DIODES INC DEL

Previous wording

Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales and may demand to audit our operations from time to time. A failure to qualify a product or a negative audit finding could adversely affect our net sales, operating results and financial condition.

Current wording

Our customers may require our products to undergo a lengthy and expensive qualification process without any assurance of product sales and may audit our operations from time to time. A failure to qualify a product or a negative audit finding could adversely affect our net sales, operating results, and financial condition.

Previous wording

The invasion of Ukraine by Russia could negatively impact our business.

Current wording

The continued hostilities between Ukraine and Russia could negatively impact our business.

Previous wording

National, state and local governments have responded to the COVID-19 pandemic in a variety of ways including by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), ordering businesses to close or limit operations and ordering people to stay at home (i.e., shelter in place), and imposing travel restrictions (including quarantine requirements).

Current wording

National, state, and local governments have responded to pandemics in a variety of ways including by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), ordering businesses to close or limit operations and ordering people to stay at home (i.e., shelter in place), and imposing travel restrictions (including quarantine requirements).

Previous wording

The semiconductor industry is highly cyclical, and periodically experiences significant economic downturns characterized by diminished product demand, production overcapacity, excess inventory, which can result in rapid erosion in average selling prices and significant net sales declines, which may harm our operating results and financial condition.

Current wording

The semiconductor industry is highly cyclical, and periodically experiences significant economic downturns characterized by diminished product demand, production overcapacity and excess inventory, which can result in rapid erosion in average selling prices and significant net sales declines, which may harm our operating results and financial condition.

Previous wording

In addition, we operate in a few narrow markets of the semiconductor market and, as a result, cyclical fluctuations may affect these segments to a greater extent than they affect the broader semiconductor market. This may cause us to experience greater fluctuations in our operating results and financial condition than compared to some of our broad line semiconductor competitors. In addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix, changes in end-user markets and the costs associated with the introduction of new products. The markets for our products depend on continued demand in the industrial, automotive, computing, communications and consumer sectors. These end-user markets also tend to be cyclical and may also experience changes in demand that could adversely affect our operating results and financial condition.

Current wording

In addition, we operate in a few narrow markets of the semiconductor market and, as a result, cyclical fluctuations may affect these segments to a greater extent than they affect the broader semiconductor market. This may cause us to experience greater fluctuations in our operating results and financial condition than some of our broad line semiconductor competitors. In addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix, changes in end-user markets, and the costs associated with the introduction of new products. The markets for our products depend on continued demand in the industrial, automotive, computing, communications, and consumer sectors. These end-user markets also tend to be cyclical and may also experience changes in demand that could adversely affect our operating results and financial condition.

Previous wording

Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales and may demand to audit our operations from time to time. A failure to qualify a product or a negative audit finding could adversely affect our net sales, operating results and financial condition.

Current wording

Our customers may require our products to undergo a lengthy and expensive qualification process without any assurance of product sales and may audit our operations from time to time. A failure to qualify a product or a negative audit finding could adversely affect our net sales, operating results and financial condition.

Previous wording

In addition, from time to time, our customers may demand an audit of our records, product manufacturing, qualification, and packaging processes, business practices and other related items to verify that we have complied with our business obligations, standard processes and procedures, product specifications and governing laws and regulations related to our business practices, and in accordance with the agreed terms and conditions of mutual business agreements. If the audit shows any deficiency in any of these categories, our customers may require us to implement extensive protocols to remedy the deficiency, assess us significant penalties, refuse shipments of our products, return existing inventory, cancel orders, or terminate our business relationship, each of which will adversely affect our net sales, operating results and financial condition.

Current wording

In addition, from time to time, our customers may audit of our records, product manufacturing, qualification, and packaging processes, business practices, and other related items to verify that we have complied with our business obligations, standard processes and procedures, product specifications, and governing laws and regulations related to our business practices, and performed in accordance with the agreed terms and conditions of our business agreements. If the audit shows any deficiency in any of these categories, our customers may require us to implement extensive protocols to remedy the deficiency, assess us significant penalties, refuse shipments of our products, return existing inventory, cancel orders, or terminate our business relationship, each of which will adversely affect our net sales, operating results, and financial condition.

Previous wording

A disruption in production at our manufacturing facilities could have a material adverse effect on our business. Disruptions could occur for many reasons, including fire, floods, hurricanes, typhoons, droughts, tsunamis, volcanoes, earthquakes, disease or other similar natural disasters, unplanned maintenance or other manufacturing problems, labor shortages, power outages or shortages, telecommunications failures, strikes, transportation interruption, government regulation, terrorism or other extraordinary events, including pandemics and epidemics (such as the outbreak of the COVID-19 virus) and related travel restrictions,. Such disruptions may cause direct injury or damage to our employees and property and related internal controls with significant indirect consequences. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance. If one of our key manufacturing facilities is unable to produce our products for an extended period of time, our sales may be reduced by the shortfall caused by the disruption, and we may not be able to meet our customers’ needs, which could cause our customers to seek other suppliers. Such disruptions could have an adverse effect on our operating results and financial condition.

Current wording

A disruption in production at our manufacturing facilities could have a material adverse effect on our business. Disruptions could occur for many reasons, including fire, floods, hurricanes, typhoons, droughts, tsunamis, volcanoes, earthquakes, disease or other similar natural disasters, unplanned maintenance or other manufacturing problems, labor shortages, power outages or shortages, telecommunications failures, strikes, transportation interruption, government regulation, terrorism or other extraordinary events, including pandemics and epidemics (such as the outbreak of the COVID-19 virus or human metapneumovirus), and related travel restrictions. Such disruptions may cause direct injury or damage to our employees and property and related internal controls with significant indirect consequences. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which could negatively affect our business and financial performance. If one of our key manufacturing facilities is unable to produce our products for an extended period of time, our sales may be reduced by the shortfall caused by the disruption, and we may not be able to meet our customers’ needs, which could cause our customers to seek other suppliers. Such disruptions could have an adverse effect on our operating results and financial condition.

Previous wording

difficulties in reducing costs of the acquired entity’s business;

Current wording

difficulties in reducing costs of the acquired entity’s business; and

Previous wording

We may have a significant amount of debt and substantial debt service requirements on our borrowings, including our credit facilities with various financial institutions worldwide. As of December 31, 2023, $21.4 million in long-term debt was outstanding. In addition we have short-term foreign credit facilities with borrowing capacities of approximately $147.9 million with an unused amount of $106.8 million.

Current wording

We may have a significant amount of debt and substantial debt service requirements on our borrowings, including our credit facilities with various financial institutions worldwide. As of December 31, 2024, $20.7 million in long-term debt was outstanding. In addition we have short-term foreign credit facilities with borrowing capacities of approximately $146.0 million with an unused amount of $114.0 million.

Previous wording

The Chinese government has provided various incentives to technology companies, including our manufacturing facilities located in Chengdu and Shanghai, China, in order to encourage development of the high-tech industry. These incentives include reduced tax rates and other measures. As a result, we are entitled to a preferential enterprise income tax rate of 15% so long as our manufacturing facilities continue to maintain their High and New Technology Enterprise (“HNTE”) status. If we were to no longer meet the HNTE requirements, our statutory tax rate for our approved Shanghai facilities would increase to 25% for any period in which an audit shows we were not compliant, which could adversely affect our operating results and financial condition. One of our manufacturing facilities and one of our wafer fabrication facilities located in Shanghai were approved for HNTE status for the tax years 2021-2023 and we expect to meet the criteria for 2024 and continue to qualify for the 15% tax rate. The Company expects to continue to meet HNTE requirements in future years. HNTE qualification requires, but is not limited to, metrics based on China research and development expenditures as well as research and development headcount and overall college-degreed headcount. Any prior years that have already been approved are subject to audit requirements. If we were to no longer meet the HNTE requirements, our statutory tax rate for our approved Shanghai facilities would increase to 25% for any period in which an audit shows we were not compliant, which could adversely affect our operating results and financial condition.

Current wording

The Chinese government has provided various incentives to technology companies, including our manufacturing facilities located in Chengdu and Shanghai, China, in order to encourage development of the high-tech industry. These incentives include reduced tax rates and other measures. As a result, we are entitled to a preferential enterprise income tax rate of 15% so long as our manufacturing facilities continue to maintain their High and New Technology Enterprise (“HNTE”) status. If we were to no longer meet the HNTE requirements, our statutory tax rate for our approved Shanghai facilities would increase to 25% for any period in which an audit shows we were not compliant, which could adversely affect our operating results and financial condition. Two of our manufacturing facilities and one of our wafer fabrication facilities located in Shanghai were approved for HNTE status for the tax years 2024-2026 and continue to qualify for the 15% tax rate. The Company expects to continue to meet HNTE requirements in future years. HNTE qualification requires, but is not limited to, metrics based on China research and development expenditures as well as research and development headcount and overall college-degreed headcount. Any prior years that have already been approved are subject to audit requirements. If we were to no longer meet the HNTE requirements, our statutory tax rate for our approved Shanghai facilities would increase to 25% for any period in which an audit shows we were not compliant, which could adversely affect our operating results and financial condition.

Previous wording

The impact of our HNTE and Go West status, collectively called tax holidays, decreased our tax expense by approximately $0.7 million, $0.2 million and ($0.2) million for the twelve months ended December 31, 2023, 2022 and 2021, respectively. The benefit of the tax holidays on basic and diluted earnings per share for the twelve months ended December 31, 2023, 2022 and 2021 was approximately $0.02, $0.00 and $0.00, respectively.

Current wording

The impact of our HNTE and Go West status, collectively called tax holidays, decreased our tax expense by approximately $1.1 million, $0.7 million, and $0.2 million for the twelve months ended December 31, 2024, 2023, and 2022, respectively. The benefit of the tax holidays on basic and diluted earnings per share for the twelve months ended December 31, 2024, 2023, and 2022 was approximately $0.02, $0.02, and $0.00, respectively.

Previous wording

As of December 31, 2023, the benefit obligation of the Plan was approximately $108.1 million and the total assets in the Plan were approximately $98.0 million. Therefore, the Plan was underfunded by approximately $10.1 million. The difference between Plan obligations and assets, or the funded status of the Plan, is a significant factor in determining the net periodic benefit costs of the Plan and the ongoing funding requirements of the Plan.

Current wording

As of December 31, 2024, the benefit obligation of the Plan was approximately $95.6 million and the total assets in the Plan were approximately $88.3 million. Therefore, the Plan was underfunded by approximately $7.3 million. The difference between Plan obligations and assets, or the funded status of the Plan, is a significant factor in determining the net periodic benefit costs of the Plan and the ongoing funding requirements of the Plan.

Previous wording

The Plan's trustees are required to review the funding position every three years. An actuarial valuation was performed as of March 31, 2022, resulting in a deficit of approximately GBP 20 million (approximately $26 million based on a GBP: USD exchange rate of 1:1.3). As a result of this valuation we have agreed to a revised schedule of contributions of GBP 2.0 million (approximately $2.6 million based on a GBP: USD exchange rate of 1:1.3) to be paid annually with effect from January 1, 2023 to address the deficit revealed by the valuation (with the first payment made by December 31, 2023 through December 31, 2028). A final payment of GBP 1.5 million (approximately $1.95 million based on a GBP: USD rate of 1:1.3) will be made by December 31, 2029. These contributions, together with the assumed asset outperformance, are expected to eliminate the deficit by December 31, 2029.

Current wording

The Plan’s trustees are required to review the funding position every three years. An actuarial valuation was performed as of March 31, 2022, resulting in a deficit of approximately GBP 20 million (approximately $24 million based on a GBP: USD exchange rate of 1:1.2). As a result of this valuation we have agreed to a revised schedule of contributions of GBP 2.0 million (approximately $2.4 million based on a GBP: USD exchange rate of 1:1.2) to be paid annually with effect from January 1, 2023 to address the deficit revealed by the valuation (with the first payment made by December 31, 2023 through December 31, 2028). A final payment of GBP 1.5 million (approximately $1.8 million based on a GBP: USD rate of 1:1.2) will be made by December 31, 2029. These contributions, together with the assumed asset outperformance, are expected to eliminate the deficit by December 31, 2029.

Previous wording

The Plan’s trustees appoint fund managers to carry out all the day-to-day functions relating to the management of the fund and its administration. The fund managers must invest their portion of the Plan’s assets in accordance with their investment manager agreement agreed by the trustees. The trustees are responsible for complying with these investment manager agreements and for deciding on the portion of the Plan’s assets that will be invested with each fund manager. When making decisions, the trustees take advice from experts including the Plan’s actuary and also have the option to consult with the Company.

Current wording

The Plan’s trustees appoint fund managers to carry out the day-to-day functions relating to management of the fund and its administration. The fund managers must invest their portion of the Plan’s assets in accordance with their investment manager agreement agreed by the trustees. The trustees are responsible for complying with these investment manager agreements and for deciding on the portion of the Plan’s assets that will be invested with each fund manager. When making decisions, the trustees take advice from experts including the Plan’s actuary and also have the option to consult with the Company.

Previous wording

The majority of our manufacturing facilities are located in China. For the twelve months ended 2023, 2022 and 2021 our Asian and European subsidiaries represented approximately 68%, 68% and 76%, respectively, of our net sales. There are risks inherent in doing business internationally, including the following, any of which could cause harm to our business:

Current wording

The majority of our manufacturing facilities are located in China. For the twelve months ended 2024, 2023 and 2022 our Asian and European subsidiaries represented approximately 72%, 68%, and 68%, respectively, of our net sales. There are risks inherent in doing business internationally, including the following, any of which could cause harm to our business:

Previous wording

Chinese telecoms equipment makers have sharpened Beijing’s focus on semiconductor self-sufficiency. China’s ministry of finance announced tax breaks “to support the development of integrated circuit design and the software industry,” cancelling corporate taxes for some domestic Chinese companies for two years. Although the outcome of these efforts is uncertain, the development of such capacity in China would likely have a material adverse effect on our profitability and results of operations.

Current wording

In addition to the ongoing issues regarding tariffs, China has been stepping up efforts to design and manufacture semiconductors itself rather than buy from U.S. companies, amid fears that sanctions might cripple its high-tech industry. U.S. restrictions on exports to Chinese telecom equipment makers have sharpened Beijing’s focus on semiconductor self-sufficiency. China’s ministry of finance announced tax breaks “to support the development of integrated circuit design and the software industry,” canceling corporate taxes for some domestic Chinese companies for two years. Although the outcome of these efforts is uncertain, the development of such capacity in China would likely have a material adverse effect on our profitability and results of operations.

Previous wording

We have a significant portion of our manufacturing capacity in mainland China. In addition, in 2022 approximately 47% of our total sales were shipped to customers in China. In recent years, the Chinese economy has experienced periods of rapid expansion and wide fluctuations in the rate of inflation. In response to these factors, the Chinese government has, from time to time, adopted measures to regulate growth and contain inflation, including measures designed to restrict credit or control prices. Such actions in the future could increase the cost of doing business in China or decrease the demand for our products in China and, thereby, have a material adverse effect on our business, operating results and prospects.

Current wording

We have a significant portion of our manufacturing capacity in mainland China. In addition, in 2024 approximately 45% of our total sales were shipped to customers in China. In recent years, the Chinese economy has experienced periods of rapid expansion and wide fluctuations in the rate of inflation. In response to these factors, the Chinese government has, from time to time, adopted measures to regulate growth and contain inflation, including measures designed to restrict credit or control prices. Such actions in the future could increase the cost of doing business in China or decrease the demand for our products in China and, thereby, have a material adverse effect on our business, operating results, and prospects.

Previous wording

Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax, but may be subject to foreign withholding taxes. As of December 31, 2023, we had undistributed earnings from non-U.S. operations of approximately $1.3 billion (including approximately $95.7 million of restricted earnings, which are not available for dividends). Undistributed earnings of our China subsidiaries comprise $511.4 million of this total. Additional Chinese withholding taxes of approximately $52.0 million would be required should the $511.4 million of such earnings be distributed out of China as dividends.

Current wording

Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax, but may be subject to foreign withholding taxes. As of December 31, 2024, we had undistributed earnings from non-U.S. operations of approximately $1.3 billion (including approximately $93.6 million of restricted earnings, which are not available for dividends). Undistributed earnings of our China subsidiaries comprise $437.6 million of this total. Additional Chinese withholding taxes of approximately $50.1 million would be required should the $437.6 million of such earnings be distributed out of China as dividends.

Previous wording

The invasion of Ukraine by Russia could negatively impact our business.

Current wording

The continued hostilities between Ukraine and Russia could negatively impact our business.

Previous wording

A disruption in production at our manufacturing facilities could occur for many reasons, including fire, floods, hurricanes, typhoons, droughts, tsunamis, volcanoes, earthquakes, disease or other similar natural disasters, unplanned maintenance or other manufacturing problems, labor shortages, power outages or shortages, telecommunications failures, strikes, transportation interruption, government regulation, terrorism or other extraordinary events, including pandemics and epidemics (such as the outbreak of the COVID-19 virus) and related travel restrictions. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production. Such disruptions could have an adverse effect on our operating results and financial condition.

Current wording

A disruption in production at our manufacturing facilities could occur for many reasons, including fire, floods, hurricanes, typhoons, droughts, tsunamis, volcanoes, earthquakes, disease or other similar natural disasters, unplanned maintenance or other manufacturing problems, labor shortages, power outages or shortages, telecommunications failures, strikes, transportation interruption, government regulation, terrorism or other extraordinary events, including pandemics and epidemics (such as outbreaks of the COVID-19 virus or the human metapneumovirus), and related travel restrictions. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production. Such disruptions could have an adverse effect on our operating results and financial condition.