Business Context and Reporting Period
Company: Diodes Incorporated
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1995
Business Overview: Diodes Inc. distributes discrete semiconductors, sourcing products primarily from overseas suppliers. The company serves computer, telecommunications, and consumer electronics industries.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 1995 | Nine Months Ended Sep 30, 1995 |
|---|---|---|
| Net Sales | $15,355,870 | $44,133,924 |
| Gross Profit | $4,431,966 | $12,513,370 |
| Gross Margin | 28.9% | 28.4% |
| Net Income | $1,261,075 | $3,365,817 |
| Earnings Per Share (Primary) | $0.24 | $0.65 |
| Cash and Equivalents | $472,358 | $472,358 (Balance Sheet) |
| Working Capital | $12,537,500 | $12,537,500 (Calculated) |
| Debt (Notes Payable + Current LT Debt) | $3,589,715 | $3,589,715 (Balance Sheet) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 55.3% for the quarter and 57.0% for the nine-month period compared to 1994, driven by strong industry demand and new product introductions.
- Profitability: Net income surged 97.5% for both the quarter and the nine-month period. Operating income increased 101.5% (quarter) and 106.2% (nine months).
- Expense Management: Selling, General, and Administrative (SG&A) expenses increased in absolute dollars but decreased as a percentage of net sales (from 18.6% to 16.2% for the quarter).
- Inventory Build: Inventories increased 80.9% to $12.27 million to support sales growth, funded largely by an increase in notes payable.
- Cash Flow: Net cash used by operating activities was $(4.975) million for the nine months ended September 30, 1995, compared to $2.81 million provided in the prior year, primarily due to increases in accounts receivable and inventory.
Outlook, Risks, and Management Commentary
- Capital Resources: The company increased its line of credit to $10.0 million and established a $4.0 million term commitment loan in November 1995 to support inventory and growth. As of September 30, 1995, approximately $3.6 million of the line of credit was utilized.
- Supply Chain Risks: The company relies heavily on foreign sources for nearly all products. Risks include currency fluctuations, political instability, and supply shortages. The company noted a preliminary agreement between major supplier ITT Corporation and Telefunken Microelectronic GmbH, though management expects customer commitments to be honored.
- Market Volatility: Demand for discrete semiconductors is volatile. The company has had to decline orders in the past due to limited product availability.
- Shareholder Action: In July 1995, major shareholder Lite On Power Semiconductor Corporation converted 169,629 shares of Class A Convertible Preferred Stock to common stock.
Investor Verification Checklist
- Inventory Turnover: Verify the ability to sell the significant inventory buildup ($12.27M) without requiring excessive markdowns or write-downs.
- Supplier Concentration: Monitor the status of the ITT/Temic transaction and the impact on supply continuity, given ITT accounted for 41.7% of net sales in the first nine months of 1995.
- Cash Burn vs. Financing: Assess the sustainability of the negative operating cash flow ($4.975M) against the newly secured $14M total credit facility.
- Foreign Exchange Exposure: Evaluate the impact of currency fluctuations on margins, as the company contracts in U.S. dollars but sources globally.