What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-19 · 112 added, 96 removed, 198 unchanged (51% of the section changed)

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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 cost-effective advanced packaging and test technologies.

These advanced technology solutions provide increased value to our customers.

This is particularly true in the mobile communications market, where growth generally outpaces the semiconductor industry rate.

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.

Our sales of advanced packages into the automotive market are growing as well, largely due to new, data-intensive applications, which require increased pin count and performance.

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.

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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 new customers and deepening our engagement with existing customers.

This includes an expanded emphasis on the automotive market where semiconductor content continues to grow and in the analog area for our mainstream wirebond technologies.

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 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.

For example, in May 2017 we acquired Nanium, which has strengthened our position in the market for wafer-level fan-out packaging, and in December 2015 we completed the acquisition of our Japan operations.

We believe that taking advantage of these opportunities helps diversify our revenue streams, improve our profits, broaden our portfolio of services and maintain our technological leadership.

For example, in May 2017 we acquired Nanium, which has strengthened our position in the market for wafer-level fan-out packaging.

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.

Historically, there has been a strong correlation between world-wide gross domestic product levels, consumer spending and semiconductor

industry cycles.

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 believe that the smartphone inventory correction that impacted the first half of 2019 has recovered, while the general semiconductor market is nearing stabilization and is likely to resume growth going forward.

We cannot predict the timing, strength or duration of any correction, economic slowdown or subsequent economic recovery.

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 Part 1, Item 1A of this Annual Report on Form 10-K.

We operate in a capital intensive industry and have a significant level of debt.

While customer demand for our services was, overall, quite strong throughout 2020, particularly in the communications and consumer end markets, demand in automotive and industrial was lower through most of the year due to the Covid-19 pandemic.

We made many adjustments to our operations during 2020 to navigate through the onset of the pandemic, and through these efforts we were able to continue serving customers and grow the business in a challenging environment.

The full potential effect of the Covid-19 pandemic is unknown, and there is significant uncertainty related to the ultimate impact that the Covid-19 pandemic will have on the global economy, our business, results of operations and financial condition.

See Part I, Item 1A, including, “The Covid-19 Outbreak Has Impacted and May Continue to Impact the Supply Chain and Consumer Demand for Our Customers’ Products and Services, Which May Adversely Affect Our Business, Results of Operations, and Financial Condition” and “Dependence on the Highly Cyclical Semiconductor Industry - Our Packaging and Test Services Are Used in Volatile Industries and Industry Downturns, and Declines in Global Economic and Financial Conditions Could Harm Our Performance.”

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, borrowings under available credit facilities and proceeds from any additional financing.

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 December 31, 2020, we had cash and cash equivalents and short-term investments of $698.0 million and $133.8 million, respectively.

2020 Financial Summary

Our net sales decreased $263.8 million or 6.1% to $4,052.7 million in 2019 from $4,316.5 million in 2018 .

The decrease was generally attributable to a cyclical correction of the semiconductor market, partially offset by the introduction of a new high volume consumer product.

Gross profit decreased $61.1 million in 2019 compared to 2018 , primarily due to lower revenue, reduced capacity utilization and mix of products sold with higher material content in 2019, partially offset by our continued effort to control our manufacturing costs.

In March 2019, we issued $525.0 million aggregate principal amount of our 6.625% Senior Notes due September 2027 (the “2027 Notes”).

In April 2019, the net proceeds from this issuance were used, together with cash on hand, to redeem the outstanding $525.0 million aggregate principal amount of our 6.375% Senior Notes due October 2022 (the “2022 Notes”).

Our net sales increased $997.9 million or 24.6% to $5,050.6 million in 2020 from $4,052.7 million in 2019.

The increase was generally attributable to higher sales of advanced products in the communications, consumer and computing end markets, partially offset by a decline in the automotive and industrial end market.

Gross profit increased $251.4 million in 2020 compared to 2019, primarily due to the increase in net sales, partially offset by changes in the mix of products sold toward products with higher material content.

In 2020, our capital expenditures totaled $553.0 million, or 10.9% of net sales compared to $472.4 million, or 11.7% of net sales in 2019.

The decrease is primarily due to our decision to reduce spending on incremental capacity during a period of reduced demand.

Our spending was primarily focused on investments in advanced packaging and test equipment.

Net cash provided by operating activities was $770.0 million for the year ended December 31, 2020, compared to $563.9 million for the year ended December 31, 2019.

This decrease was primarily due to lower net sales, lower operating profit, and changes in working capital.

In December 2019, we entered into a ¥28.5 billion ($260.6 million) term loan agreement due December 2024.

We immediately drew down the full loan amount and used the proceeds to pay down $80.0 million of our senior secured revolving credit facility due 2023.

In January 2020, we also used these proceeds to pay down $120.0 million of our term loan due December 2023.

The remaining proceeds will be used for other general corporate purposes.

This increase was primarily due to higher net sales, higher operating profit, and changes in working capital.

In October 2020, our Board of Directors approved the initiation of a regular quarterly cash dividend on our common stock.

The initial quarterly dividend was $0.04 per share.

Results of Operations

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For the Year Ended December 31

2020 2019 2018

Net sales 100.0 % 100.0 % 100.0 %

Materials 45.5 % 40.0 % 38.7 %

Labor 13.4 % 16.0 % 16.1 %

Other manufacturing costs 23.3 % 28.0 % 28.7 %

Gross margin 17.8 % 16.0 % 16.5 %

Operating income 9.1 % 5.8 % 6.0 %

Net income attributable to Amkor 6.7 % 3.0 % 2.9 %

2019 over 2018

2018 over 2017

2020 2019 2018 2020 over 2019 2019 over 2018

(In thousands, except percentages)

The decrease in net sales in 2019 compared to 2018 was generally attributable to a cyclical correction of the semiconductor market, partially offset by the introduction of a new high volume consumer product.

Net sales $ 5,050,589 $ 4,052,650 $ 4,316,466 $ 997,939 24.6 % $ (263,816) (6.1) %

The increase in net sales in 2020 compared to 2019 was due to higher sales of advanced products in the communications, consumer and computing end markets, partially offset by a decline in the automotive and industrial end market.

The communications end market benefited from the recovery in the smartphone market from the prior year inventory correction.

Sales increased in the consumer end market due to the introduction of a new high-volume consumer product.

Increased demand, driven by work-from-home arrangements, drove higher sales in the computing end market.

The automotive and industrial market experienced decreased demand and supply chain disruptions due to the Covid-19 pandemic.

Gross Profit and Gross Margin

2019 over 2018

2018 over 2017

2020 2019 2018 2020 over 2019 2019 over 2018

(In thousands, except percentages)

Gross profit $ 900,814 $ 649,439 $ 710,565 $ 251,375 $ (61,126)

Gross margin 17.8 % 16.0 % 16.5 % 1.8 % (0.5) %

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, depending upon product mix, utilization and seasonality.

Gross profit and gross margin for 2019 decreased compared to 2018 , primarily due to lower revenue, reduced capacity utilization and mix of products sold with higher material content in 2019, partially offset by our continued effort to control our manufacturing costs.

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 profit and gross margin for 2020 increased compared to 2019, primarily due to the increase in net sales, partially offset by changes in the mix of products sold toward products with higher material content.

Selling, General and Administrative Expenses

2019 over 2018

2018 over 2017

2020 2019 2018 2020 over 2019 2019 over 2018

(In thousands, except percentages)

Selling, general and administrative

Selling, general and administrative expenses decreased in 2019 compared to 2018 primarily due to decreased employee compensation costs, a gain on sale of real estate in Japan and our continued effort to control expenses.

$ 302,842 $ 278,631 $ 295,239 $ 24,211 8.7 % $ (16,608) (5.6) %

Selling, general and administrative expenses increased in 2020 compared to 2019 primarily due to costs incurred for our factory consolidation efforts in Japan and increased employee compensation costs.

These increases were partially offset by our efforts to control expenses, particularly travel and professional fees.

In addition, we had a gain from a sale of real estate in 2019 which lowered our expenses in that period.

Research and Development

2019 over 2018

2018 over 2017

2020 2019 2018 2020 over 2019 2019 over 2018

(In thousands, except percentages)

Research and development

$ 140,727 $ 137,638 $ 157,182 $ 3,089 2.2 % $ (19,544) (12.4) %

Research and development activities are focused on developing new packaging and test services and improving the efficiency and capabilities of our existing production processes.

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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 decreased in 2019 over 2018 due to projects that moved into production, partially offset by new development projects, primarily at our research and development facility in Korea.

Other Income and Expense

2019 over 2018

2018 over 2017

2020 2019 2018 2020 over 2019 2019 over 2018

(In thousands, except percentages)

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Loss on debt retirement

3,042 8,536 1,512 (5,494) (64.4) % 7,024 >100%

(806) (2,052) (5,447) 1,246 (60.7) % 3,395 (62.3) %

Total other expense, net $ 70,563 $ 73,360 $ 72,329 $ (2,797) (3.8) % $ 1,031 1.4 %

Interest expense decreased in 2019 compared to 2018 , primarily due to the redemption of $200.0 million of our 6.625% Senior Notes due 2021 in August 2018.

The 2018 redemption was funded with proceeds from our term loan due July 2023 which has a significantly lower interest rate.

The interest expense decrease was partially offset by the interest incurred under our new $525.0 million aggregate principal amount of our 2027 Notes, which were issued in March 2019.

Interest expense decreased in 2020 compared to 2019, primarily due to the repayment of higher interest rate debt with the proceeds from our ¥28.5 billion ($260.6 million) fixed rate term loan agreement in December 2019 and January 2020.

Interest expense has also decreased due to overall decreases in interest rates in 2020 for our variable interest rate loans.

The changes in foreign currency (gain) loss, net for 2020 compared to 2019 were due to foreign currency exchange rate movements, mainly the Korean Won, and the associated impact on our net monetary exposure at our foreign subsidiaries.

Loss on debt retirement in 2019 is primarily due to the early redemption in April 2019 of the outstanding $525 million aggregate principal amount of our 6.375% Senior Notes due 2022.

Income Tax Expense

2019 over 2018

2018 over 2017

2020 2019 2018 2020 over 2019 2019 over 2018

(In thousands, except percentages)

Income tax expense

$ 46,183 $ 37,182 $ 56,250 $ 9,001 $ (19,068)

Effective tax rate

The majority of our income is earned and taxed in foreign jurisdictions in the Asia Pacific region with applicable tax rates of approximately 25%.

11.9 % 23.3 % 30.3 %

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.

The effective tax rate in 2017 includes a net tax benefit of $41.6 million for the provisional estimate of the impact of the Tax Act.

The effective tax rate in 2020 includes a $20.2 million income tax benefit from the recognition of deferred tax assets we expect to utilize in future years.

The effective tax rate in 2018 includes 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.

During 2019, 2018 and 2017, our subsidiaries in Korea, Malaysia, the Philippines, Singapore and Taiwan operated under various tax holidays.

During 2020, 2019 and 2018, our subsidiaries in Korea, Malaysia, the Philippines, and Singapore operated under various tax holidays.

The tax holidays granted to our Malaysia operations and certain operations in the Philippines expired during 2018.

The tax holiday granted to certain operations in Taiwan expired as of December 31, 2017.

As 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.

See Note 4 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information about our income tax expense.

Liquidity and Capital Resources

We assess our liquidity based on our current expectations regarding sales, operating expenses, capital spending, 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 and availability under our credit facilities, will be sufficient to fund our working capital, capital expenditure, 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 purchases of stock under our stock repurchase program, any acquisitions or investments in joint ventures and our ability to either repay debt out of operating cash flow or refinance it at or prior to maturity with the proceeds of debt or equity offerings.

We assess our liquidity based on our current expectations regarding sales and operating expenses, capital spending, dividend payments and 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 expenditure, 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 or investments in joint ventures and our ability to either repay debt out of operating cash flow or refinance it at or prior to maturity with the proceeds of 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 Part I, Item 1A of this Annual Report on Form 10-K.

Our primary source of cash and the source of funds for our operations are cash flows from operations, current cash and cash equivalents, borrowings under available credit facilities and proceeds from any additional debt or equity financings.

In March 2019, we issued $525.0 million of our 2027 Notes.

Additionally, in April 2019, we redeemed the outstanding $525.0 million aggregate principal amount of our 2022 Notes.

The redemption was funded with net proceeds from our issuance of the 2027 Notes, together with cash on hand.

We refer you to Note 12 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

As of December 31, 2019 , we had cash and cash equivalents of $894.9 million .

Included in our cash balance as of December 31, 2019 , is $790.0 million held offshore by our foreign subsidiaries.

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.

We refer you to Note 6 and Note 11 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on our investments and borrowings, respectively.

As of December 31, 2020, we had cash and cash equivalents and short-term investments of $831.8 million.

Included in our cash and short-term investments balances as of December 31, 2020, is $683.1 million held offshore by our foreign subsidiaries.

We have the ability to access cash held offshore by our foreign subsidiaries primarily through the repayment of intercompany debt obligations.

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federal income tax.

We estimate that repatriation of this foreign cash would generate withholding taxes and state income taxes of approximately $6.9 million.

In July 2018, the senior secured revolving credit facility of Amkor Technology, Inc.

was terminated and replaced by a new senior secured revolving credit facility due July 2023 entered into by our subsidiary, Amkor Technology Singapore Holding Pte, Ltd.

(“the Singapore Revolver”), and guaranteed by Amkor Technology, Inc.

The availability for the Singapore Revolver is based on the amount of eligible accounts receivable.

As of December 31, 2019 , we had availability of $250.0 million under the Singapore Revolver, with no outstanding standby letters of credit.

We refer you to Note 12 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

As of December 31, 2019, our foreign subsidiaries had $316.0 million available to be drawn under revolving credit facilities, including the Singapore Revolver, and $110.0 million available to be borrowed under term loan credit facilities for working capital purposes and capital expenditures.

As of December 31, 2019 , we had $1,450.2 million of debt.

Our scheduled principal repayments on debt include $144.5 million due in 2020 , $113.4 million due in 2021 , $260.0 million due in 2022 , $297.8 million due in 2023 , $81.9 million due in 2024 and $562.7 million due thereafter.

We were in compliance with all debt covenants as of December 31, 2019 , and we expect to remain in compliance with these covenants for at least the next twelve months.

In December 2019, we entered into a ¥28.5 billion (US$260.6 million) term loan agreement due December 2024.

We immediately drew down the full loan amount and used the proceeds to pay down the $80.0 million of the Singapore Revolver.

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.

We refer you to Note 12 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

We estimate that repatriation of this foreign cash and short-term investments would generate withholding taxes and state income taxes of approximately $40.8 million.

For certain accounts receivable, we use non-recourse factoring arrangements with third party financial institutions to manage our working capital and cash flows.

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For the year ended December 31, 2020 and 2019, we sold accounts receivable totaling $499.3 million and $680.4 million, net of discounts and fees of $2.9 million and $4.4 million, respectively.

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 is subject to the terms of our indentures and other debt agreements, market conditions and other factors.

Certain debt agreements have restrictions on dividend payments and the repurchase of stock and subordinated securities.

These restrictions are determined in part by calculations based upon cumulative net income or borrowing availability.

We have never paid a dividend to our stockholders, and we do not have any present plans for doing so.

From time to time, Amkor Technology, Inc.

also guarantees certain debt of our subsidiaries.

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 our $250.0 million first lien senior secured revolving credit facility entered into by our subsidiary, Amkor Technology Singapore Holding Pte, Ltd.

(“the Singapore Revolver”), is limited to the amount of eligible accounts receivable.

As of December 31, 2020, we had availability of $250.0 million and no outstanding standby letters of credit.

We refer you to Note 11 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

As of December 31, 2020, our foreign subsidiaries had $316.0 million available to be drawn under revolving credit facilities, including the Singapore Revolver, and $60.1 million available to be borrowed under term loan credit facilities for working capital purposes and capital expenditures.

As of December 31, 2020, we had $1,154.3 million of debt.

Our scheduled principal repayments on debt include $149.0 million due in 2021, $182.4 million due in 2022, $170.8 million due in 2023, $81.5 million due in 2024, $27.4 million due in 2025 and $553.3 million due thereafter.

We were in compliance with all debt covenants as of December 31, 2020, and we expect to remain in compliance with these covenants for at least the next twelve months.

In December 2020, we borrowed ¥10.9 billion (US$105 million) under a new term loan agreement due December 2025.

We refer you to Note 11 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

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.

Dividend payments and stock repurchases are not currently restricted under our debt agreements.

The debt of Amkor Technology, Inc.

is structurally subordinated in right of payment to all existing and future debt and other liabilities of our subsidiaries.

From time to time, Amkor Technology, Inc.

and Amkor Technology Singapore Holding Pte, Ltd.

also guarantee certain debt of our subsidiaries.

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 Korea maintains an unfunded severance plan that covers certain employees that were employed prior to August 1, 2015.

As of December 31, 2020, the severance liability was $98.0 million.

Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date.

For service periods subsequent to August 1, 2015, 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 the company to fund the converted portion of the liability.

We refer you to Note 12 to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

In October 2020, our Board of Directors approved the initiation of a regular quarterly cash dividend on our common stock.

The first quarterly dividend of $0.04 per share, representing an initial dividend payment of $9.7 million in the aggregate, was paid on January 7, 2021 to stockholders of record as of December 18, 2020.

We currently 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 authorized the repurchase of up to $300.0 million of our common stock, exclusive of any fees, commissions or other expenses.

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We have not purchased any stock under the program since 2012.

We make significant capital expenditures in order to service the demand of our customers, which is primarily focused on investments in advanced packaging and test equipment.

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.

In 2020, our capital expenditures totaled $553.0 million or approximately 10.9% of net sales.

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For the Year Ended December 31

2020 2019 2018

(In thousands)

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Operating activities:

Our cash flow provided by operating activities for the year ended December 31, 2019 decreased by $99.6 million compared to the year ended December 31, 2018 , primarily due to lower net sales, lower operating profit, and changes in working capital.

Our cash flow provided by operating activities for the year ended December 31, 2020 increased by $206.2 million compared to the year ended December 31, 2019, primarily due to higher net sales, higher operating profit, and changes in working capital.

Investing activities:

Our cash flow used in investing activities decreased compared to the year ended December 31, 2018 principally due to our initiative to reduce spending on incremental capacity during a period of reduced demand.

The net cash used in investing activities for the year ended December 31, 2017, included the receipt of the remaining proceeds for the sale of the K1 factory in Korea and a payment for the acquisition of Nanium.

Our cash flow used in investing activities for the year ended December 31, 2020 increased by $176.2 million compared to the year ended December 31, 2019, primarily due to purchases of short-term investments and an increase in payments related to property, plant and equipment.

This increase was partially offset by proceeds from sales and maturities of short-term investments and an increase in proceeds received from foreign exchange forward contracts.

Payments for property, plant and equipment can fluctuate based on the timing of purchase, receipt and acceptance of equipment.

Financing activities:

The net cash used in financing activities for the year ended December 31, 2020 was primarily due to the net debt repayments in Korea and Taiwan.

The net cash provided by financing activities for the year ended December 31, 2019 was primarily due to the issuance of the 2027 Notes and net borrowings in Japan, partially offset by the redemption of the 2022 Notes and net repayments in Korea.

The net cash used in financing activities for the year ended December 31, 2018 was primarily driven by the full redemption of our 6.625% Senior Notes due 2021 and net repayments in China and Korea, partially offset by the net borrowings in Japan.

We provide the following supplemental data to assist our investors and analysts in understanding our liquidity and capital resources.

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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.

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 U.S.

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For the Year Ended December 31

2020 2019 2018

(In thousands)

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Payments Due for Year Ending December 31,

Total 2021 2022 2023 2024 2025 Thereafter

(In thousands)

Total debt $ 1,164,302 $ 149,007 $ 182,373 $ 170,776 $ 81,461 $ 27,400 $ 553,285

Scheduled interest payment obligations (1) 269,994 44,293 41,855 38,981 37,150 36,231 71,484

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Our preparation of this Annual Report on Form 10-K requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period.

There can be no assurance that actual results will not differ from those estimates.

There can be no assurance that actual results will not differ from those estimates, including the impact of Covid-19 and any deterioration in the global business and economic environment.

We believe the following critical accounting estimates and policies, which have been reviewed with the Audit Committee of our Board of Directors, affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

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Additionally, we monitor on an ongoing basis our ability to utilize our deferred tax assets and whether there is a need for a related valuation allowance.

In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they

arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent operations.

In evaluating our ability to recover our deferred tax assets in the jurisdictions from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent operations.

For most of our deferred tax assets, we consider it more likely than not that we will have sufficient taxable income to allow us to realize these deferred tax assets.

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• significant changes in the manner of our use of the asset;

significant negative industry or economic trends and

• significant negative industry or economic trends;

• our market capitalization relative to net book value.

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Impairment losses are recorded when the carrying amount of the reporting unit exceeds its fair value.

Recently Adopted Standards

For information regarding recently adopted accounting standards, see Note 2 to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis