Edgar Filing: AMKOR TECHNOLOGY INC

AMKR 6.30.13 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, 2013
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 o	Accelerated filer þ	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 26, 2013 was 217,856,441.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2013

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, 2013 and 2012	2
	Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2013 and 2012	3
	Consolidated Balance Sheets - June 30, 2013 and December 31, 2012	4
	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	40

PART II. Other Information
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6.	Exhibits	56
Signatures		57

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 in 2013 including expenditures for a new facility in Korea, (2) our ability to fund our operating activities for the next twelve months, (3) the effect of net sales or capacity utilization on our gross profit and gross margin, (4) the focus of our research and development activities, (5) the expiration of tax holidays in jurisdictions in which we operate and expectations regarding our effective tax rate, (6) the release of valuation allowances related to taxes in the future, (7) the expected use of future cash flows, if any, for the expansion of our business, capital expenditures, the repayment of debt and other corporate purposes, (8) our repurchase or repayment of outstanding debt or the conversion of debt in the future, (9) payment of dividends, (10) compliance with our covenants, (11) expected contributions to foreign pension plans, (12) liability for unrecognized tax benefits, (13) the effect of foreign currency exchange rate exposure on our financial results, (14) the volatility of the trading price of our common stock, (15) changes to our internal controls related to implementation of our enterprise resource planning (“ERP”) system and other systems, (16) funding for any payments due in conjunction with our litigation with Tessera 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. 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”).

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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,
	2013			2012			2013			2012
	(In thousands, except per share data)
Net sales	$	746,059		$	686,527		$	1,433,588		$	1,341,537
Cost of sales	607,680			597,207			1,180,256			1,147,236
Gross profit	138,379			89,320			253,332			194,301
Operating expenses:
Selling, general and administrative	65,618			53,489			125,177			110,744
Research and development	14,308			13,867			28,614			27,292
Total operating expenses	79,926			67,356			153,791			138,036
Operating income	58,453			21,964			99,541			56,265
Other expense (income):
Interest expense	23,739			22,452			45,817			41,038
Interest expense, related party	3,192			3,492			6,684			6,984
Interest income	(676		)	(828		)	(1,503		)	(1,717		)
Foreign currency loss, net	2,041			1,277			875			2,067
Loss on debt retirement, net	11,619			—			11,619			—
Equity in earnings of unconsolidated affiliate	(1,445		)	(892		)	(1,500		)	(2,880		)
Other income, net	(108		)	(518		)	(337		)	(1,152		)
Total other expense, net	38,362			24,983			61,655			44,340
Income (loss) before income taxes	20,091			(3,019		)	37,886			11,925
Income tax benefit	(10,238		)	(3,891		)	(6,209		)	(529		)
Net income	30,329			872			44,095			12,454
Net income attributable to noncontrolling interests	(602		)	(291		)	(986		)	(99		)
Net income attributable to Amkor	$	29,727		$	581		$	43,109		$	12,355
Net income attributable to Amkor per common share:
Basic	$	0.18		$	—		$	0.27		$	0.07
Diluted	$	0.14		$	—		$	0.21		$	0.07
Shares used in computing per common share amounts:
Basic	160,886			165,956			156,672			166,911
Diluted	235,111			166,009			235,099			167,012

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,
	2013			2012			2013			2012
	(In thousands)
Net income	$	30,329		$	872		$	44,095		$	12,454
Other comprehensive (loss) income, net of tax:
Adjustments to unrealized components of defined benefit pension plans, net of tax of ($9), ($8), $49 and ($43)	75			36			217			1,383
Cumulative translation adjustment, net of tax of ($1,087), ($586), $202 and $329	(2,899		)	1,659			(7,151		)	(1,110		)
Total other comprehensive (loss) income	(2,824		)	1,695			(6,934		)	273
Comprehensive income	27,505			2,567			37,161			12,727
Comprehensive income attributable to noncontrolling interests	(602		)	(291		)	(986		)	(99		)
Comprehensive income attributable to Amkor	$	26,903		$	2,276		$	36,175		$	12,628

The accompanying notes are an integral part of these statements.

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AMKOR TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	June 30, 2013			December 31, 2012
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	636,007		$	413,048
Restricted cash	2,681			2,680
Accounts receivable:
Trade, net of allowances	411,699			389,699
Other	4,463			13,098
Inventories	231,974			227,439
Other current assets	50,331			45,444
Total current assets	1,337,155			1,091,408
Property, plant and equipment, net	1,885,203			1,819,969
Intangibles, net	5,009			4,766
Investments	103,308			38,690
Restricted cash	2,209			2,308
Other assets	83,449			68,074
Total assets	$	3,416,333		$	3,025,215
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	56,350		$	—
Trade accounts payable	499,508			439,663
Accrued expenses	217,845			212,964
Total current liabilities	773,703			652,627
Long-term debt	1,519,661			1,320,000
Long-term debt, related party	75,000			225,000
Pension and severance obligations	137,115			139,379
Other non-current liabilities	10,855			21,415
Total liabilities	2,516,334			2,358,421
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, 261,835 and 197,709 shares issued, and 216,486 and 152,397 shares outstanding, in 2013 and 2012, respectively	262			198
Additional paid-in capital	1,810,295			1,614,143
Accumulated deficit	(713,535		)	(756,644		)
Accumulated other comprehensive income	4,307			11,241
Treasury stock, at cost, 45,349 and 45,312 shares in 2013 and 2012, respectively	(211,155		)	(210,983		)
Total Amkor stockholders’ equity	890,174			657,955
Noncontrolling interests in subsidiaries	9,825			8,839
Total equity	899,999			666,794
Total liabilities and equity	$	3,416,333		$	3,025,215

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,
	2013			2012
	(In thousands)
Cash flows from operating activities:
Net income	$	44,095		$	12,454
Depreciation and amortization	195,785			179,182
Loss on debt retirement, net	11,619			—
Other operating activities and non-cash items	(13,947		)	(1,881		)
Changes in assets and liabilities	(36,702		)	(47,292		)
Net cash provided by operating activities	200,850			142,463
Cash flows from investing activities:
Purchases of property, plant and equipment	(222,674		)	(232,682		)
Proceeds from the sale of property, plant and equipment	25,093			998
Payments from unconsolidated affiliate	8,843			9,688
Investment in unconsolidated affiliate	(67,372		)	—
Other investing activities	(2,032		)	1,533
Net cash used in investing activities	(258,142		)	(220,463		)
Cash flows from financing activities:
Borrowings under revolving credit facilities	5,000			—
Payments under revolving credit facilities	(5,000		)	—
Borrowings under short-term debt	—			30,000
Payments of short-term debt	—			(20,000		)
Proceeds from issuance of long-term debt	293,000			187,528
Payments of long-term debt, net	—			(165,165		)
Payments for debt issuance costs	(3,357		)	(823		)
Payments for the retirement of debt	(11,619		)	—
Payments for repurchase of common stock	—			(35,652		)
Proceeds from the issuance of stock through share-based compensation plans	—			162
Payments of tax withholding for restricted shares	(172		)	(446		)
Net cash provided by (used in) financing activities	277,852			(4,396		)
Effect of exchange rate fluctuations on cash and cash equivalents	2,399			(1,052		)
Net increase (decrease) in cash and cash equivalents	222,959			(83,448		)
Cash and cash equivalents, beginning of period	413,048			434,631
Cash and cash equivalents, end of period	$	636,007		$	351,183
Non cash investing and financing activities:
Common stock issuance for exchange of 6.0% convertible senior subordinated notes due April 2014, $150 million related party	$	193,650		$	—

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, 2013 and for the three and six months ended June 30, 2013 and 2012, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The December 31, 2012, 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, 2012, filed on Form 10-K with the SEC on March 8, 2013. The results of operations for the three and six months ended June 30, 2013, 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 February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (Topic 220). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income ("AOCI") by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. This ASU is effective for reporting periods beginning after December 15, 2012. ASU 2013-02 was adopted on January 1, 2013 and did not have a significant impact on our financial statements.

Recently Issued Standards

In March 2013, the FASB issued ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (Topic 405). ASU 2013-04 provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. This ASU is effective for reporting periods beginning after December 15, 2013. ASU 2013-04 is not expected to have a significant effect on our financial statements.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

In March 2013, the FASB issued ASU 2013-05, Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (Topic 830). ASU 2013-05 provides guidance to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment when a company sells or ceases to hold a controlling interest in a subsidiary or group of assets within a foreign entity. This ASU is effective for reporting periods beginning after December 15, 2013. ASU 2013-05 may affect our financial statements to the extent we sell or cease to hold a controlling interest in subsidiaries or groups of assets within a foreign entity.

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (Topic 740). ASU 2013-11 requires that unrecognized tax benefits be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except in certain circumstances. When those circumstances exist, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. ASU 2013-11 is not expected to have a significant impact on our financial statement presentation.

3. Share-Based Compensation Plans

The following table presents share-based compensation expense attributable to stock options and restricted shares.



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Stock options	$	151	$	267	$	255	$	657
Restricted shares	497		368		927		780
Total share-based compensation expense	$	648	$	635	$	1,182	$	1,437

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,
	2013		2012		2013		2012
	(In thousands)
Selling, general and administrative	$	565	$	552	1,030		1,251
Research and development	83		83		152		186
Total share-based compensation expense	$	648	$	635	$	1,182	$	1,437

There is no corresponding deferred income tax benefit for stock options or restricted shares.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Stock Options

The following table summarizes our stock option activity for the six months ended June 30, 2013:



	Number of Shares (In thousands)		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2012	4,893		$	9.52
Granted	870		4.50
Exercised	—		—
Forfeited or expired	(1,875	)	11.72
Outstanding at June 30, 2013	3,888		$	7.33	4.76	$	43
Fully vested at June 30, 2013 and expected to vest thereafter	3,869		$	7.35	4.74	$	43
Exercisable at June 30, 2013	2,918		$	8.25	3.12	$	43

The following assumptions were used to calculate weighted average fair values of the options granted in the three and six months ended June 30, 2013 and 2012:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2013			2012			2013			2012
Expected life (in years)	6.2			6.0			6.2			6.0
Risk-free interest rate	1.0		%	1.0		%	1.0		%	1.0		%
Volatility	60		%	65		%	60		%	65		%
Dividend yield	—			—			—			—
Weighted average grant date fair value per option granted	$	2.53		$	2.68		$	2.53		$	2.68

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. For the six months ended June 30, 2012, cash received under all share-based payment arrangements was $0.2 million. 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, net of a forfeiture estimate, was approximately $2.3 million as of June 30, 2013, which is expected to be recognized over a weighted-average period of 3.5 years beginning July 1, 2013. To the extent the actual forfeiture rate is different than what we have anticipated, share-based compensation expense related to these options 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, 2013:



	Number of Shares (In thousands)		Weighted Average Grant-Date Fair Value (Per share)
Nonvested at December 31, 2012	816		$	5.61
Awards granted	750		4.50
Awards vested	(99	)	7.13
Awards forfeited	(95	)	4.80
Nonvested at June 30, 2013	1,372		$	4.95

The fair value of shares vested during the six months ended June 30, 2013, was $0.5 million.

Unrecognized compensation cost, net of a forfeiture estimate, was $5.5 million as of June 30, 2013, which is expected to be recognized over a weighted average period of approximately 3.3 years beginning July 1, 2013. 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 $6.2 million for the six months ended June 30, 2013, primarily reflects $9.6 million of expense related to income taxes at certain of our foreign operations and foreign withholding taxes incurred by both our U.S. and foreign operations offset by a $9.2 million benefit for the reversal of a deferred tax liability associated with the undistributed earnings from our investment in J-Devices Corporation (“J-Devices”) and by a $6.6 million release of a valuation allowance on deferred tax assets at one of our foreign jurisdictions. Our income tax expense also reflects income taxed in foreign jurisdictions where we benefit from tax holidays. At June 30, 2013, we had U.S. net operating loss carryforwards totaling $336.9 million, which expire at various times through 2031. Additionally, at June 30, 2013, we had $90.5 million of non-U.S. net operating loss carryforwards, which expire at various times through 2023.

During the three months ended June 30, 2013, we recognized an $8.6 million tax benefit from the reversal of a deferred tax liability as a result of a change in the ownership structure of our investment in J-Devices. We also recognized a $0.6 million tax benefit as a result of revaluing the deferred tax liability associated with our investment in J-Devices during the three months ended March 31, 2013.

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 or when sufficient net positive evidence exists to conclude it is more likely than not that the deferred tax assets will be realized. During the three months ended June 30, 2013, we concluded that sufficient net positive evidence existed to release the valuation allowance against the deferred tax assets at one of our foreign jurisdictions. The recent trend of improving taxable operating results in this jurisdiction continued in the three months ended June 30, 2013, and we now believe this recent history of earnings is sustainable and sufficient to fully realize the deferred tax assets in this jurisdiction. We had $10.6 million of net deferred tax assets at June 30, 2013, in this jurisdiction, $4.0 million of which we estimate will be realized in the current year and $6.6 million we estimate will be realized after December 31, 2013. The release of the valuation allowance related to this $6.6 million net deferred tax asset is included as a discrete tax benefit for the three months ended June 30, 2013.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Our gross unrecognized tax benefits increased from $8.2 million at December 31, 2012, to $9.4 million as of June 30, 2013, primarily because of a $2.5 million addition related to the application of a law change in a foreign jurisdiction. This addition was partially offset by $1.3 million of net reductions related to the settlement of contested prior year deductions in a foreign jurisdiction. At June 30, 2013, all of our unrecognized tax benefits would 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.

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,
	2013			2012			2013			2012
	(In thousands, except per share data)
Net income attributable to Amkor	$	29,727		$	581		$	43,109		$	12,355
Income allocated to participating securities	(251		)	(2		)	(374		)	(33		)
Net income available to Amkor common stockholders	29,476			579			42,735			12,322
Adjustment for dilutive securities on net income:
Net income reallocated to participating securities	58			2			80			33
Interest on 6.0% convertible notes due 2014, net of tax	3,609			—			7,626			—
Net income attributable to Amkor — diluted	$	33,143		$	581		$	50,441		$	12,355

Weighted average shares outstanding — basic	160,886			165,956			156,672			166,911
Effect of dilutive securities:
Stock options and restricted share awards	10			53			14			101
6.0% convertible notes due 2014	74,215			—			78,413			—
Weighted average shares outstanding — diluted	235,111			166,009			235,099			167,012
Net income attributable to Amkor per common share:
Basic	$	0.18		$	—		$	0.27		$	0.07
Diluted	0.14			—			0.21			0.07

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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,
	2013	2012	2013	2012
	(In thousands)
Stock options and restricted share awards	4,092	4,737	4,165	4,506
6.0% convertible notes due 2014	—	82,658	—	82,658
Total potentially dilutive shares	4,092	87,395	4,165	87,164

6. Equity and Accumulated Other 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, 2012	$	657,955		$	8,839	$	666,794
Net income	43,109			986		44,095
Other comprehensive loss	(6,934		)	—		(6,934		)
Treasury stock acquired through surrender of shares for tax withholding	(172		)	—		(172		)
Share-based compensation expense	1,182			—		1,182
Exchange of debt for common stock	195,034			—		195,034
Equity at June 30, 2013	$	890,174		$	9,825	$	899,999



	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

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The following table reflects the changes in accumulated other comprehensive income, net of tax:



	Defined Benefit Pension			Foreign Currency			Total
	(In thousands)
Accumulated other comprehensive (loss) income at December 31, 2012	$	(5,373	)	$	16,614		$	11,241
Other comprehensive loss before reclassifications	—			(7,151		)	(7,151		)
Amounts reclassified from accumulated other comprehensive (loss) income	217			—			217
Other comprehensive income (loss)	217			(7,151		)	(6,934		)
Accumulated other comprehensive (loss) income at June 30, 2013	$	(5,156	)	$	9,463		$	4,307



	Defined Benefit Pension			Foreign Currency			Total
	(In thousands)
Accumulated other comprehensive (loss) income at December 31, 2011	$	(10,510	)	$	21,359		$	10,849
Other comprehensive income (loss) before reclassifications	1,294			(1,110		)	184
Amounts reclassified from accumulated other comprehensive (loss) income	89			—			89
Other comprehensive income (loss)	1,383			(1,110		)	273
Accumulated other comprehensive (loss) income at June 30, 2012	$	(9,127	)	$	20,249		$	11,122

Amounts reclassified out of accumulated other comprehensive income are included as a component of net periodic pension cost (Note 13).

7. Inventories

Inventories consist of the following:



	June 30, 2013		December 31, 2012
	(In thousands)
Raw materials and purchased components	$	171,607	$	166,691
Work-in-process	60,367		60,748
Total inventories	$	231,974	$	227,439

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

8. Property, Plant and Equipment

Property, plant and equipment consist of the following:



	June 30, 2013			December 31, 2012
	(In thousands)
Land	$	103,992		$	106,338
Land use rights	19,945			19,945
Buildings and improvements	887,420			904,919
Machinery and equipment	3,499,724			3,332,855
Software and computer equipment	191,680			191,132
Furniture, fixtures and other equipment	17,241			19,194
Construction in progress	32,525			24,670
	4,752,527			4,599,053
Less accumulated depreciation and amortization	(2,867,324		)	(2,779,084		)
Total property, plant and equipment, net	$	1,885,203		$	1,819,969

In January 2013, we sold office space and land located in Chandler, Arizona for $22.8 million, net of selling costs of $1.2 million.

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,
	2013		2012		2013		2012
	(In thousands)
Cost of sales	$	90,805	$	81,891	$	179,973	$	161,988
Selling, general and administrative	3,860		5,289		7,995		10,396
Research and development	3,114		2,697		6,109		4,777
Total depreciation expense	$	97,779	$	89,877	$	194,077	$	177,161

The following table reconciles our activity related to property, plant and equipment additions as presented 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,
	2013			2012
	(In thousands)
Property, plant and equipment additions	$	283,124		$	273,350
Net change in related accounts payable and deposits	(60,450		)	(40,668		)
Purchases of property, plant and equipment	$	222,674		$	232,682

In February 2013, we entered into an agreement for the purchase of land for a factory and research and development center in Korea. The agreement to purchase the land for the facility is subject to our compliance with various construction, investment, hiring, regulatory and other requirements. We made a non-refundable deposit of ₩10.9 billion (approximately $10 million) at signing and have two remaining payments of ₩43.4 billion (approximately $38 million) and ₩54.2 billion (approximately $47 million) due in August 2013 and November 2013, respectively. As of June 30, 2013, the deposit is recorded in other assets on our Consolidated Balance Sheets.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

9. Intangible Assets

Intangibles as of June 30, 2013, consist of the following:



	Gross		Accumulated Amortization			Net
	(In thousands)
Patents and technology rights	$	24,114	$	(20,221	)	$	3,893
Customer relationships	8,000		(6,884		)	1,116
Total intangibles	$	32,114	$	(27,105	)	$	5,009

Intangibles as of December 31, 2012, consist of the following:



	Gross		Accumulated Amortization			Net
	(In thousands)
Patents and technology rights	$	22,169	$	(19,636	)	$	2,533
Customer relationships	8,000		(5,767		)	2,233
Total intangibles	$	30,169	$	(25,403	)	$	4,766

Amortization of identifiable intangible assets for the three and six months ended June 30, 2013, was $0.9 million and $1.7 million, respectively. Amortization of identifiable intangible assets for the three and six months ended June 30, 2012, was $0.8 million and $2.0 million, respectively. Based on the amortizing assets recognized in our balance sheet at June 30, 2013, amortization for each of the next five years is estimated as follows:



	Amortization
	(In thousands)
2013 remaining	$	1,967
2014	1,230
2015	938
2016	466
2017	178
Thereafter	230
Total amortization	$	5,009

10. Investments

Investments consist of the following:



	June 30, 2013				December 31, 2012
	Carrying Value (In thousands)		Ownership Percentage		Carrying Value (In thousands)		Ownership Percentage
Investment in unconsolidated affiliate	$	103,308	60.0	%	$	38,690	30.0	%

J-Devices Corporation

In October 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 changed its name to J-Devices Corporation. In April 2013, we completed the exercise of our option to increase our ownership

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

interest in J-Devices from 30% to 60% for an aggregate purchase price of ¥6.7 billion ($67.4 million). J-Devices is now owned 60% by Amkor, 34% by the former shareholders of NMD and 6% by Toshiba.

At June 30, 2013, our investment includes our 60% equity interest and options to acquire additional equity interests. The options are exercisable at our discretion and permit us to increase our ownership interest in J-Devices up to 66% in 2014 by purchasing shares owned by Toshiba and up to 80% in 2015 by purchasing shares owned by the other shareholders. In 2014 and beyond, Toshiba has the option, at its discretion, to sell shares it owns to us. If we decline Toshiba's offer to sell their shares to us, then J-Devices shall have the obligation to purchase the shares. If J-Devices fails to purchase the shares offered by Toshiba, then we will be obligated to purchase the shares offered by Toshiba. The options in 2014 and 2015 become exercisable in the fourth quarter of such year, and if exercised, we would expect closing to occur in the first half of the following year, subject to regulatory approval. After we own 80% or more shares, the original 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 determined using a formula based upon the net book value and a multiple of earnings before interest, taxes, depreciation and amortization of J-Devices.

J-Devices is a separate business and is not integrated with our Japan-based businesses. The governance provisions currently applicable to J-Devices restrict our ability, even with our majority ownership, to cause J-Devices to take certain actions without the consent of the other investors. Accordingly, we account for our investment in J-Devices using the equity method of accounting. Under the equity method of accounting, we recognize our 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. In addition, we record equity method adjustments as a change in our investment in unconsolidated affiliate. Because our incremental proportionate share of J-Devices' equity exceeded the cost of our additional investment, these adjustments include the amortization of a $5.1 million basis difference. For the three and six months ended June 30, 2013, our equity in earnings in J-Devices, net of J-Devices' income taxes in Japan, was $1.4 million and $1.5 million, respectively. 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.

In conjunction with entering into the joint venture, one of our subsidiaries in Japan purchased packaging and test equipment from Toshiba and leased the equipment to J-Devices under an agreement which was accounted for as a direct financing lease. At the end of the lease in October 2012, J-Devices exercised an option to purchase the remaining packaging and test equipment for ¥761.4 million. In January 2013, we received payment of ¥761.4 million (approximately $8.8 million) for the purchased equipment.

11. Accrued Expenses

Accrued expenses consist of the following:



	June 30, 2013		December 31, 2012
	(In thousands)
Payroll and benefits	$	60,907	$	56,651
Deferred revenue and customer advances	48,637		52,773
Accrued royalties (Note 16)	33,324		33,324
Accrued interest	20,837		19,048
Income taxes payable	10,565		8,341
Accrued severance plan obligations (Note 13)	9,468		9,516
Other accrued expenses	34,107		33,311
Total accrued expenses	$	217,845	$	212,964

Accrued royalties relate to our estimate of royalties due as a result of our pending patent license arbitration (Note 16).

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

12. Debt

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



	June 30, 2013			December 31, 2012
	(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	$	—		$	—
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
6.375% Senior notes, due October 2022 (1)	525,000			300,000
Senior subordinated notes:
6.0% Convertible senior subordinated notes (2)	56,350			250,000
Debt of subsidiaries:
Amkor Technology Korea, Inc.:
$41 million revolving credit facility, foreign currency funding-linked base rate plus 2.00%, due June 2016 (3)	—			—
Term loan, foreign currency funding-linked base rate plus 2.30%, due March 2015	100,000			100,000
Term loan, LIBOR plus 3.80%, due June 2016 (4)	10,000			—
Term loan, LIBOR plus 3.90% or 3.94%, due July 2017	150,000			137,000
Term loan, foreign currency funding-linked base rate plus 1.75%, due September 2017 (5)	10,000			—
Term loan, LIBOR plus 3.70%, due December 2019 (6)	48,000			13,000
Other:
Revolving credit facility, TAIFX plus a bank-determined spread, due April 2015 (Taiwan) (7)	—			—
	1,644,350			1,545,000
Add: Unamortized premium (1)	6,661			—
Less: Short-term borrowings and current portion of long-term debt	(56,350		)	—
Long-term debt (including related party)	$	1,594,661		$	1,545,000

(1)

In September 2012, ATI issued $300.0 million of 6.375% Senior Notes due October 2022 (the “2022 Notes”). The 2022 Notes were issued at par and are senior unsecured obligations. Interest is payable semi-annually on April 1 and October 1 of each year, and commenced April 1, 2013. In May 2013, we issued an additional $225.0 million of 6.375% Senior Notes due October 2022 (the “Additional 2022 Notes”) under the same terms as the 2022 Notes. The Additional 2022 Notes were issued at a premium of 103% or $6.8 million. The net proceeds from the issuance of the Additional 2022 Notes were designated for general corporate purposes. We incurred $3.4 million of debt issuance costs associated with the Additional 2022 Notes.

(2)

In April 2009, we issued $250 million of our 6.0% Convertible Senior Subordinated Notes due April 2014 (the “2014 Notes”). The 2014 Notes are convertible at any time prior to the maturity date into our common stock at a price of approximately $3.02 per share, subject to adjustment. The 2014 Notes are subordinated to the prior payment in full of all of our senior debt. The 2014 Notes were purchased by certain qualified institutional buyers and an entity controlled by Mr. James J. Kim, our Executive Chairman of the Board of Directors. Mr. Kim's affiliate

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

purchased $150.0 million of the 2014 Notes. In June 2013, we completed a tender offer for the 2014 Notes and exchanged $193.7 million of the 2014 Notes, including the $150.0 million held by Mr. Kim's affiliate, for an aggregate 64.0 million shares of our common stock and a cash payment of $11.6 million. The cash payment was equivalent to the remaining coupons for the tendered notes and was recorded as a charge in our Consolidated Statements of Income for the three and six months ended June 30, 2013.

(3)

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. Principal is payable upon maturity and interest is paid monthly. The loan is collateralized with substantially all the land, factories and equipment at our ATK facilities. In June 2013, the facility was amended by extending the term by three years to June 2016. The facility now bears interest at the foreign currency funding-linked base rate plus 2.00% (3.97% as of June 30, 2013). As of June 30, 2013, $41.0 million was available to be borrowed for general working capital purposes.

(4)

In April 2013, ATK entered into a loan agreement with a Korean bank pursuant to which ATK may borrow up to $150.0 million for a term of three years. The loan is collateralized by substantially all the land, factories and equipment located at our ATK facilities. Principal is payable at maturity. Interest is due quarterly beginning three months after the first draw down date. Interest is payable at a rate of LIBOR plus 3.80% (4.07% as of June 30, 2013). As of June 30, 2013, $140.0 million was available to be borrowed for general working capital purposes and the repayment of inter-company debt.

(5)

In March 2013, ATK entered into a loan agreement with a Korean bank pursuant to which ATK may borrow up to $150.0 million for a term of four and a half years. The loan is collateralized by substantially all the land, factories and equipment located at our ATK facilities. Principal is payable in quarterly installments of $5.0 million each starting in December 2014, with the remaining balance due at maturity. Interest is paid quarterly, at a foreign currency funding-linked base rate plus 1.75% (3.85% as of June 30, 2013). As of June 30, 2013, $140.0 million was available to be borrowed for capital expenditures.

(6)

In November 2012, ATK entered into a loan agreement with a Korean Bank pursuant to which ATK may borrow up to $100.0 million by November 2013 for a term of seven years. The loan is collateralized by substantially all the land, factories and equipment located at our ATK facilities. Principal is payable upon maturity. Interest is payable quarterly in arrears, at LIBOR plus 3.70% (3.98% as of June 30, 2013). As of June 30, 2013, $52.0 million was available to be borrowed for capital expenditures.

(7)

In September 2012, Amkor Technology Taiwan Ltd, a subsidiary in Taiwan, entered into a revolving credit facility. The credit facility bears interest at the Taipei Foreign Exchange ("TAIFX") six month U.S. dollar rate plus a bank-determined spread. Availability under the revolving credit facility was originally $44.0 million and subsequent availability steps down $5.0 million every six months from the original available balance. Principal is payable at maturity. As of June 30, 2013, $34.0 million was available to be drawn for general corporate purposes and capital expenditures.

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 senior and senior subordinated 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, 2013.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

13. Pension and Severance Plans

Foreign Defined Benefit 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,
	2013			2012			2013			2012
	(In thousands)
Components of net periodic pension cost and total pension expense:
Service cost	$	1,399		$	1,528		$	2,873		$	3,229
Interest cost	746			802			1,521			1,622
Expected return on plan assets	(883		)	(787		)	(1,794		)	(1,570		)
Amortization of transition obligation	2			2			4			4
Amortization of prior service cost	49			54			98			125
Recognized actuarial loss	33			52			66			103
Net periodic pension cost	1,346			1,651			2,768			3,513
Curtailment loss	—			—			—			1,089
Settlement gain	—			—			—			(100		)
Total pension expense	$	1,346		$	1,651		$	2,768		$	4,502

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, 2013, we contributed $0.1 million and $0.2 million to the defined benefit pension plans, respectively. We expect to contribute approximately $2.1 million to the pension plans during the remainder of 2013. For the three and six months ended June 30, 2012, we contributed $0.1 million and $0.2 million to the defined benefit pension plans, respectively.

Korean Severance Plan

Our subsidiary in Korea participates in an accrued severance plan that covers employees with at least one year of service. To the extent eligible employees are terminated, our subsidiary in Korea 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.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The provision recorded for severance benefits for the three and six months ended June 30, 2013, was $7.3 million and $12.8 million, respectively. The provision recorded for severance benefits for the three and six months ended June 30, 2012, was $7.2 million and $7.6 million, respectively. The balance of our Korean severance obligation consists of the following:



	June 30, 2013		December 31, 2012
	(In thousands)
Current (Accrued expenses)	$	9,468	$	9,516
Non-current (Pension and severance obligations)	115,141		116,997
Total Korean severance obligation	$	124,609	$	126,513

14. Treasury Stock

Stock Repurchase Program

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. The purchase of stock under the program may be made in the open market or through privately negotiated transactions. Since inception of the program, we have purchased a total of 45.0 million shares at an aggregate purchase price of $208.4 million, net of $0.9 million of commissions. 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 has been and is expected to be funded with available cash and may be suspended or discontinued at any time.

During the three and six months ended June 30, 2013, we made no purchases under the stock repurchase program. 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. At June 30, 2013, there were no unsettled shares, and there was approximately $91.6 million available to repurchase common stock pursuant to the stock repurchase program.

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, restricted cash money market funds and foreign currency forward contracts. 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.

Our forward contracts are not traded on an exchange and are therefore valued using conventional calculations or models that are primarily based on observable inputs such as foreign currency exchange rates. During the six months ended June 30, 2013, we entered into foreign currency forward contracts to serve as an economic hedge for the payments related to the agreement to purchase land in Korea (see Note 8). The forward contracts are not designated as hedges for accounting

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

purposes and changes in the fair value of these forward contracts are recorded immediately in earnings in foreign currency loss, net in our Consolidated Statements of Income. As of June 30, 2013, the total notional value was $88.7 million. The fair value of the forward contracts at June 30, 2013, results in a liability of $3.8 million and is recorded in accrued expenses in our Consolidated Balance Sheets.

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, 2013 and 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, replacement costs, price lists 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:



	June 30, 2013		December 31, 2012
	(In thousands)
Recurring fair value measurements:
Assets:
Cash equivalent money market funds (Level 1)	$	372,417	$	151,066
Restricted cash money market funds (Level 1)	2,681		2,680
Liabilities:
Foreign currency forward contracts (Level 2)	3,843		—

Nonrecurring fair value measurements:
Long-lived assets held for use or disposal (Level 3)	$	199	$	868



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Nonrecurring fair value measurements:
Losses on long-lived assets held for use or disposal (Level 3)	$	388	$	101	$	868	$	336

For the three and six months ended June 30, 2013 and 2012, impairment losses on property, plant and equipment were recorded in cost of sales with the exception of $0.3 million recorded in research and development expenses for the three and six months ended June 30, 2013.

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, 2013				December 31, 2012
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In thousands)
Senior notes (Level 1)	$	1,272,962	$	1,270,000	$	1,061,945	$	1,045,000
Convertible senior subordinated notes (Level 1)	82,423		56,350		371,975		250,000
Subsidiary revolvers and term loans (Level 2)	302,349		318,000		269,200		250,000
Total debt	$	1,657,734	$	1,644,350	$	1,703,120	$	1,545,000

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

The estimated fair value of the debt is based primarily on quoted market prices reported on or near the respective balance sheet dates for our senior and senior subordinated notes. The estimated fair value for the debt of our subsidiaries was calculated using a discounted cash flow analysis, which utilized market based assumptions including bond and credit default swap indices and was adjusted for credit risk.

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, 2013, 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 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.

In accordance with the accounting guidance for loss contingencies, including legal proceedings, lawsuits, pending claims 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. Attorney fees related to legal matters are expensed as 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 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.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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.

In July 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 also raised the question of whether Tessera intends to pursue its allegations regarding other patents which have not yet been addressed by the panel, and in July 2012, Tessera informed the panel that it intends to proceed on its claims related to three additional U.S. patents.

In February 2013, the panel issued another interim order in the second phase of the Second Tessera Arbitration. In the latest ruling, the panel determined that flip chip only packages and pin grid array only packages are not royalty bearing but that certain other packages, principally certain wirebond and combination flip chip wirebond packages are royalty bearing. The panel reserved for later decision the issues of the amount of royalties and pre-judgment interest due, and the allocation of costs. In February 2013, Tessera publicly announced its intention to seek an amount in excess of $150 million in the arbitration.

As a result of the interim orders issued by the panel, we recorded a charge in 2012 of $56.0 million based on our estimates of the damages and interest due to date in respect of the Second Tessera Arbitration. We believe that $56.0 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 recorded the $56.0 million estimate. Of the total charge, $50.0 million was recorded as cost of goods sold and $6.0 million was recorded as 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 recognized, 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.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

In August 2012, we paid $19.9 million to Tessera representing the undisputed amount and related interest that we owe in connection with the Second Tessera Arbitration.

In July 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, the ALJ issued a Supplemental Initial Determination. Although the ALJ's ruling did not disturb the prior finding that certain Carsem Dual and Quad Flat No-Lead Packages infringe some patent claims of Amkor's U.S. Patent No. 6,433,277 (the "277 Patent"), the ALJ found that these infringed 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

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

that there is no violation of Section 337 of the Tariff Act and terminated the investigation. We appealed the ITC's ruling of invalidity for the claims of the 277 Patent to the U.S. Court of Appeals for the Federal Circuit (the "Federal Circuit"), and oral arguments were heard in November 2011.

On August 22, 2012, the Federal Circuit issued a favorable ruling in Amkor's appeal in its patent infringement case against Carsem before the ITC. In its ruling, the Federal Circuit reversed the ITC's determination of invalidity on the 277 Patent, and remanded the matter to the ITC for further proceedings consistent with its opinion. On October 5, 2012, Carsem filed a Petition for Rehearing requesting the Federal Circuit to vacate its decision and affirm the ITC's determination of no violation of Section 337 of the Tariff Act. The Federal Circuit denied Carsem's petition on December 7, 2012, and remanded the matter to the ITC for further action consistent with its August 22, 2012 ruling.

In September 2012, Carsem, Inc. filed requests for Inter Partes Reexamination of the 277 Patent with the United States Patent and Trademark Office (“Patent Office”). In December 2012, the Patent Office granted the requests for Reexamination. On January 10, 2012, the Patent Office issued an Office Action rejecting all of the 277 Patent claims over certain prior art references. Amkor believes that all of the 277 Patent claims are valid and filed a response to the Office Action in March 2013.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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. We have concluded that our packaging and test services constitute a group of similar services within each reportable segment.

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, 2013
Net sales	$	646,793	$	99,266	$	—	$	746,059
Depreciation expense	62,711		28,094		—		90,805
Gross profit	107,207		31,172		—		138,379
Capital additions	106,243		39,681		12,930		158,854
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
Six months ended June 30, 2013
Net sales	$	1,240,168	$	193,420	$	—	$	1,433,588
Depreciation expense	124,364		55,609		—		179,973
Gross profit	190,708		62,624		—		253,332
Capital additions	169,906		79,847		33,371		283,124
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
Gross property, plant and equipment
June 30, 2013	$	3,499,459	$	1,136,553	$	116,515	$	4,752,527
December 31, 2012	3,372,071		1,076,513		150,469		4,599,053

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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 asset impairments, pension plan curtailments and settlements and foreign currency adjustments.



	Employee Separation Costs
	(In thousands)
Accrual at December 31, 2012	$	1,607
Charges	5,988
Cash Payments	(7,609		)
Non-cash Amounts	14
Accrual at June 30, 2013	$	—



	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

Reductions in Force

During the three and six months ended June 30, 2013, we reduced our workforce through voluntary retirement and other workforce reduction programs. During the three months ended June 30, 2013, we recorded $2.0 million in charges for termination benefits, of which $1.7 million and $0.3 million were charged to cost of sales and selling, general and administrative expenses, respectively. During the six months ended June 30, 2013, we recorded $6.0 million in charges for termination benefits, of which $5.2 million, $0.5 million and $0.3 million were charged to cost of sales; selling, general and administrative expenses and research and development expenses, respectively. All amounts were paid as of June 30, 2013.

During the six months ended June 30, 2012, we reduced our workforce at one of our manufacturing operations. We recorded $7.2 million in charges for 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 were paid as of December 31, 2012.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

19. Subsequent Event

On July 31, 2013, we completed the purchase of 100% of the shares of Toshiba Electronics Malaysia Sdn. Bhd. (“TEM”), Toshiba’s power discrete semiconductor packaging and test operation in Malaysia. The total price for the shares was approximately $60 million, based on the estimated net asset value of TEM at closing. The price for the shares is subject to adjustment to the extent the actual net asset value of TEM at closing was more or less than the estimate. We paid $43 million at closing and are obligated to pay the remaining $17 million by March 31, 2014. In connection with the purchase of TEM, we were also granted a non-exclusive, royalty bearing license by Toshiba to certain intellectual property rights for providing packaging and test services for power discrete and certain other semiconductor products, subject to a royalty cap of ¥1.5 billion (approximately $15 million).

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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

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 individual transistors, or multiple transistors and other electronic elements combined into an integrated circuit (generally known as a “chip” or “die”), onto semiconductor material such as a silicon wafer. Each chip on the wafer is probe tested. The good chips are identified and the wafer is then separated into individual die. Each good die is then assembled into a package that typically encapsulates the die for protection and creates the electrical connections used to connect the package to a printed circuit board, module or other part of the electronic device. In some packages, chips are attached to a substrate or leadframe carrier through wirebonding or flip chip interconnects and then encased in a protective material. Or, for a wafer-level package, the electrical interconnections are created directly on the surface of the die (while the wafer is still intact) so that the chip may be attached directly to other parts of an electronic device 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. The test services we offer include probe testing and final testing.

Our packaging services are designed to meet 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 business is impacted by market conditions in the semiconductor industry, which is cyclical by nature and impacted by broad economic factors, such as world-wide gross domestic product and consumer spending. Historical trends indicate there has been a strong correlation between world-wide gross domestic product levels, consumer spending and semiconductor industry cycles. The semiconductor industry has experienced significant and sometimes prolonged cyclical downturns in the past. We cannot predict the timing, strength or duration of any 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 II, Item 1A of this Quarterly Report.

Our net sales increased $59.5 million or 8.7% to $746.1 million for the three months ended June 30, 2013, from $686.5 million for the three months ended June 30, 2012. The increase was driven by a $36.1 million or 5.9% increase in packaging net sales as well as a $23.4 million or 30.9% increase in test net sales. The increases in packaging and test net sales were driven by strong demand for flip chip and wafer-level processing and test services supporting mobile communications products and our continued investments in support of this end market. This increase was partially offset by a decrease in net sales of packaging services related to products for the consumer and computing end markets.

Gross margin for the three months ended June 30, 2013, increased to 18.5% from 13.0% for the three months ended June 30, 2012. The increase was mainly attributable to the $30.0 million charge related to our pending patent license arbitration that was recorded during the three months ended June 30, 2012. The increase was also driven by higher net sales of wafer-level processing and test services supporting mobile communications products, partially offset by weakness in demand for products for the consumer and computing end markets.

We operate in a capital intensive industry and have a significant level of debt. 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 any 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. Maintaining an appropriate level of liquidity is important to our business and depends on, among other things, the performance of our business, our capital expenditure levels and our ability to repay debt out of our operating cash flows or proceeds from debt or equity financings.

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Driven by continued customer demand for services supporting mobile communications products, our capital additions totaled $283.1 million or 19.7% of net sales for the six months ended June 30, 2013, compared to $273.4 million or 20.4% of net sales for the six months ended June 30, 2012. During the six months ended June 30, 2013, 60.0% of our capital additions were made in packaging, 28.2% in test and 11.8% in research and development and infrastructure projects. 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% in research and development and infrastructure projects.

Net cash provided by operating activities was $200.9 million for the six months ended June 30, 2013, compared to $142.5 million for the six months ended June 30, 2012. For the six months ended June 30, 2013, we experienced negative free cash flow of $21.8 million, primarily due to our capital purchases to support anticipated customer demand for packaging and test services related to mobile communications. 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.

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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,
	2013		2012		2013		2012
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Materials	41.7	%	43.2	%	42.1	%	44.0	%
Labor	14.0	%	14.4	%	14.4	%	14.2	%
Other manufacturing costs	25.8	%	29.4	%	25.8	%	27.3	%
Gross margin	18.5	%	13.0	%	17.7	%	14.5	%
Depreciation and amortization	13.2	%	13.2	%	13.7	%	13.4	%
Operating income	7.8	%	3.2	%	6.9	%	4.2	%
Income (loss) before income taxes	2.7	%	(0.4	)%	2.6	%	0.9	%
Net income attributable to Amkor	4.0	%	0.1	%	3.0	%	0.9	%

Net Sales



	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2013		2012		Change				2013		2012		Change
	(In thousands, except percentages)
Net sales	$	746,059	$	686,527	$	59,532	8.7	%	$	1,433,588	$	1,341,537	$	92,051	6.9	%
Packaging net sales	646,793		610,667		36,126		5.9	%	1,240,168		1,192,178		47,990		4.0	%
Test net sales	99,266		75,860		23,406		30.9	%	193,420		149,359		44,061		29.5	%

Net Sales. Net sales in the three and six months ended June 30, 2013, increased compared to the three and six months ended June 30, 2012, as a result of higher net sales of our packaging and test services.

Packaging Net Sales. The increase in packaging net sales for the three and six months ended June 30, 2013 was primarily driven by strong demand for flip chip, wafer-level processing and certain wirebond services supporting mobile communications products, such as 28 nanometer chipsets and NAND memory. Our continued investments supporting mobile communications have provided opportunities for growth in this end market. These increases in net sales were partially offset by weakness in demand for products in the consumer end market, including gaming and home electronics, and by a decrease in the computing end market as net sales in the prior year benefitted from incremental demand from customers whose supply chains were disrupted by the flooding in Thailand.

Packaging unit volume increased to 2.7 billion units during the three months ended June 30, 2013, compared to 2.1 billion units during the three months ended June 30, 2012. Packaging unit volume increased to 5.0 billion units during the six months ended June 30, 2013, compared to 4.0 billion units during the six months ended June 30, 2012. The increase for the three and six months ended June 30, 2013, was primarily due to an increase in wafer-level processing services for mobile communications.

Test Net Sales. The increase in test net sales in the three and six months ended June 30, 2013 was primarily attributable to higher demand for test services for mobile communications products and our continued investments in support of this end market as many of our mobile communications customers require turnkey packaging and test solutions.

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Cost of Sales



	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2013		2012		Change				2013		2012		Change
	(In thousands, except percentages)
Cost of sales	$	607,680	$	597,207	$	10,473	1.8	%	$	1,180,256	$	1,147,236	$	33,020	2.9	%

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 decreased to 41.7% and 42.1% for the three and six months ended June 30, 2013, from 43.2% and 44.0% for the three and six months ended June 30, 2012. The decrease as a percentage of sales was primarily due to increased net sales related to wafer-level processing and test services, which have lower material costs as a percentage of net sales. Material costs in absolute dollars for the three and six months ended June 30, 2013, increased compared to the three and six months ended June 30, 2012, as a result of the increased net sales of packaging services.

Labor costs as a percentage of net sales of 14.0% and 14.4% for the three and six months ended June 30, 2013, remained consistent with labor costs as a percentage of net sales of 14.4% and 14.2% for the three and six months ended June 30, 2012. Labor costs in absolute dollars increased primarily due to increased compensation expense and headcount at certain foreign manufacturing locations along with unfavorable foreign currency exchange rate movements as substantially all of our manufacturing operations' workforce is paid in local currencies.

Other manufacturing costs as a percentage of net sales decreased to 25.8% for the three and six months ended June 30, 2013, from 29.4% and 27.3% for the three and six months ended June 30, 2012. The decrease in other manufacturing costs as a percentage of sales, and in absolute dollars, was attributable to the $30.0 million charge relating to our pending patent license arbitration that was recorded during the three months ended June 30, 2012. This decrease was partially offset by increased depreciation expense due to our continued investments in property, plant and equipment to service the demand of our customers.

Gross Profit



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2013			2012			Change			2013			2012			Change
	(In thousands, except percentages)
Gross profit	$	138,379		$	89,320		$	49,059		$	253,332		$	194,301		$	59,031
Gross margin	18.5		%	13.0		%	5.5		%	17.7		%	14.5		%	3.2		%

Gross profit and gross margin for the three and six months ended June 30, 2013, increased compared to the three and six months ended June 30, 2012. The increase in gross profit and gross margin was primarily the result of the $30.0 million charge relating to our pending patent license arbitration that was recorded during the three months ended June 30, 2012. The increase was also the result of higher net sales of wafer-level processing and test services supporting mobile communications, partially offset by weakness in demand for products in the consumer and computing end markets.



	For the Three Months Ended June 30,									For the Six Months Ended June 30,
	2013			2012			Change			2013			2012			Change
	(In thousands, except percentages)
Packaging gross profit	$	107,207		$	67,998		$	39,209		$	190,708		$	155,301		$	35,407
Packaging gross margin	16.6		%	11.1		%	5.5		%	15.4		%	13.0		%	2.4		%

Packaging Gross Profit. Gross profit and gross margin for packaging net sales for the three and six months ended June 30, 2013, increased compared to the three and six months ended June 30, 2012. The increase in gross profit and gross margin

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was primarily attributable to the pending patent license arbitration charge discussed above, which relates entirely to the packaging segment. The increase in gross profit and gross margin was also the result of higher net sales of wafer-level processing services supporting mobile communications. These increases were partially offset by weakness in demand for products in the consumer end market as well as lower demand for products in the computing end market as net sales in the prior year benefitted from incremental demand from customers whose supply chains were disrupted by the flooding in Thailand.



For the Three Months Ended June 30,			For the Six Months Ended June 30,
2013	2012	Change	2013	2012	Change
(In thousands, except percentages)</