Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission File Number: 001-34791

 

 

MagnaChip Semiconductor Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		83-0406195
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

c/o MagnaChip Semiconductor S.A.

74, rue de Merl, L-2146

Luxembourg, Grand Duchy of Luxembourg

(352) 45-62-62

(Address, zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x    Yes    ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    x  Yes    ¨  No

As of June 30, 2013, the registrant had 35,681,382 shares of common stock outstanding.

 

 

 

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Table of Contents

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

 

						Page No.
PART I FINANCIAL INFORMATION							4
		Item 1.		Interim Consolidated Financial Statements (Unaudited)			4
				MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012			4
				MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012			5
				MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012			6
				MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2013 and 2012			7
				MagnaChip Semiconductor Corporation and Subsidiaries Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012			9
				MagnaChip Semiconductor Corporation and Subsidiaries Notes to Consolidated Financial Statements			10
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			52
		Item 4.		Controls and Procedures			52
PART II OTHER INFORMATION							53
		Item 1A.		Risk Factors			53
		Item 6.		Exhibits			66
SIGNATURES							67

 

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FORWARD LOOKING STATEMENTS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, that involve risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.

These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in this section and in “Part II: Item 1A. Risk Factors” in this report.

All forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise any forward-looking statements as a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Statements made in this Quarterly Report on Form 10-Q, unless the context otherwise requires, that include the use of the terms “we,” “us,” “our” and “MagnaChip” refer to MagnaChip Semiconductor Corporation and its consolidated subsidiaries. The term “Korea” refers to the Republic of Korea or South Korea.

 

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PART I—FINANCIAL INFORMATION

 

Item 1.

Interim Consolidated Financial Statements (Unaudited)

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands of US dollars, except share data)

 

		June 30, 2013				December 31, 2012
Assets
Current assets
Cash and cash equivalents		$	192,641			$	182,238
Restricted cash			6				133
Accounts receivable, net			165,181				143,331
Inventories, net			76,342				89,363
Other receivables			2,459				1,429
Prepaid expenses			9,366				7,884
Current deferred income tax assets			25,347				22,768
Other current assets			3,695				9,680
Total current assets			475,037				456,826
Property, plant and equipment, net			247,242				238,256
Intangible assets, net			10,068				15,260
Long-term prepaid expenses			17,962				18,048
Deferred income tax assets			42,631				46,710
Other non-current assets			15,422				14,866
Total assets		$	808,362			$	789,966
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	76,175			$	79,236
Other accounts payable			16,804				15,600
Accrued expenses			49,918				43,486
Derivative liabilities			10,247				—
Other current liabilities			6,912				9,973
Total current liabilities			160,056				148,295
Long-term borrowings, net			201,801				201,653
Accrued severance benefits, net			112,198				112,446
Other non-current liabilities			17,880				17,263
Total liabilities			491,935				479,657
Stockholders’ equity
Common stock, $0.01 par value, 150,000,000 shares authorized, 40,021,283 shares issued and 35,681,382 outstanding at June 30, 2013 and 39,599,374 shares issued and 35,635,357 outstanding at December 31, 2012			400				396
Additional paid-in capital			107,375				101,885
Retained earnings			284,282				287,251
Treasury stock, 4,339,901 and 3,964,017 shares at June 30, 2013 and December 31, 2012, respectively			(45,918	)			(39,918	)
Accumulated other comprehensive loss			(29,712	)			(39,305	)
Total stockholders’ equity			316,427				310,309
Total liabilities and stockholders’ equity		$	808,362			$	789,966

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

 

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands of US dollars, except share data)

 

		Three Months Ended								Six Months Ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
Net sales		$	215,289			$	202,634			$	420,587			$	379,636
Cost of sales			144,241				139,776				283,796				266,863
Gross profit			71,048				62,858				136,791				112,773
Selling, general and administrative expenses			19,709				20,093				39,500				38,302
Research and development expenses			21,131				19,762				41,713				39,593
Restructuring and impairment charges			—				—				2,446				—
Operating income			30,208				23,003				53,132				34,878
Other income (expenses)
Interest expense, net			(5,879	)			(5,619	)			(11,728	)			(11,199	)
Foreign currency gain (loss), net			(20,978	)			(10,586	)			(43,536	)			523
Other			(230	)			701				(490	)			790
			(27,087	)			(15,504	)			(55,754	)			(9,886	)
Income (loss) before income taxes			3,121				7,499				(2,622	)			24,992
Income tax expenses (benefits)			(1,315	)			3,159				347				5,389
Net income (loss)		$	4,436			$	4,340			$	(2,969	)		$	19,603
Earnings (loss) per common share—
Basic		$	0.13			$	0.12			$	(0.08	)		$	0.53
Diluted		$	0.12			$	0.12			$	(0.08	)		$	0.52
Weighted average number of shares—
Basic			35,474,001				36,713,569				35,506,527				37,118,848
Diluted			37,125,005				37,566,699				35,506,527				37,916,149

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

 

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; in thousands of US dollars)

 

		Three Months Ended								Six Months Ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
Net income (loss)		$	4,436			$	4,340			$	(2,969	)		$	19,603
Other comprehensive income
Unrealized gain (loss) on investments, net of tax			137				(106	)			365				(27	)
Derivative adjustments, net of tax			(5,068	)			(690	)			(9,579	)			884
Foreign currency translation adjustments			9,674				7,566				18,807				(746	)
Total comprehensive income		$	9,179			$	11,110			$	6,624			$	19,714

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

 

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited; in thousands of US dollars, except share data)

 

										Additional Paid-In Capital				Retained Earnings (Accumulated deficit)				Common Stock Held in Treasury				Accumulated Other Comprehensive Income (loss)				Total
		Common Stock
		Shares				Amount
Three Months Ended June 30, 2013
Balance at April 1, 2013			35,408,032			$	397			$	103,310			$	279,846			$	(45,918	)		$	(34,455	)		$	303,180
Stock-based compensation			—				—				493				—				—				—				493
Exercise of stock options			98,863				1				824				—				—				—				825
Exercise of warrants			174,487				2				2,748				—				—				—				2,750
Comprehensive income:
Net income			—				—				—				4,436				—				—				4,436
Fair valuation of derivatives			—				—				—				—				—				(5,063	)			(5,063	)
Reclassification to net income from accumulated other comprehensive loss related to hedge derivatives			—				—				—				—				—				(5	)			(5	)
Foreign currency translation adjustments			—				—				—				—				—				9,674				9,674
Unrealized gains on investments			—				—				—				—				—				137				137
Total comprehensive income																											9,179
Balance at June 30, 2013			35,681,382			$	400			$	107,375			$	284,282			$	(45,918	)		$	(29,712	)		$	316,427
Six Months Ended June 30, 2013
Balance at January 1, 2013			35,635,357			$	396			$	101,885			$	287,251			$	(39,918	)		$	(39,305	)		$	310,309
Stock-based compensation			—				—				913				—				—				—				913
Exercise of stock options			246,673				2				1,817				—				—				—				1,819
Exercise of warrants			175,236				2				2,760				—				—				—				2,762
Acquisition of treasury stock			(375,884	)			—				—				—				(6,000	)			—				(6,000	)
Comprehensive income:
Net loss			—				—				—				(2,969	)			—				—				(2,969	)
Fair valuation of derivatives			—				—				—				—				—				(9,270	)			(9,270	)
Reclassification to net loss from accumulated other comprehensive loss related to hedge derivatives			—				—				—				—				—				(309	)			(309	)
Foreign currency translation adjustments			—				—				—				—				—				18,807				18,807
Unrealized gains on investments			—				—				—				—				—				365				365
Total comprehensive income																											6,624
Balance at June 30, 2013			35,681,382			$	400			$	107,375			$	284,282			$	(45,918	)		$	(29,712	)		$	316,427

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

 

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited; in thousands of US dollars, except share data)

 

										Additional Paid-In Capital				Retained Earnings (Accumulated deficit)				Common Stock Held in Treasury				Accumulated Other Comprehensive Income (loss)				Total
		Common Stock
		Shares				Amount
Three Months Ended June 30, 2012
Balance at April 1, 2012			36,880,879			$	394			$	99,495			$	109,213			$	(23,728	)		$	(21,469	)		$	163,905
Stock-based compensation			—				—				457				—				—				—				457
Issuance of new stock			1,650				—				18				—				—				—				18
Exercise of stock options			9,625				1				57				—				—				—				58
Acquisitions of treasury stock			(538,609	)			—				—				—				(5,000	)			—				(5,000	)
Comprehensive income:
Net income			—				—				—				4,340				—				—				4,340
Fair valuation of derivatives			—				—				—				—				—				(2,187	)			(2,187	)
Reclassification to net income from accumulated other comprehensive loss related to hedge derivatives			—				—				—				—				—				1,497				1,497
Foreign currency translation adjustments			—				—				—				—				—				7,566				7,566
Unrealized losses on investments			—				—				—				—				—				(106	)			(106	)
Total comprehensive income																											11,110
Balance at June 30, 2012			36,353,545			$	395			$	100,027			$	113,553			$	(28,728	)		$	(14,699	)		$	170,548
Six Months Ended June 30, 2012
Balance at January 1, 2012			37,907,575			$	394			$	98,929			$	93,950			$	(11,793	)		$	(14,810	)		$	166,670
Stock-based compensation			—				—				915				—				—				—				915
Issuance of new stock			2,468				—				26				—				—				—				26
Exercise of stock options			26,755				1				157				—				—				—				158
Acquisition of treasury stock			(1,583,253	)			—				—				—				(16,935	)			—				(16,935	)
Comprehensive income:
Net income			—				—				—				19,603				—				—				19,603
Fair valuation of derivatives			—				—				—				—				—				(645	)			(645	)
Reclassification to net income from accumulated other comprehensive loss related to hedge derivatives			—				—				—				—				—				1,529				1,529
Foreign currency translation adjustments			—				—				—				—				—				(746	)			(746	)
Unrealized losses on investments			—				—				—				—				—				(27	)			(27	)
Total comprehensive income																											19,714
Balance at June 30, 2012			36,353,545			$	395			$	100,027			$	113,553			$	(28,728	)		$	(14,699	)		$	170,548

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

 

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MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands of US dollars)

 

		Six Months Ended
		June 30, 2013				June 30, 2012
Cash flows from operating activities
Net income (loss)		$	(2,969	)		$	19,603
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			16,881				15,397
Provision for severance benefits			10,686				10,975
Amortization of debt issuance costs and original issue discount			568				497
Loss on foreign currency translation, net			55,008				55
Gain on disposal of property, plant and equipment, net			(26	)			(190	)
Loss on disposal of intangible assets, net			1				15
Restructuring and impairment charges			618				—
Stock-based compensation			913				915
Other			1,411				(348	)
Changes in operating assets and liabilities
Accounts receivable			(29,486	)			(8,296	)
Inventories			6,760				(11,498	)
Other receivables			600				(2,580	)
Other current assets			7,425				8,851
Deferred tax assets			(995	)			1,146
Accounts payable			853				14,654
Other accounts payable			(7,522	)			9,677
Accrued expenses			(7,003	)			7,890
Other current liabilities			(1,097	)			6,611
Payment of severance benefits			(2,939	)			(4,816	)
Other			(1,107	)			(1,996	)
Net cash provided by operating activities			48,580				66,562
Cash flows from investing activities
Decrease in restricted cash			122				1,634
Proceeds from disposal of plant, property and equipment			27				891
Purchase of plant, property and equipment			(39,890	)			(46,728	)
Payment for intellectual property registration			(243	)			(565	)
Payment for purchase of Dawin, net of cash acquired			—				(8,642	)
Decrease in short-term financial instruments			—				173
Collection of guarantee deposits			117				70
Payment of guarantee deposits			(939	)			(176	)
Other			11				(53	)
Net cash used in investing activities			(40,795	)			(53,396	)
Cash flows from financing activities
Proceeds from issuance of common stock			4,581				183
Repayment of obligations under capital lease			—				(2,968	)
Acquisition of treasury stock			(6,000	)			(16,935	)
Net cash used in financing activities			(1,419	)			(19,720	)
Effect of exchange rates on cash and cash equivalents			4,037				207
Net increase (decrease) in cash and cash equivalents			10,403				(6,347	)
Cash and cash equivalents
Beginning of the period			182,238				162,111
End of the period		$	192,641			$	155,764
Supplemental cash flow information
Cash paid for interest		$	10,694			$	10,737
Cash paid (refunded) for income taxes		$	6,345			$	(684	)

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

 

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MagnaChip Semiconductor Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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

1. General

The Company

MagnaChip Semiconductor Corporation (together with its subsidiaries, the “Company”) is a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer applications. The Company’s business is comprised of three key segments: Display Solutions, Power Solutions and Semiconductor Manufacturing Services. The Company’s Display Solutions products include display drivers for use in a wide range of flat panel displays and mobile multimedia devices. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in high-volume consumer applications. The Company’s Semiconductor Manufacturing Services segment provides specialty analog and mixed-signal foundry services for fabless semiconductor companies that serve the consumer, computing and wireless end markets.

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). These interim consolidated financial statements include normal recurring adjustments and the elimination of all intercompany accounts and transactions which are, in the opinion of management, necessary to provide a fair presentation of the Company’s financial condition and results of operations for the periods presented. These interim consolidated financial statements are presented in accordance with ASC 270, “Interim Reporting,” (“ASC 270”) and, accordingly, do not include all of the information and note disclosures required by US GAAP for complete financial statements. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for a full year or for any other periods.

The December 31, 2012 balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The adoption of ASU 2013-11 will require an unrecognized tax benefit, or a portion of an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, unless an exception applies. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2013. The Company is currently evaluating the effect that the provisions of ASU 2013-11 will have on its financial statements.

In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” (“ASU 2013-02”) which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, ASU 2013-02 requires an entity to present, either on the face of the income statement or in the notes to financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The update does not change the current requirements for reporting net income or other comprehensive income in financial statements and is effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 from the quarter ended March 31, 2013.

In December 2011, the FASB issued ASU No. 2011-11, “Disclosures about Offsetting Assets and Liabilities,” (“ASU 2011-11”) which is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. This authoritative guidance was issued to enhance disclosure requirements on offsetting financial assets and liabilities. The new rules require the Company to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to a netting arrangement. In January 2013, the FASB further issued ASU No. 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”) to address implementation issues surrounding the scope of ASU 2011-11 and to clarify the scope of the offsetting disclosures and address any unintended consequences. The Company adopted ASU 2013-01 from the quarter ended March 31, 2013.

 

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MagnaChip Semiconductor Corporation and Subsidiaries

Notes to Consolidated Financial Statements – (Continued)

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

 

In July 2012, the FASB issued ASU No.2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). Under ASU 2012-02, testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill has been simplified. ASU 2012-02 provides the Company the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test. The Company electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the Company determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired. ASU 2012-02 is effective for impairment tests for fiscal years beginning after September 15, 2012. The Company adopted ASU 2012-02 from the year ended December 31, 2012.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350)-Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 gives the option to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit. Under the amendments in ASU 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The amendments in ASU 2011-08 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2011. Early adoption is permitted. The Company adopted the applicable requirements of ASU 2011-08 from the year ended 2012.

3. Sales of Accounts Receivable

The Company has entered into an agreement to sell selected trade accounts receivable to a financial institution. After the sale, the Company does not retain any interest in the receivables and the applicable financial institution collects these accounts receivable directly from the customer. The proceeds from the sales of these accounts receivable totaled $20,121 thousand and $8,412 thousand for the six month period ended June 30, 2013 and 2012, respectively and these sales resulted in a pre-tax loss of $42 thousand and $4 thousand for the six month period ended June 30, 2013 and 2012, respectively which is included in selling, general and administrative expenses in the consolidated statements of operations. Net proceeds of this accounts receivable sale program are recognized in the consolidated statements of cash flows as part of operating cash flows.

4. Inventories

Inventories as of June 30, 2013 and December 31, 2012 consist of the following:

 

		June 30, 2013				December 31, 2012
Merchandise		$	6			$	7
Finished goods			12,935				14,551
Semi-finished goods and work-in-process			52,739				61,202
Raw materials			9,277				11,426
Materials in-transit			1,385				2,177
Inventories, net		$	76,342			$	89,363

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

5. Property, Plant and Equipment

Property, plant and equipment as of June 30, 2013 and December 31, 2012 comprise the following:

 

		June 30, 2013				December 31, 2012
Buildings and related structures		$	74,685			$	79,822
Machinery and equipment			252,686				221,927
Vehicles and others			18,588				17,143
Equipment under capital lease			—				12,181
			345,959				331,073
Less: accumulated depreciation			(114,695	)			(106,271	)
accumulated depreciation on equipment under capital lease			—				(3,697	)
Land			15,978				17,151
Property, plant and equipment, net		$	247,242			$	238,256

6. Intangible Assets

Intangible assets as of June 30, 2013 and December 31, 2012 are as follows:

		June 30, 2013				December 31, 2012
Technology		$	20,540			$	25,011
Customer relationships			27,027				29,010
Intellectual property assets			6,925				7,145
Less: accumulated amortization			(47,555	)			(49,266	)
Goodwill			3,131				3,360
Intangible assets, net		$	10,068			$	15,260

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

7. Derivative Financial Instruments

The Company’s Korean subsidiary, MagnaChip Semiconductor, Ltd., entered into option, forward and zero cost collar contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on U.S. dollar denominated revenues.

Details of derivative contracts as of June 30, 2013 are as follows:

 

Date of transaction		Type of derivative		Total notional amount				Month of settlement
December 14, 2012		Zero cost collar		$	54,000			July to September 2013
December 27, 2012		Zero cost collar		$	54,000			October to December 2013
January 25, 2013		Zero cost collar		$	54,000			January to March 2014
March 8, 2013		Zero cost collar		$	54,000			April to June 2014
April 5, 2013		Zero cost collar		$	54,000			July to September 2014
May 29, 2013		Forward		$	30,000			July to September 2013
May 29, 2013		Zero cost collar		$	54,000			October to December 2014
June 21, 2013		Forward		$	30,000			October to December 2013

The option, forward and zero cost collar contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” (“ASC 815”), since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts. The Company is utilizing the “hypothetical derivative” method to measure the effectiveness by comparing the changes in value of the actual derivative versus the change in fair value of the “hypothetical derivative.”

The fair values of the Company’s outstanding forward and zero cost collar contracts recorded as assets and liabilities as of June 30, 2013 and December 31, 2012 are as follows:

 

Derivatives designated as hedging instruments:				June 30, 2013				December 31, 2012
Asset Derivatives:
Forward		Other current assets		$	117			$	514
Liability Derivatives:
Forward		Derivative liabilities		$	502			$	—
Zero cost collars		Derivative liabilities			9,745				—
Zero cost collars		Other non-current liabilities			1,604				—

Offsetting of derivative assets and derivative liabilities as of June 30, 2013 and December 31, 2012 is as follows:

 

As of June 30, 2013		Gross amounts of recognized assets/liabilities				Gross amounts offset in the balance sheets				Net amounts of assets/liabilities presented in the balance sheets				Gross amounts not offset in the balance sheets								Net amount
														Financial instruments				Cash collateral received/pledged
Asset Derivatives:
Forward		$	117			$	—			$	117			$	(117	)		$	—			$	—
Liability Derivatives:
Forward		$	502			$	—			$	502			$	—			$	—			$	502
Zero cost collars			11,349			$	—				11,349				(117	)			—				11,232

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

As of December 31, 2012		Gross amounts of recognized assets/liabilities				Gross amounts offset in the balance sheets				Net amounts of assets/liabilities presented in the balance sheets				Gross amounts not offset in the balance sheets								Net amount
														Financial instruments				Cash collateral received/pledged
Asset Derivatives:
Zero cost collars		$	514			$	—			$	514			$	—			$	—			$	514
Liability Derivatives:
Zero cost collars		$	—			$	—			$	—			$	—			$	—			$	—

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative, representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness, are recognized in current earnings.

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the three months ended June 30, 2013 and 2012:

Derivatives in ASC 815 Cash Flow Hedging Relationships		Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)								Location of Gain (Loss) Reclassified from AOCI into Statement of Income (Effective Portion)				Amount of Gain (Loss) Reclassified from AOCI into Statement of Income (Effective Portion)								Location of Gain (Loss) Recognized in Statement of Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)		Amount of Gain (Loss) Recognized in Statement of Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
		2Q, 2013				2Q, 2012								2Q, 2013				2Q, 2012						2Q, 2013				2Q, 2012
Forward		$	(214	)		$	(1,552	)			Net sales			$	—			$	—			Other income (expenses) — Others		$	(107	)		$	529
Zero cost collars			(4,849	)			(635	)			Net sales				5				(1,497	)		Other income (expenses) — Others			(124	)			172
Total		$	(5,063	)		$	(2,187	)						$	5			$	(1,497	)				$	(231	)		$	701

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the six months ended June 30, 2013 and 2012:

Derivatives in ASC 815 Cash Flow Hedging Relationships		Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)								Location of Gain (Loss) Reclassified from AOCI into Statement of Income (Effective Portion)				Amount of Gain (Loss) Reclassified from AOCI into Statement of Income (Effective Portion)								Location of Gain (Loss) Recognized in Statement of Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)		Amount of Gain (Loss) Recognized in Statement of Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
		1H, 2013				1H, 2012								1H, 2013				1H, 2012						1H, 2013				1H, 2012
Forward		$	(214	)		$	(385	)			Net sales			$	—			$	—			Other income (expenses) — Others		$	(107	)		$	513
Zero cost collars			(9,056	)			(260	)			Net sales				309				(1,529	)		Other income (expenses) — Others			(391	)			273
Total		$	(9,270	)		$	(645	)						$	309			$	(1,529	)				$	(498	)		$	786

The estimated net loss as of June 30, 2013 that is expected to be reclassified from accumulated other comprehensive income (loss) into earnings within the next twelve months is $7,661 thousand.

The Company’s option, forward and zero cost collar contracts are subject to termination upon the occurrence of the following events:

(i) On the last day of a fiscal quarter, the sum of qualified and unrestricted cash and cash equivalents held by the Company is less than $30 million.

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

In addition, the Company is required to deposit cash collateral with two financial institutions, the counterparties to the option, forward and zero cost collar contracts, for any exposure in excess of $5 million for each financial institution. No cash collateral was required as of June 30, 2013.

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

8. Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2013, and the basis for that measurement is as follows:

 

		Carrying Value				Fair Value Measurement				Quoted Prices in Active Markets for Identical Asset (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets:
Available-for-sale securities		$	1,027			$	1,027			$	1,027			$	—			$	—
Other current assets			117				117				—				117				—
Liabilities:
Derivative liabilities			10,247				10,247				—				10,247				—
Other non-current liabilities			1,604				1,604				—				1,604				—

As of June 30, 2013, the total carrying value and estimated fair value of the Company’s subsidiaries’ 10.500% Senior Notes due 2018 (the “2018 Notes”) which are not measured at fair value on a recurring basis were $201,801 thousand and $222,532 thousand, respectively. The estimated fair value is based on Level 2 inputs.

9. Accrued Severance Benefits

The majority of accrued severance benefits is for employees in the Company’s Korean subsidiary, MagnaChip Semiconductor Ltd. Pursuant to the Employee Retirement Benefit Security Act of Korea, most employees and executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of June 30, 2013, 98.3 % of employees of the Company were eligible for severance benefits.

Changes in accrued severance benefits for each period are as follows:

 

		Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
		June 30, 2013								June 30, 2012
Beginning balance		$	112,940			$	113,624			$	95,472			$	91,882
Provisions			6,458				10,687				6,272				10,975
Severance payments			(2,312	)			(2,939	)			(2,493	)			(4,816	)
Translation adjustments			(3,800	)			(8,086	)			(1,284	)			(74	)
			113,286				113,286				97,967				97,967
Less: Cumulative contributions to the National Pension Fund			(361	)			(361	)			(372	)			(372	)
Group Severance insurance plan			(727	)			(727	)			(712	)			(712	)
Accrued severance benefits, net		$	112,198			$	112,198			$	96,883			$	96,883

The severance benefits funded through the Company’s National Pension Fund and group severance insurance plan will be used exclusively for payment of severance benefits to eligible employees. These amounts have been deducted from the accrued severance benefit balance.

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

The Company is liable to pay the following future benefits to its non-executive employees upon their normal retirement age:

 

		Severance benefit
Remainder of 2013		$	—
2014			337
2015			343
2016			1,236
2017			1,554
2018			2,788
2019 – 2023			19,396

The above amounts were determined based on the non-executive employees’ current salary rates and the number of service years that will be accumulated upon their retirement dates. These amounts do not include amounts that might be paid to non-executive employees that will cease working with the Company before their normal retirement ages.

10. Foreign Currency Gain (Loss), Net

Net foreign currency gain or loss includes non-cash translation gain or loss associated with intercompany balances.

11. Restructuring and Impairment Charges

The Company recognized $1,829 thousand of restructuring charges for the six months ended June 30, 2013 from restructuring one of the Company’s fabrication facilities and $617 thousand of impairment charges from certain existing technology.

12. Income Taxes

The Company files income tax returns in the U.S., Korea, Japan, Taiwan and various other jurisdictions.

MagnaChip Semiconductor Ltd. (Korea) is the principal operating entity within the consolidated Company. For the three and six months ended June 30, 2013, income tax benefit for MagnaChip Semiconductor, Ltd. (Korea) was recorded due to the adjustment of deferred tax assets. The Company assesses whether it is more likely than not that the deferred tax assets existing at the period-end will be realized in future periods. In such assessment, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations.

Income tax benefit and income tax expense recorded for the three month period ended June 30, 2013 and 2012 was $1,315 thousand and $3,159 thousand, respectively, and income tax expense for the six month period ended June 30, 2013 and 2012 was $347 thousand and $5,389 thousand, respectively.

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

13. Geographic and Division Information

The following is a summary of net sales by product division:

 

		Three Months Ended
		June 30, 2013				June 30, 2012
Net Sales
Display Solutions		$	68,867			$	76,784
Semiconductor Manufacturing Services			109,751				91,318
Power Solutions			35,959				33,699
All other			712				833
Total net sales		$	215,289			$	202,634

 

 

		Six Months Ended
		June 30, 2013				June 30, 2012
Net Sales
Display Solutions		$	139,190			$	160,009
Semiconductor Manufacturing Services			213,890				159,180
Power Solutions			66,142				58,952
All other			1,365				1,495
Total net sales		$	420,587			$	379,636

The following is a summary of net sales by region, based on the location of the customer:

 

		Three Months Ended
		June 30, 2013				June 30, 2012
Korea		$	101,525			$	94,385
Asia Pacific			73,135				73,215
U.S.A.			26,943				25,714
Europe			12,866				8,385
Other			820				935
Total		$	215,289			$	202,634

 

		Six Months Ended
		June 30, 2013				June 30, 2012
Korea		$	196,027			$	192,336
Asia Pacific			142,872				132,450
U.S.A.			55,327				39,067
Europe			24,595				13,950
Other			1,766				1,833
Total		$	420,587			$	379,636

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

Net sales from the Company’s top ten largest customers accounted for 65.5 % and 64.0% for the three months ended June 30, 2013 and 2012, respectively, and 67.0% and 62.6% for the six months ended June 30, 2013 and 2012, respectively.

For the three months ended June 30, 2013, we had one customer which represented 15.2% of the Company’s net sales, and for the six months ended June 30, 2013, we had two customers which represented 13.9% and 10.0%, respectively.

For the three months ended June 30, 2012, we had one customer which represented 12.3% of the Company’s net sales, and for the six months ended June 30, 2012, we had two customers which represented 13.0% and 11.3%, respectively.

Over 99% of the Company’s property, plant and equipment are located in Korea as of June 30, 2013.

14. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following as of June 30, 2013 and December 31, 2012, respectively:

 

		June 30, 2013				December 31, 2012
Foreign currency translation adjustments		$	(22,646	)		$	(41,454	)
Derivative adjustments, net of tax			(7,506	)			2,074
Unrealized gain on investments, net of tax			440				75
Total		$	(29,712	)		$	(39,305	)

Changes in accumulated other comprehensive loss for the three months ended June 30, 2013 and 2012 is as follows:

 

As of June 30, 2013		Derivative adjustments				Unrealized gain on investments				Foreign currency translation adjustments				Total
Beginning balance		$	(2,438	)		$	303			$	(32,320	)		$	(34,455	)
Other comprehensive income (loss) before reclassifications			(5,063	)			137				9,674				4,748
Amounts reclassified from accumulated other comprehensive income			(5	)			—				—				(5	)
Net current-period other comprehensive income (loss)			(5,068	)			137				9,674				4,743
Ending balance		$	(7,506	)		$	440			$	(22,646	)		$	(29,712	)

 

 

As of June 30, 2012		Derivative adjustments				Unrealized gain on investments				Foreign currency translation adjustments				Total
Beginning balance		$	(6,197	)		$	169			$	(15,441	)		$	(21,469	)
Other comprehensive income (loss) before reclassifications			(2,187	)			(106	)			7,566				5,273
Amounts reclassified from accumulated other comprehensive loss			1,497				—				—				1,497
Net current-period other comprehensive income (loss)			(690	)			(106	)			7,566				6,770
Ending balance		$	(6,887	)		$	63			$	(7,875	)		$	(14,699	)

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

Changes in accumulated other comprehensive loss for the six months ended June 30, 2013 and 2012 is as follows:

 

As of June 30, 2013		Derivative adjustments				Unrealized gain on investments				Foreign currency translation adjustments				Total
Beginning balance		$	2,074			$	75			$	(41,454	)		$	(39,305	)
Other comprehensive income (loss) before reclassifications			(9,271	)			365				18,808				9,902
Amounts reclassified from accumulated other comprehensive income			(309	)			—				—				(309	)
Net current-period other comprehensive income (loss)			(9,580	)			365				18,808				9,593
Ending balance		$	(7,506	)		$	440			$	(22,646	)		$	(29,712	)

 

As of June 30, 2012		Derivative adjustments				Unrealized gain on investments				Foreign currency translation adjustments				Total
Beginning balance		$	(7,771	)		$	90			$	(7,129	)		$	(14,810	)
Other comprehensive loss before reclassifications			(645	)			(27	)			(746	)			(1,418	)
Amounts reclassified from accumulated other comprehensive loss			1,529				—				—				1,529
Net current-period other comprehensive income (loss)			884				(27	)			(746	)			111
Ending balance		$	(6,887	)		$	63			$	(7,875	)		$	(14,699	)

For the three months ended June 30, 2013, income tax impact related to changes in derivative adjustments and unrealized gain on investments is $1,521 thousand and $39 thousand, respectively.

For the six months ended June 30, 2013, income tax impact related to changes in derivative adjustments and unrealized gain on investments is $2,847 thousand and $113 thousand, respectively.

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

15. Earnings per Share

The following table illustrates the computation of basic and diluted earnings per common share:

 

		Three Months Ended
		June 30, 2013				June 30, 2012
Net income		$	4,436			$	4,340
Weighted average common stock outstanding—
Basic			35,474,001				36,713,569
Diluted			37,125,005				37,566,699
Earnings per share—
Basic		$	0.13			$	0.12
Diluted		$	0.12			$	0.12

 

		Six Months Ended
		June 30, 2013				June 30, 2012
Net income (loss)		$	(2,969	)		$	19,603
Weighted average common stock outstanding—
Basic			35,506,527				37,118,848
Diluted			35,506,527				37,916,149
Earnings (loss) per share—
Basic		$	(0.08	)		$	0.53
Diluted		$	(0.08	)		$	0.52

The following outstanding instruments were excluded from the computation of diluted earnings per share, as they have an anti-dilutive effect on the calculation:

 

		Three Months Ended								Six Months Ended
		June 30, 2013				June 30, 2012				June 30, 2013				June 30, 2012
Options			10,000				230,625				3,183,457				230,625
Warrants			—				1,875,028				1,699,367				1,875,028

 

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

16. Subsequent Events

On July 18, 2013, the Company issued $225,000,000 aggregate principal amount of 6.625 % senior notes due July 15, 2021 at a price of 99.5 %. Interest on the notes accrues at a rate of 6.625 % per annum, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2014.

Concurrently, two of the Company’s wholly-owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company (collectively, the “Co-Issuers”), irrevocably issued a notice calling for redemption all of the Co-Issuers’ right under an indenture dated April 9, 2010 (the “2018 Notes Indenture”) to redeem the 2018 Notes on August 19, 2013 at a redemption price of par plus the applicable premium (currently 111.7% of the principal amount), plus accrued and unpaid interest to the redemption date.

In connection with the refinancing of the Company’s senior notes, the Company expects to recognize $32.9 million of loss on early extinguishment of senior notes in the third quarter of 2013.

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

17. Condensed Consolidating Financial Information

As of June 30, 2013, the Co-Issuers’ $203.7 million 2018 Notes were guaranteed by the Company and all of its subsidiaries, except for MagnaChip Semiconductor, Ltd. (Korea), MagnaChip Semiconductor, Ltd. (U.K.) and MagnaChip Semiconductor (Shanghai) Company Limited. These guarantees were full and unconditional, subject to certain customary release provisions, as well as joint and several subject to release under certain customary circumstances, including (1) the sale or other disposition of the capital stock of a Guarantor, or all or substantially all of its assets, to a third party, so long as the proceeds of such sale are used in accordance with the “Asset Sale” and other covenants of the 2018 Notes Indenture; (2) the declaration of such Guarantor as an “Unrestricted Subsidiary” under the 2018 Notes Indenture; and (3) upon legal defeasance, covenant defeasance or in accordance with the satisfaction and discharge provisions of the 2018 Notes Indenture.

Below are condensed consolidating balance sheets as of June 30, 2013 and December 31, 2012, condensed consolidating statements of comprehensive income for the three months and six months ended June 30, 2013 and 2012 and condensed consolidating statements of cash flows for the six months ended June 30, 2013 and 2012 of those entities that guaranteed the 2018 Notes, those that do not, MagnaChip Semiconductor Corporation, and the Co-Issuers. As discussed in note 16 above, the Company, the Co-Issuers and each of the Company’s guarantor subsidiaries were released from their obligations under the 2018 Notes in connection with the satisfaction and discharge of the 2018 Notes Indenture on July 18, 2013.

For the purpose of the guarantor financial information, the investments in subsidiaries are accounted for under the equity method.

 

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MagnaChip Semiconductor Corporation and Subsidiaries

Notes to Consolidated Financial Statements – (Continued)

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

 

Condensed Consolidating Balance Sheets

June 30, 2013

 

		MagnaChip Semiconductor Corporation (Parent)				Co-Issuers				Non- Guarantors				Guarantors				Eliminations				Consolidated
Assets
Current assets
Cash and cash equivalents		$	3,205			$	1,844			$	184,053			$	3,539			$	—			$	192,641
Restricted cash			—				—				6				—				—				6
Accounts receivable, net			—				474				165,951				20,897				(22,141	)			165,181
Inventories, net			—				—				76,342				—				—				76,342
Other receivables			877				50,276				6,117				1,501				(56,312	)			2,459
Prepaid expenses			443				—				11,756				496				(3,329	)			9,366
Current deferred income tax assets			—				—				23,277				2,070				—				25,347
Other current assets			97,021				267,786				2,556				217,289				(580,957	)			3,695
Total current assets			101,546				320,380				470,058				245,792				(662,739	)			475,037
Property, plant and equipment, net			—				—				247,164				78				—				247,242
Intangible assets, net			—				—				10,020				48				—				10,068
Long-term prepaid expenses			—				—				19,823				319				(2,180	)			17,962
Investment in subsidiaries			(426,355	)			(516,822	)			—				(315,517	)			1,258,694				—
Long-term intercompany loan			697,125				763,909				—				609,940				(2,070,974	)			—
Deferred income tax assets			—				—				41,749				882				—				42,631
Other non-current assets			—				5,340				9,821				261				—				15,422
Total assets		$	372,316			$	572,807			$	798,635			$	541,803			$	(1,477,199	)		$	808,362
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	—			$	—			$	97,351			$	628			$	(21,804	)		$	76,175
Other accounts payable			54,162				34				16,540				2,717				(56,649	)			16,804
Accrued expenses			1,346				100,165				259,954				268,795				(580,342	)			49,918
Derivative liabilities			—				—				10,247				—				—				10,247
Other current liabilities			276				—				6,489				4,090				(3,943	)			6,912
Total current liabilities			55,784				100,199				390,581				276,230				(662,738	)			160,056
Long-term borrowings, net			—				898,926				596,000				777,849				(2,070,974	)			201,801
Accrued severance benefits, net			—				—				112,044				154				—				112,198
Other non-current liabilities			105				—				15,451				4,504				(2,180	)			17,880
Total liabilities			55,889				999,125				1,114,076				1,058,737				(2,735,892	)			491,935
Commitments and contingencies
Stockholders’ equity
Common stock			400				135,498				39,005				51,246				(225,749	)			400
Additional paid-in capital			107,375				(730,496	)			(534,135	)			(728,407	)			1,993,038				107,375
Retained earnings			284,282				198,392				204,137				190,139				(592,668	)			284,282
Treasury stock			(45,918	)			—				—				—				—				(45,918	)
Accumulated other comprehensive loss			(29,712	)			(29,712	)			(24,448	)			(29,912	)			84,072				(29,712	)
Total stockholders’ equity			316,427				(426,318	)			(315,441	)			(516,934	)			1,258,693				316,427
Total liabilities and stockholders’ equity		$	372,316			$	572,807			$	798,635			$	541,803			$	(1,477,199	)		$	808,362

 

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MagnaChip Semiconductor Corporation and Subsidiaries

Notes to Consolidated Financial Statements – (Continued)

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

 

Condensed Consolidating Balance Sheets

December 31, 2012

 

		MagnaChip Semiconductor Corporation (Parent)				Co-Issuers				Non- Guarantors				Guarantors				Eliminations				Consolidated
Assets
Current assets
Cash and cash equivalents		$	2,193			$	10,539			$	168,176			$	1,330			$	—			$	182,238
Restricted cash			—				—				133				—				—				133
Accounts receivable, net			—				—				143,514				23,143				(23,326	)			143,331
Inventories, net			—				—				89,363				—				—				89,363
Other receivables			363				42,276				3,288				183				(44,681	)			1,429
Prepaid expenses			36				—				10,544				201				(2,897	)			7,884
Current deferred income tax assets			—				—				20,177				2,591				—				22,768
Other current assets			84,045				243,989				8,918				199,034				(526,306	)			9,680
Total current assets			86,637				296,804				444,113				226,482				(597,210	)			456,826
Property, plant and equipment, net			—				—				238,157				99				—				238,256
Intangible assets, net			—				—				15,138				122				—				15,260
Long-term prepaid expenses			—				—				21,382				—				(3,334	)			18,048
Deferred income tax assets			—				—				44,927				1,783				—				46,710
Investment in subsidiaries			(422,475	)			(513,236	)			—				(317,612	)			1,253,323				—
Long-term intercompany loan			697,125				776,369				—				621,992				(2,095,486	)			—
Other non-current assets			—				5,760				8,818				288				—				14,866
Total assets		$	361,287			$	565,697			$	772,535			$	533,154			$	(1,442,707	)		$	789,966
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$	—			$	—			$	101,877			$	360			$	(23,001	)		$	79,236
Other accounts payable			44,438				—				15,490				679				(45,007	)			15,600
Accrued expenses			308				89,095				235,921				244,467				(526,305	)			43,486
Other current liabilities			6,232				—				3,507				3,131				(2,897	)			9,973
Total current liabilities			50,978				89,095				356,795				248,637				(597,210	)			148,295
Long-term borrowings			—				898,778				606,000				792,361				(2,095,486	)			201,653
Accrued severance benefits, net			—				—				112,210				236				—				112,446
Other non-current liabilities			—				—				15,071				5,525				(3,333	)			17,263
Total liabilities			50,978				987,873				1,090,076				1,046,759				(2,696,029	)			479,657
Stockholders’ equity
Common stock			396				136,229				39,005				51,976				(227,210	)			396
Additional paid-in capital			101,885				(731,240	)			(534,819	)			(729,213	)			1,995,272				101,885
Retained earnings			287,251				212,140				217,341				203,133				(632,614	)			287,251
Treasury stock			(39,918	)			—				—				—				—				(39,918	)
Accumulated other comprehensive loss			(39,305	)			(39,305	)			(39,068	)			(39,501	)			117,874				(39,305	)
Total stockholders’ equity			310,309				(422,176	)			(317,541	)			(513,605	)			1,253,322				310,309
Total liabilities and stockholders’ equity		$	361,287			$	565,697			$	772,535			$	533,154			$	(1,442,707	)		$	789,966

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

Condensed Consolidating Statements of Comprehensive Income

For the three months ended June 30, 2013

 

		MagnaChip Semiconductor Corporation (Parent)				Co-Issuers				Non-Guarantors				Guarantors				Eliminations				Consolidated
Net sales		$	—			$	—			$	215,488			$	4,441			$	(4,640	)		$	215,289
Cost of sales			—				—				144,241				(88	)			88				144,241
Gross profit			—				—				71,247				4,529				(4,728	)			71,048
Selling, general and administrative expenses			793				240				19,694				3,105				(4,123	)			19,709
Research and development expenses			—				—				21,562				398				(829	)			21,131
Operating income (loss)			(793	)			(240	)			29,991				1,026				224				30,208
Other income (expense)			5,926				3,539				(32,225	)			(4,327	)			—				(27,087	)
Income (loss) before income taxes, equity in earnings of related equity investment			5,133				3,299				(2,234	)			(3,301	)			224				3,121
Income tax expenses (benefits)			18				—				(2,745	)			1,412				—				(1,315	)
Income (loss) before equity in earnings of related investment			5,115				3,299				511				(4,713	)			224				4,436
Equity in earnings (loss) of related investment			(679	)			(3,368	)			—				736				3,311				—
Net income (loss)		$	4,436			$	(69	)		$	511			$	(3,977	)		$	3,535			$	4,436
Comprehensive income		$	9,179			$	4,674			$	6,138			$	764			$	(11,576	)		$	9,179

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

Condensed Consolidating Statements of Comprehensive Income

For the six months ended June 30, 2013

 

		MagnaChip Semiconductor Corporation (Parent)				Co-Issuers				Non-Guarantors				Guarantors				Eliminations				Consolidated
Net sales		$	—			$	—			$	420,936			$	9,229			$	(9,578	)		$	420,587
Cost of sales			—				—				283,795				26				(25	)			283,796
Gross profit			—				—				137,141				9,203				(9,553	)			136,791
Selling, general and administrative expenses			2,082				264				38,977				6,249				(8,072	)			39,500
Research and development expenses			—				—				42,592				826				(1,705	)			41,713
Restructuring and impairment charges			—				—				2,446				—				—				2,446
Operating income (loss)			(2,082	)			(264	)			53,126				2,128				224				53,132
Other income (expense)			11,595				(1,022	)			(67,149	)			822				—				(55,754	)
Income (loss) before income taxes, equity in earnings of related equity investment			9,513				(1,286	)			(14,023	)			2,950				224				(2,622	)
Income tax expenses (benefits)			18				—				(2,517	)			2,846				—				347
Income (loss) before equity in earnings of related investment			9,495				(1,286	)			(11,506	)			104				224				(2,969	)
Equity in loss of related investment			(12,464	)			(10,706	)			—				(11,281	)			34,451				—
Net loss		$	(2,969	)		$	(11,992	)		$	(11,506	)		$	(11,177	)		$	34,675			$	(2,969	)
Comprehensive income (loss)		$	6,624			$	(2,399	)		$	3,114			$	(1,588	)		$	873			$	6,624

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

Condensed Consolidating Statements of Comprehensive Income

For the three months ended June 30, 2012

 

		MagnaChip Semiconductor Corporation (Parent)				Co-Issuers				Non-Guarantors				Guarantors				Eliminations				Consolidated
Net sales		$	—			$	—			$	202,760			$	4,791			$	(4,917	)		$	202,634
Cost of sales			—				—				139,775				349				(348	)			139,776
Gross profit			—				—				62,985				4,442				(4,569	)			62,858
Selling, general and administrative expenses			1,477				9				19,102				3,054				(3,549	)			20,093
Research and development expenses			—				—				20,540				242				(1,020	)			19,762
Operating income (loss)			(1,477	)			(9	)			23,343				1,146				—				23,003
Other income (expense)			5,419				(10,181	)			(19,900	)			9,158				—				(15,504	)
Income (loss) before income taxes, equity in earnings of related equity investment			3,942				(10,190	)			3,443				10,304				—				7,499
Income tax expenses (benefits)			1,498				(295	)			(170	)			2,126				—				3,159
Income (loss) before equity in earnings of related investment			2,444				(9,895	)			3,613				8,178				—				4,340
Equity in earnings of related investment			1,896				11,739				—				3,614				(17,249	)			—
Net income		$	4,340			$	1,844			$	3,613			$	11,792			$	(17,249	)		$	4,340
Comprehensive income		$	11,110			$	8,614			$	9,566			$	18,423			$	(36,603	)		$	11,110

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

Condensed Consolidating Statements of Comprehensive Income

For the six months ended June 30, 2012

 

		MagnaChip Semiconductor Corporation (Parent)				Co-Issuers				Non-Guarantors				Guarantors				Eliminations				Consolidated
Net sales		$	—			$	—			$	379,771			$	9,615			$	(9,750	)		$	379,636
Cost of sales			—				—				266,861				601				(599	)			266,863
Gross profit			—				—				112,910				9,014				(9,151	)			112,773
Selling, general and administrative expenses			2,097				53				37,112				6,140				(7,100	)			38,302
Research and development expenses			—				—				41,112				532				(2,051	)			39,593
Operating income (loss)			(2,097	)			(53	)			34,686				2,342				—				34,878
Other income (expense)			11,215				(6,001	)			(20,362	)			5,262				—				(9,886	)
Income (loss) before income taxes, equity in earnings of related equity investment			9,118				(6,054	)			14,324				7,604				—				24,992
Income tax expenses (benefits)			1,613				(170	)			277				3,669				—				5,389
Income (loss) before equity in earnings of related investment			7,505				(5,884	)			14,047				3,935				—				19,603
Equity in earnings of related investment			12,098				17,844				—				14,046				(43,988	)			—
Net income		$	19,603			$	11,960			$	14,047			$	17,981			$	(43,988	)		$	19,603
Comprehensive income		$	19,714			$	12,071			$	15,425			$	17,952			$	(45,448	)		$	19,714

 

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Notes to Consolidated Financial Statements – (Continued)

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

 

Condensed Consolidating Statements of Cash Flows

For the six months ended June 30, 2013

 

		MagnaChip Semiconductor Corporation (Parent)				Co-Issuers				Non-Guarantors				Guarantors				Eliminations				Consolidated
Cash flow from operating activities
Net loss		$	(2,969	)		$	(11,992	)		$	(11,506	)		$	(11,177	)		$	34,675			$	(2,969	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization			—				—				16,788				93				—				16,881
Provision for severance benefits			—				—				10,641				45				—				10,686
Amortization of debt issuance costs and original issue discount			—				568				—				—				—				568
Loss (gain) on foreign currency translation, net			184				2,276				57,623				(5,075	)			—				55,008
Gain on disposal of property, plant and equipment, net			—				—				(26	)			—				—				(26	)
Loss on disposal of intangible assets, net			—				—				1				—				—				1
Restructuring and impairment charges			—				—				618				—				—				618
Stock-based compensation			37				—				870				6				—				913
Equity in loss of related investment			12,464				10,706				—				11,281				(34,451	)			—
Other			—				223				1,477				(63	)			(226	)			1,411
Changes in operating assets and liabilities
Accounts receivable, net			—				—				(30,389	)			2,089				(1,186	)			(29,486	)
Inventories, net			—				—				6,760				—				—				6,760
Other receivables			1,371				(8,000	)			(3,082	)			(1,320	)			11,631				600
Other current assets			(13,566	)			(23,796	)			8,290				(18,842	)			55,339				7,425
Deferred tax assets			—				—