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As filed with the Securities
and Exchange Commission on April 20,
2010
Registration
No. 333-165467
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1 to
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(2
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)
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Depositary Shares(3)
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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 depositary shares and common stock underlying
depositary shares that the underwriters have an option to
purchase.
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(3)
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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. Forty-five 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 April 20, 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 17 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 has been 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 2,550 novel
registered patents and 1,050 pending novel patent applications,
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
that cover 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 combined
twelve-month
period 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.
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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.
For 2009 on an a combined pro forma basis, we generated net
sales of $560.1 million, income from continuing operations of
$46.7 million, Adjusted EBITDA of $98.7 million and Adjusted Net
Income of $33.7 million. 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. For 2008, we generated net sales of $601.7
million, losses from continuing operations of $325.8 million,
Adjusted EBITDA of $59.8 million and Adjusted Net Loss of $71.7
million. See Unaudited Pro Forma Consolidated Financial
Information beginning on page 48 for an explanation
regarding our pro forma presentation and Prospectus
SummarySummary Historical and Unaudited Pro Forma
Consolidated Financial Data, beginning on page 9 for an
explanation of our use of Adjusted EBITDA and Adjusted Net
Income.
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. Our
Display Solutions business represented 50.5%, 50.5% and 46.7% of
our net sales for the fiscal years ended December 31, 2009 (on a
combined basis), 2008 and 2007, respectively.
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. Our Power Solutions business represented
2.2% and 0.9% of our net sales for the fiscal years ended
December 31, 2009 (on a combined basis) and 2008, respectively.
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
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of products, including display drivers, LED drivers, audio
encoding and decoding devices, microcontrollers, electronic tags
and power management semiconductors. Our Semiconductor
Manufacturing Services business represented 46.7%, 47.7% and
45.2% of our net sales for the fiscal years ended December 31,
2009 (on a combined basis), 2008 and 2007, respectively.
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 distinguished by design and process
implementation expertise rather than the use of the most
advanced equipment or leading-edge geometries. 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, our cash flow and
profitability and to establish our position as a leading
provider of analog and mixed-signal semiconductor products and
services for high-volume markets. 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 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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Through our reorganization proceedings, 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 and retiring
$149 million of redeemable convertible preferred units;
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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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On April 9, 2010 we completed the sale of $250 million
in aggregate principal amount of 10.500% senior notes due 2018.
Of the $239.6 million of net proceeds, $130.7 million
was used to make a distribution to our unitholders and
$61.8 million was used to repay all outstanding borrowings
under our term loan. The remaining proceeds were retained to
fund working capital and for general corporate purposes.
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 17 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
B-97483, 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 with our
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management team remaining in place. Our Chapter 11 plan of
reorganization implemented a comprehensive financial
reorganization that significantly reduced our outstanding
indebtedness. Additionally, 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. Avenue Capital Management II, L.P. is a
global investment management firm, and it and its affiliated
funds specialize in distressed and undervalued securities. In
this prospectus, we refer to funds affiliated with Avenue
Capital Management II, L.P. collectively as Avenue.
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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, including any net proceeds received by us in
connection with the underwriters option to purchase
additional shares, 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 beginning on page 17 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. |
|
Depositary |
|
American Stock Transfer & Trust Company, LLC |
|
Proposed New York Stock Exchange symbol
|
|
MX |
7
|
|
(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
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.
|
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:
|
|
|
|
|
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;
|
|
|
|
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.
|
8
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 combined twelve-month period ended
December 31, 2009 to give pro forma effect to the
reorganization proceedings and related events, the corporate
conversion and the issuance of $250 million senior notes
and the application of the net proceeds therefrom, in each case
as if they had occurred at the beginning of the period presented
with respect to consolidated statement 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, the corporate conversion and the issuance of
$250 million senior notes and the application of the net
proceeds therefrom been consummated on the dates indicated, and
do not purport to be indicative of balance sheet data or our
results of operations for any future period.
9
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|
|
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|
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Historical
|
|
|
|
Pro Forma(1)
|
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|
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, except per common unit/share data)
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
(Audited)
|
|
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
560.1
|
|
|
$
|
111.1
|
|
|
|
$
|
449.0
|
|
|
$
|
601.7
|
|
|
$
|
709.5
|
|
Cost of sales
|
|
|
378.9
|
|
|
|
90.4
|
|
|
|
|
311.1
|
|
|
|
445.3
|
|
|
|
578.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
181.2
|
|
|
|
20.7
|
|
|
|
|
137.8
|
|
|
|
156.4
|
|
|
|
130.7
|
|
Selling, general and administrative expenses
|
|
|
71.6
|
|
|
|
14.5
|
|
|
|
|
56.3
|
|
|
|
81.3
|
|
|
|
82.7
|
|
Research and development expenses
|
|
|
77.3
|
|
|
|
14.7
|
|
|
|
|
56.1
|
|
|
|
89.5
|
|
|
|
90.8
|
|
Restructuring and impairment charges
|
|
|
0.4
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
13.4
|
|
|
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
31.9
|
|
|
|
(8.6
|
)
|
|
|
|
25.0
|
|
|
|
(27.7
|
)
|
|
|
(54.9
|
)
|
Interest expense, net
|
|
|
28.7
|
|
|
|
1.3
|
|
|
|
|
31.2
|
|
|
|
76.1
|
|
|
|
60.3
|
|
Foreign currency gain (loss), net
|
|
|
52.8
|
|
|
|
9.3
|
|
|
|
|
43.4
|
|
|
|
(210.4
|
)
|
|
|
(4.7
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1
|
|
|
|
8.1
|
|
|
|
|
816.8
|
|
|
|
(286.5
|
)
|
|
|
(65.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
55.9
|
|
|
$
|
(0.5
|
)
|
|
|
$
|
841.8
|
|
|
$
|
(314.3
|
)
|
|
$
|
(120.0
|
)
|
Income tax expenses
|
|
|
9.2
|
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
11.6
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
46.7
|
|
|
$
|
(2.5
|
)
|
|
|
$
|
834.5
|
|
|
$
|
(325.8
|
)
|
|
$
|
(128.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
Net income (loss)
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
841.1
|
|
|
|
(417.3
|
)
|
|
|
(180.6
|
)
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
|
|
6.3
|
|
|
|
13.3
|
|
|
|
12.0
|
|
Income (loss) from continuing operations attributable to common
units/shares
|
|
|
46.7
|
|
|
|
(2.5
|
)
|
|
|
|
828.2
|
|
|
|
(339.1
|
)
|
|
|
(140.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit/share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per common
unit/share Basic and diluted
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
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
|
|
$
|
112.1
|
|
|
$
|
64.9
|
|
|
|
|
|
|
|
$
|
4.0
|
|
|
$
|
64.3
|
|
Total assets
|
|
|
507.6
|
|
|
|
453.3
|
|
|
|
|
|
|
|
|
399.2
|
|
|
|
707.9
|
|
Total indebtedness(2)
|
|
|
246.7
|
|
|
|
61.8
|
|
|
|
|
|
|
|
|
845.0
|
|
|
|
830.0
|
|
Long-term obligations(3)
|
|
|
247.0
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
143.2
|
|
|
|
879.4
|
|
Total unitholders/stockholders equity (deficit)
|
|
|
85.0
|
|
|
|
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)
|
|
|
33.7
|
|
|
|
13.3
|
|
|
|
|
9.3
|
|
|
|
(71.7
|
)
|
|
|
(82.6
|
)
|
10
|
|
|
(1) |
|
Gives effect to the reorganization proceedings and related
events, the corporate conversion and the issuance of
$250 million senior notes and the application of the net
proceeds therefrom. 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; and
|
|
|
|
|
|
in certain of our compensation plans as a performance measure
for determining incentive compensation payments.
|
11
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
|
|
|
46.7
|
|
|
|
(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
|
|
|
28.7
|
|
|
|
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 |
12
|
|
|
|
|
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-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 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;
|
13
|
|
|
|
|
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).
14
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
|
|
$
|
46.7
|
|
|
|
(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)
|
|
$
|
33.7
|
|
|
$
|
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
|
15
|
|
|
|
|
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.
16
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. As a
result, the price of our common stock could decline and you
could lose all or part of your investment in our common stock.
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
unitholders 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.
17
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
controls. 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 recent 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, including
smaller geometries, 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 and 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.
19
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 26% 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
21
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 following the completion of this offering
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 global
recession and related financial crisis negatively affected our
business. Poor economic conditions may negatively affect our
future business, results of operations and financial
condition.
The global recession and related financial crisis 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 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 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
caused U.S. and foreign businesses to slow spending on our
products. Although recently there have been indications of
improved economic conditions generally and in the semiconductor
industry specifically, we cannot assure you of the extent to
which such conditions will continue to improve or whether the
improvement will be sustainable. If the global economic recovery
is not sustained or the global economy experiences another
recession, such adverse economic conditions 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. As a result, our business, financial condition and
result of operations could be materially adversely affected in
future periods as a result of economic downturns.
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.
23
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, were constrained in recent years due to an
increased demand for silicon. Silicon is also a key raw material
for solar cells, the demand for which has increased in recent
years. Although supplies of silicon have recently improved due
to the entrance of additional suppliers and capacity expansion
by existing suppliers, we cannot assure you that such supply
increases will match demand increases. 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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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. We cannot assure you that other
countries in which we market our services will protect our
intellectual property rights to the same extent as the United
States. In particular, the validity, enforceability and scope of
protection of intellectual property in China, where we derive a
significant portion of our net sales, and certain other
countries where we derive net sales, are uncertain and still
evolving and historically have not protected and may not protect
in the future, intellectual property rights to the same extent
as do the laws and enforcement procedures in 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 April 2010, the Korean governments Enforcement Decree
to the Framework Act on Low Carbon Green Growth, or the
Enforcement Decree, became effective. 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. Our Korean subsidiary meets
the thresholds under the Enforcement Decree and we expect that
that it will be designated as a regulated business by the end of
June 2010. If our Korean subsidiary is designated as a regulated
business, we could be subject to additional and potentially
costly compliance or remediation expenses that 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 of equity or other securities convertible into
equity, our existing stockholders could suffer significant
27
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 not be
able to bring an action or enforce any judgment obtained in
United States courts, or bring an action in any other
jurisdiction, against us or our subsidiaries or our directors,
officers or independent auditors that are organized or residing
in jurisdictions other than the United States.
Most of our subsidiaries are organized or incorporated outside
of the United States and some of our directors and executive
officers as well as our independent auditors are organized or
reside outside of the United States. Most of our and our
subsidiaries assets are located outside of the United
States and in particular, in Korea. Accordingly, any judgment
obtained in the United States against us or our subsidiaries may
not be collectible in the United States. As a result, it may not
be possible for you to effect service of process within the
United States upon these persons or to enforce against them or
us court judgments obtained in the United States that are
predicated upon the civil liability provisions of the federal
securities laws of the United States or of the securities laws
of any state of the United States. In particular, there is doubt
as to the enforceability in Korea or any other jurisdictions
outside the United States, either in original actions or in
actions for enforcement of judgments of United States courts, of
civil liabilities predicated on the federal securities laws of
the United States or the securities laws of any state of the
United States.
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
28
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 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.
Our level of
indebtedness is substantial, and we may not be able to generate
sufficient cash to service all of our indebtedness and may be
forced to take other actions to satisfy our obligations under
our indebtedness, which may not be successful. A decline in the
ratings of our existing or future indebtedness may make the
terms of any new indebtedness we choose to incur more
costly.
As of December 31, 2009, our total indebtedness on a pro
forma basis was $246.7 million. See
Capitalization for additional information. Our
substantial debt could have important consequences, including:
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increasing our vulnerability to general economic and industry
conditions;
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requiring a substantial portion of our cash flow from operations
to be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures and future
business opportunities;
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exposing us to the risk of increased interest rates because some
of our borrowings are at variable rates of interest;
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limiting our ability to obtain additional financing for working
capital, capital expenditures, debt service requirements,
acquisitions and general corporate or other purposes; and
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limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to our
competitors who have less debt.
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Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and
operating performance, which is subject to prevailing economic
and competitive conditions and to certain financial, business
and other factors beyond our control. We cannot assure you that
we will generate a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness.
29
The credit ratings assigned to our debt reflect each rating
agencys opinion of our ability to make payments on the
debt obligations when such payments are due. A rating may be
subject to revision or withdrawal at any time by the assigning
rating agency. We may experience downgrades in our debt ratings
in the future. Any lowering of our debt ratings would adversely
impact our ability to raise additional debt financing and
increase the cost of any such financing that is obtained. In the
event any ratings downgrades are significant, we may choose not
to incur new debt or refinance existing debt if we are unable to
incur or refinance such debt at favorable interest rates or on
favorable terms.
If our cash flows and capital resources are insufficient to fund
our debt service obligations or if we are unable to refinance
existing indebtedness on favorable terms, we may be forced to
reduce or delay capital expenditures, sell assets, seek
additional capital or restructure or refinance our indebtedness.
These alternative measures may not be successful and may not
permit us to meet our scheduled debt service obligations. In the
absence of such operating results and resources, we could face
substantial liquidity problems and might be required to dispose
of material assets or operations to meet our debt service and
other obligations. The indentures governing our notes restrict
our ability to dispose of assets and use the proceeds from the
disposition. We may not be able to consummate those dispositions
or be able to obtain the proceeds which we could realize from
them and these proceeds may not be adequate to meet any debt
service obligations then due.
Restrictions
on MagnaChip Koreas ability to make payments on its
intercompany loans from MagnaChip Semiconductor B.V., or on its
ability to pay dividends in excess of statutory limitations,
could hinder our ability to make payments on our 10.500% senior
notes due 2018.
We anticipate that payments under our 10.500% senior notes due
2018 will be funded in part by MagnaChip Koreas repayment
of its existing loans from MagnaChip Semiconductor B.V., with
MagnaChip Semiconductor B.V. using such repayments in turn to
repay the loans owed to MagnaChip Semiconductor S.A. Under the
Korean Foreign Exchange Transaction Act, the minister of the
Ministry of Strategy and Finance is authorized to temporarily
suspend payments in foreign currencies in the event of natural
calamities, wars, conflicts of arms, grave and sudden changes in
domestic or foreign economic conditions, or other similar
situations. In addition, under the Korean Commercial Code, a
Korean company is permitted to make a dividend payment in
accordance with the provisions in its articles of incorporation
out of retained earnings (as determined in accordance with the
Korean Commercial Code and the generally accepted accounting
principles in Korea), but no more than twice a year. If
MagnaChip Korea is prevented from making payments under its
intercompany loans due to restrictions on payments of foreign
currency or if it has an insufficient amount of retained
earnings under the Korean Commercial Code to make dividend
payments to MagnaChip Semiconductor B.V., we may not have
sufficient funds to make payments on the notes.
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
30
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.
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
31
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 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.
32
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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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
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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 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 the indenture for
our senior notes. 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.
34
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.
35
USE OF
PROCEEDS
We estimate that the 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:
|
|
|
|
|
approximately $12 million to fund discretionary incentive
payments to all of our employees, excluding our executive
officers; and
|
|
|
|
|
|
approximately $ million to fund
working capital and for general corporate purposes.
|
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, including any additional proceeds raised as a
result of the exercise of the underwriters option to
purchase additional depositary shares, 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 the indenture governing our senior
notes.
CORPORATE
CONVERSION
In connection with this offering, our board of directors and the
holders of a majority of our outstanding common units 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 .
36
CAPITALIZATION
The following table sets forth the following information:
|
|
|
|
|
the actual capitalization of MagnaChip Semiconductor LLC as of
December 31, 2009; and
|
|
|
|
|
|
our pro forma capitalization as of December 31, 2009 after
giving effect to (i) the issuance of $250 million
senior notes and (ii) the corporate conversion, as adjusted
for 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.
|
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)
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
as Adjusted
|
|
|
Indebtedness (including current maturities)
|
|
|
|
|
|
|
|
|
Senior secured credit facility
|
|
$
|
61.8
|
|
|
$
|
|
|
10.500% senior notes due 2018(1)
|
|
|
|
|
|
|
246.7
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
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
|
|
|
55.1
|
|
|
|
|
|
Preferred stock, $0.01 par value, no shares authorized,
issued and outstanding,
actual; shares
authorized, no shares issued and outstanding, pro forma as
adjusted.
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
168.7
|
|
|
|
|
(2)
|
Accumulated deficit
|
|
|
(2.0
|
)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders / stockholders equity
|
|
|
215.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
277.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents principal amount of notes net of original issue
discount of $3.3 million. |
|
|
|
(2) |
|
Reflects a $130.7 million distribution to unitholders using
a portion of the proceeds from the issuance of our
$250 million in aggregate principal amount senior notes and
the corporate conversion. |
|
|
|
(3) |
|
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. |
37
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 $ , 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.
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Assumed initial public offering price per share
|
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|
|
|
|
$
|
|
|
Net tangible book value per share as of December 31, 2009
|
|
$
|
|
|
|
|
|
|
Increase in pro forma net tangible book value per share
attributable to new investors
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Pro forma net tangible book value per share after giving effect
to this offering
|
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|
|
|
|
|
|
|
|
|
|
|
|
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Dilution per share to new investors
|
|
|
|
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|
$
|
|
|
|
|
|
|
|
|
|
|
|
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.
If the underwriters exercise their option to purchase additional
shares of our common stock from us in full in this offering, the
pro forma net tangible book value per share after the offering
would be $ per share, the increase
in pro forma net tangible book value per share to existing
stockholders would be $ per share
and the dilution to new investors purchasing shares in this
offering would be $ per share.
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.
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Shares
|
|
|
Total
|
|
|
Average
|
|
|
|
Purchased
|
|
|
Consideration
|
|
|
Price
|
|
|
|
Number
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Per Share
|
|
|
|
(In millions, except share and % data)
|
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|
Existing stockholders
|
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|
|
|
|
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|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors(1)
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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Total
|
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|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
(1) |
|
Before deduction of the underwriting discounts and commissions
and estimated offering expenses payable by us. |
38
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. The
total consideration paid by our existing stockholders would be
$ ,
or %, and the total consideration
paid by our new investors would be
$ ,
or % and the average price per
share paid by our existing stockholders and new investors would
be $ and
$ , respectively.
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.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. The
total consideration paid by our existing stockholders would be
$ ,
or %, and the total consideration
paid by our new investors would be
$ ,
or % and the average price per
share paid by our existing stockholders and new investors would
be $ and
$ , respectively.
39
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.
40
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
41
|
|
|
(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; and
|
|
|
|
|
|
in certain of our compensation plans as a performance measure
for determining incentive compensation payments.
|
42
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. |
43
|
|
|
(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-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 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;
|
44
|
|
|
|
|
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).
45
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
|
46
|
|
|
|
|
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.
47
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
We have prepared the unaudited pro forma condensed consolidated
financial information of MagnaChip for the combined twelve-month
period ended December 31, 2009 in accordance with
Article 11 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;
|
|
|
|
|
|
the corporate conversion; and
|
|
|
|
|
|
the issuance of $250 million senior notes by MagnaChip
Semiconductor S.A. and MagnaChip Semiconductor Finance Company,
our wholly-owned subsidiaries, and the application of the net
proceeds therefrom.
|
The unaudited consolidated pro forma balance sheet as of
December 31, 2009 is derived from the historical
consolidated balance sheet of MagnaChip Semiconductor LLC and
gives pro forma effect to the following as if it occurred on
December 31, 2009.
|
|
|
|
|
the corporate conversion; and
|
|
|
|
|
|
the issuance of $250 million senior notes by MagnaChip
Semiconductor S.A. and MagnaChip Semiconductor Finance Company,
and the application of the net proceeds therefrom.
|
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 combined twelve-month period
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 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 consolidated
financial statements, included elsewhere in this prospectus.
The
Reorganization Proceedings and Fresh-Start Reporting
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.
48
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.
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 combined twelve-month period 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 combined twelve-month period 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
49
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.
Issuance of
$250 Million Senior Notes and Applications of Net
Proceeds
On April 9, 2010, MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, our wholly-owned subsidiaries,
completed the sale of $250 million in aggregate principal
amount of 10.500% senior notes due 2018 at an offering price of
98.674%. Net proceeds from the notes offering were
$239.6 million which represents $250 million of
principal amount net of $3.3 million of original issue
discount and $7.1 million of debt issuance costs, including
professional fees. Of the $239.6 million of net proceeds,
$130.7 million was used to make a distribution to our
unitholders and $61.8 million was used to repay all
outstanding borrowings under our term loan. The remaining
proceeds were retained to fund working capital and for general
corporate purposes.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 per 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
|
|
|
|
(3.7
|
)(3)
|
|
|
28.7
|
|
Foreign currency gain, net
|
|
|
9.3
|
|
|
|
43.4
|
|
|
|
|
|
|
|
52.8
|
|
Reorganization items, net
|
|
|
|
|
|
|
804.6
|
|
|
|
(804.6
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
816.8
|
|
|
|
|
|
|
|
24.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(0.5
|
)
|
|
|
841.8
|
|
|
|
|
|
|
|
55.9
|
|
Income tax expenses
|
|
|
1.9
|
|
|
|
7.3
|
|
|
|
|
(5)
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(2.5
|
)
|
|
$
|
834.5
|
|
|
|
|
|
|
$
|
46.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred unit
|
|
|
|
|
|
|
6.3
|
|
|
|
(6.3
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
unit/share
|
|
$
|
(2.5
|
)
|
|
$
|
828.2
|
|
|
$
|
|
|
|
$
|
46.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
47.1
|
(8)
|
|
$
|
112.1
|
|
Accounts receivables, net
|
|
|
74.2
|
|
|
|
|
|
|
|
74.2
|
|
Inventories, net
|
|
|
63.4
|
|
|
|
|
|
|
|
63.4
|
|
Other
|
|
|
19.5
|
|
|
|
|
|
|
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
222.1
|
|
|
|
|
|
|
|
269.2
|
|
Property, plant and equipment, net
|
|
|
156.3
|
|
|
|
|
|
|
|
156.3
|
|
Intangible assets, net
|
|
|
50.2
|
|
|
|
|
|
|
|
50.2
|
|
Other non-current assets
|
|
|
24.8
|
|
|
|
7.1
|
(9)
|
|
|
31.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
453.3
|
|
|
|
|
|
|
$
|
507.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)(10)
|
|
|
0.0
|
|
Other current liabilities
|
|
|
3.9
|
|
|
|
|
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
93.6
|
|
|
|
|
|
|
|
92.9
|
|
Long-term borrowings
|
|
|
61.1
|
|
|
|
(61.1
|
)(10)
|
|
|
246.7
|
|
|
|
|
|
|
|
|
246.7
|
(10)
|
|
|
|
|
Accrued severance benefits, net
|
|
|
72.4
|
|
|
|
|
|
|
|
72.4
|
|
Other non-current liabilities
|
|
|
10.5
|
|
|
|
|
|
|
|
10.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
237.6
|
|
|
|
|
|
|
|
422.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders / stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
(55.1
|
)(11)
|
|
|
|
|
Common
stock; shares
authorized, 0 shares issued and outstanding at
December 31, 2009,
actual, shares
issued and outstanding at December 31, 2009, pro forma
|
|
|
|
|
|
|
|
(11)
|
|
|
|
|
Additional paid-in capital
|
|
|
168.7
|
|
|
|
|
(11)(12)
|
|
|
|
|
Accumulated deficit
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
Accumulated other comprehensive (loss)
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders / stockholders equity
|
|
|
215.7
|
|
|
|
|
|
|
|
85.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and unitholders /
stockholders equity
|
|
$
|
453.3
|
|
|
|
|
|
|
$
|
507.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
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 $30.8 million of
which $29.6 million was incurred on our indebtedness
outstanding prior to our reorganization proceedings which was
recognized in the ten-month period ended October 25, 2009
and $1.2 million was incurred on our new term loan of
$61.8 million which was recognized in the two-month period
ended December 31, 2009. The $29.6 million incurred on
our indebtedness outstanding prior to our reorganization
proceedings was comprised of $21.6 million incurred on
notes of $750.0 million and $8.0 million incurred
under the senior secured credit facility of $95.0 million
which was recognized in the ten-month period ended
October 25, 2009. In addition, the pro forma adjustment
assumes the 10.500% senior notes in the aggregate principal
amount of $250.0 million, issued on April 9, 2010,
were outstanding as of January 1, 2009. The resulting
additional interest expense from our 10.500% senior notes
would have been $27.1 million using the effective interest
rate method.
(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 related to
the reorganization proceedings and adoption of fresh-start
reporting and the issuance of $250 million aggregate
principal amount of senior notes and the application of the net
proceeds should not have an impact on income tax expense for
2009. Those pro forma adjustments which would have income tax
impacts, such as increase or decrease in depreciation and
amortization expenses and decrease in interest expenses, net are
primarily related to our foreign subsidiaries that have
sufficient amounts of operating loss carry forwards and,
accordingly, such pro forma adjustments will have no income tax
impact.
In addition, we believe that there would be no income tax impact
from the corporate conversion and the change in tax status to a
corporation. The corporate conversion does not impact MagnaChip
Semiconductor LLCs operating structure which is a holding
company without its own revenue or income generating activities
with a history of consecutive losses. Accordingly, the converted
MagnaChip Semiconductor Corporation is expected to have minimal
net taxable income or loss in 2009 and in subsequent years and
therefore any tax consequences would be immaterial.
53
Consequently, even if the corporate conversion had occurred as
of January 1 2009, we would expect that any tax consequences
would have been immaterial.
(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 common
unit/share from continuing operations reflects (a) the
impact from the implementation of our plan of reorganization
which represents the cancellation of our old common units and
issuance of new common units, (b) 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
(c) the automatic conversion of all of the outstanding
common units of MagnaChip Semiconductor LLC for shares of our
common stock at a ratio
of .
The following table sets forth the computation of unaudited pro
forma basic and diluted income per common unit/share from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
Weighted Average
|
|
|
per Common
|
|
|
|
Common Units/
|
|
|
Unit/Share from
|
|
|
|
Shares
|
|
|
Continuing Operations
|
|
|
Historical ten-month period ended October 25, 2009
|
|
|
52,923,483
|
|
|
$
|
15.65
|
|
Historical two-month period ended December 31, 2009
|
|
|
300,862,764
|
|
|
|
(0.01
|
)
|
Pro forma adjustment for the ten-month period ended
October 25, 2009 in conjunction with the implementation of
the Plan of Reorganization
|
|
|
(53,625,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma for the combined twelve-month period ended
December 31, 2009 before the impacts from the corporate
conversion
|
|
|
300,160,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma adjustment for the corporate conversion
|
|
|
|
|
|
|
|
|
Pro forma for the combined twelve-month period ended
December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
(8) To reflect $47.1 million of increase in cash and
cash equivalents which represents a portion of the net proceeds
from the issuance of $250 million aggregate principal
amount of senior notes applied to fund working capital and for
general corporate purpose.
(9) To reflect $7.1 million of debt issuance costs in
connection with the offering of $250 million aggregate
principal amount of senior notes.
(10) To reflect the issuance of $250.0 million
aggregate principal amount of senior notes with
$3.3 million of original issue discount and application of
$61.8 million of net proceeds to repay our existing term
loan of $61.8 million of which $0.6 million was
classified as short-term as of December 31, 2009.
(11) 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.
(12) To reflect the application of $130.7 million of
the net proceeds from the issuance of $250 million
aggregate principal amount of senior notes to make a
distribution to our unitholders.
54
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 2,550 novel
registered patents and 1,050 pending novel patent applications
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
that cover 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
55
from OEMs and consumers in China and Taiwan relative to overall
demand for our products and 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.
In contrast to fabless semiconductor companies, our internal
manufacturing capacity provides us with greater control over
manufacturing costs and the ability to implement process and
production improvements which can favorably impact gross profit
margins. Our internal manufacturing capacity also allows for
better control over delivery schedules, improved consistency
over product quality and reliability and improved ability to
protect intellectual property from misappropriation. However,
having internal manufacturing capacity exposes us to the risk of
under-utilization of manufacturing capacity which results in
lower gross profit margins, particularly during downturns in the
semiconductor industry.
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 or leading-edge geometries. 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.
56
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.
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. As a result of these actions, we were
able to reduce our costs and improve our margins. Although our
goal is to continue to focus on lower costs and improved margins
on an ongoing basis, we expect that the financial benefits
derived from our ongoing efforts will be incremental and any
such benefits may be offset by other negative factors affecting
our operations.
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
voluntary 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. In June, we returned to our employees
one-third of the amount by which their salaries had been
reduced. 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
57
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-month
period ended October 25, 2009 and the two-month period
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 $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
$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.
On April 9, 2010, we completed the sale of $250 million in
aggregate principal amount of 10.500% senior notes due 2018. Of
the $239.6 million of net proceeds, $130.7 million was used
to make a distribution to our unitholders and $61.8 million
was used to repay all outstanding borrowings under our term
loan. The remaining proceeds were retained to fund working
capital and for general corporate purposes.
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
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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. Our Display Solutions business
represented 50.5%, 50.5% and 46.7% of our net sales for the
fiscal years ended December 31, 2009 (on a combined basis), 2008
and 2007, respectively.
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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. Our Power Solutions business represented 2.2%
and 0.9% of our net sales for the fiscal years ended December
31, 2009 (on a combined basis) and 2008, respectively.
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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 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. Our Semiconductor Manufacturing Services business
represented 46.7%, 47.7% and 45.2% of our net sales for the
fiscal years ended December 31, 2009 (on a combined basis), 2008
and 2007, respectively.
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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), net.
59
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 EBITDA in a number of ways, including:
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for planning purposes, including the preparation of our annual
operating budget;
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to evaluate the effectiveness of our enterprise level business
strategies;
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in communications with our board of directors concerning our
consolidated financial performance; and
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in certain of our compensation plans as a performance measure
for determining incentive compensation payments.
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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 combined twelve-month period ended
December 31, 2009 were $98.7 million and
$33.7 million, respectively. Our Adjusted EBITDA and
Adjusted Net Income for the year ended December 31, 2008
were $59.8 million and a loss of $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
60
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 combined twelve-month
period ended December 31, 2009, we sold products to over
185 customers, and our net sales to our ten largest customers
represented 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. Gross profit varies
by our operating segments. For 2009, our Semiconductor
Manufacturing Services segment utilized approximately 60% of our
manufacturing capacity.
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.
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
61
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 was 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 bore interest at six-month LIBOR plus
12%, and was minimally offset by interest income on cash
balances. In April 2010, we repaid our new term loan with a
portion of the proceeds from our sale of $250 million in
aggregate principal amount of 10.500% senior notes due 2018. 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.
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
62
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
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Rate
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Year ended December 31, 2007
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928:1
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Year ended December 31, 2008
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1,098:1
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Ten-month period ended October 25, 2009
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1,302:1
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Two-month period ended December 31, 2009
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November
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1,172:1
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December
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1,165:1
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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. In
order to provide more detailed information regarding the impact
of foreign currency fluctuations on our results of operations,
in our discussion of period to period comparisons under the
heading Results of Operations, we have included
information regarding the impact of the year-to-year change in
the Korean won/U.S. dollar exchange rate. The information
presented, which is described as the impact of the depreciation
of the Korean won against the U.S. dollar, represents the
change in net sales or expense reported by our main operating
subsidiary located in Korea measured based on its functional
currency of Korean won for the periods presented adjusted by the
change in the exchange rate from the average exchange rate
during the prior period to the average exchange rate during the
current period. A substantial portion of the net sales recorded
at our Korean subsidiary are in U.S. dollars and are
converted into Korean won for reporting purposes at the
subsidiary level. Although this approach does not reflect the
fluctuations of the currency exchange rates during the course of
the year on a transaction by transaction basis, we believe that
it provides a useful indication of the magnitude of the exchange
rate impact for the periods presented.
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 28 to the
63
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 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. Our capital expenditures include our payments
for the purchase of property, plant and equipment as well as
payments for the registration of intellectual property rights.
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.
64
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:
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Successor
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Predecessor Company
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Company
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Ten-Month
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Two-Month
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Period
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Period
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Ended
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Years Ended
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Ended December 31,
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October 25,
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December 31,
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2009
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2009
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2008
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2007
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%of
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%of
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%of
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%of
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Amount
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net sales
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Amount
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net sales
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Amount
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net sales
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Amount
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net sales
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(In millions)
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Consolidated statements of operations data:
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Net sales
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$
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111.1
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100.0
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%
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$
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449.0
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100.0
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%
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$
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601.7
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100.0
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%
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$
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709.5
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100.0
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%
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Cost of sales
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90.4
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81.4
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311.1
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69.3
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445.3
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74.0
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578.9
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81.6
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Gross profit
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20.7
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18.6
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137.8
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30.7
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156.4
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26.0
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130.7
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18.4
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Selling, general and administrative expenses
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14.5
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13.1
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56.3
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12.5
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81.3
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13.5
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82.7
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11.7
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Research and development expenses
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14.7
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13.3
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56.1
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12.5
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89.5
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14.9
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90.8
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12.8
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Restructuring and impairment charges
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0.4
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0.1
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13.4
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2.2
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12.1
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1.7
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Operating income (loss) from continuing operations
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(8.6
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)
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(7.7
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)
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25.0
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5.6
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(27.7
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(4.6
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(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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
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
66
$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. This decrease was principally due to the impact of
the depreciation of the Korean won against the U.S. dollar in
the amount of $61.1 million and a decrease in average
selling prices of our products, both of which were partially
offset by increases in product sales volume. 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
as demand and shipments for consumer electronics products such
as digital televisions, PCs, and smartphones increased.
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. Such increases in volume were partially offset by a
29.4% decrease in average sales prices. 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.
67
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:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 primarily attributable to a $2.7 million favorable
impact resulting from the depreciation of the Korean won against
the U.S. dollar. These increases were partially offset by
increases in sales volume and 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. Cost of sales for the combined
twelve-month period ended December 31, 2009 decreased by
$43.7 million compared to 2008. The decreases in cost of
sales were primarily due to a
68
$63.2 million favorable impact resulting from the
depreciation of the Korean won against the U.S. dollar, a
$10.2 million decrease in labor costs and a
$3.2 million decrease in depreciation, which were partially
offset by a $20.2 million increase in material costs
resulting from the increase in sales volume and a
$2.1 million increase of overhead costs. 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 primarily due to a
decrease in unit costs resulting from a 24.6% increase in sales
volume compared to 2008 offset in part by lower average selling
prices and the impact of the write-up of our inventory in
accordance with fresh-start accounting. Cost of sales for the
combined twelve-month period ended December 31, 2009 decreased
by $34.3 million compared to 2008, primarily due to a $34.1
million favorable impact resulting from the depreciation of the
Korean won against the U.S. dollar, a $7.0 million decrease
in labor costs and a $3.7 million decrease in depreciation,
which were partially offset by a $12.7 million increase in
material costs due to increased sales volume.
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 primarily due to lower
unit costs resulting from the 221.3% increase in sales volume
offset in part by lower average selling prices and the impact of
the write-up of our inventory in accordance with fresh-start
accounting. Cost of sales for the combined twelve-month period
ended December 31, 2009 increased by $0.5 million
compared to 2008, primarily due to a $2.6 million increase
in material costs and a $1.1 million increase in overhead
costs, which were partially offset by a $1.3 million
favorable impact resulting from of the depreciation of the
Korean won against the U.S. dollar. 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 in an aggregate amount of
$18.2 million, partially offset by a $2.3 million favorable
impact resulting from the depreciation of the Korean won against
the U.S. dollar. Cost of sales for the combined
twelve-month period ended December 31, 2009 decreased by
$9.8 million compared to 2008, which was primarily
attributable to a $27.8 million favorable impact resulting
from the depreciation of the Korean won against the
U.S. dollar, which was offset in part by a
$4.9 million increase in material costs and a
$10.9 million increase resulting from the
step-up of
our inventory valuation as a result of our adoption of
fresh-start accounting.
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,
69
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 a decrease of $8.9 million due
to the depreciation of the Korean won against the U.S. dollar
and a decrease of $3.6 million due to 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 $4.9 million. These decreases were partially offset by a
$7.7 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 of
$9.4 million, a $3.2 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 $4.1 million and outside
service fees decreased by $2.3 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.
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.
70
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
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 taxes
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.
71
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
72
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 lower due to a $54.4 million unfavorable impact
resulting from 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 and a 4.6% decline in sales
volume.
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.
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.
73
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
|
%
|
|
$
|
130.7
|
|
|
|
18.4
|
%
|
|
$
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 a $40.8 favorable impact due 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.
Cost of sales in 2008 decreased by $133.6 million compared
to 2007, primarily due to a $80.7 million favorable impact
resulting from the depreciation of Korean won against U.S.
dollar, a $17.4 million decrease in depreciation and a
$10.7 million decrease in overhead costs, which were
partially offset by a $15.3 million increase in material
costs. In addition, $34.2 million in cost of sales for unit
processing services which were incurred during 2007 were not
incurred in 2008 as we no longer rendered the services.
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 primarily due to a $14.9 million favorable
impact resulting from the depreciation of the Korean won against
the U.S. dollar. Cost of sales for 2008 decreased by
$43.5 million compared to 2007, which was primarily
attributable to a $44.8 million favorable impact resulting
from the depreciation of Korean won against U.S. dollar and a
$5.5 million decrease in depreciation, which were offset in
part by a $6.9 million increase in material costs.
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 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, primarily due to a
$25.2 million favorable impact resulting from the
depreciation of the Korean won against the U.S. dollar. Cost of
sales for 2008 decreased by $65.2 million compared to 2007.
The decrease was primarily attributable to a $33.9 million
favorable impact resulting from the depreciation of Korean won
against U.S. dollar, a $12.3 million decrease in
depreciation and a $11.3 million decrease in overhead
costs, which were partially offset by a $6.8 million
increase in material costs.
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.
74
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 primarily attributable to a
$11.6 million favorable impact resulting from the
depreciation of the Korean won against the U.S. dollar and a
$3.1 million decrease in depreciation and amortization
expenses. These decreases were partially offset by a
$10.9 million increase in outside service fees and a
$3.6 million increase in salaries.
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 primarily
attributable to a $13.5 million favorable impact resulting
from the depreciation of the Korean won against the U.S. dollar
partially offset by a $7.1 million increase in salaries, a
$2.2 million increase in outside service fees and a
$1.6 million increase in material costs.
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 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
75
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 taxes
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. We calculate working capital
as current assets less current liabilities.
Our principal sources of liquidity are our cash and cash
equivalents, our cash flows from operations and our financing
activities, including approximately $47.1 million of net
proceeds from the $250 million aggregate principal amount
senior notes offering and 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 were cash flow negative for the two-month
period ended December 31, 2009 as well as for 2008 and 2007
and 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 and could be
adversely impacted by our 2009 reorganization proceedings and
our non-compliance with bank covenants that preceded the filing.
We cannot assure you that additional financing will be available
to us on favorable terms when required, or at all. The current
rating of our senior notes is B2 by Moodys and B+ by
Standard and Poors. Any lowering of these ratings would
adversely impact our ability to raise additional debt financing
and increase the cost of any such financing that is obtained. 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 are unable
to do so or obtain additional financing on unfavorable terms in
the future, it is possible we would have to limit certain
planned activities including sales and marketing and research
and development activities. As of December 31, 2009, our cash
and cash equivalents balance was $64.9 million, a
$49.1 million increase from our cash, cash equivalents and
restricted cash balance of $15.8 million as of
December 31, 2008. The increase in cash and cash
equivalents for the combined twelve-month period ended
December 31, 2009 was primarily attributable to a cash
inflow of $41.5 million from operating activities, coupled
with a cash inflow of $11.5 million from investing
activities.
Cash Flows
from Operating Activities
Cash flows generated by operating activities totaled
$41.5 million in the combined twelve-month period ended
December 31, 2009, compared to $18.4 million of cash
used in operating activities in 2008. This increase in cash
flows was primarily attributable to income from continuing
operations which improved due to the restructuring of our
operations and our reorganization plan as described above. The
net operating cash inflow for the combined twelve-month period
ended December 31, 2009 principally reflected our net
income of $839.1 million adjusted by non-cash charges of
$799.4 million, which mainly consisted of non-cash
reorganization items derived from our reorganization plan.
76
In 2008, cash flows used in operating activities totaled
$18.4 million, compared to $23.7 million in 2007. The
decrease was primarily driven by lower operating results
adjusted by non-cash charges, which mainly consisted of
depreciation and amortization charges and loss on foreign
currency translation.
Our working capital balance as of December 31, 2009 was
$128.5 million, compared to negative $814.5 million as
of December 31, 2008. The significant increase in our
working capital balance was principally due to the discharge of
$750.0 million in debt recorded in current liabilities
resulting from our reorganization plan in 2009 as well as cash
generated from operations and investing activities.
Our working capital balance as of December 31, 2008 was
negative $814.5 million, compared to $55.6 million as
of December 31, 2007. The significant decrease in our
working capital balance was mainly due to the reclassification
of long-term debt to current in 2008. In addition, as a result
of our operating performance in the quarter ended
December 31, 2008, our cash balances, accounts receivable
and inventory were significantly lower as compared to
December 31, 2007.
Cash Flows
from Investing Activities
Cash flows generated by investing activities totaled
$11.5 million in the combined twelve-month period ended
December 31, 2009, compared to $39.6 million of cash
used in investing activities in the 2008. In 2009, we had a
decrease in capital expenditures of $20.5 million from
$29.7 million in 2008 to $9.2 million in the combined
twelve-month period ended December 31, 2009. In 2008, cash
of $11.8 million was restricted pursuant to the terms of a
forbearance agreement in relation to short-term borrowings; in
2009, it was released from restriction in connection with our
reorganization plan. Cash flow from investing activities in 2009
also included cash proceeds of $9.4 million from the sale
of intangible assets.
In 2007, cash flows used in investing activities totaled
$81.8 million, primarily due to capital expenditures of
$86.6 million related to capacity expansion and technology
improvements at a fabrication facility in anticipation of sales
growth in future periods. A significant portion of this capital
investment was originally targeted for use by our discontinued
Imaging Solutions segment and has since been repurposed for the
other segments of our business, allowing us to maintain a
relatively low level of capital investment in 2008 and 2009.
Cash Flows
from Financing Activities
Cash flows provided by financing activities totaled
$2.0 million in the combined twelve-month period ended
December 31, 2009, compared to $14.7 million in 2008.
There were no significant financing activities in 2009 other
than the repayment of short-term borrowings and the issuance of
common units as part of our reorganization in 2009.
During the year ended December 31, 2007, we borrowed
$130.1 million under our senior secured credit facility
which offset repayments under the same facility of
$50.1 million during the same period. At December 31,
2007, we had borrowed $80.0 million under our senior
secured credit facility and had additional letters of credit of
$15.5 million issued under the facility.
Capital
Expenditures
We routinely make capital expenditures to enhance our existing
facilities and reinforce our global research and development
capability.
For the combined twelve-month period ended December 31,
2009, capital expenditures were $9.2 million, a
$20.5 million, or 69.0%, decrease from $29.7 million
in 2008.
For the year ended December 31, 2008, capital expenditures
were $29.7 million, a $56.9 million, or 65.7%,
decrease from $86.6 million in 2007. Significant capital
expenditures in 2007 were used to support capacity expansion and
technology improvements at our fabrication facilities in
anticipation of
77
sales growth in future periods. Since then, these expenditures
have been reduced. This
year-over-year
decrease was a result of managing our capital expenditure timing
in order to better support the growth of our business from new
customers and to optimize asset utilization and return on
capital investments.
Seasonality
Our net sales and number of distinct products sold are affected
by market variations from quarter to quarter due to business
cycles, and resulting product demand, of our customers. Our
Display Solutions business typically experiences demand
increases in the third and fourth calendar quarters due to
increased holiday demand for the consumer products that serve as
the end markets for our products. During the first quarter, by
contrast, consumer products manufacturers generally reduce
orders in order to reduce excess inventory remaining from the
holiday season. In our Semiconductor Manufacturing Services
business, the supply-demand cycle is usually one quarter ahead
of the broader semiconductor market due to lead time from wafer
input to shipment to our customers, so the demand for these
products tends to peak in the third quarter and is slower in the
fourth and first quarters.
Contractual
Obligations
The following summarizes our contractual obligations as of
December 31, 2009:
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Payments Due by Period
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Total
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2010
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2011
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2012
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2013
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2014
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Thereafter
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(In millions)
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New term loan(1)(2)
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$
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91.6
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$
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8.5
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$
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8.4
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$
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8.3
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$
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66.4
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$
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$
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Operating lease(3)
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51.6
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6.8
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1.9
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1.9
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1.9
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1.9
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37.2
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Others(4)
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11.5
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4.7
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4.2
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2.4
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0.2
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(1) |
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Includes principal as well as interest payments. |
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(2) |
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Assumes constant interest rate of 6-month LIBOR + 12% as of
December 31, 2009. |
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(3) |
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Assumes constant currency exchange rate for Korean won to
U.S. dollars of 1,168:1. |
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(4) |
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Includes license agreements and other contractual obligations. |
New term loan amounts represent the scheduled maturity of debt
at December 31, 2009, assuming that no early optional
redemptions occur. The new term loan was repaid in full in April
2010 with a portion of the proceeds from our $250 million
senior notes offering.
The indenture relating to our $250 million senior notes
contains covenants that limit our ability and the ability of our
restricted subsidiaries to: (i) declare or pay any dividend
or make any payment or distribution on account of or purchase or
redeem our capital stock or equity interests of our restricted
subsidiaries; (ii) make any principal payment on, or redeem
or repurchase, prior to any scheduled repayment, sinking fund
payment or maturity, any subordinated indebtedness;
(iii) make certain investments, including capital
expenditures; (iv) incur additional indebtedness and issue
certain types of capital stock; (v) create or incur any
lien (except for permitted liens) that secures obligations under
any indebtedness or related guarantee; (vi) merge with or
into or sell all or substantially all of our assets to other
companies; (vii) enter into certain types of transactions
with affiliates; (viii) guarantee the payment of any
indebtedness; (ix) enter into sale-leaseback transactions;
(x) enter into agreements that would restrict the ability
of the restricted subsidiaries to make distributions with
respect to their equity, to make loans to us or other restricted
subsidiaries or to transfer assets to us or other restricted
subsidiaries; and (xi) designate unrestricted subsidiaries.
We follow ASC guidance on uncertain tax positions. Our
unrecognized tax benefits totaled $2.0 million as of
December 31, 2009. These unrecognized tax benefits have
been excluded from the
78
above table because we cannot estimate the period of cash
settlement with the respective taxing authorities.
Quantitative and
Qualitative Disclosures about Market Risk
We are exposed to the market risk that the value of a financial
instrument will fluctuate due to changes in market conditions,
primarily from changes in foreign currency exchange rates and
interest rates. In the normal course of our business, we are
subject to market risks associated with interest rate movements
and currency movements on our assets and liabilities.
Foreign
Currency Exposures
We have exposure to foreign currency exchange rate fluctuations
on net income from our subsidiaries denominated in currencies
other than U.S. dollars, as our foreign subsidiaries in
Korea, Taiwan, China, Japan and Hong Kong use local currency as
their functional currency. From time to time these subsidiaries
have cash and financial instruments in local currency. The
amounts held in Japan, Taiwan, Hong Kong and China are not
material in regards to foreign currency movements. However,
based on the cash and financial instruments balance at
December 31, 2009 for our Korean subsidiary, a 10%
devaluation of the Korean won against the U.S. dollar would
have resulted in a decrease of $1.2 million in our
U.S. dollar financial instruments and cash balances. Based
on the Japanese yen cash balance at December 31, 2009, a
10% devaluation of the Japanese yen against the U.S. dollar
would have resulted in a decrease of $0.3 million in our
U.S. dollar cash balance.
Interest Rate
Exposures
On April 9, 2010, we completed the sale of
$250 million in aggregate principal amount of 10.500%
senior notes due 2018. The $61.8 million of total
outstanding borrowings under our term loan was repaid on the
same date. The $250 million 10.500% senior notes due 2018
are subject to changes in fair value due to interest rate
changes. If the market interest rate increases by 10% and all
other variables were held constant from their levels at
April 9, 2010, we estimate that the fair value of this
fixed rate note would decrease by $13.6 million and we
would have additional interest expense costs over the market
rate of $1.0 million (on a
360-day
basis). If the market interest rate decreased by 10% and all
other variables were held constant from their levels at
April 9, 2010, we estimate that the fair value of this
fixed rate note would increase by $14.6 million and we
would have a reduction in interest expense costs over the market
rate of $1.2 million (on a
360-day
basis).
Critical
Accounting Policies and Estimates
Preparing financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
financial statements, the reported amounts of revenues and
expenses during the reporting periods and the related
disclosures in our consolidated financial statements and
accompanying notes.
We believe that our significant accounting policies, which are
described in notes 3 and 4 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, are critical due to the fact that they involve a
high degree of judgment and estimates about the effects of
matters that are inherently uncertain. We base these estimates
and judgments on historical experience, knowledge of current
conditions and other assumptions and information that we believe
to be reasonable. Estimates and assumptions about future events
and their effects cannot be determined with certainty.
Accordingly, these estimates may change as new events occur, as
more experience is acquired, as additional information is
obtained and as the business environment in which we operate
changes.
79
Revenue
Recognition and Accounts Receivable Valuation
Our revenue is primarily derived from the sale of semiconductor
products that we design and the manufacture of semiconductor
wafers for third parties. We recognize revenue when persuasive
evidence of an arrangement exists, the product has been
delivered and title and risk of loss have transferred, the price
is fixed and determinable and collection of resulting
receivables is reasonably assured.
We recognize revenue upon shipment, upon delivery of the product
at the customers location or upon customer acceptance
depending on terms of the arrangements, when the risks and
rewards of ownership have passed to the customer. Certain sale
arrangements include customer acceptance provisions that require
written notification of acceptance within the pre-determined
period from the date of delivery of the product. If the
pre-determined period has ended without written notification,
customer acceptance is deemed to have occurred pursuant to the
underlying sales arrangements. In such cases, we recognize
revenue the earlier of the written notification or the
pre-determined period from date of delivery. Specialty
semiconductor manufacturing services are performed pursuant to
manufacturing agreements and purchase orders. Standard products
are shipped and sold based upon purchase orders from customers.
Our revenue recognition policy is consistent across our product
lines, marketing venues and all geographic areas. All amounts
billed to a customer related to shipping and handling are
classified as sales, while all costs incurred by us for shipping
and handling are classified as expenses. We currently
manufacture a substantial portion of our products internally at
our wafer fabrication facilities. In the future, we expect to
rely, to some extent, on outside wafer foundries for additional
capacity and advanced technologies.
We maintain allowances for doubtful accounts for estimated
losses resulting from the inability of our customers to make
payment. If the financial condition of our customers were to
deteriorate, additional allowances may be required. The
establishment of reserves for sales discounts is based on
management judgments that require significant estimates of a
variety of factors, including forecasted demand, returns and
industry pricing assumptions.
Accrual of
Warranty Cost
We record warranty liabilities for the estimated costs that may
be incurred under limited warranties. Our warranties generally
cover product defects based on compliance with our
specifications and is normally applicable for twelve months from
the date of product delivery. These liabilities are accrued when
revenues are recognized. Warranty costs include the costs to
replace the defective products. Factors that affect our warranty
liability include historical and anticipated rates of warranty
claims on those repairs and the cost per claim to satisfy our
warranty obligations. As these factors are impacted by actual
experience and future expectations, we periodically assess the
adequacy of our recorded warranty liabilities and adjust the
amounts as necessary.
Inventory
Valuation
Inventories are valued at the lower of cost or market, using the
average method, which approximates the first in, first out
method. Because of the cyclical nature of the semiconductor
industry, changes in inventory levels, obsolescence of
technology and product life cycles, we write down inventories to
net realizable value. When there is a difference in the carrying
value and the net realizable value the difference is recognized
as a loss on valuation of inventories within cost of sales. We
estimate the net realizable value for such finished goods and
work-in-progress
based primarily upon the latest invoice prices and current
market conditions.
We employ a variety of methodologies to determine the amount of
inventory reserves necessary. While a portion of the reserve is
determined based upon the age of inventory and lower of cost or
market calculations, an element of the reserve is subject to
significant judgments made by us about future demand for our
inventory. For example, reserves are established for excess
inventory based on inventory levels in excess of six months of
projected demand, as judged by management, for each
80
specific product. If actual demand for our products is less than
our estimates, additional reserves for existing inventories may
need to be recorded in future periods.
In addition, as prescribed in ASC guidance on inventory costs,
the cost of inventories is determined based on the normal
capacity of each fabrication facility. If the capacity
utilization is lower than a level that management believes to be
normal, the fixed overhead costs per production unit which
exceed those which would be incurred when the fabrication
facilities are running under normal capacity are charged to cost
of sales rather than capitalized as inventories.
Long-Lived
Assets
We assess long-lived assets for impairment when events or
changes in circumstances indicate that the carrying value of the
assets or the asset group may not be recoverable. Factors that
we consider in deciding when to perform an impairment review
include significant under-performance of a business or product
line in relation to expectations, significant negative industry
or economic trends, and significant changes or planned changes
in our use of the assets. Recoverability of assets that will
continue to be used in our operations is measured by comparing
the carrying value of the asset group to our estimate of the
related total future undiscounted net cash flows. If an asset
groups carrying value is not recoverable through the
related undiscounted cash flows, the asset group is considered
to be impaired. The impairment is measured by the difference
between the asset groups carrying value and its fair value
determined by either a quoted market price, if any, or a value
determined by utilizing a discounted cash flow technique.
Impairments of long-lived assets are determined for groups of
assets related to the lowest level of identifiable independent
cash flows. We must make subjective judgments in determining the
independent cash flows that can be related to specific asset
groupings. Additionally, an evaluation of impairment of
long-lived assets requires estimates of future operating results
that are used in the preparation of the expected future
undiscounted cash flows. Actual future operating results and the
remaining economic lives of our long-lived assets could differ
from the estimates used in assessing the recoverability of these
assets.
Intangible
Assets
The fair value of our intangible assets was recorded in
connection with fresh-start reporting on October 25, 2009
and was determined based on the present value of each research
projects projected cash flows using an income approach.
Future cash flows are predominately based on the net income
forecast of each project, consistent with historical pricing,
margins and expense levels of similar products. Revenues are
estimated based on relevant market size and growth factors,
expected industry trends and individual project life cycles. The
resulting cash flows are then discounted at a rate approximating
our weighted average cost of capital.
In-process research and development, or IPR&D, is
considered an indefinite-lived intangible asset and is not
subject to amortization. IPR&D assets must be tested for
impairment annually or more frequently if events or changes in
circumstances indicate that the assets might be impaired. The
impairment test consists of a comparison of the fair value of
the IPR&D asset with its carrying amount. If the carrying
amount of the IPR&D asset exceeds its fair value, an
impairment loss must be recognized in an amount equal to that
excess. After an impairment loss is recognized, the adjusted
carrying amount of the IPR&D asset will be its new
accounting basis. Subsequent reversal of a previously recognized
impairment loss is prohibited. The initial determination and
subsequent evaluation for impairment of the IPR&D asset
requires management to make significant judgments and estimates.
Once the IPR&D projects have been completed or abandoned,
the useful life of the IPR&D asset is determined and
amortized accordingly.
Technology, customer relationships and intellectual property
assets are considered definite-lived assets and are amortized on
a straight-line basis over their respective useful lives,
ranging from 4 to 10 years.
81
Income
Taxes
We account for income taxes in accordance with ASC guidance
addressing accounting for income taxes. The guidance requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in a companys financial statements or tax
returns. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial
statement carrying values and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense
is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
We regularly review our deferred tax assets for recoverability
considering historical profitability, projected future taxable
income, the expected timing of the reversals of existing
temporary differences and expiration of tax credits and net
operating loss carry-forwards. We established valuation
allowances for deferred tax assets at most of our subsidiaries
since, other than with respect to one particular subsidiary, it
is not probable that a majority of the deferred tax assets will
be realizable. The valuation allowance at this particular
subsidiary was not established since it is more likely than not
that the deferred tax assets at this subsidiary will be
realizable based on the current prospects for its future taxable
income.
Changes in our evaluation of our deferred income tax assets from
period to period could have a significant effect on our net
operating results and financial condition.
In addition, beginning January 1, 2007, we account for
uncertainties related to income taxes in compliance with ASC
guidance on uncertain tax positions. Under this guidance, we
evaluate our tax positions taken or expected to be taken in a
tax return for recognition and measurement on our consolidated
financial statements. Only those tax positions that meet the
more likely than not threshold are recognized on the
consolidated financial statements at the largest amount of
benefit that has a greater than 50 percent likelihood of
ultimately being realized. Assumptions, judgment and the use of
estimates are required in determining if the more likely
than not standard has been met when developing the
provision for income taxes. A change in the assessment of the
more likely than not standard could materially
impact our consolidated financial statements.
Accounting for
Unit-based Compensation
In 2006, we adopted ASC guidance addressing accounting for
unit-based compensation based on a fair value method. Under this
guidance, unit-based compensation cost is estimated at the grant
date based on the fair value of the award and is recognized as
expense over the requisite service period of the award. We use
the Black-Scholes option pricing model to value unit options. In
developing assumptions for fair value calculation under the
guidance, we use estimates based on historical data and market
information. A small change in the assumptions used in the
estimate can cause a relatively significant change in the fair
value calculation.
The determination of the fair value of our common units on each
grant date was a two-step process. First, management estimated
our enterprise value in consultation with such advisers as we
deemed appropriate. Second, this business enterprise value was
allocated to all sources of capital invested in us based on each
type of securitys respective rights and claims to our
total business enterprise value. This allocation included a
calculation of the fair value of our common units on a
non-marketable basis. The business enterprise value was
determined based on an income approach and a market approach
using the revenue multiples of comparable companies, giving
appropriate weight to each approach. The income approach was
based on the discounted cash flow method and an estimated
weighted average cost of capital.
Determination of the fair value of our common units involves
complex and subjective judgments regarding projected financial
and operating results, our unique business risks, the liquidity
of our units
82
and our operating history and prospects at the time of grant. If
we make different judgments or adopt different assumptions,
material differences could result in the amount of the
share-based compensation expenses recorded because the estimated
fair value of the underlying units for the options granted would
be different.
Fresh-Start
Reporting
As required by GAAP, in connection with emergence from
Chapter 11 reorganization proceedings, we adopted the
fresh-start accounting provisions of ASC 852 effective
October 25, 2009. Under ASC 852, the reorganization
value represents the fair value of the entity before considering
liabilities and approximates the amount a willing buyer would
pay for our assets immediately after restructuring. The
reorganization value is allocated to the respective assets.
Liabilities, other than deferred taxes and severance benefits,
are stated at present values of amounts expected to be paid.
Fair values of assets and liabilities represent our best
estimates based on our appraisals and valuations which
incorporated industry data and trends and relevant market rates
and transactions. These estimates and assumptions are inherently
subject to significant uncertainties and contingencies beyond
our reasonable control.
Controls and
Procedures
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and is
effected by the companys board of directors, management,
and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements in accordance with generally accepted
accounting principles. As a private company we have designed our
internal control over financial reporting to provide reasonable
assurance to our management and board of directors regarding the
preparation and fair presentation of financial statements. As a
public company, under Section 404 of the Sarbanes-Oxley
Act, we will also be required to include a report of management
on our internal control over financial reporting in our Annual
Reports on Form
10-K and the
independent registered public accounting firm auditing our
financial statements must attest to and report on the
effectiveness of our internal control over financial reporting.
This requirement will first apply to our Annual Report on Form
10-K for our
fiscal year ending December 31, 2011. All internal control
systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
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 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 our controls over non-routine transactions are
not effective to ensure that accounting considerations are
identified and appropriately recorded.
Our management and our board of directors agree that the control
deficiencies identified by our independent registered public
accounting firm represent a material weakness. 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 new director of financial reporting
to increase the number of our financial personnel with the
requisite financial accounting expertise. These actions are
subject to ongoing senior management review, as well as audit
committee oversight. We do not know the specific timeframe
needed to remediate this material weakness. We may incur
significant incremental costs associated with this remediation.
83
BUSINESS
Our
Business
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 2,550 registered novel patents and
1,050 pending novel patent applications 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 that cover 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 combined twelve-month period 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 $560.1 million, income from continuing operations of
$46.7 million, Adjusted EBITDA of $98.7 million and Adjusted Net
Income of $33.7 million. 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. For 2008, we generated net sales of $601.7
million, losses from continuing operations of $325.8 million,
Adjusted EBITDA of $59.8 million and Adjusted Net Loss of $71.7
million. See Unaudited Pro Forma Consolidated Financial
Information beginning on page 48 for an explanation
regarding our pro forma presentation and Prospectus
SummarySummary Historical and Unaudited Pro Forma
Consolidated Financial Data, beginning on page 9 for an
explanation of our use of Adjusted EBITDA and Adjusted Net
Income.
Market
Opportunity
The consumer electronics market is large and growing rapidly.
Growth in this market is being driven by consumers seeking to
enjoy a wide variety of available rich media content, such as
high definition audio and video, mobile television and games.
Consumer electronics manufacturers recognize that the consumer
entertainment experience plays a critical role in
differentiating their products. To address and further stimulate
consumer demand, electronics manufacturers have been driving
rapid advances in the technology, functionality, form factor,
cost, quality, reliability and power consumption of their
products. Electronics manufacturers are continuously
implementing advanced
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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. These advanced
generations of consumer devices are growing faster than the
overall consumer electronics market. For example, according to
Gartner, production of LCD televisions, smartphones, mobile 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.
The user experience delivered by a consumer electronic device is
substantially driven by the quality of the display, audio and
video processing capabilities and power efficiency of the
device. Analog and mixed-signal semiconductors enable and
enhance these capabilities. Examples of these analog and
mixed-signal semiconductors include display drivers, timing
controllers, audio encoding and decoding devices, or codecs, and
interface circuits, as well as power management semiconductors
such as voltage regulators, converters, and switches. According
to iSuppli, in 2009, the display driver semiconductor market was
$6.0 billion and the power management semiconductor market
was $21.9 billion.
Requirements of
Leading Consumer Electronics Manufacturers
We believe our target customers view the following
characteristics and capabilities as key differentiating factors
among available analog and mixed-signal semiconductor suppliers
and manufacturing service providers:
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Broad Offering of Differentiated Products with Advanced
System-Level Features and Functions. Leading
consumer electronics manufacturers seek to differentiate their
products by incorporating innovative semiconductor products that
enable unique system-level functionality and enhance
performance. These consumer electronics manufacturers seek to
closely collaborate with semiconductor solutions providers that
continuously develop new and advanced products, technologies,
and manufacturing processes that enable state of the art
features and functions, such as bright and thin displays, small
form factor and energy efficiency.
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Fast Time to Market with New
Products. As a result of rapid technological
advancements and short product lifecycles, our target customers
typically prefer suppliers who have a compelling pipeline of new
products and can leverage a substantial intellectual property
and technology base to accelerate product design and
manufacturing when needed.
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Nimble, Stable and Reliable Manufacturing
Services. Fabless semiconductor providers who
rely on external manufacturing services often face rapidly
changing product cycles. If these fabless companies are unable
to meet the demand for their products due to issues with their
manufacturing services providers, their profitability and market
share can be significantly impacted. As a result, they prefer
semiconductor manufacturing services providers who can increase
production quickly and meet demand consistently through periods
of constrained industry capacity. Furthermore, many fabless
semiconductor providers serving the consumer electronics and
industrial sectors need specialized analog and mixed-signal
manufacturing capabilities to address their product performance
and cost requirements.
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Ability to Deliver Cost Competitive
Solutions. Electronics manufacturers are
under constant pressure to deliver cost competitive solutions.
To accomplish this objective, they need strategic semiconductor
suppliers that have the ability to provide system-level
solutions, highly integrated products, a broad product offering
at a range of price points and have the design and manufacturing
infrastructure and logistical support to deliver cost
competitive products.
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Focus on Delivering Highly Energy Efficient
Products. Consumers increasingly seek longer
run time, environmentally friendly and energy efficient consumer
electronic products. In
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addition, there is increasing regulatory focus on reducing
energy consumption of consumer electronic products. For
instance, the California Energy Commission recently adopted
standards that require televisions sold in California to consume
33% less energy by 2011 and 49% less energy by 2013. As a result
of global focus on more environmentally friendly products, our
customers are seeking analog and mixed-signal semiconductor
suppliers that have the technological expertise to deliver
solutions that satisfy these ever increasing regulatory and
consumer power efficiency demands.
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Our Competitive
Strengths
Designing and manufacturing analog and mixed-signal
semiconductors capable of meeting the evolving functionality
requirements for consumer electronics devices is challenging. In
order to grow and succeed in the industry, we believe
semiconductor suppliers must have a broad, advanced intellectual
property portfolio, product design expertise, comprehensive
product offerings and specialized manufacturing process
technologies and capabilities. Our competitive strengths enable
us to offer our customers solutions to solve their key
challenges. We believe our strengths include:
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Advanced Analog and Mixed-Signal Semiconductor Technology
and Intellectual Property Platform. We
believe we have one of the broadest and deepest analog and
mixed-signal semiconductor technology platforms in the industry.
Our long operating history, large patent portfolio, extensive
engineering and manufacturing process expertise and wide
selection of analog and mixed-signal intellectual property
libraries allow us to leverage our technology and develop new
products across multiple end markets. Our product development
efforts are supported by a team of approximately 391 engineers.
Our platform allows us to develop and introduce new products
quickly as well as to integrate numerous functions into a single
product. For example, we were one of the first companies to
introduce a commercial AMOLED display driver for mobile phones.
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Established Relationships and Close Collaboration with
Leading Global Electronics Companies. We have
a long history of supplying and collaborating on product and
technology development with leading innovators in the consumer
electronics market, such as LG Display, Sharp and Samsung. Our
close customer relationships have been built based on many years
of close collaborative product development which provides us
with deep system level knowledge and key insights into our
customers needs. As a result, we are able to continuously
strengthen our technology platform in areas of strategic
interest for our customers and focus on those products and
services that our customers and end consumers demand the most.
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Longstanding Presence in Asia and Proximity to Global
Consumer Electronics Supply Chain. Our
presence in Asia facilitates close contact with our customers,
fast response to their needs and enhances our visibility into
new product opportunities, markets and technology trends.
According to Gartner, semiconductor consumption in Asia,
excluding Japan, has increased from 49% of global production in
2004 to 60% in 2009 and is projected to grow to 65% by 2013. Our
substantial manufacturing operations in Korea and design centers
in Korea and Japan place us close to many of our largest
customers and to the core of the global consumer electronics
supply chain. We have active applications, engineering, product
design, and customer support resources, as well as senior
management and marketing resources, in geographic locations
close to our customers. This allows us to strengthen our
relationship with customers through better service, faster
turnaround time and improved product design collaboration. We
believe this also helps our customers to deliver products faster
than their competitors and to solve problems more efficiently
than would be possible with other suppliers.
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Broad Portfolio of Product and Service Offerings Targeting
Large, High-Growth Markets. We continue to
develop a wide variety of analog and mixed-signal semiconductor
solutions for multiple high-growth consumer electronics end
markets. We believe our expanding product and
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service offerings allow us to provide additional products to new
and existing customers and to cross-sell our products and
services to our established customers. For example, we have
leveraged our technology expertise and customer relationships to
develop and grow a new business offering power management
solutions to customers. Our power management solutions enable
our customers to increase system stability and reduce heat
dissipation and energy use, resulting in cost savings for our
customers, as well as environmental benefits. We have been able
to sell these new products to our existing customers as well as
expand our customer base.
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Distinctive Analog and Mixed-Signal Process Technology
Expertise and Manufacturing Capabilities. We
have developed specialty analog and mixed-signal manufacturing
processes such as high voltage CMOS, power and embedded memory.
These processes enable us to flexibly ramp mass production of
display, power and mixed-signal products, and shorten the
duration from design to delivery of highly integrated,
high-performance analog and mixed-signal semiconductors. As a
result of the depth of our process technology, captive
manufacturing facilities and customer support capabilities, we
believe the majority of our top twenty manufacturing services
customers by revenue currently use us as their primary
manufacturing source for the products that we manufacture for
them.
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Highly Efficient Manufacturing
Capabilities. Our manufacturing strategy is
focused on maintaining the price competitiveness of our products
and services through our low-cost operating structure. We
believe the location of our primary manufacturing and research
and development facilities in Asia and relatively low required
ongoing capital expenditures provide us with a number of cost
advantages. We offer specialty analog process technologies that
do not require substantial investment in leading edge, smaller
geometry process equipment. We are able to utilize our
manufacturing base over an extended period of time and thereby
minimize our capital expenditure requirements. Our internal
manufacturing facilities serve both our solutions products and
manufacturing services customers, allowing us to optimize our
asset utilization and improve our operational efficiency.
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Strong Financial Model with a Low-Cost
Structure. We have executed a significant
restructuring over the last 18 months, which combined with
our relatively low capital investment requirements, has 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 the fluctuations
in the economy and our markets. In addition, the long lifecycles
of our manufacturing processes, equipment and facilities allow
us to keep our new capital requirements relatively low. We
believe that our low-cost but highly skilled design and support
engineers and manufacturing base position us favorably to
compete in the marketplace and provide operating leverage in our
operating model.
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Our
Strategy
Our objective is to grow our business, our cash flow and
profitability and to establish our position as a leading
provider of analog and mixed-signal semiconductor products and
services for high-volume markets. Our business strategy
emphasizes the following key elements:
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Leverage Our Advanced Analog and Mixed-Signal Technology
Platform to Innovate and Deliver New Products and
Services. We intend to continue to utilize
our extensive patent and technology portfolio, analog and
mixed-signal design and manufacturing expertise and specific
end-market applications and system-level design expertise to
deliver products with high levels of performance by utilizing
our systems expertise and leveraging our deep knowledge of our
customers needs. For example, we have recently utilized
our extensive patent portfolio, process technologies and analog
and mixed-signal technology platform to develop cost-effective
Super Junction MOSFETs as well as low power integrated power
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solutions for AC-DC offline switchers to address more of our
customers needs. In Display Solutions, we continue to
invest in research and development to introduce new technologies
to support our customers technology roadmaps such as their
transition to 240Hz 3D LED televisions. In Semiconductor
Manufacturing Services, we are developing cost-effective
processes that substantially reduce die size using deep trench
isolation.
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Increase Business with Existing
Customers. We have a global customer base
consisting of leading consumer electronics OEMs such as LG
Display, Sharp and Samsung who sell into multiple end markets.
We intend to continue to strengthen our relationships with our
customers by collaborating on critical design and product
development in order to improve our design win rates. We will
seek to increase our customer penetration by more closely
aligning our product roadmap with those of our key customers and
by taking advantage of our broad product portfolio, our deep
knowledge of customer needs and existing relationships to sell
more existing and new products. For example, two of our largest
display driver customers have display modules in production
using our power management products. These power management
products have been purchased and evaluated via their key
subcontractors for LCD backlight units and LCD integrated power
supplies.
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Broaden Our Customer Base. We expect to
continue to expand our global design centers, local application
engineering support and sales presence, particularly in China,
Hong Kong, Taiwan and Macau, or collectively, Greater China, and
other high-growth geographies, to penetrate new accounts. In
addition, we intend to introduce new products and variations of
existing products to address a broader customer base. In order
to broaden our market penetration, we are complementing our
direct customer relationships and sales with an expanded base of
distributors, especially to aid the growth of our power
management business. We expect to continue to expand our
distribution channels as we broaden our power management
penetration beyond existing customers.
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Aggressively Grow the Power
Business. We have utilized our extensive
patent portfolio, process technologies, captive manufacturing
facilities and analog and mixed-signal technology platform to
develop power management solutions that expand our market
opportunity and address more of our customers needs. We
intend to increase the pace of our new power product
introductions by continuing to collaborate closely with our
industry-leading customers. For example, we recently began mass
production of our first integrated power solution for LCD
televisions at one of our major Korean customers. We also intend
to capitalize on the market needs and regulatory requirements
for power management products that reduce energy consumption of
consumer electronic products by introducing products that are
more energy efficient than those of competitors. We believe our
integrated designs, unique low-cost process technologies and
deep customer relationships will enable us to increase sales of
our power solutions to our current power solutions customers,
and as an extension of our other product offerings, to our other
customers.
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Drive Execution Excellence. We have
significantly improved our execution through a number of
management initiatives implemented under the direction of our
Chief Executive Officer and Chairman, Sang Park. As an example,
we have introduced new processes for product development,
customer service and personnel development. We expect these
ongoing initiatives will continue to improve our new product
development and customer service as well as enhance our
commitment to a culture of quick action and execution by our
workforce. In addition, we have focused on and continually
improved our manufacturing efficiency during the past several
years. As a result of our focus on execution excellence, we have
also meaningfully reduced our time from new product definition
to development completion. For example, we have improved our
average development turnaround time by over 40% over the last
three years for semiconductor manufacturing services by
implementing continuous business process improvement initiatives
and we improved our manufacturing productivity per operator by
22% from the fourth quarter of 2008 to the fourth quarter of
2009.
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Optimize Asset Utilization, Return on Capital Investments
and Cash Flow Generation. We intend to keep
our capital expenditures relatively low by maintaining our focus
on specialty process technologies that do not require
substantial investment in frequent upgrades to the latest
manufacturing equipment. We also believe our power management
business should increase our utilization and return on capital
as the manufacturing of these products primarily relies on our
0.35µm geometry and low-cost equipment. By utilizing our
manufacturing facilities for both our display solutions and
power solutions products and our semiconductor manufacturing
services customers, we will seek to maximize return on our
capital investments and our cash flow generation.
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Our
Technology
We continuously strengthen our advanced analog and mixed-signal
semiconductor technology platform by developing innovative
technologies and integrated circuit building blocks that enhance
the functionality of consumer electronics products through
brighter displays, enhanced image quality, smaller form factor
and longer battery life. We seek to further build our technology
platform through proprietary research and development and
selective licensing and acquisition of complementary
technologies, as well as disciplined process improvements in our
manufacturing operations. Our goal is to leverage our experience
and development initiatives across multiple end markets and
utilize our understanding of system-level issues our customers
face to introduce new technologies that enable our customers to
develop more advanced, higher performance products.
Our display technology portfolio includes building blocks for
display drivers and timing controllers, processor and interface
technologies, as well as sophisticated production techniques,
such as
chip-on-glass,
or COG, which enables the manufacture of thinner displays. Our
advanced display drivers incorporate LTPS and AMOLED panel
technologies that enable the highest resolution displays.
Furthermore, we are developing a broad intellectual property
portfolio to improve the power efficiency of displays, including
the development of our smart mobile luminance control, or SMLC,
algorithm.
We have a long history of specialized process technology
development and have a number of distinctive process
implementations. We have approximately 200 process flows we can
utilize for our products and offer to our semiconductor
manufacturing services customers. Our process technologies
include standard CMOS, high voltage CMOS, ultra-low leakage high
voltage CMOS and BCDMOS. Our manufacturing processes incorporate
embedded memory solutions such as static random access memory,
or SRAM, one-time programmable, or OTP, memory, multiple-time
programmable, or MTP, memory, electronically erasable
programmable read only memory, or EEPROM, and single-transistor
random access memory, or 1TRAM. More broadly, we focus
extensively on processes that reduce die size across all of the
products we manufacture, in order to deliver cost-effective
solutions to our customers.
Expertise in high voltage and deep trench BCDMOS process
technologies, low power analog and mixed-signal design
capabilities and packaging know-how are key requirements in the
power management market. We are currently leveraging our
capabilities in these areas with products such as DC-DC
converters, linear regulators, including LDO, regulators and
analog switches, and power MOSFETs. We believe our system level
understanding of applications such as LCD televisions and mobile
phones will allow us to more quickly develop and customize power
management solutions for our customers in these markets.
Our Products and
Services
Our broad portfolio of products and services addresses multiple
high-growth, consumer-focused end markets. A key component of
our product strategy is to supply multiple related product and
service offerings to each of the end markets that we serve.
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Display
Solutions
Display Driver Characteristics. Display
drivers deliver defined analog voltages and currents that
activate pixels to exhibit images on displays. The following key
characteristics determine display driver performance and
end-market application:
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Resolution and Number of
Channels. Resolution determines the level of
detail displayed within an image and is defined by the number of
pixels per line multiplied by the number of lines on a display.
For large displays, higher resolution typically requires more
display drivers for each panel. Display drivers that have a
greater number of channels, however, generally require fewer
display drivers for each panel and command a higher selling
price per unit. Mobile displays, conversely, are typically
single chip solutions designed to deliver a specific resolution.
We cover resolutions ranging from QVGA (240RGB x 320) to
QHD (960RGB x 540).
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Color Depth. Color depth is the number
of colors that can be displayed on a panel. For example, for
TFT-LCD panels, 262 thousand colors are supported by 6-bit
source drivers; 16 million colors are supported by 8-bit
source drivers; and 1 billion colors are supported by
10-bit and 12-bit source drivers.
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Operational Voltage. Display drivers
are characterized by input and output voltages. Source drivers
typically operate at input voltages from 2.0 to 3.6 volts and
output voltages between 4.5 and 18 volts. Gate drivers typically
operate at input voltages from 2.0 to 3.6 volts and output
voltages of up to 40 volts. Lower input voltage results in lower
power consumption and electromagnetic interference, or EMI.
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Gamma Curve. The relationship between
the light passing through a pixel and the voltage applied to the
pixel by the source driver is referred to as the gamma curve.
The gamma curve of the source driver can correct some
imperfections in picture quality in a process generally known as
gamma correction. Some advanced display drivers feature up to
three independent gamma curves to facilitate this correction.
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Driver Interface. Driver interface
refers to the connection between the timing controller and the
display drivers. Display drivers increasingly require higher
bandwidth interface technology to address the larger data
transfer rate necessary for higher definition images. The
principal types of interface technologies are
transistor-to-transistor
logic, or TTL, reduced swing differential signaling, or RSDS,
advance intra panel I/F, or AIPI, and mini-low voltage
differential signaling, or m-LVDS.
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Package Type. The assembly of display
drivers typically uses
chip-on-film,
or COF, tape carrier package, or TCP, and COG package types.
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Large Display Solutions. We provide
display solutions for a wide range of flat panel display sizes
used in LCD televisions, including high definition televisions,
or HDTVs, LED TVs, LCD monitors and mobile PCs.
Our large display solutions include source and gate drivers and
timing controllers with a variety of interfaces, voltages,
frequencies and packages to meet customers needs. These
products include advanced technologies such as high channel
count, with products under development to provide up to 960
channels. We also offer a distinctive interface technology known
as LCDS, which supports thinner displays for mobile PCs. Our
large display solutions are designed to allow customers to
cost-effectively
meet the increasing demand for high resolution displays. We
focus extensively on reducing the die size of our large display
drivers and other solutions products. For example, we have
implemented several solutions to reduce die size in display
drivers, such as optimizing design schemes and design rules and
applying specific technologies that we have developed
internally. We have recently introduced a number of new large
display drivers with reduced die size.
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The table below sets forth the features of our products, both in
mass production and in customer qualification, which is the
final stage of product development, for large-sized displays:
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Product
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Key Features
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Applications
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TFT-LCD Source Drivers
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480 to 960 output channels
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LCD monitors, including
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6-bit (262 thousand colors),
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widescreens
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8-bit
(16 million colors), 10-bit
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Mobile PCs, including
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(1 billion colors)
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netbooks
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Output voltage ranging from
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Digital televisions, including
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3.3V to 18V
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LED TVs
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Low power consumption and
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low EMI
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Supports COF package types
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Supports RSDS, m-LVDS,
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AiPi* interface technologies
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Geometries of 0.18mum to
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0.22µm
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TFT-LCD Gate Drivers
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272 to 768 output channels
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LCD monitors, including
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Output voltage ranging up to
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widescreens
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40V
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Mobile PCs, including
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Supports COF and COG
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netbooks
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package types
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Digital televisions, including
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Geometries of 0.35µm
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LED TVs
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Timing Controllers
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Product portfolio supports a
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LCD monitors, including
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wide range of resolutions
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widescreens
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Supports m-LVDS interface
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Mobile PCs, including
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technologies
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netbooks
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Input voltage ranging from
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2.3V to 3.6V
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Geometries of 0.18µm
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In customer qualification stage |
Mobile Display Solutions. Our mobile
display solutions incorporate the industrys most advanced
display technologies, such as LTPS and AMOLED, as well as
high-volume technologies such as a-Si (amorphous silicon) TFT.
Our mobile display products offer specialized capabilities,
including high speed serial interfaces, such as mobile display
digital interface, or MDDI, and mobile industry processor
interface, or MIPI, as well as multi-time programmable, or MTP,
memories, using EEPROM and logic-based OTP memory. Further, we
are building a distinctive intellectual property portfolio that
allows us to provide features that reduce power consumption,
such as SMLC, ambient light-based brightness control, or LABC,
automatic brightness control, or ABC, and automatic current
limit, or ACL. This intellectual property portfolio will also
support our power management product development initiatives, as
we leverage our system level understanding of power efficiency.
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The following table summarizes the features of our products,
both in mass production and in customer qualification, which is
the final stage of product development, for mobile displays:
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Product
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Key Features
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Applications
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LTPS
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Resolutions of QVGA,
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Mobile phones
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WQVGA, VGA, NHD*, SVGA
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Digital still cameras
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Color depth ranging from 262
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thousand to 16 million
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MDDI, MIPI interface
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EEPROM and logic-based
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OTP, separated gamma
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control
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AMOLED
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Resolutions of WQVGA,
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Mobile phones
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HVGA, NHD*, WVGA, QHD
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Game consoles
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Color depth ranging from 262
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Digital still cameras
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thousand to 16 million
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Personal digital assistants
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Geometries of 0.11µm to
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Portable media players
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0.15µm
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MDDI, MIPI interface
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EEPROM and logic-based
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OTP
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ABC, ACL, Pentile
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a-Si TFT
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Resolutions of QVGA,
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Mobile phones
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WQVGA, HVGA, WVGA,
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Game consoles
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WSVGA, HD
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Netbooks
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Color depth ranging from 262
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Portable navigation devices
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thousand to 16 million
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MDDI, MIPI interface
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Content adaptive brightness
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control, or CABC
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LVDS,
I2C*,
DCDC*
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Separated gamma control
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In customer qualification stage |
Power
Solutions
We develop, manufacture and market power management solutions
for a wide range of end market customers. The products include
MOSFETs, LED Drivers, DC-DC converters, analog switches and
linear regulators, such as LDOs.
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MOSFET. Our MOSFETs include low-voltage
Trench MOSFETs, 20V to 100V, and high-voltage Planar MOSFETs,
400V through 600V. MOSFETs are used in applications to switch,
shape or transfer electricity under varying power requirements.
The key application segments are mobile phones, LCD televisions,
desktop computers and power supplies for consumer electronics
and industrial equipment. MOSFETs allow electronics
manufacturers to achieve specific design goals of high
efficiency and low standby power consumption. For example,
computing solutions focus on delivering efficient controllers
and MOSFETs for power management in VCORE, DDR and chipsets for
audio, video and graphics processing systems.
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LED Drivers. LED driver solutions serve
the fast-growing LCD panel backlighting market for LCD
televisions and mobile PCs. Our products are designed to provide
high efficiency and wide input voltage range as well as PWM
dimming for accurate white LED dimming control.
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DC-DC Converters. We plan to release
DC-DC converters targeting mobile applications and high power
applications like LCD televisions, set-top boxes, DVD/Blu-ray
players and display modules. We expect our DC-DC converters will
meet customer green power requirements by featuring wide input
voltage ranges, high efficiency and small size.
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Analog Switches and Linear
Regulators. We also provide analog switches
and linear regulators for mobile applications. Our products are
designed for high efficiency and low power consumption in mobile
applications.
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Our power management solutions enable customers to increase
system stability and reduce heat dissipation and energy use,
resulting in cost savings for our customers and consumers, as
well as environmental benefits. Our in-house process technology
capabilities and eight-inch wafer production lines increase
efficiency and contribute to the competitiveness of our products.
The following table summarizes the features of our products,
both in mass production and in customer qualification, which is
the final stage of product development:
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Product
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Key Features
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Applications
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Low Voltage MOSFET
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Vds(V)
options of 20V100V
|
|
Mobile phones
|
|
|
Rds(on)
options of Max 5m
|
|
Desktop computers
|
|
|
Ω50m Ω at 10V
|
|
Mobile PCs
|
|
|
Advanced 0.35µm Trench
|
|
Digital TVs
|
|
|
MOSFET Process
|
|
|
|
|
High cell density of
|
|
|
|
|
268Mcell/inch2
|
|
|
|
|
Advanced packages to enable
|
|
|
|
|
reduction of PCB mounting
|
|
|
|
|
area
|
|
|
High Voltage MOSFET
|
|
Voltage options of 400, 500,
|
|
Power supplies for consumer
|
|
|
and 600V
|
|
electronics
|
|
|
Drain current options of
|
|
Industrial charger and
|
|
|
1A18A.
|
|
adaptors
|
|
|
Rds(on)
options of
0.22~8.0*
|
|
Lighting (ballast, HID, LED)
|
|
|
Ω (typical)
|
|
Industrial equipment
|
|
|
R2FET
(rapid recovery) option
|
|
|
|
|
to shorten reverse diode
|
|
|
|
|
recovery time
|
|
|
|
|
Zenor FET option for
|
|
|
|
|
MOSFET protection for
|
|
|
|
|
abnormal input
|
|
|
|
|
Advanced 0.50µm Planar
|
|
|
|
|
MOSFET Process
|
|
|
LED Drivers
|
|
High efficiency, wide input
|
|
LED backlights
|
|
|
voltage range
|
|
|
|
|
Proven 0.35mum BCDMOS
|
|
|
|
|
process
|
|
|
|
|
40V modular BCDMOS
|
|
|
|
|
OCP, SCP, OVP and UVLO
|
|
|
|
|
protections
|
|
|
|
|
Accurate LED current control
|
|
|
|
|
and multi-channel matching
|
|
|
|
|
Programmable current limit,
|
|
|
|
|
boost up frequency
|
|
|
93
|
|
|
|
|
Product
|
|
Key Features
|
|
Applications
|
|
DC-DC Converters*
|
|
High efficiency, wide input voltage range
|
|
LCD TVs
Set-top boxes
|
|
|
Proven 0.35µm BCDMOS process
|
|
DVD/Blu-ray players
|
|
|
30V modular BCDMOS
|
|
|
|
|
Fast load and line regulation
|
|
|
|
|
Accurate output voltage
|
|
|
|
|
OCP, SCP and thermal protections
|
|
|
Analog Switches
|
|
USB Switches
|
|
Mobile phones
|
|
|
Low
Con,
7.0pF (typical) limits signal distortion
|
|
|
|
|
Low
Ron,
4.0 Ω (typical)
|
|
|
|
|
0.35µm CMOS process
|
|
|
|
|
Audio Switches
|
|
|
|
|
Negative Swing Support
|
|
|
|
|
Low
Ron,
0.4 Ω (typical)
|
|
|
|
|
High ESD protection, 13kV
|
|
|
|
|
0.35µm CMOS process
|
|
|
Linear Regulators
|
|
Single and dual* LDOs
|
|
Mobile phones
|
|
|
Low Noise Output Linear µCap LDO
Regulator
|
|
|
|
|
2.3V to 5.5V input voltage and 150mA,
300mA* output current
|
|
|
|
|
Small package size of DFN type
|
|
|
|
|
0.35µm CMOS process
|
|
|
|
|
|
* |
|
In customer qualification stage |
Semiconductor
Manufacturing Services
We provide semiconductor manufacturing services to analog and
mixed-signal semiconductor companies. We have approximately 200
process flows we offer to our semiconductor 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 semiconductor manufacturing services offering is targeted at
customers who require differentiated, specialty analog and
mixed-signal process technologies such as high voltage CMOS,
embedded memory and power. We refer to our approach of
delivering specialized services to our customers as our
application-specific technology, or AS Tech, strategy. We
differentiate ourselves through the depth of our intellectual
property portfolio, ability to customize process technology to
meet the customers requirements effectively, long history
in this business and reputation for excellence.
Our semiconductor manufacturing services customers typically
serve high-growth and
high-volume
applications in the consumer, computing and wireless end
markets. We strive to be the primary manufacturing source for
our semiconductor manufacturing services customers.
94
Process
Technology Overview
|
|
|
|
|
Mixed-Signal. Mixed-signal process
technology is used in devices that require conversion of light
and sound into electrical signals for processing and display.
Our mixed-signal processes include advanced technologies such as
low noise process using triple gate, which uses less power at
any given performance level. MEMS process technology allows the
manufacture of components that use electrical energy to generate
a mechanical response. For example, MEMS devices are used in the
accelerometers and gyroscopes of mobile phones.
|
|
|
|
Power. Power process technology, such
as BCD, includes high voltage capabilities as well as the
ability to integrate functionality such as self-regulation,
internal protection, and other intelligent features. The unique
process features such as deep trench isolation are suited for
chip shrink and device performance enhancement.
|
|
|
|
High Voltage CMOS. High voltage CMOS
process technology facilitates the use of high voltage levels in
conjunction with smaller transistor sizes. This process
technology includes several variations, such as bipolar
processes, which use transistors with qualities well suited for
amplifying and switching applications, mixed mode processes,
which incorporate denser, more power efficient FETs, and thick
metal processes.
|
|
|
|
Non-Volatile Memory. Non-volatile
memory, or NVM, process technology enables the integration of
non-volatile memory cells that allow retention of the stored
information even when power is removed from the circuit. This
type of memory is typically used for long-term persistent
storage.
|
The table below sets forth the key process technologies in
Semiconductor Manufacturing Services currently in mass
production:
|
|
|
|
|
|
|
Process
|
|
Technology
|
|
Device
|
|
End Markets
|
|
|
|
|
|
|
|
|
Mixed-signal
|
|
0.13-0.8µm
|
|
Analog to digital converter
|
|
Consumer
|
|
|
Multipurpose
|
|
Digital to analog converter
|
|
Wireless
|
|
|
Low noise
|
|
Audio codec
|
|
Computing
|
|
|
Ultra low power
|
|
Chipset
|
|
|
|
|
Triple gate
|
|
|
|
|
Power
|
|
0.18-0.35µm
|
|
Power management
|
|
Consumer
|
|
|
aBCD
|
|
Mobile PMIC
|
|
Wireless
|
|
|
Deep Trench Isolation
|
|
LED drivers
|
|
Computing
|
|
|
Trench MOSFET
|
|
|
|
|
|
|
Planar MOSFET
|
|
|
|
|
|
|
Schottky Diode
|
|
|
|
|
|
|
Zener Diode
|
|
|
|
|
High Voltage CMOS
|
|
0.13-2.0µm
|
|
Display drivers
|
|
Consumer
|
|
|
5V-250V
|
|
CSTN drivers
|
|
Wireless
|
|
|
Bipolar, Thick Metal
|
|
|
|
Computing
|
NVM
|
|
0.18-0.5µm
|
|
Microcontroller
|
|
Consumer
|
|
|
EEPROM
|
|
Touch screen controller
|
|
Medical
|
|
|
eFlash
|
|
Electronic tag
|
|
Automotive
|
|
|
OTP
|
|
Hearing aid
|
|
|
Manufacturing and
Facilities
Our manufacturing operations consist of three fabrication
facilities located at two sites in Cheongju and Gumi in Korea.
These sites have a combined capacity of approximately 131,000
eight-inch equivalent wafers per month. We manufacture wafers
utilizing geometries ranging from 0.11 to 2.0 micron. The
Cheongju facilities have three main buildings totaling
164,058 square meters devoted
95
to manufacturing and development. The Gumi facilities have one
main building with 41,022 square meters devoted to
manufacturing, testing and packaging.
In addition to our fabrication facilities, we lease facilities
in Seoul, Korea, Cupertino, California, and Osaka, Japan. Each
of these facilities includes administration, sales and marketing
and research and development functions. We lease sales and
marketing offices at our subsidiaries in several other countries.
The ownership of our wafer manufacturing assets is an important
component of our business strategy. Maintaining manufacturing
control enables us to develop proprietary, differentiated
products and results in higher production yields, as well as
shortened design and production cycles. We believe our
facilities are suitable and adequate for the conduct of our
business for the foreseeable future and that we have sufficient
production capacity to service our business as currently
contemplated without significant capital investment.
A substantial majority of our assembly, test and packaging
services for our Display Solutions business and all of such
services for our Power Solutions business are outsourced with
the balance handled in-house. Our independent providers of these
services are located in Korea, China, Taiwan, Malaysia and
Thailand. The relative cost of outsourced services, as compared
to in-house services, depends upon many factors specific to each
product and circumstance. However, we generally incur higher
costs for outsourced services, which can result in lower margins.
We use processes that require specialized raw materials that are
generally available from a limited number of suppliers. Tape is
one of the process materials required for our display drivers.
We continue to attempt to qualify additional suppliers for our
raw materials.
Although we own our manufacturing facilities, 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 from
Hynix for an indefinite term. 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. The services agreement continues for an
indefinite term subject to each party having a right to
terminate in the event of an uncured breach by the other party.
Sales and
Marketing
We focus our sales and marketing strategy on creating and
strengthening our relationships with leading consumer
electronics OEMs, such as LG Display, Sharp and Samsung, as well
as analog and mixed-signal semiconductor companies. We believe
our close collaboration with customers allows us to align our
product and process technology development with our
customers existing and future needs. Because our customers
often service multiple end markets, our product sales teams are
organized by customers within the major geographies. We believe
this facilitates the sale of products that address multiple
end-market applications to each of our customers. Our
semiconductor manufacturing services sales teams focus on
marketing our services to analog and mixed-signal semiconductor
companies that require specialty manufacturing processes.
We sell our products through a direct sales force and a network
of authorized agents and distributors. We have strategically
located our sales and technical support offices near our
customers. Our direct sales force consists primarily of
representatives co-located with our design centers in Korea and
Japan, as well as our local sales and support offices in Greater
China and Europe. We have a network of agents and distributors
in Korea, Japan, Europe and Greater China. With the expansion of
the Power Solutions division portfolio, we expect to expand our
sales agents and distributor franchises into Europe and the
United States in 2010. On a combined basis for the ten-month
period ended October 25, 2009 and the two-month period
ended December 31, 2009, we derived 82% of net sales
96
through our direct sales force and 18% of net sales through our
network of authorized agents and distributors.
Research and
Development
Our research and development efforts focus on intellectual
property, design methodology and process technology for our
complex analog and mixed-signal semiconductor products and
services. Research and development expenses for the combined
twelve-month period ended December 31, 2009 were
$70.9 million, representing 12.7% of net sales, compared to
$89.5 million, representing 14.9% of net sales for the year
ended December 31, 2008, and $90.8 million,
representing 12.8% of net sales for the year ended
December 31, 2007.
Customers
We sell our display solutions and power solutions products to
consumer electronics OEMs as well as subsystem designers and
contract manufacturers. We sell our semiconductor manufacturing
services to analog and mixed-signal semiconductor companies. For
the combined twelve-month period ended December 31, 2009,
our ten largest customers accounted for 69% of our net sales,
and we had one customer, LG Display, representing 26% of our net
sales. Our relationships with some of our ten largest customers
were and may continue to be adversely impacted by our
reorganization proceedings. For the year December 31, 2009,
we received revenues of $59.0 million from customers in the
United States and $501.1 million from all foreign
countries, of which 61.2% was from Korea, 18.5% from Taiwan,
7.6% from Japan and 9.6% from China, Hong Kong and Macau.
Intellectual
Property
As of December 31, 2009, our portfolio of intellectual
property assets included approximately 3,300 registered patents
and 1,300 pending patent applications. Approximately 2,550 and
1,050 of our patents and pending patents are novel in that they
are not a foreign counterpart of an existing patent or patent
application. Because we file patents in multiple jurisdictions,
we additionally have approximately 1,000 registered and pending
patents that relate to identical technical claims in our base
patent portfolio. Our patents expire at various times over the
next 18 years. While these patents are in the aggregate
important to our competitive position, we do not believe that
any single registered or pending patent is material to us.
We have entered into exclusive and non-exclusive licenses and
development agreements with third parties relating to the use of
intellectual property of the third parties in our products and
our design processes, including licenses related to embedded
memory technology, design tools, process simulation tools,
circuit designs and processor cores. Some of these licenses,
including our agreements with Silicon Works Co., Ltd. and ARM
Limited, are material to our business and may be terminated
prior to the expiration of these licenses by the licensors
should we fail to cure any breach under such licenses. Our
license with Silicon Works Co., Ltd. relates to our large
display drivers and our license from ARM Limited primarily
relates to product lines in our Semiconductor Manufacturing
Services business. The loss of either license could have a
material adverse impact on our results of operations.
Additionally, in connection with the Original Acquisition, Hynix
retained a perpetual license to use the intellectual property
that we acquired from Hynix in the Original Acquisition. Under
this license, Hynix and its subsidiaries are free to develop
products that may incorporate or embody intellectual property
developed by us prior to October 2004.
Competition
We operate in highly competitive markets characterized by rapid
technological change and continually advancing customer
requirements. Although no one company competes with us in all of
our product lines, we face significant competition in each of
our market segments. Our competitors include other independent
and captive manufacturers and designers of analog and
mixed-signal
97
integrated circuits including display driver and power
management semiconductor devices, as well as companies providing
specialty manufacturing services.
We compete based on design experience, manufacturing
capabilities, the ability to service customer needs from the
design phase through the shipping of a completed product, length
of design cycle and quality of technical support and sales
personnel. Our ability to compete successfully will depend on
internal and external variables, both within and outside of our
control. These variables include the timeliness with which we
can develop new products and technologies, product performance
and quality, manufacturing yields, capacity availability,
customer service, pricing, industry trends and general economic
trends.
Employees
Our worldwide workforce consisted of 3,155 employees (full-
and part-time) as of January 31, 2010, of which 391 were
involved in sales, marketing, general and administrative, 391
were in research and development (including 207 with advanced
degrees), 74 were in quality, reliability and assurance and
2,299 were in manufacturing (comprised of 347 in engineering and
1,952 in operations). As of January 31, 2010,
2,037 employees, or approximately 64.6% of our workforce,
were represented by the MagnaChip Semiconductor Labor Union,
which is a member of the Federation of Korean Metal Workers
Trade Unions. We believe our labor relations are good.
Environmental
Our operations are subject to a variety of environmental, health
and safety laws and regulations in each of the jurisdictions in
which we operate, governing, among other things, air emissions,
wastewater discharges, the generation, use, handling, storage
and disposal of, and exposure to, hazardous substances
(including asbestos) and waste, soil and groundwater
contamination and employee health and safety. These laws and
regulations are complex, constantly changing 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 these 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, any 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.
Legal
Proceedings
We are subject to lawsuits and claims that arise in the ordinary
course of business and intellectual property litigation and
infringement claims. Intellectual property litigation and
infringement claims, in particular, could cause us to incur
significant expenses or prevent us from selling our products. We
are currently not involved in any legal proceedings the outcome
of which we believe would have a material adverse effect on our
business, financial condition or results of operations.
Segments
For a description of our business and the distribution of our
assets by geographic regions and reporting segments, see
note 23 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.
98
MANAGEMENT
Directors and
Executive Officers and Corporate Governance.
The following table is a list of the current directors and
executive officers of MagnaChip and their respective ages as of
December 31, 2009:
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Sang Park
|
|
62
|
|
Chairman of the Board of Directors and Chief Executive Officer
|
Tae Young Hwang
|
|
53
|
|
Chief Operating Officer and President
|
Brent Rowe
|
|
48
|
|
Senior Vice President, Worldwide Sales
|
Margaret Sakai
|
|
52
|
|
Senior Vice President and Chief Financial Officer
|
Heung Kyu Kim
|
|
46
|
|
Senior Vice President and General Manager, Power Solutions
Division
|
Tae Jong Lee
|
|
47
|
|
Senior Vice President and General Manager, Corporate Engineering
|
John McFarland
|
|
43
|
|
Senior Vice President, General Counsel and Secretary
|
Michael Elkins
|
|
41
|
|
Director
|
Randal Klein
|
|
44
|
|
Director
|
R. Douglas Norby
|
|
74
|
|
Director
|
Gidu Shroff
|
|
64
|
|
Director
|
Steven Tan
|
|
33
|
|
Director
|
Nader Tavakoli
|
|
51
|
|
Director
|
Sang Park, Chairman of the Board of Directors and Chief
Executive Officer. Mr. Park became our
Chairman of the board of directors and Chief Executive Officer
on January 1, 2007, after serving as President, Chief
Executive Officer and director since May 2006. Mr. Park
served as an executive fellow for iSuppli Corporation from
January 2005 to May 2006. Prior to joining iSuppli, he was
founder and president of SP Associates, a consulting services
provider for technology companies, from September 2003 to
December 2004. Mr. Park served as Chief Executive Officer
of Hynix from May 2002 to March 2003, and as Chief Operating
Officer and President of the Semiconductor Division of Hynix
from July 1999 to April 2002. Prior to his service at Hynix,
Mr. Park was Vice President of Procurement Engineering at
IBM in New York from 1995 to 1999, and he held various positions
in procurement and operations at Hewlett Packard in California
from 1979 to 1995. Our board of directors has concluded that
Mr. Park should serve as a director and as chairman of the
board of directors based on his extensive experience as an
executive, investor and director in our industry and his
experience and insight as our Chief Executive Officer.
Tae Young Hwang, Chief Operating Officer and
President. Mr. Hwang became our Chief
Operating Officer and President in November 2009. He previously
served as our Executive Vice President, Manufacturing Division,
and General Manager, Display Solutions from January 2007, and
our Executive Vice President of Manufacturing Operations from
October 2004. Prior to that time, Mr. Hwang served as
Hynixs Senior Vice President of Manufacturing Operations,
System IC, from 2002 to 2003. From 1999 to 2001, he was Vice
President of Cheongju Operations for Hynix. Mr. Hwang holds
a B.S. degree in Mechanical Engineering from Pusan National
University and an M.B.A. from Cheongju University.
Brent Rowe, Senior Vice President, Worldwide
Sales. Mr. Rowe became our Senior Vice
President, Worldwide Sales in April 2006. Prior to joining our
company, Mr. Rowe served at Fairchild Semiconductor
International, Inc., a semiconductor manufacturer, as Vice
President, Americas Sales and Marketing from August 2003 to
October 2005; Vice President, Europe Sales and Marketing from
99
August 2002 to August 2003; and Vice President, Japan Sales and
Marketing from April 2002 to August 2002. Mr. Rowe holds a
B.S. degree in Chemical Engineering from the University of
Illinois.
Margaret Sakai, Senior Vice President and Chief Financial
Officer. Ms. Sakai became our Senior
Vice President, Finance, on November 1, 2006 and our Chief
Financial Officer on April 10, 2009. Prior to joining our
company, she served as Chief Financial Officer of Asia Finance
and Vice President of Photronics, Inc., a manufacturer of
reticles and photomasks for semiconductor and microelectronic
applications, since November 2003. From June 1999 to October
2003, Ms. Sakai was Executive Vice President and Chief
Financial Officer of PKL Corporation, a photomask manufacturer.
From October 1995 to May 1999, Ms. Sakai served as Director
of Finance of Acqutek International Limited, a lead-frame
manufacturer, and from March 1992 to September 1995,
Ms. Sakai served as Financial Manager at National
Semiconductor Corporation. Ms. Sakai worked as an Audit
Supervisor at Coopers & Lybrand from January 1988 to
March 1992. Ms. Sakai is a Certified Public Accountant in
the State of California and holds a B.A. degree in Accounting
from Babson College.
Heung Kyu Kim, Senior Vice President and General Manager,
Power Solutions Division. Mr. Kim became
our Senior Vice President and General Manager, Power Solutions
Division, in July 2007. Prior to joining our company,
Mr. Kim served at Fairchild Semiconductor International,
Inc., a semiconductor manufacturer, as Vice President of the
Power Conversion Product Line from July 2003 to June 2007, and
as Director of Korea Sales and Marketing from April 1999 to June
2003. Mr. Kim holds a B.S. degree in Metallurgical
Engineering from Korea University.
Tae Jong Lee, Senior Vice President and General Manager,
Corporate Engineering. Mr. Lee became
our Senior Vice President and General Manager, Corporate
Engineering, in August 2009. He previously served as our Vice
President, Corporate Engineering from September 2007. Prior to
joining our company, Mr. Lee served as Director of the
Technology Development Division, Chartered Semiconductor
Manufacturing, in Singapore from 1999 to August 2007.
Mr. Lee holds B.S. and M.S. degrees from Seoul National
University, and a Ph.D in Physics from the University of Texas
at Dallas.
John McFarland, Senior Vice President, General Counsel and
Secretary. Mr. McFarland became our
Senior Vice President, General Counsel and Secretary in April
2006, after serving as Vice President, General Counsel and
Secretary since November 2004. Prior to joining our company,
Mr. McFarland served as a foreign legal consultant at Bae,
Kim & Lee, a law firm, from August 2003 to November
2004 and an associate at Wilson Sonsini Goodrich &
Rosati, P.C., a law firm, from August 2000 to July 2003.
Mr. McFarland holds a B.A. degree in Asian Studies,
conferred with highest distinction from the University of
Michigan, and a J.D. degree from the University of California,
Los Angeles, School of Law.
Michael Elkins,
Director. Mr. Elkins became our director
in November 2009. Mr. Elkins joined Avenue in 2004 and is
currently a Portfolio Manager of the Avenue U.S. Funds. In
such capacity, Mr. Elkins is responsible for assisting with
the direction of the investment activities of the Avenue
U.S. strategy. Due to the percentage of our equity owned or
controlled by Avenue, Avenue is considered our affiliate. Prior
to joining Avenue, Mr. Elkins was a Portfolio Manager and
Trader with ABP Investments US, Inc. While at ABP, he was
responsible for actively managing high yield investments using a
total return-special situations overlay strategy. Prior to ABP,
Mr. Elkins served as a Portfolio Manager and Trader for UBK
Asset Management, after joining the company as a High Yield
Credit Analyst. Previously, Mr. Elkins was a Credit Analyst
for both Oppenheimer & Co., Inc. and Smith Barney,
Inc. Mr. Elkins holds a B.A. in Marketing from George
Washington University and an M.B.A. in Finance from the Goizueta
Business School at Emory University. Our board of directors has
concluded that Mr. Elkins should serve on the board based
upon his extensive investing and management experience,
including more than 15 years of management experience in the
investment management sector, as well as prior and ongoing
active board service for other Avenue portfolio companies.
100
Randal Klein, Director. Mr. Klein
became our director in November 2009. Mr. Klein joined
Avenue, our affiliate, in 2004 and is currently a Senior Vice
President of the Avenue U.S. Funds. In such capacity,
Mr. Klein is responsible for identifying, analyzing and
modeling investment opportunities for the Avenue
U.S. strategy. Prior to joining Avenue, Mr. Klein was
a Senior Vice President at Lehman Brothers, where his
responsibilities included restructuring advisory work, financial
sponsors coverage, mergers and acquisitions and corporate
finance. Prior to Lehman, Mr. Klein worked in sales,
marketing and engineering as an aerospace engineer for The
Boeing Company. Mr. Klein holds a B.S. in Aerospace
Engineering, conferred with Highest Distinction from the
University of Virginia, and an M.B.A. in Finance from the
Wharton School of the University of Pennsylvania. Our board of
directors has concluded that Mr. Klein should serve on the
board based upon his extensive experience in finance, accounting
and investing.
R. Douglas Norby, Director and Chairman of the Audit
Committee. Mr. Norby became our director and
Chairman of the Audit Committee in March 2010. Mr. Norby retired
from full time employment in October 2008. Mr. Norby previously
served as our director and Chairman of the Audit Committee from
May 2006 until October 2008. Mr. Norby served as Senior Vice
President and Chief Financial Officer of Tessera Technologies,
Inc., a public semiconductor intellectual property company, from
July 2003 to January 2006. Mr. Norby worked as a management
consultant with Tessera from May 2003 until July 2003. Mr. Norby
served as Chief Financial Officer of Zambeel, Inc., a data
storage systems company, from March 2002 until February 2003,
and as Senior Vice President and Chief Financial Officer of
Novalux, Inc., an optoelectronics company, from December 2000 to
March 2002. Prior to his tenure with Novalux, Inc., Mr. Norby
served as Executive Vice President and Chief Financial Officer
of LSI Logic Corporation from November 1996 to December 2000.
Mr. Norby is a director of Alexion Pharmaceuticals, Inc. and
STATS ChipPAC Ltd. Mr. Norby received a B.A. degree in Economics
from Harvard University and an M.B.A. from Harvard Business
School. Our board of directors has concluded that Mr. Norby
should serve on our board based upon his extensive experience as
a chief financial officer, his extensive experience in
accounting and his experience as a public company director and
audit committee chair.
Gidu Shroff, Director. Mr. Shroff
became our director in March 2010. Mr. Shroff retired from full
time employment in July 2009. Mr. Shroff served in various
positions at Intel Corporation from 1980 to July 2009. He served
as a Corporate Vice President from January 2002 to July 2009, as
Vice President of Materials from December 1997 to January 2002,
and as General Manager of Outsourcing from January 1990 until
December 1997. Mr. Shroff holds a B.S. in Metallurgy from
Poona Engineering University in India, an M.S. in Materials
Science from Stanford University and an M.B.A. from Santa Clara
University. Our board of directors has concluded that Mr. Shroff
should serve on the board based upon his extensive experience in
the semiconductor industry.
Steven Tan, Director. Mr. Tan
became our director in November 2009. Mr. Tan joined
Avenue, our affiliate, in 2005 and is currently a Vice President
of the Avenue U.S. Funds. In such capacity, Mr. Tan is
responsible for identifying and analyzing investment
opportunities in the technology and telecommunications sectors
for the Avenue U.S. strategy. Previously, Mr. Tan was a
research analyst in the Avenue Event Driven Group where he was
responsible for investments related to long/short equity,
special situations and risk arbitrage. Prior to Avenue,
Mr. Tan worked at Wasserstein Perella & Co., an
investment and merchant bank, where he was a Mergers &
Acquisitions analyst with the Industrial Group focusing on the
automotive and industrial sectors. Mr. Tan holds a B.A. in
Mathematics and Economics from Wesleyan University and an M.B.A.
from the Harvard Business School. Our board of directors has
concluded that Mr. Tan should serve on the board based on
his extensive experience in finance and accounting and his
experience as an investor in the technology sector.
Nader Tavakoli,
Director. Mr. Tavakoli became our
director in November 2009. Mr. Tavakoli has been Chairman
and Chief Executive Officer of EagleRock Capital Management, a
private investment firm based in New York City since January
2002. Prior to founding EagleRock, Mr. Tavakoli was a
portfolio manager at Odyssey Partners, Highbridge Capital and
Cowen and Co. Mr. Tavakoli
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holds a B.A. in History from Montclair State University and a
J.D. from Rutgers School of Law. Our board of directors has
concluded that Mr. Tavakoli should serve on the board based
upon his extensive investing experience.
Involvement in
Certain Legal Proceedings
Sang Park was the Chairman of our board of directors and Chief
Executive Officer and Tae Young Hwang, Brent Rowe, Margaret
Sakai, Heung Kyu Kim, Tae Jong Lee and John McFarland were each
officers during our Chapter 11 reorganization proceedings. R.
Douglas Norby was one of our directors until September 2008. Mr.
Norby was also an officer of Novalux, Inc., a private company,
which filed a voluntary petition for reorganization under
Chapter 11 in March 2003, approximately one year after Mr.
Norbys departure from Novalux, Inc.
Board
Composition
Our bylaws will provide that our board of directors will consist
of seven members. Mr. Park, our Chief Executive Officer, is
the Chairman of our board of directors. Messrs. Elkins,
Klein, and Tan have been designated to serve on our board by our
largest equity holder, which consists of funds affiliated with
Avenue Capital Management II, L.P. Avenue has the right to
appoint a majority of our board pursuant to our Fifth Amended
and Restated Limited Liability Company Operating Agreement which
will terminate upon the completion of the corporate conversion.
Messrs. Norby, Shroff and Tavakoli serve as independent
directors elected by the affirmative vote of holders of more
than 50% of our outstanding common equity. A majority of our
board is not currently independent as defined under SEC and NYSE
rules.
Upon the completion of this offering, our board of directors
will be divided into three classes with staggered three-year
terms as follows:
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Class I directors will be Messrs. Norby and Shroff,
and their terms will expire at the annual general meeting of
stockholders to be held in 2011;
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Class II directors will be Messrs. Klein and Tavakoli,
and their terms will expire at the annual general meeting of
stockholders to be held in 2012; and
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Class III directors will be Mssrs. Elkins, Park and Tan,
and their terms will expire at the annual general meeting of
stockholders to be held in 2013.
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Audit
Committee
Our audit committee consists of Mr. Norby as Chairman and
Messrs. Klein and Tavakoli. Our board of directors has
determined that Mr. Norby is an audit committee financial
expert as defined in Item 407(d)(5) of
Regulation S-K
promulgated under the Securities Act. Our board has also
determined that Messrs. Norby and Tavakoli are
independent as that term is defined in both
Rule 303A of the NYSE rules and
Rule 10A-3
promulgated under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, and, upon the closing of this
offering, will each be an independent director as
that term is defined in Rule 303A of the NYSE rules. In
making this determination, our board of directors considered the
relationships that Messrs. Norby and Tavakoli have with our
company and all other facts and circumstances our board of
directors deemed relevant in determining their independence,
including any beneficial ownership of our equity. The board has
determined that Mr. Klein is not an independent director.
In accordance with applicable rules of the NYSE, we are relying
upon an exception that allows us to phase in our compliance with
the independent audit committee requirement as follows,
(i) one independent member at the time of listing;
(ii) a majority of independent members within 90 days
of listing; and (iii) all independent members within one
year of listing. We expect that prior to the one year
anniversary of our initial NYSE listing, Mr. Klein will
resign from the audit committee and at least one new independent
director
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will be appointed. If we fail to comply with the NYSE listing
rules, our common stock could be de-listed from the NYSE.
Compensation
Committee
The compensation committee of the board has overall
responsibility for evaluating and approving our executive
officer and director compensation plans, policies and programs,
as well as all equity-based compensation plans and policies. We
expect that our compensation committee will consist of
Messrs. Elkins, Klein and Tavakoli as of the effectiveness
of the offering. Our board has determined that Mr. Tavakoli
is independent under NYSE and SEC rules. In making
this determination, our board of directors considered the
relationships that Mr. Tavakoli has with our company and
all other facts and circumstances our board of directors deemed
relevant in determining his independence, including any
beneficial ownership of our equity. The board has determined
that Mssrs. Elkins and Klein are not independent directors. In
accordance with applicable rules of the NYSE, we are relying
upon an exception that allows us to phase in our compliance with
the independent compensation committee requirement as follows,
(i) one independent member at the time of listing;
(ii) a majority of independent members within 90 days
of listing; and (iii) all independent members within one
year of listing. We expect that prior to the applicable dates,
the composition of our compensation committee will be changed
such that we will be in compliance with the independent
compensation committee requirement.
Nominating and
Governance Committee
The nominating and governance committee has the responsibility
to identify qualified individuals to become members of the
board, to oversee an annual evaluation of the board of directors
and its committees, to periodically review and recommend to the
board any proposed changes to our corporate governance
guidelines and to monitor our corporate governance structure. We
expect that our nominating and corporate governance committee
will consist of Messrs. Elkins, Shroff and Tan as of the
effectiveness of the offering. Our board has determined that
Mr. Shroff is independent under NYSE and SEC
rules. In making this determination, our board of directors
considered the relationships that Mr. Shroff has with our
company and all other facts and circumstances our board of
directors deemed relevant in determining his independence,
including any beneficial ownership of our equity. The board has
determined that Messrs. Elkins and Tan are not independent
directors. In accordance with applicable rules of the NYSE, we
are relying upon an exception that allows us to phase in our
compliance with the independent nominating and corporate
governance committee requirement as follows, (i) one
independent member at the time of listing; (ii) a majority
of independent members within 90 days of listing; and
(iii) all independent members within one year of listing.
We expect that prior to the applicable dates, the composition of
our nominating and corporate governance committee will be
changed such that we will be in compliance with the independent
nominating and corporate governance committee requirement.
Code of Business
Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that
applies to all of our directors, officers and employees. We will
provide a copy of our Code of Business Conduct and Ethics
without charge to any person upon written request made to our
Senior Vice President, General Counsel and Secretary at
c/o MagnaChip
Semiconductor, Ltd., 891 Daechi-dong, Gangnam-gu, Seoul,
135-738,
Korea. Our Code of Business Conduct and Ethics is also available
on our website at www.magnachip.com.
Assessment of
Risk
Our board of directors believes that our compensation programs
are designed such that they will not incentivize unnecessary
risk-taking.
The base salary component of our compensation program is a fixed
amount and does not depend on performance. Our cash incentive
program takes into account
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multiple metrics, thus diversifying the risk associated with any
single performance metric, and we believe it does not
incentivize our executive officers to focus exclusively on
short-term outcomes. Our equity awards are limited by the terms
of our equity plans to a fixed maximum specified in the plan,
and are subject to vesting to align the long-term interests of
our executive officers with those of our equityholders.
Compensation
Discussion and Analysis
Executive
Compensation
Compensation
Philosophy and Objectives
The compensation committee of our board of directors, or the
Committee, has overall responsibility for administering our
compensation program for our named executive
officers. The Committees responsibilities consist of
evaluating, approving and monitoring our executive officer and
director compensation plans, policies and programs, as well as
each of our equity-based compensation plans and policies. Prior
to 2010, compensation decisions were made by the entire board of
directors and for the discussion that follows, references to the
Committee during such period refer to the entire board. For
2009, our named executive officers who continue to serve as
executive officers were:
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Sang Park, Chairman of the Board of Directors and Chief
Executive Officer;
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Tae Young Hwang, Chief Operating Officer and President;
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Brent Rowe, Senior Vice President, Worldwide Sales;
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Margaret Sakai, Senior Vice President and Chief Financial
Officer; and
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John McFarland, Senior Vice President, General Counsel and
Secretary.
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The Committee seeks to establish total compensation for
executive officers that is fair, reasonable and competitive. The
Committee evaluates our compensation packages to ensure that:
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we maintain our ability to attract and retain superior
executives in critical positions;
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our executives are incentivized and rewarded for aggressive
corporate growth, achievement of long-term corporate objectives
and individual performance that meets or exceeds our
expectations without encouraging unnecessary
risk-taking; and
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compensation provided to critical executives remains competitive
relative to the compensation paid to similarly situated
executives of companies in the semiconductor industry.
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The Committee believes that the most effective executive
compensation packages align executives interests with
those of our unitholders by rewarding performance that exceeds
specific annual, long-term and strategic goals that are intended
to improve unitholder value. These objectives include the
achievement of financial performance goals and progress on
projects that our board of directors anticipates will lead to
future growth, as discussed more fully below.
The information set forth below in this Compensation Discussion
and Analysis describes the Committees general philosophy
and historical approach. However, given our financial
challenges, in the beginning of 2009, the Committee determined
to continue the arrangements from the prior year and did not
perform any in depth analysis.
Until April 2009, Robert J. Krakauer served as our President,
Chief Financial Officer, and director. In April 2009, we entered
into a Senior Advisor Agreement with Mr. Krakauer pursuant
to which he resigned from his employment and as a director but
remains available to consult with us in a limited capacity until
April 2010 to one year thereafter. Although
Mr. Krakauer is no longer one our executive officers, his
2009 compensation is reported herein in accordance with SEC
rules.
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Role of
Executive Officers in Compensation Decisions
For named executive officers other than our chief executive
officer, we have historically sought and considered input from
our chief executive officer in making determinations regarding
executive compensation. Our chief executive officer annually
reviews the performance of our other named executive officers.
Our chief executive officer subsequently presents conclusions
and recommendations regarding such officers, including proposed
salary adjustments and incentive amounts, to the Committee. The
Committee then takes this information into account when it makes
final decisions regarding any adjustments or awards.
The review of performance by the Committee and our chief
executive officer of other executive officers is both an
objective and subjective assessment of each executives
contribution to our performance, leadership qualities, strengths
and weaknesses and the individuals performance relative to
goals set by the Committee or our chief executive officer, as
applicable. The Committee and our chief executive officer do not
systematically assign a weight to the factors, and may, in their
discretion, consider or disregard any one factor which, in their
sole discretion, is important to or irrelevant for a particular
executive.
The Committees annual determinations regarding executive
compensation are subject to the terms of the respective service
agreements between us and the named executive officers (as set
forth in more detail below). In addition to the annual reviews,
the Committee also typically considers compensation changes upon
a named executive officers promotion or other change in
job responsibility. Neither our chief executive officer nor any
of our other executives participates in deliberations relating
to their own compensation.
Role of
Compensation Consultants
The Committee has the authority to retain the services of
third-party executive compensation specialists in connection
with the establishment of cash and equity compensation and
related policies. Historically, we have engaged compensation
consultants to provide information and recommendations relating
to executive pay and equity compensation or otherwise obtained
third party compensation surveys. In light of the financial
challenges we were facing, we did not use a compensation
consultant, or review any formal industry data, in connection
with setting 2009 executive compensation. The Committee has not
retained a compensation consultant for 2010.
Timing of
Compensation Decisions
At the end of each fiscal year, our chief executive officer will
review the performance of the other executive officers and
present his conclusions and recommendations to the Committee. At
that time and throughout the year, the Committee will also
evaluate the performance of our chief executive officer, which
is measured in substantial part against our consolidated
financial performance. In January of the following fiscal year,
the Committee will then assess the overall functioning of our
compensation plans against our goals, and determine whether any
changes to the allocation of compensation elements, or the
structure or level of any particular compensation element, are
warranted.
In connection with this process, our Committee generally
establishes the elements of its performance-based cash bonus
plan for the upcoming year. With respect to newly hired
employees, our practice is typically to approve equity grants at
the first meeting of the Committee following such
employees hire date. We do not have any program, plan or
practice to time equity award grants in coordination with the
release of material non-public information. From time to time,
additional equity awards may be granted to executive officers
during the fiscal year. For example, in December 2009, our
executive officers were granted restricted unit bonuses and
nonstatutory options for common units, as further described
below.
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Elements of
Compensation
In making decisions regarding the pay of the named executive
officers, the Committee looks to set a total compensation
package for each officer that will retain high-quality talent
and motivate executives to achieve the goals set by our board of
directors. Our 2009 compensation package was composed of the
following elements:
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annual base salary;
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short-term cash incentives;
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long-term equity incentives;
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a benefits package that is generally available to all of our
employees; and
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expatriate and other executive benefits.
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Determination
of Amount of Each Element of Compensation
General
Background
Historically, the Committee has taken a variety of factors into
consideration when determining changes to overall compensation
levels and levels of individual annual compensation elements, as
further described below. In the beginning of 2009, however, the
Committee assessed the overall functioning of our compensation
plans against our goals, and, due to our financial condition and
impending reorganization proceedings, determined no changes from
the prior year to the allocation of compensation elements, or
the structure or level of any particular compensation element,
were warranted for 2009. Subsequently, in connection with our
emergence from our reorganization proceedings, the Committee
made certain determinations with respect to executive
compensation. Accordingly, unless otherwise referenced in the
context of our emergence from our reorganization proceedings and
the Committees compensation decisions made thereafter, the
below disclosure is a general discussion of the manner in which
the Committee has made decisions regarding compensation levels
in prior years, and the underlying reasons for those decisions.
The Committee seeks to establish a total cash compensation
package for our named executive officers that is competitive and
within the ranges for overall compensation reflected in
compensation data for similarly-situated executives in the peer
group reviewed by the Committee, subject to adjustments based on
each executives experience and performance. Historically,
based on the recommendations provided by outside advisors, our
review of industry specific survey data and the professional and
market experience of our Committee members, we measured total
cash compensation for our named executive officers against cash
compensation paid to executives at similarly situated companies
which we determined to be our select peer group. Base salaries
for our named executive officers were benchmarked to median
levels for companies in the select peer group, and were adjusted
upward or downward for performance, and short-term cash
incentives were put in place to provide for opportunities that
may result in higher than median levels of cash compensation as
compared to our select peer group if, and depending upon the
extent to which, our performance and that of our named executive
officers exceeded expectations and the goals established by the
Committee for the year in question.
Historically, our select peer group has included other major
Korean based semiconductor companies, including Fairchild Korea,
Dongbu Hitek, ChipPac Korea and Hynix Semiconductor. In
addition, we also reviewed compensation data from TowersPerrin
Korea, an independent compensation consultant, which surveyed
the companies listed below, to assess how compensation for our
select peer group related to compensation paid to executives in
a broader range of technology companies.
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Accenture
Advanced Micro Devices
Applied Materials
ASML
Blizzard
Cisco Systems
CJ Internet
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CommVerge
CSR
Dell
Electronic Arts
GCT Semiconductor
Gravity
JCEntertainment
KLA-Tencor
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Lam Research
Lexmark International
Microsoft
NCsoft
Neowiz Games
NHN Games
Npluto
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NXP Semiconductors
Orange Business Services
Sony Computer Entertainment
Tokyo Electron
Toshiba Group
Verizon Business
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The Committee makes annual determinations regarding cash
incentive compensation based on our annual operating plan, which
is adopted in the December preceding each fiscal year, including
the expected performance of our business in the coming fiscal
year. The Committee makes all equity compensation decisions for
our officers based on existing compensation arrangements for
other of our executives at the same level of responsibility and
based on our review of the select peer group with a view to
maintaining internal consistency and parity.
Equity awards are not tied to base salary or cash incentive
amounts and will constitute lesser or greater proportions of
total compensation depending on the fair value of the awards.
The Committee, relying on the professional and market experience
of our Committee members, generally seeks to set equity awards
at median levels of equity compensation at the select peer group
companies. The Committee does not apply a formula or assign
relative weight in making its determination. Instead, it makes a
subjective determination after considering all information
collectively.
The Committee may approve additional incentive payments or
equity compensation grants from time to time during the year in
its discretion.
Base
Salary
Base salary is the guaranteed element of an employees
annual cash compensation. Changes in base salary may be approved
by the Committee for an executive if the median levels of base
salary compensation for similarly-situated executives in our
select peer group have changed, and may be further adjusted
based upon the employees long-term performance, skill set
and the value of that skill. The Committee evaluates the
performance of each named executive officer on an annual basis
based on the accomplishment of performance objectives that were
established at the beginning of the prior fiscal year as well as
its own subjective evaluation of the officers performance.
In making its evaluation, the Committee makes a subjective
qualitative assessment of the officers contribution to our
performance during the preceding year, including leadership,
success in attaining particular goals of a division for which
that officer has responsibility, our overall financial
performance and such other criteria as the Committee may deem
relevant, including input from our Chief Executive Officer. The
Committee then makes a subjective decision regarding any changes
in base salary based on these factors and the data from our
select peer group. The Committee does not systematically assign
weights to any of the factors it considers, and may, in its
discretion, ignore any factors or deem any one factor to have
greater importance for a particular executive officer.
Based upon our financial condition at the time, the Committee
determined not to change compensation arrangements at the
beginning of 2009. Our employees, including our executive
officers, voluntarily accepted a 20% reduction in base salary
from 2008 levels from January to March 2009, and an additional
10% reduction from April to June 2009, as part of austerity
measures implemented to assist in our recovery. Mr. Park
voluntarily accepted a 40% reduction in base salary from January
to March 2009, and an additional 20% pay reduction from April to
June 2009. We restored salaries to 2008 levels in July 2009. In
December 2009, as a reward for the successful completion of our
reorganization proceedings, our board of directors approved a
one-time payment of 20% of then monthly base salary to all
employees who voluntarily accepted pay reductions earlier in the
year, which group included all of our named executive officers.
The amount paid to named executive officers are reported as
bonus in the Summary Compensation Table below. The Committee
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also granted additional special discretionary incentives to
Mr. Hwang, Ms. Sakai and Mr. McFarland, as
described in more detail below.
Cash
Incentives
Short-term cash incentives comprise a significant portion of the
total target compensation package and are designed to reward
executives for their contributions to meeting and exceeding our
goals and to recognize and reward our executives in achieving
these goals. Incentives are designed as a percentage of base
salary and are awarded based on individual performance and our
achievement of the annual, long-term and strategic quantitative
goals set by our Committee.
Given our financial position at the beginning of 2009, we did
not modify the annual targets for our cash incentive plans for
2009. As a result, our short-term cash incentive plan was
effectively suspended for the year. In December 2009, our board
of directors implemented a cash incentive plan effective as of
January 1, 2010, which we call the Profit Sharing Plan.
Each of our employees is eligible to participate in the Profit
Sharing Plan, and our board of directors intends for the Profit
Sharing Plan to incentivize our named executive officers,
officers and employees to exceed expectations throughout our
entire fiscal year. Our board of directors has empowered the
Committee to administer the Profit Sharing Plan.
Under the Profit Sharing Plan, the Committee will review our
business plan in December of each year and determine an annual
consolidated Adjusted EBITDA target, or the Base Target, for the
upcoming fiscal year and set the targeted amount to be awarded
to our named executive officers and employees, or the Profit
Share, for meeting the Base Target and for achievement in excess
of the Base Target.
The Base Target is calculated as a percentage of our forecasted
gross annual revenue for the upcoming fiscal year. We determine
our revenue forecast by looking at several factors, including
existing orders from our customers, quarterly and annual
forecasts from our customers, our product roadmap and how it
corresponds with our projected customer needs, and the overall
industry forecasts for the semiconductor market. The
Committees goal is to set a Base Target that is difficult
but not unreasonable to achieve. To determine the percentage of
gross annual revenue for purposes of setting the Base Target,
the Committee, in consultation with our board of directors,
first determines a range of Adjusted EBITDA growth and gross
margin that is competitive based upon the select peer group and
will ensure that we build unitholder value, then sets a
percentage such that the forecasted Adjusted EBITDA growth and
gross margin is within that range. See Prospectus
Summary Summary Historical and Unaudited Pro Forma
Consolidated Financial Data for a discussion of how we
define and why we use Adjusted EBITDA.
Each named executive officer receives as a Profit Share a set
percentage of their annual base salary once the Base Target is
achieved. For 2010, our Chief Executive Officer is eligible to
receive 40% of annual base salary, our President is eligible to
receive 33.3% of annual base salary, our General Managers are
eligible to receive 26.7% of annual base salary, our Senior Vice
Presidents are eligible to receive 23.3% of annual base salary
and our Vice Presidents are eligible to receive 20% of annual
base salary. In the event we exceed the Base Target, we will pay
to our executive officers and employees an additional Profit
Share of 25% of our annual consolidated Adjusted EBITDA in
excess of the Base Target.
We pay the Profit Share during the normal pay period in the
January following the conclusion of each fiscal year for which
the Profit Share is calculated, and the Profit Share is only
payable to those executives who have been employed by us during
the entire fiscal year for which the Profit Share is calculated
and who are employed by us on the Profit Share payment date,
provided that the Profit Share is payable pro rata to any named
executive officers who begin their employment during the fiscal
year for which the Profit Share is calculated.
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The Committee retains the sole discretion to (i) authorize
the payment of the Profit Share in December of the relevant
fiscal year when the Committee believes the Base Target will be
achieved, (ii) pay Profit Shares when we achieve slightly
less than the Base Target, and (iii) make interim Profit
Share payments during the fiscal year. In addition to the Profit
Sharing Plan, the Committee retains the right to grant
discretionary incentives to our named executive officers as a
reward for extraordinary performance. For example,
Mr. Hwang, Ms. Sakai and Mr. McFarland were paid
a discretionary incentive in December 2009 in recognition of
their role in our successful reorganization proceedings. These
amounts are reported in the Summary Compensation Table in the
column labeled Bonus. In addition, Messrs. Park and
Rowe were each entitled to fixed bonuses pursuant to their
employment agreements subject to continued employment. In the
case of Mr. Park, he elected to forego $300,000 of the
bonus otherwise payable to him in order for such amounts to be
available for bonuses to other executives, including
discretionary bonuses paid to Mr. Hwang, Ms. Sakai and
Mr. McFarland.
For 2010, the implementation of the Profit Sharing Plan has been
modified to provide our employees with an opportunity to share
in our success earlier in the fiscal year than under the
existing Profit Sharing Plan. In addition to setting the Base
Target, two interim targets for our first and second fiscal
quarters have been set. We will make Profit Share payments in
the first normal pay period following the conclusion of each of
the first two fiscal quarters in which we reach the
corresponding quarterly target. The total Profit Share payable
for meeting the Base Target for 2010 is capped for each employee
at his or her respective percentage of annual base salary, such
that the amount of any Profit Share payable for 2010 performance
after the end of 2010 will be offset by any portion of the
Profit Share paid during 2010 for reaching either or both of the
quarterly targets. In addition, for 2010, if we exceed the Base
Target our employees will not be eligible to earn the additional
Profit Share of 25% of our annual consolidated Adjusted EBITDA
in excess of the Base Target. As a result, our executive
officers and employees will only be entitled to receive a cash
incentive equal to the percentage of their salary disclosed
above.
Equity
Compensation
In addition to cash incentives, we offer equity incentives as a
way to enhance the link between the creation of unitholder value
and executive incentive compensation and to give our executives
appropriate motivation and rewards for achieving increases in
enterprise value. Under our 2009 Common Unit Plan, our board of
directors granted options to acquire MagnaChip Semiconductor LLC
common units and restricted unit bonus awards. Awards under our
2009 Common Unit Plan will be converted into options for common
stock and restricted common stock of MagnaChip Semiconductor
Corporation upon our corporate conversion. Such options vest in
installments over three years following grant, with
approximately one-third of the restricted unit awards vested at
grant and the remainder vesting in two subsequent annual
installments, as set forth in more detail below.
Under our 2010 Equity Incentive Plan, which will replace the
2009 Common Unit Plan immediately following our corporation
conversion, the Committee may grant participants stock options,
stock appreciation rights, restricted stock, restricted stock
units, performance shares and units, and other stock-based and
cash-based awards. In granting equity awards, the Committee may
establish any conditions or restrictions it deems appropriate.
Stock options and stock appreciation rights must have exercise
prices at least equal to the fair market value of the stock at
the time of their grant pursuant to the 2010 Equity Incentive
Plan. Following the completion of this offering, the fair market
value of the stock at the time of grant will generally be the
closing price of a share of stock as quoted on the national or
regional securities exchange or quotation system constituting
the primary market for the stock on the date any grant is made.
Prior to the exercise of a stock option or stock appreciation or
settlement of an award denominated in units, the holder has no
rights as a stockholder with respect to the stock subject to the
award, including voting rights and the right to receive
dividends. Participants receiving restricted stock awards are
stockholders and have both voting rights and the right to
receive dividends, except that dividends paid on unvested shares
may remain subject to
109
forfeiture until vested. Award vesting ceases upon termination
of employment, and vested options and stock appreciation rights
remain exercisable only for a limited period following such
termination.
The Committee considers granting additional equity compensation
in the event of new employment, a promotion or change in job
responsibility or a change in median levels of equity
compensation for similarly-situated executives at companies in
our select peer group or in its discretion to reward or
incentivize individual officers. The option award levels vary
among participants based on their job grade and position. The
Committee generally seeks to award equity compensation at levels
consistent with the median levels for executives at companies in
our select peer group, and will also make subjective
determinations regarding adjustments to award amounts in light
of factors such as the available pool, individual performance
and role of executives. For example, the Committee may adjust
the size of an award for an individual executive above the
option award level for his or her position if the Committee
determines that the executive has provided exceptional
performance, or may increase the option award level for a
position above the median level reflected in the select peer
group if the position is considered by the Committee to be more
critical to our long-term success. The Committee will generally
maintain substantially equivalent award levels for executives at
equivalent job grades. Stock option awards are not tied to base
salary or cash incentive amounts.
As a result of our reorganization proceedings, all previously
outstanding common and preferred units and options held by our
named executive officers were cancelled. In December 2009, we
granted new options to our executives with the option award
amounts generally determined based upon the median levels of our
select peer group. Thirty-four percent of the common units
subject to the options will vest and become exercisable on the
first anniversary of grant date, with 8 or 9% of the common
units subject to the options vesting on completion of each
three-month period thereafter through December 2012. In December
2009, in recognition of services provided in guiding us through
our reorganization proceedings, our board of directors also
granted each of our current named executive officers a
restricted unit bonus in addition to an option. We granted
restricted unit bonuses in order to provide our executives with
an embedded value while still incentivizing them to contribute
toward increasing our enterprise value. See additional details
below in Grant of Plan-Based Awards. Thirty-four
percent of each restricted unit bonus vested upon grant, with
the remaining portion vesting in equal installments on the first
and second anniversary of the grant date.
Upon the recommendation of our board of directors or chief
executive officer, or otherwise, the Committee may in the future
consider granting additional performance-based equity incentives.
Perquisites and
Other Benefits
We provide the named executive officers with perquisites and
other personal benefits, including expatriate benefits, that the
Committee believes are reasonable and consistent with our
overall compensation program to better enable us to attract and
retain superior employees for key positions. Generally
perquisites are determined based upon what the Committee
considers to be the most customary perquisites offered by the
select peer group and are not based upon a median cost for
specific perquisites or for the perquisites in aggregate. The
Committee determines the level and types of expatriate benefits
for the executive officers based on local market surveys taken
by our human resources group. These surveys are not limited to
our select peer group, but include a broad range of non-Korea
based companies with significant operations in Korea. Attributed
costs of the personal benefits for the named executive officers
are as set forth in the Summary Compensation Table below.
Mr. Park, Ms. Sakai and Mr. McFarland were
expatriates during all or part of 2009 and received expatriate
benefits commensurate with market practice in Korea. These
perquisites, which were determined on an individual basis,
included housing allowances, relocation allowances, insurance
premiums, reimbursement for the use of a car, home leave
flights, living expenses, tax equalization payments and tax
advisory services, each as we deemed appropriate.
In addition, pursuant to the Employee Retirement Benefit
Security Act, certain executive officers resident in Korea with
one or more years of service are entitled to severance benefits
upon the
110
termination of their employment for any reason. For purposes of
this section, we call this benefit statutory
severance. The base statutory severance is approximately
one month of base salary per year of service. Mr. Hwang,
Ms. Sakai and Mr. McFarland accrue statutory severance.
Summary
Compensation Table
The following table sets forth certain information concerning
the compensation earned during the years ended December 31,
2007, 2008 and 2009, of our named executive officers:
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Change in
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Pension
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Value
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and Non-
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qualified
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Deferred
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Compen-
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All Other
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Stock
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Option
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sation
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Compen-
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Name and Principal
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Salary
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Bonus
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Awards
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Awards
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Earnings
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sation
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Total
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Position
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Year
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($)(1)
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($)
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($)(2)
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($)(2)
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($)(3)
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($)
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($)
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Sang Park
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2009
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376,980
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613,893
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(4)
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1,769,600
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488,070
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314,785
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(5)
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3,563,328
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Chairman and
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2008
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442,128
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351,897
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(6)
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794,025
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Chief Executive Officer
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2007
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450,148
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309,330
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244,468
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(7)
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1,003,946
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Tae Young Hwang,
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2009
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189,748
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106,544
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663,600
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305,044
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119,541
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10,884
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(8)
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1,395,361
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Chief Operating
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2008
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212,307
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99,095
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20,293
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(9)
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331,695
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Officer and President
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2007
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236,830
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119,339
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19,735
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11,476
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(10)
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387,380
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Brent Rowe
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2009
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293,054
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176,000
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(11)
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442,400
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183,026
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12,231
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(12)
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1,106,711
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Senior Vice President,
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2008
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226,308
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176,000
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(13)
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25,673
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(14)
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427,981
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Worldwide Sales
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2007
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220,846
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176,000
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(15)
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142,191
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(16)
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539,037
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Margaret Sakai
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2009
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238,347
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46,549
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265,440
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73,211
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12,143
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163,668
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(17)
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799,358
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Senior Vice President,
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2008
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250,934
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37,683
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180,025
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(18)
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468,642
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Chief Financial Officer
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2007
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250,082
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21,569
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24,086
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167,791
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(19)
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463,528
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John McFarland,
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2009
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172,229
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44,764
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265,440
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48,807
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14,369
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99,615
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(20)
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645,224
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Senior Vice President,
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2008
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191,147
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21,492
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79,790
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(21)
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292,429
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General Counsel and
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2007
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201,839
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75,930
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23,195
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22,802
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97,334
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(22)
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421,100
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Secretary
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Robert J. Krakauer,
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2009
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467,265
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176,554
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(23)
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643,819
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Former President
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2008
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468,426
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820,236
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(24)
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1,288,662
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and Chief Financial Officer
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2007
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375,123
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270,903
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707,831
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(25)
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1,353,857
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Note: Amounts set forth in the above table that were originally
paid in Korean won from January 1 to October 25, 2009 and
during the fiscal years ended December 31, 2008 and 2007
have been converted into U.S. dollars using average
exchange rates during the respective periods. After
October 25, 2009, a monthly average exchange rate was used.
Footnotes:
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(1)
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Includes one-time payment of 30% of
then monthly base salary to all employees that voluntarily
accepted pay reductions earlier in the year.
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(2)
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Represents grant date fair value
with respect to the fiscal year determined in accordance with
FASB ASC 718. See Note 4 Summary of Significant
Accounting Policies Unit-Based Compensation,
and Note 19 Equity Incentive Plans, to the
MagnaChip Semiconductor LLC audited consolidated financial
statements for the two months ended December 31, 2009, the
ten months ended October 25, 2009 and the years ended 2008
and 2007.
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(3)
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Consists of statutory severance
accrued during the two months ended December 31, 2009, ten
months ended October 25, 2009 and the years ended
December 31, 2008 and 2007, as applicable. See the section
subtitled Compensation Discussion and Analysis for a
description of the statutory severance benefit.
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(4)
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Represents bonus payments made in
December 2009 pursuant to Mr. Parks Amended and
Restated Service Agreement and an additional $11,250
discretionary bonus. Mr. Park elected to forego $298,000 of
the bonus specified in order for such amounts to be available
for bonuses to other executives.
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(5)
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Includes the following personal
benefits paid to Mr. Park: (a) $125,073, which is the
annual aggregate monthly pro rata amount of prepaid housing
expenses for Mr. Parks housing lease;
(b) $28,386 for insurance premiums; (c) $48,319 for
other personal benefits (including reimbursement of the use of a
car, home leave flights, living expenses and personal tax
advisory expenses); and (d) $89,252 of reimbursement for
the difference between the actual tax Mr. Park already paid
and the hypothetical tax he had to pay for the fiscal year 2008;
and (e) $23,755 for reimbursement of Korean tax.
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(6)
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Includes the following personal
benefits paid to Mr. Park: (a) $70,838, which is the
aggregate monthly pro rata amount of prepaid housing expenses
for Mr. Parks housing lease for six months, $82,828,
which is the total monthly rental payments for seven
months rent for Mr. Parks housing, and $8,192,
which is the imputed benefit to Mr. Park from a refundable
deposit held by the lessor of Mr. Parks housing
during the lease term; (b) $27,290 for insurance premiums;
(c) $35,787 for other personal benefits (including
reimbursement of the use of a car, home leave flights and
personal tax advisory expenses); (d) $78,913 of
reimbursement for the difference between the actual tax
Mr. Park already paid and the hypothetical tax he had to
pay for the fiscal year 2006 and 2007; (e) $24,962 for
Mr. Parks living expenses; and (f) $23,087 for
reimbursement of Korean tax and employee fringe benefits.
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(7)
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Includes the following personal
benefits paid to Mr. Park: (a) $154,798 which is the
annual aggregate monthly pro rata amount of prepaid housing
expenses for Mr. Parks housing lease; (b) $42,684 for
insurance premiums (c) $31,750 for other personal benefits
(including personal tax advisory expenses); (d) $1,188 of
reimbursement in relation to a Korean tax payment in 2006; and
(e) $14,048 for reimbursement of Korean tax, the employee
contribution portion of the Korean national health insurance
program and employee fringe benefits.
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(8)
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Includes the following personal
benefits paid to Mr. Hwang: (a) $7,832 for
reimbursement of the use of a car; and (b) $3,052 for
insurance premiums.
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(9)
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Includes the following personal
benefits paid to Mr. Hwang: (a) $9,541 for
reimbursement of the use of a car; (b) $9,070 for insurance
premiums; and (c) $1,682 for employee fringe benefits.
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(10)
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Includes the following personal
benefits paid to Mr. Hwang: (a) $11,056 for
reimbursement of the use of a car; and (b) $420 for
employee fringe benefits.
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(11)
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Under Mr. Rowes offer
letter (as supplemented), in 2007, Mr. Rowe elected to
receive a $528,000 advance on his first three years of potential
annual bonus payments at a rate of 80% of base pay. Effective as
of April 2009, the right to receive the bonus became fixed and
was no longer discretionary. One-third of this amount ($176,000)
was earned in 2009.
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(12)
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Includes the following personal
benefits paid to Mr. Rowe: (a) $1,597 for
reimbursement of the use of a car; and (b) $10,634 for
insurance premiums.
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(13)
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Under Mr. Rowes offer
letter (as supplemented), in 2007, Mr. Rowe elected to
receive a $528,000 advance on his first three years of potential
annual bonus payments at a rate of 80% of base pay. One-third of
this amount ($176,000) was earned in 2008.
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(14)
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Includes the following personal
benefits paid to Mr. Rowe: (a) $1,983 for
reimbursement of the use of a car; (b) $13,027 for
insurance premiums; and (c) $10,663 for personal tax
advisory expenses.
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(15)
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Under Mr. Rowes offer
letter (as supplemented), in 2007, Mr. Rowe elected to
receive a $528,000 advance on his first three years of potential
annual bonus payments at a rate of 80% of base pay. One-third of
this amount ($176,000) was earned in 2007.
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(16)
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Includes the following personal
benefits paid to Mr. Rowe: (a) $121,826 of
Mr. Rowes relocation allowance when he returned to
the U.S. from an expatriate assignment in Korea; (b) $3,000
for contributions to a pension plan; (c) $4,967 for
personal tax advisory expenses; (d) $12,130 for insurance
premiums; and (e) $268 for reimbursement of the use of a
car.
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(17)
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Includes the following personal
benefits paid to Ms. Sakai: (a) $25,590, which is the
total monthly rental payments for four months rent for
MS. Sakais housing, and $32,650, which is the imputed
benefit to Ms. Sakai from a refundable deposit held by the
lessor of Ms. Sakais housing during the lease term;
(b) $33,735 for reimbursement of tuition expenses for
Ms. Sakais children; (c) $21,352 for
Ms. Sakais home leave flights; (d) $28,238 for
insurance premiums; (e) $8,568 for other personal benefits
(including reimbursement of the use of a car, personal tax
advisory expenses, and communication expenses); and
(f) $13,535 for reimbursement of Korean tax.
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(18)
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Includes the following personal
benefits paid to Ms. Sakai: (a) $61,438, which is the
imputed benefit to Ms. Sakai from a refundable deposit held
by the lessor of Ms. Sakais housing during the lease
term; (b) $38,046 for reimbursement of tuition expenses for
Ms. Sakais children; (c) $23,420 for
Ms. Sakais home leave flights; (d) $27,211 for
insurance premiums; (e) $21,460 for other personal benefits
(including reimbursement of the use of a car, personal tax
advisory expenses, and communication expenses); and
(f) $8,450 for reimbursement of Korean tax and employee
fringe benefits.
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(19)
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Includes the following personal
benefits paid to Ms. Sakai: (a) $72,661, which is the
imputed benefit to Ms. Sakai from a refundable deposit held
by the lessor of Ms. Sakais housing during the lease
term; (b) $30,649 for reimbursement of tuition expenses for
Ms. Sakais children; (c) $18,709 for
Ms. Sakais home leave flights; (d) $28,140 for
insurance premiums; (e) $13,673 for other personal benefits
(including reimbursement of the use of a car, personal tax
advisory expenses, and communication expenses); and
(f) $3,959 for reimbursement of the employee contribution
portion of the Korean national health insurance program and
employee fringe benefits.
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(20)
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Includes the following personal
benefits paid to Mr. McFarland: (a) $23,351 for
reimbursement of tuition expenses for Mr. McFarlands
child; (b) $19,978 of reimbursement for the difference
between the actual tax Mr. McFarland already paid and the
hypothetical tax he had to pay for the fiscal year 2008;
(c) $20,227 for insurance premiums; (d) $1,089 for
other personal benefits (including reimbursement of the use of a
car and personal tax advisory expenses); and (e) $34,970
for reimbursement of Korean tax.
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(21)
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Includes the following personal
benefits paid to Mr. McFarland: (a) $21,334 for
reimbursement of tuition expenses for Mr. McFarlands
child; (b) $13,382 of reimbursement for the difference
between the actual tax Mr. McFarland already paid and the
hypothetical tax he had to pay for the fiscal year 2007;
(c) $19,736 for insurance premiums paid; (d) $12,296
for other personal benefits (including reimbursement of the use
of a car and personal tax advisory expenses); and
(e) $13,042 for reimbursement of Korean tax and employee
fringe benefits.
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(22)
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Includes the following personal
benefits paid to Mr. McFarland: (a) $35,837 for
reimbursement of tuition expenses for Mr. McFarlands
child; (b) $20,292 of reimbursement for the difference
between the actual tax Mr. McFarland already paid and the
hypothetical tax he had to pay for the fiscal year 2006;
(c) $23,534 for insurance premiums; (d) $5,050 for
other personal benefits (including reimbursement of the use of a
car and personal tax advisory expenses); and (e) $12,621
for reimbursement of Korean tax, the employee contribution
portion of the Korean national health insurance program and
employee fringe benefits.
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(23)
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Includes the following personal
benefits paid to Mr. Krakauer: (a) $145,460 for
Mr. Krakauers housing expenses; (b) $24,329 for
insurance premiums; and (c) $6,765 for other personal
benefits (including reimbursement of the use of a car and living
expenses).
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(24)
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Includes the following personal
benefits paid to Mr. Krakauer: (a) $225,940 for
Mr. Krakauers housing expenses; (b) $97,827 for
reimbursement of living expenses; (c) $29,246 for
reimbursement of tuition expenses for Mr. Krakauers
children; (d) $23,860 for Mr. Krakauers home
leave flights; (e) $22,842 for insurance premiums;
(f) $22,404 for reimbursement of the use of two cars;
(g) $49,789 for personal tax advisory expenses;
(h) $248,302 of reimbursement for the difference between
the actual tax Mr. Krakauer already paid and the
hypothetical tax he had to pay for the fiscal year 2006, 2007
and 2008; (i) $29,604 for repatriation allowance paid to
Mr. Krakauer; and (j) $70,422 for reimbursement of
Korean tax and employee fringe benefits.
|
|
|
|
(25)
|
|
Includes the following personal
benefits paid to Mr. Krakauer: (a) $208,962, which is
the annual aggregate monthly pro rata amount of prepaid housing
expenses for Mr. Krakauers housing lease;
(b) $30,643 for reimbursement of living expenses;
(c) $71,683 for reimbursement of tuition expenses for
Mr. Krakauers children; (d) $20,242 for
Mr. Krakauers home leave flights; (e) $43,823
for insurance premiums; (f) $63,791 of reimbursement for
all commission and closing costs for the sale of
Mr. Krakauers house in the United States;
|
112
|
|
|
|
|
(g) $12,581 for personal tax
advisory expenses; (h) $21,748 for reimbursement of the use
of two cars; (i) $147,490 of reimbursement for the
difference between the actual tax Mr. Krakauer already paid
and the hypothetical tax he had to pay for the fiscal year 2006;
and (j) $86,868 for reimbursement of Korean tax, the
employee contribution portion of the Korean national health
insurance program and employee fringe benefits.
|
Grants of
Plan-Based Awards
The following table sets forth certain information with respect
to unit and option awards and other plan-based awards granted
during the year ended December 31, 2009 to our named
executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
Exercise or
|
|
|
|
|
|
|
Awards:
|
|
Number of
|
|
Base
|
|
|
|
|
|
|
Number of
|
|
Securities
|
|
Price of
|
|
Grant Date Fair
|
|
|
|
|
Shares of
|
|
Underlying
|
|
Option
|
|
Value of Unit
|
|
|
|
|
Stock or
|
|
Options
|
|
Awards
|
|
and Option
|
Name
|
|
Grant Date
|
|
Units (#)(1)
|
|
(#)(1)
|
|
($/sh)(2)
|
|
Awards ($)(3)
|
|
Sang Park
|
|
|
12/08/2009
|
|
|
|
2,240,000
|
|
|
|
|
|
|
|
|
|
|
$
|
1,769,600
|
|
|
|
|
12/08/2009
|
|
|
|
|
|
|
|
2,240,000
|
|
|
|
1.16
|
|
|
$
|
488,070
|
|
Tae Young Hwang
|
|
|
12/08/2009
|
|
|
|
840,000
|
|
|
|
|
|
|
|
|
|
|
$
|
663,600
|
|
|
|
|
12/08/2009
|
|
|
|
|
|
|
|
1,400,000
|
|
|
|
1.16
|
|
|
$
|
305,044
|
|
Brent Rowe
|
|
|
12/08/2009
|
|
|
|
560,000
|
|
|
|
|
|
|
|
|
|
|
$
|
442,400
|
|
|
|
|
12/08/2009
|
|
|
|
|
|
|
|
840,000
|
|
|
|
1.16
|
|
|
$
|
183,026
|
|
Margaret Sakai
|
|
|
12/08/2009
|
|
|
|
336,000
|
|
|
|
|
|
|
|
|
|
|
$
|
265,440
|
|
|
|
|
12/08/2009
|
|
|
|
|
|
|
|
336,000
|
|
|
|
1.16
|
|
|
$
|
73,211
|
|
John McFarland
|
|
|
12/08/2009
|
|
|
|
336,000
|
|
|
|
|
|
|
|
|
|
|
$
|
265,440
|
|
|
|
|
12/08/2009
|
|
|
|
|
|
|
|
224,000
|
|
|
|
1.16
|
|
|
$
|
48,807
|
|
|
|
|
(1) |
|
The vesting schedule applicable to each award is set forth below
in the section entitled Outstanding Equity Awards at
Fiscal Year End 2009. |
|
|
|
(2) |
|
Exceeds the per unit fair market value of our common unit on the
grant date ($0.79), as determined by our board of directors
based on various factors. |
|
|
|
(3) |
|
Represents ASC 718 grant date fair value. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Accounting
for Unit-based Compensation for a description of how we
valued our units as a private company. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year End 2009(1)
|
|
|
Option Awards
|
|
Unit Awards
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Market
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Shares or
|
|
Value of
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Units of
|
|
Shares or
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Stock That
|
|
Units of
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Have Not
|
|
Stock That
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
Expiration
|
|
Vested
|
|
Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable(2)
|
|
Price ($)
|
|
Date
|
|
(#)(3)
|
|
Vested ($)(4)
|
|
Sang Park
|
|
|
|
|
|
|
2,240,000
|
|
|
|
1.16
|
|
|
|
12/8/2019
|
|
|
|
1,478,400
|
|
|
|
1,167,936
|
|
Tae Young Hwang
|
|
|
|
|
|
|
1,400,000
|
|
|
|
1.16
|
|
|
|
12/8/2019
|
|
|
|
554,400
|
|
|
|
437,976
|
|
Brent Rowe
|
|
|
|
|
|
|
840,000
|
|
|
|
1.16
|
|
|
|
12/8/2019
|
|
|
|
369,600
|
|
|
|
291,984
|
|
Margaret Sakai
|
|
|
|
|
|
|
336,000
|
|
|
|
1.16
|
|
|
|
12/8/2019
|
|
|
|
221,760
|
|
|
|
175,190
|
|
John McFarland
|
|
|
|
|
|
|
224,000
|
|
|
|
1.16
|
|
|
|
12/8/2019
|
|
|
|
221,760
|
|
|
|
175,190
|
|
|
|
|
(1) |
|
All of our outstanding common and preferred units and
outstanding options as of November 9, 2009 were terminated
as of November 9, 2009 pursuant to our reorganization
proceedings. |
|
(2) |
|
An installment of 34% of the common units subject to the options
will vest and become exercisable on December 8, 2010, an
additional 9% of the options vest on the completion of the next
period of three months, an additional 8% of the options vest
upon the completion of each of the next three-month periods, an
additional 9% of the options vest upon the completion of the
next |
113
|
|
|
|
|
quarter, and an additional 8% of the options vest upon the
completion of each of the next three quarters. |
|
(3) |
|
The restrictions on the units lapse on December 8, 2010 as
to 33% of the total amount of restricted common units originally
awarded and on December 8, 2011 as to 33% of the total
amount of restricted common units originally awarded. |
|
(4) |
|
During fiscal year 2009, there was no established public trading
market for our outstanding common equity. The reported value
represents the product of multiplying the number of unvested
restricted units by the value of our units of $0.79 as of
December 31, 2009, the last day of our fiscal year. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Accounting
for Unit-based Compensation for a description of how we
valued our units while as a private company. |
|
(5) |
|
Mr. Krakauer resigned as our President, Chief Financial
Officer and director on April 10, 2009. |
|
|
|
|
|
|
|
|
|
Option Exercises and Stock Vested at Fiscal Year End
2009(1)
|
|
|
Number of
|
|
|
|
|
Shares
|
|
|
|
|
Acquired on
|
|
Value Realized
|
|
|
Vesting
|
|
on Vesting
|
Name
|
|
(#)(2)
|
|
($)(3)
|
|
Sang Park
|
|
|
761,600
|
|
|
|
601,664
|
|
Tae Young Hwang
|
|
|
285,600
|
|
|
|
225,624
|
|
Brent Rowe
|
|
|
190,400
|
|
|
|
150,416
|
|
John McFarland
|
|
|
114,240
|
|
|
|
90,250
|
|
Margaret Sakai
|
|
|
114,240
|
|
|
|
90,250
|
|
|
|
|
(1) |
|
All of our outstanding common and preferred units and
outstanding options as of November 9, 2009 were terminated
as of November 9, 2009 pursuant to our reorganization
proceedings. |
|
(2) |
|
The restrictions on the units lapsed on December 8, 2009 as
to 34% of the total amount of restricted common units originally
awarded. |
|
(3) |
|
During fiscal year 2009, there was no established public trading
market for our outstanding common equity. The reported value
represents the product of multiplying the number of vested units
by the value of our units of $0.79 as of the date of vesting. |
MagnaChip
Semiconductor LLC 2009 Common Unit Plan
All of our outstanding common and preferred units and options
and related plans were terminated as of November 9, 2009
pursuant to our reorganization proceedings. Following our
emergence from our reorganization proceedings, in December 2009,
our board of directors adopted, and our equityholders approved,
the MagnaChip Semiconductor LLC 2009 Common Unit Plan, which we
refer to as the 2009 Plan. The 2009 Plan provides for the grant
of nonstatutory options, restricted unit bonus and purchase
right awards, and deferred unit awards to employees and
consultants of our company and our subsidiaries and to members
of our board of directors. However, only options and restricted
unit bonus awards have been granted under the 2009 Plan. Subject
to adjustment in the event of certain changes in capital
structure, the maximum aggregate number of MagnaChip
Semiconductor LLC common units that are available for grant
under the 2009 Plan is 30,000,000. Units subject to awards that
expire, are forfeited or otherwise terminate will again be
available for grant under the 2009 Plan.
In connection with our corporate conversion, we will assume the
rights and obligations of MagnaChip Semiconductor LLC under the
2009 Plan and convert MagnaChip Semiconductor LLC common unit
options and restricted common units outstanding under the 2009
Plan into options to acquire a number of shares of our common
stock and shares of restricted common stock at a ratio of
114
on substantially equivalent terms
and conditions. Following the corporate conversion, a total
of shares
of common stock will be reserved for issuance under the 2009
Plan. As of December 31, 2009, based upon our common units
outstanding as of December 31, 2009, and after giving
effect to the corporate conversion pursuant to which each common
unit will be automatically converted into shares of our common
stock at a ratio
of ,
there would have been outstanding under the 2009 Plan options to
purchase shares
of common stock, at a weighted average exercise price of
$ per share. The 2009 Plan will
terminate immediately following our corporate conversion, and no
additional options or other equity awards may be granted under
the 2009 Plan following its termination. However, options
granted under the 2009 Plan prior to its termination will remain
outstanding until they are either exercised or expire.
The 2009 Plan is administered by the Committee. Subject to the
provisions of the 2009 Plan, the Committee determines in its
discretion the persons to whom and the times at which awards are
granted, the sizes of such awards, and all of their terms and
conditions. All awards are evidenced by a written agreement
between us and the holder of the award. The Committee has the
authority to construe and interpret the terms of the 2009 Plan
and awards granted under it.
In the event of a change in control of our company, the vesting
of all outstanding awards held by participants whose employment
has not previously terminated will accelerate in full. In
addition, the Committee has the authority to require that
outstanding awards be assumed or replaced with substantially
equivalent awards by the successor corporation or to cancel the
outstanding awards in exchange for a payment in cash or other
property equal to the fair market value of restricted units or
the excess, if any, of the fair market value of the units
subject to an option over the exercise price per unit of such
option.
2010 Equity
Incentive Plan
Our 2010 Equity Incentive Plan, or the 2010 Plan, was approved
by our board of directors in March 2010 and will be effective
upon our corporate conversion, subject to its approval by our
equityholders, which is expected prior to the completion of this
offering.
A number of shares of our common stock equal to the total number
of shares of common stock (as adjusted by the conversion ratio
in the corporate conversion) remaining available for grant under
the 2009 Plan upon its termination immediately following the
corporate conversion will be initially authorized and reserved
for issuance under the 2010 Plan. This reserve will
automatically increase on January 1, 2011 and each
subsequent anniversary through 2020, by an amount equal to the
smaller of 2% of the number of shares of common stock issued and
outstanding on the immediately preceding December 31 or an
amount determined by our board of directors. The number of
shares authorized for issuance under the 2010 Plan will also be
increased from time to time by up to that number of shares of
common stock (as adjusted by the conversion ratio in corporate
conversion) remaining subject to options and restricted stock
awards outstanding under the 2009 Plan at the time of its
termination immediately following the corporate conversion that
expire or terminate or are forfeited for any reason after the
effective date of the 2010 Plan. Appropriate adjustments will be
made in the number of authorized shares and other numerical
limits in the 2010 Plan and in outstanding awards to prevent
dilution or enlargement of participants rights in the
event of a stock split or other change in our capital structure.
Shares subject to awards granted under our 2010 Plan which
expire, are repurchased, or are cancelled or forfeited will
again become available for issuance under the 2010 Plan. The
shares available will not be reduced by awards settled in cash.
Shares withheld to satisfy tax withholding obligations will not
again become available for grant. The gross number of shares
issued upon the exercise of stock appreciation rights or options
exercised by means of a net exercise or by tender of previously
owned shares will be deducted from the shares available under
the 2010 Plan.
Awards may be granted under the 2010 Plan to our employees,
including officers, directors, or consultants or those of any
present or future parent or subsidiary corporation or other
affiliated entity.
115
While we may grant incentive stock options only to employees, we
may grant nonstatutory stock options, stock appreciation rights,
restricted stock purchase rights or bonuses, restricted stock
units, performance shares, performance units and cash-based
awards or other stock-based awards to any eligible participant.
The 2010 Plan is administered by the Committee. Subject to the
provisions of the 2010 Plan, the Committee determines in its
discretion the persons to whom and the times at which awards are
granted, the sizes of such awards, and all of their terms and
conditions. All awards are evidenced by a written agreement
between us and the holder of the award. The Committee has the
authority to construe and interpret the terms of the 2010 Plan
and awards granted under it.
In the event of a change in control as described in the 2010
Plan, the acquiring or successor entity may assume or continue
all or any awards outstanding under the 2010 Plan or substitute
substantially equivalent awards. Any awards which are not
assumed or continued in connection with a change in control or
are not exercised or settled prior to the change in control will
terminate effective as of the time of the change in control. The
Committee may provide for the acceleration of vesting of any or
all outstanding awards upon such terms and to such extent as it
determines, except that the vesting of all awards held by
members of our board of directors who are not employees will
automatically be accelerated in full. The 2010 Plan also
authorizes the Committee, in its discretion and without the
consent of any participant, to cancel each or any outstanding
award denominated in shares upon a change in control in exchange
for a payment to the participant with respect to each share
subject to the cancelled award of an amount equal to the excess
of the consideration to be paid per share of common stock in the
change in control transaction over the exercise price per share,
if any, under the award.
2010 Employee
Stock Purchase Plan
Our 2010 Employee Stock Purchase Plan, or the Purchase Plan, was
approved by our board of directors in March 2010 and,
subject to its approval by our equityholders, will become
effective upon the commencement of this offering.
A number of shares of our common stock equal to 2% of the number
of shares of common stock estimated to be outstanding
immediately after completion of this offering, including the
exercise of the underwriters option to purchase additional
shares will be initially authorized and reserved for sale under
the Purchase Plan. In addition, the Purchase Plan provides for
an automatic annual increase in the number of shares available
for issuance under the plan on January 1 of each year beginning
in 2011 and continuing through and including January 1,
2020 equal to the lesser of (i) 1% of our then issued and
outstanding shares of common stock on the immediately preceding
December 31, (ii) a number of shares of our common
stock equal to 2% of the number of shares of common stock
estimated to be outstanding immediately after completion of this
offering, including the exercise of the underwriters
option to purchase additional shares or (c) a number of
shares as our board may determine. Appropriate adjustments will
be made in the number of authorized shares and in outstanding
purchase rights to prevent dilution or enlargement of
participants rights in the event of a stock split or other
change in our capital structure. Shares subject to purchase
rights which expire or are canceled will again become available
for issuance under the Purchase Plan.
Our employees and employees of any parent or subsidiary
corporation designated by the Committee are eligible to
participate in the Purchase Plan if they are customarily
employed by us for more than 20 hours per week and more
than five months in any calendar year. However, an employee may
not be granted a right to purchase stock under the Purchase Plan
if: (i) the employee immediately after such grant would own
stock possessing 5% or more of the total combined voting power
or value of all classes of our capital stock or of any parent or
subsidiary corporation, or (ii) the employees rights
to purchase stock under all of our employee stock purchase plans
would accrue at a rate that exceeds $25,000 in value for each
calendar year of participation in such plans.
116
The Purchase Plan is implemented through a series of sequential
offering periods, generally three months in duration beginning
on the first trading days of February, May, August, and November
each year. However, the Committee may establish an offering
period to commence on the effective date of the Purchase Plan
that will end on a date, on or about July 31, 2010,
determined by the Committee. The Committee is authorized to
establish additional or alternative concurrent, sequential or
overlapping offering periods and offering periods having a
different duration or different starting or ending dates,
provided that no offering period may have a duration exceeding
27 months.
Amounts accumulated for each participant, generally through
payroll deductions, are credited toward the purchase of shares
of our common stock at the end of each offering period at a
price generally equal to 95% of the fair market value of our
common stock on the purchase date. Prior to commencement of an
offering period, the Committee is authorized to change the
purchase price discount for that offering period, but the
purchase price may not be less than 85% of the lower of the fair
market value of our common stock at the beginning of the
offering period or on the purchase date.
No participant may purchase under the Purchase Plan in any
calendar year shares having a value of more than $25,000
measured by the fair market value per share of our common stock
on the first day of the applicable offering period. Prior to the
beginning of any offering period, the Committee may alter the
maximum number of shares that may be purchased by any
participant during the offering period or specify a maximum
aggregate number of shares that may be purchased by all
participants in the offering period. If insufficient shares
remain available under the plan to permit all participants to
purchase the number of shares to which they would otherwise be
entitled, the Committee will make a pro rata allocation of the
available shares. Any amounts withheld from participants
compensation in excess of the amounts used to purchase shares
will be refunded, without interest.
In the event of a change in control, an acquiring or successor
corporation may assume our rights and obligations under the
Purchase Plan. If the acquiring or successor corporation does
not assume such rights and obligations, then the purchase date
of the offering periods then in progress will be accelerated to
a date prior to the change in control as specified by the
Committee, but the number of shares subject to outstanding
purchase rights shall not be adjusted.
Agreements with
Executives and Potential Payments Upon Termination or Change in
Control
We are obligated to make certain payments to our named executive
officers upon termination or a change in control as further
described below.
Sang Park. We are party to an Amended
and Restated Services Agreement, dated as of May 8, 2008,
with Mr. Park pursuant to which he serves as our Chairman
and Chief Executive Officer. Under the agreement, Mr. Park
was to receive an initial base salary of $450,000 and a one-time
performance bonus payment of $900,000. Mr. Park is also
entitled to an annual incentive award of 100% of his annual
salary based upon the achievement of performance goals, provided
that the actual bonus paid may be higher or lower dependent on
over- or under-achievement of his performance goals, as
determined by the Committee. Mr. Park is entitled to
customary employee benefits and certain expatriate, repatriation
and international service benefits, including relocation
benefits, tax equalization benefits, the cost of housing
accommodations and expenses, transportation benefits and
repatriation benefits. Pursuant to the agreement Mr. Park
was granted options to purchase restricted common units but they
were subsequently terminated in connection with our
reorganization proceedings. The restated service agreement also
contains customary non-competition and non-solicitation
covenants lasting two and three years, respectively, from the
date of termination of employment and confidentiality covenants
of unlimited duration.
If Mr. Parks employment is terminated without Cause
or if he resigns for good reason, Mr. Park is entitled to
receive (i) payment of all salary and benefits accrued up
to the date of termination, (ii) payment of his
then-current base salary for twelve months, (iii) the
annual incentive award to which Mr. Park would have been
entitled for the year in which his employment terminates,
(iv) twelve
117
months accelerated vesting on outstanding equity awards
and a twelve-month post-termination equity award exercise
period, and (v) continued participation for Mr. Park
and his eligible dependents in our benefit plans for twelve
months, including certain international service benefits.
If such termination occurs within nine months of a change in
control, Mr. Park is entitled to receive (i) payment
of all salary and benefits accrued and unpaid up to the date of
termination, (ii) payment of his then-current base salary
for twenty-four months, (iii) the annual incentive award to
which Mr. Park would have been entitled for the year in
which his employment terminates, (iv) two years
accelerated vesting on outstanding equity awards, other than
awards granted pursuant to the 2009 Plan, which accelerate in
full, (v) a twelve-month post-termination equity award
exercise period, and (vi) continued participation for
Mr. Park and his eligible dependents in our benefit plans
for two years, including certain international service benefits.
The severance described above payable to Mr. Park upon his
termination without Cause or in connection with a change in
control shall be reduced to the extent that we pay any statutory
severance payments to Mr. Park pursuant to the Korean
Commercial Code or any other statute.
As used in the agreement, the term Cause means the
termination of Mr. Parks employment because of
(i) a failure by Mr. Park to substantially perform his
customary duties (other than such failure resulting from
incapacity due to physical or mental illness);
(ii) Mr. Parks gross negligence, intentional
misconduct or material fraud in the performance of
Mr. Parks employment; (iii) Mr. Parks
conviction of, or plea of nolo contendre to, a felony or to a
crime involving fraud or dishonesty; (iv) a judicial
determination that Mr. Park committed fraud or dishonesty
against any natural person, firm, partnership, limited liability
company, association, corporation, company, trust, business
trust, governmental authority or other entity; or
(v) Mr. Parks material violation of the
agreement or of one or more of the material policies applicable
to his employment. Resignation for good reason means
a resignation upon any of the following events that remains
uncured for 30 days after Mr. Park delivers a demand
to us: (i) a salary reduction other than a reduction of
less than 10% applied to our other officers, (ii) material
reduction in benefits, (iii) failure to provide housing,
(iv) nature or status of Mr. Parks authorities,
duties or responsibilities are materially and adversely altered,
(v) removal from our board of directors without cause, or
(vi) Mr. Park is not reappointed as Chief Executive
Officer following our initial public offering.
In the event we terminate Mr. Parks employment due to
Disability, Mr. Park shall be entitled to (i) payment
of his Salary and accrued vacation up to and including the date
of termination, (ii) payment of any unpaid expense
reimbursements, (iii) the prorated amount of any cash
incentive to which Mr. Park would have been entitled, and
(iv) other benefits due to Mr. Park through his
termination date. As used in the agreement, the term
Disability means that the we determine that due to
physical or mental illness or incapacity, whether total or
partial, Mr. Park is substantially unable to perform his
duties for a period of 180 consecutive days or shorter periods
aggregating 180 days during any period of 365 consecutive
days.
In the event of Mr. Parks death while employed by us,
Mr. Parks estate or named beneficiary shall be
entitled to (i) payment of Mr. Parks salary and
accrued vacation up to and including the date of termination,
(ii) payment of any unpaid expense reimbursements,
(iii) the prorated amount of any cash incentive to which
Mr. Park would have been entitled, and (iv) other
benefits due to Mr. Park through his termination date.
Tae Young Hwang. We entered into an
Entrustment Agreement with Mr. Hwang, effective as of
October 1, 2004, under which he serves as our Chief
Operating Officer and President, with an initial base salary of
220 million Korean won per year and with a target annual
incentive bonus to be determined by management based on
performance. Mr. Hwang is entitled to customary employee
benefits and expatriate benefits. The agreement also contains
customary non-competition covenants lasting one year from the
date of termination of employment and confidentiality covenants
of unlimited duration.
118
If Mr. Hwangs employment is terminated for any
reason, he is entitled to statutory severance payments pursuant
to the Korean Commercial Code.
Brent Rowe. We entered into an Offer
Letter with Mr. Rowe, dated as of March 7, 2006,
pursuant to which Mr. Rowe serves as our Senior Vice
President, Worldwide Sales, with an initial base salary of
$220,000 per year, a sign on bonus of $50,000 and with a target
annual incentive bonus opportunity of 80% of his base salary.
Mr. Rowe is entitled to customary employee benefits.
Pursuant to the Offer Letter, Mr. Rowe received an initial
grant of options to purchase our common units, but the grant was
subsequently terminated in connection with our reorganization
proceedings.
If Mr. Rowes employment is terminated without cause,
he is entitled to a severance payment equal to six months
salary.
Margaret Sakai. We entered into an
Offer Letter with Ms. Sakai, dated as of September 5,
2006, pursuant to which Ms. Sakai served as our Senior Vice
President, Finance, with an initial base salary of $250,000 per
year and with a target annual incentive bonus opportunity of 50%
of her base salary. Ms. Sakais title was changed to
Senior Vice President and Chief Financial officer in 2009.
Ms. Sakai is entitled to customary employee benefits and
expatriate benefits. Pursuant to her Offer Letter,
Ms. Sakai received an initial grant of options to purchase
our common units, but the grant was subsequently terminated in
connection with our reorganization proceedings.
If Ms. Sakais employment is terminated by us without
cause, Ms. Sakai is entitled to receive payment of all
salary and benefits accrued and unpaid up to the date of
termination, continued payment of her salary for six months at
the rate in effect on the date of termination, payment of a
prorated portion of the annual incentive bonus for the year in
which termination occurs and paid benefits for Ms. Sakai
and her dependents for six months. The severance payable to
Ms. Sakai under her Offer Letter will be reduced to the
extent we make any statutory severance payments to
Ms. Sakai pursuant to the Korean Commercial Code or any
other statute.
John McFarland. We are party to a
Service Agreement, dated as of April 1, 2006, with
Mr. McFarland pursuant to which he serves as our Senior
Vice President, General Counsel and Secretary. Under the
agreement, Mr. McFarland was eligible to receive an initial
base salary of 175 million Korean won per year, with a
target annual incentive bonus opportunity of 50% of his base
salary. Mr. McFarland is entitled to customary employee
benefits and certain expatriate, repatriation and international
service benefits. Mr. McFarland received an initial grant
of options to purchase our common units, but the grant was
subsequently terminated in connection with our reorganization
proceedings. The agreement also contains customary
non-competition and non-solicitation covenants lasting one and
two years, respectively, from the date of termination of
employment and confidentiality covenants of unlimited duration.
Pursuant to the agreement, if Mr. McFarlands
employment is terminated for any reason other than Disability,
death or Cause, he shall be entitled to (i) payment of all
salary and benefits accrued up to the date of termination,
(ii) a severance payment, consisting of the continuation of
his then current salary for a period of six months,
(iii) six months of paid benefits for Mr. McFarland
and his eligible dependents and (iv) the prorated amount of
any cash incentive to which Mr. McFarland would have been
entitled. The severance payable to Mr. McFarland under his
agreement will be reduced to the extent we make any statutory
severance payments to Mr. McFarland pursuant to the Korean
Commercial Code or any other statute.
In the event we terminate Mr. McFarlands employment
due to Disability, Mr. McFarland shall be entitled to
(i) payment of his then current salary up to and including
the date of termination, (ii) the dollar value of all
accrued and unused vacation benefits based upon
Mr. McFarlands most recent level of salary,
(iii) any cash incentive amount actually earned but not
previously paid to Mr. McFarland, (iv) payment of any
unpaid expense reimbursements, and (v) the prorated amount
of any cash incentive to which Mr. McFarland would have
been entitled. As used in the agreement, the term
Disability means that we reasonably determine that
due to physical or mental illness or
119
incapacity, whether total or partial, Mr. McFarland is
substantially unable to perform his duties for a period of 180
consecutive days or shorter periods aggregating 180 days
during any period of 365 consecutive days.
In the event of Mr. McFarlands death while employed
by us, Mr. McFarlands estate or named beneficiary
shall be entitled to (i) payment of
Mr. McFarlands then current salary up to and
including the date of termination, (ii) the dollar value of
all accrued and unused vacation benefits based upon
Mr. McFarlands then current salary, (iii) any
cash incentive amount actually earned but not previously paid to
Mr. McFarland, (iv) payment of any unpaid expense
reimbursements, and (v) the prorated amount of any cash
incentive to which Mr. McFarland would have been entitled.
If Mr. McFarlands employment is terminated for Cause,
he will be entitled to receive payment of all salary and
benefits and unreimbursed expenses accrued up to the date of
termination and will not be entitled to any other compensation.
As used in the agreement, the term Cause has
substantially the same definition as that in
Mr. Parks agreement.
Robert J. Krakauer. Until
April 10, 2009, Robert J. Krakauer served as our President,
Chief Financial Officer and director. In April 2009, we entered
into a Senior Advisor Agreement with Mr. Krakauer. Under
this agreement, Mr. Krakauer resigned from employment and
as a director with us but remains available to consult with us
on a limited capacity until April 10, 2010. Pursuant to the
Senior Advisor Agreement, Mr. Krakauer is entitled to
payments in the aggregate amount of $375,000, payable over a
one-year period, plus the re-payment of amounts of reduced
salary for the first three months of 2009, in addition to the
continuation of certain benefits and perquisites, including
health insurance benefits, and the continuation of auto lease
payments for a certain number of months. In addition, we waived
any right we had to repurchase any restricted units held by
Mr. Krakauer at the time of his resignation. All common
units held by Mr. Krakauer were terminated in connection
with our reorganization proceedings.
Potential
Payments upon Termination or Change in Control.
Termination. Our named executive
officers are eligible to receive certain payments and benefits
in connection with certain service termination events pursuant
to the terms of our employment agreements with them, as further
described under the section entitled Agreements with
Executives and Potential Payments Upon Termination or Change in
Control. The terms cause and resignation
for good reason used below have the meanings given to them
in the applicable agreements with us.
Change in Control. Mr. Park is entitled
to receive certain payments and benefits in connection with a
change in control of our company pursuant to our employment
agreement with him, as further described under the section
entitled Agreements with Executives and Potential Payments
Upon Termination or Change in Control. In addition, in the
event of a change in control of our company, the vesting of all
outstanding awards issued under the 2009 Plan held by
participants whose employment has not previously terminated will
accelerate in full. In addition, the Committee has the authority
to require that outstanding awards be assumed or replaced with
substantially equivalent awards by the successor corporation or
to cancel the outstanding awards in exchange for a payment in
cash or other property equal to the fair market value of
restricted units or the excess, if any, of the fair market value
of the units subject to an option over the exercise price per
unit of such option. For purposes of the foregoing, a
change in control is generally defined as the
acquisition by a person or entity of more than 51% of the
combined voting power of our then outstanding voting securities
or a sale or transfer of all or substantially all of our
consolidated assets to a person or entity that is not our
affiliate. The offering will not constitute a change of control
for the purposes of these provisions.
The following table presents our estimate of the dollar value of
the payments and benefits payable to our named executive
officers upon the occurrence of the following events, assuming
that
120
each such event occurred on December 31, 2009. The
disclosure in the following table does not include:
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|
|
|
|
any accrued benefits that were earned and payable as of
December 31, 2009, including any short-term cash incentive
amounts earned by, or any discretionary bonus amounts payable
to, the executive officer for 2009 performance; or
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payments and benefits to the extent they are provided generally
to all salaried employees and do not discriminate in scope,
terms or operation in favor of the named executive officers.
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|
|
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Value of
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Cash
|
|
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|
Equity
|
|
|
|
|
|
|
Severance
|
|
Continuation
|
|
Award
|
|
|
|
|
|
|
Payment
|
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of Benefits
|
|
Acceleration
|
|
Total
|
Name
|
|
Event
|
|
($)(1)
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|
($)(2)
|
|
($)(3)
|
|
($)
|
|
Sang Park
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(a
|
)(4)
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|
450,000
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|
|
314,785
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(5)
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583,968
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|
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1,348,753
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(b
|
)(4)
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900,000
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629,570
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(6)
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1,167,936
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2,697,506
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(c
|
)
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1,167,936
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|
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1,167,936
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Tae Young Hwang
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(c
|
)
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|
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437,976
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|
|
437,976
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Brent Rowe
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(a
|
)
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|
110,000
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110,000
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(c
|
)
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|
|
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|
|
|
|
|
|
291,984
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|
|
|
291,984
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|
Margaret Sakai
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|
(a
|
)
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|
|
130,000
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|
|
|
81,834
|
(7)
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|
211,834
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|
|
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|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
175,190
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|
|
|
175,190
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|
John McFarland
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(a
|
)
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|
|
94,210
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|
|
|
49,808
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(8)
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|
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|
144,018
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|
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
175,190
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|
|
|
175,190
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|
|
|
(a) |
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Termination without cause in absence of change in control |
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(b) |
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Termination without cause within 9 months following a
change in control |
|
(c) |
|
Change in control |
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(1) |
|
Represents cash severance payments payable to our named
executive officers pursuant to our employment agreements with
them, prior to giving effect to the terms thereof relating to
the Employee Retirement Benefit Security Act of Korea. Other
than Mr. Rowe, who is entitled to a lump sum cash severance
payment, cash severance payments are paid monthly in accordance
with our regular payroll procedures. |
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|
Pursuant to the Employee Retirement Benefit Security Act,
Mr. Hwang, Ms. Sakai and Mr. McFarland are
entitled to certain statutory severance benefits from us upon
the termination of their employment with us for any reason. See
Management Compensation Discussion and
Analysis Perquisites and Other Benefits for
additional information. For these executives, the amounts
reflected in this column would be reduced to the extent we are
obligated to make these statutory severance payments. |
|
(2) |
|
Calculated assuming the continuation of benefits for the
applicable period at the same dollar value of 2009 benefits. |
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(3) |
|
Reflects the aggregate value of the accelerated vesting of the
named executive officers unvested options and restricted
common units, as applicable. |
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Because all of our options to purchase common units outstanding
as of December 31, 2009 have an exercise price greater than
the fair market value of our common units of $0.79 as of
December 31, 2009, no additional value is represented by
the acceleration of outstanding unvested common units subject to
such awards and therefore, the value of accelerated vesting of
unvested options is $0.00. |
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Because all of our restricted common units issued under the 2009
Plan outstanding as of December 31, 2009 were issued
without any required monetary payment, the amounts were
calculated by multiplying (i) the number of outstanding
restricted common units subject to award |
121
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|
|
|
vesting on December 31, 2009 by (ii) the fair market
value of our common units of $0.79 as of December 31, 2009. |
|
(4) |
|
Reflected benefits are also payable in connection with
Mr. Parks resignation for good reason. See
Management Agreements with Executives and
Potential Payments Upon Termination or Change in
Control Sang Park. |
|
(5) |
|
Represents the aggregate value of the continuation of health
insurance benefits for Mr. Park and his eligible dependents
for twelve months following the date of termination.
Mr. Park is also entitled to tax equalization benefits, tax
preparation services, the reimbursement of costs associated with
one home leave flight and, for a period of twelve months
post-termination, international health insurance benefits, paid
housing and the use of a car and a driver. |
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(6) |
|
Represents the aggregate value of the continuation of health
insurance benefits for Mr. Park and his eligible dependents
for twenty-four months following the date of termination.
Mr. Park is also entitled to tax equalization benefits, tax
preparation services, the reimbursement of costs associated with
two home leave flights and, for a period of twenty-four months
post-termination, international health insurance benefits, paid
housing and the use of a car and a driver. |
|
(7) |
|
Represents the aggregate value of the continuation of health
insurance benefits for Ms. Sakai and her eligible
dependents for six months following the date of termination.
Ms. Sakai is also entitled to tax equalization benefits,
tax preparation services, reimbursement of costs associated with
one home leave flight and, for a period of six months
post-termination, paid housing, the use of a car and a driver
and child tuition benefits. |
|
(8) |
|
Represents the aggregate value of continuation of health
insurance benefits for Mr. McFarland and his eligible
dependents for six months following the date of termination.
Mr. McFarland is also entitled to tax equalization, tax
preparation services and, for a period of six months
post-termination, child tuition benefits. |
Pension Benefits
for the Fiscal Year Ended December 31, 2009
Pursuant to the Employee Retirement Benefit Security Act,
certain executive officers resident in Korea with one or more
years of service are entitled to severance benefits upon the
termination of their employment for any reason. The base
statutory severance accrues at the rate of approximately one
month of base salary per year of service and is calculated on a
monthly basis based upon the officers salary for the prior
three month period. Accordingly, if the named executive officers
in the following table had retired on the last day of our fiscal
year ended December 31, 2009, they would have been entitled
to the statutory severance payments described below. Assuming no
change in the applicable law, each of these executives will
continue to accrue additional statutory severance benefits at
the rate described above until his or her service with us
terminates.
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Number
|
|
Present
|
|
Payments
|
|
|
|
|
of Years
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|
Value of
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During
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|
|
|
of Credited
|
|
Accumulated
|
|
the Last
|
Name
|
|
Plan Name
|
|
Service (#)
|
|
Benefit ($)
|
|
Fiscal Year
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|
Tae Young Hwang
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|
Statutory Severance with
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|
|
|
|
|
|
|
|
|
|
|
|
|
Multiplier for Partial Period
|
|
|
14
|
(1)
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|
686,058
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|
|
|
|
|
Margaret Sakai
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|
Statutory Severance
|
|
|
3
|
|
|
|
68,155
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|
|
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|
John McFarland
|
|
Statutory Severance
|
|
|
5
|
|
|
|
81,129
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|
|
Footnote:
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|
(1) |
|
Mr. Hwang accrued severance for his fourteen years of
service at MagnaChip and its predecessor corporation. Although
the minimum legal severance accrual is one month of base salary
per year of service, Mr. Hwang was eligible for accrual of
a multiple of two to three months of base salary per year of
service during approximately the first ten of his fourteen years
of service. |
122
Nonqualified
Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
Director
Compensation for the Fiscal Year Ended December 31,
2009
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|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
|
|
|
or Paid
|
|
Option
|
|
All Other
|
|
|
|
|
in Cash
|
|
Awards
|
|
Compensation
|
|
Total
|
Name
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
Jerry M. Baker(2)(3)
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|
|
50,000
|
|
|
|
|
|
|
|
25,751(4
|
)
|
|
|
75,751
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|
Armando Geday(2)(3)
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|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Michael Elkins(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randal Klein(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Tan(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nader Tavakoli(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Amounts set forth in the above table that were originally
paid in Korean won have been converted into U.S. dollars at
the exchange rate as of each payment date during the two-month
period ended December 31, 2009 and the ten-month period
ended October 25, 2009.
Footnotes:
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|
|
(1) |
|
All of our common and preferred units and outstanding options,
including grants made to our directors outstanding prior to the
effective date of our Chapter 11 reorganization of
November 9, 2009, were terminated as of such date pursuant
to our reorganization proceedings. |
|
(2) |
|
Resigned as a director effective November 9, 2009. |
|
(3) |
|
Consists of annual retainer of $50,000 paid to non-employee
directors prior to our reorganization proceedings. |
|
(4) |
|
Represents payments for insurance premiums. |
|
(5) |
|
Each of our non-employee directors appointed to our board of
directors subsequent to the effective date of our
Chapter 11 reorganization did not receive any compensation
in 2009. |
Further
Information Regarding Director Compensation Table
In March 2010, we issued to our director Nader Tavakoli a
restricted unit bonus for 150,000 common units pursuant to the
2009 Plan for service as a director to date. In March 2010, we
also adopted a new director compensation policy. Under the new
policy, each of our non-employee directors is entitled to
receive an annual fee of $50,000. In addition, the chairman of
our audit committee is entitled to an additional fee of $5,000.
We expect to issue each non-employee director an option to
purchase 200,000 common units of MagnaChip Semiconductor LLC,
which, after giving effect to the corporate conversion, will be
automatically converted into shares of our common stock, and
which shall vest on the same terms as option grants to our other
grantees. In March 2010, pursuant to this policy, we issued
options to purchase 200,000 common units to each of our
directors R. Douglas Norby, Gidu Shroff and Nader Tavakoli
pursuant to the 2009 Plan at an exercise price of $2.12 per unit.
Compensation
Committee Interlocks and Insider Participation
The members of the Compensation Committee will be appointed
prior to the completion of this offering. We do not anticipate
that any of the members of the Compensation Committee will have
been an officer or employee of our company during the last
fiscal year. During 2009, decisions regarding executive officer
compensation were made by our full board of directors.
Mr. Sang Park,
123
Chairman of our board of directors and our Chief Executive
Officer, participated in deliberations of our board of directors
regarding the determination of compensation of our executive
officers other than himself. None of our executive officers
currently serves, or in the past has served, as a member of the
board of directors or the compensation committee of any entity
that has one or more executive officers serving on our board of
directors.
124
PRINCIPAL AND
SELLING STOCKHOLDERS
Selling
Stockholders
The following table and accompanying footnotes set forth
information regarding the beneficial ownership of our common
stock by each of the following selling stockholders based on the
outstanding common units of MagnaChip Semiconductor LLC as of
December 31, 2009 as adjusted to reflect the corporate
conversion.
As of December 31, 2009, MagnaChip Semiconductor LLCs
outstanding securities consisted of 307,083,996 common units,
options to purchase 15,365,000 common units and warrants to
purchase 15,000,000 common units and, after giving effect to the
corporate conversion, we would have had
outstanding shares
of common stock, options to
purchase shares
of common stock and warrants to
purchase shares
of common stock.
The amounts and percentages of common stock beneficially owned
are reported on the basis of SEC regulations governing the
determination of beneficial ownership of securities. Under SEC
rules, a person is deemed to be a beneficial owner
of a security if that person has or shares voting
power, which includes the power to vote or to direct the
voting of such security, or investment power, which
includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of
the same securities and a person may be deemed to be a
beneficial owner of securities as to which he or she has no
economic interest.
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
Unless otherwise indicated, the address of each person listed in
the table below is
c/o MagnaChip
Semiconductor Ltd., 1 Hyang jeong-dong, Hungduk-gu, Cheongju-si,
361-725,
Korea.
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Shares of
|
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|
Shares of
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|
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|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
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|
|
Shares of
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|
|
|
|
|
|
|
Beneficially
|
|
|
Beneficially
|
|
|
|
Common Stock
|
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|
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|
Shares of
|
|
|
Owned Following
|
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|
Owned Following
|
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|
|
Beneficially
|
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Common
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Offering Assuming
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Offering Assuming
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Owned
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Shares of
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Stock
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No Exercise of
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Exercise of
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Prior to
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Common
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Subject to
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Underwriters
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Underwriters
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Name and Address
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Offering(1)
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Stock Being
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Underwriters
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Option(1)
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Option in Full(1)
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of Beneficial Owner
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Amount
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Percent
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Offered
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Option
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Amount
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Percent
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Amount
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Percent
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Selling Stockholders
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* |
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Less than one percent. |
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(1) |
|
Includes any outstanding shares of common stock held and, to the
extent applicable, shares issuable upon the exercise or
conversion of any securities that are exercisable or convertible
within 60 days
of ,
2010. |
Each of the selling stockholders will acquire the shares of
common stock to be sold by such stockholders in this offering
pursuant to the conversion of common units of MagnaChip
Semiconductor LLC into common shares of MagnaChip Semiconductor
Corporation pursuant to the corporate conversion, which will
occur immediately prior to the closing of this offering. Such
selling stockholders acquired such common units under our plan
of reorganization in November 2009. All of the common units
issued to the selling stockholders were in satisfaction of their
claims as creditors. In accordance
125
with our plan of reorganization, in exchange for the claims,
(i) holders of our Floating Rate Second Priority Senior
Secured Notes due 2011, or the Floating Rate Notes, and
67/8%
Second Priority Senior Secured Notes due 2011, or the
67/8% Notes,
received their pro rata share of newly issued common units equal
to five percent of the then outstanding common units, which was
equal to 29.667627 common units per $1,000 principal amount of
Floating Rate Notes and 30.498559 common units per $1,000
principal amount of 6.875% Notes, and (ii) the holders
of our 8% Senior Subordinated Notes due 2014, or the
Subordinated Notes, received their pro rata share of
(a) newly issued common units equal to one percent of the
then outstanding common units, which was equal to 12 common
units per $1,000 principal amount of Subordinated Notes and
(b) warrants to purchase five percent of MagnaChip
Semiconductor LLCs then outstanding equity, which was
equal to 60 warrants per $1,000 principal amount of Subordinated
Notes.
In addition, under our plan of reorganization, holders of the
Floating Rate Notes and the
67/8% Notes
who were accredited investors received a pro-rata right to
participate in an offering of up to $35 million in new
common units, which was equal to 84% of the outstanding common
units following the completion of the offering at a price per
common unit of $0.14. Subject to certain conditions, Avenue
agreed to purchase any unsubscribed common units. In
consideration of this obligation, Avenue received a backstop fee
equal to 10% of the then outstanding common units, or 30,000,000
common units. In addition, Avenue acquired 176,131,368 common
units in the offering. Avenue also received 4,260,449 common
units in exchange for the release of their claims on the
Floating Rate Notes, 3,198,353 common units in exchange for the
release of their claims on the
67/8% Notes
and 889,536 common units in exchange for the release of their
claims on the Subordinated Notes. Tennenbaum Multi-Strategy
Fund SPV (Cayman) Ltd., or Tennenbaum, acquired 19,540,080
common units in the offering and received 445,014 common units
in exchange for the release of its claims on the Floating Rate
Notes and 724,951 common units in exchange for the release of
its claims on the
67/3%Notes.
Southpaw Credit Opportunity Master Fund LP acquired
21,613,032 common units in the offering and received 1,272,237
common units in exchange for the release of their claims on the
Floating Rate Notes. Wilshire Institutional Master
Fund SPC Wilshire Southpaw Opportunity
Segregated Portfolio acquired 546,840 common units in the
offering and 32,189 common units in exchange for the release of
their claims on the Floating Rate Notes. GPC 76, LLC received
90,931 common units in exchange for the release of their claims
on the Floating Rate Notes.
Principal
Unitholders of MagnaChip Semiconductor LLC
The following table sets forth information regarding the
beneficial ownership of the outstanding equity interests of
MagnaChip Semiconductor LLC as of December 31, 2009 by:
(1) each person or entity known to us to beneficially own
more than 5% of any class of our outstanding securities;
(2) each member of our board of directors; (3) each of
our named executive officers; and (4) all of the members of
our board of directors and executive officers, as a group. As of
December 31, 2009, MagnaChip Semiconductor LLCs
outstanding securities consisted of 307,083,996 common units,
options to purchase 15,365,000 common units and warrants to
purchase 15,000,000 common units.
The amounts and percentages of equity interests beneficially
owned are reported on the basis of SEC regulations governing the
determination of beneficial ownership of securities. Under SEC
rules, a person is deemed to be a beneficial owner
of a security if that person has or shares voting
power, which includes the power to vote or to direct the
voting of such security, or investment power, which
includes the power to dispose of or to direct the disposition of
such security. A person is also deemed to be a beneficial owner
of any securities of which that person has the right to acquire
beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of
the same securities and a person may be deemed to be a
beneficial owner of securities as to which he or she has no
economic interest.
126
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
Unless otherwise indicated, the address of each person listed in
the table below is
c/o MagnaChip
Semiconductor Ltd., 1 Hyang jeong-dong, Hungduk-gu, Cheongju-si,
361-725,
Korea.
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Amount and
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Nature of
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Name and Address
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Beneficial
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Percent of
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of Beneficial Owner
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Ownership(1)
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Class(1)
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Principal Unitholders
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Funds managed by Avenue Capital Management II, L.P(2)
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218,927,386
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70.3
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%
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Funds and accounts managed by Southpaw Asset Management LP(3)
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23,555,229
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7.7
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%
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Tennenbaum Multi-Strategy Fund SPV (Cayman) Ltd.(4)
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20,710,045
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6.7
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%
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Directors and Executive Officers
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Sang Park(5)
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2,240,000
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*
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Tae Young Hwang(6)
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840,000
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*
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Brent Rowe(7)
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560,000
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*
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Margaret Sakai(8)
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336,000
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*
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John McFarland(9)
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336,000
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*
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Michael Elkins(10)
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*
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Randal Klein(10)
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*
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Steven Tan(10)
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*
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Nader Tavakoli
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*
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R. Douglas Norby
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*
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Gidu Shroff
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*
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Robert Krakauer(11)
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*
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Directors and executive officers as a group (13 persons)(12)
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4,760,000
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1.6
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%
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* |
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Less than one percent. |
|
(1) |
|
Includes any outstanding common units held and, to the extent
applicable, shares issuable upon the exercise or conversion of
any securities that are exercisable or convertible within
60 days of December 31, 2009. |
|
(2) |
|
The following entities and person are collectively referred to
in this table as the Avenue Capital Group:
(i) Avenue Investments, L.P. (Avenue
Investments), (ii) Avenue International Master, L.P.
(Avenue International Master), (iii) Avenue
International, Ltd. (Avenue International), the sole
limited partner of Avenue International Master, (iv) Avenue
International Master GenPar, Ltd. (Avenue International
GenPar), the general partner of Avenue International
Master, (v) Avenue Partners, LLC (Avenue
Partners), the general partner of Avenue Investments and
the sole shareholder of Avenue International GenPar,
(vi) Avenue-CDP Global Opportunities Fund, L.P. (CDP
Global), (vii) Avenue Global Opportunities
Fund GenPar, LLC (CDP Global GenPar), the
general partner of CDP Global, (viii) Avenue Special
Situations Fund IV, L.P. (Avenue Fund IV),
(ix) Avenue Capital Partners IV, LLC (Avenue Capital
IV), the general partner of Avenue Fund IV,
(x) GL Partners IV, LLC (GL IV), the managing
member of Avenue Capital IV, (xi) Avenue Special Situations
Fund V, L.P. (Avenue Fund V),
(xii) Avenue Capital Partners V, LLC (Avenue
Capital V), the general partner of Avenue Fund V,
(xiii) GL Partners V, LLC (GL V), the
managing member of Avenue Capital V, (xiv) Avenue
Capital Management II, L.P. (Avenue Capital II), the
investment advisor to Avenue Investments, Avenue International
Master, CDP Global, Avenue Fund IV and Avenue Fund V
(collectively, the Avenue Funds), (xv) Avenue
Capital Management II GenPar, LLC (GenPar), the
general partner of Avenue Capital II, and (xvi) Marc Lasry,
the managing member of GenPar, GL V, GL IV, CDP Global
GenPar and Avenue Partners and a director of Avenue
International GenPar. |
127
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The Avenue Capital Group beneficially owns 218,927,386 common
units, including the 4,447,680 common units the Avenue Capital
Group may receive through the exercise of outstanding warrants. |
|
|
|
The Avenue Funds have the sole power to vote and dispose of the
common units held by them. Avenue International, Avenue
International GenPar, Avenue Partners, CDP Global GenPar, Avenue
Capital IV, GL IV, Avenue Capital V, GL V, Avenue
Capital II, GenPar and Marc Lasry have the shared power to vote
and dispose of the common units held by the Avenue Funds, all of
whom disclaim any beneficial ownership except to the extent of
their respective pecuniary interest. The address for all of the
Avenue Funds is 535 Madison Avenue, New York, NY 10022. |
|
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|
Avenue Fund V beneficially owns 88,938,119 common units, or
28.8%, which represents 86,756,399 common units and 2,181,720
common units issuable upon the exercise of warrants held by
Avenue Fund V. The securities owned by Avenue Fund V
may also be deemed to be beneficially owned by Avenue
Capital V, its general partner; GL V, the managing
member of Avenue Capital V; Avenue Capital II, its investment
adviser; GenPar, the general partner of Avenue Capital II; and
Mr. Lasry, the managing member of GenPar and GL V; all of
whom disclaim any beneficial ownership except to the extent of
their respective pecuniary interest. For further information
regarding Avenue Fund V, please see above. |
|
|
|
Avenue Fund IV beneficially owns 70,458,255 common units, or
22.8%, which represents 69,186,975 common units and 1,271,280
common units issuable upon the exercise of warrants held by
Avenue Fund IV. The securities owned by Avenue Fund IV
may also be deemed to be beneficially owned by Avenue Capital
IV, its general partner; GL IV, the managing member of Avenue
Capital IV; Avenue Capital II, its investment adviser; GenPar,
the general partner of Avenue Capital II; and Mr. Lasry,
the managing member of GenPar and GL IV; all of whom disclaim
any beneficial ownership except to the extent of their
respective pecuniary interest. For further information regarding
Avenue Fund IV, please see above. |
|
|
|
Avenue International Master beneficially owns 35,568,286 common
units, or 11.6%, which represents 35,004,706 common units and
563,580 common units issuable upon the exercise of warrants held
by Avenue International Master. The securities owned by Avenue
International Master may also be deemed to be beneficially owned
by Avenue International, its sole limited partner; Avenue
International GenPar, its general partner; Avenue Partners, the
sole shareholder of Avenue International GenPar; Avenue Capital
II, its investment adviser; GenPar, the general partner of
Avenue Capital II; and Mr. Lasry, the managing member of
GenPar and Avenue Partners and a director of Avenue
International GenPar; all of whom disclaim any beneficial
ownership except to the extent of their respective pecuniary
interest. For further information regarding Avenue International
Master, please see above. |
|
|
|
CDP Global beneficially owns 12,104,679 common units, or 3.9%,
which represents 11,862,159 common units and 242,520 common
units issuable upon the exercise of warrants held by CDP Global.
The securities owned by CDP Global may also be deemed to be
beneficially owned by CDP Global GenPar, its general partner;
Avenue Capital II, its investment adviser; GenPar, the general
partner of Avenue Capital II; and Mr. Lasry, the managing
member of GenPar and CDP Global GenPar; all of whom disclaim any
beneficial ownership except to the extent of their respective
pecuniary interest. For further information regarding CDP
Global, please see above. |
|
|
|
Avenue Investments beneficially owns 11,858,047 common units, or
3.9%, which represents 11,669,467 common units and 188,580
common units issuable upon the exercise of warrants held by
Avenue Investments. The securities owned by Avenue Investments
may also be deemed to be beneficially owned by Avenue Partners,
its general partner; Avenue Capital II, its investment adviser;
GenPar, the general partner of Avenue Capital II; and
Mr. Lasry, the managing member of GenPar and Avenue
Partners; all of whom disclaim any beneficial ownership except
to the extent of their respective pecuniary interest. For
further information regarding Avenue Investments, please see
above. |
128
|
|
|
(3) |
|
Represents 23,555,229 common units that may be deemed to be
beneficially owned by Southpaw Asset Management LP
(Southpaw Management) as it serves as the
discretionary investment manager for several funds and accounts
(the Managed Accounts). The common units deemed
beneficially owned by Southpaw Management may be deemed
beneficially owned by Southpaw Holdings LLC (Southpaw
Holdings), which is the general partner of Southpaw
Management, and by each of Kevin Wyman and Howard Golden, who
are principals of Southpaw Holdings. |
|
|
|
Southpaw Credit Opportunity Master Fund, L.P (Southpaw
Master Fund) beneficially owns 22,885,269 common units.
The securities owned by Southpaw Master Fund may also be deemed
beneficially owned by Southpaw Management, in its capacity as
the investment manager of Southpaw Master Fund, and Southpaw GP
LLC (Southpaw GP), in its capacity as general
partner of Southpaw Master Fund. The shares deemed beneficially
owned by Southpaw Management may also be deemed beneficially
owned by Southpaw Holdings, which is the general partner of
Southpaw Management, and by each of Kevin Wyman and Howard
Golden, who are principals of Southpaw Holdings and Southpaw GP. |
|
|
|
The business address of each of Southpaw Master Fund, Southpaw
Management, Southpaw GP, Southpaw Holdings, and Messrs. Wyman
and Golden is 2 Greenwich Office Park, 1st floor, Greenwich, CT
06831. For the avoidance of doubt, none of Southpaw Management,
Southpaw GP, Southpaw Holdings, or Messrs. Wyman and Golden hold
common units for their personal accounts, and each reports
beneficial ownership of common units held by Southpaw Master
Fund and the Managed Accounts due solely to the fact that such
persons have the ability to vote and/or dispose of the common
units held by Southpaw Master Fund and the Managed Accounts. |
|
(4) |
|
Represents 20,710,045 common units held by Tennenbaum
Multi-Strategy Fund SPV (Cayman) Ltd. (Tennenbaum
Cayman SPV). Tennenbaum Capital Partners, LLC is the
investment manager of Tennenbaum Cayman SPV, and may be deemed
to be the beneficial owner of the common units held by such
principal unitholders. Tennenbaum Capital Partners, LLC,
however, disclaims beneficial ownership of these common units,
except to the extent of its pecuniary interest therein. The
address for Tennenbaum Cayman SPV is 2951 28th Street,
Suite 1000, Santa Monica, CA 90405. |
|
(5) |
|
Represents 2,240,000 common units, of which 1,478,400 are
subject to a right of repurchase by MagnaChip. |
|
(6) |
|
Represents 840,000 common units, of which 554,400 are subject to
a right of repurchase by MagnaChip. |
|
(7) |
|
Represents 560,000 common units, of which 369,600 are subject to
a right of repurchase by MagnaChip. |
|
(8) |
|
Represents 336,000 common units, of which 221,760 are subject to
a right of repurchase by MagnaChip. |
|
(9) |
|
Represents 336,000 common units, of which 221,760 are subject to
a right of repurchase by MagnaChip. |
|
(10) |
|
The address for Messrs. Elkins, Klein and Tan is 535
Madison Avenue, New York, NY 10022. |
|
(11) |
|
Mr. Krakauer resigned as our President, Chief Financial
Officer and director on April 10, 2009. |
|
(12) |
|
Represents 4,760,000 common units, of which 3,141,600 are
subject to a right of repurchase by MagnaChip. |
129
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Code of Business
Conduct and Ethics
Under our Code of Business Conduct and Ethics, all conflicts of
interest and related party transactions involving our directors
or executive officers must be reviewed and approved in writing
by our full board of directors. In the approval process, the
approving authority will review all aspects of the conflict of
interest or related party transaction, including but not limited
to: (i) compliance with laws, rules and regulations,
(ii) the adverse affect on our business and results of
operations, (iii) the adverse affect on our relationships
with third parties such as customers, vendors and potential
investors, (iv) the benefit to the director, officer or
employee at issue, and (v) the creation of morale problems
among other employees. Our board of directors will only approve
those related party transactions that, in light of known
circumstances, are in, or are not inconsistent with, our best
interests.
Senior
Debt
Avenue Investments, L.P. (one of the Funds affiliated with
Avenue Capital Management II, L.P., which is, together with
other affiliates, our majority stockholder, and an affiliate of
our directors Messrs. Elkins, Klein and Tan) was a lender
under our senior secured credit facility. On November 6,
2009, in connection with the reorganization proceedings, our
senior secured credit agreement was amended and restated to,
among other things, reduce the outstanding principal amount from
$95 million to $61.8 million, pursuant to which we
repaid $33.2 million in principal, $22.6 million of
which was paid to Avenue Investments, L.P. As of
December 31, 2009, the outstanding indebtedness under our
senior secured credit facility was $61.8 million, of which
$42.1 million is held by Avenue Investments, L.P. As of
December 31, 2009, the interest rate for all borrowings
under the senior secured credit facility was 6 month LIBOR
plus 12% per annum and we accrued $1.2 million in interest
under the senior secured credit facility as of December 31,
2009, of which $0.8 million was accrued for Avenue
Investments, L.P. Other Funds affiliated with Avenue Capital
Management II, L.P. participate in the loan from Avenue
Investments, L.P. under our senior secured credit agreement
pursuant to a master participation agreement. Our senior secured
credit agreement was repaid in April 2010 with a portion of
the proceeds from our $250 million senior notes offering.
Avenue purchased $35 million in principal amount of these
notes. See Description of Certain Indebtedness for
additional information.
Issuance of
Common Units
In connection with our plan of reorganization, Avenue received
an aggregate of 8,348,338 common units and warrants to purchase
up to an aggregate of 4,447,680 common units in exchange for the
release of claims relating to outstanding indebtedness in an
aggregate principal amount of approximately $322.6 million.
Avenue also acquired 176,131,368 common units at $0.14 per share
pursuant to a $35 million rights offering that we completed
in November 2009 and an additional 30,000,000 common units for
providing a backstop service in agreeing to purchase any
unsubscribed units in the offering.
In connection with our plan of reorganization, Tennenbaum
Multi-Strategy Fund SPV (Cayman) Ltd., or Tennenbaum,
received 1,169,965 common units in exchange for the release of
claims relating to approximately the principal amount of
$38.8 million of outstanding indebtedness. Tennenbaum also
acquired 19,540,080 common units in the rights offering.
In connection with our plan of reorganization, Southpaw Credit
Opportunity Master Fund LP, or Southpaw Master Fund,
received 1,272,237 common units in exchange for the release of
their claims relating to approximately the principal amount of
$42.9 million of outstanding indebtedness. Southpaw Master
Fund also acquired 21,613,032 common units in the rights
offering. Wilshire Institutional Master
Fund SPC Wilshire Southpaw Opportunity
Segregated Portfolio, or Wilshire Institutional,
130
received 32,189 common units in exchange for the release of
their claims relating to approximately the principal amount of
$1.1 million of outstanding indebtedness. Wilshire
Institutional also acquired 546,840 common units in the rights
offering. Lastly, GPC 76, LLC received 90,931 common units in
exchange for the release of their claims relating to
approximately the principal amount of $3.1 million of
outstanding indebtedness.
Registration
Rights Agreement
On November 9, 2009, we entered into a registration rights
agreement with the holders of MagnaChip Semiconductor LLCs
common units issued in our reorganization proceedings, including
Avenue, where we granted them registration rights with respect
to our common stock. See Description of Capital
Stock Registration Rights.
Warrant
Agreement
On November 9, 2009, we entered into a warrant agreement
with American Stock Transfer & Trust Company, LLC
whereby we issued warrants to purchase an aggregate of
15,000,000 common units pursuant to the reorganization
proceedings to certain former creditors, which included Avenue.
Senior Advisor
Agreement
In April 2009, we entered into a Senior Advisor Agreement with
Mr. Krakauer, who formerly served as our President, Chief
Financial Officer and director, pursuant to which he remained
available to consult with us through April 10, 2010. Under
this agreement, Mr. Krakauer was entitled to payments in
the aggregate amount of $375,000, payable over a one-year
period, plus the repayment of amounts of reduced salary for the
first three months of 2009, in addition to the continuation of
certain benefits and perquisites, including health insurance
benefits, and the continuation of auto lease payments for a
certain number of months. In addition, we waived any right we
had to repurchase any restricted units held by Mr. Krakauer
at the time of his resignation. All common units held by
Mr. Krakauer were terminated in connection with our
reorganization proceedings.
131
DESCRIPTION OF
CAPITAL STOCK
The following description of our capital stock and provisions
of our certificate of incorporation and our bylaws are summaries
and are qualified by reference to the certificate of
incorporation and the bylaws that will be in effect upon the
closing of this offering. We have filed copies of these
documents with the SEC as exhibits to our registration statement
of which this prospectus forms a part. The descriptions of the
common stock and preferred stock reflect changes to our capital
structure that will occur immediately prior to and upon the
closing of this offering.
Upon the closing of this offering, our authorized capital stock
will consist
of shares
of common stock, par value $0.01 per share,
and shares
of undesignated preferred stock, par value $0.01 per share, the
rights and preferences of which may be established from time to
time by our board of directors.
As of December 31, 2009, MagnaChip Semiconductor LLC had
issued and outstanding 307,083,996 common units held by
133 holders of record. As of December 31, 2009,
MagnaChip Semiconductor LLC also had outstanding options to
purchase 15,365,000 common units at a weighted average exercise
price of $1.16 per unit and warrants to purchase 15,000,000
common units at an exercise price of $1.97 per unit.
Prior to the closing of this offering, we will consummate the
corporate conversion. As part of the corporate conversion:
|
|
|
|
|
all of the outstanding common units of MagnaChip Semiconductor
LLC will be automatically converted into shares of our common
stock at a ratio of ;
|
|
|
|
each outstanding option to purchase common units of MagnaChip
Semiconductor LLC will be automatically converted into an option
to
purchase shares
of our common stock at an exercise price of
$ per share; and
|
|
|
|
each outstanding warrant to purchase common units of MagnaChip
Semiconductor LLC will be automatically converted into a warrant
to
purchase shares
of our common stock at an exercise price of
$ per share.
|
The following description summarizes the terms of our capital
stock. Because it is only a summary, it does not contain all the
information that may be important to you. For a complete
description, you should refer to our certificate of
incorporation and bylaws, as in effect immediately following the
closing of this offering, copies of which have been filed as
exhibits to the registration statement of which this prospectus
is a part.
Common
Stock
Assuming the automatic conversion of all of the common units of
MagnaChip Semiconductor LLC for our common stock immediately
prior to the closing of this offering, there will
be shares
of our common stock outstanding upon the closing of this
offering. MagnaChip Semiconductor LLC has reserved an aggregate
of 30,000,000 common units for issuance to current and future
directors, employees and consultants of MagnaChip Semiconductor
LLC and its subsidiaries pursuant to the MagnaChip Semiconductor
LLC 2009 Common Unit Plan. Of this amount, at December 31,
2009, 15,365,000 common units were subject to outstanding
options, 7,551,000 were available for future issuance and no
common units have been purchased in connection with the exercise
of previously issued options. In connection with the corporate
conversion, the existing options will be automatically converted
into options to
acquire shares
of our common stock and we have
reserved shares
of our common stock for future issuance. In addition, our board
of directors may issue options exercisable for up
to shares
of our common stock under our 2010 Equity Incentive Plan and
2010 Employee Stock Purchase Plan. MagnaChip Semiconductor LLC
issued warrants to purchase an aggregate of 15,000,000 common
units pursuant to the reorganization proceedings, which are
subject to a warrant agreement dated November 9, 2009
between us and
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American Stock Transfer & Trust Company, LLC, our
warrant agent. At December 31, 2009, 15,000,000 common
units were subject to outstanding warrants and no common units
had been purchased in connection with the exercise of previously
issued warrants. In connection with the corporate conversion,
the existing warrants will be automatically converted into
warrants to
acquire shares
of our common stock.
Holders of our common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
stockholders. Our stockholders do not have cumulative voting
rights in the election of directors. Except as required by law
or our certificate of incorporation and bylaws, the vote of a
majority of the shares represented in person or by proxy at any
meeting at which a quorum is present will be sufficient for the
transaction of any business at a meeting. Subject to preferences
held by, or that may be granted to, any outstanding shares of
preferred stock, holders of our common stock will be entitled to
receive ratably those dividends as may be declared by our board
of directors out of funds legally available for such
distributions, as well as any other distributions made to our
stockholders. See Dividend Policy. In the event of
our liquidation, dissolution or winding up, holders of our
common stock are entitled to share ratably in all of our assets
remaining after we pay our liabilities and any liquidation
preferences granted to the holders of outstanding shares of
preferred stock. Holders of our common stock have no preemptive
or other subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to our common
stock. All shares of our common stock that will be outstanding
at the time of the completion of the offering will be fully paid
and non-assessable.
Preferred
Stock
Our certificate of incorporation authorizes the issuance of
shares of blank check preferred stock with such designation,
rights and preferences as may be determined from time to time by
our board of directors. No shares of preferred stock are being
issued or registered in this offering. Accordingly, our board of
directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting
or other rights which could adversely affect the voting power or
other rights of the holders of common stock. The preferred stock
could be utilized as a method of discouraging, delaying or
preventing a change in control of us. Although we do not
currently intend to issue any shares of preferred stock, there
can be no assurance that we will not do so in the future.
Registration
Rights
Upon the closing of this offering, holders
of shares
of our common stock will be entitled to certain rights with
respect to the registration of their shares under the Securities
Act.
Demand Registration Rights. Commencing
90 days following the effective date of the registration
statement relating to this prospectus, any holder who is a party
to the registration rights agreement and who holds a minimum of
20% of the common stock covered by the registration rights
agreement, has the right to demand that we file a registration
statement covering the resale of its common stock, subject to a
maximum of four such demands in the aggregate for all holders
and to other specified exceptions. After we become eligible for
the use of SEC
Form S-3,
any holder who is a party to the registration rights agreement,
has the right to demand that we file with the SEC a registration
statement under SEC
Form S-3
or any similar short-form registration statement covering the
shares of common stock held by these stockholders to be offered
to the public, subject to specified exceptions. At the request
of the holders, a demand registration may be a shelf
registration pursuant to Rule 415 of the Securities Act.
The underwriters of any such offerings will have the right to
limit the number of shares to be offered except that if a limit
is imposed, then only shares held by holders who are parties to
the registration rights agreement will be included in such
offering and the number of shares to be included in such
offering will be allocated pro rata among those same parties. In
any event, we will not include any securities of any other
person (including us) in any demand registration statement
without the prior written consent of the holders of a majority
of the shares of common stock covered by such demand
registration statement.
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In no event will we be required to effect more than one demand
registration under the registration rights agreement within any
three-month period (or within a given one-month period, in the
case of any registration under
Form S-3
or any similar short-form registration statement), and we will
not be obligated to effect any demand registration unless the
aggregate gross proceeds to be received from the sale of common
stock equals or exceeds $10.0 million (or
$1.0 million, in the case of any registration under
Form S-3
or any similar short-form registration statement).
Piggyback Registration Rights. If we
register any equity securities for our own account for public
sale, stockholders with registration rights will, with specified
exceptions, have the right to include their shares in the
registration statement. The underwriters of any underwritten
offering will have the right to limit the number of such shares
to be included in the registration statement if the inclusion of
all common stock of the holders who are a party to the
registration rights agreement proposed to be included in such
offering would materially and adversely interfere with the
successful marketing of our securities. Priority of inclusion in
the registration shall be given first to us, second to
stockholders with registration rights, pro rata on the
basis of the relative number of securities requested to be
registered by such stockholder, and third to any other
participating person on such basis as we determine.
Expenses of Registration. Other than
underwriting fees, discounts, commissions, stock transfer taxes
and fees and disbursements of legal counsel to participating
holders (excluding the fees of one firm of legal counsel to all
of the participating holders participating in an underwritten
public offering), we will pay all expenses relating to demand
registrations and all expenses relating to piggyback
registrations.
Indemnification and Contribution. The
registration rights agreement contains indemnification and
contribution arrangements between us and stockholders who are a
party to the registration rights agreement with respect to each
registration statement.
Anti-takeover
Effects of Delaware Law and our Certificate of Incorporation and
Bylaws
The provisions of Delaware law, our certificate of incorporation
and our bylaws described below may have the effect of delaying,
deferring or discouraging another party from acquiring control
of us.
Delaware Law. We will be subject to the
provisions of Section 203 of the DGCL regulating corporate
takeovers. In general, those provisions prohibit a public
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 the 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. The statute
could prohibit or delay mergers or other takeover or change in
control attempts and, accordingly, may discourage attempts to
acquire us.
Charter and Bylaws. Our certificate of
incorporation and bylaws contain certain provisions that are
intended to enhance the likelihood of continuity and stability
in the composition of the board of directors and which may have
the effect of delaying, deferring or preventing a future
takeover or change in control of our company unless such
takeover or change in control is approved by the board of
directors, including:
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Authorized but Unissued Preferred
Stock. Our board of directors is authorized
to issue, without stockholder approval, preferred stock with
such terms as the board of directors may determine. For more
information, see Description of Capital Stock
Preferred Stock.
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Calling Special Stockholder
Meetings. Our bylaws provide that special
meetings of our stockholders may be called only pursuant to the
request of our board of directors, by the chairman of our board
of directors, by our chief executive officer or by the holders
of at least 25% of the voting power of all then outstanding
shares of our common stock. In addition, stockholders may not
fill vacancies on the board of directors and may not act by
written consent.
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Advanced Notice
Procedures. Stockholders must timely provide
advance notice, with specific requirements as to form and
content, of nominations of directors or the proposal of business
to be voted on at an annual meeting.
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Classified Board of Directors. Our
bylaws provide that our board of directors will be divided into
three classes of directors, with the classes to be as nearly
equal in number as possible. Prior to consummation of this
offering, our board will assign each of the current members to
their respective class as the board shall determine in its sole
discretion, subject to the foregoing requirement that the
classes be nearly equal in size. We anticipate we will have a
classified board, with two directors in Class I, two
directors in Class II and three directors in
Class III. The members of each class will serve for a term
expiring at the third succeeding annual meeting of stockholders.
As a result, approximately one-third of our board will be
elected each year. A replacement director shall serve in the
same class as the former director he or she is replacing. The
classification of our board will have the effect of making it
more difficult for stockholders to change the composition of our
board.
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Other Board of Director
Requirements. Our authorized number of
directors may be changed only by resolution of the board of
directors and all vacancies, including newly created
directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then
in office, even if less than a quorum. In addition, directors
may only be removed for cause and then only by a vote of holders
of a majority of the shares entitled to vote at an election of
directors.
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Conflicts of Interest. Delaware law
permits corporations to adopt provisions renouncing any interest
or expectancy in certain opportunities that are presented to the
corporation or its officers, directors or stockholders. Our
certificate of incorporation renounces any interest or
expectancy that we have in, or right to be offered an
opportunity to participate in, specified business opportunities.
Our certificate of incorporation provides that none of our
non-employee directors, non-employee 5% or greater stockholders
or their affiliates will have any duty to refrain from engaging
in a corporate opportunity in the same or similar lines of
business in which we or our affiliates now engage or propose to
engage. In addition, in the event that any such director,
stockholder or affiliate acquires knowledge of a potential
transaction or other business opportunity which may be a
corporate opportunity for us or our affiliates, such person will
have no duty to communicate or offer such transaction or
business opportunity to us and may take any such opportunity for
themselves or offer it to another person or entity. Our
certificate of incorporation does not renounce our interest in
any business opportunity that is expressly offered to a director
solely in his or her capacity as our director.
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Director and Officer Indemnification. We will
indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from
their services to us, which may include services in connection
with takeover defense measures.
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Supermajority Voting Requirements. The
affirmative vote of the holders of at least
662/3%
in voting power of all shares of our stock entitled to vote
generally in the election of directors, voting together as a
single class, is required in order for our stockholders to
alter, amend or repeal the provisions of our bylaws or amend or
repeal of certain provisions of our certificate of incorporation
including the following:
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classified board (the election and term of our directors);
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the resignation and removal of directors;
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the provisions regarding competition and corporate opportunities;
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the provisions regarding stockholder action by written consent;
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the provisions regarding calling special meetings of
stockholders;
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filling vacancies on our board and newly created directorships;
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the advance notice requirements for stockholder proposals and
director nominations; and
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indemnification provisions.
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In addition, our certificate of incorporation grants our board
the authority to amend and repeal our bylaws without a
stockholder vote in any manner not inconsistent with the laws of
the State of Delaware or our certificate of incorporation.
Limitations on
Liability and Indemnification of Officers and
Directors
The DGCL authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their
stockholders for monetary damages for breaches of
directors fiduciary duties. Our certificate of
incorporation includes a provision that eliminates the personal
liability of directors for monetary damages for actions taken as
a director, except to the extent such exemption from liability
is not permitted by the DGCL.
Our certificate of incorporation and bylaws provide that we must
indemnify our directors and officers to the fullest extent
authorized by the DGCL. We are also expressly obligated to
advance certain expenses (including attorneys fees and
disbursements and court costs) and carry directors and
officers insurance providing indemnification for our
directors, officers and certain employees for some liabilities.
We believe that these indemnification provisions and insurance
are useful to attract and retain qualified directors and
executive officers.
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The limitation of liability and indemnification provisions in
our certificate of incorporation and bylaws may discourage
stockholders from bringing a lawsuit against directors for
breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation
against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In
addition, your investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against
directors and officers pursuant to these indemnification
provisions.
Listing
We intend to apply to have our depositary shares and common
stock quoted on the NYSE under the symbol MX.
Transfer Agent
and Registrar; Warrant Agent
The transfer agent and registrar for our common stock and the
warrant agent for our warrants is American Stock
Transfer & Trust Company, LLC and its telephone
number is
(800) 937-5449.
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DESCRIPTION OF
DEPOSITARY SHARES
General
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
and will be evidenced by a depositary receipt. The shares of
common stock represented by depositary shares will be deposited
under a deposit agreement among MagnaChip Semiconductor
Corporation, American Stock Transfer &
Trust Company, LLC, as the depositary, and the holders from
time to time of the depositary receipts evidencing the
depositary shares. Each holder of a depositary share will be
entitled, through the depositary, to all the rights and
preferences of the shares of common stock represented thereby.
To enable the selling stockholders to obtain the preferred
income tax treatment for the corporate conversion, this offering
has been structured so that each purchaser will purchase a
combination of shares sold by us (primary shares) and shares
sold by the selling stockholders (secondary shares) in a
specified ratio. Each depositary share sold in this offering
represents a fraction of a primary share and a fraction of a
secondary share in such specified ratio. The offering of
depositary shares will enable us and the selling stockholders to
establish that each purchaser will purchase such fixed ratio of
primary to secondary shares.
All of the shares of common stock sold in this offering will be
deposited with the depositary prior to the completion of this
offering. The depositary then will issue the depositary shares
to the underwriters. Copies of the forms of the deposit
agreement and the depositary receipt have been filed as exhibits
to the registration statement of which this prospectus is a part.
Cancellation of
Depositary Shares
On ,
2010, 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.
Fees and
Expenses
Except as described under Withdrawal, we will pay
all fees, charges and expenses of the depositary and any agent
of the depositary, including any fees, charges and expenses
payable in connection with the cancellation of the depositary
shares
on ,
2010.
Dividends and
Other Distributions
We do not expect to pay any dividends or other distribution
prior to the cancellation of the depositary shares
on ,
2010.
Listing
We intend to apply to have our depositary shares and our common
stock quoted on the New York Stock Exchange under the symbol
MX. Before the cancellation of the depositary shares
on ,
2010, all of the shares of common stock sold in this offering
will be deposited with the depositary, and there will not be any
separate public trading market for our shares of common stock,
except as represented by the depositary shares. After the
cancellation of the depositary shares
on ,
2010, we expect that our shares of common stock will be listed
on the New York Stock Exchange under the symbol MX.
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Withdrawal
Holders of depositary shares have the right to cancel their
depositary shares and withdraw the underlying common shares at
any time subject only to:
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temporary delays caused by closing of our or the
depositarys transfer books;
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the payment of fees, charges, taxes and other governmental
charges; or
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where deemed necessary or advisable by the depositary or us in
good faith due to any requirement of any U.S. or foreign
laws, government, governmental body or commission, any
securities exchange on which the depositary shares are listed or
governmental regulations relating to the depositary shares or
the withdrawal of the underlying shares of common stock.
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However,
until
, 2010, our common stock will not be listed on any exchange.
Therefore, until that date, it may be more difficult to dispose
of our shares of common stock than it will be to dispose of our
depositary shares.
If you elect to withdraw the shares of common stock underlying
your depositary shares from the depositary, you will be required
to pay the depositary a fee of up to
$ per depositary share
surrendered, together with expenses incurred by the depositary
and any taxes or charges, such as stamp taxes or stock transfer
taxes or fees, in connection with the withdrawal. We will not
receive any portion of the fee payable to the depositary upon a
withdrawal of shares from the depositary.
Form of
Depositary Shares
The depositary shares shall be issued in book-entry form through
American Stock Transfer & Trust Company, LLC as
depositary. The shares of common stock sold in this offering
will be issued in registered form to the depositary.
Limitations on
Obligations and Liability
The deposit agreement expressly limits our and the
depositarys obligations and liability.
We and the depositary:
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have agreed to perform our respective obligations specifically
set forth in the deposit agreement without gross negligence or
bad faith;
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are not liable if either of us by law or circumstances beyond
our control is prevented from, or delayed in, performing any
obligation under the deposit agreement, including, without
limitation, requirements of any present or future law,
regulation, governmental or regulatory authority or stock
exchange of any applicable jurisdiction, any present or future
provision of our certificate of incorporation and bylaws, on
account of possible civil or criminal penalties or restraint,
any provisions of or governing the deposited securities, any act
of God, war or other circumstances beyond each of our control as
set forth in the deposit agreement;
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are not liable if either of us exercises or fails to exercise
the discretion permitted under the deposit agreement, the
provisions of or governing the deposited shares of common stock
or our certificate of incorporation and bylaws;
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are not liable for any action or inaction on the advice or
information of legal counsel, accountants, any person presenting
common shares for deposit, holders and beneficial owners (or
authorized representatives) of depositary shares, or any person
believed in good faith to be competent to give such advice or
information;
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are not liable for the inability of any holder to benefit from
any distribution, offering, right or other benefit if made in
accordance with the provisions of the deposit agreement;
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have no obligation to become involved in a lawsuit or other
proceeding related to any deposited shares of common stock or
the depositary shares or the deposit agreement on behalf of
holders of depositary shares or on behalf of any other party;
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may rely upon any documents we believe in good faith to be
genuine and to have been signed or presented by the proper
party; and
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shall not incur any liability for any indirect, special,
punitive or consequential damages for any breach of the terms of
the deposit agreement.
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The depositary and its agents will not incur any liability under
the deposit agreement for the failure to determine that any
action may be lawful or reasonably practicable, allowing any
rights to lapse in accordance with the provisions of the deposit
agreement, the failure or timeliness of any notice from us, the
content of any information submitted to it by us for
distribution to holders of depositary shares, any investment
risk associated with the acquisition of an interest in our
shares of common stock, the validity or worth of the deposited
shares of common stock, any tax consequences that may result
from ownership of depositary shares or shares of common stock,
the creditworthiness of any third party and for any indirect,
special, punitive or consequential damage. We also have agreed
to indemnify the depositary under certain circumstances. The
depositary may own and deal in any class of our securities,
including the depositary shares.
Notwithstanding the foregoing, the deposit agreement does not
limit our liability under federal securities laws.
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DESCRIPTION OF
CERTAIN INDEBTEDNESS
On April 9, 2010, MagnaChip Semiconductor S.A. and
MagnaChip Semiconductor Finance Company, or the Issuers, two of
our wholly-owned subsidiaries, issued $250,000,000 aggregate
principal amount of 10.500% Senior Notes due 2018, or the
Senior Notes. The Senior Notes mature on April 15, 2018, at
which time the principal amount outstanding thereunder will be
due and payable. The Issuers may issue additional Senior Notes
from time to time under the indenture governing the Senior
Notes, or the Indenture, subject to compliance with the terms of
the Indenture.
Ranking
The Senior Notes are the Issuers general unsecured senior
obligations, rank equally in right of payment with all of their
existing and future unsecured senior indebtedness, are
effectively subordinated to all their secured indebtedness, to
the extent of the value of the collateral securing such
indebtedness, and rank senior in right of payment to all of
their subordinated indebtedness.
Interest
Interest on the Senior Notes accrues at the rate of 10.500% per
annum and is payable semi-annually in arrears on April 15 and
October 15 to the holders of the Senior Notes of record on the
immediately preceding April 1 and October 1. Interest on
the Senior Notes will be computed on the basis of a
360-day year
comprised of twelve
30-day
months. Special interest may accrue on the Senior Notes in
certain circumstances if we fail to comply with our registration
obligations with respect to the Senior Notes pursuant to an
exchange and registration rights agreement. Any special interest
on the Senior Notes will be payable in cash.
Guarantees
The obligations under the Senior Notes are fully and
unconditionally guaranteed on an unsecured senior basis by us
and all of our subsidiaries, other than our insignificant
subsidiaries, as defined in the Indenture, our unrestricted
subsidiaries, as defined in the Indenture, our subsidiaries
organized under the laws of the Peoples Republic of China,
and MagnaChip Korea. The guarantees of the Senior Notes rank
equally in right of payment with or senior to all indebtedness
of us and all such subsidiaries. Such guarantees are effectively
subordinated in right of payment to all secured indebtedness of
us and all such subsidiaries, to the extent of the value of the
collateral securing such indebtedness, and rank senior in right
of payment to all of subordinated indebtedness of us and all
such subsidiaries.
Optional
Redemption
At any time prior to April 15, 2013, the Issuers may, on
one or more occasions, redeem up to 35% of the aggregate
principal amount of the Senior Notes with the net cash proceeds
of certain qualified equity offerings by us, at a redemption
price equal to 110.500% of the principal amount of the Senior
Notes to be redeemed, plus accrued and unpaid interest and
special interest, if any, to the redemption date.
Also, at any time prior to April 15, 2014, the Issuers may,
on one or more occasions, redeem some or all of the Senior Notes
at a redemption price equal to 100% of the principal amount of
the Senior Notes redeemed, plus accrued and unpaid interest and
special interest, if any, to the redemption date and a
make-whole premium calculated as provided in the
Indenture.
In addition, on or after April 15, 2014, the Issuers may,
on one or more occasions, redeem some or all of the Senior Notes
at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest and
special interest, if any, to the redemption date, if redeemed
during the twelve-month period beginning on April 15 of each of
the years indicated below:
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Year
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Percentage
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2014
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105.250
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%
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2015
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102.625
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2016 and thereafter
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100.000
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Change of
Control
Upon the occurrence of a change of control, as defined in the
Indenture, unless the Issuers have mailed a redemption notice
with respect to the Senior Notes and do not default in the
payment of the applicable redemption price or a third party
makes a similar offer to purchase all of the Senior Notes, we
must make an offer to purchase all of the Senior Notes at a
price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and special interest,
if any, to the date of purchase.
Asset
Sales
The Indenture provides that we and our restricted subsidiaries
(including MagnaChip Korea but excluding unrestricted
subsidiaries, as defined in the Indenture) will not consummate
an asset sale, as defined in the Indenture, unless certain
conditions are met, including that the consideration received is
at least equal to the fair market value of the assets sold, and
that a specified percentage of such consideration is in the form
of cash. If we do not use the sale proceeds in our business as
specified in the Indenture, we must apply such proceeds to an
offer to repurchase Senior Notes at a price in cash equal to
100% of the aggregate principal amount thereof plus accrued and
unpaid interest and special interest, if any, to the repurchase
date.
Redemption Upon
Changes in Withholding Taxes
Payments on the Senior Notes are to be made without withholding
or deduction for any current or future taxes, unless required by
law. If such withholding is required, we will pay such
additional amounts as are needed for the net amounts received by
the holders of the Senior Notes to equal the amount that they
would have received if the taxes had not been withheld. We may
redeem all of the Senior Notes at a redemption price equal to
the aggregate principal amount of the Senior Notes outstanding
plus accrued and unpaid interest, special interest, if any, and
the additional amounts due, if any, to the redemption date, if
we are required to pay such amounts as a result of changes in
law.
Covenants
The Indenture contains covenants that limit our ability and the
ability of our restricted subsidiaries to:
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declare or pay any dividend or make any payment or distribution
on account of or purchase or redeem our capital stock or equity
interests of our restricted subsidiaries;
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make any principal payment on, or redeem or repurchase, prior to
any scheduled repayment, sinking fund payment or maturity, any
subordinated indebtedness;
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make certain investments, including capital expenditures;
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incur additional indebtedness and issue certain types of capital
stock;
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create or incur any lien (except for permitted liens) that
secures obligations under any indebtedness or related guarantee;
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merge with or into or sell all or substantially all of our
assets to other companies;
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enter into certain types of transactions with affiliates;
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guarantee the payment of any indebtedness;
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enter into sale-leaseback transactions;
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enter into agreements that would restrict the ability of the
restricted subsidiaries to make distributions with respect to
their equity, to make loans to us or other restricted
subsidiaries or to transfer assets to us or other restricted
subsidiaries; and
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designate unrestricted subsidiaries.
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Certain of these covenant restrictions will be suspended during
any time period that the Senior Notes are rated investment grade.
142
Events of
Default
The Indenture includes certain events of default, including
payment defaults, covenant defaults, cross-defaults to certain
indebtedness, certain events of bankruptcy with respect to us,
the Issuers and the restricted subsidiaries that are defined in
the Indenture as significant subsidiaries, failure to pay
certain judgments, and invalidation or unenforceability of the
guarantees of the Senior Notes.
143
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
common stock, and a significant public market for our common
stock may not develop or be sustained after this offering.
Future sales of significant amounts of our common stock,
including shares of our outstanding common stock and shares of
our common stock issued upon exercise of outstanding options and
warrants, in the public market after this offering could
adversely affect the prevailing market price of our common stock
and could impair our future ability to raise capital through the
sale of securities.
Sale of
Restricted Shares and
Lock-Up
Agreements
Upon the closing of this offering, we will have
outstanding shares
of common stock, based upon the common units of MagnaChip
Semiconductor LLC outstanding as of December 31, 2009 after
giving effect to the corporate conversion pursuant to which each
common unit will be automatically converted into shares of our
common stock at a ratio
of .
Of these shares,
the shares
of common stock sold in this offering,
or shares
if the underwriters exercise their option to purchase additional
shares in full, will be freely tradable without restriction
under the Securities Act, unless purchased by affiliates of our
company, as that term is defined in Rule 144 under the
Securities Act.
Of
the
remaining shares of common
stock,
were converted in the corporate conversion from common units of
MagnaChip Semiconductor LLC issued under Section 1145 of
the U.S. Bankruptcy Code in connection with our
reorganization proceedings and were deemed to have been issued
in a public offering and may be resold as freely tradeable
securities under Section 4(1) of the Securities Act, except
for such shares held by our affiliates or holders deemed to be
underwriters, as that term is defined in
Section 1145(b) of the U.S. Bankruptcy Code, who may
be subject to applicable resale limitations under Rule 144;
and shares
of common stock are eligible for public sale if registered under
the Securities Act or sold in accordance with Rule 144 of
the Securities Act. These shares are subject to a registration
rights agreement or restricted unit agreements that restricts
their sale for 180 days after the date of this prospectus
unless Goldman, Sachs & Co. and Barclays Capital Inc.,
the representatives of the underwriters, agree to a lesser
period.
Furthermore,
of these remaining shares of common stock are held by officers,
directors and existing stockholders who are subject to
lock-up
agreements and other trading restrictions for a period of
180 days after the date of this prospectus. These lock-up
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 above under Description of
Capital Stock Registration Rights.
Goldman, Sachs & Co. and Barclays Capital Inc., as
representatives of the underwriters, may, at any time without
notice, release all or any portion of the securities subject to
the lock-up
agreements. We have been advised by the representatives of the
underwriters that, when determining whether or not to release
shares from the
lock-up
agreements, the representatives of the underwriters will
consider, among other factors, the stockholders reasons
for requesting the release, the number of shares for which the
release is being requested and market conditions at the time.
The representatives of the underwriters have advised us that
they have no present intention to release any of the shares
subject to the
lock-up
agreements prior to the expiration of the
lock-up
period.
Rule 144
In general, Rule 144 allows a stockholder (or stockholders
where shares of common stock are aggregated) who has
beneficially owned shares of our common stock for at least six
months to sell an unlimited number of shares of our common stock
provided current public information about us is available and,
after one year, an unlimited number of shares of our common
stock without restriction. Our affiliates who have beneficially
owned shares of our common stock for at least six months are
144
entitled to sell within any three-month period commencing
90 days after the date of this prospectus a number of those
shares that does not exceed the greater of:
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one percent of the number of shares of common stock then
outstanding, which will equal
approximately shares
immediately after this offering; or
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the average weekly trading volume of the common stock on all
national securities exchanges
and/or
reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding
the sale.
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Sales under Rule 144 by our affiliates are subject to
specific manner of sales provisions, notice requirements and the
availability of current information about us. We cannot estimate
the number of shares of common stock our existing stockholders
will sell under Rule 144, as this will depend on the market
price for our common stock, the personal circumstances of the
stockholders and other factors.
Options
In addition to
the shares
of common stock outstanding immediately after this offering,
based upon the common units of MagnaChip Semiconductor LLC
outstanding as of December 31, 2009 after giving effect to
the corporate conversion pursuant to which each common unit will
be automatically converted into shares of our common stock at a
ratio
of ,
there were outstanding options to
purchase shares
of our common stock. As soon as practicable after the closing of
this offering, we intend to file a registration statement on
Form S-8
under the Securities Act covering shares of our common stock
reserved for issuance upon exercise of stock options outstanding
as
of
at a weighted average exercise price
of
per share
and 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.
Accordingly, shares of our common stock registered under such
registration statement will be available for sale in the open
market upon exercise by the holders, subject to vesting
restrictions with us, contractual
lock-up
restrictions, our securities trading policy
and/or
market stand-off provisions applicable to each other agreement
that prohibits the sale or other disposition of the shares of
common stock underlying the options for a period of
180 days after the date of this prospectus without the
prior written consent from us or Goldman, Sachs & Co.
and Barclays Capital Inc.
Warrants
In addition to
the shares
of common stock outstanding immediately after this offering
after giving effect to the corporate conversion, as of
December 31, 2009, there were outstanding warrants to
purchase shares
of our common stock. The warrants were issued under
Section 1145 of the U.S. Bankruptcy Code in connection
with our reorganization proceedings and such warrants were
deemed to have been issued, and shares of common stock issued
upon exercise of such warrants will be deemed to be issued, in a
public offering and may be resold as freely tradeable securities
under Section 4(1) of the Securities Act, except for such
warrants and shares of common stock issued upon exercise of such
warrants held by our affiliates or holders deemed to be
underwriters, as that term is defined in
Section 1145(b) of the U.S. Bankruptcy Code, who may
be subject to applicable resale limitations under Rule 144.
The warrants and shares of common stock issued upon exercise of
such warrants are subject to a warrant agreement that restricts
their sale for 180 days after the date of this prospectus
unless we and the managing underwriters, agree to a lesser
period.
Registration
Rights
Upon the closing of this offering, certain holders of our shares
of common stock will have the right to register their remaining
shares of common stock pursuant to a registration rights
agreement. In addition, some holders will have certain
piggyback registration rights, pursuant to that
agreement. See Description of Capital Stock.
145
MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income
tax consequences of the ownership and disposition of shares of
our common stock to a U.S. holder or
non-U.S.
holder (each, as defined below) who purchases our common stock
in this offering. For purposes of this discussion, a U.S. holder
is any beneficial owner (other than an entity treated as a
partnership for U.S. federal income tax purposes) of our common
stock that for U.S. federal income tax purposes is:
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an individual citizen or resident of the United States;
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a corporation or other entity taxable as a corporation created
or organized in the United States or under the laws of the
United States or any state thereof or the District of Columbia;
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an estate whose income is subject to U.S. federal income tax
regardless of its source; or
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a trust (x) whose administration is subject to the primary
supervision of a U.S. court and which has one or more U.S.
persons who have the authority to control all substantial
decisions of the trust or (y) which has made a valid
election to be treated as a U.S. person.
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A non-U.S.
holder is any beneficial owner of our common stock that is not a
U.S. holder and is not an entity treated as a partnership for
U.S. federal income tax purposes.
If a partnership or other pass-through entity holds our common
stock, the tax treatment of a partner or member in the
partnership or other entity will generally depend on the status
of the partner or member and upon the activities of the
partnership or other entity. Accordingly, we urge partnerships
or other pass-through entities which hold shares of our common
stock and partners or members in these partnerships or other
entities to consult their tax advisors.
This discussion assumes that shares of our common stock issued
pursuant to the offering will be held as a capital asset
(generally, property held for investment). This discussion does
not address all aspects of U.S. federal income taxation that may
be relevant in light of a holders special tax status or
special tax situations. U.S. expatriates, life insurance
companies, tax-exempt organizations, dealers in securities or
currency, banks or other financial institutions, pension funds
and investors that hold our shares of common stock as part of a
hedge, straddle or conversion transaction are among those
categories of potential investors that are subject to special
rules not covered in this discussion. This discussion does not
address any non-income tax consequences or any income tax
consequences arising under the laws of any state, local or
non-U.S.
taxing jurisdiction. Furthermore, the following discussion is
based on current provisions of the Internal Revenue Code,
Treasury Regulations and administrative and judicial
interpretations thereof, all as in effect on the date hereof,
and all of which are subject to change, possibly with
retroactive effect. Additionally, we have not sought any ruling
from the Internal Revenue Service or IRS, with respect to
statements made and conclusions reached in this discussion, and
there can be no assurance that the IRS will agree with these
statements and conclusions. We urge each prospective purchaser
to consult a tax advisor regarding the U.S. federal, state,
local and
non-U.S.
income and other tax consequences of acquiring, holding and
disposing of shares of our common stock.
The depositary shares should represent ownership in the
underlying shares of stock of the company for U.S. federal
income tax purposes because, among other things, the holders of
the depositary shares have the right to receive dividends, if
declared and paid, with respect to the underlying shares, the
right to vote with respect to the underlying shares, and the
right to receive the underlying shares upon cancellation of the
depositary shares. On the date that the depositary shares are
cancelled and each holder is credited with a number of shares of
common stock equal to the number of depositary shares held by
such holder, the holder should retain ownership in the shares of
common stock for U.S. federal income tax purposes without
recognition of gain or loss and with such holders holding
period of the underlying common stock including the period
during which the depositary shares are outstanding.
All references in this discussion to our common
stock include references to the depositary shares
representing ownership rights in the underlying common
stock.
146
U.S.
Holders
Distributions
If we make distributions on our common stock, those payments
will generally constitute dividends for U.S. tax purposes to the
extent paid from our current or accumulated earnings and
profits, as determined under U.S. federal income tax principles.
With respect to certain non-corporate U.S. holders, including
individual U.S. holders, for taxable years beginning before
January 1, 2011, dividends will be taxed at the lower
capital gains rate applicable to qualified dividend
income, provided that certain holding period requirements
are met. To the extent those distributions exceed our current
and accumulated earnings and profits, the distributions will
first constitute a return of capital and will reduce a U.S.
holders basis, but not below zero, and then will be
treated as gain from the sale of shares and may be subject to
U.S. federal income tax as described below. Dividends received
by a corporation may be eligible for a dividends received
deduction, subject to applicable limitations.
Disposition of
Shares of Common Stock
A U.S. holder generally will recognize gain or loss upon the
taxable sale or other disposition of shares of our common stock
in an amount equal to the difference between the amount realized
upon such sale or disposition and the U.S. holders tax
basis in the shares of our common stock. Such gain or loss
generally will be capital gain or loss. Capital gain will be
long-term capital gain if the U.S. holders holding period
for such shares is more than one year at the time of
disposition. Long-term capital gains are generally subject to a
reduced rate of taxation for non-corporate U.S. holders. A
deduction with respect to a capital loss may be subject to
limitation.
Non-U.S.
Holders
Distributions
If we make distributions on our common stock, those payments
will constitute dividends for U.S. tax purposes to the extent
paid from our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. To the
extent those distributions exceed our current and accumulated
earnings and profits, the distributions will first constitute a
return of capital and will reduce a holders basis, but not
below zero, and then will be treated as gain from the sale of
shares and may be subject to U.S. federal income tax as
described below.
Any distribution that is a dividend, as defined above, paid to a
non-U.S.
holder generally will be subject to U.S. withholding tax either
at a rate of 30% of the gross amount of the dividend or such
lower rate as may be specified by an applicable tax treaty. In
order to receive a reduced treaty rate, a
non-U.S.
holder must timely provide us with an IRS
Form W-8BEN
or other appropriate version of IRS
Form W-8
properly certifying qualification for the reduced rate.
Dividends received by a
non-U.S.
holder that are effectively connected with a U.S. trade or
business conducted by the
non-U.S.
holder (and dividends attributable to a
non-U.S.
holders permanent establishment in the United States if a
tax treaty applies) are exempt from this withholding tax. In
order to obtain this exemption, a
non-U.S.
holder must timely provide us with an IRS
Form W-8ECI
properly certifying this exemption. Dividends that are so
effectively connected (and, if required by an applicable tax
treaty, attributable to a permanent establishment), although not
subject to withholding tax, are taxed at the same graduated
rates applicable to U.S. persons, net of specified deductions
and credits. In addition, such dividends received by a corporate
non-U.S.
holder may also be subject to a branch profits tax at a rate of
30% (or such lower rate as may be specified in a tax treaty).
A non-U.S.
holder of common stock that is eligible for a reduced rate of
withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts withheld if an appropriate claim for refund
is filed with the IRS.
147
Gain on
Disposition of Shares of Common Stock
A non-U.S.
holder generally will not be subject to United States federal
income tax on gain realized upon the sale or other disposition
of shares of our common stock unless:
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the gain is effectively connected with a U.S. trade or business
of the
non-U.S.
holder (and attributable to a permanent establishment in the
United States if a tax treaty applies);
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the non-U.S.
holder is an individual who is present in the United States for
a period or periods aggregating 183 days or more during the
taxable year in which the sale or disposition occurs and certain
other conditions are met; or
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our common stock constitutes a U.S. real property interest by
reason of our status as a United States real property
holding corporation for U.S. federal income tax purposes
at any time within the shorter of the five-year period preceding
the date of disposition or the holders holding period for
shares of our common stock. We believe that we will not be,
immediately after our conversion to a corporation, and we
believe that we will not become, a United States real
property holding corporation for U.S. federal income tax
purposes. If we become a United States real property
holding corporation, so long as our common stock is
regularly traded on an established securities
market, only a
non-U.S.
holder who, actually or constructively, holds or held (at any
time during the shorter of the five year period preceding the
date of disposition or the holders holding period) more
than 5% of shares of our common stock will be subject to U.S.
federal income tax on the disposition of shares of our common
stock.
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If the recipient is a
non-U.S.
holder described in the first bullet above, the recipient will
be required to pay tax on the net gain derived from the sale
under regular graduated U.S. federal income tax rates, and
corporate
non-U.S.
holders described in the first bullet above may be subject to
the branch profits tax at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty.
Non-U.S.
holders should consult their tax advisors regarding any
applicable income tax treaties that may provide for different
rules.
If the recipient is an individual
non-U.S.
holder described in the second bullet above, the recipient will
be required to pay a flat 30% tax on the gain derived from the
sale, which gain may be offset by U.S. source capital losses
provided that the
non-U.S.
holder has timely filed U.S. federal income tax returns with
respect to such losses.
Backup
Withholding and Information Reporting
Payments of dividends or of proceeds on the disposition of
shares made to a U.S. holder may be subject to information
reporting and backup withholding at the then effective rate
unless the U.S. holder provides a correct taxpayer
identification number (which, in the case of an individual, is
his or her social security number) and certifies whether such
U.S. holder is subject to backup withholding of U.S. federal
income tax by completing
Form W-9
or otherwise establishing a basis for exemption from backup
withholding. U.S. holders who fail to provide their correct
taxpayer identification numbers and the appropriate
certifications or fail to establish an exemption as described
above will be subject to backup withholding and may be subject
to a penalty imposed by the IRS.
Payments of dividends or of proceeds on the disposition of
shares made to a
non-U.S.
holder may be subject to information reporting and backup
withholding at the then effective rate unless the
non-U.S.
holder establishes an exemption, for example, by properly
certifying its
non-U.S.
status on a
Form W-8BEN
or another appropriate version of
Form W-8.
Notwithstanding the foregoing, information reporting and backup
withholding may apply if either we or our paying agent has
actual knowledge, or reason to know, that the holder is a U.S.
person.
Even if a
non-U.S.
holder establishes an exemption from information reporting, we
may still be required to report annually to the IRS the amount
of dividends paid, the name and address of the recipient, and
the amount, if any, of tax withheld. A similar report is sent to
the holder. Pursuant to tax
148
treaties or other agreements, the IRS may make its reports
available to tax authorities in the recipients country of
residence.
Backup withholding is not an additional tax. Rather, the U.S.
income tax liability of persons subject to backup withholding
will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund or credit may be
obtained, so long as the required information is furnished to
the IRS in a timely manner.
New Legislation
Relating to Foreign Accounts
Newly enacted legislation may impose withholding taxes on
certain types of payments made to foreign financial
institutions and certain other
non-U.S.
entities. Under this legislation, the failure to comply with
additional certification, information reporting and other
specified requirements could result in withholding tax being
imposed on payments of dividends and sales proceeds to U.S.
holders who own the shares through foreign accounts or foreign
intermediaries and certain
non-U.S.
holders. The legislation imposes a 30% withholding tax on
dividends on, or gross proceeds from the sale or other
disposition of, our common stock paid to a foreign financial
institution or to a foreign non-financial entity, unless
(i) the foreign financial institution undertakes certain
diligence and reporting obligations or (ii) the foreign
non-financial entity either certifies it does not have any
substantial U.S. owners or furnishes identifying information
regarding each substantial U.S. owner. In addition, if the payee
is a foreign financial institution, it must enter into an
agreement with the U.S. Treasury requiring, among other things,
that it undertake to identify accounts held by certain U.S.
persons or
U.S.-owned
foreign entities, annually report certain information about such
accounts and withhold 30% on payments to account holders whose
actions prevent it from complying with these reporting and other
requirements. The legislation applies to payments made after
December 31, 2012. Prospective investors should consult
their tax advisors regarding this legislation.
Surtax on Certain
Net Investment Income.
Under recent legislation, certain U.S. holders who are
individuals, estates or trusts will be required to pay an
additional 3.8% tax on, among other things, dividends and
capital gains from the sale or other disposition of stock for
taxable years beginning after December 31, 2012.
149
UNDERWRITING
We, the selling stockholders and the underwriters named below
have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman,
Sachs & Co. and Barclays Capital Inc. are the
representatives of the underwriters.
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Number of
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Underwriters
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Shares
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Goldman, Sachs & Co.
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Barclays Capital Inc.
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Deutsche Bank Securities Inc.
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Citigroup Global Markets Inc.
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UBS Securities LLC
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Total
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The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised. If the underwriters sell more shares than
the total number set forth in the table above, the underwriters
have an option to buy up to an
additional shares
from us
and shares
from the selling stockholders. They may exercise that option in
whole or in part and from time to time for 30 days. If any
shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting
discount to be paid to the underwriters by us and the selling
stockholders. Such amounts are shown assuming both no exercise
and full exercise of the underwriters option to
purchase
additional shares.
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No
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Full
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Paid by Us
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Exercise
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Exercise
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Per share
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$
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$
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Total
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$
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$
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No
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Full
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Paid by the Selling
Stockholders
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Exercise
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Exercise
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Per share
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$
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$
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Total
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$
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$
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Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$ per share from the initial
public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change
the offering price and the other selling terms. The offering of
the shares by the underwriters is subject to receipt and
acceptance and subject to the underwriters right to reject
any order in whole or in part.
We and our officers, directors, selling stockholders and certain
other stockholders have agreed with the underwriters, subject to
certain exceptions, not to dispose of or hedge any of their
common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this
prospectus continuing through the date 180 days after the date
of this prospectus, except with the prior written consent of the
representatives; provided, that this agreement does 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
above under Description of Capital Stock
Registration Rights. See Shares Eligible for
Future Sale for a discussion of certain transfer
restrictions.
150
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period we issue an earnings release or announce
material news or a material event; or (2) prior to the
expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event.
Prior to the offering, there has been no public market for the
shares. The initial public offering price has been negotiated
among us and the representatives. Among the factors to be
considered in determining the initial public offering price of
the shares, in addition to prevailing market conditions, will be
our historical performance, estimates of our business potential
and earnings prospects, an assessment of our management and the
consideration of the above factors in relation to market
valuation of companies in related businesses.
We intend to apply to have our depositary shares and common
stock quoted on the NYSE under the symbol MX.
In connection with the offering, the underwriters may purchase
and sell shares of our common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional shares from us and the selling stockholders in the
offering. The underwriters may close out any covered short
position by either exercising their option to purchase
additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase additional
shares pursuant to the option granted to them. Naked
short sales are any sales in excess of such option. The
underwriters must close out any naked short position by
purchasing shares in the open market. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions
consist of various bids for or purchases of common stock made by
the underwriters in the open market prior to the closing of the
offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing
transactions, as well as other purchases by the underwriters for
their own accounts, may have the effect of preventing or
retarding a decline in the market price of our stock, and
together with the imposition of the penalty bid, may stabilize,
maintain or otherwise affect the market price of the common
stock. As a result, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued at any
time. These transactions may be effected on the NYSE, in the
over-the-counter
market or otherwise.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive, or a Relevant
Member State, each underwriter has represented and agreed that
with effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State, or the
Relevant Implementation Date, it has not made and will not make
an offer of shares to the public in that Relevant Member State
prior to the publication of a prospectus in relation to the
shares which has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive,
151
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares to the public in
that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43 million and (3) an annual net turnover of
more than 50 million, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the representatives
for any such offer; or
(d) in any other circumstances which do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of shares to the public in relation to any
shares in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the shares to be offered so as to enable an
investor to decide to purchase or subscribe the shares, as the
same may be varied in that Relevant Member State by any measure
implementing the Prospectus Directive in that Relevant Member
State and the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each Relevant Member State.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000, or the FSMA) received by it in connection
with the issue or sale of the shares in circumstances in which
Section 21(1) of the FSMA does not apply to the
issuer; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong)
and any rules made thereunder, or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore, or the SFA, (ii) to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA.
152
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or (b) a trust (where the
trustee is not an accredited investor) whose sole purpose is to
hold investments and each beneficiary is an accredited investor,
shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for 6 months after
that corporation or that trust has acquired the shares under
Section 275 except: (1) to an institutional investor
under Section 274 of the SFA or to a relevant person, or
any person pursuant to Section 275(1A), and in accordance
with the conditions, specified in Section 275 of the SFA;
(2) where no consideration is given for the transfer; or
(3) by operation of law.
The securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan, or the
Financial Instruments and Exchange Law, and each underwriter has
agreed that it will not offer or sell any securities, directly
or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering
or resale, directly or indirectly, in Japan or to a resident of
Japan, except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
A prospectus in electronic format will be available on the
websites maintained by one or more of the underwriters
participating in this offering. The representatives may agree to
allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be
allocated by the underwriters that make internet distributions
on the same basis as other allocations.
The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
We estimate that our share of the total expenses of the
offering, excluding underwriting discount but including the
expenses of the selling stockholders, will be approximately
$ million.
We and the selling stockholders have agreed to indemnify the
several underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, and to contribute
to payments that the underwriters may be required to make for
any such liabilities.
If you purchase shares of common stock offered in this
prospectus, you may be required to pay stamp taxes and other
charges under the laws and practices of the country of purchase,
in addition to the offering price listed on the cover page of
this prospectus.
Certain of the underwriters and their respective affiliates are
full service financial institutions engaged in various
activities, which may include securities trading, commercial and
investment banking, financial advisory, investment management,
principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for the issuer, for which they received or will
receive customary fees and expenses. An affiliate of Goldman,
Sachs & Co. is the counterparty to our currency
hedging transactions. Goldman, Sachs & Co., Barclays
Capital Inc., Deutsche Bank Securities, Inc., Citigroup Global
Markets Inc. and UBS Securities LLC acted as initial purchasers
in our private placement of $250 million in aggregate
principal amount of notes, which closed on April 9, 2010
and for which they received discounts and commissions. Goldman,
Sachs & Co., Barclays Capital Inc., Deutsche Bank
Securities, Inc., Citigroup Global Markets Inc. and UBS
Securities LLC are managing underwriters in this offering.
Prior to the reorganization proceedings, affiliates of Citigroup
Global Markets Inc. directly or indirectly held in excess of 10%
of our outstanding common units and preferred units, and were
considered our affiliates. In the reorganization proceedings,
all equity interests in our company, including interests in
common units and preferred units, were assigned to Class 8
of our plan of reorganization. Members of Class 8,
including the affiliates of Citigroup Global Markets Inc. that
directly or indirectly held common or preferred units in our
company, received no distributions or
153
recoveries on account of their equity interests and these
equity interests were cancelled and extinguished as of the
effective date of our plan of reorganization.
In the ordinary course of their various business activities,
certain of the underwriters and their respective affiliates may
make or hold a broad array of investments and actively trade
debt and equity securities (or related derivative securities)
and financial instruments (including bank loans) for their own
account and for the accounts of their customers and may at any
time hold long and short positions in such securities and
instruments. Such investment and securities activities may
involve securities and instruments of the issuer.
154
LEGAL
MATTERS
The validity of our depositary shares and the common stock
represented by the depositary shares offered hereby will be
passed upon for us by DLA Piper LLP (US), East Palo Alto,
California. Certain matters will be passed upon for the
underwriters by Latham & Watkins LLP, New York, New
York.
EXPERTS
Our consolidated financial statements as of and for the
two-month period ended December 31, 2009, and consolidated
financial statements as of December 31, 2008 and for the
ten-month period ended October 25, 2009 and for each of the
two years in the periods ended December 31, 2008 and 2007
included in this prospectus have been so included in reliance on
the reports of Samil PricewaterhouseCoopers, an independent
registered public accounting firm, given on the authority of
said firm as experts in accounting and auditing. The address of
Samil PricewaterhouseCoopers is LS Yongsan Tower,
191 Hangangro 2ga, Yongsan-gu, Seoul
140-702,
Korea. Samil PricewaterhouseCoopers is a member of the Korean
Institute of Certified Public Accountants.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act of 1933, covering our common stock to
be issued pursuant to this offering (Registration
No. 333-165467).
This prospectus, which is a part of the registration statement,
does not contain all of the information included in the
registration statement. Any statement made in this prospectus
concerning the contents of any contract, agreement or other
document is not necessarily complete. For further information
regarding MagnaChip and the depositary shares to be issued in
the offering, please refer to the registration statement,
including its exhibits. If we have filed any contract, agreement
or other document as an exhibit to the registration statement,
you should read the exhibit for a more complete understanding of
the documents or matters involved.
You may read and copy any reports or other information filed by
us at the SECs public reference room at
100 F Street N.E., Washington, DC 20549. Copies of
this material can be obtained from the Public Reference Section
of the SEC upon payment of fees prescribed by the SEC. You may
call the SEC at 800-SEC-0350 for further information on the
operation of the public reference room. Our filings will also be
available to the public from commercial document retrieval
services and at the SEC website at www.sec.gov. In
addition, you may request a copy of any of these filings, at no
cost, by writing or telephoning us at the following address or
phone number:
c/o MagnaChip
Semiconductor, Inc., 20400 Stevens Creek Boulevard,
Suite 370 Cupertino, CA 95014, attention: Senior Vice
President, General Counsel and Secretary; the telephone number
at that address is
408-625-5999.
155
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Unitholders of
MagnaChip Semiconductor LLC
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of operations, of changes in
unitholders equity and of cash flows present fairly, in
all material respects, the financial position of MagnaChip
Semiconductor LLC and its subsidiaries (the Company)
at December 31, 2009 (Successor Company) and the results of
their operations and their cash flows for the two-month period
ended December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit. We conducted our audit of these statements in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial
statements, the United States Bankruptcy Court for the District
of Delaware confirmed the Creditors Committees
reorganization plan (the Plan) on September 25,
2009. Confirmation of the Plan resulted in the discharge of all
claims against the Company that arose before June 12, 2009
and substantially terminates all rights and interests of equity
security holders as provided for in the Plan. The Plan was
substantially consummated on November 9, 2009 and the
Company emerged from bankruptcy. In connection with its
emergence from bankruptcy, the Company adopted fresh-start
accounting as of October 25, 2009.
/s/ Samil PricewaterhouseCoopers
Seoul, Korea
March 13, 2010
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Unitholders of
MagnaChip Semiconductor LLC
In our opinion, the accompanying consolidated balance sheet and
the related consolidated statements of operations, of changes in
unitholders equity and of cash flows present fairly, in
all material respects, the financial position of MagnaChip
Semiconductor LLC and its subsidiaries (the Company)
at December 31, 2008 (Predecessor Company), and the results
of their operations and their cash flows for the ten-month
period ended October 25, 2009 and for each of the two years
in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 2 to the consolidated financial
statements, the Company filed a petition on June 12, 2009
with the United States Bankruptcy Court for the District of
Delaware for reorganization under the provisions of
Chapter 11 of the Bankruptcy Code. The Companys
Creditors Committees reorganization plan was
substantially consummated on November 9, 2009 and the
Company emerged from bankruptcy. In connection with its
emergence from bankruptcy, the Company adopted fresh-start
accounting.
As discussed in Note 4 to the consolidated financial
statements, the Company changed the manner in which it accounts
for business combinations in 2009.
/s/ Samil
PricewaterhouseCoopers
Seoul, Korea
March 13, 2010
F-3
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
(Unaudited)
|
|
|
Historical
|
|
|
|
(Audited)
|
|
|
(Note 27)
|
|
|
(Audited)
|
|
|
|
(In thousands of US dollars,
|
|
|
|
except unit data)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64,925
|
|
|
$
|
64,925
|
|
|
$
|
4,037
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
11,768
|
|
Accounts receivable, net
|
|
|
74,233
|
|
|
|
74,233
|
|
|
|
76,295
|
|
Inventories, net
|
|
|
63,407
|
|
|
|
63,407
|
|
|
|
47,110
|
|
Other receivables
|
|
|
3,433
|
|
|
|
3,433
|
|
|
|
4,701
|
|
Prepaid expenses
|
|
|
12,625
|
|
|
|
12,625
|
|
|
|
9,268
|
|
Other current assets
|
|
|
3,433
|
|
|
|
3,433
|
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
222,056
|
|
|
|
222,056
|
|
|
|
157,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
156,337
|
|
|
|
156,337
|
|
|
|
183,955
|
|
Intangible assets, net
|
|
|
50,158
|
|
|
|
50,158
|
|
|
|
34,892
|
|
Long-term prepaid expenses
|
|
|
10,542
|
|
|
|
10,542
|
|
|
|
7,714
|
|
Other non-current assets
|
|
|
14,238
|
|
|
|
14,238
|
|
|
|
14,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
453,331
|
|
|
$
|
453,331
|
|
|
$
|
399,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
59,705
|
|
|
|
59,705
|
|
|
$
|
70,158
|
|
Other accounts payable
|
|
|
7,190
|
|
|
|
7,190
|
|
|
|
15,040
|
|
Payable to unitholders
|
|
|
|
|
|
|
130,700
|
|
|
|
|
|
Accrued expenses
|
|
|
22,114
|
|
|
|
22,114
|
|
|
|
38,554
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
Current portion of long-term debt
|
|
|
618
|
|
|
|
618
|
|
|
|
750,000
|
|
Other current liabilities
|
|
|
3,937
|
|
|
|
3,937
|
|
|
|
3,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
93,564
|
|
|
|
224,264
|
|
|
|
972,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
61,132
|
|
|
|
61,132
|
|
|
|
|
|
Accrued severance benefits, net
|
|
|
72,409
|
|
|
|
72,409
|
|
|
|
61,939
|
|
Other non-current liabilities
|
|
|
10,536
|
|
|
|
10,536
|
|
|
|
9,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
237,641
|
|
|
|
368,341
|
|
|
|
1,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred units,
$1,000 par value; 60,000 units authorized,
50,091 units issued and 0 unit outstanding at
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred units,
$1,000 par value; 550,000 units authorized,
450,692 units issued, 93,997 units outstanding at
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
142,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred units
|
|
|
|
|
|
|
|
|
|
|
142,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor common units, no par value, 375,000,000 units
authorized, 307,083,996 units issued and outstanding at
December 31, 2009
|
|
|
55,135
|
|
|
|
55,135
|
|
|
|
|
|
Predecessor common units, $1 par value;
65,000,000 units authorized, 52,923,483 units issued
and outstanding at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
52,923
|
|
Additional paid-in capital
|
|
|
168,700
|
|
|
|
38,000
|
|
|
|
3,150
|
|
Accumulated deficit
|
|
|
(1,963
|
)
|
|
|
(1,963
|
)
|
|
|
(995,007
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(6,182
|
)
|
|
|
(6,182
|
)
|
|
|
151,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity (deficit)
|
|
|
215,690
|
|
|
|
84,990
|
|
|
|
(787,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred units and
unitholders equity
|
|
$
|
453,331
|
|
|
$
|
453,331
|
|
|
$
|
399,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-4
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
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Successor
|
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Predecessor
|
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Ten-Month
|
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Two-Month
|
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Period
|
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Period Ended
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Ended
|
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Year Ended
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Year Ended
|
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December 31,
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October 25,
|
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December 31,
|
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December 31,
|
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|
|
|
2009
|
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|
|
2009
|
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|
2008
|
|
|
2007
|
|
|
|
|
(In thousands of US dollars, except unit data)
|
|
Net sales
|
|
|
$
|
111,082
|
|
|
|
$
|
448,984
|
|
|
$
|
601,664
|
|
|
$
|
709,508
|
|
Cost of sales
|
|
|
|
90,408
|
|
|
|
|
311,139
|
|
|
|
445,254
|
|
|
|
578,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
20,674
|
|
|
|
|
137,845
|
|
|
|
156,410
|
|
|
|
130,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
|
14,540
|
|
|
|
|
56,288
|
|
|
|
81,314
|
|
|
|
82,710
|
|
Research and development expenses
|
|
|
|
14,741
|
|
|
|
|
56,148
|
|
|
|
89,455
|
|
|
|
90,805
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
439
|
|
|
|
13,370
|
|
|
|
12,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
|
(8,607
|
)
|
|
|
|
24,970
|
|
|
|
(27,729
|
)
|
|
|
(54,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net (contractual interest, net of $47,828 for
the ten-month period ended October 25, 2009)
|
|
|
|
(1,258
|
)
|
|
|
|
(31,165
|
)
|
|
|
(76,119
|
)
|
|
|
(60,311
|
)
|
Foreign currency gain (loss), net
|
|
|
|
9,338
|
|
|
|
|
43,437
|
|
|
|
(210,406
|
)
|
|
|
(4,732
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
804,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,080
|
|
|
|
|
816,845
|
|
|
|
(286,525
|
)
|
|
|
(65,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
|
(527
|
)
|
|
|
|
841,815
|
|
|
|
(314,254
|
)
|
|
|
(119,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
1,946
|
|
|
|
|
7,295
|
|
|
|
11,585
|
|
|
|
8,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
|
(2,473
|
)
|
|
|
|
834,520
|
|
|
|
(325,839
|
)
|
|
|
(128,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
510
|
|
|
|
|
6,586
|
|
|
|
(91,455
|
)
|
|
|
(51,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
(1,963
|
)
|
|
|
$
|
841,106
|
|
|
$
|
(417,294
|
)
|
|
$
|
(180,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units (contractual dividends of
$11,819 for the ten-month period ended October 25, 2009)
|
|
|
|
|
|
|
|
|
6,317
|
|
|
|
13,264
|
|
|
|
12,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
units
|
|
|
$
|
(2,473
|
)
|
|
|
$
|
828,203
|
|
|
$
|
(339,103
|
)
|
|
$
|
(140,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common units
|
|
|
$
|
(1,963
|
)
|
|
|
$
|
834,789
|
|
|
$
|
(430,558
|
)
|
|
$
|
(192,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common unit from continuing
operations Basic and diluted
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
15.65
|
|
|
$
|
(6.43
|
)
|
|
$
|
(2.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common unit from discontinued
operations Basic and diluted
|
|
|
$
|
0.00
|
|
|
|
$
|
0.12
|
|
|
$
|
(1.73
|
)
|
|
$
|
(0.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common unit Basic and diluted
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
15.77
|
|
|
$
|
(8.16
|
)
|
|
$
|
(3.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units Basic and diluted
|
|
|
|
300,862,764
|
|
|
|
|
52,923,483
|
|
|
|
52,768,614
|
|
|
|
52,297,192
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-5
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN UNITHOLDERS
EQUITY
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Units
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Units
|
|
|
Amount
|
|
|
Capital
|
|
|
deficit
|
|
|
Income (loss)
|
|
|
Total
|
|
|
|
(In thousands of US dollars, except unit data)
|
|
|
Balance at January 1, 2007
|
|
|
52,720,784
|
|
|
$
|
52,721
|
|
|
$
|
2,451
|
|
|
$
|
(370,314
|
)
|
|
$
|
30,601
|
|
|
$
|
(284,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Predecessor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of unit options
|
|
|
124,938
|
|
|
|
125
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
Repurchase of common units
|
|
|
(1,500
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
604
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,031
|
)
|
|
|
|
|
|
|
(12,031
|
)
|
Impact on beginning accumulated deficit upon adoption of
FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,554
|
)
|
|
|
|
|
|
|
(1,554
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180,550
|
)
|
|
|
|
|
|
|
(180,550
|
)
|
Fair valuation of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,477
|
)
|
|
|
(3,477
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,925
|
|
|
|
3,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
52,844,222
|
|
|
$
|
52,844
|
|
|
$
|
3,077
|
|
|
$
|
(564,449
|
)
|
|
$
|
31,049
|
|
|
$
|
(477,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Predecessor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of unit options
|
|
|
161,460
|
|
|
|
161
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
Repurchase of common units
|
|
|
(82,199
|
)
|
|
|
(82
|
)
|
|
|
(414
|
)
|
|
|
|
|
|
|
|
|
|
|
(496
|
)
|
Unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
465
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,264
|
)
|
|
|
|
|
|
|
(13,264
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(417,294
|
)
|
|
|
|
|
|
|
(417,294
|
)
|
Fair valuation of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(864
|
)
|
|
|
(864
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,950
|
|
|
|
120,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(297,208
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
52,923,483
|
|
|
$
|
52,923
|
|
|
$
|
3,150
|
|
|
$
|
(995,007
|
)
|
|
$
|
151,135
|
|
|
$
|
(787,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Predecessor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
233
|
|
Cancellation of the Predecessor Companys unit options
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
166
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,317
|
)
|
|
|
|
|
|
|
(6,317
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
841,106
|
|
|
|
|
|
|
|
841,106
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,395
|
)
|
|
|
(30,395
|
)
|
Unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340
|
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
811,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 25, 2009
|
|
|
52,923,483
|
|
|
$
|
52,923
|
|
|
$
|
3,549
|
|
|
$
|
(160,218
|
)
|
|
$
|
121,080
|
|
|
$
|
17,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Predecessor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common Units
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Units
|
|
|
Amount
|
|
|
Capital
|
|
|
deficit
|
|
|
Income (loss)
|
|
|
Total
|
|
|
|
(In thousands of US dollars, except unit data)
|
|
|
Fresh-start adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of the Predecessor Companys common units
|
|
|
(52,923,483
|
)
|
|
|
(52,923
|
)
|
|
|
(3,549
|
)
|
|
|
|
|
|
|
|
|
|
|
(56,472
|
)
|
Elimination of the Predecessor Companys accumulated
deficit and accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,218
|
|
|
|
(121,080
|
)
|
|
|
39,138
|
|
Issuance of new equity interests in connection with emergence
from Chapter 11
|
|
|
299,999,996
|
|
|
|
49,539
|
|
|
|
166,322
|
|
|
|
|
|
|
|
|
|
|
|
215,861
|
|
Issuance of new warrants in connection with emergence from
Chapter 11
|
|
|
|
|
|
|
|
|
|
|
2,533
|
|
|
|
|
|
|
|
|
|
|
|
2,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 25, 2009
|
|
|
299,999,996
|
|
|
$
|
49,539
|
|
|
$
|
168,855
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
218,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
|
|
7,084,000
|
|
|
|
5,596
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
5,441
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,963
|
)
|
|
|
|
|
|
|
(1,963
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,298
|
)
|
|
|
(6,298
|
)
|
Unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
307,083,996
|
|
|
$
|
55,135
|
|
|
$
|
168,700
|
|
|
$
|
(1,963
|
)
|
|
$
|
(6,182
|
)
|
|
$
|
215,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-7
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
Two-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In thousands of US dollars)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
(1,963
|
)
|
|
|
$
|
841,106
|
|
|
$
|
(417,294
|
)
|
|
$
|
(180,550
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
11,218
|
|
|
|
|
38,255
|
|
|
|
71,960
|
|
|
|
163,434
|
|
Provision for severance benefits
|
|
|
|
1,851
|
|
|
|
|
8,835
|
|
|
|
14,026
|
|
|
|
18,834
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
|
|
836
|
|
|
|
16,290
|
|
|
|
3,919
|
|
Loss (gain) on foreign currency translation, net
|
|
|
|
(10,077
|
)
|
|
|
|
(44,224
|
)
|
|
|
215,571
|
|
|
|
5,398
|
|
Loss (gain) on disposal of property, plant and equipment, net
|
|
|
|
17
|
|
|
|
|
95
|
|
|
|
(3,094
|
)
|
|
|
(68
|
)
|
Loss (gain) on disposal of intangible assets, net
|
|
|
|
5
|
|
|
|
|
(9,230
|
)
|
|
|
|
|
|
|
(3,630
|
)
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
(1,120
|
)
|
|
|
42,539
|
|
|
|
10,106
|
|
Unit-based compensation
|
|
|
|
2,199
|
|
|
|
|
233
|
|
|
|
465
|
|
|
|
604
|
|
Cash used for reorganization items
|
|
|
|
4,263
|
|
|
|
|
1,076
|
|
|
|
|
|
|
|
|
|
Noncash reorganization items
|
|
|
|
|
|
|
|
|
(805,649
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
(667
|
)
|
|
|
|
2,722
|
|
|
|
(400
|
)
|
|
|
51
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
16,443
|
|
|
|
|
(12,930
|
)
|
|
|
31,025
|
|
|
|
(46,504
|
)
|
Inventories
|
|
|
|
6,739
|
|
|
|
|
(1,163
|
)
|
|
|
11,174
|
|
|
|
(18,398
|
)
|
Other receivables
|
|
|
|
1,755
|
|
|
|
|
31
|
|
|
|
1,016
|
|
|
|
971
|
|
Deferred tax assets
|
|
|
|
678
|
|
|
|
|
1,054
|
|
|
|
1,490
|
|
|
|
952
|
|
Accounts payable
|
|
|
|
(14,144
|
)
|
|
|
|
6,316
|
|
|
|
(5,063
|
)
|
|
|
26,442
|
|
Other accounts payable
|
|
|
|
(12,511
|
)
|
|
|
|
(11,452
|
)
|
|
|
(19,887
|
)
|
|
|
(6,021
|
)
|
Accrued expenses
|
|
|
|
(5,687
|
)
|
|
|
|
28,295
|
|
|
|
23,953
|
|
|
|
(5,504
|
)
|
Long term other payable
|
|
|
|
(877
|
)
|
|
|
|
507
|
|
|
|
121
|
|
|
|
114
|
|
Other current assets
|
|
|
|
3,192
|
|
|
|
|
5,896
|
|
|
|
7,401
|
|
|
|
9,840
|
|
Other current liabilities
|
|
|
|
1,188
|
|
|
|
|
39
|
|
|
|
1,295
|
|
|
|
5,007
|
|
Payment of severance benefits
|
|
|
|
(1,389
|
)
|
|
|
|
(4,320
|
)
|
|
|
(6,505
|
)
|
|
|
(7,151
|
)
|
Other
|
|
|
|
(125
|
)
|
|
|
|
(516
|
)
|
|
|
(4,471
|
)
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities before
reorganization items
|
|
|
|
2,108
|
|
|
|
|
44,692
|
|
|
|
(18,388
|
)
|
|
|
(23,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
|
(4,263
|
)
|
|
|
|
(1,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
(2,155
|
)
|
|
|
|
43,616
|
|
|
|
(18,388
|
)
|
|
|
(23,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
Two-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(In thousands of US dollars)
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
|
37
|
|
|
|
|
329
|
|
|
|
3,122
|
|
|
|
364
|
|
Proceeds from disposal of intangible assets
|
|
|
|
|
|
|
|
|
9,375
|
|
|
|
|
|
|
|
4,204
|
|
Purchase of plant, property and equipment
|
|
|
|
(1,258
|
)
|
|
|
|
(7,513
|
)
|
|
|
(28,608
|
)
|
|
|
(85,294
|
)
|
Payment for intellectual property registration
|
|
|
|
(70
|
)
|
|
|
|
(366
|
)
|
|
|
(1,052
|
)
|
|
|
(1,256
|
)
|
Decrease (increase) in restricted cash
|
|
|
|
|
|
|
|
|
11,409
|
|
|
|
(13,517
|
)
|
|
|
|
|
Purchase of short-term financial instruments
|
|
|
|
(329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
23
|
|
|
|
|
(96
|
)
|
|
|
484
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
(1,597
|
)
|
|
|
|
13,138
|
|
|
|
(39,571
|
)
|
|
|
(81,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
180,000
|
|
|
|
130,100
|
|
Issuance of new common units pursuant to the reorganization plan
|
|
|
|
|
|
|
|
|
35,280
|
|
|
|
|
|
|
|
|
|
Issuance of old common units
|
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
151
|
|
Repayment of short-term borrowings
|
|
|
|
|
|
|
|
|
(33,250
|
)
|
|
|
(165,000
|
)
|
|
|
(50,100
|
)
|
Repurchase of old common units
|
|
|
|
|
|
|
|
|
|
|
|
|
(496
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
2,030
|
|
|
|
14,687
|
|
|
|
80,145
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
|
1,098
|
|
|
|
|
4,758
|
|
|
|
(17,036
|
)
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
(2,654
|
)
|
|
|
|
63,542
|
|
|
|
(60,308
|
)
|
|
|
(24,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period
|
|
|
|
67,579
|
|
|
|
|
4,037
|
|
|
|
64,345
|
|
|
|
89,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
|
$
|
64,925
|
|
|
|
$
|
67,579
|
|
|
$
|
4,037
|
|
|
$
|
64,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
$
|
955
|
|
|
|
$
|
7,962
|
|
|
$
|
39,276
|
|
|
$
|
57,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
|
$
|
669
|
|
|
|
$
|
8,074
|
|
|
$
|
13,207
|
|
|
$
|
5,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-9
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial Statements
(Tabular dollars
in thousands, except unit data)
The
Company
MagnaChip Semiconductor LLC (together with its subsidiaries, the
Company) is a Korea-based designer and manufacturer
of analog and mixed-signal semiconductor products for
high-volume consumer applications. The Companys business
is comprised of three key segments: Display Solutions, Power
Solutions and Semiconductor Manufacturing Services. The
Companys Display Solutions products include display
drivers for use in a wide range of flat panel displays and
mobile multimedia devices. The Companys Power Solutions
products include discrete and integrated circuit solutions for
power management in high-volume consumer applications. The
Companys Semiconductor Manufacturing Services segment
provides specialty analog and mixed-signal foundry services for
fabless semiconductor companies that serve the consumer,
computing and wireless end markets.
|
|
2.
|
Voluntary
Reorganization under Chapter 11
|
On June 12, 2009, MagnaChip Semiconductor LLC (the
Parent), MagnaChip Semiconductor B.V., MagnaChip
Semiconductor S.A. and certain other subsidiaries of the Parent
in the U.S. (the Debtors), filed a voluntary
petition for relief in the U.S. Bankruptcy Court for the
District of Delaware under Chapter 11 of the
U.S. Bankruptcy Code. The court approved a plan of
reorganization proposed by the Creditors Committee on
September 25, 2009 (the Plan of
Reorganization), and the Plan of Reorganization became
effective and the Debtors emerged from Chapter 11
reorganization proceedings (the Reorganization
Proceedings) on November 9, 2009 (the
Reorganization Effective Date). On the
Reorganization Effective Date, the Company implemented
fresh-start reporting in accordance with Accounting Standards
Codification (ASC) 852,
Reorganizations, formerly the American
Institute of Certified Public Accountants Statement of
Position (SOP)
90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code (ASC 852).
All conditions required for the adoption of fresh-start
reporting were met upon emergence from the Reorganization
Proceedings on the Reorganization Effective Date. The Company is
permitted to select an accounting convenience date (the
Fresh-Start Adoption Date) proximate to the emergence date
for purposes of fresh-start reporting, provided that an analysis
of the activity between the date of emergence and an accounting
convenience date does not result in a material difference in the
fresh-start reporting results. The Company evaluated transaction
activity between October 25, 2009 and the Reorganization
Effective Date and concluded an accounting convenience date of
October 25, 2009 which was the Companys October
accounting period end was appropriate. As a result, the fair
value of the Predecessor Companys assets became the new
basis for the Successor Companys consolidated statement of
financial position as of the Fresh-Start Adoption Date, and all
operations beginning on or after October 26, 2009 are
related to the Successor Company.
As a result of the application of fresh-start reporting in
accordance with ASC 852, the financial statements prior to and
including October 25, 2009 represent the operations of the
Predecessor Company and are not comparable with the financial
statements for periods on or after October 25, 2009.
References to the Successor Company refer to the
Company on or after October 25, 2009, after giving effect
to the application of fresh-start reporting. References to the
Predecessor Company refer to the Company prior to
and including October 25, 2009. See Note 3
Fresh-Start Reporting for further details.
The Plan of Reorganization provided for the satisfaction of
claims against the Debtors through (i) the issuance of a
new term loan in the amount of approximately $61.8 million
in complete
F-10
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
satisfaction of the first lien lender claims arising from the
senior secured credit facility, (ii) the conversion to
Parent equity of all claims arising from the Second Priority
Senior Secured Notes and Senior Subordinated Notes,
(iii) an offering of equity to the holders of the Second
Priority Senior Secured Notes and (iv) a cash payment to
holders of unsecured claims. On the Reorganization Effective
Date, among other events, (i) the liens and guarantees
securing the Second Priority Senior Secured Notes and Senior
Subordinated Notes were released and extinguished,
(ii) funds affiliated with Avenue Capital Management II,
L.P. became the majority unitholder of Parent and (iii) the
new term loan was evidenced by the Amended and Restated Credit
Agreement dated as of November 6, 2009, by and among
MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance
Company, Parent, the Subsidiary Guarantors, the Lenders party
thereto, and Wilmington Trust FSB, as administrative agent
for the Lenders and collateral agent for the secured parties.
During the period from the date of its Chapter 11 filing to
the Fresh-Start Adoption Date (the Pre-Emergence
Period), the Company recorded interest expense on
pre-petition obligations only to the extent it believed the
interest would be paid during the Reorganization Proceedings.
Had the Company recorded interest expense based on its
pre-petition contractual obligations pursuant to its Second
Priority Senior Notes and Senior Subordinated Notes, interest
expense would have increased by $16,663 thousand during the
ten-month period ended October 25, 2009.
In addition, the Companys Series B redeemable
convertible preferred units were also subject to compromise and
no dividends were accrued during the Pre-Emergence Period. Had
the Company recorded dividends based on pre-petition contractual
obligations, dividends accrued on preferred units would have
increased by $5,502 thousand during the ten-month period ended
October 25, 2009.
Upon emergence from the Reorganization Proceedings, the Company
adopted fresh-start reporting in accordance with ASC 852. The
Companys emergence from the Reorganization Proceedings
resulted in a new reporting entity with no retained earnings or
accumulated deficit. Accordingly, the Companys
consolidated financial statements for periods prior to and
including October 25, 2009 are not comparable to
consolidated financial statements presented on or after
October 25, 2009.
Fresh-start reporting reflects the value of the Company as
determined in the confirmed Plan of Reorganization. Under
fresh-start reporting, the Companys asset values were
remeasured and allocated in conformity with ASC 805,
Business Combinations, formerly Statements of
Financial Accounting Standards (SFAS)
No. 141(R) Business Combinations
(ASC 805). Fresh-start reporting required that all
liabilities, other than deferred taxes and severance benefits,
be stated at fair value or at the present values of the amounts
to be paid using appropriate market interest rates. Deferred
taxes are determined in conformity with ASC 740, Income
Taxes, formerly SFAS No. 109,
Accounting for Income Taxes (ASC
740).
Estimates of fair value represent the Companys best
estimates based on its valuation models, which incorporated
industry data and trends and relevant market rates and
transactions. The estimates and assumptions are inherently
subject to significant uncertainties and contingencies beyond
the control of the Company. Accordingly, the Company cannot
provide assurance that the estimates, assumptions and values
reflected in the valuations will be realized, and actual results
could vary materially.
To facilitate the calculation of the enterprise value of the
Successor Company, the Company prepared a valuation analysis for
the Successor Companys common units as of the
Reorganization
F-11
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Effective Date. The enterprise valuation used a discounted cash
flow analysis which measures the projected multi-year free cash
flows of the Company to arrive at an enterprise value.
In the course of valuation analysis, financial and other
information, including prospective financial information
obtained from management and from various public, financial and
industry sources was relied upon. The basis of the discounted
cash flow analysis used in developing the total enterprise value
was based on the Companys prepared projections, which
included a variety of estimates and assumptions. While the
Company considers such estimates and assumptions reasonable,
they are inherently subject to significant business, economic
and competitive uncertainties, many of which are beyond the
Companys control and, therefore, may not be realized.
Changes in these estimates and assumptions may have had a
significant effect on the determination of the Companys
fair value. Assumptions used in our valuation models that have
the most significant effect on our estimated fair value include
discount rates and future cash flow projections.
Discount rate The discount rate is an overall rate
based upon the individual rates of return for invested capital
components of the Company (such as rate of return on debt
capital and rate of return on common equity capital). As the
Company is emerging from bankruptcy and, therefore, has some of
the characteristics of a distressed company, the Company
incorporated an alpha factor in its calculation of an industry
based discount rate, to better reflect the return that an
investor would require for an investment in a company. The
resulting discount rate of 46.7% approximates the venture
capital rate of return required by investors in companies with
similar risk profiles as the Company.
Cash flow projections The Company projected its
future cash flow on various assumptions depending on the nature
of cash flow components. Some of the major accounts projected
were based on the following assumptions.
|
|
|
|
|
Revenue The Company based 2009 and 2010 revenue on
the historical ten-month period ended October 25, 2009 and
the Companys business plan. For the subsequent four years,
revenue projections were based on market growth trends and plans
for market share growth. Overall, the Company projected a
compound revenue growth for this purpose of 12% for the period
between 2009 and 2014.
|
|
|
|
|
|
Cost of Sales The Company estimated three
sub-components variable cost, depreciation and other
fixed costs. Variable cost was defined as those cost elements
directly in proportion to sales and estimated as a certain
percentage of projected sales. Depreciation is estimated
considering expected depreciation of existing assets and
depreciation of assets from the Companys capital
expenditure forecast. Other fixed costs are assumed to be
increased by a fixed percentage which was implied by the CPI
(Consumer Price Index) rate increases during the projection
period. The Company projected cost of sales for the periods
between 2009 and 2014 to vary between 70.1% and 62.6%.
|
|
|
|
|
|
Working capital changes Working capital levels were
estimated on the historical levels and benchmarking.
|
|
|
|
|
|
Capital expenditures Capital expenditures for 2009
and 2010 was determined based on the Companys capital
expenditure forecast. The Company assumed that the capital
expenditure level for subsequent years would be determined at 5%
of its future projected revenue.
|
The following fresh-start condensed consolidated balance sheet
illustrates the financial effects on the Company resulting from
the implementation of the Plan of Reorganization and the
adoption of fresh-start reporting. This fresh-start condensed
consolidated balance sheet reflects the effect of
F-12
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
consummating the transactions contemplated in the Plan of
Reorganization, including issuance of certain securities,
incurrence of new indebtedness, discharge and repayment of old
indebtedness and other cash payments.
The effects of the Plan of Reorganization and fresh-start
reporting on the Companys condensed consolidated balance
sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Successor (*)
|
|
|
|
October 25,
|
|
|
Effects of
|
|
|
Fresh-Start
|
|
|
October 25,
|
|
|
|
2009
|
|
|
Plan
|
|
|
Valuation
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,610
|
|
|
$
|
52,969
|
(a,b,f,j)
|
|
$
|
|
|
|
$
|
67,579
|
|
Restricted cash
|
|
|
52,015
|
|
|
|
(52,015
|
)(b)
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
89,314
|
|
|
|
|
|
|
|
|
|
|
|
89,314
|
|
Inventories, net
|
|
|
51,389
|
|
|
|
|
|
|
|
17,903
|
(n)
|
|
|
69,292
|
|
Other receivables
|
|
|
5,189
|
|
|
|
|
|
|
|
|
|
|
|
5,189
|
|
Other current assets
|
|
|
17,477
|
|
|
|
(179
|
)(c)
|
|
|
(1,233
|
)(o)
|
|
|
16,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
229,994
|
|
|
|
775
|
|
|
|
16,670
|
|
|
|
247,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
172,358
|
|
|
|
|
|
|
|
(13,940
|
)(p)
|
|
|
158,418
|
|
Intangible assets, net
|
|
|
26,886
|
|
|
|
|
|
|
|
28,314
|
(q)
|
|
|
55,200
|
|
Other non-current assets
|
|
|
23,947
|
|
|
|
235
|
(d)
|
|
|
355
|
(r)
|
|
|
24,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
453,185
|
|
|
$
|
1,010
|
|
|
$
|
31,399
|
|
|
$
|
485,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
77,395
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
77,395
|
|
Other accounts payable
|
|
|
13,515
|
|
|
|
506
|
(e)
|
|
|
|
|
|
|
14,021
|
|
Accrued expenses
|
|
|
22,621
|
|
|
|
6,383
|
(f)
|
|
|
|
|
|
|
29,004
|
|
Short-term borrowings
|
|
|
95,000
|
|
|
|
(95,000
|
)(a)
|
|
|
|
|
|
|
|
|
Current portion of long-term debt-new
|
|
|
|
|
|
|
463
|
(a)
|
|
|
|
|
|
|
463
|
|
Other current liabilities
|
|
|
3,533
|
|
|
|
|
|
|
|
|
|
|
|
3,533
|
|
Liabilities subject to compromise
|
|
|
798,043
|
|
|
|
(798,043
|
)(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,010,107
|
|
|
|
(885,691
|
)
|
|
|
|
|
|
|
124,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt-new
|
|
|
|
|
|
|
61,287
|
(a)
|
|
|
|
|
|
|
61,287
|
|
Accrued severance benefits, net
|
|
|
71,029
|
|
|
|
|
|
|
|
|
|
|
|
71,029
|
|
Other non-current liabilities
|
|
|
10,468
|
|
|
|
|
|
|
|
|
|
|
|
10,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,091,604
|
|
|
|
(824,404
|
)
|
|
|
|
|
|
|
267,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
Successor (*)
|
|
|
|
October 25,
|
|
|
Effects of
|
|
|
Fresh-Start
|
|
|
October 25,
|
|
|
|
2009
|
|
|
Plan
|
|
|
Valuation
|
|
|
2009
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred units subject to
compromise
|
|
|
148,986
|
|
|
|
(148,986
|
)(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred units
|
|
|
148,986
|
|
|
|
(148,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units-old
|
|
|
52,923
|
|
|
|
(52,923
|
)(i)
|
|
|
|
|
|
|
|
|
Common units-new
|
|
|
|
|
|
|
49,539
|
(g,j)
|
|
|
|
|
|
|
49,539
|
|
Additional paid-in capital
|
|
|
3,383
|
|
|
|
166
|
(s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,549
|
)(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,533
|
(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,322
|
(m)
|
|
|
|
|
|
|
168,855
|
|
Retained earnings (accumulated deficit)
|
|
|
(964,791
|
)
|
|
|
160,218
|
(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
773,174
|
(l)
|
|
|
31,399
|
(l)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
121,080
|
|
|
|
(121,080
|
)(k)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity
|
|
|
(787,405
|
)
|
|
|
974,400
|
|
|
|
31,399
|
|
|
|
218,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred units and
unitholders equity
|
|
$
|
453,185
|
|
|
$
|
1,010
|
|
|
$
|
31,399
|
|
|
$
|
485,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
To record the issuance of a new term loan in the amount of
$61,750 thousand and 35% cash payment of $33,250 thousand in
complete satisfaction of the first lien lender claims arising
from the senior secured credit facility (short-term borrowings)
of $95,000 thousand. The new term loan was accounted for as
current portion of long-term debt of $463 thousand and long-term
debt of $61,287 thousand. |
|
(b) |
|
Cash in Korea Exchange Bank account of $52,015 thousand,
restricted under forbearance agreement, was released from
restriction according to the debt restructuring by the Plan of
Reorganization. |
|
(c) |
|
To record impairment of remaining capitalized costs of $166
thousand in connection with entering into the senior secured
credit facility, impairment of prepaid agency fee of $14
thousand of the senior secured credit facility and
capitalization of costs of $1 thousand in connection with the
issuance of the new term loan. |
|
(d) |
|
To record capitalization of costs of $235 thousand in connection
with the issuance of the new term loan. |
|
(e) |
|
To record capitalization of costs incurred in connection with
the issuance of the new term loan of $236 thousand and 10% of
the general unsecured claims of $270 thousand to be settled in
cash. |
|
(f) |
|
To record professional fees of $7,459 thousand incurred in
relation to the Reorganization Proceeding of which $1,076
thousand was paid in cash with the remainder of $6,383 thousand
recorded as accrued expenses. |
F-14
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
|
(g) |
|
To record the discharge of liabilities subject to compromise of
$798,043 thousand and the issuances of new common units of
$14,259 thousand and new warrants of $2,533 thousand. Current
portion of long-term debt of $750,000 thousand and its accrued
interest of $45,341 thousand as of October 25, 2009 were
discharged in exchange for new common units representing 6% of
the Successor Companys outstanding common units of $14,259
thousand to two classes of creditors of the Company and new
warrants representing 5% of the Successor Companys
outstanding common units of $2,533 thousand to two classes of
creditors of the Company. General unsecured claims of $2,702
thousand were also discharged in exchange for a cash payment
equal to 10% of the allowed claims of $270 thousand. |
|
(h) |
|
To record the retirement of Series B redeemable convertible
preferred units of $148,986 thousand without consideration in
accordance with the Plan of Reorganization. |
|
(i) |
|
To record the retirement of old equity interests without
consideration in accordance with the Plan of Reorganization. |
|
(j) |
|
To record the issuances of new common units of $35,280 thousand. |
|
(k) |
|
To record the elimination of the Predecessor Companys
accumulated deficit of $160,218 thousand and accumulated other
comprehensive income of $121,080 thousand. |
|
(l) |
|
To record reorganization items, net of $804,573 thousand. |
|
(m) |
|
To record $166,322 thousand of additional paid-in capital.
Reconciliation of total enterprise value to the reorganization
value of the Company, determination of goodwill and additional
paid-in capital and allocation of the total enterprise value to
common unitholders are as below: |
|
|
|
|
|
Total value attributable to debt and equity (1)
|
|
$
|
212,564
|
|
Plus: cash and cash equivalents
|
|
|
67,579
|
|
Plus: liabilities
|
|
|
205,451
|
|
|
|
|
|
|
Reorganization value of the Companys total assets
|
|
|
485,594
|
|
Fair value of the Companys total assets
|
|
|
485,594
|
|
|
|
|
|
|
Goodwill
|
|
$
|
|
|
|
|
|
|
|
Reorganization value of the Companys total assets
|
|
$
|
485,594
|
|
Less: liabilities
|
|
|
(205,450
|
)
|
Less: new term loan
|
|
|
(61,750
|
)
|
|
|
|
|
|
New warrants issued
|
|
|
2,533
|
|
New common units
|
|
|
49,539
|
|
|
|
|
|
|
Additional paid-in capital
|
|
$
|
166,322
|
|
Enterprise value allocated to common unitholders
|
|
$
|
215,861
|
|
|
|
|
(1) |
|
The Plan of Reorganization, which was confirmed by the
bankruptcy court, includes an estimated total value attributable
to debt and equity of $225.0 million. This amount does not
include cash balances and non-financial liabilities as of the
Reorganization Effective Date. |
|
|
|
(n) |
|
To record the fair value of inventories, net, as estimated by
the Predecessor Company, fair value of finished goods was
estimated by subtracting from average selling prices the sum of
costs of disposal and a reasonable profit allowance for the
selling effort. Fair value of
work-in-process
was estimated by subtracting from average selling prices the sum
of costs to complete, costs of disposal and a reasonable profit
allowance for the completing and selling effort based on profit
for similar finished goods. Fair value of raw materials was
estimated by current replacement costs. |
F-15
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
|
(o) |
|
To record the fair value of advance payments as estimated by the
Predecessor Company. For the value of advance payments, the
Orderly Liquidation Value (OLV) was estimated using
the cost and market approaches. |
|
|
|
(p) |
|
To record the fair value of property, plant and equipment, net
as estimated by the Predecessor Company. For the value of
certain fixed assets, the OLV was estimated using the cost and
market approaches. This premise of value was chosen given the
fact that the Company was just emerging from bankruptcy
proceedings. |
|
|
|
(q) |
|
To record the fair value of intangible assets, net as estimated
by the Predecessor Company. Discrete valuations of each of the
reporting units identified intangible assets related to
technology, contracts, trade names, customer-based intangible
assets and acquired in-process research and development
(IPR&D) were performed using the excess
earnings method or the royalty savings method. |
|
(r) |
|
To record the Predecessor Companys other non-current
assets at their estimated fair value using observable market
data. |
|
(s) |
|
To record the immediately recognized unit-based compensation of
$166 thousand, which is attributable to old unit options which
were cancelled without consideration in accordance with the Plan
of Reorganization. |
|
(*) |
|
The following table summarizes the allocation of fair value of
the assets and liabilities at emergence as shown in the
reorganized consolidated balance sheet as of October 25,
2009: |
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,579
|
|
Accounts receivable, net
|
|
|
89,314
|
|
Inventories, net
|
|
|
69,292
|
|
Other receivables
|
|
|
5,189
|
|
Other current assets
|
|
|
16,065
|
|
Property, plant and equipment, net
|
|
|
158,418
|
|
Intangible assets, net
|
|
|
55,200
|
|
Other non-current assets
|
|
|
24,537
|
|
|
|
|
|
|
Total assets
|
|
|
485,594
|
|
Less: current liabilities (including current portion of
long-term debt)
|
|
|
(124,416
|
)
|
Less: long-term debt
|
|
|
(61,287
|
)
|
Less: non-current liabilities
|
|
|
(81,497
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(267,200
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
218,394
|
|
|
|
|
|
|
|
|
4.
|
Summary of
Significant Accounting Policies
|
Basis of
Presentation
The consolidated financial statements are presented in
accordance with accounting principles generally accepted in the
United States of America (GAAP).
In preparing the consolidated financial statements for the
Predecessor Company and Successor Company, the Company applied
ASC 852, which requires that the financial statements for
periods subsequent to the Chapter 11 filing distinguish
transactions and events that were directly associated with the
reorganization from the ongoing operations of the business.
Accordingly, certain expenses,
F-16
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
realized gains and losses and provisions for losses that were
realized or incurred in the Reorganization Proceedings were
recorded in reorganization items, net on the accompanying
consolidated statements of operations.
Significant accounting policies followed by the Company in the
preparation of the accompanying consolidated financial
statements are summarized below.
Principles of
Consolidation
The consolidated financial statements include the accounts of
the Company including its wholly-owned subsidiaries. All
significant intercompany transactions and balances are
eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated
financial statements and disclosures. The most significant
estimates and assumptions relate to the fair valuation of
acquired assets and assumed liabilities, fair valuation of
common units, the useful life of property, plant and equipment,
allowance for uncollectible accounts receivable, contingent
liabilities, inventory valuation, restructuring accrual and
impairment of long-lived assets. Although these estimates are
based on managements best knowledge of current events and
actions that the Company may undertake in the future, actual
results may be different from the estimates.
Foreign
Currency Translation
The Company has assessed in accordance with ASC 830,
Foreign Currency Matters, formerly
SFAS No. 52, Foreign Currency
Translation (ASC 830), the functional
currency of each of its subsidiaries in Luxembourg, the
Netherlands and the United Kingdom and has designated the
U.S. dollar to be their respective functional currencies.
The Company and its other subsidiaries are utilizing their local
currencies as their functional currencies. The financial
statements of the subsidiaries in functional currencies other
than the U.S. dollar are translated into the
U.S. dollar in accordance with ASC 830. All the assets and
liabilities are translated to the U.S. dollar at the
end-of-period
exchange rates. Capital accounts are determined to be of a
permanent nature and are therefore translated using historical
exchange rates. Revenues and expenses are translated using
average exchange rates for the respective periods. Foreign
currency translation adjustments arising from differences in
exchange rates from period to period are included in the foreign
currency translation adjustment account in accumulated
comprehensive income (loss) of unitholders equity. Gains
and losses due to transactions in currencies other than the
functional currency are included as a component of other income
(expense) in the statement of operations.
Cash and Cash
Equivalents
Cash equivalents consist of highly liquid investments with an
original maturity date of three months or less.
Restricted
Cash
Restricted cash of $11,768 thousand as of December 31, 2008
was cash in Korea Exchange Bank account and restricted in use
according to the forbearance agreement with secured parties in
relation to short-term borrowings of $95,000 thousand. Deposit
accounts maintained with Korea
F-17
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Exchange Bank were subject to a perfected lien in the name of
the collateral trustee for the benefit of the secured parties
and were frozen pursuant to the terms of an acceleration notice.
According to the debt restructuring by the Plan of
Reorganization as described in Note 3, cash in Korea
Exchange Bank account of $52,015 thousand was released from
restriction on the Reorganization Effective Date.
Accounts
Receivable Reserves
An allowance for doubtful accounts is provided based on the
aggregate estimated uncollectability of the Companys
accounts receivable. The Company records an allowance for cash
returns, included within accounts receivable, net, based on the
historical experience of the amount of goods that will be
returned and refunded. In addition, the Company also includes in
accounts receivable, an allowance for additional products that
may have to be provided, free of charge, to compensate customers
for products that do not meet previously agreed yield criteria,
the low yield compensative reserve.
Inventories
Inventories are stated at the lower of cost or market, using the
average cost method, which approximates the first in, first out
method (FIFO). If net realizable value is less than
cost at the balance sheet date, the carrying amount is reduced
to the realizable value, and the difference is recognized as a
loss on valuation of inventories within cost of sales. Inventory
reserves are established when conditions indicate that the net
realizable value is less than costs due to physical
deterioration, obsolescence, changes in price levels, or other
causes based on individual facts and circumstances. Reserves are
also established for excess inventory based on inventory levels
in excess of six months of projected demand, as judged by
management, for each specific product.
In addition, as prescribed in ASC 330,
Inventory, formerly SFAS No. 151
Inventory costs, the cost of inventories is
determined based on the normal capacity of each fabrication
facility. In case the capacity utilization is lower than a
certain level that management believes to be normal, the fixed
overhead costs per production unit which exceeds those under
normal capacity are charged to cost of sales rather than
capitalized as inventories.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the
assets as set forth below.
|
|
|
Buildings
|
|
30 - 40 years
|
Building related structures
|
|
10 - 20 years
|
Machinery and equipment
|
|
5 - 10 years
|
Vehicles and others
|
|
5 years
|
Routine maintenance and repairs are charged to expense as
incurred. Expenditures that enhance the value or significantly
extend the useful lives of the related assets are capitalized.
Borrowing costs incurred during the construction period of
assets are capitalized as part of the related assets.
F-18
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Impairment of
Long-Lived Assets
The Company reviews property, plant and equipment and other
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable in accordance with ASC 360, Property,
Plant and Equipment, formerly SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (ASC 360). Recoverability is
measured by comparing its carrying amount with the future net
cash flows the assets are expected to generate. If such assets
are considered to be impaired, the impairment is measured as the
difference between the carrying amount of the assets and the
fair value of assets using the present value of the future net
cash flows generated by the respective long-lived assets.
Restructuring
Charges
The Company recognizes restructuring charges in accordance with
ASC 420, Exit or Disposal Cost Obligations,
formerly SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities
(ASC 420). Certain costs and expenses
related to exit or disposal activities are recorded as
restructuring charges when liabilities for those costs and
expenses are incurred.
Lease
Transactions
The Company accounts for lease transactions as either operating
leases or capital leases, depending on the terms of the
underlying lease agreements. Machinery and equipment acquired
under capital lease agreements are recorded at the lower of the
present value of future minimum lease payments and estimated
fair value of leased property. Property, plant and equipment are
depreciated using the straight-line method over their estimated
useful lives. In addition, the aggregate lease payments are
recorded as capital lease obligations, net of unaccrued
interest. Interest is amortized over the lease period using the
effective interest rate method. Leases that do not qualify as
capital leases are classified as operating leases, and the
related rental payments are expensed on a straight-line basis
over the shorter of the estimated useful lives of leased
property and lease term.
Software
The Company capitalizes certain external costs that are incurred
to purchase and implement internal-use computer software. Direct
costs relating to the development of software for internal use
are capitalized after technological feasibility has been
established, in accordance with ASC 350,
Intangibles-Goodwill and Other, formerly
Statements of Position (SOP)
No. 98-1,
Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use
(ASC 350). Depreciation is calculated on a
straight-line basis over the softwares estimated useful
life, which is usually five years.
Intangible
Assets
Intangible assets other than intellectual property include
technology and customer relationships which are amortized on a
straight-line basis over periods ranging from four to eight
years. Other intellectual property assets acquired represent
rights under patents, trademarks and property use rights and are
amortized over the periods of benefit, ranging up to
ten years, on a straight-line basis.
Goodwill
Goodwill is evaluated for impairment by comparing the fair value
and carrying amount of the reporting unit to which the goodwill
relates. Specifically, the Company uses the two-step method for
evaluating goodwill for impairment as prescribed in
ASC 350, Intangibles-Goodwill and Other,
F-19
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
formerly SFAS No. 142 Goodwill and Other
Intangible Assets (ASC 350). In the
first step, the fair value of a reporting unit is compared to
the carrying amount of such reporting unit. If the carrying
amount exceeds the fair value, a potential impairment condition
exists. In the second step, impairment is measured as the excess
of the carrying amount of reporting unit goodwill over the
implied fair value of reporting unit goodwill. If the fair value
of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired, and thus the second
step of the impairment test is unnecessary.
Fair Value
Disclosures of Financial Instruments
The Company has adopted and follows ASC 820, Fair
Value Measurements and Disclosures
(ASC 820) for measurement and disclosures about
fair value of its financial instruments. ASC 820
establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. To increase
consistency and comparability in fair value measurements and
related disclosures, ASC 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The fair
value hierarchy gives the highest priority to quoted prices
(unadjusted) in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The
three levels of fair value hierarchy defined by ASC 820 are:
Level 1 Inputs are unadjusted, quoted prices in
active markets for identical assets or liabilities at the
measurement date.
Level 2 Inputs (other than quoted market prices
included in Level 1) are either directly or indirectly
observable for the asset or liability through correlation with
market data at the measurement date and for the duration of the
instruments anticipated life.
Level 3 Inputs reflect managements best
estimate of what market participants would use in pricing the
asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the
risk inherent in the inputs to the model. Valuation of
instruments includes unobservable inputs to the valuation
methodology that are significant to the measurement of fair
value of assets or liabilities.
As defined by ASC 820, the fair value of a financial instrument
is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a
forced or liquidation sale, which was further clarified as the
price that would be received to sell an asset or paid to
transfer a liability (an exit price) in an orderly
transaction between market participants at the measurement date.
The carrying amounts of the Companys financial assets and
liabilities, such as cash and cash equivalents, accounts
receivable, other receivables, accounts payable and other
accounts payable approximate their fair values because of the
short maturity of these instruments.
The fair value of the Successor Companys available for
sale securities is based on the quoted prices in an active
market and was $0.7 million as of December 31, 2009.
The estimated fair value of the Predecessor Companys debt
was $33.5 million as of December 31, 2008. The fair
value estimates presented herein were based on market interest
rates and other market information available to management as of
each balance sheet date presented. The use of different market
assumptions
and/or
estimation methodologies could have a material effect on the
estimated fair value amounts. Approximate fair values do not
take into consideration expenses that could be incurred in an
actual settlement. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
F-20
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Accrued
Severance Benefits
The majority of accrued severance benefits is for employees in
the Companys Korean subsidiary. 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 December 31, 2009, 98% of all employees of the Company
were eligible for severance benefits.
Accrued severance benefits are funded through a group severance
insurance plan. The amounts funded under this insurance plan are
classified as a reduction of the accrued severance benefits.
Subsequent accruals are to be funded at the discretion of the
Company.
In accordance with the National Pension Act of the Republic of
Korea, a certain portion of accrued severance benefits is
deposited with the National Pension Fund and deducted from the
accrued severance benefits. The contributed amount is paid to
employees from the National Pension Fund upon their retirement.
Revenue
Recognition
Revenue is recognized when persuasive evidence of an arrangement
exists, the product has been delivered and title and risk of
loss have transferred, the price is fixed and determinable, and
collection of the resulting receivable is reasonably assured.
Utilizing these criteria, product revenue is recognized either
upon shipment, upon delivery of the product at the
customers location or upon customer acceptance, depending
on the terms of the arrangements, when the risks and rewards of
ownership have passed to the customer. Certain sale arrangements
include customer acceptance provisions that require written
notification of acceptance within the pre-determined period from
the date of delivery of the product. If the pre-determined
period has ended without written notification, customer
acceptance is deemed to have occurred pursuant to the underlying
sales arrangements. In such cases, the Company recognizes
revenue the earlier of the written notification or the
pre-determined period from date of delivery. The Companys
revenue recognition policy is consistent across its product
lines, marketing venues, and all geographic areas.
In accordance with revenue recognition guidance, any tax
assessed by a governmental authority that is directly imposed on
a revenue-producing transaction between a seller and a customer
is presented in the statements of income on a net basis
(excluded from revenues).
The Companys customers can return defective products,
including products that do not meet the yield criteria. The
Company accrues for the estimated costs that may be incurred for
the defective products. In addition, the Company offers
discounts to customers who make early payments. The Company
estimates the amount to be paid to customers based on historical
experience and expected rate of discount. The estimated discount
amount is recorded as a deduction from net sales.
Other than product warranty obligations and customer acceptance
provisions, sales contracts do not include any other
post-shipment obligations that could have an impact on revenue
recognition. In addition, the Company does not currently provide
any credits, rebates or price protection or similar privileges
that could have an impact on revenue recognition.
All amounts billed to a customer related to shipping and
handling are classified as sales while all costs incurred by the
Company for shipping and handling are classified as selling
expenses. The amounts charged to selling expenses were
$207 thousand, $752 thousand, $1,295 thousand and
$1,407 thousand for the two-month period ended
December 31, 2009, for the ten-month period ended
October 25, 2009 and for the years ended December 31,
2008 and 2007, respectively.
F-21
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Derivative
Financial instruments
The Company applies the provisions of ASC 815,
Derivatives and Hedging, formerly SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities (ASC 815). This
Statement requires the recognition of all derivative instruments
as either assets or liabilities measured at fair value.
Under the provisions of ASC 815, the Company may designate
a derivative instrument as hedging the exposure to variability
in expected future cash flows that are attributable to a
particular risk (a cash flow hedge) or hedging the
exposure to changes in the fair value of an asset or a liability
(a fair value hedge). Special accounting for
qualifying hedges allows the effective portion of a derivative
instruments gains and losses to offset related results on
the hedged item in the consolidated statements of operations and
requires that a company formally document, designate and assess
the effectiveness of the transactions that receive hedge
accounting treatment. Both at the inception of a hedge and on an
ongoing basis, a hedge must be expected to be highly effective
in achieving offsetting changes in cash flows or fair value
attributable to the underlying risk being hedged. If the Company
determines that a derivative instrument is no longer highly
effective as a hedge, it discontinues hedge accounting
prospectively and future changes in the fair value of the
derivative are recognized in current earnings. The Company
assesses hedge effectiveness at the end of each quarter.
In accordance with ASC 815, changes in the fair value of
derivative instruments that are cash flows hedges are recognized
in accumulated other comprehensive income (loss) and
reclassified into earnings in the period in which the hedged
item affects earnings. Ineffective portions of a derivative
instruments change in fair value are immediately
recognized in earnings. Derivative instruments that do not
qualify, or cease to qualify, as hedges must be adjusted to fair
value and the adjustments are recorded through net income (loss).
Advertising
The Company expenses advertising costs as incurred. Advertising
expense was approximately $25 thousand, $70 thousand,
$165 thousand and $146 thousand for the two-month
period ended December 31, 2009, for the ten-month period
ended October 25, 2009 and for the years ended
December 31, 2008 and 2007, respectively.
Product
Warranties
The Company records, in other current liabilities, warranty
liabilities for the estimated costs that may be incurred under
its basic limited warranty. This warranty covers defective
products, and related liabilities are accrued when product
revenues are recognized. Factors that affect the Companys
warranty liability include historical and anticipated rates of
warranty claims and repair costs per claim to satisfy the
Companys warranty obligation. As these factors are
impacted by actual experience and future expectations, the
Company periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts when necessary.
Research and
Development
Research and development costs are expensed as incurred and
include wafers, masks, employee expenses, contractor fees,
building costs, utilities and administrative expenses. Acquired
IPR&D assets are considered indefinite-lived intangible
assets and are not subject to amortization. An IPR&D asset
must be tested for impairment annually or more frequently if
events or changes in circumstances
F-22
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
indicate that the asset might be impaired. The impairment test
consists of a comparison of the fair value of the IPR&D
asset with its carrying amount. If the carrying amount of the
IPR&D asset exceeds its fair value, an impairment loss must
be recognized in an amount equal to that excess. After an
impairment loss is recognized, the adjusted carrying amount of
the IPR&D asset will be its new accounting basis.
Subsequent reversal of a previously recognized impairment loss
is prohibited. The initial determination and subsequent
evaluation for impairment of the IPR&D asset requires
management to make significant judgments and estimates. Once the
IPR&D projects have been completed or abandoned, the useful
life of the IPR&D asset is determined and amortized
accordingly.
Licensed
Patents and Technologies
The Company has entered into a number of royalty agreements to
license patents and technology used in the design of its
products. The Company carries two types of royalties, lump-sum
or running basis. Lump-sum royalties which require initial
payments, usually paid in installments, represent a
non-refundable commitment, such that the total present value of
these payments is recorded as a liability upon execution of the
agreements and the costs are amortized over the contract period
using the straight-line method.
Running royalty is paid based on the revenue of related products
sold by the Company. For example, the Company entered into an
agreement with a semiconductor design company, who comprised
88.4%, 94.4%, 92.4% and 88.2% of total running royalty expenses
in 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, respectively. Pursuant to the
agreement with the semiconductor design company, royalty rates
range from 2.5% to 6% of the related product revenue and payment
is made monthly. The royalty payments are charged to the
statements of operations as incurred.
Unit-Based
Compensation
The Company follows the provisions of ASC 718,
Compensation-Stock Compensation, formerly
SFAS 123(R), Share-Based Payment (revised
2004) (ASC 718). Under ASC 718, unit-based
compensation cost is measured at grant date, based on the fair
value of the award, and is recognized as expense over the
requisite service period. As permitted under ASC 718, the
Company elected to recognize compensation expense for all
options with graded vesting based on the graded attribution
method.
The Company uses the Black-Scholes option pricing-model to
measure the grant-date-fair-value of options. The Black-Scholes
model requires certain assumptions to determine an options
fair value, including expected term, risk free interest,
expected volatility and fair value of underlying common unit.
The expected term of each option grant was based on
employees expected exercises and post-vesting employment
termination behavior and the risk free interest rate was based
on the U.S. Treasury yield curve for the period
corresponding with the expected term at the time of grant. The
expected volatility was estimated using historical volatility of
share prices of similar public entities. No dividends were
assumed for this calculation of option value. The Company
estimates the fair value of the underlying common unit because
there is no public trading market for its common units.
Earnings per
Unit
In accordance with ASC 260, Earnings Per
Share, formerly SFAS No. 128,
Earnings Per Share (ASC 260), the Company
computes basic earnings from continuing operations per unit and
basic earnings per unit by dividing income from continuing
operations available to common unitholders and net income
available to common unitholders, respectively, by the weighted
average number of common
F-23
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
units outstanding during the period which would include, to the
extent their effect is dilutive, redeemable convertible
preferred units, options to purchase common units and restricted
units. Diluted earnings per unit reflect the dilution of
potential common units outstanding during the period. In
determining the hypothetical units repurchased, the Company uses
the average unit price for the period.
Income
Taxes
MagnaChip Semiconductor LLC has elected to be treated as a
partnership for U.S. federal income tax purposes and
therefore is not subject to income taxes on its income. Taxes on
its income are the responsibility of the individual equity
owners of MagnaChip Semiconductor LLC. The Company operates a
number of subsidiaries that are subject to local income taxes in
those markets.
The Company accounts for income taxes in accordance with
ASC 740, Income Taxes, formerly
SFAS No. 109, Accounting for Income
Taxes (ASC 740). ASC 740 requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in a companys financial statements or tax
returns. Under this method, deferred tax assets and liabilities
are determined based upon the difference between the financial
statement carrying amounts and the tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense
is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
The Company follows Financial Accounting Standards Board
(FASB) interpretation No. 48,
Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109, codified as ASC 740, which prescribes a
recognition threshold and measurement attribute for tax
positions taken or expected to be taken in a tax return. This
interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. The evaluation of a tax
position in accordance with this interpretation is a two-step
process. In the first step, recognition, the Company determines
whether it is more-likely-than-not that a tax position will be
sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits
of the position. The second step addresses measurement of a tax
position that meets the more-likely-than-not criteria. The tax
position is measured at the largest amount of benefit that has a
likelihood of greater than 50 percent of being realized
upon ultimate settlement. Differences between tax positions
taken in a tax return and amounts recognized in the financial
statements will generally result in (a) an increase in a
liability for income taxes payable or a reduction of an income
tax refund receivable, (b) a reduction in a deferred tax
asset or an increase in a deferred tax liability or
(c) both (a) and (b). Tax positions that previously
failed to meet the more-likely-than-not recognition threshold
should be recognized in the first subsequent financial reporting
period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not
recognition threshold should be de-recognized in the first
subsequent financial reporting period in which that threshold is
no longer met. Use of a valuation allowance as described in ASC
740 is not an appropriate substitute for the de-recognition of a
tax position. The requirement to assess the need for a valuation
allowance for deferred tax assets based on sufficiency of future
taxable income is unchanged by this interpretation.
Segment
Information
The Company has determined, based on the nature of its
operations and products offered to customers, that its
reportable segments are Display Solutions, Semiconductor
Manufacturing Services and Power Solutions. The Display
Solutions segments primary products are flat panel display
drivers and the
F-24
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Semiconductor Manufacturing Services segment provides for wafer
foundry services to clients. The Power Solutions segments
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. Net sales and
gross profit for the All other category primarily
relate to certain business activities that do not constitute
operating or reportable segments.
The Companys chief operating decision maker
(CODM) as defined by ASC 280, Segment
Reporting, formerly SFAS 131, Disclosure
about Segments of an Enterprise and Related
Information (ASC 280), allocates resources
to and assesses the performance of each segment using
information about its revenue and gross profit. The Company does
not identify or allocate assets by segments, nor does the CODM
evaluate operating segments using discrete asset information. In
addition, the Company does not allocate operating expenses,
interest income or expense, other income or expense, or income
tax expenses to the segments. Management does not evaluate
segments based on these criteria.
On October 6, 2008, the Company announced the closure of
its Imaging Solutions reporting unit. As of December 31,
2008, the Imaging Solutions business segment qualified as a
discontinued operation component of the Company under
ASC 360, Property, Plant and Equipment,
formerly SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(ASC 360). Accordingly, the results of
operations of the Imaging Solutions business and reportable
segment have been classified as discontinued operations. All
prior period information has been reclassified to reflect this
presentation on the statements of operations. Unless noted
otherwise, discussions in these notes pertain to the
Companys continuing operations.
Concentration
of Credit Risk
The Company performs periodic credit evaluations of its
customers financial condition and generally does not
require collateral for customers on accounts receivable. The
Company maintains reserves for potential credit losses, but
historically has not experienced significant losses related to
individual customers or groups of customers in any particular
industry or geographic area. The Company derives a substantial
portion of its revenues from export sales through its overseas
subsidiaries in Asia, North America and Europe.
Recent
Accounting Pronouncements
In June 2009, the FASB issued the Accounting Standards
Codification (ASC) Subtopic 105 Generally
Accepted Accounting Principles, which establishes the
Accounting Standards Codification as the single source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with GAAP. Rules and
interpretive releases of the Securities and Exchange Commission
(SEC) under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. The
subsequent issuances of new standards will be in the form of
Accounting Standards Updates that will be included in the
codification. This guidance is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this guidance did not
have a material effect on the Companys consolidated
financial position, results of operations or cash flows, since
the codification is not intended to change GAAP.
In May 2009, the FASB issued authoritative guidance included in
ASC Subtopic 855 Subsequent Events, which
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date, but before
financial statements are issued or are available to be issued.
Specifically, this guidance provides (i) the period after
the balance sheet date during which management
F-25
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the
financial statements; (ii) the circumstances under which an
entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and
(iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date. This guidance is effective for interim or annual financial
periods ending after June 15, 2009, and is to be applied
prospectively. The adoption of this guidance did not have a
material effect on the Companys consolidated financial
position, results of operations or cash flows.
In December 2007, the FASB issued ASC 805,
Business Combinations, formerly Statements of
Financial Accounting Standards (SFAS) No. 141
(revised 2007), Business Combinations
(ASC 805), which replaces FASB Statement
No. 141. ASC 805 establishes principles and requirements
for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities
assumed, any non-controlling interest in the acquiree and the
goodwill acquired. This guidance also establishes disclosure
requirements that enable users to evaluate the nature and
financial effects of the business combination. ASC 805 is
effective as of the beginning of an entitys fiscal year
that begins after December 15, 2008. This guidance requires
the fair value of acquired IPR&D to be recorded as
indefinite lived intangibles. IPR&D was previously expensed
at the time of the acquisition. The adoption of ASC 805 had a
material impact on the Companys consolidated financial
position and results of operations through the recognition of
$9.7 million of IPR&D as intangibles.
In December 2007, the FASB issued ASC 810,
Consolidation, formerly
SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statement amendments of ARB
No. 51 (ASC 810). ASC 810 states
that accounting and reporting for minority interests will be
recharacterized as noncontrolling interests and classified as a
component of equity. ASC 810 also establishes reporting
requirements that provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. ASC 810 applies to
all entities that prepare consolidated financial statements,
except
not-for-profit
organizations, but will affect only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries
or that deconsolidate a subsidiary. This guidance is effective
as of the beginning of an entitys first fiscal year
beginning after December 15, 2008. The adoption of ASC 810
did not have a material impact on the Companys
consolidated financial position, results of operations or cash
flows.
The Company adopted the provisions of ASC 820,
Fair Value Measurements and Disclosures,
formerly SFAS No. 157, Fair Value
Measurements (ASC 820) on January 1,
2008 and January 1, 2009 for financial assets and
liabilities and for nonfinancial assets and liabilities,
respectively. ASC 820 defines fair value, establishes a
market-based framework or hierarchy for measuring fair value and
expands disclosures about fair value measurements. ASC 820 is
applicable whenever another accounting pronouncement requires or
permits assets and liabilities to be measured at fair value. ASC
820 does not expand or require any new fair value measures,
however the application of this guidance may change current
practice. The adoption of ASC 820 did not have a material effect
on the Companys financial condition or results of
operations.
In April 2008, the FASB issued ASC 350,
Intangibles-Goodwill and Other, formerly FSP
FAS 142-3,
Determination of the Useful Life of Intangible
Assets. ASC 350 amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset
under SFAS No. 142, Goodwill and Other
Intangible Assets. ASC 350 is effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years. The adoption of ASC 350 did not have a material impact on
the Companys consolidated financial position, results of
operations or cash flows.
F-26
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
In June 2009, the FASB issued ASC 810,
Consolidation, formerly
SFAS No. 167, Amendments to FASB
Interpretation No. 46(R)
(SFAS No. 167) (ASC 810),
which (1) replaces the quantitative-based risks and rewards
calculation for determining whether an enterprise is the primary
beneficiary in a variable interest entity with an approach that
is primarily qualitative, (2) requires ongoing assessments
of whether an enterprise is the primary beneficiary of a
variable interest entity and (3) requires additional
disclosures about an enterprises involvement in variable
interest entities. The Company is required to adopt ASC 810 as
of the beginning of 2010. The Company is evaluating the
potential impact the adoption of ASC 810 will have on its
consolidated financial statements.
|
|
5.
|
Reorganization
Related Items
|
In accordance with ASC 852, the financial statements for the
Predecessor Company periods distinguish transactions and events
that are directly associated with the reorganization from the
ongoing operations of the Company. In connection with the
bankruptcy proceedings, implementation of the Plan of
Reorganization and adoption of fresh-start reporting, the
Company recorded the following reorganization income (expense)
items:
|
|
|
|
|
|
|
Predecessor
|
|
|
Ten-Month Period
|
|
|
Ended October 25,
|
|
|
2009
|
|
Professional fees
|
|
$
|
(7,459
|
)
|
Revaluation of assets
|
|
|
31,399
|
|
Effects of the plan of reorganization
|
|
|
780,981
|
|
Write-off of debt issuance costs
|
|
|
(166
|
)
|
Others
|
|
|
(182
|
)
|
|
|
|
|
|
Total
|
|
$
|
804,573
|
|
|
|
|
|
|
Included in reorganization items, net for the ten-month period
ended October 25, 2009 was the Predecessor Companys
gain recognized from the effects of the Plan of Reorganization.
The gain results from the difference between the Predecessor
Companys carrying amount of remaining pre-petition
liabilities subject to compromise and the amounts to be
distributed pursuant to the Plan of Reorganization. The gain
from the effects of the Plan of Reorganization is comprised of
the following:
|
|
|
|
|
|
|
Predecessor
|
|
|
Ten-Month Period
|
|
|
Ended October 25,
|
|
|
2009
|
|
Discharge of liabilities subject to compromise
|
|
$
|
798,043
|
|
Issuance of new common units
|
|
|
(14,259
|
)
|
Issuance of new warrants
|
|
|
(2,533
|
)
|
Accrual of amounts to be settled in cash
|
|
|
(270
|
)
|
|
|
|
|
|
Gain from the effects of the Plan of Reorganization
|
|
$
|
780,981
|
|
|
|
|
|
|
Liabilities subject to compromise represent the liabilities of
the Company incurred prior to the petition date, except those
that will not be impaired under the Plan of Reorganization.
Liabilities subject to compromise consisted of the following at
October 25, 2009.
F-27
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
|
|
|
|
|
Predecessor
|
|
|
October 25,
|
|
|
2009
|
|
General unsecured claims
|
|
$
|
2,702
|
|
Current portion of long-term debt-old
|
|
|
750,000
|
|
Accrued interest on current portion of long-term debt
|
|
|
45,341
|
|
|
|
|
|
|
Total
|
|
$
|
798,043
|
|
|
|
|
|
|
|
|
6.
|
Fair Value
Measurements
|
ASC 820 defines fair value, establishes a consistent framework
for measuring fair value and expands disclosure requirements
about fair value measurements. The Company adopted ASC 820 on
January 1, 2008 for financial assets and liabilities and
non-financial assets and liabilities. ASC 820 requires, among
other things, the Companys valuation techniques used to
measure fair value to maximize the use of observable inputs and
minimize the use of unobservable inputs. This guidance was
applied prospectively to the valuation of assets and liabilities
on and after the effective dates of this guidance.
There are three general valuation techniques that may be used to
measure fair value, as described below:
(A) Market approach Uses prices and other
relevant information generated by market transactions involving
identical or comparable assets or liabilities;
(B) Cost approach Based on the amount that
currently would be required to reproduce or replace the service
capacity of an asset (reproduction cost or replacement
cost); and
(C) Income approach Uses valuation techniques
to convert future amounts to a single present amount based on
current market expectations about the future amounts (includes
present value techniques, option-pricing models, the excess
earnings method, and the royalty savings method).
I. Net present value method is an income approach where a
stream of expected cash flows is discounted at an appropriate
discount rate.
II. The excess earnings method is a variation of the income
approach where the value of a specific asset is isolated from
its contributory assets.
III. The royalty savings method is a variation of the
income approach where the underlying premise is that an
intangible assets fair value is equal to the present value
of the cost savings (royalties) achieved by owning the asset.
Fair value information for each major category of assets and
liabilities measured on a nonrecurring basis as part of
fresh-start reporting during the period is listed in the
following table. The Company remeasured its assets and
liabilities at fair value on the Reorganization Effective Date
as required by ASC 852 using the guidance for measurement found
in ASC 805. The gains and losses
F-28
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
related to these fair value adjustments were recorded by the
Predecessor Company. Assets and liabilities measured at fair
value on a nonrecurring basis during the period included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
As of
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
|
|
October 25,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Gains
|
|
|
Valuation
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
Technique
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
439
|
|
|
|
|
|
|
|
|
|
|
$
|
439
|
|
|
$
|
(1,233
|
)
|
|
(B), (C)-I
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished goods
|
|
|
10,078
|
|
|
|
|
|
|
$
|
10,078
|
|
|
|
|
|
|
|
2,557
|
|
|
(A), (C)-I
|
Semi-finished goods and
work-in-process
|
|
|
52,309
|
|
|
|
|
|
|
|
52,309
|
|
|
|
|
|
|
|
15,346
|
|
|
(A), (B), (C)-I
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
14,902
|
|
|
|
|
|
|
|
|
|
|
|
14,902
|
|
|
|
5,091
|
|
|
(A), (C)-I
|
Building
|
|
|
71,007
|
|
|
|
|
|
|
|
|
|
|
|
71,007
|
|
|
|
(25,113
|
)
|
|
(A), (C)-I
|
Furniture and fixture
|
|
|
1,435
|
|
|
|
|
|
|
|
|
|
|
|
1,435
|
|
|
|
(4,771
|
)
|
|
(B), (C)-I
|
Machinery and equipment
|
|
|
69,664
|
|
|
|
|
|
|
|
|
|
|
|
69,664
|
|
|
|
14,867
|
|
|
(B), (C)-I
|
Structure
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
(1,814
|
)
|
|
(B), (C)-I
|
Other tangible assets
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
1,291
|
|
|
|
(2,200
|
)
|
|
(B), (C)-I
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
|
|
14,745
|
|
|
|
|
|
|
|
|
|
|
|
14,745
|
|
|
|
13,095
|
|
|
(C)-I, II, III
|
Customer relationships
|
|
|
26,100
|
|
|
|
|
|
|
|
|
|
|
|
26,100
|
|
|
|
3,132
|
|
|
(C)-I, II
|
Intellectual property assets
|
|
|
4,655
|
|
|
|
|
|
|
|
|
|
|
|
4,655
|
|
|
|
2,387
|
|
|
(C)-I, III
|
In-process research and development
|
|
|
9,700
|
|
|
|
|
|
|
|
|
|
|
|
9,700
|
|
|
|
9,700
|
|
|
(C)-I, II
|
Other non-current assets
|
|
|
2,270
|
|
|
|
|
|
|
|
2,270
|
|
|
|
|
|
|
|
355
|
|
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts of the other assets and liabilities except
those in the above table equal their fair values.
For details of key assumptions and inputs applied by the Company
for above fair valuation, see Note 3 Fresh-Start
Reporting.
F-29
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Accounts receivable as of December 31, 2009 and 2008
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
Accounts receivable
|
|
|
$
|
74,516
|
|
|
|
$
|
67,186
|
|
Notes receivable
|
|
|
|
3,260
|
|
|
|
|
12,450
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Allowances for doubtful accounts
|
|
|
|
(377
|
)
|
|
|
|
(1,569
|
)
|
Cash return reserve
|
|
|
|
(1,729
|
)
|
|
|
|
(671
|
)
|
Low yield compensation reserve
|
|
|
|
(1,437
|
)
|
|
|
|
(1,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
$
|
74,233
|
|
|
|
$
|
76,295
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in allowance for doubtful accounts for each period are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Beginning balance
|
|
|
$
|
|
|
|
|
$
|
(1,569
|
)
|
|
|
$
|
(1,367
|
)
|
|
|
$
|
(1,418
|
)
|
Bad debt expense
|
|
|
|
(379
|
)
|
|
|
|
(723
|
)
|
|
|
|
(503
|
)
|
|
|
|
(161
|
)
|
Write off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
|
208
|
|
Translation adjustments
|
|
|
|
2
|
|
|
|
|
(40
|
)
|
|
|
|
197
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
$
|
(377
|
)
|
|
|
$
|
(2,332
|
)
|
|
|
$
|
(1,569
|
)
|
|
|
$
|
(1,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in cash return reserve for each period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Beginning balance
|
|
|
$
|
(1,545
|
)
|
|
|
$
|
(671
|
)
|
|
|
$
|
(914
|
)
|
|
|
$
|
(1,450
|
)
|
Addition to reserve
|
|
|
|
(648
|
)
|
|
|
|
(4,476
|
)
|
|
|
|
(3,385
|
)
|
|
|
|
(2,509
|
)
|
Payment made
|
|
|
|
484
|
|
|
|
|
3,722
|
|
|
|
|
3,393
|
|
|
|
|
3,040
|
|
Translation adjustments
|
|
|
|
(20
|
)
|
|
|
|
(120
|
)
|
|
|
|
235
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
$
|
(1,729
|
)
|
|
|
$
|
(1,545
|
)
|
|
|
$
|
(671
|
)
|
|
|
$
|
(914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Changes in low yield compensation reserve for each period are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Beginning balance
|
|
|
$
|
(1,213
|
)
|
|
|
$
|
(1,101
|
)
|
|
|
$
|
(1,260
|
)
|
|
|
$
|
(2,482
|
)
|
Addition to reserve
|
|
|
|
(715
|
)
|
|
|
|
(1,759
|
)
|
|
|
|
(1,854
|
)
|
|
|
|
(1,307
|
)
|
Payment made
|
|
|
|
507
|
|
|
|
|
1,724
|
|
|
|
|
1,663
|
|
|
|
|
2,523
|
|
Translation adjustments
|
|
|
|
(16
|
)
|
|
|
|
(77
|
)
|
|
|
|
350
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
$
|
(1,437
|
)
|
|
|
$
|
(1,213
|
)
|
|
|
$
|
(1,101
|
)
|
|
|
$
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories as of December 31, 2009 and 2008 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
Finished goods
|
|
|
$
|
19,474
|
|
|
|
$
|
22,694
|
|
Semi-finished goods and
work-in-process
|
|
|
|
42,604
|
|
|
|
|
49,814
|
|
Raw materials
|
|
|
|
5,844
|
|
|
|
|
7,471
|
|
Materials in-transit
|
|
|
|
64
|
|
|
|
|
206
|
|
Less: inventory reserve
|
|
|
|
(4,579
|
)
|
|
|
|
(33,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
|
$
|
63,407
|
|
|
|
$
|
47,110
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in inventory reserve for each period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Beginning balance
|
|
|
$
|
|
|
|
|
$
|
(33,075
|
)
|
|
|
$
|
(8,620
|
)
|
|
|
$
|
(11,652
|
)
|
Change in reserve
|
|
|
|
(4,952
|
)
|
|
|
|
8,081
|
|
|
|
|
(34,869
|
)
|
|
|
|
1,101
|
|
Write off
|
|
|
|
391
|
|
|
|
|
11,297
|
|
|
|
|
4,992
|
|
|
|
|
1,888
|
|
Translation adjustments
|
|
|
|
(18
|
)
|
|
|
|
17
|
|
|
|
|
5,422
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
$
|
(4,579
|
)
|
|
|
$
|
(13,680
|
)
|
|
|
$
|
(33,075
|
)
|
|
|
$
|
(8,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
9.
|
Property, Plant
and Equipment
|
Property, plant and equipment as of December 31, 2009 and
2008 are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
Buildings and related structures
|
|
|
$
|
72,076
|
|
|
|
$
|
111,933
|
|
Machinery and equipment
|
|
|
|
71,505
|
|
|
|
|
318,440
|
|
Vehicles and others
|
|
|
|
3,043
|
|
|
|
|
40,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,624
|
|
|
|
|
470,795
|
|
Less: accumulated depreciation
|
|
|
|
(5,388
|
)
|
|
|
|
(296,038
|
)
|
Land
|
|
|
|
15,101
|
|
|
|
|
9,198
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
$
|
156,337
|
|
|
|
$
|
183,955
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate depreciation expenses totaled $5,389 thousand, $28,649
thousand, $47,707 thousand and $129,870 thousand for the
two-month period ended December 31, 2009, for the ten-month
period ended October 25, 2009 and for the years ended
December 31, 2008 and 2007, respectively.
Property, plant and equipment are pledged as collateral for the
new term loan of Successor Company and for the senior secured
revolving credit facility and Second Priority Senior Secured
Notes of Predecessor Company to a maximum of $780 million
as of December 31, 2009 and 2008, respectively.
Intangible assets at December 31, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
Technology
|
|
|
$
|
14,942
|
|
|
|
$
|
14,156
|
|
Customer relationships
|
|
|
|
26,448
|
|
|
|
|
112,167
|
|
Intellectual property assets
|
|
|
|
4,779
|
|
|
|
|
6,011
|
|
In-process research and development
|
|
|
|
9,829
|
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
|
(5,840
|
)
|
|
|
|
(97,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
$
|
50,158
|
|
|
|
$
|
34,892
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expenses for intangible assets totaled
$5,829 thousand, $9,606 thousand, $24,254 thousand and $33,564
thousand for the two-month period ended December 31, 2009,
for the ten-month period ended October 25, 2009 and for the
years ended December 31, 2008 and 2007, respectively. The
estimated aggregate amortization expense of intangible assets
for the next five years is $25,182 thousand in 2010, $11,328
thousand in 2011, $6,402 thousand in 2012, $5,554 thousand in
2013 and $1,096 thousand in 2014.
Intangible assets are pledged as collateral for the new term
loan of the Successor Company and for the senior secured
revolving credit facility and Second Priority Senior Secured
Notes of the Predecessor Company as of December 31, 2009
and 2008, respectively.
As part of its application of fresh-start reporting, the Company
recognized fair value associated with IPR&D of $9,700
thousand. The Company accounted for IPR&D as an
indefinite-lived intangible
F-32
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
asset until completion or abandonment of the associated research
and development (R&D) projects. The IPR&D
charges incurred by the Companys Semiconductor
Manufacturing Services (SMS) segment related to
design of a product to the point that it met specific technical
requirements, directly targeted at customers. The Large Display
Solution (LDS) reporting unit incurs IPR&D
charges related to the design of possible products. These
R&D efforts are intended to incur incremental sales with
the Companys existing and new customers. Fair value of
IPR&D was based on estimating the future cash flows by the
Companys SMS segment and LDS reporting unit using the
excess earnings method and discounting the net cash flows back
to their present values. The revenues were allocated to
IPR&D of the SMS segment on the basis of percentage of
projected SMS revenues for 2010, 2011 and thereafter. Selling,
general and administrative (SG&A) expenses as a
percentage of revenue were determined to be consistent with the
cost structure of SMS. R&D expenses as a percentage of
revenue were determined to be a percentage of the projected
R&D expenses. This percentage represents the cost to
maintain IPR&D. The cost to complete the IPR&D was
derived based on the R&D expenses in the subsequent period
not used to maintain existing technology. The estimated cash
flows attributable to the IPR&D were converted to a present
value equivalent.
IPR&D of the LDS reporting unit is expected to generate
revenue over a two-year time frame starting with its
introduction to the market in 2010. The revenues allocated to
IPR&D of the LDS reporting unit were determined to be a
percentage of the projected LDS revenues in 2010 and 2011. Costs
of revenues and operating expenses were deducted from the
revenues based on LDS cost structure as a percentage of revenue.
While SG&A expenses as a percentage of revenue were
determined to be the same as the whole business, maintenance
R&D expenses were determined to be a percentage of the
projected R&D expenses. The cost to complete the IPR&D
project was estimated based on the R&D budget less the
amount of R&D dedicated to maintaining the existing
technology. The estimated cash flows attributable to the
IPR&D of LDS reporting unit were converted to a present
value equivalent.
In the SMS segment, management determined that a small number of
in-process projects were behind schedule based on a review of
the status of each project as of December 31, 2009.
Expected completion term ranges from 0.5 to 3.5 years from
a project start date. Incurred costs as of December 31,
2009 totaled $5.6 million and costs to complete the
projects are estimated at $1.5 million to be spent over the
next one or two years from the year ended December 31,
2009. In the LDS reporting unit, management determined that none
of the in-process projects were behind schedule based on a
review of the status of each project as of December 31,
2009. All projects are expected to be completed within
2 years from a project start date. Incurred costs as of
December 31, 2009 totaled $5.6 million and costs to
complete the projects are estimated at $2.3 million to be
spent within a year from the year ended December 31, 2009.
The primary risks associated with the above projects include
uncertainties in completing development projects on schedule due
to technological feasibility and resource capacity, which could
lead to lower demand at a lower selling point given the market
trends. Such delay in development and production could adversely
affect the related customer relationship. Additionally, there
can be no assurance that meaningful sales will occur on a
continuing basis considering market changes.
The Company periodically evaluates the existence of impairment
for its IPR&D assets. If a project is completed, the
carrying value of the related intangible asset is amortized over
the remaining estimated life of the asset beginning in the
period in which the project is completed and sales of related
product commenced. If a project becomes impaired or abandoned,
the carrying value of the related intangible asset would be
written down to its fair value and an impairment charge would be
taken in the period in which the impairment occurs.
F-33
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
The Company recorded goodwill as a result from the acquisition
of ISRON Corporation on March 6, 2005. On an ongoing basis,
the Company evaluates goodwill at the reporting unit level for
indications of potential impairment. Goodwill is tested for
impairment based on the present value of discounted cash flows,
and, if impaired, goodwill is written down to fair value. The
Company performs its annual goodwill impairment test during the
first quarter of each fiscal year, as well as additional
impairment tests, if any, required on an event-driven basis. In
the first quarter of each of fiscal year 2008, 2007 and 2006,
the Company performed its annual goodwill impairment test and
determined that goodwill was not impaired. As of
December 31, 2008, the Company performed an additional
goodwill impairment test triggered by the significant adverse
change in the revenue of the mobile display solutions, or MDS,
reporting unit, and determined that goodwill was impaired. At
the time of impairment, revenue of the MDS reporting unit was
expected to decrease due to the deterioration of the
Companys financial credit status and the decline of the
semiconductor sector resulting from the world-wide economic
slowdown. Accordingly, an impairment charge of $14,245 thousand,
which represents the entire balance of goodwill, was recorded
for the year ended December 31, 2008.
Changes in accrued warranty liabilities for each period are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31,
|
|
|
October 25,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
|
2009
|
|
2008
|
|
2007
|
Beginning balance
|
|
$
|
929
|
|
|
|
$
|
474
|
|
|
$
|
211
|
|
|
$
|
112
|
|
Addition to warranty reserve
|
|
|
(16
|
)
|
|
|
|
1,928
|
|
|
|
2,608
|
|
|
|
586
|
|
Payments made
|
|
|
(4
|
)
|
|
|
|
(1,544
|
)
|
|
|
(2,243
|
)
|
|
|
(486
|
)
|
Translation adjustments
|
|
|
12
|
|
|
|
|
71
|
|
|
|
(102
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
921
|
|
|
|
$
|
929
|
|
|
$
|
474
|
|
|
$
|
211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Short-term
Borrowings
|
Predecessor
Company
On December 23, 2004, the Company and its subsidiaries,
including MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, as borrowers, entered into a
senior credit agreement with a syndicate of banks, financial
institutions and other entities providing for a
$100 million senior secured revolving credit facility.
Interest was charged at current rates when drawn upon.
Short-term borrowings under this facility were comprised of the
following as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Interest
|
|
Amount of
|
|
|
Maturity
|
|
Rate (%)
|
|
Principal
|
|
Euro dollar revolving loan
|
|
January 15, 2009
|
|
3 month LIBOR + 6.75
|
|
$
|
10,000
|
|
Alternate Base Rate (ABR) revolving loan
|
|
March 31, 2009
|
|
ABR + 5.75
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
95,000
|
|
|
|
|
|
|
|
|
|
|
F-34
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
As discussed in Note 2, on the Reorganization Effective
Date, $61,750 thousand of these short-term borrowings was
refinanced with a new term loan and the remainder of $33,250
thousand was repaid in cash as part of the Companys
reorganization.
|
|
13.
|
Current Portion
of Long-term Debt
|
Successor
Company
The current portion of the new term loan issued in connection
with the Companys reorganization was $618 thousand as of
December 31, 2009, as described in Note 14.
Predecessor
Company
On December 23, 2004, two of the Companys
subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, issued $500 million
aggregate principal amount of Second Priority Senior Secured
Notes consisting of $300 million aggregate principal amount
of Floating Rate Second Priority Senior Secured Notes and
$200 million aggregate principal amount of
67/8%
Second Priority Senior Secured Notes. At the same time, these
subsidiaries issued $250 million aggregate principal amount
of 8% Senior Subordinated Notes.
Details of the current portion of long-term debt as of
December 31, 2008 are presented as below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Interest
|
|
Amount of
|
|
|
|
Maturity
|
|
|
Rate (%)
|
|
Principal
|
|
|
Floating Rate Second Priority Senior Secured Notes
|
|
|
2011
|
|
|
3 month LIBOR + 3.250
|
|
$
|
300,000
|
|
67/8%
Second Priority Senior Secured Notes
|
|
|
2011
|
|
|
6.875
|
|
|
200,000
|
|
8% Senior Subordinated Notes
|
|
|
2014
|
|
|
8.000
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
The senior secured revolving credit facility and Second Priority
Senior Secured Notes were collateralized by substantially all of
the assets of the Company. This indebtedness was initially
expected to be paid in full upon maturity.
Each indenture governing the notes contained covenants that
limited the ability of the Company and its subsidiaries to
(i) incur additional indebtedness, (ii) pay dividends
or make other distributions on its capital stock or repurchase,
repay or redeem its capital stock, (iii) make certain
investments, (iv) incur liens, (v) enter into certain
types of transactions with affiliates, (vi) create
restrictions on the payment of dividends or other amounts to the
Company by its subsidiaries, and (vii) sell all or
substantially all of its assets or merge with or into other
companies.
As of December 31, 2008, the Company and all of its
subsidiaries except for MagnaChip Semiconductor (Shanghai)
Company Limited jointly and severally guaranteed each series of
the Second Priority Senior Secured Notes on a second priority
senior secured basis. As of December 31, 2008, the Company
and all of its subsidiaries except for MagnaChip Semiconductor
Ltd. (Korea) and MagnaChip Semiconductor (Shanghai) Company
Limited jointly and severally guaranteed the Senior Subordinated
Notes on an unsecured, senior subordinated basis. In addition,
the Company and each of its then current and future direct and
indirect subsidiaries (subject to certain exceptions) were
required to be guarantors of Second Priority Senior Secured
Notes and Senior Subordinated Notes.
F-35
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
During December 2008, the Company failed to make interest
payments under its Second Priority Senior Secured Notes and
Senior Subordinated Notes. Additionally, as of December 31,
2008, the Company was not in compliance with certain of its
financial covenants under the terms of its senior secured credit
facility, and the indentures governing the Second Priority
Senior Secured Notes and the Senior Subordinated Notes.
Accordingly, amounts outstanding under the Second Priority
Senior Secured Notes and Senior Subordinated Notes were
reclassified as current portion of long-term debt in the
Companys accompanying balance sheet as of
December 31, 2008.
In connection with the issuance of the notes and entering into
the credit facility, the Company capitalized certain costs and
fees, which were being amortized using the effective interest
method or straight-line method over their respective terms. As a
result of not being in compliance with certain of its financial
covenants under the terms of its senior secured credit facility
and the indentures governing the Second Priority Senior Secured
Notes and Senior Subordinated Notes, the remaining capitalized
costs of $12,319 thousand in connection with the issuance of the
Second Priority Senior Secured Notes and Senior Subordinated
Notes as of December 31, 2008 were written off and included
in interest expense. Amortization costs, which were included in
interest expense in the accompanying consolidated statements of
operations, amounted to $836 thousand for the ten-month period
ended October 25, 2009, and $16,290 thousand and $3,919
thousand for the years ended December 31, 2008 and 2007,
respectively. As of October 25, 2009, the remaining
capitalized costs of $166 thousand in connection with the
entrance into the credit facility were written off and included
in reorganization items, net, in accordance with the Plan of
Reorganization as described in Notes 3 and 5. The remaining
capitalized costs as of December 31, 2008 and 2007 were
$1,004 thousand and $17,917 thousand, respectively.
As of October 25, 2009, the current portion of long-term
debt of $750,000 thousand and accrued interest of $45,341
thousand were discharged in exchange for new common units with a
fair value of $14,259 thousand and new warrants with a fair
value of $2,533 thousand as part of the Companys
reorganization as described in Notes 3 and 5.
Interest Rate
Swap
Effective June 27, 2005, the Company entered into an
interest rate swap agreement (the Swap) to hedge the
effect of the volatility of the
3-month
London Inter-Bank Offering Rate (LIBOR) resulting
from the Companys $300 million of Floating Rate
Second Priority Senior Secured Notes. Under the terms of the
Swap, the Company received a variable interest rate equal to the
three-month LIBOR rate plus 3.25%. In exchange, the Company paid
interest at a fixed rate of 7.34%. The Swap effectively replaced
the variable interest rate on the notes with a fixed interest
rate through the expiration date of the Swap on June 15,
2008.
The Swap qualified as a cash flow hedge under ASC 815, since at
both the inception of the hedge and on an ongoing basis, the
hedging relationship was expected to be highly effective in
achieving offsetting cash flows attributable to the hedged risk
during the term of the hedge. The Company utilized 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.
F-36
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Successor
Company
In connection with the Predecessor Companys reorganization
as described in Note 3, in complete satisfaction of the
first lien lender claims arising from the senior secured credit
facility (included in short-term borrowings) of $95,000
thousand, the Company made a cash payment of $33,250 thousand to
the senior secured credit facility lenders and, together with
its subsidiaries, including MagnaChip Semiconductor S.A. and
MagnaChip Semiconductor Finance Company, as borrowers, entered
into a $61,750 thousand Amended and Restated Credit
Agreement (the Credit Agreement or the new
term loan) with Avenue Investments, LP, Goldman Sachs
Lending Partners LLC and Citicorp North America, Inc.
Long-term borrowings as of December 31, 2009 consisted of
Eurodollar loans at an annual interest rate of 6 month
LIBOR + 12% to Avenue Investments, LP, Goldman Sachs Lending
Partners LLC and Citicorp North America, Inc. in the principal
amount of $42,055 thousand, $12,285 thousand and $7,410
thousand, respectively. After deducting the current portion of
long-term debt of $618 thousand, long-term borrowings as of
December 31, 2009 were $61,132 thousand.
The Company may by written notice to the administrative agent
elect to request the establishment of one or more new term loan
or revolving loan commitments (the Incremental Loan
Commitments) by an amount not in excess of $23,250
thousand in the aggregate less any incremental loans incurred
after the effective date of the new term loan.
The principal balance of the new term loan is to be paid in
quarterly installments of approximately $154 thousand with the
first installment due on March 31, 2010, and ending with
the last installment due on September 30, 2013. In
addition, the Credit Agreement has optional and mandatory loan
prepayment provisions as follows:
Optional Prepayments. The Company has the right at any time
and from time to time to prepay the new term loan, in whole or
in part.
Excess Cash Flow Prepayments. Not later than 90 days after
the end of each fiscal year (commencing with the fiscal year
ending December 31, 2010), the Company shall calculate the
amount of Excess Cash Flow (as defined in the Credit Agreement)
for such fiscal year, and shall prepay the new loan in an amount
equal to the amount by which (A) 50% of such Excess Cash
Flow exceeds (B) the sum of (x) the aggregate
principal amount of voluntary prepayments of the new term loan
during such fiscal year, and (y) in the case of the fiscal
year ending December 31, 2010, the aggregate principal
amount of any Early Excess Cash Flow Prepayments (as defined in
the Credit Agreement), which is equal to the amount of dividends
paid and the amount of subordinated indebtedness payments made
on or prior to 90 days after the end of such fiscal year,
or an Excess Cash Flow Prepayment; provided, that if the amount
in clause (B) exceeds the amount in clause (A), no such
prepayment of the new term loan is required.
Asset Sales. Not later than three business days following
the receipt of any net cash proceeds of any asset sale, the
Company shall make (with certain exceptions) prepayments in an
aggregate amount equal to 100% of such net cash proceeds from
such asset sale.
Dividend or Subordinated Indebtedness Payment. Concurrently
with the making of any dividend and any subordinated
indebtedness payment, in each case from any Cumulative Credit
(as defined in the Credit Agreement) prior to the date that the
first Excess Cash Flow Prepayment is required to be made, the
Company shall make prepayments of the outstanding term loan in
an
F-37
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
amount equal to the amount of such dividend or subordinated
indebtedness payment, as the case may be.
Casualty Events. Not later than three business days
following the receipt by the Company of any net cash proceeds
from a casualty event in excess of $3,000 thousand, the Company
must use the full amount of such net cash proceeds to:
(i) make prepayments of the outstanding term loan, or
(ii) so long as no default shall have occurred and be
continuing, repair, replace or restore the property in respect
of which such net cash proceeds were repaid or reinvested in
other fixed or capital assets no later than 360 days
following receipt thereof.
The Company is required to pay the balance of the Credit
Agreement, if any, on November 6, 2013. The Credit
Agreement is collateralized by substantially all of the assets
of the Company.
The Credit Agreement contains covenants that limit the ability
of the Company and its subsidiaries to (i) incur additional
indebtedness, (ii) pay dividends or make other
distributions on its capital stock or repurchase, repay or
redeem its capital stock, (iii) make certain investments,
(iv) incur liens, (v) enter into certain types of
transactions with affiliates, (vi) create restrictions on
the payment of dividends or other amounts to the Company by its
subsidiaries, (vii) sell all or substantially all of its
assets or merge with or into other companies, (viii) issue
specific equity interests and (ix) establish, create or
acquire any additional subsidiaries. It also contains a minimum
liquidity financial covenant and compliance with financial
ratios.
As of December 31, 2009, the Company and all of its
subsidiaries except for MagnaChip Semiconductor (Shanghai)
Company Limited jointly and severally guaranteed, as a primary
obligor, the payment and performance of the borrowers
obligations under the Credit Agreement.
In connection with the entrance into the Credit Agreement, the
Company capitalized certain costs and fees, which are being
amortized using the straight-line method over the term of loan.
Amortization costs, which were included in interest expense in
the accompanying consolidated statements of operations, amounted
to $0.3 thousand for the two-month period ended
December 31, 2009, and total remaining capitalized costs as
of December 31, 2009 were $235 thousand.
|
|
15.
|
Accrued Severance
Benefits
|
The majority of accrued severance benefits is for employees in
the Companys Korean subsidiary, MagnaChip Semiconductor
Ltd. (Korea). Pursuant to the Employee Retirement Benefit
Security Act of Korea, most employees and executive officers
with one or more years of service are entitled to severance
benefits upon the termination of their employment based on their
length of service and rate of pay. As of December 31, 2009,
98% of all employees of the Company were eligible for severance
benefits.
F-38
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Changes in accrued severance benefits for each period are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Beginning balance
|
|
|
$
|
72,243
|
|
|
|
$
|
63,147
|
|
|
|
$
|
75,869
|
|
|
|
$
|
64,642
|
|
Provisions
|
|
|
|
1,851
|
|
|
|
|
8,835
|
|
|
|
|
14,026
|
|
|
|
|
18,834
|
|
Severance payments
|
|
|
|
(1,389
|
)
|
|
|
|
(4,320
|
)
|
|
|
|
(6,505
|
)
|
|
|
|
(7,151
|
)
|
Translation adjustments
|
|
|
|
941
|
|
|
|
|
4,581
|
|
|
|
|
(20,243
|
)
|
|
|
|
(456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,646
|
|
|
|
|
72,243
|
|
|
|
|
63,147
|
|
|
|
|
75,869
|
|
Less: Cumulative contributions to the National Pension Fund
|
|
|
|
(530
|
)
|
|
|
|
(533
|
)
|
|
|
|
(539
|
)
|
|
|
|
(784
|
)
|
Group severance insurance plan
|
|
|
|
(707
|
)
|
|
|
|
(681
|
)
|
|
|
|
(669
|
)
|
|
|
|
(909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,409
|
|
|
|
$
|
71,029
|
|
|
|
$
|
61,939
|
|
|
|
$
|
74,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The severance benefits are funded approximately 1.68%, 1.91% and
2.23% as of December 31, 2009, 2008 and 2007, respectively,
through the Companys National Pension Fund and group
severance insurance plan which will be used exclusively for
payment of severance benefits to eligible employees. These
amounts have been deducted from the accrued severance benefit
balance.
The Company is liable to pay the following future benefits to
its employees upon their normal retirement age:
|
|
|
|
|
|
|
Severance
|
|
|
Benefit
|
|
2010
|
|
$
|
33
|
|
2011
|
|
|
69
|
|
2012
|
|
|
135
|
|
2013
|
|
|
|
|
2014
|
|
|
279
|
|
2015 - 2019
|
|
|
8,332
|
|
The above amounts were determined based on the 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 employees that will cease
working with the Company before their normal retirement ages.
|
|
16.
|
Redeemable
Convertible Preferred Units
|
Predecessor
Company
The Company issued 49,727 units as Series A redeemable
convertible preferred units (the Series A
units) and 447,420 units as Series B redeemable
convertible preferred units (the Series B
units) on September 23, 2004 and an additional
364 units of Series A units and 3,272 units of
Series B units on November 30, 2004, respectively.
Each Series A and Series B unit had a stated value of
$1,000 per unit. As the Series A and B units were
redeemable at the option of the holders,
F-39
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
the Company classified the Series A units and B units
outside of permanent equity. All Series A units were
redeemed by cash on December 27, 2004 and a portion of the
Series B units were redeemed by cash on December 15,
2004 and December 27, 2004.
Changes in Series B units for each period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Ten-Month
|
|
Year Ended
|
|
Year Ended
|
|
|
Period Ended
|
|
December 31,
|
|
December 31,
|
|
|
October 25, 2009
|
|
2008
|
|
2007
|
|
|
Units
|
|
Amount
|
|
Units
|
|
Amount
|
|
Units
|
|
Amount
|
|
Series B Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period
|
|
|
93,997
|
|
|
$
|
142,669
|
|
|
|
93,997
|
|
|
$
|
129,405
|
|
|
|
93,997
|
|
|
$
|
117,374
|
|
Accrual of preferred dividends
|
|
|
|
|
|
|
6,317
|
|
|
|
|
|
|
|
13,264
|
|
|
|
|
|
|
|
12,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
|
93,997
|
|
|
$
|
148,986
|
|
|
|
93,997
|
|
|
$
|
142,669
|
|
|
|
93,997
|
|
|
$
|
129,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Series B units were issued to the original purchasers
of the Company in 2004. Holders of Series B units were
entitled to receive cumulative dividends, whether or not earned
or declared by the board of directors. The cumulative cash
dividends accrued at the rate of 10% per unit per annum on the
Series B units original issue price, compounded
semi-annually.
The Series B units, which had a carrying amount of $148,986
thousand, were retired without consideration as part of the
Companys reorganization as described in Note 3.
Conversion
The outstanding Series B units were convertible, in whole
or in part, into common equity interests upon or concurrently
with the first public offering of the common equity interests of
the Company at the Companys option or the holders
option based on a formula, represented by the conversion ratio.
The conversion ratio for the Series B units was an amount
equal to the original issue price per unit plus an amount per
unit equal to full cumulative dividends accrued and unpaid to
the date of the consummation of the first public offering,
divided by the per common equity interest price to the public in
the Companys first public offering of equity securities.
Dividends
Holders of Series B units were entitled to receive
cumulative dividends, whether or not earned or declared by the
board of directors. The cumulative cash dividends accrued at the
rate of 10% per unit per annum on the Series B units
original issue price, compounded semi-annually. Such dividends
were payable in semi-annual installments in arrears commencing
March 15, 2005.
Liquidation
In the event of liquidation, the holders of Series B units
were entitled to receive after all creditors of the Company have
been paid in full but before any amounts were paid to the
holders of any units ranking junior to the Series B units
with respect to dividends or upon liquidation (including common
units), out of the assets of the Company legally available for
distribution to its members, whether from capital, surplus or
earnings, an amount equal to the Series B units original
issue price in cash per unit plus an amount equal to full
cumulative dividends accrued and unpaid thereon to the date of
final distribution, and no more. If the net assets of the
Company were insufficient to pay the holders of all
F-40
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
outstanding Series B units and of any units ranking on
parity with the Series B units, the full amounts to which
they respectively were entitled, such assets, or the proceeds
thereof, were to be distributed ratably among the holders of the
Series B units and any units ranking on parity with the
Series B units in accordance with the amounts which would
be payable on such distribution if the amount to which the
holders of the Series B units and any units ranking on a
parity with the Series B units were entitled to be paid in
full.
Voting
As provided in Predecessor Companys operating agreement,
the holders of Series B units were not entitled to vote on
any matter submitted to a vote of the Predecessor Companys
members, and were not entitled to notice of any meeting of
members.
Redemption
If any outstanding Series B units had remained outstanding
on the 14th anniversary after issuance of the Series B
units, then the holders of a majority of the then outstanding
Series B units had the right to elect to have the Company
redeem all outstanding Series B units from funds legally
available, at a price per unit equal to $1,000 plus an amount
per unit equal to full cumulative dividends accrued and unpaid
thereon to the redemption date.
Also the Series B units were redeemable from funds legally
available, in whole or in part, at the election of the Company,
expressed by resolution of its board of directors, at any time
and from time to time at a price of $1,000 per unit plus any
cumulative accrued and unpaid dividends.
Successor
Company
In connection with the Companys reorganization, the
Company issued warrants to purchase 15,000 thousand of the
Companys new common units. The warrants were issued in
partial satisfaction of the claims of the holders of the
Companys Senior Subordinated Notes and are exercisable at
a price of $1.97 per unit at any time following the issue date
of the warrants, so long as the exercise of the warrants is
exempt from the registration requirements of the Securities Act
of 1933, as amended. The value of each warrant to purchase one
common unit is $0.169, which was estimated using the
Black-Scholes option pricing model using the following
assumptions: fair value of $0.79 per common unit, exercise price
of $1.97 per unit, risk free rate of interest of 2.3%,
volatility of 50%, dividend rate of 0% and term of 5 years.
F-41
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Successor
Company
New common units with no par value were authorized in the amount
of 375,000 thousand units, of which 307,084 thousand
units were issued and outstanding as of December 31, 2009.
Details of new common units as of December 31, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
|
Units
|
|
|
Amount
|
|
|
Common units at the beginning of the period
|
|
|
299,999,996
|
|
|
$
|
49,539
|
|
Restricted unit bonuses issued
|
|
|
7,084,000
|
|
|
|
5,596
|
|
|
|
|
|
|
|
|
|
|
Total common units issued and outstanding at the end of the
period
|
|
|
307,083,996
|
|
|
$
|
55,135
|
|
|
|
|
|
|
|
|
|
|
|
|
19.
|
Equity Incentive
Plans
|
Successor
Company
The Successor Company adopted its 2009 Common Unit Plan
effective December 8, 2009, which is administered by the
board of directors. Under the plan, employees, consultants and
non-employee directors are eligible for equity incentives,
including grants of options to purchase the Companys
common units or restricted unit bonuses or restricted unit
purchase rights and deferred units awards, subject to terms and
conditions determined by the board of directors. The term of
options shall not exceed ten years from the date of grant.
Restricted unit purchase rights shall be exercisable within a
period established by the board of directors, which shall in no
event exceed thirty days from the effective date of the grant.
As of December 31, 2009, an aggregate maximum of
30,000,000 units were authorized and 7,551,000 units
were reserved for all future grants of units.
Unit options are generally granted with exercise prices of no
less than the fair market value of the Companys common
units on the grant date. The requisite service period, or the
period during which a grantee is required to provide service in
exchange for option grants, coincides with the vesting period.
The purchase price for units issuable under each restricted unit
purchase right shall be established by the board of directors in
its discretion. No monetary payment (other than applicable tax
withholding) shall be required as a condition of receiving units
pursuant to a restricted unit bonus, the consideration for which
shall be services actually rendered to a participating company
or for its benefit. Units issued pursuant to any restricted unit
award may (but need not) be made subject to vesting conditions
based upon the satisfaction of such service requirements,
conditions, restrictions or performance criteria as shall be
established by the board of directors and set forth in the award
agreement evidencing such award. During any period in which
units acquired pursuant to a restricted unit award remain
subject to vesting conditions, such units may not be sold,
exchanged, transferred, pledged, assigned or otherwise
disposed of other than pursuant to an ownership change event or
transfer by will or the laws of descent and distribution. The
grantee shall have all of the rights of a member of the Company
holding units, including the right to vote such units and to
receive all dividends and other distributions paid with respect
to such units; provided, however, that if so determined by the
board of directors and provided by the award agreement, such
dividends and distributions shall be subject to the same vesting
conditions as the units subject to the restricted unit
F-42
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
award with respect to which such dividends or distributions were
paid. If a grantees service terminates for any reason,
whether voluntary or involuntary (including the grantees
death or disability), then (a) the Company (or its
assignee) has the option to repurchase for the purchase price
paid by the grantee any units acquired by the grantee pursuant
to a restricted unit purchase right which remain subject to
vesting conditions as of the date of the grantees
termination of service and (b) the grantee shall forfeit to
the Company any units acquired by the grantee pursuant to a
restricted unit bonus which remain subject to vesting conditions
as of the date of the grantees termination of service. The
Company shall have the right to assign at any time any
repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the
Company.
No monetary payment (other than applicable tax withholding, if
any) is required as a condition of receiving a deferred unit
award, the consideration for which shall be services actually
rendered to a participating company or for its benefit. Deferred
unit awards may (but need not) be made subject to vesting
conditions based upon the satisfaction of such service
requirements, conditions, restrictions or performance criteria
as shall be established by the Committee and set forth in the
award agreement evidencing such award. Grantees have no voting
rights with respect to units represented by deferred unit awards
until the date of the issuance of such units (as evidenced by
the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company). If a grantees
service terminates for any reason, whether voluntary or
involuntary (including the grantees death or disability),
then the grantee shall forfeit to the Company any deferred units
pursuant to the award which remain subject to vesting conditions
as of the date of the grantees termination of service,
and, in the event of the grantees termination for cause,
such deferred unit award to the extent not yet settled. The
Company shall issue to a grantee on the date on which deferred
units subject to the grantees deferred unit award vest or
on such other date determined by the board of directors, in its
discretion, and set forth in the award agreement one unit
(and/or any other new, substituted or additional securities or
other property) for each deferred unit then becoming vested or
otherwise to be settled on such date, subject to the withholding
of applicable taxes, if any.
F-43
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
The following summarizes unit option and restricted unit bonus
activities for the two-month period ended December 31,
2009. At the date of grant, all options had an exercise price
above the fair value of common units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor Company
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Aggregate
|
|
Average
|
|
|
|
|
|
|
Average
|
|
Intrinsic
|
|
Remaining
|
|
|
Number of
|
|
|
|
Exercise
|
|
Value of
|
|
Contractual
|
|
|
Restricted Unit
|
|
Number of
|
|
Price of Unit
|
|
Unit
|
|
Life of
|
|
|
Bonuses
|
|
Options
|
|
Options
|
|
Options
|
|
Unit Options
|
|
Outstanding at October 25, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
7,084,000
|
|
|
|
15,365,000
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
Released from restriction
|
|
|
2,408,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
4,675,440
|
|
|
|
15,365,000
|
|
|
|
1.16
|
|
|
|
|
|
|
|
9.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
|
|
|
|
13,553,302
|
|
|
|
|
|
|
|
|
|
|
|
9.9 years
|
|
Exercisable at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expenses recorded for the restricted unit
bonuses and unit options pursuant to ASC 718 for the two-month
period ended December 31, 2009 was $2,073 thousand and $126
thousand, respectively. As of December 31, 2009, there were
$3,243 thousand and $2,811 thousand of total unrecognized
compensation cost related to unvested restricted unit bonuses
and unit options, which are expected to be recognized over a
weighted average future periods of 1.4 years and
1.7 years, respectively. Total fair value of restricted
unit bonuses released from restriction for the period from
October 25 to December 31, 2009 is $1,903 thousand.
The Company utilizes the Black-Scholes option-pricing model to
measure the fair value of each option grant. The following
summarizes the grant-date fair value of options granted for the
two-month period ended December 31, 2009 and assumptions
used in the Black-Scholes option-pricing model on a weighted
average basis:
|
|
|
|
|
|
|
Two-Month Period Ended
|
|
|
December 31,
2009
|
|
Grant-date fair value of option (in US dollars)
|
|
$
|
0.22
|
|
Expected term
|
|
|
2.9 Years
|
|
Risk-free interest rate
|
|
|
0.6
|
%
|
Expected volatility
|
|
|
59.1
|
%
|
Expected dividends
|
|
|
|
|
F-44
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
The number and weighted average grant-date fair value of the
unit options are as follows:
|
|
|
|
|
|
|
|
|
|
|
Two-Month Period
|
|
|
Ended December 31, 2009
|
|
|
|
|
Weighted Average
|
|
|
Number
|
|
Grant-Date Fair Value
|
|
Unvested options at the beginning of the period
|
|
|
|
|
|
$
|
|
|
Granted options during the period
|
|
|
15,365,000
|
|
|
|
0.22
|
|
Vested options during the period
|
|
|
|
|
|
|
|
|
Unvested options at the end of the period
|
|
|
15,365,000
|
|
|
|
0.22
|
|
Predecessor
Company
The Predecessor Company adopted two equity incentive plans
effective October 6, 2004 and March 21, 2005,
respectively, which were administered by the compensation
committee designated by the board of directors. Employees,
consultants and non-employee directors were eligible for the
grant of options to purchase the Companys common units or
restricted common units subject to terms and conditions
determined by the compensation committee. The term of options
could in no event exceed ten years from the date of grant. As of
December 31, 2008, an aggregate maximum of 7,890,864 common
units were authorized and reserved for all future and
outstanding grants of options.
Unit options were generally granted with exercise prices of no
less than the fair market value of the Companys common
units on the grant date. Generally, options vested and became
exercisable in periodic installments, with 25% of the options
vesting on the first anniversary of the grant date and 6.25% of
options vesting on the last day of each calendar quarter
thereafter. In most cases, the requisite service period, or the
period during which a grantee was required to provide service in
exchange for option grants, coincided with the vesting period.
Upon the termination of a unit option grantees employment
prior to a public offering, the Company had the right to
repurchase all or any of the common units acquired by the
grantee upon exercise of any of his or her options for a cash
payment equal to the fair market value of such common units on
the date of repurchase. The Companys repurchase right
would terminate ninety days after the termination date.
During the three months ended December 31, 2004, restricted
units were issued upon the exercise of certain options to
purchase restricted common units at the exercise price of $1 per
unit. Restricted units issued were subject to restrictions which
generally lapsed in installments over a four-year period. Under
the terms and conditions of these restricted units, the
restricted units were subject to forfeiture upon the termination
of the restricted unitholders employment with the Company.
Upon termination, the Company could repurchase all, or any
portion of the restricted common units for either $1 per
unit (the exercise price) or the fair market value of the
restricted common units at the time of repurchase. If the
termination was for cause, as defined in the service agreements
entered into with each restricted unitholder, the repurchase
price per unit would be $1. However, if the termination was for
any other reason, then the Company could repurchase all or any
portion of the restricted units for which the restricted period
had not lapsed as of the date of termination for a repurchase
price per unit of $1, and could repurchase all or any portion of
the restricted common units for which the restricted period had
lapsed as of the date of termination for a repurchase price per
unit equal to fair market value. Termination for
cause was defined in the service agreements to mean
a termination of the restricted unitholders employment
with the Company because of (a) a failure by the restricted
unitholder to substantially perform the restricted
unitholders customary duties
F-45
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
with the Company in the ordinary course (other than in certain
specified circumstances); (b) the restricted
unitholders gross negligence, intentional misconduct or
fraud in the performance of his or her employment; (c) the
restricted unitholders indictment for a felony or to a
crime involving fraud or dishonesty; (d) a judicial
determination that the restricted unitholder committed fraud or
dishonesty against any person or entity; or (e) the
restricted unitholders material violation of one or more
of the Companys policies applicable to the restricted
unitholders employment as may be in effect from time to
time.
The Predecessor Company adopted fresh-start reporting (see
Note 3) as of October 25, 2009, at which time it
effectively cancelled all unit options under the Predecessor
Companys equity incentive plans.
The following summarizes unit option and restricted unit
activities for the ten-month period ended October 25, 2009
and for the year ended December 31, 2008. At the date of
grant, all options had an exercise price at or above the fair
value of common units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
|
|
Aggregate
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
Intrinsic
|
|
Average
|
|
|
Number of
|
|
|
|
Average Exercise
|
|
Value of
|
|
Remaining
|
|
|
Restricted
|
|
Number of
|
|
Price of Unit
|
|
Unit
|
|
Contractual Life
|
|
|
Units
|
|
Options
|
|
Options
|
|
Options
|
|
of Unit Options
|
|
Outstanding at January 1, 2008
|
|
|
268,343
|
|
|
|
4,916,840
|
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
315,000
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
161,460
|
|
|
|
1.1
|
|
|
$
|
787
|
|
|
|
|
|
Forfeited/Repurchased
|
|
|
|
|
|
|
853,780
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
Released from restriction
|
|
|
268,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
|
|
|
|
4,216,600
|
|
|
|
1.9
|
|
|
|
15,118
|
|
|
|
6.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2008
|
|
|
|
|
|
|
3,973,510
|
|
|
|
1.9
|
|
|
|
14,412
|
|
|
|
6.9 years
|
|
Exercisable at December 31, 2008
|
|
|
|
|
|
|
3,085,038
|
|
|
|
1.7
|
|
|
|
11,827
|
|
|
|
6.6 years
|
|
Outstanding at January 1, 2009
|
|
|
|
|
|
|
4,216,600
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited / Repurchased
|
|
|
|
|
|
|
391,500
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
Released from restriction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 25, 2009 (Predecessor Company)
|
|
|
|
|
|
|
3,825,100
|
|
|
|
1.9
|
|
|
|
|
|
|
|
6.1 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Application of fresh-start reporting (Note 4)
|
|
|
|
|
|
|
(3,825,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at October 25, 2009 (Successor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expenses recorded for the restricted units
and unit options pursuant to ASC 718 were $0 and $233 thousand
for the ten-month period ended October 25, 2009, $16
thousand and $449 thousand for the year ended December 31,
2008 and $328 thousand and $276 thousand for the year ended
December 31, 2007, respectively. As of October 25,
2009, total unrecognized compensation cost related to unvested
unit options of $166 thousand, which were expected to be
recognized over a weighted average future period of
0.7 years, was recognized as reorganization items, net,
according to the Companys reorganization. As of
December 31, 2008, there was $335
F-46
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
thousand of total unrecognized compensation cost related to
unvested unit options, which were expected to be recognized over
a weighted average future period of 1.0 years. Total fair
value of restricted units released from restriction for the year
ended December 31, 2008 was $152 thousand. Total fair value
of options vested for the ten-month period ended
October 25, 2009 and for the year ended December 31,
2008 was $266 thousand and $408 thousand, respectively.
The Company utilizes the Black-Scholes option-pricing model to
measure the fair value of each option grant. The following
summarizes the grant-date fair value of options granted during
the specified periods and assumptions used in the Black-Scholes
option-pricing model on a weighted average basis:
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Year Ended
|
|
December 31,
|
|
|
December 31,
|
|
Year Ended
|
|
|
2008
|
|
2007
|
|
Grant-date fair value of option
|
|
$
|
0.87
|
|
|
$
|
0.67
|
|
Expected term
|
|
|
2.2 Years
|
|
|
|
2.1 Years
|
|
Risk-free interest rate
|
|
|
2.5
|
%
|
|
|
4.4
|
%
|
Expected volatility
|
|
|
42.0
|
%
|
|
|
46.6
|
%
|
Expected dividends
|
|
|
|
|
|
|
|
|
The total cash received from employees as a result of option
exercises was $0, $184 thousand and $151 thousand for the
ten-month period ended October 25, 2009 and for the years
ended December 31, 2008 and 2007, respectively.
The number and weighted average grant-date fair value of the
unit options are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten-Month Period
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Ended October 25, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
|
Grant-Date
|
|
|
|
Number
|
|
|
Fair Value
|
|
|
Number
|
|
|
Fair Value
|
|
|
Number
|
|
|
Fair Value
|
|
|
Unvested options at the beginning of the period
|
|
|
1,131,563
|
|
|
$
|
0.65
|
|
|
|
2,374,896
|
|
|
$
|
0.43
|
|
|
|
3,481,528
|
|
|
$
|
0.29
|
|
Granted options during the period
|
|
|
|
|
|
|
|
|
|
|
315,000
|
|
|
|
0.87
|
|
|
|
710,000
|
|
|
|
0.67
|
|
Vested options during the period
|
|
|
520,969
|
|
|
|
0.51
|
|
|
|
1,108,772
|
|
|
|
0.31
|
|
|
|
1,339,570
|
|
|
|
0.23
|
|
Forfeited options during the period
|
|
|
391,500
|
|
|
|
0.17
|
|
|
|
853,780
|
|
|
|
0.51
|
|
|
|
737,750
|
|
|
|
0.23
|
|
Unvested options at the end of the period
|
|
|
547,438
|
|
|
|
0.88
|
|
|
|
1,131,563
|
|
|
|
0.65
|
|
|
|
2,374,896
|
|
|
|
0.43
|
|
|
|
20.
|
Discontinued
Operations
|
On October 6, 2008, the Company announced the closure of
its Imaging Solutions business segment. As of December 31,
2008, Imaging Solutions business segment qualified as a
discontinued operation component of the Company under
ASC 360, Property, Plant and Equipment,
formerly SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets
(ASC 360). As a
F-47
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
result, the results of operations of the Imaging Solutions
business segment were classified as discontinued operations. All
prior period information has been reclassified to reflect this
presentation on the statements of operations.
The results of operations of the Companys discontinued
Imaging Solutions business consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Net sales
|
|
|
$
|
947
|
|
|
|
$
|
2,728
|
|
|
|
$
|
65,862
|
|
|
|
$
|
82,848
|
|
Cost of sales
|
|
|
|
369
|
|
|
|
|
3,617
|
|
|
|
|
81,789
|
|
|
|
|
75,930
|
|
Selling, general and administrative expenses
|
|
|
|
68
|
|
|
|
|
(6,355
|
)
|
|
|
|
3,491
|
|
|
|
|
10,280
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,506
|
|
|
|
|
48,058
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
(1,120
|
)
|
|
|
|
34,158
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373
|
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
$
|
510
|
|
|
|
$
|
6,586
|
|
|
|
$
|
(91,455
|
)
|
|
|
$
|
(51,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In prior years the Company had entered into an agreement with a
software company to purchase licensed software products (the
Purchase Agreement), including the licensed CAD
software, for the three-year period from January 31, 2008
to January 30, 2011. The licensed CAD software has been
used across all lines of the Companys business for
purposes of developing products by the Imaging Solutions
business and the Display Solution business and verifying the
origin of defects in the manufacturing process of the
Semiconductor Manufacturing Services.
During the third quarter of 2009, due to the discontinuation of
its Imaging Solutions business segment and the related declining
usage of the licensed CAD software, the Company was able to
renegotiate the Purchase Agreement with a software company. Such
renegotiation resulted in a reduction of the total fee, which
lowered the Companys future scheduled payments. Therefore,
the Company adjusted the previously recorded restructuring
charges related to this agreements non-refundable future
scheduled payments in the amount of $1,120 thousand. The Company
had considered such payments as a contract termination cost. The
adjustment of $1,120 thousand represents the amount by which the
non-cancellable future payments that were to be incurred by the
Imaging Solutions business segment were reduced as a result of
the revised payment terms.
The Company renewed the Purchase Agreement exclusively for the
use of other business segments and not for the use of the
Imaging Solutions business segment and the Company has no
continuing involvement in the Imaging Solutions business.
In connection with the closure of its Imaging Solutions business
segment, the Company recorded impairment charges of $26,285
thousand during the third quarter ended September 28, 2008,
in accordance with ASC 360. Also, the Company recorded
restructuring charges of $7,873 thousand during the fourth
quarter ended December 31, 2008, in accordance with
ASC 420, Exit or Disposal Cost Obligations,
formerly SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities
(ASC 420), related to one-time employee
termination benefits, costs associated with the closing of the
facilities and contract terminations. Actual payments of $4,989
thousand were
F-48
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
charged against the restructuring accruals and the remaining
accrual balance as of December 31, 2008 was $2,584 thousand.
|
|
21.
|
Restructuring and
Impairment Charges
|
Predecessor
Company
2009
Restructuring and Impairment Charges
On March 31, 2009, the Company announced the closure of the
Tokyo office of its subsidiary, MagnaChip Semiconductor Inc.
(Japan). In connection with this closure, the Company recognized
$439 thousand of restructuring charges, which consisted of
one-time termination benefits and other related costs under ASC
420 for the ten-month period ended October 25, 2009. Actual
payments of $439 thousand were charged against the restructuring
accruals and there were no remaining restructuring accruals as
of December 31, 2009.
2008
Restructuring and Impairment Charges
During the three months ended July 1, 2007, the Company
recognized $1,978 thousand of restructuring accruals under ASC
420. The restructuring charges were related to the closure of
the Companys five-inch wafer fabrication facilities
located in Gumi and those charges consisted of one-time
termination benefits and other associated costs. Up to the first
quarter of 2008, actual payments of $1,103 were charged against
the restructuring accruals and the Company believes the
restructuring activities were substantially completed as of
March 30, 2008. Accordingly, the Company reversed $875
thousand of unused restructuring accruals.
As of December 31, 2008, the Company performed an
additional goodwill impairment test triggered by the significant
adverse change in the revenue of the MDS reporting unit, and
determined that total amount of goodwill was impaired. Revenue
of the MDS reporting unit was expected to decrease due to the
deterioration of the Companys financial credit status and
the recession in the semiconductor industry resulting from the
world-wide economic crisis beginning in the third quarter of
2008. Accordingly, an impairment charge of $14,245 thousand was
recorded for the year ended December 31, 2008.
2007
Restructuring and Impairment Charges
During the year ended December 31, 2007, the Company
recorded restructuring and impairment charges totaling $12,084
thousand, which included $10,106 thousand of impairment charges
under ASC 360 and $1,978 thousand of restructuring charges under
ASC 420. The impairment charges and restructuring charges that
were recorded related to the closure of the Companys
five-inch wafer fabrication facilities located in Gumi (the
asset group) that had generated losses and no longer
supported the Companys strategic technology roadmap.
ASC 360 requires the Company to evaluate the recoverability of
certain long-lived assets whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. The net book value of the asset group before the
impairment charges as of July 1, 2007 was approximately
$10,228 thousand.
The impairment charge was measured as the excess of the carrying
amount of the asset group over its fair value. The fair value of
the asset group was estimated using a present value technique,
where expected future cash flows from the use and eventual
disposal of the asset group were discounted by an interest rate
commensurate with the risk of the cash flows.
F-49
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
The Companys income tax expenses are composed of domestic
and foreign income taxes depending on the relevant tax
jurisdiction. Domestic refers to the income before
taxes, current income taxes and deferred income taxes generated
or incurred in the United States, where the Parent resides.
The components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Income (loss) from continuing operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
$
|
(4
|
)
|
|
|
$
|
774,188
|
|
|
|
$
|
18,442
|
|
|
|
$
|
16,031
|
|
Foreign
|
|
|
|
(523
|
)
|
|
|
|
67,627
|
|
|
|
|
(332,696
|
)
|
|
|
|
(136,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(527
|
)
|
|
|
$
|
841,815
|
|
|
|
$
|
(314,254
|
)
|
|
|
$
|
(119,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income taxes expense (benefits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
$
|
16
|
|
|
|
$
|
(143
|
)
|
|
|
$
|
1,335
|
|
|
|
$
|
230
|
|
Foreign
|
|
|
|
1,244
|
|
|
|
|
6,033
|
|
|
|
|
8,530
|
|
|
|
|
8,103
|
|
Uncertain tax position liability (domestic)
|
|
|
|
9
|
|
|
|
|
256
|
|
|
|
|
92
|
|
|
|
|
|
|
Uncertain tax position liability (foreign)
|
|
|
|
23
|
|
|
|
|
95
|
|
|
|
|
138
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,292
|
|
|
|
|
6,241
|
|
|
|
|
10,095
|
|
|
|
|
8,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes expense (benefits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
654
|
|
|
|
|
1,054
|
|
|
|
|
1,490
|
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
654
|
|
|
|
|
1,054
|
|
|
|
|
1,490
|
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
|
$
|
1,946
|
|
|
|
$
|
7,295
|
|
|
|
$
|
11,585
|
|
|
|
$
|
8,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Parent is a limited liability company and a non-taxable
entity for US tax purposes, and thus the Company expects the
statutory income tax rate to be zero. MagnaChip Semiconductor,
Ltd. (Korea) is the principal operating entity within the
consolidated Company. The statutory income tax rate of MagnaChip
Semiconductor, Ltd. (Korea), including tax surcharges,
applicable to the consolidated Company was approximately 24.2%
in 2009 and 27.5% in 2008 and 2007. MagnaChip Semiconductor,
Ltd. (Korea) was eligible for a tax exemption for companies
qualified as direct foreign investments under the Korean tax
code until 2008, and, accordingly, its corporate income tax was
reduced by 30% from 2007 to 2008.
F-50
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
The provision for domestic and foreign income taxes incurred is
different from the amount calculated by applying the statutory
tax rate to the net income before income taxes. The significant
items causing this difference are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Provision computed at statutory rate
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
Permanent differences
|
|
|
|
(693
|
)
|
|
|
|
(19,500
|
)
|
|
|
|
(1,076
|
)
|
|
|
|
4,831
|
|
Change in statutory tax rate
|
|
|
|
(265
|
)
|
|
|
|
118
|
|
|
|
|
8,173
|
|
|
|
|
(18,242
|
)
|
Adjustment for overseas tax rate
|
|
|
|
3,139
|
|
|
|
|
8,192
|
|
|
|
|
(52,569
|
)
|
|
|
|
(27,028
|
)
|
Change in valuation allowance
|
|
|
|
(267
|
)
|
|
|
|
18,134
|
|
|
|
|
56,827
|
|
|
|
|
49,111
|
|
Uncertain tax positions liability
|
|
|
|
32
|
|
|
|
|
351
|
|
|
|
|
230
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
$
|
1,946
|
|
|
|
$
|
7,295
|
|
|
|
$
|
11,585
|
|
|
|
$
|
8,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the composition of net deferred income tax assets
(liabilities) at December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
$
|
|
|
|
|
$
|
9,086
|
|
Accrued expenses
|
|
|
|
2,056
|
|
|
|
|
1,419
|
|
Product warranties
|
|
|
|
322
|
|
|
|
|
152
|
|
Other reserves
|
|
|
|
530
|
|
|
|
|
356
|
|
Accumulated severance benefits
|
|
|
|
12,042
|
|
|
|
|
9,908
|
|
Property, plant and equipments
|
|
|
|
15,503
|
|
|
|
|
13,981
|
|
NOL carry-forwards
|
|
|
|
146,833
|
|
|
|
|
98,745
|
|
Tax credit
|
|
|
|
31,558
|
|
|
|
|
23,947
|
|
Royalty income
|
|
|
|
5,985
|
|
|
|
|
10,629
|
|
Foreign currency translation loss
|
|
|
|
30,198
|
|
|
|
|
40,916
|
|
Debt issuance costs
|
|
|
|
284
|
|
|
|
|
397
|
|
Others
|
|
|
|
3,081
|
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
|
248,392
|
|
|
|
|
210,938
|
|
Less: valuation allowance
|
|
|
|
(225,704
|
)
|
|
|
|
(196,093
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,688
|
|
|
|
|
14,845
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
|
1,721
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
12,247
|
|
|
|
|
|
|
Others
|
|
|
|
243
|
|
|
|
|
4,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
|
14,211
|
|
|
|
|
4,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
$
|
8,477
|
|
|
|
$
|
10,395
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
Changes in valuation allowance for deferred tax assets for the
two-month period ended December 31, 2009, for the ten-month
period ended October 25, 2009 and for the year ended
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
Beginning balance
|
|
|
$
|
223,367
|
|
|
|
$
|
196,093
|
|
|
|
$
|
165,977
|
|
Charge to expenses
|
|
|
|
(409
|
)
|
|
|
|
17,090
|
|
|
|
|
79,438
|
|
Translation adjustment
|
|
|
|
2,746
|
|
|
|
|
10,184
|
|
|
|
|
(49,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
$
|
225,704
|
|
|
|
$
|
223,367
|
|
|
|
$
|
196,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets are recognized only to the extent
that realization of the related tax benefit is more likely than
not. Realization of the future tax benefits related to the
deferred tax assets is dependent on many factors, including the
Companys ability to generate taxable income within the
period during which the temporary differences reverse, the
outlook for the economic environment in which the Company
operates and the overall future industry outlook. Based on the
Companys historical accounting and tax losses, management
determined that it was more likely than not that the Company
would realize benefits related to its deferred tax assets in the
amount of $8,477 thousand, $9,238 thousand and $10,395 thousand
as of December 31, 2009, October 25, 2009 and
December 31, 2008, respectively. Accordingly, the Company
recorded a valuation allowance of $225,704 thousand, $223,367
thousand and $196,093 thousand on its net deferred tax assets as
of December 31, 2009, October 25, 2009 and
December 31, 2008, respectively.
At December 31, 2009, the Company had approximately
$625,616 thousand of net operating loss carry-forwards available
to offset future taxable income. The majority of net operating
loss is related to MagnaChip Korea, which expires in varying
amounts starting from 2010 to 2019. The Company also has Korean
and Dutch tax credit carry-forwards of approximately $11,446
thousand and $20,103 thousand, respectively, as of
December 31, 2009. The Korean tax credits expire at various
dates starting from 2010 to 2013, and the Dutch tax credits are
carried forward to be used for an indefinite period of time.
Uncertainty in
Income Taxes
The Companys subsidiaries file income tax returns in
Korea, Japan, Taiwan, the U.S. and in various other
jurisdictions. The Company is subject to income tax examinations
by tax authorities of these jurisdictions for all years since
the beginning of its operation as an independent company in
October 2004.
The Company adopted the provisions of ASC 740 guidance on
uncertain tax positions on January 1, 2007. As a result of
the implementation of ASC 740 guidance on uncertain tax
positions, the Company recognized $1,554 thousand of liabilities
for unrecognized tax benefits, which are related to the
temporary difference arising from the timing of expensing
certain inventories. Such liabilities were accounted for as an
increase to the January 1, 2007 balance of accumulated
deficits. As of December 31, 2009 and 2008, the Company
recorded $1,997 thousand and $1,490 thousand of liabilities for
unrecognized tax benefits, respectively.
F-52
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
The Company recognizes interest and penalties accrued related to
unrecognized tax benefits as income tax expenses. The Company
recognized $26 thousand, $206 thousand and $155 thousand of
interest and penalties as income tax expense for the two-month
period ended December 31, 2009, for the ten-month period
ended October 25, 2009 and for the year ended
December 31, 2008, respectively. Total interest and
penalties accrued as of December 31, 2009,
December 31, 2008 and as of the ASC 740 guidance on
uncertain tax positions adoption date were $946 thousand, $652
thousand and $530 thousand, respectively.
A tabular reconciliation of the total amounts of unrecognized
tax benefits at the beginning and end of each period is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
Unrecognized tax benefits, balance at the beginning
|
|
|
$
|
2,874
|
|
|
|
$
|
2,293
|
|
|
|
$
|
1,593
|
|
Additions based on tax positions related to the current year
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
Additions for tax positions of prior years
|
|
|
|
123
|
|
|
|
|
635
|
|
|
|
|
748
|
|
Reductions for tax positions of prior years
|
|
|
|
(18
|
)
|
|
|
|
(88
|
)
|
|
|
|
(64
|
)
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits, balance at the ending
|
|
|
$
|
2,979
|
|
|
|
$
|
2,874
|
|
|
|
$
|
2,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23.
|
Geographic and
Segment Information
|
On October 6, 2008, the Company announced the closure of
its Imaging Solutions business segment, subject to support for
existing customers. As of December 31, 2008, the Imaging
Solutions business segment qualified as a discontinued operation
component of the Company under ASC 360. As a result, the results
of operations of the Imaging Solutions business and reportable
segment have been classified as discontinued operations.
Accordingly, the Company has restated prior periods
segment information to conform to the current presentation.
F-53
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
The following sets forth information relating to the reportable
segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display Solutions
|
|
|
$
|
51,044
|
|
|
|
$
|
231,894
|
|
|
|
$
|
304,095
|
|
|
|
$
|
331,684
|
|
Semiconductor Manufacturing Services
|
|
|
|
54,759
|
|
|
|
|
206,662
|
|
|
|
|
287,111
|
|
|
|
|
321,034
|
|
Power Solutions
|
|
|
|
4,746
|
|
|
|
|
7,627
|
|
|
|
|
5,437
|
|
|
|
|
|
|
All other
|
|
|
|
533
|
|
|
|
|
2,801
|
|
|
|
|
5,021
|
|
|
|
|
56,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
|
$
|
111,082
|
|
|
|
$
|
448,984
|
|
|
|
$
|
601,664
|
|
|
|
$
|
709,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Display Solutions
|
|
|
$
|
8,747
|
|
|
|
$
|
61,788
|
|
|
|
$
|
57,386
|
|
|
|
$
|
41,524
|
|
Semiconductor Manufacturing Services
|
|
|
|
10,657
|
|
|
|
|
71,825
|
|
|
|
|
98,411
|
|
|
|
|
67,127
|
|
Power Solutions
|
|
|
|
736
|
|
|
|
|
1,431
|
|
|
|
|
(4,272
|
)
|
|
|
|
|
|
All other
|
|
|
|
534
|
|
|
|
|
2,801
|
|
|
|
|
4,885
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit
|
|
|
$
|
20,674
|
|
|
|
$
|
137,845
|
|
|
|
$
|
156,410
|
|
|
|
$
|
130,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of net sales by region, based on the
location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Korea
|
|
|
$
|
62,241
|
|
|
|
$
|
244,309
|
|
|
|
$
|
301,006
|
|
|
|
$
|
404,276
|
|
Asia Pacific
|
|
|
|
25,573
|
|
|
|
|
116,920
|
|
|
|
|
144,482
|
|
|
|
|
155,488
|
|
Japan
|
|
|
|
6,477
|
|
|
|
|
31,641
|
|
|
|
|
79,892
|
|
|
|
|
71,211
|
|
North America
|
|
|
|
14,910
|
|
|
|
|
48,458
|
|
|
|
|
61,346
|
|
|
|
|
58,506
|
|
Europe
|
|
|
|
1,881
|
|
|
|
|
7,656
|
|
|
|
|
14,938
|
|
|
|
|
20,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111,082
|
|
|
|
$
|
448,984
|
|
|
|
$
|
601,664
|
|
|
|
$
|
709,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 99% of the Companys property, plant and equipment are
located in Korea as of December 31, 2009.
Net sales from the Companys top ten largest customers
accounted for 66%, 69%, 63% and 63% for the two-month period
ended December 31, 2009, for the ten-month period ended
October 25, 2009 and for the years ended December 31,
2008 and 2007, respectively.
The Company recorded $25.3 million, $121.5 million,
$152.4 million and $182.6 million of sales to one
customer within its Display Solutions segment, which represents
greater than 10% of net sales, for the two-month period ended
December 31, 2009, for the ten-month period ended
October 25, 2009 and for the years ended December 31,
2008 and 2007, respectively.
F-54
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
24.
|
Commitments and
Contingencies
|
Operating
Agreements with Hynix
In connection with the acquisition of the non-memory
semiconductor business from Hynix on October 4, 2004
(the Original Acquisition), the Company entered into
several agreements with Hynix, including a non-exclusive cross
license that provides the Company with access to certain of
Hynixs intellectual property for use in the manufacture
and sale of non-memory semiconductor products. The Company also
agreed to provide certain utilities and infrastructure support
services to Hynix. The obligation to provide certain of these
services lasts indefinitely.
Upon the closing of the Original Acquisition, MagnaChip Korea
and Hynix also entered into lease agreements under which
MagnaChip Korea leases space from Hynix in several buildings,
primarily warehouses and utility facilities, in Cheongju, Korea.
These leases are generally for an initial term of 20 years
plus an indefinite number of renewal terms of 10 years
each. Each of the leases is cancelable upon 90 days
notice by the lessee. The Company also leases certain land from
Hynix located in Cheongju, Korea. The term of this lease is
indefinite unless otherwise agreed by the parties, and as long
as the buildings remain on the lease site and are owned and used
by the Company for permitted uses.
Operating
Leases
The Company leases land, office building and equipment under
various operating lease agreements that expire through 2034.
Rental expenses were approximately $2,472 thousand, $11,775
thousand, $13,380 thousand and $11,614 thousand for the
two-month period ended December 31, 2009, for the ten-month
period ended October 25, 2009 and for the years ended
December 31, 2008 and 2007, respectively.
As of December 31, 2009, the minimum aggregate rental
payments due under non-cancelable lease contracts are as follows:
|
|
|
|
|
2010
|
|
|
6,840
|
|
2011
|
|
|
1,883
|
|
2012
|
|
|
1,883
|
|
2013
|
|
|
1,883
|
|
2014
|
|
|
1,883
|
|
2015 and thereafter
|
|
|
37,244
|
|
|
|
|
|
|
|
|
$
|
51,616
|
|
|
|
|
|
|
Payments of
Guarantee
As of December 31, 2009 and 2008, the Company has provided
guarantees for bank loans that employees borrowed to participate
in the issuance of new shares of Hynix in 1999. The outstanding
balances of guarantees for payments provided by the Company
amounted to approximately $163 thousand and $138 thousand as of
December 31, 2009 and 2008, respectively.
Loss
contingency
Samsung Fiber Optics has made a claim against the Company for
the infringement of the certain patent rights of Caltech in
relation to imaging sensor products provided by the Company to
Samsung Fiber Optics. The Company believes it is probable that
the pending claim will have an unfavorable outcome and further
believes the associated loss can be reasonably estimated
according
F-55
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
to ASC 450 Contingencies (ASC 450).
The Company accrued $718 thousand of estimated liabilities as of
October 25 and December 31, 2009 as the Company believes
its accrual of $718 thousand is its best estimate if the
final outcome is unfavorable. Estimation was based on the
Companys most recent communication with Samsung Fiber
Optics. Accordingly, the Company cannot provide assurance that
the estimated liabilities will be realized, and actual results
could vary materially.
|
|
25.
|
Related Party
Transactions
|
Unitholders
Funds affiliated with Avenue Capital Management II, L.P. are the
majority unitholders of the Company, owning 69.8% of the common
units outstanding at December 31, 2009.
Backstop
Commitment Agreement
Funds affiliated with Avenue Capital Management II, L.P. were
paid an amount in new common units equal to 10% of the new
common units (the standby commitment fee), or
30,000,000 units. The standby commitment fee was deemed
fully earned and payable upon the Reorganization Effective Date,
regardless of whether the offering was fully subscribed by
eligible holders of the second lien noteholder claims.
Loans to
employees
Loans to employees as of December 31, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Predecessor
|
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Short-term loans
|
|
$
|
40
|
|
|
$
|
94
|
|
Long-term loans
|
|
|
45
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
85
|
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
New Term
Loan
A portion of the new term loan equal to $42,055 thousand was
borrowed from Avenue Investments, LP, which is an affiliate of
Avenue Capital Management II, L.P., and related interest expense
of $822 thousand was recorded in relation to this new term loan
and remains as accrued interest as of December 31, 2009.
Warrants
Funds affiliated with Avenue Capital Management II, L.P. own
warrants for the purchase of 4,447,680 common units out of the
total warrants for the purchase of 15,000,000 units
outstanding as of December 31, 2009.
F-56
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
26.
|
Earnings (loss)
per Unit
|
The following table illustrates the computation of basic and
diluted earnings (loss) per common unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Income (loss) from continuing operations
|
|
|
$
|
(2,473
|
)
|
|
|
$
|
834,520
|
|
|
|
$
|
(325,839
|
)
|
|
|
$
|
(128,826
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
510
|
|
|
|
|
6,586
|
|
|
|
|
(91,455
|
)
|
|
|
|
(51,724
|
)
|
Net income (loss)
|
|
|
|
(1,963
|
)
|
|
|
|
841,116
|
|
|
|
|
(417,294
|
)
|
|
|
|
(180,550
|
)
|
Dividends accrued on preferred unitholders
|
|
|
|
|
|
|
|
|
(6,317
|
)
|
|
|
|
(13,264
|
)
|
|
|
|
(12,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
units
|
|
|
$
|
(2,473
|
)
|
|
|
$
|
828,203
|
|
|
|
$
|
(339,103
|
)
|
|
|
$
|
(140,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common units
|
|
|
$
|
(1,963
|
)
|
|
|
$
|
834,789
|
|
|
|
$
|
(430,558
|
)
|
|
|
$
|
(192,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding
|
|
|
|
300,862,764
|
|
|
|
|
52,923,483
|
|
|
|
|
52,768,614
|
|
|
|
|
52,297,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per unit from continuing
operations
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
15.65
|
|
|
|
$
|
(6.43
|
)
|
|
|
$
|
(2.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per unit from discontinued
operations
|
|
|
|
0.00
|
|
|
|
|
0.12
|
|
|
|
|
(1.73
|
)
|
|
|
|
(0.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings (loss) per unit
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
15.77
|
|
|
|
$
|
(8.16
|
)
|
|
|
$
|
(3.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following outstanding redeemable convertible preferred
units, unit options, restricted units and warrants were excluded
from the computation of diluted earnings (loss) per unit, as
they would have an anti-dilutive effect on the calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Two-Month
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
Period Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Redeemable convertible preferred units
|
|
|
|
NA
|
|
|
|
|
93,997
|
|
|
|
|
93,997
|
|
|
|
|
93,997
|
|
Options
|
|
|
|
15,365,000
|
|
|
|
|
3,825,100
|
|
|
|
|
4,216,600
|
|
|
|
|
4,916,840
|
|
Restricted Units
|
|
|
|
4,675,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268,343
|
|
Warrants
|
|
|
|
15,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-57
MagnaChip
Semiconductor LLC and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
(Tabular dollars
in thousands, except unit data)
|
|
27.
|
Unaudited Pro
forma December 31, 2009 Balance Sheet
|
Subsequent to December 31, 2009, the Company declared a
distribution to unitholders would be made using the proceeds
from the sale of $250 million in aggregate principal amount
of 10.5% senior notes. As the declaration was made after the
balance sheet date, an unaudited pro forma balance sheet has
been presented to show the pro forma liability due to
unitholders and decrease in additional paid in capital as if the
declaration of the distribution to unitholders was made prior to
December 31, 2009.
The Company has evaluated subsequent events requiring
recognition or disclosure in the consolidated financial
statements during the period from January 1, 2010 through
March 13, 2010, the date the consolidated financial
statements were available to be issued.
Cash Flow
Hedge Transactions
Effective January 11, 2010, the Companys Korean
subsidiary entered into option and forward contracts to hedge
the risk of changes in the functional-currency-equivalent cash
flows attributable to currency rate changes on U.S. dollar
denominated revenues. Total notional amounts for the options and
forward contracts were $50,000 thousand and $135,000 thousand,
respectively, and monthly settlements for the contracts will be
made from February to December 2010.
Issuance of
$250 million of Senior Notes and Applications of Net
Proceeds (Unaudited)
On April 9, 2010 the Companys Luxembourg subsidiary
and United States finance subsidiary completed the sale of
$250 million in aggregate principal amount of
10.500% senior notes due 2018. Of the $239.6 million
of net proceeds, $130.7 million was used to make a
distribution to the Companys unitholders and
$61.8 million was used to repay all outstanding borrowings
under the term loan. The remaining proceeds were retained to
fund working capital and for general corporate purposes.
Regarding the distribution made to unitholders, the Company has
presented pro forma balance sheet information in the face of
consolidated balance sheets.
F-58
MagnaChip Semiconductor
Corporation
Depositary Shares
Representing Shares
of Common Stock
|
|
|
Goldman,
Sachs & Co. |
Barclays Capital |
Deutsche Bank Securities |
Through and
including ,
2010 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
ITEM 13.
|
Other Expenses
of Issuance and Distribution.
|
The following table sets forth all expenses other than the
underwriting discount, payable by the registrant in connection
with the sale of the common stock being registered. All amounts
shown are estimates except for the SEC registration fee.
|
|
|
|
|
SEC Registration Fee
|
|
$
|
17,825
|
|
FINRA Fees
|
|
$
|
25,500
|
|
New York Stock Exchange Listing Fee
|
|
$
|
*
|
|
Legal Fees and Expenses
|
|
$
|
*
|
|
Printing Expenses
|
|
$
|
*
|
|
Blue Sky Fees
|
|
$
|
*
|
|
Transfer Agents Fees
|
|
$
|
*
|
|
Accounting Fees and Expenses
|
|
$
|
*
|
|
Miscellaneous
|
|
$
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
* |
|
To be provided by amendment |
|
|
ITEM 14.
|
Indemnification
of Officers and Directors.
|
Section 145 of the Delaware General Corporation Law (DGCL)
provides that a corporation may indemnify directors and officers
as well as other employees and individuals against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with any threatened, pending or completed
actions, suits or proceedings in which such person is made a
party or who is threatened to be made a party by reason of such
person being or having been a director, officer, employee of or
agent to the registrant. The statute provides that it is not
exclusive of other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
As permitted by the DGCL, our certificate of incorporation
includes a provision that eliminates the personal liability of
our directors for monetary damages for breach of fiduciary duty
as a director, except to the extent such exemption from
liability is not permitted by DGCL.
As permitted by the DGCL, our bylaws provide that (1) we
are required to indemnify our directors and officers to the
fullest extent permitted by the DGCL, subject to certain
exceptions; (2) we are permitted to indemnify our other
employees and agents to the extent that we indemnify our
officers and directors; (3) we are required to advance
expenses, as incurred, to our directors and officers in
connection with any legal proceeding, subject to certain
exceptions; and (4) the rights conferred in our bylaws are
not exclusive.
We intend to enter into indemnification agreements with our
directors and officers. The indemnification agreements will
provide for indemnification and advancement of expenses to our
directors and officers under certain circumstances for acts or
omissions to the extent permissible under Delaware law. We also
obtained directors and officers liability insurance,
which insures against liabilities that our directors or officers
may incur in such capacities. At present, we are not aware of
any pending or threatened litigation or proceeding involving any
of our directors, officers, employees or agents in which
indemnification would be required or permitted. We believe that
our charter and bylaw provisions are necessary to attract and
retain qualified persons as directors and officers.
II-1
|
|
Item 15.
|
Recent Sales
of Unregistered Securities.
|
The following relates to sales of securities that have occurred
since January 1, 2007 and that have not been registered
under the Securities Act:
Prior to the closing of the offering, we will convert from a
Delaware limited liability company into a Delaware corporation.
At the time of the corporate conversion, all of the outstanding
common units of MagnaChip Semiconductor LLC will be
automatically converted into shares of our common stock and all
of the outstanding warrants to purchase common units of
MagnaChip Semiconductor LLC will be automatically converted into
warrants to purchase shares of our common stock. The issuance of
common stock and warrants to purchase common stock to our
members in the corporate conversion will be exempt from
registration under the Securities Act by virtue of the exemption
provided under Section 3(a)(9) thereof as the common stock
and warrants will be exchanged by us with our existing security
holders exclusively where no commission or other remuneration is
paid or given directly or indirectly for soliciting such
exchange. The issuance of common stock and warrants will also be
exempt from registration under the Securities Act by virtue of
Section 4(2) thereof as a transaction not involving a
public offering or, with respect to certain of our existing
security holders, Regulation S thereof as an issuance to
non-U.S. persons
in transactions that will take place outside of the U.S. In
addition, as part of our corporate conversion, we will convert
outstanding options to purchase common units of MagnaChip
Semiconductor LLC into options to purchase shares of our common
stock. The issuance of such options to purchase shares of our
stock pursuant to such corporate conversion will be exempt from
registration in reliance upon exemptions from the registration
requirements provided by Rule 701 under the Securities Act
relating to transactions occurring under compensatory benefit
plans or provided by Regulation S to
non-U.S. persons
in transactions that will take place outside of the U.S.
In April 2010, our subsidiaries, MagnaChip Semiconductor S.A.
and MagnaChip Semiconductor Finance Company, sold (and certain
of our subsidiaries guaranteed) $250 million aggregate
principal amount of 10.500% senior notes due 2018. We
received net proceeds of approximately $239.6 million
pursuant to the sale of such notes. The initial purchasers of
the foregoing notes were Goldman, Sachs & Co.,
Barclays Capital Inc., Deutsche Bank Securities Inc., Morgan
Stanley & Co. Incorporated, Citigroup Global Markets
Inc., Credit Suisse Securities (USA) LLC and UBS Securities LLC.
The issuance of the notes to the initial purchasers was made in
reliance on Section 4(2) under the Securities Act and the
notes were subsequently resold by the initial purchasers
pursuant to Rule 144A and Regulation S thereunder.
In March 2010, we issued to our director Nader Tavakoli a
restricted unit bonus for 150,000 common units pursuant to
the MagnaChip Semiconductor LLC 2009 Common Unit Plan. In March
2010, we also issued to certain of our directors and employees
options to purchase up to 914,000 common units pursuant to
the MagnaChip Semiconductor LLC 2009 Common Unit Plan at an
exercise price of $2.12 per unit. The issuance of such
restricted unit bonuses and options to purchase our common units
was exempt from registration in reliance upon exemptions from
the registration requirements provided by Rule 701 under
the Securities Act relating to transactions occurring under
compensatory benefit plans or provided by Regulation S to
non-U.S. persons in transactions that took place outside of the
U.S.
In December 2009, we issued to certain of our employees
restricted unit bonuses for an aggregate of
7,084,000 common units pursuant to the MagnaChip
Semiconductor LLC 2009 Common Unit Plan. In December 2009,
we also issued to certain of our employees options to purchase
up to 15,365,000 common units pursuant to the MagnaChip
Semiconductor LLC 2009 Common Unit Plan at an exercise price of
$1.16 per unit. The issuance of such restricted unit
bonuses and options to purchase our common units was exempt from
registration in reliance upon exemptions from the registration
requirements provided by Rule 701 under the Securities Act
relating to transactions occurring under compensatory benefit
plans or provided by Regulation S to
non-U.S. persons
in transactions that took place outside of the U.S.
II-2
In November 2009, in connection with our emergence from
reorganization proceedings, we issued an aggregate of 17,999,996
common units and warrants to purchase 15,000,000 common units to
certain of our former creditors in satisfaction and retirement
of their claims. The issuance of such common units and warrants
and the distribution thereof was exempt from registration under
applicable securities laws pursuant to Section 1145(a) of
the U.S. Bankruptcy Code.
In November 2009, in connection with our emergence from
reorganization proceedings, we issued an aggregate of
252,000,000 common units in a rights offering to affiliated
funds of Avenue Capital Management II, L.P. and certain of our
other former creditors who were accredited investors, as defined
in Regulation D of the Securities Act, for an aggregate
purchase price of $35,280,000. In connection with such rights
offering we issued an additional 30,000,000 common units to
affiliated funds of Avenue Capital Management II, L.P. as
payment of a backstop commitment fee payable pursuant to our
Chapter 11 plan of reorganization. The sale and issuance of
such securities was exempt from registration under applicable
securities laws pursuant to Section 4(2) of the Securities
Act and Regulation D promulgated thereunder.
On July 4, 2008, one of our former employees exercised
options to acquire 4,375 of our common units at a purchase price
of $12,040.87. The issuance of these securities was exempt from
registration under Section 4(2) of the Securities Act, by
reason of the fact that the offering was a limited private
placement to one knowledgeable investor who agreed not to resell
the securities to the public.
On April 14, 2008, one of our former executives exercised
options to acquire 143,272.50 of our common units at a purchase
price of $143,272.50. Because the offering transaction took
place outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On March 12, 2008, one of our former employees exercised
options to acquire 2,437.50 of our common units at a purchase
price of $7,312.50. Because the offering transaction took place
outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On February 19, 2008, two of our former employees exercised
options to acquire 11,375 of our common units for an aggregate
purchase price of $20,890. Because the offering transactions
took place outside the U.S. and neither of the optionees
was a U.S. person, the issuance of these securities was
exempt from registration under Regulation S.
On December 24, 2007, one of our former executives
exercised options to acquire 12,500 of our common units at a
purchase price of $37,500. Because the offering transaction took
place outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On October 25, 2007, one of our former employees exercised
options to acquire 1,500 of our common units at a purchase price
of $3,000. Because the offering transaction took place outside
the U.S. and the optionee was not a U.S. person, the
issuance of these securities was exempt from registration under
Regulation S.
On August 22, 2007, one of our former executives exercised
options to acquire 30,937.50 of our common units at a purchase
price of $30,937. Because the offering transaction took place
outside the U.S. and the optionee was not a
U.S. person, the issuance of these securities was exempt
from registration under Regulation S.
On May 4, 2007, one of our former executives exercised
options to acquire 80,000 of our common units for an aggregate
purchase price of $80,000. The issuance of these securities was
exempt from registration under Section 4(2) of the
Securities Act, by reason of the fact that the offering was a
limited private placement to one knowledgeable investor who
agreed not to resell the securities to the public.
II-3
|
|
|
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
2
|
.1
|
|
Second Amended Chapter 11 Plan of Reorganization Proposed
by the Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, et al., dated as of
September 24, 2009
|
|
3
|
.1
|
|
Certificate of Formation of MagnaChip Semiconductor LLC
(formerly System Semiconductor Holding LLC)(3)
|
|
3
|
.2
|
|
Certificate of Amendment to Certificate of Formation of
MagnaChip Semiconductor LLC(3)
|
|
3
|
.3
|
|
Fifth Amended and Restated Limited Liability Company Operating
Agreement of MagnaChip Semiconductor LLC
|
|
3
|
.4
|
|
Form of Certificate of Incorporation of MagnaChip Semiconductor
Corporation(3)
|
|
3
|
.5
|
|
Form of Bylaws of MagnaChip Semiconductor Corporation(3)
|
|
3
|
.6
|
|
Plan of Conversion of MagnaChip Semiconductor LLC*
|
|
4
|
.1
|
|
Registration Rights Agreement, dated as of November 9,
2009, by and among MagnaChip Semiconductor LLC and each of the
securityholders named therein
|
|
4
|
.2
|
|
Form of Deposit Agreement, among MagnaChip Semiconductor
Corporation, American Stock Transfer & Trust Company, LLC,
as the depositary, and the holders from time to time of the
depositary receipts evidencing the depositary shares*
|
|
4
|
.3
|
|
Specimen Depositary Share (included in Exhibit 4.2)*
|
|
4
|
.4
|
|
Indenture, dated as of April 9, 2010, by and among
MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance
Company, the guarantors as named therein and Wilmington
Trust FSB, as trustee
|
|
4
|
.5
|
|
Form of 10.500% Senior Notes due 2018 and related notation
of guarantee (included in Exhibit 4.4)
|
|
4
|
.6
|
|
Exchange and Registration Rights Agreement, dated as of
April 9, 2010, by and among MagnaChip Semiconductor S.A.,
MagnaChip Semiconductor Finance Company, the guarantors named
therein, and Goldman, Sachs & Co., Barclays Capital
Inc., Deutsche Bank Securities Inc. and Morgan
Stanley & Co. Incorporated, as representatives of the
several purchasers named therein
|
|
5
|
.1
|
|
Form of Opinion of DLA Piper LLP (US)*
|
|
10
|
.1
|
|
Amended and Restated Credit Agreement, dated as of
November 6, 2009, among MagnaChip Semiconductor S.A.,
MagnaChip Semiconductor Finance Company, the guarantors named
therein, the lenders named therein, and Wilmington
Trust FSB, as Administrative Agent
|
|
10
|
.2
|
|
Intellectual Property License Agreement, dated as of
October 6, 2004, by and between Hynix Semiconductor Inc.
and MagnaChip Semiconductor, Ltd. (Korea)
|
|
10
|
.3
|
|
Land Lease and Easement Agreement, dated as of October 6,
2004, by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)
|
|
10
|
.4
|
|
First Amendment to Land Lease and Easement Agreement, dated as
of December 30, 2005, by and between Hynix Semiconductor
Inc. and MagnaChip Semiconductor, Ltd. (Korea)
|
|
10
|
.5
|
|
General Service Supply Agreement, dated as of October 6,
2004, by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(2)
|
|
10
|
.6
|
|
First Amendment to the General Service Supply Agreement, dated
as of December 30, 2005, by and between Hynix Semiconductor
Inc. and MagnaChip Semiconductor, Ltd. (Korea)
|
|
10
|
.7
|
|
License Agreement (ModularBCD), dated as of March 18, 2005,
by and between Advanced Analogic Technologies, Inc. and
MagnaChip Semiconductor, Ltd. (Korea)(1)(3)
|
|
10
|
.8
|
|
Amended & Restated License Agreement (TrenchDMOS),
dated as of September 19, 2007, by and between Advanced
Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd.
(Korea)(2)(3)
|
|
10
|
.9
|
|
Technology License Agreement, dated as of December 16,
1996, by and between Advanced RISC Machines Limited and
MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to
LG Semicon Company Limited)(1)(3)
|
II-4
|
|
|
|
|
|
10
|
.10
|
|
Amendment to the Technology License Agreement, dated as of
October 16, 2006, by and between ARM Limited and MagnaChip
Semiconductor, Ltd. (Korea)(2)(3)
|
|
10
|
.11
|
|
ARM7201TDSP Device License Agreement, dated as of
August 26, 1997, by and between Advanced RISC Machines
Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in
interest to LG Semicon Company Limited)(1)(3)
|
|
10
|
.12
|
|
Technology License Agreement, dated as of October 5, 1995,
by and between Advanced RISC Machines Limited and MagnaChip
Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon
Company Limited)(2)(3)
|
|
10
|
.13
|
|
Technology License Agreement, dated as of July 2001, by and
between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)
(successor in interest to Hynix Semiconductor Inc.)(1)(3)
|
|
10
|
.14
|
|
Technology License Agreement, dated as of August 22, 2001,
by and between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea) (successor in interest to Hynix Semiconductor Inc.)(1)(3)
|
|
10
|
.15
|
|
Technology License Agreement, dated as of May 20, 2004, by
and between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea) (successor in interest to Hynix Semiconductor Inc.)(3)
|
|
10
|
.16
|
|
Design Migration Agreement, dated as of May 1, 2007, by and
between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea)(2)(3)
|
|
10
|
.17
|
|
Basic Agreement on Joint Development and Grant of License, dated
as of November 10, 2006, by and between MagnaChip
Semiconductor, Ltd. and Silicon Works (English translation)(3)
|
|
10
|
.18
|
|
Master Service Agreement, dated as of December 27, 2000 by
and between Sharp Corporation and MagnaChip Semiconductor, Ltd.
(Korea) (successor in interest to Hyundai Electronics Japan Co.,
Ltd) (English translation)
|
|
10
|
.19
|
|
Warrant Agreement, dated as of November 9, 2009, between
MagnaChip Semiconductor LLC and American Stock
Transfer & Trust Company, LLC(3)
|
|
10
|
.20
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan(3)
|
|
10
|
.21
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement
(Non-U.S.
Participants)(3)
|
|
10
|
.22
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement (U.S. Participants)(3)
|
|
10
|
.23
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement
(Non-U.S.
Participants)(3)
|
|
10
|
.24
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement (U.S. Participants)(3)
|
|
10
|
.25
|
|
MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan(3)
|
|
10
|
.26
|
|
MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase
Plan(3)
|
|
10
|
.27
|
|
Amended and Restated Service Agreement, dated as of May 8,
2008, by and between MagnaChip Semiconductor, Ltd. (Korea) and
Sang Park
|
|
10
|
.28
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Sang Park(3)
|
|
10
|
.29
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Sang Park(3)
|
|
10
|
.30
|
|
Entrustment Agreement, dated as of October 6, 2004, by and
between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young Hwang
|
|
10
|
.31
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Young
Hwang(3)
|
|
10
|
.32
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Tae Young Hwang(3)
|
II-5
|
|
|
|
|
|
10
|
.33
|
|
Offer Letter dated March 7, 2006, from MagnaChip
Semiconductor LLC and MagnaChip Semiconductor, Inc. to Brent
Rowe, as supplemented on December 20, 2006(3)
|
|
10
|
.34
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Brent
Rowe(3)
|
|
10
|
.35
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Brent Rowe(3)
|
|
10
|
.36
|
|
Offer Letter dated September 5, 2006, from MagnaChip
Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret
Sakai(3)
|
|
10
|
.37
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Margaret
Sakai(3)
|
|
10
|
.38
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Margaret Sakai(3)
|
|
10
|
.39
|
|
Offer Letter, dated as of July 1, 2007, by and between
MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim(3)
|
|
10
|
.40
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Heung Kyu
Kim(3)
|
|
10
|
.41
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Heung Kyu Kim(3)
|
|
10
|
.42
|
|
Offer Letter, dated as of June 20, 2007, by and between
MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee(3)
|
|
10
|
.43
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Jong
Lee(3)
|
|
10
|
.44
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Tae Jong Lee(3)
|
|
10
|
.45
|
|
Service Agreement, dated as of April 1, 2006, by and
between MagnaChip Semiconductor, Ltd. (Korea) and John
McFarland(3)
|
|
10
|
.46
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and John
McFarland(3)
|
|
10
|
.47
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and John McFarland(3)
|
|
10
|
.48
|
|
Senior Advisor Agreement, dated as of April 10, 2009, by
and between MagnaChip Semiconductor, Ltd.(Korea) and Robert J.
Krakauer(3)
|
|
10
|
.49
|
|
MagnaChip Semiconductor Corporation Form of Indemnification
Agreement with Directors and Officers(3)
|
|
10
|
.50
|
|
Form of Accredited Investor Certification delivered to the
Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, et al.
|
|
10
|
.51
|
|
Form of Subscription Agreement for common units of MagnaChip
Semiconductor LLC (in connection with the Committees Plan
of Reorganization under Chapter 11 of the Bankruptcy Code)
|
|
10
|
.52
|
|
Subscription Form for Rights Offering in connection with the
Committees Plan of Reorganization under Chapter 11 of
the Bankruptcy Code
|
|
10
|
.53
|
|
$35,000,000 Common Stock Backstop Commitment letter, dated as of
September 23, 2009, from Avenue Capital Management II,
L.P., solely in its capacity as investment advisor to Avenue
Investments, L.P., Avenue International Master, L.P., Avenue
Special Situations Fund IV, L.P., Avenue Special Situations
Fund V, L.P. and Avenue CDP-Global Opportunities Fund, L.P.
(included in Exhibit 2.1)
|
|
10
|
.54
|
|
MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on
December 31, 2009 and as amended on February 15,
2010(2)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant(3)
|
|
23
|
.1
|
|
Consent of Samil PricewaterhouseCoopers
|
II-6
|
|
|
|
|
|
23
|
.2
|
|
Consent of DLA Piper LLP (US) (contained in Exhibit 5.1)*
|
|
24
|
.1
|
|
Power of Attorney of officers and directors of MagnaChip
Semiconductor LLC(3)
|
|
|
|
* |
|
To be filed by amendment. |
Footnotes:
|
|
(1)
|
Certain portions of this document have been omitted pursuant to
a grant of confidential treatment by the SEC.
|
|
(2)
|
Certain portions of this document have been omitted pursuant to
a request for confidential treatment by the SEC.
|
We hereby undertake to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in
such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by a
director, officer, or controlling person of us in the successful
defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the
securities being registered, we will, unless in the opinion of
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective; and
(2) for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
MagnaChip Semiconductor LLC has duly caused this Amendment
No. 1 to Registration Statement on
Form S-1
to be signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, The Republic of Korea on April 20,
2010.
MagnaChip Semiconductor LLC
Sang Park, Chief Executive
Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement on
Form S-1
has been signed below by the following persons on behalf of
MagnaChip Semiconductor LLC and in the capacities and on the
dates indicated:
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Sang
Park
Sang
Park
|
|
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
|
|
April 20, 2010
|
|
|
|
|
|
*
Margaret
Sakai
|
|
Chief Financial Officer (Principal Financial and Accounting
Officer)
|
|
April 20, 2010
|
|
|
|
|
|
*
Michael
Elkins
|
|
Director
|
|
April 20, 2010
|
|
|
|
|
|
*
Randal
Klein
|
|
Director
|
|
April 20, 2010
|
|
|
|
|
|
*
R. Douglas
Norby
|
|
Director
|
|
April 20, 2010
|
|
|
|
|
|
*
Gidu
Shroff
|
|
Director
|
|
April 20, 2010
|
|
|
|
|
|
*
Steven
Tan
|
|
Director
|
|
April 20, 2010
|
|
|
|
|
|
*
Nader
Tavakoli
|
|
Director
|
|
April 20, 2010
|
|
|
|
|
|
|
|
*By
|
|
/s/ Sang
Park
Attorney-in-fact
|
|
|
|
|
II-8
Exhibit
Index
|
|
|
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
2
|
.1
|
|
Second Amended Chapter 11 Plan of Reorganization Proposed
by the Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, et al., dated as of
September 24, 2009
|
|
3
|
.1
|
|
Certificate of Formation of MagnaChip Semiconductor LLC
(formerly System Semiconductor Holding LLC)(3)
|
|
3
|
.2
|
|
Certificate of Amendment to Certificate of Formation of
MagnaChip Semiconductor LLC(3)
|
|
3
|
.3
|
|
Fifth Amended and Restated Limited Liability Company Operating
Agreement of MagnaChip Semiconductor LLC
|
|
3
|
.4
|
|
Form of Certificate of Incorporation of MagnaChip Semiconductor
Corporation(3)
|
|
3
|
.5
|
|
Form of Bylaws of MagnaChip Semiconductor Corporation(3)
|
|
3
|
.6
|
|
Plan of Conversion of MagnaChip Semiconductor LLC*
|
|
4
|
.1
|
|
Registration Rights Agreement, dated as of November 9,
2009, by and among MagnaChip Semiconductor LLC and each of the
securityholders named therein
|
|
4
|
.2
|
|
Form of Deposit Agreement, among MagnaChip Semiconductor
Corporation, American Stock Transfer & Trust Company, LLC,
as the depositary, and the holders from time to time of the
depositary receipts evidencing the depositary shares*
|
|
4
|
.3
|
|
Specimen Depositary Share (included in Exhibit 4.2)*
|
|
4
|
.4
|
|
Indenture, dated as of April 9, 2010, by and among
MagnaChip Semiconductor S.A., MagnaChip Semiconductor Finance
Company, the guarantors as named therein and Wilmington
Trust FSB, as trustee
|
|
4
|
.5
|
|
Form of 10.500% Senior Notes due 2018 and notation of
guarantee (included in Exhibit 4.4)
|
|
4
|
.6
|
|
Exchange and Registration Rights Agreement, dated as of
April 9, 2010, by and among MagnaChip Semiconductor S.A.,
MagnaChip Semiconductor Finance Company, the guarantors named
therein, and Goldman, Sachs & Co., Barclays Capital
Inc., Deutsche Bank Securities Inc. and Morgan
Stanley & Co. Incorporated, as representatives of the
several purchasers named therein
|
|
5
|
.1
|
|
Form of Opinion of DLA Piper LLP (US)*
|
|
10
|
.1
|
|
Amended and Restated Credit Agreement, dated as of
November 6, 2009, among MagnaChip Semiconductor S.A.,
MagnaChip Semiconductor Finance Company, the guarantors named
therein, the lenders named therein, and Wilmington
Trust FSB, as Administrative Agent
|
|
10
|
.2
|
|
Intellectual Property License Agreement, dated as of
October 6, 2004, by and between Hynix Semiconductor Inc.
and MagnaChip Semiconductor, Ltd. (Korea)
|
|
10
|
.3
|
|
Land Lease and Easement Agreement, dated as of October 6,
2004, by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)
|
|
10
|
.4
|
|
First Amendment to Land Lease and Easement Agreement, dated as
of December 30, 2005, by and between Hynix Semiconductor
Inc. and MagnaChip Semiconductor, Ltd. (Korea)
|
|
10
|
.5
|
|
General Service Supply Agreement, dated as of October 6,
2004, by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(2)
|
|
10
|
.6
|
|
First Amendment to the General Service Supply Agreement, dated
as of December 30, 2005, by and between Hynix Semiconductor
Inc. and MagnaChip Semiconductor, Ltd. (Korea)
|
|
10
|
.7
|
|
License Agreement (ModularBCD), dated as of March 18, 2005,
by and between Advanced Analogic Technologies, Inc. and
MagnaChip Semiconductor, Ltd. (Korea)(1)(3)
|
|
10
|
.8
|
|
Amended & Restated License Agreement (TrenchDMOS),
dated as of September 19, 2007, by and between Advanced
Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd.
(Korea)(2)(3)
|
|
10
|
.9
|
|
Technology License Agreement, dated as of December 16,
1996, by and between Advanced RISC Machines Limited and
MagnaChip Semiconductor, Ltd. (Korea) (successor in interest to
LG Semicon Company Limited)(1)(3)
|
|
10
|
.10
|
|
Amendment to the Technology License Agreement, dated as of
October 16, 2006, by and between ARM Limited and MagnaChip
Semiconductor, Ltd. (Korea)(2)(3)
|
|
|
|
|
|
|
10
|
.11
|
|
ARM7201TDSP Device License Agreement, dated as of
August 26, 1997, by and between Advanced RISC Machines
Limited and MagnaChip Semiconductor, Ltd. (Korea) (successor in
interest to LG Semicon Company Limited)(1)(3)
|
|
10
|
.12
|
|
Technology License Agreement, dated as of October 5, 1995,
by and between Advanced RISC Machines Limited and MagnaChip
Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon
Company Limited)(2)(3)
|
|
10
|
.13
|
|
Technology License Agreement, dated as of July 2001, by and
between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)
(successor in interest to Hynix Semiconductor Inc.)(1)(3)
|
|
10
|
.14
|
|
Technology License Agreement, dated as of August 22, 2001,
by and between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea) (successor in interest to Hynix Semiconductor Inc.)(1)(3)
|
|
10
|
.15
|
|
Technology License Agreement, dated as of May 20, 2004, by
and between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea) (successor in interest to Hynix Semiconductor Inc.)(3)
|
|
10
|
.16
|
|
Design Migration Agreement, dated as of May 1, 2007, by and
between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea)(2)(3)
|
|
10
|
.17
|
|
Basic Agreement on Joint Development and Grant of License, dated
as of November 10, 2006, by and between MagnaChip
Semiconductor, Ltd. and Silicon Works (English translation)(3)
|
|
10
|
.18
|
|
Master Service Agreement, dated as of December 27, 2000 by
and between Sharp Corporation and MagnaChip Semiconductor, Ltd.
(Korea) (successor in interest to Hyundai Electronics Japan Co.,
Ltd) (English translation)
|
|
10
|
.19
|
|
Warrant Agreement, dated as of November 9, 2009, between
MagnaChip Semiconductor LLC and American Stock
Transfer & Trust Company, LLC(3)
|
|
10
|
.20
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan(3)
|
|
10
|
.21
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement
(Non-U.S.
Participants)(3)
|
|
10
|
.22
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement (U.S. Participants)(3)
|
|
10
|
.23
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement
(Non-U.S.
Participants)(3)
|
|
10
|
.24
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement (U.S. Participants)(3)
|
|
10
|
.25
|
|
MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan(3)
|
|
10
|
.26
|
|
MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase
Plan(3)
|
|
10
|
.27
|
|
Amended and Restated Service Agreement, dated as of May 8,
2008, by and between MagnaChip Semiconductor, Ltd. (Korea) and
Sang Park
|
|
10
|
.28
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Sang Park(3)
|
|
10
|
.29
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Sang Park(3)
|
|
10
|
.30
|
|
Entrustment Agreement, dated as of October 6, 2004, by and
between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young Hwang
|
|
10
|
.31
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Young
Hwang(3)
|
|
10
|
.32
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Tae Young Hwang(3)
|
|
10
|
.33
|
|
Offer Letter dated March 7, 2006, from MagnaChip
Semiconductor LLC and MagnaChip Semiconductor, Inc. to Brent
Rowe, as supplemented on December 20, 2006(3)
|
|
10
|
.34
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Brent
Rowe(3)
|
|
|
|
|
|
|
10
|
.35
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Brent Rowe(3)
|
|
10
|
.36
|
|
Offer Letter dated September 5, 2006, from MagnaChip
Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret
Sakai(3)
|
|
10
|
.37
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Margaret
Sakai(3)
|
|
10
|
.38
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Margaret Sakai(3)
|
|
10
|
.39
|
|
Offer Letter, dated as of July 1, 2007, by and between
MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim(3)
|
|
10
|
.40
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Heung Kyu
Kim(3)
|
|
10
|
.41
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Heung Kyu Kim(3)
|
|
10
|
.42
|
|
Offer Letter, dated as of June 20, 2007, by and between
MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee(3)
|
|
10
|
.43
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Jong
Lee(3)
|
|
10
|
.44
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and Tae Jong Lee(3)
|
|
10
|
.45
|
|
Service Agreement, dated as of April 1, 2006, by and
between MagnaChip Semiconductor, Ltd. (Korea) and John
McFarland(3)
|
|
10
|
.46
|
|
Notice of Grant of Unit Option, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and John
McFarland(3)
|
|
10
|
.47
|
|
Notice of Grant of Restricted Units, dated as of
December 8, 2009, by and between MagnaChip Semiconductor
LLC and John McFarland(3)
|
|
10
|
.48
|
|
Senior Advisor Agreement, dated as of April 10, 2009, by
and between MagnaChip Semiconductor, Ltd.(Korea) and Robert J.
Krakauer(3)
|
|
10
|
.49
|
|
MagnaChip Semiconductor Corporation Form of Indemnification
Agreement with Directors and Officers(3)
|
|
10
|
.50
|
|
Form of Accredited Investor Certification delivered to the
Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, et al.
|
|
10
|
.51
|
|
Form of Subscription Agreement for common units of MagnaChip
Semiconductor LLC (in connection with the Committees Plan
of Reorganization under Chapter 11 of the Bankruptcy Code)
|
|
10
|
.52
|
|
Subscription Form for Rights Offering in connection with the
Committees Plan of Reorganization under Chapter 11 of
the Bankruptcy Code
|
|
10
|
.53
|
|
$35,000,000 Common Stock Backstop Commitment letter, dated as of
September 23, 2009, from Avenue Capital Management II,
L.P., solely in its capacity as investment advisor to Avenue
Investments, L.P., Avenue International Master, L.P., Avenue
Special Situations Fund IV, L.P., Avenue Special Situations
Fund V, L.P. and Avenue CDP-Global Opportunities Fund, L.P.
(included in Exhibit 2.1)
|
|
10
|
.54
|
|
MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on
December 31, 2009 and as amended on February 15,
2010(2)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant(3)
|
|
23
|
.1
|
|
Consent of Samil PricewaterhouseCoopers
|
|
23
|
.2
|
|
Consent of DLA Piper LLP (US) (contained in Exhibit 5.1)*
|
|
24
|
.1
|
|
Power of Attorney of officers and directors of MagnaChip
Semiconductor LLC(3)
|
|
|
|
* |
|
To be filed by amendment. |
Footnotes:
|
|
(1)
|
Certain portions of this document have been omitted pursuant to
a grant of confidential treatment by the SEC.
|
|
(2)
|
Certain portions of this document have been omitted pursuant to
a request for confidential treatment by the SEC.
|