The minority interest in joint venture represents the minority investor’s share of the Diodes-China joint venture’s income for the period. The increase in the joint venture earnings for 2003 is primarily the result of in- creased sales. The joint venture investment is eliminated in consolidation of the Company’s financial statements, and the activities of Diodes-China are included therein. As of December 31, 2003, the Company had a 95% con- trolling interest in the joint venture. 

The Company generated net income of $10.1 million (or $0.79 basic earnings per share and $0.70 diluted earnings per share) in 2003, as compared to $5.8 million (or $0.47 basic earnings per share and $0.44 diluted earnings per share) for 2002. This 74.0% increase is due primarily to the 18.2% sales increase at gross profit margins of 26.7% compared to gross profit margins of 23.1% in 2002. 

## Financial Condition 

## Liquidity and Capital Resources 

The Company’s liquidity requirements arise from the funding of its working capital needs, primarily inven- tory, work-in-process and accounts receivable, as well as capital expenditures. The Company’s primary sources for working capital and capital expenditures are cash flow from operations and borrowings under the Com- pany’s bank credit facilities. Any withdrawal of support from its banks could have adverse consequences on the Company’s liquidity. The Company’s liquidity depends, in part, on customers paying within credit terms, and any extended delays in payments or changes in credit terms given to major customers may have an impact on the Company’s cash flow. In addition, any abnormal product returns or pricing adjustments may also affect the Company’s source of short-term funding. 

At December 31, 2004 the Company had cash and cash equivalents totaling $19.0 million, an increase of $6.1 million from December 31, 2003. Cash provided by operating activities in 2004 was $29.3 million compared to $18.8 million in 2003 and $20.0 million in 2002. The primary sources of cash flows from operating activities in 2004 were net income of $25.6 million and deprecia- tion and amortization of $13.2 million. The primary sources in 2003 were depreciation and amortization of 

$11.1 million and net income of $10.1 million. The pri- mary sources of cash flows from operating activities in 2002 were depreciation and amortization of $9.7 million and net income of $5.8 million. The primary use of cash flows from operating activities in 2004 was an increase in accounts receivable of $13.2 million and an increase of inventory of $6.1 million. The primary use of cash flows from operating activities in 2003 was an increase in accounts receivable of $8.5 million. The primary use of cash flows from operating activities in 2002 was an increase in accounts receivable of $4.8 million. 

For the year ended December 31, 2004, accounts receivable increased 43.2% compared to the 35.6% increase in sales, as days sales outstanding increased from 70 to 82 days due primarily to a trend in longer payment terms, primarily from Far East customers as well as major distributors. The Company continues to closely monitor its credit terms, while at times providing extended terms as required. The ratio of the Company’s current assets to current liabilities on December 31, 2004 was 2.16 to 1, compared to a ratio of 1.67 to 1 and 1.69 to 1 as of December 31, 2003 and 2002, respectively. 

Cash used by investing activities was $26.1 million in 2004, compared to $15.3 million in 2003 and $6.8 million in 2002. The primary investments were for additional manufacturing equipment and expansion at the Diodes- China and Diodes-Shanghai manufacturing facilities, and to a lesser extent, for capacity increases at Diodes- FabTech. 

On December 1, 2000, the Company purchased all the outstanding capital stock of FabTech Incorporated, a 5-inch wafer foundry located in Lee’s Summit, Missouri from LSC, the Company’s largest stockholder. The acquisition purchase price consisted of approximately $5 million in cash, plus FabTech was obligated to repay an aggregate of approximately $19 million of debt, consist- ing of (i) an approximately $13.6 million note payable to LSC, (ii) an approximately $2.6 million note payable to the Company, and (iii) an approximately $3.0 million note payable to a financial institution (which was repaid on December 4, 2000 with the proceeds of a capital contribution by the Company). The acquisition was financed internally and through bank credit facilities. 

