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OFFON

MAGNACHIP SEMICONDUCTOR CORPORATION

(MX)
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MAGNACHIP SEMICONDUCTOR CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/05/2021 | 03:21pm EST
The following discussion and analysis should be read in conjunction with the
interim unaudited consolidated financial statements and the related notes
included elsewhere in this Report.
Overview
We are a designer and manufacturer of analog and mixed-signal semiconductor
platform solutions for communications, IoT applications, consumer, computing,
industrial and automotive applications. We have a proven record with more than
40 years of operating history, a portfolio of approximately 1,200 registered
patents and pending applications and extensive engineering and manufacturing
process expertise.
Our standard products business includes our Display Solutions and Power
Solutions business lines.
Our Display Solutions products provides flat panel display solutions to major
suppliers of large and small flat panel displays. These products include source
and gate drivers and timing controllers that cover a wide range of flat panel
displays used in mobile communications, automobiles, entertainment devices,
notebook PCs, monitors and liquid crystal display (LCD) and organic light
emitting diodes (OLED). Our Display Solutions products support some of the
industry's most advanced display technologies, such as OLEDs, low temperature
polysilicons thin film transistors (LTPS TFTs) and amorphous silicon thin film
transistors
(a-Si
TFTs). Since 2007, we have designed and manufactured OLED display driver
integrated circuit (IC) products. Our current portfolio of OLED solutions
address a wide range of resolutions ranging from HD to Wide Quad High Definition
(WQHD) for applications including smartphones, TVs, and other mobile devices.
Our Power Solutions business line produces power management semiconductor
products including discrete and integrated circuit solutions for power
management in consumer, communications, computing and industrial applications.
These products include metal oxide semiconductor field effect transistors
(MOSFETs), insulated-gate bipolar transistors (IGBTs),
AC-DC
converters,
DC-DC
converters, LED drivers, switching regulators, linear regulators, interface ICs
and power management ICs (PMICs) for a range of devices, including televisions,
smartphones, desktop PCs, notebooks, tablets, servers, telecommunication power,
home appliances, industrial applications such as uninterruptible power supplies
(UPSs), LED lighting, personal mobility, motor drives and battery management
systems (BMS).
Our wide variety of analog and mixed-signal semiconductor products combined with
our mature technology platform allow us to address multiple high-growth end
markets and rapidly develop and introduce new products and services in response
to market demands. Our design center and substantial manufacturing operations in
Korea place us at the core of the global electronics device supply chain. We
believe this enables us to quickly and efficiently respond to our customers'
needs, and allows us to better serve and capture additional demand from existing
and new customers.
To maintain and increase our profitability, we must accurately forecast trends
in demand for electronics devices 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 also invest in
relevant research and development activities 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 by overall demand for
communications, IoT, consumer and industrial products and can be adversely
affected by periods of weak consumer and enterprise spending or by market share
losses by our customers. In order to mitigate the impact of market volatility on
our business, we continually strive to diversify our portfolio of products,
customers, and target applications. We also expect that new competitors will
emerge in these markets that may place increased pressure on the pricing for our
products and services. While we believe we are well positioned competitively to
compete in these markets and against these new competitors as a result of our
long operating history, existing manufacturing capacity and our worldwide
customer base, if we are not effective in competing in these markets, our
operating results may be adversely affected.

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Net sales for our standard products business are driven by design wins in which
we are selected by an electronics original equipment manufacturer (OEM) or other
potential customer to supply its demand for a particular product. A customer
will often have more than one supplier designed into multi-source components for
a particular product line. Once we have design wins and the products enter into
mass production, 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.
In contrast to completely fabless semiconductor companies, our internal
manufacturing capacity provides us with greater control over manufacturing costs
and the ability to implement process and production improvements for our
internally manufactured products, 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 on
these products. However, having internal manufacturing capacity exposes us to
the risk of under-utilization of manufacturing capacity that results in lower
gross profit margins, particularly during downturns in the semiconductor
industry.
Our standard products business requires 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. Many of 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 do
not require substantial investment in leading edge process equipment for those
products, allowing us to utilize our facilities and equipment over an extended
period of time with moderate required capital investments. In addition, we are
less likely to experience significant industry overcapacity, which can cause
product prices to decline significantly. In general, we seek to invest in
manufacturing capacity that can be used for multiple high-value applications
over an extended period of time. In addition, we outsource manufacturing of
those products which do require advanced technology and
12-inch
wafer capacity, such as organic light emitting diodes (OLED). We believe this
balanced capital investment strategy enables us to optimize our capital
investments and facilitates more diversified product and service offerings.
Since 2007, we had designed and manufactured OLED display driver ICs in our
internal manufacturing facilities. As we expanded our design capabilities to
products that require lower geometries unavailable at our existing manufacturing
facilities, we began outsourcing manufacturing of certain OLED display driver
ICs to an external
12-inch
foundry starting in the second half of 2015. This additional source of
manufacturing is an increasingly important part of our supply chain management.
By outsourcing manufacturing of OLED products to external
12-inch
foundries, we are able to adapt dynamically to changing customer requirements
and address growing markets without substantial capital investments by us.
However, relying on external foundries exposes us to the risk of being unable to
secure manufacturing capacity, particularly under the current global shortage of
foundry services. Although we are working strategically with external foundries
to secure long-term wafer capacity, if we are unsuccessful, our ability to
deliver products to our customers may be negatively impacted, which would
adversely affect our relationship with customers and opportunities to secure new
design-wins.
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
awareness of new product opportunities, market and technology trends and improve
our ability to adapt and grow successfully.

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Recent Developments
The Merger
On March 25, 2021, we entered into the Merger Agreement with Parent and Merger
Sub, pursuant to which, among other things, and subject to the terms and
conditions thereof, Merger Sub will be merged with and into the Company, with
the Company continuing its corporate existence as the surviving corporation in
the Merger and becoming a wholly owned subsidiary of Parent.
Under the terms of the Merger Agreement, each share of our common stock issued
and outstanding immediately before the Effective Time (other than Excluded
Shares and Dissenting Shares) will be cancelled and will cease to exist and will
be automatically converted into the right to receive $29.00 in cash, without
interest, and subject to applicable withholding taxes. The
all-cash
transaction has an equity value of approximately $1.4 billion. The Merger is
fully backed by equity commitments and not contingent on any financing
conditions.
We have incurred, and will continue to incur, significant costs, expenses and
fees for professional services and other transaction costs in connection with
the Merger.
For more information on the Merger Agreement and the Merger, see "Item 1.
Interim Consolidated Financial Statements-Notes to Consolidated Financial
Statements-Note 2. Merger Agreement" in this Report.
Conversion of 5.0% Exchangeable Senior Notes due 2021 (the "Exchangeable Notes")
Prior to the March 1, 2021 maturity of our Exchangeable Notes, holders thereof
elected to exchange the Exchangeable Notes for an aggregate of 10,144,131 shares
of our common stock in satisfaction in full of the outstanding obligations under
the Exchangeable Notes. On March 1, 2021, we paid the final interest payment on
the Exchangeable Notes of $2.1 million and no longer have any Exchangeable Notes
obligations outstanding as of such date.
COVID-19
Pandemic
In December 2019, a strain of coronavirus causing a disease known as
COVID-19
surfaced in Wuhan, China, resulting in significant disruptions among Chinese
manufacturing and other facilities and travel throughout China. In March 2020,
the World Health Organization declared the
COVID-19
outbreak a pandemic. Governmental authorities throughout the world have
implemented numerous containment measures, including travel bans and
restrictions, quarantines,
shelter-in-place
orders, and business restrictions and shutdowns, resulting in rapidly changing
market and economic conditions. Although some of these restrictions and other
containment measures have since been lifted or scaled back, ongoing surges of
COVID-19
have, in some cases, resulted in the
re-imposition
of certain restrictions and containment measures, and may continue to lead to
other restrictions being
re-implemented
in the foreseeable future in response to efforts to reduce the rapid spread of
COVID-19.
We experienced some minor disruption in our Power Solutions business from
assembly and test subcontractors located in China in the first quarter of 2020
as a result of the
COVID-19
pandemic. To date, our external Display Solutions business contractors and
sub-contractors
have not been materially impacted by the
COVID-19
pandemic. We are, however, unable to accurately predict the full impact that the
COVID-19
pandemic will have on future results of operations due to numerous
uncertainties, including the severity and the duration of the outbreak, the
efficacy of ongoing global vaccination efforts, potential future recurrences of
the outbreak, the spread of disease variants that may be resistant to the
existing vaccines, further containment actions that may be taken by governmental
authorities, the impact to the businesses of our customers and suppliers, and
other factors.
We continue to closely monitor and evaluate the nature and scope of the impact
of the
COVID-19
pandemic to our business, consolidated results of operations, and financial
condition, and may take further actions altering our business operations and
managing our costs and liquidity that we deem necessary or appropriate to
respond to this fast moving and uncertain global health crisis and the resulting
global economic consequences.
Global Semiconductor Chip Shortage
Recent sharp increases in demand for semiconductor products have resulted in a
global shortage of manufacturing capacity. As a result, we may experience
increased costs to manufacture our products and may not be able to manufacture
and deliver all of the orders placed by our customers. Specifically, if we are
unable to secure manufacturing capacity from the external foundries we rely on,
our ability to deliver products to our customers may be negatively impacted.
Also, this shortage of manufacturing capacity may lead to an increase in our
manufacturing costs which we may not be fully able to pass on to our customers.

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In an effort to minimize the potential adverse impact of the supply shortage, we
are working strategically with external foundries to secure long-term wafer
capacity. If we are unsuccessful, however, such shortage could limit our ability
to meet demand for our products in the future, which would adversely affect our
reputation and competitive position, resulting in a negative impact on results
of operations.
We are not able to foresee when the current shortage of manufacturing capacity
will subside. A prolonged global supply shortage could negatively impact our
financial condition, potentially resulting in a need for additional capital to
fund strategic initiatives or operating activities.

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Explanation and Reconciliation of
Non-U.S. GAAP
Measures
Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income
We use the terms Adjusted EBITDA, Adjusted Operating Income and Adjusted Net
Income (including on a per share basis) in this Report. Adjusted EBITDA, as we
define it, is a
non-U.S.
GAAP measure. We define Adjusted EBITDA for the periods indicated as EBITDA (as
defined below), adjusted to exclude (i) equity-based compensation expense,
(ii) foreign currency loss (gain), net, (iii) derivative valuation gain, net,
(iv) inventory reserve related to Huawei impact of downstream trade
restrictions, (v) expenses related to Fab 3 power outage and (vi) other charges,
net. EBITDA for the periods indicated is defined as income (loss) from
continuing operations before interest expense (income), net, income tax expense
(benefit), and depreciation and amortization.
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:

• we believe that Adjusted EBITDA, by eliminating the impact of a number of

items that we do not consider to be indicative of our core ongoing operating

performance, provides a more comparable measure of our operating performance

      from
      period-to-period
      and may be a better indicator of future performance;


• we believe that Adjusted EBITDA is commonly requested and used by securities

      analysts, investors and other interested parties in the evaluation of the
      Company as an enterprise level performance measure that eliminates the

effects of financing, income taxes and the accounting effects of capital

spending, as well as other one time or recurring items described above; and

• we believe that Adjusted EBITDA is useful for investors, among other reasons,

to assess the Company's

period-to-period

core operating performance and to understand and assess the manner in which

management analyzes operating performance.

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.



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 U.S. GAAP and should
not be construed as an alternative to income from continuing operations, cash
flows from operating activities or net income, as determined in accordance with
U.S. GAAP. A reconciliation of loss from continuing operations to Adjusted
EBITDA from continuing operations is as follows:

                                    Three Months            Nine Months           Three Months            Nine Months

                                        Ended                  Ended                  Ended                  Ended

                                    September 30,          September 30,          September 30,          September 30,

                                        2021                   2021                   2020                   2020
                                                                  (Dollars in millions)
Income (loss) from continuing
operations                         $          10.8        $           3.1        $           8.5        $         (10.8 )
Interest expense (income),
net                                           (0.4 )                 (0.5 )                  4.9                   14.5
Income tax expense (benefit)                   3.1                    6.0                   (1.1 )                  0.8
Depreciation and amortization                  3.6                   10.6                    2.9                    8.0
EBITDA                             $          17.1        $          19.2        $          15.0        $          12.5
Adjustments:
Equity-based compensation
expense(a)                                     2.0                    6.1                    2.1                    4.4
Foreign currency loss (gain),
net(b)                                         7.6                   12.0                   (8.9 )                 13.6
Derivative valuation gain,
net(c)                                        (0.2 )                 (0.1 )                 (0.1 )                 (0.2 )
Inventory reserve related to
Huawei impact of downstream
trade restrictions(d)                         (1.1 )                 (1.1 )                  2.3                    2.3
Expenses related to Fab 3
power outage(e)                                 -                      -                     1.2                    1.2
Other charges, net(f)                          1.0                   16.5                     -                     0.6

Adjusted EBITDA                    $          26.4        $          52.6        $          11.7        $          34.3




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(a) 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, these expenses do not

generally require cash settlement, and, therefore, are not used by us to

assess the profitability of our operations. 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.

(b) This adjustment mainly 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, which we cannot control. Additionally, we believe the

isolation of this adjustment provides investors with enhanced comparability

to prior and future periods of our operating performance results.

(c) This adjustment eliminates the impact of gain or loss recognized in income on

derivatives, which represents derivatives value changes excluded from the

risk being hedged. We enter into derivative transactions to mitigate foreign

exchange risks. As our derivative transactions are limited to a certain

portion of our expected cash flows denominated in U.S. dollars, and we do not

enter into derivative transactions for trading or speculative purposes, we do

not believe that these charges or gains are indicative of our core operating

performance.

(d) For the three and nine months ended September 30, 2020, this adjustment

eliminates the impact of excess and obsolete inventory charge that we

recorded in relation to the U.S. Government's export restrictions on Huawei,

which is a downstream customer of some of our direct customers. For the three

and nine months ended September 31, 2021, this adjustment eliminates a

partial reversal of such inventory charge as a portion of such reserved

inventory was subsequently sold to certain other customers. As this charge

and the timing of its partial reversal meaningfully impacted our operational

results and are not expected to represent an ongoing operating expense

subject to our ability to foresee and control, we believe our operating

performance results are more meaningfully compared if this charge and related

reversal are excluded.

(e) This adjustment eliminates $1.2 million in expenses related to the

write-off

of the damaged work in process wafers and charges for facility recovery.

These charges are inconsistent in amount and frequency, and we do not believe

that these charges are indicative of our core operation performance and have

been excluded for comparative purposes.

(f) For the three and nine months ended September 30, 2021, this adjustment

eliminates

non-recurring

professional service fees and expenses of $1.8 million and $17.2 million,

respectively, incurred in connection with the Merger and regulatory requests,

both of which were offset in part by a $0.7 million legal settlement gain

related to certain expenses incurred in prior periods in connection with our

legacy Fab 4 (which was sold during the year ended December 31, 2020) and

awarded in the current quarter. For the nine months ended September 30, 2020,

this adjustment eliminates

non-recurring

professional service fees and expenses incurred in connection with certain

treasury and finance initiatives. As these expenses meaningfully impacted our

operating results and are not expected to represent an ongoing operating

expense to us, we believe our operating performance results are more usefully

compared if these expenses are excluded.

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 U.S. 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;



     •    although depreciation and amortization are
          non-cash

charges, the assets being depreciated and amortized will often need 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 U.S.
GAAP results and using Adjusted EBITDA only supplementally.

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We present Adjusted Operating Income as supplemental measures of our
performance. We prepare Adjusted Operating Income by adjusting operating income
to eliminate the impact of equity-based compensation 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
Operating Income is useful to investors to provide a supplemental way to
understand our underlying operating performance and allows investors to monitor
and understand changes in our ability to generate income from ongoing business
operations.
Adjusted Operating Income is not a measure defined in accordance with U.S. GAAP
and should not be construed as an alternative to operating income, income from
continuing operations, cash flows from operating activities or net income, as
determined in accordance with U.S. GAAP. We encourage you to evaluate each
adjustment and the reasons we consider them appropriate. Other companies in our
industry may calculate Adjusted Operating Income differently than we do,
limiting its usefulness as a comparative measure. In addition, in evaluating
Adjusted Operating Income, you should be aware that in the future we may incur
expenses similar to the adjustments in this presentation. We define Adjusted
Operating Income for the periods indicated as operating income adjusted to
exclude (i) equity-based compensation expense, (ii) inventory reserve related to
Huawei impact of downstream trade restrictions, (iii) expenses related to Fab 3
power outage and (iv) other charges.
The following table summarizes the adjustments to operating income that we make
in order to calculate Adjusted Operating Income from continuing operations for
the periods indicated:

                                   Three Months            Nine Months           Three Months            Nine Months

                                       Ended                  Ended                  Ended                  Ended

                                   September 30,          September 30,          September 30,          September 30,

                                       2021                   2021                   2020                   2020
                                                                     (In millions)
Operating income                  $          20.0        $          19.5        $           3.2        $          17.8
Adjustments:
Equity-based compensation
expense(a)                                    2.0                    6.1                    2.1                    4.4
Inventory reserve related to
Huawei impact of
downstream trade
restrictions(b)                              (1.1 )                 (1.1 )                  2.3                    2.3
Expenses related to Fab 3
power outage(c)                                -                      -                     1.2                    1.2
Other charges(d)                              1.8                   17.2                     -                     0.6

Adjusted Operating Income         $          22.7        $          41.7        $           8.8        $          26.2



(a) 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, these expenses do not

generally require cash settlement, and, therefore, are not used by us to

assess the profitability of our operations. 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.

(b) For the three and nine months ended September 30, 2020, this adjustment

eliminates the impact of excess and obsolete inventory charge that we

recorded in relation to the U.S. Government's export restrictions on Huawei,

which is a downstream customer of some of our direct customers. For the three

and nine months ended September 31, 2021, this adjustment eliminates a

partial reversal of such inventory charge as a portion of such reserved

inventory was subsequently sold to certain other customers. As this charge

and the timing of its partial reversal meaningfully impacted our operational

results and are not expected to represent an ongoing operating expense

subject to our ability to foresee and control, we believe our operating

performance results are more meaningfully compared if this charge and related

reversal are excluded.

(c) This adjustment eliminates $1.2 million in expenses related to the

write-off

of the damaged work in process wafers and charges for facility recovery.

These charges are inconsistent in amount and frequency, and we do not believe

that these charges are indicative of our core operation performance and have

been excluded for comparative purposes.

(d) For the three and nine months ended September 30, 2021, this adjustment

eliminates

non-recurring

professional service fees and expenses incurred in connection with the Merger

and regulatory requests. For the nine months ended September 30, 2020, this

adjustment eliminates

non-recurring

professional service fees and expenses incurred in connection with certain

treasury and finance initiatives. As these expenses meaningfully impacted our

operating results and are not expected to represent an ongoing operating

expense to us, we believe our operating performance results are more usefully

    compared if these expenses are excluded.



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We present Adjusted Net Income (including on a per share basis) as a further
supplemental measure of our performance. We prepare Adjusted Net Income
(including on a per share basis) by adjusting income (loss) from continuing
operations 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 (including on a per share basis) is particularly useful
because it reflects the impact of our asset base and capital structure on our
operating performance. We present Adjusted Net Income (including on a per share
basis) for a number of reasons, including:

• we use Adjusted Net Income (including on a per share basis) in

             communications with our Board of Directors concerning our 

consolidated

             financial performance without the impact of
             non-cash
             expenses and the other items as we discussed below since we believe
             that it is a more consistent measure of our core operating results
             from period to period; and



         •   we believe that reporting Adjusted Net Income (including on a per
             share basis) is useful to readers in evaluating our core operating
             results because it eliminates the effects of
             non-cash
             expenses as well as the other items we discuss below, such as foreign
             currency gains and losses, which are out of our control and can vary
             significantly from period to period.


Adjusted Net Income (including on a per share basis) is not a measure defined in
accordance with U.S. GAAP and should not be construed as an alternative to
income from continuing operations, cash flows from operating activities or net
income, as determined in accordance with U.S. 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 (including on a per share basis)
differently than we do, limiting its usefulness as a comparative measure. In
addition, in evaluating Adjusted Net Income (including on a per share basis),
you should be aware that in the future we may incur expenses similar to the
adjustments in this presentation. We define Adjusted Net Income (including on a
per share basis); for the periods indicated as income (loss) from continuing
operations, adjusted to exclude (i) equity-based compensation expense,
(ii) foreign currency loss (gain), net, (iii) derivative valuation gain, net,
(iv) inventory reserve related to Huawei impact of downstream trade
restrictions, (v) expenses related to Fab 3 power outage, (vi) other charges,
net and (vii) income tax effect on
non-GAAP
adjustments.
The following table summarizes the adjustments to income (loss) from continuing
operations that we make in order to calculate Adjusted Net Income (including on
a per share basis) from continuing operations for the periods indicated:

                                      Three Months            Nine Months           Three Months            Nine Months

                                          Ended                  Ended                  Ended                  Ended

                                      September 30,          September 30,          September 30,          September 30,

                                          2021                   2021                   2020                   2020
                                                             (In millions, except per share data)
Income (loss) from continuing
operations                           $          10.8        $           3.1        $           8.5        $         (10.8 )
Adjustments:
Equity-based compensation
expense(a)                                       2.0                    6.1                    2.1                    4.4
Foreign currency loss (gain),
net(b)                                           7.6                   12.0                   (8.9 )                 13.6
Derivative valuation gain,
net(c)                                          (0.2 )                 (0.1 )                 (0.1 )                 (0.2 )
Inventory reserve related to
Huawei impact of downstream
trade restrictions(d)                           (1.1 )                 (1.1 )                  2.3                    2.3
Expenses related to Fab 3 power
outage(e)                                         -                      -                     1.2                    1.2
Other charges, net(f)                            1.0                   16.5                     -                     0.6
Income tax effect on
non-GAAP
adjustments(g)                                    -                      -                      -                      -

Adjusted Net Income                  $          20.1        $          36.5        $           5.1        $          11.0

Reported earnings (loss) per
share - basic                        $          0.23        $          0.07        $          0.24        $         (0.31 )
Reported earnings (loss) per
share - diluted                      $          0.23        $          0.07        $          0.21        $         (0.31 )
Weighted average number of
shares - basic                            46,449,234             44,377,250             35,280,864             35,089,479
Weighted average number of
shares - diluted                          47,808,457             45,811,792             46,581,788             35,089,479
Adjusted earnings per share -
basic                                $          0.43        $          0.82        $          0.15        $          0.31
Adjusted earnings per share -
diluted                              $          0.42        $          0.78        $          0.14        $          0.30
Weighted average number of
shares - basic                            46,449,234             44,377,250             35,280,864             35,089,479
Weighted average number of
shares - diluted                          47,808,457             47,718,578             46,581,788             36,151,622


(a) 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, these expenses do not

generally require cash settlement, and, therefore, are not used by us to

assess the profitability of our operations. 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.

(b) This adjustment mainly 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



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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, which we cannot control. Additionally, we believe the

isolation of this adjustment provides investors with enhanced comparability

to prior and future periods of our operating performance results.

(c) This adjustment eliminates the impact of gain or loss recognized in income on

derivatives, which represents derivatives value changes excluded from the

risk being hedged. We enter into derivative transactions to mitigate foreign

exchange risks. As our derivative transactions are limited to a certain

portion of our expected cash flows denominated in U.S. dollars, and we do not

enter into derivative transactions for trading or speculative purposes, we do

not believe that these charges or gains are indicative of our core operating

performance.

(d) For the three and nine months ended September 30, 2020, this adjustment

eliminates the impact of excess and obsolete inventory charge that we

recorded in relation to the U.S. Government's export restrictions on Huawei,

which is a downstream customer of some of our direct customers. For the three

and nine months ended September 31, 2021, this adjustment eliminates a

partial reversal of such inventory charge as a portion of such reserved

inventory was subsequently sold to certain other customers. As this charge

and the timing of its partial reversal meaningfully impacted our operational

results and are not expected to represent an ongoing operating expense

subject to our ability to foresee and control, we believe our operating

performance results are more meaningfully compared if this charge and related

reversal are excluded.

(e) This adjustment eliminates $1.2 million in expenses related to the

write-off

of the damaged work in process wafers and charges for facility recovery.

These charges are inconsistent in amount and frequency, and we do not believe

that these charges are indicative of our core operation performance and have

been excluded for comparative purposes.

(f) For the three and nine months ended September 30, 2021, this adjustment

eliminates

non-recurring

professional service fees and expenses of $1.8 million and $17.2 million,

respectively, incurred in connection with the Merger and regulatory requests,

both of which were offset in part by a $0.7 million legal settlement gain

related to certain expenses incurred in prior periods in connection with our

legacy Fab 4 (which was sold during the year ended December 31, 2020) and

awarded in the current quarter. For the nine months ended September 30, 2020,

this adjustment eliminates

non-recurring

professional service fees and expenses incurred in connection with certain

treasury and finance initiatives. As these expenses meaningfully impacted our

operating results and are not expected to represent an ongoing operating

expense to us, we believe our operating performance results are more usefully

compared if these expenses are excluded.

(g) For the three and nine months ended September 30, 2021 and 2020, there was no

tax impact from the adjustments to net income to calculate our Adjusted Net

Income due to net operating loss carry-forwards available at our parent

entity in the U.S., based on the nature and origination of the adjustments,

to offset related taxable income.



We believe that all adjustments to income (loss) from continuing operations used
to calculate Adjusted Net Income was applied consistently to the periods
presented.
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 U.S. GAAP. Some of these limitations are:

• 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 profitability of our business. We compensate for these limitations by
relying primarily on our U.S. GAAP results and using Adjusted Net Income only as
a supplement.

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Factors Affecting Our Results of Operations
Net
Sales.
We derive substantially all of our sales (net of sales returns and allowances)
from our standard products business. We outsource manufacturing of OLED products
to external
12-inch
foundries. 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 offices near
concentrations of major customers. Our sales offices are located in Korea, Japan
and Greater China. Our network of authorized agents and distributors is in the
United States, Europe and the Asia Pacific region.
We recognize revenue when a customer obtains control of the product, which is
generally upon product shipment, delivery at the customer's location or upon
customer acceptance, depending on the terms of the arrangement. For the nine
months ended September 30, 2021 and 2020, we sold products to 175 and
170 customers, respectively, and our net sales to our ten largest customers
represented 81% and 88% of our net sales-standard products business,
respectively.
We will provide the Transitional Fab 3 Foundry Services up to September 1, 2023
at an agreed upon cost plus a
mark-up.
For the periods prior to the closing of the sale of the Foundry Services Group
business and Fab 4 as of September 1, 2020 (which are accounted for as
discontinued operations beginning in the first quarter of 2020), revenue derived
from the Transitional Fab 3 Foundry Services is recorded at cost in both our
continuing and discontinued operations.
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
facility and the yields achieved by our manufacturing operations, changes in
material, labor and other manufacturing costs including outsourced manufacturing
expenses, and variation in depreciation expense.
Average
Selling
Prices.
Average selling prices for our products tend to be highest at the time of
introduction of new products which utilize the latest technology and tend to
decrease over time as such products mature in the market and are replaced by
next generation products. We strive to offset the impact of declining selling
prices for existing products through our product development activities and by
introducing new products that command selling prices above the average selling
price of our existing products. In addition, we seek to manage our inventories
and manufacturing capacity so as to preclude losses from product and productive
capacity obsolescence.
Material Costs.
Our material costs consist of costs of raw materials, such as silicon wafers,
chemicals, gases and tape and packaging supplies. 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 increase significantly.
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 September 30,
2021, approximately 98% of our employees were eligible for severance benefits.
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. 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 5 to 12 years for certain equipment and assets. Our
evaluation of carrying values is based on various analyses including cash flow
and profitability projections. If our projections indicate that future
undiscounted cash flows are not sufficient to recover the carrying values of the
related long-lived assets, the carrying value of the assets is impaired and will
be reduced, with the reduction charged to expense so that the carrying value is
equal to fair value.
Selling
Expenses.
We sell our products worldwide through a direct sales force as well as a network
of sales agents and representatives to OEMs, including major branded customers
and contract manufacturers, and indirectly through distributors. Selling
expenses consist primarily of the personnel costs for the members of our direct
sales force, a network of sales representatives and other costs of distribution.
Personnel costs include base salary, benefits and incentive compensation.
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.

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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 of our display
business are material and design-related costs for OLED display driver IC
product development involving
28-nanometer
or finer processes. The majority of research and development expenses of our
power business are certain equipment, material and design-related costs for
power discrete products and material and design-related costs for power IC
products. Power IC uses standard BCD process technologies which can be sourced
from multiple foundries, including Fab 4.
Interest Expense.
Our interest expense was incurred primarily under our 6.625% Senior Notes due
July 15, 2021 (the "2021 Notes") and the Exchangeable Notes. We redeemed all
outstanding 2021 Notes on October 2, 2020. Our Exchangeable Notes were exchanged
for common stock prior to their maturity date of March 1, 2021. From and after
October 2, 2020 and March 1, 2021, we have not incurred interest expense
associated with the 2021 Notes and Exchangeable Notes, respectively.
Impact of Foreign Currency Exchange Rates on Reported Results of Operations.
Historically, a portion of our revenues and greater than the majority of our
operating expenses and costs of sales have been denominated in
non-U.S.
currencies, principally the Korean won, and we expect that this will remain true
in the future. Because we report our results of operations in U.S. dollars
converted from our
non-U.S.
revenues and expenses based on monthly average exchange rates, 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 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. Moreover, our foreign currency gain or
loss would be affected by changes in the exchange rate between the Korean won
and the U.S. dollar as a substantial portion of
non-cash
translation gain or loss is associated with the intercompany long-term loans to
our Korean subsidiary, which is denominated in U.S. dollars. As of September 30,
2021, the outstanding intercompany loan balance including accrued interest
between our Korean subsidiary and our Dutch subsidiary was $393.2 million. As a
result of such foreign currency fluctuations, it could be more difficult to
detect underlying trends in our business and results of operations. In addition,
to the extent that fluctuations in currency exchange rates cause our results of
operations to differ from our expectations or the expectations of our investors,
the trading price of our stock could be adversely affected.
From time to time, we may engage in exchange rate hedging activities in an
effort to mitigate the impact of exchange rate fluctuations. Our Korean
subsidiary enters into foreign currency zero cost collar contracts in order to
mitigate a portion of the impact of U.S. dollar-Korean won exchange rate
fluctuations on our operating results. Obligations under these foreign currency
zero cost collar contracts must be cash collateralized if our exposure exceeds
certain specified thresholds. These zero cost collar contracts may be terminated
by a counterparty in a number of circumstances, including if our credit rating
falls below
B-/B3
or if our total cash and cash equivalents is less than $30.0 million at the end
of a fiscal quarter unless a waiver is obtained from the counterparty. We cannot
assure 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.
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 foreign currency gain (loss), net in our statements of
operations. 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
balances 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.

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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 basis of our assets and liabilities. We exercise significant
management judgment in determining our provision for income taxes, deferred tax
assets and liabilities. We assess whether it is more likely than not that the
deferred tax assets existing at the
period-end
will be realized in future periods. In such assessment, we consider all
available positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income, tax planning
strategies and recent results of operations. In the event we were to determine
that we would be able to realize the deferred income tax assets in the future in
excess of their net recorded amount, we would adjust the valuation allowance,
which would reduce the provision for income taxes.
We are subject to income- or
non-income-based
tax examinations by tax authorities of the U.S., Korea and multiple other
foreign jurisdictions for all open tax years. Significant estimates and
judgments are required in determining our worldwide provision for income- or
non-income
based 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.
Discontinued Operations.
On March 30, 2020, we entered into the Business Transfer Agreement for the sale
of our Foundry Services Group business and Fab 4 to the Buyer. As a result, the
results of the Foundry Services Group business were classified as discontinued
operations in our consolidated statements of operations and excluded from both
continuing operations and segment results for all periods presented. On
September 1, 2020, we completed the sale for a purchase price of approximately
$350.6 million in cash.
Capital
Expenditures.
We primarily invest in manufacturing equipment, software design tools and other
tangible assets mainly for fabrication facility maintenance, capacity expansion
and technology improvement. Capacity expansions and technology improvements
typically occur in anticipation of increases in demand. We typically pay for
capital expenditures in partial installments with portions due on order,
delivery and final acceptance. Our capital expenditures mainly include our
payments for the purchase of property, plant and equipment.
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.

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Results of Operations - Comparison of Three Months Ended September 30, 2021 and
2020
The following table sets forth consolidated results of operations for the three
months ended September 30, 2021 and 2020:

                                            Three Months Ended                    Three Months Ended

                                            September 30, 2021                    September 30, 2020
                                                           % of                                  % of             Change

                                      Amount          Total revenues        Amount          Total revenues        Amount
                                                                    (Dollars in millions)
Revenues
Net sales - standard products
business                             $   117.4                   92.5 %    $   116.3                   93.1 %    $    1.2
Net sales - transitional Fab 3
foundry services                           9.6                    7.5            8.6                    6.9           1.0

Total revenues                           127.0                  100.0          124.8                  100.0           2.2
Cost of sales
Cost of sales - standard products
business                                  71.6                   56.4           87.5                   70.1         (15.9 )
Cost of sales - transitional Fab 3
foundry services                           8.8                    6.9            8.7                    7.0           0.0

Total cost of sales                       80.4                   63.3           96.2                   77.1         (15.8 )

Gross profit                              46.6                   36.7           28.6                   22.9          18.0
Selling, general and
administrative expenses                   12.6                    9.9           12.9                   10.3          (0.3 )
Research and development expenses         12.3                    9.7           12.5                   10.0          (0.2 )
Other charges                              1.8                    1.4             -                      -            1.8

Operating income                          20.0                   15.7            3.2                    2.6          16.8
Interest expense                          (0.1 )                 (0.1 )         (5.5 )                 (4.4 )         5.4
Foreign currency gain (loss), net         (7.6 )                 (6.0 )          8.9                    7.1         (16.4 )
Others, net                                1.6                    1.3            0.7                    0.6           0.9

                                          (6.1 )                 (4.8 )          4.1                    3.3         (10.2 )

Income from continuing operations
before income tax expense                 13.9                   11.0            7.3                    5.9           6.6
Income tax expense (benefit)               3.1                    2.5           (1.1 )                 (0.9 )         4.3

Income from continuing operations         10.8                    8.5            8.5                    6.8           2.3
Income from discontinued
operations, net of tax                      -                      -           264.5                  211.9        (264.5 )

Net income                           $    10.8                    8.5      $   273.0                  218.7      $ (262.2 )




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The following sets forth information relating to our continuing operations:

                                           Three Months Ended                    Three Months Ended

                                           September 30, 2021                    September 30, 2020
                                                          % of                                  % of            Change

                                      Amount         Total revenues         Amount         Total revenues       Amount
                                                                   (Dollars in millions)
Revenues
Net sales - standard products
business
Display Solutions                   $     58.5                  46.1 %    $     69.6                  55.7 %    $ (11.1 )
Power Solutions                           58.9                  46.4            46.7                  37.4         12.2

Total standard products business         117.4                  92.5           116.3                  93.1          1.2
Net sales - transitional Fab 3
foundry services                           9.6                   7.5             8.6                   6.9          1.0

Total revenues                      $    127.0                 100.0 %    $    124.8                 100.0 %    $   2.2




                                             Three Months Ended               Three Months Ended

                                             September 30, 2021               September 30, 2020
                                                            % of                             % of          Change

                                          Amount         Net sales        Amount           Net sales       Amount
                                                                   (Dollars in millions)
Gross Profit
Gross profit - standard products
business                                 $    45.8             39.0 %    $    28.8               24.7 %    $  17.0
Gross profit - transitional Fab 3
foundry services                               0.8              8.5           (0.2 )             (2.1 )        1.0

Total gross profit                       $    46.6             36.7 %    $    28.6               22.9 %    $  18.0



Revenues
Total revenues were $127.0 million for the three months ended September 30,
2021, a $2.2 million, or 1.8%, increase compared to $124.8 million for the three
months ended September 30, 2020.
The standard products business.
 Net sales from our standard products business were $117.4 million for the three
months ended September 30, 2021, a $1.2 million, or 1.0%, increase compared to
$116.3 million for the three months ended September 30, 2020. This increase was
primarily attributable to a higher demand for power products such as MOSFETs,
including
high-end
MOSFETs, primarily for TVs and
e-bikes,
whereas the revenue for power products in 2020 was impacted by
COVID-19-related
supply chain issues and market softness in China. This increase was offset in
part by a decrease in revenue from our mobile OLED display driver ICs stemming
from a continuing global shortage in manufacturing capacity, as we outsource
manufacturing of these products to external
12-inch
foundries.
The transitional Fab 3 foundry services.
Net sales from the transitional Fab 3 foundry services were $9.6 million and
$8.6 million for the three months ended September 30, 2021 and 2020,
respectively.
Gross Profit
Total gross profit was $46.6 million for the three months ended September 30,
2021 compared to $28.6 million for the three months ended September 30, 2020, an
$18.0 million, or 63.0%, increase. Gross profit as a percentage of net sales for
the three months ended September 30, 2021 increased to 36.7% compared to 22.9%
for the three months ended September 30, 2020.
The standard products business.
 Gross profit from our standard products business was $45.8 million for the
three months ended September 30, 2021, which represented a $17.0 million, or
59.1%, increase from gross profit of $28.8 million for the three months ended
September 30, 2020. Gross profit as a percentage of net sales for the three
months ended September 30, 2021 increased to 39.0% compared to 24.7% for the
three months ended September 30, 2020. The increase in both gross profit and
gross profit margin was primarily attributable to an improved product mix, an
increase in average selling price and a higher utilization rate of our internal
fabrication facility in Gumi, whereas unexpected excess and obsolete inventory
charge of $2.3 million in relation to the U.S. Government's export restrictions
on Huawei, which is a downstream customer of some of our direct customers,
negatively affected both gross profit and gross profit as a percentage of net
sales in the third quarter of 2020. This excess and obsolete inventory charge
was reversed by $1.1 million during the three months ended September 30, 2021 as
a portion of such reserved inventory was subsequently sold to certain other
customers, which also positively affected both gross profit and gross profit as
a percentage of net sales for the three months ended September 30, 2021.

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Net Sales - Standard Products Business by Geographic Region
We report net sales - standard products business by geographic region based on
the location to which the products are billed. The following table sets forth
our net sales-standard products business by geographic region and the percentage
of total net sales-standard products business represented by each geographic
region for the three months ended September 30, 2021 and 2020:

                                           Three Months Ended                 Three Months Ended

                                           September 30, 2021                 September 30, 2020
                                                          % of                               % of

                                                       Net sales -                        Net sales -

                                                        standard                           standard

                                                        products                           products         Change

                                        Amount          business           Amount          business         Amount
                                                                  (Dollars in millions)
Korea                                 $      29.7              25.3 %    $      28.4              24.4 %    $   1.3
Asia Pacific (other than Korea)              84.2              71.7             84.2              72.4          0.0
United States                                 1.8               1.5              1.8               1.5         (0.0 )
Europe                                        1.4               1.2              1.5               1.2         (0.1 )
Others                                        0.4               0.3              0.5               0.4         (0.1 )

                                      $     117.4             100.0 %    $     116.3             100.0 %    $   1.2



Net sales - standard products business in Korea for the three months ended
September 30, 2021 increased from $28.4 million to $29.7 million compared to the
three months ended September 30, 2020, or by $1.3 million, or 4.6%, primarily
due to a higher demand for power products such as MOSFETs, including
high-end
MOSFETs, primarily for TV and smartphone applications. This increase was offset
in part by a decrease in revenue related to our mobile OLED display driver ICs
stemming from a continuing global shortage in manufacturing capacity, as we
outsource manufacturing of these products to external
12-inch
foundries.
Net sales - standard products business in Asia Pacific (other than Korea) for
the three months ended September 30, 2021 was $84.2 million, which remained
flat, compared to $84.2 million in the three months ended September 30, 2020.
The increase in revenue was primarily attributable to a higher demand for power
products such as MOSFETs, including
high-end
MOSFETs, primarily for TVs and
e-bikes,
and a higher demand for
auto-LCD
DDIC business, which was entirely offset by a decrease in revenue from our
mobile OLED display driver ICs stemming from a continuing global shortage in
manufacturing capacity, as we outsource manufacturing of these products to
external
12-inch
foundries.
Operating Expenses
Selling,
General
and
Administrative
Expenses.
 Selling, general and administrative expenses were $12.6 million, or 9.9% of
total revenues, for the three months ended September 30, 2021, compared to
$12.9 million, or 10.3% of total revenues, for the three months ended
September 30, 2020. The decrease of $0.3 million, or 2.6%, was primarily
attributable to a decrease in professional fess mainly comprised of legal and
consulting fees.
Research
and
Development
Expenses.
 Research and development expenses were $12.3 million, or 9.7% of total
revenues, for the three months ended September 30, 2021, which remained almost
flat, compared to $12.5 million, or 10.0% of total revenues, for the three
months ended September 30, 2020.
Other Charges.
Other charges were $1.8 million for the three months ended September 30, 2021,
which consisted of
non-recurring
professional service fees and expenses incurred in connection with the Merger
and regulatory requests.
Operating Income
As a result of the foregoing, operating income was $20.0 million for the three
months ended September 30, 2021 compared to operating income of $3.2 million the
three months ended September 30, 2020. As discussed above, the increase in
operating income of $16.8 million resulted primarily from an $18.0 million
increase in gross profit, a $0.3 million decrease in selling, general and
administrative expenses, and a $0.2 million increase in research and development
expenses. This increase was offset in part by a $1.8 million increase in other
charges.

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Other Income (Expense)
Interest
Expense.
 Interest expense was $0.1 million and $5.5 million for the three months ended
September 30, 2021 and September 30, 2020, respectively. Interest expense was
incurred primarily under our 2021 Notes and Exchangeable Notes. We redeemed all
outstanding 2021 Notes on October 2, 2020. Our Exchangeable Notes were exchanged
for common stock prior to their maturity date of March 1, 2021. From and after
October 2, 2020 and March 1, 2021, we have not incurred interest expense
associated with the 2021 Notes and Exchangeable Notes, respectively.
Foreign
Currency
Loss (Gain),
Net.
 Net foreign currency loss for the three months ended September 30, 2021 was
$7.6 million compared to net foreign currency gain of $8.9 million for the three
months ended September 30, 2020. The net foreign currency loss for the three
months ended September 30, 2021 was due to the depreciation in value of the
Korean won relative to the U.S. dollar during the period. The net foreign
currency gain for the three months ended September 30, 2020 was due to the
appreciation in value of the Korean won relative to the U.S. dollar during the
period.
A substantial portion of our net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to our
Korean subsidiary, which are denominated in U.S. dollars, and are affected by
changes in the exchange rate between the Korean won and the U.S. dollar. As of
September 30, 2021 and September 30, 2020, the outstanding intercompany loan
balances, including accrued interest between our Korean subsidiary and our Dutch
subsidiary, were $393 million and $446 million, respectively. Foreign currency
translation gain or loss from intercompany balances were included in determining
our consolidated net income since the intercompany balances were not considered
long-term investments in nature because management intended to settle these
intercompany balances at their respective maturity dates.
Others,
Net.
Others were comprised of interest income, rental income, and gains and losses
from valuation of derivatives which were designated as hedging instruments.
Others, net for the three months ended September 30, 2021 and September 30, 2020
was $1.6 million and $0.7 million, respectively. During the three months ended
September 30, 2021, others, net included a $0.7 million legal settlement gain
related to certain expenses incurred in prior periods in connection with our
legacy Fab 4 (which was sold during the year ended December 31, 2020) and
awarded in the current quarter.
Income Tax Expense (Benefit)
Income tax expense was $3.1 million for the three months ended September 30,
2021, which was primarily attributable to interest on intercompany loan balances
and the estimated taxable income for the respective period in our Korean
subsidiary, combined with its ability to utilize net operating loss
carryforwards up to 60%. Income tax benefit was $1.1 million for the three
months ended September 30, 2020, which was primarily attributable to the foreign
translation loss realized by our Korean subsidiary upon the repayment of a part
of its intercompany loans by the Dutch subsidiary to fund the redemption of the
2021 Notes.
Income from Continuing Operations
As a result of the foregoing, income from continuing operations increased by
$2.3 million for the three months ended September 30, 2021 compared to the three
months ended September 30, 2020. As discussed above, the increase in income from
continuing operations primarily resulted from a $16.8 million increase in
operating income and a $5.4 million decrease in interest expense, which were
offset in part by a $16.4 million increase in net foreign currency loss and a
$4.3 million increase in income tax expense.
Income from Discontinued Operations, Net of Tax
On March 30, 2020, we entered into the Business Transfer Agreement for the sale
of our Foundry Services Group business and Fab 4. As a result, the results of
the Foundry Services Group business were classified as discontinued operations
in our consolidated statements of operations and excluded from our continuing
operations for all periods presented. Income from discontinued operations, net
of tax was $264.5 million for the three months ended September 30, 2020. On
September 1, 2020, we completed the sale of our Foundry Services Group business
and Fab 4 for a purchase price equal to approximately $350.6 million in cash. We
have not incurred a gain or loss from discontinued operations in 2021 as the
sale of the Foundry Service Group business and Fab 4 was completed in 2020.
Net Income
As a result of the foregoing, a net income of $10.8 million was recorded for the
three months ended September 30, 2021 compared to a net income of $273.0 million
for the three months ended September 30, 2020. As discussed above, the decrease
in net income of $262.2 million primarily resulted from a $264.5 million
decrease in income from discontinued operations, net of tax, which was offset by
a $2.3 million increase in income from continuing operations.

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Results of Operations - Comparison of Nine Months Ended September 30, 2021 and
2020
The following table sets forth consolidated results of operations for the nine
months ended September 30, 2021 and 2020:

                                            Nine Months Ended                     Nine Months Ended

                                            September 30, 2021                    September 30, 2020
                                                           % of                                  % of             Change

                                      Amount          Total revenues        Amount          Total revenues        Amount
                                                                    (Dollars in millions)
Revenues
Net sales - standard products
business                             $   333.6                   91.7 %    $   336.0                   92.3 %    $   (2.4 )
Net sales - transitional Fab 3
foundry services                          30.3                    8.3           28.2                    7.7           2.1

Total revenues                           363.9                  100.0          364.1                  100.0          (0.2 )
Cost of sales
Cost of sales - standard products
business                                 221.3                   60.8          245.9                   67.5         (24.6 )
Cost of sales - transitional Fab 3
foundry services                          27.7                    7.6           28.3                    7.8          (0.7 )

Total cost of sales                      249.0                   68.4          274.3                   75.3         (25.3 )

Gross profit                             114.9                   31.6           89.9                   24.7          25.1
Selling, general and
administrative expenses                   39.2                   10.8           37.4                   10.3           1.8
Research and development expenses         39.0                   10.7           34.1                    9.4           4.9
Other charges                             17.2                    4.7            0.6                    0.2          16.6

Operating income                          19.5                    5.4           17.8                    4.9           1.7
Interest expense                          (1.2 )                 (0.3 )        (16.5 )                 (4.5 )        15.3
Foreign currency loss, net               (12.0 )                 (3.3 )        (13.6 )                 (3.7 )         1.6
Others, net                                2.8                    0.8            2.3                    0.6           0.5

                                         (10.4 )                 (2.9 )        (27.8 )                 (7.6 )        17.4

Income (loss) from continuing
operations before income tax
expense                                    9.1                    2.5          (10.0 )                 (2.7 )        19.1
Income tax expense                         6.0                    1.7            0.8                    0.2           5.2

Income (loss) from continuing
operations                                 3.1                    0.9          (10.8 )                 (3.0 )        13.9
Income from discontinued
operations, net of tax                      -                      -           289.2                   79.4        (289.2 )

Net income                           $     3.1                    0.9      $   278.4                   76.5      $ (275.3 )




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The following sets forth information relating to our continuing operations:

                                           Nine Months Ended                     Nine Months Ended

                                           September 30, 2021                    September 30, 2020
                                                          % of                                  % of            Change

                                      Amount         Total revenues         Amount         Total revenues       Amount
                                                                   (Dollars in millions)
Revenues
Net sales - standard products
business
Display Solutions                   $    164.0                  45.1 %    $    216.4                  59.4 %    $ (52.3 )
Power Solutions                          169.6                  46.6           119.6                  32.8         50.0

Total standard products business         333.6                  91.7           336.0                  92.3         (2.4 )
Net sales - transitional Fab 3
foundry services                          30.3                   8.3            28.2                   7.7          2.1

Total revenues                      $    363.9                 100.0 %    $    364.1                 100.0 %    $  (0.2 )




                                                Nine Months Ended                 Nine Months Ended

                                                September 30, 2021                September 30, 2020
                                                               % of                              % of          Change

                                             Amount          Net sales        Amount           Net sales       Amount
                                                                      (Dollars in millions)
Gross Profit
Gross profit - standard products
business                                   $    112.3              33.7 %    $    90.0               26.8 %    $  22.3
Gross profit - transitional Fab 3
foundry services                                  2.6               8.7           (0.2 )             (0.6 )        2.8

Total gross profit                         $    114.9              31.6 %    $    89.9               24.7 %    $  25.1



Revenues
Total revenues were $363.9 million for the nine months ended September 30, 2021,
a $0.2 million, or 0.1%, decrease compared to $364.1 million for the nine months
ended September 30, 2020.
The standard products business.
 Net sales from our standard products business were $333.6 million for the nine
months ended September 30, 2021, a $2.4 million, or 0.7%, decrease compared to
$336.0 million for the nine months ended September 30, 2020. This decrease was
primarily attributable to a decrease in revenue from our mobile OLED display
driver ICs stemming from a continuing global shortage in manufacturing capacity,
as we outsource manufacturing of these products to external
12-inch
foundries, and a strategic reduction of our lower margin
non-auto
LCD business. This decrease was offset in part by a higher demand for power
products such as MOSFETs, including
high-end
MOSFETs, primarily for TVs and
e-bikes,
whereas the revenue for power products in 2020 was impacted by
COVID-19-related
supply chain issues and market softness in China.
The transitional Fab 3 foundry services.
Net sales from the transitional Fab 3 foundry services were $30.3 million and
$28.2 million for the nine months ended September 30, 2021 and 2020,
respectively.
Gross Profit
Total gross profit was $114.9 million for the nine months ended September 30,
2021 compared to $89.9 million for the nine months ended September 30, 2020, a
$25.1 million, or 27.9%, increase. Gross profit as a percentage of net sales for
the nine months ended September 30, 2021 increased to 31.6% compared to 24.7%
for the nine months ended September 30, 2020. The increase in gross profit and
gross profit as a percentage of net sales was primarily due to our standard
products business as further described below.
The standard products business.
 Gross profit from our standard products business was $112.3 million for the
nine months ended September 30, 2021, which represented a $22.3 million, or
24.7%, increase from gross profit of $90.0 million for the nine months ended
September 30, 2020. Gross profit as a percentage of net sales for the nine
months ended September 30, 2021 increased to 33.7% compared to 26.8% for the
nine months ended September 30, 2020. The increase in both gross profit and
gross profit margin was primarily attributable to an improved product mix, an
increase in average selling price and a higher utilization rate of our internal
fabrication facility in Gumi, whereas unexpected excess and obsolete inventory
charge of $2.3 million in relation to the U.S. Government's export restrictions
on Huawei, which is a downstream customer of some of our direct customers,
negatively affected both gross profit and gross profit as a percentage of net
sales in the third quarter of 2020. This excess and obsolete inventory charge
was reversed by $1.1 million in the third quarter of 2021 as a portion of such
reserved inventory was subsequently sold to certain other customers, which also
positively affected both gross profit and gross profit as a percentage of net
sales for the nine months ended September 30, 2021.

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Net Sales - Standard Products Business by Geographic Region
We report net sales - standard products business by geographic region based on
the location to which the products are billed. The following table sets forth
our net sales-standard products business by geographic region and the percentage
of total net sales-standard products business represented by each geographic
region for the nine months ended September 30, 2021 and 2020:

                                               Nine Months Ended                  Nine Months Ended

                                              September 30, 2021                 September 30, 2020
                                                             % of                               % of

                                                          Net sales -                        Net sales -

                                                           standard                           standard

                                                           products                           products         Change

                                           Amount          business           Amount          business         Amount
                                                                     (Dollars in millions)
Korea                                    $     87.0               26.1 %    $     81.1               24.2 %    $   5.8
Asia Pacific (other than Korea)               237.3               71.1           245.9               73.2         (8.6 )
United States                                   4.4                1.3             4.0                1.2          0.4
Europe                                          3.8                1.2             3.3                1.0          0.6
Others                                          1.1                0.3             1.6                0.5         (0.6 )

                                         $    333.6              100.0 %    $    336.0              100.0 %    $  (2.4 )



Net sales - standard products business in Korea for the nine months ended
September 30, 2021 increased from $81.1 million to $87.0 million compared to the
nine months ended September 30, 2020, or by $5.8 million, or 7.2%, primarily due
to a higher demand for power products such as MOSFETs, including
high-end
MOSFETs, primarily for TV and smartphone applications. This increase was offset
in part by a decrease in revenue related to our mobile OLED display driver ICs
stemming from a continuing global shortage in manufacturing capacity, as we
outsource manufacturing of these products to external
12-inch
foundries, and a strategic reduction of our lower margin
non-auto
LCD business.
Net sales - standard products business in Asia Pacific (other than Korea) for
the nine months ended September 30, 2021 decreased to $237.3 million from
$245.9 million in the nine months ended September 30, 2020, or by $8.6 million,
or 3.5%, primarily due to a decrease in revenue from our mobile OLED display
driver ICs stemming from a continuing global shortage in manufacturing capacity,
as we outsource manufacturing of these products to external
12-inch
foundries, which was offset in part by a higher demand for power products such
as MOSFETs, including
high-end
MOSFETs, primarily for TVs and
e-bikes.
Operating Expenses
Selling,
General
and
Administrative
Expenses.
 Selling, general and administrative expenses were $39.2 million, or 10.8% of
total revenues, for the nine months ended September 30, 2021, compared to
$37.4 million, or 10.3% of total revenues, for the nine months ended
September 30, 2020. The increase of $1.8 million, or 4.8%, was primarily
attributable to certain
non-income-based
tax assessments of $0.6 million as a result of a regular tax examination
completed for our primary operating entity in Korea for multiple tax years, and
the grant timing of equity-based compensation. This increase was offset in part
by a decrease in professional fees mainly comprised of legal and consulting
fees.
Research
and
Development
Expenses.
 Research and development expenses were $39.0 million, or 10.7% of total
revenues, for the nine months ended September 30, 2021, compared to
$34.1 million, or 9.4% of total revenues, for the nine months ended
September 30, 2020. The increase of $4.9 million, or 14.4%, was primarily
attributable to an increase in outside service fees and variable overhead
expenses, and an increase in material costs for new product development.
Other Charges.
Other charges were $17.2 million for the nine months ended September 30, 2021,
which were consisted of
non-recurring
professional service fees and expenses incurred in connection with the Merger
and regulatory requests. Other charges were $0.6 million for the nine months
ended September 30, 2020, which pertained to
non-recurring
professional service fees and expenses incurred in connection with certain
treasury and finance initiatives.
Operating Income
As a result of the foregoing, operating income was $19.5 million for the nine
months ended September 30, 2021 compared to operating income of $17.8 million
the nine months ended September 30, 2020. As discussed above, the increase in
operating income of $1.7 million resulted primarily from a $25.1 million
increase in gross profit, which was offset in part by a $16.6 million increase
in other charges, a $4.9 million increase in research and development expenses,
and a $1.8 million increase in selling, general and administrative expenses.

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Other Income (Expense)
Interest
Expense.
 Interest expenses was $1.2 million and $16.5 million for the nine months ended
September 30, 2021 and September 30, 2020, respectively. Interest expenses was
incurred primarily under our 2021 Notes and Exchangeable Notes. We redeemed all
outstanding 2021 Notes on October 2, 2020. Our Exchangeable Notes were exchanged
for common stock prior to their maturity date of March 1, 2021. From and after
October 2, 2020 and March 1, 2021, we have not incurred interest expense
associated with the 2021 Notes and Exchangeable Notes, respectively.
Foreign
Currency
Loss,
Net.
 Net foreign currency loss for the nine months ended September 30, 2021 was
$12.0 million compared to net foreign currency loss of $13.6 million for the
nine months ended September 30, 2020. The net foreign currency loss for the nine
months ended September 30, 2021 and September 30, 2020 was due to the
depreciation in value of the Korean won relative to the U.S. dollar during the
period.
A substantial portion of our net foreign currency gain or loss is
non-cash
translation gain or loss associated with intercompany long-term loans to our
Korean subsidiary, which are denominated in U.S. dollars, and are affected by
changes in the exchange rate between the Korean won and the U.S. dollar. As of
September 30, 2021 and September 30, 2020, the outstanding intercompany loan
balances, including accrued interest between our Korean subsidiary and our Dutch
subsidiary, were $393 million and $446 million, respectively. Foreign currency
translation gain or loss from intercompany balances were included in determining
our consolidated net income since the intercompany balances were not considered
long-term investments in nature because management intended to settle these
intercompany balances at their respective maturity dates.
Others,
Net.
Others were comprised of interest income, rental income, and gains and losses
from valuation of derivatives which were designated as hedging instruments.
Others, net for the nine months ended September 30, 2021 and September 30, 2020
was $2.8 million and $2.3 million, respectively. In the third quarter of 2021,
others, net included a $0.7 million legal settlement gain related to certain
expenses incurred in prior periods in connection with our legacy Fab 4 (which
was sold during the year ended December 31, 2020) and awarded in the current
quarter.
Income Tax Expense
Income tax expense was $6.0 million for the nine months ended September 30,
2021, which was primarily attributable to interest on intercompany loan balances
and the estimated taxable income for the respective period in our Korean
subsidiary, combined with its ability to utilize net operating loss
carryforwards up to 60%. Income tax expense was $0.8 million for the nine months
ended September 30, 2020, which was primarily attributable to interest on
intercompany loan balances, which was offset in part by the income tax benefit
due mainly to the foreign translation loss realized by our Korean subsidiary
upon the repayment of a part of its intercompany loans by the Dutch subsidiary
to fund the redemption of the 2021 Notes.
Income (Loss) from Continuing Operations
Income from continuing operations for the nine months ended September 30, 2021
was $3.1 million compared to loss from continuing operations of $10.8 million
for the nine months ended September 30, 2020. The $14.0 million improvement in
results from continuing operations was primarily attributable to a $15.3 million
decrease in interest expense, a $1.7 million increase in operating income and a
$1.6 million improvement in net foreign currency loss, which were offset in part
by a $5.2 million increase in income tax expense.
Income from Discontinued Operations, Net of Tax
On March 30, 2020, we entered into the Business Transfer Agreement for the sale
of our Foundry Services Group business and Fab 4. As a result, the results of
the Foundry Services Group business were classified as discontinued operations
in our consolidated statements of operations and excluded from our continuing
operations for all periods presented. Income from discontinued operations, net
of tax was $289.2 million for the nine months ended September 30, 2020. On
September 1, 2020, we completed the sale of our Foundry Services Group business
and Fab 4 for a purchase price equal to approximately $350.6 million in cash. We
have not incurred a gain or loss from discontinued operations in 2021 as the
sale of the Foundry Service Group business and Fab 4 was completed in 2020.
Net Income
As a result of the foregoing, a net income of $3.1 million was recorded for the
nine months ended September 30, 2021 compared to a net income of $278.4 million
for the nine months ended September 30, 2020. As discussed above, the decrease
in net income of $275.2 million primarily resulted from a $289.2 million
decrease in income from discontinued operations, net of tax, which was offset by
a $14.0 million improvement in loss from continuing operations.

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Liquidity and Capital Resources
Our principal capital requirements are to fund sales and marketing, invest in
research and development and capital equipment and to fund working capital
needs. We calculate working capital as current assets less current liabilities.
Our principal sources of liquidity are our cash, cash equivalents, cash flows
from operations and financing activities. Our ability to manage cash and cash
equivalents may be limited, as our primary cash flows are dictated from time to
time by the terms of our sales and supply agreements, contractual obligations,
debt instruments and legal and regulatory requirements. From time to time, we
may sell accounts receivable to third parties under factoring agreements or
engage in accounts receivable discounting to facilitate the collection of cash.
In addition, from time to time, we may make payments to our vendors on extended
terms with their consent. As of September 30, 2021, we do not have any accounts
payable on extended terms or payment deferment with our vendors.
On September 1, 2020, we completed the sale of our Foundry Services Group
business and Fab 4 to Key Foundry Co., Ltd. in exchange for a purchase price
equal to approximately $350.6 million in cash. The purchase price was paid in a
combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the
amount of approximately KRW 360.6 billion.
On October 2, 2020, we redeemed of all of our outstanding 2021 Notes. We paid
approximately $227.4 million to fully redeem all of the outstanding
$224.25 million aggregate principal amount of the 2021 Notes at a redemption
price equal to the sum of 100% of the principal amount plus accrued and unpaid
interest thereon.
On January 17, 2017, we issued an aggregate of $86.3 million in principal amount
of our Exchangeable Notes. Prior to the March 1, 2021 maturity of our
Exchangeable Notes, holders elected to exchange for an aggregate of 10,144,131
shares of our common stock in satisfaction in full of the remaining outstanding
obligations under the Exchangeable Notes.
We currently believe that we will have sufficient cash reserves from cash on
hand and expected cash from operations to fund our operations as well as capital
expenditures for the next 12 months and the foreseeable future.
Working Capital
Our working capital balance as of September 30, 2021 was $315.1 million compared
to $236.0 million as of December 31, 2020. The $79.1 million increase was
primarily attributable to the exchange of our Exchangeable Notes for common
stock prior to their maturity date of March 1, 2021.
Cash Flows
The consolidated statements of cash flows have not been adjusted to separately
disclose cash flows related to discontinued operations for the nine months ended
September 30, 2020, but the material items in the operating and investing
activities of cash flows relating to discontinued operations in the referred
period are disclosed in "Item 1. Financial Statements and Supplementary Data -
Notes to Consolidated Financial Statements - Note 3 - Discontinued Operations"
included elsewhere in this Report.
Cash Flows from Operating Activities
Cash inflow provided by operating activities totaled $30.0 million for the nine
months ended September 30, 2021, compared to $51.5 million of cash inflow
provided by operating activities for the nine months ended September 30, 2020.
The net operating cash inflow for the nine months ended September 30, 2021
reflects our net income of $3.1 million, as adjusted favorably by $57.7 million,
which mainly consisted of depreciation and amortization, provision for severance
benefits, stock-based compensation and net foreign currency loss, and net
unfavorable impact of $30.8 million from changes of operating assets and
liabilities.
Cash Flows from Investing Activities
Cash outflow used in investing activities totaled $14.4 million for the nine
months ended September 30, 2021, compared to $334.0 million of cash inflow
provided by investing activities for the nine months ended September 30, 2020.
The $348.5 million decrease in cash inflow was primarily attributable to
$350.6 million of proceeds received from the sale of the Foundry Services Group
business and Fab 4 in the third quarter of 2020, and a $2.0 million net increase
in guarantee deposits, which were offset in part by a $3.0 million decrease in
purchase of property, plant and equipment and a $1.1 million net decrease in
hedge collateral.

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Cash Flows from Financing Activities
Cash inflow provided by financing activities totaled $1.8 million for the nine
months ended September 30, 2021, compared to $1.1 million of cash inflow
provided by financing activities for the nine months ended September 30, 2020.
The financing cash inflow for the nine months ended September 30, 2021 was
primarily attributable to $3.9 million of proceeds received from the issuance of
common stock in connection with the exercise of stock options, which was offset
in part by a payment of $1.7 million for the repurchase of our common stock to
satisfy tax withholding obligations in connection with the vesting of restricted
stock units. The financing cash inflow for the nine months ended September 30,
2020 was primarily attributable to $2.7 million of proceeds received from the
issuance of common stock in connection with the exercise of stock options, which
was offset in part by a payment of $1.0 million for the repurchase of our common
stock to satisfy tax withholding obligations in connection with the vesting of
restricted stock units.
Capital Expenditures
We routinely make capital expenditures for fabrication facility maintenance,
enhancement of our existing facilities and reinforcement of our global research
and development capability. For the nine months ended September 30, 2021,
capital expenditures for property, plant and equipment were $13.4 million, a
$3.0 million, or 18.3%, decrease from $16.4 million, including $5.8 million
capital expenditures for discontinued operations, for the nine months ended
September 30, 2020. The capital expenditures for the nine months ended
September 30, 2021 and 2020 were related to meeting our customer demand and
supporting technology and facility improvement at our fabrication facilities.

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Contractual Obligations
The following summarizes our contractual obligations as of September 30, 2021:

                                                                     Payments Due by Period
                                                     Remainder

                                                        of

                                         Total         2021         2022      2023      2024      2025       Thereafter

                                                                      (Dollars in millions)
Operating leases(1)                      $  4.0$       0.7$ 1.5$ 0.8$ 0.6$ 0.4     $         -
Finance leases(1)                           0.2             0.0       0.1       0.1        -         -                -
Water Treatment Services(1)(2)             25.0             1.0       3.9       3.8       3.7       3.7              8.9
Others(3)                                  16.5             3.4       7.0       5.9       0.1       0.1               -


(1) Assumes constant currency exchange rate for Korean won to U.S. dollars of

1,184.9:1, the exchange rate as of September 30, 2021.

(2) Includes future payments for water treatment services for our fabrication

facility in Gumi, Korea based on the contractual terms.

(3) Includes license agreements and other contractual obligations.



We lease land, office space and equipment under various operating lease
agreements that expire through 2025.
We are a party to an arrangement for the water treatment facility in Gumi,
Korea, which includes a
10-year
service agreement beginning July 1, 2018.
Beginning in July 2018, we have contributed a certain percentage of severance
benefits, accrued for eligible employees for their services beginning January 1,
2018, to certain severance insurance deposit accounts. These accounts consist of
time deposits and other guaranteed principal and interest, and are maintained at
insurance companies, banks or security companies for the benefit of employees.
We deduct the contributions made to these severance insurance deposit accounts
from our accrued severance benefits. As of September 30, 2021, our accrued
severance benefits, net, totaled $37.7 million and cumulative contributions to
these severance insurance deposit accounts amounted to $12.7 million.
We follow U.S. GAAP guidance on uncertain tax positions. Our unrecognized tax
benefits totaled $0.4 million as of September 30, 2021. 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.
Off-Balance
Sheet Arrangements
As of September 30, 2021, we did not have any
off-balance
sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation
S-K.

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Critical Accounting Policies and Estimates
Preparing financial statements in conformity with U.S. 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 further
in Note 1 to our consolidated financial statements in our Annual Report on Form
10-K
for our fiscal year ended December 31, 2020, or our 2020 Form
10-K,
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.
A description of our critical accounting policies that involve significant
management judgement appears in our 2020 Form
10-K,
under "Management's Discussion and Analysis of Financial Conditions and Reports
of Operations-Critical Accounting Policies and Estimates." There have been no
other material changes to our critical accounting policies and estimates as
compared to our critical accounting policies and estimates included in our 2020
Form
10-K.
Recent
Accounting
Pronouncements
For a full description of new accounting pronouncements and recently adopted
accounting pronouncements, please see "Item 1. Interim Consolidated Financial
Statements-Notes to Consolidated Financial Statements-Note 1. Business, Basis of
Presentation and Significant Accounting Policies" in this Report.

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01/07MAGNACHIP SEMICONDUCTOR CORP : Notice of Delisting or Failure to Satisfy a Continued Listi..
AQ
01/07Magnachip Semiconductor to Participate in 24th Annual Needham Virtual Growth Conference
PR
01/06MAGNACHIP SEMICONDUCTOR : Investor Presentation - January 2022
PU
01/06Magnachip Develops Next-Generation OLED DDIC for Automotive Displays
PR
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