sv4
As filed with
the Securities and Exchange Commission on August 4,
2010
Registration
No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF
1933
MAGNACHIP SEMICONDUCTOR
S.A.
(Exact name of Registrant as
specified in its charter)
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Luxembourg
(State or other jurisdiction of
incorporation or organization)
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3674
(Primary Standard Industrial
Classification Code Number)
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Not Applicable
(I.R.S. Employer
Identification No.)
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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)
MAGNACHIP SEMICONDUCTOR FINANCE
COMPANY
(Exact name of Registrant as
specified in its charter)
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Delaware
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3674
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84-1664144
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(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer
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incorporation or organization)
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Classification Code Number)
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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)
See Table of Additional
Registrants Below
Copies to:
Micheal J. Reagan
Khoa D. Do
W. Stuart Ogg
Jones Day
1755 Embarcadero Road
Palo Alto, California
94303
Telephone: (650)
739-3939
Fax: (650) 739-3900
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable
after this registration statement becomes effective.
If the securities being registered on this Form are to be
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, 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(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)
If applicable, place an X in the box to designate the
appropriate rule provision relied upon in conducting this
transaction:
Exchange Act
Rule 13e-4(i)
(Cross-Border Issuer Tender Offer)
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Exchange Act
Rule 14d-1(d)
(Cross-Border Third-Party Tender Offer)
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CALCULATION OF
REGISTRATION FEE
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Proposed
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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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Amount to be
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Maximum Offering
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Aggregate
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Registration
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Securities to be Registered
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Registered
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Price per Unit(1)
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Offering Price(1)
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Fee
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10.500% Senior Notes due 2018
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$250,000,000
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100%
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$250,000,000
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$17,825
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Guarantees of 10.500% Senior Notes due 2018(2)
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N/A
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N/A
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N/A
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N/A
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(1)
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Estimated solely for purposes of calculating the registration
fee pursuant to Rule 457(f) under the Securities Act of
1933, as amended (the Securities Act).
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(2)
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Represents the guarantees of the 10.500% Senior Notes due
2018, to be issued by the additional registrants. Pursuant to
Rule 457(n) under the Securities Act, no additional
registration fee is being paid in respect of the guarantees.
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The Registrants hereby amend this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrants 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, as amended, or until the
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
Table of
Additional Registrants
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State or Other Jurisdiction of
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Incorporation or
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I.R.S. Employer Identification
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Exact Name of Additional Registrants
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Organization
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Number
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MagnaChip Semiconductor LLC
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Delaware
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83-0406195
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MagnaChip Semiconductor B.V.
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The Netherlands
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Not Applicable
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MagnaChip Semiconductor, Inc.
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California
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77-0478632
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MagnaChip Semiconductor SA Holdings LLC
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Delaware
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Not Applicable
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MagnaChip Semiconductor Limited
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United Kingdom
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98-0439386
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MagnaChip Semiconductor Limited
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Taiwan
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98-0439388
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MagnaChip Semiconductor Limited
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Hong Kong
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98-0439389
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MagnaChip Semiconductor Inc.
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Japan
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Not Applicable
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MagnaChip Semiconductor Holding Company Limited
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British Virgin Islands
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Not Applicable
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The principal executive office address for each of the
additional registrants is
c/o MagnaChip
Semiconductor S.A., 74, rue de Merl, B.P. 709 L-2146 Luxembourg
R.C.S., Luxembourg, B97483, telephone
(352) 45-62-62.
The primary standard industrial classification code number for
each of the additional registrants is 3674.
The address, including zip code, and telephone number, including
area code, of each of the additional registrants is
c/o MagnaChip
Semiconductor, LLC, 20400 Stevens Creek Boulevard,
Suite 370, Cupertino, CA 95014, telephone
(408) 625-5999,
fax
(408) 625-5990
and the name of each of the additional registrants agent
for service is John McFarland, Senior Vice President, General
Counsel and Secretary, MagnaChip Semiconductor LLC.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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Subject to Completion, Dated
August 4, 2010
PROSPECTUS
MagnaChip Semiconductor
S.A.
MagnaChip Semiconductor Finance
Company
Offer to Exchange Up
To
$250,000,000
10.500% Senior Notes due
2018 and related Guarantees
which have been registered
under the Securities Act of 1933
for any and all outstanding
10.500% Senior Notes due 2018 and related
Guarantees
We are offering, upon the terms and subject to the conditions
set forth in this prospectus and the accompanying letter of
transmittal, to exchange up to $250,000,000 aggregate principal
amount of our new 10.500% Senior Notes due 2018 that we
have registered under the Securities Act of 1933, as amended,
for an equal principal amount of our outstanding unregistered
10.500% Senior Notes due 2018. We refer to the new notes
you will receive in this exchange offer as the new
notes, and we refer to the old notes you will tender in
this exchange offer as the old notes. The new notes
will represent the same debt as the old notes, and we will issue
the new notes under the same indenture.
The exchange offer expires at 5:00 p.m., New York City
time,
on ,
2010, unless extended by us.
Terms of the
Exchange Offer
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We will exchange all old notes that are validly tendered and not
validly withdrawn prior to the expiration of the exchange offer.
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You may withdraw tendered old notes at any time prior to the
expiration of the exchange offer.
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You are required to make the representations described on
pages 9 and 213 to us.
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The terms of the new notes will be substantially identical to
the terms of the old notes (including principal amount, interest
rate, maturity and redemption rights), except that the new notes
are registered under the Securities Act and will bear a separate
CUSIP number, and the transfer restrictions, registration rights
and related special interest terms applicable to the old notes
will not apply to the new notes.
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We will not receive any proceeds from the exchange offer.
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There is no existing market for the new notes to be issued, and
we do not intend to apply for their listing or quotation on any
securities exchange or market.
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See Risk Factors beginning on page 25 for
a discussion of risks that should be considered by holders prior
to tendering their old notes.
Neither the Securities and Exchange Commission nor any state
securities commission nor any other regulatory body has approved
or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus
is ,
2010.
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 securities 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.
Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of new notes.
The letter of transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an underwriter within the meaning
of the Securities Act of 1933, as amended, which we refer to as
the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer
in connection with resales of new notes received in exchange for
old notes where the old notes were acquired by the broker-dealer
as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days
after the consummation of the exchange offer, we will make this
prospectus available to any broker-dealer for use in connection
with any such resale. See Plan of Distribution.
This prospectus is part of a registration statement on
Form S-4 filed with the Securities and Exchange Commission,
or the SEC, under the Securities Act and does not contain all of
the information contained in the registration statement. This
information is available without charge upon written or oral
request. See Where you can find more information. To
obtain this information in a timely fashion, you must request
such information no later than five business days
before ,
2010, which is the date on which the exchange offer expires
(unless we extend the exchange offer as described herein).
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 selected information from this
prospectus. The following summary is qualified in its entirety
by the information contained elsewhere in this prospectus. This
summary is not complete and may not contain all of the
information that you should consider before exchanging your old
notes for new notes. You should read the 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.
In this prospectus, unless the context otherwise requires:
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MagnaChip, we, us,
our and Our Company refer collectively
to MagnaChip Semiconductor LLC, the parent company of our
consolidated group, MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, the co-issuers of the old notes
and the new notes being offered hereby, and their respective
subsidiaries on a consolidated basis, and such terms refer
collectively to MagnaChip Semiconductor LLC, the parent company
of our consolidated group, MagnaChip Semiconductor S.A. and
MagnaChip Semiconductor Finance Company, and their respective
subsidiaries on a consolidated basis.
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MagnaChip Corporation refers to MagnaChip
Semiconductor Corporation (the expected corporate successor to
MagnaChip Semiconductor LLC pursuant to the corporate conversion
described below that will occur if and when MagnaChip
Semiconductor LLC consummates an initial public offering of its
equity securities).
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MagnaChip Korea refers to MagnaChip
Semiconductor, Ltd., our principal operating subsidiary.
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Korea refers to the Republic of Korea or South
Korea.
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We filed a registration statement on
Form S-1
with the SEC on March 15, 2010, as amended, with respect to
the initial public offering of the common stock of MagnaChip
Corporation, which we refer to as the MagnaChip Corporation IPO.
If and when we decide to proceed with the MagnaChip Corporation
IPO, prior to the effectiveness of the registration statement
filed with the SEC for the MagnaChip Corporation IPO, we will
complete a number of transactions pursuant to which MagnaChip
Corporation will succeed to the business of MagnaChip
Semiconductor LLC, the members of MagnaChip Semiconductor LLC
will become stockholders of MagnaChip Semiconductor Corporation
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 MagnaChip Corporations common stock. In this
prospectus, we refer to such transactions as the corporate
conversion.
Neither of the co-issuers has any material operations and the
financial statements and other financial information, as well as
Managements Discussion and Analysis of Financial Condition
and Results of Operations, contained in this prospectus relate
to the consolidated financial statements and other consolidated
information of MagnaChip. For this reason, the description of
our business operations elsewhere relates to the operations of
our consolidated group.
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 2,620 novel
registered patents and 950 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-
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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 1,400 and 2,300 distinct products to
over 210 and 185 customers for the three months ended
March 31, 2010 and combined twelve-month period ended
December 31, 2009, respectively, with a substantial portion
of our revenues derived from a concentrated number of customers.
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.
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 the three months ended March 31, 2010, on a pro forma
basis, we generated net sales of $179.5 million, income
from continuing operations of $27.1 million, Adjusted
EBITDA of $28.7 million and Adjusted Net Income of
$15.0 million. For 2009 on a combined pro forma basis, we
generated net sales of $560.1 million, income from
continuing operations of $46.6 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 59 for an explanation regarding our pro forma
presentation and Prospectus Summary Summary
Historical and Unaudited Pro Forma Consolidated Financial
Data, beginning on page 16 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
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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, and 42.8% and 58.8% of our net sales for the
three months ended March 31, 2010 and March 31, 2009,
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, and 5.0% and 0.9% of our net sales for the three
months ended March 31, 2010 and March 31, 2009,
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 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, and 51.9% and 39.6% of our
net sales for the three months ended March 31, 2010 and
March 31, 2009, 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. These processes also tend to migrate more
slowly to smaller geometries due to technological barriers and
increased costs. For example, some of our products use
high-voltage technology that requires larger geometries and that
may not migrate to smaller geometries for several years, if at
all. 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, which we refer to as our
senior notes. Of the $238.4 million of net proceeds, which
represents $250 million of principal amount net of
$3.3 million of original issue discount and
$8.3 million of debt issuance costs, $130.7 million
was used to make a distribution to our unitholders and
$61.6 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. As a
result of our higher level of indebtedness from our senior notes
offering, our quarterly interest expense will increase above
that which was reported for the two-month period ended
December 31, 2009 and the three months ended March 31,
2010 to approximately $6.8 million per quarter.
On June 30, 2010, we announced that we elected not to
proceed with our planned MagnaChip Corporation IPO and corporate
conversion at such time due to adverse market conditions. We
intend to complete the MagnaChip Corporation IPO as soon as
market conditions permit us to do so. We, however, cannot assure
you when or if we will be able to complete the MagnaChip
Corporation IPO, even if market conditions improve. If we are
unable to complete the MagnaChip Corporation IPO, it could
adversely impact the value of the notes.
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 25 of this prospectus before deciding whether to
exchange your old notes in the exchange offer.
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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; and
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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.
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Corporate
Information
MagnaChip Semiconductor LLC is a Delaware limited liability
company and parent guarantor of the notes. MagnaChip
Semiconductor LLC functions as a holding and financing company
for other MagnaChip entities. On a stand-alone basis, MagnaChip
Semiconductor LLC does not have any independent operations.
5
If and when we complete the MagnaChip Corporation IPO and prior
to the effectiveness of the registration statement filed in
connection with the MagnaChip Corporation IPO, 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.
MagnaChip Semiconductor S.A., our Luxembourg subsidiary and one
of the two co-issuers of the notes, is a Luxembourg public
limited liability company (société anonyme). It
functions as a financing company. On a stand-alone basis,
MagnaChip Semiconductor S.A. does not have any independent
operations.
MagnaChip Semiconductor Finance Company, a wholly-owned
subsidiary of MagnaChip Semiconductor S.A. and one of the two
co-issuers of the notes, is a Delaware corporation. On a
stand-alone basis, MagnaChip Semiconductor Finance Company does
not have any independent operations.
Our principal executive offices are located at
c/o MagnaChip
Semiconductor S.A., 74, rue de Merl, B.P. 709 L-2146 Luxembourg
R.C.S., Luxembourg B97483, and our telephone number is
(352) 45-62-62.
Our website address is www.magnachip.com . You should not
consider the information contained on our website to be part of
this prospectus.
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 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
investing in high yield debt, debt of insolvent or financially
distressed companies and equity of companies undergoing
financial or operational turnarounds or reorganizations. In this
prospectus, we refer to funds affiliated with Avenue Capital
Management II, L.P. collectively as Avenue. Avenue generally
does not manage or operate the companies in which it invests;
however, in connection with some of its equity investments,
Avenue will appoint one or more representatives to serve on the
board of directors. Avenue was a holder of a significant portion
of our indebtedness which was outstanding prior to our
reorganization proceedings. In connection with our emergence
from our reorganization proceedings, Avenue became our majority
unitholder as a result of its participation in our rights
offering and continued as a lender under our new term loan. In
connection with our April 2010 old notes offering, Avenue
purchased notes in the aggregate principal amount of
$35.0 million, was repaid $42.8 million in connection
with the repayment of our new term loan and received
$91.2 million in connection with our distribution to
unitholders. Avenue has the right to appoint a majority of our
board pursuant to our Fifth Amended and Restated Limited
Liability Company Operating Agreement and if and when we
complete the MagnaChip Corporation IPO, Avenue will have the
right to appoint a majority of our board as long as Avenue
continues to hold or control a majority of our outstanding
shares. See Certain Relationships and Related
Transactions for additional information.
6
Organizational
Structure
The following chart shows a summary of our organizational
structure.
MagnaChip Semiconductor S. A. and MagnaChip Semiconductor
Finance Company are the co-issuer of the old notes and the new
notes offered hereby. MagnaChip Semiconductor LLC and each of
its subsidiaries (other than MagnaChip Korea, the MagnaChip
China Subsidiaries and certain Immaterial Subsidiaries (each as
defined under the caption Description of New
Notes)), guarantee the notes.
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(1) |
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Assuming completion of the corporate conversion, MagnaChip
Corporation will succeed to the business of MagnaChip
Semiconductor LLC. |
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(2) |
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Does not guarantee the notes offered hereby. |
7
Summary of the
Exchange Offer
On April 9, 2010, we completed the private offering of
$250 million aggregate principal amount of
10.500% Senior Notes due 2018, which we refer to in this
prospectus as the old notes. We entered into an
exchange and registration rights agreement, which we refer to in
this prospectus as the notes registration rights
agreement, with the initial purchasers of the old notes in
which we agreed to deliver to you this prospectus and to use all
commercially reasonable efforts to complete an exchange offer
within the time period specified in the notes registration
rights agreement. Below is a summary of the exchange offer. For
a more detailed description of the exchange offer, see
Exchange offer.
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The Exchange Offer |
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We are offering to exchange up to $250,000,000 aggregate
principal amount of 10.500% Senior Notes due 2018, which
have been registered under the Securities Act and which we refer
to as the new notes, for our outstanding,
unregistered 10.500% Senior Notes due 2018, which we issued
on April 9, 2010 and which we refer to as the old
notes, in denominations of $2,000 and integral multiples
of $1,000 in excess thereof. Unless we specify otherwise or the
context indicates otherwise, we refer to the new notes and the
old notes together as the notes. |
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The terms of the new notes will be substantially identical to
the terms of the old notes (including principal amount, interest
rate, maturity and redemption rights), except that the new notes
are registered under the Securities Act and will bear a separate
CUSIP number, and the transfer restrictions, registration rights
and related special interest terms applicable to the old notes
will not apply to the new notes. The old notes may be exchanged
only in denominations of $2,000 and integral multiples of
$1,000. We intend by the issuance of the new notes to satisfy
our obligations under the notes registration rights agreement. |
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Expiration of the Exchange Offer; Acceptance and Issuance of New
Notes |
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The exchange offer will expire at 5:00 p.m., New York City
time, on , 2010, or such later date and time to which we may
extend it in our sole discretion. Subject to the conditions
stated in Exchange offer Terms of the Exchange
Offer Conditions to the Exchange Offer, we
will accept for exchange any and all outstanding old notes that
are validly tendered and not validly withdrawn before the
expiration of the exchange offer. The new notes will be
delivered promptly after the expiration of the exchange offer.
Any old notes not accepted for exchange for any reason will be
returned without expense to you promptly after the expiration or
termination of the exchange offer. |
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Withdrawal Rights |
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You may withdraw your tender of old notes in the exchange offer
at any time before the expiration of the exchange offer. |
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Conditions to the Exchange Offer |
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The exchange offer is not conditioned upon any minimum aggregate
principal amount of old notes being tendered for exchange. The
exchange offer is subject to customary conditions, which we may
waive. Please read Exchange offer Terms of the
Exchange Offer Conditions to the Exchange
Offer for more information regarding the conditions to the
exchange offer. |
8
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Procedures for Tendering Notes |
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To tender old notes held in book-entry form through the
Depository Trust Company, or DTC, you must transfer your
old notes into the exchange agents account in accordance
with DTCs Automated Tender Offer Program, or ATOP, system.
In lieu of delivering a letter of transmittal to the exchange
agent, a computer-generated message, in which the holder of the
old notes acknowledges and agrees to be bound by the terms of
the letter of transmittal (an agents message),
must be transmitted by DTC on behalf of a holder of old notes
and received by the exchange agent before 5:00 p.m., New
York City time, on the expiration date. In all other cases, a
letter of transmittal must be manually executed and received by
the exchange agent before 5:00 p.m., New York City time, on
the expiration date. By signing, or agreeing to be bound by, the
letter of transmittal, you will represent to us that, among
other things: |
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you are not our affiliate as defined in
Rule 405 of the Securities Act, or if you are such an
affiliate, you will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent
applicable;
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you are not engaged in and do not intend to engage
in, and have no arrangement or understanding with any person to
participate in, a distribution of the new notes;
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you are acquiring the new notes in your ordinary
course of business;
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if you are a broker-dealer that holds old notes that
were acquired for your own account as a result of market-making
activities or other trading activities (other than old notes
acquired directly from us or our affiliates), you will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resales of the new notes;
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if you are a broker-dealer, you did not purchase the
old notes to be exchanged in the exchange offer from us or our
affiliates;
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you are not acting on behalf of any person who could
not truthfully and completely make the representations contained
in the foregoing clauses.
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Special Procedures for Beneficial Owners |
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If you are a beneficial owner whose old notes are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee, and you want to tender old notes in the exchange
offer, you should contact the registered holder promptly and
instruct the registered holder to tender on your behalf. If you
wish to tender on your own behalf, you must, before completing
and executing the letter of transmittal and delivering your old
notes, either make appropriate arrangements to register
ownership of the old notes in your name or obtain a properly
completed bond power from the registered holder. |
9
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Guaranteed Delivery Procedures |
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If you wish to tender your old notes, and time will not permit
your required documents to reach the exchange agent by the
expiration date, or the procedure for book-entry transfer cannot
be completed on time, you may tender your old notes under the
procedures described in Exchange offer
Guaranteed Delivery Procedures. |
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Failure to Exchange Your Old Notes |
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All untendered old notes will remain subject to the restrictions
on transfer provided for in the old notes and in the indenture.
Generally, the old notes that are not exchanged for new notes in
the exchange offer will remain restricted securities, and may
not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state
securities laws. Following the exchange offer, we will have no
obligation to register outstanding old notes under the
Securities Act or to pay contingent increases in interest based
on our original registration obligation, except in the limited
circumstances provided under the notes registration rights
agreement. |
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Resales |
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Based on interpretations by the staff of the Securities and
Exchange Commission, or SEC, in no action letters issued to
third parties, we believe that new notes issued in exchange for
old notes in the exchange offer may be offered for resale,
resold or otherwise transferred by you after the exchange offer
without further compliance with the registration and prospectus
delivery requirements of the Securities Act (subject to certain
representations required to be made by each holder of old notes,
as set forth under Exchange Offer Procedures
for Tendering), unless you are a broker-dealer receiving
securities for your own account, so long as: |
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you are not one of our affiliates, which
is defined in Rule 405 of the Securities Act;
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you acquire the new notes in the ordinary course of
your business;
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you do not have any arrangement or understanding
with any person to participate in the distribution of the new
notes; and
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you are not engaged in, and do not intend to engage
in, a distribution of the new notes.
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If you are our affiliate, or you are engaged in,
intend to engage in or have any arrangement or understanding
with respect to, the distribution of new notes acquired in the
exchange offer, you (1) should not rely on our
interpretations of the position of the SECs staff and
(2) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any resale transaction.
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If you are a broker-dealer and receive new notes for your own
account in the exchange offer: |
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you must represent that you do not have any
arrangement with us or any of our affiliates to distribute the
new notes;
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you must acknowledge that you will deliver a
prospectus in connection with any resale of the new notes you
receive from us in the exchange offer (the letter of transmittal
states that by so acknowledging and by delivering a prospectus,
you will not be deemed to admit that you are an
underwriter within the meaning of the Securities
Act); and
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you may use this prospectus, as it may be amended or
supplemented from time to time, in connection with the resale of
new notes received in exchange for old notes acquired by you as
a result of market making or other trading activities.
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For a period of up to 180 days after the
consummation of the exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with any
resale described above. See Plan of distribution.
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Federal Income Tax Considerations |
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The exchange of notes pursuant to the exchange offer should not
be a taxable event for U.S. federal income tax purposes. See
Certain United States Federal Income Tax
Considerations. |
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Use of Proceeds |
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We will not receive any proceeds from the issuance of the new
notes in the exchange offer. |
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Exchange Agent |
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Wilmington Trust FSB is the exchange agent for the exchange
offer. The address and telephone number of the exchange agent
are set forth in Exchange Offer Exchange
Agent. |
11
Summary of the
Terms of New Notes
The exchange offer relates to the exchange of up to $250,000,000
in aggregate principal amount of old notes for an equal
aggregate principal amount of new notes. The terms of the new
notes will be substantially identical to the terms of the old
notes, except the new notes are registered under the Securities
Act, the new notes will bear a separate CUSIP number, and the
transfer restrictions, registration rights and related
additional interest terms applicable to the old notes will not
apply to the new notes. The new notes will evidence the same
indebtedness as the old notes which they will replace. Both the
old notes and the new notes are governed by the same indenture.
The following summary contains some basic information about the
new notes. For a more complete description of the new notes, see
Description of New Notes.
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Issuers |
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MagnaChip Semiconductor S.A., a société anonyme with a
registered office at 74, rue de Merl, B.P. 709 L-2146 Luxembourg
registered with the register of commerce and companies of
Luxembourg under number B97483, and MagnaChip Semiconductor
Finance Company. |
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Notes Offered |
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$250 million in aggregate principal amount of
10.500% Senior Notes due 2018. |
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Maturity |
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April 15, 2018. |
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Interest Rate |
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Interest on the notes will accrue at a rate of 10.500% per
annum. Interest will be computed on the basis of a
360-day year
comprised of twelve
30-day
months. |
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Interest Payment Dates |
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Interest on the notes will be payable semi-annually on April 15
and October 15 of each year, beginning on October 15, 2010. |
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Guarantees |
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The notes will be fully and unconditionally guaranteed by
MagnaChip Semiconductor LLC and each of its current and future
subsidiaries (other than certain Immaterial Subsidiaries,
MagnaChip Korea and the MagnaChip China Subsidiaries).
See Description of New Notes The Note
Guarantees. |
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Ranking |
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The notes will be the issuers general unsecured
obligations. The notes will rank pari passu in right of payment
with all of the issuers existing and future unsecured
indebtedness and other liabilities (including trade payables)
and senior in right of payment to all future debt of the issuers
that is expressly subordinated in right of payment to the notes
(if any). |
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The notes will be effectively subordinated in right of payment
to all borrowings under future secured credit facilities (to the
extent of the value of the collateral securing those facilities)
and to all indebtedness and other liabilities (including trade
payables) of any non-guarantor subsidiaries. Our non-guarantor
subsidiaries generated approximately 69.2% of our aggregate
consolidated revenues for the ten-month period ended
October 25, 2009 and the two-month period ended
December 31, 2009, and as of December 31, 2009 held
approximately 87.3% of our consolidated assets and had
$166.2 million in total outstanding indebtedness and other
liabilities, excluding intercompany liabilities (of which
$61.8 million related to a guarantee by MagnaChip Korea of
the then-existing senior secured credit facility, which was
repaid |
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with a portion of the net proceeds from the offering of the old
notes). |
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The note guarantees will be the guarantors general
unsecured obligations. Each guarantee will be effectively
subordinated in right of payment to all future secured debt of
the guarantor, will be pari passu in right of payment with all
existing and future unsecured indebtedness and other liabilities
(including trade payables) of the guarantor and senior in right
of payment to any future subordinated indebtedness of the
guarantor (if any). |
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Optional Redemption |
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On or after April 15, 2014, we may on one or more occasions
redeem some or all of the notes at any time at the redemption
prices set forth under Description of New
Notes Optional Redemption, plus accrued and
unpaid interest and special interest, if any, to the applicable
redemption date. |
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In addition, at any time prior to April 15, 2013, we may on
one or more occasions redeem up to 35% of the aggregate
principal amount of the notes with the net cash proceeds of
certain qualified equity offerings, at a redemption price equal
to 110.500% of the principal amount of the notes to be redeemed
plus accrued and unpaid interest and special interest, if any,
to the redemption date. |
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Also, at any time prior to April 15, 2014, we may, on one
or more occasions, redeem some or all of the notes at a
redemption price equal to 100% of the principal amount of the
notes redeemed, plus accrued and unpaid interest and special
interest, if any, to the redemption date and a
make-whole premium. |
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See Description of New Notes Optional
Redemption. |
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Additional Amounts; Tax Redemption |
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Payments on the notes will be made without withholding or
deduction for any current or future taxes, unless required by
law. If withholding is required, we will pay such additional
amounts as may be necessary in order that the net amounts
received by holders of the notes will equal the amounts that
would have been received if taxes had not been withheld, subject
to the limitations set forth under Description of New
Notes Additional Amounts. |
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We may redeem the notes in whole but not in part, at our
discretion, at a redemption price equal to the principal amount
of the notes outstanding plus accrued and unpaid interest,
special interest and additional amounts due, if any, to the
redemption date, if we are or would be required to pay any such
additional amounts as a result of specified changes in laws,
treaties, regulations or rulings, or specified changes in
application, administration or interpretation of such laws,
treaties, regulations or rulings, subject to certain
limitations. See Description of New Notes
Redemption Upon Changes in Withholding Taxes. |
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Change of Control Offer |
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If we experience certain change of control events, we must offer
to repurchase the notes at 101% of their principal amount, plus
accrued and unpaid interest and special interest, if any, to the
applicable repurchase date. See Description of New
Notes Repurchase at the Option of
Holders Change of Control. |
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Asset Sale Offer |
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Under certain circumstances, if we sell assets and do not use
the proceeds from the sale as specified in the indenture, we
must apply the proceeds therefrom to an offer to repurchase,
prepay or redeem the notes at 100% of their principal amount,
plus accrued and unpaid interest and special interest, if any,
to the applicable repurchase date. See Description of New
Notes Repurchase at the Option of
Holders Asset Sales. |
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Restrictive Covenants |
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The notes will be issued under an indenture containing covenants
that, among other things, will restrict the ability of MagnaChip
Semiconductor LLC and its restricted subsidiaries (including the
issuers) to: |
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pay dividends, redeem units, make payments with
respect to subordinated indebtedness, or make other restricted
payments;
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incur additional indebtedness or issue preferred
units;
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create liens;
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make certain investments;
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consolidate, merge or dispose of all or
substantially all of our assets, taken as a whole;
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sell or otherwise transfer or dispose of assets,
including equity interests of subsidiaries;
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enter into sale-leaseback transactions;
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enter into transactions with our affiliates; and
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designate our subsidiaries as unrestricted
subsidiaries.
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These covenants are subject to a number of important exceptions
and qualifications. See Description of New
Notes Certain Covenants. Certain of these
restrictive covenants will terminate if the notes are rated
investment-grade. |
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Risk Factors |
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See Risk Factors for a description of certain risks
you should consider before deciding to tender your old notes in
the exchange offer. |
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Ratio of Earnings to Fixed Charges |
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The following table sets forth our ratio of earnings to fixed
charges for each of the periods indicated: |
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Successor
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Predecessor
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Three Months
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Two- Month
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Ten- Month
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Three Months
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Ended
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Period Ended
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Period Ended
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Ended
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Years Ended
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March 31,
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December 31,
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October 25,
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March 29,
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December 31,
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2010
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2009
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2009
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2009
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2008
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2007
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2006
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2005
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10.2
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21.2
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14
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Where a dash appears, our earnings were negative and were
insufficient to cover fixed charges during the period. Our
deficiencies to cover fixed charges in each period presented
were as follows: |
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Successor
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Predecessor
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Two- Month
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Three Months
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Period Ended
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Ended
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December 31,
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March 29,
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Years Ended 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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2006
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2005
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(In millions)
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Deficiencies
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$
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0.5
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$
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69.6
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$
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327.5
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$
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132.0
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$
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78.8
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$
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119.2
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|
See Ratio of Earnings to Fixed Charges for
additional information. |
|
No Established Trading Market |
|
There is no established trading market for the new notes. The
new notes are not listed on any securities exchange or on any
automated dealer quotation system. We cannot assure you that an
active or liquid trading market for the new notes will develop.
If an active or liquid trading market for the new notes does not
develop, the market price and liquidity of the new notes may be
adversely affected. |
15
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 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 audited and unaudited 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. We derived
the unaudited consolidated statement of operations data for the
three months ended March 31, 2010 and March 29, 2009,
as well as unaudited consolidated balance sheet data as of
March 31, 2010, from our unaudited interim consolidated
financial statements included elsewhere in this prospectus. We
derived the unaudited consolidated balance sheet data as of
March 29, 2009 from our unaudited interim consolidated
financial statements 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, and financial results for any
interim period are not necessarily indicative of results for a
full year.
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 as of and for the three months ended March 31, 2010
and the combined twelve-month period ended December 31,
2009 to give pro forma effect to the reorganization proceedings
and related events and the issuance of $250 million old
notes and the application of the net proceeds therefrom, in each
case as if they had occurred at January 1, 2009 with
respect to consolidated statement of operations data and as of
March 31, 2010 with respect to balance sheet data. The
summary unaudited pro forma financial data set forth below are
presented for informational purposes only, should not be
considered indicative of actual results of operations that would
have been achieved had the reorganization proceedings and
related events and the issuance of $250 million old 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.
16
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Pro Forma(1)
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Historical
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Successor
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Predecessor
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Three
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Three
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Three
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Months
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Months
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Two- Month
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Ten- Month
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Months
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Ended
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Year Ended
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Ended
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Period Ended
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Period Ended
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Ended
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Years Ended
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March 31,
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December 31,
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March 31,
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December 31,
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October 25,
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March 29,
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December 31,
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2010
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2009
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2010*
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2009**
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2009**
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2009*
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2008**
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2007**
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(In millions, except per common unit data)
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Statements of Operations Data:
|
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|
|
|
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|
|
|
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|
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|
|
|
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Net sales
|
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$
|
179.5
|
|
|
$
|
560.1
|
|
|
$
|
179.5
|
|
|
$
|
111.1
|
|
|
|
$
|
449.0
|
|
|
$
|
101.5
|
|
|
$
|
601.7
|
|
|
$
|
709.5
|
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Cost of sales
|
|
|
129.3
|
|
|
|
378.9
|
|
|
|
130.1
|
|
|
|
90.4
|
|
|
|
|
311.1
|
|
|
|
80.6
|
|
|
|
445.3
|
|
|
|
578.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
50.2
|
|
|
|
181.2
|
|
|
|
49.4
|
|
|
|
20.7
|
|
|
|
|
137.8
|
|
|
|
20.9
|
|
|
|
156.4
|
|
|
|
130.7
|
|
Selling, general and administrative expenses
|
|
|
17.9
|
|
|
|
71.6
|
|
|
|
17.9
|
|
|
|
14.5
|
|
|
|
|
56.3
|
|
|
|
15.3
|
|
|
|
81.3
|
|
|
|
82.7
|
|
Research and development expenses
|
|
|
20.5
|
|
|
|
77.3
|
|
|
|
20.5
|
|
|
|
14.7
|
|
|
|
|
56.1
|
|
|
|
17.0
|
|
|
|
89.5
|
|
|
|
90.8
|
|
Restructuring and impairment charges
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
11.5
|
|
|
|
31.9
|
|
|
|
10.6
|
|
|
|
(8.6
|
)
|
|
|
|
25.0
|
|
|
|
(11.4
|
)
|
|
|
(27.7
|
)
|
|
|
(54.9
|
)
|
Interest expense, net
|
|
|
(6.9
|
)
|
|
|
(28.8
|
)
|
|
|
(2.0
|
)
|
|
|
(1.3
|
)
|
|
|
|
(31.2
|
)
|
|
|
(14.7
|
)
|
|
|
(76.1
|
)
|
|
|
(60.3
|
)
|
Foreign currency gain (loss), net
|
|
|
21.6
|
|
|
|
52.8
|
|
|
|
21.6
|
|
|
|
9.3
|
|
|
|
|
43.4
|
|
|
|
(40.2
|
)
|
|
|
(210.4
|
)
|
|
|
(4.7
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
|
|
|
|
|
|
|
|
|
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Others
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.7
|
|
|
|
24.0
|
|
|
|
19.5
|
|
|
|
8.1
|
|
|
|
|
816.8
|
|
|
|
(54.9
|
)
|
|
|
(286.5
|
)
|
|
|
(65.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
26.1
|
|
|
|
55.9
|
|
|
|
30.1
|
|
|
|
(0.5
|
)
|
|
|
|
841.8
|
|
|
|
(66.3
|
)
|
|
|
(314.3
|
)
|
|
|
(120.0
|
)
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
9.2
|
|
|
|
(1.0
|
)
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
2.6
|
|
|
|
11.6
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
27.1
|
|
|
$
|
46.6
|
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(68.9
|
)
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(0.8
|
)
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(69.7
|
)
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.3
|
|
|
|
3.4
|
|
|
|
13.3
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
units
|
|
|
|
|
|
$
|
46.6
|
|
|
$
|
31.1
|
|
|
$
|
(2.5
|
)
|
|
|
$
|
828.2
|
|
|
$
|
(72.3
|
)
|
|
$
|
(339.1
|
)
|
|
$
|
(140.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per common
unit Basic and diluted
|
|
$
|
0.09
|
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
15.65
|
|
|
$
|
(1.37
|
)
|
|
$
|
(6.43
|
)
|
|
$
|
(2.69
|
)
|
Weighted average number of common units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
302.444
|
|
|
|
300.158
|
|
|
|
302.444
|
|
|
|
300.863
|
|
|
|
|
52.923
|
|
|
|
52.923
|
|
|
|
52.769
|
|
|
|
52.297
|
|
Diluted
|
|
|
307.536
|
|
|
|
300.166
|
|
|
|
307.536
|
|
|
|
300.863
|
|
|
|
|
52.923
|
|
|
|
52.923
|
|
|
|
52.769
|
|
|
|
52.297
|
|
Consolidated Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
128.8
|
|
|
|
|
|
|
$
|
82.7
|
|
|
$
|
64.9
|
|
|
|
|
|
|
|
$
|
7.1
|
|
|
$
|
4.0
|
|
|
$
|
64.3
|
|
Total assets
|
|
|
546.2
|
|
|
|
|
|
|
|
492.0
|
|
|
|
453.3
|
|
|
|
|
|
|
|
|
357.7
|
|
|
|
399.2
|
|
|
|
707.9
|
|
Total indebtedness(2)
|
|
|
246.7
|
|
|
|
|
|
|
|
61.6
|
|
|
|
61.8
|
|
|
|
|
|
|
|
|
845.0
|
|
|
|
845.0
|
|
|
|
830.0
|
|
Long-term obligations(3)
|
|
|
247.0
|
|
|
|
|
|
|
|
61.3
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
146.5
|
|
|
|
143.2
|
|
|
|
879.4
|
|
Total unitholders equity (deficit)
|
|
|
100.5
|
|
|
|
|
|
|
|
231.4
|
|
|
|
215.7
|
|
|
|
|
|
|
|
|
(835.1
|
)
|
|
|
(787.8
|
)
|
|
|
(477.5
|
)
|
Supplemental Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(4)
|
|
$
|
28.7
|
|
|
$
|
98.7
|
|
|
$
|
28.7
|
|
|
$
|
22.1
|
|
|
|
$
|
76.6
|
|
|
$
|
2.3
|
|
|
$
|
59.8
|
|
|
$
|
111.2
|
|
Adjusted Net Income (Loss)(5)
|
|
|
15.0
|
|
|
|
33.7
|
|
|
|
19.9
|
|
|
|
13.3
|
|
|
|
|
9.3
|
|
|
|
(22.9
|
)
|
|
|
(71.7
|
)
|
|
|
(82.6
|
)
|
|
|
|
* |
|
Derived from our unaudited interim consolidated financial
statements. |
|
** |
|
Derived from our audited consolidated financial statements. |
|
|
|
(1) |
|
Gives effect to the reorganization proceedings and related
events and the issuance of $250 million old 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. |
17
|
|
|
(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 when and if 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.
|
18
|
|
|
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
Historical
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Three
|
|
|
|
Three
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
Months
|
|
|
|
Months
|
|
Two- Month
|
|
|
Ten- Month
|
|
Months
|
|
|
|
|
|
|
Ended
|
|
Year Ended
|
|
Ended
|
|
Period Ended
|
|
|
Period Ended
|
|
Ended
|
|
Years Ended
|
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
December 31,
|
|
|
October 25,
|
|
March 29,
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
2009
|
|
2009
|
|
2008
|
|
2007
|
|
|
(In millions)
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(69.7
|
)
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(0.8
|
)
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
27.1
|
|
|
$
|
46.6
|
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(68.9
|
)
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization associated with continuing
operations
|
|
|
15.5
|
|
|
|
50.6
|
|
|
|
15.5
|
|
|
|
11.2
|
|
|
|
|
37.7
|
|
|
|
10.4
|
|
|
|
63.8
|
|
|
|
152.2
|
|
Interest expense, net
|
|
|
6.9
|
|
|
|
28.8
|
|
|
|
2.0
|
|
|
|
1.3
|
|
|
|
|
31.2
|
|
|
|
14.7
|
|
|
|
76.1
|
|
|
|
60.3
|
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
9.2
|
|
|
|
(1.0
|
)
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
2.6
|
|
|
|
11.6
|
|
|
|
8.8
|
|
Restructuring and impairment charges(a)
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
3.1
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation expense(g)
|
|
|
1.5
|
|
|
|
2.4
|
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Foreign currency loss (gain), net(h)
|
|
|
(21.6
|
)
|
|
|
(52.8
|
)
|
|
|
(21.6
|
)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
40.2
|
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
28.7
|
|
|
$
|
98.7
|
|
|
$
|
28.7
|
|
|
$
|
22.1
|
|
|
|
$
|
76.6
|
|
|
$
|
2.3
|
|
|
$
|
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
the three months ended March 31, 2010, impairment of two
abandoned in-process research and development projects,
accounted for as indefinite-lived intangible assets as part of
the application of fresh-start accounting, (ii) for the
three months ended March 29, 2009, the closure of our
research and development facilities in Japan, (iii) 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, (iv) 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 (v) 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 the three
months ended March 29, 2009, a charge of $3.1 million
for restructuring-related professional fees and related
expenses, (ii) for 2009, a charge of $13.3 million for
restructuring-related professional fees and related expenses and
(iii) 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 |
19
|
|
|
|
|
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
have incurred similar costs in connection with the MagnaChip
Corporation IPO. |
|
(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;
|
20
|
|
|
|
|
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 when and if 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).
21
The following table summarizes the adjustments to net income
(loss) that we make in order to calculate Adjusted Net Income
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Historical
|
|
|
|
Three
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Months
|
|
|
|
|
|
Three Months
|
|
|
Two- Month
|
|
|
|
Ten- Month
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
March 29,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(69.7
|
)
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(0.8
|
)
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
27.1
|
|
|
$
|
46.6
|
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(68.9
|
)
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment charges(a)
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
13.3
|
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
3.1
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(g)
|
|
|
1.5
|
|
|
|
2.4
|
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Amortization of intangibles associated with continuing
operations(h)
|
|
|
7.7
|
|
|
|
23.6
|
|
|
|
7.7
|
|
|
|
5.6
|
|
|
|
|
8.8
|
|
|
|
2.4
|
|
|
|
20.0
|
|
|
|
27.5
|
|
Foreign currency loss (gain), net(i)
|
|
|
(21.6
|
)
|
|
|
(52.8
|
)
|
|
|
(21.6
|
)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
40.2
|
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net income (loss)
|
|
$
|
15.0
|
|
|
$
|
33.7
|
|
|
$
|
19.9
|
|
|
$
|
13.3
|
|
|
|
$
|
9.3
|
|
|
$
|
(22.9
|
)
|
|
$
|
(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
the three months ended March 31, 2010, impairment of two
abandoned in-process research and development projects,
accounted for as indefinite-lived intangible assets as part of
the application of fresh-start accounting, (ii) for the
three months ended March 29, 2009, the closure of our
research and development facilities in Japan, (iii) 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, (iv) 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 (v) 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 the three
months ended March 29, 2009, a charge of $3.1 million
for restructuring-related professional fees and related
expenses, (ii) for 2009, a charge of $13.3 million for
restructuring-related professional fees and related expenses,
and (iii) 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. |
22
|
|
|
(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
have incurred similar costs in connection with the MagnaChip
Corporation IPO. |
|
(d) |
|
This adjustment eliminates a $1.3 million charge
attributable to a one-time settlement of claims with a
subcontractor. We no longer obtain services from this
subcontractor and do not expect to incur similar charges in the
future. |
|
(e) |
|
This adjustment eliminates the impact of largely non-cash
reorganization income and expense items directly associated with
our reorganization proceedings from our ongoing operations
including, among others, professional fees, the revaluation of
assets, the effects of the Chapter 11 reorganization plan
and fresh-start accounting principles and the write-off of debt
issuance costs. Included in reorganization items, net for the
ten-month period ended October 25, 2009 was our
predecessors gain recognized from the effects of our
reorganization proceedings. The gain results from the difference
between our predecessors carrying value of remaining
pre-petition liabilities subject to compromise and the amounts
to be distributed pursuant to the reorganization proceedings.
The gain from the effects of the reorganization proceedings and
the application of fresh-start accounting principles is
comprised of the discharge of liabilities subject to compromise,
net of the issuance of new common units and new warrants and the
accrual of amounts to be settled in cash. For details regarding
this adjustment, see note 5 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten months
ended October 25, 2009 and the two months ended
December 31, 2009 included elsewhere in this prospectus. We
do not believe these items are indicative of our core ongoing
operating performance because they were incurred as a result of
our 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;
|
23
|
|
|
|
|
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.
24
RISK
FACTORS
You should carefully consider the risk factors set forth
below as well as the other information contained in this
prospectus before deciding whether to exchange your old notes in
the exchange offer. The risks described below are not the only
risks facing us. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial
may also materially and adversely affect our business
operations. Any of the following risks could materially
adversely affect our business, financial condition or results of
operations. In such case, there could be a material adverse
effect on our ability to satisfy our obligations under the new
notes and you may lose all or part of your original
investment.
Risks Related to
the Exchange Offer
Failure to
Tender Your Old Notes for New Notes could Limit Your Ability to
Resell the Old Notes.
The old notes were not registered under the Securities Act or
under the securities laws of any state and may not be resold,
offered for resale or otherwise transferred unless they are
subsequently registered or resold under an exemption from the
registration requirements of the Securities Act and applicable
state securities laws. If you do not exchange your old notes for
new notes under the exchange offer, you will not be able to
resell, offer to resell or otherwise transfer the old notes
unless they are registered under the Securities Act and
applicable state securities laws or unless you resell them,
offer to resell or otherwise transfer them under an exemption
from, or in a transaction not subject to, the registration
requirements. In addition, we will no longer be under an
obligation to register the old notes under the Securities Act
except in the limited circumstances provided under the notes
registration rights agreement. To the extent that old notes are
tendered for exchange and accepted in the exchange offer, the
trading market for the untendered and tendered but unaccepted
old notes could be adversely affected.
There is no
Public Trading Market for the New Notes and an Active Trading
Market may not Develop for the New Notes.
The new notes are new securities for which there is no
established trading market. We do not intend to apply for
listing or quotation of the notes on any securities exchange or
stock market. We have been advised by 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, which acted as initial purchasers in connection
with the offer and sale of the old notes, that certain of the
initial purchasers intend to make a market in the new notes but
are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the
liquidity of the trading market for the new notes. In addition,
any liquidity of the trading market in the new notes, and the
market price quoted for the new notes, may be adversely affected
by changes in the overall market for high yield securities and
by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result,
we cannot assure you that an active trading market will develop
for the new notes.
You Must
Comply with the Exchange Offer Procedures in Order to Receive
New Notes.
The new notes will be issued in exchange for the old notes only
after timely receipt by the exchange agent of the old notes or a
book-entry confirmation related thereto, a properly completed
and executed letter of transmittal or an agents message
and all other required documentation. If you want to tender your
old notes in exchange for new notes, you should allow sufficient
time to ensure timely delivery. Neither we nor the exchange
agent are under any duty to give you notification of defects or
irregularities with respect to tenders of old notes for
exchange. Old notes that are not tendered or are tendered but
not accepted will, following the exchange offer, continue to be
subject to
25
the existing transfer restrictions. For additional information,
please refer to the sections entitled Exchange Offer
and Plan of Distribution in this prospectus.
Broker-Dealers
and Others may Need to Comply with the Registration and
Prospectus Delivery Requirements of the Securities
Act.
Any broker-dealer that (1) exchanges its old notes in the
exchange offer for the purpose of participating in a
distribution of the new notes or (2) resells new notes that
were received by it for its own account in the exchange offer
may be deemed to have received restricted securities and will be
required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction by that broker-dealer. Any profit on the resale of
the new notes and any commission or concessions received by a
broker-dealer may be deemed to be underwriting compensation
under the Securities Act. In addition, other persons that tender
old notes for the purpose of participating in a distribution of
the new notes will be required to comply with the registration
and prospectus delivery requirements of the Securities Act in
connection with any resale of the new notes.
Risks Related to
the Notes
Our
Substantial Level of Debt could Adversely Affect Our Financial
Condition and Prevent us from Fulfilling Our Obligations under
the Notes and Our Other Debt.
We have, and will continue to have, substantial debt. After
giving effect to the offering of the old notes and the repayment
of our term loan, we would have had total indebtedness of
$250.0 million as of December 31, 2009. We will be
permitted under the indenture governing the notes to incur
additional debt under certain conditions, including additional
secured debt. If new debt were to be incurred in the future, the
related risks that we now face could intensify.
Our substantial debt could have important consequences to you
and significant effects on our business. For example, it could:
|
|
|
|
|
result in an event of default if we fail to satisfy our
obligations under the notes or our other debt or fail to comply
with the financial and other restrictive covenants contained in
the indenture governing the notes or agreements governing our
other indebtedness, which event of default could result in all
of our debt becoming immediately due and payable and could
permit our lenders to foreclose on the assets securing any such
debt;
|
|
|
|
require us to dedicate a substantial portion of our cash flow
from our business operations to pay our debt, thereby reducing
the availability of cash flow to fund working capital, capital
expenditures, development projects, general operational
requirements and other purposes;
|
|
|
|
limit our ability to obtain additional financing for working
capital, capital expenditures and other activities;
|
|
|
|
limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
|
|
|
|
increase our vulnerability to general adverse economic and
industry conditions or a downturn in our business;
|
|
|
|
place us at a competitive disadvantage compared to competitors
that are not as highly leveraged; and
|
|
|
|
negatively affect our ability to fund a change of control offer.
|
Any of the above-listed factors could have a material adverse
effect on our business, financial condition and results of
operations and our ability to meet our payment obligations under
the notes and our other debt.
26
The Indenture
Governing the Notes Contain, and our Future Debt Agreements will
Likely Contain, Covenants that Significantly Restrict our
Operations.
The indenture governing the notes contain, and our future debt
agreements will likely contain, numerous covenants imposing
financial and operating restrictions on our business. These
restrictions may affect our ability to operate our business, may
limit our ability to take advantage of potential business
opportunities as they arise and may adversely affect the conduct
of our current business, including by restricting our ability to
finance future operations and capital needs and by limiting our
ability to engage in other business activities. These covenants
will place restrictions on our ability and the ability of our
operating subsidiaries to, among other things:
|
|
|
|
|
pay dividends, redeem units or make other distributions with
respect to equity interests, make payments with respect to
subordinated indebtedness or other restricted payments;
|
|
|
|
incur debt or issue preferred units;
|
|
|
|
create liens;
|
|
|
|
make certain investments;
|
|
|
|
consolidate, merge or dispose of all or substantially all of our
assets, taken as a whole;
|
|
|
|
sell or otherwise transfer or dispose of assets, including
equity interests of our subsidiaries;
|
|
|
|
enter into sale-leaseback transactions;
|
|
|
|
enter into transactions with our affiliates; and
|
|
|
|
designate our subsidiaries as unrestricted subsidiaries.
|
In addition, our future debt agreements will likely contain
financial ratios and other financial conditions tests. Our
ability to meet those financial ratios and tests could be
affected by events beyond our control, and we cannot assure you
that we will meet those ratios and tests. A breach of any of
these covenants could result in a default under such debt
agreements. Upon the occurrence of an event of default under
such debt agreements, our lenders under such agreements could
elect to declare all amounts outstanding under such debt
agreements to be immediately due and payable and terminate all
commitments to extend further credit.
We are a
Holding Company and will Depend on the Business of Our
Subsidiaries to Satisfy Our Obligations Under the
Notes.
Each of MagnaChip Semiconductor LLC, MagnaChip Semiconductor
S.A. and MagnaChip Semiconductor B.V. is a holding company with
no independent operations of its own. Our subsidiaries,
including our principal manufacturing subsidiary, MagnaChip
Korea, own all of our operating businesses. Our subsidiaries
will conduct substantially all of the operations necessary to
fund payments on the notes and our other debt. Our ability to
make payments on the notes and our other debt will depend on our
subsidiaries cash flow and their payment of funds to us.
Our subsidiaries ability to make payments to us will
depend on:
|
|
|
|
|
their earnings;
|
|
|
|
covenants contained in our debt agreements (including the
indenture governing the notes) and the debt agreements of our
subsidiaries;
|
|
|
|
covenants contained in other agreements to which we or our
subsidiaries are or may become subject;
|
|
|
|
business and tax considerations; and
|
|
|
|
applicable law.
|
27
We cannot assure you that the operating results of our
subsidiaries at any given time will be sufficient to make
distributions or other payments to us or that any distributions
or payments will be adequate to pay principal and interest, and
any other payments, on the notes and our other debt when due. If
the issuers are not able to make payments on the notes as they
become due, you may be required to pursue remedies under the
guarantees of the guarantors. These guarantees may be subject to
limitations on their enforceability.
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 the
Notes.
The issuers anticipate that payments under the notes 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.
To Service our
Debt, we will Require a Significant Amount of Cash. If We Fail
to Generate Sufficient Cash Flow from Future Operations, We may
have to Refinance All or a Portion of Our Debt or Seek to Obtain
Additional Financing.
We expect to obtain the funds to pay our expenses and to pay the
amounts due under the notes and our other debt primarily from
the operations of our subsidiaries, including our principal
manufacturing subsidiary, MagnaChip Korea. Our ability to meet
our expenses and make these payments thus depends on the future
performance of our subsidiaries, which will be affected by
financial, business, economic and other factors, many of which
are beyond our control, and their payment of funds to the
issuers. Our business and the business of our subsidiaries may
not generate sufficient cash flow from operations in the future,
our currently anticipated growth in revenue and cash flow may
not be realized, and our subsidiaries, including MagnaChip
Korea, may be restricted in their ability to make payments to
us, any or all of which could result in us being unable to pay
amounts due under our outstanding debt, including the notes, or
to fund other liquidity needs, such as future capital
expenditures. If we do not receive sufficient cash flow from the
operations of our subsidiaries, we may be required to refinance
all or part of our then existing debt (including the notes),
sell assets, reduce or delay capital expenditures or borrow more
money. We cannot assure you that we will be able to accomplish
any of these alternatives on terms acceptable to us or at all.
In addition, the terms of existing or future debt agreements,
including the indenture governing the notes, may restrict us
from adopting any of these alternatives. The failure to generate
sufficient cash flow or to achieve any of these alternatives
could materially adversely affect the value of the notes and our
ability to pay the amounts due under the notes and our other
debt.
We May be
Unable to Repay or Repurchase the Notes.
At maturity, the entire outstanding principal amount of the
notes, together with accrued and unpaid interest, will become
due and payable. We may not have the funds to fulfill these
obligations or the ability to refinance the obligations before
they become due. If the maturity date occurs at a time
28
when other arrangements prohibit us from repaying the notes, we
would try to obtain waivers of such prohibitions from the
lenders and holders under those arrangements, or we could
attempt to refinance the borrowings that contain the
restrictions. If we could not obtain the waivers or refinance
these borrowings, we would be unable to repay the notes when
they become due.
A Financial
Failure by us or any Guarantor may Hinder the Receipt of Payment
on the Notes and Enforcement of Remedies under the
Guarantees.
An investment in the notes, as in any type of security, involves
insolvency and bankruptcy considerations that investors should
carefully consider. If we or any of the guarantors becomes a
debtor subject to insolvency proceedings under the United States
Bankruptcy Code or comparable provisions of other jurisdictions,
it is likely to result in delays in the payment of the notes and
in the exercise of enforcement remedies under the notes or the
guarantees. Provisions under the United States Bankruptcy
Code or general principles of equity that could result in the
impairment of your rights include the automatic stay, avoidance
of preferential transfers by a trustee or
debtor-in-possession,
substantive consolidation, limitations on collectability of
unmatured interest or attorneys fees and forced
restructuring of the notes.
The Notes and
the Guarantees are Effectively Subordinated to all Borrowing
Under our Future Secured Credit Facilities and to All
Indebtedness and Other Liabilities of Our Nonguarantor
Subsidiaries.
The notes and the guarantees are effectively subordinated in
right of payment to claims of our future secured creditors to
the extent of the value of the assets securing such claims. We
currently do not have any secured indebtedness outstanding to
which the notes are effectively subordinated. Holders of our
future secured obligations will have claims that are prior to
the claims of holders of the notes with respect to the assets
securing those obligations. In the event of a liquidation,
dissolution, reorganization, bankruptcy or any similar
proceeding, our assets and those of our subsidiaries will be
available to pay obligations on the notes and the guarantees
only after holders of any senior secured debt outstanding have
been paid the value of the assets securing such obligations.
Accordingly, there may not be sufficient funds remaining to pay
amounts due on any or all of the notes.
In addition, not all of our subsidiaries guarantee the notes.
The notes and the guarantees are effectively subordinated to the
indebtedness and other liabilities (including trade payables) of
any non-guarantor subsidiary and holders of the notes do not
have any claim as a creditor against any nonguarantor
subsidiary. Our non-guarantor subsidiaries generated
approximately 96.6% and 69.2% of our aggregate consolidated
revenues in the three months ended March 31, 2010 and the
combined twelve-month period ended December 31, 2009,
respectively, and as of March 31, 2010 and
December 31, 2009 held approximately 94.5% and 87.3% of our
consolidated assets and had $191.0 million and
$166.2 million in total outstanding indebtedness and other
liabilities as of those dates, excluding intercompany
liabilities.
A Court could
Void the Guarantees of the Notes under Fraudulent Transfer or
Similar Laws, which could Limit Your Ability to Seek Repayment
from the Guarantors.
Although the guarantees provide the noteholders with a direct
claim against the assets of the guarantors, under the United
States Bankruptcy Code and comparable provisions of the
fraudulent transfer and similar laws in other applicable
jurisdictions, a guarantee could be voided, or claims with
respect to a guarantee could be subordinated to all other debts
of that guarantor. In addition, a bankruptcy court could void
(i.e., cancel) any payments by that guarantor pursuant to its
guarantee and require those payments to be returned to the
guarantor or to a fund for the benefit of the other creditors of
the guarantor. A bankruptcy court might take these actions if it
found, among other things,
29
that when a subsidiary guarantor executed its guarantee (or, in
some jurisdictions, when it became obligated to make payments
under its guarantee):
|
|
|
|
|
such subsidiary guarantor received less than reasonably
equivalent value or fair consideration for the incurrence of its
guarantee; and
|
|
|
|
such subsidiary guarantor:
|
|
|
|
|
|
was insolvent at the time of (or was rendered insolvent by) the
incurrence of the guarantee;
|
|
|
|
was engaged or about to engage in a business or transaction for
which its assets constituted unreasonably small capital to carry
on its business; or
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intended to incur, or believed that it would incur, obligations
beyond its ability to pay as those obligations matured.
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A bankruptcy court could find that a guarantor received less
than fair consideration or reasonably equivalent value for its
guarantee to the extent that it did not receive direct or
indirect benefit from the issuance of the notes. A bankruptcy
court could also void a guarantee if it found that the guarantor
issued its guarantee with actual intent to hinder, delay, or
defraud creditors. Although courts in different jurisdictions
measure solvency differently, in general, an entity would be
deemed insolvent if the sum of its debts, including contingent
and unliquidated debts, exceeds the fair value of its assets, or
if the present fair salable value of its assets is less than the
amount that would be required to pay the expected liability on
its debts, including contingent and unliquidated debts, as they
become due. If a court voided a guarantee, it could require that
noteholders return any amounts previously paid under such
guarantee. If any guarantee were voided, noteholders would
retain their rights against us and any other guarantors,
although there is no assurance that those entities assets
would be sufficient to pay the notes in full.
Any Future
Guarantees Provided After the Notes are Issued could also be
Avoided by a Trustee in Bankruptcy.
The indenture governing the notes provides that certain of our
future subsidiaries will guarantee the notes. Any future
guarantee might be avoidable by the grantor or by its trustee in
bankruptcy or other third parties if certain events or
circumstances exist or occur. For instance, if the entity
granting the future guarantee were insolvent at the time of the
grant and if such grant was made within 90 days, or in
certain circumstances, a longer period, before that entity
commenced a bankruptcy proceeding, and the granting of the
future guarantee enabled the noteholders to receive more than
they would than if the grantor were liquidated under
Chapter 7 of the United States Bankruptcy Code, then such
guarantee could be avoided as a preferential transfer.
We may not be
Able to Fulfill Our Repurchase Obligations with Respect to the
Notes Upon a Change of Control or an Asset Sale.
If we experience certain change of control events, we are
required by the indenture governing the notes to offer to
repurchase all outstanding notes at a repurchase price equal to
101% of the principal amount of notes repurchased, plus accrued
and unpaid interest and special interest, if any, to the
applicable repurchase date. In addition, under certain
circumstances, if we sell assets and fail to apply the net
proceeds therefrom as provided in the indenture, we must offer
to repurchase the notes at a repurchase price equal to 100% of
the principal amount of the notes repurchased, plus accrued and
unpaid interest and special interest, if any, to the applicable
repurchase date. If a change of control event or an asset sale
were to occur, we cannot assure you that we would have
sufficient funds to repay the notes and all other indebtedness
that we would be required to offer to purchase or that would
become immediately due and payable as a result of such change of
control event or asset sale. We may require additional financing
from third parties to fund any such repurchases, and we cannot
assure you that we would be able to obtain additional financing
on satisfactory terms or at all. Our failure to repay
noteholders who tender notes for repurchase following a change
of control event
30
or asset sale could result in an event of default under the
indenture governing the notes. Any future indebtedness to which
we become a party may also prohibit us from purchasing notes. If
a change of control event or an asset sale occurs at a time when
we are prohibited from purchasing notes, we may have to either
seek the consent of the applicable lenders to the purchase of
notes or attempt to refinance the borrowings that contain such
prohibition. Our failure to obtain such a consent or to
refinance such borrowings may preclude us from purchasing
tendered notes and trigger an event of default under the
indenture governing the notes, which may, in turn, constitute a
default under other indebtedness. Finally, the events that would
constitute a change of control under the indenture may also
result in an event of default under our future secured credit
facilities, in which case we could be required to repay our
secured indebtedness before we repurchase any of the notes.
Unrestricted
Subsidiaries Generally will not be Subject to any of the
Covenants in the Indenture, and we may not be Able to Rely on
the Cash Flow or Assets of Those Unrestricted Subsidiaries to
Pay our Indebtedness.
Unrestricted subsidiaries will generally not be subject to the
covenants under the indenture governing the notes, and their
assets will not be available as security for the notes.
Unrestricted subsidiaries may enter into financing arrangements
that limit their ability to make loans or other payments to fund
payments in respect of the notes. Accordingly, we may not be
able to rely on the cash flow or assets of unrestricted
subsidiaries to pay any of our indebtedness, including the notes.
You may be
Unable to Enforce Judgments Obtained in United States Courts
Against MagnaChip Semiconductor S.A. or Our Subsidiary
Guarantors Organized in Jurisdictions Other than the United
States.
MagnaChip Semiconductor S.A. and most of the guarantors are
organized or incorporated outside of the United States and most
of the assets of these companies are located outside of the
United States. Because most of our assets are located outside of
the United States, any judgment obtained in the United States
against these companies may not be collectible in the United
States. In addition, many of our executive officers and one of
our directors are non-residents of the United States and it may
be difficult to enforce civil liabilities in United States
courts against these non-resident officers and director.
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
31
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.
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 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.
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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.
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.
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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.
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 64%, 66%, 69% and 63% of our net sales for the three
months ended March 31, 2010, 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 20% and 26% of our net
sales and a substantial portion of the net sales generated by
our top ten customers for the three months ended March 31,
2010 and the combined twelve-month period ended
December 31, 2009. 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
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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
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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 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.
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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 the MagnaChip Corporation IPO or the
notes could be adversely affected.
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 and May 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. The January 2010 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. The
May 2010 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 the months of January 2011 through June
2011 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 $30 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
37
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.
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 June 30, 2010, 2,165 employees, or approximately
65.3% 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
38
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.
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.
39
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.
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.
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.
41
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
Operations.
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
September 2010. Our Korean subsidiary will then have until
December 2011 to reach an agreement with Korean governmental
authorities to set reduction targets and draft an implementation
plan. If the ultimate implementation plan agreed upon with
Korean governmental authorities requires us to reduce our
emissions or energy consumption, we could be subject to
additional and potentially costly compliance or remediation
expenses, including potentially the installation of equipment
and changes in the type of materials we use in manufacturing,
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 complementary businesses and
technologies, and respond to competitive pressures and potential
strategic opportunities. Additional capital may not be available
when needed or, if available, may not be available on favorable
terms. If the MagnaChip Corporation IPO is not completed and
MagnaChip Corporation does not become a public company, our
ability to raise additional capital, particularly equity
capital, will be constrained due to our inability to access the
public markets directly. 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.
42
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 Required and
Unable to Comply with Section 404 of the Sarbanes-Oxley Act of
2002, and as a Result, the Price of Our Securities could
Decline.
Beginning with our fiscal year ending December 31, 2011, 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. In the event we complete the MagnaChip Corporation
IPO, we may also in the future become subject to the requirement
that our independent auditors attest to and report on the
effectiveness of our internal control over financial reporting.
In connection with audits of our consolidated financial
statements for the ten-month period ended October 25, 2009
and two-month period ended December 31, 2009, our
independent registered public accounting firm has reported two
control deficiencies that existed prior to their review, which
represent a material weakness in our internal control over
financial reporting. The two control deficiencies which
represent a material weakness that our independent registered
public accounting firm reported to our board of directors are
that we do not have a sufficient number of financial personnel
with the requisite financial accounting experience and that our
controls over non-routine transactions are not effective to
ensure that accounting considerations are identified and
appropriately recorded. If we fail to achieve and maintain the
adequacy of our internal controls, there is a risk that we will
not comply with all of the requirements imposed by
Section 404. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary
for us to produce reliable financial reports and are important
to helping 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 (assuming the completion of the
MagnaChip Corporation IPO), 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 securities.
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
43
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 March 31, 2010, 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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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.
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. The current rating
of our senior notes is B2 by Moodys and B+ by Standard and
Poors, both of which are below investment grade. 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.
44
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 March 31, 2010, we recognized aggregate
restructuring and impairment charges of $64.0 million,
which consisted of $58.4 million of impairment charges and
$5.6 million of restructuring charges. In the future, we
may need to record additional impairment charges or to further
restructure our business or incur additional restructuring
charges, any of which could have a material adverse effect on
our results of operations or financial condition.
We are Subject
to Litigation Risks, which may be Costly to Defend and the
Outcome of which is Uncertain.
All industries, including the semiconductor industry, are
subject to legal claims, with and without merit, that may be
particularly costly and which may divert the attention of our
management and our resources in general. We are involved in a
variety of legal matters, most of which we consider routine
matters that arise in the normal course of business. These
routine matters typically fall into broad categories such as
those involving customers, employment and labor and intellectual
property. Even if the final outcome of these legal claims does
not have a material adverse effect on our financial position,
results of operations or cash flows, defense and settlement
costs can be substantial. Due to the inherent uncertainty of the
litigation process, the resolution of any particular legal claim
or proceeding could have a material effect on our business,
financial condition, results of operations or cash flows.
45
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 exchange offer 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.
46
RATIO OF EARNINGS
TO FIXED CHARGES
The financial information provided in the following table should
be read in conjunction with our consolidated financial
statements and the related notes, appearing elsewhere in this
prospectus. The following table sets forth our ratio of earnings
to fixed charges for each of the periods indicated:
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Successor
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Predecessor
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Three Months
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Two- Month
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Ten- Month
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Three Months
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Ended
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Period Ended
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Period Ended
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Ended
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Years Ended
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March 31,
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December 31,
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October 25,
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March 29,
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December 31,
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2010
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2009
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2009
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2009
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2008
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2007
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2006
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2005
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Ratio of earnings to fixed charges
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10.2
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21.2
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The ratio of earnings to fixed charges is computed by dividing
(i) income (loss) from continuing operations before income
taxes plus fixed charges by (ii) fixed charges. Our fixed
charges consist of the portion of operating lease rental expense
that is representative of the appropriate interest factor and
interest expense on indebtedness.
Where a dash appears, our earnings were negative and were
insufficient to cover fixed charges during the period. Our
deficiencies to cover fixed charges in each period presented
were as follows:
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Successor
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Predecessor
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Three Months
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|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
March 29,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
Deficiencies
|
|
$
|
0.5
|
|
|
|
$
|
69.6
|
|
|
$
|
327.5
|
|
|
$
|
132.0
|
|
|
$
|
78.8
|
|
|
$
|
119.2
|
|
47
USE OF
PROCEEDS
The exchange offer is intended to satisfy our obligations under
the notes registration rights agreement we entered into with the
initial purchasers of the old notes. We will not receive any
proceeds from the exchange offer. In consideration for issuing
the new notes, we will receive old notes of like principal
amount, the terms of which are identical in all material
respects to the new notes. We will retire and cancel all of the
old notes tendered in the exchange offer. Accordingly, issuance
of the new notes will not result in any increase in our
indebtedness. We have agreed to bear the expenses of the
exchange offer.
DIVIDEND
POLICY
We do not intend to pay any cash dividends or distributions on
our common units in the foreseeable future. We anticipate that
we will retain all of our future earnings for use in the
development of our business and for general corporate purposes.
Any determination to pay cash dividends or distributions in the
future will be at the discretion of our board of directors. The
payment of cash dividends or distributions on our common units
is restricted under the terms of the indenture governing our
notes.
On April 19, 2010, we made a $130.7 million cash
distribution to our unitholders using proceeds from the sale of
our senior notes. The per common unit distribution was $0.4254.
48
CAPITALIZATION
The following table sets forth the following information:
|
|
|
|
|
the actual capitalization of MagnaChip Semiconductor LLC as of
March 31, 2010; and
|
|
|
|
our pro forma as adjusted capitalization as of March 31,
2010 after giving effect to the issuance of $250 million
old notes and the application of the net proceeds therefrom.
|
This table 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 and related notes
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
as Adjusted
|
|
|
|
(In millions)
|
|
|
Indebtedness (including current maturities)
|
|
|
|
|
|
|
|
|
Senior secured credit facility
|
|
$
|
61.6
|
|
|
$
|
|
|
10.500% senior notes due 2018(1)
|
|
|
|
|
|
|
246.7
|
|
Unitholders equity:
|
|
|
|
|
|
|
|
|
Common units, no par value; 375,000,000 units authorized,
307,233,996 units issued and outstanding, actual and pro
forma as adjusted
|
|
|
55.5
|
|
|
|
55.5
|
|
Additional paid-in capital
|
|
|
169.3
|
|
|
|
38.6
|
(2)
|
Retained earnings
|
|
|
29.1
|
|
|
|
28.9
|
|
Accumulated other comprehensive loss
|
|
|
(22.4
|
)
|
|
|
(22.4
|
)
|
|
|
|
|
|
|
|
|
|
Total unitholders equity
|
|
|
231.4
|
|
|
|
100.5
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
293.0
|
|
|
$
|
347.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 of old notes. |
49
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth selected historical consolidated
financial data of MagnaChip Semiconductor LLC 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 unaudited consolidated
statement of operations data for the three months ended
March 31, 2010 and March 29, 2009 from the unaudited
interim 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. We have derived the selected
consolidated financial data as of March 31, 2010 from the
unaudited interim consolidated financial statements of MagnaChip
Semiconductor LLC included elsewhere in this prospectus. We
derived the unaudited consolidated balance sheet data as of
March 29, 2009 from our unaudited interim consolidated
financial statements 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, and financial results for any
interim period are not necessarily indicative of results for a
full year.
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.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor(1)
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Ended
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
March 29,
|
|
|
December 31,
|
|
|
|
2010*
|
|
|
2009**
|
|
|
|
2009**
|
|
|
2009*
|
|
|
2008**
|
|
|
2007**
|
|
|
2006**
|
|
|
2005**
|
|
|
|
(In millions, except per common unit data)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
179.5
|
|
|
$
|
111.1
|
|
|
|
$
|
449.0
|
|
|
$
|
101.5
|
|
|
$
|
601.7
|
|
|
$
|
709.5
|
|
|
$
|
683.9
|
|
|
$
|
774.3
|
|
Cost of sales
|
|
|
130.1
|
|
|
|
90.4
|
|
|
|
|
311.1
|
|
|
|
80.6
|
|
|
|
445.3
|
|
|
|
578.9
|
|
|
|
580.4
|
|
|
|
591.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49.4
|
|
|
|
20.7
|
|
|
|
|
137.8
|
|
|
|
20.9
|
|
|
|
156.4
|
|
|
|
130.7
|
|
|
|
103.4
|
|
|
|
183.2
|
|
Selling, general and administrative Expenses
|
|
|
17.9
|
|
|
|
14.5
|
|
|
|
|
56.3
|
|
|
|
15.3
|
|
|
|
81.3
|
|
|
|
82.7
|
|
|
|
76.1
|
|
|
|
119.4
|
|
Research and development expenses
|
|
|
20.5
|
|
|
|
14.7
|
|
|
|
|
56.1
|
|
|
|
17.0
|
|
|
|
89.5
|
|
|
|
90.8
|
|
|
|
87.2
|
|
|
|
96.1
|
|
Restructuring and impairment charges
|
|
|
0.3
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
12.1
|
|
|
|
1.7
|
|
|
|
36.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing Operations
|
|
|
10.6
|
|
|
|
(8.6
|
)
|
|
|
|
25.0
|
|
|
|
(11.4
|
)
|
|
|
(27.7
|
)
|
|
|
(54.9
|
)
|
|
|
(61.6
|
)
|
|
|
(68.4
|
)
|
Interest expense, net
|
|
|
(2.0
|
)
|
|
|
(1.3
|
)
|
|
|
|
(31.2
|
)
|
|
|
(14.7
|
)
|
|
|
(76.1
|
)
|
|
|
(60.3
|
)
|
|
|
(57.2
|
)
|
|
|
(57.2
|
)
|
Foreign currency gain (loss), net
|
|
|
21.6
|
|
|
|
9.3
|
|
|
|
|
43.4
|
|
|
|
(40.2
|
)
|
|
|
(210.4
|
)
|
|
|
(4.7
|
)
|
|
|
50.9
|
|
|
|
16.5
|
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.5
|
|
|
|
8.1
|
|
|
|
|
816.8
|
|
|
|
(54.9
|
)
|
|
|
(286.5
|
)
|
|
|
(65.0
|
)
|
|
|
(6.3
|
)
|
|
|
(40.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
30.1
|
|
|
|
(0.5
|
)
|
|
|
|
841.8
|
|
|
|
(66.3
|
)
|
|
|
(314.3
|
)
|
|
|
(120.0
|
)
|
|
|
(67.9
|
)
|
|
|
(109.1
|
)
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
2.6
|
|
|
|
11.6
|
|
|
|
8.8
|
|
|
|
9.1
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing Operations
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(68.9
|
)
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
|
|
(76.9
|
)
|
|
|
(111.1
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(0.8
|
)
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
(152.4
|
)
|
|
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(69.7
|
)
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
|
$
|
(229.3
|
)
|
|
$
|
(100.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
|
|
6.3
|
|
|
|
3.4
|
|
|
|
13.3
|
|
|
|
12.0
|
|
|
|
10.9
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
units
|
|
$
|
31.1
|
|
|
$
|
(2.5
|
)
|
|
|
$
|
828.2
|
|
|
$
|
(72.3
|
)
|
|
$
|
(339.1
|
)
|
|
$
|
(140.9
|
)
|
|
$
|
(87.9
|
)
|
|
$
|
(121.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common Units
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
834.8
|
|
|
$
|
(73.1
|
)
|
|
$
|
(430.6
|
)
|
|
$
|
(192.6
|
)
|
|
$
|
(240.2
|
)
|
|
$
|
(110.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per unit data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per common
unit Basic and diluted
|
|
$
|
0.10
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
15.65
|
|
|
$
|
(1.37
|
)
|
|
$
|
$(6.43
|
)
|
|
$
|
(2.69
|
)
|
|
$
|
(1.66
|
)
|
|
$
|
(2.29
|
)
|
Earnings (loss) from discontinued operations per common
unit Basic and diluted
|
|
$
|
|
|
|
$
|
0.00
|
|
|
|
$
|
0.12
|
|
|
$
|
(0.01
|
)
|
|
$
|
(1.73
|
)
|
|
$
|
(0.99
|
)
|
|
$
|
(2.88
|
)
|
|
$
|
0.19
|
|
Earnings (loss) per common unit Basic and diluted
|
|
$
|
0.10
|
|
|
$
|
(0.01
|
)
|
|
|
$
|
15.77
|
|
|
$
|
(1.38
|
)
|
|
$
|
(8.16
|
)
|
|
$
|
(3.68
|
)
|
|
$
|
(4.54
|
)
|
|
$
|
(2.10
|
)
|
Weighted average number of common units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
302.444
|
|
|
|
300.863
|
|
|
|
|
52.923
|
|
|
|
52.923
|
|
|
|
52.769
|
|
|
|
52.297
|
|
|
|
52.912
|
|
|
|
52.898
|
|
Diluted
|
|
|
307.536
|
|
|
|
300.863
|
|
|
|
|
52.923
|
|
|
|
52.923
|
|
|
|
52.769
|
|
|
|
52.297
|
|
|
|
52.912
|
|
|
|
52.898
|
|
Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
82.7
|
|
|
$
|
64.9
|
|
|
|
|
|
|
|
$
|
7.1
|
|
|
$
|
4.0
|
|
|
$
|
64.3
|
|
|
$
|
89.2
|
|
|
$
|
86.6
|
|
Total assets
|
|
|
492.0
|
|
|
|
453.3
|
|
|
|
|
|
|
|
|
357.7
|
|
|
|
399.2
|
|
|
|
707.9
|
|
|
|
770.1
|
|
|
|
1,040.6
|
|
Total indebtedness(2)
|
|
|
61.6
|
|
|
|
61.8
|
|
|
|
|
|
|
|
|
845.0
|
|
|
|
845.0
|
|
|
|
830.0
|
|
|
|
750.0
|
|
|
|
750.0
|
|
Long-term obligations(3)
|
|
|
61.3
|
|
|
|
61.5
|
|
|
|
|
|
|
|
|
146.5
|
|
|
|
143.2
|
|
|
|
879.4
|
|
|
|
867.4
|
|
|
|
856.7
|
|
Unitholders equity
|
|
|
231.4
|
|
|
|
215.7
|
|
|
|
|
|
|
|
|
(835.1
|
)
|
|
|
(787.8
|
)
|
|
|
(477.5
|
)
|
|
|
(284.5
|
)
|
|
|
(46.5
|
)
|
Supplemental Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(4)
|
|
$
|
28.7
|
|
|
$
|
22.1
|
|
|
|
$
|
76.6
|
|
|
$
|
2.3
|
|
|
$
|
59.8
|
|
|
$
|
111.2
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss)(5)
|
|
|
19.9
|
|
|
|
13.3
|
|
|
|
|
9.3
|
|
|
|
(22.9
|
)
|
|
|
(71.7
|
)
|
|
|
(82.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Derived from our unaudited interim consolidated financial
statements. |
|
** |
|
Derived from our audited consolidated financial statements. |
|
(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. |
51
|
|
|
(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 when
and if 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.
|
52
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
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
March 29,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(69.7
|
)
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(0.8
|
)
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(68.9
|
)
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization associated with continuing
operations
|
|
|
15.5
|
|
|
|
11.2
|
|
|
|
|
37.7
|
|
|
|
10.4
|
|
|
|
63.8
|
|
|
|
152.2
|
|
Interest expense, net
|
|
|
2.0
|
|
|
|
1.3
|
|
|
|
|
31.2
|
|
|
|
14.7
|
|
|
|
76.1
|
|
|
|
60.3
|
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
1.9
|
|
|
|
|
7.3
|
|
|
|
2.6
|
|
|
|
11.6
|
|
|
|
8.8
|
|
Restructuring and impairment charges(a)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
3.1
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
0.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(g)
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Foreign currency loss (gain), net(h)
|
|
|
(21.6
|
)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
40.2
|
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
28.7
|
|
|
$
|
22.1
|
|
|
|
$
|
76.6
|
|
|
$
|
2.3
|
|
|
$
|
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
the three months ended March 31, 2010, impairment of two
abandoned in-process research and development projects,
accounted for as indefinite-lived intangible assets as part of
the application of fresh-start accounting, (ii) for the
three months ended March 29, 2009, the closure of our
research and development facilities in Japan, (iii) 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, (iv) 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 (v) 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 the three
months ended March 29, 2009, a charge of $3.1 million
for restructuring-related professional fees and related
expenses, (ii) for 2009, a charge of $13.3 million for
restructuring-related professional fees and related expenses,
and (iii) for 2008, a charge of $6.2 million for
restructuring-related professional fees and related expenses. We
do not believe these other
|
53
|
|
|
|
|
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
have incurred similar costs in connection with the MagnaChip
Corporation IPO.
|
|
|
(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;
|
54
|
|
|
|
|
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;
|
|
|
|
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 when
and if 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).
55
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
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
March 29,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
841.1
|
|
|
$
|
(69.7
|
)
|
|
$
|
(417.3
|
)
|
|
$
|
(180.6
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
(0.8
|
)
|
|
|
(91.5
|
)
|
|
|
(51.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
834.5
|
|
|
|
(68.9
|
)
|
|
|
(325.8
|
)
|
|
|
(128.8
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment charges(a)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
12.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
|
|
|
|
|
13.3
|
|
|
|
3.1
|
|
|
|
6.2
|
|
|
|
|
|
Abandoned IPO expenses(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
Subcontractor claim settlement(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
Reorganization items, net(e)
|
|
|
|
|
|
|
|
|
|
|
|
(804.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
step-up(f)
|
|
|
0.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(g)
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Amortization of intangibles associated with continuing
operations(h)
|
|
|
7.7
|
|
|
|
5.6
|
|
|
|
|
8.8
|
|
|
|
2.4
|
|
|
|
20.0
|
|
|
|
27.5
|
|
Foreign currency loss (gain), net(i)
|
|
|
(21.6
|
)
|
|
|
(9.3
|
)
|
|
|
|
(43.4
|
)
|
|
|
40.2
|
|
|
|
210.4
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss)
|
|
$
|
19.9
|
|
|
$
|
13.3
|
|
|
|
$
|
9.3
|
|
|
$
|
(22.9
|
)
|
|
$
|
(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
the three months ended March 31, 2010, impairment of two
abandoned in-process research and development projects,
accounted for as indefinite-lived intangible assets as part of
the application of fresh-start accounting, (ii) for the
three months ended March 29, 2009, the closure of our
research and development facilities in Japan, (iii) 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, (iv) 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 (v) 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 the three
months ended March 29, 2009, a charge of $3.1 million
for restructuring-related professional fees and related
expenses, (ii) for 2009, a charge of $13.3 million for
restructuring-related professional fees and related expenses,
and (iii) 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.
|
56
|
|
|
|
(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
have incurred similar costs in connection with the MagnaChip
Corporation IPO.
|
|
|
(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 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.
|
57
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.
58
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 as of and for the three
months ended March 31, 2010 and in accordance with
Article 11 of
Regulation S-X.
The unaudited pro forma condensed consolidated statements of
operations for the three months ended March 31, 2010 and
the combined twelve-month period ended December 31, 2009 is
derived from the historical consolidated financial statements of
MagnaChip Semiconductor LLC and gives pro forma effect to the
following as if these events had occurred on January 1,
2009:
|
|
|
|
|
the reorganization proceedings and adoption of fresh-start
reporting; and
|
|
|
|
the issuance of $250 million old 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 pro forma condensed consolidated balance sheet as
of March 31, 2010 is derived from the historical
consolidated balance sheet of MagnaChip Semiconductor LLC and
gives pro forma effect to 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 as if it occurred on March 31, 2010.
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 and
unaudited 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 March 31, 2010 and consolidated
statements of operations for the combined twelve-month period
ended December 31, 2009 and the three months ended
March 31, 2010 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.
59
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 statements of
operations for the three months ended March 31, 2010 and
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.
Issuance of $250
Million Old 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
60
amount of 10.500% senior notes due 2018 at an offering
price of 98.674%. Net proceeds from the notes offering were
$238.4 million which represents $250 million of
principal amount net of $3.3 million of original issue
discount and $8.3 million of debt issuance costs, including
professional fees. Of the $238.4 million of net proceeds,
$130.7 million was used to make a distribution to our
unitholders and $61.6 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
Three Months
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
Adjustments
|
|
|
2010
|
|
|
|
(In millions, except per common unit data)
|
|
|
Condensed Pro Forma Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
179.5
|
|
|
$
|
|
|
|
$
|
179.5
|
|
Cost of sales
|
|
|
130.1
|
|
|
|
(0.9
|
)(1)
|
|
|
129.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49.4
|
|
|
|
|
|
|
|
50.2
|
|
Selling, general and administrative Expenses
|
|
|
17.9
|
|
|
|
|
|
|
|
17.9
|
|
Research and development expenses
|
|
|
20.5
|
|
|
|
|
|
|
|
20.5
|
|
Restructuring and impairment charges
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income from continuing Operations
|
|
|
10.6
|
|
|
|
|
|
|
|
11.5
|
|
Interest expense, net
|
|
|
(2.0
|
)
|
|
|
(4.9
|
)(2)
|
|
|
(6.9
|
)
|
Foreign currency gain, net
|
|
|
21.6
|
|
|
|
|
|
|
|
21.6
|
|
Others
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.5
|
|
|
|
|
|
|
|
14.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
30.1
|
|
|
|
|
|
|
|
26.1
|
|
Income tax benefits
|
|
|
(1.0
|
)
|
|
|
|
(3)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
31.1
|
|
|
|
|
|
|
$
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations per common
unit Basic and diluted
|
|
$
|
0.10
|
|
|
|
|
|
|
$
|
0.09
|
|
Weighted average number of common units
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
302.444
|
|
|
|
|
|
|
|
302.444
|
|
Diluted
|
|
|
307.536
|
|
|
|
|
|
|
|
307.536
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
Pro Forma
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
March 31,
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
Adjustments
|
|
|
2010
|
|
|
|
(In millions, except common unit data)
|
|
|
Condensed Pro Forma Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
82.7
|
|
|
$
|
46.1
|
(4)
|
|
$
|
128.8
|
|
Accounts receivables, net
|
|
|
104.5
|
|
|
|
|
|
|
|
104.5
|
|
Inventories, net
|
|
|
58.2
|
|
|
|
|
|
|
|
58.2
|
|
Other
|
|
|
25.3
|
|
|
|
(0.0
|
)(5)
|
|
|
25.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
270.7
|
|
|
|
|
|
|
|
316.8
|
|
Property, plant and equipment, net
|
|
|
154.7
|
|
|
|
|
|
|
|
154.7
|
|
Intangible assets, net
|
|
|
43.5
|
|
|
|
|
|
|
|
43.5
|
|
Other non-current assets
|
|
|
23.1
|
|
|
|
8.1
|
(5)
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
492.0
|
|
|
|
|
|
|
$
|
546.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
77.9
|
|
|
|
|
|
|
$
|
77.9
|
|
Other accounts payable
|
|
|
7.6
|
|
|
|
|
|
|
|
7.6
|
|
Accrued expenses
|
|
|
25.3
|
|
|
|
|
|
|
|
25.3
|
|
Current portion of long-term debt
|
|
|
0.6
|
|
|
|
(0.6
|
)(6)
|
|
|
|
|
Other current liabilities
|
|
|
4.6
|
|
|
|
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
115.9
|
|
|
|
|
|
|
|
115.2
|
|
Long-term borrowings
|
|
|
61.0
|
|
|
|
(61.0
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
246.7
|
(6)
|
|
|
246.7
|
|
Accrued severance benefits, net
|
|
|
76.8
|
|
|
|
|
|
|
|
76.8
|
|
Other non-current liabilities
|
|
|
6.9
|
|
|
|
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
260.6
|
|
|
|
|
|
|
|
445.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units; 375,000,000 units authorized,
307,233,996 units issued and outstanding at March 31,
2010
|
|
|
55.5
|
|
|
|
|
|
|
|
55.5
|
|
Additional paid-in capital
|
|
|
169.3
|
|
|
|
(130.7
|
)(6)
|
|
|
38.6
|
|
Retained earnings
|
|
|
29.1
|
|
|
|
(0.2
|
)(5)
|
|
|
28.9
|
|
Accumulated other comprehensive (loss)
|
|
|
(22.4
|
)
|
|
|
|
|
|
|
(22.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity
|
|
|
231.4
|
|
|
|
|
|
|
|
100.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and unitholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
492.0
|
|
|
|
|
|
|
$
|
546.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma Consolidated Financial
Information as of March 31, 2010 and for the Three Months
Ended March 31, 2010
|
|
|
(1) |
|
To eliminate the $0.9 million one-time impact on cost of
sales associated with the step up of our inventory resulting
from implementation of fresh-start accounting in 2009 which was
charged to cost of sales in the historical statement of
operations for the three months ended March 31, 2010. The
pro forma financial statements assume the transaction occurred
as of January 1, 2009 and as such this amount is being
eliminated from the historical statement of operations in
presenting the |
62
|
|
|
|
|
unaudited pro forma statement of operations, as for pro forma
purposes, this charge would not have occurred in the three
months ended March 31, 2010. |
|
(2) |
|
To eliminate interest expense of $2.0 million which was
incurred on our $61.6 million aggregate principal amount
new term loan which was recognized in the three months ended
March 31, 2010. In addition, the pro forma adjustment
assumes the 10.500% old 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% old notes would have been
$6.8 million using the effective interest rate method. |
|
(3) |
|
We believe that the pro forma adjustments related to the
issuance of $250 million aggregate principal amount of old
notes and the application of the net proceeds should not have an
impact on income tax expense for the three months ended
March 31, 2010. The pro forma adjustment resulting in an
increase in interest expense, net is primarily related to our
foreign subsidiaries that have sufficient amounts of operating
loss carry forwards and, accordingly, such pro forma adjustment
will have no income tax impact. |
|
(4) |
|
To reflect a $46.1 million increase in cash and cash
equivalents which represents the portion of the net proceeds
from the issuance of $250 million aggregate principal
amount of old notes that was applied to fund working capital and
for general corporate purposes. |
|
(5) |
|
To reflect $8.3 million of debt issuance costs in
connection with the offering of $250 million aggregate
principal amount of old notes and $0.2 million elimination
of existing debt issuance costs regarding the repayment of our
new term loan. |
|
(6) |
|
To reflect the issuance of $250.0 million aggregate
principal amount of old notes with $3.3 million of original
issue discount and application of $130.7 million of net
proceeds to make a distribution to unitholders and resulting
decrease in additional paid in capital and application of
$61.6 million of net proceeds to repay our new term loan of
$61.6 million of which $0.6 million was classified as
short-term as of March 31, 2010. |
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 data)
|
|
|
Condensed Pro Forma Statement of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
111.1
|
|
|
$
|
449.0
|
|
|
$
|
|
|
|
$
|
560.1
|
|
Cost of sales
|
|
|
90.4
|
|
|
|
311.1
|
|
|
|
(5.4
|
)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.2
|
)(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
|
)
|
|
|
3.6
|
(3)
|
|
|
(28.8
|
)
|
Foreign currency gain, net
|
|
|
9.3
|
|
|
|
43.4
|
|
|
|
|
|
|
|
52.8
|
|
Reorganization items, net
|
|
|
|
|
|
|
804.6
|
|
|
|
(804.6
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
816.8
|
|
|
|
|
|
|
|
24.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
$
|
46.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred unit
|
|
|
|
|
|
|
6.3
|
|
|
|
(6.3
|
)(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
unit
|
|
$
|
(2.5
|
)
|
|
$
|
828.2
|
|
|
$
|
|
|
|
$
|
46.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit data:(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per common
unit Basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
15.65
|
|
|
|
|
|
|
$
|
0.16
|
|
Weighted average number of common units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
300.863
|
|
|
|
52.923
|
|
|
|
|
|
|
|
300.158
|
|
Diluted
|
|
|
300.863
|
|
|
|
52.923
|
|
|
|
|
|
|
|
300.166
|
|
Notes to
Unaudited Pro Forma Consolidated Financial Information for the
Twelve Month Period Ended December 31, 2009
|
|
|
(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 |
64
|
|
|
|
|
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. |
The adjustments referred to above are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Depreciation
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Cost of sales
|
|
$
|
|
|
|
$
|
(5.4
|
)
|
|
$
|
(5.4
|
)
|
Selling, general and administrative Expenses
|
|
|
1.3
|
|
|
|
(0.5
|
)
|
|
|
0.8
|
|
Research and development expenses
|
|
|
7.9
|
|
|
|
(1.4
|
)
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9.1
|
|
|
$
|
(7.4
|
)
|
|
$
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 in the
historical statement of operations for 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 charge which is directly attributable to the
reorganization proceedings and fresh-start accounting and as
such is being eliminated from the historical statement of
operations in presenting the unaudited pro forma statement 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 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 $27.2 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 old 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. |
|
(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 from
continuing operations reflects 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. The following table sets forth the |
65
|
|
|
|
|
computation of unaudited pro forma basic and diluted income per
common unit from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
|
|
|
|
|
|
|
Common
|
|
|
|
Weighted
|
|
|
Unit from
|
|
|
|
Average
|
|
|
Continuing
|
|
|
|
Common Units
|
|
|
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
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(53,627,880
|
)
|
|
|
|
|
Diluted
|
|
|
(53,620,300
|
)
|
|
|
|
|
Pro forma for the combined twelve-month period ended
December 31, 2009
|
|
|
|
|
|
|
|
|
Basic
|
|
|
300,158,367
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
300,165,947
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
66
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 2,620 novel
registered patents and 950 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 as the likely end
market trends and demand in the markets they serve. We must
balance the likely manufacturing utilization demand of our
product businesses and foundry business to optimize our
facilities utilization. We must also invest in relevant research
and development activities and manufacturing capacity and
purchase necessary materials on a timely basis to meet our
customers demand while maintaining our target margins and
cash flow.
The semiconductor markets in which we participate are highly
competitive. The prices of our products tend to decrease
regularly over their useful lives, and such price decreases can
be significant as new generations of products are introduced by
us or our competitors. We strive to offset the impact of
declining selling prices for existing products through cost
reductions and the introduction of new products that command
selling prices above the average selling price of our existing
products. In addition, we seek to manage our inventories and
manufacturing capacity so as to mitigate the risk of losses from
product obsolescence.
Demand for our products and services is driven primarily by
overall demand for consumer electronics products and can be
adversely affected by periods of weak consumer spending or by
market share losses by our customers. To mitigate the impact of
market volatility on our business, we seek to address market
segments and geographies with higher growth rates than the
overall consumer electronics industry. For example, in recent
years, we have experienced increasing demand from OEMs and
consumers in China and Taiwan relative to overall demand for our
products and
67
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. These processes also tend to migrate more
slowly to smaller geometries due to technological barriers and
increased costs. For example, some of our products use
high-voltage technology that requires larger geometries and that
may not migrate to smaller geometries for several years, if at
all. Additionally, the performance of many of our products is
not necessarily dependent on geometry. 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
68
capital investment strategy enables us to optimize our capital
investments and facilitates deeper and more diversified product
and service offerings.
Our success going forward will depend upon our ability to adapt
to future challenges such as the emergence of new competitors
for our products and services or the consolidation of current
competitors. Additionally, we must innovate to remain ahead of,
or at least rapidly adapt to, technological breakthroughs that
may lead to a significant change in the technology necessary to
deliver our products and services. We believe that our
established relationships and close collaboration with leading
customers 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
69
application of fresh-start accounting. In accordance with
ASC 852 governing reorganizations, we recorded largely
non-cash reorganization income and expense items directly
associated with our reorganization proceedings including
professional fees, the revaluation of assets, the effects of our
reorganization plan and fresh-start accounting, and write-off of
debt issuance costs.
In implementing fresh-start accounting, we re-measured our asset
values and stated all liabilities, other than deferred taxes and
severance benefits, at fair value or at the present values of
the amounts to be paid using appropriate market interest rates.
Our reorganization value was determined based on consideration
of numerous factors and various valuation methodologies,
including discounted cash flows, believed by management and our
financial advisors to be representative of our business and
industry. Information regarding the determination of the
reorganization value and application of fresh-start accounting
is included in note 3 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten-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 $238.4 million
of net proceeds, $130.7 million was used to make a
distribution to our unitholders and $61.6 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. As a result of the higher level of
indebtedness from our senior note offering, our quarterly
interest expense will increase above that which was reported for
the two-month period ended December 31, 2009 and the three
months ended March 31, 2010 to approximately
$6.8 million per quarter.
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
70
Services. We have identified these segments based on how we
allocate resources and assess our performance.
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Display Solutions: Our Display
Solutions products include source and gate drivers and timing
controllers that cover a wide range of flat panel displays used
in LCD televisions and LED televisions and displays, mobile PCs
and mobile communications and entertainment devices. Our display
solutions support the industrys most advanced display
technologies, such as LTPS and AMOLED, as well as high-volume
display technologies such as TFT. 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 and 42.8% and 58.8% of our net sales
for the three months ended March 31, 2010 and
March 29, 2009, 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 and 5.0% and 0.9% of our net sales for three months
ended March 31, 2010 and March 29, 2009, 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 and 51.9% and 39.6% of our net sales
for the three months ended March 31, 2010 and
March 29, 2009, 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.
71
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.
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 when
and if 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 three months ended March 31, 2010 were
$28.7 million and $15.0 million, respectively. 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,
72
Korea, Taiwan, China, the United Kingdom and the United States.
Our network of authorized agents and distributors consists of
agents in the United States and Europe and distributors and
agents in the Asia Pacific region. Our net sales from All other
consist principally of rental income and, for 2007 and to a
limited extent in 2008, semiconductor processing services for
one customer where we completed a limited number of process
steps, rather than the entire production process, which we refer
to as unit processing.
We recognize revenue when risk and reward of ownership passes to
the customer either upon shipment, upon product delivery at the
customers location or upon customer acceptance, depending
on the terms of the arrangement. For the three months ended
March 31, 2010 and the combined twelve-month period ended
December 31, 2009, we sold products to over 210 and 185
customers, respectively, and our net sales to our ten largest
customers represented 64% and 69% of our net sales for the three
months ended March 31, 2010 and the combined twelve-month
period ended December 31, 2009, respectively. 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 both the three months ended
March 31, 2010 and the combined twelve-month period ended
December 31, 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 March 31, 2010, 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
73
undiscounted cash flows are not sufficient to recover the
carrying values of the related long-lived assets, the carrying
value of the assets is impaired and will be reduced, with the
reduction charged to expense so that the carrying value is equal
to fair value.
Selling Expenses. We sell our products
worldwide through a direct sales force as well as a network of
sales agents and representatives to OEMs, including major
branded customers and contract manufacturers, and indirectly
through distributors. Selling expenses consist primarily of the
personnel costs for the members of our direct sales force, a
network of sales representatives and other costs of
distribution. Personnel costs include base salary, benefits and
incentive compensation. As incentive compensation is tied to
various net sales goals, it will increase or decrease with net
sales.
General and Administrative
Expenses. General and administrative expenses
consist of the costs of various corporate operations, including
finance, legal, human resources and other administrative
functions. These expenses primarily consist of payroll-related
expenses, consulting and other professional fees and office
facility-related expenses. Historically, our selling, general
and administrative expenses have remained relatively constant as
a percentage of net sales, and we expect this trend to continue
in the future.
Research and Development. The rapid
technological change and product obsolescence that characterize
our industry require us to make continuous investments in
research and development. Product development time frames vary
but, in general, we incur research and development costs one to
two years before generating sales from the associated new
products. These expenses include personnel costs for members of
our engineering workforce, cost of photomasks, silicon wafers
and other non-recurring engineering charges related to product
design. Additionally, we develop base-line process technology
through experimentation and through the design and use of
characterization wafers that help achieve commercially feasible
yields for new products. The majority of research and
development expenses are for process development that serves as
a common technology platform for all of our product segments.
Consequently, we do not allocate these expenses to individual
segments. Although our research and development expenses
declined significantly from 2008 to 2009, we expect such
expenses to increase in 2010 and future periods and to remain a
relatively constant percentage of our net sales as we continue
to increase our investments in research and development to
develop additional products and expand our business.
Restructuring and Impairment
Charges. We evaluate the recoverability of
certain long-lived assets on a periodic basis or whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable. In our efforts to improve our overall
profitability in future periods, we have closed or otherwise
impaired, and may in the future close or impair, facilities that
are underutilized and that are no longer aligned with our
long-term business goals. For example, in 2007 we closed our
five-inch fabrication facilities in Gumi, Korea and in 2008 we
discontinued our Imaging Solutions business segment.
Interest Expense, Net. Our interest
expense 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. However, as a result
of our senior notes offering, our quarterly interest expense
will increase above that which was reported for the two-month
period ended December 31, 2009 and the three months ended
March 31, 2010 to approximately $6.8 million per
quarter.
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
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costs of sales have been denominated in
non-U.S. currencies,
principally the Korean won, and we expect that this will remain
true in the future. Because we report our results of operations
in U.S. dollars, changes in the exchange rate between the
Korean won and the U.S. dollar could materially impact our
reported results of operations and distort period to period
comparisons. In particular, because of the difference in the
amount of our consolidated revenues and expenses that are in
U.S. dollars relative to Korean won, depreciation in the
U.S. dollar relative to the Korean won could result in a
material increase in reported costs relative to revenues, and
therefore could cause our profit margins and operating income
(loss) from continuing operations to appear to decline
materially, particularly relative to prior periods. The converse
is true if the U.S. dollar were to appreciate relative to
the Korean won. As a result of such foreign currency
fluctuations, it could be more difficult to detect underlying
trends in our business and results of operations. In addition,
to the extent that fluctuations in currency exchange rates cause
our results of operations to differ from our expectations or the
expectations of our investors, the trading price of our stock
following the completion of the MagnaChip Corporation IPO 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-month period ended December 31, 2009
and for the three months ended March 31, 2010:
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Period
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Rate
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Year ended December 31, 2007
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929:1
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Year ended December 31, 2008
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1,099:1
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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 2009
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1,172:1
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December 2009
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1,165:1
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Three months ended March 29, 2009
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1,417:1
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Three months ended March 31, 2010
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January 2010
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1,139:1
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February 2010
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1,157:1
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March 2010
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1,138:1
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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
contrast, as a result of the appreciation of the Korean won
against the U.S. dollar from the three months ended
March 29, 2009 to the three months ended March 31,
2010, foreign currency fluctuations had an unfavorable impact on
our reported profit margins and operating income (loss) from
continuing operations for the current year period. 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
and
quarter-to-quarter
change in the Korean won/U.S. dollar exchange rate. The
information, which is described below as the impact of the
depreciation or appreciation of the Korean won against the
U.S. dollar, measures the impact in the change in
applicable cumulative average exchange rate for the most recent
period discussed as compared to the applicable cumulative
average exchange rate during the prior period. For net sales
that were originally denominated in Korean won, we have compared
the applicable cumulative average exchange rate in effect for
the prior period against the applicable cumulative average
exchange rate for the period in which the sale took place on a
transaction-by-transaction
basis. For cost of sales and other expenses, we have compared
the applicable cumulative average exchange rate during the prior
75
period to the applicable cumulative average exchange rate during
the current period and applied that to the amount of our
aggregate cost of sales and other expenses for the period that
were originally denominated in Korean won. 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 for every transaction on a
day-to-day
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 and May 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. The January 2010 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. The
May 2010 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 the months of January 2011 through June
2011 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 $30 million at the end of
a fiscal quarter. For further information regarding the
derivative financial instruments, see notes 7 and 19 to our
unaudited interim consolidated financial statements for the
three months ended March 31, 2010 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.
76
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.
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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|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
Successor
|
|
|
|
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|
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|
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Company
|
|
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|
Predecessor Company
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
March 31,
|
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|
December 31,
|
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|
|
October 25,
|
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|
March 29,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
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|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
|
(In millions)
|
|
Consolidated statements of operations data:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
179.5
|
|
|
|
100.0
|
%
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
101.5
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
Cost of sales
|
|
|
130.1
|
|
|
|
72.5
|
|
|
|
90.4
|
|
|
|
81.4
|
|
|
|
|
311.1
|
|
|
|
69.3
|
|
|
|
80.6
|
|
|
|
79.4
|
|
|
|
445.3
|
|
|
|
74.0
|
|
|
|
578.9
|
|
|
|
81.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49.4
|
|
|
|
27.5
|
|
|
|
20.7
|
|
|
|
18.6
|
|
|
|
|
137.8
|
|
|
|
30.7
|
|
|
|
20.9
|
|
|
|
20.6
|
|
|
|
156.4
|
|
|
|
26.0
|
|
|
|
130.7
|
|
|
|
18.4
|
|
Selling, general and administrative expenses
|
|
|
17.9
|
|
|
|
10.0
|
|
|
|
14.5
|
|
|
|
13.1
|
|
|
|
|
56.3
|
|
|
|
12.5
|
|
|
|
15.3
|
|
|
|
15.1
|
|
|
|
81.3
|
|
|
|
13.5
|
|
|
|
82.7
|
|
|
|
11.7
|
|
Research and development expenses
|
|
|
20.5
|
|
|
|
11.4
|
|
|
|
14.7
|
|
|
|
13.3
|
|
|
|
|
56.1
|
|
|
|
12.5
|
|
|
|
17.0
|
|
|
|
16.7
|
|
|
|
89.5
|
|
|
|
14.9
|
|
|
|
90.8
|
|
|
|
12.8
|
|
Restructuring and impairment charges
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
13.4
|
|
|
|
2.2
|
|
|
|
12.1
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
10.6
|
|
|
|
5.9
|
|
|
|
(8.6
|
)
|
|
|
(7.7
|
)
|
|
|
|
25.0
|
|
|
|
5.6
|
|
|
|
(11.4
|
)
|
|
|
(11.3
|
)
|
|
|
(27.7
|
)
|
|
|
(4.6
|
)
|
|
|
(54.9
|
)
|
|
|
(7.7
|
)
|
Interest expense, net
|
|
|
(2.0
|
)
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)
|
|
|
(1.1
|
)
|
|
|
|
(31.2
|
)
|
|
|
(6.9
|
)
|
|
|
(14.7
|
)
|
|
|
(14.4
|
)
|
|
|
(76.1
|
)
|
|
|
(12.7
|
)
|
|
|
(60.3
|
)
|
|
|
(8.5
|
)
|
Foreign currency gain (loss), net
|
|
|
21.6
|
|
|
|
12.0
|
|
|
|
9.3
|
|
|
|
8.4
|
|
|
|
|
43.4
|
|
|
|
9.7
|
|
|
|
(40.2
|
)
|
|
|
(39.6
|
)
|
|
|
(210.4
|
)
|
|
|
(35.0
|
)
|
|
|
(4.7
|
)
|
|
|
(0.7
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804.6
|
|
|
|
179.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.5
|
|
|
|
10.9
|
|
|
|
8.1
|
|
|
|
7.3
|
|
|
|
|
816.8
|
|
|
|
181.9
|
|
|
|
(54.9
|
)
|
|
|
(54.1
|
)
|
|
|
(286.5
|
)
|
|
|
(47.6
|
)
|
|
|
(65.0
|
)
|
|
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) continuing operations before income taxes
|
|
|
30.1
|
|
|
|
16.8
|
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
|
841.8
|
|
|
|
187.5
|
|
|
|
(66.3
|
)
|
|
|
(65.3
|
)
|
|
|
(314.3
|
)
|
|
|
(52.2
|
)
|
|
|
(120.0
|
)
|
|
|
(16.9
|
)
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
(0.6
|
)
|
|
|
1.9
|
|
|
|
1.8
|
|
|
|
|
7.3
|
|
|
|
1.6
|
|
|
|
2.6
|
|
|
|
2.6
|
|
|
|
11.6
|
|
|
|
1.9
|
|
|
|
8.8
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31.1
|
|
|
|
17.3
|
|
|
|
(2.5
|
)
|
|
|
(2.2
|
)
|
|
|
|
834.5
|
|
|
|
185.9
|
|
|
|
(68.9
|
)
|
|
|
(67.9
|
)
|
|
|
(325.8
|
)
|
|
|
(54.2
|
)
|
|
|
(128.8
|
)
|
|
|
(18.2
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
6.6
|
|
|
|
1.5
|
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(91.5
|
)
|
|
|
(15.2
|
)
|
|
|
(51.7
|
)
|
|
|
(7.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
|
17.3
|
%
|
|
$
|
(2.0
|
)
|
|
|
(1.8
|
)%
|
|
|
$
|
841.1
|
|
|
|
187.3
|
%
|
|
$
|
(69.7
|
)
|
|
|
(68.7
|
)%
|
|
$
|
(417.3
|
)
|
|
|
(69.4
|
)%
|
|
$
|
(180.6
|
)
|
|
|
(25.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Ended
|
|
|
Years Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
March 29,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
|
|
Net
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
Amount
|
|
|
Sales
|
|
|
|
(In millions)
|
|
Display Solutions
|
|
$
|
76.7
|
|
|
|
42.8
|
%
|
|
$
|
51.0
|
|
|
|
46.0
|
%
|
|
|
$
|
231.9
|
|
|
|
51.6
|
%
|
|
$
|
59.6
|
|
|
|
58.8
|
%
|
|
$
|
304.1
|
|
|
|
50.5
|
%
|
|
$
|
331.7
|
|
|
|
46.7
|
%
|
Power Solutions
|
|
|
9.0
|
|
|
|
5.0
|
|
|
|
4.7
|
|
|
|
4.3
|
|
|
|
|
7.6
|
|
|
|
1.7
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
5.4
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Semiconductor Manufacturing Services
|
|
|
93.2
|
|
|
|
51.9
|
|
|
|
54.8
|
|
|
|
49.3
|
|
|
|
|
206.7
|
|
|
|
46.0
|
|
|
|
40.1
|
|
|
|
39.6
|
|
|
|
287.1
|
|
|
|
47.7
|
|
|
|
321.0
|
|
|
|
45.2
|
|
All other
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
2.8
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
5.0
|
|
|
|
0.8
|
|
|
|
56.8
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179.5
|
|
|
|
100.0
|
%
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
101.5
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of
Operations Comparison of Three Months Ended
March 31, 2010 and March 29, 2009
The following table sets forth consolidated results of
operations for the three months ended March 31, 2010 and
March 29, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Three Months
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Net sales
|
|
$
|
179.5
|
|
|
|
100.0
|
%
|
|
|
$
|
101.5
|
|
|
|
100.0
|
%
|
|
$
|
78.0
|
|
Cost of sales
|
|
|
130.1
|
|
|
|
72.5
|
|
|
|
|
80.6
|
|
|
|
79.4
|
|
|
|
49.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49.4
|
|
|
|
27.5
|
|
|
|
|
20.9
|
|
|
|
20.6
|
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
17.9
|
|
|
|
10.0
|
|
|
|
|
15.3
|
|
|
|
15.1
|
|
|
|
2.6
|
|
Research and development expenses
|
|
|
20.5
|
|
|
|
11.4
|
|
|
|
|
17.0
|
|
|
|
16.7
|
|
|
|
3.5
|
|
Restructuring and impairment charges
|
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
10.6
|
|
|
|
5.9
|
|
|
|
|
(11.4
|
)
|
|
|
(11.3
|
)
|
|
|
22.0
|
|
Interest expense, net
|
|
|
(2.0
|
)
|
|
|
(1.1
|
)
|
|
|
|
(14.7
|
)
|
|
|
(14.4
|
)
|
|
|
12.6
|
|
Foreign currency gain (loss), net
|
|
|
21.6
|
|
|
|
12.0
|
|
|
|
|
(40.2
|
)
|
|
|
(39.6
|
)
|
|
|
61.8
|
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.5
|
|
|
|
10.9
|
|
|
|
|
(54.9
|
)
|
|
|
(54.1
|
)
|
|
|
74.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) continuing operations before income taxes
|
|
|
30.1
|
|
|
|
16.8
|
|
|
|
|
(66.3
|
)
|
|
|
(65.3
|
)
|
|
|
96.4
|
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
(0.6
|
)
|
|
|
|
2.6
|
|
|
|
2.6
|
|
|
|
(3.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31.1
|
|
|
|
17.3
|
|
|
|
|
(68.9
|
)
|
|
|
(67.9
|
)
|
|
|
100.0
|
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
|
17.3
|
%
|
|
|
$
|
(69.7
|
)
|
|
|
(68.7
|
)%
|
|
$
|
100.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Three Months
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Display Solutions
|
|
$
|
76.7
|
|
|
|
42.8
|
%
|
|
|
$
|
59.6
|
|
|
|
58.8
|
%
|
|
$
|
17.1
|
|
Power Solutions
|
|
|
9.0
|
|
|
|
5.0
|
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
8.1
|
|
Semiconductor Manufacturing Services
|
|
|
93.2
|
|
|
|
51.9
|
|
|
|
|
40.1
|
|
|
|
39.6
|
|
|
|
53.1
|
|
All other
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179.5
|
|
|
|
100.0
|
%
|
|
|
$
|
101.5
|
|
|
|
100.0
|
%
|
|
$
|
78.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales were $179.5 million for the three months ended
March 31, 2010, a $78.0 million, or 76.9%, increase,
compared to $101.5 million for the three months ended
March 29, 2009. This increase was primarily due to
increases in our product sales volume and a $8.1 million
favorable impact resulting from the appreciation of the Korean
won against the U.S. dollar, which were partially offset by
a decrease in average selling prices.
Display Solutions. Net sales from our
Display Solutions segment were $76.7 million for the three
months ended March 31, 2010, a $17.1 million, or
28.7%, increase from $59.6 million for the three months
ended March 31, 2009. The increase was primarily due to a
65.6% increase in sales volume. Sales volume increased as the
consumer electronics industry began to recover from the economic
slowdown and demand and shipments for consumer electronics
products such as digital televisions, PCs and smart phones
increased. This increase was partially offset by a 24.7%
decrease in average selling prices, which was primarily from
display driver products for LCD televisions, PC monitors and
mobile devices.
Power Solutions. Net sales from our
Power Solutions segment were $9.0 million for the three
months ended March 31, 2010, a $8.1 million, or
868.3%, increase from $0.9 million for the three months
ended March 29, 2009. The increase was primarily due to a
416.8% increase in sales volume and a 87.5% increase in average
selling prices driven by higher demand for MOSFET products from
existing and new customers as we grew this business.
Semiconductor Manufacturing
Services. Net sales from our Semiconductor
Manufacturing Services segment were $93.2 million for the
three months ended March 31, 2010, a $53.1 million, or
132.2%, increase compared to net sales of $40.1 million for
the three months ended March 31, 2009. This increase was
primarily due to a 145.0% increase in sales volume driven by an
increased market demand for eight-inch equivalent wafers, which
was partially offset by a 3.1% decrease in average selling
prices.
All Other. Net sales from All other
were $0.5 million for the three months ended March 31,
2010, $0.2 million or 32.4% decrease compared to
$0.8 million for the three months ended March 29,
2009. This decrease was resulted from lower rental income due to
the relocation of one lessee of our building.
79
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 three months ended March 31, 2010
and March 29, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Three Months
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Korea
|
|
$
|
97.7
|
|
|
|
54.4
|
%
|
|
|
$
|
59.7
|
|
|
|
58.8
|
%
|
|
$
|
38.0
|
|
Asia Pacific
|
|
|
48.5
|
|
|
|
27.0
|
|
|
|
|
21.8
|
|
|
|
21.4
|
|
|
|
26.7
|
|
Japan
|
|
|
10.2
|
|
|
|
5.7
|
|
|
|
|
7.5
|
|
|
|
7.4
|
|
|
|
2.7
|
|
North America
|
|
|
20.4
|
|
|
|
11.4
|
|
|
|
|
8.6
|
|
|
|
8.5
|
|
|
|
11.8
|
|
Europe
|
|
|
2.8
|
|
|
|
1.5
|
|
|
|
|
3.9
|
|
|
|
3.8
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
179.5
|
|
|
|
100.0
|
%
|
|
|
$
|
101.5
|
|
|
|
100.0
|
%
|
|
$
|
78.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales in Korea for the three months ended March 31,
2010 increased as a percentage of total net sales, primarily due
to the overall business recovery in the market and increased
demand for Display Solutions products and Semiconductor
Manufacturing Services. Net sales in Asia Pacific and North
America for the three months ended March 31, 2010 increased
as a percentage of total net sales, primarily due to the overall
business recovery in the market and increased demand for
Semiconductor Manufacturing Services.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Three Months
|
|
|
|
Three Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Display Solutions
|
|
$
|
14.4
|
|
|
|
18.8
|
%
|
|
|
$
|
13.7
|
|
|
|
22.9
|
%
|
|
$
|
0.8
|
|
Power Solutions
|
|
|
1.6
|
|
|
|
17.3
|
|
|
|
|
0.3
|
|
|
|
29.9
|
|
|
|
1.3
|
|
Semiconductor Manufacturing Services
|
|
|
32.8
|
|
|
|
35.2
|
|
|
|
|
6.2
|
|
|
|
15.4
|
|
|
|
26.7
|
|
All other
|
|
|
0.5
|
|
|
|
100.0
|
|
|
|
|
0.8
|
|
|
|
100.0
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49.4
|
|
|
|
27.5
|
%
|
|
|
$
|
20.9
|
|
|
|
20.6
|
%
|
|
$
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit was $49.4 million for the three months
ended March 31, 2010 as compared to $20.9 million for
the three months ended March 29, 2009, a
$28.5 million, or 136.2%, increase. Gross profit as a
percentage of net sales for the three months ended
March 31, 2010 was 27.5%, an increase of 6.9% from 20.6%
for the three months ended March 29, 2009. This increase in
gross margin was primarily attributable to increased sales
volume, partially offset by lower average selling
80
prices and a $8.0 million unfavorable impact resulting from
the appreciation of the Korean won against the U.S. dollar
as an unfavorable impact on cost of sales was in excess of a
favorable impact on net sales. Gross margin during the three
months ended March 31, 2010 was adversely affected by a
$0.9 million increase in cost of sales associated with the
step up of our inventory resulting from implementation of
fresh-start accounting in 2009; higher costs associated with the
sale of inventory which was manufactured in late 2009 at higher
unit costs; and higher volume of sales of products with lower
average sales prices due to a slower than expected transition
from one of our legacy products to our latest generation of the
product. Cost of sales for the three months ended March 31,
2010 increased by $49.6 million compared to the three
months ended March 29, 2009. The increase in cost of sales
was primarily due to a $16.0 million unfavorable impact
resulting from the appreciation of the Korean won against the
U.S. dollar, a $12.0 million increase in material
costs, a $8.2 million increase in labor costs and a
$6.0 million increase in subcontractor costs due to the
increased sales volume.
Display Solutions. Gross profit for our
Display Solutions segment for the three months ended
March 31, 2010 decreased to 18.8% compared to 22.9% for the
three months ended March 29, 2009 primarily due to a 24.7%
decrease in average selling prices. Cost of sales for the three
months ended March 31, 2010 increased by $16.4 million
compared to the three months ended March 29, 2009,
primarily due to a $6.4 million unfavorable impact
resulting from the appreciation of the Korean won against the
U.S. dollar, a $3.6 million increase in subcontractor
costs resulting from the increased sales volume and a
$3.4 million increase in material costs resulting from the
increased sales volume and the reinstatement of our salary
levels from our company-wide voluntary salary reductions that
were in effect in the first half of 2009.
Power Solutions. Gross margin for our
Power Solutions segment for the three months ended
March 31, 2010 decreased to 17.3% compared to 29.9% for the
three months ended March 29, 2009. Cost of sales for the
three months ended March 31, 2010 increased by
$6.8 million compared to the three months ended
March 29, 2009, primarily due to a $1.6 million
increase in material costs, a $2.2 million increase in
subcontractor costs and a $0.6 million unfavorable impact
resulting from the appreciation of the Korean won against the
U.S. dollar.
Semiconductor Manufacturing
Services. Gross margin for our Semiconductor
Manufacturing Services segment improved to 35.2% in the three
months ended March 31, 2010 from 15.4% in the three months
ended March 29, 2009. This increase was primarily due to a
decrease in unit cost of sales resulting from a 145% increase in
sales volume. Cost of sales for the three months ended
March 31, 2010 increased by $26.4 million compared to
the three months ended March 29, 2009, which was primarily
attributable to a $9.0 million unfavorable impact resulting
from the appreciation of the Korean won against the
U.S. dollar, a $7.0 million increase in material costs
and a $5.6 million increase in labor costs resulting from
the increased sales volume and the reinstatement of our salary
level from our company-wide voluntary salary reductions that
were in effect in the first half of 2009.
All Other. Gross margin for All other
remained the same as there is no cost of sales in either period.
Operating
Expenses
Selling, General and Administrative
Expenses. Selling, general, and
administrative expenses were $17.9 million, or 10.0% of net
sales for the three months ended March 31, 2010, compared
to $15.3 million, or 15.1% of net sales for the three
months ended March 29, 2009. The increase of
$2.6 million, or 17.2%, was primarily attributable to a
$2.3 million unfavorable impact resulting from the
appreciation of the Korean won against the U.S. dollar, a
$2.0 million increase in salaries resulting from the
reinstatement of our salary levels from our company-wide
voluntary salary reductions that were in effect in the first
half of 2009, and a $1.6 million increase in amortization
expenses due to the
write-up of
our intangible assets in accordance with fresh-start accounting.
These increases were partially offset by a $2.9 million
decrease in outside service expenses, primarily due to a
decrease in restructuring-related professional fees and related
expenses.
81
Research and Development
Expenses. Research and development expenses
for the three months ended March 31, 2010 were
$20.5 million, an increase of $3.5 million, or 20.9%,
from $17.0 million for the three months ended
March 29, 2009. This increase was due to a
$3.2 million unfavorable impact resulting from the
appreciation of the Korean won against the U.S. dollar, a
$1.0 million increase in material costs, a
$0.9 million increase in salaries and related expenses
resulting from the reinstatement of our salary levels from our
company-wide voluntary salary reductions that were in effect in
the first half of 2009, and a $1.4 million increase in
amortization expenses due to the
write-up of
our intangible assets in accordance with fresh-start accounting.
These increases were partially offset by a $3.0 million
decrease in costs transferred from manufacturing to research and
development expenses due to improved facilities utilization
resulting from our higher net sales. Research and development
expenses as a percentage of net sales were 11.4% in the three
months ended March 31, 2010, compared to 16.7% in the three
months ended March 29, 2009.
Restructuring and Impairment
Charges. Restructuring and impairment charges
increased by $0.3 million in the three months ended
March 31, 2010 compared to the three months ended
March 29, 2009. Impairment charges of $0.3 million
recorded in the three months ended March 31, 2010 were
related to impairment of two abandoned in-process research and
development projects, accounted for as indefinite-lived
intangible assets as part of the application of fresh-start
accounting. Restructuring charges of $0.1 million recorded
in the three months ended March 29, 2009 were related to
the closure of our research and development facilities in Japan.
Other Income
(Expense)
Interest Expense, Net. Net interest
expense was $2.0 million during the three months ended
March 31, 2010, a decrease of $12.6 million compared
to $14.7 million for the three months ended March 29,
2009. Interest expense for the three months ended March 31,
2010 was incurred under our $61.6 million principal amount
new term loan. Interest expense for the three months ended
March 29, 2009 was incurred under our $750.0 million
principal amount of notes and $95.0 million senior secured
credit facility, of which $33.3 million was repaid in cash
and $61.8 million was refinanced with the new term loan on
November 6, 2009. Upon our emergence from our
reorganization proceedings, our $750.0 million notes were
discharged pursuant to the reorganization plan.
Foreign Currency Gain (Loss), Net. Net
foreign currency gain for the three months ended March 31,
2010 was $21.6 million, compared to net foreign currency
loss of $40.2 million for the three months ended
March 29, 2009. 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 1,130.8:1 and
1,343.7:1 using the first base rate as of March 31, 2010
and March 29, 2009, respectively, as quoted by the Korea
Exchange Bank.
Income Tax Expenses. Income tax benefit
for the three months ended March 31, 2010 was
$1.0 million, compared to income tax expenses of
$2.6 million for the three months ended March 29,
2009. Income tax benefit for the three months ended
March 31, 2010 was comprised of $1.6 million reversal
of liabilities for uncertain tax positions due to the lapse of
the applicable statute of limitations and $0.4 million of
current income tax benefit, net incurred in various
jurisdictions in which our overseas subsidiaries are located
less $0.7 million of withholding taxes mostly paid on
intercompany interest payments and a $0.3 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.
82
Income from
Discontinued Operations, Net of Taxes
Income from Discontinued Operations, Net of
Taxes. During 2008, we closed our Imaging
Solutions business segment. During the three months ended
December 31, 2009, we recognized net loss of
$0.8 million relating to our discontinued operations.
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 (benefits)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
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 $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
$17.6 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
84
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.
Net Sales by
Geographic Region
The following table sets forth our net sales by geographic
region and the percentage of total net sales represented by each
geographic region for the two-month period ended
December 31, 2009, the ten-month period ended
October 25, 2009 and the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Two-Month
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
|
Amount
|
|
|
Net Sales
|
|
|
Amount
|
|
|
Net Sales
|
|
|
Amount
|
|
|
|
(In millions)
|
|
Korea
|
|
$
|
62.2
|
|
|
|
56.0
|
%
|
|
|
$
|
244.3
|
|
|
|
54.4
|
%
|
|
$
|
301.0
|
|
|
|
50.0
|
%
|
|
$
|
5.5
|
|
Asia Pacific
|
|
|
25.6
|
|
|
|
23.0
|
|
|
|
|
116.9
|
|
|
|
26.0
|
|
|
|
144.5
|
|
|
|
24.0
|
|
|
|
(2.0
|
)
|
Japan
|
|
|
6.5
|
|
|
|
5.8
|
|
|
|
|
31.6
|
|
|
|
7.0
|
|
|
|
79.9
|
|
|
|
13.3
|
|
|
|
(41.8
|
)
|
North America
|
|
|
14.9
|
|
|
|
13.4
|
|
|
|
|
48.5
|
|
|
|
10.8
|
|
|
|
61.3
|
|
|
|
10.2
|
|
|
|
2.0
|
|
Europe
|
|
|
1.9
|
|
|
|
1.7
|
|
|
|
|
7.7
|
|
|
|
1.7
|
|
|
|
14.9
|
|
|
|
2.5
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111.1
|
|
|
|
100.0
|
%
|
|
|
$
|
449.0
|
|
|
|
100.0
|
%
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
(41.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales in Japan in 2009 declined as a percentage of total net
sales principally as a result of declines in customer sales
relating to electronic games due to the overall slowness in that
market.
85
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 $22.8 million favorable
impact resulting from the depreciation of the Korean won against
the U.S. dollar and an increase in sales volume. These
increases were partially offset by lower average selling prices
and the impact of a $17.2 million increase in our cost of
sales as a result of the
write-up of
our inventory in accordance with the principles of fresh-start
accounting upon the consummation of our reorganization
proceedings. 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 $40.4 million favorable impact resulting from the
depreciation of the Korean won against the U.S. dollar, a
$10.2 million decrease in labor costs, a $9.6 million
decrease in subcontractor costs and a $3.2 million decrease
in depreciation, which were partially offset by a
$6.4 million increase in material costs resulting from the
increase in sales volume and a $1.8 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 $17.8 million favorable impact
resulting from the depreciation of the Korean won against the
U.S. dollar, a $7.1 million decrease in labor costs, a
$8.2 million decrease in subcontractor costs and a
$3.8 million decrease in depreciation, which were partially
offset by a $3.8 million increase in material costs due to
increased sales volume and a $7.2 million increase
resulting from the
step-up of
our inventory valuation as a result of our adoption of
fresh-start accounting.
86
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 $2.3 million increase in
material costs and a $1.1 million increase in overhead
costs, which were partially offset by a $0.7 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
$29.5 million, partially offset by a $13.6 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 $21.9 million favorable impact resulting
from the depreciation of the Korean won against the
U.S. dollar, which was offset in part by a
$0.4 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, 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
$7.2 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 $6.1 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
$8.5 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 $4.8 million and outside
service fees decreased by $2.6 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.
87
Other Income
(Expense)
Interest Expense, Net. Net interest
expense was $32.4 million during the combined twelve-month
period ended December 31, 2009, a decrease of
$43.7 million compared to $76.1 million for the year
ended December 31, 2008. Interest expense was incurred
under our $750 million principal amount of notes and our
senior secured credit facility. From June 12, 2009, the
date of our initial reorganization filing, to October 25,
2009, we did not accrue interest expenses related to our notes,
which were categorized as liabilities subject to compromise.
Upon our emergence from our reorganization proceedings, our
$750.0 million notes were discharged pursuant to the
reorganization plan. Net interest expense in 2008 included a
write-off of remaining debt issuance costs of $12.3 million
related to our notes since we were not compliant with certain
financial covenants under the terms of our notes and therefore,
amounts outstanding were reclassified as current portion of
long-term debt in our balance sheet as of December 31, 2008.
Foreign Currency Gain (Loss), Net. Net
foreign currency gain for the combined twelve-month period ended
December 31, 2009 was $52.8 million, compared to net
foreign exchange loss of $210.4 million for the year ended
December 31, 2008. A substantial portion of our net foreign
currency gain or loss is non-cash translation gain or loss
recorded for intercompany borrowings at our Korean subsidiary
and is affected by changes in the exchange rate between the
Korean won and the U.S. dollar. Foreign currency
translation gain from the intercompany borrowings was included
in determining our consolidated net income since the
intercompany borrowings were not considered long-term
investments in nature because management intended to repay these
intercompany borrowings at their respective maturity dates. The
Korean won to U.S. dollar exchange rates were 1,167.6:1 and
1,262.0:1 using the first base rate as of December 31, 2009
as quoted by the Korea Exchange Bank and the noon buying rate in
effect as of December 31, 2008 as quoted by the Federal
Reserve Bank of New York, respectively. The exchange rate
quotation from the Federal Reserve Bank was available on or
before December 31, 2008.
Reorganization items, Net. Net
reorganization gain of $804.6 million in the ten-month
period ended October 25, 2009 represents the impact of
non-cash reorganization income and expense items directly
associated with our reorganization proceedings and primarily
reflects the discharge of liabilities of $798.0 million.
Net reorganization gain also includes professional fees, the
revaluation of assets and the write-off of debt issuance costs.
These items are related primarily to our reorganization
proceedings, and are not the result of our current operations.
Accordingly, we do not expect these items to continue on an
ongoing basis. Further information on reorganization related
items is discussed in note 5 to the consolidated financial
statements of MagnaChip Semiconductor LLC for the ten-month
period ended October 25, 2009 and the two-month period
ended December 31, 2009 included elsewhere in this
prospectus.
Income Tax
Expenses
Income Tax Expenses. Income tax
expenses for the combined twelve-month period ended
December 31, 2009 were $9.2 million, compared to
income tax expenses of $11.6 million for the year ended
December 31, 2008. Income tax expense for 2009 was
comprised of $6.7 million of withholding taxes mostly paid
on intercompany interest payments, $0.8 million of current
income taxes incurred in various jurisdictions in which we
operate and a $1.7 million income tax effect from the
change of 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.
88
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:
|
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|
|
|
|
|
|
|
|
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|
Predecessor Company
|
|
|
|
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|
Year Ended
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Year Ended
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|
December 31,
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|
December 31,
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|
|
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2008
|
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|
2007
|
|
|
|
|
|
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|
% of
|
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|
|
|
|
% 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
|
)
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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Gross profit
|
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|
156.4
|
|
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|
26.0
|
|
|
|
130.7
|
|
|
|
18.4
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|
25.8
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|
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|
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|
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|
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|
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Selling, general and administrative expenses
|
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|
81.3
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|
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|
13.5
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|
|
|
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
|
|
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|
2.2
|
|
|
|
12.1
|
|
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|
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
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income (loss) continuing operations before income taxes
|
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|
(314.3
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)
|
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|
(52.2
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)
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|
(120.0
|
)
|
|
|
(16.9
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)
|
|
|
(194.3
|
)
|
Income tax expenses
|
|
|
11.6
|
|
|
|
1.9
|
|
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|
8.8
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|
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|
1.2
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|
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|
2.8
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|
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|
|
|
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|
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|
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|
|
|
|
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|
|
|
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|
Income (loss) from continuing operations,
|
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|
(325.8
|
)
|
|
|
(54.2
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)
|
|
|
(128.8
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)
|
|
|
(18.2
|
)
|
|
|
(197.0
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
(91.5
|
)
|
|
|
(15.2
|
)
|
|
|
(51.7
|
)
|
|
|
(7.3
|
)
|
|
|
(39.7
|
)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income (loss)
|
|
$
|
(417.3
|
)
|
|
|
(69.4
|
)%
|
|
$
|
(180.6
|
)
|
|
|
(25.4
|
)%
|
|
$
|
(236.7
|
)
|
|
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Net
Sales
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|
Predecessor Company
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Year Ended
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|
Year Ended
|
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|
|
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|
December 31,
|
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|
December 31,
|
|
|
|
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|
2008
|
|
|
2007
|
|
|
|
|
|
|
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|
% of
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|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
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Total
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Amount
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Total
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|
Amount
|
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|
(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
|
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|
5.0
|
|
|
|
0.8
|
|
|
|
56.8
|
|
|
|
8.0
|
|
|
|
(51.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
601.7
|
|
|
|
100.0
|
%
|
|
$
|
709.5
|
|
|
|
100.0
|
%
|
|
$
|
(107.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
Net sales for the year ended December 31, 2008 decreased
$107.8 million, or 15.2%, compared to 2007. Net sales
generated in our three operating segments during the year ended
December 31, 2008 were $596.6 million, a decrease of
$56.1 million, or 8.6%, from the net sales for 2007,
primarily due to a $27.6 million, or 8.3%, decrease in net
sales from our Display Solutions segment and a
$33.9 million, or 10.6%, decrease in net sales from our
Semiconductor Manufacturing Services segment. Net sales from All
other decreased $51.8 million, or 91.2%, compared to the
year ended December 31, 2007. Our Korean-based net sales
were also lower due to a $21.8 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor Company
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Change
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
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.
90
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 $30.9 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 $52.7 million favorable impact
resulting from the depreciation of Korean won against
U.S. dollar, a $17.4 million decrease in depreciation
and a $11.2 million decrease in overhead costs, which were
partially offset by a $6.3 million increase in labor 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 $18.3 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 $24.8 million favorable impact resulting
from the depreciation of Korean won against U.S. dollar and
a $5.5 million decrease in depreciation and a
$9.6 million decrease in subcontractor costs which were
offset in part by a $5.7 million increase in labor 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
$13.0 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
$26.9 million favorable impact resulting from the
depreciation of Korean won against U.S. dollar, a
$12.3 million decrease in depreciation and a
$11.6 million decrease in overhead costs, which were
partially offset by a $1.3 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.
91
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
$10.4 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
$9.9 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 $11.3 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 and a $1.9 million increase in outside
service fees.
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 payments, $4.0 million of current
income taxes incurred in various jurisdictions in which we
operate
92
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.
Periodic Results
of Operations
The following tables set forth unaudited selected consolidated
financial data for each of the quarters in the five-quarter
period ended March 31, 2010. The information for each of
these periods has been prepared on the same basis as the audited
financial statements included elsewhere in this prospectus and,
in the opinion of management, includes adjustments for normal
recurring items, necessary for the fair statement of the results
of operations for these periods. This data should be read in
conjunction with our audited consolidated financial statements
and related notes included elsewhere in this prospectus. These
operating results are not necessarily indicative of our
operating results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor(1)
|
|
|
|
Predecessor(1)
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
One-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
September 27,
|
|
|
June 28,
|
|
|
March 29,
|
|
|
|
2010*
|
|
|
2009**
|
|
|
|
2009*
|
|
|
2009*
|
|
|
2009*
|
|
|
2009*
|
|
|
|
(In millions)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
179.5
|
|
|
$
|
111.1
|
|
|
|
$
|
51.2
|
|
|
$
|
156.6
|
|
|
$
|
139.7
|
|
|
$
|
101.5
|
|
Cost of sales
|
|
|
130.1
|
|
|
|
90.4
|
|
|
|
|
34.8
|
|
|
|
104.5
|
|
|
|
91.4
|
|
|
|
80.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49.4
|
|
|
|
20.7
|
|
|
|
|
16.5
|
|
|
|
52.2
|
|
|
|
48.3
|
|
|
|
20.9
|
|
Selling, general and administrative expenses
|
|
|
17.9
|
|
|
|
14.5
|
|
|
|
|
5.5
|
|
|
|
17.2
|
|
|
|
18.4
|
|
|
|
15.3
|
|
Research and development expenses
|
|
|
20.5
|
|
|
|
14.7
|
|
|
|
|
5.2
|
|
|
|
17.7
|
|
|
|
16.2
|
|
|
|
17.0
|
|
Restructuring and impairment charges
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
10.6
|
|
|
|
(8.6
|
)
|
|
|
|
5.8
|
|
|
|
17.3
|
|
|
|
13.4
|
|
|
|
(11.4
|
)
|
Interest expense, net
|
|
|
(2.0
|
)
|
|
|
(1.3
|
)
|
|
|
|
(1.0
|
)
|
|
|
(2.6
|
)
|
|
|
(12.8
|
)
|
|
|
(14.7
|
)
|
Foreign currency gain (loss), net
|
|
|
21.6
|
|
|
|
9.3
|
|
|
|
|
7.4
|
|
|
|
45.4
|
|
|
|
30.8
|
|
|
|
(40.2
|
)
|
Reorganization items, net
|
|
|
|
|
|
|
|
|
|
|
|
809.0
|
|
|
|
(4.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
Others
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.5
|
|
|
|
8.1
|
|
|
|
|
815.4
|
|
|
|
38.7
|
|
|
|
17.6
|
|
|
|
(54.9
|
)
|
Income (loss) from continuing operations before income taxes
|
|
|
30.1
|
|
|
|
(0.5
|
)
|
|
|
|
821.2
|
|
|
|
56.0
|
|
|
|
31.0
|
|
|
|
(66.3
|
)
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
1.9
|
|
|
|
|
(0.1
|
)
|
|
|
2.4
|
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
821.3
|
|
|
|
53.5
|
|
|
|
28.6
|
|
|
|
(68.9
|
)
|
Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
(0.6
|
)
|
|
|
8.9
|
|
|
|
(1.0
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
820.7
|
|
|
$
|
62.4
|
|
|
$
|
27.6
|
|
|
$
|
(69.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA(2)
|
|
$
|
28.7
|
|
|
$
|
22.1
|
|
|
|
$
|
10.6
|
|
|
$
|
34.5
|
|
|
$
|
29.3
|
|
|
$
|
2.3
|
|
Adjusted Net Income (Loss)(3)
|
|
|
19.9
|
|
|
|
13.3
|
|
|
|
|
6.9
|
|
|
|
20.4
|
|
|
|
5.0
|
|
|
|
(22.9
|
)
|
|
|
|
* |
|
Derived from our unaudited interim consolidated financial
statements. |
93
|
|
|
** |
|
Derived from our audited consolidated financial statements. |
|
(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) |
|
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 (benefits),
(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. A reconciliation of net income (loss)
to Adjusted EBITDA is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
One-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
September 27,
|
|
|
June 28,
|
|
|
March 29
|
|
|
|
2010
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In millions)
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
820.7
|
|
|
$
|
62.4
|
|
|
$
|
27.6
|
|
|
$
|
(69.7
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
(0.6
|
)
|
|
|
8.9
|
|
|
|
(1.0
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
821.3
|
|
|
|
53.5
|
|
|
|
28.6
|
|
|
|
(68.9
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization associated with continuing
operations
|
|
|
15.5
|
|
|
|
11.2
|
|
|
|
|
3.6
|
|
|
|
11.9
|
|
|
|
11.7
|
|
|
|
10.4
|
|
Interest expense, net
|
|
|
2.0
|
|
|
|
1.3
|
|
|
|
|
1.0
|
|
|
|
2.6
|
|
|
|
12.8
|
|
|
|
14.7
|
|
Income tax expenses (benefits)
|
|
|
(1.0
|
)
|
|
|
1.9
|
|
|
|
|
(0.1
|
)
|
|
|
2.4
|
|
|
|
2.4
|
|
|
|
2.6
|
|
Restructuring and impairment charges(a)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
5.3
|
|
|
|
3.7
|
|
|
|
3.1
|
|
Reorganization items, net(c)
|
|
|
|
|
|
|
|
|
|
|
|
(809.0
|
)
|
|
|
4.1
|
|
|
|
0.3
|
|
|
|
|
|
Inventory
step-up(d)
|
|
|
0.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(e)
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Foreign currency loss (gain), net(f)
|
|
|
(21.6
|
)
|
|
|
(9.3
|
)
|
|
|
|
(7.4
|
)
|
|
|
(45.4
|
)
|
|
|
(30.8
|
)
|
|
|
40.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
28.7
|
|
|
$
|
22.1
|
|
|
|
$
|
10.6
|
|
|
$
|
34.5
|
|
|
$
|
29.3
|
|
|
$
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
the three months ended March 31, 2010, impairment of two
abandoned in-process research and development projects,
accounted for as indefinite-lived intangible assets as part of
the application of fresh-start accounting and (ii) for the
three months ended June 28 and March 29, 2009, termination
|
94
|
|
|
|
|
benefits and other related costs in connection with the closure
of one of our research and development facilities in Japan.
|
|
|
|
|
(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 restructuring-related professional fees and related
expenses incurred during each period.
|
|
|
(c)
|
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. These items are comprised of the following:
(i) for the one-month period ended October 25, 2009,
our predecessors gain recognized upon the effectiveness of
the reorganization plan which was primarily composed of debt
discharge gains and net of reorganization related professional
fees and other charges, and (ii) for three months ended
September 27 and June 28, 2009, professional fees incurred
in connection with our reorganization proceedings.
|
|
|
(d)
|
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.
|
|
|
(e)
|
This adjustment eliminates the impact of non-cash equity-based
compensation expenses.
|
|
|
(f)
|
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.
|
95
|
|
|
(3) |
|
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). The following table summarizes the adjustments to net
income (loss) that we make in order to calculate Adjusted Net
Income for the periods indicated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
Two-Month
|
|
|
|
One-Month
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Period Ended
|
|
|
|
Period Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
September 27,
|
|
|
June 28,
|
|
|
March 29
|
|
|
|
2010
|
|
|
2009
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In millions)
|
|
Net income (loss)
|
|
$
|
31.1
|
|
|
$
|
(2.0
|
)
|
|
|
$
|
820.7
|
|
|
$
|
62.4
|
|
|
$
|
27.6
|
|
|
$
|
(69.7
|
)
|
Less: Income (loss) from discontinued operations, net of taxes
|
|
|
|
|
|
|
0.5
|
|
|
|
|
(0.6
|
)
|
|
|
8.9
|
|
|
|
(1.0
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31.1
|
|
|
|
(2.5
|
)
|
|
|
|
821.3
|
|
|
|
53.5
|
|
|
|
28.6
|
|
|
|
(68.9
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment charges(a)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
Other restructuring charges(b)
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
5.3
|
|
|
|
3.7
|
|
|
|
3.1
|
|
Reorganization items, net(c)
|
|
|
|
|
|
|
|
|
|
|
|
(809.0
|
)
|
|
|
4.1
|
|
|
|
0.3
|
|
|
|
|
|
Inventory
step-up(d)
|
|
|
0.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity based compensation expense(e)
|
|
|
1.5
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Amortization of intangibles associated with continuing
operations(f)
|
|
|
7.7
|
|
|
|
5.6
|
|
|
|
|
0.9
|
|
|
|
2.8
|
|
|
|
2.7
|
|
|
|
2.4
|
|
Foreign currency loss (gain), net(g)
|
|
|
(21.6
|
)
|
|
|
(9.3
|
)
|
|
|
|
(7.4
|
)
|
|
|
(45.4
|
)
|
|
|
(30.8
|
)
|
|
|
40.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (Loss)
|
|
$
|
19.9
|
|
|
$
|
13.3
|
|
|
|
$
|
6.9
|
|
|
$
|
20.4
|
|
|
$
|
5.0
|
|
|
$
|
(22.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
the three months ended March 31, 2010, impairment of two
abandoned in-process research and development projects,
accounted for as indefinite-lived intangible assets as part of
the application of fresh-start accounting and (ii) for the
three months ended June 28 and March 29, 2009, termination
benefits and other related costs in connection with the closure
of one of our research and development facilities in Japan.
|
|
|
(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 restructuring-related professional fees and related
expenses incurred during each period.
|
|
|
(c)
|
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
|
96
|
|
|
|
|
issuance costs. These items are comprised of the following:
(i) for the one-month period ended October 25, 2009,
our predecessors gain recognized upon the effectiveness of
the reorganization plan which was primarily composed of debt
discharge gains and net of reorganization related professional
fees and other charges, and (ii) for three months ended
September 27 and June 28, 2009, professional fees incurred
in connection with our reorganization proceedings.
|
|
|
|
|
(d)
|
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.
|
|
|
(e)
|
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.
|
|
|
(f)
|
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.
|
|
|
(g)
|
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.
|
Net sales have increased quarter over quarter since the first
quarter of 2009, primarily as a result of increases in sales
volume resulting from increased demand as the consumer
electronics industry began to recover from the economic
slowdown. Net sales increased 37.7% from the three months ended
March 29, 2009 to the three months June 28, 2009
partially due to the fact that the first quarter is
traditionally a seasonally slow quarter for us due to reduced
demand for consumer products after the end of the holiday
season. Our net sales for the three months ended March 31,
2010 increased by 10.6% from the combined three-month period
ended December 31, 2009 as the overall recovery from the
economic slowdown had a greater impact than our typical seasonal
weakness.
Gross margin increased to 34.6% and 33.3% in the three months
ended June 28 and September 27, 2009, respectively, from
20.6% in the three months ended March 29, 2009. The
increase was primarily related to an increase in sales volume
resulting from increased demand in connection with the global
economic recovery and the impact of our cost reduction efforts.
Gross margin in the combined three-month period ended
December 31, 2009 decreased primarily due to a
$17.2 million unfavorable impact which resulted from the
write-up of
our inventory in accordance with the principles of fresh-start
accounting upon our emergence from reorganization proceedings.
Gross margin in the three months ended March 31, 2010
improved as compared to the combined three-month period ended
December 31, 2009 as the unfavorable impact from the
inventory
write-up of
our inventory was limited to $0.9 million which had not yet
been recognized as of December 31, 2009.
Selling, general and administrative expenses for the three
months ended June 28 and September 27, 2009 increased
compared to the three months ended March 29, 2009 primarily
due to the increase in outside service fees for
restructuring-related professional fees and related expenses.
Selling, general and administrative expenses for the combined
three-month period ended December 31, 2009 increased
compared to the three months ended September 27, 2009 due
to an increase in salaries resulting from incentive payments
made to our employees following our successful emergence from
our reorganization proceedings and an increase in amortization
expenses resulting from the
write-up of
certain intangible assets in accordance with the application of
fresh-start accounting.
97
Research and development expenses remained relatively constant
in absolute dollars over the five quarter period. Research and
development expense as a percentage of net sales was 16.7% in
the three months ended March 29, 2009, which was higher
than other quarters due to the substantially lower net sales in
the three months ended March 29, 2009.
Reorganization items, net were incurred from the reorganization
proceedings, implementation of our plan of reorganization, and
the adoption of fresh-start reporting, and consisted mainly of
the discharge of liabilities subject to compromise.
Interest expense, net decreased in the three months ended
September 27, 2009 as we did not accrue for interest
expense related to our $750.0 million notes from
June 12, 2009, the date of our initial reorganization
filing, to October 25, 2009, as they were categorized as
liabilities subject to compromise. These notes were discharged
pursuant to the reorganization plan upon our emergence from our
reorganization proceedings. As a result of our April 2010 senior
notes offering, our interest expense will increase to
approximately $6.8 million per quarter.
A substantial portion of our net foreign currency gain or loss
is non-cash translation gain or loss recorded for intercompany
borrowing at our Korean subsidiary and is affected by changes in
the exchange rate between Korean won and the U.S. dollar.
During the first quarter of 2009, foreign currency loss was
recognized due to the depreciation of the Korean won against the
U.S. dollar. From the three months ended June 28, 2009
to three months ended March 31, 2010, foreign currency
gains have been recognized due to the appreciation of the Korean
won against the U.S. dollar.
Income tax expense for 2009 was primarily comprised of
withholding taxes paid on intercompany interest payments,
current income taxes incurred in various jurisdictions in which
we operate and the income tax effect from the change of deferred
tax assets. Income tax benefits in the three months ended
March 31, 2010 were primarily derived from the reversal of
liabilities for uncertain tax positions due to the lapse of the
applicable statute of limitations.
Income (loss) from discontinued operations during 2009 related
to our former Imaging Solutions business segment. Income from
discontinued operations in the three months ended
September 27, 2009 was primarily derived from the sale of
patents related to Imaging Solutions business segment.
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 $46.1 million of net proceeds from
the $250 million aggregate principal amount old notes
offering. The principal purpose of the old notes offering was to
fund a $130.7 million distribution to our unitholders. Most
of our current equity holders are former creditors and the
distribution allowed us to provide a return to creditors that
supported us during our reorganization proceedings. The
distribution to our unitholders was approved by our board of
directors and was not required due to any contractual or other
obligation. In addition to the distribution, we used the
proceeds of the old notes offering to increase our cash reserves
and pay down current debt that was accruing interest at a higher
rate than the notes. We funded the distribution and other uses
of proceeds through the old notes offering because we believed
that the debt market at the time would be receptive to the
offering and because we could effect a debt offering faster than
other forms of financing, including equity financing. 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-
98
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, both of which are below investment grade.
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 units, and our
unitholders 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 March 31, 2010, our cash and cash
equivalents balance was $82.7 million, a $17.8 million
increase, compared to $64.9 million as of December 31,
2009. The increase resulted from $14.9 million of cash
inflow provided by operating activities primarily resulting from
our $31.1 million of net income during the period. 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 inflows generated by operating activities totaled
$14.9 million for the three months ended March 31,
2010, compared to $0.3 million of cash provided by
operating activities in the three months ended March 29,
2009. The increase was primarily attributable to increase in
gross profit of $28.5 million resulting from higher net
sales. The net operating cash inflow for the three months ended
March 31, 2010 principally reflects our net income of $31.1
million which was partially offset by $2.6 million of
non-cash gains, net and an increase in net operating assets of
$13.6 million.
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.
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 March 31, 2010 was
$154.9 million compared to $128.5 million as of
December 31, 2009. The $26.4 million increase was
primarily attributable to a $17.8 million increase in cash
and cash equivalents provided by operating activities and a
$30.3 million increase in accounts receivable due to
increase in net sales, which was partially offset by a
$18.2 million increase in accounts payable.
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
99
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
$0.2 million in the three months ended March 31, 2010,
compared to $3.1 million of cash generated by investing
activities in the three months ended March 29, 2009, which
was primarily due to a decrease in restricted cash. There were
no significant investing activities in the three months ended
March 31, 2010.
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
For the three months ended March 31, 2010, there were no
significant financing activities other than quarterly
installment repayment of our new term loan. There were no cash
flows from financing activities during the three months ended
March 29, 2009.
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 three months ended March 31, 2010, capital
expenditures were $1.0 million, a $0.4 million, or
29.8%, decrease from $1.5 million in the three months ended
March 29, 2009.
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 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
100
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
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
|
(In millions)
|
|
New term loan(1)(2)
|
|
$
|
62.9
|
|
|
$
|
62.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Operating lease(3)
|
|
|
51.3
|
|
|
|
4.9
|
|
|
|
2.2
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
1.9
|
|
|
|
38.5
|
|
Others(4)
|
|
|
10.1
|
|
|
|
2.5
|
|
|
|
4.5
|
|
|
|
2.6
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes principal as well as interest payments, which were
fully repaid in April 2010. |
|
(2) |
|
Excludes $250 million aggregate principal amount of senior
notes issued in April 2010, which bear interest at a rate of
10.500% per annum and mature in 2018. |
|
(3) |
|
Assumes constant currency exchange rate for Korean won to U.S.
dollars of 1,130.8:1. |
|
(4) |
|
Includes license agreements and other contractual obligations. |
New term loan amounts represent the scheduled maturity of debt
as of March 31, 2010, 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. Of the remaining net proceeds of our
senior notes offering, $130.7 million was used to make a
distribution to our unitholders and $46.1 million was used
to fund working capital and for general corporate purposes. The
senior notes bear interest at a fixed rate of 10.500% as
compared to our new term loan which bore interest at a rate of
six-month LIBOR plus 12%, which equaled 12.4% at March 31,
2010.
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.
101
We follow ASC guidance on uncertain tax positions. Our
unrecognized tax benefits totaled $0.3 million as of
March 31, 2010. These unrecognized tax benefits have been
excluded from the 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
March 31, 2010 for our Korean subsidiary, a 10% devaluation
of the Korean won against the U.S. dollar would have
resulted in a decrease of $1.5 million in our
U.S. dollar financial instruments and cash balances. Based
on the Japanese yen cash balance at March 31, 2010, 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 $61.6 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.
102
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
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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.
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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
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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
unit-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.
Cash Flow
Hedges
We are exposed to non-functional currency denominated cash flow
fluctuations in connection with third party sales. We use
foreign currency forward and option contracts to hedge certain
of these risks. Throughout the term of the designated cash flow
hedge relationship, but at least quarterly, a retrospective
evaluation and prospective assessment of hedge effectiveness is
performed. Designated components of our derivative
instruments gains or losses are included in the assessment
of hedge effectiveness. In conjunction with our effectiveness
testing, we also evaluate ineffectiveness associated with the
hedge relationship. Resulting ineffectiveness, if any, is
recognized immediately in our consolidated statements of
operations.
We record the fair value of our foreign currency derivative
contracts qualifying for cash flow hedge accounting treatment in
our consolidated balance sheet with the effective portion of the
related gain or loss on those contracts deferred in
unitholders equity as a component of accumulated other
comprehensive income. These deferred gains or losses are
recognized in our consolidated statements of operations in the
same period in which the underlying hedged sales transactions
are recognized and on the same line item as the underlying
hedged items. However, in the event the relationship is no
longer effective, we recognize the change in the fair value of
the hedging derivative instrument from the date the hedging
derivative instrument becomes no longer effective immediately in
the consolidated statements of operations.
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.
Beginning with our fiscal year ending December 31, 2011, 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. In the event we complete the MagnaChip Corporation
IPO, we may also in the future become subject to the requirement
that our independent auditors will be required to
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attest to and report on the effectiveness of our internal
control over financial reporting.. 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.
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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 2,620
registered novel patents and 950 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 1,400 and 2,300 distinct products to
over 210 and 185 customers for the three months ended
March 31, 2010 and the combined twelve-month period ended
December 31, 2009, with a substantial portion of our
revenues derived from a concentrated number of customers. 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 the three months ended March 31, 2010, on a pro forma
basis, we generated net sales of $179.5 million, income
from continuing operations of $27.1 million, Adjusted
EBITDA of $28.7 million and Adjusted Net Income of
$15.0 million. For 2009, on an a combined pro forma basis,
we generated net sales of $560.1 million, income from
continuing operations of $46.6 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 59 for an explanation regarding our pro forma
presentation and Prospectus Summary Summary
Historical and Unaudited Pro Forma Consolidated Financial
Data, beginning on page 16 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
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driving rapid advances in the technology, functionality, form
factor, cost, quality, reliability and power consumption of
their products. 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.
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 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. 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
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multiple high-growth consumer electronics end markets. We
believe our expanding product and 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
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develop cost-effective Super Junction MOSFETs as well as low
power integrated power 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 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
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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 0.35mum
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.
113
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 to reduce
costs without having to migrate to smaller geometries. For
example, we have implemented several solutions to reduce die
size in large 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.
114
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 widescreens
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6-bit (262 thousand colors), 8-bit (16
million colors), 10-bit (1 billion colors)
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Mobile PCs, including netbooks
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Output voltage ranging from 3.3V to 18V
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Digital televisions, including
LED TVs
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Low power consumption and low EMI
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Supports COF package types
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Supports RSDS, m-LVDS, AiPi* interface
technologies
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Geometries of 0.18mum to 0.22mum
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TFT-LCD Gate Drivers
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272 to 768 output channels
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LCD monitors, including widescreens
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Output voltage ranging up to 40V
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Mobile PCs, including netbooks
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Supports COF and COG package types
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Digital televisions, including
LED TVs
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Geometries of 0.35mum
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Timing Controllers
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Product portfolio supports a wide range
of resolutions
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LCD monitors, including widescreens
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Supports m-LVDS interface technologies
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Mobile PCs, including netbooks
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Input voltage ranging from 2.3V to 3.6V
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Geometries of 0.18mum
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* |
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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. We focus
extensively on reducing the die size of our mobile display
drivers and other solutions products to reduce costs without
having to migrate to smaller geometries. For example, we have
implemented several solutions to reduce die size in mobile
display drivers, such as optimizing design schemes and design
rules and applying specific technologies that we have developed
internally. 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.
115
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, WQVGA, VGA, NHD*,
SVGA
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Mobile phones
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Color depth ranging from 262 thousand to
16 million
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Digital still cameras
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MDDI, MIPI interface
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EEPROM and logic-based OTP, separated
gamma control
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AMOLED
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Resolutions of WQVGA, HVGA, NHD*, WVGA,
QHD
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Mobile phones
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Game consoles
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Color depth ranging from 262 thousand to
16 million
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Digital still cameras
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Personal digital assistants
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Geometries of 0.11mum to 0.15mum
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Portable media players
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MDDI, MIPI interface
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EEPROM and logic-based OTP
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ABC, ACL, Pentile
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a-Si TFT
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Resolutions of QVGA, WQVGA, HVGA, WVGA,
WSVGA, HD
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Mobile phones
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Game consoles
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Netbooks
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Color depth ranging from 262 thousand to
16 million
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Portable navigation devices
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MDDI, MIPI interface
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Content adaptive brightness control, or
CABC
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LVDS, I(2)C*, 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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V(ds)(V) options of 20V
100V
R(ds)(on) options of Max 5m
Ω50m Ω at 10V
Advanced 0.35mum Trench MOSFET
Process
High cell density of 268Mcell/inch(2)
Advanced packages to enable reduction of
PCB mounting area
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Mobile phones
Desktop computers
Mobile PCs
Digital TVs
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High Voltage MOSFET
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Voltage options of 400, 500, and 600V
Drain current options of 1A
18A.
R(ds)(on) options of
0.22~8.0*
Ω (typical)
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Power supplies for consumer
electronics
Industrial charger and adaptors
Lighting (ballast, HID, LED)
Industrial equipment
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R(2)FET (rapid recovery) option to
shorten reverse diode recovery time
Zenor FET option for MOSFET protection
for abnormal input
Advanced 0.50mum Planar MOSFET Process
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Product
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Key Features
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Applications
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LED Drivers
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High efficiency, wide input 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
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LED backlights
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DC-DC Converters*
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High efficiency, wide input voltage range
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LCD TVs
Set-top boxes
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Proven 0.35mum BCDMOS process
30V modular BCDMOS
Fast load and line regulation
Accurate output voltage
OCP, SCP and thermal protections
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DVD/Blu-ray players
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Analog Switches
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USB Switches
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Mobile phones
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Low C(on), 7.0pF (typical) limits signal
distortion
Low R(on), 4.0 Ω (typical)
0.35mum CMOS process
Audio Switches
Negative Swing Support
Low R(on), 0.4 Ω (typical)
High ESD protection, 13kV
0.35mum CMOS process
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Linear Regulators
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Single and dual* LDOs
Low Noise Output Linear muCap LDO
Regulator
2.3V to 5.5V input voltage and 150mA,
300mA* output current
Small package size of DFN type
0.35mum CMOS process
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Mobile phones
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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
118
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.
Process
Technology Overview
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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.
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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.
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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.
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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.
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The table below sets forth the key process technologies in
Semiconductor Manufacturing Services currently in mass
production:
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Process
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Technology
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Device
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End Markets
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Mixed-signal
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0.13-0.8mum
Multipurpose
Low noise
Ultra low power
Triple gate
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Analog to digital converter
Digital to analog converter
Audio codec
Chipset
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Consumer
Wireless
Computing
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Power
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0.18-0.35mum
aBCD
Deep Trench Isolation
Trench MOSFET
Planar MOSFET
Schottky Diode
Zener Diode
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Power management
Mobile PMIC
LED drivers
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Consumer
Wireless
Computing
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High Voltage CMOS
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0.13-2.0mum
5V-250V
Bipolar, Thick Metal
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Display drivers
CSTN drivers
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Consumer
Wireless
Computing
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NVM
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0.18-0.5mum
EEPROM
eFlash
OTP
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Microcontroller
Touch screen controller
Electronic tag
Hearing aid
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Consumer
Medical
Automotive
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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 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.
120
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, 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. For the three months ended March 31,
2010 and the combined twelve-month period ended
December 31, 2009, we derived 79% and 82% of net sales
through our direct sales force, respectively, and 21% and 18% of
net sales through our network of authorized agents and
distributors, respectively.
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 three months
ended March 31, 2010, the combined twelve-month period
ended December 31, 2009 and the years ended
December 31, 2008 and 2007 were $20.5 million,
$70.9 million, $89.5 million and $90.8 million,
respectively, representing 11.4%, 12.7%, 14.9% and 12.8% of net
sales, respectively.
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
121
services to analog and mixed-signal semiconductor companies. For
the three months ended March 31, 2010 and the combined
twelve-month period ended December 31, 2009, our ten
largest customers accounted for 64% and 69% of our net sales,
respectively, and we had one customer, LG Display, representing
20% and 26% of our consolidated net sales, for the three months
ended March 31, 2010 and the combined twelve-month period
ended December 31, 2009, respectively. Substantially all of
our sales to LG Display are in our Display Solutions segment and
sales to LG Display represented 46% and 51% of net sales in our
Display Solutions segment in the three months ended
March 31, 2010 and the combined twelve-month period ended
December 31, 2009, respectively. Our relationships with
some of our ten largest customers were and may continue to be
adversely impacted by our reorganization proceedings. Some of
these customers did not offer us the opportunity to compete for
new design wins during the pendency of our reorganization
proceedings. However, subsequent to our emergence from our
reorganization proceedings we have again been provided an
opportunity to compete for these projects. For the three months
ended March 31, 2010, we received revenues of
$20.4 million from customers in the United States and
$159.1 million from all foreign countries, of which 61.4%
was from Korea, 21.8% from Taiwan, 6.4% from Japan and 8.4% from
China, Hong Kong and Macau. For the combined twelve-month period
ended 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 June 30, 2010, our portfolio of intellectual property
assets included approximately 3,350 registered patents and 1,200
pending patent applications. Approximately 2,620 and 950 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 980 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 integrated circuits including display driver and
power management semiconductor devices, as well as companies
providing specialty manufacturing services.
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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 3,313 employees (full-
and part-time) as of June 30, 2010, of which 386 were
involved in sales, marketing, general and administrative, 394
were in research and development (including 206 with advanced
degrees), 97 were in quality, reliability and assurance and
2,436 were in manufacturing (comprised of 345 in engineering and
2,091 in operations). As of June 30, 2010,
2,165 employees, or approximately 65.3% 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. For example, the Korean
government recently adopted the Enforcement Decree to the
Framework Act on Low Carbon Growth which we expect will result
in additional compliance obligations and costs. 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.
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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
June 30, 2010:
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Name
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Age
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|
Position
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Sang Park
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|
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63
|
|
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Chairman of the Board of Directors and Chief Executive Officer
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Tae Young Hwang
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|
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54
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Chief Operating Officer and President
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Brent Rowe
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|
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49
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Senior Vice President, Worldwide Sales
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Margaret Sakai
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|
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53
|
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Senior Vice President and Chief Financial Officer
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Heung Kyu Kim
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|
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46
|
|
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Senior Vice President and General Manager, Power Solutions
Division
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Tae Jong Lee
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|
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47
|
|
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Senior Vice President and General Manager, Corporate Engineering
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John McFarland
|
|
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43
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|
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Senior Vice President, General Counsel and Secretary
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Michael Elkins
|
|
|
42
|
|
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Director
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Randal Klein
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|
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45
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|
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Director
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R. Douglas Norby
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|
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74
|
|
|
Director
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Gidu Shroff
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|
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64
|
|
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Director
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Steven Tan
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|
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34
|
|
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Director
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Nader Tavakoli
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|
|
52
|
|
|
Director
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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
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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 has served on the board of directors of
Vertis Communication, an advertising services company, since
October 2008, and Milacron LLC, a plastics-processing
technologies and industrial fluids supplier, since April 2009.
Mr. Elkins serves on the board of directors of each of
these companies, both of which are private companies, in
connection with a reorganization or refinancing involving
affiliates of Avenue and serves as a result of his position with
Avenue. 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. Mr. Elkins was
appointed to our board of
125
directors by Avenue pursuant to our plan of reorganization and
pursuant to our Fifth Amended and Restated Limited Liability
Company Operating Agreement, which we refer to as our Operating
Agreement. Our board of directors has concluded that
Mr. Elkins should serve on the board based upon his
15 years of investment portfolio management experience,
including 10 years investing in technology companies,
including the semiconductor sector.
Randal Klein, Director. Mr. Klein
became our director in November 2009. Mr. Klein joined
Avenue, our affiliate, in 2004 and is currently a Portfolio
Manager at Avenue focused on investments in trade claims and
vendor financing. Previously, he was a Senior Vice President of
the Avenue U.S. Funds. In such capacity, Mr. Klein was
responsible for managing restructuring activities and
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. Mr. Klein
was appointed to our board of directors by Avenue pursuant to
our plan of reorganization and pursuant to our Operating
Agreement. Our board of directors has concluded that
Mr. Klein should serve on the board based upon his
15 years of experience as a financial advisor and
investment manager.
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 July 2006.
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 and from January 2006
to July 2006. 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
126
Mathematics and Economics from Wesleyan University and an M.B.A.
from the Harvard Business School. Mr. Tan was appointed to
our board of directors by Avenue pursuant to our plan of
reorganization and pursuant to our Operating Agreement. Our
board of directors has concluded that Mr. Tan should serve
on the board based on his five years of experience as an analyst
and investment manager.
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 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 board of directors currently consists of seven directors and
if and when we consummate the MagnaChip Corporation IPO, our
bylaws will provide that our board of directors consists of
seven members. Mr. Park, our Chief Executive Officer, is
the Chairman of our board of directors. Messrs. Elkins,
Klein, and Tan were designated to serve on our board by our
largest equity holder, which consists of funds affiliated with
Avenue Capital Management II, L.P., which has the right to
appoint a majority of our board pursuant to the Operating
Agreement of MagnaChip Semiconductor LLC which will terminate
upon the completion of the corporate conversion.
Messrs. Norby, Shroff and Tavakoli serve as independent
directors elected by a majority vote of the directors then in
office at the time of their election in accordance with our
Operating Agreement. A majority of our board is not currently
independent as defined under SEC and NYSE rules. In accordance
with applicable rules of the NYSE (assuming the consummation of
the MagnaChip Corporation IPO), we will rely upon an exception
that does not require us to satisfy the requirement that a
majority of our board be independent until one year following
initial listing. We expect that prior to the one year
anniversary of our initial NYSE listing, the composition of our
board will be changed such that a majority of our directors will
be independent. If we fail to comply with the NYSE listing
rules, our common stock could be delisted from the NYSE.
If and when we complete the MagnaChip Corporation IPO, 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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127
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 the
MagnaChip Corporation IPO, 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 (assuming the consummation of
the MagnaChip Corporation IPO), 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 will be
appointed. If we fail to comply with the NYSE listing rules
after the completion of the MagnaChip Corporation IPO, our
common stock could be delisted 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 upon the consummation of
the MagnaChip Corporation IPO. 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 Messrs. Elkins and Klein are not
independent directors. In accordance with applicable rules of
the NYSE (assuming the consummation of the MagnaChip Corporation
IPO), 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 upon
consummation of the MagnaChip Corporation IPO. 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
(assuming the consummation of the MagnaChip Corporation IPO), we
are relying upon an exception that allows us to phase in our
128
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 multiple factors,
thus diversifying the risk associated with any single
performance factor, 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.
|
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.
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,
130
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.
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.
131
The Committee seeks to establish a total cash compensation
package for our named executive officers that is competitive
with the 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
132
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. The current base salaries of the
Companys named executive officers compare to the median of
the Companys select peer group as follows: Mr. Park
is at or slightly above, Mr. Hwang is slightly below,
Ms. Sakai is slightly above, Mr. Rowe is slightly
below and Mr. McFarland is generally in line. Our
employees, including our executive officers, voluntarily
accepted a 20% reduction in base salary from 2008 levels from
January 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 a
20% reduction from April to June 2009. In June 2009, our board
of directors approved a one-time payment of 10% of base salary
paid from April to June 2009 to all employees who voluntarily
accepted pay reductions earlier in the year, which group
included all of our named executive officers. This amount is
reported as salary in the Summary Compensation Table below. 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 30% 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 also granted
additional special discretionary incentives to Mr. Hwang,
Mr. Rowe, 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.
133
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.
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 were not based upon any numerical or formulaic factors,
but rather were determined by the Committee based upon a
subjective assessment of their respective individual
contributions and 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
$298,000 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
134
executive officers and employees will only be entitled to
receive a cash incentive equal to the percentage of their salary
disclosed above. Under the Profit Sharing Plan, we recognized
bonuses for our named executive officers in our consolidated
statement of operations for the three months ended
March 31, 2010 in an aggregate amount of $35,116, ranging
individually from $4,835 to $11,211. The bonuses were paid in
April 2010.
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 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 the MagnaChip Corporation IPO,
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 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
135
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. The amount of
the restricted unit bonuses were not based upon any numerical or
formulaic factors, nor based upon any comparative peer group,
data or the number of options granted, but rather were
determined based upon our board of directors subjective
assessment of individual contributions to the successful
completion of the reorganization proceedings. We granted
restricted unit bonuses in order to provide our executives with
an equity incentive with a built-in gain equal to the value of
the units as of the date of grant while still incentivizing them
to contribute toward increasing our enterprise value. See
Grant of Plan-Based Awards below for information
regarding the number and value of units granted to each named
executive officer. 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 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.
136
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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Unit
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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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979,611
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(4)
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11,262
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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
|
|
|
|
398,554
|
(11)
|
|
|
70,500
|
|
|
|
442,400
|
|
|
|
183,026
|
|
|
|
|
|
|
|
12,231
|
(12)
|
|
|
1,106,711
|
|
Senior Vice President,
|
|
|
2008
|
|
|
|
226,308
|
|
|
|
176,000
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,673
|
(14)
|
|
|
427,981
|
|
Worldwide Sales
|
|
|
2007
|
|
|
|
220,846
|
|
|
|
176,000
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,191
|
(16)
|
|
|
539,037
|
|
Margaret Sakai
|
|
|
2009
|
|
|
|
238,347
|
|
|
|
46,549
|
|
|
|
265,440
|
|
|
|
73,211
|
|
|
|
12,143
|
|
|
|
163,668
|
(17)
|
|
|
799,358
|
|
Senior Vice President,
|
|
|
2008
|
|
|
|
250,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,683
|
|
|
|
180,025
|
(18)
|
|
|
468,642
|
|
Chief Financial Officer
|
|
|
2007
|
|
|
|
250,082
|
|
|
|
21,569
|
|
|
|
|
|
|
|
|
|
|
|
24,086
|
|
|
|
167,791
|
(19)
|
|
|
463,528
|
|
John McFarland,
|
|
|
2009
|
|
|
|
172,229
|
|
|
|
44,764
|
|
|
|
265,440
|
|
|
|
48,807
|
|
|
|
14,369
|
|
|
|
99,615
|
(20)
|
|
|
645,224
|
|
Senior Vice President,
|
|
|
2008
|
|
|
|
191,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,492
|
|
|
|
79,790
|
(21)
|
|
|
292,429
|
|
General Counsel and
|
|
|
2007
|
|
|
|
201,839
|
|
|
|
75,930
|
|
|
|
|
|
|
|
23,195
|
|
|
|
22,802
|
|
|
|
97,334
|
(22)
|
|
|
421,100
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert J. Krakauer,
|
|
|
2009
|
|
|
|
467,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,554
|
(23)
|
|
|
643,819
|
|
Former President and
|
|
|
2008
|
|
|
|
468,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820,236
|
(24)
|
|
|
1,288,662
|
|
Chief Financial Officer
|
|
|
2007
|
|
|
|
375,123
|
|
|
|
270,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707,831
|
(25)
|
|
|
1,353,857
|
|
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:
|
|
|
(1) |
|
Includes one-time payment of 10% of base salary paid from April
to June 2009 to all employees that voluntarily accepted pay
reductions earlier in the year, including $22,204, $4,897,
$6,000 and $6,415 paid to Mr. Park, Mr. Hwang,
Mr. Rowe and Ms. Sakai, respectively. |
|
(2) |
|
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. |
|
(3) |
|
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. |
|
(4) |
|
Includes a fixed one-time bonus payment of $602,631 made in
December 2009 pursuant to Mr. Parks Amended and
Restated Service Agreement. Mr. Park elected to forego
$298,000 of |
137
|
|
|
|
|
the bonus payable pursuant to his service agreement in order for
such amounts to be available for bonuses to other executives. |
|
(5) |
|
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. |
|
(6) |
|
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. |
|
(7) |
|
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. |
|
(8) |
|
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. |
|
(9) |
|
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. |
|
(10) |
|
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. |
|
(11) |
|
Includes a $176,000 fixed non-discretionary payment under
Mr. Rowes offer letter (as supplemented), pursuant to
which 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. |
|
(12) |
|
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. |
|
(13) |
|
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. |
|
(14) |
|
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. |
138
|
|
|
(15) |
|
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. |
|
(16) |
|
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. |
|
(17) |
|
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. |
|
(18) |
|
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. |
|
(19) |
|
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. |
|
(20) |
|
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. |
|
(21) |
|
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. |
|
(22) |
|
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. |
139
|
|
|
(23) |
|
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). |
|
(24) |
|
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; (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) $86,868 for reimbursement of Korean tax, the employee
contribution portion of the Korean national health insurance
program and employee fringe benefits. |
Grants of
Plan-Based Awards
The following table sets forth certain information with respect
to unit and option awards and other plan-based awards granted
during the year ended December 31, 2009 to our named
executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
All Other
|
|
Awards:
|
|
Exercise or
|
|
|
|
|
|
|
Unit
|
|
Number of
|
|
Base
|
|
|
|
|
|
|
Awards:
|
|
Securities
|
|
Price of
|
|
Grant Date Fair
|
|
|
|
|
Number of
|
|
Underlying
|
|
Option
|
|
Value of Unit
|
|
|
|
|
Units
|
|
Options
|
|
Awards
|
|
and Option
|
Name
|
|
Grant Date
|
|
(#)(1)
|
|
(#)(1)
|
|
($/unit)(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 units on
the grant date ($0.79), as determined by our board of directors
based on various factors. |
140
|
|
|
(3) |
|
Represents ASC 718 grant date fair value. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Accounting for
Unit-based Compensation for a description of how we valued
our units as a private company. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Fiscal Year End 2009(1)
|
|
|
Option Awards
|
|
Unit Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Market
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Units
|
|
Value of
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
That
|
|
Units
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Have Not
|
|
That
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
Expiration
|
|
Vested
|
|
Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable(2)
|
|
Price ($)
|
|
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 quarter, and an additional 8% of the options vest upon the
completion of each of the next three quarters. |
|
(3) |
|
The restrictions on the common 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 common units of $0.79 as of
December 31, 2009, the last day of our fiscal year. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Accounting for
Unit-based Compensation for a description of how we valued
our common units while as a private company. |
|
|
|
|
|
|
|
|
|
Option Exercises and Unit Vested at Fiscal Year End
2009(1)
|
|
|
Number of
|
|
|
|
|
Units
|
|
|
|
|
Acquired on
|
|
Value Realized
|
|
|
Vesting
|
|
on Vesting
|
Name
|
|
(#)(2)
|
|
($)(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. |
141
|
|
|
(2) |
|
The restrictions on the awards lapsed on December 8, 2009
as to 34% of the total number 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, MagnaChip
Corporation 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 to be determined on substantially
equivalent terms and conditions. As of June 30, 2010, there
were outstanding under the 2009 Plan options to purchase
15,879,000 common units, at a weighted average exercise price of
$0.79 per unit. 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 closing of the
MagnaChip Corporation IPO.
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
142
authorized and reserved for issuance under the 2010 Plan. As of
June 30, 2010, 6,887,000 common units were reserved for
future issuance under the 2009 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. 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 closing of the MagnaChip Corporation IPO.
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 the MagnaChip Corporation IPO,
143
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 the MagnaChip Corporation IPO,
including the exercise of the underwriters option to
purchase additional shares or (iii) 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.
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 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.
144
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 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.
145
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.
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
146
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 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
147
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 MagnaChip Corporation IPO 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 each such event occurred on December 31, 2009. The
disclosure in the following table does not include:
|
|
|
|
|
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
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
Value of
|
|
|
|
|
|
|
Severance
|
|
Continuation
|
|
Equity Award
|
|
|
|
|
|
|
Payment
|
|
of Benefits
|
|
Acceleration
|
|
Total
|
Name
|
|
Event
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
Sang Park
|
|
|
(a
|
)(4)
|
|
|
450,000
|
|
|
|
314,785
|
(5)
|
|
|
583,968
|
|
|
|
1,348,753
|
|
|
|
|
(b
|
)(4)
|
|
|
900,000
|
|
|
|
629,570
|
(6)
|
|
|
1,167,936
|
|
|
|
2,697,506
|
|
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
1,167,936
|
|
|
|
1,167,936
|
|
Tae Young Hwang
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
437,976
|
|
|
|
437,976
|
|
Brent Rowe
|
|
|
(a
|
)
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
110,000
|
|
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
291,984
|
|
|
|
291,984
|
|
Margaret Sakai
|
|
|
(a
|
)
|
|
|
130,000
|
|
|
|
81,834
|
(7)
|
|
|
|
|
|
|
211,834
|
|
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
175,190
|
|
|
|
175,190
|
|
John McFarland
|
|
|
(a
|
)
|
|
|
94,210
|
|
|
|
49,808
|
(8)
|
|
|
|
|
|
|
144,018
|
|
|
|
|
(c
|
)
|
|
|
|
|
|
|
|
|
|
|
175,190
|
|
|
|
175,190
|
|
|
|
|
(a) |
|
Termination without cause in absence of change in control |
|
(b) |
|
Termination without cause within 9 months following a
change in control |
|
(c) |
|
Change in control |
|
(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. |
148
|
|
|
|
|
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. |
|
(3) |
|
Reflects the aggregate value of the accelerated vesting of the
named executive officers unvested options and restricted
common units, as applicable. |
|
|
|
Because all of our options 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. |
|
|
|
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 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. |
|
(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
149
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Present
|
|
Payments
|
|
|
|
|
Years of
|
|
Value of
|
|
During
|
|
|
|
|
Credited
|
|
Accumulated
|
|
the Last
|
Name
|
|
Plan Name
|
|
Service (#)
|
|
Benefit ($)
|
|
Fiscal Year
|
|
Tae Young Hwang
|
|
Statutory Severance with Multiplier for
Partial Period
|
|
|
14
|
(1)
|
|
|
686,058
|
|
|
|
|
|
Margaret Sakai
|
|
Statutory Severance
|
|
|
3
|
|
|
|
68,155
|
|
|
|
|
|
John McFarland
|
|
Statutory Severance
|
|
|
5
|
|
|
|
81,129
|
|
|
|
|
|
Footnote:
|
|
|
(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, or $389,867 in aggregate. |
Nonqualified
Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
Director
Compensation for the Fiscal Year Ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
Earned
|
|
|
|
|
|
|
|
|
or Paid
|
|
Option
|
|
All Other
|
|
|
|
|
in Cash
|
|
Awards
|
|
Compensation
|
|
Total
|
Name
|
|
($)
|
|
($)(1)
|
|
($)
|
|
($)
|
|
Jerry M. Baker(2)(3)
|
|
|
50,000
|
|
|
|
|
|
|
|
25,751
|
(4)
|
|
|
75,751
|
|
Armando Geday(2)(3)
|
|
|
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:
|
|
|
(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. |
150
|
|
|
(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, 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 our proposed MagnaChip Corporation
IPO. 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, 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.
151
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of the outstanding common units of
MagnaChip Semiconductor LLC as of June 30, 2010 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
June 30, 2010, our outstanding securities consisted of
307,233,996 common units, options to purchase 15,879,000 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.
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
common units 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.
|
|
|
|
|
|
|
|
|
|
|
Amount and
|
|
|
|
|
|
|
Nature of
|
|
|
|
|
|
|
Beneficial
|
|
|
Percent of
|
|
Name and Address of Beneficial
Owner
|
|
Ownership(1)
|
|
|
Class(1)
|
|
|
Principal Unitholders
|
|
|
|
|
|
|
|
|
Funds managed by Avenue Capital Management II, L.P(2)
|
|
|
218,927,386
|
|
|
|
70.2
|
%
|
Funds and accounts managed by Southpaw Asset Management LP(3)
|
|
|
23,555,229
|
|
|
|
7.7
|
%
|
Tennenbaum Multi-Strategy Fund SPV (Cayman) Ltd.(4)
|
|
|
20,710,045
|
|
|
|
6.7
|
%
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
Sang Park(5)
|
|
|
2,240,000
|
|
|
|
*
|
|
Tae Young Hwang(6)
|
|
|
840,000
|
|
|
|
*
|
|
Brent Rowe(7)
|
|
|
560,000
|
|
|
|
*
|
|
Margaret Sakai(8)
|
|
|
336,000
|
|
|
|
*
|
|
John McFarland(9)
|
|
|
336,000
|
|
|
|
*
|
|
Michael Elkins(10)
|
|
|
|
|
|
|
|
|
Randal Klein(10)
|
|
|
|
|
|
|
|
|
Steven Tan(10)
|
|
|
|
|
|
|
|
|
Nader Tavakoli(11)
|
|
|
150,000
|
|
|
|
*
|
|
R. Douglas Norby
|
|
|
|
|
|
|
|
|
Gidu Shroff
|
|
|
|
|
|
|
|
|
Robert Krakauer(12)
|
|
|
|
|
|
|
|
|
Directors and executive officers as a group (13 persons)(13)
|
|
|
4,910,000
|
|
|
|
1.6
|
%
|
|
|
|
* |
|
Less than one percent. |
|
(1) |
|
Includes any outstanding common units held and, to the extent
applicable, units issuable upon the exercise or conversion of
any securities that are exercisable or convertible within
60 days of June 30, 2010. |
152
|
|
|
(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. |
|
|
|
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. |
|
|
|
Avenue Fund V beneficially owns 88,938,119 common units, or
28.7%, 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 |
153
|
|
|
|
|
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. |
|
(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 securities 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 securities 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 the
securities 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 securities 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 securities held by such
principal unitholder. Tennenbaum Capital Partners, LLC, however,
disclaims beneficial ownership of these securities, 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. |
154
|
|
|
(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) |
|
Represents 150,000 common units. |
|
(12) |
|
Mr. Krakauer resigned as our President, Chief Financial
Officer and director on April 10, 2009. |
|
(13) |
|
Represents 4,910,000 common units, of which 3,141,600 are
subject to a right of repurchase by MagnaChip. |
155
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 unitholder, 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 was 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,
$42.8 million of which was paid to Avenue Investments,
L.P., including $0.9 million of accrued interest. Avenue
purchased $35 million in principal amount our
$250 million senior notes. See Description of New
Notes 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 unit
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
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Master Fund SPC Wilshire Southpaw Opportunity
Segregated Portfolio, or Wilshire Institutional, 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.
Operating
Agreement
Pursuant to the terms of our Operating Agreement, so long as
Avenue and its affiliates own at least 25% of our outstanding
common units, Avenue has the right to appoint a majority of the
directors on our board of directors. In addition, pursuant to
the terms of our Operating Agreement, Avenue has the right to
effect a drag-along sale in which Avenue, in its sole
discretion, may require all of our members to sell such number
of their respective common units on a pro-rata basis as Avenue
desires to any person to whom Avenue sells its units so long as
such person is not affiliated with Avenue and such sale is made
upon the same terms and conditions as apply to Avenue.
The foregoing summary of certain provisions of the Operating
Agreement does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all of the
provisions of the Operating Agreement, which is listed as an
exhibit to the registration statement of which this prospectus
forms a part. See Where You Can Find More
Information.
Equity
Registration Rights Agreement
On November 9, 2009, we entered into a registration rights
agreement, which we refer to in this prospectus as the equity
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 units. See
Description of Our Common Units Equity
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.
Notes
Registration Rights Agreement
In connection with the original issuance and sale of the old
notes, we entered into an exchange and registration rights
agreement, which we refer to as the notes registration rights
agreement, dated as of April 9, 2010 with the initial
purchasers of the old notes, including Avenue, pursuant to which
we agreed to file with the SEC a registration statement covering
the exchange by us of the new notes for the old notes and a
shelf registration statement covering resales of old notes by
certain holders, including Avenue. See Purpose
of the Exchange Offer Notes Registration Rights
Agreement.
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DESCRIPTION OF
OUR COMMON UNITS
The following description of our common units and provisions
of our limited liability company operating agreement are
summaries and are qualified by reference to the limited
liability company operating agreement, a copy of which has been
filed with the SEC as an exhibit to our registration statement
of which this prospectus forms a part.
General
Our limited liability company operating agreement, as amended
and restated, authorizes one class of limited liability company
interests in us, i.e. common units. We are authorized to issue
375,000,000 common units. As of June 30, 2010, MagnaChip
Semiconductor LLC had issued and outstanding 307,233,996 common
units held by 134 holders of record.
As of June 30, 2010, MagnaChip Semiconductor LLC also had
outstanding options to purchase 15,879,000 common units at a
weighted average exercise price of $0.79 per unit and warrants
to purchase 15,000,000 common units at an exercise price of
$1.97 per unit. 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
June 30, 2010, 15,879,000 common units were subject to
outstanding options, 6,887,000 were available for future
issuance and no common units have been purchased in connection
with the exercise of previously issued options. 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 American Stock
Transfer & Trust Company, LLC, our warrant agent.
At June 30, 2010, 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.
Voting
Rights
The holders of our common units have the general right to vote
for all purposes, including the election of our board of
directors. Each holder of common units is entitled to one vote
for each unit thereof held. To the extent prohibited by
Section 1123(a)(6) of the United States Bankruptcy Code, we
will not issue non-voting equity securities.
No Additional
Capital Contribution
No holder of our common units is required to make any additional
capital contributions to us or to restore any deficit in such
holders capital account.
Distributions
Distributions to the holders of our common units of our cash or
other assets will be made only at such times and in such amounts
as authorized by our board of directors. Distributions, if any,
will be made to the holders of our common units in proportion to
their percentage interests. Our board of directors will,
however, to the extent of available funds, make certain tax
distributions to the holders of our common units if the board
determines that such distribution does not violate or breach any
agreement or obligation of us.
Equity
Registration Rights
As of the date hereof, holders of approximately 299,993,948 of
our common units will be entitled to certain rights with respect
to the registration of their units under the Securities Act.
Demand Registration Rights. Commencing
90 days following the completion of a firm commitment
underwritten public offering of our securities pursuant to an
effective registration
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statement filed by us under the Securities Act resulting in
gross proceeds of at least $75.0 million to us, any holder
who is a party to the equity registration rights agreement and
who holds a minimum of 20% of the common units covered by the
equity registration rights agreement, has the right to demand
that we file a registration statement covering the resale of its
common units, 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 equity 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
common units held by these unitholders 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 units to be offered except that if a limit is
imposed, then only units held by holders who are parties to the
equity registration rights agreement will be included in such
offering and the number of units 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 common
units covered by such demand registration statement.
In no event will we be required to effect more than one demand
registration under the equity 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
units 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, unitholders with registration rights will, with specified
exceptions, have the right to include their units in the
registration statement. The underwriters of any underwritten
offering will have the right to limit the number of such units
to be included in the registration statement if the inclusion of
all common units of the holders who are a party to the equity
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
unitholders with registration rights, pro rata on the
basis of the relative number of securities requested to be
registered by such unitholder, 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
equity registration rights agreement contains indemnification
and contribution arrangements between us and unitholders who are
a party to the equity registration rights agreement with respect
to each registration statement.
Listing
Our common units are not listed on any stock exchange.
Transfer Agent
and Registrar; Warrant Agent
The transfer agent and registrar for our common units and the
warrant agent for our warrants is American Stock
Transfer & Trust Company, LLC and its telephone
number is
(800) 937-5449.
159
DESCRIPTION OF
NEW NOTES
You can find the definitions of certain terms used in this
description under the subheading Certain
Definitions. In this description, the word
MagnaChip refers only to MagnaChip
Semiconductor S.A., a société anonyme organized and
existing under the laws of the Grand Duchy of Luxembourg, and
not to any of its Subsidiaries. Parent refers to
MagnaChip Semiconductor LLC and not to any of its Subsidiaries.
The term Issuers refers collectively to MagnaChip
and MagnaChip Semiconductor Finance Company
(FinanceCo), which is a wholly owned Subsidiary of
MagnaChip. Parent, directly and through its Subsidiary MagnaChip
Semiconductor S.A. Holdings LLC, owns all of the equity
interests in MagnaChip. MagnaChip, directly and through its
Subsidiaries, owns all of our operating businesses, including
our primary operating subsidiary, MagnaChip Semiconductor, Ltd.
(MagnaChip Korea).
The old notes were issued, and the new notes will be issued, by
the Issuers under an indenture dated as of April 9, 2010
among themselves, the Guarantors and Wilmington Trust FSB,
as trustee. The terms of the notes will include those stated in
the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material
provisions of the indenture. It does not restate the indenture
in its entirety. We urge you to read the indenture because it,
and not this description, define your rights as holders of the
notes. A copy of the indenture is available as set forth below
under Where You Can Find More Information. Certain
defined terms used in this description but not defined below
under Certain Definitions have the
meanings assigned to them in the indenture.
The registered holder of a note will be treated as the owner of
it for all purposes. Only registered holders will have rights
under the indenture.
Brief Description
of the Notes and the Note Guarantees
The
Notes
The notes:
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will be general unsecured obligations of the Issuers;
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will be pari passu in right of payment with all existing
and future unsecured Indebtedness and other liabilities
(including trade payables) of the Issuers;
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will be senior in right of payment to any future subordinated
Indebtedness of the Issuers (if any); and
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will be unconditionally guaranteed by the Guarantors.
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However, the notes will be effectively subordinated in right of
payment to all future secured Indebtedness of the Issuers, to
the extent of the value of the collateral securing such
Indebtedness. The notes will also be effectively subordinated in
right of payment to all existing and future Indebtedness and
other liabilities (including trade payables) of our Subsidiaries
that are not Guarantors. See Risk Factors The
notes and the guarantees will be effectively subordinated to all
borrowing under our future secured credit facilities and to all
indebtedness and other liabilities of our non-guarantor
subsidiaries.
The Note
Guarantees
The notes will be guaranteed by Parent and all of its Restricted
Subsidiaries, other than the Issuers, Immaterial Subsidiaries,
MagnaChip Korea and the MagnaChip China Subsidiaries.
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Each guarantee of the notes:
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will be a general unsecured obligation of the Guarantor;
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will be pari passu in right of payment with all existing
and future unsecured Indebtedness and other liabilities
(including trade payables) of that Guarantor;
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will be senior in right of payment to any future subordinated
Indebtedness of that Guarantor (if any); and
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will be effectively subordinated in right of payment to all
future secured Indebtedness of that Guarantor (if any) to the
extent of the value of the collateral securing such Indebtedness.
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As of the Issue Date, all of our Subsidiaries will be
Restricted Subsidiaries. However, under the
circumstances described below under the caption
Certain Covenants Designation of
Restricted and Unrestricted Subsidiaries, we will be
permitted to designate certain of our Subsidiaries as
Unrestricted Subsidiaries. Our Unrestricted
Subsidiaries will not be subject to many of the restrictive
covenants in the indenture. Our Unrestricted Subsidiaries will
not guarantee the notes.
FinanceCo
FinanceCo is a Delaware corporation and a wholly owned
Subsidiary of MagnaChip that exists for the purpose of
facilitating the offering of the notes by acting as a co-issuer.
FinanceCo is nominally capitalized and will not have any
operations or revenues. As a result, prospective purchasers of
the notes should not expect FinanceCo to participate in
servicing the interest and principal obligations on the notes.
See Certain Covenants Restrictions
on Activities of FinanceCo.
Principal,
Maturity and Interest
The Issuers initially issued $250 million in aggregate
principal amount of notes. The Issuers may issue additional
notes under the indenture from time to time after the initial
notes offering. Any issuance of additional notes is subject to
all of the covenants in the indenture, including the covenant
described below under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock. The notes are, and any additional notes
subsequently issued under the indenture will be, treated as a
single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers
to purchase. The Issuers will issue notes in denominations of
$2,000 and integral multiples of $1,000 in excess of $2,000. The
notes will mature on April 15, 2018.
Interest on the notes will accrue at the rate of 10.500% per
annum and will be payable semiannually in arrears on April 15
and October 15, commencing on October 15, 2010.
Interest on overdue principal and interest and Special Interest,
if any, will accrue at a rate that is 1% higher than the then
applicable interest rate on the notes. MagnaChip will make each
interest payment to the holders of record on the immediately
preceding April 1 and October 1.
Interest on the notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it
was most recently paid. Interest will be computed on the basis
of a 360-day
year comprised of twelve
30-day
months.
Methods of
Receiving Payments on the Notes
If a holder of notes has given wire transfer instructions to
MagnaChip, MagnaChip will pay all principal of, premium on, if
any, interest and Special Interest, if any, on, that
holders notes in accordance with those instructions. All
other payments on the notes will be made at the office or agency
of the paying agent and registrar unless MagnaChip elects to
make interest payments by check mailed to the noteholders at
their addresses set forth in the register of holders.
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Paying Agent and
Registrar for the Notes
The trustee will initially act as paying agent and registrar.
MagnaChip may change the paying agent or registrar without prior
notice to the holders of the notes, and the Issuers or any of
their Subsidiaries may act as paying agent or registrar.
Transfer and
Exchange
A holder may transfer or exchange notes in accordance with the
provisions of the indenture. The registrar and the trustee may
require a holder, among other things, to furnish appropriate
endorsements and transfer documents in connection with a
transfer of notes. Holders will be required to pay all taxes due
on transfer. The Issuers will not be required to transfer or
exchange any note selected for redemption. Also, the Issuers
will not be required to transfer or exchange any note for a
period of 15 days before a selection of notes to be
redeemed.
Additional
Amounts
All payments made under or with respect to the notes (whether or
not in the form of Certificated Notes) or with respect to any
Note Guarantee will be made free and clear of and without
withholding or deduction for, or on account of, any present or
future tax, duty, levy, impost, assessment or other governmental
charge (including, without limitation, penalties, interest and
other similar liabilities related thereto) of whatever nature
(collectively, Taxes) unless the withholding or
deduction of such Taxes is then required by law. If any
deduction or withholding for, or on account of, any Taxes
imposed or levied by or on behalf of any jurisdiction in which
either of the Issuers or any Guarantor (including any successor
entity), is then incorporated, engaged in business or resident
for tax purposes or any jurisdiction from or through which
payment is made by or on behalf of either of the Issuers or any
Guarantor (including any successor entity), including, without
limitation, the jurisdiction of any paying agent, or in each
case any political subdivision thereof or therein (each, a
Tax Jurisdiction), will at any time be required to
be made from any payments made under or with respect to the
notes or with respect to any Note Guarantee, including, without
limitation, payments of principal, redemption price, purchase
price, interest, Special Interest or premium, the relevant
Issuer, the relevant Guarantor or other payor, as applicable,
will pay such additional amounts (the Additional
Amounts) as may be necessary in order that the net amounts
received in respect of such payments (including Additional
Amounts) by each holder after such withholding, deduction or
imposition will equal the respective amounts that would have
been received in respect of such payments in the absence of such
withholding or deduction; provided, however, that
no Additional Amounts will be payable with respect to:
(1) any Taxes that would not have been imposed but for the
holder or the beneficial owner of the notes being a citizen or
resident or national of, incorporated in or carrying on a
business in the relevant Tax Jurisdiction in which such Taxes
are imposed or having any other present or former connection
with the relevant Tax Jurisdiction other than the mere
acquisition, holding, enforcement or receipt of payment in
respect of the notes or with respect to any Note Guarantee;
(2) any Taxes that are imposed or withheld as a result of
the failure of the holder of the note or beneficial owner of the
note to comply with any reasonable written request, made to that
holder or beneficial owner in writing at least 90 days
before any such withholding or deduction would be payable, by
either of the Issuers or any of the Guarantors to provide timely
and accurate information concerning the nationality, residence
or identity of such holder or beneficial owner or to make any
valid and timely declaration or similar claim or satisfy any
certification information or other reporting requirement, in
each case which is required or imposed by a statute, treaty,
regulation or administrative practice of the relevant Tax
Jurisdiction as a precondition to any exemption from or
reduction in all or part of such Taxes to which such holder or
beneficial owner is entitled;
162
(3) any Taxes that are imposed or levied by reason of the
presentation (where presentation is required in order to receive
payment) of such notes for payment on a date more than
30 days after the date on which such payment became due and
payable or the date on which payment thereof is duly provided
for, whichever is later, except to the extent that the
beneficial owner or holder thereof would have been entitled to
Additional Amounts had the notes been presented for payment on
any date during such
30-day
period;
(4) any estate, inheritance, gift, sales, transfer,
personal property or similar Taxes;
(5) any Taxes withheld, deducted or imposed on a payment to
an individual, which withholding, deduction or imposition is
required to be made pursuant to European Council Directive
2003/48/EC or any other directive implementing the conclusions
of the ECOFIN Council meeting of 26 and 27 November 2000 on
the taxation of savings income or any law implementing or
complying with or introduced in order to conform to, such
Directive;
(6) any note presented for payment by or on behalf of a
holder of notes who would have been able to avoid such
withholding or deduction by presenting the relevant note to
another paying agent in a member state of the European
Union; or
(7) any combination of items (1) through
(6) above.
In addition to the foregoing, the Issuers and the Guarantors
will also pay and indemnify each holder of notes for any present
or future stamp, issue, registration, court, documentary,
excise, property and any other similar Taxes which are levied by
any Tax Jurisdiction on the execution, issuance, delivery,
registration or enforcement of any of the notes, the indenture,
any Note Guarantee, or any other document or instrument referred
to therein or the receipt of any payment with respect to the
notes, the indenture or any Note Guarantee.
At least 30 calendar days prior to each date on which any
payment under or with respect to the notes or a Note Guarantee
is due and payable, if either of the Issuers or any Guarantor,
as the case may be, becomes aware that it will be obligated to
pay Additional Amounts with respect to such payment (unless such
obligation to pay Additional Amounts arises after the
30th day prior to the date on which payment under or with
respect to the notes or a Note Guarantee is due and payable, in
which case it will be promptly thereafter), the relevant Issuer
or the relevant Guarantor, as the case may be, will deliver to
the trustee an officers certificate stating the fact that
Additional Amounts will be payable and the amount estimated to
be so payable. The officers certificate must also set
forth any other information reasonably necessary to enable the
paying agents to pay Additional Amounts to holders on the
relevant payment date. The trustee shall be entitled to rely
solely on such officers certificate as conclusive proof
that such payments are necessary. The relevant Issuer or the
relevant Guarantor will provide the trustee with documentation
evidencing the payment of Additional Amounts.
The relevant Issuer or the relevant Guarantor will make all
withholdings and deductions required by law and will remit the
full amount deducted or withheld to the relevant Tax authority
in accordance with applicable law. The relevant Issuer or the
relevant Guarantor will provide to the trustee an official
receipt or, if official receipts are not obtainable, other
documentation reasonably satisfactory to the trustee evidencing
the payment of any Taxes so deducted or withheld. The relevant
Issuer or the relevant Guarantor will attach to each certified
copy or other document a certificate stating the amount of such
Taxes paid per $1,000 in principal amount of notes then
outstanding. Upon request, copies of those receipts or other
documentation, as the case may be, will be made available by the
Issuers to the holders of the notes.
Whenever in the indenture or in this Description of New
Notes there is mentioned, in any context, the payment of
amounts based upon the principal amount of the notes or of
principal, interest, Special Interest or of any other amount
payable under, or with respect to, any note or Note Guarantee,
such mention shall be deemed to include mention of the payment
of Additional Amounts to the extent that, in such context,
Additional Amounts are, were or would be payable in respect
thereof.
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Note
Guarantees
The notes will be guaranteed by Parent and each of Parents
current and future Restricted Subsidiaries, other than the
Issuers, Immaterial Subsidiaries, MagnaChip Korea and the
MagnaChip China Subsidiaries. These Note Guarantees will be
joint and several obligations of the Guarantors. The obligations
of each Guarantor under its Note Guarantee will be limited as
necessary to prevent that Note Guarantee from constituting a
fraudulent conveyance under applicable law. See Risk
Factors A court could void the guarantees of the
notes under fraudulent transfer or similar laws, which could
limit your ability to seek repayment from the guarantors.
A Restricted Subsidiary of Parent that is a Guarantor may not
sell or otherwise dispose of all or substantially all of its
assets to, or consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person) another Person,
other than Parent, an Issuer or a Guarantor, unless:
(1) immediately after giving effect to such transaction, no
Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger unconditionally assumes all the
obligations of that Guarantor under its Note Guarantee, the
indenture, and the notes registration rights agreement pursuant
to a supplemental indenture satisfactory to the trustee; or
(b) the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the
indenture.
The Note Guarantee of any Guarantor other than Parent will be
released:
(1) in connection with any sale or other disposition of all
or substantially all of the assets of that Guarantor, by way of
merger, consolidation or otherwise, to a Person that is not
(either before or after giving effect to such transaction)
Parent or a Restricted Subsidiary of Parent, if the sale or
other disposition does not violate the Asset Sale
and other provisions of the indenture;
(2) in connection with any sale or other disposition of
Capital Stock of that Guarantor to a Person that is not (either
before or after giving effect to such transaction) Parent or a
Restricted Subsidiary of Parent, if the sale or other
disposition does not violate the Asset Sale and
other provisions of the indenture and the Guarantor ceases to be
a Restricted Subsidiary of Parent as a result of the sale or
other disposition;
(3) if MagnaChip designates any Restricted Subsidiary of
Parent that is a Guarantor to be an Unrestricted Subsidiary in
accordance with the applicable provisions of the
indenture; or
(4) upon legal defeasance, covenant defeasance or
satisfaction and discharge of the indenture as provided below
under the captions Legal Defeasance and
Covenant Defeasance and Satisfaction and
Discharge.
See Repurchase at the Option of
Holders Asset Sales.
Optional
Redemption
At any time prior to April 15, 2013, MagnaChip may on any
one or more occasions redeem up to 35% of the aggregate
principal amount of notes issued under the indenture, upon not
less than 30 nor more than 60 days notice, at a
redemption price equal to 110.500% of the principal amount of
the notes redeemed, plus accrued and unpaid interest and Special
Interest, if any, to the date of redemption (subject to the
rights of holders of notes on the relevant record date to
receive interest on
164
the relevant interest payment date), with the net cash proceeds
of a Qualifying Equity Offering by Parent; provided that:
(1) at least 65% of the aggregate principal amount of notes
originally issued under the indenture (excluding notes held by
Parent and its Subsidiaries) remains outstanding immediately
after the occurrence of such redemption; and
(2) the redemption occurs within 90 days of the date
of the closing of such Qualifying Equity Offering.
At any time prior to April 15, 2014, MagnaChip may on any
one or more occasions redeem all or a part of the notes, upon
not less than 30 nor more than 60 days notice, at a
redemption price equal to 100% of the principal amount of the
notes redeemed, plus the Applicable Premium as of, and accrued
and unpaid interest and Special Interest, if any, to the date of
redemption, subject to the rights of holders of notes on the
relevant record date to receive interest due on the relevant
interest payment date.
Except pursuant to the preceding paragraphs and the paragraphs
below under the heading Redemption Upon Changes in
Withholding Taxes, the notes will not be redeemable at
MagnaChips option prior to April 15, 2014.
On or after April 15, 2014, MagnaChip may on any one or
more occasions redeem all or a part of the notes, upon not less
than 30 nor more than 60 days notice, at the
redemption prices (expressed as percentages of principal amount)
set forth below, plus accrued and unpaid interest and Special
Interest, if any, on the notes redeemed, to the applicable date
of redemption, if redeemed during the twelve-month period
beginning on April 15 of the years indicated below, subject to
the rights of holders of notes on the relevant record date to
receive interest on the relevant interest payment date:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2014
|
|
|
105.250
|
%
|
2015
|
|
|
102.625
|
%
|
2016 and thereafter
|
|
|
100.000
|
%
|
Unless MagnaChip defaults in the payment of the redemption
price, interest will cease to accrue on the notes or portions
thereof called for redemption on the applicable redemption date.
Redemption Upon
Changes in Withholding Taxes
MagnaChip may redeem the notes, in whole but not in part, upon
not less than 30 nor more than 60 days notice, at a
redemption price equal to the principal amount thereof, together
with accrued and unpaid interest and Special Interest, if any,
to the date of redemption (a Tax
Redemption Date) and all Additional Amounts (if any)
then due and that will become due on the Tax
Redemption Date as a result of the redemption or otherwise
(subject to the right of holders of the notes on the relevant
record date to receive interest (including Special Interest) due
on the relevant interest payment date and Additional Amounts (if
any) in respect thereof), if on the next date on which any
amount would be payable in respect of the notes, MagnaChip is or
would be required to pay Additional Amounts, and MagnaChip
cannot avoid any such payment obligation taking reasonable
measures available, and the requirement arises as a result of:
(1) any change in, or amendment to, the laws or treaties
(or any regulations or rulings promulgated thereunder) of the
relevant Tax Jurisdiction (as defined above) affecting
taxation; or
(2) any change in, or amendment to, the existing official
position regarding the application, administration or
interpretation of such laws, treaties, regulations or rulings
(including a holding, judgment or order by a court of competent
jurisdiction or a change in published practice),
165
which change or amendment is publicly announced as formally
proposed after and becomes effective after the Issue Date (or,
if the relevant Tax Jurisdiction was not a Tax Jurisdiction on
the Issue Date, the date on which the then current Tax
Jurisdiction became the applicable Tax Jurisdiction under the
indenture). MagnaChip shall not have the right to redeem the
notes under this paragraph based on Additional Amounts being due
as a result of a merger or consolidation of MagnaChip in which
MagnaChip is not the surviving Person in such merger or
consolidation.
MagnaChip will not give any such notice of redemption earlier
than 60 days prior to the earliest date on which the
relevant Issuer would be obligated to make such payment or
withholding if a payment in respect of the notes were then due,
and at the time such notice is given, the obligation to pay
Additional Amounts must remain in effect. Prior to the
publication or, where relevant, mailing of any notice of
redemption of the notes pursuant to the foregoing, the Issuers
will deliver to the trustee a written opinion of independent tax
counsel to the effect that there has been a change or amendment
that would entitle MagnaChip to redeem the notes under this
provision. In addition, before the Issuers publish or mail
notice of redemption of the notes as described above, they will
deliver to the trustee an officers certificate to the
effect that the relevant Issuer cannot avoid its obligation to
pay Additional Amounts by the relevant Issuer taking reasonable
measures available to it.
The trustee shall rely on such officers certificate and
opinion of counsel as sufficient evidence of the existence and
satisfaction of the conditions precedent as described above, in
which event it will be conclusive and binding on the note
holders.
For the avoidance of doubt, the implementation of European
Council Directive 2003/48/EC or any other directive implementing
the conclusions of the ECOFIN Council meeting of 26 and
27 November 2000 on the taxation of savings income or any
law implementing or complying with or introduced in order to
conform to such directive will not be a change or amendment for
such purposes.
Mandatory
Redemption
The Issuers are not required to make mandatory redemption or
sinking fund payments with respect to the notes.
Repurchase at the
Option of Holders
Change of
Control
If a Change of Control occurs, each holder of notes will have
the right to require MagnaChip to repurchase all or any part
(equal to $2,000 or an integral multiple of $1,000 in excess
thereof) of that holders notes pursuant to a Change of
Control Offer on the terms set forth in the indenture. In the
Change of Control Offer, MagnaChip will offer a Change of
Control Payment in cash equal to 101% of the aggregate principal
amount of notes repurchased, plus accrued and unpaid interest
and Special Interest, if any, on the notes repurchased to the
date of purchase, subject to the rights of holders of notes on
the relevant record date to receive interest due on the relevant
interest payment date. Within 30 days following any Change
of Control, MagnaChip will mail a notice to each holder
describing the transaction or transactions that constitute the
Change of Control and offering to repurchase notes on the Change
of Control Payment Date specified in the notice, which date will
be no earlier than ten business days and no later than
60 days from the date such notice is mailed, pursuant to
the procedures required by the indenture and described in such
notice. MagnaChip will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with the repurchase of the notes as
a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, MagnaChip
will comply with the applicable securities laws and regulations
and will not be deemed to have breached its obligations under
the Change of Control provisions of the indenture by virtue of
such compliance.
166
On the Change of Control Payment Date, MagnaChip will, to the
extent lawful:
(1) accept for payment all notes or portions of notes
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all notes or portions of
notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the
notes properly accepted together with an officers
certificate stating the aggregate principal amount of notes or
portions of notes being purchased by MagnaChip.
The paying agent will promptly mail to each holder of notes
properly tendered the Change of Control Payment for such notes,
and the trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each holder a new note equal in
principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note
will be in a denomination of $2,000 or an integral multiple of
$1,000 in excess thereof. MagnaChip will publicly announce the
results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require MagnaChip to make a
Change of Control Offer following a Change of Control will be
applicable whether or not any other provisions of the indenture
are applicable. Except as described above with respect to a
Change of Control, the indenture does not contain provisions
that permit the holders of the notes to require that MagnaChip
repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
MagnaChip will not be required to make a Change of Control Offer
upon a Change of Control if (1) a third party makes the
Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by
MagnaChip and purchases all notes properly tendered and not
withdrawn under the Change of Control Offer, or (2) notice
of redemption has been given pursuant to the indenture as
described above under the caption Optional
Redemption, unless and until there is a default in payment
of the applicable redemption price. Notwithstanding anything to
the contrary contained herein, a Change of Control Offer may be
made in advance of a Change of Control, conditioned upon the
consummation of such Change of Control, if a definitive
agreement is in place for the Change of Control at the time the
Change of Control Offer is made.
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, lease, transfer, conveyance or
other disposition of all or substantially all of the
properties or assets of Parent and its Subsidiaries taken as a
whole. Although there is a limited body of case law interpreting
the phrase substantially all, there is no precise
established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require
MagnaChip to repurchase its notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of
the assets of Parent and its Subsidiaries taken as a whole to
another Person or group may be uncertain.
Asset
Sales
Parent will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Parent (or the Restricted Subsidiary, as the case may
be) receives consideration at the time of the Asset Sale at
least equal to the Fair Market Value (measured as of the date of
the definitive agreement with respect to such Asset Sale) of the
assets or Equity Interests issued or sold or otherwise disposed
of; and
167
(2) at least 75% of the consideration received in the Asset
Sale by Parent or such Restricted Subsidiary is in the form of
cash or Cash Equivalents. For purposes of this provision, each
of the following will be deemed to be cash:
(a) any liabilities of Parent or such Restricted Subsidiary
(other than contingent liabilities and liabilities that are by
their terms subordinated to the notes or any Note Guarantee)
that are assumed by the transferee of any such assets pursuant
to a customary novation or indemnity agreement that releases
Parent or such Restricted Subsidiary from or indemnifies against
further liability;
(b) any securities, notes or other obligations received by
Parent or any such Restricted Subsidiary from such transferee
that are converted by Parent or such Restricted Subsidiary into
cash or Cash Equivalents within 60 days of consummation of
such Asset Sale, to the extent of the cash and Cash Equivalents
received in that conversion;
(c) any Designated Non-cash Consideration received by
Parent or such Restricted Subsidiary in such Asset Sale having
an aggregate Fair Market Value, taken together will all other
Designated Non-cash Consideration received pursuant to this
clause (c) that is at that time outstanding, not to exceed
5.0% of Total Assets at the time of the receipt of such
Designated Non-cash Consideration, with the Fair Market Value of
each item of Designated Non-cash Consideration being measured at
the time received and without giving effect to subsequent
changes in value; and
(d) any stock or assets of the kind referred to in
clauses (2) or (4) of the next paragraph of this
covenant.
Within 365 days after the receipt of any Net Proceeds from
an Asset Sale, Parent (or the applicable Restricted Subsidiary,
as the case may be) may apply such Net Proceeds:
(1) to repay (a) Obligations under a Credit Facility
that are secured by a Lien permitted by the indenture; or
(b) other Indebtedness (other than Subordinated
Indebtedness) of Parent or any Restricted Subsidiary that is
secured by a Lien permitted by the indenture;
(2) to acquire all or substantially all of the assets of,
or any Capital Stock of, another Permitted Business, if, after
giving effect to any such acquisition of Capital Stock, the
Permitted Business is or becomes a Restricted Subsidiary of
Parent;
(3) to make a capital expenditure;
(4) to acquire other assets that are not classified as
current assets under GAAP and that are used or useful in a
Permitted Business; or
(5) any combination of (1) (4) of this
paragraph.
In the case of clauses (2) and (4), Parent will be deemed
to have complied with its obligations above if it enters into a
binding commitment to acquire such assets or Capital Stock
within the required time frame above, provided that such binding
commitment shall be subject only to customary conditions and
such acquisition shall be consummated within six months from the
date of signing such binding commitment.
Pending the final application of any Net Proceeds, Parent (or
the applicable Restricted Subsidiary) may temporarily reduce
revolving credit borrowings or otherwise invest the Net Proceeds
in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the second paragraph of this covenant
will constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $20.0 million, within
30 days thereof, MagnaChip will make an offer (an
Asset Sale Offer) to all holders of notes and all
holders of other Indebtedness that is pari passu with the
notes containing provisions similar to those set forth in the
indenture with respect to offers to
168
purchase, prepay or redeem with the proceeds of sales of assets
to purchase, prepay or redeem the maximum principal amount of
notes and such other pari passu Indebtedness (plus all
accrued interest on the Indebtedness and the amount of all fees
and expenses, including premiums, incurred in connection
therewith) that may be purchased, prepaid or redeemed out of the
Excess Proceeds. The offer price in any Asset Sale Offer will be
equal to 100% of the principal amount, plus accrued and unpaid
interest and Special Interest, if any, to the date of purchase,
prepayment or redemption, subject to the rights of holders of
notes on the relevant record date to receive interest due on the
relevant interest payment date, and will be payable in cash. If
any Excess Proceeds remain after consummation of an Asset Sale
Offer, MagnaChip may use those Excess Proceeds for any purpose
not otherwise prohibited by the indenture. If the aggregate
principal amount of notes and other pari passu
Indebtedness tendered in (or required to be prepaid or
redeemed in connection with) such Asset Sale Offer exceeds the
amount of Excess Proceeds, the trustee will select the notes and
the agent or trustee for such pari passu Indebtedness
shall select such other pari passu Indebtedness to be
purchased on a pro rata basis, based on the amounts tendered or
required to be prepaid or redeemed (with such adjustments as may
be deemed appropriate by MagnaChip so that only notes in
denominations of $2,000, or an integral multiple of $1,000 in
excess thereof, will be purchased). Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds will be reset at
zero.
MagnaChip will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with
the Asset Sale provisions of the indenture, MagnaChip will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the
Asset Sale provisions of the indenture by virtue of such
compliance.
The agreements governing future Indebtedness of Parent and its
Restricted Subsidiaries may contain prohibitions of certain
events, including events that would constitute a Change of
Control or an Asset Sale and including repurchases of or other
prepayments in respect of the notes. The exercise by the holders
of notes of their right to require MagnaChip to repurchase the
notes upon a Change of Control or an Asset Sale could cause a
default under these other agreements, even if the Change of
Control or Asset Sale itself does not, due to the financial
effect of such repurchases on Parent and its Restricted
Subsidiaries. In the event a Change of Control or an Asset Sale
occurs at a time when MagnaChip is prohibited from purchasing
notes, Parent could seek the consent of its lenders to the
purchase of notes or could attempt to refinance the borrowings
that contain such prohibition. If Parent does not obtain a
consent or repay those borrowings, MagnaChip will remain
prohibited from purchasing notes. In that case, MagnaChips
failure to purchase tendered notes would constitute an Event of
Default under the indenture which could, in turn, constitute a
default under the other Indebtedness. Finally, MagnaChips
ability to pay cash to the holders of notes upon a repurchase
may be limited by MagnaChips then existing financial
resources. See Risk Factors We may not be able
to fulfill our repurchase obligations with respect to the notes
upon a change of control or an asset sale.
Selection and
Notice
If less than all of the notes are to be redeemed at any time,
the trustee will select notes for redemption on a pro rata
basis (or, in the case of notes issued in global form as
discussed under Book-Entry, Delivery and
Form, based on a method that most nearly approximates a
pro rata selection as the trustee deems fair and
appropriate) unless otherwise required by law or applicable
stock exchange or depositary requirements.
No notes of $2,000 or less can be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each
holder of notes to be redeemed at its registered address, except
that redemption notices may be mailed more
169
than 60 days prior to a redemption date if the notice is
issued in connection with a defeasance of the notes or a
satisfaction and discharge of the indenture. Notices of
redemption may not be conditional.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount of that note that is to be redeemed. A new
note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on notes or
portions of notes called for redemption.
Certain
Covenants
Changes in
Covenants When Notes Rated Investment Grade
If on any date following the Issue Date:
(1) the notes are rated Baa3 or better by Moodys and
BBB- or better by S&P (or, if either such entity ceases to
rate the notes for reasons outside of the control of Parent, the
equivalent investment grade credit rating from any other
nationally recognized statistical rating
organization within the meaning of
Rule 15c3-1(c)(2)(vi)(F)
under the Exchange Act selected by Parent as a replacement
agency); and
(2) no Default or Event of Default shall have occurred and
be continuing,
then, beginning on that day and subject to the provisions of the
following paragraph, the covenants specifically listed under the
following captions in this prospectus will be suspended:
(1) Repurchase at the Option of
Holders Asset Sales;
(2) Restricted Payments;
(3) Incurrence of Indebtedness and
Issuance of Preferred Stock;
(4) Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries;
(5) Designation of Restricted and
Unrestricted Subsidiaries;
(6) Transactions with
Affiliates;
(7) clause (4) of the covenant described below under
the caption Merger, Consolidation or Sale of
Assets Parent;
(8) clause (4) of the covenant described below under
the caption Merger, Consolidation or Sale of
Assets MagnaChip; and
(9) clauses (1)(a) and (3) of the covenant described
below under the caption Limitation on Sale and
Leaseback Transactions.
During any period that the foregoing covenants have been
suspended, Parents Board of Directors may not designate
any of its Subsidiaries as Unrestricted Subsidiaries pursuant to
the covenant described below under the caption
Designation of Restricted and Unrestricted
Subsidiaries or the second paragraph of the definition of
Unrestricted Subsidiary.
Notwithstanding the foregoing, if the rating assigned by either
such rating agency should subsequently decline to below Baa3 or
BBB-, respectively, the foregoing covenants will be reinstated
as of and from the date of such rating decline. Calculations
under the reinstated Restricted Payments covenant
will be made as if the Restricted Payments covenant
had been in effect since the date of the indenture except that
no default will be deemed to have occurred solely by reason of a
Restricted Payment made while that covenant was suspended.
There can be no assurance that the notes will achieve an
investment grade rating or that any such rating will be
maintained.
170
Restricted
Payments
Parent will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of Parents or any of its
Restricted Subsidiaries Equity Interests (including,
without limitation, any payment in connection with any merger or
consolidation involving Parent or any of its Restricted
Subsidiaries) or to the direct or indirect holders of
Parents or any of its Restricted Subsidiaries Equity
Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than
Disqualified Stock) of Parent and other than dividends or
distributions payable to Parent or a Restricted Subsidiary of
Parent);
(2) purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any
merger or consolidation involving Parent) any Equity Interests
of Parent or any direct or indirect parent of Parent;
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Issuers or any Guarantor that is
contractually subordinated to the notes or to any Note Guarantee
(excluding any intercompany Indebtedness between or among Parent
and any of its Restricted Subsidiaries) (collectively,
Subordinated Debt), except a payment of interest or
principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in these
clauses (1) through (4) above being collectively
referred to as Restricted Payments), unless, at the
time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such Restricted
Payment;
(b) Parent would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described below under the caption Incurrence
of Indebtedness and Issuance of Preferred Stock; and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by Parent and its
Restricted Subsidiaries since the Issue Date (excluding
Restricted Payments permitted by clauses (2) through
(12) of the next succeeding paragraph), is less than the
sum, without duplication, of:
(1) 50% of the Consolidated Net Income of Parent for the
period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after the Issue Date to the
end of Parents most recently ended fiscal quarter for
which internal financial statements are available at the time of
such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit); plus
(2) 100% of the aggregate cash proceeds, including cash and
Cash Equivalents, and the Fair Market Value of assets (as to
which an opinion or appraisal issued by an accounting, appraisal
or investment bank firm of national standing shall be required
if the Fair Market Value exceeds $15.0 million), received
by Parent since the Issue Date as a contribution to its common
equity capital or from the issue or sale of Qualifying Equity
Interests of Parent or from the issue or sale of convertible or
exchangeable Disqualified Stock of Parent or convertible or
exchangeable debt securities of Parent, in each case that have
been converted into or exchanged for Qualifying Equity Interests
of Parent (other than
171
Qualifying Equity Interests and convertible or exchangeable
Disqualified Stock or debt securities (a) sold to a
Subsidiary of Parent or (b) sold in the Initial Public
Offering); plus
(3) to the extent that any Restricted Investment that was
made after the Issue Date is (a) sold for cash or otherwise
cancelled, liquidated or repaid for cash, or (b) made in an
entity that subsequently becomes a Restricted Subsidiary of
Parent, the initial amount of such Restricted Investment (or, if
less, the amount of cash received upon repayment or sale);
plus
(4) to the extent that any Unrestricted Subsidiary of
Parent designated as such after the Issue Date is redesignated
as a Restricted Subsidiary after the Issue Date, the lesser of
(i) the Fair Market Value of Parents Restricted
Investment in such Subsidiary as of the date of such
redesignation or (ii) such Fair Market Value as of the date
on which such Subsidiary was originally designated as an
Unrestricted Subsidiary after the Issue Date; plus
(5) 100% of any dividends received in cash by Parent or a
Restricted Subsidiary after the Issue Date from an Unrestricted
Subsidiary, to the extent that such dividends were not otherwise
included in the Consolidated Net Income of Parent for such
period;
provided, however, that the aggregate amount of
Restricted Payments of the type described in clauses (1)
and (2) of the definition of Restricted
Payments pursuant to this clause (c) shall not exceed
50% of the aggregate amount of Restricted Payments otherwise
permitted by this clause (c).
The preceding provisions will not prohibit:
(1) the payment of any dividend or the consummation of any
irrevocable redemption within 60 days after the date of
declaration of the dividend or giving of the redemption notice,
as the case may be, if at the date of declaration or notice, the
dividend or redemption payment would have complied with the
provisions of the indenture;
(2) the making of any Restricted Payment in exchange for,
or out of or with the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of Parent) of,
Equity Interests of Parent (other than Disqualified Stock or
Equity Interests sold in the Initial Public Offering) or from
the substantially concurrent contribution of common equity
capital to Parent; provided that the amount of any such
net cash proceeds that are utilized for any such Restricted
Payment will not be considered to be net proceeds of Qualifying
Equity Interests for purposes of clause (c)(2) of the preceding
paragraph;
(3) the payment of any dividend (or, in the case of any
partnership or limited liability company, any similar
distribution) by a Restricted Subsidiary to the holders of its
Equity Interests on a pro rata basis;
(4) the repurchase, redemption, defeasance or other
acquisition or retirement for value of Indebtedness of either
Issuer or any Guarantor that is contractually subordinated to
the notes or to any Note Guarantee with the net cash proceeds
from a substantially concurrent incurrence of Permitted
Refinancing Indebtedness;
(5) so long as no Default or Event of Default has occurred
and is continuing, the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of
Parent or any Restricted Subsidiary of Parent held by any
current or former officer, director or employee of Parent or any
of its Restricted Subsidiaries pursuant to any employment
agreement, equity subscription agreement, stock option
agreement, stockholders agreement or similar agreement;
provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests may
not exceed $5.0 million in any twelve-month period plus the
amount of cash proceeds from any key man life insurance received
during such twelve-month period; provided,
further, that such amount may be increased by an amount
not to exceed the cash proceeds from the sale of Equity
Interests of Parent to current or former members of
172
management, directors, managers or consultants of Parent or any
of its Subsidiaries that occurs after the Issue Date, to the
extent the cash proceeds from the sale of such Equity Interests
have not otherwise been applied to the making of Restricted
Payments by virtue of clause (c)(2) of the preceding paragraph;
(6) the repurchase of Equity Interests deemed to occur upon
the exercise of stock options to the extent such Equity
Interests represent a portion of the exercise price of those
stock options, and repurchases of Equity Interests deemed to
occur upon the withholding of a portion of the Equity Interests
granted or awarded to a current or former officer, director,
employee or consultant to pay for the taxes payable by such
Person upon such grant or award (or upon vesting thereof);
(7) so long as no Default or Event of Default has occurred
and is continuing, the declaration and payment of regularly
scheduled or accrued dividends to holders of any class or series
of Disqualified Stock of Parent or any preferred stock of any
Restricted Subsidiary of Parent issued on or after the Issue
Date in accordance with the Fixed Charge Coverage Ratio test
described below under the caption Incurrence
of Indebtedness and Issuance of Preferred Stock;
(8) payments of cash, dividends, distributions, advances or
other Restricted Payments by Parent or any of its Restricted
Subsidiaries to allow the payment of cash in lieu of the
issuance of fractional shares upon (i) the exercise of
options or warrants or (ii) the conversion or exchange of
Capital Stock of any such Person;
(9) Permitted Tax Payments;
(10) upon the occurrence of a Change of Control and within
60 days after the completion of the offer to repurchase the
notes pursuant to the covenant described under Change of
Control above, any purchase or redemption of Subordinated
Debt required pursuant to the terms thereof as a result of such
Change of Control; provided, however, that at the
time of such purchase or redemption no Event of Default shall
have occurred and be continuing (or would result therefrom);
(11) any purchase or redemption of Subordinated Debt using
any remaining Excess Proceeds of an Asset Sale within
60 days after completion of an Asset Sale Offer;
provided, however, that at the time of such
purchase or redemption no Event of Default shall have occurred
and be continuing (or would result therefrom);
(12) the application of the proceeds of this offering of
notes as described above under the caption Use of
Proceeds; and
(13) other Restricted Payments in an aggregate amount not
to exceed $25.0 million since the Issue Date;
provided, however, that the aggregate amount of
Restricted Payments of the type described in clauses (1)
and (2) of the definition of Restricted
Payments permitted by this clause (13) shall not
exceed $12.5 million since the Issue Date.
The amount of all Restricted Payments (other than cash) will be
the Fair Market Value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued
by Parent or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. The Fair Market Value of any
assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors of Parent,
whose resolution with respect thereto will be delivered to the
trustee.
Incurrence of
Indebtedness and Issuance of Preferred Stock
Parent will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to
(collectively, incur) any Indebtedness (including
Acquired Debt), and
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Parent will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that Parent
may incur Indebtedness (including Acquired Debt) or issue
Disqualified Stock, and the Issuers and the Guarantors (other
than Parent) may incur Indebtedness (including Acquired Debt) or
issue preferred stock, if:
(a) the Fixed Charge Coverage Ratio for Parents most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such
Disqualified Stock or such preferred stock is issued, as the
case may be, would have been at least (a) at any time prior
to the completion of the Initial Public Offering, 2.25 to 1.0,
and (b) at any time on or after completion of the Initial
Public Offering, 2.0 to 1.0, in each case determined on a pro
forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been
incurred or the Disqualified Stock or the preferred stock had
been issued, as the case may be, at the beginning of such
four-quarter period; and
(b) in the case of any such Indebtedness that is Pari
Passu Indebtedness, the sum of the aggregate principal
amount of Pari Passu Indebtedness incurred pursuant to
this paragraph since the Issue Date that is outstanding on the
date of such incurrence plus the aggregate principal amount of
notes outstanding on the date of such incurrence (in each case,
after giving pro forma effect to the incurrence of such Pari
Passu Indebtedness and application of the net proceeds
therefrom) does not exceed (a) at any time prior to the
completion of the Initial Public Offering, $350.0 million,
or (b) at any time on or after completion of the Initial
Public Offering, $500.0 million.
The first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness
(collectively, Permitted Debt):
(1) the incurrence by Parent and any of its Restricted
Subsidiaries of additional Indebtedness and letters of credit
under Credit Facilities in an aggregate principal amount at any
one time outstanding under this clause (1)(with letters of
credit being deemed to have a principal amount equal to the
maximum potential liability of Parent and its Restricted
Subsidiaries thereunder) not to exceed the greater of
(a) $75.0 million or (b) the Borrowing Base as of
the date of incurrence;
(2) the incurrence by Parent and its Restricted
Subsidiaries of the Existing Indebtedness;
(3) the incurrence by Issuers and the Guarantors of
Indebtedness represented by the notes and the related Note
Guarantees to be issued under the indenture and the exchange
notes and the related Note Guarantees to be issued pursuant to
the notes registration rights agreement;
(4) the incurrence by Parent or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations,
in each case, incurred for the purpose of financing all or any
part of the purchase price, taxes or cost of design,
construction, installation or improvement of property, plant or
equipment (including software) used in the business of Parent or
any of its Restricted Subsidiaries, in an aggregate principal
amount, including all Permitted Refinancing Indebtedness
incurred to renew, refund, refinance, replace, defease or
discharge any Indebtedness incurred pursuant to this clause (4),
not to exceed the greater of (a) $25.0 million or
(b) 5% of Total Assets as of any date of incurrence;
(5) the incurrence by Parent or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to renew, refund,
refinance, replace, defease or discharge any Indebtedness (other
than intercompany Indebtedness) that was permitted by the
indenture to be incurred under the first paragraph of this
covenant or clauses (2), (3), (4), (5) or (16) of this
paragraph;
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(6) the incurrence by Parent or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among
Parent and any of its Restricted Subsidiaries; provided,
however, that:
(a) if either Issuer or any Guarantor is the obligor on
such Indebtedness and the payee is not an Issuer or a Guarantor,
such Indebtedness must be unsecured and expressly subordinated
to the prior payment in full in cash of all Obligations then due
with respect to the notes, in the case of the Issuers, or the
Note Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a
Person other than Parent or a Restricted Subsidiary and
(ii) any sale or other transfer of any such Indebtedness to
a Person that is not either Parent or a Restricted Subsidiary of
Parent,
will be deemed, in each case, to constitute an incurrence of
such Indebtedness by Parent or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (6);
(7) the issuance by any of Parents Restricted
Subsidiaries to Parent or to any of its Restricted Subsidiaries
of shares of preferred stock; provided, however,
that:
(a) any subsequent issuance or transfer of Equity Interests
that results in any such preferred stock being held by a Person
other than Parent or a Restricted Subsidiary of Parent; and
(b) any sale or other transfer of any such preferred stock
to a Person that is not either Parent or a Restricted Subsidiary
of Parent, will be deemed, in each case, to constitute an
issuance of such preferred stock by such Restricted Subsidiary
that was not permitted by this clause (7);
(8) the incurrence by Parent or any of its Restricted
Subsidiaries of Hedging Obligations in the ordinary course of
business;
(9) the guarantee by the Issuers or any of the Guarantors
of Indebtedness of Parent or a Restricted Subsidiary of Parent
to the extent that the guaranteed Indebtedness was permitted to
be incurred by another provision of this covenant; provided that
if the Indebtedness being guaranteed is subordinated to or
pari passu with the notes, then the Guarantee must be
subordinated or pari passu, as applicable, to the same
extent as the Indebtedness guaranteed;
(10) the incurrence by Parent or any of its Restricted
Subsidiaries of Indebtedness in respect of workers
compensation claims, health, disability or other employee
benefits or property, casualty or liability insurance,
self-insurance obligations and bankers acceptances in the
ordinary course of business;
(11) the incurrence by Parent or any of its Restricted
Subsidiaries of Indebtedness arising from the honoring by a bank
or other financial institution of a check, draft or similar
instrument inadvertently drawn against insufficient funds, so
long as such Indebtedness is covered within five business days;
(12) the incurrence of Indebtedness by Parent or any of its
Restricted Subsidiaries in the form of performance bonds,
completion guarantees and surety or appeal bonds and similar
obligations entered into by Parent or any of its Restricted
Subsidiaries in the ordinary course of their business;
(13) Indebtedness of Parent or any Restricted Subsidiary
issued to any of its directors, employees, officers or
consultants or to a Restricted Subsidiary in connection with the
redemption or purchase of Capital Stock that, by its terms or by
operation of law, is subordinated to the notes, is not secured
by any of the assets of Parent or the Restricted Subsidiaries
and does not require cash payments prior to the Stated Maturity
of the notes, in an aggregate
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principal amount which, when added with the amount of
Indebtedness incurred under this clause (13) and then
outstanding, does not exceed $5.0 million at any one time
outstanding;
(14) the incurrence of Indebtedness by Parent or any of the
Restricted Subsidiaries arising from agreements of Parent or any
of the Restricted Subsidiaries providing for adjustment of
purchase price or other similar obligations, in each case,
incurred or assumed in connection with the acquisition or
disposition of any business, assets or a Restricted Subsidiary
of Parent;
(15) Indebtedness incurred by Parent or any of the
Restricted Subsidiaries constituting reimbursement obligations
under letters of credit issued in the ordinary course of
business, including, without limitation, letters of credit to
procure raw materials or relating to workers compensation
claims or self-insurance, or other Indebtedness relating to
reimbursement-type obligations regarding workers
compensation claims; and
(16) the incurrence by the Issuers or any of the Guarantors
of additional Indebtedness or Disqualified Stock in an aggregate
principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted Refinancing Indebtedness
incurred to renew, refund, refinance, replace, defease or
discharge any Indebtedness incurred pursuant to this clause
(16), not to exceed $25.0 million.
Parent will not, and will not permit any Guarantor to, incur any
Indebtedness (including Permitted Debt) that is contractually
subordinated in right of payment to any other Indebtedness of
the Issuers or such Guarantor unless such Indebtedness is also
contractually subordinated in right of payment to the notes and
the applicable Note Guarantee on substantially identical terms;
provided, however, that no Indebtedness will be
deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Issuers or any Guarantor solely by
virtue of being unsecured or by virtue of being secured on a
junior priority basis.
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Preferred
Stock covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through
(16) above, or is entitled to be incurred pursuant to the
first paragraph of this covenant, MagnaChip will be permitted to
classify such item of Indebtedness on the date of its
incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant.
The accrual of interest or preferred stock dividends, the
accretion or amortization of original issue discount, the
payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, the
reclassification of preferred stock as Indebtedness due to a
change in accounting principles, and the payment of dividends on
preferred stock or Disqualified Stock in the form of additional
shares of the same class of preferred stock or Disqualified
Stock will not be deemed to be an incurrence of Indebtedness or
an issuance of preferred stock or Disqualified Stock for
purposes of this covenant; provided, in each such case,
that the amount thereof is included in Fixed Charges of Parent
as accrued. For purposes of determining compliance with any
U.S. dollar-denominated restriction on the incurrence of
Indebtedness, the U.S. dollar-equivalent principal amount
of Indebtedness denominated in a foreign currency shall be
utilized, calculated based on the relevant currency exchange
rate in effect on the date such Indebtedness was incurred.
Notwithstanding any other provision of this covenant, the
maximum amount of Indebtedness that Parent or any Restricted
Subsidiary may incur pursuant to this covenant shall not be
deemed to be exceeded solely as a result of fluctuations in
exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will
be:
(1) the accreted value of the Indebtedness, in the case of
any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case
of any other Indebtedness; and
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(3) in respect of Indebtedness of another Person secured by
a Lien on the assets of the specified Person, the lesser of:
(a) the Fair Market Value of such assets at the date of
determination; and
(b) the amount of the Indebtedness of the other Person.
Liens
Parent will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind (other
than Permitted Liens) securing Indebtedness, Attributable Debt
or trade payables upon any of its or their property or assets,
now owned or hereafter acquired, unless all payments due under
the indenture and the notes are secured on an equal and ratable
basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
Dividend and
Other Payment Restrictions Affecting Restricted
Subsidiaries
Parent will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to
exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its
Capital Stock to Parent or any of its Restricted Subsidiaries,
or with respect to any other interest or participation in, or
measured by, its profits, or pay any indebtedness owed to Parent
or any of its Restricted Subsidiaries;
(2) make loans or advances to Parent or any of its
Restricted Subsidiaries; or
(3) sell, lease or transfer any of its properties or assets
to Parent or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness as in effect
on the Issue Date and any amendments, restatements,
modifications, renewals, supplements, refundings, replacements
or refinancings of those agreements; provided that the
amendments, restatements, modifications, renewals, supplements,
refundings, replacements or refinancings are not materially more
restrictive, taken as a whole, with respect to such dividend and
other payment restrictions than those contained in those
agreements on the Issue Date;
(2) the indenture, the notes and the Note Guarantees;
(3) agreements governing other Indebtedness permitted to be
incurred under the provisions of the covenant described above
under the caption Incurrence of Indebtedness
and Issuance of Preferred Stock and any amendments,
restatements, modifications, renewals, supplements, refundings,
replacements or refinancings of those agreements; provided
that the Board of Directors of Parent determines in good
faith that the encumbrances and restrictions in the agreements
governing such Indebtedness (or any such amendment, restatement,
modification, renewal, supplement, refunding, replacement or
refinancing) will not materially adversely affect the ability of
MagnaChip to make payments on the notes when due;
(4) applicable law, rule, regulation or order;
(5) any instrument governing Indebtedness or Capital Stock
of a Person acquired by Parent or any of its Restricted
Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness or Capital Stock was
incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable
to any Person, or the properties or assets of any Person, other
than the Person, or the property or
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assets of the Person, so acquired; provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of
the indenture to be incurred;
(6) customary non-assignment provisions in contracts and
licenses entered into in the ordinary course of business;
(7) purchase money obligations for property acquired in the
ordinary course of business and Capital Lease Obligations that
impose restrictions on the property purchased or leased of the
nature described in clause (4) of the definition of
Permitted Debt;
(8) any agreement for the sale or other disposition of a
Restricted Subsidiary or all or substantially all of the assets
thereof that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(9) Permitted Refinancing Indebtedness; provided
that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are not materially more
restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced;
(10) Liens permitted to be incurred under the provisions of
the covenant described above under the caption
Liens that limit the right of the debtor
to dispose of the assets subject to such Liens;
(11) provisions limiting the disposition or distribution of
assets or property in joint venture agreements, asset sale
agreements, sale-leaseback agreements, stock sale agreements and
other similar agreements (including agreements entered into in
connection with a Restricted Investment) entered into with the
approval of Parents Board of Directors, which limitation
is applicable only to the assets that are the subject of such
agreements;
(12) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the
ordinary course of business; and
(13) restrictions under customary provisions in partnership
agreements, limited liability company organizational or
governance documents, joint venture agreements, corporate
charters, stockholders agreements and other similar
agreements and documents on the transfer of ownership interests
in such partnership, limited liability company, joint venture or
similar Person.
Merger,
Consolidation or Sale of Assets
PARENT
Parent will not, directly or indirectly: (1) consolidate or
merge with or into another Person (whether or not Parent is the
surviving corporation), or (2) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the
properties or assets of Parent and its Restricted Subsidiaries
taken as a whole, in one or more related transactions, to
another Person, unless:
(1) either: (a) Parent is the surviving entity; or
(b) the Person formed by or surviving any such
consolidation or merger (if other than Parent) or to which such
sale, assignment, transfer, conveyance or other disposition has
been made is an entity organized or existing under the laws of
the United States, any state of the United States or the
District of Columbia; and, if such entity is not a corporation,
a co-obligor of the notes is a corporation organized or existing
under any such laws;
(2) the Person formed by or surviving any such
consolidation or merger (if other than Parent) or the Person to
which such sale, assignment, transfer, conveyance or other
disposition has been made assumes all the obligations of Parent
under the notes, its Note Guarantee, the indenture and the notes
registration rights agreement pursuant to agreements as required
under the terms of the indenture and the notes registration
rights agreement;
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(3) immediately after such transaction, no Default or Event
of Default exists; and
(4) Parent or the Person formed by or surviving any such
consolidation or merger (if other than Parent), or to which such
sale, assignment, transfer, conveyance or other disposition has
been made would, on the date of such transaction after giving
pro forma effect thereto and any related financing transactions
as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described above under the caption Incurrence
of Indebtedness and Issuance of Preferred Stock.
In addition, Parent will not, directly or indirectly, lease all
or substantially all of the properties and assets of it and its
Restricted Subsidiaries, taken as a whole, in one or more
related transactions, to any other Person.
This Merger, Consolidation or Sale of Assets
covenant will not apply to any sale, assignment, transfer,
conveyance, lease or other disposition of assets between or
among Parent and its Restricted Subsidiaries. Clauses (3)
and (4) of the first paragraph of this covenant will not
apply to (1) any merger or consolidation of Parent with or
into (A) one of its Restricted Subsidiaries for any purpose
or (B) an Affiliate solely for the purpose of
reincorporating Parent in another jurisdiction, or (2) the
corporate conversion at any time prior to the consummation of
the Initial Public Offering.
MAGNACHIP
MagnaChip will not, directly or indirectly: (1) consolidate
or merge with or into another Person (whether or not MagnaChip
is the surviving corporation), or (2) sell, assign,
transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of MagnaChip and its Restricted
Subsidiaries taken as a whole, in one or more related
transactions, to another Person, unless:
(1) either: (a) MagnaChip is the surviving
corporation; or (b) the Person formed by or surviving any
such consolidation or merger (if other than MagnaChip) or to
which such sale, assignment, transfer, conveyance or other
disposition has been made is an entity organized or existing
under the laws of South Korea, Luxembourg, the Netherlands,
Bermuda, the United States, any state of the United States or
the District of Columbia; and, if such entity is not a
corporation, a co-obligor of the notes is a corporation
organized or existing under any such laws;
(2) the Person formed by or surviving any such
consolidation or merger (if other than MagnaChip) or the Person
to which such sale, assignment, transfer, conveyance or other
disposition has been made assumes all the obligations of
MagnaChip under the notes, the indenture and the notes
registration rights agreement pursuant to agreements necessary
under the terms of the indenture and notes registration rights
agreement;
(3) immediately after such transaction, no Default or Event
of Default exists;
(4) MagnaChip or the Person formed by or surviving any such
consolidation or merger (if other than MagnaChip), or to which
such sale, assignment, transfer, conveyance or other disposition
has been made would, on the date of such transaction after
giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock, and
(5) if MagnaChip is not the surviving Person in such
consolidation or merger, MagnaChip shall have delivered to the
trustee an opinion of counsel from Luxembourg and any other
jurisdiction as necessary that no Taxes on income, including
capital gains, other than Taxes to the extent that Additional
Amounts are required to be paid with respect thereto, will be
payable by holders of the notes under the laws of any
jurisdiction where the Person formed by or
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surviving any such consolidation or merger is or becomes
organized, resident or engaged in business for tax purposes
relating to the acquisition, ownership or disposition of the
notes, including the receipt of interest or principal thereon;
provided that the holder does not use or hold, and for
relevant tax purposes is not deemed to use or hold, the notes in
carrying on a business in the jurisdiction where the Person
formed by or surviving any such consolidation or merger is or
becomes organized, resident or engaged in business for tax
purposes.
In addition, MagnaChip will not, directly or indirectly, lease
all or substantially all of the properties and assets of it and
its Restricted Subsidiaries taken as a whole, in one or more
related transactions, to any other Person.
This Merger, Consolidation or Sale of Assets
covenant will not apply to any sale, assignment, transfer,
conveyance, lease or other disposition of assets between or
among Parent and its Restricted Subsidiaries. Clauses (3)
and (4) of the first paragraph of this covenant will not
apply to any merger or consolidation of MagnaChip with or into
(1) one of its Restricted Subsidiaries for any purpose or
(2) an Affiliate solely for the purpose of reincorporating
MagnaChip in another jurisdiction.
FINANCECO
FinanceCo may not, directly or indirectly, consolidate or merge
with or into (whether or not FinanceCo is the surviving
corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of
FinanceCos properties or assets, in one or more related
transactions, to any Person unless:
(1) concurrently therewith, a corporate wholly-owned
Restricted Subsidiary of MagnaChip organized and validly
existing under the laws of the United States, any state of the
United States or the District of Columbia (which may be the
successor Person as a result of such transaction) expressly
assumes all the obligations of FinanceCo under the under the
notes, the indenture and the notes registration rights agreement
pursuant to agreements as required under the terms of the
indenture and the notes registration rights agreement; and
(2) immediately after such transaction, no Default or Event
of Default exists.
Transactions
with Affiliates
Parent will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate
of MagnaChip (each, an Affiliate Transaction)
involving aggregate payments or consideration in excess of
$2.5 million, unless:
(1) the Affiliate Transaction is on terms that are no less
favorable to Parent or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction
by Parent or such Restricted Subsidiary with an unrelated
Person; and
(2) MagnaChip delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $10.0 million, a resolution of the Board of
Directors of Parent set forth in an officers certificate
certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of
Directors of Parent; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $20.0 million, an opinion by (A) a
nationally recognized investment banking firm or (B) an
accounting or appraisal firm nationally
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recognized in making determinations of this kind that such
Affiliate Transaction is fair, from a financial standpoint, to
Parent or the applicable Restricted Subsidiary.
The following items will not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
(1) any employment agreement, employee compensation or
benefit plan, officer or director indemnification agreement or
any similar arrangement entered into by Parent or any of its
Restricted Subsidiaries, and payments made pursuant thereto, in
the ordinary course of business and payments pursuant thereto;
(2) transactions between or among Parent
and/or its
Restricted Subsidiaries;
(3) transactions with a Person (other than an Unrestricted
Subsidiary of Parent) that is an Affiliate of MagnaChip solely
because Parent owns, directly or through a Restricted
Subsidiary, an Equity Interest in, or controls, such Person;
(4) payment of reasonable and customary fees and
reimbursements of expenses (pursuant to indemnity arrangements
or otherwise) of officers, directors, employees or consultants
of Parent or any of its Restricted Subsidiaries;
(5) the grant of equity incentives or similar rights to
employees and directors of Parent or MagnaChip Korea pursuant to
plans approved by the Board of Directors of Parent or MagnaChip
Korea or a committee thereof comprised solely of independent
directors;
(6) any issuance of securities, or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock
ownership plans approved by Parents Board of Directors or
a committee thereof comprised solely of independent directors;
(7) any issuance of Equity Interests (other than
Disqualified Stock) of Parent to Affiliates of MagnaChip;
(8) Restricted Payments that do not violate the provisions
of the indenture described above under the caption
Restricted Payments;
(9) transactions pursuant to any contract or agreement with
Parent or any of the Restricted Subsidiaries in effect on the
Issue Date, as the same may be amended, modified or replaced
from time to time so long as any such amendment, modification or
replacement is not more disadvantageous to the holders of the
notes in any material respect than the terms contained in such
contract or agreement as in effect on the Issue Date;
(10) transactions pursuant to or under the 2009
Registration Rights Agreement, the 2009 Warrant Agreement, the
Director Indemnification Agreements and the Credit Agreement as
in effect on the Issue Date or any similar agreement or any
amendment, modification or replacement of the 2009 Registration
Rights Agreement, the 2009 Warrant Agreement, the Director
Indemnification Agreements or the Credit Agreement or similar
agreement; provided that the terms of such amendment,
modification or replacement are not more disadvantageous to the
holders of the notes in any material respect than the terms
contained in the 2009 Registration Rights Agreement, the 2009
Warrant Agreement, the Director Indemnification Agreements or
the Credit Agreement, as the case may be, as in effect on the
Issue Date, and the repayment of the obligations outstanding
under the Credit Agreement;
(11) the payment of management, consulting and advisory
fees and related expenses made pursuant to the Advisory
Agreements and the payment of other customary management,
consulting and advisory fees and related expenses to the
Principals and any of their respective Affiliates in connection
with transactions of Parent or its Subsidiaries or pursuant to
any management, consulting, financial advisory, financing,
underwriting or placement agreement or in respect of other
investment banking activities, including in connection with
acquisitions or
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divestitures, which fees and expenses are made pursuant to
arrangements approved by the Board of Directors of Parent or
such Subsidiary in good faith;
(12) the provision by an Affiliate of commercial banking or
lending services or other similar services on terms that are no
less favorable to Parent or the relevant Restricted Subsidiary
than those that would have been obtained by an unaffiliated
party and that are approved in good faith by the Board of
Directors of Parent; and
(13) loans or advances to employees in the ordinary course
of business not to exceed $5.0 million in the aggregate at
any one time outstanding.
Additional
Note Guarantees
If Parent or any of its Restricted Subsidiaries acquires or
creates another Subsidiary after the Issue Date, then that newly
acquired or created Subsidiary will become a Guarantor and
execute a supplemental indenture and deliver an opinion of
counsel satisfactory to the trustee within 10 business days of
the date on which it was acquired or created; provided that
(1) any Subsidiary that constitutes an Immaterial
Subsidiary need not become a Guarantor until such time as it
ceases to be an Immaterial Subsidiary;
(2) in the event Parent or a Restricted Subsidiary forms or
otherwise acquires, directly or indirectly, a Restricted
Subsidiary organized under the laws of a jurisdiction other than
the United States and such jurisdiction prohibits by law,
regulation or order such Restricted Subsidiary from becoming a
Guarantor, Parent shall use all commercially reasonable efforts
(including pursuing required waivers) over a period up to one
year, to have such Subsidiary become a Restricted Subsidiary;
provided, however, that Parent shall not be
required to use such commercially reasonable efforts with
respect to such Restricted Subsidiaries for more than a one-year
period or such shorter period as it shall determine in good
faith that it has used all commercially reasonable efforts and
if Parent or such Restricted Subsidiary is unable during such
period to obtain an enforceable Guarantee in such jurisdiction,
then such Restricted Subsidiary will not be required to provide
a Guarantee of the notes pursuant to the Note Guarantee so long
as such Restricted Subsidiary does not Guarantee any other
Indebtedness of Parent and its Restricted Subsidiaries and no
Default or Event of Default shall be deemed to exist during the
period that Parent uses its commercially reasonable efforts to
have such Restricted Subsidiary enter into a Note
Guarantee; and
(3) neither MagnaChip Korea nor any of its Subsidiaries nor
any of the MagnaChip China Subsidiaries will be required to
become a Guarantor under any circumstances.
Designation of
Restricted and Unrestricted Subsidiaries
The Board of Directors of Parent may designate any Restricted
Subsidiary of Parent (other than the Issuers) to be an
Unrestricted Subsidiary if that designation would not cause a
Default; provided that in no event will the business
currently operated by MagnaChip Korea be transferred to or held
by an Unrestricted Subsidiary. If a Restricted Subsidiary is
designated as an Unrestricted Subsidiary, the aggregate Fair
Market Value of all outstanding Investments owned by Parent and
its Restricted Subsidiaries in the Subsidiary designated as
Unrestricted will be deemed to be an Investment made as of the
time of the designation and will reduce the amount available for
Restricted Payments under the covenant described above under the
caption Restricted Payments or under one
or more clauses of the definition of Permitted Investments, as
determined by MagnaChip. That designation will only be permitted
if the Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
Any designation of a Subsidiary of Parent as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the
trustee a certified copy of a resolution of the Board of
Directors of Parent giving effect to such designation and an
officers certificate certifying that such designation
complied
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with the preceding conditions and was permitted by the covenant
described above under the caption Restricted
Payments. If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of
such Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of Parent as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under the
covenant described under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock, MagnaChip will be in default of such
covenant. The Board of Directors of Parent may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation will be deemed
to be an incurrence of Indebtedness by a Restricted Subsidiary
of any outstanding Indebtedness of such Unrestricted Subsidiary,
and such designation will only be permitted if (1) such
Indebtedness is permitted under the covenant described under the
caption Incurrence of Indebtedness and
Issuance of Preferred Stock, calculated on a pro forma
basis as if such designation had occurred at the beginning of
the applicable reference period; and (2) no Default or
Event of Default would be in existence following such
designation.
Restrictions
on Activities of FinanceCo.
FinanceCo will not hold any material assets, become liable for
any material obligations or engage in any significant business
activities; provided that FinanceCo may be a co-obligor or
guarantor with respect to Indebtedness if MagnaChip is an
obligor on such Indebtedness and the net proceeds of such
Indebtedness are received by MagnaChip, FinanceCo or one or more
Guarantors.
Limitation on
Sale and Leaseback Transactions
Parent will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction;
provided that Parent or any Restricted Subsidiary may
enter into a sale and leaseback transaction if:
(1) Parent or that Restricted Subsidiary, as applicable,
could have (a) incurred Indebtedness in an amount equal to
the Attributable Debt relating to such sale and leaseback
transaction under the Fixed Charge Coverage Ratio test in the
first paragraph of the covenant described above under the
caption Incurrence of Indebtedness and
Issuance of Preferred Stock and (b) incurred a Lien
to secure such Indebtedness pursuant to the covenant described
above under the caption Liens;
(2) the gross cash proceeds of that sale and leaseback
transaction are at least equal to the Fair Market Value, as
determined in good faith by the Board of Directors of Parent and
set forth in an officers certificate delivered to the
trustee, of the property that is the subject of that sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback
transaction is permitted by, and Parent applies the proceeds of
such transaction in compliance with, the covenant described
above under the caption Repurchase at the
Option of Holders Asset Sales.
Reports
Whether or not required by the rules and regulations of the SEC,
so long as any notes are outstanding, Parent will furnish to the
holders of notes or cause the trustee to furnish to the holders
of notes (or file with the SEC for public availability), not
later than 30 days after expiration of the time periods
specified in the SECs rules and regulations:
(1) all quarterly and annual reports that would be required
to be filed with the SEC on
Forms 10-Q
and 10-K if
Parent were required to file such reports, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations; and
(2) all current reports that would be required to be filed
with the SEC on
Form 8-K
if Parent were required to file such reports.
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All such reports will be prepared in all material respects in
accordance with all of the rules and regulations applicable to
such reports. In addition, following the consummation of the
exchange offer contemplated by the notes registration rights
agreement, Parent will file a copy of each of the reports
referred to in clauses (1) and (2) above with the SEC for
public availability within the time periods specified in the
rules and regulations applicable to such reports (unless the SEC
will not accept such a filing) and will post the reports on its
website within those time periods. Parent will at all times
comply with § 314(a) of the Trust Indenture Act.
If, at any time after the consummation of the exchange offer
contemplated by the notes registration rights agreement, Parent
is no longer subject to the periodic reporting requirements of
the Exchange Act for any reason, Parent will nevertheless
continue filing the reports specified in the preceding
paragraphs of this covenant with the SEC within the time periods
specified above unless the SEC will not accept such a filing.
Parent will not take any action for the purpose of causing the
SEC not to accept any such filings. If, notwithstanding the
foregoing, the SEC will not accept Parents filings for any
reason, Parent will post the reports referred to in the
preceding paragraphs on its website within the time periods that
would apply if Parent were required to file those reports with
the SEC.
If Parent has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then Parent will disclose in Managements
Discussion and Analysis of Financial Condition and Results of
Operations, the revenues for the applicable period and assets as
of the end of the applicable period attributable to Unrestricted
Subsidiaries of Parent.
In addition, the Issuers and the Guarantors agree that, for so
long as any notes remain outstanding, if at any time they are
not required to file with the SEC the reports required by the
preceding paragraphs, they will furnish to the holders of notes
and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
Notwithstanding the foregoing, Parent will be deemed to have
furnished the reports referred to above to the trustee and the
holders on the date Parent files such reports with the SEC via
the EDGAR filing system (or any successor thereto, including
Interactive Data Electronic Applications) and such reports
become publicly available.
Events of Default
and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of
interest and Special Interest, if any, on the notes;
(2) default in the payment when due (at maturity, upon
redemption, repurchase or otherwise) of the principal of, or
premium, if any, on, the notes;
(3) failure by Parent or any of its Restricted Subsidiaries
to comply with the provisions described under the caption
Certain Covenants Merger,
Consolidation or Sale of Assets;
(4) failure by Parent or any of its Restricted Subsidiaries
for 30 days after notice to MagnaChip by the trustee or the
holders of at least 25% in aggregate principal amount of the
notes then outstanding, voting as a single class, to comply with
the provisions described under the captions
Repurchase at the Option of
Holders Change of Control; or
Repurchase at the Option of
Holders Asset Sales;
(5) failure by Parent or any of its Restricted Subsidiaries
for 60 days after notice to MagnaChip by the trustee or the
holders of at least 25% in aggregate principal amount of the
notes then outstanding, voting as a single class, to comply with
any of the other agreements in the indenture;
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(6) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by Parent or
any of its Restricted Subsidiaries (or the payment of which is
Guaranteed by Parent or any of its Restricted Subsidiaries),
whether such Indebtedness or Guarantee now exists, or is created
after the Issue Date, if that default:
(a) is caused by a failure to pay principal of, premium on,
if any, or interest, if any, on, such Indebtedness in an
aggregate amount in excess of $250,000, prior to the expiration
of the grace period provided in such Indebtedness on the date of
such default (a Payment Default); or
(b) results in the acceleration of such Indebtedness prior
to its express maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$25.0 million or more;
(7) failure by Parent or any of its Restricted Subsidiaries
to pay final judgments entered by a court or courts of competent
jurisdiction aggregating in excess of $25.0 million
(excluding amounts covered by insurance provided by a carrier
that has acknowledged coverage in writing and has the ability to
perform), which judgments are not paid, bonded, discharged,
stayed, annulled or rescinded for a period of 60 days;
(8) except as permitted by the indenture, any Note
Guarantee is held in any judicial proceeding to be unenforceable
or invalid or ceases for any reason to be in full force and
effect, or any Guarantor, or any Person acting on behalf of any
Guarantor, denies or disaffirms its obligations under its Note
Guarantee; and
(9) certain events of bankruptcy or insolvency described in
the indenture with respect to Parent, either Issuer or any of
the other Restricted Subsidiaries of Parent that is a
Significant Subsidiary or any group of its Restricted
Subsidiaries of Parent at the same or similar time that, taken
together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events
of bankruptcy or insolvency, with respect to Parent, either
Issuer or any of the other Restricted Subsidiaries of Parent
that is a Significant Subsidiary or any group of Restricted
Subsidiaries of Parent that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due
and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or
the holders of at least 25% in aggregate principal amount of the
then outstanding notes may declare all the notes to be due and
payable immediately; provided that no such declaration
will be permitted with respect to an Event of Default of the
type referred to in clause (6) above if the underlying
Payment Default has been cured or waived or the underlying
acceleration has been waived or rescinded, as the case may be.
Notwithstanding the foregoing, the indenture will provide that,
to the extent that the Issuers elect, the sole remedy for an
Event of Default relating to the reporting obligations in the
indenture, as set forth under Certain
Covenants Reports, will, for the 180 days
after the occurrence of such Event of Default, consist
exclusively of the right to receive additional interest on the
notes at a rate equal to 0.50% per annum of the principal amount
of the notes. This additional interest will be payable in the
same manner and on the same dates as the stated interest payable
on the notes. The additional interest will accrue on all
outstanding notes from, and including, the date on which an
Event of Default relating to a failure to comply with the
reporting obligations in the indenture first occurs to, but not
including, the 180th day thereafter (or such earlier date
on which the Event of Default relating to the reporting
obligations shall have been cured or waived). On such
180th day, such additional interest shall cease to accrue
and the notes will be subject to acceleration as provided above.
If the Issuers do not elect to pay the additional interest
during the continuance of such an Event of Default in accordance
with this paragraph, the notes will be subject to acceleration
as provided above.
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Subject to certain limitations, holders of a majority in
aggregate principal amount of the then outstanding notes may
direct the trustee in its exercise of any trust or power. The
trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default if it determines that
withholding notice is in their interest, except a Default or
Event of Default relating to the payment of principal of,
premium on, if any, interest and Special Interest, if any.
Subject to the provisions of the indenture relating to the
duties of the trustee, in case an Event of Default occurs and is
continuing, the trustee will be under no obligation to exercise
any of the rights or powers under the indenture at the request
or direction of any holders of notes unless such holders have
offered to the trustee indemnity or security satisfactory to the
trustee against any loss, liability or expense. Except to
enforce the right to receive payment of principal, premium, if
any, interest or Special Interest, if any, when due, no holder
of a note may pursue any remedy with respect to the indenture or
the notes unless:
(1) such holder has previously given the trustee written
notice that an Event of Default is continuing;
(2) holders of at least 25% in aggregate principal amount
of the then outstanding notes make a written request to the
trustee to pursue the remedy;
(3) such holder or holders offer and, if requested, provide
to the trustee security or indemnity reasonably satisfactory to
the trustee against any loss, liability or expense;
(4) the trustee does not comply with such request within
60 days after receipt of the request and the offer of
security or indemnity; and
(5) during such
60-day
period, holders of a majority in aggregate principal amount of
the then outstanding notes do not give the trustee a direction
inconsistent with such request.
The holders of a majority in aggregate principal amount of the
then outstanding notes by written notice to the trustee may, on
behalf of the holders of all of the notes, rescind an
acceleration or waive any existing Default or Event of Default
and its consequences under the indenture, if the rescission
would not conflict with any judgment or decree, except a
continuing Default or Event of Default in the payment of
principal of, premium on, if any, interest or Special Interest,
if any, on, the notes.
MagnaChip is required to deliver to the trustee annually a
statement regarding compliance with the indenture. Upon becoming
aware of any Default or Event of Default, MagnaChip is required
to deliver to the trustee a statement specifying such Default or
Event of Default.
No Personal
Liability of Directors, Officers, Employees and
Stockholders
No past, present or future director, officer, employee,
incorporator or stockholder of the Issuers or any Guarantor, as
such, will have any liability for any obligations of the Issuers
or the Guarantors under the notes, the indenture, the Note
Guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of
notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Legal Defeasance
and Covenant Defeasance
MagnaChip may at any time, at the option of the Board of
Directors of MagnaChip evidenced by a resolution set forth in an
officers certificate, elect to have all of the obligations
of the Issuers discharged with respect to the outstanding notes
and all obligations of the Guarantors discharged with respect to
their Note Guarantees (Legal Defeasance) except for:
(1) the rights of holders of outstanding notes to receive
payments in respect of the principal of, premium on, if any,
interest or Special Interest, if any, on, such notes when such
payments are due from the trust referred to below;
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(2) the Issuers obligations with respect to the notes
concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance
of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee under the indenture, and the Issuers and the
Guarantors obligations in connection therewith; and
(4) the Legal Defeasance and Covenant Defeasance provisions
of the indenture.
In addition, MagnaChip may, at its option and at any time, elect
to have the obligations of the Issuers and the Guarantors
released with respect to certain covenants (including its
obligation to make Change of Control Offers and Asset Sale
Offers) that are described in the indenture (Covenant
Defeasance) and thereafter any omission to comply with
those covenants will not constitute a Default or Event of
Default with respect to the notes. In the event Covenant
Defeasance occurs, all Events of Default described under
Events of Default and Remedies (except
those relating to payments on the notes or bankruptcy,
receivership, rehabilitation or insolvency events) will no
longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) MagnaChip must irrevocably deposit with the trustee, in
trust, for the benefit of the holders of the notes, cash in
U.S. dollars, non-callable Government Securities, or a
combination thereof, in amounts as will be sufficient, in the
opinion of a nationally recognized investment bank, appraisal
firm or firm of independent public accountants, to pay the
principal of, premium on, if any, interest and Special Interest,
if any, on, the outstanding notes on the stated date for payment
thereof or on the applicable redemption date, as the case may
be, and MagnaChip must specify whether the notes are being
defeased to such stated date for payment or to a particular
redemption date;
(2) in the case of Legal Defeasance, MagnaChip must deliver
to the trustee an opinion of counsel confirming that
(a) MagnaChip has received from, or there has been
published by, the Internal Revenue Service a ruling or
(b) since the Issue Date, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel will confirm
that, the holders of the outstanding notes will not recognize
income, gain, deduction or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, MagnaChip must
deliver to the trustee an opinion of counsel confirming that the
holders of the outstanding notes will not recognize income,
gain, deduction or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is
continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be
applied to such deposit (and any similar concurrent deposit
relating to other Indebtedness), and the granting of Liens to
secure such borrowings);
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than the
indenture and the agreements governing any other Indebtedness
being defeased, discharged or replaced) to which any of the
Issuers or any of the Guarantors is a party or by which any of
the Issuers or any of the Guarantors is bound;
(6) MagnaChip must deliver to the trustee an officers
certificate stating that the deposit was not made by MagnaChip
with the intent of preferring the holders of notes over the
other
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creditors of MagnaChip with the intent of defeating, hindering,
delaying or defrauding any creditors of MagnaChip or
others; and
(7) MagnaChip must deliver to the trustee an officers
certificate and an opinion of counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Amendment,
Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the
indenture or the notes or the Note Guarantees may be amended or
supplemented with the consent of the holders of at least a
majority in aggregate principal amount of the then outstanding
notes (including, without limitation, additional notes, if any)
voting as a single class (including, without limitation,
consents obtained in connection with a tender offer or exchange
offer for, or purchase of, the notes), and any existing Default
or Event of Default (other than a Default or Event of Default in
the payment of the principal of, premium on, if any, interest or
Special Interest, if any, on, the notes, except a payment
default resulting from an acceleration that has been rescinded)
or compliance with any provision of the indenture or the notes
or the Note Guarantees may be waived with the consent of the
holders of a majority in aggregate principal amount of the then
outstanding notes (including, without limitation, additional
notes, if any) voting as a single class (including, without
limitation, consents obtained in connection with a purchase of,
or tender offer or exchange offer for, notes).
Without the consent of each holder of notes affected, an
amendment, supplement or waiver may not (with respect to any
notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of
any note or alter or waive any of the provisions with respect to
the redemption of the notes (except those provisions relating to
the covenants described above under the caption
Repurchase at the Option of Holders);
(3) reduce the rate of or change the time for payment of
interest, including default interest, on any note;
(4) waive a Default or Event of Default in the payment of
principal of, premium on, if any, interest or Special Interest,
if any, on, the notes (except a rescission of acceleration of
the notes by the holders of at least a majority in aggregate
principal amount of the then outstanding notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated
in the notes;
(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of holders of
notes to receive payments of principal of, premium on, if any,
interest or Special Interest, if any, on, the notes;
(7) waive a redemption payment with respect to any note
(other than a payment required by one of the covenants described
above under the caption Repurchase at the
Option of Holders);
(8) release any Guarantor from any of its obligations under
its Note Guarantee or the indenture, except in accordance with
the terms of the indenture; or
(9) make any change in the preceding amendment and waiver
provisions.
Notwithstanding the preceding, without the consent of any holder
of notes, the Issuers, the Guarantors and the trustee may amend
or supplement the indenture, the notes or the Note Guarantees:
(1) to cure any ambiguity, defect or inconsistency;
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(2) to provide for uncertificated notes in addition to or
in place of certificated notes;
(3) to provide for the assumption of an Issuers or a
Guarantors obligations to holders of notes and Note
Guarantees in the case of a merger or consolidation or sale of
all or substantially all of such Issuers or such
Guarantors assets, as applicable;
(4) to make any change that would provide any additional
rights or benefits to the holders of notes or that does not
adversely affect the legal rights under the indenture of any
holder;
(5) to comply with requirements of the SEC in order to
effect or maintain the qualification of the indenture under the
Trust Indenture Act;
(6) to conform the text of the indenture, the notes, the
Note Guarantees to any provision of this Description of New
Notes to the extent that such provision in this Description of
New Notes was intended to be a verbatim recitation of a
provision of the indenture, the notes, the Note Guarantees,
which intent may be evidenced by an officers certificate
to that effect;
(7) to provide for the issuance of additional notes in
accordance with the limitations set forth in the indenture as of
the Issue Date; or
(8) to allow any Guarantor to execute a supplemental
indenture
and/or a
Note Guarantee with respect to the notes.
Satisfaction and
Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost,
stolen or destroyed notes that have been replaced or paid and
notes for whose payment money has been deposited in trust and
thereafter repaid to MagnaChip, have been delivered to the
trustee for cancellation; or
(b) all notes that have not been delivered to the trustee
for cancellation have become due and payable by reason of the
mailing of a notice of redemption or otherwise or will become
due and payable within one year and MagnaChip or any Guarantor
has irrevocably deposited or caused to be deposited with the
trustee as trust funds in trust solely for the benefit of the
holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in amounts as will be
sufficient, without consideration of any reinvestment of
interest, to pay and discharge the entire Indebtedness on the
notes not delivered to the trustee for cancellation for
principal of, premium on, if any, interest and Special Interest,
if any, on, the notes to the date of maturity or redemption;
(2) in respect of clause 1(b), no Default or Event of
Default has occurred and is continuing on the date of the
deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit and any
similar deposit relating to other Indebtedness and, in each
case, the granting of Liens to secure such borrowings) and the
deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which either
Issuer or any Guarantor is a party or by which either Issuer or
any Guarantor is bound (other than with respect to the borrowing
of funds to be applied concurrently to make the deposit required
to effect such satisfaction and discharge and any similar
concurrent deposit relating to other Indebtedness, and in each
case the granting of Liens to secure such borrowings);
(3) an Issuer or any Guarantor has paid or caused to be
paid all sums payable by it under the indenture; and
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(4) an Issuer has delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward
the payment of the notes at maturity or on the redemption date,
as the case may be.
In addition, Parent must deliver an officers certificate
and an opinion of counsel to the trustee stating that all
conditions precedent to satisfaction and discharge have been
satisfied.
Concerning the
Trustee
If the trustee becomes a creditor of either Issuer or any
Guarantor, the indenture limits the right of the trustee to
obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as
security or otherwise. The trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting
interest it must eliminate such conflict within 90 days,
apply to the SEC for permission to continue as trustee (if the
indenture has been qualified under the Trust Indenture Act)
or resign.
The holders of a majority in aggregate principal amount of the
then outstanding notes will have the right to direct the time,
method and place of conducting any proceeding for exercising any
remedy available to the trustee, subject to certain exceptions.
The indenture provides that in case an Event of Default has
occurred and is continuing, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such
provisions, the trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request
of any holder of notes, unless such holder has offered to the
trustee reasonable indemnity or security satisfactory to it
against any loss, liability or expense.
Governing
Law
The internal law of the state of New York will govern and be
used to construe the indenture, the notes and the note
guarantees without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws
of another jurisdiction would be required thereby. For the
avoidance of doubt, the indenture, the notes and the note
guarantees are not subject to Article 86 to
94-8 of the
Luxembourg law of 10 August 1915 on commercial companies,
as amended.
Additional
Information
Anyone who receives this prospectus may obtain a copy of the
indenture and the notes registration rights agreement without
charge by writing to
c/o MagnaChip
Semiconductor, Inc., 20400 Stevens Creek Boulevard,
Suite 370, Cupertino, CA 95014, Attention: General Counsel.
Book-Entry,
Delivery and Form
Except as set forth below, the new notes will be issued in
registered, global form in minimum denominations of $2,000 and
integral multiples of $1,000. The new notes will be issued at
the closing of the exchange offer only against surrender of
corresponding old notes. The new notes will be in the form of
one or more registered global notes without interest coupons
(collectively, the Global Notes). The Global Notes
will be deposited upon issuance with the trustee as custodian
for The Depository Trust Company (DTC), in New
York, New York, and registered in the name of DTC or its
nominee, in each case, for credit to an account of a direct or
indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the
Global Notes may not be exchanged for definitive notes in
registered certificated form (Certificated Notes)
except in the limited circumstances described below. See
Exchange of Global Notes for Certificated
Notes. Except in the limited circumstances described
below, owners of beneficial interests in the Global Notes will
not be entitled to receive physical delivery of notes in
certificated form.
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Depository
Procedures
The following description of the operations and procedures of
DTC, Euroclear and Clearstream are provided solely as a matter
of convenience. These operations and procedures are solely
within the control of the respective settlement systems and are
subject to changes by them. The Issuers take no responsibility
for these operations and procedures and urges investors to
contact the system or their participants directly to discuss
these matters.
DTC has advised the Issuers that DTC is a limited-purpose trust
company created to hold securities for its participating
organizations (collectively, the Participants) and
to facilitate the clearance and settlement of transactions in
those securities between the Participants through electronic
book-entry changes in accounts of its Participants. The
Participants include securities brokers and dealers (including
the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to
DTCs system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either
directly or indirectly (collectively, the Indirect
Participants). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in,
each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
DTC has also advised the Issuers that, pursuant to procedures
established by it:
(1) upon deposit of the Global Notes, DTC will credit the
accounts of the Participants with portions of the principal
amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will
be shown on, and the transfer of ownership of these interests
will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants may hold
their interests therein directly through DTC. Investors in the
Global Notes who are not Participants may hold their interests
therein indirectly through organizations (including Euroclear
and Clearstream) which are Participants. All interests in a
Global Note, including those held through Euroclear or
Clearstream, may be subject to the procedures and requirements
of DTC. Those interests held through Euroclear or Clearstream
may also be subject to the procedures and requirements of such
systems. The laws of some states require that certain Persons
take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to
that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect
Participants, the ability of a Person having beneficial
interests in a Global Note to pledge such interests to Persons
that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the Global
Notes will not have notes registered in their names, will not
receive physical delivery of notes in certificated form and will
not be considered the registered owners or holders
thereof under the indenture for any purpose.
Payments in respect of the principal of, premium on, if any,
interest and Special Interest, if any, on, a Global Note
registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered holder under the
indenture. Under the terms of the indenture, the Issuers and the
trustee will treat the Persons in whose names the notes,
including the Global Notes, are registered as the owners of the
notes for the purpose of receiving payments and for all other
purposes.
191
Consequently, neither the Issuers, the trustee nor any agent of
the Issuers or the trustee has or will have any responsibility
or liability for:
(1) any aspect of DTCs records or any
Participants or Indirect Participants records
relating to or payments made on account of beneficial ownership
interest in the Global Notes or for maintaining, supervising or
reviewing any of DTCs records or any Participants or
Indirect Participants records relating to the beneficial
ownership interests in the Global Notes; or
(2) any other matter relating to the actions and practices
of DTC or any of its Participants or Indirect Participants.
DTC has advised the Issuers that its current practice, upon
receipt of any payment in respect of securities such as the
notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe that it will not
receive payment on such payment date. Each relevant Participant
is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant
security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the
responsibility of DTC, the trustee or the Issuers. Neither the
Issuers nor the trustee will be liable for any delay by DTC or
any of the Participants or the Indirect Participants in
identifying the beneficial owners of the notes, and the Issuers
and the trustee may conclusively rely on and will be protected
in relying on instructions from DTC or its nominee for all
purposes.
Transfers between the Participants will be effected in
accordance with DTCs procedures, and will be settled in
same-day
funds, and transfers between participants in Euroclear and
Clearstream will be effected in accordance with their respective
rules and operating procedures.
Cross-market transfers between the Participants, on the one
hand, and Euroclear or Clearstream participants, on the other
hand, will be effected through DTC in accordance with DTCs
rules on behalf of Euroclear or Clearstream, as the case may be,
by their respective depositaries; however, such cross-market
transactions will require delivery of instructions to Euroclear
or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within
the established deadlines (Brussels time) of such system.
Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to
effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Note in DTC, and making or
receiving payment in accordance with normal procedures for
same-day
funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised the Issuers that it will take any action
permitted to be taken by a holder of notes only at the direction
of one or more Participants to whose account DTC has credited
the interests in the Global Notes and only in respect of such
portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such
direction. However, if there is an Event of Default under the
notes, DTC reserves the right to exchange the Global Notes for
legended notes in certificated form, and to distribute such
notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the
foregoing procedures to facilitate transfers of interests in the
Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such
procedures at any time. None of the Issuers, the trustee and any
of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Clearstream or their respective
participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations.
192
Exchange of
Global Notes for Certificated Notes
A Global Note is exchangeable for Certificated Notes if:
(1) DTC (a) notifies the Issuers that it is unwilling
or unable to continue as depositary for the Global Notes or
(b) has ceased to be a clearing agency registered under the
Exchange Act and, in either case, the Issuers fail to appoint a
successor depositary;
(2) the Issuers, at their option, notify the trustee in
writing that they elect to cause the issuance of the
Certificated Notes; or
(3) there has occurred and is continuing a Default or Event
of Default with respect to the notes.
In addition, beneficial interests in a Global Note may be
exchanged for Certificated Notes upon prior written notice given
to the trustee by or on behalf of DTC in accordance with the
indenture. In all cases, Certificated Notes delivered in
exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures).
Exchange of
Certificated Notes for Global Notes
Certificated Notes may not be exchanged for beneficial interests
in any Global Note unless the transferor first delivers to the
trustee a written certificate (in the form provided in the
indenture) to the effect that such transfer will comply with the
appropriate transfer restrictions applicable to such notes.
Same Day
Settlement and Payment
MagnaChip will make payments in respect of the notes represented
by the Global Notes (including principal, premium, if any,
interest and Special Interest, if any, by wire transfer of
immediately available funds to the accounts specified by DTC or
its nominee. MagnaChip will make all payments of principal,
premium, if any, interest and Special Interest, if any, with
respect to Certificated Notes) by wire transfer of immediately
available funds to the accounts specified by the holders of the
Certificated Notes or, if no such account is specified, by
mailing a check to each such holders registered address.
The notes represented by the Global Notes are expected to be
eligible to trade in DTCs
Same-Day
Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. MagnaChip
expects that secondary trading in any Certificated Notes will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
Global Note from a Participant will be credited, and any such
crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC.
DTC has advised MagnaChip that cash received in Euroclear or
Clearstream as a result of sales of interests in a Global Note
by or through a Euroclear or Clearstream participant to a
Participant will be received with value on the settlement date
of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTCs settlement date.
Certain
Definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all
defined terms used therein, as well as any other capitalized
terms used herein for which no definition is provided.
2009 Registration Rights Agreement
means the Registration Rights Agreement, dated as of
November 9, 2009, among Parent and each of the
securityholders party thereto.
193
2009 Warrant Agreement means the
Warrant Agreement, dated as of November 9, 2009, between
Parent and American Stock Transfer &
Trust Company, as warrant agent.
Acquired Debt means, with respect to
any specified Person:
(1) Indebtedness of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary
of such specified Person, whether or not such Indebtedness is
incurred in connection with, or in contemplation of, such other
Person merging with or into, or becoming a Restricted Subsidiary
of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
Affiliate of any specified Person
means any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with
such specified Person. For purposes of this definition,
control, as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial
ownership of 10% or more of the Voting Stock of a Person will be
deemed to be control. For purposes of this definition, the terms
controlling, controlled by and
under common control with have correlative meanings.
Applicable Premium means, with respect
to any note on any redemption date, the greater of:
(1) 1.0% of the principal amount of the note; or
(2) the excess of:
(a) the present value at such redemption date of
(i) the redemption price of the note at April 15, 2014
(such redemption price being set forth in the table appearing
above under the caption Optional
Redemption), plus (ii) all required interest payments
due on the note through April 15, 2014 (excluding accrued
but unpaid interest to the redemption date), computed using a
discount rate equal to the Treasury Rate as of such redemption
date plus 50 basis points; over
(b) the principal amount of the note.
Asset Sale means:
(1) the sale, lease, conveyance or other disposition of any
assets or rights by Parent or any of its Restricted
Subsidiaries; provided that the sale, lease, conveyance
or other disposition of all or substantially all of the assets
of Parent and its Restricted Subsidiaries taken as a whole will
be governed by the provisions of the indenture described above
under the caption Repurchase at the Option of
Holders Change of Control
and/or the
provisions described above under the caption
Certain Covenants Merger,
Consolidation or Sale of Assets and not by the provisions
of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of
Parents Restricted Subsidiaries or the sale by Parent or
any of its Restricted Subsidiaries of Equity Interests in any of
Parents Subsidiaries.
Notwithstanding the preceding, none of the following items will
be deemed to be an Asset Sale:
(1) any single transaction or series of related
transactions that involves assets having a Fair Market Value of
less than $5.0 million;
(2) a transfer of assets between or among Parent and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted
Subsidiary of Parent to Parent or to a Restricted Subsidiary of
Parent;
194
(4) the sale, lease or other transfer of products, services
or accounts receivable in the ordinary course of business and
any sale or other disposition of damaged, worn-out or obsolete
assets in the ordinary course of business (including the
abandonment or other disposition of intellectual property that
is, in the reasonable judgment of MagnaChip, no longer
economically practicable to maintain or useful in the conduct of
the business of Parent and its Restricted Subsidiaries taken as
whole);
(5) licenses and sublicenses by Parent or any of its
Restricted Subsidiaries of software or intellectual property in
the ordinary course of business;
(6) any surrender or waiver of contract rights or
settlement, release, recovery on or surrender of contract, tort
or other claims in the ordinary course of business;
(7) the granting of Liens not prohibited by the covenant
described above under the caption Liens;
(8) the sale or other disposition of cash or Cash
Equivalents;
(9) any exchange of like property pursuant to
Section 1031 of the Internal Revenue Code for use in a
Permitted Business; and
(10) a Restricted Payment that does not violate the
covenant described above under the caption
Certain Covenants Restricted
Payments or a Permitted Investment.
Asset Sale Offer has the meaning
assigned to that term in the indenture governing the notes.
Attributable Debt in respect of a sale
and leaseback transaction means, at the time of determination,
the present value of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which
such lease has been extended or may, at the option of the
lessor, be extended. Such present value shall be calculated
using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with GAAP;
provided, however, that if such sale and leaseback
transaction results in a Capital Lease Obligation, the amount of
Indebtedness represented thereby will be determined in
accordance with the definition of Capital Lease
Obligation.
Beneficial Owner has the meaning
assigned to such term in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act, except that in calculating the
beneficial ownership of any particular person (as
that term is used in Section 13(d)(3) of the Exchange Act),
such person will be deemed to have beneficial
ownership of all securities that such person has the
right to acquire by conversion or exercise of other securities,
whether such right is currently exercisable or is exercisable
only after the passage of time. The terms Beneficially
Owns and Beneficially Owned have a
corresponding meaning.
Board of Directors means:
(1) with respect to a corporation, the board of directors
of the corporation or any committee thereof duly authorized to
act on behalf of such board;
(2) with respect to a partnership, the Board of Directors
of the general partner of the partnership;
(3) with respect to a limited liability company, the
managing member or members or any controlling committee of
managing members thereof; and
(4) with respect to any other Person, the board or
committee of such Person serving a similar function.
195
Borrowing Base means, as of any date,
an amount equal to:
(1) 85% of the face amount of all accounts receivable owned
by Parent and its Restricted Subsidiaries as of the end of the
most recent fiscal quarter preceding such date that were not
more than 180 days past due; plus
(2) 50% of the book value of all inventory, net of reserves
owned by Parent and its Restricted Subsidiaries as of the end of
the most recent fiscal quarter preceding such date.
Capital Lease Obligation means, at the
time any determination is to be made, the amount of the
liability in respect of a capital lease that would at that time
be required to be capitalized on a balance sheet prepared in
accordance with GAAP, and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due
under such lease prior to the first date upon which such lease
may be prepaid by the lessee without payment of a penalty.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability
company, partnership interests (whether general or limited) or
membership interests; and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person, but
excluding from all of the foregoing any debt securities
convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.
Cash Equivalents means:
(1) United States dollars, South Korean Won, Pound
Sterling, Hong Kong dollars, New Taiwan dollars, Euros and
Japanese yen;
(2) securities issued or directly and fully guaranteed or
insured by the United States government, South Korean
government, governments of EU member states with a S&P
sovereign credit rating of A or better, the Japanese government,
the Taiwan government, the Hong Kong government, or any agency
or instrumentality of any such government (provided that
the full faith and credit of any such government is pledged in
support of those securities) having maturities of not more than
one year from the date of acquisition;
(3) United States dollar denominated and South Korean Won
denominated certificates of deposit, eurodollar time deposits
and similar instruments in the United States, Hong Kong, Taiwan
and Japan with maturities of one year or less from the date of
acquisition, bankers acceptances with maturities not
exceeding one year and overnight bank deposits, in each case,
with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Thomson Bank Watch Rating of
B or better or a comparable rating by a comparable
rating agency in the relevant jurisdiction if such Thomson Bank
Watch Rating is not available;
(4) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (2) and (3) above entered into with any
financial institution meeting the qualifications specified in
clause (3) above;
(5) commercial paper having one of the two highest ratings
obtainable from Moodys or S&P and, in each case,
maturing within one year after the date of acquisition; and
(6) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in
clauses (1) through (5) of this definition; and
196
(7) in the case of a Foreign Subsidiary, (a) currency
of the countries in which such Foreign Subsidiary conducts
business, and (b) investments of the type and maturity
described in clause (3) above of foreign obligors, which
investments or obligors have the rating described in such clause.
Change of Control means the occurrence
of any of the following:
(1) the direct or indirect sale, lease, transfer,
conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of Parent
and its Subsidiaries taken as a whole to any Person (including
any person (as that term is used in
Section 13(d)(3) of the Exchange Act)) other than one or
more of its Restricted Subsidiaries or a Principal or a Related
Party of a Principal;
(2) the formal adoption of a plan relating to the
liquidation or dissolution of Parent (Parents statutory
conversion into a corporation at any time prior to the
consummation of the Initial Public Offering shall not be deemed
a liquidation or dissolution);
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation), the result of which is
that any Person (including any person (as defined
above), other than the Principals and their Related Parties or a
Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Parent,
measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of the
Board of Directors of Parent are not Continuing
Directors; or
(5) the first day on which Parent ceases to own, directly
or indirectly, 100% of the outstanding Equity Interests of
MagnaChip (excluding for purposes of such calculation all
director qualifying shares, if any, that are outstanding).
Change of Control Offer has the
meaning assigned to that term in the indenture governing the
notes.
Consolidated EBITDA means, with
respect to any specified Person for any period, the Consolidated
Net Income of such Person for such period plus, without
duplication:
(1) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing
such Consolidated Net Income; plus
(2) the Fixed Charges of such Person and its Restricted
Subsidiaries for such period, to the extent that such Fixed
Charges were deducted in computing such Consolidated Net Income;
plus
(3) any foreign currency translation losses (including
losses related to currency remeasurements of Indebtedness) of
such Person and its Restricted Subsidiaries for such period, to
the extent that such losses were taken into account in computing
such Consolidated Net Income; plus
(4) all depreciation, amortization (including amortization
of intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash
charges and expenses (excluding any such non-cash charge or
expense to the extent that it represents an accrual of or
reserve for cash charges or expenses in any future period or
amortization of a prepaid cash charge or expense that was paid
in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges or
expenses were deducted in computing such Consolidated Net
Income; plus
197
(5) all unusual or non-recurring charges or expenses of
such Person and its Restricted Subsidiaries for such period, to
the extent the same were deducted in computing such Consolidated
Net Income; plus
(6) all restructuring and impairment charges or expenses of
such Person and its Restricted Subsidiaries for such period, to
the extent the same were deducted in computing such Consolidated
Net Income; plus
(7) any increase to cost of goods sold of such Person and
its Restricted Subsidiaries for such period arising out of the
fresh start accounting treatment of the
Reorganization; minus
(8) any foreign currency translation gains (including gains
related to currency remeasurements of Indebtedness) of such
Person and its Restricted Subsidiaries for such period, to the
extent such gains were taken into account in computing such
Consolidated Net Income; minus
(9) non-cash items increasing such Consolidated Net Income
for such period, other than the accrual of revenue in the
ordinary course of business,
in each case, on a consolidated basis and determined in
accordance with GAAP.
Consolidated Net Income means, with
respect to any specified Person for any period, the aggregate of
the net income (loss) of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis (excluding
the net income (loss) of any Unrestricted Subsidiary of such
Person), determined in accordance with GAAP and without any
reduction in respect of preferred stock dividends; provided
that:
(1) all extraordinary gains (and losses) and all gains (and
losses) realized in connection with any Asset Sale or the
disposition of securities or the early extinguishment of
Indebtedness, together with any related provision for taxes on
any such gain, will be excluded;
(2) the net income (but not loss) of any Person that is not
a Restricted Subsidiary of the specified Person or that is
accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or
similar distributions paid in cash to the specified Person or a
Restricted Subsidiary of the Person;
(3) for purposes of clauses (c)(1) through (c)(5) of the
first paragraph of the covenant described above under the
caption Restricted Payments, the net
income (but not loss) of any Restricted Subsidiary will be
excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary
of that net income is not at the date of determination permitted
without any prior governmental approval (that has not been
obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, except to the
extent that a dividend or similar distribution is actually and
lawfully made to such Person or to another Restricted Subsidiary
of such Person that is not subject to any such restriction on
dividends or similar distributions; provided that
restrictions under the laws of South Korea or restrictions in
any Credit Facilities that were permitted by the terms of the
indenture to be incurred will be disregarded for purposes of
this clause (3);
(4) the cumulative effect of a change in accounting
principles will be excluded; and
(5) non-cash gains and losses attributable to movement in
the
mark-to-market
valuation of Hedging Obligations pursuant to ASC 815,
Derivatives and Hedging, formerly
SFAS No. 133 will be excluded.
Continuing means, with respect to any
default, Default or Event of Default, that such default, Default
or Event of Default has not been cured or waived. In the case of
an Event of Default under clause (6) of the Event of
Default definition, such Event of Default shall no longer be
continuing upon
198
the cure or waiver of the default of the Indebtedness described
therein that causes such Event of Default to occur or the
rescission of the declaration of acceleration of such
Indebtedness.
Continuing Directors means, as of any
date of determination, any member of the Board of Directors of
Parent who:
(1) was a member of such Board of Directors on the Issue
Date; or
(2) was nominated for election or elected or appointed to
such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board of Directors
at the time of such nomination or election.
Credit Agreement means the Amended and
Restated Credit Agreement, dated as of November 6, 2009,
among MagnaChip, FinanceCo, Parent, the guarantors party
thereto, the lenders party thereto and Wilmington
Trust FSB, as Administrative Agent.
Credit Facilities means one or more
indentures, purchase agreements, debt facilities or commercial
paper facilities providing for the issuance of debt securities,
revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced in any
manner (whether upon or after termination or otherwise) or
refinanced (including by means of sales of debt securities to
institutional investors) in whole or in part from time to time.
Default means any event that is, or
with the passage of time or the giving of notice or both would
be, an Event of Default.
Designated Non-cash Consideration
means the Fair Market Value of non-cash consideration received
by Parent or a Restricted Subsidiary in connection with an Asset
Sale that is so designated as Designated Non-cash Consideration
pursuant to an officers certificate, setting forth the
basis of such valuation, executed by Parents chief
financial officer, less the amount of cash or Cash Equivalents
received in a subsequent sale of or collection on such
Designated Non-cash Consideration.
Director Indemnification Agreements
means indemnification agreements between Parent and the members
of Parents Board of Directors.
Disqualified Stock means any Capital
Stock that, by its terms (or by the terms of any security into
which it is convertible, or for which it is exchangeable, in
each case, at the option of the holder of the Capital Stock), or
upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise,
or redeemable at the option of the holder of the Capital Stock,
in whole or in part, on or prior to the date that is
91 days after the date on which the notes mature.
Notwithstanding the preceding sentence, any Capital Stock that
would constitute Disqualified Stock solely because the holders
of the Capital Stock have the right to require Parent to
repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock
if the terms of such Capital Stock provide that Parent may not
repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with
the covenant described above under the caption
Certain Covenants Restricted
Payments. The amount of Disqualified Stock deemed to be
outstanding at any time for purposes of the indenture will be
the maximum amount that Parent and its Restricted Subsidiaries
may become obligated to pay upon the maturity of, or pursuant to
any mandatory redemption provisions of, such Disqualified Stock,
exclusive of accrued dividends.
Equity Interests means Capital Stock
and all warrants, options or other rights to acquire Capital
Stock (but excluding any debt security that is convertible into,
or exchangeable for, Capital Stock).
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Existing Indebtedness means all
Indebtedness of Parent and its Restricted Subsidiaries in
existence on the Issue Date, until such amounts are repaid.
Fair Market Value means the value that
would be paid by a willing buyer to an unaffiliated willing
seller in a transaction not involving distress or necessity of
either party, determined in good faith by the Board of Directors
of Parent (unless otherwise provided in the indenture).
Fixed Charge Coverage Ratio means with
respect to any specified Person for any period, the ratio of the
Consolidated EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the
specified Person or any of its Restricted Subsidiaries incurs,
assumes, guarantees, repays, repurchases, redeems, defeases or
otherwise discharges any Indebtedness (other than ordinary
working capital borrowings) or issues, repurchases or redeems
preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated and on
or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the
Calculation Date), then the Fixed Charge Coverage
Ratio will be calculated giving pro forma effect to such
incurrence, assumption, Guarantee, repayment, repurchase,
redemption, defeasance or other discharge of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and
the use of the proceeds therefrom, as if the same had occurred
at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
(1) acquisitions that have been made by the specified
Person or any of its Restricted Subsidiaries, including through
mergers or consolidations, or any Person or any of its
Restricted Subsidiaries acquired by the specified Person or any
of its Restricted Subsidiaries, and including all related
financing transactions and including increases in ownership of
Restricted Subsidiaries, during the four-quarter reference
period or subsequent to such reference period and on or prior to
the Calculation Date, or that are to be made on the Calculation
Date, will be given pro forma effect as if they had occurred on
the first day of the four-quarter reference period, including
all Pro Forma Cost Savings, as if the same had been realized at
the beginning of such four-quarter period;
(2) the Consolidated EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date, will be excluded;
(3) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date, will be excluded, but
only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the specified Person or
any of its Restricted Subsidiaries following the Calculation
Date;
(4) any Person that is a Restricted Subsidiary on the
Calculation Date will be deemed to have been a Restricted
Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the
Calculation Date will be deemed not to have been a Restricted
Subsidiary at any time during such four-quarter period;
(6) if any Indebtedness bears a floating rate of interest,
the interest expense on such Indebtedness will be calculated as
if the rate in effect on the Calculation Date had been the
applicable rate for the entire period (taking into account any
Hedging Obligation applicable to such Indebtedness if such
Hedging Obligation has a remaining term as at the Calculation
Date in excess of 12 months); and
(7) in the case of any four-quarter reference period that
includes any period of time prior to the consummation of the
Reorganization, pro forma effect shall be given to the
Reorganization as if the same had occurred at the beginning of
such four-quarter period.
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Fixed Charges means, with respect to
any specified Person for any period, the sum, without
duplication, of:
(1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or
accrued, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment
obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers
acceptance financings, and net of the effect of all payments
made or received pursuant to Hedging Obligations in respect of
interest rates; plus
(2) the consolidated interest expense of such Person and
its Restricted Subsidiaries that was capitalized during such
period; plus
(3) any interest on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries, whether or not such Guarantee or Lien
is called upon; plus
(4) the product of (a) all dividends, whether paid or
accrued and whether or not in cash, on any series of preferred
stock of such Person or any of its Restricted Subsidiaries,
other than dividends on Equity Interests payable solely in
Equity Interests of Parent (other than Disqualified Stock) or to
Parent or a Restricted Subsidiary of Parent, times
(b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, determined on a
consolidated basis in accordance with GAAP.
Foreign Subsidiary means any
Restricted Subsidiary that is not formed under the laws of the
United States or any state of the United States or the District
of Columbia.
GAAP means United States generally
accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity
as have been approved by a significant segment of the accounting
profession in the United States, which are in effect from time
to time.
Government Securities means direct
obligations of, or obligations guaranteed by, the
United States of America (including any agency or
instrumentality thereof) for the payment of which obligations or
guarantees the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at
the issuers option.
Guarantee means a guarantee other than
by endorsement of negotiable instruments for collection in the
ordinary course of business, direct or indirect, in any manner
including, without limitation, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness (whether arising
by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to
take or pay or to maintain financial statement conditions or
otherwise).
Guarantors means Parent and any
Restricted Subsidiary of Parent (other than the Issuers) that
executes a Note Guarantee in accordance with the provisions of
the indenture, and their respective successors and assigns, in
each case, until the Note Guarantee of such Person has been
released in accordance with the provisions of the indenture.
Hedging Obligations means, with
respect to any specified Person, the obligations of such Person
under:
(1) interest rate swap agreements (whether from fixed to
floating or from floating to fixed), interest rate cap
agreements and interest rate collar agreements;
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(2) other agreements or arrangements designed to manage
interest rates or interest rate risk; and
(3) other agreements or arrangements designed to protect
such Person against fluctuations in currency exchange rates or
commodity prices.
Immaterial Subsidiary means, as of any
date, any Restricted Subsidiary whose total assets, as of that
date, are less than $500,000 and whose total revenues for the
most recent twelve-month period do not exceed $500,000;
provided that a Restricted Subsidiary will not be
considered to be an Immaterial Subsidiary if it, directly or
indirectly, Guarantees any Indebtedness of Parent.
Indebtedness means, with respect to
any specified Person, any indebtedness of such Person (excluding
accrued expenses and trade payables), whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3) in respect of bankers acceptances;
(4) representing Capital Lease Obligations or Attributable
Debt in respect of sale and leaseback transactions;
(5) representing the balance deferred and unpaid of the
purchase price of any property or services due more than six
months after such property is acquired or such services are
completed; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than
letters of credit, Attributable Debt and Hedging Obligations)
would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition,
the term Indebtedness includes all Indebtedness of
others secured by a Lien on any asset of the specified Person
(whether or not such Indebtedness is assumed by the specified
Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.
Indebtedness shall be calculated without giving effect to the
effects of Statement of Financial Accounting Standards
No. 133 and related interpretations to the extent such
effects would otherwise increase or decrease an amount of
Indebtedness for any purpose under the indenture as a result of
accounting for any embedded derivatives created by the terms of
such Indebtedness.
Initial Public Offering means the
first public sale of Qualifying Equity Interests of Parent in an
offering that is registered under the Securities Act that is
consummated after the Issue Date.
Investments means, with respect to any
Person, all direct or indirect investments by such Person in
other Persons (including Affiliates) in the forms of loans
(including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances
to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP. If Parent or
any Restricted Subsidiary of Parent sells or otherwise disposes
of any Equity Interests of any direct or indirect Restricted
Subsidiary of Parent such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted
Subsidiary of Parent, Parent will be deemed to have made an
Investment on the date of any such sale or disposition equal to
the Fair Market Value of Parents Investments in such
Subsidiary that were not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant
described above under the caption Certain
Covenants Restricted Payments. The acquisition
by Parent or any Restricted Subsidiary of Parent of a Person
that holds an Investment in a third Person will be deemed to be
an Investment by Parent or such Restricted Subsidiary in such
third Person in an amount equal to the Fair Market Value of the
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Investments held by the acquired Person in such third Person in
an amount determined as provided in the final paragraph of the
covenant described above under the caption
Certain Covenants Restricted
Payments. Except as otherwise provided in the indenture,
the amount of an Investment will be determined at the time the
Investment is made and without giving effect to subsequent
changes in value.
Issue Date means April 9, 2010.
Lien means, with respect to any asset,
any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, whether or not
filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing
of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any
jurisdiction.
MagnaChip China Subsidiaries means
MagnaChip Semiconductor (Shanghai) Company Limited and all other
Subsidiaries of Parent at any time organized under the laws of
the Peoples Republic of China.
MagnaChip Korea means MagnaChip
Semiconductor, Ltd.
Moodys means Moodys
Investors Service, Inc.
Net Proceeds means the aggregate cash
proceeds and Cash Equivalents received by Parent or any of its
Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash or Cash Equivalents received upon
the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal,
accounting and investment banking fees, and sales commissions,
and any relocation expenses incurred as a result of the Asset
Sale, taxes paid or payable as a result of the Asset Sale, in
each case, after taking into account any available tax credits
or deductions and any tax sharing arrangements, and any reserve
for adjustment or indemnification obligations in respect of the
sale price of such asset or assets established in accordance
with GAAP.
Non-Recourse Debt means Indebtedness:
(1) as to which neither Parent nor any of its Restricted
Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would
constitute Indebtedness) or (b) is directly or indirectly
liable as a guarantor or otherwise; and
(2) as to which the lenders have been notified in writing
that they will not have any recourse to the stock or assets of
Parent or any of its Restricted Subsidiaries (other than the
Equity Interests of an Unrestricted Subsidiary).
Note Guarantee means the Guarantee by
each Guarantor of the Issuers obligations under the
indenture and the notes, executed pursuant to the provisions of
the indenture.
Obligations means any principal,
interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation
governing any Indebtedness.
Parent means MagnaChip Semiconductor
LLC, the direct parent company of MagnaChip, and any successor
thereto.
Pari Passu Indebtedness means any
Indebtedness of either Issuer or any Guarantor other than
unsecured Indebtedness that:
(1) is contractually subordinated to the prior payment in
full in cash of the notes, the guarantees and all related
Obligations under the Indenture (including interest accruing
after the commencement of a bankruptcy or insolvency proceeding,
whether or not such interest constitutes an allowable claim) on
terms customary for high yield securities as of the
date of incurrence of such Indebtedness; and
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(2) has a longer Weighted Average Life to Maturity than the
remaining Weighted Average Life to Maturity of the notes as of
the date of such incurrence.
Permitted Business means the
businesses of MagnaChip, its direct and indirect parents, and
their respective subsidiaries as of the Issue Date and any other
business ancillary, supplementary or complementary to the
semiconductor business, as determined in good faith by
Parents Board of Directors.
Permitted Group means any group of
investors that is deemed to be a person (as that
term is used in Section 13(d)(3) of the Exchange Act);
provided that at least a majority of the shares of Voting
Stock Beneficially Owned by such group of investors are
Beneficially Owned by the Principals and their Related Parties.
For purposes of this definition, shares Beneficially Owned by
one person will not be attributed to any other Person solely by
virtue of being part of the same group of investors for purposes
of Section 13(d)(3).
Permitted Investments means:
(1) any Investment in Parent or in a Restricted Subsidiary
of Parent;
(2) any Investment in Cash Equivalents;
(3) any Investment by Parent or any Restricted Subsidiary
of Parent in a Person that is not a Restricted Subsidiary, if as
a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of
Parent; or
(b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, Parent or a Restricted Subsidiary of
Parent;
(4) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales;
(5) any acquisition of assets or Capital Stock solely in
exchange for the issuance of Equity Interests (other than
Disqualified Stock) of Parent;
(6) any Investments received in compromise or resolution of
(A) obligations of trade creditors or customers that were
incurred in the ordinary course of business of Parent or any of
its Restricted Subsidiaries, including pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or
insolvency of any trade creditor or customer; or
(B) litigation, arbitration or other disputes;
(7) Investments represented by Hedging Obligations;
(8) loans or advances to employees made in the ordinary
course of business of Parent or any Restricted Subsidiary of
Parent in an aggregate principal amount not to exceed
$5.0 million at any one time outstanding;
(9) repurchases of the notes;
(10) (a) advances to customers in the ordinary course
of business that are recorded as accounts receivable on the
consolidated balance sheet of such Person and (b) payroll,
travel and similar advances to cover matters that are expected
at the time of the advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course
of business;
(11) any guarantee of Indebtedness permitted to be incurred
by the covenant entitled Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock other than a guarantee of Indebtedness of
an Affiliate of Parent that is not a Restricted Subsidiary of
Parent;
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(12) any Investment existing on, or made pursuant to
binding commitments existing on, the Issue Date and any
Investment consisting of an extension, modification or renewal
of any Investment existing on, or made pursuant to a binding
commitment existing on, the Issue Date; provided that the
amount of any such Investment may be increased (a) as
required by the terms of such Investment as in existence on the
Issue Date or (b) as otherwise permitted under the
indenture;
(13) Investments in any Person to the extent such
Investments consist of prepaid expenses, negotiable instruments
held for collection and lease, utility and workers
compensation, performance and other similar deposits made in the
ordinary course of business by Parent or any Restricted
Subsidiary;
(14) Investments acquired after the Issue Date as a result
of the acquisition by Parent or any Restricted Subsidiary of
Parent of another Person, including by way of a merger,
amalgamation or consolidation with or into Parent or any of its
Restricted Subsidiaries in a transaction that is not prohibited
by the covenant described above under the caption
Merger, Consolidation or Sale of Assets
after the Issue Date to the extent that such Investments were
not made in contemplation of such acquisition, merger,
amalgamation or consolidation and were in existence on the date
of such acquisition, merger, amalgamation or
consolidation; and
(15) other Investments in any Person having an aggregate
Fair Market Value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to
this clause (15) that are at the time outstanding not to
exceed the greater of (a) $25.0 million or (b) 5%
of Total Assets as of the date of such Investment.
Permitted Liens means:
(1) Liens on assets of Parent or any of its Restricted
Subsidiaries securing Indebtedness and other Obligations under
Credit Facilities that was permitted by the terms of the
indenture to be incurred pursuant to clauses (1) or
(16) of the definition of Permitted Debt
and/or
securing Hedging Obligations
and/or
Obligations with regard to Treasury Management Arrangements;
(2) Liens in favor of the Issuers or the Guarantors;
(3) Liens on property of a Person existing at the time such
Person becomes a Restricted Subsidiary of Parent or is merged
with or into or consolidated with Parent or any Restricted
Subsidiary of Parent; provided that such Liens were in
existence prior to the contemplation of such Person becoming a
Restricted Subsidiary of Parent or such merger or consolidation
and do not extend to any assets other than those of the Person
that becomes a Restricted Subsidiary of Parent or is merged with
or into or consolidated with Parent or any Restricted Subsidiary
of Parent;
(4) Liens on property (including Capital Stock) existing at
the time of acquisition of the property by Parent or any
Restricted Subsidiary of Parent; provided that such Liens
were in existence prior to such acquisition and not incurred in
contemplation of, such acquisition;
(5) Liens or deposits made in the ordinary course of
business to secure the performance of tenders, bids, leases,
contracts (except those related to borrowed money), statutory
obligations, insurance, surety or appeal bonds, workers
compensation obligations, performance bonds or other obligations
of a like nature (including Liens to secure letters of credit
issued to assure payment of such obligations) or arising as a
result of progress payments under government contracts;
(6) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (4) of the second
paragraph of the covenant entitled Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock covering only the assets acquired with or
financed by such Indebtedness;
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(7) Liens existing on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided that any reserve or other
appropriate provision as is required in conformity with GAAP has
been made therefor;
(9) Liens imposed by law, such as carriers,
warehousemens, landlords, mechanics,
materialmens, repairmens, suppliers or similar
Liens, in each case, incurred in the ordinary course of business;
(10) survey exceptions, easements or reservations of, or
rights of others for, licenses,
rights-of-way,
sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use
of real property that were not incurred in connection with
Indebtedness and that do not in the aggregate materially
adversely affect the value of said properties or materially
impair their use in the operation of the business of such Person;
(11) Liens created for the benefit of (or to secure) the
notes (or the Note Guarantees);
(12) Liens to secure any Permitted Refinancing Indebtedness
permitted to be incurred under the indenture; provided,
however, that:
(a) the new Lien is limited to all or part of the same
property and assets that secured or, under the written
agreements pursuant to which the original Lien arose, could
secure the original Lien (plus improvements and accessions to,
such property or proceeds or distributions thereof); and
(b) the Indebtedness secured by the new Lien is not
increased to any amount greater than the sum of (x) the
outstanding principal amount, or, if greater, committed amount,
of the Indebtedness renewed, refunded, refinanced, replaced,
defeased or discharged with such Permitted Refinancing
Indebtedness and (y) an amount necessary to pay any fees
and expenses, including premiums, related to such renewal,
refunding, refinancing, replacement, defeasance or discharge;
(13) Liens on insurance policies and proceeds thereof, or
other deposits, to secure insurance premium financings;
(14) filing of Uniform Commercial Code financing statements
as a precautionary measure in connection with operating leases;
(15) bankers Liens, rights of setoff, Liens arising
out of judgments or awards not constituting an Event of Default
and notices of lis pendens and associated rights related
to litigation being contested in good faith by appropriate
proceedings and for which adequate reserves have been made;
(16) Liens on cash, Cash Equivalents or other property
arising in connection with the defeasance, discharge or
redemption of Indebtedness;
(17) Liens on specific items of inventory or other goods
(and the proceeds thereof) of any Person securing such
Persons obligations in respect of bankers
acceptances issued or created in the ordinary course of business
for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods;
(18) grants of software and other technology licenses in
the ordinary course of business;
(19) leases or subleases granted in the ordinary course of
business to third Persons not materially interfering with the
business of Parent and its Restricted Subsidiaries taken as a
whole;
206
(20) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of
goods entered into in the ordinary course of business;
(21) Liens in favor of customs and revenue authorities to
secure payment of customs duties in connection with the
importation of goods in the ordinary course of business and
other similar Liens arising in the ordinary course of business;
(22) Liens in connection with escrow deposits made in
connection with any acquisition of assets; and
(23) Liens incurred in the ordinary course of business of
Parent or any Restricted Subsidiary of Parent with respect to
obligations that do not exceed $10.0 million at any one
time outstanding.
Permitted Refinancing Indebtedness
means any Indebtedness of Parent or any of its Restricted
Subsidiaries issued in exchange for, or the net proceeds of
which are used to renew, refund, refinance, replace, defease or
discharge other Indebtedness of Parent or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided
that:
(1) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the
Indebtedness renewed, refunded, refinanced, replaced, defeased
or discharged (plus all accrued interest on the Indebtedness and
the amount of all fees and expenses, including premiums,
incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity that is (a) equal to or
greater than the Weighted Average Life to Maturity of, the
Indebtedness being renewed, refunded, refinanced, replaced,
defeased or discharged or (b) more than 90 days after
the final maturity date of the notes;
(3) if the Indebtedness being renewed, refunded,
refinanced, replaced, defeased or discharged is subordinated in
right of payment to the notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the notes on
terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being
renewed, refunded, refinanced, replaced, defeased or
discharged; and
(4) such Indebtedness is incurred either by Parent or by
the Restricted Subsidiary of Parent that was the obligor on the
Indebtedness being renewed, refunded, refinanced, replaced,
defeased or discharged and is guaranteed only by Persons who
were obligors on the Indebtedness being renewed, refunded,
refinanced, replaced, defeased or discharged.
Permitted Tax Payments means, for so
long as Parent is treated as a partnership for U.S. federal
income tax purposes, payments by Parent to direct owners of
Parents equity interests in respect of tax liabilities of
Parents investors arising from direct or indirect
ownership of Parents equity interests under
Section 951 of the Code. Permitted Tax Payments shall be
calculated by reference to the amount of Parents and its
Subsidiaries income determined to be an amount required to
be included in income under section 951 of the Code times
.35. A nationally recognized accounting firm chosen by Parent
shall determine the amount of Permitted Tax Payments.
Person means any individual,
corporation, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
Principals means Avenue International
Master, L.P., Avenue Investments, L.P., Avenue Special
Situations Fund IV, L.P., Avenue Special Situations
Fund V, L.P. and Avenue CDP-Global Opportunities Fund, L.P.
207
Pro Forma Cost Savings means, with
respect to any four-quarter period, the reduction in net costs
and expenses that:
(1) were directly attributable to an acquisition,
Investment, disposition, merger, consolidation or discontinued
operation or other specified action that occurred during the
four-quarter period or after the end of the four-quarter period
and on or prior to the Calculation Date and that would properly
be reflected in a pro forma income statement prepared in
accordance with
Regulation S-X
under the Securities Act, as then in effect;
(2) were actually implemented prior to the Calculation Date
in connection with or as a result of an acquisition, Investment,
disposition, merger, consolidation or discontinued operation or
other specified action and that are supportable and quantifiable
by the underlying accounting records; or
(3) relate to an acquisition, Investment, disposition,
merger, consolidation or discontinued operation or other
specified action and that Parent reasonably determines are
probable based upon specifically identifiable actions to be
taken within six months of the date of the closing of the
acquisition, Investment, disposition, merger, consolidation or
discontinued operation or specified action;
provided that in each case contemplated by clause (3), to
the extent such reductions in cost and expense are described in
an officers certificate signed by the chief financial
officer of Parent and delivered to the trustee, which
officers certificate outlines the specific actions taken
or to be taken, the net reductions in cost and expenses achieved
or to be achieved from each such action and states that
Parents chief financial officers has determined that such
cost and expense savings are probable.
Qualifying Equity Interests means
Equity Interests of Parent other than Disqualified Stock.
Qualifying Equity Offering means a
public sale either (1) of Equity Interests of Parent by
Parent (other than Disqualified Stock and other than to a
Subsidiary of Parent and other than Equity Interests sold in the
Initial Public Offering) or (2) of Equity Interests of a
direct or indirect parent entity of Parent (other than to Parent
or a Subsidiary of Parent) to the extent that the net proceeds
therefrom are contributed to the common equity capital of Parent.
Related Party means:
(1) any controlling person, limited partner, majority owned
Subsidiary, or immediate family member (in the case of an
individual) of any Principal; or
(2) any trust, corporation, partnership, limited liability
company or other entity, the beneficiaries, stockholders,
partners, members, owners or Persons beneficially holding a
majority (and controlling) interest of which consist of any one
or more Principals
and/or such
other Persons referred to in the immediately preceding clause
(1).
Reorganization means the plan of
reorganization that was adopted and became effective on
November 9, 2009 in the bankruptcy proceeding under
Chapter 11 of the U.S. Bankruptcy Code in which Parent
and certain of its Subsidiaries were debtors.
Restricted Investment means an
Investment other than a Permitted Investment.
Restricted Subsidiary of a Person
means any Subsidiary of the referent Person that is not an
Unrestricted Subsidiary. Unless otherwise indicated in this
Description of New Notes, all references to
Restricted Subsidiaries shall mean Restricted Subsidiaries of
Parent, including the Issuers.
S&P means Standard &
Poors Ratings Group.
Securities Act means the Securities
Act of 1933, as amended.
208
Significant Subsidiary means any
Restricted Subsidiary that would be a significant
subsidiary as defined in Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
is in effect on the Issue Date.
Special Interest has the meaning
assigned to that term pursuant to the notes registration rights
agreement.
Stated Maturity means, with respect to
any installment of interest or principal on any series of
Indebtedness, the date on which the payment of interest or
principal was scheduled to be paid in the documentation
governing such Indebtedness as of the Issue Date, and will not
include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
Subsidiary means, with respect to any
specified Person:
(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency and after giving effect to any voting agreement or
stockholders agreement that effectively transfers voting
power) to vote in the election of directors, managers or
trustees of the corporation, association or other business
entity is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership or limited liability company of which
(a) more than 50% of the capital accounts, distribution
rights, total equity and voting interests or general and limited
partnership interests, as applicable, are owned or controlled,
directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof,
whether in the form of membership, general, special or limited
partnership interests or otherwise, and (b) such Person or
any Subsidiary of such Person is a controlling general partner
or otherwise controls such entity.
Total Assets means, as of any date,
the total consolidated assets of Parent and its Subsidiaries as
of the most recent date for which internal financial statements
are available as of that date, calculated in accordance with
GAAP.
Treasury Management Arrangement means
any agreement or other arrangement governing the provision of
treasury or cash management services, including deposit
accounts, overdraft, credit or debit card, funds transfer,
automated clearinghouse, zero balance accounts, returned check
concentration, controlled disbursement, lockbox, account
reconciliation and reporting and trade finance services and
other cash management services.
Treasury Rate means, as of any
redemption date, the yield to maturity as of such redemption
date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H.15 (519) that has become
publicly available at least two business days prior to the
redemption date (or, if such Statistical Release is no longer
published, any publicly available source of similar market
data)) most nearly equal to the period from the redemption date
to April 15, 2014; provided, however, that if
the period from the redemption date to April 15, 2014, is
less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant
maturity of one year will be used.
Unrestricted Subsidiary means any
Subsidiary of Parent that is designated by the Board of
Directors of Parent as an Unrestricted Subsidiary pursuant to a
resolution of the Board of Directors of Parent, but only to the
extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by the covenant described above
under the caption Certain
Covenants Transactions with Affiliates, is not
party to any agreement, contract, arrangement
209
or understanding with Parent or any Restricted Subsidiary of
Parent unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Parent or
such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of Parent;
(3) is a Person with respect to which neither Parent nor
any of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Equity Interests
or (b) to maintain or preserve such Persons financial
condition or to cause such Person to achieve any specified
levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of Parent or any of
its Restricted Subsidiaries; provided, however,
that Parent and its Restricted Subsidiaries may Guarantee the
performance of Unrestricted Subsidiaries in the ordinary course
of business except for Guarantees of Indebtedness.
Voting Stock of any specified Person
as of any date means the Capital Stock of such Person that is at
the time entitled to vote in the election of the Board of
Directors of such Person.
Weighted Average Life to Maturity
means, when applied to any Indebtedness at any date, the number
of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such
Indebtedness.
210
EXCHANGE
OFFER
Purpose of the
Exchange Offer
The exchange offer is designed to provide holders of old notes
with an opportunity to acquire new notes which, unlike the old
notes, generally will be freely transferable at all times,
subject to any restrictions on transfer imposed by federal and
state securities laws, so long as the holder is acquiring the
new notes in the ordinary course of its business, has no
arrangement or understanding with any person to participate in a
distribution of the new notes, and is not our affiliate within
the meaning of the Securities Act.
Issuance of Original Notes. The
outstanding old 10.500% Senior Notes due 2018 in the
aggregate principal amount of $250,000,000 were originally
issued and sold on April 9, 2010, the issue date, to
certain initial purchasers, pursuant to a purchase agreement
dated as of April 6, 2010. The old notes were issued and
sold in a transaction not registered under the Securities Act in
reliance upon an exemption from the registration requirements of
the Securities Act. The concurrent resale of the old notes by
the initial purchasers to investors was effected in reliance
upon exemptions from the registration requirements of the
Securities Act pursuant to Rule 144A and Regulation S
under the Securities Act. The old notes may not be offered for
resale, resold or otherwise transferred other than pursuant to a
registration statement filed pursuant to the Securities Act or
unless an exemption from the registration requirements of the
Securities Act is available.
Notes Registration Rights Agreement. In
connection with the original issuance and sale of the old notes,
we entered into an exchange and registration rights agreement,
which we refer to as the notes registration rights agreement,
dated as of April 9, 2010 with the initial purchasers of
the old notes, pursuant to which we agreed to file with the SEC
a registration statement covering the exchange by us of the new
notes for the old notes. The notes registration rights agreement
obligates us to file with the SEC an exchange offer registration
statement on an appropriate form under the Securities Act with
respect to an offer to the holders of the old notes to exchange
their old notes for the new notes. We have filed the
registration statement of which this prospectus forms a part,
and are conducting the exchange offer, in compliance with the
notes registration rights agreement.
In accordance with the notes registration rights agreement, each
holder of old notes is required to make specified
representations and comply with the undertakings summarized
below under the caption Terms of the Exchange
Offer Resales of New Notes.
If for any of the reasons specified in the notes registration
rights agreement we become obligated to file with the SEC a
shelf registration statement covering resales of old notes by
the holders, we will be required to use our commercially
reasonable efforts to file the shelf registration statement on
or prior to 30 days after such filing obligation arises and
to cause the shelf registration statement to be declared
effective by the SEC on or prior to 90 days after the
obligation arises. A holder of old notes that sells its old
notes pursuant to the shelf registration statement generally
will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will
be bound by the provisions of the notes registration rights
agreement that are applicable to such holder (including certain
indemnification and contribution obligations).
Pursuant to the notes registration rights agreement, we will be
required to pay special interest if a registration default
exists. A registration default will exist if:
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we fail to file any of the registration statements required by
the notes registration rights agreement on or before the date
specified for such filing;
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any of such registration statements is not declared effective by
the SEC on or prior to the date specified for such effectiveness;
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we fail to consummate the exchange offer within 30 business days
of the commencement of the exchange offer with respect to the
exchange offer registration statement; or
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the shelf registration statement or the exchange offer
registration statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of
transfer restricted securities during the periods specified in
the notes registration rights agreement.
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With respect to the first
90-day
period immediately following the occurrence of the first
registration default, special interest will be paid in an amount
equal to 0.25% per annum of the principal amount of transfer
restricted securities outstanding. The amount of the special
interest will increase by an additional 0.25% per annum with
respect to each subsequent
90-day
period until all registration defaults have been cured, up to a
maximum amount of special interest for all registration defaults
of 1.0% per annum of the principal amount of the transfer
restricted securities outstanding. Upon the cure of all
registration defaults, the accrual of special interest will
cease.
We have agreed to pay all expenses incident to our performance
of or compliance with the notes registration rights agreement
(other than commissions and concessions of any broker-dealer).
Generally, the notes registration rights agreement requires that
we indemnify holders of the notes who exchange their old notes
under a registration statement filed by us against certain
liabilities, including liabilities arising under the Securities
Act. In addition, each holder whose old notes are included in a
registration statement may be required to indemnify us for the
resale of their old notes against certain liabilities related to
the information provided by such holder with respect to such
registration statement. The notes registration rights agreement
also provides for the indemnitors to reimburse the indemnified
persons for legal or other expenses reasonably incurred by such
persons in connection with investigating or defending claims for
which they are entitled to indemnification under the agreement.
The foregoing summary of certain provisions of the notes
registration rights agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference
to, all of the provisions of the notes registration rights
agreement, which is listed as an exhibit to the registration
statement of which this prospectus forms a part. See Where
You Can Find More Information.
The following summary of certain provisions of the form of the
letter of transmittal used in the exchange offer does not
purport to be complete and is subject to, and is qualified in
its entirety by reference to, all of the provisions of the form
of the letter of transmittal.
Terms of the
Exchange Offer
General. Upon the terms and subject to
the conditions set forth in this prospectus and in the letter of
transmittal, which together constitute the exchange offer, we
will accept any and all old notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. Subject to the minimum denomination
requirements of the new notes, the new notes are being offered
in exchange for a like principal amount of old notes. Old notes
may be exchanged only in denominations of $2,000 and integral
multiples of $1,000 in excess thereof. As of the date of this
prospectus, $250,000,000 in aggregate principal amount of old
notes were outstanding.
The terms of the new notes will be substantially identical to
the terms of the old notes, except that the new notes are
registered under the Securities Act, the new notes will bear a
separate CUSIP number, and the transfer restrictions,
registration rights and related additional interest terms
applicable to the old notes will not apply to the new notes. The
new notes will evidence the same indebtedness as the old notes
and will be entitled to the benefits of the indenture. The new
notes will be treated as a single class under the indenture with
any old notes that remain outstanding. Interest will accrue on
the new notes from and including the last date on which interest
was paid in respect of the old notes or, if interest has not
been paid thereon, from and including the date of original
issuance of the old notes.
212
Holders may tender some or all of their old notes pursuant to
the exchange offer, except that if any old notes are tendered
for exchange in part, the untendered amount of such old notes
must be in denominations of $2,000 and integral multiples of
$1,000 in excess thereof. The exchange offer is not conditioned
upon any minimum aggregate principal amount of original notes
being tendered for exchange.
This prospectus, the letter of transmittal and the notice of
guaranteed delivery are first being mailed to all registered
holders of old notes as
of ,
2010.
Resales of New Notes. Based on
interpretations by the staff of the SEC as set forth in
no-action letters issued to third parties with respect to other
transactions, the new notes issued in the exchange offer may be
offered for resale, resold or otherwise transferred without
compliance with the registration and prospectus delivery
requirements of the Securities Act by holders who satisfy the
conditions described in the following paragraph. If a holder
does not satisfy such conditions, in the absence of an
exemption, it must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
the resale of the new notes. If a holder fails to comply with
these requirements, it may incur liabilities under the
Securities Act, and we will not indemnify the holder for such
liabilities.
Each holder of old notes that wishes to exchange such old notes
for new notes in the exchange offer will be required to make
certain representations to us, including representations that:
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it is not our affiliate as defined in Rule 405 of the
Securities Act, or if it is such an affiliate, it will comply
with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable;
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it is not engaged in and does not intend to engage in, and has
no arrangement or understanding with any person to participate
in, a distribution of the new notes;
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it is acquiring the new notes in its ordinary course of business;
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if it is a broker-dealer that holds old notes that were acquired
for its own account as a result of market-making activities or
other trading activities (other than old notes acquired directly
from the us or our affiliates), it will deliver a prospectus
meeting the requirements of the Securities Act in connection
with any resales of the new notes;
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if it is a broker-dealer, it did not purchase the old notes to
be exchanged in the exchange offer from us or our affiliates;
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it is not acting on behalf of any person who could not
truthfully and completely make the representations contained in
the foregoing clauses.
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Any broker-dealer that holds old notes acquired for its own
account as a result of market-making activities or other trading
activities, and that receives new notes pursuant to the exchange
offer, must deliver a prospectus in connection with any resale
of such new notes, and must agree in the letter of transmittal
that it will do so. By making this acknowledgement and by
delivering a prospectus, any such broker-dealer will not be
deemed to admit that it is an underwriter within the
meaning of the Securities Act. We have agreed in the notes
registration rights agreement that, for a period beginning on
the date the exchange offer is consummated and ending on the
earlier of 180 days after the date of this prospectus and
the date on which a broker-dealer no longer owns the notes, we
will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.
A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act. For
additional information, see Plan of Distribution.
Each broker-dealer that acquired old notes for its own account
as a result of market-making activities or other trading
activities, by tendering such old notes, will agree that, upon
receipt of notice from us of the occurrence of any event or the
discovery of any fact that makes any statement included
213
or incorporated by reference in this prospectus untrue in any
material respect or that causes this prospectus to omit to state
a material fact necessary to make the statements included or
incorporated by reference therein, in light of the circumstances
under which they were made, not misleading or of the occurrence
of certain other events specified in the notes registration
rights agreement, such broker-dealer will suspend the sale of
new notes pursuant to this prospectus until we have amended or
supplemented the prospectus to correct such misstatement or
omission and have furnished copies of the amended or
supplemented prospectus to such broker-dealer or have given
notice that the sale of the new notes may be resumed. If we give
such a notice to suspend the sale of the new notes, we will
extend the
180-day
period referred to above during which such broker-dealers are
entitled to use this prospectus in connection with the resale of
new notes by the number of days during the period from and
including the date on which we gave such notice to and including
the date on which such broker-dealer received copies of the
supplemented or amended prospectus necessary to permit resales
of the new notes, or to and including the date on which we gave
notice that the sale of new notes may be resumed.
A broker-dealer that intends to use this prospectus in
connection with resales of new notes must so notify us on or
prior to the expiration date. The notice may be given in the
space provided for this notice in the letter of transmittal or
may be delivered to the exchange agent at the address set forth
below under the caption Exchange Agent.
Expiration Date;
Extension; Termination
The exchange offer will expire at 5:00 p.m., New York City
time,
on ,
2010, unless extended by us. We reserve the right to extend the
exchange offer at our discretion, in which event the term
expiration date will mean the time and date on which
the exchange offer as so extended will expire. We will notify
the exchange agent of any extension by oral or written notice
and will make an announcement thereof by press release over a
national news service, each prior to 9:00 a.m.,
New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our sole discretion:
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to delay accepting any notes, to extend the exchange offer or,
if any of the conditions set forth under Conditions to the
Exchange Offer shall not have been satisfied, to terminate
the exchange offer, by giving oral or written notice of that
delay, extension or termination to the exchange agent;
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to extend the exchange offer or, if any of the conditions set
forth under Conditions to the Exchange Offer shall
not have been satisfied, to terminate the exchange offer, by
giving oral or written notice of that extension or termination
to the exchange agent; or
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to amend the terms of the exchange offer in any manner; however,
in the event of a material change in the offer, including the
waiver of a material condition, we will extend the offer so that
at least five business days remain in the offer following notice
of the material change.
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In the event that we make a fundamental change to the terms of
the exchange offer, we will file a post-effective amendment to
the registration statement.
If we provide oral notice of any delay, extension or termination
of the exchange offer, we will do so by press release or other
public announcement in a manner compliant with
Rule 14e-1(d)
of the Exchange Act.
Procedures for
Tendering
The tender to us of old notes by a holder pursuant to one of the
procedures set forth below and the acceptance thereof by us will
constitute a binding agreement between such holder and us in
accordance with the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal.
214
Except as set forth below, a holder that wishes to tender old
notes for exchange must transmit, on or prior to the expiration
date, a properly completed and duly executed letter of
transmittal, or an agents message in lieu of a
letter of transmittal, and all other documents required by the
letter of transmittal to the exchange agent at the address set
forth below under the caption Exchange Agent. In
addition, either:
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the exchange agent must receive certificates for such old notes
along with the letter of transmittal; or
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the exchange agent must receive, on or prior to the expiration
date, a timely confirmation of a book-entry transfer, which we
refer to as a book-entry confirmation, of such old
notes into the exchange agents account at DTC pursuant to
the book-entry transfer procedure described below under the
caption Book-Entry Transfer; or
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the holder must comply with the guaranteed delivery procedures
described below.
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Letters of transmittal, certificates for old notes and other
documents should be sent to the exchange agent and not to us.
The term agents message means a message,
transmitted by DTC to and received by the exchange agent and
forming a part of a book-entry confirmation, which states that
DTC has received an express acknowledgement from the tendering
participant that such participant has received and agrees to be
bound by the letter of transmittal and that we may enforce such
letter of transmittal against such participant.
The method of delivery of old notes, the letter of transmittal
and other required documents to the exchange agent is at the
option and sole risk of the holder, and delivery will be deemed
made only when these items are actually received by the exchange
agent. If delivery is to be made other than by hand or facsimile
transmission, registered mail with return receipt requested,
properly insured, or overnight delivery service is recommended.
In all cases, sufficient time should be allowed to ensure timely
delivery to the exchange agent.
Any beneficial owner whose old notes are registered in the name
of a broker, dealer, commercial bank, trust company, or other
nominee and who wishes to tender should contact the registered
holder promptly and instruct the registered holder to tender on
the beneficial owners behalf. If the beneficial owner
wishes to tender on the record owners own behalf, the
record owner must, prior to completing and executing the letter
of transmittal and delivering the record owners old notes,
either make appropriate arrangements to register ownership of
the old notes in the beneficial owners name or obtain a
properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal must be guaranteed unless
the old notes tendered pursuant thereto are tendered (1) by
the registered holder(s) of such old notes and the box entitled
Special Issuance Instructions or Special
Delivery Instructions on the letter of transmittal has not
been completed or (2) for the account of any firm that is
an eligible institution. An eligible institution
includes, among others, a commercial bank, broker, dealer,
credit union and national securities exchange. In all other
cases, an eligible institution must guarantee signatures on a
letter of transmittal.
If the letter of transmittal is signed by a person other than a
registered holder (or less than all registered holders) of any
old notes tendered therewith, the certificates for such old
notes must be endorsed or accompanied by appropriate bond
powers, in either case signed exactly as the name of the
registered holder(s) appears on the old notes, and such
signatures must be guaranteed by an eligible institution.
If the letter of transmittal or any certificates for old notes
or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must
submit proper evidence satisfactory to us of their authority to
act in such a capacity.
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All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of tendered old notes will be
resolved by us, and our determination of such questions will be
final and binding on all parties. We reserve the absolute right
to reject any or all tenders that are not in proper form or the
acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any irregularities
or conditions in any tender of particular old notes, whether or
not we waive similar irregularities or conditions in tenders of
other old notes. Our interpretation of the terms and conditions
of the exchange offer (including the instructions in the letter
of transmittal) will be final and binding on all parties.
Neither we or our affiliates or assigns nor the exchange agent
or any other person will be under any duty to give notification
of any irregularities in tenders or will incur any liability for
any failure to give such notification. Tenders of old notes will
not be deemed to have been made until all irregularities have
been cured or waived. Any old notes received by the exchange
agent that are not properly tendered and as to which the
irregularities have not been cured or waived will be promptly
returned by the exchange agent to the tendering holder, unless
otherwise provided in the letter of transmittal.
Book-Entry
Transfer
The exchange agent will make a request to establish an account
with respect to the old notes at DTC for purposes of the
exchange offer within two business days after the date of this
prospectus. Any financial institution that is a participant in
DTCs book-entry transfer facility systems may make
book-entry delivery of old notes by causing DTC to transfer
those old notes into the exchange agents account at DTC in
accordance with DTCs procedures for transfer. Although
delivery of old notes may be effected through book-entry
transfer into the exchange agents account at DTC, an
agents message or a duly executed letter of transmittal,
including all other documents required by such letter of
transmittal, must in any case be transmitted to and received by
the exchange agent at the address set forth below under the
caption Exchange Agent on or prior to the expiration
date, or the guaranteed delivery procedures described below must
be complied with.
The Depository Trust Companys Automated Tender Offer
Program, or ATOP, is the only method of processing
exchange offers through The Depository Trust Company. To
accept the exchange offer through ATOP, participants in The
Depository Trust Company must send electronic instructions
to The Depository Trust Company through The Depository
Trust Companys communication system instead of
sending a signed, hard copy letter of transmittal. The
Depository Trust Company is obligated to communicate those
electronic instructions to the exchange agent. To tender
outstanding notes through ATOP, the electronic instructions sent
to The Depository Trust Company and transmitted by The
Depository Trust Company to the exchange agent must contain
the character by which the participant acknowledges its receipt
of and agrees to be bound by the letter of transmittal.
Delivery of documents to DTC in accordance with DTCs
procedures does not constitute delivery to the exchange agent.
Guaranteed
Delivery Procedures
Holders who wish to tender their old notes and (1) whose
old notes are not immediately available or (2) who cannot
deliver their old notes, the letter of transmittal or any other
required documents to the exchange agent on or prior to the
expiration date, or comply with the procedures for book-entry
transfer, may effect a tender if:
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the tender is made by or through an eligible institution;
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a properly completed and duly executed notice of guaranteed
delivery, substantially in the form made available by us, is
received by the exchange agent on or prior to the expiration
date and such documents set forth the name and address of the
holder of old notes and the amount of old notes tendered and
stating that the tender is being made by guaranteed delivery and
guaranteeing that within three New York Stock Exchange trading
days after the date of
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execution of the notice of guaranteed delivery, the certificates
for all physically tendered old notes, in proper form for
transfer, or a book-entry confirmation, as the case may be, will
be deposited by the eligible institution with the exchange
agent; and
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the certificates (or a book-entry confirmation) representing all
tendered old notes, in proper form for transfer, together with a
letter of transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an
agents message in lieu thereof, and any other documents
required by the letter of transmittal are received by the
exchange agent within three New York Stock Exchange trading days
after the date of execution of such notice of guaranteed
delivery.
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The notice of guaranteed delivery may be delivered by hand or
transmitted by facsimile or mail to the exchange agent, and must
include a guarantee by an eligible institution in the form set
forth in such notice of guaranteed delivery. For old notes to be
properly tendered pursuant to the guaranteed delivery procedure,
the exchange agent must receive a notice of guaranteed delivery
on or prior to the expiration date.
Conditions to the
Exchange Offer
Notwithstanding any other provisions of the exchange offer, or
any extension of the exchange offer, we will not be required to
accept for exchange, or to issue new notes in exchange for, any
old notes and may terminate the exchange offer (whether or not
any old notes have been accepted for exchange) or may waive any
conditions to or amend the exchange offer, if any of the
following conditions has occurred or exists or has not been
satisfied:
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there is threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree issued by,
any court or governmental agency or other governmental
regulatory or administrative agency or commission:
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(1) seeking to restrain or prohibit the making or
completion of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any
damages as a result of the exchange offer or any such
transaction; or
(2) resulting in a material delay in our ability to accept
for exchange or exchange some or all of the old notes in the
exchange offer; or
(3) any statute, rule, regulation, order or injunction has
been sought, proposed, introduced, enacted, promulgated or
deemed applicable to the exchange offer or any of the
transactions contemplated by the exchange offer by any
governmental authority, domestic or foreign; or
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any action has been taken, proposed or threatened by any
governmental authority, domestic or foreign, that in our sole
judgment might directly or indirectly result in any of the
consequences referred to in clause (1), (2) or
(3) above or, in our sole judgment, might result in the
holders of new notes having obligations with respect to resales
and transfers of new notes which are greater than those
described in the interpretations by the staff of the SEC
discussed above, or would otherwise make it inadvisable to
proceed with the exchange offer; or
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there has occurred:
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(1) any general suspension of or general limitation on
prices for, or trading in, securities on any national securities
exchange or in the
over-the-counter
market; or
(2) any limitation by a governmental authority which may
adversely affect our ability to complete the transactions
contemplated by the exchange offer; or
(3) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which
adversely affects the extension of credit; or
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(4) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving
the United States, or, in the case of any of the preceding
events existing at the time of the commencement of the exchange
offer, a material acceleration or worsening of these
calamities; or
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any change, or any development involving a prospective change,
has occurred or been threatened in our business, financial
condition, operations or prospects and those of our subsidiaries
taken as a whole that is or may be adverse to us, or we have
become aware of facts that have or may have an adverse impact on
the value of the old notes or the new notes, which, in our sole
judgment, in any case makes it inadvisable to proceed with the
exchange offer or with acceptance for exchange or exchange of
some or all of the old notes; or
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there has occurred a change in the interpretations by the staff
of the SEC which permits the new notes issued pursuant to the
exchange offer in exchange for old notes to be offered for
resale, resold and otherwise transferred by holders thereof
(other than broker-dealers and any such holder which is our
affiliate within the meaning of Rule 405 promulgated under
the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such new notes are acquired in the ordinary course of such
holders business and such holders have no arrangement or
understanding with any person to participate in the distribution
of such new notes; or
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any law, statute, rule or regulation has been adopted or enacted
which, in our judgment, would reasonably be expected to impair
our ability to proceed with the exchange offer; or
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a stop order has been issued by the SEC or any state securities
authority suspending the effectiveness of the registration
statement of which this prospectus forms a part, or proceedings
have been initiated or, to our knowledge, threatened for that
purpose, or any governmental approval has not been obtained,
which approval we shall, in our sole discretion, deem necessary
for the consummation of the exchange offer as contemplated
hereby (we are required to use commercially reasonable efforts
to obtain the withdrawal of any stop order); or
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we have received an opinion of counsel experienced in such
matters to the effect that there exists any actual or threatened
legal impediment (including a default or prospective default
under an agreement, indenture or other instrument or obligation
to which we are a party or by which we are bound) to the
consummation of the transactions contemplated by the exchange
offer.
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In addition, notwithstanding any other provision of the exchange
offer, we will not be required to accept for exchange, or to
issue new notes in exchange for, any old notes and may terminate
or amend the exchange offer if at any time before the acceptance
of those old notes for exchange or the exchange of the new notes
for those old notes, we determine that the exchange offer
violates any applicable law or applicable interpretation of the
Staff of the SEC.
If we determine, in our sole discretion, that any of the
foregoing events or conditions has occurred or exists or has not
been satisfied, we may, subject to applicable law, terminate the
exchange offer (whether or not any old notes have been accepted
for exchange) or may waive any such condition or otherwise amend
the terms of the exchange offer in any respect. If any such
waiver or amendment constitutes a material change to the
exchange offer, we will promptly disclose such waiver or
amendment by means of a prospectus supplement that will be
distributed to the registered holders of the old notes and will
extend the exchange offer to the extent required by
Rule 14e-1
under the Exchange Act.
These conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any of these
conditions, or we may waive them, in whole or in part, in our
sole discretion. The failure by us at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any of
those rights and each of those rights shall be deemed an ongoing
right which may be asserted at any time and from time to time
prior to the expiration of the exchange offer.
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Any determination made by us concerning an event, development or
circumstance described or referred to above will be final and
binding on all parties.
Acceptance of Old
Notes for Exchange; Delivery of New Notes
Upon the terms and subject to the conditions of the exchange
offer, we will accept all old notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue new notes in exchange for such
old notes promptly following the expiration date.
Subject to the conditions set forth above under the caption
Conditions to the Exchange Offer, issuance of new
notes in exchange for old notes tendered and accepted for
exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for old
notes or a book-entry confirmation of a book-entry transfer of
old notes into the exchange agents account at DTC, a
completed letter of transmittal, or, in the case of a book-entry
transfer, an agents message in lieu of the letter of
transmittal, and any other documents required by the letter of
transmittal. Accordingly, the time of delivery of new notes will
depend upon when certificates for old notes, book-entry
confirmations with respect to old notes and other required
documents are received by the exchange agent, and such delivery
might not be made to all tendering holders at the same time.
Subject to the terms and conditions of the exchange offer, we
will be deemed to have accepted for exchange, and thereby to
have exchanged, old notes validly tendered and not withdrawn as,
if and when we give oral or written notice to the exchange agent
of our acceptance of such old notes for exchange pursuant to the
exchange offer. The exchange agent will act as agent for us for
the purpose of receiving tenders of old notes, letters of
transmittal and related documents, and as agent for tendering
holders for the purpose of receiving old notes, letters of
transmittal and related documents and transmitting new notes
that will not be held in global form by DTC or a nominee of DTC
to validly tendered holders. Such exchange will be made promptly
after the expiration date. If for any reason whatsoever,
acceptance for exchange or the exchange of any old notes
tendered pursuant to the exchange offer is delayed (whether
before or after our acceptance for exchange of old notes) or we
extend the exchange offer or are unable to accept for exchange
or exchange any old notes tendered pursuant to the exchange
offer, then, without prejudice to our rights set forth herein,
the exchange agent may, nevertheless, on our behalf and subject
to
Rule 14e-l
under the Exchange Act, retain tendered old notes and such old
notes may not be withdrawn except to the extent tendering
holders are entitled to withdrawal rights as described under the
caption Withdrawal Rights.
Pursuant to the letter of transmittal or an agents message
in lieu thereof, a holder of tendered old notes will represent
and warrant to us that it has full power and authority to
tender, exchange, sell, assign and transfer such old notes, that
we will acquire good, marketable and unencumbered title to such
old notes, free and clear of all liens, restrictions, charges
and encumbrances, and that such old notes are not subject to any
adverse claims or proxies. The holder also will warrant and
agree with us that, upon request, it will execute and deliver
any additional documents deemed by us or the exchange agent to
be necessary or desirable to complete the exchange, assignment
and transfer of the old notes tendered pursuant to the exchange
offer.
Any old notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to the holder
thereof without cost to such holder (or in the case of old notes
tendered by book-entry transfer into the exchange agents
account at DTC pursuant to the book-entry transfer procedures
described above, such old notes will be credited to an account
maintained with DTC for the old notes) promptly after
withdrawal, rejection of tender or termination or expiration of
the exchange offer.
Withdrawal
Rights
Tenders of old notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the expiration date. Any
old notes that are properly withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange
offer.
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For a withdrawal to be effective, the exchange agent must
receive a written notice of withdrawal at the address, or in the
case of eligible institutions, at the facsimile number, set
forth below under the caption Exchange Agent before
5:00 p.m., New York City time, on the expiration date. Any
notice of withdrawal must specify the name of the person that
tendered the old notes to be withdrawn, identify the old notes
to be withdrawn (including the principal amount of the old
notes), and (where certificates for old notes have been
transmitted) specify the name in which such old notes are
registered, if different from that of the withdrawing holder. If
certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of
such certificates, the withdrawing holder also must submit the
serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by
an eligible institution, unless such holder is an eligible
institution. If old notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at
DTC to be credited with the withdrawn old notes and otherwise
comply with the procedures of such facility.
All questions as to the validity, form and eligibility
(including time of receipt) of withdrawal notices will be
determined by us, in our sole discretion, and our determination
will be final and binding on all parties. Neither we or our
affiliates or assigns nor the exchange agent or any other person
will be under any duty to give notification of any
irregularities in any notice of withdrawal or will incur any
liability for any failure to give such notification.
Properly withdrawn old notes may be retendered by following one
of the procedures described above under the caption
Procedures for Tendering at any time on or prior to
the expiration date.
Exchange
Agent
We have appointed Wilmington Trust FSB as the exchange
agent for the exchange offer. You should direct all executed
letters of transmittal and other required documents to the
exchange agent at the address indicated below. You should direct
questions and requests for assistance, requests for additional
copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery to the exchange
agent addressed as follows:
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By registered mail or
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By regular mail or
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certified mail:
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overnight courier:
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By hand:
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Wilmington Trust FSB
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Wilmington Trust FSB
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Wilmington Trust FSB
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c/o Wilmington
Trust Company
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c/o Wilmington
Trust Company
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c/o Wilmington
Trust Company
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Rodney Square North
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Rodney Square North
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Rodney Square North
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1100 North Market Street
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1100 North Market Street
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1100 North Market Street
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Wilmington, DE
19890-1626
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Wilmington, DE 19890-1626
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Wilmington, DE 19890-1626
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Attention: Sam Hamed
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Attention: Sam Hamed
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Attention: Sam Hamed
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Facsimile (eligible institutions only):
(302) 636-4139,
Attention: Sam Hamed Telephone Inquiries:
(302) 636-6181
If you deliver the letter of transmittal and other required
documents to an address other than any address indicated above
or transmit instructions by facsimile to a facsimile number
other than any facsimile number indicated above, your delivery
or transmission will not constitute a valid delivery of the
letter of transmittal or such other documents.
Payment of
Expenses
We have not retained any dealer-manager or similar agent in
connection with the exchange offer. We will not make any payment
to brokers, dealers or others for soliciting acceptances of the
exchange offer. However, we will pay the reasonable and
customary fees and reasonable
out-of-pocket
expenses to the exchange agent for its services. We also will
pay the cash expenses to be incurred in
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connection with the exchange offer, including accounting, legal,
printing and other related fees and expenses.
Tendering holders will not be required to pay brokerage
commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the
exchange of old notes pursuant to the exchange offer. If new
notes are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the old notes
tendered, or if a transfer tax is imposed for any reason other
than the exchange of old notes in connection with the exchange
offer, the amount of any such transfer tax, whether imposed on
the registered holder or any other person, will be payable by
the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the
letter of transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.
Accounting
Treatment
The new notes will be recorded at the same carrying value as the
old notes, as reflected in our accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized.
Consequences of
Failure to Exchange
Any old notes not exchanged in the exchange offer will remain
entitled to the rights and subject to the limitations contained
in the indenture. Following the exchange offer, however, all
outstanding old notes will continue to be subject to the same
restrictions on transfer. Until termination of the transfer
restrictions applicable to such old notes under the Securities
Act and applicable state securities laws, such old notes
generally could be resold only:
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to us or our subsidiaries;
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pursuant to an effective registration statement under the
Securities Act;
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to a qualified institutional buyer in compliance with
Rule 144A under the Securities Act;
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pursuant to offers or sales to
non-U.S. Persons
that occur outside the United States within the meaning of
Regulation S under the Securities Act;
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to an institutional accredited investor as defined
in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act that, prior to such
transfer, furnishes to the Trustee a signed letter containing
certain representations and agreements relating to the
restrictions on transfer of the old notes (the form of which
letter may be obtained from the Trustee) and, if the aggregate
principal amount of such old notes at the time of transfer is
less than $250,000, an opinion of counsel acceptable to us that
such transfer is in compliance with the Securities Act; or
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pursuant to another available exemption from the registration
requirements of the Securities Act.
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The liquidity of the old notes could be adversely affected by
the exchange offer.
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CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain
U.S. federal income tax considerations relevant to the
exchange of old notes for new notes (collectively, the
notes) pursuant to the exchange offer and the
ownership and disposition of the notes by a U.S. holder
(defined below), but does not purport to be a complete analysis
of all potential tax effects. This summary is based upon the
U.S. Internal Revenue Code of 1986, as amended (the
Code), Treasury regulations issued thereunder, and
judicial and administrative interpretations thereof, each as in
effect on the date hereof, and all of which are subject to
change, possibly with retroactive effect. No rulings from the
Internal Revenue Service (IRS) have been or are
expected to be sought with respect to the matters discussed
below. There can be no assurance that the IRS will not take a
different position concerning the tax consequences of the
purchase, ownership or disposition of the notes or that any such
position would not be sustained.
This discussion does not address all of the U.S. federal
income tax considerations that may be relevant to a holder in
light of such holders particular circumstances or to
holders subject to special rules, such as financial
institutions, U.S. expatriates, insurance companies,
dealers in securities or currencies, traders in securities,
U.S. holders whose functional currency is not the
U.S. dollar, tax exempt organizations, regulated investment
companies, real estate investment trusts, partnerships or other
pass through entities (or investors in such entities), persons
liable for alternative minimum tax and persons holding the notes
as part of a straddle, hedge,
conversion transaction or other integrated
transaction. In addition, this discussion is limited to persons
who purchased the notes for cash at original issue and at their
issue price (the first price at which a substantial amount of
the notes were sold, excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers) and who hold the
notes as capital assets within the meaning of section 1221
of the Code.
For purposes of this discussion, a U.S. holder
is a beneficial owner of a note that is, for U.S. federal
income tax purposes, (i) an individual who is a citizen or
resident of the United States; (ii) a corporation or any
entity taxable as a corporation created or organized in the
United States or under the laws of the United States, any state
thereof or the District of Columbia; (iii) any estate the
income of which is subject to U.S. federal income taxation
regardless of its source; or (iv) any trust if a court
within the United States is able to exercise primary supervision
over the administration of the trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust, or if a valid election is in place to
treat the trust as a U.S. person. If any entity treated as
a partnership for U.S. federal income tax purposes holds
the notes, the tax treatment of a partner in the partnership
will generally depend upon the status of the partner and the
activities of the partnership. A holder that is a partnership,
and partners in such partnerships, should consult their tax
advisors regarding the tax consequences of the exchange of old
notes for new notes, and the ownership and disposition of the
old notes or new notes.
Note holders considering the exchange of the old notes for
the publicly registered new notes pursuant to the exchange offer
should consult their tax advisors concerning the tax
consequences of the exchange of old notes for new notes, and the
ownership and disposition of the old notes or new notes in light
of their particular circumstances, including the application of
the U.S. federal income tax considerations discussed below,
as well as the application of U.S. federal estate and gift
tax laws and state, local, foreign or other tax laws.
Exchange of
Notes
The exchange of the old notes for new notes pursuant to the
exchange offer will not constitute a taxable exchange for
U.S. federal income tax purposes. As a result, (1) a
U.S. holder will not recognize a taxable gain or loss as a
result of exchanging old notes for new notes; (2) the
holding period of the new notes received by a U.S. holder
will include the holding period of the old notes exchanged for
the new notes; and (3) a U.S. holders adjusted
tax basis of the new notes received in
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the exchange initially will be the same as the
U.S. holders adjusted tax basis of the old notes
surrendered in the exchange, determined immediately before the
registered exchange.
Characterization
of the Notes
In certain circumstances (see Description of New
Notes Optional Redemption, Description
of New Notes Repurchase at the Option of
Holders Change of Control, and
Description of New Notes Additional
Amounts) we may be obligated to make payments on the notes
in excess of stated principal and interest. We intend to take
the position that the foregoing contingencies should not cause
the notes to be treated as contingent payment debt instruments.
Assuming such position is respected, a U.S. holder would be
required to include in income the amount of any such additional
payments at the time such payments are received or accrued in
accordance with such U.S. holders method of
accounting for U.S. federal income tax purposes. Our
position is binding on a holder, unless the holder discloses in
the proper manner to the IRS that it is taking a different
position. If the IRS successfully challenged this position, and
the notes were treated as contingent payment debt instruments,
U.S. holders could be required to accrue interest income at
a rate higher than their yield to maturity and to treat as
ordinary income, rather than capital gain, any gain recognized
on a sale, exchange, retirement or redemption of a note. This
disclosure assumes that the notes will not be considered
contingent payment debt instruments. U.S. holders are urged
to consult their tax advisors regarding the potential
application to the notes of the contingent payment debt
instrument rules and the consequences thereof.
Payments of
Interest
Payments of stated interest and Additional Amounts on the notes
generally will be taxable to a U.S. holder as ordinary
income at the time that such payments are received or accrued,
in accordance with such U.S. holders method of
accounting for U.S. federal income tax purposes.
Foreign Tax
Credit
Interest income on a note generally will constitute foreign
source income and generally will be considered passive
category income or, in the case of certain
U.S. holders, general category income in
computing the foreign tax credit allowable to U.S. holders
under U.S. federal income tax laws. Withholding taxes, if
any, may be eligible for foreign tax credits (or deduction in
lieu of such credits) for U.S. federal income tax purposes,
subject to applicable limitations.
Sale,
Exchange, Redemption, Retirement or other Taxable Disposition of
Notes
Generally, upon the sale, exchange, redemption, retirement or
other taxable disposition of a note, a U.S. holder will
recognize taxable gain or loss equal to the difference between
the amount realized on the disposition (less any amount
attributable to accrued but unpaid interest not previously
included in income, which will be taxable as such) and such
U.S. holders adjusted tax basis in the note. A
U.S. holders adjusted tax basis in a note will
generally equal the cost of such note to such U.S. holder.
Gain or loss recognized upon the sale, exchange, redemption,
retirement or other taxable disposition of a note generally will
be U.S. source gain or loss and generally will be capital
gain or loss and will be long-term capital gain or loss if at
the time of the sale, exchange, redemption, retirement or other
disposition the note has been held by such U.S. holder for
more than one year. Long-term capital gain realized by a
non-corporate U.S. holder will generally be subject to
taxation at a reduced rate. The deductibility of capital losses
is subject to limitation.
Information
Reporting and Backup Withholding
In general, payments of interest and the proceeds from sales or
other dispositions (including retirements or redemptions) of
notes held by a U.S. holder may be required to be reported
to the IRS unless the U.S. holder is a corporation or other
exempt recipient and, when required, demonstrates
223
this fact. In addition, a U.S. holder that is not an exempt
recipient may be subject to backup withholding unless it
provides a taxpayer identification number and otherwise complies
with applicable certification requirements.
Backup withholding is not an additional tax. Amounts withheld as
backup withholding may be credited against a holders
U.S. federal income tax liability and may entitle the
holder to a refund, provided that the appropriate information is
timely furnished to the IRS.
Surtax on
Certain Net Investment Income.
On March 30, 2010, new legislation was enacted that
requires certain U.S. holders who are individuals, estates
or trusts to pay an additional 3.8% tax on, among other things,
interest on and capital gains from the sale or other disposition
of notes for taxable years beginning after December 31,
2012. In addition, for taxable years beginning after
March 18, 2010, new legislation requires certain
U.S. holders who are individuals to report information
relating to an interest in the notes, subject to certain
exceptions (including an exception for notes held in accounts
maintained by certain financial institutions). U.S. holders
should consult their tax advisors regarding the effect, if any,
of this legislation on their ownership and disposition of the
notes.
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CERTAIN GENERAL
LUXEMBOURG TAX CONSIDERATIONS
The following is a general discussion of the material Luxembourg
tax consequences for your investment in and ownership and
disposition of the notes. The discussion does not purport to be
a comprehensive description of all tax considerations which may
be relevant to your decision to purchase the notes. In
particular, this discussion does not consider any specific facts
or circumstances which may apply to a particular purchaser. This
summary is based on the current laws or treaties (or any
regulations promulgated thereunder) of Luxembourg affecting
taxation and on the existing official position regarding the
application, administration or interpretation of such laws,
treaties or regulations (including a holding, judgment or order
by a court of competent jurisdiction or a change in published
practice). These laws or treaties (or any regulations
promulgated thereunder) of Luxembourg affecting taxation and the
existing official position regarding the application,
administration or interpretation of such laws, treaties or
regulations are subject to change, possibly with retroactive
effect.
Prospective purchasers of notes are advised to consult their own
tax advisers as to the consequences, under the tax laws of the
countries of their respective citizenship, residence or
domicile, of a purchase of notes, including, but not limited to,
the consequence of receipt of payments under the notes and their
disposal, redemption or exchange.
Tax
Residency
A note holder will not become resident, or be deemed to be
resident under the tax laws of Luxembourg by reason only of the
holding of the notes, or the execution, performance, delivery
and/or
enforcement of the notes.
Withholding
Tax
Under Luxembourg tax law currently in effect and with the
possible exception of interest paid to certain individual note
holders and to certain entities (under the Luxembourg laws dated
June 21, 2005 implementing the Savings Directive and
transposing the bilateral saving taxation agreements concluded
between Luxembourg and the dependent or associated territories
of the European Union (EU) and the provisions of the
Law of December 23, 2005 as amended), there is no
Luxembourg withholding tax on payments of interest (including
accrued but unpaid interest).
There is also no Luxembourg withholding tax, with the possible
exception of payments made to certain individual note holders
and to certain entities (under the Luxembourg laws dated
June 21, 2005 implementing the Savings Directive and the
provisions of the Law of December 23, 2005 as amended),
upon repayment of principal in case of reimbursement,
redemption, repurchase or exchange of the notes.
Taxation of
Luxembourg Non-residents
Under the Luxembourg laws dated June 21, 2005 implementing
the Savings Directive and transposing the bilateral saving
taxation agreements concluded between Luxembourg and the
dependent or associated territories of the EU, a
Luxembourg-based paying agent (within the meaning of the Savings
Directive) is required since July 1, 2005 to withhold tax
on interest and other similar income paid by it to (or under
certain circumstances, to the benefit of) an individual resident
in another Member State or in certain EU dependent or associated
territories, unless the beneficiary of the interest payments
elects for an alternative procedure to savings withholding tax,
which could be exchange of information or the tax certificate
procedure. The same treatment will apply to payments of interest
and other similar income made to certain residual
entities within the meaning of Article 4.2 of the
Savings Directive established in a Member State or in certain EU
dependent or associated territories (i.e., entities which are
not legal persons (the Finnish and Swedish companies listed in
Article 4.5 of the Savings Directive are not considered as
legal persons for this purpose), whose profits are not taxed
under the general arrangements for the business taxation, that
are not
225
UCITS recognized in accordance with the Council Directive
85/611/EEC or similar collective investment funds located in
Jersey, Guernsey, the Isle of Man, the Turks and Caicos Islands,
the Cayman Islands, Montserrat or the British Virgin Islands and
have not opted to be treated as UCITS recognized in accordance
with the Council Directive 85/611/EEC).
The savings withholding tax rate is 20% increasing to 35% as
from July 1, 2011. The savings withholding tax system will
only apply during a transitional period, the ending of which
depends on the conclusion of certain agreements relating to
information exchange with certain third countries.
On November 13, 2008 the European Commission published a
proposal for amendments to the Savings Directive, which included
a number of suggested changes which, if implemented, would
broaden the scope of the requirements described above. The
European Parliament approved an amended version of this proposal
on 24 April 2009. An updated draft version of the amended
Savings Directive was rendered public in November 2009. If this
draft would be approved in the course of 2010, the amended
Savings Directive would become applicable as from
January 1, 2013. Investors who are in any doubt as to their
position should consult their professional advisers.
Taxation of
Luxembourg residents
Interest payments made by Luxembourg paying agents (defined in a
similar way as in the Savings Directive) to Luxembourg
individual residents or to certain residual entities that secure
interest payments on behalf of such individuals (unless such
entities have opted either to be treated as UCITS recognized in
accordance with the Council Directive 85/611/EC or for the
exchange of information regime) are subject to a 10% final
withholding tax (the 10% Luxembourg Withholding Tax).
Taxation of the
Note Holders
Taxation of
Luxembourg Non-Residents
Notes holders who are non-residents under the tax laws of
Luxembourg and who have neither a permanent establishment nor a
permanent representative in Luxembourg with which the ownership
of the notes is connected are not liable to Luxembourg income
tax, corporate income tax, municipal business tax or net wealth
tax, whether they receive payments under the notes (including
interest and principal) or realize capital gains on the
disposal, redemption or exchange of the notes.
Taxation of
Luxembourg Residents
Companies
Companies
Benefiting from a Special Tax Regime
A Luxembourg resident note holder subject to the law of
July 31,1929 as repealed on pure holding companies or to
the law of February 13, 2007 on specialized investment fund
or to the law of December 20, 2002 on undertakings for
collective investment or to the law of May 11, 2007 on
family estate management companies would not be subject to any
Luxembourg corporate income tax, municipal business tax or net
wealth tax in respect of payments under the notes (including
interest and principal) or capital gains realized on the
disposal, redemption or exchange of the notes.
Companies not
Benefiting from a Special Tax Regime
A Luxembourg resident note holder subject to Article 159 of
the Income Tax Law (Corporate Income Tax) and to
§ 2 of the Gewebesteurgesetz (Municipal
Business Tax) and a foreign entity maintaining a permanent
establishment or a permanent representative in Luxembourg would
be subject to Luxembourg Corporate Income Tax and Municipal
Business Tax on their worldwide income, including interest
(whether accrued or paid) and capital gains realized on the
disposal, redemption or exchange of the notes, unless certain
items can benefit from an exemption under domestic law or tax
226
treaties for the avoidance of double taxation. The current
global effective corporate income tax rate amounts to 28.59%
including corporate income tax of 21.84% and municipal business
tax of 6.75% in Luxembourg-City.
A Luxembourg resident note holder subject to § 1 of
the Vermögensteuergesetz (Net Wealth Tax) and a
foreign entity maintaining a permanent establishment or a
permanent representative in Luxembourg would be subject to an
annual Luxembourg net wealth tax at a rate of 0.5%. The net
wealth is determined on January 1st of each year,
based on the market value of all the assets as of
December 31st each year less the market value of the
liabilities at the same date unless certain assets can benefit
from an exemption under domestic law or tax treaties for the
avoidance of double taxation.
Individuals
Pursuant to the Luxembourg law of December 23, 2005 as
amended by the law of July 17, 2008, Luxembourg resident
individuals, acting in the course of their private wealth, can
opt to self-declare and pay a 10% tax (the 10% Tax)
on interest payments made after December 31, 2007 by paying
agents (defined in the same way as in the Savings Directive)
located in an EU Member State other than Luxembourg, a Member
State of the European Economic Area or in a State or territory
which has concluded an international agreement directly related
to the Savings Directive. The 10% Luxembourg Withholding Tax or
the 10% Tax represents the final tax liability on interest
received for the Luxembourg resident individuals receiving the
interest payment in the course of their private wealth and can
be reduced in consideration of foreign withholding tax, based on
double tax treaties concluded by Luxembourg. Individual
Luxembourg resident note holders receiving the interest as
business income must include this interest in their taxable
basis; if applicable, the 10% Luxembourg Withholding Tax levied
will be credited against their final income tax liability.
Luxembourg resident individual note holders are generally not
subject to taxation on capital gains upon the disposal of the
notes, unless the notes are disposed of within six months of the
date of acquisition of the notes. Upon the sale, redemption or
exchange of the notes, accrued but unpaid interest will be
subject to the 10% Luxembourg Withholding Tax if the paying
agent is a Luxembourg resident or to the 10% Tax if the paying
agent is located outside Luxembourg but in the EU, in the
European Economic Area or in the dependent and associated
territory and the Luxembourg resident individuals opt for the
10% Tax. Individual Luxembourg resident note holders receiving
the interest as business income must include the portion of the
price corresponding to this interest in their taxable income;
the 10% Luxembourg Withholding Tax levied will be credited
against their final income tax liability.
Inheritance and
Gift Tax
No gift, estate or inheritance tax is levied on the transfer of
the notes upon death of a note holder where the deceased was not
a resident of Luxembourg for inheritance tax purposes.
Registration
Duty, Stamp Duty
When the agreement is not submitted to a notary, there is no
Luxembourg registration tax, stamp duty payable in Luxembourg by
note holders as a consequence of the issuance of the notes, nor
will any of these tax and duty be payable as a consequence of a
subsequent transfer, repurchase, redemption or exchange of notes.
227
Value Added
Tax
The purchase of income generating notes qualifies as a financing
activity from a Luxembourg VAT perspective. Such financing
activities are exempt from VAT in Luxembourg. Non-Luxembourg VAT
consequences of the purchase of notes should be verified in
consultation with a professional adviser.
If the purchaser of notes is established in Luxembourg, then
such activity gives him the status of VAT taxpayer in Luxembourg.
To the extent that this financing activity with the issuer is
the only activity of the purchaser, no Luxembourg VAT
registration is required for this Luxembourg purchaser, unless
he receives services from foreign suppliers for which he is
liable to declare and pay Luxembourg VAT. In this case, the
purchaser must register for VAT in Luxembourg under the
simplified VAT regime, account for the Luxembourg VAT if due and
has no VAT deduction right.
228
PLAN OF
DISTRIBUTION
The exchange offer is not being made to, nor will we accept
surrenders of old notes for exchange from, holders of old notes
in any jurisdiction in which the exchange offer or the
acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
The distribution of this prospectus and the offer and sale of
the new notes may be restricted by law in certain jurisdictions.
Persons who come into possession of this prospectus or any of
the new notes must inform themselves about and observe any such
restrictions. You must comply with all applicable laws and
regulations in force in any jurisdiction in which you purchase,
offer or sell the new notes or possess or distribute this
prospectus and, in connection with any purchase, offer or sale
by you of the new notes, must obtain any consent, approval or
permission required under the laws and regulations in force in
any jurisdiction to which you are subject or in which you make
such purchase, offer or sale.
Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with the resale of the new
notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes
where such old notes were acquired as a result of market-making
activities or other trading activities. We have agreed in the
notes registration rights agreement that, for a period beginning
on the date the exchange offer is consummated and ending on the
earlier of 180 days after the date of this prospectus and
the date on which a broker-dealer no longer owns the notes, we
will make this prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.
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We will not receive any proceeds from any sale of new notes by
broker-dealers.
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New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in
one or more transactions in the
over-the-counter
market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices, or at
negotiated prices.
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Any resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the
purchasers of any of the new notes.
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Any broker-dealer that resells new notes that were received by
it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of the new
notes may be deemed to be an underwriter within the
meaning of the Securities Act, and any profit on any such resale
of new notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under
the Securities Act.
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The letter of transmittal states that, by acknowledging that it
will deliver a prospectus and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
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For the period described above, we will promptly send additional
copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests these
documents. Any such requests should be made in the letter of
transmittal where indicated or otherwise should be directed to
MagnaChip Semiconductor, Inc., 20400 Stevens Creek Boulevard,
Suite 370, Cupertino, California 95014, Attention: John
McFarland, Senior Vice President, General Counsel and Secretary,
telephone
(408) 625-5999,
fax
(408) 625-5990.
For additional information about the obligations of
participating broker-dealers in connection with the exchange
offer and the resale of new notes, see Exchange
Offer Terms of the Exchange Offer
Resales of New Notes.
We have agreed in the notes registration rights agreement to pay
all expenses incident to the exchange offer (other than
commissions and concessions of any broker-dealer) and to
indemnify the holders of the old notes (including any
broker-dealer) against certain liabilities, including
liabilities under the Securities Act.
229
LEGAL
MATTERS
Certain legal matters with regard to the validity of the new
notes and related guarantees will be passed upon for us and the
guarantors by Jones Day, Palo Alto, California; Dechert
Luxembourg, Luxembourg; NautaDutilh N.V., Amsterdam, The
Netherlands; DLA Piper Tokyo Partnership, Tokyo, Japan; DLA
Piper Hong Kong, Hong Kong; Lee, Tsai & Partners,
Taipei, Taiwan; DLA Piper UK LLP, London, England; and Harney
Westwood & Riegels, British Virgin Islands.
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 period ended December 31, 2008 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-4
under the Securities Act of 1933, as amended , as amended
(Registration
No. 333- ).
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 exchange offer, 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.
As a result of the exchange offer, we will become subject to the
periodic reporting and other informational requirements of the
Securities Exchange Act of 1934, as amended. 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.
Under the terms of the indenture, we have agreed that, whether
or not we are required to do so by the rules and regulations of
the SEC, after the exchange offer is completed and for so long
as any of the notes remain outstanding, we will furnish to the
trustee and the holders of the notes, file with the SEC (unless
the SEC will not accept such a filing) and post on our website
(i) all quarterly reports on
Form 10-Q
and annual reports on
Form 10-K
that would be required to be filed with the SEC if we were
required to file such reports, and, with respect to the annual
report on
Form 10-K
only, a report thereon by our independent registered public
accounting firm and (ii) all current reports that would be
required to be filed with the SEC on
Form 8-K
if we were required to file such reports, in each case within
the time periods specified in the rules and regulations of the
SEC. In addition, for so long as any of the notes remain
outstanding, at any time when we are not required to file
reports with the SEC, we have agreed to make available to any
holder of the notes, securities analysts and prospective
investors, at their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities
Act.
230
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
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Successor
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December 31,
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March 31, 2010
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2009
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Pro Forma
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Historical
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(Note 20)
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Historical
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(Unaudited; in thousands of US dollars, except unit data)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
|
82,688
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$
|
82,688
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$
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64,925
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Accounts receivable, net
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|
104,514
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|
|
104,514
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|
|
|
74,233
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Inventories, net
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58,233
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58,233
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|
63,407
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Other receivables
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|
4,507
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4,507
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3,433
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Prepaid expenses
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|
13,013
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13,013
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12,625
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Other current assets
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7,769
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7,769
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3,433
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Total current assets
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270,724
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270,724
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222,056
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Property, plant and equipment, net
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154,719
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154,719
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156,337
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Intangible assets, net
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43,525
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43,525
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50,158
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Long-term prepaid expenses
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9,797
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9,797
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10,542
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Other non-current assets
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13,266
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13,266
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14,238
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Total assets
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$
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492,031
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$
|
492,031
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$
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453,331
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LIABILITIES AND UNITHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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77,871
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$
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77,871
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$
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59,705
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Other accounts payable
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|
7,551
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7,551
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7,190
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Payable to unitholders
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130,697
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Accrued expenses
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25,267
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25,267
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22,114
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Current portion of long-term debt
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618
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618
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618
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Other current liabilities
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|
4,552
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|
4,552
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3,937
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|
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|
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Total current liabilities
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115,859
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246,556
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93,564
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Long-term borrowings
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60,978
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60,978
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61,132
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Accrued severance benefits, net
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76,843
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76,843
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72,409
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Other non-current liabilities
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6,906
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6,906
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10,536
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|
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Total liabilities
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260,586
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391,283
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237,641
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Unitholders equity
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Common units, no par value, 375,000,000 units authorized,
307,233,996 and 307,083,996 units issued and outstanding at
March 31, 2010 and December 31, 2009, respectively
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55,453
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55,453
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|
|
55,135
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Additional paid-in capital
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|
169,265
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|
|
|
38,568
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|
|
|
168,700
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Retained earnings
|
|
|
29,138
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|
|
29,138
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|
|
(1,963
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)
|
Accumulated other comprehensive loss
|
|
|
(22,411
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)
|
|
|
(22,411
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)
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|
|
(6,182
|
)
|
|
|
|
|
|
|
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|
|
|
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Total unitholders equity
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|
231,445
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|
|
|
100,748
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|
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|
215,690
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Total liabilities and unitholders equity
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|
$
|
492,031
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|
|
$
|
492,031
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|
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$
|
453,331
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The accompanying notes are an integral part of these
consolidated financial statements
F-2
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
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Three Months Ended
|
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|
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Successor
|
|
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Predecessor
|
|
|
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March 31, 2010
|
|
|
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March 29, 2009
|
|
|
|
(Unaudited; in thousands of
|
|
|
|
US dollars, except unit data)
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|
Net sales
|
|
$
|
179,485
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|
|
|
$
|
101,459
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|
Cost of sales
|
|
|
130,127
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|
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|
|
80,560
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
49,358
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|
|
|
|
20,899
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|
|
|
|
|
|
|
|
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|
|
Selling, general and administrative expenses
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|
17,908
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|
|
|
|
15,283
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|
Research and development expenses
|
|
|
20,531
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|
|
|
|
16,986
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|
Restructuring and impairment charges
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|
|
336
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
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|
|
10,583
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|
|
|
|
(11,424
|
)
|
|
|
|
|
|
|
|
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|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(2,049
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)
|
|
|
|
(14,654
|
)
|
Foreign currency gain (loss), net
|
|
|
21,616
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|
|
|
|
(40,211
|
)
|
Others
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,515
|
|
|
|
|
(54,865
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)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
30,098
|
|
|
|
|
(66,289
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses (benefits)
|
|
|
(1,003
|
)
|
|
|
|
2,618
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
31,101
|
|
|
|
|
(68,907
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,101
|
|
|
|
$
|
(69,692
|
)
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
units
|
|
$
|
31,101
|
|
|
|
$
|
(72,276
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common units
|
|
$
|
31,101
|
|
|
|
$
|
(73,061
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common unit from continuing
operations Basic and diluted
|
|
$
|
0.10
|
|
|
|
$
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss per common unit from discontinued operations
Basic and diluted
|
|
$
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common unit Basic and diluted
|
|
$
|
0.10
|
|
|
|
$
|
(1.38
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units Basic
|
|
|
302,443,556
|
|
|
|
|
52,923,483
|
|
Weighted average number of units Diluted
|
|
|
307,535,928
|
|
|
|
|
52,923,483
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-3
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
|
Common Units
|
|
|
Paid-In
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Units
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(Unaudited; in thousands of US dollars, except unit data)
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
|
307,083,996
|
|
|
$
|
55,135
|
|
|
$
|
168,700
|
|
|
$
|
(1,963
|
)
|
|
$
|
(6,182
|
)
|
|
$
|
215,690
|
|
(Successor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
|
|
150,000
|
|
|
|
318
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
883
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,101
|
|
|
|
|
|
|
|
31,101
|
|
Fair valuation of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,434
|
)
|
|
|
(1,434
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,907
|
)
|
|
|
(14,907
|
)
|
Unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
307,233,996
|
|
|
$
|
55,453
|
|
|
$
|
169,265
|
|
|
$
|
29,138
|
|
|
$
|
(22,411
|
)
|
|
$
|
231,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009
|
|
|
52,923,483
|
|
|
|
52,923
|
|
|
|
3,150
|
|
|
|
(995,007
|
)
|
|
|
151,135
|
|
|
|
(787,799
|
)
|
(Predecessor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Dividends accrued on preferred units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,369
|
)
|
|
|
|
|
|
|
(3,369
|
)
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,692
|
)
|
|
|
|
|
|
|
(69,692
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,679
|
|
|
|
25,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2009
|
|
|
52,923,483
|
|
|
$
|
52,923
|
|
|
$
|
3,261
|
|
|
$
|
(1,068,068
|
)
|
|
$
|
176,814
|
|
|
$
|
(835,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Predecessor Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-4
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
(Unaudited; in thousands of US dollars)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
31,101
|
|
|
|
$
|
(69,692
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,477
|
|
|
|
|
10,413
|
|
Provision for severance benefits
|
|
|
3,166
|
|
|
|
|
989
|
|
Amortization of debt issuance costs
|
|
|
25
|
|
|
|
|
243
|
|
Loss (gain) on foreign currency translation, net
|
|
|
(23,478
|
)
|
|
|
|
41,433
|
|
Loss (gain) on disposal of property, plant and equipment, net
|
|
|
(9
|
)
|
|
|
|
314
|
|
Loss on disposal of intangible assets, net
|
|
|
2
|
|
|
|
|
44
|
|
Restructuring and impairment charges
|
|
|
336
|
|
|
|
|
|
|
Unit-based compensation
|
|
|
1,473
|
|
|
|
|
111
|
|
Cash used for reorganization items
|
|
|
1,579
|
|
|
|
|
|
|
Other
|
|
|
393
|
|
|
|
|
530
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(29,684
|
)
|
|
|
|
(10,682
|
)
|
Inventories
|
|
|
7,206
|
|
|
|
|
11,805
|
|
Other receivables
|
|
|
(1,238
|
)
|
|
|
|
1,135
|
|
Deferred tax assets
|
|
|
264
|
|
|
|
|
398
|
|
Accounts payable
|
|
|
18,088
|
|
|
|
|
2,118
|
|
Other accounts payable
|
|
|
(1,612
|
)
|
|
|
|
(901
|
)
|
Accrued expenses
|
|
|
3,196
|
|
|
|
|
15,575
|
|
Long term other payable
|
|
|
(2,136
|
)
|
|
|
|
406
|
|
Other current assets
|
|
|
(3,659
|
)
|
|
|
|
(2,011
|
)
|
Other current liabilities
|
|
|
(2,107
|
)
|
|
|
|
(112
|
)
|
Payment of severance benefits
|
|
|
(1,092
|
)
|
|
|
|
(1,686
|
)
|
Other
|
|
|
(788
|
)
|
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities before reorganization
items
|
|
|
16,503
|
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
14,924
|
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
4
|
|
|
|
|
19
|
|
Proceeds from disposal of intangible assets
|
|
|
27
|
|
|
|
|
|
|
Purchase of plant, property and equipment
|
|
|
(891
|
)
|
|
|
|
(1,396
|
)
|
Payment for intellectual property registration
|
|
|
(152
|
)
|
|
|
|
(90
|
)
|
Decrease in restricted cash
|
|
|
|
|
|
|
|
4,137
|
|
Decrease in short-term financial instruments
|
|
|
329
|
|
|
|
|
|
|
Decrease in guarantee deposits
|
|
|
972
|
|
|
|
|
469
|
|
Other
|
|
|
(50
|
)
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
239
|
|
|
|
|
3,136
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Repayment of current portion of long-term debt
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(154
|
)
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
2,754
|
|
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
17,763
|
|
|
|
|
3,050
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
Beginning of the period
|
|
|
64,925
|
|
|
|
|
4,037
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
$
|
82,688
|
|
|
|
$
|
7,087
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,035
|
|
|
|
$
|
407
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
1,513
|
|
|
|
$
|
2,900
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-5
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
(UNAUDITED; 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, (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.
|
|
3.
|
Significant
Accounting Policies
|
Basis of
Presentation
The accompanying unaudited interim consolidated financial
statements of MagnaChip Semiconductor LLC and its subsidiaries
(the Company) have been prepared in accordance with
F-6
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
generally accepted accounting principles in the United States of
America (US GAAP). These interim financial
statements include all adjustments consisting only of normal
recurring adjustments and the elimination of all intercompany
accounts and transactions which are, in the opinion of
management, necessary to provide a fair presentation of
financial condition and results of operations for the periods
presented. These interim financial statements are presented in
accordance with ASC 270, Interim Reporting,
(ASC 270) and, accordingly, do not include all
of the information and note disclosures required by US GAAP for
complete financial statements. The results of operations for the
three months ended March 31, 2010 are not necessarily
indicative of the results to be expected for a full year or for
any other periods.
The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America.
Recent
Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update
2010-06 (ASU
2010-06),
which amends the disclosure requirements of ASC 820,
Fair Value Measurements and Disclosures,
(ASC 820) as of January 1, 2010. ASU
2010-06
requires new disclosures for any transfers of fair value into
and out of Level 1 and 2 fair value measurements and
separate presentation of purchases, sales, issuances and
settlements within the reconciliation of Level 3
unobservable inputs. The Company previously adopted ASC 820
on January 1, 2008 and January 1, 2009 for financial
assets and liabilities and for nonfinancial assets and
liabilities, respectively. ASU
2010-06 is
effective for annual and interim periods beginning after
December 15, 2009, except for the Level 3
reconciliation which is effective for annual and interim periods
beginning after December 15, 2010. The adoption of ASU
2010-06 as
of January 1, 2010 did not have a material effect on the
Companys financial condition or results of operations. The
Company does not expect the adoption of ASU
2010-06 in
relation to the Level 3 reconciliation to have a material
impact on the Companys financial condition or results of
operations.
In June 2009, the FASB issued ASC 810,
Consolidation, (ASC 810), which
(1) replaces the quantitative-based risks and rewards
calculation for determining whether an enterprise is the primary
beneficiary in a variable interest entity with an approach that
is primarily qualitative, (2) requires ongoing assessments
of whether an enterprise is the primary beneficiary of a
variable interest entity and (3) requires additional
disclosures about an enterprises involvement in variable
interest entities. The Company was required to adopt
ASC 810 as of the beginning of 2010. The adoption of
ASC 810 did not have a material impact on the
Companys consolidated financial position, results of
operations or cash flows.
F-7
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Inventories as of March 31, 2010 and December 31, 2009
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Finished goods
|
|
$
|
10,818
|
|
|
$
|
19,474
|
|
Semi-finished goods and
work-in-process
|
|
|
44,962
|
|
|
|
42,604
|
|
Raw materials
|
|
|
6,836
|
|
|
|
5,844
|
|
Materials in-transit
|
|
|
385
|
|
|
|
64
|
|
Less: inventory reserve
|
|
|
(4,768
|
)
|
|
|
(4,579
|
)
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
58,233
|
|
|
$
|
63,407
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Property, Plant
and Equipment
|
Property, plant and equipment as of March 31, 2010 and
December 31, 2009 comprise the following:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Buildings and related structures
|
|
$
|
74,422
|
|
|
$
|
72,076
|
|
Machinery and equipment
|
|
|
74,551
|
|
|
|
71,505
|
|
Vehicles and others
|
|
|
3,309
|
|
|
|
3,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152,282
|
|
|
|
146,624
|
|
Less: accumulated depreciation
|
|
|
(13,155
|
)
|
|
|
(5,388
|
)
|
Land
|
|
|
15,592
|
|
|
|
15,101
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
154,719
|
|
|
$
|
156,337
|
|
|
|
|
|
|
|
|
|
|
Intangible assets as of March 31, 2010 and
December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Technology
|
|
$
|
17,236
|
|
|
$
|
14,942
|
|
Customer relationships
|
|
|
27,309
|
|
|
|
26,448
|
|
Intellectual property assets
|
|
|
5,061
|
|
|
|
4,779
|
|
In-process research and development
|
|
|
8,004
|
|
|
|
9,829
|
|
Less: accumulated amortization
|
|
|
(14,085
|
)
|
|
|
(5,840
|
)
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
43,525
|
|
|
$
|
50,158
|
|
|
|
|
|
|
|
|
|
|
F-8
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
|
|
7.
|
Derivative
Financial Instruments
|
Effective January 11, 2010, the Companys Korean
subsidiary entered into option and forward contracts to hedge
the risk of changes in the functional-currency-equivalent cash
flows attributable to currency rate changes on U.S. dollar
denominated revenues. Total notional amounts for the options and
forward contracts were $50,000 thousand and $135,000 thousand,
respectively, and monthly settlements for the contracts will be
made from February to December 2010.
The option and forward contracts qualify as cash flow hedges
under ASC 815, Derivatives and Hedging,
(ASC 815), since at both the inception of the
contracts and on an ongoing basis, the hedging relationship was
and is expected to be highly effective in achieving offsetting
cash flows attributable to the hedged risk during the terms of
the contracts. The Company is utilizing the hypothetical
derivative method to measure the effectiveness by
comparing the changes in value of the actual derivative versus
the change in fair value of the hypothetical
derivative.
The fair values of the Companys outstanding option and
forward contracts recorded as assets and liabilities are as
follows:
|
|
|
|
|
|
|
Derivatives Designated as
Hedging
|
|
|
|
March 31,
|
|
Instruments Under ASC 815:
|
|
|
|
2010
|
|
|
Asset Derivatives:
|
|
|
|
|
|
|
Options
|
|
Other current assets
|
|
$
|
256
|
|
Liability Derivatives:
|
|
|
|
|
|
|
Forwards
|
|
Other current liabilities
|
|
$
|
1,188
|
|
For derivative instruments that are designated and qualify as
cash flow hedges, the effective portion of the gain or loss on
the derivative is reported as a component of accumulated other
comprehensive income (AOCI) and reclassified into
earnings in the same period or periods during which the hedged
transaction affects earnings. Gains and losses on the
derivative, representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness, are
recognized in current earnings.
The following table summarizes the impact of derivative
instruments on the consolidated statement of operations for the
three months ended March 31, 2010 (Successor Company):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Recognized in
|
|
|
|
Amount of
|
|
|
Location of
|
|
|
Amount of
|
|
|
(Ineffective
|
|
|
Income on
|
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
Portion and
|
|
|
Derivatives
|
|
|
|
Recognized in
|
|
|
Reclassified from
|
|
|
Reclassified from
|
|
|
Amount
|
|
|
(Ineffective Portion
|
|
|
|
AOCI on
|
|
|
AOCI into
|
|
|
Accumulated
|
|
|
Excluded from
|
|
|
and Amount
|
|
Derivatives in ASC 815 Cash
|
|
Derivatives
|
|
|
Income
|
|
|
OCI into Income
|
|
|
Effectiveness
|
|
|
Excluded from
|
|
Flow Hedging Relationships
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
(Effective Portion)
|
|
|
Testing)
|
|
|
Effectiveness Testing)
|
|
|
Options
|
|
$
|
(516
|
)
|
|
|
Net sales
|
|
|
$
|
(17
|
)
|
|
|
Other income
|
|
|
$
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expenses
|
)
|
|
|
|
|
Forwards
|
|
|
(918
|
)
|
|
|
Net sales
|
|
|
|
(603
|
)
|
|
|
Other income
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(expenses
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,434
|
)
|
|
|
|
|
|
$
|
(620
|
)
|
|
|
|
|
|
$
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-9
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
The Companys option and forward contracts are subject to
termination upon the occurrence of the following events:
(i) On the last day of a fiscal quarter, the sum of
qualified and unrestricted cash and cash equivalents held by the
Company is less than $12,500 thousand.
(ii) The rating of the Companys debt is B- or lower
by Standard & Poors Ratings Group or any
successor rating agency thereof (S&P) or B3 or
lower by Moodys Investor Services, Inc. or any successor
rating agency thereof (Moodys) or the
Companys debt ceases to be assigned a rating by either
S&P or Moodys.
In addition, the Company is required to deposit cash collateral
with Goldman Sachs International Bank, the counterparty to the
option and forward contracts, for any exposure in excess of
$5,000 thousand.
With respect to the priority of liens and collateral, Goldman
Sachs International Bank has equivalent rights with lenders
under the new term loan.
|
|
8.
|
Fair Value
Measurements
|
ASC 820 defines fair value, establishes a consistent framework
for measuring fair value and expands disclosure requirements
about fair value measurements. ASC 820 requires, among
other things, the Companys valuation techniques used to
measure fair value to maximize the use of observable inputs and
minimize the use of unobservable inputs.
The valuation techniques required by ASC 820 are based upon
observable and unobservable inputs. Observable inputs reflect
market data obtained from independent sources, while
unobservable inputs reflect market assumptions made by the
Company. These two types of inputs create the following fair
value hierarchy:
Level 1 Unadjusted quoted prices for identical instruments
in active markets.
Level 2 Quoted prices for similar instruments in active
markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations for
which inputs are observable or for which significant value
drivers are observable.
Level 3 Significant inputs to the valuation model are
unobservable.
The following table represents the Companys assets and
liabilities measured at fair value on a recurring basis as of
March 31, 2010 and the basis for that measurement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Carrying Value
|
|
|
Measurement
|
|
|
Identical Asset
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
March 31, 2010
|
|
|
March 31, 2010
|
|
|
(Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current derivative assets
|
|
$
|
256
|
|
|
$
|
256
|
|
|
$
|
|
|
|
$
|
256
|
|
|
$
|
|
|
Available-for-sale
securities
|
|
|
712
|
|
|
|
712
|
|
|
|
712
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current derivative liabilities
|
|
|
1,188
|
|
|
|
1,188
|
|
|
|
|
|
|
|
1,188
|
|
|
|
|
|
|
|
9.
|
Current Portion
of Long-term Debt
|
The current portion of the new term loan issued in connection
with the Companys reorganization in 2009 was $618 thousand
as of March 31, 2010, as described in Note 10.
F-10
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
In connection with the Predecessor Companys reorganization
in 2009, in complete satisfaction of the first lien lender
claims arising from the senior secured credit facility (included
in short-term borrowings) of $95,000 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 March 31, 2010 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 $41,950 thousand, $12,254 thousand and $7,392
thousand, respectively. After deducting the current portion of
long-term debt of $618 thousand, long-term borrowings as of
March 31, 2010 were $60,978 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 amount 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 of March 31, 2010, 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.
Subsequent to the balance sheet date, the new term loan was
fully repaid by the Company.
|
|
11.
|
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 March 31, 2010,
98.6% of all employees of the Company were eligible for
severance benefits.
F-11
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Changes in accrued severance benefits for each period are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
2010
|
|
|
|
2009
|
|
Beginning balance
|
|
$
|
73,646
|
|
|
|
$
|
63,147
|
|
Provisions
|
|
|
3,166
|
|
|
|
|
989
|
|
Severance payments
|
|
|
(1,092
|
)
|
|
|
|
(1,686
|
)
|
Translation adjustments
|
|
|
2,386
|
|
|
|
|
(3,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,106
|
|
|
|
|
58,546
|
|
|
|
|
|
|
|
|
|
|
|
Less: cumulative contributions to the National Pension Fund
|
|
|
(540
|
)
|
|
|
|
(488
|
)
|
Group severance insurance plan
|
|
|
(723
|
)
|
|
|
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
|
Accrued severance benefits, net
|
|
$
|
76,843
|
|
|
|
$
|
57,444
|
|
|
|
|
|
|
|
|
|
|
|
The severance benefits are funded approximately 1.62% and 1.88%
as of March 31, 2010 and March 29, 2009, respectively,
through the Companys National Pension Fund and group
severance insurance plan which will be used exclusively for
payment of severance benefits to eligible employees. These
amounts have been deducted from the accrued severance benefit
balance.
The Company is liable to pay the following future benefits to
its non-executive employees upon their normal retirement age:
|
|
|
|
|
|
|
Severance Benefit
|
|
2010
|
|
$
|
34
|
|
2011
|
|
|
|
|
2012
|
|
|
140
|
|
2013
|
|
|
|
|
2014
|
|
|
284
|
|
2015
|
|
|
433
|
|
2016 2020
|
|
|
11,001
|
|
The above amounts were determined based on the non-executive
employees current salary rates and the number of service
years that will be accumulated upon their retirement dates.
These amounts do not include amounts that might be paid to
non-executive employees that will cease working with the Company
before their normal retirement ages.
F-12
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
|
|
12.
|
Redeemable
Convertible Preferred Units
|
Predecessor
Company
Changes in Series B units for each period are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 29, 2009
|
|
|
|
Units
|
|
|
Amount
|
|
|
Beginning of the period
|
|
|
93,997
|
|
|
$
|
142,669
|
|
Accrual of preferred dividends
|
|
|
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
|
93,997
|
|
|
$
|
146,038
|
|
|
|
|
|
|
|
|
|
|
The Series B units were retired without consideration as
part of the Companys reorganization in 2009.
|
|
13.
|
Discontinued
Operations
|
On October 6, 2008, the Company announced the closure of
its Imaging Solutions business segment. As of December 31,
2008, Imaging Solutions business segment qualified as a
discontinued operation component of the Company under
ASC 360, Property, Plant and Equipment,
(ASC 360). As a result, the results of
operations of the Imaging Solutions business segment were
classified as discontinued operations.
The results of operations of the Companys discontinued
Imaging Solutions business consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
2010
|
|
|
|
2009
|
|
Net sales
|
|
$
|
|
|
|
|
$
|
913
|
|
Cost of sales
|
|
|
|
|
|
|
|
1,306
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
392
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of taxes
|
|
$
|
|
|
|
|
$
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Restructuring and
Impairment Charges
|
Successor
Company
The Company recognized $336 thousand of impairment charges
during the three months ended March 31, 2010 for two
abandoned IPR&D projects which were recorded as a result of
its fresh-start reporting adoption as of October 25, 2009.
There were no restructuring activities during the three months
ended March 31, 2010, and no restructuring accrual at
March 31, 2010.
F-13
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Predecessor
Company
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
$54 thousand of restructuring charges, which consisted of
one-time termination benefits and other related costs under
ASC 420, Exit or Disposal Cost Obligations,
(ASC 420), for the three months ended
March 29, 2009.
|
|
15.
|
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.
As of March 31, 2010 and December 31, 2009, the
Company recorded $340 thousand and $1,997 thousand of
liabilities for unrecognized tax benefits, respectively. For the
three months ended March 31, 2010, the Company reversed
$1,640 thousand of liabilities due to the lapse of the
applicable statute of limitations.
The Company recognizes interest and penalties accrued related to
unrecognized tax benefits as income tax expenses. The Company
reversed $24 thousand of liabilities for unrecognized tax
benefits with the consideration of reductions in estimated
interest and penalties during the three months ended
March 31, 2010 and recognized $92 thousand of interest and
penalties as income tax expenses for the three months ended
March 29, 2009. Total interest and penalties accrued as of
March 31, 2010 and December 31, 2009 were $107
thousand, $946 thousand, respectively.
The following sets forth information relating to the reportable
segments:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
2010
|
|
|
|
2009
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Display Solutions
|
|
$
|
76,730
|
|
|
|
$
|
59,620
|
|
Semiconductor Manufacturing Services
|
|
|
93,201
|
|
|
|
|
40,137
|
|
Power Solutions
|
|
|
9,034
|
|
|
|
|
933
|
|
All other
|
|
|
520
|
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net sales
|
|
$
|
179,485
|
|
|
|
$
|
101,459
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
Display Solutions
|
|
$
|
14,431
|
|
|
|
$
|
13,674
|
|
Semiconductor Manufacturing Services
|
|
|
32,844
|
|
|
|
|
6,177
|
|
Power Solutions
|
|
|
1,563
|
|
|
|
|
279
|
|
All other
|
|
|
520
|
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit
|
|
$
|
49,358
|
|
|
|
$
|
20,899
|
|
|
|
|
|
|
|
|
|
|
|
Over 99% of the Companys property, plant and equipment are
located in Korea as of March 31, 2010.
F-14
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Net sales from the Companys top ten largest customers
accounted for 64.1% and 72.3% for the three months ended
March 31, 2010 and March 29, 2009, respectively.
The Company recorded $35,578 thousand and $33,784 thousand of
sales to one customer within its Display Solutions segment,
which represents greater than 10% of net sales, for the three
months ended March 31, 2010 and March 29, 2009,
respectively.
|
|
17.
|
Commitments and
Contingencies
|
Samsung Fiber Optics has made a claim against the Company for
the infringement of the certain patent rights of Caltech in
relation to imaging sensor products provided by the Company to
Samsung Fiber Optics. The Company believes it is probable that
the pending claim will have an unfavorable outcome and further
believes the associated loss can be reasonably estimated
according to ASC 450 Contingencies (ASC
450). The Company accrued $718 thousand of estimated
liabilities as of March 31, 2010 and December 31,
2009, as the Company believes its accrual is its best estimate
if the final outcome is unfavorable. Estimation was based on the
most recent communication with Samsung Fiber Optics.
Accordingly, the Company cannot provide assurance that the
estimated liabilities will be realized, and actual results could
vary materially.
|
|
18.
|
Earnings (Loss)
per Unit
|
The following table illustrates the computation of basic and
diluted earnings (loss) per common unit:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
2010
|
|
|
|
2009
|
|
Income (loss) from continuing operations
|
|
$
|
31,101
|
|
|
|
$
|
(68,907
|
)
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
(785
|
)
|
Net income (loss)
|
|
|
31,101
|
|
|
|
|
(69,692
|
)
|
Dividends accrued on preferred unitholders
|
|
|
|
|
|
|
|
(3,369
|
)
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to common
units
|
|
$
|
31,101
|
|
|
|
$
|
(72,276
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common units
|
|
$
|
31,101
|
|
|
|
$
|
(73,061
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding-basic
|
|
|
302,443,556
|
|
|
|
|
52,923,483
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common units outstanding-diluted
|
|
|
307,535,928
|
|
|
|
|
52,923,483
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per unit from continuing
operations
|
|
$
|
0.10
|
|
|
|
$
|
(1.37
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per unit from discontinued operations
|
|
$
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per unit
|
|
$
|
0.10
|
|
|
|
$
|
(1.38
|
)
|
|
|
|
|
|
|
|
|
|
|
F-15
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
The following outstanding redeemable convertible preferred
units, unit options and warrants were excluded from the
computation of diluted earnings (loss) per unit, as they would
have an anti-dilutive effect on the calculation:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
March 31,
|
|
|
|
March 29,
|
|
|
|
2010
|
|
|
|
2009
|
|
Redeemable convertible preferred units
|
|
|
NA
|
|
|
|
|
93,997
|
|
Options
|
|
|
914,000
|
|
|
|
|
4,048,413
|
|
Warrants
|
|
|
15,000,000
|
|
|
|
|
|
|
The Company has evaluated subsequent events requiring
recognition or disclosure in the consolidated financial
statements during the period from April 1, 2010 through
August 4, 2010, the date the unaudited interim consolidated
financial statements were available to be issued.
|
|
A.
|
Issuance of
$250 Million of Senior Notes and Applications of Net
Proceeds
|
On April 9, 2010, two of the Companys wholly-owned
subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip
Semiconductor Finance Company, issued $250,000 thousand
aggregate principal amount of 10.500% senior notes due
April 15, 2018 at a price of 98.674%. Interest on the notes
will accrue at a rate of 10.500% per annum, payable
semi-annually on April 15 and October 15 of each year, beginning
on October 15, 2010. The obligations under the senior notes
are fully and unconditionally guaranteed on an unsecured senior
basis by the Company and all of its subsidiaries except for
MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip
Semiconductor (Shanghai) Company Limited.
Of the $250,000 thousand aggregate principal amount, funds
affiliated with Avenue Capital Management II, L.P. purchased
$35,000 thousand principal amount.
Of the $238,372 thousand of net proceeds, which represents
$250,000 thousand of principal amount net of $3,315 thousand of
original issue discount and $8,313 thousand of debt issuance
costs, $130,697 thousand was used to make a distribution to the
Companys unitholders and $61,596 thousand was used to
repay all outstanding borrowings under the new term loan. The
remaining proceeds were retained to fund working capital and for
general corporate purposes. In connection with the repayment of
the new term loan, $210 thousand of relevant debt issuance costs
were written off.
|
|
B.
|
Cash Flow
Hedge Transactions
|
Effective May 25, 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 in U.S. dollar
denominated revenues which are expected to occur during the
first half of 2011. Total notional amounts for the options and
forward contracts were $30,000 thousand and $78,000 thousand,
respectively, and such contracts will be settled on a monthly
basis from January to June 2011.
F-16
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
|
|
20.
|
Unaudited Pro
Forma Balance Sheet as of March 31, 2010
|
Regarding the distribution made to unitholders subsequent to 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
March 31, 2010.
|
|
21.
|
Condensed
Consolidating Financial Information
|
The $250 million senior notes are fully and
unconditionally, jointly and severally guaranteed by the Company
and all of its subsidiaries, except for MagnaChip Semiconductor,
Ltd. (Korea) and MagnaChip Semiconductor (Shanghai) Company
Limited.
The senior notes are structurally subordinated to the creditors
of our principal manufacturing and selling subsidiary, MagnaChip
Semiconductor, Ltd. (Korea), which accounts for substantially
all of our net sales and assets.
Below are condensed consolidating balance sheets as of
March 31, 2010 and December 31, 2009, condensed
consolidating statements of operations and of cash flows for the
three months ended March 31, 2010 and March 29, 2009
of those entities that guarantee the senior notes, those that do
not, MagnaChip Semiconductor LLC, and the co-issuers.
For the purpose of the guarantor financial information, the
investments in subsidiaries are accounted for under the equity
method.
F-17
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Balance Sheet
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
76
|
|
|
$
|
49
|
|
|
$
|
72,367
|
|
|
$
|
10,196
|
|
|
$
|
|
|
|
$
|
82,688
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
141,028
|
|
|
|
51,836
|
|
|
|
(88,350
|
)
|
|
|
104,514
|
|
Inventories, net
|
|
|
|
|
|
|
|
|
|
|
58,233
|
|
|
|
162
|
|
|
|
(162
|
)
|
|
|
58,233
|
|
Other receivables
|
|
|
710
|
|
|
|
718
|
|
|
|
12,002
|
|
|
|
3,277
|
|
|
|
(12,200
|
)
|
|
|
4,507
|
|
Prepaid expenses
|
|
|
149
|
|
|
|
60
|
|
|
|
15,320
|
|
|
|
381
|
|
|
|
(2,897
|
)
|
|
|
13,013
|
|
Short-term intercompany loan
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
|
|
Other current assets
|
|
|
2,541
|
|
|
|
86,376
|
|
|
|
2,643
|
|
|
|
83,407
|
|
|
|
(167,198
|
)
|
|
|
7,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,476
|
|
|
|
182,203
|
|
|
|
301,593
|
|
|
|
244,259
|
|
|
|
(460,807
|
)
|
|
|
270,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
154,354
|
|
|
|
365
|
|
|
|
|
|
|
|
154,719
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
42,871
|
|
|
|
654
|
|
|
|
|
|
|
|
43,525
|
|
Long-term prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
21,116
|
|
|
|
|
|
|
|
(11,319
|
)
|
|
|
9,797
|
|
Investment in subsidiaries
|
|
|
(592,868
|
)
|
|
|
(675,542
|
)
|
|
|
|
|
|
|
(514,435
|
)
|
|
|
1,782,845
|
|
|
|
|
|
Long-term intercompany loan
|
|
|
824,091
|
|
|
|
794,597
|
|
|
|
|
|
|
|
621,000
|
|
|
|
(2,239,688
|
)
|
|
|
|
|
Other non-current assets
|
|
|
|
|
|
|
209
|
|
|
|
5,667
|
|
|
|
7,390
|
|
|
|
|
|
|
|
13,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
234,699
|
|
|
$
|
301,467
|
|
|
$
|
525,601
|
|
|
$
|
359,233
|
|
|
$
|
(928,969
|
)
|
|
$
|
492,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
127,771
|
|
|
$
|
38,408
|
|
|
$
|
(88,308
|
)
|
|
$
|
77,871
|
|
Other accounts payable
|
|
|
3,247
|
|
|
|
6,487
|
|
|
|
7,672
|
|
|
|
2,345
|
|
|
|
(12,200
|
)
|
|
|
7,551
|
|
Accrued expenses
|
|
|
7
|
|
|
|
1,044
|
|
|
|
104,236
|
|
|
|
87,221
|
|
|
|
(167,241
|
)
|
|
|
25,267
|
|
Short-term intercompany borrowings
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
3,655
|
|
|
|
3,794
|
|
|
|
(2,897
|
)
|
|
|
4,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,254
|
|
|
|
8,149
|
|
|
|
338,334
|
|
|
|
226,768
|
|
|
|
(460,646
|
)
|
|
|
115,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
|
|
|
885,069
|
|
|
|
621,000
|
|
|
|
794,597
|
|
|
|
(2,239,688
|
)
|
|
|
60,978
|
|
Accrued severance benefits, net
|
|
|
|
|
|
|
|
|
|
|
75,717
|
|
|
|
1,126
|
|
|
|
|
|
|
|
76,843
|
|
Other non-current liabilities
|
|
|
|
|
|
|
1
|
|
|
|
4,933
|
|
|
|
13,292
|
|
|
|
(11,320
|
)
|
|
|
6,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,254
|
|
|
|
893,219
|
|
|
|
1,039,984
|
|
|
|
1,035,783
|
|
|
|
(2,711,654
|
)
|
|
|
260,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units
|
|
|
55,453
|
|
|
|
136,229
|
|
|
|
39,005
|
|
|
|
51,976
|
|
|
|
(227,210
|
)
|
|
|
55,453
|
|
Additional paid-in capital
|
|
|
169,265
|
|
|
|
(735,491
|
)
|
|
|
(538,726
|
)
|
|
|
(733,977
|
)
|
|
|
2,008,194
|
|
|
|
169,265
|
|
Retained earnings
|
|
|
29,138
|
|
|
|
29,923
|
|
|
|
7,010
|
|
|
|
27,876
|
|
|
|
(64,809
|
)
|
|
|
29,138
|
|
Accumulated other comprehensive income
|
|
|
(22,411
|
)
|
|
|
(22,413
|
)
|
|
|
(21,672
|
)
|
|
|
(22,425
|
)
|
|
|
66,510
|
|
|
|
(22,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity
|
|
|
231,445
|
|
|
|
(591,752
|
)
|
|
|
(514,383
|
)
|
|
|
(676,550
|
)
|
|
|
1,782,685
|
|
|
|
231,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and unitholders equity
|
|
$
|
234,699
|
|
|
$
|
301,467
|
|
|
$
|
525,601
|
|
|
$
|
359,233
|
|
|
$
|
(928,969
|
)
|
|
$
|
492,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Balance Sheet
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
136
|
|
|
$
|
24
|
|
|
$
|
45,443
|
|
|
$
|
19,322
|
|
|
$
|
|
|
|
$
|
64,925
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
122,500
|
|
|
|
66,872
|
|
|
|
(115,139
|
)
|
|
|
74,233
|
|
Inventories, net
|
|
|
|
|
|
|
|
|
|
|
59,914
|
|
|
|
4,098
|
|
|
|
(605
|
)
|
|
|
63,407
|
|
Other receivables
|
|
|
710
|
|
|
|
718
|
|
|
|
7,061
|
|
|
|
3,617
|
|
|
|
(8,673
|
)
|
|
|
3,433
|
|
Prepaid expenses
|
|
|
165
|
|
|
|
85
|
|
|
|
14,122
|
|
|
|
1,150
|
|
|
|
(2,897
|
)
|
|
|
12,625
|
|
Short-term intercompany loan
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
|
|
Other current assets
|
|
|
16
|
|
|
|
72,614
|
|
|
|
776
|
|
|
|
72,868
|
|
|
|
(142,841
|
)
|
|
|
3,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,027
|
|
|
|
168,441
|
|
|
|
249,816
|
|
|
|
262,927
|
|
|
|
(460,155
|
)
|
|
|
222,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
155,951
|
|
|
|
386
|
|
|
|
|
|
|
|
156,337
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
49,459
|
|
|
|
699
|
|
|
|
|
|
|
|
50,158
|
|
Long-term prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
22,576
|
|
|
|
|
|
|
|
(12,034
|
)
|
|
|
10,542
|
|
Investment in subsidiaries
|
|
|
(608,843
|
)
|
|
|
(690,259
|
)
|
|
|
|
|
|
|
(517,520
|
)
|
|
|
1,816,622
|
|
|
|
|
|
Long-term intercompany loan
|
|
|
824,091
|
|
|
|
806,355
|
|
|
|
|
|
|
|
621,000
|
|
|
|
(2,251,446
|
)
|
|
|
|
|
Other non-current assets
|
|
|
|
|
|
|
234
|
|
|
|
5,753
|
|
|
|
8,251
|
|
|
|
|
|
|
|
14,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
216,275
|
|
|
$
|
284,771
|
|
|
$
|
483,555
|
|
|
$
|
375,743
|
|
|
$
|
(907,013
|
)
|
|
$
|
453,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
106,792
|
|
|
$
|
67,975
|
|
|
$
|
(115,062
|
)
|
|
$
|
59,705
|
|
Other accounts payable
|
|
|
485
|
|
|
|
5,551
|
|
|
|
6,337
|
|
|
|
3,490
|
|
|
|
(8,673
|
)
|
|
|
7,190
|
|
Accrued expenses
|
|
|
100
|
|
|
|
1,134
|
|
|
|
89,045
|
|
|
|
74,753
|
|
|
|
(142,918
|
)
|
|
|
22,114
|
|
Short-term intercompany borrowings
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
2,935
|
|
|
|
3,899
|
|
|
|
(2,897
|
)
|
|
|
3,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
585
|
|
|
|
7,303
|
|
|
|
300,109
|
|
|
|
245,117
|
|
|
|
(459,550
|
)
|
|
|
93,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
|
|
|
885,224
|
|
|
|
621,000
|
|
|
|
806,354
|
|
|
|
(2,251,446
|
)
|
|
|
61,132
|
|
Accrued severance benefits, net
|
|
|
|
|
|
|
|
|
|
|
71,362
|
|
|
|
1,047
|
|
|
|
|
|
|
|
72,409
|
|
Other non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
8,550
|
|
|
|
14,020
|
|
|
|
(12,034
|
)
|
|
|
10,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
585
|
|
|
|
892,527
|
|
|
|
1,001,021
|
|
|
|
1,066,538
|
|
|
|
(2,723,030
|
)
|
|
|
237,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units
|
|
|
55,135
|
|
|
|
136,229
|
|
|
|
39,005
|
|
|
|
51,976
|
|
|
|
(227,210
|
)
|
|
|
55,135
|
|
Additional paid-in capital
|
|
|
168,700
|
|
|
|
(735,940
|
)
|
|
|
(539,175
|
)
|
|
|
(734,525
|
)
|
|
|
2,009,640
|
|
|
|
168,700
|
|
Accumulated deficit
|
|
|
(1,963
|
)
|
|
|
(1,871
|
)
|
|
|
(11,636
|
)
|
|
|
(2,056
|
)
|
|
|
15,563
|
|
|
|
(1,963
|
)
|
Accumulated other comprehensive income
|
|
|
(6,182
|
)
|
|
|
(6,174
|
)
|
|
|
(5,660
|
)
|
|
|
(6,190
|
)
|
|
|
18,024
|
|
|
|
(6,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity
|
|
|
215,690
|
|
|
|
(607,756
|
)
|
|
|
(517,466
|
)
|
|
|
(690,795
|
)
|
|
|
1,816,017
|
|
|
|
215,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and unitholders equity
|
|
$
|
216,275
|
|
|
$
|
284,771
|
|
|
$
|
483,555
|
|
|
$
|
375,743
|
|
|
$
|
(907,013
|
)
|
|
$
|
453,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Operations
For the three months ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
174,814
|
|
|
$
|
11,682
|
|
|
$
|
(7,011
|
)
|
|
$
|
179,485
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
126,504
|
|
|
|
5,693
|
|
|
|
(2,070
|
)
|
|
|
130,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
48,310
|
|
|
|
5,989
|
|
|
|
(4,941
|
)
|
|
|
49,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
563
|
|
|
|
136
|
|
|
|
17,264
|
|
|
|
2,587
|
|
|
|
(2,642
|
)
|
|
|
17,908
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
21,400
|
|
|
|
2,170
|
|
|
|
(3,039
|
)
|
|
|
20,531
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(563
|
)
|
|
|
(136
|
)
|
|
|
9,310
|
|
|
|
1,232
|
|
|
|
740
|
|
|
|
10,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
1,423
|
|
|
|
7,377
|
|
|
|
10,715
|
|
|
|
|
|
|
|
19,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, equity in earnings of related
equity investment
|
|
|
(563
|
)
|
|
|
1,287
|
|
|
|
16,687
|
|
|
|
11,947
|
|
|
|
740
|
|
|
|
30,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses (benefits)
|
|
|
|
|
|
|
|
|
|
|
(1,959
|
)
|
|
|
956
|
|
|
|
|
|
|
|
(1,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of related investment
|
|
|
(563
|
)
|
|
|
1,287
|
|
|
|
18,646
|
|
|
|
10,991
|
|
|
|
740
|
|
|
|
31,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings of related investment
|
|
|
31,664
|
|
|
|
30,507
|
|
|
|
|
|
|
|
18,940
|
|
|
|
(81,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,101
|
|
|
$
|
31,794
|
|
|
$
|
18,646
|
|
|
$
|
29,931
|
|
|
$
|
(80,371
|
)
|
|
$
|
31,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common units
|
|
$
|
31,101
|
|
|
$
|
31,794
|
|
|
$
|
18,646
|
|
|
$
|
29,931
|
|
|
$
|
(80,371
|
)
|
|
$
|
31,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Operations
For the three months ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
95,826
|
|
|
$
|
40,391
|
|
|
$
|
(34,758
|
)
|
|
$
|
101,459
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
79,119
|
|
|
|
31,930
|
|
|
|
(30,489
|
)
|
|
|
80,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
16,707
|
|
|
|
8,461
|
|
|
|
(4,269
|
)
|
|
|
20,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
483
|
|
|
|
51
|
|
|
|
12,009
|
|
|
|
3,406
|
|
|
|
(666
|
)
|
|
|
15,283
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
17,567
|
|
|
|
3,505
|
|
|
|
(4,086
|
)
|
|
|
16,986
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(483
|
)
|
|
|
(51
|
)
|
|
|
(12,869
|
)
|
|
|
1,496
|
|
|
|
483
|
|
|
|
(11,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
(6,272
|
)
|
|
|
(57,086
|
)
|
|
|
8,493
|
|
|
|
|
|
|
|
(54,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes,
equity in loss of related equity investment
|
|
|
(483
|
)
|
|
|
(6,323
|
)
|
|
|
(69,955
|
)
|
|
|
9,989
|
|
|
|
483
|
|
|
|
(66,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
2,592
|
|
|
|
|
|
|
|
2,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in loss of related investment
|
|
|
(483
|
)
|
|
|
(6,323
|
)
|
|
|
(69,981
|
)
|
|
|
7,397
|
|
|
|
483
|
|
|
|
(68,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss of related investment
|
|
|
(69,209
|
)
|
|
|
(62,842
|
)
|
|
|
|
|
|
|
(70,390
|
)
|
|
|
202,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(69,692
|
)
|
|
|
(69,165
|
)
|
|
|
(69,981
|
)
|
|
|
(62,993
|
)
|
|
|
202,924
|
|
|
|
(68,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(509
|
)
|
|
|
(226
|
)
|
|
|
(50
|
)
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(69,692
|
)
|
|
$
|
(69,165
|
)
|
|
$
|
(70,490
|
)
|
|
$
|
(63,219
|
)
|
|
$
|
202,874
|
|
|
$
|
(69,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to common units
|
|
|
(73,061
|
)
|
|
|
(69,165
|
)
|
|
|
(69,981
|
)
|
|
|
(62,993
|
)
|
|
|
202,924
|
|
|
|
(72,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common units
|
|
$
|
(73,061
|
)
|
|
$
|
(69,165
|
)
|
|
$
|
(70,490
|
)
|
|
$
|
(63,219
|
)
|
|
$
|
202,874
|
|
|
$
|
(73,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Cash Flows
For the three months ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
31,101
|
|
|
$
|
31,794
|
|
|
$
|
18,646
|
|
|
$
|
29,931
|
|
|
$
|
(80,371
|
)
|
|
$
|
31,101
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
15,405
|
|
|
|
72
|
|
|
|
|
|
|
|
15,477
|
|
Provision for severance benefits
|
|
|
|
|
|
|
|
|
|
|
3,081
|
|
|
|
85
|
|
|
|
|
|
|
|
3,166
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
Loss (gain) on foreign currency translation, net
|
|
|
|
|
|
|
11,757
|
|
|
|
(23,734
|
)
|
|
|
(11,501
|
)
|
|
|
|
|
|
|
(23,478
|
)
|
Gain on disposal of property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Loss on disposal of intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
336
|
|
Unit-based compensation
|
|
|
334
|
|
|
|
|
|
|
|
1,040
|
|
|
|
99
|
|
|
|
|
|
|
|
1,473
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
1,528
|
|
|
|
|
|
|
|
1,579
|
|
Earnings of related investment
|
|
|
(31,664
|
)
|
|
|
(30,507
|
)
|
|
|
|
|
|
|
(18,940
|
)
|
|
|
81,111
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
480
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
393
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
(18,065
|
)
|
|
|
15,150
|
|
|
|
(26,769
|
)
|
|
|
(29,684
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
3,661
|
|
|
|
4,312
|
|
|
|
(767
|
)
|
|
|
7,206
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
(5,039
|
)
|
|
|
274
|
|
|
|
3,527
|
|
|
|
(1,238
|
)
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
264
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
21,040
|
|
|
|
(29,705
|
)
|
|
|
26,753
|
|
|
|
18,088
|
|
Other accounts payable
|
|
|
2,771
|
|
|
|
936
|
|
|
|
(673
|
)
|
|
|
(1,119
|
)
|
|
|
(3,527
|
)
|
|
|
(1,612
|
)
|
Accrued expenses
|
|
|
(93
|
)
|
|
|
(90
|
)
|
|
|
15,407
|
|
|
|
12,353
|
|
|
|
(24,381
|
)
|
|
|
3,196
|
|
Long term other payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(2,129
|
)
|
|
|
(2,136
|
)
|
Other current assets
|
|
|
(2,509
|
)
|
|
|
(13,737
|
)
|
|
|
(1,363
|
)
|
|
|
(10,306
|
)
|
|
|
24,256
|
|
|
|
(3,659
|
)
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
(1,262
|
)
|
|
|
(1,015
|
)
|
|
|
170
|
|
|
|
(2,107
|
)
|
Payment of severance benefits
|
|
|
|
|
|
|
|
|
|
|
(1,092
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,092
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(788
|
)
|
|
|
|
|
|
|
|
|
|
|
(788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities before
reorganization items
|
|
|
(60
|
)
|
|
|
179
|
|
|
|
27,124
|
|
|
|
(8,613
|
)
|
|
|
(2,127
|
)
|
|
|
16,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
|
|
(1,528
|
)
|
|
|
|
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(60
|
)
|
|
|
179
|
|
|
|
27,073
|
|
|
|
(10,141
|
)
|
|
|
(2,127
|
)
|
|
|
14,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
4
|
|
Proceeds from disposal of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
Purchases of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(891
|
)
|
Payment for intellectual property registration
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
(152
|
)
|
Purchase of short-term financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
329
|
|
Decrease in guarantee deposits
|
|
|
|
|
|
|
|
|
|
|
219
|
|
|
|
753
|
|
|
|
|
|
|
|
972
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
(804
|
)
|
|
|
1,025
|
|
|
|
18
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term borrowings
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchanges rate on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
655
|
|
|
|
(10
|
)
|
|
|
2,109
|
|
|
|
2,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(60
|
)
|
|
|
25
|
|
|
|
26,924
|
|
|
|
(9,126
|
)
|
|
|
|
|
|
|
17,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period
|
|
|
136
|
|
|
|
24
|
|
|
|
45,443
|
|
|
|
19,322
|
|
|
|
|
|
|
|
64,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
$
|
76
|
|
|
$
|
49
|
|
|
$
|
72,367
|
|
|
$
|
10,196
|
|
|
$
|
|
|
|
$
|
82,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED;
TABULAR DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Cash Flows
For the three months ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(69,692
|
)
|
|
$
|
(69,165
|
)
|
|
$
|
(70,490
|
)
|
|
$
|
(63,219
|
)
|
|
$
|
202,874
|
|
|
$
|
(69,692
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
9,798
|
|
|
|
615
|
|
|
|
|
|
|
|
10,413
|
|
Provision for severance benefits
|
|
|
|
|
|
|
|
|
|
|
888
|
|
|
|
101
|
|
|
|
|
|
|
|
989
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
202
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
Loss (gain) on foreign currency translation, net
|
|
|
|
|
|
|
5,009
|
|
|
|
42,761
|
|
|
|
(6,337
|
)
|
|
|
|
|
|
|
41,433
|
|
Loss (gain) on disposal of property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
332
|
|
|
|
|
|
|
|
314
|
|
Loss on disposal of intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
|
12
|
|
|
|
|
|
|
|
111
|
|
Loss of related investment
|
|
|
69,209
|
|
|
|
62,842
|
|
|
|
|
|
|
|
70,390
|
|
|
|
(202,441
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
248
|
|
|
|
282
|
|
|
|
|
|
|
|
530
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
(13,387
|
)
|
|
|
(8,703
|
)
|
|
|
11,408
|
|
|
|
(10,682
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
11,743
|
|
|
|
512
|
|
|
|
(450
|
)
|
|
|
11,805
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
874
|
|
|
|
261
|
|
|
|
|
|
|
|
1,135
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
4,785
|
|
|
|
8,741
|
|
|
|
(11,408
|
)
|
|
|
2,118
|
|
Other accounts payable
|
|
|
407
|
|
|
|
|
|
|
|
(1,379
|
)
|
|
|
71
|
|
|
|
|
|
|
|
(901
|
)
|
Accrued expenses
|
|
|
40
|
|
|
|
13,829
|
|
|
|
14,864
|
|
|
|
12,580
|
|
|
|
(25,738
|
)
|
|
|
15,575
|
|
Long term other payable
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
406
|
|
|
|
57
|
|
|
|
406
|
|
Other current assets
|
|
|
(132
|
)
|
|
|
(12,729
|
)
|
|
|
(1,120
|
)
|
|
|
(13,343
|
)
|
|
|
25,313
|
|
|
|
(2,011
|
)
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
430
|
|
|
|
(992
|
)
|
|
|
450
|
|
|
|
(112
|
)
|
Payment of severance benefits
|
|
|
|
|
|
|
|
|
|
|
(1,630
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
(1,686
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(764
|
)
|
|
|
1,785
|
|
|
|
(1,172
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(168
|
)
|
|
|
(12
|
)
|
|
|
(2,270
|
)
|
|
|
3,836
|
|
|
|
(1,107
|
)
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
Purchases of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
(1,396
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,396
|
)
|
Payment for intellectual property registration
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
(90
|
)
|
Decrease in restricted cash
|
|
|
|
|
|
|
|
|
|
|
4,137
|
|
|
|
|
|
|
|
|
|
|
|
4,137
|
|
Decrease in guarantee deposits
|
|
|
|
|
|
|
|
|
|
|
447
|
|
|
|
22
|
|
|
|
|
|
|
|
469
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
3
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
3,111
|
|
|
|
25
|
|
|
|
|
|
|
|
3,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchanges rate on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1,080
|
|
|
|
(2,552
|
)
|
|
|
1,107
|
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(168
|
)
|
|
|
(12
|
)
|
|
|
1,921
|
|
|
|
1,309
|
|
|
|
|
|
|
|
3,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period
|
|
|
216
|
|
|
|
56
|
|
|
|
205
|
|
|
|
3,560
|
|
|
|
|
|
|
|
4,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
$
|
48
|
|
|
$
|
44
|
|
|
$
|
2,126
|
|
|
$
|
4,869
|
|
|
$
|
|
|
|
$
|
7,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
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 (except for Note 28, as to which the
date is August 4, 2010)
F-24
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 (except for Note 28, as to which the
date is August 4, 2010)
F-25
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
(In thousands of US dollars, except unit data)
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64,925
|
|
|
|
$
|
4,037
|
|
Restricted cash
|
|
|
|
|
|
|
|
11,768
|
|
Accounts receivable, net
|
|
|
74,233
|
|
|
|
|
76,295
|
|
Inventories, net
|
|
|
63,407
|
|
|
|
|
47,110
|
|
Other receivables
|
|
|
3,433
|
|
|
|
|
4,701
|
|
Prepaid expenses
|
|
|
12,625
|
|
|
|
|
9,268
|
|
Other current assets
|
|
|
3,433
|
|
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
222,056
|
|
|
|
|
157,978
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
156,337
|
|
|
|
|
183,955
|
|
Intangible assets, net
|
|
|
50,158
|
|
|
|
|
34,892
|
|
Long-term prepaid expenses
|
|
|
10,542
|
|
|
|
|
7,714
|
|
Other non-current assets
|
|
|
14,238
|
|
|
|
|
14,631
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
453,331
|
|
|
|
$
|
399,170
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND UNITHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
59,705
|
|
|
|
$
|
70,158
|
|
Other accounts payable
|
|
|
7,190
|
|
|
|
|
15,040
|
|
Accrued expenses
|
|
|
22,114
|
|
|
|
|
38,554
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
95,000
|
|
Current portion of long-term debt
|
|
|
618
|
|
|
|
|
750,000
|
|
Other current liabilities
|
|
|
3,937
|
|
|
|
|
3,735
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
93,564
|
|
|
|
|
972,487
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
61,132
|
|
|
|
|
|
|
Accrued severance benefits, net
|
|
|
72,409
|
|
|
|
|
61,939
|
|
Other non-current liabilities
|
|
|
10,536
|
|
|
|
|
9,874
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
237,641
|
|
|
|
|
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
|
|
|
|
|
|
|
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
|
|
|
|
|
3,150
|
|
Accumulated deficit
|
|
|
(1,963
|
)
|
|
|
|
(995,007
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(6,182
|
)
|
|
|
|
151,135
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity (deficit)
|
|
|
215,690
|
|
|
|
|
(787,799
|
)
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred units and
unitholders equity
|
|
$
|
453,331
|
|
|
|
$
|
399,170
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
F-26
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
Ten-Month
|
|
|
|
|
|
|
|
|
|
Two-Month
|
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
October 25,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
2009
|
|
|
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-27
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-28
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-29
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
(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.
F-30
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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.
F-31
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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, in determining a discount rate the Company incorporated
a risk premium derived from higher risk due to its emergence
from bankruptcy which bears uncertainty surrounding its future
performance, continued economic viability, and maintenance of
its customer relationships, to better reflect the return of an
investment with those specific risk characteristics from a
market participants perspective. 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.
|
F-32
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
|
|
|
|
|
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 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.
F-33
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
F-34
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
|
|
|
|
|
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. |
|
(g) |
|
To record the discharge of liabilities subject to compromise of
$798,043 thousand and the issuance of 18,000 thousand new common
units and new warrants to purchase 15,000 thousand new common
units. The issuances of new common units were recorded as
increase in common units by $14,259 thousand and the issuances
of new warrants were recorded as increase in additional paid-in
capital by $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 to two classes of creditors of the
Company and new warrants representing 5% of the Successor
Companys outstanding common units 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 issuance of 282,000 thousand new common units
which was recorded as an increase in common units by $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. |
F-35
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
|
|
|
(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
|
)
|
Fair value of new warrants issued
|
|
|
(2,533
|
)
|
Fair value of new common units issued
|
|
|
(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. |
|
(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. |
F-36
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT 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, 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
F-37
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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.
F-38
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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.
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.
F-39
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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,
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
F-40
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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.
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.
F-41
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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.
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
F-42
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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
F-43
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
recorded as a liability upon execution of the agreements and the
costs are amortized over the contract period using the
straight-line method and charged to research and development
expenses in the statements of operations.
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, and is charged to selling, general and
administrative expenses in 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 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.
F-44
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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
F-45
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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
F-46
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
(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.
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.
F-47
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
|
|
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.
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
F-48
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
|
|
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.
F-49
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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-50
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-51
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-52
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.
F-53
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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
F-54
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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.
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.
F-55
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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
|
|
|
|
|
|
|
|
|
|
|
|
|
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
F-56
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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.
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.
F-57
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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.
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.
F-58
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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-59
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, the Company classified
the Series A units and B units outside of permanent equity.
All Series A units
F-60
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 outstanding
Series B units and of any units ranking on parity with the
Series B units, the full amounts
F-61
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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-62
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 per unit, was 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 unit 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
thousand units were authorized and 7,551 thousand units were
reserved for all future grants.
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-63
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 units then becoming vested or
otherwise to be settled on such date, subject to the withholding
of applicable taxes, if any.
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
F-64
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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
|
|
|
|
|
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
F-65
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 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.
F-66
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
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
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
Average
|
|
|
Number of
|
|
|
|
|
|
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 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.
F-67
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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
|
|
Year Ended
|
|
Year Ended
|
|
|
Period Ended October 25, 2009
|
|
December 31, 2008
|
|
December 31, 2007
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
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 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.
F-68
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
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 charged against the restructuring accruals and the
remaining accrual balance as of December 31, 2008 was
$2,584 thousand.
F-69
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
|
|
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-70
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 applicable statutory
income tax rate is 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-71
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-72
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-73
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-74
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-75
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-76
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
thousand 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 4,448 thousand common units
out of the total warrants for the purchase of 15,000 thousand
units outstanding as of December 31, 2009.
F-77
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-78
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
The Company has evaluated subsequent events requiring
recognition or disclosure in the consolidated financial
statements during the period from January 1, 2010 through
August 4, 2010, the date the consolidated financial
statements were available to be issued.
|
|
A.
|
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.
|
|
B.
|
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 $238.4 million
of net proceeds, $130.7 million was used to make a
distribution to the Companys unitholders and
$61.6 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.
|
|
28.
|
Condensed
Consolidating Financial Information
|
The $250 million senior notes are fully and
unconditionally, jointly and severally guaranteed by the Company
and all of its subsidiaries, except for MagnaChip Semiconductor,
Ltd. (Korea) and MagnaChip Semiconductor (Shanghai) Company
Limited.
The senior notes are structurally subordinated to the creditors
of our principal manufacturing and selling subsidiary, MagnaChip
Semiconductor, Ltd. (Korea), which accounts for substantially
all of our net sales and assets.
Below are condensed consolidating balance sheets as of
December 31, 2009 and December 31, 2008, condensed
consolidating statements of operations and of cash flows for the
two-month period ended December 31, 2009, for the ten-month
period ended October 25, 2009 and for each of the two years
in the period ended December 31, 2008 of those entities
that guarantee the senior notes, those that do not, MagnaChip
Semiconductor LLC, and the co-issuers.
For the purpose of the guarantor financial information, the
investments in subsidiaries are accounted for under the equity
method.
F-79
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Balance Sheet
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
136
|
|
|
$
|
24
|
|
|
$
|
45,443
|
|
|
$
|
19,322
|
|
|
$
|
|
|
|
$
|
64,925
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
122,500
|
|
|
|
66,872
|
|
|
|
(115,139
|
)
|
|
|
74,233
|
|
Inventories, net
|
|
|
|
|
|
|
|
|
|
|
59,914
|
|
|
|
4,098
|
|
|
|
(605
|
)
|
|
|
63,407
|
|
Other receivables
|
|
|
710
|
|
|
|
718
|
|
|
|
7,061
|
|
|
|
3,617
|
|
|
|
(8,673
|
)
|
|
|
3,433
|
|
Prepaid expenses
|
|
|
165
|
|
|
|
85
|
|
|
|
14,122
|
|
|
|
1,150
|
|
|
|
(2,897
|
)
|
|
|
12,625
|
|
Short-term intercompany loan
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
|
|
Other current assets
|
|
|
16
|
|
|
|
72,614
|
|
|
|
776
|
|
|
|
72,868
|
|
|
|
(142,841
|
)
|
|
|
3,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,027
|
|
|
|
168,441
|
|
|
|
249,816
|
|
|
|
262,927
|
|
|
|
(460,155
|
)
|
|
|
222,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
155,951
|
|
|
|
386
|
|
|
|
|
|
|
|
156,337
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
49,459
|
|
|
|
699
|
|
|
|
|
|
|
|
50,158
|
|
Long-term prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
22,576
|
|
|
|
|
|
|
|
(12,034
|
)
|
|
|
10,542
|
|
Investment in subsidiaries
|
|
|
(608,843
|
)
|
|
|
(690,259
|
)
|
|
|
|
|
|
|
(517,520
|
)
|
|
|
1,816,622
|
|
|
|
|
|
Long-term intercompany loan
|
|
|
824,091
|
|
|
|
806,355
|
|
|
|
|
|
|
|
621,000
|
|
|
|
(2,251,446
|
)
|
|
|
|
|
Other non-current assets
|
|
|
|
|
|
|
234
|
|
|
|
5,753
|
|
|
|
8,251
|
|
|
|
|
|
|
|
14,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
216,275
|
|
|
$
|
284,771
|
|
|
$
|
483,555
|
|
|
$
|
375,743
|
|
|
$
|
(907,013
|
)
|
|
$
|
453,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
106,792
|
|
|
$
|
67,975
|
|
|
$
|
(115,062
|
)
|
|
$
|
59,705
|
|
Other accounts payable
|
|
|
485
|
|
|
|
5,551
|
|
|
|
6,337
|
|
|
|
3,490
|
|
|
|
(8,673
|
)
|
|
|
7,190
|
|
Accrued expenses
|
|
|
100
|
|
|
|
1,134
|
|
|
|
89,045
|
|
|
|
74,753
|
|
|
|
(142,918
|
)
|
|
|
22,114
|
|
Short-term intercompany borrowings
|
|
|
|
|
|
|
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
2,935
|
|
|
|
3,899
|
|
|
|
(2,897
|
)
|
|
|
3,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
585
|
|
|
|
7,303
|
|
|
|
300,109
|
|
|
|
245,117
|
|
|
|
(459,550
|
)
|
|
|
93,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
|
|
|
885,224
|
|
|
|
621,000
|
|
|
|
806,354
|
|
|
|
(2,251,446
|
)
|
|
|
61,132
|
|
Accrued severance benefits, net
|
|
|
|
|
|
|
|
|
|
|
71,362
|
|
|
|
1,047
|
|
|
|
|
|
|
|
72,409
|
|
Other non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
8,550
|
|
|
|
14,020
|
|
|
|
(12,034
|
)
|
|
|
10,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
585
|
|
|
|
892,527
|
|
|
|
1,001,021
|
|
|
|
1,066,538
|
|
|
|
(2,723,030
|
)
|
|
|
237,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units
|
|
|
55,135
|
|
|
|
136,229
|
|
|
|
39,005
|
|
|
|
51,976
|
|
|
|
(227,210
|
)
|
|
|
55,135
|
|
Additional paid-in capital
|
|
|
168,700
|
|
|
|
(735,940
|
)
|
|
|
(539,175
|
)
|
|
|
(734,525
|
)
|
|
|
2,009,640
|
|
|
|
168,700
|
|
Accumulated deficit
|
|
|
(1,963
|
)
|
|
|
(1,871
|
)
|
|
|
(11,636
|
)
|
|
|
(2,056
|
)
|
|
|
15,563
|
|
|
|
(1,963
|
)
|
Accumulated other comprehensive income
|
|
|
(6,182
|
)
|
|
|
(6,174
|
)
|
|
|
(5,660
|
)
|
|
|
(6,190
|
)
|
|
|
18,024
|
|
|
|
(6,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity
|
|
|
215,690
|
|
|
|
(607,756
|
)
|
|
|
(517,466
|
)
|
|
|
(690,795
|
)
|
|
|
1,816,017
|
|
|
|
215,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and unitholders equity
|
|
$
|
216,275
|
|
|
$
|
284,771
|
|
|
$
|
483,555
|
|
|
$
|
375,743
|
|
|
$
|
(907,013
|
)
|
|
$
|
453,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-80
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Balance Sheet
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
216
|
|
|
$
|
56
|
|
|
$
|
205
|
|
|
$
|
3,560
|
|
|
$
|
|
|
|
$
|
4,037
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
11,768
|
|
|
|
|
|
|
|
|
|
|
|
11,768
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
90,318
|
|
|
|
63,779
|
|
|
|
(77,802
|
)
|
|
|
76,295
|
|
Inventories, net
|
|
|
|
|
|
|
|
|
|
|
44,978
|
|
|
|
2,657
|
|
|
|
(525
|
)
|
|
|
47,110
|
|
Other receivables
|
|
|
|
|
|
|
718
|
|
|
|
7,834
|
|
|
|
6,359
|
|
|
|
(10,210
|
)
|
|
|
4,701
|
|
Prepaid expenses
|
|
|
9
|
|
|
|
|
|
|
|
12,294
|
|
|
|
187
|
|
|
|
(3,222
|
)
|
|
|
9,268
|
|
Short-term intercompany loan
|
|
|
|
|
|
|
95,000
|
|
|
|
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
21,487
|
|
|
|
1,518
|
|
|
|
24,679
|
|
|
|
(42,885
|
)
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
225
|
|
|
|
117,261
|
|
|
|
168,915
|
|
|
|
196,221
|
|
|
|
(324,644
|
)
|
|
|
157,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
181,050
|
|
|
|
2,905
|
|
|
|
|
|
|
|
183,955
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
32,744
|
|
|
|
2,148
|
|
|
|
|
|
|
|
34,892
|
|
Long-term prepaid expenses
|
|
|
|
|
|
|
|
|
|
|
24,303
|
|
|
|
|
|
|
|
(16,589
|
)
|
|
|
7,714
|
|
Investment in subsidiaries
|
|
|
(640,996
|
)
|
|
|
(692,842
|
)
|
|
|
|
|
|
|
(528,647
|
)
|
|
|
1,862,485
|
|
|
|
|
|
Long-term intercompany loan
|
|
|
|
|
|
|
800,946
|
|
|
|
|
|
|
|
620,999
|
|
|
|
(1,421,945
|
)
|
|
|
|
|
Other non-current assets
|
|
|
(1
|
)
|
|
|
|
|
|
|
4,288
|
|
|
|
10,344
|
|
|
|
|
|
|
|
14,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
(640,772
|
)
|
|
$
|
225,365
|
|
|
$
|
411,300
|
|
|
$
|
303,970
|
|
|
$
|
99,307
|
|
|
$
|
399,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Unitholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
98,767
|
|
|
$
|
49,193
|
|
|
$
|
(77,802
|
)
|
|
$
|
70,158
|
|
Other accounts payable
|
|
|
4,257
|
|
|
|
5
|
|
|
|
18,939
|
|
|
|
2,049
|
|
|
|
(10,210
|
)
|
|
|
15,040
|
|
Accrued expenses
|
|
|
101
|
|
|
|
23,816
|
|
|
|
35,699
|
|
|
|
21,823
|
|
|
|
(42,885
|
)
|
|
|
38,554
|
|
Short-term borrowings
|
|
|
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
95,000
|
|
|
|
(190,000
|
)
|
|
|
95,000
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000
|
|
Other current liabilities
|
|
|
|
|
|
|
96
|
|
|
|
1,577
|
|
|
|
5,284
|
|
|
|
(3,222
|
)
|
|
|
3,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,358
|
|
|
|
868,917
|
|
|
|
249,982
|
|
|
|
173,349
|
|
|
|
(324,119
|
)
|
|
|
972,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
|
|
|
|
|
|
|
|
|
|
|
621,000
|
|
|
|
800,945
|
|
|
|
(1,421,945
|
)
|
|
|
|
|
Accrued severance benefits, net
|
|
|
|
|
|
|
|
|
|
|
60,897
|
|
|
|
1,042
|
|
|
|
|
|
|
|
61,939
|
|
Other non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
8,231
|
|
|
|
18,232
|
|
|
|
(16,589
|
)
|
|
|
9,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,358
|
|
|
|
868,917
|
|
|
|
940,110
|
|
|
|
993,568
|
|
|
|
(1,762,653
|
)
|
|
|
1,044,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B redeemable convertible preferred units
|
|
|
142,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred units
|
|
|
142,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common units
|
|
|
52,923
|
|
|
|
136,229
|
|
|
|
39,005
|
|
|
|
51,976
|
|
|
|
(227,210
|
)
|
|
|
52,923
|
|
Additional paid-in capital
|
|
|
3,150
|
|
|
|
2,294
|
|
|
|
156,264
|
|
|
|
76,592
|
|
|
|
(235,150
|
)
|
|
|
3,150
|
|
Accumulated deficit
|
|
|
(995,007
|
)
|
|
|
(933,960
|
)
|
|
|
(872,708
|
)
|
|
|
(970,224
|
)
|
|
|
2,776,892
|
|
|
|
(995,007
|
)
|
Accumulated other comprehensive income
|
|
|
151,135
|
|
|
|
151,885
|
|
|
|
148,629
|
|
|
|
152,058
|
|
|
|
(452,572
|
)
|
|
|
151,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unitholders equity
|
|
|
(787,799
|
)
|
|
|
(643,552
|
)
|
|
|
(528,810
|
)
|
|
|
(689,598
|
)
|
|
|
1,861,960
|
|
|
|
(787,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred units and
unitholders equity
|
|
$
|
(640,772
|
)
|
|
$
|
225,365
|
|
|
$
|
411,300
|
|
|
$
|
303,970
|
|
|
$
|
99,307
|
|
|
$
|
399,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-81
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Operations
For the two-month period ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
112,693
|
|
|
$
|
32,955
|
|
|
$
|
(34,566
|
)
|
|
$
|
111,082
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
93,020
|
|
|
|
27,429
|
|
|
|
(30,041
|
)
|
|
|
90,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
19,673
|
|
|
|
5,526
|
|
|
|
(4,525
|
)
|
|
|
20,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(69
|
)
|
|
|
23
|
|
|
|
13,659
|
|
|
|
1,969
|
|
|
|
(1,042
|
)
|
|
|
14,540
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
16,048
|
|
|
|
1,710
|
|
|
|
(3,017
|
)
|
|
|
14,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
69
|
|
|
|
(23
|
)
|
|
|
(10,034
|
)
|
|
|
1,847
|
|
|
|
(466
|
)
|
|
|
(8,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
377
|
|
|
|
(2,118
|
)
|
|
|
9,821
|
|
|
|
|
|
|
|
8,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes,
equity in loss of related equity investment
|
|
|
69
|
|
|
|
354
|
|
|
|
(12,152
|
)
|
|
|
11,668
|
|
|
|
(466
|
)
|
|
|
(527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses (benefits)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
1,952
|
|
|
|
|
|
|
|
1,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in loss of related investment
|
|
|
69
|
|
|
|
354
|
|
|
|
(12,146
|
)
|
|
|
9,716
|
|
|
|
(466
|
)
|
|
|
(2,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss of related investment
|
|
|
(2,032
|
)
|
|
|
(2,225
|
)
|
|
|
|
|
|
|
(11,772
|
)
|
|
|
16,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,963
|
)
|
|
|
(1,871
|
)
|
|
|
(12,146
|
)
|
|
|
(2,056
|
)
|
|
|
15,563
|
|
|
|
(2,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,963
|
)
|
|
$
|
(1,871
|
)
|
|
$
|
(11,636
|
)
|
|
$
|
(2,056
|
)
|
|
$
|
15,563
|
|
|
$
|
(1,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to common units
|
|
|
(1,963
|
)
|
|
|
(1,871
|
)
|
|
|
(12,146
|
)
|
|
|
(2,056
|
)
|
|
|
15,563
|
|
|
|
(2,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common units
|
|
$
|
(1,963
|
)
|
|
$
|
(1,871
|
)
|
|
$
|
(11,636
|
)
|
|
$
|
(2,056
|
)
|
|
$
|
15,563
|
|
|
$
|
(1,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-82
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Operations
For the ten-month period ended October 25, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
434,896
|
|
|
$
|
156,813
|
|
|
$
|
(142,725
|
)
|
|
$
|
448,984
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
309,151
|
|
|
|
131,162
|
|
|
|
(129,174
|
)
|
|
|
311,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
125,745
|
|
|
|
25,651
|
|
|
|
(13,551
|
)
|
|
|
137,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,771
|
|
|
|
333
|
|
|
|
47,103
|
|
|
|
10,235
|
|
|
|
(4,154
|
)
|
|
|
56,288
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
56,597
|
|
|
|
9,596
|
|
|
|
(10,045
|
)
|
|
|
56,148
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439
|
|
|
|
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(2,771
|
)
|
|
|
(333
|
)
|
|
|
22,045
|
|
|
|
5,381
|
|
|
|
648
|
|
|
|
24,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
779,304
|
|
|
|
33,193
|
|
|
|
20,978
|
|
|
|
(16,630
|
)
|
|
|
|
|
|
|
816,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes,
equity in earnings of related equity investment
|
|
|
776,533
|
|
|
|
32,860
|
|
|
|
43,023
|
|
|
|
(11,249
|
)
|
|
|
648
|
|
|
|
841,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses (benefits)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
7,303
|
|
|
|
|
|
|
|
7,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in earnings of related investment
|
|
|
776,533
|
|
|
|
32,860
|
|
|
|
43,031
|
|
|
|
(18,552
|
)
|
|
|
648
|
|
|
|
834,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings of related investment
|
|
|
64,573
|
|
|
|
35,283
|
|
|
|
|
|
|
|
51,604
|
|
|
|
(151,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
841,106
|
|
|
|
68,143
|
|
|
|
43,031
|
|
|
|
33,052
|
|
|
|
(150,812
|
)
|
|
|
834,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
8,586
|
|
|
|
(1,557
|
)
|
|
|
(443
|
)
|
|
|
6,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
841,106
|
|
|
$
|
68,143
|
|
|
$
|
51,617
|
|
|
$
|
31,495
|
|
|
$
|
(151,255
|
)
|
|
$
|
841,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
6,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common units
|
|
|
834,789
|
|
|
|
68,143
|
|
|
|
43,031
|
|
|
|
33,052
|
|
|
|
(150,812
|
)
|
|
|
828,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common units
|
|
$
|
834,789
|
|
|
$
|
68,143
|
|
|
$
|
51,617
|
|
|
$
|
31,495
|
|
|
$
|
(151,255
|
)
|
|
$
|
834,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-83
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Operations
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
570,957
|
|
|
$
|
331,057
|
|
|
$
|
(300,350
|
)
|
|
$
|
601,664
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
442,582
|
|
|
|
270,578
|
|
|
|
(267,906
|
)
|
|
|
445,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
128,375
|
|
|
|
60,479
|
|
|
|
(32,444
|
)
|
|
|
156,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
4,111
|
|
|
|
1,031
|
|
|
|
64,968
|
|
|
|
12,222
|
|
|
|
(1,018
|
)
|
|
|
81,314
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
106,182
|
|
|
|
15,734
|
|
|
|
(32,461
|
)
|
|
|
89,455
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
(875
|
)
|
|
|
14,245
|
|
|
|
|
|
|
|
13,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(4,111
|
)
|
|
|
(1,031
|
)
|
|
|
(41,900
|
)
|
|
|
18,278
|
|
|
|
1,035
|
|
|
|
(27,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
(29,399
|
)
|
|
|
(269,246
|
)
|
|
|
12,120
|
|
|
|
|
|
|
|
(286,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes,
equity in loss of related equity investment
|
|
|
(4,111
|
)
|
|
|
(30,430
|
)
|
|
|
(311,146
|
)
|
|
|
30,398
|
|
|
|
1,035
|
|
|
|
(314,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
175
|
|
|
|
142
|
|
|
|
11,268
|
|
|
|
|
|
|
|
11,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in loss of related investment
|
|
|
(4,111
|
)
|
|
|
(30,605
|
)
|
|
|
(311,288
|
)
|
|
|
19,130
|
|
|
|
1,035
|
|
|
|
(325,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss of related investment
|
|
|
(413,183
|
)
|
|
|
(382,574
|
)
|
|
|
|
|
|
|
(380,731
|
)
|
|
|
1,176,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(417,294
|
)
|
|
|
(413,179
|
)
|
|
|
(311,288
|
)
|
|
|
(361,601
|
)
|
|
|
1,177,523
|
|
|
|
(325,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(69,475
|
)
|
|
|
(21,250
|
)
|
|
|
(730
|
)
|
|
|
(91,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(417,294
|
)
|
|
$
|
(413,179
|
)
|
|
$
|
(380,763
|
)
|
|
$
|
(382,851
|
)
|
|
$
|
1,176,793
|
|
|
$
|
(417,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
13,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to common units
|
|
|
(430,558
|
)
|
|
|
(413,179
|
)
|
|
|
(311,288
|
)
|
|
|
(361,601
|
)
|
|
|
1,177,523
|
|
|
|
(339,103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common units
|
|
$
|
(430,558
|
)
|
|
$
|
(413,179
|
)
|
|
$
|
(380,763
|
)
|
|
$
|
(382,851
|
)
|
|
$
|
1,176,793
|
|
|
$
|
(430,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-84
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Operations
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
687,708
|
|
|
$
|
320,721
|
|
|
$
|
(298,921
|
)
|
|
$
|
709,508
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
574,297
|
|
|
|
277,864
|
|
|
|
(273,304
|
)
|
|
|
578,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
113,411
|
|
|
|
42,857
|
|
|
|
(25,617
|
)
|
|
|
130,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
323
|
|
|
|
1,299
|
|
|
|
71,340
|
|
|
|
9,962
|
|
|
|
(214
|
)
|
|
|
82,710
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
102,760
|
|
|
|
13,473
|
|
|
|
(25,428
|
)
|
|
|
90,805
|
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
12,084
|
|
|
|
|
|
|
|
|
|
|
|
12,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) from continuing operations
|
|
|
(323
|
)
|
|
|
(1,299
|
)
|
|
|
(72,773
|
)
|
|
|
19,422
|
|
|
|
25
|
|
|
|
(54,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
1
|
|
|
|
8,708
|
|
|
|
(57,619
|
)
|
|
|
(16,133
|
)
|
|
|
|
|
|
|
(65,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes,
equity in loss of related equity investment
|
|
|
(322
|
)
|
|
|
7,409
|
|
|
|
(130,392
|
)
|
|
|
3,289
|
|
|
|
25
|
|
|
|
(119,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses
|
|
|
|
|
|
|
170
|
|
|
|
156
|
|
|
|
8,509
|
|
|
|
|
|
|
|
8,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in loss of related investment
|
|
|
(322
|
)
|
|
|
7,239
|
|
|
|
(130,548
|
)
|
|
|
(5,220
|
)
|
|
|
25
|
|
|
|
(128,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss of related investment
|
|
|
(180,228
|
)
|
|
|
(188,371
|
)
|
|
|
|
|
|
|
(167,234
|
)
|
|
|
535,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(180,550
|
)
|
|
|
(181,132
|
)
|
|
|
(130,548
|
)
|
|
|
(172,454
|
)
|
|
|
535,858
|
|
|
|
(128,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operation, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(36,485
|
)
|
|
|
(14,424
|
)
|
|
|
(815
|
)
|
|
|
(51,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(180,550
|
)
|
|
$
|
(181,132
|
)
|
|
$
|
(167,033
|
)
|
|
$
|
(186,878
|
)
|
|
$
|
535,043
|
|
|
$
|
(180,550
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends accrued on preferred units
|
|
|
12,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations attributable to common units
|
|
|
(192,581
|
)
|
|
|
(181,132
|
)
|
|
|
(130,548
|
)
|
|
|
(172,454
|
)
|
|
|
535,858
|
|
|
|
(140,857
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common units
|
|
$
|
(192,581
|
)
|
|
$
|
(181,132
|
)
|
|
$
|
(167,033
|
)
|
|
$
|
(186,878
|
)
|
|
$
|
535,043
|
|
|
$
|
(192,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-85
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Cash Flows
For the two-month period ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,963
|
)
|
|
$
|
(1,871
|
)
|
|
$
|
(11,636
|
)
|
|
$
|
(2,056
|
)
|
|
$
|
15,563
|
|
|
$
|
(1,963
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
11,168
|
|
|
|
50
|
|
|
|
|
|
|
|
11,218
|
|
Provision for severance benefits
|
|
|
|
|
|
|
|
|
|
|
1,781
|
|
|
|
70
|
|
|
|
|
|
|
|
1,851
|
|
Loss (gain) on foreign currency translation, net
|
|
|
|
|
|
|
8,976
|
|
|
|
(10,293
|
)
|
|
|
(8,760
|
)
|
|
|
|
|
|
|
(10,077
|
)
|
Loss on disposal of property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Loss on disposal of intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,993
|
|
|
|
206
|
|
|
|
|
|
|
|
2,199
|
|
Cash used for reorganization items
|
|
|
1,500
|
|
|
|
448
|
|
|
|
1,406
|
|
|
|
909
|
|
|
|
|
|
|
|
4,263
|
|
Loss of related investment
|
|
|
2,032
|
|
|
|
2,225
|
|
|
|
|
|
|
|
11,772
|
|
|
|
(16,029
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(815
|
)
|
|
|
148
|
|
|
|
|
|
|
|
(667
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
4,307
|
|
|
|
6,290
|
|
|
|
5,846
|
|
|
|
16,443
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
9,413
|
|
|
|
(3,113
|
)
|
|
|
439
|
|
|
|
6,739
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
1,880
|
|
|
|
(338
|
)
|
|
|
213
|
|
|
|
1,755
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
664
|
|
|
|
14
|
|
|
|
678
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
(12,074
|
)
|
|
|
3,750
|
|
|
|
(5,820
|
)
|
|
|
(14,144
|
)
|
Other accounts payable
|
|
|
(129
|
)
|
|
|
2
|
|
|
|
(10,860
|
)
|
|
|
(1,311
|
)
|
|
|
(213
|
)
|
|
|
(12,511
|
)
|
Accrued expenses
|
|
|
(1,847
|
)
|
|
|
337
|
|
|
|
5,058
|
|
|
|
9,806
|
|
|
|
(19,041
|
)
|
|
|
(5,687
|
)
|
Long term other payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48
|
)
|
|
|
(829
|
)
|
|
|
(877
|
)
|
Other current assets
|
|
|
13
|
|
|
|
(9,678
|
)
|
|
|
3,787
|
|
|
|
(9,308
|
)
|
|
|
18,378
|
|
|
|
3,192
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
405
|
|
|
|
(704
|
)
|
|
|
1,487
|
|
|
|
1,188
|
|
Payment of severance benefits
|
|
|
|
|
|
|
|
|
|
|
(1,331
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
(1,389
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(127
|
)
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities before
reorganization items
|
|
|
(394
|
)
|
|
|
439
|
|
|
|
(5,916
|
)
|
|
|
7,965
|
|
|
|
14
|
|
|
|
2,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
(1,500
|
)
|
|
|
(448
|
)
|
|
|
(1,406
|
)
|
|
|
(909
|
)
|
|
|
|
|
|
|
(4,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(1,894
|
)
|
|
|
(9
|
)
|
|
|
(7,322
|
)
|
|
|
7,056
|
|
|
|
14
|
|
|
|
(2,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Purchases of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
(1,254
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(1,258
|
)
|
Payment for intellectual property registration
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
Purchase of short-term financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329
|
)
|
|
|
|
|
|
|
(329
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
3
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(1,267
|
)
|
|
|
(327
|
)
|
|
|
(3
|
)
|
|
|
(1,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchanges rate on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
1,261
|
|
|
|
(152
|
)
|
|
|
(11
|
)
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,894
|
)
|
|
|
(9
|
)
|
|
|
(7,328
|
)
|
|
|
6,577
|
|
|
|
|
|
|
|
(2,654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period
|
|
|
2,030
|
|
|
|
33
|
|
|
|
52,771
|
|
|
|
12,745
|
|
|
|
|
|
|
|
67,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
$
|
136
|
|
|
$
|
24
|
|
|
$
|
45,443
|
|
|
$
|
19,322
|
|
|
$
|
|
|
|
$
|
64,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-86
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Cash Flows
For the ten-month period ended October 25, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
841,106
|
|
|
$
|
68,143
|
|
|
$
|
51,617
|
|
|
$
|
31,495
|
|
|
$
|
(151,255
|
)
|
|
$
|
841,106
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
36,274
|
|
|
|
1,981
|
|
|
|
|
|
|
|
38,255
|
|
Provision for severance benefits
|
|
|
|
|
|
|
|
|
|
|
8,512
|
|
|
|
323
|
|
|
|
|
|
|
|
8,835
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
685
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
836
|
|
Loss (gain) on foreign currency translation, net
|
|
|
|
|
|
|
(14,384
|
)
|
|
|
(43,701
|
)
|
|
|
13,861
|
|
|
|
|
|
|
|
(44,224
|
)
|
Loss (gain) on disposal of property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
(235
|
)
|
|
|
330
|
|
|
|
|
|
|
|
95
|
|
Gain on disposal of intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
(9,230
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,230
|
)
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,120
|
)
|
Unit-based compensation
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
|
23
|
|
|
|
|
|
|
|
233
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
1,060
|
|
|
|
|
|
|
|
1,076
|
|
Noncash reorganization items
|
|
|
(779,304
|
)
|
|
|
508
|
|
|
|
(31,026
|
)
|
|
|
4,173
|
|
|
|
|
|
|
|
(805,649
|
)
|
Earnings of related investment
|
|
|
(64,573
|
)
|
|
|
(35,283
|
)
|
|
|
|
|
|
|
(51,604
|
)
|
|
|
151,460
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1,877
|
|
|
|
845
|
|
|
|
|
|
|
|
2,722
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
|
|
(34,658
|
)
|
|
|
(9,735
|
)
|
|
|
31,463
|
|
|
|
(12,930
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
(2,421
|
)
|
|
|
1,479
|
|
|
|
(221
|
)
|
|
|
(1,163
|
)
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
(1,174
|
)
|
|
|
2,894
|
|
|
|
(1,689
|
)
|
|
|
31
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,054
|
|
|
|
|
|
|
|
1,054
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
22,745
|
|
|
|
14,984
|
|
|
|
(31,413
|
)
|
|
|
6,316
|
|
Other accounts payable
|
|
|
2,622
|
|
|
|
260
|
|
|
|
(17,303
|
)
|
|
|
1,280
|
|
|
|
1,689
|
|
|
|
(11,452
|
)
|
Accrued expenses
|
|
|
(27
|
)
|
|
|
22,395
|
|
|
|
45,513
|
|
|
|
41,324
|
|
|
|
(80,910
|
)
|
|
|
28,295
|
|
Long term other payable
|
|
|
|
|
|
|
|
|
|
|
626
|
|
|
|
412
|
|
|
|
(531
|
)
|
|
|
507
|
|
Other current assets
|
|
|
(40
|
)
|
|
|
(42,252
|
)
|
|
|
11,842
|
|
|
|
(39,412
|
)
|
|
|
75,758
|
|
|
|
5,896
|
|
Other current liabilities
|
|
|
|
|
|
|
(95
|
)
|
|
|
725
|
|
|
|
(6,098
|
)
|
|
|
5,507
|
|
|
|
39
|
|
Payment of severance benefits
|
|
|
|
|
|
|
|
|
|
|
(4,010
|
)
|
|
|
(310
|
)
|
|
|
|
|
|
|
(4,320
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(520
|
)
|
|
|
1,098
|
|
|
|
(1,094
|
)
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities before
reorganization items
|
|
|
(216
|
)
|
|
|
(7
|
)
|
|
|
34,694
|
|
|
|
11,457
|
|
|
|
(1,236
|
)
|
|
|
44,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(1,060
|
)
|
|
|
|
|
|
|
(1,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(216
|
)
|
|
|
(23
|
)
|
|
|
34,694
|
|
|
|
10,397
|
|
|
|
(1,236
|
)
|
|
|
43,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
290
|
|
|
|
299
|
|
|
|
(260
|
)
|
|
|
329
|
|
Proceeds from disposal of intangible assets
|
|
|
|
|
|
|
|
|
|
|
9,374
|
|
|
|
1
|
|
|
|
|
|
|
|
9,375
|
|
Purchases of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
(7,753
|
)
|
|
|
(20
|
)
|
|
|
260
|
|
|
|
(7,513
|
)
|
Payment for intellectual property registration
|
|
|
|
|
|
|
|
|
|
|
(366
|
)
|
|
|
|
|
|
|
|
|
|
|
(366
|
)
|
Decrease in restricted cash
|
|
|
|
|
|
|
|
|
|
|
11,409
|
|
|
|
|
|
|
|
|
|
|
|
11,409
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(282
|
)
|
|
|
1,949
|
|
|
|
(1,763
|
)
|
|
|
(96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
12,672
|
|
|
|
2,229
|
|
|
|
(1,763
|
)
|
|
|
13,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of new common units pursuant to the reorganization plan
|
|
|
35,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,280
|
|
Repayment of short-term borrowings
|
|
|
(33,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,250
|
)
|
Repayment of long-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,763
|
)
|
|
|
1,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,030
|
|
|
|
|
|
|
|
|
|
|
|
(1,763
|
)
|
|
|
1,763
|
|
|
|
2,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
5,200
|
|
|
|
(1,678
|
)
|
|
|
1,236
|
|
|
|
4,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,814
|
|
|
|
(23
|
)
|
|
|
52,566
|
|
|
|
9,185
|
|
|
|
|
|
|
|
63,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the period
|
|
|
216
|
|
|
|
56
|
|
|
|
205
|
|
|
|
3,560
|
|
|
|
|
|
|
|
4,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
|
$
|
2,030
|
|
|
$
|
33
|
|
|
$
|
52,771
|
|
|
$
|
12,745
|
|
|
$
|
|
|
|
$
|
67,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-87
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Cash Flows
For the year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(417,294
|
)
|
|
$
|
(413,179
|
)
|
|
$
|
(380,763
|
)
|
|
$
|
(382,851
|
)
|
|
$
|
1,176,793
|
|
|
$
|
(417,294
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
68,698
|
|
|
|
3,262
|
|
|
|
|
|
|
|
71,960
|
|
Provision for severance benefits
|
|
|
|
|
|
|
|
|
|
|
13,552
|
|
|
|
474
|
|
|
|
|
|
|
|
14,026
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
13,079
|
|
|
|
3,211
|
|
|
|
|
|
|
|
|
|
|
|
16,290
|
|
Loss (gain) on foreign currency translation, net
|
|
|
|
|
|
|
8,808
|
|
|
|
212,287
|
|
|
|
(5,524
|
)
|
|
|
|
|
|
|
215,571
|
|
Loss (gain) on disposal of property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
(3,095
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(3,094
|
)
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
25,420
|
|
|
|
17,119
|
|
|
|
|
|
|
|
42,539
|
|
Unit-based compensation
|
|
|
16
|
|
|
|
|
|
|
|
375
|
|
|
|
74
|
|
|
|
|
|
|
|
465
|
|
Loss of related investment
|
|
|
413,183
|
|
|
|
382,574
|
|
|
|
|
|
|
|
380,731
|
|
|
|
(1,176,488
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
(773
|
)
|
|
|
372
|
|
|
|
|
|
|
|
(400
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
|
|
|
|
|
|
|
|
21,089
|
|
|
|
7,602
|
|
|
|
2,334
|
|
|
|
31,025
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
9,157
|
|
|
|
2,169
|
|
|
|
(152
|
)
|
|
|
11,174
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
(2,073
|
)
|
|
|
6,373
|
|
|
|
(3,284
|
)
|
|
|
1,016
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,462
|
|
|
|
28
|
|
|
|
1,490
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
15,478
|
|
|
|
(18,207
|
)
|
|
|
(2,334
|
)
|
|
|
(5,063
|
)
|
Other accounts payable
|
|
|
3,238
|
|
|
|
|
|
|
|
(25,092
|
)
|
|
|
(1,317
|
)
|
|
|
3,284
|
|
|
|
(19,887
|
)
|
Accrued expenses
|
|
|
101
|
|
|
|
20,428
|
|
|
|
22,857
|
|
|
|
12,619
|
|
|
|
(32,052
|
)
|
|
|
23,953
|
|
Long term other payable
|
|
|
|
|
|
|
|
|
|
|
(331
|
)
|
|
|
450
|
|
|
|
2
|
|
|
|
121
|
|
Other current assets
|
|
|
1,122
|
|
|
|
(12,623
|
)
|
|
|
8,671
|
|
|
|
(18,870
|
)
|
|
|
29,101
|
|
|
|
7,401
|
|
Other current liabilities
|
|
|
|
|
|
|
(408
|
)
|
|
|
(1,537
|
)
|
|
|
179
|
|
|
|
3,061
|
|
|
|
1,295
|
|
Payment of severance benefits
|
|
|
|
|
|
|
|
|
|
|
(6,432
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
(6,505
|
)
|
Other
|
|
|
|
|
|
|
128
|
|
|
|
(4,948
|
)
|
|
|
(8,323
|
)
|
|
|
8,672
|
|
|
|
(4,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
366
|
|
|
|
(1,192
|
)
|
|
|
(24,249
|
)
|
|
|
(2,278
|
)
|
|
|
8,965
|
|
|
|
(18,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
3,122
|
|
|
|
|
|
|
|
|
|
|
|
3,122
|
|
Purchases of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
(26,772
|
)
|
|
|
(1,836
|
)
|
|
|
|
|
|
|
(28,608
|
)
|
Payment for intellectual property registration
|
|
|
|
|
|
|
|
|
|
|
(791
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
(1,052
|
)
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
(13,517
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,517
|
)
|
Other
|
|
|
|
|
|
|
(45,000
|
)
|
|
|
550
|
|
|
|
(45,066
|
)
|
|
|
90,000
|
|
|
|
484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(45,000
|
)
|
|
|
(37,408
|
)
|
|
|
(47,163
|
)
|
|
|
90,000
|
|
|
|
(39,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
|
|
|
|
175,000
|
|
|
|
155,000
|
|
|
|
150,000
|
|
|
|
(300,000
|
)
|
|
|
180,000
|
|
Issuance of old common units
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
Repayment of short-term borrowings
|
|
|
|
|
|
|
(160,000
|
)
|
|
|
(110,000
|
)
|
|
|
(105,000
|
)
|
|
|
210,000
|
|
|
|
(165,000
|
)
|
Repurchase of old common units
|
|
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(313
|
)
|
|
|
15,000
|
|
|
|
45,000
|
|
|
|
45,000
|
|
|
|
(90,000
|
)
|
|
|
14,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchanges rate on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(7,439
|
)
|
|
|
(632
|
)
|
|
|
(8,965
|
)
|
|
|
(17,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
53
|
|
|
|
(31,192
|
)
|
|
|
(24,096
|
)
|
|
|
(5,073
|
)
|
|
|
|
|
|
|
(60,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the year
|
|
|
163
|
|
|
|
31,248
|
|
|
|
24,301
|
|
|
|
8,633
|
|
|
|
|
|
|
|
64,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the year
|
|
$
|
216
|
|
|
$
|
56
|
|
|
$
|
205
|
|
|
$
|
3,560
|
|
|
$
|
|
|
|
$
|
4,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-88
MAGNACHIP
SEMICONDUCTOR LLC AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(TABULAR DOLLARS
IN THOUSANDS, EXCEPT UNIT DATA)
Condensed
Consolidating Statement of Cash Flows
For the year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MagnaChip
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (Parent)
|
|
|
Co-Issuers
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(180,550
|
)
|
|
$
|
(181,132
|
)
|
|
$
|
(167,033
|
)
|
|
$
|
(186,878
|
)
|
|
$
|
535,043
|
|
|
$
|
(180,550
|
)
|
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
158,925
|
|
|
|
4,509
|
|
|
|
|
|
|
|
163,434
|
|
Provision for severance benefits
|
|
|
|
|
|
|
|
|
|
|
18,672
|
|
|
|
162
|
|
|
|
|
|
|
|
18,834
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
2,931
|
|
|
|
988
|
|
|
|
|
|
|
|
|
|
|
|
3,919
|
|
Loss (gain) on foreign currency translation, net
|
|
|
|
|
|
|
(18,106
|
)
|
|
|
4,492
|
|
|
|
19,012
|
|
|
|
|
|
|
|
5,398
|
|
Loss (gain) on disposal of property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
(89
|
)
|
|
|
21
|
|
|
|
|
|
|
|
(68
|
)
|
Restructuring and impairment charges
|
|
|
|
|
|
|
|
|
|
|
10,106
|
|
|
|
|
|
|
|
|
|
|
|
10,106
|
|
Unit-based compensation
|
|
|
71
|
|
|
|
|
|
|
|
474
|
|
|
|
59
|
|
|
|
|
|
|
|
604
|
|
Loss of related investment
|
|
|
180,228
|
|
|
|
188,371
|
|
|
|
|
|
|
|
167,234
|
|
|
|
(535,833
|
)
|
|
|
|
|
Gain on disposal of intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
(3,630
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,630
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
90
|
|
|
|
|
|
|
|
51
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivables
|
|
|
|
|
|
|
|
|
|
|
(45,205
|
)
|
|
|
(31,973
|
)
|
|
|
30,674
|
|
|
|
(46,504
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
(16,720
|
)
|
|
|
(2,303
|
)
|
|
|
625
|
|
|
|
(18,398
|
)
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
(651
|
)
|
|
|
15,469
|
|
|
|
(13,847
|
)
|
|
|
971
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
952
|
|
|
|
|
|
|
|
952
|
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
34,108
|
|
|
|
23,008
|
|
|
|
(30,674
|
)
|
|
|
26,442
|
|
Other accounts payable
|
|
|
1,020
|
|
|
|
|
|
|
|
(16,455
|
)
|
|
|
(4,433
|
)
|
|
|
13,847
|
|
|
|
(6,021
|
)
|
Accrued expenses
|
|
|
|
|
|
|
254
|
|
|
|
(5,540
|
)
|
|
|
(7,833
|
)
|
|
|
7,615
|
|
|
|
(5,504
|
)
|
Long term other payable
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
114
|
|
Other current assets
|
|
|
(1,072
|
)
|
|
|
7,816
|
|
|
|
12,673
|
|
|
|
1,336
|
|
|
|
(10,913
|
)
|
|
|
9,840
|
|
Other current liabilities
|
|
|
|
|
|
|
170
|
|
|
|
1,891
|
|
|
|
(354
|
)
|
|
|
3,300
|
|
|
|
5,007
|
|
Payment of severance benefits
|
|
|
|
|
|
|
|
|
|
|
(7,151
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,151
|
)
|
Other
|
|
|
|
|
|
|
52
|
|
|
|
(347
|
)
|
|
|
(3,043
|
)
|
|
|
1,781
|
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(303
|
)
|
|
|
356
|
|
|
|
(20,361
|
)
|
|
|
(5,021
|
)
|
|
|
1,618
|
|
|
|
(23,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
(82,561
|
)
|
|
|
(2,733
|
)
|
|
|
|
|
|
|
(85,294
|
)
|
Payment for intellectual property registration
|
|
|
|
|
|
|
|
|
|
|
(1,411
|
)
|
|
|
(40
|
)
|
|
|
195
|
|
|
|
(1,256
|
)
|
Proceeds from disposal of plant, property and equipment
|
|
|
|
|
|
|
|
|
|
|
791
|
|
|
|
(427
|
)
|
|
|
|
|
|
|
364
|
|
Proceeds from disposal of intangible assets
|
|
|
|
|
|
|
|
|
|
|
4,204
|
|
|
|
|
|
|
|
|
|
|
|
4,204
|
|
Other
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
827
|
|
|
|
(50,651
|
)
|
|
|
100,000
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
(78,150
|
)
|
|
|
(53,851
|
)
|
|
|
100,195
|
|
|
|
(81,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of old common units
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151
|
|
Repurchase of old common units
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Proceeds from short-term borrowings
|
|
|
|
|
|
|
120,000
|
|
|
|
60,100
|
|
|
|
50,000
|
|
|
|
(100,000
|
)
|
|
|
130,100
|
|
Repayment of short-term borrowings
|
|
|
|
|
|
|
(40,000
|
)
|
|
|
(10,100
|
)
|
|
|
|
|
|
|
|
|
|
|
(50,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
145
|
|
|
|
80,000
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
(100,000
|
)
|
|
|
80,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
2,153
|
|
|
|
(1,813
|
)
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(158
|
)
|
|
|
30,356
|
|
|
|
(48,307
|
)
|
|
|
(6,719
|
)
|
|
|
|
|
|
|
(24,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of the year
|
|
|
321
|
|
|
|
892
|
|
|
|
72,608
|
|
|
|
15,352
|
|
|
|
|
|
|
|
89,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of the year
|
|
$
|
163
|
|
|
$
|
31,248
|
|
|
$
|
24,301
|
|
|
$
|
8,633
|
|
|
$
|
|
|
|
$
|
64,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-89
MagnaChip Semiconductor S.A.
MagnaChip Semiconductor Finance Company
OFFER TO EXCHANGE
$250,000,000 Senior Notes due
2018 and related Guarantees
Which have been registered under the Securities Act of 1933
For any and all outstanding 10.500% Second Notes due 2018 and
related Guarantees
Prospectus ,
2010.
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 20.
|
Indemnification
of Directors and Officers
|
MagnaChip
Semiconductor LLC
MagnaChip Semiconductor LLC is a limited liability company
organized under the laws of the State of Delaware.
Section 18 108 of the Delaware Limited
Liability Company Act permits a limited liability company,
subject to any restrictions that may be set forth in its limited
liability company agreement, to indemnify its members and
managers from and against any and all claims and demands.
MagnaChip Semiconductor LLCs limited liability company
agreement provides that MagnaChip Semiconductor LLC shall
indemnify any person who was or is party or is threatened to be
made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was
a director or officer of MagnaChip Semiconductor LLC or a
director or officer of a constituent person in a consolidation
or merger, or is or was serving at the request of MagnaChip
Semiconductor LLC or a constituent person absorbed in a
consolidation or merger, as a director or officer of another
person, or is or was a director or officer of MagnaChip
Semiconductor LLC serving at its request as an administrator,
trustee or other fiduciary of one or more of the employee
benefit plans of MagnaChip Semiconductor LLC or other
enterprise, against expenses (including attorneys fees),
liability and loss actually and reasonably incurred or suffered
by such person in connection with such action, suit or
proceeding, whether or not the indemnified liability arises or
arose from any threatened, pending or completed action, suit or
proceeding by or in the right of MagnaChip Semiconductor LLC,
except to the extent that such indemnification is prohibited by
applicable law.
MagnaChip
Semiconductor S.A.
Under Luxembourg law, civil liability of directors both to the
company and to third parties is generally considered to be a
matter of public policy. It is possible that Luxembourg courts
would declare void an explicit or even implicit contractual
limitation on directors liability to MagnaChip
Semiconductor S.A. MagnaChip Semiconductor S.A., however, can
validly agree to indemnify the directors against the
consequences of liability actions brought by third parties
(including shareholders if such shareholders have personally
suffered a damage which is independent of and distinct from the
damage caused to the company).
Under Luxembourg law, an employee of MagnaChip Semiconductor
S.A. can only be liable to MagnaChip Semiconductor S.A. for
damages brought about by his or her willful acts or gross
negligence. Any arrangement providing for the indemnification of
officers in case of willful acts or gross negligence against
claims of MagnaChip Semiconductor S.A. would in principle be
contrary to public policy. Officers are liable to third parties
under general tort law and may enter into arrangements with
MagnaChip Semiconductor S.A. providing for indemnification
against third party claims.
Under Luxembourg law, an indemnification agreement can never
cover a willful act or gross negligence.
MagnaChip
Semiconductor Finance Company
Indemnification: Section 145 of
the Delaware General Corporation Law 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 by reason of such person
being or having
II-1
been a director, officer, employee of or agent to the Company.
The statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested
directors or otherwise. MagnaChip Semiconductor Finance
Companys bylaws provide for indemnification by the company
of any director or officer (as such term is defined in the
bylaws) of the company or a constituent corporation absorbed in
a consolidation or merger, or any person who, at the request of
the company or a constituent corporation, is or was serving as a
director or officer of, or in any other capacity for, any other
enterprise, except to the extent that such indemnification is
prohibited by law. The bylaws also provide that the company
shall advance expenses incurred by a director or officer in
defending a proceeding prior to the final disposition of such
proceeding. The board of directors, by majority vote of a quorum
consisting of directors not parties to the proceeding, must
determine whether the applicable standards of any applicable
statute have been met. The bylaws do not limit the
companys ability to provide other indemnification and
expense reimbursement rights to directors, officers, employees,
agents and other persons otherwise than pursuant to the bylaws.
The company may purchase insurance covering the potential
liabilities of the directors and officers of the company or any
constituent corporations or any person who, at the request of
the company or a constituent corporation, is or was serving as a
director or officer of, or in any other capacity for, any other
enterprise.
Limitation of
Liability: Section 102(b)(7) of the
Delaware General Corporation Law permits a corporation to
provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability
(i) for any breach of the directors duty of loyalty
to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the
director derived an improper personal benefit. MagnaChip
Semiconductor Finance Companys certificate of
incorporation provides for such limitation of liability.
Other
Subsidiaries
The organizational documents of certain subsidiary guarantors
also provide for indemnification of their officers and directors
for liability incurred in connection with the performance of
their duties as officers and directors.
Employment
Agreements
Indemnification: Some of our officers
have employment agreements with us that provide for
indemnification against losses, costs and expenses arising from
or relating to such persons services for us, to the extent
permitted by law and the governing documents of the applicable
company.
|
|
|
|
|
|
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(1)
|
|
3
|
.1
|
|
Certificate of Formation of MagnaChip Semiconductor LLC
(formerly System Semiconductor Holding LLC)(1)
|
|
3
|
.2
|
|
Certificate of Amendment to Certificate of Formation of
MagnaChip Semiconductor LLC(1)
|
|
3
|
.3
|
|
Fifth Amended and Restated Limited Liability Company Operating
Agreement of MagnaChip Semiconductor LLC(1)
|
|
3
|
.4
|
|
Articles of Incorporation of MagnaChip Semiconductor S.A.
|
|
3
|
.5
|
|
Certificate of Incorporation of MagnaChip Semiconductor Finance
Company
|
|
3
|
.6
|
|
Bylaws of MagnaChip Semiconductor Finance Company
|
II-2
|
|
|
|
|
|
3
|
.7
|
|
Certificate of Formation for MagnaChip Semiconductor SA Holdings
LLC
|
|
3
|
.8
|
|
Amended and Restated Limited Liability Company Agreement of
MagnaChip Semiconductor SA Holdings LLC (USA)
|
|
3
|
.9
|
|
Deed of Amendment to the Articles of Association of MagnaChip
Semiconductor B.V. (English translation)
|
|
3
|
.10
|
|
Articles of Incorporation of MagnaChip Semiconductor, Inc. (USA)
contained in the Agreement and Plan of Merger by and between IC
Media Corporation and MagnaChip Semiconductor, Inc. (USA)
|
|
3
|
.11
|
|
Bylaws of MagnaChip Semiconductor, Inc. (USA), as amended
(formerly IC Media Corporation)
|
|
3
|
.12
|
|
Articles of Incorporation of MagnaChip Semiconductor Inc.
(Japan) (English translation)
|
|
3
|
.13
|
|
Memorandum of Association of MagnaChip Semiconductor Limited
(Hong Kong)
|
|
3
|
.14
|
|
Articles of Association of MagnaChip Semiconductor Limited (Hong
Kong)
|
|
3
|
.15
|
|
Memorandum of Association of MagnaChip Semiconductor Limited
(United Kingdom)
|
|
3
|
.16
|
|
Articles of Association of MagnaChip Semiconductor Limited
(United Kingdom)
|
|
3
|
.17
|
|
Articles of Incorporation of MagnaChip Semiconductor Limited
(Taiwan) (English translation)
|
|
3
|
.18
|
|
Memorandum of Association of MagnaChip Semiconductor Holding
Company Limited, as amended (British Virgin Islands) (formerly
IC Media Holding Company Limited)
|
|
3
|
.19
|
|
Articles of Association of MagnaChip Semiconductor Holding
Company Limited, as amended (British Virgin Islands) (formerly
IC Media Holding Company Limited)
|
|
4
|
.1
|
|
Registration Rights Agreement, dated as of November 9, 2009, by
and among MagnaChip Semiconductor LLC and each of the
securityholders named therein(1)
|
|
4
|
.2
|
|
[reserved]
|
|
4
|
.3
|
|
[reserved]
|
|
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(1)
|
|
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(1)
|
|
5
|
.1
|
|
Opinion of Jones Day*
|
|
5
|
.2
|
|
Opinion of Dechert Luxembourg*
|
|
5
|
.3
|
|
Opinion of NautaDutilh N.V.*
|
|
5
|
.4
|
|
Opinion of DLA Piper Tokyo Partnership*
|
|
5
|
.5
|
|
Opinion of DLA Piper Hong Kong*
|
|
5
|
.6
|
|
Opinion of Lee, Tsai & Partners*
|
|
5
|
.7
|
|
Opinion of DLA Piper UK LLP*
|
|
5
|
.8
|
|
Opinion of Harney Westwood & Riegels*
|
|
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(1)
|
|
10
|
.2
|
|
Intellectual Property License Agreement, dated as of October 6,
2004, by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)
|
|
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)(2)
|
|
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)(1)
|
|
10
|
.5
|
|
General Service Supply Agreement, dated as of October 6, 2004,
by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)(3)
|
II-3
|
|
|
|
|
|
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)(1)
|
|
10
|
.7
|
|
License Agreement (ModularBCD), dated as of March 18, 2005, by
and between Advanced Analogic Technologies, Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)(2)
|
|
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)(1)(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)(2)
|
|
10
|
.10
|
|
Amendment to the Technology License Agreement, dated as of
October 16, 2006, by and between ARM Limited and MagnaChip
Semiconductor, Ltd. (Korea)(1)(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)(2)
|
|
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)(1)(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)(2)
|
|
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)(2)
|
|
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.)(1)
|
|
10
|
.16
|
|
Design Migration Agreement, dated as of May 1, 2007, by and
between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea)(1)(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)(1)
|
|
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)(1)
|
|
10
|
.19
|
|
Warrant Agreement, dated as of November 9, 2009, between
MagnaChip Semiconductor LLC and American Stock Transfer &
Trust Company, LLC(1)
|
|
10
|
.20
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan(1)
|
|
10
|
.21
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement (Non-U.S. Participants)(1)
|
|
10
|
.22
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement (U.S. Participants)(1)
|
|
10
|
.23
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement (Non-U.S. Participants)(1)
|
|
10
|
.24
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement (U.S. Participants)(1)
|
|
10
|
.25
|
|
MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan(1)
|
|
10
|
.26
|
|
MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase
Plan(1)
|
|
10
|
.27
|
|
Amended and Restated Service Agreement, dated as of May 8, 2008,
by and between MagnaChip Semiconductor, Ltd. (Korea) and Sang
Park(1)
|
|
10
|
.28
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Sang Park(1)
|
II-4
|
|
|
|
|
|
10
|
.29
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Sang Park(1)
|
|
10
|
.30
|
|
Entrustment Agreement, dated as of October 6, 2004, by and
between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young
Hwang(1)
|
|
10
|
.31
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Tae Young Hwang(1)
|
|
10
|
.32
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Young
Hwang(1)
|
|
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(1)
|
|
10
|
.34
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Brent Rowe(1)
|
|
10
|
.35
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Brent
Rowe(1)
|
|
10
|
.36
|
|
Offer Letter dated September 5, 2006, from MagnaChip
Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret
Sakai(1)
|
|
10
|
.37
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Margaret Sakai(1)
|
|
10
|
.38
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Margaret
Sakai(1)
|
|
10
|
.39
|
|
Offer Letter, dated as of July 1, 2007, by and between MagnaChip
Semiconductor, Ltd. (Korea) and Heung Kyu Kim(1)
|
|
10
|
.40
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Heung Kyu Kim(1)
|
|
10
|
.41
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Heung Kyu
Kim(1)
|
|
10
|
.42
|
|
Offer Letter, dated as of June 20, 2007, by and between
MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee(1)
|
|
10
|
.43
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Tae Jong Lee(1)
|
|
10
|
.44
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Jong
Lee(1)
|
|
10
|
.45
|
|
Service Agreement, dated as of April 1, 2006, by and between
MagnaChip Semiconductor, Ltd. (Korea) and John McFarland(1)
|
|
10
|
.46
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and John McFarland(1)
|
|
10
|
.47
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and John
McFarland(1)
|
|
10
|
.48
|
|
Senior Advisor Agreement, dated as of April 10, 2009, by and
between MagnaChip Semiconductor, Ltd.(Korea) and Robert J.
Krakauer(1)
|
|
10
|
.49
|
|
MagnaChip Semiconductor LLC Form of Indemnification Agreement
with Directors
|
|
10
|
.50
|
|
Form of Accredited Investor Certification delivered to the
Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, et al.(1)
|
|
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)(1)
|
|
10
|
.52
|
|
Subscription Form for Rights Offering in connection with the
Committees Plan of Reorganization under Chapter 11 of the
Bankruptcy Code(1)
|
II-5
|
|
|
|
|
|
10
|
.53
|
|
$35,000,000 Common Unit 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(1)(3)
|
|
12
|
.1
|
|
Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
|
|
21
|
.1
|
|
Subsidiaries of MagnaChip Semiconductor LLC(1)
|
|
23
|
.1
|
|
Consent of Samil PricewaterhouseCoopers
|
|
23
|
.2
|
|
Consent of Jones Day (contained in Exhibit 5.1)*
|
|
23
|
.3
|
|
Consent of Dechert Luxembourg (contained in Exhibit 5.2)*
|
|
23
|
.4
|
|
Consent of NautaDutilh N.V. (contained in Exhibit 5.3)*
|
|
23
|
.5
|
|
Consent of DLA Piper Tokyo Partnership (contained in Exhibit
5.4)*
|
|
23
|
.6
|
|
Consent of DLA Piper Hong Kong (contained in Exhibit 5.5)*
|
|
23
|
.7
|
|
Consent of Lee, Tsai & Partners (contained in Exhibit 5.6)*
|
|
23
|
.8
|
|
Consent of DLA Piper UK LLP (contained in Exhibit 5.7)*
|
|
23
|
.9
|
|
Consent of Harney Westwood & Riegels (contained in Exhibit
5.8)*
|
|
24
|
.1
|
|
Powers of Attorney (included on signature pages hereof)
|
|
25
|
.1
|
|
Statement of Eligibility of the Trustee on Form T-1 under the
Trust Indenture Act
|
|
99
|
.1
|
|
Form of Letter of Transmittal
|
|
99
|
.2
|
|
Form of Notice of Guaranteed Delivery
|
|
99
|
.3
|
|
Form of Letter to Brokers, Dealers and Other Nominees
|
|
99
|
.4
|
|
Form of Letter to Beneficial Owners Regarding Offer to Exchange
|
|
|
|
* |
|
To be filed by amendment. |
Footnotes:
|
|
|
(1) |
|
Incorporated by reference to the respective exhibits to
MagnaChip Semiconductor LLCs Registration Statement on
Form S-1
(Registration
No. 333-165467)
initially filed on March 15, 2010, as amended. |
|
(2) |
|
Certain portions of this document have been omitted pursuant to
a grant of confidential treatment by the SEC. |
|
(3) |
|
Certain portions of this document have been omitted pursuant to
a request for confidential treatment by the SEC. |
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price
II-6
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such
post-effective amendment 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.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) The undersigned Registrants hereby undertake
that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrants
annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plans
annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in
the registration statement 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.
(c) Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(d) The undersigned Registrants hereby undertake to
respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b),
11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(e) The undersigned Registrants hereby undertake to
supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR LLC
Name: Sang Park
|
|
|
|
Title:
|
Chief Executive Officer
|
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
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)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Michael
Elkins
Michael
Elkins
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Randal
Klein
Randal
Klein
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ R.
Douglas Norby
R.
Douglas Norby
|
|
Director
|
|
August 4, 2010
|
II-8
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Gidu
Shroff
Gidu
Shroff
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Steven
Tan
Steven
Tan
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Nader
Tavakoli
Nader
Tavakoli
|
|
Director
|
|
August 4, 2010
|
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR SA HOLDINGS LLC
Name: Margaret Sakai
Title: Chief Financial
Officer
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Chief Financial Officer (Principal Financial Officer and
Principal Accounting)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Michael
Elkins
Michael
Elkins
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Randal
Klein
Randal
Klein
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ John
McFarland
John
McFarland
|
|
Director
|
|
August 4, 2010
|
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR S.A.
Name: John McFarland
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Michael
Elkins
Michael
Elkins
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Randal
Klein
Randal
Klein
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ John
McFarland
John
McFarland
|
|
Director and
Authorized Representative in the United States
|
|
August 4, 2010
|
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR FINANCE COMPANY
Name: Margaret Sakai
|
|
|
|
Title:
|
Chief Financial Officer
|
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Michael
Elkins
Michael
Elkins
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Randal
Klein
Randal
Klein
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ John
McFarland
John
McFarland
|
|
Director
|
|
August 4, 2010
|
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR B.V.
Name: John McFarland
|
|
|
|
Title:
|
Authorized Representative
|
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Authorized Representative
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Stefan
Boermans
Stefan
Boermans
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Anne-Marie
Kuijpers
Anne-Marie
Kuijpers
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ John
McFarland
John
McFarland
|
|
Authorized Representative in the United States
|
|
August 4, 2010
|
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR, INC. (USA)
Name: Margaret Sakai
|
|
|
|
Title:
|
Chief Financial Officer and Treasurer
|
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Brent
Rowe
Brent
Rowe
|
|
Director and President (Principal Executive Officer)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Chief Financial Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Andrew
Brown
Andrew
Brown
|
|
Director
|
|
August 4, 2010
|
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR LTD
(UNITED KINGDOM)
Name: John McFarland
Name: Brent Rowe
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park and
Margaret Sakai his or her true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and
to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents,
full power and authority to do and perform each and every act
and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming
that said attorneys-in-fact and agents, or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue
hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ John
McFarland
John
McFarland
|
|
Company Secretary and Authorized Representative in the United
States
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Brent
Rowe
Brent
Rowe
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Andrew
Brown
Andrew
Brown
|
|
Director
|
|
August 4, 2010
|
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR LTD
(HONG KONG)
Name: Margaret Sakai
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Director, Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer) and Authorized Representative
in the United States
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Jong
Soo Choi
Jong
Soo Choi
|
|
Director
|
|
August 4, 2010
|
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR LTD (TAIWAN)
Name: Margaret Sakai
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Director and Authorized Representative in the United States
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Jong
Soo Choi
Jong
Soo Choi
|
|
Director
|
|
August 4, 2010
|
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR INC. (JAPAN)
Name: Margaret Sakai
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Taeyoung
Hwang
Taeyoung
Hwang
|
|
Co-Representative Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Yoshio
Imamura
Yoshio
Imamura
|
|
Co-Representative Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ John
McFarland
John
McFarland
|
|
Statutory Auditor and Authorized Representative in the United
States
|
|
August 4, 2010
|
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in Seoul, Republic of Korea, on August 4, 2010.
MAGNACHIP SEMICONDUCTOR HOLDING COMPANY LIMITED
Name: Margaret Sakai
|
|
|
|
Title:
|
Chief Financial Officer
|
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Sang Park,
Margaret Sakai and John McFarland as his or her true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and
confirming that said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Margaret
Sakai
Margaret
Sakai
|
|
Director and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
|
|
August 4, 2010
|
|
|
|
|
|
/s/ Brent
Rowe
Brent
Rowe
|
|
Director
|
|
August 4, 2010
|
|
|
|
|
|
/s/ John
McFarland
John
McFarland
|
|
Director and Authorized Representative in the United States
|
|
August 4, 2010
|
II-19
EXHIBIT INDEX
|
|
|
|
|
|
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(1)
|
|
3
|
.1
|
|
Certificate of Formation of MagnaChip Semiconductor LLC
(formerly System Semiconductor Holding LLC)(1)
|
|
3
|
.2
|
|
Certificate of Amendment to Certificate of Formation of
MagnaChip Semiconductor LLC(1)
|
|
3
|
.3
|
|
Fifth Amended and Restated Limited Liability Company Operating
Agreement of MagnaChip Semiconductor LLC(1)
|
|
3
|
.4
|
|
Articles of Incorporation of MagnaChip Semiconductor S.A.
|
|
3
|
.5
|
|
Certificate of Incorporation of MagnaChip Semiconductor Finance
Company
|
|
3
|
.6
|
|
Bylaws of MagnaChip Semiconductor Finance Company
|
|
3
|
.7
|
|
Certificate of Formation for MagnaChip Semiconductor SA Holdings
LLC
|
|
3
|
.8
|
|
Amended and Restated Limited Liability Company Agreement of
MagnaChip Semiconductor SA Holdings LLC (USA)
|
|
3
|
.9
|
|
Deed of Amendment to the Articles of Association of MagnaChip
Semiconductor B.V. (English translation)
|
|
3
|
.10
|
|
Articles of Incorporation of MagnaChip Semiconductor, Inc. (USA)
contained in the Agreement and Plan of Merger by and between IC
Media Corporation and MagnaChip Semiconductor, Inc. (USA)
|
|
3
|
.11
|
|
Bylaws of MagnaChip Semiconductor, Inc. (USA), as amended
(formerly IC Media Corporation)
|
|
3
|
.12
|
|
Articles of Incorporation of MagnaChip Semiconductor Inc.
(Japan) (English translation)
|
|
3
|
.13
|
|
Memorandum of Association of MagnaChip Semiconductor Limited
(Hong Kong)
|
|
3
|
.14
|
|
Articles of Association of MagnaChip Semiconductor Limited (Hong
Kong)
|
|
3
|
.15
|
|
Memorandum of Association of MagnaChip Semiconductor Limited
(United Kingdom)
|
|
3
|
.16
|
|
Articles of Association of MagnaChip Semiconductor Limited
(United Kingdom)
|
|
3
|
.17
|
|
Articles of Incorporation of MagnaChip Semiconductor Limited
(Taiwan) (English translation)
|
|
3
|
.18
|
|
Memorandum of Association of MagnaChip Semiconductor Holding
Company Limited, as amended (British Virgin Islands) (formerly
IC Media Holding Company Limited)
|
|
3
|
.19
|
|
Articles of Association of MagnaChip Semiconductor Holding
Company Limited, as amended (British Virgin Islands) (formerly
IC Media Holding Company Limited)
|
|
4
|
.1
|
|
Registration Rights Agreement, dated as of November 9, 2009, by
and among MagnaChip Semiconductor LLC and each of the
securityholders named therein(1)
|
|
4
|
.2
|
|
[reserved]
|
|
4
|
.3
|
|
[reserved]
|
|
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(1)
|
|
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(1)
|
|
|
|
|
|
|
5
|
.1
|
|
Opinion of Jones Day*
|
|
5
|
.2
|
|
Opinion of Dechert Luxembourg*
|
|
5
|
.3
|
|
Opinion of NautaDutilh N.V.*
|
|
5
|
.4
|
|
Opinion of DLA Piper Tokyo Partnership*
|
|
5
|
.5
|
|
Opinion of DLA Piper Hong Kong*
|
|
5
|
.6
|
|
Opinion of Lee, Tsai & Partners*
|
|
5
|
.7
|
|
Opinion of DLA Piper UK LLP*
|
|
5
|
.8
|
|
Opinion of Harney Westwood & Riegels*
|
|
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(1)
|
|
10
|
.2
|
|
Intellectual Property License Agreement, dated as of October 6,
2004, by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)
|
|
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)(2)
|
|
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)(1)
|
|
10
|
.5
|
|
General Service Supply Agreement, dated as of October 6, 2004,
by and between Hynix Semiconductor Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)(3)
|
|
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)(1)
|
|
10
|
.7
|
|
License Agreement (ModularBCD), dated as of March 18, 2005, by
and between Advanced Analogic Technologies, Inc. and MagnaChip
Semiconductor, Ltd. (Korea)(1)(2)
|
|
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)(1)(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)(2)
|
|
10
|
.10
|
|
Amendment to the Technology License Agreement, dated as of
October 16, 2006, by and between ARM Limited and MagnaChip
Semiconductor, Ltd. (Korea)(1)(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)(2)
|
|
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)(1)(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)(2)
|
|
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)(2)
|
|
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.)(1)
|
|
|
|
|
|
|
10
|
.16
|
|
Design Migration Agreement, dated as of May 1, 2007, by and
between ARM Limited and MagnaChip Semiconductor, Ltd.
(Korea)(1)(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)(1)
|
|
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)(1)
|
|
10
|
.19
|
|
Warrant Agreement, dated as of November 9, 2009, between
MagnaChip Semiconductor LLC and American Stock Transfer &
Trust Company, LLC(1)
|
|
10
|
.20
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan(1)
|
|
10
|
.21
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement (Non-U.S. Participants)(1)
|
|
10
|
.22
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option
Agreement (U.S. Participants)(1)
|
|
10
|
.23
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement (Non-U.S. Participants)(1)
|
|
10
|
.24
|
|
MagnaChip Semiconductor LLC 2009 Common Unit Plan form of
Restricted Unit Agreement (U.S. Participants)(1)
|
|
10
|
.25
|
|
MagnaChip Semiconductor Corporation 2010 Equity Incentive Plan(1)
|
|
10
|
.26
|
|
MagnaChip Semiconductor Corporation 2010 Employee Stock Purchase
Plan(1)
|
|
10
|
.27
|
|
Amended and Restated Service Agreement, dated as of May 8, 2008,
by and between MagnaChip Semiconductor, Ltd. (Korea) and Sang
Park(1)
|
|
10
|
.28
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Sang Park(1)
|
|
10
|
.29
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Sang Park(1)
|
|
10
|
.30
|
|
Entrustment Agreement, dated as of October 6, 2004, by and
between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young
Hwang(1)
|
|
10
|
.31
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Tae Young Hwang(1)
|
|
10
|
.32
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Young
Hwang(1)
|
|
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(1)
|
|
10
|
.34
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Brent Rowe(1)
|
|
10
|
.35
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Brent
Rowe(1)
|
|
10
|
.36
|
|
Offer Letter dated September 5, 2006, from MagnaChip
Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret
Sakai(1)
|
|
10
|
.37
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Margaret Sakai(1)
|
|
10
|
.38
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Margaret
Sakai(1)
|
|
10
|
.39
|
|
Offer Letter, dated as of July 1, 2007, by and between MagnaChip
Semiconductor, Ltd. (Korea) and Heung Kyu Kim(1)
|
|
|
|
|
|
|
10
|
.40
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Heung Kyu Kim(1)
|
|
10
|
.41
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Heung Kyu
Kim(1)
|
|
10
|
.42
|
|
Offer Letter, dated as of June 20, 2007, by and between
MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee(1)
|
|
10
|
.43
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and Tae Jong Lee(1)
|
|
10
|
.44
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and Tae Jong
Lee(1)
|
|
10
|
.45
|
|
Service Agreement, dated as of April 1, 2006, by and between
MagnaChip Semiconductor, Ltd. (Korea) and John McFarland(1)
|
|
10
|
.46
|
|
Notice of Grant of Unit Option, dated as of December 8, 2009, by
and between MagnaChip Semiconductor LLC and John McFarland(1)
|
|
10
|
.47
|
|
Notice of Grant of Restricted Units, dated as of December 8,
2009, by and between MagnaChip Semiconductor LLC and John
McFarland(1)
|
|
10
|
.48
|
|
Senior Advisor Agreement, dated as of April 10, 2009, by and
between MagnaChip Semiconductor, Ltd.(Korea) and Robert J.
Krakauer(1)
|
|
10
|
.49
|
|
MagnaChip Semiconductor LLC Form of Indemnification Agreement
with Directors
|
|
10
|
.50
|
|
Form of Accredited Investor Certification delivered to the
Official Committee of Unsecured Creditors of MagnaChip
Semiconductor Finance Company, et al.(1)
|
|
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)(1)
|
|
10
|
.52
|
|
Subscription Form for Rights Offering in connection with the
Committees Plan of Reorganization under Chapter 11 of the
Bankruptcy Code(1)
|
|
10
|
.53
|
|
$35,000,000 Common Unit 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(1)(3)
|
|
12
|
.1
|
|
Statement Regarding Computation of Ratio of Earnings to Fixed
Charges
|
|
21
|
.1
|
|
Subsidiaries of MagnaChip Semiconductor LLC(1)
|
|
23
|
.1
|
|
Consent of Samil PricewaterhouseCoopers
|
|
23
|
.2
|
|
Consent of Jones Day (contained in Exhibit 5.1)*
|
|
23
|
.3
|
|
Consent of Dechert Luxembourg (contained in Exhibit 5.2)*
|
|
23
|
.4
|
|
Consent of NautaDutilh N.V. (contained in Exhibit 5.3)*
|
|
23
|
.5
|
|
Consent of DLA Piper Tokyo Partnership (contained in Exhibit
5.4)*
|
|
23
|
.6
|
|
Consent of DLA Piper Hong Kong (contained in Exhibit 5.5)*
|
|
23
|
.7
|
|
Consent of Lee, Tsai & Partners (contained in Exhibit 5.6)*
|
|
23
|
.8
|
|
Consent of DLA Piper UK LLP (contained in Exhibit 5.7)*
|
|
23
|
.9
|
|
Consent of Harney Westwood & Riegels (contained in Exhibit
5.8)*
|
|
24
|
.1
|
|
Powers of Attorney (included on signature pages hereof)
|
|
|
|
|
|
|
25
|
.1
|
|
Statement of Eligibility of the Trustee on Form T-1 under the
Trust Indenture Act
|
|
99
|
.1
|
|
Form of Letter of Transmittal
|
|
99
|
.2
|
|
Form of Notice of Guaranteed Delivery
|
|
99
|
.3
|
|
Form of Letter to Brokers, Dealers and Other Nominees
|
|
99
|
.4
|
|
Form of Letter to Beneficial Owners Regarding Offer to Exchange
|
|
|
|
* |
|
To be filed by amendment. |
Footnotes:
|
|
|
(1) |
|
Incorporated by reference to the respective exhibits to
MagnaChip Semiconductor LLCs Registration Statement on
Form S-1
(Registration
No. 333-165467)
initially filed on March 15, 2010, as amended. |
|
(2) |
|
Certain portions of this document have been omitted pursuant to
a grant of confidential treatment by the SEC. |
|
(3) |
|
Certain portions of this document have been omitted pursuant to
a request for confidential treatment by the SEC. |