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MagnaChip Reports Strong Second Quarter 2010 Financial Results

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

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

Revenue for the second quarter of 2010 was $194.7 million, an 8.5% increase compared to $179.5 million for the first quarter of 2010, and a 39.4% increase compared to $139.7 million for the second quarter ended June 30, 2009. Revenue exceeded the top end of the Company's expectations due to continued strong demand for its diverse mixed-signal analog products from its Semiconductor Manufacturing Services division and accelerated sales growth in the company's Power Solutions division.

Gross profit was $64.5 million or 33.1%, as a percent of revenue, for the second quarter of 2010. This compares to gross profit of $49.4 million or 27.5% for the first quarter of 2010 and $48.3 million or 34.6% for the year-ago quarter. During the second quarter, gross profit was positively impacted by improved factory utilization at the Company's wafer fabrication facilities as well as a favorable mix shift to higher margin products in our Display and Power Solution business segments.

"We are very encouraged by the strength of the order patterns across all our product lines," said Sang Park, MagnaChip's Chairman and Chief Executive Officer. "We delivered solid financial results this quarter, exceeded the upper end of our revenue expectations and are well positioned to continue to capitalize on the improving global semiconductor market."

The Company continues to prudently manage operating expenses. Combined SG&A and R&D expenses were $36.5 million or 18.8% of revenue for the second quarter of 2010 compared to $38.4 million or 21.4% for the first quarter of 2010 and $34.6 million or 24.8% for the year-ago quarter.

Operating income was $27.8 million for the second quarter of 2010 or 14.3% of revenue. This compares to operating income of $10.6 million or 5.9% of revenue for the first quarter of 2010 and $13.4 million or 9.6% of revenue for the second quarter of 2009.

Net loss, on a GAAP basis, for the second quarter of 2010 totaled $30.7 million or $0.10 per diluted common unit. This compares to net income of $31.1 million or $0.10 per diluted common unit for the first quarter of 2010 and net income of $27.6 million or $0.46 per diluted common unit for the year-ago quarter. Net loss, for the second quarter of 2010, was negatively impacted by a foreign currency loss of $48.3 million compared to a foreign currency gain of $21.6 million and $30.8 million for the first quarter of 2010 and second quarter of 2009, respectively. A substantial portion of the net foreign currency exposure is related to non-cash translations gains or losses recorded for intercompany borrowings at our Korea subsidiary that are denominated in U.S. dollars.

Adjusted net income, a non-GAAP measurement, for the second quarter of 2010 totaled $25.7 million compared to $19.9 million for the first quarter of 2010, and an Adjusted net income of $5.0 million for the year-ago quarter.

Adjusted EBITDA, a non-GAAP measurement, for the second quarter of 2010 totaled $43.8 million compared to $28.7 million for the first quarter of 2010, and $29.2 million for the second 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'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 $141.3 million at the end of the second quarter of 2010, an increase of $58.6 million from the end of the prior quarter. Cash provided from operations totaled approximately $36.0 million for the second quarter of 2010. This compares to $14.9 million for the first quarter of 2010 and $25.2 million for the second quarter of 2009.


    Revenue by Segment
      In thousands of US dollars           Three Months Ended
                                        Successor             Predecessor
                                 2Q 10          1Q 10          2Q 09
    Semiconductor Manufacturing
     Services                     $101,564        $93,201        $62,963
    Display Solutions               80,584         76,730         74,187
    Power Solutions                 12,040          9,034          1,685
    Other                              512            520            858
    Total Revenue                 $194,700       $179,485       $139,693


Recent Operational Highlights

  • Announced an Enhanced Process Design Kit (PDK) for 0.18um and 0.35um BCD Technology
  • Introduced a Cost Competitive 0.18um Embedded EEPROM Technology for Specialized Applications

Business Outlook

The Company anticipates third quarter 2010 revenue will increase 7% to 9% on a sequential basis.

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). A reconciliation of GAAP results to non-GAAP results is included following the financial statements below. 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).

Conference Call

MagnaChip will hold a teleconference at 6 p.m. EDT today to discuss the second 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 87834798 and participants are encouraged to initiate their calls at least 10 minutes in advance of the 6 p.m. EDT 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 July 28, 2010 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 87834798.

About MagnaChip Semiconductor

Headquartered in South Korea, MagnaChip Semiconductor is an Asia-based designer and manufacturer of analog and mixed-signal semiconductor products for high volume consumer applications. The Company has a broad range of analog and mixed-signal semiconductor technology and intellectual property, supported by its 30-year operating history, 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

MagnaChip Semiconductor has filed a registration statement (including a preliminary prospectus) with the Securities and Exchange Commission ("SEC") for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents MagnaChip Semiconductor has filed with the SEC for more complete information about the company and the offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov or by visiting MagnaChip Semiconductor's investor relations SEC web site link at www.magnachip.com. Alternatively, MagnaChip Semiconductor will arrange to send you the preliminary prospectus if you request it by calling 1-408-625-1262.

Information in this release regarding MagnaChip Semiconductor's forecasts, business outlook, expectations and beliefs are forward-looking statements 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 third 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 S-1/A registration statement filed on June 16, 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:                    In Korea:
    Robert Pursel                            Chankeun Park
    Director of Investor Relations           Senior Manager, Public Relations
    Tel. 408-625-1262                        Tel. +82-3-6903-3195
    robert.pursel@magnachip.com              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
                                          ---------             -----------
                                    June 30,         March 31,     June 28,
                                           2010            2010         2009
    Net sales                          $194,700        $179,485     $139,693
    Cost of sales                       130,166         130,127       91,362
                                        -------         -------       ------

    Gross profit                         64,534          49,358       48,331
                                         ------          ------       ------
    Gross profit %                        33.1%           27.5%        34.6%

    Selling, general and
     administrative expenses             15,964          17,908       18,353
    Research and development
     expenses                            20,543          20,531       16,242
    Restructuring and
     impairment charges                     267             336          385
                                            ---             ---          ---

    Operating income from
     continuing operations               27,760          10,583       13,351

    Other income (expenses)
          Interest expense, net          (6,557)         (2,049)     (12,837)
          Foreign currency gain
           (loss), net                  (48,273)         21,616       30,791
          Reorganization items, net           0               0         (340)
          Others                           (950)            (52)           0
                                           ----             ---          ---

                                        (55,780)         19,515       17,614
                                        -------          ------       ------

    Income (loss) from
     continuing operations
     before income taxes                (28,020)         30,098       30,965
                                        -------          ------       ------

    Income tax expenses
     (benefits)                           2,727          (1,003)       2,387
                                          -----          ------        -----

    Income (loss) from
     continuing operations              (30,747)         31,101       28,578
                                        -------          ------       ------

    Loss from discontinued
     operations, net of taxes                 0               0          966
                                            ---             ---          ---

    Net income (loss)                  $(30,747)        $31,101      $27,612
                                       ========         =======      =======

    Dividends accrued on
     preferred units                          0               0        2,948
                                            ---             ---        -----

    Income (loss) from
     continuing operations
     attributable to                   $(30,747)        $31,101      $25,630
     common units                      ========         =======      =======

    Net income (loss)
     attributable to common
     units                             $(30,747)        $31,101      $24,664
                                       ========         =======      =======

    Earnings (loss) per common
     unit from continuing
     operations                          $(0.10)          $0.10        $0.48
     - Basic and diluted                 ======           =====        =====

    Earnings (loss) per common
     unit form discontinued
     operations                           $0.00           $0.00       $(0.02)
     - Basic and diluted                  =====           =====       ======

    Earnings (loss) per common
     unit -Basic and diluted             $(0.10)          $0.10        $0.46
                                         ======           =====        =====
    Weighted average number of
     units -Basic                   302,558,556     302,443,556  529,234,833
    Weighted average number of
     units -Diluted                 302,558,556     307,535,928  529,234,833



                MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
     RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA AND ADJUSTED
                              NET INCOME (LOSS)
                (In thousands of US dollars, except unit data)
                                 (Unaudited)


                                           Three Months Ended
                                           ------------------
                                          Successor           Predecessor
                                          ---------           -----------
                                     June 30,       March 31,    June 28,
                                            2010           2010       2009
     Net Income (loss)                  $(30,747)       $31,101    $27,612
        Less: income(loss) from
         discontinued operations,
         net of taxes                          0              0       (966)
                                             ---            ---       ----
        Income(loss) from continuing
         operations                      (30,747)        31,101     28,578
     Adjustments:
       Depreciation and
        amortization associated
        with continuing operations        14,508         15,477     11,741
       Interest expense, net               6,557          2,049     12,837
       Income tax expenses
        (benefits)                         2,727         (1,003)     2,387
       Restructuring and impairment
        charges                              267            336        385
       Other restructuring charges             0              0      3,719
       Reorganization items, net               0              0        340
       Inventory step-up                       0            867          0
       Equity-based compensation
        expense                            1,279          1,473         56
       Foreign currency loss(gain),
        net                               48,273        (21,616)  (30,791)
       Derivative valuation
        loss(gain), net                      950             57          0

     Adjusted EBITDA                     $43,814        $28,741    $29,252
                                         =======        =======    =======

     Adjusted EBITDA per Common
      Unit: Basic and diluted               0.14           0.09       0.55


     Net income (loss)                  $(30,747)       $31,101    $27,612
        Less: income(loss) from
         discontinued operations,
         net of taxes                          0              0       (966)
                                             ---            ---       ----
        Income (loss) from
         continuing operations           (30,747)        31,101     28,578
     Adjustments:
       Restructuring and impairment
        charges                              267            336        385
       Other restructuring charges             0              0      3,719
       Reorganization items, net               0              0        340
       Inventory step-up                       0            867          0
       Equity based compensation
        expense                            1,279          1,473         56
       Amortization of intangibles
        associated with continuing
        operations                         5,718          7,697      2,725
       Foreign currency loss
        (gain), net                       48,273        (21,616)  (30,791)
       Derivative valuation
        loss(gain), net                      950             57          0
     Adjusted Net Income (Loss)          $25,740        $19,915     $5,012
                                         =======        =======     ======

     Adjusted Net Income (Loss)
      per Common Unit:
        Basic                              $0.09          $0.07      $0.09
        Diluted                            $0.08          $0.06      $0.09


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) the increase in cost of sales resulting from the fresh-start accounting inventory step-up, (ix) equity-based compensation expense, (x) reorganization items, net, (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
                                                  ---------
                                                  June 30,  December 31,
                                                       2010      2009
     Assets
     Current assets
          Cash and cash equivalents                $141,310    64,925
          Accounts receivable, net                  117,711    74,233
          Inventories, net                           59,972    63,407
          Other receivables                           3,702     3,433
          Prepaid expenses                            9,908    12,625
          Other current assets                       11,097     3,433
                                                     ------     -----

               Total current assets                 343,700   222,056
                                                    -------   -------

     Property, plant and equipment, net             155,040   156,337
     Intangible assets, net                          34,837    50,158
     Long-term prepaid expenses                      10,883    10,542
     Other non-current assets                        21,491    14,238
                                                     ------    ------

               Total assets                        $565,951  $453,331
                                                   --------  --------

     Liabilities and Unitholders' Equity
     Current liabilities
          Accounts payable                          $69,379   $59,705
          Other accounts payable                     22,546     7,190
          Accrued expenses                           31,906    22,114
          Current portion of long-term debt               -       618
          Other current liabilities                   7,826     3,937
                                                      -----     -----

               Total current liabilities            131,657    93,564

     Long-term borrowings                           246,746    61,132
     Accrued severance benefits, net                 76,394    72,409
     Other non-current liabilities                    9,234    10,536
                                                      -----    ------

               Total liabilities                    464,031   237,641
                                                    -------   -------

     Unitholders' equity
          Common units, no par value, 375,000,000
           units authorized, 307,233,996             55,453    55,135
           and 307,083,996 units issued and
            outstanding at June 30, 2010 and
           December 31,2009, respectively
     Additional paid-in capital                      39,224   168,700
     Accumulated deficit                             (1,609)   (1,963)
     Accumulated other comprehensive income
      (loss)                                          8,852    (6,182)
                                                      -----    ------

               Total unitholders' equity            101,920   215,690
                                                    -------   -------

               Total liabilities and unitholders'
                equity                             $565,951  $453,331
                                                   --------  --------


                     MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (In thousands of US dollars)
                                      (Unaudited)


                                                Six Months Ended
                                                ----------------
                                                Successor       Predecessor
                                                ---------       -----------
                                                 June 30,         June 28,
                                                        2010            2009
    Cash flows from operating activities
    Net income (loss)                                   $354        $(42,080)
    Adjustments to reconcile net income
     (loss) to net cash provided by
     operating activities
         Depreciation and amortization                29,985          22,167
         Provision for severance benefits              9,380           3,738
         Amortization of debt issuance costs             449             499
         Gain on foreign currency translation,
          net                                         29,966           9,758
         Loss (gain) on disposal of property,
          plant, and equipment, net                       (9)             82
         Loss on disposal of intangible assets,
          net                                              7              74
         Restructuring and impairment charges            603               0
         Unit-based compensation                       2,752             167
         Cash used for reorganization items            1,475               0
         Noncash reorganization items                      0             340
         Other                                           749           1,077
    Changes in operating assets and
     liabilities
         Accounts receivable                         (45,243)        (13,972)
         Inventories                                   1,342           7,899
         Other receivables                               119             343
         Deferred tax assets                             618           1,623
         Accounts payable                              7,542           8,520
         Other accounts payable                       11,330          (2,884)
         Accrued expenses                              7,841          25,542
         Long term other payable                      (1,531)            405
         Other current assets                            (92)            517
         Other current liabilities                    (1,172)          5,081
         Payment of severance benefits                (2,760)         (3,207)
         Other                                        (1,324)           (184)
                                                      ------            ----

    Net Cash provided by operating
     activities before reorganization items           52,381          25,505
                                                      ------          ------

         Cash used for reorganization items           (1,475)              0
                                                      ------             ---

    Net cash provided by operating
     activities                                       50,906          25,505
                                                      ------          ------

    Cash flows from investing activities
         Proceeds from disposal of plant,
          property and equipment                          13             282
         Proceeds from disposal of intangible
          assets                                           0               1
         Purchase of plant, property and
          equipment                                  (20,509)         (2,082)
         Payment for intellectual property
          registration                                  (245)           (155)
         Increase in restricted cash                       0         (17,524)
         Decrease (increase) in short-term
          financial instruments                          329            (324)
         Decrease in guarantee deposits                  999             608
         Other                                          (778)              3
                                                        ----             ---

    Net cash used in investing activities            (20,191)        (19,191)
                                                     -------         -------

    Cash flows from financing activities
         Proceeds from issuance of senior notes      238,372               0
         Repayment of current portion of long-
          term debt                                     (772)              0
         Repayment of long-term debt                 (60,978)              0
         Distribution to unitholders                (130,697)              0
                                                    --------             ---

    Net cash provided by financing
     activities                                       45,925               0
    Effect of exchange rates on cash and
     cash equivalents                                   (255)           (914)
                                                        ----            ----

    Net increase in cash and cash
     equivalents                                      76,385           5,400
                                                      ------           -----

    Cash and cash equivalents
    Beginning of the period                           64,925           4,037
                                                      ------           -----
    End of the period                               $141,310          $9,437
                                                    --------          ------


SOURCE Magnachip Semiconductor