Amkor Technology, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Amkor provides outsourced semiconductor packaging and test services, operating across seven countries.
Financial performance
| Metric | 2017 | 2016 |
|---|---|---|
| Net sales | $4.186 billion | $3.894 billion |
| Gross profit / margin | $757.3 million / 18.1% | $695.5 million / 17.9% |
| Operating income / margin | $401.3 million / 9.6% | $293.9 million / 7.5% |
| Net income attributable to Amkor | $260.7 million; diluted EPS $1.09 | $164.2 million; diluted EPS $0.69 |
| Cash from operating activities | $618.3 million | $729.4 million |
| Capital expenditures | $550.9 million | $650.0 million |
| Reported free cash flow (company-defined) | $208.9 million | $140.2 million |
Q4 2017 sales were $1.148 billion, gross profit was $225.5 million, operating income was $110.1 million, and net income attributable to Amkor was $100.8 million. Q4 results included an estimated $41.6 million one-time net tax benefit from U.S. tax reform.
Liquidity, debt and other key metrics
- Year-end cash and cash equivalents were $596.4 million, including $444.6 million held offshore; working capital was $289.1 million.
- Debt was approximately $1.364 billion at year-end. Scheduled principal repayments were $123.8 million in 2018, $173.6 million in 2019, $326.6 million in 2020, $210.6 million in 2021 and $530.7 million in 2022.
- Amkor reported $199.4 million available under its $200 million revolving credit facility and said it was compliant with debt covenants. Management believed available cash, operating cash flow and credit facilities would cover requirements for at least the next 12 months.
- The company-defined free cash flow measure includes $141.5 million of proceeds from property sales and insurance recoveries, principally the K1 factory sale; it is not a GAAP measure and does not deduct debt service.
Material changes versus prior periods
- Sales rose 7.5% year over year, with management citing strong demand across end markets, especially mobile communications, increased content in flagship smartphones, improved Greater China fabless sales, and growth in automotive and computing.
- Gross margin improved 0.2 percentage points to 18.1%. Advanced Products increased to $1.950 billion, or 46.6% of sales, from $1.680 billion, or 43.1%.
- Operating income benefited from a $108.1 million pre-tax gain on the K1 real estate sale. Amkor sold the facility for $142.4 million. The reported operating-income increase should therefore be considered alongside this unusual gain.
- Operating cash flow fell $111.1 million, principally due to working-capital changes. R&D expense increased 42.2% to $166.6 million, mainly due to development and other costs for the K5 Korea facility.
- Amkor acquired Nanium, a wafer-level fan-out packaging provider, in May 2017. The K5 facility began operations in 2017, and factory consolidation in Japan was completed.
Outlook, commentary and risks
- Management forecast approximately $600 million of capital expenditures for 2018, subject to business performance, demand, investment needs and financing availability. No specific revenue or earnings guidance is provided in the supplied filing text.
- Management’s strategy emphasizes advanced packaging, better use of existing assets, customer diversification and growth in automotive and Greater China. Automotive, industrial and other markets represented approximately 26% of 2017 sales; communications represented 43%.
- Key risks include semiconductor cyclicality, high fixed costs and sensitivity to utilization, pricing pressure, limited customer commitments and concentration: the ten largest customers generated 67% of 2017 sales, and one customer accounted for 14.3% (identified elsewhere as Toshiba exceeding 10%).
- Other material exposures include substantial debt and capital spending, foreign-exchange movements, reliance on a limited supplier base, international operating and geopolitical risks, and tax uncertainty. A 10% appreciation of foreign currencies against the U.S. dollar was estimated to reduce 2017 operating income by approximately $88 million.
- The unfunded Korean severance obligation was $153.7 million. The remaining patent-license settlement obligation was $38.8 million, payable through Q4 2018. Management said ordinary-course legal matters were not expected to have a material adverse impact, while noting outcomes remain uncertain.
- The Tax Act accounting was provisional. The 2017 effective tax rate was 12.8%, including the estimated $41.6 million benefit; management warned that tax holidays expiring in Taiwan and certain operations in Malaysia and the Philippines could raise future tax expense.
- Amkor expects adoption of the new revenue standard to change timing of revenue recognition. Its preliminary retrospective estimate would add $24 million to 2017 sales and $5 million to net income; estimates remained subject to finalization.
Most important facts for investors to verify
- How much of operating-income growth and reported free cash flow is attributable to the K1 sale and other nonrecurring items.
- Whether 2018 capital spending near $600 million can be funded while meeting scheduled debt service and maintaining liquidity.
- Customer concentration and demand trends, particularly the largest customer, mobile communications and Greater China fabless business.
- Final Tax Act accounting and the effects of expiring tax holidays and the new revenue-recognition standard on comparable results.
- Utilization and returns on K5, Nanium and advanced-packaging investments, as well as the exposure from Korean severance and currency movements.
The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of December 31, 2017.