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2021 $1,093,768,455.2019☐ MagnaChip 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. ☒FilerFile ☐☒ Accelerated Filer ☒☐ ☐ Smaller Reporting Company ☐ Emerging growth company ☐ $314,540,019.2020,2022, the registrant had 34,801,31245,810,893 shares of common stock outstanding.20202022 annual meeting of stockholders will be incorporated by reference into Part III of this Annual Report on Form
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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.
Certain of our OLED products are produced using external
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.
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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 |
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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. |
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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.
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
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
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The table below sets forth the key process technologies in Foundry Services Group that we currently offer to customers:
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displays.
driver ICs for OLED TV and automotive.
Product | Key Features | Applications | ||
| • 480 to 1,542 output channels • 6-bit (262 thousand colors),8-bit (16 million colors),10-bit (1 billion colors)• Output voltage ranging from 9V to 18V • Low power consumption and low EMI • COF package types • EPI, m-LVDS, USI interface technologies | • • Notebooks • LCD/LED monitors • Automotive | ||
| • 272 to 960 output channels • Output voltage ranging from 30V to 45V • COF and COG package types | • Tablet PCs • • 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 |
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 • • 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 | ||
| • Resolutions of WQVGA and HVGA • Color depth of 16 million • RSDS, MDDI, MIPI interface • CABC • Separated gamma control | • Mobile phones • Digital still cameras • Automotive |
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Product | Key Features | Applications | ||
Low Voltage MOSFET | • Voltage options of 12V-30V • Advanced Trench MOSFET Process • High cell density • Advanced packages to enable reduction of PCB mounting area | • Smartphones, and wearable devices • Tablet PCs, Notebooks • Desktop PCs, Servers • LCD/ • 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* |
Product | Key Features | Applications | ||
High Voltage MOSFET | • Voltage options of 200V-650V • R2FET (rapid recovery) option to shorten reverse diode recovery time • • 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/ |
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Super Junction MOSFET | • Voltage options of 500V-900V • Low R DS(ON) • Epi stack process • • 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 | • Automotive • Industrial applications • Consumer appliances | ||
AC-DC/DC-DC | • 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 | ||
LED Backlighting Drivers | • High efficiency, wide input voltage range • Advanced BCDMOS process
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• 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 |
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 |
Regulators |
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| • 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 |
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.
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.
devices.
Employees
(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.
Unions.
annual, quarterly and current reports on Form10-K,10-Q
Name | Age | Position | ||||
Young-Joon (YJ) Kim | Director and Chief Executive Officer | |||||
Shin Young Park | Chief Financial Officer | |||||
Theodore Kim | Chief Compliance Officer, | |||||
Woung Moo Lee | ||||||
Chan Ho Park | 58 | General Manager of Power Solutions |
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. KimCorporation.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), Executive Vice President. 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,
, 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
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 depend
reducing our costs or developing new or enhanced products on a timely basis with higher selling prices or gross profit.
our ability to continue to offer in demand foundry services at competitive prices.
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.
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.
legislation.includingor the recently enactedadoption of new U.S. or international tax reform legislation in the United States.
tax laws, regulations, or accounting principles.
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.
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,
ensure compliance.
For example,
Our level
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.
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.
claim or proceeding could have a material effect on our business, financial condition, results of operations or cash flows.
Provisions
Provisions
We
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
2021.
* | The stock performance included in this graph is not necessarily indicative of future stock performance. |
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 |
None.
Item 6. Selected Financial Data
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. |
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.
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 | ) |
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These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),
Certain of our OLED products are produced using external
Within
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
extended period of time. In addition, we outsource manufacturing of those products which do require advanced technology and
opportunities to secure new design-wins.
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”).
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.
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.
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Explanation and Reconciliation ofNon-US
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 | — | |||||||||
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Adjusted EBITDA | $ | 74.5 | $ | 84.3 | $ | 78.7 | ||||||
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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) |
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This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incurnon-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 thesenon-cash expenses as supplemental information. |
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 primarilynon-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. |
This adjustment eliminates the impact of gain or loss recognized in income on |
For the year ended December 31, |
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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 closedback-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 ofnon-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 |
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.
other charges.
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 | — | |||||||||
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Adjusted Net Income | $ | 17.1 | $ | 27.1 | $ | 28.9 | ||||||
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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) |
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This adjustment eliminates the impact of |
(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. |
(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 closedback-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 ofnon-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. |
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 incurnon-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 thesenon-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 primarilynon-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. |
This adjustment eliminates the impact of gain or loss recognized in income on |
expected cash flows denominated in |
For the year ended December 31, |
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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 closedback-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 ofnon-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 |
(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 non-GAAP adjustments. For the year ended December 31, non-GAAP adjustments related to our Korean subsidiary and the non-GAAP adjustments related to our |
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.
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.
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.
continuing and discontinued operations.
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.
researchmaterial and development expenses are material-relateddesign-related costs for OLED display driver IC product development involving fine
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.
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.
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.
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.
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 | ||||||||||||||||||
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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 | ||||||||||||||||||
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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 | ||||||||||||||||||
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(41.5 | ) | (5.2 | ) | (46.7 | ) | (6.2 | ) | 46.9 | 6.9 | |||||||||||||||
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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 | ||||||||||||||||||
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Net income (loss) | $ | (21.8 | ) | (2.8 | )% | $ | (3.9 | ) | (0.5 | )% | $ | 84.9 | 12.5 | % | ||||||||||
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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 | ||||||||||||||||||
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|
|
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|
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|
|
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| |||||||||||||
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 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
| |||||||||||||
Total net sales | $ | 792.2 | 100.0 | % | $ | 750.9 | 100.0 | % | $ | 679.7 | 100.0 | % | ||||||||||||
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|
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 | % | ||||||||||||
2020
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 | |||||||||||||||
|
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|
|
| |||||||||||||||
Gross profit | 180.6 | 22.8 | 198.1 | 26.4 | (17.5 | ) | ||||||||||||||
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| |||||||||||||||
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 | |||||||||||||||
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| |||||||||||||||
Operating income | 24.4 | 3.1 | 47.4 | 6.3 | (23.0 | ) | ||||||||||||||
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| |||||||||||||||
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 | |||||||||||||||
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|
|
|
| |||||||||||||||
(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 | ) | |||||||
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|
|
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 | ) | |||||||||
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 | |||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||
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 | ||||||||||
|
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|
|
|
|
|
|
|
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 | |||||||||||||||
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|
|
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|
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| |||||||||||
Total gross profit | $ | 180.6 | 22.8 | % | $ | 198.1 | 26.4 | % | $ | (17.5 | ) | |||||||||
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|
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|
|
|
|
|
|
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 | ||||||||||
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
Standard Products Group. Net salesbusiness.
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.
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 | ) | ||||||||||||||
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| |||||||||||
$ | 792.2 | 100.0 | % | $ | 750.9 | 100.0 | % | $ | 41.3 | |||||||||||
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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 | ) | ||||||||||
customers.
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
Net sales in Europeproducts such as MOSFETs, including
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
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
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
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
finance initiatives.
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.
(Benefit)
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.
Fab 4 was completed in 2020.
Income
2019
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 | |||||||||||||||
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| |||||||||||||||
Gross profit | 198.1 | 26.4 | 187.9 | 27.6 | 10.2 | |||||||||||||||
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| |||||||||||||||
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 | ) | ||||||||||||||
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| �� | |||||||||||||||
Operating income | 47.4 | 6.3 | 39.2 | 5.8 | 8.2 | |||||||||||||||
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| |||||||||||||||
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 | ) | ||||||||||||||
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| |||||||||||||||
(46.7 | ) | (6.2 | ) | 46.9 | 6.9 | (93.5 | ) | |||||||||||||
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| |||||||||||||||
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 | |||||||||||||||
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| |||||||||||||||
Net income (loss) | $ | (3.9 | ) | (0.5 | ) | $ | 84.9 | 12.5 | $ | (88.8 | ) | |||||||||
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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 | |||||||||
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 | |||||||||||||||
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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 | ) | ||||||||||||||
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Total net sales | $ | 750.9 | 100.0 | % | $ | 679.7 | 100.0 | % | $ | 71.2 | ||||||||||
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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 | ) | ||||||||||||||
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Total gross profit | $ | 198.1 | 26.4 | % | $ | 187.9 | 27.6 | % | $ | 10.2 | ||||||||||
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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 | ) | |||||||||
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 | ||||||||||
Foundry Services Group.standard products business as described below.
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
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.
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.
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 | |||||||||||||||
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$ | 750.9 | 100.0 | % | $ | 679.7 | 100.0 | % | $ | 71.2 | |||||||||||
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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 | ) | ||||||||||
some of our direct customers, impacted the shipment of certain mobile OLED display driver ICs to certain of our customers.
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.
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.
the Program and $0.6 million of
expenses and a $0.7 million increase in merger-related costs.
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.
yearyears ended December 31, 20182020 and December 31, 20172019 were $0.3$3.1 million and $2.9$2.6 million, respectively.
Expense (Benefit)
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.
loss from continuing operations.
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.
202020192021 compared to year ended December 31, 2018
2020.
purchase of property, plant and equipment.
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
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 |
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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.
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.
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
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.
assets.
Derivative Financial Instruments
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.
Interest Rate Exposures
As
7577 7780 7881 7982 8083 8184 8285
MagnaChip
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.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
February 21, 2020
/s/ Samil PricewaterhouseCoopers |
Seoul, Korea February 23, 2022 |
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 | 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, par shares shares outstanding 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 | ||||
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 |
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 | ) | |||||
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 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
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 | |||||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
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 | ) | |||||||||||
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|
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|
|
|
|
|
|
|
|
|
|
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 | |||||||||||||
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 | ) | ||||||
|
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|
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| |||||||
Net cash provided by (used in) operating activities | 50,497 | 39,236 | (20,253 | ) | ||||||||
|
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|
|
| |||||||
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 | ||||||||
|
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| |||||||
Net cash used in investing activities | (28,897 | ) | (33,306 | ) | (35,368 | ) | ||||||
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|
| |||||||
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 | ) | — | — | ||||||||
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| |||||||
Net cash provided by (used in) financing activities | (1,802 | ) | 1,294 | 72,691 | ||||||||
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| |||||||
Effect of exchange rates on cash, cash equivalents and restricted cash | (579 | ) | (3,361 | ) | 9,899 | |||||||
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| |||||||
Net increase in cash, cash equivalents and restricted cash | 19,219 | 3,863 | 26,969 | |||||||||
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| |||||||
Cash, cash equivalents and restricted cash | ||||||||||||
Beginning of the period | 132,438 | 128,575 | 101,606 | |||||||||
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| |||||||
End of the period | $ | 151,657 | $ | 132,438 | $ | 128,575 | ||||||
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Supplemental cash flow information | ||||||||||||
Cash paid for interest | $ | 19,071 | $ | 19,255 | $ | 17,590 | ||||||
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| |||||||
Cash paid for income taxes | $ | 2,081 | $ | 920 | $ | 1,027 | ||||||
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| |||||||
Non-cash investing and financing activities | ||||||||||||
Property, plant and equipment additions in other accounts payable | $ | 2,542 | $ | 5,249 | $ | 2,520 | ||||||
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| |||||||
Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation | $ | (405 | ) | $ | — | $ | — | |||||
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|
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 underaccelerated 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 | $ | — | $ | — |
MagnaChip
The Company assessed the impact of
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
An
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
Buildings | 30 - 40 years | |||
Building related structures | 10 - 20 years | |||
Machinery and equipment | 10 - 12 years | |||
Others | 3 - 10 years |
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.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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:
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.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
The Company does not offset derivative assets and liabilities within the consolidated balance sheets.
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.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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
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.
In June 2016,
2019-04”),
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 | ) | |||||
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 $
representing its right to use the underlying asset for the lease term on the balance sheet.
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
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.
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 | ) |
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
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 | — |
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 | — |
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 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.”
3. As of December 31, 2021 and 2020, the Company
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 | ||||
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 | ) | |||
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 | ) | |||
|
|
|
|
|
|
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 | ) | |||
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$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.
4.
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 | ||||
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 | ) | |||
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.
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 | 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 | ||||
As
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 | |||||
|
|
|
|
|
|
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 | |||||
7.
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.
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 | $ | 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 | ||||||
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 | % |
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 | 65 | 63 | 64 | |||||||||
Interest on lease liabilities | 14 | 18 | 22 | |||||||||
Total lease cost | $ | 2,856 | $ | 1,966 | $ | 2,076 | ||||||
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 |
| ||||
| ||||
| ||||
| ||||
| ||||
|
Year Ended | ||||||||||||
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 |
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 | ||||
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 | ||||
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 |
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 |
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 |
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 | ) |
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 |
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 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
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 | ||||
2020.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
10.
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 | ||||||
Long-term borrowings
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 | ||
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.
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,
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
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.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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 | ||||
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 |
13.
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.
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.
The purchase price forgrant, subject to the participant’s continued service through the applicable vesting dates.
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.
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 | |||||
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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 | ||||||||||
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.
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 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 | |||||||||||||||||
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
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
connection with certain treasury and finance initiatives.
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 | % | — | — | ||||||||
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 | |||||
Company, including its Korean subsidiary, from the sale of the Foundry Services Group business and
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 | 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 | 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 | ||||
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 | ||||||
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 |
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.
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 | ||||||
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”).
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(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.
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.
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 |
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 |
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 | ||||||
respectively.
For10.4% of its net s
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.
2021.
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.
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”).
20.the Thomas Complaint voluntarily dismissed their respective complaints.
Income (Loss)
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 | |||
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 | ) | ||||
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 | ) | |||
|
|
|
|
|
|
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.
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 | ) | |||||
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 |
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 |
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.
2021.
2021.
None.
1. | Financial Statements |
2. | Financial Statement Schedules |
3. | Exhibits |
(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 |
By: | /s/ Young-Joon Kim | |||
Name: | Young-Joon Kim | |||
Title: | Chief Executive Officer and Director | |||
Date: | February |
Date | ||
/s/ Young-Joon Kim | February | |
Young-Joon Kim, Chief Executive Officer and Director (Principal Executive Officer) | ||
/s/ | February | |
Chief Financial Officer | ||
/s/ Melvin Keating | February | |
Melvin Keating, Director | ||
/s/ Ilbok Lee | February | |
Ilbok Lee, Director | ||
/s/ Camillo Martino | February | |
Camillo Martino, Non-Executive Chairman of the Board of Directors | ||
/s/ Gary Tanner | February | |
Gary Tanner, Director | ||
/s/ | February | |
Director |
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