Diodes
Annual Report 2007

Plain-text annual report

Diodes Incorporated Annual Report 2007 FINANCIAL CHARTS NET SALES IN MILLIONS EARNINGS PER SHARE1,2 STOCKHOLDERS’ EQUITY ADJUSTED IN MILLIONS $401 $343 $215 $186 $137 $1.50 $1.26 $0.86 $0.73 $0.31 03 04 05 06 07 $369.6 $294.2 $225.5 $112.1 $71.5 03 04 05 06 07 03 04 05 06 07 FINANCIAL HIGHLIGHTS 2003 2004 2005 2006 2007 (in thousands, except per share data) Net sales Gross profit Selling, general and administrative expenses Research and development expenses Other expenses Total operating expenses Income from operations Interest income, net Other income (expense) Income before taxes and minority interest Income tax provision Minority interest $136,905 36,528 19,586 2,049 1,037 22,672 13,856 (860) (5) 12,991 2,460 (436) 10,095 10,095 Net income - GAAP Net income - Adjusted1 Earnings per share, diluted 2: GAAP Adjusted1 Number of shares, diluted 2: GAAP Adjusted1 Total assets Working capital Long-term debt, net of current portion Stockholders’ equity Return on assets Return on equity $185,703 60,735 23,503 3,422 14 26,939 33,796 (637) (418) 32,741 6,514 (676) 25,551 25,551 $ 214,765 74,377 30,285 3,713 (102) 33,896 40,481 221 406 41,108 6,685 (1,094) $343,308 113,892 47,945 8,317 152 56,414 57,478 4,855 (1,212) 61,121 11,689 (1,289) $ 401,159 130,379 55,461 13,515 1,003 69,979 60,400 11,286 (225) 71,461 9,428 (2,376) 33,329 33,329 48,143 53,439 59,657 64,949 $ $ 0.31 0.31 $ $ 0.73 0.73 $ $ 0.86 0.86 $ $ 1.16 1.26 $ $ 1.41 1.50 32,414 32,414 $123,795 27,154 6,750 71,450 34,811 34,811 $167,801 49,571 7,833 112,148 38,842 38,842 $ 289,515 146,651 4,865 225,474 41,502 42,451 $622,139 395,354 237,115 294,167 42,331 43,167 $ 706,365 451,801 235,815 369,598 8.8% 15.6% 17.5% 27.8% 14.6% 9.7% 10.6% 18.5% 9.0% 18.0% (1) 2006 adjusted net income excluded $5.3 million, or $0.10 per diluted share, of non-cash, net of tax effect stock option compensation expense as per SFAS No. 123R. 2007 adjusted net income excluded $4.3 million, or $0.07 per diluted share, of non-cash, net of tax effect stock option compensation expense as per SFAS No. 123R. (2) Adjusted for the effect of 3-for-2 stock splits in November 2003, December 2005, and July 2007 INDUSTRIAL 36% 10% GLOBAL PRESENCE Power Trunk Release 150W SMPS Set Top Boxes Telephone Handset Turbo Charger System Gas Heater Turbine Engine Ballasts Laser Printers 3.3V SMPS Output 20W Lamp Ballast OLED Power Device Electric Typewriter Transformer Amplifiers Overhead Projector Audio Amplifier X-Ray Power Supply CD Changer GSM Phone Web-Phone AC Motor Drive Ultrasonic Generator Electronic Dart Game Transmitter Notebook PC Mouse DSL Modems Airbag HVAC Control Relays Palm Size PC Notebook Computers Digital Audio Players Notebooks Set-Top Boxes Electronic Switch Shift Interlock Module Flat-Panel Monitors Digital Cameras Motherboards, PDAs Back Up Beeper Module Battery Charger Mobile Handsets Multi-Function Printers Microwave Oven Internet Line Card LCD TVs Servers Computer Control Box DC/DC Converters Game Consoles Network Interface Cards Portable GPS Oxygen Sensor Gas Meter Hard Disk Drives Projector DC Fans Linear Ballast Buck Converter Comfort Controls Lighting Chime Module 3-Way Ballast Audio/Video Players Power Supplies Ground Fault Detector Gas Alarm GPS DC-DC Conversion Third Brake Light Voting Machine Navigation Security Systems Regulator DC Drive Module Satellite Radios Motor Control DC Fans Analog Modems WLED Headlight Transmission Module HVAC Control Bubble Jet Printer SIM Port Control Equipment Protection Relay Routers Mini Disk Player Submarine Temperature Control Exercise Stair Climber Web-TV Car Stereos LCD Monitor/TV Switchboard Door/Lid Switch Dual Channel Driver Hard Disk Drives Color Television Gas Detector Tasers Telephone systems Door Switch Module HDTV Satellite Uplink Low Power Lamp Vending machines Driver Electric Lawnmower TGV ABS System Electric Wheelchair Cable Repeater Motion Picture Cameras Multiplexer Smart Battery Module Answering Machine Board adopted a Code of Ethics for the Chief Executive Officer and all Solid Flow Meter Dual Airbag Module members of our finance department, including the principal financial/ Power Adapter Cradle Lamp Ballast accounting officer; Powertrain Controller HVAC Equipment Board and each Board Committee are required to conduct a Oil Sensor TFT Panel BIOS Device self-evaluation of their performance at least annually that is supervised Position Sensor Cellular Base Station and reviewed by the Governance and Stockholder Relations Committee Video Printer Power Mirror Module to determine whether Board and each Board Committee are function- Forklift ISDN Terminal ing effectively; Cruise Control Module CATV Set-Top Box Audit Committee established policies for auditor independence; Smart Mirror Power Generator Instrumentation Notebook/Desktop Brick Power Supplies SMPS Monitor High Voltage SMPS Emergency Lighting Communications Audit Committee members meet regularly with internal and external auditors, without the presence of the Company's management; Coin Changer Modem Security Camera System Nuclear Test Box Truck ABS Module 300W SMPS Graphics cards Fire Alarm System Inverter Circuitry Audio Power Amplifier Laptop Cover Solar Power System Fax Machine VCR SMPS Printer Welding Control Card Scanner DSS Receiver Electron Microscope Power Meter Lift Gate Module ESD Protection 200W Power Supply Motor Drive Video Monitor Satellite Antenna ISDN System Microwave Generator Garage Door Openers Solar Charger Step-Down DC/DC CATV Converter Box Time Delay Relay Ozone Generator Forward Converter DIVERSE END-MARKETS ISDN Line Card Home Security System Lift Control Process Control CONSUMER ELECTRONICS Camera Base Station WLED Boost Driver Fitness Equipment Gas Analyzer Power Steering Module Rice Cooker Diagnostic Module Printer SMPS 110W SMPS Concentrator Box Memory Module Power Supply Wireless Equipment DAT Recorders CORPORATE GOVERNANCE HIGHLIGHTS Receiver Furnace Control Sonar Power Door Module Starter Solenoid Mixing Consoles Home Theatre Systems Line Conditioner Refrigerator Video Camera Vending Machine Thermal Printer ZIP Drive Electric Utility Meter Power Line Modem Satellite Decoder Audio System Power Sunroof Module PDA Solutions: AC Adapter TV/Multimedia System Cell Phones Remote Control 911 Emergency System Wet/Dry Vacuum Power Amplifier Fan Motors Height Control Module Radio Flow Meter Clock Electric Shaver Exercise Treadmill 50W DC/DC Converter Caller ID Box Video Projector Suppression Board Voltage Regulation Audit Committee and Company are committed to full compliance with the Foreign Corrupt Practices Act and the anti-bribery laws of the People’s Republic of China; Moss Adams, LLP, the Company’s independent registered public accountant firm, reports directly to the Audit Committee, and any non-audit services performed do not interfere with their independence; Audit Committee conducts an appropriate review of all related party transactions for potential conflict of interest situations on an ongoing basis and approves such transactions; Board committee charters clearly establish respective roles and responsibilities; Majority of Board members and Board committee members are independent; Internal Audit Manager reports directly to Audit Committee; Board adopted Corporate Governance Guidelines; Board adopted Code of Business Conduct; 7 0 0 2 t r o p e R d e t a r o p r o c n s e d o D a u n n A I i l AUTOMOTIVE COMMUNICATIONS 2% 37% 15% EUR 4% ASIA 75% Thermostat Car Lock RFA Board Blower Motor Badge Printers Electric Fan Motor Appliance Control Pagers, PCS PWM Converter USB Power Switch Electronic Road Sign Cordless Phones CATV Receiver Rain Sensor CD-RW Drive Traffic Sign System Clutch Controller Label Printers HID Headlight System Taxi Trip Meter Trailer ABS Burglar Alarm Navigation System Door Lock Controller ABS Control Unit Optical Disk Drives Servers/Networking Alarm System Gas Utility Meter Portable DVD Players IPTV STB Line Card Remote metering Gateways, Routers Switches, Hubs Solar Panels Actuator Control Fiber Optics, DSL, WLED Flashlight HID Ballast Cable and Standard Dish Washer Laser Printer SMPS Modems, Networking Steering Controller Robotics Wireless, Ethernet, Power/Phone Lines Calibrator TV/Monitor Blender Hedge Trimmer Electric Toothbrush Security Systems Output Circuit VCR (VHS) Solar Panel Control T1 Repeater Alarm Clock RF Power Device Tape Back-Up Drive Depth Sensor Trailer Light Module PBX System High Power SMPS Low Drop Regulator Trailer Brake Control Invisible Fence Cable STB Desktop PC Notebook PC Adapter Nuclear Submarine Coffee Makers Fluorescent Ballast Network Bridges Digital Television Medical Fetal Monitor Signal Line Isolator Disk Drives Switching System Portable Phone Inverters Satellite Car Radio Keyboard Video Projector SMPS DC Fan Motors Booster Circuit Alternator Through internal audit control functions, the Company monitors Motor Control Transmission Control compliance with its global financial policies and practices over critical Exit Sign Instrument Panel areas, including: internal controls, financial accounting and reporting, O-Ring Diode Circuit Electric Motor fiduciary accountability, and safeguarding of the Company’s corporate Datacom Adapter Card Modem Card assets; Automotive Alternators PC SMPS A whistle-blower hotline has been established as a confidential means Computer Processor for employees to address issues to the Audit Committee regarding Actuator the Company’s accounting, internal accounting controls and auditing Washing Machine practices; Dataline/USB Protector FET Protection Circuit Satellite STB Governance and Stockholder Relations Committee recommends Cable Modems director nominees to be selected by the Board; Airbag Module Cooling Fan CDMA Base Station Analog Phone Set Telephony Card Management directors each must hold the lesser of four times the DC Motor director’s salary or 125,000 Company shares; Engine Control Modules Remote Car Starter Bluetooth Chipset Desktop PC SMPS 400W SMPS Camcorders Serial Bus Card Smoke Detector CD Player Testing Equipment Copy Machine Flight Simulator Video Game SMPS Speakers 30W Power Supply Seat Heater Module Color Monitor SMPS Exhaust Control System Printer DC Motor Drive NA 21% Scanner Stereo Amplifier PABX System ISDN Board Mass Flow Meter 4-Wheel Drive Actuator Satellite Receiver X-Ray Machine Brake Light Side-Impact Airbags COMPUTER Satellite System Printer Power Supply ATX SMPS 3.3V Output Speedometer Medical Equipment Air Purifier Satellite Modem Electric Golf Cart Computer Power Supply Voltage Reference Floating Power Supply Radiation Detector Electric Vehicle PCMCIA Cards Word Processor Brushless Motors DECT Phone Bicycle Alternator Controller 72W Linear Ballast Card Printers Elevator Hair Dryer Clock Radio Li-Ion Battery Pack Oil Burner Horn Module Smart Airbag Module Analog Base Station Brake Controller 2.4 GHz Telephone Electric Heater Diesel Controller WLED Drivers Cordless PBX System Passive Entry System Non-management directors each must hold stock with a value of at Side-Impact Sensor least two times the annual Board and Committee retainers combined. Color Monitor A newly elected director will have five years to reach the target HVAC System ownership level; USB Controller Electronic Pump Motor Cooling Fan Escalator Circuit Applications: Reset ICS Public Phone Our culture demands integrity and an unyielding commitment to strong Wi-Fi Modems internal practices and policies. We thank you for the confidence you Door Control Module have placed in us. Inkjet Printers Telephone System Electronic Thermostat MP3 Player Climate Control Module Compensation Committee makes recommendations to the Board regarding compensation, benefits and incentive arrangements for officers; Executive sessions, or meetings of independent directors without management present, are held regularly. Investor confidence in public companies is essential to the functioning of the global economy. To enlist and sustain Investor confidence in Diodes Incorporated, we provide public access to information about our corporate governance policies in an Investor section of our website at www.diodes.com. These policies provide a framework for the proper governance of our Company, consistent with government requirements and in the best interests of you, our Shareholders. KEY INFORMATION ABOUT OUR CORPORATE GOVERNANCE POLICIES AND COMMITMENTS: RIGHT— AT DIODES, IT’S NOT ONLY THE DIRECTION WE’RE GOING, IT’S HOW WE’RE GETTING THERE. RIGHT IS OUR PIONEERING NEW PRODUCT STREAM, APPLICATION-SPECIFIC PRODUCTS WITHIN THE BROAD DISCRETE AND ANALOG SEMICONDUCTOR MARKETS THAT ARE EMPOWERING TODAY’S NEWEST TECHNOLOGIES. RIGHT IS OUR GLOBAL SALES CHANNEL, A WORLDWIDE NETWORK OF DISTRIBUTORS AND SALES PROFESSIONALS THAT ARE SUPPORTED BY WORLD-CLASS ENGINEERS THE WORLD OVER. RIGHT IS OUR INNOVATIVE MARKETING STRATEGY, PROVEN FORMULAS FOR GROWTH THAT HAVE EARNED DIODES THE DISTINCTION OF BEING NAMED AMONG “AMERICA’S 25 FASTEST- GROWING TECH COMPANIES” AND AMONG “AMERICA’S 200 BEST SMALL COMPANIES” BY FORBES, INC. BUT MOST OF ALL, AT DIODES, WE’RE RIGHT WITH OUR INVESTORS, GENERATING RECORD REVENUES OF $401 MILLION AND RECORD NET INCOME OF $60 MILLION IN FISCAL 2007. AND THAT’S RIGHT WHERE WE WANT TO BE—WITH THE RIGHT PRODUCTS, AT THE RIGHT TIME, IN THE RIGHT PLACE. RIGHT. 7 0 0 2 t r o p e R l a u n n A d e t a r o p r o c n I s e d o D i CORPORATE INFORMATION Shareholder Information Diodes Incorporated common stock is listed and traded on the Nasdaq Global Select Market (NasdaqGS: DIOD). No cash dividends have been declared or paid. The Company currently intends to retain any earnings for use in its businesses. Form 10-K A copy of the Company’s Form 10-K and other publicly filed reports, as filed with the U.S. Securities and Exchange Commission are available at www.diodes.com or www.sec.gov or upon request of: Investor Relations Shelton Group 19800 MacArthur Blvd., Suite 300 Irvine, CA 92612 Contact: Leanne Sievers T: 949-224-3874 F: 949-224-3872 Email: lsievers@sheltongroup.com or Diodes-fin@diodes.com Calendar Quarter Closing Sales Price of Common Stock Fourth Quarter 2007 Third Quarter 2007 Second Quarter 2007 First Quarter 2007 Fourth Quarter 2006 Third Quarter 2006 Second Quarter 2006 First Quarter 2006 $ $ High 34.71 32.84 27.85 26.94 30.23 30.66 29.08 27.67 $ $ Low 27.40 26.31 23.06 21.89 23.65 21.71 21.69 21.64 Independent Registered Public Accounting Firm Moss Adams, LLP 11766 Wilshire Blvd., Suite 900 Los Angeles, CA 90025 Transfer Agent & Registrar Continental Stock Transfer & Trust Company 17 Battery Place, 8th Floor New York, NY 10004 General Counsel Sheppard, Mullin, Richter & Hampton 333 S. Hope Street, 42nd Floor Los Angeles, CA 90071-1448 Financial Information Online World Wide Web users can access Company information on the Diodes, Inc. Investor page at www.diodes.com BOARD OF DIRECTORS EXECUTIVE OFFICERS Dr. Keh-Shew Lu President & Chief Executive Officer Employee since 2005 Joseph Liu Senior Vice President, Operations Employee since 1990 Mark A. King Senior Vice President, Sales & Marketing Employee since 1991 Carl C. Wertz Chief Financial Officer, Secretary & Treasurer Employee since 1993 Richard D. White Senior Vice President, Finance Employee since 2006 Steven Ho Asia President Employee since 1991 Francis Tang Vice President, Product Development Employee since 2006 Edmund Tang Vice President, Corporate Administration Employee since 2006 Raymond Soong 2C, 3C Chairman of the Board, Diodes Incorporated Chairman of the Board, Lite-On Technology Corporation Director since 1993 C.H. Chen Vice Chairman, Diodes Incorporated Vice Chairman, Lite-On Semiconductor Corporation Director since 2000 Michael R. Giordano 1CF Senior Vice President, UBS Incorporated Director since 1990 Dr. Keh-Shew Lu President & Chief Executive Officer, Diodes Incorporated Retired, Senior Vice President, Texas Instruments, Inc. Director since 2001 L.P. Hsu 1, 2 Chairman, Philips Taiwan Quality Foundation Director since 2007 Dr. Shing Mao 2, 3 Retired, Chairman of the Board, Lite-On Incorporated Director since 1990 John M. Stich 1, 3 Honorary Consul General of Japan at Dallas Retired, Chief Marketing Officer, Texas Instruments, Inc. – Japan Director since 2000 1 – Audit Committee Member 2 – Compensation Committee Member 3 – Governance & Stockholder Relations Committee Member C – Committee Chair F – Financial Expert DEAR SHAREHOLDERS I am pleased to report that 2007 was another successful year for Diodes Incorporated. 2007 IN REVIEW 2007 was another tremendous year during which we continued to execute our plans and initiatives both financially and operationally. Our history of success led to a number of significant financial achievements in 2007 that include: (cid:129) Record annual revenue of $401.2 million, representing an increase of 17% from $343.3 million in 2006 (cid:129) Record gross profit of $130.4 million, representing an increase of 15% from $113.9 million in 2006 (cid:129) Record adjusted net income of $64.9 million, or $1.50 per share, representing an increase of 22% from $53.4 million, or $1.26 per share, in 2006 (cid:129) Record net income of $59.7 million, representing an increase of 24% from $48.1 million in 2006 (cid:129) Record cash flow from operations of $91 million, compared to $72.1 million in 2006 (cid:129) A strong balance sheet with $380 million in cash and short-term investments up from $340 million at the end of 2006 (cid:129) And, shareholder equity of $369.6 million grew 26% compared to $294.2 million at the end of 2006 With these accomplishments, we have continued to significantly outperform the industry and drive increased value for our shareholders. Contributing to these record results and laying the foundation for our future growth were a number of business and operational accomplishments throughout the year, which include: THE RIGHT PRODUCTS AT THE RIGHT TIME Diodes continued to expand our product offerings with the goal of establishing the Company as a broad-based supplier within the discrete and analog semiconductor markets. Over the course of the year, we invested in research and development, resulting in the introduction of new products across multiple product families. We believe that a key to our success is that we offer the right products at the right time. Notably, during the year we successfully integrated APD Semiconductor into our operations and began to leverage the technology we acquired, resulting in the introduction of our SBR® (Super Barrier Rectifier) line. Over 200 new products were launched in 2007 with more than 50 of these based on our SBR® technology. We expect continued growth from this product family throughout 2008 and beyond. We also continued to make progress in our efforts to focus our analog business on mobility and portability in order to capitalize on these large and growing markets. Specifically, design activity for our Hall sensors in cell phones and notebooks continued to increase throughout the year, and we are very excited about opportunities in this segment. Indicative of our success in developing and marketing a wide variety of new products and solutions, our sales of new products grew in each quarter throughout the year, reaching approximately 40 percent of revenue in the fourth quarter of 2007, up from approximately 33 percent at the end of 2006. THE RIGHT BUSINESS STRATEGY Our ability to manufacture our products in a cost effective and efficient manner is central to our business strategy of delivering consistent profitable growth. During the year, we successfully consolidated our analog manufacturing operations into our China facilities, resulting in greater efficiencies and reduced costs. As a result, we further increased capacity and produced 15.4 billion units in 2007, a significant increase from the 11.8 billion units produced in 2006. We invested to increase the capacity at our wafer fabrication facility to 60,000 wafers per month, including the planned expansion of a six- inch line to support our SBR® product family. We believe that our continued focus on manufacturing quality and efficiency serves as a key differentiator for the Company and will contribute to further opportunities for margin expansion during the coming year. 7 0 0 2 t r o p e R l a u n n A d e t a r o p r o c n I s e d o D i SBR is a registered trademark of Diodes Incorporated. THE RIGHT STRATEGY FOR SUCCESS AND PROFITABLE GROWTH Year 2007 represented our sixth consecutive year of revenue growth, and our fourth quarter performance continued our run of record revenues and profits in 12 out of the last 16 quarters. Our expectation is to continue that trend in 2008. We remain confident that the Company’s long-term history of execution and successful track record of management through multiple industry cycles will continue to produce profitable results for our shareholders. In 2008, we will continue to execute our strategies for profitable growth that have proven successful for the Company in the past. We will further expand our market share of the high-volume, high-growth markets we serve through new product introductions and increased design win activities. We will also leverage our large existing customer base to further drive sales of new products. Additionally, we plan to grow our portfolio of standard function, application specific products by using innovative, cost effective packaging technology. In summary, we believe we are executing the right strategies to further drive the Company’s continued success and profitable growth. Also, as part of our growth strategy for the coming year, we are evaluating acquisition opportunities that we believe will be synergistic to our business by offering complementary technologies, expanded market channels and/or additional manufacturing capacity and efficiencies. As we have stated previously, acquisition targets must be accretive to earnings within 12 months in order to maximize value to our Company and our shareholders. Based on our successful experience integrating the APD and Anachip acquisitions, we have taken the right steps internally to improve operational efficiencies and ensure our ability to expedite the integration of any future acquisition. We expect to make further progress in this area and look forward to reporting developments to you. IN CLOSING I would like to thank our shareholders and customers for their continued confidence and support, as well as our employees for their hard work and dedication to our continued success. We believe we are in the right market at the right time with the right products, and we look forward to reporting continued success in 2008 and beyond. Sincerely, Dr. Keh-Shew Lu President and Chief Executive Officer RIGHT ON IT Design / MC Brand Studios / www.mc-brandstudios.com Diodes Incorporated Registered to ISO 9001-2000 File Number A5109 www.diodes.com NasdaqGS: DIOD Diodes Incorporated Corporate Offices 15660 N. Dallas Parkway Suite 850 Dallas, TX 75248 USA T: 972-385-2810 Diodes Incorporated 3050 E. Hillcrest Drive Westlake Village, CA 91362 USA T: 805-446-4800 Asia Sales Taipei, Taiwan Hsinchu, Taiwan Shanghai, China Shenzhen, China Kowloon, Hong Kong Gyeonggi-do, Korea European Sales France Germany United Kingdom Manufacturing Facilities Shanghai, China (2) Kansas City, Missouri 

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