1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1995 ------------------ or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________. COMMISSION FILE NUMBER: 1-5740 ------ DIODES INCORPORATED ------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-2039518 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or Identification No.) 3050 EAST HILLCREST DRIVE WESTLAKE VILLAGE, CALIFORNIA 91362 ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (805) 446-4800 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of the registrant's Common Stock outstanding as of September 30, 1995, was 5,675,419 including 717,115 shares of treasury stock.
2 DIODES INCORPORATED INDEX <TABLE> <CAPTION> Page ---- <S> <C> PART I - FINANCIAL INFORMATION Item 1 - Consolidated Condensed Financial Statements Consolidated Balance Sheets at September 30, 1995 and December 31, 1994 3-4 Consolidated Statements of Income for the three months and nine months ended September 30, 1995 and September 30, 1994 5 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and September 30, 1994 6 Notes to Consolidated Condensed Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations for the three months and nine months ended September 30, 1995 and September 30, 1994 8-15 PART II - OTHER INFORMATION Items 1 through 6 16 Signature 17 Index to Exhibits 18 </TABLE> 2
3 PART I - FINANCIAL INFORMATION ITEM 1 - CONSOLIDATED CONDENSED FINANCIAL INFORMATION DIODES INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET ASSETS <TABLE> <CAPTION> (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ------------ <S> <C> <C> CURRENT ASSETS Cash $ 472,358 $ 1,733,078 Accounts receivable Customers 9,868,559 6,020,277 Other 191,173 244,416 ------------ ------------ 10,059,732 6,264,693 Less allowance for doubtful receivables 203,840 169,898 ------------ ------------ 9,855,892 6,094,795 Inventories Finished Goods 11,640,095 6,435,332 Work-in-process 260,545 158,900 Raw materials 370,278 420,694 ------------ ------------ 12,270,918 7,014,926 Deferred income taxes 815,052 815,052 Prepaid expenses and other 317,161 220,128 ------------ ------------ TOTAL CURRENT ASSETS 23,731,381 15,877,979 PROPERTY, PLANT, AND EQUIPMENT - at cost, net 1,573,530 1,595,941 OTHER ASSETS 625,668 71,169 ------------ ------------ TOTAL ASSETS $ 25,930,579 $ 17,545,089 ============ ============ </TABLE> 3
4 DIODES INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET LIABILITIES AND STOCKHOLDERS' EQUITY <TABLE> <CAPTION> (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------ <S> <C> <C> CURRENT LIABILITIES Notes payable $ 3,550,654 $ 0 Trade accounts payable 3,886,877 3,543,496 Accrued liabilities 2,774,677 1,710,687 Income taxes payable 942,612 1,173,209 Current portion of long term debt 39,061 40,208 ------------ ------------ TOTAL CURRENT LIABILITIES 11,193,881 6,467,600 LONG TERM OBLIGATION, less current maturities 256,146 293,526 DEFERRED COMPENSATION PAYABLE -- 13,710 STOCKHOLDERS' EQUITY Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; 169,629 shares issued at December 31, 1994 and September 30, 1995. -- 169,629 Common stock - par value $0.66 2/3 per share; 9,000,000 shares authorized; 5,343,124 and 5,675,419 shares issued at December 31, 1994 and September 30, 1995, respectively. 3,783,976 3,562,499 Additional paid-in capital 5,084,464 4,791,826 Retained earnings 7,394,345 4,028,532 ------------ ------------ 16,262,785 12,552,486 Less: Treasury stock - 717,115 Common shares, at cost 1,782,233 1,782,233 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 14,480,552 10,770,253 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,930,579 $ 17,545,089 ============ ============ </TABLE> 4
5 DIODES INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------------- ------------------------------- 1995 1994 1995 1994 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> NET SALES $15,355,870 $ 9,887,311 $44,133,924 $28,112,596 Cost of goods sold 10,923,904 7,078,635 31,620,554 20,253,901 Gross profit 4,431,966 2,808,676 12,513,370 7,858,695 Selling, general and administrative expenses 2,483,398 1,841,839 7,362,988 5,361,078 ---------- ----------- ----------- ----------- Income from operations 1,948,568 966,837 5,150,382 2,497,617 Other income (expense) Interest income 2,744 21,106 21,736 37,410 Interest expense (76,242) (7,765) (119,543) (55,170) Commissions and other 191,277 99,011 387,030 332,483 ---------- ----------- ----------- ----------- 117,779 112,352 289,223 314,723 INCOME BEFORE INCOME TAXES 2,066,347 1,079,189 5,439,605 2,812,340 Provision for income taxes 805,272 440,630 2,073,788 1,108,310 ---------- ----------- ----------- ----------- NET INCOME $1,261,075 $ 638,559 $ 3,365,817 $ 1,704,030 ========== =========== =========== =========== EARNINGS PER SHARE PRIMARY $ 0.24 $ 0.12 $ 0.65 $ 0.33 FULLY-DILUTED $ 0.24 $ 0.12 $ 0.64 $ 0.33 ========== =========== =========== =========== Weighted average shares outstanding Primary 5,276,127 5,123,733 5,206,042 5,134,635 Fully-diluted 5,276,127 5,123,733 5,255,624 5,134,635 ========== =========== =========== =========== </TABLE> 5
6 DIODES INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- 1995 1994 ------------- ------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,366,000 $ 1,704,000 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 238,000 240,000 Increase in allowance for doubtful accounts 34,000 6,000 Equity in Joint Venture earnings -- (71,000) (Gain) on sale of property, plant and equipment, net (73,000) (4,000) (Increase) decrease in operating assets: Accounts receivable (3,795,000) (2,035,000) Inventories (5,256,000) 672,000 Prepaid expenses and other (652,000) 21,000 (Decrease) increase in operating liabilities: Trade accounts payable 344,000 1,090,000 Accrued liabilities 833,000 1,220,000 Deferred compensation payable (14,000) (33,000) ------------ ------------ Net cash provided (used) by operations (4,975,000) 2,810,000 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (289,000) (442,000) Proceeds from sale of equipment 147,000 14,000 Investment in subsidiary -- 400,000 ------------ ------------ Net cash (used) by investing activities (142,000) (28,000) CASH FLOWS FROM FINANCING ACTIVITIES Advances (payments) on line of credit, net 3,551,000 (2,000,000) Proceeds from issuance of stock 344,000 162,000 Repayments of long-term obligations (39,000) (103,000) ------------ ------------ Net cash provided (used) by financing activities 3,856,000 (1,942,000) ------------ ------------ INCREASE (DECREASE) IN CASH $ (1,261,000) $ 840,000 CASH AT BEGINNING OF PERIOD $ 1,733,000 $ 802,000 ------------ ------------ CASH AT END OF PERIOD $ 472,000 $ 1,642,000 ============ ============ </TABLE> 6
7 DIODES INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE A - Basis of Presentation The accompanying unaudited consolidated, condensed financial statements have been prepared in accordance with the instruction to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report in Form 10-K for the calendar year ended December 31, 1994. NOTE B - Income Taxes Effective January 1, 1993, the Company adopted Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This pronouncement requires that taxes be provided based upon the tax rate at which the items of income and expense are expected to be settled in the Company's tax return. SFAS No. 109 requires the recognition of deferred tax assets and liabilities for both the expected future tax impact of differences between the financial statement and tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss carryforwards. SFAS No. 109 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Accordingly, the Company has recorded a net deferred tax asset resulting from net deductible temporary differences in the amount of $815,052. This deferred tax asset results primarily from inventory reserves and expense accruals which are not currently deductible for federal income tax purposes. 7
8 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Net sales for the three months and nine months ended September 30, 1995 were, respectively, $15.4 million, a 55.3% increase, and $44.1 million, a 57.0% increase over the comparable periods in 1994. These increases can be attributed in large part to continued strong industry demand for discrete semiconductors as well as the Company's concerted marketing program - in particular, its pursuit of both medium-sized OEMs and larger strategic accounts that especially value the Company's broad product line, its technical expertise, and its ability to meet diverse customer requirements. Also important in the growth of net sales was the introduction of a new product offering of small signal transistors in late 1994, and the Company's ongoing program to build customer loyalty through superior customer service. Essential to the Company's recent growth has been the ability to procure ever increasing numbers of high-quality components at competitive prices; in addition to working closely with its existing suppliers, the Company has continued its program of aggressively seeking new sourcing opportunities. Gross margins for the three months and nine months ended September 30, 1995 were, respectively, 28.9% and 28.4%, versus 28.4% and 28.0% in the comparable periods in 1994. This improvement in margins is reflective of the continued rise in demand for the Company's products. In addition, selling, general and administrative expenses ("SG&A") decreased as a percentage of net sales from 18.6% to 16.2% for the comparable three month period and from 19.1% to 16.7% for the comparable nine month period. When compared to the respective three month and nine month periods ended September 30, 1994, respectively; (i) income from operations in 1995 increased 101.5% and 106.2%; (ii) other income increased 4.8% and decreased 8.1%; (iii) pre-tax income increased 91.5% and 93.4%; and (iv) net income increased 97.5% and 97.5%. The Company maintained adequate working capital to support its continued growth in net sales. In July 1995, the Company's major shareholder, Lite On Power Semiconductor Corporation ("LPSC"), converted its 169,629 shares of Class A Convertible Preferred Stock to common stock on a one share to one share basis. Reliance on Foreign Sources. For the past several years, nearly all of the Company's net sales (like those of most other companies in the industry) have been derived from products purchased from overseas suppliers or from U.S. companies whose products are manufactured overseas. The Company anticipates that this dependence on foreign sources of its products will continue for the foreseeable future. 8
9 Foreign sourcing exposes the Company to certain risks common to companies doing business overseas: these risks include the difficulty and expense of maintaining foreign sourcing channels, cultural and institutional barriers to trade, fluctuations in currency exchange rates, political instability, transportation delays, expropriation, tariffs, import and export controls (including export licenses and changes in the allocation of quotas), and other U.S. and foreign regulations that may apply to the export and import of the Company's products, and which could have a material adverse effect on the Company. The Company attempts to reduce the risk of doing business in foreign countries by, among other things, contracting in U.S. dollars, and, when possible, maintaining multiple sourcing of product groups from several countries. Volatility of Demand, Availability of Parts and Relationship with Suppliers. The main consumers of discrete semiconductor parts are the computer, subassembly, telecommunication, and consumer electronic industries, which are characterized by volatile customer demand. In recent years, competition within these industries, rapid technological advances, frequent introduction of new products and product enhancements (including smaller and more portable electronic products), and high consumer demand have been principally responsible for a significant increase in the demand of discrete semiconductor parts. As a result, there has been and continues to be significant competition for the world wide availability of discrete semiconductor parts. The Company attempts to meet the volatility of demand for discrete semiconductor parts by (i) aggressively identifying new sources of products, (ii) forming joint ventures and alliances with manufacturers and distributors, and (iii) having a geographically diverse mix of manufacturers and suppliers, located in Taiwan, China, Germany, Japan, France, the Philippines, India, Thailand and the United States. Within the last two years, the Company has observed that the demand for semiconductor parts has been stronger than the supply and, therefore, has had to decline some orders because of the limited availability of these products. The Company purchases products from over 20 suppliers. Among the Company's major suppliers are ITT, LPSC, and Shen Jiang Corporation. For the first nine months of 1995, products purchased from these suppliers accounted for approximately 41.7%, 15.3%, and 5.3%, respectively, of the Company's net sales. The Company has several supply agreements, some short-term, others long-term, but believes that its success depends, in large part, on developing long-term relationships with current suppliers, as well as on developing new relationships with suppliers for its existing and future product lines. Further, although the Company believes that there exist alternative sources for the products of any of its suppliers, the loss of any one of its principal suppliers or the loss of several suppliers in a short period of time could have a materially adverse effect on the Company. In September 1995, the Company became aware that ITT Corporation had reached a preliminary agreement with Telefunken Microelectronic GmbH ("Temic", a subsidiary of Daimler-Benz Corporation) regarding the sale of ITT's semiconductor operation ("ITT Semiconductors"). It was further understood that the transaction is subject to the execution of a definitive agreement, 9
10 government approvals, and approval of the respective boards of directors. Spokesmen for ITT and Temic indicated that the transaction will involve no significant changes to either organization, and that all customer commitments will continue to be honored. In any event, the Company will continue its efforts to aggressively search for new sourcing opportunities to reduce reliance on a limited number of suppliers and to support growing customer demand. The following discussion explains in greater detail the consolidated operating results and financial condition of the Company. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Net Sales $ 15,355,870 $ 9,887,311 </TABLE> The Company's 1995 comparative increase in net sales of approximately $5.5 million, or 55.3%, was primarily a result of a continued strong industry demand for discrete semiconductors as well as the Company's concerted marketing program to pursue both medium-sized OEMs and larger strategic accounts that especially value the Company's broad product line, its technical expertise, and its ability to meet diverse customer requirements. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Gross Profit $ 4,431,966 $ 2,808,676 Gross Margin Percentage 28.9% 28.4% </TABLE> The Company's gross profit for the three months ended September 30, 1995, increased approximately $1.6 million or 57.8%, primarily due to the 55.3% increase in net sales. The gross margin percentage increased 1.8%, resulting from increased product demand and improvements in service to the Company's customers. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> SG&A $ 2,483,398 $ 1,841,839 </TABLE> The Company's SG&A for the three months ended September 30, 1995, increased approximately 34.8%, while net sales increased 55.3% compared to the same period last year. This $642,000 increase was primarily attributable to increased commissions paid to outside sales representatives and distributors, and an increase in overall wages and benefits. The total SG&A as a percentage of net sales actually decreased from 18.6% in 1994 to 16.2% in 1995, a 14.8% decrease. 10
11 <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Income from Operations $ 1,948,568 $ 966,837 </TABLE> The Company's fiscal 1995 comparative increase in operating profit of approximately $982,000, or 101.5%, is primarily the net result of the Company's significant increase in net sales and gross profit, as well as continued efforts to control SG&A, which resulted in a decrease in SG&A as a percentage of net sales. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Interest Income $ 2,744 $ 21,106 Interest Expense $ 76,242 $ 7,765 </TABLE> The Company's interest income for the three months ended September 30, 1995, decreased 87.0% compared to the same period last year as the Company maintained adequate working cash. The Company's interest expense for the three months ended September 30, 1995 increased approximately $68,000, primarily as a result of an increase in the Company's usage of its revolving line of credit to approximately $3.6 million, primarily for increased inventory to support increased sales. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Commissions and Other Income $ 191,277 $ 99,011 </TABLE> The Company's other income for the three months ended September 30, 1995, increased approximately $92,000, or 93.2% compared to commissions and other income for the same period in 1994. This increase in commissions and other income is primarily attributed to increased sales commissions received. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Pre-tax Income $ 2,066,347 $ 1,079,189 </TABLE> The Company's pre-tax income for the three months ended September 30, 1995, increased approximately $987,000 or 91.5%, primarily due to the 55.3% increase in net sales, combined with a 14.8% decrease in SG&A as a percentage of net sales. 11
12 <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Provision for income taxes $ 805,272 $ 440,630 </TABLE> The Company's provision for income taxes for the three months ended September 30, 1995, amounts to 39.0% of income before taxes, as compared to 40.8% for the three months ended September 30, 1994. The provision includes an estimate of income tax in the United States, Taiwan, and California. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Net Income $ 1,261,075 $ 638,559 Primary Earnings Per Share $ 0.24 $ 0.12 </TABLE> The Company's net income for the three months ended September 30, 1995, increased 97.5% or approximately $623,000 compared to the same period in 1994. Both primary and fully-diluted earnings per share increased 100% for the three months ended September 30, 1995, compared to the three months ended September 30, 1994. Increases in both net income and primary and fully-diluted earnings per share are primarily attributable to a 55.3% increase in net sales, and a 1.8% increase in gross margin, combined with an 14.8% decrease in SG&A as a percentage of net sales. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Net Sales $ 44,133,924 $ 28,112,596 </TABLE> The Company's 1995 comparative increase in net sales of approximately $5.5 million, or 55.3%, was primarily a result of a continued strong industry demand for discrete semiconductors as well as the Company's concerted marketing program to pursue both medium-sized OEMs and larger strategic accounts that especially value the Company's broad product line, its technical expertise, and its ability to meet diverse customer requirements. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Gross Profit $ 12,513,370 $ 7,858,695 Gross Margin Percentage 28.4% 28.0% </TABLE> The Company's gross profit for the nine months ended September 30, 1995, increased approximately $4.7 million or 59.2%, primarily due to the 57.0% increase in net sales. The gross margin percentage increased 1.4%, resulting from increased product demand and improvements in service to its customers. 12
13 <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> SG&A $ 7,362,988 $ 5,361,078 </TABLE> The Company's SG&A for the nine months ended September 30, 1995, increased approximately 37.3%, while net sales increased 57.0% compared to the same period last year. This $2.0 million increase was primarily attributable to increased commissions paid to outside sales representatives and distributors, and an increase in overall wages and benefits. The total SG&A as a percentage of net sales actually decreased from 19.1% in 1994 to 16.7% in 1995, a 14.4% decrease. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Income from Operations $ 5,150,382 $ 2,497,617 </TABLE> The Company's fiscal 1995 comparative increase in operating profit of approximately $2.7 million, or 106.2%, is primarily the net result of the Company's significant increase in net sales and gross profit, as well as continued efforts to control SG&A, which resulted in a decrease in SG&A as a percentage of net sales. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Interest Income $ 21,736 $ 37,410 Interest Expense $ 119,543 $ 55,170 </TABLE> The Company's interest income for the nine months ended September 30, 1995, decreased 41.9% compared to the same period last year as the Company maintained adequate working cash. The Company's interest expense for the nine months ended September 30, 1995 increased approximately $64,000 or 116.7%, primarily as a result of an increase in the Company's usage of its revolving line of credit to approximately $3.6 million, primarily for increased inventory to support increased sales. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Commissions and Other Income $ 387,030 $ 332,483 </TABLE> The Company's commissions and other income for the nine months ended September 30, 1995, increased approximately $54,500, or 16.4% compared to other income for the same period in 1994. This increase in other income is primarily attributed to increased commissions received. 13
14 <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Pre-tax Income $ 5,439,605 $ 2,812,340 </TABLE> The Company's pre-tax income for the nine months ended September 30, 1995, increased approximately $2.6 million or 93.4%, primarily due to the 57.0% increase in net sales, combined with a 14.4% decrease in SG&A as a percentage of net sales. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Provision for income taxes $ 2,073,788 $ 1,108,310 </TABLE> The Company's provision for income taxes for the nine months ended September 30, 1995, amounts to 38.1% of income before taxes, as compared to 39.4% for the nine months ended September 30, 1994. The provision includes an estimate of income tax in the United States, Taiwan, and California. <TABLE> <CAPTION> 1995 1994 ---- ---- <S> <C> <C> Net Income $ 3,365,817 $ 1,704,030 Primary Earnings Per Share $ 0.65 $ 0.33 </TABLE> The Company's net income for the nine months ended September 30, 1995, increased 97.5% or approximately $1.7 million compared to the same period in 1994. Primary earnings per share increased 97.0% for the nine months ended September 30, 1995, compared to the nine months ended September 30, 1994, and fully-diluted earnings per share increased 93.9% for the nine months ended September 30, 1995, compared to the nine months ended September 30, 1994. Increases in both net income and primary and fully-diluted earnings per share are primarily attributable to a 57.0% increase in net sales, and a 1.4% increase in gross margin, combined with a 14.4% decrease in SG&A as a percentage of net sales. LIQUIDITY AND CAPITAL RESOURCES The ratio of the Company's current assets to current liabilities on September 30, 1995, was 2.12 to 1 compared to a ratio of 2.46 to 1 as of December 31, 1994. The Company anticipates it will continue to utilize its line of credit to support continued growth. In August 1995, the Company temporarily increased its line of credit to $6.0 million while negotiating a new credit agreement and term commitment loan. See "Item 6. Exhibits and Reports on Form 8-K." On November 1, 1995 the Company entered into a new line of credit agreement for $10.0 million expiring November 1, 1996. The Company also established a term commitment loan for $4.0 million, expiring November 1, 2001. This increased credit facility will be used to provide financing for additional sourcing through various financing arrangements. See "Item 6. Exhibits and Reports on Form 8-K." As of September 30, 1995 the Company has utilized approximately $3.6 million of its line of credit and the Company has yet to utilize the term loan. The Company believes that the availability of this credit line, together with internally generated funds, will be sufficient to meet the Company's currently foreseeable operating cash 14
15 requirements. The Company believes that its working capital will be sufficient for anticipated growth; however, the Company continues to evaluate its cash position and may seek to increase its line of credit to support inventory and future sales growth. The Company's total working capital increased to $12.5 million as of September 30, 1995, from $9.4 million as of December 31, 1994, primarily as a result of the 57.0% increase in net sales and related positive cash flow in 1995. Notes payable increased to $3.6 million to fund a 80.9% increase in inventories, supporting the 57.0% increase in net sales. Accounts receivable also increased 61.7%, primarily as a result of the net sales increase. To ensure that the Company can secure reliable and cost effective sourcing to support and better position itself for growth, the Company is continuously evaluating additional sources of products. The Company believes its financial position will provide sufficient funds should an appropriate investment opportunity arise. This will also help the Company improve customer satisfaction and increase product market penetration. The Company's debt to equity ratio increased to 0.79 at September 30, 1995, from 0.63 at December 31, 1994. The Company anticipates this ratio may increase as the Company continues to use its line of credit to support forecasted sales growth. 15
16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no matters to be reported under this heading. ITEM 2. CHANGES IN SECURITIES There are no matters to be reported under this heading. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There are no matters to be reported under this heading. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There are no matters to be reported under this heading. ITEM 5. OTHER INFORMATION There are no matters to be reported under this heading. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 10.11 - $6.0 Million Revolving Line of Credit Note Exhibit 10.12 - Credit Agreement between Wells Fargo Bank and the Company dated November 1, 1995 Exhibit 11 - Computation of Earnings Per Share for the for the three months and nine months ended September 30, 1995 and September 30, 1994 Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None 16
17 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DIODES INCORPORATED (Registrant) /s/ Joseph Liu November 7, 1995 JOSEPH LIU Vice President, Secretary and Chief Financial Officer (Principal Financial and Accounting Officer) 17
18 INDEX TO EXHIBITS <TABLE> <S> <C> <C> Exhibit 10.11 - $6.0 Million Revolving Line of Credit Note Page 19 Exhibit 10.12 - Credit Agreement between Wells Fargo Bank and the Company dated November 1, 1995 Page 25 Exhibit 11 - Computation of Earnings Per Share for the for the three months and nine months ended September 30, 1995 and September 30, 1994 Page 59 Exhibit 27 - Financial Data Schedule Page 60 </TABLE> 18