Methanex Annual Report 2013

Plain-text annual report

Table of ContentsIndex to Financial Statements UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2013or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number 001-34791 MagnaChip Semiconductor Corporation(Exact name of registrant as specified in its charter) Delaware 83-0406195(State or Other Jurisdiction ofIncorporation or Organization) (I.R.S. EmployerIdentification No.)c/o MagnaChip Semiconductor S.A.1, Allée Scheffer, L-2520Luxembourg, Grand Duchy of Luxembourg(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (352) 45-62-62Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, par value $0.01 per share New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. ¨ Yes x NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files. ¨ Yes x NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer ¨ Accelerated Filer xNon-Accelerated Filer ¨ (Do not check if a smaller reporting company) Smaller Reporting Company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x NoState the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which thecommon equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recentlycompleted second fiscal quarter. $504,621,328Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes x NoAs of January 31, 2015, the registrant had 34,056,468 shares of common stock outstanding. Table of ContentsIndex to Financial StatementsExplanatory NoteThis Annual Report on Form 10-K for the year ended December 31, 2013 (this “2013 Form 10-K” or this “Report”), being filed by MagnaChipSemiconductor Corporation (together with its consolidated subsidiaries, “we,” “our,” “us,” the “Company” or “MagnaChip”), contains audited financialstatements of the Company for the years ended December 31, 2013, 2012 and 2011, which are presented on a restated basis to the extent previously filed in aperiodic report by the Company with the Securities and Exchange Commission (the “SEC”).The Company filed a Current Report on Form 8-K with the SEC on March 11, 2014 (the “Restatement Form 8-K”) disclosing the determination of theAudit Committee of the Company’s Board of Directors that certain of the Company’s previously issued annual audited and interim unaudited financialstatements contained in its historical Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q should no longer be relied upon.This 2013 Form 10-K restates and corrects the following financial statements of the Company (the “Restatement”): (i) the audited consolidated balancesheets as of December 31, 2012 and 2011 and consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flowsfor each of the years ended December 31, 2012 and 2011; and (ii) the five year selected financial data presented in this Report.This 2013 Form 10-K is being filed by the Company in lieu of the Company separately filing with the SEC amendments to its previously filed AnnualReports on Form 10-K for each of the years ended December 31, 2012 and 2011. The Company is concurrently herewith filing its delayed Quarterly Reporton Form 10-Q for the quarterly periods ended March 31, June 30 and September 30, 2014 (the “2014 Form 10-Qs”). For additional information regardingcertain risks associated with our failure to file timely periodic reports and resume a timely filing schedule, please see the risk factors under “Risks Related tothe Restatement, Failure to File Timely Periodic Reports with the SEC and our Internal Control Over Financial Reporting” contained in “Item 1A. RiskFactors” in Part I of this 2013 Form 10-K.The Company has not separately amended, and does not intend to separately amend, its previously filed Annual Report on Form 10-K for the yearsended on or prior to December 31, 2012 or its Quarterly Reports on Form 10-Q for the periods ended on or prior to September 30, 2013, affected by theRestatement. For this reason, the financial statements and supplementary data, selected financial data and other financial information, related reports of theCompany’s independent registered public accountants, management’s discussion and analysis of financial condition and results of operations and reports ondisclosure controls and procedures and internal control over financial reporting contained in those filings should no longer be relied upon and are supersededby the information contained in this 2013 Form 10-K. This 2013 Form 10-K supersedes the financial information disclosed by the Company since itsannouncement of the Restatement on March 11, 2014, including the information contained in the Restatement Form 8-K filed with the SEC.Because of the amount of time that has passed since the Company’s last periodic report was filed with the SEC, the information relating to our business,risk factors, legal proceedings and related matters is updated to include certain information for periods after December 31, 2013.Restatement SummaryIn January 2014, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) commenced an internalinvestigation, with the assistance of outside professionals, into certain revenue recognition issues under United States generally accepted accountingprinciples (“US GAAP”) relating to sales of a discrete number of products sold through the Company’s distributor network that arose during the 2013 year-end audit process (the “Independent Investigation”). During the process of the Independent Investigation, significant issues were identified based on whichmanagement also performed a Company-wide review of related accounting records. As a result, numerous accounting errors were identified and correctedrelated to, among other things, revenue recognition, cost of goods sold, inventory reserves, capitalization, expense recognition and allocation, as well asrelated business practices, for distributor, non-distributor customers and vendors, which are described in more detail in “Note 2. Restatement of ConsolidatedFinancial Statements.” The correction of these errors affected the financial statements as of and for each of the years ended December 31, 2012 and 2011,including the stockholders’ equity balance as of January 1, 2011.The Company considered information obtained during the Independent Investigation in making determinations with respect to accountingadjustments reflected in the restated consolidated financial statements contained in this 2013 Form 10-K, and the Company’s determinations are consistentwith the findings of the Independent Investigation. Adjustments identified by management were made to the consolidated financial statements in connectionwith the Restatement.Table of ContentsIndex to Financial StatementsThe adjustments recorded in the fiscal years ended December 31, 2012 and 2011 in connection with the Restatement are aggregated as follows: Net Income (Loss) Years Ended December 31, 2012 2011 (In thousands) As Previously Reported $193,301 $21,793 Adjustments: Revenue Recognition (8,737) (16,418) Inventory Reserves (7,810) (10,075) Understated Employee Benefits (1,091) (2,472) Settlement Obligations 879 (2,116) Tax Matters (65,637) (1,319) Other Adjustments (867) (694) Total Adjustments (83,263) (33,094) As Restated $110,038 $(11,301) The following table presents “as restated” and “previously reported” summary financial data for net sales, gross profit, operating income, net income(loss) and earnings (loss) per share data for the years ended December 31, 2012 and 2011: Year Ended December 31, 2012 Year Ended December 31, 2011 As PreviouslyReported RestatementAdjustments AsRestated As PreviouslyReported RestatementAdjustments AsRestated (In thousands, except share data) Net sales $819,592 $(12,256) $807,336 $772,831 $(29,701) $743,130 Gross Profit 263,501 (20,254) 243,247 234,316 (34,782) 199,534 Operating Income 105,807 (21,492) 84,315 72,940 (35,963) 36,977 Net Income (loss) 193,301 (83,263) 110,038 21,793 (33,094) (11,301) Earnings (loss) Per Share-Basic 5.29 3.01 0.56 (0.29) Earnings (loss) Per Share-Diluted 5.16 2.93 0.55 (0.29) As a result of the errors discussed above, management identified material weaknesses in our internal control over financial reporting. Accordingly,management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2013. These materialweaknesses have not been fully remediated as of the filing date of this Report. Further, the Company’s Interim Chief Executive Officer and Interim ChiefFinancial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2013.For more information on the matters that have led to the Restatement and data previously reported, see “Note 2. Restatement of Consolidated FinancialStatements” and “Note 24. Unaudited Quarterly Financial Results” to our consolidated financial statements under “Item 8. Financial Statements andSupplementary Data” in this 2013 Form 10-K. In addition, this 2013 Form 10-K reflects, as applicable, the effects of the Restatement in “Item 6. SelectedFinancial Data” for the fiscal years ended December 31, 2012, 2011 and 2010, and the two-month period ended December 31, 2009 and the ten-month periodended October 25, 2009 and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal years endedDecember 31, 2012 and 2011. The material weaknesses identified in the Company’s internal control over financial reporting and management’s evaluation ofthe effectiveness of the design and operation of the Company’s disclosure controls and procedures, as well as management’s remediation plans, are more fullydescribed in “Item 9A. Controls and Procedures” in Part II of this 2013 Form 10-K.Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESFORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013TABLE OF CONTENTS Page PART I Item 1. Business 2 Item 1A. Risk Factors 16 Item 1B. Unresolved Staff Comments 33 Item 2. Properties 33 Item 3. Legal Proceedings 34 Item 4. Mine Safety Disclosures 34 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 35 Item 6. Selected Financial Data 38 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 45 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 68 Item 8. Financial Statements and Supplementary Data 69 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 123 Item 9A. Controls and Procedures 123 Item 9B. Other Information 125 PART III Item 10. Directors, Executive Officers and Corporate Governance 126 Item 11. Executive Compensation 130 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 147 Item 13. Certain Relationships and Related Transactions, and Director Independence 151 Item 14. Principal Accountant Fees and Services 152 PART IV Item 15. Exhibits and Financial Statement Schedules 153 SIGNATURES 158 EXHIBIT INDEX iTable of ContentsIndex to Financial StatementsPART IINDUSTRY AND MARKET DATAIn this Report, we rely on and refer to information regarding the semiconductor market from Gartner, Inc. (“Gartner”). Market data attributed to Gartneris from “Semiconductor Forecast Database, Worldwide, 4Q13 Update.” Although we believe that this information is reliable, we have not independentlyverified it. We do not have any obligation to announce or otherwise make publicly available updates or revisions to forecasts contained in these documents.In addition, in many cases, we have made statements in this Report regarding our industry and our position in the industry based on our experience in theindustry and our own views of market conditions.Statements made in this Report, unless the context otherwise requires, include the use of the terms “us,” “we,” “our,” the “Company” and“MagnaChip” to refer to MagnaChip Semiconductor Corporation and its consolidated subsidiaries. The term “Korea” refers to the Republic of Korea orSouth Korea.SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSWe have made certain “forward-looking” statements in this Report within the meaning of Section 21E of the Securities Exchange Act of 1934, asamended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), that involve risks and uncertainties.Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, futureperformance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements mayinclude words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connectionwith any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical factsincluded in this Report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptionsmade by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relatingto our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe ourestimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. Inaddition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statementscontained in this Report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due tothe factors listed in the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sectionsand elsewhere in this Report.All forward-looking statements speak only as of the date of this Report. We do not intend to publicly update or revise any forward-looking statementsas a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statementsattributable to us or persons acting on our behalf. “MagnaChip” is a registered trademark of us and our subsidiaries and “MagnaChip Everywhere” is our registered trademark and service mark. All otherproduct, service and company names mentioned in this Report are the service marks or trademarks of their respective owners. 1Table of ContentsIndex to Financial StatementsItem 1. BusinessGeneralWe are a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer, computer andcommunication applications. We believe we have one of the broadest and deepest analog and mixed-signal semiconductor technology platforms in theindustry, supported by our 30-year operating history, large portfolio of approximately 3,167 registered novel patents and 134 pending novel patentapplications and extensive engineering and manufacturing process expertise. Our business is comprised of three key business lines: Display Solutions, PowerSolutions and Semiconductor Manufacturing Services. Our Display Solutions products include display drivers that cover a wide range of flat panel displaysand multimedia devices. Our Power Solutions products include discrete and integrated circuit solutions for power management in high-volume consumer,computer, communication and industrial applications. Our Semiconductor Manufacturing Services provide specialty analog and mixed-signal foundryservices for fabless semiconductor companies that serve the consumer, computing and wireless end markets.Our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our deep technology platform allowus to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands. Our designcenter and substantial manufacturing operations in Korea place us at the core of the global consumer electronics supply chain. We believe this enables us toquickly and efficiently respond to our customers’ needs and allows us to better serve and capture additional demand from existing and new customers.We have a long history of supplying and collaborating on product and technology development with leading innovators in the consumer electronicsmarket. As a result, we have been able to strengthen our technology platform and develop products and services that are in high demand by our customersand end consumers. We sold over 2,100 distinct products in each of the years ended December 31, 2013 and December 31, 2012, with a substantial portion ofour revenues derived from a concentrated number of customers. Our largest Semiconductor Manufacturing Services customers include some of the leadingsemiconductor companies that design analog and mixed-signal products for the consumer, computing and wireless end markets.Our business is largely driven by innovation in the consumer electronics markets and the growing adoption by consumers worldwide of electronicdevices for use in their daily lives. The consumer electronics market is large and growing rapidly, largely due to consumers increasingly accessing a widevariety of rich media content, such as high definition audio and video, mobile television and games on advanced consumer electronic devices. According toGartner, production of liquid crystal display, or LCD televisions, smartphones, and tablet PCs is expected to grow from 2013 to 2016 by a compound annualgrowth rate of 3%, 16%, and 22%, respectively. Electronics manufacturers are continuously implementing advanced technologies in new generations ofelectronic devices using analog and mixed-signal semiconductor components, such as display drivers that enable display of high resolution images,encoding and decoding devices that allow playback of high definition audio and video, and power management semiconductors that increase powerefficiency, thereby reducing heat dissipation and extending battery life. According to Gartner, the worldwide semiconductor market in 2012 was $300billion.For the year ended December 31, 2013, we generated net sales of $734.2 million, net loss of $64.2 million, Adjusted EBITDA of $20.0 million andAdjusted Net Loss of $31.5 million. See “Item 6. Selected Financial Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations” elsewhere in this Report for an explanation of our use of Adjusted EBITDA and Adjusted Net Income and a reconciliation to netincome (loss) prepared in accordance with US GAAP. 2Table of ContentsIndex to Financial StatementsOur HistoryOur business was named “MagnaChip Semiconductor” when it was acquired from SK Hynix Inc., formerly known as Hynix Semiconductor, Inc. (“SKHynix”), in October 2004. We refer to this acquisition as the “Original Acquisition.”On March 10, 2011, we completed our initial public offering, which we refer to as the “MagnaChip IPO.” Prior to the MagnaChip IPO, MagnaChipSemiconductor LLC, a Delaware limited liability company, was converted to MagnaChip Semiconductor Corporation, a Delaware corporation. In order toconsummate such a conversion, a certificate of conversion was filed with the Secretary of State of the State of Delaware prior to the effectiveness of theMagnaChip IPO registration statement. In connection with the corporate conversion, outstanding common units of MagnaChip Semiconductor LLC wereautomatically converted into shares of common stock of MagnaChip Semiconductor Corporation, outstanding options to purchase common units ofMagnaChip Semiconductor LLC were automatically converted into options to purchase shares of common stock of MagnaChip Semiconductor Corporationand outstanding warrants to purchase common units of MagnaChip Semiconductor LLC were automatically converted into warrants to purchase shares ofcommon stock of MagnaChip Semiconductor Corporation, all at a ratio of one share of common stock for eight common units. We refer to such transactionsas the “corporate conversion.”Avenue Capital Management II, L.P., or Avenue Capital Management, is a global investment management firm, and it and its affiliated funds specializein investing in high yield debt, debt of insolvent or financially distressed companies and equity of companies undergoing financial or operationalturnarounds or reorganizations. In this Report, we refer to funds affiliated with Avenue Capital Management collectively as “Avenue.” Avenue was a holderof a significant portion of our indebtedness which was outstanding prior to our 2009 reorganization proceedings under Chapter 11 of the United StatesBankruptcy Code, which we refer to as our “reorganization proceedings.” In connection with our emergence from our reorganization proceedings, Avenuebecame our majority unitholder as a result of its participation in our rights offering in our reorganization proceedings.As of December 31, 2013, Avenue beneficially owned 4,644,939 shares, or approximately 13.4%, of our outstanding common stock, including555,961 shares of common stock issuable upon exercise of outstanding warrants that were currently exercisable as of such date. On November 9, 2014, allwarrants to purchase our common stock previously held by Avenue expired. As of December 31, 2014, Avenue beneficially owned 4,088,978 shares, orapproximately 12.0%, of our outstanding common stock.RestatementAs discussed in the Explanatory Note and in Note 2 to our consolidated financial statements under “Item 8. Financial Statements and SupplementaryData” in this Report, our Audit Committee concluded that certain of the Company’s previously issued financial statements should no longer be relied uponbecause of certain errors in those financial statements and would be restated. As a result of the Independent Investigation process, the Company has not fileda periodic report prior to the filing of this Report since November 2013. Because of the amount of time that has passed since the Company’s last periodicreport was filed with the SEC, the information relating to the Company’s business contained in this Report has been updated in certain circumstances wherethe Company deemed appropriate to include certain information for periods after December 31, 2013.Our Products and ServicesOur Display Solutions line of products provide flat panel display solutions to all major suppliers of large and small flat panel displays, and includeMagnaChip sensor products for mobile applications and industrial applications. These products include source and gate drivers and timing controllers thatcover a wide range of flat panel displays used in UHD, HD, light emitting diode (LED), 3D and OLED televisions and displays, notebooks and mobilecommunications and entertainment devices. Our Display Solutions line of products support the industry’s most advanced display technologies, such asactive matrix organic light emitting diodes (AMOLEDs), and low temperature polysilicons (LTPS), as well as high-volume display technologies such as thinfilm transistors, or TFTs. MagnaChip sensor products are providing a full range of intelligent sensor product families featuring 0.18 micron analog andmixed-signal technology with low power consumption. The MagnaChip sensor families target the growing market for applications ranging from smartphone,tablet, navigation, industrial applications to medical devices. The MagnaChip sensor families include e-Compass and digital Hall sensors. Our DisplaySolutions products represented 27.7%, 35.4%, and 43.6% of our net sales for the fiscal years ended December 31, 2013, 2012 and 2011, respectively.We expanded our business and market opportunity by establishing our Power Solutions product line in late 2007. We have introduced a number ofproducts for power management applications, including metal oxide semiconductor field effect transistors, or MOSFETs, power modules, analog switches,LED drivers, DC-DC and AC-DC converters and linear regulators for a range of devices, including LCD, LED, 3D televisions, smartphones, mobile phones,desktop PCs, notebooks, tablet PCs, other consumer electronics, and industrial applications such as power suppliers, LED lighting and home appliances. OurPower Solutions products represented 18.4%, 15.5% and 11.8% of our net sales for the fiscal years ended December 31, 2013, 2012 and 2011, respectively. 3Table of ContentsIndex to Financial StatementsWe also offer semiconductor manufacturing services to fabless analog and mixed-signal semiconductor companies that require differentiated, specialtyanalog and mixed-signal process technologies. We believe the majority of our top twenty Semiconductor Manufacturing Services customers use us as theirprimary manufacturing source for the products that we manufacture for them. Our process technologies are optimized for analog and mixed-signal devicesand include standard complementary metal-oxide semiconductor (CMOS), high voltage CMOS, ultra-low leakage high voltage CMOS and bipolarcomplementary double-diffused metal oxide semiconductor (BCDMOS) and electronically erasable programmable read only memory (EEPROM). OurSemiconductor Manufacturing Services customers use us to manufacture a wide range of products, including display drivers, LED drivers, audio encodingand decoding devices, microcontrollers, touch screen controllers, RF switches, park distance control sensors for automotive, electronic tag memories andpower management semiconductors. Our Semiconductor Manufacturing Services business represented 53.9%, 49.0% and 44.5% of our net sales for the fiscalyears ended December 31, 2013, 2012 and 2011, respectively.We manufacture all of our products at our three fabrication facilities located in Korea. We have approximately 377 proprietary process flows we canutilize for our products and offer to our Semiconductor Manufacturing Services customers. Our manufacturing base serves both our display driver and powermanagement businesses and Semiconductor Manufacturing Services customers, allowing us to optimize our asset utilization and leverage our investmentsacross our product and service offerings. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by design and processimplementation expertise rather than the use of the most advanced equipment. These processes also tend to migrate more slowly to smaller geometries due totechnological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may notmigrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy does not require substantial investment in leadingedge process equipment, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments.On December 4, 2014, our Board of Directors approved a plan to close the Company’s six-inch fabrication facility in Cheongju, Korea (the “6-inchfab”). This plan is expected to be substantially implemented and the 6-inch fab is expected to be closed by the end of fiscal year 2015. The Company plans totransfer the 6-inch fab employees to the Company’s other facilities.Market OpportunityThe consumer electronics market is large and growing rapidly. Growth in this market is being driven by consumers seeking to enjoy a wide variety ofrich media content, such as high definition audio and video, mobile television and games. Consumer electronics manufacturers recognize that the consumerentertainment experience plays a critical role in differentiating their products. To address and further stimulate consumer demand, electronics manufacturershave been driving rapid advances in the technology, functionality, form factor, cost, quality, reliability and power consumption of their products. Electronicsmanufacturers are continuously implementing advanced technologies in new generations of electronic devices using analog and mixed-signal semiconductorcomponents, such as display drivers that enable display of high resolution images, encoding and decoding devices that allow playback of high definitionaudio and video, and power management semiconductors that increase power efficiency, thereby reducing heat dissipation and extending battery life. Theseadvanced generations of consumer devices are growing faster than the overall consumer electronics market. For example, according to Gartner, production ofliquid crystal display (LCD) televisions, smartphones and tablet PCs is expected to grow from 2013 to 2016 by a compound annual growth rate of 3%, 16%,and 22%, respectively.The user experience delivered by a consumer electronic device is substantially driven by the quality of the display, audio and video processingcapabilities and power efficiency of the device. Analog and mixed-signal semiconductors enable and enhance these capabilities. Examples of these analogand mixed-signal semiconductors include display drivers, timing controllers, audio encoding and decoding devices, or codecs, and interface circuits, as wellas power management semiconductors such as voltage regulators, converters and switches. According to Gartner, the worldwide semiconductor market in2012 was $300 billion.Requirements of Leading Consumer Electronics ManufacturersWe believe our target customers view the following characteristics and capabilities as key differentiating factors among available analog and mixed-signal semiconductor suppliers and manufacturing service providers: • Broad Offering of Differentiated Products with Advanced System-Level Features and Functions. Leading consumer electronics manufacturers seek todifferentiate their products by incorporating innovative semiconductor products that enable unique system-level functionality and enhanceperformance. These consumer electronics manufacturers seek to closely collaborate with semiconductor solutions providers that continuously developnew and advanced products, technologies, and manufacturing processes that enable state of the art features and functions, such as bright and thindisplays, small form factor and energy efficiency. • Fast Time-to-Market with New Products. As a result of rapid technological advancements and short product lifecycles, our target customers typicallyprefer suppliers who have a compelling pipeline of new products and can leverage a substantial intellectual property and technology base to accelerateproduct design and manufacturing when needed. 4Table of ContentsIndex to Financial Statements• Nimble, Stable and Reliable Manufacturing Services. Fabless semiconductor providers who rely on external manufacturing services often face rapidlychanging product cycles. If these fabless companies are unable to meet the demand for their products due to issues with their manufacturing servicesproviders, their profitability and market share can be significantly impacted. As a result, they prefer semiconductor manufacturing service providersthat can increase production quickly and meet demand consistently through periods of constrained industry capacity. Furthermore, many fablesssemiconductor providers serving the consumer electronics and industrial sectors need specialized analog and mixed-signal manufacturing capabilitiesto address their product performance and cost requirements. • Ability to Deliver Cost Competitive Solutions. Electronics manufacturers are under constant pressure to deliver cost-competitive solutions. Toaccomplish this objective, they need strategic semiconductor suppliers that have the ability to provide system-level solutions, highly integratedproducts and a broad product offering at a range of price points and have the design and manufacturing infrastructure and logistical support to delivercost competitive products. • Focus on Delivering Highly Energy-Efficient Products. Consumers increasingly seek longer run-time, environmentally friendly and energy-efficientconsumer electronic products. In addition, there is increasing regulatory focus on reducing energy consumption of consumer electronic products. As aresult of global focus on more environmentally friendly products, our customers are seeking analog and mixed-signal semiconductor suppliers thathave the technological expertise to deliver solutions that satisfy these ever increasing regulatory and consumer power efficiency demands.Our Competitive StrengthsDesigning and manufacturing analog and mixed-signal semiconductors capable of meeting the evolving functionality requirements for consumerelectronics devices is challenging. In order to grow and succeed in the industry, we believe semiconductor suppliers must have a broad, advanced intellectualproperty portfolio, product design expertise, comprehensive product offerings and specialized manufacturing process technologies and capabilities. Ourcompetitive strengths enable us to offer our customers solutions to solve their key challenges. We believe our strengths include: • Advanced Analog and Mixed-Signal Semiconductor Technology and Intellectual Property Platform. We believe we have one of the broadest anddeepest analog and mixed-signal semiconductor technology platforms in the industry. Our long operating history, large patent portfolio, extensiveengineering and manufacturing process expertise and wide selection of analog and mixed-signal intellectual property libraries allow us to leverage ourtechnology and develop new products across multiple end markets. Our product development efforts are supported by a team of approximately 449engineers. Our platform allows us to develop and introduce new products quickly as well as to integrate numerous functions into a single product. Forexample, we were one of the first companies to introduce a commercial AMOLED display driver for mobile phones. • Established Relationships and Close Collaboration with Leading Global Electronics Companies. We have a long history of supplying andcollaborating on product and technology development with leading innovators in the consumer electronics market. Our close customer relationshipshave been built based on many years of close collaborative product development which provides us with deep system level knowledge and keyinsights into our customers’ needs. As a result, we are able to continuously strengthen our technology platform in areas of strategic interest for ourcustomers and focus on those products and services that our customers and end consumers demand the most. • Longstanding Presence in Asia and Proximity to Global Consumer Electronics Supply Chain. Our presence in Asia facilitates close contact with ourcustomers and fast response to their needs, and enhances our visibility into new product opportunities, markets and technology trends. According toGartner, semiconductor consumption in Asia, excluding Japan, is projected to grow to 71% of global consumption by 2016. Our design center andsubstantial manufacturing operations in Korea place us close to many of our largest customers and to the core of the global consumer electronicssupply chain. We have active applications, engineering, product design and customer support resources, as well as senior management and marketingresources, in geographic locations close to our customers. This allows us to strengthen our relationship with customers through better service, fasterturnaround time and improved product design collaboration. We believe this also helps our customers to deliver products faster than their competitorsand to solve problems more efficiently than would be possible with other suppliers. • Broad Portfolio of Product and Service Offerings Targeting Large, High-Growth Markets. We continue to develop a wide variety of analog andmixed-signal semiconductor solutions for multiple high-growth consumer electronics end markets. We believe our expanding product and serviceofferings allow us to provide additional products to new and existing customers and to cross-sell our products and services to our establishedcustomers. For example, we have leveraged our technology expertise and customer relationships to develop and grow power management solutions tocustomers. Our power management solutions enable our customers to increase system stability and reduce heat dissipation and energy use, resulting incost savings for our customers, as well as environmental benefits. We have been able to sell these new products to our existing customers as well asexpand our customer base. • Distinctive Analog and Mixed-Signal Process Technology Expertise and Manufacturing Capabilities. We have developed specialty analog andmixed-signal manufacturing processes such as high voltage CMOS, power and embedded memory. These processes enable us to flexibly ramp massproduction of display, power and mixed-signal products, and shorten the duration from design to delivery of highly integrated, high-performanceanalog and mixed-signal semiconductors. 5Table of ContentsIndex to Financial Statements• Highly Efficient Manufacturing Capabilities. Our manufacturing strategy is focused on optimizing our asset utilization across our display driver andpower management products as well as our semiconductor manufacturing services, which enables us to maintain the price competitiveness of ourproducts and services through our low-cost operating structure and improve our operational efficiency. We believe the location of our primarymanufacturing and research and development facilities in Asia and the relatively low need for ongoing capital expenditures provide us with a numberof cost advantages. We offer specialty analog process technologies that do not require substantial investment in leading edge, smaller geometry processequipment. We are able to utilize our manufacturing base over an extended period of time and thereby minimize our capital expenditure requirements.Our StrategyOur objective is to grow our business, our cash flow and profitability and to establish our position as a leading provider of analog and mixed-signalsemiconductor products and services for high-volume markets. Our business strategy emphasizes the following key elements: • Leverage Our Advanced Analog and Mixed-Signal Technology Platform to Innovate and Deliver New Products and Services. We intend to continueto utilize our extensive patent and technology portfolio, analog and mixed-signal design and manufacturing expertise and specific end-marketapplications and system-level design expertise to deliver products with high levels of performance by utilizing our systems expertise and leveragingour deep knowledge of our customers’ needs. For example, in Power Solutions, we have utilized our extensive patent portfolio, process technologiesand analog and mixed-signal technology platform to develop low power integrated power solutions for AC-DC offline switchers to address more of ourcustomers’ needs. In Display Solutions, we continue to invest in research and development to introduce new technologies to support our customers’technology roadmaps. In Semiconductor Manufacturing Services, we are developing cost-effective processes that substantially reduce die size usingdeep trench isolation. • Increase Business with Existing Customers. We have a global customer base consisting of leading consumer electronics OEMs that sell into multipleend markets. We intend to continue to strengthen our relationships with our customers by collaborating on critical design and product development inorder to improve our design-win rates. We seek to increase our customer penetration by more closely aligning our product roadmap with those of ourkey customers and take advantage of our broad product portfolio, our deep knowledge of customer needs and existing relationships to sell moreexisting and new products. For example, two of our largest display driver customers have display modules in production using our power managementproducts. These power management products have been purchased and evaluated via their key subcontractors for LCD backlight units and LCDintegrated power supplies. • Broaden Our Customer Base. We expect to continue to expand our global design centers, local application engineering support and sales presence,particularly in China, Hong Kong, Taiwan and Macau, or collectively, Greater China, and other high-growth geographies, to penetrate new accounts. Inaddition, we intend to introduce new products and variations of existing products to address a broader customer base. In order to broaden our marketpenetration, we are complementing our direct customer relationships and sales with an improved base of distributors, especially to aid the growth of ourpower management business. We expect to continue to strengthen our distribution channels as we broaden our power management penetration beyondexisting customers. • Aggressively Grow the Power Business. We have utilized our extensive patent portfolio, process technologies, captive manufacturing facilities andanalog and mixed-signal technology platform to develop power management solutions that expand our market opportunity and address more of ourcustomers’ needs. We intend to increase the pace of our new power product introductions by continuing to collaborate closely with our industry-leading customers. For example, we began mass production of our first integrated power solution for LCD televisions at one of our major Koreancustomers in early 2010, and became a major supplier of the product within two years. We also intend to capitalize on the market needs and regulatoryrequirements for power management products that reduce energy consumption of consumer electronic products by introducing products that are moreenergy efficient than those of competitors. We believe our integrated designs, low-cost process technologies and deep customer relationships willenable us to increase sales of our power solutions to our current Power Solutions customers, and as an extension of our other product offerings, to ourother customers. • Drive Execution Excellence. We intend to improve our execution through a number of management initiatives, new processes for productdevelopment, customer service and personnel development. We expect these ongoing initiatives will continue to improve our new productdevelopment and customer service as well as enhance our commitment to a culture of quick action and execution by our workforce. In addition, wehave focused on and continually improved our manufacturing efficiency during the past several years. • Optimize Asset Utilization, Return on Capital Investments and Cash Flow Generation. We intend to keep our capital expenditures relatively low bymaintaining our focus on specialty process technologies that do not require substantial investment in frequent upgrades to the latest manufacturingequipment. By utilizing our manufacturing facilities for both our Display Solutions and Power Solutions products and our SemiconductorManufacturing Services customers, we seek to maximize return on our capital investments and our cash flow generation. 6Table of ContentsIndex to Financial StatementsOur TechnologyWe continuously strengthen our advanced analog and mixed-signal semiconductor technology platform by developing innovative technologies andintegrated circuit building blocks that enhance the functionality of consumer electronics products through brighter, thinner displays, enhanced imagequality, smaller form factor and longer battery life. We seek to further build our technology platform through proprietary research and development andselective licensing and acquisition of complementary technologies, as well as disciplined process improvements in our manufacturing operations. Our goal isto leverage our experience and development initiatives across multiple end markets and utilize our understanding of system-level issues our customers faceto introduce new technologies that enable our customers to develop more advanced, higher performance products.For example, in 2013, we introduced a range of intelligent sensor product families featuring 0.18 micron mixed signal & analog technology with lowpower consumption. The MagnaChip sensor families include e-Compass and digital Hall sensors. MagnaChip’s intelligent sensors provide cost-effectivefeatures such as small form-factor, multi-function integration and low power consumption as a result of its use of 0.18 micron analog and mixed-signaltechnology and advanced design capabilities.Our display technology portfolio includes building blocks for display drivers and timing controllers, processor and interface technologies, as well assophisticated production techniques, such as chip-on-glass (COG), which enables the manufacture of thinner displays. Our advanced display driversincorporate LTPS and AMOLED panel technologies that enable the highest resolution displays. Furthermore, we are developing a broad intellectual propertyportfolio to improve the power efficiency of displays, including the development of our contents-based automatic brightness control (CABC) and automaticcurrent limit (ACL).We have a long history of specialized process technology development and have a number of distinctive process implementations. We haveapproximately 377 process flows we can utilize for our products and offer to our Semiconductor Manufacturing Services customers. Our process technologiesinclude standard CMOS, high voltage CMOS, ultra-low leakage high voltage CMOS, low noise CMOS with embedded BCD and BCDMOS. Ourmanufacturing processes incorporate embedded memory solutions, such as static random access memory (SRAM), one-time programmable (OTP) memory,multiple-time programmable (MTP) memory, electrical fuse, EEPROM and single-transistor random access memory (1TRAM). More broadly, we focusextensively on processes that reduce die size across all of the products we manufacture, in order to deliver cost-effective solutions to our customers.Expertise in ultra-high voltage (UHV), high voltage and deep trench BCDMOS process technologies, low power analog and mixed-signal designcapabilities and packaging know-how are key requirements in the power management market. We are currently leveraging our capabilities in these areas withproducts such as AC-DC converters, DC-DC converters, linear regulators, including LDO, regulators and analog switches and power MOSFETs. We believeour system-level understanding of applications such as LCD televisions and mobile phones will allow us to more quickly develop and customize powermanagement solutions for our customers in these markets.Products and Services by Business LineOur broad portfolio of products and services addresses multiple high-growth, consumer-focused end markets. A key component of our product strategyis to supply multiple related product and service offerings to each of the end markets that we serve.Display SolutionsDisplay Driver Characteristics. Display drivers deliver defined analog voltages and currents that activate pixels to exhibit images on displays. Thefollowing key characteristics determine display driver performance and end-market application: • Resolution and Number of Channels. Resolution determines the level of detail displayed within an image and is defined by the number of pixels perline multiplied by the number of lines on a display. For large displays, higher resolution typically requires more display drivers for each panel. Displaydrivers that have a greater number of channels, however, generally require fewer display drivers for each panel and command a higher selling price perunit. Mobile displays, conversely, are typically single chip solutions designed to deliver a specific resolution. We cover resolutions ranging fromWQVGA (240RGB x 432) to UHD (3840 x 2160). • Color Depth. Color depth is the number of colors that can be displayed on a panel. For example, for TFT-LCD panels, 262 thousand colors aresupported by 6-bit source drivers; 16 million colors are supported by 8-bit source drivers; and 1 billion colors are supported by 10-bit source drivers. • Operational Voltage. Display drivers are characterized by input and output voltages. Source drivers typically operate at input voltages from 1.62 to 3.6volts and output voltages between 9 and 18 volts. Gate drivers typically operate at input voltages from 1.8 to 3.6 volts and output voltages from 30 to40 volts. Lower input voltage results in lower power consumption and electromagnetic interference (EMI). 7Table of ContentsIndex to Financial Statements• Gamma Curve. The relationship between the light passing through a pixel and the voltage applied to the pixel by the source driver is referred to as thegamma curve. The gamma curve of the source driver can correct some imperfections in picture quality in a process generally known as gammacorrection. Some advanced display drivers feature up to three independent gamma curves to facilitate this correction. • Driver Interface. Driver interface refers to the connection between the timing controller and the display drivers. Display drivers increasingly requirehigher bandwidth interface technology to address the larger data transfer rate necessary for higher definition images. The principal types of interfacetechnologies are embedded clock point to point interface (EPI), advance intra panel interface (AIPI), mini-low voltage differential signaling (m-LVDS),ultra slim interface (USI) and mobile industry processor interface (MIPI). • Package Type. The assembly of display drivers typically uses chip-on-film (COF) and COG package types.Large Display Solutions. We provide display solutions for a wide range of flat panel display sizes used in LCD televisions, including ultra-highdefinition televisions, or UHD TVs, HD TVs, LED TVs, 3D TVs, OLED televisions, LCD monitors, notebooks, ultrabooks and tablet PCs.Our large display solutions include source and gate drivers and timing controllers with a variety of interfaces, voltages, frequencies and packages tomeet customers’ needs. These products include advanced technologies such as high channel count, with products in mass production to provide up to 1,440channels. Our large display solutions are designed to allow customers to cost-effectively meet the increasing demand for high resolution displays. We focusextensively on reducing the die size of our large display drivers and other solutions products to reduce costs without having to migrate to smaller geometries.For example, we have implemented several solutions to reduce die size in large display drivers, such as optimizing design schemes and design rules andapplying specific technologies that we have developed internally. We have recently introduced a number of new large display drivers with reduced die size.The table below sets forth the features of our products, both in mass production and in customer qualification, which is the final stage of productdevelopment, for large-sized displays: Product Key Features ApplicationsTFT-LCD Source Drivers • 480 to 1440 output channels• 6-bit (262 thousand colors), 8-bit (16 millioncolors), 10-bit (1 billion colors)• Output voltage ranging from 9V to 18V• Low power consumption and low EMI• COF package types• EPI, m-LVDS, AiPi, USI interface technologies • UHD/HD/LED/3D TVs• Ultrabooks, notebooks• LCD/LED monitors• Automotive*TFT-LCD Gate Drivers • 272 to 768 output channels• Output voltage ranging from 30V to 40V• COF and COG package types • Tablet PCs• HD/LED/3D TVs• NotebooksTiming Controllers • Wide range of resolutions• EPI, m-LVDS, AIPI, MIPI interface technologies• Input voltage ranging from 1.6V to 3.6V • Tablet PCs• Notebooks• LCD/3D monitorsAMOLED Source Drivers • 960* output channels• 10 bit (1 billion colors)• Output voltage: 18V• COF package type• EPI interface technology • OLED TVs *In customer qualification stageMobile Display Solutions. Our mobile display solutions incorporate the industry’s most advanced display technologies, such as AMOLED and LTPS,as well as high-volume technologies such as a-Si (amorphous silicon) TFT. Our mobile display products offer specialized capabilities, including high speedserial interfaces, such as mobile display digital interface (MDDI), MIPI, reduced swing differential signaling interface (RSDS) and logic-based OTP memory.We focus extensively on reducing the die size of our mobile display drivers and other solutions products to reduce costs without having to migrate to smallergeometries. For example, we have implemented several solutions to reduce die size in mobile display drivers, such as optimizing 8Table of ContentsIndex to Financial Statementsdesign schemes and design rules and applying specific technologies that we have developed internally. Further, we are building a distinctive intellectualproperty portfolio that allows us to provide features that reduce power consumption, such as CABC and ACL. This intellectual property portfolio will alsosupport our power management product development initiatives, as we leverage our system level understanding of power efficiency.The following table summarizes the features of our products, both in mass production and in customer qualification, which is the final stage of productdevelopment, for mobile displays: Product Key Features ApplicationsAMOLED • Resolutions of WVGA, QHD, WXGA and FHD• Color depth 16 million• MIPI interface• Logic-based OTP• ABC, ACL • Smartphones• Game consoles• Digital still cameras• Tablet PCsLTPS • Resolutions of WQVGA, VGA, WSVGA,WVGA and DVGA• Color depth 16 million• MDDI, MIPI interface• Logic-based OTP• Separated gamma control • Smartphones• Game consoles• Digital still camerasa-Si TFT • Resolutions of WQVGA, HVGA and WVGA• Color depth 16 million• RSDS, MDDI, MIPI interface• CABC• Separated gamma control • Smartphones• Mobile phones• Game consoles• Digital still cameras• Automotive Sensor IC Solutions. We provide a range of intelligent sensor product families featuring 0.18 micron analog and mixed-signal technology with lowpower consumption. The MagnaChip sensor families target the growing market for applications ranging from smartphone, tablet PC, and navigation tomedical devices. The MagnaChip sensor families include e-Compass and digital Hall sensors. MagnaChip’s intelligent sensors provide cost-effective featuressuch as small form-factor and multi-function integration as a result of its use of 0.18 micron analog and mixed-signal technology and advanced designcapabilities, as compared to currently available products.Sensors are used for many applications and their use is growing rapidly. Furthermore, today’s increasingly sophisticated devices require an emergingclass of intelligent sensors in mass volume. For instance, in handheld devices magnetic sensors are essential to implement compass-functionality and todetect the timing of opening and closing of a flip cover. MagnaChip’s intelligent sensor families address these magnetic sensor requirements with a new styleof design made possible by integrating multiple functions.The following table summarizes the features of our products, both in mass production and in customer qualification, which is the final stage of productdevelopment, for sensor IC: Product Key Features ApplicationsElectronic Compass IC • 0.18 micron low-noise technology• Compass algorithm and magnetic fieldscanning• 16-bit sigma-delta analog-digital convertor• I2C bus interface • Smartphones• Tablet PCs 9Table of ContentsIndex to Financial StatementsProduct Key Features ApplicationsDigital Hall Sensor IC • 0.18 micron low-noise mixed-signaltechnology• Proprietary Hall technology• 10-bit analog-digital converter andembedded logic controller• I2C digital interface • Smartphones• Tablet PCsPower SolutionsWe develop, manufacture and market power management solutions for a wide range of end-market customers. The products include MOSFETs, powermodules, LED drivers, DC-DC converters, AC-DC converters, analog switches and linear regulators, such as LDOs. • MOSFETs. Our MOSFETs include low-voltage Trench MOSFETs, 20V to 100V, high-voltage Planar MOSFETs, 200V through 700V, and superjunction MOSFETs, 600V through 700V. MOSFETs are used in applications to switch, shape or transfer electricity under varying power requirements.The key application segments are smartphones, mobile phones, LCD, LED and 3D televisions, desktop PCs, notebooks, tablet PCs, servers, lightingand power supplies for consumer electronics and industrial equipment. MOSFETs allow electronics manufacturers to achieve specific design goals ofhigh efficiency and low standby power consumption. For example, computing solutions focus on delivering efficient controllers and MOSFETs forpower management in VCORE, DDR and chipsets for audio, video and graphics processing systems. • Power Modules. Power modules are used in broad range of medium-to-high power industrial applications and in many consumer appliances such asUPSs, power supplies, motor drives, solar inverters, welding machines, refrigerators and air conditioners. • LED Drivers. LED backlighting drivers serve the fast-growing LCD panel backlighting market for LCD, LED and 3D televisions, LCD monitors,notebooks, smartphones and tablet PCs. Our products are designed to provide high efficiency and wide input voltage range, as well as PWM dimmingfor accurate white LED dimming control. LED lighting drivers have a wide input voltage range applicable to incandescent bulb and fluorescent lampreplacement. • DC-DC and AC-DC Converters. We offer DC-DC and AC-DC converters targeting mobile applications and high power applications like LCDtelevisions, notebooks, smartphones, mobile phones and display modules. We expect our DC-DC and AC-DC converters will meet customer greenpower requirements by featuring wide input voltage ranges, high efficiency and small size. • Analog Switches and Linear Regulators. We also provide analog switches and linear regulators for mobile applications. Our products are designed forhigh efficiency and low power consumption in mobile applications.Our power management solutions enable customers to increase system stability and reduce heat dissipation and energy use, resulting in cost savings forour customers and consumers, as well as environmental benefits. Our in-house process technology capabilities and eight-inch wafer production lines increaseefficiency and contribute to the competitiveness of our products.The following table summarizes the features of our products, both in mass production and in customer qualification, which is the final stage of productdevelopment: Product Key Features ApplicationsLow Voltage MOSFET • Voltage options of 20V-100V• Advanced Trench MOSFET Process• High cell density• Advanced packages to enable reduction ofPCB mounting area • Smartphones and mobile phones• Tablet PCs• Ultrabooks and notebooks• LCD/LED/3D TVs• Desktop PCs• Servers 10Table of ContentsIndex to Financial StatementsProduct Key Features ApplicationsHigh Voltage MOSFET • Voltage options of 200V-700V• R2FET (rapid recovery) option to shortenreverse diode recovery time• Zenor FET option for MOSFET protection forabnormal input• Advanced Planar MOSFET Process• Advanced packages to enable reduction ofPCB mounting area • Tablet PC/mobile phone adaptors• Power supplies for consumer electronics• Industrial chargers and adaptors• Lighting (ballast, HID, LED)• Industrial equipment• LCD/LED/3D TVsSuper Junction MOSFET • Voltage options of 600V-700V• Low R• Epi stack process • LCD/LED/3D TVs• Lightings (ballast, HID, LED)• Smartphones• Notebooks• ServersPower Modules • Voltage options of 400V/600V/ 1200V• IGBT modules/FRD modules• PIM (Power Integrated Module)• Current options from 50A to 450A • Industrial applications• Consumer appliancesLED Backlighting Drivers • High efficiency, wide input voltage range• Advanced BCDMOS process• OCP, SCP, OVP and UVLO protections• Accurate LED current control and multi-channel matching• Programmable current limit, boost upfrequency • Tablet PCs and notebooks• Smartphones• LED/3D TVs• LED monitors 11DS(ON)Table of ContentsIndex to Financial StatementsProduct Key Features ApplicationsLED Lighting Drivers • High efficiency, wide input voltage range• Simple solutions with external componentsfully integrated• Advanced high voltage BCDMOS process• Accurate LED current control and high powerfactor and low THB • AC and DC LED lightingDC-DC Converters • High efficiency, wide input voltage range• Advanced BCDMOS process• Fast load and line regulation• Accurate output voltage• OCP, SCP and thermal protections • LCD/LED/3D TVs• Smartphones/mobile phones• NotebooksAC-DC Converter • Wide control range for high powerapplication (>150W)• Advanced BCDMOS process• High Precision Voltage Reference• Very low startup current consumption • LCD/LED/3D TVsAnalog Switches USB Switches• Low C (on), 7.0pF (typical) limits signaldistortion• Low R (on), 4.0 W (typical)• Advanced CMOS processAudio Switches• Negative Swing Support• Low R (on), 0.4 W (typical)• High ESD protection, 13kV• Advanced CMOS process • Mobile phonesLinear Regulators • Single LDOs• Low Noise Output Linear µCap LDORegulator• 2.3V to 5.5V input voltage and 150mA,300mA output current• Small package size of DFN type• Advanced CMOS process • Mobile phones Semiconductor Manufacturing ServicesWe provide semiconductor manufacturing services to analog and mixed-signal semiconductor companies. We have approximately 377 process flowswe offer to our Semiconductor Manufacturing Services customers. We also partner with key customers to jointly develop or customize specialized processesthat enable our customers to improve their products and allow us to develop unique manufacturing expertise.Our Semiconductor Manufacturing Services are targeted at customers who require differentiated, specialty analog and mixed-signal processtechnologies such as high voltage CMOS, embedded memory and power. We refer to our approach of delivering specialized services to our customers as ourapplication-specific technology strategy. We differentiate ourselves through the depth of our intellectual property portfolio, ability to customize processtechnology to meet the customers’ requirements effectively, long history in this business and reputation for excellence.Our Semiconductor Manufacturing Services customers typically serve high-growth and high-volume applications in the consumer, computing andwireless end markets. We strive to be the primary manufacturing source for our Semiconductor Manufacturing Services customers. 12Table of ContentsIndex to Financial StatementsProcess Technology Overview • Mixed-Signal. Mixed-signal process technology is used in devices that require conversion of light and sound into electrical signals for processing anddisplay. Our mixed-signal processes include advanced technologies such as low-noise process using triple gate, which uses less power at any givenperformance level. Micro-electromechanical (MEMS) process technology allows the manufacture of components that use electrical energy to generatea mechanical response. For example, MEMS devices are used in the accelerometers and gyroscopes of mobile phones. • Power. Power process technology, such as BCD, includes high-voltage capabilities as well as the ability to integrate functionalities, such as self-regulation, internal protection and other intelligent features. Unique process features, such as deep trench isolation, are suited for chip shrink anddevice performance enhancement. • High Voltage CMOS. High-voltage CMOS process technology facilitates the use of high-voltage levels in conjunction with smaller transistor sizes.This process technology includes several variations, such as bipolar processes, which use transistors with qualities well suited for amplifying andswitching applications, mixed-mode processes, which incorporate denser, more power efficient FETs, and thick metal processes. • Non-Volatile Memory. Non-volatile memory (NVM), process technology enables the integration of non-volatile memory cells that allow retention ofthe stored information even when power is removed from the circuit. This type of memory is typically used for long-term persistent storage.The table below sets forth the key process technologies in Semiconductor Manufacturing Services that we currently offer to customers: Process Technology Device ApplicationMixed-Signal • 0.13-0.8µm• Low noise• Ultra low power• Triple gate • Analog to digital converter• Digital to analog converter• Audio codec• Chipset• RF switch• Digital tunable capacitor • Smartphones• Tablet PCs• Ultrabooks• PC peripherals• DVDsPower • 0.18-0.5µm• BCD• Deep trench isolation• MOSFET• Schottky diode• Zener diode• Ultra high voltage• Thick metal • Power management• LED driver• High power audio amp• Power Over Ethernet• DC/DC converter • Smartphones• Tablet PCs• Ultrabooks• LCD TVs• LED lighting• LCD monitors• Automotive 13Table of ContentsIndex to Financial StatementsProcess Technology Device ApplicationHigh-Voltage CMOS • 0.11-2.0µm• 5V-200V• Bipolar • Display driver• CSTN driver • Smartphones• Tablet PCs• LCD TVs• Desktop PCs• LCD monitorsNVM • 0.13-0.5µm• EEPROM• eFlash• OTP • Microcontroller• Touch screen controller• Electronic tag memory• Hearing aid controller • Smartphones• Tablet PCs• Industrial controllers• Medical equipment• Park distance control sensorsfor automotive• Game consolesSales and MarketingWe focus our sales and marketing strategy on continuing to grow and leverage our existing relationships with leading consumer electronics OEMs,while expanding into industrial and automotive end markets. For Semiconductor Manufacturing Services foundry, we focus on analog and mixed-signalsemiconductor companies who see the benefit of our innovative technology and cost structure. We believe our close collaboration with customers allows usto align our product and process technology development with our customers’ existing and future needs. Because our customers often service multiple endmarkets, our product sales teams are organized by customers within the major geographies. We believe this facilitates the sale of products that addressmultiple end-market applications to each of our customers. Our Semiconductor Manufacturing Services sales teams focus on marketing our services to analogand mixed-signal semiconductor companies that require specialty manufacturing processes.We sell our products through a direct sales force and a network of authorized agents and distributors. We have strategically located our sales andtechnical support offices near our customers. Our direct sales force consists primarily of representatives co-located with our design center in Korea, as well asour local sales and support offices in the United States, Japan, Greater China and Europe. We have a network of agents and distributors in Korea, the UnitedStates, Japan, Greater China and Europe. For the years ended December 31, 2013 and 2012, we derived 65% and 75% of net sales through our direct salesforce, respectively, and 35% and 25% of net sales through our network of authorized agents and distributors, respectively.Research and DevelopmentOur research and development efforts focus on intellectual property, design methodology and process technology for our complex analog and mixed-signal semiconductor products and services. Research and development expenses for the years ended December 31, 2013, 2012 and 2011, were $87.9million, $76.3 million and $76.6 million, respectively, representing 12.0%, 9.4% and 10.3% of net sales, respectively.CustomersWe sell our Display Solutions and Power Solutions products and Sensor solutions to consumer, computing and industrial electronics OEMs, originaldesign manufacturers and electronics manufacturing services companies, as well as subsystem designers. We sell our semiconductor manufacturing servicesto analog and mixed-signal semiconductor companies. For the years ended December 31, 2013, 2012 and 2011, our ten largest customers accounted for 59%,61% and 60% of our net sales, respectively. Substantially all of our sales to these customers are in our Display Solutions line. For the year ended December31, 2013, sales to Samsung Display Corporation represented 11.3% of the Company’s net sales and 40.9% of our Display Solutions division’s net sales. Forthe year ended December 31, 2012, sales to LG Display represented 11.5% of the Company’s net sales and 31.9% of our Display Solutions division’s netsales. For the year ended December 31, 2013, we recorded revenues of $100.8 million from customers in the United States and $633.4 million from all foreigncountries, of which 49.5% was from Korea, 23.4% from Taiwan, 3.4% from Japan and 15.2% from Greater China. For the year ended December 31, 2012, werecorded revenues of $124.5 million from customers in the United States and $682.9 million from all foreign countries, of which 53.6% was from Korea,19.0% from Taiwan, 3.5% from Japan and 15.0% from Greater China.Intellectual PropertyAs of December 31, 2013, our portfolio of intellectual property assets included approximately 4,045 registered patents and 344 pending patentapplications. Approximately 3,167 and 134 of our patents and pending patents are novel in that they are not a foreign counterpart of an existing patent orpatent application. Because we file patents in multiple jurisdictions, we additionally have approximately 1,088 registered and pending patents that relate toidentical technical claims in our base patent portfolio. Our patents expire at various times approximately over the next 18 years. While these patents are inthe aggregate important to our competitive position, we do not believe that any single registered or pending patent is material to us. 14Table of ContentsIndex to Financial StatementsWe have entered into exclusive and non-exclusive licenses and development agreements with third parties relating to the use of intellectual propertyof the third parties in our products and design processes, including licenses related to embedded memory technology, design tools, process simulation tools,circuit designs and processor cores. Some of these licenses, including our agreements with Silicon Works Co., Ltd. and ARM Limited, are material to ourbusiness and may be terminated by the licensors prior to the expiration of these licenses should we fail to cure any breach under such licenses. Our licensewith Silicon Works Co., Ltd. relates to our large display drivers, and our license from ARM Limited primarily relates to product lines in our SemiconductorManufacturing Services business. The loss of either license could have a material adverse impact on our results of operations. Additionally, in connectionwith the Original Acquisition, SK Hynix retained a perpetual license to use the intellectual property that we acquired from SK Hynix in the OriginalAcquisition. Under this license, SK Hynix and its subsidiaries are free to develop products that may incorporate or embody intellectual property developedby us prior to October 2004.CompetitionWe operate in highly competitive markets characterized by rapid technological change and continually advancing customer requirements. Althoughno one company competes with us in all of our product lines, we face significant competition in each of our market segments. Our competitors include otherindependent and captive manufacturers and designers of analog and mixed-signal integrated circuits, including display driver and power managementsemiconductor devices, as well as companies providing specialty manufacturing services.We compete based on design experience, manufacturing capabilities, the ability to service customer needs from the design phase through the shippingof a completed product, length of design cycle and quality of technical support and sales personnel. Our ability to compete successfully will depend oninternal and external variables, both within and outside of our control. These variables include the timeliness with which we can develop new products andtechnologies, product performance and quality, manufacturing yields, capacity availability, customer service, pricing, industry trends and general economictrends.EmployeesOur worldwide workforce consisted of 3,479 employees (full- and part-time) as of December 31, 2013, of which 420 were involved in sales, marketing,general and administrative, 449 in research and development (including 237 with advanced degrees), 118 in quality, reliability and assurance and 2,492 inmanufacturing (comprised of 369 in engineering and 2,123 in operations). As of December 31, 2013, 2,241 employees, or approximately 64% of ourworkforce, were represented by the MagnaChip Semiconductor Labor Union. As of December 31, 2014, our workforce consisted of 3,399 employees, ofwhich 2,144 employees, or approximately 63% of our workforce, were represented by the MagnaChip Semiconductor Labor Union.EnvironmentalWe are subject to a variety of environmental, health and safety laws and regulations in each of the jurisdictions in which we operate, governing, amongother things, air emissions, wastewater discharges, the generation, use, handling, storage and disposal of, and exposure to, hazardous substances (includingasbestos) and waste, soil and groundwater contamination and employee health and safety. These laws and regulations are complex, change frequently andhave tended to become more stringent over time. For example, the Korean government’s Enforcement Decree to the Framework Act on Low Carbon GreenGrowth became effective in April 2010. Certain designated businesses, including our Korean subsidiary, were required to submit plans to reduce greenhouseemissions and energy consumption. Our Korean subsidiary set emissions and consumption targets and in 2011 negotiated an implementation plan withKorean governmental authorities. Each year thereafter, our Korean subsidiary was required to agree on emissions and consumption targets with Koreangovernmental authorities and submit an independently verified report of prior year’s compliance. Beginning in 2015, our Korean subsidiary became subjectto a new set of greenhouse gas emissions regulation, the Korean Emissions Trading Scheme, or K-ETS, under the Act on Allocation and Trading ofGreenhouse Gas Emission Allowances. Under K-ETS, our Korean subsidiary was allocated a certain amount of emissions allowance in accordance with theNational Allocation Plan prepared by the Korean government and will be required to meet its allocated target by either reducing the emission or purchasingthe allowances from other participants in the emission trading market. There can be no assurance that we have been or will be in compliance with all of theselaws and regulations, or that we will not incur material costs or liabilities in connection with these laws and regulations in the future. The adoption of newenvironmental, health and safety laws and the failure to comply with new or existing laws or issues relating to hazardous substances could subject us tomaterial liability (including substantial fines or penalties), impose the need for additional capital equipment or other process requirements upon us, curtailour operations or restrict our ability to expand operations. 15Table of ContentsIndex to Financial StatementsRaw MaterialsWe use processes that require specialized raw materials that are generally available from a limited number of suppliers. We continue to attempt toqualify additional suppliers for our raw materials. The SEC, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,adopted new disclosure regulations for public companies that manufacture products containing certain minerals that are mined from the Democratic Republicof Congo and adjoining countries. These “conflict minerals” are commonly found in metals used in the manufacture of semiconductors. The implementationof these new requirements could adversely affect the sourcing, availability and pricing of metals used in the manufacture of our products. See “Item 1A. RiskFactors—Risks Related to Our Business—Compliance with new regulations regarding the use of “conflict minerals” could limit the supply and increase thecost of certain raw materials used in manufacturing our products.”Geographic Financial InformationFor a description of the distribution of our net sales by geographic region, see “Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations—Results of Operations—Comparison of Years Ended December 31, 2013 and 2012—Net Sales by Geographic Region,” “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Comparison of Years EndedDecember 31, 2012 and December 31, 2011—Net Sales by Geographic Region” and “Note 19. Geographic and Segment Information” to our consolidatedfinancial statements under “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Report.Available InformationOur principal executive offices are located at: c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520 Luxembourg, Grand Duchy ofLuxembourg, and our telephone number is (352) 45-62-62. Our website address is www.magnachip.com. Our annual, quarterly and current reports onForms 10-K, 10-Q or 8-K, respectively, and all amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, can be accessed,free of charge, at our website as soon as practicable after such reports are filed with the SEC. In addition, our Corporate Governance Guidelines, Code ofBusiness Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter and RiskCommittee Charter are available on our website. Information contained on our website does not constitute, and shall not be deemed to constitute, part of thisReport and shall not be deemed to be incorporated by reference into this Report.You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You mayobtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site,www.sec.gov, from which you can access our annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K, respectively, and all amendments to thesematerials after such reports and amendments are filed with the SEC. In addition, you may request a copy of any of these filings, at no cost, by writing ortelephoning us at the following address or phone number: c/o MagnaChip Semiconductor, Inc., 20400 Stevens Creek Boulevard, Suite 370, Cupertino,CA 95014, Attention: General Counsel and Secretary; the telephone number at that address is (408) 625-5999.Item 1A. Risk FactorsYou should carefully consider the risk factors set forth below as well as the other information contained in this Report. Any of the following riskscould materially and adversely affect our business, financial condition or results of operations. As a result, the price of our common stock could decline andyou could lose all or part of your investment in our common stock. Additional risks and uncertainties not currently known to us or those currently viewed byus to be immaterial may also materially and adversely affect our business, financial condition or results of operations.Risks Related to the Restatement, Failure to File Timely Periodic Reports with the SEC and Our Internal Control Over Financial ReportingWe face risks related to the Restatement and being delayed in our SEC reporting obligations if we are unable to resume a timely filing schedule.As discussed in this Report in the Explanatory Note and in Note 2 to our consolidated financial statements under “Item 8. Financial Statements andSupplementary Data” in this Report, our Audit Committee concluded that certain of the Company’s previously issued financial statements should no longerbe relied upon because of certain errors in those financial statements.As a result of the Restatement, our SEC reporting obligations have been delayed prior to the filing date of this Report and the concurrent filing of our2014 Form 10-Qs, and we cannot assure when we will resume a timely filing schedule with respect to our future SEC reports, including our Annual Report onForm 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”), for which there is significant risk that we will be unable to timely file. Even afterwe complete this Report and the concurrent filing of our 2014 Form 10-Qs, we expect to continue to face many of the risks and challenges related to theRestatement, including the following: • we may fail to remediate material weaknesses in our internal control over financial reporting and other material weaknesses may be identified in thefuture, which would adversely affect the accuracy and timing of our financial reporting; 16Table of ContentsIndex to Financial Statements• the processes undertaken to effect the Restatement may not have been adequate to identify and correct all errors in our historical financial statementsand, as a result, we may discover additional errors and our financial statements remain subject to the risk of future restatement; • our failure to have current financial information available; • the risks associated with the failure to timely file all of our SEC reports and consequences of prior or future defaults arising under our bond indenturerelated to our reporting obligations contained therein; • the risk that the delay in filing our annual report and any failure to satisfy other New York Stock Exchange (“NYSE”) listing requirements could causethe NYSE to commence suspension or delisting procedures with respect to our common stock; • the outcome of litigation and claims as well as regulatory examinations, investigations, proceedings and orders arising out of the Restatement and thefailure by the Company to file SEC reports on a timely basis; • further downgrades or withdrawals of our debt or financial strength credit ratings, which could adversely affect our relationships with distributors andreduce new sales and would increase our costs of, or reduce our access to, future borrowings; • our limitations in entering into certain foreign exchange hedging contracts due to our credit ratings or other issues related to the Restatement; • the incurrence of significant Restatement-related expenses; • diversion of management and other human resources attention from the operation of our business; and • the possible unavailability or higher costs of financing options to fund our ongoing operations or refinance existing indebtedness resulting from theRestatement and the delayed filing of this Report and the 2014 Form 10-Qs.We cannot assure that all of the risks and challenges described above will be eliminated and that lost business opportunities can be recaptured or thatgeneral reputational harm will not persist. If one or more of the foregoing risks or challenges persist, our business, operations and financial condition arelikely to be materially and adversely affected.We have concluded that there are material weaknesses in our internal control over financial reporting, which have adversely affected our ability to timelyand accurately report our results of operations and financial condition. These material weaknesses have not been fully remediated as of the filing date ofthis Report and we cannot assure that other material weaknesses will not be identified in the future. If we fail to maintain an effective system of internalcontrol over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.As reported in “Item 9A. Controls and Procedures” of this Report, we have concluded that there are material weaknesses in our internal control overfinancial reporting and that our disclosure controls and procedures were ineffective as of December 31, 2013. It is necessary for us to maintain effectiveinternal control over financial reporting to prevent fraud and errors and to maintain effective disclosure controls and procedures so that we can provide timelyand reliable financial and other information. A failure to maintain adequate internal controls may adversely affect our ability to provide financial statementsthat accurately reflect our financial condition and report information on a timely basis. This could cause investors to lose confidence in our reported financialand other information, cause our securities to trade at a decreased price and cause an adverse effect on our business and results of operations. A failure toremediate material weaknesses in our internal control over financial reporting could result in further restatements of financial statements and correction ofother information filed with the SEC or otherwise made publicly available.The processes undertaken to effect the Restatement may not have been adequate to identify and correct all errors in our historical financial statementsand, as a result, we may discover additional errors and our financial statements remain subject to the risk of future restatement.The completion of our Restatement involved many months of review and analysis, including highly technical analyses of our contracts and businesspractices, estimates and assumptions made by management, tax accounting and the proper application of relevant accounting rules and pronouncements.Many of the enhancements and changes to our processes are ongoing as of the filing date of this Report, and we continue to integrate the complex changeswe have already made. Given the complexity and scope of these exercises, and notwithstanding the extensive time, effort and expense that went into them,we cannot assure that these processes were adequate to identify and correct all errors in our historical financial statements or that additional accounting errorswill not come to light in the future in these or other areas.While we have performed additional analyses and other procedures, and either implemented or plan to implement and test remediation measures as ofthe filing date of this Report, the previously identified material weaknesses have not been fully addressed and remediated. We continue to improve ourinternal control over financial reporting and disclosure controls and procedures by, among other things: • implementing and maintaining a strong control environment, high ethical standards and financial reporting integrity, and communicating theseenhanced standards to our employees through various means, including mandatory ethical compliance trainings for all employees; 17Table of ContentsIndex to Financial Statements• building an environment that prioritizes compliance across the enterprise, placing special emphasis on improving internal audits and compliance withthe Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); • improving our risk assessment process to identify, evaluate and report on risks related to the Company’s preparation and fair presentation of thefinancial statements; • implementing additional review of period-end adjusting entries with a detailed checklist, including the involvement of finance and operationalexecutives, in order to strengthen controls over the completeness and accuracy of both recurring and non-recurring journal entries; • improving procedures with respect to the communication, approval, documentation and accounting review of deviations from written sales contracts,including by creating and implementing a new sub-certification process with our management group in order to identify (i) any sales transaction ofwhich terms deviate from written sales contracts, (ii) concessions, and (iii) revisions to contractual terms and conditions; and • strengthening our accounting, finance and internal audit teams by hiring permanent personnel with extensive US GAAP experience, including byfacilitating US GAAP training programs for relevant employees.As a result, we cannot assure that we will not discover additional errors, that future financial reports will not contain misstatements or omissions, thatfuture restatements will not be required, or that we will be able to timely comply with our reporting obligations in the future, including with respect to our2014 Form 10-K.We may also be required to amend this Report and/or file other amended reports to effect the Restatement. This would require us to devote substantialinternal and external resources and cause us to incur significant fees and expenses for additional audit services as well as accounting and other consultingservices. These fees and expenses, as well as the substantial time devoted by our management to make such filings with the SEC, could have a materialadverse effect on our business, profitability and financial condition.The Restatement has caused substantial delays in filing this Report and other SEC periodic reports, which may result in future delays in our SECreporting.Our ability to resume a timely filing schedule with respect to our SEC reports is subject to a number of contingencies, including whether we continueto identify errors in our consolidated financial statements and effective remediation of the identified material weaknesses in our internal control overfinancial reporting, including processes and training related thereto.If we become delayed again in our SEC reporting obligations, investors would need to evaluate certain decisions with respect to our securities in lightof a lack of current financial information. Accordingly, if in the future we are not current in our SEC reporting obligations, any investment in our securitieswould involve a greater degree of risk. Any such lack of current public information may have an adverse impact on investor confidence, which could lead toa reduction in our stock price and market capitalization and an increase in our cost of capital. In addition, if we become delayed again in our SEC reportingobligations, we will be precluded from registering our securities with the SEC for offer and sale. This may preclude us from raising debt or equity financing inthe public markets and limit our access to the private markets and could also limit our ability to use stock options and other equity-based awards to attract,retain and provide incentives to our employees.If we fail to timely file our 2014 Form 10-K or our other SEC reports, we may incur additional interest charges under the indenture governing our seniornotes and/or our bondholders may seek to accelerate the principal amount of our senior notes, which would likely have a material adverse effect on ourbusiness, results of operations and financial condition.The reporting covenant contained in the indenture relating to our outstanding 6.625% senior notes due 2021 (the “2021 Notes”) requires us to filecertain quarterly, annual and current reports with the SEC within the time periods specified in the SEC’s rules and regulations applicable to such reports(subject in some cases to applicable extension periods). Additionally, under the Indenture, the trustee or the holders of 25% or more of the outstandingprincipal amount of the 2021 Notes have the right to notify us if they believe we have breached a covenant under the Indenture and may, following anyapplicable cure periods, declare an event of default under the Indenture and cause the outstanding principal amount of the 2021 Notes to becomeimmediately due and payable.Because of the delay in filing this Report and certain of our other SEC reports, the trustee under the indenture relating to the 2021 Notes sent notices ofdefault under the indenture initiating the 60-day cure periods thereunder. Pursuant to the terms of the indenture, we elected, for a period of up to 180 daysafter the initial event of default related to a breach of the reporting covenant, to pay additional interest on the 2021 Notes of 0.25% per annum. If we fail totimely file our 2014 Form 10-K or our other SEC reports, we could again be subject to conditional interest charges in the future. If any such future reportingfailure continued past the 60-day cure period and the 180-day additional interest period, the 2021 Notes could be subject to acceleration by the trustee or theholders of 25% or more of the outstanding principal amount thereof. Any such acceleration would likely have a material adverse effect on our business,results of operations, and financial condition. 18Table of ContentsIndex to Financial StatementsThe delay in filing this Report with the SEC and any failure to satisfy other NYSE listing requirements could cause the NYSE to commence suspension ordelisting procedures with respect to our common stock.The Company was notified by the NYSE that, as a result of its failure to timely file an Annual Report on Form 10-K for the fiscal year endedDecember 31, 2013 with the SEC, it was subject to the procedures specified in Section 802.01E (SEC Annual Report Timely Filing Criteria) of the ListedCompany Manual of the NYSE. Pursuant to Section 802.01E, on September 5, 2014, the Company made a request to the NYSE that its shares be permitted tocontinue to trade on the NYSE for an additional six months while the Company completed its restatement of financial statements for prior periods andprepared this Report. On October 3, 2014, the NYSE notified the Company that its shares may continue to trade on the NYSE until April 1, 2015, subject toreassessment on an ongoing basis. We believe that the filing of this Report satisfies the NYSE’s requirement to file an Annual Report on Form 10-K for thefiscal year ended December 31, 2013.Any other failure to satisfy NYSE listing requirements (including, among others, the filing of our 2014 Form 10-K within the grace period provided bythe NYSE, if any), if not waived by the NYSE, could cause the NYSE to commence suspension or delisting procedures with respect to our common stock. Thecommencement of any suspension or delisting procedures and any actual suspension or delisting of our common stock by the NYSE remains, at all times, atthe discretion of the NYSE and would be publicly announced by the NYSE. The delisting of our common stock from the NYSE may have a material adverseeffect on us by, among other things, causing investors to dispose of our shares and limiting: • the liquidity of our common stock; • the market price of our common stock; • the number of institutional and other investors that will consider investing in our common stock; • the availability of information concerning the trading prices and volume of our common stock; • the number of broker-dealers willing to execute trades in shares of our common stock; and • our ability to obtain equity or debt financing for the continuation of our operations.The outcome of litigation and other claims as well as regulatory examinations, investigations, proceedings and orders arising out of the Restatement andthe failure by the Company to file SEC reports on a timely basis are unpredictable, and any orders, actions or rulings not in our favor could have amaterial adverse effect on our financial condition, liquidity or results of operations.The circumstances which gave rise to the Restatement and the related SEC filing delays continue to create the risk of litigation and claims by investorsand examinations, investigations, proceedings and orders by regulatory authorities, which could be expensive and damaging to our business and financialcondition.For example, following the Company’s initial announcement of the restatement in March 2014, a purported class action lawsuit was filed against theCompany and certain of the Company’s current and now-former officers. On September 30, 2014, an amended complaint was filed against the Company,certain current and now-former officers of the Company, certain members of the Company’s Board of Directors and a shareholder of the Company, allegingviolations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.In addition, in March 2014, the Company voluntarily reported to the SEC that the Audit Committee had determined that the Company incorrectlyrecognized revenue on certain transactions and as a result would restate its financial statements, and that the Audit Committee had commenced theIndependent Investigation. Over the course of 2014, the Company voluntarily produced documents to the SEC regarding the various accounting issuesidentified during the Independent Investigation, and whether the Company’s hiring of an accountant from the Company’s independent registered publicaccounting firm impacted that accounting firm’s independence. On July 22, 2014, the Staff of the SEC’s Division of Enforcement obtained a Formal Order ofInvestigation. The Company will continue to cooperate with the SEC in this investigation. See “Item 3. Legal Proceedings.”The Restatement and the failure by the Company to timely file certain of its SEC reports, as well as the reported material weaknesses in internal controlover financial reporting, may subject the Company to a broad range of potential actions that may be taken against the Company by the staff of the SEC,including a cease and desist order, suspension of trading of our securities, deregistration of our securities and/or the assessment of possible civil monetarypenalties.Any orders, actions or rulings relating to any of the foregoing that are not in our favor could have a material adverse effect on our financial condition,liquidity or results of operations. 19Table of ContentsIndex to Financial StatementsThe events that caused the need for this Restatement and the failure to timely file this Report and certain of our other SEC reports have resulted in certainrating agencies downgrading our credit and debt ratings, and further credit rating downgrades of our debt or financial strength ratings or withdrawal ofthese ratings are possible. These downgrades or withdrawals could adversely affect our relationships with customers, suppliers and distributors, adverselyaffect our operating results, and increase our costs of, or reduce our access to, future borrowings.Rating agencies assign us debt ratings, based in each case on their opinions of the Company’s ability to meet its respective financial obligations.Our ratings relative to our competitors may affect our competitive position. The Company and its debt securities have been placed on negative creditratings watch and/or downgraded by certain rating agencies in connection with the events that caused the need for this Restatement and the failure to timelyfile this Report and the 2014 Form 10-Qs. These recent developments and any future rating downgrades or withdrawals of ratings may cause reputationaldamage, which could materially and adversely affect our relationships with our customers, suppliers and distributors, as well as our ability to borrow. At thistime we cannot predict what further actions rating agencies may take, or what actions we may take in response, but these downgrades and/or futuredowngrades and withdrawals could have a material adverse effect on our results of operations, hedging activities, cost of capital and liquidity.We have incurred and expect to continue to incur significant expenses related to the Restatement, the remediation of deficiencies in our internal controlover financial reporting and disclosure controls and procedures, preparation of this Report and the 2014 Form 10-Qs and related investigation anddefense costs.We have devoted and expect to continue to devote substantial internal and external resources to remediation efforts relating to the Restatement and thepreparation and filing of this Report and the 2014 Form 10-Qs. As a result of these efforts, we have incurred and expect that we will continue to incursignificant incremental fees and expenses for additional auditor services, financial and other consulting services, legal services and additional interestpayments, as well as the implementation and maintenance of systems and processes that will need to be updated, supplemented or replaced. These expenses,as well as the substantial time devoted by our management towards identifying and addressing any internal weaknesses, could have a material adverse effecton our business, profitability and financial condition.The Restatement process and the preparation of this Report and the 2014 Form 10-Qs have diverted management and other human resources from theoperation of our business. The absence of timely and accurate financial information has hindered and may in the future hinder our ability to effectivelymanage the business of the Company.The Restatement process and the preparation of this Report and the 2014 Form 10-Qs have diverted, and continue to divert, management and otherhuman resources from the operation of our business. The Board of Directors, members of management, and the accounting, legal, administrative and otherstaff of the Company have spent, and continue to spend, significant time on the Restatement preparation of this Report and the 2014 Form 10-Qs, relateddisclosures and remediation of disclosure controls and procedures and internal control over financial reporting of the Company and its subsidiaries. Theseresources have been, and will likely continue to be, diverted from the strategic and day-to-day management of our business and may have an adverse effecton our ability to accomplish the strategic objectives of the Company.The Restatement and the delayed filing of this Report and the 2014 Form 10-Qs could adversely impact our ability to access the capital markets and otherfinancing arrangements.Our ability to obtain financing, if needed, depends upon many factors, including our business prospects and creditworthiness as well as externaleconomic conditions and general liquidity in the credit and capital markets. In light of the Restatement and the delay in filing this Report and the 2014 Form10-Qs, we may be unable, if needed, to secure outside financing to fund ongoing operations and for other capital needs, including the refinancing of our 2021Notes if necessary. Any sources of financing that may be available to us could also be at higher costs and require us to satisfy more restrictive covenants,which could limit or restrict our operations, cash flows and earnings. We cannot assure that additional financing would be available to us, or be sufficient oravailable on satisfactory terms. In addition, unless all current periodic reports and financial statements are filed with the SEC, we will be precluded fromregistering our securities with the SEC for offer and sale, and the failure to timely file our SEC reports will limit our ability to use “short-form” Form S-3registration statements for registering our securities for sale with the SEC until we again meet the timely filing requirements of those forms.Our current credit ratings may also limit our access to external sources of liquidity and financing. Our ongoing needs for liquidity include interestpayments on our 2021 Notes and our operating and capital expenses. In addition, we may from time to time have discrete or unexpected needs for liquidity.Our principal sources of liquidity are cash and cash equivalents on hand, cash from operations and financing activities. We do not have in place creditfacilities or letters of credit that we could draw upon to meet our liquidity requirements. Without sufficient liquidity, we could be forced to realize investmentlosses, deplete capital or curtail capital expenditures or certain of our operations, which would adversely impact our results of operations and financialcondition. 20Table of ContentsIndex to Financial StatementsRisks Related to Our BusinessWe operate in the highly cyclical semiconductor industry, which is subject to significant downturns that may negatively impact our results of operations.The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change and price erosion, evolving technicalstandards, short product life cycles (for semiconductors and for the end-user products in which they are used) and wide fluctuations in product supply anddemand. From time to time, these and other factors, together with changes in general economic conditions, cause significant upturns and downturns in theindustry in general and in our business in particular. Periods of industry downturns, including the recent economic downturn, have been characterized bydiminished demand for end-user products, high inventory levels, underutilization of manufacturing capacity, changes in revenue mix and accelerated erosionof average selling prices. We have experienced these conditions in our business in the past and may experience renewed, and possibly more severe andprolonged, downturns in the future as a result of such cyclical changes. This may reduce our results of operations.We base our planned operating expenses in part on our expectations of future revenue, and a significant portion of our expenses is relatively fixed inthe short term. If revenue for a particular quarter is lower than we expect, we likely will be unable to proportionately reduce our operating expenses for thatquarter, which would harm our operating results for that quarter.If we fail to develop new products and process technologies or enhance our existing products and services in order to react to rapid technological changeand market demands, our business will suffer.Our industry is subject to constant and rapid technological change and product obsolescence as customers and competitors create new and innovativeproducts and technologies. Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive,and we may not be able to access advanced process technologies, including smaller geometries, or to license or otherwise obtain essential intellectualproperty required by our customers.We must develop new products and services and enhance our existing products and services to meet rapidly evolving customer requirements. Wedesign products for customers who continually require higher performance and functionality at lower costs. We must, therefore, continue to enhance theperformance and functionality of our products. The development process for these advancements is lengthy and requires us to accurately anticipatetechnological changes and market trends. Developing and enhancing these products is uncertain and can be time-consuming, costly and complex. If we donot continue to develop and maintain process technologies that are in demand by our Semiconductor Manufacturing Services customers, we may be unableto maintain existing customers or attract new customers.Customer and market requirements can change during the development process. There is a risk that these developments and enhancements will be late,fail to meet customer or market specifications or not be competitive with products or services from our competitors that offer comparable or superiorperformance and functionality. Any new products, such as our expanding line of power management solutions, or product or service enhancements, may notbe accepted in new or existing markets. Our business will suffer if we fail to develop and introduce new products and services or product and serviceenhancements on a timely and cost-effective basis.We manufacture our products based on our estimates of customer demand, and if our estimates are incorrect, our financial results could be negativelyimpacted.We make significant decisions, including determining the levels of business that we will seek and accept, production schedules, componentprocurement commitments, personnel needs and other resource requirements, based on our estimates of customer demand and expected demand for andsuccess of their products. The short-term nature of commitments by many of our customers and the possibility of rapid changes in demand for their productsreduces our ability to estimate accurately future customer demand for our products. On occasion, customers may require rapid increases in supply, which canchallenge our production resources and reduce margins. We may not have sufficient capacity at any given time to meet our customers’ increased demand forour products. Conversely, downturns in the semiconductor industry have caused and may in the future cause our customers to reduce significantly theamount of products they order from us. Because many of our costs and operating expenses are relatively fixed, a reduction in customer demand woulddecrease our results of operations, including our gross profit.Our customers may cancel their orders, reduce quantities or delay production, which would adversely affect our margins and results of operations.We generally do not obtain firm, long-term purchase commitments from our customers. Customers may cancel their orders, reduce quantities or delayproduction for a number of reasons. Cancellations, reductions or delays by a significant customer or by a group of customers, which we have experienced as aresult of periodic downturns in the semiconductor industry, or failure to achieve design-wins, have affected and may continue to affect our results ofoperations adversely. These risks are exacerbated because many of our products are customized, which hampers our ability to sell excess inventory to thegeneral market. We may incur charges resulting from the write-off of obsolete inventory. In addition, while we do not obtain long-term purchasecommitments, we generally agree to the pricing of a particular product over a set period of time. If we underestimate our costs when determining pricing, ourmargins and results of operations would be adversely affected. 21Table of ContentsIndex to Financial StatementsWe depend on high utilization of our manufacturing capacity, a reduction of which could have a material adverse effect on our business, financialcondition and the results of our operations.An important factor in our success is the extent to which we are able to utilize the available capacity in our fabrication facilities. As many of our costsare fixed, a reduction in capacity utilization, as well as changes in other factors, such as reduced yield or unfavorable product mix, could reduce our profitmargins and adversely affect our operating results. A number of factors and circumstances may reduce utilization rates, including periods of industryovercapacity, low levels of customer orders, operating inefficiencies, mechanical failures and disruption of operations due to expansion or relocation ofoperations, power interruptions and fire, flood or other natural disasters or calamities. The potential delays and costs resulting from these steps could have amaterial adverse effect on our business, financial condition and results of operations.A significant portion of our sales comes from a relatively limited number of customers, the loss of which would adversely affect our financial results.Historically, we have relied on a limited number of customers for a substantial portion of our total revenue. If we were to lose key customers or ifcustomers cease to place orders for our high-volume products or services, our financial results would be adversely affected. For the years ended December 31,2013, 2012 and 2011, our ten largest customers accounted for 59%, 61% and 60% of our net sales, respectively. Substantially all of our sales to thesecustomers are in our Display Solutions line. For the year ended December 31, 2013, sales to Samsung Display Corporation represented 11.3% of theCompany’s net sales and 40.9% of our Display Solutions division’s net sales. For the year ended December 31, 2012, sales to LG Display represented 11.5%of the Company’s net sales and 31.9% of our Display Solutions division’s net sales. Significant reductions in sales to any of these customers, especially ourfew largest customers, the loss of other major customers or a general curtailment in orders for our high-volume products or services within a short period oftime would adversely affect our business.The average selling prices of our semiconductor products have at times declined rapidly and will likely do so in the future, which could harm our revenueand gross profit.The semiconductor products we develop and sell are subject to rapid declines in average selling prices. From time to time, we have had to reduce ourprices significantly to meet customer requirements, and we may be required to reduce our prices in the future. This would cause our gross profit to decrease.Our financial results will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing our costs ordeveloping new or enhanced products on a timely basis with higher selling prices or gross profit.Our industry is highly competitive, and our ability to compete could be negatively impacted by a variety of factors.The semiconductor industry is highly competitive and includes hundreds of companies, a number of which have achieved substantial market sharewithin both our product categories and end markets. Current and prospective customers for our products and services evaluate our capabilities against themerits of our competitors. Some of our competitors are well established as independent companies and have substantially greater market share andmanufacturing, financial, research and development and marketing resources than we do. We also compete with emerging companies that are attempting tosell their products in certain of our end markets and with the internal semiconductor design and manufacturing capabilities of many of our significantcustomers. We expect to experience continuing competitive pressures in our markets from existing competitors and new entrants.Any consolidation among our competitors could enhance their product offerings and financial resources, further enhancing their competitive position.Our ability to compete will depend on a number of factors, including the following: • our ability to offer cost-effective and high quality products and services on a timely basis using our technologies; • our ability to accurately identify and respond to emerging technological trends and demand for product features and performance characteristics; • our ability to continue to rapidly introduce new products that are accepted by the market; • our ability to adopt or adapt to emerging industry standards; • the number and nature of our competitors and competitiveness of their products and services in a given market; • entrance of new competitors into our markets; • our ability to enter the highly competitive power management market; and • our ability to continue to offer in demand semiconductor manufacturing services at competitive prices. 22Table of ContentsIndex to Financial StatementsMany of these factors are outside of our control. In the future, our competitors may replace us as a supplier to our existing or potential customers, andour customers may satisfy more of their requirements internally. As a result, we may experience declining revenues and results of operations.Changes in demand for consumer electronics in our end markets can impact our results of operations.Demand for our products will depend in part on the demand for various consumer electronics products, in particular, mobile phones and multimediadevices, digital televisions, flat panel displays, mobile PCs and digital cameras, which in turn depends on general economic conditions and other factorsbeyond our control. If our customers fail to introduce new products that employ our products or component parts, demand for our products will suffer. To theextent that we cannot offset periods of reduced demand that may occur in these markets through greater penetration of these markets or reduction in ourproduction and costs, our sales and gross profit may decline, which would negatively impact our business, financial condition and results of operations.If we fail to achieve design-wins for our semiconductor products, we may lose the opportunity for sales to customers for a significant period of time and beunable to recoup our investments in our products.We expend considerable resources on winning competitive selection processes, known as design-wins, to develop semiconductor products for use inour customers’ products. These selection processes are typically lengthy and can require us to incur significant design and development expenditures. Wemay not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. Oncea customer designs a semiconductor into a product, that customer is likely to continue to use the same semiconductor or enhanced versions of thatsemiconductor from the same supplier across a number of similar and successor products for a lengthy period of time due to the significant costs associatedwith qualifying a new supplier and potentially redesigning the product to incorporate a different semiconductor. If we fail to achieve initial design-wins in acustomer’s qualification process, we may lose the opportunity for significant sales to that customer for a number of products and for a lengthy period of time.This may cause us to be unable to recoup our investments in our semiconductor products, which would harm our business.We have lengthy and expensive design-to-mass production and manufacturing process development cycles that may cause us to incur significant expenseswithout realizing meaningful sales, the occurrence of which would harm our business.The cycle time from the design stage to mass production for some of our products is long and requires the investment of significant resources withmany potential customers without any guarantee of sales. Our design-to-mass production cycle typically begins with a three-to-twelve month semiconductordevelopment stage and test period followed by a three-to-twelve month end-product qualification period by our customers. The fairly lengthy front end ofour sales cycle creates a risk that we may incur significant expenses but may be unable to realize meaningful sales. Moreover, prior to mass production,customers may decide to cancel their products or change production specifications, resulting in sudden changes in our product specifications, increasing ourproduction time and costs. Failure to meet such specifications may also delay the launch of our products or result in lost sales.In addition, we collaborate and jointly develop certain process technologies and manufacturing process flows customized for certain of ourSemiconductor Manufacturing Services customers. To the extent that our Semiconductor Manufacturing Services customers fail to achieve marketacceptance for their products, we may be unable to recoup our engineering resources commitment and our investment in process technology development,which would harm our business.Research and development investments may not yield profitable and commercially viable product and service offerings and thus will not necessarily resultin increases in revenues for us.We invest significant resources in our research and development. Our research and development efforts, however, may not yield commercially viableproducts or enhance our Semiconductor Manufacturing Services offerings. During each stage of research and development, there is a substantial risk that wewill have to abandon a potential product or service offering that is no longer marketable and in which we have invested significant resources. In the event weare able to develop viable new products or service offerings, a significant amount of time will have elapsed between our investment in the necessary researchand development effort and the receipt of any related revenues.We face numerous challenges relating to executing our growth strategy, and if we are unable to execute our growth strategy effectively, our business andfinancial results could be materially and adversely affected.Our growth strategy is to leverage our advanced analog and mixed-signal technology platform, continue to innovate and deliver new products andservices, increase business with existing customers, broaden our customer base, aggressively grow our power business, drive execution excellence and focuson specialty process technologies. If we are unable to execute our growth strategy effectively, we may not be able to take advantage of market opportunities,execute our business plan or respond to competitive pressures. Moreover, if our allocation of resources does not correspond with future demand for particularproducts, we could miss market opportunities and our business and financial results could be materially and adversely affected. 23Table of ContentsIndex to Financial StatementsWe are subject to risks associated with currency fluctuations, and changes in the exchange rates of applicable currencies could impact our results ofoperations.Historically, a portion of our revenues and greater than the majority of our operating expenses and costs of sales have been denominated in non-U.S.currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in U.S. dollars,changes in the exchange rate between the Korean won and the U.S. dollar could materially impact our reported results of operations and distort period toperiod comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollars relative toKorean won, a depreciation in the U.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and thereforecould 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. For example, foreign currency fluctuations had an unfavorable impact on our reported profit margins andoperating income from operations for the fiscal years ended December 31, 2013 compared to the fiscal year ended December 31, 2012. As a result of foreigncurrency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent thatfluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price ofour stock or the price of the 2021 Notes could be adversely affected.From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Koreansubsidiary enters into foreign currency option, forward and zero cost collar contracts in order to mitigate a portion of the impact of U.S. dollar-Korean wonexchange rate fluctuations on our operating results. These foreign currency option, forward and zero cost collar contracts typically require us to sell specifiednotional amounts in U.S. dollars and provide us the option to sell specified notional amounts in U.S. dollars during successive months to our counterparty inexchange for Korean won at specified exchange rates. Obligations under these foreign currency option, forward and zero cost collar contracts must be cashcollateralized if our exposure exceeds certain specified thresholds. These option, forward and zero cost collar contracts may be terminated by thecounterparty in a number of circumstances, including if our long-term debt rating falls below B-/B3 or if our total cash and cash equivalents is less than $30million at the end of a fiscal quarter. 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. See “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Factors Affecting our Results of Operations” for further details.As of December 31, 2013, we were engaged in exchange rate hedging activities as described in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 9. Derivative Financial Instruments.” The hedging instruments expired on schedule or were terminatedearly prior to December 31, 2014, as described in “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 25. Subsequent Events—Early termination of derivative contracts.” As a result of the Restatement and rating agency downgrades, certain hedgingarrangements became unavailable to us. Accordingly, our operating performance would be affected negatively if the Korean won appreciates against the U.S.dollar. Despite the completion of the Restatement, we cannot assure that such hedging arrangements may become available to us in the near future.The loss of our key employees would materially adversely affect our business, and we may not be able to attract or retain the technical or managementemployees necessary to compete in our industry.Our key executives have substantial experience and have made significant contributions to our business, and our continued success is dependent uponthe retention of our key management executives. The loss of such key personnel would have a material adverse effect on our business. In addition, our futuresuccess depends on our ability to attract and retain skilled technical and managerial personnel. We do not know whether we will be able to retain all of theseemployees as we continue to pursue our business strategy. The loss of the services of key employees, especially our key design and technical personnel, orour inability to retain, attract and motivate qualified design and technical personnel, could have a material adverse effect on our business, financial conditionand results of operations. This could hinder our research and product development programs or otherwise have a material adverse effect on our business.If we encounter future labor problems, we may fail to deliver our products and services in a timely manner, which would adversely affect our revenues andprofitability.As of December 31, 2014, 2,144 employees, or approximately 63% of our employees, were represented by the MagnaChip Semiconductor LaborUnion. We can offer no assurance that any issues with the labor union and other employees will be resolved favorably for us in the future, that we will notexperience work stoppages or other labor problems in future years or that we will not incur significant expenses related to such issues.We may incur costs to engage in future business combinations or strategic investments, and we may not realize the anticipated benefits of thosetransactions. As part of our business strategy, we may seek to enter into business combinations, investments, joint ventures and other strategic alliances with othercompanies in order to maintain and grow revenue and market presence as well as to provide us with access to technology, products and services. Any suchtransaction would be accompanied by risks that may harm our business, such as difficulties in assimilating the operations, personnel and products of anacquired business or in realizing the projected benefits, disruption of our ongoing business, potential increases in our indebtedness and contingent liabilitiesand charges if the acquired company or assets are later determined to be worth less than the amount paid for them in an earlier original acquisition. Inaddition, our indebtedness may restrict us from making acquisitions that we may otherwise wish to pursue. 24Table of ContentsIndex to Financial StatementsThe failure to achieve acceptable manufacturing yields could adversely affect our business.The manufacture of semiconductors involves highly complex processes that require precision, a highly regulated and sterile environment andspecialized equipment. Defects or other difficulties in the manufacturing process can prevent us from achieving acceptable yields in the manufacture of ourproducts or those of our Semiconductor Manufacturing Services customers, which could lead to higher costs, a loss of customers or delay in marketacceptance of our products. Slight impurities or defects in the photomasks used to print circuits on a wafer or other factors can cause significant difficulties,particularly in connection with the production of a new product, the adoption of a new manufacturing process or any expansion of our manufacturingcapacity and related transitions. We may also experience manufacturing problems in achieving acceptable yields as a result of, among other things,transferring production to other facilities, upgrading or expanding existing facilities or changing our process technologies. Yields below our target levels cannegatively impact our gross profit and may cause us to eliminate underperforming products.We rely on a number of independent subcontractors and the failure of any of these independent subcontractors to perform as required could adverselyaffect our operating results.A substantial portion of our net sales are derived from semiconductor devices assembled in packages or on film. The packaging and testing ofsemiconductors require technical skill and specialized equipment. For the portion of packaging and testing that we outsource, we use subcontractors locatedin Korea, China, Philippines, Malaysia and Thailand. We rely on these subcontractors to package and test our devices with acceptable quality and yieldlevels. We could be adversely affected by political disorders, labor disruptions and natural disasters where our subcontractors are located. If oursemiconductor packagers and test service providers experience problems in packaging and testing our semiconductor devices, experience prolonged qualityor yield problems or decrease the capacity available to us, our operating results could be adversely affected.We depend on successful parts and materials procurement for our manufacturing processes, and a shortage or increase in the price of these materialscould interrupt our operations and result in a decline of revenues and results of operations.We procure materials and electronic and mechanical components from international sources and original equipment manufacturers. We use a widerange of parts and materials in the production of our semiconductors, including silicon, processing chemicals, processing gases, precious metals andelectronic and mechanical components, some of which, such as silicon wafers, are specialized raw materials that are generally only available from a limitednumber of suppliers. We do not have long-term agreements providing for all of these materials; thus, if demand increases or supply decreases for any reason,the costs of our raw materials could significantly increase. For example, worldwide supplies of silicon wafers, an important raw material for thesemiconductors we manufacture, were constrained in recent years due to an increased demand for silicon. Silicon is also a key raw material for solar cells, thedemand for which has increased in recent years. Although supplies of silicon have recently improved due to the entrance of additional suppliers and capacityexpansion by existing suppliers, we cannot assure that such supply increases will match demand increases. If we cannot obtain adequate materials in a timelymanner or on favorable terms for the manufacture of our products, revenues and results of operations will decline.Compliance with new regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain raw materials used inmanufacturing our products.The SEC, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, adopted new disclosure regulations for publiccompanies that manufacture products containing certain minerals that are mined from the Democratic Republic of Congo and adjoining countries. These“conflict minerals” are commonly found in metals used in the manufacture of semiconductors. Manufacturers are also required to disclose their efforts toprevent the sourcing of such minerals and metals produced from them. The implementation of these new requirements could adversely affect the sourcing,availability and pricing of metals used in the manufacture of our products. We may also incur additional costs to comply with the disclosure requirements,including costs related to determining the source of any of the relevant minerals used in our products. We may also face difficulties in satisfying customerswho may require that our products be certified as free of “conflict materials,” which could harm our relationships with these customers and lead to a loss ofrevenue.We face warranty claims, product return, litigation and liability risks and the risk of negative publicity if our products fail.Our semiconductors are incorporated into a number of end products, and our business is exposed to product return, warranty and product liability riskand the risk of negative publicity if our products fail. Although we maintain insurance for product liability claims, the amount and scope of our insurancemay not be adequate to cover a product liability claim that is asserted against us. In addition, product liability insurance could become more expensive anddifficult to maintain and, in the future, may not be available on commercially reasonable terms, or at all.In addition, we are exposed to the product liability risk and the risk of negative publicity affecting our customers. Our sales may decline if any of ourcustomers are sued on a product liability claim. We also may suffer a decline in sales from the negative 25Table of ContentsIndex to Financial Statementspublicity associated with such a lawsuit or with adverse public perceptions in general regarding our customers’ products. Further, if our products aredelivered with impurities or defects, we could incur additional development, repair or replacement costs, and our credibility and the market’s acceptance ofour products could be harmed.We could suffer adverse tax and other financial consequences as a result of changes in, or differences in the interpretation of, applicable tax laws.Our company organizational structure was created in part based on certain interpretations and conclusions regarding various tax laws, includingwithholding tax and other tax laws of applicable jurisdictions. Our interpretations and conclusions regarding tax laws, however, are not binding on anytaxing authority and, if these interpretations and conclusions are incorrect, if our business were to be operated in a way that rendered us ineligible for taxexemptions or caused us to become subject to incremental tax, or if the authorities were to change, modify or have a different interpretation of the relevanttax laws, we could suffer adverse tax and other financial consequences, and the anticipated benefits of our organizational structure could be materiallyimpaired.Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our proprietary technology and know-how, aswell as our ability to operate without infringing the proprietary rights of others.We seek to protect our proprietary technologies and know-how through the use of patents, trade secrets, confidentiality agreements and other securitymeasures. The process of seeking patent protection takes a long time and is expensive. There can be no assurance that patents will issue from pending orfuture applications or that, if patents issue, they will not be challenged, invalidated or circumvented, or that the rights granted under the patents will provideus with meaningful protection or any commercial advantage. Some of our technologies are not covered by any patent or patent application. Theconfidentiality agreements on which we rely to protect these technologies may be breached and may not be adequate to protect our proprietary technologies.We cannot assure that other countries in which we market our services will protect our intellectual property rights to the same extent as the United States. Inparticular, the validity, enforceability and scope of protection of intellectual property in China, where we derive a significant portion of our net sales, andcertain other countries where we derive net sales, are uncertain and still evolving and historically have not protected, and may not protect in the future,intellectual property rights to the same extent as do the laws and enforcement procedures in the United States.Our ability to compete successfully depends on our ability to operate without infringing the proprietary rights of others. We have no means of knowingwhat patent applications have been filed in the United States until they are published. In addition, the semiconductor industry is characterized by frequentlitigation regarding patent and other intellectual property rights. We may need to file lawsuits to enforce our patents or intellectual property rights, and wemay need to defend against claimed infringement of the rights of others. Any litigation could result in substantial costs to us and divert our resources. Despiteour efforts in bringing or defending lawsuits, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.In the event of an adverse outcome in any such litigation, we may be required to: • pay substantial damages or indemnify customers or licensees for damages they may suffer if the products they purchase from us or the technology theylicense from us violate the intellectual property rights of others; • stop our manufacture, use, sale or importation of infringing products; • expend significant resources to develop or acquire non-infringing technologies; • discontinue processes; or • obtain licenses to the intellectual property we are found to have infringed.There can be no assurance that we would be successful in such development or acquisition or that such licenses would be available under reasonableterms, or at all. The termination of key third-party licenses relating to the use of intellectual property in our products and our design processes, such as ouragreements with Silicon Works Co., Ltd. and ARM Limited, would materially and adversely affect our business.Our competitors may develop, patent or gain access to know-how and technology similar to our own. In addition, many of our patents are subject tocross licenses, several of which are with our competitors.Our expenses could increase if SK Hynix were unwilling or unable to provide certain services related to our shared facilities with SK Hynix, and if SKHynix were to become insolvent, we could lose certain of our leases.We are party to a land lease and easement agreement with SK Hynix pursuant to which we lease the land for our facilities in Cheongju, Korea. If thisagreement were terminated for any reason, including the insolvency of SK Hynix, we would have to renegotiate new lease terms with SK Hynix or the newowner of the land. We cannot assure that we will be able to negotiate new lease terms on favorable terms or at all. Because we share certain facilities with SKHynix, several services that are essential to our business are provided to us by or through SK Hynix under our general service supply agreement with SKHynix. These services include electricity, bulk gases and de-ionized water, campus facilities and housing, wastewater and sewage management,environmental safety and certain utilities and infrastructure support services. If any of our agreements with SK Hynix were terminated or if SK Hynix wereunwilling or unable to fulfill its obligations to us under the terms of these agreements, we would have to procure these services on our own and as a resultmay experience an increase in our expenses. 26Table of ContentsIndex to Financial StatementsWe are subject to many environmental laws and regulations that could affect our operations or result in significant expenses.We are subject to a variety of environmental, health and safety laws and regulations in each of the jurisdictions in which we operate, governing, amongother things, air emissions, wastewater discharges, the generation, use, handling, storage and disposal of, and exposure to, hazardous substances (includingasbestos) and wastes, soil and groundwater contamination and employee health and safety. These laws and regulations are complex, change frequently andhave tended to become more stringent over time. There can be no assurance that we have been, or will be, in compliance with all such laws and regulations orthat we will not incur material costs or liabilities in connection with these laws and regulations in the future. The adoption of new environmental, health andsafety laws, the failure to comply with new or existing laws, or issues relating to hazardous substances could subject us to material liability (includingsubstantial fines or penalties), impose the need for additional capital equipment or other process requirements upon us, curtail our operations or restrict ourability to expand operations.Our Korean subsidiary has been designated as a regulated business under Korean environmental law, and such designation could have an adverse effecton our financial position and results of operations.In April 2010, the Korean government’s Enforcement Decree to the Framework Act on Low Carbon Green Growth became effective. Certain designatedbusinesses, including our Korean subsidiary, were required to submit plans to reduce greenhouse emissions and energy consumption. Our Korean subsidiaryfirst set emissions and consumption targets in 2011 and negotiated an implementation plan with Korean governmental authorities. Each year thereafter, ourKorean subsidiary was required to agree on emissions and consumption targets with Korean governmental authorities and submit an independently verifiedreport of prior year’s compliance. Beginning in 2015, our Korean subsidiary became subject to K-ETS, a new set of greenhouse gas emissions regulation,under the Act on Allocation and Trading of Greenhouse Gas Emission Allowances. Under K-ETS, our Korean subsidiary was allocated a certain amount ofemissions allowance in accordance with the National Allocation Plan prepared by the Korean government, and will be required to meet its allocated target byeither reducing the emission or purchasing the allowances from other participants in the emission trading market. If the targets currently allocated to ourKorean subsidiary by Korean governmental authorities require us to reduce our emissions or energy consumption, we could be subject to additional andpotentially costly compliance or remediation expenses, including potentially the installation of equipment and changes in the type of materials we use inmanufacturing, as well as cost of procuring emission allowances to cover the excess emissions, which could adversely affect our financial position and resultsof operations.We may need additional capital in the future, and such capital may not be available on acceptable terms or at all, which would have a material adverseeffect on our business, financial condition and results of operations.We may require more capital in the future from equity or debt financings to fund operating expenses, such as research and development costs, financeinvestments in equipment and infrastructure, acquire complementary businesses and technologies, and respond to competitive pressures and potentialstrategic opportunities. If we raise additional funds through further issuances of equity or other securities convertible into equity, our existing stockholderscould suffer significant dilution, and any new shares we issue could have rights, preferences or privileges senior to those of the holders of our common stock.Also, additional capital may not be available when needed or, if available, may not be available on favorable terms. In addition, our indebtedness limits ourability to incur additional indebtedness under certain circumstances. If we are unable to obtain capital on favorable terms, or if we are unable to obtain capitalat all, we may have to reduce our operations or forego opportunities, and this may have a material adverse effect on our business, financial condition andresults of operations.Our business depends on international customers, suppliers and operations in Asia, and as a result we are subject to regulatory, operational, financial andpolitical risks, which could adversely affect our financial results.We rely on, and expect to continue to rely on, suppliers, subcontractors and operations located primarily in Asia. As a result, we face risks inherent ininternational operations, such as unexpected changes in regulatory requirements, tariffs and other market barriers, political, social and economic instability,adverse tax consequences, war, civil disturbances and acts of terrorism, difficulties in accounts receivable collection, extended payment terms and differinglabor standards, enforcement of contractual obligations and protection of intellectual property. These risks may lead to increased costs or decreased revenuegrowth, or both. Although we do not derive any revenue from, nor sell any products in, North Korea, any future increase in tensions between South Korea andNorth Korea that may occur, such as an outbreak of military hostilities, would adversely affect our business, financial condition and results of operations.Tensions with North Korea could have an adverse effect on us and the market value of our shares.Relations between South Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas hasfluctuated and may increase abruptly as a result of current and future events. In particular, since the death of Kim Jong-il, the former North Korean ruler, inmid-December 2011, there has been increased uncertainty with respect to 27Table of ContentsIndex to Financial Statementsthe future of North Korea’s political leadership and concern regarding its implications for political and economic stability in the region. In addition, in recentyears, there have been heightened security concerns stemming from North Korea’s nuclear weapon and long-range missile programs and increaseduncertainty regarding North Korea’s actions and possible responses from the international community. North Korea’s economy also faces severe challenges,and any adverse economic developments may further aggravate social and political tensions within North Korea.Although we do not derive any revenue from, nor sell any products in, North Korea, any future increase in tensions between South Korea and NorthKorea that may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between South Korea and North Korea break down, ormilitary hostilities occur, could have a material adverse effect on the South Korean economy and on our business, financial condition, results of operationsand the market value of our common stock.You may not be able to bring an action or enforce any judgment obtained in United States courts, or bring an action in any other jurisdiction, against us orour subsidiaries or our directors, officers or independent auditors that are organized or residing in jurisdictions other than the United States.Most of our subsidiaries are organized or incorporated outside of the United States and some of our executive officers as well as our independentauditors are organized or reside outside of the United States. Most of our and our subsidiaries’ assets are located outside of the United States and in particular,in Korea. Accordingly, any judgment obtained in the United States against us or our subsidiaries may not be collectible in the United States. As a result, itmay not be possible for you to effect service of process within the United States upon these persons or to enforce against them or us court judgments obtainedin the United States that are predicated upon the civil liability provisions of the federal securities laws of the United States or of the securities laws of anystate of the United States. In particular, there is doubt as to the enforceability in Korea or any other jurisdictions outside the United States, either in originalactions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the federal securities laws of the United States orthe securities laws of any state of the United States.Our level of indebtedness is substantial, and we may not be able to generate sufficient cash to service all of our indebtedness and may be forced to takeother actions to satisfy our obligations under our indebtedness, which may not be successful. A decline in the ratings of our existing or future indebtednessmay make the terms of any new indebtedness we choose to incur more costly.As of December 31, 2013, our total indebtedness was $223.9 million, net of unamortized discount of $1.1 million. We are permitted under theindenture governing our outstanding 2021 Notes to incur additional debt under certain conditions, including additional secured debt. If new debt were to beincurred in the future, the related risks that we now face could intensify. Our substantial debt could have important consequences, including: • resulting in an event of default if we fail to satisfy our obligations under our outstanding 2021 Notes or our other debt or fail to comply with thefinancial or other restricted covenants contained in the indenture governing our outstanding 2021 Notes or agreements governing our otherindebtedness, which event of default could result in all of our debt becoming immediately due and payable and could permit our lenders to forecloseon the assets securing any such debt; • increasing our vulnerability to general economic and industry conditions; • requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereforereducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; • limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and generalcorporate or other purposes; • limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have lessdebt; and • negatively affecting our ability to fund a change of control offer.Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, whichis subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure thatwe will generate a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.The credit ratings assigned to our debt reflect each rating agency’s opinion of our ability to make payments on the debt obligations when suchpayments are due. The rating of our outstanding 2021 Notes as of December 2014 is Caa1 by Moody’s and B+ by Standard and Poor’s, both of which arebelow investment grade. A rating may be subject to revision or withdrawal at any time by the assigning rating agency. We may experience downgrades in ourdebt ratings in the future. Any lowering of our debt ratings would adversely impact our ability to raise additional debt financing and increase the cost of anysuch financing that is obtained. In the event any ratings downgrades are significant, we may choose not to incur new debt or refinance existing debt if we areunable to incur or refinance such debt at favorable interest rates or on favorable terms. 28Table of ContentsIndex to Financial StatementsIf our cash flows and capital resources are insufficient to fund our debt service obligations or if we are unable to refinance existing indebtedness onfavorable terms, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness.These alternative measures may not be successful and thus render us unable to meet our scheduled debt service obligations. In the absence of such operatingresults and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt serviceand other obligations. The indenture governing our outstanding 2021 Notes restricts our ability to dispose of assets and use the proceeds from thedisposition. We may not be able to consummate those dispositions or be able to obtain the proceeds which we could realize from them and these proceedsmay not be adequate to meet any debt service obligations then due.We are a holding company and will depend on the business of our subsidiaries to satisfy our obligations under our outstanding 2021 Notes and otherobligations.We are a holding company with no independent operations of our own. Our subsidiaries conduct substantially all of the operations necessary to fundpayments on our outstanding 2021 Notes, other debt and any other obligations. Our ability to make payments on our outstanding 2021 Notes and our otherobligations will depend on our subsidiaries’ cash flow and their payment of funds to us. Our subsidiaries’ ability to make payments to us will depend on: • their earnings; • covenants contained in our debt agreements (including the indenture governing our outstanding 2021 Notes) and the debt agreements of oursubsidiaries; • covenants contained in other agreements to which we or our subsidiaries are or may become subject; • business and tax considerations; and • applicable law, including any restrictions under Korean law that may be imposed on MagnaChip Korea that would restrict its ability to make paymentson intercompany loans from MagnaChip Semiconductor B.V.We cannot assure that the operating results of our subsidiaries at any given time will be sufficient to make distributions or other payments to us or thatany distributions or payments will be adequate to pay principal and interest, and any other payments, on our outstanding 2021 Notes, other debt or any otherobligations when due, and the failure to make such payments could have a material adverse effect on our business, financial condition and results ofoperations.Restrictions on MagnaChip Korea’s ability to make payments on its intercompany loans from MagnaChip Semiconductor B.V., or on its ability to paydividends in excess of statutory limitations, could hinder our ability to make payments on our outstanding 2021 Notes.We anticipate that payments under our outstanding 2021 Notes will be funded in part by MagnaChip Korea’s repayment of its existing loans fromMagnaChip Semiconductor B.V., with MagnaChip Semiconductor B.V. using such repayments in turn to repay the loans owed to MagnaChip SemiconductorS.A., which will repay loans owed to us. Under the Korean Foreign Exchange Transaction Act, the minister of the Ministry of Strategy and Finance isauthorized to temporarily suspend payments in foreign currencies in the event of natural calamities, wars, conflicts of arms, grave and sudden changes indomestic or foreign economic conditions, or other similar situations. In addition, under the Korean Commercial Code, a Korean company is permitted tomake a dividend payment in accordance with the provisions in its articles of incorporation out of retained earnings (as determined in accordance with theKorean Commercial Code and the generally accepted accounting principles in Korea), but no more than twice a year. If MagnaChip Korea is prevented frommaking payments under its intercompany loans due to restrictions on payments of foreign currency or if it has an insufficient amount of retained earningsunder the Korean Commercial Code to make dividend payments to MagnaChip Semiconductor B.V., we may not have sufficient funds to make payments onour outstanding 2021 Notes.The indenture governing our outstanding 2021 Notes contains, and our future debt agreements will likely contain, covenants that significantly restrict ouroperations.The indenture governing our outstanding 2021 Notes contains, and our future debt agreements will likely contain, numerous covenants imposingfinancial and operating restrictions on our business. These restrictions may affect our ability to operate our business, may limit our ability to take advantageof potential business opportunities as they arise and may adversely affect the conduct of our current business, including by restricting our ability to financefuture operations and capital needs and by limiting our ability to engage in other business activities. These covenants will place restrictions on our abilityand the ability of our operating subsidiaries to, among other things: • pay dividends, redeem shares or make other distributions with respect to equity interests, make payments with respect to subordinated indebtedness orother restricted payments; 29Table of ContentsIndex to Financial Statements• incur debt or issue preferred stock; • create liens; • make certain investments; • consolidate, merge or dispose of all or substantially all of our assets, taken as a whole; • sell or otherwise transfer or dispose of assets, including equity interests of our subsidiaries; • enter into sale-leaseback transactions; • enter into transactions with our affiliates; and • designate our subsidiaries as unrestricted subsidiaries.In addition, our future debt agreements will likely contain financial ratios and other financial conditions tests. Our ability to meet those financial ratiosand tests could be affected by events beyond our control, and we cannot assure that we will meet those ratios and tests. A breach of any of these covenantscould result in a default under such debt agreements. Upon the occurrence of an event of default under such debt agreements, our lenders under suchagreements could elect to declare all amounts outstanding under such debt agreements to be immediately due and payable and terminate all commitments toextend further credit.The global downturn and related financial crisis negatively affected our business. Poor economic conditions may negatively affect our future business,results of operations and financial condition.Since 2008, the global downturn and related financial crisis led to slower economic activity, increased unemployment, concerns about inflation andenergy costs, decreased business and consumer confidence, reduced corporate profits and capital spending, adverse business conditions and lower levels ofliquidity in many financial markets. Consumers and businesses deferred purchases in response to tighter credit and negative financial news, which has in turnnegatively affected product demand and other related matters. The global downturn led to reduced customer spending in the semiconductor market and inour target markets, made it difficult for our customers, our vendors and us to accurately forecast and plan future business activities and caused U.S. andforeign businesses to slow spending on our products. Although recently there have been indications of improved economic conditions generally and in thesemiconductor industry specifically, we cannot assure the extent to which such conditions will continue to improve or whether the improvement will besustainable. If the global economic recovery is not sustained or the global economy experiences another recession, such adverse economic conditions couldlead to the insolvency of key suppliers resulting in product delays, limit the ability of customers to obtain credit to finance purchases of our products, lead tocustomer insolvencies and also result in counterparty failures that may negatively impact our treasury operations. As a result, our business, financialcondition and results of operations could be materially adversely affected in future periods as a result of economic downturns.We have a history of losses and may not achieve or sustain profitability in the future.From the time we began operations as a separate entity in 2004 until we emerged from reorganization proceedings in 2009, we generated significantnet losses and did not generate a profit for a full fiscal year. We may increase spending to support increased research and development and sales andmarketing efforts. These expenditures may not result in increased revenue or an increase in the number of customers immediately or at all. Because many ofour expenses are fixed in the short term, or are incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner tooffset any shortfall of sales. If we cannot maintain profitability, the value of the enterprise may decline.We emerged from Chapter 11 reorganization proceedings in 2009; because our consolidated financial statements after October 2009 reflect fresh-startaccounting adjustments, our current consolidated financial statements will not be comparable in many respects to our financial information from periodsprior to that time.On June 12, 2009, we filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to obtain relief from our debt,which was $845 million as of December 31, 2008. Our plan of reorganization became effective on November 9, 2009. In connection with our emergence fromthe reorganization proceedings, we implemented fresh-start accounting in accordance with FASB Accounting Standards Codification Topic 852 (“ASC 852”)effective from October 25, 2009, which had a material effect on our consolidated financial statements. Thus, our consolidated financial statements afterOctober 2009 will not be comparable in many respects to our consolidated financial statements for periods prior to our adoption of fresh-start accounting andprior to accounting for the effects of the reorganization proceedings.Investor confidence may be adversely impacted if we fail to remediate identified material weaknesses and maintain effective internal control over financialreporting and disclosure controls and procedures or are unable to comply with Section 404 of the Sarbanes-Oxley Act, and as a result, the value of oursecurities could decline.We are subject to rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act, which requires us to include in our Annual Report onForm 10-K our management’s report on, and assessment of the effectiveness of, our internal control over financial reporting. We are also required toperiodically assess and report on the adequacy of our disclosure controls and 30Table of ContentsIndex to Financial Statementsprocedures. As reported in “Item 9A. Controls and Procedures” of this Report, we have concluded that there are material weaknesses in our internal controlover financial reporting and that our disclosure controls and procedures were ineffective as of December 31, 2013.If we fail to remediate identified material weaknesses and maintain the effectiveness of our internal control over financial reporting, there is a risk thatwe will continue to have material weaknesses in the future. Moreover, effective internal controls are necessary for us to produce reliable financial reports andare important to helping prevent financial fraud. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a lossof investor confidence in the reliability of our consolidated financial statements and could result in investigations or sanctions by the SEC, the NYSE orother regulatory authorities or in stockholder litigation. Any of these factors ultimately could harm our business and could negatively impact the marketprice of our securities. Ineffective control over financial reporting could also cause investors to lose confidence in our reported financial information, whichcould adversely affect the trading price of our common stock.Our goal is to ensure that our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosedby us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in theSEC’s rules and forms, and that such information is accumulated and communicated to our management, with the participation of our Chief Executive Officerand Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, our management, including our principalexecutive officer and principal financial officer, does not expect that our disclosure controls and procedures will prevent all error and all fraud. A controlsystem, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instancesof fraud, if any, have been detected. See “Item 9A. Controls and Procedures.”We may need to incur impairment and other restructuring charges, which could materially affect our results of operations and financial condition.During industry downturns and for other reasons, we may need to record impairment or restructuring charges. From November 9, 2009, the date weemerged from Chapter 11 reorganization proceedings, through December 31, 2013, we recognized aggregate restructuring and impairment charges of $14.3million, which consisted of $10.9 million of impairment charges and $3.4 million of restructuring charges. For the year ended December 31, 2013, werecognized $1.8 million of restructuring charges from restructuring one of our fabrication facilities and $0.6 million of impairment charges from certainexisting technology. In addition, we recognized impairment charges related to impairment of goodwill, certain technology and tangible assets acquired inconnection with our acquisition of Dawin Electronics, which we refer to as the “Dawin acquisition,” by $3.4 million, $1.9 million and $0.5 million,respectively. In the future, we may need to record additional impairment charges or to further restructure our business or incur additional restructuringcharges, any of which could have a material adverse effect on our results of operations or financial condition.We are subject to litigation risks, which may be costly to defend and the outcome of which is uncertain.All industries, including the semiconductor industry, are subject to legal claims, with and without merit, that may be particularly costly and which maydivert the attention of our management and our resources in general. We are involved in a variety of legal matters, most of which we consider routine mattersthat arise in the normal course of business. These routine matters typically fall into broad categories such as those involving customers, employment andlabor and intellectual property. Even if the final outcome of these legal claims does not have a material adverse effect on our financial position, results ofoperations or cash flows, defense and settlement costs can be substantial. Due to the inherent uncertainty of the litigation process, the resolution of anyparticular legal claim or proceeding could have a material effect on our business, financial condition, results of operations or cash flows.The price of our common stock may be volatile and you may lose all or a part of your investment.The trading price of our common stock might be subject to wide fluctuations. Factors, some of which are beyond our control, that could affect thetrading price of our common stock may include: • actual or anticipated variations in our results of operations from quarter to quarter or year to year, including variations related to the Restatement; • announcements by us or our competitors of significant agreements, technological innovations or strategic alliances; • changes in recommendations or estimates by any securities analysts who follow our securities; • addition or loss of significant customers; • recruitment or departure of key personnel; • changes in economic performance or market valuations of competing companies in our industry; 31Table of ContentsIndex to Financial Statements• price and volume fluctuations in the overall stock market; • market conditions in our industry, end markets and the economy as a whole; • subsequent sales of stock and other financings; and • litigation, legislation, regulation or technological developments that adversely affect our business.In the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation often has beeninstituted against the public company. Regardless of its outcome, this type of litigation could result in substantial costs to us and a likely diversion of ourmanagement’s attention. You may not receive a positive return on your investment when you sell your shares, and you could lose some or the entire amountof your investment.Significant ownership of our common stock by certain stockholders could adversely affect our other stockholders.Based upon the number of shares of common stock outstanding as of December 31, 2014, our executive officers, directors and Avenue collectivelybeneficially owned approximately 12.7% of our common stock, excluding shares of common stock issuable upon exercise of outstanding options, and 15.3%of our common stock, including shares of common stock issuable upon exercise of outstanding options that are exercisable within sixty days of December 31,2014. In addition, affiliates of Avenue currently have two employees serving as members of our six-member board of directors. Therefore, Avenue willcontinue to have significant influence over our affairs for the foreseeable future, including influence over the election of directors and significant corporatetransactions, such as a merger or other sale of our company or our assets.Our concentration of ownership may limit the ability of other stockholders to influence corporate matters and, as a result, we may take actions that ourpublic stockholders do not view as beneficial. For example, our concentration of ownership could have the effect of delaying or preventing a change incontrol or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could cause the market price of our commonstock to decline or prevent our stockholders from realizing a premium over the market price for their shares of our common stock.Under our certificate of incorporation, our non-employee directors and non-employee holders of five percent or more of our outstanding common stockdo not have a duty to refrain from engaging in a corporate opportunity in the same or similar activities or lines of business as those engaged in by us, oursubsidiaries and other related parties. Also, we have renounced any interest or expectancy in such business opportunities even if the opportunity is one thatwe might reasonably have pursued or had the ability or desire to pursue if granted an opportunity to do so.Future sales of significant amounts of our common stock could negatively affect our stock price, even if our business is doing well.As of December 31, 2014, Avenue beneficially owned 4,088,978 shares, or approximately 12.0%, of our outstanding common stock. On November 9,2014, all warrants to purchase our common stock previously held by Avenue expired. All of our currently outstanding shares that were issued pursuant toSection 1145 of the United States Bankruptcy Code, including Avenue’s shares, are eligible for sale from time to time under Rule 144 or Section 4(a)(1) ofthe Securities Act subject only to the limitations on affiliate sales. Additionally, all remaining shares beneficially owned by Avenue are or will be registeredfor resale under a shelf registration statement and therefore be eligible for sale at any time or from time to time by Avenue. If any of our current stockholders,including Avenue, sells or is perceived by the market as intending to sell substantial amounts of our common stock, the market price of our common stockcould drop significantly, even if our business is doing well.Provisions in our charter documents and Delaware Law may make it difficult for a third party to acquire us and could depress the price of our commonstock.Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in ourmanagement. Among other things, our certificate of incorporation and bylaws: • authorize our board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine; • divide our board of directors into three classes so that only approximately one-third of the total number of directors is elected each year; • permit directors to be removed only for cause by a majority vote of the stockholders; • prohibit action by written consent of our stockholders; • prohibit any person other than our board of directors, the chairman of our board of directors, our Chief Executive Officer or holders of at least 25% ofthe voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors to call a specialmeeting of our stockholders; and • specify advance notice requirements for stockholder proposals and director nominations. 32Table of ContentsIndex to Financial StatementsIn addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), regulating corporate takeoversand which has an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging takeoverattempts that might result in a premium over the market price for shares of our common stock. In general, those provisions prohibit a Delaware corporationfrom engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became aninterested stockholder, unless: • the transaction is approved by the board of directors before the date the interested stockholder attained that status; • upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least85% of the voting stock of the corporation outstanding at the time the transaction commenced; or • on or after such date, the business combination is approved by the board of directors and authorized at a meeting of stockholders, and not by writtenconsent, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.In general, DGCL Section 203 defines a business combination to include the following: • any merger or consolidation involving the corporation and the interested stockholder; • any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; • subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interestedstockholder; • any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporationbeneficially owned by the interested stockholder; or • the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or throughthe corporation.In general, DGCL Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding votingstock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person.A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificateof incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to opt out of, this provision.We do not intend to pay dividends for the foreseeable future, and therefore, investors should rely on sales of their common stock as the only way to realizeany future gains on their investments.We do not intend to pay any cash dividends in the foreseeable future. The payment of cash dividends on common stock is restricted under the terms ofthe indenture for our outstanding 2021 Notes. Any determination to pay dividends in the future will be at the discretion of our board of directors.Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gainson their investments.Item 1B. Unresolved Staff CommentsNot applicable.Item 2. PropertiesOur manufacturing operations consist of three fabrication facilities located in Korea at two sites in Cheongju and one in Gumi. Our facilities have acombined capacity of approximately 131,642 eight-inch equivalent wafers per month. We manufacture wafers utilizing geometries ranging from 0.11 to 2.0microns. The Cheongju facilities have three main buildings totaling 164,058 square meters devoted to manufacturing and development. The Gumi facilityhas one main building with 41,022 square meters devoted to manufacturing, testing and packaging.In addition to our fabrication facilities, we lease facilities in Seoul, Korea, and Cupertino, California. Each of these facilities includes administration,sales and marketing and research and development functions. We lease sales and marketing offices through our subsidiaries in several other countries.The ownership of our wafer manufacturing assets is an important component of our business strategy. Maintaining manufacturing control enables us todevelop proprietary, differentiated products and results in higher production yields, as well as shortened design and production cycles. We believe ourfacilities are suitable and adequate for the conduct of our business for the foreseeable future and that we have sufficient production capacity to service ourbusiness as currently contemplated without significant capital investment. 33Table of ContentsIndex to Financial StatementsA substantial majority of our assembly, test and packaging services for our Display Solutions business and all of such services for our Power Solutionsbusiness are outsourced with the balance handled in-house. Our independent providers of these services are located in Korea, China, Philippines, Malaysiaand Thailand. The relative cost of outsourced services, as compared to in-house services, depends upon many factors specific to each product andcircumstance. However, we generally incur higher costs for outsourced services, which can result in lower margins.Although we own our manufacturing facilities, we are party to a land lease and easement agreement with SK Hynix pursuant to which we lease the landfor our facilities in Cheongju, Korea from SK Hynix for an indefinite term. Because we share certain facilities with SK Hynix, several services that areessential to our business are provided to us by or through SK Hynix under our general service supply agreement with SK Hynix. These services includeelectricity, bulk gases and de-ionized water, campus facilities and housing, wastewater and sewage management, environmental safety and certain utilitiesand infrastructure support services. The services agreement continues for an indefinite term subject to each party having a right to terminate in the event of anuncured breach by the other party.Item 3. Legal ProceedingsSecurities Class Action ComplaintOn March 12, 2014, a purported class action was filed against the Company and certain of the Company’s current and now-former officers on behalf ofshareholders who purchased or acquired the Company’s securities between February 1, 2012 and March 11, 2014. On September 30, 2014, an amendedcomplaint was filed against the Company, certain current and now-former officers of the Company, certain members of the Company’s Board of Directors, anda shareholder of the Company, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The action,Thomas et al., v. MagnaChip Semiconductor Corp., et al., No. 3:14-CV-1160, is pending in the Northern District of California. The Court has granted theplaintiffs thirty days from the date this Report is filed with the SEC to file and serve a further amended complaint. At this time, the Company is unable toestimate any reasonably possible loss, or range of reasonably possible losses, with respect to the matters described above.SEC Enforcement Staff InvestigationIn addition, in March 2014, the Company voluntarily reported to the SEC that the Audit Committee had determined that the Company incorrectlyrecognized revenue on certain transactions and as a result would restate its financial statements, and that the Audit Committee had commenced theIndependent Investigation. Over the course of 2014, the Company voluntarily produced documents to the SEC regarding the various accounting issuesidentified during the Independent Investigation, and whether the Company’s hiring of an accountant from the Company’s independent registered publicaccounting firm impacted that accounting firm’s independence. On July 22, 2014, the Staff of the SEC’s Division of Enforcement obtained a Formal Order ofInvestigation. The Company will continue to cooperate with the SEC in this investigation. At this time, the Company is unable to estimate any reasonablypossible loss, or range of reasonably possible losses, with respect to the matters described above.Other Legal ProceedingsWe are involved in a variety of legal matters, most of which we consider routine matters that arise in the normal course of business. These routinematters typically fall into broad categories such as those involving customers, employment and labor and intellectual property. Intellectual propertylitigation and infringement claims, in particular, could cause us to incur significant expenses or prevent us from selling our products. We are currently notinvolved in any ordinary-course legal proceedings that we believe would have a material adverse effect on our business, financial condition or results ofoperations.Item 4. Mine Safety DisclosuresNot applicable. 34Table of ContentsIndex to Financial StatementsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock is listed on the New York Stock Exchange under the symbol “MX.” On February 9, 2015, the last reported sales price of ourcommon stock on the NYSE was $14.87 per share. The table below sets forth the reported high and low sales prices for our common stock during the quarterlyperiods for the two most recent fiscal years described below.Price Range of Common Stock High Low Fiscal 2012 First Quarter $12.67 $7.35 Second Quarter $12.24 $8.61 Third Quarter $14.42 $8.38 Fourth Quarter $16.10 $10.85 Fiscal 2013 First Quarter $18.25 $14.08 Second Quarter $19.33 $14.42 Third Quarter $23.33 $17.11 Fourth Quarter $23.89 $17.52 35Table of ContentsIndex to Financial StatementsStock Performance GraphThe graph and table below compare the cumulative total stockholder return of our common shares with the cumulative total return of the S&P 500Index and the Philadelphia Semiconductor Index (PHLX) from March 11, 2011 (the first trading date following the MagnaChip IPO) through December 31,2013. The graph assumes that $100 was invested on March 11, 2011 in our common shares and in each index and that any dividends were reinvested. Nocash dividends have been declared on our common shares since the MagnaChip IPO.Comparison of Cumulative Total Return*Among MagnaChip Semiconductor Corporation, the S&P 500 Index and the PHLX (By Quarter) *The stock performance included in this graph is not necessarily indicative of future stock performance.Total Return to Stockholders (Including Reinvestment of Dividends)Quarterly Return Percentage Company / Index 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 12/31/13 MagnaChip SemiconductorCorporation -1.86 -16.22 -41.67 11.31 60.43 -20.58 23.82 34.92 8.73 5.55 17.84 -9.43 S&P 500 Index 1.80 0.10 -13.87 11.82 12.59 -2.75 6.35 -0.38 10.61 2.91 5.24 10.51 Philadelphia SemiconductorIndex 2.21 -6.18 -17.43 7.56 20.36 -12.12 -0.83 0.47 13.70 7.28 4.78 9.01 36Table of ContentsIndex to Financial StatementsIndexed Returns Company / Index BasePeriod3/11/11 3/31/11 6/30/11 9/30/11 12/31/11 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 12/31/13 MagnaChip SemiconductorCorporation 100 98.14 82.23 47.97 53.39 85.65 68.02 84.23 113.63 123.55 130.41 153.68 139.19 S&P 500 Index 100 101.80 101.90 87.77 98.14 110.49 107.45 114.28 113.84 125.92 129.58 136.38 150.72 Philadelphia Semiconductor Index 100 102.21 95.90 79.18 85.17 102.51 90.08 89.33 89.75 102.04 109.47 114.70 125.03 HoldersThe approximate number of record holders of our outstanding common stock as of January 31, 2015 was 82. This number does not include beneficialowners for whom shares are held by nominees in street name.DividendsWe do not intend to pay any cash dividends on our common stock in the foreseeable future. We anticipate that we will retain all of our future earningsfor use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion ofour board of directors. The payment of cash dividends on our common stock is restricted under the terms of the indenture governing our 2021 Notes.Issuer Purchases of Equity SecuritiesOn October 7, 2011, our Board adopted a stock repurchase program whereby we may, subject to prevailing market conditions and other factors,repurchase up to $35.0 million of our outstanding common stock. Our Board extended and increased the program by an additional $25.0 million in August2012, for a maximum aggregate repurchase amount under the original program of up to $60.0 million. On July 30, 2013, we announced that the Boardapproved a new stock repurchase program under which we are authorized to repurchase up to $100.0 million of our common stock. The new stock repurchaseprogram was effective August 5, 2013 through December 15, 2014, and replaced the original stock repurchase program. The stock repurchase program did notrequire that we purchase a minimum amount of shares of our common stock and may be commenced, suspended, resumed or terminated at any time withoutnotice. The timing and extent of any repurchases were dependent upon prevailing market conditions, the trading price of the Company’s common stock andother factors, and subject to contractual restrictions and restrictions under applicable law and regulations. As of December 31, 2013, we had repurchased6,578,765 shares of our common stock in the open market under these programs at an aggregate cost of $90.9 million. In March 2014, the Board suspendedthe stock repurchase program indefinitely pending the completion of the Independent Investigation, and the stock repurchase program expired by its termson December 15, 2014. Subsequent to December 31, 2013, we did not repurchase any shares under the stock repurchase program. Period (a) Total Number ofShares Purchased (b) AveragePrice PaidPer Share (c) Total Numberof SharesPurchased as Partof PubliclyAnnounced Plansor Programs (d) Maximum Number(or Approximate DollarValue) of Shares thatMay Yet Be PurchasedUnder the Plans orPrograms October 1, 2013 through October 31, 2013 63,642 $18.92 63,642 $73,796,023.37 November 1, 2013 through November 30, 2013 904,809 $19.50 904,809 $56,148,535.82 December 1, 2013 through December 31, 2013 56,896 $20.19 56,896 $55,000,057.05 Total: 1,025,347 1,025,347 37Table of ContentsIndex to Financial StatementsItem 6. Selected Financial DataThe following tables set forth selected historical consolidated financial data of MagnaChip Semiconductor Corporation on or as of the dates and forthe periods indicated. The selected historical consolidated financial data presented below should be read together with “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations” and our consolidated financial statements contained in “Item 8. Financial Statements andSupplementary Data,” including the notes to those consolidated financial statements, appearing elsewhere in this Report. As discussed in “Note 2.Restatement of Consolidated Financial Statements” in such consolidated financial statements, our selected financial data set forth below as of and for theyears ended December 31, 2012 and 2011 have been restated, and we have not amended any other previously filed Annual Reports on Form 10-K for theperiods affected by this restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by theinformation in this Report, and the financial statements and related financial information contained in previously filed reports, including the related opinionsof our independent registered public accounting firm, press releases, communications and statements by management related thereto, should no longer berelied upon.We have derived the selected consolidated financial data as of December 31, 2013 and for the year ended December 31, 2013 from the historicalaudited consolidated financial statements of the Company included in this Report. We have derived the selected consolidated financial data as ofDecember 31, 2012 and 2011 and for the years ended December 31, 2012 and 2011 from the restated audited consolidated financial statements ofMagnaChip Semiconductor Corporation included in this Report. We derived the selected consolidated financial data as of December 31, 2010 and 2009 andfor the year ended December 31, 2010, the two-month period ended December 31, 2009 (successor) and the ten-month period ended October 25, 2009(predecessor) from the historical unaudited consolidated financial statements not included in this report, which were prepared on the same basis as ouraudited consolidated financial statements, and reflect adjustments to our previously filed consolidated financial statements. See “Note 2. Restatement ofConsolidated Financial Statements” to our consolidated financial statements under “Item 8. Financial Statements and Supplementary Data” in this Report forinformation regarding our restatement of prior period financial data. The historical unaudited consolidated financial data for the year ended December 31,2010 and the two-month period ended December 31, 2009 also gives retroactive effect to the corporate conversion. The historical financial data ofMagnaChip Semiconductor Corporation for any period are not necessarily indicative of the results to be expected in any future period. Successor(1) Predecessor Year EndedDecember 31,2013 Year EndedDecember 31,2012 Year EndedDecember 31,2011 Year EndedDecember 31,2010(6) Two MonthPeriod EndedDecember 31,2009(6) Ten MonthPeriod EndedOctober25,2009(6) As Restated As Restated As Restated As Restated AsRestated (In millions, except per common unit/share data) Statements of Operations Data: Net sales $734.2 $807.3 $743.1 $771.2 $111.1 $449.0 Cost of sales 579.1 564.1 543.6 527.1 90.5 311.4 Gross profit 155.1 243.2 199.5 244.1 20.6 137.6 Selling, general and administrative expenses 85.8 82.7 70.2 66.6 14.5 56.3 Research and development expenses 87.9 76.3 76.6 83.5 14.8 56.2 Restructuring and impairment charges 8.2 — 3.6 2.0 — 0.4 Special expense for IPO incentive — — 12.1 — — — Operating income (loss) from continuing operations (26.8) 84.3 37.0 92.0 (8.8) 24.7 Interest expense, net (20.4) (22.6) (25.0) (22.9) (1.3) (31.2) Foreign currency gain (loss), net 16.8 57.3 (11.3) 14.7 9.3 43.4 Reorganization items, net — — — — — 804.6 Loss on early extinguishment of senior notes (32.8) — (5.5) — — — Others 2.9 3.9 1.6 (0.7) — — (33.5) 38.6 (40.2) (8.9) 8.1 816.8 38Table of ContentsIndex to Financial Statements Successor(1) Predecessor Year EndedDecember 31,2013 Year EndedDecember 31,2012 Year EndedDecember 31,2011 Year EndedDecember 31,2010(6) Two MonthPeriod EndedDecember 31,2009(6) Ten MonthPeriod EndedOctober25,2009(6) As Restated As Restated As Restated As Restated AsRestated Income (loss) from continuing operations beforeincome taxes (60.2) 122.9 (3.2) 83.1 (0.7) 841.5 Income tax expenses 4.0 12.8 8.1 8.4 1.9 7.3 Income (loss) from continuing operations (64.2) 110.0 (11.3) 74.7 (2.6) 834.2 Income from discontinued operations, net of taxes — — — — 0.5 6.6 Net income (loss) $(64.2) $110.0 $(11.3) $74.7 $(2.1) $840.8 Dividends accrued on preferred unit — — — — — 6.3 Income (loss) from continuing operations attributableto common unit/share $(64.2) $110.0 $(11.3) $74.7 $(2.6) $827.9 Net income (loss) attributable to common unit/share $(64.2) $110.0 $(11.3) $74.7 $(2.0) $834.5 Per unit/share data: Earnings (loss) from continuing operations percommon unit/share— Basic $(1.82) $3.01 $(0.29) $1.97 $(0.07) $15.64 Diluted $(1.82) $2.93 $(0.29) $1.91 $(0.07) $15.64 Earnings from discontinued operations per commonunit/share— Basic and diluted $— $— $— $— $0.01 $0.12 Earnings (loss) per common unit/share— Basic $(1.82) $3.01 $(0.29) $1.97 $(0.05) $15.77 Diluted $(1.82) $2.93 $(0.29) $1.91 $(0.05) $15.77 Weighted average number of common units/shares Basic 35.232 36.568 38.776 37.836 37.608 52.923 Diluted 35.232 37.533 38.776 39.144 37.608 52.923 Balance Sheet Data (at period end): Cash and cash equivalents $153.6 $182.2 $162.1 $172.2 $64.9 Total assets 625.2 680.7 579.3 625.7 453.3 Total indebtedness(2) 223.9 201.7 204.2 246.9 61.8 Long-term obligations(3) 223.9 201.7 201.4 250.0 61.5 Stockholders’/Unitholders’ equity 81.5 191.5 134.2 161.2 214.3 Supplemental Data (unaudited): Adjusted EBITDA(4) $20.0 $124.3 $108.3 Adjusted Net Income (Loss)(5) $(31.5) $64.5 $32.2 (1)As of October 25, 2009, the fresh-start adoption date, we adopted fresh-start accounting for our consolidated financial statements. Because of theemergence from reorganization proceedings and adoption of fresh-start accounting, the historical financial information for periods after October 25,2009 is not fully comparable to periods before October 25, 2009.(2)Total indebtedness is calculated as long and short-term borrowings, including the current portion of capital lease obligation.(3)Long-term obligations include long-term borrowings and capital leases.(4)We define Adjusted EBITDA for the periods indicated as net income (loss), adjusted to exclude (i) depreciation and amortization, (ii) interest expense,net, (iii) income tax expenses (benefits), (iv) restructuring and impairment charges, (v) equity-based compensation expense, (vi) foreign currency loss(gain), net, (vii) derivative valuation loss (gain), net, 39Table of ContentsIndex to Financial Statements (viii) secondary offering and others, (ix) one-time incentive payments in connection with the MagnaChip IPO and (x) loss on early extinguishment ofsenior notes. This is a non-US GAAP financial measure and is discussed under “Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Explanation and Reconciliation of Non-US GAAP measures—Adjusted EBITDA and Adjusted Net Income.”(5)We define Adjusted Net Income for the periods indicated as net income (loss), adjusted to exclude (i) restructuring and impairment charges, (ii) equity-based compensation expense, (iii) amortization of intangibles, (iv) foreign currency loss (gain), net, (v) derivative valuation loss (gain), net,(vi) secondary offering and others, (vii) one-time incentive payments in connection with the MagnaChip IPO and (viii) loss on early extinguishment ofsenior notes. This is a non-US GAAP financial measure and is discussed under “Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Explanation and Reconciliation of Non-US GAAP measures—Adjusted EBITDA and Adjusted Net Income.”(6)The cumulative impact of these errors identified by us totaled $0.8 million, net decrease of $0.1 million in retaining earnings for the two-month periodended December 31, 2009, a decrease of $1.3 million for the ten-month period ended October 25, 2009, offset by an increase of $0.6 million inretaining earnings for the year ended December 31, 2010. This was recorded as an adjustment to beginning retained earnings in 2011 as described in“Note 2. Restatement of Consolidated Financial Statements” to our consolidated financial statements under “Item 8. Financial Statements andSupplementary Data.” In addition, we identified an immaterial error that did not impact the Company’s earnings but overstated prepaid expenses andadditional paid in capital. We corrected these errors in the selected financial data. 40Table of ContentsIndex to Financial StatementsSummary Financial Impacts of RestatementsThe following table presents the impact of the adjustments on our previously reported consolidated statement of operations for the year ended December 31,2012: Year Ended December 31, 2012 Restatement Adjustments As PreviouslyReported RevenueRecognition InventoryReserves UnderstatedEmployeeBenefits SettlementObligations Tax Matters AccountClassification Cost CenterAllocation OtherAdjustments TotalAdjustments AsRestated Net sales $819.6 $(11.4) $— $— $1.4 $— $(2.2) $— $— $(12.3) $807.3 Cost of sales 556.1 (1.3) 7.8 0.8 0.5 — 2.7 (3.2) 0.8 8.0 564.1 Gross profit 263.5 (10.1) (7.8) (0.8) 0.9 — (4.9) 3.2 (0.8) (20.3) 243.2 Selling, general andadministrativeexpenses 79.0 (0.5) — 0.1 — 0.8 — 3.3 0.1 3.7 82.7 Research anddevelopmentexpenses 78.7 — — 0.1 — — (2.7) (0.1) 0.1 (2.5) 76.3 Operating income 105.8 (9.6) (7.8) (1.1) 0.9 (0.8) (2.2) — (0.9) (21.5) 84.3 Other income(expenses) Interest expense,net (22.6) — — — — — — — — — (22.6) Foreign currencygain, net 56.0 1.3 — — — — — — — 1.3 57.3 Others 2.1 (0.4) — — — — 2.2 — — 1.8 3.9 35.5 0.8 — — — — 2.2 — — 3.1 38.6 Income before incometaxes 141.3 (8.7) (7.8) (1.1) 0.9 (0.8) — — (0.9) (18.4) 122.9 Income tax expenses(benefits) (52.0) — — — — 64.9 — — — 64.9 12.8 Net income $193.3 $(8.7) $(7.8) $(1.1) $0.9 $(65.6) $— $— $(0.9) $(83.3) $110.0 Earnings per commonshare— Basic $5.29 $3.01 Diluted $5.16 $2.93 Weighted averagenumber of shares— Basic 36.568 36.568 Diluted 37.497 37.533 See “Note 2. Restatement of Consolidated Financial Statements” to our consolidated financial statements under “Item 8. Financial Statements andSupplementary Data” for a detailed discussion of the effect of the restatement. 41Table of ContentsIndex to Financial StatementsThe following table presents the impact of the adjustments on our previously reported consolidated statement of operations for the year ended December 31,2011: Year Ended December 31, 2011 Restatement Adjustments As PreviouslyReported RevenueRecognition InventoryReserves UnderstatedEmployeeBenefits SettlementObligations Tax Matters AccountClassification OtherAdjustments TotalAdjustments AsRestated Net sales $772.8 $(27.5) $— $— $— $— $(2.2) $— $(29.7) $743.1 Cost of sales 538.5 (10.1) 10.1 1.7 2.1 — 0.7 0.5 5.1 543.6 Gross profit 234.3 (17.4) (10.1) (1.7) (2.1) — (2.9) (0.5) (34.8) 199.5 Selling, general andadministrative expenses 68.4 (0.4) — 0.3 — 1.2 0.5 0.2 1.9 70.2 Research and developmentexpenses 76.8 — — 0.4 — — (0.7) 0.1 (0.2) 76.6 Restructuring and impairmentcharges 4.1 — — — — — (0.5) — (0.5) 3.6 Special expense for IPO incentive 12.1 — — — — — — — — 12.1 Operating income 72.9 (17.1) (10.1) (2.5) (2.1) (1.2) (2.2) (0.9) (36.0) 37.0 Other expenses Interest expense, net (25.0) — — — — — — — — (25.0) Foreign currency loss, net (11.6) 0.1 — — — — — 0.2 0.3 (11.3) Loss on earlyextinguishment ofsenior notes (5.5) — — — — — — — — (5.5) Others (1.0) 0.5 — — — — 2.2 — 2.7 1.6 (43.1) 0.6 — — — — 2.2 0.2 3.0 (40.2) Income (loss) before incometaxes 29.8 (16.4) (10.1) (2.5) (2.1) (1.2) — (0.7) (33.0) (3.2) Income tax expenses 8.0 — — — — 0.1 — — 0.1 8.1 Net income (loss) $21.8 $(16.4) $(10.1) $(2.5) $(2.1) $(1.3) $— $(0.7) $(33.1) $(11.3) Earnings (loss) per common share— Basic $0.56 $(0.29) Diluted $0.55 $(0.29) Weighted average number ofshares— Basic 38.776 38.776 Diluted 39.775 38.776 See “Note 2. Restatement of Consolidated Financial Statements” to our consolidated financial statements under “Item 8. Financial Statements andSupplementary Data” for a detailed discussion of the effect of the restatement. 42Table of ContentsIndex to Financial StatementsThe restatement had the following impact on Adjusted EBITDA for the year ended December 31, 2012. Successor Year Ended December 31, 2012 As PreviouslyReported RestatementAdjustments AsRestated (In millions) Net income $193.3 $(83.3) $110.0 Adjustments: Depreciation and amortization 32.4 (0.3) 32.1 Interest expense, net 22.6 — 22.6 Income tax expenses (benefits) (52.0) 64.9 12.8 Equity-based compensation expense 2.0 0.4 2.4 Foreign currency gain, net (56.0) (1.3) (57.3) Derivative valuation loss (gain), net (2.1) 0.4 (1.7) Secondary offering and others 3.3 — 3.3 Adjusted EBITDA $143.5 $(19.2) $124.3 The restatement had the following impact on Adjusted EBITDA for the year ended December 31, 2011. Successor Year Ended December 31, 2011 As PreviouslyReported RestatementAdjustments AsRestated (In millions) Net income (loss) $21.8 $(33.1) $(11.3) Adjustments: Depreciation and amortization 51.2 — 51.2 Interest expense, net 25.0 — 25.0 Income tax expenses 8.0 0.1 8.1 Restructuring and impairment charges 4.1 (0.5) 3.6 Equity-based compensation expense 2.2 0.1 2.2 Foreign currency loss (gain), net 11.6 (0.3) 11.3 Derivative valuation loss (gain), net 1.0 (0.5) 0.6 Special expense for IPO incentive 12.1 — 12.1 Loss on early extinguishment of senior notes 5.5 — 5.5 Adjusted EBITDA $142.5 $(34.2) $108.3 See “Note 2. Restatement of Consolidated Financial Statements” to our consolidated financial statements under “Item 8. Financial Statements andSupplementary Data” for a detailed discussion of the effect of the restatement. 43Table of ContentsIndex to Financial StatementsThe restatement had the following impact on Adjusted Net Income for the year ended December 31, 2012. Successor Year Ended December 31, 2012 As PreviouslyReported RestatementAdjustments AsRestated (In millions) Net income $193.3 $(83.3) $110.0 Adjustments: Equity-based compensation expense 2.0 0.4 2.4 Amortization of intangibles 7.7 — 7.7 Foreign currency gain, net (56.0) (1.3) (57.3) Derivative valuation loss (gain), net (2.1) 0.4 (1.7) Secondary offering and others 3.3 — 3.3 GAAP and cash tax expense difference (64.7) 64.7 — Adjusted Net Income $83.5 $(19.0) $64.5 The restatement had the following impact on Adjusted Net Income for the year ended December 31, 2011. Successor Year Ended December 31, 2011 As PreviouslyReported RestatementAdjustments AsRestated (In millions) Net income (loss) $21.8 $(33.1) $(11.3) Adjustments: Restructuring and impairment charges 4.1 (0.5) 3.6 Equity-based compensation expense 2.2 0.1 2.2 Amortization of intangibles 8.1 — 8.1 Foreign currency loss (gain), net 11.6 (0.3) 11.3 Derivative valuation loss (gain), net 1.0 (0.5) 0.6 Special expense for IPO incentive 12.1 — 12.1 Loss on early extinguishment of senior notes 5.5 — 5.5 Adjusted Net Income $66.4 $(34.3) $32.2 See “Note 2. Restatement of Consolidated Financial Statements” to our consolidated financial statements under “Item 8. Financial Statements andSupplementary Data” for a detailed discussion of the effect of the restatement. 44Table of ContentsIndex to Financial StatementsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis should be read in conjunction with the audited consolidated financial statements and unaudited consolidatedinterim financial statements, together in each case with the related notes, included elsewhere in this Report. This discussion and analysis contains, inaddition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from thoseanticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Risk Factors” and elsewhere inthis Report. See “Part I – Special Note Regarding Forward Looking Statements” elsewhere in this Report.Restatement of Consolidated Financial StatementsAs discussed below and in “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Restatementof Consolidated Financial Statements,” we have restated our previously issued audited consolidated financial statements for the fiscal years endedDecember 31, 2012 and 2011. The financial information that has been previously filed or otherwise reported for these periods is superseded by theinformation in this Report, and the financial statements and related financial information contained in previously filed reports, including the related opinionsof our independent registered public accounting firm, press releases, communications and statements by management related thereto, should no longer berelied upon. Accordingly, the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth below reflects the effects ofthe restatement.As part of the audit of the financial statements for inclusion in our 2013 Form 10-K, it was determined that revenue on certain transactions wasincorrectly recognized in our consolidated financial statements for the years ended December 31, 2012 and 2011. We filed a Current Report on Form 8-Kwith the SEC on March 11, 2014 disclosing our Audit Committee’s conclusion that certain of our previously issued annual audited and interim unauditedfinancial statements contained in our historical Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q should no longer be relied upon andshould be restated. The impact of the restatement on our consolidated financial statements is detailed in “Item 8. Financial Statements and SupplementaryData – Notes to Consolidated Financial Statements – Note 2. Restatement of Consolidated Financial Statements” in this Report. As a result of the errorsidentified during the restatement, management identified material weaknesses in our internal control over financial reporting and concluded that ourdisclosure controls and procedures were not effective as of December 31, 2013. These weaknesses, an evaluation of the effectiveness of our disclosurecontrols and procedures and our remediation plans related thereto are more fully described in “Item 9A. Controls and Procedures” in Part II of this Report.OverviewWe are a Korea-based designer and manufacturer of analog and mixed-signal semiconductor products for high-volume consumer, computer andcommunication applications. We believe we have one of the broadest and deepest analog and mixed-signal semiconductor technology platforms in theindustry, supported by our 30-year operating history, large portfolio of approximately 3,167 registered novel patents and 134 pending novel patentapplications and extensive engineering and manufacturing process expertise. Our business is comprised of three key business lines: Display Solutions, PowerSolutions and Semiconductor Manufacturing Services. Our Display Solutions products include display drivers that cover a wide range of flat panel displaysand multimedia devices. Our Power Solutions products include discrete and integrated circuit solutions for power management in high-volume consumer,computer, communication and industrial applications. Our Semiconductor Manufacturing Services provide specialty analog and mixed-signal foundryservices for fabless semiconductor companies that serve the consumer, computing and wireless end markets.Our wide variety of analog and mixed-signal semiconductor products and manufacturing services combined with our deep technology platform allowus to address multiple high-growth end markets and to rapidly develop and introduce new products and services in response to market demands. Our designcenter and substantial manufacturing operations in Korea place us at the core of the global consumer electronics supply chain. We believe this enables us toquickly 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 consumer electronics products that incorporatesemiconductor products we produce. We must understand our customers’ needs as well as the likely end market trends and demand in the markets they serve.We must balance the likely manufacturing utilization demand of our product businesses and foundry business to optimize our capacity utilization. We mustalso invest in relevant research and development activities and manufacturing capacity and purchase necessary materials on a timely basis to meet ourcustomers’ 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 decliningselling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling priceof our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from productobsolescence.Demand for our products and services is driven primarily by overall demand for consumer electronics products and can be adversely affected by periods ofweak consumer spending or by market share losses by our customers. To mitigate the impact of market volatility on our business, we seek to address marketsand geographies with higher growth rates than the overall consumer electronics industry. We also expect that new competitors will emerge in these marketsthat may place increased pressure on the 45Table of ContentsIndex to Financial Statementspricing for our products and services. While we believe we are well-positioned competitively to compete in these markets and against these new competitorsas a result of our long operating history, existing manufacturing capacity and our Korea-based operations, if we are not effective in competing in thesemarkets our operating results may be adversely affected.Within our Display Solutions and Power Solutions lines, net sales are driven by design wins in which we are selected by an electronics OEM or otherpotential customer to supply its demand for a particular product. A customer will often have more than one supplier designed in to multi-source componentsfor a particular product line. Once designed in, we often specify the pricing of a particular product for a set period of time, with periodic discussions andrenegotiations of pricing with our customers. In any given period, our net sales depend heavily upon the end-market demand for the goods in which ourproducts are used, the inventory levels maintained by our customers and in some cases, allocation of demand for components for a particular product amongselected qualified suppliers.Within the Semiconductor Manufacturing Services business, net sales are driven by customers’ decisions on which manufacturing services provider touse for a particular product. Most of our Semiconductor Manufacturing Services customers are fabless and depend upon service providers like us tomanufacture their products. A customer will often have more than one supplier of manufacturing services; however, they tend to allocate a majority ofmanufacturing volume to one of their suppliers. We strive to be the primary supplier of manufacturing services to our customers. Once selected as a primarysupplier, we often specify the pricing of a particular service on a per wafer basis for a set period of time, with periodic discussions and renegotiations ofpricing with our customers. In any given period, our net sales depend heavily upon the end-market demand for the goods in which the products wemanufacture for customers are used, the inventory levels maintained by our customers and, in some cases, allocation of demand for manufacturing servicesamong selected qualified suppliers.In contrast to fabless semiconductor companies, our internal manufacturing capacity provides us with greater control over manufacturing costs and theability to implement process and production improvements which can favorably impact gross profit margins. Our internal manufacturing capacity also allowsfor better control over delivery schedules, improved consistency over product quality and reliability and improved ability to protect intellectual propertyfrom misappropriation. However, having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results inlower gross profit margins, particularly during downturns in the semiconductor industry.Our products and services require investments in capital equipment. Analog and mixed-signal manufacturing facilities and processes are typicallydistinguished by the design and process implementation expertise rather than the use of the most advanced equipment. These processes also tend to migratemore slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology thatrequires larger geometries and that may not migrate to smaller geometries for several years, if at all. Additionally, the performance of many of our products isnot necessarily dependent on geometry. As a result, our manufacturing base and strategy do not require substantial investment in leading edge processequipment, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments. Generally,incremental capacity expansions in our business line of the market result in more moderate industry capacity expansion as compared to leading edgeprocesses. As a result, this market, and we, specifically, are less likely to experience significant industry overcapacity, which can cause product prices todecline significantly. In general, we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended periodof time. We believe this capital investment strategy enables us to optimize our capital investments and facilitates deeper and more diversified product andservice offerings.Our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products andservices or the consolidation of current competitors. Additionally, we must innovate to remain ahead of, or at least rapidly adapt to, technologicalbreakthroughs that may lead to a significant change in the technology necessary to deliver our products and services. We believe that our establishedrelationships and close collaboration with leading customers enhance our visibility into new product opportunities, market and technology trends andimprove our ability to meet these challenges successfully. In our Semiconductor Manufacturing Services business, we strive to maintain competitiveness andour position as a primary manufacturing services provider to our customers by offering high-value added processes, high-flexibility and excellent service.Other Significant EventsIn March 2011, we completed the MagnaChip IPO of 9,500,000 shares of common stock, which we listed on the NYSE. All shares were sold in the formof depositary shares and each depositary share represented an ownership interest in one share of common stock. Of the 9,500,000 shares, 950,000 shares werenewly issued by us and 8,550,000 shares were sold by selling stockholders. All outstanding depositary shares were automatically cancelled on April 24, 2011and the underlying shares of common stock were issued to the holders of such cancelled depositary shares. We received $12.4 million of proceeds from theissuance of the new shares of common stock after deducting underwriters’ discounts and commissions, and we did not receive any proceeds from the sale ofshares of common stock offered by the selling stockholders. We incurred $10.8 million of MagnaChip IPO expenses that were recorded as decrease ofadditional paid-in capital in our consolidated balance sheets.Prior to the MagnaChip IPO, MagnaChip Semiconductor LLC, a Delaware limited liability company, was converted to MagnaChip SemiconductorCorporation, a Delaware corporation. In connection with the corporate conversion, outstanding common units of MagnaChip Semiconductor 46Table of ContentsIndex to Financial StatementsLLC were automatically converted into shares of common stock of MagnaChip Semiconductor Corporation, outstanding options to purchase common unitsof MagnaChip Semiconductor LLC were automatically converted into options to purchase shares of common stock of MagnaChip SemiconductorCorporation and outstanding warrants to purchase common units of MagnaChip Semiconductor LLC were automatically converted into warrants to purchaseshares of common stock of MagnaChip Semiconductor Corporation, all at a ratio of one share of common stock for eight common units.On May 16, 2011, two of our wholly owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company,repurchased $35.0 million out of $250.0 million aggregate principal amount of our senior notes then outstanding at a price of 109.0% from Avenue. Inconnection with the May 2011 repurchase of the senior notes, the Company recognized $4.1 million of loss on early extinguishment of senior notes, whichconsisted of $3.2 million from repurchase premium, $0.4 million from write-off of discounts, $0.2 million from write-off of debt issuance costs and $0.3million from incurrence of direct legal and advisory service fees.On September 19, 2011, two of our wholly owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company,repurchased $11.3 million out of $215 million aggregate principal amount of our senior notes then outstanding at a price of 107.5%. In connection with theSeptember 2011 repurchase of the senior notes, we recognized $1.4 million of loss on early extinguishment of senior notes, which consisted of $0.9 millionfrom repurchase premium, $0.1 million from write-off of discounts, $0.4 million from write-off of debt issuance costs.On October 7, 2011, our Board adopted a stock repurchase program whereby we may, subject to prevailing market conditions and other factors,repurchase up to $35.0 million of our outstanding common stock. Our Board extended and increased the program by an additional $25.0 million in August2012, for a maximum aggregate repurchase amount under the original program of up to $60.0 million. On July 30, 2013, we announced that the Boardapproved a new stock repurchase program under which we are authorized to repurchase up to $100.0 million of our common stock. The new stock repurchaseprogram was effective August 5, 2013 through December 15, 2014, and replaced the original stock repurchase program. The stock repurchase program did notrequire that we purchase a minimum amount of shares of our common stock and may be commenced, suspended, resumed or terminated at any time withoutnotice. The timing and extent of any repurchases were dependent upon prevailing market conditions, the trading price of the Company’s common stock andother factors, and subject to contractual restrictions and restrictions under applicable law and regulations. As of December 31, 2013, we had repurchased6,578,765 shares of our common stock in the open market under these programs at an aggregate cost of $90.9 million. In March 2014, the Board suspendedthe stock repurchase program indefinitely pending the completion of the Independent Investigation, and the stock repurchase program expired by its termson December 15, 2014. Subsequent to December 31, 2013, we did not repurchase any shares under the stock repurchase program.On May 1, 2012, we closed an underwritten registered public offering of 7,000,000 shares of our common stock owned by certain of our stockholders ata price per share of $11.40. We did not receive any proceeds from the sale of our common stock by the selling stockholders but paid certain expenses inconnection with such secondary offering.On February 8, 2013, we closed an underwritten registered public offering of 5,750,000 shares of our common stock owned by certain of ourstockholders at a price per share of $14.50. We did not receive any proceeds from the sale of our common stock by the selling stockholders but paid certainexpenses in connection with such secondary offering.On July 18, 2013, we issued the 2021 Notes, at a price of 99.5%. Interest on the 2021 Notes accrues at a rate of 6.625% per annum, payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2014. We used net proceeds of the 2021 Notes, together with cash on hand, torepay all of our then outstanding 10.5% senior notes due April 15, 2018 (the “2018 Notes”), including applicable premium and accrued interest, and to payrelated fees and expenses of the 2021 Notes offering.On September 13, 2013, we closed an underwritten registered public offering of 1,700,000 shares of our common stock owned by certain of ourstockholders at a price per share of $21.20. We did not receive any proceeds from the sale of our common stock by the selling stockholders but paid certainexpenses in connection with such secondary offering.Business LinesWe operate three separate business lines within one segment: Display Solutions, Power Solutions and Semiconductor Manufacturing Services. • Display Solutions: Our Display Solutions products include source and gate drivers and timing controllers that cover a wide range of flat panel displaysused in LCD, light emitting diode, or LED, 3D and OLED televisions, notebooks, mobile communications and entertainment devices. Our DisplaySolutions support the industry’s most advanced display technologies, such as AMOLEDs, and LTPS, as well as high-volume display technologies suchas TFTs. Our Display Solutions business represented 27.6%, 35.4% and 43.6% of our net sales for the fiscal years ended December 31, 2013, 2012 and2011, respectively. • Power Solutions: Our Power Solutions line produces power management semiconductor products including discrete and integrated circuit solutions forpower management in high-volume consumer applications. These products include MOSFETs, insulated-gate bipolar transistors (IGBTs) powermodules, AC-DC converters, DC-DC converters, LED drivers, switching regulators and linear regulators for a range of devices, including televisions,smartphones, mobile phones, desktop PCs, notebooks, tablet PCs, other consumer electronics, and industrial applications such as power suppliers, LEDlighting, motor control and home appliances. Our Power Solutions business represented 18.4%, 15.5% and 11.8% of our net sales for the fiscal yearsended December 31, 2013, 2012 and 2011, respectively. 47Table of ContentsIndex to Financial Statements• Semiconductor Manufacturing Services: Our Semiconductor Manufacturing Services line provides specialty analog and mixed-signal foundry servicesto fabless semiconductor companies that serve the consumer, computing and wireless end markets. We manufacture wafers based on our customers’product designs. We do not market these products directly to end customers but rather supply manufactured wafers and products to our customers tomarket to their end customers. We offer approximately 377 process flows to our manufacturing services customers. We also often partner with keycustomers to jointly develop or customize specialized processes that enable our customers to improve their products and allow us to develop uniquemanufacturing expertise. Our manufacturing services are targeted at customers who require differentiated, specialty analog and mixed-signal processtechnologies such as high voltage CMOS, embedded memory and power. These customers typically serve high-growth and high-volume applicationsin the consumer, computing and wireless end markets. Our Semiconductor Manufacturing Services business represented 53.9%, 49.0% and 44.5% ofour net sales for the fiscal years ended December 31, 2013, 2012 and 2011, respectively.Explanation and Reconciliation of Non-US GAAP MeasuresAdjusted EBITDA and Adjusted Net IncomeWe use the terms Adjusted EBITDA and Adjusted Net Income throughout this Report. Adjusted EBITDA, as we define it, is a non-US GAAP measure.We define Adjusted EBITDA for the periods indicated as net income (loss), adjusted to exclude (i) depreciation and amortization, (ii) interest expense, net,(iii) income tax expenses (benefits), (iv) restructuring and impairment charges, (v) equity-based compensation expense, (vi) foreign currency loss (gain), net,(vii) derivative valuation loss (gain), net, (viii) secondary offering and others, (ix) one-time incentive payments in connection with the MagnaChip IPO and(x) loss on early extinguishment of senior notes.See the footnotes to the table below for further information regarding these items. We present Adjusted EBITDA as a supplemental measure of ourperformance because: • Adjusted EBITDA eliminates the impact of a number of items that may be either one time or recurring items that we do not consider to be indicative ofour core ongoing operating performance; • we believe that Adjusted EBITDA is an enterprise level performance measure commonly reported and widely used by analysts and investors in ourindustry; • our investor and analyst presentations will include Adjusted EBITDA; and • we believe that Adjusted EBITDA provides investors with a more consistent measurement of period to period performance of our core operations, aswell as a comparison of our operating performance to that of other companies in our industry.We use Adjusted EBITDA in a number of ways, including: • for planning purposes, including the preparation of our annual operating budget; • to evaluate the effectiveness of our enterprise level business strategies; • in communications with our Board concerning our consolidated financial performance; and • in certain of our compensation plans as a performance measure for determining incentive compensation payments. 48Table of ContentsIndex to Financial StatementsWe encourage you to evaluate each adjustment and the reasons we consider them appropriate. In evaluating Adjusted EBITDA, you should be aware that inthe future we may incur expenses similar to the adjustments in this presentation. Adjusted EBITDA is not a measure defined in accordance with US GAAP andshould not be construed as an alternative to income from continuing operations, cash flows from operating activities or net income (loss), as determined inaccordance with US GAAP. A reconciliation of net income (loss) to Adjusted EBITDA is as follows: Successor Year EndedDecember 31,2013 Year EndedDecember 31,2012 Year EndedDecember 31,2011 As Restated As Restated (In millions) Net Income (Loss) $(64.2) $110.0 $(11.3) Adjustments: Depreciation and amortization 32.7 32.1 51.2 Interest expense, net 20.3 22.6 25.0 Income tax expenses 4.0 12.8 8.1 Restructuring and impairment charges(a) 8.2 — 3.6 Equity-based compensation expense(b) 2.2 2.4 2.2 Foreign currency loss (gain), net(c) (16.8) (57.3) 11.3 Derivative valuation loss (gain), net(d) (0.6) (1.7) 0.6 Secondary offering and others(e) 1.4 3.3 — Special expense for IPO incentive(f) — — 12.1 Loss on early extinguishment of senior notes(g) 32.8 — 5.5 Adjusted EBITDA $20.0 $124.3 $108.3 (a)This adjustment is comprised of all items included in the restructuring and impairment charges line item on our consolidated statements of operations,and eliminates the impact of restructuring and impairment charges related to (i) for 2013, restructuring charges of $1.8 million related to therestructuring of our six inch fabrication facilities, and the impact of impairment charges of $3.4 million related to the impairment of goodwill, $1.9million related to the impairment of certain technology and $0.5 million of machinery and equipment purchased in connection with the Dawinacquisition, and the impact of impairment charges of $0.6 million related to the impairment of certain existing technology, (ii) for 2011, restructuringcharges of $1.1 million related to the closure of our research and development center in Japan and sales subsidiary in the United Kingdom andimpairment charges related to $2.0 million from twelve abandoned in-process research and development projects and one dropped existingtechnology, $0.4 million from one abandoned system project and $0.1 million from impairment of tangible and intangible assets.(b)This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-basedcompensation expenses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effectsof these non-cash expenses, as supplemental information.(c)This adjustment eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currencydenominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables andpayment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investorswill find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, as supplemental information.(d)This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents hedge ineffectiveness or derivatives valuechanges excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactionsare 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 orspeculative purposes, we do not believe that these charges or gains are indicative of our core operating performance.(e)This adjustment eliminates expenses incurred for our secondary offerings in September 2013, February 2013 and May 2012 and for tax and duesrelated to value added tax return revisions in 2012.(f)This adjustment eliminates the one-time impact of incentive payments to all employees excluding management in connection with the MagnaChipIPO.(g)This adjustment eliminates the impact of loss on (i) for 2011, repurchase of $46.3 million aggregate principal amount of the 2018 Notes and (ii) for2013, repayment of $203.7 million aggregate principal amount of the 2018 Notes.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 asreported under GAAP. Some of these limitations are: • Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; 49Table of ContentsIndex to Financial Statements • Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in thefuture, 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 andemployees; • 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 ofour business. We compensate for these limitations by relying primarily on our US GAAP results and using Adjusted EBITDA only supplementally.We present Adjusted Net Income as a further supplemental measure of our performance. We prepare Adjusted Net Income by adjusting net income(loss) to eliminate the impact of a number of non-cash expenses and other items that may be either one time or recurring that we do not consider to beindicative of our core ongoing operating performance. We believe that Adjusted Net Income is particularly useful because it reflects the impact of our assetbase and capital structure on our operating performance. We present Adjusted Net Income for a number of reasons, including: • we use Adjusted Net Income in communications with our Board concerning our consolidated financial performance; • we believe that Adjusted Net Income is an enterprise level performance measure commonly reported and widely used by analysts and investors inour industry; and • our investor and analyst presentations will include Adjusted Net Income.Adjusted Net Income is not a measure defined in accordance with US GAAP and should not be construed as an alternative to income from continuingoperations, cash flows from operating activities or net income (loss), as determined in accordance with US GAAP. We encourage you to evaluate eachadjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income differently than we do,limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income, you should be aware that in the future we may incurexpenses similar to the adjustments in this presentation. We define Adjusted Net Income for the periods indicated as net income (loss), adjusted to exclude(i) restructuring and impairment charges, (ii) equity-based compensation expense, (iii) amortization of intangibles, (iv) foreign currency loss (gain), net,(v) derivative valuation loss (gain), net, (vi) secondary offering and others, (vii) one-time incentive payments in connection with the MagnaChip IPO and(viii) loss on early extinguishment of senior notes.The following table summarizes the adjustments to net income (loss) that we make in order to calculate Adjusted Net Income for the periods indicated: Successor Year EndedDecember 31,2013 Year EndedDecember 31,2012 Year EndedDecember 31,2011 As Restated As Restated (In millions) Net Income (Loss) $(64.2) $110.0 $(11.3) Adjustments: Restructuring and impairment charges(a) 8.2 — 3.6 Equity-based compensation expense(b) 2.2 2.4 2.2 Amortization of intangibles(c) 5.5 7.7 8.1 Foreign currency loss (gain), net(d) (16.8) (57.3) 11.3 Derivative valuation loss (gain), net(e) (0.6) (1.7) 0.6 Secondary offering and others(f) 1.4 3.3 — Special expense for IPO incentive(g) — — 12.1 Loss on early extinguishment of senior notes(h) 32.8 — 5.5 Adjusted Net Income (Loss) $(31.5) $64.5 $32.2 (a)This adjustment is comprised of all items included in the restructuring and impairment charges line item on our consolidated statements of operations,and eliminates the impact of restructuring and impairment charges related to (i) for 2013, restructuring charges of $1.8 million related to therestructuring of our six inch fabrication facilities, and the impact of impairment charges of $3.4 million related to the impairment of goodwill, $1.9million related to the impairment of certain technology and $0.5 million of machinery and equipment purchased in connection with the Dawinacquisition, and the impact of impairment charges of $0.6 million related to the impairment of certain existing technology, (ii) for 2011, 50Table of ContentsIndex to Financial Statements restructuring charges of $1.1 million related to the closure of our research and development center in Japan and sales subsidiary in the United Kingdomand impairment charges related to $2.0 million from twelve abandoned in-process research and development projects and one dropped existingtechnology, $0.4 million from one abandoned system project and $0.1 million from impairment of tangible and intangible assets.(b)This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-basedcompensation expenses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effectsof these non-cash expenses, as supplemental information.(c)This adjustment eliminates the non-cash impact of amortization expense for intangible assets created as a result of the purchase accounting treatmentof the Original Acquisition and other subsequent acquisitions, and from the application of fresh-start accounting in connection with the reorganizationproceedings. We do not believe these non-cash amortization expenses for intangibles are indicative of our core ongoing operating performancebecause the assets would not have been capitalized on our balance sheet but for the application of purchase accounting or fresh-start accounting, asapplicable.(d)This adjustment eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currencydenominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables andpayment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investorswill find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, as supplemental information.(e)This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents hedge ineffectiveness or derivatives valuechanges excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactionsare 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 orspeculative purposes, we do not believe that these charges or gains are indicative of our core operating performance.(f)This adjustment eliminates expenses incurred for our secondary offerings in September 2013, February 2013 and May 2012 and for tax and duesrelated to value added tax return revisions in 2012.(g)This adjustment eliminates the one-time impact of incentive payments to all employees excluding management in connection with the MagnaChipIPO.(h)This adjustment eliminates the impact of loss on (i) for 2011, repurchase of $46.3 million aggregate principal amount of the 2018 Notes and (ii) for2013, repayment of $203.7 million aggregate principal amount of the 2018 Notes.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 asreported under US GAAP. Some of these limitations are: • Adjusted Net Income does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; • Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted Net Income does not consider the potentially dilutive impact of issuing equity-based compensation to our management team andemployees; • Adjusted Net Income does not reflect the costs of holding certain assets and liabilities in foreign currencies; and • other companies in our industry may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure.Because of these limitations, Adjusted Net Income should not be considered as a measure of discretionary cash available to us to invest in the growthof our business. We compensate for these limitations by relying primarily on our US GAAP results and using Adjusted Net Income onlysupplementally.In evaluating Adjusted EBITDA and Adjusted Net Income, you should be aware that in the future we may incur expenses similar to the adjustments inour presentation of Adjusted EBITDA and Adjusted Net Income. Our presentation of Adjusted EBITDA and Adjusted Net Income should not be construed asan inference that our future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA and Adjusted Net Income are not measuresdefined in accordance with US GAAP and should not be construed as an alternative to operating income, cash flows from operating activities or net income(loss), as determined in accordance with US GAAP.Our Adjusted EBITDA and Adjusted Net Loss for the year ended December 31, 2013 were $20.0 million and $31.5 million, respectively. Our AdjustedEBITDA and Adjusted Net Income for the year ended December 31, 2012 were $124.3 million and $64.5 million, respectively. Our Adjusted EBITDA andAdjusted Net Income for the year ended December 31, 2011 were $108.3 million and $32.2 million, respectively. 51Table of ContentsIndex to Financial StatementsFactors Affecting Our Results of OperationsNet Sales. We derive virtually all of our sales (net of sales returns and allowances) from three business lines: Display Solutions, Power Solutions andSemiconductor Manufacturing Services. Our product inventory is primarily located in Korea and is available for drop shipment globally. Outside of Korea,we maintain limited product inventory, and our sales representatives generally relay orders to our factories in Korea for fulfillment. We have strategicallylocated our sales and technical support offices near concentrations of major customers. Our sales offices are located in Korea, the United States, Japan andGreater China. Our network of authorized agents and distributors consists of agents in the United States and Europe and distributors and agents in the AsiaPacific region. Our net sales from All other consist principally of the disposal of waste materials.We recognize revenue when risk and reward of ownership pass to the customer either upon shipment, upon product delivery at the customer’s locationor upon customer acceptance, depending on the terms of the arrangement. For the years ended December 31, 2013 and 2012, we sold products to over 284and 290 customers, respectively, and our net sales to our ten largest customers represented 59% and 61% of our net sales, respectively. We have a combinedproduction capacity of over 131,642 eight-inch equivalent semiconductor wafers per month. We believe our large-scale, cost-effective fabrication facilitiesenable us to rapidly adjust our production levels to meet shifts in demand by our end customers.Gross Profit. Our overall gross profit generally fluctuates as a result of changes in overall sales volumes and in the average selling prices of ourproducts and services. Other factors that influence our gross profit include changes in product mix, the introduction of new products and services andsubsequent generations of existing products and services, shifts in the utilization of our manufacturing facilities and the yields achieved by ourmanufacturing operations, changes in material, labor and other manufacturing costs including outsourced manufacturing expenses, and variation indepreciation 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 latesttechnology 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 impactof declining selling prices for existing products through our product development activities and by introducing new products that command selling pricesabove the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to preclude lossesfrom product and productive capacity obsolescence.Material Costs. Our cost of sales consists of costs of raw materials, such as silicon wafers, chemicals, gases and tape, packaging supplies, equipmentmaintenance and depreciation expenses. We use processes that require specialized raw materials, such as silicon wafers, that are generally available from alimited number of suppliers. If demand increases or supplies decrease, the costs of our raw materials could significantly increase.Labor Costs. A significant portion of our employees are located in Korea. Under Korean labor laws, most employees and certain executive officers withone 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 ofDecember 31, 2013, 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 intangibleassets, as well as the related depreciation periods. We depreciated our property, plant and equipment using the straight-line method over the estimated usefullives 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 valuesis based on various analyses including cash flow and profitability projections. If our projections indicate that future undiscounted cash flows are notsufficient 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 reductioncharged to expense so that the carrying value is equal to fair value.Prior to July 1, 2011, we depreciated machinery and measurement equipment using the straight-line method over 5 to 10 years. However, based on anevaluation of the appropriateness of depreciable lives including a review of historical usage and an expansion of our Power Solutions business, wedetermined that machinery and measurement equipment have a longer life than previously estimated. As a result, we changed the estimate of depreciablelives for machinery and measurement equipment to 10 to 12 years. The purpose of this change was to more accurately reflect the productive life of theseassets. In accordance with Accounting Standards Codification Topic 250-10-45, “Accounting Changes and Error Corrections”(“ASC 250-10-45”), the changein life has been accounted for as a change in accounting estimate on a prospective basis from July 1, 2011. As a result of the change in the estimated life ofmachinery and measurement equipment, cost of sales was $4.8 million lower, net income was $5.2 million higher and net income per diluted share was $0.13higher for the year ended December 31, 2011.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 costsfor the members of our direct sales force, a network of sales representatives and other costs of distribution. Personnel costs include base salary, benefits andincentive compensation. 52Table of ContentsIndex to Financial StatementsGeneral 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 professionalfees and office facility-related expenses.Research and Development. The rapid technological change and product obsolescence that characterize our industry require us to make continuousinvestments in research and development. Product development time frames vary but, in general, we incur research and development costs one to two yearsbefore generating sales from the associated new products. These expenses include personnel costs for members of our engineering workforce, cost ofphotomasks, silicon wafers and other non-recurring engineering charges related to product design. Additionally, we develop base line process technologythrough experimentation and through the design and use of characterization wafers that help achieve commercially feasible yields for new products. Themajority of research and development expenses are for process development that serves as a common technology platform for all of our product lines.Consequently, we do not allocate these expenses to individual lines.Restructuring and Impairment Charges. We evaluate the recoverability of certain long-lived assets and in-process research and development assets ona periodic basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In our efforts to improve our overallprofitability in future periods, we have closed or otherwise impaired, and may in the future close or impair, facilities that are underutilized and that are nolonger aligned with our long-term business goals.Interest Expense, Net. Our interest expense was incurred primarily under the 2018 Notes and the 2021 Notes.Impact of Foreign Currency Exchange Rates on Reported Results of Operations. Historically, a portion of our revenues and greater than the majorityof 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 remaintrue 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 averageexchange rates, changes in the exchange rate between the Korean won and the U.S. dollar could materially impact our reported results of operations anddistort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollarsrelative 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, andtherefore could cause our profit margins and operating income (loss) to appear to decline materially, particularly relative to prior periods. The converse is trueif the U.S. dollar were to appreciate relative to the Korean won. As a result of such foreign currency fluctuations, it could be more difficult to detectunderlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results ofoperations 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 Koreansubsidiary enters into foreign currency option, forward and zero cost collar contracts in order to mitigate a portion of the impact of U.S. dollar-Korean wonexchange rate fluctuations on our operating results. Obligations under these foreign currency option, forward and zero cost collar contracts must be cashcollateralized if our exposure exceeds certain specified thresholds. These option, forward and zero cost collar contracts may be terminated by thecounterparty in a number of circumstances, including if our long-term debt rating falls below B-/B3 or if our total cash and cash equivalents is less than $30.0million at the end of a fiscal quarter. 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 orour subsidiaries’ functional currency are included in our statements of operations as a component of other income (expense). A substantial portion of this netforeign currency gain or loss relates to non-cash translation gain or loss related to the principal balance of intercompany balances at our Korean subsidiarythat are denominated in U.S. dollars. This gain or loss results from fluctuations in the exchange rate between the Korean won and U.S. dollar.Income Taxes. We record our income taxes in each of the tax jurisdictions in which we operate. This process involves using an asset and liabilityapproach whereby deferred tax assets and liabilities are recorded for differences in the financial reporting bases and tax bases of our assets and liabilities. Weexercise significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities. We assess whether it is morelikely 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 positiveand negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results ofoperations. 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 recordedamount, we would adjust the valuation allowance, which would reduce the provision for income taxes.Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions, including Korea. Significantestimates and judgments are required in determining our worldwide provision for income taxes. Some of these estimates are based on interpretations ofexisting tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result.Capital Expenditures. We invest in manufacturing equipment, software design tools and other tangible and intangible assets for capacity expansionand technology improvement. Capacity expansions and technology improvements typically occur in anticipation of increases in demand. We typically payfor capital expenditures in partial installments with portions due on order, delivery and final acceptance. Our capital expenditures include our payments forthe purchase of property, plant and equipment as well as payments for the registration of intellectual property rights. 53Table of ContentsIndex to Financial StatementsInventories. We monitor our inventory levels in light of product development changes and market expectations. We may be required to take additionalcharges 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, productage, customer design activity, customer concentration and other factors. These forecasts require us to estimate our ability to predict demand for current andfuture products and compare those estimates with our current inventory levels and inventory purchase commitments. Our forecasts for our inventory maydiffer from actual inventory use. 54Table of ContentsIndex to Financial StatementsResults of OperationsThe following table sets forth, for the periods indicated, certain information related to our operations, expressed in U.S. dollars and as a percentage ofour net sales: Year EndedDecember 31,2013 Year EndedDecember 31,2012 Year EndedDecember 31,2011 As Restated As Restated Amount % ofnet sales Amount % ofnet sales Amount % ofnet sales (In millions) Consolidated statements of operations data: Net sales $734.2 100.0% $807.3 100.0% $743.1 100.0% Cost of sales 579.1 78.9 564.1 69.9 543.6 73.1 Gross profit 155.1 21.1 243.2 30.1 199.5 26.9 Selling, general and administrative expenses 85.8 11.7 82.7 10.2 70.2 9.4 Research and development expenses 87.9 12.0 76.3 9.4 76.6 10.3 Restructuring and impairment charges 8.2 1.1 — — 3.6 0.5 Special expense for IPO incentive — — — — 12.1 1.6 Operating income (loss) (26.8) (3.6) 84.3 10.4 37.0 5.0 Interest expense, net (20.4) (2.8) (22.6) (2.8) (25.0) (3.4) Foreign currency gain (loss), net 16.8 2.3 57.3 7.1 (11.3) (1.5) Loss on early extinguishment of senior notes (32.8) (4.5) — — (5.5) (0.7) Others 2.9 0.4 3.9 0.5 1.6 0.2 (33.5) (4.6) 38.6 4.8 (40.2) (5.4) Income (loss) before income taxes (60.2) (8.2) 122.9 15.2 (3.2) (0.4) Income tax expenses 4.0 0.5 12.8 1.6 8.1 1.1 Net income (loss) $(64.2) (8.7)% $110.0 13.6% $(11.3) (1.5)% Net Sales: Display Solutions $203.0 27.6 $285.9 35.4 $323.6 43.6 Power Solutions 135.3 18.4 125.0 15.5 87.9 11.8 Semiconductor Manufacturing Services 395.4 53.9 395.9 49.0 330.7 44.5 All other 0.5 0.1 0.6 0.1 0.9 0.1 $734.2 100.0% $807.3 100.0% $743.1 100.0% 55Table of ContentsIndex to Financial StatementsResults of Operations—Comparison of Years Ended December 31, 2013 and 2012The following table sets forth consolidated results of operations for the years ended December 31, 2013 and 2012: Year EndedDecember 31, 2013 Year EndedDecember 31, 2012 As Restated Amount % ofNet Sales Amount % ofNet Sales ChangeAmount (In millions) Net sales $734.2 100.0% $807.3 100.0% $(73.2) Cost of sales 579.1 78.9 564.1 69.9 15.0 Gross profit 155.1 21.1 243.2 30.1 (88.2) Selling, general and administrative expenses 85.8 11.7 82.7 10.2 3.1 Research and development expenses 87.9 12.0 76.3 9.4 11.6 Restructuring and impairment charges 8.2 1.1 — — 8.2 Operating income (loss) (26.8) (3.6) 84.3 10.4 (111.1) Interest expense, net (20.4) (2.8) (22.6) (2.8) 2.2 Foreign currency gain, net 16.8 2.3 57.3 7.1 (40.4) Loss on early extinguishment of senior notes (32.8) (4.5) — — (32.8) Others 2.9 0.4 3.9 0.5 (1.0) (33.5) (4.6) 38.6 4.8 (72.0) Income (loss) before income taxes (60.2) (8.2) 122.9 15.2 (183.1) Income tax expenses 4.0 0.5 12.8 1.6 (8.9) Net income (loss) $(64.2) (8.7)% $110.0 13.6% $(174.2) Net Sales Year EndedDecember 31, 2013 Year EndedDecember 31, 2012 As Restated Amount % ofNet Sales Amount % ofNet Sales ChangeAmount (In millions) Display Solutions $203.0 27.6% $285.9 35.4% $(83.0) Power Solutions 135.3 18.4 125.0 15.5 10.4 Semiconductor Manufacturing Services 395.4 53.9 395.9 49.0 (0.5) All other 0.5 0.1 0.6 0.1 — $734.2 100.0% $807.3 100.0% $(73.2) Net sales were $734.2 million for the year ended December 31, 2013, a $73.2 million, or 9.1%, decrease compared to $807.3 million for the year endedDecember 31, 2012. Net sales declined in 2013 compared to fiscal year 2012 primarily as a result of significant decrease in revenue related to our DisplaySolutions line, which was offset by an increase in revenue related to our Power Solutions line as described below.Display Solutions. Net sales from our Display Solutions line were $203.0 million for the year ended December 31, 2013, a $83.0 million, or 29.0%,decrease compared to $285.9 million for the year ended December 31, 2012. The decline in sales volume of our products, mainly related to large displays,contributed to a 44% decline in revenue, partially offset by positive contribution of 14% from the increase in average selling prices. The increase in sales ofmobile display chips positively affected both sales volume and average selling prices.Power Solutions. Net sales from our Power Solutions line were $135.3 million for the year ended December 31, 2013, a $10.4 million, or 8.3%, increasecompared to $125.0 million for the year ended December 31, 2012. The increase in average selling prices contributed to a 6% increase in revenue, and theincrease in sales volume of our products contributed to a 1% increase in revenue. The increase in sales of premium products such as Super Junction MOSFETspositively affected average selling prices, offset by slightly reduced volume for power modules.Semiconductor Manufacturing Services. Net sales from our Semiconductor Manufacturing Services line were $395.4 million for the year endedDecember 31, 2013, a $0.5 million, or 0.1%, decrease compared to $395.9 million for the year ended December 31, 2012. The decrease in average sellingprices contributed to a 1% decrease in revenue. The weak performance of our six-inch fabrication facilities negatively affected both average selling pricesand sales volume. 56Table of ContentsIndex to Financial StatementsAll Other. All other net sales were $0.5 million for the year ended December 31, 2013 and $0.6 million for the year ended December 31, 2012.Net Sales by Geographic RegionWe report net sales by geographic region based on the location of customers. Revenue from a foreign subsidiary of a multi-national corporation isclassified based on the location of the subsidiary. The following table sets forth our net sales by geographic region and the percentage of total net salesrepresented by each geographic region for the years ended December 31, 2013 and 2012: Year EndedDecember 31, 2013 Year EndedDecember 31, 2012 As Restated Amount % ofNet Sales Amount % ofNet Sales ChangeAmount (In millions) Korea $313.6 42.7% $365.7 45.3% $(52.0) Asia Pacific (other than Korea) 284.4 38.7 271.9 33.7 12.5 U.S.A. 100.8 13.7 124.5 15.4 (23.7) Europe 32.1 4.4 39.3 4.9 (7.2) Others 3.2 0.4 6.0 0.7 (2.8) $734.2 100.0% $807.3 100.0% $(73.2) Net sales in Korea for the year ended December 31, 2013 decreased from $365.7 million to $313.6 million compared to the year ended December 31,2012, or by $52.0 million, or 14.2%, primarily due to decreased demand in the market for Display Solutions products. Net sales in the U.S. for the year endedDecember 31, 2013 decreased from $124.5 million to $100.8 million compared to the year ended December 31, 2012, or by $23.7 million, or 19.0%,primarily due to decreased demand in the market for Semiconductor Manufacturing Services products serving the smartphone industry.Gross ProfitTotal gross profit was $155.1 million for the year ended December 31, 2013 compared to $243.2 million for the year ended December 31, 2012, a$88.2 million, or 36.3%, decrease. Gross profit as a percentage of net sales for the year ended December 31, 2013 decreased to 21.1% compared to 30.1% forthe year ended December 31, 2012. This decrease in gross profit and gross margin was primarily attributable to an increase in the impact from inventoryreserve and write off of $33.4 million, non-recurring expenses of $12.8 million related to settlement of certain commercial disputes and expense accrual of$9.0 million related to the revised definition of “ordinary wages” based on the Korean Supreme Court’s ruling in December 2013. The increase in inventoryreserves was a result of the failure of anticipated orders from customers materializing, which led to significantly higher excess and obsolete reserves. Theinventory items related to these higher reserves are mainly comprised of highly customized products.Additional factors that reduced gross profit and gross margin in 2013 compared to 2012 include a modest decline in the utilization rate, an increase inlabor cost as a result of an increase in the average salary, and an increase in the electricity tariffs by Korea Electric Power Corporation. Gross profit and grossmargin in 2013 were positively impacted by an increase in average selling prices described above.Operating ExpensesSelling, General and Administrative Expenses. Selling, general and administrative expenses were $85.8 million, or 11.7% of net sales for the yearended December 31, 2013, compared to $82.7 million, or 10.2% of net sales for the year ended December 31, 2012. The increase of $3.1 million, or 3.7%, wasprimarily attributable to an increase in legal and other outside service fees, offset by a reduction in secondary offering related and other expenses from $3.3million in 2012 to $1.4 million in 2013. The secondary offering related and other expenses of $3.3 million in 2012 include a $2.1 million one-time paymentof custom duties and penalties related to the decision by Korea Customs Service on certain products manufactured by semiconductor companies operating inKorea that was not incurred in 2013. As a percentage of revenue, selling, general and administrative expenses increased because most expenses in U.S. dollarseither remained flat or increased slightly, while revenue declined.Research and Development (R&D) Expenses. Research and development expenses for the year ended December 31, 2013 were $87.9 million, or 12.0%of net sales, an increase of $11.6 million, or 15.2%, from $76.3 million, or 9.4% of net sales for the year ended December 31, 2012. This increase wasprimarily due to an increase in use of our manufacturing facilities for R&D activities, increase in R&D headcount and increase in average salary in U.S.dollars.Restructuring and Impairment Charges. Restructuring and impairment charges for the year ended December 31, 2013 were $8.2 million compared tonil for the year ended December 31, 2012. Restructuring charges of $1.8 million recorded for the year ended December 31, 2013 were related to therestructuring of our six-inch fabrication facilities. Impairment charges of $6.4 million for the year ended December 31, 2013 primarily resulted from $3.4million of impairment to goodwill, $1.9 million of impairments of certain technology and $0.5 million impairments of machinery and equipment, allacquired from the Dawin acquisition, and $0.6 million of impairments of certain existing technology. 57Table of ContentsIndex to Financial StatementsOperating IncomeAs a result of the foregoing, operating income decreased by $111.1 million in the year ended December 31, 2013 compared to the year endedDecember 31, 2012. As discussed above, the decrease in operating income primarily resulted from $88.2 million decrease in gross profit, $11.6 millionincrease in R&D and $8.2 million increase in restructuring and impairment charges.Other Income (Expense)Interest Expense, Net. Net interest expense was $20.4 million for the year ended December 31, 2013, a decrease of $2.2 million compared to$22.6 million for the year ended December 31, 2012. The decrease of $2.2 million was primarily due to the repayment of the 2018 Notes and the issuance ofthe 2021 Notes.Foreign Currency Gain, Net. Net foreign currency gain for the year ended December 31, 2013 was $16.8 million, compared to $57.3 million for theyear December 31, 2012. A substantial portion of our net foreign currency gain or loss is non-cash translation gain or loss associated with intercompanybalances at our Korean subsidiary and is affected by changes in the exchange rate between the Korean won and the U.S. dollar. Foreign currency translationgain from intercompany balances was included in determining our consolidated net income since the intercompany balances were not considered long-terminvestments in nature because management intended to settle these intercompany balances at their respective maturity dates.Loss on early extinguishment of senior notes. In August 2013, we repaid $203.7 million aggregate principal amount of the 2018 Notes. In relation withthis repayment, we recognized $32.8 million of loss on early extinguishment of senior notes.Others. Others were comprised of gains and losses on valuation of derivatives which were designated as hedging instruments. Net gain on valuation ofderivatives for the year ended December 31, 2013 represents either hedge ineffectiveness or components of changes in fair value of derivatives excluded fromthe assessments of hedge effectiveness.Income Tax ExpensesWe are subject to income taxes in the United States and many foreign jurisdictions and our effective tax rate is affected by changes in the mix ofearnings between countries with differing tax rates. Our primary foreign operations are in Korea where the statutory tax rate applicable to us wasapproximately 24.2% in 2013 and 2012. Statutory tax rates for all foreign subsidiaries other than our Japanese subsidiary were less than the U.S. federalstatutory rate of 35%.For the years ended December 31, 2013 and 2012, we recorded income tax expense of $4.0 million and $12.8 million, respectively. The effective taxrate was (6.6)% for the year ended December 31, 2013, as compared to 10.5% for the year ended December 31, 2012. A significant factor impacting oureffective tax rate for the years ended December 31, 2013 and 2012 was intercompany interest related withholding taxes of $3.9 million and $4.2 millionrespectively. Such withholding taxes could be offset by application of foreign tax credits, but due to the uncertainty of utilization, a full valuation allowancewas recognized.The effective tax rate for the year ended December 31, 2012 was impacted by the utilization of loss carryforwards. In the year ended December 31,2013, losses were recognized for which no tax benefit could be recognized. In addition, there was a $7.6 million effect of a deemed dividend under section956 of the US Internal Revenue Code of 1986, as amended (“IRC”), in the year ended December 31, 2012.Net IncomeAs a result of the foregoing, net income decreased by $174.2 million, or 158.3%, in the year ended December 31, 2013 compared to the year endedDecember 31, 2012. As discussed above, the decrease in net income was primarily due to a $40.4 million decrease in foreign currency gain, a $32.8 millionloss on early extinguishment of senior notes and a $111.1 million decrease in operating income, partially offset by a $8.9 million decrease in income taxexpenses and a $2.2 million decrease in interest expense. 58Table of ContentsIndex to Financial StatementsResults of Operations—Comparison of Years Ended December 31, 2012 and 2011The following table sets forth consolidated results of operations for the year ended December 31, 2012 and 2011: Year EndedDecember 31, 2012 Year EndedDecember 31, 2011 As restated As Restated Amount % ofNet Sales Amount % ofNet Sales ChangeAmount (In millions) Net sales $807.3 100.0% $743.1 100.0% $64.2 Cost of sales 564.1 69.9 543.6 73.1 20.5 Gross profit 243.2 30.1 199.5 26.9 43.7 Selling, general and administrative expenses 82.7 10.2 70.2 9.4 12.5 Research and development expenses 76.3 9.4 76.6 10.3 (0.3) Restructuring and impairment charges — — 3.6 0.5 (3.6) Special expense for IPO incentive — — 12.1 1.6 (12.1) Operating income 84.3 10.4 37.0 5.0 47.3 Interest expense, net (22.6) (2.8) (25.0) (3.4) 2.4 Foreign currency gain (loss), net 57.3 7.1 (11.3) (1.5) 68.6 Loss on early extinguishment of senior notes — — (5.5) (0.7) 5.5 Others 3.9 0.5 1.6 0.2 2.3 38.6 4.8 (40.2) (5.4) 78.7 Income (loss) before income taxes 122.9 15.2 (3.2) (0.4) 126.1 Income tax expenses 12.8 1.6 8.1 1.1 4.7 Net income (loss) $110.0 13.6% $(11.3) (1.5)% $121.3 Net Sales Year EndedDecember 31, 2012 Year EndedDecember 31, 2011 As Restated As Restated Amount % ofNet Sales Amount % ofNet Sales ChangeAmount (In millions) Display Solutions $285.9 35.4% $323.6 43.6% $(37.7) Power Solutions 125.0 15.5 87.9 11.8 37.0 Semiconductor Manufacturing Services 395.9 49.0 330.7 44.5 65.1 All other 0.6 0.1 0.9 0.1 (0.3) $807.3 100.0% $743.1 100.0% $64.2 Net sales were $807.3 million for the year ended December 31, 2012, a $64.2 million, or 8.6%, increase compared to $743.1 million for the year endedDecember 31, 2011. Net sales increased in 2012 compared to fiscal year 2011 primarily as a result of an increase in revenue related to our Power Solutionsand Semiconductor Manufacturing Services lines, offset by a decrease in revenue related to our Display Solutions line as described below.Display Solutions. Net sales from our Display Solutions line were $285.9 million for the year ended December 31, 2012, a $37.7 million, or 11.6%,decrease compared to $323.6 million for the year ended December 31, 2011. The decrease in sales volume led to a 8% decline in revenue, and a decline inaverage selling price led to a 2% decline in revenue. A decrease in sales of mobile display chips negatively affected both sales volume and average sellingprices.Power Solutions. Net sales from our Power Solutions line were $125.0 million for the year ended December 31, 2012, a $37.0 million, or 42.1%,increase compared to $87.9 million for the year ended December 31, 2011. The increase in sales volume contributed to a 25% increase in revenue and anincrease in average selling prices contributed to a 19% increase in revenue. An increase in the sale of premium products positively affected average sellingprices.Semiconductor Manufacturing Services. Net sales from our Semiconductor Manufacturing Services line were $395.9 million for the year endedDecember 31, 2012, a $65.1 million, or 19.7%, increase compared to $330.7 million for the year ended December 31, 2011. This increase in sales volume ofeight-inch equivalent wafers contributed to a 13% increase in revenue and an increase in average selling prices contributed to a 10% increase in revenue. 59Table of ContentsIndex to Financial StatementsAll Other. All other net sales were $0.6 million for the year ended December 31, 2012, and $0.9 million for the year ended December 31, 2011.Net Sales by Geographic RegionWe report net sales by geographic region based on the location of customers. Revenue from a foreign subsidiary of a multi-national corporation isclassified based on the location of the subsidiary. The following table sets forth our net sales by geographic region and the percentage of total net salesrepresented by each geographic region for the years ended December 31, 2012 and 2011: Year EndedDecember 31, 2012 Year EndedDecember 31, 2011 As Restated As Restated Amount % ofNet Sales Amount % ofNet Sales ChangeAmount (In millions) Korea $365.7 45.3% $372.7 50.2% $(7.1)Asia Pacific (other than Korea) 271.9 33.7 271.5 36.5 0.4 U.S.A. 124.5 15.4 75.4 10.1 49.1 Europe 39.3 4.9 14.0 1.9 25.3 Others 6.0 0.7 9.5 1.3 (3.5) $807.3 100.0% $743.1 100.0% $64.2 Net sales in the U.S. for the year ended December 31, 2012 increased from $75.4 million to $124.5 million compared to the year ended December 31,2011, or by $49.1 million, or 65.1%, primarily due to increased demand in the market for our Semiconductor Manufacturing Services products. Net sales inEurope for the year ended December 31, 2012 increased from $14.0 million to $39.3 million compared to the year ended December 31, 2011, or by $25.3million, or 180.3%, primarily due to increased demand in the market for our Semiconductor Manufacturing Services products.Gross ProfitTotal gross profit was $243.2 million for the year ended December 31, 2012 compared to $199.5 million for the year ended December 31, 2011, a$43.7 million, or 21.9%, increase. Gross profit as a percentage of net sales for the year ended December 31, 2012 increased to 30.1% compared to 26.9% forthe year ended December 31, 2011. This increase in gross profit was primarily attributable to an increase in average selling prices and utilization rate and adecrease in depreciation expense, which were partially offset by a $6.0 million increase in inventory reserves, non-recurring expenses related to thesettlement of certain commercial disputes of $1.6 million compared to $2.1 million of such expenses in 2011, and other increases in costs due to an increasein manufacturing headcount, average salary, facility repair and maintenance expenses, and outsourced manufacturing expenses.Operating ExpensesSelling, General and Administrative Expenses. Selling, general and administrative expenses were $82.7 million, or 10.2% of net sales for the yearended December 31, 2012, compared to $70.2 million, or 9.4% of net sales for the year ended December 31, 2011. The increase of $12.5 million, or 17.7%,was primarily attributable to an increase in salaries and related expenses resulting from an annual salary increase, an increase in headcount, a $2.1 millionincrease from a one-time payment of custom duties and penalties recorded in 2012, related to the decision by the Korea Customs Service on certain productsmanufactured by certain semiconductor companies operating in Korea, and an increase in outside service fees in 2012 compared to 2011 related to secondaryoffering expenses.Research and Development Expenses. Research and development expenses for the year ended December 31, 2012 were $76.3 million, or 9.4% of netsales, a decrease of $0.3 million, or 0.4%, from $76.6 million, or 10.3% of net sales for the year ended December 31, 2011. This decrease was primarily due toa small decrease in the use of our manufacturing facilities for R&D activities, partially offset by an increase in salaries and related expenses resulting from anannual salary increase.Restructuring and Impairment Charges. We had no restructuring and impairment charges for the year ended December 31, 2012 compared to $3.6million for the year ended December 31, 2011. Restructuring charges of $1.1 million recorded for the year ended December 31, 2011 were related to theclosure of our research and development center in Japan and our sales subsidiary in the United Kingdom. Impairment charges of $2.5 million for the yearended December 31, 2011 consisted of $2.0 million from twelve abandoned in-process research and development projects and one dropped existingtechnology, $0.4 million from one abandoned system project and $0.1 million from impairment of tangible and intangible assets. 60Table of ContentsIndex to Financial StatementsSpecial expense for the MagnaChip IPO Incentive. We paid $12.1 million in special cash incentive payments to all employees, excludingmanagement, which were contingent upon the consummation of the MagnaChip IPO in March 2011, and had no corresponding expense in 2012.Operating IncomeAs a result of the foregoing, operating income increased by $47.3 million, or 128.0%, in the year ended December 31, 2012 compared to the year endedDecember 31, 2011. As discussed above, the increase in operating income primarily resulted from a $43.7 million increase in gross profit, the payment of a$12.1 million special cash incentive to all employees, excluding management, in connection with the MagnaChip IPO in 2011, a $3.6 million decrease inrestructuring and impairment charges and a $0.3 million decrease in research and development expenses, which were partially offset by a $12.5 millionincrease in selling, general and administrative expenses.Other Income (Expense)Interest Expense, Net. Net interest expense was $22.6 million for the year ended December 31, 2012, a decrease of $2.4 million compared to$25.0 million for the year ended December 31, 2011. Interest expense for the years ended December 31, 2012 and 2011 was incurred primarily under our2018 Notes originally issued on April 9, 2010. This decrease from 2011 to 2012 was attributable to the repurchase of $35.0 million and $11.3 million out ofan initial aggregate amount of $250.0 million of our 2018 Notes on May 16, 2011 and on September 19, 2011, respectively.Foreign Currency Gain (Loss), Net. Net foreign currency gain for the year ended December 31, 2012 was $57.3 million, compared to net foreigncurrency loss of $11.3 million for the year December 31, 2011. A substantial portion of our net foreign currency gain or loss is non-cash translation gain orloss associated with intercompany balances at our Korean subsidiary and is affected by changes in the exchange rate between the Korean won and theU.S. dollar. Foreign currency translation gain from intercompany balances was included in determining our consolidated net income since the intercompanybalances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respectivematurity dates.Loss on early extinguishment of senior notes. We repurchased $35.0 million and $11.3 million out of $250.0 million aggregate principal amount ofour 2018 Notes originally outstanding on May 16 and September 19, 2011, respectively. We recognized $5.5 million of loss on the early extinguishment ofour 2018 Notes, which consisted of $4.0 million from a repurchase premium, $0.6 million from the write-off of discounts, $0.6 million from write-off of debtissuance costs and $0.3 million from the incurrence of direct legal and advisory service fees.Others. Others were comprised of gains and losses on valuation of derivatives which were designated as hedging instruments. Net gain on valuation ofderivatives for the year ended December 31, 2012 represents either hedge ineffectiveness or components of changes in fair value of derivatives excluded fromthe assessments of hedge effectiveness.Income Tax ExpensesWe are subject to income taxes in the United States and many foreign jurisdictions and our effective tax rate is affected by changes in the mix ofearnings between countries with differing tax rates. Our primary foreign operations are in Korea where the statutory tax rate applicable to us wasapproximately 24.2% in 2012 and 2011. Statutory tax rates for all foreign subsidiaries other than our Japanese subsidiary were less than the U.S. federalstatutory rate of 35%.For the years ended December 31, 2012 and 2011, we recorded income tax expense of $12.8 million and $8.1 million, respectively. The effective taxrate was 10.5% for the year ended December 31, 2012, as compared to (254.7)% for the year ended December 31, 2011. A significant factor impacting oureffective tax rate for the years ended December 31, 2012 and 2011 was intercompany interest related withholding taxes of $4.2 million and $5.9 million,respectively. Such withholding taxes could be offset by application of foreign tax credits, but due to the uncertainty of utilization, a full valuation allowancewas recognized.The effective tax rate for the year ended December 31, 2012 was impacted by the utilization of loss carryforwards. In the year ended December 31,2011, losses were recognized for which no tax benefit could be recognized. In addition, there was a $7.6 million effect of a deemed dividend under IRCsection 956 in the year ended December 31, 2012.Net IncomeAs a result of the foregoing, net income increased by $121.3 million in the year ended December 31, 2012 compared to the year ended December 31,2011. As discussed above, the increase in net income was primarily due to a $68.6 million increase in foreign currency gain, a $47.3 million increase inoperating income, a $2.4 million decrease in interest expenses, a $5.5 million loss on the early extinguishment of our 2018 Notes for the year endedDecember 31, 2011, partially offset by a $4.7 million increase in income tax expenses. 61Table of ContentsIndex to Financial StatementsLiquidity and Capital ResourcesOur principal capital requirements are to fund sales and marketing, invest in research and development and capital equipment, to make debt servicepayments 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 and our cash flows from operations and our financing activities. Our ability to managecash and cash equivalents may be limited, as our primary cash flows are dictated 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 orengage in accounts receivable discounting to facilitate the collection of cash. For a description of our factoring arrangements and accounts receivablediscounting, please see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 4. Accounts Receivable”included elsewhere in this Report. In addition, from time to time, we may make payments to our vendors on extended terms with their consent.Although we currently anticipate that our cash and cash equivalents on hand and cash flows from operations will be sufficient to meet our expectedcash needs for the next twelve months, we may require or choose to obtain additional financing. If we raise additional funds through the issuance of equity,equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholdersmay experience dilution. If we need to raise additional funds in the future and are unable to do so or obtain additional financing on unfavorable terms in thefuture, it is possible we would have to limit certain planned activities including capital expenditures, sales and marketing, and research and developmentactivities.Year ended December 31, 2013 compared to year ended December 31, 2012As of December 31, 2013, our cash and cash equivalents balance was $153.6 million, a $28.6 million decrease, compared to $182.2 million as ofDecember 31, 2012. The decrease resulted from $44.1 million of cash outflow used in investing activities and $50.1 million of cash outflow used in financingactivities including our repurchase of $51.0 million of our common stock, which was offset by $68.8 million of cash inflow provided by operating activities.On October 7, 2011, our Board adopted a stock repurchase program whereby we may, subject to prevailing market conditions and other factors,repurchase up to $35.0 million of our outstanding common stock. Our Board extended and increased the program by an additional $25.0 million in August2012, for a maximum aggregate repurchase amount under the original program of up to $60.0 million. On July 30, 2013, we announced that the Boardapproved a new stock repurchase program under which we are authorized to repurchase up to $100.0 million of our common stock. The new stock repurchaseprogram was effective August 5, 2013 through December 15, 2014, and replaced the original stock repurchase program. The stock repurchase program did notrequire that we purchase a minimum amount of shares of our common stock and may be commenced, suspended, resumed or terminated at any time withoutnotice. The timing and extent of any repurchases were dependent upon prevailing market conditions, the trading price of the Company’s common stock andother factors, and subject to contractual restrictions and restrictions under applicable law and regulations. As of December 31, 2013, we had repurchased6,578,765 shares of our common stock in the open market under these programs at an aggregate cost of $90.9 million. In March 2014, the Board suspendedthe stock repurchase program indefinitely pending the completion of the Independent Investigation, and the stock repurchase program expired by its termson December 15, 2014. Subsequent to December 31, 2013, we did not repurchase any shares under the stock repurchase program.Cash inflows generated by operating activities totaled $68.8 million for the year ended December 31, 2013, compared to $118.1 million of cashprovided by operating activities in the year ended December 31, 2012. The net operating cash inflow for the year ended December 31, 2013 reflects our netloss of $64.2 million and non-cash adjustments of $81.3 million, which mainly consisted of depreciation and amortization, provision for severance benefits, aloss on early extinguishment of senior notes and a decrease in net operating assets of $51.6 million.Our working capital balance as of December 31, 2013 was $172.1 million compared to $238.6 million as of December 31, 2012. The $66.5 milliondecrease was primarily attributable to a $27.1 million decrease in accounts receivable, a $28.6 million decrease in cash and cash equivalents and a $18.1million increase in accrued expense. Our accounts receivable balance declined due to increased collection efforts by the Company. The increase in accruedexpense is a result of increased accrual of salaries and related benefits, settlement obligations and withholding taxes on interest.Cash flows used in investing activities totaled $44.1 million in the year ended December 31, 2013, compared to $60.5 million of cash used ininvesting activities in the year ended December 31, 2012. The decrease was primarily due to a decrease in capital expenditures of $16.3 million and $8.6million related to the Dawin acquisition, which were partially offset by a $6.7 million change in restricted cash.Cash outflow used in financing activities totaled $50.1 million for the year ended December 31, 2013, compared to $30.1 million of cash outflow usedin financing activities for the year ended December 31, 2012. The financing cash outflow for the year ended December 31, 2013 mainly consisted of therepayment of $229.3 million of our 2018 Notes and the repurchase of $51.0 million of our outstanding common stock, which were offset by $11.4 million ofproceed received from the issuance of common stock in connection with option and warrant exercises and the net proceeds of $218.8 million from theissuance of our 2021 Notes. We repurchased 2,614,748 shares of common stock at a cost of $51.0 million for the year ended December 31, 2013. 62Table of ContentsIndex to Financial StatementsFor the year ended December 31, 2013, capital expenditures were $43.1 million, a $16.3 million, or 27.5%, decrease from $59.4 million in the yearended December 31, 2012. The decrease was primarily due to a comparatively larger high-technology investment in 2012.Year ended December 31, 2012 compared to year ended December 31, 2011As of December 31, 2012, our cash and cash equivalents balance was $182.2 million, a $20.1 million increase, compared to $162.1 million as ofDecember 31, 2011. The increase resulted from $118.1 million of cash inflow provided by operating activities, which was offset by $60.5 million of cashoutflow used in investing activities including $8.6 million related to the Dawin acquisition and $30.1 million of cash outflow used in financing activitiesincluding our repurchase of $28.1 million of our common stock.Cash inflows generated by operating activities totaled $118.1 million for the year ended December 31, 2012, compared to $103.6 million of cashprovided by operating activities in the year ended December 31, 2011. The net operating cash inflow for the year ended December 31, 2012 reflects our netincome of $110.0 million and non-cash adjustments of $(8.6) million, which mainly consisted of gain on foreign currency translation, depreciation andamortization and accrued severance benefits and a decrease in net operating assets of $16.6 million.Our working capital balance as of December 31, 2012 was $238.6 million compared to $212.0 million as of December 31, 2011. The $26.6 millionincrease was primarily attributable to a $20.1 million increase in cash and cash equivalents and a $19.7 million increase in inventories, which were partiallyoffset by a $11.9 million increase in accrued expense.Cash flows used in investing activities totaled $60.5 million in the year ended December 31, 2012, compared to $56.1 million of cash used ininvesting activities in the year ended December 31, 2011. The increase was primarily due to $8.6 million related to the Dawin acquisition and a $11.6 millionincrease in capital expenditures, which were partially offset by a $14.0 million change in restricted cash.Cash outflow used in financing activities totaled $30.1 million for the year ended December 31, 2012, compared to $59.1 million of cash outflow usedin financing activities for the year ended December 31, 2011. The financing cash outflow for the year ended December 31, 2012 mainly consists of therepurchase of $28.1 million of our outstanding common stock and $3.0 million repayment of capital lease obligations. We repurchased 2,432,477 shares ofcommon stock at a cost of $28.1 million for the year ended December 31, 2012.For the year ended December 31, 2012, capital expenditures were $59.4 million, a $11.6 million, or 24.3%, increase from $47.8 million in the yearended December 31, 2011. The increase was due to supporting capacity expansion and technology improvements at our fabrication facilities in anticipationof sales growth.SeasonalityOur net sales and number of distinct products sold are affected by market variations from quarter to quarter due to business cycles, and resultingproduct demand, of our customers. In our Display Solutions and Power Solutions business lines, consumer products manufacturers generally reduce orders inorder to reduce excess inventory remaining from the holiday season. In our Semiconductor Manufacturing Services business, the supply-demand cycle isusually one quarter ahead of the broader semiconductor market due to lead time from wafer input to shipment to our customers, so the demand for theseproducts tends to peak in the third quarter and is slower in the fourth and first quarters. 63Table of ContentsIndex to Financial StatementsContractual ObligationsThe following summarizes our contractual obligations as of December 31, 2013: Payments Due by Period Total 2014 2015 2016 2017 2018 Thereafter (In millions) Senior notes(1) $344.1 $14.8 $14.9 $14.9 $14.9 $14.9 $269.7 Operating lease(2) 53.3 6.0 5.4 4.6 2.2 2.2 32.8 Others(3) 18.1 9.6 6.5 2.0 — — — (1)Interest payments as well as $225.0 million aggregate principal amount of the 2021 Notes outstanding as of December 31, 2013, which bear interest ata rate of 6.625% per annum and are scheduled to mature in 2021.(2)Assumes constant currency exchange rate for Korean won to U.S. dollars of 1,055.3:1.(3)Includes license agreements and other contractual obligations.The indenture relating to the 2021 Notes contains covenants that limit our ability and our restricted subsidiaries to: (i) declare or pay any dividend ormake any payment or distribution on account of or purchase or redeem our capital stock or equity interests of the restricted subsidiaries; (ii) make anyprincipal payment on, or redeem or repurchase, prior to any scheduled repayment or maturity, any subordinated indebtedness; (iii) make certain investments;(iv) incur additional indebtedness and issue certain types of capital stock; (v) create or incur any lien (except for permitted liens) that secures obligationsunder any indebtedness; (vi) merge with or into or sell all or substantially all of our assets to other companies; (vii) enter into certain types of transactionswith affiliates; (viii) guarantee the payment of any indebtedness; (ix) enter into sale-leaseback transactions; (x) enter into agreements that would restrict theability of the restricted subsidiaries to make distributions with respect to their equity to us or other restricted subsidiaries, to make loans to us or otherrestricted subsidiaries or to transfer assets to us or other restricted subsidiaries; and (xi) designate unrestricted subsidiaries.We lease equipment for manufacturing and research and development purposes. These leases are accounted for as capital leases as the ownership of theequipment will be transferred to us upon expiration of the lease terms or we have bargain purchase options at the end of the lease terms.We lease land, office space and equipment under various operating lease agreements that expire through 2034.We follow ASC guidance on uncertain tax positions. Our unrecognized tax benefits totaled $3.7 million as of December 31, 2013. These unrecognizedtax benefits have been excluded from the above table because we cannot estimate the period of cash settlement with the respective taxing authorities.Critical Accounting Policies and EstimatesPreparing financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the relateddisclosures in our consolidated financial statements and accompanying notes.We believe that our significant accounting policies, which are described in ”Item 8. Financial Statements and Supplementary Data—Notes toConsolidated Financial Statements—Note 1. Business, Basis of Presentation and Significant Accounting Policies” included elsewhere in this Report, arecritical 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 theseestimates 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 eventsoccur, as more experience is acquired, as additional information is obtained and as the business environment in which we operate changes.Revenue RecognitionRevenue is recognized when there is persuasive evidence of an arrangement, the price to the buyer is fixed or determinable, delivery has occurred andcollectability of the sales price is reasonably assured. Revenue from the sale of products is recognized when title and risk of loss transfers to the customer,which is generally when the product is shipped to or accepted by the customer depending on the terms of the arrangement.A portion of our sales are made through distributors for which revenue recognition criteria are usually met when the product is shipped to or acceptedby the distributor, consistent with the principles described above. However, the risk of loss may not pass upon shipment of products to the distributors due toa variety of reasons, including the nature of the business arrangement with the distributors. For example, the financial condition of a distributor may indicatethat payments by the distributor to us are contingent on resale of products to an end customer. In this situation, we defer recognition of revenue and cost ofrevenue on transactions with such distributor until we are informed by the distributor that the product has been resold to the end customer.In accordance with revenue recognition guidance, any tax assessed by a governmental authority that is directly imposed on a revenue-producingtransaction between a seller and a customer is presented in the statements of operations on a net basis (excluded from revenues).We provide a warranty, under which customers can return defective products. We estimate the costs related to those defective product returns andrecord them as a component of cost of sales.In addition, we offer sales returns (other than those that relate to defective products under warranty), yield provisions, cash discounts for early paymentsand certain allowances to our customers, including distributors. We record reserves for those returns, discounts and allowances as a deduction from sales,based on historical experience and other quantitative and qualitative factors.All amounts billed to a customer related to shipping and handling are classified as sales while all costs incurred by us for shipping and handling areclassified as selling, general and administrative expenses. 64Table of ContentsIndex to Financial StatementsSales of Accounts ReceivableWe account for transfers of financial assets under ASC 860, “Transfers and Servicing,” as either sales or financings. Transfers of financial assets thatresult in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the right to pledgeor exchange the transferred assets and no condition both constraints the transferee’s right to pledge or exchange the assets and provides more than a trivialbenefit to the transferor and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria, thetransfer is accounted for as a financing. Financial assets that are treated as sales are removed from our accounts with any realized gain or loss reflected inearning during the period of sale.Product WarrantiesWe record, in other current liabilities, warranty liabilities for the estimated costs that may be incurred under our basic limited warranty. The standardlimited warranty period is one year for the majority of products. This warranty covers defective products, and related liabilities are accrued when productrevenues are recognized. Factors that affect our warranty liability include historical and anticipated rates of warranty claims and repair or replacement costsper claim to satisfy our warranty obligation. As these factors are impacted by actual experience and future expectations, we periodically assess the adequacyof our recorded warranty liabilities and adjust the amounts when necessary.InventoriesInventories are stated at the lower of cost or market, using the average cost method, which approximates the first in, first out method (“FIFO”). If netrealizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized as a loss onvaluation of inventories within cost of sales. Inventory reserves are established when conditions indicate that the net realizable value is less than costs due tophysical deterioration, obsolescence, changes in price levels or other causes based on individual facts and circumstances. Reserves are also established forexcess inventory based on inventory levels in excess of six months of projected demand for each specific product.In addition, as prescribed in ASC 330, “Inventory,” the cost of inventories is determined based on the normal capacity of each fabrication facility. Incase the capacity utilization is lower than a certain level that management believes to be normal, the fixed overhead costs per production unit which exceedthose under normal capacity are charged to cost of sales rather than capitalized as inventories.Impairment of Long-Lived AssetsWe review property, plant and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable in accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”). Recoverability is measured bycomparing its carrying amount with the future net undiscounted cash flows the assets are expected to generate. If such assets are considered to be impaired,the impairment is measured as the difference between the carrying amount of the assets and the fair value of assets using the present value of the future netcash flows generated by the respective long-lived assets.Intangible AssetsIntangible assets other than intellectual property include technology and customer relationships which are amortized on a straight-line basis overperiods ranging from one to five years. Intellectual property assets acquired represent rights under patents, trademarks and property use rights and areamortized over their respective periods of benefit, ranging up to ten years, on a straight-line basis.Income TaxesPrior to its conversion to a corporation, MagnaChip Semiconductor LLC elected to be treated as a partnership for U.S. federal income tax purposes andtherefore was not subject to income taxes on its income. Taxes on its income were the responsibility of the individual equity owners of MagnaChipSemiconductor LLC. MagnaChip Semiconductor Corporation became a taxable entity according to the corporate conversion in March 2011. The Companyoperates a number of subsidiaries that are subject to local income taxes in those territories.The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred taxassets and liabilities for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Underthis method, deferred tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax basesof assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are establishedwhen it is necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the changeduring the period in deferred tax assets and liabilities. 65Table of ContentsIndex to Financial StatementsThe Company recognizes and measures uncertain tax positions taken or expected to be taken in a tax return utilizing a two-step process. In the firststep, recognition, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution ofany related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meetsthe more-likely-than-not criteria. The tax position is measured at the largest amount of benefit that has a likelihood of greater than 50 percent of beingrealized upon ultimate settlement.Derivative Financial InstrumentsWe apply the provisions of ASC 815, “Derivatives and Hedging” (“ASC 815”). This Statement requires the recognition of all derivative instruments aseither assets or liabilities measured at fair value.Under the provisions of ASC 815, we may designate a derivative instrument as hedging the exposure to variability in expected future cash flows thatare attributable to a particular risk (a “cash flow hedge”) or hedging the exposure to changes in the fair value of an asset or a liability (a “fair value hedge”).Special accounting for qualifying hedges allows the effective portion of a derivative instrument’s gains and losses to offset related results on the hedged itemin the consolidated statements of operations and requires that a company formally document, designate and assess the effectiveness of the transactions thatreceive hedge accounting treatment. Both at the inception of a hedge and on an ongoing basis, a hedge must be expected to be highly effective in achievingoffsetting changes in cash flows or fair value attributable to the underlying risk being hedged. If we determine that a derivative instrument is no longer highlyeffective as a hedge, it discontinues hedge accounting prospectively and future changes in the fair value of the derivative are recognized in current earnings.We assess hedge effectiveness at the end of each quarter.In accordance with ASC 815, changes in the fair value of derivative instruments that are cash flow hedges are recognized in accumulated othercomprehensive income (loss) and reclassified into earnings in the period in which the hedged item affects earnings. Ineffective portions of a derivativeinstrument’s change in fair value are immediately recognized in earnings. Derivative instruments that do not qualify, or cease to qualify, as hedges must beadjusted to fair value and the adjustments are recorded through net income (loss).The cash flows from derivative instruments receiving hedge accounting treatment are classified in the same categories as the hedged items in theconsolidated statements of cash flows.Recent Accounting PronouncementsIn June 2014, the FASB issued Accounting Standards Update No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-MaturityTransactions, Repurchase Financings, and Disclosures” (“ASU 2014-11”). The guidance in this update changes the accounting for repurchase-to-maturitytransactions and repurchasing financing arrangements. It also requires enhanced disclosures about repurchase agreements and other similar transactions. Theaccounting changes in this update are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, forpublic companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or afterDecember 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning afterDecember 15, 2014, and interim periods beginning after March 15, 2015. Early application is not permitted. We are currently evaluating the impact of theadoption of ASU 2014-11 on our consolidated financial statements.In May 2014, the FASB issued Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers.” (“ASU 2014-09”). ASU 2014-09supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transferspromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goodsor services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.Early adoption is not permitted. We are currently evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The adoption of ASU 2013-11 will require an unrecognized taxbenefit, or a portion of an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating losscarryforward, a similar tax loss, or a tax credit carryforward, unless an exception applies. The amendments in this update are effective for fiscal years, andinterim periods within those fiscal years, beginning after December 15, 2013. The adoption of this standard did not have a material impact on ourconsolidated financial statements.In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated OtherComprehensive Income,” (“ASU 2013-02”) which requires an entity to provide information about the amounts reclassified out of accumulated othercomprehensive income by component. In addition, ASU 2013-02 requires an entity to present, either on the face of the income statement or in the notes tofinancial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only ifthe amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity isrequired to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. The 66Table of ContentsIndex to Financial Statementsupdate does not change the current requirements for reporting net income or other comprehensive income in financial statements and is effectiveprospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have a material impact on our consolidatedfinancial statements. 67Table of ContentsIndex to Financial StatementsItem 7A. Quantitative and Qualitative Disclosures About Market RiskWe are exposed to the market risk that the value of a financial instrument will fluctuate due to changes in market conditions, primarily from changes inforeign currency exchange rates and interest rates. In the normal course of our business, we are subject to market risks associated with interest rate movementsand currency movements on our assets and liabilities.Foreign Currency ExposuresWe have exposure to foreign currency exchange rate fluctuations on net income from our subsidiaries denominated in currencies other thanU.S. dollars, as our foreign subsidiaries in Korea, Taiwan, China, Japan and Hong Kong use local currency as their functional currency. From time to timethese subsidiaries have cash and financial instruments in local currency. The amounts held in Japan, Taiwan, Hong Kong and China are not material inregards to foreign currency movements. However, based on the cash and financial instruments balance at December 31, 2013 for our Korean subsidiary, a10% devaluation of the Korean won against the U.S. dollar would have resulted in a decrease of $4.2 million in our U.S. dollar financial instruments and cashbalances. Based on the Japanese yen cash balance at December 31, 2013, a 10% devaluation of the Japanese yen against the U.S. dollar would have resultedin a decrease of $0.1 million in our U.S. dollar cash balance.See “Note 9. Derivative Financial Instruments” to our consolidated financial statements under “Item 8. Financial Statements and Supplementary Data”and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations—Impact of Foreign Currency Exchange Rates on Reported Results of Operations” for additional information regarding our foreign exchange hedgingactivities.Interest Rate ExposuresAs of December 31, 2013, $225.0 million aggregate principal amount of senior notes were outstanding. Our senior notes are subject to changes in fairvalue due to interest rate changes. If the market interest rate increases by 10% and all other variables were held constant from their levels at December 31,2013, we estimate that the fair value of this fixed rate note would decrease by $8.6 million and we would have additional interest expense costs over themarket rate of $0.9 million (on a 360-day basis). If the market interest rate decreased by 10% and all other variables were held constant from their levels atDecember 31, 2013, we estimate that the fair value of this fixed rate note would increase by $9.0 million and we would have a reduction in interest expensecosts over the market rate of $1.0 million (on a 360-day basis). 68Table of ContentsIndex to Financial StatementsItem 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 70 MagnaChip Semiconductor Corporation Consolidated Balance Sheets as of December 31, 2013, 2012 (As Restated) and 2011 (As Restated) 71 MagnaChip Semiconductor Corporation Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 (As Restated) and2011 (As Restated) 72 MagnaChip Semiconductor Corporation Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2012 (AsRestated) and 2011 (As Restated) 73 MagnaChip Semiconductor Corporation Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2013, 2012(As Restated) and 2011 (As Restated) 74 MagnaChip Semiconductor Corporation Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 (As Restated) and2011 (As Restated) 75 MagnaChip Semiconductor Corporation Notes to Consolidated Financial Statements 76 69Table of ContentsIndex to Financial StatementsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofMagnaChip Semiconductor CorporationIn our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position ofMagnaChip Semiconductor Corporation and its subsidiaries (the “Company”) at December 31, 2013, 2012 and 2011, and the results of their operations andtheir cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the UnitedStates of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as ofDecember 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizationsof the Treadway Commission (COSO) because material weaknesses in internal control over financial reporting related to (1) not maintaining an effectivecontrol environment, with respect to: (i) an attitude of integrity and ethics against the pressure to achieve sales, gross margin and adjusted EBITDA targets,(ii)adherence to U.S. GAAP, (iii) utilization of the whistleblower program, (iv) prevention or detection of undisclosed business practices involving thecircumvention of numerous internal controls under the management team then in place, and (v) appropriate level of accounting knowledge, experience andtraining commensurate with the Company’s financial reporting requirements under U.S. GAAP; (2) not maintaining effective monitoring activities toevaluate and communicate internal control deficiencies in a timely manner to those parties responsible for taking corrective actions, including maintainingan effective internal audit function; (3) not designing effective controls over the completeness and accuracy of period end adjusting entries; and (4) notdesigning effective controls over the completeness and accuracy of the Company’s income tax accounting and disclosures, which existed as of that date. Amaterial weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility thata material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred toabove are described in Management’s Report on Internal Control Over Financial Reporting under Item 9A. We considered these material weaknesses indetermining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2013 consolidated financial statements, and our opinionregarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to expressopinions on these financial statements, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted ouraudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectivenessof internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. Webelieve that our audits provide a reasonable basis for our opinions.As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2012 and 2011 consolidated financial statements tocorrect for errors.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate./s/ Samil PricewaterhouseCoopersSeoul, KoreaFebruary 12, 2015 70Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS December 31, 2013 2012(As Restated) 2011(As Restated) (In thousands of US dollars, except share data) Assets Current assets Cash and cash equivalents $153,606 $182,238 $162,111 Restricted cash 4 133 6,830 Accounts receivable, net 78,898 105,983 102,622 Inventories, net 74,698 82,384 62,683 Other receivables 6,011 1,560 509 Prepaid expenses 9,194 7,884 6,032 Current deferred income tax assets 1,348 1,788 2,076 Other current assets 10,403 10,624 12,471 Total current assets 334,162 392,594 355,334 Property, plant and equipment, net 254,297 237,392 182,663 Intangible assets, net 3,111 15,260 16,787 Long-term prepaid expenses 16,405 18,048 4,790 Deferred income tax assets 896 2,586 4,770 Other non-current assets 16,319 14,866 15,002 Total assets $625,190 $680,746 $579,346 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $75,059 $79,365 $77,880 Other accounts payable 15,670 16,759 13,452 Accrued expenses 65,494 47,375 35,469 Current portion of capital lease obligation — — 2,852 Derivative liabilities — 944 9,757 Other current liabilities 5,872 9,544 3,893 Total current liabilities 162,095 153,987 143,303 Long-term borrowings, net 223,923 201,653 201,389 Accrued severance benefits, net 134,172 114,858 92,432 Other non-current liabilities 23,459 18,719 8,050 Total liabilities 543,649 489,217 445,174 Commitments and contingencies (Note 20) Stockholders’ equity Common stock, $0.01 par value, 150,000,000 shares authorized, 40,627,131 shares issuedand 34,048,366 outstanding at December 31, 2013, 39,599,374 shares issued and35,635,357 outstanding at December 31, 2012 and 39,439,115 shares issued and37,907,575 outstanding at December 31, 2011 406 396 394 Additional paid-in capital 116,222 102,409 99,060 Retained earnings 105,889 170,092 60,054 Treasury stock, 6,578,765, 3,964,017 and 1,531,540 shares at December 31, 2013, 2012 and2011, respectively (90,918) (39,918) (11,793) Accumulated other comprehensive loss (50,058) (41,450) (13,543) Total stockholders’ equity 81,541 191,529 134,172 Total liabilities and stockholders’ equity $625,190 $680,746 $579,346 The accompanying notes are an integral part of these consolidated financial statements 71Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) (In thousands of US dollars, except share data) Net sales $734,177 $807,336 $743,130 Cost of sales 579,109 564,089 543,596 Gross profit 155,068 243,247 199,534 Selling, general and administrative expenses 85,767 82,677 70,223 Research and development expenses 87,862 76,255 76,589 Restructuring and impairment charges 8,207 — 3,599 Special expense for IPO incentive — — 12,146 Operating income (loss) (26,768) 84,315 36,977 Other income (expenses) Interest expense, net (20,360) (22,600) (24,984) Foreign currency gain (loss), net 16,837 57,280 (11,348) Loss on early extinguishment of senior notes (32,812) — (5,459) Others 2,870 3,890 1,628 (33,465) 38,570 (40,163) Income (loss) before income taxes (60,233) 122,885 (3,186) Income tax expenses 3,970 12,847 8,115 Net income (loss) $(64,203) $110,038 $(11,301) Earnings (loss) per common share— Basic $(1.82) $3.01 $(0.29) Diluted $(1.82) $2.93 $(0.29) Weighted average number of shares— Basic 35,232,194 36,567,684 38,775,642 Diluted 35,232,194 37,533,391 38,775,642 The accompanying notes are an integral part of these consolidated financial statements 72Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) (In thousands of US dollars, except share data) Net income (loss) $(64,203) $110,038 $(11,301) Other comprehensive income (loss) Foreign currency translation adjustments (13,727) (37,737) 8,373 Derivative adjustments Fair valuation of derivatives 7,497 5,237 (5,559) Reclassification adjustment for loss (gain) on derivatives included in netincome (loss) (2,984) 4,608 (10,979) Unrealized gain (loss) on investments 606 (15) (103) Total comprehensive income (loss) $(72,811) $82,131 $(19,569) The accompanying notes are an integral part of these consolidated financial statements. 73Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock AdditionalPaid-In Capital Retainedearnings TreasuryStock AccumulatedOtherComprehensive Loss Total (In thousands of US dollars, except share data) Shares Amount Balance at January 1, 2011 (As Previously Reported) 38,401,989 $384 $95,585 $72,157 $— $(5,275) $162,851 Adjustments to stockholders’ equity — — (827) (802) — — (1,629)Balance at January 1, 2011 (As Restated) 38,401,989 $384 $94,758 $71,355 $— $(5,275) $161,222 Forfeiture of restricted stock (3,465) — — — — — — Stock-based compensation — — 2,216 — — — 2,216 Issuance of common stock 950,586 10 1,557 — — — 1,567 Exercise of stock options 90,005 — 529 — — — 529 Acquisition of treasury stock (1,531,540) — — — (11,793) — (11,793) Other comprehensive loss, net — — — — — (8,268) (8,268) Net loss — — — (11,301) — — (11,301) Balance at December 31, 2011 (As Restated) 37,907,575 $394 $99,060 $60,054 $(11,793) $(13,543) $134,172 Stock-based compensation — — 2,389 — — — 2,389 Issuance of common stock 4,499 — 46 — — — 46 Exercise of stock options 155,708 2 914 — — — 916 Exercise of warrants 52 — — — — — — Acquisition of treasury stock (2,432,477) — — — (28,125) — (28,125) Other comprehensive loss, net — — — — — (27,907) (27,907) Net Income — — — 110,038 — — 110,038 Balance at December 31, 2012 (As Restated) 35,635,357 $396 $102,409 $170,092 $(39,918) $(41,450) $191,529 Stock-based compensation — — 2,213 — — — 2,213 Exercise of stock options 579,476 6 4,540 — — — 4,546 Exercise of warrants 448,281 4 7,060 — — — 7,064 Acquisition of treasury stock (2,614,748) — — — (51,000) — (51,000) Other comprehensive loss, net — — — — — (8,608) (8,608) Net loss — — — (64,203) — — (64,203) Balance at December 31, 2013 34,048,366 $406 $116,222 $105,889 $(90,918) $(50,058) $81,541 The accompanying notes are an integral part of these consolidated financial statements 74Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) (In thousands of US dollars) Cash flows from operating activities Net income (loss) $(64,203) $110,038 $(11,301) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 32,726 32,066 51,224 Provision for severance benefits 23,169 21,530 16,481 Amortization of debt issuance costs and original issue discount 890 1,009 970 Loss (gain) on foreign currency translation, net (18,329) (64,886) 14,835 Restructuring and impairment charges 6,378 — 2,499 Stock-based compensation 2,213 2,389 2,216 Loss on early extinguishment of senior notes 32,812 — 5,459 Other 1,479 (663) 1,450 Changes in operating assets and liabilities Accounts receivable 26,756 5,758 19,197 Inventories, net 9,593 (12,495) 4,359 Other receivables (3,964) (337) 2,403 Other current assets 11,026 10,835 (5,093) Deferred tax assets 1,470 1,914 1,509 Accounts payable (3,111) (1,737) 18,144 Other accounts payable (10,376) (11,007) (7,952) Accrued expenses 20,974 24,304 (1,668) Other current liabilities (387) 9,497 (1,151) Other non-current liabilities 6,073 (3,329) 837 Payment of severance benefits (6,130) (6,997) (10,478) Other (304) 217 (363) Net cash provided by operating activities 68,755 118,106 103,577 Cash flows from investing activities Decrease in restricted cash 125 13,021 6,410 Increase in restricted cash — (6,238) (13,609) Proceeds from disposal of plant, property and equipment 94 937 219 Purchase of property, plant and equipment (42,483) (58,538) (47,113) Payment for intellectual property registration (605) (882) (696) Payment for purchase of Dawin, net of cash acquired — (8,642) — Collection of guarantee deposits 117 81 1,544 Payment of guarantee deposits (1,365) (320) (2,482) Other 14 37 (371) Net cash used in investing activities (44,103) (60,544) (56,098) Cash flows from financing activities Proceeds from issuance of common stock 11,375 962 9,336 Proceeds from issuance of senior notes 218,836 — — Repayment of long-term borrowings (229,333) — — Repurchase of senior notes — — (50,307) Repayment of obligations under capital lease — (2,968) (6,312) Acquisition of treasury stock (51,000) (28,125) (11,793) Net cash used in financing activities (50,122) (30,131) (59,076) Effect of exchange rates on cash and cash equivalents (3,162) (7,304) 1,536 Net increase (decrease) in cash and cash equivalents (28,632) 20,127 (10,061) Cash and cash equivalents Beginning of the period 182,238 162,111 172,172 End of the period $153,606 $182,238 $162,111 Supplemental cash flow information Cash paid for interest $16,223 $21,955 $24,722 Cash paid (refunded) for income taxes $6,267 $(609) $1,954 Non-cash investing and financing activities Property, plant and equipment additions in other accounts payable $116 $2,989 $1,052 Deferred offering costs reclassified as reduction of additional paid-in capital $— $— $7,240 The accompanying notes are an integral part of these consolidated financial statements 75Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)RestatementThe Company’s consolidated financial statements as of and for the years ended December 31, 2012 and 2011 and related financial information havebeen restated to correct accounting errors. For further details on the nature of the corrections and the related effects on the Company’s previously issuedconsolidated financial statements, see Note 2, “Restatement of Consolidated Financial Statements.” Restated balances have been identified with the notation“As restated” where appropriate. Throughout these notes, the term “as previously reported” will be used to refer to balances from 2012 and 2011 consolidatedfinancial statements as reported prior to the restatement.1. Business, Basis of Presentation and Summary of Significant Accounting PoliciesBusinessMagnaChip Semiconductor Corporation (together with its subsidiaries, the “Company”) is a Korea-based designer and manufacturer of analog andmixed-signal semiconductor products for high-volume consumer, computer and communication applications. The Company’s business is comprised of threekey business lines: Display Solutions, Power Solutions and Semiconductor Manufacturing Services. The Company’s Display Solutions products includedisplay drivers for use in a wide range of flat panel displays and mobile multimedia devices. The Company’s Power Solutions products include discrete andintegrated circuit solutions for power management in high-volume consumer, computer and communication applications. The Company’s SemiconductorManufacturing Services provides specialty analog and mixed-signal foundry services for fabless semiconductor companies that serve the consumer,computing and wireless end markets.Basis of PresentationThe consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“USGAAP”).Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarizedbelow.Principles of ConsolidationThe consolidated financial statements include the accounts of the Company including its wholly-owned subsidiaries. All intercompany transactionsand balances are eliminated in consolidation.Business CombinationPursuant to accounting guidance for business combinations (“ASC 805”), the Company (i) applies the definition of “business” and “businesscombination” as prescribed by the revised guidance; (ii) recognize assets acquired, liabilities assumed (including goodwill) measured at fair value at theacquisition date; (iii) recognize acquisition-related expenses in earnings; and (iv) capitalize technology and customer relationships at fair value as intangibleassets.Use of EstimatesThe preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions about future events.These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, andreported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, inventories, goodwill, stock based compensation,property plant and equipment, intangible assets, other long-lived assets, long-term employee benefits, contingencies liabilities, and assumptions used in thecalculation of income taxes and sales incentives, among others. Although these estimates and assumptions are based on management’s best knowledge ofcurrent events and actions that the Company may undertake in the future, actual results may be significantly different from the estimates. Changes in thoseestimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. 76Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Foreign Currency TranslationThe Company has assessed in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”), the functional currency of each of its subsidiariesin Luxembourg and the Netherlands and has designated the U.S. dollar to be their respective functional currencies. The Company and its other subsidiariesare utilizing their local currencies as their functional currencies. The financial statements of the subsidiaries in functional currencies other than the U.S. dollarare translated into the U.S. dollar in accordance with ASC 830. All the assets and liabilities are translated to the U.S. dollar at the end-of-period exchangerates. Capital accounts are determined to be of a permanent nature and are therefore translated using historical exchange rates. Revenues and expenses aretranslated using average exchange rates for the respective periods. Foreign currency translation adjustments arising from differences in exchange rates fromperiod to period are included in the foreign currency translation adjustment account in accumulated comprehensive income (loss) of stockholders’ equity.Gains and losses due to transactions in currencies other than the functional currency are included as a component of other income (expense) in the statementof operations.Cash and Cash EquivalentsCash equivalents consist of highly liquid investments with an original maturity date of three months or less when purchased.Accounts Receivable ReservesAn allowance for doubtful accounts is provided based on the aggregate estimated uncollectability of the Company’s accounts receivable. TheCompany also records an estimate for sales returns, included within accounts receivable, net, based on the historical experience of the amount of goods thatwill be returned and refunded or replaced. In addition, the Company also includes in accounts receivable, an allowance for additional products that may haveto be provided, free of charge, to compensate customers for products that do not meet previously agreed yield criteria, the low yield compensation reserve.Sales of Accounts ReceivableThe Company accounts for transfers of financial assets under ASC 860, “Transfers and Servicing,” as either sales or financings. Transfers of financialassets that result in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the rightto pledge or exchange the transferred assets and no condition both constraints the transferee’s right to pledge or exchange the assets and provides more than atrivial benefit to the transferor, and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria,the transfer is accounted for as a financing. Financial assets that are treated as sales are removed from the Company’s accounts with any realized gain or lossreflected in earning during the period of sale.InventoriesInventories are stated at the lower of cost or market, using the average cost method, which approximates the first in, first out method (“FIFO”). If netrealizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized as a loss onvaluation of inventories within cost of sales. Inventory reserves are established when conditions indicate that the net realizable value is less than costs due tophysical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. Reserves are also established forexcess inventory based on inventory levels in excess of six months of projected demand for each specific product.In addition, as prescribed in ASC 330, “Inventory,” the cost of inventories is determined based on the normal capacity of each fabrication facility. Incase the capacity utilization is lower than a certain level that management believes to be normal, the fixed overhead costs per production unit which exceedsthose under normal capacity are charged to cost of sales rather than capitalized as inventories. 77Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Property, Plant and EquipmentProperty, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over theestimated useful lives of the assets as set forth below. Buildings 30 - 40 years Building related structures 10 - 20 years Machinery and equipment 10 - 12 years Vehicles and others 5 years Routine maintenance and repairs are charged to expense as incurred. Expenditures that enhance the value or significantly extend the useful lives of therelated assets are capitalized.Prior to July 1, 2011, the Company depreciated machinery and measurement equipment using the straight-line method over 5 to 10 years. However,based on an evaluation of the appropriateness of depreciable lives including a review of historical usage and a change in its strategic business plan, theCompany determined that machinery and measurement equipment have a longer life than previously estimated. As a result, the Company changed theestimate of depreciable lives for machinery and measurement equipment to 10 to 12 years. The purpose of this change was to more accurately reflect theproductive life of these assets. In accordance with ASC 250-10-45, “Accounting Changes and Error Corrections,” the change in life has been accounted for asa change in accounting estimate on a prospective basis from July 1, 2011. As a result of the change in the estimated life of machinery and measurementequipment, cost of sales was $4.8 million lower, net loss was $5.2 million higher and net loss per diluted share was $0.13 higher for the year endedDecember 31, 2011.Impairment of Long-Lived AssetsThe Company reviews property, plant and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable in accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”). Recoverability is measured bycomparing its carrying amount with the future net undiscounted cash flows the assets are expected to generate. If such assets are considered to be impaired,the impairment is measured as the difference between the carrying amount of the assets and the fair value of assets using the present value of the future netcash flows generated by the respective long-lived assets.Restructuring ChargesThe Company recognizes restructuring charges in accordance with ASC 420, “Exit or Disposal Cost Obligations” (“ASC 420”). Certain costs andexpenses related to exit or disposal activities are recorded as restructuring charges when liabilities for those costs and expenses are incurred.Lease TransactionsThe Company accounts for lease transactions as either operating leases or capital leases, depending on the terms of the underlying lease agreements.Machinery and equipment acquired under capital lease agreements are recorded at the lower of the present value of future minimum lease payments andestimated fair value of leased property and depreciated using the straight-line method over their estimated useful lives. In addition, the aggregate leasepayments are recorded as capital lease obligations, net of unaccrued interest. Interest is amortized over the lease period using the effective interest ratemethod. Leases that do not qualify as capital leases are classified as operating leases, and the related rental payments are expensed on a straight-line basisover the shorter of the estimated useful lives of the leased property and the lease term. 78Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) SoftwareThe Company capitalizes certain external costs that are incurred to purchase and implement internal-use computer software. Direct costs relating to thedevelopment of software for internal use are capitalized after technological feasibility has been established, in accordance with ASC 350, “Intangibles-Goodwill and Other” (“ASC 350”). Depreciation is recorded on a straight-line basis over the software’s estimated useful life, which is usually five years.Intangible AssetsIntangible assets other than intellectual property include technology and customer relationships which are amortized on a straight-line basis overperiods ranging from one to five years. Intellectual property assets acquired represent rights under patents, trademarks and property use rights and areamortized over their respective periods of benefit, ranging up to ten years, on a straight-line basis.Goodwill and Acquired Intangible AssetsThe Company records goodwill when the purchase price of an acquisition exceeds the fair value of the net tangible and intangible assets as of the dateof acquisition. Goodwill is subject to impairment testing using a two-step process after considering a qualitative assessment. The first step of the goodwillimpairment test is to identify potential impairment by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fairvalue of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test isnot required. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure theamount of the impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value (i.e., the fair value of reporting unitless the fair value of the unit’s assets and liabilities, including identifiable intangible assets) of the reporting unit’s goodwill with the carrying amount of thatgoodwill. If the carrying value of goodwill exceeds its implied fair value, the excess is required to be recorded as an impairment charge in earnings. TheCompany performs its annual goodwill impairment analysis during the fourth quarter. Goodwill must be tested between annual tests if events or changes incircumstances indicate that the asset might be impaired. The Company reviews changes in the business climate, changes in market capitalization, legalfactors, operating performance indicators and competition, among other factors and their potential impact on the Company’s fair value determination.Fair Value Disclosures of Financial InstrumentsThe Company follows ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”) for measurement and disclosures about fair value of itsfinancial instruments. ASC 820 establishes a framework for measuring fair value in US GAAP, and expands disclosures about fair value measurements. Toincrease consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy that prioritizes theinputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices(unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy definedby ASC 820 are:Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liabilitythrough correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurementdate. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instrumentsincludes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transactionbetween willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid totransfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date. The carrying amounts of the Company’sfinancial assets and liabilities, such as cash and cash equivalents, accounts receivable, other receivables, accounts payable and other accounts payableapproximate their fair values because of the short maturity of these instruments. 79Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)Accrued Severance BenefitsThe majority of accrued severance benefits is for employees in the Company’s Korean subsidiary, MagnaChip Semiconductor Ltd. Pursuant to theEmployee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severancebenefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2013, 98% of all employees of theCompany were eligible for severance benefits.Accrued severance benefits are funded through a group severance insurance plan. The amounts funded under this insurance plan are classified as areduction of the accrued severance benefits. Subsequent accruals are to be funded at the discretion of the Company.In accordance with the National Pension Act of the Republic of Korea, a certain portion of accrued severance benefits is deposited with the NationalPension Fund and deducted from the accrued severance benefits. The contributed amount is paid to employees from the National Pension Fund upon theirretirement.Revenue RecognitionRevenue is recognized when there is persuasive evidence of an arrangement, the price to the buyer is fixed or determinable, delivery has occurred andcollectability of the sales price is reasonably assured. Revenue from the sale of products is recognized when title and risk of loss transfers to the customer,which is generally when the product is shipped to or accepted by the customer depending on the terms of the arrangement.A portion of the Company’s sales are made through distributors for which revenue recognition criteria are usually met when the product is shipped toor accepted by the distributors, consistent with the principles described above. However, the risk of loss may not pass upon shipment of products to thedistributors due to a variety of reasons, including the nature of the business arrangement with the distributors. For example, the financial condition of adistributor may indicate that payments by the distributor to the Company are contingent on resale of products to an end customer. In this situation, theCompany defers recognition of revenue and cost of revenue on transactions with such distributor until the Company is informed by the distributor that theproduct has been resold to the end customer.In accordance with revenue recognition guidance, any tax assessed by a governmental authority that is directly imposed on a revenue-producingtransaction between a seller and a customer is presented in the statements of operations on a net basis (excluded from revenues).The Company provides a warranty, under which customers can return defective products. The Company estimates the costs related to those defectiveproduct returns and records them as a component of cost of sales.In addition, the Company offers sales returns (other than those that relate to defective products under warranty), yield provisions, cash discounts forearly payments and certain allowances to its customers, including distributors. The Company records reserves for those returns, discounts and allowances as adeduction from sales, based on historical experience and other quantitative and qualitative factors.All amounts billed to a customer related to shipping and handling are classified as sales while all costs incurred by the Company for shipping andhandling are classified as selling, general and administrative expenses. The amounts charged to selling, general and administrative expenses were $2,850thousand, $3,057 thousand, and $2,408 thousand for the years ended December 31, 2013, 2012 and 2011, respectively. 80Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Derivative Financial InstrumentsThe Company applies the provisions of ASC 815, “Derivatives and Hedging” (“ASC 815”). This Statement requires the recognition of all derivativeinstruments as either assets or liabilities measured at fair value.Under the provisions of ASC 815, the Company may designate a derivative instrument as hedging the exposure to variability in expected future cashflows that are attributable to a particular risk (a “cash flow hedge”) or hedging the exposure to changes in the fair value of an asset or a liability (a “fair valuehedge”). Special accounting for qualifying hedges allows the effective portion of a derivative instrument’s gains and losses to offset related results on thehedged item in the consolidated statements of operations and requires that a company formally document, designate and assess the effectiveness of thetransactions that receive hedge accounting treatment. Both at the inception of a hedge and on an ongoing basis, a hedge must be expected to be highlyeffective in achieving offsetting changes in cash flows or fair value attributable to the underlying risk being hedged. If the Company determines that aderivative instrument is no longer highly effective as a hedge, it discontinues hedge accounting prospectively and future changes in the fair value of thederivative are recognized in current earnings. The Company assesses hedge effectiveness at the end of each quarter.In accordance with ASC 815, changes in the fair value of derivative instruments that are cash flow hedges are recognized in accumulated othercomprehensive income (loss) and reclassified into earnings in the period in which the hedged item affects earnings. Ineffective portions of a derivativeinstrument’s change in fair value are immediately recognized in earnings. Derivative instruments that do not qualify, or cease to qualify, as hedges must beadjusted to fair value and the adjustments are recorded through net income (loss).The cash flows from derivative instruments receiving hedge accounting treatment are classified in the same categories as the hedged items in theconsolidated statements of cash flows.AdvertisingThe Company expenses advertising costs as incurred. Advertising expense was approximately $161 thousand, $142 thousand and $148 thousand forthe years ended December 31, 2013, 2012 and 2011, respectively.Product WarrantiesThe Company records, in other current liabilities, warranty liabilities for the estimated costs that may be incurred under its basic limited warranty. Thestandard limited warranty period is one year for the majority of products. This warranty covers defective products, and related liabilities are accrued whenproduct revenues are recognized. Factors that affect the Company’s warranty liability include historical and anticipated rates of warranty claims and repair orreplacement costs per claim to satisfy the Company’s warranty obligation. As these factors are impacted by actual experience and future expectations, theCompany periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts when necessary.Research and DevelopmentResearch and development costs are expensed as incurred and include wafers, masks, employee expenses, contractor fees, building costs, utilities andadministrative expenses. Acquired in-process research and development, or IPR&D, assets are considered indefinite-lived intangible assets and are notsubject to amortization. An IPR&D asset must be tested for impairment annually or more frequently if events or changes in circumstances indicate that theasset might be impaired. The impairment test consists of a comparison of the fair value of the IPR&D asset with its carrying amount. If the carrying amount ofthe IPR&D asset exceeds its fair value, an impairment loss must be recognized in an amount equal to that excess. After an impairment loss is recognized, theadjusted carrying amount of the IPR&D asset will be its new accounting basis. Subsequent reversal of a previously recognized impairment loss is prohibited.The initial determination and subsequent evaluation for impairment of the IPR&D asset requires management to make significant judgments and estimates.Once the IPR&D projects have been completed, the useful life of the IPR&D asset is determined and amortized accordingly. 81Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)Licensed Patents and TechnologiesThe Company has entered into a number of royalty agreements to license patents and technology used in the design of its products. The Companycarries two types of royalties: lump-sum and running basis. Lump-sum royalties which require initial payments, usually paid in installments, represent a non-refundable commitment, such that the total present value of these payments is recorded as a prepaid expense and a liability upon execution of the agreementsand the costs are amortized over the contract period using the straight-line method and charged to research and development expenses in the consolidatedstatements of operations.Running royalties are paid based on the revenue of related products sold by the Company.Stock-Based CompensationThe Company follows the provisions of ASC 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensationcost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. As permitted under ASC718, the Company elected to recognize compensation expense for all options with graded vesting based on the graded attribution method.The Company uses the Black-Scholes option-pricing model to measure the grant-date-fair-value of options. The Black-Scholes model requires certainassumptions to determine an option’s fair value, including expected term, risk free interest, expected volatility and fair value of underlying common share.The expected term of each option grant was based on employees’ expected exercises and post-vesting employment termination behavior and the risk freeinterest rate was based on the U.S. Treasury yield curve for the period corresponding with the expected term at the time of grant. The expected volatility wasestimated using historical volatility of share prices of similar public entities. No dividends were assumed for this calculation of option value.Earnings per ShareIn accordance with ASC 260, “Earnings Per Share” (“ASC 260”), the Company computes basic earnings per share by dividing net income (loss)available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect thedilution of potential common stock outstanding during the period. In determining the hypothetical shares repurchased, the Company uses the average shareprice for the period.Income TaxesPrior to its conversion to a corporation, MagnaChip Semiconductor LLC elected to be treated as a partnership for U.S. federal income tax purposes andtherefore was not subject to income taxes on its income. Taxes on its income were the responsibility of the individual equity owners of MagnaChipSemiconductor LLC. MagnaChip Semiconductor Corporation became a taxable entity according to the corporate conversion in March 2011. The Companyoperates a number of subsidiaries that are subject to local income taxes in those territories.The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred taxassets and liabilities for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Underthis method, deferred tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax basesof assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are establishedwhen it is necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the changeduring the period in deferred tax assets and liabilities. 82Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The Company recognizes and measures uncertain tax positions taken or expected to be taken in a tax return utilizing a two-step process. In the firststep, recognition, the Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution ofany related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meetsthe more-likely-than-not criteria. The tax position is measured at the largest amount of benefit that has a likelihood of greater than 50 percent of beingrealized upon ultimate settlement.Concentration of Credit RiskThe Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral for customers onaccounts receivable. The Company maintains reserves for potential credit losses, which are periodically reviewed.Recent Accounting PronouncementsIn June 2014, the FASB issued Accounting Standards Update No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-MaturityTransactions, Repurchase Financings, and Disclosures” (“ASU 2014-11”). The guidance in this update changes the accounting for repurchase-to-maturitytransactions and repurchasing financing arrangements. It also requires enhanced disclosures about repurchase agreements and other similar transactions. Theaccounting changes in this update are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, forpublic companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or afterDecember 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning afterDecember 15, 2014, and interim periods beginning after March 15, 2015. Early application is not permitted. The Company is currently evaluating the impactof the adoption of ASU 2014-11 on its consolidated financial statements.In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires entities to recognize revenue when it transferspromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goodsor services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating LossCarryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). The adoption of ASU 2013-11 will require an unrecognized taxbenefit, or a portion of an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating losscarryforward, a similar tax loss, or a tax credit carryforward, unless an exception applies. The amendments in this update are effective for fiscal years, andinterim periods within those fiscal years, beginning after December 15, 2013. The adoption of this standard did not have a material impact on the Company’sconsolidated financial statements. 83Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated OtherComprehensive Income” (“ASU 2013-02”), which requires an entity to provide information about the amounts reclassified out of accumulated othercomprehensive income by component. In addition, ASU 2013-02 requires an entity to present, either on the face of the income statement or in the notes tofinancial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only ifthe amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity isrequired to cross-reference to other disclosures required under US GAAP that provide additional detail about those amounts. The update does not change thecurrent requirements for reporting net income or other comprehensive income in financial statements and is effective prospectively for reporting periodsbeginning after December 15, 2012. The Company’s adoption of ASU 2013-02 did not have a material impact on its consolidated financial statements. 84Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)2. Restatement of Consolidated Financial StatementsBackground and Scope of InvestigationIn January 2014, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”) commenced an internal investigation into theCompany’s accounting practices and procedures with outside professional advisors (the “Independent Investigation”). The Independent Investigationinvolved procedures that included forensic analysis and inquiry directed to aspects of the Company’s accounting and financial reporting practices, andevaluated aspects of its historical accounting and financial reporting practices since 2011. The Independent Investigation initially raised questions relatingto numerous accounting transactions, most of which involved revenue recognition practices relating to the Company’s distributor relationships.Based on initial findings and observations from the Independent Investigation regarding errors in the Company’s revenue recognition practices relatedto sales through distributors, the Company announced on March 11, 2014 that the Audit Committee concluded that the Company’s previously issuedfinancial statements for each of the years ended December 31, 2012 and December 31, 2011 and the quarters ended March 31, June 30 and September 30 in2013 and 2012 should no longer be relied upon.The Independent Investigation continued through October 2014 and identified numerous accounting errors, most of which involved revenuerecognition, cost of goods sold, inventory reserves, fixed asset capitalization, and expense recognition and allocation. It also identified deficienciesregarding business practices related to distributors, non-distributor customers and vendors. Concurrently with the Independent Investigation, managementconducted extensive internal reviews of its financial accounting and reporting practices and internal control over financial reporting. The IndependentInvestigation and management’s internal review identified evidence of errors in the Company’s accounting and deficiencies in its internal control overfinancial reporting.Restatement AdjustmentsAs a result of the issues identified in the Independent Investigation and the management’s internal review, the Company restated its previouslyreported consolidated financial statements for the years ended December 31, 2012 and 2011, including the stockholders’ equity balance as of January 1,2011, in order to correct certain previously reported amounts.The impact of the errors to the previous statements of operations, balance sheets and statements of cash flows has been detailed in the tables below. Adescription of the nature of the errors follows. 85Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)Revenue RecognitionSales through Distributors—The largest portion of revenue recognition adjustments relate to correcting the timing and amount of revenue recognizedon the sale of products through certain distributors. During the course of the Independent Investigation and management’s internal review, it was determinedthat the application of its revenue recognition policy was not appropriate in these situations. Revenue had been recognized without persuasive evidence ofan arrangement and the collectability of the sales price not being reasonably assured. Furthermore, in some circumstances, revenue was recognized prior torisk of loss being transferred.Accordingly, related revenues and cost of sales were reversed in the period in which the accounting errors took place and recognized in subsequentperiods when all of the revenue recognition criteria were met. These adjustments also include the impact of foreign currency exchange rate differencesbetween periods of de-recognition and recognition of the revenue transactions.Other—The other revenue recognition adjustments include transactions where the Company recognized revenue in an incorrect period or recognizedan incorrect amount of revenue. The primary categories of other revenue recognition adjustments include the following: • Unfinished Products—The Company identified recognition of revenues on unfinished or semi-finished products. These products were completedand shipped to the distributor or end customer after the related revenues were recognized. • Non-recurring Engineering (“NRE”)—The Company provides NRE services to develop prototype wafers mainly for the Company’s foundryservice customers. The Company identified revenue related to certain NRE arrangements recognized earlier or later than at the time that therequired prototype wafer was delivered. • Concessions—The Company identified various types of unrecorded concessions provided to its distributors and customers, including futurediscounts, price adjustments, free products and others to incentivize distributors and customers to make purchases. Such concessions should berecorded as a deduction from revenues at the time when the related revenues are recognized. • Direct Customer Sales—The Company identified certain sales transactions to a customer that were recognized when the products were takenfrom its manufacturing facility to warehouse, rather than when the products were delivered to the customer’s location. The arrangement related tothese transactions did not have a fixed schedule for delivery to a customer’s location and were prematurely recognized as revenues.Hedge Accounting—As a result of incorrect recognition of revenue discussed in Revenue Recognition—Sales through Distributors and RevenueRecognition—Other, the Company’s hedge accounting, related to the change in the effective portion of our derivative instrument’s gains and losses, wasadjusted as key assumptions determining the amount are derived from revenues.Reserves—As a result of incorrect recognition of revenue discussed in Revenue Recognition—Sales through Distributors and Revenue Recognition—Other, adjustments for reserves, related to estimated sales returns, low yield compensation, and warranty liabilities, also required corrections as keyassumptions in determining these amounts are derived from revenues.Manufacturing Cost—The Company corrected certain fabrication and back-end processing costs that were not recorded consistently with theprogression of its manufacturing activities. As a result, the Company’s cost of sales were increased by approximately $2,600 thousand and decreased byapproximately $1,600 thousand for the years ended December 31, 2012 and 2011, respectively, to account for manufacturing costs during the period inwhich they were incurred.Inventory ReservesThe Company corrected errors with respect to how the Company previously forecasted revenues for the purposes of determining inventory reserves. Asa result, the Company performed a retrospective review of its inventory reserve calculation and revised the revenue forecast component of the reservecalculation. In addition, as a result of the correction of revenue for certain transactions discussed in Revenue Recognition—Sales through Distributors andRevenue Recognition—Other, a significant portion of the revenues were reversed rather than deferred. The failure of the anticipated orders from finalcustomers materializing resulted in a significantly higher excess and obsolete reserves for the restatement and subsequent periods. In addition, the Companycorrected errors with respect to obsolete and aged inventory reserves that were previously understated due to the misclassification or errors in certaininventory items. Based on this review and revision of the reserve estimates, the Company has determined that it previously understated inventory reserves forthe years ended December 31, 2012 and 2011. 86Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)Understated Employee BenefitsThe Company identified that certain amounts of earned vacation were not included in calculating its severance accrual, resulting in an understatementof accrued severance benefits.The Company also identified that vested compensation claims by employees who have rendered long-term services were accounted for on a cash basisrather than on an accrual basis, resulting in an understatement of long-term service liabilities.Settlement ObligationsThe Company identified certain cash and in-kind payments to a customer in connection with settling a claim involving products that may have causeda failure in the customer’s product. Although the Company does not agree with the claim, as its product met the customer’s specifications, the Companyconsidered a number of factors and decided not to dispute the claim but make certain cash and in-kind payments as demanded by the customer. A number ofcash and in-kind payments were made to the customer during the each of the years presented in Note 2 and were recorded as cost of sales and/or reduction ofrevenues at the time that they were paid rather than accrued when each cash or in-kind payment became probable.Tax MattersIncome Tax—Realization of the deferred tax assets is dependent on the Company’s ability to generate future taxable income. In the previouslyreported consolidated financial statements for the year ended December 31, 2012, the Company had released $64,749 thousand of valuation allowanceagainst deferred tax assets at the Company’s Korean subsidiary and, consequently, a corresponding amount of income tax benefit was recognized.During the management’s internal review, key assumptions and forecast of future taxable income were reassessed based on restated financial data as towhether deferred tax assets will ultimately be realized. In its reassessment, the Company concluded that the objective and verifiable negative evidencerepresented by recent actual operating losses outweighed more subjective positive evidence of anticipated future income over the periods in which thedeferred tax assets are deductible. As a result, the Company determined that it was necessary to record a full valuation allowance on deferred tax assets of$64,749 thousand as of December 31, 2012. The related expense was recorded in the Company’s statement of operations for the year ended December 31,2012 as an income tax expense. In addition, management’s review identified income tax adjustments attributable to certain foreign subsidiaries other thanKorea and made an adjustment amounting to $112 thousand.The restatement adjustments for the years ended December 31, 2012 and 2011 impacted our temporary differences between our book income andtaxable income, which resulted in an increase of our deferred tax assets for which a full valuation allowance was recorded for the fiscal years then ended andthus there was no tax impact of the other restatement adjustments.Other—The Company identified liabilities related to non-income-based taxes that the Company may be exposed to in connection with certain taxpositions taken during the years ended December 31, 2012 and 2011. We considered the period in which the underlying cause of action occurred, degree ofprobability of an unfavorable outcome and whether we could make a reasonable estimate.Account ClassificationRevenue—The Company corrected the classification of rental income that was previously recorded as net sales when it should have been recorded inother income (expenses).Expense—The Company identified errors in classification of expenses that were recorded as research and development when they should have beenrecorded as cost of sales and vice versa for the years ended December 31, 2012 and 2011. In addition, the Company identified an error in the true-up ofexpenses that were recorded as selling, general and administrative when it should have been recorded as restructuring and impairment charges as ofDecember 31, 2011. As a result, the Company recorded adjustments to correct the classifications in net expenses.Cost Center AllocationThe Company identified costs from certain cost centers that were not always allocated consistently with the nature of the Company’s business. As aresult, the Company recorded adjustments to reclassify the related costs from cost of sales to selling, general and administrative expenses. 87Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)Other AdjustmentsIn addition to the restatement adjustments described above, the Company has identified other errors that are not material, individually or in theaggregate, but have been recorded in connection with the restatement.Included in other adjustments are as follows: • Accrued Liabilities—The Company identified costs related to certain goods and services that were recorded at the time of receipt ofinvoice rather than when the goods were delivered or services were rendered. As a result, the Company recorded adjustments to cost ofsales and research and development expense. • Maintenance Costs—The Company identified certain maintenance expenses that were inappropriately capitalized and depreciated forthe year ended December 31, 2012. As a result, the Company corrected these errors by reversing the related amounts in property, plantand equipment, and recorded them in cost of sales and research and development expense for the year then ended. • Stock-based Compensation—The Company identified incorrect application of assumptions in computation of stock-based compensationexpenses. As a result, the Company recorded adjustments to increase compensation expenses for the years ended December 31, 2012 and2011. 88Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The nature of the restatement adjustments and the impact of the adjustments to the year ended December 31, 2012 are shown in the following table: Year Ended December 31, 2012 Restatement Adjustments As PreviouslyReported RevenueRecognition InventoryReserves UnderstatedEmployeeBenefits SettlementObligations Tax Matters AccountClassification CostCenterAllocation OtherAdjustments TotalAdjustments AsRestated Net sales $819,592 $(11,400) $— $— $1,364 $— $(2,220) $— $— $(12,256) $807,336 Cost of sales 556,091 (1,301) 7,810 833 485 — 2,651 (3,231) 751 7,998 564,089 Gross profit 263,501 (10,099) (7,810) (833) 879 — (4,871) 3,231 (751) (20,254) 243,247 Selling, general andadministrative expenses 78,971 (530) — 121 — 773 — 3,286 56 3,706 82,677 Research and developmentexpenses 78,723 — — 137 — — (2,651) (55) 101 (2,468) 76,255 Operating income 105,807 (9,569) (7,810) (1,091) 879 (773) (2,220) — (908) (21,492) 84,315 Other income (expenses) Interest expense, net (22,600) — — — — — — — — — (22,600) Foreign currency gain,net 55,961 1,281 — — — (3) — — 41 1,319 57,280 Others 2,119 (449) — — — — 2,220 — — 1,771 3,890 35,480 832 — — — (3) 2,220 — 41 3,090 38,570 Income before income taxes 141,287 (8,737) (7,810) (1,091) 879 (776) — — (867) (18,402) 122,885 Income tax expenses (benefits) (52,014) — — — — 64,861 — — — 64,861 12,847 Net income $193,301 $(8,737) $(7,810) $(1,091) $879 $(65,637) $— $— $(867) $(83,263) $110,038 Earnings per common share— Basic $5.29 $3.01 Diluted $5.16 $2.93 Weighted average number ofshares— Basic 36,567,684 36,567,684 Diluted 37,496,965 37,533,391 89Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The nature of the restatement adjustments and the impact of the adjustments to the year ended December 31, 2011 are shown in the following table: Year Ended December 31, 2011 Restatement Adjustments As PreviouslyReported RevenueRecognition InventoryReserves UnderstatedEmployeeBenefits SettlementObligations Tax Matters AccountClassification OtherAdjustments TotalAdjustments AsRestated Net sales $772,831 $(27,539) $— $— $— $— $(2,162) $— $(29,701) $743,130 Cost of sales 538,515 (10,104) 10,075 1,740 2,116 — 707 547 5,081 543,596 Gross profit 234,316 (17,435) (10,075) (1,740) (2,116) — (2,869) (547) (34,782) 199,534 Selling, general and administrativeexpenses 68,367 (378) — 323 — 1,223 497 191 1,856 70,223 Research and development expenses 76,767 — — 409 — — (707) 120 (178) 76,589 Restructuring and impairment charges 4,096 — — — — — (497) — (497) 3,599 Special expense for IPO incentive 12,146 — — — — — — — — 12,146 Operating income 72,940 (17,057) (10,075) (2,472) (2,116) (1,223) (2,162) (858) (35,963) 36,977 Other expenses Interest expense, net (24,984) — — — — — — — — (24,984) Foreign currency loss, net (11,633) 121 — — — — — 164 285 (11,348) Loss on early extinguishment ofsenior notes (5,459) — — — — — — — — (5,459) Others (1,052) 518 — — — — 2,162 — 2,680 1,628 (43,128) 639 — — — — 2,162 164 2,965 (40,163) Income (loss) before income taxes 29,812 (16,418) (10,075) (2,472) (2,116) (1,223) — (694) (32,998) (3,186) Income tax expenses 8,019 — — — — 96 — — 96 8,115 Net income (loss) $21,793 $(16,418) $(10,075) $(2,472) $(2,116) $(1,319) $— $(694) $(33,094) $(11,301) Earnings (loss) per common share— Basic $0.56 $(0.29) Diluted $0.55 $(0.29) Weighted average number of shares— Basic 38,775,642 38,775,642 Diluted 39,774,898 38,775,642 90Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table presents the impact of the restatement adjustments on the Company’s previously reported consolidated balance sheet as of December 31,2012: As of December 31, 2012 Restatement Adjustments As PreviouslyReported RevenueRecognition InventoryReserves UnderstatedEmployeeBenefits SettlementObligations Tax Matters AccountClassification OtherAdjustments TotalAdjustments AsRestated Assets Current assets Cash and cash equivalents $182,238 $— $— $— $— $— $— $— $— $182,238 Restricted cash 133 — — — — — — — — 133 Accounts receivable, net 143,331 (37,217) — — — — (131) — (37,348) 105,983 Inventories, net 89,363 11,787 (18,917) — — — — 151 (6,979) 82,384 Other receivables 1,429 — — — — — 131 — 131 1,560 Prepaid expenses 7,884 — — — — — — — — 7,884 Current deferred income tax assets 22,768 — — — — (20,980) — — (20,980) 1,788 Other current assets 9,680 — — — — — — 944 944 10,624 Total current assets 456,826 (25,430) (18,917) — — (20,980) — 1,095 (64,232) 392,594 Property, plant and equipment, net 238,256 — — — — — — (864) (864) 237,392 Intangible assets, net 15,260 — — — — — — — — 15,260 Long-term prepaid expenses 18,048 — — — — — — — — 18,048 Deferred income tax assets 46,710 — — — — (44,124) — — (44,124) 2,586 Other non-current assets 14,866 — — — — — — — — 14,866 Total assets $789,966 $(25,430) $(18,917) $— $— $(65,104) $— $231 $(109,220) $680,746 Current liabilities Accounts payable $79,236 $— $— $— $— $— $— $129 $129 $79,365 Other accounts payable 15,600 — — — — — — 1,159 1,159 16,759 Accrued expenses 43,486 — — — 1,322 2,111 — 456 3,889 47,375 Derivative liabilities — — — — — — — 944 944 944 Other current liabilities 9,973 (636) — — — 207 — — (429) 9,544 Total current liabilities 148,295 (636) — — 1,322 2,318 — 2,688 5,692 153,987 Long-term borrowings, net 201,653 — — — — — — — — 201,653 Accrued severance benefits, net 112,446 — — 2,412 — — — — 2,412 114,858 Other non-current liabilities 17,263 — — 2,615 — — — (1,159) 1,456 18,719 Total liabilities 479,657 (636) — 5,027 1,322 2,318 — 1,529 9,560 489,217 Commitments and contingencies (Note 20) Stockholders’ equity Common stock 396 — — — — — — — — 396 Additional paid-in capital 101,885 — — — — — — 524 524 102,409 Retained earnings 287,251 (24,061) (18,253) (4,740) (1,307) (66,993) — (1,805) (117,159) 170,092 Treasury stock (39,918) — — — — — — — — (39,918) Accumulated other comprehensive loss (39,305) (733) (664) (287) (15) (429) — (17) (2,145) (41,450) Total stockholders’ equity 310,309 (24,794) (18,917) (5,027) (1,322) (67,422) — (1,298) (118,780) 191,529 Total liabilities and stockholders’ equity $789,966 $(25,430) $(18,917) $— $— $(65,104) $— $231 $(109,220) $680,746 Note—(i) Cost Center Allocation column presented in the restatement table for the consolidated statement of operations for the year ended December 31,2012 is not included above as the related restatement adjustments do not impact the consolidated balance sheet. (ii) Other Adjustments column includes abalance sheet only reclassification adjustment for $1,159 thousand from other non-current liabilities to other accounts payable; and a gross up adjustment ofbalance sheet related to derivatives of $944 thousand. 91Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table presents the impact of the restatement adjustments on the Company’s previously reported consolidated balance sheet as of December 31,2011: As of December 31, 2011 Restatement Adjustments As PreviouslyReported RevenueRecognition InventoryReserves UnderstatedEmployeeBenefits SettlementObligations TaxMatters AccountClassification OtherAdjustments TotalAdjustments AsRestated Assets Current assets Cash and cash equivalents $162,111 $— $— $— $— $— $— $— $— $162,111 Restricted cash 6,830 — — — — — — — — 6,830 Accounts receivable, net 125,922 (23,055) — — — — (245) — (23,300) 102,622 Inventories, net 62,836 10,221 (10,049) — — — — (325) (153) 62,683 Other receivables 256 — — — — — 245 8 253 509 Prepaid expenses 6,032 — — — — — — — — 6,032 Current deferred income taxassets 3,406 — — — — (1,330) — — (1,330) 2,076 Other current assets 12,503 — — — — (32) — — (32) 12,471 Total current assets 379,896 (12,834) (10,049) — — (1,362) — (317) (24,562) 355,334 Property, plant and equipment, net 182,663 — — — — — — — — 182,663 Intangible assets, net 16,787 — — — — — — — — 16,787 Long-term prepaid expenses 4,790 — — — — — — — — 4,790 Deferred income tax assets 3,537 — — — — 1,233 — — 1,233 4,770 Other non-current assets 15,002 — — — — — — — — 15,002 Total assets $602,675 $(12,834) $(10,049) $— $— $(129) $— $(317) (23,329) $579,346 Current liabilities Accounts payable $77,848 $— $— $— $— $— $— $32 $32 $77,880 Other accounts payable 13,452 — — — — — — — — 13,452 Accrued expenses 31,723 — — — 2,100 1,216 — 430 3,746 35,469 Current portion of capital leaseobligation 2,852 — — — — — — — — 2,852 Derivative liabilities 9,757 — — — — — — — — 9,757 Other current liabilities 2,007 1,918 — — — (32) — — 1,886 3,893 Total current liabilities 137,639 1,918 — — 2,100 1,184 — 462 5,664 143,303 Long-term borrowings, net 201,389 — — — — — — — — 201,389 Accrued severance benefits, net 90,755 — — 1,677 — — — — 1,677 92,432 Other non-current liabilities 6,222 — — 1,828 — — — — 1,828 8,050 Total liabilities 436,005 1,918 — 3,505 2,100 1,184 — 462 9,169 445,174 Commitments and contingencies (Note20) Stockholders’ equity Common stock 394 — — — — — — — — 394 Additional paid-in capital 98,929 — — — — — — 131 131 99,060 Retained earnings 93,950 (15,583) (10,133) (3,830) (2,116) (1,319) — (915) (33,896) 60,054 Treasury stock (11,793) — — — — — — — — (11,793) Accumulated othercomprehensive loss (14,810) 831 84 325 16 6 — 5 1,267 (13,543) Total stockholders’equity 166,670 (14,752) (10,049) (3,505) (2,100) (1,313) — (779) (32,498) 134,172 Total liabilities andstockholders’equity $602,675 $(12,834) $(10,049) $— $— $(129) $— $(317) $(23,329) $579,346 92Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Statement of Cash FlowsThe following table presents the impact of the restatement adjustments on the Company’s previously reported consolidated statements of cash flows forthe years ended December 31, 2012 and 2011: Year Ended December 31, 2012 Year Ended December 31, 2011 As PreviouslyReported RestatementAdjustments AsRestated PreviouslyReported RestatementAdjustments AsRestated Cash flows from operating activities Net income (loss) $193,301 $(83,263) $110,038 $21,793 $(33,094) $(11,301) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 32,390 (324) 32,066 51,224 — 51,224 Provision for severance benefits 20,937 593 21,530 14,698 1,783 16,481 Amortization of debt issuance costs and original issue discount 1,009 — 1,009 970 — 970 Loss (gain) on foreign currency translation, net (63,567) (1,319) (64,886) 15,140 (305) 14,835 Restructuring and impairment charges — — — 2,499 — 2,499 Stock-based compensation 1,996 393 2,389 2,085 131 2,216 Loss on early extinguishment of senior notes — — — 5,459 — 5,459 Other (615) (48) (663) 1,585 (135) 1,450 Changes in operating assets and liabilities Accounts receivable (7,534) 13,292 5,758 (6,234) 25,431 19,197 Inventories, net (19,066) 6,571 (12,495) 4,274 85 4,359 Other receivables (458) 121 (337) 2,657 (254) 2,403 Other current assets 10,944 (109) 10,835 (5,081) (12) (5,093) Deferred tax assets (62,743) 64,657 1,914 1,412 97 1,509 Accounts payable (1,838) 101 (1,737) 18,084 60 18,144 Other accounts payable (9,185) (1,822) (11,007) (6,891) (1,061) (7,952) Accrued expenses 24,412 (108) 24,304 (5,577) 3,909 (1,668) Other current liabilities 11,857 (2,360) 9,497 (3,050) 1,899 (1,151) Other non-current liabilities (3,956) 627 (3,329) 326 511 837 Payment of severance benefits (6,997) — (6,997) (10,478) — (10,478) Other 216 1 217 (364) 1 (363) Net cash provided by operating activities 121,103 (2,997) 118,106 104,531 (954) 103,577 Cash flows from investing activities Decrease in restricted cash 13,021 — 13,021 6,410 — 6,410 Increase in restricted cash (6,238) — (6,238) (13,609) — (13,609) Proceeds from disposal of plant, property and equipment 937 — 937 219 — 219 Purchase of property, plant and equipment (61,522) 2,984 (58,538) (48,173) 1,060 (47,113) Payment for intellectual property registration (882) — (882) (696) — (696) Payment for purchase of Dawin, net of cash acquired (8,642) — (8,642) — — — Collection of guarantee deposits 81 — 81 1,544 — 1,544 Payment of guarantee deposits (320) — (320) (2,482) — (2,482) Other 37 — 37 (371) — (371) Net cash used in investing activities (63,528) 2,984 (60,544) (57,158) 1,060 (56,098) Cash flows from financing activities Proceeds from issuance of common stock 962 — 962 9,336 — 9,336 Repurchase of senior notes — — — (50,307) — (50,307) Repayment of obligations under capital lease (2,968) — (2,968) (6,312) — (6,312) Acquisition of treasury stock (28,125) — (28,125) (11,793) — (11,793) Net cash used in financing activities (30,131) — (30,131) (59,076) — (59,076) Effect of exchange rates on cash and cash equivalents (7,317) 13 (7,304) 1,642 (106) 1,536 Net increase (decrease) in cash and cash equivalents 20,127 — 20,127 (10,061) — (10,061) Cash and cash equivalents Beginning of the period 162,111 — 162,111 172,172 — 172,172 End of the period $182,238 — $182,238 $162,111 — $162,111 Supplemental cash flow information Cash paid for interest $21,955 — $21,955 $24,722 — $24,722 Cash paid (refunded) for income taxes $(609) — $(609) $1,954 — $1,954 Non-cash investing and financing activities Property, plant and equipment additions in other accounts payable $— $2,989 $2,989 $— $1,052 $1,052 Deferred offering costs reclassified as reduction of additional paid-in capital $— $— $— $7,194 $46 $7,240 93Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Comprehensive IncomeThe following table presents the impact of the restatement adjustments on the Company’s previously reported consolidated statements ofcomprehensive income for the years ended December 31, 2012 and 2011: Year EndedDecember 31, 2012 Year EndedDecember 31, 2011 As PreviouslyReported AsRestated As PreviouslyReported AsRestated Net income (loss) $193,301 $110,038 $21,793 $(11,301) Other comprehensive income (loss) Foreign currency translation adjustments (34,325) (37,737) 7,105 8,373 Derivative adjustments Fair valuation of derivatives 4,788 5,237 (5,041) (5,559) Reclassification adjustment for loss (gain) loss on derivativesincluded in net income (loss) 5,057 4,608 (11,496) (10,979) Unrealized loss on investments (15) (15) (103) (103) Total comprehensive income (loss) $168,806 $82,131 $12,258 $(19,569) Cumulative Restatement Adjustments to Previously Reported Beginning retained earningsThe following table presents the impact of the restatement adjustments on the Company’s previously reported consolidated retained earnings atJanuary 1, 2011: Retained earnings at January 1, 2011—As Previously Reported $72,157 Adjustments: Understated Employee Benefits (1,358) Other Revenue Recognition—Non-recurring Engineering 835 Accrued Liabilities (221) Inventory Reserves (58) Total adjustments (802) Retained earnings at January 1, 2011—As Restated $71,355 94Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 3. Fair Value MeasurementsASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair valuemeasurements. ASC 820 requires, among other things, the Company’s valuation techniques used to measure fair value to maximize the use of observableinputs and minimize the use of unobservable inputs.Fair Value of Financial InstrumentsThe following table represents the Company’s assets measured at fair value on a recurring basis as of December 31, 2013 and the basis for thatmeasurement: Carrying ValueDecember 31, 2013 Fair ValueMeasurementDecember 31, 2013 Quoted Prices inActive Marketsfor IdenticalAsset (Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Assets: Available-for-sale securities (other non-currentassets) $1,236 $1,236 $1,236 $— $— Derivative assets (other current assets) 4,912 4,912 — 4,912 — The following table represents the Company’s assets measured at fair value on a recurring basis as of December 31, 2012 and the basis for thatmeasurement: Carrying ValueDecember 31, 2012(As Restated) Fair ValueMeasurementDecember 31, 2012(As Restated) Quoted Prices inActive Marketsfor IdenticalAsset (Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Assets: Available-for-sale securities (other non-current assets) $601 $601 $601 $— $— Derivative assets (other current assets) 1,458 1,458 — 1,458 — Liabilities: Derivative liabilities 944 944 — 944 — The following table represents the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and the basisfor that measurement: Carrying ValueDecember 31, 2011(As Restated) Fair ValueMeasurementDecember 31, 2011(As Restated) Quoted Prices inActive Marketsfor IdenticalAsset (Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Assets: Available-for-sale securities (other non-current assets) $572 $572 $572 $— $— Liabilities: Derivative liabilities 9,757 9,757 — 9,757 $— Items not reflected in the table above include cash and cash equivalents, restricted cash, accounts receivable, other receivables, accounts payable, andother accounts payable, fair value of which approximate carrying values due to the short-term nature of these instruments. The fair value of assets andliabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash (Level 1). 95Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Fair Value of Long-term Borrowings December 31, 2013 December 31, 2012(As Restated) December 31, 2011(As Restated) CarryingValue FairValue CarryingValue FairValue CarryingValue FairValue Long-term Borrowings: 10.5% senior notes due April 2018 (Level 2) $— $— $201,653 $229,152 $201,389 $214,894 6.625% senior notes due July 2021 (Level 2) $223,923 $229,500 $— $— $— $— The Company used net proceeds from the issuance of the 2021 Notes of $218.8 million, which represents $225.0 million of principal amount net of$1.1 million of original issue discount and $5.1 million of debt issuance costs, together with cash on hand, to repay all of the then outstanding 2018 Notes,including applicable premium and accrued interest, and to pay related fees and expenses of the 2021 Notes offering. For further description of the seniornotes, see Note 11, “Long-term Borrowings”.Fair Values Measured on a Non-recurring BasisThe Company’s non-financial assets, such as property, plant and equipment, goodwill and intangible assets are recorded at fair value upon acquisitionand are remeasured at fair value only if an impairment charge is recognized. The Company uses unobservable inputs (Level 3) to the valuationmethodologies that were significant to the fair value measurements, and the valuations required management judgment due to the absence of quoted marketprices. During the fourth quarter of 2013, the Company performed its annual impairment analysis and recorded an impairment charge of $5,253 thousandrelated to the Dawin acquisition. See Note 7, “Intangible Assets” for additional information. 96Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 4. Accounts ReceivableAccounts receivable as of December 31, 2013, 2012 and 2011 consisted of the following: December 31, 2013 2012(As Restated) 2011(As Restated) Accounts receivable $81,862 $109,603 $97,217 Notes receivable 460 1,251 9,602 Less: Allowances for doubtful accounts (268) (401) (389) Sales return reserve (1,205) (1,264) (2,297) Low yield compensation reserve (1,951) (3,206) (1,511) Accounts receivable, net $78,898 $105,983 $102,622 Changes in allowance for doubtful accounts for the years ended December 31, 2013, 2012 and 2011 are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Beginning balance $(401) $(389) $(609) Reversal of allowance 115 6 218 Write off — — — Translation adjustments 18 (18) 2 Ending balance $(268) $(401) $(389) Changes in sales return reserve for the years ended December 31, 2013, 2012 and 2011 are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Beginning balance $(1,264) $(2,297) $(322) Addition to reserve (1,218) (174) (5,223) Payment made 1,296 1,308 3,218 Translation adjustments (19) (101) 30 Ending balance $(1,205) $(1,264) $(2,297) Changes in low yield compensation reserve for the years ended December 31, 2013, 2012 and 2011 are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Beginning balance $(3,206) $(1,511) $(2,134) Addition to reserve (1,868) (3,074) (841) Payment made 3,150 1,519 1,468 Translation adjustments (27) (140) (4) Ending balance $(1,951) $(3,206) $(1,511) 97Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The Company has entered into an agreement to sell selected trade accounts receivable to a financial institution from time to time since March 2012.After the sale, the Company does not retain any interests in the receivables and the applicable financial institution collects these accounts receivable directlyfrom the customer. The proceeds from the sales of these accounts receivable totaled $28,869 thousand and $29,347 thousand for the years endedDecember 31, 2013 and 2012, respectively and these sales resulted in pre-tax losses of $73 thousand and $57 thousand for the years ended December 31,2013 and 2012, respectively, which are included in selling, general and administrative expenses in the consolidated statements of operations. Net proceeds ofthese accounts receivable sale program are recognized in the consolidated statements of cash flows as part of operating cash flows.Receivable Discount ProgramsThe Company uses receivable discount programs with certain customers. These discount arrangements allows the Company to accelerate collection ofcustomers’ receivables. While these arrangements have reduced the Company’s working capital needs, there can be no assurance that these programs willcontinue in the future.5. InventoriesInventories as of December 31, 2013, 2012 and 2011 consist of the following: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Finished goods 43,734 30,715 13,224 Semi-finished goods and work-in-process 92,030 62,918 49,124 Raw materials 9,464 11,996 11,183 Materials in-transit and other 1,870 2,184 1,471 Less: inventory reserve (72,400) (25,429) (12,319) Inventories, net $74,698 $82,384 $62,683 Changes in inventory reserve for the years ended December 31, 2013, 2012 and 2011 are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Beginning balance $(25,429) $(12,319) $(7,100) Change in reserve (48,015) (14,910) (7,311) Write off 3,086 3,376 1,806 Translation adjustments (2,042) (1,576) 286 Ending balance $(72,400) $(25,429) $(12,319) Inventory reserve represents the Company’s best estimate in value lost due to excessive inventory level, physical deterioration, obsolescence, changesin price levels, or other causes based on individual facts and circumstances. Inventory reserve relates to inventory items including finished goods, semi-finished goods and work-in-process. Write off of this reserve is recognized only when the related inventory has been disposed or scrapped. 98Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 6. Property, Plant and EquipmentProperty, plant and equipment as of December 31, 2013, 2012 and 2011 are comprised of the following: December 31, 2013 2012(As Restated) 2011(As Restated) Buildings and related structures $81,050 $79,658 $73,021 Machinery and equipment 269,840 232,888 151,100 Vehicles and others 22,397 17,330 11,998 Equipment under capital lease — — 11,160 373,287 329,876 247,279 Less: accumulated depreciation (136,397) (109,635) (78,130) accumulated depreciation on equipment under capital lease — — (2,414) Land 17,407 17,151 15,928 Property, plant and equipment, net $254,297 $237,392 $182,663 Aggregate depreciation expenses totaled $25,934 thousand, $23,024 thousand and $41,812 thousand for the years ended December 31, 2013, 2012and 2011, respectively.During the fourth quarter of 2013, the Company recorded $508 thousand in impairment charges related to the impairment of certain machinery andequipment which were purchased as part of the Dawin acquisition.7. Intangible AssetsIntangible assets as of December 31, 2013, 2012 and 2011 are as follows: December 31, 2013 2012(As Restated) 2011(As Restated) Technology $20,081 $25,011 $21,126 Customer relationships 29,444 29,010 26,777 Intellectual property assets 7,829 7,145 5,868 Less: accumulated amortization (54,243) (49,266) (36,984) Goodwill — 3,360 — Intangible assets, net $3,111 $15,260 $16,787 Aggregate amortization expenses for intangible assets totaled $6,792 thousand, $9,042 thousand and $9,412 thousand for the years endedDecember 31, 2013, 2012 and 2011, respectively. The aggregate amortization expense of intangible assets for the next five years are estimated to be $1,488thousand, $305 thousand, $305 thousand, $305 thousand and $305 thousand, for the years ended December 31, 2014, 2015, 2016, 2017 and 2018,respectively.On March 2, 2012, the Company’s Korean subsidiary, MagnaChip Semiconductor, Ltd., completed the acquisition of Dawin Electronics, a privately-held semiconductor company that designs and manufactures insulated-gate bipolar transistors, or IGBTs, Fast Recovery Diode and metal oxidesemiconductor field effect transistor, or MOSFET, modules (the “Dawin acquisition”). As required by accounting guidance for business combinations, theCompany allocated the purchase price to assets and liabilities based on their estimated fair value at the effective date of acquisition. The total considerationpaid for the acquisition amounted to $9,291 thousand and the Company recognized goodwill of $3,163 thousand.During the fourth quarter of 2013, the Company’s management became aware that certain technology being developed in relation to the Dawinacquisition could no longer be used. The Company considered this event as an indicator of impairment in performing its annual analysis for potentialimpairment of its goodwill, which included examining, based on factors and conditions then existing, the impact of current general economic conditions onits future prospects. Based on this analysis, the Company determined that goodwill and certain technology associated with the Dawin acquisition wereimpaired and recorded an impairment charge of $3,389 thousand related to goodwill and $1,864 thousand of intangible assets. 99Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) In addition, the Company recognized an impairment charge of $617 thousand related to certain existing technology from restructuring its fabricationfacilities in 2013.The Company accounts for IPR&D as an indefinite-lived intangible asset until completion or abandonment of the associated research and developmentprojects.When a project is completed, the carrying amount of the related IPR&D is reclassified into technology and amortized over the remaining estimated lifeof the asset beginning in the period in which the project is completed and sales of related product is recognized. In this regard, IPR&D of $1,572 thousandwas reclassified into technology in 20118. Accrued ExpensesAccrued expenses as of December 31, 2013, 2012 and 2011 are as follows: December 31, 2013 2012(As restated) 2011(As restated) Payroll, benefits and related taxes, excluding severance benefits $19,869 $14,792 $8,104 Withholding tax levied on intercompany interest income 23,872 20,027 16,931 Interest on senior notes 6,749 5,124 4,470 Settlement obligations 6,460 1,322 2,100 Outside service fees 1,462 1,112 1,282 Others 7,082 4,998 2,582 Accrued expenses $65,494 $47,375 $35,469 Settlement obligationsSettlement obligations related to settling claims involving the Company’s product are accrued when they are deemed probable and can be reasonablyestimated. As of December 31, 2013, there is a long-term portion of settlement obligation of $7,030 thousand, which is included in other non-currentliabilities in the consolidated balance sheet. 100Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 9. Derivative Financial InstrumentsThe Company’s Korean subsidiary entered into option, forward and zero cost collar contracts to hedge the risk of changes in the functional-currency-equivalent cash flows attributable to currency rate changes on U.S. dollar denominated revenues.Details of derivative contracts as of December 31, 2013 are as follows: Date of transaction Type of derivative Total notional amount Month of settlementJanuary 25, 2013 Zero cost collar $54,000 January to March 2014March 8, 2013 Zero cost collar $54,000 April to June 2014April 5, 2013 Zero cost collar $54,000 July to September 2014May 29, 2013 Zero cost collar $54,000 October to December 2014The option, forward and zero cost collar contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging” (“ASC 815”), since at boththe inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flowsattributable to the hedged risk during the term of the contracts. The Company is utilizing the “hypothetical derivative” method to measure the effectivenessby comparing the changes in value of the actual derivative versus the change in fair value of the “hypothetical derivative.”The fair values of the Company’s outstanding forward and zero cost collar contracts recorded as assets as of December 31, 2013, 2012 and 2011 are asfollows: Derivatives designated as hedging instruments: December 31, 2013 2012(As Restated) 2011(As Restated) Asset Derivatives: Zero cost collars Other current assets $4,912 $1,458 $ — Liabilities Derivatives: Forward Derivative liabilities — — 6,801 Zero cost collars Derivative liabilities — 944 2,956 Offsetting of derivative assets as of December 31, 2013, 2012 and 2011 is as follows: As of December 31, 2013 Gross amounts ofrecognizedassets/liabilities Gross amountsoffset in thebalance sheets Net amounts ofassets/liabilitiespresented in thebalance sheets Gross amounts not offsetin the balance sheets Net amount Financialinstruments Cash collateralreceived/pledged Asset Derivatives: Zero cost collars $4,912 $— $4,912 $— $— $4,912 As of December 31, 2012(As Restated) Gross amounts ofrecognizedassets/liabilities Gross amountsoffset in thebalance sheets Net amounts ofassets/liabilitiespresented in thebalance sheets Gross amounts not offsetin the balance sheets Net amount Financialinstruments Cash collateralreceived/pledged Asset Derivatives: Zero cost collars $1,458 $— $1,458 $(944) $— $514 Liability Derivatives: Zero cost collars $944 $— $944 $(944) $— $— As of December 31, 2011(As Restated) Gross amounts ofrecognizedassets/liabilities Gross amountsoffset in thebalance sheets Net amounts ofassets/liabilitiespresented in thebalance sheets Gross amounts not offsetin the balance sheets Net amount Financialinstruments Cash collateralreceived/pledged Liability Derivatives: Forward $6,801 $— $6,801 $— $— $6,801 Zero cost collars $2,956 $— $2,956 $— $— $2,956 101Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as acomponent of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedgedtransaction affects earnings. Gains and losses on the derivative, representing either hedge ineffectiveness or hedge components excluded from the assessmentof effectiveness, are recognized in current earnings.The following table summarizes the impact of derivative instruments on the consolidated statement of operations for the years ended December 31,2013, 2012 and 2011: Derivatives inASC 815 CashFlow HedgingRelationships Amount ofGain (Loss)Recognized inAOCI onDerivatives(Effective Portion) Location ofGain (Loss)Reclassified fromAOCI intoStatement ofOperations(Effective Portion) Amount ofGain (Loss)Reclassified fromAOCI intoStatement ofOperations(Effective Portion) Location ofGain (Loss)Recognized inStatement ofOperations onDerivative(IneffectivePortion andAmountExcluded fromEffectivenessTesting) Amount ofGain (Loss)Recognized inStatement ofOperations onDerivatives(Ineffective Portionand AmountExcluded fromEffectiveness Testing) 2013 2012(AsRestated) 2011(AsRestated) 2013 2012(AsRestated) 2011(AsRestated) 2013 2012(AsRestated) 2011(AsRestated) Options $— $— $(85) Net sales $— $— $(829) Other income(expenses)—Others $— $— $(18) Forward 3,405 3,416 (3,125) Net sales 3,484 (3,192) 10,708 Other income(expenses)—Others 412 1,300 (215) Zero cost collars 4,092 1,821 (2,349) Net sales (500) (1,416) 1,100 Other income(expenses)—Others 222 365 (309) Total $7,497 $5,237 $(5,559) $2,984 $(4,608) $10,979 $634 $1,665 $(542) As of December 31, 2013, the amount expected to be reclassified from accumulated other comprehensive income into earnings within the next twelvemonths is $4,782 thousand.The Company’s option, forward and zero cost collar contracts are subject to termination upon the occurrence of the following events:(i) On the last day of a fiscal quarter, the sum of qualified and unrestricted cash and cash equivalents held by the Company is less than $30 million.(ii) The rating of the Company’s debt is B- or lower by Standard & Poor’s Ratings Group or any successor rating agency thereof (“S&P”) or B3 or lowerby Moody’s Investor Services, Inc. or any successor rating agency thereof (“Moody’s”) or the Company’s debt ceases to be assigned a rating by either S&P orMoody’s. See Note 25, “Subsequent Events” – Early termination of derivative contracts.In addition, the Company is required to deposit cash collateral with three financial institutions, the counterparties to the forward and zero cost collarcontracts, for any exposure in excess of $5 million for each financial institution. No cash collateral was required as of December 31, 2013. 102Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 10. Product WarrantiesChanges in accrued warranty liabilities for each period are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Beginning balance $1,223 $631 $266 Addition to warranty reserve 1,917 2,069 1,295 Payments made (2,268) (1,555) (924) Translation adjustments 5 78 (6) Ending balance $877 $1,223 $631 11. Long-term BorrowingsLong-term borrowings as of December 31, 2013, 2012 and 2011 are as follows: December 31, 2013 2012(As Restated) 2011(As Restated) 10.5% senior notes due April 2018 (the 2018 Notes) $— $203,691 $203,691 6.625% senior notes due July 2021 (the 2021 Notes) 225,000 — — Discount on senior notes (1,077) (2,038) (2,302) Long-term borrowings, net of unamortized discount $223,923 $201,653 $201,389 6.625% Senior NotesOn July 18, 2013, the Company issued $225,000,000 aggregate principal amount of 6.625% senior notes due July 15, 2021, or the 2021 Notes, at aprice of 99.5%. Interest on the 2021 Notes accrues at a rate of 6.625% per annum, payable semi-annually on January 15 and July 15 of each year, beginningon January 15, 2014.The Company used net proceeds from the issuance of the 2021 Notes of $218.8 million, which represents $225.0 million of principal amount net of$1.1 million of original issue discount and $5.1 million of debt issuance costs, together with cash on hand, to repay all of the then outstanding 2018 Notes,including applicable premium and accrued interest, and to pay related fees and expenses of the 2021 Notes offering.In connection with the refinancing of the Company’s senior notes, the Company recognized $32.8 million of loss on early extinguishment of seniornotes, which consisted of $23.8 million from the applicable premium, $5.3 million from write-off of debt issuance costs, $1.9 million from write-off ofdiscounts and $1.8 million of interest incurred during the notice period.The Company can optionally redeem all or a part of the 2021 Notes according to the following schedule: (i) at any time prior to July 15, 2016, theCompany may on any one or more occasions redeem up to 35% of the aggregate principal amount of 2021 Notes issued under that certain Indenture, dated asof July 18, 2013, by and between the Company and Wilmington Trust, National Association, as trustee (the “Trustee”), as supplemented by that certain FirstSupplemental Indenture, dated as of March 27, 2014 (collectively, the “Indenture”), related to the 2021 Notes at a redemption price equal to 106.625% of theprincipal amount of the 2021 Notes redeemed, plus accrued and unpaid interest and special interest, if any, to the date of redemption with the net proceeds ofa qualified equity offering; (ii) at any time prior to July 15, 2017, the Company may on any one or more occasions redeem all or a part of the 2021 Notes at aredemption price equal to 100% of the principal amount of the notes redeemed, plus the applicable premium as of, and accrued and unpaid interest andspecial interest, if any, to the date of redemption; and (iii) on or after July 15, 2017, the Company may on any one or more occasions redeem all or a part ofthe 2021 Notes, at a redemption price equal to 103.313%, 101.656% and 100% of the principal amount of the notes redeemed on or after July 15, 2017, 2018and 2019 and thereafter, respectively, plus accrued and unpaid interest and special interest, if any, on the notes redeemed, to the applicable date ofredemption. 103Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The indenture relating to the 2021 Notes contains covenants that limit ability of the Company and its restricted subsidiaries to: (i) declare or pay anydividend or make any payment or distribution on account of or purchase or redeem the Company’s capital stock or equity interests of the restrictedsubsidiaries; (ii) make any principal payment on, or redeem or repurchase, prior to any scheduled repayment or maturity, any subordinated indebtedness;(iii) make certain investments; (iv) incur additional indebtedness and issue certain types of capital stock; (v) create or incur any lien (except for permittedliens) that secures obligations under any indebtedness; (vi) merge with or into or sell all or substantially all of the Company’s assets to other companies;(vii) enter into certain types of transactions with affiliates; (viii) guarantee the payment of any indebtedness; (ix) enter into sale-leaseback transactions;(x) enter into agreements that would restrict the ability of the restricted subsidiaries to make distributions with respect to their equity to the Company or otherrestricted subsidiaries, to make loans to the Company or other restricted subsidiaries or to transfer assets to the Company or other restricted subsidiaries; and(xi) designate unrestricted subsidiaries.These covenants will be subject to a number of exceptions and qualifications. Certain of these restrictive covenants will terminate if the notes are ratedinvestment grade at any time.As of December 31, 2013, the Company was in compliance with all of its covenant requirements in the indenture relating to the 2021 Notes. See Note25, “Subsequent Events” for a discussion of the indenture reporting covenant defaults which occurred in 2014.In connection with the issuance of the 2021 Notes, the Company capitalized certain costs and fees, which are being amortized using the effectiveinterest method over its respective term, 2013 to 2021. Amortization costs, which were included in interest expense in the accompanying statements ofoperations, amounted to $217 thousand for the year ended December 31, 2013. The remaining capitalized costs as of December 31, 2013, which wereincluded in other non-current assets in the consolidated balance sheet, were $4,822 thousand.10.5% Senior NotesOn April 9, 2010, two of the Company’s wholly-owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor FinanceCompany, issued $250 million aggregate principal amount of 10.5% senior notes due April 15, 2018, or the 2018 Notes, at a price of 98.674%. Interest on the2018 Notes accrued at a rate of 10.5% per annum, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2010.In 2011, two of the Company’s wholly-owned subsidiaries, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor Finance Company,repurchased $46.3 million out of $250.0 million aggregate principal amount of the 10.5% senior notes due April 15, 2018. In connection with therepurchases of the Company’s senior notes, the Company recognized $5,460 thousand of loss on early extinguishment of senior notes, which consisted of$3,998 thousand from repurchase premium, $554 thousand from write-off of discounts, $609 thousand from write-off of debt issuance costs and $299thousand from incurrence of direct legal and advisory service fees. 104Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 12. Accrued Severance BenefitsThe majority of accrued severance benefits is for employees in the Company’s Korean subsidiary, MagnaChip Semiconductor Ltd. (Korea). Pursuant tothe Employee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severancebenefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2013, 98% of all employees of theCompany were eligible for severance benefits.Changes in accrued severance benefits are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Beginning balance $116,036 $93,559 $88,973 Provisions 23,169 21,530 16,481 Severance payments (6,130) (6,997) (10,478) Translation adjustments 2,281 7,944 (1,417) 135,356 116,036 93,559 Less: cumulative contributions to the National Pension Fund (383) (395) (403) Group severance insurance plan (801) (783) (724) $134,172 $114,858 $92,432 The severance benefits are funded approximately 0.9%, 1.02% and 1.21% as of December 31, 2013, 2012 and 2011, respectively, through theCompany’s National Pension Fund and group severance insurance plan which will be used exclusively for payment of severance benefits to eligibleemployees. These amounts have been deducted from the accrued severance benefit balance.The Company is liable to pay the following future benefits to its employees upon their normal retirement age: SeveranceBenefit 2014 $377 2015 394 2016 1,351 2017 1,763 2018 3,134 2019 – 2023 21,322 The above amounts were determined based on the employees’ current salary rates and the number of service years that will be accumulated upon theirretirement dates. These amounts do not include amounts that might be paid to employees that will cease working with the Company before their normalretirement ages.13. WarrantsIn connection with the Company’s reorganization, the Company issued warrants to purchase 1,875 thousand of the Company’s common stock. Thewarrants were issued in partial satisfaction of the claims of the holders of the Company’s Senior Subordinated Notes and are exercisable at a price of $15.76per share at any time following the issue date of the warrants, so long as the exercise of the warrants is exempt from the registration requirements of theSecurities Act of 1933, as amended. The value of each warrant to purchase one common share was $1.35, which was estimated using the Black-Scholes optionpricing model using the following assumptions: fair value of $6.32 per common share, exercise price of $15.76 per share, risk free rate of interest of 2.3%,volatility of 50%, dividend rate of 0% and term of 5 years. The warrants expired on November 9, 2014. 105Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 14. Common StockCommon stock par value $0.01 per share, was authorized in the amount of 150,000 thousand shares, of which 40,627 thousand shares were issued and34,048 thousand shares were outstanding as of December 31, 2013.Changes in common stock for each period are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Shares Amount Shares Amount Shares Amount Common stock at the beginning of the period 35,635,357 $396 37,907,575 $394 38,401,989 $384 Forfeiture of restricted stock bonuses — — — — (3,465) — Issuance of common stock — — 4,499 — 950,586 10 Exercise of stock options 579,476 6 155,708 2 90,005 — Exercise of warrants 448,281 4 52 — — — Acquisitions of treasury stock (2,614,748) — (2,432,477) — (1,531,540) — Total common stock outstanding at the end of the period 34,048,366 $406 35,635,357 $396 37,907,575 $394 On October 7, 2011, the Board of Directors adopted a stock repurchase program whereby the Company may, subject to prevailing market conditionsand other factors, repurchase up to $35 million of its outstanding common stock. The Board of Directors extended and increased the program by anadditional $25 million in August 2012, for a maximum aggregate repurchase amount under the original program of up to $60 million. On July 30, 2013, theCompany announced that the Board of Directors approved a new stock repurchase program under which the Company is authorized to repurchase up to $100million of its common stock. The new stock repurchase program was effective August 5, 2013 through December 15, 2014, and replaced the original stockrepurchase program. The stock repurchase program did not require that the Company purchases a minimum amount of shares of its common stock and may becommenced, suspended, resumed or terminated at any time without notice. The timing and extent of any repurchases will depend upon prevailing marketconditions, the trading price of the Company’s common stock and other factors, and subject to contractual restrictions and restrictions under applicable lawand regulations. The Company purchased 2,615 thousand shares of common stock on the open market at a cost of $51,000 thousand for the year endedDecember 31, 2013 and 2,432 thousand shares of common stock at a cost of $28,125 thousand for the year ended December 31, 2012. For the year endedDecember 31, 2011, the Company purchased 1,532 thousand shares of common stock at a cost of $11,793 thousand. The Company accounted for the treasurystock using the cost method, which treats it as a temporary reduction in stockholders’ equity. As a result, the stockholders’ equity has decreased by $51,000thousand, $28,125 thousand and $11,793 thousand for the years ended December 31, 2013, 2012 and 2011, respectively. In March 2014, the Board ofDirectors suspended the stock repurchase program indefinitely pending the completion of the Independent Investigation, and the stock repurchase programexpired by its terms on December 15, 2014. Subsequent to December 31, 2013, the Company did not repurchase any shares under the stock repurchaseprogram.15. Equity Incentive PlansThe Company adopted its 2009 Common Unit Plan effective December 8, 2009, which is administered by the board of directors. Under the plan,employees, consultants and non-employee directors are eligible for equity incentives, including grants of options to purchase the Company’s common stockor restricted stock bonuses or restricted stock purchase rights and deferred stock awards, subject to terms and conditions determined by the board of directors.The term of options shall not exceed ten years from the date of grant. Restricted stock purchase rights shall be exercisable within a period established by theboard of directors, which shall in no event exceed thirty days from the effective date of the grant. As of December 31, 2013, an aggregate maximum of5,221 thousand shares were authorized and 553 thousand shares were reserved for all future grants.Stock options are generally granted with exercise prices of no less than the fair market value of the Company’s common stock on the grant date. Therequisite service period, or the period during which a grantee is required to provide service in exchange for option grants, coincides with the vesting period.The stock options vest over three years following grant, with 34% of the common stock vesting and becoming exercisable on the first anniversary of grantdate and 8% or 9% of the common stock subject to the options vesting on completion of each three-month period thereafter. 106Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The purchase price for shares issuable under each restricted stock purchase right shall be established by the board of directors in its discretion. Nomonetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares pursuant to a restricted stock bonus, theconsideration for which shall be services actually rendered to a participating company or for its benefit. Stock issued pursuant to any restricted stock awardmay (but need not) be made subject to vesting conditions based upon the satisfaction of such service requirements, conditions, restrictions or performancecriteria as shall be established by the board of directors and set forth in the award agreement evidencing such award. During any period in which stockacquired pursuant to a restricted stock award remain subject to vesting conditions, such stock may not be sold, exchanged, transferred, pledged, assigned orotherwise disposed of other than pursuant to an ownership change event or transfer by will or the laws of descent and distribution. The grantee shall have allof the rights of a stockholder of the Company holding stock, including the right to vote such stock and to receive all dividends and other distributions paidwith respect to such stock; provided, however, that if so determined by the board of directors and provided by the award agreement, such dividends anddistributions shall be subject to the same vesting conditions as the stock subject to the restricted stock award with respect to which such dividends ordistributions were paid. If a grantee’s service terminates for any reason, whether voluntary or involuntary (including the grantee’s death or disability), then(a) the Company (or its assignee) has the option to repurchase for the purchase price paid by the grantee any stock acquired by the grantee pursuant to arestricted stock purchase right which remain subject to vesting conditions as of the date of the grantee’s termination of service and (b) the grantee shall forfeitto the Company any stock acquired by the grantee pursuant to a restricted stock bonus which remain subject to vesting conditions as of the date of thegrantee’s termination of service. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is thenexercisable, to one or more persons as may be selected by the Company.No monetary payment (other than applicable tax withholding, if any) is required as a condition of receiving a deferred stock award, the considerationfor which shall be services actually rendered to a participating company or for its benefit. Deferred stock awards may (but need not) be made subject tovesting conditions based upon the satisfaction of such service requirements, conditions, restrictions or performance criteria as shall be established by theCompensation Committee and set forth in the award agreement evidencing such award. Grantees have no voting rights with respect to stock represented bydeferred stock awards until the date of the issuance of such stock (as evidenced by the appropriate entry on the books of the Company or of a duly authorizedtransfer agent of the Company). If a grantee’s service terminates for any reason, whether voluntary or involuntary (including the grantee’s death or disability),then the grantee shall forfeit to the Company any deferred stock pursuant to the award which remain subject to vesting conditions as of the date of thegrantee’s termination of service, and, in the event of the grantee’s termination for cause, such deferred stock award to the extent not yet settled. The Companyshall issue to a grantee on the date on which deferred stock subject to the grantee’s deferred stock award vest or on such other date determined by the board ofdirectors, in its discretion, and set forth in the award agreement one share (and/or any other new, substituted or additional securities or other property) for eachdeferred stock then becoming vested or otherwise to be settled on such date, subject to the withholding of applicable taxes, if any. 107Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following summarizes stock option and restricted stock bonus activities for the years ended December 31, 2013, 2012 and 2011 after giving effectto the corporate conversion. At the date of grant, all options had an exercise price above the fair value of common stock: Number ofRestricted StockBonuses Number ofOptions WeightedAverageExercisePrice ofStockOptions AggregateIntrinsicValue ofStockOptions WeightedAverageRemainingContractualLife ofStockOptions Outstanding at January 1, 2011 291,061 1,957,760 $6.32 14,158 9.0 years Granted — 181,125 11.68 — — Released from restriction (287,596) — — — — Forfeited (3,465) (39,920) 8.37 — — Exercised — (90,005) 5.88 — — Outstanding at December 31, 2011 — 2,008,960 $6.79 2,773 8.1 years Vested and expected to vest at December 31, 2011 (As Restated) — 1,974,611 6.75 2,742 8.1 years Exercisable at December 31, 2011 (As Restated) — 1,212,445 6.37 1,819 8.1 years Outstanding at January 1, 2012 — 2,008,960 6.79 2,773 8.1 years Granted — 1,319,500 8.29 — — Forfeited — (95,271) 11.07 — — Exercised — (155,708) 5.88 — — Outstanding at December 31, 2012 — 3,077,481 7.35 26,385 7.9 years Vested and expected to vest at December 31, 2012 (As Restated) — 3,021,937 7.32 25,988 7.9 years Exercisable at December 31, 2012 (As Restated) — 1,726,891 6.54 16,203 7.0 years Outstanding at January 1, 2013 — 3,077,481 7.35 26,385 7.9 years Granted — 455,000 17.08 Forfeited — (8,360) 10.89 Exercised — (579,476) 7.44 Outstanding at December 31, 2013 — 2,944,645 8.82 31,558 7.3 years Vested and expected to vest at December 31, 2013 — 2,916,184 8.78 31,376 7.3 years Exercisable at December 31, 2013 — 1,946,475 7.00 24,325 6.7 years Total compensation expenses recorded for the stock options were $2,213 thousand and $2,389 thousand for the years ended December 31, 2013 and2012, respectively, and for the restricted stock bonuses and stock options were $882 thousand and $1,334 thousand for the year ended December 31, 2011,respectively. As of December 31, 2013, there was $1,357 thousand of total unrecognized compensation cost related to stock options, which is expected to berecognized over a weighted average future period of 0.7 year. Total fair values of restricted stock bonuses released from restriction were $1,818 thousand forthe year ended December 31, 2011. Total fair value of options vested were $1,746 thousand, $1,515 thousand and $1,565 thousand for the years endedDecember 31, 2013, 2012 and 2011, respectively. 108Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The Company utilizes the Black-Scholes option-pricing model to measure the fair value of each option grant. The following summarizes the grant-datefair value of options granted for the years ended December 31, 2013, 2012 and 2011 and assumptions used in the Black-Scholes option-pricing model on aweighted average basis: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Grant-date fair value of option $4.30 $2.70 $4.12 Expected term 2.8 Years 3.0 Years 3.0 Years Risk-free interest rate 0.4% 0.4% 0.9% Expected volatility 37.6% 48.8% 52.2% Expected dividends — — — The number and weighted average grant-date fair value of the unvested stock options are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Number WeightedAverageGrant-DateFair Value Number WeightedAverageGrant-DateFair Value Number WeightedAverageGrant-DateFair Value Unvested options at the beginning of the period 1,350,590 $2.79 796,514 $2.60 1,327,825 $2.37 Granted options during the period 455,000 4.30 1,319,500 2.70 181,125 4.12 Vested options during the period (651,530) 2.68 (654,022) 2.32 (637,940) 2.51 Forfeited options during the period (7,106) 3.92 (74,335) 4.02 (37,215) 2.99 Exercised options during the period (148,784) 2.46 (37,067) 1.87 (37,281) 2.11 Unvested options at the end of the period 998,170 $3.69 1,350,590 $2.79 796,514 $2.60 16. Restructuring and Impairment Charges2013 Restructuring and Impairment ChargesThe Company recognized $1,829 thousand of restructuring charges for the year ended December 31, 2013 from restructuring its six inch fabricationfacilities and $617 thousand of impairment charges from certain existing technology.The Company recognized impairment charges related to impairment of goodwill, certain technology and machinery and equipment purchased inconnection with the Dawin acquisition, by $3,389 thousand, $1,864 thousand and $508 thousand, respectively.2011 Restructuring and Impairment ChargesThe Company recognized $2,409 thousand of impairment charges for the year ended December 31, 2011 from twelve abandoned in-process researchand development projects and one abandoned system project. The Company recognized $90 thousand of impairment charges for the year endedDecember 31, 2011 from impairment of tangible and intangible assets caused by the closure of the Company’s research and development center in Japan.The Company recognized $1,100 thousand of restructuring charges for the year ended December 31, 2011, which were incurred by the closure of theCompany’s research and development center in Japan and sales subsidiary in the U.K. The closure process was completed as of December 31, 2011 and allrelated liabilities were paid. The restructuring charges primarily consist of $842 thousand of one-time employee termination benefits, $243 thousand ofcontract termination cost and other administrative costs such as outside service fees. 109Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 17. Foreign Currency Gain (Loss), NetNet foreign currency gain or loss includes non-cash translation gain or loss associated with intercompany balances. A substantial portion of theCompany’s net foreign currency gain or loss is non-cash translation gain or loss associated with intercompany long-term loans to our Korean subsidiary. Theloans 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 December 31, 2013,the total intercompany loan balance was $536 million. The Korean won to U.S. dollar exchange rates were 1,055.3:1, 1,071.1:1 and 1,153.3:1 using the firstbase rate as of December 31, 2013, 2012 and 2011, respectively, as quoted by the Korea Exchange Bank.18. Income TaxesThe Company’s income tax expenses are composed of domestic and foreign income taxes depending on the relevant tax jurisdiction. “Domestic” refersto the income before taxes and current income taxes generated or incurred in the United States, where the parent company resides.The components of income tax expense are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Income (loss) before income taxes Domestic $(6,127) $(2,634) $(2,021) Foreign (54,106) 125,519 (1,165) $(60,233) $122,885 $(3,186) Current income taxes expense (benefit) Domestic $(2,258) $6,170 $54 Foreign 4,875 4,533 6,038 Uncertain tax position liability (domestic) (87) 14 41 Uncertain tax position liability (foreign) 7 175 507 2,537 10,892 6,640 Deferred income taxes expense Foreign 1,433 1,955 1,475 Total income tax expenses $3,970 $12,847 $8,115 Effective tax rate — 10.5% — The Company’s annual effective tax rate was 10.5% for the year ended December 31, 2012.The differences between the annual effective tax rates and the U.S. federal statutory rate of 35.0% primarily result from the non-income basedwithholding tax levied on intercompany interest income in the Company’s Dutch subsidiary, application of lower tax rates associated with certain earningsfrom the Company’s operations outside the U.S., the parent Company’s interest income, which is non-taxable for US tax purposes and the change of valuationallowance of deferred tax assets.The statutory income tax rate of the Company’s Korean subsidiary, MagnaChip Semiconductor, Ltd., applicable to the Company was approximately24.2% in 2013, 2012 and 2011. 110Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The provision for domestic and foreign income taxes incurred is different from the amount calculated by applying the statutory tax rate to the netincome before income taxes. The significant items causing this difference are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Provision computed at statutory rate $(21,082) $43,010 $(1,115) Change in statutory tax rate — — (11,872) Difference in foreign tax rates 5,375 (12,544) 3,946 Permanent differences Derivative assets adjustment 1,469 3,364 (6,334) TPECs, hybrid and other interest (3,151) (5,920) (6,513) Permanent impairment — (935) (5,120) Thin capitalization — 97 3,422 Deemed dividend — 7,609 — Permanent foreign currency gain (loss) 3,351 (465) 2,439 Customs penalty — 742 — Other permanent differences (881) 1,556 674 Withholding tax 3,918 4,242 5,861 Foreign exchange rate adjustment (7,455) (4,127) 3,867 Change in valuation allowance 24,062 (21,184) 20,124 Tax credit (1,818) (2,796) (1,823) Uncertain tax positions liability (80) 189 548 Others 262 9 11 Income tax expenses $3,970 $12,847 $8,115 A summary of the composition of net deferred income tax assets (liabilities) as of December 31, 2013, 2012 and 2011 are as follows: December 31, 2013 2012(As Restated) 2011(As Restated) Deferred tax assets Accounts Receivables $28,628 $8,799 $5,333 Inventories 5,866 3,501 299 Derivative assets — — 2,361 Accrued expenses 8,758 2,812 2,243 Product warranties 292 306 556 Other reserves 684 1,072 518 Royalty income 1,364 3,118 3,452 Property, plant and equipment 13,667 12,945 13,704 Intangible assets 922 — — Accumulated severance benefits 27,769 23,465 18,507 Foreign currency translation loss 12,220 13,533 26,718 NOL carry-forwards 53,714 72,533 112,195 Tax credit 26,041 26,786 24,954 Other long-term payable 608 168 84 Others 2,887 1,438 3,705 Total deferred tax assets 183,420 170,476 214,629 Less: valuation allowance (178,729) (162,968) (200,056) 4,691 7,508 14,573 Deferred tax liabilities Derivative assets 1,189 124 — Intangible assets — 1,712 3,331 Foreign currency translation gain 19 1,003 4,146 Others 1,239 295 250 Total deferred tax liabilities 2,447 3,134 7,727 Net deferred tax assets $2,244 $4,374 $6,846 Reported as Current deferred income tax assets $1,348 $1,788 $2,076 Long-term deferred income tax assets $896 $2,586 $4,770 111Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The valuation allowances at December 31, 2013, 2012 and 2011 are primarily attributable to net deferred tax assets at the Company’s Koreansubsidiary for which, due to expected losses related to the Company’s Korean subsidiary in future years, the Company has recorded a full valuationallowance against the deferred tax assets, net of its deferred tax liabilities, and against certain foreign subsidiary’s deferred tax assets pertaining to its relatedtax loss carry-forwards that are not anticipated to generate a tax benefit. Changes in valuation allowance for deferred tax assets for the years endedDecember 31, 2013, 2012 and 2011 are as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Beginning balance $162,968 $200,056 $207,774 Charged to expense (income) 24,062 (21,184) 20,124 NOL and tax credit expiration (10,150) (25,305) (25,965) Translation adjustment 1,849 9,401 (1,877) Ending balance $178,729 $162,968 $200,056 The amount presented as “Charged to expense (income)” primarily relates to the utilization of net operating loss and tax credit carry-forwards, or pre-tax losses for which there is no tax benefit.The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires the Company to weigh all positive andnegative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The weight givento the evidence is commensurate with the extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence isnecessary and the more difficult it is to support a conclusion that a valuation allowance is not needed. Realization of the future tax benefits related to thedeferred tax assets is dependent on many factors, including the Company’s ability to generate future taxable income within the period during which thetemporary differences reverse, the outlook for the economic environment in which the Company operates and the overall future industry outlook.As of December 31, 2013, 2012 and 2011, the Company had net deferred tax assets of $2,244 thousand, $4,374 thousand and $6,846 thousand,respectively, related to the Company’s Japanese subsidiary. As of December 31, 2013, 2012 and 2011, the Company recorded a valuation allowance of$178,729 thousand, $162,968 thousand and $200,056 thousand on its deferred tax assets related to temporary differences, net operating loss carry-forwardsand tax credit in domestic and foreign subsidiaries. The Company maintained to record these valuation allowances on deferred tax assets based on itsassessment that the negative evidence of expected losses in early future years outweighed the positive evidence of historical income over a number of years.As of December 31, 2013, the Company had approximately $195,421 thousand of net operating loss carry-forwards available to offset future taxableincome. The majority of net operating loss is associated with the Company’s Korean subsidiary, which expires in 2019, and with the Company’s Luxembourgsubsidiary with indefinite expiration. The Company utilized net operating loss of $69,159 thousand, $86,938 thousand and $32,749 thousand, for the yearsended December 31, 2013, 2012 and 2011, respectively. The Company also has Korean and Dutch tax credit carry-forwards of approximately $9,252thousand and $16,789 thousand, respectively, as of December 31, 2013. The Korean tax credits expire at various dates starting from 2014 to 2018, and theDutch tax credits are carried forward to be used for an indefinite period of time. 112Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Uncertainty in Income TaxesThe Company and the Company’s subsidiaries file income tax returns in Korea, Japan, Taiwan, the U.S. and in various other jurisdictions. TheCompany is subject to income tax examinations by tax authorities of these jurisdictions for all open tax years.As of December 31, 2013, 2012 and 2011, the Company recorded $3,706 thousand, $3,820 thousand and $3,472 thousand of liabilities forunrecognized tax benefits, respectively. For the years ended December 31, 2013, 2012 and 2011, the Company recorded $106 thousand, $5 thousand and $5thousand of income tax benefits by reversing liabilities due to the lapse of the applicable statute of limitations and incurred $7 thousand, $55 thousand and$474 thousand of income tax expenses for uncertain tax positions mainly resulting from withholding taxes related to intercompany balances.The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expenses. The Company recognized $20thousand, $139 thousand, $78 thousand of interest and penalties as income tax expense for the years ended December 31, 2013, 2012 and 2011, respectively.Total interest and penalties accrued as of December 31, 2013, 2012 and 2011 were $530 thousand, $544 thousand and $396 thousand, respectively.A tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of each period is as follows: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Unrecognized tax benefits, balance at the beginning $11,196 $10,297 $10,790 Additions based on tax positions related to the current year 1,690 1,342 1,950 Additions for tax positions of prior years — 41 — Lapse of statute of limitations (1,067) (942) (2,410) Translation adjustment 46 458 (33) Unrecognized tax benefits, balance at the ending $11,865 $11,196 $10,297 113Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 19. Geographic and Segment InformationThe Company has one operating segment, consisting of three business lines: Display Solutions, Power Solutions and Semiconductor ManufacturingServices. The Company’s chief operating decision maker is considered to be its Chief Executive Officer. The chief operating decision maker allocatesresources and assesses performance of the business and other activities at the operating segment level.The following is a summary of net sales by business line: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Net Sales Display Solutions $202,951 $285,939 $323,634 Semiconductor Manufacturing Services 395,365 395,858 330,715 Power Solutions 135,329 124,960 87,922 All other 532 579 859 Total net sales $734,177 $807,336 $743,130 The following is a summary of net sales by region, based on the location of the customer: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Korea $313,634 $365,682 $372,736 Asia Pacific (other than Korea) 284,429 271,908 271,521 U.S.A. 100,790 124,481 75,378 Europe 32,136 39,304 14,022 Others 3,188 5,961 9,473 $734,177 $807,336 $743,130 Net sales from the Company’s top ten largest customers accounted for 59%, 61% and 60% for the years ended December 31, 2013, 2012 and 2011,respectively.For the year ended December 31, 2013, the Company had one customer that represented 11.3% of its net sales. For the years ended December 31, 2012and 2011, the Company had another customer that represented 11.5% and 15.4% of its net sales, respectively.Over 99% of the Company’s property, plant and equipment are located in Korea as of December 31, 2013. 114Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 20. Commitments and ContingenciesOperating Agreements with SK HynixIn connection with the acquisition of the non-memory semiconductor business from SK Hynix on October 4, 2004 (the “Original Acquisition”), theCompany entered into several agreements with SK Hynix, including a non-exclusive cross license that provides the Company with access to certain of SKHynix’s intellectual property for use in the manufacture and sale of non-memory semiconductor products. The Company also agreed to provide certainutilities and infrastructure support services to SK Hynix.Upon the closing of the Original Acquisition, the Company’s Korean subsidiary and SK Hynix also entered into lease agreements under which theCompany’s Korean subsidiary leases space to SK Hynix in several buildings, primarily warehouses and utility facilities, in Cheongju, Korea. These leases aregenerally for an initial term of 20 years plus an indefinite number of renewal terms of 10 years each. Each of the leases is cancelable upon 90 days’ notice bythe lessee. The Company also leases certain land from SK Hynix located in Cheongju, Korea. The term of this lease is indefinite unless otherwise agreed bythe parties, and as long as the buildings remain on the lease site and are owned and used by the Company for permitted uses.Operating LeasesThe Company leases land, office space and equipment under various operating lease agreements with various terms. Rental expenses wereapproximately $8,829 thousand, $8,879 thousand and $8,148 thousand for the years ended December 31, 2013, 2012 and 2011, respectively.As of December 31, 2013, the minimum aggregate rental payments due under non-cancelable lease contracts are as follows: 2014 $6,001 2015 5,447 2016 4,552 2017 2,212 2018 2,212 2019 and thereafter 32,847 $53,271 21. Related Party TransactionsStockholdersFunds affiliated with Avenue Capital Management II, L.P. owned 12.0% of the Company’s common stock issued and outstanding at December 31,2013.WarrantsFunds affiliated with Avenue Capital Management II, L.P. own warrants for the purchase of 556 thousand common shares out of the total warrants forthe purchase of 1,426 thousand shares outstanding as of December 31, 2013.Registration Rights AgreementOn November 9, 2009, we entered into a registration rights agreement with the holders of MagnaChip Semiconductor LLC’s common units issued inour reorganization proceedings, including Avenue, where we granted them registration rights with respect to our common stock. In 2012 and 2013, theCompany paid fees and expenses of $1.2 million and $0.8 million, respectively, in connection with the registration and sale of shares of our common stockby Avenue pursuant to such registration rights agreement. Affiliates of Avenue currently have two employees serving as members of our Board. Anothermember of our Board was also previously employed by affiliates of Avenue until December 31, 2012, and currently serves as a consultant to affiliates ofAvenue.Senior NotesOn March 16, 2011, the Company repurchased $35.0 million out of $250.0 million aggregate principal amount of the Company’s 10.500% seniornotes due April 15, 2018 at a price of 109.0% from funds affiliated with Avenue Capital Management II, L.P. The Company paid the funds affiliated withAvenue Capital Management II, L.P. $2,154 thousand of interest for the year ended December 31, 2011. 115Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 22. Accumulated Other Comprehensive LossAccumulated other comprehensive loss consists of the following at December 31, 2013, 2012 and 2011, respectively: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Foreign currency translation adjustments $(57,326) $(43,599) $(5,862) Derivative adjustments 6,587 2,074 (7,771) Unrealized gain on investments 681 75 90 Total $(50,058) $(41,450) $(13,543) Changes in accumulated other comprehensive loss for the years ended December 31, 2013 and 2012 is as follows: Year Ended December 31, 2013 Foreigncurrencytranslationadjustments Derivativeadjustments Unrealizedgain oninvestments Total Beginning balance $(43,599) $2,074 $75 $(41,450) Other comprehensive income (loss) before reclassifications (13,727) 7,497 606 (5,624) Amounts reclassified from accumulated other comprehensive income — (2,984) — (2,984) Net current-period other comprehensive income (loss) (13,727) 4,513 606 (8,608) Ending balance $(57,326) $ 6,587 $ 681 $(50,058) Year Ended December 31, 2012 (As Restated) Foreigncurrencytranslationadjustments Derivativeadjustments Unrealizedgain oninvestments Total Beginning balance $(5,862) $(7,771) $ 90 $(13,543) Other comprehensive income (loss) before reclassifications (37,737) 5,237 (15) (32,515) Amounts reclassified from accumulated other comprehensive loss — 4,608 — 4,608 Net current-period other comprehensive income (loss) (37,737) 9,845 (15) (27,907) Ending balance $(43,599) $2,074 $75 $(41,450) Year Ended December 31, 2011 (As Restated) Foreigncurrencytranslationadjustments Derivativeadjustments Unrealizedgain oninvestments Total Beginning balance $(14,235) $8,767 $193 $(5,275) Other comprehensive income (loss) before reclassifications 8,373 (5,559) (103) 2,711 Amounts reclassified from accumulated other comprehensive income — (10,979) — (10,979) Net current-period other comprehensive income (loss) 8,373 (16,538) (103) (8,268) Ending balance $(5,862) $(7,771) $90 $(13,543) 116Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 23. Earnings (loss) per ShareThe following table illustrates the computation of basic and diluted earnings (loss) per common share: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Net income (loss) $(64,203) $110,038 $(11,301) Weighted average common stock outstanding Basic 35,232,194 36,567,684 38,775,642 Diluted 35,232,194 37,533,391 38,775,642 Earnings (loss) per share Basic $(1.82) $3.01 $(0.29) Diluted $(1.82) $2.93 $(0.29) The following outstanding instruments were excluded from the computation of diluted earnings (loss) per share, as they would have an anti-dilutiveeffect on the calculation: Year Ended December 31, 2013 2012(As Restated) 2011(As Restated) Options 2,944,645 255,023 2,008,960 Warrants 1,426,330 1,874,977 1,875,017 117Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 24. Unaudited Quarterly Financial ResultsThe following tables present selected unaudited Consolidated Statements of Operations for each quarter of the years ended December 31, 2013 and2012. Fiscal Year 2013 FirstQuarter(As Restated) SecondQuarter(As Restated) ThirdQuarter(As Restated) FourthQuarter Net sales $194,322 $193,533 $170,812 $175,510 Gross profit 58,235 45,241 34,413 17,179 Operating income (loss) 13,966 2,665 (10,220) (33,179) Net income (loss) $(17,589) $(24,668) $251 $(22,197) Earnings (loss) per share: Basic $(0.49) $(0.70) $0.01 $(0.64) Diluted $(0.49) $(0.70) $0.01 $(0.64) Weighted average common stock outstanding: Basic 35,539,413 35,474,001 35,443,820 34,480,849 Diluted 35,539,413 35,474,001 37,484,601 34,480,849 Fiscal Year 2012 FirstQuarter(As Restated) SecondQuarter(As Restated) ThirdQuarter(As Restated) FourthQuarter(As Restated) Net sales $176,049 $200,989 $220,881 $209,417 Gross profit 45,512 59,900 74,649 63,186 Operating income 9,565 20,345 32,492 21,913 Net income $13,361 $2,458 $47,210 $47,009 Earnings per share: Basic $0.36 $0.07 $1.30 $1.31 Diluted $0.35 $0.07 $1.27 $1.27 Weighted average common stock outstanding: Basic 37,524,127 36,713,569 36,199,655 35,845,367 Diluted 38,282,932 37,517,712 37,290,612 37,050,284 118Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table presents the impact of the restatement adjustments on the Company’s condensed consolidated statement of operations for each offirst three quarters of the year ended December 31, 2013 (Unaudited): Three Month Ended March 31, 2013 Three Month Ended June 30, 2013 Three Month Ended September 30, 2013 As PreviouslyReported Adjustments(a) As Restated As PreviouslyReported Adjustments(b) As Restated As PreviouslyReported Adjustments(c) As Restated Net sales $205,298 $(10,976) $194,322 $215,289 $(21,756) $193,533 $217,824 $(47,012) $170,812 Gross profit 65,743 (7,508) 58,235 71,048 (25,807) 45,241 71,888 (37,475) 34,413 Operating income (loss) 22,924 (8,958) 13,966 30,208 (27,543) 2,665 30,625 (40,845) (10,220) Net income (loss) $(7,405) $(10,184) $(17,589) $4,436 $(29,104) $(24,668) $46,671 $(46,420) $251 Earnings (loss) per share: Basic $(0.21) $(0.28) $(0.49) $0.13 $(0.83) $(0.70) $1.32 $(1.31) $0.01 Diluted $(0.21) $(0.28) $(0.49) $0.12 $(0.82) $(0.70) $1.24 $(1.23) $0.01 Weighted average commonstock outstanding: Basic 35,539,413 35,539,413 35,474,001 35,474,001 35,443,820 35,443,820 Diluted 35,539,413 35,539,413 37,125,005 35,474,001 37,493,550 37,484,601 a)Adjustments to net income for the quarter ended March 31, 2013 include the unfavorable impact of $2,534 thousand related to the correction ofrevenue recognition, the unfavorable impact of $3,860 thousand related to increased inventory reserve, the unfavorable impact of $2,487 thousand forcorrection of inappropriately recognized maintenance expense, (which includes an offset favorable impact of $520 thousand for those transactions thatinvolve certain cash payments to a maintenance supplies vendor, that (i) the vendor used to purchase products from distributors; (ii) the distributorsthen paid to the Company for those products; and (iii) in turn were applied to the Company’s aged accounts receivable), the unfavorable impact of$1,119 thousand related to tax matters and the net unfavorable impact of $184 thousand for other adjustments.b)Adjustments to net income for the quarter ended June 30, 2013 include the unfavorable impact of $9,350 thousand related to the correction of revenuerecognition, the unfavorable impact of $6,336 thousand related to increased inventory reserve, the unfavorable impact of $11,561 related to settlementobligations, the unfavorable impact of $1,395 thousand for tax matters and the net unfavorable impact of $462 thousand for other adjustments.c)Adjustments to net income for the quarter ended September 30, 2013 include the unfavorable impact of $15,764 thousand related to the correction ofrevenue recognition, the unfavorable impact of $17,825 thousand related to increased inventory reserve, the unfavorable impact of $2,446 thousandfor correction of inappropriately recognized maintenance expense, (which includes an offset favorable impact of $1,100 thousand for thosetransactions that involve certain cash payments to a maintenance supplies vendor, that (i) the vendor used to purchase products from distributors; (ii)the distributors then paid to the Company for those products; and (iii) in turn were applied to the Company’s aged accounts receivable), theunfavorable impact of $11,139 thousand related to tax matters, the favorable impact of $1,412 related to settlement obligations and the netunfavorable impact of $658 thousand for other adjustments. In addition, we have corrections for net presentation of certain revenue recognition fromgross presentation which has no impact to net income. 119Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table presents the impact of the restatement adjustments on the Company’s condensed consolidated statement of operations for eachquarter of the year ended December 31, 2012 (Unaudited): Three Month Ended March 31, 2012 Three Month Ended June 30, 2012 Three Month Ended September 30, 2012 Three Month Ended December 31, 2012 As previouslyreported Adjustments(a) As Restated As previouslyreported Adjustments(b) As Restated As previouslyreported Adjustments(c) As Restated As previouslyreported Adjustments(d) As Restated Net sales $177,002 $(953) $176,049 $202,634 $(1,645) $200,989 $221,872 $(991) $220,881 $218,084 $(8,667) $209,417 Gross profit 49,915 (4,403) 45,512 62,858 (2,958) 59,900 76,440 (1,791) 74,649 74,288 (11,102) 63,186 Operating income 11,875 (2,310) 9,565 23,003 (2,658) 20,345 35,582 (3,090) 32,492 35,347 (13,434) 21,913 Net income $15,263 $(1,902) $13,361 $4,340 $(1,882) $2,458 $48,412 $(1,202) $47,210 $125,286 $(78,277) $47,009 Earnings per share: Basic $0.41 $(0.05) $0.36 $0.12 $(0.05) $0.07 $1.34 $(0.04) $1.30 $3.50 $(2.19) $1.31 Diluted $0.40 $(0.05) $0.35 $0.12 $(0.05) $0.07 $1.30 $(0.03) $1.27 $3.38 $(2.11) $1.27 Weighted averagecommon stockoutstanding: Basic 37,524,127 37,524,127 36,713,569 36,713,569 36,199,655 36,199,655 35,845,367 35,845,367 Diluted 38,298,336 38,282,932 37,566,699 37,517,712 37,324,787 37,290,612 37,074,657 37,050,284 a)Adjustments to net income for the quarter ended March 31, 2012 include the favorable impact of $2,914 thousand related to the correction of revenue recognition, the unfavorable impact of $4,479 thousandrelated to increased inventory reserve and the net unfavorable impact of $337 thousand for other adjustments.b)Adjustments to net income for the quarter ended June 30, 2012 include the unfavorable impact of $4,730 thousand related to the correction of revenue recognition, the favorable impact of $2,352 thousandrelated to change in inventory reserve and the net favorable impact of $496 thousand for other adjustments.c)Adjustments to net income for the quarter ended September 30, 2012 include the favorable impact of $3,502 thousand related to the correction of revenue recognition, the unfavorable impact of$2,665 thousand related to increased inventory reserve, the unfavorable impact of $3,378 thousand related to accrual of understated employee benefits and the net favorable impact of $1,339 thousand forother adjustments.d)Adjustments to net income for the quarter ended December 31, 2012 include the unfavorable impact of $66,236 thousand related to tax matters, the unfavorable impact of $10,423 thousand related to thecorrection of revenue recognition and the net unfavorable impact of $1,618 thousand for other adjustments. 120Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 25. Subsequent EventsMatters Related to the Audit Committee’s Review, the Restatement of Certain of the Company’s Consolidated Financial Statements, the State of theCompany’s Internal Control Over Financial Reporting and the Company’s Failure to Timely File Periodic Reports with the SECSecurities Class Action ComplaintOn March 12, 2014, a purported class action was filed against the Company and certain of the Company’s current and now-former officers on behalf ofshareholders who purchased or acquired the Company’s securities between February 1, 2012 and March 11, 2014. On September 30, 2014, an amendedcomplaint was filed against the Company, certain current and now-former officers of the Company, certain members of the Company’s Board of Directors, anda shareholder of the Company, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgatedthereunder. The action, Thomas et al., v. MagnaChip Semiconductor Corp., et al., No. 3:14-CV-1160, is pending in the Northern District of California. TheCourt has granted the plaintiffs thirty days from the date the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Form10-K”) is filed with the U.S. Securities and Exchange Commission (the “SEC”) to file and serve a further amended complaint. At this time, the Company isunable to estimate any reasonably possible loss, or range of reasonably possible losses, with respect to the matters described above.SEC Enforcement Staff InvestigationIn addition, in March 2014, the Company voluntarily reported to the SEC that the Audit Committee had determined that the Company incorrectlyrecognized revenue on certain transactions and as a result would restate its financial statements, and that the Audit Committee had commenced theIndependent Investigation. Over the course of 2014, the Company voluntarily produced documents to the SEC regarding the various accounting issuesidentified during the Independent Investigation, and whether the Company’s hiring of an accountant from the Company’s independent registered publicaccounting firm impacted that accounting firm’s independence. On July 22, 2014, the Staff of the SEC’s Division of Enforcement obtained a Formal Order ofInvestigation. The Company will continue to cooperate with the SEC in this investigation. At this time, the Company is unable to estimate any reasonablypossible loss, or range of reasonably possible losses, with respect to the matters described above.Late Filings and NYSE ActionsOn April 4, 2014, the Company filed a Current Report on Form 8-K with the SEC announcing that on April 2, 2014 the Company received from NYSERegulation, Inc. (the “NYSE”) a notice of failure to satisfy a continued listing rule or standard and related monitoring. The notice informed the Companythat, as a result of the failure to timely file the 2013 Form 10-K, the Company is subject to the procedures specified in Section 802.01E (SEC Annual ReportTimely Filing Criteria) of the NYSE Listed Company Manual (“Section 802.01E”). Under the Section 802.01E procedures, the NYSE will monitor the statusof the filing of the 2013 Form 10-K and related public disclosures for up to a six-month period from its due date. If the Company did not file the 2013 Form10-K within six months from the filing due date, the NYSE may, in its sole discretion, allow the Company’s common stock to trade for up to an additional sixmonths pending the filing of the 2013 Form 10-K prior to commencing suspension or delisting procedures, depending on the Company’s specificcircumstances.On September 5, 2014, the Company made a request to the NYSE that its shares are permitted to continue to trade on the NYSE while the Companycompleted its restatement of the consolidated financial statements. On October 3, 2014, the Company received an extension for continued listing and tradingof the Company’s common stock on the NYSE. The extension, subject to ongoing reassessment by the NYSE, provided the Company with an additionaltrading period until April 1, 2015, during which the Company can file its 2013 Form 10-K with the SEC. On February 12, 2015, the Company filed its 2013Form 10-K, and simultaneously filed its Form 10-Q for each of the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014. The Companybelieves that these filings with the SEC satisfy the NYSE continued listing requirements. 121Table of ContentsIndex to Financial StatementsMAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)(TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 2021 Notes indenture reporting covenant defaultAs disclosed in the Company’s Form 8-K filed on June 25, 2014, the Company received a notice of default on June 20, 2014 (the “10-K and Q1 10-QNotice of Default”) from the Trustee under the Indenture. The 10-K and Q1 10-Q Notice of Default related to the failure by the Company, pursuant to Section4.03 of the Indenture, to file with the SEC its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014 (the “Initial Reporting Defaults”). The Company did not cure the Initial Reporting Defaults within theapplicable 60-day grace period and the Initial Reporting Defaults ripened into Events of Default. The Company elected, as the sole and exclusive remedy forthe Events of Default, to pay additional interest on the Notes at a rate equal to 0.25% per annum of the principal amount of the Notes (the “AdditionalInterest”) for a period of 180 days following the occurrence of the Events of Default (the “Additional Interest Period”).On August 20, 2014, the Company received a notice of default related to its failure to file its Form 10-Q for the fiscal quarter ended June 30, 2014 (the“Q2 10-Q Notice of Default”), and on November 19, 2014, the Company received a notice of default related to its failure to file its Form 10-Q for the fiscalquarter ended September 30, 2014 (the “Q3 10-Q Notice of Default”). These defaults also ripened into Events of Default and on December 29, 2014 andJanuary 15, 2015, respectively, the Company elected to extend the Additional Interest Period for up to 180 days following each additional Event of Default.Upon the filing with the SEC of this Report and expected filing of the Form 10-Qs for each of the fiscal quarters ended March 31, 2014, June 30, 2014and September 30, 2014, the Company believes it will regain compliance with its reporting obligations under the Indenture, cure all identified covenantdefaults in each of the 10-K and Q1 10-Q Notice of Default, the Q2 10-Q Notice of Default, and the Q3 10-Q Notice of Default, and cease accruing theAdditional Interest on the Notes as of the filing date of 10-Q for the fiscal quarter ended September 30, 2014.Early termination of derivative contractsOn September 1, 2014, the Company and the counterparty, the Goldman Sachs International bank (“GS”), mutually agreed to terminate a zero costcollar contract under termination provisions of the International Swaps and Derivatives Association (“ISDA”) agreement. In connection with this termination,the Company received $1,050 thousand for settlement proceeds from GS.On September 30, 2014, the Company and the counterparty, the UBS AG, Seoul Branch (“UBS”), mutually agreed to terminate a zero cost collarcontract under termination provisions of the ISDA agreement. In connection with this termination, the Company received $430 thousand for settlementproceeds from UBS.Close of a fabrication facilityOn December 4, 2014, the Company approved a plan to close its six-inch fabrication facility in Cheongju, South Korea (the “6-inch fab”). This plan isexpected to be substantially implemented over the next 12 months, and the 6-inch fab is expected to be closed by the end of 2015. The Company plans totransfer the 6-inch fab employees to the Company’s other facilities. 122Table of ContentsIndex to Financial StatementsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and Procedures(a) BackgroundIn January 2014, the Audit Committee (the “Audit Committee”) of the Company’s Board of Directors (the “Board”) commenced an internalinvestigation, with the assistance of independent legal counsel engaged by the Audit Committee and outside forensic accountants, into the Company’saccounting practices and procedures (the “Independent Investigation”), initially reviewing certain revenue recognition practices and procedures that wereraised during the 2013 year-end audit process.As previously reported in the Company’s Current Report on Form 8-K filed on March 11, 2014, the Audit Committee in consultation with managementand the Board, concluded on March 6, 2014 that the Company’s previously issued financial statements for the fiscal years ended December 31, 2011 and2012 and the first three quarters of fiscal years 2013 should no longer be relied upon. Accordingly, the Company has restated its previously issued financialstatements covering those periods. The Company is correcting the underlying errors for those periods within this annual report on Form 10-K for the yearended December 31, 2013. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Restatement ofConsolidated Financial Statements”, and “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 2.Restatement of Consolidated Financial Statements and Note 24. Unaudited Quarterly Financial Results”.As previously announced in March 2014, the then-Executive Vice President and Chief Financial Officer of the Company resigned and Jonathan Kim,our Senior Vice President of Finance and Chief Accounting Officer was appointed to also serve as the Interim Chief Financial Officer and Principal FinancialOfficer of the Company. Also as previously announced in May 2014, the then-Chief Executive Officer and Chairman of the Board resigned, and YJ Kim, ourExecutive Vice President and General Manager of the Display Solutions Division, was appointed to also serve as the Interim Chief Executive Officer andPrincipal Executive Officer of the Company.(b) Evaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed underthe Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in theSEC’s rules and forms, and that such information is accumulated and communicated to our management, with the participation of our Interim ChiefExecutive Officer (“Principal Executive Officer”) and Interim Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow for timelydecisions regarding required disclosure.Management of the Company, with the participation of our Principal Executive Officer and our Principal Financial Officer, conducted an evaluation ofthe effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under theExchange Act, as of December 31, 2013. Based on this evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded thatour disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report on Form 10-K, because of the materialweaknesses in internal control over financial reporting described below.(c) Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer andour Principal Financial Officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with policies or procedures may deteriorate.We conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013, based on thecriteria set forth in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring 123Table of ContentsIndex to Financial StatementsOrganizations of the Treadway Commission (“COSO”). Based on our assessment, we identified material weaknesses in our internal control over financialreporting. Because of the material weaknesses described below, we concluded that we did not maintain effective internal control over financial reporting as ofDecember 31, 2013.Rule 12b-2 under the Exchange Act of 1934, and Rule 1-02 of Regulation S-X defines a “material weakness” as a deficiency, or a combination ofdeficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant’s annual orinterim financial statements will not be prevented or detected on a timely basis. Based on this definition we have concluded that the material weaknessesnoted below existed in the Company’s internal control over financial reporting as of December 31, 2013.Control Environment:We did not maintain an effective control environment based on the criteria established in the COSO Framework. Specifically, we did not maintain a controlenvironment that effectively emphasized (i) an attitude of integrity and ethics against the pressure to achieve sales, gross margin and adjusted EBITDAtargets, (ii) adherence to U.S. GAAP, (iii) utilization of the whistleblower program, and (iv) prevention or detection of undisclosed business practicesinvolving the circumvention of internal controls under the management team then in place, resulting in the inaccurate accounting for certain transactionswith respect to sales, cost of sales, inventory, fixed assets, provisions and income taxes, among others. In addition, we did not maintain an appropriate level ofaccounting knowledge, experience and training commensurate with our financial reporting requirements under U.S. GAAP.Monitoring Activities:We did not effectively evaluate and communicate internal control deficiencies in a timely manner to those parties responsible for taking corrective actions.Specifically, we did not maintain an effective internal audit function whereby the internal control team exercised full authority to independently report to theAudit Committee in order to provide adequate monitoring of control activities related to financial reporting throughout the organization. As a result, (i) theCompany’s monitoring activities, including internal audit function that should have prevented or detected errors or failure to abide by internal controls werenot effective; and (ii) incomplete information was provided to the Company’s Audit Committee, which limited the Audit Committee’s ability to effectivelyoversee the accounting and financial reporting processes and internal control over financial reporting of the Company.Controls over the Period End Closing and Financial Reporting:We did not design effective controls over the completeness and accuracy of our period end adjusting entries. Specifically, controls over the analysis,documentation, review and approval of the accounting and reporting of entries were not designed effectively to ensure the accuracy and completeness of theentries recorded.Income Tax Accounting and Disclosures:We did not design effective controls over the completeness and accuracy of our income tax accounting and disclosures. Specifically, we did not designeffective controls over the review of tax rules and regulations and the analysis and review of accounting implications with respect to current and deferredincome taxes, uncertain tax positions and related disclosures.These material weaknesses resulted in the restatement of the Company’s consolidated financial statements and related financial disclosures for the yearsended December 31, 2011 and 2012 and each of the first three quarters of 2012 and 2013. These material weaknesses also resulted in adjustments to our netsales, cost of sales, selling, general and administrative expenses, research and development expenses, other income, income tax expense, and related assetsand liabilities as well as the related financial disclosures for each of the first three quarters of 2013 and to our accounting records for the quarter endedDecember 31, 2013. In addition, these material weaknesses could result in further misstatements of the financial statements or disclosures that would result ina material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by Samil PricewaterhouseCoopers, anindependent registered public accounting firm, as stated in their report which appears in Item 8 of this Annual Report on Form 10-K. 124Table of ContentsIndex to Financial Statements(d) Remediation PlanAt the recommendation of the Audit Committee, based upon preliminary findings of the Independent Investigation, the Board created a new positionof Chief Accounting Officer. Jonathan Kim was named to that position in March 2014.The Company is in the process of developing and implementing remediation plans to address our material weaknesses. Our remediation plans aredesigned to strengthen our internal control over financial reporting, and they include the following:Control Environment:The Principal Executive Officer and Principal Financial Officer/Chief Accounting Officer (“new management team”) are committed to implementing andmaintaining a strong control environment, high ethical standards, and financial reporting integrity. The new management has taken steps to communicate ourexpectation of the enhanced compliance with our ethical standards through various means including mandatory ethical compliance trainings for allemployees. Through those employee training sessions, we specifically emphasized the importance of our whistleblower hotline, through which employees atall levels can anonymously submit information or express concerns regarding accounting, financial reporting, and violations of our code of ethics or othertopics.In addition, the new management team has implemented a sub-certification process, which requires that certain employees certify on a quarterly basis thatthey have no knowledge of (i) any transaction of which terms deviate from the terms of written sales or purchasing contracts, and (ii) any undisclosed orunauthorized transaction that should be communicated to the authorized personnel in the accounting team. Moreover, we are continuing to strengthen ouraccounting and finance teams by hiring permanent personnel with extensive U.S. GAAP experience, and have facilitated U.S. GAAP training programs forrelevant employees.Monitoring Activities:We are building an environment that prioritizes compliance across the enterprise, placing special efforts on improving internal audits and compliance withthe Sarbanes-Oxley Act. We hired a new Director of Compliance and Internal Audit, whose primary duties are to design, implement, and operate our internalcontrol over financial reporting.In order to reinforce the independence and objectivity of our internal audit activities from the management, the Director of Compliance and Internal Audit isauthorized to report directly to the Audit Committee.Period End Closing and Financial Reporting:We are implementing additional review of period end adjusting entries with a detailed checklist, including the involvement of finance and operationalexecutives, in order to strengthen controls over the completeness and accuracy of both recurring and non-recurring journal entries.Income Tax Accounting and Disclosures:We are continuously improving our procedures and controls over tax accounting and reporting by ensuring that we, on a timely basis, (i) review rules andregulations of tax jurisdictions relevant to each of our consolidated entities; (ii) review related accounting implications; and (iii) improve the competency ofour accounting employees through ongoing training on income tax accounting, disclosure practices, and rules and regulations.(e) Changes in Internal Control Over Financial ReportingThere were no changes in our internal control over financial reporting during our fiscal quarter ended December 31, 2013 that have materially affected,or are reasonably likely to materially affect, our internal control over financial reporting.Item 9B. Other InformationNone. 125Table of ContentsIndex to Financial StatementsPART IIIItem 10. Directors, Executive Officers and Corporate GovernanceThe following table sets forth certain information regarding our current directors and executive officers: Name Age PositionR. Douglas Norby 79 Non-Executive Chairman of the Board of Directors, Chairman of the Audit Committee, and Member of theNominating and Corporate Governance Committee and Risk CommitteeMichael Elkins 47 Lead Director, Chairman of the Compensation Committee, and Member of the Audit Committee and Nominatingand Corporate Governance CommitteeRandal Klein 49 Director, Chairman of the Finance Committee, and Member of the Risk CommitteeIlbok Lee 69 Director, Chairman of the Nominating and Corporate Governance Committee, and Member of the CompensationCommittee and Risk CommitteeBrian Mulhern 40 Director and Member of the Finance CommitteeNader Tavakoli 56 Director, Chairman of the Risk Committee, and Member of the Audit Committee and Compensation CommitteeYoung-Joon (YJ) Kim 50 Interim Chief Executive Officer and General Manager, Display Solutions DivisionTae Young Hwang 58 Chief Operating Officer and PresidentHeung Kyu (HK) Kim 51 Executive Vice President and General Manager, Power Solutions DivisionBrent Rowe 53 Executive Vice President, Worldwide SalesTae Jong Lee 52 Executive Vice President and General Manager, Corporate EngineeringJonathan Kim 40 Interim Chief Financial Officer, Senior Vice President and Chief Accounting OfficerTheodore Kim 45 Senior Vice President, General Counsel and SecretaryR. Douglas Norby, Non-Executive Chairman of the Board of Directors, Chairman of the Audit Committee, and Member of the Nominating andCorporate Governance Committee and Risk Committee. Mr. Norby became our Non-Executive Chairman of the Board of Directors in May 2014 and ourdirector and Chairman of the Audit Committee in March 2010. Mr. Norby retired from full time employment in July 2006. Mr. Norby previously served as ourdirector and Chairman of the Audit Committee from May 2006 until October 2008. Mr. Norby served as Senior Vice President and Chief Financial Officer ofTessera Technologies, Inc., a public semiconductor intellectual property company, from July 2003 to January 2006. Mr. Norby worked as a managementconsultant with Tessera from May 2003 until July 2003 and from January 2006 to July 2006. Mr. Norby served as Chief Financial Officer of Zambeel, Inc., adata storage systems company, from March 2002 until February 2003, and as Senior Vice President and Chief Financial Officer of Novalux, Inc., anoptoelectronics company, from December 2000 to March 2002. Prior to his tenure with Novalux, Inc., Mr. Norby served as Executive Vice President andChief Financial Officer of LSI Logic Corporation from November 1996 to December 2000. Mr. Norby is a director of Alexion Pharmaceuticals, Inc., STATSChipPAC Ltd. and Singulex, Inc. (a private company). Mr. Norby was a director of Invensense Inc. from September 2009 until July 2014, IkanosCommunications, Inc. from January 2011 until December 2012 and Intellon Corporation from May 2007 to December 2009. Mr. Norby received a B.A.degree in Economics from Harvard University and an M.B.A. from Harvard Business School. Our Board has concluded that Mr. Norby should serve on ourBoard based upon his extensive experience as a chief financial officer, his extensive experience in accounting and his experience as a public companydirector and audit committee chair.Michael Elkins, Lead Director, Chairman of the Compensation Committee, and Member of the Audit Committee and Nominating and CorporateGovernance Committee. Mr. Elkins became our director in November 2009. He is currently self-employed as an investor and business consultant whichincludes an agreement with Avenue. From 2004 to 2012, Mr. Elkins was employed by affiliates of Avenue, most recently as a Portfolio Manager of theAvenue U.S. Funds. In such capacity, Mr. Elkins was responsible for assisting with the direction of the investment activities of the Avenue U.S. strategy. Priorto joining Avenue, Mr. Elkins was a Portfolio Manager and Trader with ABP Investments US, Inc. While at ABP, he was responsible for actively managinghigh yield investments using a total return and special situations strategy. Prior to ABP, Mr. Elkins served as a Portfolio Manager and Trader for UBK AssetManagement, after joining the company as a High Yield Credit Analyst. Previously, Mr. Elkins was a Credit Analyst for both Oppenheimer & Co., Inc. andSmith Barney, Inc. Mr. Elkins has served on the board of directors of QCE Finance LLC, a restaurant franchise company, since January 2013, TrumpEntertainment, a casino company since February 2013 and Bowlmor AMF a consumer bowling and leisure company since August 2013. Mr. Elkinspreviously served on the board of directors of American Media, Inc., a media brands and magazine publishing company, Vertis Communication, anadvertising services company, 126Table of ContentsIndex to Financial StatementsMilacron LLC, a plastics-processing technologies and industrial fluids supplier, and Ion Media Networks, Inc., a broadcast television station. Mr. Elkinsserves or has served on the board of directors of each of these companies, all of which are private companies, in connection with a reorganization orrefinancing involving affiliates of Avenue and as a result of his past position and current association with Avenue. Mr. Elkins holds a B.A. in Marketing fromGeorge Washington University and an M.B.A. in Finance from the Goizueta Business School at Emory University. Our Board has concluded that Mr. Elkinsshould serve on the Board based upon his more than 15 years of investment portfolio management experience, including over 10 years investing intechnology companies, including the semiconductor sector.Randal Klein, Director, Chairman of the Finance Committee, and Member of the Risk Committee. Mr. Klein became our director in November 2009.Mr. Klein joined Avenue in 2004, and is currently a Portfolio Manager at Avenue responsible for directing the investment activities of the Avenue TradeClaims funds, and also assists with the direction of the investment activities of the Avenue U.S. strategy with a particular focus on restructurings. Previously,Mr. Klein was a Senior Vice President of the Avenue U.S. Funds. In such capacity, Mr. Klein was responsible for managing restructuring activities andidentifying, analyzing and modeling investment opportunities for the Avenue U.S. strategy. Prior to joining Avenue, Mr. Klein was a Senior Vice President atLehman Brothers, where his responsibilities included restructuring advisory work, financial sponsors coverage, mergers and acquisitions and corporatefinance. Prior to Lehman, Mr. Klein worked in sales, marketing and engineering as an aerospace engineer for The Boeing Company. Mr. Klein holds a B.S. inAerospace Engineering, conferred with Highest Distinction from the University of Virginia, and an M.B.A. in Finance, conferred as a Palmer Scholar, from theWharton School of the University of Pennsylvania. Our Board has concluded that Mr. Klein should serve on the Board based upon his 19 years of experienceas a financial advisor and investment manager.Ilbok Lee, Director, Chairman of the Nominating and Corporate Governance Committee, and Member of the Compensation Committee and RiskCommittee. Dr. Lee became our director in August 2011. Dr. Lee has been President and Chief Executive Officer of Silego Technology, Inc., a semiconductorcompany, since its inception in October 2001. From April 1999 to September 2001, Dr. Lee served as Senior Vice President and General Manager of theTiming Division at Cypress Semiconductor Corp., a public semiconductor company, and from May 1992 to March 1999 served as President and ChiefExecutive Officer of IC Works, Inc., a semiconductor company he co-founded that was acquired by Cypress in 2001. Dr. Lee co-founded SamsungSemiconductor, Inc. (U.S.A.) in July 1983 and served in various positions at the company, including President and Chief Executive Officer, until May 1992.Prior to Samsung, Dr. Lee served in various technical and managerial positions at Intel and National Semiconductor. Dr. Lee served as a member of the boardof directors for Sierra Monolithic, a privately held semiconductor company, from 2002 through 2009. Dr. Lee received a Ph.D. and M.S.E.E. from theUniversity of Minnesota and a B.S.E.E. from Seoul National University. Our Board has concluded that Dr. Lee should serve on the Board based upon hisextensive experience in the semiconductor industry.Brian Mulhern, Director and Member of the Finance Committee. Mr. Mulhern became our director in August 2011. Mr. Mulhern joined Avenue in2004 and is currently a Senior Vice President at Avenue focused on identifying, analyzing and modeling investment opportunities for the Avenue U.S.strategy, primarily focused in the telecom, media and technology industries. Prior to joining Avenue, Mr. Mulhern was a Senior Vice President at CitadelInvestment Group based in Chicago and London, focused on the analysis, negotiation and management of privately structured debt, equity and equity-linkedinvestments. Previously, he was an analyst in Merrill Lynch’s merger & acquisition group and a consultant at Booz, Allen & Hamilton. Mr. Mulhern receiveda B.A. in Economics from the University of Notre Dame. Our Board has concluded that Mr. Mulhern should serve on the Board based upon his experience asa financial advisor and investment manager.Nader Tavakoli, Director, Chairman of the Risk Committee, and Member of the Audit Committee and Compensation Committee. Mr. Tavakolibecame our director in November 2009. Mr. Tavakoli is the interim President and Chief Executive Officer of Ambac Financial Group, Inc., or AFG, a financialservices company, since January 1, 2015. Mr. Tavakoli also serves as a director of AFG since May 2013, and was co-chairman of the board of AFG from May2013 until December 2014. In addition, Mr. Tavakoli serves as the Executive Chairman of AFG’s wholly owned subsidiary, Ambac Assurance Corporation,since January 1, 2015, and served as co-chairman of the board, a member of the audit committee and chairman of the compensation committee of AmbacAssurance Corporation from May 2013 until December 2014. Mr. Tavakoli is also the Chairman and Chief Executive Officer of EagleRock CapitalManagement, a private investment partnership based in New York City. Prior to founding EagleRock in 2002, Mr. Tavakoli managed substantial investmentportfolios with Odyssey Partners and Highbridge Capital Management. During his nearly 25 year investment career, Mr. Tavakoli has made substantialinvestments across numerous industries, including significant investments in semiconductor, technology and telecommunications companies. Mr. Tavakolibegan his professional career as an attorney with the New York City law firm of Milbank, Tweed, Hadley and McCloy, where he represented institutionalclients in banking, litigation and corporate restructuring matters. Mr. Tavakoli was a director of NextWave Wireless, Inc., prior to that company’s acquisitionby AT&T Inc. in January 2013. Mr. Tavakoli also serves on the board of MF Global Holding Ltd., formerly engaged in securities 127Table of ContentsIndex to Financial Statementsbrokerage, trading and clearance. Mr. Tavakoli serves as a member of the board of Peak Hotels & Resorts Group, a privately held company that owns andmanages the Aman Group of Resorts. Mr. Tavakoli is a Governance Leadership Fellow of the National Association of Corporate Directors. Mr. Tavakoli is theimmediate past chair of the Montclair State University Foundation Board and currently chairs that board’s investment committee. Mr. Tavakoli holds a B.A.in History from Montclair State University, where he was selected Valedictorian, and a Juris Doctor from the Rutgers Law School, where he was an Editor ofthe Rutgers Law Review. Our Board has concluded that Mr. Tavakoli should serve on the Board based upon his extensive investing and corporategovernance experience.Young-Joon (YJ) Kim, Interim Chief Executive Officer and General Manager, Display Solutions Division. Mr. YJ Kim became our Interim ChiefExecutive Officer on May 20, 2014 and became our Executive Vice President and General Manager, Display Solutions Division, in May 2013. Prior tojoining our Company, Mr. YJ Kim served at Cavium, Inc., a provider of highly integrated semiconductor processors, from June 2006 to April 2013, mostrecently as Vice President, Infrastructure Processor Division, and General Manager at the Multi-Core Processor Group. Prior to Cavium, Mr. YJ Kim served asCore Team Lead and General Manager of Tolapai Program at Intel Corporation from August 2004 to June 2006. Mr. YJ Kim has also served as Director ofMarketing at Samsung Semiconductor, Inc. from June 1996 to May 1998. Mr. YJ Kim holds B.S. and M.Eng degrees in Electrical Engineering from CornellUniversity.Tae Young Hwang, Chief Operating Officer and President. Mr. Hwang became our Chief Operating Officer and President in November 2009. Hepreviously served as our Executive Vice President, Manufacturing Division, and General Manager, Display Solutions from January 2007, and our ExecutiveVice President of Manufacturing Operations from October 2004. Prior to that time, Mr. Hwang served as Hynix’s Senior Vice President of ManufacturingOperations, System IC, from 2002 to 2003. From 1999 to 2001, he was Vice President of Cheongju Operations for Hynix. Mr. Hwang holds a B.S. degree inMechanical Engineering from Pusan National University and an M.B.A. from Cheongju University.Heung Kyu (HK) Kim, Executive Vice President and General Manager, Power Solutions Division. Mr. HK Kim became our Executive Vice Presidentand General Manager, Power Solutions Division in December 2010. He previously served as our Executive Vice President and General Manager, PowerSolutions Division and Display Solutions Division from January 2012 until May 2013. Prior to joining our Company, Mr. HK Kim served at FairchildSemiconductor International, Inc., a semiconductor manufacturer, as Vice President of the Power Conversion Product Line from July 2003 to June 2007, andas Director of Korea Sales and Marketing from April 1999 to June 2003. Mr. HK Kim holds a B.S. degree in Metallurgical Engineering from Korea University.Brent Rowe, Executive Vice President, Worldwide Sales. Mr. Rowe became our Executive Vice President, Worldwide Sales in December 2010, afterserving as our Senior Vice President, Worldwide Sales since April 2006. Prior to joining our Company, Mr. Rowe served at Fairchild SemiconductorInternational, Inc., a semiconductor manufacturer, as Vice President, Americas Sales and Marketing from August 2003 to October 2005; Vice President,Europe Sales and Marketing from August 2002 to August 2003; and Vice President, Japan Sales and Marketing from April 2002 to August 2002. Mr. Roweholds a B.S. degree in Chemical Engineering from the University of Illinois.Tae Jong Lee, Executive Vice President and General Manager, Corporate Engineering. Mr. Lee became our Executive Vice President and GeneralManager, Corporate Engineering, in December 2011, after serving successively as Senior Vice President and Vice President and General Manager, CorporateEngineering, since September 2007. Prior to joining our Company, Mr. Lee served as Director of the Technology Development Division, CharteredSemiconductor Manufacturing, in Singapore from 1999 to August 2007. Mr. Lee holds B.S. and M.S. degrees from Seoul National University, and a Ph.D inPhysics from the University of Texas at Dallas.Jonathan Kim, Interim Chief Financial Officer, Senior Vice President and Chief Accounting Officer. Mr. J. Kim became our Interim Chief FinancialOfficer on March 25, 2014 and became our Senior Vice President and Chief Accounting Officer on March 9, 2014. Prior to joining our Company, Mr. J. Kimserved since July 2010 as the Chief Financial Officer of Startforce, Inc., a VC backed desktop virtualization company, which was acquired in February 2011by ZeroDesktop, Inc., a Silicon Valley based global provider of next generation cloud operating system, cloud service brokerage and Android platformextender solutions for telecoms, service providers, OEMs and ISVs, where Mr. J. Kim continued to serve as the Chief Financial Officer. Mr. J. Kim also servedsince September 2009 as the Chief Financial Officer and Principal of Booga Ventures, a Silicon Valley based private investment and advisory firm. Prior tothat time, from January 2000 to September 2009, Mr. J. Kim served as an Audit Senior Manager with Deloitte & Touche in San Jose, California and DeloitteAnjin in Seoul, South Korea. Mr. J. Kim holds a B.A. degree in Business Administration from the University of Washington.Theodore Kim, Senior Vice President, General Counsel and Secretary. Mr. T. Kim became our Senior Vice President, General Counsel and Secretary inNovember 2013. Prior to joining our Company, Mr. T. Kim served as Head Lawyer, Global Business Development at Samsung Fire & Marine Insurance fromOctober 2012 to October 2013. Mr. T. Kim was employed by Gibson, Dunn 128Table of ContentsIndex to Financial Statements& Crutcher LLP, a law firm, from October 2005 to July 2012, serving most recently as Of Counsel. Prior to that, he served as Foreign Legal Consultant atKim & Chang, a law firm in Korea, from 2001 to 2005. Mr. Kim holds a B.A. degree in Economics and a B.S. degree in Mechanical Engineering from theUniversity of California, Irvine, and a J.D. degree from the University of California, Los Angeles, School of Law.Involvement in Certain Legal ProceedingsTae Young Hwang, HK Kim, Brent Rowe and Tae Jong Lee were each officers during our Chapter 11 reorganization proceedings in 2009.Mr. HK Kim was indicted on December 12, 2013 by the Seoul Central District Prosecutor’s Office for an alleged breach of fiduciary duties to his formeremployer in Korea, whose employment he left more than six years ago. On December 16, 2014, the Seoul Central District Court ruled that Mr. HK Kim wasnot guilty of the charges filed against him. On December 22, 2014, the Seoul Central District Prosecutor’s Office filed an appeal of the not guilty ruling ofMr. HK Kim. The appeal is currently pending.Section 16(a) Beneficial Ownership Reporting ComplianceCompliance with Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who own more than 10% of aregistered class of its equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater than 10%shareholders are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.Based solely on a review of the copies of such forms furnished to the Company, the Company believes that during 2013 all Section 16(a) filingrequirements applicable to its officers, directors and greater than 10% shareholders were in compliance with Section 16(a).Code of Business Conduct and EthicsWe have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. We will provide a copy of ourCode of Business Conduct and Ethics without charge to any person upon written request made to our General Counsel and Secretary at MagnaChipSemiconductor Corporation, c/o MagnaChip Semiconductor, Inc., 20400 Stevens Creek Boulevard, Suite 370, Cupertino, CA 95014. Our Code of BusinessConduct and Ethics is also available on our website at www.magnachip.com. We will disclose any waivers or amendments to the provisions of our Code ofBusiness Conduct and Ethics on our website.Assessment of RiskOur Board believes that our compensation programs are designed such that they will not incentivize unnecessary risk-taking. The base salarycomponent of our compensation program is a fixed amount and does not depend on performance. Our cash incentive program takes into account multiplefactors, thus diversifying the risk associated with any single performance factor, and we believe it does not incentivize our executive officers to focusexclusively on short-term outcomes. Our equity awards are limited by the terms of our equity plans to a fixed maximum amount specified in the plan, and aresubject to vesting to align the long-term interests of our executive officers with those of our equityholders.Audit CommitteeThe Board has a standing Audit Committee. Our Audit Committee consists of Mr. Norby, as Chairman, Mr. Elkins, and Mr. Tavakoli. Our Board hasdetermined that Mr. Norby is an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act. OurBoard has also determined that each of Mr. Norby, Mr. Elkins and Mr. Tavakoli is “independent” as that term is defined in both Rule 303A of the NYSE rulesand Rule 10A-3 promulgated under the Exchange Act.The Board has adopted a written charter for the Audit Committee. The Audit Committee charter is posted and available on our website atwww.magnachip.com. The information on or accessible through our website is not a part of or incorporated by reference in this Report. 129Table of ContentsIndex to Financial StatementsItem 11. Executive CompensationCompensation Discussion and AnalysisCompensation Philosophy and ObjectivesThe Compensation Committee of our Board, or the Committee, has overall responsibility for administering our compensation program for our “namedexecutive officers.” The Committee’s responsibilities consist of evaluating, approving and monitoring our executive officer and director compensation plans,policies and programs, as well as each of our equity-based compensation plans and policies. Prior to 2010, compensation decisions were made by the entireBoard and for the discussion that follows, references to the Committee during such period refer to the entire Board. For 2013, our named executive officerswere: • Sang Park, Former Chairman of the Board of Directors and Chief Executive Officer; • Margaret Sakai, Former Executive Vice President and Chief Financial Officer; • Young-Joon Kim, Interim Chief Executive Officer and General Manager, Display Solutions Division; • Tae Young Hwang, Chief Operating Officer and President; and • Brent Rowe, Executive Vice President, Worldwide Sales.The Committee seeks to establish total compensation for executive officers that is fair, reasonable and competitive. The Committee evaluates ourcompensation packages to ensure that: • we maintain our ability to attract and retain superior executives in critical positions; • our executives are incentivized and rewarded for corporate growth, achievement of long-term corporate objectives and individual performance thatmeets or exceeds our expectations without encouraging unnecessary risk-taking; and • compensation provided to critical executives remains competitive relative to the compensation paid to similarly-situated executives of companies inthe semiconductor industry.The Committee believes that the most effective executive compensation packages align executives’ interests with those of our stockholders byrewarding performance that exceeds specific annual, long-term and strategic goals that are intended to improve stockholder value. These objectives includethe achievement of financial performance goals and progress on projects that our Board anticipates will lead to future growth, as discussed more fully below.The information set forth below in this Compensation Discussion and Analysis describes the Committee’s general philosophy and historical approach.Role of Executive Officers in Compensation DecisionsFor named executive officers other than our chief executive officer, we have historically sought and considered input from our chief executive officerin making determinations regarding executive compensation. Our chief executive officer annually reviews the performance of our other named executiveofficers. Our chief executive officer subsequently presents conclusions and recommendations regarding such officers, including proposed salary adjustmentsand incentive amounts, to the Committee. The Committee then takes this information into account when it makes final decisions regarding any adjustmentsor awards.The review of performance by the Committee and our chief executive officer of other executive officers is both an objective and subjective assessmentof each executive’s contribution to our performance, leadership qualities, strengths and weaknesses and the individual’s performance relative to goals set bythe Committee or our chief executive officer, as applicable. The Committee and our chief executive officer do not systematically assign a weight to thefactors, and may, in their discretion, consider or disregard any one factor which, in their sole discretion, is important to or irrelevant for a particular executive.The Committee’s annual determinations regarding executive compensation are subject to the terms of the respective service agreements between usand the named executive officers (as set forth in more detail below). In addition to the annual reviews, the Committee also typically considers compensationchanges upon a named executive officer’s promotion or other change in job responsibility. Neither our chief executive officer nor any of our other executivesparticipates in deliberations relating to their own compensation.Stockholder InputThe Committee also seeks to ensure that the compensation paid to the Company’s executive officers is aligned with the interests of the Company’sstockholders. In that respect, as part of its ongoing review of the compensation paid to the Company’s executive officers, the Committee considered theapproval by approximately 99% of the votes cast for the “Say on Pay” vote at the Company’s 2012 Annual Meeting of Stockholders and determined that theCompany’s executive compensation philosophy, compensation objectives, and compensation elements continued to be appropriate and did not make anychanges to the Company’s executive pay program in response to such stockholder vote. 130Table of ContentsIndex to Financial StatementsTiming of Compensation DecisionsAt the end of each fiscal year, our chief executive officer will review the performance of the other executive officers and present his conclusions andrecommendations to the Committee. At that time and throughout the year, the Committee will also evaluate the performance of our chief executive officer,which is measured in substantial part against our consolidated financial performance. In January of the following fiscal year, the Committee will then assessthe overall functioning of our compensation plans against our goals, and determine whether any changes to the allocation of compensation elements, or thestructure or level of any particular compensation element, are warranted.In connection with this process, our Committee generally establishes the elements of its performance-based cash bonus plan for the upcoming year.With respect to newly hired employees, our practice is typically to approve equity grants at the first meeting of the Committee following such employee’shire date. We do not have any program, plan or practice to time equity award grants in coordination with the release of material non-public information. Fromtime to time, additional equity awards may be granted to executive officers during the fiscal year.Elements of CompensationIn making decisions regarding the pay of the named executive officers, the Committee looks to set a total compensation package for each officer thatwill retain high-quality talent and motivate executives to achieve the goals set by our Board. Our 2013 compensation package was composed of thefollowing elements: • annual base salary; • short-term cash incentives; • long-term equity incentives; • a benefits package that is generally available to all of our employees; and • expatriate and other executive benefits.Determination of Amount of Each Element of CompensationGeneral BackgroundThe Committee seeks to establish a total cash compensation package for our named executive officers that is competitive with the compensationreflected in compensation data for similarly-situated executives in the peer group reviewed by the Committee, subject to adjustments based on eachexecutive’s experience and performance. Historically, based on our review of industry specific survey data and the professional and market experience of ourCommittee members, we measured total cash compensation for our named executive officers against cash compensation paid to executives at similarlysituated companies which we determined to be our select peer group. Base salaries for our named executive officers were benchmarked to median levels forcompanies in the select peer group, and were adjusted upward or downward for performance. Short-term cash incentives were put in place to provide foropportunities that may result in higher than median levels of cash compensation as compared to our select peer group if, and depending upon the extent towhich, our performance and that of our named executive officers exceeded expectations and the goals established by the Committee for the year in question.Historically, our select peer group has included other major Korea-based semiconductor companies, including Fairchild Korea, Dongbu Hitek, ChipPacKorea, Hynix Semiconductor, ASE Korea and Amkor Technology Korea. In addition, we also reviewed compensation data from Radford Korea, anindependent compensation consultant, which surveyed the companies listed below, to assess how compensation for our select peer group related tocompensation paid to executives in a broader range of technology companies. • AB Sciex • Accenture • Acronis • Activision Blizzard • Adobe Systems • Advanced Energy Industries • Advanced Micro Devices • Advanced Micro-fabricationEquipment• DCG Systems • Dell • Dialog Semiconductor • Dolby Laboratories • DTS • Ebay • Edwards Lifesciences • Edwards LTD • Electro Scientific Industries• Liquidity Services • Littlefuse • Livingsocial • Lockheed Martin • Logitech • LSI • M/A-Com Technology Solution • Marvell • Maxim Integrated Products• SAS Institute • Sasken CommunicationTechnologies • Semtech • Siemens EnterpriseCommunications • Silicon Image • Skyworks Solutions • Smart Modular Technologies131Table of ContentsIndex to Financial Statements• Agilent Technologies • Akamai Technologies • Akrion Systems • Alcatel-Lucent • Allegro Microsystems • Altera • AMSC • Analog Devices • Apple • Applied Materials • Aptina Imaging • ARINC • ARM • Arris Group • Aruba Networks • ASML • Aspen Technology • AT&T Global • Atmel • ATMI • Audience • Autodesk • Avago Technologies • Avaya • Avid Technology • Axcelis Technologies • Blackberry • BMC Software • Boston Scientific • Broadcom • Brocade communicationSystems • Brooks Automation • Bruker-Nano • BT Group • CA Technologies • Cabot Microelectronics • Cadence Design Systems • Callaway Golf • Cambridge Silicon Radio • Cavium • Cirrus Logic • Cisco Systems • Citrix Systems • Coherent • Commscope • Electronic Arts • EMC • Entegris • Entropic Communications • Epicor Software • Extreme Networks • Facebook • Fairchild Semiconductor • Flextronics International • Formfactor • Freescale Semiconductor • Genband • Global English • Good Technology • Google • Gracenote • Greene Tweed & Co. • Groupon • Harmonic • Hewlett-Packard • HGST • Hitachi Data Systems • IBM • HIS • Immersion • Infineon Technologies AG • Innopath Software • INPHI • Integrated Device Technology • Intel • Intellectual Ventures • International Rectifier • Intersil • Intersystems • Intuitive Surgical • Invensys • Irdeto • JDR Software • JDS Uniphase • Juniper Networks • KLA-Tencor • Kulicke And Soffa • Laird Technologies • Lam Research • Lattice Semiconductor • McAfee • Mediatek • MEMC Electronic Materials • Mentor Graphics • Microchip Technology • Micron Technology • Microprobe • Microsoft • Misys • MKS Instruments • Molex • Monolithic Power Systems • Monster Worldwide • Moody’s • Morningstar • Motorola Mobility • Motorola Solutions • MSC Software • National Instruments • Navis • NCR • Netapp • Netgear International Limited • Nokia • Nokia Siemens Networks • Nu Skins • Nuance Communications • Nvidia • NXP Semiconductor • Oclaro • On Semiconductor • Oracle • Panasonic Avionics • PDF Solutions • Photronics • PMC-Sierra • Polycom • Power Integrations • PTC - Parametric Technology • Qualcomm • Quantum • Quantumclean • Rambus • Realnetworks • Red Hat • Compuware • Criteo • Cymer • Cypress Semiconductor • Dassault Systemes • Datacard Group• Lenovo • Lexmark International • Life Technologies• RF Micro Devices • Rosetta Stone • Rovi • Safenet • Sandisk • SAP AG• Smart Technologies • SMSC • Sony Mobile CommunicationsAB • Spansion • Sprint Nextel • SPTS Technologies • ST Jude Medical • STMicroelectronicsInternational NV • Sungard • Sunpower • Symantec • Synaptics • Synopsys • Taiwan SemiconductorManufacturing • Take-Two Interactive Software • TE Connectivity • Tektronix • Tel FSI • Telstra International Group • Teradata • Teradyne • Tessera Technologies • Texas Instruments • The Cooper Companies • The Mathworks • Thermo Fisher Scientific • Thomson Reuters • TIBCO Software • Toppan Photomasks • Tripadvisor • Triquint Semiconductor • Underwriters Laboratories • Varian SemiconductorEquipment • Veeco Instruments • Verifone • Verizon Business • Visa USA • VMware • Waters • Western Digital 132• Wind River Systems • Wipro Technologies • Wolfson Microelectronics PLC • Xilinx • Yahoo!Table of ContentsIndex to Financial StatementsThe Committee makes annual determinations regarding cash incentive compensation based on our annual operating plan, which we adopt in theDecember preceding each fiscal year. The determination takes into account our expected performance in the coming fiscal year. The Committee makes allequity compensation decisions for our officers based on existing compensation arrangements for other executives at our Company with the same level ofresponsibility and based on a review of our select peer group with a view to maintaining internal consistency and parity.Equity awards are not tied to base salary or cash incentive amounts and will constitute lesser or greater proportions of total compensation dependingon the fair value of the awards. The Committee, relying on the professional and market experience of our Committee members, generally seeks to set equityawards at median levels of equity compensation at our select peer group companies. The Committee does not apply a formula or assign relative weight inmaking its determination. Instead, it makes a subjective determination after considering all information collectively.The Committee may approve additional cash incentive payments or equity compensation grants from time to time during the year in its discretion.Base SalaryBase salary is the guaranteed element of an employee’s annual cash compensation. Changes in base salary may be approved by the Committee for anexecutive if the median levels of base salary compensation for similarly-situated executives in our select peer group have changed, and may be furtheradjusted based upon the employee’s long-term performance, skill set and the value of that skill. The Committee evaluates the performance of each namedexecutive officer on an annual basis based on the accomplishment of performance objectives that were established at the beginning of the prior fiscal year aswell as its own subjective evaluation of the officer’s performance. In making its evaluation, the Committee makes a subjective qualitative assessment of theofficer’s contribution to our performance during the preceding year, including leadership, success in attaining particular goals of a division for which thatofficer has responsibility, our overall financial performance and such other criteria as the Committee may deem relevant, including input from our ChiefExecutive Officer. The Committee then makes a subjective decision regarding any changes in base salary based on these factors and the data from our selectpeer group. The Committee does not systematically assign weights to any of the factors it considers, and may, in its discretion, ignore any factors or deem anyone factor to have greater importance for a particular executive officer. Base salary adjustments generally take effect in the middle of our fiscal year. The basesalaries of the Company’s named executive officers for 2013 compare to the median of the Company’s select peer group as follows: Mr. Park, Ms. Sakai,Mr. YJ Kim and Mr. Rowe were generally in line, and Mr. Hwang was slightly below.Cash IncentivesShort-term cash incentives comprise a significant portion of the total target compensation package and are designed to reward executives for theircontributions to meeting and exceeding our goals and to recognize and reward our executives in achieving these goals. Incentives are designed as apercentage of base salary and are awarded based on individual performance and our achievement of the annual, long-term and strategic quantitative goals setby our Committee.In December 2009, our Board implemented a cash incentive plan effective as of January 1, 2010, which we call the Profit Sharing Plan. Each of ouremployees is eligible to participate in the Profit Sharing Plan, and our Board intends for the Profit Sharing Plan to incentivize our named executive officers,officers and employees to exceed expectations throughout our entire fiscal year. The Committee administers the Profit Sharing Plan.Under the Profit Sharing Plan, the Committee will review our business plan in December of each year and determine an annual consolidated AdjustedEBITDA target, or the Base Target, for the upcoming fiscal year and set the targeted amount to be awarded to our named executive officers and employees, orthe Profit Share, for meeting the Base Target and for achievement in excess of the Base Target.The Base Target is calculated as a percentage of our forecasted gross annual revenue for the upcoming fiscal year. We determine our revenue forecastby looking at several factors, including existing orders from our customers, quarterly and annual forecasts from our customers, our product roadmap and howit corresponds with our projected customer needs, and the overall industry forecasts for the semiconductor market. The Committee’s goal is to set a BaseTarget that is difficult but not unreasonable to achieve. To determine the percentage of gross annual revenue for purposes of setting the Base Target, theCommittee, in consultation with our Board, first determines a range of Adjusted EBITDA growth and gross margin that is competitive based upon the selectpeer group and will ensure that we build stockholder value, then sets a percentage such that the forecasted Adjusted EBITDA growth and gross margin iswithin that range. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Explanation and Reconciliationof Non-US GAAP Measures—Adjusted EBITDA and Adjusted Net Income” for a discussion of how we define and why we use Adjusted EBITDA. 133Table of ContentsIndex to Financial StatementsEach named executive officer receives as a Profit Share a set percentage of their annual base salary once the Base Target is achieved. Executives withtarget annual incentive opportunities set forth in their employment agreements will be eligible to receive the target percentage set forth in such agreements.In the event we exceed the Base Target, we may pay to our named executive officers (together with all of our eligible employees) their pro rata portion of anadditional Profit Share of 25% of our annual consolidated Adjusted EBITDA in excess of the Base Target.We generally pay the Profit Share during the normal pay period in the January following the conclusion of each fiscal year for which the Profit Share iscalculated, and the Profit Share is only payable to those executives who have been employed by us during the entire fiscal year for which the Profit Share iscalculated and who are employed by us on the Profit Share payment date, provided that the Profit Share is payable pro rata to any named executive officerswho begin their employment during the fiscal year for which the Profit Share is calculated.The Committee retains the sole discretion to (i) authorize the payment of the Profit Share in December of the relevant fiscal year when the Committeebelieves the Base Target will be achieved, (ii) pay Profit Shares when we achieve slightly less than the Base Target, and (iii) make interim Profit Sharepayments during the fiscal year. In addition to the Profit Sharing Plan, the Committee retains the right to grant discretionary incentives to our namedexecutive officers as a reward for extraordinary performance. For example, all our named executive officers were paid a discretionary incentive in July 2012in addition to the payment of a Profit Share in 2012, other than Mr. YJ Kim, who joined the Company in April 2013. Mr. Park received a discretionary bonusof $175,648, Ms. Sakai received $50,185, Mr. Hwang received $25,093, and Mr. Rowe received $31,000. These amounts were not based upon any numericalor formulaic factors, but rather were determined by the Committee based upon a subjective assessment of their respective individual contributions and arereported in the Summary Compensation Table in the column labeled “Bonus.”For 2011, the implementation of the Profit Sharing Plan was modified pursuant to the terms of the Profit Sharing Plan to set an interim target that waspaid during the first normal pay period following the conclusion of our second fiscal quarter of 2011. In addition, our named executive officers (and all of ourother employees) were not eligible to earn the additional Profit Share of 25% of our annual consolidated Adjusted EBITDA in excess of the Base Target evenif we exceeded the Base Target or the interim target. In 2011, under the Profit Sharing Plan, we paid bonuses to our named executive officers in July 2011 butnot in January 2012.For 2012, the implementation of the Profit Sharing Plan was modified pursuant to the terms of the Profit Sharing Plan to set an interim target that waspaid during the first normal pay period following the conclusion of our second fiscal quarter of 2012. The implementation was also modified to provide thatwe pay our named executive officers (and all our other employees) 70% of the interim target Profit Share and Base Target Profit Share in the event weachieved 91-100% of the interim target or Base Target, respectively, and 50% of the interim target Profit Share and Base Target Profit Share in the event weachieved 84% to under 91% of the interim target or Base Target, respectively. In addition, our named executive officers (and all of our other employees) werenot eligible to earn the additional Profit Share of 25% of our annual consolidated Adjusted EBITDA in excess of the Base Target even if we exceeded theBase Target or the interim target. Under the Profit Sharing Plan, we paid 100% of the interim target Profit Share in July 2012 and 50% of the Base TargetProfit Share in January 2013. For 2012, Mr. Park received a Profit Share of $311,751, Ms. Sakai received a Profit Share of $123,333, Mr. Hwang received aProfit Share of $133,710, and Mr. Rowe received a Profit Share of $128,010.For 2013, the implementation of the Profit Sharing Plan for was unchanged from 2012 except for the interim target and Base Target amounts and toprovide that we pay our named executive officers (and all our other employees) 70% of the interim target Profit Share and Base Target Profit Share in theevent we achieved 91.0-100% of the interim target or 92.2%-100% of the Base Target, and 50% of the interim target Profit Share and Base Target Profit Sharein the event we achieved 83.3 to under 91.0% of the interim target or 84.5 to under 92.2% of the Base Target. For 2013, Mr. Park received a Profit Share of$172,978, Ms. Sakai received a Profit Share of $71,752, Mr. YJ Kim received a Profit Share of $24,347, Mr. Hwang received a Profit Share of $76,439, andMr. Rowe received a Profit Share of $73,340.Mr. YJ Kim was paid a one-time signing bonus and relocation allowance of $100,000 in connection with joining the Company in April 2013.Equity CompensationIn addition to cash incentives, we offer equity incentives as a way to enhance the link between the creation of stockholder value and executiveincentive compensation and to give our executives appropriate motivation and rewards for achieving increases in enterprise value. Under our 2009 CommonUnit Plan, our Board granted options to acquire MagnaChip Semiconductor LLC common units and restricted unit bonus awards. Awards under our 2009Common Unit Plan were converted into options for common stock and restricted common stock of MagnaChip Semiconductor Corporation upon ourcorporate conversion. Such options vest in installments over three years following grant, with approximately one-third of the restricted unit awards vested atgrant and the remainder vesting in two subsequent annual installments, as set forth in more detail below.Under our 2011 Equity Incentive Plan, which replaced the 2009 Common Unit Plan immediately following our corporate conversion, the Committeemay grant participants stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock-basedand cash-based awards. Stock options granted under the 2011 Equity Incentive Plan generally vest over three years following grant, with thirty-four percentof the common stock vesting and becoming exercisable on the first anniversary of grant date and eight or nine percent of the common stock subject to theoptions vesting on completion of each three-month period thereafter. In granting equity awards, the Committee may establish any conditions or restrictions itdeems appropriate. Stock options and stock appreciation rights must have exercise prices at least equal to the fair market value of the stock at 134Table of ContentsIndex to Financial Statementsthe time of their grant pursuant to the 2011 Equity Incentive Plan. The fair market value of the stock at the time of grant will generally be the closing price ofa share of stock as quoted on the national or regional securities exchange or quotation system constituting the primary market for the stock on the date anygrant is made. Prior to the exercise of a stock option or stock appreciation or settlement of an award denominated in units, the holder has no rights as astockholder with respect to the stock subject to the award, including voting rights and the right to receive dividends. Participants receiving restricted stockawards are stockholders and have both voting rights and the right to receive dividends, except that dividends paid on unvested shares may remain subject toforfeiture until vested. Award vesting ceases upon termination of employment, and vested options and stock appreciation rights remain exercisable only for alimited period following such termination.The Committee considers granting additional equity compensation in the event of new employment, a promotion or change in job responsibility or achange in median levels of equity compensation for similarly-situated executives at companies in our select peer group or in its discretion to reward orincentivize individual officers. The option award levels vary among participants based on their job grade and position. The Committee generally seeks toaward equity compensation at levels consistent with the median levels for executives at companies in our select peer group, and will also make subjectivedeterminations regarding adjustments to award amounts in light of factors such as the available pool, individual performance and role of executives. Forexample, the Committee may adjust the size of an award for an individual executive above the option award level for his or her position if the Committeedetermines that the executive has provided exceptional performance, or may increase the option award level for a position above the median level reflectedin the select peer group if the position is considered by the Committee to be more critical to our long-term success. The Committee will generally maintainsubstantially equivalent award levels for executives at equivalent job grades. Stock option awards are not tied to base salary or cash incentive amounts.As a result of our reorganization proceedings, all previously outstanding common and preferred units and options held by our named executive officerswere cancelled. In December 2009, we granted new options to our executives with the option award amounts generally determined based upon the medianlevels of our select peer group. Thirty-four percent of the common units subject to the options vested and became exercisable on the first anniversary of grantdate, with eight or nine percent of the common units subject to the options vesting on completion of each three-month period thereafter. In December 2009,in recognition of services provided in guiding us through our reorganization proceedings, our Board also granted each of our current named executiveofficers a restricted unit bonus. The amount of the restricted unit bonuses were not based upon any numerical or formulaic factors, nor based upon anycomparative peer group, data or the number of options granted, but rather were determined based upon our Board’s subjective assessment of individualcontributions to the successful completion of the reorganization proceedings. We granted restricted unit bonuses in order to provide our executives with anequity incentive with a built-in gain equal to the value of the units as of the date of grant while still incentivizing them to contribute toward increasing ourenterprise value. See “Grants of Plan-Based Awards” below for information regarding the number and value of units granted to each named executive officer.Thirty-four percent of each restricted unit bonus vested upon grant, with the remaining portion vesting in equal installments on the first and secondanniversary of the grant date. No equity incentives were granted to our named executive officers in 2010 or 2011. In January 2012, because the December2009 restricted unit bonuses had fully vested and the options granted in December 2009 would vest by the end of that year, the Committee grantedadditional options to all of our named executive officers, other than Mr. YJ Kim, who joined the Company in April 2013.Upon the recommendation of our Board or chief executive officer, or otherwise, the Committee may in the future consider granting additionalperformance-based equity incentives.Perquisites and Other BenefitsWe provide the named executive officers with perquisites and other benefits, including expatriate benefits, that the Committee believes are reasonableand consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. Generally, perquisite aredetermined based upon what the Committee considers to be the most customary perquisites offered by our select peer group and are not based upon a mediancost for specific perquisites or for the perquisites in aggregate. The Committee determines the level and types of expatriate benefits for the executive officersbased on local market surveys taken by our human resources group. These surveys are not limited to our select peer group, but include a broad range of non-Korea based companies with significant operations in Korea. Attributed costs of the personal benefits for the named executive officers are as set forth in theSummary Compensation Table below.Mr. Park and Ms. Sakai were expatriates during all of 2013. Mr. YJ Kim, who joined the Company in April 2013, was also an expatriate during 2013.Mr. Park, Ms. Sakai, and Mr. YJ Kim received expatriate benefits commensurate with market practice in Korea. These benefits, which were determined on anindividual basis, included housing allowances, relocation allowances, insurance premiums, reimbursement for the use of a car, home leave flights, livingexpenses, tax equalization payments and tax advisory services, each as we deemed appropriate.In addition, pursuant to the Employee Retirement Benefit Security Act, certain executive officers resident in Korea with one or more years of serviceare entitled to severance benefits upon the termination of their employment for any reason. For purposes of this section, we call this benefit “statutoryseverance.” The base statutory severance is approximately one month of base salary per year of service. Mr. Hwang, Ms. Sakai, and Mr. YJ Kim accruedstatutory severance in 2013. 135Table of ContentsIndex to Financial StatementsSummary Compensation TableThe following table sets forth certain information concerning the compensation earned during the years ended December 31, 2013, 2012 and 2011, ofour named executive officers: Name and Principal Position Year Salary($) Bonus($) OptionAwards($)(3) Change inPensionValueand Non-qualifiedDeferredCompensationEarnings($)(4) All OtherCompensation($) Total($) Sang ParkFormer Chairman and Chief Executive Officer(1) 201320122011 633,634605,570553,444 172,978487,399211,124 — 583,268— — — — 615,366562,237507,782(5) (6) (7) 1,421,9782,238,4741,272,350 Margaret SakaiFormer Executive Vice President and Chief FinancialOfficer(2) 201320122011 368,128350,279316,327 71,752173,51890,190 — 171,092— 24,60037,15046,384 525,750462,200345,301(8) (9) (10) 990,2301,194,239798,202 Young-Joon KimInterim Chief Executive Officer and General Manager,Display Solutions Division 201320122011 228,226— — 124,347— — 813,660— — 18,836— — 213,986— — (11) 1,399,055— — Tae Young HwangChief Operating Officer and President 201320122011 363,902332,001315,471 76,439158,802101,482 — 51,846— 43,96836,87635,964 31,71734,88334,062(12) (13) (14) 516,026614,408486,979 Brent RoweExecutive Vice President, Worldwide Sales 201320122011 339,916327,095309,086 73,340159,01093,248 — 64,808— — — — 20,36116,28411,590(15) (16) (17) 433,617567,197413,924 Note: A monthly average exchange rate was used to convert amounts in the above table that were originally paid in Korean won. (1)Mr. Park resigned his positions as Chairman of the Board, Director and Chief Executive Officer of the Company, and from all other officer and directorpositions with the Company and its subsidiaries, effective as of May 20, 2014.(2)Ms. Sakai resigned her positions as Executive Vice President and Chief Financial Officer of the Company, and from all other officer and directorpositions with the Company and its subsidiaries, effective as of March 25, 2014.(3)Represents the grant date fair value with respect to the fiscal year determined in accordance with FASB ASC 718. See Note 1 “Business, Basis ofPresentation and Summary of Significant Accounting Policies—Stock-Based Compensation,” and Note 15 “Equity Incentive Plans” to ourconsolidated financial statements under “Item 8. Financial Statements and Supplementary Data.”(4)Consists of statutory severance accrued during the years ended December 31, 2013, 2012 and 2011, as applicable. See the section subtitled“Compensation Discussion and Analysis” for a description of the statutory severance benefit.(5)Includes the following personal benefits paid to Mr. Park for 2013: (a) $274,139, which is the annual aggregate monthly pro rata amount of prepaidhousing expenses for Mr. Park’s housing lease; (b) $55,105 for insurance premiums; (c) $65,879 for other personal benefits (including reimbursementof the use of a car, home leave flights, living expenses, personal tax advisory expenses, and other personal benefits); (d) $176,111 of reimbursement forthe difference between the actual tax Mr. Park already paid and the hypothetical tax he had to pay for the fiscal year 2012; and (e) $44,132 forreimbursement of Korean tax.(6)Includes the following personal benefits paid to Mr. Park for 2012: (a) $266,371, which is the annual aggregate monthly pro rata amount of prepaidhousing expenses for Mr. Park’s housing lease; (b) $40,060 for insurance premiums; (c) $77,850 for other personal benefits (including reimbursementof the use of a car, home leave flights, living expenses, personal tax advisory expenses, and other personal benefits); (d) $149,595 of reimbursement forthe difference between the actual tax Mr. Park already paid and the hypothetical tax he had to pay for the fiscal year 2011; and (e) $28,361 forreimbursement of Korean tax.(7)Includes the following personal benefits paid to Mr. Park for 2011: (a) $282,724, which is the annual aggregate monthly pro rata amount of prepaidhousing expenses for Mr. Park’s housing lease; (b) $34,147 for insurance premiums; (c) $61,055 for other personal benefits (including reimbursementof the use of a car, home leave flights, living expenses, personal tax advisory expenses, and other personal benefits); (d) $107,650 of reimbursement forthe difference between the actual tax Mr. Park already paid and the hypothetical tax he had to pay for the fiscal year 2010; and (e) $22,207 forreimbursement of Korean tax. 136Table of ContentsIndex to Financial Statements(8)Includes the following personal benefits paid to Ms. Sakai for 2013: (a) $175,290, which is the annual aggregate monthly pro rata amount of prepaidhousing expenses for Ms. Sakai’s housing lease; (b) $56,131 for reimbursement of tuition expenses for Ms. Sakai’s children; (c) $29,026 for Ms. Sakai’shome leave flights; (d) $49,437 for insurance premiums; (e) $23,792 for other personal benefits (including reimbursement of the use of a car, livingexpenses, personal tax advisory expenses, and other personal benefits); (f) $145,641 of reimbursement for the difference between the actual taxMs. Sakai already paid and the hypothetical tax she had to pay for the fiscal year 2012; and (g) $46,433 for reimbursement of Korean tax.(9)Includes the following personal benefits paid to Ms. Sakai for 2012: (a) $170,788, which is the annual aggregate monthly pro rata amount of prepaidhousing expenses for Ms. Sakai’s housing lease; (b) $47,433 for reimbursement of tuition expenses for Ms. Sakai’s children; (c) $51,472 for Ms. Sakai’shome leave flights; (d) $39,235 for insurance premiums; (e) $19,318 for other personal benefits (including reimbursement of the use of a car, livingexpenses, personal tax advisory expenses, and other personal benefits); (f) $101,756 of reimbursement for the difference between the actual taxMs. Sakai already paid and the hypothetical tax she had to pay for the fiscal year 2011; and (g) $32,199 for reimbursement of Korean tax.(10)Includes the following personal benefits paid to Ms. Sakai for 2011: (a) $116,842, which is the annual aggregate monthly pro rata amount of prepaidhousing expenses for Ms. Sakai’s housing lease; (b) $51,534 for reimbursement of tuition expenses for Ms. Sakai’s children; (c) $30,895 for Ms. Sakai’shome leave flights; (d) $35,870 for insurance premiums; (e) $21,691 for other personal benefits (including reimbursement of the use of a car, livingexpenses, personal tax advisory expenses, and other personal benefits); (f) $67,728 of reimbursement for the difference between the actual taxMs. Sakai already paid and the hypothetical tax she had to pay for the fiscal year 2010; and (g) $20,741 for reimbursement of Korean tax.(11)Includes the following personal benefits paid to Mr. YJ Kim for 2013: (a) $76,876, which is the annual aggregate monthly pro rata amount of prepaidhousing expenses for Mr. YJ Kim’s housing lease; (b) $51,877 for reimbursement of tuition expenses for Mr. YJ Kim’s children; (c) $14,674 for Mr. YJKim’s home leave flights; (d) $20,421 for insurance premiums; (e) $39,176 for expenses in connection with Mr. YJ Kim’s move to Korea; and(f) $10,962 for other personal benefits (including reimbursement of the use of a car and living expenses).(12)Includes the following personal benefits paid to Mr. Hwang for 2013: (a) $14,479 for reimbursement of the use of a car; (b) $1,804 for other personalbenefits; and (c) $15,434 for insurance premiums.(13)Includes the following personal benefits paid to Mr. Hwang for 2012: (a) $12,776 for reimbursement of the use of a car; (b) $1,877 for other personalbenefits; and (c) $20,230 for insurance premiums.(14)Includes the following personal benefits paid to Mr. Hwang for 2011: (a) $14,095 for reimbursement of the use of a car; (b) $5,023 for other personalbenefits; and (c) $14,944 for insurance premiums.(15)Includes the following personal benefits paid to Mr. Rowe for 2013: $20,360 for insurance premiums(16)Includes the following personal benefits paid to Mr. Rowe for 2012: $16,284 for insurance premiums.(17)Includes the following personal benefits paid to Mr. Rowe for 2011: $11,590 for insurance premiums. 137Table of ContentsIndex to Financial StatementsGrants of Plan-Based Awards Name Grant Date Option Awards:Number of SecuritiesUnderlyingOptions (#) Exercise or Base Priceof Option Awards($/Share) Grant Date FairValue of OptionAwards ($)(2) Sang Park — — — — Margaret Sakai — — — — Young-Joon Kim 5/6/2013 200,000(1) 15.96 813,660 Tae Young Hwang — — — — Brent Rowe — — — — (1)An installment of 34% of the shares of common stock subject to the options vested and became exercisable on May 6, 2014, an additional 9% of theoptions vest on the completion of the next period of three months, an additional 8% of the options vest upon the completion of each of the next threeperiods of three months, an additional 9% of the options vest upon the completion of the next period of three months, and an additional 8% of theoptions vest upon the completion of each of the next three periods of three months.(2)Represents the grant date fair value with respect to the fiscal year determined in accordance with FASB ASC 718. See Note 1 “Business, Basis ofPresentation and Summary of Significant Accounting Policies—Stock-Based Compensation” and Note 15 “Equity Incentive Plans” to ourconsolidated financial statements under “Item 8: Financial Statements and Supplementary Data.” Outstanding Equity Awards at Fiscal Year End 2013Option Awards Name Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable OptionExercisePrice($) OptionExpirationDate Sang Park 280,000 5.88(2) 12/8/2019 132,750(1) 92,250(1) 7.75 1/15/2022 Margaret Sakai 42,000 5.88(2) 12/8/2019 38,940(1) 27,060(1) 7.75 1/15/2022 Young-Joon Kim 200,000(3) 15.96 5/6/2023 Tae Young Hwang 175,000 5.88(2) 12/8/2019 11,800(1) 8,200(1) 7.75 1/15/2022 Brent Rowe 105,000 5.88(2) 12/8/2019 14,750(1) 10,250(1) 7.75 1/15/2022 (1)An installment of 34% of the shares of common stock subject to the options vested and became exercisable on January 15, 2013, an additional 9% ofthe options vest on the completion of the next period of three months, an additional 8% of the options vest upon the completion of each of the nextthree periods of three months, an additional 9% of the options vest upon the completion of the next period of three months, and an additional 8% ofthe options vest upon the completion of each of the next three periods of three months.(2)The option exercise price at the time of grant was $1.16 per common unit, or $9.28 after giving effect to the corporate conversion. On April 19, 2010,we made a distribution to our unitholders of $0.4254 per common unit, which resulted in the option exercise price being reduced to $0.7346 percommon unit, or $5.88 after giving effect to the corporate conversion.(3)An installment of 34% of the shares of common stock subject to the options vested and became exercisable on May 6, 2014, an additional 9% of theoptions vest on the completion of the next period of three months, an additional 8% of the options vest upon the completion of each of the next threeperiods of three months, an additional 9% of the options vest upon the completion of the next period of three months, and an additional 8% of theoptions vest upon the completion of each of the next three periods of three months.No option awards were exercised by our named executive officers during the year ended December 31, 2013 and no shares of our common stock of ournamed executive officers were subject to vesting during the year ended December 31, 2013. 138Table of ContentsIndex to Financial StatementsMagnaChip Semiconductor LLC 2009 Common Unit PlanFollowing our emergence from our reorganization proceedings, in December 2009, our Board adopted, and our equityholders approved, theMagnaChip Semiconductor LLC 2009 Common Unit Plan, which we refer to as the 2009 Plan. The 2009 Plan provided for the grant of nonstatutory options,restricted unit bonus and purchase right awards, and deferred unit awards to employees and consultants of our Company and our subsidiaries and to membersof our Board. However, only options and restricted unit bonus awards were granted under the 2009 Plan. Subject to adjustment in the event of certain changesin capital structure, the maximum aggregate number of MagnaChip Semiconductor LLC common units available for grant under the 2009 Plan was30,000,000. Units subject to awards that expired, were forfeited or otherwise terminated would have been available again for grant under the 2009 Plan.In connection with our corporate conversion, MagnaChip Semiconductor Corporation assumed the rights and obligations of MagnaChipSemiconductor LLC under the 2009 Plan and converted MagnaChip Semiconductor LLC common unit options and restricted common units outstandingunder the 2009 Plan into options to acquire a number of shares of our common stock and shares of restricted common stock at a ratio of eight-for-one onsubstantially equivalent terms and conditions. As of December 31, 2013, there were outstanding under the 2009 Plan options to purchase 1,230,103 shares ofcommon stock, at a weighted average exercise price of $6.12 per share. The 2009 Plan terminated immediately following our corporate conversion, and noadditional options or other equity awards may be granted under the 2009 Plan. However, options granted under the 2009 Plan prior to its termination willremain outstanding until they are either exercised or expire.The 2009 Plan is administered by the Committee. Subject to the provisions of the 2009 Plan, the Committee determined in its discretion the persons towhom and the times at which awards were granted, the sizes of such awards, and all of their terms and conditions. All awards were evidenced by a writtenagreement between us and the holder of the award. The Committee has the authority to construe and interpret the terms of the 2009 Plan and awards grantedunder it.In the event of a change in control of our Company, the vesting of all outstanding awards held by participants whose employment has not previouslyterminated will accelerate in full. In addition, the Committee has the authority to require that outstanding awards be assumed or replaced with substantiallyequivalent awards by a successor corporation or to cancel the outstanding awards in exchange for a payment in cash or other property equal to the fair marketvalue of restricted units or the excess, if any, of the fair market value of the units subject to an option over the exercise price per unit of such option.2011 Equity Incentive PlanOur 2011 Equity Incentive Plan, or the 2011 Plan, was approved by our Board and our stockholders in March 2010. We amended and restated the 2011Plan in February 2011, and our stockholders approved the amendment in March 2011 to reflect that it became effective in 2011 upon our corporateconversion. 891,703 shares of our common stock, or the total number of shares of common stock (as adjusted by the conversion ratio in the corporateconversion) that remained available for grant upon the termination of the 2009 Plan immediately following the corporate conversion, were initiallyauthorized and reserved.As of December 31, 2013, there were outstanding under the 2011 Plan options to purchase 1,714,542 shares of common stock, at a weighted averageexercise price of $10.77 per share. As of December 31, 2013, 552,549 shares of our common stock remained available for issuance under the 2011 Plan. Thisreserve automatically increased on January 1, 2014 and January 1, 2015 by an additional 680,967 and 681,129 shares, respectively, and will automaticallyincrease each subsequent anniversary through 2021, by an amount equal to the smaller of 2% of the number of shares of common stock issued andoutstanding on the immediately preceding December 31 or an amount determined by our Board. The number of shares authorized for issuance under the 2011Plan will also be increased from time to time by up to that number of shares of common stock remaining subject to options and restricted stock awardsoutstanding under the 2009 Plan at the time of its termination immediately following the corporate conversion that expire or terminate or are forfeited for anyreason after the effective date of the 2011 Plan, subject to a cap of 1,412,352 shares. Appropriate adjustments will be made in the number of authorized sharesand other numerical limits in the 2011 Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split orother change in our capital structure. Shares subject to awards granted under our 2011 Plan which expire, are repurchased, or are cancelled or forfeited willagain become available for issuance under the 2011 Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy taxwithholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights oroptions exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the 2011 Plan.Awards may be granted under the 2011 Plan to our employees, including officers, directors, or consultants or those of any present or future parent orsubsidiary corporation or other affiliated entity. While we may grant incentive stock options only to employees, we may grant nonstatutory stock options,stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards orother stock-based awards to any eligible participant. 139Table of ContentsIndex to Financial StatementsThe 2011 Plan is administered by the Committee. Subject to the provisions of the 2011 Plan, the Committee determines in its discretion the persons towhom and the times at which awards are granted, the sizes of such awards, and all of their terms and conditions. All awards are evidenced by a writtenagreement between us and the holder of the award. The Committee has the authority to construe and interpret the terms of the 2011 Plan and awards grantedunder it.In the event of a change in control as described in the 2011 Plan, the acquiring or successor entity may assume or continue all or any awardsoutstanding under the 2011 Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a changein control or are not exercised or settled prior to the change in control will terminate effective as of the time of the change in control. The Committee mayprovide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except that the vesting of allawards held by members of our Board who are not employees will automatically be accelerated in full. The 2011 Plan also authorizes the Committee, in itsdiscretion and without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change in control in exchangefor a payment to the participant with respect to each share subject to the cancelled award of an amount equal to the excess of the consideration to be paid pershare of common stock in the change in control transaction over the exercise price per share, if any, under the award.2011 Employee Stock Purchase PlanOur 2011 Employee Stock Purchase Plan, or the Purchase Plan, was approved by our Board in March 2010. Our Board amended and restated thePurchase Plan in February 2011 to reflect that the Purchase Plan would become effective in 2011 upon the commencement of the MagnaChip IPO. ThePurchase Plan was approved by our stockholders in March 2011 and became effective upon the commencement of the MagnaChip IPO. We initiallyauthorized and reserved 789,890 shares for sale under the Purchase Plan. In August, 2012, the Committee suspended the Purchase Plan.As of December 31, 2013, 1,163,880 shares of our common stock remained reserved for sale under the Purchase Plan. In addition, the Purchase Planprovides for an automatic annual increase in the number of shares available for issuance under the plan on January 1 of each year beginning in 2012 andcontinuing through and including January 1, 2021 equal to the lesser of (i) 1% of our then issued and outstanding shares of common stock on theimmediately preceding December 31, (ii) 789,980 shares, or (iii) a number of shares as our Board may determine. Appropriate adjustments will be made in thenumber of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants’ rights in the event of a stock split or otherchange in our capital structure. Shares subject to purchase rights which expire or are canceled will again become available for issuance under the PurchasePlan. Because the Purchase Plan was suspended in August 2012, no annual increase in the number of shares authorized under such plan occurred onJanuary 1, 2013, on January 1, 2014 or January 1, 2015.Our employees and employees of any parent or subsidiary corporation designated by the Committee are eligible to participate in the Purchase Plan ifthey are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not begranted a right to purchase stock under the Purchase Plan if: (i) the employee immediately after such grant would own stock possessing 5% or more of thetotal combined voting power or value of all classes of our capital stock or of any parent or subsidiary corporation, or (ii) the employee’s rights to purchasestock under all of our employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of participation in suchplans.The Purchase Plan is implemented through a series of sequential offering periods, generally three months in duration beginning on the first tradingdays of February, May, August, and November each year. The Committee is authorized to establish additional or alternative concurrent, sequential oroverlapping offering periods and offering periods having a different duration or different starting or ending dates, provided that no offering period may havea duration exceeding 27 months.Amounts accumulated for each participant, generally through payroll deductions, are credited toward the purchase of shares of our common stock atthe end of each offering period at a price generally equal to 95% of the fair market value of our common stock on the purchase date. Prior to commencementof an offering period, the Committee is authorized to change the purchase price discount for that offering period, but the purchase price may not be less than85% of the lower of the fair market value of our common stock at the beginning of the offering period or on the purchase date.No participant may purchase under the Purchase Plan in any calendar year shares having a value of more than $25,000 measured by the fair marketvalue per share of our common stock on the first day of the applicable offering period. Prior to the beginning of any offering period, the Committee may alterthe maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares thatmay be purchased by all participants in the offering period. If insufficient shares remain available under the plan to permit all participants to purchase thenumber of shares to which they would otherwise be entitled, the Committee will make a pro rata allocation of the available shares. Any amounts withheldfrom participants’ compensation in excess of the amounts used to purchase shares will be refunded, without interest. 140Table of ContentsIndex to Financial StatementsIn the event of a change in control, an acquiring or successor corporation may assume our rights and obligations under the Purchase Plan. If theacquiring or successor corporation does not assume such rights and obligations, then the purchase date of the offering periods then in progress will beaccelerated to a date prior to the change in control as specified by the Committee, but the number of shares subject to outstanding purchase rights shall not beadjusted.Agreements with Executives and Potential Payments Upon Termination or Change in ControlWe are obligated to make certain payments to our named executive officers upon termination or a change in control as further described below.Sang Park. We are party to an Amended and Restated Services Agreement, dated as of May 8, 2008 (the “Services Agreement”), with Mr. Park pursuantto which he served as our Chairman and Chief Executive Officer. On May 19, 2014, Mr. Park resigned as our Chairman and Chief Executive Officer and weentered into an employment separation agreement (the “Separation Agreement”) in connection with his resignation, as described in more detail below. TheSeparation Agreement partially supersedes the Services Agreement. Under the Services Agreement, Mr. Park was to receive an initial base salary of $450,000and a one-time performance bonus payment of $900,000. Mr. Park was also entitled to an annual incentive award of 100% of his annual salary based uponthe achievement of performance goals, provided that the actual bonus paid may be higher or lower dependent on over- or under-achievement of hisperformance goals, as determined by the Committee. Mr. Park was entitled to customary employee benefits and certain expatriate, repatriation andinternational service benefits, including relocation benefits, tax equalization benefits, the cost of housing accommodations and expenses, transportationbenefits and repatriation benefits. Pursuant to the Services Agreement Mr. Park was granted options to purchase restricted common units but they weresubsequently terminated in connection with our reorganization proceedings. The Services Agreement also contains customary non-competition and non-solicitation covenants lasting two and three years, respectively, from the date of termination of employment and confidentiality covenants of unlimitedduration.The Services Agreement provides that if Mr. Park’s employment were terminated without Cause or if he resigned for good reason, Mr. Park would beentitled to receive (i) payment of all salary and benefits accrued up to the date of termination, (ii) payment of his then-current base salary for twelve months,(iii) the annual incentive award to which Mr. Park would have been entitled for the year in which his employment terminates, (iv) twelve months’ acceleratedvesting on outstanding equity awards and a twelve-month post-termination equity award exercise period, and (v) continued participation for Mr. Park and hiseligible dependents in our benefit plans for twelve months, including certain international service benefits.If such termination occurs within nine months of a change in control, Mr. Park would be entitled to receive (i) payment of all salary and benefitsaccrued and unpaid up to the date of termination, (ii) payment of his then-current base salary for twenty-four months, (iii) the annual incentive award towhich Mr. Park would have been entitled for the year in which his employment terminates, (iv) two years’ accelerated vesting on outstanding equity awards,other than awards granted pursuant to the 2009 Plan, which accelerate in full, (v) a twelve-month post-termination equity award exercise period, and(vi) continued participation for Mr. Park and his eligible dependents in our benefit plans for two years, including certain international service benefits.The severance described above payable to Mr. Park upon his termination without Cause or in connection with a change in control shall be reduced tothe extent that we pay any statutory severance payments to Mr. Park pursuant to the Korean Commercial Code or any other statute. As used in the ServicesAgreement, the term “Cause” means the termination of Mr. Park’s employment because of (i) a failure by Mr. Park to substantially perform his customaryduties (other than such failure resulting from incapacity due to physical or mental illness); (ii) Mr. Park’s gross negligence, intentional misconduct or materialfraud in the performance of Mr. Park’s employment; (iii) Mr. Park’s conviction of, or plea of nolo contendere to, a felony or to a crime involving fraud ordishonesty; (iv) a judicial determination that Mr. Park committed fraud or dishonesty against any natural person, firm, partnership, limited liability company,association, corporation, company, trust, business trust, governmental authority or other entity; or (v) Mr. Park’s material violation of the agreement or of oneor more of the material policies applicable to his employment. Resignation for “good reason” means a resignation upon any of the following events thatremains uncured for 30 days after Mr. Park delivers a demand to us: (i) a salary reduction other than a reduction of less than 10% applied to our other officers,(ii) material reduction in benefits, (iii) failure to provide housing, (iv) nature or status of Mr. Park’s authorities, duties or responsibilities are materially andadversely altered, (v) removal from our Board without cause, or (vi) Mr. Park is not reappointed as Chief Executive Officer following our initial publicoffering.In the event we terminate Mr. Park’s employment due to Disability, Mr. Park would be entitled to (i) payment of his salary and accrued vacation up toand including the date of termination, (ii) payment of any unpaid expense reimbursements, (iii) the prorated amount of any cash incentive to which Mr. Parkwould have been entitled, and (iv) other benefits due to Mr. Park through his termination date. As used in the Services Agreement, the term “Disability”means that the we determine that due to physical or mental illness or incapacity, whether total or partial, Mr. Park is substantially unable to perform his dutiesfor a period of 180 consecutive days or shorter periods aggregating 180 days during any period of 365 consecutive days. 141Table of ContentsIndex to Financial StatementsIn the event of Mr. Park’s death while employed by us, Mr. Park’s estate or named beneficiary would be entitled to (i) payment of Mr. Park’s salary andaccrued vacation up to and including the date of termination, (ii) payment of any unpaid expense reimbursements, (iii) the prorated amount of any cashincentive to which Mr. Park would have been entitled, and (iv) other benefits due to Mr. Park through his termination date.On May 19, 2014, Mr. Park resigned his positions as our Chairman of the Board, Director and Chief Executive Officer of the Company, and from allother officer and director positions with the Company and its subsidiaries, effective as of May 20, 2014. Effective July 31, 2014, MagnaChip Korea enteredinto the Separation Agreement with Mr. Park. Pursuant to the terms of the Separation Agreement, Mr. Park resigned his employment with MagnaChip Koreaand all affiliates as of July 31, 2014, and Mr. Park will be entitled to receive: (i) severance payments equal to twelve months of his current base salary (anaggregate of $647,220), payable in equal monthly installments, (ii) continuation of housing support and health benefits for twelve months, (iii) accrued taxequalization benefits for amounts earned up to and including the effective date of the separation agreement under the terms of Mr. Park’s Services Agreementwith MagnaChip Korea (excluding all amounts paid or payable under the separation agreement), and (iv) acceleration of outstanding and unvested employeestock options held by Mr. Park at the effective date of the separation agreement, with all stock options then held by Mr. Park to be exercisable up to twelvemonths following the effective date of the separation agreement. The separation agreement also contains an obligation by Mr. Park to cooperate with theCompany at the request of the Board and its Audit Committee in connection with the management transition, internal review and restatement of its financialstatements and as otherwise may be requested by the Company, and provides for hourly consulting payments to Mr. Park for such cooperation services at histhen-current hourly rate based on his base salary at the Company as of the effective date of the separation agreement or a subsequent employer during theterm of the separation agreement, subject to an aggregate maximum amount. The Separation Agreement also contains a release of Korean law claims byMr. Park and a confidentiality agreement.Margaret Sakai. We entered into an Offer Letter with Ms. Sakai, dated as of September 5, 2006, pursuant to which Ms. Sakai served as our Senior VicePresident, Finance, with an initial base salary of $250,000 per year and with a target annual incentive bonus opportunity of 50% of her base salary.Ms. Sakai’s title was changed to Senior Vice President and Chief Financial Officer in 2009 and Executive Vice President and Chief Financial Officer in 2011.Ms. Sakai is entitled to customary employee benefits and expatriate benefits under her Offer Letter. Pursuant to her Offer Letter, Ms. Sakai received an initialgrant of options to purchase our common units, but the grant was subsequently terminated in connection with our reorganization proceedings.If Ms. Sakai’s employment is terminated by us without cause, Ms. Sakai would be entitled to receive payment of all salary and benefits accrued andunpaid up to the date of termination, continued payment of her salary for six months at the rate in effect on the date of termination, payment of a proratedportion of the annual incentive bonus for the year in which termination occurs and paid benefits for Ms. Sakai and her dependents for six months. Theseverance payable to Ms. Sakai under her Offer Letter would be reduced to the extent we make any statutory severance payments to Ms. Sakai pursuant to theKorean Commercial Code or any other statute.Effective March 25, 2014, Margaret Sakai resigned her positions as our Executive Vice President and Chief Financial Officer and from all other officerand director positions with the Company and its subsidiaries. On April 14, 2014, MagnaChip Korea entered into an employment separation agreement withMs. Sakai. Pursuant to the terms of the separation agreement, Ms. Sakai resigned her employment with MagnaChip Korea and all affiliates as of the effectivetime of the separation agreement, and Ms. Sakai will be entitled to receive: (i) severance payments equal to six months her current base salary (an aggregateof $184,395), payable in equal monthly installments, (ii) continuation of housing support and health benefits for six months, (iii) accrued tax equalizationbenefits for amounts earned up to and including the effective date of the separation agreement under the terms of Ms. Sakai’s Offer Letter (excluding allamounts paid or payable under the separation agreement), and (iv) accrued Korean statutory severance benefits under MagnaChip Korea’s standard severancebenefits policy to the extent accrued up to the effective date of the separation agreement; provided, that the benefits described in clauses (i), (ii) and(iii) above are conditioned upon Ms. Sakai’s continued cooperation with MagnaChip Korea and the Company for such six-month term. The separationagreement also contains a general release of claims and confidentiality agreement by Ms. Sakai, and provides for post-term hourly consulting arrangements tothe extent requested by the Company.Young-Joon Kim. We entered into an Offer Letter with Mr. YJ Kim, dated as of April 15, 2013, pursuant to which Mr. YJ Kim is entitled to an annualbase salary of $350,000 per year, a one-time signing bonus and relocation allowance of $100,000, and an annual incentive bonus target of 80% of his annualbase salary based on company performance and attainment of management objectives under a plan established and approved by the Board. Mr. YJ Kim isalso entitled to customary employee benefits and expatriate benefits. Pursuant to his Offer Letter, on May 6, 2013, Mr. YJ Kim received an initial grant of anoption to purchase an aggregate of 200,000 shares of the Company’s common stock at an exercise price of $15.96, which vests and becomes exercisable overthree years from the date of commencement of Mr. YJ Kim’s employment with MagnaChip Korea. If Mr. YJ Kim’s employment is terminated by MagnaChipKorea without cause, Mr. YJ Kim is entitled to receive payment of all salary and benefits accrued and unpaid up to the date of termination, continuedpayment of his salary for six months at the rate in effect on the date of termination and payment of a prorated portion of the annual incentive bonus for theyear in which termination occurs, and up to six months of health 142Table of ContentsIndex to Financial Statementsinsurance premium reimbursement. The severance payable to Mr. YJ Kim under his Offer Letter will be reduced to the extent MagnaChip Korea makes anystatutory severance payments to Mr. YJ Kim pursuant to the Korean Commercial Code or any other statute.Tae Young Hwang. We entered into an Entrustment Agreement with Mr. Hwang, effective as of October 1, 2004, under which he serves as our ChiefOperating Officer and President, with an initial base salary of 220 million Korean won per year and with a target annual incentive bonus to be determined bymanagement based on performance. Mr. Hwang is entitled to customary employee benefits. The agreement also contains customary non-competitioncovenants lasting one year from the date of termination of employment and confidentiality covenants of unlimited duration. If Mr. Hwang’s employment isterminated for any reason, he is entitled to statutory severance payments pursuant to the Korean Commercial Code or any other statute.Brent Rowe. We entered into an Offer Letter with Mr. Rowe, dated as of March 7, 2006, pursuant to which Mr. Rowe serves as our Executive VicePresident, Worldwide Sales, with an initial base salary of $220,000 per year, a sign on bonus of $50,000 and with a target annual incentive bonus opportunityof 80% of his base salary. Mr. Rowe is entitled to customary employee benefits. Pursuant to his Offer Letter, Mr. Rowe received an initial grant of options topurchase our common units, but the grant was subsequently terminated in connection with our reorganization proceedings. If Mr. Rowe’s employment isterminated without cause, he is entitled to a severance payment equal to six months’ salary.Potential Payments upon Termination or Change in Control.Termination. Our named executive officers are eligible to receive certain payments and benefits in connection with certain service termination eventspursuant to the terms of our employment agreements with them, as further described under the section entitled “Agreements with Executives and PotentialPayments Upon Termination or Change in Control.” The terms “cause” and “resignation for good reason” used below have the meanings given to them in theapplicable agreements with us.Change in Control. Mr. Park was entitled to receive certain payments and benefits in connection with a change in control of our Company pursuant toour employment agreement with him, as further described under the section entitled “Agreements with Executives and Potential Payments Upon Terminationor Change in Control.” In addition, the Committee has the authority to require that outstanding equity awards be assumed or replaced with substantiallyequivalent awards by the successor corporation or to cancel the outstanding awards in exchange for a payment in cash or other property equal to the fairmarket value of restricted units or the excess, if any, of the fair market value of the units subject to an option over the exercise price per unit of such option.For purposes of the foregoing, a “change in control” is generally defined as the acquisition by a person or entity of more than 51% of the combined votingpower of our then outstanding voting securities or a sale or transfer of all or substantially all of our consolidated assets to a person or entity that is not ouraffiliate.The following table presents our estimate of the dollar value of the payments and benefits payable to our named executive officers upon the occurrenceof the following events, assuming that each such event occurred on December 31, 2013. The disclosure in the following table does not include: • any accrued benefits that were earned and payable as of December 31, 2013, including any short-term cash incentive amounts earned by, or anydiscretionary bonus amounts payable to, the executive officer for 2013 performance; or • payments and benefits to the extent they are provided generally to all salaried employees and do not discriminate in scope, terms or operation in favorof the named executive officers. Name Event CashSeverancePayment($)(1) Continuationof Benefits($)(2) Value ofEquityAwardAcceleration($) Total($) Sang Park* (a)(3) 647,220 615,366(4) 872,438(5) 2,135,024 (b)(3) 1,294,440 1,230,732(6) 1,083,938(7) 3,609,110 Margaret Sakai** (a) 221,676(8) 262,875(9) 484,551 Young-Joon Kim (a) 175,000(10) 106,993 281,993 Tae Young Hwang (a) 999,559(11) — 999,559 Brent Rowe (a) 168,610 — 168,610 *Mr. Park resigned his positions as Chairman of the Board, Director and Chief Executive Officer of the Company, and from all other officer and directorpositions with the Company and its subsidiaries, effective as of May 20, 2014. See “—Agreements with Executives and Potential Payments UponTermination or Change in Control—Sang Park” for a description of Mr. Park’s severance arrangements with the Company.**Ms. Sakai resigned her positions as Executive Vice President and Chief Financial Officer of the Company, and from all other officer and directorpositions with the Company and its subsidiaries, effective as of March 25, 2014. See “—Agreements with Executives and Potential Payments UponTermination or Change in Control—Margaret Sakai” for a description of Ms. Sakai’s severance arrangements with the Company. 143Table of ContentsIndex to Financial Statements(a)Termination without cause in absence of change in control.(b)Termination without cause within nine months following a change in control.(1)Represents cash severance payments payable to our named executive officers pursuant to (i) our employment agreements with them or, if greater,(iii) cash severance payments payable pursuant to the Employee Retirement Benefit Security Act of Korea. Other than Mr. Rowe, who is entitled to alump sum cash severance payment, cash severance payments are paid monthly in accordance with our regular payroll procedures. Pursuant to theEmployee Retirement Benefit Security Act, Mr. Hwang, Ms. Sakai and Mr. YJ Kim are entitled to certain statutory severance benefits from us upon thetermination of their employment with us for any reason. See “—Compensation Discussion and Analysis—Perquisites and Other Benefits” foradditional information.(2)Calculated assuming the continuation of benefits for the applicable period at the same dollar value of 2013 benefits.(3)Reflected benefits are also payable in connection with Mr. Park’s resignation for good reason. See “—Agreements with Executives and PotentialPayments Upon Termination or Change in Control—Sang Park.”(4)Represents the aggregate value of the continuation of health insurance benefits for Mr. Park and his eligible dependents for twelve months followingthe date of termination. Mr. Park is also entitled to tax equalization benefits, tax preparation services, the reimbursement of costs associated with onehome leave flight and, for a period of twelve months post-termination, international health insurance benefits, paid housing and the use of a car and adriver.(5)Reflects the aggregate value of 12 months of accelerated vesting under Mr. Park’s outstanding options issued under our 2011 Plan. The value of suchaccelerated vesting amount was calculated by multiplying (i) the number of outstanding options that vest as a result of an additional 12 months ofvesting under the applicable option award by (ii) the difference of the fair market value of our common stock as of December 31, 2013 of $19.50, andthe option exercise price for such options of $7.75 per share.(6)Represents the aggregate value of the continuation of health insurance benefits for Mr. Park and his eligible dependents for twenty-four monthsfollowing the date of termination. Mr. Park is also entitled to tax equalization benefits, tax preparation services, the reimbursement of costs associatedwith two home leave flights and, for a period of twenty-four months post-termination, international health insurance benefits, paid housing and the useof a car and a driver.(7)Reflects the aggregate value of two years of accelerated vesting under Mr. Park’s outstanding options issued under our 2011 Plan. The value of suchaccelerated vesting amount was calculated by multiplying (i) the number of outstanding options that vest as a result of an additional two years ofvesting under the applicable option award by (ii) the difference of the fair market value of our common stock as of December 31, 2013 of $19.50, andthe option exercise price for such options of $7.75 per share.(8)Ms. Sakai is entitled to statutory severance benefits in the amount of $221,676. The amount owed to Ms. Sakai under her employment agreement,$184,395, will be reduced by the amount she is statutorily entitled to receive.(9)Represents the aggregate value of the continuation of health insurance benefits for Ms. Sakai and her eligible dependents for six months following thedate of termination. Ms. Sakai is also entitled to tax equalization benefits, tax preparation services, reimbursement of costs associated with one homeleave flight and, for a period of six months post-termination, paid housing, the use of a car and a driver and child tuition benefits.(10)Mr. YJ Kim is entitled to statutory severance benefits in the amount of $19,570. The amount owed to Mr. YJ Kim under his employment agreement,$175,000, will be reduced by the amount he is statutorily entitled to receive.(11)Mr. Hwang is entitled to statutory severance benefits in the amount of $999,559. Although the minimum legal severance accrual is one month of basesalary per year of service, Mr. Hwang was eligible for accrual of a multiple of two to three months of base salary per year of service duringapproximately the first ten of his seventeen years of service, or $442,065 in aggregate. 144Table of ContentsIndex to Financial StatementsPension Benefits for the Fiscal Year Ended December 31, 2013Pursuant to the Employee Retirement Benefit Security Act, certain executive officers resident in Korea with one or more years of service are entitled toseverance benefits upon the termination of their employment for any reason. The base statutory severance accrues at the rate of approximately one month ofbase salary per year of service and is calculated on a monthly basis based upon the officer’s salary for the prior three-month period. Accordingly, if the namedexecutive officers in the following table had retired on the last day of our fiscal year ended December 31, 2013, they would have been entitled to thestatutory severance payments described below. Assuming no change in the applicable law, each of these executives will continue to accrue additionalstatutory severance benefits at the rate described above until his or her service with us terminates. Name Plan Name Numberof Yearsof CreditedService (#) PresentValue ofAccumulatedBenefit ($) PaymentsDuringthe LastFiscal Year Margaret Sakai Statutory Severance 7 221,676 — Young Joon Kim Statutory Severance 1 19,570 — Tae Young Hwang Statutory Severance with Multiplier for Partial Period 18(1) 999,559 — (1)Mr. Hwang accrued severance for his eighteen years of service at MagnaChip and its predecessor corporation. Although the minimum legal severanceaccrual is one month of base salary per year of service, Mr. Hwang was eligible for accrual of a multiple of two to three months of base salary per year ofservice during approximately the first ten of his eighteen years of service, or $442,065 in aggregate.Nonqualified Deferred CompensationWe do not maintain any nonqualified deferred compensation plans.Director Compensation for the Fiscal Year Ended December 31, 2013 Name FeesEarnedor Paidin Cash($) OptionAwards($)(1) Total($) Michael Elkins 155,000(3) 221,442(7) 376,442 Randal Klein(2) — — — Ilbok Lee 110,000(4) 110,388(8) 220,388 Brian Mulhern(2) — — — R. Douglas Norby 115,000(5) 110,388(8) 225,388 Nader Tavakoli 110,000(6) 110,388(8) 220,388 (1)Represents grant date fair value determined in accordance with FASB ASC 718. See Note 1 “Business, Basis of Presentation and Summary ofSignificant Accounting Policies—Stock-Based Compensation,” and Note 15 “Equity Incentive Plans” to our consolidated financial statements under“Item 8. Financial Statements and Supplementary Data.” As of December 31, 2013, Mr. Elkins held aggregate options to purchase 55,000 shares of ourcommon stock, none of which had vested as of December 31, 2013, Dr. Lee held aggregate options to purchase 55,000 shares of our common stock, ofwhich 25,000 shares subject to the options had vested as of December 31, 2013, Mr. Norby held aggregate options to purchase 75,000 shares of ourcommon stock, of which 36,800 shares subject to the options had vested as of December 31, 2013, and Mr. Tavakoli held aggregate options topurchase 63,200 shares of our common stock, of which 25,000 shares subject to these options had vested as of December 31, 2013. Neither Mr. Kleinnor Mr. Mulhern, our other non-employee directors as of December 31, 2013, held any outstanding stock or option awards as of December 31, 2013.(2)This director did not receive any compensation in 2013.(3)Consists of an annual retainer of $90,000 paid to independent directors plus an additional $45,000 for serving as Lead Director, an additional $10,000for serving as the chairman of our Compensation Committee and an additional $10,000 for serving as a member of our Audit Committee andNominating and Corporate Governance Committee pursuant to our director compensation policy.(4)Consists of an annual retainer of $90,000 paid to independent directors plus an additional $10,000 for serving as the chairman of our Nominating andCorporate Governance Committee and an additional $10,000 for serving as a member of our Compensation Committee and Risk Committee pursuantto our director compensation policy. 145Table of ContentsIndex to Financial Statements(5)Consists of an annual retainer of $90,000 paid to independent directors plus an additional $15,000 for serving as the chairman of our Audit Committeeand an additional $10,000 for serving as a member of our Nominating and Corporate Governance Committee and Risk Committee pursuant to ourdirector compensation policy.(6)Consists of an annual retainer of $90,000 paid to independent directors plus an additional $10,000 for serving as the chairman of our Risk Committeeand an additional $10,000 for serving as a member of our Audit Committee and Compensation Committee pursuant to our director compensationpolicy.(7)Consists of an option grant to an independent director to purchase 20,000 shares of common stock issued on January 8, 2013 under the 2011 Plan at anexercise price of $16.37, an option grant to an independent director to purchase 25,000 shares of common stock issued on January 8, 2013 under the2011 Plan at an exercise price of $16.37 and an option grant to an independent director to purchase 10,000 shares of common stock issued on April 3,2013 under the 2011 Plan at an exercise price of $16.30.(8)Consists of an option grant to an independent director to purchase 20,000 shares of common stock issued on January 2, 2013 under the 2011 Plan at anexercise price of $15.80, and an option grant to an independent director to purchase 10,000 shares of common stock issued on April 3, 2013 under the2011 Plan at an exercise price of $16.30.Further Information Regarding Director CompensationUnder our director compensation policy in effect in 2013, (i) each non-employee director received a fee of $90,000 per year; (ii) the Lead Directorreceived an additional fee of $45,000 per year; (iii) the chairman of our Audit Committee received an additional fee of $15,000 per year; (iv) the chairman ofour Compensation Committee, the chairman of our Nominating and Corporate Governance Committee and the chairman of our Risk Committee eachreceived an additional fee of $10,000 per year; (v) each non-employee member of our Audit Committee, Compensation Committee, Nominating andCorporate Governance Committee, and Risk Committee received an additional fee of $5,000 per year per committee; (vi) upon election to the Board, eachnon-employee director will be granted, pursuant to the Company’s equity incentive plan as in effect at such time, a one-time option to purchase 25,000 of theCompany’s common shares at an exercise price per share determined as the fair market value of a share on the date of grant and with vesting over three yearsat a rate of 34% on the first anniversary of grant and 9.0%, 8.0%, 8.0% and 8.0% on completion of each successive three-month period in the second and thirdyears after grant; and (vii) each non-employee director will be granted on the first trading day of each January for such director’s service for the upcomingyear, pursuant to the Company’s equity incentive plan as in effect at such time, a one-time option to purchase 30,000 of the Company’s common shares at anexercise price per share determined as the fair market value of a share on the date of grant and with vesting over one year at a rate of 100% on the firstanniversary of grant. All cash amounts are payable in January for such director’s service for the upcoming year. Messrs. Klein and Mulhern are required by theinternal policy of their employer, Avenue, to waive all compensation under the policy on a year-by-year basis. The Board accepted their waiver of allcompensation under the policy for their service as directors during the year 2013.Compensation Committee Interlocks and Insider ParticipationNone of the members of the Compensation Committee has been an officer or employee of our Company during the last fiscal year. During 2013,decisions regarding executive officer compensation were made by our Compensation Committee. Mr. Park, our former Chief Executive Officer, participatedin deliberations of our Compensation Committee regarding the determination of compensation of our executive officers other than himself for 2013 and priorperiods. None of our executive officers currently serves, or in the past has served, as a member of the Board or the compensation committee of any entity thathas one or more executive officers serving on our Board.Compensation Committee ReportThe Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis as set forth above under “CompensationDiscussion and Analysis” with our management and, based on such review and discussion, has recommended to our Board that the Compensation Discussionand Analysis be included in this Annual Report on Form 10-K for the year ended December 31, 2013.The foregoing report was submitted by the Compensation Committee and shall not be deemed to be “soliciting material” or to be “filed” with the SECor subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act.Members of the Committee:Michael Elkins, ChairmanIlbok LeeNader Tavakoli 146Table of ContentsIndex to Financial StatementsItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersEquity Compensation Plan TableThe following table provides information as of December 31, 2013, regarding securities authorized for issuance under the Company’s compensationplans. The Company’s compensation plans include the 2009 Plan, the 2011 Plan, and the Purchase Plan. The numbers in the following table do not includeoptions or shares that may be added to the issuable amounts under the 2011 Plan or the Purchase Plan, respectively, after December 31, 2013, in accordancewith the terms of the respective plans. Plan Category (a)Number ofsecurities to beissued uponexercise ofoutstandingoptions (b)Weighted-averageexercise price ofoutstanding options (c)Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a)) Equity compensation plans approved by security holders 2,944,645(1) $8.82(1) 552,549(2) Equity compensation plans not approved by security holders — — — Total: 2,944,645 552,549 (1)The number of securities to be issued upon the exercise of outstanding options and the weighted average exercise price do not include any purchaseright under the Purchase Plan or the purchase price for the purchase of shares under the Purchase Plan.(2)Excludes 1,163,880 shares of common stock that remain available as of December 31, 2013, for future issuance under the suspended Purchase Plan.In December 2009, our Board adopted, and our equityholders approved, the MagnaChip Semiconductor LLC 2009 Common Unit Plan, which we referto as the 2009 Plan. The 2009 Plan provided for the grant of nonstatutory options, restricted unit bonus and purchase right awards, and deferred unit awardsto employees and consultants of our Company and our subsidiaries and to members of our Board. However, only options and restricted unit bonus awardswere granted under the 2009 Plan. The 2009 Plan terminated immediately following our corporate conversion, and no additional options or other equityawards may be granted under the 2009 Plan. However, options granted under the 2009 Plan prior to its termination will remain outstanding until they areeither exercised or expire. As of December 31, 2013, there were outstanding under the 2009 Plan options to purchase 1,230,103 shares of common stock, at aweighted average exercise price of $6.12 per share.The 2011 Plan was approved by our Board and our stockholders in March 2010. We amended and restated the 2011 Plan in February 2011, and ourstockholders approved the amendment in March 2011 to reflect that it became effective in 2011 upon our corporate conversion. 891,703 shares of ourcommon stock, or the total number of shares of common stock (as adjusted by the conversion ratio in the corporate conversion) that remained available forgrant upon the termination of the 2009 Plan immediately following the corporate conversion, were initially authorized and reserved.As of December 31, 2013, there were outstanding under the 2011 Plan options to purchase 1,714,542 shares of common stock, at a weighted averageexercise price of $10.77 per share. As of December 31, 2013, 552,549 shares of our common stock remained available for issuance under the 2011 Plan. Thisreserve automatically increased on January 1, 2014 by 680,967 shares and automatically increased on January 1, 2015 by 681,129 shares and willautomatically increase each subsequent anniversary through 2021, by an amount equal to the smaller of 2% of the number of shares of common stock issuedand outstanding on the immediately preceding December 31 or an amount determined by our Board. The number of shares authorized for issuance under the2011 Plan will also be increased from time to time by up to that number of shares of common stock remaining subject to options and restricted stock awardsoutstanding under the 2009 Plan at the time of its termination immediately following the corporate conversion that expire or terminate or are forfeited for anyreason after the effective date of the 2011 Plan, subject to a cap of 1,412,352 shares. Appropriate adjustments will be made in the number of authorized sharesand other numerical limits in the 2011 Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split orother change in our capital structure. Shares subject to awards granted under our 2011 Plan which expire, are repurchased, or are cancelled or forfeited willagain become available for issuance under the 2011 Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy taxwithholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights oroptions exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the 2011 Plan.For more information on our 2011 Equity Incentive Plan, see “Item 11: Executive Compensation—Compensation Discussion and Analysis—Grants ofPlan-Based Awards—2011 Equity Incentive Plan.” 147Table of ContentsIndex to Financial StatementsThe Purchase Plan was approved by our Board in March 2010. Our Board amended and restated the Purchase Plan in February 2011 to reflect that thePurchase Plan would become effective in 2011 upon the commencement of the MagnaChip IPO. The Purchase Plan was approved by our stockholders inMarch 2011 and became effective upon the commencement of the MagnaChip IPO. We initially authorized and reserved 789,890 shares for sale under thePurchase Plan. In August, 2012, the Committee suspended the Purchase Plan.As of December 31, 2013, 1,163,880 shares of our common stock remained reserved for sale under the Purchase Plan. In addition, the Purchase Planprovides for an automatic annual increase in the number of shares available for issuance under the plan on January 1 of each year beginning in 2012 andcontinuing through and including January 1, 2021 equal to the lesser of (i) 1% of our then issued and outstanding shares of common stock on theimmediately preceding December 31, (ii) 789,980 shares, or (iii) a number of shares as our Board may determine. Appropriate adjustments will be made in thenumber of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants’ rights in the event of a stock split or otherchange in our capital structure. Shares subject to purchase rights which expire or are canceled will again become available for issuance under the PurchasePlan. Because the Purchase Plan was suspended in August 2012, no annual increase in the number of shares authorized under such plan occurred onJanuary 1, 2013, on January 1, 2014 or on January 1, 2015. For more information on our 2011 Employee Stock Purchase Plan, see “Item 11: ExecutiveCompensation—Compensation Discussion and Analysis—Grants of Plan-Based Awards—2011 Employee Stock Purchase Plan.”Security Ownership of Certain Beneficial Owners and ManagementThe following table sets forth information regarding the beneficial ownership of our outstanding common stock for: (1) each person or entity known tous to beneficially own more than 5% of any class of our outstanding securities; (2) each member of our Board; (3) each of our named executive officers; and(4) all of the members of our Board and executive officers, as a group. The following tables list the number of shares and percentage of shares beneficiallyowned based on 34,056,468 shares of common stock outstanding as of December 31, 2014.The amounts and percentages of equity interests beneficially owned are reported on the basis of SEC regulations governing the determination ofbeneficial ownership of securities. Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,”which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct thedisposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficialownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may bedeemed to be a beneficial owner of securities as to which he or she has no economic interest.Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all shares of commonstock shown as beneficially owned by them. Unless otherwise indicated, the address of each person listed in the table below is c/o MagnaChipSemiconductor, Ltd., 1 Hyangjeong-dong, Hungduk-gu, Cheongju-si, 361-725, Korea. Name and Address of Beneficial Owner Amount andNature ofBeneficialOwnership(1) PercentofClass(1) Principal Stockholders Funds managed by Avenue Capital Management II, L.P.(2) 4,088,978 12.0% Funds managed by FMR LLC(3) 4,107,094 12.1% Funds managed by Lakewood Capital Management, LP(4) 2,144,857 6.3% Funds managed by Brigade Capital Management, LP(5) 1,933,000 5.7% Directors and Executive Officers Sang Park(6) 785,000 2.3% Margaret Sakai(7) 134,160 * Young-Joon Kim(8) 118,000 * Tae Young Hwang(9) 285,000 * Brent Rowe(10) 200,000 * Michael Elkins(11) 76,750 *Randal Klein(12) — — Ilbok Lee(13) 85,000 * Brian Mulhern(12) — — R. Douglas Norby(14) 105,000 * Nader Tavakoli(15) 98,750 * Directors and Officers as a group (13 persons)(16) 1,290,000 3.7% 148Table of ContentsIndex to Financial Statements *Less than one percent(1)Includes any outstanding common stock held and, to the extent applicable, shares issuable upon the exercise or conversion of any securities that areexercisable or convertible within 60 days of December 31, 2014.(2)The following entities and person are collectively referred to in this table as the “Avenue Capital Group”: (i) Avenue Investments, L.P. (“AvenueInvestments”), (ii) Avenue International Master, L.P. (“Avenue International Master”), (iii) Avenue International, Ltd. (“Avenue International”), thesole limited partner of Avenue International Master, (iv) Avenue International Master GenPar, Ltd. (“Avenue International GenPar”), the generalpartner of Avenue International Master, (v) Avenue Partners, LLC (“Avenue Partners”), the general partner of Avenue Investments and the soleshareholder of Avenue International GenPar, (vi) Avenue-CDP Global Opportunities Fund, L.P. (“Avenue-CDP”), (vii) Avenue Global OpportunitiesFund GenPar, LLC (“Avenue Global GenPar”), the general partner of Avenue-CDP, (viii) Avenue Special Situations Fund IV, L.P. (“Avenue Fund IV”),(ix) Avenue Capital Partners IV, LLC (“Avenue Capital IV”), the general partner of Avenue Fund IV, (x) GL Partners IV, LLC (“GL IV”), the managingmember of Avenue Capital IV, (xi) Avenue Special Situations Fund V, L.P. (“Avenue Fund V”), (xii) Avenue Capital Partners V, LLC (“Avenue CapitalV”), the general partner of Avenue Fund V, (xiii) GL Partners V, LLC (“GL V”), the managing member of Avenue Capital V, (xiv) Avenue CapitalManagement II, L.P. (“Avenue Capital Management”), the investment manager to Avenue Investments, Avenue International Master, Avenue-CDP,Avenue Fund IV and Avenue Fund V (collectively, the “Avenue Funds”), (xv) Avenue Capital Management II GenPar, LLC (“Avenue CapitalManagement GenPar”), the general partner of Avenue Capital Management, and (xvi) Marc Lasry, the managing member of Avenue InternationalGenPar, Avenue Partners, Avenue Global GenPar, GL IV, GL V and Avenue Capital Management GenPar.The Avenue Capital Group beneficially owns 4,088,978 shares of common stock. On November 9, 2014, all warrants to purchase our common stockpreviously held by the Avenue Capital Group expired.The Avenue Funds have the sole power to vote and dispose of the common stock and warrants held by them. Avenue International, AvenueInternational GenPar, Avenue Partners, Avenue Global GenPar, Avenue Capital IV, GL IV, Avenue Capital V, GL V, Avenue Capital Management,Avenue Capital Management GenPar and Marc Lasry have the shared power to vote and dispose of the common stock and warrants held by the AvenueFunds, all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. The address for all of the AvenueFunds is 399 Park Avenue, 6th Floor, New York, NY 10022.Avenue Fund V beneficially owns 619,115 shares of common stock, or 1.8%. The securities owned by Avenue Fund V may also be deemed to bebeneficially owned by Avenue Capital V, its general partner; GL V, the managing member of Avenue Capital V; Avenue Capital Management, itsinvestment manager; Avenue Capital Management GenPar, the general partner of Avenue Capital Management; and Mr. Lasry, the managing memberof Avenue Capital Management GenPar and GL V; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniaryinterest. For further information regarding Avenue Fund V, please see above.Avenue Fund IV beneficially owns 496,023 shares of common stock, or 1.5%. The securities owned by Avenue Fund IV may also be deemed to bebeneficially owned by Avenue Capital IV, its general partner; GL IV, the managing member of Avenue Capital IV; Avenue Capital Management, itsinvestment manager; Avenue Capital Management GenPar, the general partner of Avenue Capital Management; and Mr. Lasry, the managing memberof Avenue Capital Management GenPar and GL IV; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniaryinterest. For further information regarding Avenue Fund IV, please see above.Avenue International Master beneficially owns 2,166,652 shares of common stock, or 6.4%. The securities owned by Avenue International Master mayalso be deemed to be beneficially owned by Avenue International, its sole limited partner; Avenue International GenPar, its general partner; AvenuePartners, the sole shareholder of Avenue International GenPar; Avenue Capital Management, its investment manager; Avenue Capital ManagementGenPar, the general partner of Avenue Capital Management; and Mr. Lasry, the managing member of Avenue Capital Management GenPar, AvenuePartners and Avenue International GenPar; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest.For further information regarding Avenue International Master, please see above.Avenue-CDP beneficially owns 84,924 shares of common stock, or 0.2%. The securities owned by Avenue-CDP may also be deemed to be beneficiallyowned by Avenue Global GenPar, its general partner; Avenue Capital Management, its investment manager; Avenue Capital Management GenPar, thegeneral partner of Avenue Capital Management; and Mr. Lasry, the managing member of Avenue Capital Management GenPar and Avenue GlobalGenPar; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. For further information regardingAvenue-CDP, please see above.Avenue Investments beneficially owns 722,264 shares of common stock, or 2.1%. The securities owned by Avenue Investments may also be deemed tobe beneficially owned by Avenue Partners, its general partner; Avenue Capital Management, its investment manager; Avenue Capital ManagementGenPar, the general partner of Avenue Capital Management; and Mr. Lasry, the managing member of Avenue Capital Management GenPar and AvenuePartners; all of whom disclaim any beneficial ownership except to the extent of their respective pecuniary interest. For further information regardingAvenue Investments, please see above. 149Table of ContentsIndex to Financial Statements(3)Based on the information contained in a Schedule 13G filed with the SEC on April 10, 2014 by FMR LLC (“FMR”) and Edward C. Johnson 3d.Edward C. Johnson 3d is the Chairman of FMR and members of the Johnson family may be deemed, under the Investment Company Act of 1940, toform a controlling group with respect to FMR. The shares of common stock listed in the table above represent: • 4,087,020 shares of common stock beneficially owned by Fidelity Management & Research Company (“Fidelity”), a wholly ownedsubsidiary of FMR, as a result of acting as investment adviser to various investment companies registered under Section 8 of theInvestment Company Act of 1940. Edward C. Johnson 3d and FMR, through its control of Fidelity, each has sole power to dispose of the4,087,020 shares owned by Fidelity and the funds for which it acts as investment adviser. Neither FMR nor Edward C. Johnson 3d has thesole power to vote or direct the voting of the shares owned directly by funds managed by Fidelity, which power resides with the funds’Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the funds’ Boards of Trustees. • 8,400 shares of common stock beneficially owned by Fidelity SelectCo, LLC (“SelectCo”), a wholly owned subsidiary of FMR, as aresult of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of1940 (the “SelectCo Funds”). Edward C. Johnson 3d and FMR, through its control of SelectCo, and the SelectCo Funds each has solepower to dispose of the 8,400 shares beneficially owned by the SelectCo Funds. • 11,674 shares of common stock beneficially owned by Pyramis Global Advisors Trust Company (“PGATC”), an indirect wholly ownedsubsidiary of FMR, as a result of its serving as investment manager of institutional accounts owning such shares. Edward C. Johnson 3dand FMR, through its control of PGATC, each has sole dispositive power over the 11,674 shares beneficially owned by PGATC and solepower to vote or to direct the voting of 0 shares of common stock owned by the institutional accounts managed by PGATC as reportedabove.The business address of each of FMR, Fidelity, SelectCo, PGATC, and Edward C. Johnson 3d is 245 Summer Street, Boston, Massachusetts 02210. (4)Based on the information contained in a Schedule 13G/A filed with the SEC on February 14, 2014 by Lakewood Capital Management, LP (“LakewoodManagement”), Lakewood Capital Advisors, LLC (“Lakewood Capital”), Lakewood Capital Partners, LP (“Lakewood Partners”), and Anthony T.Bozza. The shares of common stock listed in the table above represent 2,144,857 shares of common stock that are beneficially owned by LakewoodManagement, Lakewood Capital, Lakewood Partners, and Anthony T. Bozza. The business address of each of Lakewood Management, LakewoodCapital, Lakewood Partners, and Anthony T. Bozza is 650 Madison Ave., 25 Floor, New York, New York 10022.(5)Based on the information contained in a Schedule 13G filed with the SEC on September 29, 2014 by Brigade Capital Management, LP (“BrigadeCapital”), Brigade Leveraged Capital Structures Fund Ltd.(“Brigade Fund”) and Donald E. Morgan, III. Each of Brigade Capital and Donald E.Morgan, III has shared power to vote or to direct the vote and shared power to dispose or to direct the disposition of all of the shares of common stocklisted in the table above. Brigade Fund has shared power to vote or to direct the vote and shared power to dispose or to direct the disposition of1,750,000 of the shares of common stock listed in the table above. The business address of each of Brigade Capital and Donald E. Morgan, III is 399Park Avenue, 16th Floor, New York, New York 10022. The business address of Brigade Fund is c/o Elian, 89 Nexus Way, Camana Bay, Grand CaymanKY1-9007, Cayman Islands.(6)Represents 280,000 shares of common stock and 505,000 options to purchase shares of common stock that will be vested and exercisable as ofMarch 1, 2015.(7)Represents 42,000 shares of common stock and 92,160 options to purchase shares of common stock that will be vested and exercisable as of March 1,2015.(8)Represents 118,000 options to purchase shares of common stock that will be vested and exercisable as of March 1, 2015.(9)Represents 90,000 shares of common stock and 195,000 options to purchase shares of common stock that will be vested and exercisable as of March 1,2015.(10)Represents 70,000 shares of common stock and 130,000 options to purchase shares of common stock that will be vested and exercisable as of March 1,2015.(11)Represents 76,750 options to purchase shares of common stock that will be vested and exercisable as of March 1, 2015.(12)The address for Messrs. Klein and Mulhern is 399 Park Avenue, 6th Floor, New York, NY 10022.(13)Represents 85,000 options to purchase shares of common stock that will be vested and exercisable as of March 1, 2015.(14)Represents 105,000 options to purchase shares of common stock that will be vested and exercisable as of March 1, 2015.(15)Represents 5,550 shares of common stock and 93,200 options to purchase shares of common stock that will be vested and exercisable as of March 1,2015.(16)Represents 221,550 shares of common stock and 1,068,450 options to purchase shares of common stock that will be vested and exercisable as ofMarch 1, 2015. 150thTable of ContentsIndex to Financial StatementsItem 13. Certain Relationships and Related Transactions, and Director IndependenceCode of Business Conduct and EthicsUnder our Code of Business Conduct and Ethics, all conflicts of interest and related party transactions involving our directors or executive officersmust be reviewed and approved in writing by our full Board. In the approval process, the approving authority will review all aspects of the conflict of interestor related party transaction, including but not limited to: (i) compliance with laws, rules and regulations, (ii) the adverse effect on our business and results ofoperations, (iii) the adverse effect on our relationships with third parties such as customers, vendors and potential investors, (iv) the benefit to the director,officer or employee at issue, and (v) the creation of morale problems among other employees. Our Board will only approve those related party transactionsthat, in light of known circumstances, are in, or are not inconsistent with, our best interests.Registration Rights AgreementOn November 9, 2009, we entered into a registration rights agreement with the holders of MagnaChip Semiconductor LLC’s common units issued inour reorganization proceedings, including Avenue, where we granted them registration rights with respect to our common stock. In 2012 and 2013, theCompany paid fees and expenses of $1.2 million and $0.8 million, respectively, in connection with the registration and sale of shares of our common stockby Avenue pursuant to such registration rights agreement. Affiliates of Avenue currently have two employees, Messrs. Klein and Mulhern, serving asmembers of our Board. Mr. Elkins, also a current member of our Board, was previously employed by affiliates of Avenue until December 31, 2012, andcurrently serves as a consultant to affiliates of Avenue.Director IndependenceThe Board reviews the independence of each director annually. In determining the independence of our directors, our Board considered Section 303Aof the NYSE listing standards and broadly considered the materiality of each director’s relationship with us. Based upon the foregoing criteria, in December2014, our Board determined that the following directors are independent: Mr. R. Douglas Norby, Mr. Michael Elkins, Dr. Ilbok Lee and Mr. Nader Tavakoli.In making such determination of independence for Mr. Elkins under the applicable NYSE independence standards for his service on the CompensationCommittee of the Board, the Board specifically considered Mr. Elkins’ previous employment and current consulting arrangement with Avenue. 151Table of ContentsIndex to Financial StatementsItem 14. Principal Accounting Fees and Services.Fees Paid to Independent Registered Public Accounting FirmThe following table presents fees billed or expected to be billed for professional services rendered by Samil PricewaterhouseCoopers and its affiliatesfor the years ended December 31, 2013 and 2012. Year Ended December 31 2013 2012 (in millions) Audit fees(1) $8.5 $1.3 Audit Related fees — — Tax fees 0.0 0.0 All other fees 0.0 0.0 Total $8.6 $1.3 (1)The large difference between the fees reflected for 2013 compared to those for 2012 primarily relates to additional fees incurred associated with ourRestatement.Policy and procedure for approval of audit and permitted non-audit servicesAll audit fees were pre-approved by the Company’s Audit Committee, which concluded that the provision of such services by SamilPricewaterhouseCoopers and its affiliates was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. Withrespect to outside auditor independence, the Audit Committee Charter provides for pre-approval of audit services and non-audit services, based onindependence, qualifications and, if applicable, performance, and approve the fees and other terms of any such engagement. The Audit Committee Charterauthorizes the Audit Committee to delegate to one or more of its members the authority to grant pre-approvals for such services, provided that the decisionsof such member(s) to grant any such pre-approval shall be presented to the Committee at its next scheduled meeting. The Audit Committee followed theseguidelines in approving all services rendered by Samil PricewaterhouseCoopers and its affiliates. 152Table of ContentsIndex to Financial StatementsPART IVItem 15. Exhibits and Financial Statement Schedules 1.Financial StatementsThe information required by this item is included in Item 8 of Part II of this Form 10-K. 2.Financial Statement SchedulesFinancial Statement Schedules are omitted because of the absence of the conditions under which they are required or because the information requiredby such omitted schedules is set forth in the financial statements or the notes thereto. 3.Exhibits ExhibitNo. Exhibit Description 2.1 Second Amended Chapter 11 Plan of Reorganization Proposed by the Official Committee of Unsecured Creditors of MagnaChipSemiconductor Finance Company, et al., dated as of September 24, 2009 (incorporated by reference to Exhibit 2.1 to our Amendment No. 1 toRegistration Statement on Form S-1 filed on April 20, 2010 (Registration No. 333-165467)). 3.1 Certificate of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-Kfiled on March 11, 2011). 3.2 Certificate of Incorporation of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.2 to our Current Report onForm 8-K filed on March 11, 2011). 3.3 Bylaws of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K filed onMarch 11, 2011). 3.4 Form of Plan of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.6 to our Amendment No. 2 toRegistration Statement on Form S-1 filed on May 11, 2010 (Registration No. 333-165467)). 4.1 Registration Rights Agreement, dated as of November 9, 2009, by and among MagnaChip Semiconductor LLC and each of thesecurityholders named therein (incorporated by reference to Exhibit 4.1 to our Amendment No. 1 to Registration Statement on Form S-1 filedon April 20, 2010 (Registration No. 333-165467)). 4.2 Indenture, dated as of July 18, 2013, between MagnaChip Semiconductor Corporation, as issuer, and Wilmington Trust, NationalAssociation, as trustee (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on July 18, 2013). 4.3 First Supplemental Indenture, dated as of March 27, 2014, to Indenture, dated as of July 18, 2013, between MagnaChip SemiconductorCorporation, as issuer, and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to our Current Reporton Form 8-K filed on June 25, 2014). 4.4 Form of 6.625% Senior Notes due 2021 and notation of guarantee (included in Exhibit 4.2) 10.1 Intellectual Property License Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.2 to our Amendment No. 1 to Registration Statement on Form S-1 filedon April 20, 2010 (Registration No. 333-165467)). 10.2(1) Land Lease and Easement Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.3 to our Amendment No. 1 to Registration Statement on Form S-1 filedon April 20, 2010 (Registration No. 333-165467)). 10.3 First Amendment to Land Lease and Easement Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc. andMagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.4 to our Amendment No. 1 to Registration Statement onForm S-1 filed on April 20, 2010 (Registration No. 333-165467)). 153Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description 10.4(1) General Service Supply Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor,Ltd. (Korea) (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s and MagnaChipSemiconductor Finance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14, 2010). 10.5 First Amendment to the General Service Supply Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc. andMagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.6 to our Amendment No. 1 to Registration Statement onForm S-1 filed on April 20, 2010 (Registration No. 333-165467)). 10.6(1) License Agreement (ModularBCD), dated as of March 18, 2005, by and between Advanced Analogic Technologies, Inc. and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form S-1 filed on March 15, 2010(Registration No. 333-165467)). 10.7(1) Amended & Restated License Agreement (TrenchDMOS), dated as of September 19, 2007, by and between Advanced AnalogicTechnologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.8 to Amendment No. 2 toMagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (RegistrationNo. 333-168516) filed on October 14, 2010). 10.8(1) Technology License Agreement, dated as of December 16, 1996, by and between Advanced RISC Machines Limited and MagnaChipSemiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit 10.9 to ourRegistration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.9(1) Amendment to the Technology License Agreement, dated as of October 16, 2006, by and between ARM Limited and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.10 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s andMagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14,2010). 10.10(1) ARM7201TDSP Device License Agreement, dated as of August 26, 1997, by and between Advanced RISC Machines Limited andMagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit10.11 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.11(1) Technology License Agreement, dated as of October 5, 1995, by and between Advanced RISC Machines Limited and MagnaChipSemiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit 10.12 toAmendment No. 2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement onForm S-4 (Registration No. 333-168516) filed on October 14, 2010). 10.12(1) Technology License Agreement, dated as of July 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form S-1filed on March 15, 2010 (Registration No. 333-165467)). 10.13(1) Technology License Agreement, dated as of August 22, 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.14 to our Registration Statement on Form S-1filed on March 15, 2010 (Registration No. 333-165467)). 10.14 Technology License Agreement, dated as of May 20, 2004, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form S-1filed on March 15, 2010 (Registration No. 333-165467)). 10.15(1) Design Migration Agreement, dated as of May 1, 2007, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(incorporated by reference to Exhibit 10.16 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s and MagnaChip SemiconductorFinance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14, 2010). 10.16 Basic Contract on Joint Development and Grant of License, dated as of November 10, 2006, by and between MagnaChip Semiconductor,Ltd. and Silicon Works Co., Ltd. (English translation) (incorporated by reference to Exhibit 10.17 to our Registration Statement on Form S-1filed on March 15, 2010 (Registration No. 333-165467)). 10.17 Master Service Agreement, dated as of December 27, 2000 by and between Sharp Corporation and MagnaChip Semiconductor, Ltd. (Korea)(successor in interest to Hyundai Electronics Japan Co., Ltd) (English translation) (incorporated by reference to Exhibit 10.18 to ourAmendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010 (Registration No. 333-165467)). 154Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description 10.18 Warrant Agreement, dated as of November 9, 2009, between MagnaChip Semiconductor LLC and American Stock Transfer & Trust Company,LLC (incorporated by reference to Exhibit 10.19 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.19* MagnaChip Semiconductor LLC 2009 Common Unit Plan (incorporated by reference to Exhibit 10.20 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.20* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (Non-U.S. Participants) (incorporated by reference toExhibit 10.21 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.21* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (U.S. Participants) (incorporated by reference to Exhibit10.22 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.22* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (Non-U.S. Participants). Incorporated byreference to Exhibit 10.23 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467). 10.23* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (U.S. Participants) (incorporated by reference toExhibit 10.24 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.24* MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan (incorporated by reference to Exhibit 10.25 to our Amendment No 9 tothe Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.25* MagnaChip Semiconductor Corporation 2011 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 to our AmendmentNo 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.26* Amended and Restated Service Agreement, dated as of May 8, 2008, by and between MagnaChip Semiconductor, Ltd. (Korea) and Sang Park(incorporated by reference to Exhibit 10.27 to our Amendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010(Registration No. 333-165467)). 10.27*# Separation Agreement, effective July 31, 2014, by and between MagnaChip Semiconductor, Ltd. (Korea) and Sang Park. 10.28* Entrustment Agreement, dated as of October 6, 2004, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young Hwang(incorporated by reference to Exhibit 10.30 to our Amendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010(Registration No. 333-165467)). 10.29* Offer Letter dated March 7, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Inc. to Brent Rowe, assupplemented on December 20, 2006 (incorporated by reference to Exhibit 10.33 to our Registration Statement on Form S-1 filed onMarch 15, 2010 (Registration No. 333-165467)). 10.30* Offer Letter dated September 5, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret Sakai(incorporated by reference to Exhibit 10.36 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.31*# Separation Agreement, effective April 12, 2014, by and between MagnaChip Semiconductor, Ltd. (Korea) and Margaret Sakai. 10.32* Offer Letter, dated as of July 1, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim (incorporated byreference to Exhibit 10.39 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.33* Offer Letter, dated as of June 20, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee (incorporated by referenceto Exhibit 10.42 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.34* MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers (incorporated by reference to Exhibit10.49 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 155Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description 10.35*# Offer Letter, dated as of March 8, 2014, by and between MagnaChip Semiconductor, Ltd. (Korea) and Jonathan W. Kim. 10.36*# Offer Letter, dated as of April 15, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Young-Joon Kim. 10.37*# Offer Letter, dated as of September 27, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Theodore Kim. 10.38* MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on December 31, 2009 and amended on February 15, 2010 (incorporated byreference to Exhibit 10.54 to our Quarterly Report on Form 10-Q filed on August 5, 2011). 10.39* MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement (U.S. Participants) (incorporated by reference to Exhibit10.55 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.40* MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement (Non-U.S. Participants) (incorporated by reference to Exhibit10.56 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.41* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (U.S. Participants) (incorporated by reference toExhibit 10.57 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.42* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (Non-U.S. Participants) (incorporated by referenceto Exhibit 10.58 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.43* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement (U.S. Participants) (incorporated by reference to Exhibit10.59 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.44* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement (Non-U.S. Participants) (incorporated by reference toExhibit 10.60 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.45 Amendment No. 1 to Warrant Agreement, dated as of February 16, 2012, between MagnaChip Semiconductor Corporation and AmericanStock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 10.61 to our Annual Report on Form 10-K filed on March 8,2012). 10.46 Exchange and Registration Rights Agreement, dated as of July 18, 2013, between MagnaChip Semiconductor Corporation and BarclaysCapital Inc., as representative for the initial purchasers (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed onJuly 18, 2013). 12.1# Statement Regarding Computation of Ratio of Earnings to Fixed Charges 21.1# Subsidiaries of the Registrant 23.1# Consent of Samil PricewaterhouseCoopers 31.1# Certification of Chief Executive Officer required by Rule 13(a)-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 31.2# Certification of Chief Financial Officer required by Rule 13(a)-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 32.1† Certification of Chief Executive Officer required by 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 32.2† Certification of Chief Financial Officer required by 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 156Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description101.INS# XBRL Instance Document101.SCH# XBRL Taxonomy Extension Schema Document101.CAL# XBRL Taxonomy Extension Calculation Linkbase Document101.DEF# XBRL Taxonomy Extension Definition Linkbase Document101.LAB# XBRL Taxonomy Extension Label Linkbase Document101.PRE# XBRL Taxonomy Extension Presentation Linkbase DocumentFootnotes: (1)Certain portions of this document have been omitted pursuant to a grant of confidential treatment by the SEC.*Management contract, compensatory plan or arrangement#Filed herewith†Furnished herewith 157Table of ContentsIndex to Financial StatementsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed onits behalf by the undersigned, thereunto duly authorized.MAGNACHIP SEMICONDUCTOR CORPORATION By: /s/ Young-Joon Kim Name: Young-Joon Kim Title: Interim Chief Executive Officer Date: February 12, 2015Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Date/s/ Young-Joon Kim February 12, 2015Young-Joon Kim, Interim Chief Executive Officer (Principal Executive Officer) /s/ Jonathan W. Kim February 12, 2015Jonathan W. Kim, Interim Chief Financial Officer, Senior Vice President andChief Accounting Officer (Principal Financial and Accounting Officer) /s/ Michael Elkins February 12, 2015Michael Elkins, Director /s/ Randal Klein February 12, 2015Randal Klein, Director /s/ Ilbok Lee February 12, 2015Ilbok Lee, Director /s/ Brian Mulhern February 12, 2015Brian Mulhern, Director /s/ Douglas Norby February 12, 2015R. Douglas Norby, Non- Executive Chairman of the Board of Directors /s/ Nader Tavakoli February 12, 2015Nader Tavakoli, Director 158Table of ContentsIndex to Financial StatementsExhibit Index ExhibitNo. Exhibit Description 2.1 Second Amended Chapter 11 Plan of Reorganization Proposed by the Official Committee of Unsecured Creditors of MagnaChipSemiconductor Finance Company, et al., dated as of September 24, 2009 (incorporated by reference to Exhibit 2.1 to our AmendmentNo. 1 to Registration Statement on Form S-1 filed on April 20, 2010 (Registration No. 333-165467)). 3.1 Certificate of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-Kfiled on March 11, 2011). 3.2 Certificate of Incorporation of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.2 to our Current Report onForm 8-K filed on March 11, 2011). 3.3 Bylaws of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.3 to our Current Report on Form 8-K filed onMarch 11, 2011). 3.4 Form of Plan of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.6 to our Amendment No. 2 toRegistration Statement on Form S-1 filed on May 11, 2010 (Registration No. 333-165467)). 4.1 Registration Rights Agreement, dated as of November 9, 2009, by and among MagnaChip Semiconductor LLC and each of thesecurityholders named therein (incorporated by reference to Exhibit 4.1 to our Amendment No. 1 to Registration Statement on Form S-1filed on April 20, 2010 (Registration No. 333-165467)). 4.2 Indenture, dated as of July 18, 2013, between MagnaChip Semiconductor Corporation, as issuer, and Wilmington Trust, NationalAssociation, as trustee (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on July 18, 2013). 4.3 First Supplemental Indenture, dated as of March 27, 2014, to Indenture, dated as of July 18, 2013, between MagnaChip SemiconductorCorporation, as issuer, and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.2 to our CurrentReport on Form 8-K filed on June 25, 2014). 4.4 Form of 6.625% Senior Notes due 2021 and notation of guarantee (included in Exhibit 4.2) 10.1 Intellectual Property License Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.2 to our Amendment No. 1 to Registration Statement on Form S-1filed on April 20, 2010 (Registration No. 333-165467)). 10.2(1) Land Lease and Easement Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.3 to our Amendment No. 1 to Registration Statement on Form S-1filed on April 20, 2010 (Registration No. 333-165467)). 10.3 First Amendment to Land Lease and Easement Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc. andMagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.4 to our Amendment No. 1 to Registration Statement onForm S-1 filed on April 20, 2010 (Registration No. 333-165467)). A-1Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description 10.4(1) General Service Supply Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s andMagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14,2010). 10.5 First Amendment to the General Service Supply Agreement, dated as of December 30, 2005, by and between Hynix Semiconductor Inc.and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.6 to our Amendment No. 1 to RegistrationStatement on Form S-1 filed on April 20, 2010 (Registration No. 333-165467)). 10.6(1) License Agreement (ModularBCD), dated as of March 18, 2005, by and between Advanced Analogic Technologies, Inc. and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form S-1 filed on March 15,2010 (Registration No. 333-165467)). 10.7(1) Amended & Restated License Agreement (TrenchDMOS), dated as of September 19, 2007, by and between Advanced AnalogicTechnologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.8 to Amendment No. 2 toMagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (RegistrationNo. 333-168516) filed on October 14, 2010). 10.8(1) Technology License Agreement, dated as of December 16, 1996, by and between Advanced RISC Machines Limited and MagnaChipSemiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit 10.9 to ourRegistration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.9(1) Amendment to the Technology License Agreement, dated as of October 16, 2006, by and between ARM Limited and MagnaChipSemiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.10 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s andMagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14,2010). 10.10(1) ARM7201TDSP Device License Agreement, dated as of August 26, 1997, by and between Advanced RISC Machines Limited andMagnaChip Semiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit10.11 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.11(1) Technology License Agreement, dated as of October 5, 1995, by and between Advanced RISC Machines Limited and MagnaChipSemiconductor, Ltd. (Korea) (successor in interest to LG Semicon Company Limited) (incorporated by reference to Exhibit 10.12 toAmendment No. 2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement onForm S-4 (Registration No. 333-168516) filed on October 14, 2010). 10.12(1) Technology License Agreement, dated as of July 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.13(1) Technology License Agreement, dated as of August 22, 2001, by and between ARM Limited and MagnaChip Semiconductor, Ltd.(Korea) (successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.14 to our Registration Statement onForm S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.14 Technology License Agreement, dated as of May 20, 2004, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(successor in interest to Hynix Semiconductor Inc.) (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.15(1) Design Migration Agreement, dated as of May 1, 2007, by and between ARM Limited and MagnaChip Semiconductor, Ltd. (Korea)(incorporated by reference to Exhibit 10.16 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s and MagnaChip SemiconductorFinance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14, 2010). 10.16 Basic Contract on Joint Development and Grant of License, dated as of November 10, 2006, by and between MagnaChip Semiconductor,Ltd. and Silicon Works Co., Ltd. (English translation) (incorporated by reference to Exhibit 10.17 to our Registration Statement on FormS-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.17 Master Service Agreement, dated as of December 27, 2000 by and between Sharp Corporation and MagnaChip Semiconductor, Ltd.(Korea) (successor in interest to Hyundai Electronics Japan Co., Ltd) (English translation) (incorporated by reference to Exhibit 10.18 toour Amendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010 (Registration No. 333-165467)). A-2Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description 10.18 Warrant Agreement, dated as of November 9, 2009, between MagnaChip Semiconductor LLC and American Stock Transfer & TrustCompany, LLC (incorporated by reference to Exhibit 10.19 to our Registration Statement on Form S-1 filed on March 15, 2010(Registration No. 333-165467)). 10.19* MagnaChip Semiconductor LLC 2009 Common Unit Plan (incorporated by reference to Exhibit 10.20 to our Registration Statement onForm S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.20* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (Non-U.S. Participants) (incorporated by reference toExhibit 10.21 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.21* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Option Agreement (U.S. Participants) (incorporated by reference toExhibit 10.22 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.22* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (Non-U.S. Participants). Incorporated byreference to Exhibit 10.23 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467). 10.23* MagnaChip Semiconductor LLC 2009 Common Unit Plan form of Restricted Unit Agreement (U.S. Participants) (incorporated by referenceto Exhibit 10.24 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.24* MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan (incorporated by reference to Exhibit 10.25 to our Amendment No 9to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.25* MagnaChip Semiconductor Corporation 2011 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 to ourAmendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.26* Amended and Restated Service Agreement, dated as of May 8, 2008, by and between MagnaChip Semiconductor, Ltd. (Korea) and SangPark (incorporated by reference to Exhibit 10.27 to our Amendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010(Registration No. 333-165467)). 10.27*# Separation Agreement, effective July 31, 2014, by and between MagnaChip Semiconductor, Ltd. (Korea) and Sang Park. 10.28* Entrustment Agreement, dated as of October 6, 2004, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Young Hwang(incorporated by reference to Exhibit 10.30 to our Amendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010(Registration No. 333-165467)). 10.29* Offer Letter dated March 7, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Inc. to Brent Rowe, assupplemented on December 20, 2006 (incorporated by reference to Exhibit 10.33 to our Registration Statement on Form S-1 filed onMarch 15, 2010 (Registration No. 333-165467)). 10.30* Offer Letter dated September 5, 2006, from MagnaChip Semiconductor LLC and MagnaChip Semiconductor, Ltd. to Margaret Sakai(incorporated by reference to Exhibit 10.36 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.31*# Separation Agreement, effective April 12, 2014, by and between MagnaChip Semiconductor, Ltd. (Korea) and Margaret Sakai. 10.32* Offer Letter, dated as of July 1, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Heung Kyu Kim (incorporated byreference to Exhibit 10.39 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.33* Offer Letter, dated as of June 20, 2007, by and between MagnaChip Semiconductor, Ltd. (Korea) and Tae Jong Lee (incorporated byreference to Exhibit 10.42 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). 10.34* MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers (incorporated by reference toExhibit 10.49 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). A-3Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description 10.35*# Offer Letter, dated as of March 8, 2014, by and between MagnaChip Semiconductor, Ltd. (Korea) and Jonathan W. Kim. 10.36*# Offer Letter, dated as of April 15, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Young-Joon Kim. 10.37*# Offer Letter, dated as of September 27, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Theodore Kim. 10.38* MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on December 31, 2009 and amended on February 15, 2010 (incorporatedby reference to Exhibit 10.54 to our Quarterly Report on Form 10-Q filed on August 5, 2011). 10.39* MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement (U.S. Participants) (incorporated by reference to Exhibit10.55 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.40* MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement (Non-U.S. Participants) (incorporated by reference toExhibit 10.56 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.41* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (U.S. Participants) (incorporated by reference toExhibit 10.57 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.42* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (Non-U.S. Participants) (incorporated byreference to Exhibit 10.58 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (RegistrationNo. 333-165467)). 10.43* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement (U.S. Participants) (incorporated by reference toExhibit 10.59 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.44* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement (Non-U.S. Participants) (incorporated by reference toExhibit 10.60 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.45 Amendment No. 1 to Warrant Agreement, dated as of February 16, 2012, between MagnaChip Semiconductor Corporation and AmericanStock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 10.61 to our Annual Report on Form 10-K filed on March 8,2012). 10.46 Exchange and Registration Rights Agreement, dated as of July 18, 2013, between MagnaChip Semiconductor Corporation and BarclaysCapital Inc., as representative for the initial purchasers (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filedon July 18, 2013). 12.1# Statement Regarding Computation of Ratio of Earnings to Fixed Charges 21.1# Subsidiaries of the Registrant 23.1# Consent of Samil PricewaterhouseCoopers 31.1# Certification of Chief Executive Officer required by Rule 13(a)-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 31.2# Certification of Chief Financial Officer required by Rule 13(a)-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 32.1† Certification of Chief Executive Officer required by 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 32.2† Certification of Chief Financial Officer required by 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 A-4Table of ContentsIndex to Financial StatementsExhibitNo. Exhibit Description101.INS# XBRL Instance Document101.SCH# XBRL Taxonomy Extension Schema Document101.CAL# XBRL Taxonomy Extension Calculation Linkbase Document101.DEF# XBRL Taxonomy Extension Definition Linkbase Document101.LAB# XBRL Taxonomy Extension Label Linkbase Document101.PRE# XBRL Taxonomy Extension Presentation Linkbase DocumentFootnotes: (1)Certain portions of this document have been omitted pursuant to a grant of confidential treatment by the SEC.*Management contract, compensatory plan or arrangement#Filed herewith†Furnished herewith A-5Exhibit 10.27SEPARATION AGREEMENTTHIS SEPARATION AGREEMENT (this “Agreement”) is entered into by and between MagnaChip Semiconductor, Ltd., a Korean limited liabilitycompany (the “Company”), and Sang Park, an individual (the “Executive,” and together with the Company hereinafter referred to as the “Parties” and each a“Party”) on this July 31, 2014 (the “Effective Date”).RECITALSA. Reference is made to that certain Amended and Restated Service Agreement dated as of May 8, 2008 (the “Service Agreement”), whereby theCompany and the Executive agreed to the terms of Executive’s continuing employment of the Executive with the Company. Capitalized terms not otherwisedefined herein shall have the meanings set forth in the Service Agreement.B. Reference is also made to that certain resignation letter dated as of May 19, 2014 (the “Resignation”), whereby the Executive voluntarily resigned,effective as of May 20, 2014, from all positions with MagnaChip Semiconductor Corporation (“MX”) and each of MX’s direct and indirect subsidiaries(including all positions with the Company other than Executive’s employment with the Company).C. The Executive desires to voluntarily terminate his employment with the Company, and the Company desires to accept such voluntary terminationby the Executive, all under the terms and conditions set forth in this Agreement.NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and agreements herein contained, and for other good andvaluable consideration, intending to be legally bound, the Parties hereto do hereby agree as follows:TERMS AND CONDITIONS 1.Resignation and Termination of Employment(a) Effective as of the Effective Date, the Executive hereby voluntarily resigns from and terminates his employment with the Company. Each Partyhereby acknowledges that, as of the time immediately prior to the Effective Date, the Executive was not, under any applicable law, an employee of anyaffiliate of the Company; to the extent that, under any applicable law, the Executive is deemed to be an employee of any affiliate of the Company, theExecutive hereby voluntarily resigns from and terminates his employment with such affiliate effective as of the Effective Date.(b) In consideration for the Executive’s voluntary separation from employment as provided in Section 1(a) above and the agreements and covenants ofthe Executive made herein, the Company shall provide the Executive with the payments and benefits described in Section 2 below, as required under theService Agreement for an Involuntary Termination not in connection with a Change of Control.(c) Other than as set forth below, the Executive hereby acknowledges that the payments and benefits provided pursuant to Section 2 below are in fulland final satisfaction of every entitlement, right or claim which the Executive might have had in respect of his relationship with the Company and itsaffiliates, and without limiting the generality of the foregoing, the satisfaction of any entitlements or claims that the Executive may have to salary, bonus,incentives, allowances, all other benefits and compensation, leaves, severance or termination payments and all and any other legal and statutory entitlements,including overtime work allowance, nighttime work allowance, industrial accident compensation, interim severance payment and the severance payment dueto transfer to another affiliated company, in respect of or arising from service with the Company. The foregoing is not intended to modify in any way theExecutive’s rights with respect to indemnification and insurance coverage, nor to modify in any way the Executive’s entitlement to compensation andbenefits already earned up to and including the Effective Date.2.Separation Payments and BenefitsThe Company shall provide the following payments and other benefits to the Executive:(a) Separation Payment. The Company shall pay the Executive 12 months of separation pay (an aggregate of USD 647,220) (the “Separation Pay”). TheSeparation Pay shall be payable in 12 equal monthly installments in accordance with the Company’s standard payroll practice, less all such deductions orwithholdings required by applicable law. Payment of the Separation Pay shall commence on the Company’s first standard payroll date that occurs afterAugust 1, 2014. For purposes of Section 409A of the US Internal Revenue Code of 1986, as amended, and the guidance promulgated thereunder(collectively, “Section 409A”), each payment pursuant to this Section 2(a) shall be treated as a right to a series of separate payments.(b) Outstanding Stock Options. Effective as of the Effective Date, each stock option granted to the Executive pursuant to the Company’s 2011 EquityIncentive Plan (the “Plan”) and that remains outstanding and unexercised as of the Effective Date (collectively, the “Outstanding Options”) shall accelerateand vest to the extent then unvested such that 100% of the Outstanding Options shall be exercisable as of the Effective Date and any unexercised portion ofthe Outstanding Options shall remain exercisable through the date that is 12 months after the Effective Date (to the extent not exercised prior to such date),subject in all cases to the terms and restrictions of the Plan, at which time any then-unexercised Outstanding Options shall expire and terminate and theExecutive shall have no further rights with respect to such expired and terminated Outstanding Options.(c) Enumerated Benefits. For a period of 12 months immediately following the Effective Date, the Executive shall be entitled to receive the following“Enumerated Benefits” within the meaning of, and subject to the terms and conditions set forth in, Section 4(b)(i)(4) of the Service Agreement, provided thatany such Enumerated Benefit that is subject to Section 409A as a “nonqualified deferred compensation plan” and that is otherwise payable during the six-month period commencing on the date of the Executive’s “separation from service” within the meaning of Section 409A shall instead be paid in a lump sumon the earlier of (A) December 1, 2014 or (B) of date of the Executive’s death:(i) continuation of the health insurance support and medical benefits that were being provided to the Executive and his dependents immediatelyprior to the signing of this Agreement;(ii) tax equalization (taking into account only U.S. federal taxes) and tax preparation support for amounts earned by Executive from theCompany up to and including the Effective Date (excluding all amounts paid or payable under this Agreement); and(iii) continuation of the housing support that was being provided to the Executive immediately prior to the signing of this Agreement.(d) No Annual Incentive. The Parties hereto agree that the Executive shall not be eligible to earn any annual cash or stock bonus, option or otherincentive, including any Annual Incentive referenced in the Service Agreement.(e) No Other Benefits. The Executive shall not be entitled to any statutory benefits under the Company’s severance benefits policy or any otherbenefits except as expressly set forth in this Section 2, including in connection with any cooperation or consulting services that the Executive provides to theCompany pursuant to Section 4(a) below.(f) Expenses. During the Term of this Agreement and thereafter, the Company shall reimburse Executive for out-of-pocket expenses that are reasonablyincurred by Executive with respect 2to the cooperation or consulting services that the Executive provides to the Company pursuant to Section 4(a) below; provided that such expenses (i) havebeen approved in advance by the Chief Executive Officer of the Company and (ii) are evidenced with receipts or other documentation reasonably acceptableto the Company. Any such expense reimbursements shall be paid no later than the calendar year following the calendar year in which the Executive incursthe applicable expense, the amount of such expenses incurred in one taxable year shall not impact the amount of such expenses that are eligible forreimbursement in another taxable year and the Executive’s right to such expense reimbursements is not subject to liquidation or exchange for any otherbenefit.(g) Section 409A. The payments and benefits set forth in this Section 2 and Section 4(a) shall be subject to the terms set forth in Section 4(f) of theService Agreement (Compliance with Section 409A) and Section 6(j) of the Service Agreement (Acknowledgement Regarding Section 409A), each of whichare incorporated herein by reference. 3.Term and Termination(a) This Agreement shall be effective as of the Effective Date and, unless sooner terminated pursuant to Section 3(b) below, shall continue until the datethat is 12 months after the Effective Date, at which time this Agreement shall automatically expire. The period during which this Agreement is effective isreferred to herein as the “Term.”(b) This Agreement may be terminated by the Company at any time prior to its automatic expiration, under the following circumstances: (i) theExecutive’s breach of this Agreement that, if susceptible to cure, has not been cured as reasonably determined by the Company within five (5) business daysafter notice requesting cure is delivered to the Executive by the Company; provided that the Company’s notice shall describe in reasonable detail the allegedbreach and the Company’s proposed resolution as well as the possibility of termination of this Agreement; (ii) the Executive’s plea of nolo contendre orguilty to, or conviction of, any crime related to the Executive’s employment with the Company; or (iii) impairment of the Executive’s physical and/or mentalcondition such that it inhibits him from performing his duties hereunder. Termination of this Agreement pursuant to this Section 3(b) shall be effectiveimmediately upon notice of such termination to the Executive.(c) This Agreement is expressly conditioned upon the Executive’s continued cooperation with the Company as provided in Section 4(a) below and thefailure to cooperate will be grounds for the Company to terminate this Agreement.(d) Notwithstanding expiration or termination of this Agreement, the following provisions shall survive (including, as applicable, the obligations toprovide continued payment and benefits thereunder): Section 1, Section 2(a), 2(b), 2(c), 2(d), 2(e) and 2(g), this Section 3, Section 4(a)(i), 4(b) and 4(c),Section 5 and Section 6. Subject to the foregoing, upon expiration or termination, this Agreement shall have no further effect, and the Parties shall not haveany liability to each other; provided that nothing herein shall relieve the Parties from liability for any breach of this Agreement prior to such expiration ortermination or liability arising under or relating to any other agreement or arrangements that are not subject to modification or otherwise superseded by thisAgreement, including the Executive’s rights with respect to indemnification and insurance coverage. 4.Covenants(a) Cooperation.(i) Subject to the terms and conditions hereof, from time to time as requested by the Company, MX, the Audit Committee of the Board ofDirectors of MX (the “Audit Committee”) or the Board of Directors of MX (the “MX Board”), the Executive shall fully cooperate with the Company and MXin all respects, including cooperating in the ongoing review by the Audit Committee and in any related reviews, investigations and restatement or transitionrelated work, in each case as the Company, MX, the Audit Committee, the MX Board or the interim Chief Executive 3Officer of MX (or his replacement or designee) may require. Without limiting and in furtherance of the foregoing, the Executive shall also fully cooperatewith the Company and MX in all respects in connection with any formal or informal request, inquiry, investigation, or other proceeding involving anyregulatory or enforcement organization, governmental or otherwise, including but not limited to the U.S. Securities and Exchange Committee, the U.S.Department of Justice, and other U.S. and non-U.S. authorities. Such cooperation shall include the Executive being reasonably available (including theExecutive traveling to the U.S.) for consultation, interviews, or testimony; the Executive providing or making reasonably available relevant documents andinformation; the Executive providing truthful testimony; and the Executive coordinating activities with the Company to the extent reasonable.(ii) The Company agrees to pay the Executive an hourly consulting fee for such cooperation under Section 4(a)(i) (solely to the extent requestedby the Company, MX, the Audit Committee or the MX Board) calculated at a rate equal to the greater of (i) USD305 and (ii) Executive’s then current rate ofbase pay calculated on an hourly rate basis from a subsequent employer for the number of service hours performed by Executive that are confirmed in writingby the Company’s chief financial officer. The Parties agree that in such case the Executive will be acting as an independent contractor and the Company willhave no obligations to Executive other than as specified in Section 2(f) herein. Payments under this Section will be made within 30 days following eachmonth in which the Executive performs services under this Agreement. The Parties acknowledge and agree that the level of services contemplated pursuant tothis Section 4(a) will be less than 20 percent of the Executive’s average level of bona-fide services performed for the Company during the preceding 36months and that the Executive incurred a “separation from service” within the meaning of Section 409A as of May 20, 2014. Notwithstanding anything inthis Agreement to the contrary, in no event shall the Company be obligated to pay Executive more than USD 75,000 in the aggregate for cooperation servicesunder this Section 4(a).(b) Confidential Information. The Executive acknowledges that he has had and will have access to confidential or proprietary information relating tothe business of, or belonging to, the Company or its affiliates, including proprietary or confidential information, technical data, trade secrets, or know-how inrespect of research, product plans, products, service, customer, markets, computer software (including object code and source code), data and database,outcomes research, documentation, instructional material, developments, inventions, processes, formulas, technology, design, drawings, engineering,hardware, configuration information, models, manufacturing processes, sales information, cost information, business plans, business opportunities, marketing,finances or other business information disclosed to the Executive in any manner including by drawings or observations of parts or equipment, etc.(individually and collectively, “Confidential Information”), all of which have substantial value of the Company.(i) During the Term and thereafter, the Executive may from time to time be provided documents in order to meet his obligation to cooperatepursuant to Section 4(a). The Executive acknowledges the confidential nature of such documents and agrees to treat them as “Confidential Information” asotherwise provided for herein.(ii) The Executive acknowledges that he shall not (A) use any Confidential Information except in the course of providing services pursuant toSection 4(a), or (B) disclose any Confidential Information to any third party other than required by applicable laws, provided that the Executive gives theCompany prompt written notice of such requirement prior to such disclosure and gives assistance in obtaining an order protecting the information frompublic disclosure, in each case without the prior written consent of the Company.(iii) During the Term and thereafter, the Executive shall respect and adhere to any non-disclosure, confidentiality or similar agreements to whichthe Company or any of its affiliates are a party or subject.(iv) The Executive hereby confirms that all Confidential Information and Company Materials (as defined below) are and shall remain theexclusive property of the Company. 4During the Term and thereafter, upon the request of the Company, the Executive shall either return or destroy all Company Materials, or any reproduction ofsuch materials, apparatus, equipment and other physical property; provided that the Company shall, upon the Executive’s written request, provide a writtenstatement by its counsel confirming that the Company’s request for return or destruction, as the case may be, is in compliance with all applicable laws; andprovided further that the Company shall reimburse all costs reasonably incurred therefor. For purpose of this Agreement, “Company Materials” are documentsor other media or tangible items that contain or embody Confidential Information or any other information concerning the business, operation or plans of theCompany, whether such documents have been prepared by the Executive or others.(c) Service Agreement Covenants. The Executive shall respect and adhere to Section 5(a) (Confidential Information), Section 5(b) (Disclosure ofPreviously Acquired Information to Company), Section 5(c) (Non-Competition), Section 5(d) (No Solicitation), Section 5(e) (Non-Disparagement) andSection 5(e) (Enforcement) of the Service Agreement in accordance with the terms thereof. 5.Release of Korean ClaimsThe Executive, on the Executive’s own behalf, and on behalf of the Executive’s respective heirs, family members, executors, agents and assigns, herebyfully and forever releases the Company, MX, all of their direct and indirect subsidiaries, and all of their respective shareholders, directors, officers, managers,members, supervisors, agents and employees, and their respective predecessors, successors and assigns, from, and agree not to sue for, file, make complaint orprosecute, any claim, charge or liability (whether criminal, civil or otherwise) under the laws of the Republic of Korea related to or arising out of:(a) the termination of the Executive’s employment relationship with the Company (or any of its affiliates);(b) any and all claims related to the payment of wages or other benefits or amounts due, owing to or accrued for the benefit of the Executive as a resultof the Executive’s employment with the Company (or any of its affiliates), including without limitation the Service Agreement; or(c) this Agreement.The Executive agrees and acknowledges that the limited release set forth in this Section 5 shall be and remain in effect in all respects as a completerelease as to the specific matters released. 6.General Provisions(a) Tax Withholding. Any payment or benefit provided to Executive hereunder shall be paid after withholding tax pursuant to the applicable law ofRepublic of Korea.(b) Notices. Any notice hereunder by a Party to the other Party shall be given in writing by personal delivery, or by courier (via a reputableinternational delivery company), or by email (but only if the recipient confirms receipt by reply email), in any case delivered to the applicable address setforth below: (i) To the Company: MagnaChip Semiconductor, Ltd. 424, Teheran-ro, Gangnam-gu Seoul 135-738, Republic of Korea Email: theodore.kim@magnachip.com Attn: General Counsel With a copy to: Jones Day 1755 Embarcadero Road Palo Alto, CA 94303 5 Email:mreagan@jonesday.com Attn:Micheal J. Reagan and: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Email:dkramer@paulweiss.com Attn: Daniel J. Kramer(ii) To the Executive: Sang Park [To the Address for Mr. Park as set forth on the Company’s employee records as of the date of thisAgreement] With a copy to: Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, CA 90071-3197 Email:msuh@gibsondunn.com Attn:Maurice M. Suhor to such other persons or other addresses as one Party may specify to the other Party by notice. Delivery shall be deemed effective (A) in the case of personaldelivery, upon receipt, (B) in the case of courier, three (3) business days after dispatch, and (C) in the case of email, upon recipient’s confirmation of receipt.(c) Amendment. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver ordischarge is agreed to in writing and signed by both Parties. No waiver by either Party hereto at any time of any breach by the other Party hereto of, orcompliance with, any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilarprovisions or conditions at the same or at any prior or subsequent time.(d) Severability. If any term or provision hereof is determined to be invalid or unenforceable in a final court or arbitration proceeding, (i) the remainingterms and provisions hereof shall be unimpaired and (ii) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that isvalid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision.(e) Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and theexclusive venue shall be the state or federal courts located in New Castle County in the State of Delaware.(f) Entire Agreement. With the exception of Sections 4(f), 5(a), 5(b), 5(c), 5(d), 5(e), 5(f) and 6(j) of the Service Agreement, this Agreement contains theentire agreement of the Executive, the Company and any predecessors or affiliates thereof with respect to the subject matter hereof, and all prior agreements(including, but not limited to, the Service Agreement) and negotiations are superseded hereby as of the Effective Date, other than to the extent expresslyprovided for herein or in prior agreements between the Company and the Executive concerning confidentiality or otherwise protecting the Company’sinformation and trade secrets. MX is a third-party beneficiary to this Agreement.(g) Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwiseindicated. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. The word “including” and wordsof similar import when used in this Agreement shall mean “including, without limitation.” 6(h) Counterparts. This Agreement may be executed by the Parties hereto in counterparts, each of which shall be deemed an original, but both suchcounterparts shall together constitute one and the same document.[Signature Page Follows] 7IN WITNESS WHEREOF, the Parties have executed this Agreement, effective as of the day and year first written above. MAGNACHIP SEMICONDUCTOR, LTD.By: /s/ Theodore Kim Date: July 31, 2014Name: Theodore Kim Title: Senior Vice President SANG PARK/s/ Sang Park Date: July 31, 2014Exhibit 10.31CONFIDENTIALSEPARATION AGREEMENTTHIS SEPARATION AGREEMENT (this “Agreement”) is entered into by and between MagnaChip Semiconductor, Ltd., a Korean limited liabilitycompany (the “Company”), and Margaret Sakai, an individual (the “Executive,” and together with the Company hereinafter referred to as the “Parties” andeach a “Party”) on this April 12, 2014.RECITALSA. Reference is made to that certain offer letter dated as of September 5, 2006 (the “Offer Letter”), whereby the Company made an offer of employmentto the Executive and Executive accepted such offer.B. Reference is also made to that certain resignation letter dated as of March 28, 2014 (the “Resignation”), whereby the Executive voluntarily resigned,effective as of March 25, 2014, from all positions with MagnaChip Semiconductor Corporation (“MX”) and each of MX’s direct and indirect subsidiaries(including all positions, but not employment, at the Company).C. The Executive desires to voluntarily terminate her employment with the Company, and the Company desires to accept such voluntary terminationby the Executive, all under the terms and conditions set forth in this Agreement.NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and agreements herein contained, and for other good andvaluable consideration, intending to be legally bound, the Parties hereto do hereby agree as follows:TERMS AND CONDITIONS 1.Resignation and Termination of Employment(a) Effective as of the Effective Date (as defined below), the Executive hereby voluntarily resigns from and terminates her employment with theCompany. Each Party hereby acknowledges that, as of the time immediately prior to the Effective Date, the Executive was not, under any applicable law, anemployee of any affiliate of the Company; to the extent that, under any applicable law, the Executive is deemed to be an employee of any affiliate of theCompany, the Executive hereby voluntarily resigns from and terminates her employment with such affiliate effective as of the Effective Date.(b) In consideration for the Executive’s voluntary separation from employment as provided in Section 1(a) above and the agreements and covenants ofthe Executive made herein, the Company shall provide the Executive with the payments and benefits described in and conditioned upon the terms set forthin Sections 2 and 3 below.(c) Other than as set forth below, the Executive hereby acknowledges that the payments and benefits provided pursuant to Section 2 below are in fulland final satisfaction of every entitlement, right or claim which the Executive might have had in respect of her relationship with the Company and itsaffiliates, and without limiting the generality of the foregoing, the satisfaction of any entitlements or claims that the Executive may have to salary, bonus,incentives, allowances, all other benefits and compensation, leaves, severance or termination payments and all and any other legal and statutory entitlements,including overtime work allowance, nighttime work allowance, industrial accident compensation, interim severance payment and the severance payment dueto transfer to another affiliated company, in respect of or arising from service with the Company. The foregoing is not intended to modify in any way theExecutive’s rights with respect to indemnification and insurance coverage, nor to modify in any way the Executive’s entitlement to compensation andbenefits already earned up to and including the Effective Date. 1CONFIDENTIAL 2.Separation Payments and BenefitsSubject to the other provisions of this Agreement, during the Term (as defined below), the Company shall provide the following payments and otherbenefits to the Executive:(a) Statutory Severance; Accrued Benefits under Offer Letter. As of the Effective Date, the Executive shall be entitled to statutory severance benefitsunder the Company’s standard severance benefits policy to the extent accrued up to the Effective Date.(b) Separation Payment. In addition to the Statutory Severance and Accrued Benefits provided under Section 2(a) above, and subject to Section 3(b)below, the Company shall pay the Executive six (6) months of ex gratia separation pay (an aggregate of USD 184,395) (the “Separation Pay”). TheSeparation Pay shall be payable in six (6) equal monthly installments in accordance with the Company’s standard payroll practice, less all such deductions orwithholdings required by applicable law. Payment of the Separation Pay shall commence on the Company’s first standard payroll date after the EffectiveDate.(c) Benefits. During the Term, in addition to the Statutory Severance and Accrued Benefits provided under Section 2(a) above and the Separation Pay,the Company shall provide the following benefits to the Executive:(i) continuation of the housing support that was being provided to the Executive immediately prior to the signing of this Agreement;(ii) continuation of the health insurance support that was being provided to the Executive and her dependents immediately prior to the signingof this Agreement; and(iii) tax equalization for amounts earned by Executive up to and including the Effective Date (excluding all amounts paid or payable under thisAgreement) in accordance with the Offer Letter.(d) No Annual Incentive. The Parties hereto agree that the Executive shall not be eligible to earn any annual cash or stock bonus, option or otherincentive.(e) No Other Benefits. The Executive shall not be entitled to any statutory benefits under the Company’s severance benefits policy or any otherbenefits except as expressly set forth in this Section 2, including in connection with any cooperation or consulting services that the Executive provides to theCompany pursuant to Section 4(a) or Section 2(g) below.(f) Expenses. During the Term of this Agreement and thereafter, the Company shall reimburse Executive for out-of-pocket expenses that are reasonablyincurred by Executive with respect to the cooperation or consulting services that the Executive provides to the Company pursuant to Section 4(a) below;provided that such expenses (i) have been approved in advance by the Chief Executive Officer of the Company and (ii) are evidenced with receipts or otherdocumentation reasonably acceptable to the Company.(g) Post-Term Consulting Fees. To the extent the Company requires the Executive’s services after the Term of this Agreement for matters other than herongoing cooperation pursuant to Section 4(a) below, the Company agrees to pay the Executive an hourly consulting fee calculated at a rate equal to thegreater of (i) USD 133 and (ii) Executive’s then current rate of base pay calculated on an hourly rate basis from a subsequent employer for the number ofservice hours performed by Executive that are confirmed in writing by the Company’s chief financial officer. The Parties agree that in such case the Executivewill be acting as an independent contractor and the Company will have no obligations to Executive other than as specified in Sections 2(f) and 2(g) herein.Payments under this Section will be made on a monthly basis. 2CONFIDENTIAL 3.Term and Termination(a) This Agreement shall be effective as of the Effective Date and, unless sooner terminated pursuant to Section 3(b) below, shall continue until the datethat is six (6) months after the Effective Date, at which time this Agreement shall automatically expire. The period during which this Agreement is effective isreferred to herein as the “Term”.(b) This Agreement may be terminated by the Company at any time prior to its automatic expiration, under the following circumstances: (i) theExecutive’s breach of this Agreement that, if susceptible to cure, has not been cured as reasonably determined by the Company within five (5) business daysafter notice requesting cure is delivered to the Executive by the Company; provided that the Company’s notice shall describe in reasonable detail the allegedbreach and the Company’s proposed resolution as well as the possibility of termination of this Agreement; (ii) the Executive’s plea of nolo contendre orguilty to, or conviction of, any crime related to the Executive’s employment with the Company; or (iii) impairment of the Executive’s physical and/or mentalcondition such that it inhibits her from performing her duties hereunder. Termination of this Agreement pursuant to this Section 3(b) shall be effectiveimmediately upon notice of such termination to the Executive.(c) This Agreement is expressly conditioned upon the Executive’s continued cooperation with the Company as provided in Section 4(a) below and thefailure to cooperate will be grounds for the Company to terminate this Agreement; provided that if the Company fails to pay fees and expenses that are duepursuant to Section 2 and 4(a), the Company may not terminate this Agreement based on Executive’s refusal to cooperate.(d) In the event that this Agreement is terminated pursuant to Sections 3(b) and (c) above, all payments and benefits due to the Executive underSection 2 shall cease immediately.(e) Notwithstanding expiration or termination of this Agreement, the following provisions shall survive: Section 1, Sections 2(a), 2(d), 2(e), 2(f), and2(g), this Section 3, Section 4, Section 5, Section 6, Section 7 and Section 8. Subject to the foregoing, upon expiration or termination, this Agreement shallhave no further effect, and the Parties shall not have any liability to each other; provided that nothing herein shall relieve the Parties from liability for anybreach of this Agreement prior to such expiration or termination or liability arising under or relating to any other agreement or arrangements that are notsubject to modification or otherwise superseded by this Agreement, including the Executive’s rights with respect to indemnification and insurance coverage. 4.Covenants(a) Cooperation. Subject to the terms and conditions hereof, the Executive shall fully cooperate with the Company in all respects, includingcooperating in the ongoing review by the Audit Committee of the Board of Directors of MX (the “Audit Committee”) and in any related reviews,investigations and restatement or transition related work, in each case as the Audit Committee or the interim Chief Financial Officer of MX (or hisreplacement or designee) may require. For the avoidance of doubt, the Executive, in providing such services, shall be an independent contractor and shall notbe an employee of the Company or any of its affiliates, and the Executive shall not be entitled to any additional compensation beyond that provided inSection 2 above for cooperating in the manner required by this Agreement. The Parties agree that while the Executive shall continue to keep herself availableto provide full-time services during the Term on projects specifically requested by the Company, the Executive is not required to report to the Company’soffice on a regular basis or perform other duties of a full-time employee.(b) Confidential Information. The Executive acknowledges that she has had and will have access to confidential or proprietary information relating tothe business of, or belonging to, the 3CONFIDENTIAL Company or its affiliates, including proprietary or confidential information, technical data, trade secrets, or know-how in respect of research, product plans,products, service, customer, markets, computer software (including object code and source code), data and database, outcomes research, documentation,instructional material, developments, inventions, processes, formulas, technology, design, drawings, engineering, hardware, configuration information,models, manufacturing processes, sales information, cost information, business plans, business opportunities, marketing, finances or other businessinformation disclosed to the Executive in any manner including by drawings or observations of parts or equipment, etc. (individually and collectively,“Confidential Information”), all of which have substantial value of the Company.(i) During the Term and thereafter, the Executive may from time to time be provided documents in order to meet her obligation to cooperatepursuant to Section 4(a) and/or Section 2(g). The Executive acknowledges the confidential nature of such documents and agrees to treat them as“Confidential Information” as otherwise provided for herein.(ii) The Executive acknowledges that she shall not (A) use any Confidential Information except in the course of providing services pursuant toSection 4(a) or for services contemplated in Section 2(g) above, or (B) disclose any Confidential Information to any third party other than required byapplicable laws, provided that the Executive gives the Company prompt written notice of such requirement prior to such disclosure and givesassistance in obtaining an order protecting the information from public disclosure, in each case without the prior written consent of the Company.(iii) During the Term and thereafter, the Executive shall respect and adhere to any non-disclosure, confidentiality or similar agreements to whichthe Company or any of its affiliates are a party or subject.(iv) The Executive hereby confirms that all Confidential Information and Company Materials (as defined below) are and shall remain theexclusive property of the Company. During the Term and thereafter, upon the request of the Company, the Executive shall either return or destroy allCompany Materials, or any reproduction of such materials, apparatus, equipment and other physical property; provided that the Company shall, uponthe Executive’s written request, provide a written statement by its counsel confirming that the Company’s request for return or destruction, as the casemay be, is in compliance with all applicable laws; and provided further that the Company shall reimburse all costs reasonably incurred therefor. Forpurpose of this Agreement, “Company Materials” are documents or other media or tangible items that contain or embody Confidential Information orany other information concerning the business, operation or plans of the Company, whether such documents have been prepared by the Executive orothers. 5.Release of ClaimsThe Executive agrees that, as of the Effective Date, except for the payments and benefits described in Section 2 above, all amounts and all outstandingobligations owed to the Executive by the Company, MX or any of their direct or indirect subsidiaries, or any of their respective shareholders, directors,officers, managers, members, supervisors, agents and employees have been paid in full. The Executive, on the Executive’s own behalf, and on behalf of theExecutive’s respective heirs, family members, executors, agents and assigns, hereby fully and forever releases the Company, MX, all of their direct andindirect subsidiaries, and all of their respective shareholders, directors, officers, managers, members, supervisors, agents and employees, and their respectivepredecessors, successors and assigns, from, and agree not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind,whether presently known or unknown, suspected or unsuspected, that the Executive may possess arising from any omissions, acts or facts that have occurredfrom the beginning of time up until and including the end of the Term, including: 4CONFIDENTIAL (a) any and all claims relating to or arising from the Executive’s employment relationship with the Company (or any of its affiliates) and thetermination of that relationship;(b) any and all claims under the law of any jurisdiction, including those relating to wrongful discharge of employment, constructive discharge fromemployment, termination in violation of public policy, employment discrimination (including claims under Korean Law and the laws of the State ofCalifornia, and in this regard the Executive acknowledges that the payments and related benefits provided in Section 2 above constitute additionalconsideration for the release of those claims), harassment, retaliation, breach of contract, both express and implied, breach of a covenant of good faith and fairdealing, both express and implied, promissory estoppel, negligent or intentional infliction of emotional distress, invasion of privacy, workers’ compensationor disability benefits; and(c) any and all claims for violation of any U.S. federal, state, or municipal statute, including: Title VII of the Civil Rights Act of 1964; the Civil RightsAct of 1991; the Rehabilitation Act of 1973; the Americans with Disabilities Act of 1990; the Equal Pay Act; the Fair Labor Standards Act; the Fair CreditReporting Act; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act; the Employee Retirement Income SecurityAct of 1974; the Worker Adjustment and Retraining Notification Act; the Family and Medical Leave Act; the Sarbanes-Oxley Act of 2002; the ImmigrationControl and Reform Act; the California Family Rights Act; the California Labor Code; the California Workers’ Compensation Act; and the California FairEmployment and Housing Act.The Executive agrees and acknowledges that the release set forth in this Section 5 shall be and remain in effect in all respects as a complete generalrelease as to the matters released. This release does not extend to any obligations incurred under, or expressly reserved as unaffected by, this Agreement. 6.California Civil Code Section 1542The Executive acknowledges that she has been advised to consult with legal counsel and is familiar with the provisions of California Civil CodeSection 1542, a statute that otherwise prohibits the release of unknown claims, which provides as follows:A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HERFAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS ORHER SETTLEMENT WITH THE DEBTOR.The Executive, being aware of said code section, agrees to expressly waive any rights she may have thereunder, as well as under any other statute or commonlaw principles of similar effect. 7.Acknowledgement of Waiver of Claims Under ADEAThe Executive acknowledges that she is waiving and releasing any rights she may have under the Age Discrimination in Employment Act of 1967(“ADEA”), and that this waiver and release is knowing and voluntary. The Parties agree that this waiver and release does not apply to any rights or claims thatmay arise under the ADEA after the Effective Date. The Executive acknowledges that the consideration given for this waiver and release is in addition toanything of value to which the Executive was already entitled. The Executive further acknowledges that she has been advised by this writing that: (a) sheshould consult with an attorney prior to executing this Agreement; (b) she has twenty-one (21) days within which to consider this Agreement; (c) she hasseven (7) days following her execution of this Agreement to revoke this Agreement; (d) this Agreement shall not be effective until after the revocation periodhas expired; and (e) nothing in this Agreement prevents or precludes the Executive from challenging or seeking a determination in good faith of the validityof this waiver under the ADEA, nor does it impose any condition precedent, penalties, or costs for doing 5CONFIDENTIAL so, unless specifically authorized by federal law. In the event the Executive signs this Agreement and returns it to the Company in less than the 21-day periodidentified above, the Executive hereby acknowledges that she has freely and voluntarily chosen to waive the time period allotted for considering thisAgreement. The Executive acknowledges and understands that revocation must be accomplished by a written notification to the person executing thisAgreement on the Company’s behalf that is received prior to the Effective Date. The Parties agree that changes, whether material or immaterial, do not restartthe running of the 21-day period. 8.General Provisions(a) Effective Date. The Executive understands that this Agreement shall be null and void if not executed by her within twenty-one (21) days. EachParty hereto has seven (7) days after that Party signs this Agreement to revoke it. This Agreement will become effective on the eighth (8th) day after theExecutive signed this Agreement, so long as it has been signed by the Parties and has not been revoked by either Party before that date (such eighth (8th) day,the “Effective Date”).(b) Tax Withholding. Any payment or benefit provided to Executive hereunder shall be paid after withholding tax pursuant to the applicable law ofRepublic of Korea.(c) Notices. Any notice hereunder by a Party to the other Party shall be given in writing by personal delivery, or by courier (via a reputableinternational delivery company), or by email (but only if the recipient confirms receipt by reply email), in any case delivered to the applicable address setforth below: (i) To the Company: MagnaChip Semiconductor, Ltd. 424, Teheran-ro, Gangnam-gu Seoul 135-738, Republic of Korea Email: theodore.kim@magnachip.com Attn: General Counsel(ii) To the Executive: Margaret Sakai Email: margaret.sakai@gmail.com With a copy to: Michael S. Kim, Esq. and Robin J. Baik, Esq. KOBRE & KIM LLP 6/F ICBC Tower 3 Garden Road Central, HONG KONG Email: michael.kim@kobrekim.com Email: robin.baik@kobrekim.com.hkor to such other persons or other addresses as one Party may specify to the other Party by notice. Delivery shall be deemed effective (A) in the case of personaldelivery, upon receipt, (B) in the case of courier, three (3) business days after dispatch, and (C) in the case of email, upon recipient’s confirmation of receipt.(d) Amendment. No provision of this Agreement may be amended, modified, waived or discharged unless such amendment, modification, waiver ordischarge is agreed to in writing and signed by both Parties. No waiver by either Party hereto at any time of any breach by the other Party hereto of, orcompliance with, any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilarprovisions or conditions at the same or at any prior or subsequent time.(e) Severability. If any term or provision hereof is determined to be invalid or unenforceable in a final court or arbitration proceeding, (i) the remaining termsand provisions hereof shall be unimpaired and (ii) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is validand enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 6CONFIDENTIAL (f) Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of California and theexclusive venue shall be the state or federal courts located in Santa Clara County in the State of California.(g) Entire Agreement. This Agreement contains the entire agreement of the Executive, the Company and any predecessors or affiliates thereof withrespect to the subject matter hereof, and all prior agreements and negotiations are superseded hereby as of the Effective Date, other than to the extentexpressly provided for herein or in prior agreements between the Company and the Executive concerning confidentiality or otherwise protecting theCompany’s information and trade secrets.(h) Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwiseindicated. All words used in this Agreement shall be construed to be of such gender or number as the circumstances require. The word “including” and wordsof similar import when used in this Agreement shall mean “including, without limitation.”(i) Counterparts. This Agreement may be executed by the Parties hereto in counterparts, each of which shall be deemed an original, but both suchcounterparts shall together constitute one and the same document.[Signature Page Follows] 7CONFIDENTIAL IN WITNESS WHEREOF, the Parties have executed this Agreement, effective as of the day and year first written above. MAGNACHIP SEMICONDUCTOR, LTD.By: /s/ Sang Park Date: 4/14/2014 Name: Sang Park Title: Chairman and Chief Executive Officer MARGARET SAKAI /s/ Margaret Sakai Date: 4/14/2014 8Exhibit 10.35 891 Daechi-dong, Gangnam-gu, Seoul, 135-178, Korea Tel: 82-2-6903-3487 www.magnachip.comConfidentialMarch 8, 2014Jonathan W. KimDear Mr. Kim:MagnaChip Semiconductor, Ltd. (“MagnaChip” or the “Company”) is pleased to present you with an offer for employment in the position of SeniorVice President of Finance and Chief Accounting Officer of the Company, reporting to the Chief Executive Officer and the Chief Financial Officer as well as tothe Audit Committee of the Board of Directors (the “Board”) of MagnaChip Semiconductor Corporation (“MX”), of which the Company is a wholly ownedsubsidiary. We believe that you have significant potential to make valuable contributions to MagnaChip, and we hope you will find your employment withus to be a rewarding experience.You will be based at MagnaChip’s Seoul office, but will be expected to travel as needed within Korea and to other destinations as the job may require.The expected start date of your employment is on or about 11th day of March, 2014.Your annual base salary will be USD 280,000 per annum. You will be paid in accordance with MagnaChip’s normal payroll practices and yourcompensation will be subject to payroll deductions and all required withholdings. Annual salary increases will be determined by the Company in accordancewith its internal policies and procedures. You will be eligible to earn an annual incentive based on company performance and attainment of yourmanagement objectives under a plan to be established and approved the Board. MagnaChip may from time to time in its sole discretion adjust the salary andbenefits paid to you and its other employees in the normal course of operations.Upon approval by the Board, you will be granted options to purchase 50,000 shares of MX (the “Option”) pursuant to the MagnaChip SemiconductorCorporation 2011 Equity— Page 2 March 8, 2014 Incentive Plan (the “Plan”) at the exercise price equal to the fair market value of a common unit on the date of grant. The Option will be granted to you infour tranches over a period of 9 months: the first tranche of 12,500 shares will be granted at the time you begin your employment; the second tranche of12,500 shares will be granted three (3) months thereafter; the third tranche of 12,500 shares will be granted three (3) months thereafter (i.e., six (6) monthsafter commencement of your employment); and the final tranche of 12,500 shares will be granted three (3) months thereafter (i.e., nine (9) months aftercommencement of your employment). The Option (all four tranches) will become vested and exercisable over three (3) years from the date of commencementof your employment. Prior to receiving the Option, you must execute an option agreement in the form as approved by the Board.You will be eligible to participate in the Company’s employee benefits programs for which you qualify and as are applicable to other MagnaChipemployees of your level based in Korea. In addition to that, you shall be entitled to the following benefits:Visas and Work Permits. The Company will provide the necessary services and cover the cost to obtain the necessary visas and/or work permits toenable you and your family to legally work and stay in Korea for the duration that you are assigned to perform services in Korea.Signing Bonus/Relocation. The Company will pay for one-way business class tickets from your current residence in the United States to Korea for youand your family. It is anticipated that you will be required to travel to Korea prior to you and your family’s relocation; the costs of such travel,including a roundtrip business class ticket, will be borne by the Company. Also, to assist with your relocation expenses, the Company will pay you aone-time payment of USD 50,000, which will be paid upon commencement of your employment. In addition, as an incentive to join MagnaChip, theCompany will pay you a one-time signing bonus of USD 50,000, which will be paid upon commencement of your employment.Tax Treatment. The Company will provide for tax equalization (taking into account U.S. federal taxes and state taxes, if applicable) and taxconsulting/preparation services for you for the period of your employment with the Company, provided that the aggregate amount of tax equalizationthat the Company will be responsible for each year will be limited to USD 50,000. You will use best efforts to minimize taxes as permitted byapplicable law.— Page 3 March 8, 2014 Housing Support. The Company will provide you with housing support for a residential space (the “apartment”) in or about the metropolitan area ofSeoul, including Seongnam-si. The Company will provide support for the apartment’s monthly lease, called weolse, up to KRW 4,400,000 per month.In the event that the Company is unable to find an appropriate wolse arrangement, the Company will have the right to provide you with housingsupport in the form of a key money deposit, called jeonse, instead of a weolse arrangement (or in combination with a weolse arrangement), providedthat, if the Company provides jeonse (or a combination of weolse and jeonse), it will be reasonably equivalent in value as the above-described wolsearrangement. Subject to the conditions set forth herein, the Company will enter into a lease arrangement, for your benefit, with the landlord of theapartment. Any deposit or key money deposit will be in the Company’s name.Annual Vacation. You will be entitled to annual vacation of two (2) weeks per year.Annual Home Leave. You will be entitled to annual home leave of ten (10) business days, with full salary and benefits for you, which will be inaddition to your annual vacation. At such times as you and your family maintain a primary residence in Korea, the Company will pay for roundtripbusiness class tickets for you and your family in relation to your home leave once a year.As an employee of the MagnaChip organization, you will be expected to abide by the Company’s rules and regulations and sign and comply with theCompany’s form employment agreement for employees based in Korea that includes confidentiality and non-competition provisions.Your employment relationship with MagnaChip is at-will, although you will be eligible for severance programs as required by Korean law. Thisemployment offer is conditional upon you obtaining the appropriate visas and/or permission to work at MagnaChip in the Republic of Korea. You mayterminate your employment with the Company at any time and for any reason whatsoever simply by notifying us. Likewise, the Company may terminate youremployment at any time and for any reason whatsoever, with or without cause or advance notice. Upon termination of your employment by MagnaChipwithout “cause” or upon your voluntary resignation for a “good reason,” MagnaChip will pay you: (i) severance in the form of a continuation of your salary,at the rate in effect on the date of the involuntary termination without cause, for a period of six (6) months, commencing on the date following the date of theinvoluntary termination, and (ii) payment of the annual incentive, in a prorated— Page 4 March 8, 2014 amount based on (A) the number of days you were actually employed during the applicable plan year and (B) deemed satisfactory performance by you andMagnaChip; provided that the severance payable to you shall be reduced to the extent that the Company makes any severance payments to you pursuant tothe Korean Commercial Code or any other statute. The Company and you will come to mutual agreement on the definition of the following terms that areused in this paragraph: “cause” and “good reason.”This letter forms the complete and exclusive offer of your employment with MagnaChip. No other representative has any authority to modify or enterinto an agreement or modification, express or implied, contrary to the foregoing. Any such modification or agreement must be in writing and signed by SangPark, CEO, or Sang-Lyun Oh, HR Director, and must clearly and expressly specify an intent to change the at-will nature of your employment.— Page 5 March 8, 2014 We look forward to your participation in the future growth of MagnaChip. Please indicate your acceptance of this offer of employment by signing inthe space below. Please e-mail an executed copy of this letter to me as soon as possible, with the original to follow by mail. Sincerely,MAGNACHIP SEMICONDUCTOR, LTD./s/ Sanglyun OhSanglyun OhSVP and Director of HRMagnaChip Semiconductor, Ltd.THIS EMPLOYMENT OFFER IS WHOLLY AGREED AND ACCEPTED BY: /s/ Jonathan W. KimJonathan W. KimExhibit 10.36 891 Daechi-dong, Kangnam-gu, Seoul,135-178, KoreaTel: 82-2-6903-3487www.magnachip.comConfidentialApril 15, 2013Young Joon KimDear Mr. Kim:MagnaChip Semiconductor, Ltd. (“MagnaChip”) is pleased to present you with an offer for employment in the position of Executive Vice Presidentand General Manager of Display Solutions Division, reporting to Sang Park, Chief Executive Officer. We believe that you have significant potential to makevaluable contributions to MagnaChip, and we hope you will find your employment with us to be a rewarding experience.You will be based at MagnaChip’s Seoul office, but will be expected to travel as needed within Korea and to other destinations as the job may require.The expected start date of your employment is 6th day of May, 2013 .Your annual salary will be USD 350,000 per annum. You will be paid in accordance with MagnaChip’s normal payroll practices and yourcompensation will be subject to payroll deductions and all required withholdings. Annual salary increases will be determined by MagnaChip in accordancewith MagnaChip’s internal policies and procedures. You will be eligible to earn an annual incentive of up to 80% of your base salary. The annual incentivewill be based on company performance and attainment of your management objectives under a plan to be established and approved the Board of Directors ofMagnaChip Semiconductor Corporation (the “Board”). MagnaChip may from time to time in its sole discretion adjust the salary and benefits paid to you andits other employees in the normal course of operations.Upon approval by the Board, you will be granted options to purchase 200,000 shares of MagnaChip Semiconductor Corporation (the “Option”)pursuant to the MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan (the “Plan”) at the exercise price the fair market value of a common uniton the date of grant at the time you begin your employment. Your option shall become vested and exercisable over three years from the commencement dateof your employment in accordance with the Plan. Prior to receiving the Option, you must execute an option agreement in the form as approved by the Board.— Page 2 March 28, 2013 You will be eligible to participate in MagnaChip’s employee benefits programs for which you qualify and as are applicable to other MagnaChipemployees of your level based in Korea. In addition to that, you shall be entitled to the following expatriate/repatriation provisionsPre-Assignment House Hunting Trip. The Company shall provide round-trip business class airfare, hotel accommodations, meals and transportation foryou and your spouse for a pre-assignment/house hunting trip to Korea.Realty Support for House Hunting. The Company shall provide for the service of a realtor, broker, or relocation agency to assist you and your spouse inhouse hunting during the pre-assignment house hunting trip.Visas and Work Permits. The Company shall provide the necessary services and cover the cost to obtain the necessary visas and/or work permits toenable you and your family to legally work and stay in Korea for the duration that you are assigned to perform services in Korea.Tax treatment. The Company shall provide for tax equalization (taking into account only U.S. federal taxes) and tax consulting/preparation services foryou for period up to and including the date of termination of the employment (regardless of whether you are still employed by the Company at the timeof any payment pursuant to this offer letter). You shall minimize taxes as permitted by applicable law.Shipment of Household Goods. The Company shall reimburse you to move your household goods via surface and airfreight from U.S. to Korea.Covered expenses include the cost of disassembly, packing, shipping, unpacking and assembly of the household goods. And the Company shallreimburse you to move one car only for shipping.Travel to New Location. The Company shall provide one-way business class airfare for the initial travel of you and your family from the U.S. to Korea.You may travel ahead of your family.Signing Bonus Including Relocation Allowance. The Company shall provide a one-time lump-sum signing bonus, including relocation allowance, inthe amount of USD 100,000. The purpose of this signing bonus includes to compensate you for incidental expenses (not otherwise covered by theexpatriate provisions) incurred prior to, during and after your relocation to Korea. You will be paid the bonus on the first normal pay day date afteryour employment begins.— Page 3 March 28, 2013 Housing Support. The Company will provide you with housing support (the “apartment”) which has a floor space of no more than 231 square meters(70 pyoung) in or about the Gangnam area of Seoul. Subject to the conditions set forth herein, the Company agrees to enter a lease arrangement withthe apartment owner for your benefit in which the Company leases the apartment and pays the key money deposit in the Company’s name; provided,however, that (i) the Company shall retain all rights to and under the key money deposit; (ii) you, the apartment owner, and all other holders of securityon the apartment agree to provide the Company with a first-priority jeonse right registration on the apartment as first-priority security for theCompany’s key money deposit; (iii) you and the apartment owner shall provide all required assistance to effect such jeonse right registration; and(iv) upon termination of your employment with the Company for any reason, you will immediately (x) vacate the apartment, or (y) arrange for thesubstitution of the Company on the apartment lease, the return of the full key money deposit to the Company, and the release of the Company from allobligations related to the apartment and this housing support provision. Provided that the Company cannot find the jeonse in the reasonable cause, theCompany will be able to provide the monthly house lease, named wolse, instead of jeonse. This offer of housing support is conditional upon yourtender to the Company of an accurate, up-to-date copy of the real property registry and current and prospective lease agreements for the apartment. Ifthe Company in its sole discretion determines that entering the lease, providing the key money deposit, and effecting the jeonse registration areimpractical or not in the reasonable best interests of the Company, you and the Company agree to negotiate a suitable substitute arrangement thateffects the intent of you and the Company parties under this housing support provision.Housing Expenses. The Company shall pay for the cost of actual and reasonable housing accommodations and expenses related thereto in Korea foryou and your family for the duration of the expatriate assignment, including utilities (gas, oil, electricity, air conditioning, water and broadband access,but not including personal telephone costs). The Company may choose to make payments directly to your landlord wherever possible. Housingmaximums will be determined according to published cost of living tables and other data regarding local housing costs and are based on your salaryand family size.School Tuition for Children. The Company will pay gross tuition, including school bus fees, for your children at a foreign high school in Korea. TheCompany will pay gross tuition for post-secondary education based on the Company benefit policy applicable to executives in Korea.Insurance. The Company shall provide health and life insurance coverage for you and your family while in Korea that is comparable to U.S.equivalents and that is generally made available to other Company expatriate executives in Korea. Your family (wife and children) shall be providedhealth insurance coverage in U.S. until they move to Korea.— Page 4 March 28, 2013 Transportation. The Company shall provide a vehicle with a driver for your use while in Korea.Annual Vacation. You shall be entitled to annual vacation of two weeks per year.Annual Home Leave. At such times as you maintain a primary residence in Korea, the Company shall pay expenses for one leave to the U.S. per 12-month period for you and your family members. Covered expenses include round-trip business class airfare for each family member. The annual homeleave will be ten business days with full salary and benefits for you and shall be in addition to your annual vacation.Repatriation. The specific provisions of repatriation shall include movement of your household goods via surface and airfreight from U.S. to Korea.Covered expenses include the cost of disassembly, packing, shipping, unpacking and assembly of the household goods, reasonable costs for thetemporary storage of household goods for up to 30 days upon arrival in the U.S., one-way business class airfare for you and your family from Korea tothe U.S., and temporary housing for you and your family for up to 30 days upon arrival in the U.S. And the Company shall reimburse you to move onecar only for shipping. A reasonable per diem will be provided if the temporary housing does not include cooking facilities.Repatriation Allowance. The Company shall provide a one-time lump sum repatriation allowance in the amount of one month’s base salary (net). Thepurpose of the allowance is to compensate you for incidental expenses (not otherwise covered by the repatriation provisions) incurred prior to, duringand after your repatriation to the U.S.Exceptions. The Repatriation and Repatriation Allowance benefits described herein will not be available to you in the event your employment isterminated for cause.As an employee of MagnaChip organization, you will be expected to abide by MagnaChip’s rules and regulations and sign and comply withMagnaChip’s form employment agreement for employees based in Korea that includes confidentiality and non-competition provisions. Your employmentrelationship with MagnaChip is at-will, although you will be eligible for severance programs as required by Korean law. This employment offer isconditional upon you obtaining the appropriate visas and/or permission to work at MagnaChip in the Republic of Korea. You may terminate youremployment with MagnaChip at any time and for any reason whatsoever simply by notifying us. Likewise, MagnaChip may terminate your employment atany time and for any reason whatsoever, with or without cause or— Page 5 March 28, 2013 advance notice. Upon termination of your employment by MagnaChip without cause, MagnaChip will pay you (i) severance in the form of a continuation ofyour salary, at the rate in effect on the date of the involuntary termination without cause, for a period of six months, commencing on the date next followingthe date of the involuntary termination, and (ii) payment of the annual incentive, in a prorated amount based on the number of days you were actuallyemployed during the applicable plan year and on deemed satisfactory performance by you and MagnaChip, (iii) six months COBRA premiums at the level ofbenefits received immediately before your termination, which cease in the event you receive benefits comparable to the COBRA benefits from a newemployer; provided the severance payable to you shall be reduced to the extent that the Company makes any severance payments pursuant to the KoreanCommercial Code or any other statute.This letter forms the complete and exclusive offer of your employment with MagnaChip. No other representative has any authority to modify or enterinto an agreement or modification, express or implied, contrary to the foregoing. Any such modification or agreement must be in writing and signed by SangPark, CEO, or Sang-Lyun Oh, HR Director, and must clearly and expressly specify an intend to change the at-will nature of your employment.We look forward to your participation in the future growth of MagnaChip. Please indicate your acceptance of this offer of employment by signing inthe space below. Please e-mail an executed copy of this letter to me as soon as possible, with the original to follow by mail. Sincerely,MAGNACHIP SEMICONDUCTOR, LTD./s/ Sang Park Sang ParkChairman and CEOMagnaChip Semiconductor, Ltd.THIS EMPLOYMENT OFFER IS WHOLLY AGREED AND ACCEPTED BY: /s/ Young Joon KimYoung Joon KimExhibit 10.37 891 Daechi-dong, Kangnam-gu, Seoul, 135-178, Korea Tel: 82-2-6903-3487 www.magnachip.comConfidentialSeptember 27, 2013Theodore S. KimDear Mr. Kim:MagnaChip Semiconductor, Ltd. (“MagnaChip”) is pleased to present you with an offer for employment in the position of Senior Vice President andGeneral Counsel of the Company, reporting to Sang Park, Chief Executive Officer. We believe that you have significant potential to make valuablecontributions to MagnaChip, and we hope you will find your employment with us to be a rewarding experience.You will be based at MagnaChip’s Seoul office, but will be expected to travel as needed within Korea and to other destinations as the job may require.The expected start date of your employment is 28th day of October, 2013.Your annual salary will be USD 280,000 per annum. You will be paid in accordance with MagnaChip’s normal payroll practices and yourcompensation will be subject to payroll deductions and all required withholdings. Annual salary increases will be determined by MagnaChip in accordancewith MagnaChip’s internal policies and procedures. You will be eligible to earn an annual incentive of up to 30% of your base salary. The annual incentivewill be based on company performance and attainment of your management objectives under a plan to be established and approved the Board of Directors ofMagnaChip Semiconductor Corporation (the “Board”). MagnaChip may from time to time in its sole discretion adjust the salary and benefits paid to you andits other employees in the normal course of operations.— Page 2 September 27, 2013 Upon approval by the Board, you will be granted options to purchase 50,000 shares of MagnaChip Semiconductor Corporation (the “Option”)pursuant to the MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan (the “Plan”) at the exercise price equal to the fair market value of acommon unit on the date of grant at the time you begin your employment. The Option shall become vested and exercisable over three (3) years from thecommencement date of your employment in accordance with the Plan. Prior to receiving the Option, you must execute an option agreement in the form asapproved by the Board.You will be eligible to participate in MagnaChip’s employee benefits programs for which you qualify and as are applicable to other MagnaChipemployees of your level based in Korea. In addition to that, you shall be entitled to the following expatriate provisions:Visas and Work Permits. The Company shall provide the necessary services and cover the cost to obtain the necessary visas and/or work permits toenable you and your family to legally work and stay in Korea for the duration that you are assigned to perform services in Korea.Tax Treatment. The Company shall provide for tax equalization (taking into account only U.S. federal taxes) and tax consulting/preparation servicesfor you for the period up to and including the date of termination of your employment (regardless of whether you are still employed by the Company atthe time of any payment pursuant to this offer letter). You shall minimize taxes as permitted by applicable law.Housing Support. The Company shall provide you with housing support for a residential space (the “apartment”) in or about the Gangnam area ofSeoul. The Company shall provide support for the apartment’s monthly lease, called wolse, which will consist of (i) a deposit of up to KRW 20,000,000and (ii) a monthly rent of up to KRW 5,000,000. In the event that the Company is unable to find an appropriate wolse arrangement, the Company shallhave the right to provide you with housing support in the form of a key money deposit, called jeonse, instead of a wolse arrangement, provided that, ifthe Company provides jeonse, it shall be reasonably equivalent in value as the wolse. Subject to the conditions set forth herein, the Company shallenter into a lease arrangement, for your benefit, with the landlord of the apartment. Any deposit or key money deposit shall be in the Company’s name.— Page 3 September 27, 2013 School Tuition for Children. The Company shall pay gross tuition, including school bus fees, for your children at a foreign school (kindergartenthrough high school) in the Seoul area.Insurance. The Company shall provide health and life insurance coverage for you and your family while in Korea that is comparable to U.S.equivalents and that is generally made available to other Company expatriate executives in Korea.Transportation. The Company shall provide a vehicle (including all ancillary costs, such as fuel and insurance) without a driver for your use while inKorea.Annual Vacation. You shall be entitled to annual vacation of two (2) weeks per year.Annual Home Leave. You shall be entitled to annual home leave of ten (10) business days, with full salary and benefits for you, which shall be inaddition to your annual vacation. At such times as you maintain a primary residence in Korea, the Company shall pay (or reimburse you for) the travelexpenses that you and your family incur in relation to your home leave, provided that the amount that the Company shall be responsible for shall notexceed KRW 15,000,000 per year. For purposes of this clause, your family will include your spouse, children and parents.As an employee of MagnaChip organization, you will be expected to abide by MagnaChip’s rules and regulations and sign and comply withMagnaChip’s form employment agreement for employees based in Korea that includes confidentiality and non-competition provisions.Your employment relationship with MagnaChip is at-will, although you will be eligible for severance programs as required by Korean law. Thisemployment offer is conditional upon you obtaining the appropriate visas and/or permission to work at MagnaChip in the Republic of Korea. You mayterminate your employment with MagnaChip at any time and for any reason whatsoever simply by notifying us. Likewise, MagnaChip may terminate youremployment at any time and for any reason whatsoever, with or without cause or advance notice. Upon termination of your employment by MagnaChipwithout cause, MagnaChip will pay you: (i) severance in the form of a continuation of your salary, at the rate in effect on the date of the involuntarytermination without cause, for a period of six (6)— Page 4 September 27, 2013 months, commencing on the date following the date of the involuntary termination, and (ii) payment of the annual incentive, in a prorated amount based on(A) the number of days you were actually employed during the applicable plan year and (B) deemed satisfactory performance by you and MagnaChip;provided that the severance payable to you shall be reduced to the extent that the Company makes any severance payments to you pursuant to the KoreanCommercial Code or any other statute.This letter forms the complete and exclusive offer of your employment with MagnaChip. No other representative has any authority to modify or enterinto an agreement or modification, express or implied, contrary to the foregoing. Any such modification or agreement must be in writing and signed by SangPark, CEO, or Sang-Lyun Oh, HR Director, and must clearly and expressly specify an intent to change the at-will nature of your employment.We look forward to your participation in the future growth of MagnaChip. Please indicate your acceptance of this offer of employment by signing inthe space below. Please e-mail an executed copy of this letter to me as soon as possible, with the original to follow by mail. Sincerely,MAGNACHIP SEMICONDUCTOR, LTD.Sanglyun OhSVP and Director of HRMagnaChip Semiconductor, Ltd.— Page 5 September 27, 2013 THIS EMPLOYMENT OFFER IS WHOLLY AGREED AND ACCEPTED BY: /s/ Theodore S. KimTheodore S. KimExhibit 12.1STATEMENT REGARDINGCOMPUTATION OF RATIO OFEARNINGS TO FIXED CHARGES Successor Predecessor Years EndedDecember 31, Two-MonthPeriod EndedDecember 31,2009 Ten-MonthPeriod EndedOctober 25,2009 2013 2012 2011 2010 As Restated As Restated As Restated As Restated As Restated (in millions except ratios) Fixed charges: Interest expensed amortization of debt issuance costs anddiscount on all indebtedness $21.1 $23.2 $25.8 $23.3 $1.3 $31.2 Rent expense 2.9 2.8 2.8 4.1 0.8 3.9 Preferred stock dividend requirements of consolidatedsubsidiaries — — — — — 6.3 Total fixed charges 24.0 26.0 28.6 27.4 2.1 41.4 Earnings: Income (loss) from continuing operations before incometaxes (60.2) 122.9 (3.2) 83.1 (0.7) 841.5 Add: Fixed charges 24.0 26.0 28.6 27.4 2.1 41.4 Amortization of capitalized interest — — — — — 0.0 Less: Preferred unit dividend requirements of consolidatedsubsidiaries — — — — — (6.3) Total earnings plus fixed charges $(36.2) $148.9 $25.4 $110.5 $1.4 $876.6 Ratio of earnings to fixed charges — 5.7x — 4.0x — 21.2x The term “fixed charge” means the sum of the following: interest expensed and capitalized, amortized premiums, discounts and capitalized expensesrelated to indebtedness; and an estimate of interest within rental expense (equal to one-third of rental expense). Management believes this is a reasonableapproximation of the interest factor.Where a dash appears, our earnings were negative and were insufficient to cover fixed charges during the period. Our deficiencies to cover fixedcharges in each period presented were as follows: Successor Year EndedDecember 31, 2013 Year EndedDecember 31, 2011 Two-MonthPeriod EndedDecember 31, 2009 (In millions) Deficiencies $60.2 $3.2 $0.7 Exhibit 21.1SUBSIDIARIES OF MAGNACHIP SEMICONDUCTOR CORPORATION Subsidiary Jurisdiction of IncorporationMagnaChip Semiconductor S.A. LuxembourgMagnaChip Semiconductor B.V. The NetherlandsMagnaChip Semiconductor, Ltd. KoreaMagnaChip Semiconductor, Inc. CaliforniaMagnaChip Semiconductor SA Holdings LLC DelawareMagnaChip Semiconductor Limited TaiwanMagnaChip Semiconductor Limited Hong Kong SARMagnaChip Semiconductor Inc. JapanMagnaChip Semiconductor Holding Company Limited British Virgin IslandsMagnaChip Semiconductor (Shanghai) Company Limited ChinaExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-172864, 333-180696 and 333-186789) ofMagnaChip Semiconductor Corporation of our report dated February 12, 2015 relating to the consolidated financial statements and the effectiveness ofinternal control over financial reporting of MagnaChip Semiconductor Corporation, which appears in this Form 10-K./s/ Samil PricewaterhouseCoopersSeoul, KoreaFebruary 12, 2015Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TOSECTION 302 OF THESARBANES-OXLEY ACT OF 2002I, Young-Joon Kim, certify that: 1.I have reviewed this annual report on Form 10-K of MagnaChip Semiconductor Corporation for the year ended December 31, 2013; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Dated: February 12, 2015 /s/ Young-Joon KimYoung-Joon KimInterim Chief Executive Officer(Principal Executive Officer)Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TOSECTION 302 OF THESARBANES-OXLEY ACT OF 2002I, Jonathan W. Kim, certify that: 1.I have reviewed this annual report on Form 10-K of MagnaChip Semiconductor Corporation for the year ended December 31, 2013; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Dated: February 12, 2015 /s/ Jonathan W. KimJonathan W. KimInterim Chief Financial Officer(Principal Financial and Accounting Officer)Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of MagnaChipSemiconductor Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:(i) the Annual Report on Form 10-K of the Company for the year ended December 31, 2013 as filed with the Securities and Exchange Commission onthe date hereof (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934,as amended; and(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company asof the dates and for the periods expressed in the Report.Dated: February 12, 2015 /s/ Young-Joon KimYoung-Joon KimInterim Chief Executive Officer(Principal Executive Officer)The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and shall not be deemed filed by the Company for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended or incorporated by reference in any registration statement of the Company filed under theSecurities Act of 1933, as amended.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.Exhibit 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of MagnaChipSemiconductor Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:(i) the Annual Report on Form 10-K of the Company for the year ended December 31, 2013 as filed with the Securities and Exchange Commission onthe date hereof (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934,as amended; and(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company asof the dates and for the periods expressed in the Report.Dated: February 12, 2015 /s/ Jonathan W. KimJonathan W. KimInterim Chief Financial Officer(Principal Financial and Accounting Officer)The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and shall not be deemed filed by the Company for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended or incorporated by reference in any registration statement of the Company filed under theSecurities Act of 1933, as amended.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.

Continue reading text version or see original annual report in PDF format above