Attached files
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EX-4.1 - EXHIBIT 4.1 - Tower US Holdings Inc. | exhibit_4-1.htm |
EXCEL - IDEA: XBRL DOCUMENT - Tower US Holdings Inc. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - Tower US Holdings Inc. | exhibit_32-1.htm |
EX-32.2 - EXHIBIT 32.2 - Tower US Holdings Inc. | exhibit_32-2.htm |
EX-31.1 - EXHIBIT 31.1 - Tower US Holdings Inc. | exhibit_31-1.htm |
EX-31.2 - EXHIBIT 31.2 - Tower US Holdings Inc. | exhibit_31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2014
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Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 001-32832
Jazz Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
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20-3320580
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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4321 Jamboree Road
Newport Beach, California
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92660
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(Address of principal executive offices)
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(Zip Code)
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(949) 435-8000
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 such filing requirements for the past 90 days.
Yes o No x
(Note: As a voluntary filer not subject to the filing requirements, the Registrant 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).
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x 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 definitions of “large accelerated filer” and “accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer x
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Smaller reporting company o
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format permitted by General Instruction H(2).
JAZZ TECHNOLOGIES, INC.
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PART I — FINANCIAL INFORMATION
Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
Tower Semiconductor, Ltd.) and Subsidiaries
(in thousands)
March 31, 2014
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December 31, 2013
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 66,653 | $ | 51,351 | ||||
Receivables:
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Trade receivables, net of allowance for doubtful accounts of $0 at March 31, 2014 and December 31, 2013
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22,933 | 20,426 | ||||||
Other receivables
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6,566 | 9,835 | ||||||
Inventories
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25,984 | 26,297 | ||||||
Deferred tax asset
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3,944 | 3,846 | ||||||
Other current assets
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1,208 | 1,303 | ||||||
Total current assets
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127,288 | 113,058 | ||||||
Long-term investments
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921 | 778 | ||||||
Property, plant and equipment, net
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75,138 | 78,345 | ||||||
Intangible assets, net
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27,211 | 28,302 | ||||||
Goodwill
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7,000 | 7,000 | ||||||
Other assets – related parties
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1,562 | 1,686 | ||||||
Other assets – others
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1,904 | 1,647 | ||||||
Total assets
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$ | 241,024 | $ | 230,816 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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20,323 | 15,290 | ||||||
Accrued compensation and benefits
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6,929 | 5,985 | ||||||
Deferred revenues
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1,058 | 2,492 | ||||||
Other current liabilities
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2,949 | 5,205 | ||||||
Total current liabilities
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31,259 | 28,972 | ||||||
Long term liabilities:
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Long-term debt from banks
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19,100 | 19,100 | ||||||
Notes
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84,261 | 81,181 | ||||||
Deferred tax liability
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5,235 | 2,429 | ||||||
Employee related liabilities
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2,551 | 2,551 | ||||||
Other long-term liabilities
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12,918 | 12,780 | ||||||
Total liabilities
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155,324 | 147,013 | ||||||
Stockholder’s equity:
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Ordinary shares of $1 par value;
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Authorized: 200 shares;
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Issued: 100 shares;
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Outstanding: 100 shares;
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Additional paid-in capital
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74,986 | 63,576 | ||||||
Cumulative stock based compensation
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2,355 | 2,173 | ||||||
Accumulated other comprehensive earnings
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2,792 | 3,357 | ||||||
Retained earnings
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5,567 | 14,697 | ||||||
Total stockholders' equity
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85,700 | 83,803 | ||||||
Total liabilities and stockholders’ equity
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$ | 241,024 | $ | 230,816 |
See accompanying notes.
1
Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
Tower Semiconductor, Ltd. and Subsidiaries
(in thousands)
Three months ended
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March 31, 2014
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March 31, 2013
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Revenues
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$ | 46,919 | $ | 36,774 | ||||
Cost of revenues
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39,919 | 29,899 | ||||||
Gross profit
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7,000 | 6,875 | ||||||
Operating expenses:
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Research and development
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2,715 | 2,879 | ||||||
Selling, general and administrative
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3,255 | 2,736 | ||||||
Amortization related to a lease agreement early termination
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-- | 1,866 | ||||||
Total operating expenses
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5,970 | 7,481 | ||||||
Operating income (loss)
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1,030 | (606 | ) | |||||
Financing expense, net
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(13,800 | ) | (3,485 | ) | ||||
Loss before income taxes
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(12,770 | ) | (4,091 | ) | ||||
Income tax benefit
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3,640 | 1,670 | ||||||
Net loss
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$ | (9,130 | ) | $ | (2,421 | ) |
See accompanying notes.
2
Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
Tower Semiconductor, Ltd.) and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
Three months ended
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March 31, 2014
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March 31, 2013
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Net loss
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$ | (9,130 | ) | $ | (2,421 | ) | ||
Change in employees plan assets and benefit obligations
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(565 | ) | (440 | ) | ||||
Comprehensive loss
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$ | (9,695 | ) | $ | (2,861 | ) |
3
Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
Tower Semiconductor, Ltd.) and Subsidiaries
(in thousands)
Three months ended
March 31, 2014
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Three months ended
March 31, 2013
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Operating activities:
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Net loss
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$ | (9,130 | ) | $ | (2,421 | ) | ||
Adjustments to reconcile net loss for the period to net cash provided by operating activities:
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Loss from notes exchange
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9,817 | -- | ||||||
Depreciation and amortization of intangible assets
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10,489 | 10,891 | ||||||
Notes accretion and amortization of deferred financing costs
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2,067 | 1,597 | ||||||
Stock based compensation expense
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182 | 87 | ||||||
Changes in operating assets and liabilities:
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Trade receivables
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(2,507 | ) | (974 | ) | ||||
Inventories
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313 | 173 | ||||||
Other receivables and assets
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2,397 | (2,142 | ) | |||||
Accounts payable
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2,654 | 1,281 | ||||||
Due to related parties, net
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958 | (628 | ) | |||||
Accrued compensation and benefits
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944 | 659 | ||||||
Deferred Revenue
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(1,434 | ) | (9 | ) | ||||
Other current liabilities
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(2,812 | ) | (2,309 | ) | ||||
Deferred tax liability, net
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(3,437 | ) | -- | |||||
Employee related liabilities and other long-term liabilities
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39 | 62 | ||||||
Net cash provided by operating activities
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10,540 | 6,267 | ||||||
Investing activities:
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Purchases of property and equipment
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(4,452 | ) | (5,000 | ) | ||||
Proceeds related to property and equipment
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-- | 726 | ||||||
Net cash used in investing activities
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(4,452 | ) | (4,274 | ) | ||||
Financing activities:
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Proceeds from issuance of notes, net
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9,214 | -- | ||||||
Net cash provided by financing activities
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9,214 | -- | ||||||
Net increase in cash and cash equivalents
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15,302 | 1,993 | ||||||
Cash and cash equivalents at beginning of period
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51,351 | 43,306 | ||||||
Cash and cash equivalents at end of period
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$ | 66,653 | $ | 45,299 | ||||
Non cash activities:
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Investments in property, plant and equipment
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$ | 4,557 | $ | 1,517 |
Supplemental disclosure of cash flow information:
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Cash paid during the period for interest
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$ | 4,625 | $ | 3,867 | ||||
Cash paid during the period for income taxes
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$ | -- | $ | -- |
See accompanying notes.
4
Jazz Technologies, Inc.
March 31, 2014
Note 1: Business and Formation
Unless specifically noted otherwise, as used throughout these notes to the consolidated financial statements, “Jazz”, “Company” refers to the business of Jazz Technologies, Inc. and “Jazz Semiconductor” refers only to the business of Jazz Semiconductor, Inc.
The Company
Since the merger with Tower in 2008, the Company is a 100% subsidiary of Tower.
The Company is based in Newport Beach, California and is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices. The Company’s specialty process technologies include advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar complementary metal oxide (“SiGe”) semiconductor processes, for the manufacture of analog and mixed-signal semiconductors. Its customers' analog and mixed-signal semiconductor devices are used in cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems.
Note 2: Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The Company prepares its consolidated financial statements in accordance with SEC and U.S. generally accepted accounting principles (“US GAAP”) requirements and includes all adjustments of a normal recurring nature that are necessary to fairly present its condensed consolidated results of operations, financial position, and cash flows for all periods presented. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Interim period results are not necessarily indicative of full year results. This quarterly report should be read in conjunction with the Company’s most recent Annual Report on Form 10-K.
The condensed consolidated financial statements included herein are unaudited; however, they contain all normal recurring adjustments that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial position at March 31, 2014 and December 31, 2013, and the consolidated results of its operations and cash flows for the three months ended March 31, 2014 and March 31, 2013. All intercompany accounts and transactions have been eliminated. Certain amounts have been reclassified in order to conform to 2014 presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance with US GAAP. For financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.
Concentrations
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable.
The Company generally does not require collateral for insurance of receivables. An allowance for doubtful accounts is determined with respect to those amounts that were determined to be doubtful of collection. The Company performs ongoing credit evaluations of its customers.
5
Accounts receivable from significant customers representing 10% or more of the net accounts receivable balance as of March 31, 2014 and December 31, 2013 consists of:
March 31, 2014
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December 31, 2013
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Customer 1
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37 | % | 36 | % | ||||
Customer 2
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* | 12 |
Net revenues from significant customers representing 10% or more of net revenues consist of:
Three months ended
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March 31, 2014
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March 31, 2013
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Customer A
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30 | % | 21 | % | ||||
Customer B
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10 | * | ||||||
Customer C
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* | 15 | ||||||
Customer D
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* | 10 |
* Indicates less than 10%
As a result of the Company’s concentration of its customer base, loss or cancellation of business from, or significant changes in scheduled deliveries of products sold to these customers or a change in their financial position, could materially and adversely affect the Company’s consolidated financial position, results of operations and cash flows.
The Company operates a single manufacturing facility located in Newport Beach, California. A major interruption in the manufacturing operations at this facility would have a material adverse affect on the consolidated financial position and results of operations of the Company.
Initial Adoption of New Standards
No new accounting standards have been issued during 2014, with an effective date in or after fiscal year 2014, that is expected to have a significant impact on the Company’s consolidated financial statements.
Note 3: Other Balance Sheet Details
Inventories
Inventories, net of reserves, consist of the following on March 31, 2014 and December 31, 2013 (in thousands):
March 31, 2014
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December 31, 2013
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Raw material
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$ | 4,130 | $ | 4,434 | ||||
Work in process
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17,364 | 15,618 | ||||||
Finished goods
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4,490 | 6,245 | ||||||
$ | 25,984 | $ | 26,297 |
Property, Plant and Equipment
Property, plant and equipment consist of the following on March 31, 2014 and December 31, 2013 (in thousands):
Useful life(in years)
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March 31, 2014
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December 31, 2013
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Building improvements
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10-14 | $ | 26,984 | $ | 26,809 | |||||||
Machinery and equipment
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3-7 | 202,831 | 196,812 | |||||||||
229,815 | 223,621 | |||||||||||
Accumulated depreciation
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(154,677 | ) | (145,276 | ) | ||||||||
$ | 75,138 | $ | 78,345 |
6
Intangible Assets
Intangible assets consist of the following on March 31, 2014 (in thousands):
Useful life (in years)
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Cost
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Accumulated Amortization
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Net
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Technology
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4;9 | $ | 3,300 | $ | 2,206 | $ | 1,094 | ||||||||
Patents and other core technology rights
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9 | 15,100 | 9,289 | 5,811 | |||||||||||
In-process research and development
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-- | 1,800 | 1,800 | -- | |||||||||||
Customer relationships
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15 | 2,600 | 960 | 1,640 | |||||||||||
Trade name
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9 | 5,200 | 3,199 | 2,001 | |||||||||||
Facilities lease
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1,19 | 33,500 | 16,835 | 16,665 | |||||||||||
Total identifiable intangible assets
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$ | 61,500 | $ | 34,289 | $ | 27,211 |
Intangible assets consist of the following on December 31, 2013 (in thousands):
Useful life (in years)
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Cost
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Accumulated Amortization
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Net
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Technology
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4;9 | $ | 3,300 | $ | 2,046 | $ | 1,254 | ||||||||
Patents and other core technology rights
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9 | 15,100 | 8,870 | 6,230 | |||||||||||
In-process research and development
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-- | 1,800 | 1,800 | -- | |||||||||||
Customer relationships
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15 | 2,600 | 916 | 1,684 | |||||||||||
Trade name
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9 | 5,200 | 3,054 | 2,146 | |||||||||||
Facilities lease
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1,19 | 33,500 | 16,512 | 16,988 | |||||||||||
Total identifiable intangible assets
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$ | 61,500 | $ | 33,198 | $ | 28,302 |
The amortization related to technology, patents and other core technologies rights, and facilities lease is charged to cost of revenues. The amortization related to customer relationships and trade name is charged to operating expenses.
Note 4: Wells Fargo Asset-Based Revolving Credit Line
In December 2013, the Company entered into an agreement with Wells Fargo Capital Finance, part of Wells Fargo & Company (“Wells Fargo”), to amend the previous loan and security agreement, for a five-year secured asset-based revolving credit line in the total amount of up to $70 million, maturing in December 2018 (the “Credit Line Agreement”). Loans under the Credit Line Agreement bear interest at a rate equal to, at lender’s option, either the lender’s prime rate plus a margin ranging from 0.50% to 1.0% or the LIBOR rate plus a margin ranging from 1.75% to 2.25% per annum.
The outstanding borrowing availability varies from time to time based on the levels of the Company's eligible accounts receivable, eligible equipment, eligible inventories and other terms and conditions described in the Credit Line Agreement. The Credit Line Agreement is secured by the assets of the Company. The Credit Line Agreement contains customary covenants and other terms, including customary events of default. If any event of default occurs, Wells Fargo may declare due immediately, all borrowings under the facility and foreclose on the collateral. Furthermore, an event of default under the Credit Line Agreement would result in an increase in the interest rate on any amounts outstanding. The Company's obligations pursuant to the Credit Line Agreement are not guaranteed by Tower.
Borrowing availability under the Credit Line Agreement as of March 31, 2014 was approximately $51 million. As of March 31, 2014, the Company was in compliance with all the covenants under this facility. Outstanding borrowing as of March 31, 2014, was approximately $19 million.
7
Note 5:Notes
Introduction
As of March 31, 2014, the Company has approximately $49 million principal amount of Notes outstanding due June 2015 and approximately $58 million principal amount of Notes outstanding due December 2018. Description and composition are as follows:
$49 million Jazz 2010 Notes due June 2015:
In July 2010, the Company issued notes in the principal amount of approximately $94 million due June 2015 (the “2010 Notes”). Interest on the 2010 Notes at a rate of 8% per annum is payable semiannually. As a result of the consummation of the transactions related to the 2014 Exchange Agreement (as defined and discussed below), as of March 31, 2014, approximately $49 million principal amount of 2010 Notes was outstanding.
The 2010 Notes are unsecured obligations of the Company, rank equally with all other existing and future unsecured senior indebtedness of the Company, including the 2014 Notes (as defined below) and are effectively subordinated to all existing and future secured indebtedness of the Company, including the Company’s up to $70 million secured Credit Line Agreement with Wells Fargo (see Note 4 above), to the extent of the value of the collateral securing such indebtedness. The 2010 Notes are not guaranteed by Tower. The 2010 Notes shall rank senior to all existing and future subordinated debt of the Company.
Since July 1, 2013, the Company has had the right to redeem some or all of the 2010 Notes for cash at a redemption price equal to par plus accrued and unpaid interest plus a redemption premium equal to 4% if redemption occurs prior to July 1, 2014 and 2% if redemption occurs between July 1, 2014 and maturity.
Holders of the 2010 Notes are entitled, subject to certain conditions and restrictions, to require the Company to repurchase the 2010 Notes at par plus accrued interest and a 1% redemption premium in the event of certain change of control transactions as set forth in the Indenture.
The indenture governing the 2010 Notes contains certain customary covenants as set forth in the Indenture.
If there is an event of default on the 2010 Notes, all of the 2010 Notes may become immediately due and payable, subject to certain conditions set forth in the Indenture.
The Company’s obligations under the 2010 Notes are guaranteed by the Company’s wholly owned domestic subsidiaries. The Company has not provided condensed consolidated financial information for such subsidiaries because the subsidiaries have no independent assets or operations, the subsidiary guarantees are full and unconditional and joint and several and the subsidiaries of the Company, other than the subsidiary guarantors, are minor.
$58 million Jazz 2014 Notes due December 2018:
In March 2014, the Company, together with certain of its domestic subsidiaries and Tower entered into an exchange agreement (the “2014 Exchange Agreement”) with certain holders (the “2014 Participating Holders”) according to which the Company issued new unsecured 8% convertible senior notes due December 2018 (the “2014 Notes”) in exchange for approximately $45 million in aggregate principal amount of 2010 Notes, thereby reducing the aggregate principal amount of 2010 Notes outstanding from $94 million to $49 million.
In addition, the Company, Tower and certain of the 2014 Participating Holders (the “Purchasers”) entered into a purchase agreement (the “Purchase Agreement”) pursuant to which the Purchasers agreed to purchase $10 million aggregate principal amount of 2014 Notes.
8
The 2014 Participating Holders and Purchasers may submit a conversion request with the Company to be settled at the Company’s discretion through cash or Tower‘s ordinary shares, in which event Tower has to issue ordinary shares based on a conversion price of $10.07 per share, reflecting a 20 percent premium over the average closing price for Tower’s ordinary shares for the five trading days ending on the day prior to the signing date of the 2014 Exchange Agreement and Purchase Agreement.
The 2014 Notes are unsecured senior obligations of the Company, rank equally with all other existing and future unsecured senior indebtedness of the Company, including the 2010 Notes, and are effectively subordinated to all existing and future secured indebtedness of the Company, including the Company’s up to $70 million secured Credit Line Agreement with Wells Fargo (see Note 4 above), to the extent of the value of the collateral securing such indebtedness. The 2014 Notes rank senior to all existing and future subordinated debt. The 2014 Notes are jointly and severally guaranteed on a senior unsecured basis by the Company’s domestic subsidiaries. The 2014 Notes are not guaranteed by Tower.
Holders of the 2014 Notes are entitled, subject to certain conditions and restrictions, to require the Company to repurchase the 2014 Notes at par plus accrued interest and a 1% redemption premium in the event of certain change of control transactions as set forth in the Indenture governing the 2014 Notes.
The Indenture contains certain customary covenants including covenants restricting the Company’s ability and the ability of its subsidiaries to, among other things, incur additional debt, incur additional liens, make specified payments and make certain asset sales.
If there is an event of default on the 2014 Notes, all of the 2014 Notes may become immediately due and payable, subject to certain conditions set forth in the Indenture.
Jazz’s obligations under the 2014 Notes are guaranteed by Jazz’s wholly owned domestic subsidiaries. The Company has not provided condensed consolidated financial information for such subsidiaries because the subsidiaries have no independent assets or operations, the subsidiary guarantees are full and unconditional and joint and several and the subsidiaries of the Company, other than the subsidiary guarantors, are minor.
As of March 31, 2014, approximately $58 million principal amount of 2014 Notes was outstanding.
The Company concluded the exchange should not be recognized as a troubled debt restructuring in accordance with the provisions of ASC 470-60 "Modifications and Extinguishments". In accordance with the provisions of ASC 470-50 the Company concluded that the exchange resulted in an extinguishment of the old debt and the issuance of a new convertible debt to be recorded at fair value. As described above, convertible notes were issued in exchange for certain of the 2010 Notes. Since the new convertible debt was not traded and no quotes were available, the Company determined the fair value of the new convertible notes using the present value technique. The 2014 Exchange Agreement resulted in an expense of approximately $9.8 million, which has been recorded in the statement of operations report as non-cash one-time financing expense for the three months ended March 31, 2014 and the convertible feature has been recorded in equity.
Note 6: Income Taxes
In 2013, the U.S. tax authorities commenced an audit of the Company’s 2011 tax returns, and asked the Company for certain reports and data in connection with said year’s tax returns. While there is no assurance that the Company will not be required to pay additional taxes pursuant to said audit, no tax adjustments have been requested to date.
As described above, the 2014 Exchange Agreement resulted in the recognition of a $9.8 million one time non cash cost included in financing expenses, net. The tax benefit has been recorded entirely in the statements of operations for the three months ended March 31, 2014 and this one time non cash cost has not and will not impact the Company’s projected annual effective tax rate to be applied to year-to-date net profit or loss before income taxes excluding this one time non cash cost.
Note 7: Employee Benefit Plans
The pension and other post retirement benefit plans amount to $0.6 million and $0.4 million income for the three months ended March 31, 2014 and 2013, respectively.
Note 8: Employee Stock Option Expense
During the three months ended March 31, 2014, no options were awarded. The Company recorded $0.2 million and $0.1 million, respectively, of compensation expenses relating to options granted to employees for the three months ended March 31, 2014 and 2013.
9
Note 9: Related Party Transactions:
Related Party Transactions consist of the following (in thousands):
As of March
31, 2014
|
As of December
31, 2013
|
|||||||
Due from related parties (included in the accompanying balance sheets)
|
$ | 5,879 | $ | 6,406 | ||||
Due to related parties (included in the accompanying balance sheets)
|
$ | 782 | $ | 146 |
Related parties’ balances are with Tower and TowerJazz Japan Ltd. (“TJP”) and are mainly for purchases and payments on behalf of the other party, tools’ sale, tools’ lease and service charges.
Note 10: Commitments and Contingencies
Leases
Since 2002, the Company has leased its fabrication facilities, land and headquarters from Conexant. In December 2010, Conexant sold the Company’s fabrication facilities, land and headquarters. In connection with the sale, the Company negotiated amendments to its operating leases that confirm the Company’s ability to remain in the fabrication facilities through 2027, including the Company’s options to extend the lease term at its sole discretion from 2017 to 2022 and from 2022 to 2027. Under our amended leases with the new owner, the Company’s rental payments consist of fixed base rent and fixed management fees and our pro rata share of certain expenses incurred by the landlord in the ownership of these buildings, including property taxes, building insurance and common area maintenance. These lease expenses are included in operating expenses in the accompanying consolidated statements of operations.
In regards to an office building lease, the Company’s landlord exercised its right to terminate the office building lease, effective January 1, 2014. The Company moved its offices to the fabrication building and to nearby new leased office space. The Company and the landlord signed an additional amendment to the amended lease to reflect termination of the office building lease and certain obligations of the Company and the landlord, including certain noise abatement actions at the fabrication facility. This office building termination has no impact whatsoever on the Company’s fabrication buildings, facilities and operations and the Company’s ability to remain in the fabrication facilities through 2027 (including by exercising its two consecutive five-year extension periods which it can exercise in its sole discretion).
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the financial statements and related notes contained elsewhere in this report. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and subsequent quarterly reports filed with the Securities and Exchange Commission for information regarding certain risk factors known to us that could cause reported financial information not to be necessarily indicative of future results.
FORWARD LOOKING STATEMENTS
This report on Form 10-Q may contain “forward-looking statements” within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Report Act of 1995. These statements, which represent our expectations or beliefs concerning various future events, may contain words such as “may,” “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or other words indicating future results. Such statements may include but are not limited to statements concerning the following:
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·
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anticipated trends in revenues;
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·
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growth opportunities in domestic and international markets;
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·
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new and enhanced channels of distribution;
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·
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customer acceptance and satisfaction with our products;
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·
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expected trends in operating and other expenses;
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·
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purchase of raw materials at levels to meet forecasted demand;
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·
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anticipated cash and intentions regarding usage of cash;
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·
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changes in effective tax rates; and
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·
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anticipated product enhancements or releases.
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This report, including these forward-looking statements, are subject to risks and uncertainties, including those risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and subsequent quarterly reports filed with the Securities and Exchange Commission, that could cause actual results to differ materially from those anticipated as of the date of this report. We assume no obligation to update any forward-looking statements to reflect events or circumstances arising after the date of this report.
For the three months ended March 31, 2014, we had a net loss of $9.1 million compared to a net loss of $2.4 million for the three months ended March 31, 2013.
The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated.
Three Months Ended
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||||||||
March 31, 2014
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March 31, 2013
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|||||||
Net revenues
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100 | % | 100 | % | ||||
Cost of revenues
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85.1 | 81.3 | ||||||
Gross profit
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14.9 | 18.7 | ||||||
Operating expenses:
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||||||||
Research and development
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5.8 | 7.8 | ||||||
Selling, general and administrative
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6.9 | 7.4 | ||||||
Amortization related to a lease agreement early termination
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- | 5.1 | ||||||
Total operating expenses
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12.7 | 20.3 | ||||||
Operating loss
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2.2 | (1.6 | ) | |||||
Financing expense , net
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(29.4 | ) | (9.5 | ) | ||||
Income tax benefit
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7.8 | 4.5 | ||||||
Net loss
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(19.4 | )% | (6.6 | )% |
Comparison of Three Months Ended March 31, 2014 and March 31, 2013
Revenues
Our net revenues for the three months ended March 31, 2014 amounted to $46.9 million as compared to $36.8 million for the corresponding period in 2013. The revenue increase is mainly attributable to the approximately 19% increase of quantities sold and 3% higher average selling price during the three months ended March 31, 2014.
Cost of Revenues
Our cost of revenues was $39.9 million for the three months ended March 31, 2014 as compared to $30.0 million for the corresponding period in 2013. The increase in cost of revenues was mainly due to the increase in quantities of wafers shipped, as described above, and lower margin profile from some of our customers.
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Gross Profit
Our gross profit amounted to $7.0 million in the three months ended March 31, 2014 as compared to $6.9 million in the corresponding period in 2013.
Operating Expenses
Operating expenses for the three months ended March 31, 2014 amounted to $6.0 million, as compared to $7.5 million in the three months ended March 31, 2013. Operating expenses for the three months ended March 31, 2013 include $1.9 million amortization related to a lease agreement early termination of an office building lease.
Financing Expense, Net
Financing expense, net for the three months ended March 31, 2014 amounted to $13.8 million, as compared to $3.5 million in the corresponding period in 2013. Financing expensed in the three months ended March 31, 2014 includes approximately $9.8 million non-cash one-time financing costs resulting from the 2014 Exchange Agreement described in Note 5 above.
Income Tax Benefit
Income tax benefit amounted to $3.6 million in the three months ended March 31, 2014, as compared to income tax benefit of $1.7 million in the three months ended March 31, 2013.
Net loss
Net loss for the three months ended March 31, 2014 amounted to $9.1 million as compared to net loss of $2.4 million in the three months ended March 31, 2013. The increase in net loss is mainly due to the non-cash one-time expense of $9.8 million included in financing expenses, resulting from the 2014 Exchange Agreement described in Note 5 above.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Based on the evaluation as of the end of the period covered by this report, our principal executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our principal executive officer and our principal financial officer have concluded that these controls and procedures are effective at the “reasonable assurance” level. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we are a party or any of our property is subject.
Item 1A. Risk Factors
In addition to the other information contained in this Form 10-Q, you should carefully consider the risk factors associated with our business previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Our business, financial condition and/or results of operations could be materially adversely affected by any of these risks. Additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.
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Item 6. Exhibits.
Number
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Description
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4.1
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Registration Rights Agreement dated as of March 25, 2014 by and among Jazz Technologies, Inc., Jazz Semiconductor, Inc., Newport Fab, LLC and holders of the Jazz Technologies, Inc. 8% Convertible Senior Notes due 2018.
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10.1
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Exchange Agreement dated as of March 19, 2014 by and among Jazz Technologies, Inc., Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC and certain holders of the Jazz Technologies, Inc. 8% Senior Notes due 2015 (incorporated by reference to Exhibit 4.59 to the Annual Report on Form 20-F of Tower Semiconductor Ltd. For the year ended December 31, 2013).
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10.2
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Purchase Agreement dated as of March 19, 2014 by and among Jazz Technologies, Inc., Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC and certain holders of the Jazz Technologies, Inc. 8% Senior Notes due 2015 (incorporated by reference to Exhibit 4.60 to the Annual Report on Form 20-F of Tower Semiconductor Ltd. For the year ended December 31, 2013).
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10.3
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Indenture dated as of March 25, 2014 by and among Jazz Technologies, Inc., Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC and U.S. Bank National Association (incorporated by reference to Exhibit 4.61 to the Annual Report on Form 20-F of Tower Semiconductor Ltd. For the year ended December 31, 2013).
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31.1
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Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).
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31.2
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Principal Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).
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32.1
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Principal Executive Officer Certification required by Section 1350.
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32.2
|
Principal Financial Officer Certification required by Section 1350.
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|
101
|
Financial information from the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL
|
13
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 16, 2014
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JAZZ TECHNOLOGIES, INC.
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||
By:
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/s/ Marco Racanelli
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||
Senior Vice President and Site General Manager
(Principal Executive Officer)
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|||
By:
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/s/ RONIT VARDI
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||
Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
Number
|
Description
|
|
4.1
|
Registration Rights Agreement dated as of March 25, 2014 by and among Jazz Technologies, Inc., Jazz Semiconductor, Inc., Newport Fab, LLC and holders of the Jazz Technologies, Inc. 8% Convertible Senior Notes due 2018.
|
|
10.1
|
Exchange Agreement dated as of March 19, 2014 by and among Jazz Technologies, Inc., Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC and certain holders of the Jazz Technologies, Inc. 8% Senior Notes due 2015 (incorporated by reference to Exhibit 4.59 to the Annual Report on Form 20-F of Tower Semiconductor Ltd. For the year ended December 31, 2013).
|
|
10.2
|
Purchase Agreement dated as of March 19, 2014 by and among Jazz Technologies, Inc., Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC and certain holders of the Jazz Technologies, Inc. 8% Senior Notes due 2015 (incorporated by reference to Exhibit 4.60 to the Annual Report on Form 20-F of Tower Semiconductor Ltd. For the year ended December 31, 2013).
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10.3
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Indenture dated as of March 25, 2014 by and among Jazz Technologies, Inc., Tower Semiconductor, Ltd., Jazz Semiconductor, Inc., Newport Fab, LLC and U.S. Bank National Association (incorporated by reference to Exhibit 4.61 to the Annual Report on Form 20-F of Tower Semiconductor Ltd. For the year ended December 31, 2013).
|
|
31.1
|
Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
31.2
|
Principal Financial Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
32.1
|
Principal Executive Officer Certification required by Section 1350.
|
|
32.2
|
Principal Financial Officer Certification required by Section 1350.
|
|
101
|
Financial information from the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL
|
14