AMKOR TECHNOLOGY, INC. - Annual Report: 2019 (Form 10-K)

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Item 1.	Business

•	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 execution; 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.

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•	An increasing demand for mobile and connected devices, including the world-wide adoption of “smart” phones, tablets and other Internet-of-Things (IoT) devices that can access the internet and provide multimedia capabilities.

•	An increase in mobility and connectivity capabilities and growing digital content driving demand for new broadband wired and wireless networking equipment.

•	The proliferation of semiconductor devices into well-established end products such as automotive systems due to increased use of electronics for safety, navigation, fuel efficiency, emission reduction and entertainment systems.

•	An overall increase in the semiconductor content within electronic products to provide greater functionality and higher levels of performance.

•	The emergence of specialized chips designed to collect, analyze and store the digital content driven by the growth of cloud computing. These chips include data accelerators, artificial intelligence and machine learning devices.

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The growth of advanced System-in-Package (“SiP”) modules where multiple semiconductor and other electronic components with different functionalities are combined into a single package. The increasing demand for miniaturization and higher functionality at competitive cost is driving the adoption of advanced SiP in new products. Advanced SiPs are the primary vehicle for package-level integration, which allow customers to combine integrated circuits (“ICs”) from different silicon nodes and different foundries.

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•	First, we are increasing our revenue in markets beyond communications, including automotive, consumer and computing end markets. Revenue from these markets tends to be more stable, with less pronounced seasonality tied to the launch of flagship phones.

•	Second, we continue to focus on share gains in the iOS and high-end Android ecosystems, leveraging our expertise in advanced SiP, MEMS and other advanced packages to expand our content in next generation 5G phones.

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•	Offering capacity to absorb large orders and accommodate quick turn-around times;

•	Obtaining favorable pricing on materials and equipment, where possible, by using our purchasing power and leading industry position;

•	Qualifying production of customer devices at multiple manufacturing sites to mitigate the risks of supply disruptions; and

•	Providing capabilities and solutions for customer-specific requirements.

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Wafer-level CSP packages (also known as fan-in wafer-level packages) do not utilize a package carrier. The bumped wafer is singulated into individual die, and the wafer-level package is then attached directly to the system board. Wafer-level CSP offers one of the lowest total system costs, enabling higher semiconductor content while leveraging the smallest form factor and one of the highest performing, most reliable, semiconductor package platforms on the market today. We have seen consistent content gains in our wafer-level CSP business, driven largely by mobile communications. Applications for wafer-level CSP include power management, transceivers, sensors, wireless charging, codecs and specialty silicon for new or unique functionality.

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Wafer-level fan-out packages (also known as low-density fan-out packages) are utilized for ICs where the die surface area is too small to accommodate all of the bond pads. The fan-out package enlarges the bondable surface area by building a border around the die using low-cost molding compound. Wafer-level CSP and wafer-level fan-out are complementary technologies. Customers can choose between the two package types as their die sizes shrink or grow. With the acquisition of Nanium, we became a leader in low-density fan-out technology.

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•	Silicon Wafer Integrated Fan-out Technology (“SWIFT”, also known as high-density fan-out) replaces a laminate substrate with a thinner structure. SWIFT solutions enable very thin, very small products combining application processors, memory, baseband and other peripheral ICs.

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•	Certification of our factories worldwide to International Organization for Standards (“ISO”) framework 14001, widely recognized as the standard for effective Environmental Management Systems.

•	Measurement and independent verification of greenhouse gases (“GHG”) generated by our factories worldwide. Once collected, our GHG data is submitted to, and disclosed publicly by, the CDP, formerly known as the Carbon Disclosure Project. CDP is a leading organization that assesses the impact of climate change and promotes a sustainable economy.

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Membership in the Responsible Business Alliance (“RBA”), formerly known as the Electronic Industry Citizenship Coalition, an international industry group dedicated to corporate social responsibility. RBA members agree to follow a uniform Code of Conduct that includes standards of environmental responsibility, and our factories have been subject to independent audits to assess compliance with these standards.

•	Capital investment and process optimization activities to reduce GHGs include installation of solar photovoltaic panels, replacement of or improvements to chiller unit systems and use of lighting based on Light Emitting Diode (“LED”) technology.

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•	technical competence;

•	quality;

•	price;

•	breadth of packaging and test services offered, including turnkey services;

•	new package and test design, technology innovation and implementation;

•	cycle times;

•	customer service;

•	available capacity; and

•	ability to invest in capacity, geographic location and scale of manufacturing.

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Item 1A.	Risk Factors

•	fluctuation 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 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;

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•	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 and equipment;

•	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 and end-user demand for products which incorporate semiconductors;

•	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.

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•	changes in consumer demand resulting from deteriorating conditions 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, 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; 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.

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•	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.

•	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;

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•	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.

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•	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.

•	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;

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•	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.

•	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.

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•	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.

•	contaminants in the manufacturing environment;

•	human error;

•	equipment malfunction;

•	changing processes to address environmental requirements;

•	defective raw materials; or

•	defective plating services.

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Item 1B.	Unresolved Staff Comments

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Item 2.	Properties

(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.

Item 3.	Legal Proceedings

Item 4.	Mine Safety Disclosures

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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(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.

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(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.

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Item 6.	Selected Financial Data

(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.

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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.

(g)	On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). As of December 31, 2019, there was an increase to our consolidated balance sheet of approximately $128 million for operating lease right of use assets and approximately $132 million for operating lease liabilities.

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

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(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.

•	$62.8 million of foreign pension plan obligations, for which the timing and actual amount of impact on our future cash flow is uncertain.

•	$26.2 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.

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•	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 trends and

•	our market capitalization relative to net book value.

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Item 7A.	Quantitative and Qualitative Disclosures about Market Risk

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Item 8.	Financial Statements and Supplementary Data

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1.	Description of Business and Summary of Significant Accounting Policies

•	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 execution 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.

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2.	New Accounting Standards

•	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.

3.	Acquisitions

4.	Share-Based Compensation Plans

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5.	Other Income and Expense

6.	Income Taxes

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7.	Earnings Per Share

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8.	Factoring of Accounts Receivable

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9.	Property, Plant and Equipment

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(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 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 two term loans. Principal is payable at maturity and interest is payable quarterly in arrears.

(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.

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(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.

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•	We are managed under a functionally-based organizational structure with the head of each function reporting directly to the CODM;

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•	We assess performance, including incentive compensation, based on consolidated operating performance and financial results;

•	Our CODM allocates resources and makes other operating decisions based on specific customer business opportunities and

•	We have an integrated process for the design, development and manufacturing services we provide to all of our customers. We also have centralized sales and administrative functions.

(1)	Advanced products include flip chip and wafer-level processing and related test services.

(2)	Mainstream products include wirebond packaging and related test services.

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(a)	In the fourth quarter of 2019, we recorded a $3.8 million discrete income tax benefit, primarily related to changes in the valuation of certain deferred tax assets.

(b)	In the second quarter of 2019, we incurred an $8.4 million charge related to the early redemption of our 2022 Notes.

(c)	In the first quarter of 2019, we recorded a $14.9 million non-cash discrete income tax charge to reduce the value of certain deferred tax assets.

(d)	In the fourth quarter of 2018, we 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.

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(a)	Column represents adjustments to the deferred tax asset valuation allowance established as part of the purchase accounting related to Amkor’s acquisition of Nanium in 2017 and adjustments directly through stockholders’ equity for changes in accumulated other comprehensive income (loss) related to our foreign defined benefit pension plans.

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Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.	Controls and Procedures

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Item 9B.	Other Information

Item 10.	Directors, Executive Officers and Corporate Governance

Item 11.	Executive Compensation

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

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(1)	As of December 31, 2019, a total of 5.2 million shares were reserved for issuance under the 2007 Plan. Shares available for issuance under our 2007 Plan can be granted pursuant to stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares.

Item 13.	Certain Relationships and Related Transactions, and Director Independence

Item 14.	Principal Accountant Fees and Services

Item 15.	Exhibits and Financial Statement Schedules

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Item 16.	Form 10-K Summary

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