PR Newswire | Feb 17, 2021 04:02PM EST

02/17 15:01 CST

Magnachip Reports Results for Fourth Quarter and Year 2020- Fourth quarter revenue of $142.9 million was up 14.5% sequentially and up 15.9% year-over-year (YoY). It surpassed the midpoint of October guidance by $10.9 million; Full-year revenue of $507.1 million decreased 2.6% YoY due mainly to the exit from the non-automotive LCD business.- Fourth quarter OLED DDIC revenue of $80.4 million set a new quarterly record, representing a 19.0% sequential increase and a 19.4% increase YoY; Full-year OLED revenue of $284.6 million increased 6.5% YoY.- Gross profit margin for the fourth quarter was 26.9%, up 400 bps sequentially and up 220 bps YoY; Full-year gross profit margin of 25.3% was an increase of 290 bps YoY due mainly to product mix improvement.- GAAP diluted earnings per share (EPS) for the fourth quarter was $1.45; Full-year GAAP EPS was $7.54.- Non-GAAP diluted EPS from continuing operations was 40 cents; Full-year non-GAAP EPS from continuing operations was 73 cents.- Cash use of $227.4 million to fully redeem the 6.625% Senior Notes due 2021; Stockholder's equity turned positive to reach $345.6 million at the end of 2020 versus negative $15 million in 2019. SEOUL, South Korea, Feb. 17, 2021

SEOUL, South Korea, Feb. 17, 2021 /PRNewswire/ -- Magnachip Semiconductor Corporation (NYSE: MX) ("Magnachip" or the "Company") today announced financial results for the fourth quarter and full-year 2020.

Commenting on the results for the fourth quarter of 2020, YJ Kim, Magnachip's chief executive officer stated, "Magnachip's Q4 results exceeded our expectations, capping off one of the most challenging years for any of us. Our Q4 results demonstrated counter-seasonal strength with a 14.5% sequential revenue growth and GAAP operating income margin of 6.4%, and Non-GAAP adjusted operating income margin of 10.7% driven by a strong ramp-up in 5G as well as effective cost management."

Commenting on the full-year, YJ stated, "2020 was an exceptional year for Magnachip, despite the challenges presented by the pandemic. We entered MX 3.0, the exciting new chapter of growth, with a sharpened focus as a pure-play standard products company, renewed energy, and a clear mission of empowering our customers. Under MX 3.0, we set long-term financial targets that we would like to achieve by 2023. While we recognize the path will not always be a straight line, the exciting opportunities ahead of us only reinforce our confidence in our growth outlook. I am proud of and thankful for our amazing group of dedicated employees who continued to deliver extraordinary results in 2020."

Q4 and 2020 Financial Highlights



In thousands of US dollars, except share data

GAAP

Q4 2020 Q3 2020 Q/Q change Q4 2019 Y/Y change

Revenues

Standard Products Business

Display Solutions 82,705 69,583 up 18.9% 75,490 up 9.6%

Power Solutions 46,861 46,679 up 0.4% 37,814 up 23.9%

Transitional Fab 3 foundry 13,379 8,551 up 56.5% 10,048 up 33.2% services^(1)

Gross Profit Margin 26.9% 22.9% up 4.0% pts 24.7% up 2.2% pts

Operating Income 9,206 3,223 up 185.6% 5,691 up 61.8%

Net Income ^(2) 66,581 272,962 down 75.6% 23,426 up 184.2%

Basic Earnings per Common 1.87 7.74 down 75.8% 0.68 up 175.0%Share

Diluted Earnings per Common 1.45 5.89 down 75.4% 0.54 up 168.5%Share

In thousands of US dollars, except share data

Non-GAAP^(3)

Q4 2020 Q3 2020 Q/Q change Q4 2019 Y/Y change

Adjusted Operating Income 15,355 8,823 up 74.0% 10,136 up 51.5%

Adjusted EBITDA 18,582 11,731 up 58.4% 12,794 up 45.2%

Adjusted Net Income 17,268 5,147 up 235.5% 6,620 up 160.8%

Adjusted Earnings per 0.40 0.14 up 185.7% 0.17 up 135.3%Common Share-Diluted



In thousands of US dollars, except share data

GAAP

2020 2019 Y/Y Change

Revenues

Standard Products Business

Display Solutions 299,057 308,531 down 3.1%

Power Solutions 166,462 176,316 down 5.6%

Transitional Fab 3 foundry services^(1) 41,540 35,824 up 16.0%

Gross Profit Margin 25.3% 22.4% up 2.9% pts

Operating Income 27,016 23,725 up 13.9%

Net Income (Loss) ^(2) 344,965 (21,826) up 1680.5%

Basic Earnings (Loss) per Common Share 9.80 (0.64) up 1631.3%

Diluted Earnings (Loss) per Common Share 7.54 (0.64) up 1278.1%

In thousands of US dollars, except share data

Non-GAAP^(3)

2020 2019 Y/Y Change

Adjusted Operating Income 41,584 30,416 up 36.7%

Adjusted EBITDA 52,919 40,923 up 29.3%

Adjusted Net Income 28,260 8,954 up 215.6%

Adjusted Earnings per Common Share-Diluted 0.73 0.25 up 192.0%

(1) Following the consummation of the sale of the Foundry Services Groupbusiness and Fab 4 in Q3 2020, and for a period of up to three years, theCompany will provide transitional foundry services to the buyer for foundryproducts manufactured in the Company's fabrication facility located in Gumi("Transitional Fab 3 Foundry Services"). Management believes that disclosingrevenue of Transitional Fab 3 Foundry Services separately from the standardproducts business allows investors to better understand the results of our corestandard products display solutions and power solutions businesses.

(2) In Q4 2020, total net income of $66.6 million included one-time recognitionof deferred tax benefits of $43.9 million. In Q3 2020, total net income of$273.0 million included income from discontinued operations, net of tax, of$264.5 million, primarily attributable to the recognition of $287.1 million asgain on sale of the Foundry Services Group business and Fab 4.

(3) Non-GAAP financial measures are calculated based on the results fromcontinuing operations. Management believes that non-GAAP financial measures,when viewed in conjunction with GAAP results, can provide a meaningfulunderstanding of the factors and trends affecting Magnachip's business andoperations and assist in evaluating our core operating performance. However,such non-GAAP financial measures have limitations and should not be consideredas a substitute for net income from continuing operations or as a betterindicator of our operating performance than measures that are presented inaccordance with GAAP. A reconciliation of GAAP results to non-GAAP results isincluded in this press release.

Q1 2021 Financial GuidanceThe COVID-19 global pandemic is not behind us and continues to reduce our forward visibility. Q1 is our seasonally low quarter, but the demand in most of our end markets remains very healthy. Currently, the industry is going through severe supply constraints. While we are leaving some demand unmet in Q1 due to supply constraints, we are working closely with our strategic customer and our foundry partners to address supply constraints, and we expect the supply situation to improve later in the quarter. While actual results may vary, Magnachip currently anticipates for Q1 2021:

* Revenue to be in the range of $119 million to $124 million, including about $10 million of the Transitional Fab 3 Foundry Services. * Gross profit margin to be in the range of 25% to 27%.

Q42020 Earnings Conference CallMagnachip will host a conference call at 5 p.m. Eastern Time on February 17, 2021. The conference call will be webcast live and also is available by dialing toll-free at 1-844-536-5472. International call-in participants can dial 1-614-999-9318. The conference ID number is 6298187. Participants are encouraged to initiate their calls at least 10 minutes in advance of the 5 p.m. Eastern Time start time to ensure a timely connection. The webcast and earnings release will be accessible at www.magnachip.com. A replay of the conference call will be available the same day and will run for 72 hours. The replay dial-in numbers are 1-404-537-3406 or toll-free at 1-855-859-2056. The access code is 6298187.

Safe Harborfor Forward-Looking StatementsInformation in this release regarding Magnachip's forecasts, business outlook, expectations and beliefs are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These statements include statements about Magnachip's future operating and financial performance, outlook and business plans, including first quarter 2021 revenue and gross profit margin expectations, and the impact of the COVID-19 pandemic, escalated trade tensions and supply constraints on Magnachip's first quarter 2021 and future operating results. All forward-looking statements included in this release are based upon information available to Magnachip as of the date of this release, which may change, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include the impact of changes in macroeconomic and/or general economic conditions, including those caused by or related to the COVID-19 outbreak, recessions, economic instability and the outbreak of disease; the impact of competitive products and pricing; timely design acceptance by our customers; timely introduction of new products and technologies; ability to ramp new products into volume production; industry wide shifts in supply and demand for semiconductor products; industry and/or company overcapacity; effective and cost efficient utilization of manufacturing capacity; financial stability in foreign markets and the impact of foreign exchange rates; unanticipated costs and expenses or the inability to identify expenses which can be eliminated; compliance with U.S. and international trade and export laws and regulations by us and our distributors; change or ratification of local or international laws and regulations, including those related to environment, health and safety; public health issues, including the COVID-19 pandemic; other business interruptions that could disrupt supply or delivery of, or demand for, Magnachip's products, including uncertainties regarding the impacts of the COVID-19 pandemic that may result in factory closures, reduced workforces, scarcity of raw materials and goods produced in infected areas, as well as reduced consumer and business spending affecting demand for Magnachip's products due to government and private sector mandatory business closures, travel restrictions or the like to prevent the spread of disease; and other risks detailed from time to time in Magnachip's filings with the SEC, including our Form 10-K filed on February 21, 2020, our Form 10-Qs filed on May 11, 2020, August 7, 2020 and November 6, 2020 (including that the impact of the COVID-19 pandemic, trade tensions and supply constraints may also exacerbate the risks discussed therein) and subsequent registration statements, amendments or other reports that we may file from time to time with the Securities and Exchange Commission and/or make available on our website. Magnachip assumes no obligation and does not intend to update the forward-looking statements provided, whether as a result of new information, future events or otherwise.

About Magnachip Semiconductor

Magnachip is a designer and manufacturer of analog and mixed-signal semiconductor platform solutions for communications, IoT, consumer, industrial and automotive applications. The Company provides a broad range of standard products to customers worldwide. Magnachip, with more than 40 years of operating history, owns a portfolio of approximately 1,200 registered patents and pending applications, and has extensive engineering, design and manufacturing process expertise. For more information, please visit www.magnachip.com. Information on or accessible through Magnachip's website is not a part of, and is not incorporated into, this release.

CONTACTS:

In the United States: In Korea:

So-Yeon Jeong Chankeun Park

Head of Investor Relations Director of Public Relations

Tel. +1-408-712-6151 Tel. +82-2-6903-5223

Investor.relations@magnachip.com chankeun.park@magnachip.com

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share data) (Unaudited)

Three Months Ended Year Ended

December 31, December 31, December 31, December 31, September 30,

2020 2020 2019 2020 2019

Revenues:

Net sales -standard products $ 129,566 $ 116,262 $ 113,304 $ 465,519 $ 484,847business

Net sales -transitional Fab 3 13,379 8,551 10,048 41,540 35,824foundry services

Total revenues 142,945 124,813 123,352 507,059 520,671

Cost of sales:

Cost of sales -standard products 92,503 87,494 82,807 338,420 368,450business

Cost of sales -transitional Fab 3 11,981 8,731 10,048 40,322 35,824foundry services

Total cost of 104,484 96,225 92,855 378,742 404,274sales

Gross profit 38,461 28,588 30,497 128,317 116,397

Gross profit as apercentage ofstandard products

business net sales 28.6% 24.7% 26.9% 27.3% 24.0%

Gross profit as apercentage of 26.9% 22.9% 24.7% 25.3% 22.4%total revenues

Operatingexpenses:

Selling, generaland administrative 12,576 12,888 13,778 49,974 47,595expenses

Research anddevelopment 11,604 12,477 10,975 45,698 45,024expenses

Early termination 5,075 - 53 5,629 53and other charges

Total operating 29,255 25,365 24,806 101,301 92,672expenses

Operating income: 9,206 3,223 5,691 27,016 23,725

Interest expense (1,625) (5,485) (5,542) (18,147) (22,157)

Foreign currency 13,256 8,864 21,850 (382) (22,316)gain (loss), net

Loss on earlyextinguishment of (766) - - (766) (42)borrowings, net

Other income, net 767 714 761 3,110 2,577

Income (loss) fromcontinuingoperations before

income tax expense 20,838 7,316 22,760 10,831 (18,213)

Income tax expense (47,064) (1,145) (1,116) (46,228) 2,200(benefit)

Income (loss) fromcontinuing 67,902 8,461 23,876 57,059 (20,413)operations

Income (loss) fromdiscontinued (1,321) 264,501 (450) 287,906 (1,413)operations, net oftax

Net income (loss) $ 66,581 $ 272,962 $ 23,426 $ 344,965 $ (21,826)

Basic earnings(loss) per commonshare-

Continuing $ 1.91 $ 0.24 $ 0.69 $ 1.62 $ (0.59)operations

Discontinued (0.04) 7.50 (0.01) 8.18 (0.05)operations

Total $ 1.87 $ 7.74 $ 0.68 $ 9.80 $ (0.64)

Diluted earnings(loss) per commonshare-

Continuing $ 1.47 $ 0.21 $ 0.55 $ 1.35 $ (0.59)operations

Discontinued (0.02) 5.68 (0.01) 6.19 (0.05)operations

Total $ 1.45 $ 5.89 $ 0.54 $ 7.54 $ (0.64)

Weighted averagenumber of shares-

Basic 35,582,966 35,280,864 34,542,415 35,213,525 34,321,888

Diluted 47,062,903 46,581,788 46,078,768 46,503,586 34,321,888

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share data)

(Unaudited)

December 31, December 31, 2020 2019

Assets

Current assets

Cash and cash equivalents $ 279,940 $ 151,657

Accounts receivable, net 64,390 47,447

Inventories, net 39,039 41,404

Other receivables 4,338 10,200

Prepaid expenses 7,332 9,003

Hedge collateral 5,250 9,820

Other current assets 9,321 10,013

Current assets held for sale - 99,821

Total current assets 409,610 379,365

Property, plant and equipment, net 96,383 73,068

Operating lease right-of-use assets 4,632 1,876

Intangible assets, net 2,727 2,769

Long-term prepaid expenses 4,058 5,757

Deferred income taxes 44,541 155

Other non-current assets 9,739 8,904

Non-current assets held for sale - 123,434

Total assets $ 571,690 $ 595,328

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $ 52,164 $ 40,376

Other accounts payable 2,531 6,410

Accrued expenses 16,241 44,799

Accrued income taxes 12,398 1,569

Operating lease liabilities 2,210 1,625

Current portion of long-term borrowings, net 83,479 -

Other current liabilities 4,595 2,014

Current liabilities held for sale - 37,040

Total current liabilities 173,618 133,833

Long-term borrowings, net - 304,743

Accrued severance benefits, net 40,462 51,181

Non-current operating lease 2,422 251liabilities

Other non-current liabilities 9,588 9,420

Non-current liabilities held for sale - 110,881

Total liabilities 226,090 610,309

Commitments and contingencies

Stockholders' equity

Common stock, $0.01 par value, 150,000,000 sharesauthorized, 44,943,854 shares issued and35,783,347 outstanding at December 31, 2020 and 450 43943,851,991 shares issued and 34,800,312outstanding at December 31, 2019

Additional paid-in capital 163,010 152,404

Retained earnings (deficit) 286,834 (58,131 )

Treasury stock, 9,160,507 shares at December 31,2020 and 9,051,679 shares at December 31, 2019, (108,397 ) (107,033 )respectively

Accumulated other comprehensive income (loss) 3,703 (2,660 )

Total stockholders' equity (deficit) 345,600 (14,981 )

Total liabilities and stockholders' $ 571,690 $ 595,328equity

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

Three Months Ended Year Ended

December 31, December 31, December 31,

2020 2020 2019

Cash flows from operatingactivities

Net income (loss) $ 66,581 $ 344,965 $ (21,826)

Adjustments to reconcile netincome (loss) to net cashprovided (used in)

by operating activities

Depreciation and amortization 3,148 16,481 32,729

Provision for severance benefits 2,593 16,743 17,139

Amortization of debt issuancecosts and original issue 396 2,220 2,299discount

Loss (gain) on foreign currency, (29,842) (23,233) 24,692net

Restructuring and other charges 3,502 3,502 3,598

Provision for inventory reserves (384) 3,695 10,468

Stock-based compensation 1,945 6,699 6,952

Loss on early extinguishment of 766 766 42borrowings, net

Gain on sale of discontinued - (287,117) -operations

Others, net 132 217 247

Changes in operating assets andliabilities

Accounts receivable, net (2,685) (19,268) (19,824)

Unbilled accounts receivable, - 14,260 19,274net

Inventories (2,206) (816) (14,678)

Other receivables 843 6,954 (6,200)

Deferred income tax assets (44,440) (44,441) 35

Other current assets 4,418 13,561 11,984

Accounts payable 8,626 3,960 7,375

Other accounts payable (3,966) (12,000) (8,518)

Accrued expenses (30,747) (28,756) 5,279

Accrued income taxes (1,721) 10,825 267

Deferred revenue (478) 2,174 (4,768)

Other current liabilities 688 279 (4,727)

Other non-current liabilities 653 3,521 (306)

Contributions to severance (11,885) (11,921) (2,262)insurance deposit accounts

Payment of severance benefits (6,188) (12,076) (9,288)

Others, net (3,820) (3,724) 514

Net cash provided by (used in) (44,071) 7,470 50,497operating activities

Cash flows from investingactivities

Proceeds from settlement of 5,733 13,762 13,583hedge collateral

Payment of hedge collateral (998) (8,839) (17,833)

Proceeds from disposal of plant, 59 65 202property and equipment

Purchase of property, plant and (19,747) (36,100) (22,955)equipment

Payment for intellectual (77) (741) (1,103)property registration

Collection of guarantee deposits 133 1,024 549

Payment of guarantee deposits (625) (1,236) (1,349)

Proceeds from sale of - 350,553 -discontinued operations

Other, net (26) (6) 9

Net cash provided by (used in) (15,548) 318,482 (28,897)investing activities

Cash flows from financingactivities

Repurchase of long-term (224,250) (224,250) (1,175)borrowings

Proceeds from exercise of stock 1,228 3,918 2,860options

Acquisition of treasury stock (104) (1,125) (2,702)

Repayment of financing relatedto water treatment facility (144) (546) (552)arrangement

Others (113) (278) (233)

Net cash used in financing (223,383) (222,281) (1,802)activities

Effect of exchange rates on cash 20,831 24,612 (579)and cash equivalents

Net increase (decrease) in cash (262,171) 128,283 19,219and cash equivalents

Cash and cash equivalents

Beginning of the period 542,111 151,657 132,438

End of the period $ 279,940 $ 279,940 $ 151,657

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

RECONCILIATION OF OPERATING INCOME TO ADJUSTED OPERATING INCOME

(In thousands of U.S. dollars)

(Unaudited)

Three Months Ended Year Ended

December 31, September 30, December 31, December 31, December 31,

2020 2020 2019 2020 2019

Operating $ 9,206 $ 3,223 $ 5,691 $ 27,016 $ 23,725income

Adjustments:

Equity-basedcompensation 1,945 2,101 4,392 6,311 6,053expense

Earlytermination 5,075 - 53 5,629 53and othercharges

Inventoryreserverelated toHuawei (871) 2,331 - 1,460 -impact ofdownstreamtraderestrictions

Expensesrelated to - 1,168 - 1,168 -Fab 3 poweroutage

Others - - - - 585

Adjustedoperating $ 15,355 $ 8,823 $ 10,136 $ 41,584 $ 30,416income

We present Adjusted Operating Income as supplemental measures of our performance. We define Adjusted Operating Income for the periods indicated as operating income adjusted to exclude (i) Equity-based compensation expense, (ii) Early termination and other charges, (iii) Inventory reserve related to Huawei impact of downstream trade restrictions, (iv) Expenses related to Fab 3 power outage and (v) Others. For the year ended December 31, 2020, Early termination and other charges eliminate $5,629 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. During the same period, inventory reserve related to Huawei eliminates a net charge of $1,460 thousand that we recorded in relation to the U.S. Government's export restrictions on Huawei, and expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the year ended December 31, 2019, others eliminates a $585 thousand legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.

MAGNACHIP SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND ADJUSTED NET INCOME

(In thousands of U.S. dollars, except share data)

(Unaudited)

Three Months Ended Year Ended

December 31, September 30, December 31, December 31, December 31.

2020 2020 2019 2020 2019

Income (loss)from continuing $ 67,902 $ 8,461 $ 23,876 $ 57,059 $ (20,413)operations

Adjustments:

Interest 863 4,875 4,675 15,404 19,451expense, net

Income taxexpense (47,064) (1,145) (1,116) (46,228) 2,200(benefit)

Depreciationand 3,148 2,854 2,615 11,116 10,318amortization

EBITDA 24,849 15,045 30,050 37,351 11,556

Equity-basedcompensation 1,945 2,101 4,392 6,311 6,053expense

Earlytermination and 5,075 - 53 5,629 53other charges

Foreigncurrency loss (13,256) (8,864) (21,850) 382 22,316(gain), net

Derivativevaluation loss 74 (50) 149 (148) 318(gain), net

Loss on earlyextinguishment 766 - - 766 42of borrowings,net

Inventoryreserve relatedto Huaweiimpact of (871) 2,331 - 1,460 -downstreamtraderestrictions

Expensesrelated to Fab - 1,168 - 1,168 -3 power outage

Others - - - - 585

Adjusted EBITDA 18,582 11,731 12,794 52,919 40,923

Income (loss)from continuing $ 67,902 $ 8,461 $ 23,876 $ 57,059 $ (20,413)operations

Adjustments:

Equity-basedcompensation 1,945 2,101 4,392 6,311 6,053expense

Earlytermination and 5,075 - 53 5,629 53other charges

Foreigncurrency loss (13,256) (8,864) (21,850) 382 22,316(gain), net

Derivativevaluation loss 74 (50) 149 (148) 318(gain), net

Loss on earlyextinguishment 766 - - 766 42of borrowings,net

Inventoryreserve relatedto Huaweiimpact of (871) 2,331 - 1,460 -downstreamtraderestrictions

Expensesrelated to Fab - 1,168 - 1,168 -3 power outage

GAAP and cashtax expense (43,874) - - (43,874) -difference

Others - - - - 585

Income taxeffect on (493) - - (493) -non-GAAPadjustments

Adjusted Net $ 17,268 $ 5,147 $ 6,620 $ 28,260 $ 8,954Income

Adjusted NetIncome percommon share-

- Basic $ 0.49 $ 0.15 $ 0.19 $ 0.80 $ 0.26

- Diluted $ 0.40 $ 0.14 $ 0.17 $ 0.73 $ 0.25

Weightedaverage number 35,582,966 35,280,864 34,542,415 35,213,525 34,321,888of shares -basic

Weightedaverage number 47,062,903 46,581,788 46,078,768 46,503,586 35,405,077of shares -diluted

We present Adjusted EBITDA and Adjusted Net Income as supplemental measures of our performance. We define Adjusted EBITDA for the periods indicated as EBITDA (as defined below), adjusted to exclude (i) Equity-based compensation expense, (ii) Early termination and other charges, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss (gain), net, (v) Loss on early extinguishment of borrowings, net, (vi) Inventory reserve related to Huawei impact of downstream trade restrictions, (vii) Expenses related to Fab 3 power outage and (viii) Others. For the year ended December 31, 2020, Early termination and other charges eliminate $5,629 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. During the same period, inventory reserve related to Huawei eliminates a net charge of $1,460 thousand that we recorded in relation to the U.S. Government's export restrictions on Huawei, and expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the year ended December 31, 2019, others eliminates a $585 thousand legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.

EBITDA for the periods indicated is defined as Income (loss) from continuing operations before interest expense, net, income tax expense (benefit) and depreciation and amortization. We prepare Adjusted Net Income 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 is particularly useful because it reflects the impact of our asset base and capital structure on our operating performance. We define Adjusted Net Income for the periods as income (loss) from continuing operations, adjusted to exclude (i) Equity-based compensation expense, (ii) Early termination and other charges, (iii) Foreign currency loss (gain), net, (iv) Derivative valuation loss (gain), net, (v) Loss on early extinguishment of borrowings, net, (vi) Inventory reserve related to Huawei impact of downstream trade restrictions, (vii) Expenses related to Fab 3 power outage, (viii) GAAP and cash tax expense difference, (ix) Others and (x) Income tax effect on non-GAAP adjustments. For the year ended December 31, 2020, Early termination and other charges eliminate $5,629 thousand, of which $4,422 thousand related to the reduction of workforce under a voluntary resignation program and non-recurring professional service fees and expenses incurred in connection with certain treasury and finance initiatives. During the same period, inventory reserve related to Huawei eliminates a net charge of $1,460 thousand that we recorded in relation to the U.S. Government's export restrictions on Huawei, and expenses related to Fab 3 power outage eliminate $1,168 thousand related to the write-off of the damaged work in process wafers and charges for facility recovery. For the year ended December 31, 2019, others eliminates a $585 thousand legal settlement charge related to dispute with a prior customer and a legal expense related to the indemnification of a former employee, which was borne by us under a negotiated separation agreement during the three months ended March 31, 2019.

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SOURCE Magnachip Semiconductor Corporation