15. Condensed Consolidating Financial Information

The Company’s $203.7 million senior notes are guaranteed by the Company and all of its subsidiaries, except for MagnaChip Semiconductor, Ltd. (Korea) and MagnaChip Semiconductor (Shanghai) Company Limited. These guarantees are full and unconditional, subject to certain customary release provisions, as well as joint and several.

The senior notes are structurally subordinated to the creditors of the Company’s principal manufacturing and selling subsidiary, MagnaChip Semiconductor, Ltd. (Korea), which accounts for substantially all of the Company’s net sales and assets.

Below are condensed consolidating balance sheets as of September 30, 2012 and December 31, 2011, condensed consolidating statements of comprehensive income for the three months and nine months ended September 30, 2012 and 2011 and condensed consolidating statements of cash flows for the nine months ended September 30, 2012 and 2011 of those entities that guarantee the senior notes, those that do not, MagnaChip Semiconductor Corporation, and the co-issuers.

For the purpose of the guarantor financial information, the investments in subsidiaries are accounted for under the equity method.

Condensed Consolidating Balance Sheets

September 30, 2012


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non- Guarantors			Guarantors			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	827		$	12,253		$	145,921		$	6,657		$	—		$	165,658
Restricted cash		—			—			136			—			—			136
Accounts receivable, net		—			—			149,507			22,328			(23,298	)		148,537
Inventories, net		—			—			75,020			—			—			75,020
Other receivables		399			36,276			7,790			364			(42,732	)		2,097
Prepaid expenses		102			—			11,580			335			(2,897	)		9,120
Other current assets		78,395			226,332			15,430			192,979			(493,866	)		19,270

Total current assets		79,723			274,861			405,384			222,663			(562,793	)		419,838

Property, plant and equipment, net		—			—			229,539			93			—			229,632
Intangible assets, net		—			—			16,524			160			—			16,684
Long-term prepaid expenses		—			—			13,639			—			(4,064	)		9,575
Investment in subsidiaries		(526,931	)		(608,299	)		—			(424,624	)		1,559,854			—
Long-term intercompany loan		697,125			787,364			—			638,690			(2,123,179	)		—
Other non-current assets		67			5,949			8,429			2,665			(66	)		17,044

Total assets	$	249,984		$	459,875		$	673,515		$	439,647		$	(1,130,248	)	$	692,773

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	—		$	—		$	119,220		$	1,143		$	(22,977	)	$	97,386
Other accounts payable		38,386			36			19,349			4,331			(43,053	)		19,049
Accrued expenses		174			87,682			219,323			227,170			(493,866	)		40,483
Derivative liabilities		—			—			1,818			—			—			1,818
Other current liabilities		4,040			—			3,243			4,072			(2,895	)		8,460

Total current liabilities		42,600			87,718			362,953			236,716			(562,791	)		167,196

Long-term borrowings, net		—			898,711			621,000			805,054			(2,123,179	)		201,586
Accrued severance benefits, net		—			—			104,867			184			—			105,051
Other non-current liabilities		—			—			9,261			6,426			(4,131	)		11,556

Total liabilities		42,600			986,429			1,098,081			1,048,380			(2,690,101	)		485,389

Commitments and contingencies
Stockholders’ equity
Common stock		395			136,229			39,005			51,976			(227,210	)		395
Additional paid-in capital		100,834			(731,689	)		(535,358	)		(729,663	)		1,996,710			100,834
Retained earnings		161,965			89,985			96,017			90,215			(276,217	)		161,965
Treasury stock		(34,730	)		—			—			—			—			(34,730	)
Accumulated other comprehensive loss		(21,080	)		(21,079	)		(24,230	)		(21,261	)		66,570			(21,080	)

Total stockholders’ equity		207,384			(526,554	)		(424,566	)		(608,733	)		1,559,853			207,384

Total liabilities and stockholders’ equity	$	249,984		$	459,875		$	673,515		$	439,647		$	(1,130,248	)	$	692,773

Condensed Consolidating Balance Sheets

December 31, 2011


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non- Guarantors			Guarantors			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	1,677		$	25,119		$	127,118		$	8,197		$	—		$	162,111
Restricted cash		—			—			6,830			—			—			6,830
Accounts receivable, net		—			—			126,391			22,179			(22,648	)		125,922
Inventories, net		—			—			62,836			158			(158	)		62,836
Other receivables		1			11,793			7,581			399			(19,518	)		256
Prepaid expenses		34			2			8,509			384			(2,897	)		6,032
Other current assets		58,636			188,018			11,738			183,685			(426,168	)		15,909

Total current assets		60,348			224,932			351,003			215,002			(471,389	)		379,896

Property, plant and equipment, net		—			—			182,583			80			—			182,663
Intangible assets, net		—			—			16,514			273			—			16,787
Long-term prepaid expenses		—			—			10,963			66			(6,239	)		4,790
Investment in subsidiaries		(576,642	)		(655,845	)		—			(481,478	)		1,713,965			—
Long-term intercompany loan		697,125			809,913			—			660,066			(2,167,104	)		—
Other non-current assets		—			6,505			8,170			3,864			—			18,539

Total assets	$	180,831		$	385,505		$	569,233		$	397,873		$	(930,767	)	$	602,675

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	—		$	—		$	99,560		$	842		$	(22,554	)	$	77,848
Other accounts payable		13,659			1			13,115			6,195			(19,518	)		13,452
Accrued expenses		502			63,033			186,678			207,770			(426,260	)		31,723
Current portion of capital lease obligations		—			—			2,852			—			—			2,852
Other current liabilities		—			1			11,544			3,117			(2,898	)		11,764

Total current liabilities		14,161			63,035			313,749			217,924			(471,230	)		137,639

Long-term borrowings, net		—			898,514			642,383			827,596			(2,167,104	)		201,389
Accrued severance benefits, net		—			—			90,611			144			—			90,755
Other non-current liabilities		—			—			3,894			8,567			(6,239	)		6,222

Total liabilities		14,161			961,549			1,050,637			1,054,231			(2,644,573	)		436,005

Commitments and contingencies
Stockholders’ equity
Common stock		394			136,229			39,005			51,976			(227,210	)		394
Additional paid-in capital		98,929			(733,223	)		(536,894	)		(731,209	)		2,001,326			98,929
Retained earnings		93,950			35,760			35,141			37,722			(108,623	)		93,950
Treasury stock		(11,793	)		—			—			—			—			(11,793	)
Accumulated other comprehensive loss		(14,810	)		(14,810	)		(18,656	)		(14,847	)		48,313			(14,810	)

Total stockholders’ equity		166,670			(576,044	)		(481,404	)		(656,358	)		1,713,806			166,670

Total liabilities and stockholders’ equity	$	180,831		$	385,505		$	569,233		$	397,873		$	(930,767	)	$	602,675

Condensed Consolidating Statements of Comprehensive Income

For the three months ended September 30, 2012


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non-Guarantors		Guarantors			Eliminations			Consolidated
Net sales	$	—		$	—		$	221,971	$	5,166		$	(5,265	)	$	221,872
Cost of sales		—			—			145,431		449			(448	)		145,432

Gross profit		—			—			76,540		4,717			(4,817	)		76,440

Selling, general and administrative expenses		489			65			21,569		3,031			(3,766	)		21,388
Research and development expenses		—			—			20,052		469			(1,051	)		19,470

Operating income (loss)		(489	)		(65	)		34,919		1,217			—			35,582

Other income (expense)		8,100			7,892			12,301		(11,562	)		—			16,731

Income (loss) before income taxes, equity in earnings of related equity investment		7,611			7,827			47,220		(10,345	)		—			52,313

Income tax expenses		1,918			—			11		1,972			—			3,901

Income (loss) before equity in earnings of related investment		5,693			7,827			47,209		(12,317	)		—			48,412

Equity in earnings of related investment		42,719			34,817			—		47,209			(124,745	)		—

Net income	$	48,412		$	42,644		$	47,209	$	34,892		$	(124,745	)	$	48,412

Comprehensive income	$	42,031		$	36,264		$	40,257	$	28,507		$	(105,028	)	$	42,031

Condensed Consolidating Statements of Comprehensive Income

For the nine months ended September 30, 2012


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non-Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	—		$	601,742		$	14,781		$	(15,015	)	$	601,508
Cost of sales		—			—			412,292			1,050			(1,047	)		412,295

Gross profit		—			—			189,450			13,731			(13,968	)		189,213

Selling, general and administrative expenses		2,586			118			58,681			9,171			(10,866	)		59,690
Research and development expenses		—			—			61,164			1,001			(3,102	)		59,063

Operating income (loss)		(2,586	)		(118	)		69,605			3,559			—			70,460

Other income (expense)		19,315			1,891			(8,061	)		(6,300	)		—			6,845

Income (loss) before income taxes, equity in earnings of related equity investment		16,729			1,773			61,544			(2,741	)		—			77,305

Income tax expenses (benefits)		3,531			(170	)		288			5,641			—			9,290

Income (loss) before equity in earnings of related investment		13,198			1,943			61,256			(8,382	)		—			68,015

Equity in earnings of related investment		54,817			52,661			—			61,255			(168,733	)		—

Net income	$	68,015		$	54,604		$	61,256		$	52,873		$	(168,733	)	$	68,015

Comprehensive income	$	61,745		$	48,335		$	55,682		$	46,459		$	(150,476	)	$	61,745

Condensed Consolidating Statements of Comprehensive Income

For the three months ended September 30, 2011


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non-Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	—		$	200,405		$	6,692		$	(6,692	)	$	200,405
Cost of sales		—			—			140,291			780			(787	)		140,284

Gross profit		—			—			60,114			5,912			(5,905	)		60,121

Selling, general and administrative expenses		354			24			17,946			3,144			(3,587	)		17,881
Research and development expenses		—			—			19,846			1,470			(2,313	)		19,003
Restructuring and impairment charges		—			—			1,610			11			—			1,621

Operating income (loss)		(354	)		(24	)		20,712			1,287			(5	)		21,616

Other income (expense)		—			(3,774	)		(82,121	)		10,062			—			(75,833	)

Income (loss) before income taxes, equity in loss of related equity investment		(354	)		(3,798	)		(61,409	)		11,349			(5	)		(54,217	)

Income tax expenses (benefits)		(1,456	)		—			(661	)		3,910			—			1,793

Income (loss) before equity in loss of related investment		1,102			(3,798	)		(60,748	)		7,439			(5	)		(56,010	)

Equity in loss of related investment		(57,112	)		(53,031	)		—			(60,753	)		170,896			—

Net loss	$	(56,010	)	$	(56,829	)	$	(60,748	)	$	(53,314	)	$	170,891		$	(56,010	)

Comprehensive income	$	(30,190	)	$	(31,009	)	$	(35,889	)	$	(27,495	)	$	94,393		$	(30,190	)

Condensed Consolidating Statements of Comprehensive Income

For the nine months ended September 30, 2011


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non-Guarantors			Guarantors			Eliminations			Consolidated
Net sales	$	—		$	—		$	591,967		$	19,439		$	(19,401	)	$	592,005
Cost of sales		—			—			409,250			1,392			(1,414	)		409,228

Gross profit		—			—			182,717			18,047			(17,987	)		182,777

Selling, general and administrative expenses		1,650			610			49,740			9,731			(10,991	)		50,740
Research and development expenses		—			—			60,538			4,561			(6,984	)		58,115
Restructuring and impairment charges		—			—			2,409			1,687			—			4,096
IPO incentive		—			—			11,355			791			—			12,146

Operating income (loss)		(1,650	)		(610	)		58,675			1,277			(12	)		57,680

Other income (expense)		1			28,262			(71,531	)		(10,186	)		—			(53,454	)

Income (loss) before income taxes, equity in loss of related equity investment		(1,649	)		27,652			(12,856	)		(8,909	)		(12	)		4,226

Income tax expenses (benefits)		(1,474	)		—			532			7,080			—			6,138

Income (loss) before equity in loss of related investment		(175	)		27,652			(13,388	)		(15,989	)		(12	)		(1,912	)

Equity in loss of related investment		(1,737	)		(29,153	)		—			(13,400	)		44,290			—

Net loss	$	(1,912	)	$	(1,501	)	$	(13,388	)	$	(29,389	)	$	44,278		$	(1,912	)

Comprehensive income	$	(5,639	)	$	(5,228	)	$	(17,926	)	$	(33,136	)	$	56,290		$	(5,639	)

Condensed Consolidating Statements of Cash Flows

For the nine months ended September 30, 2012


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non-Guarantors			Guarantors			Eliminations			Consolidated
Cash flow from operating activities
Net income	$	68,015		$	54,604		$	61,256		$	52,873		$	(168,733	)	$	68,015
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		—			—			23,704			136			—			23,840
Provision for severance benefits		—			—			16,740			39			—			16,779
Amortization of debt issuance costs and original issue discount		—			753			—			—			—			753
Loss (gain) on foreign currency translation, net		(158	)		724			(25,380	)		(490	)		—			(25,304	)
Loss (gain) on disposal of property, plant and equipment, net		—			—			(191	)		17			—			(174	)
Loss on disposal of intangible assets, net		—			—			26			—			—			26
Stock-based compensation		(95	)		—			1,536			9			—			1,450
Equity in earnings of related investment		(54,817	)		(52,661	)		—			(61,255	)		168,733			—
Other		—			2			(340	)		6			—			(332	)
Changes in operating assets and liabilities
Accounts receivable, net		—			—			(18,614	)		(205	)		651			(18,168	)
Inventories, net		—			—			(8,526	)		—			—			(8,526	)
Other receivables		1			(24,483	)		(549	)		31			23,213			(1,787	)
Other current assets		(19,667	)		(38,313	)		(729	)		(29,003	)		87,050			(662	)
Deferred tax assets		—			—			—			1,514			—			1,514
Accounts payable		—			—			17,594			301			(423	)		17,472
Other accounts payable		24,727			35			(52	)		(1,875	)		(23,535	)		(700	)
Accrued expenses		(325	)		24,490			37,814			38,739			(86,957	)		13,761
Other current liabilities		4,041			—			1,390			4,019			—			9,450
Payment of severance benefits		—			—			(5,569	)		—			—			(5,569	)
Other		(71	)		—			3,587			(6,073	)		318			(2,239	)

Net cash provided by (used in) operating activities		21,651			(34,849	)		103,697			(1,217	)		317			89,599

Cash flows from investing activities
Decrease in restricted cash		—			—			6,774			—			—			6,774
Proceeds from disposal of plant, property and equipment		—			—			937			—			—			937
Purchases of plant, property and equipment		—			—			(56,694	)		(51	)		—			(56,745	)
Payment for intellectual property registration		—			—			(752	)		—			—			(752	)


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non-Guarantors			Guarantors			Eliminations			Consolidated
Payment for purchase of Dawin, net of cash acquired		—			—			(8,642	)		—			—			(8,642	)
Decrease in short-term financial instruments		—			—			173			—			—			173
Collection of guarantee deposits		—			—			42			30			—			72
Payment of guarantee deposits		—			—			(309	)		(2	)		—			(311	)
Other		—			21,983			(41	)		21,373			(43,365	)		(50	)

Net cash provided by (used in) investing activities		—			21,983			(58,512	)		21,350			(43,365	)		(58,544	)

Cash flow from financing activities
Proceeds from issuance of common stock		436			—			—			—			—			436
Repayment of long-term intercompany borrowings		—			—			(21,746	)		(21,983	)		43,729			—
Repayment of obligations under capital lease		—			—			(2,968	)		—			—			(2,968	)
Acquisition of treasury stock		(22,937	)		—			—			—			—			(22,937	)

Net cash used in financing activities		(22,501	)		—			(24,714	)		(21,983	)		43,729			(25,469	)

Effect of exchange rates on cash and cash equivalents		—			—			(1,668	)		310			(681	)		(2,039	)

Net increase (decrease) in cash and cash equivalents		(850	)		(12,866	)		18,803			(1,540	)		—			3,547

Cash and cash equivalents
Beginning of the period		1,677			25,119			127,118			8,197			—			162,111

End of the period	$	827		$	12,253		$	145,921		$	6,657		$	—		$	165,658

Condensed Consolidating Statements of Cash Flows

For the nine months ended September 30, 2011


	MagnaChip Semiconductor Corporation (Parent)			Co-Issuers			Non-Guarantors			Guarantors			Eliminations			Consolidated
Cash flow from operating activities
Net loss	$	(1,912	)	$	(1,501	)	$	(13,388	)	$	(29,389	)	$	44,278		$	(1,912	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization		—			—			42,161			207			—			42,368
Provision for severance benefits		—			—			12,959			178			—			13,137
Amortization of debt issuance costs		—			728			—			—			—			728
Loss (gain) on foreign currency translation, net		—			(3,696	)		31,387			5,529			—			33,220
Gain on disposal of property, plant and equipment		—			—			(15	)		—			—			(15	)
Loss on disposal of intangible assets, net		—			—			17			—			—			17
Restructuring and impairment charges		—			—			2,410			1,687			(1	)		4,096
Stock-based compensation		178			—			1,442			470			(292	)		1,798
Equity in loss of related investment		1,737			29,153			—			13,400			(44,290	)		—
Other		(1,474	)		5,461			1,133			1,845			(854	)		6,111
Changes in operating assets and liabilities
Accounts receivable, net		—			—			35,467			35,630			(75,497	)		(4,400	)
Inventories, net		—			—			(4,413	)		—			13			(4,400	)
Other receivables		706			718			11,349			2,563			(14,500	)		836
Other current assets		194			(48,027	)		(1,977	)		(41,859	)		88,473			(3,196	)
Deferred tax assets		—			—			—			1,051			432			1,483
Accounts payable		—			—			(19,617	)		(40,821	)		75,510			15,072
Other accounts payable		(7,041	)		(8,555	)		4,966			3,287			14,500			7,157
Accrued expenses		106			3,987			18,065			48,050			(88,486	)		(18,278	)
Other current liabilities		—			—			(252	)		(957	)		—			(1,209	)
Payment of severance benefits		—			—			(6,510	)		(39	)		—			(6,549	)
Other		—			—			2,681			(2,988	)		448			141

Net cash provided by (used in) operating activities		(7,506	)		(21,732	)		117,865			(2,156	)		(266	)		86,205

Cash flows from investing activities
Increase in restricted cash		—			—			(9,711	)								(9,711	)
Decrease in short-term loans		—			51,132			19			38,452			(89,828	)		(225	)
Proceeds from disposal of plant, property and equipment		—			—			29			—			—			29
Purchases of plant, property and equipment		—			—			(42,911	)		(34	)		—			(42,945	)
Payment for intellectual property registration		—			—			(521	)		—			—			(521	)


	MagnaChip Semiconductor Corporation (Parent)		Co-Issuers			Non-Guarantors			Guarantors			Eliminations			Consolidated
Collection of guarantee deposits		—		—			979			5			—			984
Payment of guarantee deposits		—		—			(2,479	)		(10	)		—			(2,489	)
Other		—		—			(400	)		—			—			(400	)

Net cash provided by (used in) investing activities		—		51,132			(54,995	)		38,413			(89,828	)		(55,278	)

Cash flow from financing activities
Proceeds from issuance of common stock		8,835		—			—			—			—			8,835
Repayment of long-term borrowings		—		(50,307	)		(53,331	)		(38,466	)		91,797			(50,307	)
Repayment of obligations under capital lease		—		—			(4,607	)		(224	)		—			(4,831	)

Net cash provided by (used in) financing activities		8,835		(50,307	)		(57,938	)		(38,690	)		91,797			(46,303	)

Effect of exchange rates on cash and cash equivalents		—		—			4,042			333			(1,703	)		2,672

Net increase (decrease) in cash and cash equivalents		1,329		(20,907	)		8,974			(2,100	)		—			(12,704	)

Cash and cash equivalents
Beginning of the period		79		46,595			112,370			13,128			—			172,172

End of the period	$	1,408	$	25,688		$	121,344		$	11,028		$	—		$	159,468