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 2014 and determined there was an underpayment for the tax year 2013. The Company has been approved for the HNTE status for 2013 through 2014. Given that 2014 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 this tax audit provides investors with a more accurate indication of tax expense likely to be incurred on an ongoing basis and facilitates comparisons with the results of other periods that may not reflect such audit determinations.
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 retention costs, amortization of acquisition related intangible assets, inventory valuations, acquisition costs and tax payments related to tax audit, as discussed above. Excluding retention costs, inventory valuations, acquisition costs and tax payments related to tax audit 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 except for one-time non-cash items outside the course of ordinary business, such as impairment of goodwill. 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 first quarter of 2014 is a non-GAAP financial measure, which is calculated by taking cash flow from operations less capital expenditures. For the first quarter of 2014, the amount was $34.3 million ($46.1 million less (-) $11.8 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 | |||||||
| March 31, | |||||||
| 2014 | 2013 | ||||||
| Net income (loss) (GAAP) | $ | 10,202 | $ | (1,926 | ) | ||
| Plus: | |||||||
| Interest expense, net | 863 | 865 | |||||
| Income tax provision | 2,547 | 6,574 | |||||
| Depreciation and amortization | 19,176 | 17,558 | |||||
| EBITDA (Non-GAAP) | $ | 32,788 | $ | 23,071 | |||
| DIODES INCORPORATED AND SUBSIDIARIES | ||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||||
| ASSETS | ||||||||
|
(in thousands) |
||||||||
| March 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| (Unaudited) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 211,642 | $ | 196,635 | ||||
| Short-term investments | 20,522 | 22,922 | ||||||
| Accounts receivable, net | 175,604 | 192,267 | ||||||
| Inventories | 176,693 | 180,396 | ||||||
| Deferred income taxes, current | 9,684 | 10,513 | ||||||
| Prepaid expenses and other | 49,232 | 47,352 | ||||||
| Total current assets | 643,377 | 650,085 | ||||||
| PROPERTY, PLANT AND EQUIPMENT, net | 315,817 | 322,013 | ||||||
| DEFERRED INCOME TAXES, non current | 22,278 | 28,237 | ||||||
| OTHER ASSETS | ||||||||
| Goodwill | 84,508 | 84,714 | ||||||
| Intangible assets, net | 51,662 | 53,571 | ||||||
| Other | 22,962 | 23,638 | ||||||
| Total assets | $ | 1,140,604 | $ | 1,162,258 | ||||
| DIODES INCORPORATED AND SUBSIDIARIES | ||||||||||
| CONSOLIDATED CONDENSED BALANCE SHEETS | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||
|
(in thousands, except share data) |
||||||||||
| March 31, | December 31, | |||||||||
| 2014 | 2013 | |||||||||
| (Unaudited) | ||||||||||
| CURRENT LIABILITIES | ||||||||||
| Lines of credit | $ | 2,482 | $ | 5,814 | ||||||
| Accounts payable | 91,544 | 89,212 | ||||||||
| Accrued liabilities | 53,156 | 60,684 | ||||||||
| Income tax payable | 1,178 | 1,206 | ||||||||
| Total current liabilities | 148,360 | 156,916 | ||||||||
| LONG-TERM DEBT, net of current portion | 165,440 | 182,799 | ||||||||
| OTHER LONG-TERM LIABILITIES | 71,771 | 78,866 | ||||||||
| Total liabilities | 385,571 | 418,581 | ||||||||
| 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; | ||||||||||
| 46,728,209 and 46,680,973 issued and outstanding at March 31, 2014 and | ||||||||||
| December 31, 2013, respectively | 31,154 | 31,120 | ||||||||
| Additional paid-in capital | 293,136 | 289,668 | ||||||||
| Retained earnings | 436,530 | 426,328 | ||||||||
| Accumulated other comprehensive loss | (46,966 | ) | (44,374 | ) | ||||||
| Total Diodes Incorporated stockholders' equity | 713,854 | 702,742 | ||||||||
| Noncontrolling interest | 41,179 | 40,935 | ||||||||
| Total equity | 755,033 | 743,677 | ||||||||
| Total liabilities and equity | $ | 1,140,604 | $ | 1,162,258 | ||||||
