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Diodes Incorporated Reports Fourth Quarter and Fiscal 2008 Financial Results
Year 2008 Highlights:
-
Acquired Zetex plc in June; -
Revenue increased 8 percent to a record
$432.8 million ; -
Gross profit increased to a record
$132.5 million ; -
GAAP net income was
$39.0 million , or$0.91 per share; -
Non-GAAP net income was
$44.8 million , or$1.04 per share; -
Generated
$90.4 million of EBITDA; -
Generated
$57 million in cash flow from operations.
Fourth Quarter Highlights:
-
Revenue was
$87.1 million , which includes a$1.7 million reduction as part of the Company’s strategic effort to consolidate Asian distributors; -
GAAP net income was
$14.6 million , or$0.35 per share, including a$22.8 million gain related to the repurchase of convertible notes and a$4.1 million restructuring charge related to future headcount reductions; -
Non-GAAP EPS was
$0.04 per share; -
Generated
$25.8 million of EBITDA; -
Generated
$21 million in cash flow from operations; -
Increased cash by
$20.8 million and reduced debt by$11.2 million over the third quarter.
For the fiscal year 2008, revenue increased 8 percent to a record
Revenue for the fourth quarter of 2008 was
Gross profit for the fourth quarter of 2008 was
Dr.
Dr. Lu continued, “During the quarter, we took advantage of our ‘no net
cost’ loan obtained in our settlement with UBS and collateralized by our
Fourth quarter GAAP net income was
Net income computed on a non-GAAP basis for the fourth quarter of 2008,
which excluded the gain on the convertible notes, restructuring charges
and
As of
Business Outlook
“Looking at the first quarter of 2009, we expect that the economy and
global demand will continue to deteriorate and well beyond the typical
seasonality associated with the quarter. As a result of these factors,
we estimate that the first quarter revenue will decrease approximately
20 percent sequentially,” stated Dr. Lu. “Furthermore, as a result of
the weakened demand, we will reduce our 2009 capital authorizations to a
maintenance level of approximately 2 percent of revenue, and we plan to
reduce inventory, which will further reduce loading at our manufacturing
facilities. As a result, we expect first quarter gross margin to be
approximately 16 to 20 percent and expect to generate positive cash flow
from operations as well as positive free cash flow for the quarter.
Also, beginning in 2009 the adoption of FSP APB 14-1 requires us to
change how we account for our Convertible Senior Notes. APB 14-1 will
require us to separately account for a liability and equity component,
which will reflect an estimated non-convertible notes borrowing rate. We
therefore expect to record an additional pre-tax, non-cash interest
expense of approximately
Dr. Lu continued, “We are implementing further cost reductions while
working to maintain strong cash flow. In addition to the 7 percent
headcount reductions initiated in the fourth quarter, we will be
reducing headcount by an additional 17 percent in the first quarter,
primarily at our manufacturing operations. In the third quarter of 2008,
operating expenses (excluding purchase price accounting adjustments)
totaled approximately
Conference Call
Diodes will host a conference call on
About
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995: Any statements set forth above that are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. Such statements include
statements regarding our expectation that: we continued to make
incremental changes to the organizational structure in order to maximize
efficiencies, reduce costs and conserve cash; we are taking a number of
additional cost saving measures, including further headcount reductions
across our entire organization, temporary site shut-downs, compensation
and hiring freezes, additional mandatory time-off, accelerating the
integration of the Zetex products into our manufacturing facilities,
continued reduction of manufacturing process and raw material costs, and
the consolidation of wafer output;
Recent news releases, annual reports, and
CONSOLIDATED CONDENSED INCOME STATEMENT and BALANCE SHEET FOLLOW
DIODES INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) |
|||||||||||||||||
Three months ended | Twelve months ended | ||||||||||||||||
December 31, | December 31, | ||||||||||||||||
2007 | 2008 | 2007 | 2008 | ||||||||||||||
NET SALES | $ | 107,591 | $ | 87,141 | $ | 401,159 | $ | 432,785 | |||||||||
COST OF GOODS SOLD | 71,567 | 64,265 | 270,780 | 300,257 | |||||||||||||
Gross profit | 36,024 | 22,876 | 130,379 | 132,528 | |||||||||||||
OPERATING EXPENSES | |||||||||||||||||
Selling, general and administrative expenses | 14,720 | 16,219 | 55,403 | 68,874 | |||||||||||||
Research and development expenses | 3,860 | 6,433 | 13,515 | 22,523 | |||||||||||||
Amortization of acquisition related intangible assets | - | 981 | - | 2,564 | |||||||||||||
In-process research and development | - | - | - | 7,865 | |||||||||||||
Restructuring charge | (709 | ) | 4,089 | 1,061 | 4,089 | ||||||||||||
Total operating expenses | 17,871 | 27,722 | 69,979 | 105,915 | |||||||||||||
Income from operations | 18,153 | (4,846 | ) | 60,400 | 26,613 | ||||||||||||
OTHER INCOME (EXPENSES) | |||||||||||||||||
Interest income | 5,085 | 2,165 | 18,117 | 11,991 | |||||||||||||
Interest expense | (1,704 | ) | (2,074 | ) | (6,831 | ) | (9,348 | ) | |||||||||
Other | (155 | ) | 18,989 | (225 | ) | 16,594 | |||||||||||
Total other income (expenses) | 3,226 | 19,080 | 11,061 | 19,237 | |||||||||||||
Income before income taxes and minority interest | 21,379 | 14,234 | 71,461 | 45,850 | |||||||||||||
INCOME TAX PROVISION (BENEFIT) | 2,306 | (729 | ) | 9,428 | 4,585 | ||||||||||||
Income before minority interest | 19,073 | 14,963 | 62,033 | 41,265 | |||||||||||||
Minority interest in earnings of joint ventures | (775 | ) | (352 | ) | (2,376 | ) | (2,290 | ) | |||||||||
NET INCOME | $ | 18,298 | $ | 14,611 | $ | 59,657 | $ | 38,975 | |||||||||
EARNINGS PER SHARE | |||||||||||||||||
Basic | $ | 0.46 | $ | 0.36 | $ | 1.51 | $ | 0.96 | |||||||||
Diluted | $ | 0.43 | $ | 0.35 | $ | 1.41 | $ | 0.91 | |||||||||
Number of shares used in computation | |||||||||||||||||
Basic | 40,113 | 41,078 | 39,601 | 40,709 | |||||||||||||
Diluted | 42,702 | 41,817 | 42,331 | 42,638 |
DIODES INCORPORATED AND SUBSIDIARIES CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME (in thousands, except per share data) (unaudited) |
||||||||||||||||
Three months ended | Twelve months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2007 | 2008 | 2007 | 2008 | |||||||||||||
Net income (Per-GAAP) | $ | 18,298 | $ | 14,611 | $ | 59,657 | $ | 38,975 | ||||||||
Adjustments to reconcile net income | ||||||||||||||||
to adjusted net income: | ||||||||||||||||
Stock option expense | ||||||||||||||||
included in cost of goods sold: | - | - | 273 | 112 | ||||||||||||
Stock option expense | ||||||||||||||||
included in selling and general | ||||||||||||||||
administrative expenses: | - | - | 4,824 | 3,594 | ||||||||||||
Stock option expense | ||||||||||||||||
included in research and | ||||||||||||||||
development expenses: | - | - | 463 | 330 | ||||||||||||
Total stock option expense | - | - | 5,560 | 4,036 | ||||||||||||
Inventory valuations and depreciation adjustments | - | 107 | - | 5,495 | ||||||||||||
Amortization of acquisition related intangible assets | - | 981 | - | 2,564 | ||||||||||||
In-process Research and Development | - | - | - | 7,865 | ||||||||||||
Restructuring costs |
(709 |
) |
|
4,089 | 1,061 | 4,089 | ||||||||||
Gain from extinguishment of debt | - | (22,791 | ) | - | (22,791 | ) | ||||||||||
Other adjustments | - | - | 55 | 1,540 | ||||||||||||
Income tax adjustments related to stock option expense, restructuring costs and other adjustments | ||||||||||||||||
(71 | ) | (4,679 | ) | 1,384 | (2,980 | ) | ||||||||||
Adjusted net income (Non-GAAP) | $ | 17,660 | $ | 1,676 | $ | 64,949 | $ | 44,753 | ||||||||
Diluted shares used in computing | ||||||||||||||||
earnings per share | 42,702 | 41,817 | 42,331 | 42,638 | ||||||||||||
Incremental shares considered | ||||||||||||||||
to be outstanding: | - | - | 836 | 403 | ||||||||||||
Adjusted diluted shares used in computing | ||||||||||||||||
Adjusted earnings per share | 42,702 | 41,817 | 43,167 | 43,040 | ||||||||||||
Adjusted earnings per share (Non-GAAP) | ||||||||||||||||
Basic | $ | 0.44 | $ | 0.04 | $ | 1.64 | $ | 1.10 | ||||||||
Diluted | $ | 0.41 | $ | 0.04 | $ | 1.50 | $ | 1.04 |
ADJUSTED NET INCOME
This measure consists of generally accepted accounting principles in
Detail of non-GAAP adjustments:
(1) Restructuring Costs
– We have recorded various restructuring charges to reduce our cost
structure to enhance operating effectiveness and improve profitability.
These restructuring activities impacted different functional areas of
our operations in different locations and were undertaken to meet
specific business objectives in light of the facts and circumstances at
the time of each restructuring event. For 2007, these charges include
costs related to the consolidation of our analog wafer probe and final
test operations from Hsinchu,
(2) Purchase Accounting Impact on Earnings:
- Amortization of acquisition-related intangible assets – We have excluded the amortization of Zetex acquisition-related intangible assets, including developed technologies, customer relationships and trade name from our non-GAAP results. The fair value of the Zetex acquisition-related intangible assets, which was allocated to the assets through purchase accounting, is amortized using straight-line methods, which approximate the proportion of future cash flows estimated to be generated each period over the estimated useful lives of the applicable assets. We believe that the exclusion of the amortization expense of acquisition-related assets is appropriate because a significant portion of the purchase price for the acquisition was allocated to the intangible assets that have short lives and the exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses. In addition, we exclude the amortization expense because there is significant variability and unpredictability across companies with respect to this expense.
- IPR&D expense – We have excluded the non-recurring IPR&D expense, which is non-cash and related to the Zetex acquisition, from our non-GAAP results. Under GAAP, we immediately expensed all the acquired IPR&D as we had not yet reached technological feasibility and had no alternative further use as of the date of the acquisition. This adjustment to R&D expense is not recurring in nature and, as such, we believe that the exclusion of this adjustment provides investors useful information to facilitate an understanding of earnings because this impact reduces our earnings to amounts lower than we have historically achieved and expect to achieve in the future.
-
Inventory valuations and
depreciation adjustments – We have excluded the
$5.5 million inventory valuation and depreciation adjustments. Under GAAP, we adjusted the inventory acquired from Zetex to account for the reasonable profit allowance for the selling effort on finished goods inventory and the reasonable profit allowance for the completing and selling effort on the work–in-process inventory. This non-cash adjustment to inventory is not recurring in nature and, as such, we believe that the exclusion of this adjustment provides investors useful information to facilitate an understanding of our gross profit and margins because this impact reduces our gross profit and margins to percentages lower than we have historically achieved and expect to achieve in the future. The exclusion of the depreciation expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses. In addition, we exclude the depreciation expense because there is significant variability and unpredictability across companies with respect to this expense.
(3) Gain from extinguishment of debt
– In the fourth quarter of 2008, we repurchased
(4) Stock Option Expense – Historically, we excluded the non-cash stock option expense adjustments because we provided investors with a better depiction of our operating results and provided a more informed baseline for modeling future earnings expectations. Upon further review of our non-GAAP adjustments, we have concluded that we will no longer adjust for stock option expense.
(5) Other Adjustments – We incurred a one-time non-cash currency hedge loss related to the Zetex acquisition in the second quarter of 2008. This currency hedge loss is excluded from management’s assessment of our operating performance for the full year of 2008. We believe that the exclusion of the non-recurring currency hedge loss provides investors an enhanced view of the one-time other adjustments that we may incur from time to time and facilitates comparisons with the results of other periods that may not reflect such charges.
ADJUSTED EARNINGS PER SHARE
This non-GAAP financial measure is the portion of our GAAP net income
assigned to each share of stock, excluding restructuring costs, gain
from extinguishment of debt, purchase accounting impact on earnings,
stock option expense (only for the twelve months ended
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED RECONCILIATION OF NET INCOME TO EBITDA
EBITDA represents earnings before net interest expense, income tax provision, depreciation and amortization. Our 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, our management uses EBITDA, along with other GAAP measures, in evaluating our operating performance compared to that of other companies in our industry because 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 generally accepted accounting principles, or 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 of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management’s discretionary use because 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
|
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(in thousands, unaudited): |
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Three Months Ended | ||||||||
December 31, | ||||||||
2007 | 2008 | |||||||
Net Income (Per-GAAP) | $ | 18,298 | $ | 14,611 | ||||
Plus: | ||||||||
Interest expense (income), net | (3,381 | ) | (91 | ) | ||||
Income tax provision | 2,306 | (729 | ) | |||||
Depreciation and amortization | 7,605 | 11,979 | ||||||
EBITDA (Non-GAAP) | $ | 24,828 | $ | 25,770 | ||||
Twelve Months Ended | ||||||||
December 31, | ||||||||
2007 | 2008 | |||||||
Net Income (Per-GAAP) | $ | 59,657 | $ | 38,975 | ||||
Plus: | ||||||||
Interest expense (income), net | (11,286 | ) | (2,643 | ) | ||||
Income tax provision | 9,428 | 4,585 | ||||||
Depreciation and amortization | 27,081 | 49,512 | ||||||
EBITDA (Non-GAAP) | $ | 84,880 | $ | 90,429 |
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS (in thousands, except share data) |
||||||||
December 31, | December 31, | |||||||
2007 | 2008 | |||||||
CURRENT ASSETS | (unaudited) | |||||||
Cash and cash equivalents | $ | 56,179 | $ | 103,496 | ||||
Short-term investments | 323,472 | - | ||||||
Total cash and short-term investments | 379,651 | 103,496 | ||||||
Accounts receivable, net | 89,578 | 74,574 | ||||||
Inventories | 53,031 | 99,118 | ||||||
Deferred income taxes, current | 5,173 | 3,994 | ||||||
Prepaid expenses and other | 10,576 | 15,578 | ||||||
Total current assets | 538,009 | 296,760 | ||||||
LONG-TERM INVESTMENT SECURITIES | - | 320,625 | ||||||
PROPERTY, PLANT AND EQUIPMENT, net | 123,407 | 174,667 | ||||||
DEFERRED INCOME TAXES, non-current | 3,241 | 2,745 | ||||||
OTHER ASSETS | ||||||||
Goodwill | 25,135 | 56,791 | ||||||
Intangible assets | 9,643 | 35,928 | ||||||
Other | 6,930 | 6,627 | ||||||
TOTAL ASSETS | $ | 706,365 | $ | 894,143 |
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS’ EQUITY (in thousands, except share data) |
||||||||||
December 31, | December 31, | |||||||||
2007 | 2008 | |||||||||
(unaudited) | ||||||||||
CURRENT LIABILITIES | ||||||||||
Line of credit | $ | - | $ | 6,098 | ||||||
Accounts payable | 55,145 | 47,561 | ||||||||
Accrued liabilities | 27,841 | 31,195 | ||||||||
Income tax payable | 1,732 | 358 | ||||||||
Current portion of long-term debt | 1,345 | 1,339 | ||||||||
Current portion of capital lease obligations | 145 | 377 | ||||||||
Total current liabilities | 86,208 | 86,928 | ||||||||
LONG-TERM DEBT, net of current portion 2.25% convertible senior notes due 2026 | ||||||||||
230,000 | 183,500 | |||||||||
Long-term borrowings | 5,815 | 217,146 | ||||||||
CAPITAL LEASE OBLIGATIONS, net of current portion | 1,331 | 1,854 | ||||||||
OTHER LONG-TERM LIABILITIES | 6,249 | 22,935 | ||||||||
Total liabilities | 329,603 | 512,363 | ||||||||
MINORITY INTEREST IN JOINT VENTURES | 7,164 | 9,453 | ||||||||
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; 40,172,491 and 41,378,816 issued and outstanding at December 31, 2007 and December 31, 2008, respectively | ||||||||||
26,782 | 27,586 | |||||||||
Additional paid-in capital | 121,412 | 133,701 | ||||||||
Retained earnings | 220,504 | 259,479 | ||||||||
Accumulated other comprehensive income (loss) | 900 | (48,439 | ) | |||||||
Total stockholders' equity | 369,598 | 372,327 | ||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 706,365 | $ | 894,143 |
Source:
Diodes Incorporated
Company Contact:
Carl Wertz,
805-446-4800
Chief Financial Officer
carl_wertz@diodes.com
or
Investor
Contact:
Shelton Group
Leanne Sievers, 949-224-3874
EVP,
IR
lsievers@sheltongroup.com