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, 2023
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.)
|
Cheongju-si, Chungcheongbuk-do, Republic of Korea 28581
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: +82 (2) 6903-3000
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading
Symbol(s)
|
Name of each exchange
on which registered
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||
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|
|
|
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.
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☒
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Accelerated filer
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☐
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|||
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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|||||
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, 2023, the registrant had 42,265,480
shares of common stock outstanding.
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Page No.
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3
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Item 1.
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3
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3
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4
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5
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6
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7
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8
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Item 2.
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25
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Item 3.
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42
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Item 4.
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43
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44
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Item 1.
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44
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Item 1A.
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44
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Item 2.
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44
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Item 3.
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44
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Item 4.
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44
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Item 5.
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44
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Item 6.
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45
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46
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| Item 1. |
Interim Consolidated Financial Statements (Unaudited)
|
|
March 31,
2023
|
December 31,
2022
|
|||||||
|
(In thousands of U.S. dollars, except share data)
|
||||||||
|
Assets
|
||||||||
|
Current assets
|
||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
||||
|
Accounts receivable, net
|
|
|
||||||
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Inventories, net
|
|
|
||||||
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Other receivables
|
|
|
||||||
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Prepaid expenses
|
|
|
||||||
|
Hedge collateral (Note 7)
|
|
|
||||||
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Other current assets (Note 18)
|
|
|
||||||
|
Total current assets
|
|
|
||||||
|
Property, plant and equipment, net
|
|
|
||||||
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Operating lease right-of-use assets
|
|
|
||||||
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Intangible assets, net
|
|
|
||||||
|
Long-term prepaid expenses
|
|
|
||||||
|
Deferred income taxes
|
|
|
||||||
|
Other non-current assets
|
|
|
||||||
|
Total assets
|
$
|
|
$
|
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current liabilities
|
||||||||
|
Accounts payable
|
$
|
|
$
|
|
||||
|
Other accounts payable
|
|
|
||||||
|
Accrued expenses (Note 6)
|
|
|
||||||
|
Accrued income taxes
|
|
|
||||||
|
Operating lease liabilities
|
|
|
||||||
|
Other current liabilities
|
|
|
||||||
|
Total current liabilities
|
|
|
||||||
|
Accrued severance benefits, net
|
|
|
||||||
|
Non-current operating lease liabilities
|
|
|
||||||
|
Other non-current liabilities
|
|
|
||||||
|
Total liabilities
|
|
|
||||||
|
Commitments and contingencies (Note 18)
|
||||||||
|
Stockholders’ equity
|
||||||||
|
Common stock, $
|
|
|
||||||
|
Additional paid-in capital
|
|
|
||||||
|
Retained earnings
|
|
|
||||||
|
Treasury stock,
|
(
|
)
|
(
|
)
|
||||
|
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Total stockholders’ equity
|
|
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
|
Three Months Ended
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
(In thousands of U.S. dollars, except share data)
|
||||||||
|
Revenues:
|
||||||||
|
Net sales – standard products business
|
$
|
|
$
|
|
||||
|
Net sales – transitional Fab 3 foundry services
|
|
|
||||||
|
Total revenues
|
|
|
||||||
|
Cost of sales:
|
||||||||
|
Cost of sales – standard products business
|
|
|
||||||
|
Cost of sales – transitional Fab 3 foundry services
|
|
|
||||||
|
Total cost of sales
|
|
|
||||||
|
Gross profit
|
|
|
||||||
|
Operating expenses:
|
||||||||
|
Selling, general and administrative expenses
|
|
|
||||||
|
Research and development expenses
|
|
|
||||||
|
Early termination charges
|
|
|
||||||
|
Total operating expenses
|
|
|
||||||
|
Operating income (loss)
|
(
|
)
|
|
|||||
|
Interest income
|
||||||||
|
Interest expense
|
(
|
)
|
(
|
)
|
||||
|
Foreign currency loss, net
|
(
|
)
|
(
|
)
|
||||
|
Other income (expense), net
|
(
|
)
|
|
|||||
|
Income (loss) before income tax expense
|
(
|
)
|
|
|||||
|
Income tax expense (benefit)
|
(
|
)
|
|
|||||
|
Net income (loss)
|
$
|
(
|
)
|
$
|
|
|||
|
Basic earnings (loss) per common share—
|
$
|
(
|
)
|
$
|
|
|||
|
Diluted earnings (loss) per common share—
|
$
|
(
|
)
|
$
|
|
|||
|
Weighted average number of shares—
|
||||||||
|
Basic
|
|
|
||||||
|
Diluted
|
|
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
|
Three Months Ended
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
(In thousands of U.S. dollars)
|
||||||||
|
Net income (loss)
|
$
|
(
|
)
|
$
|
|
|||
|
Other comprehensive loss
|
||||||||
|
Foreign currency translation adjustments
|
(
|
)
|
(
|
)
|
||||
|
Derivative adjustments
|
||||||||
|
Fair valuation of derivatives
|
(
|
)
|
(
|
)
|
||||
|
Reclassification adjustment for loss on derivatives included in net income (loss)
|
|
|
||||||
|
Total other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
|
Total comprehensive income (loss)
|
$
|
(
|
)
|
$
|
|
|||
The accompanying notes are an integral part of these consolidated financial statements.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
|
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 March 31, 2023:
|
||||||||||||||||||||||||||||
|
Balance at December 31, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Stock-based compensation
|
—
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Exercise of stock options
|
||||||||||||||||||||||||||||
|
Settlement of restricted stock units
|
|
|
(
|
) |
|
|
|
|
||||||||||||||||||||
|
Acquisition of treasury stock
|
(
|
)
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||
|
Other comprehensive loss, net
|
—
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Net loss
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Balance at March 31, 2023
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Three Months Ended March 31, 2022:
|
||||||||||||||||||||||||||||
|
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
|
—
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Net income
|
—
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance at March 31, 2022
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
|
Three Months Ended
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
(In thousands of U.S. dollars)
|
||||||||
|
Cash flows from operating activities
|
||||||||
|
Net income (loss)
|
$
|
(
|
)
|
$
|
|
|||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities
|
||||||||
|
Depreciation and amortization
|
|
|
||||||
|
Provision for severance benefits
|
|
|
||||||
|
Loss on foreign currency, net
|
|
|
||||||
|
Provision for inventory reserves
|
|
|
||||||
|
Stock-based compensation
|
|
|
||||||
|
Other, net
|
|
|
||||||
|
Changes in operating assets and liabilities
|
||||||||
|
Accounts receivable, net
|
|
(
|
)
|
|||||
|
Inventories
|
|
|
||||||
|
Other receivables
|
|
|
||||||
|
Other current assets
|
|
(
|
)
|
|||||
|
Accounts payable
|
|
|
||||||
|
Other accounts payable
|
(
|
)
|
(
|
)
|
||||
|
Accrued expenses
|
|
|
||||||
|
Accrued income taxes
|
(
|
)
|
(
|
)
|
||||
|
Other current liabilities
|
(
|
)
|
(
|
)
|
||||
|
Other non-current liabilities
|
(
|
)
|
(
|
)
|
||||
|
Payment of severance benefits
|
(
|
)
|
(
|
)
|
||||
|
Other, net
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by operating activities
|
|
|
||||||
|
Cash flows from investing activities
|
||||||||
|
Proceeds from settlement of hedge collateral
|
|
|
||||||
|
Payment of hedge collateral
|
(
|
)
|
(
|
)
|
||||
|
Purchase of property, plant and equipment
|
(
|
)
|
(
|
)
|
||||
|
Payment for intellectual property registration
|
(
|
)
|
(
|
)
|
||||
|
Payment of guarantee deposits
|
(
|
)
|
(
|
)
|
||||
|
Other, net
|
|
|
||||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities
|
||||||||
|
Proceeds from exercise of stock options
|
|
|
||||||
|
Acquisition of treasury stock
|
(
|
)
|
(
|
)
|
||||
|
Repayment of financing related to water treatment facility arrangement
|
(
|
)
|
(
|
)
|
||||
|
Repayment of principal portion of finance lease liabilities
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by (used in) financing activities
|
(
|
)
|
|
|||||
|
Effect of exchange rates on cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Net increase (decrease) in cash and cash equivalents
|
(
|
)
|
|
|||||
|
Cash and cash equivalents at beginning of period
|
|
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
|
Supplemental cash flow information
|
||||||||
|
Cash paid for income taxes
|
$
|
|
$
|
|
||||
|
Non-cash investing activities
|
||||||||
|
Property, plant and equipment additions in other accounts payable
|
$
|
|
$
|
|
||||
|
Non-cash financing activities
|
||||||||
|
Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation
|
$
|
|
$
|
|
||||
|
Unsettled common stock repurchases
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of these consolidated financial statements.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
(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 a wide range of applications including smartphones, TVs, automotive and IT applications such as monitors, notebook PCs, tablet
PCs as well as AR/VRs. 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, 2023 are not necessarily indicative of the results to be expected for a full year or for any other periods.
The December 31, 2022 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, 2022.
There have been no material changes to the Company’s significant accounting policies as of and for the three months ended March 31, 2023 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, 2022.
2. Inventories
Inventories as of March 31, 2023 and December 31, 2022 consist of the following (in thousands):
|
March 31,
2023
|
December 31,
2022
|
|||||||
|
Finished goods
|
$
|
|
$
|
|
||||
|
Semi-finished goods and work-in-process
|
|
|
||||||
|
Raw materials
|
|
|
||||||
|
Materials in-transit
|
|
|
||||||
|
Less: inventory reserve
|
(
|
)
|
(
|
)
|
||||
|
Inventories, net
|
$
|
|
$
|
|
||||
Changes in inventory reserve for the three months ended March 31, 2023 and 2022 are as follows (in thousands):
|
Three Months Ended
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
Beginning balance
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Change in reserve
|
||||||||
|
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, work-in-process and raw materials. Write off of
this reserve is recognized only when the related inventory has been disposed or scrapped.
3. Property, Plant and Equipment
Property, plant and equipment as of March 31, 2023 and December 31, 2022 are comprised of the following (in thousands):
|
March 31,
2023
|
December 31,
2022
|
|||||||
|
Buildings and related structures
|
$
|
|
$
|
|
||||
|
Machinery and equipment
|
|
|
||||||
|
Finance lease right-of-use assets
|
|
|
||||||
|
Others
|
|
|
||||||
|
|
|
|||||||
|
Less: accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Land
|
|
|
||||||
|
Construction in progress
|
|
|
||||||
|
Property, plant and equipment, net
|
$
|
|
$
|
|
||||
Aggregate depreciation expenses totaled $4,193
thousand and $3,706 thousand for the three months ended March 31, 2023 and 2022, respectively.
4. Intangible Assets
Intangible assets as of March 31, 2023 and December 31, 2022 are comprised of the following (in thousands):
|
March 31, 2023
|
||||||||||||
|
Gross
amount
|
Accumulated
amortization
|
Net
amount
|
||||||||||
|
Intellectual property assets
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Intangible assets
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
December 31, 2022
|
||||||||||||
|
Gross
amount
|
Accumulated
amortization
|
Net
amount
|
||||||||||
|
Intellectual property assets
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Intangible assets
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
Aggregate amortization expenses for intangible assets totaled $164 thousand and $185 thousand for the three months ended March 31, 2023
and 2022, respectively.
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 March 31, 2023 and December 31, 2022 are as follows (in thousands):
|
Leases
|
Classification
|
March 31,
2023
|
December 31,
2022
|
||||||
|
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
|
|
|
|
||||||
|
Non-current
|
|||||||||
|
Operating
|
Non-current operating lease liabilities
|
|
|
||||||
|
Finance
|
|
|
|
||||||
|
Total lease liabilities
|
$
|
|
$
|
|
|||||
The following table presents the weighted average remaining lease term and discount rate:
|
March 31,
2023
|
December 31,
2022
|
|||||||
|
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
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
Operating lease cost
|
$
|
|
$
|
|
||||
|
Finance lease cost
|
||||||||
|
Amortization of right-of-use assets
|
|
|
||||||
|
Interest on lease liabilities
|
|
|
||||||
|
Total lease cost
|
$
|
|
$
|
|
||||
The above table does not include an immaterial cost of short-term leases for the three months ended March 31, 2023 and 2022.
Other lease information is as follows (in thousands):
|
Three Months Ended
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
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 March 31, 2023 are as follows (in thousands):
|
Operating
Leases
|
Finance
Leases
|
|||||||
|
Remainder of 2023
|
$
|
|
$
|
|
||||
|
2024
|
|
|
||||||
|
2025
|
|
|
||||||
|
2026
|
|
|
||||||
|
2027
|
|
|
||||||
|
Total future lease payments
|
|
|
||||||
|
Less: Imputed interest
|
(
|
)
|
(
|
)
|
||||
|
Present value of future payments
|
$
|
|
$
|
|
||||
6. Accrued Expenses
Accrued expenses as of March 31, 2023 and December 31, 2022 are comprised of the following (in thousands):
|
March 31,
2023
|
December 31,
2022
|
|||||||
|
Payroll, benefits and related taxes, excluding severance benefits
|
$
|
|
$
|
|
||||
|
Withholding tax attributable to intercompany interest income
|
|
|
||||||
|
Outside service fees
|
|
|
||||||
|
Others
|
|
|
||||||
|
Accrued expenses
|
$
|
|
$
|
|
||||
Payroll, benefits and related taxes
payable as of March 31, 2023 in the table above includes termination related charges under the voluntary resignation program (the “Program”) of $8,449
thousand, which are expected to be paid in the second quarter of 2023.
See
“Note 10. Early Termination Charges” for more information regarding the Program.
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, 2023 are as follows (in thousands):
|
Date of transaction
|
Total notional amount
|
Month of settlement
|
|||
|
|
$
|
|
to
|
||
|
|
$
|
|
to
|
||
|
|
$
|
|
to
|
||
|
|
$
|
|
to
|
||
Details of the zero cost collar contracts as of December 31, 2022 are as follows (in thousands):
|
Date of transaction
|
Total notional amount
|
Month of settlement
|
|||
|
|
$
|
|
to
|
||
|
|
$
|
|
to
|
||
| $ |
to | ||||
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, 2023 and December 31,
2022 are as follows (in thousands):
|
Derivatives designated as hedging instruments:
|
March 31,
2023
|
December 31,
2022
|
|||||||
| Asset Derivatives: | |||||||||
|
Zero cost collars
|
$ |
$ |
|||||||
|
Liability Derivatives:
|
|||||||||
|
Zero cost collars
|
|
$
|
|
$
|
|
||||
Offsetting of derivative assets and liabilities as of March 31, 2023 is as follows (in thousands):
|
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
|
||||||||||||||||||||
|
As of March 31, 2023
|
Financial
instruments
|
Cash collateral
pledged
|
||||||||||||||||||||||
|
Asset Derivatives:
|
||||||||||||||||||||||||
|
Zero cost collars
|
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
|
Liability Derivatives:
|
||||||||||||||||||||||||
|
Zero cost collars
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
Offsetting of derivative liabilities as of December 31, 2022 is as follows (in thousands):
|
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
|
||||||||||||||||||||
|
As of December 31, 2022
|
Financial
instruments
|
Cash collateral
pledged
|
||||||||||||||||||||||
|
Liability Derivatives:
|
||||||||||||||||||||||||
|
Zero cost collars
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
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 or loss (“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, 2023 and 2022 (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 Loss
Recognized in
Statement of Operations on Derivatives
|
|||||||||||||||||||||||
|
Three Months Ended
March 31,
|
Three Months Ended
March 31,
|
Three Months Ended
March 31,
|
||||||||||||||||||||||||
|
2023
|
2022
|
2023
|
2022
|
2023
|
2022
|
|||||||||||||||||||||
|
Zero cost collars
|
$
|
(
|
)
|
$
|
(
|
)
|
|
$
|
(
|
)
|
$
|
(
|
)
|
Other income, net
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
| $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ |
( |
) | |||||||||
As of March 31, 2023, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next 12 months is $1,757 thousand.
The Company set aside cash deposit to the counterparty, Standard Chartered Bank Korea Limited (“SC”), as required for the zero cost collar
contracts. This
cash deposit is recorded as hedge collateral on the consolidated balance sheets. Cash deposits as of March 31, 2023 and December 31, 2022 are as follows (in thousands):
|
Counterparty
|
March 31,
2023
|
December 31,
2022
|
||||||
|
SC
|
$
|
|
$
|
|
||||
|
Total
|
$ |
$ |
||||||
The Company is required to deposit additional cash collateral with Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) and SC for any exposure
in excess of $500 1,820 thousand of additional cash collateral was required by NFIK, and recorded as hedge collateral on the consolidated balance sheet. As of December 31, 2022, $1,840 thousand and $100 thousand of
additional cash collateral were 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.
8. Fair Value Measurements
Fair Value of Financial Instruments
As of March 31, 2023, 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, 2023
|
Fair Value
Measurement
March 31, 2023
|
Quoted Prices in
Active Markets
for Identical
Liability (Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||||||
| Assets: |
||||||||||||||||||||
|
Derivative assets (other current assets)
|
$ |
$ |
|
$ |
||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Derivative liabilities (other current liabilities)
|
$
|
|
$
|
|
|
$
|
|
|
|
|||||||||||
As of December 31, 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
December 31, 2022
|
Fair Value
Measurement
December 31, 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)
|
$
|
|
$
|
|
|
$
|
|
|
||||||||||||
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.
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,
2023, 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 |
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
Beginning balance
|
$ | $ | ||||||
|
Provisions
|
||||||||
|
Severance payments
|
( |
) | ( |
) | ||||
|
Translation adjustments
|
( |
) | ( |
) | ||||
|
Less: Cumulative contributions to severance insurance deposit accounts
|
( |
) | ( |
) | ||||
|
The National Pension Fund
|
( |
) | ( |
) | ||||
|
Group severance insurance plan
|
( |
) | ( |
) | ||||
|
Accrued severance benefits, net
|
$ | $ | ||||||
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 pursuant to Employee Retirement Benefit Security Act of Korea. 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 2023
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
2028
|
|
|||
|
2029 – 2033
|
|
|||
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
years of age or older under the Employment Promotion for the Aged Act. The Company sets the retirement age of employees at 60 .
10. Early Termination Charges
During the first quarter of 2023, the Company commenced the Program, which was available for the employees with more than 20 years of service. For the three months ended March 31, 2023, the Company recorded in its consolidated statement of operations $8,449 thousand of termination related charges as “early termination charges”, which are expected to be paid during the second quarter of 2023.
11. 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, 2023 and December 31, 2022, the outstanding intercompany loan balances including accrued interest between the Korean subsidiary and the Dutch subsidiary were $301,860 thousand and $310,988
thousand, respectively. The Korean won to U.S. dollar exchange rates were 1,303.8 :1 and 1,267.3 :1 using the first base rate as of March 31, 2023 and December 31, 2022, respectively, as quoted by the KEB Hana Bank.
12. 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, 2023, the Company recorded an income tax benefit of $1,227 thousand, primarily related to its primary operating entity in Korea based on the estimated taxable loss for the respective period.
For the three months ended March 31, 2022, the Company recorded an income tax expense of $3,483 thousand, primarily related to its primary operating entity in Korea based on the estimated taxable income for the respective period.
13. Geographic and Other Information
The following sets forth information relating to the single operating segment (in thousands):
|
Three Months Ended
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
Revenues
|
||||||||
|
Standard products business
|
||||||||
|
Display Solutions
|
$
|
|
$
|
|
||||
|
Power Solutions
|
|
|
||||||
|
Total standard products business
|
$ |
|
$ |
|
||||
|
Transitional Fab 3 foundry services
|
|
|
||||||
|
Total revenues
|
$
|
|
$
|
|
||||
|
Three Months Ended
|
||||||||
|
March 31,
2023
|
March 31,
2022
|
|||||||
|
Gross Profit
|
||||||||
|
Standard products business
|
$
|
|
$
|
|
||||
|
Transitional Fab 3 foundry services
|
(
|
)
|
|
|||||
|
Total gross profit
|
$
|
|
$
|
|
||||
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,
2023
|
March 31,
2022
|
|||||||
|
Korea
|
$
|
|
$
|
|
||||
|
Asia Pacific (other than Korea)
|
|
|
||||||
|
United States
|
|
|
||||||
|
Europe
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
For the three months ended March 31, 2023 and 2022, 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 57.9 % and 71.1 %, respectively, and net sales—standard products business in Vietnam represented 17.8 % and 14.4 %, 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 71 % and 72 %
for the three months ended March 31, 2023 and 2022, respectively.
For the three months ended March 31, 2023, the Company had two customers that represented 16.4 % and 13.7 % of its net sales—standard products business, 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.
As of March 31, 2023, two customers of the Company’s standard products business accounted for 22.3 % and 14.3 % of its accounts receivable – standard
products business (which does not include the Transitional Fab 3 Foundry Services), respectively. As of December 31, 2022, two customers of the Company’s standard products business accounted for 25.1 % and 15.2 % of its accounts receivable – standard
products business (which does not include the Transitional Fab 3 Foundry Services), respectively.
14. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following as of March 31, 2023 and December 31, 2022, respectively (in thousands):
|
March 31,
2023
|
December 31,
2022
|
|||||||
|
Foreign currency translation adjustments
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Derivative adjustments
|
(
|
)
|
(
|
)
|
||||
|
Total
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Changes in accumulated other comprehensive loss for the three months ended March 31, 2023 and 2022 are as follows (in thousands):
|
Three Months Ended March 31, 2023
|
Foreign
currency
translation
adjustments
|
Derivative
adjustments
|
Total
|
|||||||||
|
Beginning balance
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive loss before reclassifications
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
|
|||||||||
|
Net current-period other comprehensive loss
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
|
Ending balance
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Three Months Ended March 31, 2022
|
Foreign
currency
translation
adjustments
|
Derivative
adjustments
|
Total
|
|||||||||
|
Beginning balance
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive loss before reclassifications
|
(
|
)
|
(
|
)
|
||||||||