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As of December 31, 2004, accumulated and undistrib- uted earnings of Diodes-China and Diodes-Shanghai are approximately $44.2 million, including $25.0 mil- lion of restricted earnings (which are not available for dividends). Through March 31, 2002, the Company had not recorded deferred U.S. Federal or state tax liabilities (estimated to be $8.9 million as of March 31, 2002) on these cumulative earnings since the Company, at that time, considered this investment to be permanent, and had no plans or obligation to distribute all or part of that amount from China to the United States. Beginning in April 2002, the Company began to record deferred taxes on a portion of the China earnings in preparation of a dividend distribution. In the year ended December 31, 2004, the Company received a dividend of approximately $5.7 million from its Diodes-China subsidiary, for which the tax effect is included in U.S. Federal and state tax- able income. As of December 31, 2004, the Company has recorded approximately $2.0 million in deferred taxes on the cumulative earnings of Diodes-China and Diodes- Shanghai. 

The Company is evaluating the need to provide addi- tional deferred taxes for the future earnings of Diodes- China, Diodes-Shanghai, and Diodes-Hong Kong to the extent such earnings may be appropriated for distribution to the Company’s corporate office in North America, and as further investment strategies with respect to foreign earnings are determined. Should the Company’s North American cash requirements exceed the cash that is provided through the domestic credit facilities, cash can be obtained from the Company’s for- eign subsidiaries. However, the distribution of any unap- propriated funds to the U.S. will require the recording of income tax provisions on the U.S. entity, thus reducing net income. 

On October 22, 2004, the President of the United States signed the American Jobs Creation Act (AJCA) into law. Originally intended to repeal the extraterrito- rial income (ETI) exclusion, which had triggered tariffs by the European Union, the AJCA expanded to cover a wide range of business tax issues. Among other items, the AJCA establishes a phased repeal of the ETI, a new 

incentive tax deduction for U.S. corporations to repatri- ate cash from foreign subsidiaries at a reduced tax rate (a deduction equal to 85% of cash dividends received in the year elected that exceeds a base-period amount) and significantly revises the taxation of U.S. companies doing business abroad. 

At December 31, 2004, the Company made a mini- mum estimate for repatriating cash from its subsidiar- ies in China and Hong Kong of $8.0 million under the AJCA, and recorded an income tax expense of approxi- mately $1.3 million. Under the guidelines of the AJCA, the Company will develop a required domestic reinvest- ment plan, covering items such as U.S. bank debt repay- ment, U.S. capital expenditures and U.S. research and development activities, among others, to cover the $8.0 million minimum dividend repatriation. In addition, the Company will complete a quantitative analysis of the benefits of the AJCA, the foreign tax credit implications, and state and local tax consequences of a dividend to maximize the tax benefits of a 2005 dividend. 

At December 31, 2003 and 2004, the Company’s deferred tax assets and liabilities are comprised of the following items: 

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At December 31, 2004, the Company had Federal and state net operating loss (NOL) carryforwards of approxi- mately $17.0 million and $20.2 million, respectively, available to offset future regular and alternative mini- mum taxable income. The Federal NOL carryforwards will begin to expire in 2016 and the state NOL carryfor- wards will begin to expire in 2006. 

