e10vq
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2009
Or
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     .
Commission file number: 002-25577
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
     
Delaware   95-2039518
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
     
15660 North Dallas Parkway, Suite 850    
Dallas, Texas   75248
(Address of principal executive offices)   (Zip code)
(972) 385-2810
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
     Large accelerated filer þ    Accelerated filer o    Non-accelerated filer   o
(Do not check if a smaller reporting company)
  Smaller reporting company o 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
The number of shares of the registrant’s Common Stock outstanding as of May 5, 2009 was 41,401,625.
 
 

 


 

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 EX-10.1
 EX-10.2
 EX-10.3
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


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PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS
                 
    December 31,     March 31,  
    2008     2009  
    (As Adjusted)          
CURRENT ASSETS
               
Cash and cash equivalents
  $ 103,496     $ 93,208  
Accounts receivable, net
    74,574       68,174  
Inventories
    99,118       82,835  
Deferred income taxes, current
    6,761       7,810  
Prepaid expenses and other
    15,578       13,468  
 
           
Total current assets
    299,527       265,495  
 
           
 
               
LONG-TERM INVESTMENT SECURITIES
    320,625       320,625  
 
               
PROPERTY, PLANT AND EQUIPMENT, net
    174,667       168,432  
 
               
OTHER ASSETS
               
Goodwill
    56,791       63,672  
Intangible assets, net
    35,928       34,899  
Other
    5,907       5,964  
 
           
 
               
Total assets
  $ 893,445     $ 859,087  
 
           
The accompanying notes are an integral part of these financial statements.

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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(cont’)
LIABILITIES AND EQUITY
(Unaudited)
(In thousands, except share data)
                 
    December 31,     March 31,  
    2008     2009  
    (As Adjusted)          
CURRENT LIABILITIES
               
Lines of credit
  $ 6,098     $ 4,129  
Accounts payable
    47,561       30,709  
Accrued liabilities
    31,195       28,286  
Income tax payable
    358       1,553  
Current portion of long-term debt
    1,339       348  
Current portion of capital lease obligations
    377       350  
 
           
Total current liabilities
    86,928       65,375  
 
           
 
               
LONG-TERM DEBT, net of current portion
               
2.25% Convertible Senior Notes due 2026
    155,451       149,497  
Long-term borrowings
    217,146       216,111  
 
               
CAPITAL LEASE OBLIGATIONS, net of current portion
    1,854       1,776  
DEFERRED INCOME TAXES, non-current
    10,753       16,982  
OTHER LONG-TERM LIABILITIES
    22,935       28,766  
 
           
Total liabilities
    495,067       478,507  
 
           
 
               
COMMITMENTS AND CONTINGENCIES
               
 
               
EQUITY
               
Diodes Incorporated stockholders’ equity
               
Preferred stock — par value $1.00 per share; 1,000,000 shares authorized;
no shares issued or outstanding
           
Common stock — par value $0.66 2/3 per share; 70,000,000 shares authorized;
41,378,816 and 41,395,815 issued and outstanding at December 31, 2008 and March 31, 2009, respectively
    27,586       27,597  
Additional paid-in capital
    167,964       170,416  
Retained earnings
    241,814       231,048  
Accumulated other comprehensive loss
    (48,439 )     (56,536 )
 
           
Total Diodes Incorporated stockholders’ equity
    388,925       372,525  
Noncontrolling interest
    9,453       8,055  
 
           
Total equity
    398,378       380,580  
 
           
Total liabilities and equity
  $ 893,445     $ 859,087  
 
           
The accompanying notes are an integral part of these financial statements.

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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
                 
    Three Months Ended  
    March 31,  
    2008     2009  
    (As Adjusted)          
NET SALES
  $ 95,580     $ 78,050  
 
               
COST OF GOODS SOLD
    63,664       63,557  
 
           
 
               
Gross profit
    31,916       14,493  
 
               
OPERATING EXPENSES
               
Selling, general and administrative
    14,542       16,056  
Research and development
    3,574       5,275  
Amortization of acquisition related intangible assets
    234       1,091  
Restructuring charge
          99  
 
           
Total operating expenses
    18,350       22,521  
 
           
 
               
Income (loss) from operations
    13,566       (8,028 )
 
               
OTHER INCOME (EXPENSES)
               
Interest income
    5,448       1,757  
Interest expense
    (1,621 )     (2,048 )
Amortization of debt discount
    (2,634 )     (2,209 )
Other
    (294 )     263  
 
           
Total other income (expenses)
    899       (2,237 )
 
               
Income (loss) before income taxes and noncontrolling interest
    14,465       (10,265 )
 
               
INCOME TAX PROVISION
    1,218       397  
 
           
 
               
NET INCOME (LOSS)
    13,247       (10,662 )
 
               
Less: NET INCOME attributable to noncontrolling interest
    (604 )     (104 )
 
           
 
               
NET INCOME (LOSS) attributable to common stockholders
  $ 12,643     $ (10,766 )
 
           
 
               
EARNINGS (LOSS) PER SHARE attributable to common stockholders
               
Basic
  $ 0.31     $ (0.26 )
 
           
Diluted
  $ 0.30     $ (0.26 )
 
           
 
               
Number of shares used in computation
               
Basic
    40,245       41,146  
 
           
Diluted
    42,534       41,146  
 
           
The accompanying notes are an integral part of these financial statements.

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DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
                 
    Three Months Ended  
    March 31,  
    2008     2009  
    (As Adjusted)          
CASH FLOWS FROM OPERATING ACTIVITIES
               
Net income (loss)
  $ 12,644     $ (10,766 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation
    7,444       10,186  
Amortization of intangibles
    212       1,169  
Amortization of convertible bond issuance costs
    233       179  
Amortization of discount on convertible bond
    2,634       2,209  
Net income attributable to noncontrolling interest
    608       104  
Share-based compensation
    2,550       2,429  
Gain on disposal of property, plant and equipment
    (37 )      
Gain on extinguishment of debt
          (1,490 )
Investment gain recognized under equity method
          96  
Accounts receivable
    3,573       5,833  
Inventories
    (8,031 )     15,798  
Prepaid expenses and other current assets
    (3,012 )     2,070  
Deferred income taxes
    (702 )     (1,036 )
Accounts payable
    (4,220 )     (16,621 )
Accrued liabilities
    (5,377 )     (4,862 )
Deferred income taxes
    (1,027 )      
Other liabilities
    907       217  
Income taxes payable
    1,497       1,235  
 
           
Net cash provided by operating activities
  $ 9,896     $ 6,750  
 
           
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchases of securities
  $ (963 )   $  
Proceeds from sale of securities
    3,710        
Purchases of property, plant and equipment
    (10,001 )     (4,322 )
Proceeds from sale of property, plant and equipment
    45       15  
Purchases of other assets
          (672 )
 
           
Net cash used in investing activities
  $ (7,209 )   $ (4,979 )
 
           
CASH FLOWS FROM FINANCING ACTIVITIES
               
Advances (repayments) on line of credit
  $ 2,382     $ (1,673 )
Net proceeds from issuance of common stock
    528       34  
Dividend distribution to noncontrolling interest
          (1,500 )
Repayments of long-term debt
    (341 )     (8,457 )
Repayments of capital lease obligations
    (52 )     (103 )
 
           
Net cash provided by (used in) financing activities
  $ 2,517     $ (11,699 )
 
           
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    (140 )     (360 )
 
           
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    5,064       (10,288 )
CASH AND CASH EQUIVALENTS, beginning of period
    56,179       103,496  
 
           
CASH AND CASH EQUIVALENTS, end of period
  $ 61,243     $ 93,208  
 
           
The accompanying notes are an integral part of these financial statements.

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DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A – Nature of Operations, Basis of Presentation and Recently Issued Accounting Pronouncements
Nature of Operations
     Diodes Incorporated and its subsidiaries (collectively, the “Company”) is a leading global designer, manufacturer and supplier of high-quality, application specific standard products within the broad discrete and analog semiconductor markets, serving the consumer electronics, computing, communications, industrial and automotive markets. These products include diodes, rectifiers, transistors, MOSFETs, protection devices, functional specific arrays, amplifiers and comparators, Hall effect sensors and temperature sensors, power management devices (including LED drivers), DC-DC switching and linear voltage regulators, voltage references, special function devices (including USB power switch, load switch, voltage supervisor and motor controllers) and silicon wafers used to manufacture these products. The products are sold primarily throughout North America, Asia and Europe.
Basis of Presentation
     The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) (“GAAP”) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with GAAP for complete financial statements. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the results of operations for the period presented have been included in the interim period. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The condensed consolidated financial data at December 31, 2008 is derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 that was subsequently adjusted for a change in accounting principle on January 1, 2009. See Note B for additional information regarding the change in accounting principle.
     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. As permitted under GAAP, interim accounting for certain expenses, including income taxes, are based on full year forecasts. Such amounts are expensed in full in the year incurred. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.
     Certain prior year’s balances have been reclassified to conform to the current financial statement presentation.
Recently Issued Accounting Pronouncements
     In December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 132R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets. This pronouncement provides additional guidance regarding disclosures about plan assets of defined benefit pension or other postretirement plans. FSP FAS 132R-1 is effective for financial statements issued for fiscal years beginning after December 15, 2009. The Company is currently evaluating the future impacts and required disclosures of this pronouncement.
     In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles Board (“APB”) 28-1, Interim Disclosures about Fair Value of Financial Instruments. These pronouncements amend FASB Statement of Financial Accounting Standards (“SFAS”) No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments, including method(s) and significant assumptions used to estimate the fair value in interim financial statements as well as in annual financial statements. FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the future impacts and required disclosures of these pronouncements.
     In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This pronouncement provides additional guidance on determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements under SFAS No. 157, Fair Value Measurements. FSP FAS 157-4 will be applied prospectively and is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting this FSP must also early adopt FSP FAS 115-2 and FAS 124-2. The Company is currently evaluating the future impacts and required disclosures of this pronouncement.

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     In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. These pronouncements are intended to provide greater clarity to investors about the credit and noncredit component of an other-than-temporary impairment (“OTTI”) event and to more effectively communicate when an OTTI event has occurred. FSP FAS 115-2 and FAS 124-2 apply to debt securities and require that the total OTTI be presented in the statement of earnings with an offset for the amount of impairment that is recognized in other comprehensive income, which is the noncredit component. Noncredit component losses are to be recorded in other comprehensive income if an investor can assess that (a) it does not have the intent to sell or (b) it is not more likely than not that it will have to sell the security prior to its anticipated recovery. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. FSP FAS 115-2 and FAS 124-2 will be applied prospectively with a cumulative effect transition adjustment as of the beginning of the period in which they are adopted. An entity early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS 157-4. The Company is currently evaluating the future impacts and required disclosures of these pronouncements.
     In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies. This pronouncement amends SFAS No. 141 (revised 2007), Business Combinations, to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, in accordance with SFAS No. 157, Fair Value Measurements, if the fair value can be determined during the measurement period. FSP FAS 141(R)-1 is effective for business combinations occurring after December 31, 2008.
NOTE B –Change in Accounting Principle
     In accordance with the adoption of FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), the Company adjusted the December 31, 2008 consolidated condensed balance sheet and the consolidated condensed statement of operations and consolidated condensed statement of cash flows for the three months ended March 31, 2008 to reflect the retrospective application of this pronouncement. This pronouncement clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants. FSP APB 14-1 also specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate. All adjustments were made retrospectively as of the date of issuance of the Company’s 2.25% convertible senior notes (“Notes”) due 2026 and therefore, the financial statements are presented as if the Notes have always been accounted for in accordance with this pronouncement. The material retrospective adjustments to the Company’s December 31, 2008 consolidated condensed balance sheet were to adjust; long-term debt from $183.5 million to $155.5 million; additional paid-in capital of approximately $34.3 million to reflect the initial recognition of the equity component, deferred taxes and debt issuance costs; deferred taxes associated with the convertible debt instrument; retained earnings to reflect the additional non-cash, pre-tax interest expense retrospectively recorded for 2006, 2007 and 2008 by approximately $1.7 million, $10.0 million and $10.7 million, respectively, and to reflect the $15.7 million pre-tax reduction to the gain on extinguishment of debt for the repurchase of $46.5 million par value Notes in December 2008. The material retrospective adjustments to the Company’s consolidated condensed statement of operations for the three months ended March 31, 2008 were to recognize the additional non-cash interest expense of approximately $2.6 million and the related tax effects to the tax provision. The retrospective adjustments to the Company’s consolidated condensed statement of cash flows for the three months ended March 31, 2008 were to adjust separate line items within cash flows from operating activities, which did not affect the original net reported amounts for operating activities, investing activities or financing activities. See Note N for additional information regarding FSP APB 14-1.
     In addition, in accordance with the adoption of SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51, the Company adjusted the December 31, 2008 consolidated condensed balance sheet to reflect the retrospective application of this pronouncement. This pronouncement established new standards governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries.  Certain provisions of this pronouncement indicate, among other things, that: NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability; increases and decreases in the parent’s ownership interest, that leave control intact, be treated as equity transactions, rather than as step acquisitions or dilution gains or losses; and losses of a partially owned consolidated subsidiary be allocated to the NCIs even when such allocation might result in a deficit balance. This pronouncement also requires changes to certain presentation and disclosure requirements. The provisions of the standard are to be applied to all NCIs prospectively, except for the presentation and disclosure requirements, which are to be applied retrospectively to all periods presented. Upon adoption, NCI’s of $9.5 million as of December 31, 2008 were reclassified to equity, a change from its previous classification between liabilities and stockholders’ equity.

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     The adjustments made to the December 31, 2008 consolidated condensed balance sheet are as follows (in thousands):
                                         
    December 31,
2008
            FSP APB 14-1   SFAS 160   Reclass    
    As Reported   Adjustments   Adjustment   Adjustment   Adjusted
ASSETS
                                       
Deferred income taxes, current
  $ 3,994       2,767                 $ 6,761  
Deferred income taxes, non-current
    2,745       (13,498 )           10,753        
Other assets
    6,627       (720 )                 5,907  
 
                                       
LIABILITIES AND EQUITY
                                       
2.25% Convertible Senior Notes due 2026
    183,500       (28,049 )                 155,451  
Deferred income taxes, non-current
                      10,753       10,753  
Noncontrolling interest (previously referred to as minority interests)
    9,453             (9,453 )            
Additional paid-in capital
    133,701       34,263                   167,964  
Retained earnings
    259,479       (17,665 )                 241,814  
Noncontrolling interest
                9,453             9,453  
     The adjustments made to the three months ended March 31, 2008 consolidated condensed statement of operations are as follows (in thousands):
                         
    Three Months Ended March 31, 2008
            APB 14-1    
    As Reported   Adjustments   Adjusted
     
Interest expense
  $ (1,698 )     77     $ (1,621 )
Amortization of debt discount
          (2,634 )     (2,634 )
Income tax provision (benefit)
    2,215       (997 )     1,218  
Net income
    14,807       (1,560 )     13,247  
 
                       
Earnings per share attributable to common stockholders
                       
Basic
  $ 0.35       (0.04 )   $ 0.31  
     
Diluted
  $ 0.33       (0.04 )   $ 0.30  
     
 
                       
Number of shares used in computation
                       
Basic
    40,245               40,245  
     
Diluted
    42,534               42,534  
     
NOTE C – Functional Currencies, Comprehensive Income and Foreign Currency Translation
     Functional Currencies and Translation — The functional currency for most of our international operations is the U.S. dollar, while some subsidiaries use their local currency as their functional currency. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are recorded as other income (expense) in the consolidated condensed statements of operations. The Company had foreign exchange transaction losses of approximately $0.5 million and $1.5 million for the three months ended March 31, 2008 and 2009, respectively.
     Comprehensive Income (Loss) — GAAP generally requires that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as separate components of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income or loss. As of March 31, 2009, the components of other comprehensive income or loss include foreign currency translation adjustments, unrealized gain or loss on defined benefit plan and foreign currency loss on forward contracts. Accumulated other comprehensive loss was $56.5 million at March 31, 2009.

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     Total comprehensive income for the three months ended March 31, 2009 and 2008 is as follows (in thousands):
Total Comprehensive Income (Loss)
                 
    Three Months Ended  
    March 31,  
    2008     2009  
Net income (loss)
  $ 13,247     $ (10,662 )
 
Translation adjustment
    3,059       (2,421 )
 
Unrealized loss on securities
    (11,493 )      
 
Unrealized loss on defined benefit plan, net of tax
          (7,241 )
 
Foreign currency gain on forward contracts, net of tax
          1,564  
 
 
           
Comprehensive income (loss)
    4,813       (18,760 )
 
Comprehensive income attributable to noncontrolling interest
    604       104  
 
           
 
               
Total comprehensive income (loss) attributable to common stockholders
  $ 4,209     $ (18,864 )
 
           

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NOTE D – Hedging
     As of March 31, 2009, the Company had forward contracts, primarily relating to its United Kingdom (“U.K.”) operations, of approximately $10.9 million that mature monthly over the next nine months. For the three months ended March 31, 2009, the Company had deferred net unrealized loss on outstanding forward exchange contracts recorded within other comprehensive income (loss) (“OCI”) of $1.6 million (net of tax). For the three months ended March 31, 2009, the Company had no material ineffective hedges because forward foreign currency contract amounts were less than the specifically identified anticipated transactions.
     The following details the location and amount of derivative instrument fair values in the consolidated condensed balance sheets (in thousands):
                                   
    Asset Derivatives     Liability Derivatives
    2009     2009
    Balance sheet             Balance sheet    
As of March 31:   location   Fair value     location   Fair value
Derivatives designated as hedging instruments under SFAS 133:
                                 
 
                                 
Foreign exchange contracts
  Other assets   $       Other liabilities   $ 2,229  
     The following details the location and amount of gains and losses on derivative instruments in the consolidated condensed statement of income (in thousands):
                                         
                                    Amount of
                                    Gain (Loss)
                                    Recognized in
                    Amount of Gain           Income on
    Amount of           (Loss)           Derivative
    Gain (Loss)       Reclassified   Location of Gain (Loss)   (Ineffective
    Recognized   Location of Gain (Loss)   from   Recognized in Income on   Portion and
    in OCI on   Reclassified from   Accumulated   Derivative (Ineffective   Amount
Derivatives in SFAS 133   Derivative   Accumulated OCI into   OCI into Income   Portion and Amount   Excluded from
Cash Flow Hedging
  (Effective   Income (Effective   (Effective   Excluded from   Effectiveness
Relationships
  Portion)   Portion)   Portion)   Effectiveness Testing)   Testing)
 
    2009                2009                2009   
 
                                       
Foreign exchange contracts
  $ (325 )   Other income (expense)   $ (2,088 )   Other income (expense)   $  

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NOTE E – Earnings (Loss) Per Share
     Basic net earnings (loss) per share is calculated by dividing net earnings by the weighted-average number of shares of common stock outstanding during the period. Diluted net earnings per share is calculated similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-dilutive.
     The shares used in the computation of basic and diluted earnings (loss) per common share are as follows (in thousands, except per share data):
                 
    Three Months Ended  
    March 31,  
    2008     2009  
BASIC
               
Weighted average number of common shares outstanding used in computing basic earnings (loss) per share
    40,245       41,146  
 
               
Net income (loss) attributable to common stockholders
  $ 12,643     $ (10,766 )
 
           
 
               
Earnings (loss) per share attributable to common stockholders
  $ 0.31     $ (0.26 )
 
           
 
               
DILUTED
               
Weighted average number of common shares outstanding used in computing basic earnings (loss) per share
    40,245       41,146  
Add: Assumed exercise of stock options and stock awards
    2,289        
 
           
 
    42,534       41,146  
 
Net income (loss) attributable to common stockholders
  $ 12,643     $ (10,766 )
 
           
 
               
Earnings (loss) per share attributable to common stockholders
  $ 0.30     $ (0.26 )
 
           
     There are no shares in the earnings per share calculation related to the Notes outstanding as our average stock price did not exceed the conversion price of $39.00 and, therefore, there is no conversion spread. For the three months ended March 31, 2009, the Company has excluded the assumed exercise of stock options and stock awards from the calculation of diluted net loss per share because these securities are anti-dilutive.
NOTE F Fair Value Measurements
     Financial assets and liabilities carried at fair value as of March 31, 2009 are classified in the following table (in thousands):
                                 
Description   Level 1     Level 2     Level 3     Total  
Long-term — trading securities
  $     $     $ 283,817     $ 283,817  
Long-term — put option
                36,808       36,808  
 
                       
Total
  $     $     $ 320,625     $ 320,625  
 
                       
     There has been no change in the balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2009.
     Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis were not significant at March 31, 2009.

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NOTE G – Long-term Investments
     As of March 31, 2009, the Company had $320.6 million invested in auction rate securities (“ARS”), classified as trading securities. In connection with the settlement with UBS AG the Company was given the option to “put” the ARS portfolio back to UBS AG at any time between June 30, 2010 and July 2, 2012 at par value. Upon settlement, the Company elected the fair value option for the “put” option and recorded an asset and a gain for the fair value of the “put” option. The Company classified the “put” option as a long-term investment as it is a free standing instrument tied to the ARS portfolio, which are also classified as long-term investments.
     Long-term investments at March 31, 2009 are as follows (in thousands):
                                 
            Cumulative     Cumulative        
            Realized     Realized        
As of March 31, 2009   Cost Basis     Gains     Losses     Fair Value  
Long-term investments
                               
Long-term — trading securities
  $ 320,625     $     $ (36,808 )   $ 283,817  
Long-term — put option
          36,808             36,808  
 
                       
Total long-term investments
  $ 320,625     $ 36,808     $ (36,808 )   $ 320,625  
 
                       
     The Company’s ARS are primarily backed by student loan association bonds. None of the Company’s investments are collateralized mortgage obligations or are any other type of mortgage-backed or real estate-backed securities. The Company continues to earn interest on its ARS at a weighted average rate of 2.1% as of March 31, 2009, which it is currently collecting. The weighted average maximum contractual default rate is 17.3%.
     As of March 31, 2009, approximately 85.7%, or $274.8 million, of the $320.6 million par value ARS are collateralized by higher education funded student loans that are supported by the federal government as part of the Federal Family Education Loan Program (“FFELP”). The following table shows a natural grouping of the FFELP guaranteed securities, as well as the percentage of the ARS portfolio guaranteed by FFELP (in thousands).
                 
% of FFELP guaranty   Par Value   % of Total
 
Greater than 99.0%
  $ 195,000       60.8 %
Between 81.2% and 82.1%
    86,825       27.1 %
50.50%
    17,000       5.3 %
10.00%
    3,800       1.2 %
non-FFELP guaranteed
    18,000       5.6 %
 
Total
  $ 320,625       100.0 %
     As of March 31, 2009, the Company’s portfolio of ARS was valued using a valuation model that relies exclusively on Level 3 inputs. The discount of the total ARS portfolio was 11.5% of par value, or $36.8 million loss.
NOTE H – Inventories
     Inventories stated at the lower of cost or market value are as follows (in thousands):
                 
    December 31,     March 31,  
    2008     2009  
Raw materials
  $ 28,690     $ 24,738  
Work-in-progress
    23,436       21,319  
Finished goods
    46,992       36,778  
 
           
Total
  $ 99,118     $ 82,835  
 
           

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NOTE I – Goodwill and Other Intangible Assets
     Changes in goodwill for the three months ended March 31, 2009 are as follows (in thousands):
         
Balance at December 31, 2008
  $ 56,791  
Acquisitions and purchase price adjustments
    7,576  
Currency exchange and other
    (695 )
 
     
Balance at March 31, 2009
  $ 63,672  
 
     
     Intangible assets at March 31, 2009 are as follows (in thousands):
         
Balance at March 31, 2009:
       
Intangible assets subject to amortization:
       
Gross carrying amount
  $ 47,825  
Accumulated amortization
    (5,940 )
Currency exchange and other
    (9,280 )
 
     
Net value
    32,605  
 
     
Intangible assets with indefinite lives:
       
Gross carrying amount
    3,162  
Currency exchange and other
    (868 )
Total
    2,294  
 
     
Total intangible assets, net
  $ 34,899  
 
     
     Amortization expense related to intangible assets subject to amortization was $0.2 million and $1.2 million for the three months ended March 31, 2008 and 2009, respectively.

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NOTE J – Income Tax Provision
     Income tax expense of $0.4 million was recorded for the three months ended March 31, 2009. This resulted in an effective tax rate of (3.9)% for the three months ended March 31, 2009, as compared to 8.4% in the same period of last year and compared to (7.6)% for the full year of 2008. The Company’s effective tax rate for the three months ended March 31, 2009 was impacted by the non-cash income tax expense associated with repatriating earnings of foreign subsidiaries to the U.S. parent. In addition, amounts for the three months ended March 31, 2008 and full year 2008 have been retrospectively adjusted for the adoption of APB 14-1. See Notes B for this retrospective treatment and the impacts on previously issued financial statements.
     For the three months ended March 31, 2009, the Company reported domestic and foreign pre-tax income (loss) of approximately $(12.8) million and $2.5 million, respectively. For the three month ended March 31, 2008, the Company reported domestic and foreign pre-tax income (loss) of approximately $(4.1) million and $18.6 million, respectively.
     The impact of tax holidays decreased the Company’s tax expense by approximately $2.3 million and $2.4 million for the three months ended March 31, 2009 and 2008, respectively. The benefit of the tax holidays on basic and diluted earnings per share for both the three months ended March 31, 2009 and 2008 was $0.06.
     Funds repatriated from foreign subsidiaries to the U.S. may be subject to federal and state income taxes. During the three months ended March 31, 2009, the Company repatriated approximately $28.5 million of accumulated earnings from one of its Chinese subsidiaries, resulting in additional non-cash federal and state income tax expense of approximately $5.7 million. The Company intends to permanently reinvest overseas all of its remaining earnings from its foreign subsidiaries. Furthermore, the Company determined that it was more likely than not that a portion of its federal foreign tax credit carryforwards would expire before they could be utilized. Accordingly, the Company has recorded valuation allowances of $5.6 million and $7.3 million as of December 31, 2008 and March 31, 2009.
     The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for tax years before 2005. The Internal Revenue Service has contacted the Company regarding an examination for the 2005 tax year. The Taiwan tax authorities have also contacted the Company regarding an examination for the 2007 tax year. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties, if any, have been provided for in the Company’s FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes reserve for any adjustments that may result from future tax audits. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense. As of March 31, 2009, the gross amount of unrecognized tax benefits was approximately $4.2 million.
     It is reasonably possible that the amount of the unrecognized benefit with respect to certain of the Company’s unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits or competent authority proceedings. At this time, an estimate of the range of the reasonably possible outcomes cannot be made.
NOTE K – Share-based Compensation
     The following table shows the total compensation cost charged against income for share-based compensation plans, including stock options and share grants, recognized in the statements of operations (in thousands):
                 
    Three Months Ended March 31,  
    2008     2009  
Cost of sales
  $ 127     $ 81  
Selling and administrative expense
    2,199       2,087  
Research and development expense
    224       261  
 
           
 
               
Total share-based compensation expense
  $ 2,550     $ 2,429  
 
           
     Stock Options. Stock options generally vest in equal annual installments over a four-year period and expire ten years after the grant date and expense was estimated on the date of grant using the Black-Scholes option pricing model.

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          The total intrinsic value (actual gain) of options exercised during the three months ended March 31, 2009 was approximately $19,000. The total net cash proceeds received from stock option exercises during the three months ended March 31, 2009 was $34,000. Stock option expense for the three months ended March 31, 2008 and 2009 was $1.2 million and $0.7 million, respectively.
          A summary of the stock option plans as of March 31, 2009 are as follows:
                                 
                    Weighted        
            Weighted     Average     Aggregate  
            Average     Remaining     Intrinsic  
    Shares     Exercise     Contractual     Value  
Stock options   (000)     Price     Term (yrs)     ($000)  
Outstanding at January 1, 2009
    3,895     $ 11.61       5.3     $ 2,327  
Granted
                       
Exercised
    (8 )     4.74             19  
Forfeited or expired
    (35 )     14.22              
 
                             
Outstanding at March 31, 2009
    3,852     $ 11.60       5.1     $ 10,604  
 
                       
Exercisable at March 31, 2009
    3,304     $ 9.26       4.6     $ 10,604  
 
                       
          The aggregate intrinsic value in the table above is before applicable income taxes and represents the amount optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price.
          As of March 31, 2009, total unrecognized stock-based compensation expense related to unvested stock options, net of forfeitures, was approximately $6.3 million, before income taxes, and is expected to be recognized over a weighted average of approximately 2.4 years.
          Share Grants. Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year period. Share grant expense for the three months ended March 31, 2008 and 2009 was $1.3 million and $1.7 million, respectively.
          A summary of the status of the Company’s non-vested share grants as of March 31, 2009 are as follows:
                         
            Weighted-     Aggregate  
            Average     Intrinsic  
    Shares     Grant-Date     Value  
Share Grants   (000)     Fair Value     ($000)  
Nonvested at January 1, 2009
    846     $ 21.41     $ 5,125  
Granted
    3       6.58        
Vested
    (9 )     25.21       383  
Forfeited
    (19 )     25.52        
 
                 
Nonvested at March 31, 2009
    821     $ 21.24     $ 8,713  
 
                 
          During the three months ended March 31, 2008 and 2009, there was $1.3 million and $1.7 million, respectively, of share-based compensation expense related to non-vested stock award arrangements granted under the plans.
          The total fair value of restricted stock awards vested during the three months ended March 31, 2009 was approximately $0.4 million.
          As of March 31, 2009, total unrecognized share-based compensation expense related to non-vested stock award arrangements, net of forfeitures, was approximately $12.2 million, before income taxes and is expected to be recognized over a weighted average of approximately 1.7 years.

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NOTE L Segment Information and Enterprise-Wide Disclosure
          For financial reporting purposes, the Company operates in a single segment, standard semiconductor products, through the Company’s various manufacturing and distribution facilities. The Company aggregated its products since the products are similar and have similar economic characteristics, and the products are similar in production process and share the same customer type.
          The Company’s primary operations include the domestic operations in Asia, North America and Europe.
          Revenues are attributed to geographic areas based on the location of subsidiaries producing the revenues (in thousands):
                                 
Three Months Ended           North             Consolidated  
March 31, 2008   Asia     America     Europe (1)     Segments  
Total sales
  $ 138,735     $ 29,856     $     $ 168,591  
Inter-company sales
    (64,812 )     (8,199 )           (73,011 )
 
                       
Net sales
  $ 73,923     $ 21,657     $     $ 95,580  
 
                               
Property, plant and equipment
  $ 109,123     $ 20,711     $     $ 129,834  
Assets
  $ 329,547     $ 385,204     $     $ 714,751  
 
                       
                                 
Three Months Ended           North             Consolidated  
March 31, 2009   Asia     America     Europe     Segments  
Total sales
  $ 99,081     $ 16,996     $ 19,296     $ 135,373  
Inter-company sales
    (41,083 )     (5,149 )     (11,091 )     (57,323 )
 
                       
Net sales
  $ 57,998     $ 11,847     $ 8,205     $ 78,050  
 
                               
Property, plant and equipment
  $ 100,477     $ 31,227     $ 36,728     $ 168,432  
Assets
  $ 288,972     $ 419,081     $ 151,034     $ 859,087  
 
                       
 
(1)   Information for the three months ended March 31, 2008 is not presented as the amounts are immaterial.

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Geographic Information
          Revenues were derived from (billed to) customers located in the following countries. “All Others” represents countries with less than 10% of the total revenues each (in thousands):
                                 
    Net Sales        
    for the Three Months     Percentage of  
    Ended March 31,     Net Sales  
    2008     2009     2008     2009  
China
  $ 26,234     $ 22,894       27.4 %     29.3 %
Taiwan
    32,615       21,443       34.1 %     27.5 %
United States
    20,590       13,958       21.5 %     17.9 %
Korea
    5,257       4,994       5.5 %     6.4 %
Germany
    1,748       4,463       1.8 %     5.7 %
Singapore
    2,221       3,780       2.3 %     4.8 %
England
    2,768       2,070       2.9 %     2.7 %
All Others
    4,147       4,448       4.4 %     5.7 %
 
                       
Total
  $ 95,580     $ 78,050       100.0 %     100.0 %
 
                       
NOTE M – Business Acquisitions
          Zetex Acquisition — On June 9, 2008, the Company completed the acquisition of all the outstanding ordinary capital stock of Zetex, a company incorporated under the laws of England and Wales. The Zetex shareholders received 85.45 pence in cash per ordinary share, valuing the fully diluted share capital of Zetex at approximately $176.1 million (based on a USD:GBP exchange rate of 1.9778), excluding acquisition costs, fees and expenses.
          As consideration for Zetex, the Company paid the following (in thousands):
         
Purchase price (cost of shares)
  $ 176,138  
Acquisition related costs
    3,595  
 
     
Total purchase price
  $ 179,733  
 
     

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          In addition, in order to finance the acquisition, the Company entered into a margin loan agreement with UBS Financial Services Inc. for $165 million, collateralized by the Company’s ARS portfolio. On November 4, 2008, the Company entered into a “no net cost loan” with UBS BANK USA as part of the settlement with UBS AG, which replaced the margin loan.
          The results of operations of the Zetex acquisition have been included in the consolidated financial statements as of June 1, 2008. The purpose of this acquisition was to create revenue, operating and cost synergies and to enhance the Company’s leadership in discrete and analog solutions. In addition, the Company believes that the acquisition will strengthen and broaden the Company’s product offerings, including entry into the LED lighting and automotive markets and expand the Company’s geographical footprint in the European markets.
          A final determination of the allocation of the purchase price to the assets acquired and liabilities assumed has not been made and the following table is considered preliminary. The final determination is subject to the completion of the valuation of the assets acquired and liabilities assumed, which will be completed during the second quarter of 2009.
          The following summarizes the preliminary (subject to final determination) allocation of the purchase price to the fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
                         
    Revised              
    purchase price              
    allocation as of     Changes in     Revised purchase  
    December 31,     purchase price     price allocation on  
    2008     allocation     acquisition date  
Assets acquired:
                       
Accounts receivable, net
  $ 13,445     $     $ 13,445  
Inventory
    35,991             35,991  
Prepaid expenses and other current assets
    4,363             4,363  
Property, plant and equipment, net
    52,243       (198 )     52,045  
Other long-term assets
    136             136  
Intangible assets
    48,274             48,274  
Goodwill
    40,227       11,916       52,143  
 
                 
Total assets acquired
  $ 194,679     $ 11,718     $ 206,397  
 
                 
 
                       
Liabilities assumed:
                       
Accounts payable
  $ 6,057     $     $ 6,057  
Accrued expenses and other liabilities
    16,806             16,806  
Pension liability
    10,873             10,873  
Deferred tax liabilities
    1,931       11,718       13,649  
Other liabilities
    3,846             3,846  
 
                 
Total liabilities assumed
    39,513       11,718       51,231  
 
                 
Total net assets acquired
  $ 155,166     $     $ 155,166  
 
                 

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          The preliminary fair values and lives for amortization purposes assigned to acquired intangible assets are as follows (amounts in thousands):
                 
            Estimated  
            useful life (in  
Intangible asset   Fair value assigned     years)  
IPR&D
               
Power management
  $ 1,383       N/A  
Lighting
    3,952       N/A  
Other
    2,569       N/A  
 
             
Total IPR&D
    7,904          
 
               
Developed technology:
               
Discretes
    16,007       10  
Power management
    4,941       5  
Lighting
    3,360       5  
ASIC
    3,162       7  
Other
    2,174       2–7  
 
             
Total Developed technology
    29,644          
 
               
Customer relationships
    6,917       12  
Trade name
    3,162     Indefinite
Other intangibles
    647     Various
 
             
Total intangibles acquired
  $ 48,274          
 
             
          Subsequent to the acquisition, the Company evaluated and adjusted its inventory for a reasonable profit allowance in accordance with SFAS No. 141, Business Combinations, which is intended to permit the Company to report only the profits normally associated with its activities following the acquisition as it relates to the work-in-progress and finished goods inventory. As such, the Company increased its acquired inventory from Zetex by approximately $5.4 million, and subsequently recorded that increase, adjusted for foreign exchange rates, into cost of goods sold in the amount of approximately $5.2 million during 2008.
          Acquired intangible in process research and development (“IPR&D”), which had not yet reached technological feasibility and had no alternative future use as of the date of acquisition in the amount of $7.9 million was expensed immediately in 2008, in accordance with SFAS No. 141, to research and development expense. IPR&D consists of: (i) power management, which includes power management chips that meet the requirements of a broad range of portable electronic equipment that demands a balance of efficiency, functionality, and size; (ii) lighting, which includes light-emitting diode (“LED”) drivers that are developed for a range of applications including white LEDs for display backlighting, safety and security lighting, camera flash, architectural lighting, and automotive lighting. The technology maintains illumination while limiting battery power consumption; and (iii) other, which includes items such as audio, which includes class D amplifiers that efficiently deliver high quality audio. The risk adjusted discount rate used to determine the fair value of power management, lighting and other was 26%, 28% and 28%, respectively.
          For the three months ended March 31, 2009, approximately $0.9 million has been recorded as amortization expense associated with the identified intangible assets. Amortization expense associated with these identified intangible assets will approximate between $1.8 million and $3.6 million per year over the next 5 to 10 years. In addition, the Company expects goodwill to be deductible for tax purposes.
          The following unaudited pro forma consolidated results of operations for the quarter ended March 31, 2008 have been prepared as if the acquisition of Zetex had occurred at January 1, 2008 (in thousands, except per share data):
         
    Three Months Ended
    March 31, 2008
Net sales
  $ 118,486  
Net income
  $ 12,781  
Net income per common share—Basic
  $ 0.32  
Net income per common share—Diluted
  $ 0.30  

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          The unaudited pro forma consolidated results of operations do not purport to be indicative of the results that would have been obtained if the above acquisition had actually occurred as of the dates indicated or of those results that may be obtained in the future. The unaudited pro forma consolidated results of operations do not include the final adjustments to net income to give the final effects to depreciation of property, plant and equipment acquired and amortization of intangible assets acquired as the Company working to complete its valuation of the assets and liabilities acquired and is unable to determine what those final effects would be. These unaudited pro forma consolidated results of operations were derived, in part, from the historical consolidated financial statements of Zetex and other available information and assumptions believed to be reasonable under the circumstances.

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NOTE N – Convertible Senior Notes
          On October 12, 2006, the Company issued and sold convertible senior notes with an aggregate principal amount of $230 million due 2026, which pay 2.25% interest per annum on the principal amount of the Notes, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2007.
          The Notes will be convertible into cash or, at the Company’s option, cash and/or shares of the Company’s Common Stock based on an initial conversion rate, subject to adjustment, of 25.6419 shares (split adjusted) per $1,000 principal amount of Notes, which represents an initial conversion price of $39.00 per share (split adjusted), in certain circumstances. In addition, following a “make-whole fundamental change” that occurs prior to October 1, 2011, the Company will, at its option, increase the conversion rate for a holder who elects to convert its Notes in connection with such “make-whole fundamental change,” in certain circumstances.
          During the first quarter of 2009, we repurchased $9.6 million principal amount of the Notes for approximately $6.6 million in cash.
          Effective January 1, 2009, the Company adopted FSP ABP 14-1. This pronouncement clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14. FSP APB 14-1 also specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate. Previous guidance provided for accounting of this type of convertible debt instruments entirely as debt. All adjustments are required to be made retrospectively as of the date of issuance of the Notes and therefore, will be treated as if the Notes have always been accounted for in accordance with this pronouncement. See Note B for this retrospective treatment and the impacts of previously issued financial statements.
          In determining liability and the equity components, the Company determined the expected life of the Notes to be five years as that is the earliest date in which the Notes can be put back to the Company at par value. As of March 31, 2009, 30 months remain over which the discount of the liability will be amortized. As of March 31, 2009, the liability and equity components are as follows (in thousands):
             
Liability   Liability   Liability   Equity
Component   Component   Component   Component
Principal   Net Carrying   Unamortized   Carrying
Amount   Amount   Discount   Amount
$173,915
  $149,497   $24,418   $57,730
          As of March 31, 2009, the effective interest rate of the liability component is 8.5%, which is a comparable yield for nonconvertible notes with terms and conditions otherwise comparable to the Company’s Notes as of the Notes date of issuance. The amount of interest expense, including amortization of debt discount for the liability component and debt issuance costs, for the three months ended March 31, 2008 and 2009 is as follows (in thousands):
                 
    2008     2009  
Notes contractual interest expense
  $ 1,388     $ 1,869  
Amortization of debt discount
    2,634       2,209  
Amortization of debt issuance costs
    233       179  
 
           
 
               
Total
  $ 4,255     $ 4,257  
 
           
NOTE O – Credit Facilities
          During the first quarter of 2009, the Company paid in full the outstanding balance of approximately $2.5 million on its revolving credit commitment with Union Bank of California, N.A. (“Union Bank”) and terminated the Amended and Restated Credit Agreement. Also in the first quarter of 2009, the Company paid in full the outstanding balance of approximately $1.5 million on its Union Bank term loan facility and terminated the Covenant Agreement.
NOTE P – Commitments
          Purchase Commitments — As of March 31, 2009, the Company had approximately $4.0 million in non-cancelable purchase contracts related to capital expenditures, primarily for manufacturing equipment in China.

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NOTE Q – Employee Benefit Plans
Defined Benefit Plan
          The Company has a contributory defined benefit plan that covers certain employees in the United Kingdom (“U.K.”) and Germany. The net pension and supplemental retirement benefit obligations and the related periodic costs are based on, among other things, assumptions of the discount rate, estimated return on plan assets and mortality rates. These obligations and related periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method used to compute the pension liabilities and related expenses.
          For the three months ended March 31, 2009, net period benefit costs associated with the defined benefit were approximately $0.3 million.
          The following tables set forth the benefit obligation, the fair value of plan assets, and the funded status of the Company’s plans for the three months ended March 31, 2009 (in thousands):
         
    Defined Benefit Plan  
Change in benefit obligation:
       
Balance at December 31, 2008
  $ 83,268  
Service cost
    72  
Interest cost
    1,333  
Actuarial loss
    1  
Benefits paid
    (626 )
Currency changes
    (251 )
 
     
Benefit obligation at March 31, 2009
  $ 83,797  
 
     
Change in plan assets:
       
Fair value of plan assets at December 31, 2008
  $ 71,284  
Actual return on plan assets
    (6,094 )
Benefits paid
    (626 )
Currency changes
    (209 )
 
     
Fair value of plan assets at March 31, 2009
  $ 64,355  
 
     
Funded status at March 31, 2009
    (19,442 )
 
     
          Based on an actuarial study performed as of March 31, 2009, the plan is under-funded and a liability of $19.4 million is reflected in the Company’s consolidated financial statements as a noncurrent liability. The amount recognized in accumulated other comprehensive loss for the three months ended March 31, 2009 was a net loss of $7.2 million and the weighted-average discount rate assumption used to determine benefit obligations as of March 31, 2009 was 6.4%.
          The following are weighted-average assumptions used to determine net periodic benefit costs for the three months ended March 31, 2009:
         
Discount rate
    6.40 %
Expected long-term return on plan assets
    6.50 %
          The Company adopted a payment plan with the trustees of the defined benefit plan, in which the Company will pay approximately £1.0 million GBP (approximately $1.4 million based on a USD:GBP exchange rate of 1.4:1) every year from 2009 through 2012 and the payment plan will be reviewed annually.
          The Company also has pension plans in Asia for which the benefit obligation, fair value of the plan assets and the funded status amounts are deemed immaterial and therefore, not included in the numbers or assumptions above.

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Deferred Compensation
          The Company maintains a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees and members of the Board of Directors (the “Board”). The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. The Company offsets its obligations under the Deferred Compensation Plan by investing in the actual underlying investments. These investments are classified as trading securities and are carried at fair value. At March 31, 2009, these investments totaled approximately $2.0 million. All gains and losses in these investments are equally offset by corresponding gains and losses in the Deferred Compensation Plan liabilities.
NOTE R Related Parties
          The Company conducts business with one related party company, Lite-On Semiconductor Corporation and its subsidiaries and affiliates (“LSC”), that owns 20.2% of the Company’s outstanding Common Stock as of March 31, 2009. The Company also conducts business with one significant company, Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (“Keylink”). Keylink is the Company’s 5% joint venture partner in Shanghai Kai Hong Electronic Co., Ltd. and Shanghai Kai Hong Technology Co., Ltd.
          The Audit Committee of the Board of Directors reviews all related party transactions for potential conflict of interest situations on an ongoing basis, in accordance with such procedures as the Audit Committee may adopt from time to time. The Company believes that all related party transactions are on terms no less favorable than would be obtained from unaffiliated third parties.
          Lite-On Semiconductor Corporation — During the three months ended March 31, 2008 and 2009, the Company sold products to LSC totaling 4.0% and 1.8% of its net sales, respectively, making LSC one of its largest customers. Also for the three months ended March 31, 2008 and 2009, 10.9% and 7.1%, respectively, of the Company’s net sales were from semiconductor products purchased from LSC for subsequent sale, making LSC the Company’s largest outside supplier. The Company also rents warehouse space in Hong Kong from a member of the Lite-On Group, which also provides the Company with warehousing services at that location. For the three months ended March 31, 2008 and 2009, the Company reimbursed this entity in aggregate amounts of $0.1 million and $0.2 million, respectively, for their services. The Company believes such transactions are on terms no less favorable than could be obtained from unaffiliated third parties.
          Net sales to, and purchases from, LSC for the three months ended March 31, 2008 and 2009 are as follows (in thousands):
                 
    Three months ended
    March 31,
    2008   2009
Net Sales
  $ 3,870     $ 1,394  
Purchases
    12,766       5,568  
          Keylink International (B.V.I.) Inc. — During the three months ended March 31, 2008 and 2009, the Company sold products to companies owned by Keylink totaling 0.7% and 3.1% of its net sales, respectively. Also for the three months ended March 31, 2008 and 2009, 1.6% and 1.3%, respectively, of the Company’s net sales were from semiconductor products purchased from companies owned by Keylink. In addition, the Company’s Chinese subsidiaries lease their manufacturing facilities from, and subcontract a portion of their manufacturing process (metal plating and environmental services) to, Keylink. The Company also paid a consulting fee to a Keylink affiliated company. For the three months ended March 31, 2008 and 2009, the Company paid Keylink an aggregate of $2.6 million and $1.8 million, respectively, with respect to these items. The Company believes such transactions are on terms no less favorable than could be obtained from unaffiliated third parties.
          Net sales to, and purchases from, companies owned by Keylink for three months ended March 31, 2008 and 2009 are as follows (in thousands):
                 
    Three months ended
    March 31,
    2008   2009
Net sales
  $ 677     $ 2,406  
Purchases
    1,822       1,049  

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          Accounts receivable from, and accounts payable to, LSC and Keylink are as follows as of March 31, 2009 (in thousands):
         
    March 31,  
    2009  
Accounts receivable
       
LSC
  $ 1,245  
Keylink
    4,584  
 
     
 
  $ 5,829  
 
     
 
       
Accounts payable
       
LSC
    4,812  
Keylink
    2,375  
 
     
 
  $ 7,187  
 
     

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
          Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by the Company’s management. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. The Company undertakes no obligation to publicly release the results of any revisions to its forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. Unless the context otherwise requires, the words “Diodes,” the “Company,” “we,” “us” and “our” refer to Diodes Incorporated and its subsidiaries.
          This management’s discussion should be read in conjunction with the management’s discussion included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, previously filed with Securities and Exchange Commission.
Highlights For the Three Months Ended March 31, 2009
    Revenue was $78.1 million;
 
    Gross profit was 18.6%;
 
    Completed the implementation of previously announced cost reduction initiatives;
 
    Reduced inventory by approximately $16 million or 16.4%;
 
    Reduced capital expenditures to $4.3 million;
 
    Repurchased $9.6 million of our 2.25% Convertible Senior Notes (“Notes”) for approximately $6.6 million resulting in a $1.5 million pre-tax gain; and
 
    Adopted FSP ABP 14-1, which increased our non-cash interest expense and retrospectively adjusted prior years’ reported numbers.
Overview
          We are a leading global designer, manufacturer and supplier of high-quality, application specific standard products within the broad discrete and analog semiconductor markets, serving the consumer electronics, computing, communications, industrial and automotive markets. These products include diodes, rectifiers, transistors, MOSFETs, protection devices, functional specific arrays, amplifiers and comparators, Hall effect sensors and temperature sensors, power management devices (including LED drivers), DC-DC switching and linear voltage regulators, voltage references, special function devices (including USB power switch, load switch, voltage supervisor and motor controllers) and silicon wafers used to manufacture these products. The products are sold primarily throughout North America, Asia and Europe.
          We design, manufacture and market these semiconductors for diverse end-use applications. Semiconductors, which provide electronic signal amplification and switching functions, are basic building-block electronic components that are incorporated into almost every electronic device. We believe that our focus on standard semiconductor products provides us with a meaningful competitive advantage relative to other semiconductor companies that provide a wider range of semiconductor products.
          During the first quarter of 2009, we strengthened our inventory position and completed the cost reduction initiatives described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 as we continue to focus on cash flows from operations. For the second quarter of 2009, we expect our business to benefit from increasing demand in China and with the addition of our new design wins. Our strategy is to continue to enhance our position as a leading global manufacturer and supplier of high-quality semiconductor products, and to continue to add other product lines, such as power management products, using our packaging technology capability.
          As described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, the principal elements of our strategy include the following:
    Continue to rapidly introduce innovative discrete and analog semiconductor products;
 
    Expand our available market opportunities;
 
    Maintain intense customer focus;
 
    Enhance cost competitiveness; and
 
    Pursue selective strategic acquisitions.

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          In implementing these strategies, the following factors have affected, and, we believe, will continue to affect, our results of operations:
   
The current economic downturn has resulted in a decrease in demand for our products. As a result, for 2009, we do not expect to sustain our historical growth rates although for the rest of 2009, we anticipate continued improvement in the global environment with demand and order rates showing improvements.
 
   
We have experienced substantial pressure from our customers and competitors to reduce the selling price for our products. Although we do not expect to sustain our historical growth rates for 2009, we expect future improvements in net income to result primarily from increases in sales volume and improvements in product mix in order to offset any reduced average selling prices (“ASP”) of our products.
 
   
The decrease in revenue for the three months ended March 31, 2009 compared to the same period last year mainly reflects the impact of the overall weakening economy and the decrease in demand for our products, in particular on key targeted end-equipment in the consumer and computing markets, as well as our foundry and subcontracting business, which showed greater weakness than our core revenue drivers.
 
   
Our gross profit margin was 18.6% for the three months ended March 31, 2009, compared to 33.4% in the same period last year. Our gross margin percentage was lower than the same period last year due to lower capacity utilization of our manufacturing operations mainly due to the current economic downturn and a decrease in demand for our products. Future gross profit margins will depend primarily on our product mix, cost savings, and the demand for our products.
 
   
For the three months ended March 31, 2009, our capital expenditures were approximately 5.5% of our revenue, which is a reduction from our previous 10% to 12% model and in line with our previously announced cost reduction initiatives.
 
   
Sales of new products (products that have been sold for three years or less) for the three months ended March 31, 2009 and 2008 amounted to 15.7% and 33.1% of total sales, respectively, including the contribution of recent acquisitions. New products generally have gross profit margins that are higher than the margins of our standard products. We believe the sales from new products is an important measure given the short life cycles of some of our products. Our net sales of new products as a percentage of our net sales will depend on the demand for our standard products, as well as our product mix.
 
   
For the three months ended March 31, 2009, the percentage of our net sales derived from our Asian subsidiaries was 74.3%, compared to 77.3% in the same period last year. We expect our net sales to the Asian market to increase as a percentage of our total net sales as a result of our customers’ continuing to shift their manufacturing of electronic products from the U.S. to Asia.
 
   
As a result of the Zetex acquisition we have added significant revenue in Europe. As such, Europe accounted for approximately 10.5% of our revenues for the three months ended March 31, 2009.
 
   
As of March 31, 2009, we had invested approximately $199 million in our Asian manufacturing facilities. For the three months ended March 31, 2009, we invested approximately $1.9 million in these manufacturing facilities, and we expect to continue to invest in our manufacturing facilities, although the amount to be invested will depend on product demand and new product developments.
 
   
We have increased our investment in research and development from $3.6 million, or 3.7% of net sales, for the three months ended March 31, 2008 to $5.3 million, or 6.8% of net sales, for the three months ended March 31, 2009 primarily as a result of the Zetex acquisition and the reduction in net sales due to the current economic downturn and decrease in demand for our products. For the remainder of 2009, we continue to realign our product development organization and consolidate our design teams.

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Results of Operations for the Three Months Ended March 31, 2008 and 2009
          The following table sets forth, for the periods indicated, the percentage that certain items in the statements of operations bear to net sales and the percentage dollar increase (decrease) of such items from period to period. Certain amounts for the three months ended March 31, 2008 have been adjusted to reflect the change in accounting principle as described in Note B of the Notes to Consolidated Condensed Financial Statements.
                         
    Percent of Net Sales   Percentage Dollar
                    Increase
    Three months ended March 31   (Decrease)
    2008   2009   ’1Q08 to ’1Q09
Net sales
    100.0 %     100.0 %     (18.3 )
Cost of goods sold
    (66.6 )     (81.4 )     (0.2 )
 
                       
Gross profit
    33.4       18.6       (54.6 )
Operating expenses
    (19.2 )     (28.9 )     22.7  
 
                       
Income (loss) from operations
    14.2       (10.3 )     (159.2 )
Interest income
    5.7       2.3       (67.7 )
Interest expense and amorization of debt discount
    (4.5 )     (5.5 )      
Other income (expenses)
    (0.3 )     0.3       (189.5 )
 
                       
Income (loss) before income taxes and noncontrolling interest
    15.1       (13.2 )     (171.0 )
Income tax provision
    1.3       0.5       (67.4 )
 
                       
Net income (loss)
    13.8       (13.7 )     (180.5 )
Net income (loss) attributable to noncontrolling interest
    (0.6 )     (0.1 )     (82.8 )
 
                       
Net income (loss) attributable to common stockholders
    13.2       (13.8 )     (185.2 )
 
                       
          The following discussion explains in greater detail our consolidated operating results and financial condition for the three months ended March 31, 2009, compared to the three months ended March 31, 2008. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report (in thousands).
                 
    2008   2009
Net Sales
  $ 95,580     $ 78,050  
          Net sales decreased approximately $17.5 million for the three months ended March 31, 2009, compared to the same period last year. The 18.3% decrease in net sales represents an approximately 24.4% decrease in units sold offset by a 8.4% increase in ASP. The ASP increase is primarily attributable to the higher ASP’s of the acquired Zetex product lines. The revenue decrease for the three months ended March 31, 2009 was attributable to sales decreases in all industry segments, primarily due to an overall weaker global economy, partially offset by additional sales from the Zetex acquisition, as well as our foundry and subcontracting business, which is showing greater weakness than our core revenue drivers. Significant price pressure and an unfavorable commodity-based product mix also affected sales for the three months ended March 31, 2009.
                 
    2008   2009
Cost of goods sold
  $ 63,664     $ 63,557  
Gross profit
  $ 31,916     $ 14,493  
Gross profit margin
    33.4 %     22.8 %
          Cost of goods sold remained substantially the same for the three months ended March 31, 2009 compared to the same period last year. As a percent of sales, cost of goods sold increased to 81.4% for the three months ended March 31, 2009 compared to 66.6% in the same period last year and our average unit cost (“AUP”) increased 32%. The increase in cost of goods sold as a percentage of sales was negatively affected by the lower capacity utilization in our manufacturing operations mainly due to market conditions and reduction of our finished goods inventory.

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          For the three months ended March 31, 2009, gross profit decreased by approximately $17.4 million, or 54.6%, compared to the same period last year. Gross margin decreased to 18.6% for the three months ended March 31, 2009, compared to 33.4% for the same period last year, primarily due to the depreciation expense of fixed assets in connection with the Zetex acquisition and lower capacity utilization in our manufacturing operations.
                 
    2008   2009
Selling, general and administrative expenses (“SG&A”)
  $ 14,542     $ 16,056  
          SG&A for the three months ended March 31, 2009 increased approximately $1.6 million, or 10.4%, compared to the same period last year, due primarily to additional SG&A expense related to the Zetex operations. The following expense categories increased, mainly due to additional Zetex SG&A expenses: (i) $2.1 million increase in facility expense, depreciation, supplies and other operating expenses, (ii) $0.1 million increase in wages and related benefits, including share-based compensation, and (iii) $0.1 million increase in communication and travel expense, offset by $0.8 million decrease in marketing and selling expenses related to decreased sales and as part of our cost reduction initiatives. SG&A as a percentage of sales, increased to 20.6% for the three months ended March 31, 2009, compared to 15.2% in the same period last year.
                 
    2008   2009
Research and development expenses (“R&D”)
  $ 3,574     $ 5,275  
          R&D for the three months ended March 31, 2009 was $5.3 million, an increase of approximately $1.7 million from the same period last year due primarily to additional R&D expense related to the Zetex operations. The following expense categories increased, mainly due to additional Zetex R&D expense: (i) $1.0 million increase in wages and related benefits and (ii) $0.7 million increase in depreciation, facility, equipment and operating expenses. R&D, as a percentage of sales, increased to 6.8% for the three months ended March 31, 2009, compared 3.7% in the same period last year.
                 
    2008   2009
Amortization of acquisition-related intangibles
  $ 234     $ 1,091  
          During the first quarter of 2009, per SFAS 141, we recorded approximately $1.1 million of non-cash amortization expense associated with the identification of intangible assets in connection with our acquisitions.
                 
    2008   2009
Interest income
  $ 5,448     $ 1,757  
          Interest income decreased for the three months ended March 31, 2009 to $1.8 million, compared to $5.4 million in the same period last year, due primarily to a decrease in interest income earned on our long-term investment securities. Interest income for the three months ended March 31, 2009 has been impacted by the continued turmoil in the credit markets, and in particular with the continued interruption in the auction rate securities (“ARS”) auction markets. In October 2008, we reached a settlement agreement with UBS AG, whereby we were given the option to “put” the ARS portfolio back to UBS AG at any time between June 30, 2010 and July 2, 2012 at par value. We continue to earn interest on our ARS portfolio and expect the weighted average interest to be earned during 2009 will be lower than earned in 2008.
                 
    2008   2009
Interest expense
  $ 1,621     $ 2,048  
          Interest expense for the three months ended March 31, 2009 was approximately $2.0 million, compared to $1.6 million in the same period last year. The $0.4 million increase in interest expense is due primarily to the interest expense charged in connection with our “no net cost loan” with the offsetting interest earned being recorded in interest income. The increase in interest expense was partially offset by the reduced interest paid due to the repurchase and retirement of $56.1 million par value of Notes during the fourth quarter of 2008 and first quarter of 2009.

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    2008   2009
Amortization of debt discount
  $ 2,634     $ 2,209  
          Amortization of debt discount for the three months ended March 31, 2009 was $2.2 million, compared to $2.6 million in the same period last year. The amortization of debt discount was recorded in accordance with FSP ABP 14-1. The $0.4 million decreased in amortization of debt discount was due primarily to the repurchase and retirement of $56.1 million par value of Notes during the fourth quarter of 2008 and first quarter of 2009. See Note N of the Notes to Consolidated Condensed Financial Statements for information regarding FSP APB 14-1.
                 
    2008   2009
Other income (expense)
  $ (294 )   $ 263  
          Other income for the three months ended March 31, 2009 was $0.3 million, compared to other expense of $0.3 million in the same period last year. Included in other income for the three months ended March 31, 2009 was a: (i) $1.5 million gain from extinguishment of debt (we repurchased $9.6 million of our Notes for approximately $6.6 million resulting in a $1.5 million pre-tax gain); and (ii) $2.0 million foreign currency transaction losses due primarily to the strengthening of the U.S. dollar versus the British Pound, negatively affecting foreign currency hedges entered into by Zetex prior to our acquisition, partially offset by $0.5 million in foreign currency transaction gains due primarily to favorable Taiwan and China currency exchange rate changes during the period.
                 
    2008   2009
Income tax provision
  $ 1,218     $ 397  
          We recognized income tax expense of $0.4 million for the three months ended March 31, 2009, compared to $1.2 million in the same period last year. Income taxes for interim periods ended March 31, 2009 and 2008 have been included in the accompanying financial statements on the basis of an estimated annual effective rate. The estimated annual effective tax rate is (3.9)% for the three months ended March 31, 2009, as compared to the annual effective tax rate for the three months ended March 31, 2008 of 8.4%. The estimated annual effective tax rate for the three months ended March 31, 2009 was impacted by the noncash income tax expense associated with repatriating earnings of foreign subsidiaries to the U.S. parent.
                 
    2008   2009
Noncontrolling interest
  $ 604     $ 104  
          Noncontrolling interest represented the minority investors’ share of the earnings of our China and Taiwan subsidiaries for the three months ended March 31, 2009 and 2008. The noncontrolling interest in the subsidiaries and their equity balances are reported separately in the consolidation of our financial statements, and the activities of these subsidiaries are included therein. Our controlling interests in these subsidiaries have not changed since December 31, 2008.

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Financial Condition
Liquidity and Capital Resources
          Our primary sources of liquidity are cash and cash equivalents, funds from operations and borrowings under our credit facilities. Our primary liquidity requirements have been to meet our inventory and capital expenditure needs and to fund on-going operations. At December 31, 2008 and March 31, 2009, our working capital was $212.6 million and $200.3 million, respectively. Our working capital decreased in the first three months of 2009 mainly due to the decrease in cash and cash equivalents and inventory, partially offset by the decrease in accounts payable. We expect cash generated by our U.S. and international operations, together with existing cash, cash equivalents, and available credit facilities to be sufficient to cover cash needs for working capital and capital expenditures for at least the next 12 months. Cash and cash equivalents, the conversion of other working-capital items and borrowings are expected to be sufficient to fund on-going operations.
          In February 2009, as part of our review to maximize efficiencies and reduce costs, we paid in full the outstanding balance on our U.S. revolving credit commitment and our term loan facility and terminated our Amended and Restated Credit Agreement and Covenant Agreement with Union Bank of California N.A. Should future business needs arise and the credit markets permit, we may seek to obtain additional credit facilities. In addition, during the first quarter of 2009, we repatriated approximately $28.5 million of accumulated earnings from one of our Chinese subsidiaries. The Company intends to permanently reinvest overseas all of its remaining earnings from its foreign subsidiaries.
          During the first quarter of 2009, we repurchased $9.6 million principal amount of the Convertible Senior Notes for approximately $6.6 million in cash.
          As of March 31, 2009, we had $320.6 million invested in ARS, which are classified as long-term, trading securities. While we continue to earn and receive interest on these investments at the maximum contractual rate, the estimated fair values of these ARS no longer approximates par value. On October 29, 2008, we reached a settlement with UBS AG and affiliates (“UBS AG”), in regard to our ARS portfolio, which gives us the option to “put” the $320.6 million ARS portfolio back to UBS AG at any time from June 30, 2010 through July 2, 2012 at par value in exchange for cash. See Notes F and G of the Notes to Consolidated Condensed Financial Statements for information regarding the fair values and the realized gains and losses of our ARS portfolio and put option as of March 31, 2009.
          As part of our settlement with UBS AG, we have a “no net cost loan” with one of its affiliates, which allows us to draw up to 75% of the market value of our ARS portfolio, as determined by UBS BANK USA, and is subject to collateral requirements. The interest rate we pay on the “no net cost loan” will not exceed the interest rate earned on the pledged ARS portfolio. As of March 31, 2009, the balance of our “no net cost loan” was approximately $213 million and classified as long-term debt. Since we have drawn up to the 75% limit and the market value of the ARS has decreased, we cannot draw additional funds from the “no net cost loan” until 75% of the market value of the ARS exceeds $213 million, at which time we can draw additional funds.
          Capital expenditures for the three months ended March 31, 2008 and 2009 were $10.0 million and $4.3 million, respectively. Our capital expenditures for these periods were primarily related to manufacturing expansion in our facilities in China. Capital expenditures in the first three months of 2009 were 5.5% of our revenue, which is a reduction from our previous 10% to 12% model and in line with our previously announced cost reduction initiatives.
Discussion of Cash Flow
          Cash and cash equivalents decreased from $103.5 million at December 31, 2008, to $93.2 million at March 31, 2009 primarily due to the repurchase of $9.6 million principal amount Convertible Senior Notes for approximately $6.6 million in cash.

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          Operating Activities
          Net cash provided by operating activities for the three months ended March 31, 2009 was $6.8 million, resulting primarily from a $15.8 million reduction in inventory as well as $13.7 million in depreciation and amortization, offset partially by a $16.6 million reduction in accounts payable. Net cash provided by operating activities was $9.9 million for the same period last year. Net cash provided by operating activities decreased $3.1 million for the three months ended March 31, 2009 compared to the same period last year. This decrease resulted primarily from an approximately $11.8 million decrease in liabilities and a $23.4 million decrease in net income, partially offset by an approximately $30.8 million increase in assets. We continue to closely monitor our credit terms with our customers, while at times providing extended terms, primarily required by our customers in Asia and Europe.
          Investing Activities
          Net cash used in investing activities was $5.0 million for the three months ended March 31, 2009 compared to $7.2 million for the same period last year. The $2.2 million decrease in net cash used by investing activities resulted primarily from the reduction in capital expenditures.
          Financing Activities
          Net cash provided by (used in) financing activities totaled $(11.7) million for the three months ended March 31, 2009 compared to $2.5 million in the same period last year. This increase in used funds is primarily the result of an approximately $10.2 million repayment on line of credit and long-term debt mainly due to the termination of our credit facility with Union Bank and repurchase of our Notes.
Debt Instruments
          There have been no material changes to our debt instruments as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 26, 2009, except for the adoption of FSP APB 14-1. See Note N of the Notes to Consolidated Condensed Financial Statements for further information.
Off-Balance Sheet Arrangements
          We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provide off-balance sheet financing, liquidity or market or credit risk support, nor do we engage in leasing, swap agreements, or outsourcing of research and development services, that could expose us to liability that is not reflected on the face of our financial statements.
Contractual Obligations
          There have been no material changes in any of our contractual obligations since December 31, 2008, except for the repurchase of $9.6 million principal amount of the Convertible Senior Notes for approximately $6.6 million in cash during the first quarter of 2009.
Critical Accounting Policies and Estimates
          The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes, among others. Our estimates are based upon historical experiences, market trends and financial forecasts and projections, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
          Our critical accounting policies, as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, relate to revenue recognition, inventories, accounting for income taxes, allowance for doubtful accounts, goodwill and long-lived assets, share-based compensation, fair value measurements, defined benefit plan, asset retirement obligations, investments in joint ventures and contingencies. There have been no material changes to our critical accounting policies since December 31, 2008, except for the changes described below.

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Convertible Senior Notes
          On January 1, 2009, we adopted FSP APB 14-1 to account for our Notes. This pronouncement clarifies that convertible debt instruments that may be settled in cash upon conversion are not addressed by paragraph 12 of Accounting Principles Board Opinion No. 14. FSP APB 14-1 also specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate. Previous guidance provided for accounting of this type of convertible debt instruments entirely as debt. All adjustments are required to be made retrospectively as of the date of issuance of the Notes and therefore, will be treated as if the Notes have always been accounted for in accordance with this pronouncement. See Note B and Note N of the Notes to Consolidated Condensed Financial Statements for further information.
Recently Issued Accounting Pronouncements
               See Note A of the Notes to Consolidated Condensed Financial Statements for detailed information regarding the status of recently issued accounting pronouncements.
Available Information
          Our Internet address is http://www.diodes.com. We make available, free of charge through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). To support our global customer-base, particularly in Asia and Europe, our website is language-selectable into English, Chinese, and Korean, giving us an effective marketing tool for worldwide markets. With its extensive online Product (Parametric) Catalog with advanced search capabilities, our website facilitates quick and easy product selection. Our website provides easy access to worldwide sales contacts and customer support, and incorporates a distributor-inventory check to provide component inventory availability and a small order desk for overnight sample fulfillment. Our website also provides access to investor financial information, including SEC filings and press releases, as well as stock quotes and information on corporate governance compliance.
Cautionary Statement for Purposes of the “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995
          Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q 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. We generally identify forward-looking statements by the use of terminology such as “may,” “will,” “could,” “should,” “potential,” “continue,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” or similar phrases or the negatives of such terms. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed under “Risks Related To Our Business” and elsewhere in this Quarterly Report on Form 10-Q that could cause actual results to differ materially from those anticipated by our 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 Quarterly Report on Form 10-Q are made pursuant to the Act.
          All forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to, in addition to the other matters described in this Quarterly Report on Form 10-Q, a variety of significant risks and uncertainties. The following discussion highlights some of these risks and uncertainties. Further, from time to time, information provided by us or statements made by our employees may contain forward-looking information. There can be no assurance that actual results or business conditions will not differ materially from those set forth or suggested in such forward-looking statements as a result of various factors, including those discussed below.
          For more detailed discussion of these factors, see the “Risk Factors” discussion in Item 1A of the Company’s most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission and in Part II, Item 1A of this report. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report, and the Company undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances.
Risk Factors
Risks Related To Our Business
  Ø  
Global economic weakness and the current financial market uncertainty has had, and is expected to continue to have through at least 2009, a material adverse effect on our business.
 
  Ø  
In the current difficult market conditions, our fixed costs combined with lower revenues have negatively impacted our results.

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  Ø  
Downturns in the highly cyclical semiconductor industry or changes in end-market demand could affect our operating results and financial condition.
 
  Ø  
The semiconductor business is highly competitive, and increased competition may harm our business and our operating results.
 
  Ø  
We receive a significant portion of our net sales from a single customer. In addition, this customer is also our largest external supplier and is a related party. The loss of this customer or supplier could harm our business and results of operations.
 
  Ø  
Delays in initiation of production at new facilities, implementing new production techniques or resolving problems associated with technical equipment malfunctions could adversely affect our manufacturing efficiencies.
 
  Ø  
We are and will continue to be under continuous pressure from our customers and competitors to reduce the price of our products, which could adversely affect our growth and profit margins.
 
  Ø  
Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales.
 
  Ø  
Our customer orders are subject to cancellation or modification usually with no penalty. High volumes of order cancellation or reductions in quantities ordered could adversely affect our results of operations and financial condition.
 
  Ø  
Production at our manufacturing facilities could be disrupted for a variety of reasons, which could prevent us from producing enough of our products to maintain our sales and satisfy our customers’ demands.
 
  Ø  
New technologies could result in the development of new products by our competitors and a decrease in demand for our products, and we may not be able to develop new products to satisfy changes in demand, which could result in a decrease in net sales and loss of market share.
 
  Ø  
We may be adversely affected by any disruption in our information technology systems.
 
  Ø  
We may be subject to claims of infringement of third-party intellectual property rights or demands that we license third-party technology, which could result in significant expense and reduction in our intellectual property rights.
 
  Ø  
We depend on third-party suppliers for timely deliveries of raw materials, parts and equipment, as well as finished products from other manufacturers, and our results of operations could be adversely affected if we are unable to obtain adequate supplies in a timely manner.
 
  Ø  
If we do not succeed in continuing to vertically integrate our business, we will not realize the cost and other efficiencies we anticipate and our ability to compete, profit margins and results of operations may suffer.
 
  Ø  
Part of our growth strategy involves identifying and acquiring companies with complementary product lines or customers. We may be unable to identify suitable acquisition candidates or consummate desired acquisitions and, if we do make any acquisitions, we may be unable to successfully integrate any acquired companies with our operations.
 
  Ø  
We are subject to many environmental laws and regulations that could affect our operations or result in significant expenses.
 
  Ø  
Our products may be found to be defective and, as a result, product liability claims may be asserted against us, which may harm our business and our reputation with our customers.
 
  Ø  
We may fail to attract or retain the qualified technical, sales, marketing and management personnel required to operate our business successfully.
 
  Ø  
We may not be able to maintain our growth or achieve future growth and such growth may place a strain on our management and on our systems and resources.
 
  Ø  
Our business may be adversely affected by obsolete inventories as a result of changes in demand for our products and change in life cycles of our products.

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  Ø  
If OEMs do not design our products into their applications, a portion of our net sales may be adversely affected.
 
  Ø  
We are subject to interest rate risk that could have an adverse effect on our cost of working capital and interest expenses.
 
  Ø  
We had a significant amount of debt following the offering of convertible notes. Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under the notes and or other debt.
 
  Ø  
Our Auction Rate Securities (“ARS”) are currently illiquid and we cancelled our bank credit facility in the U.S.; therefore, we must rely solely upon existing cash reserves, available foreign credit facilities and funds from existing operations to finance future operations.
 
  Ø  
UBS AG may not honor its part of the settlement agreement with us to purchase our entire ARS portfolio at any time beginning from June 30, 2010 to July 2, 2012 at par value.
 
  Ø  
UBS BANK USA (“UBS Bank”) may demand full or partial repayment of our “no net cost loan” with the UBS Bank at any time at UBS Bank’s sole option and without cause, and UBS Financial Services Inc. may be unable to provide us any alternative financing on substantially same terms and conditions as those of the” no net cost loan.”
 
  Ø  
The value of our benefit plan assets and liabilities is based on estimates and assumptions, which may prove inaccurate.
 
  Ø  
Due to the recent and ongoing fluctuations in the United Kingdom’s equity markets and bond markets, changes in actuarial assumptions for our defined benefit plan could increase the volatility of the plan’s asset value, require us to increase cash contributions to the plan and have a negative impact on our results of operations and profitability.
 
  Ø  
There are risks associated with our acquisition of Zetex.
 
  Ø  
If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over financial reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the trading price of our Common Stock.
 
  Ø  
Our management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting as of December 31, 2008 excluded the operations of Zetex. If we are not able to integrate Zetex operations into our internal control over financial reporting, our internal control over financial reporting may not be effective.
 
  Ø  
Terrorist attacks, or threats or occurrences of other terrorist activities whether in the United States or internationally may affect the markets in which our Common Stock trades, the markets in which we operate and our profitability.
Risks Related To Our International Operations
  Ø  
Our international operations subject us to risks that could adversely affect our operations.
 
  Ø  
We may be adversely affected by any international health conditions, including outbreaks or health epidemics.
 
  Ø  
We have significant operations and assets in China, Taiwan, Hong Kong and England and, as a result, will be subject to risks inherent in doing business in those jurisdictions, which may adversely affect our financial performance.
 
  Ø  
We could be adversely affected by violations of the United States’ Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.
 
  Ø  
We are subject to foreign currency risk as a result of our international operations.
 
  Ø  
We may not continue to receive preferential tax treatment in Asia, thereby increasing our income tax expense and reducing our net income.
 
  Ø  
The distribution of any earnings of our foreign subsidiaries to the United States may be subject to U.S. income taxes, thus reducing our net income.

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Risks Related To Our Common Stock
  Ø  
Variations in our quarterly operating results may cause our stock price to be volatile.
 
  Ø  
We may enter into future acquisitions and take certain actions in connection with such acquisitions that could affect the price of our Common Stock.
 
  Ø  
Our directors, executive officers and significant stockholders hold a substantial portion of our Common Stock, which may lead to conflicts with other stockholders over corporate transactions and other corporate matters.
 
  Ø  
We were formed in 1959, and our early corporate records are incomplete. As a result, we may have difficulty in assessing and defending against claims relating to rights to our Common Stock purporting to arise during periods for which our records are incomplete.
 
  Ø  
Conversion of our convertible senior notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their notes.
 
  Ø  
The repurchase rights and the increased conversion rate triggered by a make-whole fundamental change could discourage a potential acquirer.
 
  Ø  
Anti-takeover effects of certain provisions of Delaware law and our Certificate of Incorporation and Bylaws.
 
  Ø  
Section 203 of Delaware General Corporation Law.
 
  Ø  
Certificate of Incorporation and Bylaw Provisions.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
          As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates, government actions, liquidity and inflation. We consider a variety of practices to manage these market risks. There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, filed on February 26, 2009.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
          Our Chief Executive Officer, Keh-Shew Lu, and Chief Financial Officer, Carl C. Wertz, with the participation of the Company’s management, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report, our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be included in this report is:
    recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms; and
 
    accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions required disclosure.
          Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.
Changes in Controls over Financial Reporting
          There was no change in our internal control over financial reporting, known to the Chief Executive Officer or the Chief Financial Officer that occurred during the last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
          There have been no material changes from the legal proceedings disclosed in the “Legal Proceedings” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 26, 2009.
          We are currently a party to Integrated Discrete Devices, LLC. v. Diodes Incorporated, C.A. No. 08-888 (GMS) (D. Del.). While we intend to defend the lawsuit vigorously and presently believe that the ultimate outcome of the legal proceeding will not have a material adverse effect on our financial position, cash flows or overall results of operations, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction prohibiting us from selling one or more products. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our business or results of operations for the period in which the ruling occurs or future periods.
          From time to time, the Company is involved in various routine legal proceedings incidental to the conduct of its business. The Company’s management does not believe that any of these legal proceedings will have a material adverse impact on the business, financial condition or results of operations of the Company.
Item 1A. Risk Factors
          There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed on February 26, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
          There are no matters to be reported under this heading.
Item 3. Defaults Upon Senior Securities
          There are no matters to be reported under this heading.
Item 4. Submission of Matters to a Vote of Security Holders
          There are no matters to be reported under this heading.
Item 5. Other Information
          There are no matters to be reported under this heading.

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Item 6. Exhibits
                         
                Exhibit   Filed
Number   Description   Form   Date of First Filing   Number   Herewith
3.1
  Certificate of Incorporation, as amended   S-3   September 8, 2005     3.1      
 
                       
3.2
  Amended By-laws of the Company dated July 19, 2007   8-K   July 23, 2007     3.1      
 
                       
4.1
  Form of Certificate for Common Stock, par value $0.66 2/3 per share   S-3   August 25, 2005     4.1      
 
                       
4.2
  Form of Convertible Senior Notes due 2026   S-3   October 4, 2006     4.1      
 
                       
4.3
  Form of Indenture for the Convertible Senior Notes dude 2026   S-3   October 4, 2006     4.3      
 
                       
10.1
  Consulting Agreement dated January 1, 2009, between Diodes Incorporated and Keylink International (BVI) Co., Ltd.   10-Q   May 8, 2009     10.1     X
 
                       
10.2
  Amended Appendix to the Plating Agreement dated February 11, 2009, among Shanghai Kai Hong Electronic Co., Ltd., Diodes Shanghai Co., Ltd., Shanghai Ding Hong Electronic Co., Ltd. and Shanghai Micro-Surface Co., Ltd.   10-Q   May 8, 2009     10.2     X
 
                       
10.3
  Amendment to the Exhibit 1 of the Distributorship Agreement dated March 27, 2009, between Shanghai Kai Hong Technology Co., Ltd. and Shanghai Keylink Logistic Co., Ltd.   10-Q   May 8, 2009     10.3     X
 
                       
31.1
  Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                   X
 
                       
31.2
  Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                   X
 
                       
32.1
  Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                   X
 
                       
32.2
  Certification Pursuant to 18 U.S.C. adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                   X
PLEASE NOTE: It is inappropriate for investors to assume the accuracy of any covenants, representations or warranties that may be contained in agreements or other documents filed as exhibits to this Quarterly Report on Form 10-Q. In certain instances the disclosure schedules to such agreements or documents contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants. Moreover, some of the representations and warranties may not be complete or accurate as of a particular date because they are subject to a contractual standard of materiality that is different from those generally applicable to stockholders and/or were used for the purpose of allocating risk among the parties rather than establishing certain matters as facts. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts at the time they were made or otherwise.

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SIGNATURE
          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DIODES INCORPORATED (Registrant)
     
By: /s/ Carl C. Wertz
  May 8, 2009
 
CARL C. WERTZ
   
Chief Financial Officer, Treasurer and Secretary
   
(Duly Authorized Officer and Principal Financial and
   
Chief Accounting Officer)
   

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exv10w1
Exhibit 10.1
CONSULTING AGREEMENT
          THIS CONSULTING AGREEMENT is made and effective as of the first day of January 2009, by and between Diodes Incorporated, a Delaware corporation (the “Company”), and the Keylink International (BVI) Co., Ltd. (the “Consultant”), a corporation of the British Virgin Island, with respect to the following facts:
     A. The Company desires to be assured of the continued association and services of the Consultant in order to take advantage of the Consultant’s experience, knowledge and abilities in the Company’s business, and is willing to retain the Consultant, and the Consultant’s desires to be so retained, on the terms and conditions set forth in this Agreement.
     B. The Consultant from time to time in the course of the Consultant’s relationship with the Company may learn trade secrets and other confidential information concerning the Company, and the Company desires to safeguard such trade secrets and confidential information against unauthorized use and disclosure.
          ACCORDINGLY, on the basis of the representations, warranties and covenants contained herein, the parties hereto agree as follows:
          1. CONSULTING SERVICES
               1.1 Retention. The Company hereby retains the Consultant as a consultant, and the Consultant hereby accepts such appointment, on the terms and conditions set forth below, to perform during the term of this Agreement such services as are required hereunder.
               1.2 Duties. The Consultant shall render such services to the Company, and shall perform such duties and acts, as reasonably may be requested by the Company in connection with maintaining the relationship of Shanghai KaiHong Electronic Co., Ltd. and Shanghai KaiHong Technology Co., Ltd., both joint ventures in which the Company has principal interests, with all national, provincial and local governmental agencies in the People’s Republic of China.
               1.3 Performance of Duties. The Consultant shall devote such time, ability and attention to the Company’s business as may be necessary for the Consultant to discharge its duties hereunder in a professional and businesslike manner.
               1.4 Relationship. The Consultant shall be an independent contractor of the Company. Nothing in this Agreement shall be construed to give the Consultant any rights as an employee, agent, partner or joint venturer of the Company or to entitle the Consultant to control in any manner the business of the Company or to incur any debt, liability or obligation on behalf of the Company.
               1.5 Products. The Consultant hereby acknowledges and agrees that the results, proceeds and products of the consulting services rendered by the Consultant hereunder are, and will be created by the Consultant as, a “work for hire” specifically ordered or commissioned by the Company and, accordingly, are the exclusive and valuable property of the Company. The Company shall have the exclusive right to use, refrain from using, change, modify, add to, subtract from, exploit or otherwise turn to account any such results, proceeds or products in such manner and in any and all media, whether now known or hereafter devised, throughout the universe, in perpetuity, as the Company in its sole discretion shall determine. The Consultant hereby waives any and all so-called “moral rights” of authors in connection with any such results, proceeds or products. To the extent that any of such results, proceeds or products shall not be deemed to be a work for hire, the Consultant hereby assigns to the Company, and authorizes the Company to exploit in its sole discretion, perpetually, exclusively and throughout the universe Consultant’s entire right, title and interest in and to the same.
          2. COMPENSATION

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               2.1 Compensation. As the total consideration for the services, which the Consultant renders hereunder, the Consultant shall be entitled to the following:
                    (i) a monthly consulting fee in the amount of U.S. $6,000 payable within the first ten calendar days of each month, commencing retroactively on July 1, 2008 and ending on the date of the termination of this Agreement;
                    (ii) a monthly business-only cellular telephone allowance;
                    (iii) Except as otherwise stated in this Section 2.1, no reimbursement of any and all other expenses (including, but not limited to, air fare, car rental, lodging, meals, business and related travel expenses) incurred by the Consultant shall be reimbursed by the Company.
          3. TERM AND TERMINATION
               3.1 Term. The term of the Consultant’s appointment as a consultant of the Company shall commence on the date of this Agreement and shall terminate by either party with thirty (30) days prior written notice or upon both parties signing a new consulting agreement to replace this Agreement (the “Term”).
               3.2 At Will Relationship. The Consultant and the Company each hereby acknowledges and agrees that, except as expressly set forth in Section 3.2, (i) the Consultant’s relationship with the Company under this Agreement is AT WILL and can be terminated at the option of either the Consultant or the Company in its sole and absolute discretion, for any or no reason whatsoever, with or without cause, (ii) no representations, warranties or assurances have been made concerning the length of such relationship or the amount of compensation to be received by the Consultant and (iii) after the termination of the Consultant’s relationship with the Company, the Consultant shall have no right, title or interest in or claim to any revenues received by the Company from any person for any goods sold or services rendered by the Company to such person, whether or not the Consultant was the cause, in whole or in part, for such person to purchase such goods from the Company or to retain the Company to perform such services.
               3.3 Duties Upon Termination. In the event that the Consultant’s relationship with the Company under this Agreement is terminated, neither the Company nor the Consultant shall have any remaining duties or obligations hereunder, except that (i) the Company shall promptly pay to the Consultant, or its account, all reimbursable expenses incurred by the Consultant hereunder as of such date pursuant to Section 2.1 and such compensation as is due to the Consultant pursuant to Section 2.1(i) pro rated through the date of termination, (ii) the Consultant and the Company shall continue to be bound by Section 4 hereof and (iii) in the event the Company terminates the Consultant’s relationship with the Company under Section 1.1 without cause, then the Company shall continue to provide to the Employee such compensation as would have been due pursuant to Section 2.1(i) had such termination not occurred until the end of the Term. The Consultant’s relationship with the Company shall be deemed to have been terminated by the Company without cause unless it shall have been terminated by the Company as the result of the Consultant’s continued and willful failure or refusal to substantially perform the Consultant’s duties in accordance with this Agreement after the Consultant first shall have received written notice from the Company specifying the acts or omissions alleged to constitute such breach and the same continues after the Consultant shall have had reasonable opportunity to correct such breach. If the Consultant terminates its relationship with the Company as the result of the breach by the Company of any material term of this Agreement, such relationship shall be deemed to have been terminated by the Company without cause.
          4. INTELLECTUAL PROPERTY
               4.1 Confidentiality and Trade Secrets. The Consultant shall not, without the prior written consent of the Company’s Management in each instance, disclose or use in any way, either during the Term or thereafter, except as required in the course of such relationship, any confidential business or technical information or trade secret of the Company acquired (i) prior to the date hereof from the Company or (ii) in the course of such relationship, whether or not patentable, copyrightable or otherwise

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protected by law, and whether or not conceived of or prepared by the Consultant (collectively, the “Trade Secrets”), including, without limitation, any information concerning customer lists, products, formulas, procedures, operations, investments, financing, costs, employees, purchasing, accounting, marketing, merchandising, sales, salaries, pricing, profits and plans for future development, the identity, requirements, preferences, practices and methods of doing business of specific parties with whom the Company transacts business, and all other information which is related to any product, service or business of the Company, other than information which is generally known in the industry in which the Company transacts business or is acquired from public sources; all of which Trade Secrets are the exclusive and valuable property of the Company.
               4.2 Tangible Items. All files, accounts, records, documents, books, forms, notes, reports, memoranda, studies, compilations of information, correspondence and all copies, abstracts and summaries of the foregoing, and all other physical items related to the Company, other than a merely personal item, whether of a public nature or not, and whether prepared by the Consultant or not, are and shall remain the exclusive property of the Company and shall not be removed from the premises of the Company, except as required in the course of rendering consulting services to the Company, without the prior written consent of the Company in each instance, and the same shall be promptly returned to the Company by the Consultant on the expiration or termination of the Consultant’s relationship with the Company or at any time prior thereto upon the request of the Company.
               4.3 Solicitation of Employees. During the term of the Consultant’s relationship with the Company and for one (1) year thereafter (such period not to include any period of violation hereof by the Consultant or period which is required for litigation to enforce this paragraph and during which the Consultant is in violation hereof), the Consultant shall not, directly or indirectly, either for the Consultant’s own benefit or purposes or the benefit or purposes of any other person employ or offer to employ, call on, solicit, interfere with or attempt to divert or entice away any employee or independent contractor of the Company (or any person whose employment or status as an independent contractor has terminated within the twelve (12) months preceding the date of such solicitation) in any capacity if that person possesses or has knowledge of any Trade Secrets of the Company.
               4.4 Injunctive Relief. The Consultant hereby acknowledges and agrees that it would be difficult to fully compensate the Company for damages resulting from the breach or threatened breach of the foregoing provisions and, accordingly, that the Company shall be entitled to temporary and injunctive relief, including temporary restraining orders, preliminary injunction, permanent injunctions or any other remedies available to the Company for enforcement of such provisions without the necessity of proving actual damages or posting any bond or other undertaking in connection therewith. This provision with respect to injunctive relief shall not, however, diminish the Company’s right to claim and recover damages.
               4.5 “Company.” As used in this Section 4, the term “Company” shall mean Diodes Incorporated and all persons controlling, controlled by or under common control with the Company including, but not limited to, Shanghai KaiHong Electronic Co., Ltd. and Shanghai KaiHong Technology Co., Ltd.
          5. COMPLIANCE WITH LAWS
                    5.1 Chinese Anti-Bribery Laws. Consultant acknowledges and agrees that the Company operates and interacts with Consultant mostly in the People’s Republic of China; and therefore, both parties are subject to the Chinese anti-bribery laws of the Chinese Criminal Code and related regulations under the Chinese government. Under the Chinese anti-bribery laws, it is unlawful to offer valuable property to any state or government personnel in return for securing certain improper benefits for the offering party. Consultant further acknowledges that she is familiar with the provisions of the Chinese anti-bribery laws of the Chinese Criminal Code and related regulations and hereby agrees that she shall take or permit no action which will either constitute a violation under, or cause the Company to be in violation of, the provisions of the Chinese anti-bribery laws of the Chinese Criminal Code and related regulations.
                    5.2 Foreign Corrupt Practices Act. Consultant acknowledges and agrees that Company is a corporation with substantial presence and affiliation in the United States and, as such, is subject to the

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provisions of the Foreign Corrupt Practices Act of 1977 of the United States of America, 15 U.S.C. §§ 78dd-1, et seq., which prohibits the making of corrupt payments (the “FCPA”). Under the FCPA, it is unlawful to pay or to offer to pay anything of value to foreign government officials, or employees, or political parties or candidates, or to persons or entities who will offer or give such payments to any of the foregoing in violation of their official duty or in order to obtain or retain business or to secure an improper commercial advantage. Consultant further acknowledges that she is familiar with the provisions of the FCPA and hereby agrees that she shall take or permit no action which will either constitute a violation under, or cause the Company to be in violation of, the provisions of the FCPA.
                    5.3 General Compliance with Laws. Consultant shall comply with all domestic and foreign laws, anti-bribery laws, ordinances, codes, rules, regulations, and licensing requirements that are applicable to the Consultant’s consulting business, the conduct of the Consultant’s consulting business and the Consultant’s obligations under this Agreement, including those laws of the United States, the British Virgin Island and People’s Republic of China having jurisdiction and/or authority over the Consultant.
          6. MISCELLANEOUS
               6.1 Severable Provisions. The provisions of this Agreement are severable, and if any one or more provisions may be determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions, and any partially unenforceable provisions to the extent enforceable, shall nevertheless be binding and enforceable.
               6.2 Successors and Assigns. All of the terms, provisions and obligations of this Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, representatives, successors and assigns. Notwithstanding the foregoing, neither this Agreement nor any rights hereunder shall be assigned, pledged, hypothecated or otherwise transferred by the Consultant without the prior written consent of the Company in each instance.
               6.3 Governing Law. The validity, construction and interpretation of this Agreement shall be governed in all respects by the laws of the State of Texas applicable to contracts made and to be performed wholly within that State.
               6.4 Dispute Resolution. Both party must first attempt to settle any claim or controversy arising out of this Agreement through consultation and negotiation in good faith and spirit of mutual cooperation. The use of any dispute resolution procedure will not be construed under the doctrines of laches, waiver, or estoppel to adversely affect the right of either party. Nothing herein prevents either party from directly resorting to judicial proceedings if the dispute is with respect to interim relief from the court and is necessary to prevent serious and irreparable injury to a party or others.
               6.5 Consent to Jurisdiction. Each party hereto, to the fullest extent it may effectively do so under applicable law, irrevocably (i) submits to the exclusive jurisdiction of any court of the State of Texas or the United States of America sitting in the City of Dallas over any suit, action or proceeding arising out of or relating to this Agreement, (ii) waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the establishment of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum, (iii) agrees that a judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon such party and may been forced in the courts of the United States of America or the State of Texas (or any other courts to the jurisdiction of which such party is or may be subject) by a suit upon such judgment and (iv) consents to process being served in any such suit, action or proceeding by mailing a copy thereof by registered or certified air mail, postage prepaid, return receipt requested, to the address of such party specified in or designated pursuant to Section 6.8. Each party agrees that such service (i) shall be deemed in every respect effective service of process upon such party in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to such party.

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               6.6 Headings. Section and subsection headings are not to be considered part of this Agreement and are included solely for convenience and reference and in no way define, limit or describe the scope of this Agreement or the intent of any provisions hereof.
               6.7 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, relating to the subject matter of this Agreement. No supplement, modification, waiver or termination of this Agreement shall be valid unless executed by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions here of (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.
               6.8 Notice. Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been given (i) if personally delivered, when so delivered, (ii) if mailed, one (1) week after having been placed in the mail, registered or certified, postage prepaid, addressed to the party to whom it is directed at the address set forth on the signature pages below or (iii) if given by telex or telecopier, when such notice or other communication is transmitted to the telex or telecopier number specified on the signature pages below and the appropriate answer back or telephonic confirmation is received. Either party may change the address to which such notices are to be addressed by giving the other party notice in the manner herein set forth.
               6.9 Attorneys’ Fees. In the event any party takes legal action to enforce any of the terms of this Agreement, the unsuccessful party to such action shall pay the successful party’s expenses, including attorneys’ fees, incurred in such action.
               6.10 Third Parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any person other than the Company or the Consultant any rights or remedies under or by reason of this Agreement.
               6.11 Language. This Agreement is written in Chinese and English, but only the English version of the Agreement is valid and legally enforceable except as otherwise prohibited under the law.
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first set forth above.
                     
DIODES INCORPORATED     KEYLINK INTERNATIONAL (BVI) CO., LTD.    
 
                   
By
  /s/ Keh-Shew Lu       By   /s/ jian Ya Xing    
Authorized Representative       Authorized Representative    
15660 N. Dallas Parkway, Suite 850       No. 999 Chen Chun Road,    
Dallas, Texas 75248 USA       Xingqiao Town, Songjiang County    
            Shanghai, China    

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exv10w2
Exhibit 10.2
APPENDIX
All parties unanimously agreed that the unit price is as follows:
Products sold before August 1, 2008 shall have unit prices as follows:
         
Package   USD/kpcs
MSOP-10
    0.72  
MSOP-8
    0.70  
SOT89
    0.66  
ITO220
    4.87  
ITO220S
    5.00  
Both Normal products and Special products sold since August 1, 2008 shall have unit prices as follows:
Normal products:   The output volume is less than 700 million pcs/month, the unit price should be $0.5524/Kpcs;
The output volume exceeds 700 million pcs/month, the unit price should be $0.4909/Kpcs
Special products:   The output volume is less than 100 million pcs/month, the unit price should be $0.4020/Kpcs;
The output volume is between 100 and 300 million pcs/month, the unit price should be $0.3740/Kpcs;
Since August 1, 2008, Products sold other than those stated above shall have unit prices as follows:
                         
Package   USD/kpcs   Package   USD/kpcs
PM3
    2.44     SOT89
    0.70  
PD5
    0.90     ITO220
    5.17  
SO8
    0.73     ITO220S
    5.00  
MSOP-10
    0.72     TO220/TO263
    4.34  
MSOP-8
    0.70     TO252
    0.91  
SOT223
    0.86     SIP3/SIP4
    1.35  
Party A: Shanghai Dinghong Electronic Party B: Shanghai Micro-Surface Co., Ltd. Co., Ltd.
                     
Signature:
  /s/ Jian Ya Xing       Signature:   /s/ Jian Ya Xing    
Date:
 
 
      Date:  
 
   
 
 
 
         
 
   
Party C: Shanghai Kaihong Electronic Party D: Diodes Shanghai Co., Ltd Co., Ltd.
                     
Signature:
  /s/ T.J. Lee       Signature:   /s/ T.J. Lee    
Date:
 
 
      Date:  
 
   
 
 
 
         
 
   

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exv10w3
Exhibit 10.3
Exhibit 1: Details of the Products Pricing Discount
     THIS Amendment to the Exhibit 1 of the Distributorship Agreement (the “Amendment”) is made this 27th day of March, 2009 between Shanghai Kai Hong Technology Co., Ltd. (“DSH”), a corporation formed under the laws of the People’s Republic of China and Shanghai Keylink Logistic Co., Ltd. (the “Distributor”), a corporation formed under the laws of the People’s Republic of China. Each may be referred to as a party (“Party”), or both may be collectively known as parties (“Parties”).
     In consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby mutually acknowledged, the Parties hereby agrees to the following terms and conditions:
1.  
This Amendment shall wholly replace the original signed Exhibit 1 of the Distributorship Agreement between both Parties.
 
2.  
This Amendment shall be valid for a period of one (1) year retroactively effective from January 1, 2009 to December 31, 2009 (“Effective Period”).
 
3.  
The content of this Amendment shall be renegotiated every year and shall only be renewed after being duly executed by the authorized representatives of both Parties.
 
4.  
Products pricing discount shall be revised and calculated as follows:
  a.  
Two point seven percent (2.7%) discount shall be applied to the total transaction amount of all Products purchased by the Distributor (“General Discount”).
 
  b.  
The General Discount shall be the total Products pricing discount that DSH provides to the Distributor during the Effective Period.
5.  
This Amendment constitutes the entire amendment agreement between the Parties hereto pertaining to the subject matter hereof, and supersedes all prior agreements, amendments, understandings, negotiations and discussions, whether oral or written, relating to the subject matter of this Amendment. No supplement, modification, waiver or termination of this Amendment shall be valid unless executed by the Party to be bound thereby. No waiver of any of the provisions of this Amendment shall be deemed or shall constitute a waiver of any other provisions here of (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized representative identified below.
                     
Shanghai Kai Hong Technology Co., Ltd.     Shanghai Keylink Logistic Co., Ltd.    
 
                   
By
  /s/ T.J. Lee       By   /s/ Jian Ya Xing    
    Authorized Representative       Authorized Representative    
    Plant No. 1, Lane 18, SanZhuang Road,       Plant No. 1-18, Floor #2    
    Songjiang Export Zone, Shanghai,       Lane 18, SanZhuang Road,    
    People’s Republic of China       Songjiang Export Zone, Shanghai    
            People’s Republic of China    
 
                   
Date:         Date:    

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exv31w1
Exhibit 31.1
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Keh-Shew Lu, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Diodes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
     
/s/ Keh-Shew Lu
   
 
Keh-Shew Lu
President and Chief Executive Officer
Date: May 8, 2009
   

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exv31w2
Exhibit 31.2
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carl C. Wertz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Diodes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
     
/s/ Carl C. Wertz
   
 
Carl C. Wertz
Chief Financial Officer
Date: May 8, 2009
   

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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 of Diodes Incorporated (the “Company”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in such report.
     
Very truly yours,
   
 
   
/s/ Keh-Shew Lu
   
 
Keh-Shew Lu
President and Chief Executive Officer
Date: May 8, 2009
   
A signed original of this written statement required by Section 906 has been provided to Diodes Incorporated and will be furnished to the Securities and Exchange Commission or its staff upon request.

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exv32w2
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009 of Diodes Incorporated (the “Company”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in such report.
     
Very truly yours,
   
 
   
/s/ Carl C. Wertz
   
 
Carl C. Wertz
Chief Financial Officer
Date: May 8, 2009
   
A signed original of this written statement required by Section 906 has been provided to Diodes Incorporated and will be furnished to the Securities and Exchange Commission or its staff upon request.

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