Form 10-Q
Table of Contents

 

 

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 registrant’s 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.

 

 

 


Table of Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

 

               Page No.  
PART I FINANCIAL INFORMATION      4   
   Item 1.    Interim Consolidated Financial Statements (Unaudited)      4   
     

MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010

     4   
     

MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010

     5   
     

MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2011 and 2010

     6   
     

MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010

     8   
      MagnaChip Semiconductor Corporation and Subsidiaries Notes to Consolidated Financial Statements      9   
   Item 2.    Management’s 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


Table of Contents

FORWARD LOOKING STATEMENTS

The following Management’s 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, management’s 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


Table of Contents

PART I—FINANCIAL INFORMATION

 

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   
  

 

 

   

 

 

 

Total current assets

     381,524        389,707   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total assets

   $ 605,866      $ 625,744   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total current liabilities

     143,561        116,149   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 605,866      $ 625,744   
  

 

 

   

 

 

 

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

 

4


Table of Contents

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   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     60,121        69,315        182,777        183,207   
  

 

 

   

 

 

   

 

 

   

 

 

 

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        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     21,616        29,552        57,680        67,895   
  

 

 

   

 

 

   

 

 

   

 

 

 

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
  

 

 

   

 

 

   

 

 

   

 

 

 
     (75,833     34,400        (53,454     (1,865
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (54,217     63,952        4,226        66,030   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     1,793        2,457        6,138        4,181   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (56,010   $ 61,495      $ (1,912   $ 61,849   
  

 

 

   

 

 

   

 

 

   

 

 

 

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


Table of Contents

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
              

 

 

 

Total comprehensive loss

                 (30,190
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

     39,354,006      $ 394       $ 98,310       $ 70,245      $ (9,002   $ 159,947   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2011
Balance at January 1, 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
              

 

 

 

Total comprehensive loss

                 (5,639
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

     39,354,006      $ 394       $ 98,310       $ 70,245      $ (9,002   $ 159,947   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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

 

6


Table of Contents

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
             

 

 

 

Total comprehensive income

                44,522   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2010

     38,401,984      $ 384       $ 94,956      $ 59,886      $ (8,121   $ 147,105   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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   
             

 

 

 

Total comprehensive income

                59,910   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2010

     38,401,984      $ 384       $ 94,956      $ 59,886      $ (8,121   $ 147,105   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

 

7


Table of Contents

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
  

 

 

   

 

 

 

Net cash provided by operating activities before reorganization items

     86,205        83,200   
  

 

 

   

 

 

 

Cash used for reorganization items

     —          (1,573
  

 

 

   

 

 

 

Net cash provided by operating activities

     86,205        81,627   
  

 

 

   

 

 

 

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   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (12,704     96,504   
  

 

 

   

 

 

 

Cash and cash equivalents

    

Beginning of the period

     172,172        64,925   
  

 

 

   

 

 

 

End of the period

   $ 159,468      $ 161,429   
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for interest

   $ 14,004      $ 3,499   
  

 

 

   

 

 

 

Cash paid for income taxes

   $ 1,776      $ (290
  

 

 

   

 

 

 

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


Table of Contents

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 Company’s business is comprised of three key segments: Display Solutions, Power Solutions and Semiconductor Manufacturing Services. The Company’s Display Solutions products include display drivers for use in a wide range of flat panel displays and mobile multimedia devices. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in high-volume consumer applications. The Company’s 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.

 

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Table of Contents

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 Company’s initial public offering (“IPO”), the Company’s 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 Company’s 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   
  

 

 

   

 

 

 

 

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Table of Contents

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 Company’s 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.”

 

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Table of Contents

MagnaChip Semiconductor Corporation and Subsidiaries

Notes to Consolidated Financial Statements – (Continued)

(Unaudited; tabular dollars in thousands, except share data)

 

The fair values of the Company’s 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
Gain
Reclassified from
AOCI into
Statement of
Operations
(Effective Portion)

   Amount of Gain
Reclassified from
AOCI into
Statement of
Operations
(Effective Portion)
    

Location of
Gain (Loss)
Recognized in
Statement of
Operations on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

   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


Table of Contents

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
Recognized in
Statement of
Operations on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

   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)
Recognized in
Statement of
Operations on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

   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
  

 

 

      

 

 

      

 

 

 

 

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Table of Contents

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)
Recognized in
Statement of
Operations on
Derivative
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

   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 Company’s 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 Company’s debt is B- or lower by Standard & Poor’s Ratings Group or any successor rating agency thereof (“S&P”) or B3 or lower by Moody’s Investor Services, Inc. or any successor rating agency thereof (“Moody’s”) or the Company’s debt ceases to be assigned a rating by either S&P or Moody’s.

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.

 

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Table of Contents

MagnaChip Semiconductor Corporation and Subsidiaries

Notes to Consolidated Financial Statements – (Continued)

(Unaudited; tabular dollars in thousands, except share data)

 

8. Fair Value Measurements

The Company’s 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 Company’s 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 Company’s 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 Company’s wholly-owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company, additionally repurchased $11.3 million out of the Company’s $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 Company’s 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.

 

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Table of Contents

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 lessor’s implicit rate at lease inception was applied.

 

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Table of Contents

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 Company’s 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 Company’s 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.

 

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Table of Contents

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 Company’s 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 Company’s 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.

 

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Table of Contents

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


Table of Contents

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 Company’s 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 Company’s 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


Table of Contents

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 Company’s principal manufacturing and selling subsidiary, MagnaChip Semiconductor, Ltd. (Korea), which accounts for substantially all of the Company’s 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


Table of Contents

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


Table of Contents

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


Table of Contents

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


Table of Contents

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


Table of Contents

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   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net Income attributable to common units

   $ 61,495      $ 61,514      $ 55,261       $ 32,615      $ (149,390   $ 61,495   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

26


Table of Contents

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   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other income (expense)

     3,734        21,276        (30,181     3,306         —          (1,865
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income before income taxes, equity in earnings of related equity investment

     2,416        20,378        35,177        7,325         734        66,030   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

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   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

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   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income attributable to common units

   $ 61,849      $ 59,281      $ 37,124      $ 38,609       $ (135,014   $ 61,849   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

27


Table of Contents

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


Table of Contents

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        13,128        —          172,172   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of the period

   $ 1,408       $ 25,688      $ 121,344      $ 11,028      $ —        $ 159,468   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

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, 2010

 

     MagnaChip
Semiconductor
LLC
(Parent)
    Co-Issuers     Non-Guarantors     Guarantors     Eliminations     Consolidated  

Cash flow from operating activities

            

Net income

   $ 61,849      $ 59,281      $ 37,124      $ 38,609      $ (135,014   $ 61,849   

Adjustments to reconcile net income to net cash provided by (used in) operating activities

            

Depreciation and amortization

     —          —          44,120        212        —          44,332   

Provision for severance benefits

     —          —          14,889        234        —          15,123   

Amortization of debt issuance costs and original issue discount.

     —