Amkor Technology, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone Q4 filing; Q4 results are included below. Amkor provides outsourced semiconductor packaging and test services, with operations across Asia and customers in mobile communications, consumer, automotive, industrial, networking and computing markets.
Financial performance
| Metric | 2014 | 2013 | Change / context |
|---|---|---|---|
| Net sales | $3.129 billion | $2.956 billion | Up 5.9% |
| Gross profit / margin | $552.8 million / 17.7% | $544.5 million / 18.4% | Profit rose; margin declined 0.7 percentage points |
| Operating income / margin | $221.5 million / 7.1% | $232.1 million / 7.9% | Operating income fell 4.6% |
| Net income attributable to Amkor | $130.4 million | $109.3 million | Up 19.3% |
| Basic / diluted EPS | $0.56 / $0.55 | $0.58 / $0.50 | Basic EPS decreased; diluted EPS increased |
| Operating cash flow | $613.9 million | $557.5 million | Up $56.4 million |
| Capital expenditures | $681.1 million | $566.3 million | Free cash flow, as defined by Amkor, was negative $67.2 million |
Sales growth was attributed to mobile communications wafer services, a full year of Malaysia power-discrete operations, NAND memory demand and automotive growth. Higher sales and utilization supported gross profit, but the 2014 gross margin included a 2.4-point impact from the Tessera patent settlement charge. Materials costs as a share of sales declined, while other manufacturing costs rose.
Q4 2014: Net sales were $853.1 million versus $754.9 million in Q4 2013; gross profit was $120.1 million versus $150.2 million; operating income was $40.0 million versus $74.6 million; and net income attributable to Amkor was $13.1 million versus $40.8 million. Q4 results included the Tessera-related charge.
Liquidity, debt and investment
- Year-end cash and cash equivalents were $449.9 million, down from $610.4 million; working capital was $497.4 million. Current assets were $1.198 billion and current liabilities $700.6 million.
- Debt was approximately $1.531 billion at year-end, including $1.270 billion of senior notes and $255 million of subsidiary term loans. Scheduled principal repayments were $5 million in 2015, $70 million in 2016, $110 million in 2017 and $345 million in 2018; $925 million was due thereafter. Amkor reported covenant compliance.
- Available borrowing capacity included $199.6 million under the parent revolving facility, plus availability under foreign subsidiary facilities. Management believed operating cash flow, existing cash and facility availability would cover working capital, capital spending and debt service for at least the next 12 months; it cautioned that funding beyond that horizon was uncertain.
- 2015 capital expenditures were forecast at approximately $600 million, including about $150 million for the new K5 factory and R&D facility in Korea. Amkor estimated total K5 construction spending of approximately $375 million in 2015–2016, including capitalized interest.
Material changes, outlook and risks
- In January 2015, Amkor settled its Tessera license litigation for $155 million, payable in 16 quarterly installments from Q1 2015 through Q4 2018. The 2014 statements recorded an $87.1 million pretax charge; the year-end liability was $136.9 million at estimated fair value.
- Amkor sold its Japanese subsidiary to J-Devices in June 2014 and recorded a combined $18.0 million gain through the sale and its equity-method earnings. Amkor increased its J-Devices ownership from 60% to 65.7% in January 2015 and expected to consider increasing it to 80%; consolidation would follow if governance restrictions lapse and the transaction closes.
- Advanced products represented 49.6% of 2014 sales, up from 49.1%. Management emphasized advanced packaging, mobile demand, improved utilization and customer diversification, including automotive and Chinese and Taiwanese fabless customers. The filing gives capital-spending guidance but no specific 2015 sales or earnings guidance.
- Principal risks include semiconductor cyclicality, customer concentration and lack of binding order commitments, pricing pressure, high fixed costs and utilization sensitivity, substantial debt and capital needs, and major investment made ahead of firm customer demand. The ten largest customers generated 60.9% of sales; Qualcomm and Toshiba each exceeded 10%.
- Other material exposures include foreign exchange, tax-holiday expirations and tax examinations, a $146.7 million Korean severance obligation, supplier concentration, production yield and product-quality risks, international operational disruption, and ongoing ERP implementation. A 10% adverse currency movement was estimated to reduce operating income by about $100 million.
- The company reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements and internal controls.
Key investor verification points
- Track whether mobile, NAND and automotive demand sustains sales and utilization, and whether gross and operating margins recover after the Tessera charge.
- Verify execution and funding of the $600 million 2015 capex plan and K5 construction, including returns on capacity added ahead of customer commitments.
- Monitor cash generation against debt maturities, the Tessera installment schedule, and the effect of negative free cash flow and working-capital needs on liquidity.
- Assess customer concentration, orders and pricing, particularly changes in demand from the largest customers.
- Confirm the timing, price, governance implications and accounting treatment of any further J-Devices ownership increase.
- Follow tax-holiday expirations, the Korean severance plan decision, foreign-exchange exposure and any material developments in legal or tax contingencies.