized debt costs
( 2,253
)
( 2,208
)
Total long-term debt, net of current portion
$
222,712
$
288,179
NOTE 9 – Commitments and Contingencies
Purchase commitments – As of June 30, 2021, we had approximately $ 66.8 million in non-cancelable purchase contracts related to capital expenditures, primarily related to our manufacturing facilities in Asia. As of June 30, 2021, we also had a commitment to purchase approximately $ 28.7 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 June 30, 2021, the underfunded liability for this defined benefit plan was approximately $ 19.9 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 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
- 16 -
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 June 30, 2021 and December 31, 2020, we had $ 215.6 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 less than $ 3.0 thousand on 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 June 30, 2021 and December 31, 2020:
Other Current Liabilities
Other Liabilities
2021
2020
2021
2020
Interest rate swaps and collars
$
624
$
2,008
$
-
$
610
The tables below set forth the effect of the Company’s derivative financial instruments on our condensed consolidated statements of income for the three and six months ended June 30, 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
June 30,
June 30,
June 30,
2021
2020
2021
2020
2021
2020
Three Months Ended
Interest rate swaps and collars
$
( 6
)
$
( 180
)
Interest expense
$
( 166
)
$
( 2
)
Interest expense
$
-
$
-
Cross currency swaps
$
( 2,186
)
$
-
N/A
$
-
$
-
Interest income
$
616
$
-
Six Months Ended
Interest rate swaps and collars
$
( 11
)
$
( 1,571
)
Interest expense
$
( 327
)
$
( 73
)
N/A
-
-
Cross currency swaps
$
976
$
-
N/A
-
-
Interest income
$
1,226
$
-
We estimate that $ 0.2 million of net derivative gains included in accumulated other comprehensive income (“AOCI”) as of June 30, 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 and six months ended June 30, 2021 or 2020.
- 17 -
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
June 30,
2021
2020
Three Months Ended
Foreign currency forward contracts
$
4,599
$
( 391
)
Foreign currency loss, net
Six Months Ended
Foreign currency forward contracts
$
1,793
$
( 2,538
)
Foreign currency loss, net
As of June 30, 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
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Operating lease expense
$
4,149
$
3,669
$
8,384
$
7,399
Finance lease expense:
Amortization of assets
2
209
213
418
Interest on lease liabilities
-
6
1
13
Short-term lease expense
246
122
491
216
Variable lease expense
1,161
738
2,290
1,449
Total lease expense
$
5,558
$
4,744
$
11,379
$
9,495
- 18 -
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:
June 30, 2021
December 31, 2020
Operating leases:
Operating lease ROU assets
$ 60,587
$ 54,457
Current operating lease liabilities
13,787
10,663
Noncurrent operating lease liabilities
30,423
27,041
Total operating lease liabilities
$ 44,210
$ 37,704
Finance leases:
Finance lease ROU assets
$ 2,549
$ 2,507
Accumulated amortization
( 2,518 )
( 2,298 )
Finance lease ROU assets, net
$ 31
$ 209
Current finance lease liabilities
$ 12
$ 149
Non-current finance lease liabilities
21
24
Total finance lease liabilities
$ 33
$ 173
Weighted average remaining lease term (in years):
Operating leases
6.8
7.6
Finance leases
2.8
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:
Six Months Ended
June 30, 2021
June 30, 2020
Cash paid for the amounts included in the measurements of lease liabilities:
Operating cash outflows from operating leases
$ 10,973
$ 9,753
Operating cash outflows from finance leases
1
13
Financing cash outflow from finance leases
151
445
ROU assets obtained in exchange for lease liabilities incurred:
Operating leases
12,265
532
- 19 -
The table below sets forth information about lease liability maturities:
June 30, 2021
Operating Leases
Finance Leases
Remainder of 2021
$
7,791
$
6
2022
14,253
13
2023
9,242
11
2024
4,359
5
2025
4,173
-
2026
2,742
-
2027 and thereafter
8,830
-
Total lease payments
51,390
35
Less: imputed interest
( 7,180 )
( 2 )
Total lease obligations
44,210
33
Less: current obligations
( 13,787 )
( 12 )
Long-term lease obligations
$
30,423
$
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 June 30, 2021 and December 31, 2020, these investments totaled approximately $ 14.1 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 of LSC 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 1.0 % and 1.7 % of our net sales for the three months ended June 30, 2021 and 2020, respectively. We sold products to companies owned by Keylink, totaling approximately 1.2 % and 1.6 % of our net sales for the six months ended June 30, 2021 and 2020, respectively. 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 June 30, 2021 and, 2020 were approximately $ 4.3 million and $ 3.8 million, respectively. The aggregate amounts paid to Keylink for the six months ended June 30, 2021 and, 2020 were approximately $ 8.7 million and $ 6.9 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.
- 20 -
The Audit C ommittee of t he Bo a rd r e views all related party transactions for pot e ntial conflict of i nterest s i tuations on a n ongoing basis, all in accord a nce with su c h procedures as t he Audit Committee m ay adopt from time to time.
The table below sets forth net sales to and purchases from related parties:
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
LSC
Net sales
$
-
$
171
$
-
$
299
Purchases
$
-
$
3,806
$
-
$
6,554
Nuvoton
Purchases
$
2,288
$
2,011
$
3,695
$
3,655
Keylink
Net sales
$
4,333
$
4,975
$
9,899
$
8,960
Purchases
$
501
$
426
$
980
$
831
JCP
Purchases
$
328
$
291
$
687
$
447
The table below sets forth accounts receivable from, and accounts payable to, related parties:
June 30,
December 31,
2021
2020
Nuvoton
Accounts receivable
$
-
$
10
Accounts payable
$
1,539
$
796
Keylink
Accounts receivable
$
39,660
$
35,365
Accounts payable
$
34,373
$
31,247
JCP
Accounts payable
$
379
$
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 :
- 21 -
Assets
Cash and cash equivalents
$
4,936
Accounts receivable
154
Inventories, net
6,906
Property, plant and equipment
7,798
Deferred income tax
4,953
Other long-term assets
638
Assets classified as held for sale
25,385
Liabilities
Accounts payable
7,153
Accrued liabilities and other
1,106
Other long-term liabilities
637
Liabilities classified as held for sale
8,896
Net assets classified as held for sale (included in prepaid expenses and other)
$
16,489
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
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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 $ 9.1 million will increase the Company’s ownership to at least 51 % of Savitech. Based on preliminary reporting, as of June 30, 2021, it is estimated that Savitech exceeded the previously agreed-to revenue levels and based on this preliminary reporting, the Company accrued an additional $ 0.3 million related to the second tranche payment. After the Company verifies the preliminarily reported revenue by Savitech, the Company will make the second tranche payment.
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
10.2
Noncontrolling interest
11.8
Note 15 – Subsequent Event
During July 2021, the Company acquired an interest in an early stage fabless wafer design company by purchasing $ 10.0 million of preferred stock and a $ 5.0 million convertible promissory note. The promissory note is convertible into additional preferred shares, has an interest rate of 3 % and is due on the fifth anniversary of the transaction close.
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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.