UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
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.
74, rue de Merl, B.P. 709 L-2146
Luxembourg R.C.S.
Luxembourg B97483
(352) 45-62-62
(Address, zip code, and telephone number, including area code, of registrants principal executive offices)
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. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. x Yes ¨ No
As of October 31, 2011, the registrant had 39,363,517 shares of common stock outstanding.
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Page No. | ||||||||
PART I FINANCIAL INFORMATION | 4 | |||||||
Item 1. | Interim Consolidated Financial Statements (Unaudited) | 4 | ||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
8 | ||||||||
MagnaChip Semiconductor Corporation and Subsidiaries Notes to Consolidated Financial Statements | 9 | |||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 31 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 55 | ||||||
Item 4. | Controls and Procedures | 55 | ||||||
PART II OTHER INFORMATION | 56 | |||||||
Item 1A. | Risk Factors | 56 | ||||||
Item 6. | Exhibits | 71 | ||||||
SIGNATURES | 72 |
2
FORWARD LOOKING STATEMENTS
The following Managements Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as anticipate, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.
These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, managements assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in this section and in Part II: Item 1A. Risk Factors in this report.
All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Statements made in this Quarterly Report on Form 10-Q, unless the context otherwise requires, include the use of the terms we, us, our and MagnaChip refer to MagnaChip Semiconductor Corporation and its consolidated subsidiaries. The term Korea refers to the Republic of Korea or South Korea.
3
Item 1. | Interim Consolidated Financial Statements (Unaudited) |
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands of US dollars, except share data)
September 30, 2011 |
December 31, 2010 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 159,468 | $ | 172,172 | ||||
Restricted cash |
9,210 | | ||||||
Accounts receivable, net |
124,150 | 119,054 | ||||||
Inventories, net |
69,817 | 68,435 | ||||||
Other receivables |
1,950 | 2,919 | ||||||
Prepaid expenses |
8,770 | 8,207 | ||||||
Other current assets |
8,159 | 18,920 | ||||||
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|
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Total current assets |
381,524 | 389,707 | ||||||
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|
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Property, plant and equipment, net |
180,032 | 179,012 | ||||||
Intangible assets, net |
18,565 | 27,538 | ||||||
Long-term prepaid expenses |
4,759 | 8,235 | ||||||
Other non-current assets |
20,986 | 21,252 | ||||||
|
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|
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Total assets |
$ | 605,866 | $ | 625,744 | ||||
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Liabilities and Stockholders Equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 75,947 | $ | 58,264 | ||||
Other accounts payable |
12,425 | 14,645 | ||||||
Accrued expenses |
37,012 | 32,635 | ||||||
Current portion of capital lease obligations |
4,415 | 5,557 | ||||||
Other current liabilities |
13,762 | 5,048 | ||||||
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|
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Total current liabilities |
143,561 | 116,149 | ||||||
|
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|
|||||
Long-term borrowings, net |
201,325 | 246,882 | ||||||
Long-term obligations under capital lease |
| 3,105 | ||||||
Accrued severance benefits, net |
91,106 | 87,778 | ||||||
Other non-current liabilities |
9,927 | 8,979 | ||||||
|
|
|
|
|||||
Total liabilities |
445,919 | 462,893 | ||||||
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|
|||||
Stockholders equity |
||||||||
Common stock, $0.01 par value, 150,000,000 shares authorized, 39,354,006 and 38,401,985 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively |
394 | 384 | ||||||
Additional paid-in capital |
98,310 | 95,585 | ||||||
Retained earnings |
70,245 | 72,157 | ||||||
Accumulated other comprehensive loss |
(9,002 | ) | (5,275 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
159,947 | 162,851 | ||||||
|
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|
|
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Total liabilities and stockholders equity |
$ | 605,866 | $ | 625,744 | ||||
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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 OPERATIONS
(Unaudited; in thousands of US dollars, except share data)
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30, 2011 |
September 30, 2010 |
September 30, 2011 |
September 30, 2010 |
|||||||||||||
Net sales |
$ | 200,405 | $ | 209,448 | $ | 592,005 | $ | 583,633 | ||||||||
Cost of sales |
140,284 | 140,133 | 409,228 | 400,426 | ||||||||||||
|
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|
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|
|||||||||
Gross profit |
60,121 | 69,315 | 182,777 | 183,207 | ||||||||||||
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|
|||||||||
Selling, general and administrative expenses |
17,881 | 16,202 | 50,740 | 50,074 | ||||||||||||
Research and development expenses |
19,003 | 23,119 | 58,115 | 64,193 | ||||||||||||
Restructuring and impairment charges |
1,621 | 442 | 4,096 | 1,045 | ||||||||||||
Special expense for IPO incentive |
| | 12,146 | | ||||||||||||
|
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|
|||||||||
Operating income |
21,616 | 29,552 | 57,680 | 67,895 | ||||||||||||
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|
|||||||||
Other income (expenses) |
||||||||||||||||
Interest expense, net |
(5,860 | ) | (7,312 | ) | (19,340 | ) | (15,918 | ) | ||||||||
Foreign currency gain (loss), net |
(68,058 | ) | 41,400 | (28,465 | ) | 14,743 | ||||||||||
Loss on early extinguishment of senior notes |
(1,357 | ) | | (5,460 | ) | | ||||||||||
Other |
(558 | ) | 312 | (189 | ) | (690 | ) | |||||||||
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(75,833 | ) | 34,400 | (53,454 | ) | (1,865 | ) | ||||||||||
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Income (loss) before income taxes |
(54,217 | ) | 63,952 | 4,226 | 66,030 | |||||||||||
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Income tax expense |
1,793 | 2,457 | 6,138 | 4,181 | ||||||||||||
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Net income (loss) |
$ | (56,010 | ) | $ | 61,495 | $ | (1,912 | ) | $ | 61,849 | ||||||
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Earnings (loss) per common share |
||||||||||||||||
Basic |
$ | (1.43 | ) | $ | 1.63 | $ | (0.05 | ) | $ | 1.64 | ||||||
Diluted |
$ | (1.43 | ) | $ | 1.57 | $ | (0.05 | ) | $ | 1.58 | ||||||
Weighted average number of shares |
||||||||||||||||
Basic |
39,064,071 | 37,819,820 | 38,823,720 | 37,815,080 | ||||||||||||
Diluted |
39,064,071 | 39,200,585 | 38,823,720 | 39,113,200 |
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; in thousands of US dollars, except share data)
Common Stock | Additional Paid-In |
Retained Earnings (Accumulated |
Accumulated Other Comprehensive |
|||||||||||||||||||||
Shares | Amount | Capital | deficit) | Income (loss) | Total | |||||||||||||||||||
Three Months Ended September 30, 2011 |
||||||||||||||||||||||||
Balance at July 1, 2011 |
39,357,471 | $ | 394 | $ | 97,987 | $ | 126,255 | $ | (34,822 | ) | $ | 189,814 | ||||||||||||
Forfeiture of restricted units |
(3,465 | ) | | | | | | |||||||||||||||||
Stock-based compensation |
| | 323 | | | 323 | ||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||
Net loss |
| | | (56,010 | ) | | (56,010 | ) | ||||||||||||||||
Fair valuation of derivatives |
| | | | (16,289 | ) | (16,289 | ) | ||||||||||||||||
Reclassification to net loss from accumulated other comprehensive gain related to hedge derivatives |
| | | | (1,536 | ) | (1,536 | ) | ||||||||||||||||
Foreign currency translation adjustments |
| | | | 43,801 | 43,801 | ||||||||||||||||||
Unrealized loss on investments |
| | | | (156 | ) | (156 | ) | ||||||||||||||||
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|
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Total comprehensive loss |
(30,190 | ) | ||||||||||||||||||||||
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|
|||||||||||||
Balance at September 30, 2011 |
39,354,006 | $ | 394 | $ | 98,310 | $ | 70,245 | $ | (9,002 | ) | $ | 159,947 | ||||||||||||
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Nine Months Ended September 30, 2011 |
38,401,985 | $ | 384 | $ | 95,585 | $ | 72,157 | $ | (5,275 | ) | $ | 162,851 | ||||||||||||
Forfeiture of restricted units |
(3,465 | ) | | | | | | |||||||||||||||||
Stock-based compensation |
| | 1,140 | | | 1,140 | ||||||||||||||||||
Issuance of new stock |
950,000 | 10 | 1,553 | | | 1,563 | ||||||||||||||||||
Exercise of stock options |
5,486 | | 32 | | | 32 | ||||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||
Net loss |
| | | (1,912 | ) | | (1,912 | ) | ||||||||||||||||
Fair valuation of derivatives |
| | | | (10,213 | ) | (10,213 | ) | ||||||||||||||||
Reclassification to net loss from accumulated other comprehensive gain related to hedge derivatives |
| | | | (11,478 | ) | (11,478 | ) | ||||||||||||||||
Foreign currency translation adjustments |
| | | | 18,083 | 18,083 | ||||||||||||||||||
Unrealized loss on investments |
| | | | (119 | ) | (119 | ) | ||||||||||||||||
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Total comprehensive loss |
(5,639 | ) | ||||||||||||||||||||||
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|
|||||||||||||
Balance at September 30, 2011 |
39,354,006 | $ | 394 | $ | 98,310 | $ | 70,245 | $ | (9,002 | ) | $ | 159,947 | ||||||||||||
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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 CHANGES IN STOCKHOLDERS EQUITY
(Unaudited; in thousands of US dollars, except share data)
Common Stock | Additional Paid-In |
Retained Earnings (Accumulated |
Accumulated Other Comprehensive |
|||||||||||||||||||||
Shares | Amount | Capital | deficit) | Income (loss) | Total | |||||||||||||||||||
Three Months Ended September 30, 2010 |
||||||||||||||||||||||||
Balance at July 1, 2010 |
38,404,294 | $ | 384 | $ | 94,293 | $ | (1,609 | ) | $ | 8,852 | $ | 101,920 | ||||||||||||
Forfeiture of restricted units |
(2,310 | ) | | | | | | |||||||||||||||||
Stock-based compensation |
| | 663 | | | 663 | ||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net Income |
| | | 61,495 | | 61,495 | ||||||||||||||||||
Fair valuation of derivatives |
| | | | 8,207 | 8,207 | ||||||||||||||||||
Reclassification to net income from accumulated other comprehensive loss related to hedge derivatives |
| | | | 2,374 | 2,374 | ||||||||||||||||||
Foreign currency translation adjustments |
| | | | (27,478 | ) | (27,478 | ) | ||||||||||||||||
Unrealized loss on investments |
| | | | (76 | ) | (76 | ) | ||||||||||||||||
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|
|||||||||||||||||||||||
Total comprehensive income |
44,522 | |||||||||||||||||||||||
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Balance at September 30, 2010 |
38,401,984 | $ | 384 | $ | 94,956 | $ | 59,886 | $ | (8,121 | ) | $ | 147,105 | ||||||||||||
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Nine Months Ended September 30, 2010 |
||||||||||||||||||||||||
Balance at January 1, 2010 |
38,385,544 | $ | 384 | $ | 223,451 | $ | (1,963 | ) | $ | (6,182 | ) | $ | 215,690 | |||||||||||
Forfeiture of restricted units |
(2,310 | ) | | | | | | |||||||||||||||||
Stock-based compensation |
18,750 | | 2,202 | | | 2,202 | ||||||||||||||||||
Distribution to stockholders |
| | (130,697 | ) | | | (130,697 | ) | ||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
| | | 61,849 | | 61,849 | ||||||||||||||||||
Fair valuation of derivatives |
| | | | 2,805 | 2,805 | ||||||||||||||||||
Reclassification to net income from accumulated other comprehensive loss related to hedge derivatives |
| | | | 4,252 | 4,252 | ||||||||||||||||||
Foreign currency translation adjustments |
| | | | (9,056 | ) | (9,056 | ) | ||||||||||||||||
Unrealized gains on investments |
| | | | 60 | 60 | ||||||||||||||||||
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|||||||||||||||||||||||
Total comprehensive income |
59,910 | |||||||||||||||||||||||
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|
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Balance at September 30, 2010 |
38,401,984 | $ | 384 | $ | 94,956 | $ | 59,886 | $ | (8,121 | ) | $ | 147,105 | ||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements
7
MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands of US dollars)
Nine Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | (1,912 | ) | $ | 61,849 | |||
Adjustments to reconcile net income to net cash provided by operating activities |
||||||||
Depreciation and amortization |
42,368 | 44,332 | ||||||
Provision for severance benefits |
13,137 | 15,123 | ||||||
Amortization of debt issuance costs and original issue discount |
728 | 687 | ||||||
Loss (gain) on foreign currency translation, net |
33,220 | (16,704 | ) | |||||
Gain on disposal of property, plant and equipment, net |
(15 | ) | (7 | ) | ||||
Loss on disposal of intangible assets, net |
17 | 9 | ||||||
Restructuring and impairment charges |
4,096 | 1,045 | ||||||
Stock-based compensation |
1,798 | 4,072 | ||||||
Cash used for reorganization items |
| 1,573 | ||||||
Loss on early extinguishment of senior notes |
5,460 | | ||||||
Other |
651 | 951 | ||||||
Changes in operating assets and liabilities |
||||||||
Accounts receivable |
(4,400 | ) | (61,771 | ) | ||||
Inventories |
(4,400 | ) | 193 | |||||
Other receivables |
836 | (1,229 | ) | |||||
Other current assets |
(3,196 | ) | (221 | ) | ||||
Deferred tax assets |
1,483 | 1,133 | ||||||
Accounts payable |
15,072 | 10,400 | ||||||
Other accounts payable |
7,157 | 6,332 | ||||||
Accrued expenses |
(18,278 | ) | 22,094 | |||||
Other current liabilities |
(1,209 | ) | 516 | |||||
Payment of severance benefits |
(6,549 | ) | (4,707 | ) | ||||
Other non-current liabilities |
141 | (2,470 | ) | |||||
|
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|
|||||
Net cash provided by operating activities before reorganization items |
86,205 | 83,200 | ||||||
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|
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Cash used for reorganization items |
| (1,573 | ) | |||||
|
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|
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Net cash provided by operating activities |
86,205 | 81,627 | ||||||
|
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|
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Cash flows from investing activities |
||||||||
Increase in restricted cash |
(9,711 | ) | | |||||
Proceeds from disposal of plant, property and equipment |
29 | 10 | ||||||
Purchase of plant, property and equipment |
(42,945 | ) | (29,739 | ) | ||||
Payment for intellectual property registration |
(521 | ) | (437 | ) | ||||
Decrease in short-term financial instruments |
| 329 | ||||||
Collection of guarantee deposits |
984 | 1,011 | ||||||
Payment of guarantee deposits |
(2,489 | ) | (794 | ) | ||||
Other |
(625 | ) | (13 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(55,278 | ) | (29,633 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities |
||||||||
Proceeds from issuance of common stock |
8,835 | | ||||||
Proceeds from issuance of senior notes |
| 246,685 | ||||||
Debt issuance costs paid |
| (8,313 | ) | |||||
Distribution to stockholders |
| (130,697 | ) | |||||
Repayment of long-term borrowings |
| (61,750 | ) | |||||
Repurchase of senior notes |
(50,307 | ) | | |||||
Repayment of obligations under capital lease |
(4,831 | ) | (1,812 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
(46,303 | ) | 44,113 | |||||
Effect of exchange rates on cash and cash equivalents |
2,672 | 397 | ||||||
|
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|
|
|||||
Net increase (decrease) in cash and cash equivalents |
(12,704 | ) | 96,504 | |||||
|
|
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|
|||||
Cash and cash equivalents |
||||||||
Beginning of the period |
172,172 | 64,925 | ||||||
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|
|||||
End of the period |
$ | 159,468 | $ | 161,429 | ||||
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|
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Supplemental cash flow information |
||||||||
Cash paid for interest |
$ | 14,004 | $ | 3,499 | ||||
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|
|||||
Cash paid for income taxes |
$ | 1,776 | $ | (290 | ) | |||
|
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|
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Noncash transactions |
||||||||
Deferred offering costs reclassified as reduction of additional paid-in capital |
$ | 7,236 | $ | | ||||
Assets acquired under capital lease obligations |
$ | | $ | 10,673 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
8
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited; tabular dollars in thousands, except share data)
1. General
The Company
MagnaChip Semiconductor Corporation (together with its subsidiaries, the Company) is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer applications. The Companys business is comprised of three key segments: Display Solutions, Power Solutions and Semiconductor Manufacturing Services. The Companys Display Solutions products include display drivers for use in a wide range of flat panel displays and mobile multimedia devices. The Companys Power Solutions products include discrete and integrated circuit solutions for power management in high-volume consumer applications. The Companys Semiconductor Manufacturing Services segment provides specialty analog and mixed-signal foundry services for fabless semiconductor companies that serve the consumer, computing and wireless end markets.
2. Significant Accounting Policies
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 (US GAAP). These interim consolidated financial statements include all adjustments consisting only of normal recurring adjustments and the elimination of all intercompany accounts and transactions which are, in the opinion of management, necessary to provide a fair presentation of financial condition and results of operations for the periods presented. These interim consolidated financial statements are presented in accordance with ASC 270, Interim Reporting, (ASC 270) and, accordingly, do not include all of the information and note disclosures required by US GAAP for complete financial statements. The results of operations for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for a full year or for any other periods.
The December 31, 2010 balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP.
Recent Accounting Pronouncements
In May, 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04 Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The ASU is the result of joint efforts by the FASB and the International Accounting Standards Board (IASB) to develop a single, converged fair value framework. While the ASU is largely consistent with existing fair value measurement principles in U.S. GAAP, it expands existing disclosure requirements for fair value measurements and makes other amendments. Key additional disclosures include quantitative disclosures about unobservable inputs in Level 3 measures, qualitative information about sensitivity of Level 3 measures and valuation process, and classification within the fair value hierarchy for instruments where fair value is only disclosed in the footnotes but carrying amount is on some other basis. For public companies, the ASU is effective for interim and annual periods beginning after December 15, 2011. The Company does not expect adoption of this ASU to have a material impact on our results of operations, financial position or cash flow.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income: Presentation of Comprehensive Income, which amends current comprehensive income guidance. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of shareholders equity. Instead, it requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used today, and the second statement would include components of other comprehensive income (OCI). The ASU does not change the items that must be reported in OCI. ASU 2011-05 will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. The Company does not expect adoption of this ASU to have a material impact on our results of operations, financial position or cash flow.
9
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
3. Completion of Initial Public Offering
Prior to the Companys initial public offering (IPO), the Companys board of directors and the holders of a majority of its outstanding common units elected to convert the Company from a Delaware limited liability company to a Delaware corporation and to change the Companys name from MagnaChip Semiconductor LLC to MagnaChip Semiconductor Corporation. The corporate conversion was completed on March 10, 2011. In connection with the corporate conversion, outstanding common units of MagnaChip Semiconductor LLC were automatically converted into shares of common stock of the Company, outstanding options to purchase common units of the Company were automatically converted into options to purchase shares of common stock of the Company and outstanding warrants to purchase common units of MagnaChip Semiconductor LLC were automatically converted into warrants to purchase shares of common stock of the Company, all at a ratio of one share of common stock for eight common units.
On March 16, 2011, the Company also completed an IPO of 9,500,000 shares of common stock at an offering price of $14.00 per share and on March 11, 2011 listed on the NYSE. All shares were sold in the form of depositary shares and each depositary share represented an ownership interest in one share of common stock. Of the 9,500,000 shares, 950,000 shares were newly issued by the Company and 8,550,000 shares were sold by selling stockholders. The Company received $12,369 thousand of net proceeds from the issuance of the new shares of common stock after deducting underwriters discounts and commissions, and the Company did not receive any proceeds from the sale of shares of common stock offered by the selling stockholders. The Company incurred $10,807 thousand of IPO expenses that were recorded as reduction of additional paid-in capital in the consolidated balance sheets.
The Company previously stated an intention to use a part of the net proceeds from the IPO to make incentive payments to all employees, excluding management. The payment of such employee incentives was contingent upon the consummation of the IPO. The Company paid $12,146 thousand of the incentives in March 2011.
4. Inventories
Inventories as of September 30, 2011 and December 31, 2010 consist of the following:
September 30, 2011 |
December 31, 2010 |
|||||||
Finished goods |
$ | 10,071 | $ | 13,529 | ||||
Semi-finished goods and work-in-process |
46,589 | 50,542 | ||||||
Raw materials |
14,299 | 9,762 | ||||||
Materials in-transit |
905 | 1,643 | ||||||
Less: inventory reserve |
(2,047 | ) | (7,041 | ) | ||||
|
|
|
|
|||||
Inventories, net |
$ | 69,817 | $ | 68,435 | ||||
|
|
|
|
5. Property, Plant and Equipment
Property, plant and equipment as of September 30, 2011 and December 31, 2010 comprise the following:
September 30, 2011 |
December 31, 2010 |
|||||||
Buildings and related structures |
$ | 71,398 | $ | 73,945 | ||||
Machinery and equipment |
140,800 | 112,398 | ||||||
Vehicles and others |
10,603 | 8,007 | ||||||
Equipment under capital lease |
11,085 | 11,457 | ||||||
|
|
|
|
|||||
233,886 | 205,807 | |||||||
Less: accumulated depreciation |
(71,320 | ) | (41,440 | ) | ||||
accumulated depreciation on equipment under capital lease |
(2,232 | ) | (836 | ) | ||||
Land |
15,575 | 15,481 | ||||||
Construction in progress |
4,123 | | ||||||
|
|
|
|
|||||
Property, plant and equipment, net |
$ | 180,032 | $ | 179,012 | ||||
|
|
|
|
10
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Prior to July 1, 2011, the Company depreciated machinery and measurement equipment using the straight-line method over 5 to 10 years. However, based on an evaluation of the appropriateness of depreciable lives including a review of historical usage and a change in its strategic business plan, the Company determined that machinery and measurement equipment have a longer life than previously estimated. As a result, the Company changed the estimate of depreciable lives for machinery and measurement equipment to 10 to 12 years. The purpose of this change was to more accurately reflect the productive life of these assets. In accordance with ASC 250-10-45, Accounting Changes and Error Corrections, the change in life has been accounted for as a change in accounting estimate on a prospective basis from July 1, 2011. As a result of the change in the estimated life of machinery and measurement equipment, cost of sales was $1.6 million lower, net income was $1.8 million higher and net income per diluted share was $0.05 higher for the three and nine months ended September 30, 2011.
6. Intangible Assets
Intangible assets as of September 30, 2011 and December 31, 2010 are as follows:
September 30, 2011 |
December 31, 2010 |
|||||||
Technology |
$ | 20,657 | $ | 19,969 | ||||
Customer relationships |
26,182 | 27,115 | ||||||
Intellectual property assets |
5,747 | 5,444 | ||||||
In-process research and development |
| 3,418 | ||||||
Less: accumulated amortization |
(34,021 | ) | (28,408 | ) | ||||
|
|
|
|
|||||
Intangible assets, net |
$ | 18,565 | $ | 27,538 | ||||
|
|
|
|
7. Derivative Financial Instruments
The Companys Korean subsidiary entered into option, forward and 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 derivative contracts as of September 30, 2011 are as follows:
Date of transaction |
Type of derivative |
Total notional amount | Month of settlement | |||||
August 12, 2010 |
Zero cost collar | $ | 54,000 | October to December 2011 | ||||
January 17, 2011 |
Zero cost collar | 60,000 | January to June 2012 | |||||
March 16, 2011 |
Zero cost collar | 24,000 | January to March 2012 | |||||
August 2, 2011 |
Zero cost collar | 24,000 | April to June 2012 | |||||
August 8, 2011 |
Forward | 54,000 | July to September 2012 | |||||
August 19, 2011 |
Forward | 54,000 | October to December 2012 |
The option, forward and zero cost collar contracts qualify as cash flow hedges under ASC 815, Derivatives and Hedging, (ASC 815), 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 Company is utilizing the hypothetical derivative method to measure the effectiveness by comparing the changes in value of the actual derivative versus the change in fair value of the hypothetical derivative.
11
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
The fair values of the Companys outstanding option, forward and zero cost collar contracts recorded as assets and liabilities as of September 30, 2011 and December 31, 2010 are as follows:
Derivatives designated as hedging instruments: |
September 30, 2011 |
December 31, 2010 |
||||||||
Asset Derivatives: |
||||||||||
Options |
Other current assets | $ | | $ | 104 | |||||
Forward |
Other current assets | $ | | $ | 6,674 | |||||
Zero cost collars |
Other current assets | $ | | $ | 1,544 | |||||
Liabilities Derivatives: |
||||||||||
Forward |
Other current liabilities | $ | 3,965 | $ | | |||||
Forward |
Other non current liabilities | $ | 3,952 | $ | | |||||
Zero cost collars |
Other current liabilities | $ | 5,355 | $ | |
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is 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 either hedge ineffectiveness or 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 statement of operations for the three months ended September 30, 2011:
Derivatives in Cash Flow Hedging Relationships |
Amount of Loss Recognized in AOCI on Derivatives (Effective Portion) |
Location of |
Amount of Gain Reclassified from AOCI into Statement of Operations (Effective Portion) |
Location of |
Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||
Forward |
(8,044 | ) | Net sales | | Other income (expenses) Others | 171 | ||||||||||
Zero cost collars |
(8,245 | ) | Net sales | 1,536 | Other income (expenses) Others | (729 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | (16,289 | ) | $ | 1,536 | $ | (558 | ) | ||||||||
|
|
|
|
|
|
12
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the three months ended September 30, 2010:
Derivatives in Cash Flow Hedging Relationships |
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) |
Location of Loss Reclassified from AOCI into Statement of Operations (Effective Portion) |
Amount of Loss Reclassified from AOCI into Statement of Operations (Effective Portion) |
Location of Gain |
Amount of Gain Recognized in Statement of Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||
Options |
$ | (24 | ) | Net sales | $ | (230 | ) | Other income (expenses) Others | $ | | ||||||
Forward |
7,108 | Net sales | (2,144 | ) | Other income (expenses) Others | 281 | ||||||||||
Zero cost collars |
1,123 | Net sales | | Other income (expenses) Others | 31 | |||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 8,207 | $ | (2,374 | ) | $ | 312 | |||||||||
|
|
|
|
|
|
The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the nine months ended September 30, 2011:
Derivatives in Cash Flow Hedging Relationships |
Amount of Loss Recognized in AOCI on Derivatives (Effective Portion) |
Location of Gain (Loss) Reclassified from AOCI into Statement of Operations (Effective Portion) |
Amount of Gain (Loss) Reclassified from AOCI into Statement of Operations (Effective Portion) |
Location of Gain (Loss) |
Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||
Options |
$ | (85 | ) | Net sales | $ | (829 | ) | Other income (expenses) Others | $ | (18 | ) | |||||
Forward |
(5,337 | ) | Net sales | 10,771 | Other income (expenses) Others | 435 | ||||||||||
Zero cost collars |
(4,791 | ) | Net sales | 1,536 | Other income (expenses) Others | (614 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | (10,213 | ) | $ | 11,478 | $ | (197 | ) | ||||||||
|
|
|
|
|
|
13
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the nine months ended September 30, 2010:
Derivatives in Cash Flow Hedging Relationships |
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion) |
Location of Loss Reclassified from AOCI into Statement of Operations (Effective Portion) |
Amount of Loss Reclassified from AOCI into Statement of Operations (Effective Portion) |
Location of Gain (Loss) |
Amount of Gain (Loss) Recognized in Statement of Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||
Options |
$ | (1,345 | ) | Net sales | $ | (413 | ) | Other income (expenses) Others | $ | (62 | ) | |||||
Forward |
3,027 | Net sales | (3,839 | ) | Other income (expenses) Others | (663 | ) | |||||||||
Zero cost collars |
1,123 | Net sales | | Other income (expenses) Others | 31 | |||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 2,805 | $ | (4,252 | ) | $ | (694 | ) | ||||||||
|
|
|
|
|
|
The estimated net loss as of September 30, 2011 that is expected to be reclassified from accumulated other comprehensive income (loss) into earnings within the next twelve months is $9,440 thousand.
The Companys option, forward and zero cost collar contracts are subject to termination upon the occurrence of the following events:
(i) On the last day of a fiscal quarter, the sum of qualified and unrestricted cash and cash equivalents held by the Company is less than $30 million.
(ii) The rating of the Companys debt is B- or lower by Standard & Poors Ratings Group or any successor rating agency thereof (S&P) or B3 or lower by Moodys Investor Services, Inc. or any successor rating agency thereof (Moodys) or the Companys debt ceases to be assigned a rating by either S&P or Moodys.
In addition, the Company is required to deposit cash collateral with Goldman Sachs International Bank (GS), the counterparty to the forward and zero cost collar contracts, for any exposure in excess of $5 million. As of September 30, 2011, the Company has transferred $9.2 million of cash collateral to GS for the purpose of credit support to the counterparty. This cash collateral is changed depending on derivative market exposures. GS is required to return the cash collateral to the Company when the derivative market exposures decreases. Under this circumstance, the Company recorded the balance of $9.2 million as restricted cash in the balance sheet as of September 30, 2011.
14
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
8. Fair Value Measurements
The Companys assets measured at fair value on a recurring basis as of September 30, 2011, and the basis for that measurement is as follows:
Carrying Value | Fair Value Measurement |
Quoted Prices in Active Markets for Identical Asset (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||||||
Assets: |
||||||||||||||||||||
Available-for-sale securities |
548 | 548 | 548 | | | |||||||||||||||
Liabilities: |
||||||||||||||||||||
Current derivative liabilities |
$ | 9,320 | $ | 9,320 | $ | | $ | 9,320 | $ | | ||||||||||
Non current derivative liabilities |
$ | 3,952 | $ | 3,952 | $ | | $ | 3,952 | $ | |
9. Long-Term Borrowings
Long-term borrowings as of September 30, 2011 and December 31, 2010 are as follows:
September 30, 2011 |
December 31, 2010 |
|||||||
10.500% senior notes due April 2018 |
203,691 | 250,000 | ||||||
Discount on 10.500% senior notes due April 2018 |
(2,366 | ) | (3,118 | ) | ||||
|
|
|
|
|||||
Long-term borrowings, net of unamortized discount |
$ | 201,325 | $ | 246,882 | ||||
|
|
|
|
On May 16, 2011, two of the Companys wholly-owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company, repurchased $35.0 million out of $250.0 million aggregate principal amount of the Companys 10.500% senior notes due April 15, 2018 at a price of 109.0% from funds affiliated with Avenue Capital Management II, L.P.
On September 19, 2011, two of the Companys wholly-owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company, additionally repurchased $11.3 million out of the Companys $215.0 million aggregate principal amount of 10.500% senior notes due April 15, 2018 at a price of 107.5% from unrelated note holders in the open market.
In connection with the repurchases of the Companys senior notes, the Company recognized $5,460 thousand of loss on early extinguishment of senior notes, which consisted of $3,998 thousand from repurchase premium, $554 thousand from write-off of discounts, $609 thousand from write-off of debt issuance costs and $299 thousand from incurrence of direct legal and advisory service fees.
15
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
10. Capital Leases
The Company entered into several lease agreements for the use of equipment for manufacturing and research and development. These leases are accounted for as capital leases as the ownership of the equipment will be transferred to the Company upon expiration of the lease terms, or the Company has bargain purchase options at the end of the lease terms.
Payable during |
Capital Lease |
|||
Remainder of 2011 |
$ | 1,494 | ||
2012 |
3,094 | |||
2013 |
26 | |||
|
|
|||
Total future minimum lease payments |
4,614 | |||
Less: Amount representing interest (a) |
(199 | ) | ||
|
|
|||
Present value of net minimum lease payments |
4,415 | |||
Less: Current portion of capital lease obligations |
(4,415 | ) | ||
|
|
|||
Long-term obligations under capital lease |
| |||
|
|
(a) | The lessors implicit rate at lease inception was applied. |
16
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
11. Accrued Severance Benefits
The majority of accrued severance benefits is for employees in the Companys Korean subsidiary, MagnaChip Semiconductor Ltd. (Korea). Pursuant to the Employee Retirement Benefit Security Act of Korea, most 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 September 30, 2011, 98.3% of employees of the Company were eligible for severance benefits.
Changes in accrued severance benefits for each period are as follows:
Three Months Ended |
Nine Months Ended |
Three Months Ended |
Nine Months Ended |
|||||||||||||
September 30, 2011 | September 30, 2010 | |||||||||||||||
Beginning balance |
$ | 98,647 | $ | 88,973 | $ | 77,538 | $ | 73,646 | ||||||||
Provisions |
4,741 | 13,137 | 5,743 | 15,123 | ||||||||||||
Severance payments |
(2,804 | ) | (6,549 | ) | (1,947 | ) | (4,707 | ) | ||||||||
Translation adjustments |
(8,370 | ) | (3,347 | ) | 4,802 | 2,074 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
92,214 | 92,214 | 86,136 | 86,136 | |||||||||||||
Less: Cumulative contributions to the National Pension Fund |
(414 | ) | (414 | ) | (487 | ) | (487 | ) | ||||||||
Group Severance insurance plan |
(694 | ) | (694 | ) | (706 | ) | (706 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Accrued severance benefits, net |
$ | 91,106 | $ | 91,106 | $ | 84,943 | $ | 84,943 | ||||||||
|
|
|
|
|
|
|
|
The severance benefits are funded approximately 1.20% and 1.48% as of September 30, 2011 and 2010, respectively, through the Companys National Pension Fund and group severance insurance plan which will be used exclusively for payment of severance benefits to eligible employees. These amounts have been deducted from the accrued severance benefit balance.
The Company is liable to pay the following future benefits to its non-executive employees upon their normal retirement age:
Severance benefit | ||||
Remainder of 2011 |
$ | | ||
2012 |
154 | |||
2013 |
| |||
2014 |
311 | |||
2015 |
337 | |||
2016 |
1,167 | |||
2017 2021 |
12,982 |
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.
17
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
12. Restructuring and Impairment Charges
2011 Restructuring and Impairment Charge
The Company recognized $1,610 and $2,409 thousand of impairment charges for the three and nine months ended September 30, 2011 from nine and twelve abandoned in-process research and development projects and one abandoned system project. The Company recognized $90 thousand of impairment charges for the nine months ended September 30, 2011 from impairment of tangible and intangible assets caused by the closure of the Companys research and development center in Japan.
The Company recognized $11 and $1,597 thousand of restructuring charges for the three and nine months ended September 30, 2011, which were incurred by the closure of the Companys research and development center in Japan and sales subsidiary in U.K.
2010 Restructuring and Impairment Charges
The Company recognized $442 thousand of impairment charges for the three months ended September 30, 2010, which consists
of $391 thousand from in-process research and development annual impairment test performed on September 30, 2010 and $51 thousand from one abandoned in-process research and development project. The Company recognized $1,045 thousand of impairment charges for the nine months ended September 30, 2010, which consists of $391 thousand from in-process research and development annual impairment test and $654 thousand from five abandoned in-process research and development projects.
13. Foreign Currency Gain (Loss), Net
Net foreign currency gain or loss is non-cash translation gain or loss associated with intercompany balances.
14. Income Taxes
The Company files income tax returns in the U.S., Korea, Japan, Taiwan and various other jurisdictions.
The predecessor entity to MagnaChip Semiconductor Corporation (the Parent) was a non-taxable partnership entity until its conversion to a Delaware corporation on March 10, 2011.
MagnaChip Semiconductor Ltd. (Korea) is the principal operating entity within the consolidated Company. For the three and nine months ended September 30, 2011 and 2010, no income tax expense for MagnaChip Semiconductor, Ltd. (Korea) was recorded due to net operating loss carry-forwards that were available to offset taxable income. The net deferred tax assets of MagnaChip Semiconductor Ltd., which include net operating carry-forwards, have a valuation allowance against them at September 30, 2011. The Company assesses whether it is more likely than not that the deferred tax assets existing at the period-end will be realized in future periods. In such assessment, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event the Company were to determine that it would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, the Company would adjust the valuation allowance, which would reduce the provision for income taxes.
Income tax expense recorded for the nine month period ended September 30, 2011 principally relates to withholding taxes of $4.5 million mostly accrued on intercompany interest payments, income tax effect of $1.0 million resulting from the change of deferred tax assets and a $0.5 million increase in liability related to uncertain tax positions.
18
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
15. Geographic and Segment Information
The following sets forth information relating to the reportable segments:
Three Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Net Sales |
||||||||
Display Solutions |
$ | 91,767 | $ | 77,989 | ||||
Semiconductor Manufacturing Services |
81,571 | 113,171 | ||||||
Power Solutions |
26,358 | 17,801 | ||||||
All other |
709 | 487 | ||||||
|
|
|
|
|||||
Total segment net sales |
$ | 200,405 | $ | 209,448 | ||||
|
|
|
|
Nine Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Net Sales |
||||||||
Display Solutions |
$ | 248,950 | $ | 235,303 | ||||
Semiconductor Manufacturing Services |
270,295 | 307,936 | ||||||
Power Solutions |
70,509 | 38,875 | ||||||
All other |
2,251 | 1,519 | ||||||
|
|
|
|
|||||
Total segment net sales |
$ | 592,005 | $ | 583,633 | ||||
|
|
|
|
The following is a summary of net sales by region, based on the location of the customer:
Three Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Korea |
$ | 106,698 | $ | 98,614 | ||||
Asia Pacific |
52,922 | 62,279 | ||||||
Japan |
17,123 | 18,885 | ||||||
North America |
19,367 | 24,719 | ||||||
Europe |
3,353 | 4,040 | ||||||
Africa |
942 | 911 | ||||||
|
|
|
|
|||||
Total |
$ | 200,405 | $ | 209,448 | ||||
|
|
|
|
19
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Nine Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Korea |
$ | 293,509 | $ | 297,584 | ||||
Asia Pacific |
169,802 | 163,440 | ||||||
Japan |
48,913 | 41,876 | ||||||
North America |
66,004 | 68,785 | ||||||
Europe |
11,349 | 10,819 | ||||||
Africa |
2,428 | 1,129 | ||||||
|
|
|
|
|||||
Total |
$ | 592,005 | $ | 583,633 | ||||
|
|
|
|
Net sales from the Companys top ten largest customers accounted for 61.7 % and 62.9% for the three months ended September 30, 2011 and 2010, respectively, and 61.4% and 63.8% for the nine months ended September 30, 2011 and 2010, respectively.
The Company recorded $ 29,478 thousand and $28,976 thousand of sales to one customer within its Display Solutions segment, which represents greater than 10% of net sales, for the three months ended September 30, 2011 and 2010, respectively, and $87,586 thousand and $99,869 thousand for the nine months ended September 30, 2011 and 2010, respectively.
Over 99% of the Companys property, plant and equipment are located in Korea as of September 30, 2011.
16. Earnings Per Share
The following table illustrates the computation of basic and diluted earnings per common share:
Three Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Net income (loss) |
$ | (56,010 | ) | $ | 61,495 | |||
Weighted average common stock outstanding |
||||||||
Basic |
39,064,071 | 37,819,820 | ||||||
Diluted |
39,064,071 | 39,200,585 | ||||||
Earnings per share |
||||||||
Basic |
$ | (1.43 | ) | $ | 1.63 | |||
Diluted |
$ | (1.43 | ) | $ | 1.57 |
Nine Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Net income (loss) |
$ | (1,912 | ) | $ | 61,849 | |||
Weighted average common stock outstanding |
||||||||
Basic |
38,823,720 | 37,815,080 | ||||||
Diluted |
38,823,720 | 39,113,200 | ||||||
Earnings per share |
||||||||
Basic |
$ | (0.05 | ) | $ | 1.64 | |||
Diluted |
$ | (0.05 | ) | $ | 1.58 |
20
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
The following outstanding instruments were excluded from the computation of diluted earnings per share, as they have an anti-dilutive effect on the calculation:
Nine Months Ended | ||||||||
September 30, 2011 |
September 30, 2010 |
|||||||
Options |
213,250 | 114,250 | ||||||
Warrants |
1,875,018 | 1,875,017 |
17. Condensed Consolidating Financial Information
The $203.7 million senior notes outstanding as of September 30, 2011 are fully and unconditionally, jointly and severally, guaranteed by the Company and all of its subsidiaries, except for MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor (Shanghai) Company Limited.
The senior notes are structurally subordinated to the creditors of the Companys principal manufacturing and selling subsidiary, MagnaChip Semiconductor, Ltd. (Korea), which accounts for substantially all of the Companys net sales and assets.
Below are condensed consolidating balance sheets as of September 30, 2011 and December 31, 2010, condensed consolidating statements of operations for the three months and nine months ended September 30, 2011 and 2010 and condensed consolidating statements of cash flows for the nine months ended September 30, 2011 and 2010 of those entities that guarantee the senior notes, those that do not, MagnaChip Semiconductor Corporation, and the co-issuers.
For the purpose of the guarantor financial information, the investments in subsidiaries are accounted for under the equity method.
21
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Condensed Consolidating Balance Sheets
September 30, 2011
MagnaChip Semiconductor Corporation (Parent) |
Co-Issuers | Non- Guarantors |
Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 1,408 | $ | 25,688 | $ | 121,344 | $ | 11,028 | $ | | $ | 159,468 | ||||||||||||
Restricted cash |
| | 9,210 | | | 9,210 | ||||||||||||||||||
Accounts receivable, net |
| | 125,232 | 25,216 | (26,298 | ) | 124,150 | |||||||||||||||||
Inventories, net |
| | 69,789 | 186 | (158 | ) | 69,817 | |||||||||||||||||
Other receivables |
12 | | 11,829 | 206 | (10,097 | ) | 1,950 | |||||||||||||||||
Prepaid expenses |
91 | 3 | 11,067 | 506 | (2,897 | ) | 8,770 | |||||||||||||||||
Other current assets |
37,204 | 172,402 | 5,360 | 148,518 | (355,325 | ) | 8,159 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
38,715 | 198,093 | 353,831 | 185,660 | (394,775 | ) | 381,524 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, plant and equipment, net |
| | 179,759 | 273 | | 180,032 | ||||||||||||||||||
Intangible assets, net |
| | 18,177 | 388 | | 18,565 | ||||||||||||||||||
Long-term prepaid expenses |
| | 11,601 | 127 | (6,969 | ) | 4,759 | |||||||||||||||||
Investment in subsidiaries |
(572,443 | ) | (673,869 | ) | | (492,977 | ) | 1,739,289 | | |||||||||||||||
Long-term intercompany loan |
697,125 | 840,410 | | 664,868 | (2,202,403 | ) | | |||||||||||||||||
Other non-current assets |
(900 | ) | 6,679 | 8,055 | 7,152 | | 20,986 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
$ | 162,497 | $ | 371,313 | $ | 571,423 | $ | 365,491 | $ | (864,858 | ) | $ | 605,866 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 100,557 | $ | 1,602 | $ | (26,212 | ) | $ | 75,947 | |||||||||||
Other accounts payable |
1,334 | 560 | 11,371 | 9,257 | (10,097 | ) | 12,425 | |||||||||||||||||
Accrued expenses |
691 | 44,045 | 172,749 | 174,938 | (355,411 | ) | 37,012 | |||||||||||||||||
Current portion of capital lease obligations |
| | 4,134 | 281 | | 4,415 | ||||||||||||||||||
Other current liabilities |
(2,093 | ) | | 12,895 | 5,858 | (2,898 | ) | 13,762 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
(68 | ) | 44,605 | 301,706 | 191,936 | (394,618 | ) | 143,561 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Long-term borrowings, net |
| 898,450 | 664,868 | 840,415 | (2,202,403 | ) | 201,325 | |||||||||||||||||
Accrued severance benefits, net |
| | 89,613 | 1,493 | | 91,106 | ||||||||||||||||||
Other non-current liabilities |
2,618 | | 8,134 | 6,145 | (6,970 | ) | 9,927 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
2,550 | 943,055 | 1,064,321 | 1,039,984 | (2,603,991 | ) | 445,919 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Stockholders equity |
||||||||||||||||||||||||
Common stock |
394 | 136,229 | 39,005 | 51,976 | (227,210 | ) | 394 | |||||||||||||||||
Additional paid-in capital |
98,310 | (733,291 | ) | (536,944 | ) | (731,303 | ) | 2,001,538 | 98,310 | |||||||||||||||
Retained earnings |
70,245 | 34,322 | 18,412 | 13,879 | (66,613 | ) | 70,245 | |||||||||||||||||
Accumulated other comprehensive loss |
(9,002 | ) | (9,002 | ) | (13,391 | ) | (9,045 | ) | 31,418 | (9,002 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity |
159,947 | (571,742 | ) | (492,898 | ) | (674,493 | ) | 1,739,133 | 159,947 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders equity |
$ | 162,497 | $ | 371,313 | $ | 571,423 | $ | 365,491 | $ | (864,858 | ) | $ | 605,866 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
22
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Condensed Consolidating Balance Sheets
December 31, 2010
MagnaChip Semiconductor Corporation (Parent) |
Co-Issuers | Non- Guarantors |
Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 79 | $ | 46,595 | $ | 112,370 | $ | 13,128 | $ | | $ | 172,172 | ||||||||||||
Accounts receivable, net |
| | 160,317 | 60,533 | (101,796 | ) | 119,054 | |||||||||||||||||
Inventories, net |
| | 68,435 | 158 | (158 | ) | 68,435 | |||||||||||||||||
Other receivables |
718 | 718 | 23,111 | 2,969 | (24,597 | ) | 2,919 | |||||||||||||||||
Prepaid expenses |
52 | 2 | 10,957 | 93 | (2,897 | ) | 8,207 | |||||||||||||||||
Short-term intercompany loan |
| 95,000 | | 95,000 | (190,000 | ) | | |||||||||||||||||
Other current assets |
41,363 | 124,376 | 9,606 | 111,628 | (268,053 | ) | 18,920 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
42,212 | 266,691 | 384,796 | 283,509 | (587,501 | ) | 389,707 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Property, plant and equipment, net |
| | 178,623 | 389 | | 179,012 | ||||||||||||||||||
Intangible assets, net |
| | 27,009 | 529 | | 27,538 | ||||||||||||||||||
Long-term prepaid expenses |
| | 17,371 | | (9,136 | ) | 8,235 | |||||||||||||||||
Investment in subsidiaries |
(567,941 | ) | (641,799 | ) | | (475,696 | ) | 1,685,436 | | |||||||||||||||
Long-term intercompany loan |
697,125 | 792,846 | | 621,000 | (2,110,971 | ) | | |||||||||||||||||
Other non-current assets |
| 7,819 | 6,611 | 6,821 | 1 | 21,252 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Assets |
$ | 171,396 | $ | 425,557 | $ | 614,410 | $ | 436,552 | $ | (1,022,171 | ) | $ | 625,744 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Stockholders Equity |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 118,353 | $ | 41,634 | $ | (101,723 | ) | $ | 58,264 | |||||||||||
Other accounts payable |
8,334 | 8,987 | 15,994 | 5,927 | (24,597 | ) | 14,645 | |||||||||||||||||
Accrued expenses |
211 | 39,887 | 134,460 | 126,204 | (268,127 | ) | 32,635 | |||||||||||||||||
Short-term intercompany borrowings |
| | 95,000 | 95,000 | (190,000 | ) | | |||||||||||||||||
Current portion of capital lease obligations |
| | 5,373 | 184 | | 5,557 | ||||||||||||||||||
Other current liabilities |
| | 3,815 | 4,130 | (2,897 | ) | 5,048 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
8,545 | 48,874 | 372,995 | 273,079 | (587,344 | ) | 116,149 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Long-term borrowings, net |
| 944,007 | 621,000 | 792,846 | (2,110,971 | ) | 246,882 | |||||||||||||||||
Long-term obligations under capital lease |
| | 2,888 | 217 | | 3,105 | ||||||||||||||||||
Accrued severance benefits, net |
| | 86,511 | 1,267 | | 87,778 | ||||||||||||||||||
Other non-current liabilities |
| | 6,653 | 11,462 | (9,136 | ) | 8,979 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
8,545 | 992,881 | 1,090,047 | 1,078,871 | (2,707,451 | ) | 462,893 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||
Stockholders equity |
||||||||||||||||||||||||
Common stock |
384 | 136,229 | 39,005 | 51,976 | (227,210 | ) | 384 | |||||||||||||||||
Additional paid-in capital |
95,585 | (734,101 | ) | (537,608 | ) | (732,266 | ) | 2,003,975 | 95,585 | |||||||||||||||
Retained earnings |
72,157 | 35,823 | 31,799 | 43,269 | (110,891 | ) | 72,157 | |||||||||||||||||
Accumulated other comprehensive loss |
(5,275 | ) | (5,275 | ) | (8,833 | ) | (5,298 | ) | 19,406 | (5,275 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total stockholders equity |
162,851 | (567,324 | ) | (475,637 | ) | (642,319 | ) | 1,685,280 | 162,851 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and stockholders equity |
$ | 171,396 | $ | 425,557 | $ | 614,410 | $ | 436,552 | $ | (1,022,171 | ) | $ | 625,744 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
23
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Condensed Consolidating Statements of Operations
For the three months ended September 30, 2011
MagnaChip Semiconductor Corporation (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 200,405 | $ | 6,692 | $ | (6,692 | ) | $ | 200,405 | |||||||||||
Cost of sales |
| | 140,291 | 780 | (787 | ) | 140,284 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 60,114 | 5,912 | (5,905 | ) | 60,121 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling, general and administrative expenses |
354 | 24 | 17,946 | 3,144 | (3,587 | ) | 17,881 | |||||||||||||||||
Research and development expenses |
| | 19,846 | 1,470 | (2,313 | ) | 19,003 | |||||||||||||||||
Restructuring and impairment charges |
| | 1,610 | 11 | | 1,621 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income (loss) |
(354 | ) | (24 | ) | 20,712 | 1,287 | (5 | ) | 21,616 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other income (expense) |
| (3,774 | ) | (82,121 | ) | 10,062 | | (75,833 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes, equity in loss of related equity investment |
(354 | ) | (3,798 | ) | (61,409 | ) | 11,349 | (5 | ) | (54,217 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax expenses (benefits) |
(1,456 | ) | | (661 | ) | 3,910 | | 1,793 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in loss of related investment |
1,102 | (3,798 | ) | (60,748 | ) | 7,439 | (5 | ) | (56,010 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Equity in loss of related investment |
(57,112 | ) | (53,031 | ) | | (60,753 | ) | 170,896 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (56,010 | ) | $ | (56,829 | ) | $ | (60,748 | ) | $ | (53,314 | ) | $ | 170,891 | $ | (56,010 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
24
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2011
MagnaChip Semiconductor Corporation (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 591,967 | $ | 19,439 | $ | (19,401 | ) | $ | 592,005 | |||||||||||
Cost of sales |
| | 409,250 | 1,392 | (1,414 | ) | 409,228 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 182,717 | 18,047 | (17,987 | ) | 182,777 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling, general and administrative expenses |
1,650 | 610 | 49,740 | 9,731 | (10,991 | ) | 50,740 | |||||||||||||||||
Research and development expenses |
| | 60,538 | 4,561 | (6,984 | ) | 58,115 | |||||||||||||||||
Restructuring and impairment charges |
| | 2,409 | 1,687 | | 4,096 | ||||||||||||||||||
Special expense for IPO incentive |
| | 11,355 | 791 | | 12,146 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income (loss) |
(1,650 | ) | (610 | ) | 58,675 | 1,277 | (12 | ) | 57,680 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other income (expense) |
1 | 28,262 | (71,531 | ) | (10,186 | ) | | (53,454 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes, equity in loss of related equity investment |
(1,649 | ) | 27,652 | (12,856 | ) | (8,909 | ) | (12 | ) | 4,226 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax expenses (benefits) |
(1,474 | ) | | 532 | 7,080 | | 6,138 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in loss of related investment |
(175 | ) | 27,652 | (13,388 | ) | (15,989 | ) | (12 | ) | (1,912 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Equity in loss of related investment |
(1,737 | ) | (29,153 | ) | | (13,400 | ) | 44,290 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net loss |
$ | (1,912 | ) | $ | (1,501 | ) | $ | (13,388 | ) | $ | (29,389 | ) | $ | 44,278 | $ | (1,912 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
25
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Condensed Consolidating Statements of Operations
For the three months ended September 30, 2010
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 209,580 | $ | 7,416 | $ | (7,548 | ) | $ | 209,448 | |||||||||||
Cost of sales |
| | 140,126 | 1,116 | (1,109 | ) | 140,133 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 69,454 | 6,300 | (6,439 | ) | 69,315 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling, general and administrative expenses |
140 | 373 | 16,293 | 2,795 | (3,399 | ) | 16,202 | |||||||||||||||||
Research and development expenses |
| | 24,023 | 2,138 | (3,042 | ) | 23,119 | |||||||||||||||||
Restructuring and impairment charges |
| | 442 | | | 442 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income (loss) |
(140 | ) | (373 | ) | 28,696 | 1,367 | 2 | 29,552 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Other income (expense) |
| 29,393 | 26,565 | (21,558 | ) | | 34,400 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before income taxes, equity in earnings of related equity investment |
(140 | ) | 29,020 | 55,261 | (20,191 | ) | 2 | 63,952 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax expenses |
| | | 2,457 | | 2,457 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income (loss) before equity in earnings of related investment |
(140 | ) | 29,020 | 55,261 | (22,648 | ) | 2 | 61,495 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Earnings of related investment |
61,635 | 32,494 | | 55,263 | (149,392 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Income |
$ | 61,495 | $ | 61,514 | $ | 55,261 | $ | 32,615 | $ | (149,390 | ) | $ | 61,495 | |||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Income attributable to common units |
$ | 61,495 | $ | 61,514 | $ | 55,261 | $ | 32,615 | $ | (149,390 | ) | $ | 61,495 | |||||||||||
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|
26
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Condensed Consolidating Statements of Operations
For the nine months ended September 30, 2010
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 579,239 | $ | 26,021 | $ | (21,627 | ) | $ | 583,633 | |||||||||||
Cost of sales |
| | 396,808 | 8,033 | (4,415 | ) | 400,426 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
| | 182,431 | 17,988 | (17,212 | ) | 183,207 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Selling, general and administrative expenses |
1,318 | 898 | 49,148 | 7,549 | (8,839 | ) | 50,074 | |||||||||||||||||
Research and development expenses |
| | 66,880 | 6,420 | (9,107 | ) | 64,193 | |||||||||||||||||
Restructuring and impairment charges |
| | 1,045 | | | 1,045 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating income (loss) |
(1,318 | ) | (898 | ) | 65,358 | 4,019 | 734 | 67,895 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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Other income (expense) |
3,734 | 21,276 | (30,181 | ) | 3,306 | | (1,865 | ) | ||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes, equity in earnings of related equity investment |
2,416 | 20,378 | 35,177 | 7,325 | 734 | 66,030 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax expenses (benefits) |
| | (1,947 | ) | 6,128 | | 4,181 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before equity in earnings of related investment |
2,416 | 20,378 | 37,124 | 1,197 | 734 | 61,849 | ||||||||||||||||||
|
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|
|
|
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|
|
|
|
|
|||||||||||||
Earnings of related investment |
59,433 | 38,903 | | 37,412 | (135,748 | ) | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 61,849 | $ | 59,281 | $ | 37,124 | $ | 38,609 | $ | (135,014 | ) | $ | 61,849 | |||||||||||
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|
|
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|
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|
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|
|||||||||||||
Net income attributable to common units |
$ | 61,849 | $ | 59,281 | $ | 37,124 | $ | 38,609 | $ | (135,014 | ) | $ | 61,849 | |||||||||||
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27
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
Condensed Consolidating Statements of Cash Flows
For the nine months ended September 30, 2011
MagnaChip Semiconductor Corporation (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Cash flow from operating activities |
||||||||||||||||||||||||
Net loss |
$ | (1,912 | ) | $ | (1,501 | ) | $ | (13,388 | ) | $ | (29,389 | ) | $ | 44,278 | $ | (1,912 | ) | |||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
||||||||||||||||||||||||
Depreciation and amortization |
| | 42,161 | 207 | | 42,368 | ||||||||||||||||||
Provision for severance benefits |
| | 12,959 | 178 | | 13,137 | ||||||||||||||||||
Amortization of debt issuance costs and original issue discount |
| 728 | | | | 728 | ||||||||||||||||||
Loss (gain) on foreign currency translation, net |
| (3,696 | ) | 31,387 | 5,529 | | 33,220 | |||||||||||||||||
Gain on disposal of property, plant and equipment, net |
| | (15 | ) | | | (15 | ) | ||||||||||||||||
Loss on disposal of intangible assets, net |
| | 17 | | | 17 | ||||||||||||||||||
Restructuring and Impairment charges |
| | 2,410 | 1,687 | (1 | ) | 4,096 | |||||||||||||||||
Stock-based compensation |
178 | | 1,442 | 470 | (292 | ) | 1,798 | |||||||||||||||||
Equity in loss of related investment |
1,737 | 29,153 | | 13,400 | (44,290 | ) | | |||||||||||||||||
Other |
(1,474 | ) | 5,461 | 1,133 | 1,845 | (854 | ) | 6,111 | ||||||||||||||||
Changes in operating assets and liabilities |
||||||||||||||||||||||||
Accounts receivable, net |
| | 35,467 | 35,630 | (75,497 | ) | (4,400 | ) | ||||||||||||||||
Inventories, net |
| | (4,413 | ) | | 13 | (4,400 | ) | ||||||||||||||||
Other receivables |
706 | 718 | 11,349 | 2,563 | (14,500 | ) | 836 | |||||||||||||||||
Other current assets |
194 | (48,027 | ) | (1,977 | ) | (41,859 | ) | 88,473 | (3,196 | ) | ||||||||||||||
Deferred tax assets |
| | | 1,051 | 432 | 1,483 | ||||||||||||||||||
Accounts payable |
| | (19,617 | ) | (40,821 | ) | 75,510 | 15,072 | ||||||||||||||||
Other accounts payable |
(7,041 | ) | (8,555 | ) | 4,966 | 3,287 | 14,500 | 7,157 | ||||||||||||||||
Accrued expenses |
106 | 3,987 | 18,065 | 48,050 | (88,486 | ) | (18,278 | ) | ||||||||||||||||
Other current liabilities |
| | (252 | ) | (957 | ) | | (1,209 | ) | |||||||||||||||
Long term other payable |
| | | 100 | 448 | 548 | ||||||||||||||||||
Payment of severance benefits |
| | (6,510 | ) | (39 | ) | | (6,549 | ) | |||||||||||||||
Other |
| | 2,681 | (3,088 | ) | | (407 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) operating activities |
(7,506 | ) | (21,732 | ) | 117,865 | (2,156 | ) | (266 | ) | 86,205 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Increase in restricted cash |
| | (9,711 | ) | | | (9,711 | ) | ||||||||||||||||
Decrease in short-term loans |
| 51,132 | 19 | 38,452 | (89,828 | ) | (225 | ) | ||||||||||||||||
Proceeds from disposal of plant, property and equipment |
| | 29 | | | 29 | ||||||||||||||||||
Purchases of plant, property and equipment |
| | (42,911 | ) | (34 | ) | | (42,945 | ) |
28
MagnaChip Semiconductor Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited; tabular dollars in thousands, except share data)
MagnaChip Semiconductor Corporation (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Payment for intellectual property registration |
| | (521 | ) | | | (521 | ) | ||||||||||||||||
Collection of guarantee deposits |
| | 979 | 5 | | 984 | ||||||||||||||||||
Payment of guarantee deposits |
| | (2,479 | ) | (10 | ) | | (2,489 | ) | |||||||||||||||
Other |
| | (400 | ) | | | (400 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) investing activities |
| 51,132 | (54,995 | ) | 38,413 | (89,828 | ) | (55,278 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flow from financing activities |
||||||||||||||||||||||||
Proceeds from issuance of common stock |
8,835 | | | | | 8,835 | ||||||||||||||||||
Repayment of long-term borrowings |
| (50,307 | ) | (53,331 | ) | (38,466 | ) | 91,797 | (50,307 | ) | ||||||||||||||
Repayment of obligations under capital lease |
| | (4,607 | ) | (224 | ) | | (4,831 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
8,835 | (50,307 | ) | (57,938 | ) | (38,690 | ) | 91,797 | (46,303 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Effect of exchange rates on cash and cash equivalents |
| | 4,042 | 333 | (1,703 | ) | 2,672 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
1,329 | (20,907 | ) | 8,974 | (2,100 | ) | | (12,704 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents |
||||||||||||||||||||||||
Beginning of the period |
79 | 46,595 | 112,370 |