Business context and reporting period
Amkor Technology, Inc. filed this Form 10-K for the fiscal year ended December 31, 2012. It provides outsourced semiconductor packaging and test services, principally through operations in Asia. The filing also reports unaudited fourth-quarter results.
Financial performance and liquidity
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Net sales | $2,759.5 million | $2,776.4 million | Down 0.6% |
| Gross profit / margin | $423.8 million / 15.4% | $490.6 million / 17.7% | Margin down 2.3 points |
| Operating income / margin | $152.7 million / 5.5% | $193.7 million / 7.0% | Income down 21% |
| Net income attributable to Amkor | $41.8 million | $91.8 million | Down 54% |
| Operating cash flow | $389.1 million | $516.8 million | Down $127.8 million |
| Free cash flow | $(144.4) million | $50.1 million | Negative in 2012 |
Cash and cash equivalents were $413.0 million and total debt was $1,545.0 million at year-end; none was classified as current. Working capital was $438.8 million. Amkor had $149.7 million available on its $150 million revolving facility, plus stated availability at foreign subsidiaries. The company paid $86.1 million of interest in 2012.
Fourth-quarter 2012 sales were $722.7 million, compared with $683.8 million in fourth-quarter 2011. Net income attributable to Amkor was $7.1 million, versus $24.9 million a year earlier.
Material changes versus prior periods
- Packaging sales fell 2.2% to $2,438.6 million, while test sales rose 13.4% to $321.0 million. Mobile communications supported test and advanced packaging demand; consumer, networking, and automotive/industrial weakness weighed on packaging.
- Gross margin declined amid lower utilization of wirebond capacity, some IDM customers bringing work in-house, and a $50 million Tessera-related charge in cost of sales. Stronger flip-chip, wafer-level, and mobile-related test sales partly offset these pressures.
- Capital additions rose to $533.2 million from $453.0 million. Accounts receivable increased, contributing to lower operating cash flow and negative free cash flow.
- Amkor issued $300 million of 6.375% senior notes due 2022 and used proceeds in part to repay subsidiary debt. Total debt increased from $1,346.7 million in 2011.
Outlook, risks, contingencies, and unusual items
- Management expected 2013 capital additions of approximately $450 million, plus about $150 million in 2013 for land and construction related to a planned Korean factory and R&D center. It expects approximately $300 million in total construction spending over several years. These are plans, not guaranteed outcomes.
- Management said cash, operating cash flow, and available facilities should fund working capital, capital expenditures, and debt service for at least the next 12 months. It was exploring approximately $300 million in additional credit lines.
- The Tessera arbitration remained unresolved. Amkor accrued $56 million for estimated damages and interest in 2012, including $50 million in cost of sales and $6 million in interest expense. Tessera said it would seek more than $150 million; the final award could exceed the accrual. A related U.S. patent lawsuit also remained pending.
- In January 2013, Amkor exercised an option to increase its J-Devices ownership from 30% to 60% for approximately $75 million; closing was expected in April, subject to regulatory approval. Governance restrictions mean the investment would continue to be accounted for under the equity method.
- Key risks include semiconductor cyclicality, high fixed costs and utilization sensitivity, pricing pressure, concentrated customers, substantial debt and scheduled maturities, large capital needs, foreign exchange exposure, tax-holiday expirations, and operational and supply-chain risks. One customer generated 21.3% of 2012 sales; the top ten accounted for 62.2%.
- Amkor reported compliance with debt covenants and effective internal control over financial reporting as of year-end; the independent auditor gave an unqualified opinion on the financial statements and controls.
Most important facts for investors to verify
- Final Tessera arbitration damages, interest, payment timing, and the outcome of the related court case.
- Whether operating cash flow recovers enough to fund planned investment while meeting debt service, including the $250 million due in 2014 and $100 million due in 2015.
- Customer concentration and whether mobile-related demand offsets weakness or insourcing in other markets.
- Actual cost, schedule, financing, and regulatory progress for the Korean facility and the J-Devices ownership increase.
- Effects of tax-holiday expirations, foreign exchange movements, and the Korean severance obligation, reported at $126.5 million.