ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
The Company’s financial statements present net income and earnings per share that are calculated using accounting principles generally accepted in the United States (“GAAP”). The Company’s management makes adjustments to the GAAP measures that it feels are necessary to allow investors and other readers of the Company’s financial releases to view the Company’s operating results as viewed by the Company’s management, board of directors and research analysts in the semiconductor industry. These non-GAAP measures are not prepared in accordance with, and should not be considered alternatives or necessarily superior to, GAAP financial data and may be different from non-GAAP measures used by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names. The explanation of the adjustments made in the table above, are set forth below:
Detail of non-GAAP adjustments
Amortization of acquisition-related intangible assets – The Company excluded this item, including amortization of developed technologies and customer relationships. The fair value of the acquisition-related intangible assets is amortized using straight-line methods which approximate the proportion of future cash flows estimated to be generated each period over the estimated useful life of the applicable assets. The Company believes that exclusion of this item is appropriate because a significant portion of the purchase price for its acquisitions was allocated to the intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both the Company’s newly acquired and long-held businesses. In addition, the Company excluded this item because there is significant variability and unpredictability among companies with respect to this expense.
Acquisition related costs – The Company excluded expenses associated with the acquisition of LITE-ON Semiconductor, which consisted of advisory, legal and other professional and consulting fees. These costs were expensed as they were incurred and as services were received, and in which the corresponding tax adjustments were made for the non-deductible portions of these expenses. The Company believes the exclusion of the acquisition related costs provides investors with a more accurate reflection of costs likely to be incurred in the absence of an unusual event such as an acquisition and facilitates comparisons with the results of other periods that may not reflect such costs.
Gain on LSC investments – LSC recorded a market to market gain on an equity investment. The Company believes this gain is not reflective of the ongoing operations and exclusion of this gain provides investors an enhanced view of the Company’s operating results.
Restructuring costs – The Company has recorded restructuring charges related to the shutdown and relocation of one of our assembly and test facilities located in Chengdu, China, restructuring at other China sites, and restructuring of select European entities. These restructuring charges are excluded from management’s assessment of the Company’s operating performance. The Company believes the exclusion of the restructuring charges provides investors an enhanced view of the cost structure of the Company’s operations and facilitates comparisons with the results of other periods that may not reflect such charges or may reflect different levels of such charges.
Board member retirement costs – The Company excluded expenses in connection with the retirement of a member of the Company’s board of directors. The Company modified that director’s unvested RSU grants to vest upon his retirement. The shares subject to the modified grants will be released that board member as if they were vesting under the original vesting timeline. In connection with this modification the Company recorded additional expense of approximately $1.7 million.
CASH FLOW ITEMS
Free cash flow (FCF) (Non-GAAP)
FCF for the third quarter of 2021 is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operations. For the third quarter of 2021, FCF was $57.8 million, which 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 amounts 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 |
Nine Months Ended |
|||||||||||
September 30 |
September 30 |
|||||||||||
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||
| Net income (per-GAAP) | $ |
68,424 |
$ |
27,152 |
$ |
163,250 |
$ |
68,353 |
||||
| Plus: | ||||||||||||
| Interest expense, net |
|
652 |
|
3,607 |
|
3,947 |
|
7,064 |
||||
| Income tax provision |
|
14,766 |
|
5,871 |
|
36,320 |
|
15,097 |
||||
| Depreciation and amortization |
|
30,682 |
|
26,699 |
|
92,084 |
|
81,043 |
||||
| EBITDA (non-GAAP) | $ |
114,524 |
$ |
63,329 |
$ |
295,601 |
$ |
171,557 |
||||
| DIODES INCORPORATED AND SUBSIDIARIES |
||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS |
||||||||
| (in thousands) |
||||||||
|
|
|
|
|
|
||||
|
|
|
September 30 |
|
December 31, |
||||
|
|
|
|
2021 |
|
|
|
2020 |
|
|
|
|
(unaudited) |
|
(audited) |
||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ |
280,543 |
|
$ |
268,065 |
|
||
| Restricted Cash |
|
4,295 |
|
|
52,464 |
|
||
| Short-term investments |
|
7,364 |
|
|
6,142 |
|
||
| Accounts receivable, net of allowances of $3,887 and $3,806 at
September 30, 2021 and December 31, 2020, respectively |
|
348,688 |
|
|
320,061 |
|
||
| Inventories |
|
322,088 |
|
|
307,062 |
|
||
| Prepaid expenses and other |
|
100,905 |
|
|
70,193 |
|
||
| Total current assets |
|
1,063,883 |
|
|
1,023,987 |
|
||
| Property, plant and equipment, net |
|
540,520 |
|
|
530,815 |
|
||
| Deferred income tax |
|
52,436 |
|
|
57,841 |
|
||
| Goodwill |
|
149,592 |
|
|
158,331 |
|
||
| Intangible assets, net |
|
98,570 |
|
|
110,591 |
|
||
| Other long-term assets |
|
136,908 |
|
|
97,892 |
|
||
| Total assets | $ |
2,041,909 |
|
$ |
1,979,457 |
|
||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Line of credit | $ |
15,690 |
|
$ |
140,563 |
|
||
| Accounts payable |
|
195,098 |
|
|
168,045 |
|
||
| Accrued liabilities |
|
179,908 |
|
|
160,117 |
|
||
| Income tax payable |
|
35,525 |
|
|
19,177 |
|
||
| Current portion of long-term debt |
|
18,404 |
|
|
21,860 |
|
||
| Total current liabilities |
|
444,625 |
|
|
509,762 |
|
||
| Long-term debt, net of current portion |
|
218,000 |
|
|
288,179 |
|
||
| Deferred tax liabilities |
|
34,729 |
|
|
34,598 |
|
||
| Other long-term liabilities |
|
127,442 |
|
|
130,795 |
|
||
| Total liabilities |
|
824,796 |
|
|
963,334 |
|
||
| Commitments and contingencies | ||||||||
| 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; 45,015,853 and 44,276,194, issued and outstanding at September 30, 2021 and December 31, 2020, respectively |
|
36,194 |
|
|
35,692 |
|
||
| Additional paid-in capital |
|
463,748 |
|
|
449,598 |
|
||
| Retained earnings |
|
1,051,296 |
|
|
888,046 |
|
||
| Treasury stock, at cost, 9,272,513 shares held at September 30, 2021 and 9,259,858 shares held at December 31, 2020 |
|
(336,894 |
) |
|
(335,910 |
) |
||
| Accumulated other comprehensive loss |
|
(58,281 |
) |
|
(73,606 |
) |
||
| Total stockholders' equity |
|
1,156,063 |
|
|
963,820 |
|
||
| Noncontrolling interest |
|
61,050 |
|
|
52,303 |
|
||
| Total equity |
|
1,217,113 |
|
|
1,016,123 |
|
||
| Total liabilities and stockholders' equity | $ |
2,041,909 |
|
$ |
1,979,457 |
|
||
