sv1
As filed with the Securities and
Exchange Commission on March 15,
2010
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
MAGNACHIP SEMICONDUCTOR
LLC
(to be converted into MagnaChip
Semiconductor Corporation)
(Exact name of Registrant as
specified in its charter)
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Delaware
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3674
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26-1815025
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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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, including zip code,
and telephone number, including area code, of Registrants
principal executive offices)
John McFarland
Senior Vice President, General
Counsel and Secretary
c/o MagnaChip
Semiconductor, Inc.
20400 Stevens Creek Boulevard,
Suite 370
Cupertino, CA 95014
Telephone:
(408) 625-5999
Fax:
(408) 625-5990
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Micheal J. Reagan
Khoa D. Do
Peter M. Astiz
DLA Piper LLP (US)
2000 University Avenue
East Palo Alto, California 94303
Telephone:
(650) 833-2000
Fax:
(650) 833-2001
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Kirk A. Davenport
Keith Benson
Latham & Watkins LLP
885 Third Avenue
New York, NY 10022-4834
Telephone: (212) 906-1200
Fax: (212) 751-4864
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box: o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering: o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering: o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
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. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do
not check if a smaller reporting company)
CALCULATION OF
REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate
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Registration
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Securities to be Registered
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Offering Price(1)
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Fee
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Common Stock, par value $0.01 per share
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$
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250,000,000
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$
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17,825.00
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Depositary Shares(2)
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(1)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(o).
Includes shares of common stock that the underwriters have an
option to purchase.
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(2)
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All of the shares of common stock
sold in this offering will be sold in the form of depositary
shares. Each depositary share will be issued under a deposit
agreement, will represent an interest in a share of common stock
and will be evidenced by a depositary
receipt. days
after the effective date of this registration statement, each
holder of depositary shares will be credited with a number of
shares of common stock equal to the number of depositary shares
held by such holder on that date, and the depositary shares will
be canceled. Until such cancellation of the depositary shares,
holders of depositary shares will be entitled to all
proportional rights and preferences of the shares of common
stock.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
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Subject
to Completion. Dated March 15, 2010
MagnaChip Semiconductor
Corporation
Depositary Shares
Representing Shares
of Common Stock
This is the initial public offering of common stock of MagnaChip
Semiconductor Corporation. MagnaChip Semiconductor Corporation
is
offering shares
of common stock. The selling stockholders identified in this
prospectus are
offering shares
of common stock. We will not receive any of the proceeds from
the sale of the shares by the selling stockholders.
All of the shares of common stock sold in this offering will be
sold in the form of depositary shares. Each depositary share
represents an ownership interest in one share of common stock.
On ,
2010 ( days after the date of this
prospectus), each holder of depositary shares will be credited
with a number of shares of common stock equal to the number of
depositary shares held by such holder on that date, and the
depositary shares will be canceled. Until the cancellation of
the depositary shares
on ,
2010, holders of depositary shares will be entitled to all
proportional rights and preferences of the shares of common
stock.
Prior to this offering, there has been no public market for our
depositary shares or our common stock. We currently estimate
that the initial public offering price per depositary share will
be between $ and
$ . We intend to apply for listing
of the depositary shares and the common stock on the New York
Stock Exchange under the symbol MX.
See Risk Factors beginning on page 16 to read
about factors you should consider before buying the depositary
shares and shares of the common stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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Per
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depositary share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds, before expenses to MagnaChip Semiconductor Corporation
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$
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$
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Proceeds, before expenses to Selling Stockholders
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$
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$
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To the extent that the underwriters sell more
than depositary
shares, the underwriters have the option to purchase up to an
additional depositary
shares from us and up to an
additional depositary
shares from the selling stockholders at the initial public
offering price less the underwriting discount.
The underwriters expect to deliver the depositary shares against
payment in New York, New York
on ,
2010.
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Goldman,
Sachs & Co. |
Barclays Capital |
Deutsche Bank Securities |
Prospectus
dated ,
2010
Mobile Application
Television Application
Computer Application |
MagnaChip Everywhere
Analog and Mixed Signal Semiconductors and Manufacturing Services for
High-Volume Applications
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TABLE OF
CONTENTS
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus. You must not rely on any unauthorized information or
representations. This prospectus is an offer to sell only the
shares offered by this prospectus, but only under circumstances
and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of
its date.
MagnaChip is a registered trademark of us and our
subsidiaries and MagnaChip Everywhere is our
registered service mark. An application for United States
trademark registration of MagnaChip Everywhere is
pending. All other product, service and company names mentioned
in this prospectus are the service marks or trademarks of their
respective owners.
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information that you should consider before deciding to invest
in our common stock. You should read this entire prospectus
carefully, including the Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations sections contained in
this prospectus and our consolidated financial statements before
making an investment decision. In this prospectus, unless the
context otherwise requires, the terms we,
us, our and MagnaChip refer
to MagnaChip Semiconductor LLC and its consolidated subsidiaries
for the periods prior to the consummation of the corporate
conversion (as described below), and such terms refer to
MagnaChip Semiconductor Corporation and its consolidated
subsidiaries for the periods after the consummation of the
corporate conversion. The term Korea refers to the
Republic of Korea or South Korea. All references to shares of
common stock being sold in this offering include shares held in
the form of depositary shares, as described under
Description of Depositary Shares.
Immediately prior to the effectiveness of the registration
statement of which this prospectus is a part, we will complete a
number of transactions pursuant to which MagnaChip Semiconductor
Corporation will succeed to the business of MagnaChip
Semiconductor LLC and its consolidated subsidiaries and the
members of MagnaChip Semiconductor LLC will become stockholders
of MagnaChip Semiconductor Corporation. In this prospectus, we
refer to such transactions as the corporate conversion.
Overview
MagnaChip is a Korea-based designer and manufacturer of analog
and mixed-signal semiconductor products for high-volume consumer
applications. We believe we have one of the broadest and deepest
analog and mixed-signal semiconductor technology platforms in
the industry, supported by our
30-year
operating history, large portfolio of approximately 3,600 novel
registered and pending patents and extensive engineering and
manufacturing process expertise. Our business is comprised of
three key segments: Display Solutions, Power Solutions and
Semiconductor Manufacturing Services. Our Display Solutions
products include display drivers for use in a wide range of flat
panel displays and mobile multimedia devices. Our Power
Solutions products include discrete and integrated circuit
solutions for power management in high-volume consumer
applications. Our 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.
Our wide variety of analog and mixed-signal semiconductor
products and manufacturing services combined with our deep
technology platform allows us to address multiple high-growth
end markets and to rapidly develop and introduce new products
and services in response to market demands. Our substantial
manufacturing operations in Korea and design centers in Korea
and Japan place us at the core of the global consumer
electronics supply chain. We believe this enables us to quickly
and efficiently respond to our customers needs and allows
us to better service and capture additional demand from existing
and new customers.
We have a long history of supplying and collaborating on product
and technology development with leading innovators in the
consumer electronics market. As a result, we have been able to
strengthen our technology platform and develop products and
services that are in high demand by our customers and end
consumers. We sold over 2,300 distinct products to over 185
customers for the year ended December 31, 2009, with a
substantial portion of our revenues derived from a concentrated
number of customers, including LG Display, Sharp and Samsung.
Our largest semiconductor manufacturing services customers
include some of the fastest growing and leading semiconductor
companies that design analog and mixed-signal products for the
consumer, computing and wireless end markets. For 2009 on an a
combined pro forma basis, we generated net sales of
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$560.1 million, income from continuing operations of
$66.0 million, Adjusted EBITDA of $98.7 million and
Adjusted Net Income of $53.0 million. See Unaudited
Pro Forma Consolidated Financial Information beginning on
page 46 for an explanation regarding our pro forma
presentation and Summary Historical and Unaudited
Pro Forma Consolidated Financial Data, beginning on
page 8 for an explanation of our use of Adjusted EBITDA and
Adjusted Net Income.
Our business is largely driven by innovation in the consumer
electronics markets and the growing adoption by consumers
worldwide of electronic devices for use in their daily lives.
The consumer electronics market is large and growing rapidly,
largely due to consumers increasingly accessing a wide variety
of available rich media content, such as high definition audio
and video, mobile television and games on advanced consumer
electronic devices. According to Gartner, production of liquid
crystal display, or LCD televisions, smartphones, mobile
personal computers, or PCs, and mini-notebooks is expected to
grow from 2009 to 2013 by a compound annual growth rate of 12%,
36%, 24%, and 20%, respectively. Electronics manufacturers are
continuously implementing advanced technologies in new
generations of electronic devices using analog and mixed-signal
semiconductor components, such as display drivers that enable
display of high resolution images, encoding and decoding devices
that allow playback of high definition audio and video, and
power management semiconductors that increase power efficiency,
thereby reducing heat dissipation and extending battery life.
According to iSuppli Corporation, in 2009, the display driver
semiconductor market was $6.0 billion and the power
management semiconductor market was $21.9 billion.
Our Products and
Services
Our Display Solutions products include source and gate drivers
and timing controllers that cover a wide range of flat panel
displays used in LCD televisions and light emitting diode, or
LED, televisions and displays, mobile PCs and mobile
communications and entertainment devices. Our display solutions
support the industrys most advanced display technologies,
such as low temperature polysilicon, or LTPS, and active matrix
organic light emitting diode, or AMOLED, as well as high-volume
display technologies such as thin film transistor, or TFT.
We expanded our business and market opportunity by establishing
our Power Solutions business in late 2007. We have introduced a
number of products for power management applications, including
metal oxide semiconductor field effect transistors, or MOSFETs,
analog switches, LED drivers, DC-DC converters and linear
regulators for a range of devices, including LCD and LED digital
televisions, mobile phones, computers and other consumer
electronics products.
We offer semiconductor manufacturing services to fabless analog
and mixed-signal semiconductor companies that require
differentiated, specialty analog and mixed-signal process
technologies. We believe the majority of our top twenty
semiconductor manufacturing services customers use us as their
primary manufacturing source for the products that we
manufacture for them. Our process technologies are optimized for
analog and mixed-signal devices and include standard
complementary metal-oxide semiconductor, or CMOS, high voltage
CMOS, ultra-low leakage high voltage CMOS and bipolar
complementary double-diffused metal oxide semiconductor, or
BCDMOS. Our semiconductor manufacturing services customers use
us to manufacture a wide range of products, including display
drivers, LED drivers, audio encoding and decoding devices,
microcontrollers, electronic tags and power management
semiconductors.
We manufacture all of our products at our three fabrication
facilities located in Korea. We have approximately 200
proprietary process flows we can utilize for our products and
offer to our semiconductor manufacturing services customers. Our
manufacturing base serves both our display driver and power
management businesses and semiconductor manufacturing services
customers, allowing us to optimize our asset utilization and
leverage our investments across our product and service
offerings. Analog and mixed-signal manufacturing facilities and
processes are typically
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distinguished by design and process implementation expertise
rather than the use of the most advanced equipment. As a result,
our manufacturing base and strategy does not require substantial
investment in leading edge process equipment, allowing us to
utilize our facilities and equipment over an extended period of
time with moderate required capital investments.
Our Competitive
Strengths
We believe our strengths include:
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Broad and advanced analog and mixed-signal semiconductor
technology and intellectual property platform that allows us to
develop new products and meet market demands quickly;
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Established relationships and close collaboration with leading
global consumer electronics companies, which enhance our
visibility into new product opportunities, markets and
technology trends;
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Longstanding presence of our management, personnel and
manufacturing base in Asia and proximity to our largest
customers and to the core of the global consumer electronics
supply chain, which allows us to respond rapidly and efficiently
to our customers needs;
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Flexible, service-oriented culture and approach to customers;
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Distinctive analog and mixed-signal process technology and
manufacturing expertise; and
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Manufacturing facilities with specialty processes and a low-cost
operating structure, which allow us to maintain price
competitiveness across our product and service offerings.
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Our
Strategy
Our objective is to grow our business and to continue to
strengthen our position as a leading provider of analog and
mixed-signal semiconductor products and services for high-volume
consumer applications. Our business strategy emphasizes the
following key elements:
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Leverage our advanced analog and mixed-signal technology
platform to continuously innovate and deliver products with high
levels of performance and integration, as well as to expand our
technology offerings within our target markets, such as our
power management products;
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Increase business with our global customer base of leading
consumer electronics original equipment manufacturers, or OEMs,
and fabless companies by collaborating on critical design,
product and manufacturing process development and leveraging our
deep knowledge of customer needs;
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Broaden our customer base by expanding our global design centers
and local application engineering support and sales presence,
particularly in China and other high-growth regions;
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Aggressively grow our power management product portfolio
business by introducing new products, expanding distribution and
cross-selling products to our existing customers;
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Drive execution excellence in new product development,
manufacturing efficiency and quality, customer service and
personnel development; and
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Optimize asset utilization and return on capital investments by
maintaining our focus on specialty process technologies that do
not require substantial investment in leading edge
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process equipment and by utilizing our manufacturing facilities
for both our display driver and power management businesses and
manufacturing services customers.
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Recent Changes To
Our Business
We have executed a significant restructuring over the last
18 months that refocused our business strategy, enhanced
our operating efficiency and improved our cash flow and
profitability. By closing our Imaging Solutions business,
restructuring our balance sheet and refining our business
processes and strategy, we believe we have made significant
structural improvements to our operating model and have enabled
better flexibility to manage our business through fluctuations
in the economy and our markets.
Specifically, our business optimization initiatives included:
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Closing our Imaging Solutions business, which had been a source
of substantial ongoing operating losses amounting to
$91.5 million and $51.7 million in 2008 and 2007,
respectively, and which required substantial ongoing capital
investment;
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Reducing our indebtedness from $845 million immediately
prior to the effectiveness of our plan of reorganization to
$61.8 million as of December 31, 2009;
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Streamlining our cost structure to reduce ongoing fixed and
variable expenses;
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Entering into a hedging program to mitigate the impact of
currency fluctuation on our financial results; and
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Focusing on major customers, key product lines, growth segments
and areas of competitive differentiation.
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Risks Related to
Our Company
Investing in our company entails a high degree of risk,
including those summarized below and those more fully described
in the Risk Factors section beginning on
page 16 of this prospectus. You should consider carefully
these risks before deciding to invest in our common stock.
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We have a history of losses and may not be profitable in the
future;
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On June 12, 2009, we filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code and
our plan of reorganization became effective on November 9,
2009;
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In connection with our audit for the ten-month period ended
October 25, 2009 and the two-month period ended
December 31, 2009, our auditors identified two control
deficiencies which represent a material weakness in our internal
control over financial reporting; if we fail to effectively
remediate this weakness, the accuracy and timing of our
financial reporting may be adversely affected;
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The cyclical nature of the semiconductor industry may limit our
ability to maintain or increase net sales and profit levels
during industry downturns;
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If we fail to develop new products and process technologies or
enhance our existing products and services in order to react to
rapid technological change and market demands, our business will
suffer;
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A significant portion of our sales comes from a relatively
limited number of customers and the loss of any of such
customers or a significant decrease in sales to any of such
customers would harm our revenue and gross profit;
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The average selling prices of our semiconductor products have at
times declined rapidly and will likely do so in the future,
which could harm our revenue and gross profit; and
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Upon completion of this offering, our largest stockholder,
consisting of affiliated funds of Avenue Capital Management II,
L.P., will control
approximately %
of our outstanding common stock, assuming no exercise by the
underwriters of their option to purchase additional shares.
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Corporate
Information
Prior to the closing of this offering, MagnaChip Semiconductor
LLC will convert from a Delaware limited liability company to a
Delaware corporation. We refer to this as the corporate
conversion. In connection with the corporate conversion, each
common unit of MagnaChip Semiconductor LLC will be converted
into shares
of common stock of MagnaChip Semiconductor Corporation, the
members of MagnaChip Semiconductor LLC will become stockholders
of MagnaChip Semiconductor Corporation and MagnaChip
Semiconductor Corporation will succeed to the business of
MagnaChip Semiconductor LLC and its consolidated subsidiaries.
See Corporate Conversion for further information
regarding the corporate conversion.
Our principal executive offices are located at:
c/o MagnaChip
Semiconductor S.A., 74, rue de Merl, B.P. 709 L-2146 Luxembourg
R.C.S., Luxembourg B97483, and our telephone number is
(352) 45-62-62.
Our website address is www.magnachip.com. You should not
consider the information contained on our website to be part of
this prospectus or in deciding whether to purchase shares of our
common stock.
Our business was named MagnaChip Semiconductor when it was
acquired from Hynix Semiconductor, Inc., or Hynix, in October
2004. We refer to this acquisition as the Original Acquisition.
On June 12, 2009, MagnaChip Semiconductor LLC, along with
certain of its subsidiaries, including MagnaChip Semiconductor
S.A., filed a voluntary petition for relief in the United States
Bankruptcy Court for the District of Delaware under
Chapter 11 of the United States Bankruptcy Code, which we
refer to as the reorganization proceedings. On November 9,
2009, our plan of reorganization became effective and we emerged
from the reorganization proceedings. On that date, a new board
of directors of MagnaChip Semiconductor LLC was appointed,
MagnaChip Semiconductor LLCs previously outstanding common
and preferred units, and options were cancelled, MagnaChip
Semiconductor LLC issued approximately 300 million common
units and warrants to purchase 15 million common units to
two classes of creditors and affiliated funds of Avenue Capital
Management II, L.P. became the majority unitholder of MagnaChip
Semiconductor LLC. Our Chapter 11 plan of reorganization
implemented a comprehensive financial reorganization that
significantly reduced our outstanding indebtedness. In this
prospectus, we refer to funds affiliated with Avenue Capital
Management II, L.P. collectively as Avenue.
5
The
Offering
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Shares offered by us
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shares
in the form of depositary shares |
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Shares offered by selling stockholders
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shares
in the form of depositary shares |
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Shares offered by us pursuant to the underwriters option
to purchase additional shares
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shares
in the form of depositary shares(1) |
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Shares offered by the selling stockholders pursuant to the
underwriters option to purchase additional shares
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shares
in the form of depositary shares(1) |
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Shares of common stock to be outstanding after this offering
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shares |
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Use of proceeds |
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We intend to use the net proceeds received by us in connection
with this offering to make employee incentive payments, to fund
working capital and for general corporate purposes. We will not
receive any proceeds from the sale of shares of common stock
offered by the selling stockholders, including upon the sale of
shares if the underwriters exercise their option to purchase
additional shares from the selling stockholder in this offering. |
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Risk factors |
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See Risk Factors and the other information included
in this prospectus for a discussion of the factors you should
consider carefully before deciding to invest in shares of our
common stock. |
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Dividend policy |
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We do not anticipate paying any cash dividends on our common
stock after this offering. |
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Depositary shares |
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All of the shares of common stock sold in this offering will be
sold in the form of depositary shares. Each depositary share
represents an ownership interest in one share of common stock.
On ,
2010 ( days after the date of this
prospectus), each holder of depositary shares will be credited
with a number of shares of common stock equal to the number of
depositary shares held by such holder on that date, and the
depositary shares will be canceled. Until the cancellation of
the depositary shares
on ,
2010, holders of depositary shares will be entitled to all
proportional rights and preferences of the shares of common
stock. This offering has been structured using depositary shares
to enable the selling stockholders to obtain the preferred
income tax treatment for the corporate conversion. For more
information regarding the depositary shares, see
Description of Depositary Shares. |
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Depositary |
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American Stock Transfer & Trust Company, LLC |
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Proposed New York Stock Exchange symbol
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MX |
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(1) |
We have provided the underwriters an option to purchase up
to
additional depositary shares and the selling stockholders have
provided the underwriters an option to purchase up
to
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additional depositary shares. If the underwriters exercise their
option to purchase additional shares, we will not receive any of
the proceeds from the additional sale of depositary shares by
the selling stockholders.
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The number of shares of our common stock outstanding after this
offering is based on common units of MagnaChip Semiconductor LLC
outstanding as of the date of this prospectus and:
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reflects the consummation of the corporate conversion, pursuant
to which all of the outstanding common units of MagnaChip
Semiconductor LLC will be automatically converted into shares of
our common stock at a ratio
of
and all of the outstanding options and warrants to purchase
common units of MagnaChip Semiconductor LLC will be
automatically converted into options and warrants to purchase
shares of our common stock;
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excludes shares
of our common stock reserved for issuance upon exercise of
warrants to purchase common units of MagnaChip Semiconductor LLC
outstanding as
of
at a weighted average exercise price
of
per share, assuming the conversion of all such warrants into
warrants to purchase shares of our common stock at a ratio
of ;
|
|
|
|
excludes shares
of our common stock reserved for issuance upon exercise of
options to purchase common units of MagnaChip Semiconductor LLC
outstanding as
of
at a weighted average exercise price
of
per share, assuming the conversion of all such options into
options to purchase shares of our common stock at a ratio
of ; and
|
|
|
|
excludes shares
of our common stock reserved as
of
for issuance pursuant to future grants under our 2010 Equity
Incentive Plan and 2010 Employee Stock Purchase Plan, which does
not include the additional shares which may become available for
issuance pursuant to the automatic share reserve increase
provisions of such plans described below.
|
The number of shares authorized for future issuance under our
2010 Equity Incentive Plan and our 2010 Employee Stock Purchase
Plan reflected above does not include additional shares that may
become available for future issuance pursuant to the automatic
share reserve increase provisions of these plans. On January 1
of each year from 2011 through 2020, up to 2% and 1%,
respectively, of the shares of our common stock issued and
outstanding on the immediately preceding December 31 or,
in each case, a lesser amount determined by our board of
directors, will be added automatically to the number of shares
remaining available for future grants under the 2010 Equity
Incentive Plan and the 2010 Employee Stock Purchase Plan.
Unless specifically stated otherwise, the information in this
prospectus:
|
|
|
|
|
assumes no exercise of the underwriters option to purchase
up
to
additional depositary shares from us and up
to
additional depositary shares from our selling
stockholders; and
|
|
|
|
assumes an initial public offering price of
$ per depositary share, which is
the midpoint of the range set forth on the front cover of this
prospectus.
|
7
Summary
Historical and Unaudited Pro Forma Consolidated Financial
Data
The following tables set forth summary historical and unaudited
pro forma consolidated financial data of MagnaChip Semiconductor
LLC (to be converted into MagnaChip Semiconductor Corporation
prior to consummation of this offering) on or as of the dates
and for the periods indicated. The summary historical and
unaudited pro forma consolidated financial data presented below
should be read together with Selected Historical
Consolidated Financial and Operating Data, Unaudited
Pro Forma Consolidated Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements, including the notes to those consolidated
financial statements appearing elsewhere in this prospectus.
We have derived the summary historical consolidated financial
data as of December 31, 2009 and 2008, and for the
two-month period ended December 31, 2009, the ten-month
period ended October 25, 2009 and the years ended
December 31, 2008 and 2007 from the historical audited
consolidated financial statements of MagnaChip Semiconductor LLC
prepared in accordance with generally accepted accounting
principles in the United States, or GAAP, included elsewhere in
this prospectus. We have derived the summary historical
consolidated financial data as of December 31, 2007 from
the historical audited financial statements of MagnaChip
Semiconductor LLC not included in this prospectus. The
historical results of MagnaChip Semiconductor LLC for any prior
period are not necessarily indicative of the results to be
expected in any future period.
In connection with our emergence from reorganization
proceedings, we implemented fresh-start reporting, or
fresh-start accounting, in accordance with applicable Accounting
Standards Codification, or ASC 852 governing reorganizations. We
elected to adopt a convenience date of October 25, 2009 (a
month end for our financial reporting purposes) for application
of fresh-start accounting. In accordance with the ASC 852
rules governing reorganizations, we recorded largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings including professional fees, the
revaluation of assets, the effects of our reorganization plan
and fresh-start accounting and write-off of debt issuance costs.
As a result of the application of fresh-start accounting, our
financial statements prior to and including October 25,
2009 represent the operations of our pre-reorganization
predecessor company and are presented separately from the
financial statements of our post-reorganization successor
company. As a result of the application of fresh-start
accounting, the financial statements prior to and including
October 25, 2009 are not fully comparable with the
financial statements for periods on or after October 26,
2009.
We have prepared the summarized unaudited pro forma financial
data for the year ended December 31, 2009 to give pro forma
effect to the reorganization proceedings and related events and
the corporate conversion, in each case as if they had occurred
at the beginning of the period presented with respect to
consolidated statements of operations data and as of the balance
sheet date with respect to balance sheet data. The summary
unaudited pro forma financial data set forth below are presented
for informational purposes only, should not be considered
indicative of actual results of operations that would have been
achieved had the reorganization proceedings and related events
and the corporate conversion been consummated on the dates
indicated, and do not purport to be indicative of balance sheet
data or results of operations as of any future date or for any
future period.
8
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Historical
|
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Pro Forma(1)
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Successor
|
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Predecessor
|
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Two- Month
|
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Ten- Month
|
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|
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|
|
|
|
|
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Year Ended
|
|
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Period Ended
|
|
|
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Period Ended
|
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Years Ended
|
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|
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December 31,
|
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December 31,
|
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October 25,
|
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December 31,
|
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2009
|
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2009
|
|
|
|
2009
|
|
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2008
|
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2007
|
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|
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(In millions, except per common unit/share data)
|
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(Unaudited)
|
|
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(Audited)
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|
|
|
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(Audited)
|
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|
|
|
Statements of Operations Data:
|
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|
|
|
|
|
|
|
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|
|
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|
|
|
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Net sales
|
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$
|
560.1
|
|
|
$
|
111.1
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|
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$
|
449.0
|
|
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$
|
601.7
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|
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$
|
709.5
|
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Cost of sales
|
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|
378.9
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|
90.4
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|
|
|
|
311.1
|
|
|
|
445.3
|
|
|
|
578.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Gross profit
|
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|
181.2
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|
|
|
20.7
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|
|
|
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137.8
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|
|
|
156.4
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|
|
|
130.7
|
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Selling, general and administrative expenses
|
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|
71.6
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|
|
|
14.5
|
|
|
|
|
56.3
|
|
|
|
81.3
|
|
|
|
82.7
|
|
Research and development expenses
|
|
|
77.3
|
|
|
|
14.7
|
|
|
|
|
56.1
|
|
|
|
89.5
|
|
|
|
90.8
|
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Restructuring and impairment charges
|
|
|
0.4
|
|
|
|
|
|
|
|
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0.4
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|
|
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13.4
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|
|
12.1
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating income (loss) from continuing operations
|
|
|
31.9
|
|
|
|
(8.6
|
)
|
|
|
|
25.0
|
|
|
|
(27.7
|
)
|
|
|
(54.9
|
)
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Interest expense, net
|
|
|
9.4
|
|
|
|
1.3
|
|
|
|
|
31.2
|
|
|
|
76.1
|
|
|
|
60.3
|
|
Foreign currency gain (loss), net
|
|
|
52.8
|
|
|
|
9.3
|
|
|
|
|
43.4
|
|
|
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(210.4
|
)
|
|
|
(4.7
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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43.4
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|
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8.1
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|
|
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816.8
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(286.5
|
)
|
|
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(65.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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Income (loss) from continuing operations before income taxes
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$
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75.2
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$
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(0.5
|
)
|
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$
|
841.8
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|
|
$
|
(314.3
|
)
|
|
$
|
(120.0
|
)
|
Income tax expenses
|
|
|
9.2
|
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
11.6
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
66.0
|
|
|
$
|
(2.5
|
)
|
|
|
$
|
834.5
|
|
|
$
|
(325.8
|
)
|
|
$
|
(128.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income (loss) from discontinued operations, net of taxes
|
|
|
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|
0.5
|
|
|
|
|
6.6
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(91.5
|
)
|
|
|
(51.7
|
)
|
Net income (loss)
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|
(2.0
|
)
|
|
|
|
841.1
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|
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|
(417.3
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)
|
|
|
(180.6
|
)
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
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6.3
|
|
|
|
13.3
|
|
|
|
12.0
|
|
Income (loss) from continuing operations attributable to common
units/shares
|
|
|
66.0
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(2.5
|
)
|
|
|
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828.2
|
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(339.1
|
)
|
|
|
(140.9
|
)
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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Per common unit/share data:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earnings (loss) from continuing operations per common
unit/share Basic and diluted
|
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$
|
(0.01
|
)
|
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|
$
|
15.65
|
|
|
$
|
(6.43
|
)
|
|
$
|
(2.69
|
)
|
Weighted average number of common units/shares Basic
and diluted
|
|
|
|
|
|
|
300.863
|
|
|
|
|
52.923
|
|
|
|
52.769
|
|
|
|
52.297
|
|
Consolidated Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64.9
|
|
|
$
|
64.9
|
|
|
|
|
|
|
|
$
|
4.0
|
|
|
$
|
64.3
|
|
Total assets
|
|
|
453.3
|
|
|
|
453.3
|
|
|
|
|
|
|
|
|
399.2
|
|
|
|
707.9
|
|
Total indebtedness(2)
|
|
|
61.8
|
|
|
|
61.8
|
|
|
|
|
|
|
|
|
845.0
|
|
|
|
830.0
|
|
Long-term obligations(3)
|
|
|
61.5
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
143.2
|
|
|
|
879.4
|
|
Total unitholders/stockholders equity (deficit)
|
|
|
215.7
|
|
|
|
215.7
|
|
|
|
|
|
|
|
|
(787.8
|
)
|
|
|
(477.5
|
)
|
Supplemental Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(4)
|
|
|
98.7
|
|
|
|
22.1
|
|
|
|
|
76.6
|
|
|
|
59.8
|
|
|
|
111.2
|
|
Adjusted Net Income (Loss)(5)
|
|
|
53.0
|
|
|
|
13.3
|
|
|
|
|
9.3
|
|
|
|
(71.7
|
)
|
|
|
(82.6
|
)
|
9
|
|
|
(1) |
|
Gives effect to the reorganization proceedings and related
events and the corporate conversion. For details regarding these
pro forma adjustments, see the notes to the unaudited pro forma
condensed consolidated financial information in Unaudited
Pro Forma Consolidated Financial Information. |
|
(2) |
|
Total indebtedness is calculated as long and short-term
borrowings, including the current portion of long-term
borrowings. |
|
(3) |
|
Long-term obligations include long-term borrowings, capital
leases and redeemable convertible preferred units. |
|
(4) |
|
We define Adjusted EBITDA as net income (loss) less income
(loss) from discontinued operations, net of taxes, adjusted to
exclude (i) depreciation and amortization associated with
continuing operations, (ii) interest expense, net,
(iii) income tax expense, (iv) restructuring and
impairment charges, (v) other restructuring charges,
(vi) abandoned IPO expenses, (vii) subcontractor claim
settlement, (viii) the increase in cost of sales resulting
from the fresh-start accounting inventory
step-up,
(ix) equity-based compensation expense,
(x) reorganization items, net, and (xi) foreign
currency gain (loss), net. See the footnotes to the table below
for further information regarding these items. In the case of
pro forma Adjusted EBITDA, we exclude the items above from
income (loss) from continuing operations. We present Adjusted
EBITDA as a supplemental measure of our performance because: |
|
|
|
|
|
Adjusted EBITDA eliminates the impact of a number of items that
may be either one time or recurring that we do not consider to
be indicative of our core ongoing operating performance;
|
|
|
|
we believe that Adjusted EBITDA is an enterprise level
performance measure commonly reported and widely used by
analysts and investors in our industry;
|
|
|
|
we anticipate that our investor and analyst presentations after
we are public will include Adjusted EBITDA; and
|
|
|
|
we believe that Adjusted EBITDA provides investors with a more
consistent measurement of period to period performance of our
core operations, as well as a comparison of our operating
performance to that of other companies in our industry.
|
We use Adjusted EBITDA in a number of ways, including:
|
|
|
|
|
for planning purposes, including the preparation of our annual
operating budget;
|
|
|
|
to evaluate the effectiveness of our enterprise level business
strategies;
|
|
|
|
in communications with our board of directors concerning our
consolidated financial performance;
|
|
|
|
in certain of our compensation plans as a performance measure
for determining incentive compensation payments; and
|
|
|
|
to measure our compliance with certain covenants in our debt
agreements.
|
10
We encourage you to evaluate each adjustment and the reasons we
consider them appropriate. In evaluating Adjusted EBITDA, you
should be aware that in the future we may incur expenses similar
to the adjustments in this presentation. Adjusted EBITDA is not
a measure defined in accordance with GAAP and should not be
construed as an alternative to income from continuing
operations, cash flows from operating activities or net income
(loss), as determined in accordance with GAAP. A reconciliation
of net income (loss) to Adjusted EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
Two- Month
|
|
|
|
Ten- Month
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
66.0
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization associated with continuing
operations
|
|
|
50.6
|
|
|
|
11.2
|
|
|
|
|
37.7
|
|
|
|
63.8
|
|
|
|
152.2
|
|
Interest expense, net
|
|
|
9.4
|
|
|
|
1.3
|
|
|
|
|
31.2
|
|
|
|
76.1
|
|
|
|
60.3
|
|
Income tax expense
|
|
|
9.2
|
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
11.6
|
|
|
|
8.8
|
|
Restructuring and impairment charges(a)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
13.3
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense(g)
|
|
|
2.4
|
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Foreign currency gain (loss), net(h)
|
|
|
(52.8
|
)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
98.7
|
|
|
$
|
22.1
|
|
|
|
$
|
76.6
|
|
|
$
|
59.8
|
|
|
$
|
111.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This adjustment is comprised of all items included in the
restructuring and impairment charges line item on our
consolidated statements of operations, and eliminates the impact
of restructuring and impairment charges related to (i) for
2009, termination benefits and other related costs, for the
ten-month period ended October 25, 2009 in connection with
the closure of one of our research and development facilities in
Japan, (ii) for 2008, goodwill impairment triggered by the
significant adverse change in the revenue of our mobile display
solutions, or MDS reporting unit, and a reversal of a portion of
the restructuring accrual related to the closure of our Gumi
five-inch wafer fabrication facilities in 2007, and
(iii) for 2007, the closure of our Gumi five-inch wafer
fabrication facilities. We do not believe these restructuring
and impairment charges are indicative of our core ongoing
operating performance because we do not anticipate similar
facility closures and market driven events in our ongoing
operations, although we cannot guarantee that similar events
will not occur in the future. |
|
(b) |
|
This adjustment relates to certain restructuring charges that
are not included in the restructuring and impairment charges
line item on our consolidated statements of operations. These
items are included in selling, general and administrative
expenses in our consolidated statements of operations. These
charges are comprised of the following: (i) for 2009, a
charge of $13.3 million for restructuring-related
professional fees and related expenses and (ii) for 2008, a
charge of $6.2 million for restructuring-related
professional fees and related expenses. We do not believe these
other restructuring charges are indicative of our core ongoing
operating performance because these charges were related, in
significant part, to actions we took in response to the impacts
on our business resulting from the global |
11
|
|
|
|
|
economic recession that persisted through 2008 and 2009. We
cannot guarantee that similar charges will not be incurred in
the future. |
|
(c) |
|
This adjustment eliminates a $3.7 million charge in 2008
related to expenses incurred in connection with our abandoned
initial public offering in 2008. We do not believe that these
charges are indicative of our core operating performance. We
expect to incur similar costs in connection with this offering. |
|
(d) |
|
This adjustment eliminates a $1.3 million charge
attributable to a one-time settlement of claims with a
subcontractor. We no longer obtain services from this
subcontractor and do not expect to incur similar charges in the
future. |
|
(e) |
|
This adjustment eliminates the impact of largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings from our ongoing operations
including, among others, professional fees, the revaluation of
assets, the effects of the Chapter 11 reorganization plan
and fresh-start accounting principles and the write-off of debt
issuance costs. Included in reorganization items, net for the
period from January 1 to October 25, 2009 was our
predecessors gain recognized from the effects of our
reorganization proceedings. The gain results from the difference
between our predecessors carrying value of remaining
pre-petition liabilities subject to compromise and the amounts
to be distributed pursuant to the reorganization proceedings.
The gain from the effects of the reorganization proceedings and
the application of fresh-start accounting principles is
comprised of the discharge of liabilities subject to compromise,
net of the issuance of new common units and new warrants and the
accrual of amounts to be settled in cash. For details regarding
this adjustment, see note 5 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten
months ended October 25, 2009 and the two months ended
December 31, 2009 included elsewhere in this prospectus. We
do not believe these items are indicative of our core ongoing
operating performance because they were incurred as a result of
our Chapter 11 reorganization. |
|
(f) |
|
This adjustment eliminates the one-time impact on cost of sales
associated with the write-up of our inventory in accordance with
the principles of fresh-start accounting upon consummation of
the Chapter 11 reorganization. |
|
(g) |
|
This adjustment eliminates the impact of non-cash equity-based
compensation expenses. Although we expect to incur non-cash
equity-based compensation expenses in the future, we believe
that analysts and investors will find it helpful to review our
operating performance without the effects of these non-cash
expenses, as supplemental information. |
|
(h) |
|
This adjustment eliminates the impact of non-cash foreign
currency translation associated with intercompany debt
obligations and foreign currency denominated receivables and
payables, as well as the cash impact of foreign currency
transaction gains or losses on collection of such receivables
and payment of such payables. Although we expect to incur
foreign currency translation gains or losses in the future, we
believe that analysts and investors will find it helpful to
review our operating performance without the effects of these
primarily non-cash gains or losses, as supplemental information. |
Adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
|
|
|
|
|
Adjusted EBITDA does not reflect our cash expenditures, or
future requirements, for capital expenditures or contractual
commitments;
|
|
|
|
Adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
|
12
|
|
|
|
|
Adjusted EBITDA does not reflect the interest expense, or the
cash requirements necessary to service interest or principal
payments, on our debt;
|
|
|
|
although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and Adjusted EBITDA does not reflect any
cash requirements for such replacements;
|
|
|
|
Adjusted EBITDA does not consider the potentially dilutive
impact of issuing equity-based compensation to our management
team and employees;
|
|
|
|
Adjusted EBITDA does not reflect the costs of holding certain
assets and liabilities in foreign currencies; and
|
|
|
|
other companies in our industry may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
|
Because of these limitations, Adjusted EBITDA should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted EBITDA only supplementally.
|
|
|
(5) |
|
We present Adjusted Net Income as a further supplemental measure
of our performance. We prepare Adjusted Net Income by adjusting
net income (loss) to eliminate the impact of a number of
non-cash expenses and other items that may be either one time or
recurring that we do not consider to be indicative of our core
ongoing operating performance. We believe that Adjusted Net
Income is particularly useful because it reflects the impact of
our asset base and capital structure on our operating
performance. |
We present Adjusted Net Income for a number of reasons,
including:
|
|
|
|
|
we use Adjusted Net Income in communications with our board of
directors concerning our consolidated financial performance;
|
|
|
|
we believe that Adjusted Net Income is an enterprise level
performance measure commonly reported and widely used by
analysts and investors in our industry; and
|
|
|
|
we anticipate that our investor and analyst presentations after
we are public will include Adjusted Net Income.
|
Adjusted Net Income is not a measure defined in accordance with
GAAP and should not be construed as an alternative to income
from continuing operations, cash flows from operating activities
or net income (loss), as determined in accordance with GAAP. We
encourage you to evaluate each adjustment and the reasons we
consider them appropriate. Other companies in our industry may
calculate Adjusted Net Income differently than we do, limiting
its usefulness as a comparative measure. In addition, in
evaluating Adjusted Net Income, you should be aware that in the
future we may incur expenses similar to the adjustments in this
presentation. We define Adjusted Net Income as net income (loss)
less income (loss) from discontinued operations, net of taxes,
excluding (i) restructuring and impairment charges, (ii) other
restructuring charges, (iii) abandoned IPO expenses, (vi)
subcontractor claim settlement, (v) reorganization items, net,
(vi) the increase in cost of sales resulting from the
fresh-start accounting inventory step-up, (vii) equity based
compensation expense, (viii) amortization of intangibles
associated with continuing operations, and (ix) foreign currency
gain (loss).
13
The following table summarizes the adjustments to net income
(loss) that we make in order to calculate Adjusted Net Income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Pro Forma
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
Two- Month
|
|
|
|
Ten- Month
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
66.0
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment charges(a)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
13.3
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(g)
|
|
|
2.4
|
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Amortization of intangibles associated with continuing
operations(h)
|
|
|
23.6
|
|
|
|
5.6
|
|
|
|
|
8.8
|
|
|
|
20.0
|
|
|
|
27.5
|
|
Foreign currency gain (loss), net(i)
|
|
|
(52.8
|
)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net income (loss)
|
|
$
|
53.0
|
|
|
$
|
13.3
|
|
|
|
$
|
9.3
|
|
|
$
|
(71.7
|
)
|
|
$
|
(82.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This adjustment is comprised of all
items included in the restructuring and impairment charges line
item on our consolidated statements of operations, and
eliminates the impact of restructuring and impairment charges
related to (i) for 2009, termination benefits and other
related costs, for the ten-month period ended October 25,
2009 in connection with the closure of one of our research and
development facilities in Japan, (ii) for 2008, goodwill
impairment triggered by the significant adverse change in the
revenue of our MDS reporting unit and a reversal of a portion of
the restructuring accrual related to the closure of our Gumi
five-inch wafer fabrication facilities in 2007, and
(iii) for 2007, the closure of our Gumi five-inch wafer
fabrication facilities. We do not believe these restructuring
and impairment charges are indicative of our core ongoing
operating performance because we do not anticipate similar
facility closures and market driven events in our ongoing
operations, although we cannot guarantee that similar events
will not occur in the future.
|
|
|
(b)
|
|
This adjustment relates to certain
restructuring charges that are not included in the restructuring
and impairment charges line item on our consolidated statements
of operations. These items are included in selling, general and
administrative expenses in our consolidated statements of
operations. These charges are comprised of the following:
(i) for 2009, a charge of $13.3 million for
restructuring-related professional fees and related expenses,
and (ii) for 2008, a charge of $6.2 million for
restructuring-related professional fees and related expenses. We
do not believe these other restructuring charges are indicative
of our core ongoing operating performance because these charges
were related, in significant part, to actions we took in
response to the impacts on our business resulting from the
global economic recession that persisted through 2008 and 2009.
We cannot guarantee that similar charges will not be incurred in
the future.
|
|
|
(c)
|
|
This adjustment eliminates a $3.7
million charge in 2008 related to expenses incurred in
connection with our abandoned initial public offering in 2008.
We do not believe that these charges are indicative of our core
operating performance. We expect to incur similar costs in
connection with this offering.
|
|
|
(d)
|
|
This adjustment eliminates a $1.3
million charge attributable to a one-time settlement of claims
with a subcontractor. We no longer obtain services from this
subcontractor and do not expect to incur similar charges in the
future.
|
|
|
(e)
|
|
This adjustment eliminates the
impact of largely non-cash reorganization income and expense
items directly associated with our reorganization proceedings
from our ongoing operations including, among others,
professional fees, the revaluation of assets, the effects of the
Chapter 11 reorganization plan and fresh-start accounting
principles and the write-off of debt issuance costs. Included in
reorganization items, net for the ten-month period ended
October 25, 2009 was our predecessors gain recognized
from the effects of our reorganization proceedings. The gain
results from the difference between our predecessors
carrying value of remaining pre-petition liabilities subject to
compromise and the amounts to be distributed pursuant to the
reorganization proceedings. The gain from the effects of the
reorganization proceedings and the application of fresh-start
accounting principles is comprised of the discharge of
liabilities subject to compromise, net of the issuance of new
common units and new warrants and the accrual of amounts to be
settled in cash. For details regarding this adjustment, see
note 5 to the consolidated financial statements of
MagnaChip Semiconductor LLC for the ten months ended
October 25, 2009 and the two months ended December 31,
2009
|
14
|
|
|
|
|
included elsewhere in this
prospectus. We do not believe these items are indicative of our
core ongoing operating performance because they were incurred as
a result of our reorganization proceedings.
|
|
(f)
|
|
This adjustment eliminates the
one-time impact on cost of sales associated with the write-up of
our inventory in accordance with the principles of fresh-start
accounting upon consummation of the Chapter 11
reorganization.
|
|
(g)
|
|
This adjustment eliminates the
impact of non-cash equity-based compensation expenses. Although
we expect to incur non-cash equity-based compensation expenses
in the future, we believe that analysts and investors will find
it helpful to review our operating performance without the
effects of these non-cash expenses, as supplemental information.
|
|
(h)
|
|
This adjustment eliminates the
non-cash impact of amortization expense for intangible assets
created as a result of the purchase accounting treatment of the
Original Acquisition and other subsequent acquisitions, and from
the application of fresh-start accounting in connection with the
reorganization proceedings. We do not believe these non-cash
amortization expenses for intangibles are indicative of our core
ongoing operating performance because the assets would not have
been capitalized on our balance sheet but for the application of
purchase accounting or fresh-start accounting, as applicable.
|
|
(i)
|
|
This adjustment eliminates the
impact of non-cash foreign currency translation associated with
intercompany debt obligations and foreign currency denominated
receivables and payables, as well as the cash impact of foreign
currency transaction gains or losses on collection of such
receivables and payment of such payables. Although we expect to
incur foreign currency translation gains or losses in the
future, we believe that analysts and investors will find it
helpful to review our operating performance without the effects
of these primarily non-cash gains or losses, as supplemental
information.
|
Adjusted Net Income has limitations as an analytical tool, and
you should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
|
|
|
|
|
Adjusted Net Income does not reflect our cash expenditures, or
future requirements, for capital expenditures or contractual
commitments;
|
|
|
|
Adjusted Net Income does not reflect changes in, or cash
requirements for, our working capital needs;
|
|
|
|
Adjusted Net Income does not consider the potentially dilutive
impact of issuing equity-based compensation to our management
team and employees;
|
|
|
|
Adjusted Net Income does not reflect the costs of holding
certain assets and liabilities in foreign currencies; and
|
|
|
|
other companies in our industry may calculate Adjusted Net
Income differently than we do, limiting its usefulness as a
comparative measure.
|
Because of these limitations, Adjusted Net Income should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted Net Income only supplementally.
15
RISK
FACTORS
You should carefully consider the risk factors set forth
below as well as the other information contained in this
prospectus before investing in our common stock. Any of the
following risks could materially and adversely affect our
business, financial condition or results of operations. In such
a case, the price of our common stock could decline and you
could lose all or part of your investment. Additional risks and
uncertainties not currently known to us or those currently
viewed by us to be immaterial may also materially and adversely
affect our business, financial condition or results of
operations.
Risks Related to
Our Business
We have a
history of losses and may not achieve or sustain profitability
in the future.
Since we began operations as a separate entity in 2004, we have
not generated a profit for a full fiscal year and have generated
significant net losses. As of October 25, 2009, prior to
our emergence from reorganization proceedings, we had an
accumulated deficit of $964.8 million and negative
stockholders equity. We may increase spending and we
currently expect to incur higher expenses in each of the next
several quarters to support increased research and development
and sales and marketing efforts. These expenditures may not
result in increased revenue or an increase in the number of
customers immediately or at all. Because many of our expenses
are fixed in the short term, or are incurred in advance of
anticipated sales, we may not be able to decrease our expenses
in a timely manner to offset any shortfall of sales.
We recently
emerged from Chapter 11 reorganization proceedings; because
our consolidated financial statements reflect fresh-start
accounting adjustments, our future financial statements will not
be comparable in many respects to our financial information from
prior periods.
On June 12, 2009, we filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in
order to obtain relief from our debt, which was
$845 million as of December 31, 2008. Our plan of
reorganization became effective on November 9, 2009. In
connection with our emergence from the reorganization
proceedings, we implemented fresh-start accounting in accordance
with ASC 852 effective from October 25, 2009, which
had a material effect on our consolidated financial statements.
Thus, our future consolidated financial statements will not be
comparable in many respects to our consolidated financial
statements for periods prior to our adoption of fresh-start
accounting and prior to accounting for the effects of the
reorganization proceedings. Our past financial difficulties and
bankruptcy filing may have harmed, and may continue to have a
negative effect on, our relationships with investors, customers
and suppliers.
Our
independent registered public accounting firm identified two
control deficiencies which represent a material weakness in our
internal control over financial reporting in connection with our
audits for the ten-month period ended October 25, 2009 and
the
two-month
period ended December 31, 2009. If we fail to effectively
remediate this weakness and maintain effective internal control
over financial reporting in the future, the accuracy and timing
of our financial reporting may be adversely
affected.
In connection with the audit of our consolidated financial
statements for the ten-month period ended October 25, 2009
and the two-month period ended December 31, 2009, our
independent registered public accounting firm reported two
control deficiencies, which represent a material weakness in our
internal control over financial reporting. The two control
deficiencies which represent a material weakness that our
independent registered public accounting firm reported to our
board of directors (as we then did not have a separate audit
committee) are that we do not have a sufficient number of
financial personnel with the requisite financial accounting
experience and that our internal controls over non-routine
transactions are not effective to ensure that accounting
considerations are identified and appropriately recorded.
16
As we prepare for the completion of this offering, we have
identified and taken steps intended to remediate this material
weakness. Upon being notified of the material weakness, we
retained the services of an international accounting firm to
temporarily supplement our internal resources. We are also in
the process of recruiting a director of financial reporting. Any
inability to recruit, train and retain adequate finance
personnel with requisite technical and public company experience
could have an adverse impact on our ability to accurately and
timely prepare our consolidated financial statements. If our
finance and accounting organization is unable for any reason to
respond adequately to the increased demands that will result
from being a public company, the quality and timeliness of our
financial reporting may suffer, which could result in the
identification of additional material weaknesses in our internal
control. Any consequences resulting from inaccuracies or delays
in our reported financial statements could have an adverse
effect on our business, operating results and financial
condition, our ability to run our business effectively and our
ability to meet our financial reporting requirements, and could
cause investors to lose confidence in our financial reporting.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Controls and
Procedures.
We operate in
the highly cyclical semiconductor industry, which is subject to
significant downturns that may negatively impact our results of
operations.
The semiconductor industry is highly cyclical and is
characterized by constant and rapid technological change and
price erosion, evolving technical standards, short product life
cycles (for semiconductors and for the end-user products in
which they are used) and wide fluctuations in product supply and
demand. From time to time, these and other factors, together
with changes in general economic conditions, cause significant
upturns and downturns in the industry in general and in our
business in particular. Periods of industry downturns, including
the current economic downturn, have been characterized by
diminished demand for end-user products, high inventory levels,
underutilization of manufacturing capacity, changes in revenue
mix and accelerated erosion of average selling prices. We have
experienced these conditions in our business in the past and may
experience renewed, and possibly more severe and prolonged,
downturns in the future as a result of such cyclical changes.
This may reduce our results of operations.
We base our planned operating expenses in part on our
expectations of future revenue, and a significant portion of our
expenses is relatively fixed in the short term. If revenue for a
particular quarter is lower than we expect, we likely will be
unable to proportionately reduce our operating expenses for that
quarter, which would harm our operating results for that quarter.
If we fail to
develop new products and process technologies or enhance our
existing products and services in order to react to rapid
technological change and market demands, our business will
suffer.
Our industry is subject to constant and rapid technological
change and product obsolescence as customers and competitors
create new and innovative products and technologies. Products or
technologies developed by other companies may render our
products or technologies obsolete or noncompetitive, and we may
not be able to access advanced process technologies or to
license or otherwise obtain essential intellectual property
required by our customers.
We must develop new products and services and enhance our
existing products and services to meet rapidly evolving customer
requirements. We design products for customers who continually
require higher performance and functionality at lower costs. We
must, therefore, continue to enhance the performance and
functionality of our products. The development process for these
advancements is lengthy and requires us to accurately anticipate
technological changes and market trends. Developing and
enhancing these products is uncertain and can be time-consuming,
costly and complex. If we do not continue to develop and
maintain process technologies that are in demand by our
semiconductor manufacturing services customers, we may be unable
to maintain existing customers or attract new customers.
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Customer and market requirements can change during the
development process. There is a risk that these developments and
enhancements will be late, fail to meet customer or market
specifications or not be competitive with products or services
from our competitors that offer comparable or superior
performance and functionality. Any new products, such as our new
line of power management solutions, which we began marketing in
2008, or product or service enhancements, may not be accepted in
new or existing markets. Our business will suffer if we fail to
develop and introduce new products and services or product and
service enhancements on a timely and cost-effective basis.
We manufacture
our products based on our estimates of customer demand, and if
our estimates are incorrect our financial results could be
negatively impacted.
We make significant decisions, including determining the levels
of business that we will seek and accept, production schedules,
component procurement commitments, personnel needs and other
resource requirements based on our estimates of customer
demand and expected demand for and success of their products.
The short-term nature of commitments by many of our customers
and the possibility of rapid changes in demand for their
products reduces our ability to estimate accurately future
customer demand for our products. On occasion, customers may
require rapid increases in supply, which can challenge our
production resources and reduce margins. We may not have
sufficient capacity at any given time to meet our
customers increased demand for our products. Conversely,
downturns in the semiconductor industry have caused and may in
the future cause our customers to reduce significantly the
amount of products they order from us. Because many of our costs
and operating expenses are relatively fixed, a reduction in
customer demand would decrease our results of operations,
including our gross profit.
Our customers
may cancel their orders, reduce quantities or delay production,
which would adversely affect our margins and results of
operations.
We generally do not obtain firm, long-term purchase commitments
from our customers. Customers may cancel their orders, reduce
quantities or delay production for a number of reasons.
Cancellations, reductions or delays by a significant customer or
by a group of customers, which we have experienced as a result
of periodic downturns in the semiconductor industry or failure
to achieve design wins, have affected and may continue to affect
our results of operations adversely. These risks are exacerbated
because many of our products are customized, which hampers our
ability to sell excess inventory to the general market. We may
incur charges resulting from the write-off of obsolete
inventory. In addition, while we do not obtain long-term
purchase commitments, we generally agree to the pricing of a
particular product over a set period of time. If we
underestimate our costs when determining pricing, our margins
and results of operations would be adversely affected.
We depend on
high utilization of our manufacturing capacity, a reduction of
which could have a material adverse effect on our business,
financial condition and the results of our
operations.
An important factor in our success is the extent to which we are
able to utilize the available capacity in our fabrication
facilities. As many of our costs are fixed, a reduction in
capacity utilization, as well as changes in other factors such
as reduced yield or unfavorable product mix, could reduce our
profit margins and adversely affect our operating results. A
number of factors and circumstances may reduce utilization
rates, including periods of industry overcapacity, low levels of
customer orders, operating inefficiencies, mechanical failures
and disruption of operations due to expansion or relocation of
operations, power interruptions, fire, flood or other natural
disasters or calamities. The potential delays and costs
resulting from these steps could have a material adverse effect
on our business, financial condition and results of operations.
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A significant
portion of our sales comes from a relatively limited number of
customers, the loss of which would adversely affect our
financial results.
Historically, we have relied on a limited number of customers
for a substantial portion of our total revenue. If we were to
lose key customers or if customers cease to place orders for our
high-volume products or services, our financial results would be
adversely affected. Net sales to our ten largest customers
represented 66%, 69% and 63% of our net sales for the two-month
period ended December 31, 2009, the ten-month period ended
October 25, 2009 and the year ended December 31, 2008,
respectively. LG Display represented more than 10% of our net
sales and a substantial portion of the net sales generated by
our top ten customers for the combined twelve-month period ended
December 31, 2009, and for the years ended
December 31, 2008 and 2007. Significant reductions in sales
to any of these customers, especially our few largest customers,
the loss of other major customers or a general curtailment in
orders for our high-volume products or services within a short
period of time would adversely affect our business.
The average
selling prices of our semiconductor products have at times
declined rapidly and will likely do so in the future, which
could harm our revenue and gross profit.
The semiconductor products we develop and sell are subject to
rapid declines in average selling prices. From time to time, we
have had to reduce our prices significantly to meet customer
requirements, and we may be required to reduce our prices in the
future. This would cause our gross profit to decrease. Our
financial results will suffer if we are unable to offset any
reductions in our average selling prices by increasing our sales
volumes, reducing our costs or developing new or enhanced
products on a timely basis with higher selling prices or gross
profit.
Our industry
is highly competitive and our ability to compete could be
negatively impacted by a variety of factors.
The semiconductor industry is highly competitive and includes
hundreds of companies, a number of which have achieved
substantial market share both within our product categories and
end markets. Current and prospective customers for our products
and services evaluate our capabilities against the merits of our
competitors. Some of our competitors are well established as
independent companies and have substantially greater market
share and manufacturing, financial, research and development and
marketing resources than we do. We also compete with emerging
companies that are attempting to sell their products in certain
of our end markets and with the internal semiconductor design
and manufacturing capabilities of many of our significant
customers. We expect to experience continuing competitive
pressures in our markets from existing competitors and new
entrants.
Any consolidation among our competitors could enhance their
product offerings and financial resources, further enhancing
their competitive position. Our ability to compete will depend
on a number of factors, including the following:
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our ability to offer cost-effective and high quality products
and services on a timely basis using our technologies;
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our ability to accurately identify and respond to emerging
technological trends and demand for product features and
performance characteristics;
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our ability to continue to rapidly introduce new products that
are accepted by the market;
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our ability to adopt or adapt to emerging industry standards;
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the number and nature of our competitors and competitiveness of
their products and services in a given market;
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entrance of new competitors into our markets;
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our ability to enter the highly competitive power management
market; and
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our ability to continue to offer in demand semiconductor
manufacturing services at competitive prices.
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Many of these factors are outside of our control. In the future,
our competitors may replace us as a supplier to our existing or
potential customers, and our customers may satisfy more of their
requirements internally. As a result, we may experience
declining revenues and results of operations.
Changes in
demand for consumer electronics in our end markets can impact
our results of operations.
Demand for our products will depend in part on the demand for
various consumer electronics products, in particular, mobile
phones and multimedia devices, digital televisions, flat panel
displays, mobile PCs and digital cameras, which in turn depends
on general economic conditions and other factors beyond our
control. If our customers fail to introduce new products that
employ our products or component parts, demand for our products
will suffer. To the extent that we cannot offset periods of
reduced demand that may occur in these markets through greater
penetration of these markets or reduction in our production and
costs, our sales and gross profit may decline, which would
negatively impact our business, financial condition and results
of operations.
If we fail to
achieve design wins for our semiconductor products, we may lose
the opportunity for sales to customers for a significant period
of time and be unable to recoup our investments in our
products.
We expend considerable resources on winning competitive
selection processes, known as design wins, to develop
semiconductor products for use in our customers products.
These selection processes are typically lengthy and can require
us to incur significant design and development expenditures. We
may not win the competitive selection process and may never
generate any revenue despite incurring significant design and
development expenditures. Once a customer designs a
semiconductor into a product, that customer is likely to
continue to use the same semiconductor or enhanced versions of
that semiconductor from the same supplier across a number of
similar and successor products for a lengthy period of time due
to the significant costs associated with qualifying a new
supplier and potentially redesigning the product to incorporate
a different semiconductor. If we fail to achieve an initial
design win in a customers qualification process, we may
lose the opportunity for significant sales to that customer for
a number of products and for a lengthy period of time. This may
cause us to be unable to recoup our investments in our
semiconductor products, which would harm our business.
We have
lengthy and expensive
design-to-mass
production and manufacturing process development cycles that may
cause us to incur significant expenses without realizing
meaningful sales, the occurrence of which would harm our
business.
The cycle time from the design stage to mass production for some
of our products is long and requires the investment of
significant resources with many potential customers without any
guarantee of sales. Our
design-to-mass
production cycle typically begins with a
three-to-twelve
month semiconductor development stage and test period followed
by a
three-to-twelve
month end-product qualification period by our customers. The
fairly lengthy front end of our sales cycle creates a risk that
we may incur significant expenses but may be unable to realize
meaningful sales. Moreover, prior to mass production, customers
may decide to cancel their products or change production
specifications, resulting in sudden changes in our product
specifications, increasing our production time and costs.
Failure to meet such specifications may also delay the launch of
our products or result in lost sales.
In addition, we collaborate and jointly develop certain process
technologies and manufacturing process flows custom to certain
of our semiconductor manufacturing services customers. To the
extent that our semiconductor manufacturing services customers
fail to achieve market acceptance for
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their products, we may be unable to recoup our engineering
resources commitment and our investment in process technology
development, which would harm our business.
Research and
development investments may not yield profitable and
commercially viable product and service offerings and thus will
not necessarily result in increases in revenues for
us.
We invest significant resources in our research and development.
Our research and development efforts, however, may not yield
commercially viable products or enhance our semiconductor
manufacturing services offerings. During each stage of research
and development there is a substantial risk that we will have to
abandon a potential product or service offering that is no
longer marketable and in which we have invested significant
resources. In the event we are able to develop viable new
products or service offerings, a significant amount of time will
have elapsed between our investment in the necessary research
and development effort and the receipt of any related revenues.
We face
numerous challenges relating to executing our growth strategy,
and if we are unable to execute our growth strategy effectively,
our business and financial results could be materially and
adversely affected.
Our growth strategy is to leverage our advanced analog and
mixed-signal technology platform, continue to innovate and
deliver new products and services, increase business with
existing customers, broaden our customer base, aggressively grow
our power business, drive execution excellence and focus on
specialty process technologies. As part of our growth strategy,
we began marketing a new line of power management semiconductor
products in 2008 and expect to introduce other new products and
services in the future. If we are unable to execute our growth
strategy effectively, we may not be able to take advantage of
market opportunities, execute our business plan or respond to
competitive pressures. Moreover, if our allocation of resources
does not correspond with future demand for particular products,
we could miss market opportunities and our business and
financial results could be materially and adversely affected.
We are subject
to risks associated with currency fluctuations, and changes in
the exchange rates of applicable currencies could impact our
results of operations.
Historically, a portion of our revenues and greater than the
majority of our operating expenses and costs of sales have been
denominated in
non-U.S. currencies,
principally the Korean won, and we expect that this will remain
true in the future. Because we report our results of operations
in U.S. dollars, changes in the exchange rate between the
Korean won and the U.S. dollar could materially impact our
reported results of operations and distort period to period
comparisons. In particular, because of the difference in the
amount of our consolidated revenues and expenses that are in
U.S. dollars relative to Korean won, a depreciation in the
U.S. dollar relative to the Korean won could result in a
material increase in reported costs relative to revenues, and
therefore could cause our profit margins and operating income to
appear to decline materially, particularly relative to prior
periods. The converse is true if the U.S. dollar were to
appreciate relative to the Korean won. Fluctuations in foreign
currency exchange rates also impact the reporting of our
receivables and payables in
non-U.S.
currencies. Foreign currency fluctuations had a materially
beneficial impact on our results of operations in the fiscal
year ended December 31, 2008 relative to the fiscal year
ended December 31, 2007, as well as in the combined
twelve-month period ended December 31, 2009 relative to the
fiscal year ended December 31, 2008. As a result of foreign
currency fluctuations, it could be more difficult to detect
underlying trends in our business and results of operations. In
addition, to the extent that fluctuations in currency exchange
rates cause our results of operations to differ from our
expectations or the expectations of our investors, the trading
price of our stock could be adversely affected.
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From time to time, we may engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate
fluctuations. For example, in January 2010 our Korean subsidiary
entered into foreign currency option and forward contracts in
order to mitigate a portion of the impact of
U.S. dollar-Korean won exchange rate fluctuations on our
operating results. These option and forward contracts require us
to sell specified notional amounts in U.S. dollars and
provide us the option to sell specified notional amounts in
U.S. dollars during each month of 2010 commencing February
2010 to our counterparty, in each case, in exchange for Korean
won at specified fixed exchange rates. Obligations under these
foreign currency option and forward contracts must be cash
collateralized if our exposure exceeds certain specified
thresholds. These option and forward contracts may be terminated
by the counterparty in a number of circumstances, including if
our long-term debt rating falls below B-/B3 or if our total cash
and cash equivalents is less than $12.5 million at the end
of a fiscal quarter. We cannot assure you that any hedging
technique we implement will be effective. If our hedging
activities are not effective, changes in currency exchange rates
may have a more significant impact on our results of operations.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Factors
Affecting our Results of Operations.
The ongoing
economic downturn and recent financial crisis has negatively
affected our business and continuing poor economic conditions
may negatively affect our future business, results of operations
and financial condition.
The ongoing global recession and recent financial crisis has led
to slower economic activity, increased unemployment, concerns
about inflation and energy costs, decreased business and
consumer confidence, reduced corporate profits and capital
spending, adverse business conditions and lower levels of
liquidity in many financial markets. Consumers and businesses
have deferred purchases in response to tighter credit and
negative financial news, which has in turn negatively affected
product demand and other related matters. The global recession
has led to reduced customer spending in the semiconductor market
and in our target markets, made it difficult for our customers,
our vendors and us to accurately forecast and plan future
business activities, and has caused U.S. and foreign
businesses to slow spending on our products. Prolonged
continuation of this global recession and financial crisis will
likely exacerbate these events and could lead to the insolvency
of key suppliers resulting in product delays, limit the ability
of customers to obtain credit to finance purchases of our
products, lead to customer insolvencies, and also result in
counterparty failures that may negatively impact our treasury
operations. Although recently there have been indications of
improved economic conditions generally and in the semiconductor
industry specifically, there is no assurance of the extent to
which such conditions will continue to improve or whether the
improvement will be sustainable. As a result, our business,
financial condition and result of operations have been
negatively affected and, if the downturn continues, could be
materially adversely affected in future periods.
The loss of
our key employees would materially adversely affect our
business, and we may not be able to attract or retain the
technical or management employees necessary to compete in our
industry.
Our key executives have substantial experience and have made
significant contributions to our business, and our continued
success is dependent upon the retention of our key management
executives, including our Chief Executive Officer and Chairman,
Sang Park. The loss of such key personnel would have a material
adverse effect on our business. In addition, our future success
depends on our ability to attract and retain skilled technical
and managerial personnel. We do not know whether we will be able
to retain all of these employees as we continue to pursue our
business strategy. The loss of the services of key employees,
especially our key design and technical personnel, or our
inability to retain, attract and motivate qualified design and
technical personnel, could have a material adverse effect on our
business, financial condition and results of operations. This
could hinder our research and product development programs or
otherwise have a material adverse effect on our business.
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If we
encounter future labor problems, we may fail to deliver our
products and services in a timely manner, which could adversely
affect our revenues and profitability.
As of January 31, 2010, 2,037 employees, or
approximately 64.6% of our employees, were represented by the
MagnaChip Semiconductor Labor Union, which is a member of the
Federation of Korean Metal Workers Trade Unions. We can offer no
assurance that issues with the labor union and other employees
will be resolved favorably for us in the future, that we will
not experience work stoppages or other labor problems in future
years or that we will not incur significant expenses related to
such issues.
We may incur
costs to engage in future business combinations or strategic
investments, and we may not realize the anticipated benefits of
those transactions.
As part of our business strategy, we may seek to enter into
business combinations, investments, joint ventures and other
strategic alliances with other companies in order to maintain
and grow revenue and market presence as well as to provide us
with access to technology, products and services. Any such
transaction would be accompanied by risks that may harm our
business, such as difficulties in assimilating the operations,
personnel and products of an acquired business or in realizing
the projected benefits, disruption of our ongoing business,
potential increases in our indebtedness and contingent
liabilities and charges if the acquired company or assets are
later determined to be worth less than the amount paid for them
in an earlier original acquisition. In addition, our
indebtedness may restrict us from making acquisitions that we
may otherwise wish to pursue.
The failure to
achieve acceptable manufacturing yields could adversely affect
our business.
The manufacture of semiconductors involves highly complex
processes that require precision, a highly regulated and sterile
environment and specialized equipment. Defects or other
difficulties in the manufacturing process can prevent us from
achieving acceptable yields in the manufacture of our products
or those of our semiconductor manufacturing services customers,
which could lead to higher costs, a loss of customers or delay
in market acceptance of our products. Slight impurities or
defects in the photomasks used to print circuits on a wafer or
other factors can cause significant difficulties, particularly
in connection with the production of a new product, the adoption
of a new manufacturing process or any expansion of our
manufacturing capacity and related transitions. We may also
experience manufacturing problems in achieving acceptable yields
as a result of, among other things, transferring production to
other facilities, upgrading or expanding existing facilities or
changing our process technologies. Yields below our target
levels can negatively impact our gross profit and may cause us
to eliminate underperforming products.
We rely on a
number of independent subcontractors and the failure of any of
these independent subcontractors to perform as required could
adversely affect our operating results.
A substantial portion of our net sales are derived from
semiconductor devices assembled in packages or on film. The
packaging and testing of semiconductors require technical skill
and specialized equipment. For the portion of packaging and
testing that we outsource, we use subcontractors located in
Korea, China, Taiwan, Malaysia and Thailand. We rely on these
subcontractors to package and test our devices with acceptable
quality and yield levels. We could be adversely affected by
political disorders, labor disruptions, and natural disasters
where our subcontractors are located. If our semiconductor
packagers and test service providers experience problems in
packaging and testing our semiconductor devices, experience
prolonged quality or yield problems or decrease the capacity
available to us, our operating results could be adversely
affected.
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We depend on
successful parts and materials procurement for our manufacturing
processes, and a shortage or increase in the price of these
materials could interrupt our operations and result in a decline
of revenues and results of operations.
We procure materials and electronic and mechanical components
from international sources and original equipment manufacturers.
We use a wide range of parts and materials in the production of
our semiconductors, including silicon, processing chemicals,
processing gases, precious metals and electronic and mechanical
components, some of which, such as silicon wafers, are
specialized raw materials that are generally only available from
a limited number of suppliers. We do not have long-term
agreements providing for all of these materials, thus, if demand
increases or supply decreases, the costs of our raw materials
could significantly increase. For example, worldwide supplies of
silicon wafers, an important raw material for the semiconductors
we manufacture, have been constrained in recent years due to an
increased demand for polysilicon. Polysilicon is also a key raw
material for solar cells, the demand for which has increased in
recent years. If we cannot obtain adequate materials in a timely
manner or on favorable terms for the manufacture of our
products, revenues and results of operations will decline.
We face
warranty claims, product return, litigation and liability risks
and the risk of negative publicity if our products
fail.
Our semiconductors are incorporated into a number of end
products, and our business is exposed to product return,
warranty and product liability risk and the risk of negative
publicity if our products fail. Although we maintain insurance
for product liability claims, the amount and scope of our
insurance may not be adequate to cover a product liability claim
that is asserted against us. In addition, product liability
insurance could become more expensive and difficult to maintain
and, in the future, may not be available on commercially
reasonable terms, or at all.
In addition, we are exposed to the product liability risk and
the risk of negative publicity affecting our customers. Our
sales may decline if any of our customers are sued on a product
liability claim. We also may suffer a decline in sales from the
negative publicity associated with such a lawsuit or with
adverse public perceptions in general regarding our
customers products. Further, if our products are delivered
with impurities or defects, we could incur additional
development, repair or replacement costs, and our credibility
and the markets acceptance of our products could be harmed.
We could
suffer adverse tax and other financial consequences as a result
of changes in, or differences in the interpretation of,
applicable tax laws.
Our company organizational structure was created in part based
on certain interpretations and conclusions regarding various tax
laws, including withholding tax, and other tax laws of
applicable jurisdictions. Our Korean subsidiary, MagnaChip
Semiconductor, Ltd., or MagnaChip Korea, was granted a limited
tax holiday under Korean law in October 2004. This grant
provided for certain tax exemptions for corporate taxes and
withholding taxes until December 31, 2008, and for
acquisition taxes, property and land use taxes and certain other
taxes until December 31, 2013. Our interpretations and
conclusions regarding tax laws, however, are not binding on any
taxing authority and, if these interpretations and conclusions
are incorrect, if our business were to be operated in a way that
rendered us ineligible for tax exemptions or caused us to become
subject to incremental tax, or if the authorities were to
change, modify, or have a different interpretation of the
relevant tax laws, we could suffer adverse tax and other
financial consequences and the anticipated benefits of our
organizational structure could be materially impaired.
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The enactment
of legislation implementing changes in U.S. taxation of
international business activities or the adoption of other tax
reform policies could materially impact our financial position
and results of operations.
Several tax bills have been introduced to reform
U.S. taxation of international business activities. If any
of these proposals are enacted into legislation, they could have
material adverse consequences on the amount of tax we pay and
thereby on our financial position and results of operations.
Our ability to
compete successfully and achieve future growth will depend, in
part, on our ability to protect our proprietary technology and
know-how, as well as our ability to operate without infringing
the proprietary rights of others.
We seek to protect our proprietary technologies and know-how
through the use of patents, trade secrets, confidentiality
agreements and other security measures. The process of seeking
patent protection takes a long time and is expensive. There can
be no assurance that patents will issue from pending or future
applications or that, if patents issue, they will not be
challenged, invalidated or circumvented, or that the rights
granted under the patents will provide us with meaningful
protection or any commercial advantage. Some of our technologies
are not covered by any patent or patent application. The
confidentiality agreements on which we rely to protect these
technologies may be breached and may not be adequate to protect
our proprietary technologies. There can be no assurance that
other countries in which we market our services will protect our
intellectual property rights to the same extent as the United
States.
Our ability to compete successfully depends on our ability to
operate without infringing the proprietary rights of others. We
have no means of knowing what patent applications have been
filed in the United States until they are published. In
addition, the semiconductor industry is characterized by
frequent litigation regarding patent and other intellectual
property rights. We may need to file lawsuits to enforce our
patents or intellectual property rights, and we may need to
defend against claimed infringement of the rights of others. Any
litigation could result in substantial costs to us and divert
our resources. Despite our efforts in bringing or defending
lawsuits, we may not be able to prevent third parties from
infringing upon or misappropriating our intellectual property.
In the event of an adverse outcome in any such litigation, we
may be required to:
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pay substantial damages or indemnify customers or licensees for
damages they may suffer if the products they purchase from us or
the technology they license from us violate the intellectual
property rights of others;
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stop our manufacture, use, sale or importation of infringing
products; expend significant resources to develop or acquire
non-infringing technologies;
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discontinue processes; or
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obtain licenses to the intellectual property we are found to
have infringed.
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There can be no assurance that we would be successful in such
development or acquisition or that such licenses would be
available under reasonable terms, or at all. The termination of
key third party licenses relating to the use of intellectual
property in our products and our design processes, such as our
agreements with Silicon Works Co., Ltd. and ARM Limited, would
materially and adversely affect our business.
Our competitors may develop, patent or gain access to know-how
and technology similar to our own. In addition, many of our
patents are subject to cross licenses, several of which are with
our competitors. The noncompetition arrangement agreed to by
Hynix in connection with the Original Acquisition expired on
October 1, 2007. Under that arrangement, Hynix retained a
perpetual license to use the intellectual property that we
acquired from Hynix in the Original Acquisition. Now that these
noncompetition restrictions have expired, Hynix and its
subsidiaries are free to develop products that may incorporate
or embody intellectual property developed by us prior to October
2004.
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Our expenses
could increase if Hynix were unwilling or unable to provide
certain services related to our shared facilities with Hynix,
and if Hynix were to become insolvent, we could lose certain of
our leases.
We are party to a land lease and easement agreement with Hynix
pursuant to which we lease the land for our facilities in
Cheongju, Korea. If this agreement were terminated for any
reason, including the insolvency of Hynix, we would have to
renegotiate new lease terms with Hynix or the new owner of the
land. We cannot assure you that we could negotiate new lease
terms on favorable terms or at all. Because we share certain
facilities with Hynix, several services that are essential to
our business are provided to us by or through Hynix under our
general service supply agreement with Hynix. These services
include electricity, bulk gases and de-ionized water, campus
facilities and housing, wastewater and sewage management,
environmental safety and certain utilities and infrastructure
support services. If any of our agreements with Hynix were
terminated or if Hynix were unwilling or unable to fulfill its
obligations to us under the terms of these agreements, we would
have to procure these services on our own and as a result may
experience an increase in our expenses.
We are subject
to many environmental laws and regulations that could affect our
operations or result in significant expenses.
We are subject to requirements of environmental, health and
safety laws and regulations in each of the jurisdictions in
which we operate, governing air emissions, wastewater
discharges, the generation, use, handling, storage and disposal
of, and exposure to, hazardous substances (including asbestos)
and wastes, soil and groundwater contamination and employee
health and safety. These laws and regulations are complex,
change frequently and have tended to become more stringent over
time. There can be no assurance that we have been, or will be,
in compliance with all such laws and regulations or that we will
not incur material costs or liabilities in connection with these
laws and regulations in the future. The adoption of new
environmental, health and safety laws, the failure to comply
with new or existing laws, or issues relating to hazardous
substances could subject us to material liability (including
substantial fines or penalties), impose the need for additional
capital equipment or other process requirements upon us, curtail
our operations or restrict our ability to expand operations.
If our Korean
subsidiary is designated as a regulated business under Korean
environmental law, such designation could have an adverse effect
on our financial position and results of
operation.
In February 2010, the Korean government pre-announced the draft
Enforcement Decree to the Framework Act on Low Carbon Green
Growth, or the Enforcement Decree. If approved, the Enforcement
Decree will become effective in April 2010. According to the
Enforcement Decree, businesses that exceed 25,000 tons of
greenhouse gas emissions and 100 terajoules of energy
consumption for the prior three years will be subject to
regulation and will be required to submit plans to reduce
greenhouse emissions and energy consumption as well as
performance reports and will be subject to government
requirements to take further action. If MagnaChip Korea is
designated as a regulated business under the Enforcement Decree,
we could be subject to additional and potentially costly
compliance or remediation expenses which could adversely affect
our financial position and results of operations.
We will likely
need additional capital in the future, and such capital may not
be available on acceptable terms or at all, which would have a
material adverse effect on our business, financial condition and
results of operations.
We will likely require more capital in the future from equity or
debt financings to fund operating expenses, such as research and
development costs, finance investments in equipment and
infrastructure, acquire complimentary businesses and
technologies, and respond to competitive pressures and potential
strategic opportunities. If we raise additional funds through
further issuances
26
of equity or other securities convertible into equity, our
existing stockholders could suffer significant dilution, and any
new shares we issue could have rights, preferences or privileges
senior to those of the holders of our common stock, including
the shares of common stock sold in this offering. In addition,
additional capital may not be available when needed or, if
available, may not be available on favorable terms. In addition,
our indebtedness limits our ability to incur additional
indebtedness under certain circumstances. If we are unable to
obtain capital on favorable terms, or if we are unable to obtain
capital at all, we may have to reduce our operations or forego
opportunities, and this may have a material adverse effect on
our business, financial condition and results of operations.
Our business
depends on international customers, suppliers and operations in
Asia, and as a result we are subject to regulatory, operational,
financial and political risks, which could adversely affect our
financial results.
We rely on, and expect to continue to rely on, suppliers,
subcontractors and operations located primarily in Asia. As a
result, we face risks inherent in international operations, such
as unexpected changes in regulatory requirements, tariffs and
other market barriers, political, social and economic
instability, adverse tax consequences, war, civil disturbances
and acts of terrorism, difficulties in accounts receivable
collection, extended payment terms and differing labor
standards, enforcement of contractual obligations and protection
of intellectual property. These risks may lead to increased
costs or decreased revenue growth, or both. Although we do not
derive any revenue from, nor sell any products in, North Korea,
any future increase in tensions between South Korea and North
Korea that may occur, such as an outbreak of military
hostilities, would adversely affect our business, financial
condition and results of operations.
You may be
unable to enforce judgments obtained in United States courts
against us or our subsidiaries organized in jurisdictions other
than the United States.
Most of our subsidiaries are organized or incorporated outside
of the United States and most of our and our subsidiaries
assets are located outside of the United States. Accordingly,
any judgment obtained in the United States against us or our
subsidiaries may not be collectible in the United States.
In addition, some of our directors and executive officers are
not residents of the United States. It may be difficult to
enforce civil liabilities in United States courts against these
non-resident directors and officers.
Investor
confidence may be adversely impacted if we are unable to comply
with Section 404 of the Sarbanes-Oxley Act of 2002, and as
a result, our stock price could decline.
We will be subject to rules adopted by the Securities Exchange
Commission, or SEC, pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act, which require
us to include in our Annual Report on
Form 10-K
our managements report on, and assessment of the
effectiveness of, our internal controls over financial
reporting. Beginning with our fiscal year ending
December 31, 2011, our independent auditors will be
required to attest to and report on the effectiveness of our
internal control over financial reporting. In connection with
audits of our consolidated financial statements for the
ten-month period ended October 25, 2009 and two-month
period ended December 31, 2009, our independent registered
public accounting firm has reported two control deficiencies
that existed prior to their review, which represent a material
weakness in our internal control over financial reporting. The
two control deficiencies which represent a material weakness
that our independent registered public accounting firm reported
to our board of directors are that we do not have a sufficient
number of financial personnel with the requisite financial
accounting experience and that our controls over non-routine
transactions are not effective to ensure that accounting
considerations are identified and appropriately recorded. If we
fail to achieve and maintain the adequacy of our internal
controls, there is a risk that we will not comply with all of
the requirements imposed by Section 404. Moreover,
effective internal controls, particularly those related to
revenue recognition, are necessary for us to produce reliable
financial reports and are important to helping
27
prevent financial fraud. Any of these possible outcomes could
result in an adverse reaction in the financial marketplace due
to a loss of investor confidence in the reliability of our
consolidated financial statements and could result in
investigations or sanctions by the SEC, the New York Stock
Exchange, or NYSE, or other regulatory authorities or in
stockholder litigation. Any of these factors ultimately could
harm our business and could negatively impact the market price
of our securities. Ineffective control over financial reporting
could also cause investors to lose confidence in our reported
financial information, which could adversely affect the trading
price of our common stock.
Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives. However, our
management, including our principal executive officer and
principal financial officer, does not expect that our disclosure
controls and procedures will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of
fraud, if any, have been detected.
We may need to
incur impairment and other restructuring charges, which could
materially affect our results of operations and financial
conditions.
During industry downturns and for other reasons, we may need to
record impairment or restructuring charges. From April 4,
2005 through December 31, 2009, we recognized aggregate
restructuring and impairment charges of $63.7 million,
which consisted of $58.1 million of impairment charges and
$5.6 million of restructuring charges. In the future, we
may need to record additional impairment charges or to further
restructure our business or incur additional restructuring
charges, any of which could have a material adverse effect on
our results of operations or financial condition.
We are subject
to litigation risks, which may be costly to defend and the
outcome of which is uncertain.
All industries, including the semiconductor industry, are
subject to legal claims, with and without merit, that may be
particularly costly and which may divert the attention of our
management and our resources in general. We are involved in a
variety of legal matters, most of which we consider routine
matters that arise in the normal course of business. These
routine matters typically fall into broad categories such as
those involving customers, employment and labor and intellectual
property. Even if the final outcome of these legal claims does
not have a material adverse effect on our financial position,
results of operations or cash flows, defense and settlement
costs can be substantial. Due to the inherent uncertainty of the
litigation process, the resolution of any particular legal claim
or proceeding could have a material effect on our business,
financial condition, results of operations or cash flows.
Risks Related to
Our Common Stock
The price of
our depositary shares and common stock may be volatile and you
may lose all or a part of your investment.
Prior to this offering, there has not been a public market for
our depository shares or common stock. Even though we anticipate
that our shares will be quoted on the New York Stock Exchange,
an active trading market for our depositary shares or common
stock may not develop following this offering. You may not be
able to sell your shares quickly or at the current market price
if trading in our depositary shares or common stock is not
active. The initial public offering price for the shares will be
determined by negotiations between the underwriters, the selling
stockholders and us, and may not be indicative of prices that
will prevail in the trading market.
28
In addition, the trading price of our depositary shares and
common stock might be subject to wide fluctuations. Factors,
some of which are beyond our control, that could affect the
trading price of our depositary shares or common stock may
include:
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actual or anticipated variations in our results of operations
from quarter to quarter or year to year;
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announcements by us or our competitors of significant
agreements, technological innovations or strategic alliances;
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changes in recommendations or estimates by any securities
analysts who follow our securities;
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addition or loss of significant customers;
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recruitment or departure of key personnel;
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changes in economic performance or market valuations of
competing companies in our industry;
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price and volume fluctuations in the overall stock market;
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market conditions in our industry, end markets and the economy
as a whole;
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subsequent sales of stock and other financings;
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litigation, legislation, regulation or technological
developments that adversely affect our business; and
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the expiration of contractual
lock-up
agreements with our executive officers, directors and greater
than 1% stockholders.
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In the past, following periods of volatility in the market price
of a public companys securities, securities class action
litigation often has been instituted against the public company.
Regardless of its outcome, this type of litigation could result
in substantial costs to us and a likely diversion of our
managements attention. You may not receive a positive
return on your investment when you sell your shares, and you
could lose some or the entire amount of your investment.
Control by
principal stockholders could adversely affect our other
stockholders.
Based upon the MagnaChip Semiconductor LLC units outstanding as
of December 31, 2009, our executive officers, directors and
greater than 5% unitholders collectively beneficially owned
approximately 86% of the common units of MagnaChip Semiconductor
LLC, excluding units issuable upon exercise of outstanding
options and warrants, and 86% of the common units, including
units issuable upon exercise of outstanding options and warrants
that are exercisable within sixty days of December 31,
2009. After giving effect to the corporate conversion and the
sale of shares in this offering, our executive officers,
directors and greater than 5% stockholders, collectively, would
have owned approximately % of our
common stock as of December 31, 2009, assuming no exercise
of the underwriters option to purchase additional shares
from us or the selling stockholders. On the same adjusted basis,
and assuming exercise of the underwriters option to
purchase an
additional shares
from us
and shares
from the selling stockholders, our executive officers, directors
and greater than 5% stockholders, collectively, would have owned
approximately % of our common stock
as of December 31, 2009. In addition, Avenue has three
designees serving as members of our seven-member board of
directors. Therefore, Avenue will continue to have significant
influence over our affairs for the foreseeable future, including
influence over the election of directors and significant
corporate transactions, such as a merger or other sale of our
company or our assets.
Our concentration of ownership will limit the ability of other
stockholders to influence corporate matters and, as a result, we
may take actions that our non-sponsor stockholders do not view
as beneficial. For example, our concentration of ownership could
have the effect of delaying or preventing a change in control or
otherwise discouraging a potential acquirer from attempting to
obtain control of
29
us, which in turn could cause the market price of our common
stock to decline or prevent our stockholders from realizing a
premium over the market price for their shares of our common
stock.
Under our certificate of incorporation, our non-employee
directors and non-employee holders of five percent or more of
our outstanding common stock do not have a duty to refrain from
engaging in a corporate opportunity in the same or similar
activities or lines of business as those engaged in by us, our
subsidiaries and other related parties. Also, we have renounced
any interest or expectancy in such business opportunities even
if the opportunity is one that we might reasonably have pursued
or had the ability or desire to pursue if granted an opportunity
to do so.
The future
sale of significant amounts of our common stock may negatively
affect our stock price, even if our business is doing
well.
Sales of substantial amounts of shares of our common stock in
the public market, or the prospect of such sales, could
adversely affect the market price of our common stock. After
giving effect to the corporate conversion and the sale of shares
in this offering, we would have
had shares
of common stock outstanding as of December 31, 2009, based
on the number of MagnaChip Semiconductor LLC units outstanding
as of that date. More than % of the
shares outstanding prior to this offering are subject to
lock-up
agreements under which the holders of such shares have agreed
not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this prospectus
without the prior written consent of Goldman, Sachs &
Co., and Barclays Capital Inc., other than any shares such
holders may sell to the underwriters in this offering after the
date of this prospectus pursuant to the underwriters
option to purchase up
to
additional shares of our common stock from us
and
shares from the selling stockholders; provided, that these
agreements do not restrict the ability of the stockholders party
to the registration rights agreement to cause a resale
registration statement to be filed in accordance with the demand
registration rights described under Description of Capital
Stock Registration Rights. After the
180-day
period, based upon the MagnaChip Semiconductor LLC units
outstanding as of December 31, 2009, and the assumed
exchange rate of MagnaChip Semiconductor LLC units for MagnaChip
Semiconductor
Corporation shares, shares
held by current unitholders will be eligible for sale from time
to time in the future under Rule 144, Rule 701 or
Section 4(1) of the Securities Act with respect to shares
covered by Section 1145 of the U.S. Bankruptcy Code.
Goldman, Sachs & Co. and Barclays Capital Inc. can
together waive the restrictions of the
lock-up
agreements at an earlier time without prior notice or
announcement and allow stockholders to sell their shares. As
restrictions on resale end, the market price of our common stock
could drop significantly if the holders of the restricted shares
sell such restricted shares or are perceived by the market as
intending to sell such restricted shares.
Provisions in
our charter documents and Delaware Law may make it difficult for
a third party to acquire us and could depress the price of our
common stock.
Provisions in our certificate of incorporation and bylaws may
have the effect of delaying or preventing a change of control or
changes in our management. Among other things, our certificate
of incorporation and bylaws:
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authorize our board of directors to issue, without stockholder
approval, preferred stock with such terms as the board of
directors may determine;
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divide our board of directors into three classes so that only
approximately one-third of the total number of directors is
elected each year;
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permit directors to be removed only for cause by a majority vote;
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prohibit action by written consent of our stockholders;
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30
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prohibit any person other than our board of directors, the
chairman of our board of directors, our Chief Executive Officer
or holders of at least 25% of the voting power of all then
outstanding shares of capital stock of the corporation entitled
to vote generally in the election of directors to call a special
meeting of our stockholders; and
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specify advance notice requirements for stockholder proposals
and director nominations.
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In addition, following this offering, we will be subject to the
provisions of Section 203 of the Delaware General
Corporation Law, or DGCL, regulating corporate takeovers and
which has an anti-takeover effect with respect to transactions
not approved in advance by our board of directors, including
discouraging takeover attempts that might result in a premium
over the market price for shares of our common stock. In
general, those provisions prohibit a Delaware corporation from
engaging in any business combination with any interested
stockholder for a period of three years following the date that
the stockholder became an interested stockholder, unless:
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the transaction is approved by the board of directors before the
date the interested stockholder attained that status;
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upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction
commenced; or
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on or after such date, the business combination is approved by
the board of directors and authorized at a meeting of
stockholders, and not by written consent, by at least two-thirds
of the outstanding voting stock that is not owned by the
interested stockholder.
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In general, Section 203 defines a business combination to
include the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested
stockholder;
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subject to certain exceptions, any transaction that results in
the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested
stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested stockholder
as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by any such
entity or person.
A Delaware corporation may opt out of this provision by express
provision in its original certificate of incorporation or by
amendment to its certificate of incorporation or bylaws approved
by its stockholders. However, we have not opted out of, and do
not currently intend to opt out of, this provision.
We may apply
the proceeds of this offering to uses that do not improve our
operating results or increase the value of your
investment.
We intend to use the net proceeds from this offering to pay
certain employee incentive payments payable upon the closing of
this offering, to pay certain expenses of this offering, and for
general corporate purposes, including working capital and
capital expenditures. We may also use a portion of the net
proceeds to acquire or invest in companies and technologies that
we believe will complement our business although we have no
specific plans at this time to do so. However, we will have
broad
31
discretion in how we use the net proceeds of this offering.
These proceeds could be applied in ways that do not improve our
operating results or increase the value of your investment.
Until the net proceeds are used, they may be placed in
investments that do not produce income or that lose value.
You will incur
immediate and substantial dilution and may experience further
dilution immediately upon the sale of our common stock in this
offering.
The initial public offering price of our common stock is
substantially higher than $ , the
net tangible book value per share of our common stock as of
December 31, 2009, calculated on a pro forma basis as
adjusted for the sale of shares in this offering. Therefore, if
you purchase our common stock in this offering, you will incur
an immediate dilution of $ in net
tangible book value per share from the price you paid, based on
the assumed initial offering price of
$ per share. The exercise of
outstanding options and warrants to purchase shares of our
common stock at a weighted average exercise price of
$ and
$ per share, respectively (assuming
a conversion ratio
of between
the common units of MagnaChip Semiconductor LLC and our shares
of common stock), will result in further dilution.
We will incur
increased costs as a result of being a publicly listed company,
and these additional costs could harm our business and results
of operations.
The Sarbanes-Oxley Act, as well as rules promulgated by the SEC
and the NYSE, require us to adopt corporate governance practices
applicable to U.S. public companies. These rules and
regulations will increase our legal and financial compliance
costs and make certain compliance and reporting activities more
time-consuming. We also expect it to be more difficult and more
expensive for us to obtain and maintain director and officer
liability insurance, which may cause us to accept reduced policy
limits and reduced coverage or to incur substantially higher
costs to obtain the same or similar coverage. As a result, it
may be more difficult for us to attract and retain qualified
persons to serve on our board of directors or as executive
officers. We cannot predict or estimate the amount of additional
costs we may incur, but these additional costs and demands on
management time and attention may harm our business and results
of operations.
We do not
intend to pay dividends for the foreseeable future after this
offering, and therefore, investors should rely on sales of their
common stock as the only way to realize any future gains on
their investments.
We do not intend to pay any cash dividends in the foreseeable
future after this offering. The payment of cash dividends on
common stock is restricted under the terms of our senior secured
credit agreement. We anticipate that we will retain all of our
future earnings after this offering for use in the development
of our business and for general corporate purposes. Any
determination to pay dividends in the future will be at the
discretion of our board of directors. Accordingly, investors
must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize
any future gains on their investments.
32
INDUSTRY AND
MARKET DATA
In this prospectus, we rely on and refer to information
regarding the semiconductor market from iSuppli Corporation, or
iSuppli, and Gartner, Inc., or Gartner. Market data attributed
to iSuppli is from Display Driver ICs Q4 2009 Market
Tracker and Power Management Q4 2009 Market
Tracker and market data attributed to Gartner is from
Semiconductor Forecast Worldwide: Forecast Database,
24 Feb 2010. Although we believe that this
information is reliable, we have not independently verified it.
We do not have any obligation to announce or otherwise make
publicly available updates or revisions to forecasts contained
in these documents. In addition, in many cases, we have made
statements in this prospectus regarding our industry and our
position in the industry based on our experience in the industry
and our own investigation of market conditions.
SPECIAL
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
STATEMENTS
Information concerning us and this offering is subject to 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. These statements can be identified 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 prospectus that address activities,
events or developments that we expect, believe or anticipate
will or may occur in the future are forward-looking statements.
These forward-looking statements are largely based on our
expectations and beliefs concerning future events, which reflect
estimates and assumptions made by our management. These
estimates and assumptions reflect our best judgment based on
currently known market conditions and other factors relating to
our operations and business environment, all of which are
difficult to predict and many of which are beyond our control.
Although we believe our estimates and assumptions to be
reasonable, they are inherently uncertain and involve a number
of risks and uncertainties that are beyond our control. In
addition, managements assumptions about future events may
prove to be inaccurate. Management cautions all readers that the
forward-looking statements contained in this prospectus 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
the Risk Factors, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and Business sections and elsewhere
in this prospectus.
All forward-looking statements speak only as of the date of this
prospectus. 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.
33
USE OF
PROCEEDS
We estimate that our net proceeds from the sale of the common
stock that we are offering will be approximately
$ million, after deducting
the underwriting discounts and commissions and the estimated
offering expenses payable by us (assuming an initial public
offering price of $ per share, the
midpoint of the range set forth on the cover page of this
prospectus). We will not receive any of the proceeds from the
sale of our common stock by the selling stockholders.
We intend to use the net proceeds to us from this offering as
follows:
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approximately $12 million to fund incentive payments to all
of our employees; and
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approximately $ million to fund
working capital and for general corporate purposes.
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Pending such uses, we intend to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing
securities.
If we raise more or fewer proceeds from this offering than
anticipated, we expect to increase or reduce the amount that we
use to fund working capital and for general corporate purposes
by a commensurate amount.
DIVIDEND
POLICY
We do not intend to pay any cash dividends on our common stock
in the foreseeable future after this offering. We anticipate
that we will retain all of our future earnings after this
offering for use in the development of our business and for
general corporate purposes. Any determination to pay dividends
in the future will be at the discretion of our board of
directors. The payment of cash dividends on our common stock is
restricted under the terms of our senior secured credit
agreement.
CORPORATE
CONVERSION
In connection with this offering, our board of directors will
elect to convert MagnaChip Semiconductor LLC from a Delaware
limited liability company to a Delaware corporation. In order to
consummate such a conversion, a certificate of conversion will
be filed with the Secretary of State of the State of Delaware
prior to the closing of this offering. In connection with the
corporate conversion, outstanding common units of MagnaChip
Semiconductor LLC will be automatically converted into shares of
common stock of MagnaChip Semiconductor Corporation, outstanding
options to purchase common units of MagnaChip Semiconductor LLC
will be automatically converted into options to purchase shares
of common stock of MagnaChip Semiconductor Corporation and
outstanding warrants to purchase common units of MagnaChip
Semiconductor LLC will be automatically converted into warrants
to purchase shares of common stock of MagnaChip Semiconductor
Corporation, all at a ratio
of .
34
CAPITALIZATION
The following table sets forth the following information:
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the actual capitalization of MagnaChip Semiconductor LLC as of
December 31, 2009; and
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our pro forma capitalization as of December 31, 2009 after
giving effect to (i) the corporate conversion, as adjusted
for (ii) the sale of shares of our common stock in this
offering at an initial public offering price of
$ per share (the midpoint of the
range set forth on the front cover of this prospectus), after
the deduction of the underwriting discounts and commissions and
the estimated offering expenses payable by us, and the
application of the related proceeds as described under Use
of Proceeds.
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This table should be read together with Use of
Proceeds, Selected Historical Consolidated Financial
and Operating Data, Unaudited Pro Forma Consolidated
Financial Information, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
related notes included elsewhere in this prospectus.
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As of December 31, 2009
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(in millions)
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Pro Forma
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Actual
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as Adjusted
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Total indebtedness (including current portion of senior secured
credit facility)
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$
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61.8
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$
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61.8
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Stockholders equity:
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Common units, no par value; 375,000,000 units authorized,
307,083,996 issued and outstanding, actual; and no units
issued and outstanding, pro forma as adjusted
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55.1
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Preferred stock, $0.01 par value, no shares authorized,
issued and outstanding,
actual; shares
authorized, no shares issued and outstanding, pro forma as
adjusted.
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Common stock, par value $0.01 per
share; shares
authorized, no shares issued and outstanding, actual;
and shares
issued and outstanding, pro forma as adjusted
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Additional paid-in capital
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168.7
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Accumulated deficit
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(2.0
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Accumulated other comprehensive loss
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(6.2
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Total unitholders / stockholders equity
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215.7
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|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
277.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A $1.00 decrease or increase in the assumed initial public
offering price would result in approximately a
$ million decrease or
increase in each of pro forma as adjusted additional paid-in
capital, total stockholders equity and total
capitalization, assuming the total number of shares offered by
us remains the same and after deducting the estimated
underwriting discounts and commissions and estimated offering
expenses payable by us. |
35
DILUTION
Our net tangible book value as of December 31, 2009, on a
pro forma basis, was approximately
$ million, or
$ per share of our common stock.
Pro forma net tangible book value per share represents our total
tangible assets reduced by our total liabilities and divided by
the number of shares of common stock outstanding. Dilution in
net tangible book value per share represents the difference
between the amount per share that you pay in this offering and
the net tangible book value per share immediately after this
offering.
After giving effect to the receipt of the estimated net proceeds
from the sale by us
of shares,
our net tangible book value at December 31, 2009 on the pro
forma basis would have been approximately
$ , or
$ per share of common stock. This
represents an immediate increase in pro forma net tangible book
value per share of $ to existing
stockholders and an immediate decrease in pro forma net tangible
book value per share of $ to you.
The following table illustrates the dilution.
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Net pro forma tangible book value per share as of
December 31, 2009
|
|
$
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per share
attributable to new investors
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after giving effect
to this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease the pro forma net tangible book value
per share after giving effect to this offering by
$ per share and would increase or
decrease the dilution in pro forma net tangible book value per
share to investors in this offering by
$ per share. This calculation
assumes that the number of shares offered by us, as set forth on
the cover page of this prospectus, remains the same and reflects
the deduction of the underwriting discounts and commissions and
estimated expenses of this offering.
The following table sets forth, as of December 31, 2009, on
the pro forma basis as adjusted to give effect to this offering,
the differences between the amounts paid or to be paid by the
groups set forth in the table with respect to the aggregate
number of shares of our common stock acquired or to be acquired
by each group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Total
|
|
|
Average
|
|
|
|
Purchased
|
|
|
Consideration
|
|
|
Price
|
|
|
|
Number
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Per Share
|
|
|
|
(In millions, except share and % data)
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Before deduction of the underwriting discounts and commissions
and estimated offering expenses payable by us. |
36
If the underwriters option to purchase additional shares
from us and the selling stockholders is exercised in full, the
number of shares of common stock held by existing stockholders
will be reduced to ,
or % of the aggregate number of
shares of common stock outstanding after this offering, and the
number of shares of common stock held by new investors will be
increased to ,
or % of the aggregate number of
shares of common stock outstanding after this offering.
To the extent that any outstanding options and warrants to
purchase shares of our common stock are exercised, investors in
this offering will experience further dilution. The table below
sets forth the matters described with respect to the table above
and assumes the exercise of all options and warrants outstanding
or exercisable as of December 31, 2009. Assuming such
exercise, the total number of shares purchased would be
increased as a result of the additional shares underlying the
options and warrants being issued. Therefore the percentage of
shares purchased by the existing stockholders and new investors
relative to all three groups would be decreased. Similarly, as a
result of the option and warrant exercises, the total
consideration to be received by us would be increased because of
the additional cash received by us from option and warrant
exercises. Such increase in total consideration would have the
effect of decreasing the percentage of total consideration paid
by the existing stockholders and new investors relative to all
three groups. The average price per share for the existing
stockholders and new investors would remain unchanged.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Total
|
|
|
Price
|
|
|
|
Purchased
|
|
|
Consideration
|
|
|
Per
|
|
|
|
Number
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Share
|
|
|
|
|
|
|
(In millions, except share and % data)
|
|
|
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option and warrant holders(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Before deduction of the underwriting discounts and commissions
and estimated offering expenses payable by us. |
|
(2) |
|
Includes shares of common stock issuable upon exercise of
options previously granted to our officers, directors and
employees and warrants issued in connection with our
reorganization proceedings. |
If the underwriters option to purchase additional shares
from us and the selling stockholders is exercised in full, the
number of shares of common stock held by existing stockholders
will be reduced
to ,
or % of the aggregate number of
shares of common stock outstanding after this offering, and the
number of shares of common stock held by new investors will be
increased to ,
or % of the aggregate number of
shares of common stock outstanding after this offering.
37
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated
financial data of MagnaChip Semiconductor LLC (to be converted
into MagnaChip Semiconductor Corporation in connection with this
offering) on or as of the dates and for the periods indicated.
The selected historical consolidated financial data presented
below should be read together with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements,
including the notes to those consolidated financial statements,
appearing elsewhere in this prospectus.
We have derived the selected consolidated financial data as of
December 31, 2009 and 2008 and for the two-month period
ended December 31, 2009, the ten-month period ended
October 25, 2009 and the years ended December 31, 2008
and 2007 from the historical audited consolidated financial
statements of MagnaChip Semiconductor LLC included elsewhere in
this prospectus. We have derived the selected consolidated
financial data as of December 31, 2007, 2006 and 2005 and
for the years ended December 31, 2006 and 2005 from the
historical audited consolidated financial statements of
MagnaChip Semiconductor LLC not included in this prospectus. The
historical results of MagnaChip Semiconductor LLC for any prior
period are not necessarily indicative of the results to be
expected in any future period.
In connection with our emergence from reorganization
proceedings, we implemented fresh-start accounting in accordance
with applicable ASC 852 governing reorganizations. We
elected to adopt a convenience date of October 25, 2009 (a
month end for our financial reporting purposes) for application
of fresh-start accounting. In accordance with the ASC 852
governing reorganizations, we recorded largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings including professional fees, the
revaluation of assets, the effects of our reorganization plan
and fresh-start accounting and write-off of debt issuance costs.
As a result of the application of fresh-start accounting, our
financial statements prior to and including October 25,
2009 represent the operations of our pre-reorganization
predecessor company and are presented separately from the
financial statements of our post-reorganization successor
company. As a result of the application of fresh-start
accounting, the financial statements prior to and including
October 25, 2009 are not fully comparable with the
financial statements for periods on or after October 25,
2009.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor(1)
|
|
|
|
Predecessor
|
|
|
|
Two- Month
|
|
|
|
Ten- Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Audited)
|
|
|
|
(In millions, except per common unit data)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
111.1
|
|
|
|
$
|
449.0
|
|
|
$
|
601.7
|
|
|
$
|
709.5
|
|
|
$
|
683.9
|
|
|
$
|
774.3
|
|
Cost of sales
|
|
|
90.4
|
|
|
|
|
311.1
|
|
|
|
445.3
|
|
|
|
578.9
|
|
|
|
580.4
|
|
|
|
591.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20.7
|
|
|
|
|
137.8
|
|
|
|
156.4
|
|
|
|
130.7
|
|
|
|
103.4
|
|
|
|
183.2
|
|
Selling, general and administrative expenses
|
|
|
14.5
|
|
|
|
|
56.3
|
|
|
|
81.3
|
|
|
|
82.7
|
|
|
|
76.1
|
|
|
|
119.4
|
|
Research and development expenses
|
|
|
14.7
|
|
|
|
|
56.1
|
|
|
|
89.5
|
|
|
|
90.8
|
|
|
|
87.2
|
|
|
|
96.1
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
0.4
|
|
|
|
13.4
|
|
|
|
12.1
|
|
|
|
1.7
|
|
|
|
36.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(8.6
|
)
|
|
|
|
25.0
|
|
|
|
(27.7
|
)
|
|
|
(54.9
|
)
|
|
|
(61.6
|
)
|
|
|
(68.4
|
)
|
Interest expense, net
|
|
|
1.3
|
|
|
|
|
31.2
|
|
|
|
76.1
|
|
|
|
60.3
|
|
|
|
57.2
|
|
|
|
57.2
|
|
Foreign currency gain (loss), net
|
|
|
9.3
|
|
|
|
|
43.4
|
|
|
|
(210.4
|
)
|
|
|
(4.7
|
)
|
|
|
50.9
|
|
|
|
16.5
|
|
Reorganization items, net
|
|
|
|
|
|
|
|
804.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
816.8
|
|
|
|
(286.5
|
)
|
|
|
(65.0
|
)
|
|
|
(6.3
|
)
|
|
|
(40.7
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
(0.5
|
)
|
|
|
|
841.8
|
|
|
|
(314.3
|
)
|
|
|
(120.0
|
)
|
|
|
(67.9
|
)
|
|
|
(109.1
|
)
|
Income tax expenses
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
11.6
|
|
|
|
8.8
|
|
|
|
9.1
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
|
|
(76.9
|
)
|
|
|
(111.1
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
(152.4
|
)
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
|
$
|
(229.3
|
)
|
|
$
|
(100.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
6.3
|
|
|
|
13.3
|
|
|
|
12.0
|
|
|
|
10.9
|
|
|
|
9.9
|
|
Income (loss) from continuing operations attributable to common
units
|
|
|
(2.5
|
)
|
|
|
|
828.2
|
|
|
|
(339.1
|
)
|
|
|
(140.9
|
)
|
|
|
(87.9
|
)
|
|
|
(121.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common units
|
|
$
|
(2.0
|
)
|
|
|
$
|
834.8
|
|
|
$
|
(430.6
|
)
|
|
$
|
(192.6
|
)
|
|
$
|
(240.2
|
)
|
|
$
|
(110.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per unit data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per common
unit Basic and diluted
|
|
|
(0.01
|
)
|
|
|
|
15.65
|
|
|
|
(6.43
|
)
|
|
|
(2.69
|
)
|
|
|
(1.66
|
)
|
|
|
(2.29
|
)
|
Earnings (loss) from discontinued operations per common
unit Basic and diluted
|
|
|
|
|
|
|
|
0.12
|
|
|
|
(1.73
|
)
|
|
|
(0.99
|
)
|
|
|
(2.88
|
)
|
|
|
0.19
|
|
Earnings (loss) per common unit Basic and diluted
|
|
|
(0.01
|
)
|
|
|
|
15.77
|
|
|
|
(8.16
|
)
|
|
|
(3.68
|
)
|
|
|
(4.54
|
)
|
|
|
(2.10
|
)
|
Weighted average number of common units Basic and
diluted
|
|
|
300.863
|
|
|
|
|
52.923
|
|
|
|
52.769
|
|
|
|
52.297
|
|
|
|
52.912
|
|
|
|
52.898
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64.9
|
|
|
|
|
|
|
|
$
|
4.0
|
|
|
$
|
64.3
|
|
|
$
|
89.2
|
|
|
$
|
86.6
|
|
Total assets
|
|
|
453.3
|
|
|
|
|
|
|
|
|
399.2
|
|
|
|
707.9
|
|
|
|
770.1
|
|
|
|
1,040.6
|
|
Total indebtedness(2)
|
|
|
61.8
|
|
|
|
|
|
|
|
|
845.0
|
|
|
|
830.0
|
|
|
|
750.0
|
|
|
|
750.0
|
|
Long-term obligations(3)
|
|
|
61.5
|
|
|
|
|
|
|
|
|
143.2
|
|
|
|
879.4
|
|
|
|
867.4
|
|
|
|
856.7
|
|
Unitholders equity
|
|
|
215.7
|
|
|
|
|
|
|
|
|
(787.8
|
)
|
|
|
(477.5
|
)
|
|
|
(284.5
|
)
|
|
|
(46.5
|
)
|
Supplemental Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(4)
|
|
|
22.1
|
|
|
|
|
76.6
|
|
|
|
59.8
|
|
|
|
111.2
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss)(5)
|
|
|
13.3
|
|
|
|
|
9.3
|
|
|
|
(71.7
|
)
|
|
|
(82.6
|
)
|
|
|
|
|
|
|
|
|
39
|
|
|
(1) |
|
As of October 25, 2009, the fresh-start adoption date, we
adopted fresh-start accounting for our consolidated financial
statements. Because of the emergence from reorganization
proceedings and adoption of fresh-start accounting, the
historical financial information for periods after
October 25, 2009 is not fully comparable to periods before
October 25, 2009. See Managements Discussion
and Analysis of Financial Condition and Results of
Operations Recent Changes to Our Business. |
|
(2) |
|
Total indebtedness is calculated as long and short-term
borrowings, including the current portion of long-term
borrowings. |
|
(3) |
|
Long-term obligations include long-term borrowings, capital
leases and redeemable convertible preferred units. |
|
(4) |
|
We define Adjusted EBITDA as net income (loss) less income
(loss) from discontinued operations, net of taxes, adjusted to
exclude (i) depreciation and amortization associated with
continuing operations, (ii) interest expense, net,
(iii) income tax expenses, (iv) restructuring and
impairment charges, (v) other restructuring charges,
(vi) abandoned IPO expenses, (vii) subcontractor claim
settlement, (viii) the increase in cost of sales resulting
from the fresh-start inventory accounting
step-up,
(ix) equity-based compensation expense,
(x) reorganization items, net and (xi) foreign
currency gain (loss), net. See the footnotes to the table below
for further information regarding these items. We present
Adjusted EBITDA as a supplemental measure of our performance
because: |
|
|
|
|
|
Adjusted EBITDA eliminates the impact of a number of items that
may be either one time or recurring items that we do not
consider to be indicative of our core ongoing operating
performance;
|
|
|
|
we believe that Adjusted EBITDA is an enterprise level
performance measure commonly reported and widely used by
analysts and investors in our industry;
|
|
|
|
we anticipate that our investor and analyst presentations after
we are public will include Adjusted EBITDA; and
|
|
|
|
we believe that Adjusted EBITDA provides investors with a more
consistent measurement of period to period performance of our
core operations, as well as a comparison of our operating
performance to that of other companies in our industry.
|
We use Adjusted EBITDA in a number of ways, including:
|
|
|
|
|
for planning purposes, including the preparation of our annual
operating budget;
|
|
|
|
to evaluate the effectiveness of our enterprise level business
strategies;
|
|
|
|
in communications with our board of directors concerning our
consolidated financial performance;
|
|
|
|
in certain of our compensation plans as a performance measure
for determining incentive compensation payments; and
|
|
|
|
to measure our compliance with certain covenants in our debt
agreements.
|
40
We encourage you to evaluate each adjustment and the reasons we
consider them appropriate. In evaluating Adjusted EBITDA, you
should be aware that in the future we may incur expenses similar
to the adjustments in this presentation. Adjusted EBITDA is not
a measure defined in accordance with GAAP and should not be
construed as an alternative to income from continuing
operations, cash flows from operating activities or net income
(loss), as determined in accordance with GAAP. A reconciliation
of net income (loss) to Adjusted EBITDA is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Two- Month
|
|
|
|
Ten- Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Net income (loss)
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization associated with continuing
operations
|
|
|
11.2
|
|
|
|
|
37.7
|
|
|
|
63.8
|
|
|
|
152.2
|
|
Interest expense, net
|
|
|
1.3
|
|
|
|
|
31.2
|
|
|
|
76.1
|
|
|
|
60.3
|
|
Income tax expense
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
11.6
|
|
|
|
8.8
|
|
Restructuring and impairment charges(a)
|
|
|
|
|
|
|
|
0.4
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
|
13.3
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(g)
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Foreign currency gain (loss), net(h)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
22.1
|
|
|
|
$
|
76.6
|
|
|
$
|
59.8
|
|
|
$
|
111.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This adjustment is comprised of all items included in the
restructuring and impairment charges line item on our
consolidated statements of operations, and eliminates the impact
of restructuring and impairment charges related to (i) for
2009, termination benefits and other related costs, for the
ten-month period ended October 25, 2009 in connection with
the closure of one of our research and development facilities in
Japan, (ii) for 2008, goodwill impairment triggered by the
significant adverse change in the revenue of our mobile display
solutions, or MDS reporting unit, and a reversal of a portion of
the restructuring accrual related to the closure of our Gumi
five-inch wafer fabrication facilities in 2007, and
(iii) for 2007, the closure of our Gumi five-inch wafer
fabrication facilities. We do not believe these restructuring
and impairment charges are indicative of our core ongoing
operating performance because we do not anticipate similar
facility closures and market driven events in our ongoing
operations, although we cannot guarantee that similar events
will not occur in the future. |
|
(b) |
|
This adjustment relates to certain restructuring charges that
are not included in the restructuring and impairment charges
line item on our consolidated statements of operations. These
items are included in selling, general and administrative
expenses in our consolidated statements of operations. These
charges are comprised of the following: (i) for 2009, a
charge of $13.3 million for restructuring-related
professional fees and related expenses, and (ii) for 2008,
a charge of $6.2 million for restructuring-related
professional fees and related expenses. We do not believe these
other restructuring charges are indicative of our core ongoing
operating performance because these charges were related, in
significant part, to actions we took in response to the impacts
on our business resulting from the global economic recession
that persisted through 2008 and 2009. We cannot guarantee that
similar charges will not be incurred in the future. |
41
|
|
|
(c) |
|
This adjustment eliminates a $3.7 million charge in 2008
related to expenses incurred in connection with our abandoned
initial public offering in 2008. We do not believe that these
charges are indicative of our core operating performance. We
expect to incur similar costs in connection with this offering. |
|
(d) |
|
This adjustment eliminates a $1.3 million charge
attributable to a one-time settlement of claims with a
subcontractor. We no longer obtain services from this
subcontractor and do not expect to incur similar charges in the
future. |
|
(e) |
|
This adjustment eliminates the impact of largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings from our ongoing operations
including, among others, professional fees, the revaluation of
assets, the effects of the Chapter 11 reorganization plan
and fresh-start accounting principles and the write-off of debt
issuance costs. Included in reorganization items, net for the
ten-month period ended October 25, 2009 was our
predecessors gain recognized from the effects of our
reorganization proceedings. The gain results from the difference
between our predecessors carrying value of remaining
pre-petition liabilities subject to compromise and the amounts
to be distributed pursuant to the reorganization proceedings.
The gain from the effects of the reorganization proceedings and
the application of fresh-start accounting principles is
comprised of the discharge of liabilities subject to compromise,
net of the issuance of new common units and new warrants and the
accrual of amounts to be settled in cash. For details regarding
this adjustment, see note 5 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten
months ended October 25, 2009 and the two months ended
December 31, 2009 included elsewhere in this prospectus. We
do not believe these items are indicative of our core ongoing
operating performance because they were incurred as a result of
our Chapter 11 reorganization. |
|
(f) |
|
This adjustment eliminates the one-time impact on cost of sales
associated with the write-up of our inventory in accordance with
the principles of fresh-start accounting upon consummation of
the Chapter 11 reorganization. |
|
(g) |
|
This adjustment eliminates the impact of non-cash equity-based
compensation expenses. Although we expect to incur non-cash
equity-based compensation expenses in the future, we believe
that analysts and investors will find it helpful to review our
operating performance without the effects of these non-cash
expenses, as supplemental information. |
|
(h) |
|
This adjustment eliminates the impact of non-cash foreign
currency translation associated with intercompany debt
obligations and foreign currency denominated receivables and
payables, as well as the cash impact of foreign currency
transaction gains or losses on collection of such receivables
and payment of such payables. Although we expect to incur
foreign currency translation gains or losses in the future, we
believe that analysts and investors will find it helpful to
review our operating performance without the effects of these
primarily non-cash gains or losses, as supplemental information. |
Adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
|
|
|
|
|
Adjusted EBITDA does not reflect our cash expenditures, or
future requirements, for capital expenditures or contractual
commitments;
|
|
|
|
Adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect the interest expense, or the
cash requirements necessary to service interest or principal
payments, on our debt;
|
42
|
|
|
|
|
although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and Adjusted EBITDA does not reflect any
cash requirements for such replacements;
|
|
|
|
Adjusted EBITDA does not consider the potentially dilutive
impact of issuing equity-based compensation to our management
team and employees;
|
|
|
|
Adjusted EBITDA does not reflect the costs of holding certain
assets and liabilities in foreign currencies; and
|
|
|
|
other companies in our industry may calculate Adjusted EBITDA
differently than we do, limiting its usefulness as a comparative
measure.
|
Because of these limitations, Adjusted EBITDA should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted EBITDA only supplementally.
|
|
|
(5) |
|
We present Adjusted Net Income as a further supplemental measure
of our performance. We prepare Adjusted Net Income by adjusting
net income (loss) to eliminate the impact of a number of
non-cash expenses and other items that may be either one time or
recurring that we do not consider to be indicative of our core
ongoing operating performance. We believe that Adjusted Net
Income is particularly useful because it reflects the impact of
our asset base and capital structure on our operating
performance. |
We present Adjusted Net Income for a number of reasons,
including:
|
|
|
|
|
we use Adjusted Net Income in communications with our board of
directors concerning our consolidated financial performance;
|
|
|
|
we believe that Adjusted Net Income is an enterprise level
performance measure commonly reported and widely used by
analysts and investors in our industry; and
|
|
|
|
we anticipate that our investor and analyst presentations after
we are public will include Adjusted Net Income.
|
Adjusted Net Income is not a measure defined in accordance with
GAAP and should not be construed as an alternative to income
from continuing operations, cash flows from operating activities
or net income (loss), as determined in accordance with GAAP. We
encourage you to evaluate each adjustment and the reasons we
consider them appropriate. Other companies in our industry may
calculate Adjusted Net Income differently than we do, limiting
its usefulness as a comparative measure. In addition, in
evaluating Adjusted Net Income, you should be aware that in the
future we may incur expenses similar to the adjustments in this
presentation. We define Adjusted Net Income as net income (loss)
less income (loss) from discontinued operations, net of taxes,
excluding (i) restructuring and impairment charges, (ii) other
restructuring charges, (iii) abandoned IPO expenses, (vi)
subcontractor claim settlement, (v) reorganization items, net,
(vi) the increase in cost of sales resulting from the
fresh-start accounting inventory step-up, (vii) equity based
compensation expense, (viii) amortization of intangibles
associated with continuing operations and (ix) foreign currency
gain (loss).
43
The following table summarizes the adjustments to net income
(loss) that we make in order to calculate Adjusted Net Income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Two- Month
|
|
|
|
Ten- Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Net income (loss)
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment charges(a)
|
|
|
|
|
|
|
|
0.4
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
|
13.3
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(g)
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Amortization of intangibles associated with continuing
operations(h)
|
|
|
5.6
|
|
|
|
|
8.8
|
|
|
|
20.0
|
|
|
|
27.5
|
|
Foreign currency gain (loss), net(i)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss)
|
|
$
|
13.3
|
|
|
|
$
|
9.3
|
|
|
$
|
(71.7
|
)
|
|
$
|
(82.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This adjustment is comprised of all
items included in the restructuring and impairment charges line
item on our consolidated statements of operations, and
eliminates the impact of restructuring and impairment charges
related to (i) for 2009, termination benefits and other
related costs, for the ten-month period ended October 25,
2009 in connection with the closure of one of our research and
development facilities in Japan, (ii) for 2008, goodwill
impairment triggered by the significant adverse change in the
revenue of our MDS reporting unit and a reversal of a portion of
the restructuring accrual related to the closure of our Gumi
five-inch wafer fabrication facilities in 2007, and
(iii) for 2007, the closure of our Gumi five-inch wafer
fabrication facilities. We do not believe these restructuring
and impairment charges are indicative of our core ongoing
operating performance because we do not anticipate similar
facility closures and market driven events in our ongoing
operations, although we cannot guarantee that similar events
will not occur in the future.
|
|
(b)
|
|
This adjustment relates to certain
restructuring charges that are not included in the restructuring
and impairment charges line item on our consolidated statements
of operations. These items are included in selling, general and
administrative expenses in our consolidated statements of
operations. These charges are comprised of the following:
(i) for 2009, a charge of $13.3 million for
restructuring-related professional fees and related expenses,
and (ii) for 2008, a charge of $6.2 million for
restructuring-related professional fees and related expenses. We
do not believe these other restructuring charges are indicative
of our core ongoing operating performance because these charges
were related, in significant part, to actions we took in
response to the impacts on our business resulting from the
global economic recession that persisted through 2008 and 2009.
We cannot guarantee that similar charges will not be incurred in
the future.
|
|
(c)
|
|
This adjustment eliminates a $3.7
million charge in 2008 related to expenses incurred in
connection with our abandoned initial public offering in 2008.
We do not believe that these charges are indicative of our core
operating performance. We expect to incur costs in connection
with this offering.
|
|
(d)
|
|
This adjustment eliminates a $1.3
million charge attributable to a one-time settlement of claims
with a subcontractor. We no longer obtain services from this
subcontractor and do not expect to incur similar charges in the
future.
|
|
(e)
|
|
This adjustment eliminates the
impact of largely non-cash reorganization income and expense
items directly associated with our reorganization proceedings
from our ongoing operations including, among others,
professional fees, the revaluation of assets, the effects of the
Chapter 11 reorganization plan and fresh-start accounting
principles and the write-off of debt issuance costs. Included in
reorganization items, net for the ten-month period ended
October 25, 2009 was our predecessors gain recognized
from the effects of our reorganization proceedings. The gain
results from the difference between our predecessors
carrying value of remaining pre-petition liabilities subject to
compromise and the amounts to be distributed pursuant to the
reorganization proceedings. The gain from the effects of the
reorganization proceedings and the application of fresh-start
accounting principles is comprised of the discharge of
liabilities subject to compromise, net of the issuance of new
common units and new warrants and the accrual of amounts to be
settled in
|
44
|
|
|
|
|
cash. For details regarding this
adjustment, see note 5 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten-month
period ended October 25, 2009 and the two-month period
ended December 31, 2009 included elsewhere in this
prospectus. We do not believe these items are indicative of our
core ongoing operating performance because they were incurred as
a result of our reorganization proceedings.
|
|
(f)
|
|
This adjustment eliminates the
one-time impact on cost of sales associated with the write-up of
our inventory in accordance with the principles of fresh-start
accounting upon consummation of the Chapter 11
reorganization.
|
|
(g)
|
|
This adjustment eliminates the
impact of non-cash equity-based compensation expenses. Although
we expect to incur non-cash equity-based compensation expenses
in the future, we believe that analysts and investors will find
it helpful to review our operating performance without the
effects of these non-cash expenses, as supplemental information.
|
|
(h)
|
|
This adjustment eliminates the
non-cash impact of amortization expense for intangible assets
created as a result of the purchase accounting treatment of the
Original Acquisition and other subsequent acquisitions, and from
the application of fresh-start accounting in connection with the
reorganization proceedings. We do not believe these non-cash
amortization expenses for intangibles are indicative of our core
ongoing operating performance because the assets would not have
been capitalized on our balance sheet but for the application of
purchase accounting or fresh-start accounting, as applicable.
|
|
(i)
|
|
This adjustment eliminates the
impact of non-cash foreign currency translation associated with
intercompany debt obligations and foreign currency denominated
receivables and payables, as well as the cash impact of foreign
currency transaction gains or losses on collection of such
receivables and payment of such payables. Although we expect to
incur foreign currency translation gains or losses in the
future, we believe that analysts and investors will find it
helpful to review our operating performance without the effects
of these primarily non-cash gains or losses, as supplemental
information.
|
Adjusted Net Income has limitations as an analytical tool, and
you should not consider it in isolation, or as a substitute for
analysis of our results as reported under GAAP. Some of these
limitations are:
|
|
|
|
|
Adjusted Net Income does not reflect our cash expenditures, or
future requirements, for capital expenditures or contractual
commitments;
|
|
|
|
Adjusted Net Income does not reflect changes in, or cash
requirements for, our working capital needs;
|
|
|
|
|
|
Adjusted Net Income does not consider the potentially dilutive
impact of issuing equity-based compensation to our management
team and employees;
|
|
|
|
Adjusted Net Income does not reflect the costs of holding
certain assets and liabilities in foreign currencies; and
|
|
|
|
other companies in our industry may calculate Adjusted Net
Income differently than we do, limiting its usefulness as a
comparative measure.
|
Because of these limitations, Adjusted Net Income should not be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. We compensate for these
limitations by relying primarily on our GAAP results and using
Adjusted Net Income only supplementally.
45
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
We have prepared the unaudited pro forma condensed consolidated
financial information of MagnaChip for the year ended
December 31, 2009 in accordance with Article II of
Regulation S-X. The unaudited pro forma condensed
consolidated statement of operations is derived from the
historical consolidated financial statements of MagnaChip
Semiconductor LLC and gives pro forma effect to the following as
if these events had occurred on January 1, 2009:
|
|
|
|
|
the reorganization proceedings and adoption of fresh-start
reporting; and
|
|
|
|
the corporate conversion
|
The unaudited consolidated pro forma balance sheet as of
December 31, 2009 gives effect to the corporate conversion
as if it occurred on December 31, 2009.
Basis of
Presentation
The following information should be read in conjunction with
Selected Historical Consolidated Financial and Operating
Data, Managements Discussion and Analysis of
Financial Condition and Results of Operations, Risk
Factors, Capitalization and the audited
consolidated financial statements of MagnaChip Semiconductor LLC
and the related notes included elsewhere in this prospectus. The
unaudited pro forma consolidated financial information is not
necessarily indicative of operating results or the financial
position that would have been achieved if the transactions
identified above had occurred on the dates indicated, nor does
it purport to represent the results we will obtain in the future.
Management has prepared the accompanying unaudited pro forma
balance sheet as of December 31, 2009 and consolidated
statement of operations for the year ended December 31,
2009 in accordance with Article 11 of
Regulation S-X
for inclusion in this prospectus.
The accounting policies used in the preparation of the unaudited
pro forma consolidated financial statements are those disclosed
in the audited consolidated financial statements of MagnaChip
Semiconductor LLC for the ten-month period ended
October 25, 2009 and the two-month period ended
December 31, 2009.
The following summary historical and unaudited pro forma
condensed consolidated financial information should be read in
conjunction with Capitalization, Selected
Historical Consolidated Financial and Operating Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements, including the notes to those financial
statements, included elsewhere in this prospectus.
The
Reorganization Proceedings and Related Events
On June 12, 2009 MagnaChip Semiconductor LLC, along with
certain of its subsidiaries, including MagnaChip Semiconductor
S.A., filed a voluntary petition for relief in the United States
Bankruptcy Court for the District of Delaware under
Chapter 11 of the United States Bankruptcy Code. On
November 9, 2009, our plan of reorganization became
effective and we emerged from the reorganization proceedings.
In connection with our emergence from the reorganization
proceedings, we implemented fresh-start accounting in accordance
with ASC 852. We elected to adopt a convenience date of
October 25, 2009 (a month end for our financial reporting
purposes) for application of fresh-start accounting. In
accordance with ASC 852, we recorded largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings including the revaluation of
assets, the effects of our reorganization plan and fresh-start
accounting, the write-off of debt issuance costs and
professional fees.
46
In implementing fresh-start accounting, we re-measured our asset
values and stated all liabilities, other than deferred taxes and
severance benefits, at fair value or at present values of the
amounts to be paid using appropriate market interest rates. As
of October 25, 2009 the fair value of our assets and the
fair value or present value of our liabilities were as follows:
|
|
|
|
|
|
|
Successor
|
|
|
|
October 25, 2009
|
|
|
Assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67.6
|
|
Inventories
|
|
|
69.3
|
|
Other current assets
|
|
|
110.5
|
|
Property plant and equipment
|
|
|
158.4
|
|
Intangible assets
|
|
|
55.2
|
|
Other non-current assets
|
|
|
24.5
|
|
|
|
|
|
|
Total Assets
|
|
|
485.5
|
|
Liabilities:
|
|
|
|
|
Current portion long term debt
|
|
|
0.5
|
|
Other current liabilities
|
|
|
123.9
|
|
Long-term debt
|
|
|
61.3
|
|
Other non-current liabilities
|
|
|
81.5
|
|
|
|
|
|
|
Total liabilities
|
|
|
267.2
|
|
|
|
|
|
|
Net Assets acquired
|
|
$
|
218.4
|
|
|
|
|
|
|
The intangible assets recognized as part of fresh-start
accounting and the related estimated useful lives are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Intangible Assets
|
|
Fair Value
|
|
|
Useful lives
|
|
|
Technology
|
|
$
|
14.7
|
|
|
|
1-5
|
|
Customer relationships
|
|
|
26.1
|
|
|
|
0.5-5
|
|
Intellectual property assets
|
|
|
4.7
|
|
|
|
4
|
|
In-process research and development
|
|
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
$
|
55.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The adjustments made for the reorganization proceedings in the
unaudited pro forma condensed consolidated financial information
for the year ended December 31, 2009 assumes the financial
effects on us resulting from the implementation of the
Chapter 11 plan of reorganization and the adoption of
fresh-start accounting as described above.
The Corporate
Conversion
Prior to the closing of this offering, MagnaChip Semiconductor
LLC will convert from a Delaware limited liability company to a
Delaware corporation. The corporate conversion adjustments in
the unaudited pro forma consolidated financial information for
the year ended December 31, 2009 assume (a) the
consummation of the corporate conversion of MagnaChip
Semiconductor LLC and the effectiveness of our certificate of
incorporation, which is expected to occur prior to the closing
of this offering and (b) the automatic conversion of all of
the outstanding common units of MagnaChip Semiconductor LLC for
shares of our common stock at a ratio
of .
No U.S. federal taxable income or taxable gain is expected
to be recognized by MagnaChip Semiconductor Corporation as a
result of our conversion from a limited liability company to a
corporation.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audited
|
|
Unaudited
|
|
|
Historical
|
|
|
|
|
|
|
Successor
|
|
Predecessor
|
|
|
|
|
|
|
Two-Month
|
|
Ten-Month
|
|
|
|
|
|
|
Period
|
|
Period
|
|
|
|
Pro Forma
|
|
|
Ended
|
|
Ended
|
|
|
|
Year Ended
|
|
|
December 31,
|
|
October 25,
|
|
|
|
December 31,
|
|
|
2009
|
|
2009
|
|
Adjustments
|
|
2009
|
|
|
(In millions, except common unit/share data)
|
|
Condensed Pro Forma Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
111.1
|
|
|
$
|
449.0
|
|
|
$
|
|
|
|
$
|
560.1
|
|
Cost of sales
|
|
|
90.4
|
|
|
|
311.1
|
|
|
|
(22.7
|
)(1)(2)
|
|
|
378.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20.7
|
|
|
|
137.8
|
|
|
|
|
|
|
|
181.2
|
|
Selling, general and administrative expenses
|
|
|
14.5
|
|
|
|
56.3
|
|
|
|
0.8
|
(1)
|
|
|
71.6
|
|
Research and development expenses
|
|
|
14.7
|
|
|
|
56.1
|
|
|
|
6.4
|
(1)
|
|
|
77.3
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(8.6
|
)
|
|
|
25.0
|
|
|
|
|
|
|
|
31.9
|
|
Interest expense, net
|
|
|
1.3
|
|
|
|
31.2
|
|
|
|
(23.0
|
)(3)
|
|
|
9.4
|
|
Foreign currency gain, net
|
|
|
9.3
|
|
|
|
43.4
|
|
|
|
|
|
|
|
52.8
|
|
Reorganization items, net
|
|
|
|
|
|
|
804.6
|
|
|
|
(804.6
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
816.8
|
|
|
|
|
|
|
|
43.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(0.5
|
)
|
|
|
841.8
|
|
|
|
|
|
|
|
75.2
|
|
Income tax expenses
|
|
|
1.9
|
|
|
|
7.3
|
|
|
|
|
(5)
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(2.5
|
)
|
|
|
834.5
|
|
|
|
|
|
|
|
66.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred unit
|
|
|
|
|
|
|
6.3
|
|
|
|
(6.3
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
unit/share
|
|
|
(2.5
|
)
|
|
|
828.2
|
|
|
|
|
|
|
|
66.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit / share data:(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per common unit /
shareBasic and diluted
|
|
|
(0.01
|
)
|
|
|
15.65
|
|
|
|
|
|
|
|
|
|
Weighted average number of common units/sharesBasic and
diluted
|
|
|
300.863
|
|
|
|
52.923
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audited
|
|
|
Unaudited
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Adjustments
|
|
|
2009
|
|
|
|
(In millions, except common
|
|
|
|
unit/share
data)
|
|
|
Condensed Pro Forma Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64.9
|
|
|
|
|
|
|
$
|
64.9
|
|
Accounts receivables, net
|
|
|
74.2
|
|
|
|
|
|
|
|
74.2
|
|
Inventories, net
|
|
|
63.4
|
|
|
|
|
|
|
|
63.4
|
|
Other
|
|
|
19.5
|
|
|
|
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
222.1
|
|
|
|
|
|
|
|
222.1
|
|
Property, plant and equipment, net
|
|
|
156.3
|
|
|
|
|
|
|
|
156.3
|
|
Intangible assets, net
|
|
|
50.2
|
|
|
|
|
|
|
|
50.2
|
|
Other non-current assets
|
|
|
24.8
|
|
|
|
|
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
453.3
|
|
|
|
|
|
|
$
|
453.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders / Stockholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
59.7
|
|
|
|
|
|
|
$
|
59.7
|
|
Other accounts payable
|
|
|
7.2
|
|
|
|
|
|
|
|
7.2
|
|
Accrued expenses
|
|
|
22.1
|
|
|
|
|
|
|
|
22.1
|
|
Current portion of long-term debt
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
Other current liabilities
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
93.6
|
|
|
|
|
|
|
|
93.6
|
|
Long-term borrowings
|
|
|
61.1
|
|
|
|
|
|
|
|
61.1
|
|
Accrued severance benefits, net
|
|
|
72.4
|
|
|
|
|
|
|
|
72.4
|
|
Other non-current liabilities
|
|
|
10.5
|
|
|
|
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
237.6
|
|
|
|
|
|
|
|
237.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders / stockholders equity(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units; 375,000,000 units authorized, 307,083,996
issued and outstanding at December 31, 2009, actual,
0 units issued and outstanding at December 31, 2009,
pro forma
|
|
|
55.1
|
|
|
|
|
|
|
|
|
|
Common
stock; shares
authorized, 0 shares issued and outstanding at
December 31, 2009,
actual, shares
issued and outstanding at December 31, 2009, pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
168.7
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
Accumulated other comprehensive (loss)
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders / stockholders equity
|
|
|
215.7
|
|
|
|
|
|
|
|
215.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and unitholders /
stockholders equity
|
|
$
|
453.3
|
|
|
|
|
|
|
$
|
453.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
Notes to
Unaudited Pro Forma Consolidated Financial Information
(1) To reflect the net change in historical cost of sales
and selling, general and administrative expenses and research
and development expenses of the predecessor company due to the
application of fresh-start accounting as of January 1, 2009
which resulted in a reduction of $13.9 million of tangible
assets and an increase of $28.3 million in intangible
assets. The corresponding change in depreciation and
amortization would have been a decrease in depreciation expense
for tangible assets by $7.4 million for the ten-month
period ended October 25, 2009 and an increase in
amortization expense for intangible assets by $9.1 million
for the same period. The useful lives were determined for each
tangible asset, which are depreciated on a straight-line basis
and range from two to 35 years with a weighted average useful
life of 14 years. Technology and customer relationships are
amortized on a straight-line basis over one-half to five years
based on expected benefit periods. Patents, trademarks and
property use rights are amortized on a straight-line basis over
the periods of benefits for four years. The estimated
useful life of tangibles and intangibles were determined based
on expected benefits
and/or
economic availability for service periods. The aggregate
depreciation and amortization expense was allocated to cost of
sales and selling, general and administrative expenses and
research and development expenses by ($5.4) million,
$0.8 million, and $6.4 million, respectively, in
respect of the purpose of property, plant and equipment and
intangible assets.
(2) To eliminate the one-time impact on cost of sales
associated with the step up of our inventory of
$17.9 million, of which $17.2 million was charged to
cost of sales during the two-month period ended
December 31, 2009, applying the first in, first out method,
or FIFO. This adjustment is considered a material non-recurring
adjustment and as such is being eliminated from the unaudited
pro forma statements of operations.
(3) To eliminate interest expense of $21.6 million
incurred on our notes of $750.0 million and
$7.2 million incurred on the senior secured credit facility
of $95.0 million which was recognized in the ten-month
period ended October 25, 2009. This adjustment further
eliminates the amortized debt issuance cost of $0.8 million
in relation to this indebtedness which was also recognized in
the ten-month period ended October 25, 2009. In addition,
the pro forma adjustment assumes the outstanding new term loan
of $61.8 million was outstanding as of January 1,
2009. The resulting additional interest expense from our new
term loan would have been $6.6 million using the interest
rate of 12.6%, which represents the 6 month LIBOR rate of
0.6% as of October 26, 2009, the date of our emergence from
bankruptcy plus 12%. If interest rates were one eighth of a
percentage point higher or lower, our pro forma interest expense
would have increased or decreased respectively by
$0.03 million for the ten-month period ended
October 25, 2009.
(4) To reflect the elimination of the impact of the
reorganization items, net recorded in the predecessor period in
accordance with ASC 852 upon emergence from the
reorganization proceedings, assumed to have occurred
January 1, 2009 for the unaudited pro forma statement of
operations. As such no adjustment for reorganization items
should be reflected.
(5) We believe that the pro forma adjustments should not
have an impact on income tax expense for 2009 due to our foreign
subsidiary losses and because MagnaChip Semiconductor
Corporation, as converted, would not have had taxable income
during 2009. With respect to taxable periods after 2009,
MagnaChip Semiconductor Corporations corporate status may
result in U.S. federal income tax expense.
(6) To eliminate dividends accrued on preferred units,
cancelled in connection with our emergence from reorganization
proceedings, in the amount of $6.3 million as of
October 25, 2009.
(7) Basic and diluted pro forma income per share reflects
(a) the consummation of the corporate conversion of
MagnaChip Semiconductor LLC and the effectiveness of our
certificate of incorporation, which is expected to occur prior
to the closing of this offering and (b) the automatic
conversion of all of the outstanding common units of MagnaChip
Semiconductor LLC for shares of our common stock
50
at a ratio
of .
The following table sets forth the computation of unaudited pro
forma basic and diluted income per share:
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Year Ended
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December 31, 2009
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Earnings
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Common Units/
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per Common
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Shares
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Unit/Share
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Weighted average common units basic and diluted
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307,083,996
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$
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Pro forma weighted average shares basic and diluted
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$
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(8) To reflect the change in the capitalization structure
of MagnaChip Semiconductor LLC upon its conversion to a
corporation by an automatic conversion of all of the outstanding
common units of MagnaChip Semiconductor LLC for shares of our
common stock at a ratio
of ,
upon the corporate conversion.
51
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Selected Historical Consolidated
Financial and Operating Data and our consolidated
financial statements and the related notes included elsewhere in
this prospectus. This discussion and analysis contains, in
addition to historical information, forward-looking statements
that include risks and uncertainties. Our actual results may
differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including those set forth under the heading Risk
Factors and elsewhere in this prospectus.
Overview
We are a Korea-based designer and manufacturer of analog and
mixed-signal semiconductor products for high-volume consumer
applications. We believe we have one of the broadest and deepest
analog and mixed-signal semiconductor technology platforms in
the industry, supported by our
30-year
operating history, large portfolio of approximately 3,600 novel
registered and pending patents and extensive engineering and
manufacturing process expertise. Our business is comprised of
three key segments: Display Solutions, Power Solutions and
Semiconductor Manufacturing Services. Our Display Solutions
products include display drivers for use in a wide range of flat
panel displays and multimedia devices. Our Power Solutions
products include discrete and integrated circuit solutions for
power management in high-volume consumer applications. Our
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.
Our wide variety of analog and mixed-signal semiconductor
products and manufacturing services combined with our deep
technology platform allows us to address multiple high-growth
end markets and to rapidly develop and introduce new products
and services in response to market demands. Our substantial
manufacturing operations in Korea and design centers in Korea
and Japan place us at the core of the global consumer
electronics supply chain. We believe this enables us to quickly
and efficiently respond to our customers needs and allows
us to better service and capture additional demand from existing
and new customers.
To maintain and increase our profitability, we must accurately
forecast trends in demand for consumer electronics products that
incorporate semiconductor products we produce. We must
understand our customers needs as well the likely end
market trends and demand in the markets they serve. We must
balance the likely manufacturing utilization demand of our
product businesses and foundry business to optimize our
facilities utilization. We must also invest in relevant research
and development activities and manufacturing capacity and
purchase necessary materials on a timely basis to meet our
customers demand while maintaining our target margins and
cash flow.
The semiconductor markets in which we participate are highly
competitive. The prices of our products tend to decrease
regularly over their useful lives, and such price decreases can
be significant as new generations of products are introduced by
us or our competitors. We strive to offset the impact of
declining selling prices for existing products through cost
reductions and the introduction of new products that command
selling prices above the average selling price of our existing
products. In addition, we seek to manage our inventories and
manufacturing capacity so as to mitigate the risk of losses from
product obsolescence.
Demand for our products and services is driven primarily by
overall demand for consumer electronics products and can be
adversely affected by periods of weak consumer spending or by
market share losses by our customers. To mitigate the impact of
market volatility on our business, we seek to address market
segments and geographies with higher growth rates than the
overall consumer electronics industry. For example, in recent
years, we have experienced increasing demand from OEMs and
consumers in China and Taiwan relative to overall demand for our
products and
52
services. We expect to derive a meaningful portion of our growth
from growing demand in such markets. We also expect that new
competitors will emerge in these markets that may place
increased pressure on the pricing for our products and services,
but we believe that we will be able to successfully compete
based upon our higher quality products and services and that the
impact from the increased competition will be more than offset
by increased demand arising from such markets. Further, we
believe we are well-positioned competitively as a result of our
long operating history, existing manufacturing capacity and our
Korea-based operations.
Within our Display Solutions and Power Solutions segments, net
sales are driven by design wins in which we or another company
is selected by an electronics OEM or other potential customer to
supply its demand for a particular product. A customer will
often have more than one supplier designed in to multi-source
components for a particular product line. Once designed in, we
often specify the pricing of a particular product for a set
period of time, with periodic discussions and renegotiations of
pricing with our customers. In any given period, our net sales
depend heavily upon the end-market demand for the goods in which
our products are used, the inventory levels maintained by our
customers and in some cases, allocation of demand for components
for a particular product among selected qualified suppliers.
Within the Semiconductor Manufacturing Services business, net
sales are driven by customers decisions on which
manufacturing services provider to use for a particular product.
Most of our semiconductor manufacturing services customers are
fabless and depend upon service providers like us to manufacture
their products. A customer will often have more than one
supplier of manufacturing services; however, they tend to
allocate a majority of manufacturing volume to one of their
suppliers. We strive to be the primary supplier of manufacturing
services to our customers. Once selected as a primary supplier,
we often specify the pricing of a particular service on a per
wafer basis for a set period of time, with periodic discussions
and renegotiations of pricing with our customers. In any given
period, our net sales depend heavily upon the end-market demand
for the goods in which the products we manufacture for customers
are used, the inventory levels maintained by our customers and
in some cases, allocation of demand for manufacturing services
among selected qualified suppliers.
Our products and services require investments in capital
equipment. Analog and mixed-signal manufacturing facilities and
processes are typically distinguished by the design and process
implementation expertise rather than the use of the most
advanced equipment. As a result, our manufacturing base and
strategy does not require substantial investment in leading edge
process equipment, allowing us to utilize our facilities and
equipment over an extended period of time with moderate required
capital investments. Generally, incremental capacity expansions
in our segment of the market result in more moderate industry
capacity expansion as compared to leading edge processes. As a
result, this market, and we, specifically, are less likely to
experience significant industry overcapacity, which can cause
product prices to plunge dramatically. In general, we seek to
invest in manufacturing capacity that can be used for multiple
high-value applications over an extended period of time. We
believe this capital investment strategy enables us to optimize
our capital investments and facilitates deeper and more
diversified product and service offerings.
Our success going forward will depend upon our ability to adapt
to future challenges such as the emergence of new competitors
for our products and services or the consolidation of current
competitors. Additionally, we must innovate to remain ahead of,
or at least rapidly adapt to, technological breakthroughs that
may lead to a significant change in the technology necessary to
deliver our products and services. We believe that our
established relationships and close collaboration with leading
customers, such as LG Display, Sharp, and Samsung, enhance our
visibility into new product opportunities, market and technology
trends and improve our ability to meet these challenges
successfully. In our Semiconductor Manufacturing Services
business, we strive to maintain competitiveness and our position
as a primary manufacturing services provider to our customers by
offering high value added, unique processes, high flexibility
and excellent service.
53
In connection with the audits of our consolidated financial
statements for the ten-month period ended October 25, 2009
and two-month period ended December 31, 2009, our
independent registered public accounting firm has reported two
control deficiencies which represent a material weakness in our
internal control over financial reporting. The two control
deficiencies that our independent registered public accounting
firm reported to our board of directors (as we then did not have
a separate audit committee), are that we do not have a
sufficient number of financial personnel with requisite
financial accounting experience, and that our internal controls
over non-routine transactions are not effective to ensure that
accounting considerations are identified and appropriately
recorded.
Recent Changes
to Our Business
Beginning in the second half of 2008, we began to take steps to
refocus our business strategy, enhance our operating efficiency
and improve our cash flow and profitability. We restructured our
continuing operations by reducing our cost structure, increasing
our focus on our core, profitable technologies, products and
customers, and implemented various initiatives to lower our
manufacturing costs and improve our gross margins. In connection
with these initiatives, we closed our Imaging Solutions business
segment, which had been a source of substantial ongoing
operating losses amounting to $91.5 million and
$51.7 million in 2008 and 2007, respectively, and which
required substantial ongoing capital investment. Our employee
headcount has declined from 3,648 as of the end of July 2008 to
3,156 at the end of 2009.
On June 12, 2009, we filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in
order to address the growing demands on our cash flow resulting
from our long-term indebtedness. Our plan of reorganization went
effective and we emerged from the reorganization proceeding on
November 9, 2009. As a result of the plan of
reorganization, our indebtedness was reduced from
$845.0 million immediately prior to the effectiveness of
our plan of reorganization to $61.8 million as of
December 31, 2009.
During the first half of 2009, we instituted company-wide salary
reductions, which resulted in one-time savings for our
continuing operations during 2009 and which in turn contributed
to the decrease in salaries and related expenses in 2009
relative to 2008. We reinstated salaries to prior levels in July
2009.
In connection with our emergence from reorganization
proceedings, we implemented fresh-start accounting in accordance
with ASC 852 governing reorganizations. We elected to adopt
a convenience date of October 25, 2009 (a month end for our
financial reporting purposes) for application of fresh-start
accounting. In accordance with ASC 852 governing
reorganizations, we recorded largely non-cash reorganization
income and expense items directly associated with our
reorganization proceedings including professional fees, the
revaluation of assets, the effects of our reorganization plan
and fresh-start accounting, and write-off of debt issuance costs.
In implementing fresh-start accounting, we re-measured our asset
values and stated all liabilities, other than deferred taxes and
severance benefits, at fair value or at the present values of
the amounts to be paid using appropriate market interest rates.
Our reorganization value was determined based on consideration
of numerous factors and various valuation methodologies,
including discounted cash flows, believed by management and our
financial advisors to be representative of our business and
industry. Information regarding the determination of the
reorganization value and application of fresh-start accounting
is included in note 3 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten
months ended October 25, 2009 and the two months ended
December 31, 2009 included elsewhere in this prospectus. In
addition, under fresh-start accounting, accumulated deficit and
accumulated other comprehensive income were eliminated.
Under fresh-start accounting, our inventory, net, and intangible
assets, net, increased by $17.9 million and
$28.3 million, respectively, and property, plant and
equipment decreased by
54
$13.9 million, in each case to reflect the estimated fair
value as of our emergence from our reorganization proceedings.
As a result, our cost of sales for the two-month period ended
December 31, 2009 included approximately $17.2 million
of additional costs from the inventory step-up. This resulted in
our gross margin for the two-month period ended
December 31, 2009 being significantly lower than for the
ten-month period ended October 25, 2009 and prior periods.
The increase in intangible assets results in higher amortization
expenses following our emergence from our reorganization
proceedings which are included in cost of sales, selling general
and administrative expenses and research and development
expenses. The decrease in property and plant and equipment
results in lower depreciation expenses, which are included in
cost of sales, selling general and administrative expenses and
research and development expenses following our emergence from
our reorganization proceedings.
As a result of the application of fresh-start accounting, our
consolidated financial statements prior to and including
October 25, 2009 represent the operations of our
pre-reorganization predecessor company and are presented
separately from the consolidated financial statements of our
post-reorganization successor company. For the purposes of our
discussion and analysis of our results of operations, we often
refer to results of operations for 2009 on a combined basis,
including both the period before (predecessor company) and after
(successor company) effectiveness of the plan of reorganization.
We believe this comparison provides useful information as the
principal impact of the plan of reorganization was on our debt
and capital structure and not on our core operations; and many
of the steps taken to improve our core operations had commenced
prior to the commencement of our reorganization proceedings.
Business
Segments
We report in three separate business segments because we derive
our revenues from three principal business lines: Display
Solutions, Power Solutions, and Semiconductor Manufacturing
Services. We have identified these segments based on how we
allocate resources and assess our performance.
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Display Solutions: Our Display
Solutions products include source and gate drivers and timing
controllers that cover a wide range of flat panel displays used
in LCD televisions and LED televisions and displays, mobile PCs
and mobile communications and entertainment devices. Our display
solutions support the industrys most advanced display
technologies, such as LTPS and AMOLED, as well as high-volume
display technologies such as TFT.
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Power Solutions: Our Power Solutions
segment produces power management semiconductor products
including discrete and integrated circuit solutions for power
management in high-volume consumer applications. These products
include MOSFETs, LED drivers, DC-DC converters, analog switches
and linear regulators, such as low-dropout regulators, or LDOs.
Our power solutions products are designed for applications such
as mobile phones, LCD televisions, and desktop computers, and
allow electronics manufacturers to achieve specific design goals
of high efficiency and low standby power consumption. Going
forward, we expect to continue to expand our power management
product portfolio.
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Semiconductor Manufacturing
Services: Our Semiconductor Manufacturing
Services segment provides specialty analog and mixed-signal
foundry services to fabless semiconductor companies that serve
the consumer, computing and wireless end markets. We manufacture
wafers based on our customers product designs. We do not
market these products directly to end customers but rather
supply manufactured wafers and products to our customers to
market to their end customers. We offer approximately 200
process flows to our manufacturing services customers. We also
often partner with key customers to jointly develop or customize
specialized processes that enable our customers to improve their
products and allow us to develop unique manufacturing expertise.
Our manufacturing services are targeted at customers who require
differentiated, specialty analog and mixed-signal process
technologies
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such as high voltage CMOS, embedded memory and power. These
customers typically serve high-growth and high-volume
applications in the consumer, computing and wireless end markets.
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Additional
Business Metrics Evaluated by Management
Adjusted
EBITDA and Adjusted Net Income
We use the terms Adjusted EBITDA and Adjusted Net Income
throughout this prospectus. Adjusted EBITDA, as we define it, is
a non-GAAP measure. We define Adjusted EBITDA as net income
(loss) less income (loss) from discontinued operations, net of
taxes excluding (i) depreciation and amortization
associated with continuing operations, (ii) interest
expense, net, (iii) income tax expense,
(iv) restructuring and impairment charges, (v) other
restructuring charges, (vi) abandoned IPO expenses,
(vii) subcontractor claim settlement,
(viii) reorganization items, net, (ix) the increase in
cost of sales resulting from the fresh-start inventory
accounting
step-up,
(x) equity-based compensation expense, and
(xi) foreign currency gain (loss), net. We define Adjusted
Net Income as net income (loss) less income (loss) from
discontinued operations, net of taxes excluding
(i) restructuring and impairment charges, (ii) other
restructuring charges, (iii) reorganization items, net,
(iv) the increase in cost of sales resulting from the
fresh-start inventory accounting
step-up,
(v) equity-based compensation expense,
(vi) amortization of intangibles, and (vii) foreign
currency gain (loss).
We present Adjusted EBITDA as a supplemental measure of our
performance because:
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Adjusted EBITDA eliminates the impact of a number of items that
may be either one time or recurring that we do not consider to
be indicative of our core ongoing operating performance;
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we believe that Adjusted EBITDA is an enterprise level
performance measure commonly reported and widely used by
analysts and investors in our industry;
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we anticipate that our investor and analyst presentations after
we are public will include Adjusted EBITDA; and
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we believe that Adjusted EBITDA provides investors with a more
consistent measurement of period to period performance of our
core operations, as well as a comparison of our operating
performance to companies in our industry.
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We use Adjusted Net Income for a number of reasons, including:
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we use Adjusted Net Income in communications with our board of
directors concerning our consolidated financial performance;
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we believe that Adjusted Net Income is an enterprise level
performance measure commonly reported and widely used by
analysts and investors in our industry; and
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we anticipate that our investor and analyst presentations after
we are public will include Adjusted Net Income.
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In evaluating Adjusted EBITDA and Adjusted Net Income, you
should be aware that in the future we may incur expenses similar
to the adjustments in our presentation of Adjusted EBITDA. Our
presentation of Adjusted EBITDA and Adjusted Net Income should
not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. Adjusted EBITDA
and Adjusted Net Income are not measures defined in accordance
with GAAP and should not be construed as an alternative to
operating income, cash flows from operating activities or net
income (loss), as determined in accordance with GAAP. For
additional information regarding how we calculate Adjusted
EBITDA and Adjusted Net Income, please see Prospectus
Summary Summary Historical and Unaudited Pro Forma
Consolidated Financial Data.
On a pro forma basis, our Adjusted EBITDA and Adjusted Net
Income for the year ended December 31, 2009 were
$98.7 million and $53.0 million, respectively. Our
Adjusted EBITDA and Adjusted Net Income for the year ended
December 31, 2008 were $59.8 million and a loss of
56
$71.7 million, respectively. This improvement resulted from
the appreciation of the Korean won against the U.S. dollar as
described below, our restructuring efforts and improvements in
market conditions.
Factors Affecting
Our Results of Operations
Net Sales. We derive a majority of our
sales (net of sales returns and allowances) from three
reportable segments: Display Solutions, Power Solutions and
Semiconductor Manufacturing Services. Our product inventory is
primarily located in Korea and is available for drop shipment
globally. Outside of Korea, we maintain limited product
inventory, and our sales representatives generally relay orders
to our factories in Korea for fulfillment. We have strategically
located our sales and technical support offices near
concentrations of major customers. Our sales offices are located
in Hong Kong, Japan, Korea, Taiwan, China, the United Kingdom
and the United States. Our network of authorized agents and
distributors consists of agents in the United States and Europe
and distributors and agents in the Asia Pacific region. Our net
sales from All other consist principally of rental income and,
for 2007 and to a limited extent in 2008, semiconductor
processing services for one customer where we completed a
limited number of process steps, rather than the entire
production process, which we refer to as unit processing.
We recognize revenue when risk and reward of ownership passes to
the customer either upon shipment, upon product delivery at the
customers location or upon customer acceptance, depending
on the terms of the arrangement. For the year ended
December 31, 2009, we sold products to over 185 customers,
and our net sales to our ten largest customers represented
approximately 69% of our aggregate 2009 net sales. We have
a combined production capacity of over 131,000 eight-inch
equivalent semiconductor wafers per month. We believe our
large-scale, cost-effective fabrication facilities enable us to
rapidly adjust our production levels to meet shifts in demand by
our end customers.
Gross Profit. Our overall gross profit
generally fluctuates as a result of changes in overall sales
volumes and in the average selling prices of our products and
services. Other factors that influence our gross profit include
changes in product mix, the introduction of new products and
services and subsequent generations of existing products and
services, shifts in the utilization of our manufacturing
facilities and the yields achieved by our manufacturing
operations, changes in material, labor and other manufacturing
costs and variation in depreciation expense.
Average Selling Prices. Average selling
prices for our products tend to be highest at the time of
introduction of new products which utilize the latest technology
and tend to decrease over time as such products mature in the
market and are replaced by next generation products. We strive
to offset the impact of declining selling prices for existing
products through our product development activities and by
introducing new products that command selling prices above the
average selling price of our existing products. In addition, we
seek to manage our inventories and manufacturing capacity so as
to preclude losses from product and productive capacity
obsolescence.
Material Costs. Our cost of sales
consists of costs of raw materials, such as silicon wafers,
chemicals, gases and tape, packaging supplies, equipment
maintenance and depreciation expenses. We use processes that
require specialized raw materials, such as silicon wafers, that
are generally available from a limited number of suppliers. If
demand increases or supplies decrease, the costs of our raw
materials could significantly increase.
Labor Costs. A significant portion of
our employees are located in Korea. Under Korean labor laws,
most employees and certain 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 December 31, 2009, approximately 98%
of our employees were eligible for severance benefits. We have
in the past implemented temporary reductions in salaries to
manage through downturns in the industry. We expect to and have
reversed such temporary reductions when business conditions
improve.
57
Depreciation Expense. We periodically
evaluate the carrying values of long-lived assets, including
property, plant and equipment and intangible assets, as well as
the related depreciation periods. At December 31, 2009, we
depreciated our property, plant and equipment using the
straight-line method over the estimated useful lives of our
assets. Depreciation rates vary from
30-40 years
on buildings to five years for certain equipment and assets. Our
evaluation of carrying values is based on various analyses
including cash flow and profitability projections. If our
projections indicate that future undiscounted cash flows are not
sufficient to recover the carrying values of the related
long-lived assets, the carrying value of the assets is impaired
and will be reduced, with the reduction charged to expense so
that the carrying value is equal to fair value.
Selling Expenses. We sell our products
worldwide through a direct sales force as well as a network of
sales agents and representatives to OEMs, including major
branded customers and contract manufacturers, and indirectly
through distributors. Selling expenses consist primarily of the
personnel costs for the members of our direct sales force, a
network of sales representatives and other costs of
distribution. Personnel costs include base salary, benefits and
incentive compensation. As incentive compensation is tied to
various net sales goals, it will increase or decrease with net
sales.
General and Administrative
Expenses. General and administrative expenses
consist of the costs of various corporate operations, including
finance, legal, human resources and other administrative
functions. These expenses primarily consist of payroll-related
expenses, consulting and other professional fees and office
facility-related expenses. Historically, our selling, general
and administrative expenses have remained relatively constant as
a percentage of net sales, and we expect this trend to continue
in the future.
Research and Development. The rapid
technological change and product obsolescence that characterize
our industry require us to make continuous investments in
research and development. Product development time frames vary
but, in general, we incur research and development costs one to
two years before generating sales from the associated new
products. These expenses include personnel costs for members of
our engineering workforce, cost of photomasks, silicon wafers
and other non-recurring engineering charges related to product
design. Additionally, we develop base-line process technology
through experimentation and through the design and use of
characterization wafers that help achieve commercially feasible
yields for new products. The majority of research and
development expenses are for process development that serves as
a common technology platform for all of our product segments.
Consequently, we do not allocate these expenses to individual
segments. Although our research and development expenses
declined significantly from 2008 to 2009, we expect such
expenses to increase in 2010 and future periods and to remain a
relatively constant percentage of our net sales as we continue
to increase our investments in research and development to
develop additional products and expand our business.
Restructuring and Impairment
Charges. We evaluate the recoverability of
certain long-lived assets on a periodic basis or whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable. In our efforts to improve our overall
profitability in future periods, we have closed or otherwise
impaired, and may in the future close or impair, facilities that
are underutilized and that are no longer aligned with our
long-term business goals. For example, in 2007 we closed our
five-inch fabrication facilities in Gumi, Korea and in 2008 we
discontinued our Imaging Solutions business segment.
Interest Expense, Net. Our interest
expense is incurred under the Predecessor Companys senior
secured credit facility, the Predecessor Companys second
priority senior secured notes and senior subordinated notes and
the Successor Companys new term loan under the Successor
Company. Our new term loan bears interest at six-month LIBOR
plus 12%, and was minimally offset by interest income on cash
balances. As a result of our reorganization, we expect that our
interest expense will decrease in amount and as a percentage of
net sales relative to historical periods.
58
Impact of Foreign Currency Exchange Rates on Reported
Results of Operations. Historically, a
portion of our revenues and greater than the majority of our
operating expenses and costs of sales have been denominated in
non-U.S. currencies,
principally the Korean won, and we expect that this will remain
true in the future. Because we report our results of operations
in U.S. dollars, changes in the exchange rate between the
Korean won and the U.S. dollar could materially impact our
reported results of operations and distort period to period
comparisons. In particular, because of the difference in the
amount of our consolidated revenues and expenses that are in
U.S. dollars relative to Korean won, depreciation in the
U.S. dollar relative to the Korean won could result in a
material increase in reported costs relative to revenues, and
therefore could cause our profit margins and operating income
(loss) from continuing operations to appear to decline
materially, particularly relative to prior periods. The converse
is true if the U.S. dollar were to appreciate relative to
the Korean won. As a result of such foreign currency
fluctuations, it could be more difficult to detect underlying
trends in our business and results of operations. In addition,
to the extent that fluctuations in currency exchange rates cause
our results of operations to differ from our expectations or the
expectations of our investors, the trading price of our stock
could be adversely affected.
For periods ending on or prior to October 25, 2009, we
converted our
non-U.S. revenues
and expenses into U.S. dollars based on cumulative average
exchange rates over the periods presented. Beginning on
October 25, 2009, we convert our
non-U.S. revenues
and expenses into U.S. dollars based on monthly average
exchange rates. The following table provides the cumulative
average exchange rates that we used to convert Korean won into
U.S. dollars for each of the periods ending on our prior to
October 25, 2009, as well as the monthly average exchange
rates used for the two months ended December 31, 2009:
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|
Period
|
|
Rate
|
|
Year ended December 31, 2007
|
|
|
928:1
|
|
Year ended December 31, 2008
|
|
|
1,098:1
|
|
Ten months ended October 25, 2009
|
|
|
1,302:1
|
|
Two months ended December 31, 2009
|
|
|
|
|
November
|
|
|
1,172:1
|
|
December
|
|
|
1,165:1
|
|
As a result of the depreciation of the Korean won against the
U.S. dollar from 2007 to 2008 and from 2008 to 2009,
foreign currency fluctuations generally had a materially
beneficial impact on our reported profit margins and operating
income (loss) from continuing operations for such periods.
From time to time, we may engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate
fluctuations. For example, in January 2010 our Korean subsidiary
entered into foreign currency option and forward contracts in
order to mitigate a portion of the impact of
U.S. dollar-Korean won exchange rate fluctuations on our
operating results. These option and forward contracts require us
to sell specified notional amounts in U.S. dollars and
provide us the option to sell specified notional amounts in
U.S. dollars during each month of 2010 commencing February
2010 to our counterparty, in each case, in exchange for Korean
won at specified fixed exchange rates. Obligations under these
foreign currency option and forward contracts must be cash
collateralized if our exposure exceeds certain specified
thresholds. These option and forward contracts may be terminated
by the counterparty in a number of circumstances, including if
our long-term debt rating falls below B-/B3 or if our total cash
and cash equivalents is less than $12.5 million at the end
of a fiscal quarter. For further information regarding the
derivative financial instruments, see note 27 to the
consolidated financial statements of MagnaChip Semiconductor LLC
for the ten-month period ended October 25, 2009 and the
two-month period ended December 31, 2009 elsewhere in this
prospectus.
Foreign Currency Gain or Loss. Foreign
currency translation gains or losses on transactions by us or
our subsidiaries in a currency other than our or our
subsidiaries functional currency are
59
included in our statements of operations as a component of other
income (expense). A substantial portion of this net foreign
currency gain or loss relates to non-cash translation gain or
loss related to the principal balance of intercompany borrowings
at our Korean subsidiary that are denominated in
U.S. dollars. This gain or loss results from fluctuations
in the exchange rate between the Korean won and U.S. dollar.
Income Taxes. We record our income
taxes in each of the tax jurisdictions in which we operate. This
process involves using an asset and liability approach whereby
deferred tax assets and liabilities are recorded for differences
in the financial reporting bases and tax bases of our assets and
liabilities. We exercise significant management judgment in
determining our provision for income taxes, deferred tax assets
and liabilities. We periodically evaluate our deferred tax
assets to ascertain whether it is more likely than not that the
deferred tax assets will be realized. Our income tax expense has
been low in absolute dollars and as a percentage of net sales
principally due to the availability of tax loss carry-forwards
and we expect such rate to remain low for at least the next few
years.
Our operations are subject to income and transaction taxes in
Korea and in multiple foreign jurisdictions. Significant
estimates and judgments are required in determining our
worldwide provision for income taxes. Some of these estimates
are based on interpretations of existing tax laws or
regulations. The ultimate amount of tax liability may be
uncertain as a result.
Capital Expenditures. We invest in
manufacturing equipment, software design tools and other
tangible and intangible assets for capacity expansion and
technology improvement. Capacity expansions and technology
improvements typically occur in anticipation of seasonal
increases in demand. We typically pay for capital expenditures
in partial installments with portions due on order, delivery and
final acceptance.
Inventories. We monitor our inventory
levels in light of product development changes and market
expectations. We may be required to take additional charges for
quantities in excess of demand, cost in excess of market value
and product age. Our analysis may take into consideration
historical usage, expected demand, anticipated sales price, new
product development schedules, the effect new products might
have on the sales of existing products, product age, customer
design activity, customer concentration and other factors. These
forecasts require us to estimate our ability to predict demand
for current and future products and compare those estimates with
our current inventory levels and inventory purchase commitments.
Our forecasts for our inventory may differ from actual inventory
use.
Principles of Consolidation. Our
consolidated financial statements include the accounts of our
company and our wholly-owned subsidiaries. All significant
intercompany transactions and balances are eliminated in
consolidation.
Segments. We operate in three segments:
Display Solutions, Power Solutions and Semiconductor
Manufacturing Services. Our Power Solutions segment began to
generate net sales in the second quarter of 2008. Net sales and
gross profit for the All other category primarily relate to
certain business activities that do not constitute operating or
reportable segments.
60
Results of
Operations
The following table sets forth, for the periods indicated,
certain information related to our operations, expressed in
U.S. dollars and as a percentage of our net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor Company
|
|
|
|
Company
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Two-Month
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
Ended December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
|
Amount
|
|
|
net sales
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
|
(In millions)
|
|
Consolidated statements of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
90.4
|
|
|
|
81.4
|
|
|
|
|
311.1
|
|
|
|
69.3
|
|
|
|
445.3
|
|
|
|
74.0
|
|
|
|
578.9
|
|
|
|
81.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20.7
|
|
|
|
18.6
|
|
|
|
|
137.8
|
|
|
|
30.7
|
|
|
|
156.4
|
|
|
|
26.0
|
|
|
|
130.7
|
|
|
|
18.4
|
|
Selling, general and administrative expenses
|
|
|
14.5
|
|
|
|
13.1
|
|
|
|
|
56.3
|
|
|
|
12.5
|
|
|
|
81.3
|
|
|
|
13.5
|
|
|
|
82.7
|
|
|
|
11.7
|
|
Research and development expenses
|
|
|
14.7
|
|
|
|
13.3
|
|
|
|
|
56.1
|
|
|
|
12.5
|
|
|
|
89.5
|
|
|
|
14.9
|
|
|
|
90.8
|
|
|
|
12.8
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
2.2
|
|
|
|
12.1
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(8.6
|
)
|
|
|
(7.7
|
)
|
|
|
|
25.0
|
|
|
|
5.6
|
|
|
|
(27.7
|
)
|
|
|
(4.6
|
)
|
|
|
(54.9
|
)
|
|
|
(7.7
|
)
|
Interest expense, net
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
|
31.2
|
|
|
|
6.9
|
|
|
|
76.1
|
|
|
|
12.7
|
|
|
|
60.3
|
|
|
|
8.5
|
|
Foreign currency gain (loss), net
|
|
|
9.3
|
|
|
|
8.4
|
|
|
|
|
43.4
|
|
|
|
9.7
|
|
|
|
(210.4
|
)
|
|
|
(35.0
|
)
|
|
|
(4.7
|
)
|
|
|
(0.7
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
179.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
7.3
|
|
|
|
|
816.8
|
|
|
|
181.9
|
|
|
|
(286.5
|
)
|
|
|
(47.6
|
)
|
|
|
(65.0
|
)
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) continuing operations before income taxes
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
|
841.8
|
|
|
|
187.5
|
|
|
|
(314.3
|
)
|
|
|
(52.2
|
)
|
|
|
(120.0
|
)
|
|
|
(16.9
|
)
|
Income tax expenses
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
|
7.3
|
|
|
|
1.6
|
|
|
|
11.6
|
|
|
|
1.9
|
|
|
|
8.8
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(2.5
|
)
|
|
|
(2.2
|
)
|
|
|
|
834.5
|
|
|
|
185.9
|
|
|
|
(325.8
|
)
|
|
|
(54.2
|
)
|
|
|
(128.8
|
)
|
|
|
(18.2
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
1.5
|
|
|
|
(91.5
|
)
|
|
|
(15.2
|
)
|
|
|
(51.7
|
)
|
|
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2.0
|
)
|
|
|
(1.8
|
)%
|
|
|
$
|
841.1
|
|
|
|
187.3
|
%
|
|
$
|
(417.3
|
)
|
|
|
(69.4
|
)%
|
|
$
|
(180.6
|
)
|
|
|
(25.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display Solutions
|
|
$
|
51.0
|
|
|
|
46.0
|
%
|
|
|
$
|
231.9
|
|
|
|
51.6
|
%
|
|
$
|
304.1
|
|
|
|
50.5
|
%
|
|
$
|
331.7
|
|
|
|
46.7
|
%
|
Power Solutions
|
|
|
4.7
|
|
|
|
4.3
|
|
|
|
|
7.6
|
|
|
|
1.7
|
|
|
|
5.4
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Semiconductor Manufacturing Services
|
|
|
54.8
|
|
|
|
49.3
|
|
|
|
|
206.7
|
|
|
|
46.0
|
|
|
|
287.1
|
|
|
|
47.7
|
|
|
|
321.0
|
|
|
|
45.2
|
|
All other
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
2.8
|
|
|
|
0.6
|
|
|
|
5.0
|
|
|
|
0.8
|
|
|
|
56.8
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
Results of
Operations Comparison of Years ended
December 31, 2009 and December 31, 2008
The following table sets forth consolidated results of
operations for the two-month period ended December 31,
2009, the ten-month period ended October 25, 2009 and the
year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
Year
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
Change
|
|
|
|
Amount
|
|
|
net sales
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Net sales
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
(41.6
|
)
|
Cost of sales
|
|
|
90.4
|
|
|
|
81.4
|
|
|
|
|
311.1
|
|
|
|
69.3
|
|
|
|
445.3
|
|
|
|
74.0
|
|
|
|
(43.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20.7
|
|
|
|
18.6
|
|
|
|
|
137.8
|
|
|
|
30.7
|
|
|
|
156.4
|
|
|
|
26.0
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
14.5
|
|
|
|
13.1
|
|
|
|
|
56.3
|
|
|
|
12.5
|
|
|
|
81.3
|
|
|
|
13.5
|
|
|
|
(10.5
|
)
|
Research and development expenses
|
|
|
14.7
|
|
|
|
13.3
|
|
|
|
|
56.1
|
|
|
|
12.5
|
|
|
|
89.5
|
|
|
|
14.9
|
|
|
|
(18.6
|
)
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
2.2
|
|
|
|
(12.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(8.6
|
)
|
|
|
(7.7
|
)
|
|
|
|
25.0
|
|
|
|
5.6
|
|
|
|
(27.7
|
)
|
|
|
(4.6
|
)
|
|
|
44.1
|
|
Interest expense, net
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
|
31.2
|
|
|
|
6.9
|
|
|
|
76.1
|
|
|
|
12.7
|
|
|
|
(43.7
|
)
|
Foreign currency gain (loss), net
|
|
|
9.3
|
|
|
|
8.4
|
|
|
|
|
43.4
|
|
|
|
9.7
|
|
|
|
(210.4
|
)
|
|
|
(35.0
|
)
|
|
|
263.2
|
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
179.2
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
7.3
|
|
|
|
|
816.8
|
|
|
|
181.9
|
|
|
|
(286.5
|
)
|
|
|
(47.6
|
)
|
|
|
1,111.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) continuing operations before income taxes
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
|
841.8
|
|
|
|
187.5
|
|
|
|
(314.3
|
)
|
|
|
(52.2
|
)
|
|
|
1,155.5
|
|
Income tax expenses
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
|
7.3
|
|
|
|
1.6
|
|
|
|
11.6
|
|
|
|
1.9
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(2.5
|
)
|
|
|
(2.2
|
)
|
|
|
|
834.5
|
|
|
|
185.9
|
|
|
|
(325.8
|
)
|
|
|
(54.2
|
)
|
|
|
1,157.9
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
1.5
|
|
|
|
(91.5
|
)
|
|
|
(15.2
|
)
|
|
|
98.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2.0
|
)
|
|
|
(1.8
|
)%
|
|
|
$
|
841.1
|
|
|
|
187.3
|
%
|
|
$
|
(417.3
|
)
|
|
|
(69.4
|
)%
|
|
$
|
1,256.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
Change
|
|
|
|
Amount
|
|
|
net sales
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Display Solutions
|
|
$
|
51.0
|
|
|
|
46.0
|
%
|
|
|
$
|
231.9
|
|
|
|
51.6
|
%
|
|
$
|
304.1
|
|
|
|
50.5
|
%
|
|
$
|
(21.2
|
)
|
Power Solutions
|
|
|
4.7
|
|
|
|
4.3
|
|
|
|
|
7.6
|
|
|
|
1.7
|
|
|
|
5.4
|
|
|
|
0.9
|
|
|
|
6.9
|
|
Semiconductor Manufacturing Services
|
|
|
54.8
|
|
|
|
49.3
|
|
|
|
|
206.7
|
|
|
|
46.0
|
|
|
|
287.1
|
|
|
|
47.7
|
|
|
|
(25.7
|
)
|
All other
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
2.8
|
|
|
|
0.6
|
|
|
|
5.0
|
|
|
|
0.8
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
(41.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales were $111.1 million for the two-month period
ended December 31, 2009 and $449.0 million for the
ten-month period ended October 25, 2009, or
$560.1 million in aggregate, a
62
$41.6 million, or 6.9%, decrease, compared to
$601.7 million in 2008. Net sales generated in our three
operating segments during 2009 in aggregate were
$556.7 million, a decrease of $39.9 million, or 6.7%,
from 2008, due to the worldwide economic slowdown that resulted
in lower consumer demand, fewer new customer additions and new
product introductions, fewer design wins and the depreciation of
the Korean won against the U.S. dollar. Among our segments, net
sales decreased for our Display Solutions and our Semiconductor
Manufacturing Service segments which was offset in part by an
increase in net sales from our Power Solutions segment.
Display Solutions. Net sales from
Display Solutions were $51.0 million for the two-month
period ended December 31, 2009 and $231.9 million for
the ten-month period ended October 25, 2009, or
$282.9 million in aggregate, a $21.2 million, or 7.0%,
decrease from $304.1 million for 2008. The decrease
resulted from a 24.9% decrease in average selling prices,
primarily from display driver products for LCD televisions, PC
monitors and mobile devices. The reduction in average selling
prices in 2009 resulted in part from reduced demand for consumer
electronics products generally, and new products in particular,
during the first half of 2009 as a result of the worldwide
economic slowdown. These decreases in average selling prices
were partially offset by a 24.6% increase in sales volume.
Volume increased in the second half of 2009 as the consumer
electronics industry began to recover from the economic slowdown.
Power Solutions. Net sales from Power
Solutions were $4.7 million for the two-month period ended
December 31, 2009 and $7.6 million for the ten-month
period ended October 25, 2009, or $12.4 million in
aggregate, a $6.9 million, or 127.6%, increase from
$5.4 million for 2008. The increase resulted from a 221.3%
increase in sales volume, most of which was attributable to
higher demand for MOSFET products driven by our existing and new
customers. We were able to attract new customers, largely due to
MOSFET products utilized in high voltage technologies and
computing solutions.
Semiconductor Manufacturing
Services. Net sales from Semiconductor
Manufacturing Services were $54.8 million for the two-month
period ended December 31, 2009 and $206.7 million for
the ten-month period ended October 25, 2009, or
$261.4 million in aggregate, a $25.7 million, or 8.9%,
decrease compared to net sales of $287.1 million for 2008.
This decrease was primarily due to a 0.5% decrease in sales
volume and 3.4% decrease in average selling price of eight-inch
equivalent wafers given decreased market demand for such
products.
All other. Net sales from All other
were $0.5 million for the two-month period ended
December 31, 2009 and $2.8 million for the ten-month
period ended October 25, 2009, or $3.3 million in
aggregate compared to $5.0 million for 2008. This decrease
of $1.7 million, or 33.6%, resulted from lower rental
income due to the relocation of one of the lessees of one of our
buildings.
63
Net Sales by
Geographic Region
The following table sets forth our net sales by geographic
region and the percentage of total net sales represented by each
geographic region for the two-month period ended
December 31, 2009, the ten-month period ended
October 25, 2009 and the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
Change
|
|
|
|
Amount
|
|
|
net sales
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Korea
|
|
$
|
62.2
|
|
|
|
56.0
|
%
|
|
|
$
|
244.3
|
|
|
|
54.4
|
%
|
|
$
|
301.0
|
|
|
|
50.0
|
%
|
|
$
|
5.5
|
|
Asia Pacific
|
|
|
25.6
|
|
|
|
23.0
|
|
|
|
|
116.9
|
|
|
|
26.0
|
|
|
|
144.5
|
|
|
|
24.0
|
|
|
|
(2.0
|
)
|
Japan
|
|
|
6.5
|
|
|
|
5.8
|
|
|
|
|
31.6
|
|
|
|
7.0
|
|
|
|
79.9
|
|
|
|
13.3
|
|
|
|
(41.8
|
)
|
North America
|
|
|
14.9
|
|
|
|
13.4
|
|
|
|
|
48.5
|
|
|
|
10.8
|
|
|
|
61.3
|
|
|
|
10.2
|
|
|
|
2.0
|
|
Europe
|
|
|
1.9
|
|
|
|
1.7
|
|
|
|
|
7.7
|
|
|
|
1.7
|
|
|
|
14.9
|
|
|
|
2.5
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
(41.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales in Japan in 2009 declined as a percentage of total net
sales principally as a result of declines in customer sales
relating to electronic games due to the overall slowness in that
market.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
Change
|
|
|
|
Amount
|
|
|
net sales
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Display Solutions
|
|
$
|
8.7
|
|
|
|
17.1
|
%
|
|
|
$
|
61.8
|
|
|
|
26.6
|
%
|
|
$
|
57.4
|
|
|
|
18.9
|
%
|
|
$
|
13.1
|
|
Power Solutions
|
|
|
0.7
|
|
|
|
15.5
|
|
|
|
|
1.4
|
|
|
|
18.8
|
|
|
|
(4.3
|
)
|
|
|
(78.6
|
)
|
|
|
6.4
|
|
Semiconductor Manufacturing Services
|
|
|
10.7
|
|
|
|
19.5
|
|
|
|
|
71.8
|
|
|
|
34.8
|
|
|
|
98.4
|
|
|
|
34.3
|
|
|
|
(15.9
|
)
|
All other
|
|
|
0.5
|
|
|
|
100.0
|
|
|
|
|
2.8
|
|
|
|
100.0
|
|
|
|
4.9
|
|
|
|
97.3
|
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20.7
|
|
|
|
18.6
|
%
|
|
|
$
|
137.8
|
|
|
|
30.7
|
%
|
|
$
|
156.4
|
|
|
|
26.0
|
%
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit was $20.7 million for the two-month
period ended December 31, 2009 and $137.8 million for
the ten-month period ended October 25, 2009, or
$158.5 million in aggregate as compared to
$156.4 million for 2008, a $2.1 million, or 1.3%,
increase. Gross margin, or gross profit as a percentage of net
sales, in 2009 was 28.3%, an increase of 2.3% from 26.0% for the
year ended December 31, 2008. This increase in gross margin
was attributable to the depreciation of the Korean won against
the U.S. dollar with respect to our costs of sales and an
overall decrease in unit costs. These increases were partially
offset by lower average selling prices and the impact of a $17.2
million increase in our cost of sales as a result of the
write-up of our inventory in accordance with the principles of
fresh-start accounting upon the consummation of our
reorganization proceedings. The decreases in unit costs were
driven by the depreciation of the Korean won against the U.S.
dollar, reduced depreciation expenses, lower overhead costs on a
per unit basis and a decline in materials
64
prices. Gross margin for the two-month period ended
December 31, 2009 was 18.6% as compared to 30.7% for the
ten-month period ended October 25, 2009. Gross margin was
higher in the ten-month period ended October 25, 2009 compared
to the two-month period ended December 31, 2009 principally due
to a $17.2 million one-time impact on cost of sales which
is recorded in the two-month period ended December 31, 2009
associated with the step up of our inventory as a result of
adoption of fresh-start accounting. As of December 31,
2009, $0.7 million of the total increase in inventory
valuation remained. We expect to include the remaining increase
in inventory valuation in cost of sales for the quarter ending
March 31, 2010. As a result, we expect gross margin in
future periods to return to historical levels, excluding foreign
currency fluctuation impacts.
Display Solutions. Gross margin for
Display Solutions for the combined twelve-month period ended
December 31, 2009 improved to 24.9% compared to 18.9% for
the year ended December 31, 2008 due to the depreciation of
the Korean won against the U.S. dollar, a decrease in unit costs
that resulted from an increase in overall production volume
which offset lower average selling prices and the impact of the
write-up of our inventory in accordance with fresh-start
accounting.
Power Solutions. Gross margin for Power
Solutions for the combined twelve-month period ended
December 31, 2009 improved to 17.5% compared to (78.6)% for
the year ended December 31, 2008 due to the depreciation of
the Korean won against the U.S. dollar, increased volume and
decreases in unit costs offset by the write-up of our inventory
in accordance with fresh-start accounting. Unit cost reductions
were primarily driven by our ability to spread depreciation
expenses over an increased number of units resulting from a
221.3% increase in sales volume. Gross margin was negative in
2008 as we first began operating the segment in late 2007 and
had not yet achieved sales volumes required to generate a
positive gross margin.
Semiconductor Manufacturing
Services. Gross margin for Semiconductor
Manufacturing Services decreased to 31.6% in the combined
twelve-month period ended December 31, 2009 from 34.3% in
the year ended December 31, 2008. This decrease was
primarily due to an overall decrease in production volume and
average selling prices.
All other. Gross margin for All other
for the combined twelve-month period ended December 31,
2009 increased to 100.0% from 97.3% for the year ended
December 31, 2008. All net sales included in All other in
2009 represent rent revenues for which there is no cost of
sales. For 2008, All other included limited revenue from unit
processing which resulted in a gross margin of 97.3%.
Operating
Expenses
Selling, General and Administrative
Expenses. Selling, general, and
administrative expenses were $70.8 million, or 12.6%, of
net sales for the combined twelve-month period ended
December 31, 2009 compared to $81.3 million, or 13.5%,
for 2008. The decrease of $10.5 million, or 12.9%, from the
prior-year period was attributable to the depreciation of the
Korean won against the U.S. dollar, a reduction in headcount and
a short-term decrease in salaries and related expenses in
connection with our cost-reduction efforts in 2009 as well as a
decrease in depreciation and amortization expenses of
$6.5 million. These decreases were partially offset by a
$3.0 million increase in outside service expenses.
Research and Development
Expenses. Research and development expenses
for the combined twelve-month period ended December 31,
2009 were $70.9 million, a decrease of $18.6 million,
or 20.8%, from $89.5 million for the year ended
December 31, 2008. This decrease was due to the
depreciation of the Korean won against the U.S. dollar, a
$5.2 million decrease in salaries and related expenses due
to lower headcount and our short-term decrease in salaries.
Through our cost reduction initiatives, material costs decreased
by $5.3 million and outside service fees decreased by
$3.8 million. The remaining decrease in research and
development expenses was attributable to reductions in various
overhead expenses. Research and development expenses as a
percentage of net sales were 12.7% in 2009, compared to 14.9% in
2008.
65
Restructuring and Impairment
Charges. Restructuring and impairment charges
decreased by $12.9 million in the combined twelve-month
period ended December 31, 2009 compared to the year ended
December 31, 2008. Restructuring charges of
$0.4 million recorded in the ten-month period ended
October 25, 2009 were related to the closure of one of our
research and development facilities in Japan. Restructuring
charges of $13.4 million for the year ended
December 31, 2008 reflected an impairment charge of
$14.2 million as a result of the significant reduction in
net sales attributable to our Display Solutions products, offset
in part by an $0.9 million reversal of unused accrued
restructuring charges from prior periods.
Other Income
(Expense)
Interest Expense, net. Net interest
expense was $32.4 million during the combined twelve-month
period ended December 31, 2009, a decrease of
$43.7 million compared to $76.1 million for the year
ended December 31, 2008. Interest expense was incurred
under our $750 million principal amount of notes and our
senior secured credit facility. From June 12, 2009, the
date of our initial reorganization filing, to October 25,
2009, we did not accrue interest expenses related to our notes,
which were categorized as liabilities subject to compromise.
Upon our emergence from our reorganization proceedings, our
$750.0 million notes were discharged pursuant to the
reorganization plan. Net interest expense in 2008 included a
write-off of remaining debt issuance costs of $12.3 million
related to our notes since we were not compliant with certain
financial covenants under the terms of our notes and therefore,
amounts outstanding were reclassified as current portion of
long-term debt in our balance sheet as of December 31, 2008.
Foreign Currency Gain (Loss), net. Net
foreign currency gain for the combined twelve-month period ended
December 31, 2009 was $52.8 million, compared to net
foreign exchange loss of $210.4 million for the year ended
December 31, 2008. A substantial portion of our net foreign
currency gain or loss is non-cash translation gain or loss
recorded for intercompany borrowings at our Korean subsidiary
and is affected by changes in the exchange rate between the
Korean won and the U.S. dollar. Foreign currency
translation gain from the intercompany borrowings was included
in determining our consolidated net income since the
intercompany borrowings were not considered long-term
investments in nature because management intended to repay these
intercompany borrowings at their respective maturity dates. The
Korean won to U.S. dollar exchange rates were 1,167.6:1 and
1,262.0:1 using the first base rate as of December 31, 2009
as quoted by the Korea Exchange Bank and the noon buying rate in
effect as of December 31, 2008 as quoted by the Federal
Reserve Bank of New York, respectively. The exchange rate
quotation from the Federal Reserve Bank was available on or
before December 31, 2008.
Reorganization items, net. Net
reorganization gain of $804.6 million in the ten-month
period ended October 25, 2009 represents the impact of
non-cash reorganization income and expense items directly
associated with our reorganization proceedings and primarily
reflects the discharge of liabilities of $798.0 million.
Net reorganization gain also includes professional fees, the
revaluation of assets and the write-off of debt issuance costs.
These items are related primarily to our reorganization
proceedings, and are not the result of our current operations.
Accordingly, we do not expect these items to continue on an
ongoing basis. Further information on reorganization related
items is discussed in note 5 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten-month
period ended October 25, 2009 and the two-month period
ended December 31, 2009 included elsewhere in this
prospectus.
Income Tax
Expenses
Income Tax Expenses. Income tax
expenses for the combined twelve-month period ended
December 31, 2009 were $9.2 million, compared to
income tax expenses of $11.6 million for the year ended
December 31, 2008. Income tax expense for 2009 was
comprised of $6.7 million of withholding taxes mostly paid
on intercompany interest payments, $0.8 million of current
income taxes incurred in various jurisdictions in which we
operate and a $1.7 million income tax effect from the change of
66
deferred tax assets. Due to the uncertainty of the utilization
of foreign tax credits, we did not recognize these withholding
taxes as deferred tax assets.
Income from
discontinued operations, net of tax
Income from discontinued operations, net of
taxes. During 2008, we closed our Imaging
Solutions business segment, recognizing a net loss of
$91.5 million from discontinued operations, of which
$15.9 million was from negative gross margin,
$37.5 million was from research and development cost and
$34.2 million was attributable to restructuring and
impairment charges incurred during the third quarter of 2008.
During the combined twelve-month period ended December 31,
2009, we recognized net income of $7.1 million relating to
our discontinued operations, largely due to the sale of patents
related to our closed Imaging Solutions business segment, which
resulted in a $8.3 million gain.
Results of
Operations Comparison of Years ended
December 31, 2008 and December 31, 2007
The following table sets forth consolidated results of
operations for the years ended December 31, 2008 and
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
|
Net sales
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
|
$
|
(107.8
|
)
|
Cost of sales
|
|
|
445.3
|
|
|
|
74.0
|
|
|
|
578.9
|
|
|
|
81.6
|
|
|
|
(133.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
156.4
|
|
|
|
26.0
|
|
|
|
130.7
|
|
|
|
18.4
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
81.3
|
|
|
|
13.5
|
|
|
|
82.7
|
|
|
|
11.7
|
|
|
|
(1.4
|
)
|
Research and development expenses
|
|
|
89.5
|
|
|
|
14.9
|
|
|
|
90.8
|
|
|
|
12.8
|
|
|
|
(1.4
|
)
|
Restructuring and impairment charges
|
|
|
13.4
|
|
|
|
2.2
|
|
|
|
12.1
|
|
|
|
1.7
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(27.7
|
)
|
|
|
(4.6
|
)
|
|
|
(54.9
|
)
|
|
|
(7.7
|
)
|
|
|
27.2
|
|
Interest expense, net
|
|
|
76.1
|
|
|
|
12.7
|
|
|
|
60.3
|
|
|
|
8.5
|
|
|
|
15.8
|
|
Foreign currency gain (loss), net
|
|
|
(210.4
|
)
|
|
|
(35.0
|
)
|
|
|
(4.7
|
)
|
|
|
(0.7
|
)
|
|
|
(205.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(286.5
|
)
|
|
|
(47.6
|
)
|
|
|
(65.0
|
)
|
|
|
(9.2
|
)
|
|
|
(221.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) continuing operations before income taxes
|
|
|
(314.3
|
)
|
|
|
(52.2
|
)
|
|
|
(120.0
|
)
|
|
|
(16.9
|
)
|
|
|
(194.3
|
)
|
Income tax expenses
|
|
|
11.6
|
|
|
|
1.9
|
|
|
|
8.8
|
|
|
|
1.2
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations,
|
|
|
(325.8
|
)
|
|
|
(54.2
|
)
|
|
|
(128.8
|
)
|
|
|
(18.2
|
)
|
|
|
(197.0
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
(91.5
|
)
|
|
|
(15.2
|
)
|
|
|
(51.7
|
)
|
|
|
(7.3
|
)
|
|
|
(39.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(417.3
|
)
|
|
|
(69.4
|
)%
|
|
$
|
(180.6
|
)
|
|
|
(25.4
|
)%
|
|
$
|
(236.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
total
|
|
|
Amount
|
|
|
|
(In millions)
|
|
|
Display Solutions
|
|
$
|
304.1
|
|
|
|
50.5
|
%
|
|
$
|
331.7
|
|
|
|
46.7
|
%
|
|
$
|
(27.6
|
)
|
Power Solutions
|
|
|
5.4
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
5.4
|
|
Semiconductor Manufacturing Services
|
|
|
287.1
|
|
|
|
47.7
|
|
|
|
321.0
|
|
|
|
45.2
|
|
|
|
(33.9
|
)
|
All other
|
|
|
5.0
|
|
|
|
0.8
|
|
|
|
56.8
|
|
|
|
8.0
|
|
|
|
(51.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
|
$
|
(107.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the year ended December 31, 2008 decreased
$107.8 million, or 15.2%, compared to 2007. Net sales
generated in our three operating segments during the year ended
December 31, 2008 were $596.6 million, a decrease of
$56.1 million, or 8.6%, from the net sales for 2007,
primarily due to a $27.6 million, or 8.3%, decrease in net
sales from our Display Solutions segment and a
$33.9 million, or 10.6%, decrease in net sales from our
Semiconductor Manufacturing Services segment. Net sales from All
other decreased $51.8 million, or 91.2%, compared to the
year ended December 31, 2007. Our Korean-based net sales
were also impacted by the depreciation of the Korean won against
the U.S. dollar.
Display Solutions. Net sales from our
Display Solutions segment for the year ended December 31,
2008 were $304.1 million, a $27.6 million, or 8.3%,
decrease, from $331.7 million for 2007. The decrease
resulted primarily from a 15.6% decline in average selling
prices which was due to a higher percentage of our net sales of
products with lower sales prices.
Power Solutions. Net sales from our
Power Solutions segment for the year ended December 31,
2008 were $5.4 million. No sales occurred for the year
ended December 31, 2007 as our Power Solutions segment was
launched in late 2007 and did not start making sales until 2008.
Semiconductor Manufacturing
Services. Net sales from our Semiconductor
Manufacturing Services segment for the year ended
December 31, 2008 were $287.1 million, a
$33.9 million, or 10.6%, decrease compared to net sales of
$321.0 million for 2007. This decrease was primarily due to
a 5.5% decrease in average selling prices and 3.0% decrease in
sales volume. During the fourth quarter of 2008 our net sales
were adversely impacted by the worldwide economic slowdown.
All other. Net sales from All other for
2008 were $5.0 million compared to $56.8 million for
2007. This decrease of $51.8 million, or 91.2%, represents
the revenue decrease from our unit processing services as such
services were no longer required by our sole customer for the
service.
68
Net Sales by
Geographic Region
The following table sets forth our net sales by geographic
region and the percentage of total net sales represented by each
geographic region for the years ended December 31, 2008 and
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Change
|
|
|
|
Amount
|
|
|
% of Total
|
|
|
Amount
|
|
|
% of Total
|
|
|
Amount
|
|
|
|
(In millions)
|
|
|
|
|
|
Korea
|
|
$
|
301.0
|
|
|
|
50.0
|
%
|
|
$
|
404.3
|
|
|
|
57.0
|
%
|
|
|
(103.3
|
)
|
Asia Pacific
|
|
|
144.5
|
|
|
|
24.0
|
|
|
|
155.5
|
|
|
|
21.9
|
|
|
|
(11.0
|
)
|
Japan
|
|
|
79.9
|
|
|
|
13.3
|
|
|
|
71.2
|
|
|
|
10.0
|
|
|
|
8.7
|
|
North America
|
|
|
61.3
|
|
|
|
10.2
|
|
|
|
58.5
|
|
|
|
8.2
|
|
|
|
2.8
|
|
Europe
|
|
|
14.9
|
|
|
|
2.5
|
|
|
|
20.0
|
|
|
|
2.8
|
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
|
|
(107.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales in Korea in 2008 declined as a percentage of total net
sales, principally due to reduced revenue from unit processing
services and the overall slowness in the semiconductor
manufacturing market. The sales were also affected by lower
demand for large display driver products.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
|
Display Solutions
|
|
$
|
57.4
|
|
|
|
18.9
|
%
|
|
$
|
41.5
|
|
|
|
12.5
|
%
|
|
$
|
15.9
|
|
Power Solutions
|
|
|
(4.3
|
)
|
|
|
(78.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.3
|
)
|
Semiconductor Manufacturing Services
|
|
|
98.4
|
|
|
|
34.3
|
|
|
|
67.1
|
|
|
|
20.9
|
|
|
|
31.3
|
|
All other
|
|
|
4.9
|
|
|
|
97.3
|
|
|
|
22.0
|
|
|
|
38.7
|
|
|
|
(17.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
156.4
|
|
|
|
26.0
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%
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$
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130.7
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18.4
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%
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|
$
|
25.8
|
|
|
|
|
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|
|
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Total gross profit increased $25.8 million for the year
ended December 31, 2008, or 19.7%, compared to the gross
profit generated for the year ended December 31, 2007.
Gross margin for the year ended December 31, 2008 was 26.0%
of net sales, an increase of 7.6% from 18.4% for the year ended
December 31, 2007. This increase in gross margin was
attributable to the depreciation of the Korean won against the
U.S. dollar and an overall decrease in unit costs which offset
lower average sales prices. The decreases in unit costs were
primarily driven by reduced depreciation expenses, lower
overhead costs on a per unit basis and a decline in materials
prices.
Display Solutions. Gross margin for our
Display Solutions segment for the year ended December 31,
2008 increased to 18.9% compared to 12.5% for 2007. This
increase was due to the depreciation of the Korean won against
the U.S. dollar and to a decrease in cost of sales resulting
from an overall decrease in depreciation and amortization
expenses which offset lower average sales prices.
Power Solutions. Gross margin for our
Power Solutions segment for the year ended December 31,
2008 was (78.6)%. This negative gross margin was due to high
fixed production costs
69
per unit resulting from low production volume as we commenced
sales in our Power Solutions segment in 2008.
Semiconductor Manufacturing
Services. Gross margin for our Semiconductor
Manufacturing Services segment increased to 34.3% in the year
ended December 31, 2008 from 20.9% for 2007. This increase
was due to a decrease in cost of sales, resulting from the
depreciation of the Korean won against the U.S. dollar, an
overall decrease in depreciation and amortization expenses and
an increase in production volume.
All other. Gross margin for All other
for the year ended December 31, 2008 increased to 97.3%
from 38.7% for 2007. The improvement was primarily attributable
to a decrease in sales volume for unit processing while rental
revenue, for which there are no allocated cost of sales,
remained comparable to the prior year.
Operating
Expenses
Selling, General and Administrative
Expenses. Selling, general, and
administrative expenses were $81.3 million, or 13.5%, of
net sales for the year ended December 31, 2008 compared to
$82.7 million, or 11.7%, for 2007. The decrease of
$1.4 million, or 1.7%, was attributable to the depreciation
of the Korean won against the U.S. dollar, a decrease in
salaries, and a decrease in depreciation and amortization
expenses of $6.2 million. These decreases were partially
offset by a $6.9 million increase in outside service fees.
Research and Development
Expenses. Research and development expenses
for the year ended December 31, 2008 were
$89.5 million, a decrease of $1.4 million, or 1.5%,
from $90.8 million for 2007. This decrease was attributable
to the depreciation of the Korean won against the U.S. dollar
and to decreases in overhead expenses.
Restructuring and Impairment
Charges. Restructuring and impairment charges
for the year ended December 31, 2008 included an impairment
charge of $14.2 million related to our Display Solutions
segment. During the three months ended July 1, 2007, we
recognized $2.0 million of restructuring accruals related
to the closure of our five-inch wafer fabrication facilities,
including termination benefits and other associated costs.
Through the first quarter of 2008, actual payments of
$1.1 million were charged against the restructuring
accruals. As of March 30, 2008, the restructuring
activities were substantially completed and we reversed
$0.9 million of unused restructuring accruals.
During the year ended December 31, 2007, we recognized
restructuring and impairment charges of $12.1 million,
which consisted of $10.1 million of impairment charges and
$2.0 million of restructuring charges. The impairment
charges recorded related to the closure of our five-inch wafer
fabrication facility.
Other Income
(Expense)
Interest Expense, net. Net interest
expense was $76.1 million during the year ended
December 31, 2008, compared to $60.3 million for 2007.
Interest expense was incurred to service our notes and our
senior secured credit facility. At December 31, 2008, the
notes and our senior secured credit facility bore interest at a
weighted average interest rate of 7.14% and 7.90%, respectively.
The increase in net interest expense was mainly due to a
write-off of remaining debt issuance costs of $12.3 million
related to our notes as of December 31, 2008 since we were
not in compliance with certain financial covenants under the
terms of our notes and therefore, amounts outstanding were
reclassified as current in our balance sheet as of
December 31, 2008.
Foreign Currency Gain (Loss), net. Net
foreign currency loss for the year ended December 31, 2008
was $210.4 million, compared to net foreign exchange loss
of $4.7 million for the year ended December 31, 2007.
A substantial portion of our net foreign currency gain or loss
is non-cash translation gain or loss recorded for intercompany
borrowings at our Korean subsidiary and is affected by changes
in the exchange rate between the Korean won and the
U.S. dollar. Foreign
70
currency translation gain from the intercompany borrowings was
included in determining our consolidated net income since the
intercompany borrowings were not considered long-term
investments in nature because management intended to repay these
intercompany borrowings at their respective maturity dates. The
Korean won to U.S. dollar exchange rates were 1,262.0:1 and
935.8:1 using the noon buying rate in effect as of
December 31, 2008 and December 31, 2007, respectively,
as quoted by the Federal Reserve Bank of New York.
Income Tax
Expenses
Income Tax Expenses. Income tax
expenses for the year ended December 31, 2008 were
$11.6 million, compared to income tax expenses of
$8.8 million for 2007. Income tax expenses for 2008 were
comprised of $6.1 million of withholding taxes mostly paid
on intercompany interest payments, $4.0 million of current
income taxes incurred in various jurisdictions in which we
operate and a $1.5 million income tax effect from a change
of deferred tax assets. Due to the uncertainty of the
utilization of foreign tax credits, we did not recognize these
withholding taxes as deferred tax assets.
Loss from
discontinued operations, net of tax
Loss from discontinued operations, net of
taxes. During 2008, we closed our Imaging
Solutions business segment that was classified as a discontinued
operation, recognizing net losses of $91.5 million and
$51.7 million from discontinued operations for 2008 and for
2007, respectively. Of the recorded net loss of
$91.5 million in 2008, $15.9 million was from negative
gross margin, $37.5 million was from research and
development costs and $34.2 million was attributable to
restructuring and impairment charges incurred during the third
quarter of 2008.
Liquidity and
Capital Resources
Our principal capital requirements are to invest in research and
development and capital equipment, to make debt service payments
and to fund working capital needs.
Our principal sources of liquidity are our cash and cash
equivalents, our cash flows from operations and our financing
activities, including a portion of the net proceeds from this
offering. Although we currently anticipate these sources of
liquidity will be sufficient to meet our cash needs through the
next twelve months, we may require or choose to obtain
additional financing. Our ability to obtain financing will
depend, among other things, on our business plans, operating
performance, and the condition of the capital markets at the
time we seek financing. We cannot assure you that additional
financing will be available to us on favorable terms when
required, or at all. If we raise additional funds through the
issuance of equity, equity-linked or debt securities, those
securities may have rights, preferences or privileges senior to
the rights of our common stock, and our stockholders may
experience dilution. If we need to raise additional funds in the
future and a