UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

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

For the quarterly period ended ~~March 31,~~September 30, 2020

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

For the transition period from
to
.

Commission File Number:

001-34791

MagnaChip Semiconductor Corporation

(Exact name of registrant as specified in its charter)


Delaware		83-0406195
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

c/o MagnaChip Semiconductor S.A.

1, Allée Scheffer,

L-2520

Luxembourg, Grand Duchy of Luxembourg

(352)

45-62-62

(Address, zip code, and telephone number, including area code, of registrant’s principal executive offices)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	MX	New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). ☐ Yes ☒ No

As of ~~April~~October 30, 2020, the registrant had ~~35,065,248~~35,538,475 shares of common stock outstanding.

Table of Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS



		Page No.

PART I FINANCIAL INFORMATION			3

Item 1.	Interim Consolidated Financial Statements (Unaudited)		3

	MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019		3

	~~MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019~~		3

	MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019		4

	MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019		5

	MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019		6

	MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2020 and 2019		7

	MagnaChip Semiconductor Corporation and Subsidiaries Notes to Consolidated Financial Statements		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2830

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4555

Item 4.	Controls and Procedures		4656

PART II OTHER INFORMATION			4757

Item 1.	Legal Proceedings		4757

Item 1A.	Risk Factors		4757

Item 6.	Exhibits		4859

SIGNATURES			4960

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.

Interim Consolidated Financial Statements (Unaudited)

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

   March 31,
2020 December 31,
2019
   (In thousands of US dollars,
except share data)
Assets

Current assets

Cash and cash equivalents
   $ 157,293 $ 151,657
Accounts receivable, net
   60,688 47,447
Inventories, net
   37,130 41,404
Other receivables
   8,297 10,200
Prepaid expenses
   11,148 9,003
Hedge collateral (Note 9)
   13,270 9,820
Other current assets (Notes 10 and 18)
   6,762 10,013
Current assets held for sale (Note 2)
   201,619 99,821


Total current assets
   496,207 379,365


Property, plant and equipment, net
   67,201 73,068
Operating leaseright-of-use assets
   1,413 1,876
Intangible assets, net
   2,583 2,769
Long-term prepaid expenses
   4,117 5,757
Othernon-current assets
   8,439 9,059
Non-current assets held for sale (Note 2)
   —   123,434


Total assets
   $ 579,960 $ 595,328


Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable
   $ 40,206 $ 40,376
Other accounts payable
   6,379 6,410
Accrued expenses
   41,489 44,799
Operating lease liabilities
   1,301 1,625
Current portion of long-term borrowings, net
   82,328 —
Other current liabilities (Note 10)
   6,982 3,583
Current liabilities held for sale (Note 2)
   142,013 37,040


Total current liabilities
   320,698 133,833


Long-term borrowings, net
   223,012 304,743
Accrued severance benefits, net
   48,765 51,181
Othernon-current liabilities
   8,641 9,671
Non-current liabilities held for sale (Note 2)
   —   110,881


Total liabilities
   601,116 610,309


Commitments and contingencies (Note 18)

Stockholders’ equity

Common stock, $0.01 par value, 150,000,000 shares authorized, 44,160,355 shares issued and 35,054,682 outstanding at March 31, 2020 and 43,851,991 shares issued and 34,800,312 outstanding at December 31, 2019
   442 439
Additionalpaid-in capital
   153,286 152,404
Accumulated deficit
   (81,880 ) (58,131 )
Treasury stock, 9,105,673 shares at March 31, 2020 and 9,051,679 shares at December 31, 2019, respectively
   (107,649 ) (107,033 )
Accumulated other comprehensive income (loss)
   14,645 (2,660 )


Total stockholders’ deficit
   (21,156 ) (14,981 )


Total liabilities and stockholders’ equity
   $ 579,960 $ 595,328

September 30,

2020

December 31,

2019


(In thousands of
U.S.
dollars,
except share data)

Assets

Current assets

Cash and cash equivalents
   $ 542,111 $ 151,657
Accounts receivable, net
   57,772 47,447
Inventories, net
   33,631 41,404
Other receivables
   4,551 10,200
Prepaid expenses
   8,265 9,003
Hedge collateral (Note 9)
   9,650 9,820
Other current assets (Notes 10 and 18)
   8,338 10,013
Current assets held for sale (Note 2)
   —   99,821


Total current assets
   664,318 379,365


Property, plant and equipment, net
   77,489 73,068
Operating lease
right-of-use
assets
   2,032 1,876
Intangible assets, net
   2,877 2,769
Long-term prepaid expenses
   2,138 5,757
Other
non-current
assets
   8,598 9,059
Non-current
assets held for sale (Note 2)
   —   123,434


Total assets
   $ 757,452 $ 595,328


Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable
   $ 40,497 $ 40,376
Other accounts payable
   7,639 6,410
Accrued expenses (Note 8)
   41,630 44,799
Accrued income taxes
   14,038 1,569
Operating lease liabilities
   1,390 1,625
Current portion of long-term borrowings, net
   306,567 —
Other current liabilities (Note 10)
   7,652 2,014
Current liabilities held for sale (Note 2)
   —   37,040


Total current liabilities
   419,413 133,833


Long-term borrowings, net
   —   304,743
Accrued severance benefits, net
   51,953 51,181
Other
non-current
liabilities
   7,782 9,671
Non-current
liabilities held for sale (Note 2)
   —   110,881


Total liabilities
   479,148 610,309


Commitments and contingencies (Note 18)
Stockholders’ equity

Common stock, $0.01 par value, 150,000,000 shares authorized, 44,595,393 shares issued and 35,489,720 outstanding at September 30, 2020 and 43,851,991 shares issued and 34,800,312 outstanding at December 31, 2019
   447 439
Additional
paid-in
capital
   159,840 152,404
Retained earnings (deficit)
   220,253 (58,131 )
Treasury stock, 9,105,673 shares at September 30, 2020 and 9,051,679 shares at December 31, 2019, respectively
   (107,649 ) (107,033 )
Accumulated other comprehensive income (loss)
   5,413 (2,660 )


Total stockholders’ equity (deficit)
   278,304 (14,981 )


Total liabilities and stockholders’ equity
   $ 757,452 $ 595,328

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

   Three Months Ended
   March 31,
2020 March 31,
2019

(In thousands of US dollars,
except share data)

Revenues:

Net sales – standard products business
   $ 110,736 $ 100,264
Net sales – transitional Fab 3 foundry services
   9,737 7,003


Total revenues
   120,473 107,267
Cost of sales:

Cost of sales – standard products business
   81,606 81,241
Cost of sales – transitional Fab 3 foundry services
   9,737 7,003


Total cost of sales
   91,343 88,244


Gross profit
   29,130 19,023
Operating expenses:

Selling, general and administrative expenses
   12,102 12,036
Research and development expenses
   10,509 12,044
Other charges
   554 —


Total operating expenses
   23,165 24,080


Operating income (loss)
   5,965 (5,057 )


Interest expense
   (5,607 ) (5,637 )
Foreign currency loss, net
   (30,971 ) (10,610 )
Loss on early extinguishment of long-term borrowings, net
   —   (42 )
Other income, net
   838 587


Loss from continuing operations before income tax expense
   (29,775 ) (20,759 )
Income tax expense
   1,303 796


Loss from continuing operations
   (31,078 ) (21,555 )
Income (loss) from discontinued operations, net of tax
   7,329 (12,570 )


Net loss
   $ (23,749 ) $ (34,125 )


Basic and diluted earnings (loss) per common share—

Continuing operations
   $ (0.89 ) $ (0.63 )
Discontinued operations
   0.21 (0.37 )


Total
   $ (0.68 ) $ (1.00 )


Weighted average number of shares – basic and diluted
   34,893,157 34,194,878

Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019


(In thousands of
U.S.
dollars, except share data)

Revenues:

Net sales – standard products business
   $ 116,262 $ 139,273 $ 335,953 $ 371,543
Net sales – transitional Fab 3 foundry services
   8,551 9,894 28,161 25,776


Total revenues
   124,813 149,167 364,114 397,319
Cost of sales:

Cost of sales – standard products business
   87,494 104,018 245,917 285,643
Cost of sales – transitional Fab 3 foundry services
   8,731 9,894 28,341 25,776


Total cost of sales
   96,225 113,912 274,258 311,419


Gross profit
   28,588 35,255 89,856 85,900
Operating expenses:

Selling, general and administrative expenses
   12,888 10,686 37,398 33,817
Research and development expenses
   12,477 10,233 34,094 34,049
Other charges
   —   —   554 —


Total operating expenses
   25,365 20,919 72,046 67,866


Operating income
   3,223 14,336 17,810 18,034


Interest expense
   (5,485 ) (5,539 ) (16,522 ) (16,615 )
Foreign currency gain (loss), net
   8,864 (21,985 ) (13,638 ) (44,166 )
Loss on early extinguishment of long-term borrowings, net
   —   —   —   (42 )
Other income, net
   714 678 2,343 1,816


Income (loss) from continuing operations before income tax expense
   7,316 (12,510 ) (10,007 ) (40,973 )
Income tax expense (benefit)
   (1,145 ) 1,734 836 3,316


Income (loss) from continuing operations
   8,461 (14,244 ) (10,843 ) (44,289 )
Income (loss) from discontinued operations, net of tax
   264,501 12,637 289,227 (963 )


Net income (loss)
   $ 272,962 $ (1,607 ) $ 278,384 $ (45,252 )


Basic earnings (loss) per common share—

Continuing operations
   $ 0.24 $ (0.41 ) $ (0.31 ) $ (1.29 )
Discontinued operations
   7.50 0.36 8.24 (0.03 )


Total
   $ 7.74 $ (0.05 ) $ 7.93 $ (1.32 )


Diluted earnings (loss) per common share—

Continuing operations
   $ 0.21 $ (0.41 ) $ (0.31 ) $ (1.29 )
Discontinued operations
   5.68 0.36 8.24 (0.03 )


Total
   $ 5.89 $ (0.05 ) $ 7.93 $ (1.32 )


Weighted average number of shares—

Basic
   35,280,864 34,357,745 35,089,479 34,266,513
Diluted
   46,581,788 34,357,745 35,089,479 34,266,513

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS) (Unaudited)

   Three Months Ended
   March 31,
2020 March 31,
2019
   (In thousands of US dollars)
Net loss
   $ (23,749 ) $ (34,125 )


Other comprehensive income (loss)

Foreign currency translation adjustments
   22,251 7,304
Derivative adjustments

Fair valuation of derivatives
   (5,004 ) (499 )
Reclassification adjustment for loss on derivatives included in net loss
   58 187


Total other comprehensive income
   17,305 6,992


Total comprehensive loss
   $ (6,444 ) $ (27,133 )

Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019


(In thousands of
U.S.
dollars)

Net income (loss)
   $ 272,962 $ (1,607 ) $ 278,384 $ (45,252 )


Other comprehensive income (loss)

Foreign currency translation adjustments
   (6,517 ) 15,931 9,191 30,915
Derivative adjustments

Fair valuation of derivatives
   1,390 (2,803 ) (1,410 ) (5,703 )
Reclassification adjustment for loss on derivatives included in net income (loss)
   41 1,600 292 3,553


Total other comprehensive income (loss)
   (5,086 ) 14,728 8,073 28,765


Total comprehensive income (loss)
   $ 267,876 $ 13,121 $ 286,457 $ (16,487 )

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss)
Common Stock Accumulated
Deficit Treasury
Stock Total
(In thousands of US dollars, except share data)
Shares Amount
Three Months Ended March 31, 2020:

Balance at December 31, 2019, as previously reported
34,800,312 $ 439 $ 152,404 $ (58,131 ) $ (107,033 ) $ (2,660 ) $ (14,981 )
Stock-based compensation
—   —   885 —   —   —   885
Settlement of restricted stock units
308,364 3 (3 ) —   —   —   —
Acquisition of treasury stock
(53,994 ) —   —   —   (616 ) —   (616 )
Other comprehensive income, net
—   —   —   —   —   17,305 17,305
Net loss
—   —   —   (23,749 ) —   —   (23,749 )

Balance at March 31, 2020
35,054,682 $ 442 $ 153,286 $ (81,880 ) $ (107,649 ) $ 14,645 $ (21,156 )

Three Months Ended March 31, 2019:

Balance at December 31, 2018, as previously reported
34,441,232 $ 431 $ 142,600 $ (36,305 ) $ (103,926 ) $ (20,110 ) $ (17,310 )
Stock-based compensation
—   —   669 —   —   —   669
Exercise of stock options
8,624 0 48 —   —   —   48
Settlement of restricted stock units
167,453 2 (2 ) —   —   —   —
Acquisition of treasury stock
(393,807 ) —   —   —   (2,585 ) —   (2,585 )
Other comprehensive income, net
—   —   —   —   —   6,992 6,992
Net loss
—   —   —   (34,125 ) —   —   (34,125 )

Balance at March 31, 2019
34,223,502 $ 433 $ 143,315 $ (70,430 ) $ (106,511 ) $ (13,118 ) $ (46,311 )

Common Stock


Additional
Paid-In

Retained
Earnings

Treasury

Accumulated
Other
Comprehensive

(In thousands of U.S. dollars, except share data)

Shares


Amount


Capital

(Deficit)

Stock

Income (Loss)

Total

Three Months Ended September 30, 2020:






Balance at June 30, 2020
   35,143,033    $ 443    $ 155,591 $ (52,709 ) $ (107,649 ) $ 10,499 $ 6,175
Stock-based compensation
   —      —      2,226 —   —   —   2,226
Exercise of stock options
   287,292    3    2,024 —   —   —   2,027
Settlement of restricted stock units
   59,395    1    (1 ) —   —   —   —
Other comprehensive loss, net
   —      —      —   —   —   (5,086 ) (5,086 )
Net income
   —      —      —   272,962 —   —   272,962






Balance at September 30, 2020
   35,489,720    $ 447    $ 159,840 $ 220,253 $ (107,649 ) $ 5,413 $ 278,304






Three Months Ended September 30, 2019:

Balance at June 30, 2019
   34,240,181    $ 433    $ 144,188 $ (79,950 ) $ (106,514 ) $ (6,073 ) $ (47,916 )
Stock-based compensation
   —      —      479 —   —   —   479
Exercise of stock options
   129,409    1    888 —   —   —   889
Settlement of restricted stock units
   1,099    0    (0 ) —   —   —   —
Other comprehensive income, net
   —      —      —   —   —   14,728 14,728
Net loss
   —      —      —   (1,607 ) —   —   (1,607 )






Balance at September 30, 2019
   34,370,689    $ 434    $ 145,555 $ (81,557 ) $ (106,514 ) $ 8,655 $ (33,427 )

Common Stock


Additional
Paid-In

Retained
Earnings

Treasury

Accumulated
Other
Comprehensive

Total

(In thousands of U.S. dollars, except share data)

Shares

Amount


Capital

(Deficit)

Stock

Income (Loss)

Nine Months Ended September 30, 2020:




Balance at December 31, 2019
   34,800,312 $ 439    $ 152,404 $ (58,131 ) $ (107,033 ) $ (2,660 ) $ (14,981 )
Stock-based compensation
   —   —      4,754 —   —   —   4,754
Exercise of stock options
   375,643 4    2,686 —   —   —   2,690
Settlement of restricted stock units
   367,759 4    (4 ) —   —   —   —
Acquisition of treasury stock
   (53,994 ) —      —   —   (616 ) —   (616 )
Other comprehensive income, net
   —   —      —   —   —   8,073 8,073
Net income
   —   —      —   278,384 —   —   278,384




Balance at September 30, 2020
   35,489,720 $ 447    $ 159,840 $ 220,253 $ (107,649 ) $ 5,413 $ 278,304




Nine Months Ended September 30, 2019:

Balance at December 31, 2018
   34,441,232 $ 431    $ 142,600 $ (36,305 ) $ (103,926 ) $ (20,110 ) $ (17,310 )
Stock-based compensation
   —   —      1,920 —   —   —   1,920
Exercise of stock options
   153,967 1    1,037 —   —   —   1,038
Settlement of restricted stock units
   169,592 2    (2 ) —   —   —   —
Acquisition of treasury stock
   (394,102 ) —      —   —   (2,588 ) —   (2,588 )
Other comprehensive income, net
   —   —      —   —   —   28,765 28,765
Net loss
   —   —      —   (45,252 ) —   —   (45,252 )




Balance at September 30, 2019
   34,370,689 $ 434    $ 145,555 $ (81,557 ) $ (106,514 ) $ 8,655 $ (33,427 )

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   Three Months Ended
   March 31,
2020 March 31,
2019
   (In thousands of US dollars)
Cash flows from operating activities

Net loss
   $ (23,749 ) $ (34,125 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities

Depreciation and amortization
   7,935 8,303
Provision for severance benefits
   5,071 3,117
Amortization of debt issuance costs and original issue discount
   598 571
Loss on foreign currency, net
   38,480 11,720
Restructuring and other charges
   2,138 2,822
Provision for inventory reserves
   570 4,645
Stock-based compensation
   885 669
Loss on early extinguishment of long-term borrowings, net
   —   42
Other
   107 96
Changes in operating assets and liabilities

Accounts receivable, net
   (10,430 ) (12,844 )
Unbilled accounts receivable, net
   6,937 9,726
Inventories
   (4,863 ) (15,230 )
Other receivables
   1,982 (4,205 )
Other current assets
   909 1,836
Accounts payable
   1,988 20,874
Other accounts payable
   (1,817 ) 2,797
Accrued expenses
   (6,611 ) (5,365 )
Other current liabilities
   1,062 (6,293 )
Othernon-current liabilities
   1,808 1,085
Payment of severance benefits
   (2,080 ) (2,263 )
Other
   148 347


Net cash provided by (used in) operating activities
   21,068 (11,675 )


Cash flows from investing activities

Proceeds from settlement of hedge collateral
   4,239 2,242
Payment of hedge collateral
   (7,841 ) —
Purchase of property, plant and equipment
   (3,351 ) (11,207 )
Payment for intellectual property registration
   (229 ) (232 )
Collection of guarantee deposits
   47 298
Payment of guarantee deposits
   —   (892 )
Other
   8 (10 )


Net cash used in investing activities
   (7,127 ) (9,801 )


Cash flows from financing activities

Repurchase of long-term borrowings
   —   (1,175 )
Proceeds from exercise of stock options
   —   48
Acquisition of treasury stock
   (1,021 ) (2,353 )
Repayment of financing related to water treatment facility arrangement
   (135 ) (143 )
Repayment of principal portion of finance lease liabilities
   (60 ) (59 )


Net cash used in financing activities
   (1,216 ) (3,682 )


Effect of exchange rates on cash and cash equivalents
   (7,089 ) (1,468 )


Net increase (decrease) in cash and cash equivalents
   5,636 (26,626 )


Cash and cash equivalents

Beginning of the period
   151,657 132,438


End of the period
   $ 157,293 $ 105,812


Supplemental cash flow information

Cash paid for interest
   $ 9,522 $ 9,549


Cash paid for income taxes
   $ 1,534 $ 1,556


Non-cash investing activities

Property, plant and equipment additions in other accounts payable
   $ 687 $ 2,643


Non-cash financing activities

Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation
   $ —   $ (232 )



Nine Months Ended


September 30,

2020

September 30,

2019


(In thousands of
U.S.
dollars)

Cash flows from operating activities

Net income (loss)
   $ 278,384 $ (45,252 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities

Depreciation and amortization
   13,333 24,661
Provision for severance benefits
   14,150 10,491
Amortization of debt issuance costs and original issue discount
   1,824 1,712
Loss on foreign currency, net
   6,609 50,512
Restructuring and other charges
   490 470
Provision for inventory reserves
   4,079 9,255
Stock-based compensation
   4,754 1,920
Loss on early extinguishment of long-term borrowings, net
   —   42
Gain on sale of discontinued operations
   (287,117 ) —
Others, net
   85 61
Changes in operating assets and liabilities

Accounts receivable, net
   (16,583 ) (32,812 )
Unbilled accounts receivable, net
   14,260 14,208
Inventories
   1,390 (15,576 )
Other receivables
   6,111 (4,814 )
Other current assets
   9,143 6,356
Accounts payable
   (5,156 ) 27,585
Other accounts payable
   (8,034 ) (10,074 )
Accrued expenses
   1,991 3,831
Accrued income taxes
   12,546 (583 )
Other current liabilities
   2,243 (5,766 )
Other
non-current
liabilities
   2,868 808
Payment of severance benefits
   (5,888 ) (6,195 )
Others, net
   59 (821 )


Net cash provided by operating activities
   51,541 30,019


Cash flows from investing activities

Proceeds from settlement of hedge collateral
   8,029 12,625
Payment of hedge collateral
   (7,841 ) (17,024 )
Purchase of property, plant and equipment
   (16,353 ) (16,693 )
Payment for intellectual property registration
   (664 ) (907 )
Collection of guarantee deposits
   891 539
Payment of guarantee deposits
   (611 ) (1,330 )
Proceeds from sale of discontinued operations
   350,553 —
Others, net
   26 225


Net cash provided by (used in) investing activities
   334,030 (22,565 )


Cash flows from financing activities

Repurchase of long-term borrowings
   —   (1,175 )
Proceeds from exercise of stock options
   2,690 1,038
Acquisition of treasury stock
   (1,021 ) (2,588 )
Repayment of financing related to water treatment facility arrangement
   (402 ) (415 )
Repayment of principal portion of finance lease liabilities
   (165 ) (174 )


Net cash provided by (used in) financing activities
   1,102 (3,314 )


Effect of exchange rates on cash and cash equivalents
   3,781 (5,237 )


Net increase (decrease) in cash and cash equivalents
   390,454 (1,097 )


Cash and cash equivalents

Beginning of the period
   151,657 132,438


End of the period
   $ 542,111 $ 131,341


Supplemental cash flow information

Cash paid for interest
   $ 19,044 $ 19,071


Cash paid for income taxes
   $ 2,573 $ 1,904


Non-cash
investing activities

Property, plant and equipment additions in other accounts payable
   $ 3,865 $ 496


The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Business, Basis of Presentation and Significant Accounting Policies
Business
MagnaChip Semiconductor Corporation (together with its subsidiaries, the “Company”) is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, Internet of Things (“IoT”) applications, consumer, industrial and automotive applications. The Company provides technology platforms for analog, mixed signal, power, high voltage,
non-volatile
memory and Radio Frequency (“RF”) applications.
On ~~March 30,~~September 1, 2020 (the “Closing Date”), the Company ~~entered into a definitive Business Transfer Agreement (the “BTA”) for~~completed the previously announced sale of ~~its~~the Company’s Foundry Services Group business and
its
fabrication facility located in Cheongju ~~(“Fab~~known as “Fab 4” to Key Foundry Co., Ltd. (the “Buyer”), ~~the larger~~a Korean limited liability company and wholly owned subsidiary of ~~the Company’s two8-inch~~ ~~manufacturing facilities, to~~ Magnus Semiconductor, LLC, a Korean limited liability company ~~or one of its wholly owned subsidiaries (the “Buyer”~~(“Magnus”), in exchange for a purchase price equal to ~~the KRW equivalent of $344.7~~approximately $350.6 million, ~~in cash, subject to~~which included a positive working capital ~~adjustments set forth~~
a
djustment of approximately $5.9 million, pursuant to the terms of a business transfer agreement dated March 31, 2020 by and among the Company and Magnus (the “Business Transfer Agreement”). The purchase price was paid in a combination of U.S. Dollars in the ~~BTA.~~amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion. In addition to the purchase price, the Buyer assumed all severance liabilities relating to the transferred employees, which had a value of approximately $100 million. The Buyer is a ~~special purpose company formed~~wholly owned subsidiary of Magnus, which was established by Alchemist Capital Partners Korea Co., Ltd. and Credian Partners, Inc. On April 20, 2020, Magnus assigned, and the Buyer assumed, all rights and obligations of Magnus under the Business Transfer Agreement. This ~~planned~~ divestiture of the Foundry Services Group business and Fab 4 ~~will allow~~allows the Company to strategically shift its operational focus to its standard products business. The Foundry Services Group was historically a reportable segment. ~~As a result of the entry into the BTA, the results of the~~The Foundry Services Group ~~were~~business was classified as discontinued operations in the Company’s consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Accordingly, commencing with the first quarter of 2020, the Company has one reportable segment: its standard products business, together with transitional foundry services associated with its fabrication facility located in Gumi, Korea, known as “Fab 3,” that it expects to perform for the Buyer for a period of up to three years (the “Transitional Fab 3 Foundry Services”). The Company’s standard products business includes its Display Solutions and Power Solutions business lines. The Company’s Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile, automotive applications and home appliances. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer and industrial applications.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
U.S.
GAAP”). These interim consolidated financial statements include normal recurring adjustments and the elimination of all intercompany accounts and transactions which are, in the opinion of management, necessary to provide a fair statement of the Company’s financial condition and results of operations for the periods presented. These interim consolidated financial statements are presented in accordance with Accounting Standards Codification
(“ASC”) 270, ~~“Interim~~
“Interim Reporting” and, accordingly, do not include all of the information and note disclosures required by US
U.S.
GAAP for complete financial statements, except for the changes below. The results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results to be expected for a full year or for any other periods.
The Company has reclassified certain prior year amounts to conform to the current year’s presentation for discontinued operations to reflect the ~~anticipated~~ divestiture of its Foundry Services Group business and Fab 4. The assets to be acquired and liabilities to be transferred to the Buyer, as specified in the ~~BTA,~~Business Transfer Agreement, have been classified as assets and liabilities held for sale in the Company’s consolidated balance sheets, subject to adjustments set forth in the ~~BTA.~~Business Transfer Agreement. See Note 2 “Discontinued Operations and Assets Held for Sale” for additional information. The consolidated statements of cash flows have not been adjusted to separately disclose cash flows related to discontinued operations, but the material items in the operating and investing activities of cash flows relating to discontinued operations are disclosed in Note 2. Unless otherwise stated, information in these notes to consolidated financial statements relates to the Company’s continuing operations and excludes the discontinued operations.
There have been no material changes to the Company’s significant accounting policies as of and for the three and nine months ended ~~March 31,~~September 30, 2020, except for those related to discontinued operations and assets held for sale as described below, as compared to the significant accounting policies described in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2019.

Table of Contents
Discontinued Operations and Assets Held for Sale
The Company reports the results of operations of a business as discontinued operations if a disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the business is sold and classified as held for sale, in accordance with the criteria of ~~Accounting Standard Codification (“ASC”)~~
ASC
205, “Presentation of Financial Statements” (“ASC 205”) and ASC 360, “Property, Plant and Equipment” (“ASC 360”). Assets and liabilities of a business classified as held for sale are recorded at the lower of its carrying amount or estimated fair value less costs to ~~sell.~~sell, and depreciation and amortization ceases on the date that the held for sale criteria are met. If the carrying amount of the business exceeds its estimated fair value less costs to sell, a loss is recognized. Assets and liabilities related to discontinued operations classified as held for sale are segregated in the current and prior balance sheets in the period in which the business is classified as held for sale. The results of discontinued operations are reported in “Income ~~(loss)~~ from discontinued operations, net of tax” in the accompanying consolidated statements of operations for the current and prior periods commencing in the period in which the business meets the criteria.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”)
No. 2019-12, ~~“Income~~
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU
2019-12”).
ASU
2019-12
removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU
2019-12
is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of ASU
2019-12
to have a material effect on the Company’s consolidated financial statements.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ~~Accounting Standards Update~~ASU
No. 2016-13, ~~“Financial~~
“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU
2016-13”).
ASU
2016-13
amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. In April 2019, the FASB issued Accounting Standards Update
No. 2019-04, ~~“Codification~~
“Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU
2019-04”),
and in November 2019, the FASB issued Accounting Standards Update
No. 2019-11, ~~“Codification~~
“Codification Improvements to Topic 326, Financial Instruments—Credit Losses” (“ASU
2019-11”)
to clarify and address certain items related to the amendments in ASU
2016-13.
In February 2020, the FASB issued Accounting Standards Update
No. 2020-02, ~~“Financial~~
“Financial Instruments—Credit Losses (Topic 326)” (“ASU
2020-02”),
which incorporates SEC SAB 119 (updated from SAB 102) into the ASC by aligning SEC recommended policies and procedures with ASC ~~326.The~~326. The Company adopted ASU
2016-13,
ASU
2019-04,
ASU
2019-11
and ASU
2020-02
as of January 1, 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update
No. 2018-13 ~~“Fair~~
“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU
2018-13”).
ASU
2018-13
amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The Company adopted ASU
2018-13
as of January 1, 2020, and the adoption of ASU
2018-13
did not impact the Company’s consolidated financial statements.

Table of Contents
2. Discontinued Operations and Assets Held for Sale
On ~~March 30,~~September 1, 2020, the Company ~~entered into the BTA for~~completed the sale of ~~its~~the Company’s Foundry Services Group business and Fab 4. As a result of the sale of the Foundry Services Group business and Fab 4, the Company recorded a gain of $287,117 thousand and all operations from the Foundry Services Group business and Fab 4 were classified as discontinued operations for all periods presented. Following the consummation of the sale, and for up to three years, the Company is expected to provide
the Transitional Fab 3 Foundry ~~Services. For the periods prior~~Services at an agreed upon cost plus mark-up. Accounts receivable related to ~~the closing of the sale, revenue from~~ providing the Transitional Fab 3 Foundry Services to the ~~Foundry Services Group is recorded at cost on both~~Buyer was
$2,484
thousand as of September 30, 2020 and there was no related cash inflow for the ~~continuing~~three and ~~discontinued businesses. The sale is expected to close within approximately four to six~~nine months ~~from the date of the BTA, subject to customary closing conditions.~~
ended September 30, 2020.
The following table summarizes the results from discontinued operations, net of tax, for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019.

   Three Months Ended
   March 31,
2020    March 31,
2019
   (In thousands of US dollars)
Revenues:

Net sales – Foundry Services Group
   $ 86,279    $ 57,116
Net sales – transitional Fab 3 foundry services
   (9,737 )    (7,003 )




Total revenues
   76,542    50,113
Cost of sales:

Cost of sales – Foundry Services Group
   65,583    53,438
Cost of sales – transitional Fab 3 foundry services
   (9,737 )    (7,003 )




Total cost of sales
   55,846    46,435




Gross profit
   20,696    3,678
Operating expenses:

Selling, general and administrative expenses
   5,644    6,034
Research and development expenses
   7,403    7,974
Restructuring and other charges
   2,115    2,894




Total operating expenses
   15,162    16,902




Operating income (loss) from discontinued operations
   5,534    (13,224 )
Foreign currency gain, net
   2,097    613
Other income
   107    86




Income (loss) from discontinued operations before income tax expense
   7,738    (12,525 )
Income tax expense
   409    45




Income (loss) from discontinued operations, net of tax
   $ 7,329    $ (12,570 )





Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019


(In thousands of
U.S.
dollars, except share data)

Revenues:

Net sales – Foundry Services Group
   $ 72,674    $ 90,404    $ 254,732    $ 220,659
Net sales – transitional Fab 3 foundry services
   (6,277 )    (9,894 )    (25,887 )    (25,776 )








Total revenues
   66,397    80,510    228,845    194,883
Cost of sales:

Cost of sales – Foundry Services Group
   52,420    64,793    182,872    179,152
Cost of sales – transitional Fab 3 foundry services
   (6,277 )    (9,894 )    (25,887 )    (25,776 )








Total cost of sales
   46,143    54,899    156,985    153,376








Gross profit
   20,254    25,611    71,860    41,507
Operating expenses:

Selling, general and administrative expenses
   4,068    6,126    14,704    18,040
Research and development expenses
   5,166    7,135    19,484    22,326
Restructuring and other charges
   7,870    763    10,574    4,787








Total operating expenses
   17,104    14,024    44,762    45,153








Operating income (loss) from discontinued operations
   3,150    11,587    27,098    (3,646 )








Foreign currency gain (loss), net
   (797 )    780    1,277    2,533
Others, net
   18    (10 )    66    (59 )








Income (loss) from discontinued operations before income tax expense
   2,371    12,357    28,441    (1,172 )
Income tax expense (benefit)
   14,173    (280 )    15,517    (209 )
Gain on sale of discontinued operations
   287,117    —      287,117    —








Transaction costs

(10,814
)

—

(10,814
)

—

Income (loss) from discontinued operations, net of tax
   264,501    12,637    289,227    (963 )








For the three months ended ~~March 31,~~September 30, 2020 and 2019, the Company recorded ~~$2,115~~$7,870 thousand and ~~$743~~$763 thousand, respectively, and for the nine months ended September 30, 2020 and 2019, the Company recorded $10,574 thousand and $2,636 thousand, respectively, in professional fees and transaction related expenses incurred in connection with the sale of the Foundry Services Group business and Fab 4, and recorded such costs as restructuring and other charges in the above. For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company also recorded in the same line a $2,151 thousand restructuring-related charge to its fab employees.

Table of Contents
The following table provides a reconciliation of the aggregate carrying amounts of major classes of assets and liabilities relating to the Foundry Services Group business and Fab 4, ~~which~~w
h
ich are included in assets and liabilities held for sale as of December 31, 2019 in the accompanying consolidated balance ~~sheets for each of the periods presented:~~

   March 31,
2020    December 31,
2019
   (In thousands of US dollars)
Assets

Current assets

Accounts receivable, net
   $ 40,735    $ 48,194
Unbilled accounts receivable, net
   9,374    16,463
Inventories, net
   34,968    31,863
Other current assets
   2,891    3,301
Other assets of the disposal group classified as held for sale
   1,461    —




Total current assets held for sale
   $ 89,429    $ 99,821




Property, plant and equipment, net
   99,604    109,506
Intangible assets, net
   1,202    1,245
Othernon-current assets
   11,384    12,683




Total assets held for sale
   $ 201,619    $ 223,255




Liabilities

Current liabilities

Accounts payable
   $ 20,462    $ 20,503
Other current liabilities
   14,773    16,537




Total current liabilities held for sale
   $ 35,235    $ 37,040




Accrued severance benefits, net
   93,121    95,547
Othernon-current liabilities
   13,657    15,334




Total liabilities held for sale
   $ 142,013    $ 147,921




As of March 31, 2020, all assets and liabilities held for sale are classified as current on the consolidated balance sheets based on the anticipated date of disposal of the Foundry Services Group business and Fab 4.
sheet:

December 31,

2019


(In thousands of
U.S.
dollars)

Assets

Current assets

Accounts receivable, net
   $ 48,194
Unbilled accounts receivable
   16,463
Inventories, net
   31,863
Other current assets
   3,301


Total current assets held for sal
e
   $ 99,821


Property, plant and equipment, net
   109,506
Intangible assets, net
   1,245
Other
non-current
assets
   12,683


Total assets held for sale
   $ 223,255


Liabilities

Current liabilities

Accounts payable
   $ 20,503
Other current liabilities
   16,537


Total current liabilities held for sale
   $ 37,040


Accrued severance benefits, net
   95,547
Other
non-current
liabilities
   15,334


Total liabilities held for sale
   $ 147,921


The following table provides supplemental cash flows information related to discontinued operations:

   Three Months Ended
   March 31,
2020    March 31,
2019
   (In thousands of US dollars)
Significant non-cash operating activities:

Depreciation and amortization
   $ 5,365    $ 5,752
Provision for severance benefits
   3,052    1,803
Stock-based compensation
   123    106
Investing activities:

Capital expenditures
   $ (1,479 )    $ (4,469 )

Nine Months Ended


September 30,

2020

September 30,

2019


(In thousands of
U.S.
dollars)

Significant
non-cash
operating activities:

Depreciation and amortization
   $ 5,365    $ 16,958
Provision for severance benefits
   8,209    5,997
Stock-based compensation
   388    259
Investing activities:

Capital expenditures
   $ (5,838 )    $ (9,174 )
11
Table of Contents
3. Sales of Accounts Receivable and Receivable Discount Program
The Company ~~has entered into~~
is party to
an agreement to sell selected trade accounts receivable to a financial institution from time to time since March 2012. After the 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 was no0 sale of ~~these~~ accounts
receivable
for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. For the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the proceeds from the sales of these accounts
receivable
totaled ~~$7,989~~$14,474 thousand and these sales resulted in
pre-tax
losses of ~~$25~~$45 thousand, which are included in selling, general and administrative expenses in the consolidated statements of operations. Net proceeds of this accounts receivable sale program are recognized in the consolidated statements of cash flows as part of operating cash flows.
The Company uses receivable discount programs with certain customers. These discount arrangements allow the Company to accelerate collection of customers’ receivables.
4. Inventories
Inventories as of ~~March 31,~~September 30, 2020 and December 31, 2019 consist of the following (in thousands):

   March 31,
2020    December 31,
2019
Finished goods
   $ 8,448    $ 10,087
Semi-finished goods andwork-in-process
   25,342    28,815
Raw materials
   7,916    8,449
Materialsin-transit
   231    —   ��
Less: inventory reserve
   (4,807 )    (5,947 )




Inventories, net
   $ 37,130    $ 41,404





September 30,

2020

December 31,

2019

Finished goods
   $ 5,030    $ 10,087
Semi-finished goods and
work-in-process
   28,919    28,815
Raw materials
   5,743    8,449
Materials
in-transit
   444    —
Less: inventory reserve
   (6,505 )    (5,947 )




Inventories, net
   $ 33,631    $ 41,404




Changes in inventory reserve for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 are as follows (in thousands):

   Three Months Ended
   March 31,
2020    March 31,
2019
Beginning balance
   $ (5,947 )    $ (4,845 )
Change in reserve

Inventory reserve charged to costs of sales
   (1,275 )    (5,073 )
Sale of previously reserved inventory
   906    476




   (369 )    (4,597 )
Write off
   499    592
Translation adjustments
   316    160
Reclassified to assets held for sale
   694    —




Ending balance
   $ (4,807 )    $ (8,690 )





Three Months

Ended

Nine Months

Ended

Three Months

Ended

Nine Months

Ended


September 30, 2020

September 30, 2019

Beginning balance
   $ (5,307 )    $ (5,947 )    $ (11,782 )    $ (4,845 )
Change in reserve

Inventory reserve charged to costs of sales
   (3,472 )    (6,541 )    (1,298 )    (10,745 )
Sale of previously reserved inventory
   1,578    3,231    914    1,880








   (1,894 )    (3,310 )    (384 )    (8,865 )
Write off
   835    1,976    377    1,593
Translation adjustments
   (139 )    82    461    789
Reclassified to assets held for sale
   0      694    —      —








Ending balance
   $ (6,505 )    $ (6,505 )    $ (11,328 )    $ (11,328 )








Inventory reserve represents the Company’s best estimate in value lost due to excessive inventory level, physical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. Inventory reserve relates to inventory items including finished goods, semi-finished goods,
work-in-process
and raw materials. Write off of this reserve is recognized only when the related inventory has been disposed or scrapped.

Table of Contents
5. Property, Plant and Equipment
Property, plant and equipment as of ~~March 31,~~September 30, 2020 and December 31, 2019 are comprised of the following (in thousands):

   March 31,
2020    December 31,
2019
Buildings and related structures
   $ 21,309    $ 22,502
Machinery and equipment
   85,213    89,453
Finance leaseright-of-use assets
   306    323
Others
   20,863    22,242




   127,691    134,520
Less: accumulated depreciation
   (73,987 )    (75,704 )
Land
   13,497    14,252




Property, plant and equipment, net
   $ 67,201    $ 73,068





September 30,

2020

December 31,

2019

Buildings and related structures
   $ 22,580    $ 22,502
Machinery and equipment
   90,136    89,453
Finance lease
right-of-use
assets
   319    323
Others
   31,802    22,242




   144,837    134,520
Less: accumulated depreciation
   (81,409 )    (75,704 )
Land
   14,061    14,252




Property, plant and equipment, net
   $ 77,489    $ 73,068




Aggregate depreciation expenses totaled ~~$2,409~~$7,473 thousand and ~~$2,412~~$7,267 thousand for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively.
Concurrent with the execution of the BTA, the Company executed a factory (kun) mortgage agreement under which the real property owned by the Company in respect of the Fab 3 fabrication facility located in Gumi, Korea and other material assets located in, attached to or forming part of such facility were pledged as collateral for purposes of securing the payment of its termination fee of $34,470 thousand under the BTA. The Company has a right to replace the factory (kun) mortgage at any time with a deposit of $34,470 thousand cash into escrow.
6. Intangible Assets
Intangible assets as of ~~March 31,~~September 30, 2020 and December 31, 2019 are comprised of the following (in thousands):

   March 31, 2020
   Gross
amount    Accumulated
amortization    Net
amount
Technology
   $ 6,226    $ (6,226 )    $ —
Customer relationships
   9,641    (9,641 )    —
Intellectual property assets
   8,314    (5,731 )    2,583






Intangible assets, net
   $ 24,181    $ (21,598 )    $ 2,583







September 30, 2020


Gross

amount

Accumulated

amortization

Net

amount

Technology
   $ 6,487    $ (6,487 )    $ —
Customer relationships
   10,044    (10,044 )    —
Intellectual property assets
   8,760    (5,883 )    2,877






Intangible assets, net
   $ 25,291    $ (22,414 )    $ 2,877







December 31, 2019


Gross

amount

Accumulated

amortization

Net

amount

Technology
   $ 6,575    $ (6,575 )    $ —
Customer relationships
   10,180    (10,180 )    —
Intellectual property assets
   8,637    (5,868 )    2,769






Intangible assets, net
   $ 25,392    $ (22,623 )    $ 2,769






Aggregate amortization expenses for intangible assets totaled ~~$161~~$495 thousand and ~~$139~~$436 thousand for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively.

Table of Contents
7. Leases
The Company has operating and finance leases for buildings and other assets such as vehicles and office equipment. The Company’s leases have remaining lease terms ranging from 1 year to 43 years.
The tables below present financial information related to the Company’s leases.
The Company adopted the new lease accounting standard as of January 1, 2019, using the modified retrospective transition method. The tables below present financial information related to
t
o the Company’s leases
Supplemental balance sheets information related to leases as of ~~March 31,~~September 30, 2020 and December 31, 2019 are as follows (in thousands):

Leases

Classification
   March 31,
2020    December 31,
2019
Assets

Operating lease
Operating lease right-of-use assets    $ 1,413    $ 1,876
Finance lease
Property, plant and equipment, net    229    258




Total lease assets
   $ 1,642    $ 2,134




Liabilities

Current

Operating
Operating lease liabilities    $ 1,301    $ 1,625
Finance
Other current liabilities    58    60
Non-current

Operating
Othernon-current liabilities    112    251
Finance
Othernon-current liabilities    182    208




Total lease liabilities
   $ 1,653    $ 2,144




Leases

Classification

September 30,
2020

December 31,

2019

Assets

Operating lease

Operating lease right-of-use assets
   $ 2,032    $ 1,876
Finance lease
   Property, plant and equipment, net    207    258




Total lease assets
      $ 2,239    $ 2,134




Liabilities

Current

Operating
   Operating lease liabilities    $ 1,390    $ 1,625
Finance
   Other current liabilities    62    60
Non-current

Operating
   Other
non-current
liabilities    642    251
Finance
   Other
non-current
liabilities    158    208




Total lease liabilities
      $ 2,252    $ 2,144




The following table presents the weighted average remaining lease term and discount rate:

   March 31,
2020 December 31,
2019
Weighted average remaining lease term

Operating leases
   1.0 years 1.1 years
Finance leases
   3.8 years 4.0 years
Weighted average discount rate

Operating leases
   7.35 % 7.19 %
Finance leases
   7.75 % 7.75 %

September 30,

2020

December 31,

2019

Weighted average remaining lease term

Operating leases
   1.4 years 1.1 years
Finance leases
   3.3 years 4.0 years
Weighted average discount rate

Operating leases
   6.82 % 7.19 %
Finance leases
   7.75 % 7.75 %
The components of lease cost included in the Company’s consolidated statements of operations, are as follows (in thousands):

   Three Months
Ended
   March 31,
2020    March 31,
2019
Operating lease cost
   $ 468    $ 525
Finance lease cost

Amortization ofright-of-use assets
   16    17
Interest on lease liabilities
   5    6




Total lease cost
   $ 489    $ 548





Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019

Operating lease cost
$ 480    $ 483    $ 1,409    $ 1,509
Finance lease cost

Amortization of
right-of-use
assets
   16    15    47    48
Interest on lease liabilities
   4    5    13    17








Total lease cost
   $ 500    $ 503    $ 1,469    $ 1,574








The above table does not include an immaterial cost of short-term leases for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019.

Table of Contents
Other lease information is as follows (in thousands):

   Three Months
Ended
   March 31,
2020    March 31,
2019
Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases
   $ 468    $ 525
Operating cash flows from finance leases
   5    6
Financing cash flows from finance leases
   14    14

Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases
   $ 480    $ 483    $ 1,409    $ 1,509
Operating cash flows from finance leases
   4    5    13    17
Financing cash flows from finance leases
   15    13    43    41
The aggregate future lease payments for operating and finance leases as of ~~March 31,~~September 30, 2020 are as follows (in thousands):

   Operating
Leases    Finance
Leases
2020
   $ 1,192    $ 55
2021
   254    74
2022
   21    74
2023
   1    74
Thereafter
   —      —




Total future lease payments
   1,468    277
Less: Imputed interest
   (55 )    (37 )




Present value of future payments
   $ 1,413    $ 240





Operating

Leases

Finance

Leases

2020
   $ 358    $ 19
2021
   1,459    77
2022
   308    77
2023
   16    77
Thereafter
   —      —




Total future lease payments
   2,141    250
Less: Imputed interest
   (109 )    (30 )




Present value of future payments
   $ 2,032    $ 220




8. Accrued Expenses
Accrued expenses as of ~~March 31,~~September 30, 2020 and December 31, 2019 are comprised of the following (in thousands):

   March 31,
2020    December 31,
2019
Payroll, benefits and related taxes, excluding severance benefits
   $ 8,992    $ 8,493
Withholding tax attributable to intercompany interest income
   23,771    23,371
Interest on senior notes
   3,444    8,205
Outside service fees
   1,224    1,996
Others
   4,058    2,734




Accrued expenses
   $ 41,489    $ 44,799

September 30,

2020

December 31,

2019

Payroll, benefits and related taxes, excluding severance benefits
   $ 9,743    $ 8,493
Withholding tax attributable to intercompany interest income
   25,206    23,371
Interest on senior notes
   3,444    8,205
Outside service fees
   685    1,996
Others
   2,552    2,734




Accrued expenses
   $ 41,630    $ 44,799




15
Table of Contents
9. Derivative Financial Instruments
The Company’s Korean subsidiary from time to time has entered into zero cost collar and forward contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on USU.S. dollar denominated revenues.
Details of derivative contracts as of ~~March 31,~~September 30, 2020 are as follows (in thousands):

Date of transaction
   Type of derivative    Total notional amount    Month of settlement
August 13, 2019
   Zero cost collar    $ 30,000    April 2020 to June 2020
September 27, 2019
   Zero cost collar    $ 21,000    April 2020 to June 2020
December 4, 2019
   Zero cost collar    $ 30,000    July 2020 to December 2020
January 31, 2020
   Zero cost collar    $ 30,000    July 2020 to December 2020
February 3, 2020
   Zero cost collar    $ 18,000    July 2020 to December 2020
February 21, 2020
   Zero cost collar    $ 30,000    July 2020 to December 2020
Date of transaction

Type of derivative

Total notional amount

Month of settlement
December 4, 2019
   Zero cost collar    $ 15,000    October 2020 to

December 2020
January 31, 2020
   Zero cost collar    $ 15,000    October 2020 to December 2020
February 3, 2020
   Zero cost collar    $ 9,000    October 2020 to December 2020
February 21, 2020
   Zero cost collar    $ 15,000    October 2020 to December 2020
July 13, 2020
   Zero cost collar    $ 30,000    January 2021 to June 2021
Details of derivative contracts as of December 31, 2019 are as follows (in thousands):

Date of transaction
   Type of derivative    Total notional amount    Month of settlement
August 13, 2019
   Zero cost collar    $ 60,000    January 2020 to June 2020
September 27, 2019
   Zero cost collar    $ 42,000    January 2020 to June 2020
December 4, 2019
   Zero cost collar    $ 30,000    July 2020 to December 2020
Date of transaction

Type of derivative

Total notional amount

Month of settlement
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

The zero cost collar contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts.
The fair values of the Company’s outstanding zero cost collar contracts recorded as assets and liabilities as of ~~March 31,~~September 30, 2020 and December 31, 2019 are as follows (in thousands):

Derivatives designated as hedging instruments:
      March 31,
2020    December 31,
2019
Asset Derivatives:

Zero cost collars
   Other current assets    $ —      $ 1,456
Liability Derivatives:

Zero cost collars
   Other current liabilities    $ 3,500    $ —
Derivatives designated as hedging instruments:

September 30,

2020

December 31,

2019

Asset Derivatives:

Zero cost collars
   Other current assets    $ 262    $ 1,456
Liability Derivatives:

Zero cost collars
   Other current liabilities    $ 33    $ —
Offsetting of derivative assets and liabilities as of ~~March 31,~~September 30, 2020 is as follows (in thousands):

As of March 31, 2020
   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
   $ 3,500    $ —      $ 3,500    $ —      $ (2,720 ) $ 780
As of September 30, 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
   $ 262    $ 0    $ 262    $ 0    $ 0    $ 262
Liability Derivatives:

Zero cost collars
   $ 33    $ 0    $ 33    $ 0    $ 0    $ 33
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
16
Table of Contents
For derivative instruments that are designated and qualify as cash flow hedges, gains or losses on the derivative aside from components excluded from the assessment of effectiveness are reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative, representing hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 and net sales of discontinued operation are included in the below table (in thousands):

Derivatives in ASC
815 Cash Flow Hedging
Relationships
   Amount of Gain (Loss)
Recognized in
AOCI on
Derivatives
(Effective Portion) Location/Amount of Loss
Reclassified from AOCI
Into Statement of Operations
(Effective Portion) Location/Amount of Gain (Loss)
Recognized in
Statement of Operations on Derivatives
(Ineffective Portion)
   Three Months Ended
March 31,    Three Months Ended
March 31,    Three Months Ended
March 31,
   2020 2019    2020 2019    2020    2019
Zero cost collars
   $ (5,004 ) $ 34 Net sales    $ (58 ) $ —   Other income, net    $ 117    $ —
Forwards
   $ —   $ (533 ) Net sales    $ —   $ (89 ) Other income, net    $ —      $ (56 )
Forwards—excluded time value
   Net sales    $ —   $ (98 )








   $ (5,004 ) $ (499 )    $ (58 ) $ (187 )    $ 117    $ (56 )

Derivatives in ASC
815 Cash Flow Hedging
Relationships

Amount of Gain (Loss)

Recognized in

AOCI on

Derivatives

Location/Amount of Loss

Reclassified from AOCI

Into Statement of Operations

Location/Amount of Gain (Loss)

Recognized in

Statement of Operations on Derivatives


Three Months Ended

September 30,

Three Months Ended

September 30,

Three Months Ended

September 30,


2020

2019

2020

2019

2020

2019

Zero cost collars
   $ 1,390    $ (2,803 )�� Net sales    $ (41 ) $ (1,600 ) Other income, net    $ 50    $ (33 )
Derivatives in ASC
815 Cash Flow Hedging
Relationships

Amount of Loss

Recognized in

AOCI on

Derivatives

Location/Amount of Loss

Reclassified from AOCI

Into Statement of Operations

Location/Amount of Gain (Loss)

Recognized in

Statement of Operations on Derivatives


Nine Months Ended

September 30,

Nine Months Ended

September 30,

Nine Months Ended

September 30,


2020

2019

2020

2019

2020

2019

Zero cost collars
   $ (1,410 ) $ (3,905 ) Net sales    $ (292 ) $ (1,803 ) Other income, net    $ 222    $ (44 )
Forwards
   $ —   $ (1,798 ) Net sales    $ —   $ (1,750 ) Other income, net    $ —      $ (125 )








   $ (1,410 ) $ (5,703 )    $ (292 ) $ (3,553 )    $ 222    $ (169 )








As of ~~March 31,~~September 30, 2020, the amount expected to be reclassified from accumulated other comprehensive income into ~~loss~~income within the next twelve months is ~~$3,401~~$427 thousand.
The Company set aside ~~$10,550~~$9,650 thousand and $8,750 thousand of cash deposits to the counterparties, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) and Deutsche Bank AG, Seoul Branch (“DB”), as required for the zero cost collar contracts outstanding as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively. These cash deposits are recorded as hedge collateral on the consolidated balance sheets.
The Company is required to deposit additional cash collateral with NFIK and DB for any exposure in excess of $500 thousand, and ~~$2,720 thousand and~~0 such cash collateral was required as of September 30, 2020. As of December 31, 2019, $1,070 thousand of additional cash collateral were required and recorded as hedge collateral on the consolidated balance ~~sheets as of March 31, 2020~~sheet.
These forward and ~~December 31, 2019, respectively.~~
~~These~~zero cost collar contracts may be terminated by the counterparty in a number of circumstances, including if the Company’s borrowing rating falls below
B-/B3
or if the Company’s total cash and cash equivalents is less than $30,000 thousand at the end of a fiscal quarter, unless a waiver is obtained from the counterparty.
17
Table of Contents
10. Fair Value Measurements
Fair Value of Financial Instruments
As of ~~March 31,~~September 30, 2020, the following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

   Carrying Value
March 31, 2020    Fair Value
Measurement
March 31, 2020    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)
   $ 3,500    $ 3,500    —      $ 3,500    —

Carrying Value

September 30, 2020

Fair Value

Measurement

September 30, 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)
   $ 262    $ 262    —      $ 262    —
Liabilities:

Derivative liabilities (other current liabilities)
   $ 33    $ 33    —      $ 33    —
As of December 31, 2019, the following table represents the Company’s assets measured at fair value on a recurring basis and the basis for that measurement (in thousands):

Carrying Value

December 31, 2019

Fair Value

Measurement

December 31, 2019

Quoted Prices in

Active Markets

for Identical

Asset (Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Assets:

Derivative assets (other current assets)
   $ 1,456    $ 1,456    —      $ 1,456    —
Items not reflected in the table above include cash equivalents, accounts receivable, other receivables, accounts payable, and other accounts payable, fair value of which approximate carrying values due to the short-term nature of these instruments. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs.
Fair Value of Borrowings

   March 31, 2020    December 31, 2019
   Carrying
Value    Fair
Value    Carrying
Value    Fair
Value
   (In thousands of US dollars)
Borrowings:

5.0% Exchangeable Senior Notes due March 2021 (Level 2)
   $ 82,328    $ 94,479    $ 81,959    $ 116,078
6.625% Senior Notes due July 2021 (Level 2)
   $ 223,012    $ 210,795    $ 222,784    $ 224,250

September 30, 2020

December 31, 2019


Carrying

Value

Fair

Value

Carrying

Value

Fair

Value


(In thousands of
U.S.
dollars)

Borrowings:

5.0% Exchangeable Senior Notes due March 2021 (Level 2)
   $ 83,088    $ 126,643    $ 81,959    $ 116,078
6.625% Senior Notes due July 2021 (Level 2)
   $ 223,479    $ 224,250    $ 222,784    $ 224,250
On January 17, 2017, the Company’s wholly-owned subsidiary, MagnaChip Semiconductor S.A., closed an offering (the “Exchangeable Notes Offering”) of 5.0% Exchangeable Senior Notes due March 1, 2021 (the “Exchangeable Notes”), of $86,250 thousand, which represents the principal amount, excluding $5,902 thousand of debt issuance costs. In December 2018 and February 2019, MagnaChip Semiconductor S.A. repurchased a principal amount equal to $1,590 thousand and $920 thousand, respectively, of the Exchangeable Notes in the open market. The Company estimates the fair value of the Exchangeable Notes using the market approach, which utilizes quoted market prices that fall under Level 2. For further description of the Exchangeable Notes, see Note 11, “Borrowings.”
On July 18, 2013, the Company issued 6.625% Senior Notes due July 15, 2021 (the “2021 Notes”) of $225,000 thousand, which represents the principal amount, excluding $1,125 thousand of original issue discount and $5,039 thousand of debt issuance costs. In December 2018 and January 2019, the Company repurchased a principal amount equal to $500 thousand and $250 thousand, respectively, of the 2021 Notes in the open market. The Company estimates the fair value of the 2021 Notes using the market approach, which utilizes quoted market prices that fall under Level 2. For further description of the 2021 Notes, see
Note 11, ~~“Borrowings.~~“Borrowings” and Note 19, “Subsequent Events.”
18

Table of Contents
Fair Values Measured on a
Non-recurring
Basis
The Company’s
non-financial
assets, such as property, plant and equipment, and intangible assets are recorded at fair value upon acquisition and are remeasured at fair value only if an impairment charge is recognized. As of ~~March 31,~~September 30, 2020 and 2019, the Company did ~~not~~0t have any assets or liabilities measured at fair value on a
non-recurring
basis.

11. Borrowings

Borrowings as of ~~March 31,~~September 30, 2020 and December 31, 2019 are as follows (in thousands):

   March 31,
2020    December 31,
2019
5.0% Exchangeable Senior Notes due March 2021
   $ 83,740    $ 83,740
6.625% Senior Notes due July 2021
   224,250    224,250
Less: unamortized discount and debt issuance costs
   (2,650 )    (3,247 )




Total borrowings, net
   305,340    304,743
Less: current portion of long-term borrowings, net
   (82,328 )    —




Long-term borrowings, net
   $ 223,012    $ 304,743

September 30,

2020

December 31,

2019

5.0% Exchangeable Senior Notes due March 2021
   $ 83,740    $ 83,740
6.625% Senior Notes due July 2021
   224,250    224,250
Less: unamortized discount and debt issuance costs
   (1,423 )    (3,247 )




Total borrowings, net
   306,567    304,743
Less: current portion of long-term borrowings, net
   306,567    —




Long-term borrowings, net
   $ 0      $ 304,743




5.0% Exchangeable Senior Notes
On January 17, 2017, MagnaChip Semiconductor S.A. closed the Exchangeable Notes Offering of $86,250 thousand aggregate principal amount of 5.0% Exchangeable Notes. Interest on the Exchangeable Notes accrues at a rate of 5.0% per annum, payable semi-annually on March 1 and September 1 of each year, beginning on March 1, 2017. The Exchangeable Notes will mature on March 1, 2021, unless earlier repurchased or converted. Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding the stated maturity date.
The Company used a portion of the net proceeds from the issuance to repurchase 1,795,444 shares of common stock under its stock repurchase program at an aggregate cost of $11,401 thousand.
Upon conversion, the Company will deliver for each $1,000 principal amount of converted notes a number of shares equally to the exchange rate, which will initially be 121.1387 shares of common stock per $1,000 principal amount of Exchangeable Notes, equivalent to an initial exchange price of approximately $8.26 per share of common stock. The exchange rate will be subject to adjustment in some circumstances, but 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.
19
Table of Contents
These covenants are subject to a number of exceptions and qualifications. Certain of these restrictive covenants will terminate if the Exchangeable Notes are rated investment grade at any time.
The Company incurred debt issuance costs of $5,902 thousand related to the issuance of the Exchangeable Notes. The debt issuance costs are recorded as a direct deduction from the long-term borrowings in the consolidated balance sheets and amortized to interest expense using the effective interest method over the term of the Exchangeable Notes. Interest expense related to the Exchangeable Notes for the three and nine months ended ~~March 31,~~September 30, 2020 were $1,429 thousand and $4,720 thousand, respectively. Interest expense related to the Exchangeable Notes for the three and nine months ended September 30, 2019 were ~~$1,416~~$1,404 thousand and ~~$1,408~~$4,206 thousand, respectively.

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, the Company repurchased a principal amount equal to $920 thousand of the Exchangeable Notes in the open market, resulting in a loss of $63 thousand, which was recorded as loss on early extinguishment of long-term borrowings, net in the consolidated statements of operations for the year ended December 31, 2019.

6.625% Senior Notes

On July 18, 2013, the Company issued a $225,000,000 aggregate principal amount of the 2021 Notes at a price of 99.5%. Interest on the 2021 Notes accrues at a rate of 6.625% per annum, payable semi-annually on January 15 and
July 15
of each year, beginning on January 15, 2014.

On or after July 15, 2019, the Company can optionally redeem all or a part of the 2021 Notes at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest and special interest, if any, on the notes redeemed, to the applicable date of redemption.

The Indenture relating to the 2021 Notes contains covenants that limit the ability of the Company and its restricted subsidiaries to: (i) declare or pay any dividend or make any payment or distribution on account of or purchase or redeem the Company’s capital stock or equity interests of the restricted subsidiaries; (ii) make any principal payment on, or redeem or repurchase, prior to any scheduled repayment or maturity, any subordinated indebtedness; (iii) make certain investments; (iv) incur additional indebtedness and issue certain types of capital stock; (v) create or incur any lien (except for permitted liens) that secures obligations under any indebtedness; (vi) merge with or into or sell all or substantially all of the Company’s assets to other companies; (vii) enter into certain types of transactions with affiliates; (viii) guarantee the payment of any indebtedness; (ix) enter into sale-leaseback transactions; (x) enter into agreements that would restrict the ability of the restricted subsidiaries to make distributions with respect to their equity to the Company or other restricted subsidiaries, to make loans to the Company or other restricted subsidiaries or to transfer assets to the Company or other restricted subsidiaries; and (xi) designate unrestricted subsidiaries.

These covenants are subject to a number of exceptions and qualifications. Certain of these restrictive covenants will terminate if the 2021 Notes are rated investment grade at any time.

The Company incurred original issue discount of $1,125 thousand and debt issuance costs of $5,039 thousand related to the issuance of the 2021 Notes. The original issue discount and the debt issuance costs are recorded as a direct deduction from the long-term borrowings in the consolidated balance sheets and amortized to interest expense using the effective interest method over the term of the 2021 Notes. Interest expense related to the 2021 Notes for the three and nine months ended ~~March 31,~~September 30, 2020 were $3,951 thousand and $11,838 thousand, respectively. Interest expenses related to the 2021 Notes for the three and nine months ended September 30, 2019 were ~~$3,943~~$3,935 thousand and ~~$3,930~~$11,794 thousand, respectively.

In December 2018, the Company repurchased a principal amount equal to $500 thousand of the 2021 Notes in the open market, resulting in a net gain of $28 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 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.
On October 2, 2020, the Company redeemed all of the outstanding 2021 Notes. For a further discussion of such redemption, see Note 19, “Subsequent Events.”

Table of Contents
12. Accrued Severance Benefits
The majority of accrued severance benefits are for employees in the Company’s Korean subsidiary. Pursuant to the Employee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of ~~March 31,~~September 30, 2020, 98% of all employees of the Company were eligible for severance ~~benefits.~~
benefit
s
.
Changes in accrued severance benefits are as follows (in thousands):

   Three Months Ended
   March 31,
2020    March 31,
2019
Beginning balance
   $ 53,344    $ 55,691
Provisions
   2,019    1,314
Severance payments
   (1,952 )    (1,496 )
Translation adjustments
   (2,801 )    (956 )




   50,610    54,553
Less: Cumulative contributions to severance insurance deposit accounts
   (1,557 )    (869 )
The National Pension Fund
   (75 )    (87 )
Group severance insurance plan
   (213 )    (243 )




Accrued severance benefits, net
   $ 48,765    $ 53,354





Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended


September 30, 2020

September 30, 2019

Beginning balance
   $ 51,785    $ 53,344    $ 53,202    $ 55,691
Provisions
   2,167    5,941    1,851    4,494
Severance payments
   (1,295 )    (4,749 )    (1,017 )    (4,312 )
Translation adjustments
   1,204    (675 )    (2,180 )    (4,017 )








   53,861    53,861    51,856    51,856
Less: Cumulative contributions to severance insurance deposit accounts
   (1,616 )    (1,616 )    (1,357 )    (1,357 )
The National Pension Fund
   (73 )    (73 )    (80 )    (80 )
Group severance insurance plan
   (219 )    (219 )    (227 )    (227 )








Accrued severance benefits, net
   $ 51,953    $ 51,953    $ 50,192    $ 50,192








The severance benefits funded through the Company’s National Pension Fund and group severance insurance plan will be used exclusively for payment of severance benefits to eligible employees. These amounts have been deducted from the accrued severance benefit balance.
In July 2018, the Company began contributing to certain severance insurance deposit accounts a certain percentage of severance benefits that are accrued for eligible employees for their services from January 1, 2018. These accounts consist of time deposits and other guaranteed principal and interest, and are maintained at insurance companies, banks or security companies for the benefit of employees. The Company deducts the contributions made to these severance insurance deposit accounts from its accrued severance benefits.
The Company is liable to pay the following future benefits to its
non-executive
employees upon their normal retirement age (in thousands):

   Severance benefit
Remainder of 2020
   $ 369
2021
   626
2022
   823
2023
   580
2024
   788
2025
   2,201
2026 – 2030
   19,439

Severance benefit

Remainder of 2020    $ 387
2021    386
2022    743
2023    605
2024    1,074
2025    2,157
2026 – 2030    19,644
The above amounts were determined based on the
non-executive
employees’ current salary rates and the number of service years that will be accumulated upon their retirement dates. These amounts do not include amounts that might be paid to
non-executive
employees that will cease working with the Company before their normal retirement ages.
Korea’s mandatory retirement age is 60 under the Employment Promotion for the Aged Act.

Table of Contents
13. Foreign Currency ~~Loss,~~Gain (Loss), Net
Net foreign currency gain or loss includes
non-cash
translation gain or loss associated with intercompany balances. A substantial portion of the Company’s net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to the Company’s Korean subsidiary. The loans are denominated in US
U.S.
dollars and are affected by changes in the exchange rate between the Korean won and the US
U.S.
dollar. As of ~~March 31,~~September 30, 2020 and December 31, 2019, the outstanding intercompany loan balances including accrued interest between the Korean subsidiary and the Dutch subsidiary were ~~$684,021~~$445,991 thousand and $686,485 thousand, respectively. The Korean won to US
U.S.
dollar exchange rates were ~~1,222.6:~~1,173.5:1 and 1,157.8:1 using the first base rate as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively, as quoted by the KEB Hana Bank.
14
.
Income Taxes
The Company and its subsidiaries file income tax returns in Korea, Japan, Taiwan, the US
U.S.
and in various other jurisdictions. The Company is subject to income- or
non-income
tax examinations by tax authorities of these jurisdictions for all open tax years.
A
Income from continuing operations before income tax expense for the three months ended September 30, 2020 was $7,316 thousand and loss from continuing operations before income tax expense for the three months ended ~~March 31, 2020 and~~September 30, 2019 was ~~$29,775 thousand and $20,759 thousand, respectively.~~$12,510 thousand. For the three months ended ~~March 31,~~ September 30,
2020, ~~and~~the Company recorded an income tax benefit on continuing operations of $1,145 thousand, primarily attributable to the foreign translation loss realized by the Company’s Korean subsidiary upon the repayment of a part of its intercompany loans by the Dutch subsidiary to fund the redemption of the 2021 Notes.
For the three months ended September 30, 2019,
the Company recorded an income tax expense on continuing operations of ~~$1,303~~$1,734
thousand,
primarily attributable to interest on intercompany loan balances. Income tax expense was recorded for the Company’s Korean subsidiary based on the estimated taxable income for the respective periods, combined with its ability to utilize net operating loss carryforwards up to 60% in 2019.
Loss from continuing operations before income tax expense for the nine months ended September 30, 2020 and 2019 were $10,007 thousand and ~~$796~~$40,973 thousand, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded income tax expense on continuing of $836 thousand and $3,316 thousand, respectively, primarily attributable to interest on intercompany loan balances. Income tax expense was recorded for the Company’s Korean subsidiary based on the estimated taxable income for the respective periods, combined with its ability to utilize net operating loss carryforwards up to 60% in 2019 and 2020.

In July 2020, the U.S. Treasury Department issued final tax regulations related to the foreign-derived intangible income and global intangible

low-taxed

income (GILTI) provisions, which permits a taxpayer to elect to exclude income subject to a high effective rate of foreign tax from its GILTI inclusion. The Company is currently assessing the potential impact of the final regulations to the Company’s consolidated financial statements.

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15. Geographic and Other Information

Historically, the Company operated in two reportable segments: Foundry Services Group and Standard Products Group. The Company’s Foundry Services Group provides specialty analog and mixed-signal foundry services mainly for fabless and Integrated Device Manufacturer (“IDM”) semiconductor companies that primarily serve communications, IoT, consumer, industrial and automotive applications. The Company’s Standard Products Group is comprised of two business lines: Display Solutions and Power Solutions. The Company’s Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile, automotive applications and home appliances. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer and industrial applications.

On ~~March 30,~~September 1, 2020, the Company ~~entered into~~completed the ~~BTA to sell its~~sale of the Company’s Foundry Services Group business and Fab 4. ~~The planned~~This divestiture ~~of its Foundry business and Fab 4~~ allows the Company to strategically shift its operational focus to its standard products business. As a result, the results of the Foundry Services Group business were classified as discontinued operations in the Company’s consolidated statements of operations and thus excluded from both continuing operations and segment results for all periods presented. Please see “Item 1. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 2. Discontinued Operations and Assets Held for Sale” for additional information on the results of discontinued operations. Accordingly, the Company now has one reportable segment. 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.

The following sets forth information relating to the single continuing operating segment (in thousands):

   Three Months Ended
   March 31,
2020    March 31,
2019
Revenues

Standard products business

Display Solutions
   $ 77,593    $ 58,230
Power Solutions
   33,143    42,034




Total standard products business
   $ 110,736    $ 100,264
Transitional Fab 3 foundry services
   9,737    7,003




Total revenues
   $ 120,473    $ 107,267




   Three Months Ended
   March 31,
2020    March 31,
2019
Gross Profit

Standard products business
   $ 29,130    $ 19,023
Transitional Fab 3 foundry services
   —      —




Total gross profit
   $ 29,130    $ 19,023

Three Months Ended


Nine Months Ended


September 30,
2020


September 30,
2019


September 30,
2020


September 30,
2019

Revenues








Standard products business

Display Solutions
   $ 69,583    $ 90,550    $ 216,352    $ 233,041
Power Solutions
   46,679    48,723    119,601    138,502








Total standard products business
   116,262    139,273    335,953    371,543
Transitional Fab 3 foundry services
   8,551    9,894    28,161    25,776








Total revenues
   $ 124,813    $ 149,167    $ 364,114    $ 397,319









Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019

Gross Profit

Standard products business
   $ 28,768    $ 35,255    $ 90,036    $ 85,900
Transitional Fab 3 foundry services
   (180 )    —      (180 )    —








Total gross profit
   $ 28,588    $ 35,255    $ 89,856    $ 85,900








The following is a summary of net sales – standard products business (which does not include the Transitional Fab 3 Foundry Services) by geographic region, based on the location to which the products are billed (in thousands):

   Three Months Ended
   March 31,
2020    March 31,
2019
Korea
   $ 30,817    $ 34,646
Asia Pacific (other than Korea)
   77,542    63,747
United States
   709    462
Europe
   971    1,133
Others
   697    276




Total
   $ 110,736    $ 100,264

Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019

Korea
   $ 28,370    $ 36,114    $ 81,144    $ 107,319
Asia Pacific (other than Korea)
   84,188    100,872    245,940    258,276
United States
   1,789    482    3,959    1,600
Europe
   1,451    1,501    3,278    3,515
Others
   464    304    1,632    833








Total
   $ 116,262    $ 139,273    $ 335,953    $ 371,543








23
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For the three months ended ~~March 31,~~September 30, 2020 and 2019, of the Company’s net sales – standard products business in Asia Pacific (other than Korea) ~~and~~, net sales – standard products business in Greater China (China, Hong Kong and Macau) represented ~~95.3%~~87.7% and ~~94.1%~~95.8%, respectively.
For the nine months ended September 30, 2020 and 2019, of ~~total~~the Company’s net sales – standard products business in Asia Pacific (other than Korea), net sales – standard products business in Greater China (China, Hong Kong and Macau) represented 88.4% and 95.8%, respectively.
Net sales from the Company’s top ten largest customers in the standard products business (which does not include the Transitional Fab 3 Foundry Services) accounted for ~~90%~~87% and ~~88%~~90% for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and 88% and 90% for the nine months ended September 30, 2020 and 2019, respectively.
For the three months ended ~~March 31,~~September 30, 2020, the Company had ~~two customers~~one customer that represented ~~52.8% and 15.8%~~52.9% of its net sales – standard products ~~business. For~~business, and for the ~~three~~nine months ended ~~March 31, 2019,~~September 30, 2020, the Company had ~~two customers~~one customer that represented ~~45.0% and 11.6%~~54.0% of its net sales – standard products business.
~~95%~~
For the three months ended September 30, 2019, the Company had one customer that represented 56.1% of its net sales – standard products business, and for the ~~Company’s property, plant~~nine months ended September 30, 2019, the Company had one customer that represented 52.6% of its net sales – standard products business.
As of September 30, 2020 and ~~equipment from continuing operations are located in Korea as~~December 31, 2019, one customer accounted for 39.4% and 43.1% of ~~March 31, 2020.~~
~~16. Accumulated Other Comprehensive Income (Loss)~~
accounts receivable, net, respectively.
24
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16.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) ~~consists~~consist
s
of the following as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively (in thousands):

   March 31,
2020    December 31,
2019
Foreign currency translation adjustments
   $ 18,046    $ (4,205 )
Derivative adjustments
   (3,401 )    1,545




Total
   $ 14,645    $ (2,660 )





September 30,

2020

December 31,

2019

Foreign currency translation adjustments
   $ 4,986    $ (4,205 )
Derivative adjustments
   427    1,545




Total
   $ 5,413    $ (2,660 )




Changes in accumulated other comprehensive income (loss) for the three months ended ~~March 31,~~September 30, 2020 and 2019 are as follows (in thousands):

Three Months Ended March 31, 2020
   Foreign
currency
translation
adjustments    Derivative
adjustments    Total
Beginning balance
   $ (4,205 )    $ 1,545    $ (2,660 )






Other comprehensive income (loss) before reclassifications
   22,251    (5,004 )    17,247
Amounts reclassified from accumulated other comprehensive loss
   —      58    58






Net current-period other comprehensive income (loss)
   22,251    (4,946 )    17,305






Ending balance
   $ 18,046    $ (3,401 )    $ 14,645






Three Months Ended March 31, 2019
Foreign
currency
translation
adjustments Derivative
adjustments    Total
Beginning balance
$ (20,061 ) $ (49 )    $ (20,110 )



Other comprehensive income (loss) before reclassifications
7,304 (499 )    6,805
Amounts reclassified from accumulated other comprehensive loss
—   187    187



Net current-period other comprehensive income (loss)
7,304 (312 )    6,992



Ending balance
$ (12,757 ) $ (361 )    $ (13,118 )



Three Months Ended September 30, 2020

Foreign

currency

translation

adjustments

Derivative

adjustments

Total

Beginning balance
   $ 11,503    $ (1,004 )    $ 10,499






Other comprehensive income (loss) before reclassifications
   (6,517 )    1,390    (5,127 )
Amounts reclassified from accumulated other comprehensive loss
   —      41    41






Net current-period other comprehensive income (loss)
   (6,517 )    1,431    (5,086 )






Ending balance
   $ 4,986    $ 427    $ 5,413






Three Months Ended September 30, 2019

Foreign

currency

translation

adjustments

Derivative

adjustments

Total

Beginning balance
   $ (5,077 )    $ (996 )    $ (6,073 )






Other comprehensive income (loss) before reclassifications
   15,931    (2,803 )    13,128
Amounts reclassified from accumulated other comprehensive loss
   —      1,600    1,600






Net current-period other comprehensive income (loss)
   15,931    (1,203 )    14,728






Ending balance
   $ 10,854    $ (2,199 )    $ 8,655






Changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2020 and 2019 are as follows (in thousands):
Nine Months Ended September 30, 2020

Foreign

currency

translation

adjustments

Derivative

adjustments

Total

Beginning balance
   $ (4,205 )    $ 1,545    $ (2,660 )






Other comprehensive income (loss) before reclassifications
   9,191    (1,410 )    7,781
Amounts reclassified from accumulated other comprehensive loss
   —      292    292






Net current-period other comprehensive income (loss)
   9,191    (1,118 )    8,073






Ending balance
   $ 4,986    $ 427    $ 5,413






Nine Months Ended September 30, 2019

Foreign

currency

translation

adjustments

Derivative

adjustments

Total

Beginning balance
   $ (20,061 )    $ (49 )    $ (20,110 )






Other comprehensive income (loss) before reclassifications
   30,915    (5,703 )    25,212
Amounts reclassified from accumulated other comprehensive loss
   —      3,553    3,553






Net current-period other comprehensive income (loss)
   30,915    (2,150 )    28,765






Ending balance
   $ 10,854    $ (2,199 )    $ 8,655






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There was no0 income tax impact related to changes in accumulated other comprehensive income (loss) for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 due to net operating loss carry-forwards available to offset taxable income and full allowance for deferred tax assets.

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17. ~~Loss~~Earnings (Loss) Per Share
The following table illustrates the computation of basic and diluted ~~loss~~earnings (loss) per common share for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019:

Three Months Ended
March 31,
2020 March 31,
2019

(In thousands of US dollars,
except share data)

Basic and diluted loss per share

Loss from continuing operations
$ (31,078 ) $ (21,555 )
Income (loss) from discontinued operations, net of tax
7,329 (12,570 )

Net loss
$ (23,749 ) $ (34,125 )

Weighted average number of shares – basic and diluted
34,893,157 34,194,878
Basic and diluted earnings (loss) per common share

Continuing operations
$ (0.89 ) $ (0.63 )
Discontinued operations
0.21 (0.37 )

Total
$ (0.68 ) $ (1.00 )


Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019


(In thousands of
U.S.
dollars, except share data)

Basic earnings (loss) per share

Income (loss) from continuing operations
   $ 8,461    $ (14,244 )    $ (10,843 )    $ (44,289 )
Income (loss) from discontinued operations, net of tax
   264,501    12,637    289,227    (963 )








Net income (loss)
   $ 272,962    (1,607 )    $ 278,384    $ (45,252 )








Basic weighted average common stock outstanding
   35,280,864    34,357,745    35,089,479    34,266,513
Basic earnings (loss) per common share

Continuing operations
   $ 0.24    $ (0.41 )    $ (0.31 )    $ (1.29 )
Discontinued operations
   7.50    0.36    8.24    (0.03 )








Total
   $ 7.74    $ (0.05 )    $ 7.93    $ (1.32 )








Diluted earnings (loss) per share

Income (loss) from continuing operations
   $ 8,461    $ (14,244 )    $ (10,843 )    $ (44,289 )
Add back: Interest expense on Exchangeable Notes
   1,429    —      —      —








Income (loss) from continuing operations allocated to common stockholders
   $ 9,890    $ (14,244 )    $ (10,843 )    $ (44,289 )
Income (loss) from discontinued operations, net of tax
   264,501    12,637    289,227    (963 )








Net income (loss) allocated to common stockholders
   $ 274,391    $ (1,607 )    $ 278,384    $ (45,252 )








Basic weighted average common stock outstanding
   35,280,864    34,357,745    35,089,479    34,266,513
Net effect of dilutive equity awards
   1,156,769    —      —      —
Net effect of assumed conversion of 5.0% Exchangeable Notes to common stock
   10,144,155    —      —      —








Diluted weighted average common stock outstanding
   46,581,788    34,357,745    35,089,479    34,266,513
Diluted earnings (loss) per common share

Continuing operations
   $ 0.21    $ (0.41 )    $ (0.31 )    $ (1.29 )
Discontinued operations
   5.68    0.36    8.24    (0.03 )








Total
   $ 5.89    $ (0.05 )    $ 7.93    $ (1.32 )








The following outstanding instruments were excluded from the computation of diluted loss per share, as they have an anti-dilutive effect on the calculation:

   Three Months Ended
   March 31,
2020    March 31,
2019
Options
         2,163,845          2,632,300
Restricted Stock Units
   729,939    508,943
~~For the three months ended March 31, 2020 and 2019, 10,144,155~~

Three Months Ended

Nine Months Ended


September 30,

2020

September 30,

2019

September 30,

2020

September 30,

2019

Options
   697,667    2,479,423    1,788,202    2,479,423
Restricted Stock Units
   —      592,967    1,248,113    592,967
The numbers of shares ~~and 10,182,542 shares, respectively,~~ of potential common stock from the assumed conversion of Exchangeable Notes that were excluded from the computation of diluted loss per share as the anti-dilutive effects were ~~anti-dilutive~~10,144,155 for each of the nine months ended September 30, 2020 and three months ended September 30, 2019, and 10,156,810 for the ~~periods.~~
nine months ended September 30, 2019.
18. Commitments and Contingencies
Long-term Purchase Agreements and Advances to Suppliers
The Company purchases raw materials from a variety of vendors. During the normal course of business, in order to manage manufacturing lead times and help assure adequacy supply, the Company from time to time may enter into multi-year purchase agreements, which specify future quantities and pricing of materials to be supplied by the vendors. The Company reviews the terms of the long-term supply agreements and assesses the need for any accrual for estimated losses, such as lower of cost or net realizable value that will not be recovered by future sales prices. No such accrual was required as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively.
27
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The Company, from time to time, may make advances in form of prepayments or deposits to suppliers to procure materials to meet its planned production. The Company recorded advances of ~~$5,118~~$5,545 thousand and $6,593 thousand as other current assets as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively.
COVID-19
Pandemic
In December 2019, a strain of coronavirus causing a disease known as
COVID-19
surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China. In March 2020, the World Health Organization declared the
COVID-19
outbreak a pandemic, which continues to spread rapidly in the U.S. and other countries throughout the world. Governmental authorities throughout the world have implemented numerous containment measures, including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business restrictions and shutdowns, resulting in rapidly changing market and economic conditions.

While the Company experienced some minor disruption in its Power Solutions business from assembly and test subcontractors located in China in the first quarter of 2020 as a result of

COVID-19,

to date its external Display Solutions business contractors and
sub-contractors
have not been materially impacted by the outbreak. Nevertheless, while the future impact on the Company’s business from the
COVID-19
pandemic is currently difficult to assess, the significant global macro-economic disruption will adversely affect customer demand for some of its products in the near term. The Company is, however, unable to accurately predict the full impact
COVID-19
will have on its future results of operations due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, a potential future recurrence of the outbreak, further containment actions that may be taken by governmental authorities, the impact to the businesses of its customers and suppliers, and other factors.

The Company continues to closely monitor and evaluate the nature and scope of the impact on
COVID-19
to its business, consolidated results of operations, and financial condition, and may take further actions altering its business operations and managing its costs and liquidity that the Company deems necessary or appropriate to respond to this fast moving and uncertain global health crisis and the resulting global economic consequences.

19. Subsequent Events

Redemption of 6.625% Senior Notes due 2021

The Company completed the redemption
of all of the outstanding
2021 Notes on October 2, 2020 (the “Redemption Date”). The Company paid approximately $227.4 million to fully redeem all of the outstanding $224.25 million aggregate principal amount of the 2021 Notes at a redemption price equal to the sum of 100% of the principal
amount of the 2021 Notes,
plus accrued and unpaid interest thereon to, but excluding, the Redemption Date. The redemption of the 2021 Notes was funded by the Company’s Korean subsidiary’s repayment of intercompany loans using the cash proceeds that it received from the sale of the Foundry Services Group business and Fab 4.
On
October 12, 2020, the Company paid a withholding tax of approximately $20,562 thousand, attributable to the repaid accrued interests on the related intercompany loans.

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FORWARD LOOKING STATEMENTS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.
These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in this section, in “Part II: Item 1A. Risk Factors” herein and in “Part I: Item 1A. Risk Factors” in our Annual Report on Form
10-K
filed on February 21, 2020 (“2019 Form
10-K”) ~~(including~~
(including that the impact of the
COVID-19
pandemic may also exacerbate the risks discussed therein).
All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Statements made in this Quarterly Report on Form
10-Q ~~(this~~
(this “Report”), unless the context otherwise requires, that include the use of the terms “we,” “us,” “our” and “MagnaChip” refer to MagnaChip Semiconductor Corporation and its consolidated subsidiaries. The term “Korea” refers to the Republic of Korea or South Korea.

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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the related notes included elsewhere in this Report. We have reclassified certain prior year amounts to conform to the current year’s presentation for discontinued operations to reflect the divestiture of our Foundry Services Group business and Fab 4. Unless otherwise stated, information in this section relates to our continuing operations. The consolidated statements of cash flows have not been adjusted to separately disclose cash flows related to discontinued operations.
Overview
We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT applications, consumer, industrial and automotive applications. We provide technology platforms for analog, mixed-signal, power, high voltage,
non-volatile
memory, and radio frequency applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately ~~2,950~~1,200 registered patents and pending applications and extensive engineering and manufacturing process expertise.
On March 30, 2020, we entered into the ~~BTA~~Business Transfer Agreement for the sale of our Foundry Services Group business and Fab 4. The ~~planned divestiture~~previously announced sale of the Foundry Services Group business and Fab 4 ~~will allow us~~is expected to strategically shift our operational focus to our standard products business. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations from the first quarter of 2020 and excluded from both continuing operations and segment results for all periods presented. Accordingly, ~~from~~commencing in the first quarter of 2020, we have one reportable segment: our standard products business, together with transitional foundry services associated with our fabrication facility located in Gumi, Korea, known as Fab 3, that ~~it expects~~we expect to perform for the Buyer for ~~a period of~~ up to three years (the “Transitional Fab 3 Foundry Services”). ~~The Transitional Fab 3 Foundry Services revenue is accounted for at cost prior to the closing of~~On September 1, 2020, we completed the sale of ~~the~~our Foundry Services Group business and Fab 4.
4 to Key Foundry Co., Ltd. (the “Buyer”), for a purchase price equal to approximately $350.6 million in cash.
Our standard products business includes our Display Solutions and Power Solutions business lines.
Our Display Solutions products provide ~~panel~~ display solutions to major panel display suppliers of large and ~~small~~mobile rigid and flexible ~~panel~~ displays for home appliances, mobile communications, monitors, notebooks and ~~mobile,~~ automotive ~~applications and home appliances.~~applications. Our Display Solutions products include source, gate drivers, timing controllers, and
one-chip
integrated solutions for LCD (Liquid Crystal Display) and OLED panel displays used in televisions, public displays, monitors, notebooks, mobile communications and automotive applications. Our Display Solutions products support the industry’s most advanced display technologies, such as OLEDs, and low temperature ~~polysilicons~~polysilicon (LTPS), as well as high-volume display technologies such as thin film transistors (TFT). Since 2007, we have designed and manufactured OLED display driver IC products. Our current portfolio of OLED solutions address a wide range of resolutions ranging from HD to Wide Quad High Definition (WQHD) for applications including smartphones, TVs, and other mobile devices. We believe we have a unique intellectual property portfolio and mixed-signal design and manufacturing expertise in the OLED industry.
Our Power Solutions business line produces power management semiconductor products including discrete and integrated circuit solutions for power management in consumer, communications, ~~consumer~~computing, industrial and ~~industrial~~automotive applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),
AC-DC
converters,
DC-DC
converters, LED drivers, switching regulators, ~~and~~ linear regulators, interface ICs and power management ICs (PMICs) for a range of devices, including televisions, smartphones, ~~mobile phones,~~ desktop PCs, notebooks, ~~tablet PCs, other consumer electronics, and~~tablets, servers, telecommunication power, home appliances, industrial applications such as uninterruptible power ~~suppliers,~~supplies (UPSs), LED lighting, personal mobility, motor ~~control~~drives, battery management systems (BMS) and ~~home appliances.~~
automotive electronics.
Our wide variety of analog and mixed-signal semiconductor products combined with our mature technology platform allow us to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands. Our design center and substantial manufacturing operations in Korea place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demand from existing and new customers.
To maintain and increase our profitability, we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce. We must understand our customers’ needs as well as the likely end market trends and demand in the markets they serve. We must also invest in relevant research and development activities and purchase necessary materials on a timely basis to meet our customers’ demand while maintaining our target margins and cash flow.

Table of Contents
The semiconductor markets in which we participate are highly competitive. The prices of our products tend to decrease regularly over their useful lives, and such price decreases can be significant as new generations of products are introduced by us or our competitors. We strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence.
Demand for our products and services is driven by overall demand for communications, IoT, consumer, industrial and automotive products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers. In order to mitigate the impact of market volatility on our business, we are diversifying our portfolio of products, customers, and target applications. We also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services. While we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history, existing manufacturing capacity and our worldwide customer base, if we are not effective in competing in these markets, our operating results may be adversely affected.
Net sales ~~of the~~for our standard products business 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 to multi-source components for a particular product line. Once we have design wins and the products enter into mass production, we often specify the pricing of a particular product for a set period of time, with periodic discussions and renegotiations of pricing with our customers. In any given period, our net sales depend heavily upon the
end-market
demand for the goods in which our products are used, the inventory levels maintained by our customers and, in some cases, allocation of demand for components for a particular product among selected qualified suppliers.
In contrast to completely fabless semiconductor companies, our internal manufacturing capacity provides us with greater control over manufacturing costs and the ability to implement process and production improvements for our internally manufactured products, which can favorably impact gross profit margins. Our internal manufacturing capacity also allows for better control over delivery schedules, improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these products. However, having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins, particularly during downturns in the semiconductor industry.
Our standard products business requires investments in capital equipment. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment. Many of these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy do not require substantial investment in leading edge process equipment for those products, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments. In addition, we are less likely to experience significant industry overcapacity, which can cause product prices to decline significantly. In general, we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended period of time. In addition, we outsource manufacturing of those products which do require advanced technology and
12-inch
wafer capacity, such as organic light emitting diodes (OLED). We believe this balanced capital investment strategy enables us to optimize our capital investments and facilitates more diversified product and service offerings.
Since 2007, we have designed and manufactured OLED display driver ICs in our internal manufacturing facilities. As we expanded our design capabilities to products that require lower geometries unavailable at our existing manufacturing facilities, we began outsourcing manufacturing of certain OLED display driver ICs to an external
12-inch
foundry ~~from~~starting in the second half of 2015. This additional source of manufacturing is an increasingly important part of our supply chain management. By outsourcing manufacturing of advanced OLED products to external
12-inch
foundries, we are able to dynamically adapt to the changing customer requirements and address growing markets without substantial capital investments by us. Both at the internal
8-inch
manufacturing facilities and external
12-inch
foundries, we apply our unique OLED process patents as well as other intellectual property, proprietary process design kits and custom design-flow methodologies.
Our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors. Additionally, we must innovate to remain ahead of, or at least rapidly adapt to, technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services. We believe that our established relationships and close collaboration with leading customers enhance our awareness of new product opportunities, market and technology trends and improve our ability to adapt and grow successfully.

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Recent Developments
~~Business Transfer Agreement~~
Redemption of 6.625% Senior Notes due 2021
We completed the redemption of the outstanding 2021 Notes on October 2, 2020. We paid approximately $227.4 million to fully redeem all of the outstanding $224.25 million aggregate principal amount of the 2021 Notes at a redemption price equal to the sum of 100% of the principal amount thereof, plus accrued and unpaid interest on the 2021 Notes, but excluding, the Redemption Date. The redemption of the 2021 Notes was funded by our Korean subsidiary’s repayment of intercompany loans using the cash proceeds that it received from the sale of the Foundry Services Group business and Fab 4. On ~~March 30,~~October 12, 2020, we ~~entered into~~paid a withholding tax of approximately $20.6 million, attributable to the ~~BTA for~~repaid accrued interests on the related intercompany loans.
Completion of Sale of the Foundry Services Group business and Fab 4
On September 1, 2020, we completed the previously announced sale of our Foundry Services Group business and Fab 4 to the ~~Buyer. On the terms and subject to the conditions set forth~~Buyer in ~~the BTA, the Buyer agreed to acquire certain assets and assume certain liabilities related to the Foundry Services Group business and Fab 4~~exchange for a purchase price equal to ~~the KRW equivalent of $344.7~~approximately $350.6 million, ~~in cash, subject to a~~which included an estimated positive working capital adjustment ~~as described in the BTA. Subject~~of approximately $5.9 million, pursuant to the terms of the ~~BTA, all employees~~Business Transfer Agreement, which was entered into on March 30, 2020. The purchase price was paid in a combination of U.S. Dollars in the ~~Foundry Services Group business~~amount of $46.5 million and ~~Fab 4 will be transferred~~Korean Won in the amount of approximately KRW 360.6 billion. In addition to the purchase price, the Buyer ~~as of the closing date, unless any of such employees formally objects to the transfer. The Buyer will assume~~assumed all severance liabilities relating to the transferred ~~employees.~~employees, which had a value of approximately $100 million. For a summary of the key terms and conditions of the ~~BTA,~~Business Transfer Agreement, please see our Current Report on Form
8-K
filed on March 31, 2020 and the ~~BTA~~Business Transfer Agreement filed as Exhibit 10.1 thereto.
Power Outage
On July 20, 2020, our Fab 3 facility in Gumi, South Korea experienced a temporary power outage for approximately 9 hours and 15 minutes. The accident caused certain damage to our work in process wafers and we incurred charges for facility recovery, resulting in an incremental cost of approximately $1.2 million. Management is currently evaluating potential insurance and other claims that we may have to recover our costs incurred as a result of the loss and damages. The recovery of our Fab 3 from this power outage took longer than expected, which limited our ability to produce products in Fab 3 at full capacity, resulting in a lower factory utilization during the third quarter of 2020.
COVID-19
Pandemic
In December 2019, a strain of coronavirus causing a disease known as
COVID-19
surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China. In March 2020, the World Health Organization declared the
COVID-19
outbreak a pandemic, which continues to spread rapidly in the U.S. and other countries throughout the world. Governmental authorities throughout the world have implemented numerous containment measures, including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business restrictions and shutdowns, resulting in rapidly changing market and economic conditions.
While we experienced some minor disruption in our Power Solutions business from assembly and test subcontractors located in China in the first quarter of 2020 as a result of
COVID-19,
to date our external Display Solutions business contractors and
sub-contractors
have not been materially impacted by the outbreak. Nevertheless, while the future impact on our business from the
COVID-19
pandemic is currently difficult to assess, the significant global macro-economic disruption will adversely affect customer demand for some of our products in the near term. We are, however, unable to accurately predict the full impact
COVID-19
will have on our future results of operations due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, a potential future recurrence of the outbreak, further containment actions that may be taken by governmental authorities, the impact to the businesses of our customers and suppliers, and other factors.
We continue to closely monitor and evaluate the nature and scope of the impact on
COVID-19
to our business, consolidated results of operations, and financial condition, and may take further actions altering our business operations and managing our costs and liquidity that we deem necessary or appropriate to respond to this fast moving and uncertain global health crisis and the resulting global economic consequences.
~~Repurchase~~
32

Table 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 three months ended March 31, 2019.
Contents

Explanation and Reconciliation of~~Non-US~~
Non-U.S. GAAP
Measures

Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income ~~(Loss)~~

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

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

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

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

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

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

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

to evaluate the effectiveness of our enterprise level business strategies;

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

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

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

   Three Months Ended
March 31, 2020 Three Months Ended
March 31, 2019
   Continuing
Operations Discontinued
Operations Total Continuing
Operations Discontinued
Operations Total
   (In millions)
Net Income (Loss)
   $ (31.1 ) $ 7.3 $ (23.7 ) $ (21.6 ) $ (12.6 ) $ (34.1 )
Interest expense, net
   4.9 —   4.9 5.1 —   5.1
Income tax expense
   1.3 0.4 1.7 0.8 0.0 0.8
Depreciation and amortization
   2.6 5.4 7.9 2.6 5.8 8.3
EBITDA
   (22.3 ) 13.1 (9.2 ) (13.1 ) (6.8 ) (19.9 )
Adjustments

Restructuring and other charges(a)
   —   2.1 2.1 —   2.9 2.9
Equity-based compensation expense(b)
   0.8 0.1 0.9 0.6 0.1 0.7
Foreign currency loss (gain), net(c)
   31.0 (2.1 ) 28.9 10.6 (0.6 ) 10.0
Derivative valuation loss (gain), net(d)
   (0.1 ) —   (0.1 ) 0.1 —   0.1
Loss on early extinguishment of long-term borrowings, net(e)
   —   —   —   0.0 —   0.0
Others(f)
   0.6 —   0.6 0.6 —   0.6


Adjusted EBITDA
   $ 9.9 $ 13.2 $ 23.1 $ (1.3 ) $ (4.4 ) $ (5.7 )

Three Months
Ended
September 30,
2020

Nine Months
Ended
September 30,
2020

Three Months
Ended
September 30,
2019

Nine Months
Ended
September 30,
2019


(In millions)

Income (loss) from continuing operations
   $ 8.5    $ (10.8 )    $ (14.2 )    $ (44.3 )
Interest expense, net
   4.9    14.5    4.9    14.8
Income tax expenses
   (1.1 )    0.8    1.7    3.3
Depreciation and amortization
   2.9    8.0    2.6    7.7
EBITDA
   $ 15.0    $ 12.5    $ (5.0 )    $ (18.5 )
Adjustments:

Equity-based compensation expense(a)
   2.1    4.4    0.4    1.7
Foreign currency loss (gain), net(b)
   (8.9 )    13.6    22.0    44.2
Derivative valuation loss (gain), net(c)
   (0.1 )    (0.2 )    0.0    0.2
Loss on early extinguishment of long-term borrowings, net(d)
   —      —      —      0.0
Inventory reserve related to Huawei impact of downstream trade restrictions (e)
   2.3    2.3    —      —
Expenses related to Fab 3 power outage(f)
   1.2    1.2    —      —
Others(g)
   —      0.6    —      0.6








Adjusted EBITDA
   $ 11.7    $ 34.3    $ 17.4    $ 28.1








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Table of Contents
(a)
For the three months ended March 31, 2020, this adjustment eliminates a $2.1 million in professional fees incurred in connection with the Foundry Services Group business and Fab 4. For the three months ended March 31, 2019, this adjustment eliminates the impact of a $2.2 million restructuring related charge with respect to the fab employees. This adjustment also eliminates a $0.7 million legal costs incurred in connection with the Foundry Services Group and Fab 4.

~~(b)~~

This adjustment eliminates the impact of

non-cash

equity-based compensation expenses. Although we expect to incur

non-cash

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

non-cash

expenses as supplemental information.

~~(c)~~(b)

This adjustment mainly eliminates the impact of

non-cash

foreign currency translation associated with intercompany debt obligations with respect to the continuing operations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily

non-cash

gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results.

~~(d)~~(c)

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

~~(e)~~(d)

This adjustment eliminates $0.04 million in expenses related to the repurchase of a portion of the 2021 Notes and the Exchangeable Notes in the first quarter of 2019.

(e)

This adjustment eliminates a $2.3 million 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. As this charge meaningfully impacted our operational results and is 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 is 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 ~~three~~nine months ended ~~March 31,~~September 30, 2020, this adjustment primarily eliminates

non-recurring

professional service fees and expenses incurred in connection with certain treasury and finance ~~initiatives. For~~initiatives incurred during the three months ended March 31, 2020. For the nine months ended September 30, 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, which is borne by us under a negotiated separation ~~agreement.~~agreement during the three months ended March 31, 2019. We do not believe that these charges are indicative of our core operating performance and have been excluded for comparative purposes.

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

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

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

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

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

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

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

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

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

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We present Adjusted ~~Net~~Operating Income ~~(Loss) (including on a per share basis)~~ as ~~a further~~ supplemental ~~measure~~measures of our performance. We prepare Adjusted ~~Net~~Operating Income ~~(Loss) (including on a per share basis)~~ by adjusting ~~net~~operating income ~~(loss)~~ to eliminate the impact of ~~a number ofnon-cash~~equity-based compensation expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted ~~Net~~Operating Income (Loss) (including on a per share basis); is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We present Adjusted Net Income (Loss) (including on a per share basis) for a number of reasons, including:
~~we use Adjusted Net Income (Loss) (including on a per share basis) 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 Net Income (Loss) (including on a per share basis)~~ is useful to ~~readers~~investors 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 significantly~~ability to generate income from ~~period to period.~~
ongoing business operations.
Adjusted ~~Net~~Operating Income ~~(Loss) (including on a per share basis)~~ is not a measure defined in accordance with USU.S. GAAP and should not be construed as an alternative to operating income, income from continuing operations, cash flows from operating activities or net income, as determined in accordance with USU.S. GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted ~~Net~~Operating Income ~~(Loss) (including on a per share basis)~~ differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted ~~Net~~Operating Income, ~~(Loss) (including on a per share basis),~~ you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted ~~Net~~Operating Income ~~(Loss) (including on a per share basis);~~ for the periods indicated as ~~net~~operating income ~~(loss),~~ adjusted to exclude (i) ~~restructuring and other charges, (ii) equity-based~~Equity-based compensation expense, (ii) inventory reserve related to Huawei impact of downstream trade restrictions, (iii) ~~foreign currency loss (gain), net,~~expenses related to Fab 3 power outage and (iv) ~~derivative valuation loss (gain), net, (v) loss on early extinguishment of long-term borrowings, net and (vi)~~ others.
The following table summarizes the adjustments to ~~net~~operating income ~~(loss) from continuing operations, discontinued operations and total operations~~ that we make in order to calculate Adjusted ~~Net~~Operating Income ~~(Loss) (including on a per share basis)~~ from continuing ~~operations, discontinued operations and total~~ operations for the periods indicated:

   Three Months Ended
March 31, 2020 Three Months Ended
March 31, 2019
   Continuing
Operations Discontinued
Operations Total Continuing
Operations Discontinued
Operations Total
   (In millions, except per share data)
Net Income (Loss)
   $ (31.1 ) $ 7.3 $ (23.7 ) $ (21.6 ) $ (12.6 ) $ (34.1 )
Adjustments

Restructuring and other charges(a)
   —   2.1 2.1 —   2.9 2.9
Equity-based compensation expense(b)
   0.8 0.1 0.9 0.6 0.1 0.7
Foreign currency loss (gain), net(c)
   31.0 (2.1 ) 28.9 10.6 (0.6 ) 10.0
Derivative valuation loss (gain), net(d)
   (0.1 ) —   (0.1 ) 0.1 —   0.1
Loss on early extinguishment of long-term borrowings, net(e)
   —   —   —   0.0 —   0.0
Others(f)
   0.6 —   0.6 0.6 —   0.6


Adjusted Net Income (Loss)
   $ 1.1 $ 7.5 $ 8.6 $ (9.7 ) $ (10.2 ) $ (19.9 )


Reported earnings (loss) per share – basic
   $ (0.89 ) $ 0.21 $ (0.68 ) $ (0.63 ) $ (0.37 ) $ (1.00 )
Reported earnings (loss) per share – diluted
   $ (0.89 ) $ 0.21 $ (0.68 ) $ (0.63 ) $ (0.37 ) $ (1.00 )
Weighted average number of shares – basic
   34,893,157 34,893,157 34,893,157 34,194,878 34,194,878 34,194,878
Weighted average number of shares – diluted
   34,893,157 34,893,157 34,893,157 34,194,878 34,194,878 34,194,878
Adjusted Net Income (Loss) per share – basic
   $ 0.03 $ 0.21 $ 0.25 $ (0.28 ) $ (0.30 ) $ (0.58 )
Adjusted Net Income (Loss) per share – diluted
   $ 0.03 $ 0.21 $ 0.24 $ (0.28 ) $ (0.30 ) $ (0.58 )
Weighted average number of shares – basic
   34,893,157 34,893,157 34,893,157 34,194,878 34,194,878 34,194,878
Weighted average number of shares – diluted
   35,883,200 35,883,200 35,883,200 34,194,878 34,194,878 34,194,878

Three Months
Ended
September 30,
2020

Nine Months
Ended
September 30,
2020

Three Months
Ended
September 30,
2019

Nine Months
Ended
September 30,
2019


(In millions)

Operating income
   $ 3.2    $ 17.8    $ 14.3    $ 18.0
Adjustments:

Equity-based compensation expense(a)
   2.1    4.4    0.4    1.7
Inventory reserve related to Huawei impact of downstream trade restrictions (b)
   2.3    2.3    �� —      —
Expenses related to Fab 3 power outage(c)
   1.2    1.2    —      —
Others(d)
   —      0.6    —      0.6








Adjusted Operating Income
   $ 8.8    $ 26.2    $ 14.8    $ 20.3








(a)
For the three months ended March 31, 2020, this adjustment eliminates a $2.1 million in professional fees incurred in connection with the Foundry Services Group business and Fab 4. For the three months ended March 31, 2019, this adjustment eliminates the impact of a $2.2 million restructuring related charge with respect to the fab employees. This adjustment also eliminates a $0.7 million legal costs incurred in connection with the Foundry Services Group and Fab 4.

~~(b)~~

This adjustment eliminates the impact of

non-cash

equity-based compensation expenses. Although we expect to incur

non-cash

expenses as supplemental information.

(b)

(c)

This adjustment eliminates $1.2 million in expenses related to the

write-off

(d)

For the nine months ended September 30, 2020, this adjustment primarily eliminates

non-recurring

professional service fees and expenses incurred in connection with certain treasury and finance initiatives incurred during the three months ended March 31, 2020. For the nine months ended September 30, 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, which is borne by us under a negotiated separation agreement during the three months ended March 31, 2019. We do not believe that these charges are indicative of our core operating performance and have been excluded for comparative purposes.

Table of Contents
We present Adjusted Net Income (including on a per share basis) as a further supplemental measure of our performance. We prepare Adjusted Net Income (including on a per share basis) by adjusting net income (loss) to eliminate the impact of a number of
non-cash
expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income (including on a per share basis); is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We present Adjusted Net Income (including on a per share basis) for a number of reasons, including:
we use Adjusted Net Income (including on a per share basis) in communications with our Board of Directors concerning our consolidated financial performance without the impact of
non-cash
expenses and the other items as we discussed below since we believe that it is a more consistent measure of our core operating results from period to period; and
we believe that reporting Adjusted Net Income (including on a per share basis) is useful to readers in evaluating our core operating results because it eliminates the effects of
non-cash
expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantly from period to period.
Adjusted Net Income (including on a per share basis) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to income from continuing operations, cash flows from operating activities or net income, as determined in accordance with U.S. GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income (including on a per share basis) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income (including on a per share basis), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Net Income (including on a per share basis); for the periods indicated as net income (loss), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss (gain), net, (iii) derivative valuation loss (gain), net, (iv) loss on early extinguishment of long-term borrowings, net, (v) inventory reserve related to Huawei impact of downstream trade restrictions, (vi) expenses related to Fab 3 power outage and (vii) others.
The following table summarizes the adjustments to income (loss) from continuing operations that we make in order to calculate Adjusted Net Income (including on a per share basis) from continuing operations for the periods indicated:

Three Months
Ended
September 30,
2020

Nine Months
Ended
September 30,
2020

Three Months
Ended
September 30,
2019

Nine Months
Ended
September 30,
2019


(In millions)

Income (loss) from continuing operations
   $ 8.5    $ (10.8 )    $ (14.2 )    $ (44.3 )
Adjustments:

Equity-based compensation expense(a)
   2.1    4.4    0.4    1.7
Foreign currency loss (gain), net(b)
   (8.9 )    13.6    22.0    44.2
Derivative valuation loss (gain), net(c)
   (0.1 )    (0.2 )    0.0    0.2
Loss on early extinguishment of long-term borrowings, net(d)
   —      —      —      0.0
Inventory reserve related to Huawei impact of downstream trade restrictions (e)
   2.3    2.3    —      —
Expenses related to Fab 3 power outage(f)
   1.2    1.2    —      —
Others(g)
   —      0.6    —      0.6








Adjusted Net Income
   $ 5.1    $ 11.0    $ 8.2    $ 2.3








Reported earnings (loss) per share – basic
   $ 0.24    $ (0.31 )    $ (0.41 )    $ (1.29 )
Reported earnings (loss) per share – diluted
   $ 0.21    $ (0.31 )    $ (0.41 )    $ (1.29 )
Weighted average number of shares – basic
   35,280,864    35,089,479    34,357,745    34,266,513
Weighted average number of shares – diluted
   46,581,788    35,089,479    34,357,745    34,266,513
Adjusted earnings per share – basic
   $ 0.15    $ 0.31    $ 0.24    $ 0.07
Adjusted earnings per share – diluted
   $ 0.14    $ 0.30    $ 0.21    $ 0.07
Weighted average number of shares – basic
   35,280,864    35,089,479    34,357,745    34,266,513
Weighted average number of shares – diluted
   46,581,788    36,151,622    45,516,245    34,955,722
36
Table of Contents
(a)
This adjustment eliminates the impact of
non-cash
equity-based compensation expenses. Although we expect to incur
non-cash
equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these
non-cash
expenses as supplemental information.
(b)
This adjustment mainly eliminates the impact of
non-cash
foreign currency translation associated with intercompany debt obligations with respect to the continuing operations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily
non-cash
gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results.
~~(d)~~(c)
This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in USU.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance.
~~(e)~~(d)
This adjustment eliminates $0.04 million in expenses related to the repurchase of a portion of the 2021 Notes and the Exchangeable Notes in the first quarter of 2019.
(e)
This adjustment eliminates a $2.3 million 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. As this charge meaningfully impacted our operational results and is 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 is 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 ~~three~~nine months ended ~~March 31,~~September 30, 2020, this adjustment primarily eliminates
non-recurring
professional service fees and expenses incurred in connection with certain treasury and finance ~~initiatives. For~~initiatives incurred during the three months ended March 31, 2020. For the nine months ended September 30, 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, which is borne by us under a negotiated separation ~~agreement.~~agreement during the three months ended March 31, 2019. We do not believe that these charges are indicative of our core operating performance and have been excluded for comparative purposes.
There was no tax impact from the adjustments to net income (loss) to calculate our Adjusted Net Income ~~(Loss)~~from continuing operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 due to net operating loss carry-forwards available to offset taxable income and full allowance for deferred tax assets. We believe that all adjustments to net income (loss) from continuing operations used to calculate Adjusted Net Income ~~(Loss)~~from continuing operations were applied consistently to the periods presented.
Adjusted Net Income ~~(Loss)~~ has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under USU.S. GAAP. Some of these limitations are:
Adjusted Net Income ~~(Loss)~~ does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted Net Income ~~(Loss)~~ does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;
Adjusted Net Income ~~(Loss)~~ does not reflect the costs of holding certain assets and liabilities in foreign currencies; and
other companies in our industry may calculate Adjusted Net Income ~~(Loss)~~ differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted Net Income ~~(Loss)~~ should not be considered as a measure of profitability of our business. We compensate for these limitations by relying primarily on our USU.S. GAAP results and using Adjusted Net Income ~~(Loss)~~ only supplementally.
37
Table of Contents
Factors Affecting Our Results of Operations
Net
Sales.
We derive substantially all of our sales (net of sales returns and allowances) from our standard products business. We outsource manufacturing of advanced OLED products to external
12-inch
foundries. Our product inventory is primarily located in Korea and is available for drop shipment globally. Outside of Korea, we maintain limited product inventory, and our sales representatives generally relay orders to our factories in Korea for fulfillment. We have strategically located our sales and technical support offices near concentrations of major customers. Our sales offices are located in Korea, the United States, Japan and Greater China. Our network of authorized agents and distributors is in the United States, Europe and the Asia Pacific region.
We recognize revenue when risk and reward of ownership pass to the customer either upon shipment, upon product delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement. For the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, we sold products to ~~135 and 132~~170 customers, ~~respectively,~~in each period, and our net sales to our ten largest customers represented ~~90%~~88% and ~~88%~~90% of our net sales — standard products business, respectively. Our Fab 3 production capacity is approximately 31,000 semiconductor wafers per month. We believe our large-scale, cost-effective fabrication facilities enable us to rapidly adjust our production levels to meet shifts in demand by our end customers.

We will provide the Transitional Fab 3 Foundry Services for a period up to three years after the sale of the Foundry Services Group business and Fab 4. For the periods prior to the closing of the sale of the Foundry Services Group business and Fab 4 (which is accounted for as a discontinued operation beginning in the first quarter of 2020), revenue derived from the Transitional Fab 3 Foundry Services is recorded at cost in both of our continuing and discontinued operations.
Following the consummation of the sale, and for up to three years, we are expected to provide the Transitional Fab 3 Foundry Services at an agreed upon cost plus mark-up.

Gross Profit.

Our overall gross profit generally fluctuates as a result of changes in overall sales volumes and in the average selling prices of our products and services. Other factors that influence our gross profit include changes in product mix, the introduction of new products and services and subsequent generations of existing products and services, shifts in the utilization of our manufacturing facility and the yields achieved by our manufacturing operations, changes in material, labor and other manufacturing costs including outsourced manufacturing expenses, and variation in depreciation expense.

Average

Selling

Prices.

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

Material Costs.

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

Labor

Costs.

A significant portion of our employees are located in Korea. Under Korean labor laws, most employees and certain executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of ~~March 31,~~September 30, 2020, approximately 98% of our employees were eligible for severance benefits.

Depreciation Expense.

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

Selling

Expenses.

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

General

and

Administrative

Expenses.

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

Table of Contents
Research
and
Development.
The rapid technological change and product obsolescence that characterize our industry require us to make continuous investments in research and development. Product development time frames vary but, in general, we incur research and development costs one to two years before generating sales from the associated new products. These expenses include personnel costs for members of our engineering workforce, cost of photomasks, silicon wafers and other
non-recurring
engineering charges related to product design. Additionally, we develop base line process technology through experimentation and through the design and use of characterization wafers that help achieve commercially feasible yields for new products. The majority of research and development expenses of our display business are material and design-related costs for OLED display driver IC product development involving
40-nanometer
or finer processes. The majority of research and development expenses of our power business are certain equipment, material and design-related costs for power discrete products and material and design-related costs for power IC products. Power IC uses standard BCD process technologies which can be sourced from multiple foundries, including Fab 4.
Interest Expense.
Our interest expense was incurred primarily under our 2021 Notes and our Exchangeable Notes.
On October 2, 2020, we redeemed all outstanding 2021 Notes. We will not incur interest expense associated with the 2021 Notes from and after October 2, 2020.

Impact of Foreign Currency Exchange Rates on Reported Results of Operations.

Historically, a portion of our revenues and greater than the majority of our operating expenses and costs of sales have been denominated in~~non-US~~
non-U.S.
currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in USU.S. dollars converted from our~~non-US~~
non-U.S.
revenues and expenses based on monthly average exchange rates, changes in the exchange rate between the Korean won and the USU.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in USU.S. dollars relative to Korean won, depreciation in the USU.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income (loss) to appear to decline materially, particularly relative to prior periods. The converse is true if the USU.S. dollar were to appreciate relative to the Korean won. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the USU.S. dollar, as a substantial portion of
non-cash
translation gain or loss is associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in USU.S. dollars. As of ~~March 31,~~September 30, 2020, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was ~~$684.0~~$446.0 million. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our stock could be adversely affected.

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

Foreign Currency Gain or Loss.

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

Income Taxes.

We record our income taxes in each of the tax jurisdictions in which we operate. This process involves using an asset and liability approach whereby deferred tax assets and liabilities are recorded for differences in the financial reporting bases and tax bases of our assets and liabilities. We exercise significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities. We assess whether it is more likely than not that the deferred tax assets existing at the
period-end
will be realized in future periods. In such assessment, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.

We are subject to income- or
non-income-based
tax examinations by tax authorities of the ~~US,~~U.S., Korea and multiple other foreign jurisdictions, where applicable, for all open tax years. Significant estimates and judgments are required in determining our worldwide provision for income- or
non-income
based taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.

Table of Contents
Discontinued Operations.
On March 30, 2020, we entered into the ~~BTA~~Business Transfer Agreement for the sale of ~~its~~our Foundry Services Group business and ~~our~~ Fab 4 to the Buyer. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented.
On September 1, 2020, we completed the sale for a purchase price equal to approximately $350.6 million in cash.
Capital
Expenditures.
We primarily invest in manufacturing equipment, software design tools and other tangible assets mainly for fabrication facility maintenance, capacity expansion and technology improvement. Capacity expansions and technology improvements typically occur in anticipation of increases in demand. We typically pay for capital expenditures in partial installments with portions due on order, delivery and final acceptance. Our capital expenditures mainly include our payments for the purchase of property, plant and equipment.
Inventories.
We monitor our inventory levels in light of product development changes and market expectations. We may be required to take additional charges for quantities in excess of demand, cost in excess of market value and product age. Our analysis may take into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sales of existing products, product age, customer design activity, customer concentration and other factors. These forecasts require us to estimate our ability to predict demand for current and future products and compare those estimates with our current inventory levels and inventory purchase commitments. Our forecasts for our inventory may differ from actual inventory use.

Table of Contents
Results of Operations – Comparison of Three Months Ended ~~March 31,~~September 30, 2020 and 2019
The following table sets forth consolidated results of operations for the three months ended ~~March 31,~~September 30, 2020 and 2019:

   Three Months Ended
March 31, 2020 Three Months Ended
March 31, 2019
   Amount % of
Total revenues Amount % of
Total revenues Change
Amount
   (In millions)
Revenues

Net sales – standard products business
   $ 110.7 91.9 % $ 100.3 93.5 % $ 10.5
Net sales – transitional Fab 3 foundry services
   9.7 8.1 7.0 6.5 2.7


Total revenues
   120.5 100.0 107.3 100.0 13.2
Cost of sales

Cost of sales – standard products business
   81.6 67.7 81.2 75.7 0.4
Cost of sales – transitional Fab 3 foundry services
   9.7 8.1 7.0 6.5 2.7
Total cost of sales
   91.3 75.8 88.2 82.3 3.1


Gross profit
   29.1 24.2 19.0 17.7 10.1
Selling, general and administrative expenses
   12.1 10.0 12.0 11.2 0.1
Research and development expenses
   10.5 8.7 12.0 11.2 (1.5 )
Other charges
   0.6 0.5 —   —   0.6


Operating income (loss)
   6.0 5.0 (5.1 ) (4.7 ) 11.0


Interest expense
   (5.6 ) (4.7 ) (5.6 ) (5.3 ) 0.0
Foreign currency loss, net
   (31.0 ) (25.7 ) (10.6 ) (9.9 ) (20.4 )
Loss on early extinguishment of long-term borrowings, net
   —   —   (0.0 ) (0.0 ) 0.0
Others, net
   0.8 0.7 0.6 0.5 0.3


   (35.7 ) (29.7 ) (15.7 ) (14.6 ) (20.0 )


Loss from continuing operations before income tax expense
   (29.8 ) (24.7 ) (20.8 ) (19.4 ) (9.0 )
Income tax expense
   1.3 1.1 0.8 0.7 0.5


Loss from continuing operations
   (31.1 ) (25.8 ) (21.6 ) (20.1 ) (9.5 )
Income (loss) from discontinued operations, net of tax
   7.3 6.1 (12.6 ) (11.7 ) 19.9
Net loss
   $ (23.7 ) (19.7 ) $ (34.1 ) (31.8 ) $ 10.4

Three Months Ended
September 30, 2020

Three Months Ended
September 30, 2019


Amount

% of
Total revenues

Amount

% of
Total revenues

Change
Amount


(In millions)

Revenues

Net sales – standard products business
   $ 116.3 93.1 % $ 139.3 93.4 % $ (23.0 )
Net sales – transitional Fab 3 foundry services
   8.6 6.9 9.9 6.6 (1.3 )


Total revenues
   124.8 100.0 149.2 100.0 (24.4 )
Cost of sales

Cost of sales – standard products business
   87.5 70.1 104.0 69.7 (16.5 )
Cost of sales – transitional Fab 3 foundry services
   8.7 7.0 9.9 6.6 (1.2 )


��
Total cost of sales
   96.2 77.1 113.9 76.4 (17.7 )


Gross profit
   28.6 22.9 35.3 23.6 (6.7 )
Selling, general and administrative expenses
   12.9 10.3 10.7 7.2 2.2
Research and development expenses
   12.5 10.0 10.2 6.9 2.2


Operating income
   3.2 2.6 14.3 9.6 (11.1 )


Interest expense
   (5.5 ) (4.4 ) (5.5 ) (3.7 ) 0.1
Foreign currency gain (loss), net
   8.9 7.1 (22.0 ) (14.7 ) 30.8
Others, net
   0.7 0.6 0.7 0.5 0.0


   4.1 3.3 (26.8 ) (18.0 ) 30.9


Income (loss) from continuing operations before income tax expense
   7.3 5.9 (12.5 ) (8.4 ) 19.8
Income tax expense (benefit)
   (1.1 ) (0.9 ) 1.7 1.2 (2.9 )


Income (loss) from continuing operations
   8.5 6.8 (14.2 ) (9.5 ) 22.7
Income from discontinued operations, net of tax
   264.5 211.9 12.6 8.5 251.9


Net income (loss)
   $ 273.0 218.7 $ (1.6 ) (1.1 ) $ 274.6


41
Table of Contents
The following sets forth information relating to our continuing operations:

   Three Months Ended
March 31, 2020 Three Months Ended
March 31, 2019
   Amount    % of
Total Revenues Amount    % of
Total Revenues Change
Amount
   (In millions)
Revenues

Net sales – standard products business

Display Solutions
   $ 77.6    64.4 % $ 58.2    54.3 % $ 19.4
Power Solutions
   33.1    27.5 42.0    39.2 (8.9 )






Total standard products business
   110.7    91.9 100.3    93.5 10.5
Net sales – transitional Fab 3 foundry services
   9.7    8.1 7.0    6.5 2.7






Total revenues
   $ 120.5    100.0 % $ 107.3    100.0 % $ 13.2






   Three Months Ended
March 31, 2020 Three Months Ended
March 31, 2019
   Amount    % of
Net sales Amount    % of
Net sales Change
Amount
   (In millions)
Gross Profit

Gross profit – standard products business
   $ 29.1    26.3 % $ 19.0    19.0 % $ 10.1
Gross profit – transitional Fab 3 foundry services
   —      —   —      —   —






Total gross profit
   $ 29.1    24.2 % $ 19.0    17.7 % $ 10.1








Three Months Ended
September 30, 2020

Three Months Ended
September 30, 2019

Amount

% of
Total Revenues

Amount

% of
Total Revenues

Change
Amount

(In millions)

Revenues

Net sales – standard products business

Display Solutions
$ 69.6 55.7 % $ 90.6 60.7 % $ (21.0 )
Power Solutions
46.7 37.4 48.7 32.7 (2.0 )

Total standard products business
116.3 93.1 139.3 93.4 (23.0 )
Net sales – transitional Fab 3 foundry services
8.6 6.9 9.9 6.6 (1.3 )

Total revenues
$ 124.8 100.0 % $ 149.2 100.0 % $ (24.4 )







Three Months Ended
September 30, 2020

Three Months Ended
September 30, 2019


Amount

% of
Net sales

Amount

% of
Net sales

Change
Amount


(In millions)

Gross Profit

Gross profit – standard products business
     $ 28.8    24.7 %    $ 35.3      25.3 %    $ (6.5 )
Gross profit – transitional Fab 3 foundry services
     (0.2 )    (2.1 )    —        —      (0.2 )










Total gross profit
     $ 28.6    22.9 %    $ 35.3      23.6 %    $ (6.7 )










Revenues
Total revenues were ~~$120.5~~$124.8 million for the three months ended ~~March 31,~~September 30, 2020, a ~~$13.2~~$24.4 million, or ~~12.3%~~16.3%, ~~increased~~decrease compared to ~~$107.3~~$149.2 million for the three months ended ~~March 31,~~September 30, 2019. This ~~increase~~decrease was primarily due to ~~an increase~~a decrease in revenue related to our standard products business as described below.
The standard products business.
Net sales from our standard products business were ~~$110.7~~$116.3 million for the three months ended ~~March 31,~~September 30, 2020, a ~~10.5~~$23.0 million, or ~~10.4%~~16.5%, ~~increased~~decrease compared to ~~$100.3~~$139.3 million for the three months ended ~~March 31,~~September 30, 2019. ~~This increase~~The decrease in net sales from our Display Solutions business line was primarily attributable to ~~an increase in revenue related to~~the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, that impacted the shipment of certain mobile OLED display driver ICs ~~due~~ to ~~an increase in new OLED smartphones by Chinese and Korean manufacturers, which were offset in part by lower demand for power products as a result ofCOVID-19-related~~ ~~supply chain issues and market softness in China,~~our customers, and a strategic reduction of our lower margin
non-auto
LCD DDIC business.
The decrease in net sales from our Power Solutions business line was primarily attributable to the Fab 3 power outage that affected our ability to meet customer demand for some of our Power Solution products during the three months ended September 30, 2020.
The transitional Fab 3 foundry services.
Net sales ~~form~~from the transitional Fab 3 foundry services were ~~$9.7~~$8.6 million and ~~$7.0~~$9.9 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively.
Gross Profit
Total gross profit was ~~$29.1~~$28.6 million for the three months ended ~~March 31,~~September 30, 2020 compared to ~~$19.0~~$35.3 million for the three months ended ~~March 31,~~September 30, 2019, a ~~$10.1~~$6.7 million, or ~~53.1%~~18.9%, ~~increase.~~decrease. Gross profit as a percentage of net sales for the three months ended ~~March 31,~~September 30, 2020 ~~increased~~decreased to ~~24.2%~~22.9% compared to ~~17.7%~~23.6% for the three months ended ~~March 31,~~September 30, 2019. The ~~increase~~decrease in gross profit and gross profit as a percentage of net sales was primarily due to a decrease in gross profit and gross profit as a percentage of net sales from our standard products business as further described below.
The standard products business.
Gross profit from ~~the~~our standard products business was ~~$29.1~~$28.8 million for the three months ended ~~March 31,~~September 30, 2020, which represented a ~~$10.1~~$6.5 million, or ~~53.1%~~18.4%, ~~increase~~decrease from gross profit of ~~$19.0~~$35.3 million for the three months ended ~~March 31,~~September 30, 2019. Gross profit as a percentage of net sales for the three months ended ~~March 31,~~September 30, 2020 ~~increased~~decreased to ~~26.3%~~24.7% compared to ~~19.0%~~25.3% for the three months ended ~~March 31,~~September 30, 2019. The ~~increase~~decrease was primarily attributable to a $2.3 million of unexpected excess and obsolete inventory charge that we recorded in the third quarter of 2020 in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. The delayed recovery of Fab 3 from the power outage, which resulted in a lower than anticipated utilization rate, also negatively affected both gross profit and gross profit ~~margin was primarily attributable to an improved product mix and~~as a ~~decrease in inventory reserve related to a legacy display product.~~
percentage of net sales.

Table of Contents
Net Sales – Standard Products Business by Geographic Region
We report net sales – standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net ~~sales -~~ sales—standard products business by geographic region and the percentage of total net ~~sales -~~ sales—standard products business represented by each geographic region for the three months ended ~~March 31,~~September 30, 2020 and 2019:

   Three Months Ended
March 31, 2020 Three Months Ended
March 31, 2019
   Amount    % of
Net Sales –
standard
products
business Amount    % of
Net Sales –
standard
products
business Change
Amount
   (In millions)
Korea
   $ 30.8    27.8 % $ 34.6    34.6 % $ (3.8 )
Asia Pacific (other than Korea)
   77.5    70.0 63.7    63.6 13.8
United States
   0.7    0.6 0.5    0.5 0.2
Europe
   1.0    0.9 1.1    1.1 (0.2 )
Others
   0.7    0.6 0.3    0.3 0.4






   $ 110.7    100.0 % $ 100.3    100.0 % $ 10.5







Three Months Ended
September 30, 2020

Three Months Ended
September 30, 2019


Amount

% of
Net Sales –
standard
products
business

Amount

% of
Net Sales –
standard
products
business

Change
Amount


(In millions)

Korea
   $ 28.4    24.4 % $ 36.1    25.9 % $ (7.7 )
Asia Pacific (other than Korea)
   84.2    72.4 100.9    72.4 (16.7 )
United States
   1.8    1.5 0.5    0.3 1.3
Europe
   1.5    1.2 1.5    1.1 (0.1 )
Others
   0.5    0.4 0.3    0.2 0.2






   $ 116.3    100.0 % $ 139.3    100.0 % $ (23.0 )






Net sales – standard products business in Korea for the three months ended ~~March 31,~~September 30, 2020 decreased from ~~$34.6~~$36.1 million to ~~$30.8~~$28.4 million compared to the three months ended ~~March 31,~~September 30, 2019, which represented a decrease of ~~$3.8~~$7.7 million, or ~~11.1%~~21.4%, primarily due to a strategic reduction of our lower margin
non-auto
LCD DDIC business and lower demand for power products such as~~high-end~~ MOSFETs primarily for TV and smartphone applications, ~~and a strategic reduction of our lower margin LCD business,~~ which was offset in part by an increase in revenue related to our mobile OLED display driver ICs due to an increase in demand for production of new OLED smartphones by Chinese ~~and Korean manufacturers.~~
manufacturers due in part to the geographic diversification of our OLED product portfolio amid a
COVID-19-related
disruption. This increase continued until the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, impacted the shipment of certain mobile OLED display driver ICs to certain of our customers.
Net sales – standard products business in Asia Pacific (other than Korea) for the three months ended ~~March 31,~~September 30, 2020 ~~increased~~decreased to ~~$77.5~~$84.2 million from ~~$63.7~~$100.9 million in the three months ended ~~March 31,~~September 30, 2019, which represented ~~an increase~~a decrease of ~~$13.8~~$16.7 million, or ~~21.6%~~16.5%, primarily due to ~~an increase in revenue related to~~the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, that impacted the shipment of certain mobile OLED display driver ICs ~~due~~ to ~~an increase in demand for production of new OLED smartphones by Chinese and Korean manufacturers, which is offset in part by lower demand for power products as a result ofCOVID-19-related~~ ~~supply chain issues and market softness in China.~~
our customers.
Operating Expenses
Selling,
General
and
Administrative
Expenses.
Selling, general and administrative expenses were ~~$12.1~~$12.9 million, or ~~10.0%~~10.3%, of total revenues, for the three months ended ~~March 31,~~September 30, 2020, compared to ~~$12.0~~$10.7 million, or ~~11.2%~~7.2%, of total revenues, for the three months ended ~~March 31,~~September 30, 2019. The increase of ~~$0.1~~$2.2 million, or ~~0.5%~~20.6%, was primarily attributable to an increase in ~~legal and consulting service fees and~~employee compensation, including equity-based compensation. ~~This increase was offset in part by a $0.5 million legal settlement charge related to dispute with a prior customer recorded in the first quarter of 2019.~~
Research
and
Development
Expenses.
Research and development expenses were ~~$10.5~~$12.5 million, or ~~8.7%~~10.0%, of total revenues, for the three months ended ~~March 31,~~September 30, 2020, compared to ~~$12.0~~$10.2 million, or ~~11.2%~~6.9%, of total revenues, for the three months ended ~~March 31,~~September 30, 2019. The ~~decrease~~increase of ~~$1.5~~$2.2 million, or ~~12.7%~~21.9%, was primarily attributable to ~~the timing of~~an increase in development activities for our
28-nanometer
OLED display driver ICs and ~~a decrease~~an increase in ~~outside service fees and various overhead expenses.~~
~~Other Charges.~~ Other charges were $0.6 million for the three months ended March 31, 2020, which were consisted of professional service fees and expenses incurred in connection with certain treasury and finance initiatives.
employee compensation, including equity-based compensation.
Operating Income ~~(Loss)~~
As a result of the foregoing, operating income of ~~$6.0~~$3.2 million was recorded for the three months ended ~~March 31,~~September 30, 2020, compared to operating ~~loss~~income of ~~$5.1~~$14.3 million the three months ended ~~March 31,~~September 30, 2019. As discussed above, the ~~increase~~decrease in operating income of ~~$11.0~~$11.1 million resulted primarily from a ~~$10.1~~$6.7 million decrease in gross profit, a $2.2 million increase in ~~gross profit~~selling, general and administrative expenses and a ~~$1.5~~$2.2 million ~~decrease~~increase in research and development expenses.

Table of Contents
Other Income
Interest
Expense.
Interest expenses were ~~$5.6~~$5.5 million for each of the three months ended September 30, 2020 and ~~$5.6 million~~September 30, 2019.
Foreign
Currency Gain (Loss),
Net.
Net foreign currency gain for the three months ended ~~March 31, 2020 and March 31, 2019, respectively.~~
~~Foreign~~~~Currency~~~~Loss,~~~~Net.~~ ~~Net foreign currency loss for the three months ended March 31,~~September 30, 2020 was ~~$31.0~~$8.9 million compared to net foreign currency loss of ~~$10.6~~$22.0 million for the three months ended ~~March 31,~~September 30, 2019. The net foreign currency gain for the three months ended September 30, 2020 was due to the appreciation in value of the Korean won relative to the U.S. dollar during the period. The net foreign currency loss for the three months ended ~~March 31, 2020 and March 31,~~September 30, 2019 was due to the depreciation in value of the Korean won relative to the USU.S. dollar during the period.
A substantial portion of our net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to our Korean subsidiary, which are denominated in USU.S. dollars, and are affected by changes in the exchange rate between the Korean won and the USU.S. dollar. As of ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019, the outstanding intercompany loan balances including accrued interest between our Korean subsidiary and our Dutch subsidiary were ~~$684~~$446.0 million and ~~$666~~$679.6 million, respectively. The decrease in the outstanding intercompany loan balances including accrued interest was primarily attributable to our Korean subsidiary’s repayment of certain loans by our Dutch subsidiary to fund the redemption of the outstanding 2021 Notes on October 2, 2020. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.
~~Loss on Early Extinguishment of Long-Term Borrowings,~~
Others,
Net.For the three months ended March 31, 2019, we repurchased a principal amount of $0.3 million and $0.9 million of the 2021 Notes and the Exchangeable Notes, respectively. In connection with these repurchases, we recognized a $0.04 million of net loss.
~~Others,~~~~Net.~~
Others were comprised of rental income, interest income, and gains and losses from valuation of derivatives which were designated as hedging instruments. Others for the three months ended ~~March 31,~~September 30, 2020 and ~~March 31,~~September 30, 2019 was ~~$0.8~~$0.7 million ~~and $0.6 million, respectively.~~
in each period.
Income Tax Expense
(Benefit)
Income tax benefit for the three months ended September 30, 2020 was $1.1 million, which was primarily attributable to the foreign translation loss realized by our Korean subsidiary upon the repayment of a part of its intercompany loans by the Dutch subsidiary to fund the redemption of the 2021 Notes. Income tax expense ~~were $1.3 million and $0.8~~of $1.7 million for the three ~~months~~month ended ~~March 31, 2020 and~~September 30, 2019 ~~respectively, and were~~was primarily attributable to interest on intercompany loan balances. Income tax expense was recorded for our Korean subsidiary based on the estimated taxable income for the respective periods, combined with its ability to utilize net operating loss carryforwards up to 60% in ~~2020 and~~ 2019.
~~Loss~~
Income (Loss) from ~~continuing operations~~
Continuing Operations
As a result of the foregoing, ~~a net loss~~income from continuing operations ~~decreased~~increased by ~~$9.5~~$22.7 million for the three months ended ~~March 31,~~September 30, 2020 compared to the three months ended ~~March 31,~~September 30, 2019. As discussed above, the increase in ~~net loss~~income from continuing operations primarily resulted from a ~~$20.4~~$30.8 million ~~increase~~improvement in net foreign currency loss and a $2.9 million decrease in income tax expense, which was offset in part by an ~~$11.0~~$11.1 million ~~increase~~decrease in operating income.
Income ~~(loss)~~ from ~~discontinued operations, net~~Discontinued Operations, Net of ~~tax~~
Tax
On March 30, 2020, we entered into the ~~BTA~~Business Transfer Agreement for the sale of our Foundry Services Group business and Fab 4. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations and excluded from our continuing operations for all periods presented.
~~Net income~~
Income from discontinued operations, net of tax for the three months ended ~~March 31,~~September 30, 2020 was ~~$7.3~~$264.5 million, compared to ~~net loss~~income from discontinued operations, net of tax of $12.6 million for the three months ended ~~March 31,~~September 30, 2019. The ~~$19.9~~$251.9 million increase in income from discontinued operations, net of tax primarily resulted from a $287.1 million increase in gain on sale of discontinued operations, which was offset in part by a $14.5 million increase in income tax expense, a $10.8 million increase in transaction costs, a $7.1 million increase in restructuring and other charges and a $5.4 million decrease in gross profit.
Net Income (Loss)
As a result of the foregoing, net income of $273.0 million was recorded for the three months ended September 30, 2020 compared to net loss of $1.6 million for the three months ended September 30, 2019. As discussed above, the increase in net income of $274.6 million primarily resulted from a $251.9 million increase in income from discontinued operations, net of tax, mainly attributable to the completion of the sale of the Foundry Service Group business and Fab 4, and a $22.7 million improvement in loss from continuing operations.
44
Table of Contents
Results of Operations – Comparison of Nine Months Ended September 30, 2020 and 2019
The following table sets forth consolidated results of operations for the nine months ended September 30, 2020 and 2019:

Nine Months Ended
September 30, 2020

Nine Months Ended
September 30, 2019


Amount

% of
Total revenues

Amount

% of
Total revenues

Change
Amount


(In millions)

Revenues

Net sales – standard products business
   $ 336.0 92.3 % $ 371.5 93.5 % $ (35.6 )
Net sales – transitional Fab 3 foundry services
   28.2 7.7 25.8 6.5 2.4


Total revenues
   364.1 100.0 397.3 100.0 (33.2 )
Cost of sales

Cost of sales – standard products business
   245.9 67.5 285.6 71.9 (39.7 )
Cost of sales – transitional Fab 3 foundry services
   28.3 7.8 25.8 6.5 2.6


Total cost of sales
   274.3 75.3 311.4 78.4 (37.2 )


Gross profit
   89.9 24.7 85.9 21.6 4.0
Selling, general and administrative expenses
   37.4 10.3 33.8 8.5 3.6
Research and development expenses
   34.1 9.4 34.0 8.6 0.0
Other charges
   0.6 0.2 —   —   0.6


Operating income
   17.8 4.9 18.0 4.5 (0.2 )


Interest expense
   (16.5 ) (4.5 ) (16.6 ) (4.2 ) 0.1
Foreign currency loss, net
   (13.6 ) (3.7 ) (44.2 ) (11.1 ) 30.5
Loss on early extinguishment of long-term borrowings, net
   —   —   (0.0 ) (0.0 ) 0.0
Others, net
   2.3 0.6 1.8 0.5 0.5


   (27.8 ) (7.6 ) (59.0 ) (14.9 ) 31.2


Loss from continuing operations before income tax expense
   (10.0 ) (2.7 ) (41.0 ) (10.3 ) 31.0
Income tax expense
   0.8 0.2 3.3 0.8 (2.5 )


Loss from continuing operations
   (10.8 ) (3.0 ) (44.3 ) (11.1 ) 33.4
Income (loss) from discontinued operations, net of tax
   289.2 79.4 (1.0 ) (0.2 ) 290.2


Net income (loss)
   $ 278.4 76.5 $ (45.3 ) (11.4 ) $ 323.6


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The following sets forth information relating to our continuing operations:

Nine Months Ended
September 30, 2020

Nine Months Ended
September 30, 2019

Amount

% of
Total Revenues

Amount

% of
Total Revenues

Change
Amount

(In millions)

Revenues

Net sales – standard products business

Display Solutions
$ 216.4 59.4 % $ 233.0 58.7 % $ (16.7 )
Power Solutions
119.6 32.8 138.5 34.9 (18.9 )

Total standard products business
336.0 92.3 371.5 93.5 (35.6 )
Net sales – transitional Fab 3 foundry services
28.2 7.7 25.8 6.5 2.4

Total revenues
$ 364.1 100.0 % $ 397.3 100.0 % $ (33.2 )







Nine Months Ended
September 30, 2020

Nine Months Ended
September 30, 2019


Amount

% of
Net sales

Amount

% of
Net sales

Change
Amount


(In millions)

Gross Profit

Gross profit – standard products business
   $ 90.0 26.8 % $ 85.9    23.1 % $ 4.1
Gross profit – transitional Fab 3 foundry services
   (0.2 ) (0.6 ) —      —   (0.2 )




Total gross profit
   $ 89.9 24.7 % $ 85.9    21.6 % $ 4.0




Revenues
Total revenues were $364.1 million for the nine months ended September 30, 2020, a $33.2 million, or 8.4%, decrease compared to $397.3 million for the nine months ended September 30, 2019. This decrease was primarily due to a decrease in revenue related to our standard products business as described below.
The standard products business.
Net sales from our standard products business were $336.0 million for the nine months ended September 30, 2020, a $35.6 million, or 9.6%, decrease compared to $371.5 million for the nine months ended September 30, 2019. The decrease in net sales from our Display Solutions business line was primarily attributable to a strategic reduction of our lower margin
non-auto
LCD DDIC business and a decrease in revenue related to our mobile OLED display driver ICs as a result of
COVID-19,
which negatively affected the global smartphone market in 2020. The U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, also impacted the shipment of certain mobile OLED display driver ICs to certain of our customers. The decrease in net sales from our Power Solutions business line was primarily attributable to the significant global macro-economic market disruption due to
COVID-19,
which affected customer demand for some of our Power Solution products.
The transitional Fab 3 foundry services.
Net sales from the transitional Fab 3 foundry services were $28.2 million and $25.8 million for the nine months ended September 30, 2020 and 2019, respectively.
Gross Profit
Total gross profit was $89.9 million for the nine months ended September 30, 2020 compared to $85.9 million for the nine months ended September 30, 2019, a $4.0 million, or 4.6%, increase. Gross profit as a percentage of net sales for the nine months ended September 30, 2020 increased to 24.7% compared to 21.6% for the nine months ended September 30, 2019. The increase in gross profit and gross profit as a percentage of net sales was due to the increase in gross profit and gross profit as a percentage of net sales from our standard products business as further described below.
The standard products business.
Gross profit from our standard products business was $90.0 million for the nine months ended September 30, 2020, which represented a $4.1 million, or 4.8%, increase from gross profit of $85.9 million for the nine months ended September 30, 2019. Gross profit as a percentage of net sales for the nine months ended September 30, 2020 increased to 26.8% compared to 23.1% for the nine months ended September 30, 2019. The increase in both gross profit and gross profit as a percentage of net sales was primarily attributable to inventory reserves related to certain legacy display products that were recorded in the first
46
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half of 2019 and an improved product mix, which was offset in part by a $2.3 million of unexpected excess and obsolete inventory charge that we recorded in the third quarter of 2020 in relation to the U.S. Government’s export restrictions on Huawei, which is a 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 gross profit as a percentage of net sales.
47
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Net Sales – Standard Products Business by Geographic Region
We report net sales – standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net sales—standard products business by geographic region and the percentage of total net sales—standard products business represented by each geographic region for the nine months ended September 30, 2020 and 2019:

Nine Months Ended
September 30, 2020

Nine Months Ended
September 30, 2019


Amount

% of
Net Sales –
standard
products
business

Amount

% of
Net Sales –
standard
products
business

Change
Amount


(In millions)

Korea
   $ 81.1    24.2 % $ 107.3    28.9 % $ (26.2 )
Asia Pacific (other than Korea)
   245.9    73.2 258.3    69.5 (12.3 )
United States
   4.0    1.2 1.6    0.4 2.4
Europe
   3.3    1.0 3.5    .0.9 (0.2 )
Others
   1.6    0.5 0.8    0.2 0.8






   $ 336.0    100.0 % $ 371.5    100.0 % $ (35.6 )






Net sales – standard products business in Korea for the nine months ended September 30, 2020 decreased from $107.3 million to $81.1 million compared to the nine months ended September 30, 2019, which represented a decrease of $26.2 million, or 24.4%, primarily due to a strategic reduction of our lower margin
non-auto
LCD DDIC business and lower demand for power products such as MOSFETs primarily for TV and smartphone applications, which was offset in part by an increase in revenue related to our mobile OLED display driver ICs due to an increase in demand for production of new OLED smartphones by Chinese manufacturers due in part to the geographic diversification of our OLED product portfolio amid a
COVID-19-related
disruption. This increase continued until the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, impacted the shipment of certain mobile OLED display driver ICs to certain of our customers.
Net sales – standard products business in Asia Pacific (other than Korea) for the nine months ended September 30, 2020 decreased to $245.9 million from $258.3 million in the nine months ended September 30, 2019, which represented a decrease of $12.3 million, or 4.8%, primarily due to a decrease in revenue related to our mobile OLED display driver ICs as a result of
COVID-19,
which negatively has affected the global smartphone market in 2020. The U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, also impacted the shipment of certain mobile OLED display driver ICs to certain of our customers.
Operating Expenses
Selling,
General
and
Administrative
Expenses.
Selling, general and administrative expenses were $37.4 million, or 10.3%, of total revenues, for the nine months ended September 30, 2020, compared to $33.8 million, or 8.5%, of total revenues, for the nine months ended September 30, 2019. The increase of $3.6 million, or 10.6%, was primarily attributable to an increase in employee compensation, including equity-based compensation, and legal and consulting service fees, which was offset in part by a $0.5 million legal settlement charge related to dispute with a prior customer recorded in the first quarter of 2019.
Research
and
Development
Expenses.
Research and development expenses were $34.1 million, or 9.4%, of total revenues, for the nine months ended September 30, 2020, which remained flat, compared to $34.0 million, or 8.6%, of total revenues, for the nine months ended September 30, 2019.
Other Charges.
Other charges were $0.6 million for the nine months ended September 30, 2020, which consisted of professional service fees and expenses incurred in connection with certain treasury and finance initiatives incurred during the three months ended March 31, 2020.
Operating Income
As a result of the foregoing, operating income of $17.8 million was recorded for the nine months ended September 30, 2020 compared to operating income of $18.0 million the nine months ended September 30, 2019. As discussed above, the decrease in operating income of $0.2 million resulted primarily from a $3.6 million increase in selling, general and administrative expenses and a $0.6 million increase in other charges, which was nearly offset by a $4.0 million increase in gross profit.
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Table of Contents
Other Income
Interest
Expense.
Interest expenses were $16.5 million and $16.6 million for the nine months ended September 30, 2020 and September 30, 2019, respectively.
Foreign
Currency
Loss,
Net.
Net foreign currency loss for the nine months ended September 30, 2020 was $13.6 million compared to net foreign currency loss of $44.2 million for the nine months ended September 30, 2019. The net foreign currency loss for the nine months ended September 30, 2020 and September 30, 2019 was due to the depreciation in value of the Korean won relative to the U.S. dollar during each period.
A substantial portion of our net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to our Korean subsidiary, which are denominated in U.S. dollars, and are affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of September 30, 2020 and September 30, 2019, the outstanding intercompany loan balances including accrued interest between our Korean subsidiary and our Dutch subsidiary were $446.0 million and $679.6 million, respectively. The decrease in the outstanding intercompany loan balances including accrued interest was primarily attributable to our Korean subsidiary’s repayment of certain loans by our Dutch subsidiary to fund the redemption of the outstanding 2021 Notes on October 2, 2020. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.
Loss on Early Extinguishment of Long-Term Borrowings, Net.
For the nine months ended September 30, 2019, we repurchased a principal amount of $0.3 million and $0.9 million of the 2021 Notes and the Exchangeable Notes, respectively. In connection with these repurchases, we recognized a $0.04 million net loss.
Others,
Net.
Others were comprised of rental income, interest income, and gains and losses from valuation of derivatives which were designated as hedging instruments. Others for the nine months ended September 30, 2020 and September 30, 2019 was $2.3 million and $1.8 million, respectively.
Income Tax Expense
Income tax expense was $0.8 million and $3.3 million for the nine months ended September 30, 2020 and 2019, respectively. Income tax expense for the nine months ended September 30, 2020 was primarily attributable to interest on intercompany loan balances, which was offset in part by the income tax benefit due mainly to the foreign translation loss realized by our Korean subsidiary upon the repayment of a part of its intercompany loans by the Dutch subsidiary to fund the redemption of the 2021 Notes. Income tax expense for the nine month ended September 30, 2019 was primarily attributable to interest on intercompany loan balances. Income tax expense was recorded for our Korean subsidiary based on the estimated taxable income for the respective periods, combined with its ability to utilize net operating loss carryforwards up to 60% in 2019 and 2020.
Loss from Continuing Operations
As a result of the foregoing, loss from continuing operations improved by $33.4 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. As discussed above, the improvement in loss from continuing operations primarily resulted from a ~~$17.0~~$30.5 million improvement in net foreign currency loss and a $2.5 million decrease in income tax expense.
Income (Loss) from Discontinued Operations, Net of Tax
On March 30, 2020, we entered into the Business Transfer Agreement for the sale of our Foundry Services Group business and Fab 4. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations and excluded from our continuing operations for all periods presented.
Income from discontinued operations, net of tax for the nine months ended September 30, 2020 was $289.2 million compared to loss from discontinued operations, net of tax of $1.0 million for the nine months ended September 30, 2019. The $290.2 million increase in income from discontinued operations, net of tax primarily resulted from a $287.1 million increase in gain on sale of discontinued operations, a $30.4 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 2020, a ~~$1.5 million increase in foreign currency gain, net, a $0.8 million decrease in restructuring and other charges, a $0.6 million decrease in research and development expenses and a $0.4~~$3.3 million decrease in selling, general and administrative expenses and a $2.8 million decrease in research and development expenses, which ~~was~~were offset in part by a ~~$0.4~~$15.7 million increase in income tax ~~expense.~~
expense, a $10.8 million increase in transaction costs, a $5.8 million increase in restructuring and other charges.
49

Table of Contents
Net ~~loss~~
Income (Loss)
As a result of the foregoing, a net ~~loss~~income of ~~$23.7~~$278.4 million was recorded for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 compared to a net loss of ~~$34.1~~$45.3 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019. As discussed above, the ~~decrease~~increase in net ~~loss~~income of ~~$10.4~~$323.6 million primarily resulted from a ~~$19.9~~$290.2 million increase in ~~net~~ income from discontinued operations, ~~which was offset by~~net of tax, mainly attributable to the completion of the sale of the Foundry Service Group business and Fab 4, and a ~~$9.5~~$33.4 million ~~increase~~improvement in ~~net~~ loss from continuing operations.

Table of Contents
Liquidity and Capital Resources
Our principal capital requirements are to fund sales and marketing, invest in research and development and capital equipment, to make debt service payments and to fund working capital needs. We calculate working capital as current assets less current liabilities.
Our principal sources of liquidity are our cash, cash equivalents, ~~our~~ cash flows from operations and ~~our~~ financing activities. Our ability to manage cash and cash equivalents may be limited, as our primary cash flows are dictated by the terms of our sales and supply agreements, contractual obligations, debt instruments and legal and regulatory requirements. From time to time, we may sell accounts receivable to third parties under factoring agreements or engage in accounts receivable discounting to facilitate the collection of cash. For a description of our factoring arrangements and accounts receivable discounting, please see “Item 1. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 3. Sales of Accounts Receivable and Receivable Discount Program” included elsewhere in this Report. In addition, from time to time, we may make payments to our vendors on extended terms with their consent. As of ~~March 31,~~September 30, 2020, we do not have any accounts payable on extended terms or payment deferment with our vendors.
On ~~March 30,~~September 1, 2020, we ~~entered into~~completed the ~~BTA for the~~previously announced sale of our Foundry Services Group business and ~~the~~ Fab 4 ~~which has~~to the Buyer in exchange for a purchase price equal to ~~the KRW equivalent of $344.7~~approximately $350.6 million, ~~in cash, subject to~~which included an estimated positive working capital ~~adjustments set forth~~adjustment of approximately $5.9 million, pursuant to the terms of the Business Transfer Agreement, which was entered into on March 30, 2020. The purchase price was paid in a combination of U.S. Dollars in the ~~BTA. The sale is expected~~amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion.
On October 2, 2020, we redeemed of all of our outstanding 2021 Notes. We paid approximately $227.4 million to ~~close within approximately four to six months from the date~~fully redeem all of the ~~BTA, subject to customary closing conditions, whereupon we expect to use a portion~~outstanding $224.25 million aggregate principal amount of the ~~cash received~~2021 Notes at a redemption price equal to repay indebtedness and for general corporate purposes. We currently believe that we will have sufficient cash reserves from cash on hand and expected cash from operations, as well as cash received from the ~~consummation~~sum of 100% of the ~~BTA, to fund our operations as well as capital expenditures for the next twelve months~~principal amount plus accrued and ~~the foreseeable future.~~
unpaid interest thereon.
On January 17, 2017, we issued an aggregate of $86.3 million in principal amount of our Exchangeable Notes. 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. In December 2018 and February 2019, we repurchased a principal amount equal to $1.6 million and $0.9 million, respectively, of the Exchangeable Notes in the open market. As of ~~March 31,~~September 30, 2020, our Exchangeable Notes were ~~reclassified~~recorded as a current liability as their maturities were less than one year.
~~Cash Flows~~
We currently believe that we will have sufficient cash reserves from ~~Operating Activities~~
~~Cash inflow provided by operating activities totaled $21.1 million~~cash on hand and expected cash from operations to fund our operations as well as capital expenditures for the ~~three~~next twelve months ~~ended March 31, 2020, compared to $11.7 million of cash outflow used in operating activities for~~and the three months ended March 31, 2019. The net operating cash inflow for the three months ended March 31, 2020 reflects our net loss of $23.7 million, as adjusted favorably by $55.8 million, which mainly consisted of depreciation and amortization, provision for severance benefits and net foreign currency loss, and net unfavorable impact of $11.0 million from changes of operating assets and liabilities.
foreseeable future.
Working Capital
Our working capital balance as of ~~March 31,~~September 30, 2020 was ~~$175.5~~$244.9 million, compared to $245.5 million as of December 31, 2019. The ~~$70.0 million decrease~~increase in working capital was primarily attributable to ~~a reclassification of $82.3 million for our Exchangeable Notes, which was recorded~~increased cash and cash equivalents as a ~~current portion~~result of ~~long-term borrowings, net in~~ the ~~first quarter~~completion of ~~2020, as the maturity is less than one year. This decrease~~sale of our Foundry Services Group business and Fab 4, which was offset in part by reclassification of the outstanding Exchangeable Notes and 2021 Notes, which were reclassified as a ~~$13.5~~current liability in the first and third quarter of 2020, respectively.
Cash Flows from Operating Activities
Cash inflow provided by operating activities totaled $51.5 million ~~increase in accounts receivable, net.~~
for the nine months ended September 30, 2020, compared to $30.0 million of cash inflow provided by operating activities for the nine months ended September 30, 2019. The net operating cash inflow for the nine months ended September 30, 2020 reflects our net loss of $8.7 million, excluding gain on sale of discontinued operations, as adjusted favorably by $45.3 million, which mainly consisted of net foreign currency loss, depreciation and amortization, provision for severance benefits, and net favorable impact of $15.0 million from changes of operating assets and liabilities.
Cash Flows from Investing Activities
Cash ~~outflow used in~~inflow provided by investing activities totaled ~~$7.1~~$334.0 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, compared to ~~$9.8~~$22.6 million of cash outflow used in investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2019. The ~~$2.7~~$356.6 million ~~decrease~~increase in cash inflow was primarily attributable to $350.6 million of proceeds received from the sale of the Foundry Services Group business and Fab 4, a ~~$7.9~~$4.6 million net decrease in ~~purchase of plant, property~~hedge collateral and ~~equipment, which was offset in part by~~ a ~~$5.8~~$1.1 million net ~~increase~~decrease in ~~hedge collateral.~~
guarantee deposits.
51

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Cash Flows from Financing Activities
Cash ~~outflow used in~~inflow provided by financing activities totaled ~~$1.2~~$1.1 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, compared to ~~$3.7~~$3.3 million of cash outflow used in financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2019. The financing cash ~~outflow~~inflow for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was primarily attributable to $2.7 million of proceeds received from the issuance of common stock in connection with the exercise of stock options, which was offset in part by a payment of $1.0 million for the repurchase of our common stock to satisfy tax withholding obligation in connection with the vesting of restricted stock units. The financing cash outflow for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was primarily attributable to a payment of $1.2 million for the repurchases of 2021 Notes and Exchangeable Notes in the first quarter of 2019 and a payment of $2.4 million for the repurchases of our common stock in January 2019 pursuant to our stock repurchase ~~plan.~~
plan, which was offset in part by $1.0 million of proceeds received from the issuance of common stock in connection with the exercise of stock options.

For additional cash flow information associated with our discontinued operation, please see “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2 – Discontinued Operations and Assets Held for Sale” included elsewhere in this Report.

Capital Expenditures

We routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facilities and reinforcement of our global research and development ~~capability.~~capabilities. For the ~~three~~nine months ended ~~March 31,~~September 30, 2020, capital expenditures for plant, property and equipment were ~~$3.4~~$16.4 million, ~~a $7.9~~which remained flat, compared to $16.7 million ~~or 70.1%, decrease from $11.2 million~~of capital expenditures for the ~~three months~~nine month ended ~~March 31,~~September 30, 2019. ~~The decrease was mainly due to the timing of our equipment deployment.~~ The capital expenditures for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 were related to meeting ~~our~~ customer demand, ~~and~~ supporting technology and facility improvement at our fabrication facilities.

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Contractual Obligations
The following summarizes our contractual obligations as of ~~March 31,~~September 30, 2020:

   Payments Due by Period
   Total    Remainder
of
2020    2021    2022    2023    2024    Thereafter
   (In millions)
Exchangeable Notes(1)
   $ 87.9    $ 2.1    $ 85.8    $ —      $ —      $ —      $ —
Senior notes(2)
   246.5    7.4    239.1    —      —      —      —
Operating leases(3)
   1.5    1.2    0.2    0.0    0.0    —      —
Finance leases(3)
   0.3    0.1    0.1    0.1    0.1    —      —
Water Treatment Services(3)(4)
   30.0    3.0    3.8    3.8    3.7    3.6    12.2
Others(5)
   10.7    7.5    3.2    0.0    0.0    0.0    —

Payments Due by Period


Total

Remainder
of
2020

2021

2022

2023

2024

Thereafter


(In millions)

Exchangeable Notes(1)
   $ 85.8    $ —      $ 85.8    $ —      $ —      $ —      $ —
Senior Notes(2)
   227.4    227.4    —      —      —      —      —
Operating leases(3)
   2.2    0.4    1.5    0.3    0.0    —      —
Finance leases(3)
   0.2    0.0    0.1    0.1    0.1    —      —
Water Treatment Services(3)(4)
   29.2    1.0    4.0    3.9    3.9    3.7    12.7
Others(5)
   13.0    4.5    5.2    1.4    0.8    0.6    0.4
(1)
Interest payments as well as $83.7 million aggregate principal amount of the Exchangeable Notes outstanding as of ~~March 31,~~September 30, 2020, which bear interest at a rate of 5.0% per annum and are scheduled to mature in 2021 if not earlier exchanged at the price of approximately $8.26 per share of common stock.
(2)
Interest payments as well as $224.3 million aggregate principal amount of the 2021 Notes outstanding as of ~~March 31,~~September 30, 2020, which ~~bear~~bore interest at a rate of 6.625% per annum and ~~are~~were scheduled to mature in ~~2021 if not earlier redeemed.~~
2021. The notice of redemption was issued in September and the redemption occurred in October after the September 30, 2020 reference date.
(3)
Assumes constant currency exchange rate for Korean won to USU.S. dollars of ~~1,222.6:~~1,173.5:1, the exchange rate as of ~~March 31,~~September 30, 2020.
(4)
Includes future payments for water treatment services for our fabrication facility in Gumi, Korea based on the contractual terms.
(5)
Includes license agreements, funding obligations for the accrued severance benefits and other contractual obligations.
The ~~indentures~~indenture relating to the Exchangeable Notes ~~and the 2021 Notes contain~~contains covenants as detailed in “Item 1. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 11. 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 office space and equipment under various operating lease agreements that expire through 2023.
We are a party to an arrangement for the water treatment facility in Gumi, Korea, which includes a
10-year
service agreement.
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 ~~March 31,~~September 30, 2020, our accrued severance benefits totaled ~~$48.8~~$52.0 million and cumulative contributions to these severance insurance deposit accounts amounted to $1.6 million. Our related cash payments for future contributions are ~~$3.3~~$3.4 million for the remaining period of 2020, to the extent that our obligations are contractual, fixed and reasonably estimable.
We follow USU.S. GAAP guidance on uncertain tax positions. Our unrecognized tax benefits totaled $0.4 million as of ~~March 31,~~September 30, 2020. 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 ~~March 31,~~September 30, 2020, we did not have any
off-balance
sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation
S-K.

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Critical Accounting Policies and Estimates
Preparing financial statements in conformity with USU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our consolidated financial statements and accompanying notes.
We believe that our significant accounting policies, which are described further in Note 1 to our consolidated financial statements in our Annual Report on Form
10-K
for our fiscal year ended December 31, 2019, or our 2019 Form
10-K,
are critical due to the fact that they involve a high degree of judgment and estimates about the effects of matters that are inherently uncertain. We base these estimates and judgments on historical experience, knowledge of current conditions and other assumptions and information that we believe to be reasonable. Estimates and assumptions about future events and their effects cannot be determined with certainty. Accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the business environment in which we operate changes.
A description of our critical accounting policies that involve significant management ~~judgement~~judgment appears in our 2019 Form
10-K,
under “Management’s Discussion and Analysis of Financial Conditions and Reports of Operations—Critical Accounting Policies and Estimates.” There have been no material changes in the matters for which we make accounting estimates in the preparation of our consolidated financial statements for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, except for those related to discontinued operations as a result of changes in reporting that relate to the sale of the Foundry Services Group business and Fab 4.
Discontinued Operations.
We review the presentation of the planned disposition of the Foundry Services Group business and Fab 4 based on the available information and events that have occurred. The review consists of evaluating whether the disposition meets the definition of a component for which the operations and cash flows are clearly distinguishable from the other components of the business, and if so, whether it is anticipated that after the disposal the cash flows of the component would be eliminated from continuing operations and whether the disposition represents a strategic shift that has a major effect on operations and financial results. In addition, we evaluate whether the Foundry Services Group business and Fab 4 have met the criteria as assets held for sale. In order for a planned disposition to be classified as assets held for sale, the established criteria must be met as of the reporting date, including an active program to market the sale and the expected disposition of within one year.
The assets classified as held for sale are recorded at the lower of carrying amounts or estimated fair value less costs to sell and depreciation and amortization ceases on the that the held for sale criteria are met.
The Foundry Services Group business and Fab 4 is presented as discontinued operations beginning in the first quarter 2020 since all the criteria described above are met. For a divestiture that qualifies as a discontinued operation, all comparative periods presented are reclassified in the consolidated balance sheet. Additionally, the results of operations of a discontinued operation are reclassified to income or loss from discontinued operations, net of tax, for all periods presented. See “Item 1. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note ~~2 -~~ 2—Discontinued Operations and Assets Held for Sale” for additional information.
RecentAccounting Pronouncements
For a full description of new accounting pronouncements and recently adopted accounting pronouncements, please see “Item 1. Interim Consolidated Financial Statements—Notes to Consolidated Financial Statements—Note 1. Business, Basis of Presentation and Significant Accounting Policies” in this Report.

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Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the market risk that the value of a financial instrument will fluctuate due to changes in market conditions, primarily from changes in foreign currency exchange rates and interest rates. In the normal course of our business, we are subject to market risks associated with interest rate movements and currency movements on our assets and liabilities.
Foreign Currency Exposures
We have exposure to foreign currency exchange rate fluctuations on net income from our subsidiaries denominated in currencies other than USU.S. dollars, as our foreign subsidiaries in Korea, Taiwan, China, Japan and Hong Kong use local currency as their functional currency. From time to time these subsidiaries have cash and financial instruments in local currency. The amounts held in Japan, Taiwan, Hong Kong and China are not material in regards to foreign currency movements. However, based on the cash and financial instruments balance at ~~March 31,~~September 30, 2020 for our Korean subsidiary, a 10% devaluation of the Korean won against the USU.S. dollar would have resulted in a decrease of ~~$0.2~~$8.5 million in our USU.S. dollar financial instruments and cash balances.
See “Note 9. Derivative Financial Instruments” to our consolidated financial statements under “Item 1. Interim Consolidated Financial Statements” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations—Impact of Foreign Currency Exchange Rates on Reported Results of Operations” for additional information regarding our foreign exchange hedging activities.
Interest Rate Exposures
As of ~~March 31,~~September 30, 2020, $83.74 million aggregate principal amount of our Exchangeable Notes were outstanding. Interest on the Exchangeable Notes accrues at a fixed rate of 5.0% per annum and is paid semi-annually every March 1 and September 1 of each year until the Exchangeable Notes mature on March 1, 2021. As of ~~March 31,~~September 30, 2020, $224.25 million aggregate principal amount of our 2021 Notes were also ~~outstanding.~~outstanding; however, we redeemed all outstanding 2021 Notes on October 2, 2020. Interest on the 2021 Notes ~~accrues~~accrued at a fixed rate of 6.625% per annum and iswas paid semi-annually every January 15 and July 15 of each ~~year until the 2021 Notes mature on July 15, 2021.~~year. Since the interest rates are and were fixed, we have no market interest rate risk related to the Exchangeable Notes and the 2021 Notes.

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Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and ~~Principal~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Report, we carried out an evaluation under the supervision of and with the participation of our management, including our Chief Executive Officer and ~~Principal~~Chief Financial Officer, as of ~~March 31,~~September 30, 2020, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2020.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
For a discussion of legal proceedings, see “Part I: Item 3. Legal Proceedings” of our 2019 Form
10-K.
See also “Part I: Item 1A. Risk Factors” and Note 18 of our 2019 Form
10-K
for additional information.
Item 1A.
Risk Factors
The Company is subject to risks and uncertainties, any of which could have a significant or material adverse effect on our business, financial condition, liquidity or consolidated financial statements. You should carefully consider the risk factors disclosed in Part I, Item 1A of our 2019 Form
10-K ~~(including~~
(including that the impact of the
COVID-19
pandemic may also exacerbate the risks discussed therein), herein and other reports we have filed with the SEC. The risks described herein and therein are not the only ones we face. This information should be considered carefully together with the other information contained in this Report and the other reports and materials the Company files with the SEC.
Risks Related to COVID-19
Our business, results of operations and financial condition and prospects may be materially and adversely affected by the recent
COVID-19
pandemic.
COVID-19,
a virus causing potentially deadly respiratory tract infections, which has spread rapidly and enveloped most of the world, is a global public health crisis. On March 11, 2020, the World Health Organization characterized the
COVID-19
outbreak as a pandemic. Governments in affected countries are imposing travel bans, quarantines and other emergency public health measures. In response to the virus, national and local governments in numerous countries around the world have implemented substantial lockdown measures, and other countries and local governments may enact similar policies. Private sector companies are also taking precautionary measures, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses and facilities. These restrictions, and future prevention and mitigation measures, are likely to have an adverse impact on global economic conditions, which could materially adversely affect our future operations. Uncertainties regarding the economic impact of the
COVID-19
outbreak are likely to result in sustained market turmoil, which could also negatively impact our business, financial condition and cash flows.
These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners. The disruptions to our operations caused by the
COVID-19
outbreak may result in inefficiencies, delays and additional costs in our research and development, sales and marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. Also, some suppliers of materials used in the production of our products may be located in areas that have been or will be more severely impacted by
COVID-19,
which could limit our ability to obtain sufficient materials for our products. In addition, the severe global economic disruption caused by
COVID-19
may cause our customers and
end-users
of our products to suffer significant economic hardship, which could result in decreased demand for our products in the future and materially adversely affect our business, results of operations, financial condition (including liquidity) and prospects.
The impact of the
COVID-19
pandemic continues to evolve and its duration and ultimate disruption on our customers,
end-users,
overall demand for our products, supply chain, and the related financial impact to us, cannot be estimated at this time. Should such disruption continue for an extended period of time, the impact could have a more severe adverse effect on our business, results of operations and financial condition (including liquidity). Additionally, weaker economic conditions generally could result in impairment in value of our tangible or intangible assets, or our ability to raise additional capital, if needed.

Risks Related to Independent Subcontractors

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

A substantial portion of our net sales are derived from semiconductor devices assembled in packages or on film. The packaging and testing of semiconductors require technical skills and specialized equipment. For the portion of packaging and testing that we outsource, we use subcontractors located in Korea, China, Taiwan and Thailand. We rely on these subcontractors to package and test our devices with acceptable quality and yield levels, and, while we specify quality standards, we are not able to directly oversee their
day-to-day
operations and the packaging and testing of our devices. Onboarding of a new subcontractor, including as a result of

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switching from one subcontractor to another, takes approximately three to six months to verify the subcontractor’s capabilities and an additional six to twelve months to receive approval from our customers to use such subcontractor. We could be adversely affected by political disorders, labor disruptions, public health issues (including viral outbreaks such as the
COVID-19
coronavirus) and natural disasters where our subcontractors are located due to the time it would take to onboard a new subcontractor. If our semiconductor packagers and test service subcontractors experience problems in packaging and testing our semiconductor devices, experience prolonged quality or yield problems, experience shutdowns or delays associated with public health issues (such as those associated with the
COVID-19
coronavirus), or decrease the capacity of their operations available to us, our operating results could be adversely affected.
Risks Related to Our International Operations and Trade
Recent changes in international trade policy and the imposition and threats of international tariffs, including tariffs applied to goods traded between the United States and China, could materially and adversely affect our business and results of operations.
Since the beginning of 2018, there have been increasing public threats and, in some cases, legislative or executive action, from U.S. and foreign leaders regarding instituting tariffs against foreign imports of certain materials. More specifically, since March of 2018, the U.S. and China have applied tariffs to certain of each other’s exports. The institution of trade tariffs globally, and between the U.S. and China specifically, may negatively impact the affected countries’ economic conditions, which could negatively affect demand for our products in those countries and materially and adversely affect our business and results of operations of our customers serving the affected markets. Furthermore, imposition of tariffs could increase costs of the
end-user
products we supply that we may not be able to pass on to our customers, which could in turn cause a decrease in the sales of our products and services and materially and adversely affect our business and results of operations.
Expanded trade restrictions imposed by the United States may limit our ability to sell to certain customers.
On August 17, 2020, the U.S. Department of Commerce expanded the scope of export restrictions as applied to products directed to Huawei and its affiliates listed on the Bureau of Industry and Security’s Entity List (collectively, “
Huawei
”). While prior restrictions had minimal effect on our ability to supply to customers, the newly expanded restriction would limit our ability to supply to a variety of customers who we believe incorporate our products to those customers’ products directly or indirectly sold to Huawei. As of the date of this Quarterly Report, we are uncertain on the seriousness of the restriction’s impact or duration, nor are we certain about the future trajectory of our business from customers who directly or indirectly supply Huawei with products that incorporate our products. If required by the new restrictions, we will consider applying for export license in order to continue to sell to the affected customers, but at this moment we are unsure whether our application, if we were to apply, will be successful. There is also a possibility that the export restrictions may be further expanded to target other companies besides Huawei, which may have additional impact on our ability to sell to our customers. The export restriction may also affect our contractors, suppliers or customers, and we cannot assure that they will not violate the restriction. Their violations of the restriction may result in fines or criminal sanctions against us, and it may also damage our reputation.
58
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Item 6.
Exhibits.
Exhibit
Number

Description
~~10.1~~ Separation Agreement, dated as of March 26, 2020 among MagnaChip Semiconductor, Ltd. (Korea), MagnaChip Semiconductor Corporation and Jonathan W. Kim. (incorporated by reference to Exhibit 10.1 to our Current Report on~~Form 8-K~~ ~~filed on March 27, 2020).~~
~~10.2~~ Business Transfer Agreement, dated as of March 31, 2020 among by and among Magnus Semiconductor, LLC, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor, Ltd. (incorporated by reference to Exhibit 10.1 to our Current Report on~~Form 8-K~~ ~~filed on March 31, 2020)~~
31.1^#    Certification pursuant toRule 13a-14(a) orRule 15d-14(a) of the Securities Exchange Act of 1934 of the Chief Executive Officer.
31.2^#    Certification pursuant to Rule13a-14(a) orRule 15d-14(a) of the Securities Exchange Act of 1934 of the Principal Financial Officer.
32.1†    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive ~~Officer~~Officer..
32.2†    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer.
101.INS^#    XBRL Instance Document.
101.SCH^#    XBRL Taxonomy Extension Schema Document.
101.CAL^#    XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF^#    XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB^#    XBRL Taxonomy Extension Label Linkbase Document.
101.PRE^#    XBRL Taxonomy Extension Presentation Linkbase Document.
104 The cover page from this Quarterly Report on Form
10-Q,
formatted in Inline XBRL.
Footnotes:
^#
Filed herewith
†
Furnished herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MAGNACHIP SEMICONDUCTOR CORPORATION
(Registrant)
Dated: ~~May 11,~~November 6, 2020    By:
/s/ Young-Joon Kim
   Young-Joon Kim

Chief Executive Officer
(Principal Executive Officer)
Dated: ~~May 11,~~November 6, 2020    By:
/s/ ~~Theodore S. Kim~~
Young Soo Woo
   ~~Theodore S. Kim~~Young Soo Woo

Chief ~~Compliance~~Financial Officer ~~Executive Vice President,~~
~~General Counsel and Secretary~~
(Principal Financial Officer)
49


	March 31, 2020			December 31, 2019
	(In thousands of US dollars, except share data)
Assets
Current assets
Cash and cash equivalents	$	157,293		$	151,657
Accounts receivable, net		60,688			47,447
Inventories, net		37,130			41,404
Other receivables		8,297			10,200
Prepaid expenses		11,148			9,003
Hedge collateral (Note 9)		13,270			9,820
Other current assets (Notes 10 and 18)		6,762			10,013
Current assets held for sale (Note 2)		201,619			99,821

Total current assets		496,207			379,365

Property, plant and equipment, net		67,201			73,068
Operating leaseright-of-use assets		1,413			1,876
Intangible assets, net		2,583			2,769
Long-term prepaid expenses		4,117			5,757
Othernon-current assets		8,439			9,059
Non-current assets held for sale (Note 2)		—			123,434

Total assets	$	579,960		$	595,328

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	40,206		$	40,376
Other accounts payable		6,379			6,410
Accrued expenses		41,489			44,799
Operating lease liabilities		1,301			1,625
Current portion of long-term borrowings, net		82,328			—
Other current liabilities (Note 10)		6,982			3,583
Current liabilities held for sale (Note 2)		142,013			37,040

Total current liabilities		320,698			133,833

Long-term borrowings, net		223,012			304,743
Accrued severance benefits, net		48,765			51,181
Othernon-current liabilities		8,641			9,671
Non-current liabilities held for sale (Note 2)		—			110,881

Total liabilities		601,116			610,309

Commitments and contingencies (Note 18)
Stockholders’ equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 44,160,355 shares issued and 35,054,682 outstanding at March 31, 2020 and 43,851,991 shares issued and 34,800,312 outstanding at December 31, 2019		442			439
Additionalpaid-in capital		153,286			152,404
Accumulated deficit		(81,880	)		(58,131	)
Treasury stock, 9,105,673 shares at March 31, 2020 and 9,051,679 shares at December 31, 2019, respectively		(107,649	)		(107,033	)
Accumulated other comprehensive income (loss)		14,645			(2,660	)

Total stockholders’ deficit		(21,156	)		(14,981	)

Total liabilities and stockholders’ equity	$	579,960		$	595,328


	September 30, 2020			December 31, 2019
	(In thousands of U.S. dollars, except share data)
Assets
Current assets
Cash and cash equivalents	$	542,111		$	151,657
Accounts receivable, net		57,772			47,447
Inventories, net		33,631			41,404
Other receivables		4,551			10,200
Prepaid expenses		8,265			9,003
Hedge collateral (Note 9)		9,650			9,820
Other current assets (Notes 10 and 18)		8,338			10,013
Current assets held for sale (Note 2)		—			99,821

Total current assets		664,318			379,365

Property, plant and equipment, net		77,489			73,068
Operating lease right-of-use assets		2,032			1,876
Intangible assets, net		2,877			2,769
Long-term prepaid expenses		2,138			5,757
Other non-current assets		8,598			9,059
Non-current assets held for sale (Note 2)		—			123,434

Total assets	$	757,452		$	595,328

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	40,497		$	40,376
Other accounts payable		7,639			6,410
Accrued expenses (Note 8)		41,630			44,799
Accrued income taxes		14,038			1,569
Operating lease liabilities		1,390			1,625
Current portion of long-term borrowings, net		306,567			—
Other current liabilities (Note 10)		7,652			2,014
Current liabilities held for sale (Note 2)		—			37,040

Total current liabilities		419,413			133,833

Long-term borrowings, net		—			304,743
Accrued severance benefits, net		51,953			51,181
Other non-current liabilities		7,782			9,671
Non-current liabilities held for sale (Note 2)		—			110,881

Total liabilities		479,148			610,309

Commitments and contingencies (Note 18)
Stockholders’ equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 44,595,393 shares issued and 35,489,720 outstanding at September 30, 2020 and 43,851,991 shares issued and 34,800,312 outstanding at December 31, 2019		447			439
Additional paid-in capital		159,840			152,404
Retained earnings (deficit)		220,253			(58,131	)
Treasury stock, 9,105,673 shares at September 30, 2020 and 9,051,679 shares at December 31, 2019, respectively		(107,649	)		(107,033	)
Accumulated other comprehensive income (loss)		5,413			(2,660	)

Total stockholders’ equity (deficit)		278,304			(14,981	)

Total liabilities and stockholders’ equity	$	757,452		$	595,328


	Three Months Ended
	March 31, 2020			March 31, 2019
	(In thousands of US dollars, except share data)
Revenues:
Net sales – standard products business	$	110,736		$	100,264
Net sales – transitional Fab 3 foundry services		9,737			7,003

Total revenues		120,473			107,267
Cost of sales:
Cost of sales – standard products business		81,606			81,241
Cost of sales – transitional Fab 3 foundry services		9,737			7,003

Total cost of sales		91,343			88,244

Gross profit		29,130			19,023
Operating expenses:
Selling, general and administrative expenses		12,102			12,036
Research and development expenses		10,509			12,044
Other charges		554			—

Total operating expenses		23,165			24,080

Operating income (loss)		5,965			(5,057	)

Interest expense		(5,607	)		(5,637	)
Foreign currency loss, net		(30,971	)		(10,610	)
Loss on early extinguishment of long-term borrowings, net		—			(42	)
Other income, net		838			587

Loss from continuing operations before income tax expense		(29,775	)		(20,759	)
Income tax expense		1,303			796

Loss from continuing operations		(31,078	)		(21,555	)
Income (loss) from discontinued operations, net of tax		7,329			(12,570	)

Net loss	$	(23,749	)	$	(34,125	)

Basic and diluted earnings (loss) per common share—
Continuing operations	$	(0.89	)	$	(0.63	)
Discontinued operations		0.21			(0.37	)

Total	$	(0.68	)	$	(1.00	)

Weighted average number of shares – basic and diluted		34,893,157			34,194,878


	Three Months Ended						Nine Months Ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
	(In thousands of U.S. dollars, except share data)
Revenues:
Net sales – standard products business	$	116,262		$	139,273		$	335,953		$	371,543
Net sales – transitional Fab 3 foundry services		8,551			9,894			28,161			25,776

Total revenues		124,813			149,167			364,114			397,319
Cost of sales:
Cost of sales – standard products business		87,494			104,018			245,917			285,643
Cost of sales – transitional Fab 3 foundry services		8,731			9,894			28,341			25,776

Total cost of sales		96,225			113,912			274,258			311,419

Gross profit		28,588			35,255			89,856			85,900
Operating expenses:
Selling, general and administrative expenses		12,888			10,686			37,398			33,817
Research and development expenses		12,477			10,233			34,094			34,049
Other charges		—			—			554			—

Total operating expenses		25,365			20,919			72,046			67,866

Operating income		3,223			14,336			17,810			18,034

Interest expense		(5,485	)		(5,539	)		(16,522	)		(16,615	)
Foreign currency gain (loss), net		8,864			(21,985	)		(13,638	)		(44,166	)
Loss on early extinguishment of long-term borrowings, net		—			—			—			(42	)
Other income, net		714			678			2,343			1,816

Income (loss) from continuing operations before income tax expense		7,316			(12,510	)		(10,007	)		(40,973	)
Income tax expense (benefit)		(1,145	)		1,734			836			3,316

Income (loss) from continuing operations		8,461			(14,244	)		(10,843	)		(44,289	)
Income (loss) from discontinued operations, net of tax		264,501			12,637			289,227			(963	)

Net income (loss)	$	272,962		$	(1,607	)	$	278,384		$	(45,252	)

Basic earnings (loss) per common share—
Continuing operations	$	0.24		$	(0.41	)	$	(0.31	)	$	(1.29	)
Discontinued operations		7.50			0.36			8.24			(0.03	)

Total	$	7.74		$	(0.05	)	$	7.93		$	(1.32	)

Diluted earnings (loss) per common share—
Continuing operations	$	0.21		$	(0.41	)	$	(0.31	)	$	(1.29	)
Discontinued operations		5.68			0.36			8.24			(0.03	)

Total	$	5.89		$	(0.05	)	$	7.93		$	(1.32	)

Weighted average number of shares—
Basic		35,280,864			34,357,745			35,089,479			34,266,513
Diluted		46,581,788			34,357,745			35,089,479			34,266,513


						Additional Paid-In Capital									Accumulated Other Comprehensive Income (Loss)
	Common Stock								Accumulated Deficit			Treasury Stock						Total
(In thousands of US dollars, except share data)	Shares			Amount					Accumulated Deficit			Treasury Stock						Total
Three Months Ended March 31, 2020:
Balance at December 31, 2019, as previously reported		34,800,312		$	439	$	152,404		$	(58,131	)	$	(107,033	)	$	(2,660	)	$	(14,981	)
Stock-based compensation		—			—		885			—			—			—			885
Settlement of restricted stock units		308,364			3		(3	)		—			—			—			—
Acquisition of treasury stock		(53,994	)		—		—			—			(616	)		—			(616	)
Other comprehensive income, net		—			—		—			—			—			17,305			17,305
Net loss		—			—		—			(23,749	)		—			—			(23,749	)

Balance at March 31, 2020		35,054,682		$	442	$	153,286		$	(81,880	)	$	(107,649	)	$	14,645		$	(21,156	)

Three Months Ended March 31, 2019:
Balance at December 31, 2018, as previously reported		34,441,232		$	431	$	142,600		$	(36,305	)	$	(103,926	)	$	(20,110	)	$	(17,310	)
Stock-based compensation		—			—		669			—			—			—			669
Exercise of stock options		8,624			0		48			—			—			—			48
Settlement of restricted stock units		167,453			2		(2	)		—			—			—			—
Acquisition of treasury stock		(393,807	)		—		—			—			(2,585	)		—			(2,585	)
Other comprehensive income, net		—			—		—			—			—			6,992			6,992
Net loss		—			—		—			(34,125	)		—			—			(34,125	)

Balance at March 31, 2019		34,223,502		$	433	$	143,315		$	(70,430	)	$	(106,511	)	$	(13,118	)	$	(46,311	)


	Common Stock				Additional Paid-In			Retained Earnings			Treasury			Accumulated Other Comprehensive
(In thousands of U.S. dollars, except share data)	Shares		Amount		Capital			(Deficit)			Stock			Income (Loss)			Total
Three Months Ended September 30, 2020:
Balance at June 30, 2020		35,143,033	$	443	$	155,591		$	(52,709	)	$	(107,649	)	$	10,499		$	6,175
Stock-based compensation		—		—		2,226			—			—			—			2,226
Exercise of stock options		287,292		3		2,024			—			—			—			2,027
Settlement of restricted stock units		59,395		1		(1	)		—			—			—			—
Other comprehensive loss, net		—		—		—			—			—			(5,086	)		(5,086	)
Net income		—		—		—			272,962			—			—			272,962

Balance at September 30, 2020		35,489,720	$	447	$	159,840		$	220,253		$	(107,649	)	$	5,413		$	278,304

Three Months Ended September 30, 2019:
Balance at June 30, 2019		34,240,181	$	433	$	144,188		$	(79,950	)	$	(106,514	)	$	(6,073	)	$	(47,916	)
Stock-based compensation		—		—		479			—			—			—			479
Exercise of stock options		129,409		1		888			—			—			—			889
Settlement of restricted stock units		1,099		0		(0	)		—			—			—			—
Other comprehensive income, net		—		—		—			—			—			14,728			14,728
Net loss		—		—		—			(1,607	)		—			—			(1,607	)

Balance at September 30, 2019		34,370,689	$	434	$	145,555		$	(81,557	)	$	(106,514	)	$	8,655		$	(33,427	)


	March 31, 2020		December 31, 2019
	(In thousands of US dollars)
Assets
Current assets
Accounts receivable, net	$	40,735	$	48,194
Unbilled accounts receivable, net		9,374		16,463
Inventories, net		34,968		31,863
Other current assets		2,891		3,301
Other assets of the disposal group classified as held for sale		1,461		—

Total current assets held for sale	$	89,429	$	99,821

Property, plant and equipment, net		99,604		109,506
Intangible assets, net		1,202		1,245
Othernon-current assets		11,384		12,683

Total assets held for sale	$	201,619	$	223,255

Liabilities
Current liabilities
Accounts payable	$	20,462	$	20,503
Other current liabilities		14,773		16,537

Total current liabilities held for sale	$	35,235	$	37,040

Accrued severance benefits, net		93,121		95,547
Othernon-current liabilities		13,657		15,334

Total liabilities held for sale	$	142,013	$	147,921


	December 31, 2019
	(In thousands of U.S. dollars)
Assets
Current assets
Accounts receivable, net	$	48,194
Unbilled accounts receivable		16,463
Inventories, net		31,863
Other current assets		3,301

Total current assets held for sal e	$	99,821

Property, plant and equipment, net		109,506
Intangible assets, net		1,245
Other non-current assets		12,683

Total assets held for sale	$	223,255

Liabilities
Current liabilities
Accounts payable	$	20,503
Other current liabilities		16,537

Total current liabilities held for sale	$	37,040

Accrued severance benefits, net		95,547
Other non-current liabilities		15,334

Total liabilities held for sale	$	147,921


	March 31, 2020			December 31, 2019
Finished goods	$	8,448		$	10,087
Semi-finished goods andwork-in-process		25,342			28,815
Raw materials		7,916			8,449
Materialsin-transit		231			—	��
Less: inventory reserve		(4,807	)		(5,947	)

Inventories, net	$	37,130		$	41,404


	Three Months Ended			Nine Months Ended			Three Months Ended			Nine Months Ended
	September 30, 2020						September 30, 2019
Beginning balance	$	(5,307	)	$	(5,947	)	$	(11,782	)	$	(4,845	)
Change in reserve
Inventory reserve charged to costs of sales		(3,472	)		(6,541	)		(1,298	)		(10,745	)
Sale of previously reserved inventory		1,578			3,231			914			1,880

		(1,894	)		(3,310	)		(384	)		(8,865	)
Write off		835			1,976			377			1,593
Translation adjustments		(139	)		82			461			789
Reclassified to assets held for sale		0			694			—			—

Ending balance	$	(6,505	)	$	(6,505	)	$	(11,328	)	$	(11,328	)


	March 31, 2020			December 31, 2019
Buildings and related structures	$	21,309		$	22,502
Machinery and equipment		85,213			89,453
Finance leaseright-of-use assets		306			323
Others		20,863			22,242

		127,691			134,520
Less: accumulated depreciation		(73,987	)		(75,704	)
Land		13,497			14,252

Property, plant and equipment, net	$	67,201		$	73,068


	March 31, 2020
	Gross amount		Accumulated amortization			Net amount
Technology	$	6,226	$	(6,226	)	$	—
Customer relationships		9,641		(9,641	)		—
Intellectual property assets		8,314		(5,731	)		2,583

Intangible assets, net	$	24,181	$	(21,598	)	$	2,583


	September 30, 2020
	Gross amount		Accumulated amortization			Net amount
Technology	$	6,487	$	(6,487	)	$	—
Customer relationships		10,044		(10,044	)		—
Intellectual property assets		8,760		(5,883	)		2,877

Intangible assets, net	$	25,291	$	(22,414	)	$	2,877


	December 31, 2019
	Gross amount		Accumulated amortization			Net amount
Technology	$	6,575	$	(6,575	)	$	—
Customer relationships		10,180		(10,180	)		—
Intellectual property assets		8,637		(5,868	)		2,769

Intangible assets, net	$	25,392	$	(22,623	)	$	2,769


Leases	Classification	March 31, 2020		December 31, 2019
Assets
Operating lease	Operating lease right-of-use assets	$	1,413	$	1,876
Finance lease	Property, plant and equipment, net		229		258

Total lease assets		$	1,642	$	2,134

Liabilities
Current
Operating	Operating lease liabilities	$	1,301	$	1,625
Finance	Other current liabilities		58		60
Non-current
Operating	Othernon-current liabilities		112		251
Finance	Othernon-current liabilities		182		208

Total lease liabilities		$	1,653	$	2,144


Leases	Classification		September 30, 2020		December 31, 2019
Assets
Operating lease		Operating lease right-of-use assets	$	2,032	$	1,876
Finance lease		Property, plant and equipment, net		207		258

Total lease assets			$	2,239	$	2,134

Liabilities
Current
Operating		Operating lease liabilities	$	1,390	$	1,625
Finance		Other current liabilities		62		60
Non-current
Operating		Other non-current liabilities		642		251
Finance		Other non-current liabilities		158		208

Total lease liabilities			$	2,252	$	2,144


	March 31, 2020			December 31, 2019
Weighted average remaining lease term
Operating leases		1.0 years			1.1 years
Finance leases		3.8 years			4.0 years
Weighted average discount rate
Operating leases		7.35	%		7.19	%
Finance leases		7.75	%		7.75	%


	Three Months Ended
	March 31, 2020		March 31, 2019
Operating lease cost	$	468	$	525
Finance lease cost
Amortization ofright-of-use assets		16		17
Interest on lease liabilities		5		6

Total lease cost	$	489	$	548


	Operating Leases			Finance Leases
2020	$	1,192		$	55
2021		254			74
2022		21			74
2023		1			74
Thereafter		—			—

Total future lease payments		1,468			277
Less: Imputed interest		(55	)		(37	)

Present value of future payments	$	1,413		$	240


	Operating Leases			Finance Leases
2020	$	358		$	19
2021		1,459			77
2022		308			77
2023		16			77
Thereafter		—			—

Total future lease payments		2,141			250
Less: Imputed interest		(109	)		(30	)

Present value of future payments	$	2,032		$	220


	March 31, 2020		December 31, 2019
Payroll, benefits and related taxes, excluding severance benefits	$	8,992	$	8,493
Withholding tax attributable to intercompany interest income		23,771		23,371
Interest on senior notes		3,444		8,205
Outside service fees		1,224		1,996
Others		4,058		2,734

Accrued expenses	$	41,489	$	44,799


Date of transaction	Type of derivative		Total notional amount		Month of settlement
August 13, 2019		Zero cost collar	$	30,000	April 2020 to June 2020
September 27, 2019		Zero cost collar	$	21,000	April 2020 to June 2020
December 4, 2019		Zero cost collar	$	30,000	July 2020 to December 2020
January 31, 2020		Zero cost collar	$	30,000	July 2020 to December 2020
February 3, 2020		Zero cost collar	$	18,000	July 2020 to December 2020
February 21, 2020		Zero cost collar	$	30,000	July 2020 to December 2020


Derivatives designated as hedging instruments:		March 31, 2020		December 31, 2019
Asset Derivatives:
Zero cost collars	Other current assets	$	—	$	1,456
Liability Derivatives:
Zero cost collars	Other current liabilities	$	3,500	$	—


As of March 31, 2020	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
As of March 31, 2020	Gross amounts of recognized liabilities		Gross amounts offset in the balance sheets		Net amounts of liabilities presented in the balance sheets		Financial instruments		Cash collateral pledged			Net amount
Liability Derivatives:
Zero cost collars	$	3,500	$	—	$	3,500	$	—	$	(2,720	)	$	780


As of September 30, 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
As of September 30, 2020	Gross amounts of recognized assets/liabilities		Gross amounts offset in the balance sheets				Financial instruments		Cash collateral pledged		Net amount
Asset Derivatives:
Zero cost collars	$	262	$	0	$	262	$	0	$	0	$	262
Liability Derivatives:
Zero cost collars	$	33	$	0	$	33	$	0	$	0	$	33


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
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		Financial instruments		Cash collateral pledged		Net amount
Asset Derivatives:
Zero cost collars	$	1,456	$	—	$	1,456	$	—	$	1,070	$	2,526


Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)						Location/Amount of Loss Reclassified from AOCI Into Statement of Operations (Effective Portion)								Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives (Ineffective Portion)
	Three Months Ended March 31,								Three Months Ended March 31,								Three Months Ended March 31,
	2020			2019					2020			2019					2020		2019
Zero cost collars	$	(5,004	)	$	34			Net sales	$	(58	)	$	—			Other income, net	$	117	$	—
Forwards	$	—		$	(533	)		Net sales	$	—		$	(89	)		Other income, net	$	—	$	(56	)
Forwards—excluded time value								Net sales	$	—		$	(98	)

	$	(5,004	)	$	(499	)			$	(58	)	$	(187	)			$	117	$	(56	)


Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in AOCI on Derivatives					Location/Amount of Loss Reclassified from AOCI Into Statement of Operations								Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives
	Three Months Ended September 30,							Three Months Ended September 30,								Three Months Ended September 30,
	2020		2019					2020			2019					2020		2019
Zero cost collars	$	1,390	$	(2,803	)��		Net sales	$	(41	)	$	(1,600	)		Other income, net	$	50	$	(33	)


Derivatives in ASC 815 Cash Flow Hedging Relationships	Amount of Loss Recognized in AOCI on Derivatives						Location/Amount of Loss Reclassified from AOCI Into Statement of Operations								Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives
	Nine Months Ended September 30,								Nine Months Ended September 30,								Nine Months Ended September 30,
	2020			2019					2020			2019					2020		2019
Zero cost collars	$	(1,410	)	$	(3,905	)		Net sales	$	(292	)	$	(1,803	)		Other income, net	$	222	$	(44	)
Forwards	$	—		$	(1,798	)		Net sales	$	—		$	(1,750	)		Other income, net	$	—	$	(125	)

	$	(1,410	)	$	(5,703	)			$	(292	)	$	(3,553	)			$	222	$	(169	)


	Carrying Value March 31, 2020		Fair Value Measurement March 31, 2020		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)	$	3,500	$	3,500		—	$	3,500		—

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company