What changed in DIODES INC /DEL/'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of DIODES INC /DEL/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+90 added−91 removedSource: 10-K (2024-02-09) vs 10-K (2023-02-10)
Top changes in DIODES INC /DEL/'s 2023 10-K
90 paragraphs added · 91 removed · 72 edited across 1 sections
- Item 6. [Reserved]+90 / −91 · 72 edited
Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
72 edited+18 added−19 removed61 unchanged
Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
72 edited+18 added−19 removed61 unchanged
2022 filing
2023 filing
Biggest changeTwelve Months Ended December 31, 2022 2021 Increase/(Decrease) % Change Net sales $ 2,000,580 $ 1,805,162 $ 195,418 10.8 % Cost of goods sold 1,173,343 1,134,802 38,541 3.4 % Gross profit 827,237 670,360 156,877 23.4 % Total operating expense 419,044 394,375 24,669 6.3 % Interest income 3,672 3,139 533 17.0 % Interest expense (8,320 ) (7,491 ) 829 11.1 % Foreign currency gain (loss), net 2,122 (2,107 ) 4,229 200.7 % Unrealized (loss) gain on investments (16,514 ) 28,018 (44,532 ) 158.9 % Other income 6,787 17,551 (10,764 ) (61.3 %) Income tax provision 56,685 78,807 (22,122 ) (28.1 %) Net Sales Our net sales increased approximately $195.4 million, or 10.8%, for the twelve months ended December 31, 2022, compared to the prior year, due primarily to our content expansion initiatives and improvements in product mix.
Biggest changeTwelve Months Ended December 31, 2023 2022 Increase/(Decrease) % Change Net sales $ 1,661,739 $ 2,000,580 $ (338,841 ) (16.9 %) Cost of goods sold 1,003,557 1,173,343 (169,786 ) (14.5 %) Gross profit 658,182 827,237 (169,055 ) (20.4 %) Total operating expense 407,611 419,044 (11,433 ) (2.7 %) Interest income 13,338 3,672 9,666 263.2 % Interest expense (5,700 ) (8,320 ) (2,620 ) (31.5 %) Foreign currency (loss) gain, net (5,264 ) 2,122 7,386 348.1 % Unrealized gain (loss) on investments 18,267 (16,514 ) 34,781 210.6 % Other income 6,721 6,787 (66 ) (1.0 %) Income tax provision 47,285 56,685 (9,400 ) (16.6 %) 34 Net Sales Our net sales decreased approximately $338.8 million, or 16.9%, for the twelve months ended December 31, 2023, compared to the prior year, due to widespread decreased demand for our semiconductor products.
We believe the long-term outlook for our business remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that has proven successful for us over the years.
We believe the long-term outlook for our business remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that 32 has proven successful for us over the years.
Amortization of acquisition-related intangible assets Amortization of acquisition-related intangible assets consists of assets such as developed technologies and customer relationships. Interest income / expense Interest income consists of interest earned on our cash and investment balances. Interest expense consists of interest payable on our outstanding credit facilities and other debt instruments.
Amortization of acquisition-related intangible assets Amortization of acquisition-related intangible assets consists of assets such as developed technologies and customer relationships. Interest income / expense 33 Interest income consists of interest earned on our cash and investment balances. Interest expense consists of interest payable on our outstanding credit facilities and other debt instruments.
Recently Issued Accounting Pronouncements See Note 1 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information regarding the status of recently issued accounting pronouncements. 36 Ite m 7A. Quantitative and Qualitative Disclosures About Market Risk. Foreign Currency Risk We face exposure to adverse movements in foreign currency exchange rates, primarily in Asia and Europe.
Recently Issued Accounting Pronouncements See Note 1 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information regarding the status of recently issued accounting pronouncements. 38 Ite m 7A. Quantitative and Qualitative Disclosures About Market Risk. Foreign Currency Risk We face exposure to adverse movements in foreign currency exchange rates, primarily in Asia and Europe.
Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer 38 and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer 40 and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
See “Risk Factors” – Risks Related to our International Operations” in Part I, Item 1A of this Annual Report for additional information. Inflation Risk Inflation did not have a material effect on net sales or net income in fiscal year 2022. A significant increase in inflation could affect future performance.
See “Risk Factors” – Risks Related to our International Operations” in Part I, Item 1A of this Annual Report for additional information. Inflation Risk Inflation did not have a material effect on net sales or net income in fiscal year 2023. A significant increase in inflation could affect future performance.
The amount recognized in accumulated other comprehensive income was a net loss of $41.1 million. If the British Pound Sterling were to (weaken) or strengthen by 1.0% against the U.S. dollar, we would experience currency translation liability (decrease) or increase of less than $0.5 million.
The amount recognized in accumulated other comprehensive income was a net loss of $43.5 million. If the British Pound Sterling were to (weaken) or strengthen by 1.0% against the U.S. dollar, we would experience currency translation liability (decrease) or increase of less than $0.5 million.
The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8 of this Annual Report on Form 10-K.
The effectiveness of our internal control over financial reporting as of December 31, 2023, has been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8 of this Annual Report on Form 10-K.
The weighted-average discount rate assumption used to determine benefit obligations as of December 31, 2022, was 4.7%. A 0.2% increase/(decrease) in the discount rate used to calculate the net period benefit cost for the year would reduce/increase annual benefit cost by less than $0.5 million.
The weighted-average discount rate assumption used to determine benefit obligations as of December 31, 2023, was 4.7%. A 0.2% increase/(decrease) in the discount rate used to calculate the net period benefit cost for the year would reduce/increase annual benefit cost by less than $0.5 million.
See “Risk Factors – Changes in actuarial assumptions for our defined benefit plan could increase the volatility of the plan’s asset value, require us to increase cash contributions to the plan and have a negative impact on our cash flows, operating results and financial condition ” in Part I, Item 1A of this Annual Report for additional information. 37 Interest Rate Risk We have credit facilities with financial institutions in the U.S., Asia and Europe as well as other debt instruments with interest rates equal to LIBOR or similar indices plus a negotiated margin.
See “Risk Factors – Changes in actuarial assumptions for our defined benefit plan could increase the volatility of the plan’s asset value, require us to increase cash contributions to the plan and have a negative impact on our cash flows, operating results and financial condition ” in Part I, Item 1A of this Annual Report for additional information. 39 Interest Rate Risk We have credit facilities with financial institutions in the U.S., Asia and Europe as well as other debt instruments with interest rates equal to SOFR or similar indices plus a negotiated margin.
Financial Condition Liquidity and Capital Resources Our primary sources of liquidity are cash and cash equivalents, short-term investments, funds from operations and, if necessary, borrowings under our credit facilities. 32 Liquidity requirements Our primary liquidity requirements have been to meet our capital expenditure needs and to fund ongoing operations.
Financial Condition Liquidity and Capital Resources Our primary sources of liquidity are cash and cash equivalents, short-term investments, funds from operations and, if necessary, borrowings under our credit facilities. 35 Liquidity requirements Our primary liquidity requirements have been to meet our capital expenditure needs and to fund ongoing operations.
Whitmire, with the participation of our management, carried out an evaluation as of December 31, 2022, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended).
Whitmire, with the participation of our management, carried out an evaluation as of December 31, 2023, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended).
The following section discusses management’s view of the financial condition, results of operations and cash flows of Diodes Incorporated and its subsidiaries (collectively, “the Company,” “our Company,” “we,” “our,” “ours,” or “us”) and should be read together with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this Form 10-K.
The following section discusses management’s view of the financial condition, results of operations and cash flows of Diodes Incorporated and its subsidiaries (collectively, “the Company,” “our Company,” “we,” “our,” “ours,” or “us”) and should be read together with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The Credit Agreement contains certain financial and non-financial covenants, including, but not limited to, a maximum Consolidated Leverage Ratio, a minimum Consolidated Fixed Charge Coverage Ratio, and restrictions on liens, indebtedness, investments, fundamental changes, dispositions, and restricted payments (including dividends and share repurchases).
The Credit Agreement contains certain financial and non-financial covenants, including, but not limited to, a maximum Consolidated Leverage Ratio, a minimum Consolidated Interest Coverage Ratio, and restrictions on liens, indebtedness, investments, fundamental changes, dispositions, and restricted payments (including dividends and share repurchases).
Based on balances at December 31, 2022, if the Chinese Yuan, the Taiwanese dollar, the Euro and the British Pound Sterling were to weaken (or strengthen) by 1.0% against the U.S. dollar, we would experience currency transaction gain (or loss) of approximately $1.8 million (partially offset by any foreign currency hedges).
Based on balances at December 31, 2023, if the Chinese Yuan, the Taiwanese dollar, the Euro and the British Pound Sterling were to weaken (or strengthen) by 1.0% against the U.S. dollar, we would experience currency transaction gain (or loss) of approximately $2.0 million (partially offset by any foreign currency hedges).
Results of Operations The following table sets forth, for the periods indicated, the percentage that certain items in the statements of income bear to net sales: Percent of Net Sales Twelve Months Ended December 31, 2022 2021 Net sales 100.0 % 100.0 % Cost of goods sold (58.7 ) (62.9 ) Gross profit 41.3 37.1 Operating expenses (21.0 ) (21.8 ) Income from operations 20.4 15.3 Interest income 0.2 0.2 Interest expense (0.4 ) (0.4 ) Foreign currency gain (loss), net 0.1 (0.1 ) Unrealized (loss) gain on investments (0.8 ) 1.6 Other income 0.3 1.0 Income before income taxes and noncontrolling interest 19.8 17.5 Income tax provision (2.8 ) 4.4 Net income 17.0 13.1 Net (income) attributable to noncontrolling interest (0.4 ) (0.4 ) Net income attributable to common stockholders 16.6 12.7 The following discussion explains in greater detail our consolidated operating results and financial condition.
Results of Operations The following table sets forth, for the periods indicated, the percentage that certain items in the statements of income bear to net sales: Percent of Net Sales Twelve Months Ended December 31, 2023 2022 Net sales 100.0 % 100.0 % Cost of goods sold (60.4 ) (58.7 ) Gross profit 39.6 41.4 Operating expenses (24.5 ) (21.0 ) Income from operations 15.1 20.4 Interest income 0.8 0.2 Interest expense (0.3 ) (0.4 ) Foreign currency gain (loss), net (0.3 ) 0.1 Unrealized gain (loss) on investments 1.1 (0.8 ) Other income 0.4 0.3 Income before income taxes and noncontrolling interest 16.7 19.8 Income tax provision (2.8 ) (2.8 ) Net income 13.9 17.0 Net (income) attributable to noncontrolling interest (0.2 ) (0.4 ) Net income attributable to common stockholders 13.7 16.6 The following discussion explains in greater detail our consolidated operating results and financial condition.
Additional engineering, sales, warehouse, and logistics offices are located in Taipei, Taiwan; Hong Kong; Oldham, England; Shanghai, Shenzhen, Wuhan, and Yangzhou, China; Seongnam-si, South Korea; and Munich and Frankfurt, Germany; with support offices throughout the world. • The Company’s manufacturing facilities have achieved certifications in the internationally recognized standards of ISO 9001:2015, ISO 14001:2015, and, for automotive products, IATF 16949:2016; • Diodes Incorporated is also C-TPAT certified; and • We believe these quality awards reflect the superior quality-control techniques established at Diodes Incorporated and further enhance our credibility as a vendor-of-choice to original equipment manufacturers ("OEMs") increasingly concerned with quality and consistency.
Additional engineering, sales, warehouse, and logistics offices are located in Taipei, Taiwan; Hong Kong; Milan, Italy; Singapore City, Singapore; Oldham, UK; Shanghai, Shenzhen, Wuhan, and Yangzhou, China; Seongnam-si, South Korea; and Munich, Frankfurt, Germany; with support offices throughout the world. • The Company’s manufacturing facilities have achieved certifications in the internationally recognized standards of ISO 9001:2015, ISO 14001:2015, and, for automotive products, IATF 16949:2016; • The Company is also C-TPAT certified; and • We believe these quality awards reflect the superior quality-control techniques established at the Company and further enhance our credibility as a vendor-of-choice to original equipment manufacturers ("OEMs") increasingly concerned with quality and consistency.
Based on our debt balances at December 31, 2022, an increase or decrease in interest rates by 1.0% for the year on our credit facilities would increase or decrease our annual interest rate expense by approximately $1.9 million, net of the amounts realized from our interest rate swaps.
Based on our debt balances at December 31, 2023, an increase or decrease in interest rates by 1.0% for the year on our credit facilities would increase or decrease our annual interest rate expense by approximately $0.2 million, net of the amounts realized from our interest rate swaps.
The decrease in the effective tax rate for 2022 compared to 2021 is primarily attributable to an increase in overall pre-tax book income and the impact of changes to the outside basis difference in foreign subsidiaries where the Company does not assert permanent reinvestment.
The increase in the effective tax rate for 2023 compared to 2022 is primarily attributable to a decrease in overall pre-tax book income and the impact of changes to the outside basis difference in foreign subsidiaries where the Company does not assert permanent reinvestment.
The Company’s restricted cash primarily consisted of the cash required to be on deposit under contractual agreements with banks to support outstanding loan and import/export guarantees. As of December 31, 2022, restricted cash of $4.4 million was pledged as collateral for issuance of bank loans, bank acceptance notes and letters of credit.
The Company’s restricted cash primarily consisted of the cash required to be on deposit under contractual agreements with banks to support outstanding loan and import/export guarantees. As of December 31, 2023, restricted cash of $3.0 million was pledged as collateral for issuance of bank loans, bank acceptance notes and letters of credit.
Item 6. Reserved . 27 Ite m 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 6. Reserved . 30 Ite m 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Description of Sales and Expenses Net sales The principal factors that have affected or could affect our net sales from period to period are: • The condition of the economy in general and of the semiconductor industry in particular; • Additional COVID outbreaks with increasing infection rates and lockdowns by local governments could have a negative impact on our production facilities; • The February 2022 invasion of Ukraine by Russia and the resulting and continuing global impact; • Political tension, including the implementation of tariffs, among and between the countries in which we do business; • Our customers’ adjustments in their order levels; 29 • Changes in our pricing policies or the pricing policies of our competitors or suppliers; • The addition or termination of key supplier relationships; • The rate of introduction and acceptance by our customers of new products; • Our ability to compete effectively with our current and future competitors; • Our ability to enter into and renew key corporate and strategic relationships with our customers, vendors and strategic alliances; • Changes in foreign currency exchange rates; • A major disruption of our information technology infrastructure; • Unforeseen catastrophic events, such as armed conflict, terrorism, fires, typhoons and earthquakes; • Any other disruptions, such as change in the political or governmental policies, labor shortages, unplanned maintenance or other manufacturing problems; and • Other risks, uncertainties, and assumptions identified in item 1A, "Risk Factors," of this Annual Report on Form 10-K and risks, uncertainties, and assumptions reflected in other documents we file with the SEC.
Description of Sales and Expenses Net sales The principal factors that have affected or could affect our net sales from period to period are: • The condition of the economy in general and of the semiconductor industry in particular; • The February 2022 invasion of Ukraine by Russia, the conflict in the Middle East, and the resulting and continuing global impact; • Political tension, including the implementation of tariffs, among and between the countries in which we do business; • Our customers’ adjustments in their order levels; • Changes in our pricing policies or the pricing policies of our competitors or suppliers; • The addition or termination of key supplier relationships; • The rate of introduction and acceptance by our customers of new products; • Our ability to compete effectively with our current and future competitors; • Our ability to enter into and renew key corporate and strategic relationships with our customers, vendors and strategic alliances; • Changes in foreign currency exchange rates; • A major disruption of our information technology infrastructure; • Unforeseen catastrophic events, such as armed conflict, terrorism, fires, typhoons and earthquakes; • Any other disruptions, such as change in the political or governmental policies, labor shortages, unplanned maintenance or other manufacturing problems; and • Other risks, uncertainties, and assumptions identified in item 1A, "Risk Factors," of this Annual Report and risks, uncertainties, and assumptions reflected in other documents we file with the SEC.
Short-term investments As of December 31, 2022, we had short-term investments of approximately $7.1 million. These investments are highly liquid with maturity dates greater than three months at the date of purchase. We generally can access these investments in a relatively short amount of time but in doing so we generally forfeit a portion of interest income.
Short-term investments As of December 31, 2023, we had short-term investments of approximately $10.2 million. These investments are highly liquid with maturity dates greater than three months at the date of purchase. We generally can access these investments in a relatively short amount of time but in doing so we generally forfeit a portion of interest income.
Average unit cost increased 19.9% for the twelve months ended December 31, 2022, compared to the same period last year, due to cost increases from various subcontractors and foundries, as well as the cost for a more premium mix of products that were sold in 2022.
Average unit cost increased 0.2% for the twelve months ended December 31, 2023, compared to the same period last year, due to cost increases from various subcontractors and foundries, as well as the cost for a more premium mix of products that were sold in 2023.
The projected unit credit method is the actuarial cost method used to compute the pension liabilities and related expenses. As of December 31, 2022, the plan was underfunded and a liability of approximately $7.5 million was reflected in our consolidated financial statements as a noncurrent liability.
The projected unit credit method is the actuarial cost method used to compute the pension liabilities and related expenses. As of December 31, 2023, the plan was underfunded and a liability of approximately $10.1 million was reflected in our consolidated financial statements as a noncurrent liability.
The Company has experienced growth in higher-margin end markets which have enabled the Company to increase its net sales and margins, even in the midst of the current supply-constrained environment. For the twelve months ended December 31, 2022, weighted-average sales price of the Company's products increased 28.5% when compared to the prior year.
The Company has experienced growth in higher-margin end markets which have enabled the Company to increase its net sales and margins, even in the midst of the current supply-constrained environment. For the twelve months ended December 31, 2023, weighted-average sales price of the Company's products decreased 2.7% when compared to the prior year.
This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K (in thousands) .
This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report (in thousands) .
Our reserve estimates are based upon historical data as well as projections of sales, distributor inventories, price adjustments, average selling prices and market conditions. Actual returns and adjustments could be significantly different from our estimates and provisions, resulting in an adjustment to net sales. Inventories Inventories are stated at the lower of cost or net realizable value.
Our reserve estimates are based upon historical data as well as projections of sales, distributor inventories, price adjustments, average selling prices and market conditions. Actual returns and adjustments could be significantly different from our estimates and provisions, resulting in an adjustment to net sales.
The Company has recorded outside basis differences in the limited instances where they do not assert permanent reinvestment. As of December 31, 2022, our foreign subsidiaries held approximately $296.8 million of cash, cash equivalents and investments of which approximately $68.0 million would be subject to foreign withholding tax if distributed outside the country in which the related earnings were generated.
The Company has recorded outside basis differences in the limited instances where they do not assert permanent reinvestment. As of December 31, 2023, our foreign subsidiaries held approximately $190.3 million of cash, cash equivalents and investments of which approximately $52.2 million would be subject to foreign withholding tax if distributed outside the country in which the related earnings were generated.
As a percent of sales, cost of goods sold was 58.7% for the twelve months ended December 31, 2022, compared to 62.9% for the same period last year.
As a percent of sales, cost of goods sold was 60.4% for the twelve months ended December 31, 2023, compared to 58.7% for the same period last year.
Income tax provision We recognized income tax expense of approximately $56.7 million for the twelve months ended December 31, 2022, and income tax expense of approximately $78.8 million for the twelve months ended December 31, 2021, resulting in effective income tax rates of 14.3% and 25.0%, respectively.
Income tax provision We recognized income tax expense of approximately $47.3 million for the twelve months ended December 31, 2023, and income tax expense of approximately $56.7 million for the twelve months ended December 31, 2022, resulting in effective income tax rates of 17.0% and 14.3%, respectively.
We had cash capital expenditures of $211.7 million, or 10.6% of net sales. Net cash flow was a negative $25.7 million , which includes the net pay-down of $133.0 million of long-term debt.
We had cash capital expenditures of $211.7 million, or 10.6% of net sales. Net cash flow was a negative $25.7 million , which includes the net pay-down of $112.2 million of total debt.
On an ongoing basis, we evaluate our estimates, which are based upon historical experiences, market trends and financial forecasts and projections, and upon various assumptions that management believes to be reasonable under the circumstances at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
On an ongoing basis, we evaluate our estimates, which are based upon historical experiences, market trends and financial forecasts and projections, and upon various assumptions that management believes to be reasonable under the circumstances at that certain point in time.
Furthermore, under the Credit Agreement, restricted payments, including dividends and share repurchases, are permitted in certain circumstances, including while the pro forma Consolidated Leverage Ratio is, both before and after giving effect to any such restricted payment, at least 0.25 to 1.00 less than the maximum permitted under the Credit Agreement. In addition to the liquidity provided by the U.S.
Furthermore, under the Credit Agreement, restricted payments, including dividends and share repurchases, are permitted in certain circumstances, including while the pro forma Consolidated Leverage Ratio is, both before and after giving effect to any such restricted payment, at least 0.25 to 1.00 less than the maximum permitted under the Credit Agreement. The Revolving Credit Facility matures on May 26, 2028.
A rise in interest rates could have an adverse impact upon our cost of working capital and our interest expense. As of December 31, 2022, our outstanding principal long-term debt was $150.3 and outstanding short-term debt was $36.3 million.
A rise in interest rates could have an adverse impact upon our cost of working capital and our interest expense. As of December 31, 2023, our outstanding principal long-term debt was $21.4 and outstanding short-term debt was $40.7 million.
Credit Agreement, our 51% owned subsidiary, Eris Technology Company ("ERIS"), borrowed $25.8 million on a long-term basis from local Taiwan banks. The ERIS debt matures in periods through 2033.
In addition to the liquidity provided by the Credit Agreement, our 51% owned subsidiary, Eris Technology Company ("ERIS"), borrowed $21.4 million on a long-term basis from local Taiwan banks. The ERIS debt matures in periods through 2033.
For the twelve months ended December 31, 2022, gross profit increased approximately 23.4% when compared to the prior year. Gross profit margin for the twelve month periods ended December 31, 2022 and 2021, was 41.3% and 37.1%, respectively.
For the twelve months ended December 31, 2023, gross profit decreased approximately 20.4% when compared to the prior year. Gross profit margin for the twelve month periods ended December 31, 2023 and 2022, was 39.6% and 41.3%, respectively.
If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis. If future demand or market conditions are different than our current estimates, an inventory adjustment may be required, and would be reflected in cost of goods sold in the period the revision is made.
If future demand or market conditions are different than our current estimates, an inventory adjustment may be required, and would be reflected in cost of goods sold in the period the revision is made.
Short-term debt Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $172.8 million. Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted and contain no restrictive covenants. These credit facilities bear interest at LIBOR or similar indices plus a specified margin.
Short-term debt Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $147.9 million. Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted and contain no restrictive covenants.
Income tax provision Our global presence requires us to pay income taxes in a number of jurisdictions. See Note 12 of “Notes to Consolidated Financial Statements” for additional information.
Income tax provision Our global presence requires us to pay income taxes in a number of jurisdictions. See Note 12 of “Notes to Consolidated Financial Statements” for additional information. Net income attributable to noncontrolling interest This represents the minority investors’ share of our subsidiaries’ earnings.
The table below sets forth summary information from our statements of cash flows: Twelve Months Ended December 31, 2022 2021 Net cash flows provided by operating activities $ 392,501 $ 338,543 Net cash and cash equivalents used in investing activities (265,263 ) (144,229 ) Net cash and cash equivalents used in financing activities (125,713 ) (158,441 ) Effect of exchange rate changes on cash and cash equivalents (27,244 ) 10,416 Change in cash and cash equivalents, including restricted cash $ (25,719 ) $ 46,289 Operating Activities Net cash provided by operating activities for 2022 was approximately $392.5 million, due primarily to $339.3 million of net income, $127.8 million in depreciation expense and amortization of intangible assets expense and $36.3 million from non-cash share-based compensation expense and a non-cash loss on investments of $16.2 million.
The table below sets forth summary information from our statements of cash flows: Twelve Months Ended December 31, 2023 2022 Net cash flows provided by operating activities $ 280,914 $ 392,501 Net cash and cash equivalents used in investing activities (158,322 ) (265,263 ) Net cash and cash equivalents used in financing activities (144,723 ) (125,713 ) Effect of exchange rate changes on cash and cash equivalents (485 ) (27,244 ) Change in cash and cash equivalents, including restricted cash $ (22,616 ) $ (25,719 ) Operating Activities Net cash provided by operating activities for 2023 was approximately $280.9 million, due primarily to $230.6 million of net income, $137.3 million in depreciation expense and amortization of intangible assets expense and $30.9 million from non-cash share-based compensation expense.
Our market focus is on high-growth, end-user applications in the following areas: • Industrial: embedded systems, precision controls, and Industrial IoT; • Automotive: connected driving, comfort/style/safety, and electrification/powertrain; • Computing: cloud computing including server, storage, and data center applications; • Communications: smartphones, 5G networks, advanced protocols, and charging solutions; and • Consumer: IoT, wearables, home automation, and smart infrastructure; 28 This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the Company for the twelve months ended December 31 2022.
Our market focus is on high-growth, end-user applications in the following areas: • Industrial: embedded systems, precision controls, and Industrial IoT; • Automotive: connected driving, comfort/style/safety, and electrification/powertrain; • Computing: cloud computing including artificial intelligence servers, storage, and data center applications; 31 • Communications: smartphones, 5G networks, advanced protocols, and charging solutions; and • Consumer: IoT, wearables, home automation, and smart infrastructure.
Cost is determined principally by the first-in, first-out method. On an ongoing basis, we evaluate our inventory for obsolescence and slow-moving items. This evaluation includes analysis of sales levels, sales projections, and purchases by item, as well as raw material usage related to our manufacturing facilities.
On an ongoing basis, we evaluate our inventory for obsolescence and slow-moving items. This evaluation includes analysis of sales levels, sales projections, and purchases by item, as well as raw material usage related to our manufacturing facilities. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis.
We believe the following critical accounting estimates affect the significant estimates and judgments we use in the preparation of our consolidated financial statements, and may involve a higher degree of judgment and complexity than others.
Actual results may differ, significantly at times, from these estimates under different assumptions or conditions. 37 We believe the following critical accounting policies and estimates affect the significant estimates and judgments we use in the preparation of our consolidated financial statements, and may involve a higher degree of judgment and complexity than others.
The Company's 2022 capital expenditures were higher than our target model of 5% to 9% of net sales, due to expansion of our wafer fabrication facility in Hsinchu Science Park in Taiwan. Going forward, over the long term, the Company expects capital expenditures to be within the 5% to 9% of net sales target model range.
Cash capital expenditures in 2023 were approximately 9.1% of our net sales. The Company's 2023 capital expenditures were higher than our target model of 5% to 9% of net sales, due to expansion of our wafer fabrication facility in Hsinchu Science Park in Taiwan.
This represents the improved product mix across the portfolio, as well as price increases to offset supply chain cost increasing. 31 The table below sets forth our revenue as a percentage of product revenue by end-user market: Twelve Months Ended December 31, End-Markets 2022 2021 2020 Industrial 27% 23% 23% Automotive 15% 12% 11% Computing 24% 30% 20% Communications 15% 16% 21% Consumer 19% 19% 25% Cost of Goods Sold Cost of goods sold increased approximately $38.5 million for the twelve months ended December 31, 2022 compared to the same period last year.
The table below sets forth our revenue as a percentage of product revenue by end-user market: Twelve Months Ended December 31, End-Markets 2023 2022 2021 Industrial 27% 27% 23% Automotive 19% 15% 12% Computing 23% 24% 30% Consumer 18% 19% 19% Communications 13% 15% 16% Cost of Goods Sold Cost of goods sold decreased approximately $169.8 million for the twelve months ended December 31, 2023 compared to the same period last year, reflecting the decrease in revenue.
The Company's products include diodes; rectifiers; transistors; MOSFETs; GPP bridges; GPP rectifiers; protection devices; function-specific arrays; single gate logic; amplifiers and comparators; Hall-effect and temperature sensors; and power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching and linear voltage regulators, voltage references along with special-function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers.
The Company's products include diodes; rectifiers; transistors; MOSFETs; SiC diodes and MOSFETs; protection devices; logic; voltage translators; amplifiers and comparators; sensors; and power management devices such as AC-DC converters, DC-DC switching, photocoupler, linear voltage regulators, voltage references, LED drivers, power switches, and voltage supervisors.
For 2022 and 2021 our working capital was $729.1 million and $716.6 million, respectively. In 2022, our working capital increased primarily due to increases in accounts receivable and inventories, and decrease in our accounts payable and the current portion of long-term debt.
For 2023 and 2022 our working capital was $793.9 million and $729.1 million, respectively. In 2023, our working capital increased primarily due to increases in accounts receivable and inventories, and a decrease in our income taxes payable and accounts payable.
Operating expenses Operating expenses for the twelve months ended December 31, 2022 increased approximately $24.7 million, or 6.3%, compared to the same period last year. Selling, general and administrative expenses (“SG&A”) increased approximately $23.2 million. The increase in SG&A was driven by increases in wages and benefits, selling expenses and freight and duty charges.
Operating expenses Operating expenses for the twelve months ended December 31, 2023 decreased approximately $11.4 million, or 2.7%, compared to the same period last year due to product mix changes and lower prices. Selling, general and administrative expenses (“SG&A”) decreased approximately $22.9 million. The decrease in SG&A was due to lower wages and benefits and freight and duty costs.
The security interest is continuing security for the payment, discharge and performance of all of the secured liabilities, which includes Diodes Hong Kong Limited’s payment obligations under the Facility. The Facility is governed by the laws of Hong Kong. Contractual Obligations Our estimated future obligations consist of debt, interest on long-term debt, leases, defined benefit obligation and purchase obligations.
The security interest is continuing security for the payment, discharge and performance of all of the secured liabilities, which includes Diodes Hong Kong Limited’s payment obligations under the Facility.
See “Risk Factors – Risks Related to Our International Operations” in Part I, Item 1A of this Annual Report for a more detailed summary of the intellectual property technology risks and other associated with our international business operations. 33 Discussion of Cash Flows Cash and cash equivalents, including restricted cash, decreased approximately $25.7 million to $341.1 million in 2022 from $366.8 million in 2021.
These risks may result in material and adverse impacts on our financial condition and results of operations. See “Risk Factors – Risks Related to Our International Operations” in Part I, Item 1A of this Annual Report for a more detailed summary of the intellectual property technology risks and other associated with our international business operations.
These increases were partially offset by a net decrease in operating capital assets and liabilities of $81.1 million, a decrease in deferred income taxes of $39.2 million.
The increases were partially offset by a net decrease in operating capital assets and liabilities of $77.6 million, non-cash gains on investments of $19.4 million and a decrease in deferred income taxes of $13.3 million.
Our capital expenditures for these periods were primarily related to manufacturing expansion in both our assembly/test and wafer fabrication facilities. Cash capital expenditures in 2022 were approximately 10.6% of our net sales.
The Facility is governed by the laws of Hong Kong. 36 Capital expenditures and investments In 2023 and 2022, our total cash capital expenditures were approximately $150.8 million and $211.7 million, respectively. Our capital expenditures for these periods were primarily related to manufacturing expansion in both our assembly/test and wafer fabrication facilities.
Financing Activities Net cash used in financing activities for 2022 was approximately $125.7 million, due primarily to the net reduction in our outstanding indebtedness of $112.2 million and taxes on net share settlements of $12.3 million.
Financing Activities Net cash used in financing activities for 2023 was approximately $144.7 million, due primarily to the net reduction in our outstanding indebtedness of $124.3 million and taxes on net share settlements of $15.6 million. Contractual Obligations Our estimated future obligations consist of debt, interest on long-term debt, leases, defined benefit obligation and purchase obligations.
Acquisitions will continue to be part of our growth strategy to reach our 2025 revenue and gross profit goal. We have a solid pipeline of designs and expanded customer relationships across all regions and product lines.
We have a solid pipeline of designs and expanded customer relationships across all regions and product lines.
See “Accounting for income taxes” below and Note 12 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information. 34 Critical Accounting Estimates The preparation of financial statements in conformity with generally accepted principles in the United States of America (“U.S.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with generally accepted principles in the United States of America (“U.S.
Investing Activities Net cash used in investing activities for 2022 was approximately $265.3 million, due primarily to the purchase of property, plant and equipment for $211.7 million and the purchase of SPFAB for $80.4 million.
Investing Activities Net cash used in investing activities for 2023 was approximately $158.3 million, due primarily to the purchase of property, plant and equipment for $150.8 million, purchases of equity securities of $17.9 million and net purchases of short-term investments of $3.2 million.
Interest payments are due monthly on outstanding amounts under the credit lines. The unused and available credit under the various facilities as of December 31, 2022, was approximately $136.0 million, net of $36.3 million advanced under our foreign credit lines and $0.4 million credit used for import and export guarantee. Long-term debt The Company maintains a long-term credit facility (“U.S.
The unused and available credit under the various facilities as of December 31, 2023, was approximately $106.8 million, net of $40.7 million advanced under our foreign credit lines and $0.4 million credit used for import and export guarantee.
This discussion should be read in conjunction with Item 8, the consolidated financial statements and the notes to consolidated financial statements.
This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity of the Company for the twelve months ended December 31 2023. This discussion should be read in conjunction with Item 8, the consolidated financial statements and the notes to consolidated financial statements.
We cannot make reasonable estimates of the amount and period in which our tax liabilities will be paid.
We cannot make reasonable estimates of the amount and period in which our tax liabilities will be paid. See “Accounting for income taxes” below and Note 12 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information.
The increase in interest expense is due to increased interest rates on our floating rate debt partially offset by lower borrowing levels. Foreign currency gain increased $4.2 million during the twelve months ended December 31, 2022 due to the effectiveness of the Company's hedging program.
The decrease in interest expense is due to lower levels of debt partially offset by increased interest rates on our floating rate debt. Unrealized gain on investments increased from 2022 due to mark to market adjustments on investments.
Net income attributable to noncontrolling interest This represents the minority investors’ share of our subsidiaries’ earnings. 30 Net income attributable to common stockholders Net income attributable to common stockholders is net income less net income attributable to noncontrolling interest.
Net income attributable to common stockholders Net income attributable to common stockholders is net income less net income attributable to noncontrolling interest.
Credit Agreement”) consisting of a term loan with a current balance of zero and a $200.0 million revolving senior credit facility with zero drawn as of December 31, 2022. The revolving senior credit facility and term loan mature on May 29, 2024.
The Existing Credit Agreement consisted of a term loan with no current balance as of the date of the Credit Agreement and a $225.0 million revolving senior credit facility with nothing drawn as of the date of the Credit Agreement.
The Company's wafer fabrication facilities are located in Oldham, England; Greenock, Scotland; Shanghai and Wuxi, China; and Keelung, and Hsinchu, Taiwan and South Portland, Maine, United States. The Company has assembly and test facilities located in Shanghai, Jinan, Chengdu, and Wuxi, China; Neuhaus, Germany; and Jhongli and Keelung, Taiwan.
Diodes has assembly and test facilities located in Shanghai, Chengdu, and Wuxi, China; Neuhaus, Germany; and Jhongli and Keelung, Taiwan.
Total net sales for SPFAB represent less than 1% of of net sales for the year ended December 31, 2022. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022.
This evaluation included review of the documentation of controls, testing of operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
We consider other valuation methods, such as the cost approach or market approach, if it is determined that these methods provide a more representative approximation of fair value. Business Combinations Significant judgment is often required in estimating the fair value of assets acquired and liabilities assumed.
Business Combinations Significant judgment is often required in estimating the fair value of assets acquired and liabilities assumed.
Summary for the Twelve Months Ended December 31, 2021 • Net sales were $1.81 billion, an increase of 46.9% from the $1.23 billion in 2020; • Gross profit was $670.4 million, a 55.5% increase, compared to the $431.1 million in 2020; • Gross margin improved 200 basis points to 37.1% from 35.1% in 2020; • Operating income increased 105.4% to $276.0 million, or 15.3% of net sales, compared to $134.3 million, or 10.9% of net sales, in 2020; • Net income was $228.8 million, or $5.00 per diluted share, compared to $98.1 million, or $1.88 per diluted share, in 2020; and • We achieved $338.5 million cash flow from operations.
Summary for the Twelve Months Ended December 31, 2023 • Net sales were $1.7 billion, a decrease of 16.9% over the $2.0 billion in 2022; • Gross profit was $658.2 million, a 20.4% decrease from $827.2 million in 2022; • Gross profit margin declined 170 basis points to 39.6% compared to 41.3% in 2022; • Operating income decreased 38.6% to $250.6 million, or 15.1% of revenue, compared to $408.2 million, or 20.4% of revenue, in 2022; • Net income was $227.2 million, a decrease of 31.4% from the $331.3 million last year; • Earnings per share was $4.91 per diluted share, a 31.8% decrease from the $7.20 per diluted share in 2022; • We achieved $280.9 million cash flow from operations.
We had cash capital expenditures of $141.2 million, or 7.8% of net sales. Net cash flow was a positive $46.3 million.
We had cash capital expenditures of $150.8 million, or 9.1% of net sales. Net cash flow was a negative $22.6 million, which includes the net pay-down of $124.3 million of total debt.
SG&A, as a percentage of sales, was 14.0% and 14.3% for the twelve-month periods ended December 31, 2022 and 2021, respectively. R&D, as a percentage of sales, was 6.3% and 6.6% for the twelve-month periods ended December 31, 2022 and 2021, respectively. Other (expense)/income Interest income was relatively flat when compared to 2021.
These decreases were partially offset by increases in professional services and other selling expenses. SG&A, as a percentage of net sales, was 15.5% and 14.0% for the twelve-month periods ended December 31, 2023 and 2022, respectively.
Both the term loan portion and the revolving portion of the Credit Agreement bear an interest rate at LIBOR or similar other indices plus a specified margin.
The Borrowers have the option to increase the Revolving Facility and/or incur Incremental Term Loans in an aggregate principal amount of up to $350.0 million. The Revolving Credit Facility bears interest at Term SOFR or similar other indices plus a specified margin.
The Company also has timing, connectivity, switching, and signal integrity solutions for high-speed signals. The Company's corporate headquarters and Americas’ sales offices are located in Plano, Texas, and Milpitas, California, respectively. Design, marketing, and engineering centers are located in Plano; Milpitas; Taipei, Taoyuan City, and Zhubei City, Taiwan; Shanghai and Yangzhou, China; Oldham, England; and Neuhaus, Germany.
We also have timing and connectivity solutions including clock ICs, crystal oscillators, PCIe packet switches, multi-protocol switches, interface products, and signal integrity solutions for high-speed signals. Diodes’ corporate headquarters and Americas’ sales offices are located in Plano, Texas, and Milpitas, California.
Research and development expenses (“R&D”) increased approximately $7.1 million primarily due to increases in wages and benefits, and costs associated with new product and new process development activities. Amortization of acquisition-related intangibles decreased approximately 4.0% reflecting the overall reduction in the balance of intangible assets subject to amortization.
Amortization of acquisition-related intangibles decreased approximately 2.1% reflecting the overall reduction in the balance of intangible assets subject to amortization. Other (expense)/income Interest income increased $9.7 million or 263.2% when compared to 2022 due to increase interest rates on our short-term investments and income from cross-currency swaps.
Removed
Business Outlook and Factors Relevant to Our Results of Operations Our record financial performance in 2022 represents a significant step toward our 2025 business targets of $1.0 billion of gross profit, based upon net sales of $2.5 billion and gross margin of 40%.
Added
The discussion of our financial condition and results of operations for the year ended December 31, 2021 included in Item 7.
Removed
Unrealized loss on investments increased from 2021 due to investment losses from investments the Company acquired in the LSC acquisition.
Added
Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 is incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Removed
The security interest is continuing security for the payment, discharge and performance of all of the secured liabilities, which includes Diodes Hong Kong Limited’s payment obligations under the Facility. The Facility is governed by the laws of Hong Kong. Capital expenditures and investments In 2022 and 2021, our total cash capital expenditures were approximately $211.7 million and $141.2 million, respectively.
Added
Design, marketing, and engineering centers are located in Plano, Milpitas, U.S.; Taipei, Taoyuan City, Taiwan; Shanghai, Yangzhou, China; Oldham, England; and Neuhaus, Germany. Diodes’ wafer fabrication facilities are located in South Portland, Maine, U.S., Oldham, Greenock, UK; Shanghai and Wuxi, China; and Keelung and Hsinchu, Taiwan.
Removed
These risks may result in material and adverse impacts on our financial condition and results of operations.
Added
Business Outlook and Factors Relevant to Our Results of Operations Fiscal year 2023 proved to be challenging as the consumer, computing and communications markets experienced an extended slowdown, coupled with an inventory rebalancing in the industrial market in late 2023 as well as softness in certain areas of the automotive market.
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