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 September 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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
.
1, Allée Scheffer , L-2520
(352 ) 45-62-62
(Address, zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒
☐ 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
submit such files). ☒Yes ☐ No
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). ☒
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. | ☒ |
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
As of October 31, 2022, the registrant had
Table of Contents
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
2
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. |
Interim Consolidated Financial Statements (Unaudited) |
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, 2022 |
December 31, 2021 |
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(In thousands of U.S. dollars, except share data) |
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Assets |
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| Current assets |
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| Cash and cash equivalents |
$ | $ |
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| Accounts receivable, net |
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| Inventories, net |
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| Other receivables (Note 16) |
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| Prepaid expenses |
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| Hedge collateral (Note 7) |
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| Other current assets (Note 17) |
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| Total current assets |
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| Property, plant and equipment, net |
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| Operating lease right-of-use |
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| Intangible assets, net |
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| Long-term prepaid expenses |
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| Deferred income taxes |
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| Other non-current assets |
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| Total assets |
$ | $ |
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| Liabilities and Stockholders’ Equity |
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| Current liabilities |
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| Accounts payable |
$ | $ |
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| Other accounts payable |
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| Accrued expenses (Note 6) |
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| Accrued income taxes |
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| Operating lease liabilities |
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| Other current liabilities (Notes 7 and 8) |
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| Total current liabilities |
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| Accrued severance benefits, net |
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| Non-current operating lease liabilities |
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| Other non-current liabilities |
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| Total liabilities |
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| Commitments and contingencies (Note 17) |
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| Stockholders’ equity |
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| Common stock, $ and |
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| Additional paid-in capital |
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| Retained earnings |
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| Treasury stock, |
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| Accumulated other comprehensive loss |
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| Total stockholders’ equity |
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| Total liabilities and stockholders’ equity |
$ | $ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended |
Nine Months Ended |
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September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
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(In thousands of U.S. dollars, except share data) |
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| Revenues: |
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| Net sales – standard products business |
$ | $ | $ | $ | ||||||||||||
| Net sales – transitional Fab 3 foundry services |
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| Total revenues |
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| Cost of sales: |
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| Cost of sales – standard products business |
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| Cost of sales – transitional Fab 3 foundry services |
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| Total cost of sales |
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| Gross profit |
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| Operating expenses: |
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| Selling, general and administrative expenses |
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| Research and development expenses |
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| Merger-related costs |
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| Other charges, net |
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| Total operating expenses |
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| Operating income (loss) |
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| Interest expense |
( |
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| Foreign currency loss, net |
( |
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| Other income, net |
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| Income (loss) before income tax expense |
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| Income tax expense (benefit) |
( |
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| Net income (loss) |
$ | ( |
) | $ | $ | ( |
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| Basic earnings (loss) per common share— |
$ | ( |
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) | $ | ||||||||
| Diluted earnings (loss) per common share— |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Weighted average number of shares— |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
4
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three Months Ended |
Nine Months Ended |
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September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
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(In thousands of U.S. dollars) |
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| Net income (loss) |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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| Other comprehensive income (loss) |
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| Foreign currency translation adjustments |
( |
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| Derivative adjustments |
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| Fair valuation of derivatives |
( |
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| Reclassification adjustment for loss (gain) on derivatives included in net income (loss) |
( |
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| Total other comprehensive loss |
( |
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| Total comprehensive income (loss) |
$ | ( |
) | $ | $ | ( |
) | $ | ( |
) | ||||||
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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 |
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| (In thousands of U.S. dollars, except share data) |
Shares |
Amount |
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| Three Months Ended September 30, 2022: |
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| Balance at June 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| Settlement of restricted stock units |
— | — | ( |
) | — | — | — | ( |
) | |||||||||||||||||||
| Acquisition of treasury stock |
( |
) | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||
| Other comprehensive loss, net |
— | — | — | — | — | ( |
) | ( |
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| Net loss |
— | — | — | ( |
) | — | — | ( |
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| Balance at September 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
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| Three Months Ended September 30, 2021: |
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| Balance at June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||||||
| Settlement of restricted stock units |
( |
) | — | — | — | — | ||||||||||||||||||||||
| Other comprehensive loss, net |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance at September 30, 2021 |
$ | $ | $ | $ | ( |
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Common Stock |
Additional Paid-In |
Retained Earnings |
Treasury |
Accumulated Other Comprehensive |
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| (In thousands of U.S. dollars, except share data) |
Shares |
Amount |
Capital |
Stock |
Income (Loss) |
Total |
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| Nine Months Ended September 30, 2022: |
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| Balance at December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||||||
| Settlement of restricted stock units |
( |
) | — | — | — | ( |
) | |||||||||||||||||||||
| Acquisition of treasury stock |
( |
) | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||
| Accelerated stock repurchase |
( |
) | — | — | ( |
) | — | — | ||||||||||||||||||||
| Other comprehensive loss, net |
— | — | — | — | — | ( |
) | ( |
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| Net loss |
— | — | — | ( |
) | — | — | ( |
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| Balance at September 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
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| Nine Months Ended September 30, 2021: |
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| Balance at December 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Stock-based compensation |
— | — | — | — | — | |||||||||||||||||||||||
| Exchange of exchangeable senior note |
— | — | — | |||||||||||||||||||||||||
| Exercise of stock options |
— | — | — | |||||||||||||||||||||||||
| Settlement of restricted stock units |
( |
) | — | — | — | — | ||||||||||||||||||||||
| Acquisition of treasury stock |
( |
) | — | — | — | ( |
) | — | ( |
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| Other comprehensive loss, net |
— | — | — | — | — | ( |
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| Net income |
— | — | — | — | — | |||||||||||||||||||||||
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| Balance at September 30, 2021 |
$ | $ | $ | $ | ( |
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The accompanying notes are an integral part of these consolidated financial statements.
6
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended |
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September 30, 2022 |
September 30, 2021 |
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(In thousands of U.S. dollars) |
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| Cash flows from operating activities |
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| Net income (loss) |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities |
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| Depreciation and amortization |
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| Provision for severance benefits |
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| Amortization of debt issuance costs and original issue discount |
— | |||||||
| Loss on foreign currency, net |
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| Provision for inventory reserves |
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| Stock-based compensation |
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| Other, net |
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| Changes in operating assets and liabilities |
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| Accounts receivable, net |
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| Inventories |
( |
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| Other receivables |
( |
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| Other current assets |
( |
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| Accounts payable |
( |
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| Other accounts payable |
( |
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| Accrued expenses |
( |
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| Accrued income taxes |
( |
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| Other current liabilities |
( |
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| Other non-current liabilities |
( |
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| Payment of severance benefits |
( |
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| Other, net |
( |
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| Net cash provided by operating activities |
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| Cash flows from investing activities |
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| Proceeds from settlement of hedge collateral |
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| Payment of hedge collateral |
( |
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| Purchase of property, plant and equipment |
( |
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| Payment for intellectual property registration |
( |
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| Collection of guarantee deposits |
— | |||||||
| Payment of guarantee deposits |
( |
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| Other, net |
( |
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| Net cash used in investing activities |
( |
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| Cash flows from financing activities |
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| Proceeds from exercise of stock options |
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| Acquisition of treasury stock |
( |
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| Repayment of financing related to water treatment facility arrangement |
( |
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| Repayment of principal portion of finance lease liabilities |
( |
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| Net cash provided by (used in) financing activities |
( |
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| Effect of exchange rates on cash and cash equivalents |
( |
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| Net decrease in cash and cash equivalents |
( |
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| Cash and cash equivalents |
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| Beginning of the period |
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| End of the period |
$ | $ | ||||||
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| Supplemental cash flow information |
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| Cash paid for interest |
$ | — | $ | |||||
| Cash paid for income taxes |
$ | $ | ||||||
| Non-cash investing activities |
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| Property, plant and equipment additions in other accounts payable |
$ | $ | ||||||
| Non-cash financing activities |
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| Exchange of exchangeable senior notes into common stock |
$ | — | $ | |||||
| Unsettled common stock repurchases |
$ | ( |
) | $ | — | |||
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 nine months ended September 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 nine months ended September 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 September 30, 2022 and December 31, 2021 consist of the following (in thousands):
September 30, 2022 |
December 31, 2021 |
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| Finished goods |
$ | $ | ||||||
| Semi-finished goods and work-in-process |
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| Raw materials |
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| Materials in-transit |
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| Less: inventory reserve |
( |
) | ( |
) | ||||
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| Inventories, net |
$ | $ | |
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| |
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Changes in inventory reserve for the three and nine months ended September 30, 2022 and 2021 are as follows (in thousands):
Three Months Ended |
Nine Months Ended |
Three Months Ended |
Nine Months Ended |
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September 30, 2022 |
September 30, 2021 |
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| Beginning balance |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Change in reserve |
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| Inventory reserve charged to costs of sales |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Sale of previously reserved inventory |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| ( |
) | ( |
) | ( |
) | |||||||||||
| Write off |
||||||||||||||||
| Translation adjustments |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Ending balance |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| |
|
|
|
|
|
|
|
|||||||||
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, and raw materials. Write off of this reserve is recognized only when the related inventory has been disposed or scrapped.
work-in-process
9
3. Property, Plant and Equipment
Property, plant and equipment as of September 30, 2022 and December 31, 2021 are comprised of the following (in thousands):
September 30, 2022 |
December 31, 2021 |
|||||||
| Buildings and related structures |
$ | $ | ||||||
| Machinery and equipment |
||||||||
| Finance lease right-of-use |
||||||||
| Others |
||||||||
| |
|
|
|
|||||
| Less: accumulated depreciation |
( |
) | ( |
) | ||||
| Land |
||||||||
| Construction in progress |
||||||||
| |
|
|
|
|||||
| Property, plant and equipment, net |
$ | $ | |
|||||
| |
|
|
|
|||||
Aggregate depreciation expenses totaled $10,699 thousand and $10,018 thousand for the nine months ended September 30, 2022 and 2021, respectively.
4. Intangible Assets
Intangible assets as of September 30, 2022 and December 31, 2021 are comprised of the following (in thousands):
September 30, 2022 |
||||||||||||
Gross amount |
Accumulated amortization |
Net amount |
||||||||||
| Intellectual property assets |
$ | $ | ( |
) | $ | |||||||
| |
|
|
|
|
|
|||||||
| Intangible assets |
$ | $ | ( |
) | $ | |||||||
| |
|
|
|
|
|
|||||||
December 31, 2021 |
||||||||||||
Gross amount |
Accumulated amortization |
Net amount |
||||||||||
| Intellectual property assets |
$ | $ | ( |
) | $ | |||||||
| |
|
|
|
|
|
|||||||
| Intangible assets |
$ | $ | ( |
) | $ | |||||||
| |
|
|
|
|
|
|||||||
Aggregate amortization expenses for intangible assets totaled $526 thousand and $558 thousand for the nine months ended September 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 5 years.
The tables below present financial information related to the Company’s leases.
Supplemental balance sheets information related to leases as of September 30, 2022 and December 31, 2021 are as follows (in thousands):
Leases |
Classification |
September 30, 2022 |
December 31, 2021 |
|||||||||
| Assets |
|
|
||||||||||
| Operating lease |
|
Operating lease right-of-use assets |
|
$ | |
$ | |
|||||
| Finance lease |
|
Property, plant and equipment, net | |
|||||||||
| |
|
|
|
|
|
|||||||
| Total lease assets |
|
|
$ | $ | ||||||||
| |
|
|
|
|
|
|||||||
| Liabilities |
|
|
||||||||||
| Current |
|
|
||||||||||
| Operating |
|
Operating lease liabilities | |
$ | $ | |||||||
| Finance |
|
liabilities | |
|||||||||
| Non-current |
|
|
||||||||||
| Operating |
|
Non-current operating lease liabilities |
|
|||||||||
| Finance |
|
-current liabilities |
|
|||||||||
| |
|
|
|
|
|
|||||||
| Total lease liabilities |
|
|
$ | $ | ||||||||
| |
|
|
|
|
|
|||||||
The following table presents the weighted average remaining lease term and discount rate:
September 30, 2022 |
December 31, 2021 |
|||||||
| Weighted average remaining lease term |
||||||||
| Operating leases |
||||||||
| Finance leases |
||||||||
| Weighted average discount rate |
||||||||
| Operating leases |
% | % | ||||||
| Finance leases |
% | % | ||||||
The components of lease cost included in the Company’s consolidated statements of operations, are as follows (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
|||||||||||||
| Operating lease cost |
$ | |
$ | |
$ | |
$ | |
||||||||
| Finance lease cost |
||||||||||||||||
| Amortization of right-of-use |
||||||||||||||||
| Interest on lease liabilities |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total lease cost |
$ | $ | $ | $ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The above table does not include an immaterial cost of short-term leases for the nine months ended September 30, 2022 and 2021.
11
Other lease information is as follows (in thousands):
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
|||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities |
||||||||||||||||
| Operating cash flows from operating leases |
$ | |
$ | |
$ | |
$ | |
||||||||
| Operating cash flows from finance leases |
||||||||||||||||
| Financing cash flows from finance leases |
||||||||||||||||
The aggregate future lease payments for operating and finance leases as of September 30, 2022 are as follows (in thousands):
Operating Leases |
Finance Leases |
|||||||
| Remainder of 2022 |
$ | $ | ||||||
| 2023 |
||||||||
| 2024 |
||||||||
| 2025 |
||||||||
| 2026 |
||||||||
| 2027 |
||||||||
| |
|
|
|
|||||
| Total future lease payments |
||||||||
| Less: Imputed interest |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Present value of future payments |
$ | |
$ | |
||||
| |
|
|
|
|||||
6. Accrued Expenses
Accrued expenses as of September 30, 2022 and December 31, 2021 are comprised of the following (in thousands):
September 30, 2022 |
December 31, 2021 |
|||||||
| Payroll, benefits and related taxes, excluding severance benefits |
$ | |
$ | |||||
| Withholding tax attributable to intercompany interest income |
||||||||
| Outside service fees |
||||||||
| Merger-related costs |
||||||||
| Others |
||||||||
| |
|
|
|
|||||
| Accrued expenses |
$ | $ | |
|||||
| |
|
|
|
|||||
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 September 30, 2022 are as follows (in thousands):
| Date of transaction |
Total notional amount |
Month of settlement | ||||
| |
$ | October 202 2 | ||||
| |
$ | |||||
| |
$ | |||||
| |
$ | |||||
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 | ||||
| |
$ | |||||
| |
$ | |||||
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 September 30, 2022 and December 31, 2021 are as follows (in thousands):
| Derivatives designated as hedging instruments: |
September 30, 2022 |
December 31, 2021 |
||||||||||
| Liability Derivatives: |
||||||||||||
| Zero cost collars |
Other current liabilities | $ | $ | |||||||||
| Zero cost collars |
Other non-current liabilities |
$ | $ | |||||||||
Offsetting of derivative liabilities as of September 30, 2022 is as follows (in thousands):
| As of September 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 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||
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 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||||
1
3
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 September 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 Loss Reclassified from AOCI Into Statement of Operations |
Location/Amount of Gain Recognized in Statement of Operations on Derivatives |
|||||||||||||||||||||||||||||
Three Months Ended September 30, |
Three Months Ended September 30, |
Three Months Ended September 30, |
||||||||||||||||||||||||||||||
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
|||||||||||||||||||||||||||
| Zero cost collars |
$ | ( |
) | $ | ( |
) | Net sales | $ | ( |
$ | ( |
Other income, net | $ | $ | ||||||||||||||||||
The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the nine months ended September 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 Recognized in Statement of Operations on Derivatives |
|||||||||||||||||||||||||||||
Nine Months Ended September 30, |
Nine Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||||||||||