DIODES INC /DEL/ (DIOD) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following section discusses management’s view of the financial condition, results of operations and cash flows of Diodes Incorporated and its subsidiaries (collectively, “the Company,” “our Company,” “we,” “our,” “ours,” or “us”) and should be read together with the consolidated financial statements and the notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

The following discussion contains forward-looking statements and information relating to our Company. We generally identify forward-looking statements by the use of terminology such as “may,” “will,” “could,” “should,” “potential,” “continue,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” or similar phrases or the negatives of such terms. We base these statements on our beliefs as well as assumptions we made using information currently available to us. Such statements are subject to risks, uncertainties and assumptions, including those identified in Part I, Item 1A.“Risk Factors,” as well as other matters not yet known to us or not currently considered material by us. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements do not guarantee future performance and should not be considered as statements of fact.

You should not unduly rely on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Annual Report on Form 10-K are made pursuant to the Act.

A discussion of our results of operations for the year ended December 31, 2024 compared to December 31, 2023 is included below. For a discussion and comparison of the results of our operations for the year ended December 31, 2023 with the year ended December 31, 2022, refer to “Management's Discussion and Analysis of Financial Conditions and Results of Operations” in our Form 10-K for the year ended December 31, 2023 filed with the SEC on February 9, 2024.

General

Diodes Incorporated, together with its subsidiaries (collectively the “Company,” “we,” or “our” (Nasdaq: DIOD)), a Standard and Poor’s Smallcap 600 and Russell 3000 Index company, is a leading global manufacturer and supplier of high-quality application-specific standard products within the broad discrete, logic, analog, and mixed-signal semiconductor markets. The Company serves the industrial, automotive, computing, communications, and consumer markets.

The Company’s products include diodes; rectifiers; transistors; MOSFETs; SiC diodes and MOSFETs; protection devices; logic; voltage translators; amplifiers and comparators; sensors; and power management devices such as AC-DC converters, DC-DC switching, photocoupler, linear voltage regulators, voltage references, LED drivers, power switches, and voltage supervisors. We also have timing and connectivity solutions including clock ICs, crystal oscillators, PCIe packet switches, multi-protocol switches, interface products, and signal integrity solutions for high-speed signals.

We operate from the following locations, with additional support offices throughout the world:

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Corporate Headquarters

Plano, Texas, United States

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Design, Engineering, and Marketing

Shanghai, Yangzhou, Shenzhen, and Hong Kong, China

Oldham, England

New Taipei City, Hsinchu, and Tainan, Taiwan

Milpitas, California, and Plano, Texas, United States

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Wafer Fabrication

Shanghai and Wuxi, China

Oldham, England

Greenock, Scotland

Hsinchu, Taiwan

South Portland, Maine, United States

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Assembly and Test

Shanghai, Chengdu, and Wuxi, China

Neuhaus am Rennweg, Germany

Chongli, Taiwan

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Sales, Warehouse, and Logistics

Hong Kong, Shanghai, Beijing, Shenzhen, Wuhan, Guangzhou, Qingdao, and Xiamen, China

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Oldham, England

Frankfurt and Munich, Germany

Milan, Italy

Tokyo, Japan

Singapore

Seongnam-si, South Korea

New Taipei City, Taiwan

Milpitas, California and Plano, Texas, United States

The Company’s manufacturing facilities have achieved certifications in the internationally recognized standards of ISO 9001:2015, ISO 14001:2015, and, for automotive products, IATF 16949:2016 and the Company is also C-TPAT certified. We believe these quality awards reflect the superior quality-control techniques established at the Company and further enhance our credibility as a vendor-of-choice to original equipment manufacturers (“OEMs”) increasingly concerned with quality and consistency.

Our market focus is on high-growth, end-user applications in the following areas:

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Industrial: embedded systems, precision controls, medical, clean energy, machine to machine, robotics, motor control, and AIoT;

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Automotive: connected driving, comfort/style/safety, and electrification/powertrain;

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Computing: cloud computing: server, AI server, storage, data centers, and edge AI;

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Communications: smart phones, 5G networks, and enterprise networking; and

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Consumer: IoT: wearables, home automation, home appliances, smart infrastructure, and charging solutions.

This discussion summarizes the significant factors affecting the consolidated operating results, financial condition, and liquidity of the Company for the twelve months ended December 31 2024. This discussion should be read in conjunction with Item 8, the consolidated financial statements and the notes to consolidated financial statements.

Summary for the Twelve Months Ended December 31, 2024

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Net sales were $1.3 billion, a decrease of 21.1% over the $1.7 billion in 2023;

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Gross profit was $435.9 million, a 33.8% decrease from $658.2 million in 2023;

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Gross profit margin was 33.2% compared to 39.6% in 2023;

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Operating income decreased 79.9% to $50.4 million, or 3.8% of revenue, compared to $250.6 million, or 15.1% of revenue, in 2023;

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Net income was $44.0 million, a decrease of 80.6% from the $227.2 million in 2023;

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Earnings per share was $0.95 per diluted share, an 80.7% decrease from the $4.91 per diluted share in 2023;

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We achieved $119.4 million of cash flow from operations. We had cash capital expenditures of $73.0 million, or 5.6% of net sales. Net cash flow was a negative $3.8 million, which includes the net pay-down of $7.6 million of total debt.

Summary for the Twelve Months Ended December 31, 2023

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Net sales were $1.7 billion, a decrease of 16.9% over the $2.0 billion in 2022;

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Gross profit was $658.2 million, a 20.4% decrease from $827.2 million in 2022;

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Gross profit margin declined 170 basis points to 39.6% compared to 41.3% in 2022;

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Operating income decreased 38.6% to $250.6 million, or 15.1% of revenue, compared to $408.2 million, or 20.4% of revenue, in 2022;

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Net income was $227.2 million, a decrease of 31.4% from the $331.3 million last year;

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Earnings per share was $4.91 per diluted share, a 31.8% decrease from the $7.20 per diluted share in 2022;

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We achieved $280.9 million of cash flow from operations. We had cash capital expenditures of $150.8 million, or 9.1% of net sales. Net cash flow was a negative $22.6 million, which includes the net pay-down of $124.3 million of total debt.

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Business Outlook and Factors Relevant to Our Results of Operations

Fiscal year 2024 continued to be challenging as overall global demand environment remains challenging, especially in Europe and North America. In 2024 we were able to maintain our automotive and industrial mix percentage at 42 percent of total product revenue, which is a testament to the progress we have made on our new product and content expansion initiatives.

Diodes enters the new year having strong POS in Asia for 2024, improved levels of channel inventory and a solid balance sheet combined with a committed focus on expanding growth in our target markets, especially the automotive and industrial markets, and capitalizing on new opportunities in AI-related applications. Based on current data available, we expect 2025 to be a stronger year for Diodes than 2024. Additionally, with our past efforts to lower manufacturing costs and further develop our process technology and capabilities, combined with our hybrid manufacturing model, we have the available capacity to support future expected growth. Our focus remains on prioritizing investments in the automotive and industrial markets, emphasizing our development of our analog and power discrete products that support all of the market segments we serve, and continuing to improve the quality and mix of our portfolio. With our revenue contribution from auto and industrial remaining consistently above our target model, we are well positioned for growth and margin expansion as the market recovery broadens across our end markets in 2025 and beyond.

The success of our business depends on, among other factors, the strength of the global economy and the stability of the financial markets, our customers’ demand for our products, the ability of our customers to meet their payment obligations, customers not canceling or deferring existing orders, and the strength of consumers’ demand for items containing our products in the end-markets we serve. We believe the long-term outlook for our business remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that has proven successful for us over the years. See “Risk Factors – The success of our business depends on the strength of the global economy and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating results, and financial condition.” in Part I, Item 1A of this Annual Report for additional information.

Description of Sales and Expenses

Net sales

The principal factors that have affected or could affect our net sales from period to period are:

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The condition of the economy in general and of the semiconductor industry in particular;

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The continued hostilities between Ukraine and Russia, the conflict in the Middle East, and the resulting and continuing global impact;

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Political tension, including the implementation of tariffs, among and between the countries in which we do business;

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Our customers’ adjustments in their order levels;

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Changes in our pricing policies or the pricing policies of our competitors or suppliers;

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The addition or termination of key supplier relationships;

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The rate of introduction and acceptance by our customers of new products;

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Our ability to compete effectively with our current and future competitors;

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Our ability to enter into and renew key corporate and strategic relationships with our customers, vendors, and strategic alliances;

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Changes in foreign currency exchange rates;

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A major disruption of our information technology infrastructure;

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Unforeseen catastrophic events, such as pandemics, armed conflict, terrorism, fires, typhoons, and earthquakes;

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Any other disruptions, such as change in the political or governmental policies, labor shortages, unplanned maintenance, or other manufacturing problems; and

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Other risks, uncertainties, and assumptions identified in item 1A, “Risk Factors,” of this Annual Report and risks, uncertainties, and assumptions reflected in other documents we file with the SEC.

Cost of goods sold

Cost of goods sold includes manufacturing costs for our semiconductors and our wafers. These costs include raw materials used in our manufacturing processes as well as labor costs and overhead expenses. Cost of goods sold is also impacted by yield improvements, capacity utilization, and manufacturing efficiencies. In addition, cost of goods sold includes the cost of products that we purchase from other manufacturers and sell to our customers. Cost of goods sold is also affected by inventory obsolescence if our inventory management is not efficient.

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Selling, general, and administrative

Selling, general, and administrative expenses relate primarily to compensation and associated expenses for personnel in general management, sales and marketing, information technology, engineering, human resources, procurement, planning and finance, and sales commissions, as well as outside legal, investor relations, accounting, consulting and other operating expenses. Also included in selling, general, and administrative expenses are acquisition costs from business combinations.

Research and development

Research and development expenses consist of compensation and associated costs of employees engaged in research and development projects, as well as materials and equipment used for new product development and technology qualification. Research and development expenses are executed on a global basis and are primarily associated with where the engineering talent is located, as well as the location of manufacturing sites participating in any required technology or process development. All research and development expenses are expensed as incurred.

Amortization of acquisition-related intangible assets

Amortization of acquisition-related intangible assets consists of assets such as developed technologies and customer relationships.

Interest income / expense

Interest income consists of interest earned on our cash and investment balances. Interest expense consists of interest payable on our outstanding credit facilities and other debt instruments.

Foreign currency (loss) gain, net

This income account is used to show the amount gained or lost as a result of foreign currency transactions.

Unrealized (loss) gain on investments

We hold investments in the form of common stock or some other similar equivalent accounted for under fair-value accounting. This account is used to show the necessary mark-to-market adjustments.

Income tax provision

Our global presence requires us to pay income taxes in a number of jurisdictions. See Note 12 of “Notes to Consolidated Financial Statements” for additional information.

Net income attributable to noncontrolling interest

This represents the minority investors’ share of our subsidiaries’ earnings.

Net income attributable to common stockholders

Net income attributable to common stockholders is net income less net income attributable to noncontrolling interest.

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Results of Operations

The following table sets forth, for the periods indicated, the percentage that certain items in the statements of income bear to net sales:

The following discussion explains in greater detail our consolidated operating results and financial condition. This discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report (in thousands).

Net Sales

Our net sales decreased approximately $350.6 million, or 21.1%, for the twelve months ended December 31, 2024, compared to the prior year, due to widespread decreased demand for our semiconductor products and the continued inventory adjustments by the customers that we serve. For the twelve months ended December 31, 2024, weighted-average sales price of the Company’s products decreased 14.9% and volumes decreased 7.3% when compared to the prior year. The decline in weighted-average sales price was primarily due to weaker end-user demand in the automotive and industrial markets which collectively comprised 42% and 46% of product revenue for the twelve months ended December 31, 2024 and 2023, respectively.

The table below sets forth our revenue as a percentage of product revenue by end-user market:

Gross profit

For the twelve months ended December 31, 2024, gross profit decreased approximately 33.8% when compared to the prior year, reflective of the lower revenue in 2024. Gross profit margin for the twelve month periods ended December 31, 2024 and 2023, was 33.2% and 39.6%, respectively. The decrease in gross profit margin was primarily due to the overall reduction in end-market demand driving our overall revenue down, continued inventory reductions by our customers, decreased customer demand in the automotive and

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industrial markets which lowers the mix of our automotive and industrial revenue as a percentage of the total and lower utilization in our factories. This decrease in gross profit margin includes an decrease in cost of goods sold related to a change in accounting estimate of $4.5 million, however cost of goods sold increased approximately $5.6 million related to total inventory reserves. Average unit cost decreased 6.0% for the twelve months ended December 31, 2024, compared to the same period last year, due to the mix of the product being on lower margin/lower cost products, cost decreases from various foundries, as well as cost reductions from our own factories.

Operating expenses

Operating expenses for the twelve months ended December 31, 2024 decreased approximately $22.2 million, or 5.4%, compared to the same period last year. Selling, general, and administrative expenses (“SG&A”) decreased approximately $24.0 million or 9.3%, compared to the same period last year. The decrease in SG&A was due to cost-containment efforts by the Company especially related to control of wages and benefits, which were lower by $24.8 million and lower selling expense of $1.8 million, partially offset by a $2.7 million increase in repairs and maintenance and an increase of $2.2 million in bad debt expense, when compared to the same period last year. SG&A, as a percentage of net sales, was 17.8% and 15.5% for the twelve-month periods ended December 31, 2024 and 2023, respectively. Research and development expenses (“R&D”) was relatively flat compared to the previous year, declining $0.8 million. R&D, as a percentage of net sales, was 10.2% and 8.1% for the twelve-month periods ended December 31, 2024 and 2023, respectively. R&D is a priority of the company and new products and new technologies are a life blood, so these were held as consistent as possible. Amortization of acquisition-related intangibles increased approximately 8.0% reflecting the increase in the balance of intangible assets subject to amortization.

Other (expense)/income

Interest income increased $5.0 million or 37.2% when compared to 2023 due to increased interest rates on our short-term investments and income from cross-currency swaps. The decrease in interest expense is due to lower debt levels. Unrealized gain on investments decreased from 2023 due to mark-to-market adjustments on investments recorded in 2023 and not repeated in 2024.

Income tax provision

We recognized income tax expense of approximately $11.8 million for the twelve months ended December 31, 2024, and income tax expense of approximately $47.3 million for the twelve months ended December 31, 2023, resulting in effective income tax rates of 18.9% and 17.0%, respectively. The increase in the effective tax rate for 2024 compared to 2023 is primarily attributable to a decrease in overall pre-tax book income, the impact of the geographical mix of pre-tax income and the impact of changes to the outside basis difference in foreign subsidiaries where the Company does not assert permanent reinvestment. Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax but may be subject to foreign withholding taxes. The Company has recorded outside basis differences in the limited instances where they do not assert permanent reinvestment. As of December 31, 2024, our foreign subsidiaries held approximately $236.3 million of cash, cash equivalents and investments, of which approximately $76.7 million would be subject to foreign withholding tax if distributed outside the country in which the related earnings were generated.

Financial Condition

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, short-term investments, funds from operations, and, if necessary, borrowings under our credit facilities.

Liquidity requirements

Our primary liquidity requirements have been to meet our capital expenditure needs and to fund ongoing operations. For 2024 and 2023 our working capital was $848.6 million and $793.9 million, respectively. In 2024, our working capital increased primarily due to increases in accounts receivable and inventories, and a decrease in our short-term debt and accounts payable. We expect cash generated by our operations together with existing cash, cash equivalents, short-term investments and available credit facilities to be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with our existing operations for at least the next 12 months.

The Company‘s restricted cash primarily consisted of the cash required to be on deposit under contractual agreements with banks to support outstanding loan and import/export guarantees. As of December 31, 2024, restricted cash of $6.1 million was pledged as collateral for issuance of bank loans, bank acceptance notes, letters of credit, and funds held in escrow related to the Fortemedia acquisition.

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Short-term investments

As of December 31, 2024, we had short-term investments of approximately $7.5 million. These investments are highly liquid with maturity dates greater than three months at the date of purchase. We generally can access these investments in a relatively short amount of time but in doing so we generally forfeit a portion of interest income.

Short-term debt

Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $146.0 million. Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted and contain no restrictive covenants. These credit facilities bear interest at the Taipei Interbank Offered Rate (or similar indices) plus a specified margin. Interest payments are due monthly on outstanding amounts under the credit lines. The unused and available credit under the various facilities as of December 31, 2024, was approximately $114.0 million, net of $31.4 million advanced under our foreign credit lines and $0.6 million credit used for import and export guarantee.

Long-term debt

The Company maintains a long-term credit facility (“Credit Agreement”). The Credit Agreement consists of a Revolving Credit Facility in the amount of $225.0 million, including a swing line sublimit equal to the lesser of $50.0 million and the Revolving Credit Facility, a letter of credit sublimit equal to the lesser of $100.0 million and the Revolving Credit Facility, and an alternative currency sublimit equal to the lesser of $40.0 million and the Revolving Credit Facility. The Company has the option to increase the Revolving Credit Facility and/or incur Incremental Term Loans in an aggregate principal amount of up to $350.0 million. The Credit Agreement bears interest at Term Secured Overnight Financing Rate (“SOFR”) or similar other indices plus a specified margin and matures in May 2028. There was no outstanding balance under the Credit Agreement at December 31, 2024.

Because some of our outstanding debt is subject to variable interest rates, the recent rise in interest rates will potentially increase our overall debt service cost. If interest rates continue to rise globally, our cost of capital may increase in the future.

Capital expenditures and investments

In 2024 and 2023, our total cash capital expenditures were approximately $73.0 million and $150.8 million, respectively. Our capital expenditures for these periods were primarily related to manufacturing expansion in both our assembly/test and wafer fabrication facilities. Cash capital expenditures in 2024 were approximately 5.6% of our net sales, inline with the Company’s target model of 5% to 9% of net sales. Going forward, over the long term, the Company expects capital expenditures to continue to be within the 5% to 9% of net sales target model range.

Our foreign operations expose us to unique intellectual property technology and other risks compared to a company with fewer or no international operations. For example, we are exposed to potential cyber security breaches that may target our employees or infrastructure outside the United States. These risks may result in material and adverse impacts on our financial condition and results of operations. See “Risk Factors – Risks Related to Our International Operations” in Part I, Item 1A of this Annual Report for a more detailed summary of the intellectual property technology risks and other associated with our international business operations.

Discussion of Cash Flows

Cash and cash equivalents, including restricted cash, decreased approximately $3.8 million to $314.7 million in 2024 from $318.5 million in 2023. The table below sets forth summary information from our statements of cash flows:

Operating Activities

Net cash flows from operating activities for 2024 was approximately $119.4 million, due primarily to $50.8 million of net income, $137.1 million in depreciation expense and amortization of intangible assets expense and $22.8 million from non-cash share-based compensation expense. The increases were partially offset by a net decrease in operating assets and liabilities of $70.6 million, interest income from forward and collars of $10.4 million, gain on disposal of property, plant and equipment of $7.6 million, non-cash gains on investments of $0.3 million, and a decrease in deferred income taxes of $1.0 million.

Investing Activities

Net cash flows from investing activities for 2024 was approximately ($118.0) million. The Company invested approximately $73.0 million in property, plant, and equipment, primarily at its production facilities in Asia. In its continued growth efforts, the

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Company invested approximately $56.7 million in acquisitions, net of cash received. These investing cash outflows are partially offset by the receipt of government subsidies of $8.7 million, insurance recoveries from previous damage to property, plant, and equipment of $4.8 million, and net proceeds from the sale of short-term investments of $2.3 million.

Financing Activities

Net cash flows from financing activities for 2024 was approximately ($19.3) million, due primarily to the net reduction in our outstanding indebtedness of $7.6 million, taxes on net share settlements of $9.6 million, and net changes in noncontrolling interests of $2.1 million.

Contractual Obligations

Our estimated future obligations consist of debt, interest on long-term debt, leases, defined benefit obligation and purchase obligations. See Note 8–“Bank Credit Agreements and Other Short-term and Long-term Debt, Note 9–“Leases”, Note 13– “Employee Benefit Plans”, and Note 17–“Commitments and Contingencies” of the notes to consolidated financial statements” included elsewhere in this Annual Report for additional information.

We cannot make reasonable estimates of the amount and period in which our tax liabilities will be paid. See “Accounting for income taxes” below and Note 12 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted principles in the United States of America (“U.S. GAAP”) requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, which are based upon historical experiences, market trends, and financial forecasts and projections, and upon various assumptions that management believes to be reasonable under the circumstances at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.

We believe the following critical accounting policies and estimates affect the significant estimates and judgments we use in the preparation of our consolidated financial statements, and may involve a higher degree of judgment and complexity than others.

Revenue recognition

In relation to our revenue recognition, we record estimated allowances/reserves for the following items;

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Ship and debit reserves, which arise when we, from time to time based on market conditions, issue credit to certain distributors upon their shipments to their end customers;

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Stock rotation reserves, which are contractual obligations that permit certain distributors, up to four times a year, to return a portion of their inventory based on historical shipments to them in exchange for an equal and offsetting order;

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Price protection reserves, which arise when market conditions cause average selling prices to decrease and we issue credit to certain distributors on their inventory;

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Accounts receivable reserves related to our customer’s ability to pay; and

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Product returns, distributor price adjustments, and other allowances.

Our reserve estimates are based upon historical data as well as projections of sales, distributor inventories, price adjustments, average selling prices, and market conditions. Actual returns and adjustments could be significantly different from our estimates and provisions, resulting in an adjustment to net sales. Based on the allowance/reserve balance as of December 31, 2024, a 1% change would increase or decrease the estimated allowance/reserve and net revenue by approximately $0.8 million.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined principally by the first-in, first-out method. On an ongoing basis, we evaluate our inventory for salability, obsolescence and any other available applicable information. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis. If future demand or market conditions are different than our current estimates, an inventory adjustment may be required, and would be reflected in cost of goods sold in the period the revision is made.

Accounting for income taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves using an asset and liability approach whereby deferred tax assets and liabilities are recorded for differences in the financial reporting bases and tax bases of our assets and liabilities. A valuation allowance

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is provided against deferred tax assets unless it is more likely than not that such deferred tax assets will be realized. This analysis requires considerable judgment and is subject to change to reflect future events and changes in the tax laws.

The benefit of a tax position is recognized only if it is more likely than not that the tax position would be sustained based on its technical merits in a tax examination, using the presumption the tax authority has full knowledge of all relevant facts regarding the position. The amount of benefit recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on ultimate settlement with the tax authority. For tax positions not meeting the more likely than not test, no tax benefit is recorded.

Business Combinations

Significant judgment is often required in estimating the fair value of assets acquired and liabilities assumed. The Company makes estimates and assumptions about conditions of the assets, other costs not captured in the base costs, and consideration for entrepreneurial profit, depreciation, functional obsolescence, and economic obsolescence allocated to the various property, plant, and equipment categories considering the perspective of marketplace participants.

Recently Issued Accounting Pronouncements

See Note 1 of “Notes to Consolidated Financial Statements” of this Annual Report for additional information regarding the status of recently issued accounting pronouncements.

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