Tax expense related to tax audit – The Company excluded additional tax expense in regard to a tax audit of the China tax authorities. The China government audited the Company’s High and New Technology Enterprise (“HNTE”) status for the years 2009 through 2011 and determined there was an underpayment for the tax year 2011. The Company has been approved for the HNTE status for 2012 through 2014. Given that 2011 is an isolated occurrence, the additional tax and any penalties and interest associated with the audit are being excluded. The Company believes the exclusion of tax expense related to tax audit provides investors an enhanced view of certain costs the Company may incur from time to time and facilitates comparisons with the results of other periods that may not reflect such costs.
Gain on sale of assets – The Company excluded the gain recorded for the sale of assets. During the second quarter 2012, the Company sold an intangible asset located in Europe and this gain was excluded from management’s assessment of the Company’s core operating performance as this long-lived asset was a non-core intellectual asset. The Company believes the exclusion of the gain on sale of assets provides investors an enhanced view of a gain the Company may incur from time to time and facilitates comparisons with results of other periods that may not reflect such gains.
Adjusted Earnings per Share (Non-GAAP) - This non-GAAP financial measure is the portion of the Company’s GAAP net income assigned to each share of stock, excluding inventory valuations, restructuring costs, acquisition costs, retention costs, amortization of acquisition related intangible assets, tax payments related to tax audit and gain on sale of assets, as discussed above. Excluding inventory valuations, restructuring costs, acquisition costs, retention costs, tax payments related to tax audit and gain on sale of assets provides investors with a better depiction of the Company’s operating results and provides a more informed baseline for modeling future earnings expectations. Excluding the amortization of acquisition related intangible assets allows for comparison of the Company’s current and historic operating performance, as described in further detail above. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results and may differ from measures used by other companies. For example, we do not adjust for any amounts attributable to noncontrolling interest. The Company recommends a review of diluted earnings per share on both a GAAP basis and non-GAAP basis be performed to obtain a comprehensive view of the Company’s results. Information on how these share calculations are made is included in the reconciliation tables provided.
CASH FLOW ITEMS
Free cash flow (FCF) (Non-GAAP)
FCF for the Third quarter of 2013 is a non-GAAP financial measure, which is calculated by taking cash flow from operations less capital expenditures. For the Third quarter of 2013, the amount was $9.6 million ($16.7 million less (-) ($7.1 million). FCF represents the cash and cash equivalents that we are able to generate after taking into account cash outlays required to maintain or expand property, plant and equipment. FCF is important because it allows us to pursue opportunities to develop new products, make acquisitions and reduce debt.
CONSOLIDATED RECONCILIATION OF NET INCOME TO EBITDA
EBITDA represents earnings before net interest expense, income tax provision, depreciation and amortization. Management believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties, such as financial institutions in extending credit, in evaluating companies in our industry and provides further clarity on our profitability. In addition, management uses EBITDA, along with other GAAP and non-GAAP measures, in evaluating our operating performance compared to that of other companies in our industry. The calculation of EBITDA generally eliminates the effects of financing, operating in different income tax jurisdictions, and accounting effects of capital spending, including the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization expense. EBITDA is not a recognized measurement under GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, income from operations and net income, each as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures used by other companies. For example, our EBITDA takes into account all net interest expense, income tax provision, depreciation and amortization without taking into account any attributable to noncontrolling interest. Furthermore, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments.
The following table provides a reconciliation of net income to EBITDA (in thousands, unaudited):
| Three Months Ended | |||||||||
| September 30, | |||||||||
| 2013 | 2012 | ||||||||
| Net income (per-GAAP) | $ | 13,619 | $ | 8,553 | |||||
| Plus: | |||||||||
| Interest expense, net | 1,062 | (22 | ) | ||||||
| Income tax provision | 3,604 | 509 | |||||||
| Depreciation and amortization | 18,459 | 15,758 | |||||||
| EBITDA (Non-GAAP) | $ | 36,744 | $ | 24,798 | |||||
| Nine Months Ended | |||||||||
| September 30, | |||||||||
| 2013 | 2012 | ||||||||
| Net income (per-GAAP) | $ | 20,328 | $ | 20,077 | |||||
| Plus: | |||||||||
| Interest expense, net | 3,171 | (15 | ) | ||||||
| Income tax provision | 11,653 | 1,983 | |||||||
| Depreciation and amortization | 54,894 | 47,121 | |||||||
| EBITDA (Non-GAAP) | $ | 90,046 | $ | 69,166 | |||||
| DIODES INCORPORATED AND SUBSIDIARIES | ||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||||
| ASSETS | ||||||||
|
(in thousands) |
||||||||
| September 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| CURRENT ASSETS | (unaudited) | |||||||
| Cash and cash equivalents | $ | 204,214 | $ | 157,121 | ||||
| Short-term investments | 21,690 | - | ||||||
| Accounts receivable, net | 191,792 | 152,073 | ||||||
| Inventories | 194,320 | 153,293 | ||||||
| Deferred income taxes, current | 11,508 | 9,995 | ||||||
| Prepaid expenses and other | 48,741 | 18,928 | ||||||
| Total current assets | 672,265 | 491,410 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, net | 328,802 | 243,296 | ||||||
| DEFERRED INCOME TAXES, non current | 32,234 | 36,819 | ||||||
| OTHER ASSETS | ||||||||
| Goodwill | 89,330 | 87,359 | ||||||
| Intangible assets, net | 55,284 | 44,337 | ||||||
| Other | 24,205 | 16,842 | ||||||
| Total assets | $ | 1,202,120 | $ | 920,063 | ||||
| DIODES INCORPORATED AND SUBSIDIARIES | ||||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
|
(in thousands, except share data) |
||||||||||
| September 30, | December 31, | |||||||||
| 2013 | 2012 | |||||||||
| CURRENT LIABILITIES | (unaudited) | |||||||||
| Lines of credit | $ | 5,499 | $ | 7,629 | ||||||
| Accounts payable | 106,622 | 64,072 | ||||||||
| Accrued liabilities | 69,893 | 41,139 | ||||||||
| Income tax payable | 1,322 | 678 | ||||||||
| Total current liabilities | 183,336 | 113,518 | ||||||||
| LONG-TERM DEBT, net of current portion | 202,115 | 44,131 | ||||||||
| OTHER LONG-TERM LIABILITIES | 63,332 | 41,974 | ||||||||
| Total liabilities | 448,783 | 199,623 | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||
| EQUITY | ||||||||||
| Diodes Incorporated stockholders' equity | ||||||||||
| Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; | ||||||||||
| no shares issued or outstanding | - | - | ||||||||
| Common stock - par value $0.66 2/3 per share; 70,000,000 shares authorized; | ||||||||||
| 46,639,997 and 46,010,815 issued and outstanding at September 30, 2013 and | ||||||||||
| December 31, 2012, respectively | 31,093 | 30,674 | ||||||||
| Additional paid-in capital | 292,505 | 280,571 | ||||||||
| Retained earnings | 420,124 | 399,796 | ||||||||
| Accumulated other comprehensive loss | (32,807 | ) | (33,856 | ) | ||||||
| Total Diodes Incorporated stockholders' equity | 710,915 | 677,185 | ||||||||
| Noncontrolling interest | 42,422 | 43,255 | ||||||||
| Total equity | 753,337 | 720,440 | ||||||||
| Total liabilities and equity | $ | 1,202,120 | $ | 920,063 | ||||||
