Amkor is one of the world’s leading providers of outsourced semiconductor packaging and test services. Amkor pioneered the outsourcing of semiconductor packaging and test services through a predecessor corporation in 1968, and over the years we have built a leading position by:
Our packaging and test services are designed to meet application and chip specific requirements including: the required type of interconnect technology; size; thickness; and electrical, mechanical and thermal performance. We provide turnkey packaging and test services including semiconductor wafer bump, wafer probe, wafer back-grind, package design, packaging, system-level and final test and drop shipment services. Our customers use us for one or more of these services.
We provide our services to integrated device manufacturers (“IDMs”), “fabless” semiconductor companies, OEMs and contract foundries. IDMs generally design, manufacture, package and test semiconductors in their own facilities. However, the availability of technologically advanced outsourced manufacturing services has encouraged IDMs to outsource a portion of their manufacturing. Fabless semiconductor companies do not have factories and focus exclusively on the semiconductor design process and outsource virtually every step of the manufacturing process. Fabless semiconductor companies utilize contract foundries to manufacture their semiconductors in wafer form and companies such as Amkor for their packaging and test needs. Some companies will engage a contract foundry to manage the complete semiconductor manufacturing process, and in turn, the contract foundry will outsource some of its packaging and test needs.
Corporate Governance Guidelines, the charters of the Audit Committee, Nominating and Governance Committee and Compensation Committee of our Board of Directors, our Code of Business Conduct, our Code of Ethics for Directors and other information and materials. The information on Amkor’s website is not incorporated by reference into this report.
Semiconductor devices are the essential building blocks used in most electronic products. As electronic and semiconductor devices have evolved, several important trends have emerged that have fueled the growth of the overall semiconductor industry, as well as the market for outsourced semiconductor packaging and test services. These trends include:
As a supplier in the semiconductor industry, our business is cyclical by nature and impacted by broad economic factors, such as world-wideworldwide gross domestic product and consumer spending. Historical trends indicate there has been a strong correlation between world-wideworldwide gross domestic product levels, consumer spending and semiconductor industry cycles.
Semiconductor companies outsource their packaging and test needs to service providers such as Amkor for the following reasons:
Packaging and test service providers have developed expertise in advanced technologies.
Packaging and test service providers offer a cost-effective solution in a highly cyclical, capital intensive industry.
The semiconductor industry is cyclical by nature and impacted by broad economic factors, such as changes in worldwide gross domestic product and consumer spending. Semiconductor packaging and test are complex processes requiring substantial investment in specialized equipment, factories and human resources.capital. As a result of this cyclicality and the large investments required, manufacturing facilities must operate at consistently high levels of utilization to be cost-effective. Shorter product life cycles, coupled with the need to update or replace packaging and test equipment to accommodate new package types, make it more difficult for integrated semiconductor companies to maintain cost-effective utilization of their packaging and test assets throughout semiconductor industry cycles. Packaging and test service providers, on the other
hand, can typically use their assets to support a broad range of customers and multiple end markets, potentially generating more efficient use of their production assets and a more cost-effective solution.
Packaging and test service providers can facilitate a more efficient supply chain and help shorten time-to-market for new products.
We believe that semiconductor companies, together with their customers, are seeking to shorten the time-to-market for their new products and that having an effective supply chain is a critical factor in facilitating timely and successful product introductions. Packaging and test service providers have the resources and expertise to timely develop their capabilities and implement new packaging technology in volume. For this reason, semiconductor companies and OEMs are leveraging the capabilities of packaging and test service providers to deliver their new products to market more quickly.
High quality packaging and test service providers enable semiconductor manufacturers to focus their resources on semiconductor design and wafer fabrication.
As semiconductor process technology migrates to larger wafers and smaller feature sizes, the cost of building a state-of-the-art wafer fabrication factory has risen significantly and can now be several billions of dollars. The high cost of investing in next generation silicon technology and equipment is causing many semiconductor companies to adopt or maintain a “fabless” or “fab-lite” strategy to reduce or eliminate their investment in wafer fabrication and associated packaging and test operations. As a result, these companies are increasing their reliance on outsourced providers of semiconductor manufacturing services, including packaging and test.
Our financial goals are sales growth and improved profitability, and we are focusing on the following strategies to achieve these goals:
We are an industry leader in developing and commercializing cost-effective advanced packaging and test technologies. TheseWe believe these advanced technology solutions provide increased value to our customers. An important factor for success in the advanced packaging and test area is to generate reasonably quick returns on investments made in support of customers seeking leading-edge technologies.
In recent years we have made significant investments in state-of-the-art facilities and equipment to provide services for the industry’s most complex devices. With approximately 650 employees engaged in research and development and manufacturing process engineering for new semiconductor packaging and test technologies, we are a technology leader in areas such as fine pitch bumping, advanced flip chip, wafer-level processing and advanced SiPs. During 2019,2020, we had success capitalizing on our advanced technology to achieve design wins and new product introductions in areas such as: chips fabricated at 5, 7, 10, 14 and 16 nanometer geometries; advanced SiP products including radio frequency (“RF”), front end modules and micro-electro-mechanical systems (“MEMS”) devices; optical sensors and cavity MEMS; advanced Flip Chip with Through Silicon Via (“TSV”) Technology;technology; wafer-level Chip Scale Packaging (“CSP”); and wafer-level fan-out packages.
We work closely with our customers to develop cost-effective leading-edge packages for the next generation of devices. These include integrated technologies such as advanced SiP, wafer-level fan-out, Silicon Wafer Integrated Fan-out
Technology (“SWIFT”), High Density Fan-Out (“HDFO”) and redistribution layer (“RDL”) solutions which enable very thin, very small products combining application processors, memory, baseband and other peripheral integrated circuits (“ICs”). They also include packages utilizing TSV interconnects and silicon interposers which enable the integration of high-performance chips such as high bandwidth memory and graphics processors into a single package.
We believe that advanced packaging services will continue to grow as our customers and leading electronics OEMs strive for smaller device geometries, higher levels of speedintegration and performance and lower power consumption. We intend to continue to leverage our investment in advanced technology to meet the demand for these services.
Another key to our success is to improve the utilization of our existing assets. The transition by leading edge customers to newer packaging and test equipment platforms typically frees up capacity in existing, previously installed equipment. As part of our strategy, we are focused on developing a second wave of customers to more effectively utilize these assets over a longer period of time. We are building and utilizing manufacturing lines which support multiple customers and increasing factory utilization through more sophisticated planning processes and more intensive efficiency improvement activities.
Revenue growth is a significant objective for Amkor. We strive to grow in a balanced way and avoid over-reliance on any single market or customer. Our goal is to achieve more consistent financial performance through all phases of the business cycle. Our balanced growth strategy consists of the following two components:
From time to time we see attractive opportunities to grow our customer base and expand markets through strategic investments. For example, in 2017 we completed the acquisition of Nanium, S.A. (“Nanium”), a provider of wafer-level fan-out semiconductor packaging solutions. We believe that this acquisition has strengthened our position in the market for wafer-level packaging. In 2015, we completed the acquisition of 100% of J-Devices, our outsourced semiconductor assembly and test (“OSAT”) joint venture in Japan.
We believe that selective growth through joint ventures, acquisitions and other strategic investments can help diversify our revenue streams, improve our profits and maintain our technological leadership.
The outsourced semiconductor packaging and test market is very competitive. We also compete with the internal semiconductor packaging and test capabilities of many of our customers and foundries. We believe we are well-positioned in the outsourced packaging and test services market. The following competitive strengths allow us to build upon our industry position and to remain one of the preferred providers of semiconductor packaging and test services.
We are a leader in developing and deploying advanced semiconductor packaging and test solutions. We have designed and developed several state-of-the-art package formats and technologies, including our Package-on-Package (“PoP”) platform with Through Mold Via (“TMV”) technology, molded embedded packages, FusionQuad, flip chip ball grid array, multi-chip modules with a silicon interposer placed between the module chips and substrate, copper pillar bumping and fine pitch copper pillar flip chip packaging technologies. In addition, we believe that as semiconductor
We continue to invest in developing the key processes and packaging and test technologies required for our customers to deliver advanced integrated and modular solutions to market. We are a leader in wafer thinning, micro-bumping, die stacking,
hybrid packaging and TSV-based flip chip innovation. We are also a developer of environmentally friendly IC packaging, which involves the elimination of lead and certain other materials.
Long-Standing Relationships and Collaboration with Prominent Semiconductor Companies
Our customers include most of the world’s largest semiconductor companies, and over the last five decades we have developed long-standing relationships with many of these companies. We believe that our production excellence has been a key factor in our success in attracting and retaining customers. We work with our customers and our suppliers to develop proprietary process technologies to enhance our existing capabilities, reduce time-to-market, increase quality and lower costs.
We believe that our focus on research and product development will enable us to enter new markets early, capture market share and promote the adoption of our new package designs as industry standards. We collaborate with customers and leading OEMs to develop comprehensive packaging solutions that make it easier for next-generation semiconductors to be designed into next-generation end products. By collaborating with leading semiconductor companies and OEM electronic companies, we gain access to technology roadmaps that allow us to focus resources on developing new packages that satisfy their future requirements.
Creating successful interconnect solutions for advanced semiconductor devices often poses unique thermal, electrical and mechanical design challenges, and we employ a large number of engineers to solve these challenges for a wide variety of products. This wide variety of packaging offerings is necessary to meet the diverse needs of our customers for the optimal combination of performance, size and cost attributes. Our solutions enable our customers to focus on semiconductor design and wafer fabrication while utilizing Amkor as their turnkey design, packaging and test services provider and, in many cases, their packaging technology innovator.
We also offer an extensive line of advanced probe and final test services for analog, digital, logic, mixed signal and RF semiconductor devices. We believe that the breadth of our design, packaging and test services is important to customers seeking to limit the number of their suppliers.
We have a broad and geographically diversified operating footprint strategically located in seven countries in many of the world’s important electronics manufacturing regions. We believe that our scale and scope allow us to provide a flexible supply chain and cost-effective solutions to our customers by:
There is a continuous push throughout the entire semiconductor supply chain for lower cost solutions. We work to maintain a competitive cost structure and make disciplined capital investment decisions so that we can provide cost-competitive solutions to our customers and achieve sustainable profitability and cash flow. Some of our cost control efforts have been directed at: (1) improving the utilization of our existing assets; (2) developing new manufacturing
methods to reduce processing costs; (3) utilizing flexible manufacturing lines that can accommodate a variety of products and customers; (4) increasing test densities to drive higher throughput; (5) implementing more cost-effective materials; (6) utilizing our scale to drive world-wideworldwide purchasing leverage; and (7) increasing labor productivity.
We operate in a cyclical industry. During an industry downturn we seek to reduce our costs and drive greater factory and administrative efficiencies. Cost control efforts can include reducing labor costs by temporarily lowering compensation, reducing employee and contractor headcount, shortening work weeks and obtaining labor-related foreign government subsidies where available.
We offer a broad range of advanced and mainstream packaging and test services to our customers. We refer to our flip chip, wafer-level processing and related test services as “Advanced Products”, and our wirebond packaging and related test services as “Mainstream Products”. The following table sets forth, for the periods indicated, the amount of advanced and mainstream packaging and test net sales and the percentage of such net sales:
Our Advanced Products include flip chip chip scale packages, wafer-level packages and flip chip ball grid array packages. These package families use flip chip interconnect technology so that the die can be connected to a substrate package carrier or, in the case of wafer-level chip scale packages, directly to a printed circuit board.
Flip chip stacked chip scale packages (“FC SCSP”) stack a second die on top of the original flip-chip die. The top die is typically a memory device, and wirebond interconnects are used to attach it to the substrate. FC SCSP is frequently used to stack memory on top of digital baseband and applications processors for use in mobile devices.
We continue to drive thinner package solutions for our PoP technology through the development of ultra-thin substrates and enhancing our pre-stacking and thin die handling capabilities.
We developed fine pitch copper pillar flip chip interconnect technology, which creates interconnections at finer pitches using a plating process to reduce the number of substrate layers to facilitate very thin packages. This innovative solution is also an enabling technology for package stacking with TSVs.
product. We offer FC BGA packaging in a variety of product formats to fit a wide range of end application requirements, including networking, storage, computing and consumer applications.
Our Mainstream Products include leadframe packages, substrate-based wirebond packages and MEMS packages. These package families use wirebond interconnect technology to connect a die to a leadframe or substrate package carrier.
Traditional leadframe packages support a wide variety of device types and applications. Two of our most popular traditional leadframe package types are small outline integrated circuit and quad flat package, commonly known as “dual” and “quad” products, respectively, based upon the number of sides from which the leads extend. The traditional leadframe package family has evolved from “through hole design,” where the leads are plugged into holes on the circuit board to “surface mount design,” where the leads are soldered to the surface of the circuit board. We offer a wide range of lead counts and body sizes to satisfy variations in the size of customers’ semiconductor devices.
Power discrete devices use a leadframe as the package carrier and primarily use wirebond interconnect technology. However, power applications that require improved thermal and electrical performance will use packaging with copper clip interconnect technology.
Stacked CSP technology enables the stacking of a wide range of different semiconductor devices to deliver high levels of silicon integration and area efficiency. Stacked CSP utilizes high density thin core substrates and advanced materials, along with leading-edge wafer thinning, die attach and molding capabilities, to stack multiple die on a substrate. Stacked CSP is ideal for memory and mixed signal applications.
Wirebond ball grid array packages offer a broad selection of ball array pitches, ball counts and body sizes, single and multi-die layouts, stacked die and passive component integration. They are applicable for a wide range of semiconductors requiring a smaller package size than conventional PBGAs or leadframe packages.
PBGA packages are used in applications requiring higher pin count than leadframe packages, but typically have lower pin counts than flip chip. PBGA packages are designed for low inductance, improved thermal operation and enhanced surface-mount technology ability. Custom performance enhancements, like ground and power planes, are also available.
Advanced SiP modules combine multiple semiconductor and other electronic components with different functionalities into a single package. These modules use wirebond, flip chip or wafer-level interconnect technologies. Components can include integrated circuits, passive devices (inductors, capacitors, resistors, filters and diplexers), antennas and mechanical parts.
The increasing demand for miniaturization and higher functionality at competitive cost is driving the adoption of advanced SiP in new products. Advanced SiP modules are used for many applications such as RF and front end modules, basebands, connectivity, fingerprint sensors, display and touch screen drivers, sensors and MEMS, NAND memory and solid state drives. Advanced SiP modules are found in many products including smartphones and tablets, automobiles, wearable electronics,IoT wearables, high-performance gaming systems, computers and network systems.
The following table lists the end markets that use our products and sets forth, for the periods indicated, the percentage of net sales in each end market. All prior periods have been retrospectively recast to conform with current year presentation.
Our research efforts focus on developing new packaging solutions and test services, as well as improving the efficiency and capabilities of our existing production processes. We believe that technology development is one of the keys to success in the semiconductor packaging and test industry. By concentrating our research and development on our
customers’ needs for innovative packages, increased performance and lower cost, we gain opportunities to enter markets early, capture market share and promote our new package offerings as industry standards.
Our sales offices are located throughout Asia, Europe and North America. Our support personnel manage and promote our packaging and test services and provide key customer and technical support. To provide comprehensive sales and customer service, we typically assign our customers a direct support team consisting of an account manager, technical program manager, test program manager and both field and factory customer support representatives. We also support our largest multinational customers from multiple office locations to ensure that we are aligned with their global operational and business requirements.
Our direct support teams are further supported by an extended staff of product, process, quality and reliability engineers, as well as marketing and advertising specialists, information systems technicians and factory personnel. Together, these direct and extended support teams deliver an array of services to our customers.
Our sales have generally been higher in the second half of the year than in the first half due to the effect of consumer buying patterns in the U.S., Europe and Asia and the timing of flagship mobile device launches. In addition, semiconductor companies generally reduce their production during the holidays at the end of December, which generally results in a decrease in packaging and test services during the first quarter. General economic conditions, changes in our product mix or overall demand in any of our end-markets can impact our seasonality.
Our materials are used primarily for packaging activities. Our packaging operations depend upon obtaining adequate supplies of materials on a timely basis. The principal materials used in our packaging process are leadframes, laminate substrates, gold and copper wire, mold compound, epoxy, tubes and trays. The silicon wafer is generally consigned from the customer. We generally do not take ownership of the customer consigned wafer, and title and risk of loss remains with the customer for these materials. Test materials constitute a very small portion of our total test cost. We purchase
materials based on customer forecasts, and our customers are generally responsible for any unused materials which we purchased based on such forecasts.
We obtain the materials required for packaging services from various suppliers. We source most of our materials, including critical materials such as leadframes, laminate substrates and gold wire, from a limited group of suppliers. We work closely with our primary material suppliers in an effort to ensure consistent quality, availability and timely delivery. We also negotiate world-wideworldwide pricing agreements with our major suppliers to take advantage of the scale of our operations.
Our ability to meet the changing demand from our customers for manufacturing capacity depends upon obtaining packaging and test equipment in a timely manner. We work closely with our main equipment suppliers to coordinate the ordering and delivery of equipment to meet our expected capacity needs.
The primary types of equipment used in providing our packaging services are wirebonders and die bonders. In addition, we maintain a variety of other packaging equipment, including mold, singulation, die attach, ball attach and wafer backgrind, along with numerous other types of manufacturing equipment. A substantial portion of our packaging equipment base can generally be used and adapted to support the manufacture of many of our packages through the use of relatively low cost tooling, although equipment used in advanced packaging can be more difficult to redeploy than equipment used in traditional wirebond packaging.
We also purchase wafer bumping equipment to facilitate our flip chip and wafer level packaging services. Wafer bump equipment includes sputter and spin coaters, electroplating equipment, reflow ovens and other types of equipment. This equipment tends to have longer lead times for delivery and installation than other packaging equipment and is sold in relatively larger increments of capacity.
The primary equipment used in the testing process includes testers, handlers and probers. Handlers are used to transfer individual or small groups of packaged ICs to a tester. Test equipment is generally a more capital intensive portion of the process and tends to have longer delivery lead times than most types of packaging equipment. We focus our capital expenditures on standardized tester platforms in order to maximize test equipment utilization where possible. In some cases, our customers will consign test equipment to us. In those cases, we operate the equipment on their behalf but do not own it.
We use chemicals and materials in the semiconductor packaging process that generate byproducts such as wastewater, solid waste and flue gas. For example, water used for rinsing or cooling wafers being sawed or used in the etching or solder deposition process produces wastewater. Scraps from metal lead-frame or substrate or excessive molding resin produces solid waste. Emissions from solvents used for coating produce flue gases. In addition to byproducts, semiconductor packages have historically contained lead (“Pb”), a naturally occurring element that can be toxic. The use of Pb in our packages has decreased over time due to the use of Pb-free alternatives. The use and storage of chemicals and materials are subject to various laws and regulations governing waste disposal, water discharge, emissions into the atmosphere and employee health and safety. We are engaged in continuing efforts to comply with these environmental laws and regulations, including the establishment of Environmental Management Systems, safety training for employees and installation of pollution control equipment at our factories.
In the future we may be subject to changes to existing environmental regulations or new green initiatives required by our customers, investors or other stakeholders. We do not believe that capital expenditures or other costs attributable to compliance with environmental laws and regulations or green initiatives will have a material adverse effect on our business, liquidity, results of operations, financial condition or cash flows.
We are also committed to responsible environmental practices that go beyond legal requirements in conducting our business. These environmental practices include:
The outsourced semiconductor packaging and test market is very competitive. We face substantial competition from established packaging and test service providers primarily located in Asia, including companies with significant manufacturing capacity, financial resources, research and development operations, marketing and other capabilities. These
We also compete with the internal semiconductor packaging and test capabilities of many of our customers. Our IDM customers continually evaluate the attractiveness of outsourced services against their own in-house packaging and test services and at times may decide to shift some or all of their outsourced packaging and test services to internally sourced capacity. We also compete with contract foundries, such as Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co., Ltd., which offer full turnkey services from silicon wafer fabrication through packaging and final test. In addition, we compete with companies that offer only test services and not packaging.
The principal elements of competition in the semiconductor packaging and test services market include:
We believe that we compete favorably with respect to each of these elements.
We maintain an active program to protect and derive value from our investment in technology and the associated intellectual property rights. Intellectual property rights that apply to our various products and services include patents, copyrights, trade secrets and trademarks. We have filed and obtained a number of patents in the U.S. and abroad, and their durations vary depending on the jurisdiction in which each patent is filed. Although our patents are an important element of our intellectual property strategy as a whole, we are not materially dependent on any one patent or any one technology. We expect to continue to file patent applications when appropriate to protect our proprietary technologies, but we cannot assure you that we will receive patents from pending or future applications. In addition, any patents we obtain may be challenged, invalidated or circumvented and may not provide meaningful protection or other commercial advantage to us.
We also protect and maintain the confidentiality of certain information about our processes, products and strategies which we believe provides us with a competitive advantage. We have ongoing programs designed to maintain the confidentiality of such information. As part of these efforts, all employees who have access to Amkor’s information systems are required to participate in cybersecurity training within the first 14 days of employment, after which recurring mandatory training is required on an annual basis. Further, to distinguish our products from our competitors’ products, we have obtained certain trademarks and service marks and may promote our particular brands through advertising and other marketing techniques.
•Implementing a work from home environment in all U.S. locations, and certain international locations;
•Implementing extraordinary travel restrictions across the Company, including 14-day waiting periods for entry to Amkor factories after international travel;
•Communicating with employees about health and safety measures and educating employees about the outbreak;
•Arranging for alternative housing for employees in China who traveled;
•Screening everyone at campus entrances for fever and signs of illness;
•Increasing hygiene measures at dormitories, canteens and shuttles;
•Requiring masks to be worn and the use of disinfectants for hand washing;
•Implementing protocols to address actual and suspected Covid-19 cases and potential exposure; and
•Restricting domestic and international non-essential travel for all employees.
Item 1A.Risk Factors
The factors discussed below are cautionary statements that identify important factors and risks that could cause actual results to differ materially from those anticipated by the forward-looking statements contained in this report. For more information regarding the forward-looking statements contained in this report, see the Table of Contents of this Annual Report on Form 10-K. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this report, in considering our business and prospects. Many of the following risks and uncertainties are, and will be, exacerbated by the Covid-19 pandemic and any worsening of the global business and economic environment as a result. The risks and uncertainties described below are not the only ones facing Amkor. Additional risks and uncertainties not presently known to us may also adversely affect our business operations. The occurrence of any of the following risks and uncertainties described below could affect our business, liquidity, results of operations, financial condition or cash flows.
Summary of Risk Factors
An investment in our common stock involves various risks, and you are urged to carefully consider all of the matters discussed in Part I, Item 1A of this Annual Report on Form 10-K under the caption “Risk Factors” (not just those discussed under “Summary of Risk Factors”) in considering our business and prospects. The following is a list of some of these risks:
Company-Specific Risk Factors
•dependence on the highly cyclical, volatile semiconductor industry and vulnerability to industry downturns and declines in global economic and financial conditions;
•fluctuations in operating results and cash flows;
•dependence on international factories and operations, and risks relating to our customers’ and vendors’ international operations;
•competition with established competitors in the packaging and test business, the internal capabilities of integrated device manufacturers, and new competitors, including foundries;
•decisions by our integrated device manufacturer and foundry customers to curtail outsourcing;
•changes in costs, quality, availability and delivery times of raw materials, components and equipment;
•our substantial investments in equipment and facilities to support the demand of our customers;
•difficulty achieving the relatively high capacity utilization rates necessary to realize satisfactory gross margins given our high percentage of fixed costs;
•our absence of backlog and the short-term nature of our customers’ commitments;
•the historical downward pressure on the prices of our packaging and test services;
•fluctuations in our manufacturing yields;
•our ability to develop new proprietary technology, protect our proprietary technology, operate without infringing the proprietary rights of others, and implement new technologies;
•warranty claims, product return and liability risks, and the risk of negative publicity if our products fail, as well as the risk of litigation incident to our business;
•restrictive covenants in the indentures and agreements governing our current and future indebtedness;
•fluctuations in interest rates and changes in credit risk;
•the possibility that we may decrease or suspend our quarterly dividend;
•our significant severance plan obligations associated with our manufacturing operations in Korea; and
•the ability of certain of our stockholders to effectively determine or substantially influence the outcome of matters requiring stockholder approval.
General Risk Factors
•health conditions or pandemics, such as Covid-19, impacting labor availability and operating capacity, capital availability, the supply chain and consumer demand for our customers’ products and services;
•the development, transition and ramp to high volume manufacture of more advanced silicon nodes and evolving wafer, packaging and test technologies, may cause production delays, lower manufacturing yields and supply constraints for new wafers and other materials;
•our substantial indebtedness;
•difficulty funding our liquidity needs;
•dependence on key customers or concentration of customers in certain end markets, such as mobile communications and automotive;
•difficulty attracting, retaining or replacing qualified personnel;
•maintaining an effective system of internal controls;
•our continuing development and implementation of changes to, and maintenance and security of, our information technology systems;
•challenges with integrating diverse operations;
•any changes in tax laws (including with respect to the Tax Act), taxing authorities not agreeing with our interpretation of applicable tax laws, including whether we continue to qualify for tax holidays, or any requirements to establish or adjust valuation allowances on deferred tax assets;
•laws, rules, regulations and policies imposed by U.S. or other governments, such as tariffs, customs, duties and other restrictive trade barriers, national security, data privacy and cybersecurity, antitrust and competition, tax, currency and banking, labor, environmental, health and safety; and
•natural disasters and other calamities, health conditions or pandemics, political instability, hostilities or other disruptions.
Company-Specific Risk Factors
Dependence on the Highly Cyclical Semiconductor Industry - Our Packaging and Test Services Are Used in Volatile Industries and Industry Downturns, and Declines in Global Economic and Financial Conditions Could Harm Our Performance.
Our business is impacted by market conditions in the semiconductor industry, which is cyclical by nature and impacted by broad economic factors, such as world-wideworldwide gross domestic product and consumer spending. The semiconductor industry has experienced significant and sometimes sudden and prolonged downturns in the past. If the industry or
markets we compete in experience slower, or even negative growth, our business and results of operations may be adversely affected.
Since our business is, and will continue to be, dependent on the requirements of semiconductor companies for outsourced packaging and test services, any downturn in the semiconductor industry or any other industry that uses a significant number of semiconductor devices, such as telecommunications, automotive, consumer electronics, or computing, could have a material adverse effect on our business and operating results. During downturns, we have experienced, among other things, reduced demand, excess capacity and reduced sales. For example, the Covid-19 pandemic has currently disrupted demand in the automotive end market, and during 2019 there was weakness in the general market and an inventory correction in the smartphone marketmarket.
In addition, declines in global economic and weaknessfinancial conditions have harmed our business in the general market reducedpast, and future global downturns could adversely affect our business. The Covid-19 pandemic and the effects of governmental initiatives to control the pandemic have adversely affected and may continue to adversely affect the economies and financial markets of many countries, resulting in an economic downturn that may affect demand during 2019,for our services and generally soft economic conditionsour operating results. Although the magnitude of any potential future impact of the Covid-19 pandemic on our business and a lackoperations remains uncertain, the continued spread or potential re-emergence of compelling new mobile products constrained overall demand during 2015. We believeCovid-19 or the occurrence of other epidemics or pandemics, and the imposition of related public health measures and travel and business restrictions may adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will continue to experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that the general semiconductor market is still going through a typical cyclical correction. Macroeconomic uncertainties and a cautious business climate are also expectedmay impact our ability to constrain the revenue growth in our business.meet customer commitments. It is difficult to predict the timing, strength or duration of any economic slowdown caused by the Covid-19 pandemic, or which end markets will experience a slowdown, or subsequent economic recovery, which, in turn, makes it more challenging for us to forecast our operating results, make business decisions and identify risks that may affect our business, sources and uses of cash, financial condition and results of operations. Additionally, if industry conditions deteriorate, we could suffer significant losses, as we have in the past, which could materially impact our business, liquidity, results of operations, financial condition and cash flows.
Fluctuations in Operating Results and Cash Flows - Our Operating Results and Cash Flows Have Varied and May Vary Significantly as a Result of Factors That We Cannot Control.
Many factors including the impact of adverse economic conditions, could have a material adverse effect on our net sales, gross profit, operating results and cash flows or lead to significant variability of quarterly or annual operating results. Our profitability and ability to generate cash from operations is principally dependent upon demand for semiconductors, the utilization of our capacity, semiconductor package mix, the average selling price of our services, our ability to manage our capital expenditures and our ability to control our costs including labor, material, overhead and financing costs.
Our net sales, gross margin, gross profit, operating income, net income and cash flows have historically fluctuated significantly from quarter to quarter as a result of many of the following factors, over which we have little or no control and which we expect to continue to impact our business:
fluctuation•fluctuations in demand for semiconductors and conditions in the semiconductor industry generally, as well as by specific customers, such as inventory reductions by our customers impacting demand in key markets;
•our ability to achieve our major growth objectives, including transitioning second-wave customers to advanced packages and increasing our share of the automotive end market;
•changes in our capacity and capacity utilization rates;
•changes in average selling prices which can occur quickly due to the absence of long-term agreements on price;
changes in the mix of the semiconductor packaging and test services that we sell;
•fluctuations in our manufacturing yields;
•the development, transition and ramp to high volume manufacture of more advanced silicon nodes and evolving wafer, packaging and test technologies may cause production delays, lower manufacturing yields and supply constraints for new wafers and other materials;
•absence of backlog, the short-term nature of our customers’ commitments, double bookings by customers and deterioration in customer forecasts and the impact of these factors, including the possible delay, rescheduling and cancellation of large orders, or the timing and volume of orders relative to our production capacity;
•changes in costs, quality, availability and delivery times of raw materials, components, equipment and equipment;labor;
changes in labor costs to perform our services;
•wage inflation and fluctuations in commodity prices, including gold, copper and other precious metals;
•the timing of expenditures in anticipation of future orders;
•changes in effective tax rates;
•the availability and cost of financing;
•leverage and debt covenants;
•intellectual property transactions and disputes;
•warranty and product liability claims and the impact of quality excursions and customer disputes and returns;
•costs associated with legal claims, indemnification obligations, judgments and settlements;
•political instability and government shutdowns, civil disturbances or international events, such as the United Kingdom’s departure from the European Union;
•environmental or natural disasters such as earthquakes, typhoons and volcanic eruptions;
•pandemics or other illnesses that may impact our labor force, operations, liquidity, supply chain and end-user demand for products which incorporate semiconductors;semiconductors, such as the Covid-19 pandemic;
•costs of acquisitions and divestitures and difficulties integrating acquisitions;
•our ability to attract and retain qualified personnel to support our global operations;
•fluctuations in interest rates and currency exchange rates, including the potential impact of the phase-out of LIBOR on our variable rate debt;
•our ability to penetrate new end markets or expand our business in existing end markets;
•dependence on key customers or concentration of customers in certain end markets, such as mobile communications and automotive; and
•restructuring charges, asset write-offs and impairments.
It is often difficult to predict the impact of these factors upon our results for a particular period. These factors may have a material and adverse effect on our business, liquidity, results of operations, financial condition and cash flows or lead to significant variability of quarterly or annual operating results. In addition, these factors may adversely affect our credit ratings, which could make it more difficult and expensive for us to raise capital and could adversely affect the price of our securities.
Risks Associated with International Operations - We Depend on Our Factories and Operations in China, Japan, Korea, Malaysia, the Philippines, Portugal, Singapore and Taiwan. Many of Our Customers’ and Vendors’ Operations Are Also Located Outside of the U.S.
We provide packaging and test services through our factories and other operations located in China, Japan, Korea, Malaysia, the Philippines, Portugal, Singapore and Taiwan. Substantially all of our property, plant and equipment is located outside of the United States. Moreover, many of our customers and the vendors in our supply chain are located outside the U.S. The following are some of the risks we face in doing business internationally:
•health and safety concerns, including widespread outbreak of infectious diseases, such as Covid-19;
•changes in consumer demand resulting from deteriorating conditionsvariations in local economies;
•laws, rules, regulations and policies imposed by U.S. or foreign governments in areas such as data privacy, cybersecurity, antitrust and competition, tax, currency and banking, labor, and environmental;
•restrictive trade barriers considered or adopted by U.S. and foreign governments applicable to the semiconductor supply chain, including laws, rules, regulations and policies in areas such as national security, licensing requirements for exports, tariffs, customs and duties;
health and safety concerns, including widespread outbreak of infectious diseases;
•laws, rules, regulations and policies within China and other countries that may favor domestic companies over non-domestic companies, including customer- or government-supported efforts to promote the development and growth of local competitors;
•the payment of dividends and other payments by non-U.S. subsidiaries may be subject to prohibitions, limitations or taxes in local jurisdictions;
•fluctuations in currency exchange rates, particularly the dollar/yen exchange rate for our operations in Japan;
•political and social conditions, and the potential for civil unrest, terrorism or other hostilities;
•disruptions or delays in shipments caused by customs brokers or government agencies;
•difficulties in attracting and retaining qualified personnel and managing foreign operations, including foreign labor disruptions;
•difficulty in enforcing contractual rights and protecting our intellectual property rights;
•potentially adverse tax consequences resulting from tax laws in the U.S. and in foreign jurisdictions in which we operate;other jurisdictions; and
•local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations.
In particular, weWe have significant facilities and other investments in South Korea, and there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and long-range missile programs as well as its military actions in the region. Furthermore, there has been a history of conflict and a recent rise in tensionstension within and among other countries in the region.
Customer ConcentrationIn addition, the Covid-19 pandemic has impacted and Loss of Customers - The Loss of Certain Customers or Reduced Orders or Pricing from Existing Customers May Have a Significant Adverse Effect on Our Operations and Financial Results.
We have derived and expect tomay continue to derive a large portionimpact our operations and the operations of our revenues fromcustomers and suppliers as a small groupresult of customers during any particular period dueillness, quarantines, facility closures and travel and logistics restrictions in part toconnection with the concentration of market shareoutbreak. For example, quarantine orders and orders restricting movement have affected, and may in the semiconductor industry. Our ten largestfuture affect, our operations, in the Philippines and Malaysia. Other national, regional and local governments have implemented and may continue to implement similar restrictions to mitigate the spread of Covid-19 in jurisdictions in which we, our customers together accounted for 63%and our suppliers operate, and such restrictions may adversely impact our operations and the operations of our net sales for the year ended December 31, 2019. In addition, we have significant customer concentration within our end markets. The loss of a significant customer, a business combination amongcustomers and suppliers. Such restrictions may also affect end-user demand in each geography where our customers a reduction in orders or decrease in price from a significant customer or disruption in any of our significant strategic partnerships
or other commercial arrangementssell their products and services, which may result in a decline in our sales and profitability and could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows.
Theadversely affect demand for our services, from each customer is directly dependent upon that customer’sour operating results and financial health, level of business activity and purchasing decisions, the quality and price of our services, our cycle time and delivery performance, the customer’s qualification of additional competitors on products we package or test and a number of other factors. Each of these factors could vary significantly from time to time resulting in the loss or reduction of customer orders. Our business is likely to remain subject to this variability in order levels, and we cannot assure you that our key customers or any other customers will continue to place orders with us in the future at the same levels as in past periods.
For example, if a key customer decides to purchase wafers from a semiconductor foundry that provides packaging and test services, our business could be reduced if the customer also engages that foundry for related packaging and test services. We cannot assure that customer decisions regarding the purchase of semiconductor wafers will not significantly and adversely impact customer demand for our packaging and test services.
In addition, from time to time we may acquire or build new facilities or migrate existing business among our facilities. In connection with these facility changes, our customers require us to qualify the new facilities even though we have already qualified to perform the services at our other facilities. We cannot assure that we will successfully qualify new facilities or that our customers will not qualify our competitors and move the business for such services.
condition.
Competition - We Compete Against Established Competitors in the Packaging and Test Business as Well as Internal Capabilities of Integrated Device Manufacturers and Face Competition from New Competitors, Including Foundries.
The outsourced semiconductor packaging and test market is very competitive. We face substantial competition from established and emerging packaging and test service providers primarily located in Asia, including companies with significantly greater processing capacity, financial resources, local presence, research and development operations, marketing, technology and other capabilities. We also may face increased competition from domestic companies located in China, where there are government-supported efforts to promote the development and growth of the local semiconductor industry. We may be at a disadvantage in attempting to compete with entities associated with such government-supported initiatives based on their lower cost of capital, access to government resources and incentives, preferential sourcing practices, stronger local relationships or otherwise. Our competitors may also have established relationships, or enter into new strategic relationships, with one or more of the large semiconductor companies that are
our current or potential customers, or key suppliers to these customers. Consolidation among our competitors could also strengthen their competitive position. For example, Advanced Semiconductor Engineering, Inc. and Siliconware Precision Industries Co., Ltd. became sister companies under a new joint holding company, ASE Technology Holding Co. LTD., in April 2018.
We also face competition from the internal capabilities and capacity of many of our current and potential IDM and foundry customers. In addition, we compete with contract foundries, such as Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co., Ltd., which offer full turnkey services from silicon wafer fabrication through packaging and final test. These foundries, which are substantially larger than us and have greater financial resources than we do, have expanded their operations to include packaging and test services and may continue to expand these capabilities in the future.
If a key customer decides to purchase wafers from a semiconductor foundry that provides packaging and test services, our business could be reduced if the customer also engages that foundry for related packaging and test services.
We cannot assure you that we will be able to compete successfully in the future against our existing or potential competitors or that our customers will not rely on internal sources or foundries for packaging and test services, or that our business, liquidity, results of operations, financial condition and cash flows will not be adversely affected by such increased competition.
Decisions by Our Integrated Device Manufacturer and Foundry Customers to Curtail Outsourcing May Adversely Affect Our Business.
Historically, we have been dependent on the trend in outsourcing of packaging and test services by IDM and foundry customers. Our IDM and foundry customers continually evaluate the need for outsourced services against their own in-house packaging and test services. As a result, at any time and for a variety of reasons, IDMs and foundries may decide to shift some or all of their outsourced packaging and test services to internally sourced capacity.
In addition, to the extent we limit capacity commitments for certain customers, these customers may increase their level of in-house packaging and test capabilities, which could make it more difficult for us to regain their business when we have available capacity.
If we experience a significant loss of IDM or foundry business, it could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows, especially during a prolonged industry downturn.
Absence of Backlog - The Lack of Contractually Committed Customer Demand May Adversely Affect Our Sales.
Our packaging and test business does not typically operate with any material backlog. Our quarterly net sales from packaging and test services are substantially dependent upon our customers’ demand in that quarter. None of our customers have committed to purchase any significant amount of packaging or test services or to provide us with binding forecasts of demand for packaging and test services for any future period, in any material amount. In addition, we sometimes experience double booking by customers, and our customers often reduce, cancel or delay their purchases of packaging and test services for a variety of reasons including industry-wide, customer-specific and Amkor-specific reasons. This makes it difficult for us to forecast our capacity utilization and net sales in future periods. Since a large portion of our costs is fixed and our expense levels are based in part on our expectations of future sales, we may not be able to adjust costs in a timely manner to compensate for any sales shortfall. If we are unable to adjust costs in a timely manner, our margins, operating results, financial condition and cash flows would be adversely affected.
High Fixed Costs - Due to Our High Percentage of Fixed Costs, We Will Be Unable to Maintain Satisfactory Gross Margins if We Are Unable to Achieve Relatively High Capacity Utilization Rates.
Our operations are characterized by relatively high fixed costs and the absence of any material backlog. Our profitability depends in part not only on pricing levels for our packaging and test services but also on the efficient utilization of our human resources and packaging and test equipment. Increases or decreases in our capacity utilization can significantly affect gross margins. In periods of low demand, we experience relatively low capacity utilization in our operations, which leads to reduced margins during that period. Transitions between different packaging technologies, such as the transition from gold wirebond to flip chip and copper wirebond packages, can also impact our capacity utilization if we do not efficiently redeploy our equipment for other packaging and test opportunities. For example, in the past, the migration of some customer demand from wirebond to flip chip packages resulted in under-utilized wirebond assets which negatively impacted our capacity utilization and gross margin. We cannot assure you that we will be able to achieve consistently high capacity utilization, and if we fail to do so, our gross margins will be negatively impacted. If our gross margins decrease, our business, liquidity, results of operations, financial condition and cash flows could be materially adversely affected.
In addition, our fixed operating costs have increased in recent years in part as a result of our efforts to expand our capacity through significant capital expenditures. Forecasted customer demand for which we have made capital investments may not materialize, especially if industry conditions deteriorate. As a result, our sales may not adequately cover fixed costs, resulting in reduced profit levels or causing significant losses, either of which may adversely impact our business, liquidity, results of operations, financial condition and cash flows.
Dependence on Materials and Equipment Suppliers - Our Business May Suffer If the Cost, Quality or Supply of Materials or Equipment Changes Adversely Including Any Disruption that May Occur in the Supply of Certain Materials due to Regulations and Customer Requirements.
Adversely.
We obtain the materials and equipment required for the packaging and test services performed by our factories from various vendors. We source most of our materials, including critical materials such as leadframes, laminate substrates and gold wire, from a limited group of suppliers. A disruption to the operations of one or more of our suppliers could have a negative impact on our business. For example, the actions that government authorities and businesses worldwide have taken in response to Covid-19 have resulted in, to date, limited business disruption, including delays in shipments of equipment, supplies and other materials. To the extent the impact of Covid-19 continues or worsens, we may have greater difficulty obtaining the equipment, supplies and other materials necessary for performance of our services. Furthermore, severe earthquakes, flooding and tsunamis in the past have significantly and adversely affected the electronics industry supply chain by impacting the supply of specialty chemicals, substrates, silicon wafers, equipment and other supplies to the electronics industry.
In addition, we purchase the majority of our materials on a purchase order basis. Our business may be harmed if we cannot obtain materials and other supplies from our vendors in a timely manner, in sufficient quantities, at acceptable quality or at competitive prices. Some of our customers are also dependent on a limited number of suppliers for certain materials and silicon wafers. Shortages or disruptions in our customers’ supply channels could have a material adverse effect on our business, financial condition, results of operations and cash flows. For example,
the shortage in the supply of wafers to some of our customers in a prior year delayed or otherwise adversely impacted the demand for certain of our advanced packagingSEC rules and test services.
Rules adopted by the SEC implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act imposerelated industry initiatives require diligence and disclosure requirements regarding the use of certain minerals originating from the conflict zones of the Democratic Republic of Congo and adjoining countries in our products. Industry associations and manycountries. Many of our customers have implementedcustomers’ initiatives to improve transparency and accountability concerning the supply of these materials and, in some cases, requiringrequire us to certify that the covered materials we use in our packages do not come from the conflict areas. We may incur additional costs associated with complying with these requirements and customer initiatives, and we may be required to increase our efforts in the future to cover additional materials and geographic areas. These requirements and customer initiatives could affect the pricing, sourcing and availability of materials used in the manufacture of semiconductor devices, and we cannot assure you that we will be able to obtain conflict-free materials or other materials covered by customer initiatives in sufficient quantities and at competitive prices or that we will be able to verify the
origin of all of the materials we use in our manufacturing process.procure. If we are unable to meet these requirements and customer initiatives, it could adversely affect our business as some customers may move their business to other suppliers. Oursuppliers, and our reputation could also be adversely affected.
We purchase new packaging and test equipment to maintain and expand our operations. From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by equipment vendors. For example, in the past, increased demand for equipment caused some equipment suppliers to only partially satisfy our equipment orders in the normal time frame or to increase prices during market upturns for the semiconductor industry. The unavailability of equipment or failures to deliver equipment on a timely basis could delay or impair our ability to meet customer orders. If we are unable to meet customer orders, we could lose potential and existing customers. Generally, we acquire our equipment on a purchase order basis and do not enter into long-term equipment agreements. As a result, we could experience adverse changes in pricing, currency risk and potential shortages in equipment in a strong market, any of which could have a material adverse effect on our results of operations.
We are a large buyer of gold and other commodity materials including substrates and copper. The prices of gold and other commodities used in our business fluctuate. Historically, we have been able to partially offset the effect of commodity price increases through price adjustments to some customers and changes in our product designs that reduce the material content and cost, such as the use of shorter, thinner, gold wire and migration to copper wire. However, we typically do not have long-term contracts that permit us to impose price adjustments, and market conditions may limit our ability to do so. Significant price increases may adversely impact our gross margin in future periods to the extent we are unable to pass along past or future commodity price increases to our customers.
Capital Expenditures - We Make Substantial Investments in Equipment and Facilities Toto Support the Demand Ofof Our Customers, Which May Adversely Affect Our Business Ifif the Demand Ofof Our Customers Does Not Develop Asas We Expect or Is Adversely Affected.
We make significant investments in equipment and facilities in order to service the demand of our customers. For example, we had capital expenditures of $472.4 million in 2019, $547.1 million in 2018 and $550.9 million in 2017. The amount of our capital expenditures depends on several factors, including the performance of our business, our assessment of future industry and customer demand, our capacity utilization levels and availability, advances in technology, our liquidity position and the availability of financing. Our ongoing capital expenditure requirements may strain our cash and short-term asset balances, and, in periods when we are expanding our capital base, we expect that depreciation expense and factory operating expenses associated with capital expenditures to increase production capacity will put downward pressure on our gross margin,profit, at least in the near term. While we completed the initial phase of construction of our factory and research and development facility in Incheon, Korea in December 2016, there can be no assurance regarding when the facility will be fully utilized, or that the actual scope, costs, timeline or benefits of the project will be consistent with our expectations. From time to time, we also make significant capital expenditures based on specific business opportunities with one or a few key customers, and the additional equipment purchased may not be readily usable to support other customers. If demand is insufficient to fill our capacity, or we are unable to efficiently redeploy such equipment, our capacity utilization and gross marginprofit could be negatively impacted. Our capital expenditures or cost per square foot may increase as we transition to new or more advanced packaging and test technologies because, among other things, new equipment used for these technologies is generally more expensive and often our existing equipment cannot be redeployed in whole or part for these technologies.
To the extent this occurs in the future, our business, liquidity, results of operations, financial condition and cash flows could be materially adversely affected.
Furthermore, if we cannot generate or raise additional funds to pay for capital expenditures, particularly in some of the advanced packaging and bumping areas, as well as research and development activities, our growth and future profitability may be adversely affected. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including:
our future financial condition, results of operations and cash flows;
general market conditions for financing;
volatility in fixed income, credit and equity markets; and
economic, political and other global conditions.
High Fixed Costs - Due to Our High Percentage of Fixed Costs, We Will Be Unable to Maintain Satisfactory Gross Margins if We Are Unable to Achieve Relatively High Capacity Utilization Rates.
Our operations are characterized by high fixed costs and the absence of any material backlog. Our profitability depends in part not only on pricing levels for our packaging and test services but also on the efficient utilization of our human resources and packaging and test equipment. Increases or decreases in our capacity utilization can significantly affect gross margins. Transitions between different packaging technologies can also impact our capacity utilization if we do not efficiently redeploy our equipment for other packaging and test opportunities. We cannot assure you that we will be able to achieve consistently high capacity utilization, and if we fail to do so, our gross margins will be negatively impacted.
In addition, our fixed operating costs have increased as a result of capital expenditures for capacity expansion. The anticipated customer demand for which we have made capital investments may not materialize, and our sales may not
adequately cover fixed costs, resulting in reduced profit levels or even significant losses, either of which may adversely impact our business, liquidity, results of operations, financial condition and cash flows.
Absence of Backlog - The Lack of Contractually Committed Customer Demand May Adversely Affect Our Sales.
Our packaging and test business does not typically operate with any material backlog. Our quarterly net sales from packaging and test services are substantially dependent upon our customers’ demand in that quarter. Generally, none of our customers have committed to purchase any significant amount of packaging or test services or to provide us with binding forecasts of demand for packaging and test services for any future period, in any material amount. In addition, we sometimes experience double booking by customers, and our customers often reduce, cancel or delay their purchases of packaging and test services for a variety of reasons including industry-wide, customer-specific and Amkor-specific reasons. This makes it difficult for us to forecast our capacity utilization and net sales in future periods. Since a large portion of our costs is fixed and our expense levels are based in part on our expectations of future sales, we may not be able to adjust costs in a timely manner to compensate for any sales shortfall. If we are unable to adjust costs in a timely manner, our margins, operating results, financial condition and cash flows would be adversely affected.
Declining Average Selling Prices - Historically There Has Been Downward Pressure on the Prices of Our Packaging and Test Services.
Prices for packaging and test services have generally declined over time, and sometimes prices can change significantly in relatively short periods of time. We expect downward pressure on average selling prices for our packaging and test services to continue in the future, and this pressure may intensify during downturns in business. If we are unable to offset a decline in average selling prices by developing and marketing new packages with higher prices, reducing our purchasing costs, recovering more of our material cost increases from our customers and reducing our manufacturing costs, our business, liquidity, results of operations, financial condition and cash flows could be materially adversely affected.
Packaging and Test Processes Are Complex and Our Production Yields and Customer Relationships May Suffer from Defects in the Services We Provide or if We Do Not Successfully Implement New Technologies.
Semiconductor packaging and test services are complex processes that require significant technological and process expertise, and in line with industry practice, customers usually require us to pass a lengthy and rigorous qualification process that may take several months. Once qualified and in production, defective packages primarily result from:
•contaminants in the manufacturing environment;
•human error;
•equipment malfunction;
•changing processes to address environmental requirements;
•defective raw materials; or
•defective plating services.
Test is also complex and involves sophisticated equipment and software. Similar to many software programs, these software programs are complex and may contain programming errors or “bugs.” The test equipment is also subject to malfunction, and the test process is subject to operator error.
These and other factors have, from time to time, contributed to lower production yields. They may also do so in the future, particularly as we adjust our capacity, change our processing steps or ramp new technologies. In addition, we must continue to develop and implement new packaging and test technologies and expand our offering of packages to be competitive. Our production yields on new packages, particularly those packages which are based on new technologies, typically are significantly lower than our production yields on our more established packages.
Our failure to qualify new processes, maintain quality standards or acceptable production yields, if significant and prolonged, could result in loss of customers, increased costs of production, delays, substantial amounts of returned goods
and claims by customers relating thereto. Any of these problems could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows.
Intellectual Property - Our Business Will Suffer if We Are Not Able to Develop New Proprietary Technology, Protect Our Proprietary Technology and Operate Without Infringing the Proprietary Rights of Others.
The complexity and scope of semiconductor packaging, SiP modules and test services are rapidly increasing. As a result, we expect to develop, acquire and implement new manufacturing processes and packaging technologies and tools in order to respond to competitive industry conditions and customer requirements. Technological advances may lead to rapid and significant price erosion and may make our existing packages less competitive or our existing inventories obsolete. If we cannot achieve advances in packaging design or obtain access to advanced packaging designs developed by others, our business could suffer.
The need to develop and maintain advanced packaging capabilities and equipment could require significant research and development, capital expenditures and acquisitions in future years. In addition, converting to new packaging designs or process methodologies could result in delays in producing new package types, which could adversely affect our ability to meet customer orders and adversely impact our business.
Although we seek patent protection for some of our technology under U.S. and foreign patent laws, 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 are issued, the rights granted under the patents will provide us with meaningful protection or any commercial advantage. Any patents we do obtain will eventually expire, may be challenged, invalidated or circumvented and may not provide us meaningful protection or other commercial advantage.
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. There can be no assurance that other countries in which we market our services will protect our intellectual property rights to the same extent as the U.S.
Our competitors may develop, patent or gain access to know-how and technology similar or superior to our own. In addition, many of our patents are subject to cross licenses, several of which are with our competitors. The semiconductor industry is characterized by frequent claims regarding the infringement of patent and other intellectual property rights. If any third party makes an enforceable infringement claim against us or our customers, we could be required to:
•discontinue the use of certain processes or cease to provide the services at issue, which could curtail our business;
•pay substantial damages;
•develop non-infringing technologies, which may not be feasible; or
•acquire licenses to such technology, which may not be available on commercially reasonable terms or at all.
We may need to enforce our patents or other intellectual property rights, including our rights under patent and intellectual property licenses with third parties, or defend ourselves against claimed infringement of the rights of others through litigation, which could result in substantial cost and diversion of our resources and may not be successful. Furthermore, if we fail to obtain necessary licenses, our business could suffer, and we could be exposed to claims for damages and injunctions from third parties, as well as claims from our customers for indemnification. Unfavorable outcomes in any legal proceedings involving intellectual property could result in significant liabilities or loss of commercial advantage and could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows. The potential impact from the legal proceedings referred to in this Annual Report on Form 10-K on our results of operations, financial condition and cash flows could change in the future.
We Face Warranty Claims, Product Return and Liability Risks, the Risk of Economic Damage Claims and the Risk of Negative Publicity if Our Packages Fail.
Fail.
Our packages are incorporated into a number of end products, and our business is exposed to warranty claims, product return and liability risks, the risk of economic damage claims and the risk of negative publicity if our packages fail.
We receive warranty claims from our customers from time to time in the ordinary course of our business. If we were to experience an unusually high incidence of warranty claims, we could incur significant costs and our business could be adversely affected. In addition, we are exposed to the product and economic liability risks 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 packages are delivered with defects, we could incur additional development, repair or replacement costs or suffer other economic losses, and our credibility and the market’s acceptance of our packages could be harmed.
Our Substantial Indebtedness Could Adversely Affect Our Financial Condition and Prevent Us from Fulfilling Our Obligations.
We have a significant amount of indebtedness, and the terms of the agreements governing our indebtedness allow us and our subsidiaries to incur more debt, subject to certain limitations. As of December 31, 2019, our total debt balance was $1,450.2 million, of which $144.5 million was classified as a current liability and $720.7 million was collateralized indebtedness at our subsidiaries. We may consider investments in joint ventures, increased capital expenditures, refinancings or acquisitions which may increase our indebtedness. If new debt is added to our consolidated debt level, the related risks that we face could intensify.
Our substantial indebtedness could:
make it more difficult for us to satisfy our obligations with respect to our indebtedness, including our obligations under our indentures to purchase notes tendered as a result of a change in control of Amkor;
increase our vulnerability to general adverse economic and industry conditions;
limit our ability to fund future working capital, capital expenditures, research and development and other business opportunities, including joint ventures and acquisitions;
require us to dedicate a substantial portion of our cash flow from operations to service payments of interest and principal on our debt, thereby reducing the availability of our cash flow to fund future working capital, capital expenditures, research and development expenditures and other general corporate requirements;
increase the volatility of the price of our common stock;
limit our flexibility to react to changes in our business and the industry in which we operate;
place us at a competitive disadvantage to any of our competitors that have less debt;
limit, along with the financial and other covenants in our indebtedness, our ability to borrow additional funds;
limit our ability to refinance our existing indebtedness, particularly during periods of adverse credit market conditions when refinancing indebtedness may not be available under interest rates and other terms acceptable to us or at all; and
increase our cost of borrowing.
In addition, certain of our credit agreements use LIBOR or other reference rates to determine the rate of interest payable on our borrowings. The United Kingdom’s Financial Conduct Authority intends to phase out LIBOR by the end of 2021. Plans for alternative reference rates for other currencies have also been announced. At this time, we cannot predict how markets will respond to proposed alternative rates or the effect of any changes to, or discontinuation of, LIBOR. If reference rates under our credit agreements are no longer available or if our lenders have increased costs due to changes in reference rates, we may experience increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.
We May Have Difficulty Funding Liquidity Needs.
We assess our liquidity based on our current expectations regarding sales, operating expenses, capital spending, debt service requirements and other funding needs. We fund our operations, including capital expenditures and other investments and servicing principal and interest obligations with respect to our debt, from cash flows from our operations, existing cash and cash equivalents, borrowings under available debt facilities, or proceeds from any additional debt or equity financing. Our liquidity is affected by, among other factors, the performance of our business, our capital expenditure and other investment levels and our ability to repay debt and other long-term obligations out of our operating cash flows or with the proceeds of debt or equity financings.
Servicing our current and future customers requires that we incur significant operating expenses and continue to make significant capital expenditures and other investments, and the amount of our capital expenditures for 2020 and thereafter may vary materially and will depend on several factors. These factors include, among others, the amount, timing and implementation of our capital projects, the performance of our business, economic and market conditions, advances in technology, the cash needs and investment opportunities for the business, the need for additional capacity and facilities and the availability of cash flows from operations or financing.
The health of the worldwide banking system and capital markets affects our liquidity. If financial institutions that have extended credit commitments to us are adversely affected by the conditions of the U.S., foreign or international banking system and capital markets, they may refuse or be unable to fund borrowings under their credit commitments to us. Volatility in the banking system and capital markets, as well as any increase in interest rates or adverse economic, political and other global conditions, could also make it difficult or more expensive for us to maintain our existing credit facilities or refinance our debt.
The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations. Such fluctuations could impact our decision or ability to utilize the equity markets as a potential source of our funding needs in the future.
In addition, there is a risk that we could fail to generate the necessary net income or operating cash flows to meet the funding needs of our business due to a variety of factors, including the other factors discussed in this “Risk Factors” section. If we fail to generate the necessary cash flows or we are unable to access the capital markets when needed, our liquidity would be adversely impacted.
Covenants in the Indentures and Agreements Governing Our Current and Future Indebtedness Could Restrict Our Operating Flexibility.
The indentures and agreements governing our existing debt, and debt we may incur in the future, contain, or may contain, affirmative and negative covenants that materially limit our ability to take certain actions, including our ability to incur debt, pay dividends and repurchase stock, make certain investments and other payments, enter into certain mergers and consolidations, engage in sale leaseback transactions and encumber and dispose of assets. In addition, certain of our debt agreements contain, and our future debt agreements may contain, financial covenants and ratios.
The breach of any of these covenants by us, or the failure by us to meet any of the financial ratios or conditions, could result in a default under any or all of such indebtedness. If a default occurs under any such indebtedness, all of the outstanding obligations thereunder could become immediately due and payable, which could result in a default under our other outstanding debt and could lead to an acceleration of obligations related to other outstanding debt. The existence of such a default or event of default could also preclude us from borrowing funds under our revolving credit facilities. Our ability to comply with the provisions of the indentures, credit facilities and other agreements governing our outstanding debt and indebtedness we may incur in the future can be affected by events beyond our control, and a default under any debt instrument, if not cured or waived, could have a material adverse effect on us.
We may Decrease or Suspend our Quarterly Dividend, and Any Decrease in or Suspension of the Dividend Could Cause Our Stock Price to Decline.
We currently anticipate the payment of a regular quarterly cash dividend of $0.04 per share on our outstanding common stock. However, the payment, amount and timing of future cash dividends are subject to the final determination each quarter by our Board of Directors or a committee thereof that there are sufficient funds available to lawfully pay a dividend, that the dividend is compliant with the applicable restrictions in our debt agreements, and that the payment of the dividend remains in our best interests. The determination will be based on our results of operations, financial condition, cash requirements, debt restrictions and other factors. Given these considerations, we may increase or decrease the amount of the dividend at any time and may also decide to vary the timing of or suspend the payment of dividends in the future. Any decrease or suspension could cause our stock price to decline.
We Have Significant Severance Plan Obligations Associated Withwith Our Manufacturing Operations in Korea Which Could Reduce Our Cash Flow and Negatively Impact Our Financial Condition.
Our subsidiary in Korea maintains an unfunded severance plan under which we have an accrued liability of $127.4$98.0 million as of December 31, 2019.2020. The plan covers certain employees that were employed prior to August 1, 2015. In the event of a significant layoff or other reduction in our labor force in Korea, our subsidiary in Korea would be required to make lump-sum severance payments under the plan, which could have a material adverse effect on our liquidity, financial condition and cash flows. See Note 13From time to time, we may offer some or all of the covered employees the option to convert from the severance plan to the defined contribution plan, which could impact the timing of future payments, reducing our cash flow and negatively affecting our financial condition. As recently as October 2020, some employees accepted our offer to convert their Korean severance plan participation to a defined contribution plan.
Mr. James J. Kim and Members of His Family Can Effectively Determine or Substantially Influence the Outcome of All Matters Requiring Stockholder Approval.
As of December 31, 2020, Mr. James J. Kim, the Executive Chairman of our Board of Directors, Ms. Susan Y. Kim, the Vice Chairman of our Board of Directors, and members of the Kim family and affiliates owned approximately 141.9 million shares, or approximately 58%, of our outstanding common stock. The Kim family also has options to acquire approximately 0.5 million shares. If the options are exercised, the Kim family’s total ownership would be an aggregate of approximately 142.4 million shares of our outstanding common stock or approximately 58% of our outstanding common stock.
In June 2013, the Kim family exchanged convertible notes issued by Amkor in 2009 for approximately 49.6 million shares of common stock (the “Convert Shares”). The Convert Shares are subject to a voting agreement. The voting agreement requires the Kim family to vote these shares in a “neutral manner” on all matters submitted to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
If We Fail to Maintain an Effective System of Internal Controls, We May Not be Able to Accurately Report Financial Results or Prevent Fraud.
Effective internal controlsstockholders for a vote, so that such Convert Shares are necessary to provide reliable financial reports and to assistvoted in the effective preventionsame proportion as all of fraud.the other outstanding securities (excluding the other shares owned by the Kim family) that are actually voted on a proposal submitted to Amkor’s stockholders for approval. The Kim family is not required to vote in a “neutral manner” any Convert Shares that, when aggregated with all other voting shares held by the Kim family, represent 41.6% or less of the total then-outstanding voting shares of our common stock. The voting agreement for the Convert Shares terminates upon the earliest of (i) such time as the Kim family no longer beneficially owns any of the Convert Shares, (ii) consummation of a change of control (as defined in the voting agreement) or (iii) the mutual agreement of the Kim family and Amkor.
Mr. James J. Kim and his family and affiliates, acting together, have the ability to effectively determine or substantially influence matters submitted for approval by our stockholders by voting their shares or otherwise acting by written consent, including the election of our Board of Directors. There is also the potential, through the election of members of our Board of Directors, that the Kim family could substantially influence matters decided upon by our Board of Directors. This concentration of ownership may also have the effect of impeding a merger, consolidation, takeover or other business consolidation involving us, or discouraging a potential acquirer from making a tender offer for our shares, and could also negatively affect our stock’s market price or decrease any premium over market price that an acquirer might otherwise pay. Concentration of ownership also reduces the public float of our common stock. There may be less liquidity and higher price volatility for the stock of companies with a smaller public float compared to companies with broader public ownership. Also, the sale or the prospect of the sale of a substantial portion of the Kim family shares may adversely affect the market price of our stock.
General Risk Factors
The Covid-19 Outbreak Has Impacted and May Continue to Impact the Supply Chain and Consumer Demand for Our Customers’ Products and Services, Which May Adversely Affect Our Business, Results of Operations, and Financial Condition.
Our business has been and may continue to be adversely impacted by the effects of the Covid-19 outbreak. The impacts have varied, and likely will continue to vary, by location, by industry and by end market. We, must annually evaluate our internal proceduressuppliers and our customers have been and may continue to be disrupted by worker illness and absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure and border closures or other travel or health-related restrictions. There is considerable uncertainty regarding such restrictions and potential future governmental restrictions. Restrictions on our workforce or access to our manufacturing facilities, or similar limitations for our suppliers, or restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls, could limit our capacity to meet customer demand and have a material adverse effect on our business, results of operations and financial condition. Such restrictions and efforts to contain the spread of Covid-19 have caused and may continue to cause disruptions to our supply chain in connection with the sourcing of equipment, supplies and other materials. The resumption of normal business operations after any such restrictions are lifted may be delayed or constrained by lingering effects of Covid-19 on our suppliers or customers or both.
The Covid-19 pandemic has adversely affected and may continue to adversely affect the economies and financial markets of many countries, resulting in an economic downturn that may cause a decrease in short-term and long-term consumer demand for our customers’ products and services and impact our operating results. Demand for our products
and services for the automotive end market has experienced the most significant impact to date, and there is no certainty as to when demand in that market will return to pre-Covid-19 levels.
The spread of Covid-19 has caused us to modify our business practices (including corporate hygiene protocols at factories, restricting employee travel and employee work locations and cancelling physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine to be in the best interests of our employees, customers and suppliers. There is no certainty that such measures will be sufficient to mitigate the current or future impacts of Covid-19, and our ability to perform critical functions could be harmed.
At this time, we are unable to predict the future impacts that Covid-19 will have on our business, financial condition or results of operations due to various uncertainties, including the duration of the outbreak and the actions that may be taken by governmental authorities and other businesses in response to the Covid-19 pandemic.
Our Substantial Indebtedness Could Adversely Affect Our Financial Condition and Prevent Us from Fulfilling Our Obligations.
We have a significant amount of indebtedness, and the terms of the agreements governing our indebtedness allow us and our subsidiaries to incur more debt, subject to certain limitations. As of December 31, 2020, our total debt balance was $1,154.3 million, of which $149.0 million was classified as a current liability and $474.2 million was collateralized indebtedness at our subsidiaries. We may consider investments in joint ventures, increased capital expenditures, refinancings or acquisitions which may increase our indebtedness. If new debt is added to our consolidated debt level, the related risks that we face could intensify.
Our substantial indebtedness could:
•make it more difficult for us to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management and our independent registered public accounting firm to assess the effectiveness of internal control over financial reporting.
Internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, fraud or corruption. Therefore, even effective internal controls can provide only reasonable assuranceobligations with respect to our indebtedness, including our obligations under our indentures to purchase notes tendered as a result of a change in control of Amkor;
•increase our vulnerability to general adverse economic and industry conditions;
•limit our ability to fund future working capital, capital expenditures, research and development and other business opportunities, including joint ventures and acquisitions;
•require us to dedicate a substantial portion of our cash flow from operations to service payments of interest and principal on our debt, thereby reducing the preparationavailability of our cash flow to fund future working capital, capital expenditures, research and fair presentationdevelopment expenditures and other general corporate requirements;
•increase the volatility of the price of our common stock;
•limit our flexibility to react to changes in our business and the industry in which we operate;
•place us at a competitive disadvantage to any of our competitors that have less debt;
•limit, along with the financial statements. and other covenants in our indebtedness, our ability to borrow additional funds;
•limit our ability to refinance our existing indebtedness, particularly during periods of adverse credit market conditions when refinancing indebtedness may not be available under interest rates and other terms acceptable to us or at all; and
•increase our cost of borrowing.
In addition, projectionscertain of our credit agreements use LIBOR or other reference rates to determine the rate of interest payable on our borrowings. As such, our financial position may be adversely affected by fluctuations in such reference rates based on economic and market factors beyond our control. Any significant increase in such reference rates would result in a significant increase in interest expense on our debt, which could negatively impact our results of operations and cash flows. The United Kingdom’s Financial Conduct Authority intends to phase out LIBOR by July 2023. Plans for alternative reference rates have also been announced. At this time, we cannot predict how markets will respond to proposed alternative rates or the effect of any evaluationchanges to, or discontinuation of, effectivenessLIBOR. If reference rates under our
credit agreements are no longer available or if our lenders have increased costs due to future periodschanges in reference rates, we may experience increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.
We Are Exposed to Fluctuations in Interest Rates and Changes in Credit Risk Which Could Have a Material Adverse Impact on Our Earnings as it Relates to the Market Value of Our Investment Portfolio.
We maintain an investment portfolio of various holdings, types, and maturities. Our portfolio includes available-for-sale debt investments, the values of which are subject to the risk that the internal controls may become inadequate because ofmarket price volatility resulting from interest rate movements, changes in conditions, or thatcredit risk and financial market conditions. If such investments suffer market price declines, we may recognize in earnings the degreedecline in the fair value of compliance withour investments below their cost basis when the policies or procedures may deteriorate.decline is judged to be an impairment, including an allowance for credit loss.
We May Have Difficulty Funding Liquidity Needs.
We assess our internal controlsliquidity based on our current expectations regarding sales and systems on an ongoing basis,operating expenses, capital spending, dividend payments and from time-to-time, we updatestock repurchases, debt service requirements and make modificationsother funding needs. We fund our operations, including capital expenditures and other investments and servicing principal and interest obligations with respect to our global enterprise resource planning system. We have implemented several significant enterprise resource planning modulesdebt, from cash flows from our operations, existing cash and expect to implementcash equivalents, borrowings under available debt facilities, or proceeds from any additional enterprise resource planning modulesdebt or equity financing. Our liquidity is affected by, among other factors, volatility in the future. In addition, we have implemented new shop floor management systems in certainglobal economy and credit markets, the performance of our factories. Althoughbusiness, our capital expenditure and other investment levels, other uses of our cash including any payments of dividends and purchases of stock under any stock repurchase program, any acquisitions or investments in joint ventures and our ability to either repay debt and other long-term obligations out of our operating cash flows or refinance debt at or prior to maturity with the proceeds of debt or equity financings.
Servicing our current and future customers requires that we incur significant operating expenses and continue to monitormake significant capital expenditures and assessother investments, and the amount of our internal controlscapital expenditures for these systems2021 and thereafter may vary materially and will depend on several factors. These factors include, among others, the amount, timing and implementation of our capital projects, the performance of our business, economic and market conditions, advances in technology, the cash needs and investment opportunities for the business, the need for additional capacity and facilities and the availability of cash flows from operations or financing.
The health of the worldwide banking system and capital markets also affects our liquidity. If financial institutions that have extended credit commitments to us are adversely affected by the conditions of the U.S., foreign or international banking system and capital markets, they may refuse or be unable to fund borrowings under their credit commitments to us. Volatility in the banking system and capital markets, as well as any increase in interest rates or adverse economic, political, public health or other global conditions, could also make it difficult or more expensive for us to maintain our existing credit facilities or refinance our debt.
The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations. Such fluctuations could impact our decision or ability to utilize the equity markets as a potential source of our funding needs in the future.
In addition, there is a risk that deficiencies may occur thatwe could constitute significant deficienciesfail to generate the necessary net income or operating cash flows to meet the funding needs of our business due to a variety of factors, including the other factors discussed in the aggregate, a material weakness.
this “Risk Factors” section. If we fail to remedy any deficienciesgenerate the necessary cash flows or maintainwe are unable to access the adequacycapital markets when needed, our liquidity would be adversely impacted.
Customer Concentration and Loss of Customers - The Loss of Certain Customers or Reduced Orders or Pricing from Existing Customers May Have a Significant Adverse Effect on Our Operations and Financial Results.
We have derived and expect to continue to derive a large portion of our internal controls, we could be subjectrevenues from a small group of customers during any particular period due in part to regulatory scrutiny, civil or criminal penalties or shareholder litigation.the concentration of market share in the semiconductor industry. Our ten largest customers together accounted for 65% of our net sales for the year ended December 31, 2020. In addition, failure to maintain adequate internal controls couldwe have significant customer concentration within our end markets. The loss of a significant customer, a business combination among our customers, a reduction in orders or decrease in price from a significant customer or disruption in any of our
significant commercial arrangements may result in a decline in our sales and profitability and could have a material adverse effect on our business, liquidity, results of operations, financial statementscondition and cash flows.
The demand for our services from each customer is directly dependent upon that docustomer’s financial health, level of business activity and purchasing decisions, the quality and price of our services, our cycle time and delivery performance, the customer’s qualification of additional competitors on products we package or test and a number of other factors. Each of these factors could vary significantly from time to time resulting in the loss or reduction of customer orders, and we cannot assure that our key customers or any other customers will continue to place orders with us in the future at the same levels as in past periods.
For example, as seen in the automotive end market, the Covid-19 pandemic and restrictions imposed by governmental authorities to mitigate the spread of Covid-19 in our customers’ end markets may decrease demand for our customers’ products and services, adversely impacting their demand for our services.
In addition, from time to time we may acquire or build new facilities or migrate existing business among our facilities. In connection with these facility changes, our customers require us to qualify the new facilities even though we have already qualified to perform the services at our other facilities. We cannot assure that we will successfully qualify new facilities or that our customers will not accurately reflectqualify our operating results or financial condition.
competitors and move the business for such services.
We Face Risks Trying to Attract, Retain or Replace Qualified Employees to Support Our Operations.
Our success depends to a significant extent upon the continued service of our key senior management, sales and technical personnel, any of whom may be difficult to replace. Competition for qualified employees is intense, and our business could be adversely affected by the loss of the services of any of our existing key personnel, including senior management, as a result of competition or for any other reason. Other than the agreement with our Chief Executive Officer, we do not have employment agreements with our key employees, including senior management, or other contracts that would prevent our key employees from working for our competitors in the event they cease working for us. We cannot assure you that we will be successful in our efforts to retain or replace key employees or in hiring and properly training sufficient numbers of qualified personnel and in effectively managing our growth. Our inability to attract, retain, motivate and train qualified new personnel could have a material adverse effect on our business.
If We Fail to Maintain an Effective System of Internal Controls, We May Not be Able to Accurately Report Financial Results or Prevent Fraud.
Our internal controls over financial reporting may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, fraud or corruption. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections concerning the effectiveness of internal controls in future periods are subject to the risk that our internal controls may become inadequate because of changes in conditions, or that the degree of compliance with our policies or procedures may deteriorate.
We assess our internal controls and systems on an ongoing basis, and from time-to-time, we update and make modifications to our global enterprise resource planning system. We have implemented several significant enterprise resource planning modules and expect to implement additional enterprise resource planning modules in the future. In addition, we have implemented new shop floor management systems in certain of our factories. There is a risk that deficiencies may occur that could constitute significant deficiencies or, in the aggregate, a material weakness.
If we fail to remedy any deficiencies or maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our operating results or financial condition.
We Face Risks in Connection with the Continuing Development and Implementation of Changes to, and Maintenance and Security of, Our Information Technology Systems.
We depend on our information technology systems for many aspects of our business. Our systems may be susceptible to any of the following events: damage, disruptions or shutdowns due to failures during the process of upgrading, replacing or maintaining software, databases or components thereof, power outages, hardware failures, interruption or failures of third-party provider systems, computer viruses, attacks by computer hackers, telecommunication failures, user errors,
malfeasance or catastrophic events. Such events have occurred in the past and may occur in the future. Cybersecurity breaches could result in unauthorized disclosure of confidential information or disruptions to our operations. While we have not experienced a material information security breach in the past, we cannot assure you that such a breach will not occur in the future. The IT systems in our factories are at varying levels of sophistication and maturity as the factories have different sets of products, processes and customer expectations. Some of our key software has been developed by our own programmers, and this software may not be easily integrated with other software and systems. From time to time we make additions or changes to our information technology systems. For example, we are integrating our Japan operations’ information technology systems with our existing systems and processes, and such integration has inherent risks to existing operations. In addition, in May 2017, we completed our acquisition of Nanium and continue to integrate its information technology systems into our existing systems and processes. We face risks in connection with current and future projects to install or integrate new information technology systems or upgrade our existing systems. These risks include:
•delays in the design and implementation of the system;
•costs may exceed our plans and expectations; and
•disruptions resulting from the implementation, integration or cybersecurity breach of the systems may impact our ability to process transactions and delay shipments to customers, impact our results of operations or financial condition or harm our control environment.
Our business could be materially and adversely affected if our information technology systems are disrupted or if we are unable to successfully install new systems or improve, upgrade, integrate or expand upon our existing systems.
We maintain insurance policies for various types of information security risks, including network security and privacy liability for third party claims, and business interruption and system failure reimbursement coverage, but we do not carry insurance for all the above referred risks. With regard to the insurance we do maintain, we cannot assure you that it would be sufficient to cover all of our potential losses. As a result, our business, financial condition, results of operations and cash flows could be adversely affected by a disruption, failure or breach of our information technology systems.
Difficulties Consolidating and Integrating Our Operations - We Face Challenges as We Integrate Diverse Operations.
We have experienced, and expect to continue to experience, change in the scope and complexity of our operations resulting primarily from existing and future facility and operational consolidations, facility and operational expansions, strategic acquisitions, joint ventures and other partnering arrangements. Some of the risks from these activities include those associated with the following:
•increasing the scope, geographic diversity and complexity of our operations;
•conforming an acquired company’s standards, practices, systems and controls with our operations;
•increasing complexity from combining recent acquisitions of an acquired business;
•unexpected losses of key employees or customers of an acquired business;
difficulties in the assimilation of acquired operations, technologies or products; and
•diversion of management and other resources from other parts of our operations and adverse effects on existing business relationships with customers.
In connection with these activities, we may:
•incur costs associated with personnel reductions and voluntary retirement programs;
•record restructuring charges to cover costs associated with facility consolidations and related cost reduction initiatives;
•use a significant portion of our available cash;
•incur substantial debt;
•issue equity securities, which may dilute the ownership of current stockholders;
•incur or assume known or unknown contingent liabilities; and
•incur large, immediate accounting write offs and face antitrust or other regulatory inquiries or actions.
For example, the businesses we have acquired had, at the time of acquisition, multiple systems for managing their own production, sales, inventory and other operations. Migrating these businesses to our systems typically is a slow, expensive process requiring us to divert significant resources from other parts of our operations. We may continue to face these challenges in the future. As a result of the risks discussed above, the anticipated benefits of these or other future acquisitions, consolidations and partnering arrangements may not be fully realized, if at all, and these activities could have a material adverse effect on our business, financial condition and results of operations.
Litigation Incident to Our Business Could Adversely Affect Us.
We have been a party to various legal proceedings, including those described from time to time in our reports filed with the SEC, and may be a party to legal proceedings in the future. These proceedings could require significant management time and resources and, if an unfavorable ruling or outcome were to occur in these legal proceedings, there could be a material adverse impact on our business, liquidity, results of operations, financial condition, cash flows and the trading price of our securities.
We Could Suffer Adverse Tax and Other Financial Consequences if There Are Changes in Tax Laws or Taxing Authorities Do Not Agree with Our Interpretation of Applicable Tax Laws, Including Whether We Continue to Qualify for Tax Holidays, or if We Are Required to Establish or Adjust Valuation Allowances on Deferred Tax Assets.
We earn a substantial portion of our income in foreign countries and our operations are subject to tax in multiple jurisdictions with complicated and varied tax regimes. Tax laws and income tax rates in these jurisdictions are subject to change due to economic and political conditions. In addition, the Organisation for Economic Co-operation and Development has released recommendations and an action plan aimed to standardize and modernize global corporate tax policy, including changes to transfer pricing and other international tax matters to address base erosion and profit shifting impacting multinational companies like Amkor. Changes in U.S. or foreign tax laws, arising out of such recommendationsincluding new or otherwisemodified guidance with respect to existing tax laws (particularly the Tax Act, which made significant changes to the U.S. tax code with respect to which there remains uncertainty), could have a material adverse impact on our liquidity, results of operations, financial condition and cash flows.
Our tax liabilities are based, in part, on our corporate structure, interpretations of various U.S. and foreign tax laws, including withholding tax, compliance with tax holiday requirements, application of changes in tax law to our operations and other relevant laws of applicable taxing jurisdictions. From time to time, taxing authorities may conduct examinations of our income tax returns and other regulatory filings. We cannot assure you that the taxing authorities will agree with our interpretations, including whether we continue to qualify for tax holidays. If they do not agree, we may seek to enter into settlements with the taxing authorities. We may also appeal a taxing authority’s determination to the appropriate governmental authorities, but we cannot be sure we will prevail. If we do not prevail or if we enter into settlements with taxing authorities, we may have to make significant payments or otherwise record charges (or reduce tax assets) that adversely affect our results of operations, financial condition and cash flows. Additionally, certain of our subsidiaries operate under tax holidays, which will expire in whole or in part at various dates in the future. As those tax holidays expire, we expect that our tax expense will increase as income from those jurisdictions becomes subject to higher statutory income tax rates, thereby reducing our liquidity and cash flow.
We monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance. In evaluating our ability to recover our deferred tax assets, in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. For most of our foreign deferred tax assets, we believe that we will have sufficient taxable income to allow us to realize these deferred tax assets. In the event taxable income falls short of current expectations, we may need to establish a valuation allowance against such deferred tax assets that, if required, could materially affect our results of operations.
The Enactment of Tax Reform Could Materially Impact Our Financial Position and Results of Operations
On December 22, 2017, the Tax Act was signed into law. The Tax Act made significant changes to the U.S. tax code. Changes include a reduction of the U.S. federal corporate tax rate from 35% to 21%, a one-time transition tax on unremitted foreign earnings and profits applicable for our fiscal year ended December 31, 2017, limitations on tax deductions for interest expense for the period beginning January 1, 2018, and changes to other existing deductions and business-related exclusions in future periods. As a result, in the fourth quarter of 2017, we recognized a one-time net tax benefit of approximately $41.6 million, primarily due to the release of a valuation allowance against U.S. deferred tax assets that we expected to realize as a result of the change to the U.S. tax law limiting the deductibility of interest expense. We also incurred charges for the one-time transition tax on our unremitted foreign earnings and profits offset by the anticipated utilization of foreign tax credits. We were also required to re-measure our deferred tax assets based on the new U.S. federal corporate tax rate of 21%. In 2018, we updated our provisional estimate of the impact of the Tax Act and recorded a $22.3 million income tax expense to complete the accounting for the impact of the Tax Act, reducing our estimated net tax benefit of $41.6 million from 2017. Our accounting for the impact of the Tax Act is now complete in accordance with SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”). However, there is uncertainty in the application of many aspects of the Tax Act and additional guidance with respect to the Tax Act may affect our estimates and could have a material impact on our income tax expense.
Intellectual Property - Our Business Will Suffer if We Are Not Able to Develop New Proprietary Technology, Protect Our Proprietary Technology and Operate Without Infringing the Proprietary Rights of Others.
The complexity and breadth of semiconductor packaging, SiP modules and test services are rapidly increasing. As a result, we expect that we will need to develop, acquire and implement new manufacturing processes and packaging technologies and tools in order to respond to competitive industry conditions and customer requirements. Technological advances also typically lead to rapid and significant price erosion and may make our existing packages less competitive or our existing inventories obsolete. If we cannot achieve advances in packaging design or obtain access to advanced packaging designs developed by others, our business could suffer.
The need to develop and maintain advanced packaging capabilities and equipment could require significant research and development, capital expenditures and acquisitions in future years. In addition, converting to new packaging designs or process methodologies could result in delays in producing new package types, which could adversely affect our ability to meet customer orders and adversely impact our business.
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 are issued, the rights granted under the patents will provide us with meaningful protection or any commercial advantage. Any patents we do obtain will eventually expire, may be challenged, invalidated or circumvented and may not provide meaningful protection or other commercial advantage to us.
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. There can be no assurance that other countries in which we market our services will protect our intellectual property rights to the same extent as the U.S.
Our competitors may develop, patent or gain access to know-how and technology similar or superior to our own. In addition, many of our patents are subject to cross licenses, several of which are with our competitors. The semiconductor industry is characterized by frequent claims regarding the infringement of patent and other intellectual property rights. If any third party makes an enforceable infringement claim against us or our customers, we could be required to:
discontinue the use of certain processes or cease to provide the services at issue, which could curtail our business;
pay substantial damages;
develop non-infringing technologies, which may not be feasible; or
acquire licenses to such technology, which may not be available on commercially reasonable terms or at all.
We may need to enforce our patents or other intellectual property rights, including our rights under patent and intellectual property licenses with third parties, or defend ourselves against claimed infringement of the rights of others through litigation, which could result in substantial cost and diversion of our resources and may not be successful. Furthermore, if we fail to obtain necessary licenses, our business could suffer, and we could be exposed to claims for damages and injunctions from third parties, as well as claims from our customers for indemnification. In the past, we have been involved in legal proceedings involving the acquisition and license of intellectual property rights, the enforcement of our existing intellectual property rights or the enforcement of the intellectual property rights of others, including settled legal proceedings described in more detail in Note 17 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. Unfavorable outcomes in any legal proceedings involving intellectual property could result in significant liabilities or loss of commercial advantage and could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows. The potential impact from the legal proceedings referred to in this Annual Report on Form 10-K on our results of operations, financial condition and cash flows could change in the future.
Packaging and Test Processes Are Complex and Our Production Yields and Customer Relationships May Suffer from Defects in the Services We Provide or if We Do Not Successfully Implement New Technologies.
Semiconductor packaging and test services are complex processes that require significant technological and process expertise, and in line with industry practice, customers usually require us to pass a lengthy and rigorous qualification process that may take several months. Once qualified and in production, defective packages primarily result from:
contaminants in the manufacturing environment;
human error;
equipment malfunction;
changing processes to address environmental requirements;
defective raw materials; or
defective plating services.
Test is also complex and involves sophisticated equipment and software. Similar to many software programs, these software programs are complex and may contain programming errors or “bugs.” The test equipment is also subject to malfunction, and the test process is subject to operator error.
These and other factors have, from time to time, contributed to lower production yields. They may also do so in the future, particularly as we adjust our capacity, change our processing steps or ramp new technologies. In addition, we must continue to develop and implement new packaging and test technologies and expand our offering of packages to be competitive. Our production yields on new packages, particularly those packages which are based on new technologies, typically are significantly lower than our production yields on our more established packages.
Our failure to qualify new processes, maintain quality standards or acceptable production yields, if significant and prolonged, could result in loss of customers, increased costs of production, delays, substantial amounts of returned goods and claims by customers relating thereto. Any of these problems could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows.
Environmental, Health & Safety Laws and Industry and Customer Initiatives - Future Environmental, Health & Safety Laws and Industry and Customer Sustainability Initiatives Could Place Additional Burdens on Our Manufacturing Operations.
TheEnvironmental, health and safety laws and regulations in places we do business impose various controls on the use, storage, handling, discharge and disposal of chemicals used or generated in, or emitted by, our production processes, on the factories we occupy and on the materials contained in semiconductor packaging process generates byproducts that are subject to extensive governmental regulations.products. For example, at our foreign facilities we produce liquid waste when semiconductor wafers are diced into chips with the aid of diamond saws, then cooled with running water. In addition, semiconductor packages have historically utilized metallic alloys containing lead (Pb) within the interconnect terminals typically referred to as leads, pins or balls. Environmental, healthballs, and safety laws and regulations in places we do business impose various controls on the use, storage, handling, discharge and disposal of chemicals used in our production processes and on the factories we occupy and are increasingly imposing restrictions on the materials contained in semiconductor products. For example, the European Union’s Restriction of Hazardous Substances in Electrical and Electronic Equipment directive and similar laws in other jurisdictions, including China,
impose strict restrictions on the placement into the market of electrical and electronic equipment containing lead and certain other hazardous substances. We may become liable under these and other environmental, health and safety laws and regulations, including for the cost of compliance and cleanup of any disposal or release of hazardous materials arising out of our former or current operations, or otherwise as a result of the emission of greenhouse gasses or other chemicals, the existence of hazardous materials on our properties or the existence of hazardous substances in the products for which we manufacture.perform our services. We could also be held liable for damages, including fines, penalties and the cost of investigations and remedial actions, we could be subject to revocation of permits negatively affecting our ability to maintain or expand our operations, and we could suffer reputational harm.
There has also been an increase in public attention and industry and customer focus on the materials contained in semiconductor products, the environmental impact of semiconductor operations and the risk of chemical releases from such operations, climate change, sustainability and related environmental concerns. This increased focus on sustainability and the environmental impact of semiconductor operations and products has caused industry groups and customers to impose additional requirements on us and our suppliers, sometimes exceeding regulatory standards. These industry and customer requirements include increased tracking and reporting of greenhouse gas emissions, reductions in waste and wastewater from operations, additional reporting on the materials and components used in the products for which we manufacture,perform our services, and the use of renewable energy sources in our factory operations. To comply with these additional requirements, we may need to procure additional equipment or make factory or process changes and our manufacturingoperating costs may increase.
Our Business and Financial Condition Could be Adversely Affected by Natural Disasters and Other Calamities, Health Conditions or Pandemics, Political Instability, Hostilities, or Other Disruptions.
We have significant packaging and test and other operations in China, Japan, Korea, Malaysia, the Philippines, Portugal, Singapore and Taiwan which are or could be subject to: natural disasters, such as earthquakes, tsunamis, typhoons, floods, droughts, volcanoes and other severe weather and geological events, and other calamities, such as fire; the outbreak of infectious diseases (such as Covid-19 and other coronaviruses, Ebola or flu); industrial strikes; government imposedgovernment-imposed travel restrictions or quarantines; breakdowns of equipment; difficulties or delays in obtaining materials, equipment, utilities and services; political events or instability; acts of war, armed conflict, terrorist incidents and other hostilities including any such events that may arise out of increased tensions involving North Korea or in other regions where we have facilities; and industrial accidents and other events, that could disrupt or even shutdown our operations. In addition,
For example, in April 2016, our Kumamoto factory was damaged by earthquakes in Japan. As a result of these earthquakes, our sales were reduced due to the temporary disruption in operations, and we incurred earthquake-related costs for damaged inventory, buildings and equipment. Our suppliers and customers also have significant operations in such locations.locations, and this could compound the effect of any such disruption. In the event of such a disruption or shutdown, we may be unable to reallocate production to other facilities in a timely or cost-effective manner (if at all), and we may not have sufficient capacity, or customer approval, to service customer demands in our other facilities. A natural disaster or other calamity, political instability, the occurrence of hostilities or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
For example, in April 2016, our Kumamoto factory was damaged by earthquakes in Japan. As a result of these earthquakes, our sales were reduced due to the temporary disruption in operations. We also incurred earthquake related costs for damaged inventory, buildings and equipment.
In addition, some of the processes that we utilize in our operations place us at risk of fire and other damage. For example, highly flammable gases are used in the preparation of wafers holding semiconductor devices for flip chip packaging.
We maintain insurance policies for various types of property, casualty and other risks, but we do not carry insurance for all the above referred risks. With regard to the insurance we do maintain, we cannot assure you that it would be sufficient to cover all of our potential losses. As a result, our business, financial condition, results of operations and cash flows could be adversely affected by natural disasters and other calamities.
Mr. James J. Kim and Members of His Family Can Effectively Determine or Substantially Influence The Outcome of All Matters Requiring Stockholder Approval.
As of December 31, 2019, Mr. James J. Kim, the Executive Chairman of our Board of Directors, Mr. John T. Kim, the Vice Chairman of our Board of Directors, Ms. Susan Y. Kim, a member of our Board of Directors, and members of the Kim family and affiliates owned approximately 141.7 million shares, or approximately 59%, of our outstanding common stock. The Kim family also has options to acquire approximately 0.5 million shares. If the options are exercised, the Kim family’s total ownership would be an aggregate of approximately 142.2 million shares of our outstanding common stock or approximately 59% of our outstanding common stock.
In June 2013, the Kim family exchanged convertible notes issued by Amkor in 2009 for approximately 49.6 million shares of common stock (the “Convert Shares”). The Convert Shares are subject to a voting agreement. The voting agreement requires the Kim family to vote these shares in a “neutral manner” on all matters submitted to our stockholders for a vote, so that such Convert Shares are voted in the same proportion as all of the other outstanding securities (excluding the other shares owned by the Kim family) that are actually voted on a proposal submitted to Amkor’s stockholders for approval. The Kim family is not required to vote in a “neutral manner” any Convert Shares that, when aggregated with all other voting shares held by the Kim family, represent 41.6% or less of the total then-outstanding voting shares of our common stock. The voting agreement for the Convert Shares terminates upon the earliest of (i) such time as the Kim family no longer beneficially owns any of the Convert Shares, (ii) consummation of a change of control (as defined in the voting agreement) or (iii) the mutual agreement of the Kim family and Amkor.
Mr. James J. Kim and his family and affiliates, acting together, have the ability to effectively determine or substantially influence matters submitted for approval by our stockholders by voting their shares or otherwise acting by written consent, including the election of our Board of Directors. There is also the potential, through the election of members of our Board of Directors, that the Kim family could substantially influence matters decided upon by our Board of Directors. This concentration of ownership may also have the effect of impeding a merger, consolidation, takeover or other business consolidation involving us, or discouraging a potential acquirer from making a tender offer for our shares, and could also negatively affect our stock’s market price or decrease any premium over market price that an acquirer might otherwise pay. Concentration of ownership also reduces the public float of our common stock. There may be less liquidity and higher price volatility for the stock of companies with a smaller public float compared to companies with broader public ownership. Also, the sale or the prospect of the sale of a substantial portion of the Kim family shares may adversely affect the market price of our stock.
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Item 1B. | Unresolved Staff Comments |
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
The location and size of our manufacturing and research and development facilities are set forth in the table below. All facilities are owned unless otherwise specified. Generally, our facilities are collateral for indebtedness incurred by our subsidiary for the jurisdiction in which the facilities are located.
| | | | | | | | | | | | | | | | | |
| Approximate Facility Size (Square Feet) |
| Owned | | Leased | | Total |
China (1) | 1,325,000 | | | — | | | 1,325,000 | |
Japan | 1,689,000 | | | 329,000 | | | 2,018,000 | |
Korea | 4,085,000 | | | — | | | 4,085,000 | |
Malaysia (1) | 386,000 | | | — | | | 386,000 | |
Philippines (2) | 765,000 | | | 557,000 | | | 1,322,000 | |
Portugal | 519,000 | | | — | | | 519,000 | |
Taiwan (1) | 1,098,000 | | | 16,000 | | | 1,114,000 | |
Total all facilities | 9,867,000 | | | 902,000 | | | 10,769,000 | |
|
| | | | | | | | |
| Approximate Facility Size (Square Feet) |
| Owned | | Leased | | Total |
China (1) | 1,325,000 |
| | — |
| | 1,325,000 |
|
Japan | 1,683,000 |
| | 329,000 |
| | 2,012,000 |
|
Korea | 3,924,000 |
| | — |
| | 3,924,000 |
|
Malaysia (1) | 386,000 |
| | — |
| | 386,000 |
|
Philippines (2) | 758,000 |
| | 557,000 |
| | 1,315,000 |
|
Portugal | 538,000 |
| | — |
| | 538,000 |
|
Taiwan (1) | 1,098,000 |
| | — |
| | 1,098,000 |
|
Total all facilities | 9,712,000 |
| | 886,000 |
| | 10,598,000 |
|
(1)Land is leased. | |
(2) | As a result of foreign ownership restrictions in the Philippines, the land is leased. A portion of the land we lease is owned by realty companies in which we own a 40% interest. |
(2)As a result of foreign ownership restrictions in the Philippines, the land is leased. A portion of the land we lease is owned by realty companies in which we own a 40% interest.
Our executive offices, which are leased, are located in Tempe, Arizona and Singapore. We believe that our existing properties are in good condition and suitable for the conduct of our business and that the productive capacity of such properties is substantially being utilized or we have plans to utilize it.
Item 3.Legal Proceedings
From time to time, we may become involved in various disputes and litigation matters that arise in the ordinary course of our business. These include disputes and lawsuits related to intellectual property, acquisitions, licensing, contracts, tax, regulatory, employee relations and other matters. For a discussion of “Legal Proceedings,” see Note 17 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
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Item 4. | Mine Safety Disclosures |
Item 4.Mine Safety Disclosures
Not applicable.
PART II
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Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
LISTING ON THE NASDAQ GLOBAL SELECT MARKET
Our common stock is traded on the NASDAQ Global Select Market under the symbol “AMKR”. There were approximately 120126 holders of record of our common stock as of February 14, 2020.12, 2021.
DIVIDEND POLICY
In October 2020, our Board of Directors approved the initiation of a regular quarterly cash dividend on our common stock. The first quarterly dividend of $0.04 per share was paid on January 7, 2021 to stockholders of record as of December 18, 2020.
Since our public offering
We currently anticipate that we will continue to pay quarterly cash dividends in 1998, we have never paid a dividend to our stockholders,the future. However, the payment, amount and we do not have any present plans for doing so. In addition, certaintiming of future dividends remain within the discretion of our Board of Directors and will depend upon our results of operations, financial condition, cash requirements, debt agreements limit our ability to pay dividends.restrictions and other factors. Refer to the Liquidity and Capital Resources section in Item 7 of this Annual Report on Form 10-K.10-K for additional information.
RECENT SALES OF UNREGISTERED SECURITIES
None.
EQUITY COMPENSATION PLANS
The information required by this item regarding equity compensation plans is set forth in Part III, Item 12 of this Annual Report on Form 10-K.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
The following table provides information regarding repurchases of our common stock during the three months ended December 31, 2019.2020.
| | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (a) | Average Price Paid Per Share ($) | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (b) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($) (b) |
| | | | |
October 1 - October 31 | — | | $ | — | | — | | $ | 91,586,032 | |
November 1 - November 30 | 5,425 | | 14.64 | | — | | 91,586,032 | |
December 1 - December 31 | — | | — | | — | | 91,586,032 | |
Total | 5,425 | | $ | 14.64 | | — | | |
(a)Represents shares of common stock surrendered to us to satisfy tax withholding obligations associated with the vesting of restricted shares issued to employees.
(b)Our Board of Directors previously authorized the repurchase of up to $300.0 million of our common stock, $150.0 million in August 2011 and $150.0 million in February 2012, exclusive of any fees, commissions or other expenses. During 2020 and 2019, we made no common stock purchases, and at December 31, 2020, approximately $91.6 million was available pursuant to the stock repurchase program.
|
| | | | | | | | | | |
Period | Total Number of Shares Purchased (a) | Average Price Paid Per Share ($) | Total Number of Shares Purchased as part of Publicly Announced Plans or Programs (b) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ($) (b) |
| | | | |
October 1 - October 31 | — |
| $ | — |
| — |
| $ | 91,586,032 |
|
November 1 - November 30 | 5,425 |
| 12.33 |
| — |
| 91,586,032 |
|
December 1 - December 31 | — |
| — |
| — |
| 91,586,032 |
|
Total | 5,425 |
| $ | 12.33 |
| — |
| |
33
| |
(a) | Represents shares of common stock surrendered to us to satisfy tax withholding obligations associated with the vesting of restricted shares issued to employees. |
| |
(b) | Our Board of Directors previously authorized the repurchase of up to $300.0 million of our common stock, $150.0 million in August 2011 and $150.0 million in February 2012, exclusive of any fees, commissions or other expenses. During 2018 and 2019, we made no common stock purchases, and at December 31, 2019, approximately $91.6 million was available pursuant to the stock repurchase program. |
PERFORMANCE GRAPH (1)
(1)The preceding Stock Performance Graph is not deemed filed with the SEC and shall not be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
| |
(1) | The preceding Stock Performance Graph is not deemed filed with the SEC and shall not be incorporated by reference in any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. |
The following table sets forth the cumulative total returns included in the preceding Stock Performance Graph for the years ended December 31, 20142015 through 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
Amkor Technology, Inc. | $ | 100.00 | | | $ | 173.52 | | | $ | 165.30 | | | $ | 107.89 | | | $ | 213.82 | | | $ | 248.67 | |
S&P 500 | 100.00 | | | 111.96 | | | 136.40 | | | 130.42 | | | 171.49 | | | 203.04 | |
PHLX Semiconductor | 100.00 | | | 139.32 | | | 195.80 | | | 183.97 | | | 300.35 | | | 461.53 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
Amkor Technology, Inc. | $ | 100.00 |
| | $ | 85.63 |
| | $ | 148.59 |
| | $ | 141.55 |
| | $ | 92.39 |
| | $ | 183.10 |
|
S&P 500 | 100.00 |
| | 101.38 |
| | 113.51 |
| | 138.29 |
| | 132.23 |
| | 173.86 |
|
PHLX Semiconductor | 100.00 |
| | 98.41 |
| | 137.10 |
| | 192.69 |
| | 181.04 |
| | 295.57 |
|
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Item 6. | Selected Financial Data |
Item 6.Selected Financial Data
The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements in Part II, Item 7 and Item 8, respectively, of this Annual Report on Form 10-K.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 (f) (g) | | 2016 |
| (In thousands, except per share data) |
Income Statement Data: | | | | | | | | | |
Net sales | $ | 5,050,589 | | | $ | 4,052,650 | | | $ | 4,316,466 | | | $ | 4,207,031 | | | $ | 3,927,849 | |
| | | | | | | | | |
Gross profit | 900,814 | | | 649,439 | | | 710,565 | | | 761,079 | | | 709,891 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Operating income | 457,245 | | | 233,170 | | | 258,144 | | | 405,540 | | | 308,587 | |
Loss on debt retirement (a) | 3,042 | | | 8,536 | | | 1,512 | | | 4,835 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Income tax expense (b) | 46,183 | | | 37,182 | | | 56,250 | | | 39,791 | | | 51,042 | |
Net income | 340,499 | | | 122,628 | | | 129,565 | | | 267,705 | | | 178,653 | |
Net income attributable to Amkor | 338,138 | | | 120,888 | | | 127,092 | | | 263,550 | | | 175,530 | |
Net income attributable to Amkor per common share: | | | | | | | | | |
Basic | $ | 1.40 | | | $ | 0.50 | | | $ | 0.53 | | | $ | 1.10 | | | $ | 0.74 | |
Diluted | $ | 1.40 | | | $ | 0.50 | | | $ | 0.53 | | | $ | 1.10 | | | $ | 0.74 | |
| | | | | | | | | |
Other Financial Data: | | | | | | | | | |
Depreciation and amortization | $ | 510,396 | | | $ | 524,177 | | | $ | 571,961 | | | $ | 581,940 | | | $ | 555,186 | |
Payments for property, plant and equipment | 553,021 | | | 472,433 | | | 547,122 | | | 550,943 | | | 650,038 | |
Dividends declared per common share (c) | 0.04 | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Balance Sheet Data (d): | | | | | | | | | |
Cash and cash equivalents | $ | 698,002 | | | $ | 894,948 | | | $ | 681,569 | | | $ | 596,364 | | | $ | 549,518 | |
Working capital | 816,945 | | | 941,730 | | | 512,785 | | | 325,945 | | | 404,035 | |
Total assets (e) | 5,022,311 | | | 4,695,615 | | | 4,495,447 | | | 4,508,388 | | | 4,092,086 | |
| | | | | | | | | |
Non-current liabilities, including debt (e) | 1,352,365 | | | 1,645,573 | | | 1,481,124 | | | 1,470,620 | | | 1,683,021 | |
Total Amkor stockholders’ equity | 2,325,699 | | | 1,963,739 | | | 1,830,540 | | | 1,696,276 | | | 1,383,588 | |
|
| | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 (d) | | 2016 (e)(f) | | 2015 (e)(f) |
| (In thousands, except per share data) |
Income Statement Data: | | | | | | | | | |
Net sales | $ | 4,052,650 |
| | $ | 4,316,466 |
| | $ | 4,207,031 |
| | $ | 3,927,849 |
| | $ | 2,884,603 |
|
Gross profit | 649,439 |
| | 710,565 |
| | 761,079 |
| | 709,891 |
| | 479,265 |
|
Gain on sale of real estate (a) | (3,302 | ) | | — |
| | (108,109 | ) | | — |
| | — |
|
Operating income | 233,170 |
| | 258,144 |
| | 405,540 |
| | 308,587 |
| | 164,839 |
|
Loss on debt retirement (b) | 8,536 |
| | 1,512 |
| | 4,835 |
| | — |
| | 9,560 |
|
Income tax expense (c) | 37,182 |
| | 56,250 |
| | 39,791 |
| | 51,042 |
| | 28,035 |
|
Equity in earnings of equity method investees | — |
| | — |
| | — |
| | — |
| | 14,016 |
|
Net income | 122,628 |
| | 129,565 |
| | 267,705 |
| | 178,653 |
| | 53,893 |
|
Net income attributable to Amkor | 120,888 |
| | 127,092 |
| | 263,550 |
| | 175,530 |
| | 51,098 |
|
Net income attributable to Amkor per common share: | | | | | | | | | |
Basic | $ | 0.50 |
| | $ | 0.53 |
| | $ | 1.10 |
| | $ | 0.74 |
| | $ | 0.22 |
|
Diluted | $ | 0.50 |
| | $ | 0.53 |
| | $ | 1.10 |
| | $ | 0.74 |
| | $ | 0.22 |
|
| | | | | | | | | |
Other Financial Data: | | | | | | | | | |
Depreciation and amortization | $ | 524,177 |
| | $ | 571,961 |
| | $ | 581,940 |
| | $ | 555,186 |
| | $ | 494,200 |
|
Payments for property, plant and equipment | 472,433 |
| | 547,122 |
| | 550,943 |
| | 650,038 |
| | 537,975 |
|
| | | | | | | | | |
Balance Sheet Data: | | | | | | | | | |
Cash and cash equivalents | $ | 894,948 |
| | $ | 681,569 |
| | $ | 596,364 |
| | $ | 549,518 |
| | $ | 523,172 |
|
Working capital | 941,730 |
| | 512,785 |
| | 325,945 |
| | 404,035 |
| | 299,296 |
|
Total assets (g) | 4,695,615 |
| | 4,495,447 |
| | 4,508,388 |
| | 4,092,086 |
| | 4,026,428 |
|
Non-current liabilities, including debt (g) | 1,645,573 |
| | 1,481,124 |
| | 1,470,620 |
| | 1,683,021 |
| | 1,790,708 |
|
Total Amkor stockholders’ equity | 1,963,739 |
| | 1,830,540 |
| | 1,696,276 |
| | 1,383,588 |
| | 1,200,286 |
|
(a)In April 2019, we recorded an $8.4 million loss on extinguishment related to the call premium paid and other debt related costs associated with redemption of the outstanding $525.0 million aggregate principal amount of 6.375% Senior Notes due 2022. In July 2017, we recorded a loss on debt retirement of $4.4 million relating to the partial early repayment of our 6.625% Senior Notes due 2021. | |
(a) | In May 2017, we sold the land and buildings comprising our K1 factory for $142.4 million which resulted in a pre-tax gain of $108.1 million. |
| |
(b) | In April 2019, we recorded an $8.4 million loss on extinguishment related to the call premium paid and other debt related costs associated with redemption of the outstanding $525 million aggregate principal amount of 6.375% Senior Notes due 2022. In July 2017, we recorded a loss on debt retirement of $4.4 million relating to the partial early repayment of our 6.625% Senior Notes due 2021. During 2015, we recorded a loss on debt retirement of $8.9 million relating to the early repayment of our 7.375% Senior Notes due May 2018. |
| |
(c) | In 2019, income tax expense includes a net $11.1 million discrete income tax charge related to changes in the valuation of certain deferred tax assets. In 2018, we recorded a $ 22.3 million income tax expense to complete the accounting for the impact of the Tax Act. This expense reduced our estimated net tax benefit of $41.6 million recorded in 2017, primarily due to the reversal of a valuation allowance on certain U.S. deferred tax assets as a result of the enactment of the Tax Act. |
| |
(d) | On May 22, 2017, we completed the purchase of Nanium. Their financial results have been included in our Consolidated Financial Statements from the date of acquisition. |
(b)In 2020, income tax expense includes a $20.2 million discrete tax benefit from the recognition of deferred tax assets we expect to utilize in future years.In 2019, income tax expense includes a net $11.1 million discrete income tax charge related to changes in the valuation of certain deferred tax assets. In 2018, we recorded a $22.3 million income tax expense to complete the accounting for the impact of the Tax Act. This expense reduced our estimated net tax benefit of $41.6 million recorded in 2017, primarily due to the reversal of a valuation allowance on certain U.S. deferred tax assets as a result of the enactment of the Tax Act.
(c)In October 2020, our Board of Directors approved the initiation of a regular quarterly cash dividend on our common stock. The first quarterly dividend of $0.04 per share was paid on January 7, 2021 to stockholders of record as of December 18, 2020.
(d)On January 1, 2018, we retrospectively adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The selected financial data as of December 31, 2016 was not adjusted for this new accounting standard.
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(e) | We increased our investment in J-Devices from 60% to 100% on December 30, 2015 through the exercise of additional options. As a result, our accounting for our Japan operations changed from the equity method to the consolidation method effective December 30, 2015. Our balance sheet data as of December 31, 2015 reflects the consolidation of our Japan operations. We began consolidating the operating results of our Japan operations in 2016. We recognized a net loss of $13.5 million in other (income) expense, net in connection with the acquisition in 2015. The net loss resulted from a loss of $29.6 million related to the release of certain accumulated foreign currency translation adjustments related to our Japan operations, offset by a gain of $16.1 million related to the step-up to fair value of our previous investments in our Japan operations. |
| |
(f) | On January 1, 2018, we retrospectively adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The selected financial data as of December 31, 2016 and 2015 and for the year ended December 31, 2015 was not adjusted for this new accounting standard. |
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(g) | On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). As of December 31, 2019, there was an increase(e)On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). As of December 31, 2019, there were increases to our consolidated balance sheet of approximately $128 million for operating lease right of use assets and approximately $132 million for operating lease liabilities.
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(f)On May 22, 2017, we completed the purchase of Nanium. Their financial results have been included in our Consolidated Financial Statements from the date of acquisition. (g)In May 2017, we sold the land and buildings comprising our K1 factory in Korea for $142.4 million which resulted in a pre-tax gain of $108.1 million.
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Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section includes comparisons of certain 20192020 financial information to the same information for 2018.2019. For discussion of 20182019 results in comparison with 20172018 results refer to “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2019.19, 2020.
Overview
Amkor is one of the world’s leading providers of outsourced semiconductor packaging and test services. Our financial goals are sales growth and improved profitability. To achieve these goals, we are focused on generating increased value from our investments in advanced technologies, improving utilization of existing assets, executing our balanced growth strategy and selectively growing our scale and scope through strategic investments.
We are an industry leader in developing and commercializing cost-effective advanced packaging and test technologies. TheseWe believe these advanced technology solutions provide increasedsubstantial value to our customers. This iscustomers, particularly true in the mobile communications market, where growth generally outpaces the overall semiconductor industry rate.industry. Advanced packages are now the preferred choice in both the high-end and the mid-range segments of the smartphone market, which together account for a high portion of mobile phone semiconductor value. The demand for advanced packages is also being driven by second-wave mobile device customers, who are transitioning out of wirebond into wafer-level and flip-chip packages. Our sales ofInterest in advanced packages into thefor automotive market areapplications is growing as well, largely due to new, data-intensive applications, which require increased pin count and performance. We believe that our technology leadership and this technology transition create significant growth opportunities for us.
We typically look for opportunities in the advanced packaging and test area where we can generate reasonably quick returns on investments made for customers seeking leading edge technologies. We also focus on developing a second wave of customers to fill the capacity that becomes available when leading edge customers transition to newer packaging and test equipment and platforms. In addition, we are seeking to add new customers and deepeningto deepen our engagement with existing customers. This includes an expanded emphasis on the automotive end market where semiconductor content continues to grow and in the analog area for our mainstream wirebond technologies.
From time to time, we identify attractive opportunities to grow our customer base and expand the markets we serve through joint ventures, acquisitions and other strategic investments. For example, in May 2017 we acquired Nanium, which has strengthened our position in the market for wafer-level fan-out packaging, and in December 2015 we completed the acquisition of our Japan operations.packaging. We believe that taking advantage of these opportunities helps to diversify our revenue streams, improve our profits, broaden our portfolio of services and maintain our technological leadership.
As a supplier in the semiconductor industry, our business is cyclical and impacted by broad economic factors. Historically,Historical trends indicate there has been a strong correlation between world-wideworldwide gross domestic product levels, consumer spending and semiconductor
industry cycles. The semiconductor industry has experienced significant and sometimes prolonged cyclical upturns and downturns in the past. We believe that the smartphone inventory correction that impacted the first half of 2019 has recovered, while the general semiconductor market is nearing stabilization and is likely to resume growth going forward. We cannot predict the timing, strength or duration of any correction, economic slowdown or subsequent economic recovery. While customer demand for our services was, overall, quite strong throughout 2020, particularly in the communications and consumer end markets, demand in automotive and industrial was lower through most of the year due to the Covid-19 pandemic. We made many adjustments to our operations during 2020 to navigate through the onset of the pandemic, and through these efforts we were able to continue serving customers and grow the business in a challenging environment.
Our net sales, gross profit, operating income, cash flows, liquidity
The full potential effect of the Covid-19 pandemic is unknown, and capital resourcesthere is significant uncertainty related to the ultimate impact that the Covid-19 pandemic will have historically fluctuated significantly from quarter to quarter as a result of many factors, includingon the seasonality ofglobal economy, our business, the cyclical natureresults of the semiconductor industryoperations and other factors discussed infinancial condition. See Part 1,I, Item 1A, including, “The Covid-19 Outbreak Has Impacted and May Continue to Impact the Supply Chain and Consumer Demand for Our Customers’ Products and Services, Which May Adversely Affect Our Business, Results of this Annual ReportOperations, and Financial Condition” and “Dependence on Form 10-K.
the Highly Cyclical Semiconductor Industry - Our Packaging and Test Services Are Used in Volatile Industries and Industry Downturns, and Declines in Global Economic and Financial Conditions Could Harm Our Performance.”
We operate in a capital intensive industry and have a significant level of debt.industry. Servicing our current and future customers requires that we incur significant operating expenses and continue to make significant capital expenditures, which are generally made in advance of the related revenues and without firm customer commitments. We fund our operations, including capital expenditures and debt service requirements, with cash flows from operations, existing cash and cash equivalents, short-term investments, borrowings under available credit facilities and proceeds from any additional financing. Maintaining an appropriate level of liquidity is important to our business and depends on, among other considerations, the performance of our business, our capital expenditure levels, our ability to repay debt out of our operating cash flows or proceeds from debt or equity financings and our investment strategy.
2019 Financial Summary
As of December 31, 2020, we had cash and cash equivalents and short-term investments of $698.0 million and $133.8 million, respectively.
Our net sales, decreased $263.8gross profit, operating income, cash flows, liquidity and capital resources have historically fluctuated significantly from quarter to quarter as a result of many factors, including the seasonality of our business, the cyclical nature of the semiconductor industry and other factors discussed in Part 1, Item 1A of this Annual Report on Form 10-K.
2020 Financial Summary
Our net sales increased $997.9 million or 6.1%24.6% to $5,050.6 million in 2020 from $4,052.7 million in 2019 from $4,316.5 million in 2018.2019. The decreaseincrease was generally attributable to a cyclical correctionhigher sales of advanced products in the semiconductor market,communications, consumer and computing end markets, partially offset by a decline in the introduction of a new high volume consumer product.automotive and industrial end market.
Gross profit decreased $61.1increased $251.4 million in 20192020 compared to 2018,2019, primarily due to lower revenue, reduced capacity utilization andthe increase in net sales, partially offset by changes in the mix of products sold toward products with higher material content in 2019, partially offset by our continued effort to control our manufacturing costs.
content.
In March 2019, we issued $525.0 million aggregate principal amount of our 6.625% Senior Notes due September 2027 (the “2027 Notes”). In April 2019, the net proceeds from this issuance were used, together with cash on hand, to redeem the outstanding $525.0 million aggregate principal amount of our
6.375% Senior Notes due October 2022 (the “2022 Notes”).
In 2019,2020, our capital expenditures totaled $553.0 million, or 10.9% of net sales compared to $472.4 million, or 11.7% of net sales compared to $547.1 million, or 12.7% of net sales in 2018. The decrease is2019. Our spending was primarily due to our decision to reduce spendingfocused on incremental capacity during a period of reduced demand.
investments in advanced packaging and test equipment.
Net cash provided by operating activities was $770.0 million for the year ended December 31, 2020, compared to $563.9 million for the year ended December 31, 2019, compared to $663.4 million for the year ended December 31, 2018.2019. This decreaseincrease was primarily due to lowerhigher net sales, lowerhigher operating profit, and changes in working capital.
In December 2019, we entered intoOctober 2020, our Board of Directors approved the initiation of a ¥28.5 billion ($260.6 million) term loan agreement due December 2024. We immediately drew down the full loan amount and used the proceeds to pay down $80.0 million ofregular quarterly cash dividend on our senior secured revolving credit facility due 2023. In January 2020, we also used these proceeds to pay down $120.0 million of our term loan due December 2023.common stock. The remaining proceeds will be used for other general corporate purposes.
initial quarterly dividend was $0.04 per share.
Results of Operations
The following table sets forth certain operating data as a percentage of net sales for the periods indicated:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31 |
| 2020 | | 2019 | | 2018 |
Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % |
Materials | 45.5 | % | | 40.0 | % | | 38.7 | % |
Labor | 13.4 | % | | 16.0 | % | | 16.1 | % |
Other manufacturing costs | 23.3 | % | | 28.0 | % | | 28.7 | % |
Gross margin | 17.8 | % | | 16.0 | % | | 16.5 | % |
Operating income | 9.1 | % | | 5.8 | % | | 6.0 | % |
Net income attributable to Amkor | 6.7 | % | | 3.0 | % | | 2.9 | % |
|
| | | | | | | | |
| For the Year Ended December 31 |
| 2019 | | 2018 | | 2017 |
Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % |
Materials | 40.0 | % | | 38.7 | % | | 36.4 | % |
Labor | 16.0 | % | | 16.1 | % | | 15.6 | % |
Other manufacturing costs | 28.0 | % | | 28.7 | % | | 29.9 | % |
Gross margin | 16.0 | % | | 16.5 | % | | 18.1 | % |
Operating income | 5.8 | % | | 6.0 | % | | 9.6 | % |
Net income attributable to Amkor | 3.0 | % | | 2.9 | % | | 6.3 | % |
Net Sales
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2020 | | 2019 | | 2018 | | 2020 over 2019 | | 2019 over 2018 |
| (In thousands, except percentages) |
Net sales | $ | 5,050,589 | | | $ | 4,052,650 | | | $ | 4,316,466 | | | $ | 997,939 | | | 24.6 | % | | $ | (263,816) | | | (6.1) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| (In thousands, except percentages) |
Net sales | $ | 4,052,650 |
| | $ | 4,316,466 |
| | $ | 4,207,031 |
| | $ | (263,816 | ) | | (6.1 | )% | | $ | 109,435 |
| | 2.6 | % |
The decreaseincrease in net sales in 20192020 compared to 20182019 was generally attributabledue to a cyclical correctionhigher sales of advanced products in the semiconductor market,communications, consumer and computing end markets, partially offset by a decline in the automotive and industrial end market. The communications end market benefited from the recovery in the smartphone market from the prior year inventory correction. Sales increased in the consumer end market due to the introduction of a new high volumehigh-volume consumer product.
Increased demand, driven by work-from-home arrangements, drove higher sales in the computing end market. The automotive and industrial market experienced decreased demand and supply chain disruptions due to the Covid-19 pandemic.
Gross Profit and Gross Margin
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2020 | | 2019 | | 2018 | | 2020 over 2019 | | 2019 over 2018 |
| (In thousands, except percentages) |
Gross profit | $ | 900,814 | | | $ | 649,439 | | | $ | 710,565 | | | $ | 251,375 | | | $ | (61,126) | |
Gross margin | 17.8 | % | | 16.0 | % | | 16.5 | % | | 1.8 | % | | (0.5) | % |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| (In thousands, except percentages) |
Gross profit | $ | 649,439 |
| | $ | 710,565 |
| | $ | 761,079 |
| | $ | (61,126 | ) | | $ | (50,514 | ) |
Gross margin | 16.0 | % | | 16.5 | % | | 18.1 | % | | (0.5 | )% | | (1.6 | )% |
Our cost of sales consists principally of materials, labor, depreciation and manufacturing overhead. Since a substantial portion of the costs at our factories is fixed, there tends to be a strong relationship between our revenue levels and gross margin. Accordingly, relatively modest increases or decreases in revenue can have a significant effect on margin and on labor and other manufacturing costs as a percentage of revenue, depending upon product mix, utilization and seasonality.
Gross profit and gross margin for 2019 decreased2020 increased compared to 2018,2019, primarily due to lower revenue, reduced capacity utilization andthe increase in net sales, partially offset by changes in the mix of products sold toward products with higher material content in 2019, partially offset by our continued effort to control our manufacturing costs.content.
Selling, General and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2020 | | 2019 | | 2018 | | 2020 over 2019 | | 2019 over 2018 |
| (In thousands, except percentages) |
Selling, general and administrative | $ | 302,842 | | | $ | 278,631 | | | $ | 295,239 | | | $ | 24,211 | | | 8.7 | % | | $ | (16,608) | | | (5.6) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| (In thousands, except percentages) |
Selling, general and administrative | $ | 281,933 |
| | $ | 295,239 |
| | $ | 297,021 |
| | $ | (13,306 | ) | | (4.5 | )% | | $ | (1,782 | ) | | (0.6 | )% |
Selling, general and administrative expenses decreasedincreased in 20192020 compared to 20182019 primarily due to decreasedcosts incurred for our factory consolidation efforts in Japan and increased employee compensation costs,costs. These increases were partially offset by our efforts to control expenses, particularly travel and professional fees. In addition, we had a gain onfrom a sale of real estate in Japan and2019 which lowered our continued effort to control expenses.expenses in that period.
Research and Development
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2020 | | 2019 | | 2018 | | 2020 over 2019 | | 2019 over 2018 |
| (In thousands, except percentages) |
Research and development | $ | 140,727 | | | $ | 137,638 | | | $ | 157,182 | | | $ | 3,089 | | | 2.2 | % | | $ | (19,544) | | | (12.4) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| (In thousands, except percentages) |
Research and development | $ | 137,638 |
| | $ | 157,182 |
| | $ | 166,627 |
| | $ | (19,544 | ) | | (12.4 | )% | | $ | (9,445 | ) | | (5.7 | )% |
Research and development activities are focused on developing new packaging and test services and improving the efficiency and capabilities of our existing production processes. The costs related to our technology and product development projects are included in research and development expense until the project moves into production. Once production begins, the costs related to production become part of the cost of sales, including ongoing depreciation for the equipment previously held for research and development activities. Research and development expenses decreased in 2019 over 2018 due to projects that moved into production, partially offset by new development projects, primarily at our research and development facility in Korea.
Other Income and Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2020 | | 2019 | | 2018 | | 2020 over 2019 | | 2019 over 2018 |
| (In thousands, except percentages) |
Interest expense | $ | 64,168 | | | $ | 71,587 | | | $ | 78,946 | | | $ | (7,419) | | | (10.4) | % | | $ | (7,359) | | | (9.3) | % |
Interest income | (5,449) | | | (6,655) | | | (4,133) | | | $ | 1,206 | | | (18.1) | % | | $ | (2,522) | | | 61.0 | % |
Foreign currency (gain) loss, net | 9,608 | | | 1,944 | | | 1,451 | | | 7,664 | | | >100% | | 493 | | | 34.0 | % |
Loss on debt retirement | 3,042 | | | 8,536 | | | 1,512 | | | (5,494) | | | (64.4) | % | | 7,024 | | | >100% |
Other | (806) | | | (2,052) | | | (5,447) | | | 1,246 | | | (60.7) | % | | 3,395 | | | (62.3) | % |
Total other expense, net | $ | 70,563 | | | $ | 73,360 | | | $ | 72,329 | | | $ | (2,797) | | | (3.8) | % | | $ | 1,031 | | | 1.4 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| (In thousands, except percentages) |
Interest expense | $ | 71,587 |
| | $ | 78,946 |
| | $ | 85,554 |
| | $ | (7,359 | ) | | (9.3 | )% | | $ | (6,608 | ) | | (7.7 | )% |
Interest income | (6,655 | ) | | (4,133 | ) | | (3,215 | ) | | $ | (2,522 | ) | | 61.0 | % | | $ | (918 | ) | | 28.6 | % |
Foreign currency (gain) loss, net | 1,944 |
| | 1,451 |
| | 11,823 |
| | 493 |
| | 34.0 | % | | (10,372 | ) | | (87.7 | )% |
Loss on debt retirement | 8,536 |
| | 1,512 |
| | 4,835 |
| | 7,024 |
| | >100% |
| | (3,323 | ) | | (68.7 | )% |
Other | (2,052 | ) | | (5,447 | ) | | (953 | ) | | 3,395 |
| | (62.3 | )% | | (4,494 | ) | | >100% |
|
Total other expense, net | $ | 73,360 |
| | $ | 72,329 |
| | $ | 98,044 |
| | $ | 1,031 |
| | 1.4 | % | | $ | (25,715 | ) | | (26.2 | )% |
Interest expense decreased in 20192020 compared to 2018,2019, primarily due to the redemptionrepayment of $200.0 million of our 6.625% Senior Notes due 2021 in August 2018. The 2018 redemption was fundedhigher interest rate debt with the proceeds from our ¥28.5 billion ($260.6 million) fixed rate term loan agreement in December 2019 and January 2020. Interest expense has also decreased due July 2023 which has a significantly lowerto overall decreases in interest rate. rates in 2020 for our variable interest rate loans.
The interest expense decrease was partially offset bychanges in foreign currency (gain) loss, net for 2020 compared to 2019 were due to foreign currency exchange rate movements, mainly the interest incurred underKorean Won, and the associated impact on our new $525.0 million aggregate principal amount ofnet monetary exposure at our 2027 Notes, which were issued in March 2019.foreign subsidiaries.
Loss on debt retirement in 2019 is primarily due to the early redemption in April 2019 of the outstanding $525 million aggregate principal amount of our 6.375% Senior Notes due 2022.
Income Tax Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2020 | | 2019 | | 2018 | | 2020 over 2019 | | 2019 over 2018 |
| (In thousands, except percentages) |
Income tax expense | $ | 46,183 | | | $ | 37,182 | | | $ | 56,250 | | | $ | 9,001 | | | $ | (19,068) | |
Effective tax rate | 11.9 | % | | 23.3 | % | | 30.3 | % | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | Change |
| 2019 | | 2018 | | 2017 | | 2019 over 2018 | | 2018 over 2017 |
| (In thousands, except percentages) |
Income tax expense | $ | 37,182 |
| | $ | 56,250 |
| | $ | 39,791 |
| | $ | (19,068 | ) | | $ | 16,459 |
|
Effective tax rate | 23.3 | % | | 30.3 | % | | 12.9 | % | |
|
| |
|
|
The majority of our income is earned and taxed in foreign jurisdictions in the Asia Pacific region with applicable tax rates of approximately 25%. Income tax expense, which includes foreign withholding taxes and minimum taxes, reflects the applicable tax rates in effect in the various countries where our income is earned and is subject to volatility depending on the relative mix of earnings in each location.
The effective tax rate in 20172020 includes a net$20.2 million income tax benefit from the recognition of $41.6 million for the provisional estimate of the impact of the Tax Act.deferred tax assets we expect to utilize in future years. The effective tax rate in 2018 includes a $22.3 million income tax expense to complete the accounting for the impact of the Tax Act, reducing our estimated net tax benefit of $41.6 million from 2017.
During 2020, 2019 2018 and 2017,2018, our subsidiaries in Korea, Malaysia, the Philippines, Singapore and TaiwanSingapore operated under various tax holidays. The tax holidays granted to our Malaysia operations and certain operations in the Philippines expired during 2018. The tax holiday granted to certain operations in Taiwan expired as of December 31, 2017. As these tax holidays expire, income earned in these jurisdictions will be subject to higher statutory income tax rates, which may cause our effective tax rate to increase.
See Note 64 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information about our income tax expense.
Liquidity
Liquidity and Capital Resources
We assess our liquidity based on our current expectations regarding sales and operating expenses, capital spending, dividend payments and stock repurchases, debt service requirements and other funding needs. Based on this assessment, we believe that our cash flow from operating activities, together with existing cash and cash equivalents, short-term investments and availability under our credit facilities, will be sufficient to fund our working capital, capital expenditure, dividend payments, debt service and other financial requirements for at least the next twelve months.
Our liquidity is affected by, among other factors, volatility in the global economy and credit markets, the performance of our business, our capital expenditure levels, other uses of our cash including any dividends and purchases of stock under ourany stock repurchase program, any acquisitions or investments in joint ventures and our ability to either repay debt out of operating cash flow or refinance it at or prior to maturity with the proceeds of debt or equity offerings. There can be no assurance that we will generate the necessary net income or operating cash flows, or be able to borrow sufficient funds, to meet the funding needs of our business beyond the next twelve months due to a variety of factors, including the cyclical nature of the semiconductor industry and other factors discussed in Part I, Item 1A of this Annual Report on Form 10-K.
Our primary source of cash and the source of funds for our operations are cash flows from operations, current cash and cash equivalents, short-term investments, borrowings under available credit facilities and proceeds from any additional debt or equity financings. In March 2019, we issued $525.0 million of our 2027 Notes. Additionally, in April 2019, we redeemed the outstanding $525.0 million aggregate principal amount of our 2022 Notes. The redemption was funded with net proceeds from our issuance of the 2027 Notes, together with cash on hand. We refer you to Note 126 and Note 11 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.information on our investments and borrowings, respectively.
As of December 31, 2019,2020, we had cash and cash equivalents and short-term investments of $894.9$831.8 million. Included in our cash balanceand short-term investments balances as of December 31, 2019,2020, is $790.0$683.1 million held offshore by our foreign subsidiaries. We have the ability to access cash held offshore by our foreign subsidiaries primarily through the repayment of intercompany debt obligations. Due to the changes in the U.S. tax law under the Tax Act, distributions of cash to the U.S. as dividends generally will not be subject to U.S. federal income tax. We estimate that repatriation of this foreign cash and short-term investments would generate withholding taxes and state income taxes of approximately $6.9$40.8 million.
In July 2018, the senior secured revolving credit facility of Amkor Technology, Inc. was terminated and replaced by a new senior secured revolving credit facility due July 2023 entered into by our subsidiary, Amkor Technology Singapore Holding Pte, Ltd. (“the Singapore Revolver”), and guaranteed by Amkor Technology, Inc. The availability for the Singapore Revolver is based on the amount of eligible accounts receivable. As of December 31, 2019, we had availability of $250.0 million under the Singapore Revolver, with no outstanding standby letters of credit. We refer you to Note 12 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information. As of December 31, 2019, our foreign subsidiaries had $316.0 million available to be drawn under revolving credit facilities, including the Singapore Revolver, and $110.0 million available to be borrowed under term loan credit facilities for working capital purposes and capital expenditures.
As of December 31, 2019, we had $1,450.2 million of debt. Our scheduled principal repayments on debt include $144.5 million due in 2020, $113.4 million due in 2021, $260.0 million due in 2022, $297.8 million due in 2023, $81.9 million due in 2024 and $562.7 million due thereafter. We were in compliance with all debt covenants as of December 31, 2019, and we expect to remain in compliance with these covenants for at least the next twelve months.
In December 2019, we entered into a ¥28.5 billion (US$260.6 million) term loan agreement due December 2024. We immediately drew down the full loan amount and used the proceeds to pay down the $80.0 million of the Singapore Revolver. In January 2020, we also used these proceeds to repay $120.0 million of our term loan due December 2023. The remaining
proceeds will be used for other general corporate purposes. We refer you to Note 12 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
For certain accounts receivable, we use non-recourse factoring arrangements with third party financial institutions to manage our working capital and cash flows. Under this program, we sell receivables to a financial institution for cash at a discount to the face amount. Available capacity under these programs is dependent on the level of our trade accounts receivable eligible to be sold, the financial institutions’ willingness to purchase such receivables and the limits provided by the financial institutions. These factoring arrangements can be reduced or eliminated at any time due to market conditions and changes in the credit worthiness of customers. For the year ended December 31, 20192020 and 2018,2019, we sold accounts receivable totaling $680.4$499.3 million and $873.9$680.4 million, net of discounts and fees of $4.4$2.9 million and $7.0$4.4 million, respectively.
We operate in a capital-intensive industry. Servicing our current and future customers may require that we incur significant operating expenses and make significant investments in equipment and facilities, which are generally made in advance of the related revenues and without firm customer commitments.
The borrowing base under our $250.0 million first lien senior secured revolving credit facility entered into by our subsidiary, Amkor Technology Singapore Holding Pte, Ltd. (“the Singapore Revolver”), is limited to the amount of eligible accounts receivable. As of December 31, 2020, we had availability of $250.0 million and no outstanding standby letters of credit. We refer you to Note 11 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information. As of December 31, 2020, our foreign subsidiaries had $316.0 million available to be drawn under revolving credit facilities, including the Singapore Revolver, and $60.1 million available to be borrowed under term loan credit facilities for working capital purposes and capital expenditures.
As of December 31, 2020, we had $1,154.3 million of debt. Our scheduled principal repayments on debt include $149.0 million due in 2021, $182.4 million due in 2022, $170.8 million due in 2023, $81.5 million due in 2024, $27.4 million due in 2025 and $553.3 million due thereafter. We were in compliance with all debt covenants as of December 31, 2020, and we expect to remain in compliance with these covenants for at least the next twelve months.
In December 2020, we borrowed ¥10.9 billion (US$105 million) under a new term loan agreement due December 2025. We refer you to Note 11 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
Certain of our debt agreements have restrictions on dividend payments and the repurchase of stock and subordinated securities. These restrictions are determined in part by our covenant compliance and on calculations based upon cumulative net income or, in the case of our Singapore Revolver, borrowing availability. Dividend payments and stock repurchases are not currently restricted under our debt agreements.
The debt of Amkor Technology, Inc. is structurally subordinated in right of payment to all existing and future debt and other liabilities of our subsidiaries. From time to time, Amkor Technology, Inc. and Amkor Technology Singapore Holding Pte, Ltd. also guarantee certain debt of our subsidiaries.
In order to reduce our debt and future cash interest payments, we may from time to time repurchase or redeem our outstanding notes for cash or exchange shares of our common stock for our outstanding notes. Any such transaction may be made in the open market, through privately negotiated transactions or otherwise, and iswould be subject to the terms of our indentures and other debt agreements, market conditions and other factors.
Certain debt agreements have restrictions on dividend payments andOur subsidiary in Korea maintains an unfunded severance plan that covers certain employees that were employed prior to August 1, 2015. As of December 31, 2020, the repurchase of stock and subordinated securities. These restrictionsseverance liability was $98.0 million. Accrued severance benefits are determinedestimated assuming all eligible employees were to terminate their employment at the balance sheet date. For service periods subsequent to August 1, 2015, employees participate in part by calculations based upon cumulative net incomeeither a defined benefit pension plan or borrowing availability. We have never paid a dividend to our stockholders, and we do not have any present plans for doing so.defined contribution pension plan. From time to time, Amkor Technology, Inc. also guarantees certain debtwe may offer employees the option to convert from the severance plan to the defined contribution plan which would require the company to fund the converted portion of the liability. We refer you to Note 12 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
In October 2020, our Board of Directors approved the initiation of a regular quarterly cash dividend on our common stock. The first quarterly dividend of $0.04 per share, representing an initial dividend payment of $9.7 million in the aggregate, was paid on January 7, 2021 to stockholders of record as of December 18, 2020. We currently anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment, amount and timing of future dividends remain within the discretion of our subsidiaries.Board of Directors and will depend upon our results of operations, financial condition, cash requirements, debt restrictions and other factors.
We operate in a capital-intensive industry. Servicing our current and future customers may require that we incur significant operating expenses and make significant investments in equipment and facilities, which are generally made in advance of the related revenues and without firm customer commitments.
Our Board of Directors previously authorized the repurchase of up to $300.0 million of our common stock, exclusive of any fees, commissions or other expenses. At December 31, 2019,2020, approximately $91.6 million was available to repurchase common stock pursuant to the stock repurchase program. The purchase of stock may be made in the open market or through privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will depend upon a variety of factors including economic and market conditions, the cash needs and investment opportunities for the business, the current market price of our stock, applicable legal requirements and other factors. We have not purchased any stock under the program since 2012.
Capital Resources
We make significant capital expenditures in order to service the demand of our customers, which isare primarily focused on investments in advanced packaging and test equipment. In 2019,2020, our capital expenditures totaled $472.4$553.0 million or approximately 11.7%10.9% of net sales.
We expect that our 20202021 capital expenditures will be approximately $550$700 million. Ultimately, the amount of our 20202021 capital expenditures will depend on several factors including, among others, the timing and implementation of any capital projects under review, the performance of our business, economic and market conditions, the cash needs and investment opportunities for the business, the need for additional capacity to service anticipated customer demand and the availability of cash flows from operations or financing.
In addition, we are subject to risks associated with our capital expenditures, including those discussed in Part I, Item 1A of this Annual Report on Form 10-K under the caption “Capital Expenditures - We Make Substantial Investments in Equipment and Facilities Toto Support the Demand Ofof Our Customers, Which May Adversely Affect Our Business Ifif the Demand Ofof Our Customers Does Not Develop Asas We Expect or Is Adversely Affected.”
Cash Flows
Net cash provided by (used in) operating, investing and financing activities for each of the three years ended December 31, 20192020 was as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31 |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Operating activities | $ | 770,033 | | | $ | 563,850 | | | $ | 663,410 | |
Investing activities | (638,705) | | | (462,489) | | | (537,383) | |
Financing activities | (333,719) | | | 108,250 | | | (40,623) | |
|
| | | | | | | | | | | |
| For the Year Ended December 31 |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Operating activities | $ | 563,850 |
| | $ | 663,410 |
| | $ | 618,267 |
|
Investing activities | (462,489 | ) | | (537,383 | ) | | (454,832 | ) |
Financing activities | 108,250 |
| | (40,623 | ) | | (124,886 | ) |
Operating activities: Our cash flow provided by operating activities for the year ended December 31, 2019 decreased2020 increased by $99.6$206.2 million compared to the year ended December 31, 2018,2019, primarily due to lowerhigher net sales, lowerhigher operating profit, and changes in working capital.
Investing activities: Our cash flow used in investing activities decreasedfor the year ended December 31, 2020 increased by $176.2 million compared to the year ended December 31, 2018 principally2019, primarily due to our initiativepurchases of short-term investments and an increase in payments related to reduce spendingproperty, plant and equipment. This increase was partially offset by proceeds from sales and maturities of short-term investments and an increase in proceeds received from foreign exchange forward contracts. Payments for property, plant and equipment can fluctuate based on incremental capacity during a periodthe timing of reduced demand.purchase, receipt and acceptance of equipment.
Financing activities: The net cash used in investingfinancing activities for the year ended December 31, 2017, included2020 was primarily due to the receipt of the remaining proceeds for the sale of the K1 factorynet debt repayments in Korea and a payment for the acquisition of Nanium.
Financing activities:Taiwan. The net cash provided by financing activities for the year ended December 31, 2019 was primarily due to the issuance of the 2027 Notes and net borrowings in Japan, partially offset by the redemption of the 2022 Notes and net repayments in Korea. The net cash used in financing activities for the year ended December 31, 2018 was primarily driven by the full redemption of our 6.625% Senior Notes due 2021 and net repayments in China and Korea, partially offset by the net borrowings in Japan.
We provide the following supplemental data to assist our investors and analysts in understanding our liquidity and capital resources. We define free cash flow as net cash provided by operating activities less payments for property, plant and equipment, plus proceeds from the sale of and insurance recovery for property, plant and equipment, if applicable. Free cash flow is not defined by U.S. GAAP. We believe free cash flow to be relevant and useful information to our investors because it provides them with additional information in assessing our liquidity, capital resources and financial operating results. Our management uses free cash flow in evaluating our liquidity, our ability to service debt and our ability to fund capital expenditures. However, free cash flow has certain limitations, including that it does not represent the residual cash flow available for discretionary expenditures since other, non-discretionary expenditures, such as mandatory debt service, are not deducted from the measure. The amount of mandatory versus discretionary expenditures
can vary significantly between periods. This measure should be considered in addition to, and not as a substitute for, or superior to, other measures of liquidity or financial performance prepared in accordance with U.S. GAAP, such as net cash provided by operating activities. Furthermore, our definition of free cash flow may not be comparable to similarly titled measures reported by other companies.
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31 |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Net cash provided by operating activities | $ | 770,033 | | | $ | 563,850 | | | $ | 663,410 | |
Payments for property, plant and equipment | (553,021) | | | (472,433) | | | (547,122) | |
Proceeds from sale of and insurance recovery for property, plant and equipment | 3,819 | | | 11,655 | | | 4,212 | |
Free cash flow | $ | 220,831 | | | $ | 103,072 | | | $ | 120,500 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31 |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Net cash provided by operating activities | $ | 563,850 |
| | $ | 663,410 |
| | $ | 618,267 |
|
Payments for property, plant and equipment | (472,433 | ) | | (547,122 | ) | | (550,943 | ) |
Proceeds from sale of and insurance recovery for property, plant and equipment | 11,655 |
| | 4,212 |
| | 141,530 |
|
Free cash flow | $ | 103,072 |
| | $ | 120,500 |
| | $ | 208,854 |
|
Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2019,2020, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due for Year Ending December 31, |
| Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter |
| (In thousands) |
Total debt | $ | 1,164,302 | | | $ | 149,007 | | | $ | 182,373 | | | $ | 170,776 | | | $ | 81,461 | | | $ | 27,400 | | | $ | 553,285 | |
Scheduled interest payment obligations (1) | 269,994 | | | 44,293 | | | 41,855 | | | 38,981 | | | 37,150 | | | 36,231 | | | 71,484 | |
Purchase obligations (2) | 234,662 | | | 224,644 | | | 5,145 | | | 1,333 | | | 1,333 | | | 655 | | | 1,552 | |
Operating lease obligations (3) | 147,413 | | | 55,196 | | | 36,850 | | | 19,974 | | | 10,213 | | | 7,925 | | | 17,255 | |
Finance lease obligations (3) | 27,687 | | | 13,409 | | | 6,395 | | | 3,777 | | | 1,063 | | | 997 | | | 2,046 | |
Severance obligations (4) | 98,004 | | | 10,837 | | | 9,647 | | | 8,575 | | | 7,622 | | | 6,788 | | | 54,535 | |
Total contractual obligations | $ | 1,942,062 | | | $ | 497,386 | | | $ | 282,265 | | | $ | 243,416 | | | $ | 138,842 | | | $ | 79,996 | | | $ | 700,157 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due for Year Ending December 31, |
| Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter |
| (In thousands) |
Total debt | $ | 1,460,351 |
| | $ | 144,479 |
| | $ | 113,408 |
| | $ | 260,022 |
| | $ | 297,818 |
| | $ | 81,910 |
| | $ | 562,714 |
|
Scheduled interest payment obligations (1) | 362,403 |
| | 58,722 |
| | 56,789 |
| | 52,686 |
| | 48,137 |
| | 37,909 |
| | 108,160 |
|
Purchase obligations (2) | 87,000 |
| | 75,775 |
| | 3,587 |
| | 2,942 |
| | 1,293 |
| | 1,293 |
| | 2,110 |
|
Operating lease obligations | 147,800 |
| | 46,204 |
| | 35,686 |
| | 21,015 |
| | 11,046 |
| | 9,605 |
| | 24,244 |
|
Finance lease obligations (3) | 25,546 |
| | 9,905 |
| | 8,808 |
| | 2,064 |
| | 956 |
| | 949 |
| | 2,864 |
|
Severance obligations (4) | 127,386 |
| | 13,408 |
| | 10,178 |
| | 9,286 |
| | 8,456 |
| | 7,687 |
| | 78,371 |
|
Total contractual obligations | $ | 2,210,486 |
| | $ | 348,493 |
| | $ | 228,456 |
| | $ | 348,015 |
| | $ | 367,706 |
| | $ | 139,353 |
| | $ | 778,463 |
|
(1)Represents interest payment obligations calculated using stated coupon rates for fixed rate debt and interest rates applicable at December 31, 2020, for variable rate debt. | |
(1) | Represents interest payment obligations calculated using stated coupon rates for fixed rate debt and interest rates applicable at December 31, 2019, for variable rate debt. |
| |
(2) | Represents off-balance sheet purchase obligations for capital expenditures, long-term supply contracts and other contractual commitments outstanding at December 31, 2019. |
| |
(3) | Represents future minimum lease payments including interest payments. |
| |
(4) | Represents estimated benefit payments for our Korean subsidiary severance plan. |
(2)Represents off-balance sheet purchase obligations for capital expenditures, long-term supply contracts and other contractual commitments outstanding at December 31, 2020.
(3)Represents future minimum lease payments including interest payments.
(4)Represents estimated benefit payments for our Korean subsidiary severance plan.
In addition to the obligations identified in the table above, other non-current liabilities recorded in our Consolidated Balance Sheet at December 31, 2019,2020, include:
•$62.872.2 million of foreign pension plan obligations, for which the timing and actual amount of impact on our future cash flow is uncertain.
•$26.233.0 million net liability associated with unrecognized tax benefits. Due to the uncertainty regarding the amount and the timing of any future cash outflows associated with our unrecognized tax benefits, we are unable to reasonably estimate the amount and period of ultimate settlement, if any, with the various taxing authorities.
Off-Balance Sheet Arrangements
As of December 31, 2019,2020, we had no off-balance sheet guarantees or other off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Contingencies, Indemnifications and Guarantees
We refer you to Note 17 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of our contingencies related to litigation and other legal matters.
Critical Accounting Policies and Use of Estimates
We have identified the policies below as critical to our business operations and the understanding of our results of operations. A summary of our significant accounting policies used in the preparation of our Consolidated Financial Statements appears in Note 1 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Our preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.estimates, including the impact of Covid-19 and any deterioration in the global business and economic environment.
We believe the following critical accounting estimates and policies, which have been reviewed with the Audit Committee of our Board of Directors, affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.
Acquisitions. We account for businesses we acquire using the acquisition method of accounting and record the underlying net assets at their respective acquisition-date fair values. The accounting for acquisitions requires us to make significant estimates and assumptions, including those with respect to future cash flows, discount rates and asset lives, and therefore requires considerable judgment. These determinations affect the amount of depreciation and amortization expense recognized in future periods. Our estimates of fair value are based upon assumptions believed to be reasonable; however, they are inherently uncertain and unpredictable.
Revenue Recognition. We recognize revenue, net of sales, use, value-added and other similar taxes, as a performance obligation is satisfied in an amount reflecting the consideration to which we expect to be entitled. We apply a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of our revenue is recognized as services are rendered.
Our packaging and test services are our performance obligations to our customers. Our packaging services include wafer bump, probe and assembly. We provide packaging and test services to our customers either individually or as part of a combined offering. In a combined offering, we account for the individual services separately if they are determined to be distinct. We determine a service to be distinct if it is separately identifiable from other services in the combined offering and if a customer can benefit from the unique service on its own or with other resources that are readily available to the customer.
The consideration, including variable consideration, is allocated between the distinct services in a combined offering based upon the stand-alone selling prices of the individual services. Our services involve a high degree of specialization which are unique based on the design and purpose of the customer’s wafers. Accordingly, our negotiated pricing reflects the customized nature of our services and represents a customer-specific stand-alone selling price. We recognize revenue as services are rendered, which generally occurs over the course of two to three weeks. Services are generally billed at completion of each individual packaging or test service or in some instances at the completion of all services in a combined offering.
We recognize revenue over time as services are rendered because our services create or enhance the customer’s wafer. We utilize an input method (cost incurred plus estimated margin) to determine the amount of revenue to recognize for in-process, but incomplete, customer orders at a reporting date. During the period of providing our services, we generally do not control or take ownership of customers’ wafers, nor do we include the cost of the wafer in our cost calculations. We believe that a cost-based input method is the most appropriate manner to measure how we satisfy our performance obligations to customers because the effort and costs incurred to package and/or test customer wafers are not linear over the duration of these services.
Shipping and handling costs are accounted for as a cost to fulfill our performance obligations to customers. Accordingly, we record customer payments of shipping and handling costs as a component of net sales, and the costs incurred for shipping and handling are then charged to cost of sales.
Income Taxes. We operate in and file income tax returns in various U.S. and non-U.S. jurisdictions which are subject to examination by tax authorities. The tax returns for years where the statute of limitations remains open in all jurisdictions in which we do business are subject to change upon examination. We believe that we have estimated and provided adequate accruals for potential additional taxes and related interest expense that may ultimately result from such examinations. We believe that any additional taxes or related interest over the amounts accrued will not have a material effect on our financial condition, results of operations or cash flows. However, resolution of these matters involves uncertainties and there can be no assurance that the outcomes will be favorable. In addition, changes in the mix of income from our foreign subsidiaries, expiration of tax holidays or changes in tax laws or regulations could result in increased tax expense and effective tax rates in the future.
Additionally, we monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance. In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they
arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent operations. For most of our deferred tax assets, we consider it more likely than not that we will have sufficient taxable income to allow us to realize these deferred tax assets. However, in the event taxable income falls short of current expectations, we may need to establish a valuation allowance against such deferred tax assets. We have valuation allowances on certain U.S. federal net operating loss and U.S. foreign tax credit carryforwards expected to expire unused and select deferred tax assets in certain foreign jurisdictions. Such valuation allowances are released as the related tax benefits are realized or when sufficient evidence exists to conclude that it is more likely than not that the deferred tax assets will be realized.
Valuation of Inventory. We order raw materials based on customers’ forecasted demand. If our customers change their forecasted requirements and we are unable to cancel our raw materials order or if our vendors require that we order a minimum quantity that exceeds the current forecasted demand, we will experience a build-up in raw material inventory. We will either seek to recover the cost of the materials from our customers or utilize the inventory in production. However, we may not be successful in recovering the cost from our customers or be able to use the inventory in production and, accordingly, if we believe that it is probable that we will not be able to recover such costs, we reduce the carrying value of our inventory. Additionally, we reduce the carrying value of our inventories for the cost of inventory we estimate is excess and obsolete based on the age of our inventories. When a determination is made that the inventory will not be utilized in production or is not saleable, it is written-off.
Inventories consist of raw materials and purchased components and are stated at the lower of cost and net realizable value. Cost is principally determined by standard cost or the weighted moving average method, both of which approximate actual cost. For inventory valued using the standard cost method, we review and set our standard costs as needed, but at a minimum on an annual basis.
Valuation of Long-lived Assets. We review long-lived assets, which include property, plant and equipment and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors we consider important which could trigger an impairment review include the following:
•significant under-performance relative to expected historical or projected future operating results;
•significant changes in the manner of our use of the asset;
•significant negative industry or economic trendstrends; and
•our market capitalization relative to net book value.
Recoverability of a long-lived asset group to be held and used in operations is measured by a comparison of the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If such asset group is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. Long-lived assets to be disposed of are carried at the lower of cost or fair value less the costs of disposal.
We review goodwill for impairment annually during the fourth quarter of each year and whenever events or changes in circumstances indicate that an impairment may exist. Impairment losses are recorded when the carrying amount of the reporting unit exceeds its fair value.
Recently Adopted Standards
For information regarding recently adopted accounting standards, see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Sensitivity
We are exposed to market risks, primarily related to foreign currency and interest rate fluctuations. In the normal course of business, we employ established policies and procedures to manage the exposure to fluctuations in foreign currency values and changes in interest rates.
Foreign Currency Risk
The U.S. dollar is our reporting and functional currency for our subsidiaries, except for our Japan operations, where the Japanese Yen is the functional currency. In order to reduce our exposure to foreign currency gains and losses, we generally use natural hedging techniques to reduce foreign currency rate risk. We also use forward contracts to mitigate foreign currency risk of certain monetary liabilities denominated in foreign currencies.
We have foreign currency exchange rate risk associated with the remeasurement of monetary assets and liabilities on our Consolidated Balance Sheets that are denominated in currencies other than the functional currency. We performed a sensitivity analysis of our foreign currency exposure as of December 31, 2019,2020, to assess the potential impact of fluctuations in exchange rates for all foreign denominated assets and liabilities. Assuming that all foreign currencies appreciateddepreciated 10% against the U.S. dollar, taking into account our foreign currency forward contracts, our income before taxes as of December 31, 20192020 would have been approximately $8$3 million lower, due to the remeasurement of monetary assets and liabilities.
In addition, we have foreign currency exchange rate exposure on our results of operations. For the year ended December 31, 2019,2020, approximately 77%85% of our net sales were denominated in U.S. dollars. Our remaining net sales were principally denominated in Japanese Yen for local country sales.Yen. For the year ended December 31, 2019,2020, approximately 51%45% of our cost of sales and operating expenses were denominated in U.S. dollars and were largely for raw materials and costs associated with property, plant and equipment. The remaining portion of our cost of sales and operating expenses was principally denominated in the Asian currencies where our production facilities are located and largely consisted of labor. To the extent that the U.S. dollar weakens against these Asian-based currencies, similar foreign currency denominated income and expenses in the future will result in higher sales, higher cost of sales and operating expenses, with cost of sales and operating expenses having the greater impact on our financial results. Similarly, our sales, cost of sales and operating expenses will decrease if the U.S. dollar strengthens against these foreign currencies. We performed a sensitivity analysis of our foreign currency exposure as of December 31, 2019,2020 to assess the potential impact of fluctuations in exchange rates for all foreign denominated sales and operating expenses. Assuming that all foreign currencies appreciated 10% against the U.S. dollar, our operating income for the year ended December 31, 20192020 would have been approximately $106$125 million lower.
There are inherent limitations in the sensitivity analysis presented, primarily the assumption that foreign exchange rate movements across multiple jurisdictions would change instantaneously in an equal fashion. As a result, the analysis is unable to reflect the potential effects of more complex market or other changes that could arise which may positively or negatively affect our results of operations.
Our Consolidated Financial Statements are impacted by changes in exchange rates at the entity where the local currency is the functional currency. The effect of foreign exchange rate translation for these entities was a gain of $2.8$7.5 million and $4.9$2.8 million for the years ended December 31, 20192020 and 2018,2019, respectively, and was recognized as an adjustment to equity through other comprehensive income (loss).
Interest Rate Risk
We have interest rate risk with respect to our available-for-sale debt investments. Our investment portfolio consists of various security types and maturities, with a significant portion of our portfolio having maturity of one year or less. Our primary objective with our investment portfolio is to invest available cash while preserving capital and meeting liquidity needs. These securities are subject to interest rate risk and will decrease in value if market interest rates increase. Due to the relatively short-term nature of our investment portfolio, we believe that an immediate increase in interest rates will not have a material impact on the fair value of our available-for-sale debt investments. For information regarding our available-for-sale debt investments, see Note 6 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
We
In addition, we have interest rate risk with respect to our debt. Our fixed and variable rate debt includes foreign borrowings, and revolving credit facilities. Our fixed rate debt also consists offacilities and senior notes. Changes in interest rates have different impacts on the fixed and variable rate portions of our debt portfolio. A change in interest rates on the fixed portion of the debt portfolio impacts the fair value of the debt instrument but has no impact on interest expense or cash flows. A change in interest rates on the variable portion of the debt portfolio impacts the interest incurred and cash flows but does not generally impact the fair value of the instrument.
The table below presents the interest rates, maturities and fair value of our fixed and variable rate debt as of December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | | Fair Value |
| ($ in thousands) |
Fixed rate debt | $140,344 | | $138,123 | | $119,235 | | $81,461 | | $27,400 | | $553,285 | | $1,059,848 | | $1,112,412 |
Average interest rate | 1.3 | % | | 1.4 | % | | 1.4 | % | | 1.5 | % | | 1.8 | % | | 6.5 | % | | 4.1 | % | | |
Variable rate debt | 8,663 | | 44,250 | | 51,541 | | 0 | | 0 | | 0 | | 104,454 | | 105,484 |
Average interest rate | 0.6 | % | | 1.8 | % | | 2.4 | % | | — | % | | — | % | | — | % | | 2.0 | % | | |
Total debt maturities | $149,007 | | $182,373 | | $170,776 | | $81,461 | | $27,400 | | $553,285 | | $1,164,302 | | $1,217,896 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | | Fair Value |
| ($ in thousands) |
Fixed rate debt | $ | 111,408 |
| | $ | 111,408 |
| | $ | 215,772 |
| | $ | 97,818 |
| | $ | 61,910 |
| | $ | 562,714 |
| | $ | 1,161,030 |
| | $ | 1,213,715 |
|
Average interest rate | 1.3 | % | | 1.3 | % | | 2.5 | % | | 1.6 | % | | 1.8 | % | | 6.5 | % | | 4.1 | % | | |
Variable rate debt | $ | 33,071 |
| | $ | 2,000 |
| | $ | 44,250 |
| | $ | 200,000 |
| | $ | 20,000 |
| | $ | — |
| | $ | 299,321 |
| | $ | 303,916 |
|
Average interest rate | 3.1 | % | | 3.4 | % | | 3.4 | % | | 4.5 | % | | 3.4 | % | | — | % | | 4.1 | % | | |
Total debt maturities | $ | 144,479 |
| | $ | 113,408 |
| | $ | 260,022 |
| | $ | 297,818 |
| | $ | 81,910 |
| | $ | 562,714 |
| | $ | 1,460,351 |
| | $ | 1,517,631 |
|
For information regarding the fair value of our long-term debt, see Note 16 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
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Item 8. | Financial Statements and Supplementary Data |
Item 8.Financial Statements and Supplementary Data
We present the information required by Item 8 of Form 10-K here in the following order:
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Amkor Technology, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Amkor Technology, Inc. and its subsidiaries (the “Company”) as of December 31, 20192020 and 2018,2019, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019,2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 20192020 appearing under Item 8 (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2020, 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, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192020 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, 2019,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 21 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
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 Management’s 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.
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.
Accounting for Income Taxes
As described in Notes 1 and 64 to the consolidated financial statements, the Company recorded income tax expense of $37.2$46.2 million for the year ended December 31, 2019,2020, and net deferred tax assets of $90.3$88.5 million and unrecognized tax benefits of $26.2$32.6 million as of December 31, 2019.2020. Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis as well as for net operating loss and tax credit carryforwards. Management monitors on an ongoing basis its ability to utilize deferred tax assets and whether there is a need for a related valuation allowance. In evaluating the ability to recover deferred tax assets in the jurisdictions from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and recent results of recent operations. The Company operates in and files income tax returns in various U.S. and foreign jurisdictions, which are subject to examination by tax authorities. Years open to examination contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions and tax credits.
The principal considerations for our determination that performing procedures relating to accounting for income taxes is a critical audit matter are there wasthe significant judgment by management in determining the income tax provision and other tax positions. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence relating to income taxes. The audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained.
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 accounting for income taxes, including the controls addressing the completeness and accuracy of the data utilized. These procedures also included, among others (i) testing the income tax provision calculation and underlying data, including the effective tax rate reconciliation, significant return to provision adjustments, and permanent and temporary differences, (ii) evaluating management’s assessment of the realizability of deferred tax assets on a jurisdictional basis, (iii) evaluating the identification of reserves for unrecognized tax benefits and the reasonableness of the “more likely than not” determination considering the jurisdictions, court decisions, legislative actions, statute of limitations, and developments in tax examinations, and (iv) using professionals with specialized skill and knowledge to assist in evaluating the reasonableness of management’s judgment and estimates, including application of foreign and domestic tax laws and regulations.
/s/ PricewaterhouseCoopers LLP
Phoenix, Arizona
February 19, 20202021
We have served as the Company’s auditor since 2000.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands, except per share data) |
Net sales | $ | 5,050,589 | | | $ | 4,052,650 | | | $ | 4,316,466 | |
Cost of sales | 4,149,775 | | | 3,403,211 | | | 3,605,901 | |
Gross profit | 900,814 | | | 649,439 | | | 710,565 | |
Selling, general and administrative | 302,842 | | | 278,631 | | | 295,239 | |
Research and development | 140,727 | | | 137,638 | | | 157,182 | |
| | | | | |
Total operating expenses | 443,569 | | | 416,269 | | | 452,421 | |
Operating income | 457,245 | | | 233,170 | | | 258,144 | |
Interest expense | 64,168 | | | 71,587 | | | 78,946 | |
Other (income) expense, net | 6,395 | | | 1,773 | | | (6,617) | |
Total other expense, net | 70,563 | | | 73,360 | | | 72,329 | |
Income before taxes | 386,682 | | | 159,810 | | | 185,815 | |
Income tax expense | 46,183 | | | 37,182 | | | 56,250 | |
Net income | 340,499 | | | 122,628 | | | 129,565 | |
Net income attributable to noncontrolling interests | (2,361) | | | (1,740) | | | (2,473) | |
Net income attributable to Amkor | $ | 338,138 | | | $ | 120,888 | | | $ | 127,092 | |
Net income attributable to Amkor per common share: | | | | | |
Basic | $ | 1.40 | | | $ | 0.50 | | | $ | 0.53 | |
Diluted | $ | 1.40 | | | $ | 0.50 | | | $ | 0.53 | |
Shares used in computing per common share amounts: | | | | | |
Basic | 241,509 | | | 239,725 | | | 239,329 | |
Diluted | 242,248 | | | 240,122 | | | 239,741 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands, except per share data) |
Net sales | $ | 4,052,650 |
| | $ | 4,316,466 |
| | $ | 4,207,031 |
|
Cost of sales | 3,403,211 |
| | 3,605,901 |
| | 3,445,952 |
|
Gross profit | 649,439 |
| | 710,565 |
| | 761,079 |
|
Selling, general and administrative | 281,933 |
| | 295,239 |
| | 297,021 |
|
Research and development | 137,638 |
| | 157,182 |
| | 166,627 |
|
Gain on sale of real estate | (3,302 | ) | | — |
| | (108,109 | ) |
Total operating expenses | 416,269 |
| | 452,421 |
| | 355,539 |
|
Operating income | 233,170 |
| | 258,144 |
| | 405,540 |
|
Interest expense | 71,587 |
| | 78,946 |
| | 83,839 |
|
Interest expense, related party | — |
| | — |
| | 1,715 |
|
Other (income) expense, net | 1,773 |
| | (6,617 | ) | | 12,490 |
|
Total other expense, net | 73,360 |
| | 72,329 |
| | 98,044 |
|
Income before taxes | 159,810 |
| | 185,815 |
| | 307,496 |
|
Income tax expense | 37,182 |
| | 56,250 |
| | 39,791 |
|
Net income | 122,628 |
| | 129,565 |
| | 267,705 |
|
Net income attributable to noncontrolling interests | (1,740 | ) | | (2,473 | ) | | (4,155 | ) |
Net income attributable to Amkor | $ | 120,888 |
|
| $ | 127,092 |
| | $ | 263,550 |
|
Net income attributable to Amkor per common share: | | | | | |
Basic | $ | 0.50 |
| | $ | 0.53 |
| | $ | 1.10 |
|
Diluted | $ | 0.50 |
| | $ | 0.53 |
| | $ | 1.10 |
|
Shares used in computing per common share amounts: | | | | | |
Basic | 239,725 |
| | 239,329 |
| | 238,937 |
|
Diluted | 240,122 |
| | 239,741 |
| | 239,651 |
|
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Net income | $ | 340,499 | | | $ | 122,628 | | | $ | 129,565 | |
Other comprehensive income (loss), net of tax: | | | | | |
Adjustments to net unrealized gains (losses) on available-for-sale debt investments | 21 | | | 0 | | | 0 | |
Adjustments to unrealized components of defined benefit pension plans | 602 | | | (7,479) | | | (3,644) | |
Foreign currency translation | 7,532 | | | 2,782 | | | 4,937 | |
Total other comprehensive income (loss) | 8,155 | | | (4,697) | | | 1,293 | |
Comprehensive income | 348,654 | | | 117,931 | | | 130,858 | |
Comprehensive income attributable to noncontrolling interests | (2,361) | | | (1,740) | | | (2,473) | |
Comprehensive income attributable to Amkor | $ | 346,293 | | | $ | 116,191 | | | $ | 128,385 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Net income | $ | 122,628 |
| | $ | 129,565 |
| | $ | 267,705 |
|
Other comprehensive income (loss), net of tax: | | | | | |
Adjustments to unrealized components of defined benefit pension plans | (7,479 | ) | | (3,644 | ) | | 5,165 |
|
Foreign currency translation | 2,782 |
| | 4,937 |
| | 11,092 |
|
Total other comprehensive income (loss) | (4,697 | ) | | 1,293 |
| | 16,257 |
|
Comprehensive income | 117,931 |
| | 130,858 |
| | 283,962 |
|
Comprehensive income attributable to noncontrolling interests | (1,740 | ) | | (2,473 | ) | | (4,155 | ) |
Comprehensive income attributable to Amkor | $ | 116,191 |
| | $ | 128,385 |
| | $ | 279,807 |
|
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands, except per share data) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 894,948 |
| | $ | 681,569 |
|
Restricted cash | 610 |
| | 2,589 |
|
Accounts receivable, net of allowances of $1,314 and $677, respectively | 850,753 |
| | 724,456 |
|
Inventories | 220,602 |
| | 230,589 |
|
Other current assets | 34,620 |
| | 32,005 |
|
Total current assets | 2,001,533 |
| | 1,671,208 |
|
Property, plant and equipment, net | 2,404,850 |
| | 2,650,448 |
|
Operating lease right of use assets | 148,549 |
| | — |
|
Goodwill | 25,976 |
| | 25,720 |
|
Restricted cash | 2,974 |
| | 3,893 |
|
Other assets | 111,733 |
| | 144,178 |
|
Total assets | $ | 4,695,615 |
| | $ | 4,495,447 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Short-term borrowings and current portion of long-term debt | $ | 144,479 |
| | $ | 114,579 |
|
Trade accounts payable | 571,054 |
| | 530,398 |
|
Capital expenditures payable | 77,044 |
| | 255,237 |
|
Accrued expenses | 267,226 |
| | 258,209 |
|
Total current liabilities | 1,059,803 |
| | 1,158,423 |
|
Long-term debt | 1,305,755 |
| | 1,217,732 |
|
Pension and severance obligations | 176,971 |
| | 184,321 |
|
Long-term operating lease liabilities | 91,107 |
| | — |
|
Other non-current liabilities | 71,740 |
| | 79,071 |
|
Total liabilities | 2,705,376 |
| | 2,639,547 |
|
Commitments and contingencies (Note 17) |
|
| |
|
|
Stockholders’ equity: | | | |
Preferred stock, $0.001 par value, 10,000 shares authorized, designated Series A, none issued | — |
| | — |
|
Common stock, $0.001 par value, 500,000 shares authorized, 286,877 and 285,352 shares issued, and 240,805 and 239,385 shares outstanding, respectively | 287 |
| | 285 |
|
Additional paid-in capital | 1,927,739 |
| | 1,909,425 |
|
Retained earnings | 234,077 |
| | 113,189 |
|
Accumulated other comprehensive income (loss) | 19,115 |
| | 23,812 |
|
Treasury stock, at cost, 46,072 and 45,967 shares, respectively | (217,479 | ) | | (216,171 | ) |
Total Amkor stockholders’ equity | 1,963,739 |
| | 1,830,540 |
|
Noncontrolling interests in subsidiaries | 26,500 |
| | 25,360 |
|
Total equity | 1,990,239 |
| | 1,855,900 |
|
Total liabilities and equity | $ | 4,695,615 |
| | $ | 4,495,447 |
|
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands, except per share data) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 698,002 | | | $ | 894,948 | |
Restricted cash | 1,007 | | | 610 | |
Short-term investments (amortized cost of $133,744 in 2020) | 133,769 | | | 6,348 | |
Accounts receivable, net of allowances of $863 and $1,314, respectively | 962,643 | | | 850,753 | |
Inventories | 297,293 | | | 220,602 | |
Other current assets | 40,218 | | | 28,272 | |
Total current assets | 2,132,932 | | | 2,001,533 | |
Property, plant and equipment, net | 2,566,002 | | | 2,404,850 | |
Operating lease right of use assets | 147,236 | | | 148,549 | |
Goodwill | 27,325 | | | 25,976 | |
Restricted cash | 3,188 | | | 2,974 | |
Other assets | 145,628 | | | 111,733 | |
Total assets | $ | 5,022,311 | | | $ | 4,695,615 | |
| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Short-term borrowings and current portion of long-term debt | $ | 149,007 | | | $ | 144,479 | |
Trade accounts payable | 636,434 | | | 571,054 | |
Capital expenditures payable | 181,339 | | | 77,044 | |
Accrued expenses | 349,207 | | | 267,226 | |
Total current liabilities | 1,315,987 | | | 1,059,803 | |
Long-term debt | 1,005,339 | | | 1,305,755 | |
| | | |
Pension and severance obligations | 159,610 | | | 176,971 | |
Long-term operating lease liabilities | 84,420 | | | 91,107 | |
Other non-current liabilities | 102,996 | | | 71,740 | |
Total liabilities | 2,668,352 | | | 2,705,376 | |
Commitments and contingencies (Note 17) | 0 | | 0 |
Stockholders’ equity: | | | |
Preferred stock, $0.001 par value, 10,000 shares authorized, designated Series A, NaN issued | 0 | | | 0 | |
Common stock, $0.001 par value, 500,000 shares authorized, 288,923 and 286,877 shares issued, and 242,829 and 240,805 shares outstanding, respectively | 289 | | | 287 | |
Additional paid-in capital | 1,953,378 | | | 1,927,739 | |
Retained earnings | 562,502 | | | 234,077 | |
Accumulated other comprehensive income (loss) | 27,270 | | | 19,115 | |
Treasury stock, at cost, 46,094 and 46,072 shares, respectively | (217,740) | | | (217,479) | |
Total Amkor stockholders’ equity | 2,325,699 | | | 1,963,739 | |
Noncontrolling interests in subsidiaries | 28,260 | | | 26,500 | |
Total equity | 2,353,959 | | | 1,990,239 | |
Total liabilities and equity | $ | 5,022,311 | | | $ | 4,695,615 | |
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additional Paid- In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | | | | | Total Amkor Stockholders’ Equity | | Noncontrolling Interest in Subsidiaries | | Total Equity |
| Common Stock | | | | | Treasury Stock | | | |
| Shares | | Par Value | | | | | Shares | | Cost | | | |
| (In thousands) |
Balance at December 31, 2017 | 285,129 | | | $ | 285 | | | $ | 1,903,357 | | | $ | (13,903) | | | $ | 22,519 | | | (45,945) | | | $ | (215,982) | | | $ | 1,696,276 | | | $ | 23,433 | | | $ | 1,719,709 | |
Net income | — | | | — | | | — | | | 127,092 | | | — | | | — | | | — | | | 127,092 | | | 2,473 | | | 129,565 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 1,293 | | | — | | | — | | | 1,293 | | | — | | | 1,293 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Treasury stock acquired through surrender of shares for tax withholding | — | | | — | | | — | | | — | | | — | | | (22) | | | (189) | | | (189) | | | — | | | (189) | |
Issuance of stock through share-based compensation plans | 223 | | | — | | | 1,050 | | | — | | | — | | | — | | | — | | | 1,050 | | | — | | | 1,050 | |
Share-based compensation | — | | | — | | | 5,018 | | | — | | | — | | | — | | | — | | | 5,018 | | | — | | | 5,018 | |
Subsidiary dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (546) | | | (546) | |
Balance at December 31, 2018 | 285,352 | | | $ | 285 | | | $ | 1,909,425 | | | $ | 113,189 | | | $ | 23,812 | | | (45,967) | | | $ | (216,171) | | | $ | 1,830,540 | | | $ | 25,360 | | | $ | 1,855,900 | |
Net income | — | | | — | | | — | | | 120,888 | | | — | | | — | | | — | | | 120,888 | | | 1,740 | | | 122,628 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (4,697) | | | — | | | — | | | (4,697) | | | — | | | (4,697) | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Treasury stock acquired through surrender of shares for tax withholding | — | | | — | | | — | | | — | | | — | | | (105) | | | (1,308) | | | (1,308) | | | — | | | (1,308) | |
Issuance of stock through share-based compensation plans | 1,525 | | | 2 | | | 11,403 | | | — | | | — | | | — | | | — | | | 11,405 | | | — | | | 11,405 | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | 6,911 | | | — | | | — | | | — | | | — | | | 6,911 | | | — | | | 6,911 | |
Subsidiary dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (600) | | | (600) | |
Balance at December 31, 2019 | 286,877 | | | $ | 287 | | | $ | 1,927,739 | | | $ | 234,077 | | | $ | 19,115 | | | (46,072) | | | $ | (217,479) | | | $ | 1,963,739 | | | $ | 26,500 | | | $ | 1,990,239 | |
Net income | — | | | — | | | — | | | 338,138 | | | — | | | — | | | — | | | 338,138 | | | 2,361 | | | 340,499 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 8,155 | | | — | | | — | | | 8,155 | | | — | | | 8,155 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Treasury stock acquired through surrender of shares for tax withholding | — | | | — | | | — | | | — | | | — | | | (22) | | | (261) | | | (261) | | | — | | | (261) | |
Issuance of stock through share-based compensation plans | 2,046 | | | 2 | | | 17,609 | | | — | | | — | | | — | | | — | | | 17,611 | | | — | | | 17,611 | |
| | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | 8,030 | | | — | | | — | | | — | | | — | | | 8,030 | | | — | | | 8,030 | |
Cash dividends declared | — | | | — | | | — | | | (9,713) | | | — | | | — | | | — | | | (9,713) | | | — | | | (9,713) | |
Subsidiary dividends to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (601) | | | (601) | |
Balance at December 31, 2020 | 288,923 | | | $ | 289 | | | $ | 1,953,378 | | | $ | 562,502 | | | $ | 27,270 | | | (46,094) | | | $ | (217,740) | | | $ | 2,325,699 | | | $ | 28,260 | | | $ | 2,353,959 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additional Paid- In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | | | | | Total Amkor Stockholders’ Equity | | Noncontrolling Interest in Subsidiaries | | Total Equity |
| Common Stock | | | | | Treasury Stock | | | |
| Shares | | Par Value | | | | | Shares | | Cost | | | |
| (In thousands) |
Balance at December 31, 2016 | 284,479 |
| | $ | 284 |
| | $ | 1,895,089 |
| | $ | (277,453 | ) | | $ | 6,262 |
| | (45,814 | ) | | $ | (214,490 | ) | | $ | 1,409,692 |
| | $ | 19,825 |
| | $ | 1,429,517 |
|
Net income | — |
| | — |
| | — |
| | 263,550 |
| | — |
| | — |
| | — |
| | 263,550 |
| | 4,155 |
| | 267,705 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 16,257 |
| | — |
| | — |
| | 16,257 |
| | — |
| | 16,257 |
|
Treasury stock acquired through surrender of shares for tax withholding | — |
| | — |
| | — |
| | — |
| | — |
| | (131 | ) | | (1,492 | ) | | (1,492 | ) | | — |
| | (1,492 | ) |
Issuance of stock through share-based compensation plans | 650 |
| | 1 |
| | 3,123 |
| | — |
| | — |
| | — |
| | — |
| | 3,124 |
| | — |
| | 3,124 |
|
Share-based compensation | — |
| | — |
| | 5,145 |
| | — |
| | — |
| | — |
| | — |
| | 5,145 |
| | — |
| | 5,145 |
|
Subsidiary dividends to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (547 | ) | | (547 | ) |
Balance at December 31, 2017 | 285,129 |
| | $ | 285 |
| | $ | 1,903,357 |
| | $ | (13,903 | ) | | $ | 22,519 |
| | (45,945 | ) | | $ | (215,982 | ) | | $ | 1,696,276 |
| | $ | 23,433 |
| | $ | 1,719,709 |
|
Net income | — |
| | — |
| | — |
| | 127,092 |
| | — |
| | — |
| | — |
| | 127,092 |
| | 2,473 |
| | 129,565 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 1,293 |
| | — |
| | — |
| | 1,293 |
| | — |
| | 1,293 |
|
Treasury stock acquired through surrender of shares for tax withholding | — |
| | — |
| | — |
| | — |
| | — |
| | (22 | ) | | (189 | ) | | (189 | ) | | — |
| | (189 | ) |
Issuance of stock through share-based compensation plans | 223 |
| | — |
| | 1,050 |
| | — |
| | — |
| | — |
| | — |
| | 1,050 |
| | — |
| | 1,050 |
|
Share-based compensation | — |
| | — |
| | 5,018 |
| | — |
| | — |
| | — |
| | — |
| | 5,018 |
| | — |
| | 5,018 |
|
Subsidiary dividends to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (546 | ) | | (546 | ) |
Balance at December 31, 2018 | 285,352 |
| | $ | 285 |
| | $ | 1,909,425 |
| | $ | 113,189 |
| | $ | 23,812 |
| | (45,967 | ) | | $ | (216,171 | ) | | $ | 1,830,540 |
| | $ | 25,360 |
| | $ | 1,855,900 |
|
Net income | — |
| | — |
| | — |
| | 120,888 |
| | — |
| | — |
| | — |
| | 120,888 |
| | 1,740 |
| | 122,628 |
|
Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | (4,697 | ) | | — |
| | — |
| | (4,697 | ) | | — |
| | (4,697 | ) |
Treasury stock acquired through surrender of shares for tax withholding | — |
| | — |
| | — |
| | — |
| | — |
| | (105 | ) | | (1,308 | ) | | (1,308 | ) | | — |
| | (1,308 | ) |
Issuance of stock through share-based compensation plans | 1,525 |
| | 2 |
| | 11,403 |
| | — |
| | — |
| | — |
| | — |
| | 11,405 |
| | — |
| | 11,405 |
|
Share-based compensation | — |
| | — |
| | 6,911 |
| | — |
| | — |
| | — |
| | — |
| | 6,911 |
| | — |
| | 6,911 |
|
Subsidiary dividends to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (600 | ) | | (600 | ) |
Balance at December 31, 2019 | 286,877 |
| | $ | 287 |
| | $ | 1,927,739 |
| | $ | 234,077 |
| | $ | 19,115 |
| | (46,072 | ) | | $ | (217,479 | ) | | $ | 1,963,739 |
| | $ | 26,500 |
| | $ | 1,990,239 |
|
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Cash flows from operating activities: | | | | | |
Net income | $ | 340,499 | | | $ | 122,628 | | | $ | 129,565 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 510,396 | | | 524,177 | | | 571,961 | |
| | | | | |
Amortization of deferred debt issuance costs and premiums | 1,979 | | | 1,640 | | | 1,120 | |
Deferred income taxes | 3,143 | | | 25,931 | | | (13,110) | |
Loss on debt retirement | 3,042 | | | 8,536 | | | 1,512 | |
Loss (gain) on disposal of fixed assets, net | (2,821) | | | (4,477) | | | 5,310 | |
Share-based compensation | 8,030 | | | 6,911 | | | 5,018 | |
| | | | | |
Other, net | (779) | | | 4,394 | | | 2,558 | |
Changes in assets and liabilities, net of acquisitions: | | | | | |
Accounts receivable | (106,693) | | | (124,140) | | | 80,571 | |
Inventories | (75,499) | | | 10,208 | | | (16,310) | |
Other current assets | (12,348) | | | (2,369) | | | 4,329 | |
Other assets | (22,614) | | | 2,253 | | | 1,986 | |
Trade accounts payable | 48,786 | | | 38,670 | | | (43,490) | |
Accrued expenses | 69,151 | | | (33,297) | | | (78,136) | |
Pension and severance obligations | (21,535) | | | (12,216) | | | (4,653) | |
Net operating lease ROU asset | 871 | | | (127,743) | | | — | |
Operating lease liabilities | 2,537 | | | 131,967 | | | — | |
Other non-current liabilities | 23,888 | | | (9,223) | | | 15,179 | |
Net cash provided by operating activities | 770,033 | | | 563,850 | | | 663,410 | |
Cash flows from investing activities: | | | | | |
Payments for property, plant and equipment | (553,021) | | | (472,433) | | | (547,122) | |
Proceeds from sale of property, plant and equipment | 3,819 | | | 10,117 | | | 2,841 | |
Proceeds from insurance recovery for property, plant and equipment | 0 | | | 1,538 | | | 1,371 | |
Payments for short-term investments | (535,368) | | | (5,935) | | | (6,477) | |
Proceeds from sale of short-term investments | 247,081 | | | 0 | | | 0 | |
Proceeds from maturities of short-term investments | 159,015 | | | 6,469 | | | 4,829 | |
Proceeds from foreign exchange forward contracts | 49,226 | | | 13,550 | | | 6,754 | |
Payments for foreign exchange forward contracts | (14,031) | | | (15,593) | | | (5,864) | |
Other investing activities | 4,574 | | | (202) | | | 6,285 | |
Net cash used in investing activities | (638,705) | | | (462,489) | | | (537,383) | |
Cash flows from financing activities: | | | | | |
Proceeds from revolving credit facilities | 312,000 | | | 272,700 | | | 0 | |
Payments of revolving credit facilities | (332,000) | | | (272,700) | | | (75,000) | |
Proceeds from short-term debt | 86,769 | | | 51,434 | | | 23,341 | |
Payments of short-term debt | (87,353) | | | (52,635) | | | (46,631) | |
Proceeds from issuance of long-term debt | 331,033 | | | 975,575 | | | 596,226 | |
Payments of long-term debt | (648,514) | | | (862,927) | | | (535,738) | |
Payments for debt issuance costs | (1,644) | | | (7,027) | | | (3,796) | |
Payments of finance lease obligations | (9,851) | | | (6,574) | | | (3,930) | |
Proceeds from issuance of stock through share-based compensation plans | 17,611 | | | 11,405 | | | 1,050 | |
Other financing activities | (1,770) | | | (1,001) | | | 3,855 | |
Net cash (used in) provided by financing activities | (333,719) | | | 108,250 | | | (40,623) | |
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash | 6,056 | | | 870 | | | (204) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (196,335) | | | 210,481 | | | 85,200 | |
Cash, cash equivalents and restricted cash, beginning of period | 898,532 | | | 688,051 | | | 602,851 | |
Cash, cash equivalents and restricted cash, end of period | $ | 702,197 | | | $ | 898,532 | | | $ | 688,051 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Cash flows from operating activities: | | | | | |
Net income | $ | 122,628 |
| | $ | 129,565 |
| | $ | 267,705 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 524,177 |
| | 571,961 |
| | 581,940 |
|
Gain on sale of real estate | (3,302 | ) | | — |
| | (108,109 | ) |
Amortization of deferred debt issuance costs and premiums | 1,640 |
| | 1,120 |
| | 1,235 |
|
Deferred income taxes | 25,931 |
| | (13,110 | ) | | (42,189 | ) |
Loss on debt retirement | 8,536 |
| | 1,512 |
| | 4,835 |
|
Loss (gain) on disposal of fixed assets, net | (1,175 | ) | | 5,310 |
| | (2,648 | ) |
Share-based compensation | 6,911 |
| | 5,018 |
| | 5,145 |
|
Other, net | 4,394 |
| | 2,558 |
| | (8,143 | ) |
Changes in assets and liabilities, net of acquisitions: | | | | | |
Accounts receivable | (124,140 | ) | | 80,571 |
| | (133,814 | ) |
Inventories | 10,208 |
| | (16,310 | ) | | (36,307 | ) |
Other current assets | (2,369 | ) | | 4,329 |
| | (2,473 | ) |
Other assets | 2,253 |
| | 1,986 |
| | (458 | ) |
Trade accounts payable | 38,670 |
| | (43,490 | ) | | 67,574 |
|
Accrued expenses | (33,297 | ) | | (78,136 | ) | | 29,424 |
|
Pension and severance obligations | (12,216 | ) | | (4,653 | ) | | 23,881 |
|
Net operating lease ROU asset | (127,743 | ) | | — |
| | — |
|
Operating lease liabilities | 131,967 |
| | — |
| | — |
|
Other non-current liabilities | (9,223 | ) | | 15,179 |
| | (29,331 | ) |
Net cash provided by operating activities | 563,850 |
| | 663,410 |
| | 618,267 |
|
Cash flows from investing activities: | | | | | |
Payments for property, plant and equipment | (472,433 | ) | | (547,122 | ) | | (550,943 | ) |
Proceeds from sale of property, plant and equipment | 10,117 |
| | 2,841 |
| | 141,530 |
|
Proceeds from insurance recovery for property, plant and equipment | 1,538 |
| | 1,371 |
| | — |
|
Proceeds from foreign exchange forward contracts | 13,550 |
| | 6,754 |
| | — |
|
Payments for foreign exchange forward contracts | (15,593 | ) | | (5,864 | ) | | — |
|
Acquisition of business, net of cash acquired | — |
| | — |
| | (43,771 | ) |
Other investing activities | 332 |
| | 4,637 |
| | (1,648 | ) |
Net cash used in investing activities | (462,489 | ) | | (537,383 | ) | | (454,832 | ) |
Cash flows from financing activities: | | | | | |
Proceeds from revolving credit facilities | 272,700 |
| | — |
| | 75,000 |
|
Payments of revolving credit facilities | (272,700 | ) | | (75,000 | ) | | — |
|
Proceeds from short-term debt | 51,434 |
| | 23,341 |
| | 77,781 |
|
Payments of short-term debt | (52,635 | ) | | (46,631 | ) | | (70,236 | ) |
Proceeds from issuance of long-term debt | 975,575 |
| | 596,226 |
| | 223,976 |
|
Payments of long-term debt | (862,927 | ) | | (535,738 | ) | | (405,269 | ) |
Payments of long-term debt, related party | — |
| | — |
| | (17,837 | ) |
Payments for debt issuance costs | (7,027 | ) | | (3,796 | ) | | (156 | ) |
Payments of finance lease obligations | (6,574 | ) | | (3,930 | ) | | (5,340 | ) |
Payment of deferred consideration for purchase of facility | — |
| | — |
| | (3,890 | ) |
Proceeds from issuance of stock through share-based compensation plans | 11,405 |
| | 1,050 |
| | 3,124 |
|
Other financing activities | (1,001 | ) | | 3,855 |
| | (2,039 | ) |
Net cash provided by (used in) financing activities | 108,250 |
| | (40,623 | ) | | (124,886 | ) |
Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash | 870 |
| | (204 | ) | | 8,807 |
|
Net increase in cash, cash equivalents and restricted cash | 210,481 |
| | 85,200 |
| | 47,356 |
|
Cash, cash equivalents and restricted cash, beginning of period | 688,051 |
| | 602,851 |
| | 555,495 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 898,532 |
| | $ | 688,051 |
| | $ | 602,851 |
|
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Supplemental disclosures of cash flow information: | | | | | |
Cash paid during the period for: | | | | | |
Interest | $ | 61,295 | | | $ | 65,992 | | | $ | 77,575 | |
Income taxes | 43,404 | | | 44,495 | | | 63,080 | |
Non-cash investing and financing activities: | | | | | |
Property, plant and equipment included in capital expenditures payable | 181,376 | | | 77,250 | | | 256,070 | |
Right of use assets acquired through operating lease liabilities | 41,672 | | | 60,963 | | | 0 | |
Right of use assets acquired through finance lease liabilities | 10,517 | | | 10,835 | | | 17,163 | |
Dividends declared and unpaid | 9,713 | | | — | | | — | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Supplemental disclosures of cash flow information: | |
| | |
| | |
|
Cash paid during the period for: | | | | | |
Interest | $ | 65,992 |
| | $ | 77,575 |
| | $ | 83,808 |
|
Income taxes | 44,495 |
| | 63,080 |
| | 61,878 |
|
Non-cash investing and financing activities: | | | | | |
Property, plant and equipment included in capital expenditures payable | 77,250 |
| | 256,070 |
| | 294,912 |
|
Right of use assets acquired through finance lease liabilities | 10,835 |
| | 17,163 |
| | 929 |
|
Right of use assets acquired through operating lease liabilities | 60,963 |
| | — |
| | — |
|
The accompanying notes are an integral part of these statements.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements
1.Description of Business and Summary of Significant Accounting Policies | |
1. | Description of Business and Summary of Significant Accounting Policies
|
Description of Business
Amkor is one of the world’s leading providers of outsourced semiconductor packaging and test services. Amkor pioneered the outsourcing of semiconductor packaging and test services through a predecessor corporation in 1968, and over the years we have built a leading position by:
•Designing and developing innovative packaging and test technologies;
•Offering a broad portfolio of cost-effective solutions and services;
•Focusing on strategic end markets that offer solid growth potential;
•Cultivating long-standing relationships with our customers, which include many of the world’s leading semiconductor companies;
•Collaborating with customers, original equipment manufacturers (“OEMs”) and equipment and material suppliers;
•Developing a competitive cost structure with disciplined capital investment;
•Building expertise in high-volume manufacturing processes and developing a reputation for high quality and solid executionexecution; and
•Providing a geographically diverse operating base, with research and development, engineering support and production capabilities at various facilities in China, Japan, Korea, Malaysia, the Philippines, Portugal and Taiwan.
Basis of Presentation
Our Consolidated Financial Statements include the accounts of Amkor Technology, Inc. and our subsidiaries (“Amkor”). Our Consolidated Financial Statements reflect the elimination of all significant inter-company accounts and transactions. On May 22, 2017, we completed the purchase of Nanium, S.A. (“Nanium”). Nanium’s financial results have been included in our Consolidated Financial Statements from the date of acquisition (Note 3). Our investments in variable interest entities in which we are the primary beneficiary are consolidated. We reflect the remaining portion of variable interest entities and foreign subsidiaries that are not wholly owned as noncontrolling interests.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to acquisitions, revenue recognition, income taxes, inventory, long lived assets and contingencies. These estimates are based on management’s best knowledge of current events, historical experience, actions that we may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As a result, actual results could differ materially from these estimates and assumptions.assumptions, including the impact of Covid-19 and any deterioration in the global business and economic environment. Certain prior year amounts have been reclassified to conform to current year presentation.
Consolidation of Variable Interest Entities
We have variable interests in certain Philippine realty corporations in which we have a 40% ownership. We lease land and buildings in the Philippines from these entities and we are the primary beneficiary of these arrangements. As of December 31, 2019,2020, the combined book value of the assets and liabilities associated with these Philippine realty corporations included in our Consolidated Balance Sheet was $16.9$17.0 million and $0.1 million, respectively. The impact of consolidating these variable interest entities on our Consolidated Statements of Income was not significant, and other than our lease payments, we have not provided any significant assistance or other financial support to these variable
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
interest entities for the years ended December 31, 2020, 2019 2018 or 2017.2018. The creditors of the Philippine realty corporations have no recourse to our general credit.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Foreign Currency Translation
The U.S. dollar is the functional currency of our subsidiaries other than our Japan operations, and theoperations. The foreign currency asset and liability amounts at these subsidiaries are remeasured into U.S. dollars at end-of-period exchange rates, except for nonmonetary items which are remeasured at historical rates. Foreign currency income and expenses are remeasured at daily exchange rates, except for expenses related to balance sheet amounts which are remeasured at historical exchange rates. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in other (income) expense, net in the period in which they occur.
The Japanese Yen is the functional currency of our Japan operations. The asset and liability amounts of our Japan operations are translated into U.S. dollars at end-of-period exchange rates. Income and expenses are translated into U.S. dollars at average exchange rates in effect during the period. The resulting translation adjustments are reported as a component of accumulated other comprehensive income in the stockholders’ equity section of the balance sheet. Assets and liabilities denominated in a currency other than the functional currency are remeasured into the functional currency prior to translation into U.S. dollars, and the resulting transaction exchange gains or losses are included in other expense (income) in the period in which they occur.
Risks and Concentrations
The semiconductor industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. Our financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to the semiconductor industry, the timely implementation of new package and test technologies, the ability to safeguard patents and intellectual property in a rapidly evolving market and reliance on materials and equipment suppliers. In addition, the semiconductor market has historically been cyclical and subject to significant economic downturns at various times. Our profitability and ability to generate cash from operations is principally dependent upon demand for semiconductors, the utilization of our capacity, semiconductor package mix, the average selling price of our services, our ability to manage our capital expenditures and our ability to control our costs including labor, material, overhead and financing costs.
A significant portion of our revenues is concentrated with a small group of customers (Note 18). Direct sales to our largest customer increased during 2020 and accounted for 14.5% of our net revenue for the year ended December 31, 2020. The loss of a significant customer, a business combination among customers, a reduction in orders or decrease in price from a significant customer or disruption in any of our significant strategic partnerships or other commercial arrangements could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows.
Financial instruments, for which we are subject to credit risk, consist principally of accounts receivable and cash, cash equivalents and cash equivalents.short-term investments. With respect to accounts receivable, we mitigate our credit risk by selling primarily to well-established companies, performing ongoing credit evaluations and making frequent contact with customers. In addition, we may utilize non-recourse factoring to mitigate credit risk when considered appropriate. We have historically mitigated our credit risk with respect to cash and cash equivalents through diversification of our holdings into various high quality money market funds and bank deposit accounts. Our short-term investments are principally investments in debt securities with maximum duration of twelve months and ranges from AAA to BBB rated financial instruments. Our short-term investments are primarily in direct obligation of the US Government or its agencies, corporate bonds, asset backed securities, commercial paper, and municipal bonds. At December 31, 2019,2020, our cash and cash equivalents were maintained in various U.S. and foreign bank operating and time deposit accounts and invested in U.S. money market funds.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Contingencies and Litigation
We may be subject to certain legal proceedings, lawsuits and other claims, as discussed in Note 17.17. We accrue for a loss contingency, including legal proceedings, lawsuits, pending claims and other legal matters, when we conclude that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range of amounts, and no amount in the range constitutes a better estimate than any other amount, we accrue for the amount at the low end of the range. We adjust our accruals from time to time as we receive additional information, but the loss we incur may be significantly greater than or less than the amount we have accrued. We disclose loss contingencies if we believe they are material and there is at least a reasonable possibility that a loss has been incurred. Attorney fees related to legal matters are expensed as incurred.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Our cash and cash equivalents are maintained in various U.S. and foreign bank operating and time deposit accounts and invested in U.S. money market funds.
Restricted Cash
Restricted cash, current, consists of short-term cash equivalents used to collateralize our daily banking services. Restricted cash, non-current, mainly consists of collateral to fulfill foreign trade compliance requirements.
Investments
Generally, we classify our short-term investments in fixed income securities as available-for-sale debt investments. All of our available-for-sale debt investments as of December 31, 2020 are available to fund current operations and are recorded at fair value (Note 6). Unrealized gains and losses on our available-for-sale debt investments are included as a separate component of accumulated other comprehensive income (loss), net of tax. Realized gains and losses on our available-for-sale debt investments and declines in value judged to be an impairment are included in other (income) expense, net. The cost of short-term investments matured or sold is based on the average cost method.
We evaluate on an ongoing basis the market conditions, trends of earnings, financial condition, credit ratings, any underlying collateral and other key measures for our short-term investments in determining if and when a decline in value below the adjusted cost of our available-for-sale debt investments is an impairment. An impairment is considered if (i) we have the intent to sell the security, (ii) it is more likely than not that we will be required to sell the security before recovery of the entire amortized cost basis or (iii) we do not expect to recover the entire amortized cost basis of the security. If impairment is considered on condition (i) or (ii) above, the entire difference between the amortized cost and the fair value of the debt security is recognized in earnings. If impairment is considered based on condition (iii), the amount representing credit losses will be recognized in earnings and as an allowance for credit losses. The amount relating to all other factors will be recognized in other comprehensive income.
Inventories
Inventories consist of raw materials and purchased components and are stated at the lower of cost and net realizable value. Cost is principally determined by standard cost or the weighted moving average method, both of which approximate actual cost. We review and set our standard costs as needed, but at a minimum on an annual basis. We reduce the carrying value of our inventories for the cost of inventory we estimate is excess and obsolete based on the age of our inventories. When a determination is made that the inventory will not be utilized in production or is not saleable, it is written-off.
Other Current Assets
Other current assets consist principally of prepaid assets and an investment in government securities by a foreign subsidiaryassets.
AMKOR TECHNOLOGY, INC.
Notes to satisfy local regulatory requirements, which is recorded at amortized cost.Consolidated Financial Statements — (Continued)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated by the straight-line method over the estimated useful lives of depreciable assets which are as follows:
|
| | | | |
Buildings and improvements | 10 to 40 years |
Machinery and equipment | 2 to 7 years |
Software and computer equipment | 3 to 5 years |
Furniture, fixtures and other equipment | 4 to 10 years |
Cost and accumulated depreciation for property retired or disposed of are removed from the accounts, and any resulting gain or loss is included in earnings. Expenditures for maintenance and repairs are charged to expense as incurred.
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of a long-lived asset group to be held and used in operations is measured by a comparison of the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If such asset group is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. Long-lived assets to be disposed of are carried at the lower of cost or fair value less the costs of disposal.
Leases
We lease certain machinery and equipment, office space, and manufacturing facilities. Effective January 1, 2019, we adopted the requirements of the Financial Accounting Standards Board Accounting Standards Codification 842, Leases, using the modified transition approach without restating the comparative period financial statements or disclosures. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term. We account forcombine lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) combined with the non-lease components (e.g., common-area maintenance costs). for all asset classes. We use our incremental borrowing rate based on the information available at the lease commencement date to determine the lease liability. Our leases have remaining lease terms ranging from less than one year to 8685 years. For purposes of calculating our lease liabilities, our
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Certain leases also include options to purchase the leased property.
Goodwill
Goodwill is recorded when the cost of an acquisition exceeds the fair value of the net tangible and identifiable intangible assets acquired. We review goodwill for impairment annually during the fourth quarter of each year and whenever events or changes in circumstances indicate that an impairment may exist. Impairment losses are recorded when the carrying amount of the reporting unit exceeds its fair value. The balance of goodwill in our Consolidated Balance Sheets reflects adjustments for foreign currency translation.
Other Assets
Other assets consist principally of deferred tax assets, and refundable security deposits.deposits, and non-current prepaid taxes.
Derivatives
We use foreign exchange forward contracts to manage exposure to foreign exchange risk which are generally settled monthly. The derivatives are recorded at the fair value either in other current assets or accrued expenses, with the associated gains and losses charged to other (income) expense, net in the period in which they occur. We do not apply hedge accounting to the derivatives. See Note 15 for further discussion about the derivatives.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Fair Value Measurements
We apply fair value accounting for assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. See Note 16 for further discussion of fair value measurements.
Revenue Recognition
We recognize revenue, net of sales, use, value-added and other similar taxes, as a performance obligation is satisfied in an amount reflecting the consideration to which we expect to be entitled. We apply a five-step approach in determining the amount and timing of revenue to be recognized: (1) identifying the contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the performance obligation is satisfied. Substantially all of our revenue is recognized as services are rendered.
Our packaging and test services are our performance obligations to our customers. Our packaging services include wafer bump, probe and assembly. We provide packaging and test services to our customers either individually or as part of a combined offering. In a combined offering, we account for the individual services separately if they are determined to be distinct. We determine a service to be distinct if it is separately identifiable from other services in the combined offering and if a customer can benefit from the unique service on its own or with other resources that are readily available to the customer.
The consideration, including variable consideration, is allocated between the distinct services in a combined offering based upon the stand-alone selling prices of the individual services. Our services involve a high degree of specialization which are unique based on the design and purpose of the customer’s wafers. Accordingly, our negotiated pricing reflects the customized nature of our services and represents a customer-specific stand-alone selling price. We recognize revenue as services are rendered, which generally occurs over the course of two to three weeks. Services are generally billed at completion of each individual packaging or test service or in some instances at the completion of all services in a combined offering.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
We recognize revenue over time as services are rendered because our services create or enhance the customer’s wafer. We utilize an input method (cost incurred plus estimated margin) to determine the amount of revenue to recognize for in-process, but incomplete, customer orders at a reporting date. During the period of providing our services, we generally do not control or take ownership of customers’ wafers, nor do we include the cost of the wafer in our cost calculations. We believe that a cost-based input method is the most appropriate manner to measure how we satisfy our performance obligations to customers because the effort and costs incurred to package and/or test customer wafers are not linear over the duration of these services.
Shipping and handling costs are accounted for as a cost to fulfill our performance obligations to customers. Accordingly, we record customer payments of shipping and handling costs as a component of net sales, and the costs incurred for shipping and handling are then charged to cost of sales.
Unbilled receivables are revenues that have been recognized for performance obligations that have been satisfied, or partially satisfied, in advance of billing the customer. Revenue may be recognized in advance of billing as our contracts provide us with an unconditional right to consideration for work that is performed. Total unbilled receivables as of December 31, 2020 and 2019 and 2018 were $125.4$146.8 million and $89.3$125.4 million, respectively. These amounts are included in accounts receivable, net of allowances in our Consolidated Balance Sheets.
At times, the company receives cash payments from customers in advance of the company’s performance. In such cases, we record deferred revenue until the performance obligation is satisfied, which represents a contract liability and is included in accrued expenses and other non-current liabilities in the consolidated balance sheets. These contract liabilities are classified as either current or long-term based on the timing of when the company expects to recognize
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
revenue. Contract liabilities were $51.6 million and $17.5 million as of December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020 and December 31, 2019, the short-term portion of the liability was $30.3 million and $16.2 million, respectively. Revenue recognized during the year that was included in the contract liability balance at the beginning of the period was $14.1 million, $16.4 million, and $13.7 million, for 2020, 2019 and 2018, respectively.
Research and Development Costs
Research and development expenses include costs attributable to the conduct of research and development programs primarily related to the development of new package designs or technologies and improving the efficiency and capabilities of our existing production processes. Such costs include salaries, payroll taxes, employee benefit costs, materials, supplies, depreciation and maintenance of research equipment, services provided by outside contractors and the allocable portions of facility costs such as rent, utilities, insurance, repairs and maintenance, depreciation and general support services. Costs associated with research and development are expensed as incurred.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis as well as for net operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for those deferred tax assets for which it is more likely than not that the related tax benefits will not be realized.
We monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance. In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they arise, 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 recent operations. For most of our U.S. and foreign deferred tax assets, we consider it more likely than not that we will have sufficient taxable income to allow us to realize these deferred tax assets. However, in the event taxable income falls short of current expectations, we may need to establish a valuation allowance against such deferred tax assets.
We recognize in our Consolidated Financial Statements the impact of an income tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Related interest and penalties are classified as income taxes in the financial statements.
See Note 64 for further discussion regarding unrecognized income tax benefits.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
2. | New Accounting Standards
|
Recently Adopted Standards
2. Share-Based Compensation Plans
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842), which was subsequently amended and clarified. Topic 842 requires a dual approach for lease accounting under which a lessee would account for leases as finance leases or operating leases. The standard also requires the lessee to recognize a right-of-use asset and a corresponding lease liability for both finance leases and operating leases. For finance leases, the lessee recognizes interest expense and amortization of the right-of-use asset, and for operating leases, the lessee recognizes a straight-line lease expense. The standard permits the use of two alternative transition approaches, either with application in all comparative periods presented or with application beginning with the effective date without restating comparative period financial statements.
Effective January 1, 2019, we adopted the requirements of Topic 842 using the modified transition approach without restating the comparative period financial statements. The new standard resulted in increases in our operating lease right of use assets, accrued expenses and long-term operating lease liabilities account balances to record our operating leases on our Consolidated Balance Sheet. The new standard also resulted in additional disclosures for our operating and finance leases (Note 10). In accordance with Topic 842, we applied practical expedients permitted under the transition guidance, which allowed us to not:
Reassess whether any existing contracts are or contain a lease,
Reassess the lease classification for any existing contracts,
Reassess initial direct costs for any existing leases, and
Separate non-lease components from lease components and instead to account for them as a single lease component for all asset classes.
Acquisition of Nanium
On May 22, 2017, we completed the purchase of 100% of the shares of Nanium, a provider of wafer-level fan-out semiconductor packaging solutions. We allocated the purchase price to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. We did not record goodwill as a result of the acquisition.
| |
4. | Share-Based Compensation Plans
|
Our share-based compensation is measured at fair value and expensed over the service period (generally the vesting period). The amount of compensation expense to be recognized is adjusted for an estimated forfeiture rate which is based on historical data. For the years ended December 31, 2020, 2019 2018 and 2017,2018, we recognized share-based compensation attributable to stock options and restricted shares of $8.0 million, $6.9 million $5.0 million and $5.1$5.0 million, respectively, primarily in selling, general and administrative expenses. The corresponding deferred income tax benefits for stock options or restricted shares is $1.3 million, $1.3 million and $1.0 million for 2020, 2019 and $2.4 million for 2019, 2018 and 2017 respectively.
Equity Incentive Plan
Second Amended and Restated 2007 Equity Incentive Plan. The Second Amended and Restated 2007 Equity Incentive Plan, (the “2007 Plan”) provides for the grant of the following types of incentive awards: (i) stock options, (ii) restricted stock, (iii) restricted stock units, (iv) stock appreciation rights, (v) performance units and performance shares and (vi) other stock or cash awards. Those eligible for awards include employees, directors and consultants who provide
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
services to Amkor and its subsidiaries. The 2007 Plan is effective through 2027 and can be terminated at the discretion of the Board of Directors. There were originally 17.0 million shares of our common stock reserved for issuance under the 2007 Plan and at December 31, 20192020 there were 5.22.9 million shares available for grant.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Stock options
Stock options are generally granted with an exercise price equal to the market price of the stock at the date of grant. Substantially all of the options granted are exercisable pursuant to a one to four year vesting schedule and the term of the options granted is no longer than ten years. Upon option exercise, we may issue new shares of common or treasury stock.
In order to calculate the fair value of stock options at the date of grant, we use the Black-Scholes option pricing model. Expected volatilities are based on historical performance of our stock. We also use historical data to estimate the timing and amount of option exercises and forfeitures within the valuation model. The expected term of the options is based on evaluations of historical and expected future employee exercise behavior and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the annualized declared quarterly dividend rate divided by our closing stock price at the date of the grant.
The following table summarizes our stock option activity for the year ended December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares (In thousands) | | Weighted-Average Exercise Price per Share | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (In thousands) |
Outstanding at December 31, 2019 | 5,845 | | $ | 9.11 | | | | | |
Granted | 805 | | 12.85 | | | | | |
Exercised | (1,882) | | 9.26 | | | | | |
Forfeited or expired | (402) | | 9.56 | | | | | |
Outstanding at December 31, 2020 | 4,366 | | $ | 9.70 | | | 7.47 | | $ | 23,391 | |
Fully vested at December 31, 2020 and expected to vest thereafter | 4,245 | | $ | 9.66 | | | 7.43 | | $ | 22,877 | |
Exercisable at December 31, 2020 | 2,197 | | $ | 8.92 | | | 6.41 | | $ | 13,407 | |
|
| | | | | | | | | | | |
| Number of Shares (In thousands) | | Weighted-Average Exercise Price per Share | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (In thousands) |
Outstanding at December 31, 2018 | 4,743 | | $ | 8.79 |
| | | | |
Granted | 3,100 | | 9.10 |
| | | | |
Exercised | (1,442) | | 7.91 |
| | | | |
Forfeited or expired | (556) | | 9.39 |
| | | | |
Outstanding at December 31, 2019 | 5,845 | | $ | 9.11 |
| | 7.74 | | $ | 22,738 |
|
Fully vested at December 31, 2019 and expected to vest thereafter | 5,718 | | $ | 9.11 |
| | 7.71 | | $ | 22,256 |
|
Exercisable at December 31, 2019 | 2,140 | | $ | 8.87 |
| | 6.04 | | $ | 8,829 |
|
The following assumptions were used to calculate the weighted-average fair values of the options granted:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Expected life (in years) | 5.6 | | 6.0 | | 6.0 |
Risk-free interest rate | 0.3 | % | | 2.5 | % | | 2.7 | % |
Volatility | 52 | % | | 43 | % | | 42 | % |
Dividend yield | 0.3% | | 0 | | | 0 | |
Weighted-average grant date fair value per option granted | $ | 5.79 | | | $ | 4.06 | | | $ | 4.17 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Expected life (in years) | 6.0 |
| | 6.0 |
| | 5.7 |
|
Risk-free interest rate | 2.5 | % | | 2.7 | % | | 1.9 | % |
Volatility | 43 | % | | 42 | % | | 43 | % |
Dividend yield | — |
| | — |
| | — |
|
Weighted-average grant date fair value per option granted | $ | 4.06 |
| | $ | 4.17 |
| | $ | 4.24 |
|
Total unrecognized compensation expense from stock options was $11.8$8.3 million as of December 31, 2019,2020, which is expected to be recognized over a weighted-average period of approximately 2.62.1 years beginning January 1, 2020.
2021.
Restricted Shares
We grant restricted shares to directors and employees under the 2007 Plan. Restricted shares granted to directors vest on the earlier of the one year anniversary of the grant date or the date of the next annual meeting of stockholders. AllGenerally, other restricted shares vest ratably over fourthree years,, with 6.25%8.33% of the shares vesting in equal quarterly
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
installments such that 100% of the shares will become vested on the fourththird anniversary of the award, subject to the recipient’s continued employment with us on the applicable vesting dates. In addition, provided that the restricted shares have not been forfeited earlier, for certain grants, the restricted shares will vest upon the recipient’s death or disability, or upon a change in control of Amkor. The value of the restricted shares is determined based on the fair market value of the underlying shares on the date of the
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
grant and is recognized ratably over the vesting period. Upon vesting of restricted stock awards, we may issue new shares of common or treasury stock.
The following table summarizes our restricted share activity for the year ended December 31, 2019:2020:
| | | | | | | | | | | |
| Number of Shares (In thousands) | | Weighted- average Grant Date Fair Value (Per Share) |
Non-vested at December 31, 2019 | 146 | | | $ | 8.48 | |
Awards granted | 430 | | | 13.61 | |
Awards vested | (164) | | | 9.39 | |
Awards forfeited | 0 | | | 0 | |
Non-vested at December 31, 2020 | 412 | | | 13.47 | |
|
| | | | | | |
| Number of Shares (In thousands) | | Weighted- average Grant Date Fair Value (Per Share) |
Non-vested at December 31, 2018 | 147 |
| | $ | 9.63 |
|
Awards granted | 82 |
| | 7.29 |
|
Awards vested | (83 | ) | | 9.32 |
|
Awards forfeited | — |
| | — |
|
Non-vested at December 31, 2019 | 146 |
| | 8.48 |
|
Total unrecognized compensation cost from restricted shares was $0.8$4.7 million as of December 31, 2019,2020, which is expected to be recognized over a weighted-average period of approximately 0.72.2 years beginning January 1, 2020.2021.
| |
5. | 3. Other Income and Expense
|
Other income and expense consists of the following:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Interest income | $ | (5,449) | | | $ | (6,655) | | | $ | (4,133) | |
Foreign currency (gain) loss, net | 9,608 | | | 1,944 | | | 1,451 | |
Loss on debt retirement | 3,042 | | | 8,536 | | | 1,512 | |
Other | (806) | | | (2,052) | | | (5,447) | |
Total other (income) expense, net | $ | 6,395 | | | $ | 1,773 | | | $ | (6,617) | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Interest income | $ | (6,655 | ) | | $ | (4,133 | ) | | $ | (3,215 | ) |
Foreign currency (gain) loss, net | 1,944 |
| | 1,451 |
| | 11,823 |
|
Loss on debt retirement | 8,536 |
| | 1,512 |
| | 4,835 |
|
Other | (2,052 | ) | | (5,447 | ) | | (953 | ) |
Total other (income) expense, net | $ | 1,773 |
| | $ | (6,617 | ) | | $ | 12,490 |
|
Geographic sources of income (loss) before taxes are as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
United States | $ | 38,719 | | | $ | 1,138 | | | $ | 5,535 | |
Foreign | 347,963 | | | 158,672 | | | 180,280 | |
Income before taxes | $ | 386,682 | | | $ | 159,810 | | | $ | 185,815 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
United States | $ | 1,138 |
| | $ | 5,535 |
| | $ | 26,040 |
|
Foreign | 158,672 |
| | 180,280 |
| | 281,456 |
|
Income before taxes | $ | 159,810 |
| | $ | 185,815 |
| | $ | 307,496 |
|
The provision for income taxes includes current federal, state and foreign taxes payable and those deferred because of temporary differences between the financial statement and the tax bases of assets and liabilities.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The components of the provision (benefit) for income taxes are as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Current: | | | | | |
Federal | $ | 4,608 | | | $ | (179) | | | $ | 22,003 | |
State | 134 | | | 3 | | | 39 | |
Foreign | 38,298 | | | 11,427 | | | 47,318 | |
| 43,040 | | | 11,251 | | | 69,360 | |
Deferred: | | | | | |
Federal | (7,877) | | | 1,832 | | | 5,468 | |
State | (535) | | | 299 | | | 2,993 | |
Foreign | 11,555 | | | 23,800 | | | (21,571) | |
| 3,143 | | | 25,931 | | | (13,110) | |
Income tax expense | $ | 46,183 | | | $ | 37,182 | | | $ | 56,250 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Current: | | | | | |
Federal | $ | (179 | ) | | $ | 22,003 |
| | $ | — |
|
State | 3 |
| | 39 |
| | 11 |
|
Foreign | 11,427 |
| | 47,318 |
| | 81,969 |
|
| 11,251 |
| | 69,360 |
| | 81,980 |
|
Deferred: | | | | | |
Federal | 1,832 |
| | 5,468 |
| | (34,787 | ) |
State | 299 |
| | 2,993 |
| | (4,072 | ) |
Foreign | 23,800 |
| | (21,571 | ) | | (3,330 | ) |
| 25,931 |
| | (13,110 | ) | | (42,189 | ) |
Income tax expense | $ | 37,182 |
| | $ | 56,250 |
| | $ | 39,791 |
|
The reconciliation between the U.S. federal statutory income tax rate of 21% for 2020, 2019 and 2018 and 35% for 2017 and our income tax expense is as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
U.S. federal statutory income tax rate | $ | 81,203 | | | $ | 33,560 | | | $ | 39,021 | |
State taxes, net of federal benefit | 346 | | | 293 | | | 1,677 | |
Foreign income taxed at different rates | (27,988) | | | (10,600) | | | 6,340 | |
Foreign exchange (loss) gain | 6,710 | | | 84 | | | (3,797) | |
Change in valuation allowance | (15,624) | | | 18,374 | | | (12,662) | |
Adjustments related to prior years | (2,575) | | | (3,190) | | | 1,898 | |
U.S. tax reform (the Tax Act) | 0 | | | 0 | | | 22,284 | |
Income tax credits generated | (21,525) | | | (9,006) | | | (18,106) | |
Foreign earnings and profits | 23,853 | | | 3,360 | | | 387 | |
Foreign derived intangible income | (6,339) | | | (3,195) | | | 0 | |
Expiration of net operating losses and credits | 144 | | | 3,084 | | | 19,462 | |
Settlements and changes in uncertain tax positions | 6,801 | | | 3,256 | | | (1,230) | |
Other | 1,177 | | | 1,162 | | | 976 | |
Income tax expense | $ | 46,183 | | | $ | 37,182 | | | $ | 56,250 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
U.S. federal statutory income tax rate | $ | 33,560 |
| | $ | 39,021 |
| | $ | 107,623 |
|
State taxes, net of federal benefit | 293 |
| | 1,677 |
| | 2,624 |
|
Foreign income taxed at different rates | (10,600 | ) | | 6,340 |
| | (51,661 | ) |
Foreign exchange (loss) gain | 84 |
| | (3,797 | ) | | 29,756 |
|
Change in valuation allowance | 18,374 |
| | (12,662 | ) | | (6,763 | ) |
Adjustments related to prior years | (3,190 | ) | | 1,898 |
| | (558 | ) |
U.S. tax reform (the Tax Act) | — |
| | 22,284 |
| | (41,554 | ) |
Income tax credits generated | (9,006 | ) | | (18,106 | ) | | (7,296 | ) |
Foreign earnings and profits | 3,360 |
| | 387 |
| | 719 |
|
Foreign derived intangible income | (3,195 | ) | | — |
| | — |
|
Expiration of net operating losses and credits | 3,084 |
| | 19,462 |
| | 166 |
|
Settlements and changes in uncertain tax positions | 3,256 |
| | (1,230 | ) | | 5,305 |
|
Other | 1,162 |
| | 976 |
| | 1,430 |
|
Income tax expense | $ | 37,182 |
| | $ | 56,250 |
| | $ | 39,791 |
|
The change in valuation allowance for 2020, 2019 2018 and 2017, excluding the impact of the Tax Act,2018 is primarily the result of changes in our ability to realize net operating loss, tax credit, and other carryforwards for which no tax expense or benefit has been recognized. Prior to 2018, the benefit of foreign income taxed at different rates increased as foreign income before tax has increased. The decrease in the U.S. federal statutory income tax rate to 21% in 2018 has reduced the impact of foreign income taxed at different rates than the U.S. rate.carryforwards.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The following is a summary of the components of our deferred tax assets and liabilities:
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 25,905 |
| | $ | 13,207 |
|
Income tax credits | 98,158 |
| | 107,532 |
|
Property, plant and equipment | 27,199 |
| | 38,050 |
|
Deferred interest expense | 12,361 |
| | 5,415 |
|
Accrued liabilities | 61,812 |
| | 68,402 |
|
Receivable | 30,558 |
| | 31,729 |
|
Unrealized foreign exchange loss | 2,750 |
| | 1,410 |
|
Operating lease liabilities | 18,164 |
| | — |
|
Other | 11,889 |
| | 14,545 |
|
Total deferred tax assets | 288,796 |
| | 280,290 |
|
Valuation allowance | (136,934 | ) | | (118,560 | ) |
Total deferred tax assets net of valuation allowance | 151,862 |
| | 161,730 |
|
Deferred tax liabilities: | | | |
Property, plant and equipment | 23,747 |
| | 14,605 |
|
Deferred gain | 11,193 |
| | 11,651 |
|
Unrealized foreign exchange gain | 1,195 |
| | 1,695 |
|
Unbilled receivables | 3,580 |
| | 9,515 |
|
Operating lease right of use assets | 17,687 |
| | — |
|
Other | 4,125 |
| | 5,805 |
|
Total deferred tax liabilities | 61,527 |
| | 43,271 |
|
Net deferred tax assets | $ | 90,335 |
| | $ | 118,459 |
|
Recognized as: | | | |
Other assets | $ | 90,465 |
| | $ | 118,697 |
|
Other non-current liabilities | (130 | ) | | (238 | ) |
Total | $ | 90,335 |
| | $ | 118,459 |
|
Valuation allowance against deferred tax assets consist of the following:
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Valuation allowance: | | | |
U.S. | $ | 80,241 |
| | $ | 77,580 |
|
Foreign | 56,693 |
| | 40,980 |
|
Total valuation allowance | $ | 136,934 |
| | $ | 118,560 |
|
As a result of certain capital investments, export commitments and employment levels, income from operations in Korea, Malaysia, the Philippines Singapore and TaiwanSingapore was subject to reduced income tax rates and, in some cases, was exempt from income taxes. We recognized $27.6 million, $14.7 million $1.9 million and $6.2$1.9 million in tax benefits as a result of the tax holidays
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
in 2020, 2019 2018 and 2017,2018, respectively. The benefit of the tax holidays on diluted earnings per share was approximately $0.11, $0.06 and $0.01 for 2020, 2019 and $0.03 for 2019, 2018, and 2017, respectively.
Our net operating loss carryforwards (“NOLs”) are as follows:
|
| | | | | | | | | |
| December 31, | | |
| 2019 | | 2018 | | Expiration |
| (In thousands) | | |
U.S. Federal NOLs | $ | 23,977 |
| | $ | 25,272 |
| | 2021-2024 |
U.S. State NOLs | 93,674 |
| | 108,011 |
| | 2020-2036 |
Foreign NOLs | 85,123 |
| | 10,686 |
| | 2022-2028 |
66
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The following is a summary of the components of our deferred tax assets and liabilities:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands) |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 24,791 | | | $ | 25,905 | |
| | | |
Income tax credits | 93,056 | | | 98,158 | |
Property, plant and equipment | 25,342 | | | 27,199 | |
Deferred interest expense | 10,306 | | | 12,361 | |
Accrued liabilities | 57,586 | | | 61,812 | |
Receivable | 33,295 | | | 30,558 | |
Unrealized foreign exchange loss | 5,603 | | | 2,750 | |
Operating lease liabilities | 20,343 | | | 18,164 | |
Other | 11,741 | | | 11,889 | |
Total deferred tax assets | 282,063 | | | 288,796 | |
Valuation allowance | (121,310) | | | (136,934) | |
Total deferred tax assets net of valuation allowance | 160,753 | | | 151,862 | |
Deferred tax liabilities: | | | |
Property, plant and equipment | 28,440 | | | 23,747 | |
Deferred gain | 11,907 | | | 11,193 | |
Unrealized foreign exchange gain | 5,620 | | | 1,195 | |
Unbilled receivables | 2,031 | | | 3,580 | |
Operating lease right of use assets | 19,704 | | | 17,687 | |
Other | 4,514 | | | 4,125 | |
Total deferred tax liabilities | 72,216 | | | 61,527 | |
Net deferred tax assets | $ | 88,537 | | | $ | 90,335 | |
Recognized as: | | | |
Other assets | $ | 95,045 | | | $ | 90,465 | |
Other non-current liabilities | (6,508) | | | (130) | |
Total | $ | 88,537 | | | $ | 90,335 | |
We monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance. In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they arise, 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 recent operations. For most
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Valuation allowance against deferred tax assets consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands) |
Valuation allowance: | | | |
U.S. | $ | 62,820 | | | $ | 80,241 | |
Foreign | 58,490 | | | 56,693 | |
Total valuation allowance | $ | 121,310 | | | $ | 136,934 | |
We had recorded a valuation allowance against our interest expense carryforward as a result of the limitation of deductibility of interest expense contained in the Tax Act. Realization of the carryforward is dependent on generating sufficient taxable income to overcome the interest limitation provisions. Although utilization of this carryforward is not assured, in light of our foreigncurrent earnings and recent estimates of future taxable income, management believes sufficient positive evidence exists to conclude that the valuation allowance is no longer needed and reversed the $12.4 million valuation allowance in 2020.
Our net operating loss carryforwards we consider it more likely than not that we will not have sufficient taxable income to allow us to realize these deferred tax assets.(“NOLs”) are as follows:
| | | | | | | | | | | | | | | | | |
| December 31, | | |
| 2020 | | 2019 | | Expiration |
| (In thousands) | | |
U.S. Federal NOLs | $ | 22,683 | | | $ | 23,977 | | | 2021-2024 |
U.S. State NOLs | 88,170 | | | 93,674 | | | 2021-2038 |
Foreign NOLs | 85,960 | | | 85,123 | | | 2022-2028 |
At December 31, 20192020 and 2018,2019, a portion of our remaining U.S. federal net operating loss carryforward was reserved with a valuation allowance due to ownership change limitations from a prior year acquisition as well as certain state net operating loss carryforwards expected to expire unused.
Our tax credit carryforwards are as follows:
| | | | | | | | | | | | | | | | | |
| December 31, | | |
| 2020 | | 2019 | | Expiration |
| (In thousands) | | |
U.S. Foreign Tax Credits | $ | 70,265 | | | $ | 77,983 | | | 2026-2027 |
U.S. Other Tax Credits | 168 | | | 1,404 | | | 2026 |
Foreign Tax Credits | 22,623 | | | 18,771 | | | 2021-2030 |
|
| | | | | | | | | |
| December 31, | | |
| 2019 | | 2018 | | Expiration |
| (In thousands) | | |
U.S. Foreign Tax Credits | $ | 77,983 |
| | $ | 84,056 |
| | 2026-2028 |
U.S. Other Tax Credits | 1,404 |
| | 1,117 |
| | 2026-2039 |
Foreign Tax Credits | 18,771 |
| | 22,359 |
| | 2020-2029 |
At December 31, 20192020 and 2018,2019, a portion of our U.S. and foreign tax credit carryforwards were reserved with a valuation allowance for the amount expected to expire unused.
As a result ofDue to the deemed repatriation provision ofchanges in the Tax Act, distributions of cash to the U.S. as dividends generally will not be subject to U.S. federal income taxes have been provided on approximately $1.1 billion of the undistributed earnings of our foreign subsidiaries at December 31, 2017. The income tax expense from the deemed repatriation was offset by net operating loss carryforwards and income tax credits resulting in a transition tax payable of $21.8 million. Under an election of the Tax Act, the remaining transition tax is payable over eight years beginning with tax year 2017, with 8% due in each of the first five years, 15% in year six, 20% in year seven, and 25% in year eight.tax. We have not provided foreign withholding taxes or state income taxes on the undistributed earnings of our foreign subsidiaries, over which we have sufficient influence to control the distribution of such earnings and have determined that substantially all such earnings have been reinvested indefinitely. These earnings could become subject to foreign withholding tax if they are remitted as dividends. We estimate that repatriation of these foreign earnings would generate withholding taxes and state income taxes of approximately $89.8$119.1 million.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
We operate in and file income tax returns in various U.S. and foreign jurisdictions which are subject to examination by tax authorities. We have tax returns that are open to examination in various jurisdictions for tax years 2012-2019.2010-2020. The open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations related to the amount and/or timing of income, deductions and tax credits. There can be no assurance that the outcome of examinations will be favorable. Our unrecognized tax benefits are subject to change as examinations of specific tax years are completed in the respective jurisdictions. In certain circumstances where we elect to appeal the results of an examination, we may be
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
required to make tax assessment payments to proceed with the administrative appeal process. Current examinations include our 2012, 2013 and 2018 Philippine income tax returns.returns and our 2018 Singapore income tax return.
A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Balance at January 1 | $ | 26,242 | | | $ | 25,268 | | | $ | 27,211 | |
Additions based on tax positions related to the current year | 10,427 | | | 8,944 | | | 401 | |
Additions for tax positions of prior years | 1,173 | | | 188 | | | 636 | |
Reductions for tax positions of prior years | (280) | | | (4,539) | | | (2,958) | |
Reductions related to settlements with tax authorities | 0 | | | (1,886) | | | 0 | |
Reductions from lapse of statutes of limitations | (4,964) | | | (1,733) | | | (22) | |
Balance at December 31 | $ | 32,598 | | | $ | 26,242 | | | $ | 25,268 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Balance at January 1 | $ | 25,268 |
| | $ | 27,211 |
| | $ | 23,149 |
|
Additions based on tax positions related to the current year | 8,944 |
| | 401 |
| | 1,419 |
|
Additions for tax positions of prior years | 188 |
| | 636 |
| | 2,661 |
|
Reductions for tax positions of prior years | (4,539 | ) | | (2,958 | ) | | (1 | ) |
Reductions related to settlements with tax authorities | (1,886 | ) | | — |
| | — |
|
Reductions from lapse of statutes of limitations | (1,733 | ) | | (22 | ) | | (17 | ) |
Balance at December 31 | $ | 26,242 |
| | $ | 25,268 |
| | $ | 27,211 |
|
The net increase in our unrecognized tax benefits was $1.0$6.4 million from December 31, 20182019 to December 31, 2019.2020. The increase was primarily related to income attribution offset by decreases from the settlementlapse of an examinationstatutes of our 2015-2018 Korea tax returns.limitations. At December 31, 2019,2020, all of our gross unrecognized tax benefits would reduce our effective tax rate, if recognized. It is reasonably possible that unrecognized tax benefits related to entity classification and withholding taxes will decrease in the next 12 months by up to $6.4$7.1 million due to the lapse of statutes of limitations in foreign jurisdictions.
The liability related to our unrecognized tax benefits is $22.3$28.3 million as of December 31, 20192020 and is reported as a component of other non-current liabilities. The unrecognized tax benefits presented in the table above also include positions that have reduced deferred tax assets. The balance of accrued and unpaid interest and penalties is $3.9$4.7 million as of December 31, 20192020 and is included as a component of other non-current liabilities in connection with our unrecognized tax benefits.
Basic earnings per share (“EPS”) is computed by dividing net income attributable to Amkor common stockholders by the weighted-average number of common shares outstanding during the period. The weighted-average number of common shares outstanding includes restricted shares held by retirement eligible recipients and is reduced for treasury stock.
Diluted EPS is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. Dilutive potential common shares include outstanding stock options and unvested restricted shares.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the computations of basic and diluted EPS:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands, except per share data) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net income available to Amkor common stockholders | $ | 338,138 | | | $ | 120,888 | | | $ | 127,092 | |
| | | | | |
Weighted-average shares outstanding — basic | 241,509 | | | 239,725 | | | 239,329 | |
Effect of dilutive securities: | | | | | |
Stock options and restricted share awards | 739 | | | 397 | | | 412 | |
Weighted-average shares outstanding — diluted | 242,248 | | | 240,122 | | | 239,741 | |
Net income attributable to Amkor per common share: | | | | | |
Basic | $ | 1.40 | | | $ | 0.50 | | | $ | 0.53 | |
Diluted | 1.40 | | | 0.50 | | | 0.53 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands, except per share data) |
Net income available to Amkor common stockholders | $ | 120,888 |
| | $ | 127,092 |
| | $ | 263,550 |
|
| | | | | |
Weighted-average shares outstanding — basic | 239,725 |
| | 239,329 |
| | 238,937 |
|
Effect of dilutive securities: | | | | | |
Stock options and restricted share awards | 397 |
| | 412 |
| | 714 |
|
Weighted-average shares outstanding — diluted | 240,122 |
| | 239,741 |
| | 239,651 |
|
Net income attributable to Amkor per common share: | | | | | |
Basic | $ | 0.50 |
| | $ | 0.53 |
| | $ | 1.10 |
|
Diluted | 0.50 |
| | 0.53 |
| | 1.10 |
|
The following table summarizes the potential shares of common stock that were excluded from diluted EPS, because the effect of including these potential shares was anti-dilutive:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Stock options and restricted share awards | 2,412 | | | 5,379 | | | 3,662 | |
|
| | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Stock options and restricted share awards | 5,379 |
| | 3,662 |
| | 3,445 |
|
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
6. Investments
The following table summarizes our cash equivalents and available-for-sale debt investments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Fair Value Level |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses (1) | | Total Fair Value | | Level 1 | | Level 2 |
| (In thousands) |
Cash equivalents | | | | | | | | | | | |
| | | | | | | | | | | |
Certificate of deposits | $ | 976 | | | $ | 0 | | | $ | 0 | | | $ | 976 | | | $ | 976 | | | $ | 0 | |
Commercial paper | 5,293 | | | 0 | | | 0 | | | 5,293 | | | 0 | | | 5,293 | |
Corporate bonds | 1,744 | | | 0 | | | 0 | | | 1,744 | | | 0 | | | 1,744 | |
Money market funds | 138,290 | | | 0 | | | 0 | | | 138,290 | | | 138,290 | | | 0 | |
| | | | | | | | | | | |
Municipal bonds | 400 | | | 0 | | | 0 | | | 400 | | | 0 | | | 400 | |
| | | | | | | | | | | |
Total cash equivalents (2) | 146,703 | | | 0 | | | 0 | | | 146,703 | | | 139,266 | | | 7,437 | |
| | | | | | | | | | | |
Short-term investments | | | | | | | | | | | |
Asset-backed securities | 19,111 | | | 18 | | | (9) | | | 19,120 | | | 0 | | | 19,120 | |
Certificate of deposits | 5,046 | | | 0 | | | 0 | | | 5,046 | | | 5,046 | | | 0 | |
Commercial paper | 15,148 | | | 0 | | | 0 | | | 15,148 | | | 0 | | | 15,148 | |
Corporate bonds | 50,771 | | | 16 | | | (12) | | | 50,775 | | | 0 | | | 50,775 | |
| | | | | | | | | | | |
Municipal bonds | 12,702 | | | 8 | | | (2) | | | 12,708 | | | 0 | | | 12,708 | |
U.S. government agency bonds | 8,415 | | | 3 | | | 0 | | | 8,418 | | | 0 | | | 8,418 | |
U.S. government bonds | 17,605 | | | 3 | | | 0 | | | 17,608 | | | 17,608 | | | 0 | |
Variable rate demand notes | 300 | | | 0 | | | 0 | | | 300 | | | 0 | | | 300 | |
| | | | | | | | | | | |
Total short-term investments | 129,098 | | | 48 | | | (23) | | | 129,123 | | | 22,654 | | | 106,469 | |
Total (3) | $ | 275,801 | | | $ | 48 | | | $ | (23) | | | $ | 275,826 | | | $ | 161,920 | | | $ | 113,906 | |
(1)All unrealized losses have been in a continuous loss position for less than 12 months. We do not intend to sell the investments in an unrealized loss position, and we do not believe it is more likely than not that we will be required to sell these investments before recovery of their amortized cost bases.
(2)During the year ended December 31, 2020, we sold cash equivalent investments for proceeds of $27.1 million and realized no gain or loss on such sales.
(3)In January 2021, we increased our available-for-sale debt investments by approximately $60 million.
The following table summarizes the contractual maturities of our cash equivalents and available-for-sale debt investments as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Fair Value | | | | | | | | |
Within 1 year | | $ | 259,652 | | | $ | 259,667 | | | | | | | | | |
After 1 year through 5 years | | 14,705 | | | 14,713 | | | | | | | | | |
After 5 years through 10 years | | 1,444 | | | 1,446 | | | | | | | | | |
| | | | | | | | | | | | |
Total | | $ | 275,801 | | | $ | 275,826 | | | | | | | | | |
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Actual maturities can differ from contractual maturities due to various factors including whether the issuers have the right to call or prepay obligations without call or prepayment penalties, and we view our available-for-sale debt investments as available for current operations.
As of December 31, 2020, the amortized cost and the fair market value of our held-to-maturity government bond (Level 1) maturing within a year is $4.7 million.
The following table summarizes our debt investments as of December 31, 2019:
| | | | | |
| December 31, 2019 |
| (In thousands) |
Cash equivalent money market funds (Level 1) (1) | $ | 384,474 | |
| |
8.Short-term investment government bond (Level 2) (2) | Factoring of Accounts Receivable6,348 | |
(1)The cash equivalent money market funds (Level 1) at December 31, 2019 have been corrected to include $286.7 million of cash equivalents that were excluded in previously reported amounts. There was no change to total cash and cash equivalents reported on our consolidated balance sheet. We determined this was immaterial to the prior period but have presented the balance as revised for comparability.
(2)The fair market value of the security is $6.3 million.
7. Factoring of Accounts Receivable
For certain accounts receivable, we use non-recourse factoring arrangements with third-party financial institutions to manage our working capital and cash flows. Under this program, we sell receivables to a financial institution for cash at a discount to the face amount. As part of the factoring arrangements, we perform certain collection and administrative functions for the receivables sold. For the year ended December 31, 20192020 and 2018,2019, we sold accounts receivable totaling $680.4$499.3 million and $873.9$680.4 million, net of discounts and fees of $4.4$2.9 million and $7.0$4.4 million, respectively.
8. Property, Plant and Equipment
Property, plant and equipment consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands) |
Land | $ | 221,304 | | | $ | 219,785 | |
Buildings and improvements | 1,625,355 | | | 1,571,653 | |
Machinery and equipment | 5,736,797 | | | 5,303,729 | |
Finance lease machinery and equipment | 40,856 | | | 34,158 | |
Furniture, fixtures and other equipment | 20,774 | | | 19,740 | |
Software and computer equipment | 231,171 | | | 220,264 | |
Construction in progress | 48,602 | | | 12,593 | |
Total property, plant and equipment | 7,924,859 | | | 7,381,922 | |
Less accumulated depreciation and amortization | (5,358,857) | | | (4,977,072) | |
Total property, plant and equipment, net | $ | 2,566,002 | | | $ | 2,404,850 | |
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
9. | Property, Plant and Equipment
|
Property, plant and equipment consist of the following:
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Land | $ | 219,785 |
| | $ | 222,884 |
|
Land use rights (1) | — |
| | 26,845 |
|
Buildings and improvements | 1,571,653 |
| | 1,523,065 |
|
Machinery and equipment | 5,303,729 |
| | 5,196,930 |
|
Finance lease machinery and equipment | 34,158 |
| | 25,874 |
|
Software and computer equipment | 220,264 |
| | 213,440 |
|
Furniture, fixtures and other equipment | 19,740 |
| | 17,204 |
|
Construction in progress | 12,593 |
| | 44,381 |
|
Total property, plant and equipment | 7,381,922 |
| | 7,270,623 |
|
Less accumulated depreciation and amortization | (4,977,072 | ) | | (4,620,175 | ) |
Total property, plant and equipment, net | $ | 2,404,850 |
| | $ | 2,650,448 |
|
(1) Effective January 1, 2019, and in connection with the adoption of Topic 842, land use rights were reclassified to operating lease right of use asset within our Consolidated Balance Sheet.
The following table summarizes our depreciation expense:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Depreciation expense | $ | 509,770 | | | $ | 522,011 | | | $ | 570,304 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Depreciation expense | $ | 522,011 |
| | $ | 570,304 |
| | $ | 580,172 |
|
9. Leases
As part of our plan to consolidate factory operations in Korea, we sold the land and buildings comprising our K1 factory in May 2017 for $142.4 million. We received 10% of the sale price at signing in November 2016 and the balance at closing, at which time we recognized a pre-tax gain of $108.1 million.
10. Leases
The components of lease expense were as follows:
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 |
| (In thousands) |
Operating lease cost | $ | 52,882 | | | $ | 41,559 | |
Finance lease cost | | | |
Amortization of leased assets | 6,520 | | | 5,240 | |
Interest on lease liabilities | 987 | | | 933 | |
Total finance lease cost | 7,507 | | | 6,173 | |
Short-term lease cost | 7,188 | | | 8,927 | |
Variable lease cost | 5,307 | | | 5,416 | |
Net lease cost | $ | 72,884 | | | $ | 62,075 | |
|
| | | |
| For the Year Ended December 31, 2019 |
| |
Operating lease cost | $ | 41,559 |
|
Finance lease cost | |
Amortization of leased assets | 5,240 |
|
Interest on lease liabilities | 933 |
|
Total finance lease cost | 6,173 |
|
Short-term lease cost | 8,927 |
|
Variable lease cost | 5,416 |
|
Net lease cost | $ | 62,075 |
|
Rent expense was $43.6 million for the year ended December 31, 2018.
Other information related to leases was as follows:
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 |
Supplemental Cash Flows Information (in thousands) | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows for operating leases | $ | 53,323 | | | $ | 39,870 | |
Operating cash flows for finance leases | 946 | | | 893 | |
Financing cash flows for finance leases | 9,851 | | | 6,574 | |
| | | |
Weighted Average Remaining Lease Term (years) | | | |
Operating leases | 3.9 | | 4.7 |
Finance leases | 3.1 | | 3.6 |
| | | |
Weighted Average Discount Rate | | | |
Operating leases | 4.0 | % | | 4.2 | % |
Finance leases | 4.0 | % | | 4.6 | % |
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Rent expense was $43.6 million and $48.1 million for the for the year ended December 31, 2018 and 2017, respectively.
Other information related to leases was as follows:
|
| | | |
| For the Year Ended December 31, 2019 |
Supplemental Cash Flows Information (in thousands) | |
Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows for operating leases | $ | 39,870 |
|
Operating cash flows for finance leases | 893 |
|
Financing cash flows for finance leases | 6,574 |
|
| |
Weighted Average Remaining Lease Term (years) | |
Operating leases | 4.7 |
|
Finance leases | 3.6 |
|
| |
Weighted Average Discount Rate | |
Operating leases | 4.2 | % |
Finance leases | 4.6 | % |
Maturities of lease liabilities were as follows:
| | | | | | | | | | | |
| December 31, 2020 |
| Operating Leases | | Finance Leases |
| (In thousands) |
2021 | $ | 55,196 | | | $ | 13,409 | |
2022 | 36,850 | | | 6,395 | |
2023 | 19,974 | | | 3,777 | |
2024 | 10,213 | | | 1,063 | |
2025 | 7,925 | | | 997 | |
Thereafter | 17,255 | | | 2,046 | |
Total future minimum lease payments | 147,413 | | | 27,687 | |
Less: Imputed interest | (13,245) | | | (1,997) | |
Total | $ | 134,168 | | | $ | 25,690 | |
|
| | | | | | | | | | | | | | | | |
December 31, 2019 | | December 31, 2018 |
| Operating Leases | | Finance Leases | | | Operating Leases | | Finance Leases |
| (In thousands) | | | (In thousands) |
2020 | $ | 46,204 |
| | $ | 9,905 |
| | 2019 | $ | 32,461 |
| | $ | 6,430 |
|
2021 | 35,686 |
| | 8,808 |
| | 2020 | 24,630 |
| | 4,555 |
|
2022 | 21,015 |
| | 2,064 |
| | 2021 | 17,676 |
| | 4,748 |
|
2023 | 11,046 |
| | 956 |
| | 2022 | 10,942 |
| | 936 |
|
2024 | 9,605 |
| | 949 |
| | 2023 | 9,008 |
| | 936 |
|
Thereafter | 24,244 |
| | 2,864 |
| | Thereafter | 26,070 |
| | 3,807 |
|
Total future minimum lease payments | 147,800 |
| | 25,546 |
| | | $ | 120,787 |
| | $ | 21,412 |
|
Less: Imputed interest | (15,721 | ) | | (2,317 | ) | | |
| |
|
Total | $ | 132,079 |
| | $ | 23,229 |
| | | | | |
| | | | | | | | |
As of December 31, 2019,2020, we have entered into additional lease agreements that have not yet commenced of approximately $6.2$8 million.
10. Accrued Expenses
11. Accrued Expenses
Accrued expenses consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands) |
Payroll and benefits | $ | 143,383 | | | $ | 115,693 | |
Short-term operating lease liability | 49,748 | | | 40,972 | |
Deferred revenue and customer advances | 30,269 | | | 16,177 | |
Income taxes payable | 26,602 | | | 11,661 | |
Short-term finance lease liability | 12,634 | | | 9,121 | |
Accrued severance plan obligations (Note 12) | 10,837 | | | 13,408 | |
Accrued interest | 10,767 | | | 11,638 | |
Other accrued expenses | 64,967 | | | 48,556 | |
Total accrued expenses | $ | 349,207 | | | $ | 267,226 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Payroll and benefits | $ | 115,693 |
| | $ | 124,943 |
|
Short-term operating lease liability | 40,972 |
| | — |
|
Deferred revenue and customer advances | 16,177 |
| | 16,736 |
|
Accrued severance plan obligations (Note 13) | 13,408 |
| | 13,179 |
|
Income taxes payable | 11,661 |
| | 38,567 |
|
Accrued interest | 11,638 |
| | 10,302 |
|
Short-term finance lease liability | 9,121 |
| | 6,028 |
|
Other accrued expenses | 48,556 |
| | 48,454 |
|
Total accrued expenses | $ | 267,226 |
| | $ | 258,209 |
|
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
11. Debt
12. Debt
Short-term borrowings and long-term debt consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands) |
Debt of Amkor Technology, Inc.: | | | |
Senior notes: | | | |
6.625% Senior notes, due September 2027 | $ | 525,000 | | | $ | 525,000 | |
Other | 2,039 | | | 0 | |
Debt of subsidiaries: | | | |
Amkor Technology Korea, Inc.: | | | |
$30 million revolving credit facility, applicable bank rate plus 1.11% (1) | 0 | | | 0 | |
Term loan, fund floating rate plus 1.60%, due June 2020 | 0 | | | 24,000 | |
Term loan, fixed rate at 1.80%, due May 2021 (2) | 0 | | | 0 | |
Term loan, applicable bank rate plus 2.03%, due July 2022 | 0 | | | 40,000 | |
Term loan, applicable bank rate plus 2.03%, due September 2022 (3) | 0 | | | 60,000 | |
Term loan, applicable bank rate plus 1.77%, due April 2023 (4) | 51,541 | | | 0 | |
Term loan, LIBOR plus 2.56%, due December 2023 | 0 | | | 200,000 | |
Term loan, applicable bank rate plus 1.98%, due December 2028 (5) | 50,000 | | | 66,000 | |
Amkor Technology Japan, Inc.: | | | |
Short-term term loans, variable rate (6) | 6,663 | | | 7,071 | |
Term loan, fixed rate at 0.86%, due June 2022 | 14,528 | | | 23,018 | |
Term loan, fixed rate at 0.60%, due July 2022 | 3,390 | | | 5,064 | |
Term loan, fixed rate at 1.30%, due July 2023 | 138,499 | | | 179,541 | |
Term loan, fixed rate at 1.35%, due December 2024 | 220,823 | | | 262,407 | |
Term loan, fixed rate at 1.20%, due December 2025 (7) | 105,569 | | | 0 | |
Amkor Assembly & Test (Shanghai) Co., Ltd.: | | | |
Term loan, LIBOR plus 1.60%, due March 2022 | 28,000 | | | 29,000 | |
Term loan, LIBOR Plus 1.40%, due March 2022 | 18,250 | | | 19,250 | |
Other: | | | |
$250 million senior secured revolving credit facility, LIBOR plus 1.25%-1.75%, due July 2023 (Singapore) (8) | 0 | | | 0 | |
Credit facility, TAIFX plus the applicable bank rate, due December 2024 (Taiwan) (9) | 0 | | | 20,000 | |
| 1,164,302 | | | 1,460,351 | |
Less: Unamortized discount and deferred debt costs, net | (9,956) | | | (10,117) | |
Less: Short-term borrowings and current portion of long-term debt | (149,007) | | | (144,479) | |
Long-term debt | $ | 1,005,339 | | | $ | 1,305,755 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Debt of Amkor Technology, Inc.: | | | |
Senior notes: | | | |
6.375% Senior notes, due October 2022 (1) | $ | — |
| | $ | 524,971 |
|
6.625% Senior notes, due September 2027 (1) | 525,000 |
| | — |
|
Debt of subsidiaries: | | | |
Amkor Technology Korea, Inc.: | | | |
$30 million revolving credit facility, LIBOR plus the applicable bank rate, due October 2020 (2) | — |
| | — |
|
Term loan, fixed rate at 3.70%, due May 2020 (3)(5) | — |
| | 120,000 |
|
Term loan, fund floating rate plus 1.60%, due June 2020 (4) (5) (6) | 24,000 |
| | 125,000 |
|
Term loan, applicable bank rate plus 2.03%, due July 2022 (5) | 40,000 |
| | — |
|
Term loan, applicable bank rate plus 2.03%, due September 2022 (5) | 60,000 |
| | — |
|
Term loan, LIBOR plus 2.56%, due December 2023 | 200,000 |
| | 200,000 |
|
Term loan, applicable bank rate plus 1.98%, due December 2028 (6) | 66,000 |
| | 24,000 |
|
Amkor Technology Japan, Inc.: |
|
| |
|
|
Short-term term loans, variable rate (7) | 7,071 |
| | 8,232 |
|
Term loan, fixed rate at 0.86%, due June 2022 | 23,018 |
| | 31,908 |
|
Term loan, fixed rate at 0.60%, due July 2022 | 5,064 |
| | 6,838 |
|
Term loan, fixed rate at 1.30%, due July 2023 | 179,541 |
| | 225,180 |
|
Term loan, fixed rate at 1.35%, due December 2024 (8) | 262,407 |
| | — |
|
Amkor Assembly & Test (Shanghai) Co., Ltd.: | | | |
Term loan, LIBOR plus 1.80%, due December 2019 (9) | — |
| | 48,000 |
|
Term loan, LIBOR plus 1.60%, due March 2022 (9) | 29,000 |
| | — |
|
Term loan, LIBOR Plus 1.40%, due March 2022 (9) | 19,250 |
| | — |
|
Other: | | | |
$250 million senior secured revolving credit facility, LIBOR plus 1.25%-1.75%, due July 2023 (Singapore) (8) (10) | — |
| | — |
|
Revolving credit facility, TAIFX plus the applicable bank rate, due November 2020 (Taiwan) (11) | — |
| | 20,000 |
|
Revolving credit facility, TAIFX plus the applicable bank rate, due December 2024 (Taiwan) (11) | 20,000 |
| | — |
|
| 1,460,351 |
| | 1,334,129 |
|
Less: Unamortized premium, discount and deferred debt costs, net | (10,117 | ) | | (1,818 | ) |
Less: Short-term borrowings and current portion of long-term debt | (144,479 | ) | | (114,579 | ) |
Long-term debt | $ | 1,305,755 |
| | $ | 1,217,732 |
|
(1)In October 2020, we renewed this revolving credit facility agreement for a one-year term with availability of $30.0 million. Principal is payable at maturity, six months after draw of funds, and interest is payable monthly in arrears. During the year ended December 31, 2020, we borrowed $60.0 million and repaid the full $60.0 million. As of December 31, 2020, $30.0 million was available to be drawn.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
| |
(1) | In April 2019, we redeemed the outstanding $525.0 million aggregate principal amount of our 6.375% Senior Notes due 2022 (“2022 Notes”). In accordance with the terms of the indenture governing the 2022 Notes, the redemption price was 101.594% of the principal amount of the 2022 Notes plus accrued and unpaid interest. We recorded an $8.4 million loss on extinguishment related to the call premium paid and other debt related costs associated with the 2022 Notes. The redemption of the 2022 Notes was funded with net proceeds from our issuance of $525.0 million of 6.625% Senior Notes due September 2027 (“2027 Notes”) in March 2019, together with cash on hand. The 2027 Notes were issued at a discount of 99.5% or $2.6 million and are senior unsecured obligations. Interest is payable semiannually on March 15 and September 15 of each year, commencing September 15, 2019. We incurred $3.6 million of debt issuance costs associated with the 2027 Notes. |
| |
(2) | In October 2019, we renewed our revolving credit facility agreement with availability of $30.0 million. Interest is payable monthly in arrears. Principal will be payable at the maturity date of October 2020. As of December 31, 2019, $30.0(2)In May 2020, we entered into a KRW ₩60 billion term loan agreement with the option to re-borrow the funds through May 2021. Principal is payable at maturity and interest is payable monthly in arrears, at a fixed rate of 1.80%. During the year ended December 31, 2020, we borrowed and repaid ₩60 billion ($48.4 million). As of December 31, 2020, ₩60 billion, or approximately $55 million, was available to be drawn. (3)In July 2019, we entered into a $140.0 million term loan due September 2022. Principal is payable at maturity, and interest is payable quarterly in arrears. During the year ended December 31, 2020, we borrowed $80.0 million available under this loan and repaid the full $140.0 million. (4)In April 2020, we borrowed KRW ₩150 billion (US$122.0 million) under a new term loan due April 2023. Principal is payable at maturity and interest is payable monthly in arrears. During the year ended December 31, 2020, we repaid KRW ₩94 billion ($86.0 million). (5)In December 2018, we entered into a term loan agreement pursuant to which we may borrow up to $90.0 million for capital expenditures. Principal is payable in semiannual installments and interest is payable quarterly in arrears (fixed at a weighted average of 3.88% as of December 31, 2020). (6)We entered into various short-term term loans which mature semiannually. Principal and interest are payable in monthly installments. As of December 31, 2020, $4.8 million was available to be drawn. (7)In December 2020, we borrowed ¥10.9 billion (US$105.0 million) under a new term loan agreement due December 2025, guaranteed by Amkor Technology, Inc. and our subsidiary, Amkor Technology Singapore Holding Pte, Ltd. Principal is due in 20 equal, quarterly installments plus accrued interest, through maturity. (8)In July 2018, our subsidiary, Amkor Technology Singapore Holding Pte, Ltd., entered into a $250.0 million senior secured revolving credit facility, which is guaranteed by Amkor Technology, Inc. The availability for our revolving credit facility is based on the amount of eligible accounts receivable. Principal is payable at maturity. During the year ended December 31, 2020, we borrowed and repaid $150.0 million. As of December 31, 2020, $250.0 million was available to be drawn. (9)In December 2019, we entered into a $56.0 million borrowing arrangement. This arrangement includes a $20.0 million term loan and a $36.0 million revolving credit facility. During the year ended December 31, 2020, we borrowed $72.0 million and repaid $92.0 million. As of December 31, 2020, $36.0 million was available to be drawn. |
| |
(3) | In May 2017, we entered into a $120.0 million term loan agreement due May 2020. During 2019, we repaid all $120.0 million of the outstanding balance of this term loan. |
| |
(4) | In May 2015, we entered into a term loan agreement pursuant to which we may borrow up to $150.0 million for capital expenditures. Principal is payable at maturity in June 2020. Interest is payable quarterly in arrears. During 2019, we repaid $101.0 million of the outstanding balance of this term loan. In February 2020, we repaid the remaining $24.0 million of the outstanding balance. |
| |
(5) | In July 2019, we entered into an agreement pursuant to which we may borrow up to $180.0 million for purchases of materials through 2 term loans. Principal is payable at maturity and interest is payable quarterly in arrears. |
We borrowed the full balance of $40.0 million under the first term loan in July 2019 to repay $40.0 million of the outstanding balance for the term loan due May 2020. This term loan bears interest at a fixed rate of 3.80% and has a maturity date of July 2022.
We borrowed $60.0 million under the second term loan in September 2019 to repay part of the term loan due June 2020. The $60.0 million borrowing under the second term loan bears interest at a fixed rate of 3.59% and has a maturity date of September 2022. As of December 31, 2019, $80.0 million was available to be drawn under the second term loan.
| |
(6) | In December 2018, we entered into a term loan agreement pursuant to which we may borrow up to $90.0 million for capital expenditures. During 2019, we borrowed $42.0 million of this term loan and used the proceeds to repay part of the term loan due June 2020. Principal of this term loan is payable in semiannual installments beginning June 2022 and ending at maturity in December 2028. Interest is fixed at 4.5% and is payable quarterly in arrears. As of December 31, 2019, $24.0 million was available to be drawn. In February 2020, we used the remaining $24.0 million to repay, in full, the term loan due June 2020. |
| |
(7) | We entered into various short-term loans which mature semiannually. Principal is payable in monthly installments. As of December 31, 2019, $6.0 million was available to be drawn. |
| |
(8) | In December 2019, we entered into a ¥28.5 billion (US$260.6 million) term loan agreement due December 2024, guaranteed by Amkor Technology Inc. and our subsidiary, Amkor Technology Singapore Holding Pte, Ltd. Principal is due in 20 equal, quarterly installments plus accrued interest, through maturity. We immediately drew down $260.6 million. In December 2019, we used the proceeds to pay down $80.0 million of the senior secured revolving credit facility due July 2023. In January 2020, we also used these proceeds to repay $120.0 million of our term loan due December 2023. The remaining proceeds will be used for other general corporate purposes. |
| |
(9) | In December 2016, we entered into a $50.0 million term loan agreement. Principal is payable in semiannual installments of $0.5 million, with the remaining balance due at maturity in December 2019. Interest is payable quarterly. During the twelve months ended December 31, 2019, we repaid the entire $48.0 million outstanding balance of this term loan using the proceeds from our term loans due March 2022. |
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
In March 2019, we entered into a $30.0 million term loan agreement due March 2022. We borrowed $30.0 million under this term loan and used the proceeds to repay part of the term loan due December 2019. Principal is payable in semiannual installments of $0.5 million, with the remaining balance due at maturity. Interest is payable quarterly.
In April 2019, we entered into a term loan agreement with availability of $20.0 million due March 2022. We borrowed $20.0 million under this term loan and used the proceeds to repay part of the term loan due December 2019. Principal is payable in semiannual installments of $0.5 million, with the remaining balance due at maturity. Interest is payable quarterly.
| |
(10) | In July 2018, the senior secured revolving credit facility of Amkor Technology, Inc. was terminated and replaced by a new facility due July 2023 entered into by our subsidiary, Amkor Technology Singapore Holding Pte, Ltd., and guaranteed by Amkor Technology, Inc. We recorded a $0.4 million charge for the write-off of the associated unamortized debt issuance costs relating to the terminated credit facility. The availability for the new revolving credit facility is based on the amount of eligible accounts receivable. As of December 31, 2019, $250.0 million was available to be drawn. |
| |
(11) | In November 2015, we entered into a $39.0 million revolving credit facility due November 2020. In December 2019, we entered into a $56.0 million revolving credit facility due December 2024 to replace the $39.0 million revolving credit facility. We immediately drew $20.0 million to repay the credit facility due November 2020. Principal is payable at maturity. As of December 31, 2019, $36.0 million was available to be drawn under the credit facility due December 2024. |
Certain of our foreign debt is collateralized by the land, buildings, equipment and accounts receivable in the respective locations. The carrying value of all collateral exceeds the carrying amount of the collateralized debt.
Interest Rates
Interest is payable semiannually on our senior notes and quarterly or monthly on our other fixed- and variable-rate debt. Refer to the table above for the interest rates on our fixed-rate debt and to the table below for the interest rates on our variable-rate debt.
|
| | | | | |
| December 31, |
| 2019 | | 2018 |
Amkor Technology Korea, Inc.: | | | |
Term Loan, fund floating rate plus 1.60%, due June 2020 | 3.90 | % | | 4.49 | % |
Term loan, LIBOR plus 2.56%, due December 2023 | 4.49 | % | | 5.38 | % |
Amkor Technology Japan, Inc: | | | |
Short-term term loans, variable rate | 0.22 | % | | 0.24 | % |
Amkor Assembly & Test (Shanghai) Co., Ltd.: | | | |
Term loan, LIBOR plus 1.80%, due December 2019 | — |
| | 4.22 | % |
Term loan, LIBOR plus 1.60%, due March 2022 | 3.53 | % | | — |
|
Term loan, LIBOR Plus 1.40%, due March 2022 | 3.30 | % | | — |
|
Amkor Technology Taiwan Ltd.: | | | |
Revolving credit facility, TAIFX plus the applicable bank rate, due November 2020 | — | % | | 4.26 |
|
Revolving credit facility, TAIFX plus the applicable bank rate, due December 2024 | 3.35 | % | | — |
|
76
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
Amkor Technology Korea, Inc.: | | | |
Term loan, fund floating rate plus 1.60%, due June 2020 | — | | | 3.90 | % |
Term loan, applicable bank rate plus 1.77%, due April 2023 | 2.40 | % | | — | |
Term loan, LIBOR plus 2.56%, due December 2023 | — | | | 4.49 | % |
Amkor Technology Japan, Inc: | | | |
Short-term term loans, variable rate | 0.27 | % | | 0.22 | % |
Amkor Assembly & Test (Shanghai) Co., Ltd.: | | | |
Term loan, LIBOR plus 1.60%, due March 2022 | 1.83 | % | | 3.53 | % |
Term loan, LIBOR Plus 1.40%, due March 2022 | 1.63 | % | | 3.30 | % |
Amkor Technology Taiwan Ltd.: | | | |
Revolving credit facility, TAIFX plus the applicable bank rate, due December 2024 | — | | | 3.35 | % |
Compliance with Debt Covenants
The debt of Amkor Technology, Inc. is structurally subordinated in right of payment to all existing and future debt and other liabilities of our subsidiaries. From time to time, Amkor Technology, Inc. and Amkor Technology Singapore Holding Pte, Ltd. guarantee certain debt of our subsidiaries. The agreements governing our indebtedness contain affirmative negative and financialnegative covenants which restrict our ability to pay dividends and could restrict our operations. We have never paid a dividend toThese restrictions are determined in part by calculations based upon cumulative net income or, in the case of our stockholdersSingapore Revolver, borrowing availability, and we do not currently have any present plans for doing so. a material impact on our ability to make dividend payments or stock repurchases.
We were in compliance with all debt covenants at December 31, 20192020 and 2018.2019.
Maturities
| | | | | |
| Total Debt |
| (In thousands) |
Payments due for the year ending December 31, | |
2021 | $ | 149,007 | |
2022 | 182,373 | |
2023 | 170,776 | |
2024 | 81,461 | |
2025 | 27,400 | |
Thereafter | 553,285 | |
Total debt | $ | 1,164,302 | |
|
| | | |
| Total Debt |
| (In thousands) |
Payments due for the year ending December 31, | |
2020 | $ | 144,479 |
|
2021 | 113,408 |
|
2022 | 260,022 |
|
2023 | 297,818 |
|
2024 | 81,910 |
|
Thereafter | 562,714 |
|
Total debt | $ | 1,460,351 |
|
13.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
12. Pension and Severance Plans
Korean Severance Plan
Our subsidiary in Korea maintains an unfunded severance plan that covers certain employees that were employed prior to August 1, 2015. To the extent eligible employees are terminated, our subsidiary in Korea would be required to make lump-sum severance payments on behalf of these eligible employees for service provided prior to August 1, 2015. Factors used to determine severance benefits include employees’ length of service, seniority and rate of pay. The employees’ length of service and seniority are fixed as of July 31, 2015. The employees’ rate of pay is adjusted to the rate of pay at the time of termination. Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date. Our contributions to the National Pension Plan of the Republic of Korea are deducted from accrued severance benefit liabilities. On August 1, 2015, our subsidiary in Korea began sponsoring a defined benefit pension plan and a defined contribution plan. Existing employees at that time were given the option of choosing either a defined benefit pension plan or a defined contribution plan for their future benefits and new employees since that date are enrolled in a defined contribution plan.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The changes to the balance of our accrued severance plan obligations are as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Balance at January 1 | $ | 127,547 | | | $ | 142,298 | | | $ | 153,920 | |
Provision of severance benefits | 6,542 | | | 1,306 | | | 1,939 | |
Severance payments (1) | (42,457) | | | (10,659) | | | (7,611) | |
Foreign currency (gain) loss | 6,530 | | | (5,398) | | | (5,950) | |
Balance at December 31 | 98,162 | | | 127,547 | | | 142,298 | |
Payments remaining with the National Pension Fund | (158) | | | (161) | | | (172) | |
Total accrued severance plan obligations at December 31 | 98,004 | | | 127,386 | | | 142,126 | |
Less current portion of accrued severance plan obligations (Note 10) | 10,837 | | | 13,408 | | | 13,179 | |
Non-current portion of accrued severance plan obligations | $ | 87,167 | | | $ | 113,978 | | | $ | 128,947 | |
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Balance at January 1 | $ | 142,298 |
| | $ | 153,920 |
| | $ | 136,396 |
|
Provision of severance benefits | 1,306 |
| | 1,939 |
| | 11,714 |
|
Severance payments | (10,659 | ) | | (7,611 | ) | | (11,787 | ) |
Foreign currency (gain) loss | (5,398 | ) | | (5,950 | ) | | 17,597 |
|
Balance at December 31 | 127,547 |
| | 142,298 |
| | 153,920 |
|
Payments remaining with the National Pension Fund | (161 | ) | | (172 | ) | | (185 | ) |
Total accrued severance plan obligations at December 31 | 127,386 |
| | 142,126 |
| | 153,735 |
|
Less current portion of accrued severance plan obligations (Note 11) | 13,408 |
| | 13,179 |
| | 15,190 |
|
Non-current portion of accrued severance plan obligations | $ | 113,978 |
| | $ | 128,947 |
| | $ | 138,545 |
|
(1)In 2020, some employees accepted our offer to convert their Korean severance plan participation to a defined contribution plan.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
Foreign Defined Benefit Pension Plans
Our subsidiaries in Japan, Korea, Malaysia, the Philippines and Taiwan sponsor defined benefit plans (the “Plans”). Charges to expense are based upon actuarial analyses. The following table summarizes the changes to the Plans’ benefit obligations, fair value of the Plans’ assets and the funded status of the Plans at December 31, 20192020 and 2018:2019:
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 |
| (In thousands) |
Change in projected benefit obligation: | | | |
Projected benefit obligation at January 1 | $ | 207,448 | | | $ | 175,712 | |
Service cost | 29,848 | | | 31,355 | |
Interest cost | 4,980 | | | 5,244 | |
Benefits paid | (8,380) | | | (11,742) | |
Actuarial (gain) loss | 6,104 | | | 12,540 | |
| | | |
| | | |
| | | |
Effects of curtailment | (2,410) | | | 0 | |
Settlement (1) | (31,804) | | | (5,310) | |
Foreign exchange (gain) loss | 16,723 | | | (351) | |
Projected benefit obligation at December 31 | 222,509 | | | 207,448 | |
Change in plan assets: | | | |
Fair value of plan assets at January 1 | 145,158 | | | 123,370 | |
Actual gain (loss) on plan assets | 11,400 | | | 12,221 | |
Employer contributions | 25,080 | | | 27,134 | |
| | | |
Settlement (1) | (31,804) | | | (5,310) | |
Benefits paid | (8,380) | | | (11,742) | |
Foreign exchange gain (loss) | 13,757 | | | (515) | |
Fair value of plan assets at December 31 | 155,211 | | | 145,158 | |
Funded status of the Plans at December 31 | $ | (67,298) | | | $ | (62,290) | |
|
| | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 |
| (In thousands) |
Change in projected benefit obligation: | | | |
Projected benefit obligation at January 1 | $ | 175,712 |
| | $ | 158,466 |
|
Service cost | 31,355 |
| | 32,913 |
|
Interest cost | 5,244 |
| | 4,867 |
|
Benefits paid | (11,742 | ) | | (6,137 | ) |
Actuarial (gain) loss | 12,540 |
| | (5,991 | ) |
Settlement | (5,310 | ) | | (5,055 | ) |
Foreign exchange (gain) loss | (351 | ) | | (3,351 | ) |
Projected benefit obligation at December 31 | 207,448 |
| | 175,712 |
|
Change in plan assets: | | | |
Fair value of plan assets at January 1 | 123,370 |
| | 115,725 |
|
Actual gain (loss) on plan assets | 12,221 |
| | (4,210 | ) |
Employer contributions | 27,134 |
| | 26,899 |
|
Settlement | (5,310 | ) | | (5,055 | ) |
Benefits paid | (11,742 | ) | | (6,137 | ) |
Foreign exchange gain (loss) | (515 | ) | | (3,852 | ) |
Fair value of plan assets at December 31 | 145,158 |
| | 123,370 |
|
Funded status of the Plans at December 31 | $ | (62,290 | ) | | $ | (52,342 | ) |
(1)In 2020, some employees accepted our offer to convert their defined benefit pension plan participation to a defined contribution plan.
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands) |
Amounts recognized in the Consolidated Balance Sheets consist of: | | | |
Prepaid benefit cost (included in non-current assets) | $ | 4,856 | | | $ | 498 | |
Accrued benefit liability (included in pension and severance obligations) | (72,154) | | | (62,788) | |
Net amount recognized at year end | $ | (67,298) | | | $ | (62,290) | |
The accumulated benefit obligation as of December 31, 2020 and 2019 was $164.7 million and $154.7 million, respectively.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Amounts recognized in the Consolidated Balance Sheets consist of: | | | |
Prepaid benefit cost (included in non-current assets) | $ | 498 |
| | $ | 2,740 |
|
Accrued benefit liability (included in pension and severance obligations) | (62,788 | ) | | (55,082 | ) |
Net amount recognized at year end | $ | (62,290 | ) | | $ | (52,342 | ) |
The accumulated benefit obligation as of December 31, 2019 and 2018 was $154.7 million and $132.9 million, respectively.
The following table summarizes, by component, the change in accumulated other comprehensive income (loss), net of tax related to our Plans:
| | | | | | | | | | | | | | | | | |
| Prior Service Cost | | Actuarial Net Gain (Loss) | | Total |
| (In thousands) |
Balance at December 31, 2018 | $ | 602 | | | $ | 2,057 | | | $ | 2,659 | |
Amortization and settlement gain included in net periodic pension cost | 0 | | | (589) | | | (589) | |
Net gain (loss) arising during period | 0 | | | (6,890) | | | (6,890) | |
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income (loss) | 0 | | | (7,479) | | | (7,479) | |
Balance at December 31, 2019 | 602 | | | (5,422) | | | (4,820) | |
Amortization and settlement gain included in net periodic pension cost | 0 | | | 208 | | | 208 | |
Net gain (loss) arising during period | 0 | | | 394 | | | 394 | |
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income (loss) | 0 | | | 602 | | | 602 | |
Balance at December 31, 2020 | $ | 602 | | | $ | (4,820) | | | $ | (4,218) | |
|
| | | | | | | | | | | |
| Prior Service Cost | | Actuarial Net Gain (Loss) | | Total |
| (In thousands) |
Balance at December 31, 2017 | $ | 603 |
| | $ | 5,700 |
| | $ | 6,303 |
|
Amortization included in net periodic pension cost | (1 | ) | | (1,735 | ) | | (1,736 | ) |
Net gain (loss) arising during period | — |
| | (1,908 | ) | | (1,908 | ) |
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income (loss) | (1 | ) | | (3,643 | ) | | (3,644 | ) |
Balance at December 31, 2018 | 602 |
| | 2,057 |
| | 2,659 |
|
Amortization and settlement gain included in net periodic pension cost | — |
| | (589 | ) | | (589 | ) |
Net gain (loss) arising during period | — |
| | (6,890 | ) | | (6,890 | ) |
Adjustments to unrealized components of defined benefit pension plan included in other comprehensive income (loss) | — |
| | (7,479 | ) | | (7,479 | ) |
Balance at December 31, 2019 | $ | 602 |
| | $ | (5,422 | ) | | $ | (4,820 | ) |
Estimated amortization of cost to be included in 2020 net periodic pension cost | $ | — |
| | $ | 59 |
| | $ | 59 |
|
Information for pension plans with benefit obligations in excess of plan assets is as follows:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| (In thousands) |
Plans with underfunded or non-funded projected benefit obligation: | | | |
Aggregate projected benefit obligation | $ | 140,424 | | | $ | 197,377 | |
Aggregate fair value of plan assets | 68,270 | | | 134,589 | |
Plans with underfunded or non-funded accumulated benefit obligation: | | | |
Aggregate accumulated benefit obligation | 76,426 | | | 71,059 | |
Aggregate fair value of plan assets | 25,292 | | | 24,043 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Plans with underfunded or non-funded projected benefit obligation: | | | |
Aggregate projected benefit obligation | $ | 197,377 |
| | $ | 135,967 |
|
Aggregate fair value of plan assets | 134,589 |
| | 80,885 |
|
Plans with underfunded or non-funded accumulated benefit obligation: | | | |
Aggregate accumulated benefit obligation | 71,059 |
| | 63,274 |
|
Aggregate fair value of plan assets | 24,043 |
| | 20,094 |
|
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes total pension expense:
|
| | | | | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
| (In thousands) |
Components of net periodic pension cost and total pension expense: | | | | | |
Service cost | $ | 31,355 |
| | $ | 32,913 |
| | $ | 33,823 |
|
Interest cost | 5,244 |
| | 4,867 |
| | 4,067 |
|
Expected return on plan assets | (6,412 | ) | | (5,640 | ) | | (4,537 | ) |
Amortization of prior service cost | — |
| | 6 |
| | 30 |
|
Recognized actuarial (gain) loss | (374 | ) | | (147 | ) | | 84 |
|
Net periodic pension cost | 29,813 |
| | 31,999 |
| | 33,467 |
|
Curtailment loss | — |
| | — |
| | 574 |
|
Settlement (gain) loss | (210 | ) | | (1,639 | ) | | 383 |
|
Total pension expense | $ | 29,603 |
| | $ | 30,360 |
| | $ | 34,424 |
|
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| (In thousands) |
Components of net periodic pension cost and total pension expense: | | | | | |
Service cost | $ | 29,848 | | | $ | 31,355 | | | $ | 32,913 | |
Interest cost | 4,980 | | | 5,244 | | | 4,867 | |
Expected return on plan assets | (5,506) | | | (6,412) | | | (5,640) | |
Amortization of prior service cost | 0 | | | 0 | | | 6 | |
Recognized actuarial (gain) loss | 56 | | | (374) | | | (147) | |
Net periodic pension cost | 29,378 | | | 29,813 | | | 31,999 | |
| | | | | |
Settlement (gain) loss | 62 | | | (210) | | | (1,639) | |
Total pension expense | $ | 29,440 | | | $ | 29,603 | | | $ | 30,360 | |
The components of net periodic pension cost other than the service cost component are included in other (income) expense, net in our Consolidated Statements of Income.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The following table summarizes the weighted-average assumptions used in computing the net periodic pension cost and projected benefit obligations:
|
| | | | | | | | |
| For the Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Discount rate for determining net periodic pension cost | 3.1 | % | | 3.2 | % | | 3.1 | % |
Discount rate for determining benefit obligations at December 31 | 2.5 | % | | 3.1 | % | | 3.2 | % |
Rate of compensation increase for determining net periodic pension cost | 3.6 | % | | 3.8 | % | | 3.8 | % |
Rate of compensation increase for determining benefit obligations at December 31 | 3.7 | % | | 3.6 | % | | 3.8 | % |
Expected rate of return on plan assets for determining net periodic pension cost | 5.1 | % | | 4.9 | % | | 4.9 | % |
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Discount rate for determining net periodic pension cost | 2.5 | % | | 3.1 | % | | 3.2 | % |
Discount rate for determining benefit obligations at December 31 | 2.3 | % | | 2.5 | % | | 3.1 | % |
Rate of compensation increase for determining net periodic pension cost | 3.7 | % | | 3.6 | % | | 3.8 | % |
Rate of compensation increase for determining benefit obligations at December 31 | 3.7 | % | | 3.7 | % | | 3.6 | % |
Expected rate of return on plan assets for determining net periodic pension cost | 3.8 | % | | 5.1 | % | | 4.9 | % |
The measurement date for determining the Plans’ assets and benefit obligations is December 31, each year. Discount rates are generally derived from yield curves constructed from high-quality corporate or foreign government bonds, for which the timing and amount of cash outflows approximate the estimated payouts.
The expected rate of return assumption is based on weighted-average expected returns for each asset class. Expected returns reflect a combination of historical performance analysis and the forward-looking views of the financial markets and include input from our actuaries. We have no control over the direction of our investments in our defined benefit plans in Taiwan as the local Labor Standards Law Fund mandates such contributions into a cash account balance at the Bank of Taiwan. Our defined benefit pension plan in Malaysia is a non-funded plan, and as such, no asset exists related to this plan. Our investment strategies for our defined benefit plans in Japan, Korea and the Philippines, are based on long-term, sustained asset growth through low to medium risk investments. The current rate of return assumption targets are based on asset allocation strategies as follows:
| | | | | | | | | | | | | | | | | |
| Allocation |
| Debt | | Equity | | Other |
Japan defined benefit plan | 65 | % | | 33 | % | | 2 | % |
Korea defined benefit plan | 15 | % | | 40 | % | | 45 | % |
Philippine defined benefit plan | 40 | % | | 50 | % | | 10 | % |
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
|
| | | | | | | | |
| Allocation |
| Debt | | Equity | | Other |
Japan defined benefit plan | 65 | % | | 33 | % | | 2 | % |
Korea defined benefit plan | 15 | % | | 40 | % | | 45 | % |
Philippine defined benefit plan | 40 | % | | 50 | % | | 10 | % |
The fair value of our pension plan assets, by asset category utilizing the fair value hierarchy as discussed in Note 16, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 (1) |
| Level 1 | | Level 2 | | | | Total | | Level 1 | | Level 2 | | | Total |
| (In thousands) | | (In thousands) |
Cash and cash equivalents | $ | 1,219 | | | $ | 0 | | | | | $ | 1,219 | | | $ | 3,572 | | | $ | 0 | | | | $ | 3,572 | |
Equity securities | 16,071 | | | 0 | | | | | 16,071 | | | 24,342 | | | 0 | | | | 24,342 | |
Debt securities | | | | | | | | | | | | | | |
Government bonds | 6,571 | | | 0 | | | | | 6,571 | | | 3,106 | | | 0 | | | | 3,106 | |
| | | | | | | | | | | | | | |
Treasury notes | 8,069 | | | 0 | | | | | 8,069 | | | 3,516 | | | 0 | | | | 3,516 | |
Mutual and commingled funds | | | | | | | | | | | | | | |
Equity funds | 38,939 | | | 7,530 | | | | | 46,469 | | | 30,801 | | | 6,902 | | | | 37,703 | |
Debt funds | 13,720 | | | 17,268 | | | | | 30,988 | | | 11,404 | | | 15,276 | | | | 26,680 | |
Guaranteed investment contracts | 0 | | | 34,281 | | | | | 34,281 | | | 0 | | | 33,931 | | | | 33,931 | |
Taiwan retirement fund | 12,748 | | | 0 | | | | | 12,748 | | | 11,359 | | | 0 | | | | 11,359 | |
Other, net | (2,365) | | | 1,160 | | | | | (1,205) | | | 99 | | | 850 | | | | 949 | |
Total fair value of pension plan assets | $ | 94,972 | | | $ | 60,239 | | | | | $ | 155,211 | | | $ | 88,199 | | | $ | 56,959 | | | | $ | 145,158 | |
|
| | | | | | | |
| December 31, |
| 2019 | | 2018 |
| (In thousands) |
Cash and cash equivalents (Level 1) | $ | 3,614 |
| | $ | 6,640 |
|
Equity securities | | | |
U.S. securities (Level 1) | 19,276 |
| | 15,069 |
|
U.S. securities (Level 2) | 2 |
| | — |
|
Foreign securities (Level 1) | 11,854 |
| | 10,162 |
|
Foreign securities (Level 2) | 28 |
| | — |
|
Foreign mutual funds (Level 1) | 30,801 |
| | 25,236 |
|
| 61,961 |
| | 50,467 |
|
Debt securities | | | |
U.S. government bonds (Level 2) | 1,442 |
| | 1,039 |
|
U.S. corporate bonds (Level 2) | 31 |
| | 29 |
|
Foreign government bonds (Level 1) | 3,338 |
| | 4,427 |
|
Foreign government bonds (Level 2) | 9,821 |
| | 9,545 |
|
Foreign corporate bonds (Level 1) | 379 |
| | 5,713 |
|
Foreign corporate bonds (Level 2) | 5,249 |
| | 1,951 |
|
Foreign treasury notes (Level 1) | 3,516 |
| | 2,587 |
|
Foreign mutual funds (Level 1) | 11,404 |
| | 11,188 |
|
| 35,180 |
| | 36,479 |
|
Foreign guaranteed investment contracts (Level 2) | 33,931 |
| | 18,120 |
|
Taiwan retirement fund (Level 1) | 11,359 |
| | 10,451 |
|
Other, net (Level 1) | 99 |
| | 680 |
|
Other, net (Level 2) | (986 | ) | | 533 |
|
Total fair value of pension plan assets | $ | 145,158 |
| | $ | 123,370 |
|
(1)In the current year, plan assets were categorized at the fund level rather than the underlying individual investment of the fund. Prior year amounts were reclassified to conform to current year presentation.
The Taiwan retirement fund category of our plan assets represents accounts that our subsidiaries in Taiwan have in a government labor retirement fund in the custody of the Bank of Taiwan. The accounts earn a minimum guaranteed rate of return and are invested in a mix of cash, domestic and foreign equity securities and domestic and foreign debt securities.
We expect to make contributions of approximately $23 million during 2020.2021. We closely monitor the funded status of the Plans with respect to legislative requirements. We intend to make at least the minimum contribution required by law each year.
AMKOR TECHNOLOGY, INC.
Notes to Consolidated Financial Statements — (Continued)
The estimated future benefit payments related to our foreign defined benefit plans are as follows:
| | | | | |
| Payments |
| (In thousands) |
2021 | $ | 13,482 | |
2022 | 11,299 | |
2023 | 13,528 | |
2024 | 14,894 | |
2025 | 18,252 | |
2026 to 2030 | 125,576 | |
|
| | | |
| Payments |
| (In thousands) |
2020 | $ | 9,569 |
|
2021 | 11,780 |
|
2022 | 13,093 |
|
2023 | 15,573 |
|
2024 | 18,584 |
|
2025 to 2029 | 137,242 |
|
We sponsor defined contribution plans in Korea, Malaysia, Taiwan and the U.S. Total defined contribution expense was $16.5 million, $13.6 million and $12.2 million for 2020, 2019 and $10.4 million for 2019, 2018, and 2017, respectively.
The following table reflects the changes in accumulated other comprehensive income (loss), net of tax: