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 September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 001-34791
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1, Allée Scheffer , L-2520
Luxembourg, Grand Duchy of Luxembourg
(352 ) 45-62-62
(Address, zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☐ No
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). ☒ 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 | ☐ | ☒ | ||||
| Non-accelerated 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 ☒ No
12b-2
of the Exchange Act). ☐ Yes As of October 30, 2020, the registrant had 35,538,475 shares of common stock outstanding.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
2
PART I—FINANCIAL INFORMATION
Item 1. |
Interim Consolidated Financial Statements (Unaudited) |
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, 2020 |
December 31, 2019 |
|||||||
(In thousands of U.S. dollars,except share data) |
||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | $ | ||||||
Accounts receivable, net |
||||||||
Inventories, net |
||||||||
Other receivables |
||||||||
Prepaid expenses |
||||||||
Hedge collateral (Note 9) |
||||||||
Other current assets (Notes 10 and 18) |
||||||||
Current assets held for sale (Note 2) |
— | |||||||
Total current assets |
||||||||
Property, plant and equipment, net |
||||||||
Operating lease right-of-use |
||||||||
Intangible assets, net |
||||||||
Long-term prepaid expenses |
||||||||
Other non-current assets |
||||||||
Non-current assets held for sale (Note 2) |
— | |||||||
Total assets |
$ | $ | ||||||
Liabilities and Stockholders’ Equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | $ | ||||||
Other accounts payable |
||||||||
Accrued expenses (Note 8) |
||||||||
Accrued income taxes |
||||||||
Operating lease liabilities |
||||||||
Current portion of long-term borrowings, net |
— | |||||||
Other current liabilities (Note 10) |
||||||||
Current liabilities held for sale (Note 2) |
— | |||||||
Total current liabilities |
||||||||
Long-term borrowings, net |
— | |||||||
Accrued severance benefits, net |
||||||||
Other non-current liabilities |
||||||||
Non-current liabilities held for sale (Note 2) |
— | |||||||
Total liabilities |
||||||||
Commitments and contingencies (Note 18) |
||||||||
Stockholders’ equity |
||||||||
Common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Retained earnings (deficit) |
( |
) | ||||||
Treasury stock, |
( |
) | ( |
) | ||||
Accumulated other comprehensive income (loss) |
( |
) | ||||||
Total stockholders’ equity (deficit) |
( |
) | ||||||
Total liabilities and stockholders’ equity |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2020 |
September 30, 2019 |
September 30, 2020 |
September 30, 2019 |
|||||||||||||
(In thousands of U.S. dollars, except share data) |
||||||||||||||||
Revenues: |
||||||||||||||||
Net sales – standard products business |
$ | $ | $ | $ | ||||||||||||
Net sales – transitional Fab 3 foundry services |
||||||||||||||||
Total revenues |
||||||||||||||||
Cost of sales: |
||||||||||||||||
Cost of sales – standard products business |
||||||||||||||||
Cost of sales – transitional Fab 3 foundry services |
||||||||||||||||
Total cost of sales |
||||||||||||||||
Gross profit |
||||||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Research and development expenses |
||||||||||||||||
Other charges |
— | — | — | |||||||||||||
Total operating expenses |
||||||||||||||||
Operating income |
||||||||||||||||
Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Foreign currency gain (loss), net |
( |
) | ( |
) | ( |
) | ||||||||||
Loss on early extinguishment of long-term borrowings, net |
— | — | — | ( |
) | |||||||||||
Other income, net |
||||||||||||||||
Income (loss) from continuing operations before income tax expense |
( |
) | ( |
) | ( |
) | ||||||||||
Income tax expense (benefit) |
( |
) | ||||||||||||||
Income (loss) from continuing operations |
( |
) | ( |
) | ( |
) | ||||||||||
Income (loss) from discontinued operations, net of tax |
( |
) | ||||||||||||||
Net income (loss) |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
Basic earnings (loss) per common share— |
||||||||||||||||
Continuing operations |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
Discontinued operations |
( |
) | ||||||||||||||
Total |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
Diluted earnings (loss) per common share— |
||||||||||||||||
Continuing operations |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
Discontinued operations |
( |
) | ||||||||||||||
Total |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
Weighted average number of shares— |
||||||||||||||||
Basic |
||||||||||||||||
Diluted |
||||||||||||||||
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 |
Nine Months Ended |
|||||||||||||||
September 30, 2020 |
September 30, 2019 |
September 30, 2020 |
September 30, 2019 |
|||||||||||||
(In thousands of U.S. dollars) |
||||||||||||||||
| Net income (loss) |
$ | |
$ | ( |
) | $ | $ | ( |
) | |||||||
| |
|
|
|
|
|
|
|
|||||||||
| Other comprehensive income (loss) |
||||||||||||||||
| Foreign currency translation adjustments |
( |
) | ||||||||||||||
| Derivative adjustments |
||||||||||||||||
| Fair valuation of derivatives |
( |
) | ( |
) | ( |
) | ||||||||||
| Reclassification adjustment for loss on derivatives included in net income (loss) |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other comprehensive income (loss) |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total comprehensive income (loss) |
$ | $ | |
$ | $ | ( |
) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
Common Stock |
Additional Paid-In |
Retained Earnings |
Treasury |
Accumulated Other Comprehensive |
||||||||||||||||||||||||
| (In thousands of U.S. dollars, except share data) |
Shares |
Amount |
Capital |
(Deficit) |
Stock |
Income (Loss) |
Total |
|||||||||||||||||||||
| Three Months Ended September 30, 2020: |
||||||||||||||||||||||||||||
| Balance at June 30, 2020 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||||||
| Settlement of restricted stock units |
( |
) | — | — | — | — | ||||||||||||||||||||||
| Other comprehensive loss, net |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at September 30, 2020 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Three Months Ended September 30, 2019: |
||||||||||||||||||||||||||||
| Balance at June 30, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||||||
| Settlement of restricted stock units |
( |
) | — | — | — | — | ||||||||||||||||||||||
| Other comprehensive income, net |
— | — | — | — | — | |||||||||||||||||||||||
| Net loss |
— | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at September 30, 2019 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Common Stock |
Additional Paid-In |
Retained Earnings |
Treasury |
Accumulated Other Comprehensive |
Total |
|||||||||||||||||||||||
| (In thousands of U.S. dollars, except share data) |
Shares |
Amount |
Capital |
(Deficit) |
Stock |
Income (Loss) |
||||||||||||||||||||||
| Nine Months Ended September 30, 2020: |
||||||||||||||||||||||||||||
| Balance at December 31, 2019 |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||||||||||
| Stock-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
| Exercise of stock options |
— |
— |
— |
|||||||||||||||||||||||||
| Settlement of restricted stock units |
( |
) |
— |
— |
— |
— |
||||||||||||||||||||||
| Acquisition of treasury stock |
( |
) |
— |
— |
— |
( |
) |
— |
( |
) | ||||||||||||||||||
| Other comprehensive income, net |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
| Net income |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at September 30, 2020 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Nine Months Ended September 30, 2019: |
||||||||||||||||||||||||||||
| Balance at December 31, 2018 |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||||||||||
| Stock-based compensation |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
| Exercise of stock options |
— |
— |
— |
|||||||||||||||||||||||||
| Settlement of restricted stock units |
( |
) |
— |
— |
— |
— |
||||||||||||||||||||||
| Acquisition of treasury stock |
( |
) |
— |
— |
— |
( |
) |
— |
( |
) | ||||||||||||||||||
| Other comprehensive income, net |
— |
— |
— |
— |
— |
|||||||||||||||||||||||
| Net loss |
— |
— |
— |
( |
) |
— |
— |
( |
) | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at September 30, 2019 |
$ |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
( |
) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended |
||||||||
September 30, 2020 |
September 30, 2019 |
|||||||
(In thousands of U.S. dollars) |
||||||||
| Cash flows from operating activities |
||||||||
| Net income (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||
| Depreciation and amortization |
||||||||
| Provision for severance benefits |
||||||||
| Amortization of debt issuance costs and original issue discount |
||||||||
| Loss on foreign currency, net |
||||||||
| Restructuring and other charges |
||||||||
| Provision for inventory reserves |
||||||||
| Stock-based compensation |
||||||||
| Loss on early extinguishment of long-term borrowings, net |
— | |||||||
| Gain on sale of discontinued operations |
( |
) | — | |||||
| Others, net |
||||||||
| Changes in operating assets and liabilities |
||||||||
| Accounts receivable, net |
( |
) | ( |
) | ||||
| Unbilled accounts receivable, net |
||||||||
| Inventories |
( |
) | ||||||
| Other receivables |
( |
) | ||||||
| Other current assets |
||||||||
| Accounts payable |
( |
) | ||||||
| Other accounts payable |
( |
) | ( |
) | ||||
| Accrued expenses |
||||||||
| Accrued income taxes |
( |
) | ||||||
| Other current liabilities |
( |
) | ||||||
| Other non-current liabilities |
||||||||
| Payment of severance benefits |
( |
) | ( |
) | ||||
| Others, net |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash provided by operating activities |
||||||||
| |
|
|
|
|||||
| Cash flows from investing activities |
||||||||
| Proceeds from settlement of hedge collateral |
||||||||
| Payment of hedge collateral |
( |
) | ( |
) | ||||
| Purchase of property, plant and equipment |
( |
) | ( |
) | ||||
| Payment for intellectual property registration |
( |
) | ( |
) | ||||
| Collection of guarantee deposits |
||||||||
| Payment of guarantee deposits |
( |
) | ( |
) | ||||
| Proceeds from sale of discontinued operations |
— | |||||||
| Others, net |
||||||||
| |
|
|
|
|||||
| Net cash provided by (used in) investing activities |
( |
) | ||||||
| |
|
|
|
|||||
| Cash flows from financing activities |
||||||||
| Repurchase of long-term borrowings |
— | ( |
) | |||||
| Proceeds from exercise of stock options |
||||||||
| Acquisition of treasury stock |
( |
) | ( |
) | ||||
| Repayment of financing related to water treatment facility arrangement |
( |
) | ( |
) | ||||
| Repayment of principal portion of finance lease liabilities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Net cash provided by (used in) financing activities |
( |
) | ||||||
| |
|
|
|
|||||
| Effect of exchange rates on cash and cash equivalents |
( |
) | ||||||
| |
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
( |
) | ||||||
| |
|
|
|
|||||
| Cash and cash equivalents |
||||||||
| Beginning of the period |
||||||||
| |
|
|
|
|||||
| End of the period |
$ | $ | |
|||||
| |
|
|
|
|||||
| Supplemental cash flow information |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| |
|
|
|
|||||
| Cash paid for income taxes |
$ | $ | ||||||
| |
|
|
|
|||||
| Non-cash investing activities |
||||||||
| Property, plant and equipment additions in other accounts payable |
$ | $ | ||||||
| |
|
|
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
7
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Business, Basis of Presentation and Significant Accounting Policies
Business
MagnaChip Semiconductor Corporation (together with its subsidiaries, the “Company”) is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, Internet of Things (“IoT”) applications, consumer, industrial and automotive applications. The Company provides technology platforms for analog, mixed signal, power, high voltage,
non-volatile
memory and Radio Frequency (“RF”) applications.On September 1, 2020 (the “Closing Date”), the Company completed the previously announced sale of the Company’s Foundry Services Group business and 350.6 million, which included a positive working capital 5.9 million, pursuant to the terms of a business transfer agreement dated March 31, 2020 by and among the Company and Magnus (the “Business Transfer Agreement”). The purchase price was paid in a combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion. In addition to the purchase price, the Buyer assumed all severance liabilities relating to the transferred employees, which had a value of approximately $100 million. The Buyer is a wholly owned subsidiary of Magnus, which was established by Alchemist Capital Partners Korea Co., Ltd. and Credian Partners, Inc. On April 20, 2020, Magnus assigned, and the Buyer assumed, all rights and obligations of Magnus under the Business Transfer Agreement. This divestiture of the Foundry Services Group business and Fab 4 allows the Company to strategically shift its operational focus to its standard products business. The Foundry Services Group was historically a reportable segment. The Foundry Services Group business was classified as discontinued operations in the Company’s consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Accordingly, commencing with the first quarter of 2020, the Company has one reportable segment: its standard products business, together with transitional foundry services associated with its fabrication facility located in Gumi, Korea, known as “Fab 3,” that it expects to perform for the Buyer for a period of up to three years (the “Transitional Fab 3 Foundry Services”). The Company’s standard products business includes its Display Solutions and Power Solutions business lines. The Company’s Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile, automotive applications and home appliances. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer and industrial applications.
its
fabrication facility located in Cheongju known as “Fab 4” to Key Foundry Co., Ltd. (the “Buyer”), a Korean limited liability company and wholly owned subsidiary of Magnus Semiconductor, LLC, a Korean limited liability company (“Magnus”), in exchange for a purchase price equal to approximately $a
djustment of approximately $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 and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for a full year or for any other periods. The Company has reclassified certain prior year amounts to conform to the current year’s presentation for discontinued operations to reflect the divestiture of its Foundry Services Group business and Fab 4. The assets to be acquired and liabilities to be transferred to the Buyer, as specified in the Business Transfer Agreement, have been classified as assets and liabilities held for sale in the Company’s consolidated balance sheets, subject to adjustments set forth in the Business Transfer Agreement. See Note 2 “Discontinued Operations and Assets Held for Sale” for additional information. The consolidated statements of cash flows have not been adjusted to separately disclose cash flows related to discontinued operations, but the material items in the operating and investing activities of cash flows relating to discontinued operations are disclosed in Note 2. Unless otherwise stated, information in these notes to consolidated financial statements relates to the Company’s continuing operations and excludes the discontinued operations.
There have been no material changes to the Company’s significant accounting policies as of and for the three and nine months ended September 30, 2020, except for those related to discontinued operations and assets held for sale as described below, as compared to the significant accounting policies described in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2019.8
Discontinued Operations and Assets Held for Sale
The Company reports the results of operations of a business as discontinued operations if a disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the business is sold and classified as held for sale, in accordance with the criteria of
ASC
205, “Presentation of Financial Statements” (“ASC 205”) and ASC 360, “Property, Plant and Equipment” (“ASC 360”). Assets and liabilities of a business classified as held for sale are recorded at the lower of its carrying amount or estimated fair value less costs to sell, and depreciation and amortization ceases on the date that the held for sale criteria are met. If the carrying amount of the business exceeds its estimated fair value less costs to sell, a loss is recognized. Assets and liabilities related to discontinued operations classified as held for sale are segregated in the current and prior balance sheets in the period in which the business is classified as held for sale. The results of discontinued operations are reported in “Income from discontinued operations, net of tax” in the accompanying consolidated statements of operations for the current and prior periods commencing in the period in which the business meets the criteria. Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards
Update (“ASU”)
No. 2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).
ASU 2019-12
removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12
is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2019-12
to have a material effect on the Company’s consolidated financial statements.Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU
No. 2016-13,
“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”).
ASU 2016-13
amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. In April 2019, the FASB issued Accounting Standards Update No. 2019-04,
“Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments” (“ASU 2019-04”),
and in November 2019, the FASB issued Accounting Standards Update No. 2019-11,
“Codification Improvements to Topic 326, Financial Instruments—Credit Losses” (“ASU 2019-11”)
to clarify and address certain items related to the amendments in ASU 2016-13.
In February 2020, the FASB issued Accounting Standards Update No. 2020-02,
“Financial Instruments—Credit Losses (Topic 326)” (“ASU 2020-02”),
which incorporates SEC SAB 119 (updated from SAB 102) into the ASC by aligning SEC recommended policies and procedures with ASC 326. The Company adopted ASU 2016-13,
ASU 2019-04,
ASU 2019-11
and ASU 2020-02
as of January 1, 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements. In August 2018, the FASB issued Accounting Standards Update
No. 2018-13
“Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).
ASU 2018-13
amends existing fair value measurement disclosure requirements by adding, changing, or removing certain disclosures. The Company adopted ASU 2018-13
as of January 1, 2020, and the adoption of ASU 2018-13
did not impact the Company’s consolidated financial statements. 9
2. Discontinued Operations and Assets Held for Sale
On September 1, 2020, the Company completed the sale of the Company’s Foundry Services Group business and Fab 4. As a result of the sale of the Foundry Services Group business and Fab 4, the Company recorded a gain of $287,117 thousand and all operations from the Foundry Services Group business and Fab 4 were classified as discontinued operations for all periods presented. Following the consummation of the sale, and for up to three years, the Company is expected to provide 2,484
the Transitional Fab 3 Foundry Services at an agreed upon cost plus mark-up. Accounts receivable related to providing the Transitional Fab 3 Foundry Services to the Buyer was
$thousand as of September 30, 2020 and there was no related cash inflow for the three and nine months ended September 30, 2020.
The following table summarizes the results from discontinued operations, net of tax, for the three and nine months ended September 30, 2020 and 2019.
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2020 |
September 30, 2019 |
September 30, 2020 |
September 30, 2019 |
|||||||||||||
(In thousands of U.S. dollars, except share data) |
||||||||||||||||
Revenues: |
||||||||||||||||
Net sales – Foundry Services Group |
$ | $ | |
$ | |
$ | |
|||||||||
Net sales – transitional Fab 3 foundry services |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Total revenues |
||||||||||||||||
Cost of sales: |
||||||||||||||||
Cost of sales – Foundry Services Group |
||||||||||||||||
Cost of sales – transitional Fab 3 foundry services |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Total cost of sales |
||||||||||||||||
Gross profit |
||||||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Research and development expenses |
||||||||||||||||
Restructuring and other charges |
||||||||||||||||
Total operating expenses |
||||||||||||||||
Operating income (loss) from discontinued operations |
( |
) | ||||||||||||||
Foreign currency gain (loss), net |
( |
) | ||||||||||||||
Others, net |
( |
) | ( |
) | ||||||||||||
Income (loss) from discontinued operations before income tax expense |
( |
) | ||||||||||||||
Income tax expense (benefit) |
( |
) | ( |
) | ||||||||||||
Gain on sale of discontinued operations |
— | — | ||||||||||||||
Transaction costs |
( |
) |
— |
( |
) |
— |
||||||||||
Income (loss) from discontinued operations, net of tax |
( |
) | ||||||||||||||
For the three months ended September 30, 2020 and 2019, the Company recorded $7,870 thousand and $763 thousand, respectively, and for the nine months ended September 30, 2020 and 2019, the Company recorded $10,574 thousand and $2,636 thousand, respectively, in professional fees and transaction related expenses incurred in connection with the sale of the Foundry Services Group business and Fab 4, and recorded such costs as restructuring and other charges in the above. For the nine months ended September 30, 2019, the Company also recorded in the same line a $2,151 thousand restructuring-related charge to its fab employees.
10
The following table provides a reconciliation of the aggregate carrying amounts of major classes of assets and liabilities relating to the Foundry Services Group business and Fab 4, w
h
ich are included in assets and liabilities held for sale as of December 31, 2019 in the accompanying consolidated balance sheet: December 31, 2019 |
||||
(In thousands of U.S. dollars) |
||||
| Assets |
||||
| Current assets |
||||
| Accounts receivable, net |
$ | |||
| Unbilled accounts receivable |
||||
| Inventories, net |
||||
| Other current assets |
||||
| |
|
|||
| Total current assets held for sal e |
$ | |||
| |
|
|||
| Property, plant and equipment, net |
||||
| Intangible assets, net |
||||
| Other non-current assets |
||||
| |
|
|||
| Total assets held for sale |
$ | |||
| |
|
|||
| Liabilities |
||||
| Current liabilities |
||||
| Accounts payable |
$ | |||
| Other current liabilities |
||||
| |
|
|||
| Total current liabilities held for sale |
$ | |||
| |
|
|||
| Accrued severance benefits, net |
||||
| Other non-current liabilities |
||||
| |
|
|||
| Total liabilities held for sale |
$ | |||
| |
|
|||
The following table provides supplemental cash flows information related to discontinued operations:
Nine Months Ended |
||||||||
September 30, 2020 |
September 30, 2019 |
|||||||
(In thousands of U.S. dollars) |
||||||||
| Significant non-cash operating activities: |
||||||||
| Depreciation and amortization |
$ | $ | ||||||
| Provision for severance benefits |
||||||||
| Stock-based compensation |
||||||||
| Investing activities: |
||||||||
| Capital expenditures |
$ | ( |
) | $ | ( |
) | ||
11
3. Sales of Accounts Receivable and Receivable Discount Program
The Company no sale of accounts 14,474 thousand and these sales resulted in 45 thousand, which are included in selling, general and administrative expenses in the consolidated statements of operations. Net proceeds of this accounts receivable sale program are recognized in the consolidated statements of cash flows as part of operating cash flows.
is party to
an agreement to sell selected trade accounts receivable to a financial institution from time to time since March 2012. After the sale, the Company does not retain any interest in the receivables and the applicable financial institution collects these accounts receivable
directly from the customer. There was receivable
for the nine months ended September 30, 2020. For the nine months ended September 30, 2019, the proceeds from the sales of these accounts receivable
totaled $pre-tax
losses of $The Company uses receivable discount programs with certain customers. These discount arrangements allow the Company to accelerate collection of customers’ receivables.
4. Inventories
Inventories as of September 30, 2020 and December 31, 2019 consist of the following (in thousands):
September 30, 2020 |
December 31, 2019 |
|||||||
| Finished goods |
$ | $ | ||||||
| Semi-finished goods and work-in-process |
||||||||
| Raw materials |
||||||||
| Materials in-transit |
— | |||||||
| Less: inventory reserve |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Inventories, net |
$ | $ | ||||||
| |
|
|
|
|||||
Changes in inventory reserve for the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):
Three Months Ended |
Nine Months Ended |
Three Months Ended |
Nine Months Ended |
|||||||||||||
September 30, 2020 |
September 30, 2019 |
|||||||||||||||
| Beginning balance |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Change in reserve |
||||||||||||||||
| Inventory reserve charged to costs of sales |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Sale of previously reserved inventory |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| ( |
) | ( |
) | ( |
) | ( | ||||||||||