UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

DIODES INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware		002-25577		95-2039518
(State or other		(Commission File Number)		(I.R.S. Employer
jurisdiction of				Identification No.)
incorporation)

15660 North Dallas Parkway, Suite 850
Dallas, TX		75248
(Address of principal executive offices)		(Zip Code)

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

EXPLANATORY NOTE

This Form 8-K/A is being filed as Amendment No. 1 to Diodes Incorporated Form 8-K filed with the SEC on June 13, 2008, in order to provide the financial statements required by Item 9.01 (a) and (b) of Form 8-K.

Item 2.01. Completion of Acquisition or Disposition of Assets.

     On June 9, 2008, the Company completed its acquisition of the outstanding ordinary capital stock of Zetex pursuant to the Implementation Deed dated April 4, 2008, between the Company and Zetex, whereby the shareholders of Zetex will receive 85.45 pence in cash per Zetex ordinary share, valuing the fully diluted share capital of Zetex at approximately U.S.$176.3 million (based on a U.S.$:GBP£ exchange rate of 1.9778). The Implementation Deed has been filed with the SEC as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed May 12, 2008 and is incorporated herein by reference.

     The consideration payable in connection with the acquisition was funded by a combination of the Company’s cash resources and certain financing arrangements. The financing arrangements are described in the Company’s Current Report on Form 8-K filed April 4, 2008 under Item 2.03., “Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant,” which description is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

               (a) Financial statements of businesses acquired.

The following financial statements and related independent registered public accountant’s report are filed herewith as Exhibit 99.1:

	•		Audited consolidated balance sheet of Diodes Zetex Limited as of December 31, 2007; and
	•		Audited consolidated statements of income, changes in shareholders’ equity, recognized income and expense, and cash flows for the year ended December 31, 2007.
	•		Notes to audited consolidated financial statements

               (b) Pro forma financial information.

The following pro forma financial information and related notes are filed herewith as Exhibit 99.2:

	•		Unaudited pro forma condensed combined balance sheet as of December 31, 2007 and accompanying explanatory notes; and
	•		Unaudited pro forma condensed combined statement of income for the year ended December 31, 2007 and accompanying explanatory notes.

               (d) Exhibits

Exhibit No.		Description
23.1		Consent of Ernst and Young, LLP, Independent Auditors of Diodes Zetex Limited
99.1		Audited financial statements of Diodes Zetex Limited filed herewith
99.2		Unaudited pro forma financial information, filed herewith

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: August 22, 2008		DIODES INCORPORATED
		By /s/ Carl C. Wertz
		CARL C. WERTZ
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No.		Description
23.1		Consent of Ernst and Young, LLP, Independent Registered Public Accounting Firm
99.1		Audited consolidated financial statements of Diodes Zetex Limited
99.2		Unaudited pro forma condensed financial information

Exhibit 23.1 Consent of Independent Registered Accounting Firm.

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-8 No. 333-78716) pertaining to the Incentive Bonus Plan and 1993 Non-Qualified Stock Option Plan of Diodes Incorporated,

(2) Registration Statements (Form S-8 Nos. 333-106775 and 333-124809) pertaining to the 2001 Omnibus Equity Incentive Plan of Diodes Incorporated, and

(3) Registration Statement (Form S-3 No. 333-137803) pertaining to convertible senior notes and common stock issuable by Diodes Incorporated;

of our report dated August 21, 2008, with respect to the consolidated financial statements of Diodes Zetex Limited included in this Current Report (Form 8-K/A) of Diodes Incorporated.

/s/ Ernst & Young llp

Manchester, England
August 21, 2008

Exhibit 99.1

Independent Auditors’ Report

The Board of Directors and Shareholders
Diodes Zetex Limited:

We have audited the accompanying consolidated balance sheet of Diodes Zetex Limited and subsidiaries (“the Company”) as of December 31, 2007, and the related consolidated income statement, consolidated statement of changes in shareholders’ equity, consolidated statement of recognized income and expense, and consolidated statement of cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management and the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

IAS 1 requires that financial statements be presented with comparative financial information. These consolidated financial statements have been prepared solely for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X. Accordingly no comparative financial information is presented.

In our opinion, except for the omission of comparative financial information as discussed in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Diodes Zetex Limited and subsidiaries as of December 31, 2007, and the consolidated results of their operations and their cash flow for the year then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/ Ernst & Young LLP
Manchester, England
August 21, 2008

Consolidated income statement
Year ended 31 December 2007

										2007
						2007				£ 000				2007
						£ 000				adjusting				£ 000
		Notes				adjusted				items				reported
Revenue			1				64,638				—				64,638
Cost of sales before adjusted items							(43,384	)			—				(43,384	)
Gross profit before adjusted items							21,254				—				21,254
Adjusted item: bad debt			2				—				(310	)			(310	)
Gross profit							21,254				(310	)			20,944
Non direct operating costs before adjusted items							(17,261	)			—				(17,261	)
Operating profit before adjusted items and associate’s profit							3,993				(310	)			3,683
Adjusted items:
Relocation and rationalisation costs			2				—				(292	)			(292	)
Sale of Gem Mill			2				—				1,954				1,954
Share based payments			2				—				(86	)			(86	)
Pension scheme curtailment			2				—				2,235				2,235
Corporate advisory costs			2				—				(325	)			(325	)
Operating profit pre share of associate’s profit							3,993				3,176				7,169
Share of post tax profits of associate accounted for using the equity method			8				17				—				17
Operating profit							4,010				3,176				7,186
Finance revenue			2				721				—				721
Finance costs			2				(158	)			—				(158	)
Profit before income tax							4,573				3,176				7,749
Income tax			3												(409	)
Profit for the period attributable to equity holders of the parent			1												7,340
Earnings per share			4												7.28
Diluted earnings per share			4												7.23

All results relate to continuing operations.
The notes on page 14 to 57 form part of these financial statements.

Consolidated balance sheet
As at 31 December 2007

						2007
		Notes				£ 000
Assets
Non current assets
Property, plant and equipment			6				26,833
Intangible assets			7				15,093
Deferred tax			3				5,601
Investment in associate			8				69
							47,596
Current assets
Inventories			10				14,656
Current tax							313
Trade receivables and prepayments			11				9,091
Cash and cash equivalents			12				16,252
							40,312
Total assets							87,908
Liabilities
Current liabilities
Bank loans and overdrafts			14				405
Current portion of long term liabilities			15				230
Trade and other payables			17				11,488
Current tax							855
							12,978
Non current liabilities
Derivative financial instruments			21				197
Deferred tax			3				6,739
Provisions			16				231
Defined benefit pension scheme			9				5,196
Long term liabilities			15				961
							13,324
Total liabilities							26,302
Net assets							61,606
Equity
Share capital			13				5,212
Share premium			13				36,255
Own equity instruments			13				(4,420	)
Foreign exchange differences			13				(1,194	)
Net unrealised gains and losses			13				210
Retained earnings			13				25,543
Equity shareholders’ funds			13				61,606

The notes on page 14 to 57 form part of these financial statements.

Consolidated statement of recognised income and expenditure
Year ended 31 December 2007

						2007
		Notes				£ 000
Profit for the period attributable to equity holders of the parent							7,340
Foreign exchange loss on translation of foreign subsidiaries							(20	)
Actuarial loss on defined benefit pension scheme			9				(483	)
Foreign exchange loss from hedging activities							(197	)
Foreign exchange gain transferred from equity							(1,151	)
Income tax credit on items taken directly to equity			3				666
Net expense recognised directly in equity							(1,185	)
Recognised income relating to the period							6,155

The notes on pages 14 to 57 form part of these financial statements.

Consolidated cash flow statement
Year ended 31 December 2007

						2007
		Notes				£ 000
Operating activities
Net profit for the period before income tax			1				7,749
Adjustments for:
Depreciation and impairment of property, plant and equipment							5,617
Amortisation and impairment of intangible assets							2,512
Finance cost			2				158
Finance revenue			2				(721	)
Profit on sale of property, plant and equipment			2				(1,954	)
Share based payments			2				86
Change in value of associate			8				(50	)
Increase in inventories							(422	)
Decrease in receivables							508
Increase in payables							1,772
Difference between pension contributions paid and amounts recognised in the consolidated income statement							(3,978	)
Cash flows from operating activities							11,277
Income tax paid							(882	)
Net cash flows from operating activities							10,395
Investing activities
Purchase of property, plant and equipment							(1,800	)
Investment in intangible assets							(4,256	)
Proceeds from sale of property							2,995
Finance revenue			2				721
Net cash flows from investing activities							(2,340	)
Financing activities
Issue of ordinary shares							176
Sale of own shares held in ESOT							152
Finance lease principal repayments							(256	)
Dividends paid to group shareholders			5				(2,168	)
Finance cost			2				(158	)
Net cash flows from financing activities							(2,254	)
Increase in cash and cash equivalents							5,801
Movement in cash and cash equivalents
At start of the period							9,966
Increase in the year							5,801
Effect of exchange rate changes on cash balances							80
At end of the period			12				15,847

The notes on pages 14 to 57 form part of these financial statements.

Group accounting policies

Diodes Zetex Limited (formerly Zetex plc) is a company domiciled in the United Kingdom. The consolidated financial statements for the year ended 31 December 2007 comprise those of the company and its subsidiaries.

It should be noted that following the acquisition by Diodes Inc on 9^th June 2008, Zetex plc changed its name to Diodes Zetex Limited. The ultimate parent is Diodes Inc.

1. Statement of compliance

IAS 1 requires that financial statements be presented with comparative financial information. These consolidated financial statements have been prepared solely for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X. Accordingly no comparative information is presented.

Except for the omission of comparative financial information as discussed in the preceding paragraph, the consolidated financial statements referred to above has been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretation Committee (IFRIC) interpretations.

2. Basis of preparation

The consolidated financial statements are presented in pounds sterling and all values are rounded to the nearest thousand pounds (£’000) except when otherwise indicated. They are prepared on the historical cost basis modified to include the fair valuation of derivative financial instruments, equity settled share based payment transactions and defined benefit pensions scheme assets and liabilities to the extent required or permitted under accounting standards and as set out in the relevant accounting policies.

Critical accounting estimates

The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Material estimates and assumptions are made in particular regarding impairment testing, commercial viability of projects related to development expenditure, parameters for measuring pension provisions, stock and trade receivable provisioning.

Indefinite life intangible assets

The group determines whether indefinite life intangible assets are impaired on an annual basis and this requires an estimation of the value in use of the cash generating units to which the intangible assets are allocated. This involves estimation of future cash flows and choosing a suitable discount rate (see note 7a).

Commercial viability of development projects

The commercial viability of development projects are assessed based on estimates of future cash flows associated with some projects and the likelihood of reaching the market place. Such estimates are based upon the latest market information and judgements of management.

Measurement of defined benefit pension liabilities

Measurement of defined benefit pension obligations requires estimation of future changes in salaries and inflation, as well as mortality rates, the expected return on assets and the selection of a suitable discount rate (see note 9).

Stock provisioning

Provisioning against stock is based on estimates of the timing of/and cash flows associated with revenues anticipated from individual stock items. Such estimates are based upon the latest market information and judgements of management.

Trade receivable impairment

Provisioning against trade debt is based on estimates of the timing of/and cash flows associated with cash receipts in relation to outstanding customer debt. This is based both upon the age of outstanding debt and latest commercial knowledge of the customer.

3. Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the company. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Subsidiaries are fully consolidated from the date on which control commences until the date that control ceases. The acquisition method of accounting has been adopted. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated.

All subsidiaries are directly controlled by the company.

Associates

An associate is an undertaking over which the group has significant influence and can participate in the financial and operating decisions of the entity, but does not have control.

The group’s share of the results of associates is included in the consolidated income statement using the equity method of accounting. Investments in associates are carried in the consolidated balance sheet at cost plus post acquisition changes in the group’s share of the net assets of the entity, less any impairment in value. The carrying values of investments in associates include acquired goodwill.

If the group’s share of losses in an associate equals or exceeds its investment in the associate, the group does not recognise further losses unless it has incurred obligations to do so or make payments on behalf of the associate.

Unrealised gains arising from transactions with associates are eliminated to the extent of the group’s interest in the entity.

4. Revenue recognition

The group recognises revenues from the sale of semiconductor products when the significant risks and rewards of ownership have passed to the customer. This is generally when goods have been despatched to the customer, except where the group sells to its distributors. In this event revenues are recognised when there are no further obligations on the group (which is typically when the distributor has sold the goods onto the end customer) and the revenues can be measured reliably. Revenue is measured at the fair value of the consideration received excluding discounts, rebates, Value Added Tax and other sales taxes or duties.

5. Segmental reporting

The group’s primary and only reporting format is by geographical segment. The geographical segments are organised and managed separately as strategic business units that are subject to risks and returns that are different from those of segments operating in other economic environments.

6. Adjusted items

The group presents as adjusted items on the face of the consolidated income statement, those material items of income and expense which, because of the nature of the events giving rise to them, merit separate presentation to allow shareholders to better assess trends of the elements of financial performance in the year so as to facilitate comparison with prior periods and to assess trends in underlying financial performance. Such items include items of an unusual or non-recurring nature.

7. Interest income

Interest income is recognised for the period to which it relates on the accruals basis.

8. Dividends

Final dividends are recorded in the consolidated financial statements in the period in which they are approved by the company’s shareholders. Interim dividends are recorded in the period in which they are approved and paid.

9. Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation and any impairment in value.

Historical cost includes expenditure that is directly attributable to the acquisition of the items, including costs in relation to acquisition and installation. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably.

All other repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred.

Depreciation is not provided for on freehold land or assets in construction. Depreciation on other property, plant and equipment is calculated on a straight line basis to write off the cost less estimated residual value based on prices prevailing at the balance sheet date over its anticipated useful economic life as follows:

(i) Freehold buildings		50 years
(ii) Plant and machinery		3-10 years
(iii) Fixtures and fittings		2-10 years
(iv) Motor vehicles		4 years
(v) Leasehold buildings		Period of lease

Assets held under finance leases are depreciated over the shorter of the lease term or their useful economic life.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with their carrying amount and are included in the consolidated income statement.

10. Intangible assets

Goodwill

All business combinations are accounted for applying the purchase method.

On acquisition, the assets and liabilities and contingent liabilities of an acquired entity are measured at their fair value.

Goodwill arising on consolidation represents the excess of the cost of an acquisition over the fair value of the group’s share of the net assets of the acquired subsidiary or associate at the date of acquisition. If the cost of acquisition is less than the fair value of the group’s share of the net assets of the acquired entity (i.e. a discount on acquisition) then the difference is credited to the consolidated income statement in the period of acquisition.

At the acquisition date of a subsidiary, goodwill acquired is recognised as an asset and is allocated to each of the cash generating units expected to benefit from the business combination’s synergies and to the lowest level at which management monitors the goodwill. Goodwill arising on the acquisition of associates is included within the carrying value of the investment.

Goodwill is not subject to amortisation. Goodwill is reviewed for impairment at least annually by assessing the recoverable amount of each cash generating unit to which the goodwill relates. When the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised.

Any impairment is recognised immediately in the consolidated income statement and is not subsequently reversed.

On disposal of a subsidiary or associate, the amount of goodwill attributable to that entity is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before 1 January 2004 (the date of transition to IFRS) has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been restated and will not be included in determining any subsequent profit or loss on disposal.

Research and development (internally generated)

Expenditure on research activities undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognised as an expense in the consolidated income statement as incurred.

An intangible asset arising from the group’s development activity is recognised only if all the following conditions are met:

	o		an asset is created that is separately identifiable;
	o		it is probable that the asset created will generate future economic benefits; and
	o		the development cost of the asset can be measured reliably.

This intangible fixed asset is then amortised on a straight-line basis over its estimated useful economic life less any impairment in value.

Other intangible assets

An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably.

These are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated income statement on a straight line basis over the estimated useful economic life of the asset less any impairment in value.

11. Impairment of tangible and intangible assets

At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such indications exist, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the estimates of the recoverable amount of the cash-generating unit to which the asset belongs.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

12. Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership of the asset to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments as determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated balance sheet as a finance lease obligation. Lease payments are apportioned between finance charge and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the consolidated income statement.

Rentals payable under operating leases are charged to the consolidated income statement on a straight line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term.

13. Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to completion and selling expenses.

The cost of inventories is based on the first-in-first-out method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes raw materials, other direct costs (including labour) and related overheads based on normal operating capacity.

14. Trade receivables

Trade receivables are recognised and carried at the lower of their original invoiced value and recoverable amount. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of its estimated future cash flows. The amount of the provision is recognised in the consolidated income statement.

15. Trade payables

Trade payables are not interest bearing and are stated at their nominal value.

16. Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held on call with banks or legal bodies, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the consolidated balance sheet.

17. Borrowings

Borrowings are recognised initially at fair value.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

18. Share capital

Ordinary shares are classified as equity.

Shares held in the parent company, Diodes Zetex Limited, by employee share ownership trusts are recorded in the consolidated balance sheet as a deduction from shareholders’ equity at cost.

19. Pension obligations

Group companies operate both defined benefit and defined contribution pension schemes. The defined benefit scheme is funded through payments to funds administered by trustees and these are determined by periodic actuarial calculations.

Defined benefit schemes

The group has elected to recognise all cumulative actuarial gains and losses in relation to employee defined benefit schemes at the date of transition. The liability recognised in the consolidated balance sheet in respect of defined benefit pension schemes is the present value of the defined benefit obligation at the balance sheet date less the fair value of scheme assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses from experience adjustments and changes in actuarial assumptions are charged or credited directly to equity.

The cost of providing benefits under the defined benefit scheme is determined using the projected unit credit method, which attributes entitlement to benefits to the current period (to determine current service cost) and to the current and prior periods (to determine the present value of defined benefit obligation) and is based on actuarial advice. Past service costs are recognised in the consolidated income statement on a straight line basis over the vesting period or immediately if the benefits have vested. When a settlement (eliminating all obligations for benefits already incurred) or a curtailment (reducing future obligations as a result of a material reduction in the scheme membership or a reduction in future entitlement) occurs, the obligation and related plan assets are re-measured using current actuarial assumptions and the resultant gain or loss is recognised in the consolidated income statement during the period in which the settlement or curtailment occurs.

The interest element of the defined benefit cost represents the change in present value of scheme obligations resulting from the passage of time and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long-term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and the interest cost is recognised in non direct operating costs.

Defined contribution schemes

For defined contribution schemes, contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

20. Share based payments

The company operates equity settled, share based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of the original estimate, if any, in the consolidated income statement and a corresponding adjustment to equity over the remaining vesting period.

The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium (the remainder) when the options are exercised except when the exercise of options is satisfied by shares held by the group’s Employee Share Ownership Trust.

The group has taken advantage of the transitional provisions of IFRS 2 in respect of equity settled awards and has applied

IFRS 2 only to equity settled awards granted after 7 November 2002 that have not vested on or before 31 December 2004.

21. Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The group recognises termination benefits when it is demonstrably committed either to terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer to encourage voluntary redundancy.

22. Provisions

Provisions are recognised when the group has a present obligation, legal or constructive, as a result of past events, when it is more likely than not that an outflow of resources will be required to settle the obligation and when the amount can reliably be estimated. Provisions are discounted to present value where the effect is material.

23. Government grants

Government grants are recognised when there is reasonable assurance that the grants will be received and that all related conditions will be met. Government grants in respect of capital expenditure are credited to a deferred income account and are released as income by equal annual amounts over the expected useful lives of the relevant assets. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.

24. Taxation

Income tax expense represents the sum of the current tax payable and deferred tax. Income tax is recognised in the consolidated income statement except to the extent that it relates to items recognised in equity, in which case it is recognised in equity.

Current tax payable or recoverable is based on taxable profit for the year using tax rates enacted, or substantively enacted, at the balance sheet date and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted, or substantively enacted, at the balance sheet date with the following exceptions:

(i) provision for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable; and

(ii) deferred tax assets are not recognised where the directors consider their recoverability unlikely.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

25. Foreign currency translation

Functional and presentational currency

Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in UK pounds sterling, which is the group’s functional and presentational currency.

Foreign currency transactions and balances

Transactions in foreign currencies, other than UK pounds sterling, are translated at the foreign exchange rate applying at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to UK pounds sterling at the foreign exchange rate applying at that date. Exchange differences arising on translation are recognised in the consolidated income statement. Non monetary assets and liabilities that are measured in terms of historical cost in a currency other than UK pounds sterling are translated using the exchange rate applying at the date of the transaction.

Financial statements of foreign operations

The assets and liabilities of foreign operations are translated to UK pounds sterling at foreign exchange rates applying at the balance sheet date. The revenues and expenses of foreign operations are translated to UK sterling pounds at rates approximating to the foreign exchange rates applying at the date of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity, the translation reserve.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

26. Financial risk factors

The group’s activities expose it to the financial risks of changes in foreign exchange rates. The use of financial derivatives is governed by a group policy approved by the board of directors which provides written principles on the use of financial derivatives to hedge certain risk exposures. The group does not use derivative financial instruments for speculative purposes.

In order to hedge its exposure to certain foreign exchange risks, the group enters into forward contracts and options.

Derivative financial instruments and hedging activities

Derivatives are recognised initially at fair value on the date a derivative contract is entered into and subsequently are measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The group designates derivatives as either:

(i) a hedge of a highly probable forecast transaction or change in the cash flows of a recognised asset or liability (a cash flow hedge); or

(ii) a hedge of the exposure to change in the fair value of a recognised asset or liability (a fair value hedge).

Underlying the definition of fair value is the presumption that the group is a going concern without any intention of curtailing materially the scale of its operation.

All of the group’s hedging activities are deemed to be cash flow hedges.

In order to qualify for hedge accounting, the group is required to document from inception the relationship between the item being hedged and the hedging instrument. The group is also required to document and demonstrate an assessment of the relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective on an ongoing basis. This effectiveness testing is performed at each period end to ensure that the hedge remains effective.

Cash flow hedges

Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised immediately within the consolidated statement of recognised income and expenditure and any ineffective portion is recognised immediately in the consolidated income statement.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the consolidated income statement.

Fair value estimation

The fair value of financial instruments which are traded in active markets is based on quoted market prices at the balance sheet date.

The fair value of financial instruments which are not traded in an active market is determined by using valuation techniques. The group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.

27. New standards and interpretations applied

Diodes Zetex Limited group financial statements have changed since 31^st December 2006 due to new standards and interpretations being issued since 1 January 2007. These new standard and interpretations include:

International Financial Reporting Standards (IAS/IFRSs)

IFRS 7 (and IAS 32 and IAS 30) – ‘Financial Instruments — Disclosures’.
IAS 1 – Amendments to ‘Capital Disclosures’.

28. New standards and interpretations not applied

IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements:-

International Financial Reporting Standards (IAS/IFRSs)		Effective date
IFRS 2 - Amendment to IFRS 2- Vesting Conditions and Cancellations		1 January 2009
IFRS 3 - Business Combinations (revised January 2008)		1 July 2009

International Financial Reporting Standards (IAS/IFRSs)		Effective date
IFRS 8 - Operating Segments		1 January 2009
IAS 1 - Presentation of Financial Statements (revised September 2007)		1 January 2009
IAS 23 - Borrowing Costs (revised March 2007)		1 January 2009
IAS 27 - Consolidated and Separate Financial Statements (revised Jan 2008)		1 July 2009
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 12- Service Concession Arrangements		1 January 2008
IFRIC 13-Customer Loyalty Programmes		1 July 2008
IFRIC 14- IAS 19- Limit of Defined Benefit Asset, Min Funding Requirements		1 January 2008

The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the group’s financial statements in the period of initial application.

Notes to the financial statements

1		Segmental analysis
		The group’s geographical segments are based on the location of the group’s assets. Sales to external customers disclosed in geographical segments are based on the geographical location of its customers.
		All results relate to continuing operations

		2007
		£ 000
Revenue by destination
Net segment sales
United Kingdom			6,338
United States of America			8,779
Continental Europe			17,245
Asia Pacific			31,456
Other geographical areas			820
			64,638
Revenue by origin
Segment sales
United Kingdom			61,321
United States of America			10,515
Continental Europe			25,798
Asia Pacific			29,146
Inter-segment sales
United Kingdom			(54,823	)
United States of America			(7,319	)
			64,638

		2007
		£ 000
Profit by origin
Segment profit before income tax
United Kingdom			3,773
United States of America			272
Continental Europe			1,241
Asia Pacific			1,899
Other geographical areas			1
Net finance income			563
Profit before income tax			7,749
Income tax			(409	)
Net profit for the year			7,340

1

Segmental analysis (continued)

		2007
		£ 000
Assets and liabilities
Segment assets
United Kingdom			70,175
United States of America			1,334
Continental Europe			6,505
Asia Pacific			4,136
Unallocated assets (including tax)			5,758
Total assets			87,908
Segment liabilities
United Kingdom			16,708
United States of America			228
Continental Europe			1,422
Asia Pacific			152
Unallocated liabilities (including tax)			7,792
Total liabilities			26,302
Other segment information
Capital expenditure on tangible assets
United Kingdom			1,836
United States of America			5
Continental Europe			196
Asia Pacific			21
Depreciation of tangible assets
United Kingdom			5,176
United States of America			6
Continental Europe			363
Asia Pacific			31
Amortisation of intangible assets
United Kingdom			1,476
Continental Europe			419
Impairment of intangible and tangible assets
United Kingdom			307
Continental Europe			369

2

Revenues and expenses

		2007
		£ 000
Revenue
Sale of goods			64,638
Finance revenue			721
Finance revenue
Interest receivable on bank and other short term cash deposits			721
Finance costs
Interest payable on bank loans and overdrafts			(112	)
Finance charges payable under finance leases and hire purchase contracts			(46	)
			(158	)
Group operating profit is stated after crediting:
Foreign exchange differences from hedging activities included in cost of sales			1,331
Foreign exchange differences included in non-direct operating costs			476
			1,807
Depreciation			5,576
Amortisation			1,895
Impairment			676
Cost of inventories recognised as an expense			38,145
Write down of inventories to net realisable value			341
Government grants			(92	)
Impairment of trade receivables**			162
Minimum lease payments recognised as an operating lease			280
Relate to continuing operations.

**		includes £310,000 adjusted bad debt

2

Revenue and expenses (continued)

		2007
		£ 000
Employee benefits
Wages and salaries			18,866
Social security costs			1,434
Pension costs			1,256
Cost of share based payments			86
			21,642

The average number of persons employed by the group during the year was as follows:

		Number
Production			390
Sales and customer support			111
Development			69
Administration			77
			647

Innovation costs (research and development)

Innovation costs consist of £2,975,000 charged directly to non direct operating costs and £1,895,000 of amortisation of previously capitalised development costs.

Impairment costs of £616,000 have been charged to non direct operating costs.

Auditors remuneration

		2007
		£ 000
Audit of the financial statements			120
Taxation fees to other accountancy firms			176

Included in audit of the financial statements is £60,000 that relates to the company.

2		Revenues and expenses (continued)
		Adjusted items
		The items below have been disclosed separately on the face of the consolidated income statement as they are deemed material items of income and expense which, because of the nature of the events giving rise to them, merit separate presentation to allow shareholders to better assess trends of the elements of underlying financial performance in the year so as to facilitate comparison with prior periods as to assess trends in underlying financial performance. Such items include balances of an unusual or non-recurring nature.
		Recognised in arriving at operating profit:

		2007
		£ 000
Relocation and rationalisation costs			292
Sale of Gem Mill			(1,954	)
Share based payments			86
Pension scheme curtailment			(2,235	)
Corporate advisory costs			325
Bad debt			310
			(3,176	)

()		Consolidated income statement credit

		The completion of the reorganisation and efficiency programme within the group meant that there were no severance costs in the year . However, the group did incur relocation and rationalisation costs of £292,000 in the United Kingdom in connection with consolidating its manufacturing operations in line with the efficiency programme.
		On 4 April 2007, the group sold its former operating site, Gem Mill, in Chadderton to a residential property developer for £2,995,000, achieving a profit on disposal of £1,954,000.
		The group has increased the cumulative expected charge by £86,000 for share based payments as new share options were issued in the year which are expected to vest. Offset against this were cancellations of existing options due to employees leaving the business.
		The Pensions Committee of the Board has been working to reduce the size and volatility of the pension scheme deficit. Following a consultation with employees and the Trustees, the defined benefit section of the Pension Scheme was closed to future accrual on 1 September 2007. This generated a £2,235,000 reduction in deficit.
		Costs of £325,000 were incurred in relation to corporate advisors.
		A US based distributor entered into Chapter 11 Bankruptcy proceedings in the year. A provision was made for all remaining unprovided debt of £310,000.

3		Income tax
		Major components of income tax expense are:

		2007
		£ 000
Consolidated income statement
Current income tax
Foreign tax			743
			743
Deferred income tax
Origination and reversal of timing differences			566
Impact of revised foreign tax rate			(609	)
Amounts over provided in previous years			(291	)
			(334	)
Income tax expense			409

		2007
		£ 000
Consolidated statement of changes in equity
Deferred income tax
Net deferred tax on employee benefits (pensions)			262
Net deferred income tax on cash flow hedges			59
Net deferred income tax on cash flow hedges settled during the period			345
Deferred income tax credit			666

Reconciliation of effective tax charge

A reconciliation of income tax expense applicable to accounting profit before income tax at the UK statutory corporation tax rate to income tax expense at the group’s effective income tax rate for the periods ended is as follows:

		2007
		£ 000
Accounting profit before income tax			7,749
At the UK standard rate of corporation tax 30 per cent			2,325
Adjustments in respect of previous years			(291	)
Impact of revised foreign tax rate			(609	)
Deferred tax movement not recognised previously			(35	)
Permanent differences- sale of property (Gem Mill)			(616	)
Permanent differences- others			592
Impact of pension curtailment			(626	)
Research and development tax credits			(300	)
Lower taxes on overseas earnings			(31	)
Income tax expense			409

Taxation in other jurisdictions is calculated at the rates prevailing within the respective jurisdictions.

3		Income tax (continued)
		Deferred income tax relates to the following:

										Consolidated
										statement of
		Consolidated				Consolidated				recognised
		balance				income				income and
		sheet				statement				expenditure
		2007				2007				2007
		£ 000				£ 000				£ 000
Deferred income tax
Deferred income tax assets
Deferred income			—				(90	)			—
Dilapidation provision			43				(99	)			—
Employee benefits			1,621				(1,295	)			262
Tax losses carried forward			3,708				1,071				—
Finance leases			229				(148	)			—
Gross deferred income tax assets			5,601				(561	)			262
Deferred income tax liabilities
Accelerated depreciation for tax purposes			(2,438	)			2,517				—
Development expenditure capitalised			(2,972	)			(2,419	)			—
Revaluations of foreign exchange contracts (cash flow hedges) to fair value			42				31				404
Finance leases			(232	)			(232	)			—
Fair value adjustments on acquisition - - mikron Germany			(1,139	)			998				—
Gross deferred income tax liabilities			(6,739	)			895				404
Deferred income tax credit							334				666

The group has tax losses which arose in the UK of £5,971,000 that are available indefinitely for offset against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses.

There are no income tax consequences for the group attaching to the payment of dividends by Zetex plc to its shareholders.

4		Earnings per share
		Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
		Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the period (adjusted for the effects of dilutive options).
		Adjusted earnings per share amounts are calculated by dividing the adjusted profit (as detailed below) by the weighted average number of ordinary shares outstanding during the period (adjusted where appropriate for the effects of diluted options).
		The dilution effect is calculated on the full exercise of all ordinary share options granted by the group, including performance-based options which the group considers to have been earned.
		Shares held in the ESOT are excluded from the earnings per share calculation — 2007: 3,200,899.
		The following reflects the income and share data used in the total operations basic and diluted earnings per share computations:

4

Earnings per share (continued)

						2007				2007
						Basic				Diluted
		2007				EPS				EPS
		£ 000				(p)				(p)
Net profit attributable to equity holders of the parent			7,340				7.28				7.23
Adjusted items:
Effect of relocation and rationalisation costs			292				0.29				0.28
Effect of sale of Gem Mill			(1,954	)			(1.94	)			(1.92	)
Effect of share based payments			86				0.09				0.08
Effect of pension scheme curtailment			(2,235	)			(2.22	)			(2.20	)
Effect of corporate advisory costs			325				0.32				0.32
Effect of bad debt			310				0.31				0.31
Adjusted profit attributable to equity holders of the parent			4,164				4.13				4.10
Weighted average number of ordinary shares for basic earnings per share			100,758,976
Effect of dilution from share options			751,044
Adjusted weighted average number of ordinary shares for diluted earnings per share			101,510,020

There have been no transactions involving ordinary shares or potential ordinary shares since the reporting date and before the completion of these financial statements.
Adjusted earnings per share acknowledges that there have been material items of income and expense which, because of the nature of the events giving rise to them, merit adjustment to allow shareholders to assess better trends of the elements of financial performance in the year so as to facilitate comparison with prior periods and to assess trends in underlying financial performance. Such items include items of an unusual or non-recurring nature.
5		Dividends paid and proposed

		2007
		£ 000
Declared and paid during the period
Equity dividends on ordinary shares:
Final dividend for the year 2006: 1.45p			1,460
Interim dividend for the year 2007: 0.70p			708
			2,168
Proposed for approval at AGM (not recognised as a liability at 31 December):
Equity dividends on ordinary shares of 5p each: 1.45p			1,512

6

Property, plant and equipment

														Fixtures
		Land and				Assets in				Plant and				and				Motor
		buildings				construction				machinery				fittings				vehicles				Total
		£ 000				£ 000				£ 000				£ 000				£ 000				£ 000
Year ended 31 December 2007
Cost
At 1 January 2007			11,251				20				53,532				8,584				18				73,405
Additions			418				178				1,382				80				—				2,058
Reclassifications			(274	)			(168	)			7,761				(7,319	)			—				—
Disposals			(600	)			—				(112	)			(1	)			—				(713	)
Translation adjustments			88				2				606				14				—				710
At 31 December 2007			10,883				32				63,169				1,358				18				75,460
Depreciation/impairment
At 1 January 2007			1,847				—				34,381				6,850				17				43,095
Depreciation			297				—				5,156				123				—				5,576
Reclassifications			—				—				6,043				(6,043	)			—				—
Disposals			(600	)			—				(112	)			(1	)			—				(713	)
Impairment			—				—				60				—				—				60
Translation adjustments			53				—				555				1				—				609
At 31 December 2007			1,597				—				46,083				930				17				48,627
Net book value
At 31 December 2007			9,286				32				17,086				428				1				26,833
At 31 December 2006			9,404				20				19,151				1,734				1				30,310

During the year, computer equipment was reclassified from fixtures and fittings into plant and machinery as it was felt that this better represented their usage within the group.

The carrying value of property, plant and equipment held under finance leases and hire purchase contracts at 31 December 2007 is £830,750.

Leased assets and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase liabilities.

7

Intangible assets

		mikron
		intellectual				mikron
		property				product				Technology				Product				Software
		suite				portfolio				assets				development				licences				Total
		£ 000				£ 000				£ 000				£ 000				£ 000				£ 000
Year ended 31 December 2007
Cost
At 1 January 2007			3,185				—				8,413				18,123				613				30,334
Reclassification
Additions			—				—				734				3,522				—				4,256
Translation adjustments			293				—				—				—				—				293
At 31 December 2007			3,478				—				9,147				21,645				613				34,883
Amortisation/impairment
At 1 January 2007			—				—				3,288				13,991				—				17,279
Amortisation			—				—				880				817				198				1,895
Impairment			—				—				—				616				—				616
Revaluations			—				—				—				—				—				—
Translation adjustments			—				—				—				—				—				—
At 31 December 2007			—				—				4,168				15,424				198				19,790
Net book value
At 31 December 2007			3,478				—				4,979				6,221				415				15,093
At 31 December 2006			3,185				—				5,125				4,132				613				13,055

Technology assets are capitalised at cost. This intangible assets have been assessed as having a finite life and are amortised under the straight line method up to a maximum of five years. They are tested for impairment where and indicator of impairment arises.

Product development (including the mikron product portfolio) is capitalised at cost. This intangible asset has been assessed as having a finite life and is amortised under the straight line method up to a maximum of three years (or four years for the mikron product portfolio). It is tested for impairment where and indicator of impairment arises.

During 2007, the group impaired product development costs with a value of £616,000 stating these within non direct operating costs in the consolidated income statement.

All capitalised product development costs at the year end were reviewed for indications of impairment. Each product line was individually assessed to ensure its continued fulfillment of the capitalisation criteria of IAS 38 and whether any indications of impairment existed per IAS 36. If it was no longer probable that the net present value of forecast cash flows exceeded the carrying value of the assets, then the asset was impaired.

mikron intellectual property suite and goodwill are not amortised but annually tested for impairment. See note 7a.

7a.		Impairment testing of indefinite lived intangible assets
		Mikron intellectual property suite cash generating unit
		The recoverable amount of the mikron intellectual property suite has been determined based on a value in use basis. To calculate this, cash flow projections are based on financial budgets approved by senior management covering a five year period. The discount rate applied to the cash flow projection is 13 per cent.

		2007
		£ 000
			3,478

		Carrying amount of mikron intellectual property suite.
		Key assumptions used in the value in use basis of calculation of mikron intellectual property suite for the period reported:
		a) Average sales prices for the cash generating unit based on historical performance
		b) Budgeted gross margins — the basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year, increased for expected efficiency improvements.
		The indefinite life ascribed to this class of asset is based on the leading edge internally transferable design technology acquired with the mikron business.
		Sensitivity to changes in assumptions
		Growth rate assumptions
		Management recognises that a decline in the current level of sales could cause the carrying value of the unit to exceed its recoverable amount.
		In order for this to occur, then there would need to be a 20 per cent per annum decline on the current level of revenues, either via lower volume or price erosion.
		Based on the current market and sales prospects for these products (flat sales — 0 per cent growth), then the management believe that such a volume impact is very unlikely.
		Margins
		Management recognises that a decline in the current gross margin of the product could cause the carrying value of the unit to exceed its recoverable amount.
		In order for this to occur, then there would need to be a 21 per cent reduction in gross margin per year.
		Based on the current profitability of these products (circa 51 per cent) and the forecast manufacturing costs of the business then management believe that this is very unlikely.
		Based on flat sales at 51 per cent margin then the recoverable amount exceeds the carrying value by £2,600,000.

8.		Investment in associate
		The group has a 31.82 per cent interest in Zetex (Chengdu) Electronics Limited which is involved in the assembly of electronic components in China.
		Zetex (Chengdu) Electronics Limited is a private entity that is not listed on any public exchange and therefore there is no published quotation price for the fair value of this investment. The reporting date and reporting year of Zetex (Chengdu) Electronics Limited is the same as that of the group.
		The following table illustrates summarised information of the investment in Zetex (Chengdu) Electronics Limited.