Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM
10-Q


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

For the quarterly period ended March 31, 20222023
or
or

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

For the transition period from
to
.
____________to_____________.
Commission File Number: 001-34791
001-34791
graphic
Magnachip Semiconductor Corporation
(Exact name of registrant as specified in its charter)


Delaware

 
83-0406195

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

c/o MagnaChipMagnachip Semiconductor, S.A.Ltd.
15F, 76 Jikji-daero 436beon-gil, Heungdeok-gu
Cheongju-si, Chungcheongbuk-do, Republic of Korea 28581
(Address of principal executive offices) (Zip Code)
1, Allée Scheffer,
L-2520
Luxembourg, Grand Duchy of Luxembourg
(352)
45-62-62
(Address, zip code, andRegistrant’s telephone number, including area code, of registrant’s principal executive offices)code: +82 (2) 6903-3000


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

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


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

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

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

Large accelerated filer
 
☒
 
Accelerated filer
 
☐
    
Non-accelerated filer
filer		 
☐
 
Smaller reporting company
 
☐
    
    
Emerging growth company
 
☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes ☒  No

As of April 30, 2022,2023, the registrant had 44,894,38542,265,480 shares of common stock outstanding.
outstanding.

Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS

    
Page No.
 3
Item 1.
 
3
  3
3
  3
4
  4
5
  5
6
  6
7
  7
 8
Item 2.
 
 2625
Item 3.
 
 4442
Item 4.
 
 4543
 4644
Item 1.
 
 4644
Item 1A.
 
 4644
Item 2.
 
44
Item 3. 44
Item 4.44
Item 5.44
Item 6.45
 46
Item 6.
Exhibits
47
SIGNATURES
48

2
PART I—FINANCIAL INFORMATION

Item 1.
Interim Consolidated Financial Statements (Unaudited)

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)

  
March 31,
2023
  
December 31,
2022
 
  (In thousands of U.S. dollars, except share data) 
Assets      
Current assets      
Cash and cash equivalents 
$
212,085
  
$
225,477
 
Accounts receivable, net  
32,143
   
35,380
 
Inventories, net  
36,360
   
39,883
 
Other receivables
  
5,342
   
7,847
 
Prepaid expenses  
11,238
   
10,560
 
Hedge collateral (Note 7)  
2,820
   
2,940
 
Other current assets (Note 18)  
14,927
   
15,766
 
Total current assets  
314,915
   
337,853
 
Property, plant and equipment, net  
104,568
   
110,747
 
Operating lease right-of-use assets  
5,413
   
5,265
 
Intangible assets, net  
1,784
   
1,930
 
Long-term prepaid expenses  
9,101
   
10,939
 
Deferred income taxes  
37,380
   
38,324
 
Other non-current assets  
14,683
   
11,587
 
Total assets 
$
487,844
  
$
516,645
 
Liabilities and Stockholders’ Equity        
Current liabilities        
Accounts payable 
$
19,921
  
$
17,998
 
Other accounts payable  
9,216
   
9,702
 
Accrued expenses (Note 6)  
17,125
   
9,688
 
Accrued income taxes  
146
   
3,154
 
Operating lease liabilities  
1,622
   
1,397
 
Other current liabilities
  
5,261
   
5,306
 
Total current liabilities  
53,291
   
47,245
 
Accrued severance benefits, net  
23,608
   
23,121
 
Non-current operating lease liabilities  
3,996
   
4,091
 
Other non-current liabilities  
13,596
   
14,035
 
Total liabilities  
94,491
   
88,492
 
Commitments and contingencies (Note 18)      
Stockholders’ equity        
Common stock, $0.01 par value, 150,000,000 shares authorized, 56,437,182 shares issued and 42,589,315 outstanding at March 31, 2023 and 56,432,449 shares issued and 43,824,575 outstanding at December 31, 2022
  
564
   
564
 
Additional paid-in capital  
267,187
   
266,058
 
Retained earnings  
314,036
   
335,506
 
Treasury stock, 13,847,867 shares at March 31, 2023 and 12,607,874 shares at December 31, 2022, respectively
  
(173,441
)
  
(161,422
)
Accumulated other comprehensive loss  
(14,993
)
  
(12,553
)
Total stockholders’ equity  
393,353
   
428,153
 
Total liabilities and stockholders’ equity 
$
487,844
  
$
516,645
 

   
March 31,
2022
  
December 31,

2021
 
   
(In thousands of U.S. dollars, except share data)
 
Assets
   
Current assets
   
Cash and cash equivalents
  $284,921  $279,547 
Accounts receivable, net
   51,208   50,954 
Inventories, net
   36,947   39,370 
Other receivables (Notes 1
6
and 1
8
)
   26,121   25,895 
Prepaid expenses
   9,124   7,675 
Hedge collateral (Note 7)
   4,060   3,060 
Other current assets (Note 1
7
)
   9,262   2,619 
   
 
 
  
 
 
 
Total current assets
   421,643   409,120 
Property, plant and equipment, net
   102,675   107,882 
Operating lease
right-of-use
assets
   3,719   4,275 
Intangible assets, net
   2,203   2,377 
Long-term prepaid expenses
   6,771   8,243 
Deferred income taxes
   40,246   41,095 
Other
non-current
assets
   10,608   10,662 
   
 
 
  
 
 
 
Total assets
  $587,865  $583,654 
   
 
 
  
 
 
 
Liabilities and Stockholders’ Equity
         
Current liabilities
         
Accounts payable
  $37,566  $37,593 
Other accounts payable
   7,707   6,289 
Accrued expenses (Note 6)
   20,573   20,071 
Accrued income taxes
   9,361   11,823 
Operating lease liabilities
   2,223   2,323 
Other current liabilities
   6,989   7,382 
   
 
 
  
 
 
 
Total current liabilities
   84,419   85,481 
Accrued severance benefits, net
   32,572   33,064 
Non-current
operating lease liabilities
   1,496   1,952 
Other
non-current
liabilities
   8,216   10,395 
   
 
 
  
 
 
 
Total liabilities
   126,703   130,892 
   
 
 
  
 
 
 
Commitments and contingencies (Note 1
7
)
   0   0 
Stockholders’ equity
         
Common stock, $0.01 par value, 150,000,000 shares authorized,
56,225,441
shares issued and
44,894,385
outstanding at March 31, 2022 and 55,905,320 shares issued and 45,659,304 outstanding at December 31, 2021
   562   559 
Additional
paid-in
capital
   261,830   241,197 
Retained earnings
   353,070   343,542 
Treasury stock, 11,331,056 shares at March 31, 2022 and 10,246,016 shares at December 31, 2021, respectively
   (148,523)   (130,306) 
Accumulated other comprehensive loss
   (5,777)   (2,230) 
   
 
 
  
 
 
 
Total stockholders’ equity
   461,162   452,762 
   
 
 
  
 
 
 
Total liabilities and stockholders’ equity
  $587,865  $583,654 
   
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

3
Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
  (In thousands of U.S. dollars, except share data) 
Revenues:   
Net sales – standard products business 
$
51,514
  
$
94,010
 
Net sales – transitional Fab 3 foundry services  
5,491
   
10,083
 
Total revenues  
57,005
   
104,093
 
Cost of sales:        
Cost of sales – standard products business  
37,312
   
56,080
 
Cost of sales – transitional Fab 3 foundry services  
7,599
   
9,017
 
Total cost of sales  
44,911
   
65,097
 
Gross profit  
12,094
   
38,996
 
Operating expenses:        
Selling, general and administrative expenses  
12,165
   
14,163
 
Research and development expenses  
13,298
   
11,954
 
Early termination charges
  
8,449
   
—
 
Total operating expenses  
33,912
   
26,117
 
Operating income (loss)  
(21,818
)
  
12,879
 
Interest income
  2,842   715 
Interest expense  
(256
)
  
(111
)
Foreign currency loss, net  
(3,430
)
  
(690
)
Other income (expense), net  
(35
)
  
218
 
Income (loss) before income tax expense  
(22,697
)
  
13,011
 
Income tax expense (benefit)  
(1,227
)
  
3,483
 
Net income (loss) 
$
(21,470
)
 
$
9,528
 
Basic earnings (loss) per common share— 
$
(0.49
)
 
$
0.21
 
Diluted earnings (loss) per common share— 
$
(0.49
)
 
$
0.20
 
Weighted average number of shares—        
Basic  
43,390,832
   
45,603,208
 
Diluted  
43,390,832
   
46,693,294
 

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

4
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

   
Three Months Ended
 
   
March 31,
2022
  
March 31,
2021
 
   
(In thousands of U.S. dollars, except share data)
 
Revenues:
   
Net sales – standard products business
  $94,010  $112,906 
Net sales – transitional Fab 3 foundry services
   10,083   10,113 
   
 
 
  
 
 
 
Total revenues
   104,093   123,019 
Cost of sales:
         
Cost of sales – standard products business
   56,080   79,247 
Cost of sales – transitional Fab 3 foundry services
   9,017   9,390 
   
 
 
  
 
 
 
Total cost of sales
   65,097   88,637 
   
 
 
  
 
 
 
Gross profit
   38,996   34,382 
Operating expenses:
         
Selling, general and administrative expenses
   14,163   12,634 
Research and development expenses
   11,954   13,423 
Merger-related costs
   —     9,831 
Other charges
   —     585 
   
 
 
  
 
 
 
Total operating expenses
   26,117   36,473 
   
 
 
  
 
 
 
Operating income (loss)
   12,879   (2,091) 
Interest expense
   (111)   (1,041) 
Foreign currency loss, net
   (690)   (4,671) 
Other income, net
   933   620 
   
 
 
  
 
 
 
Income (loss) before income tax expense
   13,011   (7,183) 
Income tax expense
   3,483   290 
   
 
 
  
 
 
 
Net income (loss)
  $9,528  $(7,473) 
   
 
 
  
 
 
 
Basic earnings (loss) per common share—
  $0.21  $(0.19) 
Diluted earnings (loss) per common share—
  $0.20  $(0.19) 
Weighted average number of shares—
         
Basic
   45,603,208   40,292,838 
Diluted
   46,693,294   40,292,838 
  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
  (In thousands of U.S. dollars) 
Net income (loss) 
$
(21,470
)
 
$
9,528
 
Other comprehensive loss        
Foreign currency translation adjustments  
(1,908
)
  
(3,045
)
Derivative adjustments        
Fair valuation of derivatives  
(1,135
)
  
(1,264
)
Reclassification adjustment for loss on derivatives included in net income (loss)  
603
   
762
 
Total other comprehensive loss  
(2,440
)
  
(3,547
)
Total comprehensive income (loss) 
$
(23,910
)
 
$
5,981
 

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

4
5
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

  Common Stock  
Additional
Paid-In
Capital
  
Retained
Earnings
  Treasury
Stock
  
Accumulated
Other
Comprehensive
Loss
  
Total
 
(In thousands of U.S. dollars, except share data) Shares  Amount           
Three Months Ended March 31, 2023:
                     
Balance at December 31, 2022
  
43,824,575
  
$
564
  
$
266,058
  
$
335,506
  
$
(161,422
)
 
$
(12,553
)
 
$
428,153
 
Stock-based compensation  
—
   
—
   
1,120
   
—
   
—
   
—
   
1,120
 
Exercise of stock options  1,400   0   9   —   —   —   9 
Settlement of restricted stock units  
3,333
   
0
   
(0
)
  
—
   
—
   
—
   
—
 
Acquisition of treasury stock  
(1,239,993
)
  
—
   
—
   
—
   
(12,019
)
  
—
   
(12,019
)
Other comprehensive loss, net  
—
   
—
   
—
   
—
   
—
   
(2,440
)
  
(2,440
)
Net loss  
—
   
—
   
—
   
(21,470
)
  
—
   
—
   
(21,470
)
Balance at March 31, 2023
  
42,589,315
  
$
564
  
$
267,187
  
$
314,036
  
$
(173,441
)
 
$
(14,993
)
 
$
393,353
 
Three Months Ended March 31, 2022:
                            
Balance at December 31, 2021
  
45,659,304
  
$
559
  
$
241,197
  
$
343,542
  
$
(130,306
)
 
$
(2,230
)
 
$
452,762
 
Stock-based compensation  
—
   
—
   
1,638
   
—
   
—
   
—
   
1,638
 
Exercise of stock options  
151,326
   
1
   
1,780
   
—
   
—
   
—
   
1,781
 
Settlement of restricted stock units  
168,795
   
2
   
(2
)
  
—
   
—
   
—
   
—
 
Acquisition of treasury stock  (53,464)  —   —   —   (1,000)  —   (1,000)
Accelerated stock repurchase  (1,031,576)  —   17,217   —   (17,217)  —   — 
Other comprehensive loss, net  
—
   
—
   
—
   
—
   
—
   
(3,547
)
  
(3,547
)
Net income  
—
   
—
   
—
   
9,528
   
—
   
—
   
9,528
 
Balance at March 31, 2022
  
44,894,385
  
$
562
  
$
261,830
  
$
353,070
  
$
(148,523
)
 
$
(5,777
)
 
$
461,162
 

   
Three Months Ended
 
   
March 31,
2022
  
March 31,
2021
 
   
(In thousands of US dollars)
 
Net income (loss)
  $9,528  $(7,473) 
Other comprehensive loss
         
Foreign currency translation adjustments
   (3,045)   (2,058) 
Derivative adjustments
         
Fair valuation of derivatives
   (1,264)   (2,125) 
Reclassification adjustment for loss (gain) on derivatives included in net income (loss)
   762   (511) 
   
 
 
  
 
 
 
Total other comprehensive loss
   (3,547)   (4,694) 
   
 
 
  
 
 
 
Total comprehensive income (loss)
  $5,981  $(12,167) 
   
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

5
6
Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCASH FLOWS (Unaudited)

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
  (In thousands of U.S. dollars) 
Cash flows from operating activities      
Net income (loss) 
$
(21,470
)
 
$
9,528
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities        
Depreciation and amortization  
4,357
   
3,891
 
Provision for severance benefits  
2,330
   
1,670
 
Loss on foreign currency, net  
9,082
   
6,380
 
Provision for inventory reserves  
1,138
   
145
 
Stock-based compensation  
1,120
   
1,638
 
Other, net  
237
   
161
 
Changes in operating assets and liabilities        
Accounts receivable, net  
2,973
   
(1,213
)
Inventories  
1,062
   
1,456
 
Other receivables  
2,376
   
667
 
Other current assets  
1,456
   
(6,829
)
Accounts payable  
1,904
   
538
 
Other accounts payable  
(1,424
)
  
(702
)
Accrued expenses  
7,600
   
187
 
Accrued income taxes  
(2,923
)
  
(2,346
)
Other current liabilities  
(596
)
  
(711
)
Other non-current liabilities  
(169
)
  
(73
)
Payment of severance benefits  
(871
)
  
(1,389
)
Other, net  
(306
)
  
(178
)
Net cash provided by operating activities  
7,876
   
12,820
 
Cash flows from investing activities        
Proceeds from settlement of hedge collateral  
1,155
   
1,829
 
Payment of hedge collateral  
(1,093
)
  
(2,891
)
Purchase of property, plant and equipment  
(135
)
  
(944
)
Payment for intellectual property registration  
(74
)
  
(59
)
Payment of guarantee deposits  
(3,482
)
  
(79
)
Other, net  
19
   
2
 
Net cash used in investing activities  
(3,610
)
  
(2,142
)
Cash flows from financing activities        
Proceeds from exercise of stock options  
9
   
1,781
 
Acquisition of treasury stock  
(12,264
)
  
(830
)
Repayment of financing related to water treatment facility arrangement  
(126
)
  
(134
)
Repayment of principal portion of finance lease liabilities  
(24
)
  
(16
)
Net cash provided by (used in) financing activities  
(12,405
)
  
801
 
Effect of exchange rates on cash and cash equivalents  
(5,253
)
  
(6,105
)
Net increase (decrease) in cash and cash equivalents  
(13,392
)
  
5,374
 
Cash and cash equivalents at beginning of period
  
225,477
   
279,547
 
Cash and cash equivalents at end of period
 
$
212,085
  
$
284,921
 
Supplemental cash flow information        
Cash paid for income taxes 
$
2,644
  
$
5,421
 
Non-cash investing activities        
Property, plant and equipment additions in other accounts payable 
$
629
  
$
524
 
Non-cash financing activities        
Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation 
$
—
  
$
996
 
Unsettled common stock repurchases 
$
401
  
$
—
 

          
Additional
Paid-In

Capital
        
Accumulated
Other
Comprehensive
Income (Loss)
    
   
Common Stock
  
Retained
Earnings
  
Treasury
Stock
  
Total
 
(In thousands of U.S. dollars, except share data)
  
Shares
  
Amount
 
Three Months Ended March 31, 2022:
         
Balance at December 31, 2021
   45,659,304  $559   $241,197  $343,542  $(130,306)  $(2,230)  $452,762 
Stock-based compensation
   —     —      1,638   —     —     —     1,638 
Exercise of stock options
   151,326   1    1,780   —     —     —     1,781 
Settlement of restricted stock units
   168,795   2    (2)   —     —     —     —   
Acquisition of treasury stock
   (53,464)   —      0     —     (1,000)   —     (1,000) 
Accelerated stock repurchase
   (1,031,576)   —      17,217   —     (17,217)   —     —   
Other comprehensive loss, net
   —     —      —     —     —     (3,547)   (3,547) 
Net income
   —     —      —     9,528   —     —     9,528 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at March 31, 2022
   44,894,385  $562   $261,830  $353,070  $(148,523)  $(5,777)  $461,162 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
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 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.

6
7
Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
   
Three Months Ended
 
   
March 31,
2022
  
March 31,
2021
 
   
(In thousands of U.S. dollars)
 
Cash flows from operating activities
   
Net income (loss)
  $9,528  $(7,473) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities
         
Depreciation and amortization
   3,891   3,448 
Provision for severance benefits
   1,670   1,771 
Amortization of debt issuance costs and original issue discount
   —     261 
Loss on foreign currency, net
   6,380   14,873 
Provision for inventory reserves
   145   1,504 
Stock-based compensation
   1,638   1,646 
Other, net
   161   154 
Changes in operating assets and liabilities
         
Accounts receivable, net
   (1,213)   9,794 
Inventories
   1,456   6,071 
Other receivables
   667   (1,438) 
Other current assets
   (6,829)   5,427 
Accounts payable
   538   (7,701) 
Other accounts payable
   (702)   1,570 
Accrued expenses
   187   2,393 
Accrued income taxes
   (2,346)   (10,700) 
Other current liabilities
   (711)   1,087 
Other
non-current
liabilities
   (73)   18 
Payment of severance benefits
   (1,389)   (1,493) 
Other, net
   (178)   12 
   
 
 
  
 
 
 
Net cash provided by operating activities
   12,820   21,224 
Cash flows from investing activities
         
Proceeds from settlement of hedge collateral
   1,829   —   
Payment of hedge collateral
   (2,891)   —   
Purchase of property, plant and equipment
   (944)   (1,082) 
Payment for intellectual property registration
   (59)   (171) 
Other, net
   (77)   (111) 
   
 
 
  
 
 
 
Net cash used in investing activities
   (2,142)   (1,364) 
Cash flows from financing activities
         
Proceeds from exercise of stock options
   1,781   2,538 
Acquisition of treasury stock
   (830)   (1,540) 
Repayment of financing related to water treatment facility arrangement
   (134)   (144) 
Repayment of principal portion of finance lease liabilities
   (16)   (16) 
   
 
 
  
 
 
 
Net cash used in financing activities
   801   838 
Effect of exchange rates on cash and cash equivalents
   (6,105)   (10,444) 
   
 
 
  
 
 
 
Net increase in cash and cash equivalents
   5,374   10,254 
Cash and cash equivalents at beginning of period
   279,547   279,940 
   
 
 
  
 
 
 
Cash and cash equivalents at end of period
  $284,921  $290,194 
   
 
 
  
 
 
 
Supplemental cash flow information
         
Cash paid for interest
  $—    $2,094 
Cash paid for income taxes
  $5,421  $9,633 
Non-cash
investing activities
         
Property, plant and equipment additions in other accounts payable
  $524  $622 
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
  $(996)  $(114) 
The accompanying notes are an integral part of these consolidated financial statements.
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1. Business, Basis of Presentation and Significant Accounting Policies

Business

Business
Magnachip Semiconductor Corporation (together with its subsidiaries, the “Company”) is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, Internet of Things (“IoT”) applications, consumer, computing, industrial and automotive applications.



The Company’s standard products business includes its Display Solutions and Power Solutions business lines. The Company’s Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile,a wide range of applications including smartphones, TVs, automotive and IT applications and home appliances.such as monitors, notebook PCs, tablet PCs as well as AR/VRs. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications.



On September 1, 2020, the Company completed the sale of the Company’s Foundry Services Group business and its fabrication facility located in Cheongju, Korea, known as “Fab 4”. Following the consummation of the sale, and for up to three years, the Company is expected to provide transitional foundry services associated with its fabrication facility located in Gumi, Korea, known as “Fab 3,3”, at an agreed upon cost plus
mark-up
(the (the “Transitional Fab 3 Foundry Services”).


Basis of Presentation


The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). These interim consolidated financial statements include normal recurring adjustments and the elimination of all intercompany accounts and transactions which are, in the opinion of management, necessary to provide a fair statement of the Company’s financial condition and results of operations for the periods presented. These interim consolidated financial statements are presented in accordance with Accounting Standards Codification (“ASC”) 270, “Interim Reporting” and, accordingly, do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements, except for the changes below. The results of operations for the three months ended March 31, 20222023 are not necessarily indicative of the results to be expected for a full year or for any other periods.



The December 31, 20212022 balance sheet data was derived from the Company’s audited financial statements, but does not include all disclosures required by U.S. GAAP. The interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2021.
2022.



There have been no material changes to the Company’s significant accounting policies as of and for the three months ended March 31, 20222023 as compared to the significant accounting policies described in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2021.2022.

Recently Adopted Accounting Pronouncements
8
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2020-06,
“Debt—Debt with Conversion and Other Options (Subtopic
470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40)”
(“ASU
2020-06”),
which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. The Company adopted ASU
2020-06
as of January 1, 2022, and the adoption of ASU
2020-06
did not have an impact on the Company’s consolidated financial statements.
In May 2021, the FASB issued ASU
No. 2021-04,
“Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic
470-50)”,
Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic
815-40):
Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU
2021-04”),
ASU
2021-04
clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options so that the transaction should be treated as an exchange of the original instrument for a new instrument. The Company adopted ASU
2021-04
as of January 1, 2022, and the adoption of ASU
2021-04
did not have an impact on the Company’s consolidated financial statements.
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2. Inventories


Inventories as of March 31, 20222023 and December 31, 20212022 consist of the following (in thousands):

  
March 31,
2023
  
December 31,
2022
 
Finished goods 
$
5,523
  
$
6,799
 
Semi-finished goods and work-in-process  
39,427
   
40,265
 
Raw materials  
6,351
   
7,460
 
Materials in-transit  
—
   
36
 
Less: inventory reserve  
(14,941
)
  
(14,677
)
Inventories, net 
$
36,360
  
$
39,883
 
   
March 31,
2022
   
December 31,
2021
 
Finished goods
  $5,591   $9,594 
Semi-finished goods and
work-in-process
   25,119    25,968 
Raw materials
   9,839    9,443 
Materials
in-transit
   1,953    95 
Less: inventory reserve
   (5,555)    (5,730) 
   
 
 
   
 
 
 
Inventories, net
  $36,947   $39,370 
   
 
 
   
 
 
 



Changes in inventory reserve for the three months ended March 31, 20222023 and 20212022 are as follows (in thousands):


 Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
Beginning balance 
$
(14,677
)
 
$
(5,730
)
Change in reserve        
Inventory reserve charged to costs of sales  
(2,584
)
  
(1,607
)
Sale of previously reserved inventory  
1,476
   
1,452
 
   
(1,108
)
  
(155
)
Write off  
415
   
211
 
Translation adjustments  
429
   
119
 
Ending balance 
$
(14,941
)
 
$
(5,555
)


   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
Beginning balance
  $(5,730)   $(5,901) 
Change in reserve
          
Inventory reserve charged to costs of sales
   (1,607)    (2,164) 
Sale of previously reserved inventory
   1,452    634 
   
 
 
   
 
 
 
    (155)    (1,530) 
Write off
   211    902 
Translation adjustments
   119    248 
   
 
 
   
 
 
 
Ending balance
  $(5,555)   $(6,281) 
   
 
 
   
 
 
 

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

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Table of Contents
3. Property, Plant and Equipment


Property, plant and equipment as of March 31, 20222023 and December 31, 20212022 are comprised of the following (in thousands):

  
March 31,
2023
  
December 31,
2022
 
Buildings and related structures 
$
24,214
  
$
24,780
 
Machinery and equipment  
134,843
   
137,666
 
Finance lease right-of-use assets  
707
   
389
 
Others  
33,529
   
33,890
 
   
193,293
   
196,725
 
Less: accumulated depreciation  
(102,768
)
  
(101,502
)
Land  
12,670
   
13,034
 
Construction in progress  
1,373
   
2,490
 
Property, plant and equipment, net 
$
104,568
  
$
110,747
 
   
March 31,
2022
   
December 31,
2021
 
Buildings and related structures
  $24,003   $24,273 
Machinery and equipment
   103,386    105,300 
Finance lease
right-of-use
assets
   309    316 
Others
   32,682    32,396 
   
 
 
   
 
 
 
    160,380    162,285 
Less: accumulated depreciation
   (95,839)    (94,119) 
Land
   13,608    13,898 
Construction in progress
   24,526    25,818 
   
 
 
   
 
 
 
Property, plant and equipment, net
  $102,675   $107,882 
   
 
 
   
 
 
 



Aggregate depreciation expenses totaled $3,706$4,193 thousand and $3,262$3,706 thousand for the three months ended March 31, 2023 and 2022, and 2021, respectively.

4. Intangible Assets


Intangible assets as of March 31, 20222023 and December 31, 20212022 are comprised of the following (in thousands):

 March 31, 2023 
  
Gross
amount
  
Accumulated
amortization
  
Net
amount
 
Intellectual property assets 
$
8,916
  
$
(7,132
)
 
$
1,784
 
Intangible assets 
$
8,916
  
$
(7,132
)
 
$
1,784
 

 December 31, 2022 
  
Gross
amount
  
Accumulated
amortization
  
Net
amount
 
Intellectual property assets 
$
9,111
  
$
(7,181
)
 
$
1,930
 
Intangible assets 
$
9,111
  
$
(7,181
)
 
$
1,930
 

   
March 31, 2022
 
   
Gross
amount
   
Accumulated
amortization
   
Net
amount
 
Intellectual property assets
  $9,180   $(6,977)   $2,203 
   
 
 
   
 
 
   
 
 
 
Intangible assets
  $9,180   $(6,977)   $2,203 
  
 
 
   
 
 
   
 
 
 


   
December 31, 2021
 
   
Gross
amount
   
Accumulated
amortization
   
Net
amount
 
Intellectual property assets
  $9,312   $(6,935)   $2,377 
   
 
 
   
 
 
   
 
 
 
Intangible assets
  $9,312   $(6,935)   $2,377 
   
 
 
   
 
 
   
 
 
 
Aggregate amortization expenses for intangible assets totaled $185$164 thousand and $186$185 thousand for the three months ended March 31, 20222023 and 2021,2022, respectively.

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5. Leases


The Company has operating and finance leases for buildings and other assets such as vehicles and office equipment. The Company’s leases have remaining lease terms ranging from 1 year to 45 years.



The tables below present financial information related to the Company’s leases.



Supplemental balance sheets information related to leases as of March 31, 20222023 and December 31, 20212022 are as follows (in thousands):

LeasesClassification 
March 31,
2023
  
December 31,
2022
 
Assets       
Operating lease
Operating lease right-of-use assets
 
$
5,413
  
$
5,265
 
Finance lease
Property, plant and equipment, net
  
436
   
143
 
Total lease assets  
$
5,849
  
$
5,408
 
Liabilities         
Current         
Operating
Operating lease liabilities
 
$
1,622
  
$
1,397
 
Finance
Other current liabilities
  
90
   
90
 
Non-current         
Operating
Non-current operating lease liabilities
  
3,996
   
4,091
 
Finance
Other non-current liabilities
  
364
   
63
 
Total lease liabilities  
$
6,072
  
$
5,641
 


           
Leases
  
Classification
  
March 31,
2022
   
December 31,
2021
 
Assets
             
           
Operating lease
  
Operating lease right-of-use assets
  $3,719   $4,275 
Finance lease
  Property, plant and equipment, net   108    126 
      
 
 
   
 
 
 
Total lease assets
     $3,827   $4,401 
      
 
 
   
 
 
 
Liabilities
             
Current
             
Operating
  Operating lease liabilities  $2,223   $2,323 
Finance
  Other current liabilities   67    68 
Non-current
             
Operating
  Non-current operating lease liabilities   1,496    1,952 
Finance
  Other
non-current
liabilities		   54    73 
      
 
 
   
 
 
 
Total lease liabilities
     $3,840   $4,416 
      
 
 
   
 
 
 

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

  
March 31,
2023
  
December 31,
2022
 
Weighted average remaining lease term      
Operating leases 3.4 years  3.7 years 
Finance leases 4.1 years  2.4 years 
Weighted average discount rate      
Operating leases  
6.6
%
  
6.6
%
Finance leases  
7.7
%
  
7.6
%

         
 
  
March 31,
2022
 
 
December 31,
2021
 
         
Weighted average remaining lease term
         
         
Operating leases
   2.3 years   2.4 years 
Finance leases
   1.8 years   2.0 years 
Weighted average discount rate
         
Operating leases
   4.12%   4.20% 
Finance leases
   7.75%   7.75% 


The components of lease cost included in the Company’s consolidated statements of operations, are as follows (in thousands):

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
Operating lease cost 
$
555
  
$
569
 
Finance lease cost        
Amortization of right-of-use assets  
32
   
16
 
Interest on lease liabilities  
7
   
2
 
Total lease cost 
$
594
  
$
587
 

         
 
  
Three Months Ended
 
 
  
March 31,
2022
 
  
March 31,
2021
 
         
         
         
Operating lease cost
  $569   $680 
Finance lease cost
          
Amortization of
right-of-use
assets
   16    17 
Interest on lease liabilities
   2    4 
   
 
 
   
 
 
 
Total lease cost
  $587   $701 
   
 
 
   
 
 
 


The above table does not include an immaterial cost of short-term leases for the three months ended March 31, 20222023 and 2021.
2022.

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Table of Contents

Other lease information is as follows (in thousands):

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from operating leases 
$
567
  
$
569
 
Operating cash flows from finance leases  
7
   
2
 
Financing cash flows from finance leases  
24
   
16
 
         
   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
Cash paid for amounts included in the measurement of lease liabilities
          
         
Operating cash flows from operating leases
  $569  $680 
Operating cash flows from finance leases
   2   4 
Financing cash flows from finance leases
   16   16 



The aggregate future lease payments for operating and finance leases as of March 31, 20222023 are as follows (in thousands):

  
Operating
Leases
  
Finance
Leases
 
Remainder of 2023
 
$
1,448
  
$
91
 
2024
  
1,925
   
122
 
2025
  
1,419
   
121
 
2026
  
937
   
108
 
2027
  
644
   
95
 
Total future lease payments  
6,373
   
537
 
Less: Imputed interest  
(755
)
  
(83
)
Present value of future payments 
$
5,618
  
$
454
 

         
   
Operating
Leases
   
Finance
Leases
 
         
Remainder of 2022
  $1,837  $56 
2023
   1,079   74 
2024
   607   0   
2025
   393   0   
   
 
 
  
 
 
 
Total future lease payments
   3,916   130 
Less: Imputed interest
   (197)   (9) 
   
 
 
  
 
 
 
Present value of future payments
  $3,719  $121 
   
 
 
  
 
 
 
6. Accrued Expenses


Accrued expenses as of March 31, 20222023 and December 31, 20212022 are comprised of the following (in thousands):

  
March 31,
2023
  
December 31,
2022
 
Payroll, benefits and related taxes, excluding severance benefits 
$
14,475
  
$
7,620
 
Withholding tax attributable to intercompany interest income  
473
   
43
 
Outside service fees  
1,625
   
1,642
 
Others  
552
   
383
 
Accrued expenses 
$
17,125
  
$
9,688
 


Payroll, benefits and related taxes payable as of March 31, 2023 in the table above includes termination related charges under the voluntary resignation program (the “Program”) of $8,449 thousand, which are expected to be paid in the second quarter of 2023.


See “Note 10. Early Termination Charges” for more information regarding the Program.
         
   
March 31,
2022
   
December 31,

2021
 
         
Payroll, benefits and related taxes, excluding severance benefits
  $8,854  $9,548 
Withholding tax attributable to intercompany interest income
   2,405   1,950 
Outside service fees
   1,829   1,088 
Merger-related costs
   6,325   7,035 
Others
   1,160   450 
   
 
 
  
 
 
 
Accrued expenses
  $20,573  $20,071 
   
 
 
  
 
 
 

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2
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7. Derivative Financial Instruments


The Company’s Korean subsidiary from time to time has entered into zero cost collar contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on U.S. dollar denominated revenues.



Details of the zero cost collar contracts as of March 31, 20222023 are as follows (in thousands):

Date of transaction Total notional amount Month of settlement
January 04, 2022
 
$
15,000
 
April 2023 to June 2023
March 07, 2022
 
$
24,000
 
July 2023 to December 2023
April 27, 2022 
$
33,000
 
April 2023 to December 2023
March 08, 2023
 
$
18,000
 
July 2023 to December 2023

       
Date of transaction
  
Total notional amount
   
Month of settlement
       
       
May 13, 2021
  $24,000   April 2022 to September 2022
August 13, 2021
  $39,000   April 2022 to December 2022
January 04, 2022
  $39,000   October 2022 to June 2023
March 07, 2022
  $24,000   July 2023 to December 2023


Details of the zero cost collar contracts as of December 31, 20212022 are as follows (in thousands):

Date of transaction Total notional amount Month of settlement
January 04, 2022
 
$
30,000
 
January 2023 to June 2023
March 07, 2022
 
$
24,000
 
July 2023 to December 2023
April 27, 2022 $
42,000 January 2023 to December 2023

       
Date of transaction
  
Total notional amount
   
Month of settlement
       
       
May 13, 2021
  $39,000   January 2022 to September 2022
August 13, 2021
  $48,000   January 2022 to December 2022


The zero cost collar contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts.



The fair values of the Company’s outstanding zero cost collar contracts recorded as assets and liabilities as of March 31, 20222023 and December 31, 20212022 are as follows (in thousands):

Derivatives designated as hedging instruments:  
March 31,
2023
  
December 31,
2022
 
Asset Derivatives:       
Zero cost collars
Other current assets
 $
2  $
— 
Liability Derivatives:         
Zero cost collars
Other current liabilities
 
$
2,641
  
$
2,015
 

           
Derivatives designated as hedging instruments:
     
March 31,
2022
   
December 31,
2021
 
Asset Derivatives:
             
           
Zero cost collars
  Other non-current assets  $94   $0   
Liability Derivatives:
             
Zero cost collars
  Other current liabilities  $2,421   $2,020 
Zero cost collars
  Other non-current liabilities  $149   $0   


Offsetting of derivative assets and liabilities as of March 31, 20222023 is as follows (in thousands):

  
Gross amounts of
recognized
Assets/liabilities
   
Gross amounts
offset in the
balance sheets
  
Net amounts of
Assets/liabilities
presented in the
balance sheets
  
Gross amounts not offset
in the balance sheets
  Net amount 
As of March 31, 2023
       
Financial
instruments
  
Cash collateral
pledged
   
Asset Derivatives:                  
Zero cost collars
 $
2  $
—  $
2  $
—  $
—  $
2 
Liability Derivatives:                        
Zero cost collars 
$
2,641
  
$
—
  
$
2,641
  
$
—
  
$
(1,820
)
 
$
821
 
                         
As of March 31, 2022
  
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
  $94   $0     $94   $0     $0    $94 
Liability Derivatives:
                             
Zero cost collars  $2,570   $0     $2,570   $0     $ (3,060)   $ (490) 



Offsetting of derivative liabilities as of December 31, 20212022 is as follows (in thousands):

                         
As of December 31, 2021
  
Gross amounts of
recognized
liabilities
   
Gross amounts
offset in the
balance sheets
   
Net amounts of
liabilities
presented in the
balance sheets
   
Gross amounts not offset
in the balance sheets
  
Net amount
 
  
Financial
instruments
   
Cash collateral
pledged
 
Liability Derivatives:
                             
                         
Zero cost collars
  $2,020   $0     $2,020   $0     $ (2,060) $ (40)
  
Gross amounts of
recognized
liabilities
   
Gross amounts
offset in the
balance sheets
  
Net amounts of
liabilities
presented in the
balance sheets
  
Gross amounts not offset
in the balance sheets
  
Net amount
 
As of December 31, 2022
       
Financial
instruments
  
Cash collateral
pledged
   
Liability Derivatives:                  
Zero cost collars 
$
2,015
  
$
—
  
$
2,015
  
$
—
  
$
(1,940
)
 
$
75

13

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



The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the three months ended March 31, 20222023 and 20212022 (in thousands):

Derivatives in ASC
815 Cash Flow Hedging
Relationships
 
Amount of Loss
Recognized in
AOCI on
Derivatives
 
Location/Amount of
Loss
Reclassified from AOCI
Into Statement of Operations
 
Location/Amount of Loss
Recognized in
Statement of Operations on Derivatives
 
  
Three Months Ended
March 31,
   
Three Months Ended
March 31,
     
Three Months Ended
March 31,
 
  2023
  2022
   2023
  2022
   2023
  2022
 
                     
Zero cost collars 
$
(1,135
)
 
$
(1,264
)
Net sales
 
$
(603
)
 
$
(762
)
Other income, net
 
$
(54
)
 
$
(129
)
  $(1,135) $(1,264)  $(603) $(762)  $(54) $
(129)

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 Loss
Recognized in
Statement of Operations on Derivatives
 
   
Three Months Ended
March 31,
      
Three Months Ended
March 31,
       
Three Months Ended
March 31,
 
   
2022
  
2021
      
2022
  
2021
       
2022
  
2021
 
Zero cost collars
  $(1,264)  $(2,125)   Net sales   $(762)  $511    Other income, net   $(129)  $ (86)
   
 
 
  
 
 
       
 
 
  
 
 
        
 
 
  
 
 
 
   $(1,264)  $(2,125)       $(762)  $511        $(129)  $ (86)
   
 
 
  
 
 
       
 
 
  
 
 
        
 
 
  
 
 
 


As of March 31, 2022,2023, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next 12 months is $1,907$1,757 thousand.



The Company set aside cash depositsdeposit to the counterparties, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) andcounterparty, Standard Chartered Bank Korea Limited (“SC”), as required for the zero cost collar contracts. TheseThis cash deposits aredeposit is recorded as hedge collateral on the consolidated balance sheets. Cash deposits as of March 31, 20222023 and December 31, 20212022 are as follows (in thousands):​​​​​​​

Counterparties
  
March 31,

2022
   
December 31,

2021
 
Counterparty 
March 31,
2023
 
December 31,
2022
 
SC
  $1,000   $1,000  
$
1,000
  
$
1,000
 
  
 
   
 
 
Total
  $1,000   $1,000  $
1,000  $
1,000 
  
 
   
 
 



The Company is required to deposit additional cash collateral with NFIKNomura Financial Investment (Korea) Co., Ltd. (“NFIK”) and SC for any exposure in excess of $500 thousand. As of March 31, 2022, $2,360 thousand and $7002023, $1,820 thousand of additional cash collateral w
as
was required by NFIK, and SC, respectively, and recorded as hedge collateral on the consolidated balance sheet. As of December 31, 2021, $7602022, $1,840 thousand and $1,300$100 thousand of additional cash collateral w
as
were required by NFIK and SC, respectively, and recorded as hedge collateral on the consolidated balance sheet.



These zero cost collar contracts may be terminated by the counterparties if the Company’s total cash and cash equivalents is less than $30,000 thousand at the end of a fiscal quarter, unless a waiver is obtained.

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8. Fair Value Measurements

Fair Value of Financial Instruments



As of March 31, 2022,2023, the following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

  
Carrying Value
March 31, 2023
  
Fair Value
Measurement
March 31, 2023
  
Quoted Prices in
Active Markets
for Identical
Liability (Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
               
 Derivative assets (other current assets)
 $
2  $
2   
—  $
2  
— 
Liabilities:                    
Derivative liabilities (other current liabilities) 
$
2,641
  
$
2,641
   
—
  
$
2,641
   
—
 
   
Carrying Value
March 31, 2022
   
Fair Value
Measurement
March 31, 2022
   
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
non-current
assets)
  $94   $94    —     $94    —   
Liabilities:
                         
Derivative liabilities (other current liabilities)
  $2,421   $2,421    —     $2,421    —   
Derivative liabilities (other
non-current
liabilities)
  $149   $149    —     $149    —   



As of December 31, 2021,2022, the following table represents the Company’s liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):

  
Carrying Value
December 31, 2022
  
Fair Value
Measurement
December 31, 2022
  
Quoted Prices in
Active Markets
for Identical
Liability (Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:               
Derivative liabilities (other current liabilities) 
$
2,015
  
$
2,015
   
—
  
$
2,015
   
—
 

   
Carrying Value
December 31, 2021
   
Fair Value
Measurement
December 31, 2021
   
Quoted Prices in
Active Markets
for Identical
Liability (Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:
          
Derivative liabilities (other current
liabilities)
  $2,020   $2,020    —     $2,020    —   


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

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5
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Table of Contents
9. Accrued Severance Benefits


The majority of accrued severance benefits are for employees in the Company’s Korean subsidiary. Pursuant to the Employee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of March 31, 2022, 98%2023, 97% of all employees of the Company were eligible for severance benefits.



Changes in accrued severance benefits are as follows (in thousands):

  Three Months Ended
 
  
March 31,
2023
  
March 31,
2022
 
Beginning balance $48,496  $51,567 
Provisions  2,330   1,670 
Severance payments  (871)  (1,389)
Translation adjustments  (1,381)  (1,077)
   48,574   50,771 
Less: Cumulative contributions to severance insurance deposit accounts  (24,747)  (17,954)
The National Pension Fund  (40)  (50)
Group severance insurance plan  (179)  (195)
Accrued severance benefits, net
 $23,608  $32,572 

   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
Beginning balance
  $51,567   $54,452 
Provisions
   1,670    1,771 
Severance payments
   (1,389)    (1,493) 
Translation adjustments
   (1,077)    (2,177) 
   
 
 
   
 
 
 
    50,771    52,553 
Less: Cumulative contributions to severance insurance deposit accounts
   (17,954)    (13,212) 
The National Pension Fund
   (50)    (61) 
Group severance insurance plan
   (195)    (210) 
   
 
 
   
 
 
 
Accrued severance benefits, net
  $32,572   $39,070 
   
 
 
   
 
 
 


The severance benefits funded through the Company’s National Pension Fund and group severance insurance plan will be used exclusively for payment of severance benefits to eligible employees. These amounts have been deducted from the accrued severance benefit balance.



Beginning in July 2018, the Company contributes to certain severance insurance deposit accounts a certain percentage of severance benefits that are accrued for eligible employees for their services from January 1, 2018.2018 pursuant to Employee Retirement Benefit Security Act of Korea. These accounts consist of time deposits and other guaranteed principal and interest, and are maintained at insurance companies, banks or security companies for the benefit of employees. The Company deducts the contributions made to these severance insurance deposit accounts from its accrued severance benefits.



The Company is liable to pay the following future benefits to its
non-executive
employees upon their normal retirement age (in thousands):

 Severance benefit 
  
Severance benefit
 
Remainder of 2022
  $253 
2023
   631 
Remainder of 2023
 
$
634
 
2024
   923   
906
 
2025
   1,505   
1,502
 
2026
   2,183   
1,829
 
2027
   1,746   
1,718
 
2028 – 2032
   20,679 
2028  
3,699
 
2029 – 2033  
21,043
 



The above amounts were determined based on the
non-executive
employees’ current salary rates and the number of service years that will be accumulated upon their retirement dates. These amounts do not include amounts that might be paid to
non-executive
employees that will cease working with the Company before their normal retirement ages.



Korea’s mandatory retirement age is 60 years of age or older under the Employment Promotion for the Aged Act. The Company sets the retirement age of employees at 60.

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6
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Table of Contents
10. Early Termination Charges


During the first quarter of 2023, the Company commenced the Program, which was available for the employees with more than 20 years of service. For the three months ended March 31, 2023, the Company recorded in its consolidated statement of operations $8,449 thousand of termination related charges as “early termination charges”, which are expected to be paid during the second quarter of 2023.

10.11. Foreign Currency Loss, Net


Net foreign currency gain or loss includes
non-cash
translation gain or loss associated with intercompany balances. A substantial portion of the Company’s net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to the Company’s Korean subsidiary. The loans are denominated in U.S. dollars and are affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of March 31, 20222023 and December 31, 2021,2022, the outstanding intercompany loan balances including accrued interest between the Korean subsidiary and the Dutch subsidiary were $ 348,477$301,860 thousand and $344,411$310,988 thousand, respectively. The Korean won to U.S. dollar exchange rates were 1,210.8:1,303.8:1 and 1,185.5:1,267.3:1 using the first base rate as of March 31, 20222023 and December 31, 2021,2022, respectively, as quoted by the KEB Hana Bank.
11. Income Taxes
12. Income Taxes


The Company and its subsidiaries file income tax returns in Korea, Japan, Taiwan, the U.S. and in various other jurisdictions. The Company is subject to income or
non-income
tax examinations by tax authorities of these jurisdictions for all open tax years.



For the three months ended March 31, 2023, the Company recorded an income tax benefit of $1,227 thousand, primarily related to its primary operating entity in Korea based on the estimated taxable loss for the respective period.



For the three months ended March 31, 2022, the Company recorded an income tax expense of $3,483 thousand, primarily relate
d
related to its primary operating entity in Korea based on the estimated taxable income for the respective period.
For the three months ended March 31, 2021, the Company recorded an income tax expense of $290 thousand, primarily attributable to interest on intercompany loan balances, which was offset in part by the tax benefit recognized on the loss for the first quarter of 2021 from the Company’s Korean subsidiary.
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Table of Contents
12.
13. Geographic and Other Information



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

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
Revenues      
Standard products business      
Display Solutions 
$
10,841
  
$
29,185
 
Power Solutions  
40,673
   
64,825
 
Total standard products business $
51,514
  $
94,010
 
Transitional Fab 3 foundry services  
5,491
   
10,083
 
Total revenues 
$
57,005
  
$
104,093
 

   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
Revenues
    
Standard products business
    
Display Solutions
  $29,185   $58,895 
Power Solutions
   64,825    54,011 
   
 
 
   
 
 
 
Total standard products business
  $94,010   $112,906 
Transitional Fab 3 foundry services
   10,083    10,113 
   
 
 
   
 
 
 
Total revenues
  $104,093   $123,019 
  
 
 
   
 
 
 
  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
Gross Profit      
Standard products business 
$
14,202
  
$
37,930
 
Transitional Fab 3 foundry services  
(2,108
)
  
1,066
 
Total gross profit 
$
12,094
  
$
38,996
 



   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
Gross Profit
    
Standard products business
  $37,930   $33,659 
Transitional Fab 3 foundry services
   1,066    723 
   
 
 
   
 
 
 
Total gross profit
  $38,996   $34,382 
   
 
 
   
 
 
 
The following is a summary of net sales—standard products business (which does not include the Transitional Fab 3 Foundry Services) by geographic region, based on the location to which the products are billed (in thousands):

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
Korea 
$
16,496
  
$
31,030
 
Asia Pacific (other than Korea)  
31,901
   
58,260
 
United States  
1,045
   
2,864
 
Europe  
2,072
   
1,856
 
Total 
$
51,514
  
$
94,010
 
   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
Korea
  $31,030   $26,434 
Asia Pacific (other than Korea)
   58,260    83,740 
United States
   2,864    1,274 
Europe
   1,856    1,243 
Others
   0      215 
   
 
 
   
 
 
 
Total
  $94,010   $112,906 
   
 
 
   
 
 
 



For the three months ended March 31, 20222023 and 2021,2022, of the Company’s net sales – standard products business in Asia Pacific (other than Korea), net sales – standard products business in China and Hong Kong
together
represented 71.1%57.9% and 57.1%71.1%, respectively, and net sales—standard products business in Vietnam represented 14.4%17.8% and 37.4%14.4%, respectively.



Net sales from the Company’s top ten largest customers in the standard products business (which does not include the Transitional Fab 3 Foundry Services) accounted for 72%71% and 82%72% for the three months ended March 31, 2023 and 2022, respectively.



For the three months ended March 31, 2023, the Company had two customers that represented 16.4% and 2021,13.7% of its net sales—standard products business, respectively.
For the three months ended March 31, 2022, the Company had two customers that represented 25.5% and 12.9% of its net sales – sales—standard products business, respectively.
, respectively.

For the three months ended March 31, 2021, the Company had two customers that represented 48.8% and 10.0% of its net sales – standard products business
, respectively.
As of March 31, 2022,2023, two customers of the Company’s standard products business accounted for 17.0%22.3% and 16.7%14.3% of its accounts receivable – standard products business (which does not include the Transitional Fab 3 Foundry Services), respectively. As of December 31, 2021,2022, two customers of the Company’s standard products business accounted for 25.6%25.1% and 18.6%15.2% of its accounts receivable – standard products business (which does not include the Transitional Fab 3 Foundry Services), respectively.

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13.14. Accumulated Other Comprehensive Loss


Accumulated other comprehensive loss consists of the following as of March 31, 20222023 and December 31, 2021,2022, respectively (in thousands):

  
March 31,
2023
  
December 31,
2022
 
Foreign currency translation adjustments 
$
(13,236
)
 
$
(11,328
)
Derivative adjustments  
(1,757
)
  
(1,225
)
Total 
$
(14,993
)
 
$
(12,553
)
   
March 31,
2022
   
December 31,
2021
 
Foreign currency translation adjustments
  $(3,815)   $(770) 
Derivative adjustments
   (1,962)    (1,460) 
   
 
 
   
 
 
 
Total
  $(5,777)   $(2,230) 
   
 
 
   
 
 
 



Changes in accumulated other comprehensive loss for the three months ended March 31, 20222023 and 20212022 are as follows (in thousands):

Three Months Ended March 31, 2022
  
Foreign
currency
translation
adjustments
   
Derivative
adjustments
   
Total
 
Beginning balance
  $(770)   $(1,460)   $(2,230) 
   
 
 
   
 
 
   
 
 
 
Other comprehensive loss before reclassifications
   (3,045)    (1,264)    (4,309) 
Amounts reclassified from accumulated other comprehensive loss
   —      762    762 
   
 
 
   
 
 
   
 
 
 
Net current-period other comprehensive loss
   (3,045)    (502)    (3,547) 
   
 
 
   
 
 
   
 
 
 
Ending balance
  $(3,815)   $(1,962)   $(5,777) 
  
 
 
   
 
 
   
 
 
 
Three Months Ended March 31, 2023
 
Foreign
currency
translation
adjustments
  
Derivative
adjustments
  Total 
Beginning balance 
$
(11,328
)
 
$
(1,225
)
 
$
(12,553
)
Other comprehensive loss before reclassifications  
(1,908
)
  
(1,135
)
  
(3,043
)
Amounts reclassified from accumulated other comprehensive loss  
—
   
603
   
603
 
Net current-period other comprehensive loss  
(1,908
)
  
(532
)
  
(2,440
)
Ending balance 
$
(13,236
)
 
$
(1,757
)
 
$
(14,993
)

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, 2022
 
Foreign
currency
translation
adjustments
  
Derivative
adjustments
  Total 
Beginning balance 
$
(770
)
 
$
(1,460
)
 
$
(2,230
)
Other comprehensive loss before reclassifications  
(3,045
)
  
(1,264
)
  
(4,309
)
Amounts reclassified from accumulated other comprehensive loss  
—
   
762
   
762
 
Net current-period other comprehensive loss  
(3,045
)
  
(502
)
  
(3,547
)
Ending balance 
$
(3,815
)
 
$
(1,962
)
 
$
(5,777
)

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Table of Contents
14. Stockholders’ Equity​​​​​​​
15. Stock Repurchases

Accelerated Stock Repurchase Program


On December 21, 2021, the Board of Directors authorized the Company to repurchase up to $75,000 thousand of the Company’sits outstanding common stock and the Company entered into an accelerated stock repurchase agreement (the “ASR Agreement”) with JPMorgan Chase Bank, National Association (“JPM”) to repurchase an aggregate of $37,500 thousand of the Company’sits common stock.



Pursuant to the terms of the ASR Agreement dated December 21, 2021, the Company paid to JPM $37,500 thousand in cash and received an initial delivery of 994,695 shares of its common stock in the open market for an aggregate purchase price of $20,073 thousand and a price per share of $20.18 on December 22, 2021.



As of December 31, 2021, the Company accounted for the remaining portion of the ASR Agreement as a forward contract indexed to its own common stock and recorded $17,427 thousand in additional
paid-in
capital in stockholders’ equity in its consolidated balance sheets.



In March 2022, the previously announced repurchase of $37,500 thousand of the Company’s common stock was completed pursuant to the ASR Agreement, and as a result, the Company additionally received 1,031,576 shares of its common stock for an aggregate purchase price of $ 17,217$17,217 thousand at a price per share of $16.69, which was reclassified as a treasury stock from additional
paid-in
capital in stockholder’s equity in its consolidated balance sheets.



Expanded Stock Repurchase Program

On August 31, 2022, the Board of Directors has authorized an expansion of the Company’s previously announced stock repurchase program from $75,000 thousand to $87,500 thousand of its common stock. The remaining $50,000 thousand of the expanded $87,500 thousand program was planned to be repurchased in the open market or through privately negotiated transactions. In connection with the repurchase program, the Company established a stock trading plan with Oppenheimer & Co. Inc. in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.

From September 2022 to December 2022, the Company repurchased 1,235,650 shares of its common stock in the open market for an aggregate purchase price of $12,511 thousand and a price per share of $10.13 under the stock repurchase program.

During the first quarter of 2023, the Company repurchased 1,238,472 shares of its common stock in the open market for an aggregate purchase price of $11,887 thousand and a price per share of $9.60 under the stock repurchase program.

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Table of Contents
15.16. Earnings (Loss) Per Share


The following table illustrates the computation of basic and diluted earnings (loss) per common share for the three months ended March 31, 20222023 and 2021:2022:

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
       
  (In thousands of U.S. dollars, except share data) 
Basic Earnings (Loss) per Share      
Net income (loss) 
$
(21,470
)
 
$
9,528
 
Basic weighted average common stock outstanding  
43,390,832
   
45,603,208
 
Basic earnings (loss) per share 
$
(0.49
)
 
$
0.21
 
Diluted Earnings (Loss) per Share        
Net income (loss) 
$
(21,470
)
 
$
9,528
 
Basic weighted average common stock outstanding  
43,390,832
   
45,603,208
 
Net effect of dilutive equity awards  
—
   
1,090,086
 
Diluted weighted average common stock outstanding  
43,390,832
   
46,693,294
 
Diluted earnings (loss) per share 
$
(0.49
)
 
$
0.20
 



Diluted earnings (loss) per share adjusts basic earnings (loss) per share for the potentially dilutive impact of stock options. As the Company has reported loss for the three months ended March 31, 2023, all potentially dilutive securities, including stock options, are antidilutive and accordingly not considered, therefore basic net loss per share equals diluted net loss per share.



   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
   
(In thousands of U.S. dollars, except share data)
 
Basic Earnings (Loss) per Share
          
Net income (loss)
  $9,528   $(7,473) 
   
 
 
   
 
 
 
Basic weighted average common stock outstanding
   45,603,208    40,292,838 
Basic earnings (loss) per share
  $0.21   $(0.19) 
Diluted Earnings (Loss) per Share
          
Net income (loss)
  $9,528   $(7,473) 
   
 
 
   
 
 
 
Basic weighted average common stock outstanding
   45,603,208    40,292,838 
Net effect of dilutive equity awards
   1,090,086    0   
   
 
 
   
 
 
 
Diluted weighted average common stock outstanding
   46,693,294    40,292,838 
Diluted earnings (loss) per share
  $0.20   $(0.19) 
The following outstanding instruments were excluded from the computation of diluted lossearnings (loss) per share, as they have an anti-dilutive effect on the calculation:

  Three Months Ended 
  
March 31,
2023
  
March 31,
2022
 
Options  
1,116,158
   
130,000
 
Restricted Stock Units  
1,434,827
   
—
 
21
   
Three Months Ended
 
   
March 31,
2022
   
March 31,
2021
 
Options
   130,000    1,471,421 
Restricted Stock Units
   0      1,109,572 
For the three months ended March 31, 2021, 5,783,919 shares of potential common stock from the assumed conversion of Exchangeable Notes were excluded from the computation of diluted loss per share as the effect were anti-dilutive for the period.
Rights Plan17. Merger Agreement

The Company entered into a Rights Agreement, dated as of December 13, 2021, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agreement”), and the Board of Directors of the Company authorized and declared a dividend of one preferred stock purchase right (a “Right” and collectively, the “Rights”) for each share of the Company’s common stock, par value $0.01 per share, outstanding at the close of business on December 23, 2021. Each Right, once exercisable, will entitle the registered holder to purchase from the Company one
one-thousandth
of a share of Series
A-1
Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $80, subject to adjustment (the “Purchase Price”). The Rights are not presently exercisable and remain attached to the shares of common stock unless and until the occurrence of the earlier of the following (the “Distribution Date”): (i) the tenth day after the public announcement or disclosure by the Company or any person or group of affiliated or associated persons that any person or group of affiliated or associated persons has become an “Acquiring Person” by obtaining beneficial ownership of 12.5% (or 20% in the case of a “passive institutional investor,” which is defined generally as any person who has reported beneficial ownership of shares of common stock on Schedule 13G under the Securities Exchange Act of 1934) or more of the Company’s outstanding common stock, subject to certain exceptions; or (ii) the tenth business day (or such later date as the Company’s Board of Directors may designate before a person or group of affiliated or associated persons becomes an Acquiring Person) after (and not including) the commencement of, or first public announcement of the intent of any person to commence, a tender or exchange offer by any person or group of affiliated or associated persons, which would, if consummated, result in such person or group becoming an Acquiring Person. The Board of Directors may redeem all of the Rights for $0.001 per Right at any time before any person or group of affiliated or associated persons becomes an Acquiring Person. In addition, at any time on or after any person or group of affiliated or associated persons becomes an Acquiring Person (but before any person or group of affiliated or associated persons becomes the owner of 50% or more of the Company’s outstanding common stock), the Board of Directors may exchange all or part of the Rights (other than the Rights beneficially owned by the Acquiring Person and certain affiliated persons) for shares of common stock at an exchange ratio of one share of common stock per Right. The Rights will expire at the close of business on December 12, 2022, unless redeemed or exchanged prior to that time.
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If any person or group of affiliated or associated persons becomes an Acquiring Person, then, after the Distribution Date, each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons or transferees thereof) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock having a market value of twice the Purchase Price. Alternatively, if, after any person or group of affiliated or associated persons becomes an Acquiring Person, (1) the Company is involved in a merger or other business combination in which the Company is not the surviving corporation or its common stock is changed into or exchanged for other securities or assets; or (2) the Company or one or more of its subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries, taken as a whole, then each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock of the other party to such business combination or sale (or in certain circumstances, an affiliate) having a market value of twice the Purchase Price.​​​​​​​
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16. Merger Agreement
On March 25, 2021, the Company, South Dearborn Limited, an exempted company incorporated in the Cayman Islands with limited liability (“Parent”Holdco”), formed by an affiliate of Wise Road Capital LTD (“Wise Road”), and Michigan Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of ParentHoldco (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), providing for, among other things and subject to the terms and conditions thereof, the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent.
Holdco.



The closing of the Merger was subject to certain conditions, including clearance by the Committee on Foreign Investment in the United States (“CFIUS”) under the Defense Production Act of 1950, as amended. The Company and ParentHoldco were advised that CFIUS clearance of the Merger would not be forthcoming and received permission from CFIUS to withdraw their joint filing. In connection therewith, the Company and ParentHoldco entered into a Termination and Settlement Agreement, dated December 13, 2021 (the “Termination Agreement”), pursuant to which ParentHoldco agreed to pay $70,200 thousand (the “Termination Fee”) to the Company on the terms specified in the Termination Agreement in satisfaction of Parent’sHoldco’s obligation to pay a termination fee in connection with the termination of the Merger Agreement.
On December 20, 2021, the Merger Agreement was terminated pursuant to the Termination Agreement after the Company’s receipt of a fee of $51,000 thousand from ParentHoldco and a standby letter of credit, which secures a deferred fee of $19,200 thousand from ParentHoldco due on or before March 31, 2022.
As of MarchDecember 31, 2022,2021, of the Termination Fee, $19,200 thousand deferred fee was recorded as other receivables. In connection therewith, the Company, Holdco and Wise Road entered into a First Amendment to the Termination Agreement, dated April 4, 2022, pursuant to which Holdco paid $14,400 thousand on April 4, 2022, with $4,800 thousand remaining outstanding. The Company, Holdco and Wise Road entered into a Second Amendment to the Termination Agreement, dated August 5, 2022 pursuant to which Holdco paid $3,000 thousand on August 5, 2022, of the deferred fee and payment of the remaining $1,800 thousand was due on or before October 31, 2022. The Company, Holdco and Wise Road entered into a series of letter agreements pursuant to which the parties ultimately agreed to defer the remaining $1,800 thousand due on or before March 31, 2023. As of March 31, 2023, the remaining fee of $1,800 thousand was recorded as other receivables. On April 6, 2023, Holdco paid the remaining $1,800 thousand.
For the three months ended March 31, 2021, the Company incurred $9,831 thousand of professional fees and certain transaction related-expenses incurred in connection with the Merger, which were recognized in merger-related costs in the consolidated statements of operations.
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17.18. Commitments and Contingencies

Advances to Suppliers


The Company, from time to time, may make advances in form of prepayments or deposits to suppliers, including external foundries, to meet its planned production. The Company recorded advances of $8,001$4,372 thousand and $1,708$6,605 thousand as other current assets as of March 31, 20222023 and December 31, 2021,2022, respectively.


COVID-19
Pandemic

In December 2019, a strain of coronavirus causing a disease known as
COVID-19
surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China.
In March 2020, the World Health Organization declared the
COVID-19
outbreak a pandemic. Governmentalpandemic, and governmental authorities throughout the world have implemented numerous restrictions and containment measures including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business restrictions and shutdowns, resultingthat resulted in rapidly changing market and economic conditions. Although someMany of these restrictions and other containment measures have since been lifted or scaled back, ongoing surges of
COVID-19
have in some cases resulted in the
re-imposition
of certain restrictions and containment measures, and mayback. The Company will continue to lead to other restrictions being
re-implemented
in the foreseeable future in response to efforts to reduce the rapid spread of
COVID-19.
The Company experienced some minor disruption in its Power Solutions business from assembly and test subcontractors located in China in the first quarter of 2020 as a result of the
COVID-19
pandemic. To date, its external Display Solutions business contractors and
sub-contractors
have not been materially impacted by the
COVID-19
pandemic. The Company is, however, unable to accurately predict the full impact that the
COVID-19
pandemic will have on its future results of operations due to numerous uncertainties. The extent to which the
COVID-19
pandemic impacts the Company’s business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the
COVID-19
pandemic, such as new strains of the virus, including the Delta and Omicron variants and any future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the extent and effectiveness of actions to contain the
COVID-19
pandemic or treat its impact, including vaccination campaigns and lockdown measures, among others. In addition, recurrences or additional waves of
COVID-19
cases could cause other widespread or more severe impacts depending on where infection rates are highest. The Company cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if the Company or any of its customers and suppliers were to experience prolonged business shutdowns or other disruptions, its ability to conduct its business could be materially and negatively affected, which could have a material adverse impact on its business, results of operations and financial condition.
The Company continues to closely monitor and evaluate the nature and scope of the impact of the
COVID-19
pandemic to its business, consolidated results of operations, and financial condition, and may take further actions altering its business operations and managing its costs and liquidity that the Companyit deems necessary or appropriate to respond to this ongoing and uncertain global health crisis andin the resulting global economic consequences.event of a reemergence of the pandemic.
18. Subsequent Events
The Terminated Merger
19. Subsequent Events

The Merger Agreement was previously terminated on December 20, 2021 pursuant to the Termination Agreement following the Company’s receipt of a portion of the Termination Fee equal to $51,000 thousand from Parent and the issuance of a standby letter of credit, which secured a deferred portion of the Termination Fee equal to $19,200 thousand from Parent due on or before March 31, 2022. In connection therewith, the Company,
 Parent and Wise Road entered into a first amendment to the Termination Agreement, dated April 4, 2022, pursuant to which Parent agreed to pay the Company $19,200 thousand, of which $14,400 thousand has been paid on April 4, 2022 and payment of the remaining $4,800 thousand (which amount is secured by a new standby letter of credit, dated April 4, 2022), will be paid by Parent on or before June 30, 2022.
Derivative contracts


In April 2022,2023, the Company and SC entered into derivative contract of zero cost collar for December 2023. The total notional amounts are $5,000 thousand.


In April 2023, the Company and NFIK entered into derivative contracts of zero cost collars for the period from April 2023January 2024 to December 2023. The total notional amounts are $33,000 thousand.
In April 2022, the Company and SC entered into derivative contracts of zero cost collars for the period from October 2022 to March 2023.June 2024. The total notional amounts are $18,000 thousand.

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FORWARD LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
(this (this “Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.
These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in this section, in “Part II: Item 1A. Risk Factors” herein and in “Part I: Item 1A. Risk Factors” in our Annual Report on Form
10-K
for our fiscal year ended December 31, 20212022 filed on February 23, 22, 2023 (“2022 (“2021 Form
10-K”)
(including that the impact of the
COVID-19
pandemic may also exacerbate the risks discussed therein).
All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Statements made in this Report, unless the context otherwise requires, that include the use of the terms “we,” “us,” “our” and “Magnachip” refer to Magnachip Semiconductor Corporation and its consolidated subsidiaries. The term “Korea” refers to the Republic of Korea or South Korea.

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Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the related notes included elsewhere in this Report.
Overview
We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT applications, consumer, computing, industrial and automotive applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately 1,1501,100 registered patents and pending applications and extensive engineering and manufacturing process expertise.
Our standard products business includes our Display Solutions and Power Solutions business lines.
Our Display Solutions line of products provide flat panel display solutions to major suppliers of large and small flat panel displays. These products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in mobile communications, automobiles,automotives, entertainment devices, IT applications such as monitors, notebook PCs, monitorstablet PC and TVs applied with liquid crystal display (LCD), organic light emitting diodes (OLED) and Micro light emitting diode (Micro LED) televisions. Our Display Solutions products support some of the industry’s most advanced display technologies, such as OLEDs, low temperature polysilicons thin film transistors (LTPS TFTs), as well as high-volume display technologies such as amorphous silicon thin film transistors
(a-Si
TFTs).panel. Since 2007, we have designed and manufactured OLED display driver integrated circuit (IC) products. Our current portfolio of OLED solutions address a wide range of resolutions ranging from HD (High Definition) to WQHD (Wide QuadrupleUHD (Ultra High Definition) for a wide range of applications including smartphones, TVs, automotive and other mobile devices.IT applications such as monitors, notebook PCs, tablet PCs as well as AR/VRs.
Our Power Solutions business line produces power management semiconductor products including discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs),
AC-DC/DC-DC
converters, LED drivers, regulators and power management integrated circuits (PMICs) for a range of devices, including televisions, smartphones, mobile phones, wearable devices, desktop PCs, notebooks, tablet PCs, other consumer electrics, automotive, and industrial applications such as power suppliers,
e-bikes,
solar inverters, LED lighting and motor drives.
Our wide variety of analog and mixed-signal semiconductor products combined with our mature technology platform allow us to address multiple high-growth end markets and rapidly develop and introduce new products and services in response to market demands. Our design center in Korea and substantial manufacturing operations in Korea place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demand from existing and new customers. Certain of our OLED products are produced using external
12-inch
foundries. Through a strategic cooperation with external
12-inch
foundries, we are managing to ensure outsourcing wafers at competitive price and produce quality products.
To maintain and increase our profitability, we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce. We must understand our customers’ needs as well as the likely end market trends and demand in the markets they serve. We must also invest in relevant research and development activities and purchase necessary materials on a timely basis to meet our customers’ demand while maintaining our target margins and cash flow.
The semiconductor markets in which we participate are highly competitive. The prices of our products tend to decrease regularly over their useful lives, and such price decreases can be significant as new generations of products are introduced by us or our competitors. We strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence.
Demand for our products and services is driven by overall demand for communications, IoT, consumer and industrial products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers. In order to mitigate the impact of market volatility on our business, we continually strive to diversify our portfolio of products, customers, and target applications. We also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services. While we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history, existing manufacturing capacity and our worldwide customer base, if we are not effective in competing in these markets, our operating results may be adversely affected.

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Net sales for our standard products business are driven by design wins in which we are selected by an electronics original equipment manufacturer (OEM) or other potential customer to supply its demand for a particular product. A customer will often have more than one supplier designed into multi-source components for a particular product line. Once we have design wins and the products enter into mass production, we often specify the pricing of a particular product for a set period of time, with periodic discussions and renegotiations of pricing with our customers. In any given period, our net sales depend heavily upon the
end-market
demand for the goods in which our products are used, the inventory levels maintained by our customers and, in some cases, allocation of demand for components for a particular product among selected qualified suppliers.
In contrast to completely fabless semiconductor companies, our internal manufacturing capacity provides us with greater control over certain manufacturing costs and the ability to implement process and production improvements for our internally manufactured products, which can favorably impact gross profit margins. Our internal manufacturing capacity also allows for better control over delivery schedules, improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these internally manufactured products. However, having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins, particularly during downturns in the semiconductor industry.
Our standard products business requires investments in capital equipment. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment. Many of these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy do not require substantial investment in leading edge process equipment for those products, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments. In addition, we are less likely to experience significant industry overcapacity, which can cause product prices to decline significantly. In general, we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended period of time. In addition, we outsource manufacturing of those products which do require advanced technology and
12-inch
and
8-inch
wafer capacity, such as organic light emitting diodes (OLED). We believe this balanced capital investment strategy enables us to optimize our capital investments and facilitates more diversified product and service offerings.
Since 2007, we had designed and manufactured OLED display driver ICs in our internal manufacturing facilities. As we expanded our design capabilities to products that require lower geometries unavailable at our existing manufacturing facilities, we began outsourcing manufacturing of certain OLED display driver ICs to external
12-inch
foundries starting in the second half of 2015 and we have started outsourcing
8-inch
wafer for OLED TV IC after the sale of our fabrication facility located in Cheongju.Cheongju, Korea in 2020. This additional source of manufacturing is an increasingly important part of our supply chain management. By outsourcing manufacturing of OLED products to external foundries, we are able to adapt dynamically to changing customer requirements and address growing markets without substantial capital investments by us. However, relying on external foundries exposes us to the risk of being unable to secure manufacturing capacity particularly underin the current globalcase of facing with a worldwide shortage of foundry services. Although we are working strategically with external foundries to ensure long-term wafer capacity, if these efforts are unsuccessful, our ability to deliver products to our customers may be negatively impacted, which would adversely affect our relationship with customers and opportunities to secure new design-wins.
Our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors. Additionally, we must innovate to remain ahead of, or at least rapidly adapt to, technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services. We believe that our established relationships and close collaboration with leading customers enhance our awareness of new product opportunities, market and technology trends and improve our ability to adapt and grow successfully.

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Recent Developments
Voluntary Resignation Program
During the first quarter of 2023, we commenced a voluntary resignation program (the “Program”), which was available for the employees with more than 20 years of service. For the three months ended March 31, 2023, we recorded in our consolidated statement of operations $8.4 million of termination related charges as “early termination charges”, which are expected to be paid during the second quarter of 2023.
Accelerated
Expanded Stock Repurchase Program
On December 21, 2021,August 31, 2022, our Board of Directors authorized an expansion of the previously announced stock repurchase of upprogram from $75.0 million to $75.0$87.5 million of our outstanding common stock and we entered intostock. We have already repurchased shares worth $37.5 million under the program through an accelerated stock repurchase agreement (the “ASR Agreement”)on December 21, 2021 with JPMorgan Chase Bank, National Association (“JPM”) to repurchase an aggregate of $37.5Association. The remaining $50.0 million of our common stock.
the expanded $87.5 million program has been and will be repurchased in the open market or through privately negotiated transactions. In connection with the repurchase program, we established a stock trading plan with Oppenheimer & Co. Inc. in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
PursuantFrom September 2022 to the terms of the ASR Agreement dated December 21, 2021,2022, we paid to JPM $37.5 million in cash and received an initial delivery of 994,695repurchased 1,235,650 shares of our common stock in the open market for an aggregate purchase price of $20.1$12.5 million atand a price per share of $20.18 on December 22, 2021.
$10.13 under the stock repurchase program.
As
During the first quarter of December 31, 2021,2023, we accounted for the remaining portion of the ASR Agreement as a forward contract indexed to our common stock and recorded $17.4 million in additional
paid-in
capital in stockholders’ equity in our consolidated balance sheets.
In March 2022, the previously announced repurchase of $37.5 millionrepurchased 1,238,472 shares of our common stock was completed pursuant toin the ASR Agreement, and as a result, we additionally received 1,031,576 shares of our common stockopen market for an aggregate purchase price of $17.2$11.9 million atand a price per share of $16.69, which was reclassified as a treasury$9.60 under the stock from additional
paid-in
capital in stockholder’s equity in our consolidated balance sheets.repurchase program.
Additional details about the ASR Agreement are contained in the Current Report on Form
8-K
filed by us with the Securities and Exchange Commission, or the SEC on March 14, 2022.
Global Semiconductor Chip Shortage
Industry Trends
Recent sharp increases
Increases in demand for semiconductor products have resulted in a global shortage of manufacturing capacity.capacity over the prior two years. As a result, we may experience increased costs to manufacture our products and may not be able to manufacture and deliver all of the orders placed by our customers. Specifically, if we are unable to secure manufacturing capacity from the external foundries we rely on, our ability to deliver products to our customers may be negatively impacted. Also, this shortage of manufacturing capacity may lead to an increase in our manufacturing costs. Our principal pricing strategy is to pass on the increased manufacturing costs to our customers; however, we may not be fully able to do this in all cases. Total revenues for the three months ended March 31, 2022 were severely impacted by these persisting supply shortages, in particular for 28nm
12-inch
OLED wafers.
In an effort to minimize the potential adverse impact of the supply shortage, we are workingcontinue to work strategically with certain external foundries to help ensure long-term wafer capacity. If these efforts are unsuccessful, however, such shortage could limit our ability to meet demand for our products in the future, which would adversely affect our reputation and competitive position, resulting in a negative impact on results of operations.
We are not able to foresee when the current shortage of manufacturing capacity will subside. A prolongedsubside, but we are beginning to see some indicators of improvement of such supply shortage situation. However, the global supply shortage for semiconductor products over the prior two years has led to overbooking backordered demand and oversupply. Additionally, the current global macroeconomic conditions, including remaining effects from the COVID-19 pandemic, inflation and higher interest rates, uncertainty caused by geopolitical conflict between the Russian and Ukraine and escalated trade tensions between the U.S. and China have led to weaker end-market demand and an oversupply of inventory. We continue to monitor these trends and uncertainties, and any decline in end-market demand and increase in inventory levels could negatively impact our financial condition potentially resulting in a need for additional capital to fund strategic initiatives or operating activities.
and results of operations.
COVID-19
Pandemic
In December 2019, a strain of coronavirus causing a disease known as
COVID-19
surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China. In March 2020, the World Health Organization declared the
COVID-19
outbreak a pandemic. Governmentalpandemic, and governmental authorities throughout the world have implemented numerous restrictions and containment measures including travel bans and restrictions, quarantines,
shelter-in-place
orders, and business restrictions and shutdowns, resultingthat resulted in rapidly changing market and economic conditions. Although someMany of these restrictions and other containment measures have since been lifted or scaled back, ongoing surges of
COVID-19
have, in some cases, resulted in the
re-imposition
of certain restrictions and containment measures, and mayback. We will continue to lead to other restrictions being
re-implemented
in the foreseeable future in response to efforts to reduce the rapid spread of
COVID-19.
We experienced some minor disruption in our Power Solutions business from assembly and test subcontractors located in China in the first quarter of 2020 as a result of the
COVID-19
pandemic. To date, our external Display Solutions business contractors and
sub-contractors
have not been materially impacted by the
COVID-19
pandemic. We are, however, unable to accurately predict the full impact that the
COVID-19
pandemic will have on future results of operations due to numerous uncertainties. The extent to which the
COVID-19
pandemic impacts our business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the
COVID-19
pandemic, such as new strains of the virus,
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including the Delta and Omicron variants and any future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the extent and effectiveness of actions to contain the
COVID-19
pandemic or treat its impact, including vaccination campaigns and lockdown measures, among others. In addition, recurrences or additional waves of
COVID-19
cases could cause other widespread or more severe impacts depending on where infection rates are highest. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of our customers and suppliers were to experience prolonged business shutdowns or other disruptions, our ability to conduct our business could be materially and negatively affected, which could have a material adverse impact on our business, results of operations and financial condition.
We continue to closely monitor and evaluate the nature and scope of the impact of the
COVID-19
pandemic to ourits business, consolidated results of operations, and financial condition, and may take further actions altering our business operations and managing our costs and liquidity that we deemit deems necessary or appropriate to respond in the event of a reemergence of the pandemic.

Developments in Export Control Regulations
On October 7, 2022, the Bureau of Industry and Security of the U.S. Department of Commerce published changes to this ongoingU.S. export control regulations (U.S. Export Regulations), including new restrictions on Chinese entities’ ability to obtain advanced computing chips, develop and uncertain global health crisismaintain supercomputers, and manufacture advanced semiconductors. Further, on October 12, 2022, a new rule went into effect requiring U.S. persons to obtain a license prior to engaging in certain activities that could “support” certain end-uses and end-users, including those related to weapons of mass destruction. Additionally, on October 21, 2022, the resulting global economic consequences.Bureau of Industry and Security brought into effect a series of new Foreign Direct Product (FDP) rules and various new controls on advanced computing items, significantly expanding the scope of items that are subject to export control under the U.S. Export Regulations. Based on our understanding of the current U.S. Export Regulations and related rules, we do not anticipate that they will have a material impact on our business. Additional changes to the U.S. Export Regulations are expected, but the scope or timing of such changes is unknown. We will continue to monitor such developments, including potential additional trade restrictions, and other regulatory or policy changes by the U.S. and foreign governments.

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Explanation and Reconciliation of
Non-U.S. GAAP
Measures
Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income
We use the terms Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income (including on a per share basis) in this Report. Adjusted EBITDA, as we define it, is a
non-U.S.
GAAP measure. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation loss, net and (iv) merger-related costs and (v) otherearly termination charges. EBITDA for the periods indicated is defined as net income (loss) before interest income, interest expense, (income), net, income tax expense (benefit), and depreciation and amortization.
See the footnotes to the table below for further information regarding these items. We present Adjusted EBITDA as a supplemental measure of our performance because:
 
we believe that Adjusted EBITDA, by eliminating the impact of a number of items that we do not consider to be indicative of our core ongoing operating performance, provides a more comparable measure of our operating performance from
period-to-period
and may be a better indicator of future performance;
we believe that Adjusted EBITDA is commonly requested and used by securities analysts, investors and other interested parties in the evaluation of a company as an enterprise level performance measure that eliminates the effects of financing, income taxes and the accounting effects of capital spending, as well as other one time or recurring items described above; and
 
we believe that Adjusted EBITDA is useful for investors, among other reasons, to assess a company’s
period-to-period
core operating performance and to understand and assess the manner in which management analyzes operating performance.
We use Adjusted EBITDA in a number of ways, including:
 
for planning purposes, including the preparation of our annual operating budget;
 
to evaluate the effectiveness of our enterprise level business strategies;
 
in communications with our Board of Directors concerning our consolidated financial performance; and
 
in certain of our compensation plans as a performance measure for determining incentive compensation payments.
We encourage you to evaluate each adjustment and the reasons we consider them appropriate. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Adjusted EBITDA is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to net income from continuing operations,or any other performance measure derived in accordance with U.S GAAP, or as an alternative to cash flows from operating activities or net income, as determined in accordance with U.S. GAAP.a measure of liquidity. A reconciliation of net income (loss) to Adjusted EBITDA is as follows:

  
Three Months
Ended
March 31,
2023
  
Three Months
Ended
March 31,
2022
 
  (Dollars in millions) 
Net Income (loss) 
$
(21.5
)
 
$
9.5
 
Interest income  
(2.8
)
  
(0.7
)
Interest expense  
0.3
   
0.1
 
Income tax expense (benefit)  
(1.2
)
  
3.5
 
Depreciation and amortization  
4.4
   
3.9
 
EBITDA  
(20.9
)
  
16.3
 
Adjustments:        
Equity-based compensation expense(a)  
1.1
   
1.6
 
Foreign currency loss, net(b)  
3.4
   
0.7
 
Derivative valuation loss, net(c)  
0.1
   
0.1
 
Early termination charges(d)  
8.4
   
—
 
Adjusted EBITDA 
$
(7.9
)
 
$
18.8
 

28
   
Three Months
Ended
March 31,
2022
   
Three Months
Ended
March 31,
2021
 
   
(Dollars in millions)
 
Net Income (loss)
  $9.5   $(7.5) 
Interest expense (income), net
   (0.6)    0.4 
Income tax expense
   3.5    0.3 
Depreciation and amortization
   3.9    3.4 
EBITDA
   16.3    (3.3) 
Adjustments:
    
Equity-based compensation expense(a)
   1.6    1.6 
Foreign currency loss, net(b)
   0.7    4.7 
Derivative valuation loss, net(c)
   0.1    0.1 
Merger-related costs(d)
   —      9.8 
Other charges(e)
   —      0.6 
  
 
 
   
 
 
 
Adjusted EBITDA
  $18.8   $13.5 
  
 
 
   
 
 
 
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(a)
This adjustment eliminates the impact of
non-cash
equity-based compensation expenses. Although we expect to incur
non-cash
equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these
non-cash
expenses as supplemental information.
(b)
This adjustment mainly eliminates the impact of
non-cash
foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily
non-cash
gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results.
(c)
This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance.
(d)
For the three months ended March 31, 2021,2023, this adjustment eliminates $9.8the termination related charges of $8.4 million in
non-recurring
professional service fees and expenses incurred in connection with the contemplated Merger transaction (see “Note 16. Merger Agreement”Program that we offered to our consolidated financial statements under “Item 1. Interim Consolidated Financial Statements”).certain employees during the first quarter of 2023. As this adjustment meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if this adjustment is excluded.
(e)
For the three months ended March 31, 2021, this adjustment eliminates $0.6 million
non-recurring
professional service fees and expenses incurred in connection with the regulatory requests. As this adjustment meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if this adjustment is excluded.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
 
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
 
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
 
although depreciation and amortization are
non-cash
charges, the assets being depreciated and amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;
 
Adjusted EBITDA does not reflect the costs of holding certain assets and liabilities in foreign currencies; and
 
other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally.

29
31
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We present Adjusted Operating Income as supplemental measures of our performance. We prepare Adjusted Operating Income by adjusting operating income (loss) to eliminate the impact of equity-based compensation expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Operating Income is useful to investors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations.
Adjusted Operating Income is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to operating income income from continuing operations, cash flows from operating activities or net income, as determinedany other performance measure derived in accordance with U.S.U.S GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Operating Income differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Operating Income, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Operating Income for the periods indicated as operating income adjusted to exclude (i) equity-based compensation expense and (ii) merger-related costs and (iii) otherearly termination charges.
The following table summarizes the adjustments to operating income (loss) that we make in order to calculate Adjusted Operating Income (Loss) for the periods indicated:

  
Three Months
Ended
March 31,
2023
  
Three Months
Ended
March 31,
2022
 
  (Dollars in millions) 
Operating income (loss) 
$
(21.8
)
 
$
12.9
 
Adjustments:        
Equity-based compensation expense(a)  
1.1
   
1.6
 
Early termination charges(b)  
8.4
   
—
 
Adjusted Operating Income (Loss) 
$
(12.2
)
 
$
14.5
 
 
   
Three Months
Ended
March 31,
2022
   
Three Months
Ended
March 31,
2021
 
   
(Dollars in millions)
 
Operating income (loss)
  $12.9   $(2.1) 
Adjustments:
    
Equity-based compensation expense(a)
   1.6    1.6 
Merger-related costs(b)
   —      9.8 
Other charges(c)
   —      0.6 
  
 
 
   
 
 
 
Adjusted Operating Income
  $14.5   $10.0 
  
 
 
   
 
 
 
(a)
This adjustment eliminates the impact of
non-cash
equity-based compensation expenses. Although we expect to incur
non-cash
equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these
non-cash
expenses as supplemental information.
(b)
For the three months ended March 31, 2021,2023, this adjustment eliminates $9.8the termination related charges of $8.4 million
non-recurring
professional service fees and expenses incurred in connection with the contemplated Merger transaction (see “Note 16. Merger Agreement”Program that we offered to our consolidated financial statements under “Item 1. Interim Consolidated Financial Statements”).certain employees during the first quarter of 2023. As this adjustment meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if this adjustment is excluded.
(c)
For the three months ended March 31, 2021, this adjustment eliminates $0.6 million
non-recurring
professional service fees and expenses incurred in connection with the regulatory requests. As this adjustment meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if this adjustment is excluded.

30
32
Table of Contents
We present Adjusted Net Income (including on a per share basis) as a further supplemental measure of our performance. We prepare Adjusted Net Income (including on a per share basis) by adjusting net income (loss) to eliminate the impact of a number of
non-cash
expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income (including on a per share basis) is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We present Adjusted Net Income (including on a per share basis) for a number of reasons, including:
we use Adjusted Net Income (including on a per share basis) in communications with our Board of Directors concerning our consolidated financial performance without the impact of
non-cash
expenses and the other items as we discussed below since we believe that it is a more consistent measure of our core operating results from period to period; and
we believe that reporting Adjusted Net Income (including on a per share basis) is useful to readers in evaluating our core operating results because it eliminates the effects of
non-cash
expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantly from period to period.
Adjusted Net Income (including on a per share basis) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to net income from continuing operations,or any other performance measure derived in accordance with U.S GAAP, or as an alternative to cash flows from operating activities or net income, as determined in accordance with U.S. GAAP.a measure of liquidity. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income (including on a per share basis) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income (including on a per share basis), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Net Income (including on a per share basis); for the periods indicated as net income (loss), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation loss, net, (iv) merger-related costs, (v) otherearly termination charges and (vi)(v) income tax effect on
non-GAAP
adjustments.
The following table summarizes the adjustments to net income (loss) that we make in order to calculate Adjusted Net Income (Loss) (including on a per share basis) for the periods indicated:

  
Three Months
Ended
March 31,
2023
  
Three Months
Ended
March 31,
2022
 
  
(Dollars in millions, except per
share data)
 
Net Income (Loss) 
$
(21.5
)
 
$
9.5
 
Adjustments:        
Equity-based compensation expense(a)  
1.1
   
1.6
 
Foreign currency loss, net(b)  
3.4
   
0.7
 
Derivative valuation loss, net(c)  
0.1
   
0.1
 
Early termination charges(d)  
8.4
   
—
 
Income tax effect on non-GAAP adjustments(e)  
(1.9
)
  
1.0
 
Adjusted Net Income (Loss) 
$
(10.4
)
 
$
12.9
 

Reported earnings (loss) per share—basic 
$
(0.49
)
 
$
0.21
 
Reported earnings (loss) per share—diluted 
$
(0.49
)
 
$
0.20
 
Weighted average number of shares—basic  
43,390,832
   
45,603,208
 
Weighted average number of shares—diluted  
43,390,832
   
46,693,294
 
Adjusted earnings (loss) per share—basic 
$
(0.24
)
 
$
0.28
 
Adjusted earnings (loss) per share—diluted 
$
(0.24
)
 
$
0.28
 
Weighted average number of shares—basic  
43,390,832
   
45,603,208
 
Weighted average number of shares—diluted  
43,390,832
   
46,693,294
 

31
   
Three Months
Ended
March 31,
2022
   
Three Months
Ended
March 31,
2021
 
   
(Dollars in millions, except per
share data)
 
Net Income (Loss)
  $9.5   $(7.5) 
Adjustments:
    
Equity-based compensation expense(a)
   1.6    1.6 
Foreign currency loss, net(b)
   0.7    4.7 
Derivative valuation loss, net(c)
   0.1    0.1 
Merger-related costs(d)
   —      9.8 
Other charges(e)
   —      0.6 
Income tax effect on
non-GAAP
adjustments(f)
   1.0    —   
  
 
 
   
 
 
 
Adjusted Net Income
  $12.9   $9.3 
  
 
 
   
 
 
 
Reported earnings (loss) per share—basic
  $0.21   $(0.19) 
Reported earnings (loss) per share—diluted
  $0.20   $(0.19) 
Weighted average number of shares—basic
   45,603,208    40,292,838 
Weighted average number of shares—diluted
   46,693,294    40,292,838 
Adjusted earnings per share—basic
  $0.28   $0.23 
Adjusted earnings per share—diluted
  $0.28   $0.22 
Weighted average number of shares—basic
   45,603,208    40,292,838 
Weighted average number of shares—diluted
   46,693,294    47,470,416 
(a)
This adjustment eliminates the impact of
non-cash
equity-based compensation expenses. Although we expect to incur
non-cash
equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these
non-cash
expenses as supplemental information.
(b)
This adjustment mainly eliminates the impact of
non-cash
foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily
non-cash
gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results.
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Table of Contents
(c)
This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance.
(d)
For the three months ended March 31, 2021,2023, this adjustment eliminates $9.8the termination related charges of $8.4 million
non-recurring
professional service fees and expenses incurred in connection with the contemplated Merger transaction (see “Note 16. Merger Agreement”Program that we offered to our consolidated financial statements under “Item 1. Interim Consolidated Financial Statements”).certain employees during the first quarter of 2023. As this adjustment meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if this adjustment is excluded.
(e)
For the three months ended March 31, 2021, this adjustment eliminates $0.62023 and 2022, income tax effect on non-GAAP adjustments were calculated by calculating the tax expense of each jurisdiction with or without the non-GAAP adjustments. For the three months ended March 31, 2023, income tax effect on non-GAAP adjustments related to our Korean subsidiary and the U.S parent entity were negative $1.2 million
non-recurring
professional service fees and expenses incurred in connection with the regulatory requests. As this adjustment meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if this adjustment is excluded.
(f)
negative $0.7 million, respectively. For the three months ended March 31, 2022, this adjustment eliminates the income tax effect on
non-GAAP
adjustments of $1.0 million related to our Korean subsidiary using a calculation method that we compare the tax expense of our Korean subsidiary with and without the
non-GAAP
adjustments.
We believe that all adjustments to net income (loss) used to calculate Adjusted Net Income (Loss) was applied consistently to the periods presented.
Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
 
Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs;
 
Adjusted Net Income does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees;
 
Adjusted Net Income does not reflect the costs of holding certain assets and liabilities in foreign currencies; and
 
other companies in our industry may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted Net Income should not be considered as a measure of profitability of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted Net Income only as a supplement.

32
34
Table of Contents
Factors Affecting Our Results of Operations
Net
Sales.
We derive substantially all of our sales (net of sales returns and allowances) from our standard products business. We outsource manufacturing of mobile OLED products to external
12-inch
foundries. Our product inventory is primarily located in Korea and is available for drop shipment globally. Outside of Korea, we maintain limited product inventory, and our sales representatives generally relay orders to our factories in Korea for fulfillment. We have strategically located our sales offices near concentrations of major customers. Our sales offices are located in Korea, Japan, Taiwan and Greater China. Our network of authorized agents and distributors is in the United States, Europe and the Asia Pacific region.
We recognize revenue when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement. For the three months ended March 31, 20222023 and 2021,2022, we sold products to 140120 and 145140 customers, respectively, and our net sales to our ten largest customers represented 72%71% and 82%72% of our net sales—standard products business, respectively.
We will provide the Transitional Fab 3 Foundry Services up to September 1, 2023 at an agreed upon cost plus a
mark-up.
Gross Profit.
Our overall gross profit generally fluctuates as a result of changes in overall sales volumes and in the average selling prices of our products and services. Other factors that influence our gross profit include changes in product mix, the introduction of new products and services and subsequent generations of existing products and services, shifts in the utilization of our manufacturing facility and the yields achieved by our manufacturing operations, changes in material, labor and other manufacturing costs including outsourced manufacturing expenses, and variation in depreciation expense.
Average
Average Selling
Prices.
Average selling prices for our products tend to be highest at the time of introduction of new products which utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products. We strive to offset the impact of declining selling prices for existing products through our product development activities and by introducing new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to preclude losses from product and productive capacity obsolescence.
Material Costs.
Our material costs consist of costs of raw materials, such as silicon wafers, chemicals, gases and tape and packaging supplies. We use processes that require specialized raw materials, such as silicon wafers, that are generally available from a limited number of suppliers. If demand increases or supplies decrease, the costs of our raw materials could increase significantly.
Labor
Labor Costs.
A significant portion of our employees are located in Korea. Under Korean labor laws, most employees and certain executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of March 31, 2022,2023, approximately 98%97% of our employees were eligible for severance benefits.
Depreciation Expense.
We periodically evaluate the carrying values of long-lived assets, including property, plant and equipment and intangible assets, as well as the related depreciation periods. We depreciated our property, plant and equipment using the straight-line method over the estimated useful lives of our assets. Depreciation rates vary from
30-40
years on buildings to 53 to 12 years for certain equipment and assets. Our evaluation of carrying values is based on various analyses including cash flow and profitability projections. If our projections indicate that future undiscounted cash flows are not sufficient to recover the carrying values of the related long-lived assets, the carrying value of the assets is impaired and will be reduced, with the reduction charged to expense so that the carrying value is equal to fair value.
Selling
Selling Expenses.
We sell our products worldwide through a direct sales force as well as a network of sales agents and representatives to OEMs, including major branded customers and contract manufacturers, and indirectly through distributors. Selling expenses consist primarily of the personnel costs for the members of our direct sales force, a network of sales representatives and other costs of distribution. Personnel costs include base salary, benefits and incentive compensation.
General
General and
Administrative
Expenses.
General and administrative expenses consist of the costs of various corporate operations, including finance, legal, human resources and other administrative functions. These expenses primarily consist of payroll-related expenses, consulting and other professional fees and office facility-related expenses.
Research
Research and
Development.
The rapid technological change and product obsolescence that characterize our industry require us to make continuous investments in research and development. Product development time frames vary but, in general, we incur research and development costs one to two years before generating sales from the associated new products. These expenses include personnel costs for members of our engineering workforce, cost of photomasks, silicon wafers and other
non-recurring
engineering charges related to product design. Additionally, we develop base line process technology through experimentation and through the design and use of characterization wafers that help achieve commercially feasible yields for new products. The majority of research
35
Table of Contents
and development expenses of our display business are material and design-related costs for OLED display driver IC product development involving
28-nanometer
or finer processes. The majority of research and development expenses of our power business are certain equipment, material and design-related costs for power discrete products and material and design-related costs for power IC products. Power IC uses standard BCD process technologies which can be sourced from multiple foundries, including Fab 4.foundries.

33
Impact of Foreign Currency Exchange Rates on Reported Results of Operations.
Historically, a portion of our revenues and cost of sales and greater than the majority of our operating expenses have been denominated in
non-U.S.
currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in U.S. dollars converted from our
non-U.S.
revenues and expenses based on monthly average exchange rates, changes in the exchange rate between the Korean won and the U.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 U.S. dollars relative to Korean won, depreciation in the U.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the U.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 U.S. dollar as a substantial portion of
non-cash
translation gain or loss is associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in U.S. dollars. As of March 31, 2022,2023, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $348.5$301.9 million. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our stock could be adversely affected.
From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Korean subsidiary enters into foreign currency zero cost collar contracts in order to mitigate a portion of the impact of U.S. dollar-Korean won exchange rate fluctuations on our operating results. Obligations under these foreign currency zero cost collar contracts must be cash collateralized if our exposure exceeds certain specified thresholds. These zero cost collar contracts may be terminated by a counterparty in a number of circumstances, including if our total cash and cash equivalents is less than $30.0 million at the end of a fiscal quarter unless a waiver is obtained from the counterparty. We cannot assure that any hedging technique we implement will be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on our results of operations.
Foreign Currency Gain or Loss.
Foreign currency translation gains or losses on transactions by us or our subsidiaries in a currency other than our or our subsidiaries’ functional currency are included in foreign currency gain (loss), net in our statements of operations. A substantial portion of this net foreign currency gain or loss relates to
non-cash
translation gain or loss related to the principal balance of intercompany balances at our Korean subsidiary that are denominated in U.S. dollars. This gain or loss results from fluctuations in the exchange rate between the Korean won and U.S. dollar.
Income Taxes.
We record our income taxes in each of the tax jurisdictions in which we operate. This process involves using an asset and liability approach whereby deferred tax assets and liabilities are recorded for differences in the financial reporting bases and tax basis of our assets and liabilities. We exercise significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities. We assess whether it is more likely than not that the deferred tax assets existing at the
period-end
will be realized in future periods. In such assessment, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes.
We are subject to income- or
non-income-based
tax examinations by tax authorities of the U.S., Korea and multiple other foreign jurisdictions for all open tax years. Significant estimates and judgments are required in determining our worldwide provision for income- or
non-income
based taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.
Capital
Capital Expenditures.
We primarily invest in manufacturing equipment, software design tools and other tangible assets mainly for fabrication facility maintenance, capacity expansion and technology improvement. Capacity expansions and technology improvements typically occur in anticipation of increases in demand. We typically pay for capital expenditures in partial installments with portions due on order, delivery and final acceptance. Our capital expenditures mainly include our payments for the purchase of property, plant and equipment.

36
34
Inventories.
Inventories.We monitor our inventory levels in light of product development changes and market expectations. We may be required to take additional charges for quantities in excess of demand, cost in excess of market value and product age. Our analysis may take into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sales of existing products, product age, customer design activity, customer concentration and other factors. These forecasts require us to estimate our ability to predict demand for current and future products and compare those estimates with our current inventory levels and inventory purchase commitments. Our forecasts for our inventory may differ from actual inventory use.

37
35
Results of Operations – Comparison of Three Months Ended March 31, 20222023 and 20212022
The following table sets forth consolidated results of operations for the three months ended March 31, 20222023 and 2021:2022:

  Three Months Ended
March 31, 2022		 Three Months Ended
March 31, 2021		    
Three Months Ended
March 31, 2023
  
Three Months Ended
March 31, 2022
    
  Amount % of
Total Revenues		 Amount % of
Total Revenues		 Change
Amount		  Amount  
% of
Total Revenues
  Amount  
% of
Total Revenues
  
Change
Amount
 
  (Dollars in millions)  (Dollars in millions) 
Revenues                     
Net sales – standard products business  $94.0   90.3%  $112.9   91.8%  $(18.9)  
$
51.5
 
90.4
%
 
$
94.0
 
90.3
%
 
$
(42.5
)
Net sales – transitional Fab 3 foundry services   10.1   9.7   10.1   8.2   (0.0)   
5.5
 
9.6
  
10.1
  
9.7
  
(4.6
)
            
Total revenues   104.1   100.0   123.0   100.0   (18.9)  
57.0
 
100.0
 
104.1
 
100.0
 
(47.1
)
Cost of sales                     
Cost of sales – standard products business   56.1   53.9   79.2   64.4   (23.2)  
37.3
 
65.5
 
56.1
 
53.9
 
(18.8
)
Cost of sales – transitional Fab 3 foundry services   9.0   8.7   9.4   7.6   (0.4)   
7.6
 
13.3
  
9.0
  
8.7
  
(1.4
)
            
Total cost of sales   65.1   62.5   88.6   72.1   (23.5)   
44.9
 
78.8
  
65.1
  
62.5
  
(20.2
)
            
Gross profit   39.0   37.5   34.4   27.9   4.6  
12.1
 
21.2
 
39.0
 
37.5
 
(26.9
)
            
Selling, general and administrative expenses   14.2   13.6   12.6   10.3   1.5  
12.2
 
21.3
 
14.2
 
13.6
 
(2.0
)
Research and development expenses   12.0   11.5   13.4   10.9   (1.5)  
13.3
 
23.3
 
12.0
 
11.5
 
1.3
 
Merger-related costs   —     —     9.8   8.0   (9.8) 
Other charges   —     —     0.6   0.5   (0.6) 
            
Early termination charges  
8.4
  
14.8
  
—
  
—
  
8.4
 
Operating income (loss)   12.9   12.4   (2.1)   (1.7)   15.0  
(21.8
)
 
(38.3
)
 
12.9
 
12.4
 
(34.7
)
            
Interest income 
2.8
 
5.0
 
0.7
 
0.7
 
2.1
 
Interest expense   (0.1)   (0.1)   (1.0)   (0.8)   0.9  
(0.3
)
 
(0.4
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Foreign currency loss, net   (0.7)   (0.7)   (4.7)   (3.8)   4.0  
(3.4
)
 
(6.0
)
 
(0.7
)
 
(0.7
)
 
(2.7
)
Others, net   0.9   0.9   0.6   0.5   0.3   
(0.0
)
 
(0.1
)
  
0.2
  
0.2
  
(0.3
)
              
(0.9
)
  
(1.5
)
  
0.1
  
0.1
  
(1.0
)
   0.1   0.1   (5.1)   (4.1)   5.2 
            
Income (loss) before income tax expense   13.0   12.5   (7.2)   (5.8)   20.2  
(22.7
)
 
(39.8
)
 
13.0
 
12.5
 
(35.7
)
Income tax expense   3.5   3.3   0.3   0.2   3.2 
            
Income tax expense (benefit)  
(1.2
)
 
(2.2
)
  
3.5
  
3.3
  
(4.7
)
Net income (loss)  $9.5   9.2  $(7.5)   (6.1)  $17.0  
$
(21.5
)
 
(37.7
)
 
$
9.5
  
9.2
 
$
(31.0
)
            

 Three Months Ended
March 31, 2022		 Three Months Ended
March 31, 2021		    
Three Months Ended
March 31, 2023
  
Three Months Ended
March 31, 2022
    
 Amount % of
Total Revenues		 Amount % of
Total Revenues		 Change
Amount		  Amount  
% of
Total Revenues
  Amount  
% of
Total Revenues
  
Change
Amount
 
 (Dollars in millions)  (Dollars in millions) 
Revenues                    
Net sales – standard products business                    
Display Solutions $29.2   28.0%  $58.9   47.9%  $(29.7)  
$
10.8
   
19.0
%
 
$
29.2
   
28.0
%
 
$
(18.3
)
Power Solutions  64.8   62.3   54.0   43.9   10.8   
40.7
   
71.4
   
64.8
   
62.3
   
(24.2
)
               
Total standard products business  94.0   90.3   112.9   91.8   (18.9)   
51.5
   
90.4
   
94.0
   
90.3
   
(42.5
)
Net sales – transitional Fab 3 foundry services  10.1   9.7   10.1   8.2   (0.0)   
5.5
   
9.6
   
10.1
   
9.7
   
(4.6
)
               
Total revenues $104.1   100.0%  $123.0   100.0%  $(18.9)  
$
57.0
   
100.0
%
 
$
104.1
   
100.0
%
 
$
(47.1
)
               

  Three Months Ended
March 31, 2022		 Three Months Ended
March 31, 2021		    
Three Months Ended
March 31, 2023
  
Three Months Ended
March 31, 2022
    
  Amount   % of
Net Sales		 Amount   % of
Net Sales		 Change
Amount		  Amount  
% of
Net Sales
  Amount  
% of
Net Sales
  
Change
Amount
 
  (Dollars in millions)  (Dollars in millions) 
Gross Profit                       
Gross profit – standard products business  $37.9    40.3%  $33.7    29.8%  $4.3  
$
14.2
   
27.6
%
 
$
37.9
   
40.3
%
 
$
(23.7
)
Gross profit – transitional Fab 3 foundry services   1.1    10.6   0.7    7.1   0.3   
(2.1
)
  
(38.4
)
  
1.1
   
10.6
   
(3.2
)
              
Total gross profit  $39.0    37.5%  $34.4    27.9%  $4.6  
$
12.1
   
21.2
%
 
$
39.0
   
37.5
%
 
$
(26.9
)
                  

38
36
Revenues
Revenues
Total revenues were $57.0 million for the three months ended March 31, 2023, a $47.1 million, or 45.2%, decrease compared to $104.1 million for the three months ended March 31, 2022, an $18.9 million, or 15.4%, decrease compared to $123.0 million for the three months ended March 31, 2021.2022. This decrease was primarily due to a decrease in revenue related to our standard products business as described below.
The standard products business.
Net sales from our standard products business were $51.5 million for the three months ended March 31, 2023, a $42.5 million, or 45.2%, decrease compared to $94.0 million for the three months ended March 31, 2022, an $18.9 million, or 16.7%, decrease compared to $112.9 million for the three months ended March 31, 2021.2022. The decrease in net sales from our Display Solutions business line was primarily attributable to a decrease in revenue from our mobile OLED display driver ICs stemming from a continuing severe shortage in manufacturing capacity (in particular for 28nm
12-inch
OLED wafers), as we outsource manufacturing of these products to external
12-inch
foundries, and lower customer demand resulting from weak global macroeconomic conditions, and a slowdownlack of new design-wins caused by supply shortage in the Chinese smartphone market in the first quarter of 2022 which was offset in part by a higher demand(in particular for our28nm 12 inch OLED TV DDIC and
auto-LCD
DDIC.wafers) at external 12 inch foundries. The increasedecrease in net sales from our Power Solutions business line was attributable to a stronglower demand for power products such as MOSFETs, including
high-end
MOSFETs, primarily for TVs, smartphones and industrial applications, and IGBTse-bikes, due mainly for solar inverters.to the industry-wide slowdown.
The transitional Fab 3 foundry services.
Net sales from the transitional Fab 3 foundry services were $5.5 million and $10.1 million for each of the three months ended March 31, 20222023 and 2021,2022, respectively.
Gross Profit
Total gross profit was $12.1 million for the three months ended March 31, 2023 compared to $39.0 million for the three months ended March 31, 2022, compared to $34.4 million for the three months ended March 31, 2021, a $4.6$26.9 million, or 13.4%69.0%, increase.decrease. Gross profit as a percentage of net sales for the three months ended March 31, 2022 increased2023 decreased to 37.5%21.2% compared to 27.9%37.5% for the three months ended March 31, 2021.2022. The increasedecrease in gross profit and gross profit as a percentage of net sales was primarily due to our standard products business as further described below.
The standard products business.
Gross profit from our standard products business was $14.2 million for the three months ended March 31, 2023, which represented a $23.7 million, or 62.6%, decrease from gross profit of $37.9 million for the three months ended March 31, 2022, which represented a $4.3 million, or 12.7%, increase from2022. The decrease in gross profit was primarily attributable to a significant decrease in net sales from our standard product business as explained above. Gross profit as a percentage of $33.7 millionnet sales for the three months ended March 31, 2021.2023 decreased to 27.6% compared to 40.3% for the three months ended March 31, 2022. The year-over-year decrease in gross profit as a percentage of net sales was primarily attributable to an unfavorable product mix and a significant drop in the utilization rate of our internal fabrication facility in Gumi. Gross profit as a percentage of net sales for the three months ended March 31, 2022 increasedwas higher due to 40.3% compared to 29.8% for the three months ended March 31, 2021. The increase in both gross profit and gross profit margin was primarily attributable to an improved product mix and an increase in average selling price benefited from the favorable pricing environment.
39
37
Net Sales – Standard Products Business by Geographic Region
We report net sales – standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net sales—standard products business by geographic region and the percentage of total net sales—standard products business represented by each geographic region for the three months ended March 31, 20222023 and 2021:
2022:

  
Three Months Ended
March 31, 2023
  
Three Months Ended
March 31, 2022
    
  Amount  
% of
Net Sales –
standard
products
business
  Amount  
% of
Net Sales –
standard
products
business
  
Change
Amount
 
  (Dollars in millions) 
Korea 
$
16.5
   
32.0
%
 
$
31.0
   
33.0
%
 
$
(14.5
)
Asia Pacific (other than Korea)  
31.9
   
62.0
   
58.3
   
62.0
   
(26.4
)
United States  
1.0
   
2.0
   
2.9
   
3.0
   
(1.8
)
Europe  
2.1
   
4.0
   
1.9
   
2.0
   
0.2
 
  
$
51.5
   
100.0
%
 
$
94.0
   
100.0
%
 
$
(42.5
)
 
   
Three Months Ended
March 31, 2022
  
Three Months Ended
March 31, 2021
    
   
Amount
   
% of
Net Sales –
standard
products
business
  
Amount
   
% of
Net Sales –
standard
products
business
  
Change
Amount
 
   
(Dollars in millions)
 
Korea
  $31.0    33.0%  $26.4    23.4%  $4.6 
Asia Pacific (other than Korea)
   58.3    62.0   83.7    74.2   (25.5) 
United States
   2.9    3.0   1.3    1.1   1.6 
Europe
   1.9    2.0   1.2    1.1   0.6 
Others
   —      —     0.2    0.2   (0.2) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
  $94.0    100.0%  $112.9    100.0%  $(18.9) 
  
 
 
   
 
 
  
 
 
   
 
 
  
 
 
 
Net sales – standard products business in Korea for the three months ended March 31, 2022 increased2023 decreased from $26.4$31.0 million to $31.0$16.5 million compared to the three months ended March 31, 2021,2022, or by $4.6$14.5 million, or 17.4%46.8%, primarily due to a stronglower demand for power products such as MOSFETs, including
high-end
MOSFETs, primarily for TVs and smartphone applications. The increasedWeak demand for our OLED TV DDICdisplay driver ICs also favorablyunfavorably affected in this quarter.
Net sales – standard products business in Asia Pacific (other than Korea) for the three months ended March 31, 20222023 decreased to $58.3$31.9 million from $83.7$58.3 million in the three months ended March 31, 2021,2022, or by $25.5$26.4 million, or 30.4%45.2%, primarily due to a decrease in revenue from our mobile OLED display driver ICs stemming from a continuing severe shortage in manufacturing capacity (in particular for 28nm
12-inch
OLED wafers), as we outsource manufacturing of these products to external
12-inch
foundries, and lower customer demand resulting from weak global macroeconomic conditions, and a slowdownlack of new design-wins caused by supply shortage in the Chinese smartphone market in the first quarter of 2022 which was offset in part by a higher(in particular for 28nm 12 inch OLED wafers) at external 12 inch foundries. The decreased demand for our power products such as MOSFETs, including
high-end
MOSFETs, primarily for TVs, computingsmartphones and industrial applications, and IGBTs mainly for solar inverters. The increased demand for our
auto-LCD
DDICe-bikes, also favorablyunfavorably affected in this quarter.
Operating Expenses
Selling,
General
and
Administrative
Expenses.
Selling, general and administrative expenses were $12.2 million, or 21.3% of total revenues, for the three months ended March 31, 2023, compared to $14.2 million, or 13.6% of total revenues, for the three months ended March 31, 2022, compared to $12.62022. The decrease of $2.0 million, or 10.3%14.1%, was primarily attributable to a decrease in employee compensation including certain incentives and benefit related accruals. This decrease also resulted from a decrease in professional fees mainly comprised of legal and consulting fees.
Research and Development Expenses. Research and development expenses were $13.3 million, or 23.3% of total revenues, for the three months ended March 31, 2021. The increase of $1.5 million, or 12.1%, was primarily attributable2023, compared to an increase in employee compensation including certain incentive and benefit related accruals.
Research
and
Development
Expenses.
 Research and development expenses were $12.0 million, or 11.5% of total revenues, for the three months ended March 31, 2022, compared to $13.42022. The increase of $1.3 million, or 10.9% of total revenues, for the three months ended March 31, 2021. The decrease of $1.5 million, or 10.9%11.2%, was primarily attributable to the timing ofan increase in development activities for our
28-nanometer
OLED display driver ICs, which was offset in part by an increasea decrease in certain employee compensation.incentives.
Merger-related Costs.
Early Termination Charges.For the three months ended March 31, 2021,2023, we recorded $9.8in our consolidated statement of operations $8.4 million of
non-recurring
professional service fees and expenses incurred termination related charges in connection with the contemplated Merger transaction.Program that we offered to certain employees during the first quarter of 2023.
Other Charges.
For the three months ended March 31, 2021, we recorded $0.6 million of
non-recurring
professional service fees and expenses incurred in connection with the regulatory requests.
Operating Income (Loss)
As a result of the foregoing, operating incomeloss of $12.9$21.8 million was recorded for the three months ended March 31, 20222023 compared to operating lossincome of $2.1$12.9 million for the three months ended March 31, 2021.2022. As discussed above, the increasedecrease in operating income of $15.0$34.7 million resulted primarily from a $9.8$26.9 million decrease in Merger-related costs, a $4.6gross profit, an $8.4 million increase in gross profit,early termination charges and a $1.5$1.3 million decreaseincrease in research and development expenses and a $0.6 millionexpenses. This decrease in other charges. This increaseoperating income was offset in part by a $1.5$2.0 million increasedecrease in selling, general and administrative expenses.

38
40
Table of Contents
Other Income (Expense)
Interest
Expense.
Interest expenses were $0.1Income. Interest income was $2.8 million and $1.0$0.7 million for the three months ended March 31, 20222023 and March 31, 2021,2022, respectively. The increase of $2.1 million, or 297.5%, was primarily attributable to an increase in interest income on cash and cash equivalents held by our Korean subsidiary, which benefited from the favorable financial market environment.
Interest Expense. Interest expense was $0.3 million and $0.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Foreign
Foreign Currency
Loss,
Net.
Net foreign currency loss for the three months ended March 31, 20222023 was $0.7$3.4 million compared to net foreign currency loss of $4.7$0.7 million for the three months ended March 31, 2021.2022. The net foreign currency loss for the three months ended March 31, 20222023 and March 31, 20212022 was due to the depreciation in value of the Korean won relative to the U.S. dollar during the period.
A substantial portion of our net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to our Korean subsidiary, which are denominated in U.S. dollars, and are affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of March 31, 20222023 and March 31, 2021,2022, the outstanding intercompany loan balances, including accrued interest between our Korean subsidiary and our Dutch subsidiary, were $348$301.9 million and $382$348.5 million, respectively. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income (loss) since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates.
Others,
Income Tax Expense (Benefit)
Net.
Others were comprised of interest income, rental income, and gains and losses from valuation of derivatives which were designated as hedging instruments. OthersIncome tax benefit was $1.2 million for the three months ended March 31, 2022 and March 31, 20212023, which was $0.9 million and $0.6 million, respectively.primarily attributable to the estimated taxable loss in our Korean subsidiary for the respective period.
Income Tax Expense
Income tax expense was $3.5 million for the three months ended March 31, 2022, which was primarily attributable to the estimated taxable income in our Korean subsidiary for the respective period. Income tax expense was $0.3 million for the three months ended March 31, 2021, which was primarily attributable to interest on intercompany loan balances, and offset in part by the tax benefit recognized on the loss for the first quarter of 2021 from our Korean subsidiary.
Net Income (Loss)
As a result of the foregoing, a net incomeloss of $9.5$21.5 million was recorded for the three months ended March 31, 20222023 compared to a net lossincome of $7.5$9.5 million for the three months ended March 31, 2021.2022. As discussed above, the $17.0$31.0 million increasedecrease in net income was primarily attributable to a $15.0$34.7 million increasedecrease in operating income and a $4.0$2.7 million improvementincrease in net foreign currency loss, and a $0.9 million decrease in interest expense, which was offset in part by a $3.2$4.7 million decrease in income tax expense and a $2.1 million increase in income tax expense.interest income.

39
41
Table of Contents
Liquidity and Capital Resources
Our principal capital requirements are to fund sales and marketing, invest in research and development and capital equipment, and to fund working capital needs. We calculate working capital as current assets less current liabilities.
Our principal sources of liquidity are our cash, cash equivalents, cash flows from operations and financing activities. Our ability to manage cash and cash equivalents may be limited, as our primary cash flows are dictated by the terms of our sales and supply agreements, contractual obligations, debt instruments and legal and regulatory requirements. From time to time, we may sell accounts receivable to third parties under factoring agreements or engage in accounts receivable discounting to facilitate the collection of cash. In addition, from time to time, we may make payments to our vendors on extended terms with their consent. As of March 31, 2022,2023, we did not have any accounts payable on extended terms or payment deferment with our vendors.
As of June 29, 2018, our Korean subsidiary entered into an arrangement whereby it (i) acquired a water treatment facility from SK hynix for $4.2 million to support our fabrication facility in Gumi, Korea, and (ii) subsequently sold the water treatment facility for $4.2 million to a third party management company that we engaged to run the facility for a
10-year
term beginning July 1, 2018. As of March 31, 2022,2023, the outstanding obligation of this arrangement is approximately $22.5$23.7 million for remaining service term through 2028.
As of March 31, 2022,2023, cash and cash equivalents held by our Korean subsidiary were $279.4$193.0 million, which represents 98%91% of our total cash and cash equivalents on a consolidated basis. We currently believe that we will have sufficient cash reserves from cash on hand and expected cash from operations to fund our operations as well as capital expenditures for the next 12 months and the foreseeable future.
Working Capital
Our working capital balance as of March 31, 20222023 was $337.2$261.6 million compared to $323.6$290.6 million as of December 31, 2021.2022. The $13.6$29.0 million increasedecrease was primarily attributable to a $5.4$13.4 million increasedecrease in cash and cash equivalents resulted primarily from our stock repurchase program and a $6.6$7.4 million increase in advance payments to certain suppliers, including external foundries to meet our planned production.
accrued expense resulted primarily from termination related charges under the Program.
Cash Flows from Operating Activities
Cash inflow provided by operating activities totaled $12.8$7.9 million for the three months ended March 31, 2022,2023, compared to $21.2$12.8 million of cash inflow provided by operating activities for the three months ended March 31, 2021.2022. The net operating cash inflow for the three months ended March 31, 20222023 reflects our net incomeloss of $9.5$21.5 million, as adjusted favorably by $13.9$18.3 million, which mainly consisted of depreciation and amortization, provision for severance benefits, and net foreign currency loss, and net unfavorablefavorable impact of $10.6$11.1 million from changes of operating assets and liabilities.
Cash Flows from Investing Activities
Cash outflow used in investing activities totaled $2.1$3.6 million for the three months ended March 31, 2022,2023, compared to $1.4$2.1 million of cash outflow used in investing activities for the three months ended March 31, 2021.2022. The $0.8$1.5 million increase was primarily attributable to a $1.1$3.4 million net increase in hedge collateral,guarantee deposits, which was offset in part by a $0.1$1.1 million net decrease in hedge collateral and a $0.8 million decrease in purchase of property, plant and equipment.
Cash Flows from Financing Activities
Cash inflow provided byoutflow used in financing activities totaled $0.8$12.4 million for the three months ended March 31, 2022,2023, compared to $0.8 million of cash inflow provided by financing activities for the three months ended March 31, 2021.2022. The financing cash outflow for the three months ended March 31, 2023 was primarily attributable to a payment of $11.9 million for the repurchases of our common stock pursuant to our stock repurchase program and a payment of $0.4 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units. The financing cash inflow for the three months ended March 31, 2022 was primarily attributable to $1.8 million of proceeds received from the issuance of common stock in connection with the exercise of stock options, which was offset in part by a payment of $0.8 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units. The financing cash inflow for the three months ended March 31, 2021 was primarily attributable to $2.5 million of proceeds received from the issuance of common stock in connection with the exercise of stock options, which was offset in part by a payment of $1.5 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units.
Capital Expenditures
We routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facility and reinforcement of our global research and development capability. For the three months ended March 31, 2022,2023, capital expenditures for property, plant and equipment were $0.9$0.1 million, a $0.1$0.8 million, or 12.8%85.7%, decrease from $1.1$0.9 million for the three months ended March 31, 2021.2022. The capital expenditures for the three months ended March 31, 20222023 and 20212022 were related to meeting our customer demand and supporting technology and facility improvement at our fabrication facility.

40
42
Table of Contents
Critical Accounting Policies and Estimates
Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our consolidated financial statements and accompanying notes.
We believe that our significant accounting policies, which are described further in Note 1 to our consolidated financial statements in our Annual Report on Form
10-K
for our fiscal year ended December 31, 2021,2022, or our 20212022 Form
10-K,
are critical due to the fact that they involve a high degree of judgment and estimates about the effects of matters that are inherently uncertain. We base these estimates and judgments on historical experience, knowledge of current conditions and other assumptions and information that we believe to be reasonable. Estimates and assumptions about future events and their effects cannot be determined with certainty. Accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the business environment in which we operate changes.
A description of our critical accounting policies that involve significant management judgement appears in our 20212022 Form
10-K,
under “Management’s Discussion and Analysis of Financial Conditions and Reports of Operations—Critical Accounting Policies and Estimates.” There have been no other material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates included in our 20212022 Form
10-K.
41
Recent
Accounting
Pronouncements
For a full description of new accounting pronouncements and recently adopted accounting pronouncements, please see “Item 1. Interim Consolidated Financial Statements—Notes to Consolidated Financial Statements—Note 1. Business, Basis of Presentation and Significant Accounting Policies” in this Report.
43
Table of Contents
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to the market risk that the value of a financial instrument will fluctuate due to changes in market conditions, primarily from changes in foreign currency exchange rates. In the normal course of our business, we are subject to market risks associated with currency movements on our assets and liabilities.
Foreign Currency Exposures
We have exposure to foreign currency exchange rate fluctuations on net income from our subsidiaries denominated in currencies other than U.S. dollars, as our foreign subsidiaries in Korea, Taiwan, China, Japan and Hong Kong use local currency as their functional currency. From time to time these subsidiaries have cash and financial instruments in local currency. The amounts held in Japan, Taiwan, Hong Kong and China are not material in regards to foreign currency movements. However, based on the cash and financial instruments balance at March 31, 20222023 for our Korean subsidiary, a 10% devaluation of the Korean won against the U.S. dollar would have resulted in a decrease of $3.1$0.5 million in our U.S. dollar financial instruments and cash balances.
See “Note 7. Derivative Financial Instruments” to our consolidated financial statements under “Item 1. Interim Consolidated Financial Statements” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations—Impact of Foreign Currency Exchange Rates on Reported Results of Operations” for additional information regarding our foreign exchange hedging activities.

42
44
Table of Contents
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Report, we carried out an evaluation under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, as of March 31, 2022,2023, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022.2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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45
Table of Contents
PART II. OTHER INFORMATION
 
Item 1.Legal Proceedings
For a discussion of legal proceedings, see “Part I: Item 3. Legal Proceedings” of our 2021
2022 Form 10-K.
See also “Item 1A. Risk Factors” in this Report and “Part I: Item 1A. Risk Factors” of our 2021
2022 Form 10-K
for additional information.
 
Item 1A.Risk Factors
The Company is subject to risks and uncertainties, any of which could have a significant or material adverse effect on our business, financial condition, liquidity or consolidated financial statements. You should carefully consider the risk factors disclosed in Part I, Item 1A of our 2021 Form
10-K
(including that the impact of the
COVID-19
pandemic, such as the ongoing lockdowns in Shanghai, China, may also exacerbate the risks discussed therein), herein and other reports we have filed with the SEC. In addition the recent geopolitical conflict between Russia and Ukraine, and any sanctions, export controls or other retaliatory actions against, or restrictions on doing business with Russia, as well as any disruption, instability or volatility in the global markets, industries and supply chains resulting from such conflict, could adversely affect our business, even though at present we are not experiencing or expecting any notable negative effect on our financial condition or results of operations. The risks described herein and therein are not the only ones we face. This information should be considered carefully together withto the other information contained in this Report and the other reports and materials the Company files with the SEC, investors should carefully consider the risk factors disclosed in Part I, Item 1A of our 2022 Form 10-K as well as in our subsequent filings with the SEC. The risks described herein and therein are not the only ones we face.
 
There have been no material changes to the risk factors disclosed in Part I, Item 1A of our 2022 Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
The following table shows the monthly activity related to our repurchases of common stock for the quarter ended March 31, 2022.2023.

Period  Total Number
of Shares
Purchased		   Average
Price Paid
per Share		   Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs(1)		   Approximate dollar
value of Shares that
may yet be
Purchased under the
Plans or Programs
(in thousands)(1)		 
January 2022   —      —      —      —   
February 2022   —      —      —      —   
March 2022   1,031,576   $16.69    1,031,576   $37,500 
                    
Total   1,031,576       $37,500 
                    
Period
 
 
Total Number
of Shares
Purchased(1)
  
Average
Price Paid
per Share
  
Total Number
of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs(2)
  
Approximate dollar
value of Shares that
may yet be
Purchased under the
Plans or Programs
(in thousands)(2)
 
January 2023  
210,192
  
$
10.45
   
210,192
  
$
35,292
 
February 2023  
222,314
  
$
10.16
   
222,314
  
$
33,033
 
March 2023(1)  
807,487
  
$
9.22
   
805,966
  
$
25,601
 
Total  
1,239,993
  
$
9.60
   
1,238,472
  
$
25,601
 


(1)
Includes 1,521 shares withheld to satisfy tax withholding obligations in connection with the vesting of restricted stock units issued under our equity incentive plans.
(2)
On December 21, 2021,August 31, 2022, the Company’s Board of Directors authorized an expansion of the CompanyCompany’s previously announced stock repurchase program from $75 million to repurchase up to $75$87.5 million of the Company’s common stock. AsThe Company has already repurchased shares worth $37.5 million under the program through an immediate step towards implementing the approvedaccelerated stock repurchase program, the Company entered into an ASR Agreementagreement on December 21, 2021 with JPM to repurchase an aggregate of $37.5JPMorgan Chase Bank, National Association. The remaining $50.0 million of the Company’s common stock. Pursuant to the terms of the ASR Agreement dated December 21, 2021, we paid to JPM $37.5expanded $87.5 million in cash and received an initial delivery of 994,695 shares of our common stockprogram will be repurchased in the open market.market or through privately negotiated transactions. In March 2022,connection with the previously announced repurchase program, the Company established a stock trading plan with Oppenheimer & Co. Inc. in accordance with Rule 10b5-1 under the Securities Exchange Act of $37.5 million of our common stock was completed pursuant to the ASR Agreement, and1934, as a result, we additionally received 1,031,576 shares of our common stock.amended.
Item 3.Defaults Upon Senior Securities
 
46
Not applicable.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.

44
Item 6.Exhibits.

Exhibit
Item 6.
Number
Exhibits.
Description
Exhibit
Number
31.1#
Description
31.1
#
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the ChiefPrincipal Executive Officer.
31.2
#
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of the ChiefPrincipal Financial Officer.
32.1†
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the ChiefPrincipal Executive Officer.
32.2†
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the ChiefPrincipal Financial Officer.
101.INS
#
Inline XBRL Instance Document.
101.SCH
#
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
#
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
#
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
#
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
#
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
Footnotes:
 
#
Filed herewith
†
Furnished herewith

45
47
Table of Contents
SIGNATURES
 SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MAGNACHIP SEMICONDUCTOR CORPORATION
(Registrant)
Dated: May 6, 2022 
By:
Dated: May 8, 2023
By:
/s/ Young-Joon Kim

Young-Joon Kim
 
Young-Joon Kim
Chief Executive Officer
(Principal Executive Officer)
Dated: May 6, 2022By:
/s/ Shin Young Park
Shin Young Park
and Interim Chief Financial Officer
(Principal FinancialExecutive Officer and Principal AccountingFinancial Officer)


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