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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ________.
COMMISSION FILE NUMBER: 1-5740
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 95-2039518
(State or other (I.R.S. Employer
jurisdiction of
incorporation or Identification
organization) Number)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive (Zip Code)
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 446-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $0.66 2/3 AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange
on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the 2,573,919 shares of Common Stock held by
non-affiliates of the registrant, based on the closing price of the Common Stock
on the American Stock Exchange on March 21, 1997 of $7.50 per share, was
approximately $19,304,392.
The number of shares of the registrant's Common Stock outstanding as of March
21, 1997, was 5,675,794 including 717,115 shares of treasury stock.
THIS REPORT INCLUDES A TOTAL OF 63 PAGES
THE EXHIBIT INDEX IS ON PAGE 51
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DIODES INCORPORATED
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I..................................................................... 2
Item 1. Business .......................................... 2
Item 2. Properties ........................................ 8
Item 3. Legal Proceedings ................................. 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II ................................................................... 9
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 9
Item 6. Selected Financial Data............................ 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..... 11
Item 8. Financial Statements and Supplementary Data........ 17
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure................ 17
PART III .................................................................. 17
Item 10. Directors and Executive Officers of the Registrant. 17
Item 11. Executive Compensation............................. 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 25
Item 13. Certain Relationships and Related Transactions .... 28
PART IV ................................................................... 30
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................ 30
Cautionary Statement for Purposes of the "Safe Harbor" Provision of the
Private Securities Litigation Reform Act of 1995........................... 49
SIGNATURES................................................................. 50
INDEX TO EXHIBITS.......................................................... 51
</TABLE>
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PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Diodes Incorporated (the "Company") was formed in 1959 under
the laws of Delaware. The Company is engaged in the manufacture, sale, and
distribution of discrete semiconductors worldwide, primarily to manufacturers of
automotive, computer and telecommunication products and to distributors of
electronic components. In addition to the Company's corporate headquarters and
marketing facility in Westlake Village, California, and the joint venture
manufacturing facility in Shanghai, China, the Company's wholly-owned
subsidiary, Diodes Incorporated Taiwan Company, Ltd. ("Diodes-Taiwan"),
maintains an engineering, manufacturing, purchasing, and sales facility in
Taipei, Taiwan.
The Company, following a restructuring in 1990, has grown
rapidly as a supplier of discrete semiconductors. In 1990, the Company installed
new management and raised additional capital from the private sale of 1,000,000
shares of the Company's Common Stock to Silitek Corporation ("Silitek"), a
Taiwanese company engaged in the manufacture and sale of electronic components
and equipment, including semiconductor rectifiers. After a further purchase of
the Company's stock, Silitek transferred such Common Stock ownership interest in
1991 to Lite-On Power Semiconductor Corporation ("LPSC"), a wholly-owned,
Taiwanese subsidiary of Silitek. LPSC continues to be a major shareholder of the
Company, owning 1,995,093 shares of the Company's Common Stock, or 40.2% of the
total shares outstanding of the Company's Common Stock as of December 31, 1996.
The Company's substantial increase in net sales from $14.7
million in 1991 to $56.0 million 1996, can be attributed primarily to the
Company's continued efforts to improve the level of sales and customer support
by strengthening its sales and marketing departments, focusing on a more
pro-active selling philosophy, and improving the level of communication,
cooperation, planning and control within the Company, as well as to increased
industry demand for the Company's products.
The Company is engaged in an ongoing program to develop
strategic alliances under terms that will provide the Company access to the
products its customers need.
Four alliances, in particular, are part of this effort:
1. A marketing agreement with LPSC that provides customers with access to
additional high-quality components, further strengthening the Company's
relationship with LPSC. The Company is now the exclusive reseller (with the
exception of a few house accounts) for LPSC in North America.
2. A joint venture with Shanghai Kai Hong Electronics Co., Ltd. ("Kai Hong")
that gives the Company additional SOT-23 capacity. The Company provided Kai Hong
with capital for the construction of a new facility, primarily for the
manufacture of high quality SOT-23 products. See "Item 1. Business - New
Developments."
3. A marketing agreement with Intermetall, Halbleiterwerk der Deutsche, ITT
Industries GmbH ("ITT") of Freiburg, Germany, to distribute ITT's complete line
of discrete semiconductors in North America, including Canada and Mexico. Under
this agreement, the Company is the exclusive marketing channel for these
products in North America.
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4. An agreement with FabTech, Inc. ("FabTech"), a wholly-owned subsidiary of
LPSC, whereby the Company will gain a new supply of processed wafers for its
Diodes-Taiwan and Kai Hong facilities used in the manufacture of various types
of discrete semiconductors. See "Item 1. Business -- New Developments".
These alliances are part of the Company's long-term strategic
plan to expand its product line and secure reliable product sourcing for
products that its customers need, while maintaining profitability.
In August 1996, the Company obtained a new $23 million credit
facility consisting of: (i) a term loan and (ii) a standby letter of credit,
both earmarked for financing the Kai Hong joint venture and for other sourcing
agreements; and (iii) a revolving credit facility for working capital as needed.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a description of
the Company's credit facility.
PRODUCTS
Semiconductors come in two basic configurations: discretes and
integrated circuits. Discrete semiconductors, of which the Company is engaged in
the manufacture, sale, and distribution are fixed-function components such as
small signal transistors, medium-power MOSFETs, transient voltage suppressors
(TVSs), zeners, Schottkys, diodes, rectifiers and bridges.
Far more complex in terms of function are integrated circuits
- - multi-function devices of the sort found in computer memory boards and central
processing units. Integrated circuits, characterized by rapid changes in both
production and application, and the desire to put ever-more intelligence into
ever-smaller packages, have required the development of manufacturing techniques
that are sophisticated and expensive.
In contrast, there is little that is proprietary about the
manufacturing of discrete semiconductors. Here technologies are neither new nor
rapidly evolving. Success, therefore, is highly dependent upon the ability to
produce large numbers of inexpensive components of consistent high quality, and
with low overhead.
Discretes, which effectively tie integrated circuits to their
surrounding environments and enable them to work, come in hundreds of
permutations and vary according to voltage, current, power handling capability,
and switching speed.
In a standard industry classification, those discrete
semiconductors operating at less than 1 watt are referred to as low-power
semiconductors, while those operating at greater than 1 watt are termed power
semiconductors. Both types of semiconductors are found in a wide assortment of
commercial instrumentation and communication equipment, in consumer products
like televisions and telephones, and in automotive, computer and industrial
electronic products.
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MANUFACTURING AND SIGNIFICANT VENDORS
All of the products sold by the Company, as well as the
materials used by the Company in its manufacturing operations are available both
domestically and abroad. The two largest suppliers of products to the Company
are LPSC, an affiliate of the Company based in Taiwan, and ITT, based in
Freiburg, Germany. During the year ended December 31, 1996, approximately 28%
and 31% of purchases were from these two vendors, respectively. See Notes 11 and
12 of "Notes to Consolidated Financial Statements," included herein, for a
description of the major vendors and the relationship between LPSC and the
Company. In addition, Diodes-Taiwan supplied approximately 4% of the Company's
purchases in 1996, and the Kai Hong facility has begun to ship a nominal amount
of product to the Company. The Company anticipates that Kai Hong will become an
increasingly valuable supplier.
The Company's products are sold under several brand names such
as Diodes, Inc., Lite-On, and ITT. The Company may choose, if proven beneficial,
to unify product lines under one brand name in order to establish brand name
unity, consistency of product and to capitalize on brand name recognition, where
possible.
Although the Company believes that there exist alternative
sources for the products of any of its suppliers, the loss of any one of its
principal suppliers or the loss of several suppliers in a short period of time
could have a short-term, materially adverse effect on the Company.
SALES AND MARKETING
The discrete semiconductor components market is served by
numerous semiconductor manufacturers and distributors. Some of the larger
companies include Motorola, National Semiconductor, International Rectifier,
Rohm, Phillips, and General Instruments, many of whom have greater financial,
marketing, brand name and other resources than the Company. Over the years,
there has been a tendency among some larger manufacturers to limit or
de-emphasize the production and marketing of discretes components in favor of
integrated and hybrid circuits. With fewer service-oriented sources of discrete
components available to original equipment manufacturers ("OEMs"), the Company
has been able to make gains in market share.
The Company sells its products through its own internal and
regional sales departments as well as through representatives and distributors.
The Company's in-house sales team, aided by the sales force of approximately 30
independent sales representatives located throughout North America and the
Pacific Rim, supplies more than 300 OEM accounts. The Company's products include
catalog items and units designed to specific customer requirements. The Company
further supplies approximately 50 stocking distributors, who collectively sell
to over 5,000 customers on the Company's behalf. At December 31, 1996, OEM
customers accounted for approximately 66% of the Company's net sales.
Customers range from Fortune 500 companies to small, privately-held OEMs.
Through continuous sales and customer service efforts, the
Company further developed significant business relationships with companies who
are considered leaders in their respective market segments, such as automotive,
telecommunications, personal computers, computer peripherals and industrial. The
Company's marketing efforts have also benefited from an ongoing program to
develop strategic alliances with manufacturers, such as FabTech and Kai Hong, to
better control its destiny in terms of the price, the quality and especially the
availability of the products it sells.
The Company's products are sold primarily in North America and
the Pacific Rim, both directly to end users and through electronic component
distributors. During 1996, approximately 85% and 15% of the Company's products
were sold in North America and the Pacific Rim, respectively.
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During the past five years, the Company has pursued an aggressive program to
improve product quality and customer service in order to support more
broad-based, strategic accounts. For the fiscal years ended December 31, 1996,
1995, and 1994, the sale of discrete semiconductor products represented 100
percent of the Company's net sales and the Company intends to continue this
dedication to discrete semiconductors.
Through Diodes-Taiwan, the Company employs a general manager
who acts as the Pacific Rim purchasing liaison with respect to product
procurement from other vendors located in the Far East. Diodes-Taiwan also
manufactures product for sale to the Company as well as for other customers. In
addition, Diodes-Taiwan generates sales in Taiwan and other Asian countries. See
Note 12 of "Notes to Consolidated Financial Statements."
During the fiscal year ended December 31, 1996, the Company
sold its products to approximately 300 direct customers, and to distributors who
sell to over 5,000 additional indirect customers.
During most of 1996, both the Company and its industry
experienced a slowdown in demand for discrete semiconductor products. In
general, the Company maintains sufficient inventories of standard products to
permit rapid delivery of customers' orders where required, and continuously
coordinates with subcontractors to support future product demand. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
All of the Company's inventory is composed of discrete
semiconductors which are standardized in electronic related industries. Finished
goods inventory turns over approximately four times annually. The Company has no
special inventory or working capital requirements that are not in the ordinary
course of business. Unless arrangements are otherwise specially made, invoices
to customers are payable net 30 days. Company policy is to hold shipments to
customers who are more than 60 days in arrears.
The Company is not dependent on any one major customer to
support its level of net sales. For the fiscal year ended December 31, 1996,
there was not one customer that accounted for more than 5% of the Company's net
sales. The twenty largest customers of the Company accounted, in total, for
approximately 44% of the Company's net sales during such period.
BACKLOG
The amount of backlog to be shipped during any period is
dependent upon various factors and all orders are subject to cancellation or
modification, usually without penalty to the customer. Backlog of orders
scheduled to ship within six months were approximately $10.2 million on December
31, 1996, compared to approximately $12.0 million on December 31, 1995, and $8.8
million on December 31, 1994. The Company and the industry as a whole is
experiencing a trend towards shorter lead-times (the amount of time between the
date a customer places an order to the date the customer requires shipment).
Accordingly, the amount of backlog at any date is not necessarily indicative of
actual shipments. The Company strives to maintain proper inventory levels to
support customers' just-in-time order expectations.
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NEW DEVELOPMENTS
In February 1996, the Company announced an agreement with
FabTech, Inc. whereby the Company gained a new supply of processed wafers used
in the manufacture of several types of discrete semiconductors. The Company has
provided FabTech with approximately $2.5 million in working capital to be used
in upgrading, reconfiguring, and starting up operations at an existing wafer
fabrication facility located in the AT&T building in Lee's Summit, Missouri.
FabTech is a newly-created, wholly-owned subsidiary of LPSC.
The Company's Diodes-Taiwan and Kai Hong manufacturing
facilities receive wafers from FabTech, among others. Output from the FabTech
facility includes wafers used in the production of Schottky barrier diodes, fast
recovery epitaxial diodes (FREDs), and other widely used value-added products.
Schottky barrier diodes are employed in the manufacture of the power supplies
found in personal computers, telecommunications devices and myriad other
applications where high frequency, low forward voltage and fast recovery are
required.
In March 1996, the Company entered into the Kai Hong joint
venture for the development of additional manufacturing capacity in Shanghai.
The joint venture allows for the manufacturing and sales of diodes and
associated electronic components. The Company has a 70% controlling interest, is
responsible for production and management, and currently receives 100% of the
production, mainly in SOT-23 packaged components. The Company has an equity
contribution of $2.8 million and the minority interest party has an equity
contribution of $1.2 million. The joint venture agreement allows for additional
expansion in several phases according to market demand. The initial phase of the
Kai Hong operation is now in full production, and beginning in the first quarter
of 1997, is making a positive contribution to the Company's bottom line.
These alliances, among others, assist the Company to enhance
its ability to acquire -- in a timely fashion and at reasonable cost -- the
products that its customers need.
In March 1997, as a result of the Company's total commitment
to customer satisfaction and product quality, the Company's corporate
headquarters received official ISO 9002 Certification of Registration from
Underwriters Laboratories, the leading third-party certification organization in
the United States and the largest in North America. ISO 9000 certifications
consist of a series of paradigms for the establishment of systems and protocols
to facilitate the creation and maintenance of superior quality-control
techniques. With its underlying premise that true product quality requires a
total quality system, ISO certification is often required of vendors seeking to
establish relationships with OEMs doing business in intensely competitive global
markets.
COMPETITION
Competition in the semiconductor marketplace, in which the
Company competes, is intense. The Company competes with discrete semiconductor
manufacturing companies such as Motorola, National Semiconductor, International
Rectifier, Rohm, Phillips, and General Instruments, as well as distributors of
similar product lines such as Taitron Components.
Competitiveness in sales of the Company's products is
determined by the price and quality of the product and the ability of the
Company to provide delivery in keeping with the customers' needs. The Company
believes itself to be well equipped to be competitive in respect to these
requirements. Although technology in the semiconductor industry is ever
changing, the products sold by the Company are mature products. Because of this,
the Company is not expecting to experience much further technological change
within its current product line, nor does it believe its products will become
obsolete
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in the foreseeable future. The Company's market share is estimated at 3% based
upon the total area market for discrete semiconductors in North America. Many of
the Company's competitors have substantially greater financial, marketing,
distribution and other resources than the Company. Accordingly, in response to
market conditions, the Company from time to time may reposition product lines or
decrease prices, which may adversely affect the Company's profit margins on such
product lines. See "Cautionary Statement for Purposes of the `Safe Harbor'
Provision of the Private Securities Litigation Reform Act of 1995."
EMPLOYEES
As of December 31, 1996, the Company employed a total of 59
full-time employees in the United States: 19 in sales and marketing, 21 in
customer support, and 19 in operations and administration. Diodes-Taiwan
employed an additional 61 employees in its Taiwan office: 43 in manufacturing, 3
in sales, and 15 in purchasing, quality control, and administration. The Kai
Hong manufacturing facility employed a total of 117 employees; 67 in
manufacturing and 50 in quality control and general administration. None of the
Company's employees is subject to a collective bargaining agreement. The Company
considers its relations with its employees to be satisfactory.
IMPORTS AND IMPORT RESTRICTIONS
During 1996, the Company's U.S. operations, which accounted
for approximately 85.5% of the Company's total net sales, imported substantially
all of its products, of which approximately 31.5% was imported from Taiwan and
approximately 17.3% from mainland China. The balance of the imports are from
Germany, Japan, India, the Philippines, England and Korea, among others. As a
result, the Company's operations are subject to the customary risks of doing
business abroad, including, among other things, the difficulty and expense of
maintaining foreign sourcing channels, cultural and institutional barriers to
trade, fluctuations in currency exchange rates, restrictions on the transfer of
funds and the imposition of tariffs, political instability, transportation
delays, expropriation, import and export controls and other non-tariff barriers
(including export licenses and changes in the allocation of quotas), as well as
the uncertainty regarding the future relationship between China and Taiwan, and
other U.S. and foreign regulations that may apply to the export and import of
the Company's products, and which could have a material adverse effect on the
Company. Any significant disruption in the Company's Taiwanese or Chinese
sources of supply or in the Company's relationship with its suppliers located in
Taiwan or China could have a material adverse effect on the Company.
The Company purchases products from foreign suppliers in
United States dollars and, accordingly, its results of operations could be
materially and adversely affected by fluctuations in currency exchange rates.
The Company's imported products are also subject to United States customs duties
and, in the ordinary course of business, the Company from time to time is
subject to claims by the United States Customs Service for duties and other
charges. The Company attempts to reduce the risk of doing business in foreign
countries by, among other things, contracting in U.S. dollars, and, when
possible, maintaining multiple sourcing of product groups from several
countries.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
With respect to foreign operations see Notes 1, 11 and 12 of
"Notes to Consolidated Financial Statements".
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ITEM 2. PROPERTIES
The Company's primary physical properties during the year
ended December 31, 1996, were as follows:
1. Industrial building located at 3050 East Hillcrest Drive, Westlake
Village, California 91362. This building, consisting of 30,800 square
feet, is the Company's corporate headquarters and product distribution
center. The Company is primary lessee under a lease that will expire
December 14, 1998.
The Company has two five-year options to extend the term of the lease.
2. Industrial premises consisting of approximately 9,000 square feet
and located at 5Fl. 501-16 Chung-Cheng Road, Hsin-Tien City, Taipei,
Taiwan, Republic of China. These premises, owned by Diodes-Taiwan, are
used as a manufacturing facility. The facility is subject to a mortgage
held by Chang-Hwa Commercial Bank, which matures on November 11, 2003,
and is secured by land and buildings.
3. Industrial premises consisting of approximately 7,000 square feet
and located at 2Fl. 501-15 Chung-Cheng Road, Hsin-Tien City, Taipei,
Taiwan, Republic of China. These premises, owned by Diodes-Taiwan are
used as sales and administrative offices. The facility is subject to a
mortgage held by Chang-Hwa Commercial Bank, which matures on February
27, 2003, and is secured by land and buildings.
4. Regional sales office located at 400 West Maple, Suite 300,
Birmingham, Michigan 48009. These premises are leased at less than
$1,000 per month.
5. Regional sales office located at 78 Northeastern Blvd. #1, Nashua,
NH 03062. These premises are leased at less than $1,000 per month.
6. Regional sales office located at 923-D Merchants Walk NW,
Huntsville, Alabama 35801. These premises are leased at less than
$1,000 per month.
7. Industrial building located at Xinqiao Town, Song Jian County,
Shanghai, Peoples Republic of China. This building, consisting of
approximately 20,000 square feet, is the corporate headquarters and
product distribution and manufacturing facility for the newly formed
Kai Hong joint venture. The building is owned by the joint venture
company, Shanghai Kai Hong Electronics Co., Ltd.
The Company believes its current facilities are adequate for
the foreseeable future. See Notes 5 and 13 of "Notes to Consolidated Financial
Statements."
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ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, involved in litigation
incidental to the conduct of its business. The Company does not believe that any
currently pending litigation, to which it is a party, will have a material
adverse affect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by the
Company during the last three months of the year ending December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed and traded on the
American Stock Exchange ("AMEX") (Symbol "DIO"). The following Table 1 shows the
range of high and low sales prices per share for the Company's Common Stock for
each fiscal quarter from March 31, 1995 as reported by AMEX.
TABLE 1
<TABLE>
<CAPTION>
CALENDAR QUARTER SALE PRICE OF
ENDED COMMON STOCK
HIGH LOW
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<S> <C> <C>
March 31, 1995.................. $ 7 1/4 $ 4 7/8
June 30, 1995................... 11 7/8 5
September 30, 1995.............. 19 5/8 11 7/8
December 31, 1995............... 15 3/4 10 1/2
---------------------------------------------------------------------
March 31, 1996.................. $11 7/8 $ 8 5/8
June 30, 1996................... 11 6 1/2
September 30, 1996.............. 8 1/2 5 1/2
December 31, 1996............... 9 1/4 5 3/4
</TABLE>
On March 21, 1997, the closing sale price of the Company's
Common Stock on AMEX was $7.50. Shareholders are urged to obtain current market
quotations for the Common Stock. As of March 21, 1997, there were approximately
1,107 stockholders of record of the Company's Common Stock.
No dividends have been declared during the past three years
and the Company does not expect to declare dividends in the foreseeable future.
The payment of dividends is within the discretion of the Company's Board of
Directors, and will depend upon, among other things, the Company's earnings,
financial condition and capital requirements and general business conditions.
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ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the fiscal years ended December
31, 1996, 1995, 1994, 1993 and 1992 is set forth in Table 2 and is qualified in
its entirety by, and should be read in conjunction with, the other information
and financial statements appearing elsewhere herein (in 000's except per share
data).
TABLE 2
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $ 56,019 $ 58,190 $ 38,275 $ 26,403 $ 18,430
Gross profit 14,842 16,463 10,697 7,143 5,005
Selling, general & administrative expenses 10,386 9,522 7,563 5,924 4,480
Income from operations 4,456 6,941 3,134 1,219 392
Interest expense, net 351 144 6 75 55
Minority interest in joint venture net loss (1) 238 -- -- -- --
Other income 295 513 437 80 238
Provision (benefit) for income taxes (2) 1,673 2,610 1,202 (363) 170
Net income 2,965 4,700 2,363 1,587 405
Earnings per share (3) $ 0.55 $ 0.90 $ 0.46 $ 0.34 $ 0.09
Common and common equivalent shares
outstanding 5,362 5,220 5,137 4,724 4,300
BALANCE SHEET DATA
Total assets $ 32,546 $ 29,363 $ 17,545 $ 13,727 $ 10,303
Working capital 17,403 13,263 9,411 6,606 5,354
Stockholders' equity 19,464 16,499 10,770 7,996 6,010
</TABLE>
(1) See Note 4 of "Notes to Consolidated Financial Statements" included
herein.
(2) See Note 8 of "Notes to Consolidated Financial Statements" included
herein.
(3) See Note 1 of "Notes to Consolidated Financial Statements" included
herein.
No cash dividends were paid during the years 1992-1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Revenues for the twelve months ended December 31, 1996 were
$56.0 million versus $58.2 million in the same period a year ago, a decrease of
3.7% primarily due to an industry-wide slowdown in unit demand for discrete
semiconductor products for most of 1996 and an inventory build-up commencing in
the fourth quarter of 1995. Starting in the second half of 1996, the Company has
seen indications that demand for its product is improving, primarily based upon
new orders. Fourth-quarter 1996 earnings showed improvement over the immediately
preceding quarter, having increased 7.0% on a 4.0% increase in revenues.
Net income for the twelve months ended December 31, 1996,
affected by gross margin pressures, a one-time charge of $660,000 for
pre-operating costs associated with the Kai Hong joint venture (a
previously-announced surface-mount manufacturing facility in mainland China),
the addition of key marketing personnel and programs, and charges associated
with the Company's ISO 9002 certification, decreased 39.6% to $3.0 million, and
earnings per share were $0.55 compared to $0.90 in 1995. Beginning in the first
quarter of 1997, Kai Hong is now making a positive contribution to the Company's
bottom line.
Although gross margins throughout 1996 were affected by
pricing pressures within the industry, due largely to excess capacity among
semiconductor manufacturers, the Company's gross margin in 1997 has been
improving due in part to improved inventory management. However, the Company
anticipates stronger unit demand in the first six months of 1997 when compared
to the last six months of 1996. The Company also expects both gross margins and
operating margins to be positively affected by stronger market demand combined
with the above mentioned programs installed in 1996.
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RESULTS OF OPERATIONS
The following Table 3 sets forth, for the periods indicated,
the percentage which certain items in the statement of income bear to net sales
and the percentage dollar increase (decrease) of such items from period to
period.
TABLE 3
<TABLE>
<CAPTION>
PERCENT OF NET SALES PERCENTAGE DOLLAR INCREASE (DECREASE)
---------------------------------------------------------- ---------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992 `95 TO `96 `94 to `95 `93 to `94 `92 to '93
---------------------------------------------------------- --------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % (3.7) % 52.0 % 45.0 % 43.3 %
Cost of goods
sold (73.5) (71.7) (72.1) (72.9) (72.8) (1.3) 51.3 43.2 43.5
------ ----- ----- ----- ----- ---- ---- ---- ----
Gross profit 26.5 28.3 27.9 27.1 27.2 (9.8) 53.9 49.8 42.7
Operating
expenses (18.5) (16.4) (19.8) (22.4) (25.0) 9.1 25.9 27.7 28.4
------ ----- ----- ----- ----- ---- ---- ---- ----
Income from
operations 8.0 11.9 8.2 4.6 2.1 (35.8) 121.5 157.1 211.0
Interest
expense, net (0.6) (0.2) (0.0) (0.3) (0.3) 143.8 2,300.0 (92.0) 36.4
Other income 0.9 0.9 1.1 0.3 0.8 3.9 17.6 446.3 (47.0)
------ ----- ----- ----- ----- ---- ---- ---- ----
Income before
taxes 8.3 12.6 9.3 4.6 2.6 (36.6) 105.1 191.3 150.8
Income taxes
(benefit) 3.0 4.5 3.1 (1.4) 0.5 (35.9) 117.1 (431.1) (537.3)
------ ----- ----- ----- ----- ---- ---- ---- ----
Net income 5.3 8.1 6.2 6.0 2.2 (36.9) 99.0 48.9 291.9
====== ===== ===== ===== ===== ===== ==== ==== =====
</TABLE>
The following discussion explains in greater detail the
consolidated financial condition of the Company. This discussion should be read
in conjunction with the consolidated financial statements and notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 56,019,000 $ 58,190,000 $ 38,275,000
</TABLE>
The Company's 1996 comparative decrease in net sales of
approximately $2.2 million, or 3.7%, was the result of an industry-wide slowdown
in unit demand for discrete semiconductor products for most of 1996 and an
inventory build-up commencing in the fourth quarter of 1995. Starting in the
second half of 1996, the Company has seen indications that demand for its
product is improving, primarily based upon new orders. Fourth-quarter 1996
earnings showed improvement over the immediately preceding quarter, having
increased 7.0% on a 4.0% increase in revenues.
The Company's 1995 comparative increase in net sales of
approximately $19.9 million, or 52.0%, was the result of a healthy market for
discrete semiconductors, an aggressive marketing program in which the Company
sought to emphasize quality, reliability, and customer service, and the
maturation and further cultivation of existing relationships with major users of
discrete components. In the fourth quarter of 1995, the Company experienced a
slowing of orders, primarily due to a slow down in the personal computer and
related industries.
12
<PAGE> 14
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
GROSS PROFIT $ 14,842,000 $ 16,463,000 $ 10,697,000
GROSS MARGIN PERCENTAGE 26.5% 28.3% 27.9%
</TABLE>
The Company's gross profit in 1996 decreased approximately
$1.6 million or 9.8%, due to pricing pressures within the industry resulting
from decreased demand and to excess on-hand inventory, as well as to the 3.7%
decrease in net sales.
The Company's gross profit in 1995 increased approximately
$5.8 million or 53.9%, primarily due to the 52.0% increase in net sales. The
gross margin percentage was comparable to that of 1994, increasing 0.4
percentage points.
<TABLE>
<CAPTION>
1996 1994 1993
---- ---- ----
<S> <C> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ("SG&A") $ 10,386,000 $ 9,522,000 $ 7,563,000
</TABLE>
The Company's SG&A for the year ended 1996 increased
approximately 9.1% or $864,000 primarily due to costs associated with the Kai
Hong joint venture (a previously-announced surface-mount manufacturing facility
in mainland China), the ISO certification, as well as to the addition of key
marketing personnel.
Fourth quarter 1996 and year-end results, include a one-time
charge of $660,000 for pre-operating costs associated with Kai Hong. These costs
had been capitalized during start-up phases through the joint venture's first
six months of operations, and were fully amortized upon commencement of
full-scale operations in the fourth quarter. This accounting practice is
consistent with preferred methods discussed by regulators and accounting
standard setters in December 1996.
Without the start-up costs associated with Kai Hong, SG&A in
the fourth quarter would have been approximately 15.6% of sales, in line with
SG&A that was 15.4% of sales in the same period a year ago. The Company's total
SG&A as a percentage of net sales increased from 16.4% in 1995 to 18.5% in 1996
primarily as a result of SG&A associated with the Kai Hong manufacturing
facility.
The Company's SG&A for the year ended 1995 increased
approximately 25.9%, while net sales increased 52.0%. This approximately $1.9
million increase was primarily attributable to increased commissions paid to
outside sales representatives and distributors of approximately $1.0 million, or
66.1%, and an increase in overall wages and benefits of approximately $544,000,
or 18.9%. The total SG&A as a percentage of net sales decreased from 19.8% in
1994 to 16.4% in 1995, as a result of improved cost controls.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INCOME FROM OPERATIONS $ 4,456,000 $ 6,941,000 $ 3,134,000
</TABLE>
The Company's 1996 comparative decrease in operating profit of
approximately $2.5 million, or 35.8%, is primarily the result of the Company's
3.7% decrease in net sales, 9.8% decrease in gross profit, as well as a 9.1%
increase in SG&A.
The Company's 1995 comparative increase in operating profit of
approximately $3.8 million, or 121.5%, is primarily the result of the Company's
52.0% increase in net sales and 53.9% increase gross profit as well as a 3.4
percentage point decrease in SG&A as a percentage of net sales.
13
<PAGE> 15
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST EXPENSE $ 538,000 $ 190,000 $ 63,000
INTEREST INCOME $ 187,000 $ 46,000 $ 57,000
</TABLE>
The Company's 1996 net interest expense increased
approximately $207,000 primarily as a result of an increase in the Company's
usage of its credit facility to finance and expand the Kai Hong manufacturing
facility. The Company has contributed approximately $2.8 million toward the Kai
Hong joint venture. The Company's interest expense for 1996 increased $348,000,
primarily as a result of the Kai Hong investment and a $2.5 million working
capital loan to FabTech. See "Item 1. Business -- New Developments". The Company
charges FabTech an interest rate equal to the Company's cost of funds, which is
recorded as interest income.
The Company's interest expense for 1995 increased
approximately $127,000, primarily as a result of an increase in the Company's
usage of its revolving line of credit to expand the Company's inventory and
finance additional sourcing agreements. See "Item 1. Business -- Business
Development." The Company's interest income for the year ended 1995 remained
relatively unchanged compared to 1994 as the Company maintained adequate working
cash.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
MINORITY INTEREST IN JOINT VENTURE
NET LOSS $ 238,000 $ 0 $ 0
</TABLE>
The Company's $238,000 minority interest in joint venture net
loss represents the Company's 70% controlling interest in the Kai Hong joint
venture. All of the Kai Hong joint venture earnings are consolidated within the
Company's financial statements. The $238,000 represents the minority investor's
share of the joint venture loss. In the first quarter of 1997, the Kai Hong
joint venture began to contribute positively to the Company's net income. As the
joint venture realizes profitability, the minority interest line item will be
recorded as a reduction to earnings.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OTHER INCOME $ 295,000 $ 513,000 $ 437,000
</TABLE>
The Company's other income for 1996 decreased approximately
42.5% compared to other income in 1995. This $218,000 decrease is primarily due
to decreased sales commissions paid to the Company's Taiwan subsidiary on drop
shipments in Asia.
The Company's other income for 1995 increased approximately
$76,000, or 17.6% compared to other income in 1994, primarily due to increased
sales commissions paid to its Taiwan subsidiary on drop shipment sales in Asia.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NET INCOME $ 2,965,000 $ 4,700,000 $ 2,363,000
EARNINGS PER SHARE $ 0.55 $ 0.90 $ 0.46
</TABLE>
The Company's net income for the year ended December 31, 1996
decreased 36.9% or approximately $1.7 million, and earnings per share decreased
to $0.55 for the year ended December 31, 1996, compared to $0.90 for 1995. These
decreases were primarily due to the decrease in net sales and the increase in
SG&A (including the one-time charge of $660,000 for pre-operating costs
associated with Kai Hong), both absolutely and as a percentage of net sales. The
number of common
14
<PAGE> 16
and common equivalent shares outstanding increased approximately 2.9% primarily
due to the issuance of stock options in August 1996.
The Company's net income for the year ended December 31, 1995
increased 99.0% or approximately $2.3 million, and earnings per share increased
to $0.90 for the year ended December 31, 1995, compared to $0.46 for 1994. These
increases were primarily due to the 52.0% increase in net sales and the decrease
in SG&A as a percentage of net sales. The number of common and common equivalent
shares outstanding increased approximately 1.6% primarily due to a higher stock
price throughout most of 1995.
Inflation did not have a material effect on net sales or net
income in fiscal years 1996, 1995 or 1994. The uncertainty of exchange rates,
notably the Japanese Yen and German Deutsche Mark, induced price pressure on
some of the products.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in 1996 was $3.6 million
compared to cash used by operating activities of $4.8 million in 1995 and cash
provided by operating activities of $3.0 million in 1994. The primary sources of
cash flows in 1996 was from operations and from a decrease in inventories of
$3.0 million, or 18.6%. The Company believes that this level of inventory is
necessary to effectively service current and new customers as well as provide
for managed growth. In 1995, the Company's primary use of cash flow was a $9.3
million increase in inventories. The ratio of the Company's current assets to
current liabilities on December 31, 1996, was 3.2 to 1 compared to a ratio of
2.1:1 and 2.5:1 as of December 31, 1995 and 1994, respectively.
Cash used by investing activities was $3.3 million in 1996,
compared to $2.1 million in 1995 and $109,000 in 1994. The Company has provided
capital to Kai Hong for the construction and equipment of a new facility for the
manufacture of surface-mount SOT 23 devices; and to FabTech for upgrading,
reconfiguring, and starting up operations at an existing wafer fabrication
facility. The Company has a 70% controlling interest in the Kai Hong joint
venture, is responsible for production and management, and currently receives
100% of the products. The venture parties have made a significant equity
contribution to the joint venture and a portion of the cost of developing the
project is debt financed. The joint venture agreement allows for additional
production expansion in phases according to market demand. The Kai Hong
operation is now in full production and beginning in the first quarter of 1997,
is making a positive contribution to the Company's bottom line. As of December
31, 1996, the Company has invested approximately $2.8 million to the venture.
Both Kai Hong and FabTech alliances are indicative of the Company's desire to
participate in the sourcing of advanced-technology discrete components, and to
enhance its ability to procure products in a timely fashion and at reasonable
cost.
Cash provided by financing activities was $1.0 million in 1996,
compared to $5.6 million in 1995 and a use of $2.0 million in 1994. In August
1996, the Company obtained a new $22.6 million credit facility with a major bank
consisting of: a working capital line of credit up to $9 million, term
commitment notes providing up to $9.5 million for plant expansion and advances
to vendors, and letters of credit of $4.1 million for Kai Hong. Interest on
outstanding borrowings under the credit agreement is payable monthly at LIBOR
plus a negotiated margin. Fixed borrowings require payments of interest only for
six months from the date of distribution and fixed principal plus interest
payments for sixty months thereafter. The agreement has certain covenants and
restrictions which, among other matters requires the maintenance of certain
financial ratios and operating results, as defined in the agreement. The Company
was in compliance as of December 31, 1996. The working capital line
15
<PAGE> 17
of credit expires August 3, 1998 and contains a sublimit of $2 million for
issuance of commercial and stand-by letters of credit. During 1996 average and
maximum borrowings outstanding on the line of credit were $2,975,000 and
$8,382,000, respectively. The weighted average interest rate on outstanding
borrowings was 7.4% for the year ended December 31, 1996. As of December 31,
1996 $5 million is outstanding under the term note commitment. The Company may
borrow the remaining $4.5 million available under the term note commitment
through September 7, 1997. The Company also has two guaranty agreements which
guarantee term loans made by a major bank to Shanghai Kaihong Electronics Co.,
Ltd. (in order to assist in establishing a credit record with the bank) and the
minority investor of the Kai Hong joint venture (as per the Kai Hong joint
venture agreement) for $1.0 million and $850,000, respectively. In the event
that the Company shall be required to pay any amount whatsoever to any person
pursuant to, in connection with or as a result of or relating to the guaranty,
the Company shall have the right, in its sole and absolute discretion, to
purchase from the minority investor, and the minority investor hereby sells and
assigns to the Company, that portion of the minority investor's shares of the
capital stock of Shanghai Kaihong Electronics Co., Ltd. obtained by dividing (x)
the amount so paid by the Company by (v) the aggregate amount theretofor
required to be paid by the minority investor to Shanghai Kaihong Electronics
Co., Ltd. for the purchase of such shares, in cancellation of the minority
investor's obligations to reimburse for the Company for such amount so paid by
the Company.
The Company anticipates it will continue to utilize such
credit facility to support its operations. The Company believes that the
continued availability of this credit facility, together with internally
generated funds, will be sufficient to meet the Company's currently foreseeable
operating cash requirements. The Company's cash balance at year ended December
31, 1996 increased approximately $1.3 million from the 1995 level and the
Company will continue to minimize its cash balances to manage interest expense.
Accounts receivable as of December 31, 1996 increased 4.1% on
a 3.7% decrease in net sales as the Company has provided more flexible terms to
its customers due to the market conditions. The Company's inventories as of
December 31, 1996 have decreased 18.6% as the Company continues to closely
manage its inventory levels in order to increase its asset utilization while
maintaining its commitment to provide timely delivery of product to customers.
The Company's total working capital increased 31.2% to $17.4
million as of December 31, 1996, from $13.3 million as of December 31, 1995,
primarily as a result of the conversion of a portion of the Company's debt from
short-term to long-term. The Company believes that such working capital position
will be sufficient for growth opportunities.
The Company's debt to equity ratio decreased to 0.62 at
December 31, 1996, from 0.78 at December 31, 1995. The Company anticipates this
ratio may increase as the Company continues to use its credit facilities to fund
additional sourcing opportunities.
As of December 31, 1996, the Company has no material plans or
commitments for capital expenditures other than as disclosed in connection with
the Kai Hong and FabTech agreements filed in the Company's 1995 Form 10-K. See
"Item 1. Business -- New Developments." However, to ensure that the Company can
secure reliable and cost effective sourcing to support and better position
itself for growth, the Company is continuously evaluating additional sources of
products. The Company believes its financial position will provide sufficient
funds should an appropriate investment opportunity arise and thereby, assist the
Company in improving customer satisfaction and in maintaining or increasing
product market penetration.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K" for the Company's Consolidated Financial Statements filed
as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following Table 4 sets forth information as to the names,
ages, positions and offices held with the Company, or principal occupations
during the past five years, and, where applicable, the terms of office as
directors of all the Company's directors and executive officers. The term of
office of each director expires with the annual meeting of shareholders or when
a successor is elected and qualified.
TABLE 4
<TABLE>
<CAPTION>
DIRECTOR
OFFICERS AND DIRECTORS AGE POSITION WITH THE COMPANY SINCE (1)
- --------------------------------------- ------------ ----------------------------------------------- ---------------
<S> <C> <C> <C>
Raymond Soong (2).................. 55 Chairman of the Board 1993
David Lin (3)...................... 50 President and Chief Executive Officer; 1991
Director
Michael R. Giordano (4)............ 50 Director 1990
M.K. Lu (5)........................ 48 Director 1995
Shing Mao (6)...................... 61 Director 1990
Michael A. Rosenberg (7)........... 68 Director 1989
Leonard M. Silverman (8)........... 57 Director 1995
Pedro Morillas (9)................. 51 Executive Vice President N/A
Joseph Liu (10).................... 55 Vice President-Operations, Chief N/A
Financial Officer and Secretary
</TABLE>
(1) Directors are elected at each annual meeting of shareholders.
(footnotes continued on following page)
17
<PAGE> 19
(footnotes continued from previous page)
(2) Mr. Soong has been the Chairman of the Board of Silitek since 1990 and
has been Chairman of the Board of LPSC since 1992. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" and
"Item 13. Certain Relationships and Related Transactions" for a
discussion of the relationship between Silitek, LPSC and the Company.
Since 1995, Mr. Soong has also been a director of FabTech, with whom
the Company entered into an agreement with in February 1996, whereby
Diodes will gain a new supply of processed wafers used in the
manufacture of several types of discrete semiconductors. FabTech is a
newly-created subsidiary of LPSC. Mr. Soong is a graduate of the
National Taipei Institute of Technology's Electronic Engineering
Department. After serving as a senior engineer for RCA and as a chief
engineer for Texas Instruments, Mr. Soong, together with several of his
coworkers, founded Taiwan Liton Electronic Co. Ltd., a Taiwan
corporation ("Taiwan Liton"), in 1975. Taiwan Liton, which manufactures
electronic components and subsystems, is an affiliate of Silitek
through common control, and its stock is listed on the Taipei Stock
Exchange. Mr. Soong is also Chairman of the Board of Taiwan Liton, and
the newly formed Kai Hong joint venture.
(3) Since 1991, Mr. Lin has served as a director of the Company. Mr. Lin
has served as President and Chief Executive Officer of the Company
since March 1993. Mr. Lin is also President of Silitek and had served
as Executive Vice President of Silitek since 1990, prior to becoming
President. See "Item 12. Security Ownership of Certain Beneficial
Owners and Management" and "Item 13. Certain Relationships and Related
Transactions" for a discussion of the relationship between Silitek,
LPSC and the Company. Mr. Lin was previously President of Texas
Instruments Asia, Limited, in Taiwan from 1982 to 1990. Mr. Lin has
been a director of LPSC since 1991 and a director of Maxi Switch, Inc.,
since 1990. Mr. Lin is also a director of the newly formed Kai Hong
joint venture.
(4) Mr. Giordano joined the investment banking firm of PaineWebber
Incorporated as a Senior Vice President-Investment Consulting, when
PaineWebber acquired his previous firm, Kidder Peabody and Company,
Inc. Mr. Giordano advises corporations, foundations, trusts, and
municipal governments in investments and finance. Mr. Giordano was with
Kidder Peabody since 1979. Formerly a captain and pilot in the USAF,
Mr. Giordano received his Bachelors of Science degree in Aerospace
Engineering from California State Polytechnic University and his
Masters degree in Business Administration (Management and Finance) from
the University of Utah. Mr. Giordano also did post graduate work in
International Investments at Babson College.
(5) Since 1991, Mr. Lu has been President and a director of LPSC. From 1983
to 1990, Mr. Lu was General Manager/Vice President of Silitek. See
"Item 12. Security Ownership of Certain Beneficial Owners and
Management" and "Item 13. Certain Relationships and Related
Transactions" for a discussion of the relationship between Silitek,
LPSC and the Company. Since 1995, Mr. Lu has also been a director of
FabTech. Mr. Lu earned his Bachelor of E.E. at Tatung Institute of
Technology and is a graduate of the Institute of Administration at
National Chengchi University. Mr. Lu is also a present member of the
Chinese Management Association and the Chinese Association for
Advancement of Management. Mr. Lu is also a director of Shanghai
Seefull Electronics, Co., Ltd. and the newly formed Kai Hong joint
venture.
18
(footnotes continued on following page)
<PAGE> 20
(footnotes continued from previous page)
(6) From 1988 to present, Dr. Mao has been Chairman of the Board of
Lite-On, Inc., a California corporation located in Milpitas, California
("Lite-On Milpitas"), a wholly owned subsidiary of Taiwan Liton. See
"Item 12. Security Ownership of Certain Beneficial Owners and
Management" and "Item 13. Certain Relationships and Related
Transactions" for a discussion of the relationship between Silitek,
LPSC and the Company. Dr. Mao has been a director of Dyna Investment
Co., Ltd. of Taiwan, a venture capital company, and a director of LPSC,
both since 1989. Since 1995, Dr. Mao has also been a director of
FabTech. Before joining Lite-On, Dr. Mao served in a variety of
management positions with Raytheom Company for four years, with Texas
Instruments for 11 years, and with UTL Corporation (later acquired by
Boeing Aircraft Company) for seven years. Dr. Mao earned his Ph.D.
degree in electrical engineering at Stanford University in 1963.
(7) From 1992 to present, Mr. Rosenberg serves as an independent consultant
to Vishay Company, a Fortune 500 Company. Vishay is a major
international passive component manufacturer with 50 operating plants
located in 11 countries. Until 1991, Mr. Rosenberg was President,
Principal Operating Officer a director of SFE Technologies, a
manufacturer of electronic components with principal offices in San
Fernando, California. Prior to that, Mr. Rosenberg served, since 1970,
as Vice President Technology of SFE Technologies.
(8) From 1984 to present, Dr. Leonard Silverman has been the Dean of
Engineering at the University of Southern California ("USC"), and has
been employed by USC since 1968. Dr. Silverman is internationally known
for his pioneering work in the theory and application of multi-variable
control systems and signal processing and has more than 100
publications to his credit. Dr. Silverman has been honored as a Fellow
of the IEEE, as a Distinguished Member of the IEEE Control Society, and
has received a Centennial Medal of the IEEE. He has also received
election to the National Academy of Engineering, one of the highest
honors that can be bestowed on an engineer. Dean Silverman also serves
on the Board of Directors for Advanced Micro Devices, as well as for
the Colachis Foundation, the Lord Foundation, and the M.C. Gill
Foundation. Dr. Silverman earned his A.B., B.S., M.S. and Ph.D. degrees
in electrical engineering at Columbia University during the period 1961
through 1966.
(9) Mr. Morillas joined the Company in 1993. Prior to becoming Executive
Vice President of the Company, Mr. Morillas was associated with
National Semiconductor for over 10 years, most recently as Vice
President, Asia Marketing, in Hong Kong for four years. Mr. Morillas is
a director of the newly formed Kai Hong joint venture.
(10) Mr. Liu has served as Vice President, Operations of the Company since
1994 and Chief Financial Officer and Secretary since 1990. Mr. Liu has
been the Company's Vice President, Administration from 1990 to 1994.
Prior to joining the Company, Mr. Liu held various management positions
with Texas Instruments ("TI"), Dallas, since 1971, including Planning
Manager, Financial Planning Manager, Treasury Manager, Cost Accounting
Manager and General Accounting Manager with TI Taiwan, Ltd. in Taipei;
from 1981-1986 as Controller with TI Asia in Singapore and Hong Kong;
from 1986-1989 as Financial Planning Manager, TI Latin America Division
(for TI Argentina, TI Brazil, and TI Mexico) in Dallas and from
1989-1990 Chief Coordinator of Strategic Business Systems for TI Asia
Pacific Division in Dallas. Mr. Liu is a director of the newly formed
Kai Hong joint venture, and serves as Chief Financial Officer of
FabTech.
There are no family relationships among any of the directors
or executive officers of the Company and, except as set forth above, as of the
date hereof, no directorships are held by any director in a company which has a
class of securities registered pursuant to Section 12 of the Securities
19
<PAGE> 21
Exchange Act of 1943, as amended (the "Exchange Act"), or subject to the
requirements of Section 15(d) of the Exchange Act, or any company registered as
an investment company under the Investment Company Act of 1940. None of the
directors, nominees for director, or executive officers were selected pursuant
to any arrangement or understanding, other than with the directors and executive
officers of the Company acting within their capacity as such.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16(A)
Under Section 16(a) of the Exchange Act, the Company's
directors, executive officers and any persons holding ten percent or more of the
Common Stock are required to report their ownership of Company stock and any
changes in that ownership to the Securities and Exchange Commission (the "SEC")
and to furnish the Company with copies of such reports. Specific due dates for
these reports have been established and the Company is required to report any
failure to file on a timely basis by such persons. Based solely upon a review of
copies of reports filed with the SEC during the fiscal year ended December 31,
1996, all reporting persons filed reports on a timely basis.
20
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
The following Table 5 sets forth certain summary information
concerning compensation paid or accrued by the Company with respect to the
Company's Chief Executive Officer (who has served in such capacity at any time
during the last fiscal year) and each of the two other executive officers of the
Company (determined as of the end of the last fiscal year) (the "Named
Executives") for each of the fiscal years ended December 31, 1996, 1995 and
1994:
TABLE 5
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------- ----------
Other Securities All
Name and Annual Restricted Underlying Other
Principal Compen Stock Options/ LTIP Compen-
Position Year Salary($) Bonus($) -sation($) Awards($) SARs(#) Payouts($) sation($)
- -------- ---- --------- -------- ---------- --------- --- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DAVID LIN 1996 --(1) -- -- -- 100,000(2) -- --
President and 1995 --(1) -- -- -- -- -- --
Chief 1994 --(1) -- -- -- -- -- --
Executive
Officer
PEDRO MORILLAS 1996 133,000 60,000 --(3) -- 70,000(4) -- --
Executive 1995 128,003 146,481 --(3) -- -- -- --
Vice President 1994 125,169 71,504 --(3) -- -- -- --
JOSEPH LIU 1996 120,000 30,000 --(5) -- 50,000(6) -- --
Vice 1995 115,564 73,240 --(5) -- -- -- --
President-
Operations,
Chief 1994 115,560 45,300 --(5) -- 40,000(7) -- --
Financial
Officer and
Secretary
</TABLE>
(1) Mr. Lin receives no direct cash compensation from the Company, other
than issuance of the Company's stock options. However, Mr. Lin receives
cash compensation directly from Silitek for his services as President
of Silitek, which, through its subsidiary LPSC, supplies a significant
volume of the semiconductors products distributed by the Company. As
disclosed elsewhere in this Form 10-K, Silitek is also the beneficial
owner of 1,995,093 shares of the Company's Common Stock.
(2) Mr. Lin's options were granted pursuant to the Company's 1993
Non-Qualified Stock Option Plan ("1993 NQO Plan") at an exercise price
of $6.00. The 1993 NQO Plan became effective retroactively to July 6,
1993, upon approval by the shareholders at the Company's 1994 annual
meeting. The 1993 NQO Plan provides for the issuance of up to 1,000,000
shares of the Company's authorized but unissued Common Stock. Options
granted shall terminate and be of no force and effect with respect to
any shares not previously taken up by optionee upon the expiration of
ten years from the date of grant. A vested but unexercised option is
normally exercisable for 90 days after termination of employment, other
than by death or retirement. In the event of death, unmatured options
are accelerated to maturity. The Stock Option Committee,
(footnotes continued on following page)
21
<PAGE> 23
(footnotes continued from previous page)
which administers the 1993 NQO Plan, has full discretion to determine
whether or not options granted under the 1993 NQO Plan shall have a
right to relinquish up to one-half of an unexercised position of an
option for an amount of cash, if concurrently, the holder of the option
exercises a portion of the option and purchases a number of shares of
stock at least equal to the number of shares which could have been
purchased under the portion of the option relinquished ("SAR").
However, the Board has expressly stated that it has not and does not
intend to grant such SAR. The shares to be issued upon exercise of
options under the 1993 NQO Plan require a three-year vesting period.
The option price is 100% of the fair market value of such shares on the
date the option is granted. Options expire ten years from the grant of
the option.
(3) Mr. Morillas receives the benefit of a Company-owned automobile and a
life insurance premium; the aggregate value is less than 10% of his
total annual salary and is not included in this total. Effective
September 1, 1994, the Company implemented a Deferred Profit Sharing
Plan ("401(k) Plan") whereby employees shall be permitted to make
elective deferrals in any amount from 2% to 15% of their compensation.
The Company contributes an additional and discretionary 50% of the
employee's contribution, not to exceed 3% of the employee's
compensation. Under the Company's 401(k) Plan, the employee then
directs funds into selected investments. Mr. Morillas participates in
the 401(k) Plan and the Company's discretionary contribution is 3% of
his compensation from September 1, 1994. In addition, Mr. Morillas
receives the benefit of the Company's group health insurance plan,
which is partially funded by the Company; the value of such benefit is
less than 10% of his salary and is not included in this total. Mr.
Morillas also received a one time moving expense in 1993 of $12,400 in
connection with his and his family's move to the Los Angeles area,
which is less than 10% of his salary and is not included in the 1993
total.
(4) Mr. Morillas' options were issued pursuant to the Company's 1993
Incentive Stock Option Plan ("1993 ISO Plan") at an exercise price of
$6.00 and are exercisable annually in three equal amounts over a three
year vesting period. The 1993 ISO Plan provides for the issuance of up
to 1,000,000 shares of the Company's authorized but unissued Common
Stock. Options granted under the 1993 ISO Plan are not transferable,
except by will or the laws of descent or distribution. An vested but
unexercised option is normally exercisable for 90 days after
termination of employment, other than by death or retirement. In the
event of death, unmatured options are accelerated to maturity. An
option granted under the 1993 ISO Plan may not be priced at less than
100% of fair market value on the date of grant and expires 10 years
from the date of grant.
(5) Mr. Liu receives the benefit of a Company-owned automobile and a life
insurance premium; the aggregate value is less than 10% of his total
annual salary and is not included in this total. Mr. Liu participates
in the Company's 401(k) Plan and the Company's contribution is 3% of
his compensation from September 1, 1994. In addition, Mr. Liu receives
the benefit of the Company's group health insurance plan, which is
partially funded by the Company, the value of such benefit is less than
10% of his salary and is not included in this total.
(6) Mr. Liu's options granted in 1996 were issued pursuant to the Company's
1993 ISO Plan at an exercise price of $6.00 and are exercisable
annually in three equal amounts over a three year vesting period.
(7) Mr. Liu's options granted in 1994 were issued pursuant to the Company's
1993 ISO Plan at an exercise price of $7.875 and become exercisable
with respect to 50% of the options on June 17, 1995 and the remaining
50% of the options on June 17, 1996.
22
<PAGE> 24
STOCK OPTIONS
The following Table 6 contains information concerning the
grant of stock options during fiscal year ended December 31, 1996 to the Named
Executives:
TABLE 6
OPTION/SAR GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term (1)
- --------------------------------------------------------------------------------------------- -------------------------------
Number of Percent
Securities of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees Base Price Expiration
Name (#) in FY 1996 ($/Sh) Date 5% ($) 10% ($)
---- ---------------- ---------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
DAVID LIN 100,000 16.5 6.00 08/01/06 377,337 956,245
PEDRO MORILLAS 70,000 11.6 6.00 08/01/06 264,136 669,372
JOSEPH LIU 50,000 8.3 6.00 08/01/06 188,668 478,123
</TABLE>
(1) The Potential Realizable Value is the product of (a) the difference
between (i) the product of the closing sale price per share at the date
of grant and the sum of (A) 1 plus (B) the assumed rate of appreciation
of the Common Stock compounded annually over the term of the option and
(ii) the per share exercise price of the option and (b) the number of
shares of Common Stock underlying the option at December 31, 1996.
These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent upon a
variety of factors, including market conditions and the price
performance of the Company's Common Stock. There can be no assurance
that the rate of appreciation presented in this table can be achieved.
23
<PAGE> 25
OPTION EXERCISES AND HOLDINGS
The following Table 7 contains information with respect to the
Named Executives concerning the exercise of options during the fiscal year ended
December 31, 1995 and unexercised options held by the Named Executives as of
December 31, 1996:
TABLE 7
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares
Acquired Value Value of Unexercised
on Exercise Realized Number of Unexercised "In-the-Money" Options/SAR
Name (#) ($) Options/SAR's at 12/31/96(#) at 12/31/96 ($) (1)
- ---------------- ----------- -------- --------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
DAVID LIN -- -- 47,000 100,000 252,625 125,000
PEDRO MORILLAS -- -- 16,667 70,000 89,585 87,500
JOSEPH LIU -- -- 60,000 50,000 107,500 62,500
</TABLE>
(1) Value of unexercised "in-the-money" options is the difference between
the closing sale price of the Company's Common Stock on December 31,
1996 ($7.25 per share) and the exercise price of the option, multiplied
by the number of shares subject to the option.
COMPENSATION OF DIRECTORS
All directors each receive $750 for each board meeting
attended during the year ended December 31, 1996. No additional amounts are paid
to directors for committee participation or special assignments. Both employee
and non-employee directors are eligible to receive grants of stock options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS
Effective March 16, 1993, the Company entered into an
employment agreement with Pedro Morillas, the Company's Executive Vice
President. Under such employment agreement, Mr. Morillas is entitled to, among
other things, (i) receive an annual base salary and performance bonus subject to
the determination and evaluation of the Company's Compensation Committee on a
yearly basis, (ii) participate in all plans sponsored by the Company for
employees in general, (iii) usage of a Company car, and (iv) receive an option
to purchase from the Company up to 50,000 shares of the Company's Common Stock
at $1.875 per share (exercisable in three equal installments commencing June 10,
1994 and expiring on the tenth anniversary of the date of grant).
24
<PAGE> 26
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Options Committee consists of two
directors, Michael A. Rosenberg and Michael R. Giordano.
No person who served as a member of the Company's Compensation
Committee during the 1996 fiscal year has ever been an officer or employee of
the Company or any of its subsidiaries.
David Lin, the President, Chief Executive Officer and Director
of the Company, during fiscal year 1996, was President and a director of
Silitek. Silitek's entire Board of Directors participated in compensation
decisions for Silitek in the absence of its Compensation Committee during fiscal
year 1996.
Silitek controls LPSC, its subsidiary. LPSC is the record
owner of 40.2% of the Company's issued and outstanding Common Stock, excluding
Treasury Stock, and as of March 21, 1997, continues to be the record owner of
40.2% of all of the Company's issued and outstanding securities, excluding
Treasury Stock. Thus, since LPSC is a controlled subsidiary of Silitek, Silitek
is the beneficial owner of 40.2% of the Company's outstanding voting securities.
However, although Silitek could be considered the ultimate beneficial owner of
all of the Company's securities held of record by LPSC, Silitek has disclaimed
beneficial ownership of the 1,995,093 shares of Common Stock held by LPSC. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management" and
"Item 13. Certain Relationships and Related Transactions" for a discussion of
the relationship between Silitek, LPSC and the Company.
During the years ended December 31, 1996 and 1995,
approximately 28% and 16%, respectively, of the purchases of products for resale
by the Company, amounting to approximately $10,403,000 and $6,512,000,
respectively, were from LPSC. These products, which were also available
generally from other sources, were purchased in transactions negotiated at
prices competitive with prices charged by other vendors of similar products in
similar quantities. There are no special or exclusive trading agreements or
understandings between the Company and LPSC, other than the Company's marketing
agreement with LPSC. See "Item 1. Business -- Business Development."
25
<PAGE> 27
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following Table 8 sets forth the number of shares and the
percentage of outstanding Common Stock as of March 21, 1997 by each person known
to the Company to be the beneficial owner of more than five percent of the
outstanding shares of Common Stock, by each executive officer and director, and
by all directors and officers as a group.
TABLE 8
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER(1) OF BENEFICIAL
OWNERSHIP(2) TITLE OF CLASS PERCENT OF CLASS(3)
- --------------------------------- ------------------- ------------- --------------------------
<S> <C> <C> <C>
SILITEK CORPORATION 1,995,093(4) Common Stock 40.2%
RAYMOND SOONG, Chairman of the 100,000(5) Common Stock 2.0%
Board
DAVID LIN, 47,000(6) Common Stock *
President, Chief Executive
Officer, Director
MICHAEL R. GIORDANO, Director 31,000(7) Common Stock *
M.K. LU, 10,000(8) Common Stock *
Director
SHING MAO, 80,000(9) Common Stock 1.6%
Director
MICHAEL A. ROSENBERG, Director 25,000(10) Common Stock *
LEONARD M. SILVERMAN, 10,000(11) Common Stock *
Director
PEDRO MORILLAS, Executive Vice 16,667(12) Common Stock *
President
JOSEPH LIU, 70,000(13) Common Stock 1.4%
Vice President - Operations,
Chief Financial Officer and
Secretary
Directors and Executive 389,667(14) Common Stock 7.9%
Officers as a group (9 persons)
</TABLE>
* Less than 1%.
(footnotes continued on following page)
26
<PAGE> 28
(footnotes continued from previous page)
(1) The address of Silitek is 10 FL. NO. 25, Sec. 1, Tung Hua S. Rd.,
Taipei, Taiwan, Republic of China. The address of the directors and
executive officers of the Company is 3050 E. Hillcrest Drive, Westlake
Village, California 91362.
(2) The named shareholder has sole voting power and investment power with
respect to the shares listed, except as indicated.
(3) Shares which the person (or group) has the right to acquire within 60
days after March 21, 1997 are deemed to be outstanding in calculating
the percentage ownership of the person (or group) but are not deemed to
be outstanding as to any other person or group. Percent of class total
does not take into account 717,115 shares held as treasury stock.
(4) Includes 1,995,093 shares of Common Stock to which Silitek disclaims
beneficial ownership. LPSC, which holds 1,995,093 shares of Common
Stock, as the record holder, is a controlled subsidiary of Silitek. The
address of LPSC is 28-1 Wu Shin St., Ta Wu Lung Industrial Zone,
Keelung, Taiwan, Republic of China.
The 1,995,093 shares of Common Stock to which Silitek disclaims
beneficial ownership and which are held in name by LPSC included (less
stock sales); (a) 1,945,800 shares of Common Stock transferred to LPSC
from Silitek during the year ended December 31, 1991 in connection with
a consolidation of the semiconductor rectifier activities of Silitek
into its LPSC subsidiary; (b) 214,987 shares of Common Stock and; (c)
169,629 shares of Preferred Stock which are convertible into Common
Stock on a one share to one share basis, acquired in May 1993 pursuant
to a private placement transaction with the Company. Silitek purchased
the 214,987 shares of Common Stock and the 169,629 shares of Preferred
Stock for investment purposes for its own benefit. On July 12, 1995,
LPSC converted its 169,629 shares of Preferred Stock into 169,629
shares of Common Stock. Silitek intends to continue to review its
investment in the Common Stock with the view to maximizing its
investment. Future actions by Silitek, if any, will be made in light of
the then current financial conditions of Silitek, LPSC and the Company,
prevailing market prices, and other factors deemed relevant by Silitek.
(5) Represents 100,000 shares of Common Stock which Mr. Soong has the right
to acquire within 60 days of March 21, 1997, by the exercise of vested
stock options.
(6) Represents 47,000 shares of Common Stock which Mr. Lin has the right to
acquire within 60 days of March 21, 1997 by the exercise of vested
stock options.
(7) Represents 1,000 shares of Common Stock held in the name of PaineWebber
Trust for the IRA of Mr. Giordano and 30,000 shares of Common Stock
which Mr. Giordano has the right to acquire within 60 days of March 21,
1997 by the exercise of vested stock options.
(8) Represents 10,000 shares of Common Stock which Mr. Lu has the right to
acquire within 60 days of March 21, 1997 by the exercise of vested
stock options.
(9) Represents 80,000 shares of Common Stock which Dr. Mao has the right to
acquire within 60 days of March 21, 1997 by the exercise of vested
stock options.
(footnotes continued on following page)
27
<PAGE> 29
(footnotes continued from previous page)
(10) Represents 25,000 shares of Common Stock which Mr. Rosenberg has the
right to acquire within 60 days of March 21, 1997 by the exercise of
vested stock options.
(11) Represents 10,000 shares of Common Stock which Mr. Silverman has the
right to acquire within 60 days of March 21, 1997 by the exercise of
vested stock options.
(12) Represents 16,667 shares of Common Stock which Mr. Morillas has the
right to acquire within 60 days of March 21, 1997 by the exercise of
vested stock options.
(13) Includes 60,000 shares of Common Stock which Mr. Liu has the right to
acquire within 60 days of March 21, 1997 by the exercise of vested
stock options.
(14) Includes 378,667 shares which the Directors and Officers have the right
to acquire within 60 days of March 21, 1997 by the exercise of vested
stock options.
Other than as disclosed in the foregoing table, to the
knowledge of the Company, no other person (other than Cede & Co., a depository
company) owns of record or beneficially more than 5 percent of the issued and
outstanding Common Stock of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LPSC is the record owner of 40.2% of the Company's issued and
outstanding Common Stock, excluding treasury stock, at December 31, 1996, and as
of March 21, 1997, continues to be the record owner of 40.2% of all of the
Company's issued and outstanding securities, excluding treasury stock. Thus,
since LPSC is a controlled subsidiary of Silitek, Silitek is the beneficial
owner of 40.2% of the Company's outstanding voting securities. However, although
Silitek could be considered the ultimate beneficial owner of all of the
Company's securities held of record by LPSC, Silitek has disclaimed beneficial
ownership of the 1,995,093 shares of Common Stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management" and "Item 13. Certain
Relationships and Related Transactions" for a discussion of the relationship
between Silitek, LPSC and the Company.
During the years ended December 31, 1996 and 1995,
approximately 28% and 16%, respectively, of the purchases of products for resale
by the Company, amounting to approximately $10,403,000 and $6,512,000,
respectively, were from LPSC. These products, which were also available
generally from other sources, were purchased in transactions negotiated at
prices competitive with prices charged by other vendors of similar products in
similar quantities. There are no special or exclusive trading agreements or
understandings between the Company and LPSC.
In February 1996, the Company announced an agreement with
FabTech, Inc. whereby the Company gains a new supply of processed wafers used in
the manufacture of several types of discrete semiconductors. The Company has
provided FabTech with approximately $2.5 million in working capital to be used
in upgrading, reconfiguring, and starting up operations at an existing wafer
fabrication facility located in the AT&T building in Lee's Summit, Missouri.
FabTech is a newly-created, wholly-owned subsidiary of LPSC.
The Company's Diodes-Taiwan and Kai Hong manufacturing
facilities receive wafers from FabTech, among others. Output from the FabTech
facility includes wafers used in the production of Schottky barrier diodes, fast
recovery epitaxial diodes (FREDs), and other widely used value-added products.
Schottky barrier diodes, currently in short supply world-wide, are employed in
the manufacture of the power
28
<PAGE> 30
supplies found in personal computers, telecommunications devices and
myriad other applications where high frequency, low forward voltage and fast
recovery are required.
In March 1996, the Company entered into the Kai Hong joint
venture for the development of additional manufacturing capacity in Shanghai.
The joint venture allows for the manufacturing and sales of diodes and
associated electronic components. The Company has a 70% controlling interest, is
responsible for production and management, and currently receives 100% of the
production, mainly in SOT-23 packaged components. The Company has an equity
contribution of $2.8 million and the minority interest party has an equity
contribution of $1.2 million. The joint venture agreement allows for additional
expansion in several phases according to market demand. The initial phase of the
Kai Hong operation is now in full production, and beginning in the first quarter
of 1997, is making a positive contribution to the Company's bottom line.
Mr. Raymond Soong, who became a director and Chairman of the
Board of the Company effective March 16, 1993, is also the Chairman of the Board
of Silitek, LPSC, Taiwan Liton, and the newly formed Kai Hong joint venture.
Mr. David Lin, who has been a director of the Company since
1991 and effective March 16, 1993 became President and Chief Executive Officer
of the Company, is also the President and a director of Silitek and his salary
is fully paid by Silitek. See "Item 11. Executive Compensation." Mr. Lin is also
a director of the newly formed Kai Hong joint venture.
Silitek is affiliated through common ownership and control
with Taiwan Liton, and both companies are members of the Lite-On Group of
companies in Taiwan. Both Silitek and Taiwan Liton are public corporations in
Taiwan with stock registered on the Taipei Stock Exchange. Taiwan Liton owns
100% of the voting shares of Lite-On Milpitas.
Dr. Shing Mao, who is a director of the Company, is Chairman
of the Board of Lite-On Milpitas. Dr. Mao is also a director of LPSC, and since
1995, has also been a director of FabTech, with whom the Company entered into an
agreement with in January 1996, whereby Diodes will gain a new supply of
processed wafers used in the manufacture of several types of discrete
semiconductors. FabTech is a newly-created subsidiary of LPSC.
Mr. M.K. Lu, who has been a director of the Company since
1995, is also the President and a director of LPSC since 1991. From 1983 to
1990, Mr. Lu was General Manager/Vice President of Silitek. Mr. Lu is also a
director of the newly formed Kai Hong joint venture.
During 1996, Mr. Michael R. Giordano, a member of the
Company's Board of Directors and Senior Vice President-Investment Consulting at
the investment banking firm of PaineWebber, Inc., has, from time to time,
assisted members of the Board of Directors and Executive Officers of the Company
in stock option exercises and subsequent stock sales of the Company's Common
Stock. Mr. Giordano is also the pension consultant for the Company's 401(k)
plan. Mr. Giordano has also, from time to time, assisted LPSC in stock
transactions. Compensation received by Mr. Giordano for services rendered to the
Company and LPSC in 1996 was less than $2,000.
Mr. Pedro Morillas, Executive Vice President of the Company is
also a director of the newly formed Kai Hong joint venture.
Mr. Joseph Liu, Vice President, Operations, Chief Financial
Officer and Secretary of the Company, is also a director of the newly formed Kai
Hong joint venture, and Serves as Chief Financial Officer of FabTech.
29
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENT SCHEDULES
(1) Financial statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 31
Consolidated Balance Sheet at December 31, 1996 and 1995 32 to 33
Consolidated Statement of Income for the Years Ended December 31,
1996, 1995, and 1994 34
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1996, 1995, 1994 35
Consolidated Statement of Cash Flows for the Years Ended December 31,
1996, 1995, and 1994 36
Notes to Consolidated Financial Statements 37 to 46
(2) Schedules:
Report of Independent Accountants on Financial Statements and
Schedules 47
Schedule II -- Valuation and Qualifying Accoun 48
</TABLE>
(b) EXHIBITS
See the Index to Exhibits at page 51 of this Annual
Report on Form 10-K for exhibits filed or
incorporated by reference
(c) REPORTS ON FORM 8-K
None.
30
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheet of Diodes
Incorporated and Subsidiaries, as of December 31, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Diodes
Incorporated and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
February 21, 1997
31
<PAGE> 33
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,820,000 $ 478,000
Accounts receivable
Customers 7,901,000 7,794,000
Related party 376,000 233,000
Other 352,000 194,000
----------- -----------
8,629,000 8,221,000
Allowance for doubtful accounts 253,000 177,000
----------- -----------
8,376,000 8,044,000
Inventories 13,268,000 16,295,000
Deferred income taxes 1,426,000 893,000
Prepaid expenses and other 345,000 173,000
---------- ----------
Total current assets 25,235,000 25,883,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 4,628,000 1,527,000
ADVANCES TO RELATED PARTY VENDOR 2,631,000 -
INVESTMENT IN JOINT VENTURE - 1,878,000
OTHER ASSETS 52,000 75,000
----------- -----------
Total assets $32,546,000 $29,363,000
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
32
<PAGE> 34
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Due to bank $ - $ 3,916,000
Accounts payable
Trade 2,303,000 5,454,000
Related party 2,250,000 621,000
Accrued liabilities 2,102,000 1,954,000
Income taxes payable 223,000 637,000
Current portion of long-term debt 954,000 38,000
----------- -----------
Total current liabilities 7,832,000 12,620,000
LONG-TERM DEBT, net of current portion 4,288,000 244,000
MINORITY INTEREST IN JOINT VENTURE 962,000 -
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -
par value $1 per share; 1,000,000
shares authorized; no shares
issued and outstanding - -
Common stock - par value $.66 2/3 per share;
9,000,000 shares authorized; 5,675,794 shares in 1996 and
5,675,619 shares in 1995 issued and outstanding 3,784,000 3,784,000
Additional paid-in capital 5,768,000 5,768,000
Retained earnings 11,694,000 8,729,000
----------- -----------
21,246,000 18,281,000
Less: Treasury stock - 717,115 shares of
common stock, at cost 1,782,000 1,782,000
----------- -----------
19,464,000 16,499,000
----------- -----------
Total liabilities and stockholders' equity $32,546,000 $29,363,000
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
33
<PAGE> 35
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 56,019,000 $ 58,190,000 $ 38,275,000
COST OF GOODS SOLD 41,177,000 41,727,000 27,578,000
------------ ------------ ------------
Gross profit 14,842,000 16,463,000 10,697,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,386,000 9,522,000 7,563,000
------------ ------------ ------------
Income from operations 4,456,000 6,941,000 3,134,000
OTHER INCOME (EXPENSES)
Interest income 187,000 46,000 57,000
Interest expense (538,000) (190,000) (63,000)
Minority interest in joint venture net loss 238,000 - -
Equity earnings in joint venture - - 71,000
Commissions and other 295,000 513,000 366,000
------------ ------------ ------------
Income before income taxes 4,638,000 7,310,000 3,565,000
INCOME TAX PROVISION (1,673,000) (2,610,000) (1,202,000)
------------ ------------ ------------
NET INCOME $ 2,965,000 $ 4,700,000 $ 2,363,000
============ ============ ============
EARNINGS PER SHARE $ .55 $ .90 $ .46
============ ============ ============
Number of shares used in computation 5,362,027 5,220,196 5,136,510
============ ============ ============
</TABLE>
The accompanying notes are an
integral part of these financial statements
34
<PAGE> 36
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- ----------------------
Additional Common
Shares paid-in Retained stock
Shares Amount Shares in treasury Amount capital earnings in treasury
------- --------- --------- ----------- ------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1993 169,629 $ 170,000 5,245,957 717,115 $3,497,000 $4,445,000 $ 1,666,000 $1,782,000
Exercise of stock options,
including $250,000 income
tax benefit - - 97,167 - 65,000 346,000 - -
Net income for the year
ended December 31, 1994 - - - - - - 2,363,000 -
------- --------- --------- ------- ---------- ---------- ----------- ----------
BALANCE,
December 31, 1994 169,629 170,000 5,343,124 717,115 3,562,000 4,791,000 4,029,000 1,782,000
Exercise of stock options,
including $684,000 income - - 162,766 - 109,000 920,000 -
tax benefit
Re-issuance of lost shares - - 100 - - - - -
Preferred
stock converted (169,629) (170,000) 169,629 - 113,000 57,000 -
Net income for the year
ended December 31, 1995 - - - - - - 4,700,000 -
------- --------- --------- ------- ---------- ---------- ----------- ----------
BALANCE,
December 31, 1995 - - 5,675,619 717,115 3,784,000 5,768,000 8,729,000 1,782,000
Exercise of stock options - - 175 - - - - -
Net income for the year
ended December 31, 1996 - - - - - - 2,965,000 -
--------- --------- ------- ---------- ---------- ----------- ----------
BALANCE,
December 31, 1996 - $ - 5,675,794 717,115 $3,784,000 $5,768,000 $11,694,000 $1,782,000
======= ========= ========= ======= ========== ========== =========== ==========
</TABLE>
The accompanying notes are an
integral part of these financial statements
35
<PAGE> 37
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,965,000 $ 4,700,000 $ 2,363,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 656,000 339,000 328,000
Joint venture loss (238,000) - (71,000)
Gain on sale of property, plant and equipment (41,000) (67,000) (8,000)
Changes in operating assets and liabilities
Accounts receivable (332,000) (1,949,000) (1,603,000)
Inventories 3,027,000 (9,280,000) (1,198,000)
Prepaid expenses and other assets (149,000) 43,000 96,000
Deferred income taxes (533,000) (78,000) (321,000)
Accounts payable (1,522,000) 2,198,000 1,532,000
Accrued liabilities 148,000 577,000 561,000
Income taxes payable (414,000) (1,220,000) 1,390,000
Deferred compensation payable - (14,000) (71,000)
----------- ----------- -----------
Net cash provided (used) by operating activities 3,567,000 (4,751,000) 2,998,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Liquidation of investment in joint venture - - 400,000
Investment in joint venture and advances to vendors (2,631,000) (1,878,000) -
Minority interest of joint venture investment 1,200,000 - -
Purchases of property, plant and equipment (1,848,000) (348,000) (522,000)
Proceeds from sales of property, plant and equipment 10,000 145,000 13,000
----------- ----------- -----------
Net cash used by investing activities (3,269,000) (2,081,000) (109,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (repayments) on line of credit, net (3,916,000) 3,916,000 (2,000,000)
Net proceeds from the issuance of capital stock - 1,713,000 162,000
Proceeds from borrowing of long term debt 5,000,000 - -
Repayments of long-term debt (40,000) (52,000) (119,000)
----------- ----------- -----------
Net cash provided (used) by financing activities 1,044,000 5,577,000 (1,957,000)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 1,342,000 (1,255,000) 932,000
CASH, beginning of year 478,000 1,733,000 801,000
----------- ----------- -----------
CASH, end of year $ 1,820,000 $ 478,000 $ 1,733,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the
year for:
Interest $ 575,000 $ 169,000 $ 73,000
=========== =========== ===========
Income taxes $ 2,597,000 $ 1,344,000 $ (114,000)
=========== =========== ===========
Non-Cash Financing Activity
Tax Benefit related to exercise of stock options
credited to paid-in capital $ - $ 684,000 $ 250,000
=========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
36
<PAGE> 38
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Diodes Incorporated and its
subsidiaries distribute diodes, transistors, and semi-conductors. The products
are sold to electronics manufacturers primarily throughout North America.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
Diodes Taiwan Co., Ltd. and its majority owned subsidiary Shanghai Kai Hong
Electronics, Co. Ltd. (both foreign subsidiaries). All significant intercompany
balances and transactions have been eliminated.
INVENTORIES - Inventories are stated at the lower of cost or
market. Cost is determined principally by the first-in, first-out basis.
DEPRECIATION AND AMORTIZATION - Property, plant and equipment
are depreciated using straight-line and accelerated methods over the estimated
useful lives, which range from 20 to 53 years for buildings and 1 to 10 years
for machinery and equipment. Leasehold improvements are amortized using the
straight-line method over 1 to 5 years.
INCOME TAXES - Income taxes are accounted for using an asset
and liability approach whereby deferred tax assets and liabilities are recorded
for the differences in the financial reporting bases and tax bases of the
Company's assets and liabilities. Income taxes are further explained in Note 8.
CONCENTRATION OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk include trade
accounts receivable. Credit risk is limited by the dispersion of the Company's
customers over various geographic areas, operating primarily in the electronics
manufacturing and distribution industries. The Company performs on-going credit
evaluations of its customers and generally requires no collateral from its
customers. Historically, credit losses have not been significant.
The Company and its subsidiaries maintain cash balances at
major financial institutions in the United States, Taiwan, and China. Accounts
at each institution in the United States are insured by the Federal Deposit
Insurance Corporation up to $100,000. Accounts at each institution in Taiwan are
insured by the Central Deposit Insurance Company up to NT$1,000,000.
FOREIGN OPERATIONS - Through its subsidiaries the Company
maintains operations in Taiwan and China for which the functional currency is
the U.S. dollar. Assets and liabilities of its foreign operations are not hedged
and therefore are subject to fluctuations in the currency exchange rate between
the U.S. and NT dollar and Renminbi Yuan.
Monetary assets and liabilities are translated at the year-end
exchange rate. Non-monetary assets and liabilities are converted at historical
rates. Income and expense accounts are translated using an average exchange rate
for the year, except that cost of goods sold and depreciation expense are
remeasured using historical rates. Included in net income are translation gains
of approximately $13,000 for the year ended December 31, 1996 and losses of
approximately $66,000, and $84,000 for the years ended December 31, 1995 and
1994, respectively.
37
<PAGE> 39
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
EARNINGS PER SHARE - Earnings per share are based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding, net of common stock held in treasury. Fully diluted earnings per
share do not materially differ from primary earnings per share.
INVESTMENTS IN JOINT VENTURES - The joint venture investment
in Kai Hong is eliminated in consolidation of the Companies financial statements
and activities of Kai Hong are included there-in. A minority interest is
reflected for the minority stockholder's share of Kai Hong's capital investment
and retained earnings or accumulated deficit (Note 4).
The Company's investment in Seefull Electronic Co., Ltd. was
accounted for using the equity method of accounting. During 1994 the joint
venture was liquidated (Note 4).
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Significant estimates used in preparing these financial statements
include allowance for doubtful accounts, reserves for inventory market
valuation, deferred income tax assets, and accrued liabilities.
STOCK-BASED COMPENSATION - The Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. This standard is effective for the year
ending December 31, 1996, however adoption is optional. The Company has
determined that it will continue to apply APB Opinion No. 25 (APB 25) and
related Interpretations in accounting for its option plans. Under SFAS 123, a
fair value method is used to determine compensation cost for stock options or
similar equity instruments. Compensation is measured at the grant date and is
recognized over the service or vesting period. Under APB 25, compensation cost
is the excess, if any, of the quoted market price of the stock at the
measurement date over the amount that must be paid to acquire the stock.
The new standard allows the Company to continue to account for
stock-based compensation under APB 25, with disclosure of the effects of the new
standard. The proforma effect on income as if the Company had adopted SFAS 123
is disclosed in Note 9.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Finished goods $12,468,000 $15,602,000
Work-in-progress 394,000 367,000
Raw materials 406,000 326,000
----------- -----------
$13,268,000 $16,295,000
=========== ===========
</TABLE>
38
<PAGE> 40
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Building $ 893,000 $ 468,000
Leasehold improvements 143,000 140,000
Machinery and equipment 5,104,000 1,806,000
---------- ----------
6,140,000 2,414,000
Less accumulated depreciation
and amortization 1,835,000 1,210,000
---------- ----------
4,305,000 1,204,000
Land 323,000 323,000
---------- ----------
$4,628,000 $1,527,000
========== ==========
</TABLE>
NOTE 4 - JOINT VENTURES AND ADVANCES TO RELATED PARTY VENDORS
SHANGHAI KAI HONG ELECTRONICS, CO. LTD.- In June 1995, the Company
entered into a product sourcing and compensation trade agreement with Shanghai
Kai Hong Electronics Company, Ltd. (Kai Hong), an entity in Shanghai, China.
Initially, the agreement with Kai Hong was structured as a trade agreement
whereby the Company was to make cash and other forms of advances for the
development of a production facility. Effective March 18, 1996, a joint venture
was established between the Company and the original owner of Kai Hong. The
Company has a 70% controlling interest in the joint venture and is responsible
for production and management. The venture parties have made a significant
equity contribution to the joint venture and a portion of the cost of developing
the project is debt financed. The joint venture agreement allows for additional
production expansion in phases according to market demand. During 1996 advances
of $1,878,000 made to Kai Hong in 1995 by the Company were converted into
capital investment in the Joint Venture and $922,000 of additional cash was
contributed by the Company to the joint venture. The Company may contribute up
to $10 million of additional capital investment and has committed to guarantee
additional contributed capital investments of Kai Hong's minority shareholder in
exchange for an assignment of the shareholder's interest in Kai Hong.
FABTECH INCORPORATED - Under an agreement entered into in February
1996 the Company has advanced $2.5 million in cash and equipment to a related
party vendor FabTech Incorporated, a wholly owned subsidiary of Lite-On Power
Semiconductor Corporation (Note 11).
39
<PAGE> 41
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - JOINT VENTURES AND ADVANCES TO RELATED PARTY VENDORS
(Continued)
SEEFULL - In February 1993, under a Joint Shareholder Agreement, the
Company and Lite-On Power Semiconductor (Note 11) each purchased 50% of the
common stock of Shanghai Seefull Electronic Co., Ltd. (Seefull) for $400,000.
During 1994, Lite-On Power Semiconductor purchased the Company's share of
Seefull for $400,000 cash, and the JV agreement was terminated.
NOTE 5 - BANK CREDIT AGREEMENT AND LONG-TERM DEBT
The Company has a $22.6 million credit agreement with a major bank
providing a working capital line of credit up to $9 million, term commitment
notes providing up to $9.5 million for plant expansion and advances to vendors,
and letters of credit of $4.1 million for Kai Hong. Interest on outstanding
borrowings under the complete credit agreement is payable monthly at LIBOR plus
a negotiated margin. Fixed borrowings require payments of interest only for six
months from the date of distribution and fixed principal plus interest payments
for sixty months thereafter. The agreement has certain covenants and
restrictions which, among other matters requires the maintenance of certain
financial ratios and operating results, as defined in the agreement. The Company
was in compliance as of December 31, 1996.
The working capital line of credit expires August 3, 1998. The line
contains a sublimit of $2 million for issuance of commercial and stand-by
letters of credit. During 1996 average and maximum borrowings outstanding on the
line of credit were $2,975,000 and $8,382,000, respectively. The weighted
average interest rate on outstanding borrowings was 7.4% for the year ended
December 31, 1996.
As of December 31, 1996 $5 million is outstanding under the term note
commitment. The Company may borrow the remaining $4.5 million available under
the term note commitment through September 7, 1997.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---------- --------
<S> <C> <C>
LOAN PAYABLE to bank secured by buildings and land, with monthly
principal payments of NT$84,000 (approximately $3,000 U.S.), plus
interest at 7% per annum through November 2003 $ 242,000 $281,000
TERM NOTE PAYABLE to bank secured by substantially
all assets with monthly principal payments of $83,000 5,000,000 -
plus interest at LIBOR plus 1.5% through February 2002
OTHER - 1,000
---------- --------
5,242,000 282,000
Current portion 954,000 38,000
---------- --------
Long-term portion $4,288,000 $244,000
========== ========
</TABLE>
40
<PAGE> 42
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - BANK CREDIT AGREEMENT AND LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt for future years ending
December 31 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 954,000
1998 1,037,000
1999 1,037,000
2000 1,037,000
2001 1,037,000
Thereafter 140,000
----------
$5,242,000
==========
</TABLE>
NOTE 6 - ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Employee compensation and payroll taxes $ 609,000 $ 839,000
Sales commissions 419,000 486,000
Professional and consulting fees 559,000 516,000
Other 515,000 113,000
---------- ----------
$2,102,000 $1,954,000
========== ==========
</TABLE>
NOTE 7 - VALUATION OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107 "Disclosures About
Fair Value of Financial Instruments" (SFAS 107) requires disclosure of the fair
market value of financial instruments for which it is practicable to estimate
fair value. The Company's financial instruments include cash, accounts
receivable, accounts payable, working capital line of credit, and long term
debt. The Company considers the carrying amounts of all financial instruments to
approximate fair value.
41
<PAGE> 43
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The components of the income tax provisions are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal $ 982,000 $ 1,720,000 $ 988,000
Foreign 678,000 450,000 189,000
State 322,000 518,000 346,000
----------- ----------- -----------
1,982,000 2,688,000 1,523,000
Deferred tax benefit (309,000) (78,000) (321,000)
----------- ----------- -----------
$ 1,673,000 $ 2,610,000 $ 1,202,000
=========== =========== ===========
</TABLE>
A reconciliation between the effective tax rate and the statutory
Federal tax rate for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- --------------------------- -------------------------
Percent Percent Percent
of pretax of pretax of pretax
Amount earnings Amount earnings Amount earnings
<S> <C> <C> <C> <C> <C> <C>
Federal tax at 34% $ 1,577,000 34.0% $ 2,485,000 34.0% $1,212,000 34.0%
State franchise tax,
net of federal benefit 284,000 6.1 449,000 6.1 228,000 6.41
Foreign income tax at
lower rates (257,000) (5.5) (248,000) (3.4) (82,000) (2.3)
Net change in deferred tax
asset valuation allowance - - - - (162,000) (4.5)
Other 69,000 1.5 (76,000) (1.0) 6,000 .1
----------- ---- ----------- ---- ---------- ----
Income tax provision (benefit) $ 1,673,000 36.1% $ 2,610,000 35.7% $1,202,000 33.7%
=========== ==== =========== ==== ========== ====
</TABLE>
At December 31, 1996 and 1995, the Company's deferred tax asset is
comprised of the following items:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Inventory cost $ 872,000 $737,000
Accrued expenses and state income taxes 405,000 74,000
Miscellaneous 149,000 82,000
---------- --------
$1,426,000 $893,000
========== ========
</TABLE>
42
<PAGE> 44
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTION PLANS
The Company has stock option plans for directors, officers, and
employees, which provide for nonqualified and incentive stock options. The Board
of Directors determines the option price (not to be less than fair market value
for the incentive options) at the date of grant. The options generally expire
ten years from the date of grant and are exercisable over the period stated in
each option. At December 31, 1996, options for 621,392 shares were exercisable
and 1,713,284 shares were available for future grants under the plans.
<TABLE>
<CAPTION>
Outstanding Options
--------------------------------------------
Price Per Share
-----------------------------
Weighted
Number Range Average
<S> <C> <C> <C>
Balance, December 31, 1993 566,500 $ .875 - 3.88 $1.72
Granted 65,000 7.88 7.88
Exercised (97,167) .875 - 3.88 1.68
--------- -------------- -----
Balance, December 31, 1994 534,333 .875 - 7.88 2.48
Granted 60,000 11.25 11.25
Exercised (162,766) 1.00 - 2.63 1.66
--------- --------------- --------
Balance, December 31, 1995 431,567 .88-11.25 3.84
Granted 605,000 6.00 6.00
Exercised (175) 2.63 2.63
Canceled (10,000) 6.00 6.00
--------- -------------- -------
Balance, December 31, 1996 1,026,392 $ .88 - 11.25 $ 5.09
========= ============== =======
</TABLE>
The Company also has an incentive bonus plan which reserves
200,000 shares of stock for issuance to key employees. As of December 31, 1996,
124,000 shares remain available for issuance under this plan.
Had compensation cost for the Company's 1995 and 1996 options
granted been determined consistent with SFAS 123, the Company's net income and
earnings per share would approximate the proforma amounts below:
<TABLE>
<CAPTION>
As Reported Pro Forma
<S> <C> <C> <C>
1996 Net income $ 2,965,000 $ 2,318,000
============ ============
Earnings per share $ .55 $ .43
============ ============
1995 Net income $ 4,700,000 $ 4,612,000
============ ============
Earnings per share $ .90 $ .88
============ ============
</TABLE>
43
<PAGE> 45
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - MAJOR SUPPLIERS
The Company purchases a significant amount of its inventory from two
suppliers, one of which is a related party (Note 11). During 1996, 1995, and
1994, purchases from these suppliers amounted to approximately 59%, 50%, and
59%, respectively, of total inventory purchases. There are a limited number of
suppliers for these materials.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company's principal stockholder is Lite-On Power
Semiconductor Corporation (LPSC), a Taiwan corporation. LPSC owns approximately
40% of the Company's common stock. The Company's subsidiaries buy product from
and sell product to LPSC. Transactions with LPSC for the years ended December 31
and outstanding balances as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
NET SALES $1,895,000 $1,998,000 $ 948,000
========== ========== ==========
PURCHASES $10,403,000 $6,512,000 $5,048,000
=========== ========== ==========
ACCOUNTS RECEIVABLE $ 376,000 $ 233,000 $ 158,000
=========== ========== ==========
ACCOUNTS PAYABLE $2,250,000 $ 621,000 $ 334,000
========== ========== ==========
</TABLE>
During 1995, LPSC converted its 169,629 shares of preferred
stock, $1 par value, on a 1 for 1 basis, to common stock, $.66 2/3 par value.
The difference between the par value of the preferred shares and that of the
common shares was recorded as additional paid in-capital.
Advances to a wholly owned subsidiary of LPSC located in the
U.S. consist of $2.5 million cash advanced and $131,000 accrued interest on the
advances. Advances are secured by the vendor's accounts receivable and accrue
interest at a rate consistent with the Company's borrowing rate (Note 5). The
balances will be repaid through a compensation trade arrangement until February
14, 2001, at which time any balances outstanding will be due on demand. The
compensation trade arrangement allows the Company to pay reduced amounts for
goods purchased from the vendor.
44
<PAGE> 46
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - OPERATIONS BY GEOGRAPHIC AREAS
Information about the Company's operations in the United States,
Taiwan, and China are presented below. Items transferred among the Company and
its subsidiaries are transferred at prices to recover costs plus an appropriate
mark up for profit. Inter-geographic revenues and assets have been eliminated to
arrive at the consolidated amounts. Identifiable assets are total assets which
are identified with the operations in the respective country.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales - unconsolidated entities
United States $ 47,921,000 $ 52,742,000 $ 35,177,000
Asia 8,098,000 5,448,000 3,098,000
------------ ------------ ------------
$ 56,019,000 $ 58,190,000 $ 38,275,000
============ ============ ============
Inter-geographic net sales
United States $ 955,000 $ 2,370,000 $ 1,477,000
Asia 13,365,000 12,407,000 7,809,000
------------ ------------ ------------
$ 14,320,000 $ 14,777,000 $ 9,286,000
============ ============ ============
Total net sales
United States $ 48,876,000 $ 55,112,000 $ 36,654,000
Asia 21,463,000 17,855,000 10,907,000
Less inter-geographic
net sales (14,320,000) (14,777,000) (9,286,000)
------------ ------------ ------------
$ 56,019,000 $ 58,190,000 $ 38,275,000
============ ============ ============
Income from operations
United States $ 3,019,000 $ 5,536,000 $ 2,542,000
Asia 1,437,000 1,405,000 592,000
------------ ------------ ------------
$ 4,456,000 $ 6,941,000 $ 3,134,000
============ ============ ============
Identifiable assets
United States $ 27,909,000 $ 26,015,000 $ 14,230,000
Asia 4,637,000 3,348,000 3,315,000
------------ ------------ ------------
Total identifiable assets $ 32,546,000 $ 29,363,000 $ 17,545,000
============ ============ ============
</TABLE>
45
<PAGE> 47
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS
The Company leases its main office and warehouse under an operating
lease agreement which expires in December 1998. Rental expense amounted to
approximately $148,000, $140,000, and $132,000 for the years ended December 31,
1996, 1995 and 1994 respectively.
Future minimum payments under the noncancellable operating lease for
future years ending December 31 are as follows:
<TABLE>
<S> <C>
1997 $131,000
1998 136,000
--------
$267,000
========
</TABLE>
NOTE 14 - EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) profit sharing plan (the Plan) for the
benefit of qualified employees. Employees who participate may elect to make
salary deferral contributions to the Plan. The Company may make a discretionary
matching contribution of $1 for every $2 contributed by the participant. The
Company's contribution is limited to 3% of the employee's compensation. For the
years ended December 31, 1996, 1995, and 1994, the Company contributed
approximately $120,000, $79,000, and $18,000 respectively to the Plan.
NOTE 15 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL 1996
Net Sales $13,206,000 $13,450,000 $14,394,000 $14,969,000
Gross Profit 3,713,000 3,455,000 3,501,000 4,173,000
Net Income 848,000 555,000 755,000 807,000
Earnings Per Share .16 .11 .14 .15
FISCAL 1995
Net Sales $14,239,000 $14,539,000 $15,356,000 $14,056,000
Gross Profit 3,943,000 4,138,000 4,432,000 3,950,000
Net Income 983,000 1,122,000 1,261,000 1,334,000
Earnings Per Share .19 .22 .24 .25
</TABLE>
46
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
Our audits of the consolidated financial statements of Diodes Incorporated and
Subsidiaries referred to in our report dated February 21, 1997 appearing in item
8 in this Annual Report on Form 10-K also included an audit of the financial
statement schedule listed in item 14(a) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
February 21, 1997
47
<PAGE> 49
DIODES INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL A COL B COL C COL D COL E
- ----------------------- ------------ ---------- ---------- -------------
Additions
Balance at charged to
beginning of costs & Balance at
Description period expenses Deductions end of period
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31,
1996 - Allowance for
doubtful accounts $177,000 $ 81,000 $ (5,000) $253,000
======== ======== ======== ========
Year ended December 31,
1995 - Allowance for
doubtful accounts $170,000 $ 80,000 $(90,000) $177,000
======== ======== ======== ========
Year ended December 31,
1994 - Allowance for
doubtful accounts $ 61,000 $138,000 $(29,000) $170,000
======== ======== ======== ========
</TABLE>
48
<PAGE> 50
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company has decided to take advantage of the new "Safe
Harbor" provision of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). In that connection, this annual report of Form 10-K includes
forward looking statements concerning the Company. The forward looking
statements are made pursuant to the Reform Act.
There are many factors that could cause the events in such
forward looking statements to not occur, including but not limited to, general
or specific economic conditions, fluctuations in product demand, the
introduction of new products, the Company's ability to maintain customer
relationships, technological advancements, impact to competitive products and
pricing, growth in targeted markets, risks of foreign operations, the ability
and willingness of the Company's customers to purchase products provided by the
Company, the perceived absolute or relative overall value of these products by
the purchasers, including the features, quality, and price in comparison to
other competitive products, the level of availability of products and
substitutes and the ability and willingness of purchasers to acquire new or
advanced products, and pricing, purchasing, financing, operational, advertising
and promotional decisions by intermediaries in the distribution channels which
could affect the supply of or end-user demands for the Company's products, the
amount and rate of growth and the Company's selling, general and administrative
expenses, difficulties in obtaining materials, supplies and equipment,
difficulties for delays in the development, production, testing and marketing of
products including, but not limited to, failure to ship new products and
technologies when anticipated, the failure of customers to accept these products
or technologies when planned, and defects in products, any failure of economies
to develop when planned, the acquisition of fixed assets and other assets,
including inventories and receivables, the making or incurring of any
expenditures, the effects of and changes in trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations and social and economic conditions, such as trade restriction or
prohibition, inflation and monetary fluctuation, import and other charges or
taxes, the ability or inability of the Company to obtain or hedge against
foreign currency, foreign exchange rates and fluctuations in those rates,
intergovernmental disputes as well as actions affecting frequency, use and
availability, spectrum authorizations and licensing, the costs and other effects
of legal investigations, claims and changes in those items, developments or
assertions by or against the Company relating to intellectual property rights,
adaptations of new, or changes in, accounting policies and practices in the
application of such policies and practices and the effects of changes within the
Company's organization or in compensation benefit plans, and activities of
parties with which the Company has an agreement or understanding, including any
issues affecting any investment or joint venture in which the Company has an
investment, and the amount, and the cost of financing which the Company has, and
any changes to that financing, and any other information detailed from time to
time in the Company's filings with the United States Securities and Exchange
Commission.
49
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DIODES INCORPORATED (Registrant)
/s/ David Lin March 26, 1997
- -------------------------------------
DAVID LIN
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph Liu March 26, 1997
- -------------------------------------
JOSEPH LIU
Vice President, Secretary
and Chief Financial Officer
(Principal Financial and Accounting Officer)
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant, and in the
capacities indicated, on March 26, 1997.
/s/ Raymond Soong /s/ David Lin
- ------------------------------------- ----------------------------
RAYMOND SOONG DAVID LIN
Chairman of the Board of Directors Director
/s/ Michael R. Giordano /s/ M.K. Lu
- ------------------------------------- ----------------------------
MICHAEL R. GIORDANO M.K. LU
Director Director
/s/ Shing Mao /s/ Michael A. Rosenberg
- ------------------------------------- ----------------------------
SHING MAO MICHAEL A. ROSENBERG
Director Director
/s/ Leonard M. Silverman
- -------------------------------------
LEONARD M. SILVERMAN
Director
50
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Page Number
-----------
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of Diodes Incorporated (the "Company")
dated July 29, 1968 (1)
3.2 Amended By-laws of the Company dated August 14, 1987 (2)
10.1 Stock Purchase and Termination of Joint Shareholder Agreement (3)
10.2 1994 Credit Facility Agreement between the Company and Wells Fargo
Bank, National Association (4)
10.3* Company's 401(k) Plan - Adoption Agreement (5)
10.4* Company's 401(k) Plan - Basic Plan Documentation #03 (5)
10.5* Employment Agreement between the Company and Pedro Morillas (6)
10.6* Company's Incentive Bonus Plan (7)
10.7* Company's 1982 Incentive Stock Option Plan (7)
10.8* Company's 1984 Non-Qualified Stock Option Plan (7)
10.9* Company's 1994 Non-Qualified Stock Option Plan (7)
10.10* Company's 1993 Incentive Stock Option Plan (5)
10.11 $6.0 Million Revolving Line of Credit Note (8)
10.12 Credit Agreement between Wells Fargo Bank and the Company dated
November 1, 1995 (8)
10.13 Kai Hong Compensation Trade Agreement for SOT-23 Product (9)
10.14 Kai Hong Compensation Trade Agreement for MELF Product (10)
10.15 Lite-On Power Semiconductor Corporation Distributorship Agreement (11)
10.16 Loan Agreement between the Company and FabTech Incorporated (12)
10.17 Kai Hong Joint Venture Agreement between the Company and Mrs. J.H.
Xing (12)
10.18 Quality Assurance Consulting Agreement between LPSC and Shanghai Kai
Hong Electronics Company, Ltd. (13)
</TABLE>
(index continued on following page)
51
<PAGE> 53
(index continued from previous page)
<TABLE>
<S> <C>
10.19 Loan Agreement between the Company and Union Bank of California, N.A.
(13)
10.20 First Amendment to Loan Agreement between the Company and Union Bank
of California, N.A.
10.21 Guaranty Agreement between the Company and Shanghai Kaihong
Electronics Co., Ltd.
10.22 Guaranty Agreement between the Company and Xing International, Inc.
11 Statement regarding Computation of Per Share Earnings
21 Subsidiaries of the registrant
23.1 Consent of Independent Public Accountants
27 Financial Data Schedule
</TABLE>
(1) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1981, which is hereby incorporated by
reference.
(2) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1988, which is hereby incorporated by
reference.
(3) Previously filed with the Company's Form 8-K, filed on July 1, 1994,
which is hereby incorporated by reference.
(4) Previously filed as Exhibit 10.4 to Form 10-KSB/A filed with the
Commission for fiscal year ended December 31, 1993, which is hereby
incorporated by reference.
(5) Previously filed with Company's Form 10-K, filed on March 31, 1995, which
is hereby incorporated by reference.
(6) Previously filed as Exhibit 10.6 to Form 10-KSB filed with the Commission
on August 2, 1994, for the fiscal year ended December 31, 1993, which is
hereby incorporated by reference.
(7) Previously filed with Company's Form S-8, filed on May 9, 1994, which is
hereby incorporated by reference.
(8) Previously filed with Company's Form 10-Q, filed on November 14, 1995,
which is hereby incorporated by reference.
(9) Previously filed as Exhibit 10.2 to Form 10-Q/A, filed with the
Commission on October 27, 1995, which is hereby incorporated by
reference.
(footnotes continued on following page)
52
<PAGE> 54
(footnotes continued from previous page)
(10) Previously filed as Exhibit 10.3 to Form 10-Q/A, filed with the
Commission on October 27, 1995, which is hereby incorporated by
reference.
(11) Previously filed as Exhibit 10.4 to Form 10-Q, filed with the Commission
on July 27, 1995, which is hereby incorporated by reference.
(12) Previously filed with Company's Form 10-K, filed on April 1, 1996, which
is hereby incorporated by reference.
(13) Previously filed with Company's Form 10-Q, filed on May 15, 1996, which
is hereby incorporated by reference.
* Constitute management contract, compensatory plans and arrangements which
are required to be filed pursuant to Item 601 of Regulation S-K.
53
<PAGE> 1
EXHIBIT 10.20
FIRST AMENDMENT
TO LOAN AGREEMENT
This Amendment Agreement to Loan Agreement (this "Agreement") dated this 5th day
of November , 1996, by and between Diodes Incorporated, a Delaware Corporation
("Borrower") and Union Bank of California, N.A. ("Bank").
Whereas, Borrower and Bank have previously entered into that certain Loan
Agreement, dated August 8, 1996, ("The Loan Agreement"), pursuant to which Bank
has agreed to make certain loans and advances to Borrower;
Whereas, Borrower has requested that Bank agree to amend certain provisions
contained in the Loan Agreement; and
Whereas, Borrower and Bank have agreed and intend to hereby amend the Loan
Agreement.
Now, therefore, the parties hereby agree as follows:
1. Section 1.2 shall remain in its entirety and a new paragraph shall
be added as follows:
Diodes has requested permission to pay down their $8,000, 000 term note to
$5,000,000; under the $9,500,000 term facility. A new note will be issued
evidencing the $5,000,000 term note with the same terms and conditions, other
than the amortization will be $83,333.33 on the 28th day of each month,
commencing February 28, 1997. The availability under this note shall be reduced
on the same day and in the same amount as each scheduled principal payment.
Diodes will have $4,500,000 available on the $9,500,000 term facility under the
terms and conditions set forth in section 1.2.
2. Except as modified hereby, the Loan Agreement shall remain otherwise
unchanged and in full force and effect and this agreement shall be effective
from the date hereof and shall have no retroactive effect whatsoever.
In Witness Whereof, Borrower has executed and delivered this agreement.
"Borrower"
Diodes Incorporated
By: /s/ Joseph Liu
Joseph Liu, CFO
54
<PAGE> 1
EXHIBIT 10.21
GUARANTY
OF
DIODES INCORPORATED, 3050 East Hillcrest Drive,
Suite 200, Westlake Village, California 91362
1. FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which by DIODES INCORPORATED, a Delaware corporation ("DIODES"), are hereby
acknowledged, and to induce THE HONG KONG and SHANGHAI BANKING CORPORATION
LIMITED (the "Bank") at any time or from time to time, to extend financial
accommodation with or without security, to or for the account of: SHANGHAI
KAIHONG ELECTRONICS CO., LTD. (the "Borrower"), or in respect of which the
Borrower may be liable (the term "Financial Accommodations" shall include the
financial accommodations as outlined in the Bank's offer letter of August 12,
1996 duly accepted by the Borrower), DIODES hereby guarantees to the Bank that
the Borrower will promptly perform and observe every agreement to be performed
or observed by the Borrower and that all sums stated to be payable in, or which
become payable under the documents to which such Financial Accommodations are
made ("the Financing Document(s)"), will be promptly paid in full when due
whether at maturity or earlier by reason or acceleration or otherwise, together
with interest due thereunder, or DIODES shall immediately upon receipt of
written demand thereof, fully pay and otherwise discharge all such obligations
of the Borrower. In case of one or more extensions of time of payment or
renewals, in whole or in part, of any of the Financing Document(s), the same
will be promptly paid or performed when due, according to each such extension or
renewal, whether at maturity or earlier by reason of acceleration or otherwise.
2. DIODES hereby consents that from time to time, without notice to or
further consent of DIODES, the performance or observance by the Borrower of any
of the Financing Document(s) may be waived or the time of performance thereof
extended by the Bank, and payment of any obligation hereby guaranteed may be
accelerated in accordance with any agreement between the Bank and the Borrower,
or may be increased, extended, or renewed in whole or in part without affecting
the liability of DIODES hereunder.
3. Notwithstanding the aggregate sums which may be or become payable by
the Borrower to the Bank at any time or from time to time, the liability of
DIODES hereunder shall not exceed ONE MILLION DOLLARS (U.S.$1,000,000.00) plus
any and all interest on that amount, and all costs of collection including
without limitation, reasonable attorney fees. It is understood that the
obligations of the Borrower to the Bank may at any time and from time to time
exceed the liability of DIODES hereunder without impairing this Guaranty. DIODES
agrees that whenever at any time or from time to time it shall make any payment
to the Bank hereunder on account of its liability hereunder, that it will notify
the Bank in writing that such payment is made under this Guaranty for such
purpose. No payment pursuant to any provision hereof shall entitle DIODES by
subrogation to the rights of the Bank, to any payment by the Borrower or out of
the property of the Borrower, except after payment in full of all sums
(including interests, costs and expenses) which may be or become payable by the
Borrower to the Bank at any time or from time to time.
55
<PAGE> 2
4. DIODES reserves the right, at any time or from time to time, on one
month prior written notice to the Bank, to reduce the maximum amount guaranteed
hereunder or to terminate this Guaranty; provided, however, that DIODES shall in
any event remain liable as guarantor for all obligations of the Borrower
outstanding at the effective date of any such notice to the Bank pursuant to
this paragraph.
5. DIODES' obligations hereunder shall be unconditional notwithstanding
any lack of enforceability of any Financing Documents pursuant to which the
Financial Accommodations are made or any change in any term thereof, any
exchange, release or nonperfection of any collateral securing payment of any
Financial Accommodation, any law, regulation or order of any jurisdiction
affecting any term of any or the Bank's rights with respect thereto or any other
circumstance which might otherwise constitute a defense available to or
discharge of DIODES. DIODES waives promptness, diligence and notices, including
acceptance hereof, with respect to this Guaranty and the Financial
Accommodations hereby guaranteed and any requirement that the Bank exhaust any
right or take any action against the Borrower or any collateral or disclose to
DIODES any information concerning the Borrower.
6. DIODES agrees that, to the extent that the Borrower makes a payment
or payments to the Bank on the Financial Accommodations, or the Bank receives
any proceed of collateral to be applied to the Financial Accommodations, which
payment or payments or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set arise or otherwise are required to be
repaid to the Borrower, its estate, trustee, receiver or any other party,
including, without limitation, under any bankruptcy law, state or federal law,
common law, or equitable cause, then to the extent of such repayment, the
obligation or part thereof which has been paid, reduced, or satisfied by such
amount shall be reinstated and continued in full force and effect as of the date
of the initial payments, reduction or satisfaction occurred, notwithstanding any
contrary action which may have been taken by the Bank in reliance upon such
payment or payments. As of the date any payment or proceeds are returned, the
statute of limitations shall start anew with respect to any action or proceeding
by the Bank against DIODES under this document. DIODES shall defend and
indemnify the Bank of and from any claim or loss under this paragraph including
actual attorney's and paralegal's fees and expenses in the defense of any such
action or suit.
7. This Guaranty and all rights, obligations and liabilities arising
hereunder shall be construed according to the laws of the State of California,
United States of America. Unless the context otherwise requires, all terms used
herein which are defined in the Uniform Commercial Code shall have the meanings
therein stated. All notices hereunder shall be given by telex or telecopier if
to the Bank at The Hongkong and Shanghai Banking Corporation Limited, Shanghai
Branch, Suite 504, Shanghai Centre, 1376 Nanjing Xi Lu, Shanghai 200040, the
People's Republic of China, Attention: Manager, Corporate Banking, Facsimile:
(8621) 6279-8586 or if to Attention: Manager's Office, and shall be effective
when sent.
IN WITNESS WHEREOF, this instrument has been duly executed by DIODES
this 12th day of December, 1996.
By: /s/ David Lin
Title: President & CEO
56
<PAGE> 1
EXHIBIT 10.22
GUARANTY AGREEMENT
This Guaranty Agreement is made and effective as of December 12,
1996, by and between Xing International, Inc., a New York corporation (the
"Borrower"), and Diodes Incorporated, a Delaware corporation (the "Guarantor"),
upon the basis of the following facts and understandings of the parties:
A. The Borrower and the Guarantor are the holders of all of the issued
and outstanding capital stock of Shanghai Kai Hong Kong Electronics Co., Ltd., a
corporation formed under the laws of the People's Republic of China for the
purpose of manufacturing and distributing diodes, surface mounted devices,
transistors and other electronic components (the "Company"), all pursuant to
that certain Joint Venture Agreement dated as of March 18, 1996 (the "Joint
Venture Agreement").
B. Concurrently herewith, the borrower is entering into a Term Loan
Agreement pursuant to which THE HONG KONG and SHANGHAI BANKING CORPORATION
LIMITED (the "Bank") has agreed to lend to the Borrower [U.S. $850,000],
provided that the Guarantor guarantee the prompt payment of the indebtedness of
the Borrower.
C. The Borrower desires to provide the Guarantor, and the Guarantor
desires to obtain from the Borrower, in consideration of such guaranty, certain
rights in and to the shares of the capital stock of the Company now or hereafter
held by the Borrower.
D. The Borrower desires to obtain such guarantee from the Guarantor,
and the Guarantor is willing to make such guarantee, all on the terms set forth
in this Agreement.
NOW THEREFORE, for valuable consideration, the receipt and
sufficiency of which hereby is acknowledged, the parties hereto agree as
follows:
1. Guarantee.
a. The Guarantor hereby agrees to execute and deliver to
the Bank an irrevocable stand by letter of credit.
b. In consideration of the Guaranty, the Borrower shall
reimburse the Guarantor promptly upon demand for all costs and expenses incurred
by it in connection with, by reason of or relating to the execution, delivery
and performance of the Guaranty and for all amounts paid by or on behalf of or
for the account of the Borrower pursuant to the Guaranty, including, but not
limited to, interest, commission and fees (including attorney's fees).
57
<PAGE> 2
c. The Borrower hereby authorizes the Bank, if and to the
extent the Guarantor shall be required to pay any amount whatsoever to any
person pursuant to, in connection with or as a result of or relating to the
Guaranty, to set-off and apply for the account of, and to pay over to, the
Guarantor any and all amounts at any time held by, and any other indebtedness at
any time owing to, the Borrower to or for the credit or the account of the
Borrower without notice to the Borrower. The Guarantor agrees promptly to notify
the Borrower after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Guarantor under this Section 1(c) are in addition
to any other which the Guarantor may have.
d. In the event that the Guarantor shall be required to
pay any amount whatsoever to any person pursuant to, in connection with or as a
result of or relating to the Guaranty, the Guarantor shall have the right, in
its sole and absolute discretion, to purchase from the Borrower, and the
Borrower hereby sells and assigns to the Guarantor, that portion of the
Borrower's shares of the capital stock of the Company obtained by dividing (x)
the amount so paid by the Guarantor by (v) the aggregate amount theretofor
required to be paid by the Borrower to the Company for the purchase of such
shares, in cancellation of the Borrower's obligations to reimburse for the
Guarantor for such amount so paid by the Guarantor. The Borrower hereby
authorizes the Company to take all such actions as may be reasonably requested
by the Guarantor to effect the purpose and intent of this Section 1(d). The
Guarantor's rights under this section 1(d) are in addition to any other rights
and remedies (including, without limitation, other rights of set-off) which the
Guarantor may have. All distributions with respect to the shares of the Company
purchased by the Guarantor pursuant to this section 1(d) which are declared and
paid before the effective date of such purchase shall be and remain the property
of the Borrower. Upon any such purchase, the right of the Guarantor to seek
reimbursement from the Borrower with respect to the payment by the Guarantor
which gave rise to such right to purchase shall cease.
2. Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements made by the parties hereto in this
Agreement (including, but not limited to, statements contained in any schedule
or certificate or other instrument delivered by or on behalf of any party hereto
or in connection with the transactions contemplated hereby) shall survive the
date hereof and any investigations, inspections, examinations or audits made by
or on behalf of any party.
3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter of and
supersedes all prior agreements understanding, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
58
<PAGE> 3
4. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, when so delivered, (ii) if
mailed, one (1) week after having been placed in the mail, registered or
certified, postage prepaid , addressed to the party to whom it is directed at
the address set forth on the signature page hereof or (iii) if given by telex or
telecopier, when such notice or other communication is transmitted to the telex
or telecopier number specified on the signature page hereof and the appropriate
answerback or telephonic confirmation is received. Either party may change the
address to which such notices are to be addressed by giving the other party
notice in the manner herein set forth.
5. Governing Law. The Validity, construction and
interpretation of this Agreement shall be governed in all respects by the laws
of the State of California applicable to contracts made and to be performed
wholly within that State.
6. Attorney's Fees. In the event any party takes legal action
to enforce any of the terms of this Agreement, the unsuccessful party to such
action shall pay the successful party's expenses (including, but not limited to,
attorney's fees and costs) incurred in such action.
7. Jurisdiction. Except as provided in Section 8, each party
hereto irrevocably submits to the exclusive jurisdiction of any court of the
State of California or the United States of America sitting in the City of Los
Angeles over any suit, action or proceeding arising out of or relating to this
Agreement. To the fullest extent it may effectively do so under applicable law,
each party irrevocably waives and agrees not to assert, by way of motion, as a
defense or otherwise, any claim that it is not subject to the jurisdiction of
any such court, any objection that it may now or hereafter have to the
establishment of the venue of any such suit, action or proceeding brought in any
such court and any claim that any such suit, action or proceeding, brought in
any such court has been brought in an inconvenient forum. Each party hereto
agrees, to the fullest extent it may effectively do so under applicable law,
that a judgment in any suit, action or proceeding of the nature referred to
hereinabove brought in any such court shall be conclusive and binding upon such
person and its successors and assigns and may be enforced in the courts of the
United States of America or the State of California (or any other courts to the
jurisdiction of which such person is or may be subject) by a suit upon such
judgment. Each party hereto consents to process being served in any suit, action
or proceeding of the nature referred to hereinabove by mailing a copy thereof by
registered or certified mail, postage prepaid, return receipt requested, to the
address of the other set forth in Section 10. Each party agrees that such
service (i) shall be deemed in every respect effective service of process upon
such person in any such suit, action or proceeding and (ii) shall, to the
fullest extent permitted by law be taken and held to be valid personal service
upon and personal delivery to such person.
8. Arbitration. Any controversy arising out of or relating to
this Agreement or the transaction contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this
59
<PAGE> 4
Agreement and the substantive law of the State of California. The board of
arbitrators shall convene at a place mutually acceptable to the parties in the
state of California and, if the place of arbitration cannot be agreed upon,
arbitration shall be conducted in Los Angeles. The parties hereto agree to
accept the decision of the board of arbitrators, and judgment upon any award
rendered hereunder may be entered in any court having jurisdiction thereof.
Neither party shall institute a proceeding hereunder until the party furnished
to the other party, by registered mail, at least thirty (30) days prior written
notice of its intent to do so.
9. Time of Essence. Time is of the essence in the performance
of every provision of this Agreement and the other contracts, notes and
instruments referred to in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date and year first set forth below.
GUARANTOR: DIODES INCORPORATED
By /s/ David Lin, President & CEO
Authorized Representative
3050 East Hillcrest Drive
Suite 200
Westlake Village, California 91362
Telecopier Number: (805) 446-4850
BORROWER: XING INTERNATIONAL, INC.
By /s/ J.Y. Xing
J.Y. Xing
9712 63rd Drive
Apartment 10D
Rego Park, New York 11374
Telecopier Number:
60
<PAGE> 1
EXHIBIT 11
DIODES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
PRIMARY 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income for primary earnings
per share $2,965,000 $4,700,000 $2,363,000
========== ========== ==========
Weighted average number of
common shares outstanding
during the year 4,958,658 4,881,125 4,752,883
Add common equivalent shares
upon exercise of stock options 403,369 339,071 383,627
---------- ---------- ----------
Weighted average number of
shares used in calculations of
primary earnings per share 5,362,027 5,220,196 5,136,510
========== ========== ==========
Primary earnings per share $ .55 $ .90 $ .46
========== ========== ==========
FULLY DILUTED
Weighted average number of
shares used in calculating primary
earnings per share 5,362,027 5,220,196 5,136,510
Add additional shares issuable
upon exercise of stock options 11,336 326 *
---------- ---------- ----------
Weighted average number of
shares used in calculation of
fully diluted earnings per share 5,373,363 5,220,522 5,136,510
========== ========== ==========
Fully diluted earnings per share $ .55 $ .90 $ .46
========== ========== ==========
</TABLE>
* No effect given to common stock equivalents as their effect would be
anti-dilutive.
61
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Diodes Taiwan Company, Limited, a corporation organized and existing under
the laws of the Republic of China (Taiwan) with principal offices located at 5
Fl., 510-16 Chung-Cheng Road, Hsin-Tien City, Taipei, Taiwan, Republic of China.
This subsidiary does business under its own name. This is a wholly-owned
subsidiary of Diodes Incorporated.
2. Shanghai Kai Hong Electronics Co., Ltd., a corporation formed under the laws
of the People's Republic of China with principal offices located at East of
Xingqiao Town Songjiang County, Shanghai, Replublic of China. This subsidiary
does business under its own name. This is a 70% majority-owned joint venture and
a subsidiary of Diodes Incorporated.
62
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-78716) of Diodes Incorporated and Subsidiaries of
our report dated February 21, 1997 appearing in item 8 in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the financial statement schedule, which appears at page S-1 of this Form 10-K.
MOSS ADAMS LLP
/s/ Moss Adams LLP
Los Angeles, California
March 26, 1997
63
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,820,000
<SECURITIES> 0
<RECEIVABLES> 8,629,000
<ALLOWANCES> 253,000
<INVENTORY> 13,268,000
<CURRENT-ASSETS> 25,235,000
<PP&E> 5,843,000
<DEPRECIATION> 1,215,000
<TOTAL-ASSETS> 32,546,000
<CURRENT-LIABILITIES> 7,832,000
<BONDS> 0
0
0
<COMMON> 3,784,000
<OTHER-SE> 15,680,000
<TOTAL-LIABILITY-AND-EQUITY> 32,546,000
<SALES> 56,019,000
<TOTAL-REVENUES> 56,019,000
<CGS> 41,177,000
<TOTAL-COSTS> 10,386,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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</TABLE>
