Edgar Filing: AMKOR TECHNOLOGY INC

AMKR 6.30.12 10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended June 30, 2012
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 000-29472

AMKOR TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)



Delaware (State of incorporation)				23-1722724 (I.R.S. Employer Identification Number)

1900 South Price Road

Chandler, AZ 85286

(Address of principal executive offices and zip code)

(480) 821-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of outstanding shares of the registrant’s Common Stock as of July 27, 2012 was 155,765,307.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2012

TABLE OF CONTENTS



		Page
PART I. Financial Information
Item 1.	Financial Statements (unaudited)	2
	Consolidated Statements of Income - Three and Six Months Ended June 30, 2012 and 2011	2
	Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2012 and 2011	3
	Consolidated Balance Sheets - June 30, 2012 and December 31, 2011	4
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2012 and 2011	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	36

PART II. Other Information
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6.	Exhibits	52
Signatures		53

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMKOR TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands, except per share data)
Net sales	$	686,527		$	687,633		$	1,341,537		$	1,352,583
Cost of sales	597,207			557,816			1,147,236			1,096,080
Gross profit	89,320			129,817			194,301			256,503
Operating expenses:
Selling, general and administrative	53,489			61,284			110,744			125,842
Research and development	13,867			12,559			27,292			24,688
Total operating expenses	67,356			73,843			138,036			150,530
Operating income	21,964			55,974			56,265			105,973
Other expense (income):
Interest expense	22,452			19,609			41,038			38,398
Interest expense, related party	3,492			2,830			6,984			5,410
Interest income	(828		)	(553		)	(1,717		)	(1,140		)
Foreign currency loss, net	1,277			2,932			2,067			4,663
Loss on debt retirement, net	—			15,531			—			15,531
Equity in earnings of unconsolidated affiliate	(892		)	(2,089		)	(2,880		)	(3,607		)
Other income, net	(518		)	(325		)	(1,152		)	(469		)
Total other expense, net	24,983			37,935			44,340			58,786
(Loss) income before income taxes	(3,019		)	18,039			11,925			47,187
Income tax (benefit) expense	(3,891		)	3,594			(529		)	6,976
Net income	872			14,445			12,454			40,211
Net (income) loss attributable to noncontrolling interests	(291		)	43			(99		)	(620		)
Net income attributable to Amkor	$	581		$	14,488		$	12,355		$	39,591
Net income attributable to Amkor per common share:
Basic	$	—		$	0.07		$	0.07		$	0.20
Diluted	$	—		$	0.07		$	0.07		$	0.17
Shares used in computing per common share amounts:
Basic	165,956			197,084			166,911			195,584
Diluted	166,009			280,009			167,012			278,810

The accompanying notes are an integral part of these statements.

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AMKOR TECHNOLOGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012			2011
	(In thousands)
Net income attributable to Amkor	$	581	$	14,488	$	12,355		$	39,591
Other comprehensive income, net of tax:
Adjustments to unrealized components of defined benefit pension plans, net of tax of ($8), $73, ($43) and $86	36		163		1,383			266
Cumulative translation adjustment, net of tax of ($586), $0, $329 and $0	1,659		1,115		(1,110		)	548
Total other comprehensive income	1,695		1,278		273			814
Comprehensive income attributable to Amkor	$	2,276	$	15,766	$	12,628		$	40,405

The accompanying notes are an integral part of these statements.

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AMKOR TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2012			December 31, 2011
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	351,183		$	434,631
Restricted cash	2,680			2,680
Accounts receivable:
Trade, net of allowances	352,453			298,543
Other	18,632			27,197
Inventories	205,778			198,427
Other current assets	41,573			35,352
Total current assets	972,299			996,830
Property, plant and equipment, net	1,751,629			1,656,214
Intangibles, net	6,436			8,382
Investments	38,822			36,707
Restricted cash	2,214			4,001
Other assets	73,784			70,913
Total assets	$	2,845,184		$	2,773,047
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	69,358		$	59,395
Trade accounts payable	448,235			424,504
Accrued expenses	190,657			158,287
Total current liabilities	708,250			642,186
Long-term debt	1,085,545			1,062,256
Long-term debt, related party	225,000			225,000
Pension and severance obligations	130,993			129,096
Other non-current liabilities	18,129			13,288
Total liabilities	2,167,917			2,071,826
Commitments and contingencies (Note 16)
Equity:
Amkor stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized, designated Series A, none issued	—			—
Common stock, $0.001 par value, 500,000 shares authorized, 197,599 and 197,359 shares issued, and 160,701 and 168,628 shares outstanding, in 2012 and 2011, respectively	198			197
Additional paid-in capital	1,612,840			1,611,242
Accumulated deficit	(786,107		)	(798,462		)
Accumulated other comprehensive income	11,122			10,849
Treasury stock, at cost, 36,898 and 28,731 shares in 2012 and 2011, respectively	(168,840		)	(130,560		)
Total Amkor stockholders’ equity	669,213			693,266
Noncontrolling interests in subsidiaries	8,054			7,955
Total equity	677,267			701,221
Total liabilities and equity	$	2,845,184		$	2,773,047

The accompanying notes are an integral part of these statements.

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AMKOR TECHNOLOGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	For the Six Months Ended June 30,
	2012			2011
	(In thousands)
Cash flows from operating activities:
Net income	$	12,454		$	40,211
Depreciation and amortization	179,182			166,468
Loss on debt retirement, net	—			10,557
Other operating activities and non-cash items	(1,881		)	3,648
Changes in assets and liabilities	(47,292		)	13,013
Net cash provided by operating activities	142,463			233,897
Cash flows from investing activities:
Purchases of property, plant and equipment	(232,682		)	(224,629		)
Proceeds from the sale of property, plant and equipment	998			14,643
Financing lease payment from unconsolidated affiliate	9,688			5,991
Other investing activities	1,533			(4,014		)
Net cash used in investing activities	(220,463		)	(208,009		)
Cash flows from financing activities:
Borrowings under short-term debt	30,000			20,000
Payments of short-term debt	(20,000		)	(15,000		)
Proceeds from issuance of long-term debt	187,528			325,000
Proceeds from issuance of long-term debt, related party	—			75,000
Payments of long-term debt, net of certain redemption premiums and discounts	(165,165		)	(354,693		)
Payments for debt issuance costs	(823		)	(5,875		)
Payments for repurchase of common stock	(35,652		)	—
Proceeds from the issuance of stock through share-based compensation plans	162			907
Payments of tax withholding for restricted shares	(446		)	(744		)
Net cash (used in) provided by financing activities	(4,396		)	44,595
Effect of exchange rate fluctuations on cash and cash equivalents	(1,052		)	(10		)
Net (decrease) increase in cash and cash equivalents	(83,448		)	70,473
Cash and cash equivalents, beginning of period	434,631			404,998
Cash and cash equivalents, end of period	$	351,183		$	475,471
Non cash investing and financing activities:
Common stock issuance for conversion of related party 6.25% convertible subordinated notes	$	—		$	100,000

The accompanying notes are an integral part of these statements.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Interim Financial Statements

Basis of Presentation. The Consolidated Financial Statements and related disclosures as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The December 31, 2011, Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. In our opinion, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for the fair statement of the results for the interim periods. These financial statements should be read in conjunction with the financial statements included in our Annual Report for the year ended December 31, 2011, filed on Form 10-K with the SEC on February 23, 2012. The results of operations for the three and six months ended June 30, 2012, are not necessarily indicative of the results to be expected for the full year. Unless the context otherwise requires, all references to “Amkor,” “we,” “us,” “our” or the “company” are to Amkor Technology, Inc. and our subsidiaries.

Use of Estimates. The Consolidated Financial Statements have been prepared in conformity with U.S. GAAP, using management’s best estimates and judgments where appropriate. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments.

2. New Accounting Standards

Recently Adopted Standards

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-04, Fair Value Measurement (Topic 820). This ASU updates certain requirements for measuring fair value and disclosure regarding fair value measurement. This ASU is effective for reporting periods beginning after December 15, 2011. Our adoption of ASU 2011-04 on January 1, 2012, impacted our financial statement disclosure (Note 15).

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (Topic 220). This ASU eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This ASU is effective for reporting periods beginning after December 15, 2011. Full retrospective application is required. Our adoption of ASU 2011-05 on January 1, 2012, impacted our financial statement presentation and disclosure (Consolidated Statements of Comprehensive Income and Note 6).

3. Share-Based Compensation Plans

The following table presents share-based compensation expense attributable to stock options and restricted shares. There is no deferred income tax benefit.



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
	(In thousands)
Stock options	$	267	$	474	$	657	$	1,053
Restricted shares	368		523		780		1,965
Total share-based compensation expense	$	635	$	997	$	1,437	$	3,018

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table presents share-based compensation expense as included in the Consolidated Statements of Income:



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2012			2011		2012		2011
	(In thousands)
Cost of sales	$	(5	)	$	5	$	7	$	6
Selling, general and administrative	557			863		1,244		2,620
Research and development	83			129		186		392
Total share-based compensation expense	$	635		$	997	$	1,437	$	3,018

Stock Options

The following table summarizes our stock option activity for the six months ended June 30, 2012:



	Number of Shares (In thousands)		Weighted Average Exercise Price Per Share		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2011	6,052		$	9.97
Granted	100		4.58
Exercised	(45	)	3.60
Forfeited or expired	(1,029	)	12.01
Outstanding at June 30, 2012	5,078		$	9.51	3.04	$	214
Fully vested and expected to vest at June 30, 2012	5,055		$	9.53	3.01	$	211
Exercisable at June 30, 2012	4,760		$	9.69	2.72	$	184

The following assumptions were used in the Black-Scholes option pricing model to calculate weighted average fair values of the options granted for the three and six months ended June 30, 2012 and 2011.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011

Expected life (in years)	6.0			6.2			6.0			6.2
Risk-free interest rate	1.0		%	2.4		%	1.0		%	2.4		%
Volatility	65		%	67		%	65		%	67		%
Dividend yield	—			—			—			—
Weighted average grant date fair value per option granted	$	2.68		$	4.06		$	2.68		$	4.06

The intrinsic value of options exercised for the three and six months ended June 30, 2012, was less than $0.1 million and $0.1 million, respectively. The intrinsic value of options exercised for the three and six months ended June 30, 2011, was less than $0.1 million and $0.4 million, respectively. For the six months ended June 30, 2012 and 2011, cash received for stock option exercises was $0.2 million and $0.9 million, respectively. The related cash receipts are included in financing activities in the accompanying Condensed Consolidated Statements of Cash Flows. Total unrecognized compensation expense from stock options, including a forfeiture estimate, was approximately $0.9 million as of June 30, 2012, which is expected to be recognized over a weighted-average period of 1.5 years beginning July 1, 2012. To the extent the actual forfeiture rate is different than what we have anticipated, share-based compensation related to these awards will be different from our expectations.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Restricted Shares

The following table summarizes our restricted share activity for the six months ended June 30, 2012:



	Number of Shares (In thousands)		Weighted Average Grant-Date Fair Value (Per share)
Nonvested at December 31, 2011	693		$	7.33
Awards granted	—		—
Awards vested	(195	)	7.49
Awards forfeited	(44	)	7.22
Nonvested at June 30, 2012	454		$	7.27

The fair value of shares vested during the six months ended June 30, 2012 was $1.3 million.

Unrecognized compensation cost, including a forfeiture estimate, was $2.7 million as of June 30, 2012, which is expected to be recognized over a weighted average period of approximately 2.2 years beginning July 1, 2012. To the extent that the actual forfeiture rate is different than what we have anticipated, the share-based compensation expense related to these awards will be different from our expectations.

4. Income Taxes

Our income tax benefit of $0.5 million for the six months ended June 30, 2012, primarily reflects $0.1 million of expense related to income taxes at certain of our foreign operations, $0.9 million of foreign withholding taxes and $1.2 million of deferred taxes on undistributed earnings from our investment in J-Devices Corporation ("J-Devices") offset by a net $2.7 million reduction in unrecognized tax benefits. Our income tax expense reflects income taxed in foreign jurisdictions where we benefit from tax holidays. At June 30, 2012, we had U.S. net operating loss carryforwards totaling $367.6 million, which expire at various times through 2031. Additionally, at June 30, 2012, we had $83.9 million of non-U.S. net operating loss carryforwards, substantially all of which will expire at various times through 2022.

We maintain a valuation allowance on all of our U.S. net deferred tax assets, including our net operating loss carryforwards. We also have valuation allowances on deferred tax assets in certain foreign jurisdictions. Such valuation allowances are released as the related tax benefits are realized on our tax returns or when sufficient net positive evidence exists to conclude it is more likely than not that the deferred tax assets will be realized.

Our gross unrecognized tax benefits decreased from $7.9 million at December 31, 2011 to $4.8 million as of June 30, 2012, primarily because of a $4.0 million reduction as a result of a favorable ruling request related to revenue attribution and a $0.3 million settlement of a contested prior year deduction in a foreign jurisdiction, which were partially offset by $1.2 million of net additions related to the deductibility of certain expenses. Substantially all of the remaining balance of our unrecognized tax benefits at June 30, 2012, would also reduce our effective tax rate, if recognized. Our unrecognized tax benefits are subject to change as examinations of tax years are completed. Tax return examinations involve uncertainties, and there can be no assurances that the outcome of examinations will be favorable.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

5. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Amkor common shareholders by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding includes restricted shares held by retirement eligible recipients and is reduced for treasury stock. Unvested share-based compensation awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of EPS pursuant to the two-class method. We grant restricted shares which entitle recipients to voting and nonforfeitable dividend rights from the date of grant. As a result, we have applied the two-class method to determine EPS.

Diluted EPS is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. Dilutive potential common shares include outstanding stock options, unvested restricted shares and convertible debt. The following table summarizes the computation of basic and diluted EPS:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands, except per share data)
Net income attributable to Amkor	$	581		$	14,488		$	12,355		$	39,591
Income allocated to participating securities	(2		)	(58		)	(33		)	(161		)
Net income available to Amkor common stockholders	579			14,430			12,322			39,430
Adjustment for dilutive securities on net income:
Net income allocated to participating securities in basic calculation	2			58			33			161
Interest on 6.0% convertible notes due 2014, net of tax	—			4,026			—			8,052
Net income attributable to Amkor — diluted	$	581		$	18,514		$	12,355		$	47,643

Weighted average shares outstanding — basic	165,956			197,084			166,911			195,584
Effect of dilutive securities:
Stock options	53			232			101			313
Unvested restricted shares	—			35			—			255
6.0% convertible notes due 2014	—			82,658			—			82,658
Weighted average shares outstanding — diluted	166,009			280,009			167,012			278,810
Net income attributable to Amkor per common share:
Basic	$	—		$	0.07		$	0.07		$	0.20
Diluted	—			0.07			0.07			0.17

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table summarizes the potential shares of common stock that were excluded from diluted EPS, because the effect of including these potential shares was antidilutive:



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2012	2011	2012	2011
	(In thousands)
Stock options and restricted share awards	4,737	5,325	4,506	5,324
6.0% convertible notes due 2014	82,658	—	82,658	—
6.25% convertible notes due 2013	—	—	—	1,402
2.5% convertible notes due 2011	—	1,459	—	2,189
Total potentially dilutive shares	87,395	6,784	87,164	8,915

6. Equity and Comprehensive Income

The following table reflects the changes in equity attributable to both Amkor and the noncontrolling interests:



	Attributable to Amkor			Attributable to Noncontrolling Interests		Total
	(In thousands)
Equity at December 31, 2011	$	693,266		$	7,955	$	701,221
Net income	12,355			99		12,454
Other comprehensive income	273			—		273
Issuance of stock through employee share-based compensation plans	162			—		162
Treasury stock acquired through surrender of shares for tax withholding	(446		)	—		(446		)
Share-based compensation expense	1,437			—		1,437
Repurchase of common stock	(37,834		)	—		(37,834		)
Equity at June 30, 2012	$	669,213		$	8,054	$	677,267



	Attributable to Amkor			Attributable to Noncontrolling Interests		Total
	(In thousands)
Equity at December 31, 2010	$	630,013		$	6,668	$	636,681
Net income	39,591			620		40,211
Other comprehensive income	814			—		814
Issuance of stock through employee share-based compensation plans	907			—		907
Treasury stock acquired through surrender of shares for tax withholding	(744		)	—		(744		)
Share-based compensation expense	3,018			—		3,018
Conversion of debt to common stock	100,497			—		100,497
Equity at June 30, 2011	$	774,096		$	7,288	$	781,384

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

7. Inventories

Inventories consist of the following:



	June 30, 2012		December 31, 2011
	(In thousands)
Raw materials and purchased components	$	153,078	$	158,656
Work-in-process	52,700		39,771
Total inventories	$	205,778	$	198,427

8. Property, Plant and Equipment

Property, plant and equipment consist of the following:



	June 30, 2012			December 31, 2011
	(In thousands)
Land	$	106,338		$	106,338
Land use rights	19,945			19,945
Buildings and improvements	896,019			871,970
Machinery and equipment	3,167,286			3,016,430
Software and computer equipment	190,207			186,378
Furniture, fixtures and other equipment	19,425			19,736
Construction in progress	45,525			26,818
	4,444,745			4,247,615
Less accumulated depreciation and amortization	(2,693,116		)	(2,591,401		)
Total property, plant and equipment, net	$	1,751,629		$	1,656,214

The following table presents depreciation expense as included in the Consolidated Statements of Income:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
	(In thousands)
Cost of sales	$	81,891	$	74,316	$	161,988	$	149,570
Selling, general and administrative	5,289		5,647		10,396		11,273
Research and development	2,697		1,547		4,777		2,988
Total depreciation expense	$	89,877	$	81,510	$	177,161	$	163,831

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table reconciles our activity related to property, plant and equipment additions as reflected on the Consolidated Balance Sheets to purchases of property, plant and equipment as presented on the Condensed Consolidated Statements of Cash Flows:



	For the Six Months Ended June 30,
	2012			2011
	(In thousands)
Property, plant and equipment additions	$	273,350		$	201,981
Net change in related accounts payable and deposits	(40,668		)	22,648
Purchases of property, plant and equipment	$	232,682		$	224,629

9. Intangible Assets

Intangibles as of June 30, 2012, consist of the following:



	Gross		Accumulated Amortization			Net
	(In thousands)
Patents and technology rights	$	27,341	$	(24,254	)	$	3,087
Customer relationships	13,625		(10,276		)	3,349
Total intangibles	$	40,966	$	(34,530	)	$	6,436

Intangibles as of December 31, 2011, consist of the following:



	Gross		Accumulated Amortization			Net
	(In thousands)
Patents and technology rights	$	29,774	$	(26,158	)	$	3,616
Customer relationships	13,625		(8,859		)	4,766
Total intangibles	$	43,399	$	(35,017	)	$	8,382

Amortization of identifiable intangible assets for the three and six months ended June 30, 2012, was $0.8 million and $2.0 million, respectively. Amortization of identifiable intangible assets for the three and six months ended June 30, 2011, was $1.3 million and $2.6 million, respectively. Based on the amortizing assets recognized in our balance sheet at June 30, 2012, amortization for each of the next five years is estimated as follows:



	(In thousands)
2012 remaining	$	1,709
2013	3,371
2014	659
2015	358
2016	130
Thereafter	209
Total amortization	$	6,436

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

10. Investments

Investments consist of the following:



	June 30, 2012				December 31, 2011
	Carrying Value (In thousands)		Ownership Percentage		Carrying Value (In thousands)		Ownership Percentage
Investment in unconsolidated affiliate	$	38,822	30.0	%	$	36,707	30.0	%

J-Devices Corporation

During 2009, Amkor and Toshiba Corporation (“Toshiba”) invested in Nakaya Microdevices Corporation (“NMD”) and formed a joint venture to provide semiconductor packaging and test services in Japan. As a result of the transaction, NMD is now owned 60% by the former shareholders of NMD, 30% by Amkor and 10% by Toshiba and has changed its name to J-Devices. J-Devices is a variable interest entity, but as we are not the primary beneficiary, the investment is accounted for under the equity method as an unconsolidated affiliate.

Our investment includes our 30% equity interest and options to acquire additional equity interests. The options, exercisable at our discretion, permit us to increase our percentage ownership of J-Devices on the anniversary date up to 60% in 2012, 66% in 2014 and 80% in 2015. In 2014 and beyond, Toshiba has the option, at its discretion, to sell shares it owns to us if we have exercised any of our options. After we own 80% or more shares, the former shareholders of NMD have a put option which allows them to sell their shares to us. The exercise price for all options is payable in cash and is to be determined using a formula based primarily upon the financial position of J-Devices at the time of exercise.

Under the equity method of accounting, we recognize our 30% proportionate share of J-Devices' net income or loss, which is after J-Devices' income taxes in Japan, during each accounting period as a change in our investment in unconsolidated affiliate. For the three and six months ended June 30, 2012, our equity in earnings in J-Devices, net of J-Devices' income taxes in Japan, was $0.9 million and $2.9 million, respectively. For the three and six months ended June 30, 2011, our equity in earnings in J-Devices, net of J-Devices' income taxes in Japan, was $2.1 million and $3.6 million, respectively.

In addition, we record equity method adjustments as a change in our investment in unconsolidated affiliate. These adjustments include the amortization of a basis difference as our carrying value exceeded our equity in the net assets of J-Devices at the date of investment as well as other adjustments required by the equity method.

In conjunction with entering into the joint venture, one of our existing subsidiaries in Japan purchased packaging and test equipment from Toshiba and leased the equipment to J-Devices under an agreement which is accounted for as a direct financing lease. For the three and six months ended June 30, 2012, we recognized interest income of $0.1 million and $0.2 million, respectively. For the three and six months ended June 30, 2011, we recognized interest income of $0.2 million and $0.4 million, respectively. Our lease receivable, net was $12.9 million and $20.2 million as of June 30, 2012, and December 31, 2011, respectively, and was recorded as a component of other accounts receivable.

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11. Accrued Expenses

Accrued expenses consist of the following:



	June 30, 2012		December 31, 2011
	(In thousands)
Payroll and benefits	$	55,962	$	59,928
Customer advances and deferred revenue	44,739		34,672
Accrued royalties (Note 16)	30,000		—
Accrued interest	15,329		11,941
Accrued severance plan obligations (Note 13)	7,428		7,476
Income taxes payable	2,803		4,446
Other accrued expenses	34,396		39,824
Total accrued expenses	$	190,657	$	158,287

Accrued royalties relate to our estimate for unpaid royalties owed to Tessera as a result of an interim order received from an arbitration panel on July 5, 2012 (Note 16).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

12. Debt

Following is a summary of short-term borrowings and long-term debt:



	June 30, 2012			December 31, 2011
	(In thousands)
Debt of Amkor Technology, Inc.:
Senior secured credit facilities:
$150 million revolving credit facility, LIBOR plus 1.5%-2.25%, due June 2017 (1)	$	—		$	—
Senior notes:
7.375% Senior notes, due May 2018	345,000			345,000
6.625% Senior notes, due June 2021, $75 million related party	400,000			400,000
Senior subordinated notes:
6.0% Convertible senior subordinated notes, due April 2014, $150 million related party	250,000			250,000
Debt of subsidiaries:
Amkor Technology Korea, Inc.:
$41 million revolving credit facility, foreign currency funding-linked base rate plus 2.33%, due June 2013 (2)	10,000			—
Term loan, bank funding rate-linked base rate plus 1.99%, due May 2013 (3)	—			103,000
Term loan, bank base rate plus 0.5%, due April 2014	107,140			107,140
Term loan, bank base rate plus 1.06% or 1.16%, due July 2014 (4)	50,000			50,000
Term loan, foreign currency funding-linked base rate plus 2.30%, due March 2015 (3)	100,000			—
Term loan, bank funding rate-linked base rate plus 1.7%, due March 2016	50,000			12,512
Term loan, LIBOR plus 3.90% or 3.94%, due July 2017 (4)	—			—
Other:
¥1 billion revolving credit facility, TIBOR plus 0.6%, due September 2012 (Japan)	—			—
Term loan, TIBOR plus 0.8%, due September 2012 (Japan)	3,763			9,495
Term loan, LIBOR plus 2.8%, due 12 months from date of draw (China)	20,000			20,000
Term loan, TAIFX plus a bank-determined spread, due April 2015 (Taiwan) (5)	44,000			49,504
	1,379,903			1,346,651
Less: Short-term borrowings and current portion of long-term debt	(69,358		)	(59,395		)
Long-term debt (including related party)	$	1,310,545		$	1,287,256

(1)

In June 2012, Amkor Technology, Inc. ("ATI") amended and restated the $100.0 million senior secured revolving credit facility to increase the facility amount to $150.0 million and extend its term by two years to June 2017. The facility has a letter of credit sub-limit of $25.0 million. As amended, interest is charged under the facility at a floating rate based on the base rate in effect from time to time plus the applicable margins which range from 0.25% to 1.00% for base rate revolving loans, or LIBOR plus 1.5% to 2.25% for LIBOR revolving loans. In connection with amending and extending the facility, ATI capitalized $0.8 million of deferred debt issuance costs for the six months ended June 30, 2012.

(2)

In June 2012, Amkor Technology Korea, Inc., a Korean subsidiary (“ATK”) entered into a $41.0 million revolving credit facility with a Korean Bank with a term of 12 months. The loan bears interest at the foreign currency funding-linked base rate plus 2.33% (4.80% as of June 30, 2012). Principal is payable upon maturity and interest is paid monthly. The loan is collateralized with certain land, buildings and equipment at our ATK facilities. In July 2012,

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

the outstanding balance was repaid in full.

(3)

In March 2012, ATK repaid the remaining outstanding balance due May 2013 by entering into a $100.0 million term loan with the same Korean bank, which is due upon maturity in March 2015. The term loan bears interest at a foreign currency funding-linked base rate plus 2.30% (5.27% as of June 30, 2012) to be paid monthly. The term loan is collateralized by substantially all the land, factories and equipment located at our ATK facilities.

(4)

In June 2012, ATK entered into a $150.0 million, five-year secured term loan with a Korean bank which is collateralized by substantially all the land, factories and equipment located at our ATK facilities. Interest is paid quarterly, $50.0 million at LIBOR plus 3.90% (4.36% as of June 30, 2012) ("Tranche A") and $100.0 million at LIBOR plus 3.94% (4.40% as of June 30, 2012) ("Tranche B"). Tranche B is available to be drawn over the next 12 months to fund capital additions. In July 2012, ATK drew $50.0 million from Tranche A and $10.0 million from Tranche B. The proceeds of Tranche A were used to fully repay the term loan due July 2014. The term loan is due in full upon maturity in July 2017.

(5)

In January 2012, Amkor Technology Taiwan Ltd, a Taiwanese subsidiary, converted the existing NT$1.5 billion term loan from a Taiwanese to a U.S. dollar denominated term loan. The term loan previously bore interest at the 90-day primary commercial paper rate plus 0.835% and now bears interest at the Taipei Foreign Exchange ("TAIFX") six month U.S. dollar rate plus a bank-determined spread (2.59% as of June 30, 2012). All other terms and conditions remain the same.

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. Our collateralized bank debt agreements and the indentures governing our outstanding notes contain a number of affirmative and negative covenants which could restrict our operations. We were in compliance with all of our covenants as of June 30, 2012.

13. Pension and Severance Plans

Foreign Pension Plans

Our subsidiaries in Japan, the Philippines and Taiwan sponsor defined benefit pension plans that cover substantially all of their respective employees who are not covered by statutory plans. Charges to expense are based upon actuarial analyses. The components of net periodic pension cost for these defined benefit plans are as follows:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2011			2012			2011
	(In thousands)
Components of net periodic pension cost and total pension expense:
Service cost	$	1,528		$	1,642		$	3,229		$	3,270
Interest cost	802			921			1,622			1,830
Expected return on plan assets	(787		)	(887		)	(1,570		)	(1,762		)
Amortization of transition obligation	2			2			4			3
Amortization of prior service cost	54			78			125			156
Recognized actuarial loss	52			23			103			45
Net periodic pension cost	1,651			1,779			3,513			3,542
Curtailment loss	—			—			1,089			—
Settlement gain	—			—			(100		)	—
Total pension expense	$	1,651		$	1,779		$	4,502		$	3,542

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

During the six months ended June 30, 2012, we recognized net curtailment and settlement losses of $1.0 million resulting from the remeasurement of our defined benefit plan in Japan due to reductions in workforce (Note 18).

For the three and six months ended June 30, 2012, we contributed $0.1 million and $0.2 million to the pension plans, respectively. We expect to contribute approximately $3.2 million to the pension plans during the remainder of 2012. For the three and six months ended June 30, 2011, we contributed $0.1 million and $0.2 million to the pension plans, respectively.

Korean Severance Plan

Our Korean subsidiary participates in an accrued severance plan that covers employees with at least one year of service. To the extent eligible employees are terminated, our Korean subsidiary would be required to make lump-sum severance payments on behalf of these eligible employees based on their length of service, seniority and rate of pay at the time of termination. Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date. Our contributions to the National Pension Plan of the Republic of Korea are deducted from accrued severance benefit liabilities.

The provision recorded for severance benefits for the three months ended June 30, 2012 and 2011, was $7.2 million and $7.8 million, respectively. The provision recorded for severance benefits for the six months ended June 30, 2012 and 2011, was $7.6 million and $13.5 million, respectively. The balance of our Korean severance obligation consists of the following:



	June 30, 2012		December 31, 2011
	(In thousands)
Current (Accrued expenses)	$	7,428	$	7,476
Non-current (Pension and severance obligations)	103,462		99,000
Total Korean severance obligation	$	110,890	$	106,476

14. Treasury Stock

Stock Repurchase Program

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. The purchase of stock under the program may be made in the open market or through privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will depend upon a variety of factors including economic and market conditions, the cash needs and investment opportunities for the business, price, applicable legal requirements and other factors. Our stock repurchase program may be suspended or discontinued at any time.

During the three and six months ended June 30, 2012, we purchased 7.1 million and 8.1 million shares of common stock for an aggregate purchase price of $33.2 million and $37.7 million respectively, net of $0.1 million and $0.2 million of commissions, respectively, for an average price of $4.66 and $4.65, respectively. Since inception of the program, we have purchased a total of 36.7 million shares at an aggregate purchase price of $166.6 million, net of $0.7 million of commissions. At June 30, 2012, approximately $133.4 million was available to repurchase common stock pursuant to the stock repurchase program. At June 30, 2012, $3.3 million of the $37.7 million amount repurchased remained unpaid and is recorded in accrued expenses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

15. Fair Value Measurements

The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers as follows: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities and Level 3, defined as unobservable inputs that are not corroborated by market data.

Our assets and liabilities recorded at fair value on a recurring basis include cash equivalent money market funds and restricted cash money market funds. Cash equivalent money market funds and restricted cash money market funds are invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts, which are due on demand or carry a maturity date of less than three months when purchased. No restrictions have been imposed on us regarding withdrawal of balances with respect to our cash equivalents as a result of liquidity or other credit market issues affecting the money market funds we invest in or the counterparty financial institutions holding our deposits. Money market funds are valued using quoted market prices in active markets for identical assets. We also measure certain assets and liabilities, including property, plant and equipment, intangible assets and an equity investment, at fair value on a nonrecurring basis. For the three and six months ended June 30, 2012, such measurements included the consideration of third party valuation reports based on a combination of market and cost approach valuation techniques. The valuation reports contained various inputs including semiconductor industry data, dealer listings, replacement costs, price lists, cost indices and general information regarding the assets being evaluated. Nonrecurring fair value measurements related to property, plant and equipment impairments reflect the fair value of the assets at the dates the impairments were taken during the period. Our fair value measurements consist of the following:



	For the Three Months Ended June 30, 2012			For the Six Months Ended June 30, 2012			June 30, 2012		For the Three Months Ended June 30, 2011			For the Six Months Ended June 30, 2011			December 31, 2011
	Gains (Losses)			Gains (Losses)			Fair Value		Gains (Losses)			Gains (Losses)			Fair Value
	(In thousands)
Recurring fair value measurements:
Cash equivalent money market funds (Level 1)							$	102,192							$	165,540
Restricted cash money market funds (Level 1)							2,680								2,680

Nonrecurring fair value measurements:
Long-lived assets held for use or disposal (Level 3)	$	(101	)	$	(336	)	$	609	$	(134	)	$	(1,149	)

For the three and six months ended June 30, 2012 and 2011, all impairment losses on property, plant and equipment were recorded as cost of sales.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

We measure the fair value of our debt on a quarterly basis for disclosure purposes. The following table presents the fair value of financial instruments that are not recorded at fair value on a recurring basis:



	June 30, 2012				December 31, 2011
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In thousands)
Senior notes (Level 1)	$	762,250	$	745,000	$	737,049	$	745,000
Convertible senior subordinated notes (Level 1)	432,500		250,000		405,625		250,000
Subsidiary revolvers and term loans (Level 2)	381,102		384,903		352,679		351,651
Total debt	$	1,575,852	$	1,379,903	$	1,495,353	$	1,346,651

The estimated fair value of the debt is based primarily on quoted market prices reported on the balance sheet date for our senior and senior subordinated notes. The estimated fair value for the debt of our subsidiaries is based on market based assumptions including current borrowing rates for similar types of borrowing arrangements adjusted for duration, optionality and risk profile.

16. Commitments and Contingencies

We have a letter of credit sub-facility of $25.0 million under our $150.0 million senior secured revolving credit facility that matures in June 2017. As of June 30, 2012, we had $0.3 million of standby letters of credit outstanding and had an additional $24.7 million available for letters of credit. Such standby letters of credit are used in the ordinary course of our business and are collateralized by our cash balances.

We generally warrant that our services will be performed in a professional and workmanlike manner and in compliance with our customers' specifications. We accrue costs for known warranty issues. Historically, our warranty costs have been immaterial.

Legal Proceedings

We are involved in claims and legal proceedings and may become involved in other legal matters arising in the ordinary course of our business. We evaluate these claims and legal matters on a case-by-case basis to make a determination as to the impact, if any, on our business, liquidity, results of operations, financial condition or cash flows. Except as indicated below, we currently believe that the ultimate outcome of these claims and proceedings, individually and in the aggregate, will not have a material adverse impact to us. Our evaluation of the potential impact of these claims and legal proceedings on our business, liquidity, results of operations, financial condition or cash flows could change in the future. Attorney fees related to legal matters are expensed as incurred.

In accordance with the accounting guidance for loss contingencies, including pending claims, legal proceedings and other legal matters, we accrue for a loss contingency when we conclude that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range of amounts, and no amount in the range constitutes a better estimate than any other amount, we accrue for the amount at the low end of the range. We adjust our accruals from time to time as we receive additional information, but the loss we incur may be significantly greater than or less than the amount we have accrued. We disclose loss contingencies if there is at least a reasonable possibility that a loss has been incurred.

Arbitration Proceedings with Tessera, Inc.

On March 2, 2006, Tessera, Inc. (“Tessera”) filed a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce (the “ICC”), captioned Tessera, Inc. v. Amkor Technology, Inc. (the "First Tessera Arbitration"). The subject matter of the arbitration was a license agreement (“License Agreement”) entered into between Tessera and our predecessor in 1996. In its rulings in 2008 and 2009, the arbitration panel in the First Tessera Arbitration

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

found that most of the packages accused by Tessera were not subject to the patent royalty provisions of the License Agreement, awarded Tessera $60.6 million as damages for some infringing packages for the period March 2, 2002, through December 1, 2008, and denied Tessera's request to terminate the License Agreement. The final award, plus interest and the royalties through December 2008 amounting to $64.7 million, was expensed in 2008 and paid when due in February 2009.

Following Tessera's favorable decision in the U.S International Trade Commission (the “ITC”) in May 2009 against some of our customers, Tessera began making repeated statements to customers and others claiming that we were in breach of the royalty provisions of the License Agreement. We informed Tessera that we believed we were in full compliance with the License Agreement and of our intent to continue making the royalty payments when due in accordance with the terms of the License Agreement.

On August 7, 2009, we filed a request for arbitration in the ICC against Tessera, captioned Amkor Technology, Inc. v. Tessera, Inc. (the “Second Tessera Arbitration”). We instituted the action in order to obtain declaratory relief confirming that we were a licensee in good standing under our 1996 License Agreement with Tessera and that the License Agreement remained in effect.

On November 2, 2009, Tessera filed an answer to our request for arbitration and counterclaims in the ICC. In the answer and counterclaims, Tessera denied Amkor's claims, alleged breach of contract, sought termination of the License Agreement and asserted that Amkor owed Tessera additional royalties under the License Agreement, including royalties for use of thirteen U.S. and six foreign patents that Tessera did not assert in the First Tessera Arbitration. Tessera later dropped its claims on five of those patents. On February 17, 2011, Tessera sent Amkor a notice of termination of the License Agreement.

In May 2011, Tessera filed a new request for arbitration against Amkor with the ICC captioned Tessera, Inc. v. Amkor Technology, Inc. (the "Third Tessera Arbitration") seeking undisclosed damages and a declaration that the License Agreement had been terminated.

In July 2011, the panel issued its decision in the first phase of the Second Tessera Arbitration. The panel found that we did not owe any of the approximately $18 million of additional royalties claimed by Tessera for packages assembled by us for customers who had been involved in proceedings with Tessera before the ITC. Our request for a declaration confirming that we were in compliance with the License Agreement and that our royalty calculations from the First Tessera Arbitration were correct was denied. The panel found that we had materially breached the License Agreement by not paying the full amount of royalties due and by failing to satisfy the audit provisions of the License Agreement. The final amount of royalties and interest owed relating to the first phase of the Second Tessera Arbitration was approximately $0.5 million, which has been fully paid.

On July 5, 2012, the panel issued an interim order in the second phase of the Second Tessera Arbitration finding that royalties are due to Tessera on three of the ten asserted U.S. patents remaining at issue but not on the other seven, royalties are due on four foreign patents related to U.S. patents that the panel found to be royalty bearing in the First Tessera Arbitration and that the License Agreement was terminated by Tessera as of February 17, 2011. We do not believe the termination of the license agreement will interfere in any significant way with our ability to use our technology, conduct our business or service our customers.

The panel reserved for later decision the issues of the amount of royalties and pre-judgment interest due, the allocation of costs and the question of whether Tessera intends to pursue its allegations regarding other patents which have not yet been addressed by the panel. On July 19, 2012, Tessera informed the panel that it intends to proceed on its claims related to three additional U.S. patents. The panel has not yet set forth the procedure and briefing schedule for these matters.

We recorded a charge for the three months ended June 30, 2012, of $34.0 million, based on our current estimates of the damages and interest due to date in respect of the Second Tessera Arbitration. In July 2012, Tessera publicly announced its intention to seek an amount in excess of $125 million in the arbitration. We believe that $34.0 million of damages and interest is a reasonable estimate of the low end of the possible range of loss up to the amount claimed by Tessera. Because we believe that no amount in the range constitutes a better estimate than any other amount, we have recorded the $34.0 million estimate. Of our total accrual, $30.0 million was recorded as cost of goods sold and $4.0 million was recorded as

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(Unaudited)

interest expense. The ultimate amount of damages and interest is subject to determination by the panel based on a number of complex factors, including the panel's determination of which package families the patents apply to, whether those packages meet criteria previously laid out by the panel, overlaps among the packages, the final date through which royalties are applicable and other factors. The final award could be more than the amount currently accrued, and we expect to record our estimate of interest accruing with the passage of time and may record additional charges as information develops or upon the issuance of the final award.

On July 6, 2012, Tessera filed a complaint in the U.S. District Court for the District of Delaware. The complaint seeks injunctive relief and damages with respect to Amkor's alleged infringement of one of the U.S. patents that the panel found to be royalty bearing in the Second Tessera Arbitration. We strongly dispute Tessera's claims and intend to vigorously defend against them. However, the outcome of this matter is uncertain, and an adverse decision could have a material adverse effect on our results of operations, financial condition and cash flows.

Amkor Technology, Inc. v. Carsem (M) Sdn Bhd, Carsem Semiconductor Sdn Bhd, and Carsem Inc.

On November 17, 2003, we filed a complaint against Carsem (M) Sdn Bhd, Carsem Semiconductor Sdn Bhd, and Carsem Inc. (collectively “Carsem”) with the ITC in Washington, D.C., alleging infringement of our United States Patent Nos. 6,433,277; 6,455,356 and 6,630,728 (collectively the “Amkor Patents”) and seeking, under Section 337 of the Tariff Act of 1930, an exclusion order barring the importation by Carsem of infringing products. We allege that by making, using, selling, offering for sale or importing into the U.S. the Carsem Dual and Quad Flat No-Lead Packages, Carsem has infringed on one or more of our MicroLeadFrame packaging technology claims in the Amkor Patents.

On November 18, 2003, we also filed a complaint in the U.S. District Court for the Northern District of California, alleging infringement of the Amkor Patents and seeking an injunction enjoining Carsem from further infringing the Amkor Patents, compensatory damages and treble damages due to willful infringement plus interest, costs and attorney's fees. This District Court action has been stayed pending resolution of the ITC case.

The ITC Administrative Law Judge (“ALJ”) conducted an evidentiary hearing during July and August of 2004 in Washington D.C. and, on November 18, 2004, issued an Initial Determination that Carsem infringed some of our patent claims relating to our MicroLeadFrame package technology, that some of our 21 asserted patent claims are valid, that we have a domestic industry in our patents and that all of our asserted patent claims are enforceable. However, the ALJ did not find a statutory violation of Section 337 of the Tariff Act.

We filed a petition in November 2004 to have the ALJ's ruling reviewed by the full ITC. On March 31, 2005, the ITC ordered a new claims construction related to various disputed claim terms and remanded the case to the ALJ for further proceedings. On November 9, 2005, the ALJ issued an Initial Determination on remand finding that Carsem infringed some of our patent claims and that Carsem had violated Section 337 of the Tariff Act.

On remand, the ITC had also authorized the ALJ to reopen the record on certain discovery issues related to a subpoena of documents from a third party. An order by the U.S. District Court for the District of Columbia enforcing the subpoena became final on January 9, 2009, and the third party produced documents pursuant to the subpoena.

On July 1, 2009, the ITC remanded the investigation for a second time to the ALJ to reopen the record to admit into evidence documents and related discovery obtained from the enforcement of the above-referenced third-party subpoena.

Following a two-day hearing, on October 30, 2009, the ALJ issued an Initial Determination reaffirming his prior ruling that the Carsem Dual and Quad Flat No-Lead Packages infringe some of Amkor's patent claims relating to MicroLeadFrame package technology, that all of Amkor's asserted patent claims are valid and that Carsem violated Section 337 of the Tariff Act.

On December 16, 2009, the ITC ordered a review of the ALJ's Initial Determination. On February 18, 2010, the Commission reversed a finding by the ALJ on the issue of whether a certain invention constitutes prior art to Amkor's asserted patents. The ITC remanded the investigation to the ALJ to make further findings in light of the ITC's ruling. On March 22, 2010,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

the ALJ issued a Supplemental Initial Determination. Although the ALJ's ruling did not disturb the prior finding that Carsem Dual and Quad Flat No-Lead Packages infringe some of Amkor's patent claims relating to MicroLeadFrame technology, the ALJ found that some of Amkor's patent claims are invalid and, as a result, the ALJ did not find a statutory violation of the Tariff Act. On July 20, 2010, the ITC issued a Notice of Commission Final Determination, in which the ITC determined that there is no violation of Section 337 of the Tariff Act and terminated the investigation. We have appealed the ITC's ruling to the U.S. Court of Appeals for the Federal Circuit, and oral arguments were heard in November 2011.

17. Business Segments

We have two reportable segments, packaging and test. Packaging and test are integral steps in the process of manufacturing semiconductor devices, and our customers may engage with us for both packaging and test services, or for packaging or test services individually.

The accounting policies for segment reporting are the same as those for our Consolidated Financial Statements as a whole. We evaluate our operating segments based on gross profit and gross property, plant and equipment. We do not specifically identify and allocate total assets by operating segment. Summarized financial information concerning reportable segments is shown in the following table. The “other” column includes corporate adjustments, gross property, plant and equipment of our corporate and sales offices and capital additions that do not directly support manufacturing operations, such as research and development and infrastructure projects.



	Packaging		Test		Other			Total
	(In thousands)
Three months ended June 30, 2012
Net sales	$	610,667	$	75,860	$	—		$	686,527
Depreciation expense	58,881		23,010		—			81,891
Gross profit	67,998		21,322		—			89,320
Capital additions	67,303		35,147		46,965			149,415
Three months ended June 30, 2011
Net sales	$	612,363	$	75,210	$	60		$	687,633
Depreciation expense	53,785		20,467		64			74,316
Gross profit	109,379		20,663		(225		)	129,817
Capital additions	55,894		19,954		21,140			96,988
Six months ended June 30, 2012
Net sales	$	1,192,178	149,359		—			$	1,341,537
Depreciation expense	116,801		45,187		—			161,988
Gross profit	155,301		39,000		—			194,301
Capital additions	120,854		84,229		68,267			273,350
Six months ended June 30, 2011
Net sales	$	1,210,169	142,342		72			$	1,352,583
Depreciation expense	108,584		40,885		101			149,570
Gross profit	220,685		36,149		(331		)	256,503
Capital additions	121,878		41,590		38,513			201,981
Gross property, plant and equipment
June 30, 2012	$	3,324,211	969,681		150,853			$	4,444,745
December 31, 2011	3,217,308		880,611		149,696			4,247,615

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

18. Exit Activities and Reductions in Force

As part of our ongoing efforts to improve our manufacturing operations and manage costs, we regularly evaluate our staffing levels and facility requirements compared to business needs. The following table summarizes our exit activities and reduction in force initiatives associated with these efforts. “Charges” represents the initial charge related to the exit activity. “Cash Payments” consists of the utilization of “Charges.” “Non-cash Amounts” consists of pension plan curtailments and settlements and foreign currency adjustments.



	Employee Separation Costs
	(In thousands)
Accrual at December 31, 2011	$	—
Charges	7,160
Cash Payments	(6,112		)
Non-cash Amounts	(951		)
Accrual at June 30, 2012	$	97



	Employee Separation Costs
	(In thousands)
Accrual at December 31, 2010	$	670
Charges	23
Cash Payments	(589		)
Accrual at June 30, 2011	$	104

Reduction in Force

During the six months ended June 30, 2012, we reduced our workforce by approximately 120 employees at our manufacturing operations in Japan. We recorded $7.2 million in charges for one-time termination benefits including $1.0 million in net curtailment and settlement charges, of which $5.5 million, $1.6 million and $0.1 million were charged to cost of sales; selling, general and administrative expenses and research and development expenses, respectively. All amounts accrued at June 30, 2012, are classified in current liabilities.

Singapore Manufacturing Operations

In June 2009, we communicated to our employees the decision to wind-down and exit our manufacturing operations in Singapore. We completed our exit as of December 31, 2010. This wind-down affected approximately 600 employees and enabled us to improve our cost structure by consolidating factories. The majority of the machinery and equipment was relocated to and utilized in other factories. In June 2011, we sold the facility in Singapore for $13.3 million in cash, net of goods and services tax, and recorded a gain of less than $0.1 million, with no net tax effect.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements within the meaning of the federal securities laws, including but not limited to statements regarding: (1) the amount, timing and focus of our expected capital investments, (2) our ability to fund our operating activities for the next twelve months, (3) the effect of capacity utilization rates on our gross margin, (4) the expiration of tax holidays in jurisdictions in which we operate and expectations regarding our effective tax rate, (5) the release of valuation allowances related to taxes in the future, (6) the expected use of future cash flows, if any, for the expansion of our business, capital expenditures, the repayment of debt and the repurchase of common stock, (7) our repurchase or repayment of outstanding debt or the conversion of debt in the future, (8) payment of dividends, (9) compliance with our covenants, (10) expected contributions to foreign pension plans, (11) liability for unrecognized tax benefits, (12) the effect of foreign currency exchange rate exposure on our financial results, (13) the volatility of the trading price of our common stock, (14) changes to our internal controls related to implementation of a new enterprise resource planning (“ERP”) system, (15) the timing and amount of the charge and cash payment in respect of the final award in the Tessera arbitration, (16) the timing, costs, benefits and features of the Incheon, Korea facility project and (17) other statements that are not historical facts. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” “intend” or the negative of these terms or other comparable terminology. Because such statements include risks and uncertainties, actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the following discussion as well as in Part II, Item 1A of this Quarterly Report. The following discussion provides information and analysis of our results of operations for the three and six months ended June 30, 2012, and our liquidity and capital resources. You should read the following discussion in conjunction with Item 1 in this Quarterly Report as well as other reports we file with the Securities and Exchange Commission (“SEC”).

Overview

Amkor is one of the world's leading providers of outsourced semiconductor packaging and test services. Packaging and test are integral steps in the process of manufacturing semiconductor devices. The semiconductor manufacturing process begins with the fabrication of tiny transistor elements into complex patterns of electronic circuitry on silicon wafers, thereby creating large numbers of individual semiconductor devices or integrated circuits on each wafer (generally referred to as “chips” or “die”). Each device on the wafer is tested, and the wafer is cut into pieces called chips. The chips are attached through wirebonding to a substrate or leadframe, or to a substrate in the case of flip chip interconnect, and then encased in a protective material to create a package. For a wafer-level package, the electrical interconnections are created directly on the surface of the wafer without a substrate or leadframe. The packages are then tested using sophisticated equipment to ensure that each packaged chip meets its design and performance specifications.

Our packages are designed based on application and chip specific requirements including the type of interconnect technology employed, size, thickness and electrical, mechanical and thermal performance. We are able to provide turnkey packaging and test services including semiconductor wafer bump, wafer probe, wafer backgrind, package design, packaging, test and drop shipment services.

Our customers include, among others: Altera Corporation; Analog Devices, Inc.; Broadcom Corporation; Infineon Technologies AG; International Business Machines Corporation; LSI Corporation; Qualcomm Incorporated; ST Microelectronics N.V.; Texas Instruments Incorporated and Toshiba Corporation. The outsourced semiconductor packaging and test market is very competitive. We also compete with the internal semiconductor packaging and test capabilities of many of our customers.

Our net sales decreased $1.1 million or 0.2% to $686.5 million for the three months ended June 30, 2012, from $687.6 million for the three months ended June 30, 2011. The decrease was driven by a decline of $1.7 million or 0.3% in packaging net sales as a result of weakness in the consumer, networking and auto and industrial end markets, partially offset by strength in the communications end market. The decrease in packaging net sales was partially offset by a $0.7 million or 0.9% increase in our test net sales. The increase in test net sales was the result of strength in the communications end market.

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Gross margin for the three months ended June 30, 2012, decreased to 13.0% from 18.9% for the three months ended June 30, 2011. Our cost of sales for the three months ended June 30, 2012, included an estimated $30.0 million loss contingency accrual resulting from an interim order issued by the arbitration panel relating to our license agreement with Tessera, Inc. ("Tessera"). The $30.0 million royalty charge for Tessera reduced our gross margin by 4.4%. The decrease in gross margin was also due to increased depreciation expense as a result of our continued investment in property, plant and equipment as well as additional manufacturing overhead expenses. These costs were partially offset by favorable foreign currency exchange rate movements.

Our capital additions totaled $273.4 million or 20.4% of net sales for the six months ended June 30, 2012, compared to $202.0 million or 14.9% of net sales for the six months ended June 30, 2011. During the six months ended June 30, 2012, 44.2% of our capital additions were made in packaging, 30.8% in test and 25.0% for research and development and infrastructure projects.

For the six months ended June 30, 2012, we experienced negative free cash flow of $90.2 million, primarily due to our capital purchases to support anticipated customer demand for packaging and test services related to smartphones and tablets. We define free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. Free cash flow is not defined by U.S. generally accepted accounting principles (“U.S. GAAP”), and a reconciliation of free cash flow to net cash provided by operating activities is set forth under the caption “Cash Flows” below.

We believe our financial position and liquidity are sufficient to fund our operating activities for at least the next twelve months. At June 30, 2012, our cash and cash equivalents totaled approximately $351.2 million, and we have an aggregate of $8.8 million of debt due through the end of 2012. In June 2012, we amended and restated the $100.0 million senior secured revolving credit facility to increase the facility amount to $150.0 million and extend its term by two years to June 2017.

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 the three months ended June 30, 2012, we repurchased 7.1 million shares for $33.3 million under this program. Our stock repurchase program may be suspended or discontinued at any time.

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Results of Operations

The following table sets forth certain operating data as a percentage of net sales for the periods indicated:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2012		2011		2012		2011
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	13.0	%	18.9	%	14.5	%	19.0	%
Depreciation and amortization	13.2	%	12.1	%	13.4	%	12.3	%
Operating income	3.2	%	8.1	%	4.2	%	7.8	%
(Loss) income before income taxes	(0.4	)%	2.6	%	0.9	%	3.5	%
Net income attributable to Amkor	0.1	%	2.1	%	0.9	%	2.9	%

Net Sales



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2012		2011		Change					2012		2011		Change
	(In thousands, except percentages)
Net sales	$	686,527	$	687,633	$	(1,106	)	(0.2	)%	$	1,341,537	$	1,352,583	$	(11,046	)	(0.8	)%
Packaging net sales	610,667		612,363		(1,696		)	(0.3	)%	1,192,178		1,210,169		(17,991		)	(1.5	)%
Test net sales	75,860		75,210		650			0.9	%	149,359		142,342		7,017			4.9	%

Net Sales. Net sales in the three and six months ended June 30, 2012, decreased compared to the three and six months ended June 30, 2011, as a result of lower net sales of our packaging services. The decrease in packaging net sales was driven by weakness in the consumer, networking and auto and industrial end markets. These decreases were partially offset by strength in the communications end market. For the three and six months ended June 30, 2012, the overall decline in net sales was also partially offset by an increase in test net sales due to the strength in the communications end market.

Packaging Net Sales. Packaging net sales in the three and six months ended June 30, 2012, decreased compared to the three and six months ended June 30, 2011. The decrease was primarily driven by weakness in sales of our ball grid array and leadframe packaging services supporting gaming, networking, home electronics and auto and industrial applications. This decrease was partially offset by increased sales of our chip scale packaging services for wireless communications products, such as smartphones and tablets.

Packaging unit volume decreased 0.1 billion units to 2.1 billion units during the three months ended June 30, 2012, compared to 2.2 billion units during the three months ended June 30, 2011, primarily due to a decrease in unit demand for our leadframe and wirebond chip scale packaging services partially offset by increased demand for flip chip chip scale packaging services. Packaging unit volume decreased 0.3 billion units to 4.0 billion units during the six months ended June 30, 2012, compared to 4.3 billion units during the six months ended June 30, 2011, primarily due to a decrease in unit demand for our leadframe and wirebond chip scale packaging services partially offset by increased demand for flip chip chip scale packaging services.

Test Net Sales. Test net sales in the three and six months ended June 30, 2012, increased compared to the three and six months ended June 30, 2011. The increase was primarily attributable to higher test services for wireless communications products, such as smartphones and tablets.

Cost of Sales



	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2012		2011		Change				2012		2011		Change
	(In thousands, except percentages)
Cost of sales	$	597,207	$	557,816	$	39,391	7.1	%	$	1,147,236	$	1,096,080	$	51,156	4.7	%

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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, relatively modest increases or decreases in capacity utilization rates can have a significant effect on our gross margin.

Material costs as a percentage of net sales increased to 43.2% and 44.0% for the three and six months ended June 30, 2012, from 42.8% for the three and six months ended June 30, 2011. The increase as a percentage of sales and in absolute dollars was primarily due to a shift to a mix of packaging services with a higher material content as a percentage of net sales and the increased cost of gold used in many of our wirebond packages.

Labor costs as a percentage of net sales decreased to 14.4% and 14.2% for the three and six months ended June 30, 2012, from 14.9% and 14.5% for the three and six months ended June 30, 2011. Labor costs as a percentage of sales, and in absolute dollars, decreased primarily due to favorable foreign currency exchange rate movements as substantially all of our manufacturing operations' workforce is paid in local currencies. In addition, we saw labor cost savings for the six months ended June 30, 2012, which were partially offset by a $5.5 million charge for the restructuring activities at our manufacturing operations in Japan.

Other manufacturing costs as a percentage of net sales increased to 29.4% and 27.3% for the three and six months ended June 30, 2012, from 23.4% and 23.7% for the three and six months ended June 30, 2011. The increase in other manufacturing costs as a percentage of sales, and in absolute dollars, was primarily attributable to the estimated $30.0 million loss contingency accrual resulting from an interim order issued by the arbitration panel relating to our license agreement with Tessera. Other manufacturing costs also increased as a result of increased depreciation expense due to our continued investments in property, plant and equipment as well as additional manufacturing overhead expenses.

Gross Profit



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2012			2011			Change			2012			2011			Change
	(In thousands, except percentages)
Gross profit	$	89,320		$	129,817		$	(40,497	)	$	194,301		$	256,503		$	(62,202	)
Gross margin	13.0		%	18.9		%	(5.9		)%	14.5		%	19.0		%	(4.5		)%

Gross profit and gross margin for the three and six months ended June 30, 2012, decreased compared to the three and six months ended June 30, 2011. The decline in gross profit and gross margin was primarily due to the estimated $30.0 million loss contingency accrual resulting from an interim order issued by the arbitration panel relating to our license agreement with Tessera. The $30.0 million royalty charge for Tessera reduced our gross margin by 4.4% for the three months ended June 30, 2012. The decline in gross profit and gross margin was also driven by increased depreciation expense as a result of our continued investment in property, plant and equipment as well as additional manufacturing overhead expenses. For the six months ended June 30, 2012, our gross margin was also negatively impacted by restructuring activities at our manufacturing operations in Japan. These reductions in gross profit and gross margin were partially offset by favorable foreign currency exchange rate movements and labor cost savings from our previous restructuring activities.



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2012			2011			Change			2012			2011			Change
	(In thousands, except percentages)
Packaging gross profit	$	67,998		$	109,379		$	(41,381	)	$	155,301		$	220,685		$	(65,384	)
Packaging gross margin	11.1		%	17.9		%	(6.8		)%	13.0		%	18.2		%	(5.2		)%

Packaging Gross Profit. Gross profit and gross margin for packaging net sales for the three and six months ended June 30, 2012, decreased compared to the three and six months ended June 30, 2011. The decline in gross profit and gross margin was primarily due to the Tessera loss contingency accrual discussed above, which relates entirely to the packaging segment. The decline in gross profit and gross margin was also driven by increased depreciation expense as a result of our continued investment in property, plant and equipment as well as additional manufacturing overhead expenses. For the six months

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ended June 30, 2012, our gross margin was also negatively impacted by restructuring activities at our manufacturing operations in Japan. These reductions in gross profit and gross margin were partially offset by favorable foreign currency exchange rate movements and labor cost savings from our previous restructuring activities.



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2012			2011			Change			2012			2011			Change
	(In thousands, except percentages)
Test gross profit	$	21,322		$	20,663		$	659		$	39,000		$	36,149		$	2,851
Test gross margin	28.1		%	27.5		%	0.6		%	26.1		%	25.4		%	0.7		%

Test Gross Profit. Gross profit and gross margin for test net sales for the three and six months ended June 30, 2012, increased compared to the three and six months ended June 30, 2011. The increase in gross profit and margin was primarily a result of increased customer demand for test services and higher utilization of our test assets.

Selling, General and Administrative Expenses



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2012		2011		Change					2012		2011		Change
	(In thousands, except percentages)
Selling, general and administrative	$	53,489	$	61,284	$	(7,795	)	(12.7	)%	$	110,744	$	125,842	$	(15,098	)	(12.0	)%

Selling, general and administrative expenses for the three and six months ended June 30, 2012, decreased compared to the three and six months ended June 30, 2011. The decrease was mainly attributable to lower professional fees and reduced employee compensation expense.

Research and Development



	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2012		2011		Change				2012		2011		Change
	(In thousands, except percentages)
Research and development	$	13,867	$	12,559	$	1,308	10.4	%	$	27,292	$	24,688	$	2,604	10.5	%

Research and development activities are focused on developing new packaging interconnect and test services and improving the efficiency and capabilities of our existing production processes. Areas of focus include 3D packaging, including silicon interposers and Through Silicon Via technologies, fine pitch copper pillar packaging and wafer level processing. The increase in research and development expenses for the three and six months ended June 30, 2012, compared to the three and six months ended June 30, 2011, was primarily attributable to increased headcount and increased depreciation from research and development capital additions as a result of our continued investment in research and development initiatives.

Other Expense, Net



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2012		2011		Change					2012		2011		Change
	(In thousands, except percentages)
Interest expense, net	$	25,116	$	21,886	$	3,230		14.8	%	$	46,305	$	42,668	$	3,637		8.5	%
Foreign currency loss, net	1,277		2,932		(1,655		)	(56.4	)%	2,067		4,663		(2,596		)	(55.7	)%
Loss on debt retirement, net	—		15,531		(15,531		)