Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM
10-K

(Mark One)

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

2021

or

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to

Commission File Number
001-34791

LOGO

MagnaChip


Magnachip Semiconductor Corporation

(Exact name of registrant as specified in its charter)

Delaware
 
83-0406195

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

c/o MagnaChip Semiconductor S.A.

1, Allée Scheffer,
L-2520

Luxembourg, Grand Duchy of Luxembourg

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:
(352) 45-62-62

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share
 
MX
 
New York Stock Exchange
Preferred Stock Purchase Rights
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☒   Yes    ☐   Yes    ☒  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ☐   Yes    ☒   No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒   Yes    ☐   No

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.    ☒   Yes    ☐   No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.

Large Accelerated FilerFile
r
 ☐☒  Accelerated Filer ☒☐
Non-Accelerated
Filer
 ☐  Smaller Reporting Company ☐
Emerging growth company ☐   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).    ☐   Yes    ☒   No

State the aggregate market value of the voting and
non-voting
common equity held by
non-affiliates
computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $314,540,019.

$1,093,768,455.

As of February 14, 2020,2022, the registrant had 34,801,31245,810,893 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to its 20202022 annual meeting of stockholders will be incorporated by reference into Part III of this Annual Report on Form
10-K
or included by amendment to this report within 120 days after the end of the fiscal year to which this report relates.

Table of Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

FORM
10-K
FOR THE YEAR ENDED DECEMBER 31, 2019

2021

TABLE OF CONTENTS

        
Page
 

PART I

     
 

Item 1.

  
Business
   2 
 

Item 1A.

  
Risk Factors
   18 
 

Item 1B.

  
Unresolved Staff Comments
   3738 
 

Item 2.

  
Properties
   3738 
 

Item 3.

  
Legal Proceedings
   3739 
 

Item 4.

  
Mine Safety Disclosures
   3739 

PART II

     
 Item 5.  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

38
Item 6.

Selected Financial Data

   40 
 Item 6.
[Reserved]
42
Item 7.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   42 
 Item 7A.  

Quantitative and Qualitative Disclosures About Market Risk

   7375 
 Item 8.  

Financial Statements and Supplementary Data

   7476 
 Item 9.  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   123124 
 Item 9A.  

Controls and Procedures

   123124 
 Item 9B.  

Other Information

   123125 

Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
125
PART III

     
 Item 10.  

Directors, Executive Officers and Corporate Governance

   124126 
 Item 11.  

Executive Compensation

   124126 
 Item 12.  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

   124126 
 Item 13.  

Certain Relationships and Related Transactions, and Director Independence

   124126 
 Item 14.  

Principal Accounting Fees and Services

   124126 

PART IV

     
 Item 15.  

Exhibits and Financial Statement Schedules

   125127 
 Item 16.  
10-K Summary
130

SIGNATURES

   131 
SIGNATURES
132

Table of Contents

PART I

INDUSTRY AND MARKET DATA

We have made statements in this Annual Report on Form
10-K
for the year ended December 31, 20192021 (this “Report”) regarding our industry and our position in the industry based on our experience in the industry and our own views of market conditions, but we have not independently verified those statements. We do not have any obligation to announce or otherwise make publicly available updates or revisions to forecasts contained in these documents.

Statements made in this Report, unless the context otherwise requires, include the use of the terms “us,” “we,” “our,” the “Company” and “MagnaChip”“Magnachip” to refer to MagnaChipMagnachip Semiconductor Corporation and its consolidated subsidiaries. The term “Korea” refers to the Republic of Korea or South Korea.

On September 1, 2020, we completed the sale of our Foundry Services Group business and our fabrication facility located in Cheongju to Key Foundry Co., Ltd. Unless otherwise noted herein, historical operational metrics presented herein do not include those of the Foundry Services Group.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made certain “forward-looking” statements in this Report within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), that involve risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this Report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.

These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections and elsewhere in this Report.

All forward-looking statements speak only as of the date of this Report. We do not intend to publicly update or revise any forward-looking statements as a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

“MagnaChip”Magnachip” is a registered trademark of us and our subsidiaries and “MagnaChip“Magnachip Everywhere” is our registered trademark and service mark. All other product, service and company names mentioned in this Report are the service marks or trademarks of their respective owners.

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Item 1. Business

General

We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, Internet of Things (“IoT”) applications, consumer, computing, industrial and automotive applications. We provide technology platforms for analog, mixed-signal, power, high voltage,non-volatile memory, and Radio Frequency (“RF”) applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately 2,9501,150 registered patents and pending applications and extensive engineering and manufacturing process expertise. Our standard products business is comprised of two operating segments: Foundry Services Group and Standard Products Group. Our Foundry Services Group provides specialty analog and mixed-signal foundry services mainly for fabless and Integrated Device Manufacturer (“IDM”) semiconductor companies that primarily serve communications, IoT, consumer, industrial and automotive applications. Our Standard Products Group is comprised of two business lines:includes our Display Solutions and Power Solutions.Solutions business lines. Our Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile, automotive applications and home appliances. Our Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications.

Our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our mature technology platform allow us to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands. Our design center and substantial manufacturing operations in Korea place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demandsdemand from existing and new customers.

Certain of our OLED products are produced using external

12-inch
foundries. Through a strategic cooperation with external
12-inch
foundries, we are managing to ensure outsourcing wafers at competitive price and produce quality products.
We have a long history of supplying and collaborating on product and technology development with leading innovators in the consumer electronics market. As a result, we have been able to strengthen our technology platform and develop products and services that are in high demand by our customers and end consumers. We sold over 2,200approximately 380 distinct products in each of the yearsyear ended December 31, 2019 and December 31, 2018,2021 with a substantial portion of our revenues derived from a concentrated number of customers. Our largest Foundry Services Group customers include some of the leading semiconductor companies that design analog and mixed-signal products for communications, IoT, consumer, industrial and automotive applications.

Our business is largely driven by innovation in the consumer electronics markets and the growing adoption by consumers worldwide of electronic devices for use in their daily lives. The consumer electronics market is large and growing rapidly, largely due to consumers increasingly accessing a wide variety of rich media content, such as high definition audio and video, mobile devices, televisions and games on advanced consumer electronic devices. Electronics manufacturers are continuously implementing advanced technologies in new generations of electronic devices using analog and mixed-signal semiconductor components, such as display drivers that enable display of high resolution images, encoding and decoding devices that allow playback of high definition audio and video, and power management semiconductors that increase power efficiency, thereby improving heat dissipation and extending battery life.

For the year ended December 31, 2019,2021, we generated net salestotal revenues of $792.2$474.2 million, net lossincome of $21.8$56.7 million, Adjusted EBITDA of $74.5$70.7 million, Adjusted Operating Income of $56.1 million and Adjusted Net Income of $17.1$51.1 million. See “Item 6. Selected Financial Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this Report for an explanation of our use of Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income and a reconciliation to net income (loss) from continuing operations prepared in accordance with United States Generally Accepted Accounting Principles (“USU.S. GAAP”).

Our History

Our business was named “MagnaChip Semiconductor” when it was acquired from SK hynix Inc., formerly known as Hynix Semiconductor, Inc. (“SK hynix”), in October 2004. We refer to this acquisition as the “Original Acquisition.”

On March 10, 2011, we completed our initial public offering. In connection with our initial public offering, we converted from a Delaware limited liability company to a Delaware corporation.

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On December 30, 2020, we changed our name from “MagnaChip Semiconductor Corporation” to “Magnachip Semiconductor Corporation.”
Legacy Foundry Services Group Business
On September 1, 2020, we completed the sale of our Foundry Services Group business and our fabrication facility located in Cheongju known as “Fab 4” to Key Foundry Co., Ltd. This sale was part of a strategic shift in our operational focus to our standard products business. The Foundry Services Group business provided specialty analog and mixed signal foundry services mainly for fabless and Integrated Device Manufacturer semiconductor companies.
Our Products and Services

Our Display Solutions line of products providesprovide flat panel display solutions to major suppliers of large and small flat panel displays. These products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in high definition (HD)mobile communications, automobiles, entertainment devices, notebook PCs, monitors and liquid crystal display (LCD), full high definition (FHD), ultra high definition (UHD), light emitting diode (LED), 3D and organic light emitting diodes (OLED) televisions and displays, notebooks and mobile communications and entertainment devices.Micro light emitting diode (Micro LED) televisions. Our Display Solutions line of products support the industry’s most advanced display technologies, such as OLEDs, and low temperature polysiliconspolysilicon thin film transistor (LTPS TFT), as well as high-volume display technologies such as amorphous silicon thin film transistors(a-Si
(a-Si
TFTs). Our Display Solutions products represented 38.9%43.3%, 34.1%59.0% and 30.8%59.3% of our net salestotal revenues for the fiscal years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.

We expanded our business and market opportunity by establishing our Power Solutions product line in late 2007. We have introduced a number of power management semiconductor products, including discrete and integrated circuit solutions for power management in high-volume consumer applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),AC-DC converters,
AC-DC/DC-DC
converters, LED drivers, switching regulators and linear regulatorspower management integrated circuits (PMICs) for a range of devices, including televisions, smartphones, mobile phones, wearable devices, desktop PCs, notebooks, tablet PCs, other consumer electronics, automotive, and industrial applications such as power suppliers,e-bike,
e-bikes,
photovoltaic inverter,inverters, LED lighting and motor drive and home appliances.drives. Our Power Solutions products represented 22.2%48.0%, 22.5%32.8% and 22.0%33.9% of our net salestotal revenues for the fiscal years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.

Through our Foundry Services Group, we also offer foundry services to fabless analog and mixed-signal semiconductor companies and IDMs that require differentiated, specialty analog and mixed-signal process technologies. Our process technologies are optimized for analog and mixed-signal devices and include standard complementary metal-oxide semiconductor (CMOS), high voltage CMOS,ultra-low leakage high voltage CMOS and bipolar complementary double-diffused metal oxide semiconductor (BCDMOS) and electronically erasable programmable read only memory (EEPROM). Our Foundry Services Group customers use us to manufacture a wide range of products, including display drivers, LED drivers, audio encoding and decoding devices, microcontrollers, touch screen controllers, RF switches, park distance control sensors for automotive, electronic tag memories and power management semiconductors. Our Foundry Services Group business represented 38.8%, 43.3% and 47.1% of our net sales for the fiscal years ended December 31, 2019, 2018 and 2017, respectively.

We manufacture the majority of our products at our two fabrication facilities located in Korea. We have approximately 500 proprietary process flows we can utilize for our products and offer to our Foundry Services Group customers. Our manufacturing base serves both our display driver and power management businesses and Foundry Services Group customers, allowing us to optimize our asset utilization and leverage our investments across our product and service offerings. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by design and process implementation expertise rather than the use of the most advanced equipment. These processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy do not require substantial investment in leading edge process equipment, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments.

Market Opportunity

The semiconductor market is large and is expanding its applications. Growth in this market is being driven by consumers seeking to enjoy a wide variety of rich media content, such as high definition audio and video, mobile devices, televisions and games. Recently, industrial applications such as power suppliers,
e-bikes,
photovoltaic inverters, LED lighting, motor drives, and automotive applications such as on board chargers, electric motor drives, electric pumps,
DC-DC
converters and powertrain inverters in hybrid & battery electric vehicle (HEV & BEV) are also driving growth in the semiconductor market. Electronics device manufacturers recognize that the consumer entertainment experience plays a critical role in differentiating their products. To address and further stimulate consumer demand, electronics manufacturers have been driving rapid advances in the technology, functionality, form factor, cost, quality, reliability and power consumption of their products. Electronics manufacturers are continuously implementing advanced technologies in new generations of electronic devices using analog and mixed-signal semiconductor components, such as display drivers that enable display of high resolution images, encoding and decoding devices that allow playback of high definition audio and video, and power management semiconductors that increase power efficiency, thereby improving heat dissipation and extending battery life. These advanced generations of consumer devices are growing faster than the overall electronics device market.

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The user experience delivered by a consumer electronic device is substantially driven by the quality of the display, audio and video processing capabilities and power efficiency of the device. Analog and mixed-signal semiconductors enable and enhance these capabilities. Examples of these analog and mixed-signal
semiconductors include display drivers, timing controllers, audio encoding and decoding devices, or codecs, and interface circuits, as well as power management semiconductors such as voltage regulators, converters and switches.

Requirements of Leading Electronic Devices Manufacturers

We believe our target customers view the following characteristics and capabilities as key differentiating factors among available analog and mixed-signal semiconductor suppliers:
Broad Offering of Differentiated Products with Advanced System-Level Features and Functions.
Leading electronic devices manufacturers seek to differentiate their products by incorporating innovative semiconductor products that enable unique system-level functionality and enhance performance. These consumer electronics manufacturers seek to closely collaborate with semiconductor solutions providers that continuously develop new and advanced products, and technologies that enable state of the art features and functions, such as bright and thin displays, small form factor and energy efficiency.
Fast
Time-to-Market
with New Products.
As a result of rapid technological advancements and short product lifecycles, our target customers typically prefer suppliers who have a compelling pipeline of new products and capacity to leverage a substantial intellectual property and technology base to accelerate product design and manufacturing service providers:

•

Broad Offering of Differentiated Products with Advanced System-Level Features and Functions. Leading electronic devices manufacturers seek to differentiate their products by incorporating innovative semiconductor products that enable unique system-level functionality and enhance performance. These consumer electronics manufacturers seek to closely collaborate with semiconductor solutions providers that continuously develop new and advanced products, technologies, and manufacturing processes that enable state of the art features and functions, such as bright and thin displays, small form factor and energy efficiency.

•

FastTime-to-Market with New Products. As a result of rapid technological advancements and short product lifecycles, our target customers typically prefer suppliers who have a compelling pipeline of new products and capacity to leverage a substantial intellectual property and technology base to accelerate product design and manufacturing when needed.

•

Nimble, Stable and Reliable Manufacturing Services. Fabless semiconductor providers who rely on external manufacturing services often face rapidly changing product cycles. If these fabless companies are unable to meet the demand for their products due to issues with their manufacturing services providers, their profitability and market share can be significantly impacted. As a result, they prefer foundry service providers that can increase production quickly and meet demand consistently through periods of constrained industry capacity. Furthermore, many fabless semiconductor providers serving the consumer electronics and industrial sectors need specialty analog and mixed-signal manufacturing capabilities to address their product performance and cost requirements.

•

Ability to Deliver Cost Competitive Solutions. Electronics manufacturers are under constant pressure to deliver cost-competitive solutions. To accomplish this objective, they need strategic semiconductor suppliers that have the ability to provide system-level solutions, highly integrated products and a broad product offering at a range of price points and have the design and manufacturing infrastructure and logistical support to deliver cost competitive products.

•

Focus on Delivering Highly Energy-Efficient Products. Consumers increasingly seek longerrun-time, environmentally friendly and energy-efficient consumer electronic products. In addition, there is increasing

regulatory focus on reducing energy consumption of consumer electronic products. As a result of global focus on more environmentally friendly products, our customers are seeking analog and mixed-signal semiconductor suppliers that have the technological expertise to deliver solutions that satisfy these ever increasing regulatory and consumer power efficiency demands.

Ability to Deliver Cost Competitive Solutions.
Electronics manufacturers are under constant pressure to deliver cost-competitive solutions. To accomplish this objective, they need strategic semiconductor suppliers that have the ability to provide system-level solutions, highly integrated products and a broad product offering at a range of price points and have the design and manufacturing infrastructure and logistical support to deliver cost competitive products.
Focus on Delivering Highly Energy-Efficient Products.
Consumers increasingly seek longer
run-time,
environmentally friendly and energy-efficient consumer electronic products. In addition, there is an increasing regulatory focus on reducing energy consumption of consumer electronic products. As a result of a global focus on more environmentally friendly products, our customers are seeking analog and mixed-signal semiconductor suppliers that have the technological expertise to deliver solutions that satisfy these ever increasing regulatory and consumer power efficiency demands.
Our Competitive Strengths

Designing and manufacturing analog and mixed-signal semiconductors capable of meeting the evolving functionality requirements for electronics devices are challenging. In order to grow and succeed in the industry, we believe semiconductor suppliers must have a broad, advanced intellectual property portfolio, product design expertise, comprehensive product offerings and specialized manufacturing process technologies and capabilities. Our competitive strengths enable us to offer our customers solutions to solve their key challenges. We believe our strengths include:

Advanced Analog and Mixed-Signal Semiconductor Technology.
Our long operating history, large patent portfolio, extensive engineering and manufacturing process expertise and analog and mixed-signal intellectual property allow us to leverage our technology and develop new products across multiple end markets. Our product development efforts are supported by a team of over 230 engineers as of the date of this Annual Report. Our platform allows us to develop and introduce new products quickly and integrate numerous functions into a single product. For example, we were one of the first companies to introduce a commercial OLED display driver for mobile phones.
Established Relationships and Close Collaboration with Leading Global Electronics Companies.
We have a long history of supplying and collaborating on product and technology development with leading
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Advanced Analog and Mixed-Signal Semiconductor Technology and Intellectual Property Platform. We believe we have one of the broadest and deepest analog and mixed-signal semiconductor technology platforms in the industry. Our long operating history, large patent portfolio, extensive engineering and manufacturing process expertise and wide selection of analog and mixed-signal intellectual property libraries allow us to leverage our technology and develop new products across multiple end markets. Our product development efforts are supported by a team of 414 engineers as of the date of this Report. Our platform allows us to develop and introduce new products quickly as well as to integrate numerous functions into a single product. For example, we were one of the first companies to introduce a commercial OLED display driver for mobile phones.

•

Established Relationships and Close Collaboration with Leading Global Electronics Companies.We have a long history of supplying and collaborating on product and technology development with leading

innovators in the consumer electronics market. Our close customer relationships have been built based on many years of close collaborative product development, which provides us with deep system levelsystem-level knowledge and key insights into our customers’ needs. As a result, we are able to continuously strengthen our technology platform in areas of strategic interest for our customers and focus on those products and services that our customers and end consumers demand the most.

•

Longstanding Presence in Asia and Proximity to Global Electronics Devices Supply Chain.Our presence in Asia facilitates close contact with our customers and fast response to their needs, and enhances our visibility into new product opportunities, markets and technology trends. Our design center and substantial manufacturing operations in Korea place us close to many of our largest customers and to the core of the global electronics devices supply chain. We have active applications, engineering, product design and customer support resources, as well as senior management and marketing resources, in geographic locations close to our customers. This allows us to strengthen our relationship with customers through better service, faster turnaround time and improved product design collaboration. We believe this also helps our customers to deliver products faster than their competitors and to solve problems more efficiently than would be possible with other suppliers.

•

Broad Portfolio of Product and Service Offerings Targeting Large, High-Growth Markets.We continue to develop a wide variety of analog and mixed-signal semiconductor solutions for multiple high-growth electronics device end markets. We believe our expanding product and service offerings allow us to provide additional products to new and existing customers and to cross-sell our products and services to our established customers. For example, we have leveraged our technology expertise and customer relationships to develop and grow power management solutions to customers. Our power management solutions enable our customers to increase system stability and improve heat dissipation and energy use, resulting in improved system efficiency and system cost savings for our customers, as well as environmental benefits. We have been able to sell these new products to our existing customers as well as expand our customer base.

•

Distinctive Analog and Mixed-Signal Process Technology Expertise and Manufacturing Capabilities. We have developed specialty analog and mixed-signal manufacturing processes such as high voltage CMOS, power and embedded memory. These processes enable us to flexibly ramp mass production of display, power and mixed-signal products, and shorten the duration from design to delivery of highly integrated, high-performance analog and mixed-signal semiconductors.

•

Highly Efficient Manufacturing Capabilities. Our manufacturing strategy is focused on optimizing our asset utilization across our display driver and power management products as well as our foundry services, which enables us to maintain the price competitiveness of our products and services through ourlow-cost operating structure and improve our operational efficiency. We believe the location of our primary manufacturing and research and development facilities in Asia and the relatively low need for ongoing capital expenditures provide us with a number of cost advantages. We offer specialty analog process technologies that do not require substantial investment in leading edge, smaller geometry process equipment. We are able to utilize our manufacturing base over an extended period of time and thereby minimize our capital expenditure requirements.

Longstanding Presence in Asia and Proximity to Global Electronics Devices Supply Chain.
Our presence in Asia facilitates close contact with our customers and fast response to their needs, and enhances our visibility into new product opportunities, markets and technology trends. Our design center and substantial manufacturing operations in Korea place us close to many of our largest customers and to the core of the global electronics devices supply chain. We have active applications, engineering, product design and customer support resources, as well as senior management and marketing resources, in geographic locations close to our customers. This allows us to strengthen our relationship with customers through better service, faster turnaround time and improved product design collaboration. We believe this also helps our customers to deliver products faster than their competitors and to solve problems more efficiently than would be possible with other suppliers.
Broad Portfolio of Product Offerings Targeting Large, High-Growth Markets.
We continue to develop a wide variety of analog and mixed-signal semiconductor solutions for multiple high-growth electronics device end markets. We believe our expanding product offerings allow us to provide additional products to new and existing customers and to cross-sell our products to our established customers. For example, we have leveraged our technology expertise and customer relationships to develop and grow power management solutions to customers. Our power management solutions enable our customers to increase system stability and improve heat dissipation and energy use, resulting in improved system efficiency and system cost savings for our customers, as well as environmental benefits. We have been able to sell these new products to our existing customers as well as expand our customer base.
Highly Efficient Manufacturing Capabilities.
Our manufacturing strategy is focused on optimizing our asset utilization across our display driver and power management products, which enables us to maintain the price competitiveness of our products through our
low-cost
operating structure and improve our operational efficiency. We believe the location of our primary manufacturing and research and development facilities in Asia and the relatively low need for ongoing capital expenditures provide us with a number of cost advantages.
Our Strategy

Our objective is to grow our business, cash flow and profitability and to continue strengthening our position in the semiconductor industry as a leading provider of analog and mixed-signal semiconductor products and services for high-volume markets. Our business strategy emphasizes the following key elements:

Increase Business with Existing Customers.
We have a global customer base consisting of leading consumer electronics OEMs that sell into multiple end markets. We intend to continue to strengthen our relationships with our customers by collaborating on critical design and product development in order to improve our
design-win
rates. We seek to increase our customer penetration by more closely aligning our product roadmap with those of our key customers and take advantage of our broad product portfolio, our deep knowledge of customer needs and existing relationships to sell more existing and new products.
Broaden Our Customer Base.
We expect to continue to expand our global customer base, particularly in China, Hong Kong, and Taiwan, which we collectively refer to as Greater China, and other high-growth geographies, to penetrate new accounts. In addition, we intend to introduce new products and variations of existing products to address a broader customer base. In order to broaden our market penetration, we are complementing our direct customer relationships and sales with an improved base of distributors, with a particular focus on the growth of our power management business.
Drive Execution Excellence.
 We intend to improve our execution through a number of management initiatives, new processes for product development, customer service and personnel development. We
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Leverage Our Advanced Analog and Mixed-Signal Technology Platform to Innovate and Deliver New Products and Services. We intend to continue to utilize our extensive patent and technology portfolio, analog and mixed-signal design and manufacturing expertise and specificend-market applications and system-level design expertise to deliver products with high levels of performance by utilizing our systems expertise and leveraging our deep knowledge of our customers’ needs.

•

Increase Business with Existing Customers.We have a global customer base consisting of leading consumer electronics OEMs that sell into multiple end markets. We intend to continue to strengthen our relationships with our customers by collaborating on critical design and product development in order to improve ourdesign-win rates. We seek to increase our customer penetration by more closely aligning our product roadmap with those of our key customers and take advantage of our broad product portfolio, our deep knowledge of customer needs and existing relationships to sell more existing and new products.

•

Broaden Our Customer Base. We expect to continue to expand our global design centers, local application engineering support and sales presence, particularly in China, Hong Kong, Taiwan and Macau, or collectively, Greater China, and other high-growth geographies, to penetrate new accounts. In addition, we intend to introduce new products and variations of existing products to address a broader customer base. In order to broaden our market penetration, we are complementing our direct customer relationships and sales with an improved base of distributors, especially to aid the growth of our power management business.

•

Drive Execution Excellence. We intend to improve our execution through a number of management initiatives, new processes for product development, customer service and personnel development. We

expect these ongoing initiatives will contribute to improvement of our new product development and customer service as well as enhance our commitment to a culture of quick action and execution by our workforce. In addition, we have focused on improving our manufacturing efficiency during the past several years.

•

Optimize Asset Utilization, Return on Capital Investments and Cash Flow Generation.We intend to keep our capital expenditures relatively low by maintaining our focus on specialty process technologies that do not require substantial investment in frequent upgrades to the latest manufacturing equipment. By utilizing our manufacturing facilities for our Display Solutions and Power Solutions products and our Foundry Services Group customers, we seek to maximize return on our capital investments and our cash flow generation.

Return on Capital Investments and Cash Flow Generation.
We manufacture most of our Display Solutions products at external foundries. Through a strategic cooperation with external foundries, we are able to adapt dynamically to changing customer requirements and address growing markets without substantial capital investments. We manufacture our Power Solutions products by utilizing our
in-house
manufacturing facility and external foundry to address a broad portfolio of power products while we seek to maximize return on capital investments and our cash flow generation. We intend to keep our capital expenditures relatively low by maintaining our focus on specialty process technologies that do not require substantial investment in frequent upgrades to the latest manufacturing equipment. However, from time to time, we make special investments to enhance our manufacturing capabilities by investing in new equipment and expanding our facility, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity.
Our Technology

We continuously strengthen our advanced analog and mixed-signal semiconductor technology platform by developing innovative technologies and integrated circuit building blocks that enhance the functionality of electronics devices through brighter, thinner displays, enhanced image quality, smaller form factor and longer battery life. We seek to further build our technology platform through proprietary processes and selective licensing and acquisition of complementary technologies, as well as disciplined process improvements in our manufacturing operations. Our goal is to leverage our experience and development initiatives across multiple end markets and utilize our understanding of system-level issues our customers face to introduce new technologies that enable our customers to develop more advanced, higher performance products.

Our display technology portfolio includes building blocks for display drivers and timing controllers, processor and interface technologies, as well as sophisticated production techniques, such as
chip-on-glass
(COG),
chip-on-film
(COF) and
chip-on-plastic
(COP) for rigid, flexible
bezel-less,
edge type, and trench type OLED displays. Our advanced display drivers incorporate LTPS TFT andOxide,
Low-Temperature
Polycrystalline Oxide (LTPO) OLED panel technologies that enable the highest resolution displays. Furthermore, we are developing a broad intellectual property portfolio to improve the quality and the power efficiency of displays, including the development of our contents-based automatic brightness control (CABC), automatic current limit (ACL)high speed interface, high quality image enhancement display data compression and optical compensation technology for OLED displays.

We have a long history of specialized process technology development and have a number of distinctive process implementations. We have approximately 500 process flows we can utilize for our products and offer to our Foundry Services Group customers. Our process technologies include standard CMOS, high voltage CMOS,ultra-low leakage high voltage CMOS, logic process based bipolar-CMOS-DMOS (BCDMOS),epi-based BCDMOS, and radio frequency silicon on insulator (RFSOI). Our manufacturing processes incorporate embedded memory solutions, such as static random access memory (SRAM),one-time programmable (OTP) memory, multiple-time programmable (MTP) memory, electrical fuse, eFlash and EEPROM. More broadly, we focus extensively on processes that reduce die size across all of the products we manufacture, in order to deliver cost-effective solutions to our customers.

Expertise in ultra-high voltage (UHV), high voltage and deep trench BCDMOS process technologies, low power analog and mixed-signal design capabilities and packaging
know-how
are key requirements in the power management market. We are currently leveraging our capabilities in these areas with products such asAC-DC
AC-DC/DC-DC
converters,DC-DC converters, LED
-LED
drivers, linear regulators, and analog switches,power management integrated circuits (PMICs), power MOSFETs and IGBTs. We believe our system-level understanding of applications such as LCD televisions, smartphones, computing, and smartphonesservers, automotive, and industrial applications will allow us to more quickly develop and customize power management solutions for our customers in these markets.

Products and Services by Business Line

Our broad portfolio of products and services addresses multiple high-growth, consumer-focused end markets. A key component of our product strategy is to supply multiple related product and service offerings to each of the end markets that we serve.

Foundry Services

We provide specialty analog and mixed-signal foundry services to fabless semiconductor companies and IDMs that serve communications, IoT, consumer, industrial and automotive applications. We manufacture wafers based on our customers’ product designs. We do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers. We offer approximately 500 process flows to our Foundry Services Group customers. We also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise.

Our Foundry Services Group targets customers who require differentiated, specialty analog and mixed-signal process technologies such as high voltage CMOS,non-volatile memory and power. We refer to our

approach

6
Table of delivering specialized services to our customers as our application-specific technology strategy. We differentiate ourselves through the depth of our intellectual property portfolio, ability to customize process technology to meet the customers’ requirements effectively, long history in this business and reputation for excellence.

Our Foundry Services Group customers vary from small fabless companies to large IDMs who serve communications, IoT, consumer, industrial and automotive applications.

Process Technology Overview

•

Mixed-Signal. Mixed-signal process technology is used in devices that require conversion of light and sound into electrical signals for processing and display. Our mixed-signal processes include advanced technologies such aslow-noise process using triple gate, which allows die size reduction at any given performance level.

•

Power. Power process technology, such as BCD, includes high-voltage capabilities as well as the ability to integrate functionalities, such as self-regulation, internal protection and other intelligent features. Unique process features, such as deep trench isolation, thick inter-metal isolation and embedded high densitynon-volatile memory are suited for chip shrink and device performance enhancement.

•

High Voltage CMOS. High-voltage CMOS process technology facilitates the use of high-voltage levels in conjunction with smaller transistor sizes. This process technology includes several variations, such as bipolar processes, which use transistors with qualities well suited for amplifying and switching applications, mixed-mode processes, which incorporate denser, more power efficient FETs, and thick metal processes.

•

Non-Volatile Memory.Non-volatile memory (NVM), process technology enables the integration ofnon-volatile memory cells that allow retention of the stored information even when power is removed from the circuit. This type of memory is typically used for long-term persistent storage.

The table below sets forth the key process technologies in Foundry Services Group that we currently offer to customers:

Process

Technology

Device

Application

Mixed-Signal

•  0.13-0.5µm

•  Low noise

•  Ultra low power

•  Triple gate

•  RF SOI

•  0.13µm Simplified*

•  0.18µm Simplified

•  Analog to digital converter

•  Digital to analog converter

•  Audio amplifier

•  Chipset

•  RF switch

•  Digital tunable capacitor

•  Fingerprint sensor

•  Hall sensor

•  Isolator

•  MEMS microphone sensor IC

•  Smartphones

•  Tablet PCs

•  Notebooks

•  PC peripherals

•  Battery charger

•  LED lighting

•  Home appliance

•  VR/AR

Contents

Process

Technology

Device

Application

Power

•  0.13-0.35µm

•  BCD40V-200V*

•  Deep trench isolation

•  MOSFET

•  Ultra high voltage

•  Thick metal

•  Slim BCD 100V*

•  Simplified UHV

•  SOI BCD*

•  Power management

•  LED driver

•  High power audio amp

•  Power Over Ethernet

•  DC/DC converter

•  AC/DC converter

•  USBtype-C

•  Wireless power charger

•  Motor driver

•  High voltage switch

•  Smartphones

•  Tablet PCs

•  Notebooks

•  LCD TVs

•  LED lighting

•  LCD monitors

•  Automotive

•  Industrial

•  Servers

•  e-Bike

•  Home appliance

High-Voltage CMOS

•  0.11-0.35µm

•  18V-45V

•  Bipolar

•  Display driver

•  CSTN driver

•  Smartphones

•  Tablet PCs

•  LCD TVs

•  Desktop PCs

•  LCD monitors

NVM

•  0.13-0.35µm

•  EEPROM

•  eFlash, Ultra low leakage

•  eFlash

•  OTP

•  MTP

•  eFuse

•  Microcontroller

•  Touch screen controller

•  Electronic tag memory

•  Hearing aid controller

•  Fingerprint sensor

•  Auto Focus IC

•  Wireless power charger

•  Smartphones

•  Tablet PCs

•  Industrial applications

•  Medical equipment

•  Automotive

•  Home appliance

*

In customer qualification stage

Display Solutions

Display Driver Characteristics.
Display drivers deliver defined analog voltages and currents that activate pixels to exhibit images on displays. The following key characteristics determine display driver performance and
end-market
application:

•

Resolution and Number of Channels. Resolution determines the level of detail displayed within an image and is defined by the number of pixels per line multiplied by the number of lines on a display. For large displays, higher resolution typically requires more display drivers for each panel. Display drivers that have a greater number of channels, however, generally require fewer display drivers for each panel and command a higher selling price per unit. Mobile displays, conversely, are typically single chip solutions designed to deliver a specific resolution. We cover resolutions ranging from VGA (640 x 480) to UHD (3840 x 2160).

•

Color Depth.Color depth is the number of colors that can be displayed on a panel. For example, forTFT-LCD panels, 262 thousand colors are supported by6-bit source drivers; 16 million colors are supported by8-bit source drivers; and 1 billion colors are supported by10-bit source drivers.

•

Operational Voltage. Display drivers are characterized by input and output voltages. Source drivers typically operate at input voltages from 1.62 to 3.6 volts and output voltages between 9 and 18 volts. Gate drivers typically operate at input voltages from 1.62 to 3.6 volts and output voltages from 30 to 45 volts. Lower input voltage results in lower power consumption and electromagnetic interference (EMI).

•

Gamma Curve.The relationship between the light passing through a pixel and the voltage applied to the pixel by the source driver is referred to as the gamma curve. The gamma curve of the source driver can correct some imperfections in picture quality in a process generally known as gamma correction. Some advanced display drivers feature up to three independent gamma curves to facilitate this correction.

•

Driver Interface.Driver interface refers to the connection between the timing controller and the display drivers. Display drivers increasingly require higher bandwidth interface technology to address the larger data transfer rate necessary for higher definition images. The principal types of interface technologies are embedded clock point to point interface (EPI), advanced intra panel interface (AIPI),mini-low voltage differential signaling(m-LVDS), unified standard interface for notebook and monitor(USI-GF), unified standard interface (USI), unified standard interface for TV(USI-T) and mobile industry processor interface (MIPI).

•

Package Type.The assembly of display drivers typically uses COF, COG and COP package types.

Resolution and Number of Channels.
Resolution determines the level of detail displayed within an image and is defined by the number of pixels per line multiplied by the number of lines on a display. For large displays, higher resolution typically requires more display drivers for each panel. Display drivers that have a greater number of channels, however, generally require fewer display drivers for each panel and command a higher selling price per unit. Mobile displays, conversely, are typically single chip solutions designed to deliver a specific resolution. We cover resolutions ranging from VGA (640 x 480) to UHD (3840 x 2160).
Color Depth.
Color depth is the number of colors that can be displayed on a panel. For example, for
TFT-LCD
panels, 262 thousand colors are supported by
6-bit
source drivers; 16 million colors are supported by
8-bit
source drivers; and 1 billion colors are supported by
10-bit
source drivers.
Operational Voltage.
Display drivers are characterized by input and output voltages. Source drivers typically operate at input voltages from 1.62 to 3.6 volts and output voltages between 9 and 18 volts. Gate drivers typically operate at input voltages from 1.62 to 3.6 volts and output voltages from 30 to 45 volts. Lower input voltage results in lower power consumption and electromagnetic interference (EMI).
Gamma Curve.
The relationship between the light passing through a pixel and the voltage applied to the pixel by the source driver is referred to as the gamma curve. The gamma curve of the source driver can correct some imperfections in picture quality in a process generally known as gamma correction. Some advanced display drivers feature up to three independent gamma curves to facilitate this correction.
Driver Interface.
Driver interface refers to the connection between the timing controller and the display drivers. Display drivers increasingly require higher bandwidth interface technology to address the larger data transfer rate necessary for higher definition images. The principal types of interface technologies are embedded clock point to point interface (EPI),
mini-low
voltage differential signaling
(m-LVDS),
unified standard interface (USI) and mobile industry processor interface (MIPI).
Package Type.
The assembly of display drivers typically uses COF, COG and COP package types.
Large Display Solutions.
We provide display solutions for a wide range of flat panel display sizes used in LCD televisions, including ultra-high definition televisions, or UHD TVs, FHD TVs, HD TVs, LED TVs, 3D TVs, OLED TVs, LCDMicro LED TVs as well as IT applications such as monitors, notebooks,notebook PCs, tablet PCs, automobiles and public information displays and automotive.

displays.

Our large display solutions include source and gate drivers and timing controllers with a variety of interfaces, voltages, frequencies and packages to meet customers’ needs. These products include advanced technologies such as high channel count, with products in mass production to provide up to 1,542 channels. Our large display solutions are designed to allow customers to cost-effectively meet the increasing demand for high resolution displays. We focushave focused extensively on reducing the die size of our large display drivers and other solutions products to reduce costs without having to migrate to smaller geometries. For example, we have implemented several solutions to reduce die size in large display drivers, such as optimizing design schemes and design rules and applying specific technologies that we have developed internally. We are currently focusing on growing display segments such as OLED TVs and automotive. We have recently introduced a number of new large display drivers with reduced die size.

driver ICs for OLED TV and automotive.

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The table below sets forth the features of our products, both in mass production and in customer qualification, which is the final stage of product development, for
large-sized
displays:

Product

 

Key Features

 

Applications

TFT-LCD
Source Drivers

 

•  480 to 1,542 output channels

•  6-bit (262
(262 thousand colors),
8-bit (16
(16 million colors),
10-bit (1
(1 billion colors)

•  Output voltage ranging from 9V to 18V

•  Low power consumption and low EMI

•  COF package types

•  EPI,
m-LVDS, AIPI,
USI interface technologies

 

•  UHD/HD/LED/3DLCD/LED TVs

•  Notebooks

•  LCD/LED monitors

•  Automotive

TFT-LCD
Gate Drivers

 

•  272 to 960 output channels

•  Output voltage ranging from 30V to 45V

•  COF and COG package types

 

•  Tablet PCs

•  HD/LED/3DLCD/LED TVs

•  Notebooks

•  Automotive

Timing Controllers

 

•  Wide range of resolutions

•  EPI,
m-LVDS,
MIPI,
USI-T
interface technologies

•  Input voltage ranging from 1.6V to 3.6V

 

•  Tablet PCs

•  Public information display

OLED Source Drivers

 

•  960 output channels

•  10 bit (1 billion colors)

•  Output voltage: 18V

•  COF package type

•  EPI interface technology

 

•  OLED TVs

Micro LED Drivers*
•  552 output channels (3 Mux)
•  10 bit (1 billion colors)
•  Output voltage: max 18V
•  COF package type
•  USI interface technology
•  Micro LED TVs

*
In customer qualification stage
Mobile Display Solutions.
Our mobile display solutions incorporate the industry’s most advanced display technologies, such as OLED and LTPS, as well as high-volume technologies such as
a-Si
TFT. Our mobile display products offer specialized capabilities, including high speed serial interfaces, such as mobile display digital interface (MDDI), MIPI, reduced swing differential signaling interface (RSDS) and logic-based OTP memory. We focus extensively on reducing the die size of our mobile display drivers and other solutions products to reduce costs. For example, we have implemented several solutions to reduce die size in mobile display drivers, such as optimizing design schemes and design rules and applying specific technologies that we have developed internally. Further, we are building a distinctive intellectual property portfolio that allows us to provide features that reduce power consumption, such as CABC and ACL. This intellectual property portfolio will also support our power management product development initiatives, as we leverage our system level understanding of power efficiency. Our OLED driver ICs can support various configurations such as high resolution from FHD+(2,240x1,080) to QHD+(3,120x1,440)(3,360x1,440), wide aspect ratio from 16:9 to 21:9 and flexible
bezel-less,
edge type, and trench type OLED displays. In the transition to, and adoption of, 5G, fast responses and high frame rates such as 90Hz and 120Hz are becoming essential product offerings. To meet this new and
8
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evolving demand, we have developed and mass produced our OLED display driver IC, which supports 90Hz/120Hz120Hz/144Hz high frame rates.

The following table summarizes the features of our products, both in mass production and in customer qualification, which is the final stage of product development, for mobile displays:

Product

  

Key Features

  

Applications

OLED

  

•  Resolutions of HD720, WXGA, FHD, FHD+, QHD and QHD+

•  Aspect ratio from 16:9 to 21:9

•  Color depth of 1 billion

•  MIPI, eRVDS interface

•  Logic-based OTP

•  ABC, ACL

Image enhancement IP
•  Display data compression IP
  

•  Smartphones

•  Game consoles

•  Digital still cameras

•  Tablet PCs

•  Virtual reality headsets

•  Automotive

LTPS

  

•  Resolutions of VGA, WSVGA, WVGA and DVGA

•  Color depth of 16 million

•  MDDI, MIPI interface

•  Logic-based OTP

•  Separated gamma control

  

•  Smartphones

•  Digital still cameras

a-Si
TFT

  

•  Resolutions of WQVGA and HVGA

•  Color depth of 16 million

•  RSDS, MDDI, MIPI interface

•  CABC

•  Separated gamma control

  

•  Mobile phones

•  Digital still cameras

•  Automotive

Power Solutions

We develop, manufacture and market power management solutions for a wide range of
end-market
customers. The products include MOSFETs, IGBTs,AC-DC converters,
AC-DC/DC-DC
converters, LED drivers, regulators, power management integrated circuits (PMICs) for a range of devices, including LCD, LED, and UHD televisions, digital signage, smartphones, mobile phones, wearable devices, desktop PCs, notebooks, tablet PCs, other consumer electronics, consumer appliances, automotive, and industrial applications such as power suppliers,
e-bikes,
photovoltaic inverters, LED lighting and motor drives.

•

MOSFETs. Our MOSFETs includelow-voltage tomid-voltage, Trench MOSFETs, 12V to 150V, high-voltage Planar MOSFETs, 200V through 650V, and super junction MOSFETs, 500V through 900V.

MOSFETs are used in applications to switch, shape or transfer electricity under varying power requirements. The key application segments are smartphones, mobile phones, LCD, LED, and UHD televisions, desktop PCs, notebooks, tablet PCs, servers, lighting and power supplies for consumer electronics and industrial equipment. MOSFETs allow electronics manufacturers to achieve specific design goals of high efficiency and low standby power consumption. For example, computing solutions focus on delivering efficient controllers and MOSFETs for power management in VCORE, DDR and chipsets for audio, video and graphics processing systems.

•

IGBTs. Our IGBTs include 650V to 1200V field stop trench IGBTs. IGBTs are used in high power industrial applications, such as UPSs, power supplies, motor drives, solar inverters, welding machines and consumer appliances.

•

AC-DC Converters andDC-DC Converters. We offerAC-DC andDC-DC converters targeting mobile applications and high power applications like LCD, LED, and UHD televisions, notebooks, smartphones, mobile phones,set-top boxes and display modules. We expect ourAC-DC andDC-DC converters will meet customer’s green power requirements by featuring wide input voltage ranges, high efficiency and small size.

•

LED Drivers. LED backlighting drivers serve the fast-growing LCD and LED panel backlighting market for LCD and LED televisions, LCD monitors, digital signage, notebooks, smartphones and tablet PCs. Our products are designed to provide high efficiency and wide input voltage range, as well as pulse width modulation (PWM) dimming for accurate white LED dimming control. LED lighting drivers have a wide input voltage range applicable to incandescent bulb and fluorescent lamp replacement.

•

Regulators. We also provide analog regulators for mobile, computing and consumer applications. Our products are designed for high efficiency and low power consumption in mobile applications.

•

SSD PMIC. We also provide solid state drive power management integrated circuit (SSD PMIC) for the computing segment. Our product is designed for high frequency switching, high efficiency and pulse frequency modulation (PFM) function to reduce power consumption in low load converters.

MOSFETs.
Our MOSFETs include
low-voltage
from 12V to 30V, medium-voltage from 40V to150V, high-voltage planar MOSFETs, 200V through 650V, and super junction MOSFETs, 500V through 900V.
MOSFETs are used in applications to switch, shape or transfer electricity under varying power requirements. The key application segments are smartphones, mobile phones, wearable devices, LCD, LED, and UHD televisions, desktop PCs, notebooks, tablet PCs, servers, lighting and power supplies for consumer electronics and industrial equipment. MOSFETs allow electronics manufacturers to achieve specific design goals of high efficiency and low standby power consumption. For example, computing solutions focus on delivering efficient controllers and MOSFETs for power management in VCORE, DDR and chipsets for audio, video and graphics processing systems.
IGBTs.
Our IGBTs include 650V to 1200V field stop trench IGBTs. IGBTs are used in automotive and high power industrial applications, such as UPSs, power supplies, motor drives, solar inverters, welding machines and consumer appliances.
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AC-DC/DC-DC
Converters.
We offer
AC-DC/DC-DC
converters targeting mobile applications and high power applications like LCD, LED, and UHD televisions, notebooks, smartphones, mobile phones,
set-top
boxes and display modules. We expect our
AC-DC/DC-DC
converters will meet customer’s green power requirements by featuring wide input voltage ranges, high efficiency and small size.
LED Drivers.
LED backlighting drivers serve the fast-growing LCD and LED panel backlighting market for LCD and LED televisions, LCD monitors, digital signage, notebooks, smartphones and tablet PCs. Our products are designed to provide high efficiency and wide input voltage range, as well as pulse width modulation (PWM) dimming for accurate white LED dimming control. LED lighting drivers have a wide input voltage range applicable to incandescent bulb and fluorescent lamp replacement.
Regulators.
We also provide analog regulators for mobile, computing and consumer applications. Our products are designed for high efficiency and low power consumption in mobile applications.
SSD PMICs.
We also provide solid state drive power management integrated circuits (SSD PMICs) for the computing segment. Our product is designed for high frequency switching, high efficiency and pulse frequency modulation (PFM) function to reduce power consumption in low load converters.
Logic PMICs.
We also provide logic power management integrated circuits (PMICs) for organic light-emitting diode (OLED) display panel. Our PMICs provide optimized power to source driver, gate driver and timing controller
(T-CON)
of OLED display panel with multi-channel power block (boost converter, buck converter,
Op-Amps
and positive/negative LDOs.)
Our power management solutions enable customers to increase system stability and improve heat dissipation and energy use, resulting in cost savings for our customers and consumers, as well as environmental benefits. Our
in-house
process technology capabilities and eight-inch wafer production lines increase efficiency and contribute to the competitiveness of our products.

The following table summarizes the features of our products, both in mass production and in customer qualification, which is the final stage of product development:

Product

  

Key Features

  

Applications

Low-Mid

Low Voltage MOSFET

  

•  Voltage options of12V-150V

12V-30V
•  Advanced Trench MOSFET Process

•  High cell density

•  Advanced packages to enable reduction of PCB mounting area

  

•  Smartphones, and mobile phones,

and wearable devices

•  Tablet PCs, Notebooks

•  Desktop PCs, Servers

•  LCD/LED/UHDLED TVs

•  Industrial applications

•  Cryptocurrency miner

Medium Voltage MOSFET
•  Voltage options of
40V-150V
•  Advanced Trench MOSFET Process
•  High cell density
•  High system efficiency
•  Advanced packages to enable reduction of PCB mounting area
•  e-Bikes
and Motor controls
•  Battery Management Systems
•  Power tools and Servers
•  Other computing applications (Tablet PCs, Notebooks, Desktops)
•  Industrial applications
•  Automotive*
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Product
Key Features
Applications
High Voltage MOSFET

  

•  Voltage options of 200V-650V

•  R2FET (rapid recovery) option to shorten reverse diode recovery time

•  Zenor FETZener diode option for MOSFET protection for abnormal input

•  Advanced Planar MOSFET Process

•  Advanced packages to enable reduction of PCB mounting area

  

•  Adaptors for tablet PC/mobile phone/smartphone

•  Power supplies

•  Lighting (ballast, HID, LED)

•  Industrial applications

•  LCD/LED/UHD TVs

LEDTVs

Product

Key Features

Applications

Super Junction MOSFET

  

•  Voltage options of 500V-900V

•  Low R
DS(ON)

•  Epi stack process

•  Zenor FETZener diode option for MOSFET protection for abnormal input

•  Advanced SJ MOSFET process

•  Advanced packages to enable reduction of PCB mounting area

  

•  LCD/LED/UHD TVs

•  Lightings applications (ballast, HID, LED)

•  Smartphones

•  Power supplies

•  Servers

•  Industrial applications

IGBTs

  

•  Voltage options of 650V/1200V

•  Field Stop Trench IGBT

•  Current options from 15A to 60A

100A
  

•  Automotive
•  Industrial applications

•  Consumer appliances

AC-DC

AC-DC/DC-DC
Converter

  

•  Wide control range for high power application (>150W)

•  Advanced BCDMOS process

•  High Precision Voltage Reference

•  Very low startup current consumption

•  Fast load and line regulation
•  Accurate output voltage
•  OCP, SCP and thermal protections
  

•  LCD/LED/UHD TVs

•  Power supplies

•  Smartphones
•  Mobile phones
•  Notebooks
•  Set-top
boxes

DC-DC Converters

LED Backlighting Drivers
  

•  High efficiency, wide input

voltage range

•  Advanced BCDMOS process

•  Fast load and line regulation

•  Accurate output voltage

•  OCP, SCP and thermal protections

•  LCD/LED/UHD TVs

•  Smartphones

•  Mobile phones

•  Notebooks

•  Set-top boxes

LED Backlighting Drivers

•  High efficiency, wide input
voltage range

•  Advanced BCDMOS process

•  OCP, SCP, OVP and UVLO protections

•  Accurate LED current control and multi-channel matching

•  Programmable current limit, boost up frequency

  

•  Tablet PCs

•  Notebooks

•  Smartphones

•  LED/UHD TVs

•  LED monitors

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Product
Key Features
Applications

Digital Controlled LED Driver

  

•  Multi-channel constant current control

•  12Bit gray scale with SPI

  

•  Digital signage

LED Lighting Drivers

  

•  High efficiency, wide input

voltage range

•  Simple solutions with external components fully integrated

•  Advanced high voltage BCDMOS process

•  Accurate LED current control and high power factor and low THB

  

•  AC and DC LED lighting

Product

Regulators
  

Key Features

Applications

Regulators

•  Single and multi-regulators

•  Low Noise Output regulators

•  Wide range of input voltage and various output current

•  CMOS and BCDMOS processes

•  LDO (Low Drop Out — Linear Regulator)

  

•  Smartphones and Mobile phones

•  Notebooks

•  Computing

applications

SSD PMIC

  

•

��  High current buck

•  PFM function

•  High frequency switching

•  High efficiency

•  High integration technology

•  Small QFN package

  

•  Computing

applications
Logic PMIC
•  High current boost
•  Integrated pass transistor
•  LDO
•  3channel high current buck
•  Negative Charge Pump
•  2channel buffer
Op-Amp.
•  Tiny Wafer Level CSP
•  Notebooks
•  Tablet PCs

*
In customer qualification stage
Sales and Marketing

We focus our sales and marketing strategy on continuing to grow and leverage our existing relationships with leading consumer electronics OEMs, while expanding into industrial and automotive end markets. For Foundry Services Group, we focus on analog and mixed-signal semiconductor companies who see the benefit of our innovative technology and cost structure. We believe our close collaboration with customers allows us to align our product and process technology development with our customers’ existing and future needs. Because our customers often service multiple end markets, our product sales teams are organized by customers within the major geographies. We believe this facilitates the sale of products that address multiple
end-market
applications to each of our customers. Our Foundry Services Group sales teams focus on marketing our services to analog and mixed-signal semiconductor companies that require specialty manufacturing processes.

We sell our products through a direct sales force and a network of authorized agents and distributors. We have strategically located our sales and technical support offices near our customers. Our direct sales force consists primarily of representatives
co-located
with our design center in Korea, as well as our local sales and support offices and sales liaisons in the US, Japan, Greater China, Taiwan and Europe. We have a network of agents and
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distributors in Korea,United States, Europe and the US, Japan, Greater China and Europe.Asia Pacific region. For the years ended December 31, 2019, 20182021, 2020 and 2017,2019, we derived 78%62%, 77%75% and 75% of net sales from our standard products business through our direct sales force, respectively, and 22%38%, 23%25% and 25% of net sales from our standard products business through our network of authorized agents and distributors, respectively.

Customers

We sell our Display Solutions and Power Solutions products to consumer, computing and industrial electronics OEMs, original design manufacturers and electronics manufacturing services companies, as well as subsystem designers. We sell our foundry services to analog and mixed-signal semiconductor companies. For the years ended December 31, 2019, 20182021, 2020 and 2017,2019, our ten largest customers accounted for 67%79.8%, 61%87.6% and 57%89.5% of our net sales from our standard products business, respectively. Our arrangements with and reliance on key customers, particularly customers for our display products, and services, may make it less practicable to pursue certain opportunities with other potential new and existing customerscustomers. For the year ended December 31, 2021, sales to Samsung Display represented 42.5% of net sales from our standard products business and 89.7% of our Display Solutions division’s net sales, and SAMT represented 10.4% of net sales from our standard products business and 19.8% of our Power Solutions division’s net sales. For the year ended December 31, 2020, sales to Samsung Display represented 56.2% of net sales from our standard products business and 87.5% of our Display Solutions division’s net sales. For the year ended December 31, 2019, sales to Samsung Display represented 32.9%53.8% of our net sales from our standard products business and 84.5% of our Display Solutions division’s net sales. For the year ended December 31, 2018, sales to Samsung Display represented 19.3%2021, we recorded revenues of our net sales$6.1 million from customers in the US and 56.6%$427.0 million from all foreign countries, of our Display Solutions division’s net sales,which 47.2% was from Greater China, 26.6% from Korea and LG Display represented 13.3% of our net sales and 38.9% of our Display Solutions division’s net sales.18.9% from Vietnam. For the year ended December 31, 2017, sales to LG Display represented 15.6%2020, we recorded revenues of our net sales$5.1 million from customers in the US and 50.6%$460.4 million from all foreign countries, of our Display Solutions division’s net sales.which 61.9% was from Greater China, 23.1% from Korea and 10.8% from Vietnam. For the year ended December 31, 2019, we recorded revenues of $28.1$2.4 million from customers in the US and $764.1$482.4 million from all foreign countries, of which 46.0%68.2% was from Greater China 32.6%and 27.5% from Korea, 12.7% from Taiwan and 4.2% fromKorea. All information pertaining to the United Kingdom. Forgeographic source of revenues is with respect to the year ended

December 31, 2018, we recorded revenues of $37.5 million from customers in the US and $713.4 million from all foreign countries, ofgeographic location to which 39.6% was from Korea, 35.5% from Greater China, 14.0% from Taiwan and 4.5% from the United Kingdom. For the year ended December 31, 2017, we recorded revenues of $35.1 million from customers in the US and $644.6 million from all foreign countries, of which 43.4% was from Korea, 24.9% from Greater China, 18.2% from Taiwan and 3.7% from the United Kingdom.

our products are billed.

Intellectual Property

As of December 31, 2019,2021, our portfolio of intellectual property assets included approximately 2,6761,004 registered patents and 265142 pending patent applications. Approximately 1,886490 and 11546 of our patents and pending applications, respectively, are novel in that they are not a foreign counterpart of an existing patent or patent application. Because we file patents in multiple jurisdictions, we additionally have approximately 790514 registered patents and 15096 pending applications that relate to identical technical claims in our base patent portfolio. Our patents expire at various times approximately over the next 1819 years. While these patents are in the aggregate important to our competitive position, we do not believe that any single registered or pending patent is material to us.

We have entered into exclusive andnon-exclusive licenses and development agreements with third parties relating to the use of intellectual property of the third parties in our products and design processes, including licenses related to embedded memory technology, design tools, process simulation tools, circuit designs and processor cores. Some of these licenses, including our agreements with Silicon Works Co., Ltd. and ARM Limited, are material to our business and may be terminated by the licensors prior to the expiration of these licenses should we fail to cure any breach under such licenses. Our license with Silicon Works Co., Ltd. relates to our large display drivers, and our license from ARM Limited primarily relates to product lines in our Foundry Services Group business. The loss of either license could have a material adverse impact on our results of operations. Additionally, in connection with the Original Acquisition, SK hynix retained a perpetual license to use the intellectual property that we acquired from SK hynix in the Original Acquisition. Under this license, SK hynix and its subsidiaries are free to develop products that may incorporate or embody intellectual property developed by us prior to October 2004.

See “Item 1A. Risk Factors—Risks Related to Our Business—Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our intellectual property, proprietary technology and
know-how,
as well as our ability to operate without infringing the proprietary rights of others.”

National Core Technology
Under the Act on Prevention of Leakage and Protection of Industrial Technology of Korea (the “ITA”), any export (including various means of outflow such as sale or transfer outside Korea) of technology designated as “national core technology” (“National Core Technology” or “NCT”) by the Korean Ministry of Trade, Industry and Energy (the “MOTIE”) requires the filing of a prior-report with, and the acceptance of the same by, the MOTIE. Any such export of NCT without the acceptance of the prior report with the MOTIE may be subject to corrective orders by the relevant authorities, and failure to comply with such corrective orders may potentially result in criminal liabilities.
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The Notification Regarding Designation of National Core Technologies issued by the MOTIE was amended on July 14, 2021 to add certain technologies to the list of National Core Technology designated by the MOTIE, and the amended list includes the design technology for OLED Display Driver IC for driving display panels (“OLED DDI”). In the ordinary course of business, our Korean subsidiary may provide certain information relating to its products, including OLED DDI, to customers, suppliers or vendors, and such disclosure of information may be subject to the
NCT-related
regulations under the ITA, and therefore the MOTIE’s acceptance of prior-reports. Since the amendment of the foregoing NCT list in July 2021, we have filed prior-reports with the MOTIE for the export of our OLED DDI product-related information to certain overseas vendors that manufacture our products, and all such reports have thus far been accepted by the MOTIE.
Competition

We operate in highly competitive markets characterized by rapid technological change and continually advancing customer requirements. Although no one company competes with us in all of our product lines, we face significant competition in each of our market segments. Our competitors include other independent and captive manufacturers and designers of analog and mixed-signal integrated circuits, including display driver and power management semiconductor devices, as well as companies providing specialty manufacturing services.

devices.

We compete based on design experience, manufacturing capabilities, the ability to servicesatisfy customer needs from the design phase through the shipping of a completed product, length of design cycle and quality of technical support and sales personnel. Our ability to compete successfully will depend on internal and external variables, both within and outside of our control. These variables include the timeliness with which we can develop new products and technologies, product performance and quality, manufacturing yields, capacity availability, customer service, pricing, industry trends and general economic trends.

Employees

Human Capital
Our worldwide workforce consisted of 2,451890 employees (full- and part-time) as of December 31, 2019,2021, of which 336188 were involved in sales, marketing, general and administrative, 414232 in research and development

(including 189 (including 100 with advanced degrees), 10241 in quality, reliability and assurance, and 1,599429 in manufacturing (comprised of 24446 in engineering and 1,355383 in operations)operations, maintenance and others). Our employees leverage their extensive expertise in engineering, design and process to accelerate the advancement of technology and be leaders in our industry. We pride our company on being a great workplace where employees from diverse backgrounds can reach their full potential.

Labor Unions
As disclosed in previous reports, we have a labor union at our Korean subsidiary (the “First Union”). On Sep 16, 2021, the formation of a second labor union at our Korean subsidiary (the “Second Union”) was approved by the local authorities (the First Union and the Second Union are collectively referred to as the “Magnachip Semiconductor Labor Unions”). Both the First Union and the Second Union are members of a supervisory association named “Federation of Korean Trade Unions.” The First Union represents member employees who are factory workers and the Second Union represents member employees who are office workers, in both cases at our Korean subsidiary.
As of December 31, 2019,2021, of the 868 employees at our workforce consisted of 2,451 employees, of which 1,449 employees, or approximately 59% of our workforce,Korean subsidiary, 389 were represented by the MagnaChipFirst Union, and 82 employees were represented by the Second Union. Approximately 53% of our employees at our Korean subsidiary were represented by the Magnachip Semiconductor Labor Union.

Unions.

See “Item 1A. Risk Factors—Risks Related to Our Business—If we encounter future labor problems, we may fail to deliver our products and services in a timely manner, which would adversely affect our revenues and profitability.”
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Values and Culture
Our core values represent a commitment to building an environment of trust with our employees, customers, investors and the communities in which we operate. Through our values and culture, we strive to shape a better future not only for ourselves and our customers, but for humanity as a whole. At Magnachip, we strive to foster effective collaboration by respecting different perspectives, giving and receiving constructive feedback, and supporting one another.
Inclusion and Diversity
We support all employees, regardless of gender, gender identity or expression, age, veteran status, race, ethnicity, national origin, religion or disability. We place great importance on inclusion and diversity within the workplace. An inclusive and diverse culture creates a happier, more relaxed work environment.
Labor and Ethics
Magnachip strives to provide and maintain a working environment where management and employees are happy and treated with dignity and respect. Magnachip adheres to human rights and labor standards of international labor organizations, such as the United Nations and the International Labor Organization. Magnachip prohibits all forms of discrimination based on gender, race, nationality, religion and age to ensure all employees work in a safe and fair environment.
Empowering Great Talent
We offer a variety of offline training programs, including courses in the areas of design, engineering and technology, as well as courses at different job levels and leadership education. We also offer a number of online training programs, including in the areas of management/leadership and business skills such as presentation, negotiation, reporting, Information Technology and foreign language, which allow employees to improve their capabilities without time and space constraints. Every year, a majority of our employees are required to complete certain educational programs in the areas of information security, industrial safety and health, and sexual harassment prevention.
We believe the foundation of Magnachip is our research and development (“R&D”) talent. To ensure R&D technical professionals continue to advance their skills and knowledge, we have technology committees that attend regular seminars and conduct periodic research. We have a reward program for exemplary research.
We also offer a Vision Seminar, which is led by our CEO and is designed to share our company’s vision, strategy and the management’s key messages to employees. Additionally, the CEO and management regularly communicate with employees through CEO letters and town hall meetings.
Compensation and Benefits
We strive to reward employees with competitive compensation based on contribution and performance. We periodically evaluate market practices for compensation and benefits, including with respect to job function, role and responsibility, job level and region, and regularly review whether our compensation levels and distribution methods are fair and equitable. Additionally, we have long- and
mid-term
retention programs to attract and retain high-performing key talent.
We offer various employee benefits under the company philosophy that ensuring employees enjoy a happier life with their families is as critical as promoting their own health and well-being. All employees and their family members have access to annual medical checkup programs. Employees also have access to other benefits such as personal pensions, housing assistance, medical reimbursement plans and educational assistance programs.
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Safety and Wellness
During and after the ongoing
COVID-19
pandemic, our top priority is ensuring health and safety of our employees and their families. We built a companywide control tower to provide appropriate response guidance as the pandemic has evolved, and have secured internal/external capabilities to respond to emergencies systematically. In response to the ongoing
COVID-19
pandemic, we quickly instituted infrastructure to support remote working, so that our employees could work from home in a safe and stable environment. In addition, we have installed safety facilities within our business sites.
Environmental

We are subject to a variety of environmental, health and safety laws and regulations in each of the jurisdictions in which we operate, governing, among other things, air emissions, wastewater discharges, the generation, use, handling, storage and disposal of, and exposure to, hazardous substances (including asbestos) and waste, soil and groundwater contamination and employee health and safety. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Since 2015, our Korean subsidiary has been subject to a new set of greenhouse gas emissions regulation, the Korean Emissions Trading Scheme, or
K-ETS,
under the Act on Allocation and Trading of Greenhouse Gas Emission Allowances. Under
K-ETS,
our Korean subsidiary was allocated a certain amount of emissions allowance in accordance with the National Allocation Plan prepared by the Korean government and is required to meet its allocated target by either reducing the emission or purchasing the allowances from other participants in the emission trading market.
Another example is the newly reinforced regulations on chemicals under Chemicals Control Act and
K-REACH,
which came into effect on January 1, 2015. Under these laws, our Korean subsidiary is required to comply with various requirements to report, evaluate, manage and ensure the safe usage of the chemicals used in its facilities. There can be no assurance that we have been or will be in compliance with all of these laws and regulations, or that we will not incur material costs or liabilities in connection with these laws and regulations in the future. The adoption of new environmental, health and safety laws and the failure to comply with new or existing laws or issues relating to hazardous substances could subject us to material liability (including substantial fines or penalties), impose the need for additional capital equipment or other process requirements upon us, curtail our operations or restrict our ability to expand operations.

Raw Materials

We use processes that require specialized raw materials that are generally available from a limited number of suppliers. We continue to attempt to qualify additional suppliers for our raw materials. The Securities and Exchange Commission (the “SEC”), as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has adopted new disclosure regulations for public companies that manufacture products containing certain minerals that are mined from the Democratic Republic of Congo and adjoining countries. These “conflict minerals” are commonly found in metals used in the manufacture of semiconductors. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of metals used in the manufacture of our products. See “Item 1A. Risk Factors—Risks Related to Our Business—Compliance with new regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain raw materials used in manufacturing our products.”

Available Information

Our principal executive office is located at: c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer,
L-2520
Luxembourg, Grand Duchy of Luxembourg, and our telephone number is
(352) 45-62-62.
Our website address is www.magnachip.com. Our annual, quarterly and current reports on
Forms 10-K,10-Q10-K,
10-Q
or
8-K,
respectively, and all amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, can be accessed, free of charge, at our website as soon as practicable after such reports are filed with the SEC. In addition, our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Clawback Policy, Audit
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Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter and Risk Committee Charter are available on our website. Information contained on our website does not constitute, and shall not be deemed to constitute, part of this Report and shall not be deemed to be incorporated by reference into this Report. In addition, the SEC maintains an internet site, www.sec.gov, from which you can access our

annual, quarterly and current reports on Form10-K,10-Q

10-K,
10-Q
and
8-K,
respectively, and all amendments to these materials after such reports and amendments are filed with the SEC. You may also request a copy of these filings, at no cost, by writing or telephoning us at the following address or phone number: c/o MagnaChipMagnachip Semiconductor, Inc.Ltd., 60 South Market Street, Suite 750, San Jose, CA 95113,15F 501
Teheran-ro,
Gangnam-gu,
Seoul 06168, Korea Attention: General Counsel and Secretary; the telephone number at that address is(408) 625-5999.

82-2-6903-3666.
Information About Our Executive Officers

The following table sets forth certain information regarding our current executive officers:

Name

  
Age
   

Position

Young-Joon (YJ) Kim

   5557   Director and Chief Executive Officer

Jonathan Kim

Shin Young Park
   4541   Chief Financial Officer Executive Vice President and Chief Accounting Officer

Theodore Kim

   5052   Chief Compliance Officer, Executive Vice President, General Counsel and Secretary

Woung Moo Lee

   5759   Executive Vice President and General Manager Standard Products Groupof Worldwide Sales
Chan Ho Park
58General Manager of Power Solutions

Young-Joon (YJ) Kim, Director, Member of the Risk Committee and Chief Executive Officer.
Mr. YJ Kim became our Chief Executive Officer in May 2015 and has also served as a director on our Board since that time. In February 2020, Mr. Kim assumed the additional role of General Manager of the Display business to capitalize on attractive growth opportunities in OLED display and other relevant emerging markets. He is also servingserved as the acting General Manager of Foundry Services Group a position he has held sincefrom January 2019.2019 until the completion of the sale of the Foundry Services Group and the factory in Cheongju (“Fab 4”) on September 1, 2020. Mr. Kim joined our company in May 2013 and served as our Executive Vice President and General Manager, Display Solutions Division. He was promoted to Interim Chief Executive Officer in May 2014. Prior to joining our company, Mr. Kim held a variety of senior management roles at several global semiconductor firms in a career spanning nearly 30about 34 years. His past roles include marketing, engineering, product development and strategic planning, and his product expertise includes microprocessors, network processors, FLASH, EPROM, analog, mixed-signal, sensors, wireless base station, workstations and servers. Immediately before joining our company, Mr. Kim served as Vice President, Infrastructure Processor Division, and General Manager of the OCTEON Multi-Core Processor Group of Cavium, Inc., where he worked from 2006 to 2013. Prior to Cavium, Mr. Kim served as Core Team Lead and General Manager of the Tolapai Program at Intel Corporation from 2004 to 2006. In 1998, Mr. Kim
co-founded
API Networks, a joint venture between Samsung and Compaq, where he served as the head of product management, worldwide sales and business development for Alpha processors. Prior to API Networks, Mr. Kim served as Director of Marketing at Samsung Semiconductor, Inc. from 1996 to 1998. Mr. Kim began his career as a product engineer at Intel Corporation.Corporation in 1988. Mr. Kim holds B.S. and M. Eng. degrees in Electrical Engineering from Cornell University. Our Board has concluded that Mr. YJ Kim is a valuable member of the Board based on his understanding of our company’s products and technology as our Chief Executive Officer and his deep knowledge of the semiconductor industry.

Jonathan Kim (J. Kim),

Shin Young Park, Chief Financial Officer Executive Vice President
.
Ms. Shin Young Park became our Chief Financial Officer in January 2022 and became our Chief Accounting Officer. Mr. Jonathan Kim was appointed Chief Financial Officer and Executive Vice President in May 2015, after servingMarch 2020. Ms. Park previously served as our Interim Chief Financial Officer, Chief Accounting Officer and Senior Vice President since March 2014.Corporate Controller from November 2018 to February 2020. Prior to joining MagnaChip, Mr. Kimthat, she served since July 2010 as the Chief Financial Officer of StartForce, Inc.,SEC Reporting and Accounting Director from April 2015 to October 2018. Before joining Magnachip in April 2014, from 2005 to March 2014, Ms. Park served in various senior advisory and audit service positions at Deloitte, a VC backed desktop virtualization company, which was acquired in February 2011 by ZeroDesktop, Inc., a leading developer of next-generation desktop virtualization and cloud computing solutions. Mr. Kim continued to serve as the Chief Financial Officer at ZeroDesktop through March 2014. Mr. Kim also served as a principal at a Silicon Valley based investment and advisory firm where he led investments in startup companies in the US and Korea. Mr. Kim began his career in public accounting firm. From 2005 to 2009, she worked at Deloitte & Touche in Chicago, Illinois; from 2009 to 2011 and held various positions withthen from 2013 to March 2014, she worked at Deloitte for nearly 10 years, serving Global Fortune 500Anjin in Seoul, South Korea; and US multinational publicly traded clientsfrom 2011 to 2013,
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she worked at Deloitte in the Technology, Media & Telecommunication sectors. Mr. KimLondon, U.K. Ms. Park holds a B.A. degree in Business Administration from the Foster School of Business at theSogang University, of WashingtonSeoul, Korea, and is a Certified Public Accountant.

Master’s degree in Hospitality Industry Studies from New York University.

Theodore Kim, Chief Compliance Officer, General Counsel and Secretary.
Mr. Theodore Kim (T. Kim), Chief Compliance Officer, Executive Vice President, General Counsel and Secretary. Mr. T. Kim became our Chief Compliance Officer and Executive Vice President in May 2015, and became our General Counsel and Secretary in November 2013. Mr. T. Kim previously served as our Senior Vice President from November 2013 to May 2015. Prior to joining our company,Magnachip, Mr. T. Kim served as Head Lawyer, Global Business Development at Samsung Fire & Marine Insurance from October 2012 to October 2013. Mr. T. Kim was employed by Gibson, Dunn & Crutcher LLP, a law firm, from October 2005 to July 2012, serving most recently as Of Counsel. Prior to that, he served as Foreign Legal Consultant at Kim & Chang, a law firm in Korea, from 2001 to 2005, and prior to that, he worked as an associate attorney at Morrison & Foerster LLP, a law firm, from 1997 to 2001. Mr. Kim holds a
B.A. degree in Economics and a B.S. degree in Mechanical Engineering from the University of California, Irvine, and a J.D. degree from the University of California, Los Angeles, School of Law.

Woung Moo Lee, Executive Vice President and General Manager Standard Products Group.of Worldwide Sales.
Mr. Woung Moo Lee became our Executive Vice Presidentwas named as General Manager of Worldwide Sales since June of 2020. Prior to that, Mr. Lee served as General Manager of Worldwide Sales and Power Solutions from February 2020. Mr. Lee had been appointed as General Manager of the Standard Products Group in November 2015. He previously2015 and prior to that served as our Senior Vice President, Korea Sales from 2013. Prior toBefore joining our company, he was one of the founding executives and served as Vice President of Global Strategy and Marketing, Samsung LED Co., Ltd. from 2009 to 2011. In 1984, Mr. Lee began his career as a memory semiconductor design engineer and served as Vice President of Memory Strategy & Marketing Team at Samsung Electronics Co., Ltd. until 2009. Mr. Lee received the prestigious “Proud Samsung Employee Award” in 2005 and holds a B.S. degree in Electronic Engineering from Inha University.

Chan Ho Park
,
General Manager of Power Solutions.
Dr. Chan Ho Park became our General Manager of Power Solutions in June 2020 with over 30 years of
hands-on
experience in the development of discrete power devices and market insights throughout the power semiconductor industry. Prior to joining our company, he was a senior staff at Vishay Intertechnology Inc. since March, 2014. He developed cutting-edge technology platforms for low voltages MOSFETs having 1.5 giga-cell density and provided high and low side MOSFETs for DrMOS to various power stage solutions. Dr. Park started his professional career in 1986 as a design engineer in the field of BJT,
J-FET,
and Schottky Diode at Samsung Electronics, located in Bucheon, Korea. Afterwards, he worked for Fairchild Semiconductor in West Jordan, Utah and for Vishay Siliconix in San Jose, California. He rejoined Samsung Electronics, System LSI Business in 2011 as the Vice President of Discrete Development Team, where he led R&D, PE, FAE and high voltage power IC technologies for IGBTs, super-junction MOSFETs, split gate MOSFETs and driver ICs. He received a Ph.D. in Electrical Engineering from KAIST (Korea Advanced Institute of Science and Technology) and a B.S. in Physics from Seoul National University. He is a member of IEEE and a peer reviewer for IEEE transactions on Electron Devices and Electron Device Letters.
Item 1A. Risk Factors

You should carefully consider the risk factors set forth below as well as the other information contained in this Report. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. As a result, the price of our common stock could decline and you could lose all or part of your investment in our common stock. Additional risks and uncertainties not currently known to us or those currently viewed by us to be immaterial may also materially and adversely affect our business, financial condition or results of operations.

Risk Factors Summary
The following is a summary of the risk factors included herein.
We manufacture our products based on our estimates of customer demand, and if our estimates are incorrect, our financial results could be negatively impacted.
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A significant portion of our sales comes from a relatively limited number of customers, the loss of which could adversely affect our financial results.
The average selling prices of our semiconductor products have at times declined rapidly and will likely do so in the future, which could harm our revenue and gross profit.
We are subject to risks associated with currency fluctuations, and changes in the exchange rates of applicable currencies could impact our results of operations.
Global shortages in manufacturing capacities could interrupt or negatively affect our operations, increase cost to manufacture and negatively impact our results of operations.
Expanded trade restrictions may limit our ability to sell to certain customers.
Recent changes in international trade policy and the imposition and threats of international tariffs, including tariffs applied to goods traded between the United States and China, could materially and adversely affect our business and results of operations.
Our Korean subsidiary has been designated as a regulated business under Korean environmental law, and such designation could have an adverse effect on our financial position and results of operations.
Our compliance with the Serious Accidents Punishment Act (the “SAPA”) could require significant expenditures and management time and expose us to liability for violations.
Our business depends on international customers, suppliers and operations in Asia, and as a result we are subject to regulatory, operational, financial and political risks, which could adversely affect our financial results.
We cannot guarantee that our share repurchase program will be successfully consummated, or that it will enhance shareholder value, and share repurchases could affect the price of our common stock.
Our Rights Plan and provisions in our charter documents and Delaware Law may make it difficult for a third party to acquire us and could depress the price of our common stock.
We have not historically paid dividends and do not currently have any dividend or distribution policy, and therefore, investors may need to rely on sales of their common stock as the only way to realize any future gains on their investments.
Risks Related to Our Business

We operate in the highly cyclical semiconductor industry, which is subject to significant downturns that may negatively impact our results of operations.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change and price erosion, evolving technical standards, short product life cycles (for semiconductors and for the
end-user
products in which they are used) and wide fluctuations in product supply and demand. From time to time, these and other factors, together with changes in general economic conditions, cause significant upturns and downturns in the industry in general and in our business in particular. Periods of industry downturns have been characterized by diminished demand for
end-user
products, high inventory levels, underutilization of manufacturing capacity, changes in revenue mix and accelerated erosion of average selling prices. We have experienced these conditions in our business in the past and may experience renewed, and possibly more severe and prolonged, downturns in the future as a result of such cyclical changes. This may reduce our results of operations.

Recently, the semiconductor industry has experienced a period of upturn, which has resulted in shortages in manufacturing capacity. To the extent there are shortages, we may experience difficulties in sourcing sufficient manufacturing capacity or could be forced to pay increased prices for such services, either of which could negatively impact our results of operations.

We base our planned operating expenses in part on our expectations of future revenue, and a significant portion of our expenses is relatively fixed in the short term. If revenue for a particular quarter is lower than we
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expect, we likely will be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter.

Our restructuring activities and dispositions of assets and businesses could result in lost business and other costs that could have a material adverse effect on our results of operations.

From time to time, we may choose to sell assets, restructure business operations, shut down manufacturing lines or otherwise dispose of assets and businesses as part of management’s strategies to better align our product offerings with market demands and our customers’ needs. In connection with these activities, we face risks that we will disrupt service to our customers, lose business and incur significant costs related to such activities. These risks include potential damage to our reputation and customer relationships if we are unable to effectively transition such customer relationships to other production lines or products or if we cannot effectively manage our supplier and vendor relationships during such activities. In addition, we may also face claims or costs
associated with transitioning or eliminating certain employee positions and modifying or terminating vendor relationships in connection with those exit activities.

If we fail to develop new products and process technologies or enhance our existing products and services in order to react to rapid technological change and market demands, our business will suffer.

Our industry is subject to constant and rapid technological change and product obsolescence as customers and competitors create new and innovative products and technologies. Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive, and we may not be able to access advanced process technologies, including smaller geometries, or to license or otherwise obtain essential intellectual property required by our customers.

We must develop new products and services and enhance our existing products and services to meet rapidly evolving customer requirements. We design products for customers that continually require higher performance and functionality at lower costs. We must, therefore, continue to enhance the performance and functionality of our products. The development process for these advancements is lengthy and requires us to accurately anticipate technological changes and market trends. Developing and enhancing these products is uncertain and can be time-consuming, costly and complex. If we do not continue to develop and maintain process technologies that are in demand by our Foundry Services Group customers, we may be unable to maintain existing customers or attract new customers.

Customer and market requirements can change during the development process.of a product. There is a risk that these developments and enhancements will be late, fail to meet customer or market specifications or not be competitive with products or services from our competitors that offer comparable or superior performance and functionality. Any new products, such as our expanding line of power management solutions, or product or service enhancements, may not be accepted in new or existing markets. Our business will suffer if we fail to develop and introduce new products and services or product and service enhancements on a timely and cost-effective basis.

We manufacture our products based on our estimates of customer demand, and if our estimates are incorrect, our financial results could be negatively impacted.

We make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of customer demand and expected demand for and success of their products. The short-term nature of commitments by many of our customers and the possibility of rapid changes in demand for their products reduces our ability to estimate accurately future customer demand for our products. On occasion, customers may require rapid increases in supply, which can challenge our production resources and reduce margins. We may not have sufficient capacity at any given time to meet our customers’ increased demand for our products. Conversely, downturns in the semiconductor industry have caused and may in the future cause our customers to reduce significantly the amount of products they order from us. Because many of our costs and operating expenses are relatively fixed, a reduction in customer demand would decrease our results of operations, including our gross profit.

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Our customers may cancel their orders, reduce quantities or delay production, which would adversely affect our margins and results of operations.

We generally do not obtain firm, long-term purchase commitments from our customers. Customers may cancel their orders, reduce quantities or delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a group of customers, which we have experienced as a result of periodic downturns in the semiconductor industry, or failure to achieve design-wins, have affected and may continue to affect our results of operations adversely. These risks are exacerbated because many of our products are customized, which hampers our ability to sell excess inventory to the general market. We may incur charges resulting from the
write-off
of obsolete inventory. In addition, while we do not obtain long-term purchase commitments, we generally agree to the pricing of a particular product over a set period of time. If we
underestimate our costs when determining pricing, our margins and results of operations would be adversely affected.

We depend

Our fab manufacturing depends on high utilization of our manufacturing capacity, a reduction of which could have a material adverse effect on our business, financial condition and the results of our operations.

An important factor in our success is the extent to which we are able to utilize the available capacity in our fabrication facilities.facility. As many of our costs are fixed, a reduction in capacity utilization, as well as changes in other factors, such as reduced yield or unfavorable product mix, could reduce our profit margins and adversely affect our operating results. A number of factors and circumstances may reduce utilization rates, including periods of industry overcapacity, the inability to source sufficient materials necessary for manufacturing, low levels of customer orders, operating inefficiencies, strategic evaluations and decisions by our Board related our overall business, divisions and business lines, mechanical failures and disruption of operations due to expansion or relocation of operations, power interruptions and fire, flood or other natural disasters or calamities. The potential delays and costs resulting from these factors and circumstances could have a material adverse effect on our business, financial condition and results of operations.

A significant portion of our sales comes from a relatively limited number of customers, the loss of which could adversely affect our financial results.

Historically, we have relied on a limited number of customers for a substantial portion of our total revenue. If we were to lose key customers or if customers cease to place orders for our high-volume products, or services, particularly our display products, and services, our financial results could be adversely affected. In addition, our arrangements with and reliance on key customers may make it less practicable to pursue certain opportunities with other potential new and existing customers. For the years ended December 31, 2019, 20182021, 2020 and 2017,2019, our ten largest customers accounted for 67%79.8%, 61%87.6% and 57%89.5% of our net sales from our standard products business, respectively. For the year ended December 31, 2019,2021, sales to Samsung Display represented 32.9%42.5% of the Company’snet sales from our standard products business and 89.7% of our Display Solutions division’s net sales, and 84.5%SAMT represented 10.4% of net sales from our standard products business and 19.8% of our Power Solutions division’s net sales. For the year ended December 31, 2020, sales to Samsung Display represented 56.2% of net sales from our standard products business and 87.5% of our Display Solutions division’s net sales. For the year ended December 31, 2018,2019, sales to Samsung Display represented 19.3%53.8% of the Company’s net sales from our standard products business and 56.6% of our Display Solutions division’s net sales, and LG Display represented 13.3% of the Company’s net sales and 38.9% of our Display Solutions division’s net sales. For the year ended December 31, 2017, sales to LG Display represented 15.6% of the Company’s net sales and 50.6%84.5% of our Display Solutions division’s net sales. Significant reductions in sales to any of these customers, especially our few largest customers, the loss of other major customers or a general curtailment in orders for our high-volume products or services within a short period of time could adversely affect our business.

The average selling prices of our semiconductor products have at times declined rapidly and will likely do so in the future, which could harm our revenue and gross profit.

The semiconductor products we develop and sell are subject to rapid declines in average selling prices. From time to time, we have had to reduce our prices significantly to meet customer requirements, and we may be
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required to reduce our prices in the future. This would cause our gross profit to decrease. Our financial results will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes,

reducing our costs or developing new or enhanced products on a timely basis with higher selling prices or gross profit.

Our industry is highly competitive, and our ability to compete could be negatively impacted by a variety of factors.

The semiconductor industry is highly competitive and includes hundreds of companies, a number of which have achieved substantial market share within both our product categories and end markets. Current and prospective customers for our products and services evaluate our capabilities against the merits of our
competitors. Some of our competitors are well established as independent companies and have substantially greater market share and manufacturing, financial, research and development and marketing resources than we do. We also compete with emerging companies that are attempting to sell their products in certain of our end markets and with the internal semiconductor design and manufacturing capabilities of many of our significant customers. We expect to experience continuing competitive pressures in our markets from existing competitors and new entrants.

Any consolidation among our competitors could enhance their product offerings and financial resources, further enhancing their competitive position. Our ability to compete will depend on a number of factors, including the following:

our ability to offer cost-effective and high quality products and services on a timely basis using our technologies;

our ability to accurately identify and respond to emerging technological trends and demand for product features and performance characteristics;

our ability to continue to rapidly introduce new products that are accepted by the market;

our ability to adopt or adapt to emerging industry standards;

the number and nature of our competitors and competitiveness of their products and services in a given market;

entrance of new competitors into our markets;

and

our ability to enter the highly competitive power management market; and

market.

our ability to continue to offer in demand foundry services at competitive prices.

Many of these factors are outside of our control. In the future, our competitors may replace us as a supplier to our existing or potential customers, and our customers may satisfy more of their requirements internally. As a result, we may experience declining revenues and results of operations.

Changes in demand for consumer electronics in our end markets can impact our results of operations.

Demand for our products will depend in part on the demand for various consumer electronics products, in particular, mobile phones and multimedia devices, digital televisions, flat panel displays, mobile PCs and digital cameras, which in turn depends on general economic conditions and other factors beyond our control. If our customers fail to introduce new products that employ our products or component parts, demand for our products will suffer. To the extent that we cannot offset periods of reduced demand that may occur in these markets through greater penetration of these markets or reduction in our production and costs, our sales and gross profit may decline, which would negatively impact our business, financial condition and results of operations.

If we fail to achieve design-wins for our semiconductor products, we may lose the opportunity for sales to customers for a significant period of time and be unable to recoup our investments in our products.

We expend considerable resources on winning competitive selection processes, known as design-wins, to develop semiconductor products for use in our customers’ products. These selection processes are typically

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lengthy and can require us to incur significant design and development expenditures. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. Once a customer designs a semiconductor into a product, that customer is likely to continue to use the same semiconductor or enhanced versions of that semiconductor from the same supplier across a number of similar and successor products for a lengthy period of time due to the significant costs associated with qualifying a new supplier and potentially redesigning the product to incorporate a different semiconductor. If we fail to achieve initial design-wins in a customer’s qualification process, we may lose the opportunity for significant sales to that customer for a number of products and for a lengthy period of time. This may cause us to be unable to recoup our investments in our semiconductor products, which would harm our business.

We have lengthy and expensive
design-to-mass
production and manufacturing process development cycles that may cause us to incur significant expenses without realizing meaningful sales, the occurrence of which would harm our business.

The cycle time from the design stage to mass production for some of our products is long and requires the investment of significant resources with many potential customers without any guarantee of sales. Our
design-to-mass
production cycle typically begins with a
three-to-twelve
month semiconductor development stage and test period followed by a
three-to-twelve
month
end-product
qualification period by our customers. The fairly lengthy front end of our sales cycle creates a risk that we may incur significant expenses but may be unable to realize meaningful sales. Moreover, prior to mass production, customers may decide to cancel their products or change production specifications, resulting in sudden changes in our product specifications, increasing our production time and costs. Failure to meet such specifications may also delay the launch of our products or result in lost sales.

In addition, we collaborate and jointly develop certain process technologies and manufacturing process flows customized for certain of our Foundry Services Groups customers. To the extent that our Foundry Services Group customers fail to achieve market acceptance for their products, we may be unable to recoup our engineering resources commitment and our investment in process technology development, which would harm our business.

Research and development investments may not yield profitable and commercially viable product and service offeringsproducts, and thus will not necessarily result in increases in revenues for us.

We invest significant resources in our research and development. Our research and development efforts, however, may not yield profitable or commercially viable products or enhance our services offerings.products. During each stage of research and development, there is a substantial risk that we will have to abandon a potential product or service offering that is no longer marketable and in which we have invested significant resources. In the event we are able to develop viable new products, or service offerings, a significant amount of time will have elapsed between our investment in the necessary research and development effort and the receipt of any related revenues.

We face numerous challenges relating to executing our growth strategy, and if we are unable to execute our growth strategy effectively, our business and financial results could be materially and adversely affected.

Our growth strategy is to leverage our advanced analog and mixed-signal technology platform, continue to innovate and deliver new products, and services, increase business with existing customers, broaden our customer base, aggressively grow our power business, and drive execution excellence and focus on specialty process technologies.excellence. If we are unable to execute our growth strategy effectively, we may not be able to take advantage of market opportunities, execute our business plan or respond to competitive pressures. Moreover, if our allocation of resources does not correspond with future demand for particular products, we could miss market opportunities and our business and financial results could be materially and adversely affected.

We are subject to risks associated with currency fluctuations, and changes in the exchange rates of applicable currencies could impact our results of operations.

Historically, a portion of our revenues and greater than the majority of our operating expenses and costs of sales have been denominated in
non-U.S.
currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in USU.S. dollars, changes in the exchange
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rate between the Korean won and the USU.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in USU.S. dollars relative to Korean won, a depreciation in the USU.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the USU.S. dollar were to appreciate relative to the Korean won. For example, foreign currency fluctuations had a favorablean unfavorable impact on our reported profit margins and operating income from operations for the fiscal year ended December 31, 20192021 due to a relatively weakerstronger Korean won during the period. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the USU.S. dollar as a substantial portion of
non-cash
translation gain or loss is associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in USU.S. dollars. As of December 31, 2019,2021, the outstanding intercompany loan balance including accrued interests between our Korean subsidiary and our Dutch subsidiary was $686.5$344.4 million. Our Dutch subsidiary uses the USU.S. dollar as their functional currency. As a result of foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock or the price of the Exchangeable Notes or the 2021 Notes (each as defined below) could be adversely affected.

From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Korean subsidiary enters into foreign currency forward and zero cost collar contracts in order to mitigate a portion of the impact of USU.S. dollar-Korean won exchange rate fluctuations on our operating results. These foreign currency forward and zero cost collar contracts typically require us to sell specified notional amounts in USU.S. dollars and provide us the option to sell specified notional amounts in USU.S. dollars during successive months to our counterparty in exchange for Korean won at specified exchange rates. Obligations under these foreign currency forward and zero cost collar contracts must be cash collateralized if our exposure exceeds certain specified thresholds. These forward and zero cost collar contracts may be terminated by the counterparty in a number of circumstances, including if our long-term debt rating falls below
B-/B3
or if our total cash and cash equivalents is less than $30 million at the end of a fiscal quarter. We cannot assure that any hedging technique we implement will be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on our results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting our Results of Operations” for further details.

The loss of our key employees would materially adversely affect our business, and we may not be able to attract or retain the technical or management employees necessary to compete in our industry.

Our key executives have substantial experience and have made significant contributions to our business, and our continued success is dependent upon the retention of our key management executives. The loss of such key personnel would have a material adverse effect on our business. In addition, our future success depends on our ability to attract and retain skilled technical and managerial personnel. We do not know whether we will be able to retain all of these employees as we continue to pursue our business strategy. The loss of the services of key employees, especially our key design and technical personnel, or our inability to retain, attract and motivate qualified design and technical personnel, could have a material adverse effect on our business, financial condition and results of operations. This could hinder our research and product development programs or otherwise have a material adverse effect on our business.

If we encounter future labor problems, we may fail to deliver our products and services in a timely manner, which would adversely affect our revenues and profitability.

As of December 31, 2019, 1, 4492021, 471 employees, or approximately 59%53% of our employees, were represented by the MagnaChipMagnachip Semiconductor Labor Union.Unions. We can offer no assurance that any issues with the labor union and other employees will be resolved favorably for us in the future, that we will not experience work stoppages or other labor problems in future years or that we will not incur significant expenses related to such issues.

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We may incur costs to engage in future business combinations or strategic investments, and we may not realize the anticipated benefits of those transactions.

As part of our business strategy, we may seek to enter into business combinations, investments, joint ventures and other strategic alliances with other companies in order to maintain and grow revenue and market presence as well as to provide us with access to technology, products and services. Any such transaction would be accompanied by risks that may harm our business, such as difficulties in assimilating the operations, personnel and products of an acquired business or in realizing the projected benefits, disruption of our ongoing business, potential increases in our indebtedness and contingent liabilities and charges if the acquired company or assets are later determined to be worth less than the amount paid for them in an earlier original acquisition. In addition, our indebtedness may restrict us from making acquisitions that we may otherwise wish to pursue.

The failure to achieve acceptable manufacturing yields could adversely affect our business.

The manufacturemanufacturing of semiconductors involves highly complex processes that require precision, a highly regulated and sterile environment and specialized equipment. Defects or other difficulties in the manufacturing process can prevent us from achieving acceptable yields in the manufacturing of our products, or those of our Foundry Services Group customers, which could lead to higher costs, a loss of customers or delay in market acceptance of our products. Slight impurities or defects in the photomasks used to print circuits on a wafer or other factors can cause significant difficulties, particularly in connection with the production of a new product, the adoption of a new manufacturing process or any expansion of our manufacturing capacity and related transitions. We may also experience manufacturing problems in achieving acceptable yields as a result of, among other things, transferring production to other facilities, upgrading or expanding existing facilities or changing our process technologies. Yields below our target levels can negatively impact our gross profit and may cause us to eliminate underperforming products.

We rely on a number of independent subcontractors and the failure of any of these independent subcontractors to perform as required could adversely affect our operating results.

A substantial portion of our net sales are derived from semiconductor devices assembled in packages or on film. The packaging and testing of semiconductors require technical skillskills and specialized equipment. For the portion of packaging and testing that we outsource, we use subcontractors located in Korea, China, Taiwan and Taiwan; however, we expect that we will only use the Korean and Chinese subcontractors for 2020.Thailand. We rely on these subcontractors to package and test our devices with acceptable quality and yield levels.levels, and, while we specify quality standards, we are not able to directly oversee their
day-to-day
operations and the packaging and testing of our devices. Onboarding of a new subcontractor, including as a result of switching from one subcontractor to another, takes approximately three to six months to verify the subcontractor’s capabilities and an additional six to twelve months to receive approval from our customers to use such subcontractor. We could be adversely affected by political disorders, labor disruptions, public health issues (including viral outbreaks such as theCOVID-19 coronavirus),
COVID-19)
and natural disasters where our subcontractors are located.located due to the time it would take to onboard a new subcontractor. If our semiconductor packagers and test service providerssubcontractors experience problems in packaging and testing our semiconductor devices, experience prolonged quality or yield problems, experience shutdowns or delays associated with public health issues (such as those associated with theCOVID-19 coronavirus)
COVID-19),
or decrease the capacity of their operations available to us, our operating results could be adversely affected.

We cooperate with independent foundries to produce certain advanced technology Display Solutions products, and the failure of such independent foundries to satisfy our demand could materially disrupt our business.

We use independent foundry services for certain of our OLED Display Solutions products that require more advanced technology than is available in our fabrication facilities.and Power Solutions products. Silicon wafer production at these facilities is

allocated solely by our vendors and beyond our direct control. Therefore, any disruption in wafer supply form these vendors could have a material impact on our revenue and results of operations.

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Global shortages in manufacturing capacities could interrupt or negatively affect our operations, increase cost to manufacture and negatively impact our results of operations.
Recent sharp increases in demand for semiconductor products have resulted in a global shortage of manufacturing capacities. As a result, we may experience increases in the costs to manufacture our products and may not be able to manufacture and deliver all of the orders placed by our customers. We are not able to foresee when the current shortage of manufacturing capacity will subside. If we are unable secure manufacturing capacities from our current subcontractors, our ability to deliver our products to our customers may be negatively impacted. Also, our subcontractors may increase their fees, which would result in an increase in our manufacturing costs, which we may not be fully able to pass to our customers. These factors could cause a negative impact on our results of operations.
We depend on successful parts and materials procurement for our manufacturing processes, and a shortage or increase in the price of these materials could interrupt our operations and result in a decline of revenues and results of operations.

We procure materials and electronic and mechanical components from international sources and original equipment manufacturers. We use a wide range of parts and materials in the production of our semiconductors, including silicon, processing chemicals, processing gases, precious metals and electronic and mechanical components, some of which, such as silicon wafers, are specialized raw materials that are generally only available from a limited number of suppliers. If demand increases or supply decreases for any reason, the costs of our raw materials could significantly increase. For example, worldwide supplies of silicon wafers, an important raw material for the semiconductors we manufacture, werehave been constrained in recent years due to an increased demand for silicon. We from time to time may enter into multi-year agreements, which specify future quantities and pricing of materials to be supplied by the vendors of these materials; however, this option may not be available to us and we cannot assure that supply increases will match demand increases. If we cannot obtain adequate materials in a timely manner or on favorable terms for the manufacture of our products, revenues and results of operations will decline.

Compliance with regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain raw materials used in manufacturing our products.

The SEC, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, adopted disclosure regulations for public companies that manufacture products containing certain minerals that are mined from the Democratic Republic of Congo and adjoining countries and procedures pertaining to a manufacturer’s efforts regarding the source of such minerals. These “conflict minerals” are commonly found in metals used in the manufacture of semiconductors. Manufacturers are also required to disclose their efforts to prevent the sourcing of such minerals and metals produced from them. The implementation of these requirements could adversely affect the sourcing, availability and pricing of metals used in the manufacture of our products. We may also incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products. We may also face difficulties in satisfying customers who may require that our products be certified as free of “conflict materials,” which could harm our relationships with these customers and lead to a loss of revenue.

We face warranty claims, product return, litigation and liability risks and the risk of negative publicity if our products fail.

Our semiconductors are incorporated into a number of end products, and our business is exposed to product return, warranty and product liability risk and the risk of negative publicity if our products fail. Although we maintain insurance for product liability claims, the amount and scope of our insurance may not be adequate to cover a product liability claim that is asserted against us. In addition, product liability insurance could become more expensive and difficult to maintain and, in the future, may not be available on commercially reasonable terms, or at all.

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In addition, we are exposed to the product liability risk and the risk of negative publicity affecting our customers. Our sales may decline if any of our customers are sued on a product liability claim. We also may suffer a decline in sales from the negative publicity associated with such a lawsuit or with adverse public perceptions in general regarding our customers’ products. Further, if our products are delivered with impurities or defects, we could incur additional development, repair or replacement costs, and our credibility and the market’s acceptance of our products could be harmed.

We could suffer adverse tax and other financial consequences as a result of changes in, or differences in the interpretation of, applicable tax laws, includingor the recently enactedadoption of new U.S. or international tax reform legislation in the United States.

legislation.

Our company’s organizational structure was created in part based on certain interpretations and conclusions regarding various tax laws, including withholding tax and other tax laws of applicable jurisdictions. Our interpretations and conclusions regarding tax laws, however, are not binding on any taxing authority and, if these interpretations and conclusions are incorrect, if our business were to be operated in a way that rendered us ineligible for tax exemptions or caused us to become subject to incremental tax, or if the authorities were to change, modify or have a different interpretation of the relevant tax laws, we could suffer adverse tax and other financial consequences, and the anticipated benefits of our organizational structure could be materially impaired. Our company’s organizational structure and other tax positions are subject to review by tax authorities in the local and other jurisdictions where we operate our business.

Our provision for income taxes is subject to volatility and could be negatively affected by earnings being (i) lower than anticipated in jurisdictions that have lower statutory tax rates or (ii) higher than anticipated in jurisdictions that have higher statutory tax rates. In December 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act, was enactedaddition, our provision for income taxes could be negatively affected by changes in the US (the “Tax Reform”). The Tax Reform reduces the US federal statutory rate to 21.0% from 35.0% effective January 1, 2018. The Tax Reform contains several key provisions that affectvaluation of our assessment of deferred taxes, which include the remeasurement of deferred taxes, recognition of liabilities for taxes on mandatory deemed repatriation and certain other foreign income, and reassessment of the realizability of deferred tax assets. For further information regarding the impact of the Tax Reform, see “Item 8. Financial Statementsassets and Supplementary Data—Notesliabilities, changes to Consolidated Financial Statements—Note 17. Income Taxes” included elsewhereglobal intangible
low-tax
income tax laws, transfer pricing adjustments, or changes in this Report.

tax laws, regulations, or accounting principles.

Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign income, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business, financial condition or results of operations. For example, the Organization for Economic Cooperation and Development (OECD) has recommended changes to numerous long-standing international tax principles through its base erosion and profit shifting (BEPS) project. These changes, to the extent adopted, may increase tax uncertainty, result in higher compliance costs and adversely affect our provision for income taxes, results of operations and/or cash flow.

We are also subject to regular reviews, examinations and audits by the IRS and other taxing authorities, including the Korean National Tax Service, with respect to income and
non-income
based taxes both within and outside the U.S. In connection with the OECD’s BEPS project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of income earned in various countries. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation could differ from our historical provisions and accruals, resulting in an adverse impact on our business, financial condition or results of operations.

Expanded trade restrictions imposed by the United States may limit our ability to sell to certain customers.
On August 17, 2020, the U.S. Department of Commerce expanded the scope of export restrictions as applied to products directed to Huawei and its affiliates listed on the Bureau of Industry and Security’s Entity List (collectively, “Huawei”). While prior restrictions had minimal effect on our ability to supply to customers, the newly expanded restrictions would limit our ability to supply to a variety of customers who we believe incorporate our products to those customers’ products directly or indirectly sold to Huawei. As of the date of this Annual Report, we are uncertain on the seriousness of the restrictions’ impact or duration and the future
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trajectory of our business from customers who directly or indirectly supply Huawei with products that incorporate our products. For export of some of our products, we have successfully obtained the necessary export licenses, and if exports of other products require export licenses due to the restrictions, we will consider applying for the necessary export licenses to continue to sell to the affected customers. Although we have thus far successfully obtained the necessary export licenses for exporting some of our products, we are unsure whether our other applications will be successful. There is also a possibility that export restrictions may be further expanded to target companies in addition to Huawei, which may have an additional impact on our ability to sell to our customers. Export restrictions may also affect our contractors, suppliers or customers, and we cannot assure that they will not violate the restrictions, and any such violations may result in fines or criminal sanctions against us and damage our reputation.
Expanded trade restrictions imposed by South Korea may limit our ability to sell to certain customers or engage in any potential strategic opportunities.
Under the ITA, any export (including various means of outflow, such as sale or transfer outside Korea) of National Core Technology by MOTIE requires the filing of a prior-report with, and the acceptance of the same by, the MOTIE. Any such export of NCT without the acceptance of the prior-report with the MOTIE may be subject to corrective orders by the relevant authorities, and failure to comply with such corrective orders may potentially result in criminal liabilities.
The Notification Regarding Designation of National Core Technologies issued by the MOTIE was amended on July 14, 2021 to add certain technologies to the list of National Core Technology designated by the MOTIE, and the amended list includes the design technology for OLED DDI. In the ordinary course of business, our Korean subsidiary may provide certain information relating to its products, including OLED DDI, to customers, suppliers or vendors, and such disclosure of information may be subject to the
NCT-related
regulations under the ITA, and therefore the MOTIE’s acceptance of prior reports. Since the amendment of the foregoing NCT list in July 2021, we have filed prior-reports with the MOTIE for the export of our OLED DDI product-related information to certain overseas vendors that manufacture our products, and all such reports have thus far been accepted by the MOTIE.
There is no assurance, however, that any future prior-reports for the export of our product-related information will be accepted by the MOTIE. In the event that any future prior-report is not accepted, we may be unable to continue our business with the overseas customers, suppliers or vendors, including the manufacturing and delivery of our OLED DDI products.
In addition, in the event that there is any M&A transaction with respect to our Korean subsidiary that results in
non-Korean
ownership of 50% or more, or exertion of control over the appointment of officers/management by a
non-Korean
person or entity as the largest shareholder, a prior-report with and the acceptance by the MOTIE is required under the ITA. There is no assurance that any report for an M&A transaction involving
non-Korean
acquirers or investors will be accepted by the MOTIE when such transaction is pursued in the future.
Recent changes in international trade policy and the imposition and threats of international tariffs, including tariffs applied to goods traded between the United States and China, could materially and adversely affect our business and results of operations.

Since the beginning of 2018, there have been increasing public threats and, in some cases, legislative or executive action, from USU.S. and foreign leaders regarding instituting tariffs against foreign imports of certain materials. More specifically, since March of 2018, the USU.S. and China have applied tariffs to certain of each other’s exports. The institution of trade tariffs globally, and between the USU.S. and China specifically, may negatively impacting China’s overallimpact the affected countries’ economic condition,conditions, which could negatively affect demand for our products in Chinathose countries and materially and adversely affect our business and results of operations of our customers serving the Chinaaffected markets. Furthermore, impositionAdditionally, it is currently unclear how the recent change in presidential
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administration in the U.S. may further impact international trade tariffs going forward. Imposition of tariffs could increase costs of the
end-user
products we supply or those manufactured by our Foundry Services Group that we may not be able to pass on to our customers, which could in turn cause a decrease in the sales of our products and services and materially and adversely affect our business and results of operations.

Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our intellectual property, proprietary technology and
know-how,
as well as our ability to operate without infringing the proprietary rights of others.

We attempt to protect our intellectual property rights, both in the US and in foreign countries, through a combination of patent, trademark, copyright, mask works and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. Because of the differences in foreign trademark, patent and other laws concerning proprietary rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the US. In particular, the validity, enforceability and scope of protection of intellectual property in China, where we derive a significant portion of our net sales, and certain other countries where we derive net sales, are uncertain and still evolving and historically have not protected, and may not protect in the future, intellectual property rights to the same extent as do the laws and enforcement procedures in the US. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

We seek to protect our proprietary technologies and
know-how
through the use of patents, trade secrets, confidentiality agreements and other security measures. The process of seeking patent protection takes a long time and is expensive. There can be no assurance that patents will issue from pending or future applications or that, if patents issue, they will not be challenged, invalidated or circumvented, or that the rights granted under the patents will provide us with meaningful protection or any commercial advantage. Many of our patents are subject to cross licenses, several of which are with our competitors. Some of our technologies are not covered by any patent or patent application. The confidentiality agreements on which we rely to protect these technologies may be breached and may not be adequate to protect our proprietary technologies. Further, it is possible that others will independently develop the same or similar technologies, even without access to our proprietary technologies.

We rely on our trademarks, trade names, and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or
otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.

Our ability to compete successfully depends on our ability to operate without infringing the proprietary rights of others. We have no means of knowing what patent applications have been filed until they are published. In addition, the semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. We may need to file lawsuits to enforce our patents or intellectual property rights, and we may need to defend against claimed infringement of the rights of others. Any litigation could result in substantial costs to us and divert our resources, and we cannot assure you that we will prevail. Any claims of intellectual property infringement or misappropriation against use, even those without merit, could require us to:

pay substantial damages or indemnify customers or licensees for damages they may suffer if the products they purchase from us or the technology they license from us violate the intellectual property rights of others;

stop our manufacture, use, sale or importation of the accused products;

redesign, reengineer or rebrand our products, if feasible;

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expend significant resources to develop or acquire
non-infringing
technologies;

discontinue processes; or

obtain licenses to a third party’s intellectual property.

There can be no assurance that we would be successful in such development or acquisition or that such licenses would be available under reasonable terms, or at all.

We license certain intellectual property from third parties. The termination of key third-party licenses relating to the use of intellectual property in our products and our design processes such as our agreements with Silicon Works Co., Ltd. and ARM Limited, would materially and adversely affect our business.

Our expenses could increase if SK hynix were unwilling or unable to provide certain services related to our shared facilities with SK hynix, and if SK hynix were to become insolvent, we could lose certainareas of our leases.

We are party to a land lease and easement agreement with SK hynix pursuant to which we lease the land for our facilities in Cheongju, Korea. If this agreement were terminated for any reason, including the insolvency of SK hynix, we would have to renegotiate new lease terms with SK hynix or the new owner of the land. We cannot assure that we will be able to negotiate new lease terms on favorable terms or at all. Because we share certain facilities with SK hynix, several services that are essential to our business are provided to us by or through SK hynix under our general service supply agreement with SK hynix. These services include electricity, bulk gases andde-ionized water, campus facilities and housing, wastewater and sewage management, environmental safety and certain utilities and infrastructure support services. If any of our agreements with SK hynix were terminated or if SK hynix were unwilling or unable to fulfill its obligations to us under the terms of these agreements, we would have to procure these services on our own and as a result may experience an increase in our expenses.

business.

We are subject to many environmental laws and regulations that could affect our operations or result in significant expenses.

We are subject to a variety of environmental, health and safety laws and regulations in each of the jurisdictions in which we operate, governing, among other things, air emissions, wastewater discharges, the generation, use, handling, storage and disposal of, and exposure to, hazardous substances (including asbestos) and wastes, soil and groundwater contamination and employee health and safety. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Among them is the Act on Remediation and Compensation for Damages arising from Environmental Contamination which came into effect in Korea on January 1, 2016 and provides for strict liability of business entities in violation of the act and alleviates the burden of proof for the damaged party. Further, under the amendment to the Act on the Control and Aggravated Punishment of Environmental Offenses that becomes effective on November 27, 2020, certain environmental offenses such as illegally emitting specified hazardous air pollutants or emitting air pollutants without necessary permits will be subject to penalties of up to 5% of the sales amount generated from the relevant business. As a result, we have increased potential exposure to liability for environmental contaminations that might have existed in the past or would arise in the future. There can be no assurance that we have been, or will be, in compliance with all such laws and regulations or that we will not incur material costs or liabilities in connection with these laws and regulations in the future. The adoption of new environmental, health and safety laws, the failure to comply with new or existing laws, or issues relating to hazardous substances could subject us to material liability (including substantial fines or penalties), impose the need for additional capital equipment or other process requirements upon us, curtail our operations or restrict our ability to expand operations.

Our Korean subsidiary has been designated as a regulated business under Korean environmental law, and such designation could have an adverse effect on our financial position and results of operations.

Since 2015, our Korean subsidiary has been subject to
K-ETS,
a new set of greenhouse gas emissions regulation,regulations, under the Act on Allocation and Trading of Greenhouse Gas Emission Allowances. Under
K-ETS,
our Korean subsidiary was allocated a certain amount of emissions allowance in accordance with the National Allocation Plan prepared by the Korean government, and is required to meet its allocated target by either reducing the emissions or purchasing the allowances from other participants or the government in the emission trading market. Reduction of our emissions or energy consumption may result in additional and potentially costly

compliance or remediation expenses, including potentially the installation of equipment and changes in the type of materials we use in manufacturing, as well as cost of procuring emission allowances to cover the excess emissions, which could adversely affect our financial position and results of operations. During the first implementation period from 2015 to 2017 and second implementation period from 2018 to 2020, we did not exceed the allocated emission amount. We areOur Korean subsidiary has been allocated emissions allowance in the secondthird implementation period that covers from 20182021 to 2020.2025, and we do not expect to exceed the allocated emission amount during the third implementation period. If, however, our Korean subsidiary exceeds the allocated emission amount the third implementation period, we will be required to pay for the excess emissions and may be subject to other regulatory action. We will continue to monitor our compliance with the emissions allowance for the referred3-year period on a cumulative basis as well as for an individual yearyearly basis. As of December 31, 2019, we had a sufficient emissions allowance and, accordingly, no liability was recorded. In addition, from time to time, if we assess that we have excess allowances, we may sell such excess allowances to manufacturers in the emission market in Korea. However,

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Furthermore, the Korean legislature enacted the Framework Act on Carbon Neutrality and Green Growth for Responding to Climate Change (the “
Carbon Neutrality Framework Act
”) on September 24, 2021. The Carbon Neutrality Framework Act aims to reduce greenhouse gas emissions by more than 35% by 2030 (compared to 2018) and proclaims the achievement of carbon neutrality by 2050 as a national vision. The Carbon Neutrality Framework Act is significant in that it legislates carbon neutrality and greenhouse gas
reduction objectives, and enables the central administrative agencies, local governments and public institutions to implement various measures towards such objectives.
On November 11, 2021, the Korean Ministry of Environment announced the proposed enactment of the Enforcement Decree of the Carbon Neutrality Framework Act (the “
Proposed Enforcement Decree
”). The Proposed Enforcement Decree aims to provide details required for the execution of items prescribed under the Carbon Neutrality Framework Act. The key provisions of the Proposed Enforcement Decree include those setting the
mid-
to long-term greenhouse gas
reduction goal at 40% and implementing the climate change impact assessment scheme. It is expectedanticipated that the total emission allowancesCarbon Neutrality Framework Act, which aims to promote the harmonious development of the economy and the environment in conjunction with active greenhouse gas
reduction measures, will serve as the foundation for the government’s climate change response policy going forward. The Proposed Enforcement Decree will be allocatedpromulgated after regulatory review and deliberation by the governmentMinistry of Government Legislation.
Our compliance with the Serious Accidents Punishment Act (the “SAPA”) could require significant expenditures and management time and expose us to liability for violations.
Enacted on January 26, 2021 and effective as of January 27, 2022 in Korea, the SAPA will be significantly reducedimpose enhanced liability exposure for workplace accidents. The legislative goal of the SAPA is to prevent serious accidents by prescribing punishments and punitive damages liability for business owners or responsible management personnel who have violated safety and health measures in the third implementation periodevent of such serious accidents (serious industrial accidents and serious civil accidents). Since the law applies to businesses in Korea with 50 or more full-time employees starting from 2021 to 2025 to achieve the 2030 National GHG Reduction Goal. Further, as the number of businessesJanuary 27, 2022, our Korean subsidiary becomes subject to paid allocation of GHG emission allowances will increase, and the proportionlaw after the effective date. According to the SAPA, if a serious occupational accident occurs that results in at least one deceased person, at least two persons wounded for six months or more, or at least three persons suffering from occupational diseases within a one year period, if the “business owners or responsible management personnel” of the paid allocationrelevant business place is found to have failed to perform its “obligation to secure safety and health,” that person may be subject to imprisonment for each subject businessup to 7 year or a fine of up to KRW 100 million (in case of death, imprisonment for not less than 1 year or a fine of not less than KRW 1 billion). Relevant responsible management personnel will increase from 3%also be required to 10% orspend more in the third implementation period, the subject businesses’ coststime, effort and cost to comply with the GHG emission limit is expectedSAPA and perform the necessary additional duties imposed by the law to significantly increase.

ensure compliance.

We may need additional capital in the future, and such capital may not be available on acceptable terms or at all, which would have a material adverse effect on our business, financial condition and results of operations.

We may require more capital in the future from equity or debt financings to fund operating expenses, such as research and development costs, finance investments in equipment and infrastructure, acquire complementary businesses and technologies, and respond to competitive pressures and potential strategic opportunities. If we raise additional funds through further issuances of equity or other securities convertible into equity, our existing stockholders could suffer significant dilution, and any new shares we issue could have rights, preferences or privileges senior to those of the holders of our common stock. There can be no assurance that any additional equity or debt financing would be available to us, or if available, that such financing would be on favorable terms to us. Accordingly, if we are unable to obtain additional capital or our business does not generate sufficient cash flows from operating activities to fund our working capital needs and planned capital expenditures, and our cash reserves are depleted, we may need to take various actions, such as
down-sizing
and/or eliminating certain operations, which could include additional exit costs, reducing or delaying capital expenditures, selling assets, or other restructuring actions. There can be no assurance that we would be successful in taking such actions and, in
any event, such actions may result in a material adverse effect on our business and results of operations. In addition, our indebtedness limits our ability to incur additional indebtedness under certain circumstances.

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Our business depends on international customers, suppliers and operations in Asia, and as a result we are subject to regulatory, operational, financial and political risks, which could adversely affect our financial results.

We rely on, and expect to continue to rely on, suppliers, subcontractors and operations located primarily in Asia. As a result, we face risks inherent in international operations, such as unexpected changes in regulatory requirements, tariffs and other market barriers, political, social and economic instability, adverse tax consequences, war, civil disturbances and acts of terrorism, public health issues (including viral outbreaks such as theCOVID-19 coronavirus)
COVID-19),
difficulties in accounts receivable collection, extended payment terms and differing labor standards, enforcement of contractual obligations and protection of intellectual property. These risks may lead to increased costs or decreased revenue growth, or both.

For example,

Our business, results of operations and financial condition and prospects may be materially and adversely affected by the ongoing
COVID-19
pandemic or any future pandemic, epidemic or outbreak of any other highly infectious disease.
As a result of
COVID-19,
including the emergence of various variants, including Delta and Omicron, governments in December 2019, a strain of coronavirus causing a disease known asCOVID-19 surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturingaffected countries have imposed travel bans, quarantines and other facilitiesemergency public health measures. In response to the virus, national and travel throughout China. Whilelocal governments in numerous countries around the extentworld have implemented substantial business restrictions and lockdown measures and may continue to impose similar policies in the future from time to time in response to further outbreaks of the virus. Private sector companies have also taken precautionary measures, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses and facilities. These restrictions have had, and these and future prevention and mitigation measures, may continue to have, an adverse impact on global economic conditions, which could materially adversely affect our future operations.
These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners. The disruptions to our operations caused by the
COVID-19
outbreak may result in inefficiencies, delays and additional costs in our research and development, sales and marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. Also, some suppliers of materials used in the production of our products may have been or will be more severely impacted by
COVID-19,
which could limit our ability to obtain sufficient materials for our products. In addition, the severe global economic disruption caused by
COVID-19
may cause our customers and
end-users
of our products to suffer significant economic hardship, which could result in decreased demand for our products in the future and materially adversely affect our business, results of operations, financial condition (including liquidity) and prospects.
The full extent to which
COVID-19,
or any future pandemic, epidemic or outbreak of any other highly infectious disease, impacts our operations and causes disruptions on our customers,
end-users,
overall demand for our products, supply chain, and the related financial impact to us, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of such pandemic, the emergence and characteristics of new variants, the actions taken to contain the pandemic or mitigate its impact, including the adoption, administration and effectiveness of available
COVID-19
vaccines, and the direct and indirect economic effects of the currentCOVID-19 coronavirus outbreak on our results is uncertain, a continuedpandemic and prolonged public health crisiscontainment measures, among others. Should such asdisruptions continue for an extended period of time, theCOVID-19 coronavirus impact could have a negative impactmore severe adverse effect on our business, results of operations and financial condition and operating results.

(including liquidity). Additionally, weaker economic conditions generally could result in impairment in value of our tangible or intangible assets, or our ability to raise additional capital, if needed.

Tensions with North Korea could have an adverse effect on us and the market value of our shares.

Relations between South Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future
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events. In particular, in recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapon and long-range missile programs and increased uncertainty regarding North Korea’s actions and possible responses from the international community.

North Korea’s economy also faces severe challenges, and any adverse economic developments may further aggravate social and political tensions within North Korea.

Although we do not derive any revenue from, nor sell any products in, North Korea, any future increase in tensions between South Korea and North Korea that may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between South Korea and North Korea break down, or military hostilities occur, could have a material adverse effect on the South Korean economy and on our business, financial condition, results of operations and the market value of our common stock.

We may be subject to disruptions, breaches or cyber-attacks of our secured networks and information technology systems that could damage our reputation, harm our business, expose us to liability and materially adversely affect our results of operations.

In the ordinary course of our business, we collect and store sensitive data, including IP and other proprietary information about our business and that of our customers, suppliers and business partners. Secure maintenance, processing and transmission of this information is critical to our operations and business strategy. We may be subject to disruptions, breaches or cyber-attacks of our secured networks and information technology systems caused by illegal hacking, criminal fraud or impersonation, computer viruses, acts of vandalism or terrorism or employee error, and our security measures or those of any third party service providers we use may not detect or prevent such security breaches. We may incur significant costs to eliminate or alleviate cybersecurity breaches and vulnerabilities, which could be significant, and our efforts to protect against such breaches or vulnerabilities may not be successful and could result in system interruptions that may materially impede our sales, manufacturing, distribution, finance or other critical functions. Any such compromise of our information security could also result in the unauthorized publication of our confidential business or proprietary information or that of other parties with which we do business, an interruption in our operations, the unauthorized transfer of cash or other assets, the unauthorized release of customer or employee data or a violation of privacy or other laws in the jurisdictions in which we operate. Any of the foregoing could irreparably damage our reputation and business and/or expose us to material monetary liability, which could have a material adverse effect on our results of operations.

You may not be able to bring an action or enforce any judgment obtained in United States courts, or bring an action in any other jurisdiction, against us or our subsidiaries or our directors, officers or independent auditors that are organized or residing in jurisdictions other than the United States.

Most of our subsidiaries are organized or incorporated outside of the US and some of our directors and executive officers as well as our independent auditors are organized or reside outside of the US. Most of our and our subsidiaries’ assets are located outside of the US and in particular, in Korea. Accordingly, any judgment obtained in the US against us or our subsidiaries may not be collectible in the US. As a result, it may not be possible for you to effect service of process within the US upon these persons or to enforce against them or us court judgments obtained in the US that are predicated upon the civil liability provisions of the federal securities laws of the US or of the securities laws of any state of the US. In particular, there is doubt as to the enforceability in Korea or any other jurisdictions outside the US, either in original actions or in actions for enforcement of judgments of US courts, of civil liabilities predicated on the federal securities laws of the US or the securities laws of any state of the US.

Our level

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Table of indebtedness is substantial, and we may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. A decline in the ratings of our existing or future indebtedness may make the terms of any new indebtedness we choose to incur more costly.

As of December 31, 2019, our total indebtedness was $304.7 million, which represents the principal amount outstanding under our 6.625% Senior Notes due 2021 (“2021 Notes”) and 5.0% Exchangeable Senior Notes due 2021 (“Exchangeable Notes”), excluding $3.2 million of unamortized discount and debt issuance costs. We are permitted under the indentures governing our outstanding Exchangeable Notes and 2021 Notes to incur additional debt under certain conditions, including additional secured debt. If new debt were to be incurred in the future, the related risks that we now face could intensify. Our substantial debt could have important consequences, including:

Contents

resulting in an event of default if we fail to satisfy our obligations under our outstanding debt or fail to comply with the financial or other restrictive covenants contained in the indentures governing our outstanding Exchangeable Notes and 2021 Notes or agreements governing our other indebtedness, which event of default could result in all of our debt becoming immediately due and payable and could permit our lenders to foreclose on the assets securing any such debt;

increasing our vulnerability to general economic and industry conditions;

requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;

limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes;

limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt; and

negatively affecting our ability to fund a change of control offer.

Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure that we will generate a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

The credit ratings assigned to our debt reflect each rating agency’s opinion of our ability to make payments on the debt obligations when such payments are due. A rating may be subject to revision or withdrawal at any time by the assigning rating agency. We may experience downgrades in our debt ratings in the future. Any lowering of our debt ratings would adversely impact our ability to raise additional debt financing and increase the cost of any such financing that is obtained. In the event any ratings downgrades are significant, we may choose not to incur new debt or refinance existing debt if we are unable to incur or refinance such debt at favorable interest rates or on favorable terms.

If our cash flows and capital resources are insufficient to fund our debt service obligations or if we are unable to refinance existing indebtedness on favorable terms, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and thus render us unable to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The indentures governing our outstanding Exchangeable Notes and 2021 Notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or be able to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

We are a holding company and will depend on the business of our subsidiaries to satisfy our obligations under our outstanding Exchangeable Notes and 2021 Notes and other obligations.

make payments to us.

We are a holding company with no independent operations of our own. Our subsidiaries conduct substantially all of the operations necessary to fund payments on our outstanding Exchangeable Notes and 2021 Notes, other debt and any other obligations. Our ability to pay dividends or to make payments on our outstanding Exchangeable Notes and 2021 Notes and our otherany future obligations will depend on our subsidiaries’ cash flow and their payment of funds to us. Our subsidiaries’ ability to make payments to us will depend on:

their earnings;

covenants contained in ourany debt agreements (including the indentures governing our outstanding Exchangeable Notes and 2021 Notes) and theto which we may then be subject, including any debt agreements of our subsidiaries;

covenants contained in other agreements to which we or our subsidiaries are or may become subject;

business and tax considerations; and

applicable law, including any restrictions under Korean law that may be imposed on MagnaChipMagnachip Korea that would restrict its ability to make payments on intercompany loans from MagnaChip Semiconductor B.V.

We cannot assure that the operating results of our subsidiaries at any given time will be sufficient to make distributions or other payments to us or that any distributions or payments will be adequate to pay principal and interest, and any other payments, on our outstanding Exchangeable Notes and 2021 Notes, other debt or any other obligations when due, and the failure to make such payments could have a material adverse effect on our business, financial condition and results of operations.

Restrictions on MagnaChip Korea’s ability to make payments on its intercompany loans from MagnaChip Semiconductor B.V., or on its ability to pay dividends in excess of statutory limitations, could hinder our ability to make payments on our outstanding Exchangeable Notes and 2021 Notes.

We anticipate that payments under our outstanding Exchangeable Notes and 2021 Notes will be funded in part by MagnaChip Korea’s repayment of its existing loans from MagnaChip Semiconductor B.V., with MagnaChip Semiconductor B.V. using such repayments in turn to repay the loans owed to us or to MagnaChip Semiconductor S.A., which will repay loans owed to us. Under the Korean Foreign Exchange Transaction Act, the minister of the Ministry of Strategy and Finance is authorized to temporarily suspend payments in foreign currencies in the event of natural calamities, wars, conflicts of arms, grave and sudden changes in domestic or foreign economic conditions, or other similar situations. In addition, under the Korean Commercial Code, a Korean company is permitted to make a dividend payment in accordance with the provisions in its articles of incorporation out of retained earnings (as determined in accordance with the Korean Commercial Code and the generally accepted accounting principles in Korea), but no more than twice a year. If MagnaChip Korea is prevented from making payments under its intercompany loans due to restrictions on payments of foreign currency or if it has an insufficient amount of retained earnings under the Korean Commercial Code to make dividend payments to MagnaChip Semiconductor B.V., we and MagnaChip Semiconductor S.A. may not have sufficient funds to make payments on our outstanding Exchangeable Notes and 2021 Notes.

The indentures governing our outstanding Exchangeable Notes and 2021 Notes contain, and our future debt agreements will likely contain, covenants that significantly restrict our operations.

The indentures governing our outstanding Exchangeable Notes and 2021 Notes contain, and our future debt agreements will likely contain, numerous covenants imposing financial and operating restrictions on our business. These restrictions may affect our ability to operate our business, may limit our ability to take advantage of potential business opportunities as they arise and may adversely affect the conduct of our current business, including by restricting our ability to finance future operations and capital needs and by limiting our ability to

engage in other business activities. These covenants will place restrictions on our ability and the ability of our operating subsidiaries to, among other things:

pay dividends, redeem shares or make other distributions with respect to equity interests, make payments with respect to subordinated indebtedness or other restricted payments;

incur debt or issue preferred stock;

create liens;

make certain investments;

consolidate, merge or dispose of all or substantially all of our assets, taken as a whole;

sell or otherwise transfer or dispose of assets, including equity interests of our subsidiaries;

enter into sale-leaseback transactions;

enter into transactions with our affiliates; and

designate our subsidiaries as unrestricted subsidiaries.

In addition, our future debt agreements will likely contain financial ratios and other financial conditions tests. Our ability to meet those financial ratios and tests could be affected by events beyond our control, and we cannot assure that we will meet those ratios and tests. A breach of any of these covenants could result in a default under such debt agreements. Upon the occurrence of an event of default under such debt agreements, our lenders under such agreements could elect to declare all amounts outstanding under such debt agreements to be immediately due and payable and terminate all commitments to extend further credit.

We may not have the ability to raise the funds necessary to repurchase the Exchangeable Notes upon a fundamental change, and our future debt may contain limitations on our ability to repurchase the Exchangeable Notes.

Holders of the Exchangeable Notes have the right to require us to repurchase their notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid interest, if any. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Exchangeable Notes surrendered therefor. In addition, our ability to repurchase the Exchangeable Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Exchangeable Notes at a time when the repurchase is required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of our then-existing indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Exchangeable Notes.

A fundamental change may adversely affect us.

A fundamental change could have a negative effect on us and the trading price of the common stock and Exchangeable Notes. Furthermore, the fundamental change provisions, including the provisions requiring the increase in the exchange rate for exchanges in connection with a fundamental change prior to the maturity date, may in certain circumstances make it more difficult or discourage a takeover of our company and the removal of incumbent management.

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive and other

factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

We have a history of losses and may not achieve or sustain profitability in the future.

From the time we began operations as a separate entity in 2004 until we emerged from our 2009 reorganization proceedings under Chapter 11 of the US Bankruptcy Code, we generated significant net losses and did not generate a profit for a full fiscal year. In addition, since 2013 until 2017, we again had substantial net losses despite some improvements made in 2017. While our operating income was $47.4 million and $24.4 million in 2018 and 2019, respectively, our net loss was $3.9 million and $21.8 million in those same periods. We may increase spending to support increased research and development and sales and marketing efforts. These expenditures may not result in increased revenue or an increase in the number of customers immediately or at all. Because many of our expenses are fixed in the short term, or are incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall of sales. If we cannot maintain profitability, the value of the enterprise may decline.

Despite our current debt levels, we may still incur substantially more debt or take other actions which would intensify the risks discussed above.

Despite our current consolidated debt levels, we and our subsidiaries may be able to incur substantial additional debt in the future, some of which may be secured debt, subject to the restrictions contained in our debt instruments. We will not be restricted under the terms of the indenture governing the notes from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture governing the notes that could have the effect of diminishing our ability to make payments on the notes when due.

We maytimes need to incur impairment, restructuring and other restructuring related charges, which could materially affect our results of operations and financial condition.

During industry downturns and for other reasons, we may need to record impairment, restructuring or other restructuring related charges. Although we recognized a net restructuring and other gain of $17.0 million for the year ended December 31, 2017, we also recorded early termination charges of $13.4 million for the same period in connection with our workforce reduction efforts. For the year ended December 31, 2019, we recognized aggregate restructuring and other charges of $9.2 million, of which $7.0 million in professional fees and other charges incurred in connection with the strategic evaluation. In the future, we may need to record additional impairment charges or to further restructure our business or incur additional restructuring charges, any of which could have a material adverse effect on our results of operations or financial condition.

We are subject to litigation risks, which may be costly to defend and the outcome of which is uncertain.

All industries, including the semiconductor industry, are subject to legal claims, with and without merit, that may be particularly costly and which may divert the attention of our management and our resources in general. We are involved in a variety of legal matters, most of which we consider routine matters that arise in the normal course of business. These routine matters typically fall into broad categories such as those involving customers, employment and labor and intellectual property. Even if the final outcome of these legal claims does not have a material adverse effect on our financial position, results of operations or cash flows, defense and settlement costs can be substantial. Due to the inherent uncertainty of the litigation process, the resolution of any particular legal

claim or proceeding could have a material effect on our business, financial condition, results of operations or cash flows.

The price of our common stock may be volatile and you may lose all or a part of your investment.

The trading price of our common stock might be subject to wide fluctuations. Factors, some of which are beyond our control, that could affect the trading price of our common stock may include:

actual or anticipated variations in our results of operations from quarter to quarter or year to year;

announcements by us or our competitors of significant agreements, technological innovations or strategic alliances;

changes in recommendations or estimates by any securities analysts who follow our securities;

addition or loss of significant customers;

recruitment or departure of key personnel;

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changes in economic performance or market valuations of competing companies in our industry;

price and volume fluctuations in the overall stock market;

market conditions in our industry, end markets and the economy as a whole;

subsequent sales of stock and other financings; and

litigation, legislation, regulation or technological developments that adversely affect our business.

In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation often has been instituted against the public company. Regardless of its outcome, this type of litigation could result in substantial costs to us and a likely diversion of our management’s attention. You may not receive a positive return on your investment when you sell your shares, and you could lose some or the entire amount of your investment.

We cannot guarantee that our share repurchase program will be successfully consummated, or that it will enhance shareholder value, and share repurchases could affect the price of our common stock.
On December 21, 2021, the Board of Directors authorized us to repurchase up to $75.0 million of our outstanding common stock and we entered into an accelerated stock repurchase agreement (the “ASR Agreement”) with JPMorgan Chase Bank, National Association (“JPM”) to repurchase an aggregate of $37.5 million of our common stock. Pursuant to the terms of the ASR Agreement, we paid JPM $37.5 million in cash and received an initial delivery of 994,695 shares of our common stock. Upon final settlement of the ASR Agreement, which is expected to occur during the fiscal quarter ending March 31, 2022, we may be entitled to receive additional shares of common stock from JPM or, under certain circumstances specified in the ASR Agreement, we may be required to deliver shares of common stock or make a cash payment, at its option, to JPM. This share repurchase program under the ASR Agreement could affect the price of our common stock, increase volatility and diminish our cash reserves.
See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 14. Stockholders’ Equity and Stock-Based Compensation” for more information.
Significant ownership of our common stock by certain stockholders could adversely affect our other stockholders.

The concentration of ownership of our common stock by certain stockholders may limit the ability of other stockholders to influence corporate matters and, as a result, we may take actions that our public stockholders do not view as beneficial. For example, ourany concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could cause the market price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their shares of our common stock.

Under our certificate of incorporation, our
non-employee
directors and
non-employee
holders of five percent or more of our outstanding common stock do not have a duty to refrain from engaging in a corporate opportunity in the same or similar activities or lines of business as those engaged in by us, our subsidiaries and other related parties. Also, we have renounced any interest or expectancy in such business opportunities even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted an opportunity to do so.

Provisions

Our Rights Plan and provisions in our charter documents and Delaware Law may make it difficult for a third party to acquire us and could depress the price of our common stock.

Provisions

On December 12, 2021, our Board of Directors adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend of one preferred stock purchase right (a “Right” and collectively, the “Rights”) for each share
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of our common stock, par value $0.01 per share, outstanding at the close of business on December 23, 2021. Each Right, once exercisable, will entitle the registered holder to purchase one
one-thousandth
of a share of our Series
A-1
Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $80, subject to certain adjustments (the “Purchase Price”). Under certain circumstances, if a person or group acquires 12.5% (or 20% in the case of a passive institutional investor) or more of our outstanding common stock, each Right (other than Rights held by the person or group triggering their exercise) will enable the holder thereof to purchase, for the Purchase Price, a number of shares of common stock having a market value of twice the Purchase Price. The Rights expire at the close of business on December 12, 2022 unless earlier redeemed or exchanged by us. Because the Rights may substantially dilute the stock ownership of a person or group attempting to acquire us without the approval of our Board of Directors, our Rights Plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our Board of Directors regarding such acquisition. See “Item 8. Financial Statements and Supplementary Data—Note 22. Earnings (Loss) Per Share—Rights Plan” in this Report for more information.
In addition, provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Among other things, our certificate of incorporation and bylaws:

authorize our Board of Directors to issue, without stockholder approval, preferred stock with such terms as the Board of Directors may determine;

prohibit action by written consent of our stockholders;

prohibit any person other than our Board of Directors, the chairman of our Board of Directors, our Chief Executive Officer or holders of at least 25% of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors to call a special meeting of our stockholders; and

specify advance notice requirements for stockholder proposals and director nominations.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), regulating corporate takeovers and which has an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:

the transaction is approved by the board of directors before the date the interested stockholder attained that status;

upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or

on or after such date, the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by written consent, by at least
two-thirds
of the outstanding voting stock that is not owned by the interested stockholder.

In general, DGCL Section 203 defines a business combination to include the following:

any merger or consolidation involving the corporation and the interested stockholder;

any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

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any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, DGCL Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person.

A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to opt out of, this provision.

We

Provisions in our charter documents and Delaware Law may make it difficult for a third party to acquire us and could depress the price of our common stock.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Among other things, our certificate of incorporation and bylaws:
authorize our Board of Directors to issue, without stockholder approval, preferred stock with such terms as the Board of Directors may determine;
prohibit action by written consent of our stockholders;
prohibit any person other than our Board of Directors, the chairman of our Board of Directors, our Chief Executive Officer or holders of at least 25% of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors to call a special meeting of our stockholders; and
specify advance notice requirements for stockholder proposals and director nominations.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), regulating corporate takeovers and which has an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
the transaction is approved by the board of directors before the date the interested stockholder attained that status;
upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
on or after such date, the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by written consent, by at least
two-thirds
of the outstanding voting stock that is not owned by the interested stockholder.
In general, DGCL Section 203 defines a business combination to include the following:
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
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subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, DGCL Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person.
A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to payopt out of, this provision.
We have not historically paid dividends for the foreseeable future,and do not currently have any dividend or distribution policy, and therefore, investors shouldmay need to rely on sales of their common stock as the only way to realize any future gains on their investments.

We have not historically paid cash dividends and do not intend to paycurrently have any cash dividends in the foreseeable future. The payment of cash dividends on common stock is restricted under the terms of the indentures for our outstanding Exchangeable Notes and 2021 Notes.dividend or distribution policy. Any determination to pay dividends in the future will be at the discretion of our Board of Directors. Accordingly, unless the Board implements a future dividend or distribution policy, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our manufacturing operations consist of twotake place in a single fabrication facilitiesfacility located in Korea in Cheongju and Gumi. Our facilities havefacility has a combined capacity of approximately 113,00034,000 eight-inch equivalent wafers per month. We manufacture wafers utilizing geometries ranging from 0.110.35 to 0.50 microns. The Cheongju facilities have two main buildings totaling 121,672 square meters devoted to manufacturing and development. The Gumi facility has one main building with 41,022 square meters devoted to manufacturing, testing and packaging.

In addition to our fabrication facilities,facility in Gumi, we lease facilities in Cheongju and Seoul, Korea, and San Jose, California.Korea. Each of these facilities includes administration, sales and marketing and research and development functions. We lease sales and marketing offices through our subsidiaries in several other countries.

The ownership of our wafer manufacturing assets is an important component of our business strategy. Maintaining manufacturing control enables us to develop proprietary, differentiated products and results in higher production yields, as well as shortened design and production cycles. We believe our facilities are suitable and adequate for the conduct of our business for the foreseeable future and that we have sufficient production capacity to service our business as currently contemplated without significant capital investment.

A substantial majority of our assembly, test and packaging services for our Display Solutions business and all of such services for our Power Solutions business are outsourced with the balance handled
in-house. Our
The independent providers of these outsourced services are located in Korea, China, Taiwan and Taiwan; however, we expect that our independent providers will only be in Korea and China commencing in 2020.Thailand. The relative cost of outsourced services, as compared to
in-house
services, depends upon many factors specific to each product and circumstance. However, we generally incur higher costs for outsourced services, which can result in lower margins.

Although we own our manufacturing facilities, we are party to a land lease and easement agreement with SK hynix pursuant to which we lease the land for our facilities in Cheongju, Korea from SK hynix for an indefinite term. Because we share certain facilities with SK hynix, several services that are essential to our business are provided to us by or through SK hynix under our general service supply agreement with SK hynix. These services include electricity, bulk gases andde-ionized water, campus facilities and housing, wastewater and sewage management, environmental safety and certain utilities and infrastructure support services. The services agreement continues for an indefinite term subject to each party having a right to terminate in the event

38
Table of an uncured breach by the other party.

Contents

Item 3. Legal Proceedings

We are involved in a variety of legal matters, most of which we consider routine matters that arise in the normal course of business. These routine matters typically fall into broad categories such as those involving customers, employment and labor and intellectual property. Intellectual property litigation and infringement claims, in particular, could cause us to incur significant expenses or prevent us from selling our products. We are currently not involved in any legal proceedings that we believe would have a material adverse effect on our business, financial condition or results of operations.

See also “Item 1A. Risk Factors” and “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 19” in this Report for additional information.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is listed on the New York Stock Exchange under the symbol “MX.”

Stock Performance Graph

The graph and table below compare the cumulative total stockholder return of our common shares with the cumulative total return of the S&P 500 Index and the Philadelphia Semiconductor Index (PHLX) from December 31, 201430, 2016 (the last trading day before the beginning of our fifth preceding fiscal year) through December 31, 2019.2021. The graph assumes that $100 was invested on December 31, 201430, 2016 in our common shares and in each index and that any dividends were reinvested. No cash dividends have been declared on our common shares during the five-year period ended December 31, 2019.

2021.

Comparison of Cumulative Total Return*

Among MagnaChipMagnachip Semiconductor Corporation, the S&P 500 Index and the PHLX

LOGO


*

The stock performance included in this graph is not necessarily indicative of future stock performance.

40
Table of Contents
Total Return to Stockholders (Including Reinvestment of Dividends)

Indexed Returns

Company/Index

 Base Period
12/31/2014		  12/31/2015  12/30/2016  12/29/2017  12/31/2018  12/31/2019 

MagnaChip Semiconductor Corporation

  100   40.72   47.73   76.60   47.81   89.38 

S&P 500 Index

  100   99.27   108.74   129.86   121.76   158.23 

Philadelphia Semiconductor Index

  100   96.59   131.97   182.43   168.18   269.28 

Company/Index
 Base Period
12/30/2016		  12/29/2017  12/31/2018  12/31/2019  12/31/2020  12/31/2021 
Magnachip Semiconductor Corporation
  100   160.48   100.16   187.26   218.06   338.23 
S&P 500 Index
  100   119.42   111.97   145.52   167.77   212.89 
Philadelphia Semiconductor Index
  100   138.23   127.44   204.05   308.39   435.33 
Holders

The approximate number of record holders of our outstanding common stock as of February 14, 20202022 was 70. This number does not include beneficial owners for whom shares are held by nominees in street name.

Stock-Based Compensation
For information on securities authorized for issuance under our equity compensation plans, see Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Dividends

We dohave not intend to payhistorically paid any cash dividends on our common stock in the foreseeable future. We anticipate that we will retain allstock. Our Board of Directors continuously evaluates our future earnings for use in the development of our businesscapital allocation strategy and for general corporate purposes.liquidity targets, but has not currently implemented any dividend or distribution policy. Any determination to pay dividends in the future will be at the discretion of our Board of Directors.

Issuer Purchases of Equity Securities

None.

Item 6. Selected Financial Data

The following tables set forth selected historical consolidated financial datatable shows the monthly activity related to our repurchases of MagnaChip Semiconductor Corporation on or as of the dates andcommon stock for the periods indicated. The selected historical consolidated financial data presented below should be read together with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements contained inquarter ended December 31, 2021.
Period
  
Total Number

of Shares

Purchased
   
Average

Price Paid

per Share
   
Total Number

of Shares

Purchased as Part

of Publicly

Announced Plans

or Programs(1)
   
Approximate dollar
value of Shares that
may yet be

Purchased under the

Plans or Programs

(in thousands)(1)
 
October 2021
   —    —    —    — 
November 2021
   —    —    —    — 
December 2021
   994,695   $20.18    994,695   $54,927 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
   994,695       $54,927 
  
 
 
   
 
 
   
 
 
   
 
 
 
(1)
On December 21, 2021, the Company’s Board of Directors authorized the Company to repurchase up to $75 million of the Company’s common stock. As an immediate step towards implementing the approved stock repurchase program, the Company entered into an accelerated stock repurchase agreement on December 21, 2021 with JPMorgan Chase Bank, National Association to repurchase an aggregate of $37.5 million of the Company’s common stock.
See “Item 8. Financial Statements and Supplementary Data,” including the notesData—Notes to those consolidated financial statements, appearing elsewhereConsolidated Financial Statements—Note 14. Stockholders’ Equity and Stock-Based Compensation” in this Report.

We have derived the selected consolidated financial data as of December 31, 2019 and 2018 andReport for the years ended December 31, 2019, 2018 and 2017 from the consolidated financial statementsa description of the Company includedAccelerated Stock Repurchase Program.

Rights Plan
For information on our rights plan, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 22. Earnings (Loss) Per Share—Rights Plan” in this Report. We have derived the selected consolidated financial data as
41
Table of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2016 and 2015 from the historical consolidated financial statements of MagnaChip Semiconductor Corporation not included in this Report. The historical financial data of MagnaChip Semiconductor Corporation for any period are not necessarily indicative of the results to be expected in any future period.

   Year Ended
December 31,
2019		  Year Ended
December 31,
2018(1)		  Year Ended
December 31,
2017(1)		  Year Ended
December 31,
2016(1)(2)		  Year Ended
December 31,
2015(1)		 
   (In millions, except per share data) 

Statements of Operations Data:

      

Net sales

  $792.2  $750.9  $679.7  $688.0  $633.7 

Cost of sales

   611.6   552.8   491.8   531.7   498.8 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   180.6   198.1   187.9   156.2   134.9 

Selling, general and administrative expenses

   71.6   72.6   81.8   83.5   94.4 

Research and development expenses

   75.4   78.0   70.5   72.2   83.4 

Restructuring and other charges (gains), net

   9.2   —   (17.0)   (6.5)   — 

Early termination charges

   —   —   13.4   4.2   — 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income (loss) from continuing operations

   24.4   47.4   39.2   2.7   (42.9) 

Interest expense

   (22.6)   (22.3)   (21.6)   (16.2)   (16.3) 

Foreign currency gain (loss), net

   (21.8)   (24.4)   65.5   (15.4)   (42.5) 

Loss on early extinguishment of long-term borrowings, net

   (0.0)   (0.2)   —   —   — 

Others, net

   3.0   0.3   2.9   3.0   1.8 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   (41.5)   (46.7)   46.9   (28.6)   (57.0) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from operations before income tax expense

   (17.1)   0.7   86.1   (25.9)   (100.0) 

Income tax expense (benefit)

   4.7   4.6   1.2   3.7   (15.1) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $(21.8)  $(3.9)  $84.9  $(29.6)  $(84.9) 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Per share data:

      

Earnings (loss) per share

      

Basic

  $(0.64)  $(0.11)  $2.50  $(0.85)  $(2.47) 

Diluted

  $(0.64)  $(0.11)  $2.02  $(0.85)  $(2.47) 

Weighted average number of shares

      

Basic

   34.322   34.470   33.943   34.834   34.381 

Diluted

   34.322   34.470   44.755   34.834   34.381 
Contents

   Year Ended
December 31,
2019		  Year Ended
December 31,
2018(1)		  Year Ended
December 31,
2017(1)		  Year Ended
December 31,
2016(1)(2)		  Year Ended
December 31,
2015(1)		 
   (In millions, except per share data) 

Balance Sheet Data (at period end):

      

Cash and cash equivalents

  $151.7  $132.4  $128.6  $83.4  $90.9 

Total assets(3)(4)

   595.3   583.2   558.8   442.0   474.1 

Total indebtedness(3)(5)

   304.7   303.6   303.4   221.1   220.4 

Stockholders’ deficit

   (15.0)   (17.3)   (39.6)   (72.1)   (62.3) 

Supplemental Data:

      

Adjusted EBITDA(6)

  $74.5  $84.3  $78.7  $40.7  $0.8 

Adjusted Net Income (Loss)(7)

  $17.1  $27.1  $28.9  $(4.5)  $(26.7) 

(1)

The Financial Accounting Standards Board (“FASB”) issued the new revenue recognition standard through several Accounting Standards Updates that superseded the legacy revenue recognition requirements. The new revenue recognition standard became effective on January 1, 2018. As we adopted the new revenue standard using the modified retrospective method, which allowed the recognition of the cumulative effect of initially applying the new revenue standard as an adjustment to our equity as of January 1, 2018, the comparative prior period amounts were not restated and continued to be reported under the accounting standards in effect for such periods. For further description of the adoption of the new revenue standard, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 1—Business, Basis of Presentation and Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” in this Report.

(2)

Certain charges related to the closure of our6-inch fab and headcount reduction, previously included in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2016, have been reclassified to restructuring, impairment and other charges (gain), net and early termination charges, respectively, to conform to the presentation for the year ended December 31, 2017.

(3)

In April 2015, the FASB issued Accounting Standards UpdateNo. 2015-03, “Interest—Imputation of Interest”(“ASU2015-03”), which requires that debt issuance costs are presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. We adopted ASU2015-03 in 2016 and reclassified all prior periods presented in the table above. As of December 31, 2015, $3.8 million of debt issuance costs was reclassified from total assets to a reduction of total indebtedness. The adoption of ASU2015-03 did not impact our consolidated statements of operations.

(4)

In February 2016, the FASB issued Accounting Standards UpdateNo. 2016-02, “Leases (Topic 842)” (“ASU2016-02”) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under US GAAP. ASU2016-02 requires that a lessee recognize a liability to make lease payments and aright-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. We adopted the new lease standard as of January 1, 2019, using the modified retrospective transition method, which requires a cumulative effect adjustment, if any, to our beginning equity to be recognized on the date of adoption. There was no cumulative effect adjustment recorded on January 1, 2019. Accordingly, all periods prior to January 1, 2019, were presented in accordance with the previous FASB Accounting Standards Codification (“ASC”) Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. For further description of the adoption of the new lease standard, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 1—Business, Basis of Presentation and Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements” in this Report.

(5)

Total indebtedness represents long-term borrowings.

(6)

We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) restructuring and other charges (gains), net, (ii) early termination charges, (iii) equity-based compensation expense, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net, (vi) restatement related expenses (gain), (vii) secondary offering expense, (viii) loss on early extinguishment

Item 6. [Reserved]

of long-term borrowings, net and (ix) others. EBITDA for the periods indicated is defined as net income (loss) before interest expense, net, income tax expense (benefit) and depreciation and amortization. This is anon-US GAAP financial measure and is discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Explanation and Reconciliation ofNon-US GAAP measures—Adjusted EBITDA and Adjusted Net Income.”
(7)

We define Adjusted Net Income (Loss) for the periods indicated as net income (loss), adjusted to exclude (i) restructuring and other charges (gains), net, (ii) early termination charges, (iii) equity-based compensation expenses, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net, (vi) restatement related expenses (gain), (vii) secondary offering expense, (viii) loss on early extinguishment of long-term borrowings, net and (ix) others. This is anon-US GAAP financial measure and is discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Explanation and Reconciliation ofNon-US GAAP measures—Adjusted EBITDA and Adjusted Net Income.”

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

The following discussion and analysis should be read in conjunction with the audited consolidated financial statements, together in each case with the related notes, included elsewhere in this Report. This discussion and analysis contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Risk Factors” and elsewhere in this Report.

Overview

We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT applications, consumer, computing, industrial and automotive applications. We provide technology platforms for analog, mixed-signal, power, high voltage,non-volatile memory, and radio frequency applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately 2,9501,150 registered patents and pending applications and extensive engineering and manufacturing process expertise.

Our standard products business is comprised of two operating segments: Foundry Services Group and Standard Products Group. Our Foundry Services Group provides specialty analog and mixed-signal foundry services mainly for fabless and IDM semiconductor companies that primarily serve communications, IoT, consumer, industrial and automotive applications. Our Standard Products Group includes our Display Solutions and Power Solutions business lines.
Our Display Solutions line of products provide flat panel display solutions to major suppliers of large and small rigidflat panel displays. These products include source and flexiblegate drivers and timing controllers that cover a wide range of flat panel displays used in mobile communications, automobiles, entertainment devices, notebook PCs, monitors and liquid crystal display (LCD), organic light emitting diodes (OLED) and Micro light emitting diode (Micro LED) televisions. Our Display Solutions products support some of the industry’s most advanced display technologies, such as OLEDs, low temperature polysilicons thin film transistors (LTPS TFTs), as well as high-volume display technologies such as amorphous silicon thin film transistors
(a-Si
TFTs). Since 2007, we have designed and manufactured OLED display driver integrated circuit (IC) products. Our current portfolio of OLED solutions address a wide range of resolutions ranging from HD (High Definition) to WQHD (Wide Quadruple High Definition) for applications including smartphones, TVs, and other mobile automotive applications and home appliances. devices.
Our Power Solutions business line produces power management semiconductor products includeincluding discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications.

These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),

AC-DC/DC-DC
converters, LED drivers, regulators and power management integrated circuits (PMICs) for a range of devices, including televisions, smartphones, mobile phones, wearable devices, desktop PCs, notebooks, tablet PCs, other consumer electrics, automotive, and industrial applications such as power suppliers,
e-bikes,
photovoltaic inverters, LED lighting and motor drives.
Our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our mature technology platform allow us to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands. Our design center and substantial manufacturing operations in Korea place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demand from existing and new customers.

Certain of our OLED products are produced using external

12-inch
foundries. Through a strategic cooperation with external
12-inch
foundries, we are managing to ensure outsourcing wafers at competitive price and produce quality products.
To maintain and increase our profitability, we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce. We must understand our customers’ needs as well
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as the likely end market trends and demand in the markets they serve. We must balance the likely manufacturing utilization demand of our product businesses and foundry business to optimize our capacity utilization. We must also invest in relevant research and development activities and manufacturing capacity and purchase necessary materials on a timely basis to meet our customers’ demand while maintaining our target margins and cash flow.

The semiconductor markets in which we participate are highly competitive. The prices of our products tend to decrease regularly over their useful lives, and such price decreases can be significant as new generations of products are introduced by us or our competitors. We strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence.

Demand for our products and services is driven by overall demand for communications, IoT, consumer industrial and automotiveindustrial products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers. In order to mitigate the impact of market volatility on our business, we are diversifyingcontinually strive to diversify our portfolio of products, customers, and target applications. We also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services. While we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history, existing manufacturing capacity and our worldwide customer base, if we are not effective in competing in these markets, our operating results may be adversely affected.

Within

Net sales for our Foundry Services Group, net sales are driven by customers’ decisions on which manufacturing services provider to use for a particular product. Most of our Foundry Services Group customers are fabless, while some are IDM customers. A customer will often have more than one supplier of manufacturing services. In any given period, our net sales depend heavily upon theend-market demand for the goods in which thestandard products we manufacture for customers are used, the inventory levels maintained by our customers and in some cases, allocation of demand for manufacturing services among selected qualified suppliers.

Within our Standard Products Group, net salesbusiness are driven by design wins in which we are selected by an electronics original equipment manufacturer (OEM) or other potential customer to supply its demand for a particular product. A customer will often have more than one supplier designed in tointo multi-source components for a particular product line. Once we have design wins and the products enter into mass production, we often specify the pricing of a particular product for a set period of time, with periodic discussions and renegotiations of pricing with our customers. In any given period, our net sales depend heavily upon the

end-market
demand for the goods in which our products are used, the inventory levels maintained by our customers and, in some cases, allocation of demand for components for a particular product among selected qualified suppliers.

In contrast to completely fabless semiconductor companies, our internal manufacturing capacity provides us with greater control over certain manufacturing costs and the ability to implement process and production improvements for our internally manufactured products, which can favorably impact gross profit margins. Our internal manufacturing capacity also allows for better control over delivery schedules, improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these internally manufactured products. However, having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins, particularly during downturns in the semiconductor industry.

Our standard products and services requirebusiness requires investments in capital equipment. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment. Many of these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy do not require substantial investment in leading edge process equipment for those products, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments. In addition, we are less likely to experience significant industry overcapacity, which can cause product prices to decline significantly. In general, we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an

extended period of time. In addition, we outsource manufacturing of those products which do require advanced technology and

12-inch
and
8-inch
wafer capacity, such as organic light emitting diodes (OLED). We believe this balanced capital investment strategy enables us to optimize our capital investments and facilitates more diversified product and service offerings.

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Since 2007, we havehad designed and manufactured OLED display driver ICs in our internal manufacturing facilities. As we expanded our design capabilities to products that require lower geometries unavailable at our existing manufacturing facilities, we began outsourcing manufacturing of certain OLED display driver ICs to an external
12-inch
foundry fromstarting in the second half of 2015.2015 and we have started outsourcing
8-inch
wafer for OLED TV IC after the sale of our fabrication facility located in Cheongju. This additional source of manufacturing is an increasingly important part of our supply chain management. By outsourcing manufacturing of advanced OLED products to external12-inch foundries, we are able to adapt dynamically adapt to the changing customer requirements and address growing markets without substantial capital investments by us. Both atHowever, relying on external foundries exposes us to the internal8-inchrisk of being unable to secure manufacturing facilitiescapacity, particularly under the current global shortage of foundry services. Although we are working strategically with external foundries to ensure long-term wafer capacity, if these efforts are unsuccessful, our ability to deliver products to our customers may be negatively impacted, which would adversely affect our relationship with customers and external12-inch foundries, we apply our unique OLED process patents as well as other intellectual property, proprietary process design kits and custom design-flow methodologies.

opportunities to secure new design-wins.

Our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors. Additionally, we must innovate to remain ahead of, or at least rapidly adapt to, technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services. We believe that our established relationships and close collaboration with leading customers enhance our awareness of new product opportunities, market and technology trends and improve our ability to adapt and grow successfully.
Recent Developments
Accelerated Stock Repurchase Program
On December 21, 2021, the Board of Directors authorized the repurchase of up to $75.0 million of our outstanding common stock and we entered into an accelerated stock repurchase agreement (the “ASR Agreement”) with JPM to repurchase an aggregate of $37.5 million of our common stock.
Pursuant to the terms of the ASR Agreement dated December 21, 2021, we paid to JPM $37.5 million in cash and received an initial delivery of 994,695 shares of our common stock in the open market for an aggregate purchase price of $20.1 million and a price per share of $20.18 on December 22, 2021.
As of December 31, 2021, we accounted for the remaining portion of the ASR Agreement as a forward contract indexed to our common stock and recorded $17.4 million in additional
paid-in
capital in stockholders’ equity in our consolidated balance sheets. The final number of shares to be delivered will be based on our volume-weighted average stock price under the terms of the ASR Agreement less an agreed upon discount.
The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances under which the ASR Agreement may be accelerated, extended or terminated early by JPM and various acknowledgments, representations and warranties made by the parties to one another. Final settlement of the ASR Agreement is expected to occur during the fiscal quarter ending March 31, 2022.
Additional details about the ASR Agreement are contained in the Current Report on Form
8-K
filed by us with the SEC on December 21, 2021.
Rights Plan
We entered into a Rights Agreement, dated as of December 13, 2021, with American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agreement”), and the Board of Directors authorized and declared a dividend of one preferred stock purchase right (a “Right” and collectively, the “Rights”) for each share
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of our common stock, par value $0.01 per share, outstanding at the close of business on December 23, 2021. Each Right, once exercisable, will entitle the registered holder to purchase from us one
one-thousandth
of a share of Series
A-1
Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $80, subject to adjustment (the “Purchase Price”). The Rights are not presently exercisable and remain attached to the shares of common stock unless and until the occurrence of the earlier of the following (the “Distribution Date”): (i) the tenth day after the public announcement or disclosure by us or any person or group of affiliated or associated persons that any person or group of affiliated or associated persons has become an “Acquiring Person” by obtaining beneficial ownership of 12.5% (or 20% in the case of a “passive institutional investor,” which is defined generally as any person who has reported beneficial ownership of shares of common stock on Schedule 13G under the Securities Exchange Act of 1934) or more of our outstanding common stock, subject to certain exceptions; or (ii) the tenth business day (or such later date as our Board of Directors may designate before a person or group of affiliated or associated persons becomes an Acquiring Person) after (and not including) the commencement of, or first public announcement of the intent of any person to commence, a tender or exchange offer by any person or group of affiliated or associated persons, which would, if consummated, result in such person or group becoming an Acquiring Person. The Board of Directors may redeem all of the Rights for $0.001 per Right at any time before any person or group of affiliated or associated persons becomes an Acquiring Person. In addition, at any time on or after any person or group of affiliated or associated persons becomes an Acquiring Person (but before any person or group of affiliated or associated persons becomes the owner of 50% or more of our outstanding common stock), the Board of Directors may exchange all or part of the Rights (other than the Rights beneficially owned by the Acquiring Person and certain affiliated persons) for shares of common stock at an exchange ratio of one share of common stock per Right. The Rights will expire at the close of business on December 12, 2022, unless redeemed or exchanged prior to that time.
If any person or group of affiliated or associated persons becomes an Acquiring Person, then, after the Distribution Date, each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons or transferees thereof) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock having a market value of twice the Purchase Price. Alternatively, if, after any person or group of affiliated or associated persons becomes an Acquiring Person, (1) we are involved in a merger or other business combination in which we are not the surviving corporation or our common stock is changed into or exchanged for other securities or assets; or (2) we or one or more of our subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the assets or earning power of us and our subsidiaries, taken as a whole, then each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock of the other party to such business combination or sale (or in certain circumstances, an affiliate) having a market value of twice the Purchase Price.
Additional details about the Rights Agreement are contained in the Current Report on Form
8-K
filed by us with the SEC on December 14, 2021.
The Terminated Merger
On March 25, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with South Dearborn Limited, an exempted company incorporated in the Cayman Islands with limited liability (“Parent”), formed by an affiliate of Wise Road Capital LTD, and Michigan Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), providing for, among other things, and subject to the terms and conditions thereof, Merger Sub would be merged with and into us (the “Merger”), with us continuing our corporate existence as the surviving corporation in the Merger and becoming a wholly owned subsidiary of Parent.
The closing of the Merger was subject to certain conditions, including clearance by the Committee on Foreign Investment in the United States (“CFIUS”) under the Defense Production Act of 1950, as amended. We and Parent were advised that CFIUS clearance of the Merger would not be forthcoming and received permission
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from CFIUS to withdraw our joint filing. In connection therewith, we and Parent entered into a Termination and Settlement Agreement, dated December 13, 2021 (the “Termination Agreement”), which was attached as Exhibit 10.1 in our Current Report on
Form 8-K, dated
December 13, 2021.
On December 20, 2021, the Merger Agreement was terminated pursuant to the Termination Agreement after our receipt of a fee of $51.0 million from Parent and a new standby letter of credit, which secures a deferred fee of $19.2 million from Parent due on or before March 31, 2022.
We recorded in our consolidated statement of operations $70.2 million income as part of merger-related costs (income), net for the year ended December 31, 2021, and in our consolidated balance sheet a $19.2 million deferred fee as other receivables at December 31, 2021.
Global Semiconductor Chip Shortage
Recent sharp increases in demand for semiconductor products have resulted in a global shortage of manufacturing capacity. As a result, we may experience increased costs to manufacture our products and may not be able to manufacture and deliver all of the orders placed by our customers. Specifically, if we are unable to secure manufacturing capacity from the external foundries we rely on, our ability to deliver products to our customers may be negatively impacted. Also, this shortage of manufacturing capacity may lead to an increase in our manufacturing costs which we may not be fully able to pass on to our customers. Total revenues for the year ended December 31, 2021 were negatively impacted by these persisting supply shortages, in particular for 28nm
12-inch
OLED wafers.
In an effort to minimize the potential adverse impact of the supply shortage, we are working strategically with certain external foundries to help ensure long-term wafer capacity. If these efforts are unsuccessful, however, such shortage could limit our ability to meet demand for our products in the future, which would adversely affect our reputation and competitive position, resulting in a negative impact on results of operations.
We are not able to foresee when the current shortage of manufacturing capacity will subside. A prolonged global supply shortage could negatively impact our financial condition, potentially resulting in a need for additional capital to fund strategic initiatives or operating activities.
Conversion of 5.0% Exchangeable Senior Notes due 2021 (the “Exchangeable Notes”)
Prior to the March 1, 2021 maturity of our Exchangeable Notes, holders thereof elected to exchange the Exchangeable Notes for an aggregate of 10,144,131 shares of our common stock in satisfaction in full of the outstanding obligations under the Exchangeable Notes. On March 1, 2021, we paid the final interest payment on the Exchangeable Notes of $2.1 million and no longer have any Exchangeable Notes obligations outstanding as of such date.
Voluntary Resignation Program
On October 16, 2020, we commenced a voluntary resignation program (the “Program”), which was available for all employees. In connection with the Program, we recorded in our consolidated statement of operations $4.4 million of termination related charges within “early termination and other charges, net” for the year ended December 31, 2020.
Redemption of 6.625% Senior Notes due 2021 (the “2021 Notes”)
We completed the redemption of all of our outstanding 2021 Notes on October 2, 2020. We paid approximately $227.4 million to fully redeem all of the outstanding $224.25 million aggregate principal amount of the 2021 Notes at a redemption price equal to the sum of 100% of the principal amount of the 2021 Notes, plus
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accrued and unpaid interest through but excluding the redemption date. The redemption of the 2021 Notes was funded by our Korean subsidiary’s repayment of intercompany loans using the cash proceeds that it received from the sale of the Foundry Services Group business and Fab 4. On October 12, 2020, we paid a withholding tax of approximately $20.6 million, attributable to the repaid accrued interests on the related intercompany loans.
Completion of Sale of the Foundry Services Group business and Fab 4
On September 1, 2020 (the “Closing Date”), we completed the sale of our Foundry Services Group business and Fab 4 to Key Foundry Co., Ltd. (the “Buyer”) in exchange for a purchase price equal to approximately $350.6 million in cash. The purchase price was paid in a combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion. In addition to the purchase price, the Buyer assumed all severance liabilities relating to the transferred employees, which had a value of approximately $100 million.
The divestiture of the Foundry Services Group business and Fab 4 was to strategically shift our operational focus to the standard products business. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Accordingly, we strive to maintain competitiveness by offering high-value added processes, high-flexibility and excellent service by tailoring existinghave one reportable segment: our standard processes to meet customers’ design needs and porting customers’ own process technologies intoproducts business, together with transitional foundry services associated with our fabrication facilities.

Recent Developments

Public Health Risks

facility located in Gumi, Korea, known as Fab 3, which we expect to perform for the Buyer up to September 1, 2023 (the “Transitional Fab 3 Foundry Services”).

Power Outage
On July 20, 2020, our Fab 3 facility in Gumi, South Korea experienced a temporary power outage for approximately 9 hours and 15 minutes. The recovery from this power outage took longer than expected, which limited our ability to produce products in Fab 3 at full capacity, resulting in a lower factory utilization primarily during the third quarter of 2020. The accident caused certain damage to our work in process wafers and we incurred charges for facility recovery, resulting in an incremental cost of approximately $1.2 million.
COVID-19
Pandemic
In December 2019, a strain of coronavirus causing a disease known as
COVID-19
surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China. While our manufacturing supply chain resides largely outside China,In March 2020, the World Health Organization declared the
COVID-19
outbreak a pandemic. Governmental authorities throughout the world have implemented numerous containment measures, including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business restrictions and shutdowns, resulting in rapidly changing market and economic conditions. Although some of these restrictions and other containment measures have since been lifted or scaled back, ongoing surges of
COVID-19
have, in some cases, resulted in the
re-imposition
of certain restrictions and containment measures, and may continue to lead to other restrictions being
re-implemented
in the test and packaging services forforeseeable future in response to efforts to reduce the rapid spread of
COVID-19.
We experienced some minor disruption in our Power Solutions business line are outsourced to independentfrom assembly and test subcontractors located in China. AlthoughChina in the first quarter of 2020 as a result of the
COVID-19
pandemic. To date, our external Display Solutions business contractors and
sub-contractors
have not been materially impacted by the
COVID-19
pandemic. We are, however, unable to accurately predict the full impact that the
COVID-19
pandemic will have on future results of operations due to numerous uncertainties. The extent to which the
COVID-19
pandemic impacts our business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the
COVID-19
pandemic, such as new strains of the virus, including the Delta and Omicron variants and any
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future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the extent and effectiveness of actions to contain the
COVID-19
pandemic or treat its impact, including vaccination campaigns and lockdown measures, among others. In addition, recurrences or additional waves of
COVID-19
cases could cause other widespread or more severe impacts depending on where infection rates are highest. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of our customers and suppliers were to experience prolonged business shutdowns or other disruptions, our ability to conduct our business could be materially and negatively affected, which could have a material adverse impact on our business, results of operations and financial condition.
We continue to closely monitor and evaluate the nature and scope of the impact of the current
COVID-19 coronavirus outbreak on
pandemic to our futurebusiness, consolidated results is uncertain, based onof operations, and financial condition, and may take further actions altering our preliminary assessments, public health measures taken in China to protect the population may affect customer demand forbusiness operations and managing our products. This, together with problems that our subcontractors in China may experience for providing packagingcosts and testing services on a timely and sufficient manner, could adversely affect our operating results. We will continue to closely monitor this public health crisis.

Strategic Evaluation

On February 14, 2019, we announcedliquidity that we have undertaken a strategic evaluation of our Foundry Services Group businessdeem necessary or appropriate to respond to this ongoing and uncertain global health crisis and the fabrication facility located in Cheongju (“Fab 4”), the larger of our two8-inch manufacturing facilities. Fab 4 is an analog and mixed-signal fab that produces approximately 73% of our total capacity, and is used primarily to meet wafer demand from customers of our Foundry Services Group that rely on outside suppliers. Certain customer products of our Foundry Service Group are currently manufactured in our smaller8-inch fabrication facility in Gumi. We have engaged J.P. Morgan Securities LLC as our financial advisor to assist in the evaluation and we have also retained legal advisors to assist in the evaluation. For the year ended December 31, 2019, we recorded $7.0 million in professional fees and other charges incurred in connection with the strategic evaluation and recorded such costs as restructuring and other charges in our consolidated statements of operations.

resulting global economic consequences.

Repurchase of Long-Term Borrowings

In January and February 2019, we repurchased a principal amount of $0.3 million and $0.9 million of the 2021 Notes and the Exchangeable Notes, respectively. As a result, we recorded a $0.04 million net loss as early extinguishment loss on our consolidated statements of operations for the year ended December 31, 2019.

Segments

We report our financial results in two operating segments: Foundry Services Group and Standard Products Group. We identified these segments based on how we allocate resources and assess our performance.

In January 2018, as part of our ongoing portfolio optimization effort to realign business processes and streamline our organizational structure, we transferred a portion of ournon-OLED display solutions business from our Standards Products Group to our Foundry Services Group. This portion of our transferrednon-OLED display business has technical and business characteristics more closely aligned with our Foundry Services business than with our Standard Products business, which resided within our Display solutions business line primarily as a result of a long standing customer relationship established many years ago. We recast comparative segment financial information to conform to this current period change.

•

Foundry Services Group: Our Foundry Services Group provides specialty analog and mixed-signal foundry services to fabless semiconductor companies and IDMs that serve communications, IoT, consumer, industrial and automotive applications. We manufacture wafers based on our customers’ product designs. We do not market these products directly to end customers but rather supply manufactured wafers and products to our customers to market to their end customers. We offer approximately 500 process flows to our foundry services customers. We also often partner with key customers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop unique manufacturing expertise. Our foundry services target customers who require differentiated, specialty analog and mixed-signal process technologies such as high voltage complementary metal-oxide-semiconductor (CMOS),non-volatile memory or bipolar-CMOS-DMOS (BCD). These customers typically serve the consumer, computing, communication, industrial, automotive and IoT applications. For the years ended December 31, 2019 and 2018, our Foundry Services Group business represented 38.8% and 43.3% of our net sales and its gross profit was $64.0 million and $82.6 million, respectively. For the year ended December 31, 2017, our Foundry Services Group business represented, on an adjusted basis after recasting, 51.6% of our net sales and its gross profit was $101.8 million, as adjusted for the segment change described above.

•

Standard Products Group: Our Standard Products Group includes our Display Solutions and Power Solutions business lines. Our Display Solutions products include source, gate drivers, timing controllers, andone-chip integrated solutions that cover a wide range of panel displays used in ultra high definition (UHD), high definition (HD), light emitting diode (LED), 3D and OLED televisions public displays, notebooks, mobile communications, entertainment devices and automotive applications. Our Display Solutions products support the industry’s most advanced display technologies, such as OLEDs, and low temperature polysilicons (LTPS), as well as high-volume display technologies such as thin film transistors (TFT). Since 2007, we have designed and manufactured OLED display driver IC products. Our current portfolio of OLED solutions address a wide range of resolutions ranging from HD to Wide Quad High Definition (WQHD) for applications including smartphones, TVs, and other mobile devices. We believe we have a unique intellectual property portfolio and mixed-signal design and manufacturing expertise in the OLED industry. Our Power Solutions business line produces power management semiconductor products including discrete and integrated circuit solutions for power management in high-volume consumer applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),AC-DC converters,DC-DC converters, LED drivers, switching regulators and linear regulators for a range of devices, including televisions, smartphones, mobile phones, desktop PCs, notebooks, tablet PCs, other consumer electronics, and industrial applications such as power

suppliers, LED lighting, motor control and home appliances. For the years ended December 31, 2019 and 2018, our Standard Products Group, which includes our Display Solutions and Power Solutions business lines, represented 61.2% and 56.7% of our net sales and its gross profit was $116.3 million and $115.5 million, respectively. For the year ended December 31, 2017, our Standard Products Group business represented, on an adjusted basis after recasting, 48.4% of our net sales and its gross profit was $85.9 million, as adjusted for the segment change described above.

Explanation and Reconciliation ofNon-US

Non-U.S. GAAP
Measures

Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income

We use the terms Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income throughout(including on a per share basis) in this Report. Adjusted EBITDA, as we define it, is anon-US 
non-U.S.
GAAP measure. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) restructuring and other charges (gains), net, (ii) early termination charges, (iii) equity-based compensation expense, (iv)(ii) foreign currency loss, (gain), net, (v)(iii) derivative valuation loss (gain), net, (vi) restatement related expenses (gain), (vii) secondary offering expense, (viii)(iv) loss on early extinguishment of long-term borrowings, net, (v) inventory reserve related to Huawei impact of downstream trade restrictions, (vi) expenses related to Fab 3 power outage, (vii) merger-related costs (income), net and (ix) others.(viii) early termination and other charges, net. EBITDA for the periods indicated is defined as net income (loss) from continuing operations before interest expense (income), net, income tax expense (benefit), and depreciation and amortization.

See the footnotes to the table below for further information regarding these items. We present Adjusted EBITDA as a supplemental measure of our performance because:

we believe that Adjusted EBITDA, by eliminating the impact of a number of items that we do not consider to be indicative of our core ongoing operating performance, provides a more comparable measure of our operating performance from
period-to-period
and may be a better indicator of future performance;

we believe that Adjusted EBITDA is commonly requested and used by securities analysts, investors and other interested parties in the evaluation of the Companya company as an enterprise level performance measure that eliminates the effects of financing, income taxes and the accounting effects of capital spending, as well as other one time or recurring items described above; and

we believe that Adjusted EBITDA is useful for investors, among other reasons, to assess the Company’sa company’s
period-to-period
core operating performance and to understand and assess the manner in which management analyzes operating performance.

We use Adjusted EBITDA in a number of ways, including:

for planning purposes, including the preparation of our annual operating budget;

to evaluate the effectiveness of our enterprise level business strategies;

in communications with our Board of Directors concerning our consolidated financial performance; and

in certain of our compensation plans as a performance measure for determining incentive compensation payments.

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We encourage you to evaluate each adjustment and the reasons we consider them appropriate. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Adjusted EBITDA is not a measure defined in accordance with USU.S. GAAP and should not be construed as an alternative to income (loss) from continuing operations, cash flows from operating activities or net income, as determined in accordance with USU.S. GAAP. A reconciliation of net income (loss) from continuing operations to Adjusted EBITDA from continuing operations is as follows:

   Year Ended
December 31,
2019		  Year Ended
December 31,
2018		  Year Ended
December 31,
2017		 
   (In millions) 

Net Income (Loss)

  $(21.8)  $(3.9)  $84.9 

Interest expense, net

   19.9   20.4   20.5 

Income tax expense

   4.7   4.6   1.2 

Depreciation and amortization

   32.7   32.0   28.1 

EBITDA

  $35.6  $53.2  $134.7 

Adjustments:

    

Restructuring and other charges (gains), net(a)

   9.2   —     (17.0) 

Early termination charges(b)

   —   —     13.4 

Equity-based compensation expense(c)

   7.0   4.4   2.3 

Foreign currency loss (gain), net(d)

   21.8   24.4   (65.5) 

Derivative valuation loss (gain), net(e)

   0.3   2.4   (0.2) 

Restatement related expenses (gain)(f)

   —     (0.8)   10.3 

Secondary offering expenses(g)

   —     —     0.7 

Loss on early extinguishment of long-term borrowings, net(h)

   0.0   0.2   —   

Others(i)

   0.6   0.4   —   
  

 

 

  

 

 

  

 

 

 

Adjusted EBITDA

  $74.5  $84.3  $78.7 
  

 

 

  

 

 

  

 

 

 

   
Year Ended
December 31,
2021
   
Year Ended
December 31,
2020
   
Year Ended
December 31,
2019
 
   
(Dollars in millions)
 
Income (loss) from continuing operations
  $56.7   $57.1   $(20.4) 
Interest expense (income), net
   (1.2)    15.4    19.5 
Income tax expense (benefit)
   17.3    (46.2)    2.2 
Depreciation and amortization
   14.2    11.1    10.3 
  
 
 
   
 
 
   
 
 
 
EBITDA
  $87.0   $37.4   $11.6 
Adjustments:
      
Equity-based compensation expense(a)
   7.7    6.3    6.1 
Foreign currency loss, net(b)
   11.9    0.4    22.3 
Derivative valuation loss (gain), net(c)
   (0.1)    (0.1)    0.3 
Loss on early extinguishment of borrowings, net(d)
   —      0.8    0.0 
Inventory reserve related to Huawei impact of downstream trade restrictions(e)
   (1.5)    1.5    —   
Expenses related to Fab 3 power outage(f)
   —      1.2    —   
Merger-related costs (income), net(g)
   (35.5)    0.7    —   
Early termination and other charges, net(h)
   1.3    5.0    0.6 
  
 
 
   
 
 
   
 
 
 
Adjusted EBITDA
  $70.7   $52.9   $40.9 
  
 
 
   
 
 
   
 
 
 
(a)

For the year ended December 31, 2019, this adjustment eliminates the impact of a $2.2 million restructuring related charge to our fab employees, and a $7.0 million in professional fees and other charges incurred in connection with the strategic evaluation. For the year ended December 31, 2017, this adjustment eliminates the $16.6 million restructuring gain on sale of a building in connection with the closure of our6-inch fab and the $0.4 million gain on sale of our sensor business. As these expenses meaningfully impacted our operating results and are not expected to represent an ongoing operating expense to us, we believe our operating performance results are more usefully compared if these expenses are excluded.

(b)

This adjustment eliminates the charges related to the reduction of workforce through the Headcount Reduction Plan in the first half of 2017. As these termination related charges are recorded as a result of implementing the company-wide headcount reduction and are not expected to represent ongoing operating expenses to us, we believe our operating performance results are more usefully compared if these expenses are excluded.

(c)

This adjustment eliminates the impact of
non-cash
equity-based compensation expenses. Although we expect to incur
non-cash
equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these
non-cash
expenses as supplemental information.

(d)(b)

This adjustment mainly eliminates the impact of
non-cash
foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily
non-cash
gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results.

(e)(c)

This adjustment eliminates the impact of gain or loss recognized in income on derivatives. For the year ended December 31, 2019, this adjustmentderivatives, which represents derivatives value changes excluded from the risk being hedged. For the years ended December 31, 2018 and 2017, this adjustment represents hedge ineffectiveness or derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in USU.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance.

(f)(d)

This adjustment eliminates expenses in connection with the Audit Committee’s independent investigation and related restatement and litigation, primarily comprised of legal, audit and consulting fees, and certain other expenses.

For the year ended December 31, 2018,2020, this adjustment eliminates the reversal of a $0.8 million accrualin expenses related to certain legal fees incurred in prior periods and reimbursed by insurersthe full redemption of our outstanding 2021 Notes in the firstfourth quarter of 2018.2020. For the year ended December 31, 2017,2019, this adjustment includes the $3.0 million civil penalty imposed by the SEC and the $4.3 million of the additional tax assessment and associated penalties, primarily related tonon-income-based VAT transactions in the Restatement periods, administrative fine and related legal fees. As these expenses meaningfully impacted our operating results and are not expected to represent an ongoing operating expense to us, we believe our operating performance results are more usefully compared if these expenses are excluded.

(g)

This adjustment eliminates expenses incurred for the secondary offering by the Selling Stockholders primarily in the third quarter of 2017.

(h)

This adjustment eliminates expenses related to the repurchase of a portion of the 2021 Notes and the Exchangeable Notes in the fourth quarter of 2018 and the first quarter of 2019.

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(i)(e)

For the year ended December 31, 2020, this adjustment eliminates the impact of excess and obsolete inventory charge that we recorded in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. For the year ended December 31, 2021, this adjustment eliminates a reversal of such inventory charge as such reserved inventory was subsequently sold to certain other customers. As this charge and the timing of its reversal meaningfully impacted our operational results and are not expected to represent an ongoing operating expense subject to our ability to foresee and control, we believe our operating performance results are more meaningfully compared if this charge and related reversal are excluded.
(f)
This adjustment eliminates $1.2 million in expenses related to the
write-off
of the damaged work in process wafers and charges for facility recovery. These charges are inconsistent in amount and frequency, and we do not believe that these charges are indicative of our core operation performance and have been excluded for comparative purposes.
(g)
For the year ended December 31, 2021, this adjustment eliminates $70.2 million income from the recognition of termination fee from the Parent as a result of the termination of the merger transaction. For the years ended December 31, 2021 and 2020, respectively, this adjustment eliminates
non-recurring
professional service fees and expenses of $34.7 million and $0.7 million, incurred in connection with the contemplated merger transaction. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded.
(h)
For the year ended December 31, 2021, this adjustment eliminates $3.4 million
non-recurring
professional service fees and expenses incurred in connection with the regulatory requests, which was offset in part by $1.4 million gain on sale of certain legacy equipment of the closed
back-end
line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018), and $0.7 million legal settlement gain related to certain expenses incurred in prior periods in connection with our legacy Fab 4 (which was sold during the year ended December 31, 2020) and awarded in the third quarter of 2021. For the year ended December 31, 2020, this adjustment eliminates $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of
non-recurring
professional service fees and expenses incurred in connection with certain treasury and finance initiatives. For the year ended December 31, 2019, this adjustment primarily eliminates a $0.5 million in legal settlement chargescharge related to a dispute with a prior customer and a legal expense related to the indemnification of a former employee which was borne byduring the three months ended March 31, 2019. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, under a negotiated separation agreement. For the year ended December 31, 2018, this adjustment eliminates a $0.4 million legal expense related to the indemnification of a former employee. We do notwe believe that these charges are indicative of our core operating performance and have been excluded for comparative purposes.

results are more usefully compared if these adjustments are excluded.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under USU.S. GAAP. Some of these limitations are:

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

although depreciation and amortization are
non-cash
charges, the assets being depreciated and amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;

Adjusted EBITDA does not reflect the costs of holding certain assets and liabilities in foreign currencies; and

other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

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Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our USU.S. GAAP results and using Adjusted EBITDA only supplementally.

We present Adjusted NetOperating Income as a further supplemental measuremeasures of our performance. We prepare Adjusted NetOperating Income by adjusting netoperating income (loss) to eliminate the impact of a number ofnon-cashequity-based compensation expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We present Adjusted Net Income for a number of reasons, including:

we use Adjusted Net Income in communications with our Board of Directors concerning our consolidated financial performance without the impact ofnon-cash expenses and the other items as we discussed below since we believe that it is a more consistent measure of our core operating results from period to period; and

we believe that reporting Adjusted NetOperating Income is useful to readersinvestors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in evaluating our core operating results because it eliminates the effects ofnon-cash expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantlyability to generate income from period to period.

ongoing business operations.

Adjusted NetOperating Income is not a measure defined in accordance with USU.S. GAAP and should not be construed as an alternative to operating income, income from continuing operations, cash flows from operating activities or net income, as determined in accordance with USU.S. GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted NetOperating Income differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted NetOperating Income, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted NetOperating Income for the periods indicated as netoperating income (loss), adjusted to exclude (i) restructuring and other charges (gains), net, (ii) early termination charges, (iii) equity-based compensation expense, (ii) inventory reserve related to Huawei impact of downstream trade restrictions, (iii) expenses related to Fab 3 power outage, (iv) foreign currency loss (gain)merger-related costs (income), net and (v) derivative valuation loss (gain), net, (vi) restatement related expenses (gain), (vii) secondary offering expense, (viii) loss on early extinguishment of long-term borrowings, nettermination and (ix) others.

other charges.

The following table summarizes the adjustments to netoperating income (loss) that we make in order to calculate Adjusted NetOperating Income from continuing operations for the periods indicated:

   Year Ended
December 31,
2019		   Year Ended
December 31,
2018		   Year Ended
December 31,
2017		 
   (In millions) 

Net Income (Loss)

  $(21.8)   $(3.9)   $84.9 

Adjustments:

      

Restructuring and other charges (gains), net(a)

   9.2    —      (17.0) 

Early termination charges(b)

   —      —      13.4 

Equity-based compensation expense(c)

   7.0    4.4    2.3 

Foreign currency loss (gain), net(d)

   21.8    24.4    (65.5) 

Derivative valuation loss (gain), net(e)

   0.3    2.4    (0.2) 

Restatement related expenses (gain)(f)

   —      (0.8)    10.3 

Secondary offering expenses(g)

   —      —      0.7 

Loss on early extinguishment of long-term borrowings, net(h)

   0.0    0.2    —   

Others(i)

   0.6    0.4    —   
  

 

 

   

 

 

   

 

 

 

Adjusted Net Income

  $17.1   $27.1   $28.9 
  

 

 

   

 

 

   

 

 

 

   
Year Ended
December 31,
2021
   
Year Ended
December 31,
2020
   
Year Ended
December 31,
2019
 
   
(Dollars in millions)
 
Operating income
  $83.4   $27.0   $23.7 
Adjustments:
      
Equity-based compensation expense(a)
   7.7    6.3    6.1 
Inventory reserve related to Huawei impact of downstream trade restrictions(b)
   (1.5)    1.5    —   
Expenses related to Fab 3 power outage(c)
   —      1.2    —   
Merger-related costs (income), net(d)
   (35.5)    0.7    —   
Early termination and other charges(e)
   2.0    5.0    0.6 
  
 
 
   
 
 
   
 
 
 
Adjusted Operating Income
  $56.1   $41.6   $30.4 
  
 
 
   
 
 
   
 
 
 
(a)

For the year ended December 31, 2019, this adjustment eliminates the impact of a $2.2 million restructuring related charge to our fab employees, and a $7.0 million in professional fees and other charges incurred in connection with the strategic evaluation. For the year ended December 31, 2017, this adjustment eliminates

the $16.6 million restructuring gain on sale of a building in connection with the closure of our6-inch fab and the $0.4 million gain on sale of our sensor business. As these expenses meaningfully impacted our operating results and are not expected to represent an ongoing operating expense to us, we believe our operating performance results are more usefully compared if these expenses are excluded.
(b)

This adjustment eliminates the charges related to the reduction of workforce through the Headcount Reduction Plan in the first half of 2017. As these termination related charges are recorded as a result of implementing the company-wide headcount reduction and are not expected to represent ongoing operating expenses to us, we believe our operating performance results are more usefully compared if these expenses are excluded.

(c)

This adjustment eliminates the impact of

non-cash
equity-based compensation expenses. Although we expect to incur
non-cash
equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these
non-cash
expenses as supplemental information.

(b)
For the year ended December 31, 2020, this adjustment eliminates the impact of excess and obsolete inventory charge that we recorded in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. For the year ended December 31, 2021, this adjustment eliminates a reversal of such inventory charge as such reserved inventory was subsequently sold to certain other customers. As this charge and the timing of its reversal meaningfully impacted our operational results and are not expected to represent an ongoing operating expense subject to our ability to foresee and control, we believe our operating performance results are more meaningfully compared if this charge and related reversal are excluded.
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(c)
This adjustment eliminates $1.2 million in expenses related to the
write-off
of the damaged work in process wafers and charges for facility recovery. These charges are inconsistent in amount and frequency, and we do not believe that these charges are indicative of our core operation performance and have been excluded for comparative purposes.
(d)

For the year ended December 31, 2021, this adjustment eliminates $70.2 million income from the recognition of termination fee from the Parent as a result of the termination of the merger transaction. For the years ended December 31, 2021 and 2020, respectively, this adjustment eliminates
non-recurring
professional service fees and expenses of $34.7 million and $0.7 million, incurred in connection with the contemplated merger transaction. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded.
(e)
For the year ended December 31, 2021, this adjustment eliminates $3.4 million
non-recurring
professional service fees and expenses incurred in connection with the regulatory requests, which was offset in part by $1.4 million gain on sale of certain legacy equipment of the closed
back-end
line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018). For the year ended December 31, 2020, this adjustment eliminates $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of
non-recurring
professional service fees and expenses incurred in connection with certain treasury and finance initiatives. For the year ended December 31, 2019, this adjustment primarily eliminates a $0.5 million legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee during the three months ended March 31, 2019. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded.
We present Adjusted Net Income (including on a per share basis) as a further supplemental measure of our performance. We prepare Adjusted Net Income (including on a per share basis) by adjusting income (loss) from continuing operations to eliminate the impact of a number of
non-cash
expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income (including on a per share basis) is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We present Adjusted Net Income (including on a per share basis) for a number of reasons, including:
we use Adjusted Net Income (including on a per share basis) in communications with our Board of Directors concerning our consolidated financial performance without the impact of
non-cash
expenses and the other items as we discussed below since we believe that it is a more consistent measure of our core operating results from period to period; and
we believe that reporting Adjusted Net Income (including on a per share basis) is useful to readers in evaluating our core operating results because it eliminates the effects of
non-cash
expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantly from period to period.
Adjusted Net Income (including on a per share basis) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to income (loss) from continuing operations, cash flows from operating activities or net income, as determined in accordance with U.S. GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income (including on a per share basis) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income (including on a per share basis), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Net Income (including on a per share basis); for the periods indicated as income (loss) from continuing operations, adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation loss (gain), net, (iv) loss on early extinguishment of borrowings, net, (v) inventory reserve related to Huawei impact of downstream trade restrictions, (vi) expenses related to Fab 3 power outage,
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(vii) merger-related costs (income), net, (viii) early termination and other charges, net, (ix) GAAP and cash tax expense difference and (x) income tax effect on
non-GAAP
adjustments.
The following table summarizes the adjustments to income (loss) from continuing operations that we make in order to calculate Adjusted Net Income (including on a per share basis) from continuing operations for the periods indicated:
   
Year Ended
December 31,
2021
   
Year Ended
December 31,
2020
   
Year Ended
December 31,
2019
 
   
(Dollars in millions, except per share data)
 
Income (loss) from continuing operations
  $56.7   $57.1   $(20.4) 
Adjustments:
      
Equity-based compensation expense(a)
   7.7    6.3    6.1 
Foreign currency loss, net(b)
   11.9    0.4    22.3 
Derivative valuation loss (gain), net(c)
   (0.1)    (0.1)    0.3 
Loss on early extinguishment of borrowings, net(d)
   —      0.8    0.0 
Inventory reserve related to Huawei impact of downstream trade restrictions(e)
   (1.5)    1.5    —   
Expenses related to Fab 3 power outage(f)
   —      1.2    —   
Merger-related costs (income), net(g)
   (35.5)    0.7    —   
Early termination and other charges, net(h)
   1.3    5.0    0.6 
GAAP and cash tax expense difference(i)
   0.9    (43.9)    —   
Income tax effect on
non-GAAP
adjustments(j)
   9.7    (0.5)    —   
  
 
 
   
 
 
   
 
 
 
Adjusted Net Income
  $51.1   $28.3   $9.0 
  
 
 
   
 
 
   
 
 
 
Reported earnings (loss) per share—basic
  $1.26   $1.62   $(0.59) 
Reported earnings (loss) per share—diluted
  $1.21   $1.35   $(0.59) 
Weighted average number of shares—basic
   44,879,412    35,213,525    34,321,888 
Weighted average number of shares—diluted
   47,709,373    46,503,586    34,321,888 
Adjusted earnings per share—basic
  $1.14   $0.80   $0.26 
Adjusted earnings per share—diluted
  $1.09   $0.73   $0.25 
Weighted average number of shares—basic
   44,879,412    35,213,525    34,321,888 
Weighted average number of shares—diluted
   47,709,373    46,503,586    35,405,077 
(a)
This adjustment eliminates the impact of
non-cash
equity-based compensation expenses. Although we expect to incur
non-cash
equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these
non-cash
expenses as supplemental information.
(b)
This adjustment mainly eliminates the impact of
non-cash
foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily
non-cash
gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results.

(e)(c)

This adjustment eliminates the impact of gain or loss recognized in income on derivatives. For the year ended December 31, 2019, this adjustmentderivatives, which represents derivatives value changes excluded from the risk being hedged. For the years ended December 31, 2018 and 2017, this adjustment represents hedge ineffectiveness or derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our
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expected cash flows denominated in USU.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance.

(f)(d)

This adjustment eliminates expenses in connection with the Audit Committee’s independent investigation and related restatement and litigation, primarily comprised of legal, audit and consulting fees, and certain other expenses.

For the year ended December 31, 2018,2020, this adjustment eliminates the reversal of a $0.8 million accrualin expenses related to certain legal fees incurred in prior periods and reimbursed by insurersthe full redemption of our outstanding 2021 Notes in the firstfourth quarter of 2018.2020. For the year ended December 31, 2017,2019, this adjustment includes the $3.0 million civil penalty imposed by the SEC and the $4.3 million of the additional tax assessment and associated penalties, primarily related tonon-income-based VAT transactions in the Restatement periods, administrative fine and related legal fees. As these expenses meaningfully impacted our operating results and are not expected to represent an ongoing operating expense to us, we believe our operating performance results are more usefully compared if these expenses are excluded.

(g)

This adjustment eliminates expenses incurred for the secondary offering by the Selling Stockholders primarily in the third quarter of 2017.

(h)

This adjustment eliminates expenses related to the repurchase of a portion of the 2021 Notes and the Exchangeable Notes in the fourth quarter of 2018 and the first quarter of 2019.

(i)(e)

For the year ended December 31, 2020, this adjustment eliminates the impact of excess and obsolete inventory charge that we recorded in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. For the year ended December 31, 2021, this adjustment eliminates a reversal of such inventory charge as such reserved inventory was subsequently sold to certain other customers. As this charge and the timing of its reversal meaningfully impacted our operational results and are not expected to represent an ongoing operating expense subject to our ability to foresee and control, we believe our operating performance results are more meaningfully compared if this charge and related reversal are excluded.
(f)
This adjustment eliminates $1.2 million in expenses related to the
write-off
of the damaged work in process wafers and charges for facility recovery. These charges are inconsistent in amount and frequency, and we do not believe that these charges are indicative of our core operation performance and have been excluded for comparative purposes.
(g)
For the year ended December 31, 2021, this adjustment eliminates $70.2 million income from the recognition of termination fee from the Parent as a result of the termination of the merger transaction. For the years ended December 31, 2021 and 2020, respectively, this adjustment eliminates
non-recurring
professional service fees and expenses of $34.7 million and $0.7 million, incurred in connection with the contemplated merger transaction. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded.
(h)
For the year ended December 31, 2021, this adjustment eliminates $3.4 million
non-recurring
professional service fees and expenses incurred in connection with the regulatory requests, which was offset in part by $1.4 million gain on sale of certain legacy equipment of the closed
back-end
line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018), and $0.7 million legal settlement gain related to certain expenses incurred in prior periods in connection with our legacy Fab 4 (which was sold during the year ended December 31, 2020) and awarded in the third quarter of 2021. For the year ended December 31, 2020, this adjustment eliminates $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of
non-recurring
professional service fees and expenses incurred in connection with certain treasury and finance initiatives. For the year ended December 31, 2019, this adjustment primarily eliminates a $0.5 million in legal settlement chargescharge related to a dispute with a prior customer and a legal expense related to the indemnification of a former employee which was borneduring the three months ended March 31, 2019. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded.
(i)
This adjustment eliminates the impact of difference between GAAP and cash tax expense.
(j)
For the years ended December 31, 2021 and 2020, income tax effect on
non-GAAP
adjustments were calculated by us under a negotiated separation agreement.calculating the tax expense of each jurisdiction with or without the
non-GAAP
adjustments. For the year ended December 31, 2018, this adjustment eliminates a $0.4 million legal expense2021, income tax effect on
non-GAAP
adjustments related to our Korean subsidiary and the indemnification of a former employee. We do not believe that these charges are indicative ofU.S parent entity were $2.8 million and $6.9 million, respectively. For the year ended December 31, 2020, income tax effect on
non-GAAP
adjustments related to our coreKorean subsidiary was $0.5 million. For the year ended December 31, 2019, there was no tax impact from the adjustments to net income (loss) from continuing operations to calculate our Adjusted Net Income due to net operating performanceloss carry-forwards available to offset taxable income and have been excludedfull allowance for comparative purposes.

deferred tax assets.

There was no tax impact from the adjustments to net income to calculate our Adjusted Net Income for the years ended December 31, 2019, 2018 and 2017 due to net operating loss carry-forwards available to offset

taxable income and full allowance for deferred tax assets.

We believe that all adjustments to net income (loss) from continuing operations used to calculate Adjusted Net Income was applied consistently to the periods presented.

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Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under USU.S. GAAP. Some of these limitations are:

Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs;

Adjusted Net Income does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;

Adjusted Net Income does not reflect the costs of holding certain assets and liabilities in foreign currencies; and

other companies in our industry may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted Net Income should not be considered as a measure of profitability of our business. We compensate for these limitations by relying primarily on our USU.S. GAAP results and using Adjusted Net Income only as a supplement.

Our Adjusted EBITDA and Adjusted Net Income for the year ended December 31, 2019 were $74.5 million and $17.1 million, respectively. Our Adjusted EBITDA and Adjusted Net Income for the year ended December 31, 2018 were $84.3 million and $27.1 million, respectively. Our Adjusted EBITDA and Adjusted Net Income for the year ended December 31, 2017 were $78.7 million and $28.9 million, respectively.

Factors Affecting Our Results of Operations

Net
Sales.
We derive virtuallysubstantially all of our sales (net of sales returns and allowances) from two segments: our Foundry Services Group and Standard Products Group.standard products business. We outsource manufacturing of mobile OLED products to external
12-inch
foundries. Our product inventory is primarily located in Korea and is available for drop shipment globally. Outside of Korea, we maintain limited product inventory, and our sales representatives generally relay orders to our factories in Korea for fulfillment. We have strategically located our sales and technical support offices near concentrations of major customers. Our sales offices are located in Korea, the United States, Japan and Greater China. Our network of authorized agents and distributors is in the United States, Europe and the Asia Pacific region. Our net sales from All other consist principally
We recognize revenue when a customer obtains control of the disposal of scrap materials.

Prior to the adoption of the new revenue standard effective on January 1, 2018, we had historically recognized revenue when risk and reward of ownership pass to the customer eitherproduct, which is generally upon product shipment, upon product delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement. After the adoption of the new revenue standard effective on January 1, 2018, we recognize revenue over time for those foundry products without alternative use where we have an enforceable right to payment for the related foundry services completed to date. As we adopted the new revenue standard under the modified retrospective method, we have not changed the comparative information in our consolidated financial statements for the year ended December 31, 2017. Such comparative information continues to be reported under the accounting standards in effect for that period. See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 1—Business, Basis of Presentation and Significant Accounting Policies—Basis of Presentation and Recent Accounting Pronouncements” in this Report for further discussion. For the years ended December 31, 20192021, 2020 and 2018,2019, we sold products to 355177, 178 and 370180 customers, respectively, and our net sales to our ten largest customers represented 67%80%, 88% and 61%90% of our net sales,sales—standard products business, respectively.

We havewill provide the Transitional Fab 3 Foundry Services up to September 1, 2023 at an agreed upon cost plus a combined production capacity
mark-up.
For the periods prior to the closing of approximately 113,000 semiconductor wafers per month. We believethe sale of the Foundry Services Group business and Fab 4 as of September 1, 2020 (which are accounted for as discontinued operations beginning in the first quarter of 2020), revenue derived from the Transitional Fab 3 Foundry Services is recorded at cost in both our large-scale, cost-effective fabrication facilities enable us to rapidly adjust our production levels to meet shifts in demand by our end customers.

continuing and discontinued operations.

Gross Profit.
Our overall gross profit generally fluctuates as a result of changes in overall sales volumes and in the average selling prices of our products and services. Other factors that influence our gross profit include

changes in product mix, the introduction of new products and services and subsequent generations of existing products and services, shifts in the utilization of our manufacturing facilitiesfacility and the yields achieved by our manufacturing operations, changes in material, labor and other manufacturing costs including outsourced manufacturing expenses, and variation in depreciation expense.

Average
Selling
Prices.
Average selling prices for our products tend to be highest at the time of introduction of new products which utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products. We strive to offset the impact of declining selling prices for existing products through our product development activities and by introducing new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to preclude losses from product and productive capacity obsolescence.

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Table of Contents
Material Costs.
Our cost of material consistscosts consist of costs of raw materials, such as silicon wafers, chemicals, gases and tape and packaging supplies. We use processes that require specialized raw materials, such as silicon wafers, that are generally available from a limited number of suppliers. If demand increases or supplies decrease, the costs of our raw materials could increase significantly.

Labor
Costs.
A significant portion of our employees are located in Korea. Under Korean labor laws, most employees and certain executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2019,2021, approximately 98% of our employees were eligible for severance benefits.

Depreciation Expense.
We periodically evaluate the carrying values of long-lived assets, including property, plant and equipment and intangible assets, as well as the related depreciation periods. We depreciated our property, plant and equipment using the straight-line method over the estimated useful lives of our assets. Depreciation rates vary from
30-40
years on buildings to 5 to 12 years for certain equipment and assets. Our evaluation of carrying values is based on various analyses including cash flow and profitability projections. If our projections indicate that future undiscounted cash flows are not sufficient to recover the carrying values of the related long-lived assets, the carrying value of the assets is impaired and will be reduced, with the reduction charged to expense so that the carrying value is equal to fair value.

Selling
Expenses.
We sell our products worldwide through a direct sales force as well as a network of sales agents and representatives to OEMs, including major branded customers and contract manufacturers, and indirectly through distributors. Selling expenses consist primarily of the personnel costs for the members of our direct sales force, a network of sales representatives and other costs of distribution. Personnel costs include base salary, benefits and incentive compensation.

General
and
Administrative
Expenses.
General and administrative expenses consist of the costs of various corporate operations, including finance, legal, human resources and other administrative functions. These expenses primarily consist of payroll-related expenses, consulting and other professional fees and office facility-related expenses.

Research
and
Development.
The rapid technological change and product obsolescence that characterize our industry require us to make continuous investments in research and development. Product development time frames vary but, in general, we incur research and development costs one to two years before generating sales from the associated new products. These expenses include personnel costs for members of our engineering workforce, cost of photomasks, silicon wafers and other
non-recurring
engineering charges related to product design. Additionally, we develop base line process technology through experimentation and through the design and use of characterization wafers that help achieve commercially feasible yields for new products. The majority of research and development expenses of our Foundry Services Groupdisplay business are for process development that serves as a common technology platform for all of our product lines. For our Standard Products Group, the majority of

researchmaterial and development expenses are material-relateddesign-related costs for OLED display driver IC product development involving fine

28-nanometer
or finer processes.

The majority of research and development expenses of our power business are certain equipment, material and design-related costs for power discrete products and material and design-related costs for power IC products. Power IC uses standard BCD process technologies which can be sourced from multiple foundries, including Fab 4.

Interest Expense.
Our interest expense was incurred primarily under our 2021 Notes and our Exchangeable Notes.

We redeemed all outstanding 2021 Notes on October 2, 2020. Our Exchangeable Notes were exchanged for common stock prior to their maturity date of March 1, 2021. From and after October 2, 2020 and March 1, 2021, we have not incurred interest expense associated with the 2021 Notes and Exchangeable Notes, respectively.

Impact of Foreign Currency Exchange Rates on Reported Results of Operations.
Historically, a portion of our revenues and cost of sales and greater than the majority of our operating expenses and costs of sales have been denominated innon-US
non-U.S.
currencies, principally the Korean won, and we expect that this will remain true in the future. Because
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we report our results of operations in USU.S. dollars converted from ournon-US
non-U.S.
revenues and expenses based on monthly average exchange rates, changes in the exchange rate between the Korean won and the USU.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in USU.S. dollars relative to Korean won, depreciation in the USU.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income (loss) to appear to decline materially, particularly relative to prior periods. The converse is true if the USU.S. dollar were to appreciate relative to the Korean won. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the USU.S. dollar as a substantial portion of
non-cash
translation gain or loss is associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in USU.S. dollars. As of December 31, 2019,2021, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $686.5$344.4 million. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our stock could be adversely affected.

From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Korean subsidiary enters into foreign currency forward and zero cost collar contracts in order to mitigate a portion of the impact of USU.S. dollar-Korean won exchange rate fluctuations on our operating results. Obligations under these foreign currency forward and zero cost collar contracts must be cash collateralized if our exposure exceeds certain specified thresholds. These forward and zero cost collar contracts may be terminated by a counterparty in a number of circumstances, including if our long-term debtcredit rating falls below
B-/B3
or if our total cash and cash equivalents is less than $30.0 million at the end of a fiscal quarter unless a waiver is obtained from the counterparty. We cannot assure that any hedging technique we implement will be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on our results of operations. See “Note 9.10. Derivative Financial Instruments” to our consolidated financial statements under “Item 8. Financial Statements and Supplementary Data” for additional information regarding our foreign exchange hedging activities.

Foreign Currency Gain or Loss.
Foreign currency translation gains or losses on transactions by us or our subsidiaries in a currency other than our or our subsidiaries’ functional currency are included in foreign currency gain (loss), net in our statements of operations. A substantial portion of this net foreign currency gain or loss relates to
non-cash
translation gain or loss related to the principal balance of intercompany balances at our Korean subsidiary that are denominated in USU.S. dollars. This gain or loss results from fluctuations in the exchange rate between the Korean won and USU.S. dollar.

Income Taxes.
We record 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 basesbasis of our assets and liabilities. We exercise significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities. We assess whether it is more likely than not that the deferred tax assets existing at the
period-end
will be realized in future periods. In such assessment, we consider all available positive and negative evidence, including scheduled

reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.

We are subject to income- or
non-income-based
tax examinations by tax authorities of the US,U.S., Korea and multiple other foreign jurisdictions where applicable, for all open tax years. Significant estimates and judgments are required in determining our worldwide provision for income- or
non-income
based taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result. See “Item 8. Financial Statements
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Table of Contents
Discontinued Operations.
On March 30, 2020, we entered into the Business Transfer Agreement for the sale of our Foundry Services Group business and Supplementary Data—NotesFab 4 to Consolidated Financial Statements—Note 17. Income Taxes” included elsewherethe Buyer. As a result, the results of the Foundry Services Group business were classified as discontinued operations in this Report.

our consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. On September 1, 2020, we completed the sale for a purchase price of approximately $350.6 million in cash.

Capital
Expenditures.
We primarily invest in manufacturing equipment, software design tools and other tangible assets mainly for fabrication facility maintenance, capacity expansion and technology improvement. Capacity expansions and technology improvements typically occur in anticipation of increases in demand. We typically pay for capital expenditures in partial installments with portions due on order, delivery and final acceptance. Our capital expenditures mainly include our payments for the purchase of property, plant and equipment.

Inventories.
We monitor our inventory levels in light of product development changes and market expectations. We may be required to take additional charges for quantities in excess of demand, cost in excess of market value and product age. Our analysis may take into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sales of existing products, product age, customer design activity, customer concentration and other factors. These forecasts require us to estimate our ability to predict demand for current and future products and compare those estimates with our current inventory levels and inventory purchase commitments. Our forecasts for our inventory may differ from actual inventory use.

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Table of Contents
Results of Operations

The following table sets forth, for the periods indicated, certain information related to our operations, expressed in USU.S. dollars and as a percentage of our net sales:

   Year Ended
December 31,
2019		  Year Ended
December 31,
2018		  Year Ended
December 31,
2017
(As adjusted)		 
   Amount  % of
net sales		  Amount  % of
net sales		  Amount  % of
net sales		 
   (In millions) 

Consolidated statements of operations data:

       

Net sales

  $792.2   100.0%  $750.9   100.0%  $679.7   100.0% 

Cost of sales

   611.6   77.2   552.8   73.6   491.8   72.4 
  

 

 

   

 

 

   

 

 

  

Gross profit

   180.6   22.8   198.1   26.4   187.9   27.6 

Selling, general and administrative expenses

   71.6   9.0   72.6   9.7   81.8   12.0 

Research and development expenses

   75.4   9.5   78.0   10.4   70.5   10.4 

Restructuring and other charges (gains), net

   9.2   1.2   —   —   (17.0)   (2.5) 

Early termination charges

   —   —   —   —   13.4   2.0 
  

 

 

   

 

 

   

 

 

  

Operating income

   24.4   3.1   47.4   6.3   39.2   5.8 

Interest expense

   (22.6)   (2.9)   (22.3)   (3.0)   (21.6)   (3.2) 

Foreign currency gain (loss), net

   (21.8)   (2.8)   (24.4)   (3.3)   65.5   9.6 

Loss on early extinguishment of long-term borrowings, net

   (0.0)   (0.0)   (0.2)   (0.0)   —   — 

Others, net

   3.0   0.4   0.3   0.0   2.9   0.4 
  

 

 

   

 

 

   

 

 

  
   (41.5)   (5.2)   (46.7)   (6.2)   46.9   6.9 
  

 

 

   

 

 

   

 

 

  

Income (loss) before income tax expense

   (17.1)   (2.2)   0.7   0.1   86.1   12.7 

Income tax expense

   4.7   0.6   4.6   0.6   1.2   0.2 
  

 

 

   

 

 

   

 

 

  

Net income (loss)

  $(21.8)   (2.8)%  $(3.9)   (0.5)%  $84.9   12.5% 
  

 

 

   

 

 

   

 

 

  

Net Sales:

       

Foundry Services Group

  $307.1   38.8%  $325.3   43.3%  $350.4   51.6% 

Standard Products Group

       

Display Solutions

   308.5   38.9   256.1   34.1   179.2   26.4 

Power Solutions

   176.2   22.2   169.3   22.5   149.8   22.0 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total Standard Products Group

   484.8   61.2   425.4   56.7   329.1   48.4 

All other

   0.3   0.0   0.2   0.0   0.2   0.0 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total net sales

  $792.2   100.0%  $750.9   100.0%  $679.7   100.0% 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
total revenues:

  
Year Ended
December 31,
2021
  
Year Ended
December 31,
2020
  
Year Ended
December 31,
2019
 
  
Amount
  
% of
Total
revenues
  
Amount
  
% of
Total
revenues
  
Amount
  
% of
Total
revenues
 
  
(Dollars in millions)
 
Consolidated statements of operations data:
      
Revenues
      
Net sales—standard products business
 $433.1   91.3%  $465.5   91.8%  $484.8   93.1% 
Net sales—transitional Fab 3 foundry services
  41.1   8.7   41.5   8.2   35.8   6.9 
 
 
 
   
 
 
   
 
 
  
Total revenues
  474.2   100.0   507.1   100.0   520.7   100.0 
Cost of sales
      
Cost of sales—standard products business
  283.5   59.8   338.4   66.7   368.5   70.8 
Cost of sales—transitional Fab 3 foundry services
  37.2   7.8   40.3   8.0   35.8   6.9 
 
 
 
   
 
 
   
 
 
  
Total cost of sales
  320.7   67.6   378.7   74.7   404.3   77.6 
 
 
 
   
 
 
   
 
 
  
Gross profit
  153.5   32.4   128.3   25.3   116.4   22.4 
Selling, general and administrative expenses
  52.4   11.1   50.0   9.9   47.6   9.1 
Research and development expenses
  51.2   10.8   45.7   9.0   45.0   8.6 
Merger-related costs (income), net
  (35.5)   (7.5)   0.7   0.1   —     —   
Early termination and other charges, net
  2.0   0.4   5.0   1.0   0.1   0.0 
 
 
 
   
 
 
   
 
 
  
Operating income
  83.4   17.6   27.0   5.3   23.7   4.6 
Interest expense
  (1.4)   (0.3)   (18.1)   (3.6)   (22.2)   (4.3) 
Foreign currency loss, net
  (11.9)   (2.5)   (0.4)   (0.1)   (22.3)   (4.3) 
Loss on early extinguishment of borrowings, net
  —     —     (0.8)   (0.2)   (0.0)   (0.0) 
Others, net
  3.8   0.8   3.1   0.6   2.6   0.5 
 
 
 
   
 
 
   
 
 
  
  (9.4)   (2.0)   (16.2)   (3.2)   (41.9)   (8.1) 
 
 
 
   
 
 
   
 
 
  
Income (loss) from continuing operations before income tax expense
  74.0   15.6   10.8   2.1   (18.2)   (3.5) 
Income tax expense (benefit)
  17.3   3.6   (46.2)   (9.1)   2.2   0.4 
 
 
 
   
 
 
   
 
 
  
Income (loss) from continuing operations
  56.7   12.0   57.1   11.3   (20.4)   (3.9) 
Income (loss) from discontinued operations, net of tax
  —     —     287.9   56.8   (1.4)   (0.3) 
 
 
 
   
 
 
   
 
 
  
Net income (loss)
 $56.7   12.0%  $345.0   68.0%  $(21.8)   (4.2)% 
 
 
 
   
 
 
   
 
 
  
Revenues:
      
Net sales—standard products business
      
Display Solutions
  205.3   43.3   299.1   59.0   308.5   59.3 
Power Solutions
  227.8   48.0   166.5   32.8   176.3   33.9 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total standard products business
  433.1   91.3   465.5   91.8   484.8   93.1 
Net sales—transitional Fab 3 foundry services
  41.1   8.7   41.5   8.2   35.8   6.9 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total revenues
 $474.2   100.0%  $507.1   100.0%  $520.7   100.0% 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
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Results of Operations—Comparison of Years Ended December 31, 20192021 and 2018

2020

The following table sets forth consolidated results of operations for the years ended December 31, 20192021 and 2018:

   Year Ended
December 31, 2019		  Year Ended
December 31, 2018		    
   Amount  % of
Net Sales		  Amount  % of
Net Sales		  Change
Amount		 
   (In millions) 

Net sales

  $792.2   100.0%  $750.9   100.0%  $41.3 

Cost of sales

   611.6   77.2   552.8   73.6   58.8 
  

 

 

   

 

 

   

 

 

 

Gross profit

   180.6   22.8   198.1   26.4   (17.5) 
  

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

   71.6   9.0   72.6   9.7   (1.0) 

Research and development expenses

   75.4   9.5   78.0   10.4   (2.7) 

Restructuring and other charges

   9.2   1.2   —   —   9.2 
  

 

 

   

 

 

   

 

 

 

Operating income

   24.4   3.1   47.4   6.3   (23.0) 
  

 

 

   

 

 

   

 

 

 

Interest expense

   (22.6)   (2.9)   (22.3)   (3.0)   (0.3) 

Foreign currency loss, net

   (21.8)   (2.8)   (24.4)   (3.3)   2.6 

Loss on early extinguishment of long-term borrowings, net

   (0.0)   (0.0)   (0.2)   (0.0)   0.2 

Others, net

   3.0   0.4   0.3   0.0   2.7 
  

 

 

   

 

 

   

 

 

 
   (41.5)   (5.2)   (46.7)   (6.2)   5.2 
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

   (17.1)   (2.2)   0.7   0.1   (17.8) 

Income tax expense

   4.7   0.6   4.6   0.6   0.1 
  

 

 

   

 

 

   

 

 

 

Net loss

  $(21.8)   (2.8)  $(3.9)   (0.5)  $(17.9) 
  

 

 

   

 

 

   

 

 

 

2020:

   
Year Ended
December 31, 2021
  
Year Ended
December 31, 2020
    
   
Amount
  
% of
Total
revenues
  
Amount
  
% of
Total
revenues
  
Change
Amount
 
   
(Dollars in millions)
 
Revenues
      
Net sales—standard products business
  $433.1   91.3%  $465.5   91.8%  $(32.4) 
Net sales—transitional Fab 3 foundry services
   41.1   8.7   41.5   8.2   (0.4) 
  
 
 
   
 
 
   
 
 
 
Total revenues
   474.2   100.0   507.1   100.0   (32.8) 
Cost of sales
      
Cost of sales—standard products business
   283.5   59.8   338.4   66.7   (54.9) 
Cost of sales—transitional Fab 3 foundry services
   37.2   7.8   40.3   8.0   (3.1) 
  
 
 
   
 
 
   
 
 
 
Total cost of sales
   320.7   67.6   378.7   74.7   (58.1) 
  
 
 
   
 
 
   
 
 
 
Gross profit
   153.5   32.4   128.3   25.3   25.2 
Selling, general and administrative expenses
   52.4   11.1   50.0   9.9   2.5 
Research and development expenses
   51.2   10.8   45.7   9.0   5.5 
Merger-related costs (income), net
   (35.5)   (7.5)   0.7   0.1   (36.2) 
Early termination and other charges, net
   2.0   0.4   5.0   1.0   (3.0) 
  
 
 
   
 
 
   
 
 
 
Operating income
   83.4   17.6   27.0   5.3   56.4 
Interest expense
   (1.4)   (0.3)   (18.1)   (3.6)   16.8 
Foreign currency loss, net
   (11.9)   (2.5)   (0.4)   (0.1)   (11.5) 
Loss on early extinguishment of borrowings, net
   —     —     (0.8)   (0.2)   0.8 
Others, net
   3.8   0.8   3.1   0.6   0.7 
  
 
 
   
 
 
   
 
 
 
   (9.4)   (2.0)   (16.2)   (3.2)   6.7 
  
 
 
   
 
 
   
 
 
 
Income from continuing operations before income tax expense
   74.0   15.6   10.8   2.1   63.1 
Income tax expense (benefit)
   17.3   3.6   (46.2)   (9.1)   63.5 
  
 
 
   
 
 
   
 
 
 
Income from continuing operations
   56.7   12.0   57.1   11.3   (0.4) 
Income from discontinued operations, net of tax
   —     —     287.9   56.8   (287.9) 
  
 
 
   
 
 
   
 
 
 
Net income
  $56.7   12.0%  $345.0   68.0%  $(288.3) 
  
 
 
   
 
 
   
 
 
 
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Results by segment

   Year Ended
December 31, 2019		  Year Ended
December 31, 2018		    
   Amount   % of
Net Sales		  Amount   % of
Net Sales		  Change
Amount		 
  (In millions) 

Net Sales

        

Foundry Services Group

  $307.1    38.8%  $325.3    43.3%  $(18.2) 

Standard Products Group

        

Display Solutions

   308.5    38.9   256.1    34.1   52.4 

Power Solutions

   176.2    22.2   169.3    22.5   7.0 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total Standard Products Group

   484.8    61.2   425.4    56.7   59.4 

All other

   0.3    0.0   0.2    0.0   0.1 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total net sales

  $792.2    100.0%  $750.9    100.0%  $41.3 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
business line

   Year Ended
December 31, 2019		  Year Ended
December 31, 2018		    
   Amount   % of
Net Sales		  Amount   % of
Net Sales		  Change
Amount		 
  (In millions) 

Gross Profit

        

Foundry Services Group

  $64.0    20.8%  $82.6    25.4%  $(18.6) 

Standard Products Group

   116.3    24.0   115.5    27.1   0.8 

All other

   0.3    99.6   0.0    21.2   0.2 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total gross profit

  $180.6    22.8%  $198.1    26.4%  $(17.5) 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Net Sales

Net sales

   
Year Ended
December 31, 2021
  
Year Ended
December 31, 2020
    
   
Amount
   
% of
Total
revenues
  
Amount
   
% of
Total
revenues
  
Change
Amount
 
  
(Dollars in millions)
 
Revenues
        
Net sales—standard products business
        
Display Solutions
   205.3    43.3   299.1    59.0   (93.7) 
Power Solutions
   227.8    48.0   166.5    32.8   61.3 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total standard products business
   433.1    91.3   465.5    91.8   (32.4) 
Net sales—transitional Fab 3 foundry services
   41.1    8.7   41.5    8.2   (0.4) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total revenues
  $474.2    100.0%  $507.1    100.0%  $(32.8) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
   
Year Ended
December 31, 2021
  
Year Ended
December 31, 2020
    
   
Amount
   
% of
Net Sales
  
Amount
   
% of
Net Sales
  
Change
Amount
 
   
(Dollars in millions)
 
Gross Profit
        
Gross profit—standard products business
   149.6    34.5   127.1    27.3   22.5 
Gross profit—transitional Fab 3 foundry services
   3.9    9.6   1.2    2.9   2.7 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total gross profit
  $153.5    32.4%  $128.3    25.3%  $25.2 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Revenues
Total revenues were $792.2$474.2 million for the year ended December 31, 2019,2021, a $41.3$32.8 million, or 5.5%6.5%, increasedecrease compared to $750.9$507.1 million for the year ended December 31, 2018.2020. This decrease was primarily due to a decrease in net sales from our Display Solutions business line, which was partially offset by an increase in net sales from our Power Solutions business line as described below.
The standard products business.
Net sales from our standard products business were $433.1 million for the year ended December 31, 2021, a $32.4 million, or 7.0%, decrease compared to $465.5 million for the year ended December 31, 2020. The decrease in net sales from our Display Solutions business line was primarily attributable to an increasea decrease in revenue from our Standard Products Group,mobile OLED display driver ICs stemming from a continuing severe global shortage in manufacturing capacity (in particular for 28nm
12-inch
OLED wafers), as we outsource manufacturing of these products to external
12-inch
foundries, and a strategic reduction of our lower margin
non-auto
LCD business, which was offset in part by a decreasehigher demand for
auto-LCD
DDIC business. The increase in revenue from our Foundry Services Group.

Foundry Services Group.Netnet sales from our Foundry Services Group segment were $307.1Power Solutions business line was attributable to a strong demand for power products such as MOSFETs, including

high-end
MOSFETs, primarily for TVs and
e-bikes,
whereas the revenue for power products in 2020 was impacted by
COVID-19-related
supply chain issues and market softness in China.
Gross Profit
Total gross profit was $153.5 million for the year ended December 31, 2019, an $18.2 million, or 5.6%, decrease2021 compared to net sales of $325.3$128.3 million for the year ended December 31, 2018.2020, representing a $25.2 million, or 19.7%, increase. Gross profit as a percentage of total revenues for the year ended December 31, 2021 increased to 32.4% compared to 25.3% for the year ended December 31, 2020. The decreaseincrease in gross profit and gross profit as a percentage of total revenues was primarily attributabledue to weaker demandthe increase in gross profit and gross profit as a percentage of total revenues from our foundry customers during the first half of 2019 as a result of softening global market conditions, including macroeconomic uncertainties, and us being more selective about newstandard products business as a resultfurther described below.
61
Table of our strategic evaluation of our Foundry Services Group business and Fab 4. This decrease was offset in part by an increase in sales of certain communication-relatedContents
The standard products from global power management IC foundry customers and higher sales of certain gate driver ICs for a foundry customer serving the global computing sector.

Standard Products Group. Net salesbusiness.

 Gross profit from our Standard Products Group segment were $484.8standard products business was $149.6 million for the year ended December 31, 2019,2021, representing a $59.4$22.5 million, or 14.0%17.7%, increase compared to $425.4from $127.1 million for the year ended December 31, 2018. This increase was primarily attributable to an increase in revenue related to our mobile OLED display driver ICs due to an increase in new OLED smartphones by Chinese and Korean manufacturers and higher demand for premium power products such ashigh-end MOSFETs primarily for TV and industrial applications. This increase was offset in part by a strategic reduction of our lower margin LCD business.

All Other. All other net sales were $0.3 million and $0.2 million for the years ended December 31, 2019 and 2018, respectively.

Gross Profit

Total gross profit was $180.6 million for the year ended December 31, 2019 compared to $198.1 million for the year ended December 31, 2018, a $17.5 million, or 8.8%, decrease.2020. Gross profit as a percentage of net sales for the year ended December 31, 2019 decreased2021 increased to 22.8%34.5% compared to 26.4%27.3% for the year ended December 31, 2018, primarily due to a decrease2020. The increase in both gross profit and gross profit as a percentage of net sales was primarily attributable to an improved product mix, an increase in average selling price benefited from boththe favorable pricing environment and a higher utilization rate of our Foundry Services Groupinternal fabrication facility in Gumi, whereas unexpected excess and Standard Products Group segments as described below.

Foundry Services Group. Grossobsolete inventory charge of $1.5 million in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, negatively affected both gross profit from our Foundry Services Group segment was $64.0 million for the year ended December 31, 2019, an $18.6 million, or 22.5%, decrease compared to $82.6 million for the year ended December 31, 2018. Grossand gross profit as a percentage of net sales for the year ended December 31, 2019 decreased2020. This excess and obsolete inventory charge was reversed in full during 2021 as such reserved inventory was subsequently sold to 20.8% compared to 25.4% for the year ended December 31, 2018. The decrease incertain other customers, which also positively affected both gross profit and gross profit margin was primarily attributable to an unfavorable product mix and a significant drop in the utilization rate during the first half of 2019, which was affected in part by a softening of global market conditions, including macroeconomic uncertainties, and by being more selective about new business as a result of the strategic evaluation of our Foundry Services Group business and Fab 4.

Standard Products Group. Gross profit from our Standard Products Group segment was $116.3 million for the year ended December 31, 2019, a $0.8 million, or 0.7%, increase from $115.5 million for the year ended December 31, 2018. Gross profit as a percentage of net sales for the year ended December 31, 2019 decreased to 24.0% compared to 27.1% for the year ended December 31, 2018. The decrease in gross profit margin was primarily attributable to inventory reserves related to certain legacy display products and a significant drop in the utilization rate during the first half of 2019, and an impact from lower yield of a newly introduced mobile display product during an early stage of production during the third quarter of 2019. This decrease was offset in part by a better product mix from an increase in sales of premium power products such ashigh-end MOSFETs primarily for TV and industrial applications.

All Other. All other gross profit was $0.3 million for the year ended December 31, 2019 and $0.04 million for the year ended December 31, 2018.

2021.

Net SalesSales—Standard Products Business by Geographic Region

We report net salessales—standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net salessales—standard products business by geographic region and the percentage of total net salessales—standard products business represented by each geographic region for the years ended December 31, 20192021 and 2018:

   Year Ended
December 31, 2019		  Year Ended
December 31, 2018		    
   Amount   % of
Net Sales		  Amount   % of
Net Sales		  Change
Amount		 
   (In millions) 

Korea

  $249.4    31.5%  $282.5    37.6%  $(33.1) 

Asia Pacific (other than Korea)

   466.4    58.9   380.6    50.7   85.8 

United States

   28.1    3.5   37.5    5.0   (9.4) 

Europe

   46.4    5.9   47.8    6.4   (1.4) 

Others

   1.9    0.2   2.5    0.3   (0.6) 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
  $792.2    100.0%  $750.9    100.0%  $41.3 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

2020:

   
Year Ended
December 31, 2021
  
Year Ended
December 31, 2020
    
   
Amount
   
% of
Net Sales –
standard
products
business
  
Amount
   
% of
Net Sales –
standard
products
business
  
Change
Amount
 
   
(Dollars in millions)
 
Korea
  $113.8    26.3%  $106.4    22.9%  $7.4 
Asia Pacific (other than Korea)
   306.3    70.7   347.6    74.7   (41.3) 
United States
   6.1    1.4   5.1    1.1   0.9 
Europe
   5.7    1.3   4.3    0.9   1.4 
Others
   1.2    0.3   2.0    0.4   (0.8) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
  $433.1    100.0%  $465.5    100.0%  $(32.4) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Net salessales—standard products business in Korea for the year ended December 31, 2019 decreased2021 increased from $282.5$106.4 million to $249.4$113.8 million compared to the year ended December 31, 2018,2020, or by $33.1$7.4 million, or 11.7%6.9%, primarily due to a strong demand for power products such as MOSFETs, including
high-end
MOSFETs, primarily for TV and smartphone applications. This increase was offset in part by a decrease in revenue related to our mobile OLED display driver ICs stemming from a continuing severe global shortage in manufacturing capacity (in particular for 28nm
12-inch
OLED wafers), as we outsource manufacturing of these products to external
12-inch
foundries, and a strategic reduction of our lower margin
non-auto
LCD business. This decrease was offset in part by higher salesThe U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, also unfavorably impacted the demand for certain gateof our mobile OLED display driver ICs for a foundry customer in Korea serving the global computing sector and increased sales offrom our premium power products.

customers.

Net salessales—standard products business in the Asia Pacific for the year ended December 31, 2019 increased2021 decreased from $380.6$347.6 million to $466.4$306.3 million compared to the year ended December 31, 2018,2020, or by $85.8$41.3 million, or 22.5%, primarily due to an increase in revenue related to mobile OLED display driver ICs in connection with an increase in new OLED smartphones by Chinese and Korean manufacturers. This increase was offset in part by weaker demand during the first half of 2019 from our foundry customers in part as a result of softening global market conditions, including macroeconomic uncertainties, us being more selective about new business as a result of the strategic evaluation of the Foundry business and Fab 4, and a lower demand for certain of our lower margin power products.

Net sales in the United States for the year ended December 31, 2019 decreased from $37.5 million to $28.1 million compared to the year ended December 31, 2018, or by $9.4 million, or 25.0%11.9%, primarily due to a decrease in sales of certain productsrevenue from our mobile OLED display driver ICs stemming from a continuing global shortage in manufacturing capacity (in particular for 28nm

12-inch
OLED wafers), as we outsource manufacturing of these products to external
12-inch
foundries, which was offset in part by a higher demand for power management IC foundry customer.

Net sales in Europeproducts such as MOSFETs, including

high-end
MOSFETs, primarily for TVs and
e-bikes,
and a higher demand for
auto-LCD
DDIC business.
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Operating Expenses
Selling, General and Administrative Expenses.
Selling, general and administrative expenses were $52.4 million, or 11.1% of total revenues for the year ended December 31, 2019 decreased from $47.82021, compared to $50.0 million, to $46.4 million compared toor 9.9% of total revenues for the year ended December 31, 2018, or by $1.42020. The year over year increase of $2.5 million, or 2.9%4.9%, was primarily dueattributable to certain
non-income-based
tax assessments of $0.6 million as a decreaseresult of a regular tax examination completed for our primary operating entity in sales

Korea for multiple tax years, the grant timing of sensor-related ICsequity-based compensation, and increased depreciation and amortization expense, which was primarily attributable to certain

one-time
investments relating to separating the IT systems and establishing a new IT infrastructure to support our continuing operations after the sale of the Foundry Services Group business and Fab 4.
Research and Development Expenses.
Research and development expenses were $51.2 million, or 10.8% of total revenues for automotive applicationsthe year ended December 31, 2021, compared to $45.7 million, or 9.0%, of total revenues for the year ended December 31, 2020. The increase of $5.5 million, or 12.1%, was primarily attributable to an increase in personnel costs, outside service fees and lower demandvariable overhead expenses.
Merger-related Costs (Income), Net.
For the year ended December 31, 2021, we recorded a $70.2 million income from the recognition of termination fee from the Parent as a customer servingresult of thehigh-end smartphone market, termination of the merger transaction, which was offset in part by an increasea $34.7 million of
non-recurring
professional service fees and expenses incurred in sales of certain charger related products inconnection with the communications industry.

Operating Expenses

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $71.6 million, or 9.0% of net sales forcontemplated merger transaction. For the year ended December 31, 2019, compared to $72.62020, we recorded a $0.7 million or 9.7% of net sales for

non-recurring
professional service fees and expenses incurred in connection with the contemplated merger transaction.
Early Termination and Other Charges, Net.
For the year ended December 31, 2018. The decrease2021, we recorded a $3.4 million of $1.0 million, or 1.4%, was primarily attributable to a decrease in certain employee incentives and legal and consulting service fees. This decrease was offset in part by an increase in equity-based compensation and legal settlement charges relating to a dispute with a prior customer recorded in the first quarter of 2019.

Research and Development Expenses. Research and development expenses were $75.4 million, or 9.5%, of net sales for the year ended December 31, 2019, compared to $78.0 million, or 10.4%, of net sales for the year ended December 31, 2018. The decrease of $2.7 million, or 3.4%, was primarily attributable to a decrease in certain employee incentives and a decrease in outside

non-recurring
professional service fees and various overhead expenses incurred in connection with the regulatory requests, which was offset in part by an increasea $1.4 million gain on sale of certain legacy equipment of the closed
back-end
line in development activities for our28-nanometer OLED display driver ICs.

Restructuring and Other Charges. fabrication facility in Gumi (which was closed during the year ended December 31, 2018). For the year ended December 31, 2019,2020, we recorded $7.0a $4.4 million in of charges related to the reduction of workforce under the Program and $0.6 million of

non-recurring
professional service fees and other chargesexpenses incurred in connection with the strategic evaluation of our Foundry Services Group businesscertain treasury and Fab 4, and recorded such costs as restructuring and other charges in our consolidated statements of operations. We also recorded $2.2 million and $0.1 million restructuring-related charges in the first and the fourth quarter of 2019, respectively.

finance initiatives.

Operating Income

As a result of the foregoing, operating income decreased by a $23.0of $83.4 million inwas recorded for the year ended December 31, 20192021 compared to operating income of $27.0 million the year ended December 31, 2018. As discussed above, the decrease2020. The increase in operating income of $56.4 million resulted primarily from a $17.5$36.2 million decreasenet increase in merger-related income, a $25.2 million increase in gross profit, and a $9.2$3.0 million increasedecrease in restructuringearly termination and other charges, which were partiallywas offset in part by a $1.0$5.5 million decreaseincrease in research and development expenses and a $2.5 million increase in selling, general and administrative expenses and a $2.7 million decrease in research and development expenses.

Other Income (Expense)

Interest Expense.
Interest expenses were $22.6 million and $22.3 million for the yearsyear ended December 31, 2019 and2021 were $1.4 million compared to $18.1 million of interest expenses for the year ended December 31, 2018,2020. Interest expenses was incurred primarily under our 2021 Notes and Exchangeable Notes. We redeemed all outstanding 2021 Notes on October 2, 2020. Our Exchangeable Notes were exchanged for common stock prior to their maturity date of March 1, 2021. From and after October 2, 2020 and March 1, 2021, we have not incurred interest expense associated with the 2021 Notes and Exchangeable Notes, respectively.

Foreign Currency Loss, Net.
 Net foreign currency loss for the year ended December 31, 20192021 was $21.8$11.9 million compared to net foreign currency loss of $24.4$0.4 million for the year ended December 31, 2018, which was2020. The net foreign currency losses for the years ended December 31, 2021 and 2020 were due to the depreciation in the value of the Korean won relative to the USU.S. dollar during theeach period.

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Table of Contents
A substantial portion of our net foreign currency gain or loss is
non-cash
translation gain or loss associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in USU.S. dollars, and is affected by changes in the exchange rate between the Korean won and the USU.S. dollar. As of December 31, 2019,2021 and 2020, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $686.5 million.$344.4 million and $378.9 million, respectively. Foreign currency translation gain or loss from intercompany balances waswere included in determining our consolidated net income since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.

Loss on Early Extinguishment of Long-Term Borrowings, Net. Loss
For the year ended December 31, 2020, we recorded $0.8 million of loss on early extinguishment of long-term borrowings, forwhich was attributable to the years ended December 31, 2019full redemption of our outstanding 2021 Notes on October 2, 2020. In connection with the redemption of the 2021 Notes, we reclassified the remaining unamortized discount and 2018 were $0.04 million and $0.2 million, respectively.

debt issuance costs on the redemption date as a loss on early extinguishment of borrowings.

Others, Net.
Others were comprised of interest income, rental income, and gains and losses on thefrom valuation of derivatives which were designated as hedging instruments, rental income and interest income.instruments. Others, net for the years ended December 31, 20192021 and 2018 were $3.02020 was $3.8 million and $0.3$3.1 million, respectively.

Others, net for the year ended December 31, 2021, included a $0.7 million legal settlement gain related to certain expenses incurred in prior periods in connection with our legacy Fab 4 (which was sold during the year ended December 31, 2020) and awarded in the third quarter of 2021.

Income Tax Expense

(Benefit)

We are subject to income taxes in the United States and many foreign jurisdictions and our effective tax rate is affected by changes in the mix of earnings between countries with differing tax rates. Our primary foreign operations are in Korea where the statutory tax rate applicable to us was approximately 24.2%. Statutory tax rates for our foreign subsidiaries except those in Luxembourg, Netherlands and Korea, were less than the US federal statutory rate of 21.0%.

We recorded a $17.3 million income tax expenses of $4.7 million and $4.6 million for the years ended December 31, 2019 and 2018, respectively. The income tax expenses for the years ended December 31, 2019 and 2018 were primarily attributable to taxable income generated by our primary operating subsidiary in Korea combined with its ability to utilize net operating carryforwards up to 60% of the taxable income. Our effective tax rate was negativeexpense for the year ended December 31, 2019, as compared2021, which was primarily composed of the income tax expense of $6.9 million from our Korean subsidiary, primarily due to 620.6%its taxable income for the year, and the income tax expense of $8.2 million from the parent entity in the U.S. The U.S. parent’s tax expense was mainly attributable to the recognition of income and expenses related to the Merger combined with the utilization of its available net operating loss carry-forwards.
We recorded a $46.2 million income tax benefit for the year ended December 31, 2018.

We make an ongoing assessment regarding2020, primarily as a result of releasing valuation allowances established against the realization of US andnon-USrelated deferred tax assets. Theassets related to our Korean subsidiary and the parent entity in the U.S. Our Korean subsidiary had generated three years of cumulative profits adjusted for permanent differences and is anticipated to generate taxable basis for the subsequent years. As a result, $39.4 million of valuation allowances, atestablished against the Korean subsidiary’s deferred tax assets, were released as of December 31, 2019 and 2018 were2020. In addition, we believe it is more likely than not that the parent entity in the U.S. would be able to utilize its net operating loss in future tax years, which would provide incremental tax savings of approximately $4.5 million. Therefore, we released the valuation allowances, established against the U.S. parent’s deferred tax assets, up to these anticipated tax savings as of December 31, 2020.

Income from Continuing Operations
Income from continuing operations for the year ended December 31, 2021 was $56.7 million compared to income from continuing operations of $57.1 million for the year ended December 31, 2020. The $0.4 million decrease in income from continuing operations was primarily attributable to deferreda $63.5 million net increase in income tax assetsexpense and an $11.5 million increase in net foreign currency loss, which was offset in part by a $56.4 million increase in operating income and a $16.8 million decrease in interest expense.
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Table of Contents
Income from Discontinued Operations, Net of Tax
On March 30, 2020, we entered into the Business Transfer Agreement for the uncertaintysale of our Foundry Services Group business and Fab 4. As a result, the results of the Foundry Services Group business were classified as discontinued operations in taxable income at our Korean subsidiaryconsolidated statements of operations and excluded from our continuing operations for which we have recorded a full valuation allowance against the deferred tax assets,all periods presented. Income from discontinued operations, net of its deferred tax liabilities, and against certainwas $287.9 million for the year ended December 31, 2020. On September 1, 2020, we completed the sale of our foreign subsidiaries’ deferred tax assets pertainingFoundry Services Group business and Fab 4 for a purchase price equal to their related taxapproximately $350.6 million in cash. We have not incurred a gain or loss carry-forwardsfrom discontinued operations in 2021 as the sale of the Foundry Service Group business and tax credits that are not anticipated to generate a tax benefit.

Fab 4 was completed in 2020.

Net Loss

Income

As a result of the foregoing, net loss increased by $17.9income of $56.7 million inwas recorded for the year ended December 31, 20192021 compared to net income of $345.0 million for the year ended December 31, 2018.2020. As discussed above, the increasedecrease in net income of $288.3 million primarily resulted from a $23.0$287.9 million decrease in operating income which was partially offset byfrom discontinued operations, net of tax, and a $2.6$0.4 million decrease in foreign currency loss and a $2.1 million decrease in losses on the valuationincome from continuing operations.
65
Table of derivatives recorded in others, net.

Contents

Results of Operations—Comparison of Years Ended December 31, 20182020 and 2017

2019

The following table sets forth consolidated results of operations for the years ended December 31, 20182020 and 2017:

   Year Ended
December 31, 2018		  Year Ended
December 31, 2017		    
   Amount  % of
Net Sales		  Amount  % of
Net Sales		  Change
Amount		 
   (In millions) 

Net sales

  $750.9   100.0%  $679.7   100.0%  $71.2 

Cost of sales

   552.8   73.6   491.8   72.4   61.0 
  

 

 

   

 

 

   

 

 

 

Gross profit

   198.1   26.4   187.9   27.6   10.2 
  

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

   72.6   9.7   81.8   12.0   (9.1) 

Research and development expenses

   78.0   10.4   70.5   10.4   7.5 

Restructuring and other gains, net

   —   —   (17.0)   (2.5)   17.0 

Early termination charges

   —   —   13.4   2.0   (13.4) 
  

 

 

   

 

 

   

 

��

 

Operating income

   47.4   6.3   39.2   5.8   8.2 
  

 

 

   

 

 

   

 

 

 

Interest expense

   (22.3)   (3.0)   (21.6)   (3.2)   (0.7) 

Foreign currency gain (loss), net

   (24.4)   (3.3)   65.5   9.6   (90.0) 

Loss on early extinguishment of long-term borrowings, net

   (0.2)   (0.0)   —   —   (0.2) 

Others, net

   0.3   0.0   2.9   0.4   (2.6) 
  

 

 

   

 

 

   

 

 

 
   (46.7)   (6.2)   46.9   6.9   (93.5) 
  

 

 

   

 

 

   

 

 

 

Income before income tax expense

   0.7   0.1   86.1   12.7   (85.3) 

Income tax expense

   4.6   0.6   1.2   0.2   3.5 
  

 

 

   

 

 

   

 

 

 

Net income (loss)

  $(3.9)   (0.5)  $84.9   12.5  $(88.8) 
  

 

 

   

 

 

   

 

 

 

2019:

   
Year Ended
December 31, 2020
  
Year Ended
December 31, 2019
    
   
Amount
  
% of
Total
revenues
  
Amount
  
% of
Total
revenues
  
Change
Amount
 
   
(Dollars in millions)
 
Revenues
      
Net sales—standard products business
  $465.5   91.8%  $484.8   93.1%  $(19.3) 
Net sales—transitional Fab 3 foundry services
   41.5   8.2   35.8   6.9   5.7 
  
 
 
   
 
 
   
 
 
 
Total revenues
   507.1   100.0   520.7   100.0   (13.6) 
Cost of sales
      
Cost of sales—standard products business
   338.4   66.7   368.5   70.8   (30.0) 
Cost of sales—transitional Fab 3 foundry services
   40.3   8.0   35.8   6.9   4.5 
  
 
 
   
 
 
   
 
 
 
Total cost of sales
   378.7   74.7   404.3   77.6   (25.5) 
  
 
 
   
 
 
   
 
 
 
Gross profit
   128.3   25.3   116.4   22.4   11.9 
Selling, general and administrative expenses
   50.0   9.9   47.6   9.1   2.4 
Research and development expenses
   45.7   9.0   45.0   8.6   0.7 
Merger-related costs
   0.7   0.1   —   —   0.7 
Early termination and other charges
   5.0   1.0   0.1   0.0   4.9 
  
 
 
   
 
 
   
 
 
 
Operating income
   27.0   5.3   23.7   4.6   3.3 
Interest expense
   (18.1)   (3.6)   (22.2)   (4.3)   4.0 
Foreign currency loss, net
   (0.4)   (0.1)   (22.3)   (4.3)   21.9 
Loss on early extinguishment of borrowings, net
   (0.8)   (0.2)   (0.0)   (0.0)   (0.7) 
Others, net
   3.1   0.6   2.6   0.5   0.5 
  
 
 
   
 
 
   
 
 
 
   (16.2)   (3.2)   (41.9)   (8.1)   25.8 
  
 
 
   
 
 
   
 
 
 
Income (loss) from continuing operations before income tax expense
   10.8   2.1   (18.2)   (3.5)   29.0 
Income tax expense (benefit)
   (46.2)   (9.1)   2.2   0.4   (48.4) 
  
 
 
   
 
 
   
 
 
 
Income (loss) from continuing operations
   57.1   11.3   (20.4)   (3.9)   77.5 
Income (loss) from discontinued operations, net of tax
   287.9   56.8   (1.4)   (0.3)   289.3 
  
 
 
   
 
 
   
 
 
 
Net income (loss)
  $345.0   68.0%  $(21.8)   (4.2)%  $366.8 
  
 
 
   
 
 
   
 
 
 
Results by segment

   Year Ended
December 31, 2018		  Year Ended
December 31, 2017
(As adjusted)		    
   Amount   % of
Net Sales		  Amount   % of
Net Sales		  Change
Amount		 
  (In millions) 

Net Sales

        

Foundry Services Group

  $325.3    43.3%  $350.4    51.6%  $(25.1) 

Standard Products Group

        

Display Solutions

   256.1    34.1   179.2    26.4   76.9 

Power Solutions

   169.3    22.5   149.8    22.0   19.4 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total Standard Products Group

   425.4    56.7   329.1    48.4   96.3 

All other

   0.2    0.0   0.2    0.0   (0.0) 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total net sales

  $750.9    100.0%  $679.7    100.0%  $71.2 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
business line

   Year Ended
December 31, 2018		  Year Ended
December 31, 2017
(As adjusted)		    
   Amount   % of
Net Sales		  Amount   % of
Net Sales		  Change
Amount		 
  (In millions) 

Gross Profit

        

Foundry Services Group

  $82.6    25.4%  $101.8    29.0%  $(19.2) 

Standard Products Group

   115.5    27.1   85.9    26.1   29.6 

All other

   0.0    21.2   0.2    100.0   (0.2) 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Total gross profit

  $198.1    26.4%  $187.9    27.6%  $10.2 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Net Sales

Net sales

   
Year Ended
December 31, 2020
  
Year Ended
December 31, 2019
    
   
Amount
   
% of
Total
revenues
  
Amount
   
% of
Total
revenues
  
Change
Amount
 
  
(Dollars in millions)
 
Revenues
        
Net sales—standard products business
        
Display Solutions
   299.1    59.0   308.5    59.3   (9.5) 
Power Solutions
   166.5    32.8   176.3    33.9   (9.9) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total standard products business
   465.5    91.8   484.8    93.1   (19.3) 
Net sales—transitional Fab 3 foundry services
   41.5    8.2   35.8    6.9   5.7 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total revenues
  $507.1    100.0%  $520.7    100.0%  $(13.6) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
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Year Ended
December 31, 2020
  
Year Ended
December 31, 2019
    
   
Amount
   
% of
Net Sales
  
Amount
   
% of
Net Sales
  
Change
Amount
 
   
(Dollars in millions)
 
Gross Profit
        
Gross profit—standard products business
   127.1    27.3   116.4    24.0   10.7 
Gross profit—transitional Fab 3 foundry services
   1.2    2.9   —    —   1.2��
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Total gross profit
  $128.3    25.3%  $116.4    22.4%  $11.9 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Revenues
Total revenues were $750.9$507.1 million for the year ended December 31, 2018,2020, a $71.2$13.6 million, or 10.5%2.6%, increasedecrease compared to $679.7$520.7 million for the year ended December 31, 2017.2019. This increasedecrease was primarily attributabledue to an increase in revenue from our Standard Products Group, which was offset in part by a decrease in revenue fromrelated to our Foundry Services Group.

Foundry Services Group.standard products business as described below.

The standard products business.
Net sales from our Foundry Services Group segmentstandard products business were $325.3$465.5 million for the year ended December 31, 2018,2020, a $25.1$19.3 million, or 7.2%4.0%, decrease compared to net sales of $350.4$484.8 million for the year ended December 31, 2017.2019. The decrease in net sales from our Display Solutions business line was primarily attributable to a decrease in demandstrategic reduction of lowour lower margin product sales from a global power management IC foundry customer and a decrease in demand from a customer serving thelow- tomid-range mobile phone market. This decrease
non-auto
LCD DDIC business, which was offset in part by an increase in salesrevenue related to our mobile OLED display driver ICs due to an increase in demand for production of OLED smartphones by Chinese manufacturers in the second half of 2020 due in part to the geographic diversification of our OLED product portfolio. This increase continued until the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, impacted the shipment of certain battery charger related products from a global power management IC foundry customer.

Standard Products Group. Netmobile OLED display driver ICs to certain of our customers. The decrease in net sales from our Standard Products Group segment were $425.4Power Solutions business line was primarily attributable to the significant global macro-economic market disruption in the first half of 2020 due to the

COVID-19
pandemic and the Fab 3 power outage, which affected our ability to meet customer demand for some of our Power Solution products during the third quarter of 2020.
Gross Profit
Total gross profit was $128.3 million for the year ended December 31, 2018, a $96.3 million, or 29.3%, increase2020 compared to $329.1$116.4 million for the year ended December 31, 2017. This increase was primarily attributable2019, representing an $11.9 million, or 10.2%, increase. Gross profit as a percentage of total revenues for the year ended December 31, 2020 increased to an25.3% compared to 22.4% for the year ended December 31, 2019. The increase in revenue related to an improvement in mobile OLED display driver ICsgross profit and gross profit as a percentage of total revenues was due to the introduction of new OLED smartphones by Chinese manufacturers and higher demand for premium power products such ashigh-end MOSFETs and IGBTs primarily for TV and industrial applications. This increase was offset in part by a strategic reduction of our lower margin LCD business.

All Other. All other net sales remained constant at $0.2 million for each of the years ended December 31, 2018 and 2017.

Gross Profit

Total gross profit and gross profit as a percentage of total revenues from our standard products business as further described below.

The standard products business.
 Gross profit from our standard products business was $198.1$127.1 million for the year ended December 31, 2018 compared to $187.92020, representing a $10.7 million, or 9.2%, increase from $116.4 million for the year ended December 31, 2017, a $10.2 million, or 5.4%, increase.2019. Gross profit as a percentage of net sales for the year ended December 31, 2018 decreased2020 increased to 26.4%27.3% compared to 27.6%24.0% for the year ended December 31, 2017, primarily due to a decrease2019. The increase in both gross profit as a percentage of net sales from our Foundry Services Group, which was offset in part by an increase in gross profits as a percentage of net sales from our Standard Products Group.

Foundry Services Group. Gross profit from our Foundry Services Group segment was $82.6 million for the year ended December 31, 2018, a $19.2 million, or 18.9%, decrease compared to $101.8 million for the year ended December 31, 2017. Gross profit as a percentage of net sales for the year ended December 31, 2018 decreased to 25.4% compared to 29.0% for the year ended December 31, 2017. The decrease inand gross profit as a percentage of net sales was mainlyprimarily attributable to a lower utilization rate,inventory reserves related to certain legacy display products that were recorded in the first half of 2019 and an improved product mix, which was affectedoffset in part by an $1.5 million unexpected excess and obsolete inventory charge that we recorded in the second half of 2020 in relation to the U.S. Government’s export restrictions on Huawei, which is a softening global market conditions, including macroeconomic uncertainties,downstream customer of some of our direct customers. The delayed recovery of Fab 3 from the power outage, resulting in a lower than anticipated utilization rate, also negatively affected both gross profit and a strategic reduction of low margin LCD business. This decrease was also attributable to an unfavorable product mix and an increase in raw wafer prices.

Standard Products Group. Gross profit from our Standard Products Group segment was $115.5 million for the year ended December 31, 2018, a $29.6 million, or 34.4%, increase from $85.9 million for the year ended December 31, 2017. Grossgross profit as a percentage of net sales forin the year ended December 31, 2018 increased to 27.1% compared to 26.1% for the year ended December 31, 2017. The increase in both gross profit and gross profit margin was primarily attributable to a favorable product mix from an increase in salesthird quarter of mobile OLED display driver ICs.

All Other. All other gross profit was $0.04 million for the year ended December 31, 2018 and $0.2 million for the year ended December 31, 2017.

2020.

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Net SalesSales—Standard Products Business by Geographic Region

We report net salessales—standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net salessales—standard products business by geographic region and the percentage of total net salessales—standard products business represented by each geographic region for the years ended December 31, 20182020 and 2017:

   Year Ended
December 31, 2018		  Year Ended
December 31, 2017		    
   Amount   % of
Net Sales		  Amount   % of
Net Sales		  Change
Amount		 
   (In millions) 

Korea

  $282.5    37.6%  $279.9    41.2%  $2.6 

Asia Pacific (other than Korea)

   380.6    50.7   322.6    47.5   58.0 

United States

   37.5    5.0   35.1    5.2   2.4 

Europe

   47.8    6.4   41.1    6.0   6.7 

Others

   2.5    0.3   1.0    0.1   1.5 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 
  $750.9    100.0%  $679.7    100.0%  $71.2 
  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

2019:

   
Year Ended
December 31, 2020
  
Year Ended
December 31, 2019
    
   
Amount
   
% of
Net Sales –
standard
products
business
  
Amount
   
% of
Net Sales –
standard
products
business
  
Change
Amount
 
   
(Dollars in millions)
 
Korea
  $106.4    22.9%  $132.6    27.4%  $(26.2) 
Asia Pacific (other than Korea)
   347.6    74.7   343.7    70.9   3.9 
United States
   5.1    1.1   2.4    0.5   2.7 
Europe
   4.3    0.9   4.8    1.0   (0.5) 
Others
   2.0    0.4   1.4    0.3   0.7 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
  $465.5    100.0%  $484.8    100.0%  $(19.3) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Net salessales—standard products business in Korea for the year ended December 31, 2018 increased2020 decreased from $279.9$132.6 million to $282.5$106.4 million compared to the year ended December 31, 2017,2019, or by $2.6$26.2 million, or 0.9%19.8%, primarily due to higher salesa strategic reduction of premiumour lower margin
non-auto
LCD DDIC business and lower demand for certain power product andproducts such as MOSFETs, primarily for smartphone applications, which was offset in part by an increase in revenue related to the introduction of newour mobile OLED display driver ICs which was offsetdue to an increase in demand for production of OLED smartphones by Chinese manufacturers in the second half of 2020 due in part byto the geographic diversification of our OLED product portfolio. This increase continued until the U.S. Government’s export restrictions on Huawei, which is a strategic reductiondownstream customer of low margin LCD business.

some of our direct customers, impacted the shipment of certain mobile OLED display driver ICs to certain of our customers.

Net salessales—standard products business in the Asia Pacific for the year ended December 31, 20182020 increased from $322.6$343.7 million to $380.6$347.6 million compared to the year ended December 31, 2017,2019, or by $58.0$3.9 million, or 18.0%1.1%, primarily due to an increase inhigher demand for certain auto LCD DDIC products. The revenue related to increased sales toour mobile OLED display driver ICs in connection with the introductionIC remained flat year over year.
Operating Expenses
Selling, General and Administrative Expenses.
Selling, general and administrative expenses were $50.0 million, or 9.9% of new OLED smartphones. This increase was in part offset by a decrease in sales of certain products from a foundry customer serving thelow- tomid-range mobile phone market, and a decrease in sales of certain low margin products from a global power management IC foundry customer.

Net sales in the United Statestotal revenues for the year ended December 31, 2018 increased from $35.1 million to $37.5 million2020, compared to the year ended December 31, 2017, or by $2.4$47.6 million, or 6.8%, primarily due to an increase in sales9.1% of certain products from a global power management IC foundry customer.

Net sales in Europetotal revenues for the year ended December 31, 2018 increased from $41.1 million to $47.8 million compared to the year ended December 31, 2017, or by $6.72019. The increase of $2.4 million, or 16.4%, primarily due to an increase in sales of certain battery charger related products from a global power management IC foundry customer, which was offset in part by lower demand from a customer serving thehigh-end smartphone market.

Operating Expenses

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $72.6 million, or 9.7% of net sales for the year ended December 31, 2018, compared to $81.8 million, or 12.0%

of net sales for the year ended December 31, 2017. The decrease of $9.1 million, or 11.2%5.0%, was primarily attributable to a $6.7 million decreasean increase in certain employee incentives, including equity-based compensation and professional fees, which were mainly comprised of legal and consulting services and a $4.2 million charge related to an additional tax assessment and associated penalties and an administrative fine as a result of the tax audit conducted by the KNTS which concluded in the fourth quarter of 2017. These decreases wereservices. This increase was offset in part by an increasea $0.5 million legal settlement charge related to dispute with a prior customer recorded in employee compensation, including issuancethe first quarter of equity-based compensation.

2019.

Research and Development Expenses.
Research and development expenses were $78.0$45.7 million, or 10.4%,9.0% of net salestotal revenues for the year ended December 31, 2018,2020, compared to $70.5$45.0 million, or 10.4%8.6%, of net salestotal revenues for the year ended December 31, 2017.2019. The increase of $7.5$0.7 million, or 10.7%1.5%, was primarily attributable to an increase in development activities for new OLED products.

Restructuring and Other Gains. Restructuring and other gain of $17.0 million recorded forcertain employee incentives, including equity-based compensation, which was offset in part by decreased material costs.

Merger-related costs.
For the year ended December 31, 2017 resulted from2020, we recorded a $16.6$0.7 million restructuring gain onof
non-recurring
professional service fees and expenses incurred in connection with the salecontemplated merger transaction.
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Table of the building related to the closure of our6-inch fab and a $0.4 million gain on sale of our sensor business.

Contents

Early Termination and Other Charges. Early termination charges of $13.4 million for
For the year ended December 31, 2017 were2020, we recorded for the termination benefits payablea $4.4 million of charges related to the employees affectedreduction of workforce under our Headcount Reduction Plan.

the Program and $0.6 million of

non-recurring
professional service fees and expenses incurred in connection with certain treasury and finance initiatives.
Operating Income

As a result of the foregoing, operating income increased by an $8.2of $27.0 million inwas recorded for the year ended December 31, 20182020 compared to operating income of $23.7 million the year ended December 31, 2017. As discussed above, the2019. The increase in operating income of $3.3 million resulted primarily from a $10.2an $11.9 million increase in gross profit, which was offset in part by a $9.1$4.9 million decreaseincrease in early termination and other charges, a $2.4 million increase in selling, general and administrative expenses, and a $13.4 million decrease in early termination charges, which were partially offset by a $17.0 million decrease in restructuring and other gain and a $7.5$0.7 million increase in research and development expenses.

expenses and a $0.7 million increase in merger-related costs.

Other Income (Expense)

Interest Expense.
Interest expenses were $22.3 million and $21.6 million for the year ended December 31, 2018 and2020 were $18.1 million compared to $22.2 million of interest expenses for the year ended December 31, 2017, respectively.

2019. The $4.0 million decrease in interest expenses was attributable to the full redemption of our outstanding 2021 Notes on October 2, 2020. We did not incur interest expense associated with the 2021 Notes from and after October 2, 2020.

Foreign Currency Gain (Loss),Loss, Net.
 Net foreign currency loss for the year ended December 31, 20182020 was $24.4$0.4 million compared to net foreign currency gainloss of $65.5$22.3 million for the year ended December 31, 2017.2019. The net foreign currency losslosses for the yearyears ended December 31, 2018 was2020 and 2019 were due to the depreciation in the value of the Korean won relative to the USU.S. dollar during theeach period. The net foreign currency gain for the year ended December 31, 2017 was due to the appreciation in value of the Korean won relative to the US dollar during the period.

A substantial portion of our net foreign currency gain or loss is
non-cash
translation gain or loss associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in USU.S. dollars, and is affected by changes in the exchange rate between the Korean won and the USU.S. dollar. As of December 31, 2018,2020 and 2019, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $666.6 million.$378.9 million and $686.5 million, respectively. The decrease in the outstanding intercompany loan balances including accrued interest was primarily attributable to our Korean subsidiary’s repayment of certain loans by our Dutch subsidiary to fund the redemption of the outstanding 2021 Notes on October 2, 2020. Foreign currency translation gain or loss from intercompany balances waswere included in determining our consolidated net income since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.

Loss on Early Extinguishment of Long-Term Borrowings, Net. In
Loss on early extinguishment of borrowings for the year ended December 2018, we repurchased a principal amount of $0.531, 2020 were $0.8 million and $1.6compared to $0.04 million of the 2021 Notes and the Exchangeable Notes, respectively. In connection with these repurchases, we recognized a $0.2 million of net loss for the year ended December 31, 2018.

2019. The $0.7 million increase in loss on early extinguishment of borrowings was attributable to the full redemption of our outstanding 2021 Notes on October 2, 2020. In connection with the redemption of the 2021 Notes, we reclassified the remaining unamortized discount and debt issuance costs on the redemption date as a loss on early extinguishment of borrowings.

Others, Net.
Others were comprised of gains and losses on the valuation of derivatives which were designated as hedging instruments, rental income and interest income. Others for the yearyears ended December 31, 20182020 and December 31, 20172019 were $0.3$3.1 million and $2.9$2.6 million, respectively.

Income Tax Expenses

Expense (Benefit)

We are subject to income taxes in the United States and many foreign jurisdictions and our effective tax rate is affected by changes in the mix of earnings between countries with differing tax rates. Our primary foreign operations are in Korea where the statutory tax rate applicable to us was approximately 24.2% in each
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Table of 2018 and 2017. Statutory tax rates for our foreign subsidiaries except those in Luxembourg, Netherlands and Korea, were less than the US federal statutory rate of 21.0%.

Contents

We recorded a $46.2 million income tax expenses of $4.6 million and $1.2 million for the years ended December 31, 2018 and 2017, respectively. The increase in income tax expensesbenefit for the year ended December 31, 2018 was2020, primarily as a result of releasing valuation allowances established against the related deferred tax assets related to our Korean subsidiary and the parent entity in the U.S. Our Korean subsidiary had generated three years of cumulative profits adjusted for permanent differences and is anticipated to generate taxable basis for the subsequent years. As a result, $39.4 million of valuation allowances, established against the Korean subsidiary’s deferred tax assets, were released as of December 31, 2020. In addition, we believe it is more likely than not that the parent entity in the U.S. would be able to utilize its net operating loss in future tax years, which would provide incremental tax savings of approximately $4.5 million. Therefore, we released the valuation allowances, established against the U.S. parent’s deferred tax assets, up to these anticipated tax savings as of December 31, 2020.
For the year ended December 31, 2019, we recorded $3.8 million income tax expenses, primarily attributable to taxableinterest on intercompany loan balances, which was offset in part by an income generated by our Korean subsidiary combined with its abilitytax benefit of $1.7 million, resulting in a net income tax expense of $2.2 million. The income tax benefit of $1.7 million was due to utilize net operating carryforwards up to 70%the application of the taxable income, and a decreaseexception rule under Accounting Standards Codification 740, “Income Taxes” (“ASC 740”) in connection with the intra-period allocation, which resulted in tax benefits in our uncertaincontinuing operations and tax positions that resultedexpenses in a reduction of income tax expensethe discontinued operations for an equal and offsetting amount for the presentation purposes only.
Income (Loss) from Continuing Operations
Income from continuing operations for the year ended December 31, 2017. Our effective tax rate2020 was 620.6%$57.1 million compared to loss from continuing operations of $20.4 million for the year ended December 31, 2018, as compared2019. The $77.5 million improvement in results from continuing operations was primarily attributable to 1.3%a $48.4 million improvement in income tax expense, a $21.9 million improvement in net foreign currency loss, a $4.0 million decrease in interest expense and a $3.3 million increase in operating income.
Income (Loss) from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax for the year ended December 31, 2017.

We make an ongoing assessment regarding2020 was $287.9 million compared to loss from discontinued operations, net of tax of $1.4 million for the realization of US andnon-US deferred tax assets. The valuation allowances atyear ended December 31, 2018 and 2017 were primarily attributable to deferred tax assets for the uncertainty2019. The $289.3 million increase in taxable income at our Korean subsidiary for which we have recorded a full valuation allowance against the deferred tax assets,from discontinued operations, net of its deferred tax liabilities,primarily resulted from a $287.1 million increase in gain on sale of discontinued operations, a $10.8 million decrease in research and against certaindevelopment expenses, a $9.2 million decrease in selling, general and administrative expenses and a $7.6 million increase in gross profit due in part to depreciation and amortization associated with the assets classified as those held for sale having been ceased starting in the second quarter of our foreign subsidiaries’ deferred2020, which were offset in part by a $10.8 million increase in transaction costs, a $8.9 million increase in income tax assets pertaining to their related tax loss carry-forwardsexpense and tax credits that are not anticipated to generate a tax benefit.

$6.7 million increase in restructuring and other charges.

Net Income (Loss)

As a result of the foregoing, net income decreased by $88.8of $345.0 million inwas recorded for the year ended December 31, 20182020 compared to net loss of $21.8 million for the year ended December 31, 2017.2019. As discussed above, the decreaseincrease in net income of $366.8 million primarily resulted from a $90.0 million increase in foreign currency loss and a $3.5$289.3 million increase in income from discontinued operations, net of tax, expenses, which was partially offset by an $8.2mainly attributable to the completion of the sale of the Foundry Service Group business and Fab 4, and a $77.5 million increaseimprovement in operating income.

loss from continuing operations.

Liquidity and Capital Resources

Our principal capital requirements are to fund sales and marketing, invest in research and development and capital equipment, to make debt service payments and to fund working capital needs. We calculate working capital as current assets less current liabilities.

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Our principal sources of liquidity are our cash, cash equivalents, our cash flows from operations and our financing activities. Our ability to manage cash and cash equivalents may be limited, as our primary cash flows are dictated by the terms of our sales and supply agreements, contractual obligations, debt instruments and legal and regulatory requirements. From time to time, we may sell accounts receivable to third parties under factoring agreements or engage in accounts receivable discounting to facilitate the collection of cash. For a description of our factoring arrangements and accounts receivable discounting, please see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 3.4. Accounts Receivable” included elsewhere in this Report. In addition, from time to time, we may make payments to our vendors on extended terms with their consent. As of December 31, 2019,2021, we dodid not have any accounts payable on extended terms or payment deferment with our vendors.

On September 1, 2020, we completed the sale of our Foundry Services Group business and Fab 4 to the Buyer in exchange for a purchase price equal to approximately $350.6 million in cash. The purchase price was paid in a combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion.
On October 2, 2020, we redeemed of all of our outstanding 2021 Notes. We paid approximately $227.4 million to fully redeem all of the outstanding $224.25 million aggregate principal amount of the 2021 Notes at a redemption price equal to the sum of 100% of the principal amount plus accrued and unpaid interest thereon.
On January 17, 2017, we issued an aggregate of $86.3 million in principal amount of our Exchangeable Notes. Prior to the March 1, 2021 maturity of our Exchangeable Notes, holders elected to exchange for an aggregate of 10,144,131 shares of our common stock in satisfaction in full of the outstanding obligations under the Exchangeable Notes.
As of June 29, 2018, our Korean subsidiary entered into an arrangement whereby it (i) acquired a water treatment facility from SK hynix for $4.2 million to support our fabrication facility in Gumi, Korea, and (ii) subsequently sold the water treatment facility for $4.2 million to a third party management company that we engaged to run the facility for a
10-year
term beginning July 1, 2018. As of December 31, 2021, the outstanding obligation of this arrangement is approximately $24.0 million for remaining service term through 2028.
As of December 31, 2021, cash and cash equivalents held by our Korean subsidiary were $273.6 million, which represents 98% of our total cash and cash equivalents on a consolidated basis. We currently believe that we will have sufficient cash reserves from cash on hand and expected cash from operations to fund our operations as well as capital expenditures for the next twelve months and the foreseeable future.

As of December 31, 2019, cash and cash equivalents held by our Korean subsidiary were $147.8 million, which represents 97% of our total cash and cash equivalents of $151.7 million on a consolidated basis. We, as a holding company resident in the United States, issued our 2021 Notes. Payments under our outstanding 2021 Notes are currently funded in part by our Korean subsidiary’s repayment of its existing loans from our Dutch subsidiary, with our Dutch subsidiary using such repayments in turn to repay the loans owed to us or to our Luxembourg subsidiary, which repays loans owed to us. Our Exchangeable Notes were issued by our Luxembourg subsidiary, and the proceeds from the Exchangeable Notes Offering, were transferred to our Dutch and Korean subsidiaries through intercompany loans. Therefore, we expect payments under the Exchangeable Notes to be funded in part by our Korean subsidiary’s repayment of its existing or new loans from our Dutch subsidiary, with our Dutch subsidiary using such repayments in turn to repay loans owed to our Luxembourg subsidiary.

We may, from time to time, repurchase a portion of our outstanding 2021 Notes and our Exchangeable Notes through open market purchases or privately negotiated transactions subject to prevailing market conditions and our available cash reserves.

Year ended December 31, 20192021 compared to year ended December 31, 2018

2020

As of December 31, 2019,2021, our cash and cash equivalents balance was $151.7$279.5 million, a $19.2 million increase,which remained flat, compared to $132.4$279.9 million as of December 31, 2018. The increase resulted from a $50.5 million of cash inflow provided by operating activities, which was partially offset by a $28.9 million cash outflow used in investing activities and a $1.8 million of cash outflow used in financing activities.

2020.

Cash inflow provided by operating activities totaled $50.5$87.7 million for the year ended December 31, 2019,2021, compared to $39.2$7.5 million of cash inflow provided by operating activities for the year ended December 31, 2018.2020. The net operating cash inflow for the year ended December 31, 20192021 reflects our net lossincome of $21.8$56.7 million, as adjusted favorably by $87.7$65.5 million, which mainly consisted of depreciation and amortization, provision for severance benefits, and net foreign currency loss and stock-based compensation, and net unfavorable impact of $15.4$34.4 million from changes of operating assets and liabilities.

Our working capital balance as of December 31, 20192021 was $245.5$323.6 million compared to $220.1$236.0 million as of December 31, 2018.2020. The $25.4$87.6 million increase was primarily attributable to the exchange of our Exchangeable Notes for common stock prior to their maturity date of March 1, 2021.
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Cash outflow used in investing activities totaled $31.4 million for the year ended December 31, 2021, compared to $318.5 million of cash inflow provided by investing activities for the year ended December 31, 2020. The $349.9 million decrease in cash inflow was attributable to $350.6 million of proceeds received from the sale of the Foundry Services Group business and Fab 4 in the third quarter of 2020, a $19.2$3.1 million net increase in hedge collateral, and a $1.6 million net increase in guarantee deposits, which was offset in part by a $3.9 million decrease in purchase of property, plant and equipment, and a $1.4 million increase in proceeds from disposal of property, plant and equipment.
Cash outflow used in financing activities totaled $35.5 million for the year ended December 31, 2021, compared to $222.3 million of cash outflow used in financing activities for the year ended December 31, 2020. The financing cash outflow for the year ended December 31, 2021 was primarily attributable to a payment of $37.5 million for accelerated stock repurchase program and a payment of $1.7 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units, which was offset in part by $4.3 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. The financing cash outflow for the year ended December 31, 2020 was primarily attributable to a payment of $224.3 million for the full redemption of the outstanding 2021 Notes in the fourth quarter of 2020 and a payment of $1.1 million for the repurchase of our common stock to satisfy tax withholding obligation in connection with the vesting of restricted stock units, which was offset in part by $3.9 million of proceeds received from the issuance of common stock in connection with the exercise of stock options.
We routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facilities and reinforcement of our global research and development capability. For the year ended December 31, 2021, capital expenditures for property, plant and equipment were $32.2 million, a $3.9 million, or 10.8%, decrease from $36.1 million, including $5.8 million capital expenditures for discontinued operations, for the year ended December 31, 2020. The capital expenditures for the years ended December 31, 2021 and 2020 were related to meeting our customer demand and supporting technology and facility improvement at our fabrication facilities.
Year ended December 31, 2020 compared to year ended December 31, 2019
As of December 31, 2020, our cash and cash equivalents balance was $279.9 million, a $128.3 million increase compared to $151.7 million as of December 31, 2019. The increase resulted from a $318.5 million cash inflow provided by investing activities and a $7.5 million of cash inflow provided by operating activities, which were partially offset by a $222.3 million cash outflow used in financing activities.
Cash inflow provided by operating activities totaled $7.5 million for the year ended December 31, 2020, compared to $50.5 million of cash inflow provided by operating activities for the year ended December 31, 2019. The net operating cash inflow for the year ended December 31, 2020 reflects our net income of $57.8 million, excluding gain on sale of discontinued operations, as adjusted unfavorably by $17.4 million, which mainly consisted of depreciation and amortization, provision for severance benefits, net foreign currency loss and deferred income tax assets, and net unfavorable impact of $33.0 million from changes of operating assets and liabilities.
Our working capital balance as of December 31, 2020 was $236.0 million compared to $245.5 million as of December 31, 2019. The decrease in working capital was primarily attributable to reclassification of the outstanding Exchangeable Notes, which were reclassified as a current liability in the first quarter of 2020, which was offset in part by increased cash and cash equivalents as a result of the completion of sale of our Foundry Services Group business and Fab 4 and redemption of our outstanding 2021 Notes.
Cash inflow provided by investing activities totaled $318.5 million for the year ended December 31, 2020, compared to $28.9 million of cash outflow used in investing activities for the year ended December 31, 2019.
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The $347.4 million increase in cash inflow was attributable to $350.6 million of proceeds received from the sale of the Foundry Services Group business and cash equivalents,Fab 4, a $15.6$9.2 million increase in accounts receivable, net a $5.1 million decrease in deferred revenue and a $4.0 million increase in hedge collateral, which was offset in part by a $21.1$13.1 million decreaseincrease in unbilled accounts receivable, net.

purchase of property, plant and equipment.

Cash outflow used in investingfinancing activities totaled $28.9$222.3 million for the year ended December 31, 2019,2020, compared to $33.3 million for the year ended December 31, 2018. The $4.4 million decrease in investing activities was attributable to a $10.3 million decrease in purchase of plant, property and equipment, including a $4.3 million payment for the purchase of certain facilities related to a water treatment facility arrangement in 2018. This decrease was offset in part by a $5.7 million net increase in hedge collateral.

Cash outflow used in financing activities totaled $1.8 million for the year ended December 31, 2019, compared to $1.3 million of cash inflow provided byoutflow used in financing activities for the year ended December 31, 2018.2019. The financing cash outflow for the year ended December 31, 2020 was primarily attributable to a payment of $224.3 million for the full redemption of the outstanding 2021 Notes in the fourth quarter of 2020 and a payment of $1.1 million for the repurchase of our common stock to satisfy tax withholding obligation in connection with the vesting of restricted stock units, which was offset in part by $3.9 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. The financing cash outflow for the year ended December 31, 2019 was primarily attributable to a payment of $1.2 million for the repurchase of 2021 Notes and Exchangeable Notes in the first quarter of 2019 and a payment of $2.4 million for the repurchase of our common stock in January 2019 pursuant to our stock repurchase plan, which was offset in part by $2.9 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. The financing cash inflow

For the year ended December 31, 2020, capital expenditures for property, plant and equipment were $36.1 million, a $13.1 million, or 57.3% increase from $23.0 million of capital expenditures for the year ended December 31, 2018 was primarily attributable to proceeds of $4.3 million in connection with the water treatment facility arrangement and $1.1 million of proceeds received from the issuance of common stock in connection with the exercise of stock options, which was offset in part by a payment of $2.2 million2019. The capital expenditures for the repurchasesyear ended December 31, 2020 included certain
one-time
investments relating to separating shared IT infrastructure and R&D building upon the sale of 2021 Notesthe Foundry Services Group business and

Exchangeable Notes in December 2018 and $1.6 million for the repurchase of our common stock in December 2018 pursuant to our stock repurchase plan.

We Fab 4. In addition, we routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facilities and reinforcement of our global research and development capabilities. For the year ended December 31, 2019, capital expenditures for plant, property and equipment were $23.0 million, a $10.3 million, or 30.9%, decrease from $33.2 million, including a $4.3 million payment for the purchase of certain facilities related to a water treatment facility arrangement, for the year ended December 31, 2018. The routine capital expenditures for the yearyears ended December 31, 2020 and 2019 were related to meeting our customer demand, and supporting technology and facility improvementsimprovement at our fabrication facilities.

Year ended December 31, 2018 compared to year ended December 31, 2017

As of December 31, 2018, our cash and cash equivalents balance was $132.4 million, a $3.9 million increase, compared to $128.6 million as of December 31, 2017. The increase resulted from a $39.2 million of cash inflow provided by operating activities and a $1.3 million of cash inflow provided by financing activities, which was partially offset by a $33.3 million of cash outflow used in investing activities.

Cash inflow provided by operating activities totaled $39.2 million for the year ended December 31, 2018, compared to $20.3 million of cash outflow used in operating activities for the year ended December 31, 2017. The net operating cash inflow for the year ended December 31, 2018 reflects our net loss of $3.9 million, as adjusted favorably by $86.3 million, which mainly consisted of depreciation and amortization, provision for severance benefits and net foreign currency loss, and net unfavorable impact of $43.1 million from changes of operating assets and liabilities.

Our working capital balance as of December 31, 2018 was $220.1 million compared to $192.1 million as of December 31, 2017. The $28.0 million increase was primarily attributable to a $38.2 million increase in unbilled accounts receivable, which was a new item created in our balance sheet beginning January 1, 2018 to conform with the new revenue recognition standard and represented our contractual right to consideration for manufacturing work performed on a customer contract or an individual purchase order basis, which had not been invoiced to the customer. This increase was offset in part by a $12.0 million decrease in account receivables.

Cash outflow used in investing activities totaled $33.3 million for the year ended December 31, 2018, compared to $35.4 million for the year ended December 31, 2017. The $2.1 million decrease in investing activities was attributable to a $5.7 million net decrease in hedge collateral, which was partially offset by a $3.6 million net increase in guarantee deposits.

Cash inflow generated by financing activities totaled $1.3 million for the year ended December 31, 2018, compared to $72.7 million for the year ended December 31, 2017. The financing cash inflow for the year ended December 31, 2018 was primarily attributable to proceeds of $4.3 million in connection with the water treatment facility arrangement and $1.1 million of proceeds received from the issuance of common stock in connection with the exercise of stock options, which was offset in part by the payment of $2.2 million for the repurchases of 2021 Notes and Exchangeable Notes in December 2018 and $1.6 million for the repurchase of our common stock in December 2018 pursuant to our stock repurchase plan. The financing cash inflow for the year ended December 31, 2017 consisted of $80.3 million of net proceeds received from the issuance of the Exchangeable Notes and $3.7 million of proceeds received from the exercise of stock options, which was partly offset by the payment of $11.4 million for the repurchase of 1,795,444 shares of our common stock in January 2017 pursuant to our stock repurchase plan.

We routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facilities and reinforcement of our global research and development capability. For the year ended December 31, 2018, capital expenditures for plant, property and equipment were $33.2 million, a $0.6 million, or 1.7%,

increase from $32.7 million for the year ended December 31, 2017. The capital expenditures for the year ended December 31, 2018 included a $4.3 million payment for the purchase of the water treatment facility. The remaining expenditures were related to meeting our customer demand, and supporting technology and facility improvements at our fabrication facilities.

Contractual Obligations

The following summarizes our contractual obligations as of December 31, 2019:

   Payments Due by Period 
   Total   2020   2021   2022   2023   2024   Thereafter 
   (In millions) 

Exchangeable Notes(1)

  $90.0   $4.2   $85.8   $—   $—   $—   $— 

Senior Notes(2)

   254.0    14.9    239.1    —    —    —    — 

Operating leases(3)

   18.1    2.8    1.3    1.1    1.1    1.1    10.6 

Finance leases(3)

   3.3    0.4    0.4    0.4    0.4    0.1    1.5 

Water Treatment Services(3)(4)

   47.3    8.4    8.3    8.3    5.7    3.8    12.9 

Others(5)

   17.3    11.8    4.9    0.3    0.1    0.0    0.1 

(1)

Interest payments as well as $83.7 million aggregate principal amount of the Exchangeable Notes outstanding as of December 31, 2019, which bear interest at a rate of 5.0% per annum and are scheduled to mature in 2021 if not earlier exchanged at the price of approximately $8.26 per share of common stock.

(2)

Interest payments as well as $224.3 million aggregate principal amount of the 2021 Notes outstanding as of December 31, 2019, which bear interest at a rate of 6.625% per annum and are scheduled to mature in 2021 if not earlier redeemed.

(3)

Assumes constant currency exchange rate for Korean won to US dollars of 1,157.8:1, the exchange rate as of December 31, 2019.

(4)

Includes future payments for water treatment services for our fabrication facilities in Korea based on the contractual terms.

(5)

Includes license agreements, funding obligations for the accrued severance benefits and other contractual obligations.

The indentures relating to the Exchangeable Notes and the 2021 Notes contain covenants as detailed in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 11. Long-Term Borrowings” in this Report. Those covenants are subject to a number of exceptions and qualifications. Certain of those restrictive covenants will terminate if the Exchangeable Notes or the 2021 Notes are rated investment grade at any time.

We lease land, office space and equipment under various operating lease agreements that expire through 2034.

We are a party to arrangements for the water treatment facilities in Cheongju and Gumi, Korea, which include5-year and10-year service agreements, respectively.

Beginning in July 2018, we have contributed a certain percentage of severance benefits, accrued for eligible employees for their services beginning January 1, 2018, to certain severance insurance deposit accounts. These accounts consist of time deposits and other guaranteed principal and interest, and are maintained at insurance companies, banks or security companies for the benefit of employees. We deduct the contributions made to these severance insurance deposit accounts from our accrued severance benefits. As of December 31, 2019, our accrued severance benefits totaled $146.7 million and cumulative contributions to these severance insurance deposit accounts amounted to $4.8 million. Our related cash payments for future contributions are $3.5 million for 2020, to the extent that our obligations are contractual, fixed and reasonably estimable.

We follow US GAAP guidance on uncertain tax positions. Our unrecognized tax benefits totaled $0.4 million as of December 31, 2019. These unrecognized tax benefits have been excluded from the above table because we cannot estimate the period of cash settlement with the respective taxing authorities.

Off-Balance Sheet Arrangements

As of December 31, 2019, we did not have anyoff-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of RegulationS-K.

Critical Accounting Policies and Estimates

Preparing financial statements in conformity with USU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our consolidated financial statements and accompanying notes.

We believe that the accounting policies discussed below are critical due to the fact that they involve a high degree of judgment and estimates about the effects of matters that are inherently uncertain. We base these estimates and judgments on historical experience, knowledge of current conditions and other assumptions and information that we believe to be reasonable. Estimates and assumptions about future events and their effects cannot be determined with certainty. Accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the business environment in which we operate changes.

Revenue Recognition

We recognize revenue when it satisfies the performance obligation of transferring control over a product or service to a customer. Revenue is measured based on the consideration specified in a contract with a customer, which consideration is paid in exchange for a product or service.

Our Foundry Services Group manufactures products, which we refer to as foundry products, based on customers’ specific product designs. We recognize revenue over time for foundry products that do not have an alternative use when we have an enforceable right to payment. Revenue recognized over time is in proportion of wafer manufacturing costs incurred relative to total estimated costs for completion. However, in certain circumstances, pursuant to a customer contract or an individual purchase order, we may not have an enforceable right to payment for services performed at a given time. In this situation, we recognize revenue at the time when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement.

Our Standards Products Group sells products manufactured based on our design. Our products are either standardized with an alternative use or we do not have an enforceable right to payment for the related manufacturing services completed to date. Therefore, revenue for our Standards Products Group is recognized when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement.

A portion of our sales are made through distributors for which we apply the same revenue recognition guidance described above. We defer the recognition of revenue when a distributor receives consideration from the customers prior to the performance obligation being fulfilled. These amounts are classified as deferred revenue on the consolidated balance sheets.

In accordance with revenue recognition guidance, any tax assessed by a governmental authority that is (i) both imposed on and concurrent with a specific revenue-producing transaction, and (ii) collected by us from a customer, is excluded from revenue and related revenue is presented in the statements of operations on a net basis.

We provide warranty provisions under which customers can return defective products. We also provide allowances for additional products that may have to be provided free of charge to compensate customers for not meeting previously agreed upon yield criteria, which we refer to as the low yield compensation reserve. We estimate the costs related to warranty claims, repair or replacements and low yield compensation reserves, and record them as components of cost of sales.

In addition, we offer sales returns (other than those that relate to defective products under warranty), cash discounts for early payments, sales incentives including discounts and volume rebates, and certain allowances to our customers, including our distributors. We record reserves for those returns, discounts, incentives and allowances as a deduction from sales based on historical experience and other quantitative and qualitative factors.

Substantially all of our contracts are one year or less in duration. The standard payment terms with customers are generally thirty to sixty days from the time of shipment, product delivery to the customer’s location or customer acceptance, depending on the terms of the related arrangement.

Leases

We determine if an arrangement is a lease at inception of a contract by considering whether the arrangement conveys the right to control the use of an identified asset over the period of use. Control of an underlying asset is conveyed if we have the right to direct the use of, and to obtain substantially all of the economic benefits from the use of, the identified asset. We account for lease transactions as either an operating or a finance lease, depending on the terms of the underlying lease arrangement. Assets related to operating leases are recorded on the balance sheet as operating leaseright-of-use assets; the related liabilities are recorded as operating lease liabilities for the current portion andnon-current operating lease liabilities for thenon-current portion. Finance leaseright-of-use assets are included in property and equipment, net and the related lease liabilities are included in other current liabilities and othernon-current liabilities on the consolidated balance sheets.

Right-of-use assets represent our right to use an underlying asset during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.Right-of-use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of our leases do not provide a readily determinable implicit rate, we estimate our incremental borrowing rates in determining the present value of future payments based on the lease term of each lease and market information available at commencement date. Finance leaseright-of-use assets are amortized on a straight-line basis over the respective lease term with the interest expense on the lease liability recorded using the interest method. The amortization and interest expense are recorded separately in the consolidated statements of operations. Amortization of operating leaseright-of-use assets and interest expense on operating lease liabilities are recognized on a straight-line basis over the respective lease term.

An extension or contraction of a lease term is considered if the related option to extend or early terminate the lease is reasonably certain to be exercised by us. Operating leaseright-of-use assets may also include any advance lease payments made and exclude lease incentives and initial direct costs incurred. We have lease agreements with lease andnon-lease components, which are generally accounted for separately. For certain equipment leases, lease andnon-lease components are accounted for as a single lease component.

Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates, are not included in theright-of-use assets or liabilities. These variable lease payments are expensed as incurred.

We do not recognize operating leaseright-of-use assets and operating lease liabilities that arise from short-term leases but rather recognize fixed lease payments in the statements of operations on a straight-line basis and variable payments in the period in which the related obligations incur.

Inventories

Sales of Accounts Receivable

We account for transfers of financial assets under ASC 860, “Transfers and Servicing,” as either sales or financings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria, the transfer is accounted for as a financing. Financial assets that are treated as sales are removed from our accounts with any realized gain or loss reflected in earnings during the period of sale.

Product Warranties

We record, in other current liabilities, warranty liabilities for the estimated costs that may be incurred under our basic limited warranty. The standard limited warranty period is one to two years for the majority of products. This warranty covers defective products, and related liabilities are accrued when product revenues are recognized. Factors that affect our warranty liabilities include historical and anticipated rates of warranty claims and repair or replacement costs per claim to satisfy our warranty obligation. We also record, in other current liabilities, low yield compensation reserves for our estimated costs for products that may have to be provided free of charge to compensate customers for not meeting previously agreed upon yield criteria. Factors that affect our low yield compensation reserves include historical and anticipated rates of claims for not meeting previously agreed upon yield criteria. We periodically assess the adequacy of our recorded warranty liabilities and low yield compensation reserves, and adjust our estimates when necessary.

Inventories

Inventories are stated at the lower of cost or net realizable value, using the first in, first out method (“FIFO”). If net realizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized as a loss on valuation of inventories within cost of sales. Inventory reserves are established when conditions indicate that the net realizable value is less than costs due to physical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. We evaluate the sufficiency of inventory reserves and take into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sale of existing products, product age and other factors. Reserves are also established for excess inventory based on our current inventory levels and projected demand and our ability to sell those specific
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products. Situations that could cause these inventory reserves include a decline in business and economic conditions, decline in consumer confidence caused by changes in market conditions, sudden and significant decline in demand for our products, inventory obsolescence because of rapidly changing technology and consumer requirements, or failure to estimate end customer demand properly. A reduction of these inventory reserves may be recorded if previously reserved items are subsequently sold as a result of unexpected changes to certain aforementioned situations.

The gross amount of inventory reserves charged to cost of sales totaled $13.9$7.6 million, $8.3$7.3 million and $7.0$12.9 million in the fiscal years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. The new cost base related to the sale of inventory that was previously written down totaled $3.1$5.3 million, $4.1$4.3 million and $6.0$2.9 million in the fiscal years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.

As prescribed in ASC 330, “Inventory,” once a reserve is established for a particular item based on our assessment as described above, it is maintained until the related item is sold or scrapped as a new cost basis has been established that cannot subsequently be marked up. In addition, the cost of inventories is determined based on the normal capacity of each fabrication facility. In case the capacity utilization is lower than a certain level that management believes to be normal, the fixed overhead costs per production unit which exceed those under normal capacity are charged to cost of sales rather than capitalized as inventories.

Impairment of Long-Lived Assets

We review property, plant and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360, “Property, Plant and Equipment”. Recoverability is measured by comparing its carrying amount with the future net undiscounted cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment is measured as the difference between the carrying amount of the assets and the fair value of assets using the present value of the future net cash flows generated by the respective long-lived assets.

Intangible Assets

Intangible assets other than intellectual property include technology and customer relationships which are amortized on a straight-line basis over periods ranging from one to five years. Intellectual property assets acquired represent rights under patents, trademarks and property use rights and are amortized over their respective periods of benefit, ranging up to ten years, on a straight-line basis.

Income Taxes

We account forare subject to income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires recognitionthe U.S. and foreign jurisdictions. Significant judgments and estimates are required in evaluating our uncertain tax positions and determining our provision for income taxes.
We make an ongoing assessment of our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences, expiration of tax credits and net operating loss carry-forwards and tax planning strategies. Then, if necessary, we record valuation allowances against our deferred tax assets in order for the net amount of deferred tax assets and liabilities forto be recorded only to the expected future tax consequences of eventsextent that have been recognized in a company’s financial statements or tax returns. Under this method,we conclude that it is more likely than not that our net deferred tax assets and liabilities are determined based uponwill be realized. We will continue to evaluate the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expectedability to reverse. Valuation allowances are established when it is necessary to reducerealize our net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the amount expectedability to be realized. Income tax expense is the tax payable for the period and the change during the period inrealize deferred tax assets and liabilities.

assets.

We recognize and measure uncertain tax positions taken or expected to be taken in a tax return utilizing a
two-step
process. In the first step, recognition, we determine whether it ismore-likely-than-not more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets themore-likely-than-not more likely than not criteria. The tax position is measured at the largest amount of benefit that has a likelihood of greater than 50 percent of being realized upon ultimate settlement.

Derivative Financial Instruments

Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We applyadjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provisions of ASC 815, which requires the recognition of all derivative instruments as either assets or liabilities measured at fair value.

Under the provisions of ASC 815, we may designate a derivative instrument as hedging the exposure to variability in expected future cash flows that are attributable to a particular risk (a “cash flow hedge”) or hedging the exposure to changes in the fair value of an asset or a liability (a “fair value hedge”). Special accounting for qualifying hedges allows the effective portion of a derivative instrument’s gains and losses to offset related results on the hedged item in the consolidated statements of operations and requires that a company formally document, designate and assess the effectiveness of the transactions that receive hedge accounting treatment. Both at the inception of a hedge and on an ongoing basis, a hedge must be expected to be highly effective in achieving offsetting changes in cash flows or fair value attributable to the underlying risk being hedged. If we determine that a derivative instrument is no longer highly effective as a hedge, it discontinues hedge accounting prospectively and future changes in the fair value of the derivative are recognized in current earnings. We assess hedge effectiveness at the end of each quarter.

In accordance with ASC 815, changes in the fair value of derivative instruments that are cash flow hedges are recognized in accumulated other comprehensive income (loss) and reclassified into earningstaxes in the period in

which such determination is made. The provision for income taxes includes the hedged item affects earnings. Derivative instrumentseffect of reserve provisions and changes to reserves that do not qualify, or cease to qualify,are considered appropriate, as hedges must be adjusted to fair value and the adjustments are recorded through net income (loss).

The cash flows from derivative instruments receiving hedge accounting treatment are classified in the same categorieswell as the hedged items in the consolidated statements of cash flows.

related net interest and penalties.

Recent Accounting Pronouncements

See Note 1 “Business, Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption, which is incorporated herein by reference.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to the market risk that the value of a financial instrument will fluctuate due to changes in market conditions, primarily from changes in foreign currency exchange rates and interest rates. In the normal course of our business, we are subject to market risks associated with interest rate movements and currency movements on our assets and liabilities.

Foreign Currency Exposures

We have exposure to foreign currency exchange rate fluctuations on net income from our subsidiaries denominated in currencies other than USU.S. dollars, as our foreign subsidiaries in Korea, Taiwan, China, Japan and Hong Kong use local currency as their functional currency. From time to time these subsidiaries have cash and financial instruments in local currency. The amounts held in Japan, Taiwan, Hong Kong and China are not material in regards to foreign currency movements. However, based on the cash and financial instruments balance at December 31, 20192021 for our Korean subsidiary, a 10% devaluation of the Korean won against the USU.S. dollar would have resulted in a decrease of $0.3$1.9 million in our USU.S. dollar financial instruments and cash balances.

See “Note 9.10. Derivative Financial Instruments” to our consolidated financial statements under “Item 8. Financial Statements and Supplementary Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations—Impact of Foreign Currency Exchange Rates on Reported Results of Operations” for additional information regarding our foreign exchange hedging activities.

Interest Rate Exposures

As

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Table of December 31, 2019, $83.7 million aggregate principal amount of our Exchangeable Notes were outstanding. Interest on the Exchangeable Notes accrues at a fixed rate of 5.0% per annum and is paid semi-annually every March 1 and September 1 of each year until the Exchangeable Notes mature on March 1, 2021. As of December 31, 2019, $224.3 million aggregate principal amount of our 2021 Notes were also outstanding. Interest on the 2021 Notes accrues at a fixed rate of 6.625% per annum and is paid semi-annually every January 15 and July 15 of each year until the 2021 Notes mature on July 15, 2021. Since the interest rates are fixed, we have no market risk related to the Exchangeable Notes and the 2021 Notes.

Contents

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 1103)

   7577 

MagnaChipMagnachip Semiconductor Corporation Consolidated Balance Sheets as of December 31, 20192021 and 20182020

   7780 

MagnaChipMagnachip Semiconductor Corporation Consolidated Statements of Operations for the Years Ended December 31, 2019, 20182021, 2020 and 20172019

   7881 

MagnaChipMagnachip Semiconductor Corporation Consolidated Statements of Comprehensive Income/Income (Loss) for the Years Ended December 31, 2019, 20182021, 2020 and 20172019

   7982 

MagnaChipMagnachip Semiconductor Corporation Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 20182021, 2020 and 20172019

   8083 

MagnaChipMagnachip Semiconductor Corporation Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 20182021, 2020 and 20172019

   8184 

MagnaChipMagnachip Semiconductor Corporation Notes to Consolidated Financial Statements

   8285 

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Report of Independent Registered Public Accounting Firm

To theBoardthe
Board of Directors and Stockholders of

MagnaChip

Magnachip Semiconductor Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of MagnaChipMagnachip Semiconductor Corporation and its subsidiaries(thesubsidiaries (the “Company”) as of December 31, 20192021 and 2018,2020, and the related consolidated statements of operations, comprehensive income / (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019,2021, including the related notes (collectively referred to as the “consolidated
financial statements”).We.
We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in
Internal Control—Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018, 2020
,
and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 2021
in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in
Internal Control—Control - Integrated Framework
(2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Overover Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated
financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

February 21, 2020

Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Realizability of Deferred Tax Assets
As described in Notes 1 and 17 to the consolidated financial statements, the Company has net deferred tax assets of $41.1 million, including a valuation allowance of $94.2 million, as of December 31, 2021. Management determines deferred tax assets and liabilities based upon the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when it is necessary to reduce deferred tax assets to the amount expected to be realized. The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires management to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including historical operating results, expected timing of the reversals of existing temporary differences, the Company’s ability to generate future taxable income, and tax planning strategies.
The principal considerations for our determination that performing procedures relating to the realizability of deferred tax assets is a critical audit matter are (i) the significant judgment by management when assessing the available positive and negative evidence surrounding the realizability of deferred tax assets, including the application of tax law to the projected tax calculation and a high degree of estimation uncertainty relative to the estimates of future taxable income, (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s estimates of future taxable income, (iii) auditor judgment in assessing management’s application of tax law to the projected tax calculation, and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.
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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the realizability of deferred tax assets. These procedures also included, among others, (i) evaluating the appropriateness of management’s calculation used, (ii) testing the completeness, accuracy and relevance of the underlying data used in the calculation, and (iii) evaluating the reasonableness of significant assumptions used in the calculation of future taxable income. Evaluating management’s assumptions related to estimates of future taxable income involved evaluating whether the assumptions used were reasonable considering (i) current and past profitability, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating management’s assumptions and calculation for assessing the realizability of deferred tax assets, including the mechanics and application of tax law to the projected tax calculation.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
February 23, 2022
We have served as the Company’s auditor since 2004.

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

   December 31, 
           2019                  2018         
   (In thousands of US dollars,
except share data)		 

Assets

   

Current assets

   

Cash and cash equivalents

  $151,657  $132,438 

Accounts receivable, net

   95,641   80,003 

Unbilled accounts receivable, net

   17,094   38,181 

Inventories, net

   73,267   71,611 

Other receivables

   10,254   3,702 

Prepaid expenses

   12,250   11,133 

Hedge collateral (Note 9)

   9,820   5,810 

Other current assets (Notes 1 and 2)

   9,382   9,867 
  

 

 

  

 

 

 

Total current assets

   379,365   352,745 
  

 

 

  

 

 

 

Property, plant and equipment, net (Notes 5 and 7)

   182,574   202,171 

Operating leaseright-of-use assets

   11,482   —   

Intangible assets, net

   4,014   3,953 

Long-term prepaid expenses

   8,834   15,598 

Othernon-current assets

   9,059   8,729 
  

 

 

  

 

 

 

Total assets

  $595,328  $583,196 
  

 

 

  

 

 

 

Liabilities and Stockholders’ Equity

   

Current liabilities

   

Accounts payable

  $60,879  $55,631 

Other accounts payable

   10,293   15,168 

Accrued expenses

   55,076   46,250 

Deferred revenue (Note 1)

   1,422   6,477 

Operating lease liabilities

   2,036   —   

Other current liabilities (Note 1)

   4,127   9,133 
  

 

 

  

 

 

 

Total current liabilities

   133,833   132,659 
  

 

 

  

 

 

 

Long-term borrowings, net

   304,743   303,577 

Non-current operating lease liabilities

   9,446   —   

Accrued severance benefits, net

   146,728   146,031 

Othernon-current liabilities

   15,559   18,239 
  

 

 

  

 

 

 

Total liabilities

   610,309   600,506 
  

 

 

  

 

 

 

Commitments and contingencies (Note 19)

   

Stockholders’ equity

   

Common stock, $0.01 par value, 150,000,000 shares authorized, 43,851,991 shares issued and 34,800,312 outstanding at December 31, 2019 and 43,054,458 shares issued and 34,441,232 outstanding at December 31, 2018

   439   431 

Additionalpaid-in capital

   152,404   142,600 

Accumulated deficit

   (58,131)   (36,305) 

Treasury stock, 9,051,679 shares at December 31, 2019 and 8,613,226 shares at December 31, 2018, respectively

   (107,033)   (103,926) 

Accumulated other comprehensive loss

   (2,660)   (20,110) 
  

 

 

  

 

 

 

Total stockholders’ deficit

   (14,981)   (17,310) 
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $595,328  $583,196 
  

 

 

  

 

 

 

   
December 31,
 
   
2021
  
2020
 
   
(In thousands of U.S. dollars,
except share data)
 
Assets
   
Current assets
   
Cash and cash equivalents
  $279,547  $279,940 
Accounts receivable, net
   50,954   64,390 
Inventories, net
   39,370   39,039 
Other receivables
 (Note 19)
   25,895   4,338 
Prepaid expenses
   7,675   7,332 
Hedge collateral (Note 10)
   3,060   5,250 
Other current assets
   2,619   9,321 
         
Total current assets
   409,120   409,610 
Property, plant and equipment, net
   107,882   96,383 
Operating lease
right-of-use
assets
   4,275   4,632 
Intangible assets, net
   2,377   2,727 
Long-term prepaid expenses
   8,243   4,058 
Deferred income taxes (Note 17)
   41,095   44,541 
Other
non-current
assets
   10,662   9,739 
         
Total assets
  $583,654  $571,690 
         
Liabilities and Stockholders’ Equity
         
Current liabilities
         
Accounts payable
  $37,593  $52,164 
Other accounts payable
   6,289   2,531 
Accrued expenses (Note 9)
   20,071   16,241 
Accrued income taxes
   11,823   12,398 
Operating lease liabilities
   2,323   2,210 
Current portion of long-term borrowings, net
   —     83,479 
Other current liabilities
   7,382   4,595 
         
Total current liabilities
   85,481   173,618 
Accrued severance benefits, net
   33,064   40,462 
Non-current
operating lease liabilities
   1,952   2,422 
Other
non-current
liabilities
   10,395   9,588 
         
Total liabilities
   130,892   226,090 
         
Commitments and contingencies (Note
20
)
   0   0 
Stockholders’ equity
         
Common stock,
 
$0.01
 
par
 
value,
 
150,000,000
 
shares
 
authorized,
 
55,905,320
 
shares
 
issued
 
and
 
45,659,304
 
outstanding
 
at
December 31, 2021 and 44,943,854
shares issued and 35,783,347
outstanding at December 31, 2020
   559   450 
Additional
paid-in
capital
   241,197   163,010 
Retained earnings
   343,542   286,834 
Treasury stock, 10,246,016
shares at December 31, 2021 and 9,160,507
shares at December 31, 2020, respectively
   (130,306)   (108,397) 
Accumulated other comprehensive income (loss)
   (2,230)   3,703 
         
Total stockholders’ equity
   452,762   345,600 
         
Total liabilities and stockholders’ equity
  $583,654  $571,690 
         
The accompanying notes are an integral part of these consolidated financial statements

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

   Year Ended December 31, 
   2019  2018  2017 
   (In thousands of US dollars, except share data) 

Net sales

  $792,195  $750,898  $679,672 

Cost of sales

   611,584   552,802   491,779 
  

 

 

  

 

 

  

 

 

 

Gross profit

   180,611   198,096   187,893 
  

 

 

  

 

 

  

 

 

 

Operating expenses

    

Selling, general and administrative expenses

   71,637   72,639   81,775 

Research and development expenses

   75,356   78,039   70,523 

Restructuring and other charges (gains)

   9,195   —     (17,010) 

Early termination charges

   —     —     13,369 
  

 

 

  

 

 

  

 

 

 

Total operating expenses

   156,188   150,678   148,657 
  

 

 

  

 

 

  

 

 

 

Operating income

   24,423   47,418   39,236 
  

 

 

  

 

 

  

 

 

 

Interest expense

   (22,627)   (22,282)   (21,559) 

Foreign currency gain (loss), net

   (21,813)   (24,445)   65,516 

Loss on early extinguishment of long-term borrowings, net

   (42)   (206)   —   

Other income, net

   2,980   264   2,898 
  

 

 

  

 

 

  

 

 

 

Income (loss) before income tax expense

   (17,079)   749   86,091 

Income tax expense

   4,747   4,649   1,155 
  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $(21,826)  $(3,900)  $84,936 
  

 

 

  

 

 

  

 

 

 

Earnings (loss) per common share—

    

Basic

  $(0.64)  $(0.11)  $2.50 

Diluted

  $(0.64)  $(0.11)  $2.02 
  

 

 

  

 

 

  

 

 

 

Weighted average number of shares—

    

Basic

   34,321,888   34,469,921   33,943,264 

Diluted

   34,321,888   34,469,921   44,755,137 

   
Year Ended December 31,
 
   
2021
  
2020
  
2019
 
   
(In thousands of U.S. dollars, except share data)
 
Revenues:
             
Net sales—standard products business
  $433,099  $465,519  $484,847 
Net sales—transitional Fab 3 foundry services
   41,131   41,540   35,824 
   
 
 
  
 
 
  
 
 
 
Total revenues
   474,230   507,059   520,671 
Cost of sales:
             
Cost of sales—standard products business
   283,503   338,420   368,450 
Cost of sales—transitional Fab 3 foundry services
   37,184   40,322   35,824 
   
 
 
  
 
 
  
 
 
 
Total cost of sales
   320,687   378,742   404,274 
   
 
 
  
 
 
  
 
 
 
Gross profit
   153,543   128,317   116,397 
Operating expenses:
             
Selling, general and administrative expenses
   52,440   49,974   47,595 
Research and development expenses
   51,212   45,698   45,024 
Merger-related costs (income), net
   (35,527)   653   — 
Early termination and other charges, net
   2,011   4,976   53 
   
 
 
  
 
 
  
 
 
 
Total operating expenses
   70,136   101,301   92,672 
   
 
 
  
 
 
  
 
 
 
Operating income:
   83,407   27,016   23,725 
Interest expense
   (1,371)   (18,147)   (22,157) 
Foreign currency loss, net
   (11,853)   (382)   (22,316) 
Loss on early extinguishment of borrowings, net
   
0
  

   (766)   (42) 
Other income, net
   3,786   3,110   2,577 
   
 
 
  
 
 
  
 
 
 
Income (loss) from continuing operations before income tax expense
   73,969   10,831   (18,213) 
Income tax expense (benefit)
   17,261   (46,228)   2,200 
   
 
 
  
 
 
  
 
 
 
Income (loss) from continuing operations
   56,708   57,059   (20,413) 
Income (loss) from discontinued operations, net of tax
   —   287,906   (1,413) 
   
 
 
  
 
 
  
 
 
 
Net income (loss)
  $56,708  $344,965  $(21,826) 
   
 
 
  
 
 
  
 
 
 
Basic earnings (loss) per common share—
             
Continuing operations
  $1.26  $1.62  $(0.59) 
Discontinued operations
   —     8.18   (0.05) 
   
 
 
  
 
 
  
 
 
 
Total
  $1.26  $9.80  $(0.64) 
   
 
 
  
 
 
  
 
 
 
Diluted earnings (loss) per common share—
             
Continuing operations
  $1.21  $1.35  $(0.59) 
Discontinued operations
   
0
  

   6.19   (0.05) 
   
 
 
  
 
 
  
 
 
 
Total
  $1.21  $7.54  $(0.64) 
   
 
 
  
 
 
  
 
 
 
Weighted average number of shares—
             
Basic
   44,879,412   35,213,525   34,321,888 
Diluted
   47,709,373   46,503,586   34,321,888 
The accompanying notes are an integral part of these consolidated financial statements

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

   Year Ended December 31, 
   2019  2018  2017 
   (In thousands of US dollars) 

Net income (loss)

  $(21,826)  $(3,900)  $84,936 
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss)

    

Foreign currency translation adjustments

   15,856   18,352   (52,873) 

Derivative adjustments

    

Fair valuation of derivatives

   (2,894)   (1,589)   7,736 

Reclassification adjustment for loss (gain) on derivatives included in net income (loss)

   4,488   (3,759)   (2,001) 
  

 

 

  

 

 

  

 

 

 

Total other comprehensive income (loss)

   17,450   13,004   (47,138) 
  

 

 

  

 

 

  

 

 

 

Total comprehensive income (loss)

  $(4,376)  $9,104  $37,798 
  

 

 

  

 

 

  

 

 

 

   
Year Ended December 31,
 
   
2021
  
2020
  
2019
 
   
(In thousands of U.S. dollars)
 
Net income (loss)
  $56,708  $344,965  $(21,826) 
   
 
 
  
 
 
  
 
 
 
Other comprehensive income (loss)
             
Foreign currency translation adjustments
   (2,839)   6,274   15,856 
Derivative adjustments
             
Fair valuation of derivatives
   (3,913)   1,452   (2,894) 
Reclassification adjustment for loss (gain) on derivatives included in net income (loss)
   819   (1,363)   4,488 
   
 
 
  
 
 
  
 
 
 
Total other comprehensive income (loss)
   (5,933)   6,363   17,450 
   
 
 
  
 
 
  
 
 
 
Total comprehensive income (loss)
  $50,775  $351,328  $(4,376) 
   
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

  Common Stock  Additional
Paid-In
Capital		  Accumulated
Deficit		  Treasury
Stock		  Accumulated
Other
Comprehensive
Income (Loss)		  Total 

(In thousands of US dollars, except share data)

 Shares  Amount 

Balance at January 1, 2017

  35,048,338  $416  $130,189  $(125,825)  $(90,918)  $14,024  $(72,114) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Stock-based compensation

  —     —     2,336   —     —     —     2,336 

Exercise of stock options

  539,183   6   3,738   —     —     —     3,744 

Settlement of restricted stock units

  397,522   4   (4)   —     —     —     —   

Acquisition of treasury stock

  (1,795,444)   —     —     —     (11,401)   —     (11,401) 

Other comprehensive loss, net

  —     —     —     —     —     (47,138)   (47,138) 

Net income

  —     —     —     84,936   —     —     84,936 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2017, as previously reported

  34,189,599  $426  $136,259  $(40,889)  $(102,319)  $(33,114)  $(39,637) 

Impact of adopting the new revenue standard

  —     —     —     8,484   —     —     8,484 

Balance at January 1, 2018, as adjusted

  34,189,599  $426  $136,259  $(32,405)  $(102,319)  $(33,114)  $(31,153) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Stock-based compensation

  —     —     5,213   —     —     —     5,213 

Exercise of stock options

  162,341   2   1,131   —     —     —     1,133 

Settlement of restricted stock units

  328,309   3   (3)   —     —     —     —   

Acquisition of treasury stock

  (239,017)   —     —     —     (1,607)   —     (1,607) 

Other comprehensive income, net

  —     —     —     —     —     13,004   13,004 

Net loss

  —     —     —     (3,900)   —     —     (3,900) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2018

  34,441,232  $431  $142,600  $(36,305)  $(103,926)  $(20,110)  $(17,310) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Stock-based compensation

  —     —     6,952   —     —     —     6,952 

Exercise of stock options

  452,819   4   2,856   —     —     —     2,860 

Settlement of restricted stock units

  344,714   4   (4)   —     —     —     —   

Acquisition of treasury stock

  (438,453)   —     —     —     (3,107)   —     (3,107) 

Other comprehensive income, net

  —     —     —     —     —     17,450   17,450 

Net loss

  —     —     —     (21,826)   —     —     (21,826) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2019

  34,800,312  $439  $152,404  $(58,131)  $(107,033)  $(2,660)  $(14,981) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  
Common Stock
  
Additional
Paid-In

Capital
  
Retained
Earnings
(Deficit)
  
Treasury
Stock
  
Accumulated
Other
Comprehensive
Income (Loss)
  
Total
 
(In thousands of U.S. dollars, except share data)
 
Shares
  
Amount
 
Balance at December 31, 2018
  34,441,232  $431  $142,600  $(36,305)  $(103,926)  $(20,110)  $(17,310) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Stock-based compensation
  —     —     6,952   —     —     —     6,952 
Exercise of stock options
  452,819   4   2,856   —     —     —     2,860 
Settlement of restricted stock units
  344,714   4   (4)   —     —     —     —   
Acquisition of treasury stock
  (438,453)   —     —     —     (3,107)   —     (3,107) 
Other comprehensive income, net
  —     —     —     —     —     17,450   17,450 
Net loss
  —     —     —     (21,826)   —     —     (21,826) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2019
  34,800,312  $439  $152,404  $(58,131)  $(107,033)  $(2,660)  $(14,981) 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Stock-based compensation
  —     —     6,699   —     —     —     6,699 
Exercise of stock options
  510,648   5   3,913   —     —     —     3,918 
Settlement of restricted stock units
  581,215   6   (6)   —     —     —     —   
Acquisition of treasury stock
  (108,828)   —     —     —     (1,364)   —     (1,364) 
Other comprehensive income, net
  —     —     —     —     —     6,363   6,363 
Net income
  —     —     —     344,965   —     —     344,965 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2020
  35,783,347  $450  $163,010  $286,834  $(108,397)  $3,703  $345,600 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Stock-based compensation
  —     —     7,704   —     —     —     7,704 
Exchange of exchangeable senior note
  10,144,131   101   83,639   —     —     —     83,740 
Exercise of stock options
  336,870   3   4,276   —     —     —     4,279 
Settlement of restricted stock units
  480,465   5   (5)   —     —     —     —   
Accelerated
stock
repurchase

  (994,695)   —     (17,427)   —     (20,073)   —     (37,500) 
Acquisition of treasury stock
  (90,814)   —     —     —     (1,836)   —     (1,836) 
Other comprehensive loss, net
  —     —     —     —     —     (5,933)   (5,933) 
Net income
  —     —     —     56,708   —     —     56,708 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at December 31, 2021
  45,659,304  $559  $241,197  $343,542  $(130,306)  $(2,230)  $452,762 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

   Year Ended December 31, 
   2019  2018  2017 
   (In thousands of US dollars) 

Cash flows from operating activities

    

Net income (loss)

  $(21,826)  $(3,900)  $84,936 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

    

Depreciation and amortization

   32,729   32,048   28,146 

Provision for severance benefits

   17,139   17,644   24,373 

Amortization of debt issuance costs and original issue discount

   2,299   2,183   1,987 

Loss (gain) on foreign currency, net

   24,692   30,215   (77,600) 

Restructuring and other charges (gains)

   3,598   —     (17,010) 

Stock-based compensation

   6,952   4,409   2,336 

Loss on early extinguishment of long-term borrowings, net

   42   206   —   

Other

   247   (1,235)   49 

Changes in operating assets and liabilities

    

Accounts receivable, net

   (19,824)   8,294   (22,210) 

Unbilled accounts receivable, net

   19,274   (1,284)   —   

Inventories, net

   (4,210)   (30,675)   (8,077) 

Other receivables

   (6,200)   1,260   2,218 

Other current assets

   11,984   9,942   2,318 

Accounts payable

   7,375   (8,389)   10,320 

Other accounts payable

   (8,518)   (11,183)   (12,141) 

Accrued expenses

   5,279   (3,926)   (12,020) 

Deferred revenue

   (4,768)   2,891   (3,949) 

Other current liabilities

   (4,460)   2,123   (1,281) 

Othernon-current liabilities

   (306)   2,346   (760) 

Payment of severance benefits

   (9,288)   (11,688)   (21,506) 

Other

   (1,713)   (2,045)   (382) 
  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) operating activities

   50,497   39,236   (20,253) 
  

 

 

  

 

 

  

 

 

 

Cash flows from investing activities

    

Proceeds from settlement of hedge collateral

   13,583   14,342   10,615 

Payment of hedge collateral

   (17,833)   (12,907)   (14,839) 

Proceeds from disposal of property, plant and equipment

   202   1,685   1,209 

Purchase of property, plant and equipment

   (22,955)   (28,948)   (32,661) 

Payment for property related to water treatment facility arrangement

   —     (4,283)   —   

Payment for intellectual property registration

   (1,103)   (961)   (1,207) 

Collection of guarantee deposits

   549   801   1,462 

Payment of guarantee deposits

   (1,349)   (3,016)   (41) 

Other

   9   (19)   94 
  

 

 

  

 

 

  

 

 

 

Net cash used in investing activities

   (28,897)   (33,306)   (35,368) 
  

 

 

  

 

 

  

 

 

 

Cash flows from financing activities

    

Proceeds from issuance of senior notes

   —     —     86,250 

Payment of debt issuance costs

   —     —     (5,902) 

Repurchase of long-term borrowings

   (1,175)   (2,228)   —   

Proceeds from exercise of stock options

   2,860   1,132   3,744 

Acquisition of treasury stock

   (2,702)   (1,607)   (11,401) 

Proceeds from property related to water treatment facility arrangement (Note 5)

   —     4,283   —   

Repayment of financing related to water treatment facility arrangement (Note 5)

   (552)   (286)   —   

Repayment of principal portion of finance lease liabilities

   (233)   —     —   
  

 

 

  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

   (1,802)   1,294   72,691 
  

 

 

  

 

 

  

 

 

 

Effect of exchange rates on cash, cash equivalents and restricted cash

   (579)   (3,361)   9,899 
  

 

 

  

 

 

  

 

 

 

Net increase in cash, cash equivalents and restricted cash

   19,219   3,863   26,969 
  

 

 

  

 

 

  

 

 

 

Cash, cash equivalents and restricted cash

    

Beginning of the period

   132,438   128,575   101,606 
  

 

 

  

 

 

  

 

 

 

End of the period

  $151,657  $132,438  $128,575 
  

 

 

  

 

 

  

 

 

 

Supplemental cash flow information

    

Cash paid for interest

  $19,071  $19,255  $17,590 
  

 

 

  

 

 

  

 

 

 

Cash paid for income taxes

  $2,081  $920  $1,027 
  

 

 

  

 

 

  

 

 

 

Non-cash investing and financing activities

    

Property, plant and equipment additions in other accounts payable

  $2,542  $5,249  $2,520 
  

 

 

  

 

 

  

 

 

 

Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation

  $(405)  $—    $—   
  

 

 

  

 

 

  

 

 

 

   
Year Ended December 31,
 
   
2021
  
2020
  
2019
 
   
(In thousands of U.S. dollars)
 
Cash flows from operating activities
    
Net income (loss)
  $56,708  $344,965  $(21,826) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
             
Depreciation and amortization
   14,239   16,481   32,729 
Provision for severance benefits
   8,282   16,743   17,139 
Amortization of debt issuance costs and original issue discount
   261   2,220   2,299 
Loss (gain) on foreign currency, net
   32,432   (23,233)   24,692 
Provision for inventory reserves
   2,244   3,695   10,468 
Stock-based compensation
   7,704   6,699   6,952 
Loss on early extinguishment of borrowings, net
   —     766   42 
Gain on sale of discontinued operations
   —     (287,117)   —   
Deferred income tax assets
   918   (44,441)   35 
Other, net
   (613)   217   301 
Changes in operating assets and liabilities
             
Accounts receivable, net
   7,505   (19,268)   (19,824) 
Unbilled accounts receivable, net
   —     14,260   19,274 
Inventories
   (5,939)   (816)   (14,678) 
Other receivables
   (21,538)   6,954   (6,200) 
Other current assets
   12,397   13,561   11,984 
Accounts payable
   (11,437)   4,907   7,375 
Other accounts payable
   (7,798)   (12,000)   (8,514) 
Accrued expenses
   4,637   (26,201)   8,819 
Accrued income taxes
   (1)   10,825   267 
Deferred revenue
   (131)   2,174   (4,768) 
Other current liabilities
   1,445   279   (4,727) 
Other
non-current
liabilities
   (1,398)   3,521   (306) 
Contributions to severance insurance deposit accounts
   (5,688)   (11,921)   (2,262) 
Payment of severance benefits
   (6,679)   (12,076)   (9,288) 
Other, net
   193   (3,724)   514 
   
 
 
  
 
 
  
 
 
 
Net cash provided by operating activities
   87,743   7,470   50,497 
Cash flows from investing activities
             
Proceeds from settlement of hedge collateral
   5,214   13,762   13,583 
Payment of hedge collateral
   (3,349)   (8,839)   (17,833) 
Proceeds from disposal of property, plant and equipment
   1,446   65   202 
Purchase of property, plant and equipment
   (32,212)   (36,100)   (22,955) 
Payment for intellectual property registration
   (614)   (741)   (1,103) 
Collection of guarantee deposits
   3,192   1,024   549 
Payment of guarantee deposits
   (5,001)   (1,236)   (1,349) 
Proceeds from sale of discontinued operations
   —     350,553   —   
Other, net
   (114)   (6)   9 
   
 
 
  
 
 
  
 
 
 
Net cash provided by (used in) investing activities
   (31,438)   318,482   (28,897) 
Cash flows from financing activities
             
Repayment of borrowings
   —     (224,250)   (1,175) 
Proceeds from exercise of stock options
   4,279   3,918   2,860 
Acquisition of treasury stock
   (1,653)   (1,125)   (2,702) 
Acquisition of stock under accelerated stock repurchase agreement
  
 
(20,073
)
 
  
—  
   
—  
 
Payment
under
accelerated stock
repurchase agreement

   (17,427)   —     —   
Repayment of financing related to water treatment facility arrangement
   (563)   (546)   (552) 
Others
   (107)   (278)   (233) 
   
 
 
  
 
 
  
 
 
 
Net cash used in financing activities
   (35,544)   (222,281)   (1,802) 
Effect of exchange rates on cash and cash equivalents
   (21,154)   24,612   (579) 
   
 
 
  
 
 
  
 
 
 
Net increase (decrease) in cash and cash equivalents
   (393)   128,283   19,219 
Cash and cash equivalents at beginning of period

   279,940   151,657   132,438 
   
 
 
  
 
 
  
 
 
 
Cash and cash equivalents at end of period

  $279,547  $279,940  $151,657 
   
 
 
  
 
 
  
 
 
 
Supplemental cash flow information
             
Cash paid for interest
  $2,094  $22,221  $19,071 
Cash paid for income taxes
  $12,672  $23,056  $2,081 
Non-cash
investing and financing activities
             
Property, plant and equipment additions in other accounts payable
  $747  $—    $2,542 
Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation
  $(826)  $(643)  $(405) 
Exchange of exchangeable senior notes into common stock
  $83,740  $—    $—   
The accompanying notes are an integral part of these consolidated financial statements

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies

Business

MagnaChip

Magnachip Semiconductor Corporation (together with its subsidiaries, the “Company”) is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, Internet of Things (“IoT”) applications, consumer, computing, industrial and automotive applications. The
On September 1, 2020 (the “Closing Date”), the Company provides technology platforms for analog, mixed signal, power, high voltage,non-volatile memory and Radio Frequency (“RF”) applications. The Company’s business is comprisedcompleted the sale of two operating segments: Foundry Services Group and Standard Products Group. Thethe Company’s Foundry Services Group provides specialty analogbusiness and mixed-signalits fabrication facility located in Cheongju, Korea, known as “Fab 4” to Key Foundry Co., Ltd. (the “Buyer”), a Korean corporation, in exchange for a purchase price equal to approximately $350.6 million in cash, pursuant to the terms of a business transfer agreement (the “Business Transfer Agreement”) dated March 31, 2020 by and among the Company and Magnus Semiconductor, LLC, a Korean limited liability company (“Magnus”). The purchase price was paid in a combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion. In addition to the purchase price, the Buyer assumed all severance liabilities relating to the transferred employees, which had a value of approximately $100 million. The Buyer is a wholly owned subsidiary of Magnus, which was established by Alchemist Capital Partners Korea Co., Ltd. and Credian Partners, Inc. On April 20, 2020, Magnus assigned, and the Buyer assumed, all rights and obligations of Magnus under the Business Transfer Agreement. This divestiture of the Foundry Services Group business and Fab 4 was made in connection with the Company’s strategic shift of its operational focus to its standard products business. The Foundry Services Group was historically a reportable segment. The Foundry Services Group business was classified as discontinued operations in the Company’s consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Accordingly, the Company has one reportable segment, its standard products business, together with transitional foundry services mainlyassociated with its fabrication facility located in Gumi, Korea, known as “Fab 3,” that it expects to perform for fabless and Integrated Device Manufacturer (“IDM”the Buyer for a period of up to three years from the Closing Date (the “Transitional Fab 3 Foundry Services”) semiconductor companies that primarily serve communications, IoT, consumer, industrial and automotive applications. .
The Company’s Standard Products Group is comprised of twostandard products business lines:includes its Display Solutions and Power Solutions.Solutions business lines. The Company’s Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile, automotive applications and home appliances. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications.

Basis of Presentation

The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“USU.S. GAAP”).

Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below.

The consolidated statements of cash flows for the 2020 and 2019 fiscal years have not been adjusted to separately disclose cash flows related to discontinued operations, but the material items in the operating and investing activities of the cash flow relating to discontinued operations for the same period are disclosed in Note 2. Unless otherwise stated, information in these notes to consolidated financial statements relates to the Company’s continuing operations and excludes the discontinued operations. See Note 2 “Discontinued Operations” for additional information.
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Principles of Consolidation

The consolidated financial statements include the accounts of the Company including its wholly-owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with USU.S. GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, unbilled accounts receivable, inventories, stock basedstock-based compensation, property, plant and equipment, intangible assets, leases, other long-lived assets, long-term employee benefits, contingencies liabilities, estimated future cash flows and other assumptions used in long-lived asset impairment tests and calculation of current and deferred income taxes and deferred tax valuation allowances, and assumptions used in the calculation of sales incentives, among others. Although these estimates and assumptions are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be significantly different from the estimates.

The Company assessed the impact of

COVID-19
on the estimates and assumptions to the extent applicable, and determined that there was no material impact on the Company’s consolidated financial statements as of and for the years ended December 31, 2021 and 2020. However, the Company is not able to predict with certainty the future impact of
COVID-19
on its estimates and assumptions due to the rapidly changing nature of the
COVID-19
pandemic.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation.
Discontinued Operations
The Company reports the results of operations of a business as discontinued operations if a disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the business is sold and classified as held for sale, in accordance with the criteria of Accounting Standards Codification (“ASC”) 205, “Presentation of Financial Statements” (“ASC 205”) and ASC 360, “Property, Plant and Equipment” (“ASC 360”). The results of discontinued operations are reported in “Income (loss) from discontinued operations, net of tax” in the accompanying consolidated statements of operations for the prior periods commencing in the period in which the business meets the criteria.
Foreign Currency Translation

The Company has assessed in accordance with Accounting Standards Codification (ASC)ASC 830, “Foreign Currency Matters” (“ASC 830”), the functional currency of each of its subsidiaries in Luxembourg and the

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Netherlands and has designated the USU.S. dollar to be their respective functional currencies. The Korean Won is the functional currency for the Company’s Korean subsidiary, which is the primary operating subsidiary of the Company. The Company and its other subsidiaries are utilizing their local currencies as their functional currencies. The financial statements of the subsidiaries in functional currencies other than the USU.S. dollar are translated into the USU.S. dollar in accordance with ASC 830. All the assets and liabilities are translated to the USU.S. dollar at the

end-of-period
exchange rates. Capital accounts are determined to be of a permanent nature and are therefore translated using historical exchange rates. Revenues and expenses are translated using average exchange rates for the respective periods. Foreign currency translation adjustments arising from differences in exchange rates from period to period are
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
included in the foreign currency translation adjustment account in accumulated other comprehensive income or loss of stockholders’ equity. Foreign currency translation gains or losses on transactions by the Company or its subsidiaries in a currency other than its or its subsidiaries’ functional currency are included in foreign currency gain (loss),loss, net in its statements of operations.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with an original maturity date of three months or less when purchased.

Accounts Receivable Reserves

An

The Company makes estimates of expected credit losses for the allowance for doubtful accounts is providedcredit losses based onupon its assessment of various factors, including historical collection experience, the aggregate estimated uncollectabilityage of the Company’s accounts receivable.receivable balances, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The Company also records an estimate for sales returns, included within accounts receivable, net, based on the historical experience of the amount of goods that will be returned and refunded or replaced. In addition, the Company also includes in accounts receivable, net, an allowance for volume discounts offered to certain customers and distributors for meeting agreed upon levels of sales volume.

Sales of Accounts Receivable

The Company accounts for transfers of financial assets under ASC 860, “Transfers and Servicing,” as either sales or financings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria, the transfer is accounted for as a financing. Financial assets that are treated as sales are removed from the Company’s accounts with any realized gain or loss reflected in earning during the period of sale.

Inventories

Inventories are stated at the lower of cost or net realizable value, using the first in, first out method (“FIFO”). If net realizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized as a loss on valuation of inventories within cost of sales. Inventory reserves are established when conditions indicate that the net realizable value is less than costs due to physical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. The Company evaluates the sufficiency of inventory reserves and takes into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sale of existing products, product age and other factors. Reserves are also established

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for excess inventory based on the Company’s current inventory levels and projected demand and its ability to sell those specific products. Situations that could cause these inventory reserves include a decline in business and economic conditions, decline in consumer confidence caused by changes in market conditions, sudden and significant decline in demand for ourthe Company’s products, inventory obsolescence because of rapidly changing technology and consumer requirements, or failure to estimate end customer demand properly. A reduction of these inventory reserves may be recorded if previously reserved items are subsequently sold as a result of unexpected changes to certain aforementioned situations.

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In addition, as prescribed in ASC 330, “Inventory,” once a reserve is established for a particular item based on the Company’s assessment as described above, it is maintained until the related item is sold or scrapped as a new cost basis has been established that cannot subsequently be marked up. In addition, the cost of inventories is determined based on the normal capacity of eachthe Company’s fabrication facility. In case the capacity utilization is lower than a certain level that management believes to be normal, the fixed overhead costs per production unit which exceeds those under normal capacity are charged to cost of sales rather than capitalized as inventories.

Advances to Suppliers

The Company, from time to time, may make advances in form of prepayments or deposits to suppliers to procure materials to meet its planned production. The Company recorded advances of $6,593$1,708 thousand and $8,132$5,500 thousand as other current assets as of December 31, 20192021 and 2018,2020, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as set forth below.

Buildings

   30 - 40 years 

Building related structures

   10 - 20 years 

Machinery and equipment

   10 - 12 years 

Others

   3 - 10 years 

Routine maintenance and repairs are charged to expense as incurred. Expenditures that enhance the value or significantly extend the useful lives of the related assets are capitalized.

Impairment of Long-Lived Assets

The Company reviews property, plant and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360, “Property, Plant and Equipment.” Recoverability is measured by comparing its carrying amount with the future net undiscounted cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment is measured as the difference between the carrying amount of the assets and the fair value of assets using the present value of the future net cash flows generated by the respective long-lived assets.

Restructuring Charges

The Company recognizes restructuring charges in accordance with ASC 420, “Exit or Disposal Cost Obligations.” Certain costs and expenses related to exit or disposal activities are recorded as restructuring charges when liabilities for those costs and expenses are incurred.

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Leases

The Company determines if an arrangement is a lease at inception of a contract considering whether the arrangement conveys the right to control the use of an identified asset over the period of use. Control of an underlying asset is conveyed if the Company has the right to direct the use of, and to obtain substantially all of the economic benefits from the use of, the identified asset. The Company accounts for lease transactions as either an operating or a finance lease, depending on the terms of the underlying lease arrangement. Assets related to operating leases are recorded on the balance sheet as operating lease
right-of-use
assets; the related liabilities are recorded as operating lease liabilities for the current portion and
non-current
operating lease liabilities for the
non-current
portion. Finance lease
right-of-use
assets are included in property, plant and equipment, net and the related lease liabilities are included in other current liabilities and other
non-current
liabilities on the consolidated balance sheets.

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Right-of-use
assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
Right-of-use
assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide a readily determinable implicit rate, the Company estimates its incremental borrowing rates in determining the present value of future payments based on the lease term of each lease and market information available at commencement date. Finance lease
right-of-use
assets are amortized on a straight-line basis over the respective lease term with the interest expense on the lease liability recorded using the interest method. The amortization and interest expense are recorded separately in the consolidated statements of operations. Amortization of operating lease
right-of-use
assets and interest expense on operating lease liabilities are recognized on a straight-line basis over the respective lease term.

An extension or contraction of a lease term is considered if the related option to extend or early terminate the lease is reasonably certain to be exercised by the Company. Operating lease
right-of-use
assets may also include any advance lease payments made and exclude lease incentives and initial direct costs incurred. The Company has lease agreements with lease and
non-lease
components, which are generally accounted for separately. For certain equipment leases, lease and
non-lease
components are accounted for as a single lease component.

Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates are not included in the
right-of-use
assets or liabilities. These variable lease payments are expensed as incurred.

The Company does not recognize operating lease
right-of-use
assets and operating lease liabilities that arise from short-term leases but rather recognizes fixed lease payments in the statements of operations on a straight-line basis and variable payments in the period in which the related obligations incur.

Intangible Assets

Intangible assets other than intellectual property include technology and customer relationships that are amortized on a straight-line basis over periods ranging from one to five years.

Intellectual property assets acquired represent rights under patents, trademarks and property use rights and are amortized over their respective periods of benefit, ranging up to ten years, on a straight-line basis.

Fair Value Disclosures of Financial Instruments

The Company follows ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”) for measurement and disclosures about fair value of its financial instruments. ASC 820 establishes a framework for

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measuring fair value in USU.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820 are:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

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Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date. The carrying amounts of the Company’s financial assets and liabilities, such as cash equivalents, accounts receivable, other receivables, accounts payable and other accounts payable approximate their fair values because of the short maturity of these instruments.

Accrued Severance Benefits

The majority of accrued severance benefits are for employees in the Company’s Korean subsidiary, MagnaChipMagnachip Semiconductor, Ltd. Pursuant to the Employee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2019,2021, 98% of all employees of the Company were eligible for severance benefits.

Beginning in July 2018, the Company began contributing to certain severance insurance deposit accounts a percentage of severance benefits, which may be adjusted from time to time, accrued for eligible employees for their services beginning January 1, 2018. These accounts consist of time deposits and other guaranteed principal and interest accounts, and are maintained at insurance companies, banks or security companies for the benefit of the Company’s employees.
Accrued severance benefits are partly funded through a group severance insurance plan. The amounts funded under this insurance plan are classified as a reduction of the accrued severance benefits. Subsequent accruals are to be funded at the discretion of the Company.

In accordance with the National Pension Act of the Republic of Korea, a certain portion of accrued severance benefits is deposited with the National Pension Fund and deducted from the accrued severance benefits. The contributed amount is paid to employees from the National Pension Fund upon their retirement.

Beginning in July 2018, the Company began contributing a percentage of severance benefits, which may be adjusted from time to time, accrued for eligible employees for their services beginning January 1, 2018, to certain severance insurance deposit accounts. These accounts consist of time deposits and other guaranteed principal and interest accounts, and are maintained at insurance companies, banks or security companies for the benefit of the Company’s employees.

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Revenue Recognition

The Company recognizes revenue when it satisfies the performance obligation of transferring control over a product or service to a customer. Revenue is measured based on the consideration specified in a contract with a customer, which consideration is paid in exchange for a product or service.

The Foundry Services Group of the Company manufactures products, which the Company refers to as foundry products, based on customers’ specific product designs. The Company recognizes revenue over time for foundry products that do not have an alternative use when the Company has an enforceable right to payment. Revenue recognized over time is in proportion of wafer manufacturing costs incurred relative to total estimated costs for completion. However, in certain circumstances, pursuant to a customer contract or an individual purchase order, the Company may not have an enforceable right to payment for services performed at a given time. In this situation, the Company recognizes revenue at the time when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement.

The Standards Products Group of the Company sells products manufactured based on the Company’s design. The Standard Products Group’sCompany’s products are either standardized with an alternative use or the Company does not have an enforceable right to payment for the related manufacturing services completed to date. Therefore, revenue for the Standards Products Group’s products is recognized when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement.

A portion

90

Table of the Company’s sales are made through distributors for which the Company applies the same revenue recognition guidance described above. The Company defers the recognition of revenue when it receives consideration from the customers prior to the fulfillment of performance obligations. These amounts are classified as deferred revenue on the consolidated balance sheets. Of the recorded deferred revenue of $6,477 thousand as of December 31, 2018, $1,885 thousand was recognized as revenue during the year ended December 31, 2019 and $4,428 thousand was refunded to a certain customer as the relevant advance payment agreement was terminated. Of the recorded deferred revenue of $8,335 thousand as of January 1, 2018, $3,496 thousand was recognized as revenue during the year ended December 31, 2018, and $4,671 thousand was reclassified to other current liabilities as the relevant advance payment agreement with a certain customer was terminated.

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In accordance with revenue recognition guidance, any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction, and that is collected by the Company from a customer, is excluded from revenue and related revenue is presented in the statements of operations on a net basis.

The Company provides warranties under which customers can return defective products. The Company also provides allowances for additional products that may have to be provided free of charge to compensate customers for not meeting previously agreed upon yield criteria, which the Company refers to as the low yield compensation reserve. The Company estimates the costs related to warranty claims and repair or replacements, and low yield compensation reserves, and records them as components of cost of sales.

In addition, the Company offers sales returns (other than those that relate to defective products under warranty), cash discounts for early payments and sales incentives, including discounts and volume rebates, and certain allowances to the Company’s customers, including the Company’s distributors. The Company records reserves for those returns, discounts, incentives and allowances as a deduction from sales, based on historical experience and other quantitative and qualitative factors.

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Substantially all of the Company’s contracts are one year or less in duration. The standard payment terms with customers are generally thirty to sixty days from the time of shipment, product delivery to the customer’s location or customer acceptance, depending on the terms of the related arrangement.

Unbilled accounts receivable represents the Company’s contractual right to consideration for manufacturing work performed on a customer contract or an individual purchase order that has not been invoiced to the customer. As of December 31, 2019 and 2018, the Company recorded unbilled accounts receivable of $17,094, net of an allowance of $627 thousand, and $38,181 thousand, net of an allowance of nil, respectively. Of the recorded unbilled accounts receivable of $38,181 thousand as of December 31, 2018, $34,910 thousand were billed to customers upon shipment, upon product delivery or upon customer acceptance, depending on the terms of the related arrangement, during the year ended December 31, 2019.

All amounts billed to a customer related to shipping and handling are classified as sales while all costs incurred by the Company for shipping and handling are classified as selling, general and administrative expenses. The amounts charged to selling, general and administrative expenses were $1,769$1,271 thousand, $1,861$993 thousand and $1,652$990 thousand for the years ended December 31, 2021, 2020 and 2019, 2018respectively.
Of the recorded deferred revenue of $2,680 thousand as of December 31, 2020 and 2017,$559 thousand as of December 31, 2019, $2,680 thousand and $559 thousand were recognized as revenue during the years ended December 31, 2021 and 2020, respectively.

Advertising
The Company expenses advertising costs as incurred. Advertising expenses were $71 thousand, $87 thousand and $62 thousand for the years ended December 31, 2021, 2020 and 2019, respectively.
Product Warranties
The Company records, in other current liabilities, warranty liabilities for the estimated costs that may be incurred under its basic limited warranty. The standard limited warranty period is one to two years for the majority of products. This warranty covers defective products, and related liabilities are accrued when product revenues are recognized. Factors that affect the Company’s warranty liabilities include historical and anticipated rates of warranty claims and repair or replacement costs per claim to satisfy the Company’s warranty obligation. The Company periodically assesses the adequacy of those recorded warranty liabilities and adjusts its estimates when necessary.
Derivative Financial Instruments

The Company applies the provisions of ASC 815, “Derivatives and Hedging” (“ASC 815”). This Statementstatement requires the recognition of all derivative instruments as either assets or liabilities measured at fair value.

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Under the provisions of ASC 815, the Company may designate a derivative instrument as hedging the exposure to variability in expected future cash flows that are attributable to a particular risk (a “cash flow hedge”) or hedging the exposure to changes in the fair value of an asset or a liability (a “fair value hedge”). Special accounting for qualifying hedges allows the effective portion of a derivative instrument’s gains and losses to offset related results on the hedged item in the consolidated statements of operations and requires that a company formally document, designate and assess the effectiveness of the transactions that receive hedge accounting treatment. Both at the inception of a hedge and on an ongoing basis, a hedge must be expected to be highly effective in achieving offsetting changes in cash flows or fair value attributable to the underlying risk being hedged. If the Company determines that a derivative instrument is no longer highly effective as a hedge, it discontinues hedge accounting prospectively and future changes in the fair value of the derivative are recognized in current earnings. The Company assesses hedge effectiveness at the end of each quarter.

The Company does not offset derivative assets and liabilities within the consolidated balance sheets.

In accordance with ASC 815, changes in the fair value of derivative instruments that are cash flow hedges are recognized in accumulated other comprehensive income (loss) and reclassified into earnings in the period in which the hedged item affects earnings. Derivative instruments that do not qualify, or cease to qualify, as hedges must be adjusted to fair value and the adjustments are recorded through net income (loss).

The cash flows from derivative instruments receiving hedge accounting treatment are classified in the same categories as the hedged items in the consolidated statements of cash flows.

Advertising

The Company expenses advertising costs as incurred. Advertising expense was approximately $134 thousand, $121 thousand and $95 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.

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Product Warranties

The Company records, in other current liabilities, warranty liabilities for the estimated costs that may be incurred under its basic limited warranty. The standard limited warranty period is one to two years for the majority of products. This warranty covers defective products, and related liabilities are accrued when product revenues are recognized. Factors that affect the Company’s warranty liabilities include historical and anticipated rates of warranty claims and repair or replacement costs per claim to satisfy the Company’s warranty obligation. The Company also records, in other current liabilities, low yield compensation reserves for its estimated costs for products that may have to be provided free of charge to compensate customers for not meeting previously agreed upon yield criteria. Factors that affect the Company’s low yield compensation reserves include historical and anticipated rates of claims for not meeting previously agreed upon yield criteria. The Company periodically assesses the adequacy of those recorded warranty liabilities and low yield compensation reserves, and adjusts its estimates when necessary.

Research and Development

Research and development expenses are expensed as incurred and include wafers, masks, employee expenses, contractor fees, building costs, utilities and administrative expenses.

Licensed Patents and Technologies

The Company has entered into a number of royalty agreements to license patents and technology used in the design of its products. The Company carries two types of royalties:
lump-sum
and running basis.
Lump-sum
royalties, which require initial payments, usually paid in installments, represent a
non-refundable
commitment, such that the total present value of these payments is recorded as a prepaid expense and a liability upon execution of the agreements and the costs are amortized over the contract period using the straight-line method and charged to research and development expenses in the consolidated statements of operations.

Running royalties are paid based on the revenue of related products sold by the Company.

Stock-Based Compensation

The Company follows the provisions of ASC 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of the estimated forfeiture rate, over the requisite service period. As permitted under ASC 718, the Company elected to recognize compensation expense for all options with graded vesting based on the graded attribution method.

The Company uses the Black-Scholes option-pricing model to measure the grant-date-fair-value of options. The Black-Scholes model requires certain assumptions to determine an option’s fair value, including expected
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term, risk free interest rate and expected volatility. The expected term of each option grant was based on employees’ expected exercises and post-vesting employment termination behavior and the risk free interest rate was based on the USU.S. Treasury yield curve for the period corresponding with the expected term at the time of grant. No dividends were assumed for this calculation of option value.

Earnings Per Share

In accordance with ASC 260, “Earnings Per Share”, the Company computes basic earnings per share by dividing net income (loss) available to common stockholders by the weighted average number of common shares

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outstanding during the period. Diluted earnings per share reflect the dilution of potential common stock outstanding during the period including stock options and restricted stock units, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options and restricted stock units), and convertibles, using the

if-converted
method. In determining the hypothetical shares repurchased, the Company uses the average share price for the period. In the case that earnings are negative, any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax basesbasis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when it is necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Valuation allowances are established when it is necessary to reduce deferred tax assets to the amount expected to be realized. The evaluation of the recoverability of the deferred tax assets and the need for a valuation allowance requires management to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including historical operating results, expected timing of the reversals of existing temporary differences, the Company’s ability to generate future taxable income, and tax planning strategies.

The Company recognizes and measures uncertain tax positions taken or expected to be taken in a tax return utilizing a
two-step
process. In the first step, recognition, the Company determines whether it ismore-likely-than-not more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets themore-likely-than-not more likely than not criteria. The tax position is measured at the largest amount of benefit that has a likelihood of greater
than 50 percent of being realized upon ultimate settlement.

Concentration of Credit Risk

The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral for customers on accounts receivable. The Company maintains reserves for potential credit losses, which are periodically reviewed.

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Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2020-06,
“Debt—Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40)”
(“ASU
2020-06”),
which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. The Company will adopt as of the reporting period beginning January 1, 2022. The Company does not expect the adoption of ASU
2020-06
to have a material effect on the Company’s consolidated financial statements.
In May 2021, the FASB issued ASU
No. 2021-04,
“Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic
470-50)”,
Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic
815-40):
Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU
2021-04”),
ASU
2021-04
clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options so that the transaction should be treated as an exchange of the original instrument for a new instrument. ASU
2021-04
is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company does not expect the adoption of ASU
2021-04
to have a material effect on the Company’s consolidated financial statements.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update ASU
No. ASU2019-12, “Income
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expectadopted ASU
2019-12
as of January 1, 2021, and the adoption of ASU
2019-12 to
did not have a material effectimpact on the Company’s consolidated financial statements.

In June 2016,

2. Discontinued Operations
On September 1, 2020, the FASB issued Accounting Standards UpdateNo. 2016-13, “Financial Instruments—Credit Losses (Topic 326): MeasurementCompany completed the sale of Credit Lossesits Foundry Services Group business and Fab 4. As a result of the sale of the Foundry Services Group business and Fab 4, the Company
recorded a gain of $
287,117 thousand and all operations from the Foundry Services Group business and Fab 4 were classified as discontinued operations for all periods presented. Following the consummation of the sale, and for up to three years, the Company is expected to provide the Transitional Fab 3 Foundry Services at an agreed upon cost plus mark-up. For the periods prior to the Closing Date, revenue from providing the Transitional Fab 3 Foundry Services to the Foundry Services Group is recorded at cost on Financial Instruments” (“ASU2016-13”). ASU2016-13 amendsboth of the impairment model by requiring entitiescontinuing and discontinued businesses for comparative purposes. Cash inflows to use a forward-looking approach based on expected lossesthe Company from the Buyer related to estimate credit losses on certain typesproviding the Transitional Fab 3 Foundry Services were $46,611 thousand and $7,643 thousand for the years ended December 31, 2021 and 2020, respectively.
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Table of financial instruments, including trade receivables. In April 2019, the FASB issued Accounting Standards UpdateNo. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU

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2019-04”),

The following table summarizes the results from discontinued operations, net of tax, for the years ended December 31, 2020 and in November
2019.
   
Year Ended December 31,
 
   
        2020        
   
        2019        
 
   
(In thousands of U.S. dollars)
 
Revenues:
    
Net sales—Foundry Services Group $254,732  $307,348 
Net sales—transitional Fab 3 foundry services  (25,887)   (35,824) 
  
 
 
  
 
 
 
Total revenues  228,845   271,524 
Cost of sales:        
Cost of sales—Foundry Services Group  182,872   243,134 
Cost of sales—transitional Fab 3 foundry services  (25,887)   (35,824) 
  
 
 
  
 
 
 
Total cost of sales  156,985   207,310 
  
 
 
  
 
 
 
Gross profit  71,860   64,214 
Operating expenses:        
Selling, general and administrative expenses  14,797   24,042 
Research and development expenses
  19,484   30,332 
Restructuring and other charges
  15,873   9,142 
  
 
 
  
 
 
 
Total operating expenses
  50,154   63,516 
Operating income from discontinued operations
  21,706   698 
  
 
 
  
 
 
 
Foreign currency gain, net
  1,277   503 
Others, net
  72   (67) 
  
 
 
  
 
 
 
Income from discontinued operations before income tax expense
  23,055   1,134 
Income tax expense
  11,452   2,547 
Gain on sale of discontinued operations
  287,117   —   
Transaction costs
  (10,814)   —   
  
 
 
  
 
 
 
Income (loss) from discontinued operations, net of tax
  287,906   (1,413) 
  
 
 
  
 
 
 
For the
years ended December 31, 2020 and 2019, the FASB issued Accounting Standards Update No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses” (“ASU 2019-11”) to clarifyCompany recorded $
15,873
 thousand and address certain items$
6,991
 thousand, respectively, in professional fees and transaction related toexpenses incurred in connection with the amendments in ASU2016-13. ASU2016-13, ASU2019-04sale of the Foundry Services Group business and ASU2019-11 are effective for fiscal years beginning afterFab 4, and recorded such costs as restructuring and other charges. For the year ended December 15,31, 2019, with early adoption permitted. Thethe Company does not expect the adoption of ASU2016-13, ASU2019-04 and2019-11 to have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued Accounting Standards UpdateNo. 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU2018-13”). ASU2018-13 amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. ASU2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The Company does not expect that the adoption will have an impact on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2018, the FASB issued Accounting Standards UpdateNo. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Reform. The Company adopted ASU2018-02 in the first quarter of 2019, and the adoption did not impact the Company’s consolidated financial statements and related disclosures.

In August 2017, the FASB issued Accounting Standards UpdateNo. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU2017-12”). ASU2017-12 provides new guidance about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for qualifying hedge instruments included in the effectiveness will bealso recorded in restructuring and other comprehensive income (“OCI”) and amounts deferred in OCI will be reclassifiedcharges a $

2,151
 thousand restructuring-related charge to earnings in the same income statement line item in which the earnings effectits fab employees.
95
Table of the hedged item is reported. The Company adopted ASU2017-12 in the first quarter of 2019, and the adoption of ASU2017-12 did not have a material impact to the Company’s consolidated financial statements.

In July 2017, the FASB issued Accounting Standards UpdateNo. 2017-11, “Earnings Per Share (Topic 260): Distinguishing Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic 815)” (“ASU2017-11”), which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. The Company adopted ASU2017-11 in the first quarter of 2019, and the adoption did not impact the Company’s consolidated financial statements.

In February 2016, the FASB issued Accounting Standards UpdateNo. 2016-02, “Leases (Topic 842)” (“ASU2016-02”) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under US GAAP. ASU2016-02 requires that a lessee recognize a liability to make lease payments and aright-of-use asset

Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

representing its right to use the underlying asset for the lease term on the balance sheet.

The FASB issued Accounting Standards Update No2018-01, “Leases (Topic 842) Land Easement Practical Expedient for Transition to Topic 842” (“ASU2018-01”). ASU2018-01 permits an entity to elect an optional transition practical expedient not to evaluate land easements that exist or expired before the entity’s adoption of ASU2016-02 and that were not accounted for as leases under previous lease guidance. In July 2018, the FASB issued Accounting Standards Update No2018-10, “Codification Improvements to Topic 842 Leases” (“ASU2018-10”). ASU2018-10following table provides narrow amendments to clarify how to apply certain aspects of the new lease standard. In July 2018, the FASB also issued Accounting Standards Update No2018-11, “Leases (Topic 842) Targeted Improvements” (“ASU2018-11”). ASU2018-11 allows an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings upon adoption of ASU2016-02 (the “modified retrospective transition method”). In December 2018, the FASB issued Accounting Standards Update No2018-20, “Leases (Topic 842) Narrow Scope Improvements for Lessors” (“ASU2018-20”). ASU2018-20 provides certain amendments that affect narrow aspects of the guidance issued in ASU2016-02. In March 2019, the FASB issued Accounting Standards Update No2019-01 “Codification Improvements” (“ASU2019-01”). The effective date and transition requirements for ASU2016-02, ASU2018-01, ASU2018-10, ASU2018-11, ASU2018-20 and ASU2019-01 are the same. The Company adopted the new lease standard as of January 1, 2019, using the modified retrospective transition method, which requires a cumulative effect adjustment, if any, to the Company’s beginning equity to be recognized on the date of adoption. There was no cumulative effect adjustment recorded on January 1, 2019. Accordingly, all periods prior to January 1, 2019, were presented in accordance with the previous FASB Accounting Standards Codification (“ASC”) Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. The impact from the adoption was the balance sheet recognition ofright-of-use assets and lease liabilities for operating and finance leases as a lessee, which resulted in an increase of $16,387 thousand in the total assets and liabilities of the Company’s consolidated balance sheets as of January 1, 2019. The Company used hindsight for determining a remaining lease term and assessing the likelihood of whether a renewal option is reasonably certain to be exercised by the Company. In addition, the adoption did not materially impact the Company’s consolidated statements of operations orsupplemental cash flows for the year ended December 31, 2019. For further information regarding these impacts, see Note 7, “Leases.”

In May 2014, the FASB issued ASU2014-09. ASU2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entitiesrelated to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The new guidance allows for the amendments to be applied either retrospectively to each prior reporting period presented (the “full retrospective method”) or retrospectively as a cumulative-effect adjustment as of the date of adoption (the “modified retrospective method”). In March 2016, the FASB issued ASU2016-08, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issuedASU 2016-10, which clarifies identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU2016-12, which improves certain aspects of ASC Topic 606 “Revenue from Contracts with Customers.” In December 2016, the FASB issued ASU2016-20, which improves certain aspects of ASC Topic 606 “Revenue from Contracts with Customers.” The effective date and transition requirements for ASU2016-08, ASU2016-10, ASU2016-12 and ASU2016-20 are the same as the effective date and transition requirements of ASU2014-09 (collectively, the “new revenue standard”).

Prior to the adoption of the new revenue standard effective on January 1, 2018, the Company had historically recognized revenue when risk and reward of ownership passed to the customer either upon shipment, upon product delivery at the customer’s location or upon customer acceptance, depending on the terms of the

discontinued

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

related arrangement. After the adoption of the new revenue standard effective on January 1, 2018, the Company recognizes revenue over time for foundry products that do not have an alternative use when the Company has an enforceable right to payment. As the Company adopted the new revenue standard using the modified retrospective method, it recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the Company’s equity as of January 1, 2018, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for such periods. The cumulative effect of the adjustments increased unbilled accounts receivable by $38,307 thousand and decreased inventories, net by $29,823 thousand, resulting in a net increase of $8,484 thousand in the Company’s beginning equity as of January 1, 2018. There was no net income tax impact from those cumulative effect adjustments due to full allowance on deferred tax assets.

2.

operations:
   
Year Ended December 31,
 
   
    2020    
   
    2019    
 
   
(In thousands of U.S. dollars)
 
Significant non-cash operating activities:
          
Depreciation and amortization  $5,365   $22,411 
Provision for severance benefits
   8,209    10,879 
Stock-based compensation   388    899 
Investing activities:          
Capital expenditures  $(5,838)   $(11,653) 
3. Fair Value Measurements

ASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820 requires, among other things, the Company’s valuation techniques used to measure fair value to maximize the use of observable inputs and minimize the use of unobservable inputs.

Fair Value of Financial Instruments

As of December 31, 2019, the following table represents the Company’s assets measured at fair value on a recurring basis and the basis for that measurement (in thousands):

  Carrying Value
December 31, 2019		  Fair Value
Measurement
December 31, 2019		  Quoted Prices in
Active Markets
for Identical
Asset (Level 1)		  Significant
Other
Observable
Inputs
(Level 2)		  Significant
Unobservable
Inputs
(Level 3)		 

Assets:

     

Derivative assets (other current assets)

 $1,456  $1,456   —    $1,456   —   

As of December 31, 2018,2021, the following table represents the Company’s liabilities measured at fair value on a recurring basis and the basis for that measurement

(in thousands):
  
Carrying Value
December 31, 2021
  
Fair Value
Measurement
December 31, 2021
  
Quoted Prices in
Active Markets
for Identical
Liability (Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:
                    
Derivative liabilities (other current liabilities)  $2,020   $2,020    —     $2,020    —   
As of December 31, 2020, the following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

  Carrying Value
December 31, 2018		  Fair Value
Measurement
December 31, 2018		  Quoted Prices in
Active Markets
for Identical
Asset (Level 1)		  Significant
Other
Observable
Inputs
(Level 2)		  Significant
Unobservable
Inputs
(Level 3)		 

Liabilities:

     

Derivative liabilities (other current liabilities)

 $724  $724   —    $724   —   

   
Carrying Value
December 31, 2020
   
Fair Value
Measurement
December 31, 2020
   
Quoted Prices in
Active Markets
for Identical
Asset /
Liability (Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                         
Derivative assets (other current assets)
  $2,036   $2,036    —     $2,036    —   
Liabilities:
                         
Derivative liabilities (other current liabilities)
  $195   $195    —     $195    —   
Items not reflected in the table above include cash equivalents, accounts receivable, other receivables, accounts payable, and other accounts payable, fair value of which approximate carrying values due to the short-term nature of these instruments. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)


Fair Value of Long-Term Borrowings

  December 31, 2019  December 31, 2018 
  Carrying
Value		  Fair
Value		  Carrying
Value		  Fair
Value		 
  (In thousands of US dollars) 

Long-Term Borrowings:

    

5.0% Exchangeable Senior Notes due March 2021 (Level 2)

 $81,959  $116,078  $81,418  $86,835 

6.625% Senior Notes due July 2021 (Level 2)

 $222,784  $224,250  $222,159  $202,046 

   
December 31, 2020
 
   
Carrying
Value
   
Fair
Value
 
   
(In thousands of U.S.
dollars)
 
Borrowings:
          
5.0% Exchangeable Senior Notes due March 2021 (Level 2)
  $83,479   $145,466 
On January 17, 2017, the Company’s wholly-owned subsidiary, MagnaChip Semiconductor S.A., closed an offering (the “Exchangeable Notes Offering”) of 5.0% Exchangeable Senior Notes due March 1, 2021 (the “Exchangeable Notes”), of $86,250 thousand, which represents the principal amount, excluding $5,902 thousand of debt issuance costs. In December 2018 and February 2019, MagnaChip Semiconductor S.A. repurchased a principal amount equal to $1,590 thousand and $920 thousand, respectively, of the Exchangeable Notes in the open market. The Company estimates the fair value of the Exchangeable Notes using the market approach, which utilizes quoted market prices that fall under Level 2. For further description of the Exchangeable Notes, see Note 11, “Long-Term Borrowings.12, “Borrowings.”

On July 18, 2013, the Company issued 6.625% Senior Notes due July 15, 2021 (the “2021 Notes”) of $225,000 thousand, which represents the principal amount, excluding $1,125 thousand of original issue discount and $5,039 thousand of debt issuance costs. In December 2018 and January 2019, the Company repurchased a principal amount equal to $500 thousand and $250 thousand, respectively, of the 2021 Notes in the open market. The Company estimates the fair value of the 2021 Notes using the market approach, which utilizes quoted market prices that fall under Level 2. For further description of the 2021 Notes, see Note 11, “Long-Term Borrowings.”

Fair Values Measured on a
Non-recurring
Basis

The Company’s
non-financial
assets, such as property, plant and equipment, and intangible assets are recorded at fair value upon acquisition and are remeasured at fair value only if an impairment charge is recognized.

3. As of December 31, 2021 and 2020, the Company

 did
0
t have any assets or liabilities measured at fair value on a
non-recurring
basis.

4. Accounts Receivable

Accounts receivable as of December 31, 20192021 and 20182020 consisted of the following (in thousands):

   December 31, 
   2019   2018 

Accounts receivable

  $92,685   $80,155 

Notes receivable

   3,706    856 

Less:

    

Allowances for doubtful accounts

   (87)    (90) 

Sales return reserves

   (387)    (439) 

Volume discounts

   (276)    (479) 
  

 

 

   

 

 

 

Accounts receivable, net

  $95,641   $80,003 
  

 

 

   

 

 

 

   
December 31,
 
   
2021
   
2020
 
Accounts receivable
  $50,363   $63,145 
Notes receivable
   1,242    1,606 
Less:
          
Allowance for credit losses
   (466)    (188) 
Sales return reserves
   (185)    (173) 
   
 
 
   
 
 
 
Accounts receivable, net
  $50,954   $64,390 
   
 
 
   
 
 
 
Changes in allowance for credit losses for the years ended December 31, 2021, 2020 and 2019 are as follows
(in thousands):
   
Year Ended December 31,
 
   
    2021    
   
    2020    
   
    2019    
 
Beginning balance
  $(188)   $(49)   $(51) 
Provision
   (302)    (131)    —   
Translation adjustments
   24    (8)    2 
   
 
 
   
 
 
   
 
 
 
Ending balance
  $(466)   $(188)   $(49) 
   
 
 
   
 
 
   
 
 
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Changes in allowance for doubtful accounts for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

   Year Ended December 31, 
       2019           2018           2017     

Beginning balance

  $(90)   $(94)   $(83) 

Translation adjustments

   3    4    (11) 
  

 

 

   

 

 

   

 

 

 

Ending balance

  $(87)   $(90)   $(94) 
  

 

 

   

 

 

   

 

 

 

Changes in sales return reserves for the years ended December 
31
,
2021
,
2020
and
2019 2018 and 2017
are as follows (in thousands):

   Year Ended December 31, 
       2019           2018           2017     

Beginning balance

  $(439)   $(628)   $(1,107) 

Provision

   (136)    (245)    (40) 

Usage

   170    414    626 

Translation adjustments

   18    20    (107) 
  

 

 

   

 

 

   

 

 

 

Ending balance

  $(387)   $(439)   $(628) 
  

 

 

   

 

 

   

 

 

 

Changes


   
Year Ended December 31,
 
   
    2021    
   
    2020    
   
    2019    
 
Beginning balance
  $(173)   $(387)   $(439) 
Reversal (provision)
   (27)    22    (136) 
Usage
   —      196    170 
Translation adjustments
   15    (4)    18 
   
 
 
   
 
 
   
 
 
 
Ending balance
  $(185)   $(173)   $(387) 
   
 
 
   
 
 
   
 
 
 
Commencing in low yield compensation reserve for the year ended December 31, 2017 are as follows (in thousands):

   Year Ended
December 31,
2017		 

Beginning balance

  $(432) 

Provision

   (362) 

Usage

   22 

Translation adjustments

   (72) 
  

 

 

 

Ending balance

  $(844) 
  

 

 

 

Beginning in the first quarter of 2018,March 2012, the Company recognized the low yield compensation reserves ashas been a component of cost of sales, which were previously recorded as a deduction of sales.

Changes in volume discounts for the years ended December 31, 2019 and 2018 are as follows (in thousands):

   Year Ended
December 31,		 
   2019   2018 

Beginning balance

  $(479)   $—   

Provision

   (1,852)    (1,378) 

Usage

   2,040    892 

Translation adjustments

   15    7 
  

 

 

   

 

 

 

Ending balance

  $(276)   $(479) 
  

 

 

   

 

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The Company has entered intoparty to an agreement to sell selected trade accounts receivable to a financial institution from time to time since March 2012.time. After thea sale, the Company does not retain any interest in the receivables and the applicable financial institution collects these accounts receivable directly from the customer. There were no sale of accounts receivable for the years ended December 31, 2021 and 2020. The proceeds from the sales of these accounts receivable totaled $14,474 thousand $25,266 thousand and $18,973 for the yearsyear ended December 31, 2019, 2018 and 2017, respectively, and these salesthis sale resulted in

pre-tax
losses of $45 thousand $63 thousand and $55 thousand for the yearsyear ended December 31, 2019, 2018 and 2017, respectively, which areis included in selling, general and administrative expenses in the consolidated statements of operations. Net proceeds of thethis accounts receivable sale program are recognized in the consolidated statements of cash flows as part of operating cash flows.

The Company uses receivable discount programs with certain customers. These discount arrangements allow the Company to accelerate collection of customers’ receivables.

4.


5.
Inventories

Inventories as of December 31, 20192021 and 20182020 consist of the following (in thousands):

   Year Ended December 31, 
       2019           2018     

Finished goods

   17,489    14,334 

Semi-finished goods andwork-in-process

   44,040    39,135 

Raw materials

   17,702    21,150 

Materialsin-transit

   —      1,890 

Less: inventory reserve

   (5,964)    (4,898) 
  

 

 

   

 

 

 

Inventories, net

  $73,267   $71,611 
  

 

 

   

 

 

 

   
December 31,
 
   
2021
   
2020
 
Finished goods
  $9,594   $6,425 
Semi-finished goods and
work-in-process
   25,968    30,968 
Raw materials
   9,443    6,526 
Materials
in-transit
   95    1,021 
Less: inventory reserve
   (5,730)    (5,901) 
   
 
 
   
 
 
 
Inventories, net
  $39,370   $39,039 
   
 
 
   
 
 
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Changes in inventory reserve for the years ended December 31, 2019, 20182021, 2020 and 20172019 are as follows (in thousands):

   Year Ended December 31, 
   2019   2018   2017 

Beginning balance

  $(4,898)   $(6,391)   $(7,177) 

Change in reserve

      

Inventory reserve charged to costs of sales

   (13,855)    (8,269)    (7,017) 

Sale of previously reserved inventory

   3,067    4,098    6,003 
  

 

 

   

 

 

   

 

 

 
   (10,788)    (4,171)    (1,014) 

Write off

   9,189    5,479    2,641 

Translation adjustments

   533    185    (841) 
  

 

 

   

 

 

   

 

 

 

Ending balance

  $(5,964)   $(4,898)   $(6,391) 
  

 

 

   

 

 

   

 

 

 

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Beginning balance
  $(5,901)   $(5,947)   $(4,845) 
Change in reserve
               
Inventory reserve charged to costs of sales
   (7,626)    (7,268)    (12,941) 
Sale of previously reserved inventory
   5,349    4,349    2,938 
   
 
 
   
 
 
   
 
 
 
    (2,277)    (2,919)    (10,003) 
Write off
   1,875    2,679    8,451 
Translation adjustments
   573    (408)    450 
Reclassified to assets held for sale
   —      694    —   
   
 
 
   
 
 
   
 
 
 
Ending balance
  $(5,730)   $(5,901)   $(5,947) 
   
 
 
   
 
 
   
 
 
 
Inventory reserve represents the Company’s best estimate in value lost due to excessive inventory level, physical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. Inventory reserve relates to inventory items including finished goods, semi-finished goods,
work-in-process
and raw materials. Write off of this reserve is recognized only when the related inventory has been disposed or scrapped.

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

During the first half of 2019, the Company recorded inventory reserves of $5,475 thousand related to certain legacy display products.

5.

6. Property, Plant and Equipment

Property, plant and equipment as of December 31, 20192021 and 20182020 are comprised of the following (in
(in thousands):

   December 31, 
   2019   2018 

Buildings and related structures

  $68,828   $70,665 

Machinery and equipment

   327,677    323,325 

Finance leaseright-of-use assets

   2,457    —   

Others

   42,681    44,724 
  

 

 

   

 

 

 
   441,643    438,714 

Less: accumulated depreciation

   (273,959)    (251,962) 

Land

   14,890    15,419 
  

 

 

   

 

 

 

Property, plant and equipment, net

  $182,574   $202,171 
  

 

 

   

 

 

 

   
December 31,
 
   
2021
   
2020
 
         
Buildings and related structures
  $24,273   $24,882 
Machinery and equipment
   105,300    106,244 
Finance lease
right-of-use
assets
   316    344 
Others
   32,396    31,208 
   
 
 
   
 
 
 
    162,285    162,678 
Less: accumulated depreciation
   (94,119)    (90,370) 
Land
   13,898    15,167 
Construction in progress
   25,818    8,908 
   
 
 
   
 
 
 
Property, plant and equipment, net
  $107,882   $96,383 
   
 
 
   
 
 
 
Aggregate depreciation expenses totaled $31,820,$13,495 thousand $31,229
,
$10,448 thousand and $27,498$9,720 thousand for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.

As

99
Table of June 29, 2018, the Company’s Korean subsidiary entered into an arrangement whereby it (i) acquired a water treatment facility from SK hynix for $4,172 thousand to support its fab in Gumi, Korea, and (ii) subsequently sold the water treatment facility for $4,172 thousand to a third party management company that the Company engaged to run the facility for a10-year term. This arrangement is accounted for as a financing due to the Company’s Korean subsidiary’s continuing involvement with the facility. As a result, on the acquisition date, the Company recorded $4,172 thousand as property, plant and equipment, net, which is depreciated over the water treatment facility’s estimated useful life. The Company also recorded the related liabilities of $553 thousand as other current liabilities and $3,619 thousand as othernon-current liabilities, which relate to the financing and service portions, respectively, of the arrangement and are amortized using the effective interest method over the10-year contract period.

6. Intangible Assets

Intangible assets as of December 31, 2019 and 2018 are comprised of the following (in thousands):

   December 31, 2019 
   Gross
amount		   Accumulated
amortization		   Net
amount		 

Technology

  $18,688   $(18,688)   $—   

Customer relationships

   26,838    (26,838)    —   

Intellectual property assets

   12,278    (8,264)    4,014 
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

  $57,804   $(53,790)   $4,014 
  

 

 

   

 

 

   

 

 

 
Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

   December 31, 2018 
   Gross
amount		   Accumulated
amortization		   Net
amount		 

Technology

  $19,350   $(19,350)   $—   

Customer relationships

   27,791    (27,791)    —   

Intellectual property assets

   11,571    (7,618)    3,953 
  

 

 

   

 

 

   

 

 

 

Intangible assets, net

  $58,712   $(54,759)   $3,953 
  

 

 

   

 

 

   

 

 

 

7. Intangible Assets
Intangible assets as of December 31, 2021 and 2020 are comprised of the
following (in thousands):
   
December 31, 2021
 
   
Gross
amount
   
Accumulated
amortization
   
Net
amount
 
Intellectual property assets
  $9,312   $(6,935)   $2,377 
   
 
 
   
 
 
   
 
 
 
Intangible assets
  $9,312   $(6,935)   $2,377 
   
 
 
   
 
 
   
 
 
 
   
December 31, 2020
 
   
Gross
amount
   
Accumulated
amortization
   
Net
amount
 
Intellectual property assets
  $9,486   $(6,759)   $2,727 
   
 
 
   
 
 
   
 
 
 
Intangible assets
  $9,486   $(6,759)   $2,727 
   
 
 
   
 
 
   
 
 
 
Aggregate amortization expense for intangible assets totaled $909$744 thousand, $819$668 thousand and $648$598 thousand for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.
The aggregate amortization expense of intangible assets for the next five years are estimated to be $943$704 thousand, $908$590 thousand, $809$438 thousand, $622$309 thousand and $394$196 thousand for the years ended December 31, 2020, 2021, 2022, 2023, 2024, 2025 and 2024,2026, respectively.

7.

8. Leases

The Company has operating and finance leases for land, buildings and other assets such as vehicles and office equipment. The Company’s leases have remaining lease terms ranging from
1
year to 15
4
years. For certain leases, the Company has options to extend the lease term for additional periods ranging from 1 year to 10 years.

The Company’s land lease payment is subject to a biennial adjustment (based on change of the Consumer Price Index), the impact of which is treated as a variable lease payment.

The Company adopted the new lease accounting standard as of January 1, 2019, using the modified retrospective transition method.

The tables below present financial information related to the Company’s leases.

Supplemental balance sheetsheets information related to leases isas of December 31, 2021 and 2020 are as follows (in
(in thousands):

Leases

  

Classification

  As of
December 31, 2019		 

Assets

    

Operating lease

  Operating leaseright-of-use assets  $11,482 

Finance lease

  Property, plant and equipment, net   2,151 
    

 

 

 

Total leased assets

    $13,633 
    

 

 

 

Liabilities

    

Current

    

Operating

  Operating lease liabilities  $2,036 

Finance

  Other current liabilities   252 

Non-current

    

Operating

  Non-current operating lease liabilities   9,446 

Finance

  Othernon-current liabilities   1,971 
    

 

 

 

Total lease liabilities

    $13,705 
    

 

 

 

      
December 31,
 
Leases
  
Classification
  
2021
   
2020
 
Assets
      
Operating lease
  
Operating lease right-of-use
assets		 $4,275  $4,632 
Finance lease
  Property, plant and equipment, net  126   206 
     
 
 
  
 
 
 
Total lease assets
    $4,401  $4,838 
     
 
 
  
 
 
 
Liabilities
           
Current
           
Operating
  Operating lease liabilities $2,323  $2,210 
Finance
  Other current liabilities  68   68 
Non-current
           
Operating
  Non-current operating lease liabilities  1,952   2,422 
Finance
  Other
non-current
liabilities		  73   153 
     
 
 
  
 
 
 
Total lease liabilities
    $4,416  $4,853 
     
 
 
  
 
 
 
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The following table presents the weighted average remaining lease term and discount rate:
   
December 31,
 
   
2021
  
2020
 
Weighted average remaining lease term
         
Operating leases
   2.4 years   3.0 years 
Finance leases
   2.0 years   3.0 years 
Weighted average discount rate
         
Operating leases
   4.20%   5.55% 
Finance leases
   7.75%   7.75% 
The components of lease cost included in the Company’s consolidated statements of operations, are as follows (in thousands):

   Year Ended
December 31,
2019		 

Operating lease cost

  $3,154 

Finance lease cost

  

Amortization ofright-of-use assets

   303 

Interest on lease liabilities

   178 
  

 

 

 

Total lease cost

  $3,635 
  

 

 

 

   
Year Ended
 
December 31,
 
   
2021
   
2020
   
2019
 
Operating lease cost
  $2,777   $1,885   $1,990 
Finance lease cost
               
Amortization of
right-of-use
assets
   65    63    64 
Interest on lease liabilities
   14    18    22 
   
 
 
   
 
 
   
 
 
 
Total lease cost
  $2,856   $1,966   $2,076 
   
 
 
   
 
 
   
 
 
 
The above table does not include an immaterial cost of short-term leases and a variable lease payment duringfor the yearyears ended December 31, 2021, 2020 and 2019.

Other lease information is as follows (in thousands):

   Year Ended
December 31,
2019		 

Cash paid for amounts included in the measurement of lease liabilities

  

Operating cash flows from operating leases

  $3,154 

Operating cash flows from finance leases

   178 

Financing cash flows from finance leases

   233 

As of
December 31,
2019

Weighted average remaining lease term

Operating leases

12.5 years

Finance leases

10.4 years

Weighted average remaining lease rate

Operating leases

7.95% 

Finance leases

7.95% 

   
Year Ended
 
December 31,
 
   
2021
   
2020
   
2019
 
Cash paid for amounts included in the measurement of lease liabilities
               
Operating cash flows from operating leases
  $2,777   $1,885   $1,990 
Operating cash flows from finance leases
   14    18    22 
Financing cash flows from finance leases
   65    76    55 
Non-cash
transaction amounts of lease liabilities arising from obtaining
right-of-use
assets were $2,768 thousand, $4,702 thousand and $169 thousand for the years ended December 31, 2021, 2020 and 2019, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The aggregate future lease payments for operating and finance leases as of December 31, 20192021 are as follows (in thousands):

   Operating
Leases		   Finance
Leases		 

2020

  $2,843   $413 

2021

   1,355    413 

2022

   1,096    413 

2023

   1,088    413 

2024

   1,088    150 

Thereafter

   10,618    1,463 
  

 

 

   

 

 

 

Total future lease payments

   18,088    3,265 

Less: Imputed interest

   (6,606)    (1,042) 
  

 

 

   

 

 

 

Present value of future payments

  $11,482   $2,223 
  

 

 

   

 

 

 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

As of December 31, 2018, the minimum aggregate rental payments due undernon-cancelable operating lease contracts are as follows (in thousands):

2019

  $4,319 

2020

   3,569 

2021

   1,570 

2022

   1,319 

2023

   1,309 

2024 and thereafter

   13,978 
  

 

 

 
  $26,064 
  

 

 

 

8.

   
Operating
Leases
   
Finance
Leases
 
2022
  $2,228   $76 
2023
   1,136    76 
2024
   687    0   
2025
   445    0   
2026
   22    0   
   
 
 
   
 
 
 
Total future lease payments
   4,518    152 
Less: Imputed interest
   (243)    (11) 
   
 
 
   
 
 
 
Present value of future payments
  $4,275   $141 
   
 
 
   
 
 
 
9. Accrued Expenses

Accrued expenses as of December 31, 20192021 and 20182020 are comprised of the following (in thousands):

   December 31, 
   2019   2018 

Payroll, benefits and related taxes, excluding severance benefits

  $16,505   $14,548 

Withholding tax attributable to intercompany interest income

   23,371    20,879 

Interest on senior notes

   8,205    8,226 

Outside service fees

   898    935 

Restructuring and others

   3,549    —   

Others

   2,548    1,662 
  

 

 

   

 

 

 

Accrued expenses

  $55,076   $46,250 
  

 

 

   

 

 

 

9.

   
December 31,
 
   
2021
   
2020
 
Payroll, benefits and related taxes, excluding severance benefits
  $9,548   $10,296 
Withholding tax attributable to intercompany interest income
   1,950    28 
Interest on
Exchangeable Notes
   —      1,396 
Outside service fees
   1,088    755 
Restructuring and others
   —      2,658 
Merger-related costs
   7,035    393 
Others
   450    715 
   
 
 
   
 
 
 
Accrued expenses
  $20,071   $16,241 
   
 
 
   
 
 
 
10. Derivative Financial Instruments

The Company’s Korean subsidiary from time to time has entered into zero cost collar and forward contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on USU.S. dollar denominated revenues.

Details of derivative contracts as of December 31, 20192021 are as follows (in(
in thousands):

Date of transaction

  Type of derivative  Total notional amount   Month of settlement

August 13, 2019

  Zero cost collar  $60,000   January 2020 to June 2020

September 27, 2019

  Zero cost collar  $42,000   January 2020 to June 2020

December 4, 2019

  Zero cost collar  $30,000   July 2020 to December 2020

Date of transaction
  
Type of derivative
   
Total notional amount
   
Month of settlement
May 13, 2021
   Zero cost collar   $39,000   January 2022 to September 2022
August 13, 2021
   Zero cost collar   $48,000   January 2022 to December 2022
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Details of derivative contracts as of December 31, 20182020 are as follows (in
(in thousands):

Date of transaction

  Type of derivative  Total notional amount   Month of settlement

June 27, 2018

  Zero cost collar  $18,000   January 2019 to June 2019

June 27, 2018

  Forward  $36,000   January 2019 to June 2019

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Date of transaction
  
Type of derivative
   
Total notional amount
   
Month of settlement
July 13, 2020
   Zero cost collar   $30,000   January 2021 to June 2021
December 15, 2020
   Zero cost collar   $30,000   July 2021 to December 2021
December 18, 2020
   Zero cost collar   $18,000   March 2021 to June 2021
The zero cost collar and forward contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts.

The fair values of the Company’s outstanding zero cost collar and forward contracts recorded as assets and liabilities as of December 31, 20192021 and 20182020 are as follows (in thousands):

Derivatives designated as hedging instruments:

   December 31, 
  2019   2018 

Asset Derivatives:

      

Zero cost collars

   Other current assets   $1,456  $—  

Liability Derivatives:

      

Zero cost collars

   Other current liabilities   $—    $117 

Forward

   Other current liabilities   $—    $607 

Offsetting of derivative assets as of December 31, 2019 is as follows (in thousands):

As of December 31, 2019

 Gross amounts of
recognized
assets		  Gross amounts
offset in the
balance sheets		  Net amounts of
assets
presented in the
balance sheets		  Gross amounts not offset
in the balance sheets		  Net amount 
 Financial
instruments		  Cash collateral
pledged		 

Asset Derivatives:

      

Zero cost collars

 $1,456  $—    $1,456  $—    $1,070  $2,526 

Derivatives designated as hedging instruments:
   
December 31,
 
  
2021
   
2020
 
Asset Derivatives:
               
Zero cost collars
   Other current assets   $0     $2,036 
Liability Derivatives:
               
Zero cost collars
   Other current liabilities   $2,020   $195 
Offsetting of derivative liabilities as of December 31, 20182021 is as follows (in thousands):

As of December 31, 2018

 Gross amounts of
recognized
liabilities		  Gross amounts
offset in the
balance sheets		  Net amounts of
liabilities
presented in the
balance sheets		  Gross amounts not offset
in the balance sheets		  Net amount 
 Financial
instruments		  Cash collateral
pledged		 

Liability Derivatives:

      

Zero cost collars

 $117  $—   $117  $—   $(360)  $(243) 

Forward

 $607  $—   $607  $—   $(1,450)  $(843) 

As of December 31, 2021
 
Gross amounts of
recognized
liabilities
  
Gross amounts
offset in the
balance sheets
  
Net amounts of
liabilities
presented in the
balance sheets
  
Gross amounts not offset
in the balance sheets
  
Net amount
 
 
Financial
instruments
   
Cash collateral
pledged
 
Liability Derivatives:
                         
Zero cost collars
 $2,020  $—    $2,020  $—     $(2,060)  $(40) 
Offsetting of derivative assets and liabilities as of December 31, 2020 is as follows (in thousands): 

As of December 31, 2020
 
Gross amounts of
recognized
assets/liabilities
 
 
Gross amounts
offset in the
balance sheets
 
 
Net amounts of
assets/liabilities
presented in the
balance sheets
 
 
Gross amounts not offset
in the balance sheets
 
  
Net amount
 
 
Financial
instruments
 
  
Cash collateral
pledged
 
Asset Derivatives:
 
 
 
 
  
  
                         
Zero cost collars
  $2,036   $—     $2,036   $—     $—     $2,036 
Liability Derivatives:
                              
Zero cost collars
  $195   $—     $195   $—     $—     $195 
For derivative instruments that are designated and qualify as cash flow hedges, gains or losses on the derivative aside from components excluded from the assessment of effectiveness are reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative, representing hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the years ended December 31, 20192021 and 20182020. Net sales of discontinued operations for the year ended December 31, 2020 are included in the below table (in thousands):

Derivatives in

ASC 815

Cash Flow

Hedging

Relationships

  Amount of Loss
Recognized in
AOCI on
Derivatives
(Effective Portion)		  Location/Amount of Gain (Loss)
Reclassified from AOCI Into
Statement of Operations
(Effective Portion)		   Location/Amount of Loss
Recognized in
Statement of Operations on
Derivatives
(Ineffective Portion)(1)		 
   2019  2018      2019  2018       2019  2018 

Zero cost collars

  $(1,096)  $(747)   Net sales   $(2,738)  $2,103    Other income, net   $(193)  $(276) 

Forwards

  $(1,798)  $(842)   Net sales   $(1,750)  $1,656    Other income, net   $(125)  $(190) 

Forwards—excluded time value(1)

          Other income, net   $—   $(1,904) 
  

 

 

  

 

 

    

 

 

  

 

 

     

 

 

  

 

 

 
  $(2,894)  $(1,589)    $(4,488)  $3,759     $(318)  $(2,370) 
  

 

 

  

 

 

    

 

 

  

 

 

     

 

 

  

 

 

 

(1)

The FASB issued the new guidance about hedging activities (ASU2017-12), which provides new rules about income statement classification and eliminates the requirement to separately measure and report hedge ineffectiveness. In addition, under the same guidance, excluded time value for forward contracts is presented in earnings in the same income statement line item that is used to present the earnings effect of the hedged item. The Company adopted the new guidance in the first quarter of 2019 and recorded $98 thousand as a reduction of net sales for the same period, and the comparative prior period amounts were not restated and continued to be reported under the accounting standards in effect for such period.

Derivatives in
ASC 815
Cash Flow
Hedging
Relationships
  
Amount of Gain (Loss)
Recognized in
AOCI on
Derivatives
   
Location/Amount of Gain (Loss)
Reclassified from AOCI Into
Statement of Operations
   
Location/Amount of Gain
Recognized in
Statement of Operations on
Derivatives
 
   
2021
  
2020
       
2021
  
2020
       
2021
   
2020
 
Zero cost collars
  $(4,665)  $1,769    Net sales   $(819)  $1,363    Other income, net   $123   $148 
As of December 31, 2019,2021, the amount expected to be reclassified from accumulated other comprehensive loss into incomeloss within the next twelve months is $1,545$1,460 thousand.

The Company set aside $8,750 thousand and $4,000 thousand of cash deposits to the counterparties, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) and, Deutsche Bank AG, Seoul Branch (“DB”) and Standard Chartered Bank Korea Limited (“SC”), as required for the zero cost collar and forward contracts outstanding as of December 31, 2019 and 2018, respectively.contracts. These cash deposits are recorded as hedge collateral on the consolidated balance sheets.

Cash deposits as of December 31, 2021 and 2020 are as follows (in thousands):

   
December 31,
 
Counterparties
  
2021
   
2020
 
NFIK
  $0     $3,250 
DB
   0      1,000 
SC
   1,000    1,000 
   
 
 
   
 
 
 
Total
  $1,000   $5,250 
   
 
 
   
 
 
 
The Company is required to deposit additional cash collateral with NFIK and DBSC for any exposure in excess of $500 thousand. As of December 31, 2021, $760 thousand and $1,070 thousand and $1,810$1,300 thousand of additional cash collateral were required
by
NFIK and SC, respectively, and recorded as hedge collateral on the consolidated balance sheetssheet. There was no such cash collateral required as of December 31, 2019 and December 31, 2018, respectively.

2020.

These forward and zero cost collar contracts may be terminated by the counterpartycounterparties in a number of circumstances, including if the Company’s long-term debtborrowing rating falls below
B-/B3
or if the Company’s total cash and cash equivalents is less than $30,000 thousand at the end of a fiscal quarter, unless a waiver is obtained from the counterparty.

obtained.

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

10.

11. Product Warranties

Changes in accrued warranty liabilities for the years ended December 31, 2019, 20182021, 2020 and 20172019 are as follows (in thousands):

   Year Ended December 31, 
   2019   2018   2017 

Beginning balance

  $610   $1,060   $466 

Change in provision (reversal)

   2,357    222    (224) 

Usage

   (1,315)    (636)    (65) 

Translation adjustments

   (6)    (36)    39 
  

 

 

   

 

 

   

 

 

 

Ending balance

  $1,646   $610   $216 
  

 

 

   

 

 

   

 

 

 

Beginning in the first quarter

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Beginning balance
  $48   $735   $115 
Provision (reversal)
   (14)    (606)    932 
Usage
   (19)    (61)    (314) 
Translation adjustments
   (3)    (20)    2 
   
 
 
   
 
 
   
 
 
 
Ending balance
  $12   $48   $735 
   
 
 
   
 
 
   
 
 
 
104
Table of 2018, the Company recognized low yield compensation reserves as a component of cost of sales. Low yield compensation reserves were previously recorded as a deduction of sales.

The Company accounted for this change prospectively as a change in accounting estimate, which resulted in an increase of $844 thousand in current liabilities, as of January 1, 2018.

11. Long-TermContents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
12. Borrowings

Long-term borrowings

Borrowings as of December 31, 2019 and 2018 are2020 is as follows (in thousands):

   December 31, 
   2019   2018 

5.0% Exchangeable Senior Notes due March 2021

  $83,740   $84,660 

6.625% Senior Notes due July 2021

  $224,250   $224,500 

Less: unamortized discount and debt issuance costs

   (3,247)    (5,583) 
  

 

 

   

 

 

 

Long-term borrowings, net of unamortized discount and debt issuance costs

  $304,743   $303,577 
  

 

 

   

 

 

 

   
December 31,
 
   
2020
 
5.0% Exchangeable Senior Notes due March 2021
  $83,740 
Less: unamortized discount and debt issuance costs
   (261) 
   
 
 
 
Current portion of long-term borrowings, net
  $83,479 
   
 
 
 
5.0% Exchangeable Senior Notes

On January 17, 2017, MagnaChip Semiconductor S.A. closed the Exchangeable Notes Offering of $86,250 thousand aggregate principal amount of 5.0% Exchangeable Notes. Interest on the Exchangeable Notes accruesaccrued at a rate of 5.0% per annum, payable semi-annually on March 1 and September 1 of each year, beginning on March 1, 2017. The Exchangeable Notes will maturematured on March 1, 2021, unless they were earlier repurchased or converted. Holders mayhad the right to convert their notes at their option at any time prior to the close of business on the business day immediately preceding the stated maturity date.

The Company used a portion of the net proceeds from the issuance to repurchase 1,795,444 shares of common stock under its stock repurchase program at an aggregate cost of $11,401 thousand.

Upon conversion, the Company will deliver for each $1,000 principal amount of converted notes a number of shares equally to the exchange rate, which will initially be 121.1387 shares of common stock per $1,000 principal amount of Exchangeable Notes, equivalent to an initial exchange price of approximately $8.26 per share of common stock. The exchange rate will be subject to adjustment in some circumstances, but

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

will not be adjusted for any accrued and unpaid interest. In addition, if a “make-whole fundamental change” (as defined in the Exchangeable Notes indenture (the “Exchangeable Notes Indenture”)) occurs prior to the stated maturity date, the Company will increase the exchange rate for a holder who elects to convert its notes in connection with such make-whole fundamental change in certain circumstances. MagnaChip Semiconductor S.A. may also, under certain circumstances, be required to pay additional amounts to holders of Exchangeable Notes if withholding or deduction is required in a relevant tax jurisdiction.

If the Company undergoes a fundamental change, subject to certain conditions, holders may require the Company to repurchase for cash all or part of their notes at a purchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date. In addition, upon certain events of default described in the Exchangeable Notes Indenture, the trustee or holders of at least 25% principal amount of the Exchangeable Notes may declare 100% of the then outstanding Exchangeable Notes due and payable in full, together with all accrued and unpaid interest thereon. Payment of principal on the Exchangeable Notes may also accelerate and become automatically due and payable upon certain events of default involving bankruptcy or insolvency proceedings involving the Company, MagnaChip Semiconductor S.A. and their significant subsidiaries. The Exchangeable Notes are not redeemable at the option of MagnaChip Semiconductor S.A. prior to the maturity date.

The Exchangeable Notes Indenture contains covenants that limit the ability of the Company, MagnaChip Semiconductor S.A. and the Company’s other restricted subsidiaries to: (i) declare or pay any dividend or make any payment or distribution on account of or purchase or redeem the Company’s capital stock or equity interests of the restricted subsidiaries; (ii) make any principal payment on, or redeem or repurchase, prior to any scheduled repayment or maturity, any subordinated indebtedness; (iii) make certain investments; (iv) incur additional indebtedness and issue certain types of capital stock; (v) create or incur any lien (except for permitted liens) that secures obligations under any indebtedness; (vi) merge with or into or sell all or substantially all of the Company’s assets to other companies; (vii) enter into certain types of transactions with affiliates; (viii) guarantee the payment of any indebtedness; and (ix) designate unrestricted subsidiaries.

These covenants are subject to a number of exceptions and qualifications. Certain of these restrictive covenants will terminate if the Exchangeable Notes are rated investment grade at any time.

The Company incurred debt issuance costs of $5,902 thousand related to the issuance of the Exchangeable Notes. The debt issuance costs are recorded as a direct deduction from the long-term borrowings in the consolidated balance sheets and amortized to interest expense using the effective interest method over the term of the Exchangeable Notes. Interest expense related to the Exchangeable Notes for the years ended December 31, 2021 and 2020 were $958 thousand and 5,708 thousand, respectively.
In February 2019, the Company repurchased a principal amount equal to $920 thousand of the Exchangeable Notes in the open market, resulting in a loss of $63 thousand, which was recorded as loss on early extinguishment of borrowings, net in the consolidated statements of operations for the year ended December 31, 2019 and 2018 was $5,618 thousand and $5,678 thousand, respectively.

2019. In December 2018, the Company repurchased a principal amount equal to $1,590 thousand of the Exchangeable Notes in the open market, resulting in a loss of $234 thousand, which was recorded as loss on early extinguishment of long-term borrowings, net in the consolidated statements of operations for the year ended December 31, 2018. In February 2019,


Prior to the Company repurchased a principal amount equal to $920 thousand
 March 1, 2021 maturity of the Exchangeable Notes, holders elected to exchange all outstanding Exchangeable Notes for an aggregate of 10,144,131 shares of the Company’s common stock in satisfaction in full of the open market, resulting inoutstanding obligations under the Exchangeable Notes. Upon exchange, the Company delivered for each $1,000 principal amount of exchanged Exchangeable Notes a lossnumber of $63 thousand,shares equal to the exchange rate of 121.1387 shares of common stock per $1,000 principal amount of Exchangeable Notes, which was recorded as loss on early extinguishmentequivalent to an exchange price of long-term borrowings, netapproximately $8.26 per share of common stock. In connection with the exchanges, the fractional shares were paid in cash. Following March 1, 2021, the consolidated statements of operations for the year ended December 31, 2019.

Company does not have any Exchangeable Notes outstanding.

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

6.625% Senior Notes

On July 18, 2013, the Company issued a $225,000,000$225,000
 thousand aggregate 
principal amount of the 2021 Notes at a price of 99.5%. Interest on the 2021 Notes accruesaccrued at a rate of 6.625% per annum, payable semi-annually on January 15 and
July 15 15
of each year, beginning on January 15, 2014.

On or after July 15, 2019, the Company can optionally redeem all or a part of the 2021 Notes at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest and special interest, if any, on the notes redeemed, to the applicable date of redemption.

The Indenture relating to the 2021 Notes contains covenants that limit the ability of the Company and its restricted subsidiaries to: (i) declare or pay any dividend or make any payment or distribution on account of or purchase or redeem the Company’s capital stock or equity interests of the restricted subsidiaries; (ii) make any principal payment on, or redeem or repurchase, prior to any scheduled repayment or maturity, any subordinated indebtedness; (iii) make certain investments; (iv) incur additional indebtedness and issue certain types of capital stock; (v) create or incur any lien (except for permitted liens) that secures obligations under any indebtedness; (vi) merge with or into or sell all or substantially all of the Company’s assets to other companies; (vii) enter into certain types of transactions with affiliates; (viii) guarantee the payment of any indebtedness; (ix) enter into sale-leaseback transactions; (x) enter into agreements that would restrict the ability of the restricted subsidiaries to make distributions with respect to their equity to the Company or other restricted subsidiaries, to make loans to the Company or other restricted subsidiaries or to transfer assets to the Company or other restricted subsidiaries; and (xi) designate unrestricted subsidiaries.

These covenants are subject to a number of exceptions and qualifications. Certain of these restrictive covenants will terminate if the 2021 Notes are rated investment grade at any time.

The Company incurred original issue discount of $1,125 thousand and debt issuance costs of $5,039 thousand related to the issuance of the 2021 Notes. The original issue discount and the debt issuance costs are recorded as a direct deduction from the long-term borrowings in the consolidated balance sheets and amortized to interest expense using the effective interest method over the term of the 2021 Notes. Interest expense related to the 2021 Notes for the year ended December 31, 2019 and 2018 were $15,7302020 was $11,926 thousand.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company completed the full redemption of the remaining outstanding 2021 Notes on October 2, 2020. The Company paid approximately $227,428 thousand and $15,719to fully redeem all of the outstanding $224,250 thousand respectively.

In December 2018, the Company repurchased aaggregate principal amount equal to $500 thousand of the 2021 Notes inat a redemption price equal to the open market, resulting insum of 100% of the principal amount of the 2021 Notes, plus accrued and unpaid interest thereon through, but excluding, the Redemption Date. In connection with the redemption of the 2021 Notes, the Company recorded a net gain of $28$766 thousand which was recorded as loss on early extinguishment of long-term borrowings, net inrelated to the consolidated statements of operations for the year ended December 31, 2018. In January 2019, the Company repurchased a principal amount equal to $250 thousand of the 2021 Notes in the open market, resulting in a net gain of $21 thousand, which was recorded as loss on early extinguishment of long-term borrowings, net in the consolidated statements of operations for the year ended December 31, 2019.

12.remaining unamortized debt discount and debt issuance costs.

13. Accrued Severance Benefits

The majority of accrued severance benefits are for employees in the Company’s Korean subsidiary. Pursuant to the Employee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2019,2021, 98% of all employees of the Company were eligible for severance benefits.

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Changes in accrued severance benefits are as follows (in thousands):

   Year Ended December 31, 
   2019   2018 

Beginning balance

  $149,408   $149,796 

Provisions

   17,139    17,644 

Severance payments

   (9,288)    (11,688) 

Translation adjustments

   (4,967)    (6,344) 
  

 

 

   

 

 

 
   152,292   149,408 

Less: Cumulative contributions to severance insurance deposit accounts

   (4,781)    (2,549) 

The National Pension Fund

   (215)    (230) 

Group severance insurance plan

   (568)    (598) 
  

 

 

   

 

 

 

Accrued severance benefits, net

  $146,728   $146,031 
  

 

 

   

 

 

 

   
Year Ended December 31,
 
   
      2021      
   
      2020      
 
Beginning balance
  $54,452   $53,344 
Provisions
   8,282    8,534 
Severance payments
   (6,679)    (10,937) 
Translation adjustments
   (4,488)    3,511 
   
 
 
   
 
 
 
    51,567    54,452 
Less: Cumulative contributions to severance insurance deposit accounts
   (18,250)    (13,704) 
The National Pension Fund
   (53)    (66) 
Group severance insurance plan
   (200)    (220) 
   
 
 
   
 
 
 
Accrued severance benefits, net
  $33,064   $40,462 
   
 
 
   
 
 
 
The severance benefits funded through the Company’s National Pension Fund and group severance insurance plan will be used exclusively for payment of severance benefits to eligible employees. These amounts have been deducted from the accrued severance benefit balance.

Beginning in July 2018, the Company contributes to certain severance insurance deposit accounts a certain percentage of severance benefits that are accrued for eligible employees for their services from January 1, 2018. These accounts consist of time deposits and other guaranteed principal and interest, and are maintained at insurance companies, banks or security companies for the benefit of employees. The Company deducts the contributions made to these severance insurance deposit accounts from its accrued severance benefits.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company is liable to pay the following future benefits to its
non-executive
employees upon their normal retirement age (in thousands):

   Severance
Benefit		 

2020

  $1,066 

2021

   1,546 

2022

   1,349 

2023

   1,776 

2024

   2,630 

2025 – 2029

   35,442 

   
Severance
Benefit
 
2022
  $264 
2023
   646 
2024
   908 
2025
   1,610 
2026
   2,290 
2027 – 2031
   18,565 
The above amounts were determined based on the
non-executive
employees’ current salary rates and the number of service years that will be accumulated upon their retirement dates. These amounts do not include amounts that might be paid to
non-executive
employees that will cease working with the Company before their normal retirement ages.

Korea’s mandatory retirement age is 60 under the Employment Promotion for the Aged Act.

13.

14. Stockholders’ Equity and Stock-Based Compensation
Accelerated Stock Repurchase Program
On December 21, 2021, the Board of Directors
authorized the Company to repurchase up
to $75,000 thousand of the Company’s outstanding common stock and the Company entered into an accelerated stock repurchase agreement (the “ASR Agreement”) with JPMorgan Chase Bank, National Association (“JPM”) to repurchase an aggregate
of
$37,500 thousand of the Company’s common stock.
Pursuant to the terms of the ASR Agreement dated December 21, 2021, the Company paid to JPM $37,500 thousand in cash and received an initial delivery of 994,695 shares of its common stock in the open market for an aggregate purchase price of $20,073 thousand
and a
price
per share
of $20.18
on
December 22, 2021.
As of December 31, 2021, the Company accounted for the remaining portion of the ASR Agreement as a forward contract indexed to its own common stock and recorded $17,427 thousand in additional
paid-in
capital in stockholders’ equity in its consolidated balance sheets. The final number of shares to be delivered will be based on the Company’s volume-weighted average stock price under the terms of the ASR Agreement less an agreed upon discount.
The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances under which the ASR Agreement may be accelerated, extended or terminated early by JPM and various acknowledgments, representations and warranties made by the parties to one another. Upon final settlement of the ASR Agreement, which is expected to occur during the fiscal quarter ending March 31, 2022, the Company may be entitled to receive additional shares of common stock from JPM or, under certain circumstances specified in the ASR Agreement, the Company may be required to deliver shares of common stock or make a cash payment, at its option, to JPM.
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Equity Incentive Plans

The Company adopted its 2009 Common Unit Plan, or the 2009 Plan, effective December 8, 2009, which is administered by the Compensation Committee of the Company’s Board of Directors (the “Compensation

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Committee”). The 2009 Plan terminated in connection with the Company’s initial public offering in March 2011, and no additional options or other equity awards may be granted under the 2009 Plan. However, options granted under the 2009 Plan prior to its termination will remain outstanding until they are either exercised or expired. The Company adopted its 2011 Equity Incentive Plan, or the 2011 Plan, in March 2010. The Company amended and restated the 2011 Plan in February 2011, and the Company’s stockholders approved the amendment in March 2011 to reflect that it became effective in 2011 in connection with the Company’s initial public offering in March 2011. The 2011 Plan was amended on October 23, 2017, to revise the clawback policy of the 2011 Plan. The 2011 Plan was amended on April 26, 2018 to amend the tax withholding provisions as they relate to directed sales of shares. At the 2020 Annual Meeting of Stockholders, the Company’s stockholders approved its 2020 Equity and Incentive Compensation Plan, or the 2020 Plan, which is administered by the Compensation Committee. Following the adoption of the 2020 Plan, no further awards may be issued under the 2011 Plan.

Awards may be granted under the 20112020 Plan to the Company’s employees, officers, directors, or certain consultants or those of any present or future parent or subsidiary corporation or other affiliated entity.of the Company. While the Company may grant incentive stock options only to employees, the Company may grant nonstatutory
non-statutory
stock options, stock appreciation rights, restricted stock, purchase rights or bonuses, restricted stock units, performance shares, performance units, dividend equivalents and cash-based awards or other stock-based awards to any eligible participant, subject to terms and conditions determined by the Compensation Committee. The term of any options granted under the 2020 Plan shall not exceed ten years from the date of grant. Restricted stock purchase rights shall be exercisable within a period established by the Compensation Committee, which shall in no event exceed thirty days from the effective date of the grant. As of December 31, 20192021 an aggregate maximum of 9,347 thousand11,352,919 shares were authorized and 987 thousand2,116,324 shares were reserved for all future grants.

Stock options and stock appreciation rights must have exercise prices at least equal to the fair market value of the stock at the time of their grant pursuant to the 2011 Plan and 2020 Plan. The requisite service period, or the period during which a grantee is required to provide service in exchange for option grants, coincides with the vesting period. Stock options typically vest over one to three years following grant.

grant, subject to the participant’s continued service through the applicable vesting dates. As of December 31, 2020, no stock options or stock appreciation rights had been granted under 2020 Plan.

Restricted stock units granted under the 2011 Plan and 2020 Plan represent a right to receive shares of the Company’s common stock when the restricted stock unit vests. No monetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares pursuant to a restricted stock unit, the consideration for which shall be services actually rendered to a participating company or for its benefit. Stock issued pursuant to any restricted stock unit may (but need not) be made subject to vesting conditions based upon the satisfaction of such service requirements, conditions, restrictions or performance criteria as shall be established by the Compensation Committee and set forth in the award agreement evidencing such award. Restricted stock units typically vest over one to three years following grant.

The purchase price forgrant, subject to the participant’s continued service through the applicable vesting dates.

Restricted stock constitutes an immediate transfer of the ownership of shares issuable under each restrictedof the Company’s common stock purchase right shall be establishedto the participant in consideration of the performance of services, entitling such participant to voting, dividend and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by the Compensation Committee in its discretion. No monetary payment (other than applicable tax withholding) shall be required asfor a conditionperiod of receiving shares pursuant to atime determined by the Compensation Committee or until certain management objectives specified by the Compensation Committee are achieved. Each grant of restricted stock bonus,may be made without additional consideration or in consideration of a payment by the consideration for which shall be services actually rendered to a participating company or for its benefit.participant that is less than the fair market value per share of common stock on the grant date. Stock issued pursuant to any restricted stock award may (but need not) be made subject to vesting conditions based upon the satisfaction of such service requirements, conditions, restrictions or performance criteria as shall be established by the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Compensation Committee and set forth in the award agreement evidencing such award. During any period in which stock acquired pursuant to aA grant of restricted stock award remain subject to vesting conditions, such stock may not be sold, exchanged, transferred, pledged, assigned or otherwise disposed of other than pursuant to an ownership change event or transfer by will or the laws of descentrequire that any and distribution. The grantee shall have all of the rights of a stockholder of the Company holding stock, including the right to vote such stock and to receive all dividends and other distributions paid with respecton restricted stock that remains subject to such stock; provided, however, that if so determined by the Compensation Committee and provided by the award agreement, such dividends and distributions shalla substantial risk of forfeiture be automatically deferred and/or reinvested in additional restricted stock, which will be subject to the same vesting conditionsrestrictions as the stock subject to theunderlying restricted stock, award with respect to which

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

but any such dividends or other distributions were paid. If a grantee’s service terminates for any reason, whether voluntary or involuntary (including the grantee’s death or disability), then (a) the Company (or its assignee) has the option to repurchase for the purchase price paid by the grantee any stock acquired by the grantee pursuant to aon restricted stock purchase right which remains subject tomust be deferred until, and paid contingent upon, the vesting conditions as of the date of the grantee’s termination of service and (b) the grantee shall forfeit to the Company any stock acquired by the grantee pursuant to asuch restricted stock bonus which remains subject to vesting conditions as of the date of the grantee’s termination of service. The Company has the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company.

stock.

The following summarizes restricted stock unit activities for the yearsyear ended December 31, 2019, 2018 and 2017.

   Number of
Restricted
Stock Units		   Weighted
Average
Grant-Date
Fair Value of
Restricted
Stock Units		 

Outstanding at January 1, 2017

   566,389   $6.03 

Granted

   172,716    11.15 

Vested

   (368,555)    5.72 

Settled of previous year vesting

   (28,967)    8.00 

Forfeited

   (830)    8.33 
  

 

 

   

 

 

 

Outstanding at December 31, 2017

   340,753   $8.80 
  

 

 

   

 

 

 

Granted

   739,231    9.64 

Vested

   (373,620)    9.24 

Unsettled

   45,311    9.22 

Forfeited

   (33,462)    10.31 
  

 

 

   

 

 

 

Outstanding at December 31, 2018

   718,213   $9.39 
  

 

 

   

 

 

 

Granted

   711,719    11.85 

Vested

   (528,740)    11.00 

Unsettled

   226,215    12.16 

Settled of previous year vesting

   (42,189)    9.22 

Forfeited

   (41,915)    10.00 
  

 

 

   

 

 

 

Outstanding at December 31, 2019

   1,043,303   $10.83 
  

 

 

   

 

 

 

2021.

   
Number of
Restricted
Stock Units
   
Weighted
Average
Grant-Date
Fair Value of
Restricted
Stock Units
 
Outstanding at December 31, 2020
   999,756   $10.68 
Granted
   431,308    19.82 
Vested
   (480,465)    12.05 
Forfeited
   (116,638)    12.77 
   
 
 
   
 
 
 
Outstanding at December 31, 2021
   833,961   $14.33 
   
 
 
   
 
 
 
Total compensation expenses recorded for the restricted stock units were $6,939$7,704 thousand, $4,096$6,311 thousand and $1,601$6,042 thousand for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. As of December 31, 2019,2021, there was $4,289$3,676 thousand of total unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average future period of 0.5 year. Total fair value of restricted stock units vested were $5,817$5,788 thousand, $2,647$3,839 thousand and $2,107$5,817 thousand for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.


MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The following summarizes stock option activities for the yearsyear ended December 31, 2019, 2018 and 2017.2021. At the date of grant, all options had an exercise price not less than the fair value of common stock (aggregate intrinsic value in thousands):

   Number of
Options		  Weighted
Average
Exercise
Price of
Stock
Options		   Aggregate
Intrinsic
Value of
Stock
Options		   Weighted
Average
Remaining
Contractual
Life of
Stock
Options		 

Outstanding at January 1, 2017

   3,428,665  $9.23   $525    6.7 years 

Granted

   70,865   10.43    —      —   

Forfeited

   (88,443)   12.77    —      —   

Exercised

   (539,183)   6.94    1,540    —   
  

 

 

      

Outstanding at December 31, 2017

   2,871,904  $9.59   $6,073    6.2 years 
  

 

 

      

Vested and expected to vest at December 31, 2017

   2,865,475   9.59    6,050    6.2 years 

Exercisable at December 31, 2017

   2,395,979   10.11    4,603    5.7 years 
  

 

 

      

Outstanding at January 1, 2018

   2,871,904  $9.59   $6,073    6.2 years 

Forfeited

   (34,807)   10.97    —      —   

Exercised

   (162,341)   6.97    737    —   
  

 

 

      

Outstanding at December 31, 2018

   2,674,756  $9.73   $395    5.2 years 
  

 

 

      

Vested and expected to vest at December 31, 2018

   2,674,266   9.73    394    5.2 years 

Exercisable at December 31, 2018

   2,544,565   9.94    306    5.1 years 
  

 

 

      

Outstanding at January 1, 2019

   2,674,756  $9.73   $395    5.2 years 

Forfeited

   (44,892)   10.29    —      —   

Exercised

   (452,819)   6.31    2,404    —   
  

 

 

      

Outstanding at December 31, 2019

   2,177,045  $10.42   $6,259    4.7 years 
  

 

 

      

Vested and Exercisable at December 31, 2019

   2,177,045  $10.42   $6,259    4.7 years 
  

 

 

      

   
Number of
Options
  
Weighted
Average
Exercise
Price of
Stock
Options
   
Aggregate
Intrinsic
Value of
Stock
Options
   
Weighted
Average
Remaining
Contractual
Life of
Stock
Options
 
Outstanding at January 1, 2021
   1,647,181  $11.24   $6,112    3.8 years 
Exercised
   (349,304)   12.94    2,965    —   
   
 
 
               
Outstanding at December 31, 2021
   1,297,877  $10.78   $13,262    3.1 years 
   
 
 
               
Vested and Exercisable at December 31, 2021
   1,297,877  $10.78   $13,262    3.1 years 
   
 
 
               
Total compensation expenses recorded for the stock options were $13 thousand, $313 thousandnil, nil and $734$11 thousand for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. There was nowere 0 unrecognized compensation cost related to stock options expected to vest as of December 31, 2019. 2021 and 2020.
Total weighted average grant-date fair value of vested options wasof continuing operations and discontinued operations were NaN, NaN and $165 thousand, $786 thousand and $794 thousand for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The Company utilizes the Black-Scholes option-pricing model to measure the fair value of each option grant. There were no grants of stock options during the years ended December 31, 20192021, 2020 and 2018. The following summarizes the grant-date fair value of options granted for the year ended December 31, 2017 and assumptions used in the Black-Scholes option-pricing model on a weighted average basis. For the year ended December 31, 2017, the expected volatility was estimated using historical volatility of the Company’s share prices.

   Year Ended December 31, 
   2019   2018   2017 

Grant-date fair value of option

   —      —     $5.02 

Expected term

   —      —      2.5 Years 

Risk-free interest rate

   —      —      1.2% 

Expected volatility

   —      —      81.7% 

Expected dividends

   —      —      —   

2019.

The number and weighted average grant-date fair value of the unvested stock options are as follows:

  Year Ended December 31, 
  2019  2018  2017 
  Number  Weighted
Average
Grant-
Date
Fair Value		  Number  Weighted
Average
Grant-
Date
Fair Value		  Number  Weighted
Average
Grant-
Date
Fair Value		 

Unvested options at the beginning of the period

  130,191  $1.54   475,925  $2.19   897,421  $1.72 

Granted options during the period

  —     —     —     —     70,865   5.02 

Vested options during the period

  (107,100)   1.54   (313,160)   2.51   (455,301)   1.74 

Forfeited options during the period

  (345)   1.54   (14,738)   1.73   (19,031)   1.77 

Exercised options during the period

  (22,746)   1.54   (17,836)   1.66   (18,029)   1.59 
 

 

 

   

 

 

   

 

 

  

Unvested options at the end of the period

  0   —     130,191  $1.54   475,925  $2.19 
 

 

 

   

 

 

   

 

 

  

14. Restructuring

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
   
Number
   
Weighted
Average
Grant-
Date
Fair Value
   
Number
   
Weighted
Average
Grant-
Date
 
Fair 

Value

   
Number
  
Weighted
Average
Grant-
Date
Fair Value
 
Unvested options at the beginning of the period
   0      0      0      0      130,191  $1.54 
Vested options during the period
   0      0      0      0      (107,100)   1.54 
Forfeited options during the period
   0      0      0      0      (345)   1.54 
Exercised options during the period
   0      0      0      0      (22,746)   1.54 
   
 
 
        
 
 
        
 
 
     
Unvested options at the end of the period
   0      0      0      —      0  $0   
   
 
 
        
 
 
        
 
 
     
15. Early termination and Other Charges (Gains)

On February 14, 2019, the Company announced that the Company has undertaken a strategic evaluation of the Company’s Foundry Services Group business and the fabrication facility located in Cheongju (“Fab 4”), the larger of the Company two8-inch manufacturing facilities. The Company has engaged J.P. Morgan Securities LLC as the Company’s financial advisor to assist in the evaluation and the Company has also retained legal advisors to assist in the evaluation. other charges, net

For the year ended December 31, 2019,2021, the Company recorded $6,991 thousand in professional fees and other charges incurred in connection with the strategic evaluation and recorded such costs as restructuring and other charges in the Company’s consolidated statements of operations. The Company also recorded $2,151 thousand and $53 thousand restructuring-related charges in the first and the fourth quarter of 2019, respectively.

As of December 21, 2016, the Company entered into a purchase and sale agreement to sell a building located in Cheongju, South Korea. The building has historically been used to house the Company’ssix-inch fabrication facility in Cheongju, South Korea (the“6-inch fab”) and became vacant upon the closure of the fabrication facility in February 2016. As of December 31, 2015, the building was fully impaired. The Company received proceeds of $18,204 thousand, including a $1,655 thousand value-added tax, for the sale of the building

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

in December 2016. As the Company was obligated to perform certain removal construction work, it recorded the $18,204 thousand proceeds as restricted cash and $16,549 thousand as deposits received in its consolidated balance sheets as of December 31, 2016. During the first quarter of 2017, the Company completed all removal construction work necessary to transfer the title of the building, and the $18,204 thousand of restricted cash was fully released. Accordingly, the Company recorded $16,635 thousand as restructuring gain in the consolidated statements of operations for the three months ended March 31, 2017.

In March 2017, the Company sold its sensor product business, which was included in and reported as part of Display Solutions line of its Standard Products Group, to a third party for proceeds of $1,295 thousand, in an effort to improve our overall profitability. The Company recorded $375 thousand net gain from this sale after deducting the book values of certain assets transferred to the buyer.

15. Early Termination Charges

As of February 22, 2017, the Company’s Board of Directors approved the implementation of a new headcount reduction plan (the “Headcount Reduction Plan”). As of June 30, 2017, 352 employees elected to resign from the Company during the period in which the Headcount Reduction Plan was offered. The total cash cost of approximately $31 million has been fully paid. The Company recorded in its consolidated statement of operations $13,369 

$3,430 
thousand of
non-recurring
professional service fees and expenses incurred in termination related charges as early termination charges forconnection with the regulatory requests, and recorded
$1,419 thousand gain on sale of certain legacy equipment of the closed
back-end
line in the Company’s fabrication facility in Gumi (which was closed during the year ended December 31, 2017. The remaining total estimated cost relates2018).
For the year ended December 31, 2020, the Company recorded in its consolidated statement of operations $4,422 thousand of early termination
and other
charges, net in connection with the headcount reduction program offered and paid to statutory severance benefits, which are required by lawthe employees during the fourth quarter of 2020. During the same period, the Company also recorded $554 thousand of
non-recurring
professional service fees and have already been fully accruedexpenses incurred in the Company’s consolidated financial statements.

connection with certain treasury and finance initiatives.

16. Foreign Currency Gain (Loss),Loss, Net

Net foreign currency gain or loss includes
non-cash
translation gain or loss associated with intercompany balances. A substantial portion of the Company’s net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to our
the Company’s
Korean subsidiary. The loans are denominated in USU.S. dollars and are affected by changes in the exchange rate between the Korean won and the USU.S. dollar. As of December 31, 2019, 20182021, 2020 and 2017,2019, the outstanding intercompany loan balances including accrued interest between the Korean subsidiary and the Dutch subsidiary were $686,485$344,411 thousand, $666,597$378,852 thousand and $677,267$686,485 thousand, respectively. The Korean won to USU.S. dollar exchange rates were 1,157.8:
1,185.5:1 1,118.1:
, 1,088.0:1 and 1,071.4:1,157.8:1 using the first base rate as of December 31, 2019, 20182021, 2020 and 2017,2019, respectively, as quoted by the KEB Hana Bank.

17. Income Taxes

The Company’s income tax expense (benefit) is composed of domestic and foreign income taxes depending on the relevant tax jurisdictions. Domestic income (loss) from continuing operations before taxesincome tax expense and income tax expense is(benefit) are generated or incurred in the United States,U.S, where the parent company resides.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The components of income tax expense (benefit) attributable to income (loss) from continuing operations are as follows (in thousands):

   Year Ended December 31, 
   2019   2018  2017 

Income (loss) before income tax expense

     

Domestic

  $(27,758)   $3,492  $27,461 

Foreign

   10,679    (2,743)   58,630 
  

 

 

   

 

 

  

 

 

 
  $(17,079)   $749  $86,091 
  

 

 

   

 

 

  

 

 

 

Current income tax expense (benefit)

     

Domestic

  $20   $(383)  $(359) 

Foreign

   4,679    5,010   3,680 

Uncertain tax position liability (domestic)

   (1)    (2)   (476) 

Uncertain tax position liability (foreign)

   13    (46)   (1,635) 
  

 

 

   

 

 

  

 

 

 
   4,711   4,579  1,210 
  

 

 

   

 

 

  

 

 

 

Deferred income taxes expense (benefit)

     

Foreign

   36    70   (55) 
  

 

 

   

 

 

  

 

 

 

Total income tax expense

  $4,747   $4,649  $1,155 
  

 

 

   

 

 

  

 

 

 

Effective tax rate

   —      620.6%   1.3% 
  

 

 

   

 

 

  

 

 

 

   
Year Ended December 31,
 
   
2021
  
2020
   
2019
 
Income (loss) from continuing operations before income tax expense
              
Domestic
  $41,566  $(12,305)   $(24,752) 
Foreign
   32,403   23,136    6,539 
   
 
 
  
 
 
   
 
 
 
    73,969   10,831    (18,213) 
   
 
 
  
 
 
   
 
 
 
Current income tax expense (benefit)
              
Domestic
   6,876   1    20 
Foreign
   9,415   (2,264)    3,771 
Uncertain tax position liability (domestic)
   —     —      (1) 
Uncertain tax position liability (foreign)
   (35)   (20)    2 
   
 
 
  
 
 
   
 
 
 
    16,256   (2,283)    3,792 
   
 
 
  
 
 
   
 
 
 
Deferred income tax benefit
              
Domestic
   1,314   (4,461)    —   
Foreign
   (309)   (39,484)    63 
   
 
 
  
 
 
   
 
 
 
    1,005   (43,945)    63 
   
 
 
  
 
 
   
 
 
 
Benefits from intra-period allocation
   —     —      (1,655) 
Total income tax expense (benefit)
  $17,261  $(46,228)   $2,200 
   
 
 
  
 
 
   
 
 
 
Effective tax rate
   23.3%   —      —   
   
 
 
  
 
 
   
 
 
 
The Company’s effective tax rates were negativerate for the year ended December 31, 2019,2021 was 23.3% as compared to 620.6% and 1.3%negative effective tax rates for the years ended December 31, 20182020 and 2017, respectively.2019. The differencesCompany’s effective tax rate in 2021 was higher than the U.S. federal statutory rate of 21.0%, primarily due to the earnings from its operating subsidiary in Korea at a higher statutory tax rate. The increase in the effective tax rate in 2021 was primarily due to the higher taxable income from the Korean subsidiary and the reverse termination fee income recognized by the parent entity in the U.S. in relation to the Merger. The negative effective tax rate in 2020 as compared to the U.S. federal statutory rate of 21.0%, was primarily attributable to the reversal of the valuation allowances established against the deferred tax assets in connection with the Company’s operating subsidiary in Korea and parent entity in the U.S. The difference between the annual effective income tax ratesrate and the USU.S. federal statutory rate of 21.0% in 2019 and 2018 and 35% in 2017 primarily relaterelated to the
non-income
based withholding tax attributable to intercompany interest income of the Company’s Dutch subsidiary, application of different tax rates associated with certain earnings from the Company’s operations outside the US,U.S., the U.S. parent Company’sentity’s interest income, which is
non-taxable
for USU.S. tax purposes, and the change of deferred tax assets and valuation allowance. allowances.
The statutoryCompany’s Korean subsidiary recorded $1,655 thousand income tax ratebenefits for the year ended December 31, 2019, primarily attributable to the application of the Company’s Korean operating subsidiary was approximately 24.2%.

exception rule under ASC 740, in connection with the intra-period allocation, which resulted in the tax benefit in its continuing operations and tax expense in the discontinued operations for an equal and offsetting amount for the presentation purposes only.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

The provision for domestic and foreign income taxes incurred is different from the amount calculated by applying the statutory tax raterates to the net income (loss) from continuing operations before income taxes.tax expense. The significant items causing this difference are as follows (in thousands):

   Year Ended December 31, 
   2019   2018   2017 

Provision computed at statutory rate

  $(3,587)   $157   $30,223 

State income taxes, net of federal effect

   (1,068)    46    5,445 

Change in statutory tax rates

   2,329    1    13,438 

Difference in foreign tax rates

   3,302    377    (17,789) 

Permanent differences

      

Derivative assets adjustment

   315    (1,111)    1,937 

TPECs, hybrid and other interest

   7,812    (5,555)    (7,526) 

Thin capitalization

   988    1,262    1,888 

Permanent foreign currency gain (loss)

   (1,734)    (2,490)    15,237 

Penalty

   151    436    4,001 

Global intangiblelow-taxed income (GILTI)

   5,112    328    —   

Other permanent differences

   411    117    633 

Withholding tax

   3,043    3,270    3,339 

Change in valuation allowance

   4,382    6,260    (56,744) 

Tax credits claimed

   (419)    (416)    (659) 

Tax credits expired

   168    817    2,638 

Uncertain tax positions liability

   12    (48)    (2,111) 

Change in net operating loss carry-forwards from tax audit

   —      —      6,878 

NOL expired

   3,780    —      —   

Intercompany debt restructuring

   (18,435)    —      —   

Others

   (1,815)    1,198    327 
  

 

 

   

 

 

   

 

 

 

Income tax expense

  $4,747   $4,649   $1,155 
  

 

 

   

 

 

   

 

 

 

   
Year Ended December 31,
 
   
2021
  
2020
  
2019
 
Provision computed at statutory rates
  $15,533  $2,274  $(3,825) 
State income taxes, net of federal effect
   —     730   (1,139) 
Change in statutory tax rates
   (259)   5,735   2,329 
Difference in foreign tax rates
   2,820   1,077   3,002 
Permanent differences
             
Derivative assets adjustment
   (23)   56   315 
TPECs, hybrid and other interest
   (3,400)   (2,722)   7,812 
Thin capitalization
   —     339   988 
Equity-based compensation
   (802)   (73)   (14) 
Permanent foreign currency gain (loss)
   1,888   (1,813)   (1,734) 
Penalty
   427   176   151 
GILTI
   6,156   24,224   5,112 
Intercompany debt restructuring
   971   11,137   (18,435) 
Other permanent differences
   (767)   1,335   408 
Withholding tax
   2,060   2,291   3,043 
State net operating loss write-off
   9,844   —     —   
Change in valuation allowance
   (13,803)   (75,452)   7,817 
Benefits from intra-period allocation
   —     —     (1,655) 
Tax credits claimed
   (5,508)   (12,397)   (651) 
Tax credits expired
   —     —     170 
Uncertain tax positions liability
   (35)   (20)   1 
Change in net operating loss carry-forwards
   621   (3,314)   —   
Foreign local taxes
   723   43   152 
Others
   815   146   (1,647) 
   
 
 
  
 
 
  
 
 
 
Income tax expense (benefit)
  $17,261  $(46,228)  $2,200 
   
 
 
  
 
 
  
 
 
 
Of the income tax benefit of $13,803 thousand attributable to the change in valuation allowances during the year ended December 31, 2021, $9,844
 thousand is related to the release of the valuation allowance established against the deferred tax assets associated in the U.S. entity due to the dissolution of the Company’s domestic subsidiary in 2021 subsequent to the sale of the Foundry Services Group business and Fab 4. The permanent differencesoffsetting expense of
$9,844
 thousand was included in Tracking Preferred Equity Certificates (TPECs), hybridthe state net operating loss
write-off
in 2021, resulting in no income tax effect in the year. The Company’s parent entity in the U.S. will no longer be subject to state income taxes in 2022 and other interest primarily relate tonon-taxable hybrid instruments treated as debtthereafter. The remaining
$3,959 thousand represented the release of valuation allowances based on the assessment of the realizability of the related deferred tax assets in one country and equity in another. Thefuture tax years.
For the year ended December 31, 2020, a permanent difference of $5,112$24,224 thousand was included as Global intangible
low-taxed
income (“GILTI”) in connection with GILTI in 2019the U.S., and was primarily attributable to the incomesincome earned by certain foreign subsidiaries of the Company.

Company, including its Korean subsidiary, from the sale of the Foundry Services Group business and

Fab 4.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The income tax benefit of $75,452 thousand was due to the changes in valuation allowances during the year ended December 31, 2020, of which $31,578 thousand related to the release of valuation allowances related to the Company’s current year earnings, which were mainly driven by GILTI inclusion at the U.S. parent company. The remaining $43,874 thousand represented the release of valuation allowances based on the realizability of the related deferred tax assets in future years. The Company’s operating subsidiary in Korea had generated three years of cumulative profits adjusted for permanent differences and is anticipated to generate taxable basis for the subsequent years. As a result, $39,413 thousand of valuation allowances, established against the Korean subsidiary’s deferred tax assets, were released as of December 31, 2020. In addition, management believes it is more likely than not that the Company’s parent in the U.S. would be able to utilize its net operating loss in future tax years, which would provide incremental tax savings of approximately $4,461 thousand. Therefore, the Company released its valuation allowances established against the U.S. parent’s deferred tax assets up to these anticipated tax savings as of December 31, 2020.
Of the permanent tax expense of $11,137 thousand related to intercompany debt restructuring recorded for the year ended December 31, 2020, $11,890 thousand related to the waiver and release of unpaid interests of the intercompany loans granted to the Korean subsidiary by the Dutch subsidiary. This transaction created taxable income for the Korean subsidiary, but did not result in a liability because of the utilization of loss carryforwards, which were used against income from cancellation of intercompany loans.
During 2019, the Company completed a restructuring of its intercompany borrowings between the Company and the other entities within the group of the Company (the “Intercompany Debt Restructuring”).Company. The main purpose of the Intercompany Debt Restructuring isthis restructuring was to simplify the intercompany debt structure of the group in order to align with the anti-hybrid mismatch provision mandated by the Organization for Economic
Co-operation
and Development (OECD). A portion of hybrid instruments issued by the Company’s Luxembourg subsidiary to its parent in the USU.S. were subject to the Intercompany Debt Restructuring.this restructuring. The Company recorded a net deferred tax asset of $18,435 thousand related to the unrealized foreign exchange translation loss, which was attributable to the changes in the balances of hybrid instruments that are denominated in Euros. However, there was no impact on the provision for income taxes due to a full valuation allowance against the deferred tax assets of the Company’s Luxembourg subsidiary.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

A summary of the composition of net deferred income tax assets (liabilities) as of December 31, 20192021 and 20182020 are as follows (in thousands):

   Year Ended December 31, 
   2019   2018 

Deferred tax assets

    

Inventory reserves

  $4,869   $8,274 

Derivative liabilities

   —      175 

Accrued expenses

   3,384    3,210 

Product warranties

   190    67 

Other reserves

   303    187 

Property, plant and equipment

   7,979    8,797 

Intangible assets

   5    12 

Accumulated severance benefits

   36,841    36,166 

Foreign currency translation loss

   20,544    28,718 

NOL carry-forwards

   150,954    164,824 

Tax credit

   17,054    18,352 

Other long-term payable

   3,023    3,634 

Interest expense deduction limitation

   5,244    4,026 

Others

   4,240    3,455 
  

 

 

   

 

 

 

Total deferred tax assets

   254,630    279,897 

Less: Valuation allowance

   (246,224)    (248,633) 
  

 

 

   

 

 

 
   8,406    31,264 
  

 

 

   

 

 

 

Deferred tax liabilities

    

Derivative assets

   352    —   

Foreign currency translation gain

   —      17,777 

Prepaid expense

   3,090    3,612 

Others

   4,810    9,660 
  

 

 

   

 

 

 

Total deferred tax liabilities

   8,252    31,049 
  

 

 

   

 

 

 

Net deferred tax assets

  $154   $215 
  

 

 

   

 

 

 

Net deferred tax assets reported in

    

Othernon-current assets

  $154   $215 

   
Year Ended December 31,
 
   
2021
   
2020
 
Deferred tax assets
          
Inventory reserves
  $1,313   $1,338 
Accrued expenses
   3,084    2,493 
Property, plant and equipment
   3,119    3,391 
Accumulated severance benefits
   11,842    12,343 
Operating lease
right-of-use
liabilities
   899    1,025 
Foreign currency translation loss
   17,280    9,129 
NOL carry-forwards
   87,636    121,389 
Tax credit carry-forwards
   14,164    15,395 
Other long-term payable
   2,457    944 
Interest expense deduction limitation
   4,731    —   
Derivative liabilities
   463    —   
Others
   1,610    1,629 
   
 
 
   
 
 
 
Total deferred tax assets
   148,598    169,076 
Less: Valuation allowance
   (94,212)    (115,636) 
   
 
 
   
 
 
 
    54,386    53,440 
   
 
 
   
 
 
 
Deferred tax liabilities
          
Derivative assets
   —      417 
Prepaid expense
   2,300    1,071 
Severance benefit deposits
   4,227    3,156 
Operating lease
right-of-use
assets
   899    1,025 
Foreign currency translation gain
   5,139    2,431 
Others
   726    799 
   
 
 
   
 
 
 
Total deferred tax liabilities
   13,291    8,899 
   
 
 
   
 
 
 
Net deferred tax assets
  $41,095   $44,541 
   
 
 
   
 
 
 
The valuation allowances at December 31, 2019Company has not recognized a deferred tax liability related to outside basis differences inherent in its foreign subsidiaries because the investments in those foreign subsidiaries within the group are essentially permanent in duration or earnings in foreign subsidiaries are intended to be indefinitely reinvested. It is not practicable to estimate the amount of deferred income taxes not recorded that are associated with those outside basis differences. If circumstances change and 2018 are primarilyit becomes apparent that the undistributed earnings from foreign subsidiaries will be remitted or the parent entity will dispose of its interest in the subsidiaries in the foreseeable future, and related income taxes have not been recognized by the parent entity, the parent entity will accrue as an expense of the current period income taxes attributable to deferred tax assets for the uncertainty in taxable income at certainthat remittance or disposition.
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Table of the Company’s foreign subsidiaries, including its Korean operating subsidiary.

Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Changes in valuation allowance for deferred tax assets of continuing operations and discontinued operations for the years ended December 31, 2019, 20182021, 2020 and 20172019 are as follows (in thousands):

   Year Ended December 31, 
   2019   2018   2017 

Beginning balance

  $248,633   $251,132   $281,473 

Charged to expense

   7,912    7,653    (54,816) 

NOL/tax credit claimed/expired

   (3,529)    (1,393)    (1,928) 

Translation adjustments

   (6,792)    (8,759)    26,403 
  

 

 

   

 

 

   

 

 

 

Ending balance

  $246,224   $248,633   $251,132 
  

 

 

   

 

 

   

 

 

 

The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires the Company to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate future taxable income within the period during which the temporary differences reverse, the outlook for the economic environment in which the Company operates and the overall future industry outlook.

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Beginning balance
  $115,636   $246,224   $248,633 
Additions
   —      —      7,912 
Reductions
   (13,803)    (75,452)    —   
Changes relating to the discontinued operations
   —      (67,484)    —   
NOL/tax credit claimed/expired
   —      3,686    (3,529) 
Translation adjustments
   (7,621)    8,662    (6,792) 
   
 
 
   
 
 
   
 
 
 
Ending balance
  $94,212   $115,636   $246,224 
   
 
 
   
 
 
   
 
 
 
As of December
 31, 2021, 2020 and 2019, and 2018, the Company had net deferred tax assets of $154 thousand and $215 thousand, respectively, mainly related to the Company’s Japanese subsidiary. As of December 31, 2019, 2018 and 2017, the Company recorded a valuation allowance of $246,224$94,212 thousand, $248,633$115,636 thousand and $251,132$246,224 thousand on its deferred tax assets related to temporary differences, net operating loss carry-forwards and tax credits of domestic and foreign subsidiaries.
The Company has recorded thesea full valuation allowances onallowance against certain foreign subsidiaries’ deferred tax assets based onpertaining to its assessmentrelated tax loss carry-forwards that the negative evidence of expected losses in early future years outweighs the positive evidence of historical income.

are not anticipated to generate a tax benefit. The valuation allowances at December 31, 2021, 2020 and 2019 were primarily attributable to its Luxembourg subsidiary.

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
NOL carry-forwards
  $502,511   $604,977   $708,885 
As of December 31, 2019,2021, the Company had approximately $708,885$502,511 thousand of net operating loss carry-forwards available to offset future taxable income, of which $204,248$288,548 thousand is associated with the Company’s Korean subsidiary, which expires from 2024 through 2026. The net operating loss of $295,171 thousand associated with the Company’s Luxembourg subsidiary, is mainly attributable to certain expenses incurred in connection with its shareholding in the Company’s Dutch subsidiary. Although thisOf the $288,548 thousand net operating loss amountcarry-forwards, $279,848 thousand is carried forward indefinitely it will be recaptured on future capital gain.and the remaining $8,700 thousand expires from 2034 through 2037. The remaining net operating loss mainly relates tocarry-forwards retained by the USCompany’s U.S. parent company and its domestic subsidiary and substantially most(which was closed in 2021 subsequent to the sale of the net operating lossFoundry Services Group business and Fab 4) amounts to $198,813 thousand, which expires at various dates through 2039. 2040. The amount associated with the Company’s Korean subsidiary of $11,499 thousand expires in 2026.
The Company utilized net operating loss of $30,945$70,672 thousand, $24,123$169,600 thousand and $3,217$30,945 thousand for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. The Company also has Korean, Dutch and U.S. tax credit carry-forwards of approximately $3,028$14,164 thousand $14,018 thousand and $9 thousand, respectively, as of December 31, 2019.2021. The Korean tax credits expire at various dates starting from 2020 to 2024 and the Dutch tax credits are carried forward to be used for an indefinite period of time.

United States Tax Reform

On December 22, 2017, H.R. 1, originally known as the Tax Cuts and Jobs Act in the US was enacted (the “Tax Reform”). The Tax Reform reduced the US federal statutory rate to 21.0% from 35.0% effective January 1,

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

2018. The Tax Reform contains several key provisions that affect the Company’s assessment on its deferred taxes, which include the remeasurement of deferred taxes, recognition of liabilities for taxes on mandatory deemed repatriations and certain other foreign income, and reassessment of the realizability of deferred tax assets. As of December 31, 2017, the Company remeasured its deferred tax assets and liabilities at the reduced rate of 21%, assessed the realizability of remeasured deferred tax assets and reduced its net deferred tax assets by $13,438 thousand in 2017.

The Company reviewed the tax impact of the Tax Reform, including guidance and proposed regulations issued in 2019, resulting in an inclusion of GILTI of $24,344 thousand for US income tax purposes. The Company elected to account for the tax on GILTI as a period cost and not record the deferred tax. Therefore, the inclusion of GILTI did not impact the Company’s consolidated financial statements for the year ended December 31, 2019 due to the net operating loss carry-forwards available for the Company.

Uncertainty in Income Taxes

The Company and its subsidiaries file income tax returns in Korea, Japan, Taiwan, and the USU.S. and in various other jurisdictions. The Company is subject to income- or
non-income
tax examinations by tax authorities of these jurisdictions for all open
tax years.

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As of December
 31, 2019, 20182021, 2020 and 2017,2019, the Company recorded $445$386 thousand, $426$414 thousand and $475$445 thousand of unrecognized tax benefits of continuing operations and discontinued operations, respectively.

A tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of each period is as follows (in thousands):

   Year Ended December 31, 
       2019          2018          2017     

Unrecognized tax benefits, balance at the beginning

  $426  $475  $1,768 

Additions based on tax positions related to the current year

   13   10   10 

Reductions for tax positions of prior years

   (1)   —     (676) 

Lapse of statute of limitations

   —     (51)   (735) 

Translation adjustments

   7   (8)   108 
  

 

 

  

 

 

  

 

 

 

Unrecognized tax benefits, balance at the ending

  $445  $426  $475 
  

 

 

  

 

 

  

 

 

 

The accrued

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Unrecognized tax benefits, balance at the beginning
  $414   $445   $426 
Additions based on tax positions related to the current year
   44    48    13 
Reductions for tax positions of prior years
   —    (34)    (1) 
Lapse of statute of limitations
   
(79

)    (76)    —   
Translation adjustments
   7    31    7 
   
 
 
   
 
 
   
 
 
 
Unrecognized tax benefits, balance at the ending
  $386   $414   $445 
   
 
 
   
 
 
   
 
 
 
NaN
interest and penalties totaled $0, $0 and $8 thousandrelated to unrecognized tax benefits were recognized as of December 
31
,
2021
,
2020
and
2019 2018 and 2017, respectively.

.
The Company is currently unaware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviations from this estimate over the next 12 months.

Other Matter

In September 2017, the Company’s Korean subsidiary was notified that the Korean National Tax Service (the “KNTS”) would be examining its income- andnon-income-based taxes for its 2012 to 2014 tax years. The KNTS conducted its audit, primarily focusing onnon-income-based VAT transactions associated with the periods with respect to which the Company previously restated the Company’s consolidated financial statements as a result of the independent investigation commenced by the Company’s Audit Committee in January 2014 (the “Restatement”).

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(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

As a result, the aggregate tax and penalty assessment by the KNTS was $6,030 thousand, of which $3,336 thousand had already been accrued by the Company in its 2015 consolidated financial statements in connection with the Restatement filed in 2015. Such amount also included $548 thousand related to employee withholding amounts and associated penalties, and to the extent any such tax obligation was that of the Company’s Korean subsidiary’s employees, the Company expects to seek reimbursement of the applicable amounts from those employees. In addition, the KNTS assessed an administrative fine of $2,034 thousand in connection with the above-described tax audit.

During the fourth quarter of 2017, the Company recorded the $4,179 thousand related to this additional tax assessment and associated penalties and administrative fine as selling, general and administrative expenses in its consolidated statements of operations for the year ended December 31, 2017 and recorded the $548 thousand related to employee withholding amounts as other receivables in the consolidated balance sheets as of December 31, 2017 as the Company expects to seek reimbursement of the applicable amounts from those employees. Of the $548 thousand, the Company has collected $118 thousand and established an allowance of $430 thousand, which it has recorded as a selling, general and administrative expense for the three months ended September 30, 2018.

18. Geographic and SegmentOther Information

The Company has two operating segments: its Foundry Services Group and Standard Products Group. The Company’s chief operating decision maker is its Chief Executive Officer, who allocates resources and assesses performance of the business and other activities based on gross profit.

In January 2018, as part of the Company’s ongoing portfolio optimization effort to realign business processes and streamline the Company’s organizational structure, the Company transferred a portion of itsnon-OLED Display business from its Standard Products Group to its Foundry Services Group. The transferrednon-OLED Display business has technical and business characteristics more closely aligned with the Company’s Foundry Services Group business than with the Company’s Standard Products Group business. The transferrednon-OLED Display business previously resided within the Company’s Display Solutions business line primarily as a result of a long standing customer relationship established in the past. The Company has recast comparative segment financial information to conform to this current period change. For the year ended December 31, 2017, $30,306 thousand of net sales and $6,322 thousand of gross profit were reclassified from the Display Solutions business line in the Standard Products Group to the Foundry Services Group.

The following sets forth information relating to the single continuing operating segmentssegment (in thousands):

   Year Ended December 31, 
   2019   2018   2017
As Adjusted		 

Net Sales

      

Foundry Services Group

  $307,144   $325,312   $350,395 

Standard Products Group

      

Display Solutions

   308,531    256,113    179,233 

Power Solutions

   176,245    169,284    149,836 
  

 

 

   

 

 

   

 

 

 

Total Standard Products Group

   484,776    425,397    329,069 

All other

   275    189    208 
  

 

 

   

 

 

   

 

 

 

Total net sales

  $792,195   $750,898   $679,672 
  

 

 

   

 

 

   

 

 

 

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Revenues
               
Standard products business
               
Display Solutions
  $205,322   $299,057   $308,531 
Power Solutions
   227,777    166,462    176,316 
   
 
 
   
 
 
   
 
 
 
Total standard products business
   433,099    465,519    484,847 
Transitional Fab 3 foundry services
   41,131    41,540    35,824 
   
 
 
   
 
 
   
 
 
 
Total revenues
  $474,230   $507,059   $520,671 
   
 
 
   
 
 
   
 
 
 
   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Gross Profit
      
Standard products business
  $149,596   $127,099   $116,397 
Transitional Fab 3 foundry services
   3,947    1,218    —   
             
Total gross profit
  $153,543   $128,317   $116,397 
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   Year Ended December 31, 
   2019   2018   2017
As Adjusted		 

Gross Profit

      

Foundry Services Group

  $64,010   $82,578   $101,780 

Standard Products Group

   116,327    115,478    85,905 

All other

   274    40    208 
  

 

 

   

 

 

   

 

 

 

Total gross profit

  $180,611   $198,096   $187,893 
  

 

 

   

 

 

   

 

 

 

Upon the adoption of the new revenue standard, the Company’s revenue for Foundry Services Group is disaggregated depending on the timing of revenue recognition (in thousands):

   Year Ended December 31, 2019 
   Revenue recognized
at the time of
shipment or delivery		   Revenue
recognized
over time		   Total 

Net Sales

      

Foundry Services Group

  $157,272   $149,872   $307,144 

   Year Ended December 31, 2018 
   Revenue recognized
at the time of
shipment or delivery		   Revenue
recognized
over time		   Total 

Net Sales

      

Foundry Services Group

  $80,578   $244,734   $325,312 

The following is a summary of net salessales—standard products business (which does not include the Transitional Fab 3 Foundry Services) by geographic region, based on the location to which the products are billed (in thousands):

   Year Ended December 31, 
   2019   2018   2017 

Korea

  $249,385   $282,516   $279,883 

Asia Pacific (other than Korea)

   466,380    380,598    322,595 

United States

   28,109    37,483    35,089 

Europe

   46,421    47,831    41,109 

Others

   1,900    2,470    996 
  

 

 

   

 

 

   

 

 

 

Total

  $792,195   $750,898   $679,672 
  

 

 

   

 

 

   

 

 

 

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Korea
  $113,776   $106,415   $132,622 
Asia Pacific (other than Korea)
   306,333    347,597    343,652 
United States
   6,052    5,147    2,399 
Europe
   5,698    4,317    4,801 
Others
   1,240    2,043    1,373 
   
 
 
   
 
 
   
 
 
 
Total
  $433,099   $465,519   $484,847 
   
 
 
   
 
 
   
 
 
 
For the years ended December 31, 2021, 2020 and 2019, 2018 and 2017,of the Company’s net salessales—standard products business in Asia Pacific (other than Korea), net sales—standard products business in Greater China (China and Hong KongKong) represented 65.8%, 82.0% and Macau) represented 75.4%, 66.6% and 49.7%95.8%, respectively, and net salessales—standard products business in TaiwanVietnam represented 20.9%26.4%, 26.2%14.4% and 36.4%0.7%, respectively, of the Company’s net sales in the Asia Pacific (other than Korea).

respectively.


Net sales
from the Company’s top ten largest customers in the standard products business (which does not
inc
lude the Transitional Fab 3 Foundry Services) accounted for 67%80%, 61%88% and 57%90% for the years ended December 31, 2021, 2020 and 2019, 2018respectively.
For the year ended December 31, 2021, the Company had two customers that represented 42.5% and 2017, respectively.

For10.4% of its net s

ale
s—standard products business, and for the year ended December 31, 2020, the Company had one
customer that represented 56.2% of its net sales—standard products business, and for the year ended December 31, 2019, the Company had one customer that represented 32.9%53.8% of its net sales. For the year endedsales—standard products business.
As of December 31, 2018, the Company had two customers that represented 19.3%2021 and

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

13.3% of its net sales. For the year ended December 31, 2017, the Company had 2020, one customer that represented 15.6%accounted for 25.6% and 45.1% of its net sales.

accounts receivable, respectively.

98% of the Company’s property, plant and equipment are located in Korea as of December 31, 2019.

2021.

19. Commitments
 Merger Agreement
On March 25, 2021, the Company, South Dearborn Limited, an exempted company incorporated in the Cayman Islands with limited liability (“Parent”), formed by an affiliate of Wise Road Capital LTD, and Contingencies

Operating AgreementsMichigan Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), providing for, among other things and subject to the terms and conditions thereof, the merger of Merger Sub with SK hynix

In connectionand into the Company (the “Merger”), with the acquisitionCompany surviving the Merger as a wholly owned subsidiary of thenon-memory semiconductor business from SK hynix on October 4, 2004 (the “Original Acquisition”), the Company entered into several agreements with SK hynix, including anon-exclusive cross license that provides the Company with access to certain of SK hynix’s intellectual property for use in the manufacture and sale ofnon-memory semiconductor products. Parent.

The Company also agreed to provide certain utilities and infrastructure support services to SK hynix.

Upon the closing of the Original Acquisition,Merger was subject to certain conditions, including clearance by the Company’s Korean subsidiaryCommittee on Foreign Investment in the United States (“CFIUS”) under the Defense Production Act of 1950, as amended. The Company and SK hynix alsoParent were advised that CFIUS clearance of the Merger would not be forthcoming and received permission from CFIUS to withdraw their joint filing. In connection therewith, the Company and Parent entered into lease agreements under which the Company’s Korean subsidiary leases space to SK hynix in several buildings, primarily warehousesa Termination and utility facilities, in Cheongju, Korea. These leases are generally for an initial termSettlement Agreement, dated December 13, 2021 (the “Termination Agreement”).

117
Table of 20 years plus an indefinite number of renewal terms of 10 years each. Each of the leases is cancelable upon 90 days’ notice by the lessee. The Company also leases certain land from SK hynix located in Cheongju, Korea. The term of this lease is indefinite unless otherwise agreed by the parties, and as long as the buildings remain on the lease site and are owned and used by the Company for permitted uses.

Long-term Purchase Agreements

The Company purchases raw materials from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequate supply, the Company from time to time may enter into multi-year purchase agreements, which specify future quantities and pricing of materials to be supplied by the vendors. The Company reviews the terms of the long-term supply agreements and assesses the need for any accrual for estimated losses, such as lower of cost or net realizable value that will not be recovered by future sales prices. No such accrual was required as of December 31, 2019 or 2018.

SEC Enforcement Staff Review

In March 2014, the Company voluntarily reported to the Securities and Exchange Commission, or the SEC, that the Company’s Audit Committee had determined that the Company incorrectly recognized revenue on certain transactions and as a result would restate its financial statements, and that the Audit Committee had commenced an independent investigation. Over the course of 2014 and the first two quarters of 2015, the Company voluntarily produced documents to the SEC regarding the various accounting issues identified during the independent investigation, and whether the Company’s hiring of an accountant from the Company’s independent registered public accounting firm impacted that accounting firm’s independence. On July 22, 2014, the Staff of the SEC’s Division of Enforcement obtained a Formal Order of Investigation. On March 12, 2015, the SEC issued a subpoena for documents to the Company in connection with its investigation. On May 1, 2017, the SEC announced that it had reached a final settlement with the Company, resolving the SEC’s investigation. In that connection, the Company has consented, without admitting or denying the SEC’s findings, to the entry of an administrative order by the SEC directing that the Company cease and desist from committing or causing any violations of certain provisions of the federal securities laws and related SEC regulations. The SEC’s administrative order was entered on May 1, 2017. The SEC imposed a monetary penalty of $3,000 thousand on

Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

On December 
20, 2021, the Company. Merger Agreement
 was 
terminated pursuant to the Termination Agreement after the Company’s receipt of a fee of $51,000 thousand from Parent and a new standby letter of credit, which secures a deferred fee of $19,200 thousand from Parent due on or before March 31, 2022. The Company recorded in its consolidated statement of operations $70,200
 thousand income as part of merger-related costs (income), net for the year ended December 31, 2021, and in its consolidated balance sheet
$19,200 
thousand deferred fee as other receivables at December 31, 2021.
For the years ended December 31, 2021 and 2020, the Company incurred $34,673 thousand and $653
 thousand, respectively, of professional fees and certain transaction related-expenses incurred in connection with the Merger, which were recognized in merger-related costs (income), net in the consolidated statements of operations.
20. Commitments and Contingencies
COVID-19
Pandemic
In December 2019, a strain of coronavirus causing a disease known as
COVID-19
surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China. In March 2020, the World Health Organization declared the
COVID-19
outbreak a pandemic. Governmental authorities throughout the world have implemented numerous containment measures, including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business restrictions and shutdowns, resulting in rapidly changing market and economic conditions. Although some of these restrictions and other containment measures have since been lifted or scaled back, ongoing surges of
COVID-19
have in some cases resulted in the
re-imposition
of certain restrictions and containment measures, and may continue to lead to other restrictions being
re-implemented
in the foreseeable future in response to efforts to reduce the rapid spread of
COVID-19.
The Company experienced some minor disruption in its Power Solutions business from assembly and test subcontractors located in China in the first quarter ended March 31, 2017,of 2020 as a result of the
COVID-19
pandemic. To date, its external Display Solutions business contractors and
sub-contractors
have not been materially impacted by the
COVID-19
pandemic. The Company is, however, unable to accurately predict the full impact that the
COVID-19
pandemic will have on its future results of operations due to numerous uncertainties. The extent to which the
COVID-19
pandemic impacts the Company’s business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the
COVID-19
pandemic, such as new strains of the virus, including the Delta and Omicron variants and any future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the extent and effectiveness of actions to contain the
COVID-19
pandemic or treat its impact, including vaccination campaigns and lockdown measures, among others. In addition, recurrences or additional waves of
COVID-19
cases could cause other widespread or more severe impacts depending on where infection rates are highest. The Company cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if the Company establishedor any of its customers and suppliers were to experience prolonged business shutdowns or other disruptions, its ability to conduct its business could be materially and negatively affected, which could have a reserve in that amount for the potential settlementmaterial adverse impact on its business, results of this matter. The reserved monetary penalty of $3,000 thousand was paid to the SEC during the second quarter of 2017. operations and financial condition.
The Company also agreedcontinues to closely monitor and evaluate the nature and scope of the impact of the
COVID-19
pandemic to its business, consolidated results of operations, and financial condition, and may take
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(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
further actions altering its business operations and managing its costs and liquidity that the Company deems necessary or appropriate to respond to this ongoing and uncertain global health crisis and the resulting global economic consequences.
Merger-related Complaints
Since April 22, 2021, eleven complaints (each, a “Shareholder Complaint,” and together, the “Shareholder Complaints”) were filed seeking to enjoin the Merger, or, if the Merger is consummated, rescind the Merger or recover damages, as well as an undertaking to cooperate fullyaward of each plaintiff’s fees and litigation expenses. The Shareholder Complaints, each filed as an individual action by a purported stockholder of the Company, were captioned as Schulthess v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-03587
(S.D.N.Y.) (the “Schulthess Complaint”), Pittman v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-02306
(E.D.N.Y.) (the “Pittman Complaint”), Flanagan v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-03743
(S.D.N.Y.) (the “Flanagan Complaint”), Castelli v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-03769
(S.D.N.Y.) (the “Castelli Complaint”), Doolittle v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-03801
(S.D.N.Y.) (the “Doolittle Complaint”), Thomas v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-03860
(S.D.N.Y.) (the “Thomas Complaint”), Finger v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-03927
(S.D.N.Y.), Kent v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-00657
(D. Del.) (the “Kent Complaint”), Kennedy v. Magnachip Semiconductor Corporation, et al., Case No.
2:21-cv-02110
(E.D. Pa.) (the “Kennedy Complaint”), Monroy v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-04921
(S.D.N.Y.) (the “Monroy Complaint”), and Jones v. Magnachip Semiconductor Corporation, et al., Case No.
1:21-cv-04966
(S.D.N.Y.). Each Shareholder Complaint alleged either that the preliminary proxy statement filed by the Company with the Securities and Exchange Commission (“SEC”) on April 19, 2021 or the definitive proxy statement filed by the Company with the SEC in anyon May 7, 2021, is false and/or misleading and all investigations, litigations or other proceedings relating to or arising fromasserts claims for violations of Section 14(a) and 20(a) of the matters described in the SEC’s order. In connection with the settlement, theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), and SEC considered remedial acts promptly undertaken byRule
14a-9
against the Company and its cooperation with the SEC staff during the coursecertain current or former members of the investigation. Among other things, as previously disclosedCompany’s board of directors (the “Board”). The Schulthess Complaint, Castelli Complaint and Monroy Complaint also alleged breaches of fiduciary duties by certain current or former members of the Board. The Schulthess Complaint further alleged that the Company aided and abetted purported breaches of fiduciary duties by certain current or former members of the Board.
On June 8, 2021, the Company voluntarily made supplemental disclosures related to the Merger in response to certain allegations raised in the Company’s filings withShareholder Complaints described above in order to avoid the SEC,risk that the Audit CommitteeShareholder Complaints may delay or otherwise adversely affect the consummation of the Company self-investigatedMerger and self-reportedto minimize the accounting errors, selected new managementexpense of defending such actions. Since June 8, 2021, the plaintiffs who filed the Pittman Complaint, the Doolittle Complaint, the Flanagan Complaint, the Kennedy Complaint, the Kent Complaint, and implemented various additional controls designed to prevent similar errors going forward.

20.the Thomas Complaint voluntarily dismissed their respective complaints.

On August 11, 2021, certain of the complaints filed in the U.S. District Court for the Southern District of New York were consolidated and interim
co-lead
plaintiffs’ counsel were appointed.
By January 5, 2022, all Shareholder Complaints were voluntarily
dismissed.
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21. Accumulated Other Comprehensive Loss

Income (Loss)

Accumulated other comprehensive lossincome (loss) consists of the following at December 31, 20192021 and 2018,2020, respectively (in thousands):

   Year Ended
December 31,		 
   2019   2018 

Foreign currency translation adjustments

  $(4,205)   $(20,061) 

Derivative adjustments

   1,545    (49) 
  

 

 

   

 

 

 

Total

  $(2,660)   $(20,110) 
  

 

 

   

 

 

 


   
Year Ended
December 31,
 
   
2021
   
2020
 
Foreign currency translation adjustments
  $(770)   $2,069 
Derivative adjustments
   (1,460)    1,634 
   
 
 
   
 
 
 
Total
  $(2,230)   $3,703 
   
 
 
   
 
 
 
Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):
Year Ended December 31, 2021
  
Foreign
currency
translation
adjustments
  
Derivative
adjustments
  
Total
 
Beginning balance
  $2,069  $1,634  $3,703 
   
 
 
  
 
 
  
 
 
 
Other comprehensive loss before reclassifications
   (2,839)   (3,913)   (6,752) 
Amounts reclassified from accumulated other comprehensive loss
   —     819   819 
   
 
 
  
 
 
  
 
 
 
Net current-period other comprehensive loss
   (2,839)   (3,094)   (5,933) 
   
 
 
  
 
 
  
 
 
 
Ending balance
  $(770)  $(1,460)  $(2,230) 
   
 
 
  
 
 
  
 
 
 
Year Ended December 31, 2020
  
Foreign
currency
translation
adjustments
  
Derivative
adjustments
  
Total
 
Beginning balance
  $(4,205)  $1,545  $(2,660) 
   
 
 
  
 
 
  
 
 
 
Other comprehensive income before reclassifications
   6,274   1,452   7,726 
Amounts reclassified from accumulated other comprehensive income
   —     (1,363)   (1,363) 
   
 
 
  
 
 
  
 
 
 
Net current-period other comprehensive income
   6,274   89   6,363 
   
 
 
  
 
 
  
 
 
 
Ending balance
  $2,069  $1,634  $3,703 
   
 
 
  
 
 
  
 
 
 
Year Ended December 31, 2019
  
Foreign
currency
translation
adjustments
  
Derivative
adjustments
  
Total
 
Beginning balance
  $(20,061)  $(49)  $(20,110) 
   
 
 
  
 
 
  
 
 
 
Other comprehensive income (loss) before reclassifications
   15,856   (2,894)   12,962 
Amounts reclassified from accumulated other comprehensive loss
   —     4,488   4,488 
   
 
 
  
 
 
  
 
 
 
Net current-period other comprehensive income
   15,856   1,594   17,450 
   
 
 
  
 
 
  
 
 
 
Ending balance
  $(4,205)  $1,545  $(2,660) 
   
 
 
  
 
 
  
 
 
 
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
There
 was an income tax
benefit
of $752 thousand related to changes in accumulated other comprehensive loss for the yearsyear ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

Year Ended December 31, 2019

  Foreign
currency
translation
adjustments		  Derivative
adjustments		  Total 

Beginning balance

  $(20,061)  $(49)  $(20,110) 
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss) before reclassifications

   15,856   (2,894)   12,962 

Amounts reclassified from accumulated other comprehensive loss

   —     4,488   4,488 
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income

   15,856   1,594   17,450 
  

 

 

  

 

 

  

 

 

 

Ending balance

  $(4,205)  $1,545  $(2,660) 
  

 

 

  

 

 

  

 

 

 

Year Ended December 31, 2018

  Foreign
currency
translation
adjustments		�� Derivative
adjustments		  Total 

Beginning balance

  $(38,413)  $5,299  $(33,114) 
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss) before reclassifications

   18,352   (1,589)   16,763 

Amounts reclassified from accumulated other comprehensive income

   —     (3,759)   (3,759) 
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income (loss)

   18,352   (5,348)   13,004 
  

 

 

  

 

 

  

 

 

 

Ending balance

  $(20,061)  $(49)  $(20,110) 
  

 

 

  

 

 

  

 

 

 
2021. There was an income tax

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

Year Ended December 31, 2017

  Foreign
currency
translation
adjustments		  Derivative
adjustments		  Total 

Beginning balance

  $14,460  $(436)  $14,024 
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss) before reclassifications

   (52,873)   7,736   (45,137) 

Amounts reclassified from accumulated other comprehensive income

   —     (2,001)   (2,001) 
  

 

 

  

 

 

  

 

 

 

Net current-period other comprehensive income (loss)

   (52,873)   5,735   (47,138) 
  

 

 

  

 

 

  

 

 

 

Ending balance

  $(38,413)  $5,299  $(33,114) 
  

 

 

  

 

 

  

 

 

 

21.

expense
of $316 thousand related to changes in accumulated other comprehensive income for the year ended December 31, 2020.
22. Earnings (Loss) Per Share

The following table illustrates the computation of basic and diluted earnings (loss) per common share:

   Year Ended December 31, 
   2019  2018  2017 
   (In thousands of US dollars, except share data) 

Basic earnings (loss) per share

    

Net income (loss)

  $(21,826)  $(3,900)  $84,936 
  

 

 

  

 

 

  

 

 

 

Basic weighted average common stock outstanding

   34,321,888   34,469,921   33,943,264 

Basic earnings (loss) per share

  $(0.64)  $(0.11)  $2.50 

Diluted earnings (loss) per share

    

Net income (loss)

  $(21,826)  $(3,900)  $84,936 

Add back: Interest expense on Exchangeable Notes

   —     —     5,349 

Net income (loss) allocated to common stockholders

  $(21,826)  $(3,900)  $90,285 
  

 

 

  

 

 

  

 

 

 

Basic weighted average common stock outstanding

   34,321,888   34,469,921   33,943,264 

Net effect of dilutive equity awards

   —     —     821,664 

Net effect of assumed conversion of 5.0% Exchangeable Notes to common stock

   —     —     9,990,209 
  

 

 

  

 

 

  

 

 

 

Diluted weighted average common stock outstanding

   34,321,888   34,469,921   44,755,137 

Diluted earnings (loss) per share

  $(0.64)  $(0.11)  $2.02 

share for the years ended December 31, 2021, 2020 and 2019:

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
   
(In thousands of U.S. dollars, except share data)
 
Basic earnings (loss) per share
               
Income (loss) from continuing operations
  $56,708   $57,059   $(20,413) 
Income (loss) from discontinued operations, net of tax
   0      287,906    (1,413) 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
  $56,708   $344,965   $(21,826) 
   
 
 
   
 
 
   
 
 
 
Basic weighted average common stock outstanding
   44,879,412    35,213,525    34,321,888 
Basic earnings (loss) per common share
               
Continuing operations
  $1.26   $1.62   $(0.59) 
Discontinued operations
   0      8.18    (0.05) 
   
 
 
   
 
 
   
 
 
 
Total
  $1.26   $9.80   $(0.64) 
   
 
 
   
 
 
   
 
 
 
Diluted earnings (loss) per share
               
Income (loss) from continuing operations
  $56,708   $57,059   $(20,413) 
Add back: Interest expense on Exchangeable Notes
   959    5,708    —   
   
 
 
   
 
 
   
 
 
 
Income (loss) from continuing operations allocated to common stockholders
  $57,667   $62,767   $(20,413) 
Income (loss) from discontinued operations, net of tax
   0      287,906    (1,413) 
   
 
 
   
 
 
   
 
 
 
Net income (loss) allocated to common stockholders
  $57,667   $350,673   $(21,826) 
   
 
 
   
 
 
   
 
 
 
Basic weighted average common stock outstanding
   44,879,412    35,213,525    34,321,888 
Net effect of dilutive equity awards
   1,403,789    1,145,906    —   
Net effect of assumed conversion of 5.0% Exchangeable Notes to common stock
   1,426,172    10,144,155    —   
   
 
 
   
 
 
   
 
 
 
Diluted weighted average common stock outstanding
   47,709,373    46,503,586    34,321,888 
Diluted earnings (loss) per common share
               
Continuing operations
  $1.21   $1.35   $(0.59) 
Discontinued operations
   0      6.19    (0.05) 
   
 
 
   
 
 
   
 
 
 
Total
  $1.21   $7.54   $(0.64) 
   
 
 
   
 
 
   
 
 
 
The following outstanding instruments were excluded from the computation of diluted loss per share, as they would have an anti-dilutive effect on the calculation:

   Year Ended December 31, 
   2019   2018   2017 

Options

   2,177,045    2,674,756    835,572 

Restricted Stock Units

   1,043,303    718,213    —   

   
Year Ended December 31,
 
   
2021
   
2020
   
2019
 
Options
   50,000    651,417    2,177,045 
Restricted Stock Units
   —      0      1,043,303 
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Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

For the yearsyear ended December 31, 2019, and 2018, respectively, 10,153,620 shares and 10,438,187 shares of potential common stock from the assumed conversion of Exchangeable
Notes were excluded from the computation of diluted loss per share as the effect were anti-dilutive for the period.


Rights Plan
The Company entered into a Rights Agreement, dated as of December 13,
2021,
between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agreement”), and the Board of Directors of the Company authorized and declared a dividend of one preferred stock purchase right (a “Right” and collectively, the “Rights”) for each share of the Company’s common stock, par value $
0.01
per share, outstanding at the close of business on December 
23
,
2021
. Each Right, once exercisable, will entitle the registered holder to purchase from the Company one
one-thousandth
of a share of Series
A-1
Junior Participating Preferred Stock, par value $
0.01
per share, at a purchase price of $
80
, subject to adjustment (the “Purchase Price”). The Rights are not presently exercisable and remain attached to the shares of common stock unless and until the occurrence of the earlier of the following (the “Distribution Date”): (i) the tenth day after the public announcement or disclosure by the Company or any person or group of affiliated or associated persons that any person or group of affiliated or associated persons has become an “Acquiring Person” by obtaining beneficial ownership of
12.5
% (or
20
% in the case of a “passive institutional investor,” which is defined generally as any person who has reported beneficial ownership of shares of common stock on Schedule
13
G under the Securities Exchange Act of
1934)
or more of the Company’s outstanding common stock, subject to certain exceptions; or (ii) the tenth business day (or such later date as the Company’s Board of Directors may designate before a person or group of affiliated or associated persons becomes an Acquiring Person) after (and not including) the commencement of, or first public announcement of the intent of any person to commence, a tender or exchange offer by any person or group of affiliated or associated persons, which would, if consummated, result in such person or group becoming an Acquiring Person. The Board of Directors may redeem all of the Rights for $
0.001
per Right at any time before any person or group of affiliated or associated persons becomes an Acquiring Person. In addition, at any time on or after any person or group of affiliated or associated persons becomes an Acquiring Person (but before any person or group of affiliated or associated persons becomes the owner of
50
% or more of the Company’s outstanding common stock), the Board of Directors may exchange all or part of the Rights (other than the Rights beneficially owned by the Acquiring Person and certain affiliated persons) for shares of common stock at an exchange ratio of one share of common stock per Right. The Rights will expire at the close of business on December 
12
,
2022
, unless redeemed or exchanged prior to that time.
If any person or group of affiliated or associated persons becomes an Acquiring Person, then, after the Distribution Date, each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons or transferees thereof) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock having a market value of twice the Purchase Price. Alternatively, if, after any person or group of affiliated or associated persons becomes an Acquiring Person, (1) the Company is involved in a merger or other business combination in which the Company is not the surviving corporation or its common stock is changed into or exchanged for other securities or assets; or (2) the Company or one or more of its subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its subsidiaries, taken as a whole, then each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock of the other party to such business combination or sale (or in certain circumstances, an affiliate)
having a market value of twice the Purchase Price.

1
22
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)

(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

22. Unaudited Quarterly Financial Results

The following tables present selected unaudited Consolidated Statements of Operations for each quarter of the years ended December 31, 2019 and 2018.

   Fiscal Year 2019 
   First
Quarter		  Second
Quarter		  Third
Quarter		  Fourth
Quarter		 
   (In thousands of US dollars, except share data) 

Net sales

  $157,380  $205,145  $229,677  $199,993 

Gross profit

   22,701   43,840   60,866   53,204 

Operating income (loss)

  $(18,281)   6,746   25,923   10,035 

Net income (loss)

  $(34,125)  $(9,520)  $(1,607)  $23,426 

Earnings (loss) per share:

     

Basic

  $(1.00)  $(0.28)  $(0.05)  $0.68 

Diluted

  $(1.00)  $(0.28)  $(0.05)  $0.54 

Weighted average common stock outstanding:

     

Basic

   34,194,878   34,245,127   34,357,745   34,542,415 

Diluted

   34,194,878   34,245,127   34,357,745   46,078,768 
   Fiscal Year 2018 
   First
Quarter		  Second
Quarter		  Third
Quarter		  Fourth
Quarter		 
   (In thousands of US dollars, except share data) 

Net sales

  $165,819  $199,685  $206,000  $179,394 

Gross profit

   44,581   53,854   55,749   43,912 

Operating income

   7,379   13,914   18,265   7,860 

Net income (loss)

  $2,763  $(21,505)  $17,222  $(2,380) 

Earnings (loss) per share:

     

Basic

  $0.08  $(0.62)  $0.50  $(0.07) 

Diluted

  $0.08  $(0.62)  $0.41  $(0.07) 

Weighted average common stock outstanding:

     

Basic

   34,253,111   34,420,654   34,573,377   34,627,292 

Diluted

   35,154,693   34,420,654   46,021,610   34,627,292 

23. Subsequent Events

Derivative contracts

In January 2020, the Company and DB entered into a derivative contract of zero cost collars for the period from July 2020 to December 2020. The total notional amounts are $30,000 thousand. In connection with this contract, the Company paid $1,800 thousand in cash deposits to DB in February 2020.

In February 2020,2022, the Company and NFIK entered into derivative contracts of zero cost collars for the period from July 2020January 2023 to December 2020.June 2023. The total notional amounts are $48,000$30,000 thousand.

In January 2022, the Company and SC entered into derivative contracts of zero cost collars for the period from October 2022 to December 2022. The total notional amounts are $9,000 
thousand.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“Principal Executive Officer”) and Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow for timely decisions regarding required disclosure.

Management of the Company, with the participation of our Principal Executive Officer and our Principal Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rules
13a-15(e)
and
15d-15(e)
promulgated under the Exchange Act, as of December 31, 2019.2021. Based on this evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2019.

2021.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer and our Principal Financial Officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Under the supervision and with the participation of our Principal Executive Officer and our Principal Financial Officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019,2021, based on the criteria set forth in
Internal Control—Integrated
Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, we concluded that our internal control over financial reporting was effective as of December 31, 2019.

2021.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 20192021 has been audited by Samil PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which appears in Item 8 of this Report.

(c) Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the quarter ended December 31, 20192021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents
Item 9B. Other Information

None.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(e)
Effective as of February 23, 2022, Ms. Shin Young Park, the Company’s Chief Financial Officer, entered into an Executive Service Agreement (the “Executive Service Agreement”) with the Company and its Korean subsidiary, Magnachip Semiconductor, Ltd. (“MSK”). In exchange for her services as Chief Financial Officer of the Company and MSK, Ms. Park will be entitled under the Executive Service Agreement to an annual base salary at a rate of $310,000 per annum and shall be eligible to receive and annual cash bonus under the terms of the Company’s cash bonus plan then in effect, with an initial anticipated targeted annual bonus of 50% of Ms. Park’s annual base salary, subject to increase at the discretion of the Board. In addition, Ms. Park will be eligible to participate in the equity incentive program applicable to the Company’s executives, subject, in all cases, as shall be determined and approved by the Board in its sole discretion. Ms. Park will also be entitled to participate in the Company’s standard benefit plans, programs and arrangements in the same manner as the Company’s similarly situated executives.
Under the Executive Service Agreement, Ms. Park’s engagement may be terminated with or without cause, with or without good reason, or upon Ms. Park’s death or disability. To the extent that Ms. Park is terminated without cause or Ms. Park resigns for good reason, the Company is obligated under the Executive Service Agreement to (i) (x) pay Ms. Park’s then effective base salary for a period of up to twelve months after the date of termination and (y) if such termination date occurs after June 30 of the calendar year, pay Ms. Park’s pro rated annual bonus with respect to the calendar year in which such termination occurs; provided that the severance payment shall instead equal one and one-half (1.5) times Ms. Park’s then effective base salary to the extent that such termination without cause or resignation for good reason takes place while the Company is party to a definitive corporate transaction, the consummation of which would result in a change of control, or within 18 months following a change of control, and (ii) provide for vesting of any outstanding unvested equity awards as set forth in the 2011 Plan or the 2020 Plan, as applicable and the applicable award agreements. The amounts payable pursuant to the immediately preceding sentence are contingent on Ms. Park’s execution and non-revocation of a general waiver and release of claims agreement and compliance of non-competition, non-disclosure and other covenants contained in the Executive Service Agreement.
(e)
On February 22, 2022, the Company’s Board of Directors approved the allocation of a discretionary cash retention bonus award pool to certain executive officers and other key employees of the Company, including named executive officers Young-Joon (YJ) Kim, the Company’s Chief Executive Officer, Theodore Kim, the Company’s Chief Compliance Officer and General Counsel, Shin Young Park, the Company’s Chief Financial Officer, Woung Moo Lee, the Company’s General Manager of Worldwide Sales, and Chan Ho Park, the Company’s General Manager of Power Solutions. The purpose of the retention bonus awards is to ensure continued retention of key executive officers and employees, as well as to reward such employees for their substantial contributions in connection with the previously contemplated and terminated merger agreement with an affiliate of Wise Road Capital LTD. The retention bonus awards are expected to be paid in December 2022, subject to the employee’s continued service (unless such employee is terminated without cause or resigns for good reason). The cash retention bonus awards allocated to each named executive officer are: Young-Joon (YJ) Kim ($600,001); Theodore Kim ($529,400); Shin Young Park ($330,875); Woung Moo Lee ($185,290); and Chan Ho Park ($132,350).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
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Table of Contents
PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this item relating to our executive officers is included in “Item 1. Business—Executive Officers of the Company.” The other information required by this item is incorporated by reference to our definitive proxy statement relating to our 20202022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates.

Item 11. Executive Compensation

The information required by this item is incorporated by reference to our definitive proxy statement relating to our 20202022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference to our definitive proxy statement relating to our 20202022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference to our definitive proxy statement relating to our 20202022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates.

Item 14. Principal Accounting Fees and Services.

The information required by this item is incorporated by reference to our definitive proxy statement relating to our 20202022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates.

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Table of Contents
PART IV

Item 15. Exhibits and Financial Statement Schedules

1.

Financial Statements

The information required by this item is included in Item 8 of Part II of this Report.

2.

Financial Statement Schedules

Financial Statement Schedules are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto.

3.

Exhibits

Exhibit

    No.    

  

Exhibit Description

  2.1Business Transfer Agreement, dated as of March 31, 2020 among by and among Magnus Semiconductor, LLC, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor, Ltd. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 31, 2020)
  2.2-1Agreement and Plan of Merger, dated as of March 25, 2021, by and among South Dearborn Limited, Michigan Merger Sub, Inc., and Magnachip Semiconductor Corporation (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on March 29, 2021).
  2.2-2Letter Agreement, dated as of June 11, 2021, by and among Magnachip Semiconductor Corporation, South Dearborn Limited and Michigan Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on June 14, 2021).
  2.2-3Letter Agreement, dated as of August 23, 2021, by and among Magnachip Semiconductor Corporation, South Dearborn Limited and Michigan Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on August 23, 2021)
  2.2-4Termination and Settlement Agreement, dated December 13, 2021 by and between Magnachip Semiconductor Corporation and South Dearborn Limited (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K on December 13, 2021)
  3.1  Certificate of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.1 to our Current Report on Form8-K filed on March 11, 2011).
  3.2  Certificate of Incorporation of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.2 to our Current Report on Form8-K filed on March 11, 2011).
  3.3Certificate of Amendment to the Certificate of Incorporation of Magnachip Semiconductor Corporation (incorporated by reference to Exhibit 3.1 to our Current report on Form 8-K filed on December 30, 2020)
  3.4  Amended and Restated Bylaws of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form8-K filed on May 6, 2016).
  3.43.5  Form of Plan of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.6 to our Amendment No. 2 to Registration Statement on Form S-1 filed on May 11, 2010 (Registration No. 333-165467)).
  3.53.6  Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of MagnaChip Semiconductor Corporation, as filed with the Secretary of the State of Delaware on March 6, 2015 (incorporated by reference to Exhibit 3.1 to our Current Report on Form8-K filed on March 6, 2015).
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Table of Contents
Exhibit
    No.    
Exhibit Description
  3.7Certificate of Designation of Series A-1, Junior Participating Preferred Stock of Magnachip Semiconductor Corporation, as filed with the Secretary of State of Delaware on December 13, 2021.
  4.14.1#  Indenture,Description of Securities
  4.2Rights Agreement, dated as of July  18, 2013,December 13, 2021 by and between MagnaChipMagnachip Semiconductor Corporation as issuer, and WilmingtonAmerican Stock Transfer & Trust National Association, as trusteeCompany, LLC (incorporated by reference to Exhibit 4.1 to our Current Report on Form8-K filed on July 18, 2013).
  4.2First Supplemental Indenture, dated as of March 27, 2014, to Indenture, dated as of July  18, 2013, between MagnaChip Semiconductor Corporation, as issuer, and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to our Current Report on Form8-K filed on June 25, 2014).
  4.3Form of 6.625% Senior Notes due 2021 and notation of guarantee (included in Exhibit 4.1)
  4.4Indenture, dated as of January  17, 2017, among MagnaChip Semiconductor S.A., as issuer, MagnaChip Semiconductor Corporation, as guarantor, and US Bank National Association, as trustee (incorporated by reference to Exhibit 4.6 to our Annual Report on Form10-K filed on February 21, 2017).
  4.5Form of 5.00% Exchangeable Senior Note due 2021 and note guarantee (included in Exhibit 4.4)
  4.6Description of SecuritiesDecember 13, 2021)
10.1  Intellectual Property License Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.2 to our Amendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010 (Registration No. 333-165467)).

Exhibit

    No.    

Exhibit Description

  10.2(1)Land Lease and Easement Agreement, dated as of October  6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.3 to our Amendment No. 1 to Registration Statement on Form  S-1 filed on April 20, 2010 (Registration No. 333-165467)).
  10.3First Amendment to Land Lease and Easement Agreement, dated as of December  30, 2005, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.4 to our Amendment No. 1 to Registration Statement on Form  S-1 filed on April 20, 2010 (Registration No. 333-165467)).
  10.4(1)General Service Supply Agreement, dated as of October  6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.5 to Amendment No.  2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No.  333-168516) filed on October 14, 2010).
  10.5First Amendment to the General Service Supply Agreement, dated as of December  30, 2005, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.6 to our Amendment No. 1 to Registration Statement on Form  S-1 filed on April 20, 2010 (Registration No. 333-165467)).
  10.6(1)License Agreement (ModularBCD), dated as of March  18, 2005, by and between Advanced Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit  10.7 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.7(1)10.2  Amended & Restated License Agreement (TrenchDMOS), dated as of September 19, 2007, by and between Advanced Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14, 2010).
  10.8(1)Technology License Agreement, dated as of December  16, 1996, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.9(1)Amendment to the Technology License Agreement, dated as of October  16, 2006, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.10 to Amendment No.  2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No.  333-168516) filed on October 14, 2010).
  10.10(1)ARM7201TDSP Device License Agreement, dated as of August  26, 1997, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit 10.11 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.11(1)Technology License Agreement, dated as of October  5, 1995, by and between Advanced RISC Machines Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit 10.12 to Amendment No.  2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No.  333-168516) filed on October 14, 2010).

Exhibit

    No.    

Exhibit Description

  10.12(1)Technology License Agreement, dated as of July 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.13 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.13(1)Technology License Agreement, dated as of August  22, 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.14 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.14Technology License Agreement, dated as of May  20, 2004, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.15 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.15(1)Design Migration Agreement, dated as of May  1, 2007, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.16 to Amendment No.  2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No.  333-168516) filed on October 14, 2010).
  10.16Basic Contract on Joint Development and Grant of License, dated as of November  10, 2006, by and between MagnaChip Semiconductor, Ltd. and Silicon Works Co., Ltd. (English translation) (incorporated by reference to Exhibit 10.17 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.17Amendment to Basic Contract on Joint Development and Grant of License, dated as of May  18, 2016, by and between MagnaChip Semiconductor, Ltd. and Silicon Works Co., Ltd. (English translation) (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form10-Q filed on August 5, 2016).
  10.18

[reserved]

  10.19*MagnaChip Semiconductor LLC 2009 Common Unit Plan (incorporated by reference to Exhibit  10.20 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.20*MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement(Non-U.S. Participants) (incorporated by reference to Exhibit 10.21 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.21*MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (U.S. Participants) (incorporated by reference to Exhibit 10.22 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.22*MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement(Non-U.S. Participants). Incorporated by reference to Exhibit 10.23 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467).
  10.23*MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (U.S.  Participants) (incorporated by reference to Exhibit 10.24 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No.  333-165467)).
  10.24*10.3*  MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan (as amended on April 26, 2018) (incorporated by reference to Exhibit 10.24 to our Annual Report on Form 10-K filed on February 22, 2019).

Exhibit

    No.    

10.4*		  

MagnaChip Semiconductor Corporation 2020 Equity and Incentive Compensation Plan (incorporated by reference to Exhibit Description

10.1 to the Registrant’s Current Report on Form 8-K filed on June 17, 2020).
  10.25*10.5*  MagnaChip Semiconductor Corporation 2011 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)).
  10.26*Offer Letter, dated as of June  20, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee (incorporated by reference to Exhibit 10.42 to our Registration Statement on FormS-1 filed on March  15, 2010 (Registration No. 333-165467)).
  10.26-1*Severance Agreement, dated November  3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Tae Jong Lee (incorporated by reference to Exhibit  10.5 to our Quarterly Report on Form10-Q filed on November 6, 2015).
  10.26-2*

Separation Agreement, dated as of January 9, 2019 among MagnaChip Semiconductor, Ltd. (Korea), MagnaChip Semiconductor Corporation and Tae Jong Lee (incorporated by reference to Exhibit 10.26-2 to our Annual Report on Form 10-K filed on February 22, 2019).

  10.27*10.6*  MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers (incorporated by reference to Exhibit 10.49 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)).
  10.28*Offer Letter, dated as of March  8, 2014, by and between MagnaChip Semiconductor, Ltd. (Korea) and Jonathan W. Kim (incorporated by reference to Exhibit 10.35 to our Annual Report on Form 10-K filed on February  12, 2015).
  10.28-1*Severance Agreement, dated November  3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Jonathan W. Kim (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form10-Q filed on November 6, 2015).
  10.29*10.7*  Offer Letter, dated as of April 15, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Young-Joon Kim (incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K filed on February 12, 2015).
  10.29-1*10.7-1*  Amendment of Offer Letter, dated July 27, 2015, from MagnaChip Semiconductor, Ltd. (Korea) to Young-Joon Kim (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on November 6, 2015).
  10.29-2*10.7-2*  Severance Agreement, dated November 3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Young-Joon Kim (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form10-Q filed on November 6, 2015).
  10.29-3*10.7-3*  Employment Agreement, dated as of April 26, 2018, by and between MagnaChip Semiconductor Corporation and Young Joon Kim (incorporated by reference to Exhibit 10.1 to our Current Report on Form8-K filed on April 27, 2018).
  10.29-4*10.7-4*  

Amendment to Employment Agreement by and between MagnaChip Semiconductor Corporation and Young Joon Kim, dated as of September 3, 2018 (incorporated by reference to Exhibit 10.29-4 to our Annual Report on Form 10-K filed on February 22, 2019).

  10.29-5*10.7-5*  Form of Restricted Stock Units Agreement for Chief Executive Officer (incorporated by reference to Exhibit 10.2 to our Current Report on Form8-K filed on April 27, 2018).
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Exhibit
    No.    
Exhibit Description
  10.29-6*10.7-6*  Form of Restricted Stock Units Agreement (TSR Performance) for Chief Executive Officer (incorporated by reference to Exhibit 10.3 to our Current Report on Form8-K filed on April 27, 2018).
  10.29-7*10.7-7*  Form of Restricted Stock Units Agreement (AOP Performance) for Chief Executive Officer (incorporated by reference to Exhibit 10.4 to our Current Report on Form8-K filed on April 27, 2018).
  10.30*10.8*  Offer Letter, dated as of September 27, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Theodore Kim (incorporated by reference to Exhibit 10.37 to our Annual Report on Form 10-K filed on February 12, 2015).

Exhibit

    No.    

Exhibit Description

  10.30-1*10.8-1*  Severance Agreement, dated November 3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Theodore S. Kim (incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form10-Q filed on November 6, 2015).
  10.30-2*10.8-2*  Employment Agreement, dated as of October 22, 2018, by and between MagnaChip Semiconductor Corporation and Theodore Kim (incorporated by reference to Exhibit 10.1 to our Current Report on Form8-K filed on October 26, 2018).
  10.31*10.9*  Offer Letter, dated as of October 16, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Woung Moo Lee (incorporated by reference to Exhibit 10.36 to our Annual Report on Form10-K filed on February 22, 2016).
  10.31-1*10.9-1*  Severance Agreement, dated November 3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Woung Moo Lee (incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form10-Q filed on November 6, 2015).
  10.31-2*10.9-2*  Employment Agreement, dated as of October 22, 2018, by and between MagnaChip Semiconductor Corporation and Woung Moo Lee (incorporated by reference to Exhibit 10.2 to our Current Report on Form8-K filed on October 26, 2018).
  10.32*10.9-3*Separation Agreement, dated as of December 29, 2021 among Magnachip Semiconductor, Ltd. (Korea), Magnachip Semiconductor Corporation and Young Soo Woo (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 3, 2022).
  10.10*Executive Service Agreement, dated as of May 25, 2020, by and between Young Soo Woo, MagnaChip Semiconductor Corporation and MagnaChip Semiconductor, Ltd. (incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q filed on August 7, 2020)
  10.11*Executive Service Agreement, dated as of June 1, 2020, by and between Chan Ho Park, MagnaChip Semiconductor Corporation and MagnaChip Semiconductor, Ltd. (incorporated by reference to Exhibit 10.9 to our Quarterly Report on Form 10-Q filed on August 7, 2020)
  10.12*  MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on December 31, 2009 and amended on February 15, 2010 (incorporated by reference to Exhibit 10.54 to our Quarterly Report on Form10-Q filed on August 5, 2011).
  10.33*10.13*  MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement (U.S. Participants) (incorporated by reference to Exhibit 10.55 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)).
  10.34*10.14*  MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement(Non-U.S. Participants) (incorporated by reference to Exhibit 10.56 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)).
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Exhibit
    No.    
Exhibit Description
  10.35*10.15*  MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (U.S. Participants) (incorporated by reference to Exhibit 10.57 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)).
  10.36*10.16*  MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement(Non-U.S. Participants) (incorporated by reference to Exhibit 10.58 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)).
  10.37*10.17*  MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement (U.S. Participants) (incorporated by reference to Exhibit 10.59 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)).
  10.38*10.18*  MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement(Non-U.S. Participants) (incorporated by reference to Exhibit 10.60 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)).
  10.39*10.19*  MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (Nonemployee Director) (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form10-Q filed on May 6, 2016).
  10.40*10.20*  Form of Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.3 to our Current Report on Form8-K filed on October 26, 2018).

Exhibit

    No.    

Exhibit Description

  10.41*10.21*  Form of Restricted Stock Units Agreement (TSR Performance) (incorporated by reference to Exhibit 10.4 to our Current Report on Form8-K filed on October 26, 2018).
  10.42*10.22*  Form of Restricted Stock Units Agreement (AOP Performance) (incorporated by reference to Exhibit 10.5 to our Current Report on Form8-K filed on October 26, 2018).
  21.110.23*MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement (Non-employee Directors) (incorporated by reference to Exhibit 99.2 to our Registration Statement on Form S-8 filed on July 15, 2020)
  10.24*MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement (Section 16 Officers) (incorporated by reference to Exhibit 99.3 to our Registration Statement on Form S-8 filed on July 15, 2020).
  10.25*MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—Financial Performance (CEO) (incorporated by reference to Exhibit 99.4 to our Registration Statement on Form S-8 filed on July 15, 2020).
  10.26*MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—Financial Performance (Non-CEO Section 16 Officers) (incorporated by reference to Exhibit 99.5 to our Registration Statement on Form S-8 filed on July 15, 2020).
  10.27*MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—TSR Performance (CEO) (incorporated by reference to Exhibit 99.6 to our Registration Statement on Form S-8 filed on July 15, 2020).
  10.28*MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—TSR Performance (Non-CEO Section 16 Officers) (incorporated by reference to Exhibit 99.7 to our Registration Statement on Form S-8 filed on July 15, 2020).
  10.29ASR Agreement, dated December 21, 2021 by and between Magnachip Semiconductor Corporation and JPMorgan Chase Bank, National Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 23, 2021)
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Exhibit
    No.    
Exhibit Description
  10.30#Executive Service Agreement, effective as of February 23, 2022, by and between Shin Young Park, Magnachip Semiconductor Corporation and Magnachip Semiconductor, Ltd.
  21.1#  Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to our Annual Report on Form 10-K filed on February 12, 2015)
  23.1#  Consent of Samil PricewaterhouseCoopers
  31.1#  Certification of Chief Executive Officer required by Rule13(a)-14(a), as adopted pursuant to§ 302 of the Sarbanes-Oxley Act of 2002
  31.2#  Certification of Chief Financial Officer required by Rule13(a)-14(a), as adopted pursuant to§ 302 of the Sarbanes-Oxley Act of 2002
  32.1†  Certification of Chief Executive Officer required by 18 U.S.C§ 1350, as adopted pursuant to§ 906 of the Sarbanes-Oxley Act of 2002
  32.2†  Certification of Chief Financial Officer required by 18 U.S.C.§ 1350, as adopted pursuant to§ 906 of the Sarbanes-Oxley Act of 2002
  101.INS#  Inline XBRL Instance Document
  101.SCH#  Inline XBRL Taxonomy Extension Schema Document
  101.CAL#  Inline XBRL Taxonomy Extension Calculation Linkbase Document
  101.DEF#  Inline XBRL Taxonomy Extension Definition Linkbase Document
  101.LAB#  Inline XBRL Taxonomy Extension Label Linkbase Document
  101.PRE#  Inline XBRL Taxonomy Extension Presentation Linkbase Document
  104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

Footnotes:

(1)

Certain portions of this document have been omitted pursuant to a grant of confidential treatment by the SEC.

*

Management contract, compensatory plan or arrangement

#

Filed herewith

†

Furnished herewith

Item 16. Form
10-K
Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

MAGNACHIP SEMICONDUCTOR CORPORATION

 By: 

/s/ Young-Joon Kim

 Name: Young-Joon Kim
 Title: Chief Executive Officer and Director
 Date: February 21, 202023, 2022

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

   

Date

/s/ Young-Joon Kim

  February 21, 202023, 2022
Young-Joon Kim,
Chief Executive Officer and Director (Principal Executive Officer)
  

/s/ Jonathan W. Kim

Shin Young Park
  February 21, 202023, 2022
Jonathan W. Kim,Shin Young Park,
Chief Financial Officer Executive Vice President and Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer)
  

/s/ Melvin Keating

  February 21, 202023, 2022
Melvin Keating,
Director
  

/s/ Ilbok Lee

  February 21, 202023, 2022
Ilbok Lee,
Director
  

/s/ Camillo Martino

  February 21, 202023, 2022
Camillo Martino,Director
Non-Executive
Chairman of the Board of Directors
  

/s/ Gary Tanner

  February 21, 202023, 2022
Gary Tanner,
Director
  

/s/ Nader Tavakoli

Liz Chung
  February 21, 202023, 2022
Nader Tavakoli,Non-Executive Chairman of the Board of DirectorsLiz Chung,
Director
  

131

132