1999 ANNUAL REPORT moving into competitive prices quali
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1999
ANNUAL REPORT
moving into
competitive prices quality products
on-time delivery
dependable customer support
SALES
millions)
$1.20 1.00 1998 1999 change
FINANCIAL HIGHLIGHTS
thousands except share data)
sales Gross profit Selling, general administrative expenses Income from operations Interest expense, Other income Income before taxes minority interest Provision income taxes Minority interest joint venture earnings income Earnings share: Basic Diluted Basic Diluted
61,328 15,402 11,016 4,386 4,198 1,511 (14) 2,673 0.53 0.50 5,029
79,251 20,948 13,670 7,278 7,168 1,380 (219) 5,569 1.10 1.02 5,084 5,469
+29% +36% +24% +66% +96% +71%
(diluted)
EARNINGS SHARE
+108% +108% +104%
millions)
Number shares used computation:
STOCKHOLDERS' EQUITY
1998
1999
change
Total assets Working capital Long-term debt Stockholders' equity
45,389 16,639 8,102 27,460
$62,407 15,903 6,984 34,973
+37% -14% +27%
Changing World
shareholders
Raymond Soong
Chairman Board
With steadfast commitment business growth through manufacturing capabilities customer service, 1999 year record performance Diodes Incorporated. pleased report strong increases both revenues income 1999. steps taken 1998, aimed providing solid basis future growth, paid handsomely. Revenues 1999 grew record $79.3 million, compared $61.3 million 1998, increase 29%. income 1999 increased 108% record $5.6 million, $1.02 share, compared $2.7 million, $0.50 share, last year. record operating results largely combination increased demand Company's products, improved product mix, better inventory management. addition, Diodes-China, manufacturing facility Shanghai, major contributor performance manufacturing profits from this facility, combined with stronger average selling prices toward latter part year, contributed higher gross margins. Finally, demand strong across product lines, especially East, which accounted approximately total sales. important record financial performance 1999 were considerable investments made personnel capital equipment help strategic course Diodes Incorporated into millennium, provide customers: CONSISTENTLY COMPETITIVE PRICES Diodes-China facility with state-of-theart manufacturing equipment, access large labor pool cost structures, becoming stronger world-class manufacturer discrete semiconductor devices. QUALITY PRODUCTS THAT PERFORM SPECIFICATION Diodes-China (QS-9000 ISO-9002 certified) Diodes-Taiwan (ISO-9002 certified) manufacturing facilities diligently monitored assure product quality. RELIABLE PRODUCT AVAILABILITY Information Technology (IT) enhancements warehouse distribution networks facilitate further efficiencies inventory control assure immediate product availability timely delivery customer orders. DEPENDABLE CUSTOMER SUPPORT dedicated matching products customer requirements, sales, marketing engineering teams provide level customer service that continued success. move into year 2000 beyond, hold every confidence that strategic investments will strong foundation Company's success. strategic objectives Diodes Incorporated include: Continuing invest manufacturing capabilities guided inputs from sales, marketing engineering teams, with focus serving technical requirements customers. Implementing company-wide Enterprise Resource Planning (ERP) system drive business value energizing organization operations, compatible Manufacturing Execution System (MES) streamline manufacturing logistics methodology. Implementing system order placement prompt fulfillment using Internet, harnessing technologies that allow Diodes Incorporated conduct business efficiently effectively global environment. Increasing engineering staff resulting stream products packages. Strengthening strategic partnerships with wafer fabrication facilities support future requirements. Developing markets China Europe.
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0002
1999
annual report
begin year 2000, Company's book-to-bill ratio remains solid, with backlog some highest levels ever, optimistic that will achieve further top-and bottom-line growth. With recently announced investments DiodesChina (bringing total investment plant equipment close million) combined with strong demand products, year 2000 could another banner year Diodes Incorporated. MOVING FORWARD encouraged agreement that Lite-On Group made repurchase from Vishay Intertechnology, Inc. ("Vishay") latter's interest Lite-On Power Semiconductor Corporation ("LPSC"), major shareholder Diodes Incorporated since 1991. optimism based longstanding alliance with both Lite-On Group LPSC, while believe that affiliation with Vishay been mutually beneficial, Diodes Incorporated will continue operate independently. remain confident that with competitive pricing, internal manufacturing capabilities capacity, customer/applications engineering, strong customer service reputation, Diodes Incorporated proven itself valuable discrete component manufacturer supplier will continue build strengths customer relationships. further encouraged with appointment C.H. Chen President Chief Executive Officer Diodes Incorporated. This appointment announced following resignation Michael Rosenberg March 2000. While extend appreciation Rosenberg achievements that moved Company forward over last years, delighted that individual Chen's caliber experience more than thirty years semiconductor industry, including twenty years with Texas Instruments, accepted this leadership position. Chen exceptionally well qualified oversee continuing advancement Company's technology enhancement customer base. IT'S CHANGING WORLD Characterized high-powered hand-held products such wireless cellular phones, Palm Pilots, laptop computers resulting from small powerful discrete semiconductor devices, millennium represents time impressive opportunities Diodes Incorporated. Focused customer service, manufacturing capabilities, products, optimistically moving forward with prospects significant growth. AND, WE'RE READY record financial performance along with strategic investments corporate leadership stage Diodes Incorporated into millennium. have high expectations future embark exciting phase Company, customers, shareholders. Today, better position than ever assure customers timely delivery top-quality products competitive prices. equally fortunate having what unquestionably finest sales, marketing, engineering teams Company's history. With more than forty years experience providing quality discrete semiconductors telecommunications, computer, automotive, consumer industrial electronics industries, look forward supporting customers advancing their technologies. ever, thank you, shareholders, your continued commitment Company's success. also thank customers, their continued patronage, distributors, employees, suppliers their dedicated hard work.
Sincerely,
Raymond Soong Chairman Board
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0003
1999
annual report
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0004
1999
annual report
Going global Internet
Serving customers hours day.
Telecommunications
Telecommunications technologies significantly transforming lives. interacting across time zones, continents, cultures real time. Vast powerful, Internet catapulting into economy, with instantaneous information exchange dramatically reducing time market. dynamic electronic network offers endless opportunities sales, market research, personalized customer services. companies harness telecommunications technologies strengthen their networks infrastructures compete, remarkable growth opportunities Diodes Incorporated's efficient, low-voltage discrete semiconductors necessary component these advancing technologies.
SOT363
HIGH-SPEED ONLINE SERVICES APROTECTION INTERACTIVE FIBER OPTIC COMMUNICATION SYSTEMS CELLULAR PHONES
PAGERS
people around world increasingly communicate over Internet, using robust highspeed online services, from interactive broadband access, such products cellular phones, pagers, fiber optic communication systems proliferating accelerated speeds.
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0005
1999
annual report
DATA SWITCHES RADIOS CALL CENTERS
WIRELESS COMMUNICATIONS PRODUCTS SATELLITES
NETWORKS
compete digital economy, businesses investing telecommunications technologies, such data switches, servers, networks, satellites, plethora wireless communications products. Diodes Incorporated, this means added sales opportunities efficient lowvoltage devices.
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0006
1999
annual report
page
0007
1999
annual report
Moving into world
With bottom line-better, faster, cheaper.
Computing
D2pak
Running speed light, active people businesses move. Internet-enabled computer devices that your palm pocket allow excel this fast-paced environment. exchange information ideas while making decisions receiving e-mail, electronic files, facsimiles laptop computers, messages mobile wireless phones pagers. This proliferation computing technology exciting growth opportunity Diodes Incorporated. design, engineer, manufacture, deliver high-density discrete components emerging spaceconstrained applications.
CD-ROM DRIVES ELECTRONIC NOTEBOOKS MODEMS
HIGH-DENSITY COMPONENTS MOTHERBOARDS
When comes discrete components computers, smaller faster key. With trend portable handheld products, need higher-density components small packages growing. Electronic notebooks, laptops, pagers, modems, CD-ROM drives, RAM, motherboards more depend high-density components.
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0008
1999
annual report
INFORMATION EXCHANGE TRANSACTIONS MUSIC PURCHASES MESSAGES
INVENTORY
Internet users online check stock quotes perform transactions. Some research product specifications, prices, inventory, shipping schedules well exchange information before making purchases. Others online listen music. Internet enters every home business environment, need efficient semiconductors continues expand.
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0009
1999
annual report
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0010
1999
annual report
Driving fast-track success
classy comfort sensational style.
Automotive
Racing down road product innovation, automobiles using more electronics than ever before. Providing drivers supreme pleasure effortless excursion, remote keyless entries, automatic seat mirror settings, climate controls just beginning. Cruising ever-increasing comfort style, drivers chart their destinations with devices, relax with cruise control, listen music high-performance audio systems. Emergent automotive electronics require highly reliable discrete devices. Diodes Incorporated's QS-9000 ISO-9000 certified facilities, reliability testing priority. There's faster drive competitive edge. deliver quality. focus customer satisfaction.
SOT23
WINDSHIELD WIPERS BAGS CRUISE CONTROLS
CONTROLS SUSPENSION SYSTEM
COMFORT
From suspension systems airbags windshield wipers cruise controls, electronics built into cars convenience, comfort, safety style limitless. Diodes Incorporated, design manufacture high-reliability components wave automotive electronics.
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0011
1999
annual report
SOUND SYSTEMS INSTRUMENTATION PANELS
NAVIGATION SYSTEMS AUTOMATIC HEADLIGHTS
generation automotive electronics boosting market demand efficient high-reliability discrete components. Automobiles, with their sophisticated instrumentation panels, powerful sound systems, automatic headlights, navigation systems, more becoming rich with electronics that they practically drive themselves.
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0012
1999
annual report
page
0013
1999
annual report
Changing daily lives
with smart consumer industrial appliances.
Electronics
We're moving into world timesaving convenience products. Before long, microprocessor-embedded home industrial appliances linked through Internet will handle routine tasks. cars pull into driveway, lights, WebTV, coffeemaker, microwave oven will automatically turn ensure that appliances always running, monitoring devices will automatically perform maintenance checks, search low-cost services, schedule repairs. this world Internet-enabled consumer industrial electronics, growth opportunities Diodes Incorporated. With engineering manufacturing expertise organizational flexibility, confident ability meet customers' changing needs.
SOD123
STEREOS REMOTE CONTROL UNITS
CHANNEL CHANGING SYSTEMS
SYSTEMS
Manufacturers garage door openers, power tools, stereos, systems, blenders, washers dryers, remote control units everything from channel changing opening window blinds powering ceiling fans, turn Diodes Incorporated quick delivery cost-effective quality discrete components.
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0014
1999
annual report
POWERTOOLS BLENDERS
REMOTE CONTROL UNITS WINDOW BLINDS
WASHERS
Whether fire alarm security systems, ballast lighting systems, home HVAC control systems, myriad other consumer industrial applications, efficiency quality products services allow customers deliver their products short cycle times.
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0016
1999
annual report
State-of-the-Art Manufacturing
midst exciting industrious Shanghai sits world class Diodes-China manufacturing facility. This QS-9000 ISO-9002 certified facility produces high-quality surface mount discrete components generation smaller, more powerful products. Equipped with cutting-edge technology result nearly million investment since 1995, reached levels productivity 1999 look forward even greater achievements year 2000. Diodes-China Diodes-Taiwan, manufacturing facilities, together accounted about Diodes Incorporated's sales 1999. call high-circuit density components continues, contribution from manufacturing facilities expected climb. With commitment quality products customer service excellence, Diodes Incorporated manufactures supplies cost-effective discrete semiconductor components that allow customers advance their technologies together move into Changing World.
MANAGEMENT'S DISCUSSION ANALYSIS
Management's Discussion Analysis Financial Condition Results Operations Except historical information contained herein, matters addressed this Item constitute "forward-looking statements" within meaning Section Securities 1933, amended, Section Securities Exchange 1934, amended. Such forward-looking statements subject variety risks uncertainties, including those discussed below under heading "Cautionary Statement Purposes "Safe Harbor" Provision Private Securities Litigation Reform 1995" elsewhere this Report Form 10-K, that could cause actual results differ materially from those anticipated Company's management. Private Securities Litigation Reform 1995 (the "Act") provides certain "safe harbor" provisions forwardlooking statements. forward-looking statements made this Annual Report Form 10-K made pursuant Act. General Diodes Incorporated (the "Company") manufacturer distributor high-quality discrete semiconductor devices leading manufacturers automotive, electronics, computing telecommunications industries. Company's products include small signal transistors MOSFETs, transient voltage suppressors (TVSs), zeners, diodes, rectifiers bridges. Company's products sold primarily North America Asia, both directly end-users through electronic component distributors. 1999, approximately Company's products were sold North America East, respectively, compared 1998, respectively. increase percentage sales East expected continue Company believes there greater potential increase market share that region. financial reporting purposes, Company deemed engage three industry segments: North America, Taiwan, China. three segments focus discrete semiconductor devices. North American segment procures distributes products primarily throughout North America provides management, warehousing engineering support. Taiwan segment procures product from, manufactures distributes product primarily companies Taiwan, Korea, Singapore, Hong Kong. This segment also procures product for, manufactures distributes product Company's North American operations. China segment manufactures product for, distributes product both North American Taiwan segments. 1997, China segment began manufacturing product for, distributing product customers China North America. Note "Notes Consolidated Financial Statements"
description Company's adoption SFAS 131, Disclosures about Segments Enterprise Related Information. July 1997, Vishay Intertechnology, Inc. ("Vishay") Lite-On Group, Taiwanese consortium, formed joint venture Vishay/Lite-On Power Semiconductor Pte., LTD. ("Vishay/LPSC") acquire Lite-On Power Semiconductor Corp. ("LPSC"), Company's largest shareholder member Lite-On Group Republic China. Vishay, with worldwide sales exceeding $1.5 billion, largest U.S. European manufacturer passive electronic components major producer discrete semiconductors power integrated circuits. LiteOn Group, with worldwide sales almost billion, leading manufacturer power semiconductors, computer peripherals, communication products. Vishay/LPSC joint venture includes worldwide discrete power semiconductor business LPSC Asian passive component business Vishay. Vishay holds controlling interest joint venture, Lite-On Group holds other 35%. March 2000, Vishay agreed sell interest Vishay/LPSC joint venture Lite-On Group, owner. Because this transaction, LPSC, wholly-owned subsidiary Lite-On Group, Company's largest shareholder, holding approximately Company's Common Stock. Company considers relationship with LPSC mutually beneficial Company LPSC will continue strategic alliance since 1991. Company will continue compete, always has, with Vishay's Telefunken division. overlap comparable products insignificant expected have material impact financial results Company. Products sold under brand names: Diodes, Inc. Vishay/Lite-On Power Semiconductor. Company unifying product lines under limited number brand names order establish brand name unity consistency product, capitalize brand name recognition, where possible. Although customers continue recognize Diodes' brand products view Company separate vendor from Vishay, this time uncertain effect that Vishay/LPSC transaction will have brand recognition major distributors. However, management believes that with Company's competitive pricing, internal manufacturing capabilities capacity, customer/applications engineering, strong customer service reputation, proven itself valuable supplier, such impact Vishay/LPSC transaction anticipated have adverse impact customer relations. Company's East subsidiaries, DiodesTaiwan Diodes-China, both manufacture product sale North America East. Diodes-Taiwan manufacturing focuses products such axial Schottky MELF rectifiers, name few. These "general use" products destined products
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0017
1999
subsidiaries
MANAGEMENT'S DISCUSSION ANALYSIS
automotive industry well commercial appliances, household lighting, electric hand tools, among others. Diodes-China manufacturing, most part, focuses SOT-23 SOD-123 products. These surface mount devices ("SMD") used computer telecommunications industries destined cellular phones, notebook computers, pagers, PCMCIA cards, modems, garage door transmitters, among others. Diodes-China's state-ofthe-art facilities have been designed develop even smaller, higher-density products electronic industry trends portable hand-held devices continue. discrete semiconductor industry has, last years, been subject severe pricing pressures, compounded Asian economic situation. Although manufacturing costs have been falling, excess manufacturing capacity over-inventory caused selling prices fall greater extent than manufacturing cost. Because this competitive environment, gross profit margins have declined from 28.3% 1995 24.8% 1998. Beginning second half 1999, manufacturing profit from DiodesChina coupled with apparent easing pricing pressures contributed gross profit margin 26.4%. compete this highly competitive industry, recent years, Company committed substantial resources development implementation areas operation: sales marketing, (ii) manufacturing. Emphasizing Company's focus customer service, additional personnel programs have been added. order meet customers' needs design stage end-product development, Company employed additional applications engineers. These applications engineers work directly with customers assist them "designing correct products produce optimum results. Regional sales managers, working closely with manufacturers' representative firms distributors, have also been added U.S. East help satisfy customers' requirements. addition, Company developed relationships with major distributors inventory sell Company's products. relationship with Vishay provided additional opportunities Company have products offered some world's largest distributors. Beginning 1998, Company increased amount product shipped larger distributors. Although these sales were significant terms total sales dollars gross margin dollars, they generally were under agreements that resulted lower gross profit margins Company when compared sales smaller distributors customers. consolidation electronic component distributors continues, Company anticipates that greater portion distributor sales will larger distributors, thus result lower gross profit margins this sales channel.
Since 1997, Company's manufacturing focus primarily been development expansion Diodes-China. date, Company minority partner have increased property, plant equipment facility approximately million. equipment expansion allows manufacture additional SOT-23 packaged components well other surfacemount packaging, including smaller packages. Approximately $8.0 million Company's existing credit facility been used finance additional manufacturing capacity. Company will continue strategic plan locating alternate sources products materials, including those provided major suppliers. Alternate sources include, limited Diodes-China other sourcing agreements place, well those negotiation. Company anticipates that effect loss major suppliers will have material adverse effect Company's operations, provided that alternate sources remain available. Company continually evaluates alternative sources products assure ability deliver high-quality, cost-effective products. 1999, Diodes-Taiwan began purchasing silicon wafers, product line, from FabTech resale customers East. Silicon wafer sales 1999 were $4,005,000. gross margin percentage sales silicon wafers, though still profitable, below that Company's standard product lines. Silicon wafer sales complementary service some customers, rather than focused product line. anticipated that sales silicon wafers continue beyond second half 2000 Company evaluates other, more profitable complementary products. Products from foreign suppliers purchased primarily United States dollars. limited extent, from time time, Company contracts foreign currencies (e.g., portion equipment purchases Diodes-China expansion), and, accordingly, results operations could materially affected fluctuations currency exchange rates. limited number contracts denominated foreign currencies complexities currency hedges, Company engaged hedging date. volume contracts written foreign currencies increases, Company does engage currency hedging, substantial increase value such currencies could have material adverse effect Company's results operations. Management believes that current contracts written foreign currencies significant enough justify costs inherent currency hedging. Company's effective rate decreased 19.3% 1999 from 36.0% 1998. decrease Company's effective rate primarily increase Diodes-China's contribution income
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0018
1999
subsidiaries
MANAGEMENT'S DISCUSSION ANALYSIS
rate From 2001 through 2003, rate Diodes-China will normal rate 27%. Changes Taiwan income policies 1998 caused management reconsider investment strategies fourth quarter 1998 current future earnings Diodes-Taiwan, resulting distribution approximately $4.5 million made Diodes-Taiwan Company. decision made, part, because changes Taiwan income policies made less favorable accumulate earnings Diodes-Taiwan and, part, allow Company redirect financial resources from Diodes-Taiwan expansion Diodes-China joint venture. "Results Operations 1999 Compared 1998" more detailed explanation. Sales, Cost Goods Sold Other Income years ended December 1998, 1997, 1996, 1995 have been restated consistent with current presentation certain transactions. past, profit realized drop shipments from Diodes-Taiwan accounted "Commission Income" under "Other Income." These shipments (which expected become increasingly significant part Company's business) included "Net Sales," with appropriate charge "Cost Goods Sold." income derived from these transactions included Gross Profit. These changes have effect Income Earnings Share.
increase Sales years ended December 1998, 1997, 1996, 1995 $1,067,000, $1,317,000, $1,708,000, $3,131,000, respectively. increase Gross Profit $458,000, $384,000, $231,000, $271,000, respectively. decrease Other Income $458,000, $384,000, $231,000, $271,000, respectively. addition, Minority Interest Joint Venture Earnings presented after Provision Income Taxes Rule 5-03(b)12 Regulation S-X. Company conducted comprehensive review computer systems identify systems that could affected Year 2000 Issue ("Y2K"). total cost compliance considered material expense, March 2000, significant operational problems Company's computer systems occurred result Y2K. However, problems surface that have been identified that will require substantial time resources remedy, they could have material adverse effect Company's business. Results Operations following table sets forth, periods indicated, percentage that certain items statement income bear sales percentage dollar increase (decrease) such items from period period.
Percent Sales Year Ended December sales Cost goods sold Gross profit Operating expenses Income from operations Interest expense, Other income Income before taxes minority interest Income taxes Minority interest income
1995 1996 1997 1998 1999
100.0% (72.7) 27.3 (15.5) 11.8 (0.2) 11.9
100.0% (73.9) 26.1 (18.0) (0.6)
100.0% (72.1) 27.9 (16.6) 11.3 (0.1) 11.6 (0.1)
100.0% (74.9) 25.1 (18.0) (0.5)
100.0% (73.6) 26.4 (17.2) (0.4) (0.3)
Percentage Dollar Increase (Decrease) Year Ended December sales Cost goods sold Gross profit Operating expenses Income from operations Interest expense, Other income Income before taxes minority interest Income taxes Minority interest income
(5.9)% (4.3) (9.9) (35.0) 143.8 (73.6) (39.8) (35.9) (36.9)
16.1% 13.2 24.2 61.9 (82.3) 279.7 76.6 57.3 (106.3) 72.8
(8.5)% (4.9) (17.8) (1.1) (42.2) 353.2 (61.7) (46.0) (42.6) (6.7) (47.8)
29.2% 26.9 36.0 24.1 65.9 95.7 70.7 (8.7) (1,464.3) 108.3
page
0019
1999
subsidiaries
MANAGEMENT'S DISCUSSION ANALYSIS
1999 Compared 1998 sales 1999 increased approximately $17,923,000 $79,251,000 from $61,328,000 1998. 29.2% increase primarily 36.0% increase units sold, result increased demand Company's products, primarily East (ii) $4,005,000 sales silicon wafers, product line. Diodes-China's trade sales 1999 were $3,389,000, compared $280,000 same period last year. increase units sold partly offset 7.1% decrease Company's average selling price, primarily East. fourth quarter 1999, average selling prices rose 3.6% 5.0%, compared fourth quarter 1998 third quarter 1999, respectively. Company anticipates pricing pressures could continue, though severity slowly diminish. 1999, Diodes-Taiwan began purchasing silicon wafers, product line, from FabTech resale customers East. gross margin percentage sales silicon wafers, though still profitable, below that Company's standard product line. Silicon wafer sales complementary service some customers, rather than focused product line. anticipated that sales silicon wafers will continue through second half 2000 Company evaluates other, more profitable complementary products. Gross profit 1999 increased $5,546,000 $20,948,000 from $15,402,000 1998. 36.0% increase primarily 29.2% increase sales. Manufacturing profit Diodes-China higher gross profit margins contributed increase gross margin percentage 26.4% 1999 compared 25.1% 1998. Although gross profit margins strengthened third fourth quarters 1999, pricing pressures continue exist many Company's product lines, there guarantee that margins will continue improve. Average selling prices 1999 decreased approximately 7.1%, which represents decreases average selling prices East North America approximately 18.3% 7.9%, respectively, compared 1998. addition, trend consolidation among electronic component distributors continues, Company anticipates that greater portion distributor sales will larger distributors, usually under agreements resulting lower than historical gross profit margins. 1999, selling, general administrative expenses ("SG&A") increased $2,654,000 $13,670,000 from $11,016,000 1998. 24.1% increase SG&A primarily increases management expenses Diodes-China, higher Company-wide marketing advertising expenses, increased sales commissions Diodes-Taiwan, additional sales engineering personnel. SG&A percentage sales decreased 17.2% from 18.0% comparable period last year, primarily 29.2% increase sales.
interest expense 1999 increased $11,000, primarily increased Company's credit facility support expansion Diodes-China versus same period last year. Company's interest expense primarily result term loan which Company financing investment Diodes-China's manufacturing facility (ii) $2.6 million receivable, including accrued interest, advanced FabTech. Interest income primarily interest charged FabTech, related party, under Company's formal loan agreement, well earnings cash balances. Other income 1999 increased approximately $89,000 compared same period last year, primarily currency exchange fluctuations Company's subsidiaries Taiwan China. Company's overall effective federal, state, foreign rate decreased 19.3% 1999 from 36.0% 1998. This decrease primarily increase Diodes-China's contribution income rate through 2000. From 2001 through 2003, rate Diodes-China will normal rate 27%. Based upon rates U.S. Taiwan expected profitability each Company's three business segments during balance year, anticipated that 2000 provision income taxes will range 10-20% pre-tax income. Through December 1997, Company undistributed earnings Diodes-Taiwan which deferred income liability been recorded since, that time, management considered this investment permanent, plans intentions existed distribute capital Taiwan subsidiary. Changes Taiwan income policies 1998 caused management reconsider investment strategies fourth quarter 1998 current future earnings Diodes-Taiwan. While portion investment will remain Taiwan, distribution approximately $4.5 million will made DiodesTaiwan Company. Approximately $1.5 million distributed 1999, remaining scheduled distributed 2000. decision made, part, because changes Taiwan income policies made less favorable accumulate earnings DiodesTaiwan and, part, allow Company redirect financial resources from Diodes-Taiwan expansion Diodes-China. 1999, Diodes-China contributed Company's profitability and, therefore, $219,000 minority interest joint venture represents minority investor's share joint venture's profit. increase joint venture earnings 1999 primarily result increased sales. joint venture investment eliminated consolidation Company's financial statements activities Diodes-China included therein. December 1999, Company controlling interest joint venture.
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0020
1999
subsidiaries
MANAGEMENT'S DISCUSSION ANALYSIS
Company generated income $5,569,000 $1.10 basic earnings share, $1.02 diluted earnings share), compared $2,673,000 $0.53 basic earnings share, $0.50 diluted earnings share) 1998. This $2,896,000 108.3% increase primarily 29.2% sales increase gross profit margins 26.4% compared gross profit margins 25.1% 1998, well effect 1998 Diodes-Taiwan earnings distribution. 1998 Compared 1997 sales 1998 compared 1997 decreased $5,688,000, approximately 8.5%. decrease sales primarily industry-wide pricing pressures that offset increased unit sales approximately 3.3%. increase unit sales comprised increase unit sales East approximately 36.9%, offset decrease approximately 3.8% North America. Also contributing lower sales 1998 loss approximately $3.0 million supplier-specific business previously announced acquisition major supplier competitor. Company anticipates that portion this supplier-specific business will recovered Diodes-China manufacturing facility develops additional product types. decrease gross profit 1998 compared 1997 $3,325,000, approximately 17.8%, primarily 8.5% decrease sales. Pricing pressures within industry resulting from decreased demand excess on-hand inventory contributed decrease gross margin percentage 25.1% 1998 from 27.9% 1997. Average selling prices 1998 decreased approximately 11.6%, which represents decreases average selling prices East North America approximately 24.5% 9.0%, respectively, compared 1997. addition, consolidation electronic component distributors continues, Company anticipates that greater portion distributor sales will larger distributors, usually under agreements resulting lower gross profit margins. 1998, SG&A decreased $121,000, approximately 1.1%, compared 1997. decrease SG&A primarily decrease sales commissions 8.5% decrease sales, partly offset increase wages additional sales, engineering customers service personnel. SG&A 1998, percentage sales, increased 18.0% from 16.6% 1997, primarily 8.5% decrease sales. interest expense 1998 compared 1997 increased $219,000, approximately 353.2%, primarily increased Company's credit facility. Company's interest expense primarily result term loan which Company
financing investment Diodes-China manufacturing facility (ii) $3.0 million, including accrued interest, advanced FabTech. Interest income primarily interest charged FabTech, related party, under Company's formal loan agreement, well earnings cash balances. Other income 1998 decreased approximately $150,000 compared same period last year, primarily currency exchange fluctuation Company's subsidiaries Taiwan China. Company's overall effective federal, state, foreign rate increased 36.0% 1998 from 33.9% 1997. Through December 1997, Company undistributed earnings Diodes-Taiwan which deferred income liability been recorded since, that time, management considered this investment permanent, plans intentions existed distribute capital Taiwan subsidiary. Changes Taiwan income policies 1998 caused management reconsider investment strategies fourth quarter 1998 current future earnings Diodes-Taiwan. While portion investment will remain Taiwan, distribution approximately $4.5 million will made DiodesTaiwan Company 1999. decision made, part, because changes Taiwan income policies made less favorable accumulate earnings Diodes-Taiwan and, part, allow Company redirect financial resources from Diodes-Taiwan expansion Diodes-China joint venture. Accordingly, deferred income liabilities amounting $512,000 have been recorded. Income rates vary among U.S., Taiwan, China, therefore, income expense fluctuate depending upon separate profitability three business segments. rates vary from Diodes-China next three years, rates between 25-35% Diodes-Taiwan, U.S. 1998, Diodes-China joint venture contributed Company's profitability and, therefore, $14,000 minority interest joint venture represents minority investor's share joint venture's profit. During fourth quarter 1997, through arrangement accordance with original joint venture agreement, Company increased controlling interest Diodes-China from through purchase additional from minority investor. 1998, Company generated income $2,673,000 $0.53 basic earnings share, $0.50 diluted earnings share), compared $5,125,000 $1.03 basic earnings share, $0.93 diluted earnings share) 1997. This 47.8% decrease primarily 8.5% sales decrease gross profit margins 25.1% compared gross profit margins 27.9% 1997, well effect Diodes-Taiwan earnings distribution.
page
0021
1999
subsidiaries
MANAGEMENT'S DISCUSSION ANALYSIS
Financial Condition Liquidity Capital Resources Cash provided operating activities 1999 $8.0 million compared $5.5 million 1998 $4.0 million 1997. primary sources cash flows from operating activities 1999 were income $5.6 million increase accounts payable $5.3 million. primary cash flows from operating activities 1999 increase accounts receivable $5.4 million increase inventories $2.8 million. primary sources cash flows from operating activities 1998 were income $2.7 million decrease accounts receivable $1.8 million. primary cash flows from operating activities 1998 decrease accounts payable $1.3 million. 1997, primary sources cash flows from operating activities were income $5.1 million increase accounts payable $966,000, while primary $3.0 million increase accounts receivable. Since December 1998, accounts receivable from customers increased 64.3% primarily slowing trend payments from major distributors. Company does expect this trend result additional debt expense. Company continues closely monitor credit policies, while times providing more flexible terms, primarily Asian customers, when necessary. ratio Company's current assets current liabilities December 1999 compared ratio December 1998 1997, respectively. Cash used investing activities $9.3 million 1999, compared $9.8 million 1998 $3.5 million 1997. primary investment three years additional manufacturing equipment Diodes-China manufacturing facility. Cash provided financing activities $2.4 million 1999, compared $4.3 million 1998 $77,000 1997. March 1998, Company amended August 1996 loan agreement whereby Company obtained $23.1 million credit facility with major bank consisting working capital line credit million term commitment notes providing million plant expansion, advances vendors, letters credit Diodes-China. Interest outstanding borrowings under credit agreement payable monthly LIBOR plus negotiated margin. Fixed borrowings require fixed principal plus interest payments sixty months thereafter. agreement certain covenants restrictions, which, among other matters, require maintenance certain financial ratios operating results, defined agreement. Company compliance December 1999. working capital line credit
expires June 2000 contains sublimit $3.0 million issuance commercial standby letters credit. December 1999, approximately $6.9 million outstanding under term note commitment, average interest rate outstanding borrowings approximately 6.5%. Company used credit facility primarily fund advances Diodes-China FabTech well support operations. December 1999, amounts from FabTech, including accrued interest, were approximately $2.6 million, entire amount February 2001. Company believes that continued availability this credit facility, together with internally generated funds, will sufficient meet Company's current foreseeable operating cash requirements. July 1998, Company replaced previously filed guarantees Diodes-China minority investor Diodes-China joint venture $1.0 million $850,000, respectively, well $1.0 million letter credit, with $3.0 million guarantee. Company process extending this agreement well increasing borrowing limits. Total working capital decreased approximately 4.4% $15.9 million December 1999, from $16.6 million December 1998. Company believes that such working capital position will sufficient growth opportunities. Company's debt equity ratio decreased 0.29 December 1999, from 0.32 December 1998. anticipated that this ratio increase Company continues credit facilities fund additional sourcing opportunities. December 1999, Company material plans commitments capital expenditures other than previously announced connection with expansion Diodes-China. However, ensure that Company secure reliable cost effective sourcing support better position itself growth, Company continuously evaluating additional internal manufacturing expansion, well additional outside sources products. Company believes financial position will provide sufficient funds should appropriate investment opportunity arise thereby, assist Company improving customer satisfaction maintaining increasing market share. Inflation have material effect sales income fiscal years 1999, 1998 1997.
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0022
1999
subsidiaries
CONSOLIDATED BALANCE SHEETS
thousands)
December
1998
1999
ASSETS CURRENT ASSETS Cash Accounts receivable Customers Related party Other Allowance doubtful accounts
2,415 9,107 9,728 9,618
3,557 14,962 15,352 15,055 16,575 1,700 37,649 20,909 2,561
Inventories Deferred income taxes, current Prepaid expenses other current assets Total current assets PROPERTY, PLANT EQUIPMENT, ADVANCES RELATED PARTY VENDOR DEFERRED INCOME TAXES, non-current OTHER ASSETS Goodwill, Other Total assets LIABILITIES STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line credit Accounts payable Trade Related party Accrued liabilities Income taxes payable Current portion long-term debt Total current liabilities DEFERRED COMPENSATION DEFERRED INCOME TAXES LONG-TERM DEBT, current portion MINORITY INTEREST JOINT VENTURE STOCKHOLDERS' EQUITY Class convertible preferred stock value share; 1,000,000 shares authorized; shares issued Common stock value $.66 share; 9,000,000 shares authorized; 5,764,352 shares 1998 6,005,521 shares 1999 issued outstanding Additional paid-in capital Retained earnings Less: Treasury stock 717,115 shares common stock, cost
13,777 1,098 27,356 13,750 3,024 1,013 45,389
62,407
2,991 1,213 3,421 2,111 10,717
3,237 7,716 1,821 5,782 2,312 21,746
5,991
4,672
3,843 6,105 19,294 29,242 1,782 27,460
4,004 7,888 24,863 36,755 1,782 34,973 62,407
Total liabilities stockholders' equity
45,389
accompanying notes integral part these financial statements.
page
0023
1999
subsidiaries
CONSOLIDATED STATEMENT INCOME
thousands except share data)
Years ended December
1997
1998
1999
SALES COST GOODS SOLD Gross profit SELLING, GENERAL ADMINISTRATIVE EXPENSES Income from operations OTHER INCOME (EXPENSES) Interest income
Interest expense
67,016 48,289 18,727
61,328 45,926 15,402
79,251 58,303 20,948
11,137 7,590
11,016 4,386
13,670 7,278
Other Income before income taxes minority interest INCOME PROVISION Income before minority interest MINORITY INTEREST JOINT VENTURE INCOME EARNINGS SHARE Basic Diluted Number shares used computation Basic Diluted
(405) 7,771 (2,631) 5,140 (15) 5,125
(585) 4,198 (1,511) 2,687 (14) 2,673
(608) 7,168 (1,380) 5,788 (219) 5,569
1.03 0.93
0.53 0.50
1.02
4,971 5,482
5,029 5,371
5,084 5,469
accompanying notes integral part these financial statements.
page
0024
1999
subsidiaries
CONSOLIDATED STATEMENT STOCKHOLDERS' EQUITY
Years ended December 1997, 1998, 1999
Shares
COMMON STOCK
Shares treasury
Amount
Additional paid-in capital
Retained earnings
Common stock treasury
BALANCE, December 1996 Increase ownership Subsidiary joint venture Exercise stock options income year ended December 1997 BALANCE, December 1997 Exercise stock options including $78,000 income benefit income year ended December 1998 BALANCE, December 1998 Exercise stock options including $961,000 income benefit income year ended December 1999 BALANCE, December 1999
5,675,794
717,115 3,784,000 5,768,000 11,694,000 1,782,000
25,225
17,000
45,000
(198,000)
5,125,000
5,701,019
717,115
3,801,000
5,813,000
16,621,000
1,782,000
63,333
42,000
292,000
2,673,000
5,764,352
717,115
3,843,000
6,105,000
19,294,000
1,782,000
241,169
161,000
1,783,000
5,569,000
6,005,521
717,115 4,004,000 7,888,000 24,863,000 1,782,000
accompanying notes integral part these financial statements.
page
0025
1999
subsidiaries
CONSOLIDATED STATEMENT CASH FLOWS
thousands)
Years ended December
1997
1998
1999
CASH FLOWS FROM OPERATING ACTIVITIES income Adjustments reconcile income cash provided operating activities: Depreciation amortization Minority interest earnings Loss (gain) sale property, plant equipment Interest income accrued advances vendor Changes operating assets liabilities Accounts receivable Inventories Prepaid expenses other assets Deferred income taxes Accounts payable Accrued liabilities Income taxes payable cash provided operating activities CASH FLOWS FROM INVESTING ACTIVITIES Collection advances related party vendor Investment joint venture Purchases property, plant equipment Proceeds from sales property, plant equipment cash used investing activities CASH FLOWS FROM FINANCING ACTIVITIES Advances (repayments) line credit, proceeds from issuance common stock Proceeds from long-term debt Repayments long-term debt Minority interest joint venture investment cash provided financing activities INCREASE CASH CASH, beginning year CASH, year SUPPLEMENTAL DISCLOSURE CASH FLOW INFORMATION Cash paid during year for: Interest Income taxes Non-Cash Financing Activity: benefit related exercise stock options credited paid-in capital
5,125
2,673
5,569
1,004 (190)
1,168 (203)
2,787 (195)
(3,021) (257) (572) (114) 3,972
1,779 (252) (1,315) 1,480 (665) 5,529
(5,437) (2,798) (240) (1,269) 5,333 2,361 1,670 8,045
(2,050) (1,495) (3,544)
(9,793) (9,766)
(9,942) (9,283)
1,000 (985) 1,820 2,325
(188) 10,388 (6,534) 4,327 2,325 2,415
2,425 1,000 (2,124) 2,380 1,142 2,415 3,557
1,908
1,658
1,171
accompanying notes integral part these financial statements.
page
0026
1999
subsidiaries
NOTES CONSOLIDATED FINANCIAL STATEMENTS
NOTE SUMMARY OPERATIONS SIGNIFICANT ACCOUNTING POLICIES
NATURE OPERATIONS Diodes Incorporated
subsidiaries manufacture distribute discrete semiconductor devices manufacturers automotive, electronics, computing telecommunications industries. Company's products include small signal transistors MOSFETs, transient voltage suppressers (TVSs), zeners, Schottkys, diodes, rectifiers bridges. products sold primarily throughout North America Asia.
PRINCIPLES CONSOLIDATION consolidated
financial statements include accounts U.S. Corporation, Diodes Incorporated, wholly-owned subsidiary, Diodes Taiwan Corporation, Ltd. (DiodesTaiwan) majority owned subsidiary Shanghai KaiHong Electronics Co., Ltd. (Diodes China) (both foreign subsidiaries, Notes 11). significant intercompany balances transactions have been eliminated.
REVENUE RECOGNITION Revenue recognized when
Financial CREDIT RISK instruments which potentially subject Company concentrations credit risk include trade accounts receivable. Credit risk limited dispersion Company's customers over various geographic areas, operating primarily electronics manufacturing distribution industries. Company performs on-going credit evaluations customers generally requires collateral from customers. Historically, credit losses have been significant. Company maintain cash balances major financial institutions United States, Taiwan, China. Accounts each institution United States insured Federal Deposit Insurance Corporation $100,000. Accounts each institution Taiwan insured Central Deposit Insurance Company $1,000,000 (approximately US$30,000 December 1999).
FOREIGN OPERATIONS Through subsidiaries
product shipped both users electronic component distributors. Company reduces revenue period sale estimates product returns other allowances.
PRODUCT Company generally warrants products period year from date sale. Warranty expense historically been significant.
Company maintains operations Taiwan China which functional currency U.S. dollar. Assets liabilities foreign operations which denominated currency other than U.S. dollar hedged therefore subject fluctuations currency exchange rate between U.S. dollar foreign currencies dollar Renminbi Yuan). Monetary assets liabilities denominated foreign currencies translated year-end exchange rate. Included income foreign currency exchange gains (losses) approximately $297,000, $111,000 $(3,000) years ended December 1997, 1998 1999, respectively.
EARNINGS SHARE Earnings share based upon weighted average number shares common stock common stock equivalents outstanding, common stock held treasury.
INVENTORIES Inventories stated lower
cost market value. Cost determined principally first-in, first-out basis.
PROPERTY, PLANT EQUIPMENT Property, plant
ESTIMATES
equipment depreciated using straight-line accelerated methods over estimated useful lives, which range from years buildings years machinery equipment. Leasehold improvements amortized using straight-line method over years.
GOODWILL excess cost purchased
preparation financial statements conformity with generally accepted accounting principles requires management make estimates assumptions that affect amounts reported financial statements accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION permitted SFAS
companies over fair value assets dates acquisition comprises goodwill. Goodwill amortized straight-line method over years. Amortization expense each years ended December 1997, 1998, 1999 $44,000. December 1998 1999, accumulated amortization $88,000 $132,000, respectively.
INCOME TAXES Income taxes accounted using
asset liability approach whereby deferred assets liabilities recorded differences financial reporting bases bases Company's assets liabilities. Income taxes further explained Note
123, Accounting Stock-Based Compensation, Company continues apply Opinion (APB related interpretations accounting stock option plans. Under SFAS 123, fair value method used determine compensation cost stock options similar equity instruments. Compensation measured grant date recognized over service vesting period. Under compensation cost excess, any, quoted market price stock measurement date over amount that must paid acquire stock. standard requires disclosure proforma effect income, Company adopted SFAS 123, which disclosed Note
page
0027
1999
subsidiaries
NOTES CONSOLIDATED FINANCIAL STATEMENTS
NOTE SUMMARY OPERATIONS SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1999, Financial Accounting Standards Board (FASB) issued Statements Financial Accounting Standard ("Rescission FASB Statement Technical Corrections"), ("Transfers Assets Not-for-Profit Organization Charitable Trust that Raises Holds Contributions Others") ("Accounting Derivative Instruments Hedging Activities-Deferral Effective Date Financial Accounting Standard Statement 133-an amendment Financial Accounting Standard Statement 133") which effective years after 1999. Management believes these pronouncements will have material effect Company's financial statements disclosures.
RECLASSIFICATIONS Certain 1998 1997 amounts
credit $4.1 million Diodes-China operations. Interest outstanding borrowings under complete credit agreement payable monthly LIBOR plus negotiated margin. Fixed borrowings require fixed principal plus interest payments sixty months thereafter. agreement certain covenants restrictions which, among other matters requires maintenance certain financial ratios operating results, defined agreement. Company compliance with covenants December 1999. working capital line credit expires June 2000. line contains sublimit million issuance commercial stand-by letters credit. During 1999, average maximum borrowings outstanding line credit were $786,000, $3,900,000, respectively. weighted average interest rate outstanding borrowings 7.4% year ended December 1999. Long-term debt December comprised following thousands):
1998 Loan payable bank secured buildings land, monthly principal payments $84,000 (approximately $3,000 U.S.) plus interest annum through November 2003 Loans payable bank secured substantially assets, aggregate monthly principal payments $190,000 plus interest LIBOR plus 1.1% 1.5% through January 2004 1999
well unaudited quarterly financial data presented accompanying financial statements have been reclassified conform with 1999 financial statement presentation. NOTE INVENTORIES
thousands) 1998 1999
Finished goods Work-in-progress materials
12,968 13,777
10,176 5,513 16,575
7,958 8,102 2,111 5,991
6,868 6,984 2,312 4,672
NOTE PROPERTY, PLANT EQUIPMENT
thousands) 1998 1999
Current portion
aggregate maturities long-term debt future years ending December thousands):
2000 2001 2002 2003 2004 2,312 2,312 1,479 6,984
Buildings Leasehold improvements Machinery equipment
1,238 15,289 16,751
1,539 3,026 21,737 26,302
Less accumulated depreciation amortization
(3,324) 13,427
(5,716) 20,586 20,909
Land
13,750
NOTE ACCRUED LIABILITIES
thousands) 1998 1999
NOTE BANK CREDIT AGREEMENT LONG-TERM DEBT Company $23.1 million credit agreement with major bank providing working capital line credit million, term commitment notes providing million plant expansion advances vendors, letters
Employee compensation payroll taxes Sales commissions Refunds product distributors Other Equipment purchases
1,808
1,552 1,824 1,506
3,421
5,782
page
0028
1999
subsidiaries
NOTES CONSOLIDATED FINANCIAL STATEMENTS
NOTE VALUATION FINANCIAL INSTRUMENTS Company's financial instruments include cash, accounts receivable, accounts payable, working capital line credit, long term debt. Company does hold issue derivative financial instruments estimates carrying amounts financial instruments described above approximate fair value based upon current market conditions, maturity dates, other factors. NOTE INCOME TAXES components income provisions follows thousands):
1997 1998 1999
Current provision (benefit) Federal Foreign State
1,268 1,252 2,850
(82) 1,089 (15)
1,845 2,649 (1,269)
Deferred provision (benefit)
(219) 2,631
1,511
1,380
reconciliation between effective rate statutory rates years ended December 1997, 1998 1999 follows thousands):
1997 Percent pretax earnings 1998 Percent pretax earnings 1999 Percent pretax earnings
Amount
Amount
Amount
Federal State franchise tax, federal benefit Foreign income taxed lower rates Other Income provision
2,637 (428) (31)
34.0% (5.5) (.4) 33.9%
1,422 (145)
34.0% (3.5) (.2) 36.1%
2,363 (1,416)
34.0% (20.4) 19.8%
2,631
1,511
1,380
Under current policy China, earnings Diodes-China, Company's subsidiary located Shanghai, China, were subject taxation 1999. rates Diodes-China future years, under current policy, 2000, 2001 through 2003, thereafter expected 13.5%, 27%, respectively. December 1998 1999, Company's deferred assets liabilities comprised following items thousands):
1998 1999
Deferred assets, current Inventory cost Accrued expenses accounts receivable operating loss carryforwards other
1,098
1,008 1,700
Deferred assets, non-current Plant equipment Deferred liabilties, non-current Undistributed foreign earnings
Under Federal law, foreign earnings taxed when funds distributed foreign subsidiaries parent Company. temporary difference between financial reporting exists profits earned foreign subsidiary level distributed parent. December 1998, long-term deferred liability $521,000 reflected balance sheet dividend approximately $4.5 million expected issued from Diodes-Taiwan parent Company. During 1999, Diodes-Taiwan distributed dividend approximately $1.5 million, which included taxable income U.S. 1999. liability approximately $340,000, which recorded income payable, represents estimated effect remaining undistributed earnings from Taiwan that expected distributed parent Company 2000.
page
0029
1999
subsidiaries
NOTES CONSOLIDATED FINANCIAL STATEMENTS
NOTE INCOME TAXES (continued) Company established deferred liability remaining undistributed earnings approximately million this subsidiary since Company views this amount permanent investment current plans, intentions obligation distribute part that amount from Taiwan United States. Should these earnings ultimately distributed, Company believes effect U.S. would significant since credits foreign income taxes paid those earnings would available offset substantially U.S. taxes. R.O.C. taxing authorities assessed DiodesTaiwan approximately $370,000 1997 related examination returns through 1995. This assessment pertained specifically excessive accumulated earnings through 1995. Diodes-Taiwan paid accrued taxes which believes result accumulated earnings. December 1999, accumulated undistributed earnings Diodes-China approximately $4.2 million. Company recorded deferred liability (estimated $1.6 million) these earnings since Company considers this investment permanent, plans, intentions obligation distribute part that amount from China United States. NOTE STOCK OPTION PLANS Company stock option plans directors, officers, employees, which provide non-qualified incentive stock options. Board Directors determines option price (not less than fair market value incentive options) date grant. options generally expire years from date grant exercisable over period stated each option. December 1999, options 747,338 shares were vested exercisable 559,000 shares were available future grants under plans. Outstanding Options
thousands) Exercise Price Share Number 1996 Range Weighted Average
Outstanding Options (continued)
thousands) Exercise Price Share Number 1998 Range Weighted Average
Balance Granted Exercised Canceled
1999
1,281 (241) (49) 1,108
.875-11.25 6.75-12.75 .875-6.00 5.00-10.00 1.875-$12.75
5.91 7.51 4.07 7.18 6.42
Balance
Company also incentive bonus plan which reserves shares stock issuance employees. December 1999, 124,000 shares remain available issuance under this plan. compensation cost Company's 1997, 1998 1999 options granted been determined consistent with SFAS 123, Company's income diluted earnings share would approximate proforma amounts below thousands):
Reported Forma
1997 income Diluted earnings share 1998 income Diluted earnings share 1999 income Diluted earnings share NOTE MAJOR SUPPLIERS
5,125 2,673 5,569 1.02
4,478 1,719 4,309
Company purchases significant amount inventory from suppliers, which related party (Note 10). During 1997, 1998, 1999, purchases from these suppliers amounted approximately 49%, 43%, 26%, respectively, total inventory purchases including 32%, 18%, respectively, from related party. There limited number suppliers these materials. NOTE RELATED PARTY TRANSACTIONS
LITE-ON POWER SEMICONDUCTOR CORPORATION July 1997, Vishay Intertechnology, Inc. ("Vishay") Lite-On Group, Taiwanese consortium, formed joint venture Vishay/Lite-On Power Semiconductor Pte., LTD. ("Vishay/LPSC) acquire Lite-On Power Semiconductor Corp. ("LPSC"), shareholder Company member Lite-On Group Republic China. Vishay/LPSC joint venture includes worldwide discrete power semiconductor business LPSC Asian passive component business Vishay. Vishay holds controlling interest joint venture, Lite-On Group holds remaining 35%. Company's subsidiaries
Balance Granted Exercised Canceled
1997
1,026 (25) (10) (63) (47)
.875-$11.25 1.88-6.00 6.00 .875-11.25 5.00-10.00 1.88-6.00 6.00
$5.09 2.43 6.00 5.15 7.51 4.05 6.00
Balance Granted Exercised Canceled
page
0030
1999
subsidiaries
NOTES CONSOLIDATED FINANCIAL STATEMENTS
NOTE RELATED PARTY TRANSACTIONS (continued) product from sell product Vishay/LPSC. Transactions with Vishay/LPSC LPSC years ended December outstanding balances December follows thousands):
1997 1998 1999
NOTE SEGMENT INFORMATION Information about Company's operations United States, Taiwan, China presented below. Items transferred among Company subsidiaries transferred prices recover costs plus appropriate mark profit. Inter-company revenues, profits assets have been eliminated arrive consolidated amounts. Operating segments defined components enterprise about which separate financial information available that evaluated regularly chief decision maker, decision making group, deciding allocate resources assessing performance. Company's chief decision-making group consists President Chief Executive Officer, Chief Financial Officer Vice President East Operations. operating segments managed separately because each operating segment represents strategic business unit whose function purpose differs from other segments. Company's reportable operating segments include Diodes Incorporated, located United States; Diodes-Taiwan located Taipei, Taiwan; Diodes-China located Shanghai, China. Diodes Incorporated markets discrete semiconductor devices manufacturers distributors North America. Diodes-Taiwan manufactures discrete semiconductor devices markets sells discrete semiconductor devices throughout Asia Diodes Incorporated. Diodes-China manufacturers discrete semiconductor devices primarily, date, sale Diodes Incorporated Diodes-Taiwan. accounting policies operating segments same those described summary significant accounting policies. Company evaluates performance based stand-alone operating segment income. Revenues attributed geographic areas based location market producing revenues.
sales Purchases Accounts receivable Accounts payable
DIODES-CHINA
2,224 15,630
12,320
1,064 10,844 1,680
Company owns outstanding capital stock Diodes-China, which produces small-signal diodes transistors. date, Diodes-China's sales have been primarily Company. Diodes-China expects expand selling markets unrelated customers production capacity increased. Company initially owned Diodes-China. 1997 Company purchased additional from minority-interest partner $2,151,000. $1,101,000 excess purchase price over fair value assets acquired recorded goodwill. assets Diodes-China date this acquisition consisted primarily plant equipment.
Diodes-China purchases some inventory from company owned minority shareholder. December 1999 approximately $96,000 payable supplier.
FabTech
Incorporated Under compensationtrade agreement, Company provided advances related party vendor, FabTech Incorporated, wholly owned subsidiary LPSC. Interest accrues monthly LIBOR plus 1.1%. Outstanding principal accrued interest December 1999 totals $2,561,000. Amounts advanced, including interest, payable through February 2001 when outstanding balances become demand, secured FabTech's accounts receivables. compensationtrade agreement allows Company recover interest principal deducting wafer purchased from vendor. vendor also repay debt cash. During 1999, Company collected cash $600,000 note.
page
0031
1999
subsidiaries
NOTES CONSOLIDATED FINANCIAL STATEMENTS
NOTE SEGMENT INFORMATION (continued)
thousands) Diodes-China (China) 1999 Total sales Intersegment sales sales Depreciation amortization Interest expense Income provision (benefit) income (loss) Segment assets Expenditures property 1998 Total sales Intersegment sales sales Depreciation amortization Interest expense Income provision income (loss) Segment assets Expenditures property 1997 Total sales Intersegment sales sales Depreciation amortization Interest expense Income provision income Segment assets Expenditures property Diodes-Taiwan (Taiwan) Diodes Incorporated (United States) Consolidated Segments
13,250 (9,861) 3,389 2,320 4,166 19,016 8,686
45,682 (14,042) 31,640 1,857 3,115 16,808
47,688 (3,466) 44,222 (477) (1,712) 26,583
106,620 (27,369) 79,251 2,787 1,380 5,569 62,407 9,942
3,773 (3,493) 13,880 9,647
27,029 (10,423) 16,606 2,786 10,315
45,600 (2,225) 43,375 (386) 21,194
76,402 (16,141) 60,261 1,168 1,511 2,673 45,389 9,793
5,129 (4,850) 6,925 1,117
28,804 (12,715) 16,089 1,252 2,659 7,157
50,493 (1,162) 49,331 1,379 2,176 24,272
84,426 (18,727) 65,699 1,004 2,631 5,125 38,354 1,495
page
0032
1999
subsidiaries
NOTES CONSOLIDATED FINANCIAL STATEMENTS
NOTE COMMITMENTS Company leases main office warehouse under operating lease agreement which expires December 2004. Company option, extend lease five year term upon termination. Rent expense amounted approximately $162,000, $269,000, $327,000, years ended December 1997, 1998 1999, respectively. Future minimum lease payments under noncancelable operating leases years ending December thousands):
2000 2001 2002 2003 2004 Thereafter 1,629
NOTE SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
thousands except share amounts) FISCAL 1999
Quarter Ended
March sales Gross profit income Basic earnings share Diluted earnings share FISCAL 1998 June Sept. Dec.
16,032 3,910
18,229 21,750 23,240 4,429 5,888 1,684 6,721 2,370
Quarter Ended
March sales Gross profit income June Sept. Dec.
16,946 4,493 1,186
14,500 14,963 14,916 3,724 3,717 3,467
NOTE EMPLOYEE BENEFIT PLAN Company maintains 401(k) profit sharing plan (the Plan) benefit qualified employees. Employees participate elect make salary deferral contributions Plan employees' eligible payroll. Company makes contribution every contributed participant. addition, Company make discretionary contribution entire qualified employee pool, accordance with Plan. years ended December 1997, 1998, 1999, Company's total contribution Plan approximately $110,000 $161,000, $204,000, respectively.
Basic earnings share Diluted earnings share
page
0033
1999
subsidiaries
INDEPENDENT AUDITORS' REPORT
BOARD DIRECTORS STOCKHOLDERS Diodes Incorporated Subsidiaries have audited accompanying consolidated balance sheet Diodes Incorporated Subsidiaries December 1999 1998 related consolidated statements income, stockholders' equity cash flows each years three year period ended December 1999. These financial statements responsibility Company's management. responsibility express opinion these financial statements based audits. conducted audits accordance with generally accepted auditing standards. Those standards require that plan perform audits obtain reasonable assurance about whether financial statements free material misstatement. audit includes examining, test basis, evidence supporting amounts disclosures financial statements. audit also includes assessing accounting principles used significant estimates made management, well evaluating overall financial statement presentation. believe that audits provide reasonable basis opinion. opinion, financial statements referred above present fairly, material respects, consolidated financial position Diodes Incorporated Subsidiaries December 1999 1998, consolidated results their operations cash flows each years three year period ended December 1999, conformity with generally accepted accounting principles.
MOSS ADAMS
Angeles, California January 2000
page
0034
1999
subsidiaries
DISTRIBUTION NETWORK Through innovative marketing strategies advanced sophisticated logistics, work with world-class distributors assist customers advancing their technologies.
DIRECTORS OFFICERS RAYMOND SOONG Chairman Board, Diodes, Inc. Chairman Board, Silitek Corporation C.H. CHEN President Chief Executive Officer, Diodes, Inc. Vice Chairman President, Dyna Image Corporation Director MICHAEL GIORDANO 1,2,3 Senior Vice President, Paine Webber, Inc. Director DAVID President, Silitek Corporation Director M.K. Group Vice President, Lite-On Group Chief Executive Officer, Actron Technology Corp. President, Lite-On Power Semiconductor Corp. Director SHING 1,2,3 Chairman Board, Lite-On, Inc. Director LEONARD SILVERMAN Dean Engineering, Director JOSEPH Vice President, East Operations, Diodes, Inc. CARL WERTZ Chief Financial Officer, Secretary Treasurer, Diodes, Inc. MARK KING Vice President, Sales Marketing, Diodes, Inc.
Member, Executive Committee Member, Compensation Stock Options Committee Member, Audit Committee
SHAREHOLDER INFORMATION Diodes Incorporated common stock listed traded American Stock Exchange. Ticker symbol: cash dividends have been paid, stock splits have occurred date. Company currently intends retain earnings businesses.
FORM 10-K copy Company's Form 10-K, filed with Securities Exchange Commission, available upon request Investor Relations Silverman Heller Associates 1100 Glendon Avenue, Suite 1801 Angeles, California 90024 (310) 208-2550 eMail diodes-fin@diodes.com
December 1999
High
December 1998
High
Quarter Quarter Quarter Quarter
11/16 5/16
1/16
Quarter Quarter Quarter Quarter
3/16
INDEPENDENT ACCOUNTANTS
Design McNulty Co., Thousand Oaks, California
TRANSFER AGENT REGISTRAR Continental Stock Transfer Trust Company York, York
LEGAL COUNCIL Sheppard, Mullin, Richter Hampton Angeles, California
Moss Adams Angeles, California
FINANCIAL INFORMATION ONLINE World Wide users access Company information DIODES home page, located www.diodes.com
DIODES INCORPORATED CORPORATE OFFICES 3050 East Hillcrest Drive Westlake Village, 91362-3154 phone: (805) 446-4800 fax: (805) 446-4850 www.diodes.com DIODES-TAIWAN Diodes Incorporated Taiwan Company, Ltd. 501-15 Chung-Cheng Road Hsin-Tien City, Taipei, Taiwan DIODES-CHINA Shanghai KaiHong Electronics Co., Ltd. Xinnan Street Xingqiao Town, Songjiang County Shanghai, China
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