Issuer Free Writing Prospectus
Filed Pursuant to Rule 433
Registration No. 333-165467
MagnaChip Semiconductor LLC (the Company) has filed a registration statement (including a preliminary prospectus) with the Securities and Exchange Commission (SEC) for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the Company has filed with the SEC for more complete information about the company and the offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov or by visiting the Companys investor relations SEC web site link at www.magnachip.com. Alternatively, the Company will arrange to send you the preliminary prospectus if you request it by calling 1-408-625-1262.
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 June 30, 2010
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: 333-168516-09
MagnaChip Semiconductor LLC
(Exact name of registrant as specified in its charter)
Delaware | 26-1815025 | |
(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. ¨ Yes þ 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). ¨ 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 | þ (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 þ 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. þ Yes ¨ No
As of July 31, 2010, the registrant had 307,233,996 common units outstanding.
MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
TABLE OF CONTENTS
Page No. | ||||||
PART I FINANCIAL INFORMATION | 3 | |||||
Item 1. | Interim Consolidated Financial Statements (Unaudited) | 3 | ||||
3 | ||||||
4 | ||||||
5 | ||||||
7 | ||||||
MagnaChip Semiconductor LLC and Subsidiaries Notes to Consolidated Financial Statements |
8 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 33 | ||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 60 | ||||
Item 4. | Controls and Procedures | 60 | ||||
PART II OTHER INFORMATION | 62 | |||||
Item 1A. | Risk Factors | 62 | ||||
Item 6. | Exhibits | 75 | ||||
SIGNATURES | 76 |
2
Item 1. | Interim Consolidated Financial Statements (Unaudited) |
MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands of US dollars, except unit data)
Successor | ||||||||
June 30, 2010 |
December 31, 2009 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 141,310 | $ | 64,925 | ||||
Accounts receivable, net |
117,711 | 74,233 | ||||||
Inventories, net |
59,972 | 63,407 | ||||||
Other receivables |
3,702 | 3,433 | ||||||
Prepaid expenses |
9,908 | 12,625 | ||||||
Other current assets |
11,097 | 3,433 | ||||||
Total current assets |
343,700 | 222,056 | ||||||
Property, plant and equipment, net |
155,040 | 156,337 | ||||||
Intangible assets, net |
34,837 | 50,158 | ||||||
Long-term prepaid expenses |
10,883 | 10,542 | ||||||
Other non-current assets |
21,491 | 14,238 | ||||||
Total assets |
$ | 565,951 | $ | 453,331 | ||||
Liabilities and Unitholders Equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 69,379 | $ | 59,705 | ||||
Other accounts payable |
22,546 | 7,190 | ||||||
Accrued expenses |
31,906 | 22,114 | ||||||
Current portion of long-term borrowings |
| 618 | ||||||
Other current liabilities |
7,826 | 3,937 | ||||||
Total current liabilities |
131,657 | 93,564 | ||||||
Long-term borrowings, net |
246,746 | 61,132 | ||||||
Accrued severance benefits, net |
76,394 | 72,409 | ||||||
Other non-current liabilities |
9,234 | 10,536 | ||||||
Total liabilities |
464,031 | 237,641 | ||||||
Commitments and contingencies |
||||||||
Unitholders equity |
||||||||
Common units, no par value, 375,000,000 units authorized, 307,233,996 and 307,083,996 units issued and outstanding at June 30, 2010 and December 31, 2009, respectively |
55,453 | 55,135 | ||||||
Additional paid-in capital |
39,224 | 168,700 | ||||||
Accumulated deficit |
(1,609 | ) | (1,963 | ) | ||||
Accumulated other comprehensive income (loss) |
8,852 | (6,182 | ) | |||||
Total unitholders equity |
101,920 | 215,690 | ||||||
Total liabilities and unitholders equity |
$ | 565,951 | $ | 453,331 | ||||
The accompanying notes are an integral part of these consolidated financial statements
3
MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands of US dollars, except unit data)
Successor | Predecessor | |||||||||||||||||
Three Months Ended |
Six Months Ended |
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, 2010 | June 28, 2009 | |||||||||||||||||
Net sales |
$ | 194,700 | $ | 374,185 | $ | 139,693 | $ | 241,152 | ||||||||||
Cost of sales |
130,166 | 260,293 | 91,362 | 171,922 | ||||||||||||||
Gross profit |
64,534 | 113,892 | 48,331 | 69,230 | ||||||||||||||
Selling, general and administrative expenses |
15,964 | 33,872 | 18,353 | 33,636 | ||||||||||||||
Research and development expenses |
20,543 | 41,074 | 16,242 | 33,228 | ||||||||||||||
Restructuring and impairment charges |
267 | 603 | 385 | 439 | ||||||||||||||
Operating income from continuing operations |
27,760 | 38,343 | 13,351 | 1,927 | ||||||||||||||
Other income (expenses) |
||||||||||||||||||
Interest expense, net |
(6,557 | ) | (8,606 | ) | (12,837 | ) | (27,491 | ) | ||||||||||
Foreign currency gain (loss), net |
(48,273 | ) | (26,657 | ) | 30,791 | (9,420 | ) | |||||||||||
Reorganization items, net |
| | (340 | ) | (340 | ) | ||||||||||||
Others |
(950 | ) | (1,002 | ) | | | ||||||||||||
(55,780 | ) | (36,265 | ) | 17,614 | (37,251 | ) | ||||||||||||
Income (loss) from continuing operations before income taxes |
(28,020 | ) | 2,078 | 30,965 | (35,324 | ) | ||||||||||||
Income tax expenses |
2,727 | 1,724 | 2,387 | 5,005 | ||||||||||||||
Income (loss) from continuing operations |
(30,747 | ) | 354 | 28,578 | (40,329 | ) | ||||||||||||
Loss from discontinued operations, net of taxes |
| | 966 | 1,751 | ||||||||||||||
Net income (loss) |
$ | (30,747 | ) | $ | 354 | $ | 27,612 | $ | (42,080 | ) | ||||||||
Dividends accrued on preferred units |
| | 2,948 | 6,317 | ||||||||||||||
Income (loss) from continuing operations attributable to common units |
$ | (30,747 | ) | $ | 354 | $ | 25,630 | $ | (46,646 | ) | ||||||||
Net income (loss) attributable to common units |
$ | (30,747 | ) | $ | 354 | $ | 24,664 | $ | (48,397 | ) | ||||||||
Earnings (loss) per common unit from continuing operations |
||||||||||||||||||
- Basic and diluted |
$ | (0.10 | ) | $ | 0.00 | $ | 0.48 | $ | (0.88 | ) | ||||||||
Loss per common unit from discontinued operations |
||||||||||||||||||
- Basic and diluted |
$ | | $ | | $ | 0.02 | $ | 0.03 | ||||||||||
Earnings (loss) per common unitBasic and diluted |
$ | (0.10 | ) | $ | 0.00 | $ | 0.46 | $ | (0.91 | ) | ||||||||
Weighted average number of unitsBasic |
302,558,556 | 302,501,374 | 52,923,483 | 52,923,483 | ||||||||||||||
Weighted average number of unitsDiluted |
302,558,556 | 312,480,377 | 52,923,483 | 52,923,483 |
The accompanying notes are an integral part of these consolidated financial statements
4
MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS EQUITY
(Unaudited; in thousands of US dollars, except unit data)
Common Units | Additional Paid-In Capital |
Retained Earnings (Accumulated deficit) |
Accumulated Other Comprehensive Income (loss) |
Total | |||||||||||||||||
Units | Amount | ||||||||||||||||||||
Three Months Ended June 30, 2010 |
|||||||||||||||||||||
Balance at April 1, 2010 |
307,233,996 | $ | 55,453 | $ | 169,265 | $ | 29,138 | $ | (22,411 | ) | $ | 231,445 | |||||||||
(Successor Company) |
|||||||||||||||||||||
Unit-based compensation |
| | 656 | | | 656 | |||||||||||||||
Distribution to unitholders |
| | (130,697 | ) | | | (130,697 | ) | |||||||||||||
Comprehensive income: |
|||||||||||||||||||||
Net loss |
| | | (30,747 | ) | | (30,747 | ) | |||||||||||||
Fair valuation of derivatives |
| | | | (2,090 | ) | (2,090 | ) | |||||||||||||
Foreign currency translation adjustments |
| | | | 33,329 | 33,329 | |||||||||||||||
Unrealized gains on investments |
| | | | 24 | 24 | |||||||||||||||
Total comprehensive income |
516 | ||||||||||||||||||||
Balance at June 30, 2010 |
307,233,996 | $ | 55,453 | $ | 39,224 | $ | (1,609 | ) | $ | 8,852 | $ | 101,920 | |||||||||
Six Months Ended June 30, 2010 |
|||||||||||||||||||||
Balance at January 1, 2010 |
307,083,996 | $ | 55,135 | $ | 168,700 | $ | (1,963 | ) | $ | (6,182 | ) | $ | 215,690 | ||||||||
(Successor Company) |
|||||||||||||||||||||
Unit-based compensation |
150,000 | 318 | 1,221 | | | 1,539 | |||||||||||||||
Distribution to unitholders |
| | (130,697 | ) | | | (130,697 | ) | |||||||||||||
Comprehensive income: |
|||||||||||||||||||||
Net income |
| | | 354 | | 354 | |||||||||||||||
Fair valuation of derivatives |
| | | | (3,524 | ) | (3,524 | ) | |||||||||||||
Foreign currency translation adjustments |
| | | | 18,422 | 18,422 | |||||||||||||||
Unrealized gains on investments |
| | | | 136 | 136 | |||||||||||||||
Total comprehensive income |
15,388 | ||||||||||||||||||||
Balance at June 30, 2010 |
307,233,996 | $ | 55,453 | $ | 39,224 | $ | (1,609 | ) | $ | 8,852 | $ | 101,920 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements
5
MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS EQUITY
(Unaudited; in thousands of US dollars, except unit data)
Common Units | Additional Paid-In Capital |
Retained Earnings (Accumulated deficit) |
Accumulated Other Comprehensive Income (loss) |
Total | ||||||||||||||||
Units | Amount | |||||||||||||||||||
Three Months Ended June 28, 2009 |
||||||||||||||||||||
Balance at March 30, 2009 |
52,923,483 | $ | 52,923 | $ | 3,261 | $ | (1,068,068 | ) | $ | 176,814 | $ | (835,070 | ) | |||||||
(Predecessor Company) |
||||||||||||||||||||
Unit-based compensation |
| | 56 | | | 56 | ||||||||||||||
Dividends accrued on preferred units |
| | | (2,948 | ) | | (2,948 | ) | ||||||||||||
Comprehensive income: |
||||||||||||||||||||
Net income |
| | | 27,612 | | 27,612 | ||||||||||||||
Foreign currency translation adjustments |
| | | | (21,778 | ) | (21,778 | ) | ||||||||||||
Unrealized gains on investments |
| | | | 464 | 464 | ||||||||||||||
Total comprehensive income |
6,298 | |||||||||||||||||||
Balance at June 28, 2009 |
52,923,483 | $ | 52,923 | $ | 3,317 | $ | (1,043,404 | ) | $ | 155,500 | $ | (831,664 | ) | |||||||
Six Months Ended June 28, 2009 |
||||||||||||||||||||
Balance at January 1, 2009 |
52,923,483 | 52,923 | 3,150 | (995,007 | ) | 151,135 | (787,799 | ) | ||||||||||||
(Predecessor Company) |
||||||||||||||||||||
Unit-based compensation |
| | 167 | | | 167 | ||||||||||||||
Dividends accrued on preferred units |
| | | (6,317 | ) | | (6,317 | ) | ||||||||||||
Comprehensive loss: |
||||||||||||||||||||
Net loss |
| | | (42,080 | ) | | (42,080 | ) | ||||||||||||
Foreign currency translation adjustments |
| | | | 3,901 | 3,901 | ||||||||||||||
Unrealized gains on investments |
464 | 464 | ||||||||||||||||||
Total comprehensive loss |
(37,715 | ) | ||||||||||||||||||
Balance at June 28, 2009 |
52,923,483 | $ | 52,923 | $ | 3,317 | $ | (1,043,404 | ) | $ | 155,500 | $ | (831,664 | ) | |||||||
The accompanying notes are an integral part of these consolidated financial statements
6
MAGNACHIP SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands of US dollars)
Six Months Ended | ||||||||||
Successor | Predecessor | |||||||||
June 30, 2010 |
June 28, 2009 |
|||||||||
Cash flows from operating activities |
||||||||||
Net income (loss) |
$ | 354 | $ | (42,080 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||||
Depreciation and amortization |
29,985 | 22,167 | ||||||||
Provision for severance benefits |
9,380 | 3,738 | ||||||||
Amortization of debt issuance costs and original issue discount |
449 | 499 | ||||||||
Loss on foreign currency translation, net |
29,975 | 9,758 | ||||||||
Loss (gain) on disposal of property, plant and equipment, net |
(9 | ) | 82 | |||||||
Loss on disposal of intangible assets, net |
7 | 74 | ||||||||
Restructuring and impairment charges |
603 | | ||||||||
Unit-based compensation |
2,752 | 167 | ||||||||
Cash used for reorganization items |
1,475 | | ||||||||
Noncash reorganization items |
| 340 | ||||||||
Other |
740 | 1,077 | ||||||||
Changes in operating assets and liabilities |
||||||||||
Accounts receivable |
(45,243 | ) | (13,972 | ) | ||||||
Inventories |
1,342 | 7,899 | ||||||||
Other receivables |
119 | 343 | ||||||||
Deferred tax assets |
618 | 1,623 | ||||||||
Accounts payable |
7,542 | 8,520 | ||||||||
Other accounts payable |
11,330 | (2,884 | ) | |||||||
Accrued expenses |
7,841 | 25,542 | ||||||||
Long term other payable |
(1,531 | ) | 405 | |||||||
Other current assets |
(92 | ) | 517 | |||||||
Other current liabilities |
(1,172 | ) | 5,081 | |||||||
Payment of severance benefits |
(2,760 | ) | (3,207 | ) | ||||||
Other |
(1,324 | ) | (184 | ) | ||||||
Net cash provided by operating activities before reorganization items |
52,381 | 25,505 | ||||||||
Cash used for reorganization items |
(1,475 | ) | | |||||||
Net cash provided by operating activities |
50,906 | 25,505 | ||||||||
Cash flows from investing activities |
||||||||||
Proceeds from disposal of plant, property and equipment |
13 | 282 | ||||||||
Proceeds from disposal of intangible assets |
| 1 | ||||||||
Purchase of plant, property and equipment |
(20,509 | ) | (2,082 | ) | ||||||
Payment for intellectual property registration |
(245 | ) | (155 | ) | ||||||
Increase in restricted cash |
| (17,524 | ) | |||||||
Decrease (increase) in short-term financial instruments |
329 | (324 | ) | |||||||
Decrease in guarantee deposits |
999 | 608 | ||||||||
Other |
(778 | ) | 3 | |||||||
Net cash used in investing activities |
(20,191 | ) | (19,191 | ) | ||||||
Cash flows from financing activities |
||||||||||
Proceeds from issuance of senior notes |
246,685 | | ||||||||
Debt issuance costs paid |
(8,313 | ) | | |||||||
Repayment of long-term borrowings |
(61,750 | ) | | |||||||
Distribution to unitholders |
(130,697 | ) | | |||||||
Net cash provided by financing activities |
45,925 | | ||||||||
Effect of exchange rates on cash and cash equivalents |
(255 | ) | (914 | ) | ||||||
Net increase in cash and cash equivalents |
76,385 | 5,400 | ||||||||
Cash and cash equivalents |
||||||||||
Beginning of the period |
64,925 | 4,037 | ||||||||
End of the period |
$ | 141,310 | $ | 9,437 | ||||||
Supplemental cash flow information |
||||||||||
Cash paid for interest |
$ | 3,333 | $ | 2,958 | ||||||
Cash paid (refunded) for income taxes |
$ | (270 | ) | $ | 4,896 | |||||
The accompanying notes are an integral part of these consolidated financial statements
7
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited; tabular dollars in thousands, except unit data)
1. General
The Company
MagnaChip Semiconductor LLC (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 six months ended June 30, 2010 are not necessarily indicative of the results to be expected for a full year or for any other periods.
The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2010-06 (ASU 2010-06), which amends the disclosure requirements of ASC 820, Fair Value Measurements and Disclosures, (ASC 820) as of January 1, 2010. ASU 2010-06 requires new disclosures for any transfers of fair value into and out of Level 1 and 2 fair value measurements and separate presentation of purchases, sales, issuances and settlements within the reconciliation of Level 3 unobservable inputs. The Company previously adopted ASC 820 on January 1, 2008 and January 1, 2009 for financial assets and liabilities and for nonfinancial assets and liabilities, respectively. ASU 2010-06 is effective for annual and interim periods beginning after December 15, 2009, except for the Level 3 reconciliation which is effective for annual and interim periods beginning after December 15, 2010. The adoption of ASU 2010-06 as of January 1, 2010 did not have a material effect on the Companys financial condition or results of operations. The Company does not expect the adoption of ASU 2010-06 in relation to the Level 3 reconciliation to have a material impact on the Companys financial condition or results of operations.
In June 2009, the FASB issued ASC 810, Consolidation, (ASC 810), which (1) replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, (2) requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity and (3) requires additional disclosures about an enterprises involvement in variable interest entities. The Company was required to adopt ASC 810 as of the beginning of 2010. The adoption of ASC 810 did not have a material impact on the Companys consolidated financial position, results of operations or cash flows.
8
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
3. Voluntary Reorganization under Chapter 11
On June 12, 2009, MagnaChip Semiconductor LLC (the Parent), MagnaChip Semiconductor B.V., MagnaChip Semiconductor S.A. and certain other subsidiaries of the Parent in the U.S. (the Debtors), filed a voluntary petition for relief in the U.S. Bankruptcy Court for the District of Delaware under Chapter 11 of the U.S. Bankruptcy Code. The court approved a plan of reorganization proposed by the Creditors Committee on September 25, 2009 (the Plan of Reorganization), and the Plan of Reorganization became effective and the Debtors emerged from Chapter 11 reorganization proceedings (the Reorganization Proceedings) on November 9, 2009 (the Reorganization Effective Date). On the Reorganization Effective Date, the Company implemented fresh-start reporting in accordance with Accounting Standards Codification (ASC) 852, Reorganizations, (ASC 852).
All conditions required for the adoption of fresh-start reporting were met upon emergence from the Reorganization Proceedings on the Reorganization Effective Date. The Company is permitted to select an accounting convenience date (the Fresh-Start Adoption Date) proximate to the emergence date for purposes of fresh-start reporting, provided that an analysis of the activity between the date of emergence and an accounting convenience date does not result in a material difference in the fresh-start reporting results. The Company evaluated transaction activity between October 25, 2009 and the Reorganization Effective Date and concluded an accounting convenience date of October 25, 2009 which was the Companys October accounting period end was appropriate.
As a result, the fair value of the Predecessor Companys assets became the new basis for the Successor Companys consolidated statement of financial position as of the Fresh-Start Adoption Date, and all operations beginning on or after October 26, 2009 are related to the Successor Company.
As a result of the application of fresh-start reporting in accordance with ASC 852, the financial statements prior to and including October 25, 2009 represent the operations of the Predecessor Company and are not comparable with the financial statements for periods on or after October 25, 2009. References to the Successor Company refer to the Company on or after October 25, 2009, after giving effect to the application of fresh-start reporting. References to the Predecessor Company refer to the Company prior to and including October 25, 2009.
4. Inventories
Inventories as of June 30, 2010 and December 31, 2009 consist of the following:
Successor | ||||||||
June 30, 2010 |
December 31, 2009 |
|||||||
Finished goods |
$ | 8,338 | $ | 19,474 | ||||
Semi-finished goods and work-in-process |
47,353 | 42,604 | ||||||
Raw materials |
8,999 | 5,844 | ||||||
Materials in-transit |
213 | 64 | ||||||
Less: inventory reserve |
(4,931 | ) | (4,579 | ) | ||||
Inventories, net |
$ | 59,972 | $ | 63,407 | ||||
9
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
5. Property, Plant and Equipment
Property, plant and equipment as of June 30, 2010 and December 31, 2009 comprise the following:
Successor | ||||||||
June 30, 2010 |
December 31, 2009 |
|||||||
Buildings and related structures |
$ | 69,533 | $ | 72,076 | ||||
Machinery and equipment |
87,196 | 71,505 | ||||||
Vehicles and others |
4,245 | 3,043 | ||||||
160,974 | 146,624 | |||||||
Less: accumulated depreciation |
(20,502 | ) | (5,388 | ) | ||||
Land |
14,568 | 15,101 | ||||||
Property, plant and equipment, net |
$ | 155,040 | $ | 156,337 | ||||
6. Intangible Assets
Intangible assets as of June 30, 2010 and December 31, 2009 are as follows:
Successor | ||||||||
June 30, 2010 |
December 31, 2009 |
|||||||
Technology |
$ | 17,499 | $ | 14,942 | ||||
Customer relationships |
25,516 | 26,448 | ||||||
Intellectual property assets |
4,867 | 4,779 | ||||||
In-process research and development |
5,836 | 9,829 | ||||||
Less: accumulated amortization |
(18,881 | ) | (5,840 | ) | ||||
Intangible assets, net |
$ | 34,837 | $ | 50,158 | ||||
10
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
7. Derivative Financial Instruments
Effective January 11, 2010, the Companys Korean subsidiary entered into option and forward 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. Total notional amounts for the options and forward contracts were $50 million and $135 million, respectively, and monthly settlements for the contracts were and will be made from February to December 2010.
Effective May 25, 2010, the Companys Korean subsidiary entered into another option and forward 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. Total notional amounts for the options and forward contracts were $30 million and $78 million, respectively, and monthly settlements for the contracts will be made from January to June 2011.
The option and forward 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.
The fair values of the Companys outstanding option and forward contracts recorded as assets and liabilities are as follows:
Derivatives designated as hedging instruments under ASC 815: |
June 30, 2010 | ||||
Asset Derivatives: |
|||||
Options |
Other current assets | $ | 205 | ||
Forwards |
Other current assets | $ | 1,696 | ||
Liability Derivatives: |
|||||
Forwards |
Other current liabilities | $ | 5,021 |
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.
11
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the three months ended June 30, 2010:
Derivatives in ASC 815 Cash Flow Hedging Relationships |
Amount of Loss Recognized in AOCI on Derivatives (Effective Portion) |
Location
of Loss Reclassified from AOCI into Statements of Operations (Effective Portion) |
Amount of Loss Reclassified from AOCI into Statements of Operations (Effective Portion) |
Location of Loss Recognized in Statements of Operations on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Amount of Loss Recognized in Statements of Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||
Options |
$ | (622 | ) | Net sales | $ | (167 | ) | Other income (expenses) Others | $ | (28 | ) | |||||
Forwards |
(1,468 | ) | Net sales | (1,092 | ) | Other income (expenses) Others | (922 | ) | ||||||||
Total |
$ | (2,090 | ) | $ | (1,259 | ) | $ | (950 | ) | |||||||
The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the six months June 30, 2010:
Derivatives in ASC 815 Cash Flow Hedging Relationships |
Amount of Loss Recognized in AOCI on Derivatives (Effective Portion) |
Location
of Gain (Loss) Reclassified from AOCI into Statements of Operations (Effective Portion) |
Amount of Loss Reclassified from AOCI into Statements of Operations (Effective Portion) |
Location of Loss Recognized in Statements of Operations on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
Amount of Loss Recognized in Statements of Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||||
Options |
$ | (1,138 | ) | Net sales | $ | (183 | ) | Other income (expenses) Others | $ | (62 | ) | |||||
Forwards |
(2,386 | ) | Net sales | (1,695 | ) | Other income (expenses) Others | (945 | ) | ||||||||
Total |
$ | (3,524 | ) | $ | (1,878 | ) | $ | (1,007 | ) | |||||||
The Companys option and forward 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, the counterparty to the option and forward contracts, for any exposure in excess of $5 million.
12
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
8. Fair Value Measurements
ASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820 requires, among other things, the Companys valuation techniques used to measure fair value to maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation techniques required by ASC 820 are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the Company. These two types of inputs create the following fair value hierarchy:
Level 1 | Unadjusted quoted prices for identical instruments in active markets. | |
Level 2 | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations for which inputs are observable or for which significant value drivers are observable. | |
Level 3 | Significant inputs to the valuation model are unobservable. |
The following table represents the Companys assets and liabilities measured at fair value on a recurring basis as of June 30, 2010 and the basis for that measurement:
Carrying Value June 30, 2010 |
Fair Value Measurement June 30, 2010 |
Quoted Prices in Active Markets for Identical Asset (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) | |||||||||||
Assets: |
|||||||||||||||
Current derivative assets |
$ | 1,901 | $ | 1,901 | $ | | $ | 1,901 | $ | | |||||
Available-for-sale securities |
691 | 691 | 691 | | | ||||||||||
Liabilities: |
|||||||||||||||
Current derivative liabilities |
5,021 | 5,021 | | 5,021 | |
13
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
9. Long-Term Borrowings
Long-term borrowings as of June 30, 2010 and December 31, 2009 are as follows:
Successor | ||||||||
June 30, 2010 |
December 31, 2009 |
|||||||
New term loan |
$ | | $ | 61,750 | ||||
10.5% senior notes due April 2018 |
250,000 | | ||||||
Current portion of long-term borrowings |
| (618 | ) | |||||
250,000 | 61,132 | |||||||
Discount on 10.5% senior notes due April 2018 |
(3,254 | ) | | |||||
Long-term borrowings, net of unamortized discount |
$ | 246,746 | $ | 61,132 | ||||
New Term Loan
In connection with the Predecessor Companys reorganization in 2009, in complete satisfaction of the first lien lender claims arising from the senior secured credit facility (included in short-term borrowings) of $95 million, the Company made a cash payment of $33,250 thousand to the senior secured credit facility lenders and, together with its subsidiaries, including MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company, as borrowers, entered into a $61,750 thousand Amended and Restated Credit Agreement (the Credit Agreement or the new term loan) with Avenue Investments, LP, Goldman Sachs Lending Partners LLC and Citicorp North America, Inc.
Long-term borrowings as of December 31, 2009 consisted of Eurodollar loans at an annual interest rate of 6 month LIBOR + 12% to Avenue Investments, LP, Goldman Sachs Lending Partners LLC and Citicorp North America, Inc. in the principal amount of $42,055 thousand, $12,285 thousand and $7,410 thousand, respectively.
On April 9, 2010, the new term loan of $61,596 thousand was fully repaid by the Company with the proceeds from issuance of new 10.5% senior notes. In connection with the repayment of the new term loan, $210 thousand of relevant debt issuance costs were written off.
As of the early repayment date, the Company and all of its subsidiaries except for MagnaChip Semiconductor (Shanghai) Company Limited jointly and severally guaranteed, as a primary obligor, the payment and performance of the borrowers obligations under the Credit Agreement.
14
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
10.5% Senior Notes
On April 9, 2010, two of the Companys wholly-owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company, issued $250 million aggregate principal amount of 10.5% senior notes due April 15, 2018 at a price of 98.674%. Interest on the notes will accrue at a rate of 10.5% per annum, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2010. $250 million of principle amount will be paid in full at April 15, 2018. The obligations under the senior notes are fully and unconditionally guaranteed on an unsecured senior basis by the Company and all of its subsidiaries except for MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor (Shanghai) Company Limited.
Of the $238,372 thousand of net proceeds, which represents $250 million of principal amount net of $3,315 thousand of original issue discount and $8,313 thousand of debt issuance costs, $130,697 thousand was used to make a distribution to the Companys stockholders and $61,596 thousand was used to repay all outstanding borrowings under the new term loan. The remaining proceeds of $46,079 thousand were retained to fund working capital and for general corporate purposes.
The Company can optionally redeem all or a part of the notes according to the following schedule: (i) at any time prior to April 15, 2013, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of notes issued under the indenture at a redemption price equal to 110.5% of the principal amount of the notes redeemed, plus accrued and unpaid interest and special interest, if any, to the date of redemption; (ii) at any time prior to April 15, 2014, the Company may on any one or more occasions redeem all or a part of the notes at a redemption price equal to 100% of the principal amount of the notes redeemed, plus the applicable premium as of, and accrued and unpaid interest and special interest, if any, to the date of redemption; and (iii) on or after April 15, 2014, the Company may on any one or more occasions redeem all or a part of the notes, at a redemption price equal to 105.25%, 102.625% and 100% of the principal amount of the notes redeemed in 2014, 2015 and 2016 and thereafter, respectively, plus accrued and unpaid interest and special interest, if any, on the notes redeemed, to the applicable date of redemption.
The indenture relating to the Companys $250 million senior notes contains covenants that limit ability of the Parent, co-issuers and the restricted subsidiaries to: (i) declare or pay any dividend or make any payment or distribution on account of or purchase or redeem the Companys capital stock or equity interests of the restricted subsidiaries; (ii) make any principal payment on, or redeem or repurchase, prior to any scheduled repayment, sinking fund payment or maturity, any subordinated indebtedness; (iii) make certain investments, including capital expenditures; (iv) incur additional indebtedness and issue certain types of capital stock; (v) create or incur any lien (except for permitted liens) that secures obligations under any indebtedness or related guarantee; (vi) merge with or into or sell all or substantially all of the Companys assets to other companies; (vii) enter into certain types of transactions with affiliates; (viii) guarantee the payment of any indebtedness; (ix) enter into sale-leaseback transactions; (x) enter into agreements that would restrict the ability of the restricted subsidiaries to make distributions with respect to their equity, to make loans to the Parent, co-issuers or other restricted subsidiaries or to transfer assets to the Parent, co-issuers or other restricted subsidiaries; and (xi) designate unrestricted subsidiaries.
These covenants will be subject to a number of exceptions and qualifications. Certain of these restrictive covenants will terminate if the notes are rated investment grade at any time.
As of June 30, 2010, the Company is compliant with all of its covenant requirements.
Of the $250 million aggregate principal amount, funds affiliated with Avenue Capital Management II, L.P. purchased $35 million principal amount.
In connection with the issuance of the senior notes, the Company capitalized certain costs and fees, which are being amortized using the effective interest method over its respective term, 2010 to 2018. Amortization costs, which were included in interest expense in the accompanying statements of operations, amounted to $153 thousand for the three and six months ended June 30, 2010. The remaining capitalized costs as of June 30, 2010 were $8,160 thousand.
15
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
10. 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 June 30, 2010, 98.5% of all employees of the Company were eligible for severance benefits.
Changes in accrued severance benefits for each period are as follows:
Successor | Predecessor | |||||||||||||||||||
Three Months Ended |
Six Months Ended |
Three Months Ended |
Six Months Ended |
|||||||||||||||||
June 30, 2010 | June 28, 2009 | |||||||||||||||||||
Beginning balance |
$ | 78,106 | $ | 73,646 | $ | 58,546 | $ | 63,147 | ||||||||||||
Provisions |
6,214 | 9,380 | 2,749 | 3,738 | ||||||||||||||||
Severance payments |
(1,668 | ) | (2,760 | ) | (1,521 | ) | (3,207 | ) | ||||||||||||
Translation adjustments |
(5,114 | ) | (2,728 | ) | 2,838 | (1,066 | ) | |||||||||||||
77,538 | 77,538 | 62,612 | 62,612 | |||||||||||||||||
Less: |
Cumulative contributions to the National Pension Fund |
(476 | ) | (476 | ) | (496 | ) | (496 | ) | |||||||||||
Group Severance insurance plan |
(668 | ) | (668 | ) | (634 | ) | (634 | ) | ||||||||||||
Accrued severance benefits, net |
$ | 76,394 | $ | 76,394 | $ | 61,482 | $ | 61,482 | ||||||||||||
The severance benefits are funded approximately 1.48% and 1.80% as of June 30, 2010 and June 28, 2009, 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 2010 |
$ | 32 | |
2011 |
| ||
2012 |
132 | ||
2013 |
| ||
2014 |
275 | ||
2015 |
304 | ||
2016 2020 |
10,225 |
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.
16
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
11. Redeemable Convertible Preferred Units
Predecessor Company
Changes in Series B units for each period are as follows:
Three Months Ended | Six Months Ended | |||||||||
June 28, 2009 |
June 28, 2009 | |||||||||
Units | Amount | Units | Amount | |||||||
Beginning of period |
93,997 | $ | 146,038 | 93,997 | $ | 142,669 | ||||
Accrual of preferred dividends |
| 2,948 | | 6,317 | ||||||
End of period |
93,997 | $ | 148,986 | 93,997 | $ | 148,986 | ||||
The Series B units were retired without consideration as part of the Companys reorganization in 2009.
12. Discontinued Operations
On October 6, 2008, the Company announced the closure of its Imaging Solutions business segment. As of December 31, 2008, Imaging Solutions business segment qualified as a discontinued operation component of the Company under ASC 360, Property, Plant and Equipment, (ASC 360). As a result, the results of operations of the Imaging Solutions business segment were classified as discontinued operations.
The results of operations of the Companys discontinued Imaging Solutions business consist of the following:
Predecessor | ||||||
Three Months Ended |
Six Months Ended | |||||
June 28, 2009 | ||||||
Net sales |
$ | 1,341 | $ | 2,254 | ||
Cost of sales |
2,071 | 3,377 | ||||
Selling, general and administrative expenses |
236 | 628 | ||||
Loss from discontinued operations, net of taxes |
$ | 966 | $ | 1,751 | ||
17
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
13. Restructuring and Impairment Charges
Successor Company
2010 Restructuring and Impairment Charges
The Company recognized $267 and $603 thousand of impairment charge for the three and six months ended June 30, 2010, respectively, for the two and four abandoned IPR&D projects which were recorded as a result of its adoption of fresh-start reporting as of October 25, 2009.
Predecessor Company
2009 Restructuring and Impairment Charges
On March 31, 2009, the Company announced the closure of the Tokyo office of its subsidiary, MagnaChip Semiconductor Inc. (Japan). In connection with this closure, the Company recognized $385 thousand and $439 thousand of restructuring charges, which consisted of one-time termination benefits and other related costs under ASC 420, Exit or Disposal Cost Obligations, (ASC 420), for the three and six months ended June 28, 2009. There was no remaining accrual as of June 28, 2009.
14. Uncertainty in Income Taxes
The Companys subsidiaries file income tax returns in Korea, Japan, Taiwan, the U.S. and in various other jurisdictions. The Company is subject to income tax examinations by tax authorities of these jurisdictions for the applicable statute of limitations since the beginning of its operation as an independent company in October 2004.
As of June 30, 2010 and December 31, 2009, the Company recorded $867 thousand and $1,997 thousand of liabilities for unrecognized tax benefits, respectively. For the six months ended June 30, 2010, the Company reversed $1,640 thousand of liabilities due to the lapse of the applicable statute of limitations.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expenses. The Company recognized $88 thousand and $64 thousand of interest and penalties as income tax expenses for the three and six months ended June 30, 2010, respectively. And it also recognized $55 thousand and $147 thousand of interest and penalties as income tax expenses for the three and six months ended June 28, 2009, respectively. Total interest and penalties accrued as of June 30, 2010 and December 31, 2009 were $194 thousand and $946 thousand, respectively.
18
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
15. Geographic and Segment Information
The following sets forth information relating to the reportable segments:
Three Months Ended | |||||||||
Successor | Predecessor | ||||||||
June 30, 2010 |
June 28, 2009 |
||||||||
Net Sales |
|||||||||
Display Solutions |
$ | 80,584 | $ | 74,187 | |||||
Semiconductor Manufacturing Services |
101,564 | 62,963 | |||||||
Power Solutions |
12,040 | 1,685 | |||||||
All other |
512 | 858 | |||||||
Total segment net sales |
$ | 194,700 | $ | 139,693 | |||||
Gross Profit |
|||||||||
Display Solutions |
$ | 22,122 | $ | 22,435 | |||||
Semiconductor Manufacturing Services |
39,452 | 25,816 | |||||||
Power Solutions |
2,448 | (778 | ) | ||||||
All other |
512 | 858 | |||||||
Total segment gross profit |
$ | 64,534 | $ | 48,331 | |||||
Six Months Ended | |||||||||
Successor | Predecessor | ||||||||
June 30, 2010 |
June 28, 2009 |
||||||||
Net Sales |
|||||||||
Display Solutions |
$ | 157,314 | $ | 133,807 | |||||
Semiconductor Manufacturing Services |
194,765 | 103,100 | |||||||
Power Solutions |
21,074 | 2,618 | |||||||
All other |
1,032 | 1,627 | |||||||
Total segment net sales |
$ | 374,185 | $ | 241,152 | |||||
Gross Profit |
|||||||||
Display Solutions |
$ | 36,553 | $ | 36,109 | |||||
Semiconductor Manufacturing Services |
72,296 | 31,993 | |||||||
Power Solutions |
4,011 | (499 | ) | ||||||
All other |
1,032 | 1,627 | |||||||
Total segment gross profit |
$ | 113,892 | $ | 69,230 | |||||
19
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
The following is a summary of net sales by region, based on the location of the customer:
Three Months Ended | ||||||||
Successor | Predecessor | |||||||
June 30, 2010 |
June 28, 2009 | |||||||
Korea |
$ | 101,310 | $ | 74,909 | ||||
Asia Pacific |
52,687 | 43,529 | ||||||
Japan |
12,796 | 9,254 | ||||||
North America |
23,686 | 11,126 | ||||||
Europe |
4,003 | 875 | ||||||
Africa |
218 | | ||||||
Total |
$ | 194,700 | $ | 139,693 | ||||
Six Months Ended | ||||||||
Successor | Predecessor | |||||||
June 30, 2010 |
June 28, 2009 | |||||||
Korea |
$ | 198,970 | $ | 134,607 | ||||
Asia Pacific |
101,161 | 65,288 | ||||||
Japan |
22,991 | 16,769 | ||||||
North America |
44,066 | 19,708 | ||||||
Europe |
6,779 | 4,780 | ||||||
Africa |
218 | | ||||||
Total |
$ | 374,185 | $ | 241,152 | ||||
Net sales from the Companys top ten largest customers accounted for 64.3% and 68.4% for the three months ended June 30, 2010 and June 28, 2009, respectively, and 64.2% and 70.1% for the six months ended June 30, 2010 and June 28, 2009, respectively.
The Company recorded $35,315 thousand and $40,178 thousand of sales to one customer within its Display Solutions segment, which represents greater than 10% of net sales, for the three months ended June 30, 2010 and June 28, 2009, respectively, and $70,893 thousand and $73,962 thousand for the six months ended June 30, 2010 and June 28, 2009, respectively.
Over 99% of the Companys property, plant and equipment are located in Korea as of June 30, 2010.
20
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
16. Commitments and Contingencies
Samsung Fiber Optics has made a claim against the Company for the infringement of the certain patent rights of Caltech in relation to imaging sensor products provided by the Company to Samsung Fiber Optics. The Company believes it is probable that the pending claim will have an unfavorable outcome and further believes the associated loss can be reasonably estimated according to ASC 450 Contingencies (ASC 450). The Company recorded $718 thousand of estimated liabilities as of June 30, 2010 and December 31, 2009 in accrued expenses in the accompanying balance sheets, as the Company believes its accrual is its best estimate if the final outcome is unfavorable. Estimation was based on the most recent communication with Samsung Fiber Optics. Accordingly, the Company cannot provide assurance that the estimated liabilities will be realized, and actual results could vary materially.
17. Earnings (loss) per Unit
The following table illustrates the computation of basic and diluted earnings (loss) per common unit:
Three Months Ended | ||||||||||
Successor | Predecessor | |||||||||
June 30, 2010 |
June 28, 2009 |
|||||||||
Income (loss) from continuing operations |
$ | (30,747 | ) | $ | 28,578 | |||||
Loss from discontinued operations, net of taxes |
| (966 | ) | |||||||
Net income (loss) |
(30,747 | ) | 27,612 | |||||||
Dividends accrued on preferred unitholders |
| (2,948 | ) | |||||||
Income (loss) from continuing operations attributable to common units |
$ | (30,747 | ) | $ | 25,630 | |||||
Net income (loss) attributable to common units |
$ | (30,747 | ) | $ | 24,664 | |||||
Weighted average common units outstanding-basic and diluted |
302,558,556 | 52,923,483 | ||||||||
Basic and diluted earnings (loss) per unit from continuing operations |
$ | (0.10 | ) | $ | 0.48 | |||||
Basic and diluted loss per unit from discontinued operations |
$ | | $ | (0.02 | ) | |||||
Basic and diluted net earnings (loss) per unit |
$ | (0.10 | ) | $ | 0.46 | |||||
21
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Six Months Ended | |||||||||
Successor | Predecessor | ||||||||
June 30, 2010 |
June 28, 2009 |
||||||||
Income (loss) from continuing operations |
$ | 354 | $ | (40,329 | ) | ||||
Loss from discontinued operations, net of taxes |
| (1,751 | ) | ||||||
Net income (loss) |
354 | (42,080 | ) | ||||||
Dividends accrued on preferred unitholders |
| (6,317 | ) | ||||||
Income (loss) from continuing operations attributable to common units |
$ | 354 | $ | (46,646 | ) | ||||
Net income (loss) attributable to common units |
$ | 354 | $ | (48,397 | ) | ||||
Weighted average common units outstanding-basic |
302,501,374 | 52,923,483 | |||||||
Weighted average common units outstanding-diluted |
312,480,377 | 52,923,483 | |||||||
Basic and diluted earnings (loss) per unit from continuing operations |
$ | 0.00 | $ | (0.88 | ) | ||||
Basic and diluted earnings (loss) per unit from discontinued operations |
$ | | $ | (0.03 | ) | ||||
Basic and diluted net earnings (loss) per unit |
$ | 0.00 | $ | (0.91 | ) | ||||
The following outstanding unit options and warrants were excluded from the computation of diluted earnings (loss) per unit of Successor Company, as they would have an anti-dilutive effect on the calculation. The following outstanding redeemable convertible preferred units and unit options were excluded from the computation of diluted earnings (loss) per unit of Predecessor Company as they were out of money position considering the Reorganization Proceedings of Predecessor Company:
Six Months Ended | ||||||
Successor | Predecessor | |||||
June 30, 2010 |
June 28, 2009 | |||||
Redeemable convertible preferred units |
| 93,997 | ||||
Options |
914,000 | 3,882,506 | ||||
Warrants |
15,000,000 | |
22
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
18. Subsequent Events
The Company has evaluated subsequent events requiring recognition or disclosure in the consolidated financial statements during the period from July 1, 2010 through September 3, 2010, the date the unaudited interim consolidated financial statements were available to be issued.
A. Form S-4 Filing in Connection With the 10.5% Senior Notes
On August 4, 2010, the Company filed a registration statement on Form S-4 that set forth the terms and conditions under which the Company offered to exchange up to $250 million aggregate principal amount of 10.5% Senior Notes due 2018, which will be registered under the Securities Act (the new notes), for an equal principal amount of the Companys outstanding unregistered 10.5% Senior Notes due 2018, which the Company issued on April 9, 2010 (the old notes). The terms of the new notes are substantially identical to the terms of the old notes (including principal amount, interest rate, maturity and redemption rights), except that the new notes will be registered under the Securities Act and will bear a separate CUSIP number, and the transfer restrictions, registration rights and related special interest terms applicable to the old notes will not apply to the new notes. The new notes will evidence the same indebtedness as the old notes which they will replace, and both the old notes and the new notes are governed by the same indenture.
B. Cash Flow Hedge Transactions
Effective August 12, 2010, the Companys Korean subsidiary entered into zero cost collar contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on U.S. dollar denominated revenues. Total notional amounts for the zero cost collar contracts were $108 million and monthly settlements for the contracts will be made from July to December 2011. Under the Companys hedge strategy utilizing these zero cost collar contracts, appreciation of the Korean won against the U.S. dollar beyond 1,100:1 and depreciation of Korean won against U.S. dollar below 1,348:1 were designated as the risk being hedged.
C. Capital Lease Agreement
On August 31, 2010, the Companys Korean subsidiary (the lessee) entered into a capital lease agreement with MMT First Company Limited for the use of semiconductor equipment. The lease term is two years, and the total amount of lease payments to be paid on a quarterly basis over the lease term is $11,437 thousand. The lease was categorized as a capital lease because the lease provides that the ownership of the equipment transfers to the lessee upon expiration of the lease term.
23
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
19. Condensed Consolidating Financial Information
The $250 million senior notes 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 June 30, 2010 and December 31, 2009, condensed consolidating statements of operations for the three months and six months ended June 30, 2010 and June 28, 2009 and condensed consolidating statement of cash flows for the six months ended June 30, 2010 and June 28, 2009 of those entities that guarantee the senior notes, those that do not, MagnaChip Semiconductor LLC, and the co-issuers.
For the purpose of the guarantor financial information, the investments in subsidiaries are accounted for under the equity method.
24
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Condensed Consolidating Balance Sheet
June 30, 2010
(Successor Company)
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 73 | $ | 46,596 | $ | 82,448 | $ | 12,193 | $ | | $ | 141,310 | ||||||||||||
Accounts receivable, net |
| | 155,751 | 55,483 | (93,523 | ) | 117,711 | |||||||||||||||||
Inventories, net |
| | 59,956 | 174 | (158 | ) | 59,972 | |||||||||||||||||
Other receivables |
710 | 718 | 19,786 | 2,774 | (20,286 | ) | 3,702 | |||||||||||||||||
Prepaid expenses |
37 | 5 | 12,658 | 105 | (2,897 | ) | 9,908 | |||||||||||||||||
Short-term intercompany loan |
| 95,000 | | 95,000 | (190,000 | ) | | |||||||||||||||||
Other current assets |
5,509 | 102,276 | 3,479 | 97,524 | (197,691 | ) | 11,097 | |||||||||||||||||
Total current assets |
6,329 | 244,595 | 334,078 | 263,253 | (504,555 | ) | 343,700 | |||||||||||||||||
Property, plant and equipment, net |
| | 154,683 | 357 | | 155,040 | ||||||||||||||||||
Intangible assets, net |
| | 34,223 | 614 | | 34,837 | ||||||||||||||||||
Long-term prepaid expenses |
| | 21,480 | | (10,597 | ) | 10,883 | |||||||||||||||||
Investment in subsidiaries |
(594,889 | ) | (667,901 | ) | | (520,778 | ) | 1,783,568 | | |||||||||||||||
Long-term intercompany loan |
697,125 | 778,693 | | 621,000 | (2,096,818 | ) | | |||||||||||||||||
Other non-current assets |
| 8,160 | 5,987 | 7,344 | | 21,491 | ||||||||||||||||||
Total Assets |
$ | 108,565 | $ | 363,547 | $ | 550,451 | $ | 371,790 | $ | (828,402 | ) | $ | 565,951 | |||||||||||
Liabilities and Unitholders Equity |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 123,934 | $ | 38,913 | $ | (93,468 | ) | $ | 69,379 | |||||||||||
Other accounts payable |
6,545 | 7,730 | 23,145 | 5,412 | (20,286 | ) | 22,546 | |||||||||||||||||
Accrued expenses |
100 | 5,985 | 119,304 | 104,263 | (197,746 | ) | 31,906 | |||||||||||||||||
Short-term intercompany borrowings |
| | 95,000 | 95,000 | (190,000 | ) | | |||||||||||||||||
Other current liabilities |
| | 6,913 | 3,810 | (2,897 | ) | 7,826 | |||||||||||||||||
Total current liabilities |
6,645 | 13,715 | 368,296 | 247,398 | (504,397 | ) | 131,657 | |||||||||||||||||
Long-term borrowings |
| 943,871 | 621,000 | 778,693 | (2,096,818 | ) | 246,746 | |||||||||||||||||
Accrued severance benefits, net |
| | 75,173 | 1,221 | | 76,394 | ||||||||||||||||||
Other non-current liabilities |
| | 6,707 | 13,124 | (10,597 | ) | 9,234 | |||||||||||||||||
Total liabilities |
6,645 | 957,586 | 1,071,176 | 1,040,436 | (2,611,812 | ) | 464,031 | |||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||
Unitholders equity |
||||||||||||||||||||||||
Common units |
55,453 | 136,229 | 39,005 | 51,976 | (227,210 | ) | 55,453 | |||||||||||||||||
Additional paid-in capital |
39,224 | (735,016 | ) | (538,379 | ) | (733,394 | ) | 2,006,789 | 39,224 | |||||||||||||||
Retained earnings (accumulated deficit) |
(1,609 | ) | (4,104 | ) | (29,773 | ) | 3,938 | 29,939 | (1,609 | ) | ||||||||||||||
Accumulated other comprehensive income |
8,852 | 8,852 | 8,422 | 8,834 | (26,108 | ) | 8,852 | |||||||||||||||||
Total unitholders equity |
101,920 | (594,039 | ) | (520,725 | ) | (668,646 | ) | 1,783,410 | 101,920 | |||||||||||||||
Total liabilities and unitholders equity |
$ | 108,565 | $ | 363,547 | $ | 550,451 | $ | 371,790 | $ | (828,402 | ) | $ | 565,951 | |||||||||||
25
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Condensed Consolidating Balance Sheet
December 31, 2009
(Successor Company)
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 136 | $ | 24 | $ | 45,443 | $ | 19,322 | $ | | $ | 64,925 | ||||||||||||
Accounts receivable, net |
| | 122,500 | 66,872 | (115,139 | ) | 74,233 | |||||||||||||||||
Inventories, net |
| | 59,914 | 4,098 | (605 | ) | 63,407 | |||||||||||||||||
Other receivables |
710 | 718 | 7,061 | 3,617 | (8,673 | ) | 3,433 | |||||||||||||||||
Prepaid expenses |
165 | 85 | 14,122 | 1,150 | (2,897 | ) | 12,625 | |||||||||||||||||
Short-term intercompany loan |
| 95,000 | | 95,000 | (190,000 | ) | | |||||||||||||||||
Other current assets |
16 | 72,614 | 776 | 72,868 | (142,841 | ) | 3,433 | |||||||||||||||||
Total current assets |
1,027 | 168,441 | 249,816 | 262,927 | (460,155 | ) | 222,056 | |||||||||||||||||
Property, plant and equipment, net |
| | 155,951 | 386 | | 156,337 | ||||||||||||||||||
Intangible assets, net |
| | 49,459 | 699 | | 50,158 | ||||||||||||||||||
Long-term prepaid expenses |
| | 22,576 | | (12,034 | ) | 10,542 | |||||||||||||||||
Investment in subsidiaries |
(608,843 | ) | (690,259 | ) | | (517,520 | ) | 1,816,622 | | |||||||||||||||
Long-term intercompany loan |
824,091 | 806,355 | | 621,000 | (2,251,446 | ) | | |||||||||||||||||
Other non-current assets |
| 234 | 5,753 | 8,251 | | 14,238 | ||||||||||||||||||
Total Assets |
$ | 216,275 | $ | 284,771 | $ | 483,555 | $ | 375,743 | $ | (907,013 | ) | $ | 453,331 | |||||||||||
Liabilities and Unitholders Equity |
||||||||||||||||||||||||
Current liabilities |
||||||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 106,792 | $ | 67,975 | $ | (115,062 | ) | $ | 59,705 | |||||||||||
Other accounts payable |
485 | 5,551 | 6,337 | 3,490 | (8,673 | ) | 7,190 | |||||||||||||||||
Accrued expenses |
100 | 1,134 | 89,045 | 74,753 | (142,918 | ) | 22,114 | |||||||||||||||||
Short-term intercompany borrowings |
| | 95,000 | 95,000 | (190,000 | ) | | |||||||||||||||||
Current portion of long-term debt |
| 618 | | | | 618 | ||||||||||||||||||
Other current liabilities |
| | 2,935 | 3,899 | (2,897 | ) | 3,937 | |||||||||||||||||
Total current liabilities |
585 | 7,303 | 300,109 | 245,117 | (459,550 | ) | 93,564 | |||||||||||||||||
Long-term borrowings |
| 885,224 | 621,000 | 806,354 | (2,251,446 | ) | 61,132 | |||||||||||||||||
Accrued severance benefits, net |
| | 71,362 | 1,047 | | 72,409 | ||||||||||||||||||
Other non-current liabilities |
| | 8,550 | 14,020 | (12,034 | ) | 10,536 | |||||||||||||||||
Total liabilities |
585 | 892,527 | 1,001,021 | 1,066,538 | (2,723,030 | ) | 237,641 | |||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||
Unitholders equity |
||||||||||||||||||||||||
Common units |
55,135 | 136,229 | 39,005 | 51,976 | (227,210 | ) | 55,135 | |||||||||||||||||
Additional paid-in capital |
168,700 | (735,940 | ) | (539,175 | ) | (734,525 | ) | 2,009,640 | 168,700 | |||||||||||||||
Accumulated deficit |
(1,963 | ) | (1,871 | ) | (11,636 | ) | (2,056 | ) | 15,563 | (1,963 | ) | |||||||||||||
Accumulated other comprehensive income |
(6,182 | ) | (6,174 | ) | (5,660 | ) | (6,190 | ) | 18,024 | (6,182 | ) | |||||||||||||
Total unitholders equity |
215,690 | (607,756 | ) | (517,466 | ) | (690,795 | ) | 1,816,017 | 215,690 | |||||||||||||||
Total liabilities and unitholders equity |
$ | 216,275 | $ | 284,771 | $ | 483,555 | $ | 375,743 | $ | (907,013 | ) | $ | 453,331 | |||||||||||
26
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Condensed Consolidating Statement of Operations
For the three months ended June 30, 2010
(Successor Company)
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 194,845 | $ | 6,923 | $ | (7,068 | ) | $ | 194,700 | |||||||||||
Cost of sales |
| | 130,178 | 1,224 | (1,236 | ) | 130,166 | |||||||||||||||||
Gross profit |
| | 64,667 | 5,699 | (5,832 | ) | 64,534 | |||||||||||||||||
Selling, general and administrative expenses |
615 | 389 | 15,591 | 2,167 | (2,798 | ) | 15,964 | |||||||||||||||||
Research and development expenses |
| | 21,457 | 2,112 | (3,026 | ) | 20,543 | |||||||||||||||||
Restructuring and impairment charges |
| | 267 | | | 267 | ||||||||||||||||||
Operating income (loss) |
(615 | ) | (389 | ) | 27,352 | 1,420 | (8 | ) | 27,760 | |||||||||||||||
Other income (expense) |
3,734 | (9,540 | ) | (64,123 | ) | 14,149 | | (55,780 | ) | |||||||||||||||
Income (loss) before income taxes, equity in loss of related equity investment |
3,119 | (9,929 | ) | (36,771 | ) | 15,569 | (8 | ) | (28,020 | ) | ||||||||||||||
Income tax expenses |
| | 12 | 2,715 | | 2,727 | ||||||||||||||||||
Income (loss) before equity in loss of related investment |
3,119 | (9,929 | ) | (36,783 | ) | 12,854 | (8 | ) | (30,747 | ) | ||||||||||||||
Loss of related investment |
(33,866 | ) | (24,098 | ) | | (36,791 | ) | 94,755 | | |||||||||||||||
Net loss |
$ | (30,747 | ) | $ | (34,027 | ) | $ | (36,783 | ) | $ | (23,937 | ) | $ | 94,747 | $ | (30,747 | ) | |||||||
Net loss attributable to common units |
$ | (30,747 | ) | $ | (34,027 | ) | $ | (36,783 | ) | $ | (23,937 | ) | $ | 94,747 | $ | (30,747 | ) | |||||||
27
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Condensed Consolidating Statement of Operations
For the six months ended June 30, 2010
(Successor Company)
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 369,659 | $ | 18,605 | $ | (14,079 | ) | $ | 374,185 | |||||||||||
Cost of sales |
| | 256,682 | 6,917 | (3,306 | ) | 260,293 | |||||||||||||||||
Gross profit |
| | 112,977 | 11,688 | (10,773 | ) | 113,892 | |||||||||||||||||
Selling, general and administrative expenses |
1,178 | 525 | 32,855 | 4,754 | (5,440 | ) | 33,872 | |||||||||||||||||
Research and development expenses |
| | 42,857 | 4,282 | (6,065 | ) | 41,074 | |||||||||||||||||
Restructuring and impairment charges |
| | 603 | | | 603 | ||||||||||||||||||
Operating income (loss) |
(1,178 | ) | (525 | ) | 36,662 | 2,652 | 732 | 38,343 | ||||||||||||||||
Other income (expense) |
3,734 | (8,117 | ) | (56,746 | ) | 24,864 | | (36,265 | ) | |||||||||||||||
Income (loss) before income taxes, equity in earnings (loss) of related equity investment |
2,556 | (8,642 | ) | (20,084 | ) | 27,516 | 732 | 2,078 | ||||||||||||||||
Income tax expenses (benefits) |
| | (1,947 | ) | 3,671 | | 1,724 | |||||||||||||||||
Income (loss) before equity in earnings (loss) of related investment |
2,556 | (8,642 | ) | (18,137 | ) | 23,845 | 732 | 354 | ||||||||||||||||
Earnings (loss) of related investment |
(2,202 | ) | 6,409 | | (17,851 | ) | 13,644 | | ||||||||||||||||
Net income (loss) |
$ | 354 | $ | (2,233 | ) | $ | (18,137 | ) | $ | 5,994 | $ | 14,376 | $ | 354 | ||||||||||
Net income (loss) attributable to common units |
$ | 354 | $ | (2,233 | ) | $ | (18,137 | ) | $ | 5,994 | $ | 14,376 | $ | 354 | ||||||||||
28
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Condensed Consolidating Statement of Operations
For the three months ended June 28, 2009
(Predecessor Company)
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 137,819 | $ | 51,317 | $ | (49,443 | ) | $ | 139,693 | |||||||||||
Cost of sales |
| | 91,940 | 44,216 | (44,794 | ) | 91,362 | |||||||||||||||||
Gross profit |
| | 45,879 | 7,101 | (4,649 | ) | 48,331 | |||||||||||||||||
Selling, general and administrative expenses |
2,178 | (10 | ) | 14,693 | 3,204 | (1,712 | ) | 18,353 | ||||||||||||||||
Research and development expenses |
| | 15,771 | 2,404 | (1,933 | ) | 16,242 | |||||||||||||||||
Restructuring and impairment charges |
| | | 385 | | 385 | ||||||||||||||||||
Operating income (loss) |
(2,178 | ) | 10 | 15,415 | 1,108 | (1,004 | ) | 13,351 | ||||||||||||||||
Other income (expense) |
| 8,757 | 14,057 | (5,200 | ) | | 17,614 | |||||||||||||||||
Income (loss) before income taxes, equity in earnings of related equity investment |
(2,178 | ) | 8,767 | 29,472 | (4,092 | ) | (1,004 | ) | 30,965 | |||||||||||||||
Income tax expenses (benefits) |
| | 26 | 2,361 | | 2,387 | ||||||||||||||||||
Income (loss) before equity in earnings of related investment |
(2,178 | ) | 8,767 | 29,446 | (6,453 | ) | (1,004 | ) | 28,578 | |||||||||||||||
Earnings of related investment |
29,790 | 20,751 | | 28,132 | (78,673 | ) | | |||||||||||||||||
Income from continuing operations |
27,612 | 29,518 | 29,446 | 21,679 | (79,677 | ) | 28,578 | |||||||||||||||||
Income (loss) from discontinued operation, net of tax |
| | (1,107 | ) | 271 | (130 | ) | (966 | ) | |||||||||||||||
Net income |
$ | 27,612 | $ | 29,518 | $ | 28,339 | $ | 21,950 | $ | (79,807 | ) | $ | 27,612 | |||||||||||
Dividends accrued on preferred units |
2,948 | | | | | 2,948 | ||||||||||||||||||
Income from continuing operations attributable to common units |
$ | 24,664 | $ | 29,518 | $ | 29,446 | $ | 21,679 | $ | (79,677 | ) | $ | 25,630 | |||||||||||
Net income attributable to common units |
$ | 24,664 | $ | 29,518 | $ | 28,339 | $ | 21,950 | $ | (79,807 | ) | $ | 24,664 | |||||||||||
29
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Condensed Consolidating Statement of Operations
For the six months ended June 28, 2009
(Predecessor Company)
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Net sales |
$ | | $ | | $ | 233,645 | $ | 91,708 | $ | (84,201 | ) | $ | 241,152 | |||||||||||
Cost of sales |
| | 171,059 | 76,146 | (75,283 | ) | 171,922 | |||||||||||||||||
Gross profit |
| | 62,586 | 15,562 | (8,918 | ) | 69,230 | |||||||||||||||||
Selling, general and administrative expenses |
2,661 | 41 | 26,702 | 6,610 | (2,378 | ) | 33,636 | |||||||||||||||||
Research and development expenses |
| | 33,338 | 5,909 | (6,019 | ) | 33,228 | |||||||||||||||||
Restructuring and impairment charges |
| | | 439 | | 439 | ||||||||||||||||||
Operating income (loss) |
(2,661 | ) | (41 | ) | 2,546 | 2,604 | (521 | ) | 1,927 | |||||||||||||||
Other income (expense) |
| 2,485 | (43,029 | ) | 3,293 | | (37,251 | ) | ||||||||||||||||
Income (loss) before income taxes, equity in loss of related equity investment |
(2,661 | ) | 2,444 | (40,483 | ) | 5,897 | (521 | ) | (35,324 | ) | ||||||||||||||
Income tax expenses |
| | 52 | 4,953 | | 5,005 | ||||||||||||||||||
Income (loss) before equity in loss of related investment |
(2,661 | ) | 2,444 | (40,535 | ) | 944 | (521 | ) | (40,329 | ) | ||||||||||||||
Loss of related investment |
(39,419 | ) | (42,091 | ) | | (42,258 | ) | 123,768 | | |||||||||||||||
Loss from continuing operation |
(42,080 | ) | (39,647 | ) | (40,535 | ) | (41,314 | ) | 123,247 | (40,329 | ) | |||||||||||||
Income (loss) from discontinued operation, net of taxes |
| | (1,616 | ) | 45 | (180 | ) | (1,751 | ) | |||||||||||||||
Net loss |
$ | (42,080 | ) | $ | (39,647 | ) | $ | (42,151 | ) | $ | (41,269 | ) | $ | 123,067 | $ | (42,080 | ) | |||||||
Dividends accrued on preferred units |
6,317 | | | | | 6,317 | ||||||||||||||||||
Loss from continuing operations attributable to common units |
$ | (48,397 | ) | $ | (39,647 | ) | $ | (40,535 | ) | $ | (41,314 | ) | $ | 123,247 | $ | (46,646 | ) | |||||||
Net loss attributable to common units |
$ | (48,397 | ) | $ | (39,647 | ) | $ | (42,151 | ) | $ | (41,269 | ) | $ | 123,067 | $ | (48,397 | ) | |||||||
30
MagnaChip Semiconductor LLC and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(Unaudited; tabular dollars in thousands, except unit data)
Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 2010
(Successor Company)
MagnaChip Semiconductor LLC (Parent) |
Co-Issuers | Non-Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||||
Cash flow from operating activities |
||||||||||||||||||||||||
Net income (loss) |
$ | 354 | $ | (2,233 | ) | $ | (18,137 | ) | $ | 5,994 | $ | 14,376 | $ | 354 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |
||||||||||||||||||||||||
Depreciation and amortization |
| | 29,846 | 139 | | 29,985 | ||||||||||||||||||
Provision for severance benefits |
| | 9,225 | 155 | | 9,380 | ||||||||||||||||||
Amortization of debt issuance costs |
| 449 | | | | 449 | ||||||||||||||||||
Loss (gain) on foreign currency translation, net |
| 27,659 | 29,510 | (27,194 | ) | | 29,975 | |||||||||||||||||
Gain on disposal of property, plant and equipment, net |
| | (9 | ) | | | (9 | ) | ||||||||||||||||
Loss on disposal of intangible assets, net |
| | 7 | | | 7 | ||||||||||||||||||
Restructuring and impairment charges |
| | 603 | | | 603 | ||||||||||||||||||
Unit-based compensation |
407 | | 2,010 | 335 | | 2,752 | ||||||||||||||||||
Cash used for reorganization items |
| | 51 | 1,424 | | 1,475 | ||||||||||||||||||
Loss (earnings) of related investment |
2,202 | (6,409 | ) | | 17,851 | (13,644 | ) | | ||||||||||||||||
Other |
13 | (11 | ) | 757 | (19 | ) | | 740 | ||||||||||||||||
Changes in operating assets and liabilities |
||||||||||||||||||||||||
Accounts receivable, net |
| | (35,220 | ) | 11,593 | (21,616 | ) | (45,243 | ) | |||||||||||||||
Inventories, net |
| | (2,189 | ) | 4,290 | (759 | ) | 1,342 | ||||||||||||||||
Other receivables |
| | (12,339 | ) | 845 | 11,613 | 119 | |||||||||||||||||
Deferred tax assets |
| | | 618 | | 618 | ||||||||||||||||||
Accounts payable |
| | 15,050 | (29,102 | ) | 21,594 | 7,542 | |||||||||||||||||
Other accounts payable |
5,510 | 2,181 | 13,022 | 2,230 | (11,613 | ) | 11,330 | |||||||||||||||||
Accrued expenses |
| 4,851 | 28,509 | 29,443 | (54,962 | ) | 7,841 | |||||||||||||||||
Long term other payable |
| | | 72 | (1,603 | ) | (1,531 | ) | ||||||||||||||||
Other current assets |
(4,805 | ) | (29,584 | ) | 3,737 | (24,144 | ) | 54,704 | (92 | ) | ||||||||||||||
Other current liabilities |
| | (1,043 | ) | (129 | ) | | (1,172 | ) | |||||||||||||||
Payment of severance benefits |
| | (2,731 | ) | (29 | ) | | (2,760 | ) | |||||||||||||||
Other |
| | 467 | (1,791 | ) | | (1,324 | ) | ||||||||||||||||
Net cash provided by (used in) operating activities before reorganization items |
3,681 | (3,097 | ) | 61,126 | (7,419 | ) | (1,910 | ) | 52,381 | |||||||||||||||
Cash used for reorganization items |
| | (51 | ) | (1,424 | ) | | (1,475 | ) | |||||||||||||||
Net cash provided by (used in) operating activities |
3,681 | (3,097 | ) | 61,075 | (8,843 | ) | (1,910 | ) | 50,906 | |||||||||||||||
Cash flows from investing activities |
||||||||||||||||||||||||
Proceeds from disposal of plant, property and equipment |
| | 13 | | | 13 | ||||||||||||||||||
Purchases of plant, property and equipment |
| | (20,505 | ) | (4 | ) | | (20,509 | ) | |||||||||||||||
Payment for intellectual property registration |
| | (245 | ) | | | (245 | ) | ||||||||||||||||
Decrease in short-term financial instruments |
| | | 329 | | 329 | ||||||||||||||||||
Decrease in guarantee deposits |
| | 219 | 780 | | 999 | ||||||||||||||||||
Collection of long-term intercompany loans |
126,953 | | | | (126,953 | ) | | |||||||||||||||||
Other |
| | (693 | ) | (85 | ) | | (778 | ) | |||||||||||||||
Net cash provided by (used in) investing activities |
126,953 | | (21,211 | ) | 1,020 | (126,953 | ) | (20,191 | ) | |||||||||||||||
Cash flow from financing activities |
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Proceeds from issuance of senior notes |
| 246,685 | | | | 246,685 | ||||||||||||||||||
Debt issuance costs paid |
| (8,313 | ) | |