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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ________.
COMMISSION FILE NUMBER: 1-5740
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 95-2039518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 446-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $0.66 2/3 AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange
on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the 2,927,811 shares of Common Stock held by
non-affiliates of the registrant, based on the closing price of the Common Stock
on the American Stock Exchange on March 20, 1998 of $10.0625 per share, was
approximately $29,461,098.
The number of shares of the registrant's Common Stock outstanding as of March
20, 1998, was 5,724,352 including 717,115 shares of treasury stock.
THIS REPORT INCLUDEDS A TOTAL OF 51 PAGES
THE EXHIBIT INDEX IS ON PAGE 49
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DIODES INCORPORATED
TABLE OF CONTENTS
Page
----
PART I ............................................................................ 2
Item 1. Business .................................................... 2
Item 2. Properties .................................................. 7
Item 3. Legal Proceedings ........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders ......... 8
PART II ........................................................................... 9
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ......................................... 9
Item 6. Selected Financial Data ..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .. 17
Item 8. Financial Statements and Supplementary Data ................. 17
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure .................................... 17
PART III .......................................................................... 17
Item 10. Directors and Executive Officers of the Registrant .......... 17
Item 11. Executive Compensation ...................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management .................................................. 24
Item 13. Certain Relationships and Related Transactions .............. 25
PART IV ........................................................................... 26
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K .................................................... 26
Cautionary Statement for Purposes of the "Safe Harbor" Provision of the Private
Securities Litigation Reform Act of 1995 ........................................ 47
SIGNATURES ........................................................................ 48
INDEX TO EXHIBITS ................................................................. 49
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PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Diodes Incorporated (the "Company") was formed in 1959 under the
laws of Delaware. The Company is engaged in the manufacture, sale, and
distribution of discrete semiconductors worldwide, primarily to manufacturers of
automotive, computer and telecommunication products and to distributors of
electronic components. In addition to the Company's corporate headquarters in
Westlake Village, California, which provides sales, marketing and engineering
functions, the Company's wholly-owned subsidiary, Diodes Incorporated Taiwan
Company, Ltd. ("Diodes-Taiwan"), maintains a sales, manufacturing, engineering,
and purchasing facility in Taipei, Taiwan. The Company also has a 95% interest
in a manufacturing facility, Shanghai KaiHong Electronics Co., Ltd. ("KaiHong").
The Company, following a restructuring in 1990, has grown rapidly
as a supplier of discrete semiconductors. In 1990, the Company installed new
management and raised additional capital from the private sale of 1,000,000
shares of the Company's Common Stock to Silitek Corporation ("Silitek"), a
Taiwanese company and member of the Lite-On Group, engaged in the manufacture
and sale of electronic components and equipment, including semiconductor
rectifiers. After a further purchase of the Company's stock, Silitek transferred
such Common Stock ownership interest in 1991 to Lite-On Power Semiconductor
Corporation ("LPSC"), a wholly-owned, Taiwanese subsidiary of Silitek. LPSC
continues to be a major shareholder of the Company, owning 2,045,093 shares of
the Company's Common Stock, or 41.0% of the total shares outstanding as of
December 31, 1997.
In July 1997, Vishay Intertechnology, Inc. ("Vishay") and the
Lite-On Group, a Taiwanese consortium, formed a joint venture -- Vishay/Lite-On
Power Semiconductor Pte., LTD. ("Vishay/LPSC") -- to acquire Lite-On Power
Semiconductor Corp. ("LPSC"), the Company's largest shareholder and a member of
the Lite-On Group of the Republic of China. Vishay, with worldwide sales
exceeding $1 billion, is the world's largest manufacturer of passive electronic
components. The Lite-On Group, with worldwide sales of almost $2 billion, is a
leading manufacturer of power semiconductors, computer peripherals, and
communication products. The Vishay/LPSC joint venture includes the worldwide
discrete power semiconductor business of LPSC and the Asian passive component
business of Vishay. Vishay holds a 65% controlling interest in the joint
venture, and the Lite-On Group holds the other 35%. See "Item 1. Business -- New
Developments" for a more detailed description of this transaction.
The Company's substantial increase in net sales from $14.7
million in 1991 to $65.7 million 1997, can be attributed primarily to the
Company's continuing efforts to improve the level of sales and customer support
by strengthening its sales and marketing departments, focusing on a more
pro-active selling and customer service philosophy, and improving the level of
communication, cooperation, planning and control within the Company. Also
contributing to the sales growth is improved product quality as well as
increased industry-wide demand for the Company's products.
The Company is engaged in an ongoing program to develop strategic
alliances under terms that will provide the Company access to the products its
customers need. Three alliances, in particular, are part of this effort:
1. A marketing agreement with LPSC, whereby the Company has been named the
exclusive reseller of LPSC's products in North America, that provides customers
with access to additional high-quality components, further strengthening the
Company's long-standing relationship with LPSC. See "Item 1. Business -- New
Developments" for a description of the Vishay/LPSC joint venture.
2. The KaiHong joint venture that gives the Company additional SOT-23 capacity.
The Company provided KaiHong with capital for the construction of a new
facility, primarily for the manufacture of high quality SOT-23 products. See
"Item 1. Business -- New Developments."
3. An agreement with FabTech, Inc. ("FabTech"), a wholly-owned subsidiary of
LPSC, whereby the Company gains a new supply of processed wafers for its
Diodes-Taiwan and KaiHong facilities used in the manufacture of various types
of discrete semiconductors. See "Item 1. Business --Manufacturing and
Significant Vendors."
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These alliances are part of the Company's long-term strategic
plan to expand its product line and secure reliable product sourcing for
products that its customers need, while maintaining profitability.
PRODUCTS
Product Technology. Semiconductors come in two basic
configurations: discretes and integrated circuits. The Company is engaged in the
manufacture, sale, and distribution of discrete semiconductors which are
fixed-function components such as small signal transistors and MOSFETs,
transient voltage suppressors (TVSs), zeners, Schottkys, diodes, rectifiers and
bridges.
In terms of function, integrated circuits are far more complex.
They are multi-function devices of the sort found in computer memory boards and
central processing units. Integrated circuits, characterized by rapid changes in
both production and application, and the desire to put ever-more intelligence
into ever-smaller packages, have required the development of manufacturing
techniques that are sophisticated and expensive.
In contrast, there is little that is proprietary about the
manufacturing of discrete semiconductors. Here, technologies are neither new nor
rapidly evolving. Success, therefore, is highly dependent upon the ability to
produce large numbers of inexpensive components of consistent high quality, and
with low overhead. Discretes, which effectively tie integrated circuits to their
surrounding environments and enable them to work, come in hundreds of
permutations and vary according to voltage, current, power handling capability,
and switching speed.
In a standard industry classification, those discrete
semiconductors operating at less than one watt are referred to as low-power
semiconductors, while those operating at greater than one watt are termed power
semiconductors. Both types of semiconductors are found in a wide assortment of
commercial instrumentation and communication equipment, in consumer products
like televisions and telephones, and in automotive, computer and industrial
electronic products.
Product Packaging. Almost as important as the technology of the
components, is the packaging. The industry trend is to fit discrete components
into smaller and smaller surface-mount packages. Smaller packaging provides a
reduction in board space, height, and weight and are well suited for
battery-powered, hand-held and wireless applications such as cell phones,
pagers, modems, notebook and palmtop computers and accessories where space is a
premium. The objective is to fit the same functionality and power handling
features into smaller packages.
MANUFACTURING AND SIGNIFICANT VENDORS
All of the products sold by the Company, as well as the materials
used by the Company in its manufacturing operations, are available both
domestically and abroad. In 1997, the two largest suppliers of products to the
Company were LPSC, an affiliate of the Company based in Taiwan, and General
Semiconductor Corporation, who recently acquired ITT Intermetall ("ITT"), based
in Freiburg, Germany. See "Item 1. Business - New Developments" for a discussion
on the General Semiconductor/ITT transaction. During the year ended December 31,
1997, approximately 32% and 17% of purchases were from these two vendors,
respectively. See Notes 10 and 11 of "Notes to Consolidated Financial
Statements" for a description of the major vendors and the relationship between
LPSC and the Company. In addition, Diodes-Taiwan supplied approximately 4% of
the Company's purchases and the KaiHong facility 7% in 1997. The Company
anticipates that KaiHong will become an increasingly valuable supplier. No
other manufacturer of discrete semiconductors accounted for more than 5% of the
Company's purchases in 1997.
In February 1996, the Company announced an agreement with FabTech
whereby the Company gained a new supply of processed wafers used in the
manufacture of several types of discrete semiconductors. The Company has
provided FabTech with approximately $2.5 million in working capital to be used
in upgrading, reconfiguring, and starting up operations at an existing wafer
fabrication facility located in Lee's Summit, Missouri.
The Company's Taiwan and China manufacturing facilities receive
wafers from FabTech, among others. Output from the FabTech facility includes
wafers used in the production of Schottky barrier diodes, fast recovery
epitaxial diodes (FREDs), and other widely used value-added products. Schottky
barrier diodes are employed in the manufacture of the power supplies found in
personal computers, telecommunications devices and other applications where high
frequency, low forward voltage and fast recovery are required.
Although the Company believes that there exist alternative
sources for the products of any of its suppliers, the loss of any one of its
principal suppliers or the loss of several suppliers in a short period of time
could have a materially
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adverse effect on the Company until an alternate source is located and has
commenced providing such products or raw materials.
SALES AND MARKETING
The discrete semiconductor components market is served by
numerous semiconductor manufacturers and distributors. Some of the larger
companies include Motorola, National Semiconductor, International Rectifier,
Rohm, Phillips, and General Semiconductor, many of whom have greater financial,
marketing, brand name and other resources than the Company. Over the years,
there has been a tendency among some larger manufacturers to limit or
de-emphasize the production and marketing of discrete components in favor of
integrated and hybrid circuits. With fewer service-oriented sources of discrete
components available to original equipment manufacturers ("OEMs"), the Company
has been able to make gains in market share.
In 1997, the Company's products were sold under several brand
names such as Diodes, Lite-On, ITT and most recently, Vishay/Lite-On Power
Semiconductor. The Company is evaluating the potential benefits of unifying
product lines under a limited number of brand names in order to establish brand
name unity and consistency of product, and to capitalize on brand name
recognition, where possible.
The Company sells its products through its own internal and
regional sales departments, as well as through representatives and distributors.
The Company's in-house sales team, aided by the sales force of approximately 30
independent sales representatives located throughout North America and the
Pacific Rim, supplies more than 300 OEM accounts. The Company's products include
catalog items and units designed to specific customer requirements. The Company
further supplies approximately 50 stocking distributors, who collectively sell
to over 5,000 customers on the Company's behalf. At December 31, 1997, OEM
customers accounted for approximately 56% of the Company's net sales. Customers
range from Fortune 500 companies to small, privately-held OEMs.
Through ongoing sales and customer service efforts, the Company
continues to develop significant business relationships with companies who are
considered leaders in their respective market segments, such as automotive,
telecommunications, personal computers, computer peripherals and industrial. The
Company's marketing efforts also have benefited from an ongoing program to
develop strategic alliances with manufacturers, such as KaiHong and FabTech, to
better control its destiny in terms of the price, the quality and especially the
availability of the products it sells.
The Company's products are sold primarily in North America and
the Pacific Rim, both directly to end users and through electronic component
distributors. During 1997, approximately 76% and 24% of the Company's products
were sold in North America and the Pacific Rim, respectively. During the past
six years, the Company has pursued an aggressive program to improve product
quality and customer service in order to support more broad-based, strategic
accounts. See "Item 1. Business -- New Developments" for a more detailed
discussion on the Company's ISO 9002 quality certifications. For the fiscal
years ended December 31, 1997, 1996, and 1995, the sale of discrete
semiconductor products represented 100 percent of the Company's net sales and
the Company intends to continue this dedication to discrete semiconductors.
Through Diodes-Taiwan, the Company employs a general manager who
acts as the Pacific Rim purchasing liaison with respect to product procurement
from other vendors located in the Far East. Diodes-Taiwan also manufactures
product for sale to the Company as well as for other customers. In addition,
Diodes-Taiwan generates sales in Taiwan and other Asian countries. See Note 11
of "Notes to Consolidated Financial Statements."
Until the fourth quarter of 1997, all of the KaiHong production
was sold to the Company as inter-company sales. KaiHong has now begun to ship
product to other customers, thus contributing to the Company's consolidated
sales. The Company expects this trend to continue, provided KaiHong can
continue to meet the Company's production requirements.
During most of 1997, both the Company and its industry
experienced increased demand for discrete semiconductor products. In general,
the Company maintains sufficient inventories of standard products to permit
rapid delivery of customers' orders where required, and continuously coordinates
with subcontractors to support future product demand. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
All of the Company's inventory is composed of discrete
semiconductors which are standardized in electronic related industries. Finished
goods inventory turns over approximately four times annually. The Company has no
special inventory or working capital requirements that are not in the ordinary
course of business. Unless arrangements are
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otherwise specially made, invoices to customers are payable net 30 days. Company
policy is to hold shipments to customers who are more than 60 days in arrears.
The Company is not dependent on any one major customer to support
its level of sales. For the fiscal year ended December 31, 1997, there was not
one customer that accounted for more than 5% of the Company's net sales. The
twenty largest customers of the Company accounted, in total, for approximately
43% of the Company's net sales in 1997. The Company's sales have not
historically been subject to seasonal fluctuations.
BACKLOG
The amount of backlog to be shipped during any period is
dependent upon various factors and all orders are subject to cancellation or
modification, usually without penalty to the customer. Backlog of orders
scheduled to ship within six months were approximately $9.3 million on December
31, 1997, compared to approximately $10.2 million on December 31, 1996, and
$12.0 million on December 31, 1995. The Company and the industry as a whole is
experiencing a trend towards shorter lead-times (the amount of time between the
date a customer places an order to the date the customer requires shipment). The
amount of backlog at any date depends upon various factors, including the timing
of the receipt of orders, fluctuations in orders of existing product lines, and
the introduction of any new lines. Accordingly, the amount of backlog at any
date is not necessarily indicative of actual shipments. The Company strives to
maintain proper inventory levels to support customers' just-in-time order
expectations.
NEW DEVELOPMENTS
In March 1997, as a result of the Company's total commitment to
product quality and customer satisfaction, the Company's corporate headquarters
received official ISO 9002 Certification of Registration from Underwriters
Laboratories, the leading third-party certification organization in the United
States and the largest in North America. ISO 9000 certifications consist of a
series of paradigms for the establishment of systems and protocols to facilitate
the creation and maintenance of superior quality-control techniques.
Subsequently, both the KaiHong and Diodes-Taiwan facilities have received
official ISO 9002 Certification of Registration in June and November 1997,
respectively. With its underlying premise that true product quality requires a
total quality system, ISO certification is often required of vendors seeking to
establish relationships with OEMs doing business in intensely competitive global
markets.
In July 1997, Vishay and the Lite-On Group formed a joint venture
- -- Vishay/Lite-On Power Semiconductor Pte., LTD. ("Vishay/LPSC") -- to acquire
LPSC, the Company's largest shareholder and a member of the Lite-On Group of the
Republic of China. Vishay, with worldwide sales exceeding $1 billion, is the
world's largest manufacturer of passive electronic components. The Lite-On
Group, with worldwide sales of almost $2 billion, is a leading manufacturer of
power semiconductors, computer peripherals, and communication products. The
Vishay/LPSC joint venture includes the worldwide discrete power semiconductor
business of LPSC and the Asian passive component business of Vishay. Vishay
holds a 65% controlling interest in the joint venture, and the Lite-On Group
holds the other 35%.
Vishay is a Fortune 1000 company, listed on the New York Stock
Exchange. Headquartered in Malvern, Pennsylvania, Vishay is the largest U.S. and
European manufacturer of passive electronic components with sales exceeding $1
billion. Vishay's products are used worldwide in a broad range of industries.
The strategic alliance with the Lite-On Group is Vishay's first step into the
$14 billion discrete semiconductor market, which includes diodes and transistors
of many types.
In October 1997, the Company initially announced that its
discrete semiconductor products would be marketed under a single brand --
"Vishay/Lite-On Power Semiconductor" -- to capture the benefits of uniform brand
identity. Subsequently, in March 1998, Vishay acquired the semiconductor
business unit of Temic Telefunken Microelectronic GmbH Heilbronn, Germany. The
Company is negotiating with Vishay for the North American rights to offer the
Telefunken product line. There can be no assurance that the Company will be
successful in obtaining such rights.
The Company intends to continue to explore marketing methods to
use Vishay's resources combined with planned enhancements to its own engineering
and manufacturing capabilities, to develop ever more advanced products, to
enhance product quality, and to further enhance customer service. The
relationship with Vishay has already provided opportunities for the Company to
have its products offered by some the world's largest distributors.
In July 1997, General Semiconductor Corporation, formerly General
Instrument Corporation, announced that it would acquire the discrete
semiconductor business of ITT, one of the Company's major suppliers. As a result
of this
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announcement, ITT notified the Company of their intent to terminate their
distribution agreement with the Company under the terms of the contract,
although the Company continues to receive product from the new owners of ITT.
See "Item 1. Business - Manufacturing and Significant Vendors". The Company will
continue its strategic plan of locating alternate sources of its products,
including those provided by ITT. While the sale of ITT may negatively impact the
Company's 1998 sales by approximately $3.0 million, it is anticipated that the
lost sales may be offset substantially by the Company's projected increase in
sales as well as by new sources of products in 1998. Alternate sources for ITT
products include, but are not limited to, KaiHong and other sourcing agreements
in place as well as those under negotiation. The Company continually evaluates
alternative sources of its products to assure its ability to deliver high
quality, cost effective products.
One of the Company's primary strategic programs was the formation
of the KaiHong joint venture on mainland China, which provides replacements for
a portion of the ITT product line. In March 1996, the Company entered into the
KaiHong joint venture for the development of additional manufacturing capacity
in Shanghai, R.O.C. The joint venture allows for the manufacturing and sale of
diodes and associated electronic components, mainly in SOT-23 packaged
components. Initially, the Company was responsible for production and management
of the joint venture and received 100% of the product, had contributed
approximately $2.8 million for a 70% interest, while the minority party
contributed approximately $1.2 million. During the first quarter of 1997, the
KaiHong joint venture began to make a positive contribution to the Company's
bottom line.
Due to the recent success of the facility and through an
arrangement in accordance with the original joint venture agreement previously
filed, the Company increased its controlling interest in KaiHong to 95%, and
increased its equity contribution to approximately $4.75 million, in the fourth
quarter of 1997. Also during the last quarter of 1997, the KaiHong joint
venture began shipments of products to customers other than the Company, and
thus has begun to contribute to the Company's consolidated sales.
Also due to KaiHong's recent success, the ITT sale, and in order
to meet the continued demand for discrete semiconductor products, as well as to
enhance the Company's ability to acquire -- in a timely fashion and at
reasonable cost -- the products that its customers need, the Company is
currently implementing a planned $14 million capital equipment expansion program
at the KaiHong manufacturing facility. The equipment expansion will allow for
the manufacturer of additional SOT-23 packaged components, as well as other
surface-mount packaging. The Company plans to use its credit facility to finance
the additional manufacturing capacity.
In another milestone, and as part of the Company's commitment to
quality, KaiHong has received QS-9000 certification; a stringent, and
automotive industry standard certification for manufacturing facilities.
In October 1997, the Company announced the appointment of a new
President, Michael A. Rosenberg, to replace David Lin who resigned to pursue
other business interests with the Lite-On Group in East Asia. Mr. Rosenberg, a
director of the Company since 1989 and an independent consultant to Vishay since
1992, was from 1970 to 1991 associated with SFE Technologies, a Southern
California based manufacturer of electronic components, including positions as
President and chief executive officer, as well as a member of the Board of
Directors. Both Mr. Rosenberg and Mr. Lin will remain members of the Board of
Directors of the Company.
COMPETITION
Competition in those portions of the semiconductor marketplace in
which the Company competes is intense. The Company competes with discrete
semiconductor manufacturing companies such as Motorola, Fairchild Semiconductor
(formerly National Semiconductor), International Rectifier, Rohm, Phillips, and
General Semiconductor (formerly General Instruments), as well as distributors of
similar product lines such as Taitron Components.
Competitiveness in sales of the Company's products is determined
by the price and quality of the product and the ability of the Company to
provide delivery and customer services in keeping with the customers' needs. The
Company believes itself to be well equipped to be competitive in respect to
these requirements. Although technology in the semiconductor industry is ever
changing, the products sold by the Company are mature products. Because of this,
the Company is not expecting to experience much further technological change
within its current product line, nor does it believe its products will become
obsolete in the foreseeable future. The Company's market share is estimated at
4% based upon the total area market for discrete semiconductors in North
America.
Many of the Company's competitors have substantially greater
financial, marketing, distribution and other resources than the Company.
Accordingly, in response to market conditions, the Company from time to time may
reposition
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product lines or decrease prices, which may adversely affect the Company's
profit margins on such product lines. See "Cautionary Statement for Purposes of
the `Safe Harbor' Provision of the Private Securities Litigation Reform Act of
1995."
EMPLOYEES
As of December 31, 1997, the Company employed a total of 69
full-time employees in the United States, of whom 23 were in sales and
marketing, 22 in customer support, and 24 in operations and administration. At
such date, Diodes-Taiwan employed an additional 66 employees in its Taiwan
office, of whom 43 were in manufacturing, 5 in sales, and 18 in purchasing,
quality control, and administration. The KaiHong manufacturing facility
employed a total of 113 employees, of whom 65 were in manufacturing and 48 in
quality control and general administration. None of the Company's employees is
subject to a collective bargaining agreement. The Company considers its
relations with its employees to be satisfactory.
IMPORTS AND IMPORT RESTRICTIONS
During 1997, the Company's U.S. operations, which accounted for
approximately 75% of the Company's total net sales, imported substantially all
of its products, of which approximately 27% was imported from Taiwan and
approximately 20% from mainland China. The balance of the imports are from
Germany, Japan, India, the Philippines, England and Korea, among others. As a
result, the Company's operations are subject to the customary risks of doing
business abroad, including, among other things, the difficulty and expense of
maintaining foreign sourcing channels, cultural and institutional barriers to
trade, fluctuations in currency exchange rates, restrictions on the transfer of
funds and the imposition of tariffs, political instability, transportation
delays, expropriation, import and export controls and other non-tariff barriers
(including export licenses and changes in the allocation of quotas), as well as
the uncertainty regarding the future relationship between China and Taiwan, and
other U.S. and foreign regulations that may apply to the export and import of
the Company's products, and which could have a material adverse effect on the
Company. Any significant disruption in the Company's Taiwanese or Chinese
sources of supply or in the Company's relationship with its suppliers located in
Taiwan or China could have a material adverse effect on the Company.
The Company purchases products from foreign suppliers primarily
in United States dollars. To a limited extent, and from time to time, the
Company contracts (e.g. a portion of the equipment purchases for the KaiHong
expansion) in foreign currencies, and, accordingly, its results of operations
could be materially and adversely affected by fluctuations in currency exchange
rates. Due to the limited number of contracts denominated in foreign currencies
and the complexities of currency hedges, the Company has not engaged in hedging
to date. If the volume of contracts written in foreign currencies increases, and
the Company does not engage in currency hedging, any substantial increase in the
value of such currencies could have a material adverse effect on the Company's
results of operations. Management believes that the current contracts written in
foreign currency are not significant enough to justify the costs inherent in
currency hedging.
The Company's imported products are also subject to United
States customs duties and, in the ordinary course of business, the Company from
time to time is subject to claims by the United States Customs Service for
duties and other charges. The Company attempts to reduce the risk of doing
business in foreign countries by, among other things, contracting in U.S.
dollars, and, when possible, maintaining multiple sourcing of product groups
from several countries.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
With respect to foreign operations see Notes 1, 10 and 11 of
"Notes to Consolidated Financial Statements".
ITEM 2. PROPERTIES
The Company's primary physical properties during the year ended
December 31, 1997, were as follows:
1. Industrial building located at 3050 East Hillcrest Drive, Westlake
Village, California 91362. This building, consisting of approximately
30,900 square feet, is the Company's corporate headquarters and product
distribution center. The Company is primary lessee under a lease that
has been extended three years and expires in 2001. The Company has two
five-year options to extend the term of the lease.
2. Regional sales office located at 70 Mansell Court, Roswell, GA,
30076. These premises are leased at less than $1,000 per month.
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3. Regional sales office located at 78 Northeastern Blvd. #1, Nashua,
NH, 03062. These premises are leased at less than $1,000 per month.
4. Regional sales office located at 261 E. Maple, Birmingham, MI, 48009.
These premises are leased at less than $1,000 per month.
5. Regional sales office located at 8 Corporate Park, Irvine, CA, 92606.
These premises are leased at less than $1,000 per month.
6. Industrial premises consisting of approximately 9,000 square feet and
located at 5Fl. 501-16 Chung-Cheng Road, Hsin-Tien City, Taipei, Taiwan,
Republic of China. These premises, owned by Diodes-Taiwan, are used as a
manufacturing facility. The facility is subject to a mortgage held by
Chang-Hwa Commercial Bank, which matures on November 11, 2003, and is
secured by land and buildings.
7. Industrial premises consisting of approximately 7,000 square feet and
located at 2Fl. 501-15 Chung-Cheng Road, Hsin-Tien City, Taipei, Taiwan,
Republic of China. These premises, owned by Diodes-Taiwan are used as
sales and administrative offices. The facility is subject to a mortgage
held by Chang-Hwa Commercial Bank, which matures on February 27, 2003,
and is secured by land and buildings.
8. Industrial building located at Xinqiao Town, Song Jian County,
Shanghai, Peoples Republic of China. This building, consisting of
approximately 20,000 square feet, is the corporate headquarters and
product distribution and manufacturing facility for the KaiHong joint
venture. The building is owned by the joint venture company, Shanghai
KaiHong Electronics Co., Ltd.
The Company believes its current facilities are adequate for the
foreseeable future. See Notes 4 and 12 of "Notes to Consolidated Financial
Statements."
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, involved in litigation
incidental to the conduct of its business. The Company does not believe that any
currently pending litigation, to which it is a party, will have a material
adverse affect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by the
Company during the last three months of the year ending December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed and traded on the American
Stock Exchange ("AMEX") under the symbol "DIO". The following Table 1 shows the
range of high and low sales prices per share for the Company's Common Stock for
each fiscal quarter from March 31, 1996 as reported by AMEX.
TABLE 1
- ----------------------------------------------------------------
CALENDAR QUARTER SALE PRICE OF
ENDED COMMON STOCK
- ----------------------------------------------------------------
HIGH LOW
---------- -------
First quarter (through March 20) 1998 $ 11 3/4 $ 8 1/4
- ----------------------------------------------------------------
Fourth quarter 1997 16 3/4 6 3/4
Third quarter 1997 13 15/16 8 3/4
Second quarter 1997 10 3/4 7 3/4
First quarter 1997 9 1/8 6 3/4
- ----------------------------------------------------------------
Fourth quarter 1996 9 1/4 5 3/4
Third quarter 1996 8 1/2 5 1/2
Second quarter 1996 11 6 1/2
First quarter 1996 11 7/8 8 5/8
- ----------------------------------------------------------------
On March 20, 1998, the closing sale price of the Company's Common
Stock on AMEX was $10.0625. Shareholders are urged to obtain current market
quotations for the Common Stock. As of March 20, 1998, there were approximately
1,045 stockholders of record of the Company's Common Stock.
No dividends have been declared during the past three years and
the Company does not expect to declare dividends in the foreseeable future. The
payment of dividends is within the discretion of the Company's Board of
Directors, and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, and general business conditions.
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11
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the fiscal years ended
December 31, 1997, 1996, 1995, 1994 and 1993 is set forth in Table 2 and is
qualified in its entirety by, and should be read in conjunction with, the other
information and financial statements appearing elsewhere herein (in 000's except
per share data).
TABLE 2
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
INCOME STATEMENT DATA
Net sales $ 65,699 $ 56,019 $ 58,190 $ 38,275 $ 26,403
Gross profit 18,343 14,842 16,463 10,697 7,143
Selling, general and administrative 11,137 10,386 9,522 7,563 5,924
expenses
Income from operations 7,206 4,456 6,941 3,134 1,219
Interest expense, net 62 351 144 6 75
Minority interest in joint venture(1) (15) 238 -- -- --
Other income 627 295 513 437 80
Income before taxes 7,756 4,638 7,310 3,565 1,224
Provision (benefit) for income taxes(2) 2,631 1,673 2,610 1,202 (363)
Net income 5,125 2,965 4,700 2,363 1,587
Earnings per share:(3)
Basic $ 1.03 $ 0.60 $ 0.96 $ 0.50 $ 0.35
Diluted $ 0.93 $ 0.55 $ 0.90 $ 0.46 $ 0.34
Number of shares used in computation:(3)
Basic 4,971 4,959 4,881 4,753 4,559
Diluted 5,482 5,362 5,220 5,137 4,724
AS OF DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET DATA
Total assets $ 38,354 $ 32,546 $ 29,363 $ 17,545 $ 13,727
Working capital 18,699 17,403 13,263 9,411 6,606
Stockholders' equity 24,453 19,464 16,499 10,770 7,996
(1) See Note 10 of "Notes to Consolidated Financial Statements" included herein.
(2) See Note 7 of "Notes to Consolidated Financial Statements" included herein.
(3) See Note 1 of "Notes to Consolidated Financial Statements" included herein.
No cash dividends were paid during the years 1993-1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the
matters addressed in this Item 7 constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are subject to a variety of risks and uncertainties,
including those discussed below under the heading "Cautionary Statement for
Purposes of the "Safe Harbor" Provision of the Private Securities Litigation
Reform Act of 1995" and elsewhere in this Report on Form 10-K, that could cause
actual results to differ materially from those anticipated by the Company's
management. The Private Securities Litigation Reform Act of 1995 (the "Act")
provides certain "safe harbor" provisions for forward-looking statements. All
forward-looking statements made on this Annual Report on Form 10-K are made
pursuant to the Act.
GENERAL
Diodes Incorporated (the "Company") is a provider of high-quality
discrete semiconductor devices to leading manufacturers in the automotive,
electronics, computing and telecommunications industries. The Company's products
include small signal transistors and MOSFETs, transient voltage suppressors
(TVSs), zeners, Schottkys, diodes, rectifiers and bridges.
In March 1997, as a result of the Company's total commitment to
product quality and customer satisfaction, the Company's corporate headquarters
received official ISO 9002 Certification of Registration from Underwriters
Laboratories, the leading third-party certification organization in the United
States and the largest in North America. ISO 9000 certifications consist of a
series of paradigms for the establishment of systems and protocols to facilitate
the creation and maintenance of superior quality-control techniques.
Subsequently, both the KaiHong and Diodes-Taiwan facilities have received
official ISO 9002 Certification of Registration in June and November 1997,
respectively. With its underlying premise that true product quality requires a
total quality system, ISO certification is often required of vendors seeking to
establish relationships with OEMs doing business in intensely competitive global
markets.
In July 1997, Vishay Intertechnology, Inc. ("Vishay") and the
Lite-On Group, a Taiwanese consortium, formed a joint venture -- Vishay/Lite-On
Power Semiconductor Pte., LTD. ("Vishay/LPSC") -- to acquire Lite-On Power
Semiconductor Corp. ("LPSC"), the Company's largest shareholder and a member of
the Lite-On Group of the Republic of China. Vishay, with worldwide sales
exceeding $1 billion, is the world's largest manufacturer of passive electronic
components. The Lite-On Group, with worldwide sales of almost $2 billion, is a
leading manufacturer of power semiconductors, computer peripherals, and
communication products. The Vishay/LPSC joint venture includes the worldwide
discrete power semiconductor business of LPSC and the Asian passive component
business of Vishay. Vishay holds a 65% controlling interest in the joint
venture, and the Lite-On Group holds the other 35%.
Vishay is a Fortune 1000 company, listed on the New York Stock
Exchange. Headquartered in Malvern, Pennsylvania, Vishay is the largest U.S. and
European manufacturer of passive electronic components with sales exceeding $1
billion. Vishay's products are used worldwide in a broad range of industries.
The strategic alliance with the Lite-On Group is Vishay's first step into the
$14 billion discrete semiconductor market, which includes diodes and transistors
of many types.
In October 1997, the Company initially announced that its
discrete semiconductor products would be marketed under a single brand --
"Vishay/Lite-On Power Semiconductor" -- to capture the benefits of uniform brand
identity. Subsequently, in March 1998, Vishay acquired the semiconductor
business unit of Temic Telefunken Microelectronic GmbH Heilbronn, Germany. The
Company is negotiating with Vishay for the North American rights to offer the
Telefunken product line. There can be no assurance that the Company will be
successful in obtaining such rights.
The Company intends to continue to explore marketing methods to
use Vishay's resources combined with planned enhancements to its own engineering
and manufacturing capabilities, to develop ever more advanced products, to
enhance product quality, and to further enhance customer service. The
relationship with Vishay has already provided opportunities for the Company to
have its products offered by some the world's largest distributors.
In July 1997, General Semiconductor Corporation, formerly General
Instrument Corporation, announced that it would acquire the discrete
semiconductor business of ITT, one of the Company's major suppliers. As a result
of this announcement, ITT notified the Company of their intent to terminate
their distribution agreement with the Company under the terms of the contract,
although the Company continues to receive product from the new owners of ITT.
See "Item 1. Business - Manufacturing and Significant Vendors". The Company will
continue its strategic plan of locating alternate
11
13
sources of its products, including those provided by ITT. While the sale of ITT
may negatively impact the Company's 1998 sales by approximately $3.0 million, it
is anticipated that the lost sales may be offset substantially by the Company's
projected increase in sales as well as by new sources of products in 1998.
Alternate sources for ITT products include, but are not limited to, KaiHong and
other sourcing agreements in place as well as those under negotiation. The
Company continually evaluates alternative sources of its products to assure its
ability to deliver high quality, cost effective products.
One of the Company's primary strategic programs was the formation
of the KaiHong joint venture, formed in the first half of 1996. The KaiHong
joint venture, in which the Company has invested in a SOT-23 manufacturing
facility on mainland China, contributed positively to the Company's bottom line
throughout 1997, and provides replacements for a portion of the parts previously
manufactured by ITT. Due to the success of the first phase of KaiHong as well
as prevailing market conditions, the Company's Board of Directors has approved
funding for further expansion of the joint venture. The equipment expansion will
allow for the manufacturer of additional SOT-23 packaged components as well as
other surface-mount packaging. The capital required for the second and third
phases of KaiHong is estimated at $14.0 million and the Company's credit
facility will be used to finance the additional manufacturing capacity.
Also due to the recent success of the facility and through an
arrangement in accordance with the original joint venture agreement previously
filed, the Company increased its controlling interest in KaiHong from 70% to
95%, and increased its equity contribution to approximately $4.75 million in the
fourth quarter of 1997. The purchase price, as per the joint venture agreement,
was approximately $2.1 million and resulted in approximately $1.1 million in
goodwill. Also during the last quarter of 1997, the KaiHong joint venture began
shipments of products to customers other than the Company, and thus has begun to
contribute to the Company's consolidated sales. It is anticipated that with the
approved additional manufacturing capacity, future sales will continue to be
made to unaffiliated customers, as well as to the Company.
The Company will continue its strategic plan of locating
alternate sources of its products, including those provided by its major
suppliers. Alternate sources include, but are not limited to, the KaiHong joint
venture and other sourcing agreements in place as well as those in negotiations.
The Company anticipates that the effect of the loss of any one of its major
suppliers will not have a material adverse effect on the Company's operations
provided that alternate sources remain available. The Company continually
evaluates alternative sources of its products to assure its ability to deliver
high quality, cost effective products.
Also in October 1997, the Company announced the appointment of a
new President, Michael A. Rosenberg, to replace David Lin who resigned to pursue
other business interests with the Lite-On Group in East Asia. Mr. Rosenberg, a
director of the Company since 1989 and an independent consultant to Vishay since
1992, was from 1970 to 1991 associated with SFE Technologies, a Southern
California based manufacturer of electronic components, including positions as
President and chief executive officer, as well as a member of the Board of
Directors. Both Mr. Rosenberg and Mr. Lin will remain members of the Board of
Directors of the Company.
The Company purchases products from foreign suppliers primarily
in United States dollars. To a limited extent, and from time to time, the
Company contracts (e.g. a portion of the equipment purchases for the KaiHong
expansion) in foreign currencies, and, accordingly, its results of operations
could be materially and adversely affected by fluctuations in currency exchange
rates. Due to the limited number of contracts denominated in foreign currencies
and the complexities of currency hedges, the Company has not engaged in hedging
to date. If the volume of contracts written in foreign currencies increases, and
the Company does not engage in currency hedging, any substantial increase in the
value of such currencies could have a material adverse effect on the Company's
results of operations. Management believes that the current contracts written in
foreign currency are not significant enough to justify the costs inherent in
currency hedging.
The Company's imported products are also subject to United
States customs duties and, in the ordinary course of business, the Company from
time to time is subject to claims by the United States Customs Service for
duties and other charges. The Company attempts to reduce the risk of doing
business in foreign countries by, among other things, contracting in U.S.
dollars, and, when possible, maintaining multiple sourcing of product groups
from several countries.
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000 Issue
("Y2K") and is developing an implementation plan to resolve the issue. Y2K is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. The could result in a major system failure or
miscalculations. The Company is utilizing both internal and external resources
to identify, correct or reprogram, and test the systems for the year 2000
compliance. Confirmation have been
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14
requested from the Company's primary processing vendors that plans are being
developed to address processing of transactions in the year 2000. Management is
in the process of assessing the year 2000 compliance expense and related
potential effect on the Company's earnings. The Company presently believes that,
with modifications to existing software and conversions to new software, the Y2K
will not pose significant operational problems for the Company's computer
systems as so modified and converted. However, if such modifications and
conversions are not completed timely, Y2K may have a material impact on the
operations of the Company.
RESULTS OF OPERATIONS
The following Table 3 sets forth, for the periods indicated, the
percentage which certain items in the statement of income bear to net sales and
the percentage dollar increase (decrease) of such items from period to period.
TABLE 3
PERCENT OF NET SALES PERCENTAGE DOLLAR INCREASE (DECREASE)
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------------- ----------------------------------------------------
1997 1996 1995 1994 1993 `96 TO '97 `95 to '96 `94 to '95 `93 to '94
------ ------ ------ ------ ------ ---------- --------- --------- ---------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 17.3% (3.7)% 52.0% 45.0%
Cost of
goods sold (72.1) (73.5) (71.7) (72.1) (72.9) 15.0 (1.3) 51.3 43.2
------ ------ ------ ------ ------ ---------- --------- --------- ---------
Gross profit 27.9 26.5 28.3 27.9 27.1 23.6 (9.8) 53.9 49.8
Operating
expenses (16.9) (18.5) (16.4) (19.8) (22.4) 7.2 9.1 25.9 27.7
------ ------ ------ ------ ------ ---------- --------- --------- ---------
Income from
operations 11.0 8.0 11.9 8.2 4.6 61.7 (35.8) 121.5 157.1
Interest
expense, net (0.1) (0.6) (0.2) (0.0) (0.3) (82.3) 143.8 2,300.0 (92.0)
Other income 0.9 0.9 0.9 1.1 0.3 14.8 3.9 17.6 446.3
------ ------ ------ ------ ------ ---------- --------- --------- ---------
Income
before
taxes 11.8 8.3 12.6 9.3 4.6 67.2 (36.6) 105.1 191.3
Income
taxes
(benefit) 4.0 3.0 4.5 3.1 (1.4) 57.3 (35.9) 117.1 (431.1)
------ ------ ------ ------ ------ ---------- --------- --------- ---------
Net income 7.8 5.3 8.1 6.2 6.0 72.8 (36.9) 99.0 48.9
The following discussion explains in greater detail the
consolidated financial condition of the Company. This discussion should be read
in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere herein.
1997 1996 1995
---- ---- ----
NET SALES $ 65,699,000 $ 56,019,000 $ 58,190,000
The increase in net sales in 1997 compared to 1996 of
approximately $9.7 million, or 17.3%, was due primarily to an increase in
customer demand primarily in Asian markets resulting in an increase in the
number of units shipped. Throughout most of 1996, the industry experienced a
substantial decrease in demand, combined with excess inventory among the
Company's customers, which negatively affected the Company's net sales and gross
profit margins in 1996. The Company's business in 1997 was not materially
affected by the recent widespread weakness in Asian currencies, however, since
approximately 24% of sales are Asia-based, it remains uncertain to what extent
sales might be affected in 1998.
In 1996, the decrease in net sales from 1995 of approximately
$2.2 million, or 3.7%, was the result of an industry-wide slowdown in unit
demand for discrete semiconductor products for most of 1996 and an inventory
build-up commencing in the fourth quarter of 1995.
13
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1997 1996 1995
---- ---- ----
GROSS PROFIT $ 18,343,000 $ 14,842,000 $ 16,463,000
- ------------
GROSS MARGIN PERCENTAGE 27.9% 26.5% 28.3%
Gross profit in 1997 increased approximately $3.5 million, or
23.6%, primarily due to the 17.3% increase in net sales, as well as from an
increase of approximately $600,000 in gross profit contribution from the
KaiHong joint venture.
Gross profit in 1996 decreased approximately $1.6 million, or
9.8%, due to pricing pressures within the industry resulting from decreased
demand and to excess on-hand inventory, as well as to the 3.7% decrease in net
sales.
1997 1996 1995
---- ---- ----
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ("SG&A") $ 11,137,000 $ 10,386,000 $ 9,522,000
-----------------
The Company's SG&A for the year ended 1997 increased
approximately $751,000, or 7.2%, primarily due to sales commissions on the $9.7
million increase in sales, as well as to additional customer application
engineers and quality assurance personnel at its U.S. headquarters, providing
customers and vendors improved service.
The Company's SG&A for the year ended 1996 increased
approximately $864,000, or 9.1% primarily due to costs associated with the
KaiHong joint venture and the Company's ISO certification, as well as to the
addition of key marketing personnel.
Fourth quarter 1996 and year-end results include a one-time
charge of $660,000 for pre-operating costs associated with KaiHong. These costs
had been capitalized during start-up phases through the joint venture's first
six months of operations, and were fully amortized upon commencement of
full-scale operations in the fourth quarter.
Without the start-up costs associated with KaiHong, SG&A in the
fourth quarter of 1996 would have been approximately 15.6% of sales, in line
with SG&A that was 15.4% of sales in 1995. The Company's total SG&A as a
percentage of net sales increased from 16.4% in 1995 to 18.5% in 1996 primarily
as a result of SG&A associated with the KaiHong manufacturing facility.
1997 1996 1995
---- ---- ----
INTEREST EXPENSE $ 405,000 $ 538,000 $ 190,000
- ----------------
INTEREST INCOME $ 343,000 $ 187,000 $ 46,000
- ---------------
Interest income for 1997 increased approximately $156,000, or
83.4% compared to the same period last year, primarily the result of interest
earned on higher cash balances. The Company's interest expense for 1997
decreased $133,000, or 24.7%, as a result debt reduction. Interest expense is
primarily the result of the term loan by which the Company financed (i) the
investment in the KaiHong joint venture and (ii) the $2.5 million advanced to
FabTech, a related party, partially offset by the interest charged to FabTech
by the Company.
Due to the recent success of the KaiHong joint venture, the ITT
sale, and continued demand for discrete semiconductor products , as well as to
enhance the Company's ability to acquire -- in a timely fashion and at
reasonable cost -- the products that its customers need, the Company is
currently implementing a planned $14 million capital equipment expansion program
at the KaiHong manufacturing facility in 1998. The Company will use its credit
facility to finance the additional manufacturing capacity.
Interest expense in 1996 increased approximately $348,000
primarily as a result of an increase in the Company's usage of its credit
facility to finance and expand the KaiHong manufacturing facility and the loan
to FabTech. In 1996, the Company had contributed approximately $2.8 million
toward the KaiHong joint venture.
14
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1997 1996 1995
---- ---- ----
MINORITY INTEREST IN JOINT VENTURE $ (15,000) $ 238,000 $ 0
- ----------------------------------
In 1997, the KaiHong joint venture realized profitability and,
therefore, the $15,000 minority interest in joint venture represents the
minority investor's 5% share of the joint ventures profit. During the fourth
quarter of 1997, through an arrangement in accordance with the original joint
venture agreement, the Company increased its controlling interest in KaiHong
from 70% to 95% through the purchase of a substantial portion of the minority
interest.
In 1996, the Company had a 70% controlling interest in the
KaiHong joint venture. The $238,000 represents the minority investor's 30% share
of the joint venture loss. In the first quarter of 1997, the KaiHong joint
venture began to contribute positively to the Company's net income. As the joint
venture realizes profitability, the minority interest is recorded as a reduction
to earnings.
1997 1996 1995
---- ---- ----
COMMISSIONS AND OTHER INCOME $ 627,000 $ 295,000 $ 513,000
- ----------------------------
Other income in 1997 increased approximately 112.5% compared to
other income in 1996. This $332,000 increase is primarily due to currency
exchange gains at the Company's Taiwan subsidiary as well as increased sales
commissions paid to this subsidiary on drop shipments in Asia.
Other income in 1996 decreased approximately 42.5% compared to
other income in 1995. This $218,000 decrease is primarily due to decreased sales
commissions paid to the Company's Taiwan subsidiary on drop shipments in Asia.
1997 1996 1995
---- ---- ----
INCOME TAX PROVISION $ 2,631,000 $ 1,673,000 $ 2,610,000
- --------------------
EFFECTIVE TAX RATE 33.9% 36.1% 35.7%
Provision for income tax for 1997 increased approximately
$958,000, or 57.3%, compared the same period last year primarily due to the
67.2% increase in income before taxes. The Company's effective tax rate in 1997
decreased to 33.9% from 36.1% as a result of the net income from the KaiHong
joint venture in China, which under Chinese tax law is exempt from tax for 1998
and 1999, and receives favorable tax treatment for three years thereafter. Also
contributing to the effective tax rate decrease were increased earnings at the
Company's Taiwan subsidiary, which are subject to tax at a lower rate than in
the United States.
Provision for income tax for 1996 decreased approximately
$937,000, or 35.9%, compared the same period last year primarily due to the
36.6% decrease in income before taxes. The Company's effective tax rate in 1996
was 36.1%, comparable to the 1995 tax rate of 35.7%.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in 1997 was $4.0 million
compared to cash provided by operating activities of $3.6 million in 1996 and
cash used by operating activities of $4.8 million in 1995. The primary sources
of cash flows from operating activities in 1997 were net income of $5.1 million.
The primary use of cash flows from operating activities in 1997 was an increase
in net accounts receivable of $3.0 million as the Company continues to closely
monitor its credit policy while, at times, providing more flexible terms
primarily to its Asian customers, when necessary. In 1996, the primary sources
of cash flows from operating activities were net income of $3.0 million and a
decrease in inventories of $3.0 million, or 18.6%, while the primary use was a
$1.5 million decrease in accounts payable. In 1995, the primary sources of cash
flows from operating activities were net income of $4.7 million and an increase
in accounts payable of $2.2 million, while the primary use was a $9.3 million
increase in inventories. The Company believes that its current level of
inventory is necessary to effectively service current and new customers as well
as provide for managed growth. The ratio of the Company's current assets to
current liabilities on December 31, 1997, was 2.8 to 1 compared to a ratio of
3.2 to 1 and 2.1 to 1 as of December 31, 1996 and 1995, respectively.
15
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17
Cash used by investing activities was $3.5 million in 1997,
compared to $3.3 million in 1996 and $2.1 million in 1995. The Company has
provided capital to KaiHong for the construction and equipment of a new
facility for the manufacture of surface-mount SOT-23 devices, and to FabTech for
upgrading, reconfiguring, and starting up operations at an existing wafer
fabrication facility.
With the success of the first phase of KaiHong as well as
prevailing market conditions and the ITT sale, the Company's Board of Directors
has approved funding for further expansion of the joint venture. The capital
required for the second and third phases of KaiHong is estimated to be $14.0
million. The Company will use its credit facility to finance the additional
manufacturing capacity. In the fourth quarter of 1997, the Company increased its
interest in the KaiHong joint venture from 70% to 95% through the purchase of a
portion of the interest held by its joint venture partner. The purchase price,
as per the joint venture agreement, was approximately $2.1 million and resulted
in approximately $1.1 million in goodwill to be amortized over 25 years. As of
December 31, 1997, the Company has invested approximately $5.0 million in the
KaiHong joint venture. Both KaiHong and FabTech alliances are indicative of
the Company's desire to participate in the sourcing of advanced-technology
discrete components, and to enhance its ability to procure products in a timely
fashion and at reasonable cost.
Cash provided by financing activities was $77,000 in 1997, compared
to $1.0 million in 1996 and $5.6 million in 1995. In August 1996, the Company
obtained a new $22.6 million credit facility with a major bank consisting of: a
working capital line of credit up to $9 million, term commitment notes providing
up to $9.5 million for plant expansion and advances to vendors, and letters of
credit of $4.1 million for KaiHong. Interest on outstanding borrowings under
the credit agreement is payable monthly at LIBOR plus a negotiated margin. Fixed
borrowings require payments of interest only for six months from the date of
distribution and fixed principal plus interest payments for sixty months
thereafter. The agreement has certain covenants and restrictions which, among
other matters, requires the maintenance of certain financial ratios and
operating results, as defined in the agreement. The Company was in compliance
with such covenants and restrictions as of December 31, 1997. The working
capital line of credit expires August 3, 1998 and contains a sublimit of $2
million for issuance of commercial and stand-by letters of credit. During 1997,
average and maximum borrowings outstanding on the line of credit were $4,576,389
and $5,000,000, respectively. The weighted average interest rate on outstanding
borrowings was 6.86% for the year ended December 31, 1997. As of December 31,
1997, $4.1 million is outstanding under the term note commitment.
It is anticipated that the Company will continue to use such
credit facility to support its operations. The Company believes that the
continued availability of this credit facility, together with internally
generated funds, will be sufficient to meet the Company's currently foreseeable
operating cash requirements. Although the Company's cash balance at December 31,
1997 increased approximately $505,000, or 27.7%, from the 1996 level, the
Company continues its efforts to minimize its cash balances to manage interest
expense.
The Company's inventories as of December 31, 1997 have increased
approximately 1.9% compared to the 1996 level as the Company continues to
closely manage its inventory levels in order to increase its asset utilization
while maintaining its commitment to provide timely delivery of product to
customers.
Total working capital increased approximately 7.5% to $18.7
million as of December 31, 1997, from $17.4 million as of December 31, 1996. The
Company believes that such working capital position will be sufficient for
growth opportunities.
The Company's debt to equity ratio decreased to 0.56 at December
31, 1997, from 0.62 at December 31, 1996. It is anticipated that this ratio may
increase as the Company continues to use its credit facilities to fund
additional sourcing opportunities.
As of December 31, 1997, the Company has no material plans or
commitments for capital expenditures other than as previously discussed in
connection with the KaiHong joint venture. See "Item 1. Business -- New
Developments." However, to ensure that the Company can secure reliable and cost
effective sourcing to support and better position itself for growth, the Company
is continuously evaluating additional sources of products. The Company believes
its financial position will provide sufficient funds should an appropriate
investment opportunity arise and thereby, assist the Company in improving
customer satisfaction and in maintaining or increasing market share.
Inflation did not have a material effect on net sales or net
income in fiscal years 1997, 1996 or 1995.
16
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K" for the Company's Consolidated Financial Statements and the
notes thereto filed as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following Table 4 sets forth certain information as to the
names, ages, positions and offices held with the Company, or principal
occupations during the past five years, and, where applicable, the terms of
office as directors of all the Company's directors and executive officers. The
term of office of each director expires with the annual meeting of stockholders
or when a successor is elected and qualified.
TABLE 4
DIRECTOR
OFFICERS AND DIRECTORS AGE POSITION WITH THE COMPANY SINCE (1)
- -------------------------------- ---------- -------------------------------------- ------------
Raymond Soong (2)............ 56 Chairman of the Board 1993
Michael A. Rosenberg (3)..... 69 President and Director 1989
Michael R. Giordano (4)...... 51 Director 1990
David Lin (5)................ 51 Director and former President and CEO 1991
M.K. Lu (6).................. 49 Director 1995
Shing Mao (7)................ 62 Director 1990
Leonard M. Silverman (8)..... 58 Director 1995
Pedro Morillas (9)........... 52 Former Executive Vice President N/A
Joseph Liu (10).............. 56 Vice President-Operations, Chief N/A
Financial Officer and Secretary
(1) Directors are elected at each annual meeting of shareholders.
(2) Mr. Soong has been the Chairman of the Board of Silitek Corporation since
1990 and has been Chairman of the Board of LPSC since 1992. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" and "Item
13. Certain Relationships and Related Transactions" for a discussion of the
relationships among Silitek, LPSC, Vishay and the Company. Since 1995, Mr.
Soong has also been a director of FabTech, a subsidiary of LPSC, with whom
the Company entered into an agreement in February 1996, whereby Diodes gains
a new supply of processed wafers used in the manufacture of several types of
discrete semiconductors. Mr. Soong is a graduate of the National Taipei
Institute of Technology's Electronic Engineering Department. After serving
as a senior engineer for RCA and as a
(Footnotes continued on following page)
17
19
(Footnotes continued from previous page)
chief engineer for Texas Instruments, Mr. Soong, together with several of
his coworkers, founded Taiwan Liton Electronic Co. Ltd., ("Taiwan
Liton"), in 1975. Taiwan Liton, which manufactures electronic components
and subsystems, is an affiliate of Silitek through common control, and
its stock is listed on the Taipei Stock Exchange. Mr. Soong is also
Chairman of the Board of Taiwan Liton, and the KaiHong joint venture.
(3) Mr. Rosenberg was appointed President of the Company on October 9, 1997
and has served as a director of the Company since 1989. Since 1992, Mr.
Rosenberg also has served as an independent consultant to Vishay. Vishay,
with worldwide sales exceeding $1 billion, is the world's largest
manufacturer of passive electronic components and a Fortune 1000 company.
See "Item 13. Certain Relationships and Related Transactions" for a
discussion of the relationships among Silitek, LPSC, Vishay and the
Company. Until 1991, Mr. Rosenberg was President, Principal Operating
Officer and a director of SFE Technologies, a manufacturer of electronic
components with principal offices in San Fernando, California. From 1970
to 1990, Mr. Rosenberg served as Vice President Technology of SFE
Technologies. Until his appointment as President of the Company, Mr.
Rosenberg also served on the Company's Compensation and Options
Committee.
(4) Mr. Giordano joined the investment banking firm of PaineWebber
Incorporated as a Senior Vice President-Investment Consulting, when
PaineWebber acquired his previous firm, Kidder Peabody and Company, Inc.
Mr. Giordano advises corporations, foundations, trusts, and municipal
governments in investments and finance. Mr. Giordano was with Kidder
Peabody since 1979. Formerly a captain and pilot in the USAF, Mr.
Giordano received his Bachelors of Science degree in Aerospace
Engineering from California State Polytechnic University and his Masters
degree in Business Administration (Management and Finance) from the
University of Utah. Mr. Giordano also did post graduate work in
International Investments at Babson College. Mr. Giordano is a member of
the Company's Audit Committee and Compensation and Options Committee.
(5) Mr. Lin, who resigned on October 9, 1997, had served as President and
Chief Executive Officer of the Company since March 1993. Mr. Lin
continues to serve as a director of the Company. Mr. Lin is also
President of Silitek and had served as Executive Vice President of
Silitek since 1990, prior to becoming President. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management" and "Item 13.
Certain Relationships and Related Transactions" for a discussion of the
relationships among Silitek, LPSC and the Company. Mr. Lin was previously
President of Texas Instruments Asia, Limited, in Taiwan from 1982 to
1990. Mr. Lin has been a director of LPSC since 1991 and a director of
Maxi Switch, Inc., a U.S. based computer keyboard manufacturer and a
member of the Lite-On Group, since 1990.
Mr. Lin is also a director of the KaiHong joint venture.
(6) Mr. Lu has been President and a director of LPSC since 1991, and is now
President of the newly formed joint venture, Vishay/LPSC. From 1983 to
1990, Mr. Lu was General Manager/Vice President of Silitek. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" and "Item
13. Certain Relationships and Related Transactions" for a discussion of
the relationship between Silitek, LPSC and the Company. Since 1995, Mr.
Lu has also been a director of FabTech. Mr. Lu earned his Bachelor of
E.E. at Tatung Institute of Technology and is a graduate of the Institute
of Administration at National Chengchi University. Mr. Lu is also a
present member of the Chinese Management Association and the Chinese
Association for Advancement of Management. Mr. Lu is also a director of
the KaiHong joint venture.
(7) From 1988 to present, Dr. Mao has been Chairman of the Board of Lite-On,
Inc., a California corporation located in Milpitas, California, and a
wholly owned subsidiary of Taiwan Liton. See "Item 12. Security Ownership
of Certain Beneficial Owners and Management" and "Item 13. Certain
Relationships and Related Transactions" for a discussion of the
relationships among Silitek, LPSC, and the Company. Dr. Mao has been a
director of Dyna Investment Co., Ltd. of Taiwan, a venture capital
company, and a director of LPSC, both since 1989. Since 1995, Dr. Mao has
also been a director of FabTech. Before joining Lite-On, Dr. Mao served
in a variety of management positions with Raytheon Company for four
years, with Texas Instruments for 11 years, and with UTL Corporation
(later acquired by Boeing Aircraft Company) for seven years. Dr. Mao
earned his Ph.D. degree in electrical engineering at Stanford University
in 1963. Dr. Mao is a member of the Company's Audit Committee and
Compensation and Options Committee.
(Footnotes continued on following page)
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(Footnotes continued from previous page)
(8) From 1984 to present, Dr. Silverman has been the Dean of Engineering at
the University of Southern California ("USC"), and has been employed by
USC since 1968. Dr. Silverman is internationally known for his pioneering
work in the theory and application of multi-variable control systems and
signal processing and has more than 100 publications to his credit. Dr.
Silverman has been honored as a Fellow of the IEEE, as a Distinguished
Member of the IEEE Control Society, and has received a Centennial Medal
of the IEEE. He has also received election to the National Academy of
Engineering, one of the highest honors that can be bestowed on an
engineer. Dr. Silverman also serves on the Board of Directors for
Advanced Micro Devices and Netter Digital Entertainment, Inc., as well as
for the Colachis Foundation, the Lord Foundation, and the M.C. Gill
Foundation. Dr. Silverman earned his A.B., B.S., M.S. and Ph.D. degrees
in electrical engineering at Columbia University during the period 1961
through 1966. Dr. Silverman is a member of the Company's Audit Committee
and Compensation and Options Committee.
(9) Mr. Morillas served as Executive Vice President from 1993 until February
28, 1998. Prior to becoming Executive Vice President of the Company, Mr.
Morillas was associated with National Semiconductor for over 10 years,
most recently as Vice President, Asia Marketing, in Hong Kong for four
years. Mr. Morillas was also a director of the KaiHong joint venture.
See "Item 11. Executive Compensation - Employment Contracts and
Termination of Employment and Change in Control Arrangements" for a
discussion of Mr. Morillas' separation agreement.
(10) Mr. Liu has served as Vice President, Operations of the Company since
1994 and Chief Financial Officer and Secretary since 1990. Mr. Liu was
the Company's Vice President, Administration from 1990 to 1994. Prior to
joining the Company, Mr. Liu held various management positions with Texas
Instruments ("TI"), Dallas, since 1971, including Planning Manager,
Financial Planning Manager, Treasury Manager, Cost Accounting Manager and
General Accounting Manager with TI Taiwan, Ltd. in Taipei; from 1981 to
1986 as Controller with TI Asia in Singapore and Hong Kong; from 1986 to
1989 as Financial Planning Manager, TI Latin America Division (for TI
Argentina, TI Brazil, and TI Mexico) in Dallas and from 1989 to 1990
Chief Coordinator of Strategic Business Systems for TI Asia Pacific
Division in Dallas. Mr. Liu is President and a director of the KaiHong
joint venture, and serves as Chief Financial Officer of FabTech. See
"Item 13. Certain Relationships and Related Transactions" for a
discussion of the relationships among KaiHong, FabTech and the Company.
There are no family relationships among any of the directors or
executive officers of the Company and, except as set forth above, as of the date
hereof, no directorships are held by any director in a company which has a class
of securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act, or any company registered as an investment
company under the Investment Company Act of 1940. None of the directors,
nominees for director, or executive officers were selected pursuant to any
arrangement or understanding, other than with the directors and executive
officers of the Company acting within their capacity as such.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16(A)
Under Section 16(a) of the Exchange Act, the Company's directors,
executive officers and any persons holding ten percent or more of the Common
Stock are required to report their ownership of the Common Stock and any changes
in that ownership to the Securities and Exchange Commission (the "SEC") and to
furnish the Company with copies of such reports. Specific due dates for these
reports have been established and the Company is required to report any failure
to file on a timely basis by such persons. Based solely upon a review of copies
of reports filed with the SEC during the fiscal year ended December 31, 1997,
all reporting persons filed reports on a timely basis, except Silitek
Corporation, who filed a late Form 4 in connection with the purchase of 50,000
shares of the Company's Common Stock in May 1997. To avoid the inadvertent
failure of directors, executive officers and shareholders to timely file these
reports in the future, the Company will periodically advise such persons of
their filing obligations.
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ITEM 11. EXECUTIVE COMPENSATION
The following Table 5 sets forth certain summary information
concerning compensation paid or accrued by the Company with respect to the
Company's Chief Executive Officer (who has served in such capacity at any time
during the last fiscal year) and each of the two other executive officers of the
Company (determined as of the end of the last fiscal year) (the "Named
Executives") for each of the fiscal years ended December 31, 1997, 1996 and
1995:
TABLE 5
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation (1) Awards Payouts
----------------------- ------ -------
Other Securities All
Name and Annual Restricted Underlying Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary($) Bonus($) sation($) Awards($) SARs (#) Payouts($) sation($)
- -------- ---- --------- -------- --------- --------- -------- ---------- ---------
MICHAEL A. 1997 --(2) -- -- -- -- -- --
ROSENBERG 1996 -- -- -- -- -- -- --
President 1995 -- -- -- -- -- -- --
DAVID LIN 1997 --(3) -- -- -- -- -- --
President 1996 --(3) -- -- -- 100,000(4) -- --
and Chief 1995 --(3) -- -- -- -- -- --
Executive
Officer
PEDRO 1997 133,000(5) 64,000 -- -- -- -- --
MORILLAS 1996 133,000 60,000 -- -- 70,000(6) -- --
Executive 1995 128,003 146,481 -- -- -- -- --
Vice
President
JOSEPH LIU 1997 120,000 99,266 -- -- -- -- --
Vice 1996 120,000 30,000 -- -- 50,000(7) -- --
President- 1995 115,564 73,240 -- -- -- -- --
Operations,
Chief
Financial
Officer and
Secretary
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses, including car allowances, life
insurance payable at the direction of the employee, contributions under
the Company's 401(k) Plan, and group health insurance. The aggregate
amount of such personal benefits does not exceed the lesser of $50,000 or
10% of the total annual salary and bonus reported for the Named
Executives.
(2) Mr. Rosenberg was appointed President on October 9, 1997. Mr. Rosenberg
receives no direct compensation from the Company, other than issuance of
the Company's stock options and reimbursement of expenses while on
Company business. In addition, Mr. Rosenberg receives cash compensation
directly from Vishay for his services as a consultant to Vishay. See
"Item 13. Certain Relationships and Related Transactions" for a
discussion of the relationships among Silitek, LPSC, Vishay and the
Company.
(3) Mr. Lin, who resigned on October 9, 1997 to pursue other business
interests with the Lite-On Group in East Asia, received no direct
compensation from the Company, other than issuance of the Company's stock
options. However, Mr. Lin received cash compensation directly from
Silitek for his services as President of Silitek. See "Item 13. Certain
Relationships and Related Transactions" for a discussion of the
relationships among Silitek, LPSC, Vishay and the Company.
(Footnotes continued on following page)
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(Footnotes continued from previous page)
(4) Mr. Lin's options were granted pursuant to the Company's 1993
Non-Qualified Stock Option Plan ("1993 NQO Plan") at an exercise price
of $6.00. The 1993 NQO Plan became effective retroactively to July 6,
1993, upon approval by the shareholders at the Company's 1994 annual
meeting. The 1993 NQO Plan provides for the issuance of up to 1,000,000
shares of the Company's authorized but unissued Common Stock. Options
granted shall terminate and be of no force and effect with respect to
any shares not previously taken up by optionee upon the expiration of
ten years from the date of grant. A vested but unexercised option is
normally exercisable for 90 days after termination of employment, other
than by death or retirement. In the event of death, unmatured options
are accelerated to maturity. The Compensation and Stock Option
Committee, which administers the 1993 NQO Plan, has full discretion to
determine whether or not options granted under the 1993 NQO Plan shall
have a right to relinquish up to one-half of an unexercised position of
an option for an amount of cash, if concurrently, the holder of the
option exercises a portion of the option and purchases a number of
shares of stock at least equal to the number of shares which could have
been purchased under the portion of the option relinquished ("SAR").
However, the Board has expressly stated that it has not and does not
intend to grant such SAR. The shares to be issued upon exercise of
options under the 1993 NQO Plan require a three-year vesting period. The
option price is 100% of the fair market value of such shares on the date
the option is granted. Options expire ten years from the grant of the
option. On October 8, 1997, the Board of Directors amended such options
so that they shall be exercisable in full.
(5) Mr. Morillas' employment terminated effective February 28, 1998. See
"Item 11. Executive Compensation - Employment Contracts and Termination
of Employment and Change in Control Arrangements" for a discussion of
Mr. Morillas' separation agreement.
(6) Mr. Morillas' options were issued pursuant to the Company's 1993
Incentive Stock Option Plan ("1993 ISO Plan") at an exercise price of
$6.00 and are exercisable annually in three equal amounts over a three
year vesting period. The 1993 ISO Plan provides for the issuance of up
to 1,000,000 shares of the Company's authorized but unissued Common
Stock. Options granted under the 1993 ISO Plan are not transferable,
except by will or the laws of descent or distribution. An vested but
unexercised option is normally exercisable for 90 days after termination
of employment, other than by death or retirement. In the event of death,
unmatured options are accelerated to maturity. An option granted under
the 1993 ISO Plan may not be priced at less than 100% of fair market
value on the date of grant and expires 10 years from the date of grant.
See "Item 11. Executive Compensation - Employment Contracts and
Termination of Employment and Change in Control Arrangements" for a
discussion of Mr.
Morillas' separation agreement.
(7) Mr. Liu's options granted in 1996 were issued pursuant to the Company's
1993 ISO Plan at an exercise price of $6.00 and are exercisable annually
in three equal amounts over a three year vesting period.
STOCK OPTIONS
The following Table 6 contains information concerning the grant
of stock options during fiscal year ended December 31, 1997 to the Named
Executives:
TABLE 6
OPTION/SAR GRANTS IN FISCAL YEAR 1997 (1)
NONE
(1) During fiscal 1997, no options were granted to the Named Executives
under the 1993 NQO Plan or the 1993 ISO Plan. On October 8, 1997, the
Company's Board of Directors amended all options held by Mr. Lin so that
such options shall be exercisable in full.
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23
OPTION EXERCISES AND HOLDINGS
The following Table 7 contains information with respect to the
Named Executives concerning the exercise of options and the unexercised options
held by the Named Executives as of December 31, 1997:
TABLE 7
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION VALUES
Shares
Acquired Value Value of Unexercised
on Exercise Realized Number of Unexercised "In-the-Money" Options/SAR
Name (#) ($) Options/SAR's at 12/31/97(#) at 12/31/97 ($) (1)
- ----------------- ------- ---------------------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
MICHAEL ROSENBERG 5,000 58,125 30,000 20,000 138,750 37,500
DAVID LIN 0 -- 147,000 0 469,500 --
PEDRO MORILLAS 16,667 168,540 23,333 0 43,749 --
JOSEPH LIU 0 -- 76,667 33,333 151,251 62,499
(1) The value of unexercised "in-the-money" options is the difference between
the closing sale price of the Company's Common Stock on December 31, 1997
($7.875 per share) and the exercise price of the option, multiplied by
the number of shares subject to the option.
COMPENSATION OF DIRECTORS
All directors each receive $750 for each board meeting attended
during the year ended December 31, 1997. No additional amounts are paid to
directors for committee participation or special assignments. Both employee and
non-employee directors are eligible to receive grants of stock options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Effective March 16, 1993, the Company entered into an employment
agreement with Pedro Morillas, the Company's Executive Vice President. Under
such employment agreement, Mr. Morillas was entitled to, among other things, (i)
receive an annual base salary and performance bonus subject to the determination
and evaluation of the Company's Compensation and Stock Options Committee on a
yearly basis, (ii) participate in all plans sponsored by the Company for
employees in general, (iii) use a Company car, and (iv) receive an option to
purchase from the Company up to 50,000 shares of the Company's Common Stock at
$1.875 per share (exercisable in three equal installments commencing June 10,
1994 and expiring on the tenth anniversary of the date of grant).
Mr. Morillas' employment terminated effective February 28, 1998.
Pursuant to a separation agreement, the Company will pay Mr. Morillas $140,000
in twelve equal, monthly installments beginning March 1, 1998 in lieu of
unvested stock options. With the exception of those stock options which have
already vested, all stock options granted to Mr. Morillas have terminated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Options Committee consists of three
directors, Michael R. Giordano, Dr. Shing Mao, and Leonard Silverman. Michael A.
Rosenberg, was a member of the Compensation and Options Committee until he was
appointed President of the Company on October 9, 1997.
No person who served as a member of the Company's Compensation
Committee during the 1997 fiscal year has ever been an officer or employee of
the Company or any of its subsidiaries.
David Lin, the President, Chief Executive Officer and a director
of the Company until his resignation in October 1997, was President and a
director of Silitek. Silitek's entire Board of Directors participated in
compensation decisions
22
24
for Silitek in the absence of its Compensation Committee during fiscal year
1997. Mr. Lin resigned as President and Chief Executive Officer of the Company
on October 9, 1997, but remains on the Board of Directors.
During the years ended December 31, 1997 and 1996, approximately
32% and 28%, respectively, of the purchases of products for resale by the
Company, amounting to approximately $15,630,000 and $10,403,000, respectively,
were from LPSC. These products, which were also available generally from other
sources, were purchased in transactions negotiated at prices competitive with
prices charged by other vendors of similar products in similar quantities. There
are no special or exclusive trading agreements or understandings between the
Company and LPSC, other than the Company's marketing agreement with LPSC. See
"Item 1. Business -- Business Development."
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following Table 8 sets forth the number of shares and the
percentage of outstanding Common Stock held as of March 20, 1998 by each person
known to the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock (other than depositories), by each executive
officer and director, and by all directors and officers as a group.
TABLE 8
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER(1) OWNERSHIP(2) CLASS(3)
--------------------------------------------------- ------------ ----------
LITE-ON POWER SEMICONDUCTOR CORPORATION ........... 2,045,093(4) 40.8%
FIDELITY MANAGEMENT & RESEARCH COMPANY ............ 431,400 8.6%
RAYMOND SOONG ..................................... 140,000(5) 2.7%
DAVID LIN ......................................... 147,000(5) 2.9%
MICHAEL R. GIORDANO ............................... 41,000(6) *
M.K. LU ........................................... 20,000(5) *
SHING MAO ......................................... 90,000(5) 1.8%
MICHAEL A. ROSENBERG .............................. 30,000(5) *
LEONARD M. SILVERMAN .............................. 20,000(5) *
PEDRO MORILLAS (7) ................................ 23,333 *
JOSEPH LIU ........................................ 86,667(8) 1.7%
All directors and executive officers as a
group (9 persons) ................................ 598,000(9) 10.7%
* Less than 1%.
(1) The address of LPSC is 28-1, Wu Shin Street, Ta Wu Lung Industrial Zone,
Keelung City, Taiwan, R.O.C. The address of the directors and executive
officers of the Company is 3050 E. Hillcrest Drive, Westlake Village,
California 91362. The address of Vishay Intertechnology, Inc. is 63
Lincoln Highway, Malvern, PA 19355-2120. The address of Fidelity
Management & Research Company is 82 Devonshire Street, Boston, MA
02109-3614.
(2) The named stockholder has sole voting power and investment power with
respect to the shares listed, except as indicated and subject to
community property laws where applicable.
(3) Shares which the person (or group) has the right to acquire within 60
days after March 20, 1998 are deemed to be outstanding in calculating the
percentage ownership of the person (or group) but are not deemed to be
outstanding as to any other person or group. Percent of class total does
not take into account 717,115 shares held as treasury stock.
(4) LPSC, which holds 2,045,093 shares of Common Stock, as the record holder,
is owned by Vishay/LPSC, a joint venture owned 65% by Vishay and 35% by
the Lite-On Group.
(5) Represents shares of Common Stock which the named individual has the
right to acquire within 60 days of March 20, 1998, by the exercise of
vested stock options.
(6) Represents 1,000 shares of Common Stock held in the name of PaineWebber
Trust for the IRA of Mr. Giordano and 40,000 shares of Common Stock which
Mr. Giordano has the right to acquire within 60 days of March 20, 1998,
by the exercise of vested stock options.
(Footnotes continued on following page)
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(Footnotes continued from previous page)
(7) See "Item 11. Executive Compensation - Employment Contracts and
Termination of Employment and Change in Control Arrangements" for a
discussion of Mr. Morillas' separation agreement.
(8) Includes 76,667 shares of Common Stock which Mr. Liu has the right to
acquire within 60 days of March 20, 1998, by the exercise of vested
stock options.
(9) Includes 563,667 shares which the directors and executive officers have
the right to acquire within 60 days of March 20, 1998, by the exercise
of vested stock options, and excludes an additional 213,333 shares which
certain directors and executive officers will have the right to acquire
upon the exercise of stock options, which options will become
exercisable in installments after March 20, 1998.
Other than as disclosed in the foregoing table, to the knowledge
of the Company, no other person or company (other than Cede & Co., a depository
company) owns of record or beneficially more than 5 percent of the issued and
outstanding Common Stock of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LPSC is the record owner of 41.0% and 40.8% of the Company's
issued and outstanding Common Stock, excluding treasury stock, at December 31,
1997, and March 20, 1998, respectively. In August 1997, the ownership of LPSC
was transferred to Vishay/LPSC, a newly formed joint venture between the Lite-On
Group and Vishay. Vishay holds a 65% interest in the joint venture, and the
Lite-On Group holds the other 35%.
During the years ended December 31, 1997 and 1996, approximately
32% and 28%, respectively, of the purchases of products for resale by the
Company, amounting to approximately $15,630,000 and $10,403,000, respectively,
were from LPSC. These products, which were also available generally from other
sources, were purchased in transactions negotiated at prices competitive with
prices charged by other vendors of similar products in similar quantities. There
are no special or exclusive trading agreements or understandings between the
Company and LPSC, other than the Company's marketing agreement with LPSC. See
"Item 1. Business -- Business Development."
In February 1996, the Company announced an agreement with FabTech
whereby the Company may purchase processed wafers used in the manufacture of
several types of discrete semiconductors. The Company has provided FabTech with
approximately $2.5 million in working capital to be used in upgrading,
reconfiguring, and starting up operations at an existing wafer fabrication
facility located in Lee's Summit, Missouri. The Company receives interest from
FabTech on the $2.5 million advance at a rate equal to the Company's current
cost of capital. FabTech is a wholly-owned subsidiary of LPSC.
The Company's Taiwan and China manufacturing facilities receive
wafers from FabTech, among others. Output from the FabTech facility includes
wafers used in the production of Schottky barrier diodes, fast recovery
epitaxial diodes (FREDs), and other widely used value-added products. Schottky
barrier diodes are employed in the manufacture of the power supplies found in
personal computers, telecommunications devices and other applications where high
frequency, low forward voltage and fast recovery are required.
One of the Company's primary strategic programs was the formation
of the KaiHong joint venture on mainland China, which provides replacements for
a portion of the ITT product line. In March 1996, the Company entered into the
KaiHong joint venture for the development of additional manufacturing capacity
in Shanghai, R.O.C. The joint venture allows for the manufacturing and sale of
diodes and associated electronic components, mainly in SOT-23 packaged
components.
Due to the recent success of the facility and through an
arrangement in accordance with the original joint venture agreement previously
filed, the Company increased its controlling interest in KaiHong to 95%, and
increased its equity contribution to approximately $4.75 million, in the fourth
quarter of 1997. Also during the last quarter of 1997, the KaiHong joint
venture began shipments of products to customers other than the Company, and
thus has begun to contribute to the Company's consolidated sales.
Mr. Raymond Soong, who became a director and Chairman of the
Board of the Company effective March 16, 1993, is also the Chairman of the Board
of Silitek, LPSC, Taiwan Liton, and the KaiHong joint venture.
25
27
Mr. Michael A. Rosenberg, appointed President of the Company in
October 1997, and serving as a director of the Company since 1989, also serves
as a consultant to Vishay, for which consulting services he is compensated by
Vishay.
Mr. David Lin, who has been a director of the Company since 1991,
was from March 1993 to October 1997, President and Chief Executive Officer of
the Company. Mr. Lin is the President and a director of Silitek, for which
services he is compensated by Silitek. See "Item 11. Executive Compensation."
Mr. Lin is also a director of the KaiHong joint venture.
Silitek is affiliated through common ownership and control with
Taiwan Liton, and both companies are members of the Lite-On Group. Both Silitek
and Taiwan Liton are public corporations in Taiwan with stock registered on the
Taipei Stock Exchange. Taiwan Liton owns 100% of the voting shares of Lite-On
Milpitas.
Dr. Shing Mao, who is a director of the Company, is Chairman of
the Board of Lite-On Milpitas, a wholly-owned subsidiary of Taiwan Liton. Dr.
Mao is also a director of LPSC, and since 1995, has also been a director of
FabTech, with whom the Company entered into an agreement with in January 1996,
whereby Diodes gained a new supply of processed wafers used in the manufacture
of several types of discrete semiconductors. FabTech is a subsidiary of LPSC.
Mr. M.K. Lu, who has been a director of the Company since 1995,
is also the President and a director of LPSC since 1991. Mr. Lu is now President
of Vishay/LPSC that owns 100% of LPSC. From 1983 to 1990, Mr. Lu was General
Manager/Vice President of Silitek. Mr. Lu is also a director of the KaiHong
joint venture.
During 1997, Mr. Michael R. Giordano, a director of the Company
and Senior Vice President-Investment Consulting at the investment banking firm
of PaineWebber, Inc., has, from time to time, assisted directors and executive
officers of the Company in stock option exercises and subsequent stock sales of
the Company's Common Stock. Mr. Giordano is also the pension consultant for the
Company's 401(k) plan and has, from time to time, in such capacity assisted LPSC
in stock transactions. Compensation received by Mr. Giordano for services
rendered to the Company and LPSC for services other than as a director in 1997
was less than $3,000.
The employment of Mr. Pedro Morillas as Executive Vice President
of the Company and director of the KaiHong joint venture terminated effective
as of February 28, 1998. See "Item 11. Executive Compensation - Employment
Contracts and Termination of Employment and Change in Control Arrangements" for
a discussion of Mr. Morillas' separation agreement.
Mr. Joseph Liu, Vice President, Operations, Chief Financial
Officer and Secretary of the Company, is also President and a director of the
KaiHong joint venture, and serves as Chief Financial Officer of FabTech.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
(1) Financial statements: Page
----
Independent Auditors' Report 28
Consolidated Balance Sheet at December 31, 1997 and 1996 29 to 30
Consolidated Statement of Income for the Years Ended
December 31, 1997, 1996, and 1995 31
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1997, 1996, 1995 32
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 33
26
28
Notes to Consolidated Financial Statements 34 to 44
(2) Schedules:
Report of Independent Accountants on Financial
Statements and Schedules 45
Schedule II -- Valuation and Qualifying Account 46
(c) REPORTS ON FORM 8-K
None.
(b) EXHIBITS
See the Index to Exhibits at page 49 of this Annual Report
on Form 10-K for exhibits filed or incorporated by
reference.
27
29
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheet of Diodes
Incorporated and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Diodes
Incorporated and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and cash flows for each of the years in
the three year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
January 16, 1998
28
30
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
ASSETS
1997 1996
----------- -----------
CURRENT ASSETS
Cash $ 2,325,000 $ 1,820,000
Accounts receivable
Customers 10,342,000 7,901,000
Related party 213,000 376,000
Other 916,000 352,000
----------- -----------
11,471,000 8,629,000
Allowance for doubtful accounts 74,000 253,000
----------- -----------
11,397,000 8,376,000
Inventories 13,525,000 13,268,000
Deferred income taxes 1,096,000 1,426,000
Prepaid expenses and other 806,000 345,000
----------- -----------
Total current assets 29,149,000 25,235,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 5,165,000 4,628,000
ADVANCES TO RELATED PARTY VENDOR 2,821,000 2,631,000
OTHER ASSETS 1,219,000 52,000
----------- -----------
Total assets $38,354,000 $32,546,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
29
31
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
----------- -----------
CURRENT LIABILITIES
Due to bank $ 1,000,000 $ --
Accounts payable
Trade 4,567,000 2,303,000
Related party 952,000 2,250,000
Accrued liabilities 1,988,000 2,102,000
Income taxes payable 912,000 223,000
Current portion of long-term debt 1,031,000 954,000
----------- -----------
Total current liabilities 10,450,000 7,832,000
LONG-TERM DEBT, net of current portion 3,226,000 4,288,000
MINORITY INTEREST IN JOINT VENTURE 225,000 962,000
STOCKHOLDERS' EQUITY
Class A convertible preferred stock par value $1 per share; 1,000,000 shares
authorized; no shares
issued and outstanding -- --
Common stock - par value $.66 2/3 per share;
9,000,000 shares authorized; 5,701,019 shares in 1997 and
5,675,794 shares in 1996 issued and outstanding 3,801,000 3,784,000
Additional paid-in capital 5,813,000 5,768,000
Retained earnings 16,621,000 11,694,000
----------- -----------
26,235,000 21,246,000
Less: Treasury stock - 717,115 shares of
common stock, at cost 1,782,000 1,782,000
24,453,000 19,464,000
----------- -----------
Total liabilities and stockholders' equity $38,354,000 $32,546,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
30
32
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
NET SALES $ 65,699,000 $ 56,019,000 $ 58,190,000
COST OF GOODS SOLD 47,356,000 41,177,000 41,727,000
------------ ------------ ------------
Gross profit 18,343,000 14,842,000 16,463,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 11,137,000 10,386,000 9,522,000
------------ ------------ ------------
Income from operations 7,206,000 4,456,000 6,941,000
OTHER INCOME (EXPENSES)
Interest income 343,000 187,000 46,000
Interest expense (405,000) (538,000) (190,000)
Minority interest in earnings of joint venture (15,000) 238,000 --
Commissions and other 627,000 295,000 513,000
------------ ------------ ------------
Income before income taxes 7,756,000 4,638,000 7,310,000
INCOME TAX PROVISION (2,631,000) (1,673,000) (2,610,000)
------------ ------------ ------------
NET INCOME $ 5,125,000 $ 2,965,000 $ 4,700,000
============ ============ ============
EARNINGS PER SHARE
Basic $ 1.03 $ 0.60 $ 0.96
============ ============ ============
Diluted $ 0.93 $ 0.55 $ 0.90
============ ============ ============
Number of shares used in computation
Basic 4,970,705 4,958,658 4,881,125
============ ============ ============
Diluted 5,481,680 5,362,027 5,220,196
============ ============ ============
The accompanying notes are an integral part of these financial statements.
31
33
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- --------------------------------------------------------------------------------
Common stock
-------------------------------------------- Additional Common
Shares paid-in Retained stock
Shares in treasury Amount capital earnings in treasury
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December 31, 1994 5,343,124 717,115 $ 3,562,000 $ 4,791,000 $ 4,029,000 $ 1,782,000
Exercise of stock options 162,766 -- 109,000 920,000 -- --
Re-issuance of lost shares 100 -- -- -- -- --
Preferred stock converted 169,629 -- 113,000 57,000 -- --
Net income for the year
ended December 31, 1995 -- -- -- -- 4,700,000 --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December 31, 1995 5,675,619 717,115 3,784,000 5,768,000 8,729,000 1,782,000
Exercise of stock options 175 -- -- -- -- --
Net income for the year
ended December 31, 1996 -- -- -- -- 2,965,000 --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December 31, 1996 5,675,794 717,115 3,784,000 5,768,000 11,694,000 1,782,000
Increase in ownership of
Subsidiary Joint Venture -- -- -- -- (198,000) --
Exercise of stock options 25,225 -- 17,000 45,000 -- --
Net income for the year
ended December 31, 1997 -- -- -- -- 5,125,000 --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE,
December 31, 1997 5,701,019 717,115 $ 3,801,000 $ 5,813,000 $ 16,621,000 $ 1,782,000
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
32
34
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,125,000 $ 2,965,000 $ 4,700,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,004,000 656,000 339,000
Minority interest earnings 15,000 (238,000) --
Gain on sale of property, plant and equipment (3,000) (41,000) (67,000)
Interest income accrued on advances to vendor (190,000) -- --
Changes in operating assets and liabilities
Accounts receivable (3,021,000) (332,000) (1,949,000)
Inventories (257,000) 3,027,000 (9,280,000)
Prepaid expenses and other assets (572,000) (149,000) 43,000
Deferred income taxes 330,000 (533,000) (78,000)
Accounts payable 966,000 (1,522,000) 2,198,000
Accrued liabilities (114,000) 148,000 563,000
Income taxes payable 689,000 (414,000) (1,220,000)
----------- ----------- -----------
Net cash provided (used) by operating activities 3,972,000 3,567,000 (4,751,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in joint venture and advances to vendors (2,050,000) (2,631,000) (1,878,000)
Minority interest of joint venture investment -- 1,200,000 --
Purchases of property, plant and equipment (1,495,000) (1,848,000) (348,000)
Proceeds from sales of property, plant and equipment 1,000 10,000 145,000
----------- ----------- -----------
Net cash used by investing activities (3,544,000) (3,269,000) (2,081,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (repayments) on line of credit, net 1,000,000 (3,916,000) 3,916,000
Net proceeds from the issuance of capital stock 62,000 -- 1,713,000
Proceeds from long term debt -- 5,000,000 --
Repayments of long-term debt (985,000) (40,000) (52,000)
----------- ----------- -----------
Net cash provided (used) by financing activities 77,000 1,044,000 5,577,000
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 505,000 1,342,000 (1,255,000)
CASH, beginning of year 1,820,000 478,000 1,733,000
----------- ----------- -----------
CASH, end of year $ 2,325,000 $ 1,820,000 $ 478,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid (received) during the
year for:
Interest $ 405,000 $ 575,000 $ 169,000
=========== =========== ===========
Income taxes $ 1,908,000 $ 2,597,000 $ 1,344,000
=========== =========== ===========
Non-Cash Financing Activity:
Tax Benefit related to exercise of stock options credited
to paid-in capital $ -- $ -- $ 684,000
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
33
35
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Diodes Incorporated and its subsidiaries
manufacture and distribute discrete semiconductor devices to manufacturers in
the automotive, electronics, computing and telecommunications industries. The
Company's products include small signal transistors and MOSFETs, transient
voltage suppressers (TVSs), zeners, schottkys, diodes, rectifiers and bridges.
The products are sold to electronics manufacturers primarily throughout North
America and Asia.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiary, DII
Taiwan Corporation, Ltd. and its majority owned subsidiary Shanghai KaiHong
Electronics Co., Ltd. (both foreign subsidiaries, Note 10). All significant
intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION - Revenue is recognized when the product is
shipped.
INVENTORIES - Inventories are stated at the lower of cost or
market. Cost is determined principally by the first-in, first-out basis.
DEPRECIATION AND AMORTIZATION - Property, plant and equipment are
depreciated using straight-line and accelerated methods over the estimated
useful lives, which range from 20 to 53 years for buildings and 1 to 10 years
for machinery and equipment. Leasehold improvements are amortized using the
straight-line method over 1 to 5 years.
INCOME TAXES - Income taxes are accounted for using an asset and
liability approach whereby deferred tax assets and liabilities are recorded for
the differences in the financial reporting bases and tax bases of the Company's
assets and liabilities. Income taxes are further explained in Note 7.
CONCENTRATION OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk include trade
accounts receivable. Credit risk is limited by the dispersion of the Company's
customers over various geographic areas, operating primarily in the electronics
manufacturing and distribution industries. The Company performs on-going credit
evaluations of its customers and generally requires no collateral from its
customers. Historically, credit losses have not been significant.
The Company and its subsidiaries maintain cash balances at major
financial institutions in the United States, Taiwan, and China. Accounts at each
institution in the United States are insured by the Federal Deposit Insurance
Corporation up to $100,000. Accounts at each institution in Taiwan are insured
by the Central Deposit Insurance Company up to NT$1,000,000 (approximately
US$31,000 as of December 31, 1997).
FOREIGN OPERATIONS - Through its subsidiaries the Company
maintains operations in Taiwan and China for which the functional currency is
the U.S. dollar. Assets and liabilities of its foreign operations which are
denominated in currency other than the U.S. dollar are not hedged and therefore
are subject to fluctuations in the currency exchange rate between the U.S.
dollar and foreign currencies (NT dollar and Renminbi Yuan).
Monetary assets and liabilities denominated in foreign currencies
are translated at the year-end exchange rate. Non-monetary assets and
liabilities are converted at historical rates. Income and expense accounts are
translated using an average exchange rate for the year, except that cost of
goods sold and depreciation expense are remeasured using historical rates.
Included in net income are net monetary exchange and translation gains of
approximately $300,000, $21,000, and $15,000 for the years ended December 31,
1997, 1996, and 1995, respectively.
34
36
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
EARNINGS PER SHARE - Earnings per share are based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding, net of common stock held in treasury.
The Financial Accounting Standards Board recently issued
Statement of Financial Accounting Standard No. 128 Earnings Per Share (SFAS No.
128) effective for years ending after December 15, 1997. Earnings per share in
the accompanying financial statements are calculated in accordance with SFAS No.
128. Earnings per share for 1996 and 1995, including 1996 unaudited quarterly
data in Note 14, have been restated to reflect earnings per share calculated in
accordance with SFAS No. 128. SFAS No. 128 requires basic earnings per share be
calculated based on weighted average shares outstanding for the period without
giving effect to outstanding common stock equivalents while diluted earnings per
share considers the effect of common stock equivalents on weighted average
shares outstanding.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
STOCK-BASED COMPENSATION - The Company has elected not to adopt
SFAS 123, Accounting for Stock-Based Compensation and continues to apply APB
Opinion No. 25 (APB 25) and related Interpretations in accounting for its option
plans. Under SFAS 123, a fair value method is used to determine compensation
cost for stock options or similar equity instruments. Compensation is measured
at the grant date and is recognized over the service or vesting period. Under
APB 25, compensation cost is the excess, if any, of the quoted market price of
the stock at the measurement date over the amount that must be paid to acquire
the stock. The new standard allows the Company to continue to account for
stock-based compensation under APB 25, with disclosure of the effects of the new
standard. The proforma effect on income as if the Company had adopted SFAS 123
is disclosed in Note 8.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive income and its components (revenues, expenses, gains and
losses) in financial statements. SFAS No. 130 requires classification of other
comprehensive income in a financial statement, and the display of the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital. SFAS No 130 is effective for fiscal
years beginning after December 15, 1997. The Company believes this pronouncement
will not have a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This pronouncement
establishes standards for reporting information about operating segments in
annual financial statements and requires that enterprises report selected
information about operating segments in interim financial reports to
shareholders. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No 131
is effective for fiscal years beginning after December 15, 1997, although
earlier application is encouraged. The Company believes this pronouncement will
not have a material effect on its financial statements.
35
37
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVENTORIES
1997 1996
------------ -------------
Finished goods $ 11,920,000 $ 12,468,000
Work-in-progress 370,000 394,000
Raw materials 1,235,000 406,000
------------ ------------
$ 13,525,000 $ 13,268,000
============ ============
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Building $ 893,000 $ 893,000
Leasehold improvements 198,000 143,000
Machinery and equipment 6,393,000 5,104,000
------------ ------------
7,484,000 6,140,000
Less accumulated depreciation
and amortization (2,642,000) (1,835,000)
------------ ------------
4,842,000 4,305,000
Land 323,000 323,000
------------ ------------
$ 5,165,000 $ 4,628,000
============ ============
NOTE 4 - BANK CREDIT AGREEMENT AND LONG-TERM DEBT
The Company has a $22.6 million credit agreement with a major bank
providing a working capital line of credit up to $9 million, term commitment
notes providing up to $9.5 million for plant expansion and advances to vendors,
and letters of credit of $4.1 million for KaiHong operations. Interest on
outstanding borrowings under the complete credit agreement is payable monthly at
LIBOR plus a negotiated margin. Fixed borrowings require payments of interest
only for six months from the date of distribution and fixed principal plus
interest payments for sixty months thereafter. The agreement has certain
covenants and restrictions which, among other matters requires the maintenance
of certain financial ratios and operating results, as defined in the agreement.
The Company was in compliance as of December 31, 1997.
The working capital line of credit expires August 3, 1998. The line
contains a sublimit of $2 million for issuance of commercial and stand-by
letters of credit. During 1997, average and maximum borrowings outstanding on
the line of credit were $4,576,389 and $5,000,000, respectively. The weighted
average interest rate on outstanding borrowings was 6.86% for the year ended
December 31, 1997.
36
38
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - BANK CREDIT AGREEMENT AND LONG-TERM DEBT (CONTINUED)
Long-term debt is comprised of the following:
December 31,
------------------------
1997 1996
---------- ----------
LOAN PAYABLE to bank secured by buildings and
land,monthly principal payments of NT$84,000
(approximately $3,000 U.S.) plus interest at 7%
per annum through November 2003 $ 174,000 $ 242,000
TERM NOTE PAYABLE to bank secured by substantially
all assets, monthly principal payments of $83,000
plus interest at LIBOR plus 1.5% through February 2002 4,083,000 5,000,000
---------- ----------
4,257,000 5,242,000
Current portion 1,031,000 954,000
---------- ----------
Long-term portion $3,226,000 $4,288,000
========== ==========
The aggregate maturities of long-term debt for future years ending
December 31 are as follows:
1998 $ 1,031,000
1999 1,031,000
2000 1,031,000
2001 1,031,000
2002 114,000
Thereafter 19,000
-------------
$ 4,257,000
=============
NOTE 5 - ACCRUED LIABILITIES
1997 1996
---------- ----------
Employee compensation and payroll taxes $ 894,000 $ 609,000
Sales commissions 303,000 419,000
Other 791,000 1,074,000
---------- ----------
$1,988,000 $2,102,000
========== ==========
37
39
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - VALUATION OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107 "Disclosures About
Fair Value of Financial Instruments" (SFAS 107) requires disclosure of the fair
market value of financial instruments for which it is practicable to estimate
fair value. The Company's financial instruments include cash, accounts
receivable, accounts payable, working capital line of credit, and long term
debt. The Company considers the carrying amounts of all financial instruments to
approximate fair value.
NOTE 7 - INCOME TAXES
The components of the income tax provisions are as follows:
Current
Federal $ 1,268,000 $ 982,000 $ 1,720,000
Foreign 1,252,000 678,000 450,000
State 330,000 322,000 518,000
----------- ----------- -----------
2,850,000 1,982,000 2,688,000
Deferred tax benefit (219,000) (309,000) (78,000)
----------- ----------- -----------
$ 2,631,000 $ 1,673,000 $ 2,610,000
=========== =========== ===========
A reconciliation between the effective tax rate and the statutory tax
rates for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995
----------------------- ------------------------ -----------------------
Percent Percent Percent
of pretax of pretax of pretax
Amount earnings Amount earnings Amount earnings
------ -------- ------ -------- ------ --------
Federal tax at 34% $ 2,637,000 34.0% $ 1,577,000 34.0% $ 2,485,000 34.0%
State franchise tax,
net of federal benefit 453,000 5.8 284,000 6.1 449,000 6.1
Foreign income tax at
lower rates (428,000) (5.5) (257,000) (5.5) (248,000) (3.4)
Other (31,000) (.4) 69,000 1.5 (76,000) (1.0)
----------- ------ ----------- ------- ------------ ----
Income tax provision $ 2,631,000 33.9% $ 1,673,000 36.1% $ 2,610,000 35.7%
=========== ====== =========== ====== =========== ====
38
40
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (CONTINUED)
At December 31, 1997 and 1996, the Company's deferred tax asset is
comprised of the following items:
Inventory cost $ 692,000 $ 872,000
Accrued expenses and accounts receivable 225,000 405,000
State income taxes and other 179,000 149,000
---------- ----------
$1,096,000 $1,426,000
========== ==========
Under Federal tax law foreign earnings are taxed when funds are
distributed by foreign subsidiaries to the parent Company. A temporary
difference between financial and tax reporting exists for profits earned at the
foreign subsidiary level not distributed to the parent. As of December 31, 1997
the Company had undistributed earnings of approximately $6,769,000 at its
Taiwanese subsidiary which, at effective Federal and State tax rates, less
applicable credits for foreign taxes paid, results in a deferred tax liability
of approximately $934,000. Management has not recognized a deferred tax
liability for undistributed earnings because it considers earnings accumulated
and undistributed through December 31, 1997 to be permanent reinvestments of
capital in Taiwan.
The R.O.C. taxing authorities assessed the Company's Taiwanese
subsidiary approximately $370,000 in 1997 related to an examination of tax
returns through 1995. This assessment pertained specifically to a tax on
excessive accumulated earnings through 1995. The earnings accumulated in 1996
and later years may be subjected to tax assessments should the subsidiary's
accumulated earnings in relation to permanent capital, at the time of the
examination, fail to comply with the statutory level required by the taxing
authorities in the R.O.C.
39
41
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - STOCK OPTION PLANS
The Company has stock option plans for directors, officers, and
employees, which provide for nonqualified and incentive stock options. The Board
of Directors determines the option price (not to be less than fair market value
for the incentive options) at the date of grant. The options generally expire
ten years from the date of grant and are exercisable over the period stated in
each option. At December 31, 1997, options for 991,167 shares were exercisable
and 1,723,284 shares were available for future grants under the plans.
Outstanding Options
--------------------------------------
Price Per Share
-----------------------
Weighted
Number Range Average
---------- ------------- ------
Balance, December 31, 1994 534,333 $.875 - 7.88 $ 2.48
Granted 60,000 11.25 11.25
Exercised (162,766) 1.00 - 2.63 1.66
---------- ------------- ------
Balance, December 31, 1995 431,567 .875-11.25 3.84
Granted 605,000 6.00 6.00
Exercised (175) 2.63 2.63
Canceled (10,000) 6.00 6.00
---------- ------------- ------
Balance, December 31, 1996 1,026,392 .875-11.25 5.09
Exercised (25,225) 1.88-6.00 2.43
Canceled (10,000) 6.00 6.00
---------- ------------- ------
Balance, December 31, 1997 991,167 $ .875-11.25 $ 5.15
========== ============= ======
The Company also has an incentive bonus plan which reserves
200,000 shares of stock for issuance to key employees. As of December 31, 1997,
124,000 shares remain available for issuance under this plan.
40
42
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - STOCK OPTION PLANS (Continued)
Had compensation cost for the Company's 1997, 1996 and 1995
options granted been determined consistent with SFAS 123, the Company's net
income and diluted earnings per share would approximate the proforma amounts
below:
As Reported Pro Forma
------------ ------------
1997 Net income $ 5,125,000 $ 4,478,000
============ ============
Diluted earnings per share $ .93 $ .82
============ ============
1996 Net income $ 2,965,000 $ 2,318,000
============ ============
Diluted earnings per share $ .55 $ .43
============ ============
1995 Net income $ 4,700,000 $ 4,612,000
============ ============
Diluted earnings per share $ .90 $ .88
============ ============
NOTE 9 - MAJOR SUPPLIERS
The Company purchases a significant amount of its inventory from
two suppliers, one of which is a related party (Note 10). During 1997, 1996, and
1995, purchases from these suppliers amounted to approximately 49%, 59%, and
50%, respectively, of total inventory purchases including 32%, 28%, and 13%
respectively, from the related party. There are a limited number of suppliers
for these materials.
NOTE 10 - RELATED PARTY TRANSACTIONS
LITE-ON POWER SEMICONDUCTOR CORPORATION - In July 1997, Vishay
Intertechnology, Inc. ("Vishay") and the Lite-On Group, a Taiwanese consortium,
formed a joint venture -Vishay/Lite-On Power Semiconductor Pte., LTD.
("Vishay/LPSC") - to acquire Lite-On Power Semiconductor Corp. ("LPSC"), the
Company's 41% shareholder and a member of the Lite-On Group of the Republic of
China. The Vishay/LPSC joint venture includes the worldwide discrete power
semiconductor business of LPSC and the Asian passive component business of
Vishay. Vishay holds a 65% controlling interest in the joint venture, and the
Lite-On Group holds the remaining 35%. The Company has $213,000 receivable from
Vishay/LPSC at December 31, 1997. The Company's subsidiaries buy product from
and sell product to Vishay/LPSC. Transactions with Vishay/LPSC and LPSC for the
years ended December 31 and outstanding balances as of December 31 are as
follows:
1997 1996 1995
----------- ----------- -----------
NET SALES $ 2,224,000 $ 1,895,000 $ 1,998,000
=========== =========== ===========
PURCHASES $15,630,000 $10,403,000 $ 6,512,000
=========== =========== ===========
ACCOUNTS RECEIVABLE $ 213,000 $ 376,000 $ 233,000
=========== =========== ===========
ACCOUNTS PAYABLE $ 952,000 $ 2,250,000 $ 621,000
=========== =========== ===========
41
43
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - RELATED PARTY TRANSACTIONS (Continued)
SHANGHAI KAIHONG ELECTRONICS, CO. LTD.- The Company owns 95% of the
outstanding capital stock of Shanghai KaiHong Electronics Co., Ltd. (KaiHong) an
entity located in Shanghai, China which produces diodes and transistors,
primarily for sale to the Company. During 1997, the Company increased its
ownership from 70% to 95% in a cash transaction with the minority shareholder of
KaiHong. The excess of the purchase price over the book value was approximately
$1,100,000.
KaiHong has plans to increase its production capacity in 1998 with
significant investments in additional equipment. The total investment of this
expansion plan is estimated to be $14 million and is expected to be operational
by the end of 1998.
FABTECH INCORPORATED - Under a compensation-trade agreement the Company
has advanced $2.5 million in cash and equipment to a related party vendor,
FabTech Incorporated, a wholly owned subsidiary of LPSC. Interest accrues
monthly at the Company's borrowing rate with total accrued interest of $321,000
as of December 31, 1997. Amounts advanced, including interest, are payable
beginning after 1998 and expiring February 2001 when any outstanding balances
become due on demand. The compensation-trade agreement allows the Company to
recover interest and principal due by deducting a fixed amount per unit for
products purchased from the vendor.
42
44
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - OPERATIONS BY GEOGRAPHIC AREAS
Information about the Company's operations in the United States,
Taiwan, and China are presented below. Items transferred among the Company and
its subsidiaries are transferred at prices to recover costs plus an appropriate
mark up for profit. Inter-company revenues and assets have been eliminated to
arrive at the consolidated amounts. Identifiable assets are total assets which
are identified with the operations in the respective country.
1997 1996 1995
------------ ------------ ------------
Total sales
United States $ 50,493,000 $ 48,876,000 $ 55,112,000
Taiwan 28,804,000 19,961,000 17,856,000
China 5,129,000 1,502,000 --
Less inter-company
sales (18,727,000) (14,320,000) (14,776,000)
------------ ------------ ------------
$ 65,699,000 $ 56,019,000 $ 58,192,000
============ ============ ============
Inter-company sales
United States $ 1,162,000 $ 955,000 $ 2,370,000
Taiwan 12,715,000 11,863,000 12,406,000
China 4,850,000 1,502,000 --
------------ ------------ ------------
$ 18,727,000 $ 14,320,000 $ 14,776,000
============ ============ ============
Net Sales
United States $ 49,331,000 $ 47,921,000 $ 52,742,000
Taiwan 16,089,000 8,098,000 5,448,000
China 279,000 -- --
------------ ------------ ------------
$ 65,699,000 $ 56,019,000 $ 58,190,000
============ ============ ============
Income from operations
United States $ 3,634,000 $ 3,019,000 $ 5,536,000
Taiwan 3,219,000 2,181,000 1,405,000
China 353,000 (744,000) --
------------ ------------ ------------
$ 7,206,000 $ 4,456,000 $ 6,941,000
============ ============ ============
Identifiable assets
United States $ 24,272,000 $ 23,923,000 $ 26,015,000
Taiwan 7,157,000 4,625,000 3,348,000
China 6,925,000 3,998,000 --
------------ ------------ ------------
Total identifiable assets $ 38,354,000 $ 32,546,000 $ 29,363,000
============ ============ ============
43
45
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS
The Company leases its main office and warehouse under an
operating lease agreement which expires in December 1998. The Company may, at
its option, extend the lease for two five-year terms upon termination. Rent
expense amounted to approximately $162,000, $148,000, and $140,000, for the
years ended December 31, 1997, 1996 and 1995 respectively. The Company is
obligated to pay a minimum of $143,000 in 1998 under this operating lease. The
Company is currently in negotiations to extend the term of the original lease by
36 months, under comparable terms.
NOTE 13 - EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) profit sharing plan (the Plan) for
the benefit of qualified employees. Employees who participate may elect to make
salary deferral contributions to the Plan up to 6% of the employees' eligible
payroll. The Company makes a contribution of $1 for every $2 contributed by the
participant. The Company's contribution is limited to 3% of the employee's
compensation. In addition, the Company may make a discretionary contribution to
the entire qualified employee pool, in accordance with the Plan. For the years
ended December 31, 1997, 1996, and 1995, the Company contributed approximately
$110,000, $120,000, and $79,000, respectively to the Plan.
NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
--------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
FISCAL 1997
Net Sales $16,490,000 $15,541,000 $16,939,000 $16,729,000
Gross Profit 4,701,000 4,687,000 4,422,000 4,533,000
Net Income 1,184,000 1,229,000 1,341,000 1,371,000
Basic Earnings Per Share .24 .25 .27 .28
Diluted Earnings Per Share .22 .23 .24 .25
FISCAL 1996
Net Sales $13,206,000 $13,450,000 $14,394,000 $14,969,000
Gross Profit 3,713,000 3,455,000 3,501,000 4,173,000
Net Income 848,000 555,000 755,000 807,000
Basic Earnings Per Share .17 .11 .15 .16
Diluted Earnings Per Share .16 .11 .14 .15
44
46
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
Our audits of the consolidated financial statements of Diodes Incorporated and
Subsidiaries referred to in our report dated January 16, 1998 appearing in item
8 in this Annual Report on Form 10-K also included an audit of the financial
statement schedule listed in item 14(a) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
January 16, 1998
45
47
DIODES INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL A COL B COL C COL D COL E
- ------------------------ ------ -------- ---------- -------------
Additions
Balance at charged to
beginning of costs & Balance at
Description period expenses Deductions end of period
- ------------------------ ------ -------- ---------- -------------
Year ended December 31,
1997 - Allowance for
doubtful accounts $ 253,000 $ 76,000 $(255,000) $ 74,000
========= ========= ========= =========
Year ended December 31,
1996 - Allowance for
doubtful accounts $ 177,000 $ 81,000 $ (5,000) $ 253,000
========= ========= ========= =========
Year ended December 31,
1995 - Allowance for
doubtful accounts $ 187,000 $ 80,000 $ (90,000) $ 177,000
========= ========= ========= =========
46
48
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company has decided to take advantage of the new "Safe
Harbor" provision of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). In that connection, this annual report of Form 10-K includes
forward looking statements concerning the Company.
The forward looking statements are made pursuant to the Reform Act.
There are many factors that could cause the events in such
forward looking statements to not occur, including but not limited to, general
or specific economic conditions, fluctuations in product demand, the
introduction of new products, the Company's ability to maintain customer
relationships, technological advancements, impact to competitive products and
pricing, growth in targeted markets, risks of foreign operations, the ability
and willingness of the Company's customers to purchase products provided by the
Company, the perceived absolute or relative overall value of these products by
the purchasers, including the features, quality, and price in comparison to
other competitive products, the level of availability of products and
substitutes and the ability and willingness of purchasers to acquire new or
advanced products, and pricing, purchasing, financing, operational, advertising
and promotional decisions by intermediaries in the distribution channels which
could affect the supply of or end-user demands for the Company's products, the
amount and rate of growth and the Company's selling, general and administrative
expenses, difficulties in obtaining materials, supplies and equipment,
difficulties for delays in the development, production, testing and marketing of
products including, but not limited to, failure to ship new products and
technologies when anticipated, the failure of customers to accept these products
or technologies when planned, and defects in products, any failure of economies
to develop when planned, the acquisition of fixed assets and other assets,
including inventories and receivables, the making or incurring of any
expenditures, the effects of and changes in trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations and social and economic conditions, such as trade restriction or
prohibition, inflation and monetary fluctuation, import and other charges or
taxes, the ability or inability of the Company to obtain or hedge against
foreign currency, foreign exchange rates and fluctuations in those rates,
intergovernmental disputes as well as actions affecting frequency, use and
availability, spectrum authorizations and licensing, the costs and other effects
of legal investigations, claims and changes in those items, developments or
assertions by or against the Company relating to intellectual property rights,
adaptations of new, or changes in, accounting policies and practices in the
application of such policies and practices and the effects of changes within the
Company's organization or in compensation benefit plans, and activities of
parties with which the Company has an agreement or understanding, including any
issues affecting any investment or joint venture in which the Company has an
investment, and the amount, and the cost of financing which the Company has, and
any changes to that financing, and any other information detailed from time to
time in the Company's filings with the United States Securities and Exchange
Commission.
47
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DIODES INCORPORATED (Registrant)
/s/ Michael A. Rosenberg March 26, 1998
- -------------------------------
MICHAEL A. ROSENBERG
President
(Principal Executive Officer)
/s/ Joseph Liu March 26, 1998
- -------------------------------
JOSEPH LIU
Vice President, Secretary
and Chief Financial Officer
(Principal Financial and Accounting Officer)
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant, and in the
capacities indicated, on March 26, 1998.
/s/ Raymond Soong /s/ David Lin
- --------------------------------- ------------------------------------
RAYMOND SOONG DAVID LIN
Chairman of the Board of Directors Director
/s/ Michael R. Giordano /s/ M.K. Lu
- --------------------------------- ------------------------------------
MICHAEL R. GIORDANO M.K. LU
Director Director
/s/ Shing Mao /s/ Michael A. Rosenberg
- --------------------------------- ------------------------------------
SHING MAO MICHAEL A. ROSENBERG
Director Director
/s/ Leonard M. Silverman
- ---------------------------------
LEONARD M. SILVERMAN
Director
48
50
INDEX TO EXHIBITS
Sequential
Page Number
-----------
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation of Diodes Incorporated (the "Company")
dated July 29, 1968 (1)
3.2 Amended By-laws of the Company dated August 14, 1987 (2)
10.1 Stock Purchase and Termination of Joint Shareholder Agreement (3)
10.2 1994 Credit Facility Agreement between the Company and Wells Fargo
Bank, National Association (4)
10.3 * Company's 401(k) Plan - Adoption Agreement (5)
10.4 * Company's 401(k) Plan - Basic Plan Documentation #03 (5)
10.5 * Employment Agreement between the Company and Pedro Morillas (6)
10.6 * Company's Incentive Bonus Plan (7)
10.7 * Company's 1982 Incentive Stock Option Plan (7)
10.8 * Company's 1984 Non-Qualified Stock Option Plan (7)
10.9 * Company's 1993 Non-Qualified Stock Option Plan (7)
10.10 * Company's 1993 Incentive Stock Option Plan (5)
10.11 $6.0 Million Revolving Line of Credit Note (8)
10.12 Credit Agreement between Wells Fargo Bank and the Company dated
November 1, 1995 (8)
10.13 KaiHong Compensation Trade Agreement for SOT-23 Product (9)
10.14 KaiHong Compensation Trade Agreement for MELF Product (10)
10.15 Lite-On Power Semiconductor Corporation Distributorship Agreement (11)
10.16 Loan Agreement between the Company and FabTech Incorporated (12)
10.17 KaiHong Joint Venture Agreement between the Company and Mrs. J.H.
Xing (12)
10.18 Quality Assurance Consulting Agreement between LPSC and Shanghai
KaiHong Electronics Company, Ltd. (13)
10.19 Loan Agreement between the Company and Union Bank of California, N.A.
(13)
10.20 First Amendment to Loan Agreement between the Company and Union Bank
of California, N.A. (14)
10.21 Guaranty Agreement between the Company and Shanghai KaiHong
Electronics Co., Ltd. (14)
10.22 Guaranty Agreement between the Company and Xing International, Inc. (14)
(Index continued on following page)
49
51
(Index continued from previous page)
11 Statement regarding Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
27 Financial Data Schedule
(1) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1981, which is hereby incorporated by
reference.
(2) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1988, which is hereby incorporated by
reference.
(3) Previously filed with the Company's Form 8-K, filed with the Commission on
July 1, 1994, which is hereby incorporated by reference.
(4) Previously filed as Exhibit 10.4 to Form 10-KSB/A filed with the
Commission for fiscal year ended December 31, 1993, which is hereby
incorporated by reference.
(5) Previously filed with Company's Form 10-K, filed with the Commission on
March 31, 1995, which is hereby incorporated by reference.
(6) Previously filed as Exhibit 10.6 to Form 10-KSB filed with the Commission
on August 2, 1994, for the fiscal year ended December 31, 1993, which is
hereby incorporated by reference.
(7) Previously filed with Company's Form S-8, filed with the Commission on May
9, 1994, which is hereby incorporated by reference.
(8) Previously filed with Company's Form 10-Q, filed with the Commission on
November 14, 1995, which is hereby incorporated by reference.
(9) Previously filed as Exhibit 10.2 to Form 10-Q/A, filed with the Commission
on October 27, 1995, which is hereby incorporated by reference.
(10) Previously filed as Exhibit 10.3 to Form 10-Q/A, filed with the Commission
on October 27, 1995, which is hereby incorporated by reference.
(11) Previously filed as Exhibit 10.4 to Form 10-Q, filed with the Commission
on July 27, 1995, which is hereby incorporated by reference.
(12) Previously filed with Company's Form 10-K, filed with the Commission on
April 1, 1996, which is hereby incorporated by reference.
(13) Previously filed with Company's Form 10-Q, filed with the Commission on
May 15, 1996, which is hereby incorporated by reference.
(14) Previously filed with Company's Form 10-K, filed with the Commission on
March 26, 1997, which is hereby incorporated by reference.
* Constitute management contract, compensatory plans and arrangements which
are required to be filed pursuant to Item 601 of Regulation S-K.
50