☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2021
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
MagnaChip
S.A
.Title of each class |
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Common Stock, par value $0.01 per share | MX | New York Stock Exchange |
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
Page No. | ||||||
3 | ||||||
Item 1. | Interim Consolidated Financial Statements (Unaudited) | 3 | ||||
3 | ||||||
4 | ||||||
5 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 45 | ||||
Item 4. | Controls and Procedures | 46 | ||||
47 | ||||||
Item 1. | Legal Proceedings | 47 | ||||
Item 1A. | Risk Factors | 47 | ||||
Item 6. | Exhibits | |||||
Item 1. | Interim Consolidated Financial Statements (Unaudited) |
Assets Current assets Cash and cash equivalents Accounts receivable, net Inventories, net Other receivables Prepaid expenses Hedge collateral (Note 9) Other current assets (Notes 10 and 18) Current assets held for sale (Note 2) Total current assets Property, plant and equipment, net Operating leaseright-of-use assets Intangible assets, net Long-term prepaid expenses Othernon-current assets Non-current assets held for sale (Note 2) Total assets Liabilities and Stockholders’ Equity Current liabilities Accounts payable Other accounts payable Accrued expenses Operating lease liabilities Current portion of long-term borrowings, net Other current liabilities (Note 10) Current liabilities held for sale (Note 2) Total current liabilities Long-term borrowings, net Accrued severance benefits, net Othernon-current liabilities Non-current liabilities held for sale (Note 2) Total liabilities 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 Additionalpaid-in capital Accumulated deficit Treasury stock, 9,105,673 shares at March 31, 2020 and 9,051,679 shares at December 31, 2019, respectively Accumulated other comprehensive income (loss) Total stockholders’ deficit Total liabilities and stockholders’ equity March 31,
2020 December 31,
2019 (In thousands of US dollars,
except share data) $ 157,293 $ 151,657 60,688 47,447 37,130 41,404 8,297 10,200 11,148 9,003 13,270 9,820 6,762 10,013 201,619 99,821 496,207 379,365 67,201 73,068 1,413 1,876 2,583 2,769 4,117 5,757 8,439 9,059 — 123,434 $ 579,960 $ 595,328 $ 40,206 $ 40,376 6,379 6,410 41,489 44,799 1,301 1,625 82,328 — 6,982 3,583 142,013 37,040 320,698 133,833 223,012 304,743 48,765 51,181 8,641 9,671 — 110,881 601,116 610,309 442 439 153,286 152,404 (81,880 ) (58,131 ) (107,649 ) (107,033 ) 14,645 (2,660 ) (21,156 ) (14,981 ) $ 579,960 $ 595,328
March 31, 2021 | December 31, 2020 | |||||||
(In thousands of US dollars, except share data) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 290,194 | $ | 279,940 | ||||
Accounts receivable, net | 52,250 | 64,390 | ||||||
Inventories, net | 29,964 | 39,039 | ||||||
Other receivables | 5,649 | 4,338 | ||||||
Prepaid expenses | 9,136 | 7,332 | ||||||
Hedge collateral | 5,250 | 5,250 | ||||||
Other current assets (Notes 10 and 18) | 2,435 | 9,321 | ||||||
Total current assets | 394,878 | 409,610 | ||||||
Property, plant and equipment, net | 91,014 | 96,383 | ||||||
Operating lease right-of-use | 4,592 | 4,632 | ||||||
Intangible assets, net | 2,602 | 2,727 | ||||||
Long-term prepaid expenses | 5,993 | 4,058 | ||||||
Deferred income taxes | 42,906 | 44,541 | ||||||
Other non-current assets | 9,422 | 9,739 | ||||||
Total assets | $ | 551,407 | $ | 571,690 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 43,357 | $ | 52,164 | ||||
Other accounts payable | 8,261 | 2,531 | ||||||
Accrued expenses | 17,867 | 16,241 | ||||||
Accrued income taxes | 1,224 | 12,398 | ||||||
Operating lease liabilities | 2,352 | 2,210 | ||||||
Current portion of long-term borrowings, net | — | 83,479 | ||||||
Other current liabilities (Note 10) | 6,558 | 4,595 | ||||||
Total current liabilities | 79,619 | 173,618 | ||||||
Accrued severance benefits, net | 39,070 | 40,462 | ||||||
Non-current operating lease liabilities | 2,240 | 2,422 | ||||||
Other non-current liabilities | 10,131 | 9,588 | ||||||
Total liabilities | 131,060 | 226,090 | ||||||
Commitments and contingencies (Note 18) | ||||||||
Stockholders’ equity | ||||||||
Common stock, $0.01 par value, 150,000,000 shares authorized, 55,469,375 shares issued and 46,257,413 outstanding at March 31, 2021 and 44,943,854 shares issued and 35,783,347 outstanding at December 31, 2020 | 555 | 450 | ||||||
Additional paid-in capital | 250,829 | 163,010 | ||||||
Retained earnings | 279,361 | 286,834 | ||||||
Treasury stock, 9,211,962 shares at March 31, 2021 and 9,160,507 shares at December 31, 2020, respectively | (109,407 | ) | (108,397 | ) | ||||
Accumulated other comprehensive income (loss) | (991 | ) | 3,703 | |||||
Total stockholders’ equity | 420,347 | 345,600 | ||||||
Total liabilities and stockholders’ equity | $ | 551,407 | $ | 571,690 | ||||
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 | ||||||
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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 | ||||||
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Total cost of sales | 91,343 | 88,244 | ||||||
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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 | — | ||||||
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Total operating expenses | 23,165 | 24,080 | ||||||
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Operating income (loss) | 5,965 | (5,057 | ) | |||||
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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 | ||||||
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Loss from continuing operations before income tax expense | (29,775 | ) | (20,759 | ) | ||||
Income tax expense | 1,303 | 796 | ||||||
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Loss from continuing operations | (31,078 | ) | (21,555 | ) | ||||
Income (loss) from discontinued operations, net of tax | 7,329 | (12,570 | ) | |||||
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Net loss | $ | (23,749 | ) | $ | (34,125 | ) | ||
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Basic and diluted earnings (loss) per common share— | ||||||||
Continuing operations | $ | (0.89 | ) | $ | (0.63 | ) | ||
Discontinued operations | 0.21 | (0.37 | ) | |||||
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Total | $ | (0.68 | ) | $ | (1.00 | ) | ||
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Weighted average number of shares – basic and diluted | 34,893,157 | 34,194,878 |
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
(In thousands of US dollars, except share data) | ||||||||
Revenues: | ||||||||
Net sales – standard products business | $ | 112,906 | $ | 110,736 | ||||
Net sales – transitional Fab 3 foundry services | 10,113 | 9,737 | ||||||
Total revenues | 123,019 | 120,473 | ||||||
Cost of sales: | ||||||||
Cost of sales – standard products business | 79,247 | 81,606 | ||||||
Cost of sales – transitional Fab 3 foundry services | 9,390 | 9,737 | ||||||
Total cost of sales | 88,637 | 91,343 | ||||||
Gross profit | 34,382 | 29,130 | ||||||
Operating expenses: | ||||||||
Selling, general and administrative expenses | 12,634 | 12,102 | ||||||
Research and development expenses | 13,423 | 10,509 | ||||||
Other charges | 10,416 | 554 | ||||||
Total operating expenses | 36,473 | 23,165 | ||||||
Operating income (loss) | (2,091 | ) | 5,965 | |||||
Interest expense | (1,041 | ) | (5,607 | ) | ||||
Foreign currency loss, net | (4,671 | ) | (30,971 | ) | ||||
Other income, net | 620 | 838 | ||||||
Loss from continuing operations before income tax expense | (7,183 | ) | (29,775 | ) | ||||
Income tax expense | 290 | 1,303 | ||||||
Loss from continuing operations | (7,473 | ) | (31,078 | ) | ||||
Income from discontinued operations, net of tax | 0 | 7,329 | ||||||
Net loss | $ | (7,473 | ) | $ | (23,749 | ) | ||
Basic and diluted loss per common share— | ||||||||
Continuing operations | $ | (0.19 | ) | $ | (0.89 | ) | ||
Discontinued operations | 0 | 0.21 | ||||||
Total | $ | (0.19 | ) | $ | (0.68 | ) | ||
Weighted average number of shares – basic and diluted | 40,292,838 | 34,893,157 | ||||||
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
(In thousands of US dollars) | ||||||||
Net loss | $ | (23,749 | ) | $ | (34,125 | ) | ||
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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 | ||||||
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Total other comprehensive income | 17,305 | 6,992 | ||||||
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Total comprehensive loss | $ | (6,444 | ) | $ | (27,133 | ) | ||
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Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
(In thousands of US dollars) | ||||||||
Net loss | $ | (7,473 | ) | $ | (23,749 | ) | ||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustments | (2,058 | ) | 22,251 | |||||
Derivative adjustments | ||||||||
Fair valuation of derivatives | (2,125 | ) | (5,004 | ) | ||||
Reclassification adjustment for loss (gain) on derivatives included in net loss | (511 | ) | 58 | |||||
Total other comprehensive income (loss) | (4,694 | ) | 17,305 | |||||
Total comprehensive loss | $ | (12,167 | ) | $ | (6,444 | ) | ||
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 | ) | |||||||||||||||||||
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Balance at March 31, 2020 | 35,054,682 | $ | 442 | $ | 153,286 | $ | (81,880 | ) | $ | (107,649 | ) | $ | 14,645 | $ | (21,156 | ) | ||||||||||||
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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 | ) | |||||||||||||||||||
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Balance at March 31, 2019 | 34,223,502 | $ | 433 | $ | 143,315 | $ | (70,430 | ) | $ | (106,511 | ) | $ | (13,118 | ) | $ | (46,311 | ) | |||||||||||
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Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||
Common Stock | Retained Earnings (Deficit) | Treasury Stock | Total | |||||||||||||||||||||||||
(In thousands of US dollars, except share data) | Shares | Amount | ||||||||||||||||||||||||||
Three Months Ended March 31, 2021: | ||||||||||||||||||||||||||||
Balance at December 31, 2020 | 35,783,347 | $ | 450 | $ | 163,010 | $ | 286,834 | $ | (108,397 | ) | $ | 3,703 | $ | 345,600 | ||||||||||||||
Stock-based compensation | — | — | 1,646 | — | — | — | 1,646 | |||||||||||||||||||||
Exchange of exchangeable senior notes | 10,144,131 | 101 | 83,639 | — | — | — | 83,740 | |||||||||||||||||||||
Exercise of stock options | 175,760 | 2 | 2,536 | — | — | — | 2,538 | |||||||||||||||||||||
Settlement of restricted stock units | 205,630 | 2 | (2 | ) | — | — | — | — | ||||||||||||||||||||
Acquisition of treasury stock | (51,455 | ) | — | — | — | (1,010 | ) | — | (1,010 | ) | ||||||||||||||||||
Other comprehensive loss, net | — | — | — | — | — | (4,694 | ) | (4,694 | ) | |||||||||||||||||||
Net loss | — | — | — | (7,473 | ) | — | — | (7,473 | ) | |||||||||||||||||||
Balance at March 31, 2021 | 46,257,413 | $ | 555 | $ | 250,829 | $ | 279,361 | $ | (109,407 | ) | $ | (991 | ) | $ | 420,347 | |||||||||||||
Three Months Ended March 31, 2020: | ||||||||||||||||||||||||||||
Balance at December 31, 2019 | 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, 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 | ||||||
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Net cash provided by (used in) operating activities | 21,068 | (11,675 | ) | |||||
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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 | ) | |||||
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Net cash used in investing activities | (7,127 | ) | (9,801 | ) | ||||
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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 | ) | ||||
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Net cash used in financing activities | (1,216 | ) | (3,682 | ) | ||||
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Effect of exchange rates on cash and cash equivalents | (7,089 | ) | (1,468 | ) | ||||
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Net increase (decrease) in cash and cash equivalents | 5,636 | (26,626 | ) | |||||
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Cash and cash equivalents | ||||||||
Beginning of the period | 151,657 | 132,438 | ||||||
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End of the period | $ | 157,293 | $ | 105,812 | ||||
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Supplemental cash flow information | ||||||||
Cash paid for interest | $ | 9,522 | $ | 9,549 | ||||
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Cash paid for income taxes | $ | 1,534 | $ | 1,556 | ||||
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Non-cash investing activities | ||||||||
Property, plant and equipment additions in other accounts payable | $ | 687 | $ | 2,643 | ||||
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Non-cash financing activities | ||||||||
Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation | $ | — | $ | (232 | ) | |||
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Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
(In thousands of US dollars) | ||||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (7,473 | ) | $ | (23,749 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||
Depreciation and amortization | 3,448 | 7,935 | ||||||
Provision for severance benefits | 1,771 | 5,071 | ||||||
Amortization of debt issuance costs and original issue discount | 261 | 598 | ||||||
Loss on foreign currency, net | 14,873 | 38,480 | ||||||
Restructuring and other charges | 9,504 | 2,138 | ||||||
Provision for inventory reserves | 1,504 | 570 | ||||||
Stock-based compensation | 1,646 | 885 | ||||||
Deferred income tax assets | 30 | 23 | ||||||
Others, net | 124 | 107 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable, net | 9,794 | (10,430 | ) | |||||
Unbilled accounts receivable, net | — | 6,937 | ||||||
Inventories | 6,071 | (4,863 | ) | |||||
Other receivables | (1,438 | ) | 1,982 | |||||
Other current assets | 5,427 | 909 | ||||||
Accounts payable | (7,701 | ) | 1,988 | |||||
Other accounts payable | (2,009 | ) | (1,817 | ) | ||||
Accrued expenses | (3,532 | ) | (6,611 | ) | ||||
Accrued income taxes | (10,700 | ) | (274 | ) | ||||
Other current liabilities | 1,087 | 1,336 | ||||||
Other non-current liabilities | 18 | 1,808 | ||||||
Payment of severance benefits | (1,493 | ) | (2,080 | ) | ||||
Others, net | 12 | 125 | ||||||
Net cash provided by operating activities | 21,224 | 21,068 | ||||||
Cash flows from investing activities | ||||||||
Proceeds from settlement of hedge collateral | — | 4,239 | ||||||
Payment of hedge collateral | — | (7,841 | ) | |||||
Purchase of property, plant and equipment | (1,082 | ) | (3,351 | ) | ||||
Payment for intellectual property registration | (171 | ) | (229 | ) | ||||
Payment of guarantee deposits | (76 | ) | — | |||||
Other s , net | (35 | ) | 55 | |||||
Net cash used in investing activities | (1,364 | ) | (7,127 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from exercise of stock options | 2,538 | — | ||||||
Acquisition of treasury stock | (1,540 | ) | (1,021 | ) | ||||
Repayment of financing related to water treatment facility arrangement | (144 | ) | (135 | ) | ||||
Repayment of principal portion of finance lease liabilities | (16 | ) | (60 | ) | ||||
Net cash provided by (used in) financing activities | 838 | (1,216 | ) | |||||
Effect of exchange rates on cash and cash equivalents | (10,444 | ) | (7,089 | ) | ||||
Net increase in cash and cash equivalents | 10,254 | 5,636 | ||||||
Cash and cash equivalents | ||||||||
Beginning of the period | 279,940 | 151,657 | ||||||
End of the period | $ | 290,194 | $ | 157,293 | ||||
Supplemental cash flow information | ||||||||
Cash paid for interest | $ | 2,094 | $ | 9,522 | ||||
Cash paid for income taxes | $ | 9,633 | $ | 1,534 | ||||
Non-cash investing activities | ||||||||
Property, plant and equipment additions in other accounts payable | $ | 622 | $ | 687 | ||||
Non-cash financing activities | ||||||||
Exchange of exchangeable senior notes into common stock | $ | 83,740 | $ | — | ||||
Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation | $ | (114 | ) | $ | — |
MagnaChip
applications
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, 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. See Note 2 “Discontinued Operations and Assets Held for Sale” for additional information. The consolidated statementsstatement of cash flows haveflow for the three months ended March 31, 2020 has not been adjusted to separately disclose the cash flowsflow related to discontinued operations, but the material items in the operating and investing activities of the cash flowsflow relating to discontinued operations arefor the same period is disclosed in Note 2.3. 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
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
Recent Accounting Pronouncements Not Yet Adopted
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards UpdateNo. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU2016-13”). ASU2016-13 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 UpdateNo. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU2019-04”), and in November 2019, the FASB issued Accounting Standards UpdateNo. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses” (“ASU2019-11”) to clarify and address certain items related to the amendments in ASU2016-13. In February 2020, the FASB issued Accounting Standards UpdateNo. 2020-02, “Financial Instruments—Credit Losses (Topic 326)” (“ASU2020-02”), which incorporates SEC SAB 119 (updated from SAB 102) into the ASC by aligning SEC recommended policies and procedures with ASC 326.The Company adopted ASU 2016-13, ASU2019-04, ASU2019-11 and ASU2020-02 as of January 1, 2020, and the adoption
In August 2018,
2.
Transitional Fab 3 Foundry Services was
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 | ) | ||||
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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 | ) | ||||
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Total cost of sales | 55,846 | 46,435 | ||||||
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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 | ||||||
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Total operating expenses | 15,162 | 16,902 | ||||||
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Operating income (loss) from discontinued operations | 5,534 | (13,224 | ) | |||||
Foreign currency gain, net | 2,097 | 613 | ||||||
Other income | 107 | 86 | ||||||
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Income (loss) from discontinued operations before income tax expense | 7,738 | (12,525 | ) | |||||
Income tax expense | 409 | 45 | ||||||
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Income (loss) from discontinued operations, net of tax | $ | 7,329 | $ | (12,570 | ) | |||
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2020.
Three Months Ended | ||||
March 31, 2020 | ||||
(In thousands of US dollars) | ||||
Revenues: | ||||
Net sales – Foundry Services Group | $ | 86,279 | ||
Net sales – transitional Fab 3 foundry services | (9,737 | ) | ||
Total revenues | 76,542 | |||
Cost of sales: | ||||
Cost of sales – Foundry Services Group | 65,583 | |||
Cost of sales – transitional Fab 3 foundry services | (9,737 | ) | ||
Total cost of sales | 55,846 | |||
Gross profit | 20,696 | |||
Operating expenses: | ||||
Selling, general and administrative expenses | 5,644 | |||
Research and development expenses | 7,403 | |||
Restructuring and other charges | 2,115 | |||
Total operating expenses | 15,162 | |||
Operating income from discontinued operations | 5,534 | |||
Foreign currency gain, net | 2,097 | |||
Other income | 107 | |||
Income from discontinued operations before income tax expense | 7,738 | |||
Income tax expense | 409 | |||
Income from discontinued operations, net of tax | $ | 7,329 | ||
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 are included in assets and liabilities held for sale 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 | — | ||||||
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Total current assets held for sale | $ | 89,429 | $ | 99,821 | ||||
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Property, plant and equipment, net | 99,604 | 109,506 | ||||||
Intangible assets, net | 1,202 | 1,245 | ||||||
Othernon-current assets | 11,384 | 12,683 | ||||||
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Total assets held for sale | $ | 201,619 | $ | 223,255 | ||||
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Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 20,462 | $ | 20,503 | ||||
Other current liabilities | 14,773 | 16,537 | ||||||
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Total current liabilities held for sale | $ | 35,235 | $ | 37,040 | ||||
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Accrued severance benefits, net | 93,121 | 95,547 | ||||||
Othernon-current liabilities | 13,657 | 15,334 | ||||||
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Total liabilities held for sale | $ | 142,013 | $ | 147,921 | ||||
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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.
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 | ) |
3. Sales
Three Months Ended | ||||
March 31, 2020 | ||||
(In thousands of US dollars) | ||||
Significant non-cash operating activities: | ||||
Depreciation and amortization | $ | 5,365 | ||
Provision for severance benefits | 3,052 | |||
Stock-based compensation | 123 | |||
Investing activities: | ||||
Capital expenditures | $ | (1,479 | ) |
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 | ) | ||||
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Inventories, net | $ | 37,130 | $ | 41,404 | ||||
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March 31, 2021 | December 31, 2020 | |||||||
Finished goods | $ | 4,660 | $ | 6,425 | ||||
Semi-finished goods and work-in-process | 24,449 | 30,968 | ||||||
Raw materials | 6,400 | 6,526 | ||||||
Materials in-transit | 736 | 1,021 | ||||||
Less: inventory reserve | (6,281 | ) | (5,901 | ) | ||||
Inventories, net | $ | 29,964 | $ | 39,039 | ||||
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 | ||||||
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(369 | ) | (4,597 | ) | |||||
Write off | 499 | 592 | ||||||
Translation adjustments | 316 | 160 | ||||||
Reclassified to assets held for sale | 694 | — | ||||||
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Ending balance | $ | (4,807 | ) | $ | (8,690 | ) | ||
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Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Beginning balance | $ | (5,901 | ) | $ | (5,947 | ) | ||
Change in reserve | ||||||||
Inventory reserve charged to costs of sales | (2,164 | ) | (1,275 | ) | ||||
Sale of previously reserved inventory | 634 | 906 | ||||||
(1,530 | ) | (369 | ) | |||||
Write off | 902 | 499 | ||||||
Translation adjustments | 248 | 316 | ||||||
Reclassified to assets held for sale | — | 694 | ||||||
Ending balance | $ | (6,281 | ) | $ | (4,807 | ) | ||
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 | ||||||
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127,691 | 134,520 | |||||||
Less: accumulated depreciation | (73,987 | ) | (75,704 | ) | ||||
Land | 13,497 | 14,252 | ||||||
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Property, plant and equipment, net | $ | 67,201 | $ | 73,068 | ||||
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March 31, 2021 | December 31, 2020 | |||||||
Buildings and related structures | $ | 24,110 | $ | 24,882 | ||||
Machinery and equipment | 102,365 | 106,244 | ||||||
Finance lease right-of-use | 330 | 344 | ||||||
Others | 39,600 | 40,116 | ||||||
166,405 | 171,586 | |||||||
Less: accumulated depreciation | (89,948 | ) | (90,370 | ) | ||||
Land | 14,557 | 15,167 | ||||||
Property, plant and equipment, net | $ | 91,014 | $ | 96,383 | ||||
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.
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 | ||||||||
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Intangible assets, net | $ | 24,181 | $ | (21,598 | ) | $ | 2,583 | |||||
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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 | ||||||||
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Intangible assets, net | $ | 25,392 | $ | (22,623 | ) | $ | 2,769 | |||||
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March 31, 2021 | ||||||||||||
Gross amount | Accumulated amortization | Net amount | ||||||||||
Intellectual property assets | $ | 9,288 | $ | (6,686 | ) | $ | 2,602 | |||||
Intangible assets | $ | 9,288 | $ | (6,686 | ) | $ | 2,602 | |||||
December 31, 2020 | ||||||||||||
Gross amount | Accumulated amortization | Net amount | ||||||||||
Intellectual property assets | $ | 9,486 | $ | (6,759 | ) | $ | 2,727 | |||||
Intangible assets | $ | 9,486 | $ | (6,759 | ) | $ | 2,727 | |||||
The Company adopted the new lease accounting standard as of January 1, 2019, using the modified retrospective transition method. The tables below present financial information related to the Company’s leases
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 | |||||||
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Total lease assets | $ | 1,642 | $ | 2,134 | ||||||
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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 | |||||||
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Total lease liabilities | $ | 1,653 | $ | 2,144 | ||||||
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Leases | Classification | March 31, 2021 | December 31, 2020 | |||||||
Assets | ||||||||||
Operating lease | Operating lease right-of-use assets | $ | 4,592 | $ | 4,632 | |||||
Finance lease | Property, plant and equipment, net | 181 | 206 | |||||||
Total lease assets | $ | 4,773 | $ | 4,838 | ||||||
Liabilities | ||||||||||
Current | ||||||||||
Operating | Operating lease liabilities | $ | 2,352 | $ | 2,210 | |||||
Finance | Other current liabilities | 67 | 68 | |||||||
Non-current | ||||||||||
Operating | Non-current operating lease liabilities | 2,240 | 2,422 | |||||||
Finance | Other non-current liabilities | 130 | 153 | |||||||
Total lease liabilities | $ | 4,789 | $ | 4,853 | ||||||
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 | % |
March 31, 2021 | December 31, 2020 | |||||||
Weighted average remaining lease term | ||||||||
Operating leases | 2.9 years | 3.0 years | ||||||
Finance leases | 2.8 years | 3.0 years | ||||||
Weighted average discount rate | ||||||||
Operating leases | 5.15 | % | 5.55 | % | ||||
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 | ||||||
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Total lease cost | $ | 489 | $ | 548 | ||||
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Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Operating lease cost | $ | 680 | $ | 468 | ||||
Finance lease cost | ||||||||
Amortization of right-of-use | 17 | 16 | ||||||
Interest on lease liabilities | 4 | 5 | ||||||
Total lease cost | $ | 701 | $ | 489 | ||||
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 | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases | $ | 680 | $ | 468 | ||||
Operating cash flows from finance leases | 4 | 5 | ||||||
Financing cash flows from finance leases | 16 | 14 |
Operating Leases | Finance Leases | |||||||
2020 | $ | 1,192 | $ | 55 | ||||
2021 | 254 | 74 | ||||||
2022 | 21 | 74 | ||||||
2023 | 1 | 74 | ||||||
Thereafter | — | — | ||||||
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Total future lease payments | 1,468 | 277 | ||||||
Less: Imputed interest | (55 | ) | (37 | ) | ||||
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Present value of future payments | $ | 1,413 | $ | 240 | ||||
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Operating Leases | Finance Leases | |||||||
Remainder of 2021 | $ | 1,979 | $ | 60 | ||||
2022 | 1,349 | 79 | ||||||
2023 | 663 | 79 | ||||||
2024 | 540 | 0 | ||||||
2025 | 407 | 0 | ||||||
Total future lease payments | 4,938 | 218 | ||||||
Less: Imputed interest | (346 | ) | (21 | ) | ||||
Present value of future payments | $ | 4,592 | $ | 197 | ||||
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 | ||||||
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Accrued expenses | $ | 41,489 | $ | 44,799 | ||||
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March 31, 2021 | December 31, 2020 | |||||||
Payroll, benefits and related taxes, excluding severance benefits | $ | 9,380 | $ | 10,296 | ||||
Withholding tax attributable to intercompany interest income | 512 | 28 | ||||||
Interest on senior notes | — | 1,396 | ||||||
Outside service fees | 1,461 | 755 | ||||||
Restructuring and others | 5,925 | 2,658 | ||||||
Others | 589 | 1,108 | ||||||
Accrued expenses | $ | 17,867 | $ | 16,241 | ||||
Date of transaction | Total | Month of settlement | ||||
July 13, 2020 | $ | 15,000 | April 2021 to June 2021 | |||
December 15, 2020 | $ | 30,000 | July 2021 to December 2021 | |||
December 18, 2020 | $ | 9,000 | April 2021 to June 2021 | |||
February 26, 2021 | $ | 18,000 | July 2021 to December 2021 |
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 |
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 |
The
Date of transaction | Total | Month of settlement | ||||
July 13, 2020 | $ | 30,000 | January 2021 to | |||
December 15, 2020 | $ | 30,000 | July 2021 to December 2021 | |||
December 18, 2020 | $ | 18,000 | March 2021 to June 2021 |
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: | March 31, 2021 | December 31, 2020 | ||||||||||
Asset Derivatives: | ||||||||||||
Zero cost collars | Other current assets | $ | 393 | $ | 2,036 | |||||||
Liability Derivatives: | ||||||||||||
Zero cost collars | Other current liabilities | $ | 1,243 | $ | 195 |
As of March 31, 2021 | 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 | $ | 393 | $ | 0 | $ | 393 | $ | 0 | $ | 0 | $ | 393 | ||||||||||||
Liability Derivatives: | ||||||||||||||||||||||||
Zero cost collars | $ | 1,243 | $ | 0 | $ | 1,243 | $ | 0 | $ | 0 | $ | 1,243 |
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 |
Offsetting
As of December 31, 2020 | Gross amounts of recognized assets/liabilities | Gross amounts offset in the balance sheets | Net amounts of assets/liabilities presented in the balance sheets | Gross amounts not offset in the balance sheets | Net amount | |||||||||||||||||||
Financial instruments | Cash collateral pledged | |||||||||||||||||||||||
Asset Derivatives: | ||||||||||||||||||||||||
Zero cost collars | $ | 2,036 | $ | 0 | $ | 2,036 | $ | 0 | $ | 0 | $ | 2,036 | ||||||||||||
Liability Derivatives: | ||||||||||||||||||||||||
Zero cost collars | $ | 195 | $ | 0 | $ | 195 | $ | 0 | $ | 0 | $ | 195 |
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 | ) | ||||||||||||||||||||||||||
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$ | (5,004 | ) | $ | (499 | ) | $ | (58 | ) | $ | (187 | ) | $ | 117 | $ | (56 | ) | ||||||||||||||||
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Derivatives in ASC 815 Cash Flow Hedging Relationships | Amount of Loss Recognized in AOCI on Derivatives | Location/Amount of Gain (Loss) Reclassified from AOCI Into Statement of Operations | Location/Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives | |||||||||||||||||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||
Zero cost collars | $ | (2,125 | ) | $ | (5,004 | ) | Net sales | $ | 511 | $ | (58 | ) | Other income, net | $ | (86 | ) | $ | 117 | ||||||||||||||
$ | (2,125 | ) | $ | (5,004 | ) | $ | 511 | $ | (58 | ) | $ | (86 | ) | $ | 117 | |||||||||||||||||
Cash deposits as of March 31, 2021 and December 31, 2020 are as follows (in thousands):
Counterparties | March 31, 2021 | December 31, 2020 | ||||||
NFIK | $ | 3,250 | $ | 3,250 | ||||
DB | 1,000 | 1,000 | ||||||
SC | 1,000 | 1,000 | ||||||
Total | $ | 5,250 | $ | 5,250 | ||||
2020.
obtained.
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 March 31, 2021 | Fair Value Measurement March 31, 2021 | 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) | $ | 393 | $ | 393 | — | $ | 393 | — | ||||||||||||
Liabilities: | ||||||||||||||||||||
Derivative liabilities (other current liabilities) | $ | 1,243 | $ | 1,243 | — | $ | 1,243 | — |
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 | — |
Carrying Value December 31, 2020 | Fair Value Measurement December 31, 2020 | Quoted Prices in Active Markets for Identical Asset / Liability (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
Assets: | ||||||||||||||||||||
Derivative assets (other current assets) | $ | 2,036 | $ | 2,036 | — | $ | 2,036 | — | ||||||||||||
Liabilities: | ||||||||||||||||||||
Derivative liabilities (other current liabilities) | $ | 195 | $ | 195 | — | $ | 195 | — |
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 |
December 31, 2020 | ||||||||
Carrying Value | Fair Value | |||||||
(In thousands of U.S. dollars) | ||||||||
Borrowings: | ||||||||
5.0% Exchangeable Senior Notes due March 2021 (Level 2) | $ | 83,479 | $ | 145,466 |
On July 18, 2013, the Company issued 6.625% Senior Notes due July 15, 2021 (the “2021 Notes”) of $225,000 thousand, which represents the principal amount, excluding $1,125 thousand of original issue discount and $5,039 thousand of debt issuance costs. In December 2018 and January 2019, the Company repurchased a principal amount equal to $500 thousand and $250 thousand, respectively, of the 2021 Notes in the open market. The Company estimates the fair value of the 2021 Notes using the market approach, which utilizes quoted market prices that fall under Level 2. For further description of the 2021 Notes, see Note 11, “Borrowings.”
Borrowings
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 | ||||
|
|
|
|
December 31, | ||||
2020 | ||||
5.0% Exchangeable Senior Notes due March 2021 | $ | 83,740 | ||
Less: unamortized discount and debt issuance costs | (261 | ) | ||
Total borrowings, net | 83,479 | |||
Less: current portion of long-term borrowings, net | 83,479 | |||
Long-term borrowings, net | $ | 0 | ||
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.
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.
of the Exchangeable Notes in the open market, resulting in a loss of $63 thousand, which was recorded as loss on early extinguishment of borrowings, net in the consolidated statements of operations for the year ended December 31, 2019. 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,
6.625% Senior Notes
On July 18, 2013,Exchangeable Notes. Upon conversion, the Company issued a $225,000,000 aggregatedelivered for each $1,000 principal amount of converted Exchangeable Notes a number of shares equal to the 2021 Notes at a price of 99.5%. Interest on the 2021 Notes accrues at aexchange rate of 6.625%121.1387 shares of common stock 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$1,000 principal amount of Exchangeable Notes, which was equivalent to an exchange price of approximately $8.26 per share of common stock. In connection with the notes plus accrued and unpaid interest and special interest, if any, onexchanges, the notes redeemed, to the applicable date of redemption.
The Indenture relating to thefractional shares were paid in cash. Following March 1, 2021, Notes contains covenants that limit the ability of the Company and its restricted subsidiaries to: (i) declare or paydoes not have any dividend or make any payment or distribution on accountExchangeable Notes outstanding.
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 | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Beginning balance | $ | 54,452 | $ | 53,344 | ||||
Provisions | 1,771 | 2,019 | ||||||
Severance payments | (1,493 | ) | (1,952 | ) | ||||
Translation adjustments | (2,177 | ) | (2,801 | ) | ||||
52,553 | 50,610 | |||||||
Less: Cumulative contributions to severance insurance deposit accounts | (13,212 | ) | (1,557 | ) | ||||
The National Pension Fund | (61 | ) | (75 | ) | ||||
Group severance insurance plan | (210 | ) | (213 | ) | ||||
Accrued severance benefits, net | $ | 39,070 | $ | 48,765 | ||||
In
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 2021 | $ | 79 | ||
2022 | 261 | |||
2023 | 653 | |||
2024 | 935 | |||
2025 | 2,062 | |||
2026 | 2,364 | |||
2027 – 2031 | 19,921 |
A
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, 2020, the Company entered into the BTA to sell its Foundry business and Fab 4. The planned 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 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.
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 | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Revenues | ||||||||
Standard products business | ||||||||
Display Solutions | $ | 58,895 | $ | 77,593 | ||||
Power Solutions | 54,011 | 33,143 | ||||||
Total standard products business | $ | 112,906 | $ | 110,736 | ||||
Transitional Fab 3 foundry services | 10,113 | 9,737 | ||||||
Total revenues | $ | 123,019 | $ | 120,473 | ||||
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Gross Profit | ||||||||
Standard products business | $ | 33,659 | $ | 29,130 | ||||
Transitional Fab 3 foundry services | 723 | — | ||||||
Total gross profit | $ | 34,382 | $ | 29,130 | ||||
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 | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Korea | $ | 26,434 | $ | 30,817 | ||||
Asia Pacific (other than Korea) | 83,740 | 77,542 | ||||||
United States | 1,274 | 709 | ||||||
Europe | 1,243 | 971 | ||||||
Others | 215 | 697 | ||||||
Total | $ | 112,906 | $ | 110,736 | ||||
10.0% of its net sales – standard products business. For the three months ended March 31, 2020, the Company had two customers that represented 52.8% and 15.8% of its net sales – standard products business. For the three months ended March 31, 2019, the Company had two customers that represented 45.0% and 11.6% of its net sales – standard products business.
95% of the Company’s property, plant and equipment from continuing operations are located in Korea as
2021 and December 31, 2020, one customer accounted for 33.1% and 45.1% of accounts receivable, respectively.
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 | ) | |||
|
|
|
|
March 31, 2021 | December 31, 2020 | |||||||
Foreign currency translation adjustments | $ | 11 | $ | 2,069 | ||||
Derivative adjustments | (1,002 | ) | 1,634 | |||||
Total | $ | (991 | ) | $ | 3,703 | |||
Three Months Ended March 31, 2021 | Foreign currency translation adjustments | Derivative adjustments | Total | |||||||||
Beginning balance | $ | 2,069 | $ | 1,634 | $ | 3,703 | ||||||
Other comprehensive loss before reclassifications | (2,058 | ) | (2,125 | ) | (4,183 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income | — | (511 | ) | (511 | ) | |||||||
Net current-period other comprehensive loss | (2,058 | ) | (2,636 | ) | (4,694 | ) | ||||||
Ending balance | $ | 11 | $ | (1,002 | ) | $ | (991 | ) |
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 | ) | |||
|
|
|
|
|
|
There was no income tax impact related to changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2020 and 2019 due to net operating loss carry-forwards available to offset taxable income and full allowance for deferred tax assets.
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 | ) | ||
|
|
|
|
2020:
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
(In thousands of US dollars, except share data) | ||||||||
Basic and diluted loss per share | ||||||||
Loss from continuing operations | $ | (7,473 | ) | $ | (31,078 | ) | ||
Income from discontinued operations, net of tax | 0 | 7,329 | ||||||
Net loss | $ | (7,473 | ) | $ | (23,749 | ) | ||
Weighted average number of shares – basic and diluted | 40,292,838 | 34,893,157 | ||||||
Basic and diluted loss per common share | ||||||||
Continuing operations | $ | (0.19 | ) | $ | (0.89 | ) | ||
Discontinued operations | 0 | 0.21 | ||||||
Total | $ | (0.19 | ) | $ | (0.68 | ) | ||
Three Months Ended | ||||||||
March 31, 2020 | March 31, 2019 | |||||||
Options | 2,163,845 | 2,632,300 | ||||||
Restricted Stock Units | 729,939 | 508,943 |
Three Months Ended | ||||||||
March 31, 2021 | March 31, 2020 | |||||||
Options | 1,471,421 | 2,163,845 | ||||||
Restricted Stock Units | 1,109,572 | 729,939 |
period.
Long-term Purchase Agreements and
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, 2020 and December 31, 2019, respectively.
Whilere-imposition
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
automotive electronics. 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.2,9501,200 registered patents and pending applications and extensive engineering and manufacturing process expertise.On March 30, 2020, we entered into the BTA for the sale of our Foundry Services Group business and Fab 4. The planned divestiture of the Foundry Services Group business and Fab 4 will allow us to strategically shift our operational focus to our standard products business. As a result, the results of the Foundry Services Group were classified as discontinued operations in our consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Accordingly, from 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 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 the sale of the Foundry business and Fab 4.provideprovides flat panel display solutions to major suppliers of large and small rigid and flexibleflat panel displays, and mobile, automotive applications and home appliances. Our Display Solutionsdisplays. These products include source and gate drivers and timing controllers andone-chip integrated solutions for LCD (Liquid Crystal Display) and OLEDthat cover a wide range of flat panel displays used in televisions, public displays, monitors notebooks, mobile communications, automotives, entertainment devices, notebook PCs, monitors and automotive applications.liquid crystal display (LCD), organic light emitting diodes (OLED) and Micro light emitting diode (LED) televisions. Our Display Solutions products support the industry’s most advanced display technologies, such as OLEDs, and low temperature polysilicons (LTPS), as well as high-volume display technologies such as thin film transistors (TFT)(LTPS TFTs) and amorphous silicon thin film transistorsICintegrated circuit (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.consumercomputing, industrial and industrialautomotive applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),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, andtablets, servers, telecommunication power, home appliances, industrial applications such as uninterruptible power suppliers,supplies (UPSs), LED lighting, personal mobility, motor controldrives, battery management systems (BMS) and home appliances. 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.
Business Transfer Agreement
date.
While we Although some of these restrictions and other containment measures have since been lifted or scaled back, ongoing surges of
Repurchase
Net Income (Loss) Interest expense, net Income tax expense Depreciation and amortization EBITDA Adjustments Restructuring and other charges(a) Equity-based compensation expense(b) Foreign currency loss (gain), net(c) Derivative valuation loss (gain), net(d) Loss on early extinguishment of long-term borrowings, net(e) Others(f) Adjusted EBITDA Non-US (Loss) (Loss) (including on a per share basis) in our report.this Report. Adjusted EBITDA, as we define it, is anon-US restructuring and other charges, (ii) equity-based compensation expense, (iii)(ii) foreign currency loss, (gain), net, (iv)(iii) derivative valuation loss (gain), net (v) loss on early extinguishment of long-term borrowings, net and (vi) others.(iv) other charges. EBITDA for the periods indicated is defined as net income (loss)loss from continuing operations before interest expense, net, income tax expense, and depreciation and amortization.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)loss from continuing operations 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) $ (31.1 ) $ 7.3 $ (23.7 ) $ (21.6 ) $ (12.6 ) $ (34.1 ) 4.9 — 4.9 5.1 — 5.1 1.3 0.4 1.7 0.8 0.0 0.8 2.6 5.4 7.9 2.6 5.8 8.3 (22.3 ) 13.1 (9.2 ) (13.1 ) (6.8 ) (19.9 ) — 2.1 2.1 — 2.9 2.9 0.8 0.1 0.9 0.6 0.1 0.7 31.0 (2.1 ) 28.9 10.6 (0.6 ) 10.0 (0.1 ) — (0.1 ) 0.1 — 0.1 — — — 0.0 — 0.0 0.6 — 0.6 0.6 — 0.6 $ 9.9 $ 13.2 $ 23.1 $ (1.3 ) $ (4.4 ) $ (5.7 )
Ended
March 31,
2021
Ended
March 31,
2020 $ (7.5 ) $ (31.1 ) 0.4 4.9 0.3 1.3 3.4 2.6 3.3 (22.3 ) 1.6 0.8 4.7 31.0 0.1 (0.1 ) 10.4 0.6 $ 13.5 $ 9.9
(a) |
|
This adjustment eliminates the impact of |
This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligationsnon-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. |
This adjustment eliminates the impact of gain or loss recognized in income on 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 |
For the three months ended March 31, 2021, this adjustment eliminates non-recurring professional fees and certain transaction related expenses incurred in connection with the |
Merger. For the three months ended March 31, 2020, this adjustment eliminates |
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 readersinvestors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in evaluating our core operating results because it eliminates the effects ofnon-cash expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantlyability to generate income from period to period.
(ii) other charges.
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 | ||||||||||||||||||
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Adjusted Net Income (Loss) | $ | 1.1 | $ | 7.5 | $ | 8.6 | $ | (9.7 | ) | $ | (10.2 | ) | $ | (19.9 | ) | |||||||||
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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 March 31, 2021 | Three Months Ended March 31, 2020 | |||||||
(In millions) | ||||||||
Operating income (loss) | $ | (2.1 | ) | $ | 6.0 | |||
Adjustments: | ||||||||
Equity-based compensation expense(a) | 1.6 | 0.8 | ||||||
Other charges(b) | 10.4 | 0.6 | ||||||
Adjusted Operating Income | $ | 10.0 | $ | 7.3 | ||||
(a) |
|
This adjustment eliminates the impact of |
For the three months ended March 31, 2021, this adjustment eliminates $10.4 million, of which $9.8 million related to non-recurring professional fees and certain transaction related expenses incurred in connection with the Merger. For the three months ended March 31, 2020, this adjustment eliminatesnon-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. As these expenses meaningfully impacted our operating results and are not expected to represent an ongoing operating expense to us, we believe our operating performance results are more usefully compared if these expenses are excluded. |
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||
(In millions, except per share data) | ||||||||
Loss from continuing operations | $ | (7.5 | ) | $ | (31.1 | ) | ||
Adjustments: | ||||||||
Equity-based compensation expense(a) | 1.6 | 0.8 | ||||||
Foreign currency loss, net(b) | 4.7 | 31.0 | ||||||
Derivative valuation loss (gain), net(c) | 0.1 | (0.1 | ) | |||||
Other charges(d) | 10.4 | 0.6 | ||||||
Income tax effect on non-GAAP adjustments(e) | — | — | ||||||
Adjusted Net Income | $ | 9.3 | $ | 1.1 | ||||
Reported loss per share—basic | $ | (0.19 | ) | $ | (0.89 | ) | ||
Reported loss per share—diluted | $ | (0.19 | ) | $ | (0.89 | ) | ||
Weighted average number of shares—basic | 40,292,838 | 34,893,157 | ||||||
Weighted average number of shares—diluted | 40,292,838 | 34,893,157 | ||||||
Adjusted earnings per share—basic | $ | 0.23 | $ | 0.03 | ||||
Adjusted earnings per share—diluted | $ | 0.22 | $ | 0.03 | ||||
Weighted average number of shares—basic | 40,292,838 | 34,893,157 | ||||||
Weighted average number of shares—diluted | 47,470,416 | 35,883,200 |
(a) | This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incurnon-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of thesenon-cash expenses as supplemental information. |
(b) | This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligationsnon-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. |
This adjustment eliminates the impact of gain or loss recognized in income on 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 |
For the three months ended March 31, 2021, this adjustment eliminates non-recurring professional fees and certain transaction related expenses incurred in connection with the |
Merger. For the three months ended March 31, 2020, this adjustment eliminates |
(e) | For the three months ended March 31, |
There was no tax impact from the adjustments to net income (loss) to calculate our Adjusted Net Income (Loss) for the three months ended March 31, 2020 and 2019 due to net operating loss carry-forwards available to offset taxable income and full allowance for deferred tax assets.
as a supplement.
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. September 1, 2023 at an agreed upon cost plus a
non-USUSU.S. dollars converted from ournon-USUSU.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 ofUSU.S. dollars. As of March 31, 2020,2021, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $684.0$381.8 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.
On September 1, 2020, we completed the sale for a purchase price equal to approximately $350.6 million in cash.
2020
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 | |||||||||||||||
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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 | |||||||||||||||
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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 | |||||||||||||||
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Operating income (loss) | 6.0 | 5.0 | (5.1 | ) | (4.7 | ) | 11.0 | |||||||||||||
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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 | |||||||||||||||
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(35.7 | ) | (29.7 | ) | (15.7 | ) | (14.6 | ) | (20.0 | ) | |||||||||||
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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 | |||||||||||||||
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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 | ||||||||
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Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||||||||||||||
Amount | % of Total revenues | Amount | % of Total revenues | Change Amount | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | $ | 112.9 | 91.8 | % | $ | 110.7 | 91.9 | % | $ | 2.2 | ||||||||||
Net sales – transitional Fab 3 foundry services | 10.1 | 8.2 | 9.7 | 8.1 | 0.4 | |||||||||||||||
Total revenues | 123.0 | 100.0 | 120.5 | 100.0 | 2.5 | |||||||||||||||
Cost of sales | ||||||||||||||||||||
Cost of sales – standard products business | 79.2 | 64.4 | 81.6 | 67.7 | (2.4 | ) | ||||||||||||||
Cost of sales – transitional Fab 3 foundry services | 9.4 | 7.6 | 9.7 | 8.1 | (0.3 | ) | ||||||||||||||
Total cost of sales | 88.6 | 72.1 | 91.3 | 75.8 | (2.7 | ) | ||||||||||||||
Gross profit | 34.4 | 27.9 | 29.1 | 24.2 | 5.3 | |||||||||||||||
Selling, general and administrative expenses | 12.6 | 10.3 | 12.1 | 10.0 | 0.5 | |||||||||||||||
Research and development expenses | 13.4 | 10.9 | 10.5 | 8.7 | 2.9 | |||||||||||||||
Other charges | 10.4 | 8.5 | 0.6 | 0.5 | 9.9 | |||||||||||||||
Operating income (loss) | (2.1 | ) | (1.7 | ) | 6.0 | 5.0 | (8.1 | ) | ||||||||||||
Interest expense | (1.0 | ) | (0.8 | ) | (5.6 | ) | (4.7 | ) | 4.6 | |||||||||||
Foreign currency loss, net | (4.7 | ) | (3.8 | ) | (31.0 | ) | (25.7 | ) | 26.3 | |||||||||||
Others, net | 0.6 | 0.5 | 0.8 | 0.7 | (0.2 | ) | ||||||||||||||
(5.1 | ) | (4.1 | ) | (35.7 | ) | (29.7 | ) | 30.6 | ||||||||||||
Loss from continuing operations before income tax expense | (7.2 | ) | (5.8 | ) | (29.8 | ) | (24.7 | ) | 22.6 | |||||||||||
Income tax expense | 0.3 | 0.2 | 1.3 | 1.1 | (1.0 | ) | ||||||||||||||
Loss from continuing operations | (7.5 | ) | (6.1 | ) | (31.1 | ) | (25.8 | ) | 23.6 | |||||||||||
Income from discontinued operations, net of tax | — | — | 7.3 | 6.1 | (7.3 | ) | ||||||||||||||
Net loss | $ | (7.5 | ) | (6.1 | ) | $ | (23.7 | ) | (19.7 | ) | $ | 16.3 | ||||||||
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 | ) | ||||||||||||||
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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 | |||||||||||||||
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Total revenues | $ | 120.5 | 100.0 | % | $ | 107.3 | 100.0 | % | $ | 13.2 | ||||||||||
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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 | — | — | — | — | — | |||||||||||||||
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Total gross profit | $ | 29.1 | 24.2 | % | $ | 19.0 | 17.7 | % | $ | 10.1 | ||||||||||
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Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||||||||||||||
Amount | % of Total Revenues | Amount | % of Total Revenues | Change Amount | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Net sales – standard products business | ||||||||||||||||||||
Display Solutions | $ | 58.9 | 47.9 | % | $ | 77.6 | 64.4 | % | $ | (18.7 | ) | |||||||||
Power Solutions | 54.0 | 43.9 | 33.1 | 27.5 | 20.9 | |||||||||||||||
Total standard products business | 112.9 | 91.8 | 110.7 | 91.9 | 2.2 | |||||||||||||||
Net sales – transitional Fab 3 foundry services | 10.1 | 8.2 | 9.7 | 8.1 | 0.4 | |||||||||||||||
Total revenues | $ | 123.0 | 100.0 | % | $ | 120.5 | 100.0 | % | $ | 2.5 | ||||||||||
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||||||||||||||
Amount | % of Net sales | Amount | % of Net sales | Change Amount | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Gross Profit | ||||||||||||||||||||
Gross profit – standard products business | $ | 33.7 | 29.8 | % | $ | 29.1 | 26.3 | % | $ | 4.5 | ||||||||||
Gross profit – transitional Fab 3 foundry services | 0.7 | 7.1 | — | — | 0.7 | |||||||||||||||
Total gross profit | $ | 34.4 | 27.9 | % | $ | 29.1 | 24.2 | % | $ | 5.3 | ||||||||||
The transitional Fab 3 foundry services. Net sales form the transitional Fab 3 foundry services were $9.7 million and $7.0 million for the three months ended March 31, 2020 and 2019, respectively.
Gross Profit
Total gross profit was $29.1 million for the three months ended March 31, 2020 compared to $19.0 million for the three months ended March 31, 2019, a $10.1 million, or 53.1%18.0%, increase. Gross profit as a percentage of net sales for the three months ended March 31, 20202021 increased to 24.2%27.9% compared to 17.7%24.2% for the three months ended March 31, 2019.2020. The increase in gross profit and gross profit as a percentage of net sales was primarily due to our standard products business as further described below.
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 | |||||||||||||||
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$ | 110.7 | 100.0 | % | $ | 100.3 | 100.0 | % | $ | 10.5 | |||||||||||
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2020:
Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | |||||||||||||||||||
Amount | % of Net Sales – standard products business | Amount | % of Net Sales – standard products business | Change Amount | ||||||||||||||||
(In millions) | ||||||||||||||||||||
Korea | $ | 26.4 | 23.4 | % | $ | 30.8 | 27.8 | % | $ | (4.4 | ) | |||||||||
Asia Pacific (other than Korea) | 83.7 | 74.2 | 77.5 | 70.0 | 6.2 | |||||||||||||||
United States | 1.3 | 1.1 | 0.7 | 0.6 | 0.6 | |||||||||||||||
Europe | 1.2 | 1.1 | 1.0 | 0.9 | 0.3 | |||||||||||||||
Others | 0.2 | 0.2 | 0.7 | 0.6 | (0.5 | ) | ||||||||||||||
$ | 112.9 | 100.0 | % | $ | 110.7 | 100.0 | % | $ | 2.2 | |||||||||||
power products such as MOSFETs, including
ResearchandDevelopmentExpenses. Research and development expenses were $10.5 million, or 8.7% of total revenues, for the three months ended March 31, 2020, compared to $12.02020. The increase of $2.9 million, or 11.2%27.7%, was primarily attributable to an increase in development activities for our
Other Charges.certain transaction related expenses incurred in connection with the Merger. 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.
(Expense)
Loss on Early Extinguishment of Long-Term Borrowings,
Others,Net.
Income Tax Expense
Income tax expense were $1.3 million and $0.8 million, respectively.
2020.
As a result of for the foregoing, a netthree months ended March 31, 2021 was $7.5 million compared to loss from continuing operations decreased by $9.5of $31.1 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. As discussed above, the increase2020. The $23.6 million improvement in net lossresults from continuing operations was primarily resulted fromattributable to a $20.4$26.3 million increaseimprovement in net foreign currency loss and a $4.6 million decrease in interest expense, which waswere offset in part by an $11.0$8.1 million increasedecrease in operating income.
Tax
Net income Income from discontinued operations, for the three months ended March 31, 2020net of tax was $7.3 million compared to net loss from discontinued operations of $12.6 million for the three months ended March 31, 2019. The $19.92020. On September 1, 2020, we completed the sale of our Foundry Services Group business and Fab 4 for a purchase price equal to approximately $350.6 million increase in net incomecash. We have not incurred a gain or loss from discontinued operations primarily resulted from a $17.0 million increase in gross profit, a $1.5 million increase2021 as the sale of the Foundry Service Group business and Fab 4 was completed 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 million decrease in selling, general and administrative expenses, which was offset in part by a $0.4 million increase in income tax expense.
2020.
Loss
On January 17, 2017, we issued an aggregate
to Consolidated Financial Statements – Note 3 – Discontinued Operations and Assets Held for Sale” included elsewhere in this Report.
Our working capital balance as of March 31, 2020 was $175.5 million compared to $245.5 million as of December 31, 2019. The $70.0 million decrease was primarily attributable to a reclassification of $82.3 million for our Exchangeable Notes, which was recorded as a current portion of long-term borrowings, net in the first quarter of 2020, as the maturity is less than one year. This decrease was offset in part by a $13.5 million increase in accounts receivable, net.
equipment.
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.
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 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Operating leases(1) | $ | 4.9 | $ | 2.0 | $ | 1.3 | $ | 0.7 | $ | 0.5 | $ | 0.4 | $ | — | ||||||||||||||
Finance leases(1) | 0.2 | 0.1 | 0.1 | 0.1 | — | — | — | |||||||||||||||||||||
Water Treatment Services(1)(2) | 28.2 | 3.1 | 4.1 | 4.0 | 3.9 | 3.8 | 9.3 | |||||||||||||||||||||
Others(3) | 11.0 | 3.3 | 4.5 | 3.1 | 0.1 | 0.1 | — |
(1) |
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Assumes constant currency exchange rate for Korean won to US dollars of |
Includes future payments for water treatment services for our fabrication facility in Gumi, Korea based on the contractual terms. |
Includes license agreements |
The indentures relating to the Exchangeable Notes and the 2021 Notes contain 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.
2025.
agreement beginning July 1, 2018.
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 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 - Discontinued Operations and Assets Held for Sale” for additional information.
Form
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Exposures
As
Item 4. | Controls and Procedures |
2021.PrincipalChief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.PrincipalChief Financial Officer, as of March 31, 2020,2021, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in RulesPrincipalChief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Our business, results
COVID-19, a virus causing potentially deadly respiratory tract infections, which has spread rapidly and enveloped mostParent. The consummation of the world,Merger is conditioned on the receipt of the approval of our stockholders, as well as the satisfaction of other customary closing conditions, including (i) the receipt of certain required or requested governmental approvals, (ii) the absence of any order or law issued, enacted or deemed applicable by certain governmental authorities specified in the Merger Agreement that makes consummation of the Merger illegal and that remains in effect, (iii) the absence of a global public health crisis. On March 11, 2020,Company Material Adverse Effect (as defined in the World Health Organization characterizedMerger Agreement) and (iv) other customary closing conditions, including theCOVID-19 outbreak as a pandemic. Governments accuracy of each party’s representations and warranties, and each party’s compliance with its obligations under the Merger Agreement (subject in affected countries are imposing travel bans, quarantines and other emergency public health measures. In responsethe case of this clause (iv) to certain materiality qualifiers). There is no assurance that the conditions 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 theCOVID-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 theCOVID-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 orMerger will be more severely impacted byCOVID-19, whichsatisfied in a timely manner or at all. Additionally, if the Merger is not completed, we may suffer a number of consequences that could limit our ability to obtain sufficient materials for our products. In addition, the severe global economic disruption caused byCOVID-19 may cause our customers andend-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 impactstock price. There are numerous other risks related to the Merger as well, including the following:
Item 6. | Exhibits. |
# | Filed herewith |
† | Furnished herewith |
MAGNACHIP SEMICONDUCTOR CORPORATION (Registrant) | ||||||
Dated: May | By: | /s/ Young-Joon Kim | ||||
Young-Joon Kim | ||||||
Chief Executive Officer (Principal Executive Officer) | ||||||
Dated: May | By: | /s/ | ||||
Chief
(Principal Financial Officer) |
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