10-Q
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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, 2022
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
 
 
 
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 MagnaChip Semiconductor S.A.
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
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    
☐  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
     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, the registrant had 44,894,385 shares of common stock
outstanding.
 
 
 
 

Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
 
  
Page No.
 
  
 
3
 
Item 1.
 
  
 
3
 
 
  
 
3
 
 
  
 
4
 
 
  
 
5
 
 
  
 
6
 
 
  
 
7
 
 
  
 
8
 
Item 2.
 
  
 
26
 
Item 3.
 
  
 
44
 
Item 4.
 
  
 
45
 
  
 
46
 
Item 1.
 
  
 
46
 
Item 1A.
 
  
 
46
 
Item 2.
 
  
 
46
 
Item 6.
 
  
 
47
 
  
 
48
 
 
2

Table of Contents
PART I—FINANCIAL INFORMATION
 
Item 1.
Interim Consolidated Financial Statements (Unaudited)
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 
 
  
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
)
            
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,
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  
The accompanying notes are an integral part of these consolidated financial statements.
 
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
 
 
  
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.
 
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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
 
 
  
 
 
 
 
 
  
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     —                   —         (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.
 
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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
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, automotive applications and home appliances. 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, at an agreed upon cost plus
mark-up
(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, 2022 are not necessarily indicative of the results to be expected for a full year or for any other periods.
The December 31, 2021 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.
There have been no material changes to the Company’s significant accounting policies as of and for the three months ended March 31, 2022 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.
Recently Adopted Accounting Pronouncements
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, 2022 and December 31, 2021 consist of the following (in thousands):
 
 
  
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, 2022 and 2021 are as follows (in thousands):
 
 
  
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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3. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2022 and December 31, 2021 are comprised of the following (in thousands):
 
 
  
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 thousand and $3,262 thousand for the three months ended March 31, 2022 and 2021, respectively.
4. Intangible Assets
Intangible assets as of March 31, 2022 and December 31, 2021 are comprised of the following (in thousands):
 
 
  
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 thousand and $186 thousand for the three months ended March 31, 2022 and 2021, 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 4 years.
The tables below present financial information related to the Company’s leases.
Supplemental balance sheets information related to leases as of March 31, 2022 and December 31, 2021 are as follows (in thousands):
 
                     
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,
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,
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, 2022 and 2021.
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Other lease information is as follows (in thousands):
 
                 
 
  
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, 2022 are as follows (in thousands):
 
                 
 
  
Operating
Leases
 
  
Finance
Leases
 
                 
Remainder of 2022
   $ 1,837     $ 56  
2023
     1,079       74  
2024
     607           
2025
     393           
    
 
 
   
 
 
 
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, 2022 and December 31, 2021 are comprised of the following (in thousands):
 
                 
 
  
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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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, 2022 are as follows (in thousands):
 
             
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, 2021 are as follows (in thousands):
 
             
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, 2022 and December 31, 2021 are as follows (in thousands):
 
                     
Derivatives designated as hedging instruments:
  
 
  
March 31,
2022
 
  
December 31,
2021
 
Asset Derivatives:
  
 
  
     
  
     
                     
Zero cost collars
  
Other non-current assets
   $ 94      $     
Liability Derivatives:
                      
Zero cost collars
   Other current liabilities    $ 2,421      $ 2,020  
Zero cost collars
  
Other non-current liabilities
   $ 149      $     
Offsetting of derivative assets and liabilities as of March 31, 2022 is as follows (in thousands):
 
                                                 
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      $         $ 94      $         $        $ 94  
Liability Derivatives:
                                                    
Zero cost collars
   $ 2,570      $         $ 2,570      $         $  (3,060)      $  (490)  
Offsetting of derivative liabilities as of December 31, 2021 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      $         $ 2,020      $         $  
(2,060)
  $  
(40)
 
 
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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 (“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, 2022 and 2021 (in thousands):
 
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, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next 12 months is $1,907 thousand.  
The Company set aside cash deposits to the counterparties, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) and Standard Chartered Bank Korea Limited (“SC”), as required for the zero cost collar contracts. These cash deposits are recorded as hedge collateral on the consolidated balance sheets. Cash deposits as of March 31, 2022 and December 31, 2021 are as follows (in thousands):​​​​​​​
 
Counterparties
  
March 31,

2022
 
  
December 31,

2021
 
SC
   $ 1,000      $ 1,000  
    
 
 
    
 
 
 
Total
   $ 1,000      $ 1,000  
    
 
 
    
 
 
 
The Company is required to deposit additional cash collateral with NFIK and SC for any exposure in excess of $500 thousand. As of March 31, 2022, $2,360 thousand and $700 thousand of additional cash collateral w
as
required by NFIK and SC, respectively, and recorded as hedge collateral on the consolidated balance sheet. As of December 31, 2021, $760 thousand and $1,300 thousand of additional cash collateral w
as
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, 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, 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, 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, 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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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% 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,
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. 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
 
Remainder of 2022
   $ 253  
2023
     631  
2024
     923  
2025
     1,505  
2026
     2,183  
2027
     1,746  
2028 – 2032
     20,679  
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 under the Employment Promotion for the Aged Act.
 
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10. 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, 2022 and December 31, 2021, the outstanding intercompany loan balances including accrued interest between the Korean subsidiary and the Dutch subsidiary were $ 348,477 thousand and $344,411 thousand, respectively. The Korean won to U.S. dollar exchange rates were 1,210.8:1 and 1,185.5:1 using the first base rate as of March 31, 2022 and December 31, 2021, respectively, as quoted by the KEB Hana Bank.
11. 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, 2022, the Company recorded an income tax expense of $3,483 thousand, primarily relate
d
 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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12. Geographic and Other Information
The following sets forth information relating to the single operating segment (in thousands):
 
 
  
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,
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,
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
               215  
    
 
 
    
 
 
 
Total
   $ 94,010      $ 112,906  
    
 
 
    
 
 
 
For the three months ended March 31, 2022 and 2021, 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% and 57.1%, respectively, and net sales—standard products business in Vietnam represented 14.4% and 37.4%, 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% and 82% for the three months ended March 31, 2022 and 2021, 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 – standard products business
, 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, two customers accounted for 17.0% and 16.7% of accounts receivable, respectively. As of December 31, 2021, two customers accounted for 25.6% and 18.6% of accounts receivable, respectively.
 
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13. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following as of March 31, 2022 and December 31, 2021, respectively (in thousands):
 
 
  
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, 2022 and 2021 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, 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
    
 
 
    
 
 
    
 
 
 
 
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14. Stockholders’ Equity​​​​​​​
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’s 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’s 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 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.
 
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Table of Contents
15. 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, 2022 and 2021:
 

 
  
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            
    
 
 
    
 
 
 
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 loss per share, as they have an anti-dilutive effect on the calculation:
 
    
Three Months Ended
 
    
March 31,
2022
    
March 31,
2021
 
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