UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Or

o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______.

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 organization)		Identification Number)
15660 Dallas Parkway, Suite 850
Dallas, Texas		75248
(Address of principal executive offices)		(Zip code)

(972) 385-2810
(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the registrant’s Common Stock outstanding as of November 3, 2010 was 44,374,675.

 

 

		Page
Part I — Financial Information			3
Item 1 — Financial Statements			3
Consolidated Condensed Balance Sheets as of September 30, 2010 and December 31, 2009			3
Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009			5
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009			6
Notes to Consolidated Condensed Financial Statements			7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3 — Quantitative and Qualitative Disclosures About Market Risk			32
Item 4 — Controls and Procedures			33
Part II — Other Information			34
Item 1 — Legal Proceedings			34
Item 1A — Risk Factors			34
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 3 — Defaults Upon Senior Securities			35
Item 4 — (Removed and Reserved)			35
Item 5 — Other Information			35
Item 6 — Exhibits			36
Signature			38
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

DIODES INCORPORATED AND SUBSIDIARIES

ASSETS

		September 30,				December 31,
		2010				2009
		(Unaudited)
CURRENT ASSETS
Cash and cash equivalents		$	263,807			$	241,953
Short-term investments			—				296,600
Accounts receivable, net			123,493				99,074
Inventories			113,069				89,652
Deferred income taxes, current			9,257				7,834
Prepaid expenses and other			10,207				11,591
Total current assets			519,833				746,704
PROPERTY, PLANT AND EQUIPMENT, net			199,098				162,988
OTHER ASSETS
Goodwill			67,668				68,075
Intangible assets, net			29,949				34,892
Other			5,836				5,324
Total assets		$	822,384			$	1,017,983

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

DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (cont’)
(In thousands, except share data)

LIABILITIES AND EQUITY

		September 30,				December 31,
		2010				2009
		(Unaudited)
CURRENT LIABILITIES
Lines of credit and short-term debt		$	—			$	299,414
Accounts payable			74,766				62,448
Accrued liabilities			46,337				27,236
Income tax payable			3,919				2,641
Current portion of long-term debt			384				373
Current portion of capital lease obligations			288				283
Total current liabilities			125,694				392,395
LONG-TERM DEBT, net of current portion
Convertible senior notes			126,318				121,333
Long-term debt			3,263				3,464
CAPITAL LEASE OBLIGATIONS, net of current portion			1,441				1,669
DEFERRED INCOME TAXES, non-current			10,360				7,743
OTHER LONG-TERM LIABILITIES			44,929				40,455
Total liabilities			312,005				567,059
COMMITMENTS AND CONTINGENCIES
EQUITY
Diodes Incorporated 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; 44,360,466 and 43,729,304 issued and outstanding at September 30, 2010 and December 31, 2009, respectively			29,574				29,153
Additional paid-in capital			223,745				211,618
Retained earnings			300,941				248,174
Accumulated other comprehensive loss			(55,930	)			(48,311	)
Total Diodes Incorporated stockholders’ equity			498,330				440,634
Noncontrolling interest			12,049				10,290
Total equity			510,379				450,924
Total liabilities and equity		$	822,384			$	1,017,983

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

DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
NET SALES		$	163,120			$	122,122			$	449,120			$	304,070
COST OF GOODS SOLD			102,143				84,547				286,893				224,632
Gross profit			60,977				37,575				162,227				79,438
OPERATING EXPENSES
Selling, general and administrative			22,837				19,079				65,678				50,375
Research and development			7,212				6,284				20,403				16,944
Amortization of acquisition related intangible assets			1,098				1,271				3,304				3,480
Impairment of long-lived assets			—				—				144				—
Restructuring			—				(291	)			—				(440	)
Total operating expenses			31,147				26,343				89,529				70,359
Income from operations			29,830				11,232				72,698				9,079
OTHER INCOME (EXPENSES)
Interest income			279				805				2,587				3,907
Interest expense			(939	)			(1,784	)			(4,317	)			(5,709	)
Amortization of debt discount			(2,006	)			(1,981	)			(5,713	)			(6,471	)
Other			251				(1,062	)			1,749				(1,074	)
Total other expenses			(2,415	)			(4,022	)			(5,694	)			(9,347	)
Income (loss) before income taxes and noncontrolling interest			27,415				7,210				67,004				(268	)
INCOME TAX PROVISION (BENEFIT)			5,346				(629	)			11,705				4,924
NET INCOME (LOSS)			22,069				7,839				55,299				(5,192	)
Less: NET INCOME attributable to noncontrolling interest			(907	)			(819	)			(2,532	)			(1,507	)
NET INCOME (LOSS) attributable to common stockholders		$	21,162			$	7,020			$	52,767			$	(6,699	)
EARNINGS (LOSS) PER SHARE attributable to common stockholders
Basic		$	0.48			$	0.17			$	1.20			$	(0.16	)
Diluted		$	0.46			$	0.16			$	1.16			$	(0.16	)
Number of shares used in computation
Basic			44,346				42,533				44,031				41,761
Diluted			45,673				44,013				45,418				41,761

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

DIODES INCORPORATED AND SUBSIDIARIES

		Nine Months Ended
		September 30,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)		$	55,299			$	(5,192	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation			34,452				31,599
Amortization of intangibles			3,308				3,480
Amortization of convertible bond issuance costs			412				505
Amortization of debt discount			5,713				6,471
Share-based compensation			9,780				7,551
Loss (gain) on disposal of property, plant and equipment			(1,684	)			67
Loss (gain) on extinguishment of debt			148				(1,193	)
Investment loss (gain) recognized under equity method			(600	)			22
Deferred income taxes			1,481				101
Changes in operating assets:
Accounts receivable			(19,917	)			(25,655	)
Inventories			(23,578	)			19,455
Prepaid expenses and other current assets			1,461				3,082
Changes in operating liabilities:
Accounts payable			12,182				7,724
Accrued liabilities			9,549				(2,913	)
Other liabilities			813				(3,524	)
Income tax payable			1,227				2,416
Net cash provided by operating activities		$	90,046			$	43,996
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of short-term investments		$	296,600			$	8,725
Purchases of property, plant and equipment			(66,342	)			(12,948	)
Proceeds from sale of property, plant and equipment			2,141				120
Other assets			(384	)			446
Net cash provided by (used in) investing activities		$	232,015			$	(3,657	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit and short-term debt		$	3,762			$	15,680
Repayments on lines of credit			(303,192	)			(27,305	)
Net proceeds from issuance of common stock			2,763				793
Dividend distribution to noncontrolling interest			(700	)			(1,500	)
Repayments of long-term debt			(1,062	)			(8,503	)
Repayments of capital lease obligations			(202	)			(287	)
Net cash used in financing activities		$	(298,631	)		$	(21,122	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS			(1,576	)			3,359
INCREASE IN CASH AND CASH EQUIVALENTS			21,854				22,576
CASH AND CASH EQUIVALENTS, beginning of period			241,953				103,496
CASH AND CASH EQUIVALENTS, end of period		$	263,807			$	126,072
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash financing activities:
Property, plant and equipment purchased on accounts payable		$	(5,828	)		$	(2,875	)
Fair value of common stock issued for repayment of long-term debt		$	—			$	(31,437	)

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

DIODES INCORPORATED AND SUBSIDIARIES

NOTE A — Nature of Operations, Basis of Presentation and Recently Issued Accounting Pronouncements

Nature of Operations

     Diodes Incorporated and its subsidiaries (collectively, the “Company”) is a leading global manufacturer and supplier of high-quality, application specific standard products within the broad discrete, logic and analog semiconductor markets, serving the consumer electronics, computing, communications, industrial and automotive markets. These products include diodes, rectifiers, transistors, MOSFETs, protection devices, functional specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices including LED drivers, DC-DC switching and linear voltage regulators and voltage references along with special function devices including USB power switches, load switches, voltage supervisors and motor controllers. These products are sold primarily throughout Asia, North America and Europe.

Basis of Presentation

     The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) (“GAAP”) for interim financial information and with the instructions to Quarterly Reports on Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. GAAP for complete financial statements. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. 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 results of operations for the period presented have been included in the interim period. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The consolidated condensed financial data at December 31, 2009 is derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

     The preparation of financial statements in conformity with U.S. 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 U.S. GAAP, interim accounting for certain expenses, including income taxes, are based on full year forecasts. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.

     Certain prior year’s balances have been reclassified to conform to the current financial statement presentation.

Recently Issued Accounting Pronouncements

     In April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-13, Compensation — Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in which the Underlying Equity Security Trades. ASU No. 2010-13 clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The provisions of ASU No. 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

     In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition — Milestone Method (Topic 605): Milestone Method of Revenue Recognition (A consensus of the FASB Emerging Issues Task Force). ASU No. 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. The amendments provide guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. An entity can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone was achieved only if the milestone meets all criteria to be considered substantive. The provisions of ASU No. 2010-17 are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

NOTE B — Functional Currencies, Foreign Currency Translation and Comprehensive Income (Loss)

     Functional Currencies and Foreign Currency Translation — The functional currency for the Company’s China subsidiaries is the U.S. dollar, while other subsidiaries, including subsidiaries’ in Taiwan and the United Kingdom (“U.K.”) use their local currency as their functional currency. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are recorded as other income (expense) in the consolidated condensed statements of operations. The Company had foreign exchange transaction losses of approximately $0.2 million and $1.4 million for the three months ended September 30, 2010 and 2009, respectively, and approximately $0.7 million and $4.8 million for the nine months ended September 30, 2010 and 2009, respectively.

     Comprehensive Income (Loss) — U.S. GAAP generally requires that recognized revenues, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as separate components of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income or loss. As of September 30, 2010, the components of other comprehensive income or loss include foreign currency translation adjustments and unrealized gain or loss on defined benefit plan.

     Total comprehensive income (loss) for the three and nine months ended September 30, 2010 and 2009 is as follows (in thousands):

Total Comprehensive Income (Loss)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Net income (loss)		$	22,069			$	7,839			$	55,299			$	(5,192	)
Foreign currency translation adjustment			7,361				(1,391	)			(3,552	)			12,109
Unrealized income (loss) on defined benefit plan, net of tax			1,802				10,246				(4,068	)			(16,041	)
Foreign currency adjustments on forward contracts, net of tax			—				441				—				3,672
Comprehensive income (loss)			31,232				17,135				47,679				(5,452	)
Comprehensive income attributable to noncontrolling interest			907				819				2,532				1,507
Total comprehensive income (loss) attributable to common stockholders		$	30,325			$	16,316			$	45,147			$	(6,959	)

NOTE C — Earnings (Loss) Per Share

     Basic earnings (loss) per share is calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is calculated similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-dilutive.

     The computation of basic and diluted earnings (loss) per common share is as follows (in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
BASIC
Weighted average number of common shares outstanding used in computing basic earnings (loss) per share			44,346				42,533				44,031				41,761
Net income (loss) attributable to common stockholders		$	21,162			$	7,020			$	52,767			$	(6,699	)
Earnings (loss) per share attributable to common stockholders		$	0.48			$	0.17			$	1.20			$	(0.16	)
DILUTED
Weighted average number of common shares outstanding used in computing basic earnings (loss) per share			44,346				42,533				44,031				41,761
Add: Assumed exercise of stock options and stock awards			1,327				1,480				1,387				—
			45,673				44,013				45,418				41,761
Net income (loss) attributable to common stockholders		$	21,162			$	7,020			$	52,767			$	(6,699	)
Earnings (loss) per share attributable to common stockholders		$	0.46			$	0.16			$	1.16			$	(0.16	)

     There are no shares included in the earnings per share calculation related to the Company’s 2.25% convertible senior notes (“Notes”) outstanding as our average stock price did not exceed the conversion price and, therefore, there is no conversion spread.

NOTE D — Short-Term Investments

     On June 30, 2010, the Company put back its auction rate securities (“ARS”) portfolio to UBS AG at par value pursuant to the previously disclosed settlement agreement with UBS AG. Upon exercise of the put option, the Company liquidated its ARS, for cash and used the proceeds to fully repay the related “no net cost” loan with UBS Bank.

NOTE E — Inventories

     Inventories stated at the lower of cost or market value are as follows (in thousands):

		September 30,				December 31,
		2010				2009
Raw materials		$	48,462			$	33,280
Work-in-progress			31,720				24,029
Finished goods			32,887				32,343
Total		$	113,069			$	89,652

NOTE F — Goodwill and Intangible Assets

     Changes in goodwill are as follows (in thousands):

Balance at December 31, 2009		$	68,075
Foreign currency exchange			(407	)
Balance at September 30, 2010		$	67,668

     Intangible assets are as follows (in thousands):

Balance at September 30, 2010:
Intangible assets subject to amortization:
Gross carrying amount		$	48,658
Accumulated amortization			(13,558	)
Foreign currency exchange			(7,672	)
Net value			27,428
Intangible assets with indefinite lives:
Gross carrying amount			3,162
Foreign currency exchange			(641	)
Total			2,521
Total intangible assets, net		$	29,949

     Amortization expense related to intangible assets subject to amortization was $1.1 million and $1.3 million for the three months ended September 30, 2010 and 2009, respectively, and $3.3 million and $3.5 million for the nine months ended September 30, 2010 and 2009, respectively.

NOTE G — Income Tax Provision

     Income tax expense of $5.3 million and $11.7 million was recorded for the three and nine months ended September 30, 2010, respectively. This resulted in an effective tax rate of 17.5% for the nine months ended September 30, 2010, as compared to (1,837.7)% for the same period of last year and compared to 11.7% for the full year of 2009. The Company’s effective tax rate for the nine months ended September 30, 2010 was lower than the U.S. statutory tax rate of 35%, as it was impacted by higher income in lower-taxed jurisdictions and the non-cash tax benefit from reversing valuation allowances on deferred tax assets from U.S. and U.K. loss carryforwards. In addition, the Company’s effective tax rate for the nine months ended September 30, 2009 was impacted by the non-cash income tax expense associated with repatriating earnings of foreign subsidiaries to the U.S. parent.

     Generally, income taxes are recorded based upon estimated annual effective income tax rates. Other methods may be used in situations where small changes in the Company’s estimated annual income could produce large changes in the estimated effective income tax rates used for interim financial reporting. Under these circumstances, the Company elected to use its actual year-to-date effective income tax rate for the nine months ended September 30, 2009.

     For the nine months ended September 30, 2010, the Company reported domestic and foreign pre-tax income (loss) of approximately $(15.2) million and $82.2 million, respectively. For the nine months ended September 30, 2009, the Company reported domestic and foreign pre-tax income (loss) of approximately $(35.7) million and $35.4 million, respectively.

     The impact of tax holidays decreased the Company’s tax expense by approximately $5.6 million and $5.2 million for the nine months ended September 30, 2010 and 2009, respectively. The benefit of the tax holidays on basic and diluted earnings per share for the nine months ended September 30, 2010 was approximately $0.13 and $0.12, respectively. The benefit of the tax holidays on both basic and diluted earnings per share for the nine months ended September 30, 2009 was approximately $0.12.

     Funds repatriated from foreign subsidiaries to the U.S. may be subject to federal and state income taxes. In the first quarter of 2009, the Company repatriated approximately $28.5 million of accumulated earnings from one of its Chinese subsidiaries, resulting in additional non-cash federal and state income tax expense of approximately $5.3 million. The Company intends to permanently reinvest overseas all of its earnings from its foreign subsidiaries.

     In the third quarter of 2010, the Company reversed valuation allowances of $1.5 million associated with federal net operating losses after determining they were fully utilizable. In addition, the Company determined that it was more likely than not that a portion of its federal foreign tax credit carryforwards would expire before they could be utilized. Accordingly, the Company has recorded valuation allowances of $8.8 million and $11.3 million as of September 30, 2010 and December 31, 2009, respectively.

     The Company files income tax returns in the U.S. jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. income tax examinations by tax authorities for tax years before 2007. 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 reserves for any adjustments that may result from future tax audits. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense. As of September 30, 2010, the gross amount of unrecognized tax benefits was approximately $8.7 million.

     It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits or competent authority proceedings. At this time, an estimate of the range of the reasonably possible outcomes cannot be determined.

NOTE H — Share-Based Compensation

     The following table shows the total compensation expensed for share-based compensation plans, including stock options and share grants, recognized in the statements of operations (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Cost of sales		$	87			$	99			$	262			$	279
Selling and administrative expense			2,824				2,409				8,510				6,391
Research and development expense			355				359				1,008				881
Total share-based compensation expense		$	3,266			$	2,867			$	9,780			$	7,551

     Stock Options. Stock options generally vest in equal annual installments over a four-year period and expire ten years after the grant date, and expense was estimated on the date of grant using the Black-Scholes option pricing model.

     The total net cash proceeds received from stock option exercises during the nine months ended September 30, 2010 was $2.8 million. Stock option expense was $1.0 million for both three months ended September 30, 2010 and 2009, and $3.1 million and $2.6 million for the nine months ended September 30, 2010 and 2009, respectively.

     A summary of the stock option plans is as follows:

										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
						Exercise				Contractual				Intrinsic
Stock Options		Shares (000)				Price				Term (yrs)				Value ($000)
Outstanding at January 1, 2010			3,980			$	12.50				5.2			$	34,989
Granted			401				19.00
Exercised			(381	)			7.55								4,478
Forfeited or expired			(6	)			27.41
Outstanding at September 30, 2010			3,994			$	13.60				5.3			$	20,631
Exercisable at September 30, 2010			3,073			$	11.98				4.2			$	19,926

     The aggregate intrinsic value in the table above is before applicable income taxes and represents the amount option holders would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price.

     As of September 30, 2010, total unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures, was approximately $9.4 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.9 years.

     Share Grants. Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year period.

     The total fair value of share grants vested during the nine months ended September 30, 2010 was approximately $7.5 million. Share grant expense was $2.2 million and $1.8 million for the three months ended September 30, 2010 and 2009, respectively, and $6.7 million and $5.0 million for the nine months ended September 30, 2010 and 2009, respectively.

     A summary of the status of the Company’s non-vested restricted stock units is as follows:

						Weighted-
						Average				Aggregate
						Grant-Date				Intrinsic
Grants		Shares (000)				Fair Value				Value ($000)
Nonvested at January 1, 2010			714			$	20.64			$	14,579
Granted			363				17.47
Vested			(250	)			21.33				7,474
Forfeited			(33	)			20.41
Nonvested at September 30, 2010			794			$	16.29			$	13,540

     The above table does not include the restricted stock award agreement the Company entered into with its President and Chief Executive Officer on September 22, 2009, which could grant up to 600,000 shares based on terms of the agreement.

     As of September 30, 2010, total unrecognized share-based compensation expense related to unvested share grants, net of forfeitures, was approximately $23.5 million, before income taxes and is expected to be recognized over a weighted average period of approximately 3.6 years.

NOTE I — Segment Information and Enterprise-Wide Disclosure

     For financial reporting purposes, the Company operates in a single segment, standard semiconductor products, through the Company’s various manufacturing and distribution facilities. The Company aggregates its products because the products are similar and have similar economic characteristics, and the products are similar in production process and share the same customer type.

     The Company’s primary operations include the operations in Asia, North America and Europe.

     Revenues are attributed to geographic areas based on the location of subsidiaries producing the revenues (in thousands):

Three Months Ended						North
September 30, 2010		Asia				America				Europe				Consolidated
Total sales		$	133,116			$	42,769			$	45,129			$	221,014
Inter-company sales			(15,961	)			(14,898	)			(27,035	)			(57,894	)
Net sales		$	117,155			$	27,871			$	18,094			$	163,120

Three Months Ended						North
September 30, 2009		Asia				America				Europe				Consolidated
Total sales		$	103,394			$	21,267			$	31,925			$	156,586
Inter-company sales			(8,293	)			(6,662	)			(19,509	)			(34,464	)
Net sales		$	95,101			$	14,605			$	12,416			$	122,122

Nine Months Ended						North
September 30, 2010		Asia				America				Europe				Consolidated
Total sales		$	364,347			$	112,380			$	127,772			$	604,499
Inter-company sales			(38,054	)			(40,094	)			(77,231	)			(155,379	)
Net sales		$	326,293			$	72,286			$	50,541			$	449,120
Property, plant and equipment		$	137,604			$	30,116			$	31,378			$	199,098
Total assets		$	439,303			$	169,801			$	213,280			$	822,384

Nine Months Ended						North
September 30, 2009		Asia				America				Europe				Consolidated
Total sales		$	247,127			$	58,049			$	80,456			$	385,632
Inter-company sales			(17,983	)			(16,782	)			(46,797	)			(81,562	)
Net sales		$	229,144			$	41,267			$	33,659			$	304,070
Property, plant and equipment		$	95,672			$	30,591			$	37,258			$	163,521
Total assets		$	350,442			$	269,070			$	295,102			$	914,614

Geographic Information

     Revenues were derived from (billed to) customers located in the following countries. “All Others” represents countries with less than 10% of the total revenues each (in thousands):

		Net Sales
		for the Three Months								Percentage of
		Ended September 30,								Net Sales
		2010				2009				2010				2009
China		$	49,944			$	37,562				30.7	%			30.8	%
United States			41,641				19,025				25.5	%			15.6	%
Taiwan			36,035				34,518				22.1	%			28.3	%
Korea			9,681				7,518				5.9	%			6.2	%
Germany			7,260				4,606				4.5	%			3.8	%
Singapore			7,079				4,605				4.3	%			3.8	%
United Kingdom			6,757				5,335				4.1	%			4.4	%
All Others			4,723				8,953				2.9	%			7.3	%
Total		$	163,120			$	122,122				100	%			100	%

		Net Sales
		for the Nine Months								Percentage of
		Ended September 30,								Net Sales
		2010				2009				2010				2009
China		$	138,901			$	91,105				31.0	%			30.0	%
Taiwan			103,841				87,247				23.1	%			28.7	%
United States			103,430				50,354				23.0	%			16.6	%
Korea			26,569				19,303				5.9	%			6.3	%
Germany			24,412				12,693				5.4	%			4.2	%
Singapore			18,448				9,553				4.1	%			3.1	%
United Kingdom			13,432				12,436				3.0	%			4.1	%
All Others			20,087				21,379				4.5	%			7.0	%
Total		$	449,120			$	304,070				100	%			100	%

NOTE J — Convertible Senior Notes

     In October 2006, the Company issued and sold Notes with an aggregate principal amount of $230 million due 2026, which pay 2.25% interest per annum on the principal amount of the Notes, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2007. On each of October 1, 2011, October 1, 2016 and October 1, 2021, holders may require the Company to purchase all or a portion of their Notes at a purchase price in cash equal to 100% of the principal amount of the Notes to be purchased, plus any accrued and unpaid interest to, but excluding, the purchase date.

     The Notes can be converted into cash or, at the Company’s option, cash and/or shares of the Company’s Common Stock based on an initial conversion rate, subject to adjustment, of 25.6419 shares (stock split adjusted) per $1,000 principal amount of Notes, which represents an initial conversion price of $39.00 per share (stock split adjusted), in certain circumstances. In addition, following a “make-whole fundamental change” that occurs prior to October 1, 2011, the Company will, at its option, increase the conversion rate for a holder who elects to convert its Notes in connection with such “make-whole fundamental change,” in certain circumstances.

     In determining the liability and equity components, the Company determined the expected life of the Notes to be five years as that is the earliest date in which the Notes can be put back to the Company at par value. As of September 30, 2010, 12 months remain over which the discount of the liability will be amortized. As of September 30, 2010, the liability and equity components are as follows (in thousands):

Liability

Liability

Liability

Equity

Component

Component

Component

Component

Principal

Net Carrying

Unamortized

Carrying

Amount

Amount

Discount

Amount

$

134,293

$

126,318

$

7,975

$

35,515

     The effective interest rate of the liability component is 8.5%, which is a comparable yield for non-convertible notes with terms and conditions otherwise comparable to the Company’s Notes as of the date of issuance. The amount of interest expense, including amortization of debt discount for the liability component and debt issuance costs is as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Notes contractual interest expense		$	769			$	857			$	2,321			$	2,801
Amortization of debt discount			2,006				1,981				5,713				6,471
Amortization of debt issuance costs			138				162				412				505
Total		$	2,913			$	3,000			$	8,446			$	9,777

NOTE K — Commitments

     Purchase Commitments — As of September 30, 2010, the Company had approximately $12.9 million in non-cancelable purchase contracts related to capital expenditures, primarily for manufacturing equipment in China.

NOTE L — Employee Benefit Plans

     The Company has a contributory defined benefit plan that covers certain employees in the U.K. and Germany. The net pension and supplemental retirement benefit obligations and the related periodic costs are based on, among other things, assumptions regarding the discount rate, estimated return on plan assets and mortality rates. These obligations and related periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method used to compute the pension liabilities and related expenses.

     For the nine months ended September 30, 2010, net period benefit costs associated with the defined benefit plan were approximately $1.1 million.

     The following tables set forth the benefit obligation, the fair value of plan assets, and the funded status of the Company’s plan (in thousands):

		Defined Benefit Plan
Change in benefit obligation:
Balance at December 31, 2009		$	117,539
Service cost			230
Interest cost			4,724
Actuarial loss			7,679
Benefits paid			(2,541	)
Foreign currency changes			(2,579	)
Benefit obligation at September 30, 2010		$	125,052
Change in plan assets:
Fair value of plan assets at December 31, 2009		$	88,235
Actual return on plan assets			6,240
Employer contribution			1,458
Benefits paid			(2,541	)
Foreign currency changes			(2,116	)
Fair value of plan assets at September 30, 2010		$	91,276
Underfunded status at September 30, 2010		$	(33,776	)

     Based on an actuarial study performed as of September 30, 2010, the plan is underfunded and a liability of approximately $33.8 million is reflected in the Company’s consolidated financial statements as a long-term liability. The amount recognized in accumulated other comprehensive loss for the nine months ended September 30, 2010 was a net loss of $4.1 million and the weighted-average discount rate assumption used to determine benefit obligations as of September 30, 2010 was 5.0%.

     The following are weighted-average assumptions used to determine net periodic benefit costs for the nine months ended September 30, 2010:

Discount rate			5.7	%
Expected long-term return on plan assets			6.8	%

     The Company adopted a payment plan with the trustees of the defined benefit plan, in which the Company will pay approximately ₤1.0 million GBP (approximately $1.6 million based on a USD:GBP exchange rate of 1.6:1) every year from 2009 through 2012.

     The Company also has pension plans in Asia for which the benefit obligation, fair value of the plan assets and the funded status amounts are deemed immaterial and therefore, not included in the figures or assumptions above.

Deferred Compensation

     The Company maintains a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees and members of the Board of Directors (the “Board”). The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. The Company offsets its obligations under the Deferred Compensation Plan by investing in the actual underlying investments. These investments are classified as trading securities and are carried at fair value. At September 30, 2010, these investments totaled approximately $3.2 million. All gains and losses in these investments are equally offset by corresponding gains and losses in the Deferred Compensation Plan liabilities.

NOTE M — Related Parties

     The Company conducts business with one related party company, Lite-On Semiconductor Corporation and its subsidiaries and affiliates (collectively, “LSC”), our largest stockholder, owned approximately 18.9% of the Company’s outstanding Common Stock as of September 30, 2010. The Company also conducts business with Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (collectively, “Keylink”). Keylink is the Company’s 5% joint venture partner in the Company’s Shanghai manufacturing subsidiaries.

     The Audit Committee of the Company’s Board reviews all related party transactions for potential conflict of interest situations on an ongoing basis, in accordance with such procedures that the Audit Committee may adopt from time to time.

     Lite-On Semiconductor Corporation — During the nine months ended September 30, 2010 and 2009, the Company sold products to LSC totaling 1.3% and 2.2% of its net sales, respectively. Also, for the nine months ended September 30, 2010 and 2009, 7.1% and 6.4%, respectively, of the Company’s net sales were from semiconductor products purchased from LSC for subsequent sale, making LSC the Company’s largest external supplier.

     Net sales to, and purchases from, LSC are as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Net sales		$	1,457			$	2,503			$	5,983			$	6,583
Purchases		$	11,073			$	9,283			$	31,961			$	22,410

     Keylink International (B.V.I.) Inc. — During the nine months ended September 30, 2010 and 2009, the Company sold products to companies owned by Keylink totaling 2.7% and 2.9% of its net sales, respectively. Also for the nine months ended September 30, 2010 and 2009, 2.0% and 1.1%, respectively, of the Company’s net sales were from semiconductor products purchased from companies owned by Keylink. In addition, the Company’s subsidiaries in China lease their manufacturing facilities from, and subcontract a portion of their manufacturing process (metal plating and environmental services) to Keylink. The Company also pays a consulting fee to Keylink. For the nine months ended September 30, 2010 and 2009, the Company paid Keylink an aggregate of $10.7 million and $7.5 million, respectively, with respect to these items.

     Net sales to, and purchases from, companies owned by Keylink are as follows (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Net sales		$	4,235			$	3,156			$	11,977			$	8,712
Purchases		$	3,059			$	1,575			$	8,232			$	3,950

     Accounts receivable from, and accounts payable to, LSC and Keylink are as follows (in thousands):

		September 30,
		2010
Accounts receivable
LSC		$	1,108
Keylink			8,659
		$	9,767
Accounts payable
LSC		$	8,900
Keylink			6,175
		$	15,075

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

          Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by the Company’s management. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. The Company undertakes no obligation to publicly release the results of any revisions to its forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. Unless the context otherwise requires, the words “Diodes,” the “Company,” “we,” “us” and “our” refer to Diodes Incorporated and its subsidiaries.

          This management’s discussion should be read in conjunction with the management’s discussion included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, previously filed with Securities and Exchange Commission.

Highlights

	•		Net sales for the three months ended September 30, 2010 was $163.1 million, an increase of $41.0 million, or 33.6%, over the same period last year, and a sequential increase of 9.4% over the $149.2 million in the second quarter of 2010;
	•		Net sales for the nine months ended September 30, 2010 was $449.1 million, an increase of $145.0 million, or 47.7%, over the same period last year;
	•		Gross profit for the three months ended September 30, 2010 was $61.0 million, an increase of $23.4 million, or 62.2%, over the same period last year, and a sequential increase of 14.0% over the $53.5 million in the second quarter of 2010;
	•		Gross profit for the nine months ended September 30, 2010 was $162.2 million, an increase of $82.8 million, or 104.3%, over the same period last year;
	•		Gross profit margin for the three months ended September 30, 2010 was 37.4%, compared to 30.8% for the same period last year, and 35.8% for the second quarter of 2010;
	•		Gross profit margin for the nine months ended September 30, 2010 was 36.1%, compared to 26.1% for the same period last year;
	•		Net income attributable to common stockholders for the three months ended September 30, 2010 was $21.2 million, or $0.46 per diluted share, compared to the same period last year of $7.0 million, or $0.16 per diluted share, and second quarter 2010 of $16.6 million, or $0.37 per diluted share;
	•		Net income attributable to common stockholders for the nine months ended September 30, 2010 was $52.8 million, or $1.16 per diluted share, compared to the same period last year, which had a net loss of $(6.7) million, or $(0.16) per share; and
	•		On June 30, 2010, we put our auction rate securities (“ARS”) back to UBS AG at par value pursuant to the previously disclosed settlement agreement, which liquidated our ARS for cash, and the proceeds were used to fully repay the related “no net cost” loan with UBS Bank.

Overview

          We are a leading global manufacturer and supplier of high-quality, application specific standard products within the broad discrete, logic and analog semiconductor markets, serving the consumer electronics, computing, communications, industrial and automotive markets. These products include diodes, rectifiers, transistors, MOSFETs, protection devices, functional specific arrays, single gate logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices including LED drivers, DC-DC switching and linear voltage regulators and voltage references along with special function devices including USB power switches, load switches, voltage supervisors and motor controllers. The products are sold primarily throughout Asia, North America and Europe.

          We design, manufacture and market these semiconductors for diverse end-use applications. Semiconductors, which provide electronic signal amplification and switching functions, are basic building-block electronic components that are incorporated into almost every electronic device. We believe that our focus on standard semiconductor products provides us with a meaningful competitive advantage relative to other semiconductor companies that provide a wider range of semiconductor products.

          During the first quarter of 2010, we saw an increase in our net sales due to strong demand in all geographic regions led by North America and Europe. During the second and third quarters of 2010, we saw a further increase in net sales due to a strong demand for our products across all markets with particular strength in North America and Europe. In addition, during the first, second and third quarters, gross profit margin increased due to improved product mix in North America and Europe, which includes a favorable mix of higher margin new products, as well as increased capacity at our wafer fabrication facilities and generally stable

average selling prices (“ASP”). For the fourth quarter of 2010, as we see the market supply shortage easing and demand for our products to level off, we expect net sales and gross profit to be relatively the same as compared to the third quarter of 2010.

          As described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, the principal elements of our strategy include the following:

	•		Continue to rapidly introduce innovative discrete, logic and analog semiconductor products;
	•		Expand our available market opportunities;
	•		Maintain intense customer focus;
	•		Enhance cost competitiveness; and
	•		Pursue selective strategic acquisitions.

          In implementing these strategies, the following factors have affected, and, we believe, will continue to affect, our results of operations:

	•		For 2010, we have seen increased demand for our products as compared to 2009. We have experienced pressure from our customers and competitors to reduce the selling price for our standard products, and we expect future improvements in net income to result primarily from increases in sales volume and improvements in product mix as well as manufacturing cost reductions in order to offset any reduced ASP of our products.
	•		For the nine months ended September 30, 2010, our original equipment manufacturers (“OEM”) and electronic manufacturing services (“EMS”) customers together accounted for approximately 47% of our net sales, while our global network of distributors accounted for approximately 53% of our net sales.
	•		Net sales for the nine months ended September 30, 2010 was $449.1 million compared to $304.1 million in the same period last year. This increase in net sales primarily reflects the increase in demand for our products in all geographic regions.
	•		Our gross profit margin was 36.1% for the nine months ended September 30, 2010, compared to 26.1% in the same period last year. Our gross margin percentage increased over the same period last year due to improved product mix and higher capacity utilization at our manufacturing and wafer fabrication facilities. Future gross profit margins will depend primarily on our product mix, manufacturing cost savings, and the demand for our products.
	•		For the nine months ended September 30, 2010, our capital expenditures were approximately 16.1% of our net sales, which is an increase from our historical 10% to 12% of net sales model. We expect capital expenditures for fiscal 2010 to be higher than our historical model as we increase capacity due to increased demand.
	•		For the nine months ended September 30, 2010, the percentage of our net sales derived from our Asia subsidiaries was 72.7%, compared to 75.4% in the same period last year. The decrease was due primarily to improvements in North America and Europe. We expect our net sales to the Asia market to increase as a percentage of our total net sales as a result of our customers’ continuing to shift their manufacturing of electronic products to Asia. In addition, Europe accounted for approximately 11.3% of our net sales for the nine months ended September 30, 2010, compared to 10.4% in the same period last year.
	•		As of September 30, 2010, we had invested approximately $278.0 million in our Asia manufacturing facilities. For the nine months ended September 30, 2010, we invested approximately $64.0 million in these manufacturing facilities, and we expect to continue to invest in our manufacturing facilities, although the amount to be invested will depend on product demand and new product developments.
	•		We have increased our investment in research and development from $16.9 million, or 5.6% of net sales, for the nine months ended September 30, 2009 to $20.4 million, or 4.5% of net sales, for the nine months ended September 30, 2010. For the remainder of 2010, we expect research and development to decrease slightly as a percentage of net sales compared to the third quarter of 2010.

Results of Operations for the Three Months Ended September 30, 2010 and 2009

          The following table sets forth, the percentage that certain items in the statements of operations bear to net sales and the percentage dollar increase (decrease) of such items from period to period.

		Percent of Net Sales								Percentage Dollar
										Increase
		Three months ended September 30,								(Decrease)
		2010				2009				'09 to '10
Net sales			100.0	%			100.0	%			33.6
Cost of goods sold			(62.6	)			(69.2	)			20.8
Gross profit			37.4				30.8				62.3
Operating expenses			(19.1	)			(21.6	)			18.2
Income from operations			18.3				9.2				165.6
Interest income			0.2				0.7				(65.3	)
Interest expense and amortization of debt discount			(1.8	)			(3.1	)			(21.8	)
Other income (expenses)			0.2				(0.9	)			(123.6	)
Income before income taxes and noncontrolling interest			16.9				5.9				280.2
Income tax provision (benefit)			3.3				(0.5	)			(949.9	)
Net income			13.6				6.4				181.5
Less: net income attributable to noncontrolling interest			(0.6	)			(0.7	)			10.7
Net income attributable to common stockholders			13.0				5.7				201.5

          The following discussion explains in greater detail our consolidated operating results and financial condition for the three months ended September 30, 2010, compared to the three months ended September 30, 2009. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report (in thousands).

		2010				2009
Net Sales		$	163,120			$	122,122

          Net sales increased approximately $41.0 million for the three months ended September 30, 2010, compared to the same period last year. The 33.6% increase in net sales represented an approximately 22.9% increase in units sold and an 8.7% increase in ASP. The revenue increase for the three months ended September 30, 2010 was attributable to increase in demand for our products in all markets with particular strength in North America and Europe. For the remainder of 2010, we expect net sales to be relatively the same as compared to the third quarter of 2010.

		2010				2009
Cost of goods sold		$	102,143			$	84,547
Gross profit		$	60,977			$	37,575
Gross profit margin			37.4	%			30.8	%

          Cost of goods sold increased approximately $17.6 million, or 20.1%, for the three months ended September 30, 2010 compared to the same period last year. As a percent of sales, cost of goods sold decreased to 62.6% for the three months ended September 30, 2010 compared to 69.2% in the same period last year, and our average unit cost (“AUP”) decreased approximately 1.7% due primarily to product mix. The decrease in cost of goods sold as a percentage of sales was due to higher net sales, which offset a portion of fixed costs.

          For the three months ended September 30, 2010, gross profit increased by approximately $23.4 million, or 62.3%, compared to the same period last year. Gross margin increased to 37.4% for the three months ended September 30, 2010, compared to 30.8% for the same period last year, primarily due to higher capacity utilization of our manufacturing and wafer fabrication facilities and improved product mix. For the remainder of 2010, we expect gross margin to be relatively the same as compared to the third quarter of 2010.

		2010				2009
Selling, general and administrative expenses (“SG&A”)		$	22,837			$	19,079

     SG&A for the three months ended September 30, 2010 increased approximately $3.8 million, or 19.7%, compared to the same period last year, primarily due to higher sales commissions related to increased sales, as well as to higher employee related costs including incentives and higher general operating costs. SG&A as a percentage of sales, decreased to 14.0% for the three months ended September 30, 2010, compared to 15.6% in the same period last year due to higher net sales. For the remainder of 2010, we expect SG&A to be comparable to the third quarter of 2010 on a percentage of net sales basis.

		2010				2009
Research and development expenses (“R&D”)		$	7,212			$	6,284

     R&D for the three months ended September 30, 2010 was $7.2 million, an increase of approximately $0.9 million from the same period last year, primarily due to increased personnel costs, engineering supplies and material purchases. R&D, as a percentage of sales, decreased to 4.4% for the three months ended September 30, 2010, compared to 5.1% in the same period last year due to higher net sales. For the remainder of 2010, we expect R&D to be comparable to the third quarter of 2010 on a percentage of net sales basis.

		2010				2009
Amortization of acquisition-related intangible assets		$	1,098			$	1,271

     Amortization of acquisition-related intangible assets was approximately $1.1 million for the three months ended September 30, 2010 and approximately $1.3 million in the same period last year.

		2010				2009
Interest income		$	279			$	805

     Interest income decreased for the three months ended September 30, 2010 to $0.3 million, compared to $0.8 million in the same period last year, due primarily to the absence of interest income being earned on our ARS, which were put back to UBS at par value on June 30, 2010 in accordance with the previously disclosed settlement agreement. For the remainder of 2010, we expect interest income to be lower than 2009 since we are no longer earning interest on the ARS.

		2010				2009
Interest expense		$	939			$	1,784

     Interest expense for the three months ended September 30, 2010 was approximately $1.0 million, compared to $1.8 million in the same period last year. The $0.8 million decrease in interest expense was due primarily to the repurchase and retirement of $95.7 million par value of Notes since the fourth quarter of 2008 and due to the fact our “no net cost” loan was paid off on June 30, 2010 in connection with the previously disclosed settlement agreement with UBS. For the remainder of 2010, we expect interest expense to be lower than 2009 since we are no longer being charged interest for the “no net cost” loan.

		2010				2009
Amortization of debt discount		$	2,006			$	1,981

     Amortization of debt discount was approximately $2.0 million for both the three months ended September 30, 2010 and the same period last year.

		2010				2009
Other income (expense)		$	251			$	(1,062	)

     Other income for the three months ended September 30, 2010 was $0.3 million, compared to other expense of $1.1 million in the same period last year. Included in other expense for the three months ended September 30, 2009 was a $1.4 million foreign currency transaction losses due primarily to the strengthening of the U.S. dollar versus the British Pound, negatively affecting foreign currency hedges acquired in connection with our acquisition of Zetex.

		2010				2009
Income tax provision (benefit)		$	5,346			$	(629	)

     We recognized income tax expense of $5.3 million for the three months ended September 30, 2010, compared to a $(0.6) million income tax benefit in the same period last year. Income taxes for the interim periods ended September 30, 2010 and 2009 have been included in the accompanying financial statements on the basis of an estimated annual effective rate and actual year-to-date effective income tax rate, respectively. The estimated effective tax rate is 19.5% for the three months ended September 30, 2010, as compared to (8.7)% in the same period last year. Our effective tax rate for the three months ended September 30, 2010 was lower than the U.S. statutory tax rate of 35%, as it was impacted by higher income in lower-taxed jurisdictions and the non-cash tax benefit from reversing valuation allowances on deferred tax assets from U.S. loss carryforwards. In addition, the Company’s effective tax rate for the three months ended September 30, 2009 was impacted by income in lower-taxed jurisdictions.

		2010				2009
Net income attributable to noncontrolling interest		$	907			$	819

     Noncontrolling interest represented the minority investors’ share of the earnings of our China and Taiwan subsidiaries for the three months ended September 30, 2010 and 2009. The noncontrolling interest in the subsidiaries and their equity balances are reported separately in the consolidation of our financial statements, and the activities of these subsidiaries are included therein. Our interests in these subsidiaries have not materially changed since December 31, 2009.

Results of Operations for the Nine Months Ended September 30, 2010 and 2009

          The following table sets forth, the percentage that certain items in the statements of operations bear to net sales and the percentage dollar increase (decrease) of such items from period to period.

										Percentage Dollar
		Percent of Net Sales								Increase
		Nine months ended September 30,								(Decrease)
		2010				2009				'09 to '10
Net sales			100.0	%			100.0	%			47.7
Cost of goods sold			(63.9	)			(73.9	)			27.7
Gross profit			36.1				26.1				104.2
Operating expenses			(19.9	)			(23.1	)			27.2
Income from operations			16.2				3.0				700.7
Interest income			0.6				1.3				(33.8	)
Interest expense and amortization of debt discount			(2.3	)			(4.0	)			(17.7	)
Other income (expenses)			0.4				(0.4	)			(262.8	)
Income (loss) before income taxes and noncontrolling interest			14.9				(0.1	)			(25,101.5	)
Income tax provision			2.6				1.6				137.7
Net income (loss)			12.3				(1.7	)			(1,165.1	)
Less: net income attributable to noncontrolling interest			(0.6	)			(0.5	)			68.0
Net income (loss) attributable to common stockholders			11.7				(2.2	)			(887.7	)