Note: Included in GAAP and non-GAAP adjusted net income was approximately $13.4 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.25 per share.

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

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