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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 June 30, 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 July 31, 2022, the registrant had 44,903,718 shares of common stock outstanding.
 
 
 

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
 
  
Page No.
 
  
 
3
 
Item 1.
 
  
 
3
 
 
  
 
3
 
 
  
 
4
 
 
  
 
5
 
 
  
 
6
 
 
  
 
7
 
 
  
 
8
 
Item 2.
 
  
 
25
 
Item 3.
 
  
 
47
 
Item 4.
 
  
 
48
 
  
 
49
 
Item 1.
 
  
 
49
 
Item 1A.
 
  
 
49
 
Item 2.
 
  
 
49
 
Item 3.
 
  
 
49
 
Item 4.
 
  
 
49
 
Item 5.
 
  
 
49
 
Item 6.
 
  
 
50
 
  
 
51
 
 
2

PART I—FINANCIAL INFORMATION
 
Item 1.
Interim Consolidated Financial Statements (Unaudited)
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
 
 
  
June 30,
2022
 
 
December 31,
2021
 
 
  
 
 
 
 
 
 
  
(In thousands of U.S. dollars, except share data)
 
Assets
  
 
Current assets
  
 
Cash and cash equivalents
   $ 273,797     $ 279,547  
Accounts receivable, net
     59,817       50,954  
Inventories, net
     36,168       39,370  
Other receivables (Note 16)
     14,094       25,895  
Prepaid expenses
     10,783       7,675  
Hedge collateral (Note 7)
     6,990       3,060  
Other current assets (Note 17)
     8,361       2,619  
    
 
 
   
 
 
 
Total current assets
     410,010       409,120  
Property, plant and equipment, net
     96,832       107,882  
Operating lease
right-of-use
assets
     3,322       4,275  
Intangible assets, net
     1,979       2,377  
Long-term prepaid expenses
     14,953       8,243  
Deferred income taxes
     37,825       41,095  
Other
non-current
assets
     10,804       10,662  
    
 
 
   
 
 
 
Total assets
   $ 575,725     $ 583,654  
    
 
 
   
 
 
 
Liabilities and Stockholders’ Equity
                
Current liabilities
                
Accounts payable
   $ 38,143     $ 37,593  
Other accounts payable
     14,835       6,289  
Accrued expenses (Note 6)
     15,426       20,071  
Accrued income taxes
           11,823  
Operating lease liabilities
     1,838       2,323  
Other current liabilities (Notes 7 and 8)
     8,562       7,382  
    
 
 
   
 
 
 
Total current liabilities
     78,804       85,481  
Accrued severance benefits, net
     30,466       33,064  
Non-current
operating lease liabilities
     1,485       1,952  
Other
non-current
liabilities
     16,823       10,395  
    
 
 
   
 
 
 
Total liabilities
     127,578       130,892  
    
 
 
   
 
 
 
Commitments and contingencies (Note 17)
                
Stockholders’ equity
                
Common stock, $0.01 par value, 150,000,000 shares authorized, 56,234,774 shares issued and 44,903,718 outstanding at June 30, 2022 and 55,905,320 shares issued and 45,659,304 outstanding at December 31, 2021
     562       559  
Additional
paid-in
capital
     263,698       241,197  
Retained earnings
     349,730       343,542  
Treasury stock, 11,331,056 shares at June 30, 2022 and 10,246,016 shares at December 31, 2021, respectively
     (148,523     (130,306
Accumulated other comprehensive loss
     (17,320     (2,230
    
 
 
   
 
 
 
Total stockholders’ equity
     448,147       452,762  
    
 
 
   
 
 
 
Total liabilities and stockholders’ equity
   $ 575,725     $ 583,654  
    
 
 
   
 
 
 
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
 
 
Six Months Ended
 
 
  
June 30,
2022
 
 
June 30,
2021
 
 
June 30,
2022
 
 
June 30,
2021
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
(In thousands of U.S. dollars, except share data)
 
Revenues:
  
Net sales – standard products business
   $ 91,288     $ 103,268     $ 185,298     $ 216,174  
Net sales – transitional Fab 3 foundry services
     10,088       10,608       20,171       20,721  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total revenues
     101,376       113,876       205,469       236,895  
Cost of sales:
                                
Cost of sales – standard products business
     63,620       70,409       119,700       149,656  
Cost of sales – transitional Fab 3 foundry services
     8,811       9,497       17,828       18,887  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total cost of sales
     72,431       79,906       137,528       168,543  
    
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
     28,945       33,970       67,941       68,352  
Operating expenses:
                                
Selling, general and administrative expenses
     12,736       14,001       26,899       26,635  
Research and development expenses
     13,410       13,322       25,364       26,745  
Merger-related costs
              2,459                12,290  
Other charges
     797       2,561       797       3,146  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     26,943       32,343       53,060       68,816  
    
 
 
   
 
 
   
 
 
   
 
 
 
Operating income (loss)
     2,002       1,627       14,881       (464
Interest expense
     (499     (85     (610     (1,126
Foreign currency gain (loss), net
     (7,012     250       (7,702     (4,421
Other income, net
     1,272       611       2,205       1,231  
    
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) before income tax expense
     (4,237     2,403       8,774       (4,780
Income tax expense (benefit)
     (897 )     2,601       2,586       2,891  
    
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
   $ (3,340   $ (198   $   6,188     $ (7,671
    
 
 
   
 
 
   
 
 
   
 
 
 
Basic earnings (loss) per common share—
   $ (0.07   $ (0.00   $ 0.14     $ (0.18
Diluted earnings (loss) per common share—
   $ (0.07   $ (0.00   $ 0.13     $ (0.18
Weighted average number of shares—
                                
Basic
     44,897,278       46,322,027       45,248,293       43,324,088  
Diluted
     44,897,278       46,322,027       46,329,559       43,324,088  

The accompanying notes are an integral part of these consolidated financial statements.
 
4
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
 
 
  
Three Months Ended
 
 
Six Months Ended
 
 
  
 
 
 
 
 
 
  
June 30,
2022
 
 
June 30,
2021
 
 
June 30,
2022
 
 
June 30,
2021
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
(In thousands of U.S. dollars)
 
Net income (loss)
   $ (3,340   $ (198   $ 6,188     $ (7,671
    
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive income (loss)
                                
Foreign currency translation adjustments
     (6,862     109       (9,907     (1,949
Derivative adjustments
                                
Fair valuation of derivatives
     (6,477     432       (7,741     (1,693
Reclassification adjustment for loss (gain) on derivatives included in net income (loss)
     1,796       (475     2,558       (986
    
 
 
   
 
 
   
 
 
   
 
 
 
Total other comprehensive income (loss)
     (11,543     66       (15,090     (4,628
    
 
 
   
 
 
   
 
 
   
 
 
 
Total comprehensive loss
   $ (14,883   $ (132   $ (8,902   $ (12,299
    
 
 
   
 
 
   
 
 
   
 
 
 

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

Capital
 
 
Retained
Earnings
 
 
Treasury
Stock
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Total
 
(In thousands of U.S. dollars, except share data)
  
Shares
 
  
Amount
 
Three Months Ended June 30, 2022:
  
     
  
     
  
     
 
     
 
     
 
     
 
     
Balance at March 31, 2022
     44,894,385     $ 562      $ 261,830     $ 353,070     $ (148,523   $ (5,777   $ 461,162  
Stock-based compensation
     —         —          1,988       —         —         —         1,988  
Exercise of stock options
     1,000       0        5       —         —         —         5  
Settlement of restricted stock units
     8,333       0        (125     —         —         —         (125
)
 
Other comprehensive loss, net
     —         —          —         —         —         (11,543     (11,543
Net loss
     —         —          —         (3,340     —         —         (3,340
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2022
     44,903,718     $ 562      $ 263,698     $ 349,730     $ (148,523   $ (17,320   $ 448,147  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Three Months Ended June 30, 2021:
                                                         
Balance at March 31, 2021
     46,257,413     $ 555      $ 250,829     $ 279,361     $ (109,407   $ (991   $ 420,347  
Stock-based compensation
     —         —          2,405       —         —         —         2,405  
Exercise of stock options
     1,000       0        11       —         —         —         11  
Settlement of restricted stock units
     92,532       1        (1     —         —         —         —    
Other comprehensive income, net
     —         —          —         —         —         66       66  
Net loss
     —         —          —         (198     —         —         (198
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
     46,350,945     $ 556      $ 253,244     $ 279,163     $ (109,407   $ (925   $ 422,631  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
 
  
Common Stock
 
  
Additional
Paid-In

Capital
 
 
Retained
Earnings
 
 
Treasury
Stock
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
Total
 
(In thousands of U.S. dollars, except share data)
  
Shares
 
 
Amount
 
Six Months Ended June 30, 2022:
  
 
  
 
 
 
 
Balance at December 31, 2021
     45,659,304     $ 559      $ 241,197     $ 343,542     $ (130,306     (2,230   $ 452,762  
Stock-based compensation
     —         —          3,626       —         —         —         3,626  
Exercise of stock options
     152,326       1        1,785       —         —         —         1,786  
Settlement of restricted stock units
     177,128       2        (127     —         —         —        
(125
)
 
Acquisition of treasury stock
     (53,464     —                   —         (1,000     —         (1,000
Accelerated stock repurchase
     (1,031,576     —          17,217       —         (17,217     —         —    
Other comprehensive loss, net
     —         —          —         —         —         (15,090     (15,090
Net income
     —         —          —         6,188       —         —         6,188  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2022
     44,903,718     $ 562      $ 263,698     $ 349,730     $ (148,523   $ (17,320   $ 448,147  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Six Months Ended June 30, 2021:
                                                         
Balance at December 31, 2020
     35,783,347     $ 450      $ 163,010     $ 286,834     $ (108,397   $ 3,703     $ 345,600  
Stock-based compensation
     —         —          4,051       —         —         —         4,051  
Exchange of exchangeable senior notes
     10,144,131       101        83,639                               83,740  
Exercise of stock options
     176,760       2        2,547       —         —         —         2,549  
Settlement of restricted stock units
     298,162       3        (3     —         —         —         —    
Acquisition of treasury stock
     (51,455     —          —         —         (1,010     —         (1,010
Other comprehensive loss, net
     —         —          —         —         —         (4,628     (4,628
Net loss
     —         —          —         (7,671     —         —         (7,671
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
     46,350,945     $ 556      $ 253,244     $ 279,163     $ (109,407   $ (925   $ 422,631  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.
 
6

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
  
Six Months Ended
 
 
  
June 30,
2022
 
 
June 30,
2021
 
 
  
 
 
 
 
 
 
  
(In thousands of U.S. dollars)
 
Cash flows from operating activities
  
 
Net income (loss)
   $ 6,188     $ (7,671
Adjustments to reconcile net income (loss) to net cash provided by operating activities
                
Depreciation and amortization
     7,602       6,998  
Provision for severance benefits
     3,240       3,507  
Amortization of debt issuance costs and original issue discount
     —         261  
Loss on foreign currency, net
     29,183       13,353  
Provision for inventory reserves
     5,282       3,346  
Stock-based compensation
     3,626       4,051  
Other, net
     712       266  
Changes in operating assets and liabilities
                
Accounts receivable, net
     (12,377     5,098  
Inventories
     (5,486     (7,170
Other receivables
     11,640       (4,841
Other current assets
     (2,089     8,623  
Accounts payable
     2,429       1,040  
Other accounts payable
     (5,861     (674
Accrued expenses
     (2,709     (2,298
Accrued income taxes
     (11,513     (10,249
Other current liabilities
     (2,153     (102
Other
non-current
liabilities
     570       (274
Payment of severance benefits
     (2,934     (2,836
Other, net
     (385     (62
    
 
 
   
 
 
 
Net cash provided by operating activities
     24,965       10,366  
Cash flows from investing activities
                
Proceeds from settlement of hedge collateral
     2,805       972  
Payment of hedge collateral
     (6,844     (585
Purchase of property, plant and equipment
     (1,511     (4,866
Payment for intellectual property registration
     (153     (288
Collection of guarantee deposits
     —         307  
Payment of guarantee deposits
     (1,049     (4,960
Other, net
     14       (130
    
 
 
   
 
 
 
Net cash used in investing activities
     (6,738     (9,550
Cash flows from financing activities
                
Proceeds from exercise of stock options
     1,786     2,549  
Acquisition of treasury stock
     (1,826     (1,653
Repayment of financing related to water treatment facility arrangement
     (261     (288
Repayment of principal portion of finance lease liabilities
     (32     (33
    
 
 
   
 
 
 
Net cash provided by (used in) financing activities
     (333     575  
Effect of exchange rates on cash and cash equivalents
     (23,644     (9,451
    
 
 
   
 
 
 
Net decrease in cash and cash equivalents
     (5,750     (8,060
Cash and cash equivalents
                
Beginning of the period
     279,547       279,940  
    
 
 
   
 
 
 
End of the period
   $ 273,797     $ 271,880  
    
 
 
   
 
 
 
Supplemental cash flow information
                
Cash paid for interest
   $  —       $ 2,094  
Cash paid for income taxes
   $ 14,022     $ 11,227  
Non-cash
investing activities
                
Property, plant and equipment additions in other accounts payable
   $ 4,050     $ 3,632  
Non-cash
financing activities
                
Exchange of exchangeable senior notes into common stock
   $ —       $ 83,740  

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, 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 and six months ended June 30, 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 six months ended June 30, 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.
 
8

2. Inventories
Inventories as of June 30, 2022 and December 31, 2021 consist of the following (in thousands):
 
 
  
June 30,
2022
 
  
December 31,
2021
 
Finished goods
   $ 5,397      $ 9,594  
Semi-finished goods and
work-in-process
     30,443        25,968  
Raw materials
     10,305        9,443  
Materials
in-transit
     229        95  
Less: inventory reserve
     (10,206      (5,730
    
 
 
    
 
 
 
Inventories, net
   $ 36,168      $ 39,370  
    
 
 
    
 
 
 
Changes in inventory reserve for the three and six months ended June 30, 2022 and 2021 are as follows (in thousands):
 
 
  
Three Months
Ended
 
  
Six Months
Ended
 
  
Three Months
Ended
 
  
Six Months
Ended
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
June 30, 2022
 
  
June 30, 2021
 
Beginning balance
   $ (5,555    $ (5,730    $ (6,281    $ (5,901
Change in reserve
                                   
Inventory reserve charged to costs of sales
     (6,093      (7,700      (3,186      (5,350
Sale of previously reserved inventory
     872        2,324        1,343        1,977  
    
 
 
    
 
 
    
 
 
    
 
 
 
       (5,221      (5,376      (1,843      (3,373
Write off
     84        295        28        930  
Translation adjustments
     486        605        (5      243  
    
 
 
    
 
 
    
 
 
    
 
 
 
Ending balance
   $ (10,206    $ (10,206    $ (8,101    $ (8,101
    
 
 
    
 
 
    
 
 
    
 
 
 
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.
 
9

3. Property, Plant and Equipment
Property, plant and equipment as of June 30, 2022 and December 31, 2021 are comprised of the following (in thousands):
 
    
June 30,
2022
    
December 31,
2021
 
Buildings and related structures
   $ 22,663      $ 24,273  
Machinery and equipment
     97,397        105,300  
Finance lease
right-of-use
assets
     289        316  
Others
     30,554        32,396  
    
 
 
    
 
 
 
       150,903        162,285  
Less: accumulated depreciation
     (92,527      (94,119
Land
     12,744        13,898  
Construction in progress
     25,712        25,818  
    
 
 
    
 
 
 
Property, plant and equipment, net
   $ 96,832      $ 107,882  
    
 
 
    
 
 
 
Aggregate depreciation expenses totaled $7,239 thousand and $6,626 thousand for the six months ended June 30, 2022 and 2021, respectively.
4. Intangible Assets
Intangible assets as of June 30, 2022 and December 31, 2021 are comprised of the following (in thousands):
 
 
  
June 30, 2022
 
 
  
 
 
  
 
 
  
 
 
 
  
Gross
amount
 
  
Accumulated
amortization
 
  
Net
amount
 
Intellectual property assets
   $ 8,711      $ (6,732    $ 1,979  
    
 
 
    
 
 
    
 
 
 
Intangible assets
   $ 8,711      $ (6,732    $ 1,979  
    
 
 
    
 
 
    
 
 
 


  
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 $363 thousand and $372 thousand for the six months ended June 30, 2022 and 2021, respectively.
 
10

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 June 30, 2022 and December 31, 2021 are as follows (in thousands):
 
Leases
  
Classification
 
  
June 30,
2022
 
  
December 31,
2021
 
Assets
  
  
  
Operating lease
 
  
Operating lease right-of-use assets
 
   $ 3,322      $ 4,275  
Finance lease
 
   Propertyplant and equipment, net
 
     87        126  
 
 
    
 
  
 
 
    
 
 
 
Total lease assets
 
    
 
   $ 3,409      $ 4,401  
 
 
    
 
  
 
 
    
 
 
 
Liabilities
 
    
 
                 
Current
 
    
 
                 
Operating
 
   Operating lease liabilities
 
   $ 1,838      $ 2,323  
Finance
 
   Other current liabilities
 
     64        68  
Non-current
 
    
 
                 
Operating
 
  
Non-current
operating lease liabilities
 
     1,485        1,952  
Finance
 
   Other
non-current
liabilities
 
     34        73  
 
 
    
 
  
 
 
    
 
 
 
Total lease liabilities
 
    
 
   $ 3,421      $ 4,416  
 
 
    
 
  
 
 
    
 
 
 
The following table presents the weighted average remaining lease term and discount rate:
 
 
  
June 30,
2022
 
 
December 31,
2021
 
Weighted average remaining lease term
  
 
Operating leases
     2.2 years       2.4 years  
Finance leases
     1.5 years       2.0 years  
Weighted average discount rate
                
Operating leases
     3.99     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
 
  
Six Months Ended
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
June 30,
2022
 
  
June 30,
2021
 
  
June 30,
2022
 
  
June 30,
2021
 
Operating lease cost
   $ 612      $ 727      $ 1,181      $ 1,407  
Finance lease cost
                                   
Amortization of
right-of-use
assets
     14        16        30        33  
Interest on lease liabilities
     3        3        5        7  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total lease cost
   $ 629      $  746      $ 1,216      $ 1,447  
The above table does not include an immaterial cost of short-term leases for the six months ended June 30, 2022 and 2021
.
 
11
Other lease information is as follows (in thousands):
 
 
  
Three Months Ended
 
  
Six Months Ended
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
June 30,
2022
 
  
June 30,
2021
 
  
June 30,
2022
 
  
June 30,
2021
 
Cash paid for amounts included in the measurement of lease liabilities
  
  
  
  
Operating cash flows from operating leases
   $ 612      $ 727      $ 1,181      $ 1,407  
Operating cash flows from finance leases
     3        3        5        7  
Financing cash flows from finance leases
     16        17        32        33  
The aggregate future lease payments for operating and finance leases as of June 30, 2022 are as follows (in thousands):
 
 
  
Operating
Leases
 
  
Finance
Leases
 
Remainder of 2022
   $ 1,210      $ 35  
2023
     1,142        69  
2024
     706            
2025
     423            
2026
     6            
    
 
 
    
 
 
 
Total future lease payments
     3,487        104  
Less: Imputed interest
     (164      (6
    
 
 
    
 
 
 
Present value of future payments
   $ 3,323      $ 98  
    
 
 
    
 
 
 
6. Accrued Expenses
Accrued expenses as of June 30, 2022 and December 31, 2021 are comprised of the following (in thousands):
 
 
  
June 30,
2022
 
  
December 31,
2021
 
Payroll, benefits and related taxes, excluding severance benefits
   $ 9,794      $ 9,548  
Withholding tax attributable to intercompany interest income
     2,871        1,950  
Outside service fees
     1,395        1,088  
Merger-related costs
     682        7,035  
Others
     684        450  
    
 
 
    
 
 
 
Accrued expenses
   $ 15,426      $ 20,071  
    
 
 
    
 
 
 
 
12

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 June 30, 2022 are as follows (in thousands):
 
                        
                        
Date of transaction
  
Total notional amount
 
  
Month of settlement
May 13, 2021
   $ 9,000      July 2022 to September 2022
August 13, 2021
   $ 30,000      July 2022 to December 2022
January 04, 2022
   $ 39,000      October 2022 to June 2023
March 07, 2022
   $ 24,000      July 2023 to December 2023
April 27, 2022
   $ 51,000      October 2022 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 liabilities as of June 30, 2022 and December 31, 2021 are as follows (in thousands):
 
Derivatives designated as hedging instruments:
  
 
 
  
June 30,
2022
 
  
December 31,
2021
 
Liability Derivatives:
  
  
  
Zero cost collars
  
 
Other current liabilities   
 
$ 5,677      $ 2,020  
Zero cost collars
  
 
Other
non-current
liabilities
  
 
$ 1,348      $     
Offsetting of derivative liabilities as of June 30, 2022 is as follows (in thousands):
 
As of June 30, 2022
  
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
   $ 7,025      $         $ 7,025      $         $ (5,990   $ 1,035  
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
 
13

For derivative instruments that are designated and qualify as cash flow hedges, gains or losses on the derivative aside from components excluded from the assessment of effectiveness are reported as a component of accumulated other comprehensive income (“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 June 30, 2022 and 2021 (in thousands):
 
     
            
     
            
     
            
     
            
     
            
     
            
     
            
     
            
 
Derivatives in ASC
815 Cash Flow Hedging
Relationships
  
Amount of Income
(Loss)
Recognized in
AOCI on
Derivatives
 
  
Location/Amount of Gain
(Loss)
Reclassified from AOCI
Into Statement of Operations
 
  
Location/Amount of Gain (Loss)
Recognized in
Statement of Operations on Derivatives
 
 
  
 
 
 
 
 
  
 
 
  
 
 
 
 
 
  
 
 
  
 
 
  
 
 
 
  
Three Months Ended
June 30,
 
  
 
 
  
Three Months Ended
June 30,
 
  
 
 
  
Three Months Ended
June 30,
 
 
  
 
 
 
 
 
  
 
 
  
 
 
 
 
 
  
 
 
  
 
 
  
 
 
 
  
2022
 
 
2021
 
  
 
 
  
2022
 
 
2021
 
  
 
 
  
2022
 
  
2021
 
Zero cost collars
   $ (6,477   $ 432        Net sales      $ (1,796   $ 475        Other income, net      $ 184      $ (58
The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the six months ended June 30, 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 Gain (Loss)
Recognized in
Statement of Operations on Derivatives
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
  
 
 
  
 
 
 
  
Six Months Ended
June 30,
 
 
 
 
  
Six Months Ended
June 30,
 
  
 
 
  
Six Months Ended
June 30,
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
  
 
 
  
 
 
 
  
2022
 
 
2021
 
 
 
 
  
2022
 
 
2021
 
  
 
 
  
2022
 
  
2021
 
Zero cost collars
   $ (7,741   $ (1,693     Net sales      $ (2,558   $ 986        Other income, net      $ 55      $ (144
As of June 30, 2022, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next 12 months is $5,294 
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 June 30, 2022 and December 31, 2021 are as follows (in thousands):
​​​​​​​
 
Counterparties
  
June 30,
2022
 
  
December 31,
2021
 
SC
   $ 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 June 30, 2022, $5,290 thousand and $700 thousand of additional cash collateral was 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 was 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.
 
14

8. Fair Value Measurements
Fair Value of Financial Instruments
As of June 30, 2022, the following table represents the Company’s liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands):
 
     
                      
     
                      
     
                      
     
                      
     
                      
 
 
  
Carrying Value
  June 30, 2022  
 
  
Fair Value
Measurement
June 30, 2022
 
  
Quoted Prices in
Active Markets
for Identical
Liability (Level 1)
 
  
Significant
Other
Observable
Inputs
(Level 2)
 
  
Significant
Unobservable
Inputs
(Level 3)
 
Liabilities:
  
     
  
     
  
     
  
     
  
     
Derivative liabilities (other current liabilities)
   $ 5,677      $ 5,677        —        $ 5,677        —    
Derivative liabilities (other
non-current
liabilities)
   $ 1,348      $ 1,348        —        $ 1,348        —    
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.

15

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 June 30, 2022, 97% of all employees of the Company were eligible for severance benefits.
Changes in accrued severance benefits are as follows (in thousands):
 
 
  
Three Months Ended
 
  
Six Months Ended
 
  
Three Months Ended
 
  
Six Months Ended
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
June 30, 2022
 
  
June 30, 2021
 
Beginning balance
   $ 50,771      $ 51,567      $ 52,553      $ 54,452  
Provisions
     1,570        3,240        1,736        3,507  
Severance payments
     (1,545      (2,934      (1,343      (2,836
Translation adjustments
     (3,210      (4,287      159        (2,018
    
 
 
    
 
 
    
 
 
    
 
 
 
     47,586      47,586      53,105      53,105  
Less: Cumulative contributions to severance insurance deposit accounts
     (16,894      (16,894      (13,316      (13,316
The National Pension Fund
     (44      (44      (59      (59
Group severance insurance plan
     (182      (182      (210      (210
    
 
 
    
 
 
    
 
 
    
 
 
 
Accrued severance benefits, net
   $ 30,466      $ 30,466      $ 39,520      $ 39,520  
    
 
 
    
 
 
    
 
 
    
 
 
 
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    $ 237  
2023      590  
2024      864  
2025      1,409  
2026      1,973  
2027      1,635  
2028 – 2032      18,987  
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.
 
16

10. Foreign Currency Gain (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 June 30, 2022 and December 31, 2021, the outstanding intercompany loan balances including accrued interest between the Korean subsidiary and the Dutch subsidiary were $352,589 thousand and $344,411 thousand, respectively. The Korean won to U.S. dollar exchange rates were 1,292.9:1 and 1,185.5:1 using the first base rate as of June 30, 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, 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 June 30, 2022, the Company recorded an income tax benefit of
$897 
thousand primarily attributable to a decrease in its Korean subsidiary’s pre-tax income for the respective period due to the foreign currency translation loss recorded in its Korean subsidiary in connection with intercompany loans. For the six months ended June 30, 2022, the Company recorded an income tax expense of
$2,586 
thousand, primarily attributable to interest on intercompany loan balances and income tax in its Korean subsidiary and the U.S. parent entity based on the Company’s estimated taxable income for the respective period.
For the three and six months ended June 30, 2021, the Company recorded an income tax expense of $2,601 thousand and $2,891 thousand, primarily attributable to interest on intercompany loan balances. During the second quarter of 2021, income tax expense of $624 thousand was also recorded for certain income-based tax assessments as a result of a regular tax examination completed for the Company’s Korean subsidiary for multiple
tax years.
 
17

12. Geographic and Other Information
The following sets forth information relating to the single operating segment (in thousands):
 
                     
                     
                     
                     
 
  
Three Months Ended
 
  
Six Months Ended
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
June 30,
2022
 
  
June 30,
2021
 
  
June 30,
2022
 
  
June 30,
2021
 
Revenues
                                   
Standard products business
                                   
Display Solutions
   $ 28,336      $ 46,601      $ 57,521      $ 105,496  
Power Solutions
     62,952        56,667        127,777        110,678  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total standard products business
     91,288        103,268        185,298        216,174  
Transitional Fab 3 foundry services
     10,088        10,608        20,171        20,721  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total revenues
   $ 101,376      $ 113,876      $ 205,469      $ 236,895  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
                     
                     
                     
                     
 
  
Three Months Ended
 
  
Six Months Ended
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
  
June 30,
2022
 
  
June 30,
2021
 
  
June 30,
2022
 
  
June 30,
2021
 
Gross Profit
                                   
Standard products business
   $ 27,668      $ 32,859      $ 65,598      $ 66,518  
Transitional Fab 3 foundry services
     1,277        1,111        2,343