1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended
DECEMBER 31, 1998.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive (Zip Code)
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 446-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $0.66 2/3 AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange
on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the 2,949,019 shares of Common Stock held by
non-affiliates of the registrant, based on the closing price of the Common Stock
on the American Stock Exchange on March 19, 1999 of $4.875 per share, was
approximately $14,376,468. The number of shares of the registrant's Common Stock
outstanding as of March 19, 1999, was 5,764,352 including 717,115 shares of
treasury stock.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A in connection with
the 1999 Annual Meeting are incorporated by reference into Part III of this
Report. Such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the registrant's fiscal year ended
December 31, 1998.
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PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Diodes Incorporated (the "Company") was formed in 1959 under the
laws of Delaware. The Company is engaged in the manufacture, sale, and
distribution of discrete semiconductors worldwide, primarily to manufacturers of
automotive, computer and telecommunication products and to distributors of
electronic components. In addition to the Company's corporate headquarters in
Westlake Village, California, which provides sales, marketing and engineering
functions, the Company's wholly-owned subsidiary, Diodes Incorporated Taiwan
Company, Ltd. ("Diodes-Taiwan"), maintains a sales, manufacturing, engineering,
and purchasing facility in Taipei, Taiwan. The Company also has a 95% interest
in a manufacturing facility, Shanghai KaiHong Electronics Co., Ltd.,
("Diodes-China" formerly referred to as KaiHong) in Shanghai, China.
In July 1997, Vishay Intertechnology, Inc. ("Vishay") and the
Lite-On Group, a Taiwanese consortium, formed a joint venture -- Vishay/Lite-On
Power Semiconductor Pte., Ltd. ("Vishay/LPSC") -- to acquire Lite-On Power
Semiconductor Corp. ("LPSC"), the Company's largest shareholder and a member of
the Lite-On Group of the Republic of China. Vishay, with worldwide sales
exceeding $1.5 billion, is the largest U.S. and European manufacturer of passive
electronic components and a major producer of discrete semiconductors and power
integrated circuits. The Lite-On Group, with worldwide sales of almost $2
billion, is a leading manufacturer of power semiconductors, computer
peripherals, and communication products. The Vishay/LPSC joint venture includes
the worldwide discrete power semiconductor business of LPSC and the Asian
passive component business of Vishay. Vishay holds a 65% controlling interest in
the joint venture, and the Lite-On Group holds the other 35%.
PRODUCTS
Technology in the semiconductor industry is ever changing and
the products sold by the Company are mature products. Although the Company is
not expecting to experience further product technology changes, nor does it
believe its products will become obsolete in the foreseeable future, the Company
(especially its Diodes-China manufacturing facility) is focusing on developing
smaller packages for its product line.
Product Technology. Semiconductors come in two basic
configurations: discretes and integrated circuits. The Company is engaged in the
manufacture, sale, and distribution of discrete semiconductors, which are
fixed-function components such as small signal transistors and MOSFETs,
transient voltage suppressors (TVSs), zeners, Schottkys, diodes, rectifiers and
bridges.
In terms of function, integrated circuits are far more complex.
They are multi-function devices of the sort found in computer memory boards and
central processing units. Integrated circuits, characterized by rapid changes in
both production and application, and the desire to put ever-more intelligence
into ever-smaller packages, have required the development of manufacturing
techniques that are sophisticated and expensive.
In contrast, there is little that is proprietary about the
manufacturing of discrete semiconductors. Here, technologies are neither new nor
rapidly evolving. Success, therefore, is highly dependent upon the ability to
produce large numbers of inexpensive components of consistent high quality, and
with low overhead. Discretes, which effectively tie integrated circuits to their
surrounding environments and enable them to work, come in hundreds of
permutations and vary according to voltage, current, power handling capability,
and switching speed.
In a standard industry classification, those discrete
semiconductors operating at less than one watt are referred to as low-power
semiconductors, while those operating at greater than one watt are termed power
semiconductors. Both types of semiconductors are found in a wide assortment of
commercial instrumentation and communication equipment, in consumer products
like televisions and telephones, and in automotive, computer and industrial
electronic products.
Product Packaging. Almost as important as the technology of the
components, is the packaging. The industry trend is to fit discrete components
into ever-smaller surface-mount packages. Smaller packaging provides a reduction
in board space, height, and weight and is well suited for battery-powered,
hand-held and wireless applications such as cellular phones, pagers, modems,
notebook and palmtop computers, and accessories where space is at a premium. The
objective is to fit the same functionality and power handling features into
smaller packages.
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MANUFACTURING AND SIGNIFICANT VENDORS
The Company's Far East subsidiaries, Diodes-Taiwan and
Diodes-China, manufacture product for sale to North America and Asia.
Diodes-Taiwan's manufacturing focuses on products such as axial schottky and
melf rectifiers, to name a few. These "general use" products are destined for
end products in the automotive industry, as well as for use in commercial
appliances, household lighting, and electric hand tools, among others.
Diodes-China's manufacturing, focuses on SOT-23 and SOD-123 products. These
surface mount devices ("SMD") are used in the computer and telecommunication
industries and are destined for cellular phones, notebook computers, pagers,
PCMCIA cards, modems, and garage door transmitters, among others. Diodes-China's
state-of-the-art facilities have been designed to develop even smaller,
higher-density products as electronic industry trends to portable and hand -held
devices continue.
As a result of the Company's total commitment to product quality
and customer satisfaction, the Company's corporate headquarters received
official ISO 9002 Certification of Registration from Underwriters Laboratories,
the leading third-party certification organization in the United States and the
largest in North America. ISO 9000 certifications consist of a series of
paradigms for the establishment of systems and protocols to facilitate the
creation and maintenance of superior quality-control techniques. Subsequently,
both the Diodes-China and Diodes-Taiwan facilities have received official ISO
9002 Certification of Registration. With its underlying premise that true
product quality requires a total quality system, ISO certification is often
required of vendors seeking to establish relationships with original equipment
manufacturers ("OEMs") doing business in intensely competitive global markets.
All of the products sold by the Company, as well as the
materials used by the Company in its manufacturing operations, are available
both domestically and abroad. In 1998, the two largest suppliers of products to
the Company were Vishay/LPSC and General Semiconductor Corporation. During the
year ended December 31, 1998, approximately 35% and 22% of purchases were from
these two vendors, respectively, versus 32% and 28% in 1997, respectively. See
Notes 9 and 10 of "Notes to Consolidated Financial Statements" for a description
of the major vendors and the relationship between V/LPSC and the Company. In
addition, Diodes-Taiwan supplied approximately 7% of the Company's purchases and
the Diodes-China facility 4% in 1998. The Company anticipates that Diodes-China
will become an increasingly valuable supplier. No other manufacturer of discrete
semiconductors accounted for more than 5% of the Company's purchases in 1998.
The Company entered into a previously filed agreement with
FabTech, Inc. ("FabTech"), a wholly-owned subsidiary of Vishay/LPSC, whereby the
Company has access to an additional supply of processed wafers used in the
manufacture of several types of discrete semiconductors. As part of the
agreement, the Company has provided FabTech with approximately $2.5 million
(plus accrued interest) in working capital to be used in upgrading,
reconfiguring, and starting up operations at an existing wafer fabrication
facility located in Lee's Summit, Missouri.
The Company's Taiwan and China manufacturing facilities receive
wafers from FabTech, among others. Output from the FabTech facility includes
wafers used in the production of Schottky barrier diodes, fast recovery
epitaxial diodes (FREDs), and other widely used value-added products. Schottky
barrier diodes are employed in the manufacture of the power supplies found in
personal computers, telecommunications devices and other applications where high
frequency, low forward voltage and fast recovery are required.
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 until an alternate source
is located and has commenced providing such products or raw materials.
SALES AND MARKETING
Numerous semiconductor manufacturers and distributors serve the
discrete semiconductor components market. Some of the larger companies include
Motorola, Fairchild Semiconductor (formerly National Semiconductor),
International Rectifier, Rohm, Phillips, and General Semiconductor, many of whom
have greater financial, marketing, brand name and other resources than the
Company. Over the years, there has been a tendency among some larger
manufacturers to limit or de-emphasize the production and marketing of discrete
components in favor of integrated and hybrid circuits. With fewer
service-oriented sources of discrete components available to OEMs, the Company
has been able to capture additional market share. The Company's products
primarily include catalog items, but also include units designed to specific
customer requirements.
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Products are sold under several brand names such as Diodes,
Lite-On, ITT and most recently, Vishay/Lite-On Power Semiconductor. The Company
is unifying product lines under a limited number of brand names in order to
establish brand name unity and consistency of product, and to capitalize on
brand name recognition, where possible.
The Company sells its products through its own internal and
regional sales departments, as well as through representatives and distributors.
The Company's sales team, aided by the sales force of approximately 30
independent sales representatives located throughout North America and Asia,
supplies approximately 300 OEM accounts. In 1998, OEM customers accounted for
approximately 54% of the Company's sales, compared to approximately 60% in 1997,
due to the Company's focus on broadening its distribution channels. OEM
customers range from small, privately held electronics companies to Fortune 500
companies.
The Company further supplies approximately 30 stocking
distributors (46% of 1998 sales), who collectively sell to approximately 10,000
customers on the Company's behalf. In 1998, a significant benefit from the
affiliation with Vishay was the broadening of the Company's distribution network
to include major distributors such as Future, Arrow, and Marshall, to complement
the Company's existing distributor network that includes Jaco, Kent, Reptron,
Sterling, TTI, All American, and Advacom, among others.
Through ongoing sales and customer service efforts, the Company
continues to develop business relationships with companies who are considered
leaders in their respective market segments, such as automotive,
telecommunications, personal computers, computer peripherals and industrial. The
Company's marketing efforts also have benefited from an ongoing program to
develop strategic alliances with manufacturers, such as Vishay/LPSC and FabTech,
among others, to better control its destiny in terms of the price, the quality
and especially the availability of the products it sells.
The Company's products are sold primarily in North America and
the Far East, both directly to end users and through electronic component
distributors. In 1998, approximately 72% and 28% of the Company's products were
sold in North America and the Far East, respectively, compared to 75% and 25% in
1997, respectively. See Note 11 of "Notes to Consolidated Financial Statements"
for a description of the Company's adoption of SFAS No. 131, Disclosures about
Segments of and Enterprise and Related Information. The increase in the
percentage of sales in the Far East to total sales is expected to continue as
the Company believes there is greater potential to increase market share in that
region due to the expanding base of electronic product manufacturers.
During the past seven years, the Company has pursued an
aggressive program to improve product quality and customer service in order to
support more broad-based, strategic accounts. For the fiscal years ended
December 31, 1998, 1997, and 1996, the sale of discrete semiconductor products
represented 100 percent of the Company's sales and the Company intends to
continue this focus on discrete semiconductors.
Through Diodes-Taiwan, the Company employs a general manager who
acts as the Far East purchasing liaison with respect to product procurement from
other vendors located in the Far East. Diodes-Taiwan also manufactures product
for sale to the Company as well as for other customers in Taiwan, Korea, and
Singapore, among others.
Until the fourth quarter of 1997, all of Diodes-China's
production was sold to the Company as inter-company sales. Diodes-China has
begun to ship product to trade customers; thus contributing to the Company's
consolidated sales. The Company expects Diodes-China to increasingly contribute
to the Company's consolidated sales.
The Company is not dependent on any one major customer to
support its level of sales. For the fiscal year ended December 31, 1998, there
was not one customer that accounted for more than 5% of the Company's sales. The
twenty largest customers of the Company accounted, in total, for approximately
52% of the Company's sales in 1998, compared to 43% in 1997.
INVENTORY
In general, the Company maintains sufficient inventories of
standard products at its U.S. facility and Diodes-Taiwan facility to permit
rapid delivery of customers' orders. In addition, the Company continuously
coordinates with strategic alliances and subcontractors to support product
demand. In 1998, the Company implemented a program in coordination with its
distributors, enabling the Company to transfer inventory from distributors to
OEM customers to better manage the Company's on-hand inventory.
The Company's inventory is composed of discrete semiconductors,
which are, for the most part, standardized in electronic related industries.
Finished goods inventory turns over approximately four times annually. The
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Company has no special inventory or working capital requirements that are not in
the ordinary course of business. Unless arrangements are otherwise specially
made, invoices to customers are payable net 30 days. Company policy is to hold
shipments to customers who are more than 60 days in arrears.
BACKLOG
The amount of backlog to be shipped during any period is
dependent upon various factors and all orders are subject to cancellation or
modification, usually without penalty to the customer. Backlog of orders
scheduled to ship within six months were approximately $7.3 million on December
31, 1998, compared to approximately $9.3 million on December 31, 1997, and $10.2
million on December 31, 1996. The Company and the industry as a whole is
experiencing a trend towards shorter lead-times (the amount of time between the
date a customer places an order to the date the customer requires shipment). The
amount of backlog at any date depends upon various factors, including the timing
of the receipt of orders, fluctuations in orders of existing product lines, and
the introduction of any new lines. Accordingly, the amount of backlog at any
date is not necessarily indicative of actual shipments. The Company strives to
maintain proper inventory levels to support customers' just-in-time order
expectations.
COMPETITION
Competition in those portions of the semiconductor marketplace
in which the Company competes is intense. The Company competes with discrete
semiconductor manufacturing companies such as Motorola, General Semiconductor
(formerly General Instruments), Fairchild Semiconductor (formerly National
Semiconductor), International Rectifier, Rohm, and Phillips, as well as
distributors of similar product lines such as Taitron Components.
Competitiveness in sales of the Company's products is determined
by the price and quality of the product and the ability of the Company to
provide delivery and customer service in keeping with the customers' needs. The
Company believes itself to be well equipped to be competitive in respect to
these requirements. Many of the Company's competitors have substantially greater
financial, marketing, distribution and other resources than the Company.
Accordingly, in response to market conditions, the Company from time to time may
reposition product lines or decrease prices, which may adversely affect the
Company's profit margins on such product lines. See "Cautionary Statement for
Purposes of the `Safe Harbor' Provision of the Private Securities Litigation
Reform Act of 1995."
EMPLOYEES
As of December 31, 1998, the Company employed a total of 67
full-time employees in the United States, of who 27 were in sales and marketing,
19 in customer support, and 21 in operations and administration. At such date,
Diodes-Taiwan employed an additional 47 employees in its Taiwan office, of who
26 were in manufacturing, 5 in sales, and 16 in purchasing, quality control, and
administration. The Diodes-China manufacturing facility employed a total of 239
employees, of whom 116 were in manufacturing and 123 in quality control and
administration. None of the Company's employees is subject to a collective
bargaining agreement. The Company considers its relations with its employees to
be satisfactory.
IMPORTS AND IMPORT RESTRICTIONS
During 1998, the Company's U.S. operations, which accounted for
approximately 72% of the Company's total sales, imported substantially all of
its products, of which approximately 32% was imported from Taiwan and
approximately 30% from mainland China. The balance of the imports is from
Germany, Japan, India, the Philippines, England and Korea, among others. As a
result, the Company's operations are subject to the customary risks of doing
business abroad, including, among other things, the difficulty and expense of
maintaining foreign sourcing channels, cultural and institutional barriers to
trade, fluctuations in currency exchange rates, restrictions on the transfer of
funds and the imposition of tariffs, political instability, transportation
delays, expropriation, import and export controls and other non-tariff barriers
(including export licenses and changes in the allocation of quotas), as well as
the uncertainty regarding the future relationship between China and Taiwan, 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. Any significant disruption in the Company's Taiwanese or Chinese
sources of supply or in the Company's relationship with its suppliers located in
Taiwan or China could have a material adverse effect on the Company.
The Company purchases products from foreign suppliers primarily
in United States dollars. To a limited extent, and from time to time, the
Company contracts (e.g. a portion of the equipment purchases for the
Diodes-China expansion) in foreign currencies, and, accordingly, its results of
operations could be materially affected by fluctuations in
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currency exchange rates. Due to the limited number of contracts denominated in
foreign currencies and the complexities of currency hedges, the Company has not
engaged in hedging to date. If the volume of contracts written in foreign
currencies increases, and the Company does not engage in currency hedging, any
substantial increase in the value of such currencies could have a material
adverse effect on the Company's results of operations. Management believes that
the current contracts written in foreign currency are not significant enough to
justify the costs inherent in currency hedging.
Imported products are also subject to United States customs
duties and, in the ordinary course of business, the Company from time to time is
subject to claims by the United States Customs Service for duties and other
charges. 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.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
With respect to foreign operations see Notes 1, 10 and 11 of
"Notes to Consolidated Financial Statements."
ITEM 2. PROPERTIES
The Company's primary physical properties during the year ended
December 31, 1998, were as follows:
A. Industrial building located at 3050 East Hillcrest Drive,
Westlake Village, CA 91362 USA. This building, consisting of
approximately 30,900 square feet, is the Company's corporate
headquarters and product distribution center. The Company is
primary lessee under a lease that has been extended three years
and expires in 2001. The Company has two five-year options to
extend the term of the lease.
B. Regional sales offices, leased for less than $1,000 per month,
located in the U.S. at the following locations:
1. 6200 Falls for the Neuse Road, Suite 200, Raleigh, NC
27609
2. One Overlook Drive, Suite 6B, Amherst, NH 03031
3. 261 East Maple Street, Suite 300, Birmingham, MI, 48009
4. 500 Newport Center Drive, Suite 930, Newport Beach, CA
92660
5. 50 Airport Parkway, San Jose, CA 95110
C. Industrial premises consisting of approximately 9,000 square
feet and located at 5Fl. 501-16 Chung-Cheng Road, Hsin-Tien
City, Taipei, Taiwan, Republic of China. These premises, owned
by Diodes-Taiwan, are used as a manufacturing facility. The
facility is subject to a mortgage held by Chang-Hwa Commercial
Bank, which matures on November 11, 2003, and is secured by land
and buildings.
D. Industrial premises consisting of approximately 7,000 square
feet and located at 2Fl. 501-15 Chung-Cheng Road, Hsin-Tien
City, Taipei, Taiwan, Republic of China. These premises, owned
by Diodes-Taiwan are used as sales and administrative offices.
The facility is subject to a mortgage held by Chang-Hwa
Commercial Bank, which matures on February 27, 2003, and is
secured by land and buildings.
E. Industrial building located at No. 61 Xinnan Street, Xingqiao
Town, Songjiang County, Shanghai, Peoples Republic of China.
This building, consisting of approximately 20,000 square feet,
is the corporate headquarters and product distribution and
manufacturing facility for the Diodes-China joint venture. The
building is owned by the joint venture company, Shanghai KaiHong
Electronics Co., Ltd.
The Company believes its current facilities are adequate for the
foreseeable future. See Notes 3 and 12 of "Notes to Consolidated Financial
Statements."
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, involved in litigation
incidental to the conduct of its business. The Company does not believe that any
currently pending litigation, to which it is a party, will have a material
adverse affect on its financial condition or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by the
Company during the last three months of the year ending December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed and traded on the American
Stock Exchange ("AMEX") under the symbol "DIO." The following table shows the
range of high and low sales prices per share for the Company's Common Stock for
each fiscal quarter from March 31, 1997 as reported by AMEX.
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CALENDAR QUARTER SALE PRICE OF
ENDED COMMON STOCK
-------------------------------------------------------------------------------------
HIGH LOW
--------------- -------------
First quarter (through March 19) 1999........... $ 7 $ 4 3/8
-------------------------------------------------------------------------------------
Fourth quarter 1998............................. 6 1/2 4
Third quarter 1998.............................. 7 1/8 4
Second quarter 1998............................. 10 3/16 6 5/8
First quarter 1998.............................. 11 1/2 8 1/4
-------------------------------------------------------------------------------------
Fourth quarter 1997............................. 16 3/4 6 3/4
Third quarter 1997.............................. 13 15/16 8 3/4
Second quarter 1997............................. 10 3/4 7 3/4
First quarter 1997.............................. 9 1/8 6 3/4
-------------------------------------------------------------------------------------
On March 19, 1999, the closing sale price of the Company's
Common Stock as reported by AMEX was $4.875. Shareholders are urged to obtain
current market quotations for the Common Stock. As of March 19, 1999, there were
approximately 1,000 stockholders of record of the Company's Common Stock.
No dividends have been declared during the past three years and
the Company does not expect to declare dividends in the foreseeable future. The
payment of dividends is within the discretion of the Company's Board of
Directors, and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, and general business conditions.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the fiscal years ended
December 31, 1998, 1997, 1996, 1995 and 1994 is qualified in its entirety by,
and should be read in conjunction with, the other information and financial
statements including the notes thereto, appearing elsewhere herein (in 000's
except per share data).
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
INCOME STATEMENT DATA
Net sales $ 38,275 $ 58,190 $ 56,019 $ 65,699 $ 60,261
Gross profit 10,697 16,463 14,842 18,343 14,944
Selling, general and administrative expenses 7,563 9,522 10,386 11,137 11,016
Income from operations 3,134 6,941 4,456 7,206 3,928
Interest expense, net 6 144 351 62 281
Minority interest in joint venture (1) -- -- 238 (15) (14)
Other income 437 513 295 627 551
Income before taxes 3,565 7,310 4,638 7,756 4,184
Provision for income taxes (2) 1,202 2,610 1,673 2,631 1,511
Net income 2,363 4,700 2,965 5,125 2,673
Earnings per share: (3)
Basic $ 0.50 $ 0.96 $ 0.60 $ 1.03 $ 0.53
Diluted $ 0.46 $ 0.90 $ 0.55 $ 0.93 $ 0.50
Number of shares used in computation: (3)
Basic 4,753 4,881 4,959 4,971 5,029
Diluted 5,137 5,220 5,362 5,482 5,371
AS OF DECEMBER 31,
-----------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
BALANCE SHEET DATA
Total assets $ 17,545 $ 29,363 $ 32,546 $ 38,354 $ 45,389
Working capital 9,411 13,263 17,403 18,699 16,639
Stockholders' equity 10,770 16,499 19,464 24,453 27,460
(1) See Note 10 of "Notes to Consolidated Financial Statements" included
herein.
(2) See Note 7 of "Notes to Consolidated Financial Statements" included
herein.
(3) See Note 1 of "Notes to Consolidated Financial Statements" included
herein.
No cash dividends were paid during the years 1994 through 1998.
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ITEM 7. 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 7 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 "Cautionary Statement for
Purposes of the "Safe Harbor" Provision of the Private Securities Litigation
Reform Act of 1995" and elsewhere in this Report on Form 10-K, 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 on this Annual Report on Form 10-K are made
pursuant to the Act.
GENERAL
Diodes Incorporated (the "Company") is a provider of
high-quality discrete semiconductor devices to leading manufacturers in the
automotive, electronics, computing and telecommunications industries. The
Company's products include small signal transistors and MOSFETs, transient
voltage suppressors (TVSs), zeners, Schottkys, diodes, rectifiers and bridges.
The Company's products are sold primarily in North America and
Asia, both directly to end-users and through electronic component distributors.
In 1998, approximately 72% and 28% of the Company's products were sold in North
America and the Far East, respectively, compared to 75% and 25% in 1997,
respectively. The increase in the percentage of sales in the Far East to total
sales is expected to continue as the Company believes there is greater potential
to increase market share in that region.
For financial reporting purposes, the Company is deemed to
engage in three industry segments; North America, Taiwan, and China. All three
segments focus on discrete semiconductor devices. The North American segment
procures and distributes products primarily throughout North America and
provides management, warehousing and engineering support to the other two
segments. The Taiwan segment procures product from, and manufactures and
distributes product primarily to, companies in Taiwan, Korea, Singapore, and
Hong Kong. This segment also procures product for, and manufactures and
distributes product to the Company's North American operations. The China
segment manufactures product for, and distributes product to, both the North
American and Taiwan segments. Beginning in 1997, the China segment began
manufacturing product for, and distributing product to, customers in China, the
U.S. and Europe. See Note 11 of "Notes to Consolidated Financial Statements" for
a description of the Company's adoption of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information.
In July 1997, Vishay Intertechnology, Inc. ("Vishay") and the
Lite-On Group, a Taiwanese consortium, formed a joint venture -- Vishay/Lite-On
Power Semiconductor Pte., LTD. ("Vishay/LPSC") -- to acquire Lite-On Power
Semiconductor Corp. ("LPSC"), the Company's largest shareholder and a member of
the Lite-On Group of the Republic of China. Vishay, with worldwide sales
exceeding $1.5 billion, is the largest U.S. and European manufacturer of passive
electronic components and a major producer of discrete semiconductors, and power
integrated circuits. The Lite-On Group, with worldwide sales of almost $2
billion, is a leading manufacturer of power semiconductors, computer
peripherals, and communication products. The Vishay/LPSC joint venture includes
the worldwide discrete power semiconductor business of LPSC and the Asian
passive component business of Vishay. Vishay holds a 65% controlling interest in
the joint venture, and the Lite-On Group holds the other 35%.
Products are sold under several brand names such as Diodes,
Lite-On, ITT and most recently, Vishay/Lite-On Power Semiconductor. The Company
is unifying product lines under a limited number of brand names in order to
establish brand name unity and consistency of product, and to capitalize on
brand name recognition, where possible.
The Company's Far East subsidiaries, Diodes-Taiwan and
Diodes-China, both manufacture product for sale to North American and the Far
East. Diodes-Taiwan manufacturing focuses on products such as axial schottky and
melf rectifiers, to name a few. These "general use" products are destined for
end products in the automotive industry as well as for use in commercial
appliances, household lighting, and electric hand tools, among others.
Diodes-China manufacturing, for the most part, focuses on SOT-23 and SOD-123
products. These surface mount devices ("SMD") are used in the computer and
telecommunication industries and are destined for cellular phones, notebook
computers, pagers, PCMCIA cards, modems, and garage door transmitters, among
others. Diodes-China's state-of-the-art facilities have been designed to develop
even smaller, higher-density products as electronic industry trends to portable
and hand held devices continue.
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The discrete semiconductor industry has for the last few years,
been subject to severe pricing pressures, compounded by the Asian economic
situation. Although manufacturing cost of the products has been falling, excess
manufacturing capacity and over-inventory has caused selling prices to fall at a
greater extent than manufacturing cost. Because of this competitive environment,
gross profit margins have declined from 27.9% in 1997 to 24.8% in 1998. To
compete in this highly competitive industry, in recent years, the Company has
committed substantial resources to the development and implementation of two
areas of operation; (i) sales and marketing, and (ii) manufacturing.
Emphasizing the Company's focus on customer service, additional
personnel and programs have been added. In order to meet customers' needs at the
design stage of end-product development, the Company has employed additional
applications engineers. These applications engineers work directly with
customers to assist them in "designing in" the correct products to produce
optimum results. Regional sales managers, working closely with manufacturers'
representative firms and distributors, have also been added in the U.S. and the
Far East to help satisfy customers' requirements. In addition, the Company has
developed relationships with major distributors who inventory and sell the
Company's products. The relationship with Vishay has provided additional
opportunities for the Company to have its products offered by some of the
world's largest distributors.
In 1998, the Company increased the amount of product shipped to
larger distributors. Although these sales were significant in terms of total
sales dollars and gross margin dollars, they generally were under agreements
that resulted in lower gross profit margins for the Company, when compared to
sales to smaller distributors and OEM customers. As the consolidation of
electronic component distributors continues, the Company anticipates that a
greater portion of its distributor sales will be to the larger distributors, and
thus may result in lower gross profit margins.
Since 1997, the Company's manufacturing focus has primarily been
in the development and expansion of Diodes-China. To date, the Company has
invested over $14 million in the manufacturing facility, which supplies product
for sale primarily in North America and the Far East. The equipment expansion
allows for the manufacture of additional SOT-23 packaged components as well as
other surface-mount packaging, including the smaller SOD packages. Approximately
$8.0 million of the Company's existing credit facility has been used to finance
the additional manufacturing capacity.
The Company will continue its strategic plan of locating
alternate sources of its products, including those provided by its major
suppliers. Alternate sources include, but are not limited to, Diodes-China and
other sourcing agreements in place as well as those in negotiations. The Company
anticipates that the effect of the loss of any one of its major suppliers will
not have a material adverse effect on the Company's operations provided that
alternate sources remain available. The Company continually evaluates
alternative sources of its products to assure its ability to deliver
high-quality, cost-effective products.
Products from foreign suppliers are purchased primarily in
United States dollars. To a limited extent, and from time to time, the Company
contracts in foreign currencies (e.g., a portion of the equipment purchases for
the Diodes-China expansion), and, accordingly, its results of operations could
be materially affected by fluctuations in currency exchange rates. Due to the
limited number of contracts denominated in foreign currencies and the
complexities of currency hedges, the Company has not engaged in hedging to date.
If the volume of contracts written in foreign currencies increases, and the
Company does not engage in currency hedging, any substantial increase in the
value of such currencies could have a material adverse effect on the Company's
results of operations. Management believes that the current contracts written in
foreign currencies are not significant enough to justify the costs inherent in
currency hedging.
The Company's effective tax rate increased to 36.1% in 1998 from
33.9% in 1997. Changes in Taiwan income tax policies in 1998 caused management
to reconsider its investment strategies in the fourth quarter of 1998 for
current and future earnings at Diodes-Taiwan, resulting in a distribution of
approximately $4.5 million made by Diodes-Taiwan to the Company in 1999. The
decision was made, in part, because the changes in Taiwan income tax policies
made it less favorable to accumulate earnings at Diodes-Taiwan and, in part, to
allow the Company to redirect its financial resources from Diodes-Taiwan to its
expansion of the Diodes-China joint venture. See "Results of Operations - 1998
Compared to 1997" for a more detailed explanation.
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000 Issue
("Y2K") and has developed an implementation plan to resolve the issue. Y2K is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test the systems for Y2K compliance.
Confirmation has been received from
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the Company's primary processing vendors and major customers that plans are
being developed to address processing of transactions in the year 2000. The
total cost of Y2K compliance was not considered a material expense. All internal
critical systems have been tested and the Company believes that, with its
modifications to existing software and its upgrades to Y2K compliant software,
Y2K will not pose significant operational problems for the Company's computer
systems. However, if (i) problems surface that have not yet been identified that
will require substantial time and resources to remedy, or (ii) such
modifications and upgrades are not completed timely by the Company's business
partners, they could have a material adverse effect on the Company's business.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage that certain items in the statement of income bear to net sales and
the percentage dollar increase (decrease) of such items from period to period.
PERCENT OF NET SALES PERCENTAGE DOLLAR INCREASE (DECREASE)
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------------------- -------------------------------------------------
1994 1995 1996 1997 1998 `94 to `95 `95 to `96 `96 to `97 `97 TO `98
------- ------- ------- ------- ------- ---------- ---------- ---------- ----------
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 52.0 % (3.7) % 17.3 % (8.3) %
Cost of goods
sold (72.1) (71.7) (73.5) (72.1) (75.2) 51.3 (1.3) 15.0 (4.3)
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit 27.9 28.3 26.5 27.9 24.8 53.9 (9.8) 23.6 (18.5)
Operating
expenses (19.8) (16.4) (18.5) (16.9) (18.3) 25.9 9.1 7.2 (1.1)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations 8.2 11.9 8.0 11.0 6.5 121.5 (35.8) 61.7 (45.5)
Interest
expense, net (0.0) (0.2) (0.6) (0.1) (0.5) 2,300.0 143.8 (82.3) 353.2
Other income 1.1 0.9 0.9 0.9 0.9 17.6 3.9 14.8 (12.1)
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
taxes 9.3 12.6 8.3 11.8 6.9 105.1 (36.6) 67.2 (46.1)
Income taxes 3.1 4.5 3.0 4.0 2.5 117.1 (35.9) 57.3 (42.6)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income 6.2 8.1 5.3 7.8 4.4 99.0 (36.9) 72.8 (47.8)
The following discussion explains in greater detail the
consolidated financial condition of the Company. This discussion should be read
in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere herein.
1998 COMPARED TO 1997
Net sales for 1998 compared to 1997 decreased $5,438,000, or
approximately 8.3%. The decrease in net sales was due primarily to industry-wide
pricing pressures that offset increased unit sales of approximately 3.3%. The
increase in unit sales is comprised of an increase in unit sales in the Far East
of approximately 36.9%, offset by a decrease of approximately 3.8% in North
America. Also contributing to lower sales in 1998 was the loss of approximately
$3.0 million in supplier-specific business due to the previously announced
acquisition of a major supplier by a competitor. The Company anticipates that a
portion of this supplier-specific business will be recovered as the Diodes-China
manufacturing facility develops additional product types.
The decrease in gross profit for 1998 compared to 1997 of
$3,399,000, or approximately 18.5%, was due primarily to the 8.3% decrease in
net sales. Pricing pressures within the industry resulting from decreased demand
and excess on-hand inventory contributed to a decrease in gross margin
percentage to 24.8% in 1998 from 27.9% in 1997. Average selling prices in 1998
decreased approximately 11.6%, which represents decreases in average selling
prices in the Far East and North America of approximately 24.5% and 9.0%,
respectively, compared to 1997. In addition, as the consolidation of electronic
component distributors continues, the Company anticipates that a greater portion
of its distributor sales will be to larger distributors, usually under
agreements resulting in lower gross profit margins.
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12
For 1998, selling, general and administrative expenses ("SG&A")
decreased $121,000, or approximately 1.1%, compared to 1997. The decrease in
SG&A was due primarily to a decrease in sales commissions due to the 8.3%
decrease in net sales, partly offset by an increase in wages due to additional
sales, engineering and customers service personnel. SG&A for 1998, as a
percentage of net sales, increased to 18.3% from 16.9% for 1997, primarily due
to the 8.3% decrease in net sales.
Net interest expense for 1998 compared to 1997 increased
$219,000, or approximately 353.2%, due primarily to an increased use of the
Company's credit facility. The Company's interest expense is primarily the
result of the term loan by which the Company is financing (i) the investment in
the Diodes-China manufacturing facility and (ii) the $3.0 million, including
accrued interest, advanced to FabTech. Interest income is primarily the interest
charged to FabTech, a related party, under the Company's formal loan agreement,
as well as earnings on its cash balances.
In 1998, the Diodes-China joint venture contributed to the
Company's profitability and, therefore, the $14,000 minority interest in joint
venture represents the minority investor's 5% share of the joint venture's
profit. During the fourth quarter of 1997, through an arrangement in accordance
with the original joint venture agreement, the Company increased its controlling
interest in Diodes-China from 70% to 95% through the purchase of an additional
25% from the minority investor.
Commissions and other income decreased $76,000, or approximately
12.1%, from 1997 to 1998. This decrease was primarily due to a decrease in
currency exchange gains at Diodes-Taiwan of $167,000, or approximately 55.7%.
Partly offsetting the decrease in currency exchange gains, was an increase in
sales commission income of $74,000, or approximately 19.2%, earned by
Diodes-Taiwan on drop shipments in the Far East.
The Company's overall effective federal, state, and foreign tax
rate increased to 36.1% in 1998 from 33.9% in 1997. Through December 31, 1997,
the Company had undistributed earnings at Diodes-Taiwan for which no deferred
income tax liability had been recorded since, at that time, management
considered this investment to be permanent, and no plans or intentions existed
to distribute the capital of its Taiwan subsidiary. Changes in Taiwan income tax
policies in 1998 caused management to reconsider its investment strategies in
the fourth quarter of 1998 for current and future earnings at Diodes-Taiwan.
While a portion of its investment will remain in Taiwan, a distribution of
approximately $4.5 million will be made by Diodes-Taiwan to the Company in 1999.
The decision was made, in part, because the changes in Taiwan income tax
policies made it less favorable to accumulate earnings at Diodes-Taiwan and, in
part, to allow the Company to redirect its financial resources from
Diodes-Taiwan to its expansion of the Diodes-China joint venture. Accordingly,
deferred income tax liabilities amounting to $512,000 have been recorded. Income
tax rates vary among the U.S., Taiwan, and China, therefore, income tax expense
may fluctuate depending upon the separate profitability of the three business
segments. Tax rates vary from 0% at Diodes-China for the next three years, to
rates between 25-35% at Diodes-Taiwan, to 41% in the U.S.
For 1998, the Company generated net income of $2,673,000 (or
$0.53 basic earnings per share, $0.50 diluted earnings per share), as compared
to $5,125,000 (or $1.03 basic earnings per share, $0.93 diluted earnings per
share) for 1997. This 47.8% decrease is due primarily to the 8.3% sales decrease
at gross profit margins of 24.8% compared to gross profit margins of 27.9% in
1997, as well as to the tax effect of the Diodes-Taiwan earnings distribution.
1997 COMPARED TO 1996
The increase in net sales in 1997 compared to 1996 of
$9,680,000, or approximately 17.3%, was due primarily to an increase in customer
demand primarily in Asian markets resulting in an increase in the number of
units shipped. Throughout most of 1996, the industry experienced a substantial
decrease in demand, combined with excess inventory among the Company's
customers, which negatively affected the Company's net sales and gross profit
margins in 1996. The Company's business in 1997 was not materially affected by
the widespread weakness in Asian currencies.
Gross profit in 1997 increased $3,501,000, or approximately
23.6%, compared to 1996, primarily due to the 17.3% increase in net sales, as
well as from an increase of approximately $600,000 in gross profit contribution
from the Diodes-China joint venture. Gross profit margin increased to 27.9% in
1997 compared to 26.5% in 1996.
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The Company's SG&A for the year ended 1997 increased $751,000,
or approximately 7.2%, compared to 1996, primarily due to sales commissions on
the $9,680,000 increase in sales, as well as to additional customer application
engineers and quality assurance personnel at its U.S. headquarters, providing
customers and vendors improved service. Fourth quarter 1996 results include a
one-time charge of $660,000 for pre-operating costs associated with
Diodes-China. These costs had been capitalized during start-up phases through
the joint venture's first six months of operations, and were fully amortized
upon commencement of full-scale operations in the fourth quarter. SG&A for 1997,
as a percentage of net sales, decreased to 16.9% from 18.5% for 1996, primarily
due to the 17.3% increase in net sales.
For 1997, net interest expense decreased $289,000, or
approximately 82.3%, compared to 1996, primarily due to debt reduction as well
as interest earned on higher cash balances. The Company's interest expense is
primarily the result of the term loan by which the Company is financing (i) the
investment in the Diodes-China manufacturing facility and (ii) the $3.0 million
(including accrued interest) advanced to FabTech. Interest income is primarily
the interest charged to FabTech, a related party, under the Company's loan
agreement, as well as earnings on its cash balances.
In 1997, the Diodes-China joint venture contributed to the
Company's profitability and, therefore, the $15,000 minority interest in joint
venture represents the minority investor's 5% share of the joint ventures
profit. During the fourth quarter of 1997, through an arrangement in accordance
with the original joint venture agreement, the Company increased its controlling
interest in Diodes-China from 70% to 95% through the purchase of an additional
25% from the minority investor.
Commissions and other income increased $332,000, or
approximately 112.5%, from 1996 to 1997. This increase was primarily due to an
increase in currency exchange gains at Diodes-Taiwan of $280,000, as well as to
an increase in sales commissions of $153,000 or approximately 66.1%, earned by
Diodes-Taiwan on drop shipments in the Far East.
The Company's overall effective federal, state, and foreign tax
rate decreased to 33.9% in 1997 from 36.1% in 1996. Due to tax rates that vary
from 0% at Diodes-China for the next three years to rates between 25% and 41%
between the Far East and the U.S., effective tax rates may fluctuate greatly,
depending upon the profit contribution of the Company's U.S. and Far East
operations.
For 1997, the Company generated net income of $5,125,000 (or
$1.03 basic earnings per share, $0.93 diluted earnings per share), as compared
to $2,965,000 (or $0.60 basic earnings per share, $0.55 diluted earnings per
share) for 1996. This 72.8% increase is due primarily to the 17.3% sales
increase at gross profit margins of 27.9% compared to gross profit margins of
26.5% in 1996.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in 1998 was $5.5 million
compared to $4.0 million in 1997 and $3.6 million in 1996. The primary sources
of cash flows from operating activities in 1998 were net income of $2.7 million
and a decrease in accounts receivable of $1.8 million. The primary use of cash
flows from operating activities in 1998 was a decrease in accounts payable of
$1.3 million. In 1997, the primary sources of cash flows from operating
activities were net income of $5.1 million and an increase in accounts payable
of $966,000, while the primary use was a $3.0 million increase in accounts
receivable. In 1996, the primary sources of cash flows from operating activities
were net income of $3.0 million and a decrease in inventories of $3.0 million,
while the primary use was a $1.5 million decrease in accounts payable.
Due to the slowdown in the semiconductor industry, the Company
is directing its efforts into reducing inventory levels, while still providing
the service and delivery that customers demand. The Company continues to closely
monitor its credit policy while, at times, providing more flexible terms,
primarily to its Asian customers, when necessary. The ratio of the Company's
current assets to current liabilities on December 31, 1998 was 2.6 to 1,
compared to a ratio of 2.8 to 1 and 3.2 to 1 as of December 31, 1997 and 1996,
respectively.
Cash used by investing activities was $9.4 million in 1998,
compared to $3.5 million in 1997 and $3.3 million in 1996. The primary
investment in 1998 was for additional manufacturing equipment at the
Diodes-China manufacturing facility.
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Cash provided by financing activities was $3.9 million in 1998,
compared to $77,000 in 1997 and $1.0 million in 1996. In March 1998, the Company
amended an August 1996 loan agreement whereby the Company obtained a $23.1
million credit facility with a major bank consisting of: a working capital line
of credit up to $9 million and term commitment notes providing up to $14 million
for plant expansion, advances to vendors, and letters of credit for
Diodes-China. Interest on outstanding borrowings under the credit agreement is
payable monthly at LIBOR plus a negotiated margin. Fixed borrowings require
fixed principal plus interest payments for sixty months thereafter. The
agreement has certain covenants and restrictions, which, among other matters,
require the maintenance of certain financial ratios and operating results, as
defined in the agreement. The Company was in compliance as of December 31, 1998.
The working capital line of credit expires June 30, 2000 and contains a sublimit
of $3.0 million for issuance of commercial and stand-by letters of credit.
During 1998, average and maximum borrowings outstanding on the line of credit
were $920,000 and $4,098,000, respectively. As of December 31, 1998,
approximately $8.0 million is outstanding under the term note commitment, and
the weighted average interest rate on outstanding borrowings was approximately
8.0%.
The Company uses its credit facility primarily to fund the
advances to Diodes-China and FabTech as well as to support its operations. At
December 31, 1998, amounts due from FabTech, including accrued interest, are
approximately $3.0 million, and the entire amount is due February 2001. The
Company believes that the continued availability of this credit facility,
together with internally generated funds, will be sufficient to meet the
Company's currently foreseeable operating cash requirements.
In July 1998, the Company replaced two previously filed
guarantees to Shanghai Kaihong Electronics Co., Ltd. and the minority investor
of the Diodes-China joint venture for $1.0 million and $850,000, respectively,
as well as a $1.0 million letter of credit, with a $3.0 million guarantee. The
Company reserves the right, at any time or from time to time, on one month's
prior written notice to the bank, to reduce the maximum amount guaranteed
hereunder or to terminate this guaranty; provided, however, that the Company
shall in any event remain liable as guarantor for all obligations of the
borrower outstanding at the effective date of any such notice to the bank.
Total working capital decreased approximately 11.0% to $16.6
million as of December 31, 1998, from $18.7 million as of December 31, 1997. The
Company believes that such working capital position will be sufficient for
growth opportunities.
The Company's debt to equity ratio increased to 0.63 at December
31, 1998, from 0.56 at December 31, 1997. It is anticipated that this ratio may
increase as the Company continues to use its credit facilities to fund
additional sourcing opportunities.
As of December 31, 1998, the Company has no material plans or
commitments for capital expenditures other than as previously announced in
connection with the expansion at Diodes-China. However, 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 and thereby,
assist the Company in improving customer satisfaction and in maintaining or
increasing market share.
Inflation did not have a material effect on net sales or net
income in fiscal years 1998, 1997 or 1996.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K" for the Company's Consolidated Financial Statements and the
notes and schedules thereto filed as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors and executive
officers will be set forth under the caption "Proposal One - Election of
Directors" in the Company's proxy statement for use in connection with its
Annual Meeting of Stockholders scheduled to be held on June 4, 1999 (the "1999
Proxy Statement") and is incorporated herein by reference. The 1999 Proxy
Statement will be filed with the Securities and Exchange Commission within 120
days after the end of the Company's fiscal year.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16(A)
Information regarding compliance with Section 16(a) of the
Exchange Act will be set forth under the caption "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Company's 1999 Proxy Statement to
be filed within 120 days after the end of the Company's fiscal year and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding remuneration of the Company's directors
and officers will be set forth under the captions "Proposal One Election of
Directors" and "Executive Compensation and Related Information" in the Company's
1999 Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial
owners and management will be set forth under the captions "General Information"
and "Proposal One - Election of Directors" in the Company's 1999 Proxy Statement
to be filed within 120 days after the end of the Company's fiscal year and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions will be set forth under the caption "Executive Compensation and
Related Information - Certain Relationships and Related Transactions" in the
Company's 1999 Proxy Statement to be filed within 120 days after the end of the
Company's fiscal year and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
(1) Financial statements: Page
Independent Auditors' Report 17
Consolidated Balance Sheet at December 31, 1998 and 1997 18 to 19
Consolidated Statement of Income for the Years Ended December 31, 1998, 1997, and 1996 20
Consolidated Statement of Stockholders' Equity for the Years Ended December 31,
1998, 1997, 1996 21
Consolidated Statement of Cash Flows for the Years Ended December 31, 1998, 1997,
and 1996 22
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Notes to Consolidated Financial Statements 23 to 35
(2) Schedules:
Report of Independent Accountants on Financial Statements and Schedules 36
Schedule II -- Valuation and Qualifying Account 37
(c) REPORTS ON FORM 8-K
None.
(b) EXHIBITS
See the Index to Exhibits at page 40 of this Annual
Report on Form 10-K for exhibits filed or
incorporated by reference.
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheet of Diodes
Incorporated and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three year period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Diodes
Incorporated and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and cash flows for each of the years in
the three year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
January 15, 1999
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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 1998
- ----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 2,325,000 $ 2,415,000
Accounts receivable
Customers 10,342,000 9,107,000
Related party 213,000 125,000
Other 916,000 496,000
----------- -----------
11,471,000 9,728,000
Allowance for doubtful accounts 74,000 110,000
----------- -----------
11,397,000 9,618,000
Inventories 13,525,000 13,777,000
Deferred income taxes 1,096,000 1,098,000
Prepaid expenses and other 806,000 448,000
----------- -----------
Total current assets 29,149,000 27,356,000
PROPERTY, PLANT AND EQUIPMENT, net 5,165,000 13,750,000
ADVANCES TO RELATED PARTY VENDOR 2,821,000 3,024,000
OTHER ASSETS 1,219,000 1,259,000
----------- -----------
Total assets $38,354,000 $45,389,000
=========== ===========
The accompanying notes are an integral part of these financial statements
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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 1998
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Due to bank $ 1,000,000 $ 812,000
Accounts payable
Trade 4,567,000 2,991,000
Related party 952,000 1,213,000
Accrued liabilities 1,988,000 3,421,000
Income taxes payable 912,000 169,000
Current portion of long-term debt 1,031,000 2,111,000
----------- -----------
Total current liabilities 10,450,000 10,717,000
DEFERRED COMPENSATION -- 56,000
DEFERRED INCOME TAXES -- 521,000
LONG-TERM DEBT, net of current portion 3,226,000 5,991,000
MINORITY INTEREST IN JOINT VENTURE 225,000 644,000
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -
par value $1 per share; 1,000,000
shares authorized; no shares issued -- --
Common stock - par value $.66 2/3 per share;
9,000,000 shares authorized; 5,764,352 shares in 1998 and
5,701,019 shares in 1997 issued and outstanding 3,801,000 3,843,000
Additional paid-in capital 5,813,000 6,105,000
Retained earnings 16,621,000 19,294,000
----------- -----------
26,235,000 29,242,000
Less: Treasury stock - 717,115 shares of
common stock, at cost 1,782,000 1,782,000
----------- -----------
24,453,000 27,460,000
----------- -----------
Total liabilities and stockholders' equity $38,354,000 $45,389,000
=========== ===========
The accompanying notes are an integral part of these financial statements
-19-
20
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996 1997 1998
- -----------------------------------------------------------------------------------
NET SALES $56,019,000 $65,699,000 $60,261,000
COST OF GOODS SOLD 41,177,000 47,356,000 45,317,000
----------- ----------- -----------
Gross profit 14,842,000 18,343,000 14,944,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,386,000 11,137,000 11,016,000
Income from operations 4,456,000 7,206,000 3,928,000
OTHER INCOME (EXPENSES)
Interest income 187,000 343,000 304,000
Interest expense (538,000) (405,000) (585,000)
Minority interest in earnings
of joint venture 238,000 (15,000) (14,000)
Commissions and other 295,000 627,000 551,000
----------- ----------- -----------
Income before income taxes 4,638,000 7,756,000 4,184,000
INCOME TAX PROVISION (1,673,000) (2,631,000) (1,511,000)
NET INCOME $ 2,965,000 $ 5,125,000 $ 2,673,000
=========== =========== ===========
EARNINGS PER SHARE
Basic $ 0.60 $ 1.03 $ 0.53
=========== =========== ===========
Diluted $ 0.55 $ 0.93 $ 0.50
=========== =========== ===========
Number of shares used in computation
Basic $ 4,958,658 $ 4,970,705 $ 5,029,064
=========== =========== ===========
Diluted 5,362,027 5,481,680 5,370,952
=========== =========== ===========
The accompanying notes are an integral part of these financial statements
-20-
21
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
- --------------------------------------------------------------------------------
Common stock
Shares in Additional Retained Common stock
Shares Treasury Amount paid-in capital earnings in treasury
------------ ------------ ------------ --------------- ------------ ------------
BALANCE,
December 31, 1995 5,675,619 717,115 $ 3,784,000 $ 5,768,000 $ 8,729,000 $ 1,782,000
Exercise of stock options 175 -- -- -- -- --
Net income for the year
ended December 31, 1996 -- -- -- -- 2,965,000 --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December 31, 1996 5,675,794 717,115 3,784,000 5,768,000 11,694,000 1,782,000
Increase in ownership of
Subsidiary Joint Venture -- -- -- -- (198,000) --
Exercise of stock options 25,225 -- 17,000 45,000 -- --
Net income for the year
ended December 31, 1997 -- -- -- -- 5,125,000 --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December 31, 1997 5,701,019 717,115 3,801,000 5,813,000 16,621,000 1,782,000
Exercise of stock options
including $78,000 income
tax benefit 63,333 -- 42,000 292,000 -- --
Net income for the year
ended December 31, 1998 -- -- -- -- 2,673,000 --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December 31, 1998 5,764,352 717,115 $ 3,843,000 $ 6,105,000 $ 19,294,000 $ 1,782,000
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
-21-
22
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 1997 1998
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,965,000 $ 5,125,000 $ 2,673,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 656,000 1,004,000 1,168,000
Minority interest earnings (238,000) 15,000 14,000
Loss (gain) on sale of property, plant and equipment (41,000) (3,000) 53,000
Interest income accrued on advances to vendor (131,000) (190,000) (203,000)
Changes in operating assets and liabilities
Accounts receivable (332,000) (3,021,000) 1,779,000
Inventories 3,027,000 (257,000) (252,000)
Prepaid expenses and other assets (18,000) (572,000) 278,000
Deferred income taxes (533,000) 330,000 519,000
Accounts payable (1,522,000) 966,000 (1,315,000)
Accrued liabilities 148,000 (114,000) 1,480,000
Income taxes payable (414,000) 689,000 (665,000)
----------- ----------- -----------
Net cash provided by operating activities 3,567,000 3,972,000 5,529,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in joint venture and advances to vendors (2,631,000) (2,050,000) --
Minority interest of joint venture investment 1,200,000 -- 405,000
Purchases of property, plant and equipment (1,848,000) (1,495,000) (9,793,000)
Proceeds from sales of property, plant and equipment 10,000 1,000 27,000
----------- ----------- -----------
Net cash used by investing activities (3,269,000) (3,544,000) (9,361,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (repayments) on line of credit, net (3,916,000) 1,000,000 (188,000)
Net proceeds from the issuance of capital stock -- 62,000 256,000
Proceeds from long term debt 5,000,000 -- 10,388,000
Repayments of long-term debt (40,000) (985,000) (6,534,000)
----------- ----------- -----------
Net cash provided by financing activities 1,044,000 77,000 3,922,000
----------- ----------- -----------
INCREASE IN CASH 1,342,000 505,000 90,000
CASH, beginning of year 478,000 1,820,000 2,325,000
----------- ----------- -----------
CASH, end of year $ 1,820,000 $ 2,325,000 $ 2,415,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 575,000 $ 405,000 $ 584,000
=========== =========== ===========
Income taxes $ 2,597,000 $ 1,908,000 $ 1,658,000
=========== =========== ===========
Non-Cash Financing Activity:
Tax benefit related to exercise of stock options
credited to paid-in capital $ -- $ -- $ 78,000
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
-22-
23
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Diodes Incorporated and its subsidiaries
manufacture and distribute discrete semiconductor devices to manufacturers in
the automotive, electronics, computing and telecommunications industries. The
Company's products include small signal transistors and MOSFETs, transient
voltage suppressers (TVSs), zeners, schottkys, diodes, rectifiers and bridges.
The products are sold primarily throughout North America and Asia.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiary, DII Taiwan
Corporation, Ltd. and its majority owned subsidiary Shanghai KaiHong Electronics
Co., Ltd. (both foreign subsidiaries, Notes 10 and 11). All significant
intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION - Revenue is recognized when the product is shipped.
INVENTORIES - Inventories are stated at the lower of cost or market
value. Cost is determined principally by the first-in, first-out basis.
DEPRECIATION AND AMORTIZATION - Property, plant and equipment are
depreciated using straight-line and accelerated methods over the estimated
useful lives, which range from 20 to 53 years for buildings and 1 to 10 years
for machinery and equipment. Leasehold improvements are amortized using the
straight-line method over 1 to 5 years.
INCOME TAXES - Income taxes are accounted for using an asset and
liability approach whereby deferred tax assets and liabilities are recorded for
the differences in the financial reporting bases and tax bases of the Company's
assets and liabilities. Income taxes are further explained in Note 7.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk include trade accounts
receivable. Credit risk is limited by the dispersion of the Company's customers
over various geographic areas, operating primarily in the electronics
manufacturing and distribution industries. The Company performs on-going credit
evaluations of its customers and generally requires no collateral from its
customers. Historically, credit losses have not been significant.
The Company and its subsidiaries maintain cash balances at major
financial institutions in the United States, Taiwan, and China. Accounts at each
institution in the United States are insured by the Federal Deposit Insurance
Corporation up to $100,000. Accounts at each institution in Taiwan are insured
by the Central Deposit Insurance Company up to NT$1,000,000 (approximately
US$30,000 as of December 31, 1998).
FOREIGN OPERATIONS - Through its subsidiaries the Company maintains
operations in Taiwan and China for which the functional currency is the U.S.
dollar. Assets and liabilities of its foreign operations which are denominated
in currency other than the U.S. dollar are not hedged and therefore are subject
to fluctuations in the currency exchange rate between the U.S. dollar and
foreign currencies (NT dollar and Renminbi Yuan).
-23-
24
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
FOREIGN OPERATIONS (CONTINUED) - Monetary assets and liabilities
denominated in foreign currencies are translated at the year-end exchange rate.
Non-monetary assets and liabilities are converted at historical rates. Income
and expense accounts are translated using an average exchange rate for the year,
except that cost of goods sold and depreciation expense are remeasured using
historical rates. Included in net income are net monetary exchange and
translation gains of approximately $21,000, $300,000 and $133,000 for the years
ended December 31, 1996, 1997 and 1998, respectively.
EARNINGS PER SHARE - Earnings per share are based upon the weighted
average number of shares of common stock and common stock equivalents
outstanding, net of common stock held in treasury.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standard No. 128 Earnings Per Share (SFAS No. 128)
effective for years ending after December 15, 1997. Earnings per share in the
accompanying financial statements are calculated in accordance with SFAS No.
128. Earnings per share for 1996 and 1997, including 1997 unaudited quarterly
data in Note 14, have been restated to reflect earnings per share calculated in
accordance with SFAS No. 128. SFAS No. 128 requires basic earnings per share be
calculated based on weighted average shares outstanding for the period without
giving effect to outstanding common stock equivalents while diluted earnings per
share considers the effect of common stock equivalents on weighted average
shares outstanding.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
STOCK-BASED COMPENSATION - The Company has elected not to adopt SFAS
123, Accounting for Stock-Based Compensation and continues to apply APB Opinion
No. 25 (APB 25) and related Interpretations in accounting for its option plans.
Under SFAS 123, a fair value method is used to determine compensation cost for
stock options or similar equity instruments. Compensation is measured at the
grant date and is recognized over the service or vesting period. Under APB 25,
compensation cost is the excess, if any, of the quoted market price of the stock
at the measurement date over the amount that must be paid to acquire the stock.
The new standard allows the Company to continue to account for stock-based
compensation under APB 25, with disclosure of the effects of the new standard.
The proforma effect on income as if the Company had adopted SFAS 123 is
disclosed in Note 8.
-24-
25
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
NEW ACCOUNTING PRONOUNCEMENTS - During 1998, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standard No. 132
("Disclosures about Pensions and other Postretirement Benefits"), No. 133
("Accounting for Derivative Instruments and Hedging Activities") and No. 134
("Accounting for Mortgage-Backed Securities") which are effective for years
after 1998. Management believes these pronouncements will not have a material
effect on the Company's financial statements or disclosures.
NOTE 2 - INVENTORIES
1997 1998
----------- -----------
Finished goods $11,920,000 $12,968,000
Work-in-progress 370,000 259,000
Raw materials 1,235,000 550,000
----------- -----------
$13,525,000 $13,777,000
=========== ===========
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
1997 1998
------------ ------------
Building $ 893,000 $ 1,238,000
Leasehold improvements 198,000 224,000
Machinery and equipment 6,393,000 15,289,000
------------ ------------
7,484,000 16,751,000
Less accumulated depreciation
and amortization (2,642,000) (3,324,000)
------------ ------------
4,842,000 13,427,000
Land 323,000 323,000
------------ ------------
$ 5,165,000 $ 13,750,000
============ ============
-25-
26
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - BANK CREDIT AGREEMENT AND LONG-TERM DEBT
The Company has a $23.1 million credit agreement with a major bank
providing a working capital line of credit up to $9 million, term commitment
notes providing up to $10 million for plant expansion and advances to vendors,
and letters of credit of $4.1 million for KaiHong operations. Interest on
outstanding borrowings under the complete credit agreement is payable monthly at
LIBOR plus a negotiated margin. Fixed borrowings require fixed principal plus
interest payments for sixty months thereafter. The agreement has certain
covenants and restrictions which, among other matters requires the maintenance
of certain financial ratios and operating results, as defined in the agreement.
The Company was in compliance with the covenants as of December 31, 1998.
The working capital line of credit expires June 30, 2000. The line
contains a sublimit of $3 million for issuance of commercial and stand-by
letters of credit. During 1998, average and maximum borrowings outstanding on
the line of credit were $920,000 and $4,098,000, respectively. The weighted
average interest rate on outstanding borrowings was 8% for the year ended
December 31, 1998.
Long-term debt as of December 31 is comprised of the following:
1997 1998
---------- ----------
Loan payable to bank secured by
buildings and land, monthly principal
payments of NT$84,000
(approximately $3,000 U.S.) plus
interest at 7% per annum through
November 2003 $ 174,000 $ 144,000
substantially all assets, due in
aggregate monthly principal
payments of $173,000 plus interest at
LIBOR plus 1.1% through December
31, 2003 4,083,000 7,958,000
---------- ----------
4,257,000 8,102,000
Current portion 1,031,000 2,111,000
---------- ----------
$3,226,000 $5,991,000
========== ==========
-26-
27
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - BANK CREDIT AGREEMENT AND LONG-TERM DEBT (Continued)
The aggregate maturities of long-term debt for future years ending
December 31 are:
1999 $2,111,000
2000 2,111,000
2001 2,111,000
2002 1,194,000
2003 575,000
----------
$8,102,000
==========
NOTE 5 - ACCRUED LIABILITIES
1997 1998
---------- ----------
Employee compensation and payroll taxes $ 894,000 $ 780,000
Sales commissions 303,000 313,000
Refunds to product distributors - 424,000
Other 791,000 1,904,000
---------- ----------
$1,988,000 $3,421,000
========== ==========
NOTE 6 - VALUATION OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107 "Disclosures About
Fair Value of Financial Instruments" (SFAS 107) requires disclosure of the fair
market value of financial instruments for which it is practicable to estimate
fair value. The Company's financial instruments include cash, accounts
receivable, accounts payable, working capital line of credit, and long term
debt. The Company considers the carrying amounts of all financial instruments to
approximate fair value.
NOTE 7 - INCOME TAXES
The components of the income tax provisions are as follows:
1996 1997 1998
----------- ----------- -----------
Current tax provision (benefit)
Federal $ 982,000 $ 1,268,000 $ (82,000)
Foreign 678,000 1,252,000 1,089,000
State 322,000 330,000 (15,000)
----------- ----------- -----------
1,982,000 2,850,000 992,000
Deferred tax provision (benefit) (309,000) (219,000) 519,000
----------- ----------- -----------
$ 1,673,000 $ 2,631,000 $ 1,511,000
=========== =========== ===========
-27-
28
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (CONTINUED)
A reconciliation between the effective tax rate and the statutory tax
rates for the years ended December 31, 1998, 1997 and 1996 are as follows:
1996 1997 1998
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of pretax of pretax of pretax
Amount earnings Amount earnings Amount earnings
----------- --------- ----------- --------- ----------- ---------
Federal tax at 34% $ 1,577,000 34.0% $ 2,637,000 34.0% $ 1,422,000 34.0%
State franchise tax,
net of federal benefit 284,000 6.1 453,000 5.8 242,000 5.8
Foreign income taxed at
lower rates (257,000) (5.5) (428,000) (5.5) (145,000) (3.5)
Other 69,000 1.5 (31,000) (.4) (8,000) (.2)
----------- -------- ----------- -------- ----------- --------
Income tax provision $ 1,673,000 36.1% $ 2,631,000 33.9% $ 1,511,000 36.1%
=========== ======== =========== ======== =========== ========
At December 31, 1998 and 1997, the Company's deferred tax assets and
liabilities are comprised of the following items:
1997 1998
---------- ----------
DEFERRED TAX ASSETS
Inventory cost $ 692,000 $769,000
Accrued expenses and accounts receivable 225,000 83,000
State income taxes and other 179,000 246,000
---------- ----------
$1,096,000 $1,098,000
========== ==========
DEFERRED TAX LIABILITIES
Undistributed foreign earnings $ - $ 521,000
========== ==========
Under Federal tax law, foreign earnings are taxed when funds are
distributed by foreign subsidiaries to the parent Company. A temporary
difference between financial and tax reporting exists for profits earned at the
foreign subsidiary level not distributed to the parent. A deferred tax liability
of $521,000 is reflected in the balance sheet for a dividend of approximately
$4.5 million expected to be issued from the Taiwanese subsidiary to the parent
Company in 1999. The Company has not established a deferred tax liability for
the remaining undistributed earnings of this subsidiary of approximately $5
million since the Company views this amount as a permanent investment and has no
current plans, intentions or obligation to distribute all or part of that amount
from Taiwan to the United States.
The R.O.C. taxing authorities assessed the Company's Taiwanese
subsidiary approximately $370,000 in 1997 related to an examination of tax
returns through 1995. This assessment pertained specifically to a tax on
excessive accumulated earnings through 1995. The earnings accumulated in 1996
through 1998 in excess of amounts distributed to the parent company may be
subjected to tax assessments should the subsidiary's accumulated earnings in
relation to permanent capital, at the time of the examination, fail to comply
with the statutory level required by the taxing authorities in the R.O.C.
-28-
29
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - STOCK OPTION PLANS
The Company has stock option plans for directors, officers, and
employees, which provide for nonqualified and incentive stock options. The Board
of Directors determines the option price (not to be less than fair market value
for the incentive options) at the date of grant. The options generally expire
ten years from the date of grant and are exercisable over the period stated in
each option. At December 31, 1998, options for 769,512 shares were vested and
exercisable and 1,369,951 shares were available for future grants under the
plans.
Outstanding Options
-------------------------------------------------
Price Per Share
------------------------------
Weighted
Number Range Average
----------- ----------- -----------
Balance, December 31, 1995 431,567 .875-11.25 3.84
Granted 605,000 6.00 6.00
Exercised (175) 2.63 2.63
Canceled (10,000) 6.00 6.00
----------- ----------- -----------
Balance, December 31, 1996 1,026,392 .875-11.25 5.09
Exercised (25,225) 1.88-6.00 2.43
Canceled (10,000) 6.00 6.00
----------- ----------- -----------
Balance, December 31, 1997 991,167 .875-11.25 5.15
Granted 400,000 5.00-10.00 7.51
Exercised (63,333) 1.88-6.00 4.05
Canceled (46,667) 6.00 6.00
----------- ----------- -----------
Balance, December 31, 1998 1,281,167 $.875-11.25 $ 5.15
=========== =========== ===========
The Company also has an incentive bonus plan which reserves shares of
stock for issuance to key employees. As of December 31, 1998, 124,000 shares
remain available for issuance under this plan.
-29-
30
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - STOCK OPTION PLANS (Continued)
Had compensation cost for the Company's 1996, 1997 and 1998 options
granted been determined consistent with SFAS 123, the Company's net income and
diluted earnings per share would approximate the proforma amounts below:
As Reported Pro Forma
----------- ---------
1996 Net income $2,965,000 $2,318,000
========== ==========
Diluted earnings per share $ .55 $ .43
========== ==========
1997 Net income $5,125,000 $4,478,000
========== ==========
Diluted earnings per share $ .93 $ .82
========== ==========
1998 Net income $2,673,000 $1,719,000
========== ==========
Diluted earnings per share $ .50 $ .32
========== ==========
NOTE 9 - MAJOR SUPPLIERS
The Company purchases a significant amount of its inventory from two
suppliers, one of which is a related party (Note 10). During 1996, 1997, and
1998, purchases from these suppliers amounted to approximately 59%, 49%, and
43%, respectively, of total inventory purchases including 28%, 32% and 25%,
respectively, from the related party. There are a limited number of suppliers
for these materials.
NOTE 10 - RELATED PARTY TRANSACTIONS
LITE-ON POWER SEMICONDUCTOR CORPORATION - In July 1997, Vishay
Intertechnology, Inc. ("Vishay") and the Lite-On Group, a Taiwanese consortium,
formed a joint venture - Vishay/Lite-On Power Semiconductor Pte., LTD.
("Vishay/LPSC") - to acquire Lite-On Power Semiconductor Corp. ("LPSC"), the
Company's 41% shareholder and a member of the Lite-On Group of the Republic of
China. The Vishay/LPSC joint venture includes the worldwide discrete power
semiconductor business of LPSC and the Asian passive component business of
Vishay. Vishay holds a 65% controlling interest in the joint venture, and the
Lite-On Group holds the remaining 35%. The Company's subsidiaries buy product
from and sell product to Vishay LPSC. Transactions with Vishay/LPSC and LPSC for
the years ended December 31 and outstanding balances as of December 31 are as
follows:
1996 1997 1998
----------- ----------- -----------
NET SALES $ 1,895,000 $ 2,224,000 $ 905,000
=========== =========== ===========
PURCHASES $10,403,000 $15,630,000 $12,320,000
=========== =========== ===========
ACCOUNTS RECEIVABLE $ 376,000 $ 213,000 $ 126,000
=========== =========== ===========
ACCOUNTS PAYABLE $ 2,250,000 $ 952,000 $ 902,000
=========== =========== ===========
-30-
31
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - RELATED PARTY TRANSACTIONS (Continued)
SHANGHAI KAIHONG ELECTRONICS, CO. LTD.- The Company owns 95% of the
outstanding capital stock of Shanghai KaiHong Electronics Co., Ltd. (KaiHong) an
entity located in Shanghai, China which produces diodes and transistors,
primarily for sale to the Company. During 1997, the Company increased its
ownership from 70% to 95% in a cash transaction with the minority shareholder of
KaiHong. The excess of the purchase price over the book value was approximately
$1,100,000.
KaiHong purchases some of its inventory from two companies owned by the
5% minority interest holder of Shanghai KaiHong Electronics, Co. Ltd. As of
December 31, 1998 approximately $346,000 was payable to the minority interest
holder and these two suppliers.
FABTECH INCORPORATED - Under a compensation-trade agreement the Company
has advanced $2.5 million in cash and equipment to a related party vendor,
FabTech Incorporated, a wholly owned subsidiary of LPSC. Interest accrues
monthly at the Company's borrowing rate with total accrued interest of $524,000
as of December 31, 1998. Amounts advanced, including interest, are payable
beginning February 1999 through February 2001 when any outstanding balances
become due on demand. The compensation-trade agreement allows the Company to
recover interest and principal due by deducting a fixed amount per unit for
product purchased from the vendor.
-31-
32
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - SEGMENT INFORMATION
Information about the Company's operations in the United States, Taiwan,
and China are presented below. Items transferred among the Company and its
subsidiaries are transferred at prices to recover costs plus an appropriate mark
up for profit. Inter-company revenues, profits and assets have been eliminated
to arrive at the consolidated amounts.
The Company adopted Statement of Financial Accounting Standard No. 131
(SFAS No. 131), Disclosures about Segments of an Enterprise and Related
Information, in 1998. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company
chief decision-making group consists of the President, Chief Financial Officer
and Vice President of Far East Operations. The operating segments are managed
separately because each operating segment represents a strategic business unit
whose function and purpose differs from the other segments.
The Company's reportable operating segments include Diodes Incorporated,
located in the United States; DII Taiwan Corporation, Ltd., located in Taiwan,
and Shanghai KaiHong Electronics Co., Ltd. located in China. Diodes Incorporated
markets discrete semiconductor devices to manufacturers in North America. DII
Taiwan Corporation, Ltd. manufactures discrete semiconductor devices and markets
and sells discrete semiconductor devices throughout Asia and to Diodes
Incorporated. Shanghai KaiHong Electronics Co., Ltd. manufacturers discrete
semiconductor devices primarily for sale to Diodes Incorporated.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on stand-alone operating segment income. Revenues
are attributed to geographic areas based on the location of the market producing
the revenues.
-32-
33
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Shangai
KaiHong DII Taiwan Diodes
Electronics Corporation Incorporated Consolidated
(China) Ltd. (Taiwan) (United States) Segments
------------ ------------- --------------- ------------
1998
- ------------------------------
Total sales $ 3,773,000 $ 27,029,000 $ 45,600,000 $ 76,402,000
Intersegment sales (3,493,000) (10,423,000) (2,225,000) (16,141,000)
------------ ------------ ------------ ------------
Net sales $ 280,000 $ 16,606,000 $ 43,375,000 $ 60,261,000
============ ============ ============ ============
Depreciation and amortization $ 799,000 $ 50,000 $ 319,000 $ 1,168,000
Interest expense $ 62,000 $ 11,000 $ 512,000 $ 585,000
Income tax provision $ -- $ 912,000 $ 599,000 $ 1,511,000
Net income (loss) $ 273,000 $ 2,786,000 $ (386,000) $ 2,673,000
Segment assets $ 13,880,000 $ 10,315,000 $ 21,194,000 $ 45,389,000
Expenditures for property $ 9,647,000 $ 11,000 $ 135,000 $ 9,793,000
1997
- -----------------------------
Total sales $ 5,129,000 $ 28,804,000 $ 50,493,000 $ 84,426,000
Intersegment sales (4,850,000) (12,715,000) (1,162,000) (18,727,000)
------------ ------------ ------------ ------------
Net sales $ 279,000 $ 16,089,000 $ 49,331,000 $ 65,699,000
============ ============ ============ ============
Depreciation and amortization $ 589,000 $ 64,000 $ 351,000 $ 1,004,000
Interest expense $ 66,000 $ 18,000 $ 321,000 $ 405,000
Income tax provision $ -- $ 1,252,000 $ 1,379,000 $ 2,631,000
Net income (loss) $ 290,000 $ 2,659,000 $ 2,176,000 $ 5,125,000
Segment assets $ 6,925,000 $ 7,157,000 $ 24,272,000 $ 38,354,000
Expenditures for property $ 1,117,000 $ 18,000 $ 360,000 $ 1,495,000
------------ ------------ ------------ ------------
1996
- -----------------------------
Total sales $ 1,502,000 $ 19,961,000 $ 48,876,000 $ 70,339,000
Intersegment sales (1,502,000) (11,863,000) (955,000) (14,320,000)
Net sales $ -- $ 8,098,000 $ 47,921,000 $ 56,019,000
============ ============ ============ ============
Depreciation and amortization $ 311,000 $ 63,000 $ 282,000 $ 656,000
Interest expense $ 17,000 $ 18,000 $ 503,000 $ 538,000
Income tax provision $ -- $ 655,000 $ 1,018,000 $ 1,673,000
Net income (loss) $ (555,000) $ 1,785,000 $ 1,735,000 $ 2,965,000
Segment assets $ 3,998,000 $ 4,625,000 $ 23,923,000 $ 32,546,000
Expenditures for property $ 1,504,000 $ 139,000 $ 205,000 $ 1,848,000
-33-
34
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS
The Company leases its main office and warehouse under an operating
lease agreement which expires in December 2001 . The Company may at its option,
extend the lease for a five year term upon termination. Rent expense amounted to
approximately $148,000, $162,000, and $269,000, for the years ended December 31,
1996, 1997 and 1998, respectively.
Future minimum lease payments under non-cancelable operating leases for
years ending December 31 are:
1999 $ 323,000
2000 307,000
2001 259,000
---------
$ 889,000
=========
NOTE 13 - EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) profit sharing plan (the Plan) for the
benefit of qualified employees. Employees who participate may elect to make
salary deferral contributions to the Plan up to 6% of the employees' eligible
payroll. The Company makes a contribution of $1 for every $2 contributed by the
participant. In addition, the Company may make a discretionary contribution to
the entire qualified employee pool, in accordance with the Plan. For the years
ended December 31, 1996, 1997, and 1998, the Company contributed approximately
$120,000, $110,000, and $161,000, respectively, to the Plan.
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
--------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
FISCAL 1998
Net Sales $16,804,000 $14,333,000 $14,646,000 $14,478,000
Gross profit 4,392,000 3,606,000 3,614,000 3,332,000
Net Income 1,186,000 521,000 554,000 412,000
Basic earnings per share .24 .10 .11 .08
Diluted earnings per share .22 .10 .11 .08
-34-
35
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)
Quarter Ended
--------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
FISCAL 1997
Net Sales $16,490,000 $15,541,000 $16,939,000 $16,729,000
Gross profit 4,701,000 4,687,000 4,422,000 4,533,000
Net Income 1,184,000 1,229,000 1,341,000 1,371,000
Basic earnings per share .24 .25 .27 .28
Diluted earnings per share .22 .23 .24 .25
-35-
36
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
Our audits of the consolidated financial statements of Diodes Incorporated and
Subsidiaries referred to in our report dated January 15, 1999 appearing in item
8 in this Annual Report on Form 10-K also included an audit of the financial
statement schedule listed in item 14(a) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
January 15,1999
-36-
37
DIODES INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------------
COL A COL B COL C COL D COL E
----------- ------------ ------------ ------------ -------------
Additions
Balance at charged to
beginning of costs & Balance at
Description period expenses Deductions end of period
------------ ------------ ------------ -------------
Year ended December 31,
1996 - Allowance for
doubtful accounts $ 177,000 $ 81,000 $ (5,000) $ 253,000
============ ============ ============ ============
Year ended December 31,
1997 - Allowance for
doubtful accounts $ 253,000 $ 76,000 $ (255,000) $ 74,000
============ ============ ============ ============
Year ended December 31,
1998 - Allowance for
doubtful accounts $ 74,000 $ 36,000 $ -- $ 110,000
============ ============ ============ ============
-37-
38
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company has decided to take advantage of the new "Safe Harbor"
provision of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). In that connection, this annual report of Form 10-K includes
forward-looking statements concerning the Company. The forward-looking
statements are made pursuant to the Reform Act.
There are many factors that could cause the events in such forward
looking statements to not occur, including but not limited to:
o general or specific economic conditions
o fluctuations in product demand
o introduction of new products
o Company's ability to maintain customer relationships
o technological advancements
o impact to competitive products and pricing
o change in growth in targeted markets
o risks of foreign operations
o ability and willingness of the Company's customers to purchase products
provided by the Company
o perceived absolute or relative overall value of these products by the
purchasers, including the features, quality, and price in comparison to other
competitive products
o level of availability of products and substitutes and the ability and
willingness of purchasers to acquire new or advanced products
o pricing, purchasing, financing, operational, advertising and promotional
decisions by intermediaries in the distribution channels which could affect the
supply of or end-user demands for the Company's products
o amount and rate of growth of the Company's selling, general and administrative
expenses
o difficulties in obtaining materials, supplies and equipment
o difficulties or delays in the development, production, testing and marketing
of products including, but not limited to;
o failure to ship new products and technologies when anticipated
o failure of customers to accept these products or technologies when planned
o defects in products
o any failure of economies to develop when planned
o acquisition of fixed assets and other assets, including inventories and
receivables
o making or incurring of any expenditures
o effects of and changes in trade, monetary and fiscal policies, laws and
regulations
o other activities of governments, agencies and similar organizations
o changes in social and economic conditions, such as trade restriction or
prohibition, inflation and monetary fluctuation, import and other charges or
taxes
o ability or inability of the Company to obtain or hedge against foreign
currency
o foreign exchange rates and fluctuations in those rates
o intergovernmental disputes
o actions affecting frequency, use and availability
o spectrum authorizations and licensing
o costs and other effects of legal investigations, claims and changes in those
items
o developments or assertions by or against the Company relating to intellectual
property rights
o adaptations of new, or changes in, accounting policies and practices in the
application of such policies and practices and the effects of changes within the
Company's organization
o changes in compensation benefit plans
o activities of parties with which the Company has an agreement or
understanding, including any issues affecting any investment or joint venture in
which the Company has an investment
o amount, and the cost of financing which the Company has
o any changes to that financing
o any other information detailed from time to time in the Company's filings with
the United States Securities and Exchange Commission.
-38-
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Michael A. Rosenberg March 26, 1999
- --------------------------------------------
MICHAEL A. ROSENBERG
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Carl Wertz March 26, 1999
- --------------------------------------------
CARL WERTZ
Chief Financial Officer, Treasurer, and Secretary
(Principal Financial and Accounting Officer)
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant, and in the capacities
indicated, on March 26, 1999.
/s/ Raymond Soong /s/ Michael A. Rosenberg
- ----------------------------------- -------------------------------------
RAYMOND SOONG MICHAEL A. ROSENBERG
Chairman of the Board of Directors Director
/s/ Eugene R. Conahan /s/ Michael R. Giordano
- ----------------------------------- -------------------------------------
EUGENE R. CONAHAN MICHAEL R. GIORDANO
Director Director
/s/ David Lin /s/ M.K. Lu
- ----------------------------------- -------------------------------------
DAVID LIN M.K. LU
Director Director
/s/ Shing Mao /s/ Erich E. Schaedlich
- ----------------------------------- -------------------------------------
SHING MAO ERICH E. SCHAEDLICH
Director Director
/s/ Leonard M. Silverman /s/ William J. Spires
- ----------------------------------- -------------------------------------
LEONARD M. SILVERMAN WILLIAM J. SPIRES
Director Director
-39-
40
INDEX TO EXHIBITS
Sequential
Page Number
-----------
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation of Diodes Incorporated (the "Company")
dated July 29, 1968 (1)
3.2 Amended By-laws of the Company dated August 14, 1987 (2)
10.1 Stock Purchase and Termination of Joint Shareholder Agreement (3)
10.2 1994 Credit Facility Agreement between the Company and Wells Fargo
Bank, National Association (4)
10.3* Company's 401(k) Plan - Adoption Agreement (5)
10.4* Company's 401(k) Plan - Basic Plan Documentation #03 (5)
10.5* Employment Agreement between the Company and Pedro Morillas (6)
10.6* Company's Incentive Bonus Plan (7)
10.7* Company's 1982 Incentive Stock Option Plan (7)
10.8* Company's 1984 Non-Qualified Stock Option Plan (7)
10.9* Company's 1993 Non-Qualified Stock Option Plan (7)
10.10* Company's 1993 Incentive Stock Option Plan (5)
10.11 $6.0 Million Revolving Line of Credit Note (8)
10.12 Credit Agreement between Wells Fargo Bank and the Company dated
November 1, 1995 (8)
10.13 KaiHong Compensation Trade Agreement for SOT-23 Product (9)
10.14 KaiHong Compensation Trade Agreement for MELF Product (10)
10.15 Lite-On Power Semiconductor Corporation Distributorship Agreement (11)
10.16 Loan Agreement between the Company and FabTech Incorporated (12)
10.17 KaiHong Joint Venture Agreement between the Company and Mrs. J.H. Xing
(12)
10.18 Quality Assurance Consulting Agreement between LPSC and Shanghai
KaiHong Electronics Company, Ltd. (13)
10.19 Loan Agreement between the Company and Union Bank of California, N.A.
(13)
10.20 First Amendment to Loan Agreement between the Company and Union Bank
of California, N.A. (14)
10.21 Guaranty Agreement between the Company and Shanghai KaiHong
Electronics Co., Ltd. (14)
10.22 Guaranty Agreement between the Company and Xing International, Inc.
(14)
10.23 Fifth Amendment to Loan Agreement (15)
10.24 Term Loan B Facility Note (15)
10.25 Bank Guaranty for Shanghai KaiHong Electronics Co., LTD (16)
10.26 Consulting Agreement between the Company and J.Y. Xing (17)
10.27 Software License Agreement between the Company and Intelic Software
Solutions, Inc.
11 Statement regarding Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
27 Financial Data Schedule
(1) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1981, which is hereby incorporated by
reference.
(2) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1988, which is hereby incorporated by
reference.
(3) Previously filed with the Company's Form 8-K, filed with the Commission
on July 1, 1994, which is hereby incorporated by reference.
(4) Previously filed as Exhibit 10.4 to Form 10-KSB/A filed with the
Commission for fiscal year ended December 31, 1993, which is hereby
incorporated by reference.
(5) Previously filed with Company's Form 10-K, filed with the Commission on
March 31, 1995, which is hereby incorporated by reference.
(6) Previously filed as Exhibit 10.6 to Form 10-KSB filed with the
Commission on August 2, 1994, for the fiscal year ended December 31,
1993, which is hereby incorporated by reference.
-40-
41
(7) Previously filed with Company's Form S-8, filed with the Commission on
May 9, 1994, which is hereby incorporated by reference.
(8) Previously filed with Company's Form 10-Q, filed with the Commission on
November 14, 1995, which is hereby incorporated by reference.
(9) Previously filed as Exhibit 10.2 to Form 10-Q/A, filed with the
Commission on October 27, 1995, which is hereby incorporated by
reference.
(10) Previously filed as Exhibit 10.3 to Form 10-Q/A, filed with the
Commission on October 27, 1995, which is hereby incorporated by
reference.
(11) Previously filed as Exhibit 10.4 to Form 10-Q, filed with the Commission
on July 27, 1995, which is hereby incorporated by reference.
(12) Previously filed with Company's Form 10-K, filed with the Commission on
April 1, 1996, which is hereby incorporated by reference.
(13) Previously filed with Company's Form 10-Q, filed with the Commission on
May 15, 1996, which is hereby incorporated by reference.
(14) Previously filed with Company's Form 10-K, filed with the Commission on
March 26, 1997, which is hereby incorporated by reference.
(15) Previously filed with Company's Form 10-Q, filed with the Commission on
May 11, 1998, which is hereby incorporated by reference.
(16) Previously filed with Company's Form 10-Q, filed with the Commission on
August 11, 1998, which is hereby incorporated by reference.
(17) Previously filed with Company's Form 10-Q, filed with the Commission on
November 11, 1998, which is hereby incorporated by reference.
* Constitute management contract, compensatory plans and arrangements
which are required to be filed pursuant to Item 601 of Regulation S-K.
-41-
1
EXHIBIT 10.27
SOFTWARE LICENSE AGREEMENT
INTELIC SOFTWARE SOLUTIONS INC. ("INTELIC")
This Agreement sets forth the terms and conditions under which Intelic will
license to you (RECIPIENT) the use of the object code to the Intelic ProChannel
Enterprise Software programs and any subsequent modules which Intelic supplies
to the RECIPIENT hereunder together with the related documentation (the
"SOFTWARE").
The use of the SOFTWARE in any manner means you accept the terms of this license
agreement.
1. OWNERSHIP. RECIPIENT acknowledges that the SOFTWARE and all copyrights
and other right, title and interest therein, are the sole property of Intelic
and its licensors, and that RECIPIENT shall gain no right, title or interest in
the SOFTWARE by virtue of this Agreement other than the non-exclusive right to
use the SOFTWARE expressly granted herein. Without limiting the foregoing,
RECIPIENT specifically acknowledges Intelic's exclusive ownership of any
modification, translation or adaptation of the SOFTWARE, and any other
improvement or development based thereon, which is developed, supplied,
installed or paid for by or on behalf of RECIPIENT. The SOFTWARE includes
certain components which are owned and copyrighted by Intelic's licensors,
Oracle, and Netscape. Nothing in this License Agreement constitutes a waiver of
Intelic's or its licensors' rights under the U. S. and International copyright
laws. Intelic acknowledges that it has not knowingly incorporated any mechanisms
into the Software that would render it useless.
2. LICENSE OF SOFTWARE. In consideration of RECIPIENT's payment of the
license fee payable hereunder, Intelic grants to RECIPIENT a personal,
nontransferable and nonexclusive license to use the SOFTWARE only on the server
for which it was licensed ("Licensed Server"), with a single production database
only. RECIPIENT represents, warrants and agrees that the SOFTWARE will be used
only for the benefit of RECIPIENT and its subsidiaries.
2.1 LICENSED SERVER. If the SOFTWARE is to be used by two or more
CPUs simultaneously, then RECIPIENT must license additional copies of
the SOFTWARE for each CPU. If the Licensed Server is a computer network,
the license granted hereunder permits RECIPIENT to use the SOFTWARE only
on a single database server or multi-terminal CPU at a time. If the
Intelic multi-user system is to be used on two or more database servers
or multi-terminal CPUs at a time, then RECIPIENT must license additional
copies of the SOFTWARE for each database server or multi-terminal CPU
computer system.
3. ANNUAL MAINTENANCE / SOFTWARE SUPPORT PROGRAM (SSP).
3.1 RECIPIENT shall be entitled to receive telephone support,
revised and corrected versions of the SOFTWARE ("Updates") and enhanced
and improved versions of the SOFTWARE ("Upgrades") as and when generally
released to Intelic's customers, upon payment to Intelic of an annual
SSP subscription fee.
3.2 This Agreement covers only the right to use the SOFTWARE. To the
extent RECIPIENT requires any related service (including installation,
training, and integration of Updates and Upgrades), RECIPIENT may
procure such services by a separate Professional Services Agreement with
Intelic.
4. RESTRICTIONS ON USE. RECIPIENT may not use this SOFTWARE in a service
bureau or interactive cable television business; RECIPIENT may not rent, lease
or grant sublicenses, leases or other rights in the SOFTWARE to others.
RECIPIENT shall implement all reasonable measures necessary to safeguard
Intelic's and its licensors' ownership of the SOFTWARE, including without
limitation: (i) to allow its employees, agents and third parties access to the
SOFTWARE only to the extent necessary to permit the performance of their
ordinary services to RECIPIENT and to require, as a condition to such access,
that they agree to comply with the provisions of this
-42-
2
Agreement (ii) to cooperate with Intelic in the enforcement of such compliance
by RECIPIENT's employees, agents and third parties; (iii) not to permit the
removal or alteration of any copyright or confidentiality labels or notices
contained in or on the SOFTWARE; (iv) not to dissemble, decompile or reverse
engineer the SOFTWARE; and (v) not to duplicate or reproduce the SOFTWARE,
except that RECIPIENT may make one archival copy and, if necessary, one copy to
run temporarily on a replacement computer in an emergency, and then in either
case only if all copyright and confidentiality notices are included in or on
such copy. RECIPIENT may make a reasonable number of working copies of the
training data bases. RECIPIENT acknowledges that use or disclosure of the
SOFTWARE in violation of this AGREEMENT may cause irreparable harm to Intelic
and its licensors.
5. LIMITED PERFORMANCE WARRANTY. As long as RECIPIENT's SSP subscription
has not lapsed Intelic warrants that:
5.1 The SOFTWARE shall function substantially in accordance with the
related user documentation provided by Intelic. In the event that the
SOFTWARE fails to perform as warranted above then Intelic's sole
obligation shall be, at its option, to:
(i) modify the SOFTWARE to conform to the documentation,
unless the documentation is in error;
(ii) modify the documentation to accurately reflect the
actual operation of the SOFTWARE if the documentation is
in error; or
(iii) provide a workaround which will satisfactorily meet
RECIPIENT's requirements.
5.2 If RECIPIENT finds physical defects in the media on which the
SOFTWARE is distributed or in the documentation, Intelic will replace
the media or documentation at no charge, provided RECIPIENT returns the
item to be replaced and such defects are not caused by misuse or abuse
of the media.
5.3 None of the foregoing warranties shall apply to the extent that
any alleged infringement or defect derives from:
(i) a combination of the SOFTWARE with any program, equipment or
device not approved by Intelic Software Solutions;
(ii) any modification or customization of the SOFTWARE by or on
behalf of RECIPIENT; or
(iii) RECIPIENT's failure to install promptly any Updates, or Upgrades
provided by Intelic under this Agreement.
These remedies shall only be available to RECIPIENT during the period covered by
the Software Support Program. If the RECIPIENT is not a current subscriber to
the Software Support Program then the above warranties do not apply. RECIPIENT's
remedies as set forth above are the sole and exclusive remedies to which
RECIPIENT is entitled in the event that the SOFTWARE fails to operate as
warranted.
6. DISCLAIMER OF OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN SECTION
5, THE SOFTWARE IS PROVIDED WITH NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
RECIPIENT ASSUMES ALL RESPONSIBILITY FOR THE SELECTION OF THE SOFTWARE AND
ACCOMPANYING DOCUMENTATION MATERIALS TO ACHIEVE RECIPIENTS INTENDED RESULTS, AND
FOR THE INSTALLATION, USE AND RESULTS OF THE SOFTWARE. IN NO EVENT WILL INTELIC
OR ITS LICENSORS BE LIABLE TO RECIPIENT OR ANY OTHER PERSON FOR DIRECT,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE USE OR
INABILITY TO USE THE SOFTWARE, TRAINING PROGRAMS OR DOCUMENTATION, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ALL INFORMATION REGARDING SOFTWARE
AND SERVICES IS AS PRESENTED BY INTELIC TO RECIPIENT.
7. TERMINATION. Intelic shall have the right to terminate this Agreement
upon sixty (60) calendar days' written notice if RECIPIENT breaches any of its
obligations under this Agreement. RECIPIENT shall, upon the effective date of
such notice, immediately, (i) purge all SOFTWARE from the Licensed Server and
all other computer systems, storage media and other files, (ii) return to
Intelic all copies (including partial copies) of the SOFTWARE and the related
documentation, and (iii) certify to Intelic in writing that it has complied with
the foregoing obligations and has not provided total or partial copies of the
SOFTWARE to any third party. Termination by Intelic shall not affect
-43-
3
RECIPIENTS obligation to make payments of all outstanding amounts owed to
Intelic. In the event that RECIPIENT breaches this Agreement, Intelic shall be
entitled to all available damages and remedies provided by law, including
reasonable fees of attorneys and other professionals, in addition to its right
to terminate this Agreement. In no event shall Intelic or its licensors be
liable to RECIPIENT for any direct, indirect, special or consequential damages
as a result of termination of this Agreement for whatever reason.
8. MISCELLANEOUS. No amendment of this Agreement or waiver of any rights
hereunder shall be effective unless in writing and signed by the party against
whom enforcement is sought, other than the addition of subsequent SOFTWARE
modules. This Agreement and attached exhibit and addendum agreements, if any,
constitute the complete agreement of the parties and supersedes all previous
understandings, agreements or representations, written or oral, between the
parties on this subject matter.
8.1 This Agreement is specific to the RECIPIENT and neither this
Agreement nor any of RECIPIENT's rights or duties hereunder shall be
assigned, sublicensed, sold or otherwise transferred by RECIPIENT,
including to any successor-in-interest to RECIPIENT's rights in the
Licensed SOFTWARE, without Intelic's prior written consent. Any such
attempted assignment, sublicense, sale or other transfer shall be void.
8.2 In the event that any one or more provisions of this Agreement
is unenforceable, the enforceability of the remaining provisions shall
be unimpaired.
8.3 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California, United States of
America.
8.4 The parties agree that they will use their best efforts to
amicably resolve any dispute arising out of or relating to this
Agreement. Any controversy, claim or dispute that cannot be so resolved
shall be settled by final binding arbitration in accordance with the
rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator or arbitrators may be entered in any
court having jurisdiction thereof. Any such arbitration shall be
conducted in the city where the Intelic's headquarters are located, or
such other place as may be mutually agreed upon by the parties. Within
fifteen (15) days after the commencement of the arbitration, each party
shall select one person to act as arbitrator, and the two arbitrators so
selected shall select a third arbitrator within ten (10) days of their
appointment. Each party shall bear its own costs and expenses and an
equal share of the arbitrators expenses and administrative fees of
arbitration.
FOR RECIPIENT (DIODES INCORPORATED):
/s/ Carl Wertz
TITLE: CFO
Authorized Signature
Carl Wertz
DATE: 3/1/99
FOR INTELIC SOFTWARE SOLUTIONS, INC.:
/s/ Stephen Gold
TITLE: President
Authorized Signature
Stephen Gold
DATE: 3/4/99
-44-
1
EXHIBIT 11
DIODES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1996 1997 1998
---------- ---------- ----------
Net income for earnings
per share computation $2,965,000 $5,125,000 $2,673,000
========== ========== ==========
BASIC
Weighted average number of
common shares outstanding
during the year 4,958,658 4,970,705 5,029,064
========== ========== ==========
Basic earnings per share $ .60 $ 1.03 $ .53
========== ========== ==========
DILUTED
Weighted average number of common
shares outstanding used in calculating
basic earnings per share 4,958,658 4,970,705 5,029,064
Add additional shares issuable
upon exercise of stock options 403,369 510,975 341,888
---------- ---------- ----------
Weighted average number of
common shares used in calculating
diluted earnings per share 5,362,027 5,481,680 5,370,952
========== ========== ==========
Diluted earnings per share $ .55 $ .93 $ .50
========== ========== ==========
-45-
1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Diodes Taiwan Company, Limited, a corporation organized and existing
under the laws of the Republic of China (Taiwan) with principal offices located
at 5 Fl., 510-16 Chung-Cheng Road, Hsin-Tien City, Taipei, Taiwan, Republic of
China. This subsidiary does business under its own name. This is a wholly-owned
subsidiary of Diodes Incorporated.
2. Shanghai KaiHong Electronics Co., Ltd., a corporation formed under the
laws of the People's Republic of China with principal offices located at No. 61
Xinnan Street, Xingqiao Town, Songjiang County, Shanghai, Republic of China.
This subsidiary does business under its own name. This is a 95% majority-owned
joint venture and a subsidiary of Diodes Incorporated.
-46-
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-78716) of Diodes Incorporated and Subsidiaries of
our report dated January 15, 1999 appearing in item 8 in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the financial statement schedule, which appears at page 36 of this Form 10-K.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
March 29, 1999
-47-
5
12-MOS
DEC-31-1998
JAN-01-1998
DEC-31-1998
2,415,000
0
9,728,000
110,000
13,777,000
27,356,000
17,074,000
3,324,000
45,389,000
10,717,000
0
0
0
3,843,000
23,617,000
45,389,000
60,261,000
60,261,000
45,317,000
11,016,000
0
0
281,000
4,184,000
1,511,000
2,673,000
0
0
0
2,673,000
0.53
0.50
