Diodes
Annual Report 2008

Plain-text annual report

D I O D E S I N C O R P O R AT E D 2 0 0 8 A N N u A l R E P O R T Building Momentum Financial Highlights NET SALES in millions EARNINGS PER SHARE 1,2 adjusted $1.50 STOCKHOLDERS’ EQUITY in millions $433 $401 $343 $1.26 $1.04 $215 $186 $137 $0.86 $0.73 $0.31 $370 $372 $294 $225 $112 $71 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 (in thousands, except per share data) 2003 2004 2005 2006 2007 2008 Net sales Gross profit Selling, general and administrative expenses Research and development expenses Amortization of acquisition related intangibles In-process research and development Restructuring charge Total operating expenses Income from operations Interest income, net Other income (expense) Income before taxes and minority interest Income tax provision Minority interest Net income—GAAP Net income—Adjusted 1 Earnings per share, diluted 2 GAAP Adjusted Number of shares, diluted 2 GAAP Adjusted 1 Total assets Working capital long-term debt, net of current portion Stockholders’ equity Return on assets Return on equity $ 136,905 36,528 19,586 2,049 — — 1,037 22,672 13,856 (860) (5) 12,991 2,460 (436) $ 185,703 60,735 23,517 3,422 — — — 26,939 33,796 (637) (418) 32,741 6,514 (676) $214,765 74,377 30,183 3,713 — — — 33,896 40,481 221 406 41,108 6,685 (1,094) $ 343,308 113,892 47,817 8,237 360 — — 56,414 57,478 4,855 (1,212) 61,121 11,689 (1,289) $ 401,159 130,379 55,127 12,955 836 — 1,061 69,979 60,400 11,286 (225) 71,461 9,428 (2,376) $ 432,785 132,528 68,373 21,882 3,706 7,865 4,089 105,915 26,613 2,643 16,594 45,850 4,585 (2,290) $ 10,095 $ 10,095 $ 25,551 $ 25,551 $ 33,329 $ 33,329 $ 48,143 $ 53,439 $ 59,657 $ 64,949 $ 38,975 $ 44,753 $ $ 0.31 0.31 $ $ 0.73 0.73 $ $ 0.86 0.86 $ $ 1.16 1.26 $ $ 1.41 1.50 $ $ 0.91 1.04 32,414 32,414 34,811 34,811 38,842 38,842 41,502 42,451 42,331 43,167 42,638 43,040 2003 2004 2005 2006 2007 2008 $ 123,795 27,154 6,750 71,450 $ 167,801 49,571 7,833 112,148 $ 289,515 146,651 4,865 225,474 $ 620,915 395,630 237,115 294,167 $ 706,365 451,801 235,815 369,598 $ 894,143 209,832 400,646 372,327 8.8% 15.6% 17.5% 27.8% 14.6% 19.7% 10.6% 18.5% 9.0% 18.0% 4.9% 10.5% 1—Adjusted for items related to SFAS 123R stock option expense, acquisition and purchase price adjustments, restructuring charges, and gains from debt extinguishment. 2—Adjusted for the effect of 3-for-2 stock splits in November 2003, December 2005, and July 2007. Message from the Chairman Raymond Soong Chairman of the Board As Chairman of Diodes Incorporated since in our executive team and their abilities to 1993, I have seen the Company through properly and efficiently manage through this many economic periods and business challenging environment. Further, we are cycles. over that time, the Company has prepared to take additional actions as required grown and evolved into one of the leading by the economic conditions to maintain the global manufacturers and suppliers of dis- Company’s strong financial position. crete and analog semiconductor solutions with revenues approaching half a billion our focus has always been on creating value dollars this past year. for our shareholders, and we will continue to uphold that commitment. I believe our finan- We have completed and integrated several cial strength and cost-cutting measures, important strategic acquisitions over the combined with our experienced management years that have further extended and team and sales initiatives, properly position strengthened our market position and tech- the Company to manage through the down- nological capabilities. the acquisition of turn while preparing for profitable growth as Zetex in 2008 was an important step in the the economy improves. execution of our strategic growth objectives and further broadens our global leadership I would like to personally thank Dr. lu for his position within our target markets. However, continued leadership as well as the entire the current economic times have dramati- management team for their years of service cally changed the business environment for and commitment to excellence. I would also all companies, in particular for the semicon- like to thank our employees, customers and ductor industry as a whole. I believe our shareholders for their unrelenting support board and executive management have and confidence in Diodes. I look forward to responded in a quick and decisive manner in celebrating our future successes with each order to reduce costs and align the organi- of you. zation with the current environment. Sincerely, Diodes has a very experienced and compe- tent management team that has a proven track record of success in managing through tough economic times while consistently emerging a stronger company. In speaking Raymond Soong on behalf of the entire Board of Directors, Chairman of the Board we have a tremendous amount of confidence DioDes incorpor ateD 2008 AnnuA l RepoRt p a g e o n e Dear Fellow Shareholders: The year 2008 was very significant for Diodes Incorporated and one of turmoil within the economy as a whole. Dr. Keh-Shew lu President and Chief Executive Officer From a financial perspective, we continued where Diodes does not currently participate, to build momentum in our business with such as power management and leD-lighting. revenues growing nearly 8 percent to $433 million as compared to $401 million We strongly believe that our future growth in 2007. We continued to generate strong will be significantly complemented by the cash flow from operations of $57 million addition of Zetex to our business by enhanc- for the year, while increasing our cash to ing Diodes’ market position, expanding our $103 million at year-end. product portfolio and increasing exposure to the automotive and industrial markets, as Also during 2008, we continued to make well as broadening our presence in europe. significant progress towards our strategic growth objectives. our year was highlighted nEW PRodUCTS and dESIgn WI nS by our June acquisition of Zetex plc. the During 2008, we released over 230 new acquisition complements the strength of our products in analog, discrete, Hall sensors, business and has offered substantial syner- MoSFets, SBR® devices, bipolar transistors, gies that I believe will further enhance power management, and leD drivers, to Diodes’ global leadership position in discrete name a few. this increased level of new and analog semiconductor solutions. products has generated strong interest from key accounts and has broadened our As part of our extensive evaluation process portfolio for increased cross-selling opportu- of Zetex, it became evident that the strengths nities and customer expansion. Additionally, and expertise of Diodes and Zetex created a our expanded distribution channels, as well more diversified business when combined. as global sales and field application teams, Diodes has cost-effective packaging technol- have further strengthened our organization. ogy capabilities and large capacity in our As a result of our focus on new products, manufacturing facilities in China, as well as a in 2008 we achieved our highest level of strong sales and marketing presence in Asia design activity ever. and a focus on the consumer, computing and communications markets. Zetex, on the other hand, has a strong proprietary wafer process, a solid application and design team, a strong presence in europe, as well as a focus on the industrial, communications and automotive markets. Additionally, Zetex provides analog and application-centric exposure in categories DioDes incorpor ateD 2008 AnnuA l RepoRt p a g e t w o SBR is a registered trademark of Diodes Incorporated. looking forward, our investments in ImPRovEd LI qUIdITy looking into 2009, we remain cautiously research and development ($23 million or At the end of 2008, Diodes made notable optimistic and continue to focus on execut- 5.2 percent of 2008 revenue) and dedica- progress towards resolving our situation with ing the strategy that has proven to be suc- tion to product innovation have created a our auction rate securities portfolio. We cessful for Diodes over the years. Although strong pipeline of design wins that will entered into a settlement agreement with the current economy creates a more chal- contribute to our revenue momentum in the uBS AG which, among other things, provides lenging environment for our business, we future. Additionally, our analog business us the right to sell our entire $320.6 million will continue to carefully manage costs in continues to grow in prominence, as we auction rate securities portfolio to uBS at order to protect cash, while we prepare remain focused on mobility and portability, 100% of par beginning on June 30, 2010. Diodes for profitable growth when the econ- which we expect will be a strong contributor As part of this agreement, we took advantage omy improves. In closing, I believe that over going forward. of our ‘no net cost’ loan obtained through the long term, Diodes is in a better position uBS and repurchased $46.5 million of our for growth than ever before, and that our oPTImIzIng CoST STRUCTURE $230 million 2.25% Convertible Senior long history of success will once again cre- As is evident to all, the global macroeco- notes for approximately $23.2 million in ate increasing value for our shareholders. nomic environment is very challenging for all cash. through our continuing operations, as businesses as we begin the new year. We well as the previously announced reduction We would like to thank you, our sharehold- expect market uncertainty to continue into in capital expenditures and other cost con- ers, customers, employees and suppliers, 2009 with a decrease in global demand, tainment measures, we believe we have suf- for your continued support and confidence particularly in the consumer and computer ficient cash flow to sustain us through these in Diodes Incorporated. markets in Asia, as well as general market difficult times, and we remain committed to softness in the united States and europe. improving the value of Diodes. Sincerely, As a result of current expectations for the overall economy, we have taken the neces- nExT STEPS sary steps to optimize our cost structure We believe Diodes is taking all the right across the organization. these initiatives steps to further build our momentum dR. KEh-ShEW LU include accelerating our plan to integrate towards becoming a global leading provider president and Chief executive officer the Zetex products into our manufacturing of complete analog and discrete semicon- facilities, reducing capital expenditures to a ductor solutions. We remain committed to maintenance level, decreasing manufactur- executing on our growth objectives by lever- ing process and raw material costs, as well aging our highly efficient manufacturing and as realigning our product development and packaging capabilities and capacity, broad- wafer fabrication organizations. ening our product portfolio, increasing our geographic footprint and diversifying our market segments. DioDes incorpor ateD 2008 AnnuA l RepoRt p a g e t h r e e Diodes continues to execute strategies for profitable growth, despite this difficult economic climate. We have grown our portfolio of high-quality, application-specific standard products within the broad discrete and analog semiconductor markets, by using innovative, cost-effective packaging technologies that maintain our cost leadership. manUfaCTURIng CaPaCITy In ChI na (in billions of units produced) 2003 3 4 2004 5 4 2005 8 2 2006 118 2007 15 4 2008 174 Cost Reduction Strategy Moving Forward It’s always smart business to manage costs We’re taking other steps as well. For oUR gLobaL R EaCh effectively. the current economic climate instance, by emphasizing internal packaging, makes it not only smart but imperative. manufacturing and fabrication, we are reducing or eliminating the cost of subcon- As a result, we are executing a number of tractors. Where appropriate, we are also cost-reduction strategies designed to make changing products from gold to copper wire, our operations more cost effective in 2009 a move that enables us to take advantage and beyond. of cost savings without reducing product performance. We began this process in the second half of 2008 by identifying and implementing a In the last quarter of 2008, we began to number of expense reduction opportunities manufacture Zetex’ products in our facilities that would enable us to optimize our cost in China. Zetex’ complementary proprietary structure across the organization. these wafer process gives us expanded capabilities initiatives include, but are not limited to, and capacity, which we believe will be major the following: contributors to our future growth. • Accelerating our plan to integrate the At Diodes, we differentiate our business with Zetex products into our manufacturing innovative and cost-effective process and facilities; packaging technologies. our flexible and optimized manufacturing process results in • Reducing our manufacturing process low packaging costs, which provide us with and raw material costs; and an important competitive advantage. • Realigning our product development We intend to continue taking the necessary and wafer fabrication organizations. steps to maintain our cost leadership. the realignment has moved products from our older 4-inch line to new 6-inch lines in our oldham, united Kingdom and Fabtech Kansas City facilities. We further reduced headcount at our wafer fabs in Kansas City and oldham, united Kingdom and instituted a hiring freeze at all our other locations worldwide. aSIa 72 6% 15 6% noRTh amERICa 118% EUR oPE DioDes incorpor ateD 2008 AnnuA l RepoRt p a g e f i v e We are expanding our market share within the high-volume, high-growth markets that we actively serve. We continue to leverage our large existing customer base of short design cycle markets to further drive sales of new products and solutions. dIvERSE End-maRKETS full year 2008 3% 16% 16% 32% aUTomoTI vE IndUSTRy TELECommUnICa TIonS IndUSTRI aL aPPLICa TIonS ConSUmER ELECTR onICS Audio/Video Players Comfort Controls Engine Controls GPS Navigation HID Lighting Satellite Radios Cable Modems DSL Ethernet Fiber Optics Gateways Hubs Networking Power/Phone Lines Routers Standard Modems Switches Wireless DC-DC Conversion Digital Audio Players HVAC Lighting Motor Control DC Fans Power Supplies Security Systems Digital Cameras Game Consoles LCD TVs Mobile Handsets Personal Medical Devices Set-Top Boxes 33% ComPUTERS Flat-Panel Monitors Hard Disk Drives Motherboards Multi-Function Printers Network Interface Cards Notebooks PDAs Servers A Broad Portfolio of Solutions Combining Diodes and Zetex strengthens industrial arena; the leD driver market, oUR dISTRIbUTIon nETWoRK the Company in three key ways. It expands which includes flat panel television displays; our product portfolio into the industrial and thin devices such as new feature-rich mobile through innovative marketing strategies and sophisticated logistics, we work with world-class distributors to assist our customers in advancing their technologies. automotive markets. It creates significant phones and notebook computers; and new cross-selling opportunities within our emerging growth markets, including solar Major distributors include: customer base. And it increases our geo- panels and leD lighting. graphic footprint. What’s more, our continued innovation helps our ability to manufacture our products solidify our market position and provides a cost-effectively and efficiently is central to competitive advantage. Case in point is as our business strategy. In 2008, we success- follows: in 2008, we introduced the world’s fully built up capacity to prepare for volume smallest fully self-protected low-side MoSFet. increases when the market turns around. Its miniature format delivers a package power density three times that of its much We also believe that the inclusion of Zetex’ larger packaged counterpart, making it ideal engineering and marketing expertise into for a wide range of automotive and industrial Diodes’ team, along with their established applications. Also, market awareness of customer base and product offerings, our patented and proprietary SBR® products further enhances Diodes’ global leadership continues to grow at a high rate with in discrete and analog semiconductor prod- early adoption into new high-efficiency ucts and solutions. energy standards. together, we now offer six product strate- Diodes and Zetex have proven to be a pow- gies in high growth areas: standard linear, erful combination. We look forward to capi- power management, sensor, MoSFet, talizing on the new business opportunities SBR®, and transistor. these products enable and geographic expansion that results from us to capitalize on our core strengths while the synergies of the combined companies. expanding into new markets, including: the SBR is a registered trademark of Diodes Incorporated. DioDes incorpor ateD 2008 AnnuA l RepoRt p a g e s e v e n Corporate Governance Highlights Good corporate governance is essential to • Internal Audit Manager reports directly to protect investors and instill confidence in Audit Committee; public companies. to enlist and sustain investor confidence in Diodes Incorporated, we provide public access to information • Moss Adams LLP, the Company’s indepen- dent registered public accounting firm, reports directly to the Audit Committee, and about our corporate governance policies the Audit Committee reviews any non-audit in the investor section of our website at services to ensure that they do not interfere www.diodes.com. these policies provide with the auditors’ independence; 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: • Majority of Board members and Board Committee members are independent; • Board adopted a Code of Business Conduct; • Board adopted Corporate Governance Guidelines; • Board Committee charters clearly establish respective roles and responsibilities; • Board adopted a Code of Ethics for the Chief Executive Officer and all members of our finance department, including the principal financial/accounting officer; • Board and each Board Committee is required to conduct a self-evaluation of their perfor- mance at least annually that is supervised and reviewed by the Governance and Stockholder Relations Committee to deter- mine whether the Board and each Board Committee is functioning effectively; • Audit Committee established policies in its charter for auditor independence; • Audit Committee conducts an appropriate review of all related party transactions for • Through internal audit control functions, the Company monitors compliance with its global financial policies and practices over critical areas, including: internal controls, financial accounting and reporting, fiduciary account- ability, and safeguarding of the Company’s corporate assets; • A whistle-blower hotline has been established as a confidential means for employees to address issues to the Audit Committee regarding the Company’s accounting, internal accounting controls and auditing practices; • Compensation Committee makes recommen- dations to the Board regarding compensation, benefits and incentive arrangements for officers; • Governance and Stockholder Relations Committee recommends director nominees to be selected by the Board; • Non-management directors each must hold stock with a value of at least two times the annual Board and Committee retainers com- bined. A newly elected director will have five years to reach the target ownership level; • Management directors each must hold the lesser of four times his/her salary or 125,000 shares of the Company’s common stock; • Meetings of independent directors without management present are held regularly. potential conflict of interest situations on an our culture demands integrity and an unyielding commitment to strong internal practices and policies. We thank you for the confidence you have placed in us. ongoing basis; • Audit Committee members meet regularly with internal and external auditors, without the presence of the Company’s management; • Audit Committee and Company are committed to full compliance with the United States Foreign Corrupt Practices Act and the anti-bribery laws of the Peoples’ Republic of China; DioDes incorpor ateD 2008 AnnuA l RepoRt p a g e e i g h t Corporate Information BOARD OF DIRECTORS ExECu TIvE OFFICERS Raymond Soong 2C, 3C Chairman of the Board, Diodes Incorporated Dr. Keh-Shew Lu President & Chief Executive Officer 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 Financial Services, Inc. Director since 1990 L.P. Hsu 1,2 Chairman, Philips Taiwan Quality Foundation Director since 2007 Dr. Keh-Shew Lu President & Chief Executive Officer, Diodes Incorporated Retired, Senior Vice President, Texas Instruments, Inc. Director since 2001 Dr. Shing Mao 2, 3 Retired, Chairman of the Board, Lite-On USA, Inc. 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 Employee since 2005 Mark A. King Senior Vice President, Sales & Marketing Employee since 1991 Joseph Liu Senior Vice President, Operations Employee since 1990 Hans Rohrer Senior Vice President, Business Development Employee since 2008 Carl C. Wertz Chief Financial Officer, Secretary & Treasurer Employee since 1993 Richard D. White Senior Vice President, Finance Employee since 2006 Colin Greene Europe President and Vice President, Europe Sales & Marketing Employee since 2008 Julie Holland Vice President, Worldwide Analog Products Employee since 2008 T.J. Lee Vice President, Packaging Operations Employee since 2006 Edmund Tang Vice President, Corporate Administration Employee since 2006 Francis Tang Vice President, Product Development Employee since 2006 ShAREhOlDER InFOR mATIOn Diodes Incorporated common stock is listed and traded on the NASDAq Global Select Market (NASDAq-GS: DIOD). Calendar quarter Ended 2008 Fourth quarter Third quarter Second quarter First quarter 2007 Fourth quarter Third quarter Second quarter First quarter Closing Sales Price of Common Stock High $ 17.13 28.26 30.93 29.71 High $ 34.71 32.84 27.85 26.94 Low $ 3.44 17.31 22.55 20.22 Low $ 27.40 26.31 23.06 21.89 FORm 10-K A copy of the Company’s Form 10-K and other publicly filed reports, as filed with the United States Securities and Exchange Commission, are available at www.diodes.com or www.sec.gov or upon request of: Investor Relations Shelton Group Contact: Leanne Sievers 19800 MacArthur Blvd., Suite 300 Irvine, CA 92612 T: 949-224-3874 F: 949-224-3872 Email: LSievers@Sheltongroup.com or Diodes-Fin@Diodes.com InDEpEnDEnT REgISTERED puBlIC ACCOunTIng F IRm Moss Adams LLP 11766 Wilshire Blvd., Suite 900 Los Angeles, CA 90025 TRAnSFER AgEn T & RE gISTRAR Continental Stock Transfer & Trust Company 17 Battery Place, 8th Floor New York, NY 10004 T: 212-509-4000 gEnERA l COunSEl Sheppard, Mullin, Richter & Hampton LLP 333 S. Hope Street, 42nd Floor Los Angeles, CA 90071-1448 FI nAnCIA l InFOR mATIOn OnlI nE World Wide Web users can access Company information on the Diodes Incorporated Investor page at www.diodes.com m o c . s r o n n o c - n a r r u c . w w w / . c n I , s r o n n o C & n a r r u C y b d e n g i s e D 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 s ales Taipei, Taiwan Shanghai, China Shenzhen, China Gyeonggi-do, Korea european sales Munich, Germany Manufacturing facilities Shanghai, China (2) Kansas City, MO, USA Oldham, United Kingdom Neuhaus, Germany Diodes Incorporated Registered to ISO 9001-2000 File Number A5109 www.diodes.com NASDAq-GS: DIOD 

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