Edgar Filing: AMKOR TECHNOLOGY INC

AMKR 9.30.14 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 September 30, 2014
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 October 24, 2014 was 237,278,142.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2014

TABLE OF CONTENTS



		Page
PART I. Financial Information
Item 1.	Financial Statements (unaudited)	2
	Consolidated Statements of Income - Three and Nine Months Ended September 30, 2014 and 2013	2
	Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2014 and 2013	3
	Consolidated Balance Sheets - September 30, 2014 and December 31, 2013	4
	Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2014 and 2013	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	32

PART II. Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	48
Signatures		49

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 2014 including expenditures in support of customer demand in the mobile communications market and expenditures related to our new factory and research and development facility in Korea, (2) our ability to fund our operating activities for the next twelve months, (3) the effect of changes in capacity utilization on our 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) our repurchase or repayment of outstanding debt or the conversion of debt in the future, (8) payment of dividends, (9) compliance with our covenants, (10) expected contributions to foreign pension plans, (11) liability for unrecognized tax benefits and the potential impact of our unrecognized tax benefits on our effective tax rate, (12) the effect of foreign currency exchange rate exposure on our financial results, (13) the volatility of the trading price of our common stock, (14) changes to our internal controls related to implementation of a new ERP module and a new shop floor management system, (15) the actions that may be taken in and the outcome of our dispute with Tessera and our estimates regarding the possible amount of, and funding for, any payments due in conjunction with such dispute, (16) the anticipated schedule for construction of our new factory and research and development facility in Korea, (17) our ownership of J-Devices and consolidation of J-Devices' results into our consolidated financial statements, (18) our efforts to enlarge our customer base in certain geographic areas and markets, (19) demand for advanced packages in mobile devices and our technology leadership and potential growth in this market and (20) 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 various factors, including those set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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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 September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands, except per share data)
Net sales	$	812,824		$	767,987		$	2,276,327		$	2,201,575
Cost of sales	659,607			626,979			1,843,576			1,807,235
Gross profit	153,217			141,008			432,751			394,340
Selling, general and administrative	61,600			64,347			191,698			189,524
Research and development	16,437			18,647			59,561			47,261
Total operating expenses	78,037			82,994			251,259			236,785
Operating income	75,180			58,014			181,492			157,555
Interest expense	23,780			26,104			70,039			71,921
Interest expense, related party	1,243			1,243			3,727			7,927
Other (income) expense, net	(9,626		)	(4,328		)	(15,289		)	6,326
Total other expense, net	15,397			23,019			58,477			86,174
Income before taxes and equity in earnings of unconsolidated affiliate	59,783			34,995			123,015			71,381
Income tax expense	14,985			12,170			32,425			5,961
Income before equity in earnings of unconsolidated affiliate	44,798			22,825			90,590			65,420
Equity in earnings of J-Devices	3,372			3,179			29,169			4,679
Net income	48,170			26,004			119,759			70,099
Net income attributable to noncontrolling interests	(1,073		)	(655		)	(2,508		)	(1,641		)
Net income attributable to Amkor	$	47,097		$	25,349		$	117,251		$	68,458
Net income attributable to Amkor per common share:
Basic	$	0.20		$	0.12		$	0.51		$	0.38
Diluted	$	0.20		$	0.11		$	0.50		$	0.33
Shares used in computing per common share amounts:
Basic	236,337			216,499			228,733			176,839
Diluted	237,509			235,143			236,672			235,119

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 September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands)
Net income	$	48,170		$	26,004		$	119,759		$	70,099
Other comprehensive income (loss), net of tax:
Adjustments to unrealized components of defined benefit pension plans, net of tax of ($10), ($182), ($376) and ($135)	16			4,194			622			4,411
Foreign currency translation adjustment	(98		)	(269		)	(11,906		)	(3,369		)
Equity interest in J-Devices' other comprehensive loss, net of tax of $0, $0, $0 and ($1,087)	(9,645		)	(1,392		)	(5,939		)	(5,443		)
Total other comprehensive (loss) income	(9,727		)	2,533			(17,223		)	(4,401		)
Comprehensive income	38,443			28,537			102,536			65,698
Comprehensive income attributable to noncontrolling interests	(1,073		)	(655		)	(2,508		)	(1,641		)
Comprehensive income attributable to Amkor	$	37,370		$	27,882		$	100,028		$	64,057

The accompanying notes are an integral part of these statements.

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AMKOR TECHNOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



	September 30, 2014			December 31, 2013
	(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	485,592		$	610,442
Restricted cash	2,681			2,681
Accounts receivable, net of allowances	483,330			385,542
Inventories	229,557			200,423
Other current assets	69,225			33,328
Total current assets	1,270,385			1,232,416
Property, plant and equipment, net	2,258,870			2,006,553
Investments	128,444			105,214
Restricted cash	2,209			2,234
Other assets	100,033			80,881
Total assets	$	3,759,941		$	3,427,298
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt	$	10,000		$	61,350
Trade accounts payable	626,609			365,334
Accrued expenses	292,619			264,252
Total current liabilities	929,228			690,936
Long-term debt	1,450,969			1,516,390
Long-term debt, related party	75,000			75,000
Pension and severance obligations	158,793			165,073
Other non-current liabilities	14,881			14,959
Total liabilities	2,628,871			2,462,358
Commitments and contingencies (Note 18)
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, 282,057 and 262,109 shares issued, and 236,489 and 216,702 shares outstanding, in 2014 and 2013, respectively	282			262
Additional paid-in capital	1,877,452			1,812,530
Accumulated deficit	(530,097		)	(647,348		)
Accumulated other comprehensive loss	(17,478		)	(255		)
Treasury stock, at cost, 45,568 and 45,407 shares in 2014 and 2013, respectively	(212,797		)	(211,449		)
Total Amkor stockholders’ equity	1,117,362			953,740
Noncontrolling interests in subsidiaries	13,708			11,200
Total equity	1,131,070			964,940
Total liabilities and equity	$	3,759,941		$	3,427,298

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 Nine Months Ended September 30,
	2014			2013
	(In thousands)
Cash flows from operating activities:
Net income	$	119,759		$	70,099
Depreciation and amortization	340,089			302,007
Loss on debt retirement	—			11,619
Gain on sale of subsidiary to J-Devices	(9,155		)	—
Other operating activities and non-cash items	(27,811		)	(12,728		)
Changes in assets and liabilities	(17,214		)	4,248
Net cash provided by operating activities	405,668			375,245
Cash flows from investing activities:
Payments for property, plant and equipment	(442,308		)	(402,004		)
Proceeds from sale of property, plant and equipment	2,170			26,505
Acquisition of business, net of cash acquired	—			(41,865		)
Cash transferred on sale of subsidiary to J-Devices, net of proceeds	(15,774		)	—
Payments from J-Devices	—			8,843
Investment in J-Devices	—			(67,372		)
Purchase of short-term investment	(20,000		)	—
Proceeds from short-term investment	20,000			—
Other investing activities	(389		)	(1,015		)
Net cash used in investing activities	(456,301		)	(476,908		)
Cash flows from financing activities:
Borrowings under revolving credit facilities	—			5,000
Payments under revolving credit facilities	—			(5,000		)
Proceeds from issuance of long-term debt	80,000			293,000
Payments of long-term debt	(140,000		)	—
Payments for debt issuance costs	—			(3,216		)
Payments for the retirement of debt	—			(11,619		)
Payment of deferred consideration for an acquisition	(18,763		)	—
Proceeds from the issuance of stock through share-based compensation plans	5,826			—
Payments of tax withholding for restricted shares	(1,348		)	(234		)
Net cash (used in) provided by financing activities	(74,285		)	277,931
Effect of exchange rate fluctuations on cash and cash equivalents	68			1,994
Net (decrease) increase in cash and cash equivalents	(124,850		)	178,262
Cash and cash equivalents, beginning of period	610,442			413,048
Cash and cash equivalents, end of period	$	485,592		$	591,310
Non cash investing and financing activities:
Common stock issuance for conversion and exchange in 2014 and 2013, respectively, of 6.0% Convertible senior subordinated notes due April 2014, $150 million related party in 2013	$	56,350		$	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 September 30, 2014, and for the three and nine months ended September 30, 2014 and 2013, are unaudited, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The December 31, 2013, 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, 2013, filed on Form 10-K with the SEC on February 28, 2014. The results of operations for the three and nine months ended September 30, 2014, 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.

On June 30, 2014, we completed the sale of our Japanese subsidiary to J-Devices, our 60% owned equity-method joint venture in Japan. The financial results of the entity were included in our consolidated financial statements up to the date of sale (Note 4) and have subsequently been included in the results of J-Devices. On July 31, 2013, we completed the purchase of Toshiba Electronics Malaysia Sdn. Bhd. The financial results of the entity have been included in our Consolidated Financial Statements from the date of acquisition (Note 3).

The U.S. dollar is our reporting currency and the functional currency for our foreign subsidiaries. Effective June 30, 2014, we changed the functional currency for our sales office in Japan to the U.S. dollar primarily due to an increase in the mix of our U.S. dollar denominated sales. The change in functional currency is applied on a prospective basis.

Beginning with the year ended December 31, 2013, we reclassified equity in earnings of unconsolidated affiliate from other expense (income) to below income tax expense in our Consolidated Statements of Income for all periods presented. The reclassification had no impact on net income.

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 March 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 was adopted on January 1, 2014. On June 30, 2014, we sold our controlling interest in a foreign subsidiary. The sale resulted in a gain upon release of the cumulative translation adjustment associated with the entity (Note 4).

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Recently Issued Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and changes in judgments. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and permits the use of either full retrospective or modified retrospective methods of adoption. Early adoption is not permitted. We are currently evaluating the method of adoption and the impact that this guidance will have on our financial statements and disclosure.

3. Business Acquisitions

On July 31, 2013, we completed the purchase of 100% of the shares of Toshiba Electronics Malaysia Sdn. Bhd., Toshiba’s power discrete semiconductor packaging and test operation in Malaysia, and subsequently changed the name of the entity to Amkor Technology Malaysia Sdn. Bhd. The total price for the shares was $61.2 million, based on the net asset value at closing. We paid $42.4 million in cash at closing and paid the remaining $18.8 million in March 2014. 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. The license has a royalty cap of ¥1.5 billion (approximately $14 million). Under the purchase method of accounting, we allocated the purchase price to the assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition. We did not record any goodwill as a result of the acquisition.

4. Sale of Subsidiary to J-Devices

On June 30, 2014, we sold 100% of the shares of our wholly-owned subsidiary engaged in semiconductor packaging and test operations in Japan to J-Devices Corporation ("J-Devices"), our 60% owned equity-method joint venture in Japan, for ¥1.1 billion ($10.4 million). For additional information regarding our investment in J-Devices, we refer you to Note 13. We received ¥0.1 billion ($1.0 million) in cash from J-Devices at closing and will receive the remaining ¥1.0 billion ($9.4 million) by June 30, 2015. We recognized a net gain on the sale of $9.2 million in our consolidated financial statements in other (income) expense, net, which includes a gain of $12.6 million from the release of accumulated foreign currency translation adjustments associated with the entity (Note 9). J-Devices recognized a gain of $14.7 million on the transaction in its consolidated financial statements as the fair value of the net assets acquired exceeded the purchase price. The gain recognized by J-Devices increased our equity in earnings of J-Devices by $8.8 million. The combined net gain we recognized was $18.0 million.

5. Share-Based Compensation Plans

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



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Stock options	$	439	$	243	$	1,216	$	498
Restricted shares	480		640		1,550		1,567
Total share-based compensation expense	$	919	$	883	$	2,766	$	2,065

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Selling, general and administrative	$	812	$	769	$	2,425	$	1,800
Research and development	107		114		341		265
Total share-based compensation expense	$	919	$	883	$	2,766	$	2,065

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

Stock Options

The following table summarizes our stock option activity for the nine months ended September 30, 2014:



	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, 2013	4,873		$	6.52
Granted	330		8.15
Exercised	(927	)	6.29
Forfeited or expired	(340	)	12.30
Outstanding at September 30, 2014	3,936		$	6.22	6.67	$	10,358
Fully vested at September 30, 2014 and expected to vest thereafter	3,909		$	6.22	6.65	$	10,267
Exercisable at September 30, 2014	2,101		$	7.21	4.69	$	3,998

The following assumptions were used to calculate the weighted average fair values of the options granted:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
Expected life (in years)	6.1			6.1			6.1			6.2
Risk-free interest rate	2.0		%	2.2		%	2.0		%	1.7		%
Volatility	56		%	60		%	57		%	60		%
Dividend yield	—			—			—			—
Weighted average grant date fair value per option granted	$	5.43		$	2.44		$	4.46		$	2.48

Total unrecognized compensation expense from stock options, net of a forfeiture estimate, was $4.8 million as of September 30, 2014, which is expected to be recognized over a weighted-average period of approximately 2.8 years beginning October 1, 2014.

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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 nine months ended September 30, 2014:



	Number of Shares (In thousands)		Weighted Average Grant-Date Fair Value (Per share)
Nonvested at December 31, 2013	1,172		$	4.83
Awards granted	—		—
Awards vested	(390	)	5.15
Awards forfeited	(32	)	4.67
Nonvested at September 30, 2014	750		$	4.67

Total unrecognized compensation cost, net of a forfeiture estimate, was $3.0 million as of September 30, 2014, which is expected to be recognized over a weighted average period of approximately 2.3 years beginning October 1, 2014.

6. Other Income and Expense

Other income and expense consists of the following:



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands)
Interest income	$	(920	)	$	(1,605	)	$	(2,462	)	$	(3,108	)
Foreign currency gain, net	(7,928		)	(2,716		)	(3,381		)	(1,841		)
Loss on debt retirement	—			—			757			11,619
Gain on sale of subsidiary to J-Devices (Note 4)	—			—			(9,155		)	—
Other income, net	(778		)	(7		)	(1,048		)	(344		)
Total other (income) expense, net	$	(9,626	)	$	(4,328	)	$	(15,289	)	$	6,326

7. Income Taxes

Our income tax expense of $32.4 million for the nine months ended September 30, 2014, primarily reflects income taxes at certain of our foreign operations and foreign withholding taxes. Our income tax expense also reflects income taxed in foreign jurisdictions where we benefit from tax holidays.

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 that it is more likely than not that the deferred tax assets will be realized.

Unrecognized tax benefits represent reserves for potential tax deficiencies or reductions in tax benefits that could result from federal, state or foreign tax audits. Our gross unrecognized tax benefits decreased from $27.1 million at December 31, 2013, to $7.0 million as of September 30, 2014, primarily as a result of the application of a tax law change and the settlement of a tax examination in a foreign jurisdiction. At September 30, 2014, 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.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

8. Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income attributable to Amkor common stockholders 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. We grant restricted shares which entitle recipients to voting and nonforfeitable dividend rights from the date of grant therefore our unvested share-based compensation awards are considered participating securities and are included in the computation of EPS pursuant to the two-class method.

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 September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands, except per share data)
Net income attributable to Amkor	$	47,097		$	25,349		$	117,251		$	68,458
Income allocated to participating securities	(149		)	(155		)	(383		)	(511		)
Net income available to Amkor common stockholders — basic	46,948			25,194			116,868			67,947
Adjustment for dilutive securities on net income:
Net income reallocated to participating securities	—			7			9			78
Interest on 6.0% convertible notes due 2014, net of tax	—			907			1,039			8,533
Net income attributable to Amkor — diluted	$	46,948		$	26,108		$	117,916		$	76,558

Weighted average shares outstanding — basic	236,337			216,499			228,733			176,839
Effect of dilutive securities:
Stock options	1,172			12			841			13
6.0% convertible notes due 2014	—			18,632			7,098			58,267
Weighted average shares outstanding — diluted	237,509			235,143			236,672			235,119
Net income attributable to Amkor per common share:
Basic	$	0.20		$	0.12		$	0.51		$	0.38
Diluted	0.20			0.11			0.50			0.33

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 September 30,		For the Nine Months Ended September 30,
	2014	2013	2014	2013
	(In thousands)
Stock options and restricted share awards	1,139	4,951	1,344	5,152

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

9. Equity and Accumulated Other Comprehensive Income (Loss)

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, 2013	$	953,740		$	11,200	$	964,940
Net income	117,251			2,508		119,759
Other comprehensive loss	(17,223		)	—		(17,223		)
Issuance of stock through employee share-based compensation plans	5,826			—		5,826
Treasury stock acquired through surrender of shares for tax withholding	(1,348		)	—		(1,348		)
Share-based compensation expense	2,766			—		2,766
Conversion of debt to common stock	56,350			—		56,350
Equity at September 30, 2014	$	1,117,362		$	13,708	$	1,131,070



	Attributable to Amkor			Attributable to Noncontrolling Interests		Total
	(In thousands)
Equity at December 31, 2012	$	657,955		$	8,839	$	666,794
Net income	68,458			1,641		70,099
Other comprehensive loss	(4,401		)	—		(4,401		)
Treasury stock acquired through surrender of shares for tax withholding	(234		)	—		(234		)
Share-based compensation expense	2,065			—		2,065
Exchange of debt for common stock	195,034			—		195,034
Equity at September 30, 2013	$	918,877		$	10,480	$	929,357

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



	Defined Benefit Pension			Foreign Currency Translation			Equity Interest in J-Devices' Other Comprehensive Income (Loss)			Total
	(In thousands)
Accumulated other comprehensive (loss) income at December 31, 2013	$	(1,013	)	$	11,451		$	(10,693	)	$	(255	)
Other comprehensive income (loss) before reclassifications	—			681			(5,939		)	(5,258		)
Amounts reclassified from accumulated other comprehensive (loss) income	622			(12,587		)	—			(11,965		)
Other comprehensive income (loss)	622			(11,906		)	(5,939		)	(17,223		)
Accumulated other comprehensive loss at September 30, 2014	$	(391	)	$	(455	)	$	(16,632	)	$	(17,478	)

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)



	Defined Benefit Pension			Foreign Currency Translation			Equity Interest in J-Devices' Other Comprehensive Income (Loss)			Total
	(In thousands)
Accumulated other comprehensive (loss) income at December 31, 2012	$	(5,373	)	$	16,346		$	268		$	11,241
Other comprehensive income (loss) before reclassifications	4,120			(3,369		)	(5,443		)	(4,692		)
Amounts reclassified from accumulated other comprehensive (loss) income	291			—			—			291
Other comprehensive income (loss)	4,411			(3,369		)	(5,443		)	(4,401		)
Accumulated other comprehensive (loss) income at September 30, 2013	$	(962	)	$	12,977		$	(5,175	)	$	6,840

Amounts reclassified out of accumulated other comprehensive (loss) income are included as a component of net periodic pension cost (Note 16) or other (income) expense, net as a result of the release of accumulated foreign currency translation adjustments associated with the sale of our subsidiary in Japan (Note 4).

10. Factoring of Accounts Receivable

We utilize non-recourse factoring arrangements with third party financial institutions to manage our working capital and cash flows. Under this program, we sell receivables to a financial institution for cash at a discount to the face amount. As part of the factoring arrangements, we perform certain collection and administrative functions for the receivables sold. For the nine months ended September 30, 2014 and 2013, we sold accounts receivable totaling $226.8 million and $59.8 million, respectively, for a discount, plus fees, of $1.0 million and $0.4 million, respectively.

11. Inventories

Inventories consist of the following:



	September 30, 2014		December 31, 2013
	(In thousands)
Raw materials and purchased components	$	163,687	$	147,292
Work-in-process	65,870		53,131
Total inventories	$	229,557	$	200,423

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

12. Property, Plant and Equipment

Property, plant and equipment consist of the following:



	September 30, 2014			December 31, 2013
	(In thousands)
Land	$	207,986		$	208,048
Land use rights	26,845			26,845
Buildings and improvements	937,962			911,258
Machinery and equipment	3,947,483			3,577,045
Software and computer equipment	206,763			193,641
Furniture, fixtures and other equipment	15,430			17,430
Construction in progress	29,233			27,039
Total property, plant and equipment	5,371,702			4,961,306
Less accumulated depreciation and amortization	(3,112,832		)	(2,954,753		)
Total property, plant and equipment, net	$	2,258,870		$	2,006,553

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



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Cost of sales	$	111,432	$	97,648	$	312,793	$	277,621
Selling, general and administrative	4,127		3,672		11,489		11,667
Research and development	3,858		3,914		14,931		10,023
Total depreciation expense	$	119,417	$	105,234	$	339,213	$	299,311

As of September 30, 2014, we have capitalized interest of $6.8 million associated with our spending for land and design costs in anticipation of building a new factory and research and development center in Korea.

13. Investments

Investments consist of the following:



	September 30, 2014				December 31, 2013
	Carrying Value (In thousands)		Ownership Interest		Carrying Value (In thousands)		Ownership Interest
Investment in unconsolidated affiliate	$	128,444	60.0	%	$	105,214	60.0	%

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. We invested $16.7 million for our original 30% equity interest and options to acquire additional equity interests. In April 2013, we completed the exercise of our option to increase our ownership interest in J-Devices from 30% to 60% for an aggregate purchase price of $67.4 million. J-Devices is owned 60% by Amkor, 34% by the former shareholders of NMD and 6% by Toshiba.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

On June 30, 2014, J-Devices purchased 100% of the shares of our wholly-owned subsidiary engaged in semiconductor packaging and test operations in Japan. For additional information regarding this transaction, we refer you to Note 4.

At September 30, 2014, our investment includes our 60% equity interest and options to acquire additional equity interests. The remaining 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 and thereafter 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 its shares to us, then J-Devices shall have the obligation to purchase the shares. If J-Devices is unable to fulfill its obligation 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 on the net book value and a multiple of earnings before interest, taxes, depreciation and amortization of J-Devices.

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. J-Devices' financial information is converted to U.S. GAAP and translated into U.S. dollars using Japanese yen as the functional currency. In addition, we record equity method adjustments as a change in our investment. The equity method adjustments include the amortization of basis differences as a result of the cost of our investment differing from our proportionate share of J-Devices' equity.

14. Accrued Expenses

Accrued expenses consist of the following:



	September 30, 2014		December 31, 2013
	(In thousands)
Payroll and benefits	$	80,170	$	75,909
Deferred revenue and customer advances	54,601		44,764
Accrued interest	43,784		21,807
Accrued royalties (Note 18)	43,324		43,324
Income taxes payable	27,017		17,528
Accrued severance plan obligations (Note 16)	11,189		11,197
Acquisition payable (Note 3)	—		17,897
Other accrued expenses	32,534		31,826
Total accrued expenses	$	292,619	$	264,252

Accrued royalties relate to our estimate of royalties due as a result of our pending patent license litigation (Note 18).

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

15. Debt

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



	September 30, 2014			December 31, 2013
	(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	525,000			525,000
Senior subordinated notes:
6.0% Convertible senior subordinated notes, due April 2014 (1)	—			56,350
Debt of subsidiaries:
Amkor Technology Korea, Inc.:
$41 million revolving credit facility, foreign currency funding-linked base rate plus 2.00%, due June 2016	—			—
Term loan, LIBOR plus 3.70%, due June 2016 (2)	70,000			70,000
Term loan, foreign currency funding-linked base rate plus 2.00%, due March 2017 (3)	80,000			—
Term loan, LIBOR plus 3.90% or 3.94%, due July 2017 (4)	30,000			90,000
Term loan, foreign currency funding-linked base rate plus 1.75%, due September 2017 (5)	10,000			10,000
Term loan, LIBOR plus 3.70%, due December 2019	70,000			70,000
Term loan, foreign currency funding-linked base rate plus 2.30%, due March 2015 (3)	—			80,000
Other:
Revolving credit facility, TAIFX plus a bank-determined spread, due April 2015 (Taiwan) (6)	—			—
	1,530,000			1,646,350
Add: Unamortized premium	5,969			6,390
Less: Short-term borrowings and current portion of long-term debt	(10,000		)	(61,350		)
Long-term debt (including related party)	$	1,525,969		$	1,591,390

(1)

In April 2009, we issued $250.0 million of our 6.0% Convertible senior subordinated notes (the “2014 Notes”). The 2014 Notes were 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. In June 2013, we completed a tender offer for the 2014 Notes and exchanged $193.7 million of the 2014 Notes for an aggregate 64.0 million shares of our common stock and a cash payment of $11.6 million. In April 2014, holders of the 2014 Notes converted the remaining outstanding principal amount of $56.4 million into 18.6 million shares of our common stock.

(2)

In April 2013, we entered into a term loan agreement with a Korean bank pursuant to which we may borrow up to $150.0 million through April 2016 for general working capital purposes and the repayment of inter-company debt. The loan is collateralized by substantially all the land, factories and equipment located at our facilities in Korea. Principal is payable at maturity. Interest is due quarterly, at a rate of LIBOR plus 3.70% (3.93% as of September 30, 2014). As of September 30, 2014, $80.0 million was available to be borrowed.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

(3)

In March 2014, we entered into a term loan agreement with a Korean bank pursuant to which we borrowed $80.0 million. The loan is collateralized by substantially all the land, factories and equipment located at our facilities in Korea. Principal is payable at maturity. Interest is due monthly, at a foreign currency funding-linked base rate plus 2.00% (3.34% as of September 30, 2014). Proceeds were used to prepay our term loan due March 2015.

(4)

In June 2012, we entered into a term loan agreement for five years with a Korean bank collateralized by substantially all the land, factories and equipment located at our facilities in Korea. Principal is payable at maturity. Interest is due quarterly, at LIBOR plus 3.90% (4.13% as of September 30, 2014). In April 2014, we prepaid $60.0 million of the outstanding balance of the term loan. In October 2014, the term loan was amended and now bears interest at LIBOR plus 3.70%.

(5)

In March 2013, we entered into a loan agreement with a Korean bank pursuant to which we may borrow up to $150.0 million through September 2017. The loan is collateralized by substantially all the land, factories and equipment located at our facilities in Korea. Principal is payable in quarterly installments of $5.0 million starting in December 2014, with the remaining balance due at maturity. Interest is due quarterly, at a foreign currency funding-linked base rate plus 1.75% (3.20% as of September 30, 2014). At September 30, 2014, $140.0 million was available to be borrowed for capital expenditures.

(6)

In September 2012, Amkor Technology Taiwan Ltd, a subsidiary in Taiwan, entered into a revolving credit facility. 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 September 30, 2014, $24.0 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. The agreements governing our indebtedness contain a number of affirmative and negative covenants which restrict our ability to pay dividends and could restrict our operations. We have never paid a dividend to our stockholders, and we do not have any present plans for doing so. We were in compliance with all of our covenants at September 30, 2014.

16. Pension and Severance Plans

Foreign Defined Benefit Pension Plans

Our subsidiaries in Japan, Malaysia, 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 September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands)
Service cost	$	1,101		$	1,500		$	3,974		$	4,373
Interest cost	748			842			2,321			2,363
Expected return on plan assets	(782		)	(852		)	(2,329		)	(2,646		)
Amortization of transition obligation	—			3			75			7
Amortization of prior service cost	9			50			108			148
Recognized actuarial loss	17			33			50			99
Net periodic pension cost	1,093			1,576			4,199			4,344
Curtailment gain	—			(148		)	—			(148		)
Settlement gain	—			(209		)	—			(209		)
Total pension expense	$	1,093		$	1,219		$	4,199		$	3,987

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

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.

The provision recorded for severance benefits for the three and nine months ended September 30, 2014, was $5.8 million and $12.6 million, respectively. The provision recorded for severance benefits for the three and nine months ended September 30, 2013, was $6.9 million and $19.8 million, respectively. The balance of our Korean severance obligation consists of the following:



	September 30, 2014		December 31, 2013
	(In thousands)
Current (Accrued expenses)	$	11,189	$	11,197
Non-current (Pension and severance obligations)	139,168		133,935
Total Korean severance obligation	$	150,357	$	145,132

17. Fair Value Measurements

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

Our assets and liabilities recorded at fair value on a recurring basis include cash equivalent money market funds and restricted cash money market funds. Cash equivalent money market funds and restricted cash money market funds are invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts, which are due on demand or carry a maturity date of less than three months when purchased. No restrictions have been imposed on us regarding withdrawal of balances with respect to our cash equivalents as a result of liquidity or other credit market issues affecting the money market funds we invest in or the counterparty financial institutions holding our deposits. Money market funds are valued using quoted market prices in active markets for identical assets.

We also measure certain assets and liabilities, including property, plant and equipment, intangible assets and our investment in J-Devices, at fair value on a nonrecurring basis. For the three and nine months ended September 30, 2014 and 2013, 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.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Our fair value measurements consist of the following:



	September 30, 2014		December 31, 2013
	(In thousands)
Recurring fair value measurements:
Assets:
Cash equivalent money market funds (Level 1)	$	174,626	$	300,352
Restricted cash money market funds (Level 1)	2,681		2,681

Nonrecurring fair value measurements:
Long-lived assets held for use or disposal (Level 3)	$	1,452	$	1,055



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Nonrecurring fair value measurements:
Losses on long-lived assets held for use or disposal (Level 3)	$	1,962	$	578	$	2,431	$	1,446

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



	September 30, 2014				December 31, 2013
	Fair Value		Carrying Value		Fair Value		Carrying Value
	(In thousands)
Senior notes (Level 1)	$	1,331,236	$	1,275,969	$	1,321,443	$	1,276,390
Convertible senior subordinated notes (Level 1)	—		—		102,585		56,350
Term loans (Level 2)	260,000		260,000		320,000		320,000
Total debt	$	1,591,236	$	1,535,969	$	1,744,028	$	1,652,740

The estimated fair value of our senior and convertible senior subordinated notes is based primarily on quoted market prices reported on or near the respective balance sheet dates. The estimated fair value of our term loans was calculated using a discounted cash flow analysis, which utilized market based assumptions including forward interest rates adjusted for credit risk.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

18. 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 September 30, 2014, we had $0.4 million of standby letters of credit outstanding and had an additional $24.6 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.

Proceedings with Tessera, Inc.

Since March 2006, we have been involved in several proceedings with Tessera Technologies, Inc. (“Tessera”) related to a license agreement (the “License Agreement”) entered into in 1996 between Tessera and our predecessor. The proceedings generally involve disputes about whether or not Amkor owes Tessera royalties under the License Agreement with respect to certain packages, the termination of the License Agreement and post-termination infringement.

2009 Arbitration: In a proceeding with the International Court of Arbitration of the International Chamber of Commerce (the “ICC”) initiated in 2009 (the “2009 Arbitration”), an arbitration panel ruled that royalties are due to Tessera with respect to certain asserted patents and packages and that the License Agreement was terminated by Tessera as of February 17, 2011. In the second quarter of 2014, the arbitration panel awarded Tessera $113 million plus interest for these past royalties due under the License Agreement. In October 2014, the Superior Court for San Francisco County formally confirmed the arbitration panel’s award and entered judgment against Amkor for $113 million plus $15 million of pre-judgment interest and post-judgment interest at 10% per annum from the date of the judgment until payment is made (the “California Judgment”).

California Actions Related to the 2009 Arbitration (the “California Actions”): In February 2013, we filed a petition in the Superior Court for San Francisco County to vacate or correct a portion of the arbitration panel’s ruling relating to the panel’s authority to award royalties for the period after the termination of the License Agreement. The Superior Court denied our request. Our appeal to the California First District Court of Appeal is pending.

In October 2014, with respect to the California Judgment, we filed a notice of appeal to the California First District Court of Appeal and posted an appeal bond to stay execution of the judgment.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

Delaware Litigation: In July 2012, Tessera filed a complaint in the U.S. District Court for the District of Delaware (the “Delaware Litigation”). The complaint seeks damages with respect to Amkor's alleged infringement of one of the U.S. patents (U.S. Patent No. 6,046,076, the "'076 patent") that the arbitration panel found to be royalty bearing in the 2009 Arbitration. In May 2014, Amkor moved the Delaware court to vacate the arbitration panel's award on the ground that the arbitration panel exceeded its powers in granting the award and on other grounds. The motion is pending.

IPR Proceeding: In April 2013, we initiated an inter partes review proceeding (the “IPR Proceeding”) with the Patent Trial and Appeal Board at the United States Patent and Trademark Office, seeking cancellation of certain claims of the ‘076 patent, including the two claims we were found to practice during the 2009 Arbitration and which are also the subject of the Delaware Litigation. In October 2014, in a two-one decision, the Patent Trial and Appeal Board denied our petition with respect to the most material claims. In October 2014, we appealed to the United States Court of Appeals for the Federal Circuit. We believe a successful ruling in the appeal may favorably impact the California Actions and Delaware Litigation, depending on the timing and application of the ruling.

2011 Arbitration: In May 2011, Tessera initiated an additional phase in the 2009 Arbitration involving an accusation by Tessera that Amkor has infringed additional patents and seeking undisclosed damages (the “2011 Arbitration”). In June 2014, a hearing was held in the liability phase of the 2011 Arbitration. Closing arguments were held in October 2014. The ICC arbitration panel will now adjudicate the claims and defenses in the 2011 Arbitration, including whether the asserted patents are invalid, whether certain products are covered by the License Agreement, whether Amkor owes any additional royalties related to those products and, if so, the amount of royalties owed.

We strongly dispute Tessera's claims in these proceedings and intend to vigorously defend against them.

The ultimate amount of damages and interest we may owe to Tessera in connection with the several pending proceedings will depend upon a number of complex factors, including whether we can overturn on appeal the existing rulings in the 2009 Arbitration, California Actions and IPR Proceeding, the timing and application to the underlying proceedings of such appellate rulings if they are successful, the interrelationship of the various proceedings and other factors. The final outcome of these matters is uncertain and an adverse result could have a material adverse effect on our results of operations, financial condition and cash flows.

With respect to the 2009 Arbitration, we estimate that the possible range of royalties due to Tessera is from $11 million to $113 million (net of royalties previously paid in 2012 and excluding interest). As of September 30, 2014, our accrual was $43.3 million for these royalties and $6.5 million for interest related to these accrued royalties. We expect to record our estimate of interest accruing with the passage of time. The amount of damages and interest we may owe with respect to the 2009 Arbitration could be more or less than our estimate of the possible range depending on the factors described above. If we are unsuccessful in our appeals or their application to the underlying proceedings, we believe the amount we will owe Tessera will materially exceed the amount currently accrued.

The above estimate of the range and accrual for the 2009 Arbitration does not take into account the possible royalties and other amounts, if any, that may be due to Tessera in connection with the Delaware Litigation or the 2011 Arbitration. We are unable to make any reasonable estimate regarding amounts that may be due to Tessera in connection with such proceedings because key findings are still pending in those proceedings, such as validity, infringement, the scope of the License Agreement and amounts involved.

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

Since November 2003, we have been involved in several proceedings against Carsem (M) Sdn Bhd, Carsem Semiconductor Sdn Bhd, and Carsem Inc. (collectively “Carsem”) in which we alleged that Carsem has infringed on one or more of our MicroLeadFrame ("MLF") packaging technology patent claims, including an action we initiated with the U.S. International Trade Commission (the “ITC”) in Washington, D.C., under Section 337 of the Tariff Act of 1930.

In April 2014, the ITC made a final determination that Carsem violated Section 337 of the Tariff Act and issued a limited exclusion order barring Carsem from importing into the U.S. any of its products that infringe certain of our patent claims.

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AMKOR TECHNOLOGY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

In May 2014, the parties entered into a settlement agreement to end all pending proceedings related to the dispute, and Carsem paid Amkor an agreed sum for such settlement. Under the terms of the agreement, Carsem and Amkor have granted each other non-exclusive licenses to their respective MLP and MLF patents worldwide.

19. 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” generally consists of pension plan curtailments and settlements and foreign currency adjustments.



	Employee Separation Costs
	(In thousands)
Accrual at December 31, 2013	$	—
Charges	3,889
Cash Payments	(3,973		)
Non-cash Amounts	84
Accrual at September 30, 2014	$	—



	Employee Separation Costs
	(In thousands)
Accrual at December 31, 2012	$	1,607
Charges	8,083
Cash Payments	(10,061		)
Non-cash Amounts	371
Accrual at September 30, 2013	$	—

During the nine months ended September 30, 2014 and 2013, we reduced our workforce through workforce reduction programs. During the nine months ended September 30, 2014, we recorded $3.9 million in charges. During the three and nine months ended September 30, 2013, we recorded $2.1 million and $8.1 million, respectively. All charges related primarily to cost of sales.

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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. Our financial goals are sales growth and improved profitability, and we are focusing on the following strategies to achieve these goals: leveraging our investment in services for advanced technologies, improving utilization of existing assets and growing our scale and scope through selective strategic investments.

We are an industry leader in developing and commercializing cost-effective advanced packaging and test technologies. These advanced technology solutions provide increased value to our customers while typically generating gross margins above the corporate average. This is particularly true in the mobile device market, where growth has outpaced the industry rate. Advanced packages are now the preferred choice in both the high-end and the mid-range segments of the smartphone market, which together account for a high portion of mobile phone semiconductor value. The demand for advanced packages is also being driven by second-wave mobile device customers, who are transitioning out of wirebond into wafer-level and flip-chip packages. Our technology leadership and this technology transition create significant growth opportunities for us.

We typically look for opportunities in the advanced packaging and test area where we can recover our capital investment over one to two years. Then, we focus on developing a second wave of customers to fill the capacity that becomes available when leading edge customers transition to newer packaging and test equipment and platforms. For example, we are currently engaged in improving our sales to Chinese and Taiwanese fabless chip companies, who dominate the mid-tier and entry-level segments of the mobile device market where much of the growth is occurring. In addition, we are seeking out new customers in the analog area for our mainstream wirebond technologies and expanding our share of the automotive market where semiconductor content continues to grow. These efforts to enlarge our customer base will continue through the remainder of 2014 and beyond as we target these and other customers to grow our revenue and improve the overall utilization of our assets.

From time to time, we also see attractive opportunities to grow our customer base and expand markets. For example, in 2009 we invested in J-Devices Corporation, a joint venture to provide semiconductor packaging and test services in Japan. In 2013, we increased our investment in J-Devices to 60%. In July 2013, we acquired Toshiba’s power discrete semiconductor packaging and test business in Malaysia. The financial results of this entity have been included in our Consolidated Financial Statements from the date of acquisition. In addition to adding a new revenue stream from our existing customer, Toshiba, we are attracting other power discrete customers. We believe that growth through selective joint ventures, acquisitions and other strategic investments can help diversify our revenue streams, improve our profits and continue our technological leadership. We expect to continue to evaluate similar opportunities.

Our IDM customers include: Intel Corporation; Micron Technology, Inc.; STMicroelectronics N.V.; Texas Instruments Incorporated and Toshiba Corporation. Our fabless customers include: Altera Corporation; Broadcom Corporation; LSI Corporation and Qualcomm Incorporated. Our contract foundry customers include: GlobalFoundries Inc. and Taiwan Semiconductor Manufacturing Company Limited.

Our business is affected by market conditions in the semiconductor industry generally, which is cyclical 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 on Form 10-Q.

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 firm customer commitments. We fund our operations,

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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.

Financial Highlights

On June 30, 2014, we completed the sale of our Japanese subsidiary to J-Devices, our 60% owned equity-method joint venture in Japan. Our financial results for the three months ended September 30, 2013, included approximately $19 million of net sales of the divested entity. Our results for the three months ended September 30, 2014 did not include any net sales of the divested entity. The results of the divested entity subsequent to June 30, 2014 are included in J-Devices' financial results and our corresponding equity in earnings of J-Devices.

Our net sales increased $44.8 million or 5.8% to $812.8 million for the three months ended September 30, 2014, from $768.0 million for the three months ended September 30, 2013. The increase in net sales for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, was primarily related to an increase in mobile communications driven by the launch of new mobile devices and growth in our automotive business.

Gross margin for the three months ended September 30, 2014, increased to 18.8% from 18.4% for the three months ended September 30, 2013, as the 2013 period was negatively impacted by a $10.0 million charge to cost of sales for our pending patent litigation. Gross margin for the current period was favorably affected by increased sales of advanced packaging and test services and adversely affected by weakness in wirebond services. Our investment in infrastructure ahead of originally expected higher levels of demand and foreign currency losses at various Asian subsidiaries due to unfavorable exchange rate movements negatively impacted our gross margin for the three months ended September 30, 2014.

Our capital expenditures totaled $442.3 million for the nine months ended September 30, 2014, compared to $402.0 million for the nine months ended September 30, 2013. Our spending was primarily focused on investments in advanced packaging and test equipment supporting mobile communications and construction of our new factory and research and development center in Korea.

Net cash provided by operating activities was $405.7 million for the nine months ended September 30, 2014, compared to $375.2 million for the nine months ended September 30, 2013. The increase is primarily attributable to revenue growth and improved profitability, partially offset by an increase in working capital.

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 September 30,				For the Nine Months Ended September 30,
	2014		2013		2014		2013
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Materials	37.5	%	39.0	%	37.2	%	41.0	%
Labor	14.1	%	14.1	%	14.2	%	14.3	%
Other manufacturing costs	29.6	%	27.2	%	29.6	%	26.3	%
Patent license litigation	—	%	1.3	%	—	%	0.5	%
Gross margin	18.8	%	18.4	%	19.0	%	17.9	%
Operating income	9.2	%	7.6	%	8.0	%	7.2	%
Income before taxes and equity in earnings of unconsolidated affiliate	7.4	%	4.6	%	5.4	%	3.2	%
Net income attributable to Amkor	5.8	%	3.3	%	5.2	%	3.1	%

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Net Sales



	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2014		2013		Change				2014		2013		Change
	(In thousands, except percentages)
Net sales	$	812,824	$	767,987	$	44,837	5.8	%	$	2,276,327	$	2,201,575	$	74,752	3.4	%

The increase in net sales for the three months ended September 30, 2014, compared to the three months ended September 30, 2013, was primarily related to an increase in mobile communications driven by the launch of new mobile devices and growth in our automotive business.

The increase in net sales for the nine months ended September 30, 2014, compared to the nine months ended September 30, 2013, was primarily driven by incremental business from our newly acquired power discrete business in Malaysia, strong demand for wafer services and NAND memory supporting mobile communications, the ramp of a fingerprint sensor product to high volume and growth in our automotive business. These increases were partially offset by lower net sales for other services related to mobile communications.

Gross Margin



	For the Three Months Ended September 30,									For the Nine Months Ended September 30,
	2014			2013			Change			2014			2013			Change
	(In thousands, except percentages)
Gross profit	$	153,217		$	141,008		$	12,209		$	432,751		$	394,340		$	38,411
Gross margin	18.8		%	18.4		%	0.4		%	19.0		%	17.9		%	1.1		%

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.

Gross margin for the three and nine months ended September 30, 2013 was negatively impacted by a $10.0 million charge to cost of sales for our pending patent litigation.

Gross margin for the three months ended September 30, 2014, was favorably affected by increased sales of advanced packaging and test services and adversely affected by weakness in wirebond services. Our investment in infrastructure ahead of originally expected higher levels of demand and foreign currency losses at various Asian subsidiaries due to unfavorable exchange rate movements negatively impacted our gross margin for the three months ended September 30, 2014.

Gross margin for the nine months ended September 30, 2014, increased compared to the nine months ended September 30, 2013, as a result of strength in wirebond services, particularly for NAND flash memory and the automotive end market, offset by lower sales of advanced packaging and test services due to a slower first half of 2014 for mobile devices.

Selling, General and Administrative Expenses



	For the Three Months Ended September 30,									For the Nine Months Ended September 30,
	2014		2013		Change					2014		2013		Change
	(In thousands, except percentages)
Selling, general and administrative	$	61,600	$	64,347	$	(2,747	)	(4.3	)%	$	191,698	$	189,524	$	2,174	1.1	%

Selling, general and administrative expenses for the three months ended September 30, 2014, decreased compared to the three months ended September 30, 2013. The decrease resulted from lower employee incentive compensation costs partially offset by the incremental costs from our newly acquired power discrete business in Malaysia. Selling, general and

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administrative expenses for the nine months ended September 30, 2014, increased compared to the nine months ended September 30, 2013. The increase was attributable to incremental costs from our newly acquired power discrete business in Malaysia, partially offset by lower professional fees associated with acquisitions and investments.

Research and Development



	For the Three Months Ended September 30,									For the Nine Months Ended September 30,
	2014		2013		Change					2014		2013		Change
	(In thousands, except percentages)
Research and development	$	16,437	$	18,647	$	(2,210	)	(11.9	)%	$	59,561	$	47,261	$	12,300	26.0	%

Research and development activities are focused on developing new packaging and test services and improving the efficiency and capabilities of our existing production processes. Areas of focus include 2.5D and 3D packaging, including embedded die, silicon interposers and through silicon via technologies, fine pitch copper pillar packaging and wafer-level processing. The decrease in research and development expenses for the three months ended September 30, 2014, was driven by 20 nanometer chipset design wins moving into production. The increase in research and development expenses for the nine months ended September 30, 2014, was primarily attributable to the development activities related to 20 nanometer chipsets with strategic customers that moved into production during the period, increased depreciation expense from research and development investments and higher employee compensation costs.

Other Income and Expense



	For the Three Months Ended September 30,											For the Nine Months Ended September 30,
	2014			2013			Change					2014			2013		Change
	(In thousands, except percentages)
Interest expense, including related party	$	25,023		$	27,347		$	(2,324	)	(8.5	)%	$	73,766		$	79,848	$	(6,082	)	(7.6	)%
Other (income) expense, net	(9,626		)	(4,328		)	(5,298		)	>(100)%		(15,289		)	6,326		(21,615		)	>(100)%
Total other expense, net	$	15,397		$	23,019		$	(7,622	)	(33.1	)%	$	58,477		$	86,174	$	(27,697	)	(32.1	)%

Interest expense for the three and nine months ended September 30, 2014, decreased as a result of capitalized interest related to the construction of our new factory and research and development center in Korea and the April 2014 conversion of $56.3 million of our 6.0% Convertible senior subordinated notes for shares of our common stock. Additionally, for the nine months ended September 30, 2014, the decrease in interest expense was also attributable to the June 2013 exchange of $193.7 million of our 6.0% Convertible senior subordinated notes for shares of our common stock, offset by an increase in our senior notes.

Other (income) expense, net for the three and nine months ended September 30, 2014, increased primarily as a result of foreign currency gains at various Asian subsidiaries due to favorable exchange rate movements. Other (income) expense, net for the nine months ended September 30, 2014, included a $9.2 million net gain on the sale of a subsidiary to J-Devices. Other (income) expense, net for the nine months ended September 30, 2013, included a charge of $11.6 million related to the June 2013 cash payment we made to holders of the convertible notes.

Income Tax Expense



	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2014		2013		Change				2014		2013		Change
	(In thousands, except percentages)
Income tax expense	$	14,985	$	12,170	$	2,815	23.1	%	$	32,425	$	5,961	$	26,464	>100%

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Generally, our effective tax rate is below the U.S. federal tax rate of 35% because we have experienced losses in the U.S. and our income is taxed in foreign jurisdictions where we benefit from tax holidays or tax rates lower than the U.S. statutory rate. Our income tax expense for the three and nine months ended September 30, 2014, was attributable to income tax on profits earned in certain foreign jurisdictions and foreign withholding taxes. During the nine months ended September 30, 2013, we recorded discrete income tax benefits of $9.2 million for the reversal of a deferred tax liability associated with the undistributed earnings of our investment in J-Devices and $6.6 million for the release of a valuation allowance on deferred tax assets with respect to our operations in one foreign jurisdiction. During the three months ended September 30, 2013, we also recorded $2.8 million of income tax expense for the revaluation of certain deferred taxes resulting from the approval of a tax incentive in Korea and $2.8 million of income tax expense for an addition to our unrecognized tax benefits related to the characterization of a deduction in a foreign jurisdiction.

During 2014 and 2013, our subsidiaries in Korea, Malaysia, the Philippines and Taiwan operated under tax holidays which will continue to expire in whole or in part at various dates through 2022. We expect our effective tax rate to increase as the tax holidays expire as income earned in these jurisdictions will then be subject to higher statutory income tax rates.

Equity in Earnings of J-Devices



	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2014		2013		Change				2014	2013	Change
	(In thousands, except percentages)
Equity in earnings of J-Devices	$	3,372	$	3,179	$	193	6.1	%	29,169	4,679	24,490	>100%

In April 2013, we increased our ownership interest in J-Devices from 30% to 60%. Additionally, in June 2013, J-Devices acquired three packaging and test facilities from Renesas and, in June 2014, J-Devices acquired our Japanese subsidiary. Our equity in earnings of J-Devices for the nine months ended September 30, 2014, includes $8.8 million of additional equity in earnings resulting from the gain on J-Devices' purchase of our subsidiary and $8.1 million from the settlement of a take or pay arrangement under a manufacturing services agreement.

Liquidity and Capital Resources

We assess our liquidity based on our current expectations regarding sales, operating expenses, capital spending and debt service requirements. Based on this assessment, we believe that our cash flow from operating activities, together with existing cash and cash equivalents and availability under our revolving credit facilities, will be sufficient to fund our working capital, capital expenditure and debt service requirements for at least the next twelve months. Our liquidity is affected by, among other things, volatility in the global economy and credit markets, the performance of our business, our capital expenditure levels, other uses of our cash including the final amount of payments due in our pending patent license litigation, any purchases of stock under our stock repurchase program, any acquisitions or investments in joint ventures and our ability to either repay debt out of operating cash flow or refinance it at or prior to maturity with the proceeds of debt or equity offerings. There can be no assurance that we will generate the necessary net income or operating cash flows, or be able to borrow sufficient funds, to meet the funding needs of our business beyond the next twelve months due to a variety of factors, including the cyclical nature of the semiconductor industry and other factors discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Our primary source of cash and the source of funds for our operations are cash flows from operations, current cash and cash equivalents, borrowings under available debt facilities and proceeds from any additional debt or equity financings. As of September 30, 2014, we had cash and cash equivalents of $485.6 million. Included in our cash balance as of September 30, 2014, is $287.6 million held offshore by our foreign subsidiaries. If we were to distribute this offshore cash to the U.S. as dividends from our foreign subsidiaries, we would incur foreign withholding taxes; however, we would not incur a significant amount of U.S. federal income taxes, due to the availability of tax loss carryovers and foreign tax credits.

As of September 30, 2014, we had availability of $149.6 million under our $150.0 million first lien senior secured revolving credit facility. Our foreign subsidiaries had $65.0 million available to be drawn under secured revolving credit facilities for general corporate purposes, general working capital purposes and capital expenditures and $220.0 million available to

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be borrowed under secured term loan credit facilities for general working capital purposes, capital expenditures and repayment of inter-company debt.

As of September 30, 2014 we had $1,536.0 million of debt. Our scheduled principal repayments on debt include $5.0 million due in 2014, $5.0 million due in 2015, $70.0 million due in 2016, $110.0 million due in 2017, $345.0 million due in 2018 and $995.0 million due thereafter. In April 2014, holders of our 6.0% Convertible senior subordinated notes due April 2014 converted the remaining outstanding principal amount of $56.4 million into 18.6 million shares of our common stock, and we repaid $60.0 million of a foreign secured term loan credit facility maturing in July 2017. We were in compliance with all of our debt covenants at September 30, 2014, and we expect to remain in compliance with these covenants for at least the next twelve months.

We utilize non-recourse factoring arrangements with third party financial institutions to manage our working capital and cash flows. Under this program, we sell receivables to a financial institution for cash at a discount to the face amount. Available capacity under these programs is dependent on the level of our trade accounts receivable eligible to be sold, the financial institutions' willingness to purchase such receivables and the limits provided by the financial institutions. For the nine months ended September 30, 2014 and 2013, we sold accounts receivable totaling $226.8 million and $59.8 million, respectively, for a discount, plus fees, of $1.0 million and $0.4 million, respectively. At September 30, 2014 and December 31, 2013, there were $68.6 million and $96.0 million, respectively, of receivables, which had been sold to financial institutions under these arrangements, that were outstanding on those dates.

In order to reduce leverage and future cash interest payments, we may from time to time repurchase our outstanding notes for cash or exchange shares of our common stock for our outstanding notes. Any such transaction may be made in the open market, through privately negotiated transactions or otherwise and is subject to the terms of our indentures and other debt agreements, market conditions and other factors.

Certain debt agreements have restrictions on dividend payments and the repurchase of stock and subordinated securities. These restrictions are determined by calculations based upon cumulative net income. We have never paid a dividend to our stockholders, and we do not have any present plans for doing so. Amkor Technology, Inc. also guarantees certain debt of our subsidiaries.

We sponsor an accrued severance plan for our subsidiary in Korea, which under existing tax laws in Korea, limits our ability to currently deduct related severance expenses accrued under that plan. The purpose of these limitations is to encourage companies to migrate to a defined contribution or defined benefit plan. If we retain our existing severance plan, the deduction for severance expenses will be limited to severance payments made to retired employees, which results in a larger current income tax liability in Korea. If we decide to adopt a new plan, we would be required to fund a significant portion of the existing liability, which would provide a current tax deduction upon funding. Our Korean severance liability was $150.4 million as of September 30, 2014.

We expect to use cash on hand, proceeds from borrowings under our existing lines of credit or other sources to make any payments that become due in connection with our pending patent license litigation. We refer you to Note 18 to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of the pending litigation relating to Amkor's license agreement with Tessera.

We operate in a capital intensive industry. Servicing our current and future customers may require that we incur significant operating expenses and make significant investments in equipment and facilities, which are generally made in advance of the related revenues and without any firm customer commitments.

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. At September 30, 2014, approximately $91.6 million was available to repurchase common stock pursuant to the stock repurchase program. The purchase of stock may be made in the open market or through privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will depend upon a variety of factors including economic and market conditions, the cash needs and investment opportunities for the business, price, applicable legal requirements and other factors. We have not purchased any stock under the plan since 2012.

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Investments

We make significant capital expenditures in order to service the demand of our customers. During the nine months ended September 30, 2014, our capital expenditures totaled $442.3 million. Our spending was primarily focused on investments in packaging and test equipment supporting mobile communications.

In September 2014, we started the construction of our new factory and research and development center in Korea. We plan to spend approximately $350 million for the construction of the facility through completion in 2016. There can be no assurance that the new facility will be completed, or that the actual scope, costs, timeline or benefits of the project will be consistent with our current expectations.

We expect that our 2014 capital expenditures will be approximately $675 million, which includes approximately $35 million primarily for the deposit for the construction of our new factory and research and development center in Korea. The increase in trade payables of $261.3 million from December 31, 2013, included $190.2 million related to payables for capital investments. Our capital expenditures will primarily support customer demand for packaging and test services related to mobile communications. Ultimately, the amount of our 2014 capital expenditures will depend on several factors including, among others, the timing and implementation of any capital projects under review, the performance of our business, economic and market conditions, the cash needs and investment opportunities for the business, the need for additional capacity to service anticipated customer demand and the availability of cash flows from operations or financing.

We expect to exercise our option to increase our ownership in J-Devices from 60% to 66% in the fourth quarter of 2014. We also expect to exercise our option to further increase our ownership to 80% in the fourth quarter of 2015, subject to market and other conditions at the time of exercise. If we exercise our 80% option, certain governance restrictions of our shareholders' agreement will lapse, and we will begin consolidating the financial results of J-Devices at that time. We may consolidate sooner if the other J-Devices' investors agree to terminate these governance restrictions. 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.

In addition, we are subject to risks associated with our capital expenditures, including those discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q under the caption "Capital Expenditures - We Make Substantial Investments in Equipment and Facilities To Support the Demand Of Our Customers, Which May Adversely Affect Our Business If the Demand Of Our Customers Does Not Develop As We Expect or Is Adversely Affected."

Contractual Obligations

The following table summarizes our contractual obligations at September 30, 2014, and the effect such obligations are expected to have on our liquidity and cash flow in future periods:



			Payments Due for Year Ending December 31,
	Total		2014 - Remaining		2015		2016		2017		2018		Thereafter
	(In thousands)
Total debt	$	1,530,000	$	5,000	$	5,000	$	70,000	$	110,000	$	345,000	$	995,000
Scheduled interest payment obligations (1)	601,071		45,127		94,871		93,454		89,378		75,442		202,799
Purchase obligations (2)	323,403		51,546		157,323		100,961		2,460		4,924		6,189
Operating lease obligations	57,225		4,447		14,463		7,039		6,362		6,050		18,864
Severance obligations (3)	150,357		2,797		10,322		9,514		8,775		8,105		110,844
Total contractual obligations	$	2,662,056	$	108,917	$	281,979	$	280,968	$	216,975	$	439,521	$	1,333,696


(1)	Scheduled interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at September 30, 2014, for variable rate debt.


(2)	Represents off-balance sheet purchase obligations for capital expenditures and long-term supply contracts outstanding at September 30, 2014, including $240.6 million for construction obligations for our new factory and research and development center in Korea.


(3)	Represents estimated benefit payments for our Korean subsidiary severance plan.

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In addition to the obligations identified in the table above, other non-current liabilities recorded in our Consolidated Balance Sheets at September 30, 2014, include:


•	$19.4 million of net foreign pension plan obligations and $2.1 million for employee-related liabilities, for which the timing and actual amount of our future cash flow is uncertain.


•	$6.6 million net liability associated with unrecognized tax benefits. Due to the uncertainty regarding the amount and the timing of any future cash outflows associated with our unrecognized tax benefits, we are unable to reasonably estimate the amount and period of ultimate settlement, if any, with the various taxing authorities.

Off-Balance Sheet Arrangements

As of September 30, 2014, we had no off-balance sheet guarantees or other off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, other than our operating lease obligations described above in “Contractual Obligations.”

Contingencies, Indemnifications and Guarantees

We refer you to Note 18 to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of our contingencies related to litigation and other legal matters. If an unfavorable ruling were to occur in these matters, there exists the possibility of a material adverse impact on our business, liquidity, results of operations, financial position and cash flows in the period in which the ruling occurs. The potential impact from legal proceedings on our business, liquidity, results of operations, financial position and cash flows could change in the future.

Critical Accounting Policies

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013. During the three months ended September 30, 2014, there have been no significant changes in our critical accounting policies as reported in our 2013 Annual Report on Form 10-K.

New Accounting Pronouncements

For information regarding recent accounting pronouncements, we refer you to Note 2 to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Cash Flows

Net cash provided by (used in) operating, investing and financing activities for the nine months ended September 30, 2014 and 2013, were as follows:



	For the Nine Months Ended September 30,
	2014			2013
	(In thousands)
Operating activities	$	405,668		$	375,245
Investing activities	(456,301		)	(476,908		)
Financing activities	(74,285		)	277,931

Operating activities: Our cash flows provided by operating activities for the nine months ended September 30, 2014, increased by $30.4 million compared to the nine months ended September 30, 2013. The increase is primarily attributable to revenue growth and improved profitability, partially offset by an increase in working capital.

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Investing activities: Our cash flows used in investing activities are principally for payments for property, plant and equipment. The net cash used in investing activities for the nine months ended September 30, 2014, included cash transferred on the sale of our subsidiary to J-Devices, net of proceeds. The net cash used in investing activities for the nine months ended September 30, 2013, included payments for an investment in J-Devices and our power discrete business in Malaysia, offset by proceeds from the January 2013 sale of office space and land.

Financing activities: The net cash used in financing activities for the nine months ended September 30, 2014, was driven by our repayment of borrowings at our subsidiary in Korea and the final payment for our newly acquired power discrete business in Malaysia. The net cash provided by financing activities for the nine months ended September 30, 2013, primarily resulted from the issuance of senior notes and borrowings at our subsidiary in Korea.

We provide the following supplemental data to assist our investors and analysts in understanding our liquidity and capital resources. We define free cash flow as net cash provided by operating activities less payments for property, plant and equipment. Free cash flow is not defined by U.S. GAAP. We believe free cash flow to be relevant and useful information to our investors because it provides them with additional information in assessing our liquidity, capital resources and financial operating results. Our management uses free cash flow in evaluating our liquidity, our ability to service debt and our ability to fund capital expenditures. However, free cash flow has certain limitations, including that it does not represent the residual cash flow available for discretionary expenditures since other, non-discretionary expenditures, such as mandatory debt service, are not deducted from the measure. The amount of mandatory versus discretionary expenditures can vary significantly between periods. This measure should be considered in addition to, and not as a substitute for, or superior to, other measures of liquidity or financial performance prepared in accordance with U.S. GAAP, such as net cash provided by operating activities. Furthermore, our definition of free cash flow may not be comparable to similarly titled measures reported by other companies. We had negative free cash flow of $36.6 million for the nine months ended September 30, 2014, primarily due to our investments to support customer demand for packaging and test services related to mobile communications.



	For the Nine Months Ended September 30,
	2014			2013
	(In thousands)
Net cash provided by operating activities	$	405,668		$	375,245
Payments for property, plant and equipment	(442,308		)	(402,004		)
Free cash flow	$	(36,640	)	$	(26,759	)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk Sensitivity