Diodes Incorporated
2015 Letter to Stockholders
A Year in Review
Diodes Incorporated closed 2015 with increased market share, the achievement of our 25th consecutive year of profitability, as
well as the successful completion of the acquisition of Pericom Semiconductor Corporation. Pericom is well-aligned with our
acquisition strategy and broadens our analog footprint, while also adding a strong mixed-signal connectivity offering that will
drive expanded product contents in target applications.
When looking back over this past year, 2015 was characterized by weaker demand across several key end markets and
geographies. The softer environment impacted loading and utilization at our manufacturing facilities, but also provided unique
opportunities to achieve market share gains at key customers. Gross margins were under pressure especially in the second half
of the year. However, we believe Diodes is well positioned for margin expansion in 2016 based on improvements in product mix
and manufacturing performance, as well as the benefit from previous cost reductions and the Pericom acquisition. As in past
cycles, our flexible business model enabled us to respond quickly to changing market conditions in order to preserve revenue and
profitability.
During the year, we generated approximately $118 million in cash flow from operations, which allowed us to return capital to our
stockholders while also continuing to pay-down our long-term debt and invest in our future. In early November, our Board
approved a stock repurchase program authorizing purchases of up to $100 million of our common stock over a four-year period.
In the fourth quarter 2015, we returned approximately $11 million to our stockholders through stock repurchases. We ended the
year with $283 million in cash, cash equivalents and short-term cash investments, and $571 million of working capital.
New Products Drive Share Gains
Diodes continued to make great progress on our new product development with a growing pipeline of design wins across our
target end markets. In particular, we have been strategically focusing our efforts on increasing contents in the industrial and
automotive markets. We introduced a growing number of new products that meet the stringent design and quality requirements
of these markets. We also continued to broaden our product offerings for high-volume portable electronics with increasing share
and design wins in smartphones and wireless charging. Diodes’ expertise in developing products using small, thin profile
packages for space-constrained applications remains a key driver of our expanded contents with our customers. We remain
committed to investing in product innovation to further differentiate our products in terms of technology, wafer manufacturing
and packaging. As a result, Diodes is well positioned to capture market share in the emerging wearables and Internet of Things
markets based on our capabilities in miniaturization and power efficient packaging.
Delivering Consistent Profitable Growth
In summary, despite the weaker demand environment throughout 2015, we continued to gain market share and capitalize on our
expanding product portfolio and design win success across our end markets. We believe there are significant opportunities in the
coming year as we integrate the Pericom acquisition and further broaden our contents at customers and increase end market
penetration. As part of the Pericom integration efforts, we are focused on maximizing sales, design, operations, and
administrative efficiencies. Additionally, we will continue to place a strong emphasis on the portable and wearable space as well
as the industrial and automotive markets, where we have solid momentum entering the new year.
Finally, we would like to take this opportunity to thank stockholders, customers, employees and suppliers for your continued
support and confidence in Diodes. We remain committed to generating long-term value and profitable growth for our
stockholders.
Sincerely,
Dr. Keh-Shew Lu
President & Chief Executive Officer
Raymond Soong
Chairman of the Board
FINANCIAL
HIGHLIGHTS
2011 2012 2013 2014 2015
2011 2012 2013 2014 2015
2011 2012 2013 2014 2015
2011 2012 2013 2014 2015
$635 $634 $827 $891 $849
$51
$24
$27
$64
$24
$58
$26
$50
$70
$42
$634 $677 $703 $768 $795
NET SALES
in millions
NET INCOME
COMMON STOCKHOLDERS
in millions
NET INCOME
COMMON STOCKHOLDERS
[NON-GAAP ADJUSTED1]
in millions
STOCKHOLDERS’ EQUITY
in millions
(in thousands, except per share data)
NET SALES
YOY growth
GROSS PROFIT
Gross margin
Selling, general and administrative expenses
Research and development expenses
Amortization of acquisition-related intangible assets
Impairment of goodwill
Other
TOTAL OPERATING EXPENSES
Income from operations
Interest income (expense), net
Amortization of debt discount
Gain (loss) on securities carried at fair value
Other income (expense)
INCOME before income taxes and noncontrolling interest
Income tax provision (benefit)
Net income
Less: net income - noncontrolling interest
NET INCOME—COMMON STOCKHOLDERS (GAAP)
NET INCOME—COMMON STOCKHOLDERS (non-GAAP adjusted)1
EARNINGS PER SHARE, diluted (GAAP)
EARNINGS PER SHARE, diluted (non-GAAP adjusted)1
$
$
$
$
2015
$ 848,904
-4.7%
248,583
29.3%
2014
2013
2012
2011
$ 890,651
$ 826,846
$633,806
$635,251
7.7%
30.5%
-0.2%
3.6%
277,279
237,836
161,586
31.1%
28.8%
25.5%
139,245
57,027
8,596
—
1,613
206,481
42,102
(3,226)
—
400
1,319
40,595
14,082
26,513
(2,239)
24,274
42,345
0.49
0.86
—
132,106
48,302
8,078
5,318
1,751
195,555
42,281
(4,306)
—
601
9
38,585
14,481
24,104
2,428
26,532
50,131
133,701
52,136
7,914
—
(983)
192,768
84,511
(2,862)
—
1,364
2,979
85,992
20,359
65,633
(1,955)
63,678
70,082
1.31
1.44
$
$
$
$
$
$
$
$
193,697
30.5%
89,974
27,231
4,503
—
—
121,708
71,989
(2,115)
(6,032)
(1,039)
861
63,664
10,157
53,507
(2,770)
101,363
33,761
5,122
—
(3,556)
136,690
24,896
(98)
—
7,100
(1,091)
30,807
4,825
25,982
(1,830)
$ 24,152
$ 26,076
$ 50,737
$ 57,977
0.56
1.05
$
$
0.51
0.56
$
$
1.09
1.24
Number of diluted shares
Total assets
Working capital
Long-term debt, net of current portion
Total Diodes Incorporated stockholders’ equity
48,594
47,658
46,899
46,713
$1,601,030
570,888
455,941
795,345
$1,179,157
537,534
140,787
768,275
$1,162,258
493,169
182,799
702,742
$920,063
377,892
44,131
677,185
$793,064
317,087
2,857
633,760
1 — For a reconciliation of GAAP net income to non-GAAP adjusted net income, see “Additional Information” located near the end of this report.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:59) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 002-25577
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
4949 Hedgcoxe Road, Suite 200
Plano, Texas
(Address of principal executive offices)
95-2039518
(I.R.S. Employer
Identification No.)
75024
(Zip Code)
Registrant’s telephone number, including area code: (972) 987-3900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, Par Value $0.66 2/3
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:59) No (cid:133)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:59)
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 (cid:59) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes (cid:59) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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. (cid:59)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
(cid:59)
Accelerated filer
(cid:133)
(cid:133) (Do not check if a smaller reporting company)
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:59)
The aggregate market value of the 38,376,884 shares of Common Stock held by non-affiliates of the registrant, based on the closing price of $24.11
per share of the Common Stock on the Nasdaq Global Select Market on June 30, 2015, the last business day of the registrant’s most recently
completed second fiscal quarter, was approximately $927,677,673.
The number of shares of the registrant’s Common Stock outstanding as of February 23, 2016 was 48,296,613.
Smaller reporting company
(cid:133)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the United States Securities and Exchange Commission (“SEC”) pursuant to
Regulation 14A in connection with the 2016 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report. The
proxy statement will be filed with the SEC not later than 120 days after the registrant’s fiscal year ended December 31, 2015.
TABLE OF CONTENTS
PART I
ITEM 1.
BUSINESS ............................................................................................................................................................
ITEM 1A. RISK FACTORS ..................................................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS................................................................................................................
PROPERTIES .......................................................................................................................................................
ITEM 2.
LEGAL PROCEEDINGS .....................................................................................................................................
ITEM 3.
MINE SAFETY DISCLOSURES .........................................................................................................................
ITEM 4.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ITEM 6.
ITEM 7.
ISSUER PURCHASES OF EQUITY SECURITIES .......................................................................................
SELECTED FINANCIAL DATA ........................................................................................................................
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS .................................................................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .....................................
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ......................................................................
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ...........................................................................................................................
ITEM 9A. CONTROLS AND PROCEDURES .....................................................................................................................
ITEM 9B. OTHER INFORMATION ....................................................................................................................................
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE .............................................
EXECUTIVE COMPENSATION .......................................................................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS .....................................................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ......
PRINCIPAL ACCOUNTING FEES AND SERVICES ......................................................................................
PART IV
Page
1
10
26
27
28
28
29
32
32
44
46
46
46
48
49
49
49
49
49
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES ....................................................................................
50
Item 1.
GENERAL
Business.
PART I
We are a leading global manufacturer and supplier of high-quality, application-specific standard products within the broad
discrete, logic, analog and mixed-signal semiconductor markets, serving the consumer electronics, computing, communications,
industrial and automotive markets. Our primary focus is on low pin count semiconductor devices with one or more active or passive
components. Our products include diodes, rectifiers, transistors, MOSFETs, protection devices, functional specific arrays, single gate,
dual gate and standard logic, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including
LED drivers, AC-DC and DC-DC switching, linear voltage regulators, and voltage references along with special function devices,
such as USB power switches, load switches, voltage supervisors, and motor controllers. Our products are sold primarily throughout
Asia, North America and Europe.
We design, manufacture and market these semiconductors for diverse end-use applications. Semiconductors, which provide
electronic signal amplification and switching functions, are basic building-blocks that are incorporated into almost every electronic
device. We believe that our focus on application-specific standard products utilizing innovative, highly efficient packaging and cost-
effective process technologies, coupled with our collaborative, customer-focused product development, gives us a meaningful
competitive advantage relative to other semiconductor companies.
Our product portfolio addresses the design needs of advanced electronic equipment, including high-volume consumer electronic
devices such as digital media players, smartphones, tablets, notebook computers, flat-panel displays, mobile handsets, digital cameras
and set-top boxes. We believe that we have particular strength in designing innovative, highly power efficient semiconductors in
miniature packaging for applications with a critical need to minimize product size while maximizing power density and overall
performance, and at a lower cost than alternative solutions. Our product line includes over 10,000 products, and we shipped
approximately 40 billion units, 44 billion units, and 41 billion units in 2015, 2014 and 2013, respectively. From 2010 to 2015, our net
sales grew from $613 million to $849 million, representing a compound annual growth rate of greater than 6%.
We serve over 250 direct customers worldwide, which consist of original equipment manufacturers (“OEM”) and electronic
manufacturing services (“EMS”) providers. Additionally, we have approximately 150 distributor customers worldwide, through which
we indirectly serve over 50,000 customers.
We were incorporated in 1959 in California and reincorporated in Delaware in 1968. Our headquarters and sales office are
located in Plano, Texas. Our design, marketing and engineering centers are located in Plano; Milpitas, California; San Jose, California;
Taipei, Taiwan; Taoyuan city, Taiwan; Zhubei City, Taiwan; Jinan, China; Manchester, United Kingdom (“U.K.”); and Neuhaus,
Germany. We have two wafer fabrication facilities in Shanghai, China, one in Kansas City, Missouri, one in Manchester and one in
Jinan. We also have assembly and test facilities located in Shanghai, Jinan, Chengdu, and Yangzhou, China as well as assembly and
test facilities located in Hong Kong, Neuhaus and in Taipei. Additional engineering, sales, warehouse and logistics offices are located
in Taipei; Hsinchu, Taiwan; Hong Kong; Manchester; Shanghai; Shenzhen, China; Seongnam-si, South Korea and Munich, Germany,
with support offices located throughout the world.
BUSINESS OUTLOOK
Looking forward, we remain focused on achieving our goal of $1 billion in annual revenue with model gross margins of 35%.
Acquisitions remain a key part of our growth strategy to reach our revenue goal. We have a solid pipeline of designs and expanded
customer relationships across all regions and product lines. The success of our business depends on, among other factors, the strength
of the global economy and the stability of the financial markets, our customers’ demand for our products, the ability of our customers
to meet their payment obligations, the likelihood of customers not canceling or deferring existing orders, and the strength of
consumers’ demand for items containing our products in the end-markets we serve. We believe the long-term outlook for our business
remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that has proven
successful for us over the years. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations -
Business Outlook” in Part II, Item 7 and “Risk Factors – The success of our business depends on the strength of the global economy
and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales,
operating results and financial condition.” in Part I, Item 1A of this Annual Report for additional information.
PERICOM ACQUISITION
On November 24, 2015, we completed our acquisition of Pericom Semiconductor Corporation (“Pericom”). For the fiscal year
ended June 27, 2015, Pericom reported net revenues of $128.8 million and net income of $11.8 million. Pericom designs, develops
- 1 -
and markets high-performance integrated circuits (“ICs”) and frequency control products (“FCPs”) used in many of today’s advanced
electronic systems. ICs include functions that support the connectivity, timing and signal conditioning of high-speed parallel and serial
protocols that transfer data among a system’s microprocessor, memory and various peripherals, such as displays and monitors, and
between interconnected systems. FCPs are electronic components that provide frequency references such as crystals and oscillators for
computer, communication and consumer electronic products. Analog, digital and mixed-signal ICs, together with FCPs enable higher
system bandwidth and signal quality, resulting in better operating reliability, signal integrity, and lower overall system cost in
applications such as notebook computers, servers, network switches and routers, storage area networks, digital TVs, cell phones, GPS
and digital media players.
Pursuant to the Agreement and Plan of Merger dated as of September 2, 2015 (the “Merger Agreement”), as amended on
November 6, 2015, by Amendment No. 1 (the “Merger Agreement Amendment”), each outstanding share of common stock, without
par value, of Pericom (other than shares owned by Pericom or certain of its affiliates or shares held by Pericom shareholders who have
perfected their appraisal rights in accordance with applicable California law) was automatically converted into the right to receive
$17.75 in cash per share, without interest. The aggregate consideration was approximately $403.2 million including the value of
Pericom equity awards paid out or converted to Diodes equity awards pursuant to the Merger Agreement and the Merger Agreement
Amendment. The aggregate consideration resulted in $54.3 million of goodwill. These preliminary amounts are subject to
adjustment.
SEGMENT INFORMATION AND ENTERPRISE-WIDE DISCLOSURES
For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various design,
manufacturing and distribution facilities. We sell product primarily through our operations in Asia, North America and Europe. We
aggregate our products in a single segment because the products have similar economic characteristics, are similar in production
process and manufacturing flow, and share the same customers and target end-equipment markets. See Note 14 of “Notes to
Consolidated Financial Statements” of this Annual Report for addition information.
OUR INDUSTRY
Semiconductors are critical components used in the manufacture of a broad range of electronic products and systems. Since the
invention of the transistor in 1948, continuous improvements in semiconductor processes and design technologies have led to smaller,
more complex and more reliable devices at a lower cost per function. The availability of low-cost semiconductors, together with
increased customer demand for sophisticated electronic systems, has led to the proliferation of semiconductors in diverse end-use
applications.
OUR COMPETITIVE STRENGTHS
We believe our competitive strengths include the following:
Flexible, scalable and cost-effective manufacturing – Our manufacturing operations are a core element of our success, and we
have designed our manufacturing base to allow us to respond quickly to changes in demand trends in the end-markets we serve. For
example, we have structured our assembly and test facilities to enable us to rapidly and efficiently add capacity and adjust product mix
to meet shifts in customer demand and overall market trends. As a result, we have historically operated our Shanghai manufacturing
facilities at near full capacity, while at the same time expanding that capacity to meet our growth objectives. In 2011, we established
an additional manufacturing facility for semiconductor assembly and test in Chengdu, China, which became fully production capable
during the second half of 2015. Additionally, the Shanghai and Chengdu locations of our manufacturing operations provide us with
access to a workforce at a relatively low overall cost base while enabling us to better serve our leading customers, many of which are
located in Asia. In 2012, we acquired approximately 51% of the outstanding common stock of Eris Technology Corporation (“Eris”),
primarily to obtain its automatic manufacturing capabilities in assembly and test for various diode products. In 2013, we acquired
BCD, which has in-house manufacturing capabilities in China, as well as a cost-effective development team that can be deployed
across multiple product families. See “Risk Factors—During times of difficult market conditions, our fixed costs combined with lower
net sales and lower profit margins may have a negative impact on our business, operating results and financial condition.” in Part I,
Item 1A of this Annual Report for additional information.
Integrated packaging expertise – Our expertise in designing and manufacturing innovative and proprietary packaging
solutions enables us to package a variety of different device functions into an assortment of packages ranging from miniature chip-
scale packaging to packages that integrate multiple separate discrete and/or analog chips into a single semiconductor product called an
array. Our ability to design and manufacture multi-chip semiconductor solutions as well as advanced integrated devices provides our
customers with products of equivalent functionality with fewer individual parts, and at lower overall cost, than alternative products.
This combination of integration, functionality and miniaturization makes our products well suited for high-volume consumer
- 2 -
electronic devices such as LED televisions, LCD panels, set-top boxes and consumer portables such as smartphones, tablets and
notebooks.
Broad customer base and diverse end-markets – Our customers are comprised of leading OEMs as well as major EMS
providers. Overall, we serve over 250 direct customers worldwide and over 50,000 additional customers through our distributors. Our
products are ultimately used in end-products in a number of markets served by our broad customer base, which we believe makes us
less susceptible to market fluctuations driven by either specific customers or specific end-user applications.
Customer focused product development – Effective collaboration with our customers and a commitment to customer service
are essential elements of our business. We believe focusing on dependable delivery and support tailored to specific end-user
applications has fostered deep customer relationships and created a key competitive advantage for us in the highly fragmented
discrete, logic and analog semiconductor marketplace. We believe our close relationships with our customers have provided us with
keener insight into our customers’ product needs. This results in a stronger demand for our product designs and often provides us with
insight into additional opportunities for new design wins in our customers’ products. See “Risk Factors - We are and will continue to
be under continuous pressure from our customers and competitors to reduce the price of our products, which could adversely affect
our growth and profit margins” in Part I, Item 1A of this Annual Report for additional information.
Management experience – The members of our executive team average over 30 years of industry experience, and the length of
their service has created significant institutional insight into our markets, our customers and our operations. See “Risk Factors—We
may fail to attract or retain the qualified technical, sales, marketing, finance and management personnel required to operate our
business successfully, which could adversely affect our business, operating results and financial condition.” in Part I, Item 1A of this
Annual Report for additional information.
OUR STRATEGY
Our strategy is to continue to enhance our position as a leading global designer, manufacturer and supplier of high-quality
application-specific standard semiconductor products, utilizing our innovative and cost-effective assembly and test (packaging)
technology and leveraging our process expertise and design excellence to achieve above-market profitable growth.
The principal elements of our strategy include the following:
Continue to rapidly introduce innovative discrete, logic and analog semiconductor products – We intend to maintain our
rapid pace of new product introductions, especially for high-volume, high-growth applications with short design cycles, such as LCD
and LED televisions and panels, set-top boxes, portables such as smartphones, tablets and notebooks along with other consumer
electronics and computing devices, as well as added emphasis on products for the LED lighting market and the industrial and
automotive markets. During 2015, we continued to achieve many significant new design wins at OEMs. Although a design win from a
customer does not necessarily guarantee future sales to that customer, we believe that continued introduction of new and well-defined
product solutions is critically important in maintaining and extending our market share in the highly competitive semiconductor
marketplace. See “Risk Factors – Obsolete inventories as a result of changes in demand for our products and change in life cycles of
our products could adversely affect our business, operating results and financial condition.” in Part I, Item 1A of this Annual Report
for additional information.
Expand our available market opportunities – We believe we have many paths to increasing our addressable market
opportunity. From a product perspective, we intend to continue expanding our product portfolio by developing derivative and
enhanced performance devices that target adjacent markets and end-equipment. We will continue to cultivate new and emerging
customers within our targeted markets, further increasing our already broad customer base. As we focus on new customers, we try to
expand our product portfolio penetration within these new, as well as existing, customers. As we expand our extensive range of high
power efficiency and small form factor packages, we plan to introduce new and existing product functions in these new packages to
allow an even greater market range.
Maintain intense customer focus – We intend to continue to strengthen and deepen our customer relationships. We believe
that continued focus on customer service is important and will help to increase our net sales, operating performance and market share.
To accomplish this, we intend to continue to closely collaborate with our customers to design products that meet their specific needs.
A critical element of this strategy is to further reduce our design cycle time in order to quickly provide our customers with innovative
products. Additionally, to support our customer-focused strategy, we continue to expand our sales force and field application
engineers, particularly in Asia and Europe, during periods of growth. See “Risk Factors – We are and will continue to be under
continuous pressure from our customers and competitors to reduce the price of our products, which could adversely affect our growth
and profit margins.” in Part I, Item 1A of this Annual Report for additional information.
- 3 -
Enhance cost competitiveness – A key element of our success is our overall low-cost manufacturing base. While we believe
that our Shanghai manufacturing facilities are among the most efficient in the industry, we will continue to refine our proprietary
manufacturing processes and technology to achieve additional cost efficiencies. In 2011, we commenced the expansion of our capacity
further by establishing an additional manufacturing facility for semiconductor assembly and test in Chengdu, China, that became fully
production capable in the second half of 2015. Historically, we attempt to operate our Shanghai facilities at near full utilization rates in
order to achieve meaningful economies of scale.
Pursue selective strategic acquisitions – As part of our strategy to expand our semiconductor product offerings and to maximize
our market opportunities, we may acquire technologies, product lines or companies in order to enhance our product portfolio and
accelerate our new product offerings. During 2011, we acquired approximately 30% of the outstanding common stock of Eris, and during
2012, we increased our ownership in Eris to approximately 51%. The product offering of Eris includes Schottky Diodes, TVS Diodes,
Zener Diodes, Bridge Diodes, rectifiers and the relevant devices. Also in 2012, we completed the acquisition of Power Analog
Microelectronics, Inc. (“PAM”), a provider of advanced analog and high-voltage power ICs, whose product portfolio includes Class D
audio amplifiers, DC-DC converters and LED backlighting drivers. In 2013, we acquired BCD which, with its established manufacturing
and sales presence in Asia and a particularly strong local market position in China, offers us an even greater penetration of the consumer
electronics, computing and communications markets. In 2015, we acquired Pericom Semiconductor Corporation. Pericom designs,
develops and markets high-performance ICs and FCPs used in many of today’s advanced electronic systems. ICs include functions
that support the connectivity, timing and signal conditioning of high-speed parallel and serial protocols that transfer data among a
system’s microprocessor, memory and various peripherals, such as displays and monitors, and between interconnected systems. FCPs
are electronic components that provide frequency references such as crystals and oscillators for computer, communication and
consumer electronic products. Analog, digital and mixed-signal ICs, together with FCPs enable higher system bandwidth and signal
quality, resulting in better operating reliability and signal integrity, and lower overall system cost in applications such as notebook
computers, servers, network switches and routers, storage area networks, digital TVs, cell phones, GPS and digital media players.
See “Risk Factors – Part of our growth strategy involves identifying and acquiring companies. We may be unable to identify
suitable acquisition candidates or consummate desired acquisitions and, if we do make any acquisitions, we may be unable to
successfully integrate any acquired companies with our operations, which could adversely affect our business, operating results and
financial condition” in Part I, Item 1A and Note 16 of “Notes to Consolidated Financial Statements” of this Annual Report for additional
information.
OUR PRODUCTS
Our product portfolio includes over 10,000 products that are designed for use in high-volume consumer electronic devices such
as LCD and LED televisions and LCD panels, set-top boxes and consumer portables such as smartphones, tablets and notebooks. Our
focus is on low pin count semiconductor devices with one or more active and/or passive components. We target and serve end-
equipment markets that we believe have larger volumes than other end-market segments served by the overall semiconductor industry.
Our broad product line includes:
(cid:120) Discrete semiconductor products, including: performance Schottky rectifiers; performance Schottky diodes; Zener diodes and
performance Zener diodes, including tight tolerance and low operating current types; standard, fast, super-fast and ultra-fast
recovery rectifiers; bridge rectifiers; switching diodes; small signal bipolar transistors; prebiased transistors; MOSFETs;
thyristor surge protection devices; and transient voltage suppressors;
(cid:120) Analog products, including: power management devices such as AC-DC and DC-DC converters, USB power switches, low
dropout and linear voltage regulators; standard linear devices such as operational amplifiers and comparators, current monitors,
voltage references, and reset generators; LED lighting drivers; audio amplifiers; and sensor products including Hall-effect
sensors and motor drivers;
(cid:120) Standard logic products including low-voltage complementary metal-oxide-semiconductor (“CMOS”) and advanced high-speed
CMOS devices; ultra-low power CMOS logic; and analog switches;;
(cid:120) Multichip products and co-packaged discrete, analog and mixed-signal silicon in miniature packages; and
(cid:120) Silicon and silicon epitaxial wafers used in manufacturing these products.
(cid:120) With the Pericom acquisition we acquired FCPs used in many of today’s advanced electronic systems. FCPs are electronic
components that provide frequency references such as crystals and oscillators for computer, communication and consumer
electronic products.
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The following table lists the end-markets, some of the applications in which our products are used, and the percentage of net
sales for each end-market for the last three years:
End-Markets
(cid:3)(cid:3)
2015 (cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
2014
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Consumer Electronics
32%
34%
33%
Computing
18%
20%
24%
Industrial
21%
20%
19%
Communications
24%
22%
21%
Automotive
5%
4%
3%
PRODUCT PACKAGING
2013
End product applications
(cid:3)
Digital audio players and cameras, set-top boxes, LCD and LED
TV’s, game consoles, portable GPS, fitness and health monitors,
action cameras, smart watches
Notebooks, tablets, LCD monitors, printers, solid state and hard disk
drive, servers, mass storage, cloud
Lighting, power supplies, DC-DC conversion, security systems, motor
controls, DC fans, proximity sensors, solenoid and relay driving, solar
panel, HAVC/LED lighting, retrofit bulb
Mobile handsets, smartphones, IP in gateways, routers, switches,
hubs, fiber optics
Comfort controls, lighting, audio/video, GPS navigation, satellite
radios, electronics
Our device packaging technology includes a wide variety of innovative surface-mounted packages. Our focus on the
development of smaller, more thermally efficient, and increasingly-integrated packaging, is a critical component of our product
development. We provide a comprehensive offering of miniature high power density packaging, enabling us to fit our components into
smaller and more efficient packages, while maintaining the same device functionality and power handling capabilities. Smaller
packaging provides a reduction in the height, weight and board space required for our components. Our products are well suited for
battery-powered, hand-held and wireless consumer electronic applications and high-volume consumer electronic devices such as LCD
and LED televisions and LCD panels, set-top boxes and consumer portables such as smartphones, tablets and notebooks.
CUSTOMERS
We serve over 250 direct customers worldwide, including major OEMs and EMS providers. Additionally, we have
approximately 150 distributor customers worldwide, through which we indirectly serve over 50,000 customers. Our customers include:
(i) leading OEMs in a broad range of industries, such as Continental AG, Delta Electronics, Honeywell, Osram, Phillips, Arris,
Emerson, Hella, LG Electronics, Lenovo, Quanta Computer, Seagate, Sagem Communication, and Samsung Electronics; (ii) leading
EMS providers, such as Celestica, Flextronics, Hon Hai Precision Industry, Inventec, Jabil Circuit, and Sanmina-SCI, who build end-
market products incorporating our semiconductors for companies such as Google, GoPro, Cisco, Dell, EMC, Intel, Microsoft,
Thompson, and Roche Diagnostics; and (iii) leading distributors such as Arrow, Avnet, Future Electronics, Rutronic, Yosun Industrial,
DigiKey, and Zenitron.
For the years 2015, 2014 and 2013, our OEM and EMS customers together accounted for 33%, 33% and 35%, respectively, of our net
sales. The decrease in 2014 is due primarily to the fact that the majority of BCD net sales are to distributors. No customer accounted
for 10% or more of our net sales in 2015, 2014 or 2013. In addition, for information concerning our business with related parties, see
“Business - Certain Relationships and Related Party Transactions.”
We believe that our close relationships with our customers have provided us with deeper insight into our customers’ product
needs. In addition to seeking to expand relationships with our existing customers, our strategy is to pursue new customers and
diversify our customer base by focusing on leading global consumer electronics companies and their EMS providers and distributors.
See “Risk Factors – Our customers require our products to undergo a lengthy and expensive qualification process without any
assurance of product sales and demand to audit our operations from time to time. A failure to qualify a product or a negative audit
finding could adversely affect our net sales, operating results and financial condition.” in Part I, Item 1A of this Annual Report for
additional information.
We generally warrant that products sold to our customers will, at the time of shipment, be free from defects in workmanship and
materials and conform to our approved specifications. Subject to certain exceptions, our standard warranty extends for a period of one
year from the date of shipment. Warranty expense has not been significant. Generally, our customers may cancel orders on short
notice without incurring a penalty. See “Risk Factors – Our customer orders are subject to cancellation or modification usually with
no penalty. High volumes of order cancellation or reduction in quantities ordered could adversely affect our operating results and
financial condition” in Part I, Item 1A of this Annual Report for additional information.
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Many of our customers are based in Asia or have manufacturing facilities in Asia. Net sales by country consist of sales to
customers in that country based on the country to which products are shipped. We report net sales based on “shipped to” customer
locations as we believe this best represents where our customers’ business activities occur. For the year ended December 31, 2015,
approximately 60%, 9%, 8%, 7%, 6%, 4% and 6% of our net sales were derived from China, United States (“U.S.”), Korea, Germany,
Singapore, Taiwan, and all other markets, respectively, compared to 62%, 9%, 7%, 7%, 6%, 3% and 6% in 2014, respectively.
SALES AND MARKETING
We market and sell our products worldwide through a combination of direct sales and marketing personnel, independent sales
representatives and distributors. We have direct sales personnel in the U.S., the U.K., France, Germany, Korea, Hong Kong, Taiwan
and China. We also have independent sales representatives in the U.S., Asia, and Europe. In addition, we have distributors in the U.S.,
Asia, and Europe.
As of December 31, 2015, our direct global sales and marketing organization consisted of approximately 400 employees
operating out of 13 offices. We have sales and marketing offices or representatives in Taipei, Taiwan; Shanghai and Shenzhen, China;
Gyeonggi, South Korea; and Munich, Germany; and we have regional sales offices in the U.S. As of December 31, 2015, we also had
approximately 16 independent sales representative firms marketing our products.
Our marketing group focuses on our product strategy, product development roadmap, new product introduction process, demand
assessment and competitive analysis. Our marketing programs include participation in industry tradeshows, technical conferences and
technology seminars, sales training and public relations. The marketing group works closely with our sales and research and
development teams to align our product development roadmap. The marketing group coordinates its efforts with our product
development, operations and sales groups, as well as with our customers, sales representatives and distributors. We support our
customers through our global field application engineering and customer support organizations.
Our website, www.diodes.com, features an extensive online product catalog with advanced search capabilities. This, coupled
with a comprehensive competitor cross-reference search, facilitates quick and thorough product selection. Our website also provides
easy access to our worldwide sales contacts and customer support and incorporates a distributor-inventory check to provide
component inventory availability.
MANUFACTURING OPERATIONS AND FACILITIES
We operate two assembly and test facilities located in Shanghai, China, one in Jinan, China, one in Neuhaus, Germany, one in
Taipei, Taiwan and one in Chengdu, China that became fully production capable in the second half of 2015. We have two wafer
fabrication facilities located in Shanghai, one in Kansas City, Missouri and one in Manchester, U.K. Our wafer fabrication facilities in
Shanghai include two 150mm wafer fabrication centers, our Kansas City facility fabricates 125mm and 150mm wafers, and our
Manchester facility fabricates 150mm wafers.
In 2010, we announced an investment agreement with the Management Committee of the Chengdu Hi-Tech Industrial
Development Zone (the “CDHT”). Under this agreement, we formed a joint venture with a Chinese partner, Chengdu Ya Guang
Electronic Company Limited (“Ya Guang”), to establish a semiconductor assembly and test manufacturing facility in Chengdu, China.
We currently own 95% of the joint venture. The CDHT granted the joint venture a 50-year land lease, provides corporate and
employee tax incentives, tax refunds, subsidies and other financial support. This is a long-term, multi-year project that will provide us
additional capacity as needed. As of December 31, 2015, we have invested approximately $120 million, primarily for infrastructure,
buildings and equipment related capital expenditures.
For the years ending December 31, 2015 and 2014, our total capital expenditures were approximately $138 million and $59
million, respectively. The majority of our capital expenditures are in China.
Our manufacturing processes use many raw materials, including silicon wafers, aluminum and copper lead frames, gold and
copper wire and other metals, molding compounds and various chemicals and gases. We also rely on equipment and finished product
suppliers. We are continuously evaluating our raw material costs in order to reduce our consumption while protecting and maintaining
product performance. We have no material agreements with any of our suppliers that impose minimum or continuing supply
obligations. From time to time, suppliers may extend lead-times, limit supplies or increase prices due to capacity constraints or other
factors. Although we believe that supplies of the raw materials we use are currently and will continue to be available, shortages could
occur in various essential materials due to interruption of supply or increased demand in the industry. See “Risk Factors – We depend
on third-party suppliers for timely deliveries of raw materials, manufacturing services, product and process development, parts and
equipment, as well as finished products from other manufacturers, and our reputation with customers, operating results and financial
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condition could be adversely affected if we are unable to obtain adequate supplies in a timely manner.” in Part I, Item 1A of this
Annual Report for additional information.
Our corporate headquarters are located in a facility we own in Plano, Texas. We also lease or own properties around the world
for use as sales and administrative offices, research and development centers, manufacturing facilities, warehouses and logistics
centers. The size or location of these properties can change from time to time based on our business requirements. See “Properties” in
Part I, Item 2 of this Annual Report for additional information.
BACKLOG
The amount of backlog to be shipped during any period is dependent upon various factors, and orders are subject to cancellation
or modification, usually with no penalty to the customer. Orders are generally booked from one month to greater than twelve months
in advance of delivery. The rate of booking of new orders can vary significantly from month to month. We, and the industry as a
whole, continue to experience a trend towards shorter customer-requested lead-times, and we expect this trend to continue. 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, we believe that the amount of our backlog at any date is not
an accurate measure of our future sales. We strive to maintain proper inventory levels to support our customers’ just-in-time order
expectations. Our backlog of orders, based on expected ship date, was $122 million at December 31, 2015 and $130 million at
December 31, 2014.
PATENTS, TRADEMARKS AND LICENSES
Historically, patents and trademarks have not been material to our operations, but we expect them to become more important,
particularly as they relate to our miniature and power efficient packaging technologies.
Our initial product patent portfolio was primarily composed of discrete technologies. In the late 1990s, our engineers began to
research and develop innovative packaging technologies, which produced several important breakthroughs and patents, such as the
PowerDI® series of packaging technology to foster our growth in the semiconductor industry.
We acquired Anachip Corp., a fabless semiconductor company, in 2006, which initiated our presence in the analog product
market with a portfolio of standard linear and low dropout regulator products, among others.
Through our acquisition of the assets of APD Semiconductor, Inc. in 2006, we acquired the SBR® patents and trademark.
SBR® is a state-of-the-art integrated circuit wafer processing technology, which is able to integrate and improve the benefits of the
two existing rectifier technologies into a single device. The creation of a finite conduction cellular IC, combined with inherent design
uniformity, has allowed manufacturing costs to be kept competitive with the existing power device technology, and thus has produced
a breakthrough in rectifier technology.
PowerDI and SBR are registered trademarks of Diodes Incorporated
In 2008, we acquired Zetex, which subsequently increased our available discrete and analog technologies with patents and
trademarks for bipolar transistors and power management products such as LED drivers. LED drivers support a wide range of
applications for automotive, safety and security, architecture, and portable lighting and are highly efficient and cost-effective.
In 2012, we acquired PAM, a provider of advanced analog and high-voltage power ICs. PAM’s product portfolio includes Class
D audio amplifiers, DC-DC converters and LED backlighting drivers, which has strengthened our position as a global provider of
high-quality and high-efficiency, space-saving analog products by expanding our product portfolio with innovative “filter-less” digital
audio amplifiers, application-specific power management ICs, as well as high-performance LED drivers and DC-DC converters.
In 2013, we acquired BCD, a leading supplier of standard linear and power management devices. BCD has a product portfolio
that includes AC/DC and DC/DC solutions for chargers and power adapters. BCD’s established presence in Asia, with a particularly
strong local market position in China, offers us even greater participation into the consumer electronics, computing and
communications end-markets.
In 2015, we acquired Pericom. Pericom designs, develops and markets high-performance ICs and FCPs used in many of today’s
advanced electronic systems. ICs include functions that support the connectivity, timing and signal conditioning of high-speed parallel
and serial protocols that transfer data among a system’s microprocessor, memory and various peripherals, such as displays and
monitors, and between interconnected systems. FCPs are electronic components that provide frequency references such as crystals and
oscillators for computer, communication and consumer electronic products. Pericom’s analog, digital and mixed-signal ICs, together
with our FCPs enable higher system bandwidth and signal quality, resulting in better operating reliability and signal integrity, and
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lower overall system cost in applications such as notebook computers, servers, network switches and routers, storage area networks,
digital TVs, cell phones, GPS and digital media players.
Currently, our licensing of patents to other companies is not material. We do, however, license certain product technology from
other companies, but we do not consider licensed technology royalties to be material. We believe the duration and other terms of the
licenses are appropriate for our current needs. See “Risk Factors – We may be subject to claims of infringement of third-party
intellectual property rights or demands that we license third-party technology, which could result in significant expense, reduction in
our intellectual property rights and a negative impact on our business, operating results and financial condition.” in Part I, Item 1A
of this Annual Report for additional information.
COMPETITION
Numerous semiconductor manufacturers and distributors serve the discrete, logic and analog semiconductor components
market, making competition intense. Some of our larger competitors include Fairchild Semiconductor Corporation, Infineon
Technologies A.G., NXP Semiconductors N.V., ON Semiconductor Corporation, Rohm Electronics USA, LLC, Toshiba Corporation
and Vishay Intertechnology, Inc., many of which have greater financial, marketing, distribution, brand name recognition, research and
development, manufacturing and other resources. Accordingly, we from time to time may reposition product lines or decrease prices,
which may affect our sales of, and profit margins on, such product lines. The price, features, availability and quality of the products,
and our ability to design products and deliver customer service in keeping with the customers’ needs, determine the competitiveness of
our products. We believe that our product focus, packaging expertise and our flexibility and ability to quickly adapt to customer needs
affords us competitive advantages. See “Risk Factors – The semiconductor business is highly competitive, and increased competition
may harm our business, operating results and financial condition.” in Part I, Item 1A of this Annual Report for additional
information.
ENGINEERING AND RESEARCH AND DEVELOPMENT
Our engineering and research and development groups consist of applications, circuit design, and product development
engineers who assist in determining the direction of our future product lines. One of their key functions is to work closely with
market-leading customers to further refine, expand and improve our product portfolio within our target product types and packages. In
addition, customer requirements and acceptance of new package types are assessed and new, higher-density and more energy-efficient
packages are developed to satisfy customers’ needs.
Product development engineers work directly with our semiconductor circuit design and layout engineers to develop and design
products that match our customers’ requirements. We have the capability to capture the customers’ electrical and packaging
requirements and translate those requirements into product specifications which can then be designed and manufactured to support
customers’ end-system applications.
For the years ended December 31, 2015, 2014 and 2013, our investment in research and development activities was
approximately $57 million, $52 million and $48 million, respectively, or approximately 7%, 6% and 6%, respectively, of net sales.
EMPLOYEES
As of December 31, 2015, we employed 7,695 employees (including approximately 1,000 temporary labor or independent
contractors). 6,674 of our employees were in Asia, 558 were in the U.S. and 463 were in Europe. None of our employees in Asia or
the U.S. are subject to a collective bargaining agreement, but a majority of our employees in Europe is covered by local labor
agreements. We consider our relations with our employees to be satisfactory. See “Risk Factors – We may fail to attract or retain the
qualified technical, sales, marketing, finance and management/executive personnel required to operate our business successfully,
which could adversely affect our business, operating results and financial condition.” in Part I, Item 1A of this Annual Report for
additional information.
ENVIRONMENTAL MATTERS
We are subject to a variety of U.S. federal, state, local and foreign governmental laws, rules and regulations related to the use,
storage, handling, discharge or disposal of certain toxic, volatile or otherwise hazardous chemicals used in our manufacturing process
in China, the U.S. and the U.K. where our wafer fabrication facilities are located, and in China, Taiwan and Germany where our
assembly and test facilities are located. Any of these regulations could require us to acquire equipment or to incur substantial other
costs to comply with environmental regulations or remediate problems. For the years ended December 31, 2015, 2014 and 2013, our
capital expenditures for environmental controls have not been material. As of December 31, 2015, there were no known
environmental claims or recorded liabilities. See “Risk Factors – We are subject to many environmental laws and regulations that
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could result in significant expenses and could adversely affect our business, operating results and financial condition.” in Part I,
Item 1A of this Annual Report for additional information.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We conduct business with two related companies: Lite-On Semiconductor Corporation and its subsidiaries and affiliates
(collectively, “LSC”), and Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”). LSC owned
approximately 17% of our outstanding Common Stock as of December 31, 2015. We conduct business with a significant company,
Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (collectively, “Keylink”). Keylink is our 5% joint venture partner
in our two Shanghai assembly and test facilities. In addition, Ya Guang is our 5% joint venture partner in our two Chengdu assembly
and test facilities; however, we have no material transactions with Ya Guang.
Raymond Soong, the Chairman of the Board of Directors, is also the Chairman of LSC and the Chairman of Lite-On
Technology Corporation (“LTC”), a significant shareholder of LSC. C.H. Chen, our former President and Chief Executive Officer and
currently the Vice Chairman of the Board of Directors, is also Vice Chairman of LSC and a board member of LTC. Dr. Keh-Shew Lu,
a member of our Board of Directors and our President and Chief Executive Officer, is also a board member of Nuvoton. In addition,
L.P. Hsu, a member of our Board of Directors, is also a consultant to LTC and a supervisor of the board of Nuvoton.
The Audit Committee of the Board of Directors reviews all related party transactions for potential conflict of interest situations
on an ongoing basis. We believe that all related party transactions are on terms no less favorable to us than would be obtained from
unaffiliated third parties. For more information concerning our relationships with LSC, Keylink and Nuvoton, see “Risk Factors – One
of our external suppliers is also a related party. The loss of this supplier could harm our business, operating results and financial
condition.” in Part I, Item 1A and Note 13 of “Notes to Consolidated Financial Statements” of this Annual Report for additional
information.
SEASONALITY
Historically, our net sales have been affected by the cyclical nature of the semiconductor industry. In addition, our net sales
have been subject to some seasonal variation with weaker net sales in the first and fourth calendar quarters. See Note 17 (unaudited)
of “Notes to Consolidated Financial Statements” of this Annual Report for additional information on our quarterly results.
AVAILABLE INFORMATION
Our website address is http://www.diodes.com. We make available, free of charge through our website, our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).
Our filings may also be read and copied at the SEC’s Public Reference Room at 100 F Street NE, Room 1580 Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC
also maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file with the SEC.
Our website also provides investors access to financial and corporate governance information including our corporate
governance guidelines, Code of Business Conduct, whistleblower hotline, and press releases. The contents of our website are not
incorporated by reference into this Annual Report on Form 10-K.
Cautionary Statement for Purposes of the “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995
Many of the statements, included in this Annual Report on Form 10-K, contain forward-looking statements and information
relating to our company. We generally identify forward-looking statements by the use of terminology such as “may,” “will,” “could,”
“should,” “potential,” “continue,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” or similar phrases or the
negatives of such terms. We base these statements on our beliefs as well as assumptions we made using information currently
available to us. Such statements are subject to risks, uncertainties and assumptions, including those identified in “Risk Factors,” as
well as other matters not yet known to us or not currently considered material by us. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or
projected. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking
statements. Forward-looking statements do not guarantee future performance and should not be considered as statements of fact.
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You should not unduly rely on these forward-looking statements, which speak only as of the date of this Annual Report on Form
10-K. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new
information or future events or otherwise. 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.
Item 1A.
Risk Factors.
Investing in our Common Stock involves a high degree of risk. You should carefully consider the following risks and other
information in this report before you decide to buy our Common Stock. Our business, financial condition or operating results may
suffer if any of the following risks are realized. Additional risks and uncertainties not currently known to us may also adversely affect
our business, financial condition or operating results. If any of these risks or uncertainties occurs, the trading price of our Common
Stock could decline and you could lose part or all of your investment.
RISKS RELATED TO OUR BUSINESS
The success of our business depends on the strength of the global economy and the stability of the financial markets, and any
weaknesses in these areas may have a material adverse effect on our net sales, operating results and financial condition.
Weaknesses in the global economy and financial markets can lead to lower consumer discretionary spending and demand for
items that incorporate our products in the consumer electronics, computing, industrial, communications and the automotive sectors. A
decline in end-user demand can affect our customers’ demand for our products, the ability of our customers to meet their payment
obligations and the likelihood of customers canceling or deferring existing orders. Our net sales, operating results and financial
condition could be negatively affected by such actions.
During times of difficult market conditions, our fixed costs combined with lower net sales and lower profit margins may have a
negative impact on our business, operating results and financial condition.
The semiconductor industry is characterized by high fixed costs. Notwithstanding our utilization of third-party manufacturing
capacity, most of our production requirements are met by our own manufacturing facilities. In difficult economic environments, we
could be faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. During such
periods, our manufacturing facilities do not operate at full capacity and the costs associated with this excess capacity are expensed
immediately and not capitalized into inventory. When our utilization rates decline to abnormally low production levels, we generally
experience lower gross margins. The market conditions in the future may adversely affect our utilization rates and consequently our
future gross margins, and this, in turn, could have a material negative impact on our business, operating results and financial
condition.
Downturns in the highly cyclical semiconductor industry or changes in end-market demand could adversely affect our operating
results and financial condition.
The semiconductor industry is highly cyclical, and periodically experiences significant economic downturns characterized by
diminished product demand, production overcapacity and excess inventory, which can result in rapid erosion in average selling prices.
From time to time, the semiconductor industry experiences order cancellations and reduced demand for products, resulting in
significant net sales declines, due to excess inventories at end-equipment manufacturers and general economic conditions, especially
in the technology sector. The market for semiconductors may experience renewed, and possibly more severe and prolonged
downturns, which may harm our operating results and financial condition.
In addition, we operate in a few narrow markets of the broader semiconductor market and, as a result, cyclical fluctuations may
affect these segments to a greater extent than they affect the broader semiconductor market. This may cause us to experience greater
fluctuations in our operating results and financial condition than compared to some of our broad line semiconductor competitors. In
addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix, changes
in end-user markets and the costs associated with the introduction of new products. The markets for our products depend on continued
demand in the consumer electronics, computing, communications, industrial and automotive sectors. These end-user markets also tend
to be cyclical and may also experience changes in demand that could adversely affect our operating results and financial condition.
The semiconductor business is highly competitive, and increased competition may harm our business, operating results and
financial condition.
The semiconductor industry in which we operate is highly competitive. We expect intensified competition from existing
competitors and new entrants. Competition is based on price, product performance, product availability, quality, reliability,
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technological innovation and customer service. We compete in various markets with companies of various sizes, many of which are
larger and have greater resources or capabilities as it relates to financial, marketing, distribution, brand name recognition, research and
development, manufacturing and other resources than we have. As a result, they may be better able to develop new products, market
their products, pursue acquisition candidates and withstand adverse economic or market conditions. Most of our current major
competitors are broad line semiconductor manufacturers who often have a wider range of product types and technologies than we do.
In addition, companies not currently in direct competition with us may introduce competing products in the future. Some of our
current major competitors are Fairchild Semiconductor Corporation, Infineon Technologies A.G., NXP Semiconductors N.V., ON
Semiconductor Corporation, Rohm Electronics USA, LLC, Toshiba Corporation and Vishay Intertechnology, Inc. We may not be able
to compete successfully in the future, and competitive pressures may harm our business, operating results and financial condition.
One of our external suppliers is also a related party. The loss of this supplier could harm our business, operating results and
financial condition.
In 2015, 2014 and 2013, LSC, our largest stockholder, accounted for approximately 2%, 3%, and 4%, respectively, of our
silicon wafer supply, and 3%, 2% and 3%, respectively, of our finished goods supply. The loss of LSC as a supplier could materially
harm our business, operating results and financial condition.
Delays in initiation of production at facilities due to implementing new production techniques or resolving problems associated
with technical equipment malfunctions could adversely affect our manufacturing efficiencies, operating results and financial
condition.
Our manufacturing efficiency has been and will be an important factor in our future profitability, and we may not be able to
maintain or increase our manufacturing efficiency. Our manufacturing and testing processes are complex, require advanced and costly
equipment and are continually being modified in our efforts to improve product performance and cost. Difficulties in the
manufacturing process can lower yields. Technical or other problems could lead to production delays, order cancellations and lost net
sales. In addition, any problems in achieving acceptable yields, construction delays, or other problems in upgrading or expanding
existing facilities, building new facilities, bringing new manufacturing capacity to full production or changing our process
technologies, could also result in capacity constraints, production delays and a loss of future net sales and customers. Our operating
results also could be adversely affected by any increase in fixed costs and operating expenses related to increases in production
capacity if net sales do not increase proportionately, or in the event of a decline in demand for our products.
Our wafer fabrication facilities are located in Shanghai, China, Kansas City, Missouri, and Manchester, U.K., while our
manufacturing facilities in Shanghai, Taipei, Taiwan, Chengdu, China, Jinan, China, and Neuhaus, Germany, perform assembly and
test functions. Any disruption of operations at these facilities could have a material adverse effect on our manufacturing efficiencies,
operating results and financial condition.
We are and will continue to be under continuous pressure from our customers and competitors to reduce the price of our products,
which could adversely affect our growth and profit margins.
Prices for our products tend to decrease over their life cycle. There is substantial and continuing pressure from customers to
reduce the total cost of purchasing our products. To remain competitive and retain our customers and gain new ones, we must continue
to reduce our costs through product and manufacturing improvements. We must also strive to minimize our customers’ shipping and
inventory financing costs and to meet their other goals for rationalization of supply and production. Our net sales growth and profit
margins will suffer if we cannot effectively continue to reduce our costs and keep our product prices competitive.
Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product
sales and may demand to audit our operations from time to time. A failure to qualify a product or a negative audit finding could
adversely affect our net sales, operating results and financial condition.
Prior to purchasing our products, our customers may require our products to undergo an extensive qualification process, which
involves rigorous reliability testing. This qualification process may continue for six months or longer. However, qualification of a
product by a customer does not ensure any sales of the product to that customer. In addition, we are focusing more on the automotive
and industrial markets. These markets, automotive in particular, require higher quality standards. Although we are working to ensure
our organization and products meet the more rigorous quality standards, there can be no assurances we will succeed. Even after
successful qualification and sales of a product to a customer, a subsequent revision to the product, changes in the product’s
manufacturing process or the selection of a new supplier by us may require a re-qualification process, which may result in delayed net
sales and excess or obsolete inventory. After our products are qualified, it can take an additional six months or more before the
customer commences volume production of components or devices that incorporate our products. Despite these uncertainties, we
devote substantial resources, including design, engineering, sales, marketing and management efforts, toward qualifying our products
with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, such
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failure or delay would preclude or delay sales of such product to the customer, which may adversely affect our net sales, operating
results and financial condition.
In addition, from time to time, our customers may demand an audit of our records, product manufacturing, qualification, and
packaging processes, business practices and other related items to verify that we have complied with our business obligations,
standard processes and procedures, product specifications and certain governing laws and regulations related to our business practices,
and in accordance with the agreed terms and conditions of mutual business agreements. If the audit shows any deficiency in any of
these categories, our customers may require us to implement extensive protocols to remedy the deficiency, assess us significant
penalties, refuse shipments of our products, return existing inventory, cancel orders, or terminate our business relationship, each of
which will adversely affect our net sales, operating results and financial condition.
Our customer orders are subject to cancellation or modification usually with no penalty. High volumes of order cancellation or
reduction in quantities ordered could adversely affect our net sales, operating results and financial condition.
All of our customer orders are subject to cancellation or modification, usually with no penalty to the customer. Orders are
generally made on a purchase order basis, rather than pursuant to long-term supply contracts, and are booked from immediate delivery
to twelve months or more in advance of delivery. The rate of booking new orders can vary significantly from month to month. We,
and the semiconductor industry as a whole, are experiencing a trend towards shorter customer-requested lead-times, which is the
amount of time between the date a customer places an order and the date the customer requires shipment. Furthermore, our industry is
subject to rapid changes in customer outlook and periods of excess inventory due to changes in demand in the end-markets our
industry serves. As a result, many of our purchase orders are revised, and may be cancelled, with little or no penalty and with little or
no notice. However, we must still commit production and other resources to fulfilling these purchase orders even though they may
ultimately be cancelled. If a significant number of purchase orders are cancelled or product quantities ordered are reduced, and we are
unable to timely generate replacement orders, we may build up excess inventory and our net sales, operating results and financial
condition may suffer.
Production at our manufacturing facilities could be disrupted for a variety of reasons, including natural disasters and other
extraordinary events, which could prevent us from producing enough of our products to maintain our sales and satisfy our
customers’ demands and could adversely affect our operating results and financial condition.
A disruption in production at our manufacturing facilities could have a material adverse effect on our business. Disruptions
could occur for many reasons, including fire, floods, hurricanes, typhoons, droughts, tsunamis, volcanoes, earthquakes, disease or
other similar natural disasters, unplanned maintenance or other manufacturing problems, labor shortages, power outages or shortages,
telecommunications failures, strikes, transportation interruption, government regulation, terrorism or other extraordinary events. Such
disruptions may cause direct injury or damage to our employees and property and related internal controls with significant indirect
consequences. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may
take a significant time to start production, each of which could negatively affect our business and financial performance. If one of our
key manufacturing facilities is unable to produce our products for an extended period of time, our sales may be reduced by the
shortfall caused by the disruption, and we may not be able to meet our customers’ needs, which could cause them to seek other
suppliers. Such disruptions could have an adverse effect on our operating results and financial condition.
New technologies could result in the development of new products by our competitors and a decrease in demand for our products,
and we may not be able to develop new products to satisfy changes in demand, which would adversely affect our net sales, market
share, operating results and financial condition.
Our product range and new product development program are focused on low pin count semiconductor devices with one or
more active or passive components. Our failure to develop new technologies, or anticipate or react to changes in existing technologies,
either within or outside of the semiconductor market, could materially delay development of new products, which could result in a
decrease in our net sales and a loss of market share to our competitors. The semiconductor industry is characterized by rapidly
changing technologies and industry standards, together with frequent new product introductions. This includes the development of
new types of technology or the improvement of existing technologies, such as analog and digital technologies that compete with, or
seek to replace, discrete semiconductor technology. Our financial performance depends on our ability to design, develop, manufacture,
assemble, test, market and support new products and product enhancements on a timely and cost-effective basis. New products often
command higher prices and, as a result, higher profit margins. We may not successfully identify new product opportunities or develop
and bring new products to market or succeed in selling them into new customer applications in a timely and cost-effective manner.
Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive,
and since we operate primarily in a narrower segment of the broader semiconductor industry, this may have a greater effect on us than
it would if we were a broad-line semiconductor supplier with a wider range of product types and technologies. Many of our
competitors are larger and more established international companies with greater engineering and research and development resources
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than us. Our failure to identify or capitalize on any fundamental shifts in technologies in our product markets, relative to our
competitors, could harm our business, have a material adverse effect on our competitive position within our industry and harm our
relationships with our customers. In addition, to remain competitive, we must continue to reduce package sizes, improve
manufacturing costs and expand our sales. We may not be able to accomplish these goals, which would adversely affect our net sales,
market share, operating results and financial condition.
We may be adversely affected by any disruption in our information technology systems, which could adversely affect our cash
flows, operating results and financial condition.
Our operations are dependent upon our information technology systems, which encompass all of our major business functions.
We rely upon such information technology systems to manage and replenish inventory, to fill and ship customer orders on a timely
basis, to coordinate our sales activities across all of our products and services and to coordinate our administrative activities. A
substantial disruption in our information technology systems for any prolonged time period (arising from, for example, system
capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in
receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems
might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins and similar
disruptions affecting the global Internet. There can be no assurance that such delays, problems, or costs will not have a material
adverse effect on our cash flows, operating results and financial condition.
As our operations grow in both size and scope, we will continuously need to improve and upgrade our systems and
infrastructure while maintaining the reliability and integrity of our systems and infrastructure. The expansion of our systems and
infrastructure will require us to commit substantial financial, operational and technical resources before the volume of our business
increases, with no assurance that the volume of business will increase. In particular, we have upgraded our financial reporting system
and are currently seeking to upgrade other information technology systems. These and any other upgrades to our systems and
information technology, or new technology, now and in the future, will require that our management and resources be diverted from
our core business to assist in compliance with those requirements. There can be no assurance that the time and resources our
management will need to devote to these upgrades, service outages or delays due to the installation of any new or upgraded
technology (and related customer issues), or the impact on the reliability of our data from any new or upgraded technology will not
have a material adverse effect on our cash flows, operating results and financial condition.
A significant portion of our operations operate on a single Enterprise Resource Planning (“ERP”) platform. To manage our
international operations efficiently and effectively, we rely heavily on our ERP system, internal electronic information and
communications systems and on systems or support services from third parties. Any of these systems are subject to electrical or
telecommunications outages, computer hacking or other general system failure. It is also possible that future acquisitions will operate
on different ERP systems and that we could face difficulties in integrating operational and accounting functions of new acquisitions.
Difficulties in upgrading or expanding our ERP system or system-wide or local failures that affect our information processing could
adversely affect our cash flows, operating results and financial condition.
We may be subject to claims of infringement of third-party intellectual property rights or demands that we license third-party
technology, which could result in significant expense, reduction in our intellectual property rights and a negative impact on our
business, operating results and financial condition.
The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to
time, third parties have asserted, and may in the future assert, patent, copyright, trademark and other intellectual property rights to
technology that is important to our business and have demanded, and may in the future demand, that we license their patents and
technology. Any litigation to determine the validity of allegations that our products infringe or may infringe these rights, including
claims arising through our contractual indemnification of our customers, or claims challenging the validity of our patents, regardless
of its merit or resolution, could be costly and divert the efforts and attention of our management and technical personnel. We may not
prevail in litigation given the complex technical issues and inherent uncertainties in intellectual property litigation. If litigation results
in an adverse ruling, we could be required to:
(cid:120) pay substantial damages for past, present and future use of the infringing technology;
(cid:120) cease manufacture, use or sale of infringing products;
(cid:120) discontinue the use of infringing technology;
(cid:120) expend significant resources to develop non-infringing technology;
(cid:120) pay substantial damages to our customers or end-users to discontinue use or replace infringing technology with non-infringing
technology;
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(cid:120) license technology from the third party claiming infringement, which license may not be available on commercially reasonable
terms, or at all; or
(cid:120) relinquish intellectual property rights associated with one or more of our patent claims, if such claims are held invalid or
otherwise unenforceable.
We depend on third-party suppliers for timely deliveries of raw materials, manufacturing services, product and process
development, parts and equipment, as well as finished products from other manufacturers, and our reputation with customers,
operating results and financial condition could be adversely affected if we are unable to obtain adequate supplies in a timely
manner.
Our manufacturing operations depend upon obtaining adequate supplies of raw materials, manufacturing services, product and
process development, parts and equipment on a timely basis from third parties. In some instances, a supplier may be our sole-source
supplier. Our operating results could be adversely affected if we are unable to obtain adequate supplies of raw materials,
manufacturing services, product and process development, parts and equipment in a timely manner or if the costs charged to us were
to increase significantly. Our business could also be adversely affected if there is a significant degradation in the quality of raw
materials used in our products, or if the raw materials give rise to compatibility or performance issues in our products, any of which
could lead to an increase in customer returns or product warranty claims. Although we maintain rigorous quality control systems,
errors or defects may arise from a supplied raw material and be beyond our detection or control. In addition, we may be subject to
quality claims from customers who purchased goods from companies before we acquired those companies. Any interruption in, or
change in quality of, the supply of raw materials, manufacturing services, product and process development, parts or equipment
needed to manufacture our products could adversely affect our reputation with customers, operating results and financial condition.
In addition, we sell finished products from other manufacturers. Our business could also be adversely affected if there are
quality problems with the finished products we sell. From time to time, various suppliers may extend lead-times, limit supplies or
increase prices due to capacity constraints or other factors. We have no long-term purchase contracts with any of these manufacturers
and, therefore, have no contractual assurances of continued supply, pricing or access to finished products that we sell, and any such
manufacturer could discontinue supplying to us at any time. Additionally, some of our suppliers of finished products or wafers
compete directly with us and may, in the future, choose not to supply products to us.
If we do not succeed in continuing to vertically integrate our business, we will not realize the cost and other efficiencies we
anticipate, which could adversely affect our ability to compete, our operating results and financial condition.
We are continuing to vertically integrate our business. Key elements of this strategy include continuing to expand our sales
organization, manufacturing capacity, wafer foundry and research and development capability and expand our marketing, product
development, package development and assembly and test operations in company-owned facilities or through the acquisition of
established contractors. There are certain risks associated with our vertical integration strategy, including:
(cid:120) difficulties associated with owning a manufacturing business, including, but not limited to, the maintenance and management of
manufacturing facilities, equipment, employees and inventories and limitations on the flexibility of controlling overhead;
(cid:120) difficulties in continuing expansion of our operations in Asia and Europe, because of the distance from our U.S. headquarters
and differing regulatory and cultural environments;
(cid:120) the need for skills and techniques that are outside our traditional core expertise;
(cid:120) less flexibility in shifting manufacturing or supply sources from one region to another;
(cid:120) even when independent suppliers offer lower prices, we may continue to source wafers from our captive manufacturing
facilities, which may result in us having higher costs than our competitors;
(cid:120) difficulties developing and implementing a successful research and development team; and
(cid:120) difficulties developing, protecting, and gaining market acceptance of, our proprietary technology.
The risks of becoming a fully integrated manufacturer are amplified in an industry-wide slowdown because of the fixed costs
associated with manufacturing facilities. In addition, we may not realize the cost, operating and other efficiencies that we expect from
continued vertical integration. If we fail to successfully vertically integrate our business, our ability to compete, profit margins,
operating results and financial condition may suffer.
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Part of our growth strategy involves identifying and acquiring companies. We may be unable to identify suitable acquisition
candidates or consummate desired acquisitions and, if we do make any acquisitions, we may be unable to successfully integrate
any acquired companies with our operations, which could adversely affect our business, operating results and financial condition.
A significant part of our growth strategy involves acquiring companies. For example, (i) in 2000, we acquired FabTech, Inc., a
wafer fabrication company, in order to have our own wafer manufacturing capabilities, (ii) in 2006, we acquired Anachip Corp. as an
entry into the analog market, (iii) in 2006, we acquired the net operating assets of APD Semiconductor, Inc., (iv) in 2008, we acquired
Zetex plc., (v) in 2012, we acquired over 50% of the outstanding common stock of Eris Technology Corporation, (vi) also in 2012, we
acquired Power Analog Microelectronics, Inc., (vii) in 2013, we acquired BCD Semiconductor Manufacturing Limited and (viii) in
2015, we acquired Pericom Semiconductor Corporation. In addition, from time to time, we may be in various stages of discussions
with potential acquisition targets as we intend to continue to expand and diversify our operations by making further acquisitions.
However, we may be unsuccessful in identifying suitable acquisition candidates, or we may be unable to consummate a desired
acquisition. To the extent we do make acquisitions, if we are unsuccessful in integrating these companies or their operations or
product lines with our operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a
material adverse effect on our business, operating results and financial condition. In addition, we may not realize all of the benefits we
anticipate from any such acquisitions. Some of the risks that may affect our ability to integrate or realize any anticipated benefits from
acquisitions that we may make include those associated with:
(cid:120) unexpected losses of key employees or customers of the acquired company;
(cid:120) bringing the acquired company’s standards, processes, procedures and controls into conformance with our operations;
(cid:120) coordinating our new product and process development;
(cid:120) hiring additional management and other critical personnel;
(cid:120) increasing the scope, geographic diversity and complexity of our operations;
(cid:120) difficulties in consolidating facilities and transferring processes and know-how;
(cid:120) difficulties in reducing costs of the acquired entity’s business;
(cid:120) diversion of management’s attention from the management of our business; and
(cid:120) adverse effects on existing business relationships with customers.
We are subject to litigation risks, including securities class action litigation, which may be costly to defend and the outcome of
which is uncertain and could adversely affect our business and financial condition.
All industries, including the semiconductor industry, are subject to legal claims, with and without merit, including securities
class action litigation that may be particularly costly and which may divert the attention of our management and our resources in
general. We are involved in a variety of legal matters, most of which we consider either routine matters that arise in the normal course
of business or immaterial for our aggregate business operations. These routine matters typically fall into broad categories such as those
involving suppliers and customers, employment and labor, and intellectual property. We believe it is unlikely that the final outcome of
these legal claims will have a material adverse effect on our financial position, operating results or cash flows. However, defense and
settlement costs can be substantial, even with respect to claims that we believe have no merit. Due to the inherent uncertainty of the
litigation process, the resolution of any particular legal claim or proceeding could adversely affect our business, operating results and
financial condition.
From time to time, we have been, or may in the future be, involved in securities litigation or litigation arising from our
acquisitions. We can provide no assurance as to the outcome of any such litigation matter in which we are a party. These types of
matters are costly to defend and even if resolved in our favor, could have a material adverse effect on our business, financial
condition, operating results and cash flow. Such litigation could also substantially divert the attention of our management and our
resources in general. Uncertainties resulting from the initiation and continuation of securities or other litigation could harm our ability
to obtain credit and financing for our operations and to compete in the marketplace. Because the price of our Common Stock has been,
and may continue to be, volatile, we can provide no assurance that securities litigation will not be filed against us in the future. In
addition, we can provide no assurance that our past or future acquisitions will not subject us to additional litigation. See Part I, Item 3
“Legal Proceedings” of this Annual Report for more information on our legal proceedings.
We are subject to many environmental laws and regulations that could result in significant expenses and could adversely affect our
business, operating results and financial condition.
We are subject to a variety of U.S. federal, state, local and foreign governmental laws, rules and regulations related to the use,
storage, handling, discharge or disposal of certain toxic, volatile or otherwise hazardous chemicals used in manufacturing our products
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throughout the world. Some of these regulations in the U.S. include the Federal Clean Water Act, Clean Air Act, Resource
Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes
and regulations. Any of these regulations could require us to acquire equipment or to incur substantial other expenses to comply with
environmental regulations. If we were to incur such additional expenses, our product costs could significantly increase, materially
affecting our business, financial condition and operating results. Any failure to comply with present or future environmental laws,
rules and regulations could result in fines, suspension of production or cessation of operations, any of which could have a material
adverse effect on our business, operating results and financial condition. Our operations affected by such requirements include, among
others: the disposal of wastewater containing residues from our manufacturing operations through publicly operated treatment works
or sewer systems, and which may be subject to volume and chemical discharge limits and may also require discharge permits; and the
use, storage and disposal of materials that may be classified as toxic or hazardous. Any of these may result in, or may have resulted in,
environmental conditions for which we could be liable.
Some environmental laws impose liability, sometimes without fault, for investigating or cleaning up contamination on, or
emanating from, our currently or formerly owned, leased or operated properties, as well as for damages to property or natural
resources and for personal injury arising out of such contamination. Such liability may also be joint and several, meaning that we
could be held responsible for more than our share of the liability involved, or even the entire liability. In addition, the presence of
environmental contamination could also interfere with ongoing operations or adversely affect our ability to sell or lease our properties.
Environmental requirements may also limit our ability to identify suitable sites for new or expanded plants. Discovery of
contamination for which we are responsible, the enactment of new laws and regulations, or changes in how existing requirements are
enforced, could require us to incur additional costs for compliance or subject us to unexpected financial liabilities.
Our products may be found to be defective and, as a result, warranty claims and product liability claims may be asserted against
us, which may harm our business, reputation with our customers, operating results and financial condition.
Our products are typically sold at prices that are an insignificant portion of the overall value of the equipment or other goods in
which they are incorporated. For example, our products that are incorporated into a television may be sold for several cents, whereas
the television maker might sell the television for several hundred dollars. Although we maintain rigorous quality control systems, we
receive warranty claims and product liability claims for some of these products that are defective, or that do not perform to published
specifications. Since a defect or failure in our products could give rise to failures in the end-products that incorporate them (and
consequential claims for damages against our customers from their customers), we may face claims for damages that are
disproportionate to the net sales and profits we receive from the products involved. In addition, our ability to reduce such liabilities
may be limited by the laws or the customary business practices of the countries where we do business. Even in cases where we do not
believe we have legal liability for such claims, we may choose to pay for them to retain a customer’s business or goodwill or to settle
claims to avoid protracted litigation. Our operating results and business could be adversely affected as a result of a significant quality
or performance issue in our products, if we are required or choose to pay for the damages that result. We may choose not to carry
liability insurance, may not have sufficient insurance coverage, or may not have sufficient resources, to satisfy all possible warranty
claims and product liability claims. In addition, any perception that our products are defective would likely result in reduced sales of
our products, loss of customers and harm to our business, reputation, operating results and financial condition.
We may fail to attract or retain the qualified technical, sales, marketing, finance and management/executive personnel required to
operate our business successfully, which could adversely affect our business, operating results and financial condition.
Our future success depends, in part, upon our ability to attract and retain highly qualified technical, sales, marketing, finance and
managerial personnel. Personnel with the necessary expertise are scarce and competition for personnel with these skills is intense. We
may not be able to retain existing key technical, sales, marketing, finance and managerial employees or be successful in attracting,
assimilating or retaining other highly qualified technical, sales, marketing, finance and managerial/executive personnel in the future.
For example, we have faced, and continue to face, intense competition for qualified technical and other personnel in China, where our
assembly and test facilities are located. A number of U.S. and multi-national corporations, both in the semiconductor industry and in
other industries, have recently established and are continuing to establish factories and plants in China, and the competition for
qualified personnel has increased significantly as a result. If we are unable to retain existing key employees or are unsuccessful in
attracting new highly qualified employees, our business, operating results and financial condition could be materially and adversely
affected.
We may not be able to achieve future growth, and any such growth may place a strain on our management and on our systems and
resources, which could adversely affect our business, operating results and financial condition.
Our ability to successfully grow our business requires effective planning and management. Our past growth, and our targeted
future growth, may place a significant strain on our management and on our systems and resources, including our financial and
managerial controls, reporting systems and procedures. In addition, we will need to continue to train and manage our workforce
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worldwide. If we are unable to effectively plan and manage our growth effectively, our business and prospects will be harmed and we
will not be able to maintain our profitable growth, which could adversely affect our business, operating results and financial condition.
Obsolete inventories as a result of changes in demand for our products and change in life cycles of our products could adversely
affect our business, operating results and financial condition.
The life cycles of some of our products depend heavily upon the life cycles of the end-products into which our products are
designed. End-market products with short life cycles require us to manage closely our production and inventory levels. Inventory may
also become obsolete because of adverse changes in end-market demand. We may in the future be adversely affected by obsolete or
excess inventories, which may result from unanticipated changes in the estimated total demand for our products or the estimated life
cycles of the end-products into which our products are designed. In addition, some customers restrict how far back the date of
manufacture for our products can be and certain customers may stop ordering products from us and go out of business due to adverse
economic conditions; therefore, some of our product inventory may become obsolete and, thus, adversely affect our business,
operating results and financial condition.
If OEMs do not design our products into their applications, our net sales may be adversely affected.
We expect an increasingly significant portion of net sales will come from products we design specifically for our customers.
However, we may be unable to achieve these design wins. In addition, a design win from a customer does not guarantee future sales to
that customer. Without design wins from OEMs, we would only be able to sell our products to these OEMs as a second source, which
usually means we are only able to sell a limited amount of product to them. Once an OEM designs another supplier’s semiconductors
into one of its product platforms, it is more difficult for us to achieve future design wins with that OEM’s product platform because
changing suppliers involves significant cost, time, effort and risk to an OEM. Achieving a design win with a customer does not ensure
that we will receive significant net sales from that customer, and we may be unable to convert design wins into actual sales. Even after
a design win, the customer is not obligated to purchase our products and can choose at any time to stop using our products, if, for
example, its own products are not commercially successful.
We are subject to interest rate risk that could have an adverse effect on our cost of working capital and interest expenses, which
could adversely affect our business, operating results and financial condition.
We currently have a U.S. banking credit facility under which we may draw up to $500 million with the possibility of an
additional $200 million. A rise in interest rates could have an adverse impact upon our cost of working capital and our interest expense.
As of December 31, 2015, an increase of 1% in interest rates on our outstanding debt would increase our annual interest rate expense
by approximately $5 million.
We may have a significant amount of debt with various financial institutions worldwide. Any indebtedness could adversely affect
our business, operating results, financial condition and our ability to meet payment obligations under such debt.
We may have a significant amount of debt and substantial debt service requirements on our borrowings, including our credit
facilities with various financial institutions worldwide. As of December 31, 2015 $465 million was outstanding under our U.S.
banking credit facility. In addition, we have short-term foreign credit facilities with borrowing capacities of approximately
$84 million and with $1 million used for import and export guarantees. We have approximately $2 million of foreign long-term debt.
A significant amount of debt could have significant consequences on our future operations, including:
(cid:120) making it more difficult for us to meet our payment and other obligations under our outstanding debt;
(cid:120) resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt
agreements, which event of default could result in all of our debt becoming immediately due and payable and, in the case of an
event of default under our secured debt could permit the lenders to foreclose on our assets securing that debt;
(cid:120) reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate
purposes, and limiting our ability to obtain additional financing for these purposes;
(cid:120) subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates;
(cid:120) limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in
which we operate and the general economy; and
(cid:120) placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.
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Any of the above-listed factors could have an adverse effect on our business, operating results, financial condition and our
ability to meet our payment obligations under our debt.
Restrictions in our credit facilities may limit our business and financial activities, including our ability to obtain additional capital
in the future.
Our U.S. banking credit facility contains covenants imposing various restrictions on our business and financial activities. These
restrictions may affect our ability to operate our business and undertake certain financial activities and may limit our ability to take
advantage of potential business or financial opportunities as they arise. The restrictions these covenants place on us include limitations
on our ability to incur liens, incur indebtedness, make investments, dissolve or merge or consolidate with or into another entity,
dispose of certain property, make restricted payments, issue or sell equity interests, engage in other different material lines of business,
conduct related party transactions, enter into certain burdensome contractual obligations and use proceeds from any credit facility to
purchase or carry margin stock or to extend credit to others for the same purpose. The Credit Agreement also requires us to meet
certain financial ratios, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio.
Our ability to comply with the U.S. banking credit facility may be affected by events beyond our control, including prevailing
economic, financial and industry conditions, and are subject to the risks stated in this section of the Annual Report. The breach of any
of these covenants or restrictions could result in an event of default under the facility. An event of default under the facility would
permit the lenders under the facility to declare all amounts owed under such facility to be immediately due and payable in full. Upon
acceleration of our indebtedness, we may be unable to repay the accelerated amount of principal and interest on the credit facilities
that would then be due. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial
Condition-Debt instruments” in Part II, Item 7 of this Annual Report for additional information.
Our business benefits from certain Chinese government incentives. Expiration of, or changes to, these incentives could adversely
affect our operating results and financial condition.
The Chinese government has provided various incentives to technology companies, including our manufacturing facilities
located in Shanghai and Chengdu, China, in order to encourage development of the high-tech industry. These incentives include
reduced tax rates and other measures. As a result, we are entitled to a preferential enterprise income tax rate of 15% so long as our
manufacturing facilities continue to maintain their High and New Technology Enterprise (“HNTE”) status. One of our Shanghai
manufacturing facilities was approved for HNTE status for the tax years 2011-2013. For 2014 and future years, this facility no longer
qualifies for HNTE status and, therefore, all of its income will be taxed at the statutory tax rate of 25%. Our other Shanghai
manufacturing facility has been approved for HNTE status for the tax years 2015-2017. In addition, one of our wafer fabrication
facilities and one research and development facility located in Shanghai have been approved for HNTE status for the tax years 2014-
2016. HNTE qualification requires metrics based on China research and development expenditures as well as research and
development headcount and overall college-degreed headcount. Any prior years that have already been approved are subject to audit
requirements. If we were to no longer meet the HNTE requirements, our statutory tax rate for our approved Shanghai assembly and
test facility and wafer fabrication facility would increase to 25% for any period in which an audit shows we were not compliant, which
could adversely affect our operating results and financial condition.
In connection with our joint venture in Chengdu, China, we have qualified for tax incentives offered in the Go West Initiative
(“Go West”), where companies are entitled to a preferential income tax rate of 15% for doing business in western China. If we were to
no longer meet the Go West requirements, our statutory tax rate for this joint venture would increase to 25%, which could adversely
affect our operating results and financial condition.
The impact of our HNTE and Go West status, collectively called tax holidays, decreased our tax expense by approximately $3
million, $2 million and $2 million for the years ended December 31, 2015, 2014 and 2013, respectively. The benefit of the tax
holidays on both basic and diluted earnings per share for the fiscal year ended December 31, 2015 was approximately $0.06. The
benefit of the tax holidays on both basic and diluted earnings per share for both the fiscal years ended December 31, 2014 and 2013
was approximately $0.05.
We operate a global business through numerous foreign subsidiaries, and there is a risk that tax authorities will challenge our
transfer pricing methodologies or legal entity structures, which could adversely affect our operating results and financial
condition.
We conduct operations worldwide through our foreign subsidiaries and are, therefore, subject to complex transfer pricing
regulations in the jurisdictions in which we operate. Transfer pricing regulations generally require that, for tax purposes, transactions
between related parties be priced on a basis that would be comparable to an arm’s length transaction between unrelated parties. There
is uncertainty and inherent subjectivity in complying with these rules. To the extent that any foreign tax authorities disagree with our
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transfer pricing policies, we could become subject to significant tax liabilities and penalties. Based on our current knowledge and
probability assessment of potential outcomes, we believe that we have provided for all tax exposures. However, the ultimate outcome
of a tax examination could differ materially from our provisions and could have a material adverse effect on our business, financial
condition, operating results and cash flows.
Our legal organizational structure could result in unanticipated unfavorable tax or other consequences which could have a
material adverse effect on our financial condition and operational results. In some countries, we maintain multiple entities for tax or
other purposes. Changes in tax laws, regulations, future jurisdictional profitability of us and our subsidiaries, and related regulatory
interpretations in the countries in which we operate may impact the taxes we pay or tax provision we record, which could have a
material adverse effect on our operating results. In addition, any challenges to how our entities are structured or realigned or their
business purpose by taxing authorities could result in us becoming subject to significant tax liabilities and penalties which could have
a material adverse effect on our business, financial condition, operating results and cash flows.
The value of our benefit plan assets and liabilities is based on estimates and assumptions, which may prove inaccurate and the
actual amount of expenses recorded in the consolidated financial statements could differ materially from the assumptions used.
Certain of our employees in the U.K. participate in a company-sponsored defined benefit plan, which is closed to new entrants
and is frozen with respect to future benefit accruals. The retirement benefit is based on the final average compensation and service of
each eligible employee. In accounting for these plans, we are required to make actuarial assumptions that are used to calculate the
earning value of the related assets, where applicable, and liabilities and the amount of expenses to be recorded in our consolidated
financial statements. Assumptions include, but are not limited to, the expected return on plan assets, discount rates, and mortality
rates. While we believe the underlying assumptions under the projected unit credit method are appropriate, the carrying value of the
related assets and liabilities and the actual amount of expenses recorded in the consolidated financial statements could differ materially
from the assumptions used.
Changes in actuarial assumptions for our defined benefit plan could increase the volatility of the plan’s asset value, require us to
increase cash contributions to the plan and have a negative impact on our cash flows, operating results and financial condition.
The assets of our defined benefit pension plan (the “plan”) in the U.K. provide pensions to employees and former employees.
The plan’s assets consist primarily of high-quality, corporate bonds and stocks traded on the London Stock Exchange and are
determined, from time to time, based on their fair market value. The plan’s obligation to pay pensions is estimated by using actuarial
assumptions. To the extent that the plan’s assets are not sufficient to meet the estimated amount of the plan’s obligations, further
funding of the plan will be required by the plan’s sponsoring employers, Diodes Zetex Limited and Diodes Zetex Semiconductors
Limited, over an agreed upon deficit recovery period.
As of December 31, 2015, the benefit obligation of the plan was approximately $145 million and the total assets in such plan
were approximately $116 million. Therefore, the plan was underfunded by approximately $29 million. The difference between plan
obligations and assets, or the funded status of the plan, is a significant factor in determining the net periodic benefit costs of the plan
and the ongoing funding requirements of the plan.
Any fluctuations in the U.K. equity markets and bond markets or changes in several key actuarial assumptions, including, but
not limited to, changes in discount rate, estimated return on the plan and mortality rates, can (i) affect the level of plan funding,
(ii) cause volatility in the net periodic pension cost, and (iii) increase our future funding requirements. In the event that actual results
differ from the actuarial assumptions or actuarial assumptions are changed, the funding status of the plan may change. Any deficiency
in the funding of the plan could result in additional charges to equity and an increase in future plan expense and cash contribution. A
significant increase in our funding requirements could have a negative impact on our cash flows, operating results and financial
condition.
During the second quarter of 2012, we adopted a payment plan with the trustees of the defined benefit plan, under which we
would pay approximately British Pound (“GBP”) 2 million (approximately $3 million based on a USD:GBP exchange rate of 1.6:1)
every year from 2012 through 2019. In the first quarter of 2015, based on the pension deficit, we adopted (as required every three
years) an amended payment plan in which we will pay approximately GBP 2 million (approximately $3 million based on a USD:GBP
exchange rate of 1.6:1) annually through 2030. This revised payment plan resulted in an increase of total required contributions from
GBP 8 million to GBP 33 million (approximately $46 million). If we fail to reach an agreement with the trustees, as we are required to
do every three years, the Pension Regulator in the U.K. could impose contributions on Diodes Zetex Limited or Diodes Zetex
Semiconductors Limited, or in limited circumstances could require financial support to be provided to the plan from entities connected
or associated with Diodes Zetex Limited or Diodes Zetex Semiconductors Limited. Furthermore, Diodes Zetex Limited and Diodes
Zetex Semiconductors Limited remain ultimately liable to fully fund the plan regardless of any failure to agree upon future
contributions in respect of a particular actuarial valuation, i.e., if either the plan or those companies were wound up, a debt equal to
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each company’s share of the entire outstanding deficit at that time (calculated on a statutory conservative basis) would be owed by the
relevant company. This could have a material adverse effect on our cash flows, operating results and financial condition.
Certain of our customers and suppliers require us to comply with their codes of conduct, which may include certain restrictions
that may substantially increase our cost of doing business as well as have an adverse effect on our operating efficiencies, operating
results and financial condition.
Certain of our customers and suppliers require us to agree to comply with the Electronic Industry Code of Conduct (“EICC”) or
their own codes of conduct, which may include detailed provisions on labor, human rights, health and safety, environment, corporate
ethics and management systems. Certain of these provisions are not requirements under the laws of the countries in which we operate
and may be burdensome to comply with on a regular basis. Moreover, new provisions may be added or material changes may be made
to any these codes of conduct, and we may have to promptly implement such new provisions or changes, which may substantially
further increase the cost of our business, be burdensome to implement and adversely affect our operational efficiencies and operating
results. If we violate any such codes of conduct, we may lose further business with the customer or supplier and, in addition, we may
be subject to fines from the customer or supplier. While we believe that we are currently in compliance with our customers and
suppliers’ codes of conduct, there can be no assurance that, from time to time, if any one of our customers and suppliers audits our
compliance with such code of conduct, we would be found to be in full compliance. A loss of business from these customers or
suppliers could have a material adverse effect on our business, operating results and financial condition.
Compliance with government regulations and customer demands regarding the use of “conflict minerals” may result in increased
costs and may have a negative impact on our business, operating results and financial condition.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 imposes new disclosure requirements regarding the
use of certain minerals, which are mined from the Democratic Republic of Congo and adjoining countries, known as conflict minerals.
When these new requirements are fully implemented, they could affect the pricing, sourcing and availability of minerals used in the
manufacture of semiconductor devices (including our products). We are incurring additional costs associated with complying with the
disclosure requirements, such as costs related to determining the source of any conflict minerals used in our products. Our supply
chain is complex, and we may be unable to verify the origins for all metals used in our products. Customers may demand that the
products they purchase be free of conflict minerals. Therefore, we may encounter challenges with our customers and stockholders if
we are unable to certify that our products are conflict free. This requirement could affect the sourcing and availability of products we
purchase from suppliers. This may reduce the number of suppliers that may be able to provide conflict-free products, and may affect
our ability to obtain products in sufficient quantities to meet customer demand or at competitive prices.
There are risks associated with previous and future acquisitions. We may ultimately not be successful in overcoming these risks or
any other problems encountered in connection with acquisitions.
The risks commonly encountered in acquisitions of companies include, among other things, higher than anticipated acquisition
costs and expenses, the difficulty and expense in integrating the operations and personnel of the companies, the difficulty of bringing
standards, procedures and controls into conformance with our operations, the ability to coordinate our new products and process
development, the ability to hire additional management and other critical personnel, the ability to increase the scope, geographic
diversity and complexity of our operations, difficulties in consolidating facilities and transferring processes and know-how, difficulties
in reducing costs, prolonged diversion of our management’s attention from the management of our business, the ability to clearly
define our present and future strategies, the loss of key employees and customers as a result of changes in management and any
geographic distances may make integration slower and more challenging. We may ultimately not be successful in overcoming these
risks or any other problems encountered in connection with acquisitions.
In addition, any acquisition may cause large one-time expenses as well as create goodwill and other intangible assets that may
result in significant asset impairment charges in the future.
If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal control over financial
reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the
trading price of our Common Stock.
Effective internal controls are necessary for us to produce reliable financial reports and are important in our effort to prevent
financial fraud. We are required to periodically evaluate the effectiveness of the design and operation of our internal controls. These
evaluations may result in the conclusion that enhancements, modifications or changes to our internal controls are necessary or
desirable. While management evaluates the effectiveness of our internal controls on a regular basis, these controls may not always be
effective. There are inherent limitations on the effectiveness of internal controls, including collusion, management override, and
failure of human judgment. Because of this, control procedures are designed to reduce rather than eliminate business risks. If we fail to
maintain an effective system of internal controls or if management or our independent registered public accounting firm were to
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discover material weaknesses in our internal controls, we may be unable to produce reliable financial reports or prevent fraud, which
could harm our financial condition and operating results, and could result in a loss of investor confidence and a decline in our stock
price.
Our management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting
as of December 31, 2015 excluded the operations of Pericom. If we are not able to integrate Pericom operations into our internal
control over financial reporting, our internal control over financial reporting may not be effective.
Section 404 of the Sarbanes-Oxley Act (“SOX 404”) requires us to furnish a management certification and auditor attestation
regarding the effectiveness of our internal control over financial reporting. As a public company, we are required to report, among
other things, control deficiencies that constitute a “material weakness” or changes in internal control that materially affect, or are
reasonably likely to materially affect, internal control over financial reporting. A “material weakness” is a deficiency, or a
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
Complying with SOX 404 is time consuming and costly. The integration of Pericom operations into our internal control over
financial reporting will require additional time and resources from our management and other personnel and may increase our
compliance costs.
Failure to comply with SOX 404, including a delay in or failure to successfully integrate Pericom operations into our internal
control over financial reporting, or the report by us of a material weakness may cause investors to lose confidence in our consolidated
financial statements, and the trading price of our Common Stock may decline. If we fail to remedy any material weakness, our
financial statements may be inaccurate, our access to the capital markets may be restricted and the trading price of our Common Stock
may decline.
Terrorist attacks, or threats or occurrences of other terrorist activities, whether in the U.S. or internationally, may affect the
markets in which our Common Stock trades, the markets in which we operate and our operating results and financial condition.
Terrorist attacks, or threats or occurrences of other terrorist or related activities, whether in the U.S. or internationally, may
affect the markets in which our Common Stock trades, the markets in which we operate and our profitability. Future terrorist or related
activities could affect our domestic and international sales, disrupt our supply chains and impair our ability to produce and deliver our
products. Such activities could affect our physical facilities or those of our suppliers or customers. Such terrorist attacks could cause
seaports or airports, to or through which we ship, to be shut down, thereby preventing the delivery of raw materials and finished goods
to or from our manufacturing facilities in China, Taiwan and Germany and our wafer fabrication facilities in China, the U.S. and the
U.K., or to our regional sales offices. Due to the broad and uncertain effects that terrorist attacks have had on financial and economic
markets generally, we cannot provide any estimate of how these activities might negatively affect our future operating results and
financial condition.
System security risks, data protection breaches, cyber-attacks and other related cybersecurity issues could disrupt our internal
operations, and any such disruption could reduce our expected net sales, increase our expenses, damage our reputation and
adversely affect our stock price.
Experienced computer programmers and hackers may be able to penetrate our security controls and misappropriate or
compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer
programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack
our websites, products or otherwise exploit any security vulnerabilities of our websites and products. The costs to us to eliminate or
alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be
significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of
service, extortionate demands to decrypt files and loss of existing or potential customers that may impede our sales, manufacturing,
distribution or other critical functions and materially adversely affect our operating results, stock price and reputation.
We manage and store various proprietary information and sensitive or confidential data relating to our business and third party
business. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary
information or sensitive or confidential data about us or our partners or customers, including the potential loss, encryption or
disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us, our partners and
customers or the individuals affected to a risk of loss or misuse of this information, extortionate demands to decrypt files, result in
litigation and potential liability for us, damage our brand and reputation or otherwise harm our business. In addition, the cost and
operational consequences of implementing further data protection measures could be significant. Delayed sales, significant costs or
lost customers resulting from these system security risks, data protection breaches, cyber-attacks and other related cyber-security
issues could materially adversely affect our operating results, stock price and reputation.
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RISKS RELATED TO OUR INTERNATIONAL OPERATIONS
Our international operations subject us to risks that could adversely affect our operations.
We expect net sales from foreign markets to continue to represent a significant portion of our total net sales. In addition, the
majority of our manufacturing facilities are located in China. In each of the years ended 2015, 2014 and 2013, our Asian and European
subsidiaries represented approximately 90% of our net sales. There are risks inherent in doing business internationally, and any or all
of the following factors could cause harm to our business:
(cid:120) changes in, or impositions of, legislative or regulatory requirements, including income tax or value added tax laws in the U.S.
and in the countries in which we manufacture or sell our products;
(cid:120) compliance with trade or other laws in a variety of jurisdictions;
(cid:120) trade restrictions, transportation delays, work stoppages, and economic and political instability;
(cid:120) changes in import/export regulations, tariffs and freight rates;
(cid:120) difficulties in collecting receivables and enforcing contracts;
(cid:120) currency exchange rate fluctuations;
(cid:120) restrictions on the transfer of funds from foreign subsidiaries to the U.S.;
(cid:120) the possibility of international conflict, particularly between or among China, the U.K., Germany, Taiwan and the U.S.;
(cid:120) legal, regulatory, political and cultural differences among the countries in which we do business;
(cid:120) longer customer payment terms; and
(cid:120) changes in U.S. or foreign tax regulations.
We have significant operations and assets in China, the U.K., Germany, Hong Kong and Taiwan and, as a result, will be subject to
risks inherent in doing business in those jurisdictions, which may adversely affect our financial performance and operating
results.
We have a significant portion of our assets in mainland China, U.K., Germany, Hong Kong and Taiwan. Our ability to operate
in these countries may be adversely affected by changes in those jurisdictions’ laws and regulations, including those relating to
taxation, including, but not limited to income tax and value added tax, import and export tariffs, environmental regulations, land use
rights, property and other matters. In addition, our operating results and financial performance are subject to the economic and
political situations. We believe that our operations are in compliance with all applicable legal and regulatory requirements. However,
the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
Changes in the political environment or government policies in those jurisdictions could result in revisions to laws or regulations
or their interpretation and enforcement, increased taxation, restrictions on imports, import duties or currency revaluations. In addition,
a significant destabilization of relations between or among China, the U.K., Germany, Hong Kong, Taiwan and the U.S. could result
in restrictions or prohibitions on our operations or the sale of our products or the forfeiture of our assets in these jurisdictions. There
can be no certainty as to the application of the laws and regulations of these jurisdictions in particular instances. Enforcement of
existing laws or agreements may be sporadic and implementation and interpretation of laws inconsistent. Moreover, there is a high
degree of fragmentation among regulatory authorities, resulting in uncertainties as to which authorities have jurisdiction over
particular parties or transactions. The possibility of political conflict between these countries or with the U.S. could have an adverse
impact upon our ability to transact business in these jurisdictions and to generate profits.
A slowdown in the Chinese economy could limit the growth in demand for electronic devices containing our products, which would
have a material adverse effect on our business, operating results and prospects.
We believe that an increase in demand in China for electronic devices that include our products will be an important factor in
our future growth. Continuing weakness in the Chinese economy could result in a decrease in demand for electronic devices
containing our products and, thereby, materially and adversely affect our business, operating results and prospects.
Economic regulation in China could materially and adversely affect our business, operating results and prospects.
We have a significant portion of our manufacturing capacity in mainland China. In addition, in 2015 approximately 60% of our
total sales were shipped to customers in China. In recent years, the Chinese economy has experienced periods of rapid expansion and
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wide fluctuations in the rate of inflation. In response to these factors, the Chinese government has, from time to time, adopted
measures to regulate growth and contain inflation, including measures designed to restrict credit or control prices. Such actions in the
future could increase the cost of doing business in China or decrease the demand for our products in China and, thereby, have a
material adverse effect on our business, operating results and prospects.
We could be adversely affected by violations of the United States’ Foreign Corrupt Practices Act, the U.K.’s Bribery Act 2010 and
similar worldwide anti-bribery laws.
The United States’ Foreign Corrupt Practices Act (“FCPA”), the United Kingdom’s Bribery Act 2010 (the “U.K. Bribery Act”)
and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper
payments to government officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-
bribery laws. We operate in many parts of the world that may have experienced governmental corruption to some degree and, in
certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We train our staff
concerning FCPA, the U.K. Bribery Act and related anti-bribery laws. We have established procedures and controls to monitor
internal and external compliance. There can be no assurance that our internal controls and procedures always will protect us from
reckless or criminal acts committed by our employees or agents. If we are found to be liable for FCPA, the U.K. Bribery Act and other
anti-bribery law violations (either due to our own acts or inadvertence, or due to the acts or inadvertence of others), we could incur
criminal or civil penalties or other sanctions, which could have a material adverse effect on our business and operating results.
We are subject to foreign currency risk as a result of our international operations.
We face exposure to adverse movements in foreign currency exchange rates, principally the Chinese Yuan, the Taiwanese
dollar, the Euro and the British Pound Sterling and, to a lesser extent, the Japanese Yen and the Hong Kong dollar. Our income and
expenses are based on a mix of currencies and a decline in one currency relative to the other currencies could adversely affect our
operating results. Furthermore, our operating results are reported in U.S. dollars, which is our reporting currency. In the event the U.S.
dollar weakens against a foreign currency, we will experience a currency transaction loss, which could adversely affect our operating
results. Also, fluctuations in foreign currency exchange rates may have an adverse impact and be increasingly influential to our overall
sales, profits and operating results as amounts that are measured in foreign currency are translated back to U.S. dollars for reporting
purposes. Our foreign currency risk may change over time as the level of activity in foreign markets grows and could have an adverse
impact upon our financial results, especially if the portion of our sales attributable to Europe increases. We do not usually employ
hedging techniques designed to mitigate foreign currency exposures and, therefore, we could experience currency losses as these
currencies fluctuate against the U.S. dollar.
China is experiencing rapid social, political and economic change, which has increased labor costs and other related costs that
could make doing business in China less advantageous than in prior years. Increased labor costs in China could adversely affect
our business, operating results and financial condition.
Historically, labor in China has been readily available at a lower cost compared to other countries, and any increase in labor cost
in China has been consistent with the projected annual increase in the inflation index and the amount of past labor cost increases.
However, because China is experiencing rapid social, political and economic change, there can be no assurance that labor will
continue to be available in China at costs consistent with historical levels. Any future increase in labor cost in China is likely to be
higher than historical and projected amounts and may occur multiple times in any given year. As a result of experiencing such rapid
social, political and economic change, China is also likely to enact new, and/or revise its existing, labor laws and regulations on
employee compensation and benefits. These changes in Chinese labor laws and regulations will likely to have an adverse effect on
product manufacturing costs in China. Furthermore, if China workers go on strike to demand higher wages, our operations could be
disrupted. Many of our suppliers are currently dealing with labor shortages in China, which may result in future supply delays and
disruptions and may drive a substantial increase in their labor costs that is likely to be shared by us in the form of price increases to us.
New or revised government labor laws or regulations, strikes or labor shortages could cause our product costs to rise and/or could
cause manufacturing partners on whom we rely to exit the business. These events could have a material adverse impact on our product
availability and quality, which would affect our business, operating results and financial condition.
We may not continue to receive preferential tax treatment in Asia, thereby increasing our income tax expense and reducing our net
income.
As an incentive for establishing our manufacturing subsidiaries in China, we receive preferential tax treatment. Governmental
changes in foreign tax law may cause us not to be able to continue receiving these preferential tax treatments in the future, which may
cause an increase in our income tax expense, thereby reducing our net income.
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The distribution of any earnings of our foreign subsidiaries to the U.S. may be subject to U.S. income taxes, thus reducing our net
income.
We intend to permanently reinvest overseas all earnings from foreign subsidiaries, except to the extent such undistributed
earnings have previously been subject to U.S. tax. As of December 31, 2015, we had undistributed earnings from non-U.S. operations
of approximately $536 million (including approximately $42 million of restricted earnings, which are not available for dividends).
Undistributed earnings of our China subsidiaries comprise $383 million of this total. Additional U.S. federal and state income taxes of
approximately $146 million would be required should the $536 million of such earnings be repatriated to the U.S. as dividends.
In the future, if we plan to distribute earnings of our foreign subsidiaries to the U.S, we may be required to pay U.S. income
taxes on these earnings to the extent we have not previously recorded deferred U.S. taxes on such earnings. Any such taxes would
reduce our net income in the period in which these earnings are distributed.
RISKS RELATED TO OUR COMMON STOCK
Variations in our quarterly operating results may cause our stock price to be volatile.
We have experienced substantial variations in net sales, gross profit margin and operating results from quarter to quarter. We
believe that the factors that influence this variability of quarterly results include:
(cid:120) strength of the global economy and the stability of the financial markets;
(cid:120) general economic conditions in the countries where we sell our products;
(cid:120) seasonality and variability in the computing and communications market and our other end-markets;
(cid:120) the timing of our and our competitors’ new product introductions;
(cid:120) product obsolescence;
(cid:120) the scheduling, rescheduling and cancellation of large orders by our customers;
(cid:120) the cyclical nature of the demand for our customers’ products;
(cid:120) our ability to develop new process technologies and achieve volume production at our fabrication facilities;
(cid:120) changes in manufacturing yields;
(cid:120) adverse movements in exchange rates, interest rates or tax rates; and
(cid:120) the availability of adequate supply commitments from our outside suppliers or subcontractors.
Accordingly, a comparison of our operating results from period to period is not necessarily meaningful to investors and our
operating results for any period do not necessarily indicate future performance. Variations in our quarterly results may trigger volatile
changes in our stock price.
General or industry specific market conditions or stock market performance or domestic or international macroeconomic and
geopolitical factors unrelated to our performance also may affect the price of our stock. For these reasons, investors should not rely on
recent or historical trends to predict future stock prices, financial condition, operating results or cash flows. In addition, as discussed in
Part I, Item 3 “Legal Proceedings” of this Annual Report, we are involved in several lawsuits. Additional volatility in the price of our
securities could result in the filing of additional litigation, which could result in substantial costs and the diversion of management
time and resources.
We may enter into future acquisitions and take certain actions in connection with such acquisitions that could adversely affect the
price of our Common Stock.
As part of our growth strategy, we expect to review acquisition prospects that would implement our vertical integration strategy
or offer other growth opportunities. From time to time, we may be in various stages of discussions and we may acquire businesses,
products or technologies in the future. In the event of future acquisitions, we could:
(cid:120) use a significant portion of our available cash;
(cid:120) issue equity securities, which would dilute current stockholders’ percentage ownership;
(cid:120) incur substantial debt;
(cid:120) incur or assume contingent liabilities, known or unknown;
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(cid:120) incur amortization expenses related to intangibles;
(cid:120) incur large, immediate accounting write-offs; and
(cid:120) create goodwill and other intangible assets that may require impairment charges in the future.
Such actions by us could harm our operating results and adversely affect the price of our Common Stock.
Our directors, executive officers and significant stockholders hold a substantial portion of our Common Stock, which may lead to
conflicts with other stockholders over corporate transactions and other corporate matters.
Our directors, executive officers and our affiliate, LSC, beneficially own approximately 24% of our outstanding Common Stock,
including options to purchase shares of our Common Stock that are exercisable within 60 days of December 31, 2015. These
stockholders, acting together, will be able to influence significantly all matters requiring stockholder approval, including the election
of directors and significant corporate transactions such as mergers or other business combinations. This control may delay, deter or
prevent a third party from acquiring or merging with us, which could adversely affect the market price of our Common Stock.
LSC, our largest stockholder, owns approximately 17% (approximately 8.1 million shares) of our Common Stock. Some of our
directors and executive officers may have potential conflicts of interest because of their positions with LSC or their ownership of LSC
common stock.
Raymond Soong, the Chairman of the Board of Directors, is the Chairman of LSC, and is the Chairman of Lite-On Technology
Corporation (“LTC”), a significant shareholder of LSC. C.H. Chen, our former President and Chief Executive Officer and currently
the Vice Chairman of the Board of Directors, is also Vice Chairman of LSC and a board member of LTC. Dr. Keh-Shew Lu, a
member of our Board of Directors and our President and Chief Executive Officer, is a board member of LTC and a board member of
Nuvoton. L.P. Hsu, a member of the Board of Directors since 2007, serves as a consultant to LTC and a supervisor of the board of
Nuvoton. Several of our directors and executive officers may own LSC common stock or hold options to purchase LSC common
stock. Service on our Board of Directors and as a director or officer of LSC, or ownership of LSC common stock by our directors and
executive officers, could create, or appear to create, actual or potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for LSC and us. For example, potential conflicts could arise in connection with
decisions involving the Common Stock owned by LSC, or under the other agreements we may enter into with LSC. In 2015, 2014 and
2013, LSC accounted for approximately 2%, 3%, and 4%, respectively, of our silicon wafer supply, and 3%, 2% and 3%, respectively,
of our finished goods supply.
We may have difficulty resolving any potential conflicts of interest with LSC, and even if we do, the resolution may be less
favorable than if we were dealing with an unrelated third party.
We were formed in 1959, and our early corporate records are incomplete. As a result, we may have difficulty in assessing and
defending against claims relating to rights to our Common Stock purporting to arise during periods for which our records are
incomplete.
We were formed in 1959 under the laws of California and reincorporated in Delaware in 1968. We have had several transfer
agents since being formed. In addition, our early corporate records, including our stock ledger, are incomplete. As a result, we may
have difficulty in assessing and defending against claims relating to rights to our Common Stock purporting to arise during periods for
which our records are incomplete.
Non-cash tender offers, debt equity swaps or equity exchanges to consummate our business activities are likely to have the effect of
diluting the ownership interest of existing stockholders, including qualified stockholders who receive shares of our Common Stock
in such business activities.
We, from time to time, may utilize non-cash tender offers, debt equity swaps or equity exchanges in accordance with the
guidance and rules promulgated by the SEC to consummate our business activities. Such means to consummate our business activities
will likely involve issuance of our Common Stock in large quantities and will subsequently dilute the ownership interest of existing
stockholders, including stockholders who previously received shares of our Common Stock in such transactions. Any sales in the
public market of the newly issued Common Stock could adversely affect prevailing market prices of our Common Stock. In addition,
utilizing non-cash tender offers, debt equity swaps or equity exchanges may encourage short selling because such utilization could
depress the price of our Common Stock.
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Anti-takeover effects of certain provisions of Delaware law and our Certificate of Incorporation and Bylaws, may hinder a take-
over attempt.
Some provisions of Delaware law, our certificate of incorporation and bylaws may be deemed to have an anti-takeover effect
and may delay or prevent a tender offer or takeover attempt, including those attempts that might result in a premium over the market
price for the shares held by stockholders.
Section 203 of Delaware General Corporation Law may deter a take-over attempt.
Section 203 of the Delaware General Corporation Law prohibits transactions between a Delaware corporation and an “interested
stockholder,” which is defined as a person who, together with any affiliates or associates, beneficially owns, directly or indirectly,
15.0% or more of the outstanding voting shares of a Delaware corporation. This provision prohibits certain business combinations
between an interested stockholder and a Delaware corporation for a period of three years after the date the stockholder becomes an
interested stockholder, unless:
(i)
(ii)
either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder is
approved by the corporation’s board of directors prior to the date the interested stockholder becomes an interested
stockholder;
the interested stockholder acquired at least 85.0% of the voting stock of the corporation (other than stock held by directors
who are also officers or by certain employee stock plans) in the transaction in which the stockholder became an interested
stockholder; or
(iii)
the business combination is approved by a majority of the board of directors and by the affirmative vote of 66-2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
For this purpose, business combinations include mergers, consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10.0% of the aggregate market value of the consolidated assets or outstanding stock of the corporation,
and certain transactions that would increase the interested stockholder’s proportionate share ownership in the corporation.
Certificate of Incorporation and Bylaw Provisions may deter a take-over attempt.
Provisions of our certificate of incorporation and bylaws may have the effect of making it more difficult for a third party to
acquire control of us. In particular, our certificate of incorporation authorizes our Board of Directors to issue, without further action by
the stockholders, up to 1,000,000 shares of preferred stock with rights and preferences, including voting rights, designated from time
to time by the Board of Directors. The existence of authorized but unissued shares of preferred stock enables our Board of Directors to
render it more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or
otherwise.
Item 1B.
Unresolved Staff Comments.
None
- 26 -
Item 2.
Properties.
Our primary physical properties at December 31, 2015 were as follows:
Lease
Year
Expiration Purchased
2010
Dec 2017
July 2016
Location
Primary use
USA - Plano, Texas
Headquarters/R&D center
USA - Westlake Village, California May 2016
Regional sales/Administrative office
July 2017
USA - San Jose, California
Regional sales office/R&D center
USA - Amherst, New Hampshire
Monthly
Regional sales office
USA - Plano, Texas
Land (future headquarters site)
USA - Lee’s Summit, Missouri
Manufacturing facility/R&D center
Germany - Munich
Regional sales office
England - Manchester
Manufacturing facility/R&D center
England - Manchester
Administrative/Logistics
Germany - Neuhaus
Manufacturing facility/R&D center
China - Shanghai
Regional sales office
China - Shanghai
Regional sales office
China - Shanghai
Regional sales office
China - Shenzhen
Regional sales office
China - Shanghai
Manufacturing facility/R&D/Logistics
China - Chengdu
Manufacturing facility
China - Shanghai
Dormitory
SDC
China - Shanghai
Manufacturing facility/R&D/Logistics/Dormitory China - Shanghai
China - Chengdu
Manufacturing facility
China - Shanghai
Manufacturing facility/R&D/Logistics
China - Shanghai
Manufacturing facility/R&D/Logistics
China - Shanghai
Logistics center
South Korea - Seongnam-si
Regional sales office
South Korea - Gyunggi-Do
Regional sales office
Taiwan - Hsinchu
R&D center
Taiwan - Taipei
Sales/Administrative/Logistics
Taiwan - Taipei
Sales/Administrative/Logistics
Taiwan - Kaohsiung City
Regional sales office
Taiwan - Taipei
Regional Sales/Administrative office
Taiwan - Taipei
Manufacturing facility
R&D center/Logistics/Administrative
Taiwan - Taipei
Pericom:
June 2021
June 2020
Aug 2019
June 2016
Feb 2056
Dec 2020
Dec 2016
May 2016
Oct 2016
Nov 2018
Jan 2019
June 2019
Nov 2018
Nov 2018
July 2016
Milpitas, CA
Taiwan - Taipei
Administrative/R&D
Regional Sales/Administrative office
Manufacturing facility/Subsidiary Headquarters Taiwan - Taoyuan City
R&D Team Office
R&D Team Office
Factory plant
Headquarters & Administrative Building
R&D Building
IC Design Centre
Staff Dormitory
Management; Regional Sales Office
IC Design Centr; Management
Office Building
IC Design Center; Regional Sales Office,
Management
Taiwan - Zhubei City
Taiwan - Zhunan City
China - Jinan, Shandong
China - Jinan, Shandong
China - Jinan, Shandong
China - Shanghai
China - Shanghai, China
China - Shenzhen, China
China - Yangzhou
China - Yangzhou
Hong Kong
We believe our current facilities are adequate for the foreseeable future.
- 27 -
Jan 2017
Mar 2018
Dec 2017
Oct 2016
May 2018
Sq. Ft.
42,000
1,500
4,000
< 1,000
16 acres
70,000
6,000
75,000
81,000
53,000
7,000
10,000
1,200
17,286
691,913
698,000
56,855
26,910
186,878
40,000
567,090
59,902
5,767
2,000
< 1,000
26,000
35,500
11,000
< 1,000
11,000
62,000
50,000
85,040
11,390
78,762
2,430
1,270
145,568
93,423
81,523
30,036
1,567
6,524
21,528
6,085
9,113
2008
1998
2004
1996
2010
2013
2014
2015
2006
2014
2000-2008
2012
2008
2000
2009
2010
2012
1995
1998
2015
Item 3.
Legal Proceedings.
From time to time, we are involved in various legal proceedings that arise in the normal course of business. While we intend to
defend any lawsuit vigorously, we presently believe that the ultimate outcome of any current pending legal proceeding will not have
any material adverse effect on our financial position, cash flows or operating results. However, litigation is subject to inherent
uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact our
business and operating results for the period in which the ruling occurs or future periods. See Note 15 of the Notes to Consolidated
Financial Statements for detailed information regarding the status of our lawsuits.
Item 4.
Mine Safety Disclosures.
Not Applicable.
- 28 -
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Our Common Stock is traded on the Nasdaq Global Select Market (“NasdaqGS”) under the symbol “DIOD.” The following
table shows the range of high and low closing sales prices per share for our Common Stock for each fiscal quarter from January 1,
2014 as reported by NasdaqGS.
Calendar Quarter
Ended
Closing Sales Price of
Common Stock
First quarter 2016 (through February 23, 2016) .................................................. $
Fourth quarter 2015 .............................................................................................
Third quarter 2015 ..............................................................................................
Second quarter 2015............................................................................................
First quarter 2015 ................................................................................................
Fourth quarter 2014 .............................................................................................
Third quarter 2014 ..............................................................................................
Second quarter 2014............................................................................................
First quarter 2014 ................................................................................................
Holders and Recent Stock Price
High
22.30
25.09
24.11
28.32
30.43
27.74
30.05
30.30
26.12
$
Low
17.24
19.06
18.88
24.11
25.83
20.00
23.92
25.80
22.12
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
On February 23, 2016, the closing sales price of our Common Stock as reported by NasdaqGS was $17.98, and there were
approximately 326 holders of record of our Common Stock.
Dividends
We have never declared or paid cash dividends on our Common Stock, and currently do not intend to pay dividends in the
foreseeable future as we intend to retain any earnings for use in our business. Our U.S. banking credit facility permits us to pay
dividends up to $1.5 million per fiscal year to our stockholders so long as we have not defaulted and are in continuing operation at the
time of such dividend. The payment of dividends is within the discretion of our Board of Directors, and will depend upon, among
other things, our earnings, financial condition, capital requirements, and general business conditions.
Securities Authorized for Issuance Under Equity Compensation Plans
The information regarding our equity compensation plans required to be disclosed by Item 201(d) of Regulation S-K is
incorporated by reference from our 2016 definitive proxy statement into Item 12 of Part III of this Annual report.
- 29 -
Performance Graph
The following graph compares the yearly percentage change in the cumulative total stockholder return of our Common Stock
against the cumulative total return of the Nasdaq Composite and the Nasdaq Industrial Index for the five calendar years ending
December 31, 2015. The graph is not necessarily indicative of future price performance.
The graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual
Report into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2015
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
Diodes Incorporated
NASDAQ Industrial Index
NASDAQ Composite-Total Returns
Source: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2016.
The graph assumes $100 invested on December 31, 2010 in our Common Stock, the stock of the companies in the Nasdaq
Composite Index and the stock of companies in the Nasdaq Industrial Index, and that all dividends received within a quarter, if any,
were reinvested in that quarter.
December 2015
Diodes Incorporated ............................... Return %
Cum $
100
2010
2011
(21.08)
78.92
2012
(18.54)
64.28
2014
2013
17.02
35.79
87.29 102.15
2015
(16.65)
85.14
NASDAQ Industrial Index ..................... Return %
Cum $
NASDAQ Composite-Total Returns ...... Return %
9.56
100 100.31 121.90 176.19 181.44 198.79
44.54
21.52
0.31
2.98
(0.83)
6.96
99.17 116.48 163.21 187.27 200.31
40.12
17.45
14.75
Cum $
100
- 30 -
Issuer Purchases of Equity Securities
The Company repurchases shares of its Common Stock from time to time pursuant to publicly announced share repurchase
programs. During 2015, the Company repurchased 466,010 of its common shares at a cost of $11 million. All purchases were made
through open market transactions and were recorded as treasury stock. The following table contains information for shares
repurchased during the fourth quarter of 2015. None of the shares in this table were repurchased directly from any of our officers or
directors.
Total Number of Shares
Purchased (a)(cid:3)
(cid:3)(cid:3)
Average Price Paid per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Approximate
Dollar Value of Shares that
May Yet Be Purchased
Under the Plans or Programs
78,992 $
387,018
22.90
23.77
78,992 $
466,010
98,190,827
88,990,673
Period
Nov-15 ..................
Dec-15 ...................
(a)
Share repurchases are made pursuant to a share repurchase program authorized in November 2015 by the Company’s board of
directors to repurchase up to an aggregate of $100,000,000 of the Company’s outstanding Common Stock, $0.66 2/3 par value
per share. The share repurchase program is expected to continue through the end of 2019 unless extended or shortened by the
Board of Directors. Average price paid per share includes broker commissions.
- 31 -
Item 6.
Selected Financial Data.
The following selected consolidated financial data for the fiscal years ended December 31, 2015 through 2011 is qualified in its
entirety by, and should be read in conjunction with, the other information and consolidated financial statements, including the notes
thereto, appearing elsewhere herein. Certain immaterial amounts as presented in the accompanying consolidated financial statements
have been reclassified to conform to 2015 financial statement presentation.
(In thousands, except per share data)
Statement of Income Data
Net sales........................................................................ $
Gross profit ...................................................................
Selling, general and administrative expenses ................
Research and development expense ..............................
Amortization of acquisition-related intangible assets ...
Impairment of goodwill ................................................
Restructuring ................................................................
Loss (gain) on sale of assets .........................................
Total operating expenses ..............................................
Income from operations ................................................
Interest income .............................................................
Interest expense ............................................................
Amortization of debt discount ......................................
Gain (loss) on securities carried at fair value ................
Other income (expense) ................................................
Income before income taxes and noncontrolling
interest ..........................................................................
Income tax provision ....................................................
Net income ....................................................................
Less: net (income) loss attributable to noncontrolling
interest ..........................................................................
Net income attributable to common stockholders .........
Earnings per share attributable to common
stockholders:
Basic ..................................................................... $
Diluted .................................................................. $
Number of shares used in computation:
Basic .....................................................................
Diluted ..................................................................
2015
Years Ended December 31,
2013
2012
2014
2011
$
848,904
248,583
139,245
57,027
8,596
-
-
1,613
206,481
42,102
1,006
(4,232)
-
400
1,319
40,595
14,082
26,513
(2,239)
24,274
$
890,651
277,279
133,701
52,136
7,914
-
-
(983)
192,768
84,511
1,470
(4,332)
-
1,364
2,979
85,992
20,359
65,633
(1,955)
63,678
$
826,846
237,836
132,106
48,302
8,078
5,318
1,535
216
195,555
42,281
1,274
(5,580 )
-
601
9
38,585
14,481
24,104
2,428
26,532
$
633,806
161,586
101,363
33,761
5,122
-
-
(3,556)
136,690
24,896
778
(876)
-
7,100
(1,091)
30,807
4,825
25,982
(1,830)
24,152
0.50
0.49
$
$
1.35
1.31
$
$
0.57
0.56
$
$
0.53
0.51
$
$
48,210
49,500
47,184
48,594
46,363
47,658
45,780
46,899
635,251
193,697
89,974
27,231
4,503
-
-
-
121,708
71,989
1,024
(3,139)
(6,032)
(1,039)
861
63,664
10,157
53,507
(2,770)
50,737
1.12
1.09
45,202
46,713
Balance Sheet Data
Total assets ................................................................... $
Working capital ............................................................
Long-term debt, net of current portion ..........................
Total Diodes Incorporated stockholders' equity ............
2015
1,601,030
570,888
455,941
795,345
$
2014
1,179,157
526,239
140,787
768,275
$
As of December 31,
2013
1,162,258
493,169
182,799
702,742
$
2012
2011
$
920,063
377,892
44,131
677,185
793,064
317,087
2,857
633,760
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following section discusses management’s view of the financial condition, results of operations and cash flows of Diodes
Incorporated and its subsidiaries (collectively, “the Company,” “our Company,” “we,” “our,” “ours,” or “us”) and should be read
together with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this Form
10-K.
The following discussion contains forward-looking statements and information relating to our Company. We generally identify
forward-looking statements by the use of terminology such as “may,” “will,” “could,” “should,” “potential,” “continue,” “expect,”
“intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” or similar phrases or the negatives of such terms. We base these
statements on our beliefs as well as assumptions we made using information currently available to us. Such statements are subject to
risks, uncertainties and assumptions, including those identified in Part I, Item 1A.“Risk Factors,” as well as other matters not yet
known to us or not currently considered material by us. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Given
- 32 -
these risks and uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.
Forward-looking statements do not guarantee future performance and should not be considered as statements of fact.
You should not unduly rely on these forward-looking statements, which speak only as of the date of this Annual Report on Form
10-K. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new
information or future events or otherwise. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe
harbor” provisions for forward-looking statements. All forward-looking statements made in this Annual Report on Form 10-K are
made pursuant to the Act.
Summary of the Year Ended December 31, 2015
(cid:120) We acquired Pericom Semiconductor Corporation in November for approximately $403.2 million;
(cid:120) During the fourth quarter we incurred costs of approximately $8 million for Pericom employees for restricted stock awards and
change-in-control agreements.
(cid:120) Net sales were $849 million, a decrease of 4.7% from the $891 million in 2014;
(cid:120) Gross profit was $249 million, or 29.3% of net sales, a decrease of 10.1% from the $277 million, in 2014, or 31.1% of net sales.
in 2014;
(cid:120) Selling and administrative expenses were up $5.5 million, primarily related to costs associated with the Pericom acquisition,
when compared to 2014;
(cid:120) Net income attributable to common stockholders was $24 million, or $0.49 per diluted share, compared to $64 million, or $1.31
per diluted share, in 2014;
(cid:120) Cash flow from operations was $118 million compared to $134 million in 2014; and
(cid:120) We repurchased approximately $11 million or 466,010 shares of our outstanding common stock.
Summary of the Year Ended December 31, 2014
(cid:120) Net sales for 2014 increased approximately 8% to $891 million, compared to $827 million in 2013;
(cid:120) Gross profit for 2014 was $277 million, or 31.1% of net sales, an increase of 17% from the $238 million, or 28.8% of net sales,
in 2013. BCD’s margins improved from 2013 to 2014 but still negatively impacted our total gross margin by approximately 160
basis points, as compared to approximately 120 basis points in 2013;
(cid:120) Selling, general and administrative expenses, as a percentage of net sales, decreased 100 basis points to 15.0% for 2014
compared to 16.0% for 2013:
(cid:120) Net income attributable to common stockholders for 2014 was $64 million, or $1.31 per diluted share, an increase of 140% from
the $27 million, or $0.56 per diluted share, in 2013; and
(cid:120) Cash flow from operations for 2014 was $134 million, an increase of 22% from the $110 million generated in 2013.
Business Acquisitions
In the fourth quarter of 2015, we completed the acquisition of Pericom for aggregate consideration of approximately $403.2
million, excluding acquisition costs, fees and expenses. The cash portion of the acquisition price was funded by borrowings under our
bank credit facilities and use of existing cash. Pericom’s financial results have been included in our consolidated financial statements
from November 24, 2015.
In the first quarter of 2013, we completed the acquisition of BCD for an aggregate consideration of approximately $155 million,
excluding acquisition costs, fees and expenses, plus a $5 million employee retention plan.
Business Outlook
Looking forward, we remain focused on achieving our goal of $1 billion in annual revenue with model gross margins of 35%.
Acquisitions remain a key part of our growth strategy to reach our revenue goal. We have a solid pipeline of designs and expanded
customer relationships across all regions and product lines. The success of our business depends on, among other factors, the strength
of the global economy and the stability of the financial markets, our customers’ demand for our products, the ability of our customers
to meet their payment obligations, the likelihood of customers not canceling or deferring existing orders, and the strength of
- 33 -
consumers’ demand for items containing our products in the end-markets we serve. We believe the long-term outlook for our business
remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that has proven
successful for us over the years. See “Risk Factors – The success of our business depends on the strength of the global economy and
the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating
results and financial condition.” in Part I, Item 1A of this Annual Report for additional information.
Factors Relevant to Our Results of Operations
In 2015, the following factors affected, and, we believe, will continue to affect, our results of operations:
(cid:120) We continue to experience pressure from our customers to reduce the selling price for our products, and we expect future
improvements in net income to result primarily from increases in sales volume and improvements in product mix, as well as
manufacturing cost reductions in order to offset any reduction in average selling prices of our products.
(cid:120) For the years ended December 31, 2015, 2014 and 2013, our original equipment manufacturer (“OEM”) and electronic
manufacturing services (“EMS”) customers together accounted for 33%, 33% and 37% of net sales, respectively, while our
global network of distributors accounted for 67%, 67% and 63% of net sales, respectively.
(cid:120) Our gross profit margin was 29.3% in 2015, compared to 31.1% in 2014 and 28.8% in 2013. The decline in gross profit margin
in 2015 was due to lower capacity utilization, product mix and pricing. Future gross profit margins will depend primarily on
market prices, our product mix, manufacturing cost savings, and the demand for our products.
(cid:120) For 2015, the percentage of our net sales derived from our Asian subsidiaries was 80%, compared to 80% in 2014 and 82% in
2013. Europe accounted for approximately 11%, 10% and 9% of our net sales in 2015, 2014 and 2013, respectively. In addition,
North America accounted for approximately 9%, 10% and 9% of our net sales in 2015, 2014 and 2013, respectively.
(cid:120) For 2015, our capital expenditures were approximately 16.2% of net sales, which is higher than our previous 5% to 9% of net
sales model. The increase in 2015 was primarily due to the Chengdu, China site expansion. The Chengdu, China site expansion
is a long-term, multi-year project that will provide us additional capacity as needed.
(cid:120) During 2015, we invested approximately $133 million in our manufacturing and wafer fabrication facilities in China, and we
expect to continue to invest in our facilities, although the amount to be invested will depend on product demand and new
product developments.
(cid:120) Our investment in research and development for 2015 increased to approximately $57.0 million, or 6.7% of net sales, compared
to $52 million, or 5.9% of net sales, in 2014. Approximately $1 million of the increase in research and development for 2015 is
related to expense for restricted stock grants and change-in-control agreements for Pericom employees. We expect research and
development costs to continue to increase as we look to invest in developing new products.
Description of Sales and Expenses
Net sales
The principal factors that have affected or could affect our net sales from period to period are:
(cid:120) The condition of the economy in general and of the semiconductor industry in particular.
(cid:120) Our customers’ adjustments in their order levels.
(cid:120) Changes in our pricing policies or the pricing policies of our competitors or suppliers.
(cid:120) The addition or termination of key supplier relationships.
(cid:120) The rate of introduction and acceptance by our customers of new products.
(cid:120) Our ability to compete effectively with our current and future competitors.
(cid:120) Our ability to enter into and renew key corporate and strategic relationships with our customers, vendors and strategic alliances,
(cid:120) Changes in foreign currency exchange rates.
(cid:120) A major disruption of our information technology infrastructure.
(cid:120) Unforeseen catastrophic events, such as armed conflict, terrorism, fires, typhoons and earthquakes, and
(cid:120) Any other disruptions, such as labor shortages, unplanned maintenance or other manufacturing problems.
- 34 -
Cost of goods sold
Cost of goods sold includes manufacturing costs for our semiconductors and our wafers. These costs include raw materials used
in our manufacturing processes as well as labor costs and overhead expenses. Cost of goods sold is also impacted by yield
improvements, capacity utilization and manufacturing efficiencies. In addition, cost of goods sold includes the cost of products that we
purchase from other manufacturers and sell to our customers. Cost of goods sold is also affected by inventory obsolescence if our
inventory management is not efficient.
Selling, general and administrative expenses
Selling, general and administrative expenses relate primarily to compensation and associated expenses for personnel in general
management, sales and marketing, information technology, engineering, human resources, procurement, planning and finance, and
sales commissions, as well as outside legal, investor relations, accounting, consulting and other operating expenses. Also included in
selling, general and administrative expenses are acquisition costs from business combinations.
Research and development expenses
Research and development expenses consist of compensation and associated costs of employees engaged in research and
development projects, as well as materials and equipment used for these projects. Research and development expenses are primarily
associated with our wafer facilities in China, Kansas City, Missouri and Manchester, U.K. and our manufacturing facilities in Taiwan
and China, as well as with our engineers in the U.S. and Taiwan. All research and development expenses are expensed as incurred.
Amortization of acquisition-related intangible assets
Amortization of acquisition-related intangible assets consists of assets such as developed technologies and customer
relationships.
Impairment of goodwill
Impairment of goodwill consists of the impairment amount recognized as a result of a reporting unit’s goodwill exceeding its
implied fair value.
Restructuring
Restructuring consists of charges to reduce our cost structure to enhance operating effectiveness and improve profitability.
Gain on sale of assets
Gain on sale of assets consists of the sale of certain assets such as intangibles or buildings.
Interest income / expense
Interest income consists of interest earned on our cash and investment balances. Interest expense consists of interest payable on
our outstanding credit facilities and other debt instruments.
Gain (loss) on securities carried at fair value
From time to time we may hold investments in the form of common stock or some other similar equivalent and have elected fair
value accounting treatment.
Income tax provision
Our global presence requires us to pay income taxes in a number of jurisdictions. See Note 10 of “Notes to Consolidated
Financial Statements” for additional information.
Net income attributable to noncontrolling interest
This represents the minority investors’ share of our subsidiaries’ earnings.
- 35 -
Net income attributable to common stockholders
Net income attributable to common stockholders is net income less net income attributable to noncontrolling interest.
Results of Operations
The following table sets forth, for the periods indicated, the percentage that certain items in the statements of income bear to net
sales and the percentage dollar increase (decrease) of such items from period to period.
Percent of Net Sales
Year Ended December 31,
Percentage Dollar
Increase (Decrease)
Year Ended December 31,
2015
2014
2013
'14 to '15
'13 to '14
Net sales ...........................................................
Cost of goods sold ............................................
Gross profit ......................................................
Operating expenses ..........................................
Income from operations ...................................
Interest income .................................................
Interest expense and amortization of debt
discount ............................................................
Gain (loss) on securities carried at fair value ...
Other income (expenses) ..................................
Income before income
taxes and noncontrolling interest ......................
Income tax provision ........................................
Net income .......................................................
Net (income) loss attributable to
noncontrolling interest .....................................
Net income attributable to common
stockholders .....................................................
100%
100%
100%
(70.7)
29.3
(24.3)
5.0
0.1
(0.5)
0.0
0.2
4.8
1.7
3.1
(0.2)
2.9
(68.9)
31.1
(21.6)
9.5
0.2
(0.5)
0.2
0.3
9.7
2.3
7.4
(0.2)
7.1
(71.2)
28.8
(23.0)
6.0
0.0
(1.0)
0.0
0.0
5.0
2.0
3.0
0.0
3.0
(5 %)
(2 )
(10 )
7
(50 )
(32 )
(2 )
(71 )
(56 )
(53 )
(31 )
(60 )
15
(62 )
8%
4
17
(1)
100
15
(22)
127
NM
123
41
172
(181)
140
The following discussion explains in greater detail our consolidated operating results and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report
(in thousands).
Year 2015 Compared to Year 2014
Net sales and gross profit margin
Net sales................................................................................................. $
Cost of goods sold .................................................................................
Gross profit ............................................................................................
Gross profit margin ................................................................................
$
848,904
600,321
248,583
$
890,651
613,372
277,279
29.3%
31.1%
(41,747)
(13,051)
(28,696)
(5) %
(2)
(10)
-
2015
2014
Increase/
(Decrease)
% Change
The decrease in net sales for 2015 compared to 2014 was representative of weaker demand across several key end markets and
geographies and lower average selling prices. The decrease in net sales was partially offset by revenue of approximately $15 million
recorded related to Pericom. The softer environment negatively impacted the loading and utilization at our manufacturing facilities.
As a percent of sales, cost of goods sold increased to 70.7% for 2015, compared to 68.9% in the same period last year, reflecting the
decline in total revenue, the lower average selling prices, and the reduction in factory utilization. Cost of sales included $10.7 million
from Pericom operations. Additionally there was approximately $1 million of expense for restricted stock awards and change-in-
control agreements for Pericom employees.
- 36 -
Operating expenses
Selling, general and administrative ("SG&A") ...................................... $
Research and development ("R&D") .....................................................
Amortization of acquisition-related intangible assets ............................
Loss (gain) on sale of assets ..................................................................
Total ....................................................................................................... $
2015
2014
139,245
57,027
8,596
1,613
206,481
$
$
133,701
52,136
7,914
(983)
192,768
(cid:3)
$
$
Increase/
(Decrease)
% Change
5,544
4,891
682
2,596
13,713
4 %
9
9
264
7
Total operating expenses for 2015 increased approximately $14 million, or 7% when compared to 2014. Included in operating
expenses for 2015 are approximately $5 million from Pericom operations and additional expenses of approximately $7 million for
Pericom employees for restricted stock awards and change-in-control agreements. Of the components within operating expenses,
R&D, as a percentage of sales, increased slightly to 6.7% for 2015, compared to 5.9% in the same period last year. R&D expense
increased primarily due $1 million of expense for restricted stock grants and change-in-control agreements for Pericom employees,
packaging related development activity and increased investment associated with the Pericom acquisition in November 2015,
amortization of acquisition-related intangible assets increased reflecting the Pericom acquisition, and the loss on sale of assets reflects
the impairment of old assets during 2015 in our BCD wafer fab that are not able to convert from six inch to eight inch wafer diameter
production, and the gain realized on the sale of fixed assets in 2014 that did not repeat in 2015. SG&A, as a percentage of sales,
increased slightly to 16.4% of sales for 2015, compared to 15.0% in the same period last year. Included in SG&A expense for 2015
was approximately $6 million for Pericom employees related to restricted stock grants and change-in-control agreements.
Other income/(expenses)
Interest income ...................................................................................... $
Interest expense .....................................................................................
Gain on securities carried at fair value ...................................................
Other income (expenses) .......................................................................
Total ....................................................................................................... $
2015
2014
1,006
(4,232)
400
1,319
(1,507)
$
$
1,470
(4,332)
1,364
2,979
1,481
(cid:3)
$
$
Increase/
(Decrease)
% Change
(464)
(100)
(964)
(1,660)
(3,188)
(32) %
(2)
(71)
(56)
(215)
Interest income and gains on securities carried at fair value decreased as we held lower investable balances during the year. Our
investment balance increased at year end due to the investments acquired in the Pericom acquisition. Other income (expense)
decreased due to a higher level of currency gains on Taiwan currency recorded in 2014 when compared to 2015.
Income tax provision and noncontrolling interest
Income tax provision ............................................................................. $
Net (income) loss attributable to noncontrolling interest .......................
Net income attributable to common stockholders ..................................
2015
2014
$
14,082
(2,239)
24,274
20,359
(1,955)
63,678
(cid:3)
$
Increase/
(Decrease)
% Change
(6,277)
284
(39,404)
(31) %
15
(62)
We recognized income tax expense of approximately $14 million for 2015, resulting in an effective tax rate of approximately
35%, as compared to 24% for 2014. The decrease in tax expense from 2014 to 2015 was due primarily to the decrease in pretax
earnings during the same period. The increase in the effective tax rate from 2014 to 2015 was due primarily to an increase in earnings
in higher tax jurisdictions, relative to earnings in lower tax jurisdictions, and to the decrease in overall pretax earnings during the same
period.
- 37 -
Net (income) loss attributable to noncontrolling interest primarily represents the minority investors’ share of the earnings of
certain China subsidiaries and Eris. The noncontrolling interest in the subsidiaries and their equity balances are reported separately in
the consolidation of our financial statements.
Year 2014 Compared to Year 2013
Net sales, cost of goods sold and gross profit
Net sales................................................................................................. $
Cost of goods sold .................................................................................
Gross profit ............................................................................................
Gross profit margin ................................................................................
$
890,651
613,372
277,279
$
826,846
589,010
237,836
31.1%
28.8%
63,805
24,362
39,443
8 %
4
17
-
2014
2013
Increase/
(Decrease)
% Change
Net sales for 2014 increased due to an approximately 8% increase in units sold, which was due primarily to net sales increases
in our Asia markets. Average selling prices for 2014 were flat compared to 2013.
Cost of goods sold as a percentage of sales, decreased from 71.2% for 2013 to 68.9% for 2014. Our average unit cost decreased
by approximately 3%.
Gross profit as a percentage of net sales was 31.1% for 2014, compared to 28.8% for 2013. The increase in gross margin was
primarily due to lower gold prices, improved product mix, copper wire conversion and cost reduction efforts.
Operating expenses
Selling, general and administrative ("SG&A") ......................................... $
Research and development ("R&D") ........................................................
Amortization of acquisition-related intangible assets ...............................
Impairment of goodwill ............................................................................
Restructuring ............................................................................................
Loss (gain) on sale of assets .....................................................................
$
133,701
52,136
7,914
-
-
(983)
$
132,106
48,302
8,078
5,318
1,535
216
1,595
3,834
(164)
(5,318)
(1,535)
(1,199)
2014
2013
(cid:3)(cid:3)
Increase/
(Decrease)
% Change
1
8
(2)
(100)
(100)
(555)
SG&A for 2014 increased due primarily to increased selling expenses, partly offset by reduced retention bonus related to the
BCD acquisition. SG&A, as a percentage of net sales, improved to 15.0% in 2014, from 16.0% in 2013.
R&D for 2014 increased due primarily to an increase in employee related costs. R&D, as a percentage of net sales, was 6% for
both 2014 and 2013.
Amortization of acquisition-related intangibles was due primarily to the amortization expense on the acquired intangibles of
BCD.
Goodwill impairment for 2013 was related to Eris. There was no goodwill impairment for 2014.
There were no restructuring related costs for 2014. The restructuring in 2013 related to termination and severance costs of our
U.K. development team and the closure of our New York sales office.
We recorded a gain on sale of assets for 2014, due to the sale of a building in Taiwan.
Other income/(expenses)
Interest income ...................................................................................... $
Interest expense .....................................................................................
Gain on securities carried at fair value ...................................................
Other income (expenses) .......................................................................
2014
2013
$
1,470
(4,332)
1,364
2,979
1,274
(5,580)
601
9
(cid:3)
$
Increase/
(Decrease)
% Change
196
(1,248)
763
2,970
15 %
(22)
127
NA
- 38 -
Interest income for both 2014 and 2013 was relatively flat consisting of interest earned on bank deposits and short-term
investments.
Interest expense for 2014 declined in 2014 compared to 2013 primarily due to the repayment of $40 million on our revolving
senior credit facility.
Gain on securities resulted primarily from unrealized and realized gains on trading securities.
Other income for 2014 included approximately $2 million in currency gains. Included in other income for 2013 were foreign
currency gains and miscellaneous income.
Income tax provision and noncontrolling interest
Income tax provision ............................................................................. $
Net (income) loss attributable to noncontrolling interest .......................
Net income attributable to common stockholders ..................................
2014
2013
$
20,359
(1,955)
63,678
14,481
2,428
26,532
(cid:3)
$
Increase/
(Decrease)
% Change
5,878
(4,383)
37,146
41 %
(181)
140
We recognized income tax expense of approximately $20 million for 2014, resulting in an effective tax rate of approximately
24%, as compared to 38% for 2013. Income tax expense for 2013 includes approximately $5 million of additional tax expense related
to a tax audit by the China tax authorities. The increase in tax expense from 2013 to 2014 was due primarily to the increase in pretax
earnings during the same period.
Net (income) loss attributable to noncontrolling interest primarily represents the minority investors’ share of the earnings of
certain China subsidiaries and Eris. The noncontrolling interest in the subsidiaries and their equity balances are reported separately in
the consolidation of our financial statements. The loss attributable to noncontrolling interest for 2013 was due primarily to the
goodwill impairment attributable to Eris, of which 49% was recognized in noncontrolling interest.
Financial Condition
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, funds from operations and, if necessary, borrowings under our
credit facilities. On September 2, 2015, the Company and Diodes International B.V. (the “Foreign Borrower” and, collectively with
the Company, the “Borrowers”), and certain subsidiaries of the Company as guarantors, entered into an Amendment No. 3 to Credit
Agreement, Incremental Term Assumption Agreement, Limited Waiver and Consent (the “Amendment”) with Bank of America,
N.A., as Administrative Agent, and the lenders party to the Amendment (collectively, the “Lenders”), which amends the Credit
Agreement dated January 8, 2013 (as previously amended by Amendment No. 1 to Credit Agreement and Limited Waiver dated as of
November 1, 2013 and Amendment No. 2 to Credit Agreement and Amendment No. 1 to Collateral Agreement dated as of June 19,
2015) (as previously amended and as amended by the Amendment, the “Credit Agreement”).
The Amendment provided the Company with a $400 million revolving senior credit facility (the “Revolver”), which includes a
$10 million swing line sublimit, a $10 million letter of credit sublimit, and a $20 million alternative currency sublimit, and a $100
million term loan facility (the “Term Loan Facility”). We may from time to time request additional increases in the aggregate
commitments under the Credit Agreement of up to $200 million, subject to the Lenders electing to increase their commitments or by
means of the addition of new Lenders, and subject to at least half of each increase in aggregate commitments being in the form of term
loans, with the remaining amount of each increase being an increase in the amount of the Revolver. The Revolver and the term loan
both mature on January 8, 2018, and as of December 31, 2015, $464.5 million was outstanding. In addition, we have short-term
foreign credit facilities with borrowing capacity of approximately $84 million with $1 million used for import and export guarantees.
We also have foreign long-term debt of approximately $2 million. Our primary liquidity requirements have been to meet our capital
expenditure needs and to fund on-going operations. For 2015 and 2014, and 2013, our working capital was $571 million, $526
million, and $493 million, respectively. In 2015 our working capital increased due to increases in short-term investments, accounts
receivable and inventories. These increases were driven by the Pericom acquisition. Our working capital increased in 2014 due
primarily to the increase in cash and cash equivalents, and a decrease in accounts payable. We expect cash generated by our operations
together with existing cash, cash equivalents, short-term investments and available credit facilities to be sufficient to satisfy our
working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing
operations for at least the next 12 months.
- 39 -
In 2015, 2014 and 2013, our capital expenditures were approximately $138 million, $59 million and $44 million, respectively,
which includes approximately $62 million, $18 million and $7 million of capital expenditures related to the investment agreement
with the Management Committee of the Chengdu Hi-Tech Industrial Development Zone (the “CDHT”) for 2015, 2014 and 2013,
respectively. Our capital expenditures for these periods were primarily related to manufacturing expansion in our facilities in China
and, to a lesser extent, our wafer fabrication facility in the U.S. and office buildings. Capital expenditures in 2015 were approximately
16% of our net sales, which was greater than our previous historical 5% to 9% model due to the construction and furnishing of the
Chengdu manufacturing site.
In 2010, we announced an investment agreement with the Management Committee of the CDHT. Under this agreement, we
formed a joint venture with a Chinese partner, Chengdu Ya Guang Electronic Company Limited (“Ya Guang”), to establish a
semiconductor assembly and test facility in Chengdu, China. We currently own 95% of the joint venture. The CDHT granted the joint
venture a 50 year land lease, provides corporate and employee tax incentives, tax refunds, subsidies and other financial support. This
is a long-term, multi-year project that will provide us additional capacity as needed. As of December 31, 2015, we have invested $120
million, primarily for infrastructure, buildings and equipment related capital expenditures.
In November 2015, we completed the acquisition of Pericom for an aggregate consideration of approximately $403 million,
excluding acquisition costs, fees and expenses. The acquisition was funded by drawings on our bank credit facility and use of existing
funds. The acquisition is a continuation of our strategy to expand our semiconductor product offerings and to maximize our market
opportunities. In the future we may acquire product lines or companies in order to enhance our portfolio and accelerate our new
offerings, which could have a material impact on liquidity and require us to draw down on our credit facilities or increase our
borrowings and limits.
In March 2013, we completed the acquisition of BCD for an aggregate consideration of approximately $155 million, excluding
acquisition costs, fees and expenses, plus a $5 million employee retention plan. The acquisition was funded by borrowings under our
bank credit facilities.
We intend to permanently reinvest overseas all of our earnings from our foreign subsidiaries, except to the extent such
undistributed earnings have previously been subject to U.S. tax. Accordingly, deferred U.S. taxes are not recorded on undistributed
foreign earnings. As of December 31, 2015, our foreign subsidiaries held approximately $257 million of cash, cash equivalents and
investments of which approximately $166 million would be subject to a potential tax if repatriated to the U.S as dividends.
Restricted cash is pledged as collateral when we enter into agreements with banks for certain banking facilities. As of
December 31, 2015, restricted cash of $1 million was pledged as collateral for issuance of bank acceptance notes and letters of credit.
As of December 31, 2015, we had short-term investments of approximately $65 million. These investments are highly liquid
with maturity dates greater than three months at the date of purchase. The increase from $12 million in 2014, to 2015 reflects the
short-term investment portfolio acquired as part of Pericom. We generally can access these investments in a relatively short amount
of time but in doing so we generally forfeit a portion of interest income.
Discussion of Cash Flows
Cash and cash equivalents decreased approximately $25 million to $218 million in 2015 from $243 million in 2014. The
decrease is primarily driven by lower revenue, funds used to purchase Pericom, to pay down long-term debt and fund operating
expenses. Cash and cash equivalents increased from $197 million at December 31, 2013, to $243 million at December 31, 2014. The
increase during 2014 was primarily due to the increase in cash provided by operating activities and cash used in connection with the
acquisition of BCD in 2013, and was offset by the advance on the revolving note.
Net cash provided by operating activities ....... $
Net cash used by investing activities ..............
Net cash provided by (used by) financing
activities ..........................................................
Effect of exchange rates on cash and cash
equivalents ......................................................
Net increase (decrease) in cash and cash
equivalents ...................................................... $
Year Ended December 31,
2015
118,111
(459,446)
$
2014
134,272
(42,768)
Change
$
(16,161)
(416,678)
$
2014
134,272
(42,768 )
$
2013
109,891
(186,402)
Change
$
24,381
143,634
321,362
(35,759)
357,121
(35,759 )
112,361
(148,120)
(4,592)
(9,380)
4,788
(9,380 )
3,664
(13,044)
(24,565)
$
46,365
$
(70,930)
$
46,365
$
39,514
$
6,851
- 40 -
Operating Activities
Net cash provided by operating activities for 2015 was approximately $118 million, due primarily to $27 million of net income,
$80 million in depreciation and amortization, $19 million from non-cash share-based compensation, partially offset by a total of
approximately $10 million net decrease in other operating asset and operating liability accounts. Net cash provided by operating
activities for 2014 was approximately $134 million, due primarily to $66 million of net income, $77 million of depreciation and
amortization and $14 million from non-cash share-based compensation, partially offset by decreases in prepaids and accounts payable.
Net cash provided by operating activities was $110 million for 2013, due primarily to $24 million of net income, $74 million of
depreciation and amortization, $14 million from non-cash, share-based compensation, and a $15 million reduction in inventories,
partially offset by increases in accounts receivable and decreases in accounts payable.
Net cash provided by operating activities decreased approximately $16 million from 2014 to 2015. This decrease resulted
primarily from a decrease in net income, partially offset by non-cash related items such as depreciation, amortization, and changes in
operating assets and liabilities.
Net cash provided by operating activities increased approximately $24 million from 2013 to 2014. This increase resulted
primarily from an increase in net income, non-cash related items such as depreciation, amortization, and changes in operating assets
and liabilities.
Investing Activities
Net cash used by investing activities for 2015 was approximately $460 million. Included in our investing activities is $349
million of acquisitions, net of cash acquired. We had capital expenditures of $133 million. We had sales of short-term investments,
net of purchases of approximately $18 million.
Net cash used by investing activities for 2014 was approximately $43 million, due primarily to $58 million in capital
expenditures, and $2 million in equity investment, partially offset by a $14 million decrease in short-term investments and restricted
cash.
Net cash used by investing activities for 2013 was approximately $186 million, due primarily to $125 million used for
acquisitions, net of cash acquired, $47 million in capital expenditures and $23 million used for purchases of short-term investments,
partially offset by other investing items.
Financing Activities
Net cash provided by financing activities for 2015 was approximately $321 million, due primarily to the additional debt of
approximately $391 million we incurred to purchase Pericom. This increase was partially offset by the repayment of approximately
$66 million of long-term debt during 2015.
Net cash used by financing activities for 2014 was approximately $36 million, due primarily to a $47 million reduction of debt,
partially offset by $6 million in proceeds from the stock options exercised.
Net cash provided by financing activities for 2013 was approximately $112 million, due primarily to a $181 million draw down
on our Revolver, partially offset by $62 million of debt repayments.
Debt instruments
The Credit Agreement as contains certain financial and non-financial covenants, including, but not limited to, a maximum
Consolidated Leverage Ratio, a minimum Consolidated Fixed Charge Coverage Ratio, and restrictions on liens, indebtedness,
investments, fundamental changes, dispositions, and restricted payments (including dividends) (as such terms are defined in the
Amendment or the Credit Agreement).
As of December 31, 2015, our U.S. and Asia subsidiaries had unused and available credit lines of up to an aggregate of
approximately $83 million, with several financial institutions. In some cases, our foreign credit lines are unsecured, uncommitted and
may be repayable on demand, except for two Taiwanese credit facilities that are collateralized by assets. Our foreign credit lines bear
interest at LIBOR or similar indices plus a specified margin. At December 31, 2015, no amounts were outstanding under these lines of
credit. See “Liquidity and Capital Resources” above and Note 7 of “Notes to Consolidated Financial Statements” of this Annual
Report for additional information.
- 41 -
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements and other relationships with unconsolidated entities that will affect our liquidity
or capital resources. We have no special purpose entities that provided off-balance sheet financing, liquidity or market or credit risk
support, nor do we engage in leasing, hedging or research and development services, that could expose us to liability that is not
reflected on the face of our financial statements.
Contractual Obligations
The following table represents our contractual obligations as of December 31, 2015 (in thousands):
Long-term debt ........................................... $
Interest on long-term debt 1 ........................
Operating leases ..........................................
Capital leases ..............................................
Defined benefit obligations .........................
Purchase obligations ...................................
Total obligations ......................................... $
Total
466,224
$
17,938
45,501
199
45,832
24,907
600,601
$
Less than
1 year
1-3 years
3-5 years
More than
5 years
10,282
8,921
10,387
180
3,055
24,907
57,732
$
455,080
$
598
$
8,985
15,241
19
6,111
-
485,436
$
27
11,333
-
6,111
-
18,069
$
$
264
5
8,540
-
30,555
-
39,364
(1)
Interest on long-term debt assumes there is no change in long-term debt from the balance outstanding as of December 31, 2015,
other than required principal payments. The Revolver and Term Loan mature in January 2018.
Tax liabilities are not included in the above contractual obligations as we cannot make reasonable estimates of the amount and
period in which those tax liabilities would be paid. See “Accounting for income taxes” below and Note 10 of “Notes to Consolidated
Financial Statements” of this Annual Report for additional information.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of net sales and expenses during the reporting period. On an on-going basis, we evaluate
our estimates, which are based upon historical experiences, market trends and financial forecasts and projections, and upon various
other assumptions that management believes to be reasonable under the circumstances at that certain point in time. Actual results may
differ, significantly at times, from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and estimates affect the significant estimates and judgments we use in the
preparation of our consolidated financial statements, and may involve a higher degree of judgment and complexity than others.
Revenue recognition
Net sales (revenue) are recognized when there is persuasive evidence that an arrangement exists, when delivery has occurred,
when the price to the buyer is fixed or determinable and when collectability of the receivable is reasonably assured. These elements
are met when title to the products is passed to the buyer, which is generally when product is shipped to the customer or when product
is delivered to the customer. Generally, we recognize net sales upon shipment to manufacturers (direct ship) as well as upon sales to
distributors using the “sell in” model, which is when product is shipped to the distributors (point of purchase).
Certain customers have limited rights of return or are entitled to price adjustments on products held in their inventory or upon
sale to their end customers. We reduce net sales in the period of sale for estimates of product returns, distributor price adjustments and
other allowances. Our reserve estimates are based upon historical data as well as projections of sales, distributor inventories, price
adjustments, average selling prices and market conditions. Actual returns and adjustments could be significantly different from our
estimates and provisions, resulting in an adjustment to net sales.
We record allowances/reserves for the following items: (i) ship and debit, which arise when we, from time to time based on
market conditions, issue credit to certain distributors upon their shipments to their end customers; (ii) stock rotation, which are
contractual obligations that permit certain distributors, up to four times a year, to return a portion of their inventory based on historical
shipments to them in exchange for an equal and offsetting order; and (iii) price protection, which arise when market conditions cause
average selling prices to decrease and we issue credit to certain distributors on their inventory.
- 42 -
Ship and debit reserves are recorded as a reduction to net sales with a corresponding reduction to accounts receivable. Stock
rotation reserves are recorded as a reduction to net sales with a corresponding reduction to cost of goods sold for the estimated cost of
inventory that is expected to be returned. Price protection reserves are recorded as a reduction to net sales with a corresponding
increase in accrued liabilities.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined principally by the first-in, first-out method. On an
on-going basis, we evaluate our inventory for obsolescence and slow-moving items. This evaluation includes analysis of sales levels,
sales projections, and purchases by item, as well as raw material usage related to our manufacturing facilities. If our review indicates a
reduction in utility below carrying value, we reduce our inventory to a new cost basis. If future demand or market conditions are
different than our current estimates, an inventory adjustment may be required, and would be reflected in cost of goods sold in the
period the revision is made.
Accounting for income taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each
of the tax jurisdictions in which we operate. This process involves using an asset and liability approach whereby deferred tax assets
and liabilities are recorded for differences in the financial reporting bases and tax bases of our assets and liabilities. A valuation
allowance is provided against deferred tax assets unless it is more likely than not that such deferred tax assets will be realized. This
analysis requires considerable judgment and is subject to change to reflect future events and changes in the tax laws.
The benefit of a tax position is recognized only if it is more likely than not that the tax position would be sustained based on its
technical merits in a tax examination, using the presumption the tax authority has full knowledge of all relevant facts regarding the
position. The amount of benefit recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on
ultimate settlement with the tax authority. For tax positions not meeting the more likely than not test, no tax benefit is recorded.
Goodwill and other indefinite lived intangible assets
Goodwill is tested for impairment on an annual basis, on October 1, and between annual tests if indicators of potential impairment
exist. We use the simplified goodwill impairment test, which allows us to first assess qualitatively whether it is necessary to perform step
one of the two-step annual goodwill impairment test. We are required to perform step one and calculate the fair value of our reporting
units only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying value (that is, a likelihood
of more than 50%). The qualitative analysis, which is referred to as step zero, is performed, and we consider all relevant factors specific to
our reporting units. Some factors considered in step zero are macroeconomic conditions, industry and market considerations, cost factors,
overall financial performance, events affecting a reporting unit and other relevant entity-specific events. If any reporting unit fails step
zero, its goodwill and other indefinite lived intangible assets will be tested using the two-step process. The first step requires a comparison
of the fair value of the reporting unit to the respective carrying value. If the reporting unit fails step one, meaning that its carrying value
exceeds its fair value, then the second step must be performed. The second step computes the amount of impairment, if any, by comparing
the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting
unit’s goodwill exceeds its implied fair value, an impairment loss will be recognized.
Share-based compensation
We use the Black-Scholes-Merton model to determine the fair value of stock options on the date of grant. The amount of
compensation expense recognized using the Black-Scholes-Merton model requires us to exercise judgment and make assumptions
relating to the factors that determine the fair value of our stock option grants. The fair value calculated by this model is a function of
several factors, including the grant price, the expected future volatility, the expected term of the option and the risk-free interest rate of
the option. The expected term and expected future volatility of the options require our judgment. In addition, we are required to
estimate the expected forfeiture rate and only recognize expense for those stock options expected to vest. We estimate the forfeiture
rate based on historical experience and to the extent our actual forfeiture rate is different from our estimate, share-based compensation
expense is adjusted accordingly. Restricted stock grants are measured based on the fair market value of the underlying stock on the
date of grant.
Fair value measurements
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that
should be determined based on the assumptions that market participants would use in pricing an assets or liability. Fair value is based
- 43 -
on a hierarchy of valuation techniques, which is determined on whether the inputs to those valuation techniques are observable or
unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market
assumptions. These two types of inputs create a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value as follows:
Level 1: Quoted prices for identical instruments in active markets.
Level 2:
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets
that are not active; and model-derived valuations in which all significant inputs and significant value drivers are
observable in active markets.
Level 3:
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are
unobservable.
Our defined benefit plan assets are valued under methods of fair value.
Defined benefit plan
We maintain a pension plan covering certain of our employees in the U.K. For financial reporting purposes, the net pension and
supplemental retirement benefit obligations and the related periodic pension costs are calculated based upon, among other things,
assumptions of the discount rate for plan obligations, estimated return on pension plan assets and mortality rates. These obligations
and related periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial
cost method used to compute the pension liabilities and related expenses. See “Fair value measurements” above in regard to pension
plan assets.
Contingencies
From time to time, we are involved in a variety of legal matters that arise in the normal course of business. Based on
information available, we evaluate the likelihood of potential outcomes. We record the appropriate liability when the amount is
deemed probable and reasonably estimable. In addition, we do not accrue for estimated legal fees and other directly related costs as
they are expensed as incurred.
Recently Issued Accounting Pronouncements
See Note 1 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information regarding the
status of recently issued accounting pronouncements.
Quantitative and Qualitative Disclosures About Market Risk.
Item 7A.
Foreign Currency Risk
We face exposure to adverse movements in foreign currency exchange rates, primarily in Asia and Europe. Our foreign currency
risk may change over time as the level of activity in foreign markets grows and could have a material adverse impact upon our
financial results. Certain of our assets, including certain bank accounts and accounts receivable, and liabilities exist in non–U.S. dollar
denominated currencies, which are sensitive to foreign currency exchange fluctuations. These currencies are principally the Chinese
Yuan, the Taiwanese dollar, the Euro, and the British Pound Sterling and, to a lesser extent, the Japanese Yen and the Hong Kong
dollar. In the future, we may enter into hedging arrangements designed to mitigate foreign currency fluctuations. See “Risk Factors –
We are subject to foreign currency risk as a result of our international operations.” in Part I, Item 1A of this Annual Report for
additional information.
Effect on Reporting Income
Certain of our subsidiaries have a functional currency that differs from the currencies in which some of their expenses are
denominated. Our income and expenses are based on a mix of currencies and a decline in one currency relative to the other currencies
could adversely affect our results of operations. Furthermore, our results of operations are reported in U.S. dollars, which is our
reporting currency. In the event the U.S. dollar weakens against a foreign currency, we will experience a currency transaction loss,
which could adversely affect our results of operations. If a foreign currency were to weaken (or strengthen) by 1.0% against the U.S.
dollar, we would experience currency transaction gain (or loss) of less than $1 million per quarter.
- 44 -
Foreign Currency Transaction Risk
We also are subject to foreign currency risk arising from intercompany transactions that are expected to be settled in cash in the
near term where the cash balances are held in denominations other than our subsidiaries’ functional currency. If exchange rates
weaken against the functional currency, we would incur a remeasurement gain in the value of the cash balances, and if the exchange
rates strengthen against the functional currency, we would incur a remeasurement loss in the value of the cash balances, assuming the
net monetary asset balances remained constant. Our ultimate realized gain or loss with respect to currency fluctuations will generally
depend on the size and type of transaction, the size and currencies of the net monetary assets and the changes in the exchange rates
associated with these currencies. If the Chinese Yuan, the Taiwanese dollar, the Euro and the British Pound Sterling were to weaken
(or strengthen) by 1.0% against the U.S. dollar, we would experience currency transaction gain (or loss) of less than $1 million per
quarter. Net foreign exchange transaction gains (or losses) are included in other income and expense.
Foreign Currency Translation Risk
When our foreign subsidiaries’ books are maintained in their functional currency, fluctuations in foreign currencies impact the
amount of total assets and liabilities that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars
for reporting purposes. All elements of the subsidiaries’ financial statements, except for stockholders’ equity accounts, are translated
using a currency exchange rate. Assets and liabilities denominated in foreign currencies are translated at the exchange rate on the
balance sheet date. Income and expense accounts denominated in foreign currencies are translated at the weighted-average exchange
rate during the period presented. Resulting translation adjustments are recorded as a separate component of accumulated other
comprehensive income or loss within stockholders’ equity in the consolidated balance sheets, which are accumulated in this account
until sale or liquidation of the foreign entity investment, at which time they are reported as adjustments to the gain or loss on sale of
investment.
Foreign Currency Denominated Defined Benefit Plans
We have a contributory defined benefit plan that covers certain employees in the U.K., which is closed to new entrants and
frozen with respect to future benefit accruals. The retirement benefit is based on the final average compensation and service of each
eligible employee. December 31 is our annual measurement date, and on the measurement date, defined benefit plan assets are
determined based on fair value. Defined benefit plan assets consist primarily of high quality corporate bonds and stocks that are
denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the
related pension liability. The net pension and supplemental retirement benefit obligations and the related periodic costs are based on,
among other things, assumptions of the discount rate, estimated return on plan assets and mortality rates. These obligations and related
periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method
used to compute the pension liabilities and related expenses.
As of December 31, 2015, the plan was underfunded and a liability of approximately $29 million was reflected in our
consolidated financial statements as a noncurrent liability. The amount recognized in accumulated other comprehensive income was a
net loss of $31 million. If the British Pound Sterling were to (weaken) or strengthen by 1.0% against the U.S. dollar, we would
experience currency translation liability (decrease) or increase of less than $1 million. The weighted-average discount rate assumption
used to determine benefit obligations as of December 31, 2015 was 4.0%. A 0.2% increase/(decrease) in the discount rate used to
calculate the net period benefit cost for the year would reduce/increase annual benefit cost by less than $1 million. A 0.2%
increase/(decrease) in the discount rate used to calculate the year-end projected benefit obligation would increase/(decrease) the year–
end projected benefit obligation by approximately $5.6 million. The expected return on plan assets is determined based on historical
and expected future returns of the various assets classes and as such, each 1.0% increase/(decrease) in the expected rate of return
assumption would increase/(decrease) the net period benefit cost by approximately $1 million. The asset value of the defined benefit
plan has been volatile in recent years due primarily to wide fluctuations in the U.K. equity markets and bond markets. See “Risk
Factors - Changes in actuarial assumptions for our defined benefit plan could increase the volatility of the plan’s asset value, require
us to increase cash contributions to the plan and have a negative impact on our cash flows, operating results and financial condition”
in Part I, Item 1A of this Annual Report for additional information.
Interest Rate Risk
We have credit facilities with financial institutions in the U.S., Asia and Europe as well as other debt instruments with interest
rates equal to LIBOR or similar indices plus a negotiated margin. A rise in interest rates could have an adverse impact upon our cost
of working capital and our interest expense. As a matter of policy, we do not enter into derivative transactions for speculative
purposes. As of December 31, 2015, our outstanding principal debt included $465 million outstanding under our revolving senior
credit facility and term loan, $2 million outstanding under foreign long term liabilities and $1 million used for import and export
guarantees and bank acceptance notes. Based on an increase or decrease in interest rates by 1.0% for the year on our credit facilities,
our annual interest rate expense would increase or decrease by approximately $5 million.
- 45 -
Political Risk
We have a significant portion of our assets in mainland China, Taiwan and the U.K. The possibility of political conflict between
any of these countries or with the U.S. could have a material adverse impact upon our ability to transact business through these
important business channels and to generate profits. See “Risk Factors” – Risks Related to our International Operations” in Part I,
Item 1A of this Annual Report for additional information.
Inflation Risk
Inflation did not have a material effect on net sales or net income in fiscal year 2015. A significant increase in inflation could
affect future performance.
Credit Risk
The success of our business depends, among other factors, on the strength of the global economy and the stability of the
financial markets, which in turn affect our customers’ demand for our products, the ability of our customers to meet their payment
obligations, the likelihood of customers canceling or deferring existing orders and the strength of consumer demand for items
containing our products in the end-markets we serve. We provide credit to customers in the ordinary course of business and perform
ongoing credit evaluations, while at times providing extended terms. We believe that our exposure to concentrations of credit risk with
respect to trade receivables is largely mitigated by dispersion of our customers over various geographic areas, operating primarily in
electronics manufacturing and distribution. We believe our allowance for doubtful accounts is sufficient to cover customer credit risks.
Item 8.
Financial Statements and Supplementary Data.
See Part IV, Item 15 “Exhibits and Financial Statement Schedules” for our consolidated financial statements and the notes and
schedules thereto filed as part of this Annual Report.
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
Not Applicable.
Item 9A.
Controls and Procedures.
Disclosure Controls and Procedures
Our Chief Executive Officer, Keh-Shew Lu, and Chief Financial Officer, Richard D. White, with the participation of our
management, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2015,
pursuant to and as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”). Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, due to the material weakness in
internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure that
information required to be included in this report is:
o
o
recorded, processed, summarized and reported within the time period specified in the Commission’s rules and forms;
and
accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial
Officer, to allow timely decisions regarding required disclosure.
Notwithstanding the identified material weakness, management, including our Chief Executive Officer and Chief Financial
Officer, believes the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material
respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with generally
accepted accounting principles in the United States of America (“U.S. GAAP”).
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and the Chief
Financial Officer and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
GAAP.
- 46 -
Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and
that receipts and expenditures of ours are being made only in accordance with authorizations of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO"). This evaluation included review of the documentation of controls, testing of operating effectiveness of controls and a
conclusion on this evaluation. Based on this evaluation, management concluded that a material weakness exists in our internal control
over financial reporting as described below. A material weakness is a deficiency or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statement will not be prevented or detected in a timely basis.
As permitted by the rules of the SEC, we have excluded Pericom Semiconductor Corporation and its subsidiaries (collectively,
“Pericom”) from our annual assessment of the effectiveness of internal control over financial reporting for the year ending December
31, 2015, the year of acquisition.
The total assets (including goodwill and intangible assets), net assets (including goodwill and intangible assets), net sales and
net income of Pericom represented approximately 28% of our total assets, 45% of our net assets, less than 2% of our net sales and (4%)
of our net income, respectively, on a consolidated basis, as of and for the year ended December 31, 2015.
In the foregoing evaluation of the effectiveness of our internal control over financial reporting, management identified certain
errors in its accounting for equity awards and change-in-control agreements related to the Pericom acquisition and, as a result,
concluded that the Company did not have adequate resources regarding accounting for equity awards exchanged for and the
accounting for change-in-control agreements related to the Pericom acquisition. If not corrected this control deficiency could result in
a material misstatement that would not be prevented or detected. Because of the material weakness, management concluded that the
Company did not maintain effective internal control over financial reporting as of December 31, 2015 based on criteria in Internal
Control - Integrated Framework (2013) issued by COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by Moss Adams
LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8 of this Annual Report on
Form 10-K.
Changes in Internal Control Over Financial Reporting
Other than as discussed above, there was no change in our internal control over financial reporting, known to the Chief
Executive Officer or the Chief Financial Officer that occurred during the last fiscal quarter covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Material Weakness Remediation Efforts
Management has enhanced, and will continue to enhance, our controls, including refinements and enhancements to the design
(including the review and supervision and the level of precision) of certain controls over the accounting for equity awards and change-
in-control agreements in a business combination. The Company has identified process improvements to remediate the material
weakness discussed above and has commenced the implementation of these enhanced controls. Management anticipates these
enhanced controls will be effective at the time of any future business combination. At December 31, 2015, there continues to be a
reasonable possibility that a material misstatement related to the accounting for equity awards and change-in-control agreements in a
business combination may not be prevented or detected.
Management plans to implement the following steps to remediate the material weakness discussed above and improve its
internal control over financial reporting related to equity awards and change-in-control agreements in a business combination:
improving the documentation of policies and procedures (and related controls) surrounding such equity awards and change-in-control
agreements; developing a work flow document including internal controls for completing future acquisitions; assessing the capacity of
its accounting resources available for the future acquisitions to evaluate and account for the equity awards exchanged and the
accounting for change-in-control agreements in accordance with U.S. GAAP; providing complete and substantive documentation
around the review processes for such equity awards and change-in-control agreements; determining the sufficiency of internal
- 47 -
resources and the availability of external resources to prepare and analyze non-routine transactions; and if external resources are used,
involving these resources early in the process and ensuring appropriate internal resources are available to review materials at a
sufficient level to detect errors.
Management is committed to improving the Company’s internal control processes and will develop and present to the Audit
Committee a plan and timetable for the implementation of the remediation measures described above and will meet frequently with
the Audit Committee to monitor the status of remediation activities. Management believes that the measures described above should
remediate the material weakness identified and strengthen the Company’s internal control over financial reporting related to
accounting for equity awards and change-in-control agreements in a business combination. As the Company continues to evaluate and
improve its internal control over financial reporting, additional measures to remediate the material weakness or modifications to
certain of the remediation procedures described above may be necessary and will be undertaken as necessary.
As permitted by the rules of the SEC, we have excluded Pericom from our annual assessment of the effectiveness of internal
control over financial reporting for the year ending December 31, 2015, the year of acquisition. Management continues to evaluate
Pericom’s internal controls over financial reporting.
Item 9B.
Other Information.
None.
- 48 -
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
The information concerning our directors, executive officers and corporate governance is incorporated herein by reference from
the section entitled “Proposal One – Election of Directors” contained in our definitive proxy statement to be filed pursuant to
Section 14(a) of the Securities Exchange Act of 1934 within 120 days after our fiscal year end of December 31, 2015, for our annual
stockholders’ meeting for 2016 (the “Proxy Statement”).
We have adopted a code of ethics that applies to our Chief Executive Officer and senior financial officers. The code of ethics
has been posted on our website under the Corporate Governance portion of the Investor Relations section at www.diodes.com. We
intend to satisfy disclosure requirements regarding amendments to, or waivers from, any provisions of our code of ethics on our
website.
Item 11.
Executive Compensation.
The information concerning executive compensation is incorporated herein by reference from the sections entitled
“Compensation Discussion and Analysis,” “Executive Compensation,” and “Compensation Committee Interlocks and Insider
Participation” contained in the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information concerning the security ownership of certain beneficial owners and management and related stockholder
matters is incorporated herein by reference from the sections entitled “General Information – Security Ownership of Certain
Beneficial Owners and Management,” and “Executive Compensation - Equity Compensation Plan Information” contained in the
Proxy Statement.
Item 13.
Certain Relationships, Related Transactions and Director Independence.
The information concerning certain relationships, related transactions and director independence is incorporated herein by
reference from the sections entitled “Corporate Governance – Certain Relationships and Related Person Transactions” and “Corporate
Governance – Director Independence” and “Proposal One – Election of Directors” contained in the Proxy Statement.
Item 14.
Principal Accounting Fees and Services.
The information concerning our principal accountant’s fees and services is incorporated herein by reference from the section
entitled “Ratification of the Appointment of Independent Registered Public Accounting Firm” contained in the Proxy Statement.
- 49 -
PART IV
Exhibits, Financial Statement Schedules.
Item 15.
(a) Financial Statements and Schedules
Our consolidated financial statements are as set forth under Item 8 of this report on Form 10-K.
(1) Financial statements:
Report of Independent Registered Public Accounting Firm ......................................................................
Page
51
Consolidated Balance Sheets at December 31, 2015, and 2014 ................................................................
53 to 54
Consolidated Statements of Income for the Years Ended December 31, 2015, 2014 and 2013 ................
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2015, 2014 and
2013 ......................................................................................................................................................
Consolidated Statements of Equity for the Years Ended December 31, 2015, 2014 and 2013 .................
55
56
57
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013 .........
58 to 59
Notes to Consolidated Financial Statements .............................................................................................
60 to 88
(2) Schedules:
None
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is
shown in the financial statements and note thereto.
(b) Exhibits
The exhibits listed on the Index to Exhibits are filed as exhibits or incorporated by reference to this Annual Report.
(c) Financial Statements of Unconsolidated Subsidiaries and Affiliates
Not Applicable.
- 50 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheets of Diodes Incorporated and Subsidiaries (the “Company”) as of
December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, equity, and cash flows for
each of the three years in the period ended December 31, 2015. We also have audited the Company’s internal control over financial
reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal
Control Over Financial Reporting, in November 2015, the Company acquired Pericom Semiconductor Corporation (“Pericom”). For
the purposes of assessing internal control over financial reporting, management excluded Pericom, whose financial statements
constitute 15% of the Company’s consolidated total assets (excluding approximately $210 million of goodwill and intangible assets,
which were integrated into the Company’s control environment) and approximately 2% of the Company’s consolidated net sales as of
and for the year ended December 31, 2015. Accordingly, our audit did not include the internal control over financial reporting of
Pericom. The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or
detected on a timely basis. The following material weakness has been identified and included in management’s assessment:
The Company did not have effective controls to provide reasonable assurance as to the application of generally accepted accounting
principles relating to the accounting for equity awards and change-in-control agreements in a business combination due to the lack of
adequate resources in its accounting department.
We considered the material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the
consolidated financial statements as of and for the year ended December 31, 2015, of the Company, and our opinion on such
consolidated financial statements was not affected.
- 51 -
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Diodes Incorporated and Subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with generally accepted
accounting principles in the United States of America. Also in our opinion, because of the effect of the material weakness identified
above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over
financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
As discussed in Note 1 to the consolidated financial statements, the Company retrospectively changed the manner in which it accounts
for the balance sheet classification of deferred taxes due to the adoption of Accounting Standards Update 2015-17, Balance Sheet
Classification of Deferred Taxes.
/s/ Moss Adams LLP
Los Angeles, California
March 11, 2016
- 52 -
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(cid:3)
(Amounts in thousands)
Assets
Current assets
December 31,
2015
2014
Cash and cash equivalents ................................................................................................................. $
Short-term investments ......................................................................................................................
Accounts receivable, net of allowances of $2,625 and $1,682 at
December 31, 2015 and December 31, 2014, respectively. ............................................................
Inventories .........................................................................................................................................
Prepaid expenses and other ................................................................................................................
Total current assets ...............................................................................................................................
Property, plant and equipment, net .......................................................................................................
Deferred income assets .........................................................................................................................
Goodwill ...............................................................................................................................................
Intangible assets, net .............................................................................................................................
Other assets ...........................................................................................................................................
Total assets .............................................................................................................................................. $
218,435
64,685
$
218,496
202,832
46,103
750,551
439,340
45,120
132,913
196,409
36,697
1,601,030
$
243,000
11,726
188,248
182,026
50,510
675,510
309,931
43,845
81,229
45,028
23,614
1,179,157
The accompanying notes are an integral part of these financial statements.
- 53 -
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(cid:3)
(Amounts in thousands, except per share data)
Liabilities
Current liabilities
December 31,
2015
2014
Lines of credit and short-term debt .................................................................................................... $
Accounts payable ...............................................................................................................................
Accrued liabilities ..............................................................................................................................
Income tax payable ............................................................................................................................
Current portion of long-term debt ......................................................................................................
Total current liabilities ..........................................................................................................................
Long-term debt, net of current portion ..................................................................................................
Deferred tax liabilities ..........................................................................................................................
Other long-term liabilities .....................................................................................................................
Total liabilities .........................................................................................................................................
- $
86,463
77,801
5,117
10,282
179,663
455,941
32,276
90,153
758,033
1,064
79,390
60,149
8,381
287
149,271
140,787
-
78,932
368,990
Commitments and contingencies - (Note 15)
Stockholders' equity
Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; no shares issued or
outstanding ..............................................................................................................................................
Common stock - par value $0.66 2/3 per share; 70,000,000 shares authorized; 48,614,087 and
47,591,092 issued at December 31, 2015 and 2014, respectively ...........................................................
Additional paid-in capital ........................................................................................................................
Retained earnings.....................................................................................................................................
Treasury stock, at cost, 466,010 shares held at December 31, 2015 ........................................................
Accumulated other comprehensive loss ...................................................................................................
Total stockholders' equity ........................................................................................................................
Noncontrolling interest ............................................................................................................................
Total equity ..............................................................................................................................................
Total liabilities and stockholders' equity .................................................................................................. $
-
-
32,404
344,086
514,280
(11,009 )
(84,416 )
795,345
47,652
842,997
1,601,030
$
31,729
314,942
490,006
-
(68,402)
768,275
41,892
810,167
1,179,157
The accompanying notes are an integral part of these financial statements.
- 54 -
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(cid:3)
(Amounts in thousands, except per share data)
Net sales ........................................................................................................................... $
Cost of goods sold............................................................................................................
Goss profit .....................................................................................................................
Operating expenses
Selling, general and administrative ................................................................................
Research and development ............................................................................................
Amortization of acquisition related intangible assets .....................................................
Impairment of goodwill .................................................................................................
Restructuring .................................................................................................................
Loss (gain) on sale of assets ..........................................................................................
Total operating expenses ...............................................................................................
Income from operations .................................................................................................
Other income/(expense)
Interest income ...............................................................................................................
Interest expense ..............................................................................................................
Gain on securities carried at fair value ............................................................................
Other ...............................................................................................................................
Total other income (expenses) .......................................................................................
Income before income taxes and noncontrolling interest ...............................................
Income tax provision ......................................................................................................
Net income .......................................................................................................................
Less net (income) loss attributable to noncontrolling interest ...........................................
Net income attributable to common stockholders ........................................................ $
Twelve Months Ended December 31,
2014
2013
2015
848,904 $
600,321
248,583
890,651 $
613,372
277,279
139,245
57,027
8,596
-
-
1,613
206,481
42,102
1,006
(4,232)
400
1,319
(1,507)
40,595
14,082
26,513
(2,239)
24,274 $
133,701
52,136
7,914
-
-
(983)
192,768
84,511
1,470
(4,332)
1,364
2,979
1,481
85,992
20,359
65,633
(1,955)
63,678 $
826,846
589,010
237,836
132,106
48,302
8,078
5,318
1,535
216
195,555
42,281
1,274
(5,580)
601
9
(3,696)
38,585
14,481
24,104
2,428
26,532
Earnings per share attributable to common stockholders
Basic ....................................................................................................................... $
Diluted .................................................................................................................... $
0.50 $
0.49 $
1.35 $
1.31 $
0.57
0.56
Number of shares used in computation
Basic .......................................................................................................................
Diluted ....................................................................................................................
48,210
49,500
47,184
48,594
46,363
47,658
The accompanying notes are an integral part of these financial statements.
- 55 -
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(cid:3)
(Amounts in thousands)
Net income ............................................................................................................................. $
Foreign currency translation adjustment ................................................................................
Unrealized gain (loss) on defined benefit plan, net of tax ......................................................
Unrealized foreign currency loss, net of tax ..........................................................................
Comprehensive income..........................................................................................................
Less: Comprehensive (income) loss attributable to noncontrolling interest ...........................
Total comprehensive income attributable to common stockholders ...................................... $
Twelve Months Ended December 31,
2014
2013
2015
26,513 $
(19,996)
4,399
(417)
10,499
(2,239)
8,260 $
65,633 $
(15,705)
(7,555)
(768)
41,605
(1,955)
39,650 $
24,104
6,671
(16,971)
(218)
13,586
2,428
16,014
The accompanying notes are an integral part of these financial statements.
- 56 -
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(cid:3)(cid:3) Common stock
Shares Amount Shares Amount capital
Treasury stock
paid-in Retained
earnings
Additional
Accumulated
other
comprehensive
loss
Total Diodes
Incorporated
Stockholders' Noncontrolling Total
equity
interest
equity
-
-
-
-
-
446
670
-
-
(cid:3)
(Amounts in thousands)
Balance, December 31, 2012 ............ 46,011 $ 30,674
Total comprehensive income............
-
Acquisition of noncontrolling
interest..............................................
Common stock issued for share-
based plans .......................................
Net excess tax benefit from share-
based compensation .........................
Share-based compensation ...............
Balance, December 31, 2013 ............ 46,681 31,120
-
Total comprehensive income............
Acquisition of noncontrolling
interest..............................................
Dividend to noncontrolling interest ..
Common stock issued for share-
based plans .......................................
Net excess tax benefit from share-
-
based compensation .........................
Share-based compensation ...............
-
Balance, December 31, 2014 ............ 47,591 31,729
Total comprehensive income............
Acquisition of noncontrolling
interest..............................................
Common stock issued for share-
based plans .......................................
Net excess tax benefit from share-
based compensation .........................
Stock buyback ..................................
Share-based compensation ...............
Restricted awards related to
-
Pericom acquisition ..........................
Balance, December 31, 2015 ............ 48,614 $ 32,404
-
-
-
-
-
-
1,023
-
-
-
-
-
-
910
609
675
-
-
-
-
-
- $
-
- $ 280,571 $399,796 $
-
-
26,532
(33,856) $
(10,518)
677,185 $
16,014
43,255 $720,440
(2,428) 13,586
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,189
-
-
(6,643)
13,551
289,668
-
-
-
426,328
63,678
-
-
5,152
-
-
-
6,018
14,104
314,942
-
-
490,006
-
24,274
-
9,523
(4,029)
-
18,970
4,680
-
-
-
-
-
-
(466) (11,009)
-
-
-
-
-
-
-
-
(44,374)
(24,028)
-
-
-
-
-
(68,402)
(16,014)
-
-
-
-
-
-
(466) $(11,009) $ 344,086 $514,280 $
(84,416) $
-
108
108
2,635
-
2,635
(6,643 )
13,551
702,742
39,650
-
-
40,935
1,955
(6,643)
13,551
743,677
41,605
-
-
338
(1,336)
338
(1,336)
5,761
-
5,761
6,018
14,104
768,275
-
-
41,892
6,018
14,104
810,167
8,260
2,239
10,499
-
3,521
3,521
10,198
-
10,198
(4,029 )
(11,009 )
18,970
-
-
-
(4,029)
(11,009)
18,970
4,680
795,345 $
-
4,680
47,652 $842,997
The accompanying notes are an integral part of these financial statements.
- 57 -
Twelve Months Ended December 31,
2013
2014
2015
26,513
$
65,633
$
24,104
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(cid:3)
(Amounts in thousands)
Operating Activities
Net income ................................................................................................................................................ $
Adjustments to reconcile net income to net cash provided by operating activities,
net of effects of acquisitions:
Depreciation .........................................................................................................................................
Amortization of intangibles ................................................................................................................
Impairment of goodwill .......................................................................................................................
Amortization of debt issuance costs .....................................................................................................
Share-based compensation ...................................................................................................................
Excess tax benefit from share-based compensation .............................................................................
Loss (gain) on disposal of property, plant and equipment ...................................................................
Gain on securities carried at fair value .................................................................................................
Deferred income taxes .........................................................................................................................
Other ....................................................................................................................................................
Changes in operating assets:
Accounts receivable ........................................................................................................................
Inventories ......................................................................................................................................
Prepaid expenses and other current assets .......................................................................................
Changes in operating liabilities:
Accounts payable ............................................................................................................................
Accrued liabilities ...........................................................................................................................
Other liabilities ...............................................................................................................................
Income taxes payable ......................................................................................................................
Net cash provided by operating activities ...........................................................................
Investing Activities
Acquisitions, net of cash acquired ............................................................................................................
Decrease in restricted cash ........................................................................................................................
Purchases of short-term investments .........................................................................................................
Sales of short-term investments ................................................................................................................
Purchases of equity securities ...................................................................................................................
Proceeds from sale of equity securities .....................................................................................................
Purchases of property, plant and equipment .............................................................................................
Proceeds from sales of property, plant and equipment..............................................................................
Other .........................................................................................................................................................
Net cash used in investing activities.....................................................................................
Financing Activities
Advance on lines of credit and short-term debt ........................................................................................
Repayments on lines of credit and short-term debt ...................................................................................
Net proceeds from the issuance of common stock ....................................................................................
Excess tax benefit from share-based compensation ..................................................................................
Proceeds from long-term debt ...................................................................................................................
Repayments of long-term debt ..................................................................................................................
Repayments of capital lease obligations ...................................................................................................
Purchase of treasury stock ........................................................................................................................
Other .........................................................................................................................................................
Net cash provided by (used in) financing activities...............................................................
71,504
8,596
-
660
18,970
(829 )
1,440
(400 )
1,484
(135 )
(9,710 )
(2,165 )
12,115
(8,617 )
8,365
(1,015 )
(8,665 )
118,111
(348,887 )
786
(57,878 )
75,834
(4,553 )
8,652
(133,244 )
143
(299 )
(459,446 )
1,228
(4,287 )
10,192
829
391,200
(65,986 )
(218 )
(11,009 )
(587 )
321,362
68,857
7,914
-
531
14,104
(6,018)
(963)
(1,364)
(3,611)
3,624
1,810
(2,750)
(10,537)
(9,512)
2,187
(3,584)
7,951
134,272
-
2,872
(18,839)
29,583
(1,842)
1,660
(57,766)
1,480
84
(42,768)
6,778
(11,400)
5,761
6,018
-
(42,677)
(246)
-
7
(35,759)
Effect of exchange rate changes on cash and cash equivalents ...................................................................
(Decrease) increase in cash and cash equivalents .......................................................................................
Cash and cash equivalents, beginning of year.............................................................................................
Cash and cash equivalents, end of year ....................................................................................................... $
(4,592 )
(24,565 )
243,000
218,435
(9,380)
46,365
196,635
$ 243,000
$
The accompanying notes are an integral part of these financial statements.
- 58 -
65,529
8,078
5,318
531
13,551
6,643
270
(601)
(1,959)
2,538
(18,241)
14,860
(3,803)
(8,594)
171
1,957
(461)
109,891
(124,916)
6,886
(22,922)
-
(5,393)
7,458
(47,054)
59
(520)
(186,402)
15,101
(34,573)
2,635
(6,643)
181,000
(42,145)
(627)
-
(2,387)
112,361
3,664
39,514
157,121
196,635
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(cid:3)
(Amounts in thousands)
Supplemental Cash Flow Information
Cash paid during the year for:
Interest .................................................................................................................................................... $
Income taxes ........................................................................................................................................... $
Twelve Months Ended December 31,
2013
2014
2015
2,799 $
17,229 $
3,276
14,059
$
$
4,373
10,396
Non-cash activities:
Property, plant and equipment purchased on accounts payable .............................................................. $
Dividend accrued for noncontrolling interest.......................................................................................... $
(4,498 ) $
- $
(1,167) $
(1,336) $
2,714
-
Share-based awards issued for Pericom acquisition................................................................................. $
(4,680 ) $
-
$
-
Acquisition:
Fair value of assets acquired ................................................................................................................. $
Fair value of liabilities assumed............................................................................................................
Cash acquired........................................................................................................................................
Net assets acquired ................................................................................................................................... $
496,625 $
(88,284 )
(54,774 )
353,567 $
-
-
-
-
$
$
247,012
(92,277)
(29,819)
124,916
The accompanying notes are an integral part of these financial statements.
- 59 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Note 1 – SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of operations – Diodes Incorporated and its subsidiaries (collectively, the “Company” or “we” or “our”) is a leading
global designer, manufacturer and supplier of high-quality, application-specific standard products within the broad discrete, logic and
analog semiconductor markets, serving the consumer electronics, computing, communications, industrial and automotive markets. Our
primary focus is on low pin count semiconductor devices with one or more active and/or passive components. Our products include
diodes, rectifiers, transistors, MOSFETs, protection devices, functional specific arrays, single gate, dual gate and standard logic,
amplifiers and comparators, Hall-effect and temperature sensors, power management devices including LED drivers, AC-DC and DC-
DC switching, linear voltage regulators, and voltage references along with special function devices, such as USB power switches, load
switches, voltage supervisors and motor controllers. Our products are sold primarily throughout Asia, North America and Europe.
On November 24, 2015 we acquired Pericom Semiconductor Corporation. Pericom designs, develops and markets high-
performance integrated circuits (“ICs”) and frequency control products (“FCPs”) used in many of today’s advanced electronic
systems. ICs include functions that support the connectivity, timing and signal conditioning of high-speed parallel and serial protocols
that transfer data among a system’s microprocessor, memory and various peripherals, such as displays and monitors, and between
interconnected systems. FCPs are electronic components that provide frequency references such as crystals and oscillators for
computer, communication and consumer electronic products. Analog, digital and mixed-signal ICs, together with FCPs enable higher
system bandwidth and signal quality, resulting in better operating reliability, signal integrity, and lower overall system cost in
applications such as notebook computers, servers, network switches and routers, storage area networks, digital TVs, cell phones, GPS
and digital media players. Analog, digital and mixed-signal ICs, together with FCPs enable higher system bandwidth and signal
quality, resulting in better operating reliability and signal integrity, and lower overall system cost in applications such as notebook
computers, servers, network switches and routers, storage area networks, digital TVs, cell phones, GPS and digital media players.
Principles of consolidation – The consolidated financial statements include the accounts of Diodes Incorporated, its wholly-
owned subsidiaries and its controlled majority-owned subsidiaries. We account for equity investments in companies over which we
have the ability to exercise significant influence, but do not hold a controlling interest, under the equity method, and we record our
proportionate share of income or losses in interest and other, net in the consolidated statements of income. All significant
intercompany balances and transactions have been eliminated.
Use of estimates – The preparation of financial statements in conformity with generally accepted accounting principles in the
United States of America (“GAAP”) requires that management make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. The level of uncertainty in estimates and assumptions increases with the
length of time until the underlying transactions are completed. Actual results may differ from these estimates in amounts that may be
material to the consolidated financial statements and accompanying notes.
Revenue recognition – Net sales (revenue) are recognized when there is persuasive evidence that an arrangement exists, when
delivery has occurred, when the price to the buyer is fixed or determinable and when collectability of the receivable is reasonably
assured. These elements are met when title to the products is passed to the buyers, which is generally when product is shipped to the
customers. Generally, we recognize net sales upon shipment to manufacturers (direct ship) as well as upon sales to distributors using
the “sell in” model, which is when product is shipped to the distributors (point of purchase).
Certain customers have limited rights of return and/or are entitled to price adjustments on products held in their inventory or
upon sale to their end customers. We reduce net sales in the period of sale for estimates of product returns, distributor price
adjustments and other allowances. Our reserve estimates are based upon historical data as well as projections of sales, distributor
inventories, price adjustments, average selling prices and market conditions.
We record allowances/reserves for the following items: (i) ship and debit, which arise when we, from time to time based on
market conditions, issue credit to certain distributors upon their shipments to their end customers; (ii) stock rotation, which are
contractual obligations that permit certain distributors, up to four times a year, to return a portion of their inventory based on historical
shipments to them in exchange for an equal and offsetting order; and (iii) price protection, which arise when market conditions cause
average selling prices to decrease and we issue credit to certain distributors on their inventory.
Ship and debit reserves are recorded as a reduction to net sales with a corresponding reduction to accounts receivable. Stock
rotation reserves are recorded as a reduction to net sales with a corresponding reduction to cost of goods sold for the estimated cost of
inventory that is expected to be returned. Price protection reserves are recorded as a reduction to net sales with a corresponding
increase in accrued liabilities. Net sales are reduced in the period of sale for estimates of product returns and other allowances
- 60 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
including distributor adjustments, which were approximately $113 million, $86 million and $68 million in 2015, 2014 and 2013,
respectively.
Product warranty – We generally warrant our products for a period of one year from the date of sale. Historically, warranty
expense has not been material.
Cash, cash equivalents, and short-term investments – We consider all highly liquid investments with maturity of three
months or less at the date of purchase to be cash equivalents. We currently maintain substantially all of our day-to-day operating cash
balances with major financial institutions. We hold short-term investments consisting of time deposits, which are highly liquid with
maturity dates greater than three months at the date of purchase. Generally, we can access these investments in a relatively short
amount of time but in doing so we generally forfeit a portion of interest income. See Note 2 below for additional information
regarding fair value of financial instruments.
Allowance for doubtful accounts – We evaluate the collectability of our accounts receivable based upon a combination of
factors, including the current business environment and historical experience. If we are aware of a customer’s inability to meet its
financial obligations, we record an allowance to reduce the receivable to the amount we reasonably believe will be collected from the
customer. For all other customers, we record an allowance based upon the amount of time the receivables are past due. If actual
accounts receivable collections differ from these estimates, an adjustment to the allowance may be necessary with a resulting effect on
operating expense. Accounts receivable are presented net of valuation allowance, which were approximately $3 million in 2015 and
$2 million 2014.
Inventories – Inventories are stated at the lower of cost or market value. Cost is determined principally by the first-in, first-out
method. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Any write-
down of inventory to the lower of cost or market at the close of a fiscal period creates a new cost basis that subsequently would not be
marked up based on changes in underlying facts and circumstances. On an on-going basis, we evaluate inventory for obsolescence and
slow-moving items. This evaluation includes analysis of sales levels, sales projections, and purchases by item, as well as raw material
usage related to our manufacturing facilities. If our review indicates a reduction in utility below carrying value, we reduce inventory to
a new cost basis. If future demand or market conditions are different than our current estimates, an inventory adjustment to write down
inventory may be required, and would be reflected in cost of goods sold in the period the revision is made.
Property, plant and equipment – Purchased property, plant and equipment is recorded at historical cost, and property, plant
and equipment acquired in a business combination is recorded at fair value on the date of acquisition. Property, plant and equipment is
depreciated using straight-line methods over the estimated useful lives, which range from 20 to 55 years for buildings and 3 to 10
years for machinery and equipment. The estimated lives of leasehold improvements range from 3 to 5 years, and are amortized over
the shorter of the remaining lease term or their estimated useful lives.
Goodwill and other indefinite lived intangible assets – Goodwill is tested for impairment on an annual basis, on October 1,
and between annual tests if indicators of potential impairment exist. We use the simplified goodwill impairment test, which allows us
to first assess qualitatively whether it is necessary to perform step one of the two-step annual goodwill impairment test. We are
required to perform step one and calculate the fair value of our reporting units only if we conclude that it is more likely than not (that
is, a likelihood of more than 50%) that a reporting unit’s fair value is less than its carrying value. The qualitative analysis, which is
referred to as step zero, was performed and we considered all relevant factors specific to our reporting units. Some factors considered
in step zero were macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, events
affecting a reporting unit and other relevant entity-specific events.
For 2015, our step zero conclusion was that goodwill was possibly impaired at the BCD entity, located in Asia, but not impaired
at any other entity. For BCD, we proceeded to a step one impairment analysis and further analysis determined there was no goodwill
impairment. For 2014, our step zero conclusion was that it was more likely than not that goodwill was not impaired and no further
testing was required until the next annual test date (or sooner if conditions or events before that date raise concerns of potential
impairment in the business) for all reporting units.
Impairment of long-lived assets – Our long-lived assets are reviewed whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. We consider assets to be impaired if the carrying value exceeds the undiscounted
projected cash flows from operations. If impairment exists, the assets are written down to fair value or to the projected discounted cash
flows from related operations. As of December 31, 2015, we expect the remaining carrying value of assets to be recoverable. No
impairment of long-lived assets has been identified during any of the periods presented.
- 61 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Business combinations – The Company recognizes all (and only) the assets acquired and liabilities assumed in the transaction
and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business
combination. Certain provisions prescribe, among other things, the determination of acquisition-date fair value of consideration paid
in a business combination (including contingent consideration) and the exclusion of transaction and acquisition-related restructuring
costs from acquisition accounting. During the normal course of business the Company makes acquisitions. In the event that an
individual acquisition (or an aggregate of acquisitions) is material, appropriate disclosure of such acquisition activity is provided. See
Note 16, for additional information regarding business combinations.
Income taxes – Income taxes are accounted for using an asset and liability approach whereby deferred tax assets and liabilities
are recorded for differences in the financial reporting bases and tax bases of our assets and liabilities. If it is more likely than not that
some portion of deferred tax assets will not be realized, a valuation allowance is recorded.
GAAP prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial
statements uncertain tax positions taken or expected to be taken on a tax return. Tax positions shall initially be recognized in the
financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax
positions shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50% likely of being
realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts.
Research and development costs – Internally-developed research and development costs are expensed as incurred. Acquired
in-process research and development (“IPR&D”) is capitalized as an indefinite-lived intangible asset and evaluated periodically for
impairment. When the project is completed, an expected life is determined and the IPR&D is amortized as an expense over the
expected life.
Shipping and handling costs – Shipping and handling costs for products shipped to customers, which are included in selling,
general and administrative expenses, were approximately $8 million, $11 million and $10 million for the years ended December 31,
2015, 2014 and 2013, respectively.
Concentration of credit risk – Financial instruments, which potentially subject us to concentrations of credit risk, include trade
accounts receivable. Credit risk is limited by the dispersion of our customers over various geographic areas, operating primarily in
electronics manufacturing and distribution. We perform on-going credit evaluations of our customers, and generally require no
collateral. Historically, credit losses have not been significant.
We currently maintain substantially all of our day-to-day cash balances and short-term investments with major financial
institutions. Cash balances are usually in excess of Federal and/or foreign deposit insurance limits.
Valuation of financial instruments – The carrying value of our financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, credit line, and long-term debt approximate fair value due to their
current market conditions, maturity dates and other factors.
Earnings per share – Basic earnings per share is calculated by dividing net earnings attributable to common stockholders by
the weighted-average number of shares of Common Stock outstanding during the period. Diluted earnings per share is calculated
similarly but includes potential dilution from the exercise of stock options and stock awards, except when the effect would be anti-
dilutive. Earnings per share are computed using the “treasury stock method.”
- 62 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
For the three years ended December 31, 2015, 2014 and 2013, options and share grants outstanding totaling approximately 1
million shares, 2 million shares and 2 million shares have been excluded from the computation of diluted earnings per share because
their effect was anti-dilutive.
Earnings (numerator)
Net income attributable to common stockholders ....................................... $
24,274 $
63,678 $
26,532
Twelve Months Ended December 31,
2015
2014
2013
Shares (denominator)
Weighted average common shares outstanding (basic) ..............................
Dilutive effect of stock options and stock awards outstanding ...................
Adjusted weighted average common shares outstanding (diluted) .............
48,210
1,290
49,500
47,184
1,410
48,594
46,363
1,295
47,658
Earnings per share attributable to common stockholders
Basic ........................................................................................................... $
Diluted ........................................................................................................ $
0.50 $
0.49 $
1.35 $
1.31 $
0.57
0.56 (cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Share-based compensation – We use the Black-Scholes-Merton model to determine the fair value of stock options on the date
of grant and recognize compensation expense for stock options on a straight-line basis. Restricted stock grants are measured based on
the fair market value of the underlying stock on the date of grant and compensation expense is recognized on a straight-line basis over
the requisite four-year service period.
The amount of compensation expense recognized using the Black-Scholes-Merton model requires us to exercise judgment and
make assumptions relating to the factors that determine the fair value of our stock option grants. The fair value calculated by this
model is a function of several factors, including the grant price, the expected future volatility, the expected term of the option and the
risk-free interest rate of the option. The expected term and expected future volatility of the options require judgment. In addition, we
are required to estimate the expected forfeiture rate and only recognize expense for those stock options expected to vest. We estimate
the forfeiture rate based on historical experience, and to the extent our actual forfeiture rate is different from our estimate, share-based
compensation expense is adjusted accordingly.
Treasury stock – Under a program authorized by our board of directors we have purchased shares of our common stock. These
shares are recorded as treasury stock, at cost, as a reduction to stockholder’ equity.
Functional currencies and foreign currency translation – We translate the assets and liabilities of our non-U.S. dollar
functional currency subsidiaries into U.S. dollars using exchange rates on the balance sheet date. Net sales and expense for these
subsidiaries are translated at the weighted-average exchange rate during the period presented. Resulting translation adjustments are
recorded as a separate component of accumulated other comprehensive income or loss within stockholders’ equity in the consolidated
balance sheets. Included in other income are foreign exchange (gains) losses of $(1) million, $2 million and $1 million for the years
ended December 31, 2015, 2014 and 2013, respectively.
Defined benefit plan – We maintain pension plans covering certain of our employees in the U.K. The overfunded or
underfunded status of pension and postretirement benefit plans are recognized on the balance sheet. Actuarial gains and losses, and
prior service costs or credits, are recognized in other comprehensive income (loss), net of tax effects, until they are amortized as a
component of net periodic benefit cost. For financial reporting purposes, the net pension and supplemental retirement benefit
obligations and the related periodic pension costs are calculated based upon, among other things, assumptions of the discount rate for
plan obligations, estimated return on pension plan assets and mortality rates. These obligations and related periodic costs are measured
using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method used to compute the pension
liabilities and related expenses. The expected long-term return on plan assets was determined based on historical and expected future
returns of the various asset classes. The plan’s investment policy includes a mandate to diversify assets and invest in a variety of asset
classes to achieve its expected long-term return and is currently invested in a variety of funds representing most standard equity and
debt security classes. Trustees of the plan may make changes at any time.
- 63 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Investment in joint ventures – Investment in joint ventures over which we have the ability to exercise significant influence and
that, in general, are at least 20 percent owned are accounted for using the equity method of accounting. These investments are
evaluated for impairment, in which an impairment loss would be recorded whenever a decline in the value of an equity investment
below its carrying amount is determined to be “other than temporary.” In judging “other than temporary,” we consider the length of
time and extent to which the fair value of the investment has been less than the carrying amount of the investment, the near-term and
longer-term operating and financial prospects of the investee, and our longer-term intent of retaining the investment in the investee.
Noncontrolling interest - Noncontrolling interest (previously referred to as minority interest) primarily relates to the minority
investors’ share of the earnings of certain China and Taiwan subsidiaries. Noncontrolling interests are a separate component of equity
and not a liability. Increases or decreases in noncontrolling interest, due to changes in our ownership interest of the subsidiaries that
leave control intact, are recorded as equity transactions. The noncontrolling interest in our subsidiaries and their equity balances are
reported separately in the consolidated financial statements, and activities of these subsidiaries are included therein.
Contingencies – From time to time, we may be involved in a variety of legal matters that arise in the normal course of business.
Based on information available, we evaluate the likelihood of potential outcomes. We record and disclose the appropriate liability
when the amount is deemed probable and reasonably estimable. In addition, we do not accrue for estimated legal fees and other
directly related costs as they are expensed as incurred.
Comprehensive income (loss) – GAAP generally requires that recognized revenue, expenses, gains and losses be included in
net income. Although certain changes in assets and liabilities are reported as separate components of the equity section of the
consolidated balance sheet, such items, along with net income, are components of comprehensive income or loss. The components of
accumulated other comprehensive income or loss include foreign currency translation adjustments and unrealized gain or loss on
defined benefit plan. Accumulated other comprehensive loss was approximately $84 million, $68 million and $44 million at
December 31, 2015, 2014 and 2013, respectively.
There is no income tax expense or benefit associated with each component of comprehensive income. As of December 31, the
accumulated balance for each component of comprehensive income is as follows:
Translation adjustment ...................................................................................................... $
Unrealized loss on defined benefit plan ............................................................................ $
Unrealized foreign currency losses ................................................................................... $
2015
2014
(36,164 )
(31,320 )
(16,932 )
$
$
$
(16,357)
(35,719)
(16,326)
Reclassifications – Certain immaterial amounts from prior periods have been reclassified to conform to the current years’
presentation.
Recently Accounting Pronouncements - The Financial Accounting Standards Board (“FASB”) issued the following
Accounting Standards Updates (“ASU”) which could have potential impact to the Company’s financial statements:
ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is based on the principle that revenue
is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. This standard also requires additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and
changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This standard is effective date in the
first quarter of 2018 for public companies. Under this proposal, early adoption is permitted as of the original effective time period of
first quarter of 2017 and requires either a retrospective or a modified retrospective approach to adoption. We have not yet selected a
transition method and are currently evaluating the effect that the updated standard will have on our consolidated financial statements
and related disclosures.
ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost. This
standard requires that costs associated with the issuance of debt previously recorded as deferred assets on the balance sheet now be
reported as a direct reduction of the related debt balance. This standard is effective for interim and annual periods beginning January
1, 2016, but early adoption is permitted. We plan to adopt this standard in the first quarter of 2016. Upon adoption, this standard will
be applied retrospectively to all prior periods presented. This standard will have no impact on the consolidated statements of income
and will have an immaterial impact from the reclassifications on our consolidated balance sheets.
- 64 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
ASU No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). This standard requires in scope inventory to
be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for
inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to inventory that is
measured using LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is
measured using first-in, first-out (“FIFO”) or average cost. The standard is effective for public business entities for fiscal years
beginning after December 15, 2016, including interim periods within those fiscal years and requires prospective application, with
earlier application permitted as of the beginning of an interim or annual reporting period. We are evaluating the effect that ASU 2015-
11 will have on our consolidated financial statements and related disclosures.
ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2016-16"). This standard eliminates
the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in
periods after a business combination is consummated. These changes become effective for fiscal years beginning after December 31,
2015. We are evaluating the effect that ASU 2015-16 will have on our consolidated financial statements and related disclosures.
ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, (“ASU 2015-17”). The amendments in this update require
that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this
update apply to all entities that present a classified statement of financial position. This guidance requires that all deferred tax
liabilities and assets be classified as noncurrent on the balance sheet, and is effective for reporting periods beginning after December
15, 2016; however, early adoption is permitted. This guidance can also be applied either prospectively to all deferred tax liabilities and
assets or retrospectively to all periods presented. We adopted ASU 2015-17 retrospectively during the quarter ended December 31,
2015, which resulted in the reclassification of approximately $11 million from current deferred income taxes to noncurrent deferred
income taxes presented on the consolidated balance sheet as of December 31, 2014.
ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial
Liabilities (“ASU 2016-01”). This update requires equity investments (except those accounted for under the equity method of
accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in
net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for
disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of
financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used
to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become
effective for our fiscal year beginning November 1, 2018. Early application is permitted. We are evaluating the effect that ASU 2016--
1 will have on our consolidated financial statements and related disclosures.
ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) - The standard requires companies that lease valuable assets like
aircraft, real estate, and heavy equipment to recognize on their balance sheets the assets and liabilities generated by contracts longer
than a year. The update to U.S. GAAP also requires companies to disclose in the footnotes to their financial statements information
about the amount, timing, and uncertainty for the payments they make for the lease agreements. This new standard will be effective
for public business entities for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption will be
permitted for all entities. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related
disclosures.
Note 2 – FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The
market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets
and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single
present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the
service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques
refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those
that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions
market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
- 65 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
These two types of inputs create a three-tier fair value hierarchy that gives the highest priority to quoted prices in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example,
interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from
or corroborated by observable market data by correlation or other means.
Level 3 Inputs - Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in
pricing the assets or liabilities.
As of December 31, 2015, we had short-term investments. Trading securities held at December 31, 2014, were purchased on
the open market and unrealized gains and losses are included in other income (expense). The trading securities are valued under the
fair value hierarchy using Level 1 Inputs. Short-term investments of $65 million consist of investments such as time deposits, which
are highly liquid with maturity dates greater than three months at the date of purchase. Generally, we can access these investments in a
relatively short amount of time but in doing so we generally forfeit a portion of earned and future interest income. The short-term
investments are valued under the fair value hierarchy using Level 2 Inputs.
Financial assets and liabilities carried at fair value as of December 31, 2015 are classified in the following table:
Description
Short-term investments ............................ $
Quoted Prices
in Active
Markets for
Identical
Assets (Level
1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Changes
in Fair Values
Included in
Current Period
Earnings
Fair Market
Value
64,685 $
2,035 $
62,650 $
- $
-
Financial assets and liabilities carried at fair value as of December 31, 2014 are classified in the following table:
Description
Trading securities............................... $
Short-term investments ......................
Fair Market
Value
Quoted Prices in
Active Markets
for Identical
Significant
Other
Observable
Assets (Level 1)
Inputs (Level 2)
Significant
Unobservable
Inputs (Level
3)
Total Changes
in Fair Values
Included in
Current Period
Earnings
7,180 $
11,726 (cid:3)(cid:3)
7,180 $
-
(cid:3)
- $
(cid:3)
11,726
- $
- (cid:3)
1,364
-
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are
not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when
there is evidence of impairment). We believe our long-term debt under our revolving credit facility approximates fair value and is
valued under the fair value hierarchy using Level 2 Inputs. Financial assets and financial liabilities measured at fair value on a non-
recurring basis were not significant at December 31, 2015 and 2014. Certain non-financial assets and non-financial liabilities that are
measured at fair value on a recurring and non-recurring basis include goodwill, other intangible assets and other non-financial long-
lived assets.
- 66 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Note 3 – INVENTORIES
Inventories, stated at the lower of cost or market value, at December 31 were:
Finished goods ........................................................................... $
Work-in-progress .......................................................................
Raw materials .............................................................................
$
70,668
46,061
86,103
202,832
$
$
2015
2014
Note 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 were:
Buildings and leasehold improvements........................................................$
Machinery and equipment ............................................................................
Less: Accumulated depreciation and amortization .....................................
Construction in-progress ..............................................................................
Land .............................................................................................................
$
183,174
660,406
843,580
(479,898 )
363,682
39,426
36,232
439,340
$
$
2015
2014
66,045
42,417
73,564
182,026
124,920
577,402
702,322
(437,792)
264,530
26,202
19,199
309,931
Depreciation and amortization of property, plant and equipment was $72 million, $69 million and $66 million for the years
ended December 31, 2015, 2014 and 2013, respectively. We have capital lease obligations totaling approximately $0.2 million at
December 31, 2015 and 2014, included in other long-term liabilities on the balance sheet.
Note 5 – INTANGIBLE ASSETS
Intangible assets subject to amortization at December 31 were as follows:
Intangible Assets
Useful life
December 31, 2015
Gross Carrying
Amount
Accumulated
Amortization
Currency
Exchange
Net
Amortized intangible assets
Patents ............................................................
Software license ..............................................
Developed product technology .......................
Customer relationships ...................................
Trademarks and trade names ..........................
Other ...............................................................
Total amortized intangible assets ...................
Intangible assets with indefinite lives
In process research and development ..............
Trademarks and trade names ..........................
Total Intangible assets with indefinite lives ........
Total intangible assets ........................................
5-15 years $
3 years
2-10 years
12 years
4-7 years
4-7 years
Indefinite
Indefinite
$
11,823
1,212
152,309
62,093
3,000
1,610
232,047
11,400
10,303
21,703
253,750
$
$
(7,722) $
(1,212)
(28,969)
(8,491)
(2,125)
(309)
(48,828)
-
-
-
(48,828)
$
(261) $
-
(5,929)
(1,460)
-
(75)
(7,725)
-
(788)
(788)
$
(8,513)
3,840
-
117,411
52,142
875
1,226
175,494
11,400
9,515
20,915
196,409
- 67 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Intangible Assets
Useful life
December 31, 2014
Gross Carrying
Amount
Accumulated
Amortization
Currency
Exchange and
Other
Net
Amortized intangible assets
Patents ............................................................
Software license ..............................................
Developed product technology .......................
Customer relationships ...................................
Trademarks and trade names ..........................
Total amortized intangible assets ...................
Intangible assets with indefinite lives
Trademarks and trade names ..........................
Total Intangible assets with indefinite lives ......
Total intangible assets ........................................
5-15 years $
3 years
2-10 years
12 years
4-7 years
Indefinite
$
11,815
1,212
50,308
20,393
3,000
86,728
6,403
6,403
93,131
$
$
(7,014) $
(1,212)
(24,224)
(6,202)
(1,375)
(40,027)
-
-
(40,027)
$
(249) $
-
(5,749)
(1,351)
(59)
(7,408)
(668)
(668)
$
(8,076)
4,552
-
20,335
12,840
1,566
39,293
5,735
5,735
45,028
Amortization expense related to intangible assets subject to amortization was $9 million, $8 million and $8 million for the years
ended December 31, 2015, 2014 and 2013, respectively.
Amortization of intangible assets is as follows:
2016 .....................................................................................................................................................
2017 .....................................................................................................................................................
2018 .....................................................................................................................................................
2019 .....................................................................................................................................................
2020 .....................................................................................................................................................
2021 and thereafter ..............................................................................................................................
Total .....................................................................................................................................................
$
$
NOTE 6 – GOODWILL
Changes in goodwill for the years ended December 31 were as follows:
Balance at December 31, 2013 ......................................................................................................... $
Currency exchange and other ...........................................................................................................
Balance at December 31, 2014 .........................................................................................................
Acquisitions .....................................................................................................................................
Currency exchange and other ...........................................................................................................
Balance at December 31, 2015 ......................................................................................................... $
20,509
18,826
17,844
17,297
15,249
85,769
175,494
84,714
(3,485)
81,229
54,280
(2,596)
132,913
NOTE 7 – BANK CREDIT AGREEMENTS AND OTHER SHORT-TERM AND LONG-TERM DEBT
We maintain credit facilities with several financial institutions through our entities worldwide totaling $84 million. In some
cases, our foreign credit lines are unsecured, uncommitted and may be repayable on demand.
On September 2, 2015, the Company and Diodes International B.V. (the “Foreign Borrower” and, collectively with the
Company, the “Borrowers”), and certain subsidiaries of the Company as guarantors, entered into an Amendment No. 3 to Credit
Agreement, Incremental Term Assumption Agreement, Limited Waiver and Consent (the “Amendment”) with Bank of America,
N.A., as Administrative Agent, and the lenders party to the Amendment (collectively, the “Lenders”), which amends the Credit
Agreement dated January 8, 2013 (as previously amended by Amendment No. 1 to Credit Agreement and Limited Waiver dated as of
November 1, 2013 and Amendment No. 2 to Credit Agreement and Amendment No. 1 to Collateral Agreement dated as of June 19,
2015) (as previously amended and as amended by the Amendment, the “Credit Agreement”).
The Amendment increases the Company’s existing senior credit facility to a $400 million revolving senior credit facility (the
“Revolver”), which includes a $10 million swing line sublimit, a $10 million letter of credit sublimit, and a $20 million alternative
- 68 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
currency sublimit, and a $100 million term loan facility (the “Term Loan Facility”). We may from time to time request additional
increases in the aggregate commitments under the Credit Agreement of up to $200 million, subject to the Lenders electing to increase
their commitments or by means of the addition of new Lenders, and subject to at least half of each increase in aggregate commitments
being in the form of term loans, with the remaining amount of each increase being an increase in the amount of the Revolver. The
Revolver and the Term Loan Facility mature on January 8, 2018 (the “Maturity Date”). The Company used a portion of the proceeds
available under the Revolver and the Term Loan Facility to finance a portion of the purchase price for the Pericom acquisition, with
the remaining proceeds available for working capital, for capital expenditures, and for general corporate purposes, including financing
other permitted acquisitions.
The Credit Agreement contains certain financial and non-financial covenants, including, but not limited to, a maximum
Consolidated Leverage Ratio, a minimum Consolidated Fixed Charge Coverage Ratio, and restrictions on liens, indebtedness,
investments, fundamental changes, dispositions, and restricted payments (including dividends) (as such terms are defined in the
Amendment or the Credit Agreement).
As of December 31, 2015, our U.S. and Asia subsidiaries had unused and available credit lines of up to an aggregate of
approximately $83 million, with several financial institutions. In some cases, our foreign credit lines are unsecured, uncommitted and
may be repayable on demand, except for two Taiwanese credit facilities that are collateralized by assets. Our foreign credit lines bear
interest at LIBOR or similar indices plus a specified margin. At December 31, 2015, there were no amounts outstanding on these
credit lines.
Borrower’s obligations under the Credit Agreement are secured by substantially all assets of the Borrowers and certain of their
subsidiaries.
Under the Revolver, the Borrowers may borrow in United States Dollars (“USD”), Euros, British Pounds Sterling or another
currency approved by the Lenders. Borrowed amounts under the Revolver and the Term Loan Facility bear interest at a rate per annum
equal to (a) a base rate (equal to the highest of (i) the Federal Funds Rate plus 1(cid:187)2 of 1.00%, (ii) Bank of America’s “prime rate”, and
(iii) the Eurocurrency Rate plus 1.00%,) plus 0.50% and 1.50%, based upon the Borrowers’ Consolidated Leverage Ratio, or (b) the
Eurocurrency Rate plus 1.50% and 2.50%, based upon the Borrowers’ Consolidated Leverage Ratio. The Revolver also bears a
commitment fee of 0.25% to 0.40% based on the Borrowers’ Consolidated Leverage Ratio.
The unused and available credit under the various facilities as of December 31, 2015, was approximately $83 million (net of
approximately $1 million credit used for import and export guarantee), as follows:
2015
Lines of Credit
Terms
$
Unsecured, interest at LIBOR plus margin, due
quarterly
84,326
Outstanding at December 31,
2014
2015
$
-
$
1,064
Long-term debt – The balances as of December 31, consist of the following:
Notes payable to Taiwan bank, original principal amount of TWD 132 million, variable
interest (approximately 1.9% as of December 31, 2015), matures July 6, 2021. ...................
Term loan and revolver ...................................................................................................
Total long-term debt.........................................................................................................
Less: Current portion ......................................................................................................
Long-term debt, net of current portion ............................................................................. $
2015
2014
1,723
464,500
466,223
(10,282 )
455,941
$
2,074
139,000
141,074
(287)
140,787
- 69 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The table below sets forth the annual contractual maturities of long-term debt at December 31, 2015:
2016 ........................................................................................................................................................ $
2017 ........................................................................................................................................................
2018 ........................................................................................................................................................
2019 ........................................................................................................................................................
2020 ........................................................................................................................................................
Thereafter ................................................................................................................................................
Total long-term debt................................................................................................................................ $
NOTE 8 – ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES
Accrued liabilities and other current liabilities at December 31 were:
2015
2014
Accrued expenses .......................................................................................$
Compensation and payroll taxes ................................................................
Equipment purchases .................................................................................
Accrued pricing adjustments ......................................................................
Accrued professional services ....................................................................
Other ..........................................................................................................
$
Other long-term liabilities at December 31 were:
Accrued defined benefit plan .....................................................................$
Unrecognized tax benefits ..........................................................................
Deferred grant and subsidy ........................................................................
Income tax contingencies ...........................................................................
Deferred compensation ..............................................................................
Other ..........................................................................................................
$
34,108
23,867
13,060
3,767
2,082
917
77,801
30,406
20,933
20,361
10,782
5,600
2,071
90,153
$
$
$
$
2015
2014
10,282
287
454,793
299
299
263
466,223
27,384
19,423
8,563
2,328
1,978
473
60,149
37,618
15,425
9,538
10,210
4,978
1,163
78,932
NOTE 9 – STOCKHOLDERS’ EQUITY
We have never declared or paid cash dividends on our Common Stock. Our credit agreement with Bank of America N.A. and
other lenders parties permits us to pay dividends up to $1.5 million per fiscal year to its stockholders so long as we have not defaulted
and are in continuing operation at the time of such dividend. The payment of dividends is within the discretion of our Board of
Directors. See Note 7 for additional information regarding our credit agreements.
During November 2015 the Company’s board of directors authorized a share repurchase plan to repurchase up to an aggregate
of $100 million of the Company’s outstanding common stock, $0.66 2/3 par value per share. The share repurchase program is
expected to continue through the end of 2019 unless extended or shortened by the Board of Directors. During 2015, the Company
repurchased 466,010 of its common shares at a cost of $11 million. All purchases were made through open market transactions and
were recorded as treasury stock.
NOTE 10 – INCOME TAXES
Income (loss) before income taxes
U.S. ....................................................................................... $
Foreign ..................................................................................
Total ...................................................................................... $
2015
2014
2013
(21,091) $
61,686
40,595
$
392 $
85,600
85,992 $
(12,936)
51,521
38,585
- 70 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The components of the income tax provision (benefit) are as follows for the years ended December 31:
Current tax provision (benefit)
Federal............................................................................... $
Foreign ..............................................................................
State ..................................................................................
Deferred tax provision (benefit)
Federal...............................................................................
Foreign ..............................................................................
State ..................................................................................
Liability for unrecognized tax benefits .................................
Total income tax provision................................................ $
Effective Tax Rate Reconciliation
2015
2014
2013
$
12
17,983
29
18,024
(2,739)
(1,063)
(228)
(4,030)
88
14,082
$
285 $
21,783
44
22,112
2,996
(4,244 )
51
(1,197 )
(556 )
20,359 $
1,315
9,270
(187)
10,398
(1,531)
(2,197)
9
(3,719)
7,802
14,481
Reconciliation between the effective tax rate and the statutory tax rates for the years ended December 31, 2015, 2014, and 2013
is as follows:
2015
2014
2013
Federal tax .................................................. $
State income taxes, net of federal tax
provision .................................................
Foreign income taxed at lower tax rates .....
U.S. tax impact of foreign operations .........
Foreign withholding taxes ..........................
Goodwill impairment ..................................
Research and development .........................
Liability for unrecognized tax benefits .......
Valuation allowance ...................................
Provision-to-return adjustments ..................
Other ...........................................................
Income tax provision ........................ $
Amount
14,214
(152 )
(10,126 )
2,046
2,268
-
(2,068 )
88
3,580
994
3,238
14,082
Uncertain Tax Positions
Percent
of pretax
earnings
35.0
(0.4)
(24.9)
5.0
5.6
-
(5.1)
0.2
8.8
2.4
8.1
34.7
Amount
$
30,097
18
(9,421)
365
3,694
-
(2,666)
(556)
876
(1,925)
(123)
20,359
$
Percent
of pretax
earnings
35.0
-
(11.0 )
0.4
4.3
-
(3.1 )
(0.6 )
1.0
(2.2 )
(0.1 )
23.7
Amount
$
13,501
29
(8,363)
608
866
904
(2,294)
7,802
868
554
6
14,481
$
Percent
of pretax
earnings
35.0
0.1
(21.7)
1.6
2.2
2.3
(5.9)
20.2
2.3
1.4
-
37.5
In accordance with the provisions related to accounting for uncertainty in income taxes, we recognize the benefit of a tax
position if the position is “more likely than not” to prevail upon examination by the relevant tax authority. A reconciliation of the
beginning and ending amount of unrecognized tax benefits is as follows:
Balance at January 1, ............................................................ $
Additions based on tax positions related to the
current year ........................................................................
Additions for prior year tax positions ...................................
Reductions for prior year tax positions .................................
Balance at December 31, ...................................................... $
2015
2014
2013
19,488
$
20,710
$
3,450
6,963
(3,398)
26,503
$
2,729
424
(4,375 )
19,488
$
14,591
3,659
10,206
(7,746)
20,710
The total amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was approximately $27
million at December 31, 2015. It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our
- 71 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of
settlements of ongoing audits or competent authority proceedings. At this time, an estimate of the range of the reasonably possible
outcomes cannot be made.
We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject
to U.S. federal income tax examinations by tax authorities for tax years before 2007, or for the 2010 tax year. We are no longer
subject to China income tax examinations by tax authorities for tax years before 2005. With respect to state and local jurisdictions and
countries outside of the U.S., with limited exceptions, we are no longer subject to income tax audits for years before 2011. Although
the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, interest and penalties, if any, have been
provided for in our reserve for any adjustments that may result from future tax audits. We recognize accrued interest and penalties, if
any, related to unrecognized tax benefits in interest expense. We had an immaterial amount of accrued interest and penalties at
December 31, 2015, 2014 and 2013.
Deferred Taxes
At December 31, 2015 and 2014, our deferred tax assets and liabilities are comprised of the following items:
2015
2014
Deferred tax assets
Inventory cost ............................................................................................$
Accrued expenses and accounts receivable ...............................................
Foreign tax credits .....................................................................................
Research and development tax credits ......................................................
Net operating loss carryforwards ..............................................................
Accrued pension ........................................................................................
Share based compensation and others .......................................................
Valuation allowances .................................................................................
Total deferred tax assets, non-current .....................................................
Deferred tax liabilities
Plant, equipment and intangible assets ......................................................
Total deferred tax liabilities, non-current ................................................
Net deferred tax assets .................................................................................$
$
7,944
2,206
20,133
12,306
25,878
7,169
18,238
93,874
(35,738 )
58,136
(39,722 )
(39,722 )
18,414
$
6,878
2,042
19,806
6,034
14,706
22,283
20,655
92,404
(41,163)
51,241
(3,334)
(3,334)
47,907
Certain items have been reclassified in 2014 and 2013 for consistency in presentation with 2015.
We prospectively adopted ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, (“ASU 2013-11”) effective in the first quarter of 2014. ASU
No. 2013-11 provides that an entity is required to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in
the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward. The $13 million net deferred tax asset presented on the balance sheet as of December 31, 2015, is net of $5 million of
unrecognized tax benefits. The $18 million net deferred tax asset presented above is prior to the net balance sheet presentation
required by ASU 2013-11. The $44 million net deferred tax assets presented as of December 31, 2014, is net of $4 million of
unrecognized tax benefits. The $48 million net deferred tax asset presented above is the net balance sheet presentation required by
ASU 2013-11.
At December 31, 2015, we had federal and state tax credit carryforwards of approximately $26 million and $7 million,
respectively, which are available to offset future income tax liabilities. The federal tax credit carryforwards begin to expire in 2015
and the state tax credit carryforwards will begin to expire in 2020. We determined that it is more likely than not that a portion of our
federal foreign tax credit and federal and state research credit carryforwards will expire before they are utilized. The valuation
allowances recorded against the related deferred tax assets totaled $22 million as of December 31, 2015.
At December 31, 2015, we had federal and state net operating loss (“NOL”) carryforwards of approximately $56 million and $3
million, respectively, and foreign NOL carryforwards of $17 million which are available to offset future taxable income. The federal
NOL carryforwards will begin to expire in 2032. We determined that it is more likely than not that the U.S. federal NOL
- 72 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
carryforwards will be utilized; thus, no valuation allowance has been recorded. The U.S. state NOL carryforwards will begin to expire
in 2015. We determined that it is more likely than not that the U.S. state NOL carryforwards will expire before they are fully utilized
and recorded a full valuation allowance on the related deferred tax assets. The foreign NOL carryforwards will begin to expire in
2020. We determined that it is more likely than not that a portion of the foreign NOL carryforwards will expire before they are fully
utilized. The valuation allowances recorded against the related deferred tax assets totaled $2 million as of December 31, 2015..
Supplemental Information
Funds repatriated from foreign subsidiaries to the U.S. may be subject to federal and state income taxes. We intend to
permanently reinvest overseas all of our earnings from our foreign subsidiaries, except to the extent such undistributed earnings have
previously been subject to U.S. tax; accordingly, U.S. taxes are not being recorded on undistributed foreign earnings. As of
December 31, 2015, we had undistributed earnings from our non-U.S. operations of approximately $536 million (including
approximately $42 million of restricted earnings which are not available for dividends). Undistributed earnings of our China
subsidiaries comprise $383 million of this total. Additional federal and state income taxes of approximately $146 million would be
required should the $536 million of such earnings be repatriated to the U.S. as dividends.
The impact of tax holidays decreased our tax expense by approximately $3 million, $2 million and $2 million for the years
ended December 31, 2015, 2014 and 2013, respectively. The benefit of the tax holidays on both basic and diluted earnings per share
for the years ended December 31, 2015 was approximately $0.06. The benefit of the tax holidays on both basic and diluted earnings
per share for the years ended December 31, 2014 and 2013 was approximately $0.05.
NOTE 11 – EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
In connection with the Zetex acquisition, we adopted a contributory defined benefit plan that covers certain employees in the
U.K. The defined benefit plan is closed to new entrants and frozen with respect to future benefit accruals. The retirement benefit is
based on the final average compensation and service of each eligible employee. We determined the fair value of the defined benefit
plan assets and utilize an annual measurement date of December 31. At subsequent measurement dates, defined benefit plan assets
will be determined based on fair value. Defined benefit plan assets consist primarily of high quality corporate bonds that are
denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related
pension liability. The net pension and supplemental retirement benefit obligations and the related periodic costs are based on, among
other things, assumptions of the discount rate, estimated return on plan assets and mortality rates. These obligations and related
periodic costs are measured using actuarial techniques and assumptions. The projected unit credit method is the actuarial cost method
used to compute the pension liabilities and related expenses.
Net period benefit costs associated with the defined benefit were approximately $1 million for each of the years ended
December 31, 2015 and 2014. All unrecognized actuarial gains and losses, prior service costs and accumulated other comprehensive
income are eliminated and the balance sheet liability is set equal to the funded status of the defined benefit plan at acquisition date.
The following table summarizes the net periodic benefit costs of the plan for the years ended December 31, 2015 and 2014:
Defined Benefit Plan
2015
2014
Components of net periodic benefit cost:
Service cost ....................................................................................... $
Interest cost .......................................................................................
Recognized actuarial loss ..................................................................
Expected return on plan assets ..........................................................
Net periodic benefit cost ..................................................................... $
(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
305
5,712
1,429
(6,213 )
1,233
(cid:3)(cid:3)(cid:3)(cid:3)
$
$
329
6,733
1,036
(6,781)
1,317
- 73 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The following tables set forth the benefit obligation, the fair value of plan assets, and the funded status as of December 31:
Change in benefit obligation:
Beginning balance ............................................................................ $
Service cost .................................................................................
Interest cost .................................................................................
Actuarial gain (loss) ....................................................................
Benefits paid ...............................................................................
Currency changes ........................................................................
Benefit obligation at December 31 ..................................................... $
Change in plan assets:
Beginning balance - fair value .................................................... $
Employer contribution ................................................................
Actual return on plan assets ........................................................
Benefits paid ...............................................................................
Currency changes ........................................................................
Fair value of plan assets at December 31 ............................................ $
Underfunded status at December 31 ................................................... $
Defined Benefit Plan
2015
2014
159,715
305
5,712
(9,043 )
(4,072 )
(7,598 )
145,019
122,780
514
3,144
(4,072 )
(5,980 )
116,386
(28,633 )
$
$
$
$
$
149,316
329
6,733
17,650
(4,511)
(9,802)
159,715
116,567
2,569
15,701
(4,511)
(7,546)
122,780
(36,935)
Based on an actuarial study performed as of December 31, 2015, the plan is underfunded by approximately $29 million and the
liability is reflected in our consolidated balance sheets as a noncurrent liability and the amount recognized in accumulated other
comprehensive loss was approximately $31 million. The majority of the improvement of the underfunded status in 2015 was caused
by the change in discount rates, and partially offset by the better than expected investment returns and a decrease in future inflation
expectations.
We apply the “10% corridor” approach to amortize unrecognized actuarial gains (losses). Under this approach, only actuarial
gains (losses) that exceed 10% of the greater of the projected benefit obligation or the market-related value of the plan assets are
amortized. For the year ended December 31, 2015, the plan’s total recognized loss decreased by approximately $5 million. The
variance between the actual and expected return to plan assets during 2015 increased the total unrecognized net loss by approximately
$6 million. The total unrecognized net loss is more than 10% of the projected benefit obligation and 10% of the plan assets.
Therefore, the excess amount will be amortized over the average term to retirement of plan participants not yet in receipt of pension,
which as of December 31, 2015 the average term was approximately 13 years. The following weighted-average assumptions were
used to determine net periodic benefit costs for the year ended December 31:
(cid:3)
Discount rate .............................................................................................
Expected long-term return on plan assets .................................................
2015
4.0%
6.0%
(cid:3)(cid:3)
2014
3.7%
5.2%
The following weighted-average assumption was used to determine the benefit obligations for the year ended December 31:
(cid:3)(cid:3)
Discount rate .............................................................................................
2015
4.0%
2014
3.7%
- 74 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The expected long-term return on plan assets was determined based on historical and expected future returns of the various asset
classes. The plan’s investment policy includes a mandate to diversify assets and invest in a variety of asset classes to achieve its
expected long-term return and is currently invested in a variety of funds representing most standard equity and debt security classes.
Trustees of the plan may make changes at any time. The following summarizes the plan asset allocations of the assets in the plan and
expected long-term return by asset category:
Asset category
Growth assets ....................................................................
Hedging assets ..................................................................
Target return assets ...........................................................
Cash ..................................................................................
Total ..................................................................................
Expected long-term return
Asset allocation
7.6%
2.6%
7.1%
0.5%
6.0%
68%
28%
1%
3%
100%
Benefit plan payments are primarily made from funded benefit plan trusts and current assets. The following summarizes the
expected future benefit payments, including future benefit accrual, as of December 31, 2015:
(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
2016 ............................................................................................................................................................... $
2017 ...............................................................................................................................................................
2018 ...............................................................................................................................................................
2019 ...............................................................................................................................................................
2020 ...............................................................................................................................................................
2021-2025 ......................................................................................................................................................
4,039
4,110
4,364
4,466
4,910
32,674
We adopted a payment plan with the trustees of the defined benefit plan, in which we will pay approximately GBP 2 million
every year from 2012 through 2019. In the first quarter of 2015, based on the pension deficit, we adopted (as required every three
years) an amended payment plan in which we will pay approximately GBP 2 million (approximately $3 million based on a USD:GBP
exchange rate of 1.6:1) annually through 2030.
Our overall defined benefit plan investment strategy is to achieve a mix of investments for long-term growth and for near-term
benefit payments with a wide diversification of asset types and fund strategies. The target allocations for plan assets are 48% equity
securities, 40% corporate bonds and government securities, and 12% to absolute return funds. Equity securities primarily include
investments in large-cap and mid-cap companies primarily located in the U.K. Fixed income securities include corporate bonds of
companies from diversified industries, and U.K. government bonds. The absolute return fund is mainly invested in a mixture of
equities and bonds.
The plan’s trustees appoint fund managers to carry out all the day-to-day functions relating to the management of the fund and
its administration. The fund managers must invest their portion of the plan’s assets in accordance with their investment manager
agreement agreed by the trustees. The trustees are responsible for agreeing these investment manager agreements and for deciding on
the portion of the plan’s assets that will be invested with each fund manager. When making decisions, the trustees take advice from
experts including the plan’s actuary and also consult with us.
- 75 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The following table summarizes the major categories of the plan assets:
Asset category
Cash ........................................................ $
Equity securities:
U.K. ......................................................
North America ......................................
Europe (excluding U.K.) .......................
Japan .....................................................
Pacific Basin (excluding Japan) ............
Emerging markets .................................
Fixed income securities:
Corporate bonds ....................................
Others ...................................................
Index linked securities:
Others ...................................................
Other types of investments:
Absolute return funds ...........................
Hedge funds ..........................................
Development REITS .............................
Insurance linked securities ....................
Liability driven investments .................
Other ......................................................
Total ........................................................ $
Level 1
December 31, 2015
Level 2
Level 3
Total
3,643 $
6,538 $
- $
-
-
-
-
-
-
-
-
-
702
-
-
-
-
-
4,345 $
2,025
17,182
4,309
3,373
939
6,718
5,920
3,392
196
3,908
15,791
5,664
3,916
32,105
65
112,041 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
10,181
2,025
17,182
4,309
3,373
939
6,718
5,920
3,392
196
4,610
15,791
5,664
3,916
32,105
65
116,386
Fair value is taken to mean the bid value of securities, as supplied by the fund managers. All the plan’s securities are publically
traded and highly liquid. The plan does not hold any Level 3 securities. See Note 2 for additional information regarding fair value and
Levels 1, 2 and 3.
The investment manager agreements require the fund managers to invest in a diverse range of stocks and bonds across each
particular asset class. The stocks held by the plan in a particular asset class should therefore match closely the underlying stocks in the
relevant index. We believe that this leads to minimal concentration of risk within each asset class; although we recognize that some
asset classes are inherently more risky than others.
We also have pension plans in Asia for which the benefit obligation, fair value of the plan assets and the funded status amounts
are deemed immaterial and therefore, not included in the amounts or assumptions above.
401(k) Retirement Plan
We maintain a 401(k) retirement plan (“the Plan”) for the benefit of qualified employees at our U.S. locations. Employees who
participate may elect to make salary deferral contributions to the Plan up to 100% of the employees’ eligible payroll subject to annual
Internal Revenue Code maximum limitations. We currently make a matching contribution of $1 for every $2 contributed by the
participant up to 6% (3% maximum matching) of the participant’s eligible payroll, which vests over an initial four years. In addition,
we may make a discretionary contribution to the entire qualified employee pool, in accordance with the Plan.
As stipulated by the regulations of China, we maintain a retirement plan pursuant to the local municipal government for the
employees in China. We are required to make contributions to the retirement plan at a rate between 10% and 22% of the employee’s
eligible payroll. Pursuant to the Taiwan Labor Standard Law and Factory Law, we maintain a retirement plan for the employees in
Taiwan, whereby we make contributions at a rate of 6% of the employee’s eligible payroll.
For the years ended December 31, 2015, 2014 and 2013, total amounts expensed under these plans were approximately $14
million, $13 million and $6 million, respectively.
- 76 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Deferred Compensation Plan
We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key
employees and members of the Board of Directors (the “Board”). The Deferred Compensation Plan allows eligible participants to
defer the receipt of eligible compensation, including equity awards, until designated future dates. We offset our obligations under the
Deferred Compensation Plan by investing in the actual underlying investments. These investments are classified as trading securities
and are carried at fair value. At December 31, 2015, these investments totaled approximately $6 million. All gains and losses in these
investments are materially offset by corresponding gains and losses in the deferred compensation plan liabilities.
Share-Based Plans
We maintain share-based compensation plans for our Board, officers and key employees, which provide for stock options and
stock awards under our equity incentive plans, as described in Note 12.
NOTE 12 - SHARE-BASED COMPENSATION
The table below sets forth compensation cost charged as an expense for share-based compensation plans, including stock
options and share grants, recognized in the statements of income for the years ended December 31, 2015, 2014 and 2013:
Cost of goods sold ......................................................................................... $
Selling, general and administrative expense .................................................
Research and development expense ..............................................................
Total share-based compensation expense ..................................................... $
2015
2014
2013
716
16,228
2,026
18,970
$
$
438
12,438
1,228
14,104
$
$
522
11,645
1,384
13,551
Stock Options – Stock options under our 2001 Omnibus Equity Incentive Plan (“2001 Plan”) generally vest in equal annual
installments over a four-year period and expire ten years after the grant date. For the years ended December 31, 2015, 2014 and
2013, stock option expense was approximately $3 million, $3 million and $4 million, respectively.
In May 2013, our stockholders approved our 2013 Equity Incentive Plan (“2013 Plan”). Since the approval of the 2013 Plan, all
stock options are granted under the 2013 Plan, and we will not grant any further stock options under our 2001 Plan. Stock options
under the 2013 Plan generally vest in equal annual installments over a four-year period and expire eight years after the grant date. The
number of shares authorized to be awarded under the 2013 Plan is 6 million shares. For additional information on the 2013 Plan, see
our definitive proxy statement filed with the SEC.
Share-based compensation expense for stock options granted during 2014 and 2013 was calculated on the date of grant using the
Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:
Weighted-average grant date fair value (1) .................................................. $
15.68
$
12.88
2014
2013
Weighted-average assumptions used:
Expected volatility ..................................................................................
Expected term (years) .............................................................................
Risk-free interest rate ..............................................................................
Forfeiture rate .........................................................................................
Expected dividend yield .........................................................................
(1) No stock options were granted in 2015.
53.36%
7.2
2.08%
0.00%
0.00%
53.36 %
7.2
1.49 %
0.78 %
0.00 %
Expected volatility – We estimate expected volatility using historical volatility. Public trading volume on options in our stock is
not material. As a result, we determined that utilizing an implied volatility factor would not be appropriate. We calculate historical
volatility for the period that is commensurate with the options’ expected term assumption.
Expected term – We have evaluated expected term based on history and exercise patterns across our demographic population.
We believe that this historical data is the best estimate of the expected term of a new option.
- 77 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Risk free interest rate – We estimate the risk-free interest rate based on zero-coupon U.S. treasury securities for a period that is
commensurate with the expected term assumption.
Forfeiture rate - The amount of stock-based compensation recognized during a period is based on the value of the portion of the
awards that are ultimately expected to vest as forfeitures are estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinguished from “cancellations” or “expirations”
and represents only the unvested portion of the surrendered option. This analysis will be re-evaluated at least annually, and the
forfeiture rate for all grants will be adjusted as necessary.
Total cash received from option exercises was approximately $10 million, $6 million and $3 million during 2015, 2014 and
2013, respectively.
At December 31, 2015, unamortized compensation expense related to unvested options, net of estimated forfeitures, was
approximately $3 million. The weighted average period over which share-based compensation expense related to these options will be
recognized is approximately 2 years.
The table below sets forth a summary of activity in our stock option plans:
Shares
Stock Options
Outstanding at January 1, 2013 .....................................................
Granted ..........................................................................................
Exercised .......................................................................................
Forfeited or expired .......................................................................
Outstanding at December 31, 2013 ...............................................
Granted ..........................................................................................
Exercised .......................................................................................
Forfeited or expired (1) ...................................................................
Outstanding at December 31, 2014 ...............................................
Granted ..........................................................................................
Exercised .......................................................................................
Forfeited or expired .......................................................................
Outstanding at December 31, 2015 ...............................................
Exercisable at December 31, 2015 ................................................
Weighted
Average
Remaining
Contractual
Term
(years)
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
3,713 $
186
(341)
(432)
3,126
176
(564)
(2)
2,736
-
(653)
(20)
2,063 $
1,776 $
17.85
23.35
7.70
20.34
18.93
27.92
10.37
29.21
21.26
-
15.63
22.91
23.03
22.82
3.9 $
3.6 $
4,111
3,840
(1)
The Compensation Committee of the Board of Directors reviewed the grants of stock options to the Chief Executive Officer
(“CEO”) in 2009, 2010, 2011 and 2012 (each such annual grant, an “Option Grant”), and approved a Confirmation Agreement,
dated April 1, 2013, in which we and our CEO agreed and confirmed that our CEO will assert no claim that any Option Grant in
2009, 2010, 2011 or 2012 provided for the purchase of more than 100,000 shares of our Common Stock, and that each Option
Grant document be deemed amended to reflect the foregoing 100,000 share limitation.
The table below summarizes information about stock options outstanding at December 31, 2015:
Plan
2001 Plan ............ $
2013 Plan ............ $
Range of exercise prices
15.05-29.21
23.35-27.92
Number outstanding
1,722
341
Weighted average
remaining
contractual life
(years)
Weighted average
exercise price
3.5
5.9
$
$
22.52
25.61
- 78 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The table below summarizes information about stock options exercisable at December 31, 2015:
Plan
2001 Plan ............ $
2013 Plan ............ $
Range of exercise prices
15.05-29.21
23.35-27.92
Number exercisable
1,648
128
Weighted average
remaining
contractual life
(years)
Weighted average
exercise price
3.4
5.8
$
$
22.66
24.86
Share Grants—Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year
period. Since the approval of the 2013 Plan, all new grants are granted under the 2013 Plan, and we will not grant any further grants
under our 2001 Plan.
The table below sets forth a summary of our non-vested share grants in 2015, 2014 and 2013:
Restricted Stock Grants
Nonvested at December 31, 2012 .................................................................
Granted ..........................................................................................................
Vested ...........................................................................................................
Forfeited ........................................................................................................
Nonvested at December 31, 2013 .................................................................
Granted ..........................................................................................................
Vested ...........................................................................................................
Forfeited ........................................................................................................
Nonvested at December 31, 2014 .................................................................
Granted ..........................................................................................................
Vested ...........................................................................................................
Forfeited ........................................................................................................
Nonvested at December 31, 2015 .................................................................
Weighted
Average Grant
Date Fair
Value
Aggregate
Intrinsic Value
Shares
1,164 $
453
(428)
(58)
1,131
788
(346)
(38)
1,535
1,557
(370)
(43)
2,679 $
20.42
24.66
19.90
21.66
22.35
25.08
22.34
24.98
23.32 $
22.46
25.02 $
26.08
23.51 $
42,324
9,462
61,247
For the years ended December 31, 2015, 2014 and 2013, share-based compensation expense related to restricted stock
arrangements granted was approximately $16 million, $11 million and $9 million, respectively. Included in the restricted stock grant
for 2015 were 724,000 shares granted to Pericom employees. In 2015 approximately $4 million of the increase in restricted stock
expense was related to Diodes restricted stock grants issued as replacement for unvested Pericom employee awards outstanding at the
date of the acquisition. The total unrecognized share-based compensation expense as of December 31, 2015 was approximately $34
million, which is expected to be recognized over a weighted average period of approximately 3 years.
NOTE 13 – RELATED PARTY TRANSACTIONS
We conduct business with a related party company, Lite-On Semiconductor Corporation, and its subsidiaries and affiliates
(“LSC”), and Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”). LSC is our largest
stockholder, owning approximately 17% of our outstanding Common Stock as of December 31, 2015, and is a member of the Lite-On
Group of companies. We sold products to LSC totaling less than 1% of our net sales for the years ended December 31, 2015, 2014
and 2013, respectively. Raymond Soong, the Chairman of the Board of Directors, is the Chairman of LSC, and is the Chairman of
Lite-On Technology Corporation (“LTC”), a significant shareholder of LSC. C.H. Chen, our former President and Chief Executive
Officer and currently the Vice Chairman of the Board of Directors, is also Vice Chairman of LSC and a board member of LTC.
Dr. Keh-Shew Lu, our President and Chief Executive Officer and a member of our Board of Directors, is a board member of LTC, and
a board member of Nuvoton. L.P. Hsu, a member of our Board of Directors serves as a consultant to LTC, and is a supervisor of the
board of Nuvoton. We consider our relationships with LSC, a member of the Lite-On Group of companies, and Nuvoton to be
mutually beneficial and we plan to continue our strategic alliance with LSC and Nuvoton. We purchase wafers from Nuvoton for use
in our production process.
- 79 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
We also conduct business with Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (“Keylink”). Keylink is our
5% joint venture partner in our Shanghai assembly and test facilities. We sell products to, and purchase inventory from, companies
owned by Keylink. We sold products to companies owned by Keylink, totaling 1%, 1% and 3% of net sales for each of the years
ended December 31, 2015, 2014 and 2013. In addition, our subsidiaries in China lease their manufacturing facilities in Shanghai from,
and subcontract a portion of our manufacturing process (metal plating and environmental services) to, Keylink. We also pay a
consulting fee to Keylink. The aggregate amounts for these consulting services for the years ended December 31, 2015, 2014 and
2013 were approximately $18 million, $19 million and $17 million, respectively. In addition, Chengdu Ya Guang Electronic
Company Limited (“Ya Guang”) is our 5% joint venture partner in our two Chengdu assembly and test facilities, however, we have no
material transactions with Ya Guang.
The Audit Committee of the Board reviews all related party transactions for potential conflict of interest situations on an
ongoing basis, all in accordance with such procedures as the Audit Committee may adopt from time to time.
The table below sets forth net sales and purchases from related parties for the twelve months ended December 31:
(cid:3)
LSC
(cid:3)(cid:3) (cid:3)
2015
(cid:3)
(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
2014
2013
Net sales ............................................................... $
Purchases .............................................................. $
Keylink
Net sales ............................................................... $
Purchases .............................................................. $
Nuvoton
588
22,378
9,749
6,272
Purchases .............................................................. $
12,598
$
$
$
$
$
751
31,588
9,465
8,122
12,697
$
$
$
$
$
The table below sets forth accounts receivable from and accounts payable to related parties at December 31:
(cid:3)
LSC
Accounts receivable .................................................................. $
Accounts payable ...................................................................... $
Keylink
Accounts receivable .................................................................. $
Accounts payable ...................................................................... $
Nuvoton
Accounts payable ...................................................................... $
2015
2014
55
2,845
4,112
5,147
1,477
$
$
$
$
$
770
35,329
10,559
8,030
8,317
215
4,458
4,142
6,472
1,167
NOTE 14 – SEGMENT INFORMATION AND ENTERPRISE-WIDE DISCLOSURES
An operating segment is defined as a component of an enterprise about which separate financial information is available that is
evaluated regularly by the chief decision maker, or decision-making group, in deciding how to allocate resources and in assessing
performance. Our chief decision-making group consists of the President and CEO, Chief Financial Officer, Senior Vice President of
Operations and Senior Vice President of Sales and Marketing. For financial reporting purposes, we operate in a single segment,
standard semiconductor products, through our various manufacturing and distribution facilities. We aggregate our different legal
entities into a single segment due to the products having similar economic characteristics, being similar in production process and
manufacture flow, and sharing the same customers and target end-equipment markets.
- 80 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Our primary operations include the operations in Asia, North America and Europe. The table below sets forth net sales by
geographic areas based on the location of subsidiaries producing the net sales:
2015
Asia
North America
Europe
Consolidated
Total sales .................................... $
Inter-company sales .....................
Net sales ............................ $
Property, plant and equipment ..... $
Assets ........................................... $
793,960
(118,415)
675,545
362,186
969,352
2014
Asia
Total sales .................................... $
Inter-company sales .....................
Net sales ............................ $
Property, plant and equipment ..... $
Assets ........................................... $
814,589
(106,728)
707,861
262,582
874,331
2013
Asia
Total sales .................................... $
Inter-company sales .....................
Net sales ............................ $
Property, plant and equipment ..... $
Assets ........................................... $
750,339
(75,731)
674,608
268,196
858,114
$
$
$
$
$
$
$
$
$
$
$
$
143,800
(60,882)
82,918
58,152
466,170
North America
154,861
(63,945)
90,916
26,363
128,174
North America
143,251
(65,947)
77,304
30,040
120,104
$
$
$
$
$
$
$
$
$
$
$
$
164,304
$
(73,863 )
$
90,441
19,002
165,508
$
$
1,102,064
(253,160)
848,904
439,340
1,601,030
Europe
Consolidated
179,021
$
(87,147 )
$
91,874
20,986
176,652
$
$
1,148,471
(257,820)
890,651
309,931
1,179,157
Europe
Consolidated
165,179
$
(90,245 )
$
74,934
23,777
184,040
$
$
1,058,769
(231,923)
826,846
322,013
1,162,258
The accounting policies of the operating entities are the same as those described in the summary of significant accounting
policies.
Geographic Information - Historically, we reported net sales “billed to” customers located in various countries. In 2013, we
changed to net sales “shipped to” customer locations as we believe the change better represents where our customers business
activities occur. All years presented reflect this change.
- 81 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Net sales were derived from (shipped to) customers located in the following countries. “All others” represents countries with
less than 3% of total net sales each:
2015
China .....................................................................
U.S. .......................................................................
Korea .....................................................................
Germany ................................................................
Singapore ..............................................................
Taiwan ..................................................................
All others ...............................................................
Total ......................................................................
2014
China .....................................................................
U.S. .......................................................................
Korea .....................................................................
Germany ................................................................
Singapore ..............................................................
Taiwan ..................................................................
All others ...............................................................
Total ......................................................................
2013
China .....................................................................
U.S. .......................................................................
Korea .....................................................................
Germany ................................................................
Singapore ..............................................................
Taiwan ..................................................................
All others ...............................................................
Total ......................................................................
$
$
$
$
$
Net Sales
% of Total
Net Sales
507,783
76,870
66,605
57,036
51,742
30,127
58,741
848,904
555,478
82,599
66,772
59,240
49,191
27,207
50,164
890,651
522,587
72,232
68,693
45,631
43,066
30,233
44,404
826,846
Net Sales
Net Sales
% of Total
Net Sales
% of Total
Net Sales
60%
9%
8%
7%
6%
4%
6%
100%
62%
9%
7%
7%
6%
3%
6%
100%
63%
9%
8%
6%
5%
4%
5%
100%
Major customers – No customer accounted for 10% or greater of our total net sales in 2015, 2014, and 2013.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating leases – We lease offices, manufacturing plants, equipment, vehicles and warehouses under operating lease
agreements expiring through December 2020. Rental expense amounted to approximately $9 million, $10 million and $9 million for
the years ended December 31, 2015, 2014 and 2013, respectively. We do not have purchase options related to the operating lease
agreements. The table below sets forth the approximate amount for future minimum lease payments under non-cancelable operating
leases at December 31, 2015:
2016 ...............................................................................................................................................
2017 ...............................................................................................................................................
2018 ...............................................................................................................................................
2019 ...............................................................................................................................................
2020 ...............................................................................................................................................
Thereafter .......................................................................................................................................
$
$
10,387
8,631
6,610
5,925
5,408
8,540
45,501
- 82 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
In addition, we have the following land right leases. None of the leases requires a rental payment.
Location
Chengdu, China .................................................
Shanghai, China ................................................
Sangdong, China ...............................................
Shanghai, China ................................................
Yangzhou, China ...............................................
Term (years)
50
50
50
50
50
Expiration Date
2061
2056
2058
2058
2065
Purchase commitments – We have entered into non-cancelable purchase contracts for capital expenditures, primarily for
manufacturing equipment, for approximately $25 million at December 31, 2015.
Contingencies - From time to time, we are involved in various legal proceedings that arise in the normal course of business.
While we intend to defend any lawsuit vigorously, we presently believe that the ultimate outcome of any current pending legal
proceeding will not have any material adverse effect on our financial position, cash flows or operating results. However, litigation is
subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which
could impact on our business and operating results for the period in which the ruling occurs or future periods. Based on information
available, we evaluate the likelihood of potential outcomes. We record the appropriate liability when the amount is deemed probable
and reasonably estimable. In addition, we do not accrue for estimated legal fees and other directly related costs as they are expensed as
incurred. Legal proceedings that we believe are material are disclosed below.
On September 15, 2014, the United States District Court for the Eastern District of Texas issued an order regarding the putative
securities class action entitled Local 731 I.B. of T. Excavators and Pavers Pension Trust Fund v. Diodes, Inc., Civil Action No. 6:13-
cv-00247 (E.D. Tex. filed Mar. 15, 2013) (the “Class Action”), granting defendants’ motion to dismiss the Class Action with prejudice.
On October 13, 2014, plaintiffs filed a notice of appeal to the order dismissing the Class Action to the United States Court of Appeals
for the Fifth Circuit. On January 13, 2016, the Court of Appeals issued an order and opinion affirming the dismissal of the Class
Action with prejudice. Plaintiffs-appellants have until April 12, 2016 to file a petition for a writ of certiorari to the United States
Supreme Court. Defendants-respondents intend to continue defend this action vigorously.
On February 20, 2014, a purported stockholder derivative action was filed in the United States District Court for the Eastern
District of Texas, entitled Persson v. Keh-Shew Lu, Case No. 4:14-cv-00108-RC-ALM (E.D. Tex. filed Feb. 20, 2014), on behalf of
the Company against its directors, in which plaintiff alleges that the Board breached their fiduciary duties by allowing the Company to
make allegedly misleading public statements in 2011 regarding the labor market in China and its impact on the Company’s business
and prospects, by failing to maintain internal controls and by selling shares of Diodes stock while allegedly in possession of material
nonpublic information regarding the labor market in China and its impact on the Company’s business and prospects. The complaint
does not seek any damages or other relief from the Company. On April 17, 2014, the Court granted the parties’ unopposed motion to
stay this action until such time that the Court rules on defendants’ motion to dismiss in the Class Action. On October 2, 2014, the
Court granted the parties’ unopposed motion to extend the stay of this action until 30 days after either the expiration of the appeal
period or a final decision by the highest court of appeals regarding the defendants’ motion to dismiss in the Class Action. The
defendants intend to defend the action vigorously.
- 83 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
NOTE 16 – BUSINESS COMBINATION
Pericom Semiconductor Corporation
On November 24, 2015, we completed our acquisition of Pericom Semiconductor Corporation (“Pericom”) pursuant to the
Agreement and Plan of Merger dated as of September 2, 2015 (the “Merger Agreement”), as amended on November 6, 2015, by
Amendment No. 1 (the “Merger Agreement Amendment”). Under the Merger Agreement and the Merger Agreement Amendment
and in accordance with the General Corporation Law of the State of California (1) PSI Merger Sub, Inc., a California corporation and
wholly-owned subsidiary of the Company, was merged with and into Pericom, with Pericom continuing as the surviving corporation
and a wholly-owned subsidiary of the Company, and (2) each outstanding share of common stock, without par value, of Pericom
(other than shares owned by Pericom or certain of its affiliates or shares held by Pericom shareholders who have perfected their
appraisal rights in accordance with applicable California law) was automatically converted into the right to receive $17.75 in cash per
share, without interest. The aggregate consideration was approximately $403 million including the value of Pericom equity awards
paid out or converted to Diodes equity awards pursuant to the Merger Agreement and Merger Agreement Amendment.
The table below sets forth the estimated purchase price and related costs for Pericom:
Cash consideration for shares outstanding ................................................................................................................... $
Cash consideration for vested stock awards, including taxes of $88 ...........................................................................
Value of Diodes stock to be issued in exchange for unvested Pericom employee stock awards. ................................
Total purchase price ..................................................................................................................................................... $
391,123
7,371
4,680
403,174
The results of operations of Pericom are included in our consolidated financial statements from November 24, 2015. The
consolidated revenue and earnings of Pericom included in our consolidated financial statements for the year ended December 31, 2015
was approximately $15 million and $(1) million, respectively, which include acquisition accounting adjustments. The purpose of the
acquisition was to further our strategy of expanding market and growth opportunities through selected strategic acquisitions.
- 84 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
Under the acquisition accounting guidelines we were required to record all assets acquired and liabilities assumed at fair value,
and recognize intangible assets and goodwill of the acquired business. The table below sets forth the preliminary fair value assigned to
the assets and liabilities acquired in the Pericom acquisition. This preliminary purchase price allocation has been used to prepare pro
forma adjustments in the pro forma condensed combined balance sheet and statements of earnings. U.S. GAAP permits companies to
complete the final determination of the fair values of assets and liabilities up to one year from the acquisition date. The size and
breadth of the Pericom acquisition will necessitate the use of this one year measurement period to adequately analyze and assess a
number of the factors used in establishing the asset and liability fair values as of the acquisition date including (i) changes in fair
values of fixed assets and inventories, (ii) changes in allocations of intangible assets such as trademarks and in process research and
development and developed technology, as well as goodwill, and (iii) other changes to assets and liabilities. The final allocation may
also result in changes to amortization periods assigned to the assets. Any potential adjustments made could be material in relation to
the preliminary values. A final determination of the allocation of the purchase price to the assets acquired and liabilities assumed has
not been completed and the following table is considered preliminary.
Assets acquired:
Cash and cash equivalents .......................................................................................................................... $
Short-term investments ..............................................................................................................................
Accounts receivable ...................................................................................................................................
Inventory ....................................................................................................................................................
Prepaid expenses and other current assets ..................................................................................................
Fixed assets ................................................................................................................................................
Intangible assets .........................................................................................................................................
Goodwill ....................................................................................................................................................
Other long-term assets ...............................................................................................................................
Total assets acquired .................................................................................................................................. $
Liabilities assumed:
Accounts payable ....................................................................................................................................... $
Accrued liabilities and other ......................................................................................................................
Income tax payable ....................................................................................................................................
Deferred tax liability ..................................................................................................................................
Other liabilities ...........................................................................................................................................
Total liabilities assumed .............................................................................................................................
Total net assets acquired ............................................................................................................................ $
Total net assets acquired, net of cash acquired .......................................................................................... $
November 24, 2015
Acquisition
Method
48,806
72,537
22,740
22,488
5,793
72,210
156,700
54,304
16,069
471,647
16,925
8,818
1,498
29,077
12,155
68,473
403,174
354,368
The fair value of the significant identified intangible assets was estimated by using the market approach, income approach and
cost approach valuation methodologies. Inputs used in the methodologies primarily included projected future cash flows, discounted at
a rate commensurate with the risk involved. The total amount of intangible assets acquired subject to amortization expense was $141
million, with a weighted-average amortization period 11.6 years. We also acquired approximately $11 million of in process research
and development. Goodwill arising from the acquisition is attributable to future income from new customer contracts, synergy of
combined operations, the acquired workforce and future technology that has yet to be designed or even conceived.
We estimated the fair value of acquired receivables to be $23 million with a gross contractual amount of $25 million. We
expected to collect substantially all of the acquired receivables. We evaluated and adjusted the acquired inventory for a reasonable
profit allowance, which is intended to permit us to report only the profits normally associated with the activities following the
acquisition as it relates to the work-in-progress and finished goods inventory. As such, we increased fair value of the inventory
acquired from Pericom by approximately $6 million. Subsequent to the closing date of the acquisition we expensed that increase into
cost of goods sold, of which approximately $3 million was recorded in the fourth quarter of 2015 and $3 million will be recorded in
the first quarter of 2016 as the acquired work-in-progress and finished goods inventory is sold.
- 85 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The table below sets for the unaudited pro forma consolidated results of operations for the years ended December 31, 2015 and
December 31, 2014 as if the acquisition of Pericom had occurred at January 1, 2014:
Net revenues .......................................................................................... $
Net income attributable to common stockholders ................................. $
Earnings per share—Basic .................................................................... $
Earnings per share—Diluted ................................................................. $
Twelve Months Ended
December 31, 2015
(cid:3)(cid:3)
(cid:3)(cid:3)
960,019
40,180
0.82
0.80
$
$
$
$
Twelve Months Ended
December 31, 2014
1,020,585
52,934
1.10
1.07
The unaudited pro forma consolidated results of operations do not purport to be indicative of the results that would have been
obtained if the above acquisition had actually occurred as of the dates indicated or of those results that may be obtained in the future.
The unaudited proforma consolidated results for December 31, 2015, exclude $10 million of acquisition related costs and $8 million
of costs from Diodes restricted stock grants and change-in-control agreements for Pericom employees, and include additional
amortization and depreciation of $12 million, additional interest expense of $11 million and additional income tax expense of $1
million. These unaudited pro forma consolidated results of operations were derived, in part, from the historical consolidated financial
statements of Pericom and other available information and assumptions believed to be reasonable under the circumstances. Pericom
will be conformed to Diodes’ reporting calendar.
BCD Semiconductor Manufacturing Limited
On March 5, 2013, we completed the acquisition of all the outstanding ordinary shares, par value $0.001 per share, of BCD (the
“Shares”), including Shares represented by American Depository Shares (“ADSs”), which were cancelled in exchange for the right to
receive $1.33-1/3 in cash per Share, without interest. Each ADS represented six Shares and was converted into the right to receive
$8.00 in cash, without interest. The aggregate consideration was approximately $155 million, excluding acquisition costs, fees and
expenses. In addition, a $5 million retention plan for BCD employees, payable at the 12, 18 and 24 month anniversaries of the
acquisition, was established. The employee retention plan was intended to benefit us and not the selling shareholders, and therefore
was excluded from the determination of the purchase price. The acquisition was funded by drawings on our revolving senior credit
facility. The purchase price for BCD and related costs were estimated as follows:
Purchase price (cost of shares) ...........................................................................................................................
Acquisition related costs (included in selling, general and administrative expenses) ......................................
Total purchase price ...........................................................................................................................................
$
$
154,735
2,075
156,810
The results of operations of BCD are included in the consolidated financial statements from March 1, 2013. The consolidated
revenue and earnings of BCD included in our consolidated financial statements for the year ended December 31, 2013 were
approximately $155 million and $6 million, respectively, which include acquisition accounting adjustments. The purpose of the
acquisition was to further our strategy of expanding market and growth opportunities through select strategic acquisitions.
Under the accounting guidance for step acquisitions, we were required to record all assets acquired and liabilities assumed at fair
value, and recognize goodwill of the acquired business. The step acquisition guidelines also require us to remeasure the preexisting
investment in BCD at fair value, and recognize any gains or losses from such remeasurement. The fair value of our interest
immediately before the closing date was $7 million, which resulted in us recognizing a non-cash gain of approximately $4 million
within other income (expense) for the year ended December 31, 2013. The shares of BCD common stock were valued under the fair
value hierarchy as a Level 1 Input.
- 86 -
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The following summarizes the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed at
the date of acquisition:
Assets acquired:
Cash and cash equivalents .................................................................................................................. $
Accounts receivable, net .....................................................................................................................
Inventory ............................................................................................................................................
Prepaid expenses and other current assets ..........................................................................................
Property, plant and equipment, net .....................................................................................................
Deferred tax assets .............................................................................................................................
Other long-term assets ........................................................................................................................
Other intangible assets........................................................................................................................
Goodwill .............................................................................................................................................
Total assets acquired .......................................................................................................................... $
Liabilities assumed:
Lines of credit..................................................................................................................................... $
Accounts payable ...............................................................................................................................
Accrued liabilities and other ...............................................................................................................
Deferred tax liability ..........................................................................................................................
Other liabilities ...................................................................................................................................
Total liabilities assumed .....................................................................................................................
Total net assets acquired, net of cash acquired ................................................................................... $
March 1, 2013
Acquisition
Method
29,819
20,862
42,909
27,205
99,390
1,612
5,497
17,200
2,518
247,012
17,336
34,758
16,703
5,055
18,425
92,277
154,735
The fair value of the significant identified intangible assets was estimated by using the market approach, income approach and
cost approach valuation methodologies. Inputs used in the methodologies primarily included projected future cash flows, discounted at
a rate commensurate with the risk involved. The total amount of intangible assets acquired subject to amortization expense was $17
million, which had a residual value of zero and weighted-average amortization period of 6 years. Goodwill arising from the
acquisition is attributable to future income from new customer contracts, synergy of combined operations, the acquired workforce and
future technology that has yet to be designed or even conceived. In addition, goodwill is not deductible for income tax purposes.
We estimated the fair value of acquired receivables to be $21 million with a gross contractual amount of $21 million. We
expected to collect substantially all of the acquired receivables. We evaluated and adjusted the acquired inventory for a reasonable
profit allowance, which is intended to permit us to report only the profits normally associated with the activities following the
acquisition as it relates to the work-in-progress and finished goods inventory. As such, we increased the inventory acquired from BCD
by approximately $5 million, and recorded that increase into cost of goods sold, of which approximately $2 million was recorded in
the first quarter of 2013 and $3 million was recorded in the second quarter of 2013 as the acquired work-in-progress and finished
goods inventory was sold.
The following unaudited pro forma consolidated results of operations for the year ended December 31, 2013 have been prepared
as if the acquisition of BCD had occurred at January 1, 2012:
Net revenues ....................................................................................................................................... $
Net income attributable to common stockholders .............................................................................. $
Earnings per share—Basic.................................................................................................................. $
Earnings per share—Diluted .............................................................................................................. $
- 87 -
Twelve Months Ended
December 31,
2013
847,947
25,513
0.55
0.54
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table amounts in thousands except per share data)
The unaudited pro forma consolidated results of operations do not purport to be indicative of the results that would have been
obtained if the above acquisition had actually occurred as of the dates indicated or of those results that may be obtained in the future.
These unaudited pro forma consolidated results of operations were derived, in part, from the historical consolidated financial
statements of BCD and other available information and assumptions believed to be reasonable under the circumstances.
NOTE 17 – SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
2015
Net sales ....................................................................................... $
Gross profit ...................................................................................
Net income attributable to common shareholders ........................
Earnings per share attributable to common shareholders
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
206,182
63,913
11,132
219,453 $
69,437
15,078
$
208,888
61,636
2,837
214,381
53,597
(4,773)
Basic ........................................................................................ $
Diluted ..................................................................................... $
0.23
0.23
$
$
0.31 $
0.31 $
0.06
0.06
$
$
(0.10)
(0.10)
2014
Net sales ....................................................................................... $
Gross profit ...................................................................................
Net income attributable to common shareholders ........................
Earnings per share attributable to common shareholders
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
209,986
61,581
10,202
223,217 $
70,304
17,385
$
233,777
74,732
19,427
223,671
70,662
16,665
Basic ........................................................................................ $
Diluted ..................................................................................... $
0.22
0.21
$
$
0.37 $
0.36 $
0.41
0.40
$
$
0.35
0.34
Note: The sum of the quarterly earnings per share may not equal the full year amount, as the computations of the weighted average
number of common shares outstanding for each quarter and for the full year are performed independently.
During the fourth quarter of 2014, we acquired Pericom Semiconductor Corporation. See Note 16 above for additional information.
- 88 -
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.
SIGNATURES
DIODES INCORPORATED (Registrant)
By: /s/ Keh-Shew Lu
KEH-SHEW LU
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Richard D. White
RICHARD D. WHITE
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
March 11, 2016
March 11, 2016
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints
Dr. Keh-Shew Lu, President and Chief Executive Officer, and Richard D. White, Chief Financial Officer and Secretary, his true and
lawful attorneys-in-fact and agents, with full power of substitution, to sign and execute on behalf of the undersigned any and all
amendments to this report, and to perform any acts necessary in order to file the same, with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requested and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents, or
their or his or her substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on March 11, 2016.
/s/ Keh-Shew Lu
KEH-SHEW LU
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard D. White
RICHARD D. WHITE
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Raymond Soong
RAYMOND SOONG
Chairman of the Board of Directors
/s/ Michael R. Giordano
MICHAEL R. GIORDANO
Director
/s/ Keh-Shew Lu
KEH-SHEW LU
Director
/s/ Michael K.C. Tsai
MICHAEL K.C. TSAI
Director
/s/ C.H. Chen
C.H. CHEN
Director
/s/ L.P. Hsu
L.P. HSU
Director
/s/ John M. Stich
JOHN M. STICH
Director
- 89 -
INDEX TO EXHIBITS
Number
3.1
Certificate of Incorporation, as amended.
Description
Amended By-laws of the Company dated January 6,
2016
Form
10-Q May 10,2013
Date of First Filing
8-K
January 11, 2016
Exhibit
Number
3.1
Filed
Herewith
3.1
4.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8*
10.9*
10.10*
10.11
10.12
10.13
10.14
10.15
Form of Certificate for Common Stock, par value $0.66
2/3 per share
S-3
August 25, 2005
Kaihong Joint Venture Agreement between the
Company and Mrs. J.H. Xing
Sale and Leaseback Agreement between Shanghai
Kaihong Electronic Co., Ltd. and Shanghai Ding Hong
Company, Ltd.
Lease Agreement between Shanghai Kaihong Electronic
Co., Ltd. and Shanghai Ding Hong Company, Ltd.
Lease Agreement for Plant #2 between Shanghai
Kaihong Electronic Co., Ltd. and Shanghai Ding Hong
Electronic Equipment Limited
Amendment to The Sale and Lease Agreement dated as
January 31, 2002 with Shanghai Ding Hong Electronic
Co., Ltd.
Lease Agreement between Diodes Shanghai Co., Ltd.
(a/k/a Shanghai Kaihong Technology) and Shanghai
Yuan Hao Electronic Co., Ltd.
Supplementary to the Lease agreement dated as
September 30, 2003 with Shanghai Ding Hong
Electronic Co., Ltd.
10-K
April 1, 1996
10.17
10-Q
May 15, 2002
10.46
10-Q
May 15, 2002
10.47
10-Q
August 9, 2004
10.52
10-Q
August 9, 2004
10.56
10-Q
August 9, 2004
10.57
10-Q
August 9, 2004
10.58
Employment agreement between the Company and Mark
King, dated August 29, 2005
8-K
September 2, 2005
10.2
Employment agreement between the Company and
Joseph Liu, dated August 29, 2005
Form of Indemnification Agreement between the
Company and its directors and executive officers.
Wafer purchase Agreement dated January 10, 2006
between Diodes Taiwan Inc. and Lite-On Semiconductor
Corporation
Supplementary to the Lease Agreement dated on September
5, 2004 with Shanghai Ding Hong Electronic Co., Ltd.
Supplementary to the Lease Agreement dated on June
28, 2004 with Shanghai Yuan Hao Electronic Co., Ltd.
Agreement on Application, Construction and Transfer of
Power Facilities, dated as of March 15, 2006, between
the Company and Shanghai Yahong Electronic Co., Ltd
Amended and Restated Lease Agreement dated as of
September 1, 2006, between Diodes FabTech Inc. with
Townsend Summit, LLC
- 90 -
8-K
September 2, 2005
10.3
8-K
September 2, 2005
10.5
8-K
January 12, 2006
2.1
10-Q
May 10, 2006
10.14
10-Q
May 10, 2006
10.15
10-Q
May 10, 2006
10.16
8-K
October 11, 2006
10.1
INDEX TO EXHIBITS (continued)
Number
10.16*
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
Deferred Compensation Plan effective January 1, 2007
Description
A Supplement dated January 1, 2007 to the Lease
Agreement on Disposal of Waste and Scraps between
Diodes Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Yuan Hao Electronic Co.,
Ltd.
A Supplement dated January 1, 2007 to the Lease
Agreement on Disposal of Waste and Scraps between
Shanghai Kaihong Electronic Co., Ltd. and Shanghai
Ding Hong Electronic Co., Ltd
Supplementary Agreement dated December 31, 2007 to
the Lease Agreement dated June, 28, 2004 for Leasing
Diodes Shanghai New Building’s Fourth and Fifth Floor
between Diodes Shanghai Co., Ltd. (a/k/a Shanghai
Kaihong Technology) and Shanghai Yuan Hao
Electronic Co., Ltd.
Accommodation Building Fourth and Fifth Floor Lease
Agreement dated December 31, 2007 between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Ding Hong Electronic Co.,
Ltd.
Fourth Floor of the Accommodation Building Lease
Agreement dated January 1, 2008, between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Ding Hong Electronic Co.,
Ltd.
Factory Building Lease Agreement dated March 1, 2008
between Diodes Shanghai Co., Ltd. (a/k/a Shanghai
Kaihong Technology) and Shanghai Yuan Hao
Electronic Co. Ltd.
Supplemental Agreement to the Factory Building Lease
Agreement dated as of August 11, 2008 between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Yuan Hao Electronic Co.,
Ltd.
Distributorship Agreement dated November 1, 2008
between Diodes Shanghai Co., Ltd. (a/k/a Shanghai
Kaihong Technology) and Shanghai Keylink Logistic
Co., Ltd.
Lease Facility Safety Management Agreement dated
December 31, 2008 between Diodes Shanghai Co., Ltd.
(a/k/a Shanghai Kaihong Technology) and Shanghai
Yuan Howe Electronic Co., Ltd.
Form
8-K January 8, 2007
Date of First Filing
Exhibit
Number
99.1
Filed
Herewith
10-K
February 29, 2008
10.50
10-K
February 29, 2008
10.51
10-K
February 29, 2008
10.53
10-K
February 29, 2008
10.54
10-Q
August 11, 2008
10.5
10-Q
August 11, 2008
10.6
10-Q
November 7, 2008
10.2
10-K
February 26, 2009
10.83
10-K
February 26, 2009
10.84
10.26
10.27*
Company’s 2001 Omnibus Equity Incentive Plan, as
amended December 22, 2008
Company’s Deferred Compensation Plan Effective
January 1, 2007, as amended December 22, 2008
10-K
February 26, 2009
10.87
10-K
February 26, 2009
10.88
- 91 -
INDEX TO EXHIBITS (continued)
Number
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36***
10.37***
10.38***
Description
Second Supplemental Agreement to the Factory Building
Lease Agreement dated August 19, 2009 between
Diodes Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Yuan Hao Electronic Co.,
Ltd.
Employment Agreement dated as of September 22, 2009,
between the Company and Keh-Shew Lu
Consulting Agreement dated January 1, 2009, between
Diodes Incorporated and Keylink International (B.V.I.)
Co., Ltd.
Power Facility Construction Agreement dated October
29, 2009 between Diodes Shanghai Co., Ltd. (a/k/a
Shanghai Kaihong Technology) and Shanghai Yuan Hao
Electronic Co., Ltd.
First Amendment to the DSH #2 Building Lease
Agreement dated December 31, 2009 between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Yuan Howe Electronics Co.,
Ltd.
Construction Project Contract between Diodes Shanghai
Co., Ltd. (a/k/a Shanghai Kaihong Technology) and
Shanghai Yuan Howe Electronic Co., Ltd.
Third Floor of the Accommodation Building Lease
Agreement, dated April 12, 2010, between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Ding Hong Electronic Co.,
Ltd.
Second Floor of the Accommodation Building Lease
Agreement, dated September 1, 2010, between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Ding Hong Electronic
Company Limited.
Investment Cooperation Agreement effective as of
September 10, 2010, between Diodes Hong Kong
Holding Company Limited and the Management
Committee of the Chengdu Hi-Tech Industrial
Development Zone.
Supplementary Agreement to the Investment
Cooperation Agreement effective as of September 10,
2010, between Diodes Hong Kong Holding Company
Limited and the Management Committee of the Chengdu
Hi-Tech Industrial Development Zone.
Joint Venture Agreement effective as of November 5,
2010 between Diodes Hong Kong Holding Company
Limited and Chengdu Ya Guang Electronic Company
Limited.
- 92 -
Form
10-Q
Date of First Filing
November 16, 2009
Exhibit
Number
10.1
Filed
Herewith
8-K
September 28, 2009
99.1
10-Q
May 8, 2009
10.1
10-K
March 1, 2010
10.97
10-K
March 1, 2010
10.98
10-Q
May 7, 2010
10.2
10-Q
May 7, 2010
10.3
10-Q
November 9, 2010
10.1
8-K
September 16, 2010
99.1
8-K
September 16, 2010
99.2
8-K
November 12, 2010
99.1
INDEX TO EXHIBITS (continued)
Number
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
Description
Joint Venture Agreement Supplement Concerning the
Establishment of Diodes Technology (Chengdu)
Company Limited effective as of November 5, 2010,
between Diodes Hong Kong Holding Company Limited
and Chengdu Ya Guang Electronic Company Limited.
Second Amendment to the DSH #2 Building Lease
Agreement, dated November 15, 2010, between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Yuan Howe Electronics
Company Limited.
Power Facility Expansion Construction Contract, dated
January 24, 2011, between Diodes Shanghai Co., Ltd.
(a/k/a Shanghai Kaihong Technology) and Shanghai
Yuan Howe Electronics Company Limited.
First Floor of the Accommodation Building Agreement,
dated June 1, 2011, between Diodes Shanghai Co., Ltd.
(a/k/a Shanghai Kaihong Technology) and Shanghai
Ding Hong Electronic Company Limited.
Third Floor of the Dormitory Building Lease Agreement,
dated July 1, 2011, between Diodes Shanghai Co., Ltd.
(a/k/a Shanghai Kaihong Technology) and Shanghai
Ding Hong Electronic Company Limited.
Third Supplemental Agreement to the Factor Building
Lease Agreement, dated May 16, 2011, between Diodes
Shanghai Co., Ltd. (a/k/a Shanghai Kaihong
Technology) and Shanghai Yuan Hao Electronic
Company Limited.
Supplemental Agreement to the Power Facility
Construction Agreement, dated March 21, 2011, between
Shanghai Kai Hong Technology Company Limited and
Shanghai Yuan Hao Electronic Company Limited.
Credit Agreement, dated March 21, 2011, between Mega
International Commercial Bank and Diodes Taiwan Inc.
Plating Process Agreement made and entered into among
Shanghai Kaihong Electronic Co., Ltd., Diodes Shanghai
Co., Ltd. (a/k/a Shanghai Kaihong Technology), Diodes
Shanghai, Shanghai Ding Hong Electronic Co., Ltd. and
Shanghai Micro-Surface Co., Ltd.
Construction Design Consulting Agreement between
Diodes Technology (Chengdu) Company Limited and
Lite-On Technology Corporation.
Diodes Zetex Pension Scheme Recovery plan, dated
February 28, 2012, between Trustees of the Diodes
Zetex Pension Scheme and Diodes Zetex Limited
Diodes Zetex Pension Scheme Schedule of contributions,
dated March 28, 2012, between Trustees of the Diodes
Zetex Pension Scheme and Diodes Zetex Limited
- 93 -
Form
8-K
Date of First Filing
November 12, 2010
Exhibit
Number
99.2
Filed
Herewith
10-K
February 28, 2012
10.112
10-K
February 28, 2011
10.113
10-Q
November 9, 2011
10.1
10-Q
November 9, 2011
10.2
10-Q
November 9, 2011
10.3
10-Q
August 9, 2011
10.1
10-Q
August 9, 2011
10.2
10-K
February 29, 2008
10.52
10-Q
August 9, 2012
10.1
10-Q
August 9, 2012
10.2
10-Q
August 9, 2012
10.3
Number
10.51
10.52
10.53
10.54
10.55***
10.56
10.57
10.58
10.59*
10.60*
10.61*
10.62*
10.63*
INDEX TO EXHIBITS (continued)
Description
Framework Agreement, dated March 26, 2012, among
Diodes Zetex Limited, Diodes Zetex Semiconductors
Limited, Diodes Incorporated, HR Trustees Limited, and
Trustees
Guarantee, dated March 26, 2012, among Diodes Zetex
Semiconductors Limited, Diodes Zetex Limited, HR
Trustees Limited, and Trustees
Diodes Zetex Pension Scheme Information Protocol,
dated April 10, 2012, among Diodes Zetex Limited,
Diodes Zetex Semiconductors Limited, the Company,
HR Trustees Limited and Trustees
Legal Charge, dated March 26, 2012, among Zetex
Semiconductors Limited, HR Trustees Limited, and
Trustees
Credit Agreement, dated January 8, 2013, by and among
the Company, Diodes International B.V., Diodes
Investment Company, Diodes FabTech Inc., Diodes
Holdings UK Limited, Diodes Zetex Limited, Bank of
America, N.A., as Administrative Agent, Swing Line
Lender and L/C Issuer, and the other Lenders party
thereto.
Agreement and Plan of Merger by and among the
Company, Diodes Cayman Islands Company Limited
and BCD Semiconductor Manufacturing Limited, dated
as of December 26, 2012.
Second Supplementary Agreement, dated as of January
23, 2013, to the Investment Cooperation Agreement
effective as of September 10, 2010, by and among
Diodes Hong Kong Holding Company Limited, Diodes
(Shanghai) Investment Company Limited, Diodes
Technology (Chengdu) Company Limited, and the
Management Committee of the Chengdu Hi-Tech
Industrial Development Zone
DSH #2 Building Lease Agreement dated as of January
28, 2013 between Diodes Shanghai Co., Ltd. (a/k/a
Shanghai Kaihong Technology) and Shanghai Yuan
Howe Electronics Co., Ltd.
Form
10-Q
Date of First Filing
August 9, 2012
Exhibit
Number
10.4
Filed
Herewith
10-Q
August 9, 2012
10.5
10-Q
August 9, 2012
10.6
10-Q
August 9, 2012
10.7
8-K
January 11, 2013
99.1
10-K
February 27, 2013
10.74
10-K
February 27, 2013
10.75
10-K
February 27, 2013
10.76
Diodes Incorporated 2013 Equity Incentive Plan
S-8 June 13, 2013
Form of Incentive Stock Option Agreement for the
Diodes Incorporated 2013 Equity Incentive Plan
Form of Stock Unit Agreement for the Diodes
Incorporated 2013 Equity Incentive Plan
Form of Nonstatutory Stock Option Agreement for the
Diodes Incorporated 2013 Equity Incentive Plan, as
amended (Domestic Version)
Form of Nonstatutory Stock Option Agreement for the
Diodes Incorporated 2013 Equity Incentive Plan
(International Version)
- 94 -
S-8
June 13, 2013
S-8
June 13, 2013
99.1
99.2
99.4
10-K
February 27, 2014
10.80
10-K
February 27, 2014
10.81
INDEX TO EXHIBITS (continued)
Number
10.64*
10.65*
10.66
10.67
10.68
10.69
10.70*
10.71
10.72
10.73
10.74
10.75
10.76
10.77*
10.78
Description
Form of Restricted Stock Agreement for the Diodes
Incorporated 2013 Equity Incentive Plan, as amended
(Domestic Version)
Form of Restricted Stock Agreement for the Diodes
Incorporated 2013 Equity Incentive Plan (International
Version)
Supplement Agreement to Lease Agreement dated
September 2013 between Shanghai Kaihong Electronic
Co., Ltd and Shanghai Ding Hong Electronic Co., Ltd.
Construction Design Consulting Assignment Agreement
Supplemental Agreement between Diodes Technology
(Chengdu) Company Limited and Lite-On Technology
Corporation
Procurement Agreement, dated May 3, 2013, between
Diodes Taiwan Inc. and Lite-On Technology
Corporation
Share Transfer Memorandum of Understanding, date
June 18, 2013, among Diodes Incorporated, Chengdu Ya
Guang Electronic Engineering Factory, and Zetex
Chengdu Electronics Limited
Confirmation Agreement, dated April 1, 2013, by and
between Diodes Incorporated and Dr. Keh-Shew Lu
Plating Process Agreement between Zetex (Chengdu)
Electronic Company Limited and Diodes Technology
(Chengdu) Company Limited, dated February 8, 2013
Equity Transfer Agreement, dated April 2014, between
Chengdu Ya Guang Electronic Engineering Factory and
Diodes (Shanghai) Investment Company Limited
Equity Transfer Agreement Amendment, dated April
2014, between Chengdu Ya Guang Electronic
Engineering Factory and Diodes (Shanghai) Investment
Company Limited
Fourth Supplemental Agreement to the Factory Building
Lease Agreement, dated April 23, 2014, between
Shanghai Kaihong Technology Co., Ltd. and Shanghai
Yuan Hao Electronic Co., Ltd.
Plating Processing Agreement, dated February 28, 2014,
between Zetex (Chengdu) Electronic Company Limited
and Diodes Technology (Chengdu) Company Limited
Framework Agreement, dated 2014, among Diodes
Zetex Limited, Diodes Zetex Semiconductors Limited,
the Company, HR Trustees Limited, and Trustees
Stock Award Agreement, dated as of September 22,
2009, between the Company and Keh-Shew Lu
Amended Consulting Agreement dated as of January 1,
2015 between Diodes Incorporated and Keylink
International (B.V.I) Co., Ltd.
- 95 -
Form
10-K
Date of First Filing
February 27, 2014
Exhibit
Number
10.82
Filed
Herewith
10-K
February 27, 2014
10.83
10-Q
November 12, 2013
10.6
10-Q
August 8, 2013
10.1
10-Q
August 8, 2013
10.2
10-Q
August 8, 2013
10.3
8-K
April 3, 2013
10-Q
May 10, 2013
99.1
10.1
10-Q
May 9, 2014
10.2
10-Q
May 9, 2014
10.3
10-Q
May 9, 2014
10.4
10-Q
May 9, 2014
10.5
10-Q
May 9, 2014
10.6
10-Q
May 9, 2014
10.7
10-K
March 2, 2015
10.78
INDEX TO EXHIBITS (continued)
Number
10.79
10.80
10.81
10.82
10.83
10.84
10.85***
10.86
10.87
14**
21
23.1
31.1
31.2
Description
Chemical Warehouse Lease Agreement, dated
November 1, 2014 between Shanghai Kaihong
Electronic Co., Ltd. and Shanghai Ding Hong Electronic
Co., Ltd.
Chemical Warehouse Lease Agreement between Diodes
Shanghai Co., Ltd. and Shanghai Yuan Hao Electronic
Co., Ltd.
Fifth Supplemental Facility Lease Agreement between
Diodes Shanghai Co., Ltd. and Shanghai Yuan Hao
Electronic Co., Ltd.
Amendment No. 2 to Credit Agreement and Amendment
No. 1 to Collateral Agreement, dated as of June 19,
2015, between Diodes Incorporated, Diodes International
B.V., and Bank of America, N.A. and other participating
lenders.
Amendment No. 3 to Credit Agreement, Incremental
Term Assumption Agreement, Limited Waiver and
Consent Collateral Agreement, dated as of September 2,
2015, between Diodes Incorporated, Diodes International
B.V., and Bank of America, N.A. and other participating
lenders
Employment Agreement dated as of July 21, 2015,
between the Company and Keh-Shew Lu*
Stock Unit Agreement dated as of July 21, 2015,
between the Company and Keh-Shew Lu*
Amendment No. 1 to Agreement and Plan of Merger,
dated November 6, 2015, among Diodes Incorporated,
PSI Merger Sub, Inc. and Pericom Semiconductor
Corporation
Agreement and Plan of Merger, dated as of September 2,
2015, by and among Pericom Semiconductor
Corporation, PSI Merger Sub, Inc., and Diodes
Incorporated.
Code of Ethics for Chief Executive Officer and Senior
Financial Officers
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting
Firm
Certification Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, adopted pursuant to Section 302
of the Sarbanes- Oxley Act of 2002
Certification Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1****
Certification Pursuant to 18 U.S.C. adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
- 96 -
Form
10-K
Date of First Filing
March 2, 2015
Exhibit
Number
10.79
Filed
Herewith
10-Q
November 5, 2015
10.1
10-Q
November 5, 2015
10.2
8-K
June 24, 2015
99.1
8-K
September 3, 2015
10.1
8-K
July 27, 2015
8-K
July 27, 2015
99.1
99.3
8-K
November 9, 2015
2.1
8-K
September 3, 2015
2.1
X
X
X
X
X
INDEX TO EXHIBITS (continued)
Number
32.2****
Description
Certification Pursuant to 18 U.S.C. adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.LAB
XBRL Taxonomy Extension Labels Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Form
Date of First Filing
Exhibit
Number
Filed
Herewith
X
X
X
X
X
X
X
*
**
Constitute management contracts, or compensatory plans or arrangements, which are required to be filed pursuant to Item 601 of
Regulation S-K.
Provided in the Corporate Governance portion of the Investor Relations section of the Company’s website at
http://www.diodes.com.
*** Confidential treatment has been requested with respect to the omitted portions of these exhibits, which portions have been filed
separately with the Securities and Exchange Commission.
**** A certification furnished pursuant to Item 601 of the Regulation S-K will not be deemed “filed” for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section.
Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
PLEASE NOTE: It is inappropriate for investors to assume the accuracy of any covenants, representations or warranties that may be
contained in agreements or other documents filed as exhibits to this Annual Report on Form 10-K. In certain instances the disclosure
schedules to such agreements or documents contain information that modifies, qualifies and creates exceptions to the representations,
warranties and covenants. Moreover, some of the representations and warranties may not be complete or accurate as of a particular
date because they are subject to a contractual standard of materiality that is different from those generally applicable to stockholders or
were used for the purpose of allocating risk among the parties rather than establishing certain matters as facts. Accordingly, you
should not rely on the representations and warranties as characterizations of the actual state of facts at the time they were made or
otherwise.
- 97 -
SUBSIDIARIES OF THE REGISTRANT
Incorporated
Location
Subsidiary Name
Diodes Taiwan Inc. ............................................................................. Taiwan
Shanghai Kaihong Electronic Co., Ltd. .............................................. China
Diodes FabTech Inc. ........................................................................... Delaware
Diodes Hong Kong Limited ................................................................ Hong Kong
BCD (Shanghai) Micro-Electronics Limited ...................................... China
Diodes (Shanghai) Investment Company Limited .............................. China
Diodes Technology (Chengdu) Company Limited ............................. China
Shanghai Kaihong Technology Company Limited ............................. China
Shanghai SIM-BCD Semiconductor Manufacturing Co. Ltd. ............ China
Diodes International B.V. ................................................................... Netherlands
Diodes Hong Kong Holding Company Limited ................................. Hong Kong
Diodes Investment Company .............................................................. Delaware
Diodes Holdings UK Limited ............................................................. United Kingdom
Diodes Zetex Semiconductors Limited ............................................... United Kingdom
Diodes Zetex Neuhaus GmbH ............................................................ Germany
Diodes Zetex GmbH ........................................................................... Germany
Diodes Zetex Limited ......................................................................... United Kingdom
BCD Semiconductor Manufacturing Limited ..................................... Cayman Islands
Zetex (Chengdu) Electronics Company Limited ................................ China
Pericom Semiconductor Corporation .................................................. California
Pericom Global Limited ...................................................................... Cayman Islands
Pericom International Limited ............................................................ Cayman Islands
Pericom Semiconductor (HK) Limited ............................................... Hong Kong
Pericom Asia Limited ......................................................................... Hong Kong
PSE Technology (Shandong) Corporation .......................................... China
Pericom Technology (Yangzhou) Corporation ................................... China
Pericom Technology Inc. .................................................................... British, Virgin Islands
Pericom Technology Inc. .................................................................... Hong Kong
Pericom Technology Inc. .................................................................... China
PSE Technology Corporation ............................................................. Taiwan
Holding Company (1)
or Subsidiary (2)
2
2
2
2
2
1
2
2
2
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
Exhibit 21
Percentage
Owned
100%
95%
100%
100%
100%
100%
95%
95%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
95%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other subsidiaries of Diodes Incorporated are omitted because,
considered in the aggregate, they would not constitute a significant subsidiary as of the end of the year covered by this report.
Exhibit(cid:3)23.1(cid:3)
CONSENT(cid:3)OF(cid:3)INDEPENDENT(cid:3)REGISTERED(cid:3)PUBLIC(cid:3)ACCOUNTING(cid:3)FIRM(cid:3)
(cid:26)(cid:135)(cid:3) (cid:133)(cid:145)(cid:144)(cid:149)(cid:135)(cid:144)(cid:150)(cid:3) (cid:150)(cid:145)(cid:3) (cid:150)(cid:138)(cid:135)(cid:3) (cid:139)(cid:144)(cid:133)(cid:145)(cid:148)(cid:146)(cid:145)(cid:148)(cid:131)(cid:150)(cid:139)(cid:145)(cid:144)(cid:3) (cid:132)(cid:155)(cid:3) (cid:148)(cid:135)(cid:136)(cid:135)(cid:148)(cid:135)(cid:144)(cid:133)(cid:135)(cid:3) (cid:139)(cid:144)(cid:3) (cid:150)(cid:138)(cid:135)(cid:3) (cid:136)(cid:145)(cid:142)(cid:142)(cid:145)(cid:153)(cid:139)(cid:144)(cid:137)(cid:3) (cid:21)(cid:135)(cid:137)(cid:139)(cid:149)(cid:150)(cid:148)(cid:131)(cid:150)(cid:139)(cid:145)(cid:144)(cid:3) (cid:22)(cid:150)(cid:131)(cid:150)(cid:135)(cid:143)(cid:135)(cid:144)(cid:150)(cid:149)(cid:3) (cid:145)(cid:136)(cid:3) (cid:7)(cid:139)(cid:145)(cid:134)(cid:135)(cid:149)(cid:3) (cid:12)(cid:144)(cid:133)(cid:145)(cid:148)(cid:146)(cid:145)(cid:148)(cid:131)(cid:150)(cid:135)(cid:134)(cid:3) (cid:131)(cid:144)(cid:134)(cid:3)
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(cid:4)(cid:133)(cid:133)(cid:145)(cid:151)(cid:144)(cid:150)(cid:139)(cid:144)(cid:137)(cid:3)(cid:22)(cid:150)(cid:131)(cid:144)(cid:134)(cid:131)(cid:148)(cid:134)(cid:149)(cid:3)(cid:24)(cid:146)(cid:134)(cid:131)(cid:150)(cid:135)(cid:3)(cid:884)(cid:882)(cid:883)(cid:887)(cid:486)(cid:883)(cid:889)(cid:481)(cid:3)(cid:5)(cid:131)(cid:142)(cid:131)(cid:144)(cid:133)(cid:135)(cid:3)(cid:22)(cid:138)(cid:135)(cid:135)(cid:150)(cid:3)(cid:6)(cid:142)(cid:131)(cid:149)(cid:149)(cid:139)(cid:136)(cid:139)(cid:133)(cid:131)(cid:150)(cid:139)(cid:145)(cid:144)(cid:3)(cid:145)(cid:136)(cid:3)(cid:7)(cid:135)(cid:136)(cid:135)(cid:148)(cid:148)(cid:135)(cid:134)(cid:3)(cid:23)(cid:131)(cid:154)(cid:135)(cid:149)(cid:524)(cid:3)(cid:131)(cid:144)(cid:134)(cid:3)(cid:150)(cid:138)(cid:135)(cid:3)(cid:135)(cid:136)(cid:136)(cid:135)(cid:133)(cid:150)(cid:139)(cid:152)(cid:135)(cid:144)(cid:135)(cid:149)(cid:149)(cid:3)(cid:145)(cid:136)(cid:3)(cid:139)(cid:144)(cid:150)(cid:135)(cid:148)(cid:144)(cid:131)(cid:142)(cid:3)
(cid:133)(cid:145)(cid:144)(cid:150)(cid:148)(cid:145)(cid:142)(cid:3) (cid:145)(cid:152)(cid:135)(cid:148)(cid:3) (cid:136)(cid:139)(cid:144)(cid:131)(cid:144)(cid:133)(cid:139)(cid:131)(cid:142)(cid:3) (cid:148)(cid:135)(cid:146)(cid:145)(cid:148)(cid:150)(cid:139)(cid:144)(cid:137)(cid:3) (cid:145)(cid:136)(cid:3) (cid:150)(cid:138)(cid:135)(cid:3) (cid:6)(cid:145)(cid:143)(cid:146)(cid:131)(cid:144)(cid:155)(cid:3) (cid:131)(cid:146)(cid:146)(cid:135)(cid:131)(cid:148)(cid:139)(cid:144)(cid:137)(cid:3) (cid:139)(cid:144)(cid:3) (cid:150)(cid:138)(cid:139)(cid:149)(cid:3) (cid:4)(cid:144)(cid:144)(cid:151)(cid:131)(cid:142)(cid:3) (cid:21)(cid:135)(cid:146)(cid:145)(cid:148)(cid:150)(cid:3) (cid:523)(cid:9)(cid:145)(cid:148)(cid:143)(cid:3) (cid:883)(cid:882)(cid:486)(cid:14)(cid:524)(cid:3) (cid:136)(cid:145)(cid:148)(cid:3) (cid:150)(cid:138)(cid:135)(cid:3) (cid:155)(cid:135)(cid:131)(cid:148)(cid:3) (cid:135)(cid:144)(cid:134)(cid:135)(cid:134)(cid:3)
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(cid:120) (cid:21)(cid:135)(cid:137)(cid:139)(cid:149)(cid:150)(cid:148)(cid:131)(cid:150)(cid:139)(cid:145)(cid:144)(cid:3) (cid:22)(cid:150)(cid:131)(cid:150)(cid:135)(cid:143)(cid:135)(cid:144)(cid:150)(cid:149)(cid:3) (cid:145)(cid:144)(cid:3) (cid:9)(cid:145)(cid:148)(cid:143)(cid:3) (cid:22)(cid:486)(cid:890)(cid:3) (cid:523)(cid:17)(cid:145)(cid:149)(cid:484)(cid:3) (cid:885)(cid:885)(cid:885)(cid:486)(cid:883)(cid:882)(cid:888)(cid:889)(cid:889)(cid:887)(cid:3) (cid:131)(cid:144)(cid:134)(cid:3) (cid:885)(cid:885)(cid:885)(cid:486)(cid:883)(cid:884)(cid:886)(cid:890)(cid:882)(cid:891)(cid:524)(cid:3) (cid:146)(cid:135)(cid:148)(cid:150)(cid:131)(cid:139)(cid:144)(cid:139)(cid:144)(cid:137)(cid:3) (cid:150)(cid:145)(cid:3) (cid:150)(cid:138)(cid:135)(cid:3) (cid:884)(cid:882)(cid:882)(cid:883)(cid:3)
(cid:18)(cid:143)(cid:144)(cid:139)(cid:132)(cid:151)(cid:149)(cid:3)(cid:8)(cid:147)(cid:151)(cid:139)(cid:150)(cid:155)(cid:3)(cid:12)(cid:144)(cid:133)(cid:135)(cid:144)(cid:150)(cid:139)(cid:152)(cid:135)(cid:3)(cid:19)(cid:142)(cid:131)(cid:144)(cid:3)(cid:145)(cid:136)(cid:3)(cid:7)(cid:139)(cid:145)(cid:134)(cid:135)(cid:149)(cid:3)(cid:12)(cid:144)(cid:133)(cid:145)(cid:148)(cid:146)(cid:145)(cid:148)(cid:131)(cid:150)(cid:135)(cid:134)(cid:482)(cid:3)
(cid:120) (cid:21)(cid:135)(cid:137)(cid:139)(cid:149)(cid:150)(cid:148)(cid:131)(cid:150)(cid:139)(cid:145)(cid:144)(cid:3)(cid:22)(cid:150)(cid:131)(cid:150)(cid:135)(cid:143)(cid:135)(cid:144)(cid:150)(cid:3)(cid:145)(cid:144)(cid:3)(cid:9)(cid:145)(cid:148)(cid:143)(cid:3)(cid:22)(cid:486)(cid:890)(cid:3)(cid:523)(cid:17)(cid:145)(cid:484)(cid:3)(cid:885)(cid:885)(cid:885)(cid:486)(cid:883)(cid:890)(cid:891)(cid:884)(cid:891)(cid:891)(cid:524)(cid:3)(cid:146)(cid:135)(cid:148)(cid:150)(cid:131)(cid:139)(cid:144)(cid:139)(cid:144)(cid:137)(cid:3)(cid:150)(cid:145)(cid:3)(cid:150)(cid:138)(cid:135)(cid:3)(cid:884)(cid:882)(cid:882)(cid:883)(cid:3)(cid:18)(cid:143)(cid:144)(cid:139)(cid:132)(cid:151)(cid:149)(cid:3)(cid:8)(cid:147)(cid:151)(cid:139)(cid:150)(cid:155)(cid:3)(cid:12)(cid:144)(cid:133)(cid:135)(cid:144)(cid:150)(cid:139)(cid:152)(cid:135)(cid:3)
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(cid:8)(cid:147)(cid:151)(cid:139)(cid:150)(cid:155)(cid:3)(cid:12)(cid:144)(cid:133)(cid:135)(cid:144)(cid:150)(cid:139)(cid:152)(cid:135)(cid:3)(cid:19)(cid:142)(cid:131)(cid:144)(cid:484)(cid:3)
(cid:3)
(cid:512)(cid:149)(cid:512)(cid:3)(cid:16)(cid:145)(cid:149)(cid:149)(cid:3)(cid:4)(cid:134)(cid:131)(cid:143)(cid:149)(cid:3)(cid:15)(cid:15)(cid:19)(cid:3)
(cid:3)
(cid:15)(cid:145)(cid:149)(cid:3)(cid:4)(cid:144)(cid:137)(cid:135)(cid:142)(cid:135)(cid:149)(cid:481)(cid:3)(cid:6)(cid:131)(cid:142)(cid:139)(cid:136)(cid:145)(cid:148)(cid:144)(cid:139)(cid:131)(cid:3)
(cid:16)(cid:131)(cid:148)(cid:133)(cid:138)(cid:3)(cid:883)(cid:883)(cid:481)(cid:3)(cid:884)(cid:882)(cid:883)(cid:888)(cid:3)
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Keh-Shew Lu, certify that:
1. I have reviewed this Annual Report on Form 10-K of Diodes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Keh-Shew Lu
Keh-Shew Lu
Chief Executive Officer
Date: March 11, 2016
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard D. White, certify that:
1. I have reviewed this Annual Report on Form 10-K of Diodes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
/s/ Richard D. White
Richard D. White
Chief Financial Officer
Date: March 11, 2016
CERTIFICATION PURSUANT TO 18 U.S.C. 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-
OXLEY ACT OF 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that, to his knowledge, the Annual Report on Form 10-K for the twelve-month period ended December 31, 2015 of Diodes
Incorporated (the “Company”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of, and for, the periods presented in such report.
Exhibit 32.1
Very truly yours,
/s/ Keh-Shew Lu
Keh-Shew Lu
Chief Executive Officer
Date: March 11, 2016
A signed original of this written statement required by Section 906 has been provided to Diodes Incorporated and will be retained by
Diodes Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. 1350 ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-
OXLEY ACT OF 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that, to his knowledge, the Annual Report on Form 10-K for the twelve-month period ended December 31, 2015 of Diodes
Incorporated (the “Company”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial
condition and results of operations of the Company as of, and for, the periods presented in such report.
Exhibit 32.2
Very truly yours,
/s/ Richard D. White
Richard D. White
Chief Financial Officer
Date: March 11, 2016
A signed original of this written statement required by Section 906 has been provided to Diodes Incorporated and will be retained by
Diodes Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.
End of Form 10-K
Additional Information
CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME
(unaudited)
2015
(in thousands, except per share data)
2012
2013
2014
2011
GAAP net income - common stockholders
$
24,274
$
63,678
$
26,532
$
24,152
$ 50,737
GAAP earnings per share - common stockholders
Diluted
$
0.49
$
1.31
$
0.56
$
0.51
$
1.09
Adjustments to reconcile net income - common stockholders to adjusted
net income - common stockholders, net of tax:
Amortization of acquisition related intangible assets
6,870
6,287
Acquisition costs
Restructuring costs
Severance costs
Tax expense related to tax audit
Inventory adjustments and valuations
Retention costs
Impairment of goodwill
Gain on sale of assets
Amortization of debt discount
Impairment of long-lived assets
Employee award costs
971
-
419
-
2,907
156
-
-
-
1,250
5,498
-
-
-
-
-
1,093
-
(976)
-
-
-
6,374
710
1,127
-
5,447
4,661
2,568
2,712
-
-
-
-
3,682
959
-
-
-
-
-
-
(2,717)
-
-
-
3,319
-
-
-
-
-
-
-
-
3,921
-
-
Adjusted net income - common stockholders (Non-GAAP)
$
42,345
$
70,082
$
50,131
$
26,076
$ 57,977
Diluted shares used in computing earnings per share
49,500
48,594
47,658
46,899
46,713
Adjusted earnings per share - common stockholders (Non-GAAP)
Diluted
$
0.86
$
1.44
$
1.05
$
0.56
$
1.24
ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
This consists of accounting principles generally accepted in the United States (“GAAP”) net income and earnings per share attributable to common
stockholders, which are then adjusted for the purpose of providing investors with a better depiction of the Company’s operating results and provide a
more informed baseline for modeling future earnings expectations. The Company makes adjustments for amortization of acquisition related
intangible assets, acquisition costs, restructuring costs, severance costs, tax expense related to tax audit, inventory adjustments and valuations,
retention costs, impairment of goodwill, gain on sale of assets, amortization of debt discount, impairment of long-lived assets, and employee award
costs. The Company excludes the above items to evaluate the Company’s operating performance, develop budgets, and manage cash expenditures.
Presentation of the above non-GAAP measures allows investors to review the Company’s results of operations from the same viewpoint as the
Company’s management and Board of Directors. The Company has historically provided similar non-GAAP financial measures to provide investors
an enhanced understanding of its operations, facilitate investors’ analyses and comparisons of its current and past results of operations and provide
insight into its future performance. The Company also believes the non-GAAP measures are useful to investors because they provide additional
information that research analysts use to evaluate semiconductor companies. These non-GAAP measures should be considered in addition to results
prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results and may differ from measures used by
other companies. The Company recommends a review be performed on net income and earnings per share on both a GAAP and non-GAAP basis to
obtain a comprehensive view of the Company’s results. The Company provides a reconciliation of GAAP net income and GAAP earnings per share
to non-GAAP adjusted net income and non-GAAP adjusted earnings per share.
Detail of non-GAAP adjustments
Amortization of acquisition related intangible assets – The Company excluded this item, including developed technologies and customer
relationships. The fair value of the acquisition related intangible assets, which was recognized through purchase accounting, is amortized using
straight-line methods which approximate the proportion of future cash flows estimated to be generated each period over the estimated useful lives of
the applicable assets. The Company believes the exclusion of this item is appropriate because a significant portion of the purchase price for its
acquisitions was allocated to the intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating
results that are consistent over time for both the Company’s newly acquired and long-held businesses. In addition, the Company excluded this item
because there is significant variability and unpredictability among companies with respect to this expense.
1
Additional Information – (Continued)
CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME
(unaudited)
Acquisition costs – The Company excluded these costs associated with acquiring Pericom and BCD, which consisted of advisory, legal and other
professional and consulting fees. These costs were expensed in 2015, 2013 and 2012 when the costs were incurred and services were received, and
which the corresponding tax adjustments were made for the non-deductible portions of these expenses. The Company believes the exclusion of this
item provides investors an enhanced view of certain costs the Company may incur from time to time and facilitates comparisons with the results of
other periods that may not reflect such costs.
Restructuring costs – The Company recorded restructuring charges to reduce its cost structure in order to enhance operating effectiveness and
improve profitability. These restructuring activities related to our UK development team and the closure of our New York sales office. These charges
are excluded from management’s assessment of the Company’s operating performance. The Company believes the exclusion of this item provides
investors an enhanced view of the cost structure of the Company’s operations and facilitates comparisons with the results of other periods that may
not reflect such charges or may reflect different levels of such charges.
Severance costs – The Company excluded severance costs incurred during 2015. These one-time costs will reduce the Company’s cost structure in order to
enhance operating effectiveness and improve profitability. These charges are excluded from management’s assessment of the Company’s operating
performance. The Company believes the exclusion of the severance charges provides investors an enhanced view of the cost structure of the Company’s
operations and facilitates comparisons with the results of other periods that may not reflect such charges or may reflect different levels of such charges.
Tax expense related to tax audit – The China government audited the Company’s High and New Technology Enterprise (“HNTE”) status for the
years 2009 through 2013 and determined there was an underpayment for the tax year 2013. The Company was approved for the HNTE status for
2012 through 2014. Given that 2013 is an isolated occurrence, the additional tax associated with the audit is excluded. The Company believes the
exclusion of this item provides investors an enhanced view of certain costs the Company may incur from time to time and facilitates comparisons
with the results of other periods that may not reflect such costs.
Inventory adjustments and valuations – In 2015 and 2013, the Company adjusted the inventory acquired in the Pericom and BCD acquisitions to
account for the reasonable profit allowance for the selling effort on finished goods inventory and the reasonable profit allowance for the completing
and selling effort on the work–in-progress inventory. This non-cash adjustment to inventory is not recurring in nature; however it could be recurring
to the extent there are additional acquisitions. The Company believes the exclusion of the Pericom and BCD inventory adjustments and valuations
provides investors with a more accurate reflection of costs likely to be incurred in the absence of an unusual event such as an acquisition and
facilitates comparisons with the results of other periods that may not reflect such costs.
Retention costs – The Company excluded costs related to the employee retention plans in connection with the Pericom and BCD acquisitions.
Although these retention costs will be recurring every quarter until the final retention payment has been made, they are not part of the employees’
normal annual salaries and therefore are being excluded. The Company believes the exclusion of retention costs related to the acquisitions provides
investors with a more accurate reflection of costs likely to be incurred in the absence of an unusual event such as an acquisition and facilitates
comparisons with the results of other periods that may not reflect such costs.
Impairment of goodwill – The Company recorded a non-cash goodwill impairment charge related to the Eris acquisition. This charge is excluded
from management’s assessment of the Company’s operating performance. The Company believes the exclusion of this item provides investors an
enhanced view of certain non-cash charges the Company’s may incur from time to time and facilitates comparisons with the results of other periods
that may not reflect such charge. Since the Company owns approximately 51% of Eris, it took into account the noncontrolling interest of Eris and
only excluded its portion of the impairment as it relates to net income.
Gain on sale of assets – During 2014, the Company sold a building located in Taiwan and this gain was excluded from management’s assessment of the
Company’s core operating performance. The Company believes the exclusion of the gain on sale of assets provides investors an enhanced view of a gain the
Company may incur from time to time and facilitates comparisons with results of other periods that may not reflect such gains. During 2012, the Company
sold an intangible asset located in Europe and this gain was excluded from management’s assessment of the Company’s core operating performance as this
long-lived asset was a non-core intellectual asset. Also, during 2012, the Company sold a building located in Taiwan and this gain was excluded from
management’s assessment of the Company’s core operating performance. The Company believes the exclusion of these items provides investors an
enhanced view of a gain the Company may incur from time to time and facilitates comparisons with results of other periods that may not reflect such gains.
Amortization of debt discount – The Company excluded the amortization of debt discount on its 2.25% Convertible Senior Notes (“Notes”). This
item was excluded from management’s assessment of the Company’s core operating performance. Although this item is recurring in nature, the
expected life of the Notes was five years as that is the earliest date in which the Notes could be put back to the Company at par value. The
amortization period ended October 1, 2011, therefore the Company no longer records amortization of debt discount. In addition, the Company
repurchased some of its Notes, which made the principal amount outstanding and related amortization vary from period to period, and as such the
Company believes the exclusion of this item facilitates comparisons with the results of other periods that may reflect different principal amounts
outstanding and the related amortization.
Impairment of long-lived assets – During 2015, the Company excluded costs accrued for impairment of long-lived assets related to assets that will
no longer be used in our production process as we transition from six inch to eight inch production capability in our China wafer plant. The Company
believes the exclusion of this item provides investors an enhanced view of a loss the Company may incur from time to time and facilitates
comparisons with results of other periods that may not reflect such impairments.
Employee award costs – As part of the Pericom acquisition, the Company incurred costs for stock awards and change-in-control agreements for
Pericom employees. The Company believes the exclusion of employee award costs related to the Pericom acquisition provides investors with a more
accurate reflection of costs likely to be incurred in the absence of an unusual event such as an acquisition and facilitates comparisons with the results
of other periods that may not reflect such costs.
2
CORPORATE INFORMATION
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
DR. KEH-SHEW LU
President & Chief Executive Officer
Employee since 2005
RICHARD D. WHITE
Chief Financial Officer & Secretary
Employee since 2006
MARK A. KING
Senior Vice President,
Sales & Marketing
Employee since 1991
CLEMENTE “CLAY” BELTRAN
Vice President,
Corporate Supply Chain/Planning,
Outsourcing & Quality
Employee since 2011
JULIE HOLLAND
Vice President,
Worldwide Analog Products
Employee since 2008
ALEX CHIMING HUI
Vice President,
Analog Business Group/Pericom
Employee since 2015
HANS ROHRER
Senior Vice President,
Business Development
Employee since 2008
EDMUND TANG
Vice President,
Corporate Administration
Employee since 2006
FRANCIS TANG
Vice President,
Worldwide Discrete Products
Employee since 2006
RAYMOND SOONG 2C, 3C, 4
Chairman of the Board,
Diodes Incorporated
Chairman of the Board,
Lite-On Technology Corporation
Chairman of the Board,
Lite-On Semiconductor Corporation
Director since 1993
C.H. CHEN 4C
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
Former, Chairman,
Philips Taiwan Quality Foundation
Director since 2007
DR. KEH-SHEW LU 4
President & Chief Executive Officer,
Diodes Incorporated
Former, Senior Vice President,
Texas Instruments, Inc.
Director since 2001
JOHN M. STICH 1, 3
Honorary Consul-General of Japan
in Dallas
Former, Chief Marketing Officer,
Texas Instruments, Inc. – Japan
Director since 2000
MICHAEL K.C. TSAI 2, 3
Chairman,
Zentel Electronics Corporation
Director since 2010
1 – Audit Committee Member
2 – Compensation Committee Member
3 – Governance and Stockholder Relations
Committee Member
4 – Risk Oversight Committee Member
C – Committee Chair
F – Financial Expert
SHAREHOLDER INFORMATION
Diodes Incorporated common stock is
listed on the NASDAQ Global Select
Market (NASDAQ-GS: DIOD).
Calendar Ended
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Closing Sales
Price of
Common Stock
Low
High
$25.09 $ 19.06
18.88
24.11
25.83
24.11
28.32
30.43
$27.74 $20.00
23.92
25.80
22.12
30.05
30.30
26.12
ANNUAL REPORT ON FORM 10-K
A copy of the Company’s Annual Report
on 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, California 92612
T: 949-224-3874
Email: LSievers@SheltonGroup.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Moss Adams LLP
10960 Wilshire Blvd., Suite 1100
Los Angeles, California 90024
TRANSFER AGENT & REGISTRAR
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, New York 10004
212-509-4000
GENERAL COUNSEL
Sheppard, Mullin, Richter & Hampton LLP
333 S. Hope Street, 42nd Floor
Los Angeles, California 90071
FINANCIAL INFORMATION ONLINE
World Wide Web users can access
Company information on the Diodes
Incorporated Investor page at
www.investor.diodes.com
DIODES INCORPORATED
Corporate Headquarters
America Sales
4949 Hedgcoxe Road
Mail Stop 200
Plano, Texas 75024
T: 972.987.3900
1545 Barber Lane
Milpitas, California 95035
T: 408-232-9100
ASIA SALES
Shanghai, China
Shenzhen, China
Tokyo, Japan
Seongnam-si, South Korea
Suwon, South Korea
Taipei, Taiwan
Tokyo, Japan
EUROPE SALES
Munich, Germany
MANUFACTURING FACILITIES
Shanghai, China (4)
Chengdu, China (2)
Oldham, United Kingdom
Kansas City, Missouri
Neuhaus, Germany
Taipei, Taiwan
Taoyan, Taiwan
Jian, China
Diodes Incorporated
Registered to UL DQS
Certificate Registration No. 10002233 QM08
www.diodes.com
Nasdaq-GS: DIOD