Methanex
Annual Report 2021

Plain-text annual report

c/o MagnaChip Semiconductor S.A. 1, Allée Scheffer, L-2520 Luxembourg, Grand Duchy of Luxembourg To Our Stockholders: You are invited to attend the Annual Meeting of Stockholders of Magnachip Semiconductor Corporation to be held on April 21, 2022, at 8:00 p.m. Eastern Daylight Time. We are pleased to announce that this year’s annual meeting will again be held completely virtually via live interactive webcast on the Internet. You will be able to attend, vote and submit your questions during the meeting at www.virtualshareholdermeeting.com/MX2022. We have enclosed the notice of our Annual Meeting of Stockholders, together with a proxy statement, a proxy and an envelope for returning the proxy. You are asked to act upon proposals to: (1) elect the six director nominees named in the proxy statement to our Board of Directors; (2) conduct an advisory (non-binding) vote on the compensation of our named executive officers as described in the proxy statement; and (3) ratify the appointment of Samil PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending December 31, 2022. Your Board of Directors unanimously recommends that you vote “FOR” each nominee for director that the Board has selected, “FOR” the approval of the compensation of our named executive officers as described in the proxy statement, and “FOR” the appointment of Samil PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending December 31, 2022. Please carefully review the proxy statement and then complete and sign your proxy and return it promptly. If you attend the virtual meeting and decide to vote during the meeting, you may withdraw your proxy by voting at the meeting. Your time and attention to this letter and the accompanying proxy statement and proxy are appreciated. Your vote is important. Please take the time to read the enclosed proxy statement and cast your vote via proxy or at the Annual Meeting of Stockholders. Sincerely, /s/ Camillo Martino Camillo Martino Chairman of the Board March 21, 2022 /s/ Young-Joon Kim Young-Joon Kim Chief Executive Officer Magnachip Semiconductor Corporation c/o MagnaChip Semiconductor S.A. 1, Allée Scheffer, L-2520 Luxembourg, Grand Duchy of Luxembourg NOTICE OF ANNUAL MEETING OF STOCKHOLDERS April 21, 2022 y x o r P The Annual Meeting of Stockholders of Magnachip Semiconductor Corporation, a Delaware corporation, will be held on Thursday, April 21, 2022, at 8:00 p.m. Eastern Daylight Time, via live interactive webcast on the Internet, for the following purposes: (1) to elect the six director nominees named in the proxy statement to our Board of Directors; (2) (3) to conduct an advisory (non-binding) vote on the compensation of our named executive officers as described in the proxy statement; to ratify the appointment of Samil PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending December 31, 2022; and (4) to transact such other business as may properly come before the meeting. Holders of record of our common stock at the close of business on Tuesday, March 15, 2022, are entitled to vote at the meeting. A list of stockholders entitled to vote will be available for inspection by stockholders of record for any purpose germane to the Annual Meeting during ordinary business hours at our corporate offices located at MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520, Luxembourg, Grand Duchy of Luxembourg, for ten days prior to the Annual Meeting. If you are a stockholder of record and would like to view this stockholder list, please contact Investor Relations Department at investor.relations@magnachip.com and arrangements will be made to review the records in person during the ten days prior to the Annual Meeting. Additionally, such list of stockholders will be made available for viewing electronically during the Annual Meeting, and instructions to access such list will be available on the date of the Annual Meeting at www.virtualshareholdermeeting.com/MX2022. By Order of the Board of Directors /s/ Theodore Kim Theodore Kim Executive Vice President, General Counsel, Chief Compliance Officer and Secretary March 21, 2022 1 Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on April 21, 2022 The 2022 Proxy Statement and 2021 Annual Report are available, free of charge, at http://www.proxyvote.com. Magnachip Semiconductor Corporation’s Annual Report for the year ended December 31, 2021 is being mailed to stockholders concurrently with the 2022 Proxy Statement. The Annual Report contains financial and other information about Magnachip Semiconductor Corporation, but is not incorporated into the Proxy Statement and is not deemed to be a part of the proxy soliciting materials. Even if you expect to attend the Annual Meeting, please promptly complete, sign, date and mail the enclosed proxy card. A self-addressed envelope is enclosed for your convenience. No postage is required if mailed in the United States. Alternatively, if you are a holder of record of our common stock on the record date, you may vote your shares electronically either over the internet at http://www.proxyvote.com or by touch-tone telephone at 1-800-690-6903. Stockholders who attend the Annual Meeting may revoke their proxies and vote during the meeting at www.virtualshareholdermeeting.com/MX2022 if they so desire. y x o r P TABLE OF CONTENTS GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL ONE: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attendance at Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board Role in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director Orientation and Continuing Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Code of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Communications with Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants of Plan-Based Awards Table for Fiscal Year 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding Equity Awards at Fiscal Year End 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension Benefits for the Fiscal Year Ended December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nonqualified Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Payments Upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Compensation Plan Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Related Person Transactions Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . PROPOSAL TWO: ADVISORY VOTE ON COMPENSATION OF OUR NAMED EXECUTIVE Page 1 5 8 8 8 8 8 11 11 12 12 12 13 13 16 17 17 29 30 31 33 34 35 35 35 41 42 45 45 46 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 PROPOSAL THREE: RATIFICATION OF APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2022 . . . . . . . . Fees Paid to Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Policy and Procedure for Approval of Audit and Permitted Non-Audit Services . . . . . . . . . . . . . . . . . . STOCKHOLDER PROPOSALS FOR 2023 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SOLICITATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 51 51 52 52 53 Magnachip Semiconductor Corporation c/o MagnaChip Semiconductor S.A. 1, Allée Scheffer, L-2520 Luxembourg, Grand Duchy of Luxembourg PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 21, 2022 Why am I receiving these materials? GENERAL INFORMATION y x o r P We sent you these proxy materials because the Board of Directors (the “Board”) of Magnachip Semiconductor Corporation (the “Company,” “Magnachip,” “we,” “us,” and “our”) is soliciting your proxy to vote at the 2022 Annual Meeting of Stockholders (the “Annual Meeting”) and at any postponements or adjournments of the Annual Meeting. The Annual Meeting will be held virtually via live interactive webcast on the Internet on April 21, 2022, at 8:00 p.m. Eastern Daylight Time. If you held shares of our Common Stock on March 15, 2022 (the “Record Date”), you are invited to attend the Annual Meeting at www.virtualshareholdermeeting.com/MX2022 and vote on the proposals described below under the heading “What am I voting on?” However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may complete, sign, date, and return the enclosed proxy card. You may also vote over the Internet or by telephone. The Notice of Annual Meeting of Stockholders, Proxy Statement, the enclosed proxy card, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 are being mailed to stockholders commencing on or about March 22, 2022. What am I voting on? There are three proposals scheduled to be voted on at the Annual Meeting: 1. Election of the six director nominees specified in this Proxy Statement to serve until the 2023 Annual Meeting of Stockholders and until their respective successors are elected and qualified; 2. Approval on an advisory (non-binding) basis of the compensation of our named executive officers as described in this Proxy Statement; and 3. Ratification of the appointment of Samil PricewaterhouseCoopers as our independent registered public accountants for the fiscal year ending December 31, 2022. How does the Board recommend that I vote? Our Board recommends that you vote your shares: “FOR” the election of each of the six director nominees named in this Proxy Statement to hold office until the 2023 Annual Meeting of Stockholders and until their respective successors are elected and qualified; “FOR” the approval on an advisory (non-binding) basis of the compensation of the named executive officers as described in this Proxy Statement; and “FOR” the ratification of the appointment of Samil PricewaterhouseCoopers as our independent registered public accountants for the fiscal year ending December 31, 2022. 1 Who can vote at the Annual Meeting? If you were a holder of record of the Company’s common stock (the “Common Stock”) as of the close of business on March 15, 2022, the Record Date for the Annual Meeting, you may vote your shares at the Annual Meeting. As of the Record Date, there were 44,894,385 shares of Magnachip Common Stock outstanding, excluding treasury shares. Company treasury shares will not be voted. Each stockholder has one vote for each share of Common Stock held as of the Record Date. If, on the Record Date, your shares were held in an account at a broker, bank, or other financial institution (we will refer to those organizations collectively as “broker”), then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that broker. The broker holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to direct your broker on how to vote the shares in your account. As a beneficial owner, you are invited to attend the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/MX2022. However, since you are not a stockholder of record, you may not vote your shares at the Annual Meeting unless you request and obtain a valid proxy from your broker. How can I attend the Annual Meeting? If you are a stockholder of record or a beneficial owner as of March 15, 2022, you are invited to attend the Annual Meeting live via the Internet at www.virtualshareholdermeeting.com/MX2022. You must have your Control Number listed on the enclosed proxy card to enter the meeting. The webcast starts at 8:00 p.m. Eastern Daylight Time. You may vote and submit questions while attending the meeting on the Internet. Instructions on how to attend and participate in the Annual Meeting via the Internet, including how to demonstrate proof of stock ownership, are posted at www.virtualshareholdermeeting.com/MX2022. The audio broadcast will be archived on that website for one year. What if I return the proxy card to the Company but do not make specific choices? If you return a signed, dated, proxy card to the Company without making any voting selections, the named proxies will vote your shares (1) “FOR” the election of each of the six director nominees named in this Proxy Statement to hold office until the 2023 Annual Meeting of Stockholders and until their respective successors are elected and qualified; (2) “FOR” the approval on an advisory (non-binding) basis of the compensation of our named executive officers as disclosed in this Proxy Statement; and (3) “FOR” the ratification of the appointment of Samil PricewaterhouseCoopers as our independent registered public accountants for the fiscal year ending December 31, 2022. The Company does not expect that any matters other than the election of directors and the other proposals described in this Proxy Statement will be brought before the Annual Meeting. The persons appointed as proxies will vote in their discretion on any other matters that may properly come before the Annual Meeting or any postponements or adjournments thereof, including any vote to postpone or adjourn the Annual Meeting. How many shares must be present or represented to conduct business at the Annual Meeting? A quorum of stockholders is necessary to hold a valid annual meeting. A quorum will be present if the holders of at least a majority of the total number of shares of Common Stock entitled to vote are present, in person or by proxy, at the Annual Meeting. Abstentions and shares represented by broker non-votes are counted for the purpose of determining whether a quorum is present. If there are insufficient votes to constitute a quorum at the time of the Annual Meeting, we may adjourn the Annual Meeting to solicit additional proxies. How are votes counted and what is a broker non-vote? Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count “FOR,” “AGAINST,” “WITHHOLD,” abstentions and broker non-votes. A “broker non-vote” occurs 2 when your broker submits a proxy card for your shares of Common Stock held in street name, but does not vote on a particular proposal because the broker has not received voting instructions from you and does not have the authority to vote on that matter without instructions. Under the rules that govern brokers who are voting shares held in street name, brokers have the discretion to vote those shares on routine matters but not on non-routine matters. For purposes of these rules, the only routine matter in this Proxy Statement is Proposal Three—the ratification of our independent registered public accounting firm for the fiscal year ending December 31, 2022. Non-routine matters in this Proxy Statement are Proposal One—the election of directors and Proposal Two—the advisory (non-binding) vote on the compensation of our named executive officers. Therefore, if you hold your shares in street name and do not provide voting instructions to your broker, your broker does not have discretion to vote your shares on any proposal at the Annual Meeting other than Proposal Three—the ratification of our independent registered public accounting firm for the fiscal year ending December 31, 2022. However, your shares will be considered present at the Annual Meeting for purposes of determining the existence of a quorum. y x o r P What is the voting requirement to approve each of the proposals? Proposal One—Election of Directors The election of director nominees requires a plurality vote of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote in the election of directors. The director nominees receiving the highest number of “FOR” votes cast by the holders of our Common Stock entitled to vote at the Annual Meeting will be elected. Accordingly, “WITHHOLD” votes and broker non-votes will have no effect on the outcome of the election of directors. Stockholders have no right to cumulative voting as to any matters, including the election of directors. Proposal Two—Advisory Vote on Compensation of our Named Executive Officers The proposal to approve on an advisory (non-binding) basis the compensation of our named executive officers as described in this Proxy Statement requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on such proposal. Abstentions will be included in the number of shares present and entitled to vote and will therefore have the same effect as a vote “AGAINST” the proposal. Broker non-votes will not be included in calculating the number of votes entitled to vote on this proposal and will therefore have no effect on the outcome of this proposal. Proposal Three—Ratification of the Appointment of our Independent Registered Public Accounting Firm for the Fiscal Year Ending December 31, 2022 The proposal to ratify the appointment of Samil PricewaterhouseCoopers requires the affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on such proposal. Abstentions will be included in the number of shares present and entitled to vote and will therefore have the same effect as a vote “AGAINST” this proposal. Brokers have discretionary authority to vote uninstructed shares on this proposal. How do I vote my shares of Magnachip Common Stock? Stockholders may vote shares of our Common Stock using any of the following means: Voting by Proxy Cards. A registered stockholder may vote shares until voting is completed at the Annual Meeting by returning a duly completed and executed proxy card in the postage-paid envelope included. All proxy cards received by us that have been properly signed and have not been revoked will be voted in accordance with the instructions contained in the proxy cards. For your mailed proxy card to be counted, we must receive it prior to the close of business on April 20, 2022. 3 Voting by Telephone or Internet. A registered stockholder may vote shares until 11:59 p.m. Eastern Daylight Time on April 20, 2022 by calling the toll-free number indicated on the proxy card and following the recorded instructions or by accessing the website indicated on the proxy card and following the instructions provided. When a stockholder votes by telephone or Internet, his, her or its vote is recorded immediately. Voting by Internet During the Annual Meeting. Instructions on how to attend and vote at the meeting are described at www.virtualshareholdermeeting.com/MX2022. If a stockholder attends the Annual Meeting and votes his, her or its shares during the meeting via the voting instructions described at www.virtualshareholdermeeting.com/MX2022, then any previous votes that were submitted by the stockholder, whether by Internet, telephone or mail, will be superseded by the vote that such stockholder casts during the Annual Meeting. Further, if the shares are held of record by a broker and a stockholder wishes to vote at the Annual Meeting, he, she or it must obtain a proxy issued in his, her or its name from the record holder in accordance with the materials and instructions for voting provided by his, her or its broker. Voting by “Street Name” Stockholders. If stockholders hold shares in “street name,” then those stockholders may vote in accordance with the materials and instructions for voting the shares provided by their broker. If “street name” stockholders wish to vote shares at the Annual Meeting, then they must obtain proxies from their broker in order to vote their shares at the Annual Meeting in accordance with the materials and instructions for voting provided by his, her or its broker. If a “street name” stockholder does not vote by proxy or otherwise give voting instructions to their broker, such shares will not be voted by the broker for Proposal One or Two at the Annual Meeting. Changing Votes. A stockholder may change his, her or its vote at any time before it is voted at the Annual Meeting by (1) delivering a proxy revocation or another duly executed proxy bearing a later date to Magnachip Semiconductor Corporation, c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520, Luxembourg, Grand Duchy of Luxembourg, Attention: Secretary, which revocation or later-dated proxy is received by us prior to the close of business on April 20, 2022; (2) voting again by telephone or Internet in the manner described above prior to 11:59 p.m., Eastern Daylight Time, on April 20, 2022; or (3) attending the Annual Meeting and voting via the Internet during the meeting using the procedures described at www.virtualshareholdermeeting.com/MX2022. Attending the Annual Meeting via the Internet will not revoke a proxy unless the stockholder actually votes via the Internet during the meeting. “Street name” stockholders who wish to revoke or change their votes after returning voting instructions to their broker may do so in accordance with the materials and instructions provided by their broker or by contacting such broker to effect the revocation or change of vote. How can I find out the results of the Annual Meeting? Preliminary voting results will be announced at the Annual Meeting. We will publish final results in a Current Report on Form 8-K that we expect to file with the Securities and Exchange Commission (the “SEC”) within four business days of the Annual Meeting. After the Form 8-K is filed, you may obtain a copy by visiting the investor relations section of our website or www.magnachip.com or by writing to Magnachip Semiconductor Corporation, c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520, Luxembourg, Grand Duchy of Luxembourg, Attention: Secretary. 4 PROPOSAL ONE ELECTION OF DIRECTORS The members of our Board are elected to one-year terms, with each director to serve until such director’s successor is elected and qualified or until such director’s earlier resignation or removal. We have six authorized members on our Board. The number of directors may be changed by our Board from time to time by resolution of a majority of the authorized directors, or by amendment of our bylaws by the affirmative vote of 66-2/3% of the outstanding voting stock of the Company, voting together as a single class. At the Annual Meeting, six directors are to be elected to hold office for a one-year term and until their successors are elected and qualified. The nominees to the Board are Ms. Kyo-Hwa Chung, Mr. Melvin L. Keating, Mr. Young-Joon Kim, Dr. Ilbok Lee, Mr. Camillo Martino and Mr. Gary Tanner. Information regarding the nominees and each continuing director is set forth below. Each of the nominees listed in the proxy statement has agreed to serve as a director if elected. If for some unforeseen reason a nominee becomes unwilling or unable to serve, proxies will be voted for a substitute nominee selected by the Board. y x o r P The following table sets forth certain information regarding our director nominees: Name Age Position Camillo Martino . . . . . . . . . . . . . . . . 59 Director, Non-Executive Chairman of the Board, Chair of the Compensation Committee and Member of the Audit Committee and the Nominating and Corporate Governance Committee Kyo-Hwa (Liz) Chung . . . . . . . . . . . Melvin L. Keating . . . . . . . . . . . . . . . 49 Director, Member of the Compensation Committee 75 Director, Chair of the Audit Committee and Member of the Nominating and Corporate Governance Committee Young-Joon (YJ) Kim . . . . . . . . . . . . 57 Director, Member of the Risk Committee and Chief Executive Officer Ilbok Lee . . . . . . . . . . . . . . . . . . . . . . 76 Director, Chair of the Nominating and Corporate Governance Committee and Member of the Risk Committee Gary Tanner . . . . . . . . . . . . . . . . . . . 69 Director, Chair of the Risk Committee and Member of the Audit Committee and the Compensation Committee Camillo Martino, Non-Executive Chairman of the Board, Chair of the Compensation Committee and Member of the Audit Committee and the Nominating and Corporate Governance Committee. Mr. Martino became our Non-Executive Chairman of the Board in June 2020 and director in August 2016. Mr. Martino currently also serves as a member of the board of directors for KINS Technology Group and Sensera Limited. Mr. Martino also serves as a member of the board of directors at multiple privately-held companies, including VVDN Technologies and Sakuu Corporation. Mr. Martino previously served as a director of Cypress Semiconductor from June 2017 through to April 2020 and was also the Chief Executive Officer of Silicon Image Inc. from January 2010 until the completion of its sale to Lattice Semiconductor Corporation in March 2015. From January 2008 to December 2009, Mr. Martino served as Chief Operating Officer of SAI Technology Inc., where he also served as a director from June 2006 to November 2010. From July 2005 to June 2007, Mr. Martino served as a director, the President and Chief Executive Officer of Cornice Inc. From August 2001 to July 2005, Mr. Martino served as the Executive Vice President and Chief Operating Officer at Zoran Corporation. Prior to that, Mr. Martino held multiple positions with National Semiconductor Corporation for a total of nearly 14 years, and in four different countries. Mr. Martino holds a Bachelor of Applied Science degree from the University of Melbourne and a Graduate Diploma from Monash University in Australia. Our Board has concluded that Mr. Martino should serve on the Board based upon his extensive experience advising technology companies. 5 Kyo-Hwa (Liz) Chung, Director, Member of the Compensation Committee. Ms. Chung was appointed as our director in July 2020 and to the Compensation Committee of the Board on January 5, 2022. Ms. Chung currently serves as the Director of Legal for Netflix Services Korea, a position she has held since April 2021. Prior to Netflix Services Korea, Ms. Chung served as the Head of Corporate, External and Legal Affairs for Microsoft Korea from November 2018 until March 2021. Ms. Chung was with the Korean law firm Kim & Chang, from April 2003 until November 2018, most recently as a partner focusing on the areas of international disputes, government investigations and crisis management. During September 2008 to March 2009, Ms. Chung was engaged with the international law firm Skadden, Arps, Slate, Meagher & Flom LLP, as a visiting attorney at its New York office. Ms. Chung served as a judge on the Seoul Administrative Court from 2001 to 2003 and the Seoul Central District Court from 1999 to 2001. Ms. Chung received an LLM degree from Harvard Law School in 2008, and a Bachelor of Law degree from Korea University in 1996. Ms. Chung is licensed to practice law in Korea and New York. Our Board has concluded that Ms. Chung should serve on the Board based upon her extensive experience advising technology companies. Melvin L. Keating, Director, Chair of the Audit Committee and Member of the Nominating and Corporate Governance Committee. Mr. Keating became our director in August 2016. Mr. Keating serves as a consultant, providing investment advice and other services to private equity firms and corporations, since November 2008. In addition, since September 2015, Mr. Keating serves as a director of Agilysys Inc., a leading technology company that provides innovative software for point-of-sale (POS), property management, inventory and procurement, workforce management, analytics, document management and mobile and wireless solutions and services to the hospitality industry. During the past five years, Mr. Keating also served on the boards of directors of the following public companies: SPS Commerce, Inc. (2018-2019); Vitamin Shoppe, Inc. (2018- 2019); Red Lion Hotels Corporation (2010-2017); and Harte Hanks, Inc (2017-2020). Mr. Keating holds a B.A. degree in Art History from Rutgers University (where he was a Henry Rutgers Scholar), and an M.S. in Accounting (he was a Shell Oil Fellow) and an M.B.A. in Finance (he was a Benjamin Franklin Fellow) from the Wharton School of the University of Pennsylvania. Our Board has concluded that Mr. Keating should serve on the Board based upon his extensive experience advising technology companies. Young-Joon (YJ) Kim, Director, Member of the Risk Committee and Chief Executive Officer. Mr. YJ Kim became our Chief Executive Officer in May 2015 and has also served as a director on our Board since that time. In February 2020, Mr. Kim assumed the additional role of General Manager of the Display business to capitalize on attractive growth opportunities in OLED display and other relevant emerging markets. He also served as the acting General Manager of Foundry Services Group from January 2019 until the completion of the sale of the Foundry Services Group and the factory in Cheongju (“Fab 4”) on September 1, 2020. Mr. Kim joined our company in May 2013 and served as our Executive Vice President and General Manager, Display Solutions Division. He was promoted to Interim Chief Executive Officer in May 2014. Prior to joining our company, Mr. Kim held a variety of senior management roles at several global semiconductor firms in a career spanning about 34 years. His past roles include marketing, engineering, product development and strategic planning, and his product expertise includes microprocessors, network processors, FLASH, EPROM, analog, mixed-signal, sensors, wireless base station, workstations and servers. Immediately before joining our company, Mr. Kim served as Vice President, Infrastructure Processor Division, and General Manager of the OCTEON Multi-Core Processor Group of Cavium, Inc., where he worked from 2006 to 2013. Prior to Cavium, Mr. Kim served as Core Team Lead and General Manager of the Tolapai Program at Intel Corporation from 2004 to 2006. In 1998, Mr. Kim co-founded API Networks, a joint venture between Samsung and Compaq, where he served as the head of product management, worldwide sales and business development for Alpha processors. Prior to API Networks, Mr. Kim served as Director of Marketing at Samsung Semiconductor, Inc. from 1996 to 1998. Mr. Kim began his career as a product engineer at Intel Corporation in 1988. Mr. Kim holds B.S. and M. Eng. degrees in Electrical Engineering from Cornell University. Our Board has concluded that Mr. YJ Kim is a valuable member of the Board based on his understanding of our company’s products and technology as our Chief Executive Officer and his deep knowledge of the semiconductor industry. 6 y x o r P Ilbok Lee, Director, Chair of the Nominating and Corporate Governance Committee, and Member of the Risk Committee. Dr. Lee has been our director since August 2011. Dr. Lee was an advisor/consultant to the Configurable Mixed-signal Business Unit of Dialog Semiconductor, Inc., which acquired Silego Technology Inc., a semiconductor company from October 2017 to December 2018. Dr. Lee served as Executive Chairman of Silego from August 2016 to October 2017. Dr. Lee served as Silego’s Chairman of the Board from March 2015 to August 2016 and as Silego’s Chief Executive Officer from Silego’s inception in October 2001 until August 2016. From April 1999 to September 2001, Dr. Lee served as Senior Vice President and General Manager of the Timing Division at Cypress Semiconductor Corp., a public semiconductor company, and from May 1992 to March 1999 served as President and Chief Executive Officer of IC Works, Inc., a semiconductor company he co-founded that was acquired by Cypress in 2001. Dr. Lee co-founded Samsung Semiconductor, 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 board of directors for Sierra Monolithic, a privately held semiconductor company, from 2002 through 2009. Dr. Lee also served on the board of directors of two public companies: ESS Technology and V3 Semiconductor. Dr. Lee received a Ph.D. and M.S.E.E. from the University of Minnesota and a B.S.E.E. from Seoul National University. Our Board has concluded that Dr. Lee should serve on our Board based upon his extensive experience in the semiconductor industry. Gary Tanner, Director, Chair of the Risk Committee and Member of the Audit Committee and the Compensation Committee. Mr. Tanner became our director in August 2015. Mr. Tanner also served as our Non-Executive Chairman of the Board from September 2016 to November 2018. Mr. Tanner served as a director of Winstek Semiconductor Corp. which is listed on the Taiwan Stock Exchange (OTC) from September 2015 until November 2017 when majority ownership of Winstek Semiconductor was acquired by Siguard Corporation. Mr. Tanner served as Executive Vice President and Chief Operations Officer of International Rectifier Corporation from January 2013 to July 2015. Mr. Tanner also served as a director at STATS ChipPac Ltd. from July 2012 until August 2015. Prior to joining International Rectifier Corporation, Mr. Tanner was the principal in GWT Consulting and Investments LLC, a firm that provided consulting services to International Rectifier Corporation from January through December 2012. Mr. Tanner previously served as Chief Executive Officer at Zarlink Semiconductor, Inc. (“Zarlink”), from May 2011 to October 2011, when Zarlink was acquired by Microsemi Corporation in October 2011. Prior to his role as Chief Executive Officer of Zarlink, from November 2009 to May 2011, Mr. Tanner served as Chief Operating Officer at that company. Mr. Tanner joined Zarlink in August 2007 as Senior Vice President of Worldwide Operations via the acquisition of Legerity, Inc., where Mr. Tanner served as the Vice President of Operations from November 2002 until August 2007. Before Legerity and Zarlink, Mr. Tanner worked for nine years at Intel Corporation, where he held various positions managing domestic and international manufacturing operations. Prior to Intel, Mr. Tanner held various management positions in fab operations at National Semiconductor, Texas Instruments and NCR Corporation. Our Board has concluded that Mr. Tanner should serve on the Board based upon his extensive experience in the semiconductor industry. 7 THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE Director Independence The Board reviews the independence of each director annually. In determining the independence of our directors, our Board considered Section 303A of the NYSE listing standards and broadly considered the materiality of each director’s relationship with us. Based upon the foregoing criteria, our Board has determined that the following directors are independent: Ms. Chung, Mr. Keating, Dr. Lee, Mr. Martino and Mr. Tanner. Board Meetings The Board held 31 meetings during fiscal year 2021. None of the directors attended fewer than 90 percent of the aggregate number of Board meetings and meetings of committees of the Board on which each of them served. The Board held 39 meetings during fiscal year 2020. None of the directors attended fewer than 93 percent of the aggregate number of Board meetings and meetings of committees of the Board on which each of them served. Attendance at Annual Meeting The Company’s Corporate Governance Guidelines as currently in effect provide that all directors shall make every effort to attend the Company’s annual meeting of stockholders. In 2021, we did not hold an annual meeting due to the Company’s proposed merger with investment vehicles established by Wise Road Capital LTD, which, as previously disclosed, was terminated by a Termination and Settlement Agreement entered into on December 13, 2021 pursuant to which the termination became effective on December 20, 2021. In 2020, all of our directors except Ms. Chung, who was not then a member of the Board, attended our Annual Meeting of Stockholders. Committees The Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk Committee. The Board establishes ad hoc committees from time to time on an as-needed basis. The Board has adopted written charters for the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Risk Committee. These charters, as well as our Code of Business Conduct and Ethics and our Corporate Governance Guidelines, are posted and available on our website at www.magnachip.com. The information on or accessible through our website is not a part of or incorporated by reference in this proxy statement. Audit Committee Our Audit Committee consists of Mr. Keating, as Chair, Mr. Martino and Mr. Tanner. Our Board has determined that Mr. Keating is an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act of 1933, as amended. Our Board has also determined that each of Mr. Keating, Mr. Martino and Mr. Tanner is independent as that term is defined in Section 303A of the New York Stock Exchange (“NYSE”) listing standards and Rule 10A-3 promulgated under the Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee held 18 meetings in 2021 and 10 meetings in 2020. The primary purpose of the Audit Committee is to assist our Board in fulfilling its oversight responsibilities by reviewing and reporting to the 8 Board on the integrity of the financial reports and other financial information provided by the Company to the public, the SEC and any other governmental regulatory body, and on the Company’s compliance with other legal and regulatory requirements. The Audit Committee is responsible for the appointment, retention, review and oversight of the Company’s independent auditor, and the review and oversight of the Company’s internal financial reporting, policies and processes. The Audit Committee is also responsible for reviewing related party transactions, risk management, and legal and ethics compliance. Compensation Committee Our Compensation Committee consists of Mr. Martino, as Chair, Ms. Chung and Mr. Tanner. Our Board has determined that each of Mr. Martino, Ms. Chung and Mr. Tanner is independent under applicable NYSE listing standards. y x o r P The Compensation Committee held 12 meetings in 2021 and 11 meetings in 2020. The Compensation Committee has the overall responsibility for evaluating and approving our executive officer and director compensation plans, policies and programs, as well as all equity-based compensation plans and policies. In March 2016, the Board created the Employee Equity Committee and delegated to it the authority to determine the recipients, amounts and timing of awards under the Company’s equity-based compensation plans within the parameters established by the Board. Nominating and Corporate Governance Committee Our Nominating and Corporate Governance Committee consists of Dr. Lee, as Chair, Mr. Keating and Mr. Martino. Our Board has determined that each of Dr. Lee, Mr. Keating and Mr. Martino is independent under applicable NYSE listing standards. The Nominating and Corporate Governance Committee held 6 meetings in 2021, and 11 meetings in 2020. The Nominating and Corporate Governance Committee identifies individuals qualified to become board members, recommends director nominees, recommends board members for committee membership, develops and recommends corporate governance principles and practices and director orientation and continuing education, oversees the evaluation of our Board and its committees and formulates a description of the skills and attributes of desirable board members. The Nominating and Corporate Governance Committee will also consider candidates recommended by our stockholders so long as the proper procedures are followed. Our bylaws provide that stockholders seeking to nominate candidates for election as directors at an annual meeting must provide timely notice of such nominations in writing. To be timely, a stockholder’s notice generally must be received in writing at the Company’s offices at Magnachip Semiconductor Corporation, c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520, Luxembourg, Grand Duchy of Luxembourg, Attention: Secretary, not earlier than the close of business on the 120th day, nor later than the close of business on the 90th day, prior to the first anniversary of the date of the preceding year’s annual meeting as first specified in the Company’s notice of meeting (without regard to any postponements or adjournments of such meeting after such notice was first sent), except that if no annual meeting was held in the previous year or the date of the annual meeting is more than 30 days earlier or later than such anniversary date, notice by the stockholders to be timely must be received not later than the close of business on the later of the 90th day prior to the annual meeting or the 10th day following the date on which public announcement of the date of such meeting is first made. A stockholder’s notice must set forth, among other things, • • the name and address of the stockholder who intends to make the nomination, and the names and addresses of the beneficial owners, if any, on whose behalf the nomination is being made and of the person or persons to be nominated; a representation that the stockholder is a holder of record of stock of the Company entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; 9 • • • • • certain information regarding the ownership and other interests of the stockholder or such other beneficial owner; a description of all arrangements or understandings between the stockholder or such beneficial owner and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and such other beneficial owner, if any, and their respective affiliates and associates and each proposed nominee; certain other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC; and the consent of each nominee to serve as a director of the Company if so elected. A stockholder must also comply with all other applicable requirements of the Exchange Act and the rules and regulations under the Exchange Act with respect to matters relating to nominations of candidates for directors. The preceding is a summary of the stockholder nomination procedures set forth in our bylaws as currently in effect, and we refer our stockholders to the full text of Section 2.15 of our bylaws and such other applicable provisions of our bylaws as in effect from time to time for the specific requirements of such director nomination procedures by stockholders. In addition to the formal procedures set forth in our bylaws for the nomination of directors by stockholders, the Nominating and Corporate Governance Committee has adopted a Policy Regarding Director Nominations pursuant to which it may from time to time evaluate candidates for nomination as director that come to its attention through incumbent directors, management, stockholders or third parties. Such informal recommendations by stockholders should be directed to the attention of the Nominating and Corporate Governance Committee as set forth below under “—Communications with Directors.” The Nominating and Corporate Governance Committee has and may in the future, if it deems appropriate under the circumstances, engage a third-party search firm to assist in identifying qualified candidates. The Nominating and Corporate Governance Committee seeks director candidates who possess high quality business and professional experience, possess the highest personal and professional ethics, integrity and values, and who have an inquisitive and objective perspective and mature judgment. Director candidates must also be committed to representing the best interests of our stockholders and have sufficient time available in the judgment of the Nominating and Corporate Governance Committee to perform all Board and committee responsibilities. The Nominating and Corporate Governance Committee has no formal policy on diversity in identifying potential director candidates, but does regularly assess the needs of the Board for various skills, background and business experience in determining if the Board requires additional candidates for nomination. Risk Committee Our Risk Committee consists of Mr. Tanner, as Chair, Mr. YJ Kim and Dr. Lee. The Risk Committee held 4 meetings in 2021, and 4 meetings in 2020. The Risk Committee assists the Board in its oversight of the Company’s management of key risks, as well as the guidelines, policies and processes for monitoring and mitigating such risks. The Risk Committee’s primary responsibility is to oversee and approve the implementation of Company-wide risk and crisis management best practices. Other responsibilities of the Risk Committee include providing input to management in identifying, assessing, mitigating and monitoring enterprise-wide risks the Company faces, including cybersecurity risks, and reviewing the Company’s business practices, compliance activities and enterprise risk management and making recommendations to the Board related to such review. 10 Board Leadership Structure Separation of Chairperson and Chief Executive Officer Our Corporate Governance Guidelines state that the Board shall elect its Chairperson (in the event that the Chairperson is a female, she will be referred to as “Chairwoman”, and in the event that the Chairperson is a male, he will be referred to as “Chairman”) and appoint the Company’s Chief Executive Officer according to its view of what is best for the Company at any given time. The Board does not believe there should be a fixed rule as to whether the offices of Chairperson and Chief Executive Officer should be vested in the same person or two different persons, or whether the Chairperson should be an employee of the Company or should be elected from among the non-employee directors. The needs of the Company and the individuals available to play these roles may dictate different outcomes at different times, and the Board believes that retaining flexibility in these decisions is in the best interest of the Company. y x o r P Currently, Mr. Martino serves as the Company’s Chairman of the Board, and Mr. YJ Kim serves as the Company’s Chief Executive Officer. The Board may, however, make changes to its leadership structure in the future as it deems appropriate. Lead Director In the event that positions of Chairperson and Chief Executive Officer are held by the same person, on an annual basis the independent members of the Board will select a lead director from the independent directors then serving on the Board (the “Lead Director”). As a general matter, there shall be no Lead Director if the positions of Chairperson and CEO are not held by the same person and the Chairperson is an independent director. The length of service as Lead Director is subject to the Board’s discretion, but will be a minimum of one year. The Lead Director has the authority to call meetings of the independent directors. Executive Sessions of the Board The Company’s non-management directors meet at regularly scheduled Board meetings in executive session without management present. In 2021, the Chairman presided over the meetings of the non-employee directors. In addition, in accordance with our Corporate Governance Guidelines, the independent members of the Board meet at least twice a year in executive session, with the Chairperson setting the agenda and presiding over such meetings. Presiding Director In accordance with our Corporate Governance Guidelines, the presiding director of the Board is the Chairman of the Board, if present, or in such person’s absence and if applicable, the Lead Director, or in such person’s absence, the Audit Committee Chairman, or in such person’s absence, the independent director present who has the most seniority on the Board. The presiding director presides at all meetings of the Board and is responsible for chairing the Board’s executive sessions. Board Role in Risk Oversight Our Board is responsible for overseeing our management of risk. The Board created a Risk Committee to assist in overseeing management’s identification and evaluation of key enterprise risks to the Company, as well as guidelines, policies and processes for monitoring and mitigating such risks. In particular, the Risk Committee focuses on strategic enterprise risks, including risks associated with intellectual property; business operations and disaster recovery capabilities; and data security, privacy, technology and information security policies, procedures, and internal controls, including those related to cybersecurity and cyber incident responses and reporting procedures. 11 Our Audit Committee also has certain statutory, regulatory, and other responsibilities with respect to oversight of risk assessment and risk management. Specifically, the Audit Committee is responsible for overseeing policies with respect to financial risk assessment and those other items specifically set forth in our Audit Committee charter. The Risk Committee coordinates with the Audit Committee as necessary and appropriate to enable the Audit Committee to perform its responsibilities. The Board’s other independent committees also oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee considers the risks to our business associated with our compensation policies and practices, with respect to both executive compensation and compensation generally. Our Board believes that our compensation programs are designed such that they will not incentivize unnecessary risk taking. The base salary component of our compensation program is a fixed amount and does not depend on performance. Payout levels under our cash incentive program are capped and payout opportunities may be achieved on a straight-line interpolation basis between threshold and target levels, and between the target and maximum levels. Our equity awards are limited by the terms of our equity plans to a fixed maximum amount specified in the plan, and are subject to vesting to align the long-term interests of our executive officers with those of our stockholders. Our Board adopted a clawback policy to provide for the recoupment of certain executive compensation in the event of an accounting restatement resulting from the Company’s material noncompliance with financial reporting requirements under the federal securities laws. See “Executive Compensation—Compensation Discussion and Analysis—Clawback Policy” contained elsewhere in this Proxy Statement. Director Orientation and Continuing Education Our Nominating and Corporate Governance Committee oversees the orientation process for new members of our Board to ensure that they are familiar with the Company’s operations, financial matters, corporate governance practices and other key policies and practices through the preparation and review of background material and management meetings as appropriate. In addition, our Nominating and Corporate Governance Committee seeks to identify and encourage training and continuing education opportunities for all directors in order to improve both our Board and its committees’ performance. Senior management assist in identifying and advising our directors about opportunities for continuing education, including conferences provided by independent third parties. In furtherance of these efforts, the Company maintains membership for each Company director in the National Association of Corporate Directors (NACD), which provides corporate governance resources, education, information, and research on leading board practices. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. We will provide a copy of our Code of Business Conduct and Ethics without charge to any person upon written request made to our Secretary at Magnachip Semiconductor Corporation, c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520, Luxembourg, Grand Duchy of Luxembourg. Our Code of Business Conduct 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 of Business Conduct and Ethics on our website. Report of the Audit Committee The Audit Committee has reviewed and discussed with our management and Samil PricewaterhouseCoopers, our independent registered public accounting firm, our audited financial statements contained in our Annual Report to Stockholders for the year ended December 31, 2021. The Audit Committee has also discussed with our independent registered public accounting firm the matters required to be discussed under Public Company Accounting Oversight Board standards. 12 y x o r P The Audit Committee has received and reviewed the written disclosures and the letter from Samil PricewaterhouseCoopers required by applicable requirements of the Public Company Accounting Oversight Board regarding Samil PricewaterhouseCoopers’s communications with the Audit Committee concerning independence, and has discussed with Samil PricewaterhouseCoopers its independence. Based on the review and discussions referred to above, the Audit Committee recommended to the Board (and the Board subsequently approved the recommendation) that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 23, 2022. Audit Committee: Melvin L. Keating, Chair Camillo Martino Gary Tanner Communications with Directors A stockholder or other interested party who wishes to communicate directly with the Board, a committee of the Board, the non-management or independent directors as a group, or with the Chairman or any other individual director, regarding matters related to the Company should send the communication to: Board of Directors or Chairman, individual director, committee or group of directors Magnachip Semiconductor Corporation c/o MagnaChip Semiconductor S.A. Corporate Secretary 1, Allée Scheffer, L-2520 Luxembourg, Grand Duchy of Luxembourg We will forward all stockholder and other interested party correspondence about the Company to the Board, a committee of the Board, the non-management or independent directors as a group, or an individual director, as appropriate. Please note that we will not forward communications that are spam, junk mail or mass mailings, resumes and other forms of job inquiries, surveys and business solicitations or advertisements. 2021 Director Compensation Each of our non-employee directors was eligible to earn a quarterly cash retainer, additional fees based on committee service and equity awards in 2021 pursuant to our director compensation policy, which is described in further detail below. All such cash fees are paid quarterly in advance. A non-employee director who joins the Board after the beginning of a quarter receives a prorated cash retainer reflecting his or her actual period of Board and committee service for such quarter and a non-employee director who joins the Board after the beginning of the Company’s annual director service period receives a pro-rated equity award reflecting his or her actual period of Board and committee service during such annual service period. Cash Compensation In 2021, our non-employee directors were eligible to receive the following types of cash compensation for their services on the Board. • Quarterly Board Service Retainer (all non-employee directors): $18,750 • Quarterly Chair Service Fees: - Chairperson of the Board: $18,750 - Chair of our Audit Committee: $6,250 13 - Chair of our Compensation Committee: $3,750 - Chair of our Nominating and Corporate Governance Committee: $2,500 - Chair of our Risk Committee: $2,500 • Quarterly Committee Member (non-Chair) Service Fees: - Audit Committee: $3,750 - Compensation Committee: $2,500 - Nominating and Corporate Governance Committee: $1,250 - Risk Committee: $1,250. Our director compensation policy also provides that the Lead Director of the Board, if any, would receive an additional cash fee of $11,250 per quarter. No Lead Director was appointed for 2021. Equity Compensation In 2021, our non-employee directors were also eligible to receive the following types of equity awards for their service on the Board: • Annual Equity Awards: Each non-employee director was eligible to receive an RSU award having a grant date fair value equal to $165,000. In addition, each non-employee director was eligible to receive an RSU award having a grant date fair value equal to $20,000 for such director’s service as the Chair of the Board’s Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee or Risk Committee, as applicable; and an RSU award having a grant date fair value equal to $10,000 for such director’s service as a non-Chair member of the Board’s Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee or Risk Committee, as applicable. The RSU award vests in full on the earlier of (x) the first anniversary of the date of grant, and (y) the meeting date of the Annual Meeting of Stockholders that occurs in the year following the year in which the RSU is granted, with such grants being made on the earlier of (A) the meeting date of the Company’s Annual Meeting of Stockholders for such year and (B) August 31 of such year. Vested RSUs settle as soon as administratively practicable following the date the non-employee director’s service terminates for any reason. • Initial Equity Awards: If a non-employee director’s initial appointment to the Board or a Board committee occurs other than at an Annual Meeting of Stockholders, such director will be granted pro-rated RSU awards having an aggregate grant date fair value equal to (x) the applicable grant date fair value amount for applicable Board or committee membership described above, multiplied by (y) the quotient obtained by dividing the number of days elapsed from the date of initial appointment to the date of the Company’s next Annual Meeting of Stockholders (or, if earlier, August 31 of such year), by 365, with such grants to vest in full on the date of the Company’s next Annual Meeting of Stockholders (or, if earlier, August 31 of such year). All non-employee director equity awards will be granted under the Company’s equity incentive plan in effect at the time of such grants. The following table sets forth the total compensation earned by our non-employee directors during the year ended December 31, 2021. Mr. YJ Kim, our Chief Executive Officer, does not earn any fees for his service on the Board. 14 2021 Director Compensation Table Name Liz Chung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Melvin Keating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ilbok Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Camillo Martino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gary Tanner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nader Tavakoli(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Earned or Paid in Cash ($)(1) 75,000 105,000 90,000 180,426 110,000 52,500 Stock Awards ($)(2)(3) All Other Compensation ($)(1) 165,017 195,001 195,001 206,419 205,002 — — — — — — — Total ($) 240,017 300,001 285,001 386,845 315,002 52,500 y x o r P (1) Consists of the amount of cash compensation earned in 2021 for Board service and committee service as described in the table below. Name Liz Chung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Melvin Keating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ilbok Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Camillo Martino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gary Tanner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nader Tavakoli Board Retainer ($) 75,000 75,000 75,000 75,000 75,000 37,500 Chair Service Fees ($) — 25,000 10,000 90,000 10,000 — Committee Service Fees ($) — 5,000 5,000 15,426 25,000 15,000 Total ($) 75,000 105,000 90,000 180,426 110,000 52,500 (2) The amounts reported represent the aggregate grant date fair value of the restricted stock units awarded to the directors, calculated in accordance with FASB ASC Topic 718. Such aggregate grant date fair values do not take into account any estimated forfeitures related to service vesting conditions. The amounts reported in this column reflect the accounting cost for these restricted stock units and do not correspond to the actual economic value that may be received by the directors upon vesting and/or settlement of the restricted stock units. (3) As of December 31, 2021, the number of outstanding stock options and RSU awards held by our non-employee directors who served during 2021 were as follows: Name RSUs (#) Stock Options (#) Liz Chung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Melvin Keating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ilbok Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Camillo Martino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gary Tanner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nader Tavakoli 23,196 79,994 86,308 80,601 89,487 — — 49,737 179,593 49,737 93,117 199,593 As of December 31, 2021, the following number of RSUs included in the table above were vested but not yet settled under the terms of the applicable RSU agreements: Ms. Chung—14,154 RSUs; Mr. Keating— 69,309 RSUs; Dr. Lee—75,623 RSUs; Mr. Martino—69,368 RSUs; and Mr. Tanner—78,254 RSUs. Please see the section entitled “Security Ownership of Certain Beneficial Owners and Management” for additional information regarding all shares of common stock beneficially owned by our non-employee directors. (4) The Company received a letter of resignation, dated April 19, 2021, from Mr. Nader Tavakoli, which resignation was accepted by the Board and effective as of April 22, 2021. In connection with his resignation, 18,501 of Mr. Tavakoli’s unvested RSUs were deemed fully vested on April 22, 2021. 15 Compensation Committee Interlocks and Insider Participation None of the members of the Compensation Committee has been an officer or employee of our Company during the last fiscal year. During 2021, decisions regarding executive officer compensation were made by our Compensation Committee. Mr. YJ Kim, our Chief Executive Officer, participated in deliberations of our Compensation Committee regarding the determination of compensation of our executive officers other than himself for 2021 and prior periods. None of our executive officers currently serves, or in the past has served, as a member of the board of directors or the compensation committee of another entity that has one or more executive officers serving on our Board. 16 EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS Introduction This Compensation Discussion and Analysis describes and analyzes our executive compensation program for the following Magnachip executive officers who served (and are listed by the positions held) in 2021 (collectively, our “named executive officers”): • Young-Joon Kim, our Chief Executive Officer (“CEO”); • Theodore Kim, our Chief Compliance Officer, Executive Vice President, General Counsel and Secretary (“CCO”); y x o r P • Woung Moo Lee, our Executive Vice President and General Manager of Worldwide Sales; • Chan Ho Park, our General Manager of Power Solutions; and • Young Soo Woo, our former Chief Financial Officer. Young Soo Woo resigned as our Chief Financial Officer effective December 31, 2021. Executive Summary The Compensation Committee of our Board (the “Committee”) has the primary responsibility for developing and maintaining a compensation program for our senior management, including our named executive officers. The Committee believes that our executive compensation program should play a key role in our operating and financial success, and has worked with outside legal counsel and Compensia Inc. (“Compensia”), a national compensation consulting firm, to develop a comprehensive executive compensation program that is intended to further align the interests of our executive officers with our stockholders and incentivize achievement of our short-term operational goals as well as long-term value creation. The Committee also strives to design and create an executive compensation program that balances the competitiveness of our program while holding executives accountable for our long-term strategy and values. To achieve these goals, the Committee believes it is important to maintain a compensation program that includes strong stock ownership elements and performance-focused equity awards. The Committee believes that our ability to attract and retain executive talent is critical to our long-term success. In light of our unique situation in that all of our senior executives live and work in South Korea (herein referred to as “Korea”), we offer competitive expatriate benefits intended to minimize adverse tax and financial impacts associated with the expatriate assignments to our CEO and CCO, who are subject to taxation in both the U.S. and Korea. Compensation Decisions In 2021, the Committee conducted its annual review of the compensation arrangements for our named executive officers. The Committee believes that ongoing evaluations are necessary to ensure that our compensation program for our executive officers is aligned with our compensation philosophy and our stockholders. Based on this review, the Committee made the following decisions: • No increase to base salaries or target bonuses; • Pay bonuses based on the same target bonus percentage earned by our non-executive employees pursuant to the terms of the collective bargaining agreement entered into by Magnachip Semiconductor, Ltd. and in connection with the completion of the successful sale of the Company’s Foundry Services Group business and the fabrication facility located in Cheongju (the “Sale of FSG Business”); and • Grant annual equity awards to our key executives using a combination of performance awards (based on both relative total stockholder return (“TSR”) and financial performance goals) and RSUs, similar to prior years. 17 Executive Compensation-Related Policies and Practices We endeavor to maintain sound executive compensation policies and practices, including compensation-related corporate governance standards, consistent with our executive compensation philosophy. The following summarizes our executive compensation and related governance policies and practices: • Pay-for-Performance Philosophy • • Performance-Based Equity Awards “Double Trigger” Change in Control Arrangements What We Do A significant portion of our named executive officers’ compensation is directly linked to corporate performance; We structure target total direct compensation with a significant long-term equity component, thereby making a substantial portion of each named executive officer’s target total direct compensation dependent upon our corporate performance, stock price and/or total shareholder return. Our CEO and our other named executive officers receive performance-based equity awards that vest based on financial goals and relative TSR performance. With the exception of our PSU awards that vest at target level upon a change in control, our change in control compensation arrangements include a “double trigger” provision that requires both a change in control of the Company plus a qualifying termination of employment before payments and benefits are paid. It is our expectation that all future RSUs and PSUs will follow the same format. • Maintain an Independent Compensation Committee The Compensation Committee consists solely of independent directors. • • • • • • Compensation Recovery (“Clawback”) Policy Stock Ownership Guidelines Conduct an Annual Stockholder Advisory Vote on Named Executive Officer Compensation Retain an Independent Compensation Advisor Annual Executive Compensation Review Succession Planning We have a policy providing for the recovery of certain cash incentive compensation and equity or equity-based awards from our CEO and other executive officers (including our other named executive officers) if we are required to prepare an accounting restatement of our financial statements due to the Company’s material noncompliance with any financial reporting requirement under U.S. federal securities laws. We maintain stock ownership guidelines for our CEO, our other executive officers (including our other named executive officers) and the non-employee members of our Board. We conduct an annual stockholder advisory vote on the compensation of our named executive officers. The Compensation Committee has engaged its own independent compensation advisor to provide information, analysis and other advice on executive compensation independent of management. The Compensation Committee conducts an annual review of our compensation strategy, including a review of our compensation used for comparative purposes. We conduct succession planning and executive assessment to ensure succession plans are in place. 18 • • • • • • • • • Balanced Time Horizon for Incentive Compensation No Special Retirement Plans No Stock Option Re-Pricing No “Single Trigger” Change in Control Arrangements No Excise Tax Payments on Future Post-Employment Compensation Arrangements No Hedging No Special Welfare or Health Benefits No Dividends or Dividend Equivalents Payable on Unvested Equity Awards No Pledging What We Do We have a balance of time horizons for our incentive awards, including an annual cash incentive plan, a three-year performance period for our relative TSR performance stock unit awards and a three-year vesting period for our RSU awards. What We Don’t Do We do not currently offer pension arrangements or retirement plans to our executive officers other than statutory severance benefits required under the Employee Retirement Benefit Security Act of Korea. y x o r P Our equity compensation plan does not permit stock options or stock appreciation rights to be repriced to a lower exercise or strike price without the approval of our stockholders. We do not provide cash severance solely upon a change in control of the Company. With the exception of our PSU awards that vest at target level upon a change in control, all equity awards are subject to “double trigger” vesting acceleration. We do not provide any excise tax reimbursement payments (including “gross-ups”) with respect to payments or benefits contingent upon a change in control of the Company. The Company does, however, have the obligation to provide tax equalization to the CEO and the CCO with respect to such payments and benefits. We prohibit our employees, including our executive officers, and the non-employee members of our Board from engaging in short sales and certain derivative transactions relating to our securities. We do not provide our executive officers with any welfare or health benefit programs, other than participation on the same basis as our full-time employees in the employee programs that are standard in our industry sector. The Company does provide customary international health insurance to the CEO and the CCO as a part of their expatriate benefit package. We do not pay dividends or dividend equivalents on unvested equity awards. Current awards granted under our equity plans provide that they may not be sold, exchanged, assigned, transferred, pledged, encumbered or otherwise disposed of by the grantee until they become vested. Compensation Philosophy and Objectives The Committee has overall responsibility for administering the compensation program for our named executive officers. The Committee’s responsibilities consist of evaluating, approving and monitoring our named executive officer and director compensation plans, policies and programs, as well as each of our equity-based compensation plans and policies. 19 The Committee seeks to establish overall compensation for named executive officers that is fair, reasonable and competitive. The Committee evaluates our compensation 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 that meets 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 in the semiconductor industry. The Committee believes that the most effective executive compensation packages align executives’ interests with those of our stockholders by rewarding performance that exceeds specific annual, long-term and strategic goals that are intended to improve stockholder value. These objectives include the 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 historical approach in realizing the general philosophy described above. Say on Pay Vote and Stockholder Input The Committee has responsibility to ensure that the compensation paid to our executive officers aligns with the interests of our stockholders and the Company’s compensation philosophy. As such, the Committee considered the approval by advisory votes cast for the “Say on Pay” vote and its frequency relating to the compensation of our named executive officers since the Company’s 2018 Annual Meeting. At the 2018 Annual Meeting, approximately 96% of the stockholders voted “1 Year” for the frequency of future advisory votes and the Committee, after carefully reviewing and considering the advisory votes of the stockholders, determined that the Company will continue to have an advisory vote on the compensation of the Company’s named executive officers on an annual basis. However, the Company did not hold an Annual Meeting in 2021 and accordingly did not conduct a Say on Pay vote in 2021. Approximately 99% of the stockholders at the 2020 Annual Meeting voted to approve the compensation of the Company’s named executive officers as disclosed in the Company’s 2020 proxy statement. With the result of the advisory votes, the Committee determined that the Company’s executive compensation elements continued to be appropriate. Therefore, the Company did not make any changes to its executive compensation program or arrangements as a direct result of the 2020 “Say on Pay” vote. Timing of Compensation Decisions Generally, at the end of each annual evaluation period, our Chief Executive Officer reviews the performance of the other executive officers and presents his conclusions and recommendations to the Committee. At that time and throughout the year, the Committee also evaluates the performance of our Chief Executive Officer, which is measured in substantial part against our consolidated financial performance. In the first quarter of our fiscal year, the Committee typically establishes the elements of our short-term cash incentive plan for the upcoming year. With respect to newly hired employees, our practice is typically to have the Employee Equity Committee approve any applicable equity grants on or about such employee’s hire date, or to approve such grants at the first meeting of the Committee following such employee’s hire date. We do not have any program, plan or practice to time equity award grants in coordination with the release of material non-public information. From time to time, additional equity awards may be granted to executive officers during the fiscal year. Role of Executive Officers in Compensation Decisions For named executive officers other than our Chief Executive Officer, we have historically sought and considered input from our Chief Executive Officer in making determinations regarding executive compensation. 20 Our Chief Executive Officer annually reviews the performance of our other named executive officers. Our Chief Executive Officer subsequently presents conclusions and recommendations regarding the compensation of such officers, including proposed salary adjustments and incentive amounts, to the Committee. The Committee then takes this information into account when it makes final decisions regarding any adjustments or awards. The review of performance by the Committee and our Chief Executive Officer of other executive officers is both an objective and subjective assessment of each executive’s contribution to our performance, leadership qualities, strengths and weaknesses and performance relative to goals set by the Committee or our Chief Executive Officer, as applicable. The Committee and our Chief Executive Officer do not systematically assign a weight to the factors, and may, in their discretion, consider or disregard any one factor which, in their sole discretion, is important to or irrelevant for a particular executive. y x o r P In addition to the annual reviews, the Committee also typically considers compensation changes upon a named executive officer’s promotion or other change in job responsibility. Role of Compensation Consultant The Committee engages an external compensation consultant to assist it by providing information, analysis and other advice relating to our executive compensation program and the decisions resulting from its annual executive compensation review. For 2021, the Committee retained Compensia, a national compensation consulting firm, to serve as its independent compensation consultant. This compensation consultant serves at the discretion of the Committee. During 2021, Compensia regularly attended the meetings of the Committee (both with and without management present) during the period of its engagement and provided the following services: • • • • Consulting with the Committee Chair and other members between Committee meetings on compensation matters as needed; Assisting in the drafting of the Compensation Discussion and Analysis; Reviewing and updating the compensation peer group used to assess executive compensation; and Providing market data for selected executive officer positions covering target total direct compensation levels and design to help the Committee determine how to competitively set compensation for the selected executive officer positions. In 2021, Compensia did not provide any services to us other than the consulting services to the Committee. The Committee regularly reviews the objectivity and independence of the advice provided by its compensation consultant on executive compensation. In 2021, the Committee considered the six specific independence factors adopted by the SEC and reflected in the NYSE listing standards and determined that the work performed by Compensia did not raise any conflicts of interest. Elements of Compensation In making decisions regarding the pay of the named executive officers, the Committee looks to set a total compensation package for each officer that will retain high-quality talent and motivate the officer to achieve the goals set by our Board. Our executive compensation package is generally comprised of the following elements: Element Annual base salary Purpose Provides a guaranteed element of a named executive officer’s annual cash compensation (i.e., a portion not at risk due to market fluctuations) 21 Element Short-term cash incentives Long-term equity incentives Expatriate and other executive benefits Purpose Incentivizes achievement of optimal annual financial, operational and strategic performance Aligns interests of our named executive officers with interests of our stockholders by increasing stock ownership, incentivizing increases in stockholder value and strengthening retention Allows us to remain competitive with peer and market practices and to retain key personnel on expatriate assignments by minimizing adverse financial impacts associated with such assignments Our executives also participate in a health and welfare benefits package that is generally available to all of our employees and are each party to an employment or severance agreement that provides for limited post- employment and change in control payments and benefits. Determination of Amount of Each Element of Compensation General Background The Committee seeks to establish a total cash compensation package for our named executive officers that is competitive with the compensation for similarly situated executives in our compensation peer group, subject to adjustments based on each executive’s experience and performance. Based on our review of industry-specific survey data and the professional and market experience of our Committee members, we measure total cash compensation for our named executive officers against cash compensation paid to executives at similarly situated companies which we have determined to be in our select peer group. Base salaries for our named executive officers are then set at competitive levels as compared to similarly situated executives in the select peer group. Short-term cash incentives are put in place to provide for opportunities that provide for competitive levels of cash compensation as compared to our select peer group if, and depending upon the extent to which, our performance and that of our named executive officers exceeds expectations and the goals established by the Committee for the applicable year. Sources of Market Data For purposes of comparing our executive compensation against the competitive market, the Committee reviews and considers the compensation levels and practices of a group of comparable technology companies. The companies in this compensation peer group were selected on the basis of their similarity to us in size, industry focus and geographic location. With the assistance of Compensia, the Committee developed our compensation peer group based on a review of U.S.-based semiconductor companies. We focused on U.S.-based companies because our highest ranking executives are U.S. expatriates who have opportunities to work with U.S.-based semiconductor companies. The companies in this compensation peer group were selected on the basis of their similarity to us, based on the following criteria: • • Industry — semiconductors; semiconductor equipment, electronic equipment and instruments; electronic components; Similar revenue size — ~0.5x – 2.0x Magnachip’s last four fiscal quarter revenue of ~$759 million (~$380 million to $1.5 billion); • Market capitalization — 0.25x – 4.0x Magnachip’s market capitalization of $511 million ($128 million to $2.0 billion); 22 • • Executive positions similar in breadth, complexity and/or scope of responsibility; and Competitors for executive talent. The Committee approved the use of market data from the following group of peer companies (which was reviewed and approved in February 2021) for our 2021 executive compensation market assessment: Alpha and Omega Semiconductor Axcelis Technologies Cohu CTS Diodes FARO Technologies Ichor Holdings Lattice Semiconductor MACOM Technology Solutions Holdings MaxLinear NeoPhotonics Novanta Power Integrations Semtech SMART Global Holdings Ultra Clean Holdings Vishay Intertechnology y x o r P There were changes to the peer group based on the review in 2021: 2 peers were removed and 1 peer was added. The Committee used the market data from this peer group as a reference point in its 2021 executive compensation process. The Committee typically makes annual determinations regarding cash incentive compensation based on our annual operating plan, which is generally adopted in the December preceding each fiscal year. The determination takes into account our expected performance in the coming fiscal year. The Committee generally makes all equity compensation decisions for our named executive officers based on a review of our peer group and other competitive market data provided by our compensation consultant. The Committee does not target a specific percentile within our peer group with respect to cash or equity-based compensation. Equity awards are not tied to base salary or cash incentive amounts and constitute lesser or greater proportions of total compensation depending on market practices and the Committee’s determination of target grant values. The Committee, relying on the professional and market experience of our Committee members, as well as information provided by our compensation consultant, generally seeks to set equity awards at competitive levels based on both U.S. and Korean market practices and taking into account our equity plan share pool and projected dilution of our shares outstanding. The Committee does not apply a formula or assign relative weight in making its determinations. Instead, it makes a subjective determination after considering all information collectively for each element of compensation. The Committee may approve additional cash incentive payments or equity compensation grants from time to time during the year in its discretion. Annual Base Salary The Committee seeks to set the base salaries of our named executive officers at competitive levels as compared to similarly situated executives in our select peer group, but also takes into account the named executive officer’s skill set and the value of that skill set. The Committee makes a subjective decision regarding any changes in base salary based on these factors and the data from our select peer group. The Committee does not systematically assign weights to any of the factors it considers, and may, in its discretion, ignore any factors or deem any one factor to have greater importance for a particular executive officer. Base salary adjustments, if 23 applicable, generally take effect in the middle of our fiscal year. None of our named executive officers received a base salary increase in 2021. The 2021 base salary for each named executive officer is set forth below: Executive 2021 Base Salary Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $557,396 $330,000 $306,158 $330,000 $297,418 Short-Term Cash Incentives Short-term cash incentives are typically designed as a percentage of base salary and may be awarded based on individual performance or our achievement of annual, long-term and strategic quantitative goals set by the Board or the Committee. We have been providing short-term cash incentive opportunities to encourage our named executive officers to achieve certain short-term corporate performance goals. The employment agreement that each of our named executive officers has entered into includes a target bonus amount, which is expressed as a percentage of base salary. The percentages and target bonus amounts applicable to our named executive officers are set forth below. Named Executive Officer Target Bonus (% of Base Salary) Target Bonus Amount Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 75% 60% 50% 50% $557,396 $247,500 $183,695 $165,000 $148,709 In the past, the Company’s short-term cash incentive payouts were typically based on achievement of three corporate financial performance goals—revenue, gross profit margin and Adjusted EBITDA. However, based on the recommendation of the CEO, and in order to align the level of achievement throughout all ranks within our organization, we paid each executive officer’s 2021 bonus at 71.7% of target, which is the same target bonus percentage earned by our non-executive employees pursuant to the terms of the collective bargaining agreement entered into by Magnachip Semiconductor, Ltd. As a result, on January 25, 2022, each of our named executive officers was paid a cash bonus amount set forth adjacent to his name in the table below. Named Executive Officer 2021 Cash Incentive Amount Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . $399,653 $177,458 $127,203 $118,306 $102,976 In addition to the foregoing, on March 8, 2021, we awarded one-time discretionary cash incentive bonuses to certain executive officers and employees of the Company, including Young-Joon Kim and Theodore Kim, for their substantial contribution toward the completion of the Sale of FSG Business. The one-time discretionary cash incentive bonus amount paid to Young-Joon Kim and Theodore Kim is as set forth adjacent to his name in the table below. Named Executive Officer Bonus for Sale of FSG Business Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,176,591 $ 624,265 24 Long-Term Equity Incentives Beginning in 2018, consistent with the Committee’s desire to provide compensation that is largely “at risk” while still competitive with our peers with whom we compete for talent, our equity compensation program for our executive officers has included performance-based restricted stock units (“PSUs”) each year along with service- based restricted stock units (“Service-Based RSUs” or “RSUs”). The Committee believes that the inclusion of PSUs in our executive compensation program is consistent with, explicitly linked to, and supports our strategic objective of enhancing stockholder value. In order for any PSUs to be earned and vest, the performance must meet or exceed a threshold level of performance during the applicable performance period, and the executive must remain employed by the Company through the date the Committee certifies the level of achievement of the applicable performance milestones. In the event an executive officer is terminated without cause or resigns for good reason in each case not in connection with a “change in control” prior to the settlement of the award, the executive officer will remain eligible to vest in a pro-rata portion of the award on the certification date, based on the number of full months the executive officer provided continuous service through the applicable performance period (the “Continued Service Condition”). The employment agreements we have entered into with each of our executive officers contemplate the grant of PSUs that are earned based on the achievement of financial goals (collectively, the “Financial PSUs”) and PSUs that are earned based on our three-year total stockholder return (“TSR”) relative to the S&P Semiconductor Index (collectively, the “TSR PSUs”). The general terms of the equity awards contemplated by our 2021 executive compensation program are summarized in the table below. Service-Based RSUs Financial PSUs TSR PSUs y x o r P • Vest over three years in three equal annual installments, subject to executive’s continued employment through each applicable vesting date. • • • • • • Annual grants with one-year performance period. Vesting is based on the achievement of financial goals that measure our performance against our business strategy, with specific performance goals established by the Committee annually, subject to the satisfaction of the Continued Service Condition. For 2021, performance goals are based on revenue (1/3 weighting), gross profit margin (1/3 weighting) and Adjusted EBITDA (1/3 weighting).(1) Annual grants with three-year performance period. Performance is measured within 60 days of the end of the three-year performance period. Vesting is based on three-year TSR of the Company relative to other entities in the S&P Semiconductor Index, determined by the percentile rank of the Company’s TSR relative to the TSR of each other entity in such index, subject to the satisfaction of the Continued Service Condition. (1) “Adjusted EBITDA” means EBITDA (as defined below) adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss (gain), net, (iii) derivative valuation loss (gain), net, and (iv) various non-recurring expense (income), net. EBITDA for the periods indicated is defined as the Company’s net income (loss) before interest expense, net, income tax expense, and depreciation and amortization. 25 The below tables summarize the RSUs, Financial PSUs and TSR PSUs granted to each of the named executive officers of the Company in 2021, as well as the performance results with respect to the 2021 Financial PSU grants and the actual payout thereof. Name Grant Date FV of Grant Date Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/19/2021 2/19/2021 2/19/2021 2/19/2021 2/19/2021 $20.08 $20.08 $20.08 $20.08 $20.08 RSUs Granted (#) 29,246 21,806 11,747 5,035 6,713 RSUs Aggregate fair value of grant date ($) 587,260 437,864 235,880 101,103 134,797 Name Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grant Date 2/19/2021 2/19/2021 2/19/2021 2/19/2021 2/19/2021 FV of Grant Date ($) (at Target) 1,224,097 306,501 165,118 70,762 94,376 Financial PSUs Threshold Target Maximum Shares (#) Shares (#) Shares (#) 30,481 7,632 4,112 1,762 2,350 60,961 15,264 8,223 3,524 4,700 91,442 22,896 12,335 5,286 7,050 Threshold Target Maximum Supermaximum TSR PSUs Name Young-Joon Kim . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . Grant Date 2/19/2021 2/19/2021 2/19/2021 2/19/2021 2/19/2021 FV of Grant Date ($) (at Target) 524,610 131,343 70,762 30,321 40,421 Shares (#) Shares (#) Shares (#) Shares (#) 13,063 3,271 1,762 755 1,007 26,126 6,541 3,524 1,510 2,013 39,189 9,812 5,286 2,265 3,020 52,252 13,082 7,048 3,020 4,026 The vesting of the Financial PSUs granted in 2021 was based on the actual level of achievement for three corporate financial performance metrics— revenue, gross profit margin and Adjusted EBITDA. Achievement at or above the maximum level of achievement for each performance goal would result in a maximum payout of 150% of the portion of the named executive officer’s target level award attributable to that performance goal, while achievement below the threshold level of achievement for each performance goal would result in no payout for the portion of the named executive officer’s target level award attributable to that performance goal. In February 2022, the Committee determined that the overall achievement of the performance goals against the performance metrics approved by the Board was at 87.6% of target as shown in the below table, which resulted in the issuance of the following numbers of shares of common stock to our named executive officers: 53,402 shares to Mr. YJ Kim, 13,372 shares to Mr. T. Kim 7,204 shares to Mr. WM Lee, 3,088 shares to Mr. CH Park and 4,118 shares to Mr. YS Woo. Performance Metrics Weighting Threshold Target Maximum Goal 2021 Achievement Vesting Ratio by Category Weighed Vesting Ratio Revenue (in millions) . . . . . . . . . . . Gross Profit Margin (as % of 33.33% $518.5 $535.5 $552.5 $474.2 0.0% 0.0% revenue) . . . . . . . . . . . . . . . . . . . Adjusted EBITDA (in millions) . . . 33.33% 28.20% 29.50% 31.60% 32.38% 33.33% $ 64.8 $ 69.5 $ 74.3 $ 70.7 150.0% 112.8% 50.0% 37.6% 87.6% 26 The performance metric of the 2021 TSR PSUs is the three-year TSR relative to the S&P Semiconductor Index. In structuring the relative TSR calculation and selecting the index, the Committee wanted to compare our stock price performance to that of a large, steady-state sampling of semiconductor companies on a basis designed to eliminate any short-term aberrations in stock price at the start or the end of the performance period. As of December 31, 2021, the performance period applicable to the TSR PSUs granted in 2019 (the “2019 TSR PSUs”) ended. The performance metrics applicable to the 2019 TSR PSUs were the same as those described above with respect to the 2021 TSR PSUs. In February 2022, based on such performance metrics, the Committee determined the vesting percentage of the 2019 TSR PSUs to be 80.0%, as the Company recorded a TSR of 175.02% for the performance period, placing it at the 50th percentile within the S&P Semiconductor Index, versus a target of 60th percentile, which resulted in the issuance of the following numbers of shares of common stock to our named executive officers: 19,104 shares to Mr. YJ Kim, 5,400 shares to Mr. T. Kim, and 5,640 shares to Mr. WM Lee. y x o r P Health and Welfare Benefits Our named executive officers are eligible to participate in our employee benefit plans that are generally provided to all full-time employees, and on the same basis as all of our full-time employees in the country in which they are resident. These benefits include individual health insurance (medical, dental, and vision), group personal accident insurance and group business travel insurance. Perquisites and Other Benefits We provide the named executive officers with perquisites and other benefits, including expatriate benefits, which the Committee believes are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions. Generally, perquisites are determined based upon what the Committee considers to be customary perquisites offered by our select peer group and are not based upon a median cost for specific perquisites or for the perquisites in aggregate. The Committee determines the level and types of expatriate benefits for the named executive officers based on local market surveys taken by our human resources group. These surveys are not limited to our select peer group, but include a broad range of companies based outside of Korea but with significant operations in Korea. Attributed costs of the personal benefits for the named executive officers are set forth in the Summary Compensation Table below. Consistent with the industry practice of hiring key expatriate executives and relocating such executives to a foreign country, like Korea, the provision of expatriate benefits to key expatriate executives allows us to retain key personnel on expatriate assignments and minimize any financial impacts associated with such assignments. Mr. YJ Kim and Mr. T. Kim were expatriates during 2021 and received expatriate benefits commensurate with market practice in Korea. The Committee determined the appropriate benefits for each expatriate in accordance with internal policies approved by our Board from time to time, which included housing allowances, relocation and repatriation allowances, insurance premiums, reimbursement for the use of a car, home leave flights, living expenses, children’s tuition allowances, tax equalization payments and tax advisory services. Employment Agreements and Post-Employment Severance Benefits As of December 31, 2021, each of our named executive officers other than Mr. YS Woo was party to an employment or severance agreement that provides for certain payments upon his termination of employment and/ or a change in control of the Company and that is intended to align the interests of the executives and stockholders if a transaction were to occur. Please see the section below entitled “Potential Payments Upon Termination or Change in Control” for further discussion of those benefits. We believe that the use of severance arrangements appropriately mitigates some of the risk that exists for executives working in our highly competitive industry and allows the executives to focus on our business objectives. In connection with Mr. YS Woo’s resignation and termination of his executive service agreement with the Company and Magnachip Semiconductor, Ltd., our Korean subsidiary (“MSK”), effective December 31, 2021, Mr. YS Woo, the Company 27 and MSK entered into a separation agreement dated as of December 29, 2021 (the “Woo Separation Agreement”). Please see the section below entitled “Potential Payments Upon Termination or Change in Control” for further discussion of the Woo Separation Agreement. Pursuant to the Employee Retirement Benefit Security Act, certain executive officers residing in Korea with one or more years of service are entitled to severance benefits upon the termination of their employment for any reason. For purposes of this section, we call this benefit “statutory severance.” The base statutory severance is approximately one month of base salary per year of service. Each of our named executive officers accrued statutory severance in 2021. Clawback Policy The Company has adopted a clawback policy that applies to incentive compensation approved, awarded or granted to our current and former executive officers, including our named executive officers, following the adoption of the policy in 2017. Under the clawback policy, if we are required to prepare an accounting restatement due to the Company’s material noncompliance with any financial reporting requirement under U.S. federal securities laws and the Board determines that a covered executive officer has willfully committed an act of fraud, dishonesty or recklessness in the performance of his or her duties as an executive officer of the Company that contributed to the noncompliance, the Board may require reimbursement or forfeiture of any excess incentive compensation that is received by any covered executive officer during the three completed fiscal years preceding the date on which the Company is required to prepare such accounting restatement. Securities Trading Policy The Company has adopted the Securities Trading Policy which applies to all of directors, officers and employees of the Company, to describe the standards concerning the handling of non-public information relating to the Company and the buying and selling of securities of the Company. The policy prohibits engaging in pledging, short sales and buying or selling puts, calls, options or other derivatives in respect of securities of the Company. The policy also strongly discourages speculative hedging transaction where even long-term hedging transactions that are designed to protect an individual’s investment in Company securities (i.e., the hedge must be for at least twelve (12) months and relate to stock or options held by the individual) is only permitted after being pre-cleared with the Company’s General Counsel. Stock Ownership Guidelines Effective July 12, 2018, we adopted the Executive Officer and Director Stock Ownership Policy, or Stock Ownership Policy, that is applicable to our non-employee directors and our executive officers. The Stock Ownership Policy requires that: • • • The Chairman of the Board hold equity in the Company with a value equal to the lesser of (i) three times his or her then current annual Board and Chairman cash retainer and (ii) three times his or her initial annual Board and Chairman cash retainer paid at the time he or she became subject to the Stock Ownership Policy as the Chairman of the Board; Non-employee directors hold equity in the Company with a value equal to the lesser of (i) three times the non-employee director’s annual Board cash retainer and (ii) three times his or her initial annual Board cash retainer paid at the time he or she became subject to the Stock Ownership Policy as a director of the Company; The Chief Executive Officer owns equity in the Company equal to the lesser of (i) five times his or her then current annual base salary and (ii) five times his or her annual base salary paid at the time he or she became subject to the Stock Ownership Policy as the Chief Executive Officer of the Company; and 28 • All other covered executives own equity in the Company equal to the lesser of (i) two times his or her annual base salary and (ii) two times his or her annual base salary as of the date such individual’s entered into their role that made them subject to the Stock Ownership Policy. The Stock Ownership Policy provides that an individual subject to the policy is required to be in compliance with the minimum equity ownership requirement by the later of the five-year anniversary of the implementation date of the Stock Ownership Policy and the five-year anniversary of such individual’s entrance into their role that made them subject to the Stock Ownership Policy. The Stock Ownership Policy provides that shares of our common stock directly owned by covered executives and directors, vested, but not settled, restricted stock units, 50% of any vested unexercised options, shares owned jointly with a spouse and shares of our common stock held in a trust established by a covered executive or director for the benefit of the such covered executive or director and/or family members will count towards satisfying the minimum equity ownership requirement of the Stock Ownership Policy. y x o r P Accounting Considerations The Committee considers the accounting impact of equity awards when designing compensation plans and arrangements for our executive officers and other employees. Chief among these is Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”), the standard which governs the accounting treatment of stock-based compensation awards. However, accounting cost is just one factor considered when designing such compensation plans and arrangements for our executive officers and other employees. COMPENSATION COMMITTEE REPORT The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis as set forth above under “Compensation Discussion and Analysis” with our management and, based on such review and discussion, has recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement. The foregoing report was submitted by the Compensation Committee and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A promulgated by the SEC or Section 18 of the Exchange Act and shall not be incorporated by reference in any of our other filings under the Securities Act or Exchange Act except to the extent we specifically incorporate this report therein. Members of the Committee: Camillo Martino, Chair Gary Tanner Kyo-Hwa (Liz) Chung 29 Summary Compensation Table The following table sets forth certain information concerning the compensation earned during the years ended December 31, 2021, 2020 and 2019, of our named executive officers: Name and Principal Position Year Salary ($)(1) Bonus ($)(2) Option Awards ($) Stock Awards ($)(3) Non-Equity Incentive Plan Compensation ($) Young-Joon Kim . . . . . . . . . . . . Chief Executive Officer 2021 557,136 1,576,245 2020 556,399 2019 557,863 2,335,967 125,000 — 1,486,335 967,936 — — Theodore Kim . . . . . . . . . . . . . . 2021 329,846 2020 329,410 2019 330,277 Chief Compliance Officer, General Counsel and Secretary 801,724 74,250 — — — Woung Moo Lee . . . . . . . . . . . . 2021 306,158 2020 296,913 2019 300,513 General Manager of Worldwide Sales 127,203 57,527 — — — 875,709 539,350 547,200 471,760 406,210 571,520 Chan Ho Park . . . . . . . . . . . . . . . 2021 329,846 2020 192,203 General Manager of Power 118,306 28,943 — 202,186 166,350 Solutions Young Soo Woo . . . . . . . . . . . . . 2021 297,418 2020 176,244 Former Chief Financial 102,976 28,121 — 269,594 193,140 Officer — — — — — — — — Change in Pension Value and Non- qualified Deferred Compensation Earnings ($)(4) 68,656 26,089 57,012 40,016 16,096 33,310 25,827 24,350 25,035 29,353 15,344 24,847 16,141 All Other Compensation ($) Total ($) 1,034,781(5) 5,572,785 2,951,667 2,162,886 757,844 580,075 443,141(6) 2,490,436 1,293,060 333,954 1,185,471 274,684 47,360(7) 38,645 36,957 978,307 823,644 934,025 165,052(8) 189,747 844,743 592,586 33,613(9) 16,907 728,448 430,552 (2) (3) Note: A monthly average exchange rate was used to convert amounts in the above table that were originally paid in Korean won. (1) The base salary amounts for Messrs. YJ Kim, T. Kim and CH Park in this table differ from the contractual base salary amounts described in the section above subtitled “Compensation Discussion and Analysis— Annual Base Salary” due to fluctuation in the exchange rate between U.S. dollars and Korean won during the year. The increase in base salary amounts between 2020 and 2021 is also a result of fluctuation in the exchange rate between 2020 and 2021. CH Park’s base salary in 2020 was calculated based on his service with the Company from his date of hire on June 1, 2020 through December 31, 2020. Represents cash bonuses earned by the applicable named executive officer in 2021. See the section subtitled “Compensation Discussion and Analysis” for a description of the short-term cash incentive amounts paid in 2021. The amount reported represents the aggregate grant date fair value of RSUs and PSUs granted to our named executive officers in 2021, 2020 and 2019, determined in accordance with FASB ASC 718. Such grant date fair value does not take into account any estimated forfeitures. The amount reported in this column reflects the accounting cost for these RSUs and PSUs and does not correspond to the actual economic value that may be received by the applicable NEO upon the vesting/settlement of the RSUs or any sale of the underlying shares of common stock. The Financial PSUs and the TSR PSUs are reported here at the target performance level based on the probable outcome of such performance conditions. When calculated at the maximum performance level (which is referred to as “supermaximum” with respect to the TSR PSUs), the amount of the PSUs in 2021 would be $2,885,376 for Mr. YJ Kim, $722,438 for Mr. T. Kim, $389,211 for Mr. WM Lee, $166,784 for Mr. CH Park and $222,406 for Mr. YS Woo. See the section subtitled “Compensation Discussion and Analysis—Long-Term Equity Incentives” for further information. 30 y x o r P (4) (5) (6) (7) (8) (9) Consists of statutory severance accrued for each years ended December 31, 2021, 2020 and 2019, as applicable. See the section below subtitled “Pension Benefits for the Fiscal Year Ended December 31, 2021” for a description of the statutory severance benefit. Includes the following personal benefits paid to Mr. YJ Kim for 2021: (a) $198,043 for Mr. YJ Kim’s housing lease; (b) $6,113 for reimbursement of tuition expenses for Mr. YJ Kim’s children; (c) $71,618 for health insurance premiums; (d) $5,431 for accident insurance and business travel insurance premiums; (e) $26,939 for annual cash special allowance (the amount reported in this table differs from the $27,000 contractual annual cash special allowance due to fluctuation in the exchange rate between U.S. dollars and Korean won during the year); (f) $13,577 for car and driver expense (including personal use of a car service provided by the Company); (g) $19,709 for tax consulting expense; (h) $21,374 for living expense; (i) $10,765 for moving expense; (j) $2,156 for meal allowance, welfare points etc.; (k) $93,092 of reimbursement for the difference between the actual tax Mr. YJ Kim already paid and the hypothetical tax he had to pay for the fiscal year 2021; and (l) $565,964 for reimbursement of Korean tax. Includes the following personal benefits paid to Mr. T. Kim for 2021: (a) $58,454 for Mr. T. Kim’s housing lease; (b) $14,912 for Mr. T. Kim’s home leave flights; (c) $50,574 for health insurance premiums; (d) $1,304 for accident insurance and business travel insurance premiums; (e) $3,198 for personal use of a car service provided by the Company; (f) $13,434 for tax consulting expense; (g) $4,564 for living expense; (h) $2,025 for meal allowance, welfare points and fitness allowance; (i) $42,095 of reimbursement for the difference between the actual tax Mr. T. Kim already paid and the hypothetical tax he had to pay for the fiscal year 2021; and (j) $252,582 for reimbursement of Korean tax. Includes the following personal benefits paid to Mr. WM Lee for 2021: (a) $38,968 for health insurance premiums; (b) $3,010 for personal use of a car service provided by the Company; (c) $1,906 for private pension; (d) $1,267 for medical check for spouse; and (e) $2,209 for meal allowance, welfare points, medical expense support and fitness allowance. Includes the following personal benefits paid to Mr. CH Park for 2021: (a) $72,466 for health insurance premiums; (b) $2,541 for personal use of a car service provided by the Company; (c) $79,963 for special bonus (the amount reported in this table differs from the $80,000 contractual special bonus due to fluctuation in the exchange rate between U.S. dollars and Korean won during the year); (d) $6,748 for tax consulting expense; (e) $1,267 for medical check for spouse; and (f) $2,068 for meal allowance, welfare points etc. Includes the following personal benefits paid to Mr. YS Woo for 2021: (a) $22,348 for health insurance premiums; (b) $2,514 for personal use of a car service provided by the Company; (c) $5,979 for reimbursement of tuition expenses for Mr. YS Woo’s children; (d) $1,267 for medical check for spouse; and (e) $1,505 for meal allowance, welfare points and medical expense support. See the sections below subtitled “Pension Benefits for the Fiscal Year Ended December 31, 2021” and “Separation Agreement” for a description of the severance payments and benefits payable to Mr. YS Woo. Grants of Plan-Based Awards Table for Fiscal Year 2021 The following table sets forth information regarding grants of plan-based awards made to our named executive officers during 2021. See the section subtitled “Compensation Discussion and Analysis—Long-Term Equity Incentives” for further information. 31 Name Grant Date Threshold Target Maximum Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/19/2021(1) 2/19/2021(2) 30,481 60,961 91,442 2/19/2021(3) 13,063 26,126 52,252(4) Estimated Future Payouts Under Equity Incentive Plan Awards (#) All Other Stock Awards: Number of Shares of Stock or Units (#)(1) 29,246 Grant Date Fair Value of Stock and Option Awards ($)(5) 587,260 1,224,097 524,610 Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/19/2021(1) 2/19/2021(2) 2/19/2021(3) 7,632 15,264 22,896 3,271 6,541 13,082(4) Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/19/2021(1) 2/19/2021(2) 2/19/2021(3) 4,112 1,762 8,223 12,335 3,524 7,048(4) Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/19/2021(1) 2/19/2021(2) 2/19/2021(3) 1,762 755 3,524 1,510 5,286 3,020(4) Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2/19/2021(1) 2/19/2021(2) 2/19/2021(3) 2,350 1,007 4,700 2,013 7,050 4,026(4) 21,806 11,747 5,035 6,713 437,865 306,501 131,343 235,880 165,118 70,762 101,103 70,762 30,321 134,797 94,376 40,421 (1) Represents the RSUs granted during fiscal year 2021 to our named executive officers. Further information on the RSU awards can be found in the “Compensation Discussion & Analysis” section above. (2) Represents the Financial PSUs granted during fiscal year 2021 to our named executive officers. The Compensation Committee is required to certify the actual amount earned for each performance goal for the performance period, within 60 days following the end of the performance period. Upon such determination, the applicable portion of the units corresponding to the payout percentage vests, subject to the satisfaction of the Continued Service Condition. Further information on the Financial PSUs can be found in the “Compensation Discussion & Analysis” section above. (3) Represents the TSR PSUs granted during fiscal year 2021 to our named executive officers. The Compensation Committee is required to certify the actual amount earned for each performance goal, within 60 days following the end of the performance period. Upon such determination, the applicable portion of the units corresponding to the payout percentage vests, subject to the satisfaction of the Continued Service Condition. Further information on the Financial PSUs can be found in the “Compensation Discussion & Analysis” section above. (4) Represents in the “Supermaximum” performance level. The TSR payout percentage is represented by four performance levels: “Threshold,” “Target,” “Maximum” and “Supermaximum.” Supermaximum is achieved only if Magnachip ranks first in the TSR Index and the applicable payout percentage is 200%. The payout percentage is 150% for “Maximum” performance. (5) Represents the grant date fair value of each equity-based award as determined in accordance with FASB ASC 718. For the performance-based equity awards, the amounts are reported at the target performance level. Severance Agreements with Our Named Executive Officers In 2021, we maintained severance or employment agreements with each of our named executive officers that, among other benefits, provide for payments upon termination or a change in control. For more information about the terms of these agreements and benefits, see the section below entitled “Potential Payments Upon Termination or Change in Control”. 32 Equity Compensation Plans For more information about the terms of our equity compensation plans, see the section below entitled “Equity Compensation Plan Summary”. Outstanding Equity Awards at Fiscal Year End 2021 The following table sets forth all outstanding equity awards held by our named executive officers as of December 31, 2021. Please see the section below entitled “Potential Payments Upon Termination or Change in Control” for information regarding the impact of certain employment termination scenarios on outstanding equity awards. y x o r P Name Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . Number of Securities Underlying Unexercised Options (#) Exercisable Option Awards Number of Securities Underlying Unexercised Options (#) Unexercisable Grant Date 5/6/2013 6/9/2015 3/11/2016 200,000 90,610 45,305 10/26/2013 6/9/2015 3/11/2016 11/1/2013 6/9/2015 3/11/2016 — — 50,000 51,740 25,870 50,000 43,940 25,870 — — — — — — — — — — — — — Option Exercise Price($) 15.96 7.64 5.53 21.79 7.64 5.53 19.56 7.64 5.53 — — Option Expiration Date 5/6/2023 6/9/2025 3/11/2026 10/26/2023 6/9/2025 3/11/2026 11/1/2023 6/9/2025 3/11/2026 — — Name Young-Joon Kim . . . . . . Theodore Kim . . . . . . . . Woung Moo Lee . . . . . . Chan Ho Park . . . . . . . . . Grant Date 5/7/2020 2/19/2021 5/7/2020 2/19/2021 5/7/2020 2/19/2021 6/1/2020 2/19/2021 Young Soo Woo . . . . . . 2/19/2021 Number of Shares or Units of Stock That Have Not Vested (#) 10,836(5) 19,498(6) 6,667(5) 14,538(6) 5,834(5) 7,832(6) 10,000(7) 3,357(6) 0(6) Stock Awards (3) Market Value of Shares or Units of Stock That Have Not Vested ($)(1) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(4) 227,231 408,873 139,807 304,862 122,339 164,237 209,700 70,396 29,040 26,126 6,000 6,541 5,250 3,524 — 1,510 0 671(8) 608,969 547,862 125,820 137,165 110,093 73,898 — 31,665 14,071 (1) Represents the market value of RSUs based on our closing per share price of $20.97 on December 31, 2021, the last trading day of 2021. 33 (2) Represents unvested TSR PSUs granted on May 7, 2020 and February 19, 2021 for Mr. YJ Kim, Mr. T. Kim and Mr. WM Lee, and TSR PSUs granted on February 19, 2021 for Mr. CH Park and Mr. YS Woo at target performance level. The TSR PSUs will vest based on achievement of the TSR performance goal over the 2020-2022 performance period (for the 2020 grants) and 2021-2023 performance period (for the 2021 grants), subject to the completion of the Continued Service Condition. (3) Does not include TSR PSUs granted on October 22, 2019 for Mr. YJ Kim, Mr. T. Kim and Mr. WM Lee and Financial PSUs granted on February 19, 2021 for Mr. YJ Kim, Mr. T. Kim, Mr. WM Lee, Mr. CH Park and Mr. YS Woo. Payout percentages for those PSUs were determined on February 18, 2022. See “Compensation Discussion and Analysis—Sources of Market Data—Long-term Equity Incentives” for additional details. (4) Represents the market value of TSR PSUs at target performance level based on our closing per share price of $20.97 on December 31, 2021, the last trading day of 2021. (5) RSUs vest over three years in three equal annual installments, subject to executive’s continued employment through each applicable vesting date. Represents the third installment, scheduled to vest on December 31, 2022. (6) RSUs vest over three years in three equal annual installments, subject to executive’s continued employment through each applicable vesting date. Represents the second and third installments, scheduled to vest on December 31, 2022 and December 31, 2023. (7) Represents the second and third installments of unvested RSUs granted on June 1, 2020 for Mr. CH Park that vest over a period of three years at a rate of one-third (1/3) of the total granted RSUs vesting on each anniversary of the date of the grant. (8) Represents a pro-rated number of unvested TSR PSUs granted on February 19, 2021 for Mr. YS Woo. See the section below subtitled “Separation Agreement” for a description of the treatment of Mr. YS Woo’s TSR PSUs. Option Exercises and Stock Vested The following table shows information regarding the vesting of stock awards held by our named executive officers in 2021. None of our named executive officers exercised stock options during 2021. Name Option Awards Stock Awards Number of Shares Acquired on Exercise (#) Value Realized on Exercise ($) Number of Shares Acquired on Vesting (#)(1)(6) Value Realized on Vesting ($)(5)(6) Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — — 89,022 42,575(2) 29,955 6,678(3) 11,737(4) 1,790,825 866,392 614,422 150,788 266,525 (1) Represents the sum of (i) RSUs that vested on December 31, 2021 and (ii) Financial PSUs earned based on Company performance in 2020 and that vested and were settled on February 16, 2021. These Financial PSUs were previously reported in this table for the year ended 2020. Includes RSUs that vested on March 1, 2021. Includes RSUs that vested on June 1, 2021. Includes RSUs that vested on May 25, 2021. (2) (3) (4) (5) Represents the sum of the value of (i) vested RSUs and (ii) Financial PSUs as of the vesting date, based on our closing per share price on each vesting date. 34 (6) The share numbers and values set forth in these two columns do not take into account the shares that were withheld from the named executive officers to pay applicable withholding taxes. The below table shows the number of shares, with their values calculated as of the vesting date, that were withheld by the Company in order to pay applicable withholding taxes on behalf of our named executive officers: Name Young-Joon Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock Awards Number of Shares Withheld (#) 32,940 15,754 14,134 — 2,606 Value of Shares Withheld ($) 662,643 320,591 290,247 — 54,648 y x o r P Pension Benefits for the Fiscal Year Ended December 31, 2021 In addition to the severance benefits described above, pursuant to the Employee Retirement Benefit Security Act of Korea, certain executive officers residing in Korea with one or more years of service are entitled to severance benefits upon the termination of their employment for any reason. The base statutory severance accrues at the rate of approximately one month of base salary per year of service and is calculated on a monthly basis based upon the executive’s salary for the prior three-month period. Accordingly, if the named executive officer’s employment with the Company terminated on the last day of our fiscal year ended December 31, 2021, they would have been entitled to the statutory severance payments described below. The accumulated amounts under the statutory severance scheme are paid in a lump sum upon the executive’s separation. Assuming no change in the applicable law, each of these executives will continue to accrue additional statutory severance benefits at the rate described above until his or her service with us terminates. Name Plan Name Young Joon Kim . . . . . . . . . . . . . . Statutory Severance Theodore Kim . . . . . . . . . . . . . . . . . Statutory Severance Woung Moo Lee . . . . . . . . . . . . . . . Statutory Severance Chan Ho Park . . . . . . . . . . . . . . . . . Statutory Severance Young Soo Woo . . . . . . . . . . . . . . . Statutory Severance Number of Years of Credited Service (#) Present Value of Accumulated Benefit ($)(1) Payments During the Last Fiscal Year($) 9 9 9 2 2 401,364 226,199 200,923 43,412 39,834 — — — — — (1) The value reported in this column represents the accumulated amount of the benefit for each executive based on the formula described above of one month of base salary per year of credited service. Nonqualified Deferred Compensation We do not maintain any nonqualified deferred compensation plans for our named executive officers. Potential Payments Upon Termination or Change in Control Our named executive officers are each party to an employment or severance agreement that provides for post-employment or change in control benefits. The terms “cause”, “good reason”, “disability” and “change in control” used below have the meanings given to them in the applicable CEO Agreement or Other Executive Agreement (each as defined below). Employment Agreements On April 26, 2018, the Company entered into a new employment agreement with Mr. YJ Kim that superseded his prior severance and employment agreements (the “CEO Agreement”). In October of 2018, the 35 Company entered into similar arrangements with Mr. WM Lee and Mr. T. Kim that replaced their prior severance agreements and offer letters (the “Other Executive Agreements”). In June 2020, the Company entered into an employment agreement with Mr. CH Park in a form substantially similar to the Other Executive Agreements. Under the CEO Agreement, Mr. YJ Kim is entitled to severance payments and benefits upon certain qualifying terminations of his employment with the Company. Upon termination of his employment by the Company without “cause” or his resignation for “good reason”, in each case not in connection with a “change in control” (each, a “Non CIC Termination”), he is entitled to receive (i) 24 months of continued base salary (as then in effect or in effect prior to any diminution constituting “good reason”) (the “Salary Payment”), (ii) a pro rata bonus based on actual performance (if such termination occurs after June 30 of the year of termination), (iii) a lump-sum payment equal to the cost of 12 months of Company-paid medical, dental and vision insurance premiums (the “Insurance Payment”), (iv) 90 days’ continuation of his expatriate benefits, and (v) to the extent that he is eligible to receive such payments as part of the expatriate benefits, the repatriation allowance and expenses. Further Mr. YJ Kim will vest in all unvested equity awards in accordance with the terms of our equity plan and the applicable award agreements. If, during a period of time that (x) the Company is party to a definitive corporate transaction agreement the consummation of which would result in a “change in control” or (y) is within 18 months following a “change in control”, Mr. YJ Kim’s employment is terminated by the Company without “cause”, by Mr. YJ Kim for “good reason” (each, a “CIC Termination”) or by reason of his death or “disability”, then he will be entitled to the severance payments described above, provided that (A) the Salary Payment shall be a lump sum payment equal to two times the sum of (1) his base salary (as then in effect or in effect prior to any diminution implicating “good reason”) and (2) his annual bonus (as then in effect or in effect prior to any diminution implicating “good reason”, but in no event greater than 100% of his base salary) and (B) the Insurance Payment will be in respect of 18 months rather than 12 months. Further, Mr. YJ Kim will vest in all equity awards in accordance with the terms of our equity plan and the applicable award agreements. Mr. YJ Kim’s right to receive any “change in control” or other severance payments provided in the CEO Agreement is subject to his execution of a release of claims against us and his compliance with certain restrictive covenants. The Other Executive Agreements provide that the applicable executive will be entitled to severance payments and benefits upon certain qualifying terminations of his employment with the Company. In the event that the applicable executive incurs a Non CIC Termination, he will be entitled to (i) 12 months of continued base salary for Mr. T. Kim and Mr. WM Lee and 6 months of continued base salary for CH Park (as then in effect or in effect prior to any diminution constituting “good reason”) (the “Other Executive Salary Payment”), (ii) a pro rata bonus based on actual performance (if such termination occurs after June 30 of the year of termination) (together with the Other Executive Salary Payment, the “Other Executive Severance Payment”), (iii) vesting of all equity awards in accordance with the terms of our equity plan and the applicable award agreements. Further, Mr. T. Kim would receive a lump sum payment equal to the cost of 12 months of Company-paid medical, dental and vision insurance premiums, 90 days’ continuation of his expatriate benefits, and, to the extent that he is eligible to receive such payments as part of his expatriate benefits, a repatriation allowance in the amount of one month’s base salary and certain repatriation expenses as described in his agreement. In the event that Mr. WM Lee or Mr. T. Kim incurs a CIC Termination, then the applicable executive will be entitled to the severance payments described above, provided that the Severance Payment instead will equal one and one-half times the executive’s base salary (as then in effect or in effect prior to any diminution implicating “good reason”), while Mr. CH Park will be entitled to 12 months of base salary as described above; and provided further, that if the date of termination occurs after June 30 of the calendar year in which the date of termination occurs, Mr. T. Kim will also receive an amount equal to an additional month of base salary for each month that has passed since July 1 through the date of termination (rounding up for any partial months), which 36 will be payable in a lump sum on the sixtieth (60th) day following the date of termination. Further, the applicable executive will vest in all equity grants in accordance with the terms of our equity plan and the applicable award agreements. The applicable executive’s rights to receive any “change in control” or other severance payments under the Other Executive Agreements is subject to the applicable executive’s execution of a release of claims against us and his compliance with certain restrictive covenants. The following tables present our estimate of the dollar value of the payments and benefits payable to our named executive officers upon the occurrence of certain terminations of their employment and upon a change in control, assuming that each such event occurred on December 31, 2021, and assuming a closing per share price of $20.97 on December 31, 2021, the last trading day of 2021. The disclosure in the following table does not include: y x o r P • • any accrued benefits that were earned and payable as of December 31, 2021; or payments and benefits to the extent they are provided generally to all salaried employees and do not discriminate in scope, terms or operation in favor of the named executive officers. Young-Joon Kim Cash Severance Payment ($)(1) Value of Equity Award Acceleration ($) Continuation of Benefits and Perquisites ($)(2) Total ($) Termination By the Company Without Cause / By Executive for Good Reason . . . . . . . . . . . . . . . . . . . . . . . 1,514,445 2,367,723(4) 372,398(7) 4,254,566 Termination By the Company Without Cause / By Executive for Good Reason, In Connection With a Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination By the Company for Cause / By Executive without Good Reason . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in Control (without termination of employment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,229,584(3) 3,572,051(5) 408,207(8) 6,209,842 — — — 3,572,051(6) — — — 3,572,051 (1) Represents cash severance payments payable pursuant to the CEO Agreement (including a pro rata bonus based on actual performance). See “Potential Payments Upon Termination or Change in Control” for additional information. (2) Represents continuation of benefits and perquisites pursuant to the CEO Agreement and our expatriate benefit policy. See “Potential Payments Upon Termination or Change in Control” and “—Compensation Discussion and Analysis—Perquisites and Other Benefits” for additional information. Calculated assuming benefits for the applicable period will have the same dollar value as corresponding 2021 benefits. (3) Mr. YJ Kim would also receive such benefits upon a termination as a result of his death or disability that occurs in connection with a change in control. (4) Represents the value of Mr. YJ Kim’s 2019, 2020 and 2021 TSR PSUs and 2021 Financial PSUs that remain eligible to vest, based on the Continued Service Condition and the assumed termination date. More specifically, he would remain eligible to vest in the full number of his 2019 TSR PSUs and 2021 Financial PSUs, two-thirds of his 2020 TSR PSUs and one-third of his 2021 TSR PSUs based on actual performance. This column assumes vesting at target performance level. (5) Represents the value of immediate vesting of all RSUs granted after January 1, 2020. Mr. YJ Kim would also vest in his outstanding PSUs at the target level of achievement at the time of the change of control. Mr. YJ Kim would also receive accelerated vesting of his RSUs upon his death or disability that occurs in connection with a change in control. 37 (7) (6) Assumes that the Committee exercised its discretion to fully accelerate all equity awards in connection with the transaction under the 2011 Plan and the 2020 Plan. Represents the value of accelerated vesting of unvested RSUs and PSUs (assuming the PSUs vest at target performance level). Includes the following continuation of benefits and perquisites for Mr. YJ Kim: (a) $48,833, which is housing expenses for Mr. YJ Kim’s housing lease; (b) $1,507 for reimbursement of tuition expenses for Mr. YJ Kim’s children; (c) $71,618 for health insurance premiums; (d) $46,450 for repatriation allowance; (e) $28,005 for repatriation expense; (f) $13,478 for living expense, tax consulting fee and car service provided by the Company; (g) $22,954 of reimbursement for the difference between the actual tax and the hypothetical tax he will pay for the applicable fiscal year; and (h) $139,553 for estimated reimbursement of Korean tax. (8) Same as the total amount of Note (7) except this amount includes an additional $35,809 representing the employer cost of insurance premiums for an additional 6 months of insurance coverage. Mr. YJ Kim would also receive such benefits upon a termination as a result of his death or disability that occurs in connection with a change in control. Theodore Kim Cash Severance Payment ($)(1) Value of Equity Award Acceleration ($) Continuation of Benefits and Perquisites ($)(2) Total ($) Termination By the Company Without Cause / By Executive for Good Reason . . . . . . . . . . . . . . . . . . . . . . . . 507,458 591,249(3) 224,050(6) 1,322,757 Termination By the Company Without Cause / By Executive for Good Reason, In Connection With a Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination By the Company for Cause / By Executive 660,000 1,169,288(4) 224,050(6) 2,053,338 without Good Reason / Disability / Death . . . . . . . . . . . . — — Change in Control (without termination of employment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,169,288(5) — — — 1,169,288 (1) Represents cash severance payments payable pursuant to the applicable Other Executive Agreement. See “Potential Payments Upon Termination or Change in Control” for additional information. (2) Represents continuation of benefits and perquisites pursuant to the applicable Other Executive Agreements and our expatriate benefit policy. See “Potential Payments Upon Termination or Change in Control” and “Compensation Discussion and Analysis—Perquisites and Other Benefits” for additional information. Calculated assuming benefits for the applicable period will have the same dollar value as corresponding 2021 benefits. (3) Represents the value of Mr. T. Kim’s 2019, 2020 and 2021 TSR PSUs and 2021 Financial PSUs that remain eligible to vest, based on the Continued Service Condition and the assumed termination date. More specifically, he would remain eligible to vest in the full number of his 2019 TSR PSUs and 2021 Financial PSUs, two-third of his 2020 TSR PSUs and one-third of his 2021 TSR PSUs based on actual performance. This column assumes vesting at target performance level. (4) Represents the value of immediate vesting of all RSUs granted after January 1, 2020. Mr. T. Kim would also vest in his outstanding PSUs at the target level of achievement at the time of the change of control. (5) Assumes that the Committee exercised its discretion to fully accelerate all equity awards in connection with the transaction under the 2011 Plan and the 2020 Plan. Represents the value of accelerated vesting of unvested RSUs and PSUs (assuming the PSUs vest at target performance level). Includes the following continuation of benefits and perquisites for Mr. T. Kim: (a) $14,413 for housing expenses for Mr. T. Kim’s housing lease; (b) $3,677 for Mr. T. Kim’s home leave flights; (c) $50,574 for health insurance premiums; (d) $27,500 for repatriation allowance; (e) $50,000 for repatriation expense; (f) $5,227 for other personal benefits (including personal use of a car service provided by the Company, living (6) 38 y x o r P expenses and tax consulting fee); (g) $10,379 of estimated reimbursement for the difference between the actual tax and the hypothetical tax he will pay for the applicable fiscal year; and (h) $62,280 for estimated reimbursement of Korean tax. Woung Moo Lee Cash Severance Payment ($)(1) Value of Equity Award Acceleration ($) Continuation of Benefits and Perquisites ($) Total ($) Termination By the Company Without Cause / By Executive for Good Reason . . . . . . . . . . . . . . . . . . . . . . . . 433,361 418,310(2) — 851,671 Termination By the Company Without Cause / By Executive for Good Reason, In Connection With a Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination By the Company for Cause / By Executive without Good Reason / Disability / Death . . . . . . . . . . . . Change in Control (without termination of employment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,237 790,842(3) — 1,250,079 — — — — — 790,842(4) — 790,842 (1) Represents cash severance payments payable pursuant to the applicable Other Executive Agreement. See “Potential Payments Upon Termination or Change in Control” for additional information. (2) Represents the value of Mr. WM Lee’s 2019, 2020 and 2021 TSR PSUs and 2021 Financial PSUs that remain eligible to vest, based on the Continued Service Condition and the assumed termination date. More specifically, he would remain eligible to vest in the full number of his 2019 TSR PSUs and 2021 Financial PSUs, two-thirds of his 2020 TSR PSUs and one-third of his 2021 TSR PSUs based on actual performance. This column assumes vesting at target performance level. (3) Represents the value of all RSUs granted after January 1, 2020. Mr. WM Lee would also vest in the PSUs that remained eligible to vest at the target level of achievement at the time of the change of control. (4) Assumes that the Committee exercised its discretion to fully accelerate all equity awards in connection with the transaction under the 2011 Plan and the 2020 Plan. Represents the value of accelerated vesting of unvested RSUs and PSUs (assuming the PSUs vest at target performance level). Chan Ho Park Termination By the Company Without Cause / By Executive for Good Reason . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination By the Company Without Cause / By Executive for Good Reason, In Connection With a Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Termination By the Company for Cause / By Executive Cash Severance Payment ($)(1) Value of Equity Award Acceleration ($) Continuation of Benefits and Perquisites ($) Total ($) 283,306 145,637(2) — 428,943 330,000 385,681(3) — 715,681 without Good Reason / Disability / Death . . . . . . . . . . . . . . . . . . Change in Control (without termination of employment) — — — — 385,681(4) — — 385,681 (1) Represents cash severance payments payable pursuant to the Executive Service Agreement. See “Potential Payments Upon Termination or Change in Control” for additional information. (2) Represents the value of Mr. CH Park’s RSUs granted on June 1, 2020 (“June RSUs”), 2021 TSR PSUs, and 2021 Financial PSUs that remain eligible to vest. More specifically, he would remain eligible to vest in 58.33% 39 of the second tranche of his June RSUs, the full number of his 2021 Financial PSUs, and one-third of his 2021 TSR PSUs based on actual performance. This column assumes vesting at target performance level. (3) Represents the value of immediate vesting of all RSUs granted on or after June 1, 2020. Mr. CH Park would also vest in the PSUs that remained eligible to vest at the target level of achievement at the time of the change of control. (4) Assumes that the Committee exercised its discretion to fully accelerate all equity awards in connection with the transaction under the 2011 Plan and the 2020 Plan. Represents the value of accelerated vesting of unvested RSUs and PSUs (assuming the PSUs vest at target performance level). Severance Agreement On December 29, 2021, Young Soo Woo resigned from the position of Chief Financial Officer effective December 31, 2021. In connection with Mr. YS Woo’s resignation and termination of his executive service agreement with the Company and MSK, Mr. YS Woo, the Company and MSK entered into the Woo Separation Agreement, pursuant to which the Company agreed to the following: (i) the Company will pay Mr. YS Woo a cash severance payment equal to six times his monthly base salary, payable ratably over a period of six months after the separation date (with the first payment being paid on February 25, 2022, together with any annual bonus earned for calendar year 2021, and (ii) any outstanding unvested equity awards held by Mr. YS Woo will be treated in accordance with the terms set forth in the Company’s applicable equity incentive plan and the applicable award agreements, solely for the purpose of this clause (ii), as if Mr. YS Woo’s separation was deemed to be “termination without Cause” rather than “resignation without Good Reason” under the applicable equity incentive plan and such award agreements (collectively, the “Woo Separation Benefits”). The Woo Separation Benefits are contingent on the execution and non-revocation of the release of claims in favor of the Company, MSK, or their respective affiliates, subsidiaries, representatives and other related parties, and Mr. YS Woo’s compliance with all other terms of his confidentiality agreement and proprietary information and invention assignment agreement, the Woo Separation Agreement (including compliance with non-competition, non-solicitation, non-disparagement and other restrictive covenants). The following table quantifies the value of the foregoing payments and benefits: Young Soo Woo Cash Severance Payment ($)(2) 2021 Bonus ($)(1) Value of RSUs ($)(3) Value of Financial PSUs ($)(4) Value of TSR PSUs ($)(5) Total ($) Termination By the Company Without Cause / By Executive for Good Reason . . 102,976 183,455 73,395 77,336 14,071 451,233 (1) Represents the cash bonus earned for calendar year 2021 in the amount of $102,976. (2) Represents the sum of (i) a cash severance payment in the amount of $143,621, which is equal to six times his monthly base salary, and (ii) statutory severance in the amount of $39,834. (3) Represents the value of the shares underlying the RSUs held by Mr. YS Woo and that were treated in accordance with the terms set forth in the Woo Separation Agreement, which treated Mr. YS Woo’s separation as a “termination without Cause” rather than “resignation without Good Reason”, based on the Company’s stock price of $20.97 on the December 31, 2021 vesting and settlement date. (4) Represents the value of the shares underlying the Financial PSUs held by Mr. YS Woo and that were treated in accordance with the terms set forth in the Woo Separation Agreement, which treated Mr. YS Woo’s separation as a “termination without Cause” rather than “resignation without Good Reason”, based on the Company’s stock price of $18.78 on the February 18, 2022 vesting and settlement date. (5) Represents the value of the shares underlying the TSR PSUs held by Mr. YS Woo and that were treated in accordance with the terms set forth in the Woo Separation Agreement, which treated Mr. YS Woo’s separation as a “termination without Cause” rather than “resignation without Good Reason.” More 40 specifically, he would remain eligible to vest in one-third of his 2021 TSR PSUs based on actual performance. This column assumes vesting at target performance level, with a closing per share price of $20.97 on December 31, 2021; however, the award will vest and settle in February 2024. CEO Pay Ratio For the 2021 fiscal year, the ratio of the annual total compensation of Mr. YJ Kim, our Chief Executive Officer (“CEO Compensation”), to the median of the annual total compensation of all of our employees other than our Chief Executive Officer (“Median Annual Compensation”) was 55.54 to 1. This ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K using the data and assumptions summarized below. In this summary, we refer to the employee who received such Median Annual Compensation as the “Median Employee.” For purposes of this disclosure, the date used to identify the Median Employee was December 31, 2021 (the “Determination Date”). y x o r P CEO Compensation for purposes of this disclosure represents the total compensation reported for Mr. YJ Kim under “Summary Compensation Table”, which was $5,572,785 for the 2021 fiscal year. For purposes of this disclosure, Median Annual Compensation was $100,331, and was calculated by totaling for our Median Employee all applicable elements of compensation for the 2021 fiscal year in accordance with Item 402(c)(2)(x) of Regulation S-K. To identify the Median Employee, we first determined our employee population as of the Determination Date. We had 890 employees, representing all full-time, part-time, seasonal and temporary employees of Magnachip and its consolidated subsidiaries as of the Determination Date, but excluding Mr. YJ Kim, and, as permitted by applicable SEC rules, excluding (i) any independent contractors or “leased” workers and (ii) all of our employees located in China (18), Taiwan (2), Japan (1) and Germany (1). We then measured compensation for the period beginning on January 1, 2021 and ending on December 31, 2021 for these employees. This compensation measurement was calculated by totaling, for each employee, total cash compensation paid (including salary, wages, tips, cash bonuses and other cash compensation paid in 2021) as shown in our payroll and human resources records for 2021. A portion of our employee workforce (full-time and part-time) worked for less than the full fiscal year due to commencing employment after the beginning of the fiscal year. In determining the Median Employee, we annualized the compensation for such individuals. Equity Compensation Plan Information The following table provides information as of December 31, 2021, regarding securities authorized for issuance under the Company’s compensation plans. The Company’s compensation plans include the 2020 Plan, the 2011 Plan, and the Purchase Plan. The numbers in the following table do not include options or shares that may be added to the issuable amounts under the 2020 Plan or the Purchase Plan, respectively, after December 31, 2021, in accordance with the terms of the respective plans. Plan Category Equity compensation plans approved by security holders . . . Equity compensation plans not approved by security holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total: (a) Number of securities to be issued upon exercise of outstanding options, warrants or rights (b) Weighted- average exercise price of outstanding options, warrants or rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 2,367,746(1) $10.78(1) 1,069,862(2) — 2,367,746 — — 1,069,862 (1) Comprised of (a) stock options to purchase 1,297,884 shares of common stock under the 2011 Plan, at a weighted average exercise price of $10.78 per share, (b) 1,069,862 shares of common stock subject to 41 restricted stock units and performance restricted awards under the 2011 Plan and 2020 Plan, which are calculated at maximum performance levels. There are no outstanding securities under the suspended Purchase Plan. (2) Excludes 1,163,880 shares of common stock that remain available as of December 31, 2021, for future issuance under the suspended Purchase Plan. Equity Compensation Plan Summary MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan In March 2011, our Board and our stockholders approved the MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan (the “2011 Plan”). Following the approval of our 2020 Equity and Incentive Compensation Plan by stockholders at the 2020 Annual Meeting of Stockholders, no further awards are to be issued under the 2011 Plan. Shares subject to awards granted under our 2011 Plan which expire, are repurchased, or are cancelled or forfeited will again become available for issuance under the 2020 Plan. As of December 31, 2021, there were 1,297,884 outstanding options and 400,161 outstanding RSUs and PSUs under our 2011 Plan, and no shares remained available for issuance. Awards granted under the 2011 Plan are subject to recoupment or clawback in accordance with our clawback policy. The 2011 Plan allows for withholding of shares of our common stock to cover tax withholding obligations up to an amount determined by the maximum applicable statutory rates, subject to certain limitations. 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 awards outstanding under the 2011 Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or are not exercised or settled prior to the change in control will terminate effective as of the time of the change in control. The Committee may provide for the acceleration of vesting of any or all outstanding awards upon such terms, and to such extent as it determines, except that the vesting of all awards held by members of our Board who are not employees will automatically be accelerated in full. The 2011 Plan also authorizes the Committee, in its discretion, and without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the change in control transaction over the exercise price per share, if any, under the award. MagnaChip Semiconductor Corporation 2020 Equity and Incentive Compensation Plan On June 11, 2020, at the Annual Meeting of Stockholders, the MagnaChip Semiconductor Corporation 2020 Equity and Incentive Compensation Plan (the “2020 Plan”), was approved and adopted to succeed the 2011 Plan, which was otherwise set to expire in March 2021 (after which no further grants could be made thereunder). The 2011 Plan, together with the 2009 Plan, are referred to as the “Predecessor Plans.” As the 2020 Plan was approved, it made available for awards under the 2020 Plan 1,309,000 new shares of common stock, par value of $0.01 per share, of the Company (“Common Stock”). The 2020 Plan also includes the 1,149,921 shares of Common Stock that remained available for awards under the 2011 Plan as of the approval date for the 2020 Plan. Generally, awards under the 2020 Plan are limited to 1,309,000 shares of Common Stock plus, as of the effective date of the 2020 Plan, the total number of shares of Common Stock remaining available for awards under the 2011 Plan, plus Common Stock subject to any forfeitures (or similar events) that occur under the Predecessor Plans or the 2020 Plan after the effective date of the 2020 Plan. This design means that we essentially “rolled” into the new 2020 Plan the shares that we had remaining under the 2011 Plan as of the effective date of the 2020 Plan. These shares may be shares of original issuance or treasury shares, or a combination of the two. Awards may be granted under the 2020 Plan to the Company’s employees, officers, directors, or certain consultants or those of any subsidiary of the Company. While the Company may grant incentive stock options only to employees, the Company may grant non-statutory stock options, stock appreciation rights, restricted 42 stock, restricted stock units, performance shares, performance units, dividend equivalents and cash-based awards or other stock-based awards to any eligible participant, subject to terms and conditions determined by the Compensation Committee. The term of any options granted under the 2020 Plan shall not exceed ten years from the date of grant. The 2020 Plan includes a definition of “change in control.” In general, a change in control shall be deemed to have occurred upon the occurrence of any of the following events (subject to certain exceptions and limitations and as further described in the 2020 Plan): (1) any individual, entity or group is or becomes the beneficial owner of 50% or more of the combined voting power of the then-outstanding Common Stock or voting shares of the Company (subject to certain exceptions); (2) a transaction in which the stockholders immediately before the transaction do not retain ownership of more than 50% of the combined voting power of the outstanding voting securities of the Company (or the entity to which the assets of the Company were transferred); or (3) consummation of a complete liquidation or dissolution of the Company after approval of the same by the stockholders of the Company; provided, however, the transactions described in (1) or (2) above shall not constitute a change in control if a majority of the members of the board of directors of the continuing, surviving or successor entity (or parent thereof) immediately after such transaction is comprised of incumbent directors. y x o r P The Board generally may amend the 2020 Plan from time to time in whole or in part. If any amendment, however, for purposes of applicable stock exchange rules (and except as permitted under the adjustment provisions of the 2020 Plan) (1) would materially increase the benefits accruing to participants under the 2020 Plan, (2) would materially increase the number of securities which may be issued under the 2020 Plan, (3) would materially modify the requirements for participation in the 2020 Plan, or (4) must otherwise be approved by our stockholders in order to comply with applicable law or the rules of the NYSE, or if the Common Stock is not traded on the NYSE, the principal national securities exchange upon which the Common Stock is traded or quoted, all as determined by the Board, then such amendment will be subject to stockholder approval and will not be effective unless and until such approval has been obtained. The Board may, in its discretion, terminate the 2020 Plan at any time. Termination of the 2020 Plan will not affect the rights of participants or their successors under any awards outstanding and not exercised in full on the date of termination. No grant will be made under the 2020 Plan on or after the tenth anniversary of the effective date of the 2020 Plan, but all grants made prior to such date will continue in effect thereafter subject to their terms and the terms of the 2020 Plan. MagnaChip Semiconductor Corporation 2011 Employee Stock Purchase Plan In March 2010, our Board approved the MagnaChip Semiconductor Corporation 2011 Employee Stock Purchase Plan (the “Purchase Plan”). Our Board amended and restated the Purchase Plan in February 2011 to reflect that the Purchase Plan would become effective in 2011 upon the commencement of our initial public offering in March 2011. The Purchase Plan was approved by our stockholders in March 2011 and became effective upon the commencement of our initial public offering in March 2011. We initially authorized and reserved 789,890 shares for sale under the Purchase Plan. However, in August 2012, the Committee suspended the Purchase Plan. The following summary describes the terms of the Purchase Plan that would be in effect if the Purchase Plan were to be removed from suspension and reinstated. The Purchase Plan provides for an automatic annual increase in the number of shares available for issuance under the plan on January 1 of each year beginning in 2012 and continuing through and including January 1, 2021, equal to the lesser of (i) 1% of our then issued and outstanding shares of common stock on the immediately preceding December 31, (ii) 789,980 shares, or (iii) a number of shares as our Board may determine. Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares subject to purchase rights which expire or are canceled will again become available for issuance under the Purchase Plan. Because the Purchase Plan was suspended in August 2012, no annual increase in the number of shares authorized under such plan occurred on January 1, 2013 or in subsequent years. 43 The terms of the Purchase Plan provide that our employees and employees of any parent or subsidiary corporation designated by the Committee are eligible to participate in the Purchase Plan if they are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted a right to purchase stock under the Purchase Plan if: (i) the employee immediately after such grant would own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock or of any parent or subsidiary corporation, or (ii) the employee’s rights to purchase stock under all of our employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of participation in such plans. The terms of the Purchase Plan provide that it is to be implemented through a series of sequential offering periods, generally three months in duration beginning on the first trading days of February, May, August, and November each year. The Committee is authorized to establish additional or alternative concurrent, sequential or overlapping offering periods and offering periods having a different duration or different starting or ending dates, provided that no offering period may have a duration exceeding 27 months. Amounts accumulated for each participant, generally through payroll deductions, are credited toward the purchase of shares of our common stock at the end of each offering period at a price generally equal to 95% of the fair market value of our common stock on the purchase date. Prior to commencement of an offering period, the Committee is authorized to change the purchase price discount for that offering period, but the purchase price may not be less than 85% of the lower of the fair market value of our common stock at the beginning of the offering period or on the purchase date. No participant may purchase under the Purchase Plan in any calendar year shares having a value of more than $25,000 measured by the fair market value per share of our common stock on the first day of the applicable offering period. Prior to the beginning of any offering period, the Committee may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering period. If insufficient shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the Committee will make a pro rata allocation of the available shares. Any amounts withheld from participants’ compensation in excess of the amounts used to purchase shares will be refunded, without interest. In the event of a change in control, an acquiring or successor corporation may assume our rights and obligations under the Purchase Plan. If the acquiring or successor corporation does not assume such rights and obligations, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control as specified by the Committee, but the number of shares subject to outstanding purchase rights shall not be adjusted. 44 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other than the compensation arrangements with directors and executive officers, there have been no transactions since January 1, 2021 (and there are no currently proposed transactions) in which: • we have been or are to be a participant; • • the amount involved exceeds $120,000; and any of our directors, executive officers or holders of more than 5% of our common stock, or any immediate family member of or person sharing the household with any of these individuals (other than tenants or employees), had or will have a direct or indirect material interest. y x o r P Related Person Transactions Policy Under our Related Person Transactions Policy, transactions involving our directors, executive officers, significant stockholders and other related persons that involve an amount in excess of $120,000 must be approved by the Company’s Audit Committee or, in the event it is determined that it is not practicable or desirable for the Company to wait until the next meeting of the full Audit Committee, the Chair of the Audit Committee (who possesses delegated authority to act between Audit Committee meetings). The Audit Committee (or the Chair of the Audit Committee, as applicable) will consider all of the relevant facts and circumstances available to it, including (if applicable) but not limited to: the benefits to the Company; the impact on a director’s independence in the event the related person is a director, an immediately family member of a director or an entity in which a director is a partner, stockholder or executive officer; the availability of other sources for comparable products or services; the terms of the transaction; and the terms available to unrelated third parties or to employees generally. The Audit Committee may seek bids, quotes or independent valuations from third parties in connection with assessing any related person transaction. The Audit Committee (or the Chair of the Audit Committee, as applicable) will approve only those transactions that are in, or are not inconsistent with, the best interests of the Company, as the Audit Committee (or the Chair of the Audit Committee, as applicable) determines in good faith. 45 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of our outstanding common stock for: (1) each person or entity known to us to beneficially own more than five percent (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 current executive officers, as a group. The following tables list the number of shares and percentage of shares beneficially owned based on 44,894,385 shares of common stock outstanding as of March 15, 2022. The amounts and percentages of equity interests beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of the securities as to which he or she has no economic interest. Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Unless otherwise indicated, the address of each person listed in the table below is c/o Magnachip Semiconductor, Ltd., 15F, 76 Jikji-daero, 436beon-gil, Heungdeok-gu, Cheongju-si, Chungcheongbuk-do, 28581, Korea. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership(1) Percent of Class(1) Principal Stockholders Toronado Partners LLC(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oaktree Value Opportunities Fund Holdings, L.P.(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors and Named Executive Officers Kyo-Hwa (Liz) Chung(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Melvin Keating(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ilbok Lee(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Camillo Martino(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gary Tanner(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young-Joon Kim(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Theodore Kim(10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Woung Moo Lee(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chan Ho Park(12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shinyoung Park (13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Young Soo Woo (14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors and current Executive Officers as a group (10 persons)(15) . . . . . . . . . . . . . . . . 2,523,636 2,300,000 14,154 129,146 288,488 147,105 176,779 646,648 257,204 202,099 9,120 24,197 12,343 1,894,940 5.6% 5.1% * * * * * 1.4% * * * * * 4.1% * (1) Less than one percent Includes any outstanding common stock held and, to the extent applicable, shares issuable upon the exercise or conversion of any securities that are exercisable or convertible within 60 days of March 15, 2022. (2) Based on the information contained in an Amendment No. 2 to Schedule 13G filed with the SEC on February 11, 2022 by Toronado Fund, L.P., Toronado Partners LLC, Toronado Capital Management LLC, and John Stephen Perkins. Toronado Fund, L.P. directly holds 2,323,636 shares of our common stock. Toronado Partners LLC acts as investment manager for the Toronado Fund, L.P., Toronado Capital Management LLC acts as general partner for Toronado Fund, L.P., and John Stephen Perkins acts as Managing Member of Toronado Partners LLC. Toronado Partners LLC, Toronado Capital Management 46 LLC, and John Stephen Perkins directly or indirectly control an additional 200,000 for a cumulative total of 2,523,636 shares. Each of Toronado Fund, L.P., Toronado Partners LLC, Toronado Capital Management LLC, and John Stephen Perkins may be deemed to be the beneficial owner of 2,523,636 shares of our common stock (except that Toronado Fund, L.P. may be deeded to be the beneficial owner of 2,323,636 shares of our common stock). Each of Toronado Fund, L.P., Toronado Partners LLC, Toronado Capital Management LLC, and John Stephen Perkins disclaims beneficial ownership of our shares of common stock not held directly by such reporting person. Toronado Fund, L.P. has sole voting power and sole dispositive power over 2,323,636 shares of our common stock. Each of Toronado Partners LLC, Toronado Capital Management LLC, and John Stephen Perkins has sole voting power over 2,523,636 shares of our common stock, sole dispositive power over 2,323,636 shares of our common stock and shared dispositive power over 200,000 shares of our common stock. The business address of each of Toronado Fund, L.P., Toronado Partners LLC, Toronado Capital Management LLC, and John Stephen Perkins is 44 Montgomery Street, Suite 1200, San Francisco, CA 94104. (3) Based on information contained in an Amendment No. 5 to Schedule 13G filed with the SEC on y x o r P February 14, 2022 by each of the following entities (each an “Oaktree Entity”): Oaktree Value Opportunities Fund Holdings, L.P., a Delaware limited partnership (“VOF Holdings”), in its capacity as the direct owner of 2,300,000 shares of our common stock; Oaktree Value Opportunities Fund GP, L.P., a Cayman Islands limited partnership (“VOF GP”), in its capacity as the general partner of VOF Holdings; Oaktree Value Opportunities Fund GP Ltd., a Cayman Islands exempted company (“VOF GP Ltd.”), in its capacity as the general partner of VOF GP; Oaktree Fund GP I, L.P., a Delaware limited partnership (“GP I”), in its capacity as the sole shareholder of VOF GP Ltd.; Oaktree Capital I, L.P., a Delaware limited partnership (“Capital I”), in its capacity as the general partner of GP I; OCM Holdings I, LLC, a Delaware limited liability company (“Holdings I”), in its capacity as the general partner of Capital I; Oaktree Holdings, LLC, a Delaware limited liability company (“Holdings”) in its capacity as the managing member of Holdings I; Oaktree Capital Management, L.P., a Delaware limited partnership (“Management”), in its capacity as the sole director of VOF GP Ltd.; Oaktree Capital Management GP, LLC, a Delaware limited liability company (“Management GP”), in its capacity as the general partner of Management; Atlas OCM Holdings LLC, a Delaware limited liability company (“Atlas”), in its capacity as the sole managing member of Management GP; Oaktree Capital Group, LLC, a Delaware limited liability company (“OCG”), in its capacity as the managing member of Holdings; Oaktree Capital Group Holdings GP, LLC, a Delaware limited liability company (“OCGH GP”), in its capacity as the indirect owner of the class B units of each of OCG and Atlas; Brookfield Asset Management Inc., a Canadian corporation (“BAM”), in its capacity as the indirect owner of the class A units of each of OCG and Atlas; and BAM Partners Trust, a trust formed under the laws of Ontario (“BAM Partnership”), in its capacity as the sole owner of the Class B Limited Voting Shares of BAM. VOF Holdings directly holds 2,300,000 shares of our common stock. VOF GP, in its capacity as the general partner of VOF Holdings, has the ability to direct the management of VOF Holdings’ business, including the power to vote and dispose of securities held by VOF Holdings; therefore, VOF GP may be deemed to beneficially own the shares of our common stock deemed held by VOF Holdings. VOF GP Ltd., in its capacity as the general partner of VOF GP, has the ability to direct the management of VOF GP’s business, including the power to direct the decisions of VOF GP regarding the vote and disposition of securities held by VOF Holdings; therefore, VOF GP Ltd. may be deemed to have indirect beneficial ownership of the shares of our common stock deemed held by VOF Holdings. GP I, in its capacity as the sole shareholder of VOF GP Ltd., has the ability to appoint and remove the directors and direct the management of the business of VOF GP Ltd. As such, GP I has the power to direct the decisions of VOF GP Ltd. regarding the vote and disposition of securities held by VOF Holdings; therefore, GP I may be deemed to have indirect beneficial ownership of our common stock deemed held by VOF Holdings. Capital I, in its capacity as the general partner of GP I, has the ability to direct the management of GP I’s business, including the power to direct the decisions of GP I regarding the vote and disposition of securities held by VOF Holdings; therefore, Capital I may be deemed to have indirect beneficial ownership of the shares of our common stock deemed held by VOF Holdings. Holdings I, in its capacity as the general partner of Capital I, has the ability to direct the management of Capital I’s business, including the power to direct the decisions of Capital I regarding 47 the vote and disposition of securities held by VOF Holdings; therefore, Holdings I may be deemed to have indirect beneficial ownership of the shares of our common stock deemed held by VOF Holdings. Holdings, in its capacity as the managing member of Holdings I, has the ability to direct the management of Holding I’s business, including the power to direct the decisions of Holdings I regarding the vote and disposition of securities held by VOF Holdings; therefore, Holdings may be deemed to have indirect beneficial ownership of the shares of our common stock deemed held by VOF Holdings. Management, in its capacity as the sole director of VOF GP Ltd., has the ability to direct the management of VOF GP Ltd., including the power to direct the decisions of VOF GP Ltd. regarding the vote and disposition of securities held by VOF Holdings; therefore, Management may be deemed to have indirect beneficial ownership of the shares of our common stock deemed held by VOF Holdings. Management GP, in its capacity as the general partner of Management, has the ability to direct the management of Management’s business, including the power to vote and dispose of securities held by VOF Holdings; therefore, Management GP may be deemed to have indirect beneficial ownership of the shares of our common stock deemed held by VOF Holdings. Atlas, in its capacity as the sole managing member of Management GP, has the ability to direct the management of Management GP’s business, including the power to direct the decisions of Management GP regarding the vote and disposition of securities held by VOF Holdings; therefore, Atlas may be deemed to have indirect beneficial ownership of the shares of our common stock held by VOF Holdings. OCG, in its capacity as the managing member of Holdings, has the ability to direct the management of Holdings’ business, including the power to direct the decisions of Holdings regarding the vote and disposition of securities held by VOF Holdings. Additionally, OCG, in its capacity as the sole shareholder of Holdings, Inc., has the ability to appoint and remove directors of Holdings, Inc. and, as such, may indirectly control the decisions of Holdings, Inc. regarding the vote and disposition of securities held by VOF Holdings. Therefore, OCG may be deemed to have indirect beneficial ownership of the shares of our common stock deemed held by VOF Holdings. OCGH GP, in its capacity as the indirect owner of the class B units of each of OCG and Atlas, has the ability to appoint and remove certain directors of OCG and Atlas and, as such, may indirectly control the decisions of OCG and Atlas regarding the vote and disposition of securities held by VOF Holdings; therefore, OCGH GP may be deemed to have indirect beneficial ownership of the shares of our common stock held by VOF Holdings. BAM, in its capacity as the indirect owner of the class A units of each of OCG and Atlas, has the ability to appoint and remove certain directors of OCG and Atlas and, as such, may indirectly control the decisions of OCG and Atlas regarding the vote and disposition of securities held by VOF Holdings; therefore BAM may be deemed to have indirect beneficial ownership of the shares of our common stock held by VOF Holdings. BAM Partnership, in its capacity as the sole owner of Class B Limited Voting Shares of BAM, has the ability to appoint and remove certain directors of BAM and, as such, may indirectly control the decisions of BAM regarding the vote and disposition of securities held by VOF Holdings; therefore BAM Partnership may be deemed to have indirect beneficial ownership of the shares of our common stock held by VOF Holdings. The business address of each Oaktree Entity is 333 S. Grand Avenue, 28th Floor, Los Angeles, CA 90071. (4) Represents 14,154 shares of common stock subject to RSUs that will be vested and may be settled as of May 14, 2022. (5) Represents 10,100 shares of common stock, options to purchase 49,737 shares of common stock and 69,309 shares of common stock subject to RSUs that will be vested and may be exercised or settled, as applicable, as of May 14, 2022. (6) Represents 33,272 shares of common stock, options to purchase 179,593 shares of common stock and 75,623 shares of common stock subject to RSUs that will be vested and may be exercised or settled, as applicable, as of May 14, 2022. (7) Represents 28,000 shares of common stock, options to purchase 49,737 shares of common stock and 69,368 shares of common stock subject to RSUs that will be vested and may be exercised or settled, as applicable, as of May 14, 2022. (8) Represents 5,408 shares of common stock, options to purchase 93,117 shares of common stock and 78,254 shares of common stock subject to RSUs that will be vested and may be exercised or settled, as applicable, as of May 14, 2022. 48 (9) Represents 310,733 shares of common stock and options to purchase 335,915 shares of common stock that will be vested and may be exercised as of May 14, 2022. (10) Represents 129,594 shares of common stock and options to purchase 127,610 shares of common stock that will be vested and may be exercised as of May 14, 2022. (11) Represents 82,289 shares of common stock and options to purchase 119,810 shares of common stock that will be vested and may be exercised as of May 14, 2022. (12) Represents 9,120 shares of common stock. (13) Represents 21,697 shares of common stock and options to purchase 2,500 shares of common stock that will be vested and may be exercised as of May 14, 2022. (14) Young Soo Woo resigned his position as our Chief Financial Officer and from all other positions with us and our subsidiaries, effective as of December 31, 2021. Represents 12,343 shares of common stock. (15) Our directors and executive officers as of March 15, 2022 as a group beneficially own 1,894,940 shares of common stock or 4.1%, which represents 630,213 shares of common stock, options to purchase 958,019 shares of common stock and 306,708 shares of common stock subject to RSUs that will be vested and may be exercised or settled, as applicable, as of May 14, 2022. Consistent with his prior resignation, Mr. Woo’s beneficial ownership is excluded from this group. y x o r P 49 PROPOSAL TWO ADVISORY VOTE ON COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS In accordance with Dodd-Frank Act, and Section 14A of the Exchange Act, the Board is asking stockholders to approve an advisory (non-binding) resolution on the compensation of our named executive officers. The vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. The text of the resolution is as follows: RESOLVED, that the stockholders of Magnachip Semiconductor Corporation approve, on an advisory basis, the compensation of the Company’s named executive officers as disclosed in the proxy statement for the Company’s 2022 annual meeting of stockholders pursuant to the compensation disclosure rules of the Securities Exchange Act of 1934, as amended (which disclosure includes the Compensation Discussion and Analysis section, the Summary Compensation Table for 2021 and the related compensation tables and narrative disclosure within the executive compensation sections of the proxy statement). The Company urges you to read the disclosure under “Compensation Discussion and Analysis,” in this Proxy Statement, which discusses how our compensation policies and procedures implement our pay-for-performance compensation philosophy. You should also read the Summary Compensation Table and other related compensation tables and narrative disclosure which provide additional details about the compensation of our named executive officers for fiscal 2021. We have designed our executive compensation structure to attract, motivate, and retain executives with the skills required to formulate and implement the Company’s strategic objectives and create stockholder value. We believe that our executive compensation program is reasonable, competitive and strongly focused on pay for performance principles, and provides an appropriate balance between risk and incentives. The vote regarding the compensation of the named executive officers described above, referred to as a “say-on-pay advisory vote,” is advisory, and is therefore not binding on the Company, the Compensation Committee or the Board. Although non-binding, the Board and the Compensation Committee value the opinions that stockholders express in their votes and will review the voting results and take them into consideration when making future decisions regarding our executive compensation programs as they deem appropriate. If no voting specification is made on a properly returned or voted proxy card, the proxies named on the proxy card will vote “FOR” the approval of the compensation of the named executive officers as disclosed in this Proxy Statement and described above. The Board recommends that you vote “FOR” the approval of our named executive officer compensation. 50 PROPOSAL THREE RATIFICATION OF APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2022 Samil PricewaterhouseCoopers has been selected by the Audit Committee as the principal independent registered public accounting firm for the fiscal year ending December 31, 2022 for us and our subsidiaries. Our Board recommends a vote for ratification of the appointment of Samil PricewaterhouseCoopers as the independent registered public accounting firm to audit the books and accounts for us and our subsidiaries for the fiscal year ending December 31, 2022. It is expected that representatives of Samil PricewaterhouseCoopers will attend the Annual Meeting, with the opportunity to make a statement if they so desire, and, if a representative is in attendance, the representative will be available to answer appropriate questions. y x o r P The appointment of Samil PricewaterhouseCoopers as our independent registered public accounting firm is not required to be submitted to a vote of our stockholders for ratification. However, our Board believes that obtaining stockholder ratification is a sound governance practice. If our stockholders fail to vote on an advisory basis in favor of the appointment of Samil PricewaterhouseCoopers, the Audit Committee will take such actions as it deems necessary as a result of such stockholder vote. Fees Paid to Independent Registered Public Accounting Firm The following table presents fees billed or expected to be billed for professional services rendered by Samil PricewaterhouseCoopers and its affiliates for the years ended December 31, 2021 and 2020. Year Ended December 31 2021 2020 (in millions) Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit Related fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total $ 1.4 — — $ 0 $ 1.4 $ 1.8 — — $ 0 $ 1.8 Policy and Procedure for Approval of Audit and Permitted Non-Audit Services All audit fees were pre-approved by the Company’s Audit Committee, which concluded that the provision of such services by Samil PricewaterhouseCoopers and its affiliates was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. With respect to outside auditor independence, the Audit Committee Charter provides for pre-approval of audit services and non-audit services, based on independence, qualifications and, if applicable, performance, and approve the fees and other terms of any such engagement. The Audit Committee Charter authorizes the Audit Committee to delegate to one or more of its members the authority to grant pre-approvals for such services, provided that the decisions of such member(s) to grant any such pre-approval shall be presented to the Audit Committee at its next scheduled meeting. The Audit Committee followed these guidelines in approving all services rendered by Samil PricewaterhouseCoopers and its affiliates. The Board recommends that you vote “FOR” the ratification of the appointment of Samil PricewaterhouseCoopers as our independent registered public accounting firm for the fiscal year ending December 31, 2022. 51 STOCKHOLDER PROPOSALS FOR 2023 ANNUAL MEETING A stockholder who would like a proposal considered for inclusion in our proxy statement relating to our 2023 annual meeting pursuant to Rule 14a-8 (“Rule 14a-8”) under the Exchange Act must be received by the Corporate Secretary of the Company no later than November 22, 2022 and must otherwise comply with Rule 14a-8. Any stockholder proposals received outside of the Rule 14a-8 procedure for consideration at our 2023 annual meeting must be received by the Corporate Secretary of the Company between December 22, 2022 and January 21, 2023. If, however, the date of the 2023 annual meeting is changed by more than 30 days from the anniversary date of this year’s Annual Meeting, the stockholder notice described above will be deemed timely if it is received not later than the close of business on the later of the 90th calendar day prior to such annual meeting and the 10th calendar day after public announcement of the date of such meeting. Such proposals must be addressed to Magnachip Semiconductor Corporation, c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520, Luxembourg, Grand Duchy of Luxembourg, Attention: Secretary. If we do not receive such notice within the timeframe described above, the notice will be considered untimely and the proposal may not be brought. In addition to the timely notice requirements, a stockholder’s proposal for nominees for directors must comply with Section 2.15 of the Company’s bylaws and other applicable procedures described therein or established by our Nominating and Corporate Governance Committee. See “The Board of Directors and Corporate Governance—Nominating and Corporate Governance Committee.” Stockholder proposals related to other business must also comply with Section 1.10 of the Company’s bylaws. Furthermore, any stockholder proposal must comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder. Our proxy for the 2023 annual meeting will grant authority to the persons named therein to exercise their voting discretion with respect to any matter of which we did not receive notice between December 22, 2022 and January 21, 2023. Notices should be submitted to the address set forth above. SOLICITATION OF PROXIES We will bear the costs of soliciting proxies from our stockholders. In addition to the use of the mails, proxies may be solicited by our directors, officers and employees by personal interview, telephone or telegram. Such directors, officers and employees will not be additionally compensated for such solicitation, but may be reimbursed for out-of-pocket expenses incurred in connection therewith. Arrangements will also be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of our common stock held of record by such persons, and we will reimburse such brokerage houses, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred in connection therewith. 52 The directors know of no other matters which are likely to be brought before the Annual Meeting. The enclosed proxy card grants to the persons named in the proxy card the authority to vote in their best judgment regarding all other matters properly raised at the Annual Meeting. OTHER MATTERS By Order of the Board of Directors /s/ Theodore Kim Theodore Kim Chief Compliance Officer, Executive Vice President, General Counsel and Secretary y x o r P March 21, 2022 53 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-34791 Magnachip Semiconductor Corporation (Exact name of registrant as specified in its charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 83-0406195 (I.R.S. Employer Identification No.) c/o MagnaChip Semiconductor S.A. 1, Allée Scheffer, L-2520 Luxembourg, Grand Duchy of Luxembourg (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (352) 45-62-62 Securities registered pursuant to Section 12(b) of the Act: Trading Symbol MX Title of each class Common Stock, par value $0.01 per share Preferred Stock Purchase Rights Name of each exchange on which registered New York Stock Exchange New York Stock Exchange Securities 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. È Yes ‘ No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ‘ Yes È No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. È Yes ‘ No Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. È Yes ‘ No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. È Large Accelerated Filer ‘ Non-Accelerated Filer Emerging growth company ‘ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. È Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ‘ Yes È No State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common 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 recently completed second fiscal quarter. $1,093,768,455. As of February 14, 2022, the registrant had 45,810,893 shares of common stock outstanding. ‘ Accelerated Filer Smaller Reporting Company ‘ K - 0 1 m r o F DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive proxy statement relating to its 2022 annual meeting of stockholders will be incorporated by reference into Part III of this Annual Report on Form 10-K or included by amendment to this report within 120 days after the end of the fiscal year to which this report relates. MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2021 TABLE OF CONTENTS PART I PART II Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of [Reserved] Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Item 9. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 14. PART III PART IV Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 16. SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2 18 38 38 39 39 40 42 42 75 76 124 124 125 125 126 126 126 126 126 127 131 132 K - 0 1 m r o F PART I INDUSTRY AND MARKET DATA We have made statements in this Annual Report on Form 10-K for the year ended December 31, 2021 (this “Report”) regarding our industry and our position in the industry based on our experience in the industry and our own views of market conditions, but we have not independently verified those statements. We do not have any obligation to announce or otherwise make publicly available updates or revisions to forecasts contained in these documents. 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 or South Korea. On September 1, 2020, we completed the sale of our Foundry Services Group business and our fabrication facility located in Cheongju to Key Foundry Co., Ltd. Unless otherwise noted herein, historical operational metrics presented herein do not include those of the Foundry Services Group. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We have made certain “forward-looking” statements in this Report within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (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, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this Report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Report are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections and 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 statements as a result of new information or future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. “Magnachip” is a registered trademark of us and our subsidiaries and “Magnachip Everywhere” is our registered trademark and service mark. All other product, service and company names mentioned in this Report are the service marks or trademarks of their respective owners. 1 K - 0 1 m r o F Item 1. Business General We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, Internet of Things (“IoT”) applications, consumer, computing, industrial and automotive applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately 1,150 registered patents and pending applications and extensive engineering and manufacturing process expertise. Our standard products business includes our Display Solutions and Power Solutions business lines. Our Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile, automotive applications and home appliances. Our Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications. Our wide variety of analog and mixed-signal semiconductor products allow us to address multiple high- growth end markets and rapidly develop and introduce new products in response to market demands. Our design center and substantial manufacturing operations in Korea place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demand from existing and new customers. Certain of our OLED products are produced using external 12-inch foundries. Through a strategic cooperation with external 12-inch foundries, we are managing to ensure outsourcing wafers at competitive price and produce quality products. We have a long history of supplying and collaborating on product and technology development with leading innovators in the consumer electronics market. As a result, we have been able to strengthen our technology and develop products that are in high demand by our customers and end consumers. We sold approximately 380 distinct products in the year ended December 31, 2021 with a substantial portion of our revenues derived from a concentrated number of customers. Our business is largely driven by innovation in the consumer electronics markets and the growing adoption by consumers worldwide of electronic devices for use in their daily lives. The consumer electronics market is large and growing rapidly, largely due to consumers increasingly accessing a wide variety of rich media content, such as high definition audio and video, mobile devices, televisions and games on advanced consumer electronic devices. Electronics manufacturers are continuously implementing advanced technologies in new generations of electronic devices using analog and mixed-signal semiconductor components, such as display drivers that enable display of high resolution images, encoding and decoding devices that allow playback of high definition audio and video, and power semiconductors that increase power efficiency, thereby improving heat dissipation and extending battery life. For the year ended December 31, 2021, we generated total revenues of $474.2 million, net income of $56.7 million, Adjusted EBITDA of $70.7 million, Adjusted Operating Income of $56.1 million and Adjusted Net Income of $51.1 million. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this Report for an explanation of our use of Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income and a reconciliation to income (loss) from continuing operations prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”). Our History Our business was named “MagnaChip Semiconductor” when it was acquired from SK hynix Inc., formerly known as Hynix Semiconductor, Inc. (“SK hynix”), in October 2004. On March 10, 2011, we completed our initial public offering. In connection with our initial public offering, we converted from a Delaware limited liability company to a Delaware corporation. 2 On December 30, 2020, we changed our name from “MagnaChip Semiconductor Corporation” to “Magnachip Semiconductor Corporation.” Legacy Foundry Services Group Business On September 1, 2020, we completed the sale of our Foundry Services Group business and our fabrication facility located in Cheongju known as “Fab 4” to Key Foundry Co., Ltd. This sale was part of a strategic shift in our operational focus to our standard products business. The Foundry Services Group business provided specialty analog and mixed signal foundry services mainly for fabless and Integrated Device Manufacturer semiconductor companies. Our Products Our Display Solutions line of products provide flat panel display solutions to major suppliers of large and small flat panel displays. These products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in mobile communications, automobiles, entertainment devices, notebook PCs, monitors and liquid crystal display (LCD), organic light emitting diodes (OLED) and Micro light emitting diode (Micro LED) televisions. Our Display Solutions line of products support the industry’s most advanced display technologies, such as OLEDs, and low temperature polysilicon thin film transistor (LTPS TFT), as well as high- volume display technologies such as amorphous silicon thin film transistors (a-Si TFTs). Our Display Solutions products represented 43.3%, 59.0% and 59.3% of our total revenues for the fiscal years ended December 31, 2021, 2020 and 2019, respectively. We expanded our business and market opportunity by establishing our Power Solutions product line in late 2007. We have introduced a number of power management semiconductor products, including discrete and integrated circuit solutions for power management in high-volume consumer applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs), AC-DC/DC-DC converters, LED drivers, regulators and power management integrated circuits (PMICs) for a range of devices, including televisions, smartphones, mobile phones, wearable devices, desktop PCs, notebooks, tablet PCs, other consumer electronics, automotive, and industrial applications such as power suppliers, e-bikes, photovoltaic inverters, LED lighting and motor drives. Our Power Solutions products represented 48.0%, 32.8% and 33.9% of our total revenues for the fiscal years ended December 31, 2021, 2020 and 2019, respectively. Market Opportunity The semiconductor market is large and is expanding its applications. Growth in this market is being driven by consumers seeking to enjoy a wide variety of rich media content, such as high definition audio and video, mobile devices, televisions and games. Recently, industrial applications such as power suppliers, e-bikes, photovoltaic inverters, LED lighting, motor drives, and automotive applications such as on board chargers, electric motor drives, electric pumps, DC-DC converters and powertrain inverters in hybrid & battery electric vehicle (HEV & BEV) are also driving growth in the semiconductor market. Electronics device manufacturers recognize that the consumer entertainment experience plays a critical role in differentiating their products. To address and further stimulate consumer demand, electronics manufacturers have been driving rapid advances in the technology, functionality, form factor, cost, quality, reliability and power consumption of their products. Electronics manufacturers are continuously implementing advanced technologies in new generations of electronic devices using analog and mixed-signal semiconductor components, such as display drivers that enable display of high resolution images, encoding and decoding devices that allow playback of high definition audio and video, and power semiconductors that increase power efficiency, thereby improving heat dissipation and extending battery life. These advanced generations of consumer devices are growing faster than the overall electronics device market. K - 0 1 m r o F 3 The user experience delivered by a consumer electronic device is substantially driven by the quality of the display, audio and video processing capabilities and power efficiency of the device. Analog and mixed-signal semiconductors enable and enhance these capabilities. Examples of these analog and mixed-signal semiconductors include display drivers, timing controllers, audio encoding and decoding devices, or codecs, and interface circuits, as well as power semiconductors such as voltage regulators, converters and switches. Requirements of Leading Electronic Devices Manufacturers We believe our target customers view the following characteristics and capabilities as key differentiating factors among available analog and mixed-signal semiconductor suppliers: • • • • Broad Offering of Differentiated Products with Advanced System-Level Features and Functions. Leading electronic devices manufacturers seek to differentiate their products by incorporating innovative semiconductor products that enable unique system-level functionality and enhance performance. These consumer electronics manufacturers seek to closely collaborate with semiconductor solutions providers that continuously develop new and advanced products, and technologies that enable state of the art features and functions, such as bright and thin displays, 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 typically prefer suppliers who have a compelling pipeline of new products and capacity to leverage a substantial intellectual property and technology base to accelerate product design and manufacturing when needed. Ability to Deliver Cost Competitive Solutions. Electronics manufacturers are under constant pressure to deliver cost-competitive solutions. To accomplish this objective, they need strategic semiconductor suppliers that have the ability to provide system-level solutions, highly integrated products and a broad product offering at a range of price points and have the design and manufacturing infrastructure and logistical support to deliver cost competitive products. Focus on Delivering Highly Energy-Efficient Products. Consumers increasingly seek longer run-time, environmentally friendly and energy-efficient consumer electronic products. In addition, there is an increasing regulatory focus on reducing energy consumption of consumer electronic products. As a result of a global focus on more environmentally friendly products, our customers are seeking analog and mixed- signal semiconductor suppliers that have the technological expertise to deliver solutions that satisfy these ever increasing regulatory and consumer power efficiency demands. Our Competitive Strengths Designing and manufacturing analog and mixed-signal semiconductors capable of meeting the evolving functionality requirements for electronics devices are challenging. In order to grow and succeed in the industry, we believe semiconductor suppliers must have a broad, advanced intellectual property portfolio, product design expertise, comprehensive product offerings and specialized manufacturing process technologies and capabilities. Our competitive strengths enable us to offer our customers solutions to solve their key challenges. We believe our strengths include: • • Advanced Analog and Mixed-Signal Semiconductor Technology. Our long operating history, large patent portfolio, extensive engineering and manufacturing process expertise and analog and mixed-signal intellectual property allow us to leverage our technology and develop new products across multiple end markets. Our product development efforts are supported by a team of over 230 engineers as of the date of this Annual Report. Our platform allows us to develop and introduce new products quickly and integrate numerous functions into a single product. For example, we were one of the first companies to introduce a commercial OLED display driver for mobile phones. Established Relationships and Close Collaboration with Leading Global Electronics Companies. We have a long history of supplying and collaborating on product and technology development with leading 4 • • • innovators in the consumer electronics market. Our close customer relationships have been built based on many years of close collaborative product development, which provides us with deep system-level knowledge and key insights into our customers’ needs. As a result, we are able to continuously strengthen our technology in areas of strategic interest for our customers and focus on those products that our customers and end consumers demand the most. Longstanding Presence in Asia and Proximity to Global Electronics Devices Supply Chain. Our presence in Asia facilitates close contact with our customers and fast response to their needs, and enhances our visibility into new product opportunities, markets and technology trends. Our design center and substantial manufacturing operations in Korea place us close to many of our largest customers and to the core of the global electronics devices supply chain. We have active applications, engineering, product design and customer support resources, as well as senior management and marketing resources, in geographic locations close to our customers. This allows us to strengthen our relationship with customers through better service, faster turnaround time and improved product design collaboration. We believe this also helps our customers to deliver products faster than their competitors and to solve problems more efficiently than would be possible with other suppliers. Broad Portfolio of Product Offerings Targeting Large, High-Growth Markets. We continue to develop a wide variety of analog and mixed-signal semiconductor solutions for multiple high-growth electronics device end markets. We believe our expanding product offerings allow us to provide additional products to new and existing customers and to cross-sell our products to our established customers. For example, we have leveraged our technology expertise and customer relationships to develop and grow power management solutions to customers. Our power management solutions enable our customers to increase system stability and improve heat dissipation and energy use, resulting in improved system efficiency and system cost savings for our customers, as well as environmental benefits. We have been able to sell these new products to our existing customers as well as expand our customer base. Highly Efficient Manufacturing Capabilities. Our manufacturing strategy is focused on optimizing our asset utilization across our display driver and power management products, which enables us to maintain the price competitiveness of our products through our low-cost operating structure and improve our operational efficiency. We believe the location of our primary manufacturing and research and development facilities in Asia and the relatively low need for ongoing capital expenditures provide us with a number of cost advantages. Our Strategy Our objective is to grow our business, cash flow and profitability and to continue strengthening our position in the semiconductor industry as a leading provider of analog and mixed-signal semiconductor products for high- volume markets. Our business strategy emphasizes the following key elements: • • • Increase Business with Existing Customers. We have a global customer base consisting of leading consumer electronics OEMs that sell into multiple end markets. We intend to continue to strengthen our relationships with our customers by collaborating on critical design and product development in order to improve our design-win rates. We seek to increase our customer penetration by more closely aligning our product roadmap with those of our key customers and take advantage of our broad product portfolio, our deep knowledge of customer needs and existing relationships to sell more existing and new products. Broaden Our Customer Base. We expect to continue to expand our global customer base, particularly in China, Hong Kong, and Taiwan, which we collectively refer to as Greater China, and other high-growth geographies, to penetrate new accounts. In addition, we intend to introduce new products and variations of existing products to address a broader customer base. In order to broaden our market penetration, we are complementing our direct customer relationships and sales with an improved base of distributors, with a particular focus on the growth of our power management business. Drive Execution Excellence. We intend to improve our execution through a number of management initiatives, new processes for product development, customer service and personnel development. We 5 K - 0 1 m r o F expect these ongoing initiatives will contribute to improvement of our new product development and customer service as well as enhance our commitment to a culture of quick action and execution by our workforce. In addition, we have focused on improving our manufacturing efficiency during the past several years. • Return on Capital Investments and Cash Flow Generation. We manufacture most of our Display Solutions products at external foundries. Through a strategic cooperation with external foundries, we are able to adapt dynamically to changing customer requirements and address growing markets without substantial capital investments. We manufacture our Power Solutions products by utilizing our in-house manufacturing facility and external foundry to address a broad portfolio of power products while we seek to maximize return on capital investments and our cash flow generation. We intend to keep our capital expenditures relatively low by maintaining our focus on specialty process technologies that do not require substantial investment in frequent upgrades to the latest manufacturing equipment. However, from time to time, we make special investments to enhance our manufacturing capabilities by investing in new equipment and expanding our facility, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity. Our Technology We continuously strengthen our advanced analog and mixed-signal semiconductor technology platform by developing innovative technologies and integrated circuit building blocks that enhance the functionality of electronics devices through brighter, thinner displays, enhanced image quality, smaller form factor and longer battery life. Our goal is to leverage our experience and development initiatives across multiple end markets and utilize our understanding of system-level issues our customers face to introduce new technologies that enable our customers to develop more advanced, higher performance products. Our display technology portfolio includes building blocks for display drivers and timing controllers, processor and interface technologies, as well as sophisticated production techniques, such as chip-on-glass (COG), chip-on-film (COF) and chip-on-plastic (COP) for rigid, flexible bezel-less, edge type, and trench type OLED displays. Our advanced display drivers incorporate Oxide, Low-Temperature Polycrystalline Oxide (LTPO) OLED panel technologies that enable the highest resolution displays. Furthermore, we are developing a broad intellectual property portfolio to improve the quality and the power efficiency of displays, including the development of our high speed interface, high quality image enhancement display data compression and optical compensation technology for OLED displays. Expertise in ultra-high voltage (UHV), high voltage and deep trench BCDMOS process technologies, low power analog and mixed-signal design capabilities and packaging know-how are key requirements in the power management market. We are currently leveraging our capabilities in these areas with products such as AC-DC/ DC-DC converters, -LED drivers, regulators, power management integrated circuits (PMICs), power MOSFETs and IGBTs. We believe our system-level understanding of applications such as LCD televisions, smartphones, computing, and servers, automotive, and industrial applications will allow us to more quickly develop and customize power management solutions for our customers in these markets. Products by Business Line Our broad portfolio of products addresses multiple high-growth, consumer-focused end markets. A key component of our product strategy is to supply multiple related product offerings to each of the end markets that we serve. 6 Display Solutions Display Driver Characteristics. Display drivers deliver defined analog voltages and currents that activate pixels to exhibit images on displays. The following key characteristics determine display driver performance and end-market application: • • • • • • • Resolution and Number of Channels. Resolution determines the level of detail displayed within an image and is defined by the number of pixels per line multiplied by the number of lines on a display. For large displays, higher resolution typically requires more display drivers for each panel. Display drivers that have a greater number of channels, however, generally require fewer display drivers for each panel and command a higher selling price per unit. Mobile displays, conversely, are typically single chip solutions designed to deliver a specific resolution. We cover resolutions ranging from VGA (640 x 480) 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 are supported by 6-bit source drivers; 16 million colors are supported by 8-bit source drivers; and 1 billion colors are supported by 10-bit source drivers. Operational Voltage. Display drivers are characterized by input and output voltages. Source drivers typically operate at input voltages from 1.62 to 3.6 volts and output voltages between 9 and 18 volts. Gate drivers typically operate at input voltages from 1.62 to 3.6 volts and output voltages from 30 to 45 volts. Lower input voltage results in lower power consumption and electromagnetic interference (EMI). Gamma Curve. The relationship between the light passing through a pixel and the voltage applied to the pixel by the source driver is referred to as the gamma curve. The gamma curve of the source driver can correct some imperfections in picture quality in a process generally known as gamma correction. Some advanced display drivers feature up to three independent gamma curves to facilitate this correction. Driver Interface. Driver interface refers to the connection between the timing controller and the display drivers. Display drivers increasingly require higher bandwidth interface technology to address the larger data transfer rate necessary for higher definition images. The principal types of interface technologies are embedded clock point to point interface (EPI), mini-low voltage differential signaling (m-LVDS), unified standard interface (USI) and mobile industry processor interface (MIPI). Package Type. The assembly of display drivers typically uses COF, COG and COP package types. Large Display Solutions. We provide display solutions for a wide range of flat panel display sizes used in LCD TVs, OLED TVs, Micro LED TVs as well as IT applications such as monitors, notebook PCs, tablet PCs, automobiles and public information displays. Our large display solutions include source and gate drivers and timing controllers with a variety of interfaces, voltages, frequencies and packages to meet customers’ needs. These products include advanced technologies such as high channel count, with products in mass production to provide up to 1,542 channels. Our large display solutions are designed to allow customers to cost-effectively meet the increasing demand for high resolution displays. We have focused extensively on reducing the die size of our large display drivers and other solutions products to reduce costs without having to migrate to smaller geometries. For example, we have implemented several solutions to reduce die size in large display drivers, such as optimizing design schemes and design rules and applying specific technologies that we have developed internally. We are currently focusing on growing display segments such as OLED TVs and automotive. We have recently introduced a number of new display driver ICs for OLED TV and automotive. K - 0 1 m r o F 7 The table below sets forth the features of our products, both in mass production and in customer qualification, which is the final stage of product development, for large-sized displays: Product Key Features Applications TFT-LCD Source Drivers . . . . . . . . . . . • • 480 to 1,542 output channels 6-bit (262 thousand colors), 8-bit (16 million colors), 10-bit (1 billion colors) • LCD/LED TVs • Notebooks • LCD/LED monitors • Automotive • Output voltage ranging from 9V to 18V • Low power consumption and low EMI • COF package types • EPI, m-LVDS, USI interface technologies 272 to 960 output channels • • Output voltage ranging from 30V to 45V • COF and COG package types • Wide range of resolutions • EPI, m-LVDS, MIPI, USI-T • interface technologies Input voltage ranging from 1.6V to 3.6V 960 output channels 10 bit (1 billion colors) • • • Output voltage: 18V • COF package type • EPI interface technology 552 output channels (3 Mux) • • 10 bit (1 billion colors) • Output voltage: max 18V • COF package type • USI interface technology • Tablet PCs • LCD/LED TVs • Notebooks • Automotive • Tablet PCs • Public information display • OLED TVs • Micro LED TVs TFT-LCD Gate Drivers . . . . . . . . . . . . . Timing Controllers . . . . . . . . . . . . . . . . OLED Source Drivers . . . . . . . . . . . . . . Micro LED Drivers* . . . . . . . . . . . . . . . * In customer qualification stage Mobile Display Solutions. Our mobile display solutions incorporate the industry’s most advanced display technologies, such as OLED and LTPS, as well as high-volume technologies such as a-Si TFT. Our mobile display products offer specialized capabilities, including high speed serial 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. For example, we have implemented several solutions to reduce die size in mobile display drivers, such as optimizing design schemes and design rules and applying specific technologies that we have developed internally. Further, we are building a distinctive intellectual property portfolio that allows us to provide features that reduce power consumption, such as CABC and ACL. This intellectual property portfolio will also support our power management product development initiatives, as we leverage our system level understanding of power efficiency. Our OLED driver ICs can support various configurations such as high resolution from FHD+(2,240x1,080) to QHD+(3,360x1,440), wide aspect ratio from 16:9 to 21:9 and flexible bezel-less, edge type, and trench type OLED displays. In the transition to, and adoption of, 5G, fast responses and high frame rates such as 90Hz and 120Hz are becoming essential product offerings. To meet this new and 8 evolving demand, we have developed and mass produced our OLED display driver IC, which supports 90Hz/120Hz/144Hz high frame rates. The following table summarizes the features of our products, both in mass production and in customer qualification, which is the final stage of product development, for mobile displays: Product Key Features Applications OLED . . . . . . . . . . . . . . . . . . . . . . . . • Resolutions of HD720, WXGA, FHD, FHD+, QHD and QHD+ • Aspect ratio from 16:9 to 21:9 • Color depth of 1 billion • MIPI, eRVDS interface • Logic-based OTP • Image enhancement IP • Display data compression IP LTPS . . . . . . . . . . . . . . . . . . . . . . . . . • Resolutions of VGA, WSVGA, WVGA and DVGA • Color depth of 16 million • MDDI, MIPI interface • Logic-based OTP • Separated gamma control a-Si TFT . . . . . . . . . . . . . . . . . . . . . . • Resolutions of WQVGA and HVGA • Color depth of 16 million • RSDS, MDDI, MIPI interface • CABC • Separated gamma control • Smartphones • Game consoles • Digital still cameras • Tablet PCs • Virtual reality headsets • Automotive • Smartphones • Digital still cameras • Mobile phones • Digital still cameras • Automotive Power Solutions We develop, manufacture and market power management solutions for a wide range of end-market customers. The products include MOSFETs, IGBTs, AC-DC/DC-DC converters, LED drivers, regulators, power management integrated circuits (PMICs) for a range of devices, including LCD, LED, and UHD televisions, digital signage, smartphones, mobile phones, wearable devices, desktop PCs, notebooks, tablet PCs, other consumer electronics, consumer appliances, automotive, and industrial applications such as power suppliers, e-bikes, photovoltaic inverters, LED lighting and motor drives. • MOSFETs. Our MOSFETs include low-voltage from 12V to 30V, medium-voltage from 40V to150V, high-voltage planar MOSFETs, 200V through 650V, and super junction MOSFETs, 500V through 900V. K - 0 1 m r o F MOSFETs are used in applications to switch, shape or transfer electricity under varying power requirements. The key application segments are smartphones, mobile phones, wearable devices, LCD, LED, and UHD televisions, desktop PCs, notebooks, tablet PCs, servers, lighting and power supplies for consumer electronics and industrial equipment. MOSFETs allow electronics manufacturers to achieve specific design goals of high efficiency and low standby power consumption. For example, computing solutions focus on delivering efficient controllers and MOSFETs for power management in VCORE, DDR and chipsets for audio, video and graphics processing systems. • IGBTs. Our IGBTs include 650V to 1200V field stop trench IGBTs. IGBTs are used in automotive and high power industrial applications, such as UPSs, power supplies, motor drives, solar inverters, welding machines and consumer appliances. 9 • • • • • AC-DC/DC-DC Converters. We offer AC-DC/DC-DC converters targeting mobile applications and high power applications like LCD, LED, and UHD televisions, notebooks, smartphones, mobile phones, set-top boxes and display modules. We expect our AC-DC/DC-DC converters will meet customer’s green power requirements by featuring wide input voltage ranges, high efficiency and small size. LED Drivers. LED backlighting drivers serve the fast-growing LCD and LED panel backlighting market for LCD and LED televisions, LCD monitors, digital signage, notebooks, smartphones and tablet PCs. Our products are designed to provide high efficiency and wide input voltage range, as well as pulse width modulation (PWM) dimming for accurate white LED dimming control. LED lighting drivers have a wide input voltage range applicable to incandescent bulb and fluorescent lamp replacement. Regulators. We also provide analog regulators for mobile, computing and consumer applications. Our products are designed for high efficiency and low power consumption in mobile applications. SSD PMICs. We also provide solid state drive power management integrated circuits (SSD PMICs) for the computing segment. Our product is designed for high frequency switching, high efficiency and pulse frequency modulation (PFM) function to reduce power consumption in low load converters. Logic PMICs. We also provide logic power management integrated circuits (PMICs) for organic light- emitting diode (OLED) display panel. Our PMICs provide optimized power to source driver, gate driver and timing controller (T-CON) of OLED display panel with multi-channel power block (boost converter, buck converter, Op-Amps and positive/negative LDOs.) Our power management solutions enable customers to increase system stability and improve heat dissipation and energy use, resulting in cost savings for our customers and consumers, as well as environmental benefits. Our in-house process technology capabilities and eight-inch wafer production lines increase efficiency and contribute to the competitiveness of our products. The following table summarizes the features of our products, both in mass production and in customer qualification, which is the final stage of product development: Product Key Features Applications Low Voltage MOSFET . . . . . . . . . . . • Voltage options of 12V-30V • Advanced Trench MOSFET Process • High cell density • Advanced packages to enable reduction of PCB mounting area • Smartphones, mobile phones, and wearable devices • Tablet PCs, Notebooks • Desktop PCs, Servers • LCD/LED TVs • Industrial applications • Cryptocurrency miner Medium Voltage MOSFET . . . . . . . . • Voltage options of 40V-150V • Advanced Trench MOSFET • e-Bikes and Motor controls • Battery Management Process • High cell density • High system efficiency • Advanced packages to enable reduction of PCB mounting area Systems • Power tools and Servers • Other computing applications (Tablet PCs, Notebooks, Desktops) • Industrial applications • Automotive* 10 Product Key Features Applications High Voltage MOSFET . . . . . . . . . . . Super Junction MOSFET . . . . . . . . . . • Voltage options of 200V-650V • R2FET (rapid recovery) option to shorten reverse diode recovery time • Zener diode option for MOSFET protection for abnormal input • Advanced Planar MOSFET Process • Advanced packages to enable reduction of PCB mounting area • Voltage options of 500V-900V • Low RDS(ON) • Epi stack process • Zener diode option for MOSFET protection for abnormal input • Advanced SJ MOSFET process • Advanced packages to enable reduction of PCB mounting area IGBTs . . . . . . . . . . . . . . . . . . . . . . . . • Voltage options of AC-DC/DC-DC Converter . . . . . . . . 650V/1200V • Field Stop Trench IGBT • Current options from 15A to 100A • Wide control range for high power application (>150W) • Advanced BCDMOS process • High Precision Voltage Reference • Very low startup current consumption • Fast load and line regulation • Accurate output voltage • OCP, SCP and thermal protections LED 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 up frequency 11 • Adaptors for tablet PC/mobile phone/ smartphone • Power supplies • Lighting (ballast, HID, LED) • Industrial applications • LCD/LEDTVs • LCD/LED/UHD TVs • Lightings applications (ballast, HID, LED) • Smartphones • Power supplies • Servers • Industrial applications • Automotive • Industrial applications • Consumer appliances • LCD/LED/UHD TVs • Power supplies • Smartphones • Mobile phones • Notebooks • Set-top boxes • Tablet PCs • Notebooks • Smartphones • LED/UHD TVs • LED monitors K - 0 1 m r o F Product Key Features Applications Digital Controlled LED Driver . . . . . • Multi-channel constant current • Digital signage control • 12Bit gray scale with SPI LED Lighting Drivers . . . . . . . . . . . . • High efficiency, wide input • AC and DC LED lighting voltage range • Simple solutions with external components fully integrated • Advanced high voltage BCDMOS process • Accurate LED current control and high power factor and low THB • Single and multi-regulators • Low Noise Output regulators • Wide range of input voltage and various output current • CMOS and BCDMOS processes • LDO (Low Drop Out — Linear Regulator) • High current buck • PFM function • High frequency switching • High efficiency • High integration technology • Small QFN package • High current boost • Integrated pass transistor • LDO • 3channel high current buck • Negative Charge Pump • 2channel buffer Op-Amp. • Tiny Wafer Level CSP • Smartphones and Mobile phones • Notebooks • Computing applications • Computing applications • Notebooks • Tablet PCs Regulators . . . . . . . . . . . . . . . . . . . . . SSD PMIC . . . . . . . . . . . . . . . . . . . . . Logic PMIC . . . . . . . . . . . . . . . . . . . . * In customer qualification stage Sales and Marketing We 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. We believe our close collaboration with customers allows us to align our product and technology development with our customers’ existing and future needs. Because our customers often service multiple end markets, our product sales teams are organized by customers within the major geographies. We believe this facilitates the sale of products that address multiple end-market applications to each of our customers. We sell our products through a direct sales force and a network of authorized agents and distributors. We have strategically located our sales and technical support offices near our customers. Our direct sales force consists primarily of representatives co-located with our design center in Korea, as well as our local sales and support offices and sales liaisons in Japan, Greater China, Taiwan and Europe. We have a network of agents and 12 distributors in United States, Europe and the Asia Pacific region. For the years ended December 31, 2021, 2020 and 2019, we derived 62%, 75% and 75% of net sales from our standard products business through our direct sales force, respectively, and 38%, 25% and 25% of net sales from our standard products business through our network of authorized agents and distributors, respectively. Customers We sell our Display Solutions and Power Solutions products to consumer, computing and industrial electronics OEMs, original design manufacturers and electronics manufacturing services companies, as well as subsystem designers. For the years ended December 31, 2021, 2020 and 2019, our ten largest customers accounted for 79.8%, 87.6% and 89.5% of net sales from our standard products business, respectively. Our arrangements with and reliance on key customers, particularly customers for our display products, may make it less practicable to pursue certain opportunities with other potential new and existing customers. For the year ended December 31, 2021, sales to Samsung Display represented 42.5% of net sales from our standard products business and 89.7% of our Display Solutions division’s net sales, and SAMT represented 10.4% of net sales from our standard products business and 19.8% of our Power Solutions division’s net sales. For the year ended December 31, 2020, sales to Samsung Display represented 56.2% of net sales from our standard products business and 87.5% of our Display Solutions division’s net sales. For the year ended December 31, 2019, sales to Samsung Display represented 53.8% of net sales from our standard products business and 84.5% of our Display Solutions division’s net sales. For the year ended December 31, 2021, we recorded revenues of $6.1 million from customers in the US and $427.0 million from all foreign countries, of which 47.2% was from Greater China, 26.6% from Korea and 18.9% from Vietnam. For the year ended December 31, 2020, we recorded revenues of $5.1 million from customers in the US and $460.4 million from all foreign countries, of which 61.9% was from Greater China, 23.1% from Korea and 10.8% from Vietnam. For the year ended December 31, 2019, we recorded revenues of $2.4 million from customers in the US and $482.4 million from all foreign countries, of which 68.2% was from Greater China and 27.5% from Korea. All information pertaining to the geographic source of revenues is with respect to the geographic location to which our products are billed. Intellectual Property As of December 31, 2021, our portfolio of intellectual property assets included approximately 1,004 registered patents and 142 pending patent applications. Approximately 490 and 46 of our patents and pending applications, respectively, are novel in that they are not a foreign counterpart of an existing patent or patent application. Because we file patents in multiple jurisdictions, we additionally have approximately 514 registered patents and 96 pending applications that relate to identical technical claims in our base patent portfolio. Our patents expire at various times approximately over the next 19 years. While these patents are in the aggregate important to our competitive position, we do not believe that any single registered or pending patent is material to us. See “Item 1A. Risk Factors—Risks Related to Our Business—Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our intellectual property, proprietary technology and know-how, as well as our ability to operate without infringing the proprietary rights of others.” K - 0 1 m r o F National Core Technology Under the Act on Prevention of Leakage and Protection of Industrial Technology of Korea (the “ITA”), any export (including various means of outflow such as sale or transfer outside Korea) of technology designated as “national core technology” (“National Core Technology” or “NCT”) by the Korean Ministry of Trade, Industry and Energy (the “MOTIE”) requires the filing of a prior-report with, and the acceptance of the same by, the MOTIE. Any such export of NCT without the acceptance of the prior report with the MOTIE may be subject to corrective orders by the relevant authorities, and failure to comply with such corrective orders may potentially result in criminal liabilities. 13 The Notification Regarding Designation of National Core Technologies issued by the MOTIE was amended on July 14, 2021 to add certain technologies to the list of National Core Technology designated by the MOTIE, and the amended list includes the design technology for OLED Display Driver IC for driving display panels (“OLED DDI”). In the ordinary course of business, our Korean subsidiary may provide certain information relating to its products, including OLED DDI, to customers, suppliers or vendors, and such disclosure of information may be subject to the NCT-related regulations under the ITA, and therefore the MOTIE’s acceptance of prior-reports. Since the amendment of the foregoing NCT list in July 2021, we have filed prior-reports with the MOTIE for the export of our OLED DDI product-related information to certain overseas vendors that manufacture our products, and all such reports have thus far been accepted by the MOTIE. Competition We operate in highly competitive markets characterized by rapid technological change and continually advancing customer requirements. Although no one company competes with us in all of our product lines, we face significant competition in each of our market segments. Our competitors include other independent and captive manufacturers and designers of analog and mixed-signal integrated circuits, including display driver and power management semiconductor devices. We compete based on design experience, manufacturing capabilities, the ability to satisfy customer needs from the design phase through the shipping of a completed product, length of design cycle and quality of technical support and sales personnel. Our ability to compete successfully will depend on internal and external variables, both within and outside of our control. These variables include the timeliness with which we can develop new products and technologies, product performance and quality, manufacturing yields, capacity availability, customer service, pricing, industry trends and general economic trends. Human Capital Our worldwide workforce consisted of 890 employees (full- and part-time) as of December 31, 2021, of which 188 were involved in sales, marketing, general and administrative, 232 in research and development (including 100 with advanced degrees), 41 in quality, reliability and assurance, and 429 in manufacturing (comprised of 46 in engineering and 383 in operations, maintenance and others). Our employees leverage their extensive expertise in engineering, design and process to accelerate the advancement of technology and be leaders in our industry. We pride our company on being a great workplace where employees from diverse backgrounds can reach their full potential. Labor Unions As disclosed in previous reports, we have a labor union at our Korean subsidiary (the “First Union”). On Sep 16, 2021, the formation of a second labor union at our Korean subsidiary (the “Second Union”) was approved by the local authorities (the First Union and the Second Union are collectively referred to as the “Magnachip Semiconductor Labor Unions”). Both the First Union and the Second Union are members of a supervisory association named “Federation of Korean Trade Unions.” The First Union represents member employees who are factory workers and the Second Union represents member employees who are office workers, in both cases at our Korean subsidiary. As of December 31, 2021, of the 868 employees at our Korean subsidiary, 389 were represented by the First Union, and 82 employees were represented by the Second Union. Approximately 53% of our employees at our Korean subsidiary were represented by the Magnachip Semiconductor Labor Unions. See “Item 1A. Risk Factors—Risks Related to 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 and profitability.” 14 Values and Culture Our core values represent a commitment to building an environment of trust with our employees, customers, investors and the communities in which we operate. Through our values and culture, we strive to shape a better future not only for ourselves and our customers, but for humanity as a whole. At Magnachip, we strive to foster effective collaboration by respecting different perspectives, giving and receiving constructive feedback, and supporting one another. Inclusion and Diversity We support all employees, regardless of gender, gender identity or expression, age, veteran status, race, ethnicity, national origin, religion or disability. We place great importance on inclusion and diversity within the workplace. An inclusive and diverse culture creates a happier, more relaxed work environment. Labor and Ethics Magnachip strives to provide and maintain a working environment where management and employees are happy and treated with dignity and respect. Magnachip adheres to human rights and labor standards of international labor organizations, such as the United Nations and the International Labor Organization. Magnachip prohibits all forms of discrimination based on gender, race, nationality, religion and age to ensure all employees work in a safe and fair environment. Empowering Great Talent We offer a variety of offline training programs, including courses in the areas of design, engineering and technology, as well as courses at different job levels and leadership education. We also offer a number of online training programs, including in the areas of management/leadership and business skills such as presentation, negotiation, reporting, Information Technology and foreign language, which allow employees to improve their capabilities without time and space constraints. Every year, a majority of our employees are required to complete certain educational programs in the areas of information security, industrial safety and health, and sexual harassment prevention. We believe the foundation of Magnachip is our research and development (“R&D”) talent. To ensure R&D technical professionals continue to advance their skills and knowledge, we have technology committees that attend regular seminars and conduct periodic research. We have a reward program for exemplary research. We also offer a Vision Seminar, which is led by our CEO and is designed to share our company’s vision, strategy and the management’s key messages to employees. Additionally, the CEO and management regularly communicate with employees through CEO letters and town hall meetings. Compensation and Benefits We strive to reward employees with competitive compensation based on contribution and performance. We periodically evaluate market practices for compensation and benefits, including with respect to job function, role and responsibility, job level and region, and regularly review whether our compensation levels and distribution methods are fair and equitable. Additionally, we have long- and mid-term retention programs to attract and retain high-performing key talent. We offer various employee benefits under the company philosophy that ensuring employees enjoy a happier life with their families is as critical as promoting their own health and well-being. All employees and their family members have access to annual medical checkup programs. Employees also have access to other benefits such as personal pensions, housing assistance, medical reimbursement plans and educational assistance programs. 15 K - 0 1 m r o F Safety and Wellness During and after the ongoing COVID-19 pandemic, our top priority is ensuring health and safety of our employees and their families. We built a companywide control tower to provide appropriate response guidance as the pandemic has evolved, and have secured internal/external capabilities to respond to emergencies systematically. In response to the ongoing COVID-19 pandemic, we quickly instituted infrastructure to support remote working, so that our employees could work from home in a safe and stable environment. In addition, we have installed safety facilities within our business sites. Environmental We are subject to a variety of environmental, health and safety laws and regulations in each of the jurisdictions in which we operate, governing, among other things, air emissions, wastewater discharges, the generation, use, handling, storage and disposal of, and exposure to, hazardous substances (including asbestos) and waste, soil and groundwater contamination and employee health and safety. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Since 2015, our Korean subsidiary has been subject to a new set of greenhouse gas emissions regulation, the Korean Emissions Trading Scheme, or K-ETS, under the Act on Allocation and Trading of Greenhouse Gas Emission Allowances. Under K-ETS, our Korean subsidiary was allocated a certain amount of emissions allowance in accordance with the National Allocation Plan prepared by the Korean government and is required to meet its allocated target by either reducing the emission or purchasing the allowances from other participants in the emission trading market. Another example is the newly reinforced regulations on chemicals under Chemicals Control Act and K-REACH, which came into effect on January 1, 2015. Under these laws, our Korean subsidiary is required to comply with various requirements to report, evaluate, manage and ensure the safe usage of the chemicals used in its facilities. There can be no assurance that we have been or will be in compliance with all of these laws and regulations, or that we will not incur material costs or liabilities in connection with these laws and regulations in the future. The adoption of new environmental, health and safety laws and the failure to comply with new or existing laws or issues relating to hazardous substances could subject us to material liability (including substantial fines or penalties), impose the need for additional capital equipment or other process requirements upon us, curtail our operations or restrict our ability to expand operations. Raw Materials We use processes that require specialized raw materials that are generally available from a limited number of suppliers. We continue to attempt to qualify additional suppliers for our raw materials. The Securities and Exchange Commission (the “SEC”), as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, has adopted disclosure regulations for public companies 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. The implementation of these requirements could adversely affect the sourcing, availability and pricing of metals used in the manufacture of our products. See “Item 1A. Risk Factors—Risks Related to Our Business—Compliance with regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain raw materials used in manufacturing our products.” Available Information Our principal executive office is located at: c/o MagnaChip Semiconductor S.A., 1, Allée Scheffer, L-2520 Luxembourg, Grand Duchy of Luxembourg, and our telephone number is (352) 45-62-62. Our website address is www.magnachip.com. Our annual, quarterly and current reports on Forms 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 of Business Conduct and Ethics, Clawback Policy, Audit 16 Committee Charter, Compensation Committee Charter, Nominating and Governance Committee Charter and Risk Committee Charter are available on our website. Information contained on our website does not constitute, and shall not be deemed to constitute, part of this Report and shall not be deemed to be incorporated by reference into this Report. In addition, the SEC maintains an internet site, www.sec.gov, from which you can access our annual, quarterly and current reports on Form 10-K, 10-Q and 8-K, respectively, and all amendments to these materials after such reports and amendments are filed with the SEC. You may also request a copy of these filings, at no cost, by writing or telephoning us at the following address or phone number: c/o Magnachip Semiconductor, Ltd., 15F 501 Teheran-ro, Gangnam-gu, Seoul 06168, Korea Attention: General Counsel and Secretary; the telephone number at that address is 82-2-6903-3666. Information About Our Executive Officers The following table sets forth certain information regarding our current executive officers: Name Age Position Young-Joon (YJ) Kim . . . . . . . . . . Shin Young Park . . . . . . . . . . . . . . . Theodore Kim . . . . . . . . . . . . . . . . . Woung Moo Lee . . . . . . . . . . . . . . . Chan Ho Park . . . . . . . . . . . . . . . . . 57 Director and Chief Executive Officer 41 Chief Financial Officer 52 Chief Compliance Officer, General Counsel and Secretary 59 General Manager of Worldwide Sales 58 General Manager of Power Solutions Young-Joon (YJ) Kim, Director, Member of the Risk Committee and Chief Executive Officer. Mr. YJ Kim became our Chief Executive Officer in May 2015 and has also served as a director on our Board since that time. In February 2020, Mr. Kim assumed the additional role of General Manager of the Display business to capitalize on attractive growth opportunities in OLED display and other relevant emerging markets. He also served as the acting General Manager of Foundry Services Group from January 2019 until the completion of the sale of the Foundry Services Group and the factory in Cheongju (“Fab 4”) on September 1, 2020. Mr. Kim joined our company in May 2013 and served as our Executive Vice President and General Manager, Display Solutions Division. He was promoted to Interim Chief Executive Officer in May 2014. Prior to joining our company, Mr. Kim held a variety of senior management roles at several global semiconductor firms in a career spanning about 34 years. His past roles include marketing, engineering, product development and strategic planning, and his product expertise includes microprocessors, network processors, FLASH, EPROM, analog, mixed-signal, sensors, wireless base station, workstations and servers. Immediately before joining our company, Mr. Kim served as Vice President, Infrastructure Processor Division, and General Manager of the OCTEON Multi-Core Processor Group of Cavium, Inc., where he worked from 2006 to 2013. Prior to Cavium, Mr. Kim served as Core Team Lead and General Manager of the Tolapai Program at Intel Corporation from 2004 to 2006. In 1998, Mr. Kim co-founded API Networks, a joint venture between Samsung and Compaq, where he served as the head of product management, worldwide sales and business development for Alpha processors. Prior to API Networks, Mr. Kim served as Director of Marketing at Samsung Semiconductor, Inc. from 1996 to 1998. Mr. Kim began his career as a product engineer at Intel Corporation in 1988. Mr. Kim holds B.S. and M. Eng. degrees in Electrical Engineering from Cornell University. Our Board has concluded that Mr. YJ Kim is a valuable member of the Board based on his understanding of our company’s products and technology as our Chief Executive Officer and his deep knowledge of the semiconductor industry. Shin Young Park, Chief Financial Officer. Ms. Shin Young Park became our Chief Financial Officer in January 2022 and became our Chief Accounting Officer in March 2020. Ms. Park previously served as our Corporate Controller from November 2018 to February 2020. Prior to that, she served as the SEC Reporting and Accounting Director from April 2015 to October 2018. Before joining Magnachip in April 2014, from 2005 to March 2014, Ms. Park served in various senior advisory and audit service positions at Deloitte, a public accounting firm. From 2005 to 2009, she worked at Deloitte & Touche in Chicago, Illinois; from 2009 to 2011 and then from 2013 to March 2014, she worked at Deloitte Anjin in Seoul, South Korea; and from 2011 to 2013, 17 K - 0 1 m r o F she worked at Deloitte in London, U.K. Ms. Park holds a B.A. degree in Business Administration from Sogang University, Seoul, Korea, and a Master’s degree in Hospitality Industry Studies from New York University. Theodore Kim, Chief Compliance Officer, General Counsel and Secretary. Mr. Theodore Kim (T. Kim) became our Chief Compliance Officer in May 2015, and became our General Counsel and Secretary in November 2013. Mr. T. Kim previously served as our Senior Vice President from November 2013 to May 2015. Prior to joining Magnachip, Mr. T. Kim served as Head Lawyer, Global Business Development at Samsung Fire & Marine Insurance from October 2012 to October 2013. Mr. T. Kim was employed by Gibson, Dunn & 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 at Kim & Chang, a law firm in Korea, from 2001 to 2005, and prior to that, he worked as an associate attorney at Morrison & Foerster LLP, a law firm, from 1997 to 2001. Mr. Kim holds a B.A. degree in Economics and a B.S. degree in Mechanical Engineering from the University of California, Irvine, and a J.D. degree from the University of California, Los Angeles, School of Law. Woung Moo Lee, General Manager of Worldwide Sales. Mr. Woung Moo Lee was named as General Manager of Worldwide Sales since June of 2020. Prior to that, Mr. Lee served as General Manager of Worldwide Sales and Power Solutions from February 2020. Mr. Lee had been appointed as General Manager of the Standard Products Group in 2015 and prior to that served as our Senior Vice President, Korea Sales from 2013. Before joining our company, he was one of the founding executives and served as Vice President of Global Strategy and Marketing, Samsung LED Co., Ltd. from 2009 to 2011. In 1984, Mr. Lee began his career as a memory semiconductor design engineer and served as Vice President of Memory Strategy & Marketing Team at Samsung Electronics Co., Ltd. until 2009. Mr. Lee received the prestigious “Proud Samsung Employee Award” in 2005 and holds a B.S. degree in Electronic Engineering from Inha University. Chan Ho Park, General Manager of Power Solutions. Dr. Chan Ho Park became our General Manager of Power Solutions in June 2020 with over 30 years of hands-on experience in the development of discrete power devices and market insights throughout the power semiconductor industry. Prior to joining our company, he was a senior staff at Vishay Intertechnology Inc. since March, 2014. He developed cutting-edge technology platforms for low voltages MOSFETs having 1.5 giga-cell density and provided high and low side MOSFETs for DrMOS to various power stage solutions. Dr. Park started his professional career in 1986 as a design engineer in the field of BJT, J-FET, and Schottky Diode at Samsung Electronics, located in Bucheon, Korea. Afterwards, he worked for Fairchild Semiconductor in West Jordan, Utah and for Vishay Siliconix in San Jose, California. He rejoined Samsung Electronics, System LSI Business in 2011 as the Vice President of Discrete Development Team, where he led R&D, PE, FAE and high voltage power IC technologies for IGBTs, super-junction MOSFETs, split gate MOSFETs and driver ICs. He received a Ph.D. in Electrical Engineering from KAIST (Korea Advanced Institute of Science and Technology) and a B.S. in Physics from Seoul National University. He is a member of IEEE and a peer reviewer for IEEE transactions on Electron Devices and Electron Device Letters. Item 1A. Risk Factors You should carefully consider the risk factors set forth below as well as the other information contained in this Report. Any of the following risks could materially and adversely affect our business, financial condition or results of operations. As a result, the price of our common stock could decline and you could lose all or part of your investment in our common stock. Additional risks and uncertainties not currently known to us or those currently viewed by us to be immaterial may also materially and adversely affect our business, financial condition or results of operations. Risk Factors Summary The following is a summary of the risk factors included herein. • We manufacture our products based on our estimates of customer demand, and if our estimates are incorrect, our financial results could be negatively impacted. 18 • • A significant portion of our sales comes from a relatively limited number of customers, the loss of which could adversely affect our financial results. The average selling prices of our semiconductor products have at times declined rapidly and will likely do so in the future, which could harm our revenue and gross profit. • We are subject to risks associated with currency fluctuations, and changes in the exchange rates of applicable currencies could impact our results of operations. • • • • • • Global shortages in manufacturing capacities could interrupt or negatively affect our operations, increase cost to manufacture and negatively impact our results of operations. Expanded trade restrictions may limit our ability to sell to certain customers. Recent changes in international trade policy and the imposition and threats of international tariffs, including tariffs applied to goods traded between the United States and China, could materially and adversely affect our business and results of operations. Our Korean subsidiary has been designated as a regulated business under Korean environmental law, and such designation could have an adverse effect on our financial position and results of operations. Our compliance with the Serious Accidents Punishment Act (the “SAPA”) could require significant expenditures and management time and expose us to liability for violations. Our business depends on international customers, suppliers and operations in Asia, and as a result we are subject to regulatory, operational, financial and political risks, which could adversely affect our financial results. • We cannot guarantee that our share repurchase program will be successfully consummated, or that it will enhance shareholder value, and share repurchases could affect the price of our common stock. • Our Rights Plan and provisions in our charter documents and Delaware Law may make it difficult for a third party to acquire us and could depress the price of our common stock. • We have not historically paid dividends and do not currently have any dividend or distribution policy, and therefore, investors may need to rely on sales of their common stock as the only way to realize any future gains on their investments. Risks Related to Our Business We operate in the highly cyclical semiconductor industry, which is subject to significant downturns that may negatively impact our results of operations. The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change and price erosion, evolving technical standards, short product life cycles (for semiconductors and for the end-user products in which they are used) and wide fluctuations in product supply and demand. From time to time, these and other factors, together with changes in general economic conditions, cause significant upturns and downturns in the industry in general and in our business in particular. Periods of industry downturns have been characterized by diminished demand for end-user products, high inventory levels, underutilization of manufacturing capacity, changes in revenue mix and accelerated erosion of average selling prices. We have experienced these conditions in our business in the past and may experience renewed, and possibly more severe and prolonged, downturns in the future as a result of such cyclical changes. This may reduce our results of operations. Recently, the semiconductor industry has experienced a period of upturn, which has resulted in shortages in manufacturing capacity. To the extent there are shortages, we may experience difficulties in sourcing sufficient manufacturing capacity or could be forced to pay increased prices for such services, either of which could negatively impact our results of operations. We base our planned operating expenses in part on our expectations of future revenue, and a significant portion of our expenses is relatively fixed in the short term. If revenue for a particular quarter is lower than we 19 K - 0 1 m r o F expect, we likely will be unable to proportionately reduce our operating expenses for that quarter, which would harm our operating results for that quarter. Our restructuring activities and dispositions of assets and businesses could result in lost business and other costs that could have a material adverse effect on our results of operations. From time to time, we may choose to sell assets, restructure business operations, shut down manufacturing lines or otherwise dispose of assets and businesses as part of management’s strategies to better align our product offerings with market demands and our customers’ needs. In connection with these activities, we face risks that we will disrupt service to our customers, lose business and incur significant costs related to such activities. These risks include potential damage to our reputation and customer relationships if we are unable to effectively transition such customer relationships to other production lines or products or if we cannot effectively manage our supplier and vendor relationships during such activities. In addition, we may also face claims or costs associated with transitioning or eliminating certain employee positions and modifying or terminating vendor relationships in connection with those exit activities. If we fail to develop new products and technologies or enhance our existing products in order to react to rapid technological change and market demands, our business will suffer. Our industry is subject to constant and rapid technological change and product obsolescence as customers and competitors create new and innovative products and technologies. Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive, and we may not be able to access advanced process technologies, including smaller geometries, or to license or otherwise obtain essential intellectual property required by our customers. We must develop new products and enhance our existing products to meet rapidly evolving customer requirements. We design products for customers that continually require higher performance and functionality at lower costs. We must, therefore, continue to enhance the performance and functionality of our products. The development process for these advancements is lengthy and requires us to accurately anticipate technological changes and market trends. Developing and enhancing these products is uncertain and can be time-consuming, costly and complex. Customer and market requirements can change during the development of a product. 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 from our competitors that offer comparable or superior performance and functionality. Any new products, such as our expanding line of power management solutions, or product enhancements, may not be accepted in new or existing markets. Our business will suffer if we fail to develop and introduce new products or product enhancements on a timely and cost-effective basis. We manufacture our products based on our estimates of customer demand, and if our estimates are incorrect, our financial results could be negatively impacted. We make significant decisions, including determining the levels of business that we will seek and accept, production schedules, component procurement commitments, personnel needs and other resource requirements, based on our estimates of customer demand and expected demand for and success of their products. The short- term nature of commitments by many of our customers and the possibility of rapid changes in demand for their products reduces our ability to estimate accurately future customer demand for our products. On occasion, customers may require rapid increases in supply, which can challenge our production resources and reduce margins. We may not have sufficient capacity at any given time to meet our customers’ increased demand for our products. Conversely, downturns in the semiconductor industry have caused and may in the future cause our customers to reduce significantly the amount of products they order from us. Because many of our costs and operating expenses are relatively fixed, a reduction in customer demand would decrease our results of operations, including our gross profit. 20 Our customers may cancel their orders, reduce quantities or delay production, which would adversely affect our margins and results of operations. We generally do not obtain firm, long-term purchase commitments from our customers. Customers may cancel their orders, reduce quantities or delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a group of customers, which we have experienced as a result of periodic downturns in the semiconductor industry, or failure to achieve design-wins, have affected and may continue to affect our results of operations adversely. These risks are exacerbated because many of our products are customized, which hampers our ability to sell excess inventory to the general market. We may incur charges resulting from the write-off of obsolete inventory. In addition, while we do not obtain long-term purchase commitments, we generally agree to the pricing of a particular product over a set period of time. If we underestimate our costs when determining pricing, our margins and results of operations would be adversely affected. Our fab manufacturing depends on high utilization of our manufacturing capacity, a reduction of which could have a material adverse effect on our business, financial condition and the results of our operations. An important factor in our success is the extent to which we are able to utilize the available capacity in our fabrication facility. As many of our costs are fixed, a reduction in capacity utilization, as well as changes in other factors, such as reduced yield or unfavorable product mix, could reduce our profit margins and adversely affect our operating results. A number of factors and circumstances may reduce utilization rates, including periods of industry overcapacity, the inability to source sufficient materials necessary for manufacturing, low levels of customer orders, operating inefficiencies, strategic evaluations and decisions by our Board related our overall business, divisions and business lines, mechanical failures and disruption of operations due to expansion or relocation of operations, power interruptions and fire, flood or other natural disasters or calamities. The potential delays and costs resulting from these factors and circumstances could have a material adverse effect on our business, financial condition and results of operations. A significant portion of our sales comes from a relatively limited number of customers, the loss of which could adversely affect our financial results. Historically, we have relied on a limited number of customers for a substantial portion of our total revenue. If we were to lose key customers or if customers cease to place orders for our high-volume products, particularly our display products, our financial results could be adversely affected. In addition, our arrangements with and reliance on key customers may make it less practicable to pursue certain opportunities with other potential new and existing customers. For the years ended December 31, 2021, 2020 and 2019, our ten largest customers accounted for 79.8%, 87.6% and 89.5% of net sales from our standard products business, respectively. For the year ended December 31, 2021, sales to Samsung Display represented 42.5% of net sales from our standard products business and 89.7% of our Display Solutions division’s net sales, and SAMT represented 10.4% of net sales from our standard products business and 19.8% of our Power Solutions division’s net sales. For the year ended December 31, 2020, sales to Samsung Display represented 56.2% of net sales from our standard products business and 87.5% of our Display Solutions division’s net sales. For the year ended December 31, 2019, sales to Samsung Display represented 53.8% of net sales from our standard products business and 84.5% of our Display Solutions division’s net sales. Significant reductions in sales to any of these customers, especially our few largest customers, the loss of other major customers or a general curtailment in orders for our high-volume products within a short period of time could adversely affect our business. K - 0 1 m r o F The average selling prices of our semiconductor products have at times declined rapidly and will likely do so in the future, which could harm our revenue and gross profit. The semiconductor products we develop and sell are subject to rapid declines in average selling prices. From time to time, we have had to reduce our prices significantly to meet customer requirements, and we may be 21 required to reduce our prices in the future. This would cause our gross profit to decrease. Our financial results will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing our costs or developing new or enhanced products on a timely basis with higher selling prices or gross profit. Our industry is highly competitive, and our ability to compete could be negatively impacted by a variety of factors. The semiconductor industry is highly competitive and includes hundreds of companies, a number of which have achieved substantial market share within both our product categories and end markets. Current and prospective customers for our products and services evaluate our capabilities against the merits of our competitors. Some of our competitors are well established as independent companies and have substantially greater market share and manufacturing, financial, research and development and marketing resources than we do. We also compete with emerging companies that are attempting to sell their products in certain of our end markets and with the internal semiconductor design and manufacturing capabilities of many of our significant customers. We expect to experience continuing competitive pressures in our markets from existing competitors and new entrants. Any consolidation among our competitors could enhance their product offerings and financial resources, further enhancing their competitive position. Our ability to compete will depend on a number of factors, including the following: • • • • • • • 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; and our ability to enter the highly competitive power management market. Many of these factors are outside of our control. In the future, our competitors may replace us as a supplier to our existing or potential customers, and our customers may satisfy more of their requirements internally. As a result, we may experience declining revenues and results of operations. Changes in demand for consumer electronics in our end markets can impact our results of operations. Demand for our products will depend in part on the demand for various consumer electronics products, in particular, mobile phones and multimedia devices, digital televisions, flat panel displays, mobile PCs and digital cameras, which in turn depends on general economic conditions and other factors beyond our control. If our customers fail to introduce new products that employ our products or component parts, demand for our products will suffer. To the extent that we cannot offset periods of reduced demand that may occur in these markets through greater penetration of these markets or reduction in our production and costs, our sales and gross profit may decline, which would negatively impact our business, financial condition and results of operations. If we fail to achieve design-wins for our semiconductor products, we may lose the opportunity for sales to customers for a significant period of time and be unable to recoup our investments in our products. We expend considerable resources on winning competitive selection processes, known as design-wins, to develop semiconductor products for use in our customers’ products. These selection processes are typically 22 lengthy and can require us to incur significant design and development expenditures. We may not win the competitive selection process and may never generate any revenue despite incurring significant design and development expenditures. Once a customer designs a semiconductor into a product, that customer is likely to continue to use the same semiconductor or enhanced versions of that semiconductor from the same supplier across a number of similar and successor products for a lengthy period of time due to the significant costs associated with qualifying a new supplier and potentially redesigning the product to incorporate a different semiconductor. If we fail to achieve initial design-wins in a customer’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 expenses without realizing meaningful sales, the occurrence of which would harm our business. The cycle time from the design stage to mass production for some of our products is long and requires the investment of significant resources with many potential customers without any guarantee of sales. Our design-to-mass production cycle typically begins with a three-to-twelve month semiconductor development stage and test period followed by a three-to-twelve month end-product qualification period by our customers. The fairly lengthy front end of our sales cycle creates a risk that we may incur significant expenses but may be unable to realize meaningful sales. Moreover, prior to mass production, customers may decide to cancel their products or change production specifications, resulting in sudden changes in our product specifications, increasing our production time and costs. Failure to meet such specifications may also delay the launch of our products or result in lost sales. Research and development investments may not yield profitable and commercially viable products, and thus will not necessarily result in increases in revenues for us. We invest significant resources in our research and development. Our research and development efforts, however, may not yield profitable or commercially viable products. During each stage of research and development, there is a substantial risk that we will have to abandon a potential product that is no longer marketable and in which we have invested significant resources. In the event we are able to develop viable new products, a significant amount of time will have elapsed between our investment in the necessary research and development effort and the receipt of any related revenues. We face numerous challenges relating to executing our growth strategy, and if we are unable to execute our growth strategy effectively, our business and financial results could be materially and adversely affected. Our growth strategy is to leverage our advanced analog and mixed-signal technology platform, continue to innovate and deliver new products, increase business with existing customers, broaden our customer base, aggressively grow our power business, and drive execution excellence. If we are unable to execute our growth strategy effectively, we may not be able to take advantage of market opportunities, execute our business plan or respond to competitive pressures. Moreover, if our allocation of resources does not correspond with future demand for particular products, we could miss market opportunities and our business and financial results could be materially and adversely affected. K - 0 1 m r o F We are subject to risks associated with currency fluctuations, and changes in the exchange rates of applicable currencies could impact our results of operations. Historically, a portion of our revenues and greater than the majority of our operating expenses and costs of sales have been denominated in non-U.S. currencies, principally the Korean won, and we expect that this will remain true in the future. Because we report our results of operations in U.S. dollars, changes in the exchange 23 rate between the Korean won and the U.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollars relative to Korean won, a depreciation in the U.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the U.S. dollar were to appreciate relative to the Korean won. For example, foreign currency fluctuations had an unfavorable impact on our reported profit margins and operating income from operations for the fiscal year ended December 31, 2021 due to a relatively stronger Korean won during the period. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the U.S. dollar as a substantial portion of non-cash translation gain or loss is associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in U.S. dollars. As of December 31, 2021, the outstanding intercompany loan balance including accrued interests between our Korean subsidiary and our Dutch subsidiary was $344.4 million. Our Dutch subsidiary uses the U.S. dollar as their functional currency. As a result of foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected. From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Korean subsidiary enters into foreign currency forward and zero cost collar contracts in order to mitigate a portion of the impact of U.S. dollar-Korean won exchange rate fluctuations on our operating results. These foreign currency forward and zero cost collar contracts typically require us to sell specified notional amounts in U.S. dollars and provide us the option to sell specified notional amounts in U.S. dollars during successive months to our counterparty in exchange for Korean won at specified exchange rates. Obligations under these foreign currency forward and zero cost collar contracts must be cash collateralized if our exposure exceeds certain specified thresholds. These forward and zero cost collar contracts may be terminated by the counterparty in a number of circumstances, including if our long-term debt rating falls below B-/B3 or if our total cash and cash equivalents is less than $30 million at the end of a fiscal quarter. We cannot assure 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 of Financial Condition and Results of Operations—Factors Affecting our Results of Operations” for further details. The loss of our key employees would materially adversely affect our business, and we may not be able to attract or retain the technical or management employees necessary to compete in our industry. Our key executives have substantial experience and have made significant contributions to our business, and our continued success is dependent upon the retention of our key management executives. The loss of such key personnel would have a material adverse effect on our business. In addition, our future success depends on our ability to attract and retain skilled technical and managerial personnel. We do not know whether we will be able to retain all of these employees as we continue to pursue our business strategy. The loss of the services of key employees, especially our key design and technical personnel, or our inability to retain, attract and motivate qualified design and technical personnel, could have a material adverse effect on our business, financial condition and results of operations. This could hinder our research and product development programs or otherwise have a material adverse effect on our business. If we encounter future labor problems, we may fail to deliver our products and services in a timely manner, which would adversely affect our revenues and profitability. As of December 31, 2021, 471 employees, or approximately 53% of our employees, were represented by the Magnachip Semiconductor Labor Unions. 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 not experience work stoppages or other labor problems in future years or that we will not incur significant expenses related to such issues. 24 We may incur costs to engage in future business combinations or strategic investments, and we may not realize the anticipated benefits of those transactions. As part of our business strategy, we may seek to enter into business combinations, investments, joint ventures and other strategic alliances with other companies in order to maintain and grow revenue and market presence as well as to provide us with access to technology, products and services. Any such transaction would be accompanied by risks that may harm our business, such as difficulties in assimilating the operations, personnel and products of an acquired business or in realizing the projected benefits, disruption of our ongoing business, potential increases in our indebtedness and contingent liabilities and charges if the acquired company or assets are later determined to be worth less than the amount paid for them in an earlier original acquisition. In addition, our indebtedness may restrict us from making acquisitions that we may otherwise wish to pursue. The failure to achieve acceptable manufacturing yields could adversely affect our business. The manufacturing of semiconductors involves highly complex processes that require precision, a highly regulated and sterile environment and specialized equipment. Defects or other difficulties in the manufacturing process can prevent us from achieving acceptable yields in the manufacturing of our products, which could lead to higher costs, a loss of customers or delay in market acceptance of our products. Slight impurities or defects in the photomasks used to print circuits on a wafer or other factors can cause significant difficulties, particularly in connection with the production of a new product, the adoption of a new manufacturing process or any expansion of our manufacturing capacity and related transitions. We may also experience manufacturing problems in achieving acceptable yields as a result of, among other things, transferring production to other facilities, upgrading or expanding existing facilities or changing our process technologies. Yields below our target levels can negatively impact our gross profit and may cause us to eliminate underperforming products. We rely on a number of independent subcontractors and the failure of any of these independent subcontractors to perform as required could adversely affect our operating results. A substantial portion of our net sales are derived from semiconductor devices assembled in packages or on film. The packaging and testing of semiconductors require technical skills and specialized equipment. For the portion of packaging and testing that we outsource, we use subcontractors located in Korea, China, Taiwan and Thailand. We rely on these subcontractors to package and test our devices with acceptable quality and yield levels, and, while we specify quality standards, we are not able to directly oversee their day-to-day operations and the packaging and testing of our devices. Onboarding of a new subcontractor, including as a result of switching from one subcontractor to another, takes approximately three to six months to verify the subcontractor’s capabilities and an additional six to twelve months to receive approval from our customers to use such subcontractor. We could be adversely affected by political disorders, labor disruptions, public health issues (including viral outbreaks such as COVID-19) and natural disasters where our subcontractors are located due to the time it would take to onboard a new subcontractor. If our semiconductor packagers and test service subcontractors experience problems in packaging and testing our semiconductor devices, experience prolonged quality or yield problems, experience shutdowns or delays associated with public health issues (such as those associated with COVID-19), or decrease the capacity of their operations available to us, our operating results could be adversely affected. We cooperate with independent foundries to produce certain advanced technology Display Solutions products, and the failure of such independent foundries to satisfy our demand could materially disrupt our business. We use independent foundry services for certain of our OLED Display Solutions products and Power Solutions products. Silicon wafer production at these facilities is allocated solely by our vendors and beyond our direct control. Therefore, any disruption in wafer supply form these vendors could have a material impact on our revenue and results of operations. 25 K - 0 1 m r o F Global shortages in manufacturing capacities could interrupt or negatively affect our operations, increase cost to manufacture and negatively impact our results of operations. Recent sharp increases in demand for semiconductor products have resulted in a global shortage of manufacturing capacities. As a result, we may experience increases in the costs to manufacture our products and may not be able to manufacture and deliver all of the orders placed by our customers. We are not able to foresee when the current shortage of manufacturing capacity will subside. If we are unable secure manufacturing capacities from our current subcontractors, our ability to deliver our products to our customers may be negatively impacted. Also, our subcontractors may increase their fees, which would result in an increase in our manufacturing costs, which we may not be fully able to pass to our customers. These factors could cause a negative impact on our results of operations. We depend on successful parts and materials procurement for our manufacturing processes, and a shortage or increase in the price of these materials could interrupt our operations and result in a decline of revenues and results of operations. We procure materials and electronic and mechanical components from international sources and original equipment manufacturers. We use a wide range of parts and materials in the production of our semiconductors, including silicon, processing chemicals, processing gases, precious metals and electronic and mechanical components, some of which, such as silicon wafers, are specialized raw materials that are generally only available from a limited number of suppliers. 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 the semiconductors we manufacture, have been constrained in recent years due to an increased demand for silicon. We from time to time may enter into multi-year agreements, which specify future quantities and pricing of materials to be supplied by the vendors of these materials; however, this option may not be available to us and we cannot assure that supply increases will match demand increases. If we cannot obtain adequate materials in a timely manner or on favorable terms for the manufacture of our products, revenues and results of operations will decline. Compliance with regulations regarding the use of “conflict minerals” could limit the supply and increase the cost of certain raw materials used in manufacturing our products. The SEC, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, adopted disclosure regulations for public companies that manufacture products containing certain minerals that are mined from the Democratic Republic of Congo and adjoining countries and procedures pertaining to a manufacturer’s efforts regarding the source of such minerals. These “conflict minerals” are commonly found in metals used in the manufacture of semiconductors. Manufacturers are also required to disclose their efforts to prevent the sourcing of such minerals and metals produced from them. The implementation of these 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 customers who 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 of revenue. We face warranty claims, product return, litigation and liability risks and the risk of negative publicity if our products fail. Our semiconductors are incorporated into a number of end products, and our business is exposed to product return, warranty and product liability risk and the risk of negative publicity if our products fail. Although we maintain insurance for product liability claims, the amount and scope of our insurance may not be adequate to cover a product liability claim that is asserted against us. In addition, product liability insurance could become more expensive and difficult to maintain and, in the future, may not be available on commercially reasonable terms, or at all. 26 In addition, we are exposed to the product liability risk and the risk of negative publicity affecting our customers. Our sales may decline if any of our customers are sued on a product liability claim. We also may suffer a decline in sales from the negative publicity associated with such a lawsuit or with adverse public perceptions in general regarding our customers’ products. Further, if our products are delivered with impurities or defects, we could incur additional development, repair or replacement costs, and our credibility and the market’s acceptance of our products could be harmed. We could suffer adverse tax and other financial consequences as a result of changes in, or differences in the interpretation of, applicable tax laws, or the adoption of new U.S. or international tax legislation. Our company’s organizational structure was created in part based on certain interpretations and conclusions regarding various tax laws, including withholding tax and other tax laws of applicable jurisdictions. Our interpretations and conclusions regarding tax laws, however, are not binding on any taxing authority and, if these interpretations and conclusions are incorrect, if our business were to be operated in a way that rendered us ineligible for tax exemptions or caused us to become subject to incremental tax, or if the authorities were to change, modify or have a different interpretation of the relevant tax laws, we could suffer adverse tax and other financial consequences, and the anticipated benefits of our organizational structure could be materially impaired. Our company’s organizational structure and other tax positions are subject to review by tax authorities in the local and other jurisdictions where we operate our business. Our provision for income taxes is subject to volatility and could be negatively affected by earnings being (i) lower than anticipated in jurisdictions that have lower statutory tax rates or (ii) higher than anticipated in jurisdictions that have higher statutory tax rates. In addition, our provision for income taxes could be negatively affected by changes in the valuation of our deferred tax assets and liabilities, changes to global intangible low-tax income tax laws, transfer pricing adjustments, or changes in tax laws, regulations, or accounting principles. Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign income, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business, financial condition or results of operations. For example, the Organization for Economic Cooperation and Development (OECD) has recommended changes to numerous long-standing international tax principles through its base erosion and profit shifting (BEPS) project. These changes, to the extent adopted, may increase tax uncertainty, result in higher compliance costs and adversely affect our provision for income taxes, results of operations and/or cash flow. We are also subject to regular reviews, examinations and audits by the IRS and other taxing authorities, including the Korean National Tax Service, with respect to income and non-income based taxes both within and outside the U.S. In connection with the OECD’s BEPS project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of income earned in various countries. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation could differ from our historical provisions and accruals, resulting in an adverse impact on our business, financial condition or results of operations. K - 0 1 m r o F Expanded trade restrictions imposed by the United States may limit our ability to sell to certain customers. On August 17, 2020, the U.S. Department of Commerce expanded the scope of export restrictions as applied to products directed to Huawei and its affiliates listed on the Bureau of Industry and Security’s Entity List (collectively, “Huawei”). While prior restrictions had minimal effect on our ability to supply to customers, the newly expanded restrictions would limit our ability to supply to a variety of customers who we believe incorporate our products to those customers’ products directly or indirectly sold to Huawei. As of the date of this Annual Report, we are uncertain on the seriousness of the restrictions’ impact or duration and the future 27 trajectory of our business from customers who directly or indirectly supply Huawei with products that incorporate our products. For export of some of our products, we have successfully obtained the necessary export licenses, and if exports of other products require export licenses due to the restrictions, we will consider applying for the necessary export licenses to continue to sell to the affected customers. Although we have thus far successfully obtained the necessary export licenses for exporting some of our products, we are unsure whether our other applications will be successful. There is also a possibility that export restrictions may be further expanded to target companies in addition to Huawei, which may have an additional impact on our ability to sell to our customers. Export restrictions may also affect our contractors, suppliers or customers, and we cannot assure that they will not violate the restrictions, and any such violations may result in fines or criminal sanctions against us and damage our reputation. Expanded trade restrictions imposed by South Korea may limit our ability to sell to certain customers or engage in any potential strategic opportunities. Under the ITA, any export (including various means of outflow, such as sale or transfer outside Korea) of National Core Technology by MOTIE requires the filing of a prior-report with, and the acceptance of the same by, the MOTIE. Any such export of NCT without the acceptance of the prior-report with the MOTIE may be subject to corrective orders by the relevant authorities, and failure to comply with such corrective orders may potentially result in criminal liabilities. The Notification Regarding Designation of National Core Technologies issued by the MOTIE was amended on July 14, 2021 to add certain technologies to the list of National Core Technology designated by the MOTIE, and the amended list includes the design technology for OLED DDI. In the ordinary course of business, our Korean subsidiary may provide certain information relating to its products, including OLED DDI, to customers, suppliers or vendors, and such disclosure of information may be subject to the NCT-related regulations under the ITA, and therefore the MOTIE’s acceptance of prior reports. Since the amendment of the foregoing NCT list in July 2021, we have filed prior-reports with the MOTIE for the export of our OLED DDI product-related information to certain overseas vendors that manufacture our products, and all such reports have thus far been accepted by the MOTIE. There is no assurance, however, that any future prior-reports for the export of our product-related information will be accepted by the MOTIE. In the event that any future prior-report is not accepted, we may be unable to continue our business with the overseas customers, suppliers or vendors, including the manufacturing and delivery of our OLED DDI products. In addition, in the event that there is any M&A transaction with respect to our Korean subsidiary that results in non-Korean ownership of 50% or more, or exertion of control over the appointment of officers/management by a non-Korean person or entity as the largest shareholder, a prior-report with and the acceptance by the MOTIE is required under the ITA. There is no assurance that any report for an M&A transaction involving non-Korean acquirers or investors will be accepted by the MOTIE when such transaction is pursued in the future. Recent changes in international trade policy and the imposition and threats of international tariffs, including tariffs applied to goods traded between the United States and China, could materially and adversely affect our business and results of operations. Since the beginning of 2018, there have been increasing public threats and, in some cases, legislative or executive action, from U.S. and foreign leaders regarding instituting tariffs against foreign imports of certain materials. More specifically, since March of 2018, the U.S. and China have applied tariffs to certain of each other’s exports. The institution of trade tariffs globally, and between the U.S. and China specifically, may negatively impact the affected countries’ economic conditions, which could negatively affect demand for our products in those countries and materially and adversely affect our business and results of operations of our customers serving the affected markets. Additionally, it is currently unclear how the recent change in presidential 28 administration in the U.S. may further impact international trade tariffs going forward. Imposition of tariffs could increase costs of the end-user products we supply that we may not be able to pass on to our customers, which could in turn cause a decrease in the sales of our products and materially and adversely affect our business and results of operations. Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our intellectual property, proprietary technology and know-how, as well as our ability to operate without infringing the proprietary rights of others. We attempt to protect our intellectual property rights, both in the US and in foreign countries, through a combination of patent, trademark, copyright, mask works and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment agreements. Because of the differences in foreign trademark, patent and other laws concerning proprietary rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the US. In particular, the validity, enforceability and scope of protection of intellectual property in China, where we derive a significant portion of our net sales, and certain other countries where we derive net sales, are uncertain and still evolving and historically have not protected, and may not protect in the future, intellectual property rights to the same extent as do the laws and enforcement procedures in the US. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition. We seek to protect our proprietary technologies and know-how through the use of patents, trade secrets, confidentiality agreements and other security measures. The process of seeking patent protection takes a long time and is expensive. There can be no assurance that patents will issue from pending or future applications or that, if patents issue, they will not be challenged, invalidated or circumvented, or that the rights granted under the patents will provide us with meaningful protection or any commercial advantage. Many of our patents are subject to cross licenses, several of which are with our competitors. Some of our technologies are not covered by any patent or patent application. The confidentiality agreements on which we rely to protect these technologies may be breached and may not be adequate to protect our proprietary technologies. Further, it is possible that others will independently develop the same or similar technologies, even without access to our proprietary technologies. We rely on our trademarks, trade names, and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks. Our ability to compete successfully depends on our ability to operate without infringing the proprietary rights of others. We have no means of knowing what patent applications have been filed until they are published. In addition, the semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. We may need to file lawsuits to enforce our patents or intellectual property rights, and we may need to defend against claimed infringement of the rights of others. Any litigation could result in substantial costs to us and divert our resources, and we cannot assure you that we will prevail. Any claims of intellectual property infringement or misappropriation against use, even those without merit, could require us to: • • • pay substantial damages or indemnify customers or licensees for damages they may suffer if the products they purchase from us or the technology they license from us violate the intellectual property rights of others; stop our manufacture, use, sale or importation of the accused products; redesign, reengineer or rebrand our products, if feasible; 29 K - 0 1 m r o F • • • expend significant resources to develop or acquire non-infringing technologies; discontinue processes; or obtain licenses to a third party’s intellectual property. There can be no assurance that we would be successful in such development or acquisition or that such licenses would be available under reasonable terms, or at all. We license certain intellectual property from third parties. The termination of key third-party licenses relating to the use of intellectual property in our products and our design processes would adversely affect certain areas of our business. We 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, among other things, air emissions, wastewater discharges, the generation, use, handling, storage and disposal of, and exposure to, hazardous substances (including asbestos) and wastes, soil and groundwater contamination and employee health and safety. These laws and regulations are complex, change frequently and have tended to become more stringent over time. Among them is the Act on Remediation and Compensation for Damages arising from Environmental Contamination which came into effect in Korea on January 1, 2016 and provides for strict liability of business entities in violation of the act and alleviates the burden of proof for the damaged party. Further, under the amendment to the Act on the Control and Aggravated Punishment of Environmental Offenses that becomes effective on November 27, 2020, certain environmental offenses such as illegally emitting specified hazardous air pollutants or emitting air pollutants without necessary permits will be subject to penalties of up to 5% of the sales amount generated from the relevant business. As a result, we have increased potential exposure to liability for environmental contaminations that might have existed in the past or would arise in the future. There can be no assurance that we have been, or will be, in compliance with all such laws and regulations or that we will not incur material costs or liabilities in connection with these laws and regulations in the future. The adoption of new environmental, health and safety laws, the failure to comply with new or existing laws, or issues relating to hazardous substances could subject us to material liability (including substantial fines or penalties), impose the need for additional capital equipment or other process requirements upon us, curtail our operations or restrict our ability to expand operations. Our Korean subsidiary has been designated as a regulated business under Korean environmental law, and such designation could have an adverse effect on our financial position and results of operations. Since 2015, our Korean subsidiary has been subject to K-ETS, a new set of greenhouse gas emissions regulations, under the Act on Allocation and Trading of Greenhouse Gas Emission Allowances. Under K-ETS, our Korean subsidiary was allocated a certain amount of emissions allowance in accordance with the National Allocation Plan prepared by the Korean government, and is required to meet its allocated target by either reducing emissions or purchasing allowances from other participants or the government in the emission trading market. Reduction of our emissions or energy consumption may result in additional and potentially costly compliance or remediation expenses, including potentially the installation of equipment and changes in the type of materials we use in manufacturing, as well as cost of procuring emission allowances to cover the excess emissions, which could adversely affect our financial position and results of operations. During the first implementation period from 2015 to 2017 and second implementation period from 2018 to 2020, we did not exceed the allocated emission amount. Our Korean subsidiary has been allocated emissions allowance in the third implementation period from 2021 to 2025, and we do not expect to exceed the allocated emission amount during the third implementation period. If, however, our Korean subsidiary exceeds the allocated emission amount the third implementation period, we will be required to pay for the excess emissions and may be subject to other regulatory action. We will continue to monitor our compliance with the emissions allowance on a yearly basis. In addition, from time to time, if we assess that we have excess allowances, we may sell such excess allowances to manufacturers in the emission market in Korea. 30 Furthermore, the Korean legislature enacted the Framework Act on Carbon Neutrality and Green Growth for Responding to Climate Change (the “Carbon Neutrality Framework Act”) on September 24, 2021. The Carbon Neutrality Framework Act aims to reduce greenhouse gas emissions by more than 35% by 2030 (compared to 2018) and proclaims the achievement of carbon neutrality by 2050 as a national vision. The Carbon Neutrality Framework Act is significant in that it legislates carbon neutrality and greenhouse gas reduction objectives, and enables the central administrative agencies, local governments and public institutions to implement various measures towards such objectives. On November 11, 2021, the Korean Ministry of Environment announced the proposed enactment of the Enforcement Decree of the Carbon Neutrality Framework Act (the “Proposed Enforcement Decree”). The Proposed Enforcement Decree aims to provide details required for the execution of items prescribed under the Carbon Neutrality Framework Act. The key provisions of the Proposed Enforcement Decree include those setting the mid- to long-term greenhouse gas reduction goal at 40% and implementing the climate change impact assessment scheme. It is anticipated that the Carbon Neutrality Framework Act, which aims to promote the harmonious development of the economy and the environment in conjunction with active greenhouse gas reduction measures, will serve as the foundation for the government’s climate change response policy going forward. The Proposed Enforcement Decree will be promulgated after regulatory review and deliberation by the Ministry of Government Legislation. Our compliance with the Serious Accidents Punishment Act (the “SAPA”) could require significant expenditures and management time and expose us to liability for violations. Enacted on January 26, 2021 and effective as of January 27, 2022 in Korea, the SAPA will impose enhanced liability exposure for workplace accidents. The legislative goal of the SAPA is to prevent serious accidents by prescribing punishments and punitive damages liability for business owners or responsible management personnel who have violated safety and health measures in the event of such serious accidents (serious industrial accidents and serious civil accidents). Since the law applies to businesses in Korea with 50 or more full-time employees starting from January 27, 2022, our Korean subsidiary becomes subject to the law after the effective date. According to the SAPA, if a serious occupational accident occurs that results in at least one deceased person, at least two persons wounded for six months or more, or at least three persons suffering from occupational diseases within a one year period, if the “business owners or responsible management personnel” of the relevant business place is found to have failed to perform its “obligation to secure safety and health,” that person may be subject to imprisonment for up to 7 year or a fine of up to KRW 100 million (in case of death, imprisonment for not less than 1 year or a fine of not less than KRW 1 billion). Relevant responsible management personnel will also be required to spend more time, effort and cost to comply with the SAPA and perform the necessary additional duties imposed by the law to ensure compliance. 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 adverse effect 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, finance investments in equipment and infrastructure, acquire complementary businesses and technologies, and respond to competitive pressures and potential strategic opportunities. If we raise additional funds through further issuances of equity or other securities convertible into equity, our existing stockholders could suffer significant dilution, and any new shares we issue could have rights, preferences or privileges senior to those of the holders of our common stock. There can be no assurance that any additional equity or debt financing would be available to us, or if available, that such financing would be on favorable terms to us. Accordingly, if we are unable to obtain additional capital or our business does not generate sufficient cash flows from operating activities to fund our working capital needs and planned capital expenditures, and our cash reserves are depleted, we may need to take various actions, such as down-sizing and/or eliminating certain operations, which could include additional exit costs, reducing or delaying capital expenditures, selling assets, or other restructuring actions. There can be no assurance that we would be successful in taking such actions and, in any event, such actions may result in a material adverse effect on our business and results of operations. In addition, our indebtedness limits our ability to incur additional indebtedness under certain circumstances. K - 0 1 m r o F 31 Our business depends on international customers, suppliers and operations in Asia, and as a result we are subject to regulatory, operational, financial and political risks, which could adversely affect our financial results. We rely on, and expect to continue to rely on, suppliers, subcontractors and operations located primarily in Asia. As a result, we face risks inherent in international operations, such as unexpected changes in regulatory requirements, tariffs and other market barriers, political, social and economic instability, adverse tax consequences, war, civil disturbances and acts of terrorism, public health issues (including viral outbreaks such as COVID-19), difficulties in accounts receivable collection, extended payment terms and differing labor standards, enforcement of contractual obligations and protection of intellectual property. These risks may lead to increased costs or decreased revenue growth, or both. Our business, results of operations and financial condition and prospects may be materially and adversely affected by the ongoing COVID-19 pandemic or any future pandemic, epidemic or outbreak of any other highly infectious disease. As a result of COVID-19, including the emergence of various variants, including Delta and Omicron, governments in affected countries have imposed travel bans, quarantines and other emergency public health measures. In response to the virus, national and local governments in numerous countries around the world have implemented substantial business restrictions and lockdown measures and may continue to impose similar policies in the future from time to time in response to further outbreaks of the virus. Private sector companies have also taken precautionary measures, such as requiring employees to work remotely, imposing travel restrictions and temporarily closing businesses and facilities. These restrictions have had, and these and future prevention and mitigation measures, may continue to have, an adverse impact on global economic conditions, which could materially adversely affect our future operations. These measures have impacted and may further impact our workforce and operations, the operations of our customers, and those of our respective vendors, suppliers, and partners. The disruptions to our operations caused by the COVID-19 outbreak may result in inefficiencies, delays and additional costs in our research and development, sales and marketing, and customer service efforts that we cannot fully mitigate through remote or other alternative work arrangements. Also, some suppliers of materials used in the production of our products may have been or will be more severely impacted by COVID-19, which could limit our ability to obtain sufficient materials for our products. In addition, the severe global economic disruption caused by COVID-19 may cause our customers and end-users of our products to suffer significant economic hardship, which could result in decreased demand for our products in the future and materially adversely affect our business, results of operations, financial condition (including liquidity) and prospects. The full extent to which COVID-19, or any future pandemic, epidemic or outbreak of any other highly infectious disease, impacts our operations and causes disruptions on our customers, end-users, overall demand for our products, supply chain, and the related financial impact to us, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of such pandemic, the emergence and characteristics of new variants, the actions taken to contain the pandemic or mitigate its impact, including the adoption, administration and effectiveness of available COVID-19 vaccines, and the direct and indirect economic effects of the pandemic and containment measures, among others. Should such disruptions continue for an extended period of time, the impact could have a more severe adverse effect on our business, results of operations and financial condition (including liquidity). Additionally, weaker economic conditions generally could result in impairment in value of our tangible or intangible assets, or our ability to raise additional capital, if needed. 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 has fluctuated and may increase abruptly as a result of current and future 32 events. In particular, in recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapon and long-range missile programs and increased uncertainty 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 North Korea that may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between South Korea and North Korea break down, or military hostilities occur, could have a material adverse effect on the South Korean economy and on our business, financial condition, results of operations and the market value of our common stock. We may be subject to disruptions, breaches or cyber-attacks of our secured networks and information technology systems that could damage our reputation, harm our business, expose us to liability and materially adversely affect our results of operations. In the ordinary course of our business, we collect and store sensitive data, including IP and other proprietary information about our business and that of our customers, suppliers and business partners. Secure maintenance, processing and transmission of this information is critical to our operations and business strategy. We may be subject to disruptions, breaches or cyber-attacks of our secured networks and information technology systems caused by illegal hacking, criminal fraud or impersonation, computer viruses, acts of vandalism or terrorism or employee error, and our security measures or those of any third party service providers we use may not detect or prevent such security breaches. We may incur significant costs to eliminate or alleviate cybersecurity breaches and vulnerabilities, which could be significant, and our efforts to protect against such breaches or vulnerabilities may not be successful and could result in system interruptions that may materially impede our sales, manufacturing, distribution, finance or other critical functions. Any such compromise of our information security could also result in the unauthorized publication of our confidential business or proprietary information or that of other parties with which we do business, an interruption in our operations, the unauthorized transfer of cash or other assets, the unauthorized release of customer or employee data or a violation of privacy or other laws in the jurisdictions in which we operate. Any of the foregoing could irreparably damage our reputation and business and/or expose us to material monetary liability, which could have a material adverse effect on our results of operations. You may not be able to bring an action or enforce any judgment obtained in United States courts, or bring an action in any other jurisdiction, against us or our subsidiaries or our directors, officers or independent auditors that are organized or residing in jurisdictions other than the United States. Most of our subsidiaries are organized or incorporated outside of the US and some of our directors and executive officers as well as our independent auditors are organized or reside outside of the US. Most of our and our subsidiaries’ assets are located outside of the US and in particular, in Korea. Accordingly, any judgment obtained in the US against us or our subsidiaries may not be collectible in the US. As a result, it may not be possible for you to effect service of process within the US upon these persons or to enforce against them or us court judgments obtained in the US that are predicated upon the civil liability provisions of the federal securities laws of the US or of the securities laws of any state of the US. In particular, there is doubt as to the enforceability in Korea or any other jurisdictions outside the US, either in original actions or in actions for enforcement of judgments of US courts, of civil liabilities predicated on the federal securities laws of the US or the securities laws of any state of the US. K - 0 1 m r o F 33 We are a holding company and depend on the business of our subsidiaries to make payments to us. We are a holding company with no independent operations of our own. Our subsidiaries conduct substantially all of the operations necessary to fund our obligations. Our ability to pay dividends or to make payments on any future obligations 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 any debt agreements to which we may then be subject, including any debt agreements of our subsidiaries; covenants contained in other agreements to which we or our subsidiaries are or may become subject; business and tax considerations; and applicable law, including any restrictions under Korean law that may be imposed on Magnachip Korea that would restrict its ability to make payments on 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. We may at times need to incur impairment, restructuring and other restructuring related 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, restructuring or other restructuring related charges. In the future, we may need to record additional impairment charges or to further restructure our business or incur additional restructuring charges, any of which could have a material adverse effect on our results of operations or financial condition. We are subject to litigation risks, which may be costly to defend and the outcome of which is uncertain. All industries, including the semiconductor industry, are subject to legal claims, with and without merit, that may be particularly costly and which may divert the attention of our management and our resources in general. We are involved in a variety of legal matters, most of which we consider routine matters that arise in the normal course of business. These routine matters typically fall into broad categories such as those involving customers, employment and labor and intellectual property. Even if the final outcome of these legal claims does not have a material adverse effect on our financial position, results of operations or cash flows, defense and settlement costs can be substantial. Due to the inherent uncertainty of the litigation process, the resolution of any particular legal claim or proceeding could have a material effect on our business, financial condition, results of operations or cash flows. 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 the trading price of our common stock may include: • • • • • actual or anticipated variations in our results of operations from quarter to quarter or year to year; 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; 34 • • • • • changes in economic performance or market valuations of competing companies in our industry; 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 been instituted against the public company. Regardless of its outcome, this type of litigation could result in substantial costs to us and a likely diversion of our management’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 amount of your investment. We cannot guarantee that our share repurchase program will be successfully consummated, or that it will enhance shareholder value, and share repurchases could affect the price of our common stock. On December 21, 2021, the Board of Directors authorized us to repurchase up to $75.0 million of our outstanding common stock and we entered into an accelerated stock repurchase agreement (the “ASR Agreement”) with JPMorgan Chase Bank, National Association (“JPM”) to repurchase an aggregate of $37.5 million of our common stock. Pursuant to the terms of the ASR Agreement, we paid JPM $37.5 million in cash and received an initial delivery of 994,695 shares of our common stock. Upon final settlement of the ASR Agreement, which is expected to occur during the fiscal quarter ending March 31, 2022, we may be entitled to receive additional shares of common stock from JPM or, under certain circumstances specified in the ASR Agreement, we may be required to deliver shares of common stock or make a cash payment, at its option, to JPM. This share repurchase program under the ASR Agreement could affect the price of our common stock, increase volatility and diminish our cash reserves. See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements— Note 14. Stockholders’ Equity and Stock-Based Compensation” for more information. Significant ownership of our common stock by certain stockholders could adversely affect our other stockholders. The concentration of ownership of our common stock by certain stockholders may limit the ability of other stockholders to influence corporate matters and, as a result, we may take actions that our public stockholders do not view as beneficial. For example, any concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could cause the market price of our common stock to decline or prevent our stockholders from realizing a premium over the market price for their shares of our common stock. Under our certificate of incorporation, our non-employee directors and non-employee holders of five percent or more of our outstanding common stock do not have a duty to refrain from engaging in a corporate opportunity in the same or similar activities or lines of business as those engaged in by us, our subsidiaries and other related parties. Also, we have renounced any interest or expectancy in such business opportunities even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted an opportunity to do so. K - 0 1 m r o F Our Rights Plan and provisions in our charter documents and Delaware Law may make it difficult for a third party to acquire us and could depress the price of our common stock. On December 12, 2021, our Board of Directors adopted a stockholder rights plan (the “Rights Plan”) and declared a dividend of one preferred stock purchase right (a “Right” and collectively, the “Rights”) for each share 35 of our common stock, par value $0.01 per share, outstanding at the close of business on December 23, 2021. Each Right, once exercisable, will entitle the registered holder to purchase one one-thousandth of a share of our Series A-1 Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $80, subject to certain adjustments (the “Purchase Price”). Under certain circumstances, if a person or group acquires 12.5% (or 20% in the case of a passive institutional investor) or more of our outstanding common stock, each Right (other than Rights held by the person or group triggering their exercise) will enable the holder thereof to purchase, for the Purchase Price, a number of shares of common stock having a market value of twice the Purchase Price. The Rights expire at the close of business on December 12, 2022 unless earlier redeemed or exchanged by us. Because the Rights may substantially dilute the stock ownership of a person or group attempting to acquire us without the approval of our Board of Directors, our Rights Plan could make it more difficult for a third party to acquire us (or a significant percentage of our outstanding capital stock) without first negotiating with our Board of Directors regarding such acquisition. See “Item 8. Financial Statements and Supplementary Data—Note 22. Earnings (Loss) Per Share—Rights Plan” in this Report for more information. In addition, provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Among other things, our certificate of incorporation and bylaws: • • • • authorize our Board of Directors to issue, without stockholder approval, preferred stock with such terms as the Board of Directors may determine; 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% of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors to call a special meeting of our stockholders; and specify advance notice requirements for stockholder proposals and director nominations. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), regulating corporate takeovers and which has an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless: • • • • • • 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 least 85% 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 written consent, 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 interested stockholder; 36 • • any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, DGCL Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to opt out of, this provision. Provisions in our charter documents and Delaware Law may make it difficult for a third party to acquire us and could depress the price of our common stock. Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Among other things, our certificate of incorporation and bylaws: • • • • authorize our Board of Directors to issue, without stockholder approval, preferred stock with such terms as the Board of Directors may determine; 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% of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors to call a special meeting of our stockholders; and specify advance notice requirements for stockholder proposals and director nominations. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), regulating corporate takeovers and which has an anti-takeover effect with respect to transactions not approved in advance by our Board of Directors, including discouraging takeover attempts that might result in a premium over the market price for shares of our common stock. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless: • • • • • 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 least 85% 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 written consent, 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; 37 K - 0 1 m r o F • • • subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, DGCL Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of, and do not currently intend to opt out of, this provision. We have not historically paid dividends and do not currently have any dividend or distribution policy, and therefore, investors may need to rely on sales of their common stock as the only way to realize any future gains on their investments. We have not historically paid cash dividends and do not currently have any dividend or distribution policy. Any determination to pay dividends in the future will be at the discretion of our Board of Directors. Accordingly, unless the Board implements a future dividend or distribution policy, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. Item 1B. Unresolved Staff Comments Not applicable. Item 2. Properties Our manufacturing operations take place in a single fabrication facility located in Korea in Gumi. Our facility has a capacity of approximately 34,000 eight-inch equivalent wafers per month. We manufacture wafers utilizing geometries ranging from 0.35 to 0.50 microns. The Gumi facility has one main building with 41,022 square meters devoted to manufacturing, testing and packaging. In addition to our fabrication facility in Gumi, we lease facilities in Cheongju and Seoul, Korea. 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 to develop proprietary, differentiated products and results in higher production yields, as well as shortened design and production cycles. We believe our facilities are suitable and adequate for the conduct of our business for the foreseeable future and that we have sufficient production capacity to service our business as currently contemplated without significant capital investment. A substantial majority of our assembly, test and packaging services for our Display Solutions business and all of such services for our Power Solutions business are outsourced with the balance handled in-house. The independent providers of these outsourced services are located in Korea, China, Taiwan and Thailand. The relative cost of outsourced services, as compared to in-house services, depends upon many factors specific to each product and circumstance. However, we generally incur higher costs for outsourced services, which can result in lower margins. 38 Item 3. Legal Proceedings We are involved in a variety of legal matters, most of which we consider routine matters that arise in the normal course of business. These routine matters typically fall into broad categories such as those involving customers, employment and labor and intellectual property. Intellectual property litigation and infringement claims, in particular, could cause us to incur significant expenses or prevent us from selling our products. We are currently not involved in any legal proceedings that we believe would have a material adverse effect on our business, financial condition or results of operations. See also “Item 1A. Risk Factors” in this Report for additional information. Item 4. Mine Safety Disclosures Not applicable. K - 0 1 m r o F 39 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the New York Stock Exchange under the symbol “MX.” Stock Performance Graph The graph and table below compare the cumulative total stockholder return of our common shares with the cumulative total return of the S&P 500 Index and the Philadelphia Semiconductor Index (PHLX) from December 30, 2016 (the last trading day before the beginning of our fifth preceding fiscal year) through December 31, 2021. The graph assumes that $100 was invested on December 30, 2016 in our common shares and in each index and that any dividends were reinvested. No cash dividends have been declared on our common shares during the five-year period ended December 31, 2021. Comparison of Cumulative Total Return* Among Magnachip Semiconductor Corporation, the S&P 500 Index and the PHLX COMPARISON OF CUMULATIVE TOTAL RETURN* Among Magnachip Semiconductor Corporation, the S&P 500 Index and the PHLX $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 12/30/16 12/29/17 12/31/18 12/31/19 12/31/20 12/31/21 Magnachip Semiconductor Corporation S&P 500 Index Philadelphia Semiconductor Index * The stock performance included in this graph is not necessarily indicative of future stock performance. 40 Total Return to Stockholders (Including Reinvestment of Dividends) Indexed Returns Company/Index Base Period 12/30/2016 12/29/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 Magnachip Semiconductor Corporation . . . S&P 500 Index . . . . . . . . . . . . . . . . . . . . . . . . Philadelphia Semiconductor Index . . . . . . . 100 100 100 160.48 119.42 138.23 100.16 111.97 127.44 187.26 145.52 204.05 218.06 167.77 308.39 338.23 212.89 435.33 Holders The approximate number of record holders of our outstanding common stock as of February 14, 2022 was 70. This number does not include beneficial owners for whom shares are held by nominees in street name. Stock-Based Compensation For information on securities authorized for issuance under our equity compensation plans, see Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Dividends We have not historically paid any cash dividends on our common stock. Our Board of Directors continuously evaluates our capital allocation strategy and liquidity targets, but has not currently implemented any dividend or distribution policy. Any determination to pay dividends in the future will be at the discretion of our Board of Directors. Issuer Purchases of Equity Securities The following table shows the monthly activity related to our repurchases of common stock for the quarter ended December 31, 2021. Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) Approximate dollar value of Shares that may yet be Purchased under the Plans or Programs (in thousands)(1) October 2021 . . . . . . . . . . . . . . . . November 2021 . . . . . . . . . . . . . . December 2021 . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . — — 994,695 994,695 — — $20.18 — — 994,695 — — $54,927 $54,927 (1) On December 21, 2021, the Company’s Board of Directors authorized the Company to repurchase up to $75 million of the Company’s common stock. As an immediate step towards implementing the approved stock repurchase program, the Company entered into an accelerated stock repurchase agreement on December 21, 2021 with JPMorgan Chase Bank, National Association to repurchase an aggregate of $37.5 million of the Company’s common stock. See “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements— Note 14. Stockholders’ Equity and Stock-Based Compensation” in this Report for a description of the Accelerated Stock Repurchase Program. Rights Plan For information on our rights plan, see “Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 22. Earnings (Loss) Per Share—Rights Plan” in this Report. 41 K - 0 1 m r o F Item 6. [Reserved] Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the audited consolidated financial statements, together in each case with the related notes, included elsewhere in this Report. This discussion and analysis contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading “Risk Factors” and elsewhere in this Report. Overview We are a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT applications, consumer, computing, industrial and automotive applications. We have a proven record with more than 40 years of operating history, a portfolio of approximately 1,150 registered patents and pending applications and extensive engineering and manufacturing process expertise. Our standard products business includes our Display Solutions and Power Solutions business lines. Our Display Solutions line of products provide flat panel display solutions to major suppliers of large and small flat panel displays. These products include source and gate drivers and timing controllers that cover a wide range of flat panel displays used in mobile communications, automobiles, entertainment devices, notebook PCs, monitors and liquid crystal display (LCD), organic light emitting diodes (OLED) and Micro light emitting diode (Micro LED) televisions. Our Display Solutions products support some of the industry’s most advanced display technologies, such as OLEDs, low temperature polysilicons thin film transistors (LTPS TFTs), as well as high- volume display technologies such as amorphous silicon thin film transistors (a-Si TFTs). Since 2007, we have designed and manufactured OLED display driver integrated circuit (IC) products. Our current portfolio of OLED solutions address a wide range of resolutions ranging from HD (High Definition) to WQHD (Wide Quadruple High Definition) for applications including smartphones, TVs, and other mobile devices. Our Power Solutions business line produces power management semiconductor products including discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications. These products include metal oxide semiconductor field effect transistors (MOSFETs), insulated-gate bipolar transistors (IGBTs), AC-DC/DC-DC converters, LED drivers, regulators and power management integrated circuits (PMICs) for a range of devices, including televisions, smartphones, mobile phones, wearable devices, desktop PCs, notebooks, tablet PCs, other consumer electrics, automotive, and industrial applications such as power suppliers, e-bikes, photovoltaic inverters, LED lighting and motor drives. Our wide variety of analog and mixed-signal semiconductor products combined with our mature technology platform allow us to address multiple high-growth end markets and rapidly develop and introduce new products and services in response to market demands. Our design center and substantial manufacturing operations in Korea place us at the core of the global electronics device supply chain. We believe this enables us to quickly and efficiently respond to our customers’ needs, and allows us to better serve and capture additional demand from existing and new customers. Certain of our OLED products are produced using external 12-inch foundries. Through a strategic cooperation with external 12-inch foundries, we are managing to ensure outsourcing wafers at competitive price and produce quality products. To maintain and increase our profitability, we must accurately forecast trends in demand for electronics devices that incorporate semiconductor products we produce. We must understand our customers’ needs as well 42 as the likely end market trends and demand in the markets they serve. We must also invest in relevant research and development activities and purchase necessary materials on a timely basis to meet our customers’ demand while maintaining our target margins and cash flow. The semiconductor markets in which we participate are highly competitive. The prices of our products tend to decrease regularly over their useful lives, and such price decreases can be significant as new generations of products are introduced by us or our competitors. We strive to offset the impact of declining selling prices for existing products through cost reductions and the introduction of new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to mitigate the risk of losses from product obsolescence. Demand for our products and services is driven by overall demand for communications, IoT, consumer and industrial products and can be adversely affected by periods of weak consumer and enterprise spending or by market share losses by our customers. In order to mitigate the impact of market volatility on our business, we continually strive to diversify our portfolio of products, customers, and target applications. We also expect that new competitors will emerge in these markets that may place increased pressure on the pricing for our products and services. While we believe we are well positioned competitively to compete in these markets and against these new competitors as a result of our long operating history, existing manufacturing capacity and our worldwide customer base, if we are not effective in competing in these markets, our operating results may be adversely affected. Net sales for our standard products business are driven by design wins in which we are selected by an electronics original equipment manufacturer (OEM) or other potential customer to supply its demand for a particular product. A customer will often have more than one supplier designed into multi-source components for a particular product line. Once we have design wins and the products enter into mass production, we often specify the pricing of a particular product for a set period of time, with periodic discussions and renegotiations of pricing with our customers. In any given period, our net sales depend heavily upon the end-market demand for the goods in which our products are used, the inventory levels maintained by our customers and, in some cases, allocation of demand for components for a particular product among selected qualified suppliers. In contrast to completely fabless semiconductor companies, our internal manufacturing capacity provides us with greater control over certain manufacturing costs and the ability to implement process and production improvements for our internally manufactured products, which can favorably impact gross profit margins. Our internal manufacturing capacity also allows for better control over delivery schedules, improved consistency over product quality and reliability and improved ability to protect intellectual property from misappropriation on these internally manufactured products. However, having internal manufacturing capacity exposes us to the risk of under-utilization of manufacturing capacity that results in lower gross profit margins, particularly during downturns in the semiconductor industry. Our standard products business requires investments in capital equipment. Analog and mixed-signal manufacturing facilities and processes are typically distinguished by the design and process implementation expertise rather than the use of the most advanced equipment. Many of these processes also tend to migrate more slowly to smaller geometries due to technological barriers and increased costs. For example, some of our products use high-voltage technology that requires larger geometries and that may not migrate to smaller geometries for several years, if at all. As a result, our manufacturing base and strategy do not require substantial investment in leading edge process equipment for those products, allowing us to utilize our facilities and equipment over an extended period of time with moderate required capital investments. In addition, we are less likely to experience significant industry overcapacity, which can cause product prices to decline significantly. In general, we seek to invest in manufacturing capacity that can be used for multiple high-value applications over an extended period of time. In addition, we outsource manufacturing of those products which do require advanced technology and 12-inch and 8-inch wafer capacity, such as organic light emitting diodes (OLED). We believe this balanced capital investment strategy enables us to optimize our capital investments and facilitates more diversified product and service offerings. 43 K - 0 1 m r o F Since 2007, we had designed and manufactured OLED display driver ICs in our internal manufacturing facilities. As we expanded our design capabilities to products that require lower geometries unavailable at our existing manufacturing facilities, we began outsourcing manufacturing of certain OLED display driver ICs to an external 12-inch foundry starting in the second half of 2015 and we have started outsourcing 8-inch wafer for OLED TV IC after the sale of our fabrication facility located in Cheongju. This additional source of manufacturing is an increasingly important part of our supply chain management. By outsourcing manufacturing of OLED products to external foundries, we are able to adapt dynamically to changing customer requirements and address growing markets without substantial capital investments by us. However, relying on external foundries exposes us to the risk of being unable to secure manufacturing capacity, particularly under the current global shortage of foundry services. Although we are working strategically with external foundries to ensure long-term wafer capacity, if these efforts are unsuccessful, our ability to deliver products to our customers may be negatively impacted, which would adversely affect our relationship with customers and opportunities to secure new design-wins. Our success going forward will depend upon our ability to adapt to future challenges such as the emergence of new competitors for our products and services or the consolidation of current competitors. Additionally, we must innovate to remain ahead of, or at least rapidly adapt to, technological breakthroughs that may lead to a significant change in the technology necessary to deliver our products and services. We believe that our established relationships and close collaboration with leading customers enhance our awareness of new product opportunities, market and technology trends and improve our ability to adapt and grow successfully. Recent Developments Accelerated Stock Repurchase Program On December 21, 2021, the Board of Directors authorized the repurchase of up to $75.0 million of our outstanding common stock and we entered into an accelerated stock repurchase agreement (the “ASR Agreement”) with JPM to repurchase an aggregate of $37.5 million of our common stock. Pursuant to the terms of the ASR Agreement dated December 21, 2021, we paid to JPM $37.5 million in cash and received an initial delivery of 994,695 shares of our common stock in the open market for an aggregate purchase price of $20.1 million and a price per share of $20.18 on December 22, 2021. As of December 31, 2021, we accounted for the remaining portion of the ASR Agreement as a forward contract indexed to our common stock and recorded $17.4 million in additional paid-in capital in stockholders’ equity in our consolidated balance sheets. The final number of shares to be delivered will be based on our volume-weighted average stock price under the terms of the ASR Agreement less an agreed upon discount. The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances under which the ASR Agreement may be accelerated, extended or terminated early by JPM and various acknowledgments, representations and warranties made by the parties to one another. Final settlement of the ASR Agreement is expected to occur during the fiscal quarter ending March 31, 2022. Additional details about the ASR Agreement are contained in the Current Report on Form 8-K filed by us with the SEC on December 21, 2021. Rights Plan We entered into a Rights Agreement, dated as of December 13, 2021, with American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agreement”), and the Board of Directors authorized and declared a dividend of one preferred stock purchase right (a “Right” and collectively, the “Rights”) for each share 44 of our common stock, par value $0.01 per share, outstanding at the close of business on December 23, 2021. Each Right, once exercisable, will entitle the registered holder to purchase from us one one-thousandth of a share of Series A-1 Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $80, subject to adjustment (the “Purchase Price”). The Rights are not presently exercisable and remain attached to the shares of common stock unless and until the occurrence of the earlier of the following (the “Distribution Date”): (i) the tenth day after the public announcement or disclosure by us or any person or group of affiliated or associated persons that any person or group of affiliated or associated persons has become an “Acquiring Person” by obtaining beneficial ownership of 12.5% (or 20% in the case of a “passive institutional investor,” which is defined generally as any person who has reported beneficial ownership of shares of common stock on Schedule 13G under the Securities Exchange Act of 1934) or more of our outstanding common stock, subject to certain exceptions; or (ii) the tenth business day (or such later date as our Board of Directors may designate before a person or group of affiliated or associated persons becomes an Acquiring Person) after (and not including) the commencement of, or first public announcement of the intent of any person to commence, a tender or exchange offer by any person or group of affiliated or associated persons, which would, if consummated, result in such person or group becoming an Acquiring Person. The Board of Directors may redeem all of the Rights for $0.001 per Right at any time before any person or group of affiliated or associated persons becomes an Acquiring Person. In addition, at any time on or after any person or group of affiliated or associated persons becomes an Acquiring Person (but before any person or group of affiliated or associated persons becomes the owner of 50% or more of our outstanding common stock), the Board of Directors may exchange all or part of the Rights (other than the Rights beneficially owned by the Acquiring Person and certain affiliated persons) for shares of common stock at an exchange ratio of one share of common stock per Right. The Rights will expire at the close of business on December 12, 2022, unless redeemed or exchanged prior to that time. If any person or group of affiliated or associated persons becomes an Acquiring Person, then, after the Distribution Date, each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons or transferees thereof) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock having a market value of twice the Purchase Price. Alternatively, if, after any person or group of affiliated or associated persons becomes an Acquiring Person, (1) we are involved in a merger or other business combination in which we are not the surviving corporation or our common stock is changed into or exchanged for other securities or assets; or (2) we or one or more of our subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the assets or earning power of us and our subsidiaries, taken as a whole, then each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock of the other party to such business combination or sale (or in certain circumstances, an affiliate) having a market value of twice the Purchase Price. Additional details about the Rights Agreement are contained in the Current Report on Form 8-K filed by us with the SEC on December 14, 2021. The Terminated Merger On March 25, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with South Dearborn Limited, an exempted company incorporated in the Cayman Islands with limited liability (“Parent”), formed by an affiliate of Wise Road Capital LTD, and Michigan Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), providing for, among other things, and subject to the terms and conditions thereof, Merger Sub would be merged with and into us (the “Merger”), with us continuing our corporate existence as the surviving corporation in the Merger and becoming a wholly owned subsidiary of Parent. The closing of the Merger was subject to certain conditions, including clearance by the Committee on Foreign Investment in the United States (“CFIUS”) under the Defense Production Act of 1950, as amended. We and Parent were advised that CFIUS clearance of the Merger would not be forthcoming and received permission 45 K - 0 1 m r o F from CFIUS to withdraw our joint filing. In connection therewith, we and Parent entered into a Termination and Settlement Agreement, dated December 13, 2021 (the “Termination Agreement”), which was attached as Exhibit 10.1 in our Current Report on Form 8-K, dated December 13, 2021. On December 20, 2021, the Merger Agreement was terminated pursuant to the Termination Agreement after our receipt of a fee of $51.0 million from Parent and a new standby letter of credit, which secures a deferred fee of $19.2 million from Parent due on or before March 31, 2022. We recorded in our consolidated statement of operations $70.2 million income as part of merger-related costs (income), net for the year ended December 31, 2021, and in our consolidated balance sheet a $19.2 million deferred fee as other receivables at December 31, 2021. Global Semiconductor Chip Shortage Recent sharp increases in demand for semiconductor products have resulted in a global shortage of manufacturing capacity. As a result, we may experience increased costs to manufacture our products and may not be able to manufacture and deliver all of the orders placed by our customers. Specifically, if we are unable to secure manufacturing capacity from the external foundries we rely on, our ability to deliver products to our customers may be negatively impacted. Also, this shortage of manufacturing capacity may lead to an increase in our manufacturing costs which we may not be fully able to pass on to our customers. Total revenues for the year ended December 31, 2021 were negatively impacted by these persisting supply shortages, in particular for 28nm 12-inch OLED wafers. In an effort to minimize the potential adverse impact of the supply shortage, we are working strategically with certain external foundries to help ensure long-term wafer capacity. If these efforts are unsuccessful, however, such shortage could limit our ability to meet demand for our products in the future, which would adversely affect our reputation and competitive position, resulting in a negative impact on results of operations. We are not able to foresee when the current shortage of manufacturing capacity will subside. A prolonged global supply shortage could negatively impact our financial condition, potentially resulting in a need for additional capital to fund strategic initiatives or operating activities. Conversion of 5.0% Exchangeable Senior Notes due 2021 (the “Exchangeable Notes”) Prior to the March 1, 2021 maturity of our Exchangeable Notes, holders thereof elected to exchange the Exchangeable Notes for an aggregate of 10,144,131 shares of our common stock in satisfaction in full of the outstanding obligations under the Exchangeable Notes. On March 1, 2021, we paid the final interest payment on the Exchangeable Notes of $2.1 million and no longer have any Exchangeable Notes obligations outstanding as of such date. Voluntary Resignation Program On October 16, 2020, we commenced a voluntary resignation program (the “Program”), which was available for all employees. In connection with the Program, we recorded in our consolidated statement of operations $4.4 million of termination related charges within “early termination and other charges, net” for the year ended December 31, 2020. Redemption of 6.625% Senior Notes due 2021 (the “2021 Notes”) We completed the redemption of all of our outstanding 2021 Notes on October 2, 2020. We paid approximately $227.4 million to fully redeem all of the outstanding $224.25 million aggregate principal amount of the 2021 Notes at a redemption price equal to the sum of 100% of the principal amount of the 2021 Notes, plus 46 accrued and unpaid interest through but excluding the redemption date. The redemption of the 2021 Notes was funded by our Korean subsidiary’s repayment of intercompany loans using the cash proceeds that it received from the sale of the Foundry Services Group business and Fab 4. On October 12, 2020, we paid a withholding tax of approximately $20.6 million, attributable to the repaid accrued interests on the related intercompany loans. Completion of Sale of the Foundry Services Group business and Fab 4 On September 1, 2020 (the “Closing Date”), we completed the sale of our Foundry Services Group business and Fab 4 to Key Foundry Co., Ltd. (the “Buyer”) in exchange for a purchase price equal to approximately $350.6 million in cash. The purchase price was paid in a combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion. In addition to the purchase price, the Buyer assumed all severance liabilities relating to the transferred employees, which had a value of approximately $100 million. The divestiture of the Foundry Services Group business and Fab 4 was to strategically shift our operational focus to the standard products business. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Accordingly, we have one reportable segment: our standard products business, together with transitional foundry services associated with our fabrication facility located in Gumi, Korea, known as Fab 3, which we expect to perform for the Buyer up to September 1, 2023 (the “Transitional Fab 3 Foundry Services”). Power Outage On July 20, 2020, our Fab 3 facility in Gumi, South Korea experienced a temporary power outage for approximately 9 hours and 15 minutes. The recovery from this power outage took longer than expected, which limited our ability to produce products in Fab 3 at full capacity, resulting in a lower factory utilization primarily during the third quarter of 2020. The accident caused certain damage to our work in process wafers and we incurred charges for facility recovery, resulting in an incremental cost of approximately $1.2 million. COVID-19 Pandemic In December 2019, a strain of coronavirus causing a disease known as COVID-19 surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Governmental authorities throughout the world have implemented numerous containment measures, including travel bans and restrictions, quarantines, shelter-in-place orders, and business restrictions and shutdowns, resulting in rapidly changing market and economic conditions. Although some of these restrictions and other containment measures have since been lifted or scaled back, ongoing surges of COVID-19 have, in some cases, resulted in the re-imposition of certain restrictions and containment measures, and may continue to lead to other restrictions being re-implemented in the foreseeable future in response to efforts to reduce the rapid spread of COVID-19. K - 0 1 m r o F We experienced some minor disruption in our Power Solutions business from assembly and test subcontractors located in China in the first quarter of 2020 as a result of the COVID-19 pandemic. To date, our external Display Solutions business contractors and sub-contractors have not been materially impacted by the COVID-19 pandemic. We are, however, unable to accurately predict the full impact that the COVID-19 pandemic will have on future results of operations due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the COVID-19 pandemic, such as new strains of the virus, including the Delta and Omicron variants and any 47 future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the extent and effectiveness of actions to contain the COVID-19 pandemic or treat its impact, including vaccination campaigns and lockdown measures, among others. In addition, recurrences or additional waves of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of our customers and suppliers were to experience prolonged business shutdowns or other disruptions, our ability to conduct our business could be materially and negatively affected, which could have a material adverse impact on our business, results of operations and financial condition. We continue to closely monitor and evaluate the nature and scope of the impact of the COVID-19 pandemic to our business, consolidated results of operations, and financial condition, and may take further actions altering our business operations and managing our costs and liquidity that we deem necessary or appropriate to respond to this ongoing and uncertain global health crisis and the resulting global economic consequences. Explanation and Reconciliation of Non-U.S. GAAP Measures Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income We use the terms Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income (including on a per share basis) in this Report. Adjusted EBITDA, as we define it, is a non-U.S. GAAP measure. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation loss (gain), net, (iv) loss on early extinguishment of borrowings, net, (v) inventory reserve related to Huawei impact of downstream trade restrictions, (vi) expenses related to Fab 3 power outage, (vii) merger-related costs (income), net and (viii) early termination and other charges, net. EBITDA for the periods indicated is defined as income (loss) from continuing operations before interest expense (income), net, income tax expense (benefit), and depreciation and amortization. See the footnotes to the table below for further information regarding these items. We present Adjusted EBITDA as a supplemental measure of our performance because: • • • • • • • we believe that Adjusted EBITDA, by eliminating the impact of a number of items that we do not consider to be indicative of our core ongoing operating performance, provides a more comparable measure of our operating performance from period-to-period and may be a better indicator of future performance; we believe that Adjusted EBITDA is commonly requested and used by securities analysts, investors and other interested parties in the evaluation of a company as an enterprise level performance measure that eliminates the effects of financing, income taxes and the accounting effects of capital spending, as well as other one time or recurring items described above; and we believe that Adjusted EBITDA is useful for investors, among other reasons, to assess a company’s period-to-period core operating performance and to understand and assess the manner in which management analyzes operating performance. We use Adjusted EBITDA in a number of ways, including: for planning purposes, including the preparation of our annual operating budget; to evaluate the effectiveness of our enterprise level business strategies; in communications with our Board of Directors concerning our consolidated financial performance; and in certain of our compensation plans as a performance measure for determining incentive compensation payments. 48 We encourage you to evaluate each adjustment and the reasons we consider them appropriate. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Adjusted EBITDA is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to income (loss) from continuing operations, cash flows from operating activities or net income, as determined in accordance with U.S. GAAP. A reconciliation of income (loss) from continuing operations to Adjusted EBITDA from continuing operations is as follows: Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 Income (loss) from continuing operations . . . . . . . . . . . Interest expense (income), net . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments: Equity-based compensation expense(a) . . . . . . . . . Foreign currency loss, net(b) . . . . . . . . . . . . . . . . . Derivative valuation loss (gain), net(c) . . . . . . . . . . Loss on early extinguishment of borrowings, $ 56.7 (1.2) 17.3 14.2 $ 87.0 7.7 11.9 (0.1) net(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Inventory reserve related to Huawei impact of downstream trade restrictions(e) . . . . . . . . . . . . . Expenses related to Fab 3 power outage(f) . . . . . . . . . . . . . . . . . Merger-related costs (income), net(g) Early termination and other charges, net(h) . . . . . . (1.5) — (35.5) 1.3 (Dollars in millions) $ 57.1 15.4 (46.2) 11.1 $ 37.4 $(20.4) 19.5 2.2 10.3 $ 11.6 6.3 0.4 (0.1) 0.8 1.5 1.2 0.7 5.0 6.1 22.3 0.3 0.0 — — — 0.6 Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70.7 $ 52.9 $ 40.9 (a) This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses as supplemental information. (b) This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. (c) This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance. (d) For the year ended December 31, 2020, this adjustment eliminates $0.8 million in expenses related to the full redemption of our outstanding 2021 Notes in the fourth quarter of 2020. For the year ended December 31, 2019, this adjustment eliminates expenses related to the repurchase of a portion of the 2021 Notes and the Exchangeable Notes in the first quarter of 2019. 49 K - 0 1 m r o F (e) For the year ended December 31, 2020, this adjustment eliminates the impact of excess and obsolete inventory charge that we recorded in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. For the year ended December 31, 2021, this adjustment eliminates a reversal of such inventory charge as such reserved inventory was subsequently sold to certain other customers. As this charge and the timing of its reversal meaningfully impacted our operational results and are not expected to represent an ongoing operating expense subject to our ability to foresee and control, we believe our operating performance results are more meaningfully compared if this charge and related reversal are excluded. (f) This adjustment eliminates $1.2 million in expenses related to the write-off of the damaged work in process wafers and charges for facility recovery. These charges are inconsistent in amount and frequency, and we do not believe that these charges are indicative of our core operation performance and have been excluded for comparative purposes. (g) For the year ended December 31, 2021, this adjustment eliminates $70.2 million income from the recognition of termination fee from the Parent as a result of the termination of the merger transaction. For the years ended December 31, 2021 and 2020, respectively, this adjustment eliminates non-recurring professional service fees and expenses of $34.7 million and $0.7 million, incurred in connection with the contemplated merger transaction. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded. (h) For the year ended December 31, 2021, this adjustment eliminates $3.4 million non-recurring professional service fees and expenses incurred in connection with the regulatory requests, which was offset in part by $1.4 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018), and $0.7 million legal settlement gain related to certain expenses incurred in prior periods in connection with our legacy Fab 4 (which was sold during the year ended December 31, 2020) and awarded in the third quarter of 2021. For the year ended December 31, 2020, this adjustment eliminates $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. For the year ended December 31, 2019, this adjustment primarily eliminates a $0.5 million legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee during the three months ended March 31, 2019. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: • • • • • • • Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; Adjusted EBITDA does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; Adjusted EBITDA does not reflect the costs of holding certain assets and liabilities in foreign currencies; and other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. 50 Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementally. We present Adjusted Operating Income as supplemental measures of our performance. We prepare Adjusted Operating Income by adjusting operating income to eliminate the impact of equity-based compensation expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Operating Income is useful to investors to provide a supplemental way to understand our underlying operating performance and allows investors to monitor and understand changes in our ability to generate income from ongoing business operations. Adjusted Operating Income is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to operating income, income from continuing operations, cash flows from operating activities or net income, as determined in accordance with U.S. GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Operating Income differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Operating Income, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Operating Income for the periods indicated as operating income adjusted to exclude (i) equity-based compensation expense, (ii) inventory reserve related to Huawei impact of downstream trade restrictions, (iii) expenses related to Fab 3 power outage, (iv) merger-related costs (income), net and (v) early termination and other charges. The following table summarizes the adjustments to operating income that we make in order to calculate Adjusted Operating Income from continuing operations for the periods indicated: Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments: Equity-based compensation expense(a) . . . . . . . . . Inventory reserve related to Huawei impact of downstream trade restrictions(b) . . . . . . . . . . . . . . . . . . Expenses related to Fab 3 power outage(c) Merger-related costs (income), net(d) . . . . . . . . . . Early termination and other charges(e) . . . . . . . . . . Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 $ 83.4 (Dollars in millions) $27.0 $23.7 7.7 (1.5) — (35.5) 2.0 6.3 1.5 1.2 0.7 5.0 6.1 — — — 0.6 Adjusted Operating Income . . . . . . . . . . . . . . . . . . . . . . $ 56.1 $41.6 $30.4 (a) This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses as supplemental information. (b) For the year ended December 31, 2020, this adjustment eliminates the impact of excess and obsolete inventory charge that we recorded in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. For the year ended December 31, 2021, this adjustment eliminates a reversal of such inventory charge as such reserved inventory was subsequently sold to certain other customers. As this charge and the timing of its reversal meaningfully impacted our operational results and are not expected to represent an ongoing operating expense subject to our ability to foresee and control, we believe our operating performance results are more meaningfully compared if this charge and related reversal are excluded. K - 0 1 m r o F 51 (c) This adjustment eliminates $1.2 million in expenses related to the write-off of the damaged work in process wafers and charges for facility recovery. These charges are inconsistent in amount and frequency, and we do not believe that these charges are indicative of our core operation performance and have been excluded for comparative purposes. (d) For the year ended December 31, 2021, this adjustment eliminates $70.2 million income from the recognition of termination fee from the Parent as a result of the termination of the merger transaction. For the years ended December 31, 2021 and 2020, respectively, this adjustment eliminates non-recurring professional service fees and expenses of $34.7 million and $0.7 million, incurred in connection with the contemplated merger transaction. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded. (e) For the year ended December 31, 2021, this adjustment eliminates $3.4 million non-recurring professional service fees and expenses incurred in connection with the regulatory requests, which was offset in part by $1.4 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018). For the year ended December 31, 2020, this adjustment eliminates $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. For the year ended December 31, 2019, this adjustment primarily eliminates a $0.5 million legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee during the three months ended March 31, 2019. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded. We present Adjusted Net Income (including on a per share basis) as a further supplemental measure of our performance. We prepare Adjusted Net Income (including on a per share basis) by adjusting income (loss) from continuing operations to eliminate the impact of a number of non-cash expenses and other items that may be either one time or recurring that we do not consider to be indicative of our core ongoing operating performance. We believe that Adjusted Net Income (including on a per share basis) is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We present Adjusted Net Income (including on a per share basis) for a number of reasons, including: • • we use Adjusted Net Income (including on a per share basis) in communications with our Board of Directors concerning our consolidated financial performance without the impact of non-cash expenses and the other items as we discussed below since we believe that it is a more consistent measure of our core operating results from period to period; and we believe that reporting Adjusted Net Income (including on a per share basis) is useful to readers in evaluating our core operating results because it eliminates the effects of non-cash expenses as well as the other items we discuss below, such as foreign currency gains and losses, which are out of our control and can vary significantly from period to period. Adjusted Net Income (including on a per share basis) is not a measure defined in accordance with U.S. GAAP and should not be construed as an alternative to income (loss) from continuing operations, cash flows from operating activities or net income, as determined in accordance with U.S. GAAP. We encourage you to evaluate each adjustment and the reasons we consider them appropriate. Other companies in our industry may calculate Adjusted Net Income (including on a per share basis) differently than we do, limiting its usefulness as a comparative measure. In addition, in evaluating Adjusted Net Income (including on a per share basis), you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. We define Adjusted Net Income (including on a per share basis); for the periods indicated as income (loss) from continuing operations, adjusted to exclude (i) equity-based compensation expense, (ii) foreign currency loss, net, (iii) derivative valuation loss (gain), net, (iv) loss on early extinguishment of borrowings, net, (v) inventory reserve related to Huawei impact of downstream trade restrictions, (vi) expenses related to Fab 3 power outage, 52 (vii) merger-related costs (income), net, (viii) early termination and other charges, net, (ix) GAAP and cash tax expense difference and (x) income tax effect on non-GAAP adjustments. The following table summarizes the adjustments to income (loss) from continuing operations that we make in order to calculate Adjusted Net Income (including on a per share basis) from continuing operations for the periods indicated: Income (loss) from continuing operations . . . . . . . . . . Adjustments: . . . . . . . . Equity-based compensation expense(a) Foreign currency loss, net(b) . . . . . . . . . . . . . . . . . Derivative valuation loss (gain), net(c) . . . . . . . . . Loss on early extinguishment of borrowings, net(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventory reserve related to Huawei impact of downstream trade restrictions(e) . . . . . . . . . . . . Expenses related to Fab 3 power outage(f) . . . . . . Merger-related costs (income), net(g) . . . . . . . . . . Early termination and other charges, net(h) . . . . . GAAP and cash tax expense difference(i) . . . . . . Income tax effect on non-GAAP adjustments(j) . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . Reported earnings (loss) per share—basic . . . . . . . . . . Reported earnings (loss) per share—diluted . . . . . . . . . Weighted average number of shares—basic . . . . . . . . . Weighted average number of shares—diluted . . . . . . . Adjusted earnings per share—basic . . . . . . . . . . . . . . . Adjusted earnings per share—diluted . . . . . . . . . . . . . . Weighted average number of shares—basic . . . . . . . . . Weighted average number of shares—diluted . . . . . . . $ $ $ $ $ Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 (Dollars in millions, except per share data) $ 56.7 $ 57.1 $ (20.4) 7.7 11.9 (0.1) — (1.5) — (35.5) 1.3 0.9 9.7 51.1 1.26 1.21 44,879,412 47,709,373 1.14 1.09 44,879,412 47,709,373 6.3 0.4 (0.1) 0.8 1.5 1.2 0.7 5.0 (43.9) (0.5) 28.3 1.62 1.35 35,213,525 46,503,586 0.80 0.73 35,213,525 46,503,586 $ $ $ $ $ $ $ $ $ $ 6.1 22.3 0.3 0.0 — — — 0.6 — — 9.0 (0.59) (0.59) 34,321,888 34,321,888 0.26 0.25 34,321,888 35,405,077 (a) This adjustment eliminates the impact of non-cash equity-based compensation expenses. Although we expect to incur non-cash equity-based compensation expenses in the future, these expenses do not generally require cash settlement, and, therefore, are not used by us to assess the profitability of our operations. We believe that analysts and investors will find it helpful to review our operating performance without the effects of these non-cash expenses as supplemental information. (b) This adjustment mainly eliminates the impact of non-cash foreign currency translation associated with intercompany debt obligations and foreign currency denominated receivables and payables, as well as the cash impact of foreign currency transaction gains or losses on collection of such receivables and payment of such payables. Although we expect to incur foreign currency translation gains or losses in the future, we believe that analysts and investors will find it helpful to review our operating performance without the effects of these primarily non-cash gains or losses, which we cannot control. Additionally, we believe the isolation of this adjustment provides investors with enhanced comparability to prior and future periods of our operating performance results. (c) This adjustment eliminates the impact of gain or loss recognized in income on derivatives, which represents derivatives value changes excluded from the risk being hedged. We enter into derivative transactions to mitigate foreign exchange risks. As our derivative transactions are limited to a certain portion of our K - 0 1 m r o F 53 expected cash flows denominated in U.S. dollars, and we do not enter into derivative transactions for trading or speculative purposes, we do not believe that these charges or gains are indicative of our core operating performance. (d) For the year ended December 31, 2020, this adjustment eliminates $0.8 million in expenses related to the full redemption of our outstanding 2021 Notes in the fourth quarter of 2020. For the year ended December 31, 2019, this adjustment eliminates expenses related to the repurchase of a portion of the 2021 Notes and the Exchangeable Notes in the first quarter of 2019. (e) For the year ended December 31, 2020, this adjustment eliminates the impact of excess and obsolete inventory charge that we recorded in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. For the year ended December 31, 2021, this adjustment eliminates a reversal of such inventory charge as such reserved inventory was subsequently sold to certain other customers. As this charge and the timing of its reversal meaningfully impacted our operational results and are not expected to represent an ongoing operating expense subject to our ability to foresee and control, we believe our operating performance results are more meaningfully compared if this charge and related reversal are excluded. (f) This adjustment eliminates $1.2 million in expenses related to the write-off of the damaged work in process wafers and charges for facility recovery. These charges are inconsistent in amount and frequency, and we do not believe that these charges are indicative of our core operation performance and have been excluded for comparative purposes. (g) For the year ended December 31, 2021, this adjustment eliminates $70.2 million income from the recognition of termination fee from the Parent as a result of the termination of the merger transaction. For the years ended December 31, 2021 and 2020, respectively, this adjustment eliminates non-recurring professional service fees and expenses of $34.7 million and $0.7 million, incurred in connection with the contemplated merger transaction. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded. (h) For the year ended December 31, 2021, this adjustment eliminates $3.4 million non-recurring professional service fees and expenses incurred in connection with the regulatory requests, which was offset in part by $1.4 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018), and $0.7 million legal settlement gain related to certain expenses incurred in prior periods in connection with our legacy Fab 4 (which was sold during the year ended December 31, 2020) and awarded in the third quarter of 2021. For the year ended December 31, 2020, this adjustment eliminates $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. For the year ended December 31, 2019, this adjustment primarily eliminates a $0.5 million legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee during the three months ended March 31, 2019. As these adjustments meaningfully impacted our operating results and are not expected to represent an ongoing operating expense or income to us, we believe our operating performance results are more usefully compared if these adjustments are excluded. (i) This adjustment eliminates the impact of difference between GAAP and cash tax expense. (j) For the years ended December 31, 2021 and 2020, income tax effect on non-GAAP adjustments were calculated by calculating the tax expense of each jurisdiction with or without the non-GAAP adjustments. For the year ended December 31, 2021, income tax effect on non-GAAP adjustments related to our Korean subsidiary and the U.S parent entity were $2.8 million and $6.9 million, respectively. For the year ended December 31, 2020, income tax effect on non-GAAP adjustments related to our Korean subsidiary was $0.5 million. For the year ended December 31, 2019, there was no tax impact from the adjustments to net income (loss) from continuing operations to calculate our Adjusted Net Income due to net operating loss carry-forwards available to offset taxable income and full allowance for deferred tax assets. We believe that all adjustments to income (loss) from continuing operations used to calculate Adjusted Net Income was applied consistently to the periods presented. 54 Adjusted Net Income has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: • • • • Adjusted Net Income does not reflect changes in, or cash requirements for, our working capital needs; Adjusted Net Income does not consider the potentially dilutive impact of issuing equity-based compensation to our management team and employees; Adjusted Net Income does not reflect the costs of holding certain assets and liabilities in foreign currencies; and other companies in our industry may calculate Adjusted Net Income differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted Net Income should not be considered as a measure of profitability of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted Net Income only as a supplement. Factors Affecting Our Results of Operations Net Sales. We derive substantially all of our sales (net of sales returns and allowances) from our standard products business. We outsource manufacturing of mobile OLED products to external 12-inch foundries. Our product inventory is primarily located in Korea and is available for drop shipment globally. Outside of Korea, we maintain limited product inventory, and our sales representatives generally relay orders to our factories in Korea for fulfillment. We have strategically located our sales offices near concentrations of major customers. Our sales offices are located in Korea, Japan and Greater China. Our network of authorized agents and distributors is in the United States, Europe and the Asia Pacific region. We recognize revenue when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement. For the years ended December 31, 2021, 2020 and 2019, we sold products to 177, 178 and 180 customers, respectively, and our net sales to our ten largest customers represented 80%, 88% and 90% of our net sales—standard products business, respectively. We will provide the Transitional Fab 3 Foundry Services up to September 1, 2023 at an agreed upon cost plus a mark-up. For the periods prior to the closing of the sale of the Foundry Services Group business and Fab 4 as of September 1, 2020 (which are accounted for as discontinued operations beginning in the first quarter of 2020), revenue derived from the Transitional Fab 3 Foundry Services is recorded at cost in both our continuing and discontinued operations. Gross Profit. Our overall gross profit generally fluctuates as a result of changes in overall sales volumes and in the average selling prices of our products and services. Other factors that influence our gross profit include changes in product mix, the introduction of new products and services and subsequent generations of existing products and services, shifts in the utilization of our manufacturing facility and the yields achieved by our manufacturing operations, changes in material, labor and other manufacturing costs including outsourced manufacturing expenses, and variation in depreciation expense. Average Selling Prices. Average selling prices for our products tend to be highest at the time of introduction of new products which utilize the latest technology and tend to decrease over time as such products mature in the market and are replaced by next generation products. We strive to offset the impact of declining selling prices for existing products through our product development activities and by introducing new products that command selling prices above the average selling price of our existing products. In addition, we seek to manage our inventories and manufacturing capacity so as to preclude losses from product and productive capacity obsolescence. 55 K - 0 1 m r o F Material Costs. Our material costs consist of costs of raw materials, such as silicon wafers, chemicals, gases and tape and packaging supplies. We use processes that require specialized raw materials, such as silicon wafers, that are generally available from a limited number of suppliers. If demand increases or supplies decrease, the costs of our raw materials could increase significantly. Labor Costs. A significant portion of our employees are located in Korea. Under Korean labor laws, most employees and certain executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2021, approximately 98% of our employees were eligible for severance benefits. Depreciation Expense. We periodically evaluate the carrying values of long-lived assets, including property, plant and equipment and intangible assets, as well as the related depreciation periods. We depreciated our property, plant and equipment using the straight-line method over the estimated useful lives of our assets. Depreciation rates vary from 30-40 years on buildings to 5 to 12 years for certain equipment and assets. Our evaluation of carrying values is based on various analyses including cash flow and profitability projections. If our projections indicate that future undiscounted cash flows are not sufficient to recover the carrying values of the related long-lived assets, the carrying value of the assets is impaired and will be reduced, with the reduction charged to expense so that the carrying value is equal to fair value. Selling Expenses. We sell our products worldwide through a direct sales force as well as a network of sales agents and representatives to OEMs, including major branded customers and contract manufacturers, and indirectly through distributors. Selling expenses consist primarily of the personnel costs for the members of our direct sales force, a network of sales representatives and other costs of distribution. Personnel costs include base salary, benefits and incentive compensation. General and Administrative Expenses. General and administrative expenses consist of the costs of various corporate operations, including finance, legal, human resources and other administrative functions. These expenses primarily consist of payroll-related expenses, consulting and other professional fees and office facility- related expenses. Research and Development. The rapid technological change and product obsolescence that characterize our industry require us to make continuous investments in research and development. Product development time frames vary but, in general, we incur research and development costs one to two years before generating sales from the associated new products. These expenses include personnel costs for members of our engineering workforce, cost of photomasks, silicon wafers and other non-recurring engineering charges related to product design. Additionally, we develop base line process technology through experimentation and through the design and use of characterization wafers that help achieve commercially feasible yields for new products. The majority of research and development expenses of our display business are material and design-related costs for OLED display driver IC product development involving 28-nanometer or finer processes. The majority of research and development expenses of our power business are certain equipment, material and design-related costs for power discrete products and material and design-related costs for power IC products. Power IC uses standard BCD process technologies which can be sourced from multiple foundries, including Fab 4. Interest Expense. Our interest expense was incurred primarily under our 2021 Notes and our Exchangeable Notes. We redeemed all outstanding 2021 Notes on October 2, 2020. Our Exchangeable Notes were exchanged for common stock prior to their maturity date of March 1, 2021. From and after October 2, 2020 and March 1, 2021, we have not incurred interest expense associated with the 2021 Notes and Exchangeable Notes, respectively. Impact of Foreign Currency Exchange Rates on Reported Results of Operations. Historically, a portion of our revenues and cost of sales and greater than the majority of our operating expenses have been denominated in non-U.S. currencies, principally the Korean won, and we expect that this will remain true in the future. Because 56 we report our results of operations in U.S. dollars converted from our non-U.S. revenues and expenses based on monthly average exchange rates, changes in the exchange rate between the Korean won and the U.S. dollar could materially impact our reported results of operations and distort period to period comparisons. In particular, because of the difference in the amount of our consolidated revenues and expenses that are in U.S. dollars relative to Korean won, depreciation in the U.S. dollar relative to the Korean won could result in a material increase in reported costs relative to revenues, and therefore could cause our profit margins and operating income to appear to decline materially, particularly relative to prior periods. The converse is true if the U.S. dollar were to appreciate relative to the Korean won. Moreover, our foreign currency gain or loss would be affected by changes in the exchange rate between the Korean won and the U.S. dollar as a substantial portion of non-cash translation gain or loss is associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in U.S. dollars. As of December 31, 2021, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $344.4 million. As a result of such foreign currency fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our stock could be adversely affected. From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. Our Korean subsidiary enters into foreign currency zero cost collar contracts in order to mitigate a portion of the impact of U.S. dollar-Korean won exchange rate fluctuations on our operating results. Obligations under these foreign currency zero cost collar contracts must be cash collateralized if our exposure exceeds certain specified thresholds. These zero cost collar contracts may be terminated by a counterparty in a number of circumstances, including if our credit rating falls below B-/B3 or if our total cash and cash equivalents is less than $30.0 million at the end of a fiscal quarter unless a waiver is obtained from the counterparty. We cannot assure that any hedging technique we implement will be effective. If our hedging activities are not effective, changes in currency exchange rates may have a more significant impact on our results of operations. See “Note 10. Derivative Financial Instruments” to our consolidated financial statements under “Item 8. Financial Statements and Supplementary Data” for additional information regarding our foreign exchange hedging activities. Foreign Currency Gain or Loss. Foreign currency translation gains or losses on transactions by us or our subsidiaries in a currency other than our or our subsidiaries’ functional currency are included in foreign currency gain (loss), net in our statements of operations. A substantial portion of this net foreign currency gain or loss relates to non-cash translation gain or loss related to the principal balance of intercompany balances at our Korean subsidiary that are denominated in U.S. dollars. This gain or loss results from fluctuations in the exchange rate between the Korean won and U.S. dollar. Income Taxes. We record our income taxes in each of the tax jurisdictions in which we operate. This process involves using an asset and liability approach whereby deferred tax assets and liabilities are recorded for differences in the financial reporting bases and tax basis of our assets and liabilities. We exercise significant management judgment in determining our provision for income taxes, deferred tax assets and liabilities. We assess whether it is more likely than not that the deferred tax assets existing at the period-end will be realized in future periods. In such assessment, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent results of operations. In the event we were to determine that we would be able to realize the deferred income tax assets in the future in excess of their net recorded amount, we would adjust the valuation allowance, which would reduce the provision for income taxes. We are subject to income- or non-income-based tax examinations by tax authorities of the U.S., Korea and multiple other foreign jurisdictions for all open tax years. Significant estimates and judgments are required in determining our worldwide provision for income- or non-income based taxes. Some of these estimates are based on interpretations of existing tax laws or regulations. The ultimate amount of tax liability may be uncertain as a result. 57 K - 0 1 m r o F Discontinued Operations. On March 30, 2020, we entered into the Business Transfer Agreement for the sale of our Foundry Services Group business and Fab 4 to the Buyer. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. On September 1, 2020, we completed the sale for a purchase price of approximately $350.6 million in cash. Capital Expenditures. We primarily invest in manufacturing equipment, software design tools and other tangible assets mainly for fabrication facility maintenance, capacity expansion and technology improvement. Capacity expansions and technology improvements typically occur in anticipation of increases in demand. We typically pay for capital expenditures in partial installments with portions due on order, delivery and final acceptance. Our capital expenditures mainly include our payments for the purchase of property, plant and equipment. Inventories. We monitor our inventory levels in light of product development changes and market expectations. We may be required to take additional charges for quantities in excess of demand, cost in excess of market value and product age. Our analysis may take into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sales of existing products, product age, customer design activity, customer concentration and other factors. These forecasts require us to estimate our ability to predict demand for current and future products and compare those estimates with our current inventory levels and inventory purchase commitments. Our forecasts for our inventory may differ from actual inventory use. 58 Results of Operations The following table sets forth, for the periods indicated, certain information related to our operations, expressed in U.S. dollars and as a percentage of our total revenues: Year Ended December 31, 2021 Year Ended December 31, 2020 Year Ended December 31, 2019 % of Total % of Total Amount revenues Amount revenues Amount % of Total revenues (Dollars in millions) Consolidated statements of operations data: Revenues Net sales—standard products business . . . . . . . . . . . . . $433.1 41.1 Net sales—transitional Fab 3 foundry services . . . . . . . 91.3% $465.5 41.5 8.7 91.8% $484.8 35.8 8.2 93.1% 6.9 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474.2 100.0 507.1 100.0 520.7 100.0 Cost of sales Cost of sales—standard products business . . . . . . . . . . Cost of sales—transitional Fab 3 foundry services . . . . 283.5 37.2 Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . 320.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit Selling, general and administrative expenses . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . . . Merger-related costs (income), net . . . . . . . . . . . . . . . . . . . . Early termination and other charges, net . . . . . . . . . . . . . . . . 153.5 52.4 51.2 (35.5) 2.0 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on early extinguishment of borrowings, net . . . . . . . . . — 3.8 Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.4 (1.4) (11.9) 59.8 7.8 67.6 32.4 11.1 10.8 (7.5) 0.4 17.6 (0.3) (2.5) — 0.8 (9.4) (2.0) Income (loss) from continuing operations before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) 74.0 17.3 Income (loss) from continuing operations . . . . . . . . . . . . . . 56.7 Income (loss) from discontinued operations, net of tax . . . . — 15.6 3.6 12.0 — 338.4 40.3 378.7 128.3 50.0 45.7 0.7 5.0 27.0 (18.1) (0.4) (0.8) 3.1 (16.2) 10.8 (46.2) 57.1 287.9 66.7 8.0 74.7 25.3 9.9 9.0 0.1 1.0 5.3 (3.6) (0.1) (0.2) 0.6 (3.2) 2.1 (9.1) 11.3 56.8 368.5 35.8 404.3 116.4 47.6 45.0 — 0.1 23.7 (22.2) (22.3) (0.0) 2.6 (41.9) (18.2) 2.2 (20.4) (1.4) 70.8 6.9 77.6 22.4 9.1 8.6 — 0.0 4.6 (4.3) (4.3) (0.0) 0.5 (8.1) (3.5) 0.4 (3.9) (0.3) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56.7 12.0% $345.0 68.0% $ (21.8) (4.2)% Revenues: Net sales—standard products business Display Solutions . . . . . . . . . . . . . . . . . . . . . . . . . Power Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . Total standard products business . . . . . . . . . . Net sales—transitional Fab 3 foundry services . . . . . . . 205.3 227.8 433.1 41.1 43.3 48.0 91.3 8.7 299.1 166.5 465.5 41.5 59.0 32.8 91.8 8.2 308.5 176.3 484.8 35.8 59.3 33.9 93.1 6.9 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . $474.2 100.0% $507.1 100.0% $520.7 100.0% K - 0 1 m r o F 59 Results of Operations—Comparison of Years Ended December 31, 2021 and 2020 The following table sets forth consolidated results of operations for the years ended December 31, 2021 and 2020: Revenues Year Ended December 31, 2021 Year Ended December 31, 2020 % of Total Amount revenues Amount % of Total revenues Change Amount (Dollars in millions) Net sales—standard products business . . . . . . . . . . . . . . . . Net sales—transitional Fab 3 foundry services . . . . . . . . . $433.1 41.1 91.3% $465.5 41.5 8.7 91.8% $ (32.4) (0.4) 8.2 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474.2 100.0 507.1 100.0 (32.8) Cost of sales Cost of sales—standard products business . . . . . . . . . . . . . Cost of sales—transitional Fab 3 foundry services . . . . . . Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . . . . . . Merger-related costs (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Early termination and other charges, net Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on early extinguishment of borrowings, net . . . . . . . . . . . . Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, net of tax . . . . . . . . . . . . 283.5 37.2 320.7 153.5 52.4 51.2 (35.5) 2.0 83.4 (1.4) (11.9) — 3.8 (9.4) 74.0 17.3 56.7 — 59.8 7.8 67.6 32.4 11.1 10.8 (7.5) 0.4 17.6 (0.3) (2.5) — 0.8 (2.0) 15.6 3.6 12.0 — 338.4 40.3 378.7 128.3 50.0 45.7 0.7 5.0 27.0 (18.1) (0.4) (0.8) 3.1 (16.2) 10.8 (46.2) 57.1 287.9 66.7 8.0 74.7 25.3 9.9 9.0 0.1 1.0 5.3 (3.6) (0.1) (0.2) 0.6 (3.2) 2.1 (9.1) 11.3 56.8 (54.9) (3.1) (58.1) 25.2 2.5 5.5 (36.2) (3.0) 56.4 16.8 (11.5) 0.8 0.7 6.7 63.1 63.5 (0.4) (287.9) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56.7 12.0% $345.0 68.0% $(288.3) 60 Results by business line Year Ended December 31, 2021 Year Ended December 31, 2020 % of Total Amount revenues Amount % of Total revenues Change Amount (Dollars in millions) Revenues Net sales—standard products business Display Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total standard products business . . . . . . . . . . . . Net sales—transitional Fab 3 foundry services . . . . . . . . . . 205.3 227.8 433.1 41.1 43.3 48.0 91.3 8.7 299.1 166.5 465.5 41.5 59.0 32.8 91.8 8.2 (93.7) 61.3 (32.4) (0.4) Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $474.2 100.0% $507.1 100.0% $(32.8) Year Ended December 31, 2021 Year Ended December 31, 2020 % of Amount Net Sales Amount % of Net Sales Change Amount (Dollars in millions) Gross Profit Gross profit—standard products business . . . . . . . . . . . . . Gross profit—transitional Fab 3 foundry services . . . . . . . 149.6 3.9 34.5 9.6 127.1 1.2 27.3 2.9 22.5 2.7 Total gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $153.5 32.4% $128.3 25.3% $25.2 Revenues Total revenues were $474.2 million for the year ended December 31, 2021, a $32.8 million, or 6.5%, decrease compared to $507.1 million for the year ended December 31, 2020. This decrease was primarily due to a decrease in net sales from our Display Solutions business line, which was partially offset by an increase in net sales from our Power Solutions business line as described below. The standard products business. Net sales from our standard products business were $433.1 million for the year ended December 31, 2021, a $32.4 million, or 7.0%, decrease compared to $465.5 million for the year ended December 31, 2020. The decrease in net sales from our Display Solutions business line was primarily attributable to a decrease in revenue from our mobile OLED display driver ICs stemming from a continuing severe global shortage in manufacturing capacity (in particular for 28nm 12-inch OLED wafers), as we outsource manufacturing of these products to external 12-inch foundries, and a strategic reduction of our lower margin non-auto LCD business, which was offset in part by a higher demand for auto-LCD DDIC business. The increase in net sales from our Power Solutions business line was attributable to a strong demand for power products such as MOSFETs, including high-end MOSFETs, primarily for TVs and e-bikes, whereas the revenue for power products in 2020 was impacted by COVID-19-related supply chain issues and market softness in China. K - 0 1 m r o F Gross Profit Total gross profit was $153.5 million for the year ended December 31, 2021 compared to $128.3 million for the year ended December 31, 2020, representing a $25.2 million, or 19.7%, increase. Gross profit as a percentage of total revenues for the year ended December 31, 2021 increased to 32.4% compared to 25.3% for the year ended December 31, 2020. The increase in gross profit and gross profit as a percentage of total revenues was primarily due to the increase in gross profit and gross profit as a percentage of total revenues from our standard products business as further described below. 61 The standard products business. Gross profit from our standard products business was $149.6 million for the year ended December 31, 2021, representing a $22.5 million, or 17.7%, increase from $127.1 million for the year ended December 31, 2020. Gross profit as a percentage of net sales for the year ended December 31, 2021 increased to 34.5% compared to 27.3% for the year ended December 31, 2020. The increase in both gross profit and gross profit as a percentage of net sales was primarily attributable to an improved product mix, an increase in average selling price benefited from the favorable pricing environment and a higher utilization rate of our internal fabrication facility in Gumi, whereas unexpected excess and obsolete inventory charge of $1.5 million in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, negatively affected both gross profit and gross profit as a percentage of net sales for the year ended December 31, 2020. This excess and obsolete inventory charge was reversed in full during 2021 as such reserved inventory was subsequently sold to certain other customers, which also positively affected both gross profit and gross profit as a percentage of net sales for the year ended December 31, 2021. Net Sales—Standard Products Business by Geographic Region We report net sales—standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net sales—standard products business by geographic region and the percentage of total net sales—standard products business represented by each geographic region for the years ended December 31, 2021 and 2020: Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific (other than Korea) . . . . . . . . . . . . . . . . . . . . . . . United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 Year Ended December 31, 2020 % of Net Sales – standard products business Amount % of Net Sales – standard products business Change Amount (Dollars in millions) 26.3% $106.4 347.6 70.7 5.1 1.4 4.3 1.3 2.0 0.3 22.9% $ 7.4 (41.3) 74.7 0.9 1.1 1.4 0.9 (0.8) 0.4 100.0% $465.5 100.0% $(32.4) Amount $113.8 306.3 6.1 5.7 1.2 $433.1 Net sales—standard products business in Korea for the year ended December 31, 2021 increased from $106.4 million to $113.8 million compared to the year ended December 31, 2020, or by $7.4 million, or 6.9%, primarily due to a strong demand for power products such as MOSFETs, including high-end MOSFETs, primarily for TV and smartphone applications. This increase was offset in part by a decrease in revenue related to our mobile OLED display driver ICs stemming from a continuing severe global shortage in manufacturing capacity (in particular for 28nm 12-inch OLED wafers), as we outsource manufacturing of these products to external 12-inch foundries, and a strategic reduction of our lower margin non-auto LCD business. The U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, also unfavorably impacted the demand for certain of our mobile OLED display driver ICs from our customers. Net sales—standard products business in the Asia Pacific for the year ended December 31, 2021 decreased from $347.6 million to $306.3 million compared to the year ended December 31, 2020, or by $41.3 million, or 11.9%, primarily due to a decrease in revenue from our mobile OLED display driver ICs stemming from a continuing global shortage in manufacturing capacity (in particular for 28nm 12-inch OLED wafers), as we outsource manufacturing of these products to external 12-inch foundries, which was offset in part by a higher demand for power products such as MOSFETs, including high-end MOSFETs, primarily for TVs and e-bikes, and a higher demand for auto-LCD DDIC business. 62 Operating Expenses Selling, General and Administrative Expenses. Selling, general and administrative expenses were $52.4 million, or 11.1% of total revenues for the year ended December 31, 2021, compared to $50.0 million, or 9.9% of total revenues for the year ended December 31, 2020. The year over year increase of $2.5 million, or 4.9%, was primarily attributable to certain non-income-based tax assessments of $0.6 million as a result of a regular tax examination completed for our primary operating entity in Korea for multiple tax years, the grant timing of equity-based compensation, and increased depreciation and amortization expense, which was primarily attributable to certain one-time investments relating to separating the IT systems and establishing a new IT infrastructure to support our continuing operations after the sale of the Foundry Services Group business and Fab 4. Research and Development Expenses. Research and development expenses were $51.2 million, or 10.8% of total revenues for the year ended December 31, 2021, compared to $45.7 million, or 9.0%, of total revenues for the year ended December 31, 2020. The increase of $5.5 million, or 12.1%, was primarily attributable to an increase in personnel costs, outside service fees and variable overhead expenses. Merger-related Costs (Income), Net. For the year ended December 31, 2021, we recorded a $70.2 million income from the recognition of termination fee from the Parent as a result of the termination of the merger transaction, which was offset in part by a $34.7 million of non-recurring professional service fees and expenses incurred in connection with the contemplated merger transaction. For the year ended December 31, 2020, we recorded a $0.7 million of non-recurring professional service fees and expenses incurred in connection with the contemplated merger transaction. Early Termination and Other Charges, Net. For the year ended December 31, 2021, we recorded a $3.4 million of non-recurring professional service fees and expenses incurred in connection with the regulatory requests, which was offset in part by a $1.4 million gain on sale of certain legacy equipment of the closed back-end line in our fabrication facility in Gumi (which was closed during the year ended December 31, 2018). For the year ended December 31, 2020, we recorded a $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. Operating Income As a result of the foregoing, operating income of $83.4 million was recorded for the year ended December 31, 2021 compared to operating income of $27.0 million the year ended December 31, 2020. The increase in operating income of $56.4 million resulted primarily from a $36.2 million net increase in merger- related income, a $25.2 million increase in gross profit, and a $3.0 million decrease in early termination and other charges, which was offset in part by a $5.5 million increase in research and development expenses and a $2.5 million increase in selling, general and administrative expenses. Other Income (Expense) Interest Expense. Interest expenses for the year ended December 31, 2021 were $1.4 million compared to $18.1 million of interest expenses for the year ended December 31, 2020. Interest expenses was incurred primarily under our 2021 Notes and Exchangeable Notes. We redeemed all outstanding 2021 Notes on October 2, 2020. Our Exchangeable Notes were exchanged for common stock prior to their maturity date of March 1, 2021. From and after October 2, 2020 and March 1, 2021, we have not incurred interest expense associated with the 2021 Notes and Exchangeable Notes, respectively. Foreign Currency Loss, Net. Net foreign currency loss for the year ended December 31, 2021 was $11.9 million compared to net foreign currency loss of $0.4 million for the year ended December 31, 2020. The net foreign currency losses for the years ended December 31, 2021 and 2020 were due to the depreciation in the value of the Korean won relative to the U.S. dollar during each period. 63 K - 0 1 m r o F A substantial portion of our net foreign currency gain or loss is non-cash translation gain or loss associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in U.S. dollars, and is affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of December 31, 2021 and 2020, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $344.4 million and $378.9 million, respectively. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates. Loss on Early Extinguishment of Borrowings, Net. For the year ended December 31, 2020, we recorded $0.8 million of loss on early extinguishment of borrowings, which was attributable to the full redemption of our outstanding 2021 Notes on October 2, 2020. In connection with the redemption of the 2021 Notes, we reclassified the remaining unamortized discount and debt issuance costs on the redemption date as a loss on early extinguishment of borrowings. Others, Net. Others were comprised of interest income, rental income, and gains and losses from valuation of derivatives which were designated as hedging instruments. Others, net for the years ended December 31, 2021 and 2020 was $3.8 million and $3.1 million, respectively. Others, net for the year ended December 31, 2021, included a $0.7 million legal settlement gain related to certain expenses incurred in prior periods in connection with our legacy Fab 4 (which was sold during the year ended December 31, 2020) and awarded in the third quarter of 2021. Income Tax Expense (Benefit) We 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 of earnings between countries with differing tax rates. We recorded a $17.3 million income tax expense for the year ended December 31, 2021, which was primarily composed of the income tax expense of $6.9 million from our Korean subsidiary, primarily due to its taxable income for the year, and the income tax expense of $8.2 million from the parent entity in the U.S. The U.S. parent’s tax expense was mainly attributable to the recognition of income and expenses related to the Merger combined with the utilization of its available net operating loss carry-forwards. We recorded a $46.2 million income tax benefit for the year ended December 31, 2020, primarily as a result of releasing valuation allowances established against the related deferred tax assets related to our Korean subsidiary and the parent entity in the U.S. Our Korean subsidiary had generated three years of cumulative profits adjusted for permanent differences and is anticipated to generate taxable basis for the subsequent years. As a result, $39.4 million of valuation allowances, established against the Korean subsidiary’s deferred tax assets, were released as of December 31, 2020. In addition, we believe it is more likely than not that the parent entity in the U.S. would be able to utilize its net operating loss in future tax years, which would provide incremental tax savings of approximately $4.5 million. Therefore, we released the valuation allowances, established against the U.S. parent’s deferred tax assets, up to these anticipated tax savings as of December 31, 2020. Income from Continuing Operations Income from continuing operations for the year ended December 31, 2021 was $56.7 million compared to income from continuing operations of $57.1 million for the year ended December 31, 2020. The $0.4 million decrease in income from continuing operations was primarily attributable to a $63.5 million net increase in income tax expense and an $11.5 million increase in net foreign currency loss, which was offset in part by a $56.4 million increase in operating income and a $16.8 million decrease in interest expense. 64 Income from Discontinued Operations, Net of Tax On March 30, 2020, we entered into the Business Transfer Agreement for the sale of our Foundry Services Group business and Fab 4. As a result, the results of the Foundry Services Group business were classified as discontinued operations in our consolidated statements of operations and excluded from our continuing operations for all periods presented. Income from discontinued operations, net of tax was $287.9 million for the year ended December 31, 2020. On September 1, 2020, we completed the sale of our Foundry Services Group business and Fab 4 for a purchase price equal to approximately $350.6 million in cash. We have not incurred a gain or loss from discontinued operations in 2021 as the sale of the Foundry Service Group business and Fab 4 was completed in 2020. Net Income As a result of the foregoing, net income of $56.7 million was recorded for the year ended December 31, 2021 compared to net income of $345.0 million for the year ended December 31, 2020. As discussed above, the decrease in net income of $288.3 million primarily resulted from a $287.9 million decrease in income from discontinued operations, net of tax, and a $0.4 million decrease in income from continuing operations. K - 0 1 m r o F 65 Results of Operations—Comparison of Years Ended December 31, 2020 and 2019 The following table sets forth consolidated results of operations for the years ended December 31, 2020 and 2019: Revenues Year Ended December 31, 2020 Year Ended December 31, 2019 % of Total Amount revenues Amount % of Total revenues Change Amount (Dollars in millions) Net sales—standard products business . . . . . . . . . . . . . . . . Net sales—transitional Fab 3 foundry services . . . . . . . . . . $465.5 41.5 91.8% $484.8 35.8 8.2 93.1% $ (19.3) 5.7 6.9 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507.1 100.0 520.7 100.0 (13.6) Cost of sales Cost of sales—standard products business . . . . . . . . . . . . . Cost of sales—transitional Fab 3 foundry services . . . . . . . Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . . . . . . Merger-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Early termination and other charges . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on early extinguishment of borrowings, net . . . . . . . . . . . . Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations, net of tax . . . . . . . 338.4 40.3 378.7 128.3 50.0 45.7 0.7 5.0 27.0 (18.1) (0.4) (0.8) 3.1 (16.2) 10.8 (46.2) 57.1 287.9 66.7 8.0 74.7 25.3 9.9 9.0 0.1 1.0 5.3 (3.6) (0.1) (0.2) 0.6 (3.2) 2.1 (9.1) 11.3 56.8 368.5 35.8 404.3 116.4 47.6 45.0 — 0.1 23.7 (22.2) (22.3) (0.0) 2.6 (41.9) (18.2) 2.2 (20.4) (1.4) 70.8 6.9 77.6 22.4 9.1 8.6 — 0.0 4.6 (4.3) (4.3) (0.0) 0.5 (8.1) (3.5) 0.4 (3.9) (0.3) (30.0) 4.5 (25.5) 11.9 2.4 0.7 0.7 4.9 3.3 4.0 21.9 (0.7) 0.5 25.8 29.0 (48.4) 77.5 289.3 Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $345.0 68.0% $ (21.8) (4.2)% $366.8 Results by business line Year Ended December 31, 2020 Year Ended December 31, 2019 % of Total Amount revenues Amount % of Total revenues Change Amount (Dollars in millions) Revenues Net sales—standard products business Display Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total standard products business . . . . . . . . . . . . Net sales—transitional Fab 3 foundry services . . . . . . . . . . 299.1 166.5 465.5 41.5 59.0 32.8 91.8 8.2 308.5 176.3 484.8 35.8 59.3 33.9 93.1 6.9 (9.5) (9.9) (19.3) 5.7 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $507.1 100.0% $520.7 100.0% $(13.6) 66 Year Ended December 31, 2020 Year Ended December 31, 2019 % of Amount Net Sales Amount % of Net Sales Change Amount (Dollars in millions) Gross Profit Gross profit—standard products business . . . . . . . . . . . . . Gross profit—transitional Fab 3 foundry services . . . . . . . 127.1 1.2 27.3 2.9 116.4 — 24.0 — 10.7 1.2 Total gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $128.3 25.3% $116.4 22.4% $11.9 Revenues Total revenues were $507.1 million for the year ended December 31, 2020, a $13.6 million, or 2.6%, decrease compared to $520.7 million for the year ended December 31, 2019. This decrease was primarily due to a decrease in revenue related to our standard products business as described below. The standard products business. Net sales from our standard products business were $465.5 million for the year ended December 31, 2020, a $19.3 million, or 4.0%, decrease compared to $484.8 million for the year ended December 31, 2019. The decrease in net sales from our Display Solutions business line was primarily attributable to a strategic reduction of our lower margin non-auto LCD DDIC business, which was offset in part by an increase in revenue related to our mobile OLED display driver ICs due to an increase in demand for production of OLED smartphones by Chinese manufacturers in the second half of 2020 due in part to the geographic diversification of our OLED product portfolio. This increase continued until the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, impacted the shipment of certain mobile OLED display driver ICs to certain of our customers. The decrease in net sales from our Power Solutions business line was primarily attributable to the significant global macro-economic market disruption in the first half of 2020 due to the COVID-19 pandemic and the Fab 3 power outage, which affected our ability to meet customer demand for some of our Power Solution products during the third quarter of 2020. Gross Profit Total gross profit was $128.3 million for the year ended December 31, 2020 compared to $116.4 million for the year ended December 31, 2019, representing an $11.9 million, or 10.2%, increase. Gross profit as a percentage of total revenues for the year ended December 31, 2020 increased to 25.3% compared to 22.4% for the year ended December 31, 2019. The increase in gross profit and gross profit as a percentage of total revenues was due to the increase in gross profit and gross profit as a percentage of total revenues from our standard products business as further described below. The standard products business. Gross profit from our standard products business was $127.1 million for the year ended December 31, 2020, representing a $10.7 million, or 9.2%, increase from $116.4 million for the year ended December 31, 2019. Gross profit as a percentage of net sales for the year ended December 31, 2020 increased to 27.3% compared to 24.0% for the year ended December 31, 2019. The increase in both gross profit and gross profit as a percentage of net sales was primarily attributable to inventory reserves related to certain legacy display products that were recorded in the first half of 2019 and an improved product mix, which was offset in part by an $1.5 million unexpected excess and obsolete inventory charge that we recorded in the second half of 2020 in relation to the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers. The delayed recovery of Fab 3 from the power outage, resulting in a lower than anticipated utilization rate, also negatively affected both gross profit and gross profit as a percentage of net sales in the third quarter of 2020. K - 0 1 m r o F 67 Net Sales—Standard Products Business by Geographic Region We report net sales—standard products business by geographic region based on the location to which the products are billed. The following table sets forth our net sales—standard products business by geographic region and the percentage of total net sales—standard products business represented by each geographic region for the years ended December 31, 2020 and 2019: Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific (other than Korea) . . . . . . . . . . . . . . . . . . . . . . . United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2020 Year Ended December 31, 2019 % of Net Sales – standard products business Amount % of Net Sales – standard products business Change Amount (Dollars in millions) 22.9% $132.6 343.7 74.7 2.4 1.1 4.8 0.9 1.4 0.4 27.4% $(26.2) 3.9 70.9 2.7 0.5 (0.5) 1.0 0.7 0.3 100.0% $484.8 100.0% $(19.3) Amount $106.4 347.6 5.1 4.3 2.0 $465.5 Net sales—standard products business in Korea for the year ended December 31, 2020 decreased from $132.6 million to $106.4 million compared to the year ended December 31, 2019, or by $26.2 million, or 19.8%, primarily due to a strategic reduction of our lower margin non-auto LCD DDIC business and lower demand for certain power products such as MOSFETs, primarily for smartphone applications, which was offset in part by an increase in revenue related to our mobile OLED display driver ICs due to an increase in demand for production of OLED smartphones by Chinese manufacturers in the second half of 2020 due in part to the geographic diversification of our OLED product portfolio. This increase continued until the U.S. Government’s export restrictions on Huawei, which is a downstream customer of some of our direct customers, impacted the shipment of certain mobile OLED display driver ICs to certain of our customers. Net sales—standard products business in the Asia Pacific for the year ended December 31, 2020 increased from $343.7 million to $347.6 million compared to the year ended December 31, 2019, or by $3.9 million, or 1.1%, primarily due to higher demand for certain auto LCD DDIC products. The revenue related to our mobile OLED display driver IC remained flat year over year. Operating Expenses Selling, General and Administrative Expenses. Selling, general and administrative expenses were $50.0 million, or 9.9% of total revenues for the year ended December 31, 2020, compared to $47.6 million, or 9.1% of total revenues for the year ended December 31, 2019. The increase of $2.4 million, or 5.0%, was primarily attributable to an increase in certain employee incentives, including equity-based compensation and professional fees, which were mainly comprised of legal and consulting services. This increase was offset in part by a $0.5 million legal settlement charge related to dispute with a prior customer recorded in the first quarter of 2019. Research and Development Expenses. Research and development expenses were $45.7 million, or 9.0% of total revenues for the year ended December 31, 2020, compared to $45.0 million, or 8.6%, of total revenues for the year ended December 31, 2019. The increase of $0.7 million, or 1.5%, was primarily attributable to an increase in certain employee incentives, including equity-based compensation, which was offset in part by decreased material costs. Merger-related costs. For the year ended December 31, 2020, we recorded a $0.7 million of non-recurring professional service fees and expenses incurred in connection with the contemplated merger transaction. 68 Early Termination and Other Charges. For the year ended December 31, 2020, we recorded a $4.4 million of charges related to the reduction of workforce under the Program and $0.6 million of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. Operating Income As a result of the foregoing, operating income of $27.0 million was recorded for the year ended December 31, 2020 compared to operating income of $23.7 million the year ended December 31, 2019. The increase in operating income of $3.3 million resulted primarily from an $11.9 million increase in gross profit, which was offset in part by a $4.9 million increase in early termination and other charges, a $2.4 million increase in selling, general and administrative expenses, a $0.7 million increase in research and development expenses and a $0.7 million increase in merger-related costs. Other Income (Expense) Interest Expense. Interest expenses for the year ended December 31, 2020 were $18.1 million compared to $22.2 million of interest expenses for the year ended December 31, 2019. The $4.0 million decrease in interest expenses was attributable to the full redemption of our outstanding 2021 Notes on October 2, 2020. We did not incur interest expense associated with the 2021 Notes from and after October 2, 2020. Foreign Currency Loss, Net. Net foreign currency loss for the year ended December 31, 2020 was $0.4 million compared to net foreign currency loss of $22.3 million for the year ended December 31, 2019. The net foreign currency losses for the years ended December 31, 2020 and 2019 were due to the depreciation in the value of the Korean won relative to the U.S. dollar during each period. A substantial portion of our net foreign currency gain or loss is non-cash translation gain or loss associated with the intercompany long-term loans to our Korean subsidiary, which is denominated in U.S. dollars, and is affected by changes in the exchange rate between the Korean won and the U.S. dollar. As of December 31, 2020 and 2019, the outstanding intercompany loan balance including accrued interest between our Korean subsidiary and our Dutch subsidiary was $378.9 million and $686.5 million, respectively. The decrease in the outstanding intercompany loan balances including accrued interest was primarily attributable to our Korean subsidiary’s repayment of certain loans by our Dutch subsidiary to fund the redemption of the outstanding 2021 Notes on October 2, 2020. Foreign currency translation gain or loss from intercompany balances were included in determining our consolidated net income since the intercompany balances were not considered long-term investments in nature because management intended to settle these intercompany balances at their respective maturity dates. Loss on Early Extinguishment of Borrowings, Net. Loss on early extinguishment of borrowings for the year ended December 31, 2020 were $0.8 million compared to $0.04 million of loss for the year ended December 31, 2019. The $0.7 million increase in loss on early extinguishment of borrowings was attributable to the full redemption of our outstanding 2021 Notes on October 2, 2020. In connection with the redemption of the 2021 Notes, we reclassified the remaining unamortized discount and debt issuance costs on the redemption date as a loss on early extinguishment of borrowings. K - 0 1 m r o F Others, Net. Others were comprised of gains and losses on the valuation of derivatives which were designated as hedging instruments, rental income and interest income. Others for the years ended December 31, 2020 and 2019 were $3.1 million and $2.6 million, respectively. Income Tax Expense (Benefit) We 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 of earnings between countries with differing tax rates. 69 We recorded a $46.2 million income tax benefit for the year ended December 31, 2020, primarily as a result of releasing valuation allowances established against the related deferred tax assets related to our Korean subsidiary and the parent entity in the U.S. Our Korean subsidiary had generated three years of cumulative profits adjusted for permanent differences and is anticipated to generate taxable basis for the subsequent years. As a result, $39.4 million of valuation allowances, established against the Korean subsidiary’s deferred tax assets, were released as of December 31, 2020. In addition, we believe it is more likely than not that the parent entity in the U.S. would be able to utilize its net operating loss in future tax years, which would provide incremental tax savings of approximately $4.5 million. Therefore, we released the valuation allowances, established against the U.S. parent’s deferred tax assets, up to these anticipated tax savings as of December 31, 2020. For the year ended December 31, 2019, we recorded $3.8 million income tax expenses, primarily attributable to interest on intercompany loan balances, which was offset in part by an income tax benefit of $1.7 million, resulting in a net income tax expense of $2.2 million. The income tax benefit of $1.7 million was due to the application of the exception rule under Accounting Standards Codification 740, “Income Taxes” (“ASC 740”) in connection with the intra-period allocation, which resulted in tax benefits in our continuing operations and tax expenses in the discontinued operations for an equal and offsetting amount for the presentation purposes only. Income (Loss) from Continuing Operations Income from continuing operations for the year ended December 31, 2020 was $57.1 million compared to loss from continuing operations of $20.4 million for the year ended December 31, 2019. The $77.5 million improvement in results from continuing operations was primarily attributable to a $48.4 million improvement in income tax expense, a $21.9 million improvement in net foreign currency loss, a $4.0 million decrease in interest expense and a $3.3 million increase in operating income. Income (Loss) from Discontinued Operations, Net of Tax Income from discontinued operations, net of tax for the year ended December 31, 2020 was $287.9 million compared to loss from discontinued operations, net of tax of $1.4 million for the year ended December 31, 2019. The $289.3 million increase in income from discontinued operations, net of tax primarily resulted from a $287.1 million increase in gain on sale of discontinued operations, a $10.8 million decrease in research and development expenses, a $9.2 million decrease in selling, general and administrative expenses and a $7.6 million increase in gross profit due in part to depreciation and amortization associated with the assets classified as those held for sale having been ceased starting in the second quarter of 2020, which were offset in part by a $10.8 million increase in transaction costs, a $8.9 million increase in income tax expense and a $6.7 million increase in restructuring and other charges. Net Income (Loss) As a result of the foregoing, net income of $345.0 million was recorded for the year ended December 31, 2020 compared to net loss of $21.8 million for the year ended December 31, 2019. As discussed above, the increase in net income of $366.8 million primarily resulted from a $289.3 million increase in income from discontinued operations, net of tax, mainly attributable to the completion of the sale of the Foundry Service Group business and Fab 4, and a $77.5 million improvement in loss from continuing operations. Liquidity and Capital Resources Our principal capital requirements are to fund sales and marketing, invest in research and development and capital equipment, and to fund working capital needs. We calculate working capital as current assets less current liabilities. 70 Our principal sources of liquidity are our cash, cash equivalents, our cash flows from operations and our financing activities. Our ability to manage cash 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 or engage in accounts receivable discounting to facilitate the collection of cash. For a description of our factoring arrangements and accounts receivable discounting, 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. As of December 31, 2021, we did not have any accounts payable on extended terms or payment deferment with our vendors. On September 1, 2020, we completed the sale of our Foundry Services Group business and Fab 4 to the Buyer in exchange for a purchase price equal to approximately $350.6 million in cash. The purchase price was paid in a combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion. On October 2, 2020, we redeemed of all of our outstanding 2021 Notes. We paid approximately $227.4 million to fully redeem all of the outstanding $224.25 million aggregate principal amount of the 2021 Notes at a redemption price equal to the sum of 100% of the principal amount plus accrued and unpaid interest thereon. On January 17, 2017, we issued an aggregate of $86.3 million in principal amount of our Exchangeable Notes. Prior to the March 1, 2021 maturity of our Exchangeable Notes, holders elected to exchange for an aggregate of 10,144,131 shares of our common stock in satisfaction in full of the outstanding obligations under the Exchangeable Notes. As of June 29, 2018, our Korean subsidiary entered into an arrangement whereby it (i) acquired a water treatment facility from SK hynix for $4.2 million to support our fabrication facility in Gumi, Korea, and (ii) subsequently sold the water treatment facility for $4.2 million to a third party management company that we engaged to run the facility for a 10-year term beginning July 1, 2018. As of December 31, 2021, the outstanding obligation of this arrangement is approximately $24.0 million for remaining service term through 2028. As of December 31, 2021, cash and cash equivalents held by our Korean subsidiary were $273.6 million, which represents 98% of our total cash and cash equivalents on a consolidated basis. We currently believe that we will have sufficient cash reserves from cash on hand and expected cash from operations to fund our operations as well as capital expenditures for the next twelve months and the foreseeable future. Year ended December 31, 2021 compared to year ended December 31, 2020 As of December 31, 2021, our cash and cash equivalents balance was $279.5 million, which remained flat, compared to $279.9 million as of December 31, 2020. K - 0 1 m r o F Cash inflow provided by operating activities totaled $87.7 million for the year ended December 31, 2021, compared to $7.5 million of cash inflow provided by operating activities for the year ended December 31, 2020. The net operating cash inflow for the year ended December 31, 2021 reflects our net income of $56.7 million, as adjusted favorably by $65.5 million, which mainly consisted of depreciation and amortization, provision for severance benefits, net foreign currency loss and stock-based compensation, and net unfavorable impact of $34.4 million from changes of operating assets and liabilities. Our working capital balance as of December 31, 2021 was $323.6 million compared to $236.0 million as of December 31, 2020. The $87.6 million increase was primarily attributable to the exchange of our Exchangeable Notes for common stock prior to their maturity date of March 1, 2021. 71 Cash outflow used in investing activities totaled $31.4 million for the year ended December 31, 2021, compared to $318.5 million of cash inflow provided by investing activities for the year ended December 31, 2020. The $349.9 million decrease in cash inflow was attributable to $350.6 million of proceeds received from the sale of the Foundry Services Group business and Fab 4 in the third quarter of 2020, a $3.1 million net increase in hedge collateral, and a $1.6 million net increase in guarantee deposits, which was offset in part by a $3.9 million decrease in purchase of property, plant and equipment, and a $1.4 million increase in proceeds from disposal of property, plant and equipment. Cash outflow used in financing activities totaled $35.5 million for the year ended December 31, 2021, compared to $222.3 million of cash outflow used in financing activities for the year ended December 31, 2020. The financing cash outflow for the year ended December 31, 2021 was primarily attributable to a payment of $37.5 million for accelerated stock repurchase program and a payment of $1.7 million for the repurchase of our common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock units, which was offset in part by $4.3 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. The financing cash outflow for the year ended December 31, 2020 was primarily attributable to a payment of $224.3 million for the full redemption of the outstanding 2021 Notes in the fourth quarter of 2020 and a payment of $1.1 million for the repurchase of our common stock to satisfy tax withholding obligation in connection with the vesting of restricted stock units, which was offset in part by $3.9 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. We routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facilities and reinforcement of our global research and development capability. For the year ended December 31, 2021, capital expenditures for property, plant and equipment were $32.2 million, a $3.9 million, or 10.8%, decrease from $36.1 million, including $5.8 million capital expenditures for discontinued operations, for the year ended December 31, 2020. The capital expenditures for the years ended December 31, 2021 and 2020 were related to meeting our customer demand and supporting technology and facility improvement at our fabrication facilities. Year ended December 31, 2020 compared to year ended December 31, 2019 As of December 31, 2020, our cash and cash equivalents balance was $279.9 million, a $128.3 million increase compared to $151.7 million as of December 31, 2019. The increase resulted from a $318.5 million cash inflow provided by investing activities and a $7.5 million of cash inflow provided by operating activities, which were partially offset by a $222.3 million cash outflow used in financing activities. Cash inflow provided by operating activities totaled $7.5 million for the year ended December 31, 2020, compared to $50.5 million of cash inflow provided by operating activities for the year ended December 31, 2019. The net operating cash inflow for the year ended December 31, 2020 reflects our net income of $57.8 million, excluding gain on sale of discontinued operations, as adjusted unfavorably by $17.4 million, which mainly consisted of depreciation and amortization, provision for severance benefits, net foreign currency loss and deferred income tax assets, and net unfavorable impact of $33.0 million from changes of operating assets and liabilities. Our working capital balance as of December 31, 2020 was $236.0 million compared to $245.5 million as of December 31, 2019. The decrease in working capital was primarily attributable to reclassification of the outstanding Exchangeable Notes, which were reclassified as a current liability in the first quarter of 2020, which was offset in part by increased cash and cash equivalents as a result of the completion of sale of our Foundry Services Group business and Fab 4 and redemption of our outstanding 2021 Notes. Cash inflow provided by investing activities totaled $318.5 million for the year ended December 31, 2020, compared to $28.9 million of cash outflow used in investing activities for the year ended December 31, 2019. 72 The $347.4 million increase in cash inflow was attributable to $350.6 million of proceeds received from the sale of the Foundry Services Group business and Fab 4, a $9.2 million net decrease in hedge collateral, which was offset in part by a $13.1 million increase in purchase of property, plant and equipment. Cash outflow used in financing activities totaled $222.3 million for the year ended December 31, 2020, compared to $1.8 million of cash outflow used in financing activities for the year ended December 31, 2019. The financing cash outflow for the year ended December 31, 2020 was primarily attributable to a payment of $224.3 million for the full redemption of the outstanding 2021 Notes in the fourth quarter of 2020 and a payment of $1.1 million for the repurchase of our common stock to satisfy tax withholding obligation in connection with the vesting of restricted stock units, which was offset in part by $3.9 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. The financing cash outflow for the year ended December 31, 2019 was primarily attributable to a payment of $1.2 million for the repurchase of 2021 Notes and Exchangeable Notes in the first quarter of 2019 and a payment of $2.4 million for the repurchase of our common stock in January 2019 pursuant to our stock repurchase plan, which was offset in part by $2.9 million of proceeds received from the issuance of common stock in connection with the exercise of stock options. For the year ended December 31, 2020, capital expenditures for property, plant and equipment were $36.1 million, a $13.1 million, or 57.3% increase from $23.0 million of capital expenditures for the year ended December 31, 2019. The capital expenditures for the year ended December 31, 2020 included certain one-time investments relating to separating shared IT infrastructure and R&D building upon the sale of the Foundry Services Group business and Fab 4. In addition, we routinely make capital expenditures for fabrication facility maintenance, enhancement of our existing facilities and reinforcement of our global research and development capabilities. The routine capital expenditures for the years ended December 31, 2020 and 2019 were related to meeting customer demand, supporting technology and facility improvement at our fabrication facilities. Critical Accounting Policies and Estimates Preparing financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in our consolidated financial statements and accompanying notes. We believe that the accounting policies discussed below are critical due to the fact that they involve a high degree of judgment and estimates about the effects of matters that are inherently uncertain. We base these estimates and judgments on historical experience, knowledge of current conditions and other assumptions and information that we believe to be reasonable. Estimates and assumptions about future events and their effects cannot be determined with certainty. Accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the business environment in which we operate changes. Inventories Inventories are stated at the lower of cost or net realizable value, using the first in, first out method (“FIFO”). If net realizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized as a loss on valuation of inventories within cost of sales. Inventory reserves are established when conditions indicate that the net realizable value is less than costs due to physical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. We evaluate the sufficiency of inventory reserves and take into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sale of existing products, product age and other factors. Reserves are also established for excess inventory based on our current inventory levels and projected demand and our ability to sell those specific 73 K - 0 1 m r o F products. Situations that could cause these inventory reserves include a decline in business and economic conditions, decline in consumer confidence caused by changes in market conditions, sudden and significant decline in demand for our products, inventory obsolescence because of rapidly changing technology and consumer requirements, or failure to estimate end customer demand properly. A reduction of these inventory reserves may be recorded if previously reserved items are subsequently sold as a result of unexpected changes to certain aforementioned situations. The gross amount of inventory reserves charged to cost of sales totaled $7.6 million, $7.3 million and $12.9 million in the fiscal years ended December 31, 2021, 2020 and 2019, respectively. The new cost base related to the sale of inventory that was previously written down totaled $5.3 million, $4.3 million and $2.9 million in the fiscal years ended December 31, 2021, 2020 and 2019, respectively. As prescribed in ASC 330, “Inventory,” once a reserve is established for a particular item based on our assessment as described above, it is maintained until the related item is sold or scrapped as a new cost basis has been established that cannot subsequently be marked up. In addition, the cost of inventories is determined based on the normal capacity of each fabrication facility. In case the capacity utilization is lower than a certain level that management believes to be normal, the fixed overhead costs per production unit which exceed those under normal capacity are charged to cost of sales rather than capitalized as inventories. Income Taxes We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgments and estimates are required in evaluating our uncertain tax positions and determining our provision for income taxes. We make an ongoing assessment of our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences, expiration of tax credits and net operating loss carry-forwards and tax planning strategies. Then, if necessary, we record valuation allowances against our deferred tax assets in order for the net amount of deferred tax assets to be recorded only to the extent that we conclude that it is more likely than not that our net deferred tax assets will be realized. We will continue to evaluate the ability to realize our net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets. We recognize and measure uncertain tax positions taken or expected to be taken in a tax return utilizing a two-step process. In the first step, recognition, we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets the more likely than not criteria. The tax position is measured at the largest amount of benefit that has a likelihood of greater than 50 percent of being realized upon ultimate settlement. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provisions for income taxes in the period in which such determination is made. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties. Recent Accounting Pronouncements See Note 1 “Business, Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in Item 8 of Part II of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption, which is incorporated herein by reference. 74 Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to the market risk that the value of a financial instrument will fluctuate due to changes in market conditions, primarily from changes in foreign currency exchange rates. In the normal course of our business, we are subject to market risks associated with currency movements on our assets and liabilities. Foreign Currency Exposures We have exposure to foreign currency exchange rate fluctuations on net income from our subsidiaries denominated in currencies other than U.S. dollars, as our foreign subsidiaries in Korea, Taiwan, China, Japan and Hong Kong use local currency as their functional currency. From time to time these subsidiaries have cash and financial instruments in local currency. The amounts held in Japan, Taiwan, Hong Kong and China are not material in regards to foreign currency movements. However, based on the cash and financial instruments balance at December 31, 2021 for our Korean subsidiary, a 10% devaluation of the Korean won against the U.S. dollar would have resulted in a decrease of $1.9 million in our U.S. dollar financial instruments and cash balances. See “Note 10. 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 hedging activities. K - 0 1 m r o F 75 Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID 1103) . . . . . . . . . . . . . . . . . . . . . . . . Magnachip Semiconductor Corporation Consolidated Balance Sheets as of December 31, 2021 and 2020 . . . Magnachip Semiconductor Corporation Consolidated Statements of Operations for the Years Ended 77 80 December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Magnachip Semiconductor Corporation Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Magnachip Semiconductor Corporation Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Magnachip Semiconductor Corporation Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Magnachip Semiconductor Corporation Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 82 83 84 85 76 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Magnachip Semiconductor Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Magnachip Semiconductor Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. K - 0 1 m r o F 77 Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal 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 as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Realizability of Deferred Tax Assets As described in Notes 1 and 17 to the consolidated financial statements, the Company has net deferred tax assets of $41.1 million, including a valuation allowance of $94.2 million, as of December 31, 2021. Management determines deferred tax assets and liabilities based upon the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when it is necessary to reduce deferred tax assets to the amount expected to be realized. The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires management to weigh all positive and negative 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. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including historical operating results, expected timing of the reversals of existing temporary differences, the Company’s ability to generate future taxable income, and tax planning strategies. The principal considerations for our determination that performing procedures relating to the realizability of deferred tax assets is a critical audit matter are (i) the significant judgment by management when assessing the available positive and negative evidence surrounding the realizability of deferred tax assets, including the application of tax law to the projected tax calculation and a high degree of estimation uncertainty relative to the estimates of future taxable income, (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s estimates of future taxable income, (iii) auditor judgment in assessing management’s application of tax law to the projected tax calculation, and (iv) the audit effort involved the use of professionals with specialized skill and knowledge. 78 Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the realizability of deferred tax assets. These procedures also included, among others, (i) evaluating the appropriateness of management’s calculation used, (ii) testing the completeness, accuracy and relevance of the underlying data used in the calculation, and (iii) evaluating the reasonableness of significant assumptions used in the calculation of future taxable income. Evaluating management’s assumptions related to estimates of future taxable income involved evaluating whether the assumptions used were reasonable considering (i) current and past profitability, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating management’s assumptions and calculation for assessing the realizability of deferred tax assets, including the mechanics and application of tax law to the projected tax calculation. /s/ Samil PricewaterhouseCoopers Seoul, Korea February 23, 2022 We have served as the Company’s auditor since 2004. K - 0 1 m r o F 79 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2021 2020 (In thousands of U.S. dollars, except share data) Assets Current assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables (Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hedge collateral (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 279,547 50,954 39,370 25,895 7,675 3,060 2,619 $ 279,940 64,390 39,039 4,338 7,332 5,250 9,321 Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,120 107,882 4,275 2,377 8,243 41,095 10,662 409,610 96,383 4,632 2,727 4,058 44,541 9,739 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 583,654 $ 571,690 Liabilities and Stockholders’ Equity Current liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of long-term borrowings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued severance benefits, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,593 6,289 20,071 11,823 2,323 — 7,382 85,481 33,064 1,952 10,395 $ 52,164 2,531 16,241 12,398 2,210 83,479 4,595 173,618 40,462 2,422 9,588 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,892 226,090 Commitments and contingencies (Note 20) Stockholders’ equity Common stock, $0.01 par value, 150,000,000 shares authorized, 55,905,320 shares issued and 45,659,304 outstanding at December 31, 2021 and 44,943,854 shares issued and 35,783,347 outstanding at December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock, 10,246,016 shares at December 31, 2021 and 9,160,507 shares at December 31, 2020, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559 241,197 343,542 450 163,010 286,834 (130,306) (2,230) (108,397) 3,703 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452,762 345,600 Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 583,654 $ 571,690 The accompanying notes are an integral part of these consolidated financial statements 80 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2021 2020 (In thousands of U.S. dollars, except share data) 2019 Revenues: Net sales—standard products business . . . . . . . . . . . . . . . . . . . . Net sales—transitional Fab 3 foundry services . . . . . . . . . . . . . . $ Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales: Cost of sales—standard products business . . . . . . . . . . . . . . . . . Cost of sales—transitional Fab 3 foundry services . . . . . . . . . . . Total cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Selling, general and administrative expenses . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . . . . . . . . . . . . . . Merger-related costs (income), net . . . . . . . . . . . . . . . . . . . . . . . Early termination and other charges, net . . . . . . . . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency loss, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on early extinguishment of borrowings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income, net Income (loss) from continuing operations before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit) Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations, net of tax . . . . . . . . . . . $ 433,099 41,131 474,230 283,503 37,184 320,687 153,543 52,440 51,212 (35,527) 2,011 70,136 83,407 (1,371) (11,853) — 3,786 73,969 17,261 56,708 — $ 465,519 41,540 507,059 338,420 40,322 378,742 128,317 49,974 45,698 653 4,976 101,301 27,016 (18,147) (382) (766) 3,110 10,831 (46,228) 57,059 287,906 484,847 35,824 520,671 368,450 35,824 404,274 116,397 47,595 45,024 — 53 92,672 23,725 (22,157) (22,316) (42) 2,577 (18,213) 2,200 (20,413) (1,413) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,708 $ 344,965 $ (21,826) Basic earnings (loss) per common share— Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per common share— Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ Weighted average number of shares— 1.26 — 1.26 1.21 — 1.21 $ $ $ $ 1.62 8.18 9.80 1.35 6.19 7.54 $ $ $ $ (0.59) (0.05) (0.64) (0.59) (0.05) (0.64) K - 0 1 m r o F Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,879,412 47,709,373 35,213,525 46,503,586 34,321,888 34,321,888 The accompanying notes are an integral part of these consolidated financial statements 81 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss) 2021 2019 2020 (In thousands of U.S. dollars) $344,965 $56,708 $(21,826) Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative adjustments Fair valuation of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification adjustment for loss (gain) on derivatives included in net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,839) 6,274 15,856 (3,913) 1,452 (2,894) 819 (1,363) 4,488 Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,933) 6,363 17,450 Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,775 $351,328 $ (4,376) The accompanying notes are an integral part of these consolidated financial statements 82 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands of U.S. dollars, except share data) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings (Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . 34,441,232 $431 $142,600 $ (36,305) $(103,926) $(20,110) $ (17,310) Stock-based compensation . . . . . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . . . Settlement of restricted stock units . . . . . . . . . . . . Acquisition of treasury stock . . . . . . . . . . . . . . . . Other comprehensive income, net . . . . . . . . . . . . Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 4 4 452,819 344,714 (438,453) — — — — — 6,952 2,856 (4) — — — — — — — — (21,826) — — — (3,107) — — — — — — 17,450 — 6,952 2,860 — (3,107) 17,450 (21,826) Balance at December 31, 2019 . . . . . . . . . . . . . . . . . . 34,800,312 $439 $152,404 $ (58,131) $(107,033) $ (2,660) $ (14,981) Stock-based compensation . . . . . . . . . . . . . . . . . . Exercise of stock options . . . . . . . . . . . . . . . . . . . Settlement of restricted stock units . . . . . . . . . . . . Acquisition of treasury stock . . . . . . . . . . . . . . . . Other comprehensive income, net . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 5 6 510,648 581,215 (108,828) — — — — — 6,699 3,913 (6) — — — — — — — — 344,965 — — — (1,364) — — — — — — 6,363 — 6,699 3,918 — (1,364) 6,363 344,965 Balance at December 31, 2020 . . . . . . . . . . . . . . . . . . 35,783,347 $450 $163,010 $286,834 $(108,397) $ 3,703 $345,600 — Stock-based compensation . . . . . . . . . . . . . . . . . . Exchange of exchangeable senior note . . . . . . . . . 10,144,131 336,870 Exercise of stock options . . . . . . . . . . . . . . . . . . . 480,465 Settlement of restricted stock units . . . . . . . . . . . . (994,695) — Accelerated stock repurchase . . . . . . . . . . . . . . . . (90,814) — Acquisition of treasury stock . . . . . . . . . . . . . . . . — . . . . . . . . . . . . . . . Other comprehensive loss, net — Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 101 3 5 — — 7,704 83,639 4,276 (5) (17,427) — — — — — — — — — — 56,708 — — — — (20,073) (1,836) — — — — — — — — (5,933) — 7,704 83,740 4,279 — (37,500) (1,836) (5,933) 56,708 Balance at December 31, 2021 . . . . . . . . . . . . . . . . . . 45,659,304 $559 $241,197 $343,542 $(130,306) $ (2,230) $452,762 The accompanying notes are an integral part of these consolidated financial statements K - 0 1 m r o F 83 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from operating activities Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for severance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of debt issuance costs and original issue discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on foreign currency, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on early extinguishment of borrowings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unbilled accounts receivable, net Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions to severance insurance deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment of severance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from investing activities Proceeds from settlement of hedge collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment of hedge collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment for intellectual property registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collection of guarantee deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payment of guarantee deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of stock under accelerated stock repurchase agreement Payment under accelerated stock repurchase agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of financing related to water treatment facility arrangement . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 (In thousands of U.S. dollars) $ 56,708 $ 344,965 $ (21,826) 14,239 8,282 261 32,432 2,244 7,704 — — 918 (613) 7,505 — (5,939) (21,538) 12,397 (11,437) (7,798) 4,637 (1) (131) 1,445 (1,398) (5,688) (6,679) 193 87,743 5,214 (3,349) 1,446 (32,212) (614) 3,192 (5,001) — (114) (31,438) — 4,279 (1,653) (20,073) (17,427) (563) (107) (35,544) (21,154) (393) 279,940 16,481 16,743 2,220 (23,233) 3,695 6,699 766 (287,117) (44,441) 217 (19,268) 14,260 (816) 6,954 13,561 4,907 (12,000) (26,201) 10,825 2,174 279 3,521 (11,921) (12,076) (3,724) 32,729 17,139 2,299 24,692 10,468 6,952 42 — 35 301 (19,824) 19,274 (14,678) (6,200) 11,984 7,375 (8,514) 8,819 267 (4,768) (4,727) (306) (2,262) (9,288) 514 7,470 50,497 13,762 (8,839) 65 (36,100) (741) 1,024 (1,236) 350,553 (6) 13,583 (17,833) 202 (22,955) (1,103) 549 (1,349) — 9 318,482 (28,897) (224,250) 3,918 (1,125) — — (546) (278) (222,281) 24,612 128,283 151,657 (1,175) 2,860 (2,702) — — (552) (233) (1,802) (579) 19,219 132,438 Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $279,547 $ 279,940 $151,657 Supplemental cash flow information Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash investing and financing activities Property, plant and equipment additions in other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of treasury stock to satisfy the tax withholding obligations in connection with equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exchange of exchangeable senior notes into common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,094 $ $ 12,672 $ 22,221 $ 23,056 $ 19,071 2,081 $ $ 747 $ — $ 2,542 $ $ 83,740 (826) $ $ (643) $ — $ — (405) The accompanying notes are an integral part of these consolidated financial statements 84 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 1. Business, Basis of Presentation and Significant Accounting Policies Business Magnachip Semiconductor Corporation (together with its subsidiaries, the “Company”) is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, Internet of Things (“IoT”) applications, consumer, computing, industrial and automotive applications. On September 1, 2020 (the “Closing Date”), the Company completed the sale of the Company’s Foundry Services Group business and its fabrication facility located in Cheongju, Korea, known as “Fab 4” to Key Foundry Co., Ltd. (the “Buyer”), a Korean corporation, in exchange for a purchase price equal to approximately $350.6 million in cash, pursuant to the terms of a business transfer agreement (the “Business Transfer Agreement”) dated March 31, 2020 by and among the Company and Magnus Semiconductor, LLC, a Korean limited liability company (“Magnus”). The purchase price was paid in a combination of U.S. Dollars in the amount of $46.5 million and Korean Won in the amount of approximately KRW 360.6 billion. In addition to the purchase price, the Buyer assumed all severance liabilities relating to the transferred employees, which had a value of approximately $100 million. The Buyer is a wholly owned subsidiary of Magnus, which was established by Alchemist Capital Partners Korea Co., Ltd. and Credian Partners, Inc. On April 20, 2020, Magnus assigned, and the Buyer assumed, all rights and obligations of Magnus under the Business Transfer Agreement. This divestiture of the Foundry Services Group business and Fab 4 was made in connection with the Company’s strategic shift of its operational focus to its standard products business. The Foundry Services Group was historically a reportable segment. The Foundry Services Group business was classified as discontinued operations in the Company’s consolidated statements of operations and excluded from both continuing operations and segment results for all periods presented. Accordingly, the Company has one reportable segment, its standard products business, together with transitional foundry services associated with its fabrication facility located in Gumi, Korea, known as “Fab 3,” that it expects to perform for the Buyer for a period of up to three years from the Closing Date (the “Transitional Fab 3 Foundry Services”). The Company’s standard products business includes its Display Solutions and Power Solutions business lines. The Company’s Display Solutions products provide panel display solutions to major suppliers of large and small rigid and flexible panel displays, and mobile, automotive applications and home appliances. The Company’s Power Solutions products include discrete and integrated circuit solutions for power management in communications, consumer, computing, servers, automotive, and industrial applications. Basis of Presentation The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below. The consolidated statements of cash flows for the 2020 and 2019 fiscal years have not been adjusted to separately disclose cash flows related to discontinued operations, but the material items in the operating and investing activities of the cash flow relating to discontinued operations for the same period are disclosed in Note 2. Unless otherwise stated, information in these notes to consolidated financial statements relates to the Company’s continuing operations and excludes the discontinued operations. See Note 2 “Discontinued Operations” for additional information. 85 K - 0 1 m r o F MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Principles of Consolidation The consolidated financial statements include the accounts of the Company including its wholly-owned subsidiaries. All intercompany transactions and balances are eliminated in consolidation. Use of Estimates The preparation of financial statements in accordance with U.S. 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, and reported amounts of revenue and expenses. Such estimates include the valuation of accounts receivable, inventories, stock-based compensation, property, plant and equipment, leases, other long-lived assets, long-term employee benefits, contingencies liabilities, estimated future cash flows and other assumptions used in long-lived asset impairment tests and calculation of current and deferred income taxes and deferred tax valuation allowances, and assumptions used in the calculation of sales incentives, among others. Although these estimates and assumptions are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be significantly different from the estimates. The Company assessed the impact of COVID-19 on the estimates and assumptions to the extent applicable, and determined that there was no material impact on the Company’s consolidated financial statements as of and for the years ended December 31, 2021 and 2020. However, the Company is not able to predict with certainty the future impact of COVID-19 on its estimates and assumptions due to the rapidly changing nature of the COVID-19 pandemic. Reclassification Certain prior year amounts have been reclassified to conform to the current year presentation. Discontinued Operations The Company reports the results of operations of a business as discontinued operations if a disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the business is sold and classified as held for sale, in accordance with the criteria of Accounting Standards Codification (“ASC”) 205, “Presentation of Financial Statements” (“ASC 205”) and ASC 360, “Property, Plant and Equipment” (“ASC 360”). The results of discontinued operations are reported in “Income (loss) from discontinued operations, net of tax” in the accompanying consolidated statements of operations for the prior periods commencing in the period in which the business meets the criteria. Foreign Currency Translation The Company has assessed in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”), the functional currency of each of its subsidiaries in Luxembourg and the Netherlands and has designated the U.S. dollar to be their respective functional currencies. The Korean Won is the functional currency for the Company’s Korean subsidiary, which is the primary operating subsidiary of the Company. The Company and its other subsidiaries are utilizing their local currencies as their functional currencies. The financial statements of the subsidiaries in functional currencies other than the U.S. dollar are translated into the U.S. dollar in accordance with ASC 830. All the assets and liabilities are translated to the U.S. dollar at the end-of-period exchange rates. Capital accounts are determined to be of a permanent nature and are therefore translated using historical exchange rates. Revenues and expenses are translated using average exchange rates for the respective periods. Foreign currency translation adjustments arising from differences in exchange rates from period to period are 86 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) included in the foreign currency translation adjustment account in accumulated other comprehensive income or loss of stockholders’ equity. Foreign currency translation gains or losses on transactions by the Company or its subsidiaries in a currency other than its or its subsidiaries’ functional currency are included in foreign currency loss, net in its statements of operations. Cash and Cash Equivalents Cash equivalents consist of highly liquid investments with an original maturity date of three months or less when purchased. Accounts Receivable Reserves The Company makes estimates of expected credit losses for the allowance for credit losses based upon its assessment of various factors, including historical collection experience, the age of the accounts receivable balances, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers. The Company also records an estimate for sales returns, included within accounts receivable, net, based on the historical experience of the amount of goods that will be returned and refunded or replaced. Sales of Accounts Receivable The Company accounts for transfers of financial assets under ASC 860, “Transfers and Servicing,” as either sales or financings. Transfers of financial assets 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 right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial 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 loss reflected in earning during the period of sale. Inventories Inventories are stated at the lower of cost or net realizable value, using the first in, first out method (“FIFO”). If net realizable value is less than cost at the balance sheet date, the carrying amount is reduced to the realizable value, and the difference is recognized as a loss on valuation of inventories within cost of sales. Inventory reserves are established when conditions indicate that the net realizable value is less than costs due to physical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. The Company evaluates the sufficiency of inventory reserves and takes into consideration historical usage, expected demand, anticipated sales price, new product development schedules, the effect new products might have on the sale of existing products, product age and other factors. Reserves are also established for excess inventory based on the Company’s current inventory levels and projected demand and its ability to sell those specific products. Situations that could cause these inventory reserves include a decline in business and economic conditions, decline in consumer confidence caused by changes in market conditions, sudden and significant decline in demand for the Company’s products, inventory obsolescence because of rapidly changing technology and consumer requirements, or failure to estimate end customer demand properly. A reduction of these inventory reserves may be recorded if previously reserved items are subsequently sold as a result of unexpected changes to certain aforementioned situations. K - 0 1 m r o F 87 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) In addition, as prescribed in ASC 330, “Inventory,” once a reserve is established for a particular item based on the Company’s assessment as described above, it is maintained until the related item is sold or scrapped as a new cost basis has been established that cannot subsequently be marked up. In addition, the cost of inventories is determined based on the normal capacity of the Company’s fabrication facility. In case the capacity utilization is lower than a certain level that management believes to be normal, the fixed overhead costs per production unit which exceeds those under normal capacity are charged to cost of sales rather than capitalized as inventories. Advances to Suppliers The Company, from time to time, may make advances in form of prepayments or deposits to suppliers to procure materials to meet its planned production. The Company recorded advances of $1,708 thousand and $5,500 thousand as other current assets as of December 31, 2021 and 2020, respectively. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as set forth below. Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Building related structures . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 - 40 years 10 - 20 years 10 - 12 years 3 - 10 years Routine maintenance and repairs are charged to expense as incurred. Expenditures that enhance the value or significantly extend the useful lives of the related assets are capitalized. Impairment of Long-Lived Assets The Company reviews property, plant and equipment and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with ASC 360, “Property, Plant and Equipment.” Recoverability is measured by comparing 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 net cash flows generated by the respective long-lived assets. Leases The Company determines if an arrangement is a lease at inception of a contract considering whether the arrangement conveys the right to control the use of an identified asset over the period of use. Control of an underlying asset is conveyed if the Company has the right to direct the use of, and to obtain substantially all of the economic benefits from the use of, the identified asset. The Company accounts for lease transactions as either an operating or a finance lease, depending on the terms of the underlying lease arrangement. Assets related to operating leases are recorded on the balance sheet as operating lease right-of-use assets; the related liabilities are recorded as operating lease liabilities for the current portion and non-current operating lease liabilities for the non-current portion. Finance lease right-of-use assets are included in property, plant and equipment, net and the related lease liabilities are included in other current liabilities and other non-current liabilities on the consolidated balance sheets. 88 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide a readily determinable implicit rate, the Company estimates its incremental borrowing rates in determining the present value of future payments based on the lease term of each lease and market information available at commencement date. Finance lease right-of-use assets are amortized on a straight-line basis over the respective lease term with the interest expense on the lease liability recorded using the interest method. The amortization and interest expense are recorded separately in the consolidated statements of operations. Amortization of operating lease right-of-use assets and interest expense on operating lease liabilities are recognized on a straight-line basis over the respective lease term. An extension or contraction of a lease term is considered if the related option to extend or early terminate the lease is reasonably certain to be exercised by the Company. Operating lease right-of-use assets may also include any advance lease payments made and exclude lease incentives and initial direct costs incurred. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, lease and non-lease components are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates are not included in the right-of-use assets or liabilities. These variable lease payments are expensed as incurred. The Company does not recognize operating lease right-of-use assets and operating lease liabilities that arise from short-term leases but rather recognizes fixed lease payments in the statements of operations on a straight- line basis and variable payments in the period in which the related obligations incur. Intangible Assets Intellectual property assets acquired represent rights under patents, trademarks and property use rights and are amortized over their respective periods of benefit, ranging up to ten years, on a straight-line basis. Fair Value Disclosures of Financial Instruments The Company follows ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”) for measurement and disclosures about fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by ASC 820 are: Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life. K - 0 1 m r o F 89 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date. The carrying amounts of the Company’s financial assets and liabilities, such as cash equivalents, accounts receivable, other receivables, accounts payable and other accounts payable approximate their fair values because of the short maturity of these instruments. Accrued Severance Benefits The majority of accrued severance benefits are for employees in the Company’s Korean subsidiary, Magnachip Semiconductor, Ltd. Pursuant to the Employee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2021, 98% of all employees of the Company were eligible for severance benefits. Beginning in July 2018, the Company began contributing to certain severance insurance deposit accounts a percentage of severance benefits, which may be adjusted from time to time, accrued for eligible employees for their services beginning January 1, 2018. These accounts consist of time deposits and other guaranteed principal and interest accounts, and are maintained at insurance companies, banks or security companies for the benefit of the Company’s employees. Accrued severance benefits are partly funded through a group severance insurance plan. The amounts funded under this insurance plan are classified as a reduction of the accrued severance benefits. Subsequent accruals are to be funded at the discretion of the Company. In accordance with the National Pension Act of the Republic of Korea, a certain portion of accrued severance benefits is deposited with the National Pension Fund and deducted from the accrued severance benefits. The contributed amount is paid to employees from the National Pension Fund upon their retirement. Revenue Recognition The Company recognizes revenue when it satisfies the performance obligation of transferring control over a product or service to a customer. Revenue is measured based on the consideration specified in a contract with a customer, which consideration is paid in exchange for a product or service. The Company sells products manufactured based on the Company’s design. The Company’s products are either standardized with an alternative use or the Company does not have an enforceable right to payment for the related manufacturing services completed to date. Therefore, revenue for the products is recognized when a customer obtains control of the product, which is generally upon product shipment, delivery at the customer’s location or upon customer acceptance, depending on the terms of the arrangement. 90 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) In accordance with revenue recognition guidance, any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction, and that is collected by the Company from a customer, is excluded from revenue and related revenue is presented in the statements of operations on a net basis. The Company provides warranties under which customers can return defective products. The Company estimates the costs related to warranty claims and repair or replacements, and records them as components of cost of sales. In addition, the Company offers sales returns (other than those that relate to defective products under warranty), cash discounts for early payments and sales incentives, and certain allowances to the Company’s customers, including the Company’s distributors. The Company records reserves for those returns, discounts, incentives and allowances as a deduction from sales, based on historical experience and other quantitative and qualitative factors. Substantially all of the Company’s contracts are one year or less in duration. The standard payment terms with customers are generally thirty to sixty days from the time of shipment, product delivery to the customer’s location or customer acceptance, depending on the terms of the related arrangement. All amounts billed to a customer related to shipping and handling are classified as sales while all costs incurred by the Company for shipping and handling are classified as selling, general and administrative expenses. The amounts charged to selling, general and administrative expenses were $1,271 thousand, $993 thousand and $990 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. Of the recorded deferred revenue of $2,680 thousand as of December 31, 2020 and $559 thousand as of December 31, 2019, $2,680 thousand and $559 thousand were recognized as revenue during the years ended December 31, 2021 and 2020, respectively. Advertising The Company expenses advertising costs as incurred. Advertising expenses were $71 thousand, $87 thousand and $62 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. Product Warranties The Company records, in other current liabilities, warranty liabilities for the estimated costs that may be incurred under its basic limited warranty. The standard limited warranty period is one to two years for the majority of products. This warranty covers defective products, and related liabilities are accrued when product revenues are recognized. Factors that affect the Company’s warranty liabilities include historical and anticipated rates of warranty claims and repair or replacement costs per claim to satisfy the Company’s warranty obligation. The Company periodically assesses the adequacy of those recorded warranty liabilities and adjusts its estimates when necessary. Derivative Financial Instruments The Company applies the provisions of ASC 815, “Derivatives and Hedging” (“ASC 815”). This statement requires the recognition of all derivative instruments as either assets or liabilities measured at fair value. 91 K - 0 1 m r o F MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Under the provisions of ASC 815, the Company may designate a derivative instrument as hedging the exposure to variability in expected future cash flows that are attributable to a particular risk (a “cash flow hedge”) or hedging the exposure to changes in the fair value of an asset or a liability (a “fair value hedge”). Special accounting for qualifying hedges allows the effective portion of a derivative instrument’s gains and losses to offset related results on the hedged item in the consolidated statements of operations and requires that a company formally document, designate and assess the effectiveness of the transactions that receive hedge accounting treatment. Both at the inception of a hedge and on an ongoing basis, a hedge must be expected to be highly effective in achieving offsetting changes in cash flows or fair value attributable to the underlying risk being hedged. If the Company determines that a derivative instrument is no longer highly effective as a hedge, it discontinues hedge accounting prospectively and future changes in the fair value of the derivative are recognized in current earnings. The Company assesses hedge effectiveness at the end of each quarter. The Company does not offset derivative assets and liabilities within the consolidated balance sheets. In accordance with ASC 815, changes in the fair value of derivative instruments that are cash flow hedges are recognized in accumulated other comprehensive income (loss) and reclassified into earnings in the period in which the hedged item affects earnings. Derivative instruments that do not qualify, or cease to qualify, as hedges must be adjusted to fair value and the adjustments are recorded through net income (loss). The cash flows from derivative instruments receiving hedge accounting treatment are classified in the same categories as the hedged items in the consolidated statements of cash flows. Research and Development Research and development expenses are expensed as incurred and include wafers, masks, employee expenses, contractor fees, building costs, utilities and administrative expenses. Licensed Patents and Technologies The Company has entered into a number of royalty agreements to license patents and technology used in the design of its products. The Company carries two types of royalties: lump-sum 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 agreements and the costs are amortized over the contract period using the straight-line method and charged to research and development expenses in the consolidated statements of operations. Running royalties are paid based on the revenue of related products sold by the Company. Stock-Based Compensation The Company follows the provisions of ASC 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense, net of the estimated forfeiture rate, over the requisite service period. As permitted under ASC 718, the Company elected to recognize compensation expense for all options with graded vesting based on the graded attribution method. The Company uses the Black-Scholes option-pricing model to measure the grant-date-fair-value of options. The Black-Scholes model requires certain assumptions to determine an option’s fair value, including expected 92 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) term, risk free interest rate and expected volatility. The expected term of each option grant was based on employees’ expected exercises and post-vesting employment termination behavior and the risk free interest rate was based on the U.S. Treasury yield curve for the period corresponding with the expected term at the time of grant. No dividends were assumed for this calculation of option value. Earnings Per Share In accordance with ASC 260, “Earnings Per Share”, 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 the dilution of potential common stock outstanding during the period including stock options and restricted stock units, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options and restricted stock units), and convertibles, using the if-converted method. In determining the hypothetical shares repurchased, the Company uses the average share price for the period. In the case that earnings are negative, any potential common stock equivalents would have the effect of being anti- dilutive in the computation of net loss per share. Income Taxes The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in a company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based upon the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Valuation allowances are established when it is necessary to reduce deferred tax assets to the amount expected to be realized. The evaluation of the recoverability of the deferred tax assets and the need for a valuation allowance requires management to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including historical operating results, expected timing of the reversals of existing temporary differences, the Company’s ability to generate future taxable income, and tax planning strategies. 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 first step, recognition, the Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step addresses measurement of a tax position that meets the more likely than not criteria. The tax position is measured at the largest amount of benefit that has a likelihood of greater than 50 percent of being realized upon ultimate settlement. Concentration of Credit Risk The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral for customers on accounts receivable. The Company maintains reserves for potential credit losses, which are periodically reviewed. 93 K - 0 1 m r o F MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Recent Accounting Pronouncements Not Yet Adopted In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and amends the diluted EPS computation for these instruments. The Company will adopt as of the reporting period beginning January 1, 2022. The Company does not expect the adoption of ASU 2020-06 to have a material effect on the Company’s consolidated financial statements. In May 2021, the FASB issued ASU No. 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50)”, Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU 2021-04”), ASU 2021-04 clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options so that the transaction should be treated as an exchange of the original instrument for a new instrument. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 on a prospective basis, with early adoption permitted. The Company does not expect the adoption of ASU 2021-04 to have a material effect on the Company’s consolidated financial statements. Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted ASU 2019-12 as of January 1, 2021, and the adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements. 2. Discontinued Operations On September 1, 2020, the Company completed the sale of its Foundry Services Group business and Fab 4. As a result of the sale of the Foundry Services Group business and Fab 4, the Company recorded a gain of $287,117 thousand and all operations from the Foundry Services Group business and Fab 4 were classified as discontinued operations for all periods presented. Following the consummation of the sale, and for up to three years, the Company is expected to provide the Transitional Fab 3 Foundry Services at an agreed upon cost plus mark-up. For the periods prior to the Closing Date, revenue from providing the Transitional Fab 3 Foundry Services to the Foundry Services Group is recorded at cost on both of the continuing and discontinued businesses for comparative purposes. Cash inflows to the Company from the Buyer related to providing the Transitional Fab 3 Foundry Services were $46,611 thousand and $7,643 thousand for the years ended December 31, 2021 and 2020, respectively. 94 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table summarizes the results from discontinued operations, net of tax, for the years ended December 31, 2020 and 2019. Revenues: Net sales—Foundry Services Group . . . . . . . . . Net sales—transitional Fab 3 foundry Year Ended December 31, 2020 2019 (In thousands of U.S. dollars) $254,732 $307,348 services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,887) Total revenues . . . . . . . . . . . . . . . . . . . . . . 228,845 (35,824) 271,524 Cost of sales: Cost of sales—Foundry Services Group . . . . . . Cost of sales—transitional Fab 3 foundry 182,872 243,134 services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25,887) (35,824) Total cost of sales . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development expenses . . . . . . . . Restructuring and other charges . . . . . . . . . . . . Total operating expenses . . . . . . . . . . . . . Operating income from discontinued operations . . . Foreign currency gain, net . . . . . . . . . . . . . . . . Others, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of discontinued operations . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations, net of 156,985 71,860 207,310 64,214 14,797 19,484 15,873 50,154 21,706 1,277 72 23,055 11,452 287,117 (10,814) 24,042 30,332 9,142 63,516 698 503 (67) 1,134 2,547 — — tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,906 (1,413) For the years ended December 31, 2020 and 2019, the Company recorded $15,873 thousand and $6,991 thousand, respectively, in professional fees and transaction related expenses incurred in connection with the sale of the Foundry Services Group business and Fab 4, and recorded such costs as restructuring and other charges. For the year ended December 31, 2019, the Company also recorded in restructuring and other charges a $2,151 thousand restructuring-related charge to its fab employees. 95 K - 0 1 m r o F MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table provides supplemental cash flows information related to discontinued operations: Year Ended December 31, 2020 2019 (In thousands of U.S. dollars) Significant non-cash operating activities: Depreciation and amortization . . . . . . . Provision for severance benefits . . . . . Stock-based compensation . . . . . . . . . . $ 5,365 8,209 388 $ 22,411 10,879 899 Investing activities: Capital expenditures . . . . . . . . . . . . . . . $(5,838) $(11,653) 3. Fair Value Measurements ASC 820 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC 820 requires, among other things, the Company’s valuation techniques used to measure fair value to maximize the use of observable inputs and minimize the use of unobservable inputs. Fair Value of Financial Instruments As of December 31, 2021, the following table represents the Company’s liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands): Carrying Value December 31, 2021 Fair Value Measurement December 31, 2021 Quoted Prices in Active Markets for Identical Liability (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Liabilities: Derivative liabilities (other current liabilities) . . . . . $2,020 $2,020 — $2,020 — As of December 31, 2020, the following table represents the Company’s assets and liabilities measured at fair value on a recurring basis and the basis for that measurement (in thousands): Carrying Value December 31, 2020 Fair Value Measurement December 31, 2020 Quoted Prices in Active Markets for Identical Asset / Liability (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Derivative assets (other current assets) . . . . . . . . $2,036 $2,036 Liabilities: Derivative liabilities (other current liabilities) . . . . . $ 195 $ 195 — — $2,036 $ 195 — — Items not reflected in the table above include cash equivalents, accounts receivable, other receivables, accounts payable, and other accounts payable, fair value of which approximate carrying values due to the short- term nature of these instruments. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs. 96 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Fair Value of Borrowings December 31, 2020 Carrying Value Fair Value (In thousands of U.S. dollars) Borrowings: 5.0% Exchangeable Senior Notes due March 2021 (Level 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $83,479 $145,466 On January 17, 2017, the Company’s wholly-owned subsidiary, MagnaChip Semiconductor S.A., closed an offering (the “Exchangeable Notes Offering”) of 5.0% Exchangeable Senior Notes due March 1, 2021 (the “Exchangeable Notes”), of $86,250 thousand, which represents the principal amount, excluding $5,902 thousand of debt issuance costs. In December 2018 and February 2019, MagnaChip Semiconductor S.A. repurchased a principal amount equal to $1,590 thousand and $920 thousand, respectively, of the Exchangeable Notes in the open market. The Company estimates the fair value of the Exchangeable Notes using the market approach, which utilizes quoted market prices that fall under Level 2. For further description of the Exchangeable Notes, see Note 12, “Borrowings.” Fair Values Measured on a Non-recurring Basis The Company’s non-financial assets, such as property, plant and equipment, and intangible assets are recorded at fair value upon acquisition and are remeasured at fair value only if an impairment charge is recognized. As of December 31, 2021 and 2020, the Company did not have any assets or liabilities measured at fair value on a non-recurring basis. 4. Accounts Receivable Accounts receivable as of December 31, 2021 and 2020 consisted of the following (in thousands): Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: December 31, 2021 2020 $50,363 1,242 $63,145 1,606 Allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . Sales return reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . (466) (185) (188) (173) Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . $50,954 $64,390 K - 0 1 m r o F Changes in allowance for credit losses for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Year Ended December 31, 2021 2020 $(188) (302) 24 $(466) $ (49) (131) (8) $(188) 2019 $ (51) — 2 $ (49) MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Changes in sales return reserves for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 $(173) (27) — 15 $(185) $(387) 22 196 (4) $(173) $(439) (136) 170 18 $(387) Commencing in March 2012, the Company has been a party to an agreement to sell selected trade accounts receivable to a financial institution from time to time. After a sale, the Company does not retain any interest in the receivables and the applicable financial institution collects these accounts receivable directly from the customer. There were no sale of accounts receivable for the years ended December 31, 2021 and 2020. The proceeds from the sales of these accounts receivable totaled $14,474 thousand for the year ended December 31, 2019, and this sale resulted in pre-tax losses of $45 thousand for the year ended December 31, 2019, which is included in selling, general and administrative expenses in the consolidated statements of operations. Net proceeds of this accounts receivable sale program are recognized in the consolidated statements of cash flows as part of operating cash flows. The Company uses receivable discount programs with certain customers. These discount arrangements allow the Company to accelerate collection of customers’ receivables. 5. Inventories Inventories as of December 31, 2021 and 2020 consist of the following (in thousands): December 31, 2021 2020 Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Semi-finished goods and work-in-process . . . . . . . . . . . . . . Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Materials in-transit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: inventory reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,594 25,968 9,443 95 (5,730) $ 6,425 30,968 6,526 1,021 (5,901) Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,370 $39,039 98 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Changes in inventory reserve for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in reserve Inventory reserve charged to costs of sales . . . . . . . . Sale of previously reserved inventory . . . . . . . . . . . . Write off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassified to assets held for sale . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 $(5,901) $(5,947) $ (4,845) (7,626) 5,349 (2,277) 1,875 573 — (7,268) 4,349 (2,919) 2,679 (408) 694 (12,941) 2,938 (10,003) 8,451 450 — Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(5,730) $(5,901) $ (5,947) Inventory reserve represents the Company’s best estimate in value lost due to excessive inventory level, physical deterioration, obsolescence, changes in price levels, or other causes based on individual facts and circumstances. Inventory reserve relates to inventory items including finished goods, semi-finished goods, work-in-process and raw materials. Write off of this reserve is recognized only when the related inventory has been disposed or scrapped. 6. Property, Plant and Equipment Property, plant and equipment as of December 31, 2021 and 2020 are comprised of the following (in thousands): Buildings and related structures . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease right-of-use assets . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2021 2020 $ 24,273 105,300 316 32,396 162,285 (94,119) 13,898 25,818 $ 24,882 106,244 344 31,208 162,678 (90,370) 15,167 8,908 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . $107,882 $ 96,383 K - 0 1 m r o F Aggregate depreciation expenses totaled $13,495 thousand, $10,448 thousand and $9,720 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. 99 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 7. Intangible Assets Intangible assets as of December 31, 2021 and 2020 are comprised of the following (in thousands): Intellectual property assets . . . . . . . . . . . . . . . . $9,312 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . $9,312 $(6,935) $(6,935) December 31, 2021 Gross amount Accumulated amortization Intellectual property assets . . . . . . . . . . . . . . . . $9,486 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . $9,486 $(6,759) $(6,759) December 31, 2020 Gross amount Accumulated amortization Net amount $2,377 $2,377 Net amount $2,727 $2,727 Aggregate amortization expense for intangible assets totaled $744 thousand, $668 thousand and $598 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. The aggregate amortization expense of intangible assets for the next five years are estimated to be $704 thousand, $590 thousand, $438 thousand, $309 thousand and $196 thousand for the years ended December 31, 2022, 2023, 2024, 2025 and 2026, respectively. 8. Leases The Company has operating and finance leases for buildings and other assets such as vehicles and office equipment. The Company’s leases have remaining lease terms ranging from 1 year to 4 years. The tables below present financial information related to the Company’s leases. Supplemental balance sheets information related to leases as of December 31, 2021 and 2020 are as follows (in thousands): Leases Assets Classification Operating lease . . . Finance lease . . . . . Operating lease right-of-use assets Property, plant and equipment, net Total lease assets Liabilities Current Operating . . . . . . . Finance . . . . . . . . . Operating lease liabilities Other current liabilities Non-current Operating . . . . . . . Finance . . . . . . . . . Non-current operating lease liabilities Other non-current liabilities Total lease liabilities 100 December 31, 2021 2020 $4,275 126 $4,632 206 $4,401 $4,838 $2,323 68 $2,210 68 1,952 73 2,422 153 $4,416 $4,853 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table presents the weighted average remaining lease term and discount rate: December 31, 2021 2020 Weighted average remaining lease term Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 years 2.0 years 3.0 years 3.0 years Weighted average discount rate Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20% 7.75% 5.55% 7.75% The components of lease cost included in the Company’s consolidated statements of operations, are as follows (in thousands): Operating lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease cost Year Ended December 31, 2021 2020 2019 $2,777 $1,885 $1,990 Amortization of right-of-use assets . . . . . . . . . . . . . . . . . Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . 65 14 63 18 64 22 Total lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,856 $1,966 $2,076 The above table does not include an immaterial cost of short-term leases for the years ended December 31, 2021, 2020 and 2019. Other lease information is as follows (in thousands): Year Ended December 31, 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases . . . . . . . . . . Operating cash flows from finance leases . . . . . . . . . . . . Financing cash flows from finance leases . . . . . . . . . . . . $2,777 14 65 $1,885 18 76 $1,990 22 55 Non-cash transaction amounts of lease liabilities arising from obtaining right-of-use assets were $2,768 thousand, $4,702 thousand and $169 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. K - 0 1 m r o F 101 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The aggregate future lease payments for operating and finance leases as of December 31, 2021 are as follows (in thousands): Operating Leases Finance Leases 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total future lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Imputed interest $2,228 1,136 687 445 22 4,518 (243) $ 76 76 — — — 152 (11) Present value of future payments . . . . . . . . . . . . . . . . . . $4,275 $141 9. Accrued Expenses Accrued expenses as of December 31, 2021 and 2020 are comprised of the following (in thousands): December 31, 2021 2020 Payroll, benefits and related taxes, excluding severance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,548 $10,296 Withholding tax attributable to intercompany interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest on Exchangeable Notes . . . . . . . . . . . . . . . . . . . . . . Outside service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merger-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,950 — 1,088 — 7,035 450 28 1,396 755 2,658 393 715 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,071 $16,241 10. Derivative Financial Instruments The Company’s Korean subsidiary from time to time has entered into 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, 2021 are as follows (in thousands): Date of transaction Type of derivative Total notional amount Month of settlement May 13, 2021 . . . . . . . . . . . . . . . . . . . Zero cost collar August 13, 2021 . . . . . . . . . . . . . . . . . Zero cost collar $39,000 $48,000 January 2022 to September 2022 January 2022 to December 2022 102 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Details of derivative contracts as of December 31, 2020 are as follows (in thousands): Date of transaction Type of derivative Total notional amount Month of settlement July 13, 2020 . . . . . . . . . . . . . . . . . . . . . . . Zero cost collar December 15, 2020 . . . . . . . . . . . . . . . . . . Zero cost collar December 18, 2020 . . . . . . . . . . . . . . . . . . Zero cost collar $30,000 $30,000 $18,000 January 2021 to June 2021 July 2021 to December 2021 March 2021 to June 2021 The zero cost collar contracts qualify as cash flow hedges under ASC 815, “Derivatives and Hedging,” since at both the inception of the contracts and on an ongoing basis, the hedging relationship was and is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the contracts. The fair values of the Company’s outstanding zero cost collar contracts recorded as assets and liabilities as of December 31, 2021 and 2020 are as follows (in thousands): Derivatives designated as hedging instruments: Asset Derivatives: December 31, 2021 2020 Zero cost collars . . . . . . . . . . . Other current assets $ — $2,036 Liability Derivatives: Zero cost collars . . . . . . . . . . . Other current liabilities $2,020 $ 195 Offsetting of derivative liabilities as of December 31, 2021 is as follows (in thousands): Gross amounts of recognized liabilities Gross amounts offset in the balance sheets Net amounts of liabilities presented in the balance sheets Gross amounts not offset in the balance sheets Financial instruments Cash collateral pledged Net amount As of December 31, 2021 Liability Derivatives: Zero cost collars . . . . . . . $2,020 $— $2,020 $— $(2,060) $(40) Offsetting of derivative assets and liabilities as of December 31, 2020 is as follows (in thousands): Gross amounts of recognized assets/liabilities Gross amounts offset in the balance sheets Net amounts of assets/liabilities presented in the balance sheets Gross amounts not offset in the balance sheets Financial instruments Cash collateral pledged Net amount K - 0 1 m r o F As of December 31, 2020 Asset Derivatives: Zero cost collars . . . . . . . $2,036 Liability Derivatives: Zero cost collars . . . . . . . $ 195 $— $— $2,036 $— $— $2,036 $ 195 $— $— $ 195 For derivative instruments that are designated and qualify as cash flow hedges, gains or losses on the derivative aside from components excluded from the assessment of effectiveness are reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative, representing hedge components excluded from the assessment of effectiveness, are recognized in current earnings. 103 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the years ended December 31, 2021 and 2020. Net sales of discontinued operations for the year ended December 31, 2020 are included in the below table (in thousands): Derivatives in ASC 815 Cash Flow Hedging Relationships Amount of Gain (Loss) Recognized in AOCI on Derivatives 2021 2020 Location/Amount of Gain (Loss) Reclassified from AOCI Into Statement of Operations Location/Amount of Gain Recognized in Statement of Operations on Derivatives 2021 2020 2021 2020 Zero cost collars . . . . . . . . . . $(4,665) $1,769 Net sales $(819) $1,363 Other income, net $123 $148 As of December 31, 2021, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next twelve months is $1,460 thousand. The Company set aside cash deposits to the counterparties, Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”), Deutsche Bank AG, Seoul Branch (“DB”) and Standard Chartered Bank Korea Limited (“SC”), as required for the zero cost collar contracts. These cash deposits are recorded as hedge collateral on the consolidated balance sheets. Cash deposits as of December 31, 2021 and 2020 are as follows (in thousands): Counterparties December 31, 2021 2020 NFIK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — — 1,000 $3,250 1,000 1,000 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 $5,250 The Company is required to deposit additional cash collateral with NFIK and SC for any exposure in excess of $500 thousand. As of December 31, 2021, $760 thousand and $1,300 thousand of additional cash collateral were required by NFIK and SC, respectively, and recorded as hedge collateral on the consolidated balance sheet. There was no such cash collateral required as of December 31, 2020. These zero cost collar contracts may be terminated by the counterparties in a number of circumstances, including if the Company’s borrowing rating falls below B-/B3 or if the Company’s total cash and cash equivalents is less than $30,000 thousand at the end of a fiscal quarter, unless a waiver is obtained. 11. Product Warranties Changes in accrued warranty liabilities for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision (reversal) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48 (14) (19) (3) $ 735 (606) (61) (20) $ 115 932 (314) 2 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12 $ 48 $ 735 104 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 12. Borrowings Borrowings as of December 31, 2020 is as follows (in thousands): 5.0% Exchangeable Senior Notes due March 2021 . . . . . . Less: unamortized discount and debt issuance costs . . . . . December 31, 2020 $83,740 (261) Current portion of long-term borrowings, net . . . . . . $83,479 5.0% Exchangeable Senior Notes On January 17, 2017, MagnaChip Semiconductor S.A. closed the Exchangeable Notes Offering of $86,250 thousand aggregate principal amount of 5.0% Exchangeable Notes. Interest on the Exchangeable Notes accrued at a rate of 5.0% per annum, payable semi-annually on March 1 and September 1 of each year, beginning on March 1, 2017. The Exchangeable Notes matured on March 1, 2021, unless they were earlier repurchased or converted. Holders had the right to convert their notes at their option at any time prior to the close of business on the business day immediately preceding the stated maturity date. The Company incurred debt issuance costs of $5,902 thousand related to the issuance of the Exchangeable Notes. The debt issuance costs are recorded as a direct deduction from the long-term borrowings in the consolidated balance sheets and amortized to interest expense using the effective interest method over the term of the Exchangeable Notes. Interest expense related to the Exchangeable Notes for the years ended December 31, 2021 and 2020 were $958 thousand and 5,708 thousand, respectively. In February 2019, the Company repurchased a principal amount equal to $920 thousand of the Exchangeable Notes in the open market, resulting in a loss of $63 thousand, which was recorded as loss on early extinguishment of borrowings, net in the consolidated statements of operations for the year ended December 31, 2019. In December 2018, the Company repurchased a principal amount equal to $1,590 thousand of the Exchangeable Notes in the open market, resulting in a loss of $234 thousand, which was recorded as loss on early extinguishment of borrowings, net in the consolidated statements of operations for the year ended December 31, 2018. Prior to the March 1, 2021 maturity of the Exchangeable Notes, holders elected to exchange all outstanding Exchangeable Notes for an aggregate of 10,144,131 shares of the Company’s common stock in satisfaction in full of the outstanding obligations under the Exchangeable Notes. Upon exchange, the Company delivered for each $1,000 principal amount of exchanged Exchangeable Notes a number of shares equal to the exchange rate of 121.1387 shares of common stock per $1,000 principal amount of Exchangeable Notes, which was equivalent to an exchange price of approximately $8.26 per share of common stock. In connection with the exchanges, the fractional shares were paid in cash. Following March 1, 2021, the Company does not have any Exchangeable Notes outstanding. 6.625% Senior Notes On July 18, 2013, the Company issued a $225,000 thousand aggregate principal amount of the 2021 Notes at a price of 99.5%. Interest on the 2021 Notes accrued 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. Interest expense related to the 2021 Notes for the year ended December 31, 2020 was $11,926 thousand. 105 K - 0 1 m r o F MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The Company completed the full redemption of the remaining outstanding 2021 Notes on October 2, 2020. The Company paid approximately $227,428 thousand to fully redeem all of the outstanding $224,250 thousand aggregate principal amount of the 2021 Notes at a redemption price equal to the sum of 100% of the principal amount of the 2021 Notes, plus accrued and unpaid interest thereon through, but excluding, the Redemption Date. In connection with the redemption of the 2021 Notes, the Company recorded a $766 thousand as loss on early extinguishment of borrowings, net related to the remaining unamortized debt discount and debt issuance costs. 13. Accrued Severance Benefits The majority of accrued severance benefits are for employees in the Company’s Korean subsidiary. Pursuant to the Employee Retirement Benefit Security Act of Korea, eligible employees and executive officers with one or more years of service are entitled to severance benefits upon the termination of their employment based on their length of service and rate of pay. As of December 31, 2021, 98% of all employees of the Company were eligible for severance benefits. Changes in accrued severance benefits are as follows (in thousands): Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Severance payments . . . . . . . . . . . . . . . . . . . . . . . . . . . Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . Less: Cumulative contributions to severance insurance deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The National Pension Fund . . . . . . . . . . . . . . . . . . Group severance insurance plan . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 $ 54,452 8,282 (6,679) (4,488) $ 53,344 8,534 (10,937) 3,511 51,567 54,452 (18,250) (53) (200) (13,704) (66) (220) Accrued severance benefits, net . . . . . . . . . . . . . . . . . . $ 33,064 $ 40,462 The severance benefits funded through the Company’s National Pension Fund and group severance insurance plan will be used exclusively for payment of severance benefits to eligible employees. These amounts have been deducted from the accrued severance benefit balance. Beginning in July 2018, the Company contributes to certain severance insurance deposit accounts a certain percentage of severance benefits that are accrued for eligible employees for their services from January 1, 2018. These accounts consist of time deposits and other guaranteed principal and interest, and are maintained at insurance companies, banks or security companies for the benefit of employees. The Company deducts the contributions made to these severance insurance deposit accounts from its accrued severance benefits. 106 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The Company is liable to pay the following future benefits to its non-executive employees upon their normal retirement age (in thousands): 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2027 – 2031 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Severance Benefit $ 264 646 908 1,610 2,290 18,565 The above amounts were determined based on the non-executive employees’ current salary rates and the number of service years that will be accumulated upon their retirement dates. These amounts do not include amounts that might be paid to non-executive employees that will cease working with the Company before their normal retirement ages. Korea’s mandatory retirement age is 60 under the Employment Promotion for the Aged Act. 14. Stockholders’ Equity and Stock-Based Compensation Accelerated Stock Repurchase Program On December 21, 2021, the Board of Directors authorized the Company to repurchase up to $75,000 thousand of the Company’s outstanding common stock and the Company entered into an accelerated stock repurchase agreement (the “ASR Agreement”) with JPMorgan Chase Bank, National Association (“JPM”) to repurchase an aggregate of $37,500 thousand of the Company’s common stock. Pursuant to the terms of the ASR Agreement dated December 21, 2021, the Company paid to JPM $37,500 thousand in cash and received an initial delivery of 994,695 shares of its common stock in the open market for an aggregate purchase price of $20,073 thousand and a price per share of $20.18 on December 22, 2021. As of December 31, 2021, the Company accounted for the remaining portion of the ASR Agreement as a forward contract indexed to its own common stock and recorded $17,427 thousand in additional paid-in capital in stockholders’ equity in its consolidated balance sheets. The final number of shares to be delivered will be based on the Company’s volume-weighted average stock price under the terms of the ASR Agreement less an agreed upon discount. K - 0 1 m r o F The ASR Agreement contains provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances under which the ASR Agreement may be accelerated, extended or terminated early by JPM and various acknowledgments, representations and warranties made by the parties to one another. Upon final settlement of the ASR Agreement, which is expected to occur during the fiscal quarter ending March 31, 2022, the Company may be entitled to receive additional shares of common stock from JPM or, under certain circumstances specified in the ASR Agreement, the Company may be required to deliver shares of common stock or make a cash payment, at its option, to JPM. 107 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Equity Incentive Plans The Company adopted its 2009 Common Unit Plan, or the 2009 Plan, effective December 8, 2009, which is administered by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). The 2009 Plan terminated in connection with the Company’s initial public offering in March 2011, and no additional options or other equity awards may be granted under the 2009 Plan. The Company adopted its 2011 Equity Incentive Plan, or the 2011 Plan, in March 2010. The Company amended and restated the 2011 Plan in February 2011, and the Company’s stockholders approved the amendment in March 2011 to reflect that it became effective in 2011 in connection with the Company’s initial public offering in March 2011. The 2011 Plan was amended on October 23, 2017, to revise the clawback policy of the 2011 Plan. The 2011 Plan was amended on April 26, 2018 to amend the tax withholding provisions as they relate to directed sales of shares. At the 2020 Annual Meeting of Stockholders, the Company’s stockholders approved its 2020 Equity and Incentive Compensation Plan, or the 2020 Plan, which is administered by the Compensation Committee. Following the adoption of the 2020 Plan, no further awards may be issued under the 2011 Plan. Awards may be granted under the 2020 Plan to the Company’s employees, officers, directors, or certain consultants or those of any subsidiary of the Company. While the Company may grant incentive stock options only to employees, the Company may grant non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents and cash-based awards or other stock-based awards to any eligible participant, subject to terms and conditions determined by the Compensation Committee. The term of any options granted under the 2020 Plan shall not exceed ten years from the date of grant. As of December 31, 2021 an aggregate maximum of 11,352,919 shares were authorized and 2,116,324 shares were reserved for all future grants. Stock options and stock appreciation rights must have exercise prices at least equal to the fair market value of the stock at the time of their grant pursuant to the 2011 Plan and 2020 Plan. Stock options typically vest over one to three years following grant, subject to the participant’s continued service through the applicable vesting dates. As of December 31, 2020, no stock options or stock appreciation rights had been granted under 2020 Plan. Restricted stock units granted under the 2011 Plan and 2020 Plan represent a right to receive shares of the Company’s common stock when the restricted stock unit vests. No monetary payment (other than applicable tax withholding) shall be required as a condition of receiving shares pursuant to a restricted stock unit, the consideration for which shall be services actually rendered to a participating company or for its benefit. Stock issued pursuant to any restricted stock unit may (but need not) be made subject to vesting conditions based upon the satisfaction of such service requirements, conditions, restrictions or performance criteria as shall be established by the Compensation Committee and set forth in the award agreement evidencing such award. Restricted stock units typically vest over one to three years following grant, subject to the participant’s continued service through the applicable vesting dates. Restricted stock constitutes an immediate transfer of the ownership of shares of the Company’s common stock to the participant in consideration of the performance of services, entitling such participant to voting, dividend and other ownership rights, subject to the substantial risk of forfeiture and restrictions on transfer determined by the Compensation Committee for a period of time determined by the Compensation Committee or until certain management objectives specified by the Compensation Committee are achieved. Each grant of restricted stock may be made without additional consideration or in consideration of a payment by the participant that is less than the fair market value per share of common stock on the grant date. Stock issued pursuant to any restricted stock award may (but need not) be made subject to vesting conditions based upon the satisfaction of such service requirements, conditions, restrictions or performance criteria as shall be established by the 108 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Compensation Committee and set forth in the award agreement evidencing such award. A grant of restricted stock may require that any and all dividends and distributions paid on restricted stock that remains subject to a substantial risk of forfeiture be automatically deferred and/or reinvested in additional restricted stock, which will be subject to the same restrictions as the underlying restricted stock, but any such dividends or other distributions on restricted stock must be deferred until, and paid contingent upon, the vesting of such restricted stock. The following summarizes restricted stock unit activities for the year ended December 31, 2021. Outstanding at December 31, 2020 . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of Restricted Stock Units 999,756 431,308 (480,465) (116,638) Outstanding at December 31, 2021 . . . . . . . . . . . . . . . 833,961 Weighted Average Grant-Date Fair Value of Restricted Stock Units $10.68 19.82 12.05 12.77 $14.33 Total compensation expenses recorded for the restricted stock units were $7,704 thousand, $6,311 thousand and $6,042 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, there was $3,676 thousand of total unrecognized compensation cost related to unvested restricted stock units, which is expected to be recognized over a weighted average future period of 0.5 year. Total fair value of restricted stock units vested were $5,788 thousand, $3,839 thousand and $5,817 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. The following summarizes stock option activities for the year ended December 31, 2021. At the date of grant, all options had an exercise price not less than the fair value of common stock (aggregate intrinsic value in thousands): Outstanding at January 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,647,181 (349,304) $11.24 12.94 Weighted Average Exercise Price of Stock Options Number of Options Weighted Average Remaining Contractual Life of Stock Options 3.8 years — Aggregate Intrinsic Value of Stock Options $ 6,112 2,965 K - 0 1 m r o F Outstanding at December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . 1,297,877 $10.78 $13,262 3.1 years Vested and Exercisable at December 31, 2021 . . . . . . . . . . . . . . . 1,297,877 $10.78 $13,262 3.1 years Total compensation expenses recorded for the stock options were nil, nil and $11 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. There were no unrecognized compensation cost related to stock options expected to vest as of December 31, 2021 and 2020. Total weighted average grant-date fair value of vested options of continuing operations and discontinued operations were nil, nil and $165 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. 109 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES 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. There were no grants of stock options during the years ended December 31, 2021, 2020 and 2019. The number and weighted average grant-date fair value of the unvested stock options are as follows: Year Ended December 31, 2021 2020 2019 Weighted Average Grant- Date Number Fair Value Number Weighted Average Grant- Date Fair Value Number Weighted Average Grant- Date Fair Value Unvested options at the beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Vested options during the period . . . . . . . . . . . . — Forfeited options during the period . . . . . . . . . . — Exercised options during the period . . . . . . . . . — Unvested options at the end of the period . . . . . — — — — — — — — — — — — — — — — 130,191 (107,100) (345) (22,746) $1.54 1.54 1.54 1.54 0 $ — 15. Early termination and other charges, net For the year ended December 31, 2021, the Company recorded in its consolidated statement of operations $3,430 thousand of non-recurring professional service fees and expenses incurred in connection with the regulatory requests, and recorded $1,419 thousand gain on sale of certain legacy equipment of the closed back-end line in the Company’s fabrication facility in Gumi (which was closed during the year ended December 31, 2018). For the year ended December 31, 2020, the Company recorded in its consolidated statement of operations $4,422 thousand of early termination and other charges, net in connection with the headcount reduction program offered and paid to the employees during the fourth quarter of 2020. During the same period, the Company also recorded $554 thousand of non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. 16. Foreign Currency Loss, Net Net foreign currency gain or loss includes non-cash translation gain or loss associated with intercompany balances. A substantial portion of the Company’s net foreign currency gain or loss is non-cash translation gain or loss associated with intercompany long-term loans to the Company’s Korean subsidiary. The loans 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, 2021, 2020 and 2019, the outstanding intercompany loan balances including accrued interest between the Korean subsidiary and the Dutch subsidiary were $344,411 thousand, $378,852 thousand and $686,485 thousand, respectively. The Korean won to U.S. dollar exchange rates were 1,185.5:1, 1,088.0:1 and 1,157.8:1 using the first base rate as of December 31, 2021, 2020 and 2019, respectively, as quoted by the KEB Hana Bank. 17. Income Taxes The Company’s income tax expense (benefit) is composed of domestic and foreign income taxes depending on the relevant tax jurisdictions. Domestic income (loss) from continuing operations before income tax expense and income tax expense (benefit) are generated or incurred in the U.S, where the parent company resides. 110 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The components of income tax expense (benefit) attributable to income (loss) from continuing operations are as follows (in thousands): Year Ended December 31, 2021 2020 2019 Income (loss) from continuing operations before income tax expense Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,566 32,403 $(12,305) 23,136 $(24,752) 6,539 Current income tax expense (benefit) Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Uncertain tax position liability (domestic) . . . . . . . . . . . . . . . Uncertain tax position liability (foreign) . . . . . . . . . . . . . . . . . Deferred income tax benefit Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits from intra-period allocation . . . . . . . . . . . . . . . . . . . . . . . Total income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . 73,969 10,831 (18,213) 6,876 9,415 — (35) 16,256 1,314 (309) 1,005 — 1 (2,264) — (20) (2,283) (4,461) (39,484) (43,945) — $17,261 $(46,228) 20 3,771 (1) 2 3,792 — 63 63 (1,655) $ 2,200 Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3% — — The Company’s effective tax rate for the year ended December 31, 2021 was 23.3% as compared to negative effective tax rates for the years ended December 31, 2020 and 2019. The Company’s effective tax rate in 2021 was higher than the U.S. federal statutory rate of 21.0%, primarily due to the earnings from its operating subsidiary in Korea at a higher statutory tax rate. The increase in the effective tax rate in 2021 was primarily due to the higher taxable income from the Korean subsidiary and the reverse termination fee income recognized by the parent entity in the U.S. in relation to the Merger. The negative effective tax rate in 2020 as compared to the U.S. federal statutory rate of 21.0%, was primarily attributable to the reversal of the valuation allowances established against the deferred tax assets in connection with the Company’s operating subsidiary in Korea and parent entity in the U.S. The difference between the annual effective income tax rate and the U.S. federal statutory rate of 21.0% in 2019 primarily related to the non-income based withholding tax attributable to intercompany interest income of the Company’s Dutch subsidiary, application of different tax rates associated with certain earnings from the Company’s operations outside the U.S., the U.S. parent entity’s interest income, which is non-taxable for U.S. tax purposes, and the change of deferred tax assets and valuation allowances. The Company’s Korean subsidiary recorded $1,655 thousand income tax benefits for the year ended December 31, 2019, primarily attributable to the application of the exception rule under ASC 740, in connection with the intra-period allocation, which resulted in the tax benefit in its continuing operations and tax expense in the discontinued operations for an equal and offsetting amount for the presentation purposes only. K - 0 1 m r o F 111 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES 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 rates to the income (loss) from continuing operations before income tax expense. The significant items causing this difference are as follows (in thousands): Provision computed at statutory rates . . . . . . . . . . . . . . . . . . . . . . . . . . State income taxes, net of federal effect Change in statutory tax rates . . . . . . . . . . . . . . . . . . . . . Difference in foreign tax rates . . . . . . . . . . . . . . . . . . . . Permanent differences . . . . . . . . . . . . . . . . . Derivative assets adjustment TPECs, hybrid and other interest . . . . . . . . . . . . . . Thin capitalization . . . . . . . . . . . . . . . . . . . . . . . . . Equity-based compensation . . . . . . . . . . . . . . . . . . Permanent foreign currency gain (loss) . . . . . . . . . Penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . GILTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intercompany debt restructuring . . . . . . . . . . . . . . Other permanent differences . . . . . . . . . . . . . . . . . . . . . Withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State net operating loss write-off . . . . . . . . . . . . . . . . . . Change in valuation allowance . . . . . . . . . . . . . . . . . . . Benefits from intra-period allocation . . . . . . . . . . . . . . . Tax credits claimed . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax credits expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Uncertain tax positions liability . . . . . . . . . . . . . . . . . . . Change in net operating loss carry-forwards . . . . . . . . . Foreign local taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 2019 $ 15,533 — (259) 2,820 $ 2,274 730 5,735 1,077 $ (3,825) (1,139) 2,329 3,002 (23) (3,400) — (802) 1,888 427 6,156 971 (767) 2,060 9,844 (13,803) — (5,508) — (35) 621 723 815 56 (2,722) 339 (73) (1,813) 176 24,224 11,137 1,335 2,291 — (75,452) — (12,397) — (20) (3,314) 43 146 315 7,812 988 (14) (1,734) 151 5,112 (18,435) 408 3,043 — 7,817 (1,655) (651) 170 1 — 152 (1,647) Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . $ 17,261 $(46,228) $ 2,200 Of the income tax benefit of $13,803 thousand attributable to the change in valuation allowances during the year ended December 31, 2021, $9,844 thousand is related to the release of the valuation allowance established against the deferred tax assets associated in the U.S. entity due to the dissolution of the Company’s domestic subsidiary in 2021 subsequent to the sale of the Foundry Services Group business and Fab 4. The offsetting expense of $9,844 thousand was included in the state net operating loss write-off in 2021, resulting in no income tax effect in the year. The Company’s parent entity in the U.S. will no longer be subject to state income taxes in 2022 and thereafter. The remaining $3,959 thousand represented the release of valuation allowances based on the assessment of the realizability of the related deferred tax assets in future tax years. For the year ended December 31, 2020, a permanent difference of $24,224 thousand was included as Global intangible low-taxed income (“GILTI”) in the U.S., and was primarily attributable to the income earned by certain foreign subsidiaries of the Company, including its Korean subsidiary, from the sale of the Foundry Services Group business and Fab 4. 112 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The income tax benefit of $75,452 thousand was due to the changes in valuation allowances during the year ended December 31, 2020, of which $31,578 thousand related to the release of valuation allowances related to the Company’s current year earnings, which were mainly driven by GILTI inclusion at the U.S. parent company. The remaining $43,874 thousand represented the release of valuation allowances based on the realizability of the related deferred tax assets in future years. The Company’s operating subsidiary in Korea had generated three years of cumulative profits adjusted for permanent differences and is anticipated to generate taxable basis for the subsequent years. As a result, $39,413 thousand of valuation allowances, established against the Korean subsidiary’s deferred tax assets, were released as of December 31, 2020. In addition, management believes it is more likely than not that the Company’s parent in the U.S. would be able to utilize its net operating loss in future tax years, which would provide incremental tax savings of approximately $4,461 thousand. Therefore, the Company released its valuation allowances established against the U.S. parent’s deferred tax assets up to these anticipated tax savings as of December 31, 2020. Of the permanent tax expense of $11,137 thousand related to intercompany debt restructuring recorded for the year ended December 31, 2020, $11,890 thousand related to the waiver and release of unpaid interests of the intercompany loans granted to the Korean subsidiary by the Dutch subsidiary. This transaction created taxable income for the Korean subsidiary, but did not result in a liability because of the utilization of loss carryforwards, which were used against income from cancellation of intercompany loans. During 2019, the Company completed a restructuring of its intercompany borrowings between the Company and the other entities within the group of the Company. The main purpose of this restructuring was to simplify the intercompany debt structure of the group in order to align with the anti-hybrid mismatch provision mandated by the Organization for Economic Co-operation and Development (OECD). A portion of hybrid instruments issued by the Company’s Luxembourg subsidiary to its parent in the U.S. were subject to this restructuring. The Company recorded a net deferred tax asset of $18,435 thousand related to the unrealized foreign exchange translation loss, which was attributable to the changes in the balances of hybrid instruments that are denominated in Euros. However, there was no impact on the provision for income taxes due to a full valuation allowance against the deferred tax assets of the Company’s Luxembourg subsidiary. K - 0 1 m r o F 113 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) A summary of the composition of net deferred income tax assets (liabilities) as of December 31, 2021 and 2020 are as follows (in thousands): Deferred tax assets Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated severance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease right-of-use liabilities . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation loss . . . . . . . . . . . . . . . . . . . . . . . . . . . NOL carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax credit carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense deduction limitation . . . . . . . . . . . . . . . . . . . . . . . Derivative liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2021 2020 $ 1,313 3,084 3,119 11,842 899 17,280 87,636 14,164 2,457 4,731 463 1,610 $ 1,338 2,493 3,391 12,343 1,025 9,129 121,389 15,395 944 — — 1,629 Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,598 (94,212) 169,076 (115,636) 54,386 53,440 Deferred tax liabilities Derivative assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Severance benefit deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation gain . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,300 4,227 899 5,139 726 Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,291 417 1,071 3,156 1,025 2,431 799 8,899 Net deferred tax assets $ 41,095 $ 44,541 The Company has not recognized a deferred tax liability related to outside basis differences inherent in its foreign subsidiaries because the investments in those foreign subsidiaries within the group are essentially permanent in duration or earnings in foreign subsidiaries are intended to be indefinitely reinvested. It is not practicable to estimate the amount of deferred income taxes not recorded that are associated with those outside basis differences. If circumstances change and it becomes apparent that the undistributed earnings from foreign subsidiaries will be remitted or the parent entity will dispose of its interest in the subsidiaries in the foreseeable future, and related income taxes have not been recognized by the parent entity, the parent entity will accrue as an expense of the current period income taxes attributable to that remittance or disposition. 114 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Changes in valuation allowance for deferred tax assets of continuing operations and discontinued operations for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes relating to the discontinued operations . . . . . NOL/tax credit claimed/expired . . . . . . . . . . . . . . . . . . Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . $115,636 — (13,803) — — (7,621) $246,224 — (75,452) (67,484) 3,686 8,662 $248,633 7,912 — — (3,529) (6,792) Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 94,212 $115,636 $246,224 As of December 31, 2021, 2020 and 2019, respectively, the Company recorded a valuation allowance of $94,212 thousand, $115,636 thousand and $246,224 thousand on its deferred tax assets related to temporary differences, net operating loss carry-forwards and tax credits of domestic and foreign subsidiaries. The Company has recorded a full valuation allowance against certain foreign subsidiaries’ deferred tax assets pertaining to its related tax loss carry-forwards that are not anticipated to generate a tax benefit. The valuation allowances at December 31, 2021, 2020 and 2019 were primarily attributable to its Luxembourg subsidiary. NOL carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . $502,511 $604,977 $708,885 Year Ended December 31, 2021 2020 2019 As of December 31, 2021, the Company had $502,511 thousand of net operating loss carry-forwards available to offset future taxable income, of which $288,548 thousand is associated with the Company’s Luxembourg subsidiary, mainly attributable to certain expenses incurred in connection with its shareholding in the Company’s Dutch subsidiary. Of the $288,548 thousand net operating loss carry-forwards, $279,848 thousand is carried forward indefinitely and the remaining $8,700 thousand expires from 2034 through 2037. The net operating loss carry-forwards retained by the Company’s U.S. parent and its domestic subsidiary (which was closed in 2021 subsequent to the sale of the Foundry Services Group business and Fab 4) amounts to $198,813 thousand, which expires at various dates through 2040. The amount associated with the Company’s Korean subsidiary of $11,499 thousand expires in 2026. K - 0 1 m r o F The Company utilized net operating loss of $70,672 thousand, $169,600 thousand and $30,945 thousand for the years ended December 31, 2021, 2020 and 2019, respectively. The Company also has Dutch tax credit carry- forwards of approximately $14,164 thousand as of December 31, 2021. The Dutch tax credits are carried forward to be used for an indefinite period of time. Uncertainty in Income Taxes The Company and its subsidiaries file income tax returns in Korea, Japan, Taiwan, and the U.S. and in various other jurisdictions. The Company is subject to income- or non-income tax examinations by tax authorities of these jurisdictions for all open tax years. 115 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) As of December 31, 2021, 2020 and 2019, the Company recorded $386 thousand, $414 thousand and $445 thousand of unrecognized tax benefits of continuing operations and discontinued operations, respectively. A tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of each period is as follows (in thousands): Year Ended December 31, 2021 2020 2019 Unrecognized tax benefits, balance at the beginning . . . . . . . . . . . . Additions based on tax positions related to the current year . . Reductions for tax positions of prior years . . . . . . . . . . . . . . . . Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $414 44 — (79) 7 $426 13 (1) $445 48 (34) (76) — 31 7 Unrecognized tax benefits, balance at the ending . . . . . . . . . . . . . . . $386 $414 $445 No interest and penalties related to unrecognized tax benefits were recognized as of December 31, 2021, 2020 and 2019. The Company is currently unaware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviations from this estimate over the next 12 months. 18. Geographic and Other Information The following sets forth information relating to the single continuing operating segment (in thousands): Year Ended December 31, 2021 2020 2019 Revenues Standard products business Display Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $205,322 227,777 $299,057 166,462 $308,531 176,316 Total standard products business . . . . . . . . . . . . . . . . . . . . . Transitional Fab 3 foundry services . . . . . . . . . . . . . . . . . . . 433,099 41,131 465,519 41,540 484,847 35,824 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $474,230 $507,059 $520,671 Gross Profit Standard products business . . . . . . . . . . . . . . . . . . . . . . . . . Transitional Fab 3 foundry services . . . . . . . . . . . . . . . . . . . $149,596 3,947 $127,099 1,218 $116,397 — Total gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $153,543 $128,317 $116,397 Year Ended December 31, 2021 2020 2019 116 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) The following is a summary of net sales—standard products business (which does not include the Transitional Fab 3 Foundry Services) by geographic region, based on the location to which the products are billed (in thousands): Year Ended December 31, 2021 2020 2019 Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific (other than Korea) . . . . . . . . . . . . . . . . . . United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $113,776 306,333 6,052 5,698 1,240 $106,415 347,597 5,147 4,317 2,043 $132,622 343,652 2,399 4,801 1,373 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $433,099 $465,519 $484,847 For the years ended December 31, 2021, 2020 and 2019, of the Company’s net sales—standard products business in Asia Pacific (other than Korea), net sales—standard products business in Greater China (China and Hong Kong) represented 65.8%, 82.0% and 95.8%, respectively, and net sales—standard products business in Vietnam represented 26.4%, 14.4% and 0.7%, respectively. Net sales from the Company’s top ten largest customers in the standard products business (which does not include the Transitional Fab 3 Foundry Services) accounted for 80%, 88% and 90% for the years ended December 31, 2021, 2020 and 2019, respectively. For the year ended December 31, 2021, the Company had two customers that represented 42.5% and 10.4% of its net sales—standard products business, and for the year ended December 31, 2020, the Company had one customer that represented 56.2% of its net sales—standard products business, and for the year ended December 31, 2019, the Company had one customer that represented 53.8% of its net sales—standard products business. As of December 31, 2021 and 2020, one customer accounted for 25.6% and 45.1% of accounts receivable, respectively. 98% of the Company’s property, plant and equipment are located in Korea as of December 31, 2021. 19. Merger Agreement On March 25, 2021, the Company, South Dearborn Limited, an exempted company incorporated in the Cayman Islands with limited liability (“Parent”), formed by an affiliate of Wise Road Capital LTD, and Michigan Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”), providing for, among other things and subject to the terms and conditions thereof, the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. The closing of the Merger was subject to certain conditions, including clearance by the Committee on Foreign Investment in the United States (“CFIUS”) under the Defense Production Act of 1950, as amended. The Company and Parent were advised that CFIUS clearance of the Merger would not be forthcoming and received permission from CFIUS to withdraw their joint filing. In connection therewith, the Company and Parent entered into a Termination and Settlement Agreement, dated December 13, 2021 (the “Termination Agreement”). 117 K - 0 1 m r o F MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) On December 20, 2021, the Merger Agreement was terminated pursuant to the Termination Agreement after the Company’s receipt of a fee of $51,000 thousand from Parent and a new standby letter of credit, which secures a deferred fee of $19,200 thousand from Parent due on or before March 31, 2022. The Company recorded in its consolidated statement of operations $70,200 thousand income as part of merger-related costs (income), net for the year ended December 31, 2021, and in its consolidated balance sheet $19,200 thousand deferred fee as other receivables at December 31, 2021. For the years ended December 31, 2021 and 2020, the Company incurred $34,673 thousand and $653 thousand, respectively, of professional fees and certain transaction related-expenses incurred in connection with the Merger, which were recognized in merger-related costs (income), net in the consolidated statements of operations. 20. Commitments and Contingencies COVID-19 Pandemic In December 2019, a strain of coronavirus causing a disease known as COVID-19 surfaced in Wuhan, China, resulting in significant disruptions among Chinese manufacturing and other facilities and travel throughout China. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Governmental authorities throughout the world have implemented numerous containment measures, including travel bans and restrictions, quarantines, shelter-in-place orders, and business restrictions and shutdowns, resulting in rapidly changing market and economic conditions. Although some of these restrictions and other containment measures have since been lifted or scaled back, ongoing surges of COVID-19 have in some cases resulted in the re-imposition of certain restrictions and containment measures, and may continue to lead to other restrictions being re-implemented in the foreseeable future in response to efforts to reduce the rapid spread of COVID-19. The Company experienced some minor disruption in its Power Solutions business from assembly and test subcontractors located in China in the first quarter of 2020 as a result of the COVID-19 pandemic. To date, its external Display Solutions business contractors and sub-contractors have not been materially impacted by the COVID-19 pandemic. The Company is, however, unable to accurately predict the full impact that the COVID-19 pandemic will have on its future results of operations due to numerous uncertainties. The extent to which the COVID-19 pandemic impacts the Company’s business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the COVID-19 pandemic, such as new strains of the virus, including the Delta and Omicron variants and any future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the extent and effectiveness of actions to contain the COVID-19 pandemic or treat its impact, including vaccination campaigns and lockdown measures, among others. In addition, recurrences or additional waves of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest. The Company cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if the Company or any of its customers and suppliers were to experience prolonged business shutdowns or other disruptions, its ability to conduct its business could be materially and negatively affected, which could have a material adverse impact on its business, results of operations and financial condition. The Company continues to closely monitor and evaluate the nature and scope of the impact of the COVID-19 pandemic to its business, consolidated results of operations, and financial condition, and may take 118 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) further actions altering its business operations and managing its costs and liquidity that the Company deems necessary or appropriate to respond to this ongoing and uncertain global health crisis and the resulting global economic consequences. Merger-related Complaints Since April 22, 2021, eleven complaints (each, a “Shareholder Complaint,” and together, the “Shareholder Complaints”) were filed seeking to enjoin the Merger, or, if the Merger is consummated, rescind the Merger or recover damages, as well as an award of each plaintiff’s fees and litigation expenses. The Shareholder Complaints, each filed as an individual action by a purported stockholder of the Company, were captioned as Schulthess v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-03587 (S.D.N.Y.) (the “Schulthess Complaint”), Pittman v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-02306 (E.D.N.Y.) (the “Pittman Complaint”), Flanagan v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-03743 (S.D.N.Y.) (the “Flanagan Complaint”), Castelli v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-03769 (S.D.N.Y.) (the “Castelli Complaint”), Doolittle v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-03801 (S.D.N.Y.) (the “Doolittle Complaint”), Thomas v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-03860 (S.D.N.Y.) (the “Thomas Complaint”), Finger v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-03927 (S.D.N.Y.), Kent v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-00657 (D. Del.) (the “Kent Complaint”), Kennedy v. Magnachip Semiconductor Corporation, et al., Case No. 2:21-cv-02110 (E.D. Pa.) (the “Kennedy Complaint”), Monroy v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-04921 (S.D.N.Y.) (the “Monroy Complaint”), and Jones v. Magnachip Semiconductor Corporation, et al., Case No. 1:21-cv-04966 (S.D.N.Y.). Each Shareholder Complaint alleged either that the preliminary proxy statement filed by the Company with the Securities and Exchange Commission (“SEC”) on April 19, 2021 or the definitive proxy statement filed by the Company with the SEC on May 7, 2021, is false and/or misleading and asserts claims for violations of Section 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and SEC Rule 14a-9 against the Company and certain current or former members of the Company’s board of directors (the “Board”). The Schulthess Complaint, Castelli Complaint and Monroy Complaint also alleged breaches of fiduciary duties by certain current or former members of the Board. The Schulthess Complaint further alleged that the Company aided and abetted purported breaches of fiduciary duties by certain current or former members of the Board. On June 8, 2021, the Company voluntarily made supplemental disclosures related to the Merger in response to certain allegations raised in the Shareholder Complaints described above in order to avoid the risk that the Shareholder Complaints may delay or otherwise adversely affect the consummation of the Merger and to minimize the expense of defending such actions. Since June 8, 2021, the plaintiffs who filed the Pittman Complaint, the Doolittle Complaint, the Flanagan Complaint, the Kennedy Complaint, the Kent Complaint, and the Thomas Complaint voluntarily dismissed their respective complaints. K - 0 1 m r o F On August 11, 2021, certain of the complaints filed in the U.S. District Court for the Southern District of New York were consolidated and interim co-lead plaintiffs’ counsel were appointed. By January 5, 2022, all Shareholder Complaints were voluntarily dismissed. 119 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 21. Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive income (loss) consists of the following at December 31, 2021 and 2020, respectively (in thousands): Foreign currency translation adjustments . . . . . . . . . . . . . . . . Derivative adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (770) (1,460) $2,069 1,634 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,230) $3,703 Year Ended December 31, 2021 2020 Changes in accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands): Year Ended December 31, 2021 Foreign currency translation adjustments Derivative adjustments Total Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,069 $ 1,634 $ 3,703 Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . . . Amounts reclassified from accumulated other comprehensive loss . . . . Net current-period other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . (2,839) — (2,839) (3,913) 819 (3,094) (6,752) 819 (5,933) Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (770) $(1,460) $(2,230) Year Ended December 31, 2020 Foreign currency translation adjustments Derivative adjustments Total Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,205) $ 1,545 $(2,660) Other comprehensive income before reclassifications . . . . . . . . . . . . . . Amounts reclassified from accumulated other comprehensive 6,274 1,452 7,726 income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1,363) (1,363) Net current-period other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . 6,274 89 6,363 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,069 $ 1,634 $ 3,703 Year Ended December 31, 2019 Foreign currency translation adjustments Derivative adjustments Total Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(20,061) $ (49) $(20,110) Other comprehensive income (loss) before reclassifications . . . . . . . . Amounts reclassified from accumulated other comprehensive loss . . . Net current-period other comprehensive income . . . . . . . . . . . . . . . . . . . . . . 15,856 — 15,856 (2,894) 4,488 1,594 12,962 4,488 17,450 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,205) $ 1,545 $ (2,660) 120 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) There was an income tax benefit of $752 thousand related to changes in accumulated other comprehensive loss for the year ended December 31, 2021. There was an income tax expense of $316 thousand related to changes in accumulated other comprehensive income for the year ended December 31, 2020. 22. Earnings (Loss) Per Share The following table illustrates the computation of basic and diluted earnings (loss) per common share for the years ended December 31, 2021, 2020 and 2019: Year Ended December 31, 2021 2020 2019 (In thousands of U.S. dollars, except share data) Basic earnings (loss) per share Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations, net of tax . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic weighted average common stock outstanding . . . . . . . . . . . . . . Basic earnings (loss) per common share Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per share Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . Add back: Interest expense on Exchangeable Notes . . . . . . . . . . . . . . Income (loss) from continuing operations allocated to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations, net of tax . . . . . . . . . . . Net income (loss) allocated to common stockholders . . . . . . . . . . . . . Basic weighted average common stock outstanding . . . . . . . . . . . . . . Net effect of dilutive equity awards . . . . . . . . . . . . . . . . . . . . . . . . . . Net effect of assumed conversion of 5.0% Exchangeable Notes to $ $ $ $ $ $ $ 56,708 — 56,708 $ $ 57,059 287,906 344,965 $ $ (20,413) (1,413) (21,826) 44,879,412 35,213,525 34,321,888 1.26 — 1.26 56,708 959 57,667 — 57,667 $ $ $ $ $ 1.62 8.18 9.80 57,059 5,708 62,767 287,906 350,673 $ $ $ $ $ (0.59) (0.05) (0.64) (20,413) — (20,413) (1,413) (21,826) 44,879,412 1,403,789 35,213,525 1,145,906 34,321,888 — common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,426,172 10,144,155 — Diluted weighted average common stock outstanding . . . . . . . . . . . . Diluted earnings (loss) per common share Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,709,373 46,503,586 34,321,888 $ $ 1.21 — 1.21 $ $ 1.35 6.19 7.54 $ $ (0.59) (0.05) (0.64) The following outstanding instruments were excluded from the computation of diluted loss per share, as they have an anti-dilutive effect on the calculation: Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 — 651,417 — 2,177,045 1,043,303 Year Ended December 31, 2021 2020 2019 121 K - 0 1 m r o F MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) For the year ended December 31, 2019, 10,153,620 shares of potential common stock from the assumed conversion of Exchangeable Notes were excluded from the computation of diluted loss per share as the effect were anti-dilutive for the period. Rights Plan The Company entered into a Rights Agreement, dated as of December 13, 2021, between the Company and American Stock Transfer & Trust Company, LLC, as rights agent (the “Rights Agreement”), and the Board of Directors of the Company authorized and declared a dividend of one preferred stock purchase right (a “Right” and collectively, the “Rights”) for each share of the Company’s common stock, par value $0.01 per share, outstanding at the close of business on December 23, 2021. Each Right, once exercisable, will entitle the registered holder to purchase from the Company one one-thousandth of a share of Series A-1 Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $80, subject to adjustment (the “Purchase Price”). The Rights are not presently exercisable and remain attached to the shares of common stock unless and until the occurrence of the earlier of the following (the “Distribution Date”): (i) the tenth day after the public announcement or disclosure by the Company or any person or group of affiliated or associated persons that any person or group of affiliated or associated persons has become an “Acquiring Person” by obtaining beneficial ownership of 12.5% (or 20% in the case of a “passive institutional investor,” which is defined generally as any person who has reported beneficial ownership of shares of common stock on Schedule 13G under the Securities Exchange Act of 1934) or more of the Company’s outstanding common stock, subject to certain exceptions; or (ii) the tenth business day (or such later date as the Company’s Board of Directors may designate before a person or group of affiliated or associated persons becomes an Acquiring Person) after (and not including) the commencement of, or first public announcement of the intent of any person to commence, a tender or exchange offer by any person or group of affiliated or associated persons, which would, if consummated, result in such person or group becoming an Acquiring Person. The Board of Directors may redeem all of the Rights for $0.001 per Right at any time before any person or group of affiliated or associated persons becomes an Acquiring Person. In addition, at any time on or after any person or group of affiliated or associated persons becomes an Acquiring Person (but before any person or group of affiliated or associated persons becomes the owner of 50% or more of the Company’s outstanding common stock), the Board of Directors may exchange all or part of the Rights (other than the Rights beneficially owned by the Acquiring Person and certain affiliated persons) for shares of common stock at an exchange ratio of one share of common stock per Right. The Rights will expire at the close of business on December 12, 2022, unless redeemed or exchanged prior to that time. If any person or group of affiliated or associated persons becomes an Acquiring Person, then, after the Distribution Date, each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons or transferees thereof) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock having a market value of twice the Purchase Price. Alternatively, if, after any person or group of affiliated or associated persons becomes an Acquiring Person, (1) the Company is involved in a merger or other business combination in which the Company is not the surviving corporation or its common stock is changed into or exchanged for other securities or assets; or (2) the Company or one or more of its subsidiaries sell or otherwise transfer assets or earning power aggregating more than 50% of the assets or earning power of the Company and its subsidiaries, taken as a whole, then each Right (other than Rights beneficially owned by the Acquiring Person and certain affiliated persons) will entitle the holder to purchase, for the Purchase Price, a number of shares of common stock of the other party to such business combination or sale (or in certain circumstances, an affiliate) having a market value of twice the Purchase Price. 122 MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED) (TABULAR DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 23. Subsequent Events Derivative contracts In January 2022, the Company and NFIK entered into derivative contracts of zero cost collars for the period from January 2023 to June 2023. The total notional amounts are $30,000 thousand. In January 2022, the Company and SC entered into derivative contracts of zero cost collars for the period from October 2022 to December 2022. The total notional amounts are $9,000 thousand. K - 0 1 m r o F 123 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“Principal Executive Officer”) and Chief Financial Officer (“Principal Financial Officer”), as appropriate, to allow for timely decisions regarding required disclosure. Management of the Company, with the participation of our Principal Executive Officer and our Principal Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as of December 31, 2021. Based on this evaluation, our Principal Executive Officer and our Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2021. (b) Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer and our Principal Financial Officer, and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial 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 any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Under the supervision and with the participation of our Principal Executive Officer and our Principal Financial Officer, we conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, we concluded that our internal control over financial reporting was effective as of December 31, 2021. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 has been audited by Samil PricewaterhouseCoopers, an independent registered public accounting firm, as stated in their report which appears in Item 8 of this Report. (c) Changes in Internal Control Over Financial Reporting There were no changes in internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 124 Item 9B. Other Information Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. (e) Effective as of February 23, 2022, Ms. Shin Young Park, the Company’s Chief Financial Officer, entered into an Executive Service Agreement (the “Executive Service Agreement”) with the Company and its Korean subsidiary, Magnachip Semiconductor, Ltd. (“MSK”). In exchange for her services as Chief Financial Officer of the Company and MSK, Ms. Park will be entitled under the Executive Service Agreement to an annual base salary at a rate of $310,000 per annum and shall be eligible to receive and annual cash bonus under the terms of the Company’s cash bonus plan then in effect, with an initial anticipated targeted annual bonus of 50% of Ms. Park’s annual base salary, subject to increase at the discretion of the Board. In addition, Ms. Park will be eligible to participate in the equity incentive program applicable to the Company’s executives, subject, in all cases, as shall be determined and approved by the Board in its sole discretion. Ms. Park will also be entitled to participate in the Company’s standard benefit plans, programs and arrangements in the same manner as the Company’s similarly situated executives. Under the Executive Service Agreement, Ms. Park’s engagement may be terminated with or without cause, with or without good reason, or upon Ms. Park’s death or disability. To the extent that Ms. Park is terminated without cause or Ms. Park resigns for good reason, the Company is obligated under the Executive Service Agreement to (i) (x) pay Ms. Park’s then effective base salary for a period of up to twelve months after the date of termination and (y) if such termination date occurs after June 30 of the calendar year, pay Ms. Park’s pro rated annual bonus with respect to the calendar year in which such termination occurs; provided that the severance payment shall instead equal one and one-half (1.5) times Ms. Park’s then effective base salary to the extent that such termination without cause or resignation for good reason takes place while the Company is party to a definitive corporate transaction, the consummation of which would result in a change of control, or within 18 months following a change of control, and (ii) provide for vesting of any outstanding unvested equity awards as set forth in the 2011 Plan or the 2020 Plan, as applicable and the applicable award agreements. The amounts payable pursuant to the immediately preceding sentence are contingent on Ms. Park’s execution and non-revocation of a general waiver and release of claims agreement and compliance of non-competition, non-disclosure and other covenants contained in the Executive Service Agreement. (e) On February 22, 2022, the Company’s Board of Directors approved the allocation of a discretionary cash retention bonus award pool to certain executive officers and other key employees of the Company, including named executive officers Young-Joon (YJ) Kim, the Company’s Chief Executive Officer, Theodore Kim, the Company’s Chief Compliance Officer and General Counsel, Shin Young Park, the Company’s Chief Financial Officer, Woung Moo Lee, the Company’s General Manager of Worldwide Sales, and Chan Ho Park, the Company’s General Manager of Power Solutions. The purpose of the retention bonus awards is to ensure continued retention of key executive officers and employees, as well as to reward such employees for their substantial contributions in connection with the previously contemplated and terminated merger agreement with an affiliate of Wise Road Capital LTD. The retention bonus awards are expected to be paid in December 2022, subject to the employee’s continued service (unless such employee is terminated without cause or resigns for good reason). The cash retention bonus awards allocated to each named executive officer are: Young-Joon (YJ) Kim ($600,001); Theodore Kim ($529,400); Shin Young Park ($330,875); Woung Moo Lee ($185,290); and Chan Ho Park ($132,350). K - 0 1 m r o F Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable. 125 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item relating to our executive officers is included in “Item 1. Business— Executive Officers of the Company.” The other information required by this item is incorporated by reference to our definitive proxy statement relating to our 2022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates. Item 11. Executive Compensation The information required by this item is incorporated by reference to our definitive proxy statement relating to our 2022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to our definitive proxy statement relating to our 2022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated by reference to our definitive proxy statement relating to our 2022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates. Item 14. Principal Accounting Fees and Services. The information required by this item is incorporated by reference to our definitive proxy statement relating to our 2022 annual meeting of stockholders or will be included by amendment to this Report within 120 days after the end of the fiscal year to which this Report relates. 126 Item 15. Exhibits and Financial Statement Schedules 1. Financial Statements PART IV The information required by this item is included in Item 8 of Part II of this Report. 2. Financial Statement Schedules Financial Statement Schedules are omitted because of the absence of the conditions under which they are required or because the information required by such omitted schedules is set forth in the financial statements or the notes thereto. 3. Exhibits Exhibit No. 2.1 2.2-1 2.2-2 2.2-3 2.2-4 3.1 3.2 3.3 3.4 3.5 3.6 Exhibit Description Business Transfer Agreement, dated as of March 31, 2020 among by and among Magnus Semiconductor, LLC, MagnaChip Semiconductor S.A. and MagnaChip Semiconductor, Ltd. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 31, 2020) Agreement and Plan of Merger, dated as of March 25, 2021, by and among South Dearborn Limited, Michigan Merger Sub, Inc., and Magnachip Semiconductor Corporation (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on March 29, 2021). Letter Agreement, dated as of June 11, 2021, by and among Magnachip Semiconductor Corporation, South Dearborn Limited and Michigan Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on June 14, 2021). Letter Agreement, dated as of August 23, 2021, by and among Magnachip Semiconductor Corporation, South Dearborn Limited and Michigan Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on August 23, 2021) Termination and Settlement Agreement, dated December 13, 2021 by and between Magnachip Semiconductor Corporation and South Dearborn Limited (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K on December 13, 2021) Certificate of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 11, 2011). Certificate of Incorporation of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on March 11, 2011). Certificate of Amendment to the Certificate of Incorporation of Magnachip Semiconductor Corporation (incorporated by reference to Exhibit 3.1 to our Current report on Form 8-K filed on December 30, 2020) Amended and Restated Bylaws of MagnaChip Semiconductor Corporation (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 6, 2016). Form of Plan of Conversion of MagnaChip Semiconductor LLC (incorporated by reference to Exhibit 3.6 to our Amendment No. 2 to Registration Statement on Form S-1 filed on May 11, 2010 (Registration No. 333-165467)). Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of MagnaChip Semiconductor Corporation, as filed with the Secretary of the State of Delaware on March 6, 2015 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 6, 2015). 127 K - 0 1 m r o F Exhibit No. 3.7 4.1# 4.2 10.1 10.2 10.3* 10.4* 10.5* 10.6* 10.7* 10.7-1* 10.7-2* 10.7-3* 10.7-4* Certificate of Designation of Series A-1, Junior Participating Preferred Stock of Magnachip Semiconductor Corporation, as filed with the Secretary of State of Delaware on December 13, 2021. Exhibit Description Description of Securities Rights Agreement, dated December 13, 2021 by and between Magnachip Semiconductor Corporation and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K on December 13, 2021) Intellectual Property License Agreement, dated as of October 6, 2004, by and between Hynix Semiconductor Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.2 to our Amendment No. 1 to Registration Statement on Form S-1 filed on April 20, 2010 (Registration No. 333-165467)). Amended & Restated License Agreement (TrenchDMOS), dated as of September 19, 2007, by and between Advanced Analogic Technologies, Inc. and MagnaChip Semiconductor, Ltd. (Korea) (incorporated by reference to Exhibit 10.8 to Amendment No. 2 to MagnaChip Semiconductor S.A.’s and MagnaChip Semiconductor Finance Company’s Registration Statement on Form S-4 (Registration No. 333-168516) filed on October 14, 2010). MagnaChip Semiconductor Corporation 2011 Equity Incentive Plan (as amended on April 26, 2018) (incorporated by reference to Exhibit 10.24 to our Annual Report on Form 10-K filed on February 22, 2019). MagnaChip Semiconductor Corporation 2020 Equity and Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 17, 2020). MagnaChip Semiconductor Corporation 2011 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). MagnaChip Semiconductor Corporation Form of Indemnification Agreement with Directors and Officers (incorporated by reference to Exhibit 10.49 to our Registration Statement on Form S-1 filed on March 15, 2010 (Registration No. 333-165467)). Offer Letter, dated as of April 15, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Young-Joon Kim (incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K filed on February 12, 2015). Amendment of Offer Letter, dated July 27, 2015, from MagnaChip Semiconductor, Ltd. (Korea) to Young-Joon Kim (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on November 6, 2015). Severance Agreement, dated November 3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Young-Joon Kim (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed on November 6, 2015). Employment Agreement, dated as of April 26, 2018, by and between MagnaChip Semiconductor Corporation and Young Joon Kim (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 27, 2018). Amendment to Employment Agreement by and between MagnaChip Semiconductor Corporation and Young Joon Kim, dated as of September 3, 2018 (incorporated by reference to Exhibit 10.29-4 to our Annual Report on Form 10-K filed on February 22, 2019). 10.7-5* Form of Restricted Stock Units Agreement for Chief Executive Officer (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on April 27, 2018). 128 Exhibit No. 10.7-6* 10.7-7* 10.8* 10.8-1* 10.8-2* 10.9* 10.9-1* 10.9-2* 10.9-3* 10.10* 10.11* 10.12* 10.13* 10.14* Exhibit Description Form of Restricted Stock Units Agreement (TSR Performance) for Chief Executive Officer (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on April 27, 2018). Form of Restricted Stock Units Agreement (AOP Performance) for Chief Executive Officer (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on April 27, 2018). Offer Letter, dated as of September 27, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Theodore Kim (incorporated by reference to Exhibit 10.37 to our Annual Report on Form 10-K filed on February 12, 2015). Severance Agreement, dated November 3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Theodore S. Kim (incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed on November 6, 2015). Employment Agreement, dated as of October 22, 2018, by and between MagnaChip Semiconductor Corporation and Theodore Kim (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 26, 2018). Offer Letter, dated as of October 16, 2013, by and between MagnaChip Semiconductor, Ltd. (Korea) and Woung Moo Lee (incorporated by reference to Exhibit 10.36 to our Annual Report on Form 10-K filed on February 22, 2016). Severance Agreement, dated November 3, 2015, from MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor Corporation to Woung Moo Lee (incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q filed on November 6, 2015). Employment Agreement, dated as of October 22, 2018, by and between MagnaChip Semiconductor Corporation and Woung Moo Lee (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on October 26, 2018). Separation Agreement, dated as of December 29, 2021 among Magnachip Semiconductor, Ltd. (Korea), Magnachip Semiconductor Corporation and Young Soo Woo (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 3, 2022). Executive Service Agreement, dated as of May 25, 2020, by and between Young Soo Woo, MagnaChip Semiconductor Corporation and MagnaChip Semiconductor, Ltd. (incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q filed on August 7, 2020) Executive Service Agreement, dated as of June 1, 2020, by and between Chan Ho Park, MagnaChip Semiconductor Corporation and MagnaChip Semiconductor, Ltd. (incorporated by reference to Exhibit 10.9 to our Quarterly Report on Form 10-Q filed on August 7, 2020) MagnaChip Semiconductor LLC Profit Sharing Plan as adopted on December 31, 2009 and amended on February 15, 2010 (incorporated by reference to Exhibit 10.54 to our Quarterly Report on Form 10-Q filed on August 5, 2011). MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement (U.S. Participants) (incorporated by reference to Exhibit 10.55 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). MagnaChip Semiconductor Corporation 2011 Form of Stock Option Agreement (Non-U.S. Participants) (incorporated by reference to Exhibit 10.56 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 129 K - 0 1 m r o F Exhibit No. Exhibit Description 10.15* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (U.S. Participants) (incorporated by reference to Exhibit 10.57 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.16* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (Non-U.S. Participants) (incorporated by reference to 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)). 10.17* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement (U.S. Participants) (incorporated by reference to Exhibit 10.59 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.18* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Agreement (Non-U.S. Participants) (incorporated by reference to Exhibit 10.60 to our Amendment No 9 to the Registration Statement on Form S-1 filed on February 18, 2011 (Registration No. 333-165467)). 10.19* MagnaChip Semiconductor Corporation 2011 Form of Restricted Stock Units Agreement (Nonemployee Director) (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed on May 6, 2016). 10.20* 10.21* 10.22* Form of Restricted Stock Units Agreement (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on October 26, 2018). Form of Restricted Stock Units Agreement (TSR Performance) (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on October 26, 2018). Form of Restricted Stock Units Agreement (AOP Performance) (incorporated by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on October 26, 2018). 10.23* MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement (Non-employee Directors) (incorporated by reference to Exhibit 99.2 to our Registration Statement on Form S-8 filed on July 15, 2020) 10.24* MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement (Section 16 Officers) (incorporated by reference to Exhibit 99.3 to our Registration Statement on Form S-8 filed on July 15, 2020). 10.25* MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—Financial Performance (CEO) (incorporated by reference to Exhibit 99.4 to our Registration Statement on Form S-8 filed on July 15, 2020). 10.26* MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—Financial Performance (Non-CEO Section 16 Officers) (incorporated by reference to Exhibit 99.5 to our Registration Statement on Form S-8 filed on July 15, 2020). 10.27* MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—TSR Performance (CEO) (incorporated by reference to Exhibit 99.6 to our Registration Statement on Form S-8 filed on July 15, 2020). 10.28* MagnaChip Semiconductor Corporation 2020 Form of Restricted Stock Units Agreement—TSR Performance (Non-CEO Section 16 Officers) (incorporated by reference to Exhibit 99.7 to our Registration Statement on Form S-8 filed on July 15, 2020). 10.29 ASR Agreement, dated December 21, 2021 by and between Magnachip Semiconductor Corporation and JPMorgan Chase Bank, National Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 23, 2021) 130 Exhibit No. 10.30# 21.1# 23.1# 31.1# 31.2# 32.1† 32.2† Executive Service Agreement, effective as of February 23, 2022, by and between Shin Young Park, Magnachip Semiconductor Corporation and Magnachip Semiconductor, Ltd. Exhibit Description Subsidiaries of the Registrant Consent of Samil PricewaterhouseCoopers Certification of Chief Executive Officer required by Rule 13(a)-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer required by Rule 13(a)-14(a), as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer required by 18 U.S.C § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer required by 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 101.INS# Inline XBRL Instance Document 101.SCH# Inline XBRL Taxonomy Extension Schema Document 101.CAL# Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF# Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB# Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE# Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). Footnotes: (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 Item 16. Form 10-K Summary None. K - 0 1 m r o F 131 Pursuant 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 on its behalf by the undersigned, thereunto duly authorized. SIGNATURES MAGNACHIP SEMICONDUCTOR CORPORATION By: /s/ Young-Joon Kim Name: Young-Joon Kim Title: Chief Executive Officer and Director Date: February 23, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Young-Joon Kim Young-Joon Kim, Chief Executive Officer and Director (Principal Executive Officer) /s/ Shin Young Park Shin Young Park, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Melvin Keating Melvin Keating, Director /s/ Ilbok Lee Ilbok Lee, Director /s/ Camillo Martino Camillo Martino, Non-Executive Chairman of the Board of Directors /s/ Gary Tanner Gary Tanner, Director /s/ Liz Chung Liz Chung, Director Date February 23, 2022 February 23, 2022 February 23, 2022 February 23, 2022 February 23, 2022 February 23, 2022 February 23, 2022 132 

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