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MagnaChip Reports Solid Third Quarter 2010 Financial Results

SEOUL, South Korea and CUPERTINO, Calif., Oct 28, 2010 /PRNewswire via COMTEX/ --

MagnaChip Semiconductor LLC ("MagnaChip Semiconductor") today announced financial results for the quarter ended September 30, 2010.

Revenue for the third quarter of 2010 was $209.4 million, a 7.6% increase compared to $194.7 million for the second quarter of 2010, and a 33.7% increase compared to $156.6 million for the third quarter ended September 27, 2009.

Gross profit was $69.3 million or 33.1%, as a percent of revenue, for the third quarter of 2010. This compares to gross profit of $64.5 million or 33.1% for the second quarter of 2010 and $52.2 million or 33.3% for the year-ago quarter.

"We again delivered solid financial results with sequential revenue growth of nearly 8% this quarter driven by our Manufacturing Services and Power Solutions segments," said Sang Park, MagnaChip Semiconductor's Chairman and Chief Executive Officer. "While recent industry announcements indicate some uncertainty regarding the state of the global semiconductor market recovery, MagnaChip continues to be well-positioned for profitable growth with a strong product portfolio and pipeline of new products during this short-term inventory correction."

Operating expense was $39.8 million or 19.0% of revenue for the third quarter of 2010. This compares to $36.8 million or 18.9% of revenue for the second quarter of 2010 and $34.9 million or 22.3% of revenue for the third quarter of 2009.

Operating income was $29.6 million for the third quarter of 2010 or 14.1% of revenue. This compares to operating income of $27.8 million or 14.3% of revenue for the second quarter of 2010 and $17.3 million or 11.0% of revenue for the third quarter of 2009.

Net income, on a GAAP basis, for the third quarter of 2010 totaled $61.5 million or $0.20 per diluted common unit. This compares to net loss of $30.7 million or $0.10 per diluted common unit for the second quarter of 2010 and net income of $62.4 million or $1.18 per diluted common unit for the third quarter of 2009. Net income, for the third quarter of 2010, was impacted primarily by a foreign currency gain of $41.4 million compared to a foreign currency loss of $48.3 million for the second quarter of 2010 and a foreign currency gain $45.4 million for third quarter of 2009, respectively. The net foreign currency exposure is primarily related to non-cash translation gains or losses for intercompany borrowings at our Korean subsidiary that are denominated in U.S. dollars.

Adjusted net income, a non-GAAP measurement, for the third quarter of 2010 totaled $ 26.2 million compared to $25.7 million for the second quarter of 2010, and $20.4 million for the third quarter of 2009.

Adjusted EBITDA, a non-GAAP measurement, for the third quarter of 2010 totaled $45.7 million compared to $43.8 million for the second quarter of 2010, and $34.5 million for the third quarter of 2009.

Management believes that non-GAAP financial measures, when viewed in conjunction with GAAP results, can provide a more meaningful understanding of the factors and trends affecting MagnaChip Semiconductor's business and operations. However, such non-GAAP financial measures have limitations and should not be considered as a substitute for net income or as a better indicator of our operating performance than measures that are presented in accordance with GAAP.

Combined cash balances (cash and cash equivalents plus short-term investments) totaled $161.4 million at the end of the third quarter of 2010, an increase of $20.1 million from the end of the prior quarter. Cash provided from operations totaled approximately $30.7 million for the third quarter of 2010. This compares to $36.0 million for the second quarter of 2010 and $4.6 million for the third quarter of 2009.

Revenue by Segment

In thousands of US dollars

Three Months Ended


Successor

Predecessor


3Q 10

2Q 10

3Q 09

Semiconductor
Manufacturing Services

$ 113,171

$ 101,564

$ 76,354

Display Solutions

77,989

80,584

75,588

Power Solutions

17,801

12,040

3,812

Other

487

512

873

Total Revenue

$ 209,448

$ 194,700

$ 156,627


Non-GAAP Metrics

Adjusted EBITDA excludes charges related to depreciation and amortization associated with continuing operations, interest expense, income tax expense (benefit), restructuring and impairment activities, other restructuring charges, reorganization items, inventory step-up, equity-based compensation, foreign currency loss (gain) and derivative valuation loss (gain). Adjusted net income (loss) excludes charges related to restructuring and impairment, other restructuring charges, reorganization items, inventory step-up equity-based compensation, amortization of intangible assets associated with continuing operations, foreign currency loss (gain) and derivative valuation loss (gain). A reconciliation of GAAP results to non-GAAP results is included following the financial statements below.

Conference Call

MagnaChip Semiconductor will host a teleconference at 11 a.m. PDT today to discuss the third quarter 2010 financial results. The conference call will be webcast live and can also be monitored by dialing 1-866-776-2061 in the U.S. or 1-706-679-0298 for all other locations. The conference ID number is 17066059 and participants are encouraged to initiate their calls at least 10 minutes in advance of the 11 a.m. PDT start time to ensure a timely connection. The webcast can be accessed at www.magnachip.com and will be archived for one year.

A replay of the conference call will be available the same day and will run for 72 hours. The replay access numbers are 1-800-642-1687 and 1-706-645-9291. The access code is 17066059.

About MagnaChip Semiconductor

Headquartered in South Korea, MagnaChip Semiconductor is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high volume consumer applications. MagnaChip Semiconductor believes it has one of the broadest and deepest range of analog and mixed-signal semiconductor platforms in the industry, supported by its 30-year operating history, a large portfolio of registered and pending patents and extensive engineering and manufacturing process expertise. For more information, please visit www.magnachip.com. Information on or accessible through, MagnaChip Semiconductor's website is not a part of, and is not incorporated into, this release.

Safe Harbor for Forward-Looking Statements

Information in this release regarding MagnaChip Semiconductor's forecasts, business outlook, expectations and beliefs are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include statements about our ability to capitalize on improving market dynamics and future operating and financial performance including fourth quarter 2010 revenues. All forward-looking statements included in this release are based upon information available to MagnaChip Semiconductor as of the date of this release, which may change, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include general economic conditions, the impact of competitive products and pricing, timely design acceptance by our customers, timely introduction of new products and technologies, ability to ramp new products into volume production, industry wide shifts in supply and demand for semiconductor products, industry and/or company overcapacity, effective and cost efficient utilization of manufacturing capacity, financial stability in foreign markets and the impact of foreign exchange rates, unanticipated costs and expenses or the inability to identify expenses which can be eliminated, compliance with U.S. and international trade and export laws and regulations by us and our distributors, and other risks detailed from time to time in MagnaChip Semiconductor's filings with the SEC, including our Form 10-Q filed on September 3, 2010, and subsequent registration statements, amendments or other reports that we may file from time to time with the SEC and/or make available on our website. MagnaChip Semiconductor assumes no obligation and does not intend to update the forward-looking statements provided, whether as a result of new information, future events or otherwise.

CONTACTS:


In the United States:

Robert Pursel

Director of Investor Relations

Tel. 408-625-1262

robert.pursel@magnachip.com


In Korea:

Chankeun Park

Senior Manager, Public Relations

Tel.+82-3-6903-3195

chankeun.park@magnachip.com




MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of US dollars, except unit data)

(Unaudited)



Three Months Ended


Successor


Predecessor



September 30,

2010



June 30,

2010


September27,

2009

Net sales

$

209,448


$

194,700


$

156,627

Cost of sales


140,133



130,166



104,465










Gross profit


69,315



64,534



52,162

Gross profit %


33.1%



33.1%



33.3%










Selling, general and administrative expenses


16,202



15,964



17,175

Research and development expenses


23,119



20,543



17,704

Restructuring and impairment charges


442



267



--










Operating income from continuing operations


29,552



27,760



17,283










Other income (expenses)









Interest expense, net


(7,312)



(6,557)



(2,642)

Foreign currency gain (loss), net


41,400



(48,273)



45,449

Reorganization items, net


--



--



(4,135)

Others


312



(950)



--












34,400



(55,780)



38,672










Income (loss) from continuing operations before income taxes


63,952



(28,020)



55,955










Income tax expenses


2,457



2,727



2,434










Income (loss) from continuing operations


61,495



(30,747)



53,521










Income from discontinued operations, net of taxes


--



--



8,916










Net income (loss)

$

61,495


$

(30,747)


$

62,437










Income (loss) from continuing operations attributable to common units

$

61,495


$

(30,747)


$

53,521










Net income (loss) attributable to common units

$

61,495


$

(30,747)


$

62,437

Earnings (loss) per common unit from continuing operations--Basic and diluted

$

0.20


$

(0.10)


$

1.01










Earnings (loss) per common unit from discontinued operations--Basic and diluted

$

--


$

--


$

0.17










Earnings (loss) per common unit--Basic and diluted

$

0.20


$

(0.10)


$

1.18

Weighted average number of units--Basic


302,558,556



302,558,556



52,923,483

Weighted average number of units--Diluted


313,604,679



302,558,556



52,923,483





MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES

RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND ADJUSTED NETINCOME (LOSS)

(In thousands of US dollars, except unit data)

(Unaudited)




Three Months Ended



Successor


Predecessor



September 30,


June 30,


September 27,



2010


2010


2009


Net income (loss)

$

61,495


$

(30,747)


$

62,437


Less: Income from discontinued operations, net of taxes



--




--



8,916


Income (loss) from continuing operations


61,495



(30,747)



53,521


Adjustments:










Depreciation and amortization associated with continuing operations



14,347



14,508



11,887


Interest expense, net


7,312



6,557



2,642


Income tax expenses


2,457



2,727



2,434


Restructuring and impairment charges


442



267



--


Other restructuring charges


--



--



5,306


Reorganization items, net


--



--



4,135


Equity-based compensation expense


1,320



1,279



51


Foreign currency (gain) loss, net


(41,400)



48,273



(45,449)


Derivative valuation (gain) loss, net


(312)



950



--


Adjusted EBITDA

$

45,661


$

43,814


$

34,527


Adjusted EBITDA per Common Unit:










- Basic and diluted


0.15



0.14



0.65












Net income (loss)

$

61,495


$

(30,747)


$

62,437


Less: Income from discontinued operations, net of taxes



--




--



8,916


Income (loss) from continuing operations


61,495


$

(30,747)



53,521


Adjustments:










Restructuring and impairment charges


442



267



--


Other restructuring charges


--



--



5,306


Reorganization items, net


--



--



4,135


Equity based compensation expense


1,320



1,279



51


Amortization of intangibles associated with continuing operations



4,681




5,718



2,817


Foreign currency (gain) loss, net


(41,400)



48,273



(45,449)


Derivative valuation (gain) loss, net


(312)



950



--


Adjusted Net Income

$

26,226


$

25,740


$

20,381


Adjusted Net Income per Common Unit:










- Basic

$

0.09


$

0.09


$

0.39


- Diluted


0.08



0.08



0.39



We define Adjusted EBITDA as net income (loss) less income (loss) from discontinued operations, net of taxes, adjusted to exclude (i) depreciation and amortization associated with continuing operations, (ii) interest expense, net, (iii) income tax expense, (iv) restructuring and impairment charges, (v) other restructuring charges, (vi) abandoned IPO expenses, (vii) subcontractor claim settlement, (viii) reorganization items, net, (ix) the increase in cost of sales resulting from the fresh-start accounting inventory step-up, (x) equity-based compensation expense, (xi) foreign currency gain (loss), net, and (xii) derivative valuation loss(gain), net.

We present Adjusted Net Income as a further supplemental measure of our performance. We prepare Adjusted Net Income 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 is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance.












MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars, except unit data)

(Unaudited)




Successor




September 30,

2010


December31,
2009


Assets








Current assets








Cash and cash equivalents


$

161,429


$

64,925


Accounts receivable, net



136,945



74,233


Inventories, net



65,029



63,407


Other receivables



4,476



3,433


Prepaid expenses



10,375



12,625


Other current assets



17,327



3,433










Total current assets



395,581



222,056










Property, plant and equipment, net



175,393



156,337


Intangible assets, net



31,500



50,158


Long-term prepaid expenses



9,685



10,542


Other non-current assets



22,135



14,238










Total assets


$

634,294


$

453,331










Liabilities and Unitholders' Equity








Current liabilities








Accounts payable


$

71,958


$

59,705


Other accounts payable



12,987



7,190


Accrued expenses



48,012



22,114


Current portion of long-term debt



--



618


Obligation under capital lease



5,222



--


Other current liabilities



5,235



3,937










Total current liabilities



143,414



93,564










Long-term borrowings



246,814



61,132


Obligation under capital lease



4,270



--


Accrued severance benefits, net



84,943



72,409


Other non-current liabilities



7,748



10,536










Total liabilities



487,189



237,641










Commitments and contingencies








Unitholders' equity








Common units, no par value, 375,000,000 units authorized, 307,215,516 and
307,083,996 units issued and outstanding at September 30, 2010 and December 31,
2009, respectively



55,453



55,135


Additional paid-in capital



39,887



168,700


Retained earnings (accumulated deficit)



59,886



(1,963)


Accumulated other comprehensive loss



(8,121)



(6,182)










Total unitholders' equity



147,105



215,690










Total liabilities and unitholders' equity


$

634,294


$

453,331























MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars)

(Unaudited)



Nine MonthsEnded


Successor


Predecessor


September30,

2010


September27,

2009

Cash flows from operating activities






Net income

$

61,849


$

20,357

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






Depreciation and amortization


44,332



34,608

Provision for severance benefits


15,123



7,831

Amortization of debt issuance costs


687



756

Gain on foreign currency translation, net


(16,704)



(36,182)

Loss (gain) on disposal of property, plant and equipment, net


(7)



84

Loss (gain) on disposal of intangible assets, net


9



(9,139)

Restructuring and impairment charges


1,045



--

Unit-based compensation


4,072



219

Cash used for reorganization items


1,573



2

Noncash reorganization items


--



4,473

Other


951



1,997

Changes in operating assets and liabilities






Accounts receivable


(61,771)



(17,961)

Inventories


193



(1,878)

Other receivables


(1,229)



(455)

Deferred tax assets


1,133



1,874

Accounts payable


10,400



6,686

Other accounts payable


6,332



(11,534)

Accrued expenses


22,094



27,550

Long term other payable


(1,606)



454

Other current assets


(221)



4,873

Other current liabilities


516



60

Payment of severance benefits


(4,707)



(4,085)

Other


(864)



(476)







Net cash provided by operating activities before reorganization items


83,200



30,114







Cash used for reorganization items


(1,573)



(2)







Net cash provided by operating activities


81,627



30,112







Cash flows from investing activities






Proceeds from disposal of plant, property and equipment


10



299

Proceeds from disposal of intangible assets


--



9,283

Purchase of plant, property and equipment


(29,739)



(7,270)

Payment for intellectual property registration


(437)



(317)

Increase in restricted cash


--



(34,067)

Decrease (increase)in short-term financial instruments


329



(326)

Decreasein guarantee deposits


1,011



632

Other


(807)



(25)







Net cash used in investing activities


(29,633)



(31,791)







Cash flows from financing activities






Proceeds from issuance ofsenior notes


246,685



--

Debt issuance costs paid


(8,313)




Repayment of long-term debt


(61,750)



--

Repayment of obligation under capital lease


(1,812)




Distribution to unitholders


(130,697)



--







Net cash provided by financing activities


44,113



--

Effect of exchange rates on cash and cash equivalents


397



3,047







Net increase in cash and cash equivalents


96,504



1,368







Cash and cash equivalents






Beginning of the period


64,925



4,037

End of the period

$

161,429


$

5,405

SOURCE MagnaChip Semiconductor