Overview
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 advanced packaging
and test technologies. We believe these advanced technology solutions provide
substantial value to our customers, particularly in the mobile communications
market, where growth generally outpaces the overall semiconductor 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. Interest in advanced
packages for automotive applications 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 to deepen our engagement with
existing customers. This includes an expanded emphasis on the automotive and
industrial 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. 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. Historical trends indicate there has been a
strong correlation between worldwide 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 cannot predict the timing, strength or duration of any
correction, economic slowdown or subsequent economic recovery.
The full potential effect of the ongoing Covid-19 pandemic is unknown, and there
remains uncertainty related to the ultimate impact that the Covid-19 pandemic
will have on the global economy, the semiconductor industry and our business,
results of operations and financial condition. While our revenue increased
significantly in the three months ended
successfully ramp new products, we are subject to industry-wide supply
constraints, and these constraints had the effect of restraining growth in some
of the end markets we serve. We expect these constraints to persist into 2022.
For additional information regarding the potential impact of macroeconomic
factors, the Covid-19 pandemic and other risks on our business, results of
operations and financial condition, please refer to the "Risk Factors" section
in Part II, Item 1A.
We operate in a capital-intensive 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. As of
and short-term investments of
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Our net sales, gross 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 the
"Risk Factors" section in Part II, Item 1A of this Form 10-Q.
Financial Summary
Our net sales increased
three months ended
three months ended
to higher sales in all end markets.
Gross margin for the three months ended
compared to 17.8% for the three months ended
gross margin was primarily due to the increase in net sales and improved factory
utilization, partially offset by an increase in the mix of products sold with
higher material content.
Our capital expenditures totaled
advanced packaging and test equipment.
Net cash provided by operating activities was
ended
higher operating profit, partially offset by changes in working capital.
Results of Operations
The following table sets forth certain operating data as a percentage of net
sales for the periods indicated:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 2021 2020
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Materials 48.3 % 46.9 % 45.6 % 45.8 %
Labor 11.5 % 12.8 % 12.7 % 13.6 %
Other manufacturing costs 20.9 % 22.5 % 22.1 % 23.7 %
Gross margin 19.3 % 17.8 % 19.6 % 16.9 %
Operating income 12.6 % 9.4 % 11.6 % 8.1 %
Net income attributable to Amkor 10.8 % 6.8 % 9.7 % 5.7 %
Net Sales
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In thousands, except percentages)
Net sales
The increase in net sales for the three and nine months ended
compared to the three and nine months ended
sales across all end markets. The increase in sales in the communications end
market was driven primarily by the further adoption of 5G smartphones. The
automotive and industrial end market recovered in the current year from weakened
demand relating to the Covid-19 pandemic in the prior year. The consumer end
market continues to see strong sales primarily due to demand for consumer
wearable products. The computing end market has grown in all applications,
primarily due to the shift in cloud computing needs and new product
introductions within personal computing.
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Gross Margin
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In thousands, except percentages)
Gross profit
Gross margin 19.3 % 17.8 % 1.5 % 19.6 % 16.9 % 2.7 %
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 margin increased for the three and nine months ended
compared to the three and nine months ended
the increase in net sales and improved factory utilization. The increase in the
three months ended
sold with higher material content.
Selling, General and Administrative
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In thousands, except percentages)
Selling, general and
administrative
Selling, general and administrative expenses for the three and nine months ended
factory consolidation efforts in
Research and Development
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In thousands, except percentages)
Research and development
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 for the three and nine months ended
increased compared to the three and nine months ended
new development projects in advanced technologies, primarily advanced
System-in-Package ("SiP") modules.
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Other Income and Expense
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In thousands, except percentages)
Interest expense
(21.4) %
(22.5) %
Interest income (256) (1,016) 760 (74.8) % (765) (4,975) 4,210 (84.6) %
Foreign currency
(gain) loss, net (53) 3,069 (3,122) >(100)% 1,247 6,301 (5,054) (80.2) %
Loss on debt
retirement - 491 (491) (100.0) % - 919 (919) (100.0) %
Other (income)
expense, net (192) (129) (63) 48.8 % (990) (678) (312) 46.0 %
Total other expense,
net
Interest expense decreased for the three and nine months ended
2021
due to the overall decrease in our outstanding debt.
Interest income decreased for the three and nine months ended
compared to the three and nine months ended
lower interest rates in the overall market.
The changes in foreign currency (gain) loss, net for the three and nine months
ended
30, 2020
Won, and the associated impact on our net monetary exposure at our foreign
subsidiaries.
Income Tax Expense
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2021 2020 Change 2021 2020 Change
(In thousands)
Income tax expense
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. Income tax expense increased for the three and nine
months ended
During the nine months ended
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.
Liquidity
We assess our liquidity based on our current expectations regarding sales and
operating expenses, capital spending, dividend payments, 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
expenditures, 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 any stock repurchase program, any acquisitions, joint ventures or
other investments and our ability to either repay debt out of operating cash
flow or refinance it at or prior to maturity with the proceeds from 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 the "Risk Factors" section in Part II, Item 1A of
this Form 10-Q.
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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. Please refer to Note 7 and Note 11 to our
Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q for
additional information on our investments and borrowings, respectively.
As of
investments of
balances as of
foreign subsidiaries. We have the ability to access cash held offshore by our
foreign subsidiaries primarily through the repayment of intercompany debt
obligations. If we were to distribute this offshore cash to the
dividends from our foreign subsidiaries, the dividends generally will not be
subject to
foreign withholding and state income taxes.
For certain accounts receivable, we use non-recourse factoring arrangements with
third-party financial institutions to manage our working capital and cash flows.
Under these arrangements, we sell receivables to a financial institution for
cash at a discount to the face amount. Available capacity under these
arrangements 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 nine months ended
and
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 the Singapore Revolver is limited to the amount of
eligible accounts receivable. As of
2021
borrowings under revolving credit facilities, including the Singapore Revolver,
and
working capital purposes and capital expenditures.
As of
repayments on debt include
million
compliance with all debt covenants at
remain in compliance with these covenants for at least the next twelve months.
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, and do not currently have a material impact on our ability to make
dividend payments or stock repurchases.
The debt of
payment to all existing and future debt and other liabilities of our
subsidiaries. From time to time,
Singapore Holding Pte. Ltd.
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
would be subject to the terms of our indentures and other debt agreements,
market conditions and other factors.
Our subsidiary in
employees that were employed prior to
the severance liability was
estimated assuming all eligible employees were to terminate their employment at
the balance sheet date. For service periods subsequent to
employees participate in either a defined benefit pension plan or a defined
contribution pension plan. From time to time, we may offer employees the option
to convert from the severance plan to the defined contribution plan, which would
require us to fund the converted portion of the liability.
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In
Directors") approved the initiation of a regular quarterly cash dividend of
2021
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 Board of Directors and will depend upon our results of
operations, financial condition, cash requirements, debt restrictions and other
factors.
Our Board of Directors previously adopted a stock repurchase program (the "Stock
Repurchase Program") authorizing the repurchase of up to
common stock, exclusive of any fees, commissions or other expenses. Under 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 Stock Repurchase Program since 2012. At
30, 2021
pursuant to the Stock Repurchase Program.
Capital Resources
We make significant capital expenditures in order to service the demand of our
customers, which are primarily focused on investments in advanced packaging and
test equipment. We expect 2021 capital expenditures to be approximately
million
expenditures totaled
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, equipment lead times 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 the "Risk Factors" section in Part II, Item 1A of
this Form 10-Q under the caption "Capital Expenditures - We Make Substantial
Investments in Equipment and Facilities to Support the Demand of Our Customers,
Which May Adversely Affect Our Business if the Demand of Our Customers Does Not
Develop as We Expect or Is Adversely Affected."
Cash Flows
Net cash provided by (used in) operating, investing and financing activities for
the nine months ended
For the Nine Months Ended September 30,
2021 2020
(In thousands)
Operating activities $ 631,619
Investing activities (636,369) (611,337)
Financing activities (136,648) (153,162)
Operating activities: Our cash flow provided by operating activities for the
nine months ended
nine months ended
higher operating profit, partially offset by changes in working capital.
Investing activities: Our cash flow used in investing activities for the nine
months ended
months ended
property, plant, and equipment and increased net payments for forward contracts,
partially offset by net changes in short-term investment activities. Payments
for property, plant and equipment can fluctuate based on timing of purchase,
receipt and acceptance of equipment.
Financing activities: The net cash used in financing activities for the nine
months ended
activities for the nine months ended
debt repayments in
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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
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,
our ability to fund capital expenditures and our ability to pay dividends and
the amount of dividends to be paid. 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
operating activities. Furthermore, our definition of free cash flow may not be
comparable to similarly titled measures reported by other companies.
For the Nine Months Ended September 30,
2021 2020
(In thousands)
Net cash provided by operating activities
Payments for property, plant and equipment (491,425) (275,531)
Proceeds from sale of property, plant and equipment 2,722 2,710
Free cash flow
Contractual Obligations
The following table summarizes our contractual obligations at
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,
2021 -
Total Remaining 2022 2023 2024 2025 Thereafter
(In thousands)
Total debt
Scheduled interest payment
obligations (1) 228,414 2,207 41,938 39,363 37,202 36,220 71,484
Purchase obligations (2) 346,814 258,442 57,922 23,324 4,917 1,326 883
Operating lease obligations (3) 143,560 16,407 56,001 31,617 14,937 7,808
16,790
Finance lease obligations (3) 81,652 8,320 28,352 24,630 13,211 1,592 5,547
Severance obligations (4) 92,214 2,742 9,404 8,359 7,430 6,618 57,661
Total contractual obligations
(1)Represents interest payment obligations calculated using stated coupon rates
for fixed rate debt and interest rates applicable at
variable rate debt.
(2)Represents off-balance sheet purchase obligations for capital expenditures,
long-term supply contracts and other contractual commitments outstanding at
(3)Represents future minimum lease payments including interest payments.
(4)Represents estimated benefit payments for our Korean subsidiary severance
plan at
to convert their Korean severance plan to a defined contribution plan, which
will reduce our liability under the severance plan and require us to fund the
converted portion of the liability. The conversion is not reflected in the table
above and we expect to fund the converted amount during the fourth quarter of
2021. We refer you to Note 12 to our Consolidated Financial Statements in Part
1, Item 1 of this Form 10-Q for additional information.
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In addition to the obligations identified in the table above, other non-current
liabilities recorded in our Consolidated Balance Sheet at
include:
•$64.1 million of foreign pension plan obligations, for which the timing and
actual amount of impact on our future cash flow is uncertain.
•$31.6 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
off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of
Regulation S-K.
Contingencies, Indemnifications and Guarantees
Please refer to Note 15 to our Consolidated Financial Statements in Part I, Item
1 of this Form 10-Q for a discussion of our contingencies related to litigation
and other legal matters.
Critical Accounting Policies
Our critical accounting policies are disclosed in the 2020 Form 10-
nine months ended
critical accounting policies as reported in the 2020 Form 10-K.
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