v3.26.1
Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

8. Derivative Financial Instruments

The Company’s Korean subsidiary, Magnachip Semiconductor, Ltd., 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 the zero cost collar contracts as of June 30, 2026 are as follows (in thousands):

 

Date of transaction

 

Total notional
amount

 

 

Month of settlement

July 17, 2025

 

$

9,000

 

 

July 2026 to September 2026

September 30, 2025

 

$

15,000

 

 

July 2026 to December 2026

November 07, 2025

 

$

36,000

 

 

July 2026 to June 2027

April 23, 2026

 

$

18,000

 

 

April 2027 to September 2027

 

Details of the zero cost collar contracts as of December 31, 2025 are as follows (in thousands):

 

Date of transaction

 

Total notional
amount

 

 

Month of settlement

February 03, 2025

 

$

9,000

 

 

January 2026 to March 2026

July 10, 2025

 

$

9,000

 

 

April 2026 to June 2026

July 17, 2025

 

$

9,000

 

 

July 2026 to September 2026

September 30, 2025

 

$

27,000

 

 

January 2026 to December 2026

November 07, 2025

 

$

42,000

 

 

April 2026 to June 2027

 

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 June 30, 2026 and December 31, 2025 are as follows (in thousands):

 

Derivatives designated as hedging instruments:

 

 

 

June 30,
2026

 

 

December 31,
2025

 

Assets Derivatives:

 

 

 

 

 

 

 

 

Zero cost collars

 

Other current assets

 

$

—

 

 

$

3

 

Liability Derivatives:

 

 

 

 

 

 

 

 

Zero cost collars

 

Other current liabilities

 

$

4,948

 

 

$

1,644

 

Zero cost collars

 

Other non-current liabilities

 

$

358

 

 

$

126

 

 

 

Offsetting of derivative liabilities as of June 30, 2026 is as follows (in thousands):

 

 

Gross

 

 

Gross
amounts
offset

 

 

Net amounts
of liabilities
presented

 

 

Gross amounts not offset
in the balance sheets

 

 

 

 

As of June 30, 2026

 

amounts of
recognized
liabilities

 

 

in the
balance
sheets

 

 

in the
balance
sheets

 

 

Financial
instruments

 

 

Cash
collateral
pledged

 

 

Net
amount

 

Liability Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zero cost collars

 

$

5,306

 

 

$

—

 

 

$

5,306

 

 

$

—

 

 

$

(4,540

)

 

$

766

 

 

Offsetting of derivative assets and liabilities as of December 31, 2025 is as follows (in thousands):

 

 

Gross
amounts of

 

 

Gross
amounts
offset

 

 

Net amounts
of assets/
liabilities
presented

 

 

Gross amounts not offset
in the balance sheets

 

 

 

 

As of December 31, 2025

 

recognized
assets/
liabilities

 

 

in the
balance
sheets

 

 

in the
balance
sheets

 

 

Financial
instruments

 

 

Cash
collateral
pledged

 

 

Net
amount

 

Asset Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zero cost collars

 

$

3

 

 

$

—

 

 

$

3

 

 

$

—

 

 

$

—

 

 

$

3

 

Liability Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zero cost collars

 

$

1,770

 

 

$

—

 

 

$

1,770

 

 

$

—

 

 

$

(1,200

)

 

$

570

 

 

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 or loss (“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.

The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the three months ended June 30, 2026 and 2025 (in thousands):

 

Derivatives in ASC 815 Cash Flow Hedging Relationships

 

Amount of Gain
(Loss)
Recognized in AOCI
on Derivatives

 

 

Location/Amount of
Loss
Reclassified from AOCI Into
Statement of Operations

 

 

Location/Amount of Gain
(Loss)
Recognized in Statement of
Operations on Derivatives

 

 

Three Months Ended
June 30,

 

 

 

 

Three Months Ended
June 30,

 

 

 

 

Three Months Ended
June 30,

 

 

2026

 

 

2025

 

 

 

 

2026

 

 

2025

 

 

 

 

2026

 

 

2025

 

Zero cost collars

 

$

(1,574

)

 

$

1,617

 

 

Net sales

 

$

(1,404

)

 

$

(79

)

 

Other income, net

 

$

279

 

 

$

(80

)

 

$

(1,574

)

 

$

1,617

 

 

 

 

$

(1,404

)

 

$

(79

)

 

 

 

$

279

 

 

$

(80

)

 

The following table summarizes the impact of derivative instruments on the consolidated statements of operations for the six months ended June 30, 2026 and 2025 (in thousands):

 

Derivatives in ASC 815 Cash Flow Hedging Relationships

 

Amount of Gain
(Loss)
Recognized in AOCI
on Derivatives

 

 

Location/Amount of
Loss
Reclassified from AOCI
Into Statement of Operations

 

 

Location/Amount of Gain
(Loss)
Recognized in Statement of
Operations on Derivatives

 

 

 

Six Months Ended
June 30,

 

 

 

 

Six Months Ended
June 30,

 

 

 

 

Six Months Ended
June 30,

 

 

 

2026

 

 

2025

 

 

 

 

2026

 

 

2025

 

 

 

 

2026

 

 

2025

 

Zero cost collars

 

$

(5,267

)

 

$

1,753

 

 

Net sales

 

$

(1,629

)

 

$

(604

)

 

Other income, net

 

$

259

 

 

$

(51

)

 

 

$

(5,267

)

 

$

1,753

 

 

 

 

$

(1,629

)

 

$

(604

)

 

 

 

$

259

 

 

$

(51

)

 

As of June 30, 2026, the amount expected to be reclassified from accumulated other comprehensive loss into loss within the next 12 months is $4,059 thousand.

The Company is required to deposit additional cash collateral with Nomura Financial Investment (Korea) Co., Ltd. (“NFIK”) for any exposure in excess of $500 thousand. As of June 30, 2026, $4,540 thousand of additional cash collateral were required by NFIK and recorded as hedge collateral on the consolidated balance sheet. As of December 31, 2025, $1,200 thousand of additional cash collateral were required by NFIK and recorded as hedge collateral on the consolidated balance sheet.

These zero cost collar contracts may be terminated by the counterparties 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.