## Note 1 – Summary of Operations and Significant Accounting Policies (continued) 

In December 2004, the FASB issued FASB Statement No. 153, Exchanges of Nonmonetary Assets – An Amend- ment of APB Opinion No. 29 . The amendments made by Statement No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial sub- stance.” The provisions in Statement No. 153 are effec- tive for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Adoption of this standard is not expected have a material impact on the consolidated financial statements. 

In September 2004, the EITF reached a consensus on EITF Issue No. 04-10, Applying Paragraph 19 of FAS 131 in Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds.  The con- sensus states that operating segments that do not meet the quantitative thresholds can be aggregated only if aggregation is consistent with the objective and basic principles of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information , the segments have similar economic characteristics, and the segments share a majority of the aggregation criteria (a)-(e) listed in paragraph 17 of SFAS No. 131. The effective date of the consensus in this Issue is for fiscal years ending after October 13, 2004. If the Financial Accounting Standards Board (FASB) ratifies EITF Issue No. 04-10, the Company does not anticipate a material impact on the financial statements. 

In March 2004, the EITF reached a consensus on the remaining portions of EITF 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,  with an effective date of June 15, 2004. EITF 03-01 provides new disclosure requirements 

## notes to consolidated financial statements 

## Diodes Incorporated and Subsidiaries 

for other-than-temporary impairments on debt and equity investments. Investors are required to disclose quantitative information about: (i) the aggregate amount of unrealized losses, and (ii) the aggregate related fair values of investments with unrealized losses, segregated into time periods during which the investment has been in an unrealized loss position of less than 12 months and greater than 12 months. In addition, investors are required to disclose the qualitative information that sup- ports their conclusion that the impairments noted in the qualitative disclosure are not other-than temporary. The Company determined that EITF 03-01 would not have a material impact on the financial statements. 

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51 , which provides guidance on the identification of and reporting for variable inter- est entities. Interpretation No. 46 expands the criteria for consideration in determining whether a variable interest Interpretation No. 46 is effective immediately for vari- able interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. Interpretation No. 46 was effective for the Company in 2004 because the Company entered into a joint venture for Diodes-Shanghai. The Company has a 95% interest. The Interpretation requires unconsolidated variable interest entities to be consoli- dated by their primary beneficiaries. The primary ben- eficiary is the party that assumes the majority of the risk, which includes, but is not limited to, the entity’s expected losses. Management concluded that its investment in Diodes-Shanghai did not meet the criteria for consolida- tion under the standard. Based upon our review, we con- cluded that management’s analysis and the conclusions contained therein appeared reasonable. 

In December 2004, the FASB also issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4,”  which will become effective for the Company beginning January 1, 2006. This standard clarifies that abnormal amounts of idle facility expense, freight, han- dling costs and wasted material should be expensed as incurred and not included in overhead. In addition, this standard requires that the allocation of fixed production overhead costs to inventory be based on the normal 

