Tower US Holdings Inc. - FORM 10-Q

Attached files

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EX-31.1 - EXHIBIT 31.1 - Tower US Holdings Inc.	exhibit_31-1.htm
EX-32.2 - EXHIBIT 32.2 - Tower US Holdings Inc.	exhibit_32-2.htm
EX-32.1 - EXHIBIT 32.1 - Tower US Holdings Inc.	exhibit_32-1.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

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

Or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-32832

Jazz Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware		20-3320580
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4321 Jamboree Road Newport Beach, California		92660
(Address of principal executive offices)		(Zip Code)

(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

Accelerated filer o

Non-accelerated filer x

Smaller reporting companyo

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.

Table of Contents

PART I — FINANCIAL INFORMATION			1

	Item 1.	Financial Statements	1

		Unaudited Condensed Consolidated Balance Sheets	1

		Unaudited Condensed Consolidated Statements of Operations	2

		Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	3

		Unaudited Condensed Consolidated Statements of Cash Flows	4

		Notes to Unaudited Condensed Consolidated Financial Statements	5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

	Item 4.	Controls and Procedures	12

PART II — OTHER INFORMATION			12

	Item 1.	Legal Proceedings	12

	Item 1A.	Risk Factors	12

	Item 6.	Exhibits	12

SIGNATURES			13

Index to Exhibits			13

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Jazz Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands)

	June 30, 2015			December 31, 2014
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	21,003		$	73,387
Receivables:
Trade receivables, net of allowance for doubtful accounts of $0 at June 30, 2015 and December 31, 2014		31,406			30,351
Other receivables		2,645			3,301
Inventories		31,499			30,794
Deferred tax asset		4,951			4,951
Other current assets		1,463			1,245
Total current assets		92,967			144,029
Property, plant and equipment, net		75,700			71,527
Intangible assets, net		22,072			24,097
Goodwill		7,000			7,000
Other assets		23,480			3,945
Total assets	$	221,219		$	250,598
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes	$	--		$	45,577
Accounts payable		26,460			25,485
Accrued compensation and benefits		5,473			6,350
Deferred revenue		4,052			2,220
Other current liabilities		15,572			9,031
Total current liabilities		51,557			88,663
Long term liabilities:
Long-term bank debt		19,100			19,100
Notes		44,295			42,889
Employee related liabilities		4,071			4,387
Other long-term liabilities		1,807			14,842
Total liabilities		120,830			169,881
Stockholders' equity:
Ordinary shares of $1 par value;
Authorized: 200 shares;
Issued: 100 shares;
Outstanding: 100 shares;
Additional paid-in capital		74,986			74,986
Cumulative stock based compensation		3,398			2,802
Accumulated other comprehensive loss		(1,103	)		(503	)
Retained earnings		23,108			3,432
Total stockholders' equity		100,389			80,717
Total liabilities and stockholders' equity	$	221,219		$	250,598

See accompanying notes.

Jazz Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(in thousands)

	Three months ended						Six months ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Revenue	$	65,850		$	47,458		$	131,856		$	94,377
Cost of revenue		48,652			38,636			97,153			78,555
Gross profit		17,198			8,822			34,703			15,822
Operating expenses:
Research and development		4,592			2,845			8,716			5,560
Selling, general and administrative		4,581			3,494			9,246			6,749
Total operating expenses		9,173			6,339			17,962			12,309
Operating profit		8,025			2,483			16,741			3,513
Interest expenses, net		(1,295	)		(2,179	)		(2,631	)		(4,103	)
Other financing expense, net		(702	)		(2,343	)		(1,426	)		(14,219	)
Profit (loss) before income tax		6,028			(2,039	)		12,684			(14,809	)
Income tax benefit (expense)		(2,202	)		710			6,992			4,350
Net income (loss)	$	3,826		$	(1,329	)	$	19,676		$	(10,459	)

See accompanying notes.

Jazz Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Comprehensive Income

(Loss)

(in thousands)

	Three months ended						Six months ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Net income (loss)	$	3,826		$	(1,329	)	$	19,676		$	(10,459	)
Change in employees plan assets and benefit obligations		(300	)		(565	)		(600	)		(1,130	)
Comprehensive income (loss)	$	3,526		$	(1,894	)	$	19,076		$	(11,589	)

Jazz Technologies, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Six months ended
	June 30, 2015			June 30, 2014
Operating activities:
Net income (loss)	$	19,676		$	(10,459	)
Adjustments to reconcile net profit (loss) for the period to net cash provided by operating activities:
Financing cost relating to the 2014 Exchange Agreement		--			9,817
Depreciation and amortization of intangible assets		20,254			21,591
Notes accretion and amortization of deferred financing costs		1,479			3,907
Stock based compensation expense		596			308
Changes in operating assets and liabilities:
Trade receivables		(1,537	)		(941	)
Inventories		(705	)		(3,655	)
Other receivables and other assets		47			1,942
Accounts payable		(5,791	)		2,813
Due to related parties, net		5,756			1,591
Accrued compensation and benefits		(877	)		(250	)
Deferred Revenue		2,086			(440	)
Other current liabilities		3,682			(1,027	)
Deferred tax asset, net		961			(4,162	)
Employee related liabilities and other long-term liabilities		(13,351	)		519
Net cash provided by operating activities		32,276			21,554
Investing activities:
Purchases of property and equipment		(19,371	)		(11,135	)
Proceeds related to property and equipment		394			1,224
Advance payment to related party		(21,000	)		--
Net cash used in investing activities		(39,977	)		(9,911	)
Financing activities:
Debt repayment		(44,683	)		(4,250	)
Proceeds from issuance of notes, net		--			9,214
Net cash provided by (used in) financing activities		(44,683	)		4,964
Net increase (decrease) in cash and cash equivalents		(52,384	)		16,607
Cash and cash equivalents at beginning of period		73,387			51,351
Cash and cash equivalents at end of period	$	21,003		$	67,958
Non cash activities:

Investments in property, plant and equipment	$	5,580	$	5,498
Equity increase arising from exchange of straight to convertible debt	$	--	$	9,609

Supplemental disclosure of cash flow information:

Cash paid during the period for interest		$	2,713			$	4,835
Cash paid during the period for income taxes		$	1,134			$	--

See accompanying notes.

Jazz Technologies, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1: Business and Formation

Unless specifically noted otherwise, as used throughout these notes to the consolidated financial statements, “Jazz” refers to the business of Jazz Technologies, Inc., “Jazz Semiconductor” refers only to the business of Jazz Semiconductor, Inc. and “the Company” refers to Jazz and its subsidiaries.

The Company

Since the merger with Tower in 2008, the Company is a 100%-owned 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 June 30, 2015 and December 31, 2014, and the consolidated results of its operations and cash flows for the three months and six months ended June 30, 2015 and June 30, 2014. All intercompany accounts and transactions have been eliminated. Certain amounts have been reclassified in order to conform to 2015 presentation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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, 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.

Accounts receivable from significant customers representing 10% or more of the net accounts receivable balance as of June 30, 2015 and December 31, 2014 consist of:

	June 30, 2015			December 31, 2014
Customer 1		41	%		44	%
Customer 2		14			*

* Indicates less than 10%

Net revenues from significant customers representing 10% or more of net revenues consist of:

	Three months ended						Six months ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Customer A		39	%		32	%		39	%		31	%
Customer B		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 2015, with an effective date in or after fiscal year 2015, that are 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 June 30, 2015 and December 31, 2014 (in thousands):

	June 30, 2015		December 31, 2014
Raw material	$	4,575	$	5,493
Work in process		25,774		24,299
Finished goods		1,150		1,002
	$	31,499	$	30,794

Property, Plant and Equipment

Property, plant and equipment are presented at cost, including capitalizable costs. Capitalizable costs include only those costs that are identifiable with, and related to, the property and equipment and are incurred prior to their initial operation. Identifiable incremental, direct costs include costs associated with constructing, establishing and installing property and equipment, and costs directly related to pre-production test runs of property and equipment necessary for preparing such property and equipment for their intended use. Maintenance and repairs are charged to expense as incurred. Property and equipment are presented net of accumulated depreciation and amortization.

In connection with the Company’s periodic review of the reasonableness of the estimated remaining useful lives of property, plant and equipment of the Company’s foundry manufacturing facility, it was determined that the estimated useful lives of machinery and equipment should be extended to 15 years from 7 years. The Company extended the estimated useful life of these assets as a result of use of mature technologies, longer processes and products’ life cycles, the versatility of manufacturing equipment to provide better flexibility to meet changes in customer demand and the ability to re-use equipment over several technology cycles significantly extending the estimated usage period of such assets. For the three months period ended June 30, 2015, the impact of these extended estimated useful lives was approximately $4.2 million of reduced depreciation expenses which resulted in a net increase of approximately $1.3 million in net profit. While the timing, extent and useful lives of current manufacturing assets are subject to ongoing analysis and modification, the Company believes the current estimates of useful lives are reasonable, sustainable and better reflect the future anticipated usage of these assets.

Property, plant and equipment consist of the following on June 30, 2015 and December 31, 2014 (in thousands):

	Useful life (in years)	June 30, 2015			December 31, 2014
Building (including facility infrastructure)	10-14	$	31,501		$	27,496
Machinery and equipment	3-15		247,664			229,409
			279,165			256,905
Accumulated depreciation			(203,465	)		(185,378	)
		$	75,700		$	71,527

Intangible Assets

Intangible assets consist of the following on June 30, 2015 (in thousands):

	Useful life (in years)	Cost		Accumulated Amortization		Net
Technology	4;9	$	3,300	$	2,699	$	601
Patents and other core technology rights	9		15,100		11,386		3,714
In-process research and development	--		1,800		1,800		--
Customer relationships	15		2,600		1,177		1,423
Trade name	9		5,200		3,921		1,279
Facilities lease	19		33,500		18,445		15,055
Total identifiable intangible assets		$	61,500	$	39,428	$	22,072

Intangible assets consist of the following on December 31, 2014 (in thousands):

	Useful life (in years)	Cost		Accumulated Amortization		Net
Technology	4;9	$	3,300	$	2,533	$	767
Patents and other core technology rights	9		15,100		10,547		4,553
In-process research and development	--		1,800		1,800		--
Customer relationships	15		2,600		1,090		1,510
Trade name	9		5,200		3,632		1,568
Facilities lease	19		33,500		17,801		15,699
Total identifiable intangible assets		$	61,500	$	37,403	$	24,097

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”), 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, as well as customary events of default. If any event of default occurs, Wells Fargo may declare all borrowings under the facility due immediately 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 June 30, 2015 was approximately $56 million, of which approximately $24 million had been utilized as of such date (comprised of approximately $19 million through loans and approximately $5 million in letters of credit).

As of June 30, 2015, the Company was in compliance with all of the covenants under this facility.

Note 5: Notes

Introduction

As of June 30, 2015, the Company had approximately $58 million principal amount of notes outstanding, all of which are due December 2018, as compared with $103 million as of December 31, 2014, of which $45 million were due June 2015 and $58 million were due December 2018. Description and composition are as follows:

Jazz Notes issued in 2010, due June 2015

In July 2010, Jazz issued notes in the principal amount of approximately $94 million due June 2015 (the “2010 Notes”). Interest on the 2010 Notes was at a rate of 8% per annum, payable semiannually.

As of January 8, 2015, the 2010 Notes had been fully redeemed mainly as a result of: (i) the 2014 Exchange Agreement transaction (as defined and discussed below), consummated in March 2014; and (ii) an early redemption of the remaining outstanding balance of approximately $45 million, completed in January 2015.

As a result, as of June 30, 2015, no outstanding amount is due by the Company towards the 2010 Notes.

Jazz Notes issued in 2014, due December 2018

In March 2014, Jazz, certain of its domestic subsidiaries and Tower entered into an exchange agreement (the “2014 Exchange Agreement”) with certain 2010 Notes holders (the “2014 Participating Holders”) according to which Jazz issued unsecured convertible senior notes due December 2018 (the “2014 Notes”) in exchange for approximately $45 million in aggregate principal amount of 2010 Notes.

In addition, in March 2014, Jazz, Tower and certain of the 2014 Participating Holders (the “Purchasers”) entered into a purchase agreement (the “Purchase Agreement”) pursuant to which the Purchasers purchased $10 million aggregate principal amount of 2014 Notes for cash consideration.

Interest on the 2014 Notes is at a rate of 8% per annum, payable semiannually. Holders of the 2014 Notes may submit a conversion request with respect to their 2014 Notes to be settled through cash or ordinary shares of Tower, in which event the conversion price is set to $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 Jazz, rank equally with all other existing and future unsecured senior indebtedness of Jazz, and are effectively subordinated to all existing and future secured indebtedness of the Company, including the Company’s 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 not guaranteed by Tower.

Holders of the 2014 Notes are entitled, subject to certain conditions and restrictions, to require Jazz 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 Jazz’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.

Jazz’s obligations under the 2014 Notes are guaranteed by Jazz’s wholly owned domestic subsidiaries. Jazz has not provided condensed consolidated financial information for such subsidiaries because the subsidiaries have no independent assets or operations, the subsidiary guarantees are full, unconditional and joint and several, and the subsidiaries of the Company, other than the subsidiary guarantors, are minor.

As of June 30, 2015, approximately $58 million principal amount of 2014 Notes was outstanding.

Note 6: Income Taxes

The statute of limitations with respect to tax year 2010 expired in March 2015. As a result, the Company recorded a tax benefit for such year in the amount of approximately $11 million during the three months ended March 31, 2015.

Note 7: Employee Benefit Plans

The pension and other post-retirement benefit plans amounted to $0.2 million and $0.5 million income for the three months ended June 30, 2015 and 2014, respectively. For the six months ended June 30, 2015 and 2014 amounts were $0.4 million and $1.1 million income, respectively.

Note 8: Employee Stock Option Expense

During the three months ended June 30, 2015, the Company awarded some of its employees a total of 0.2 million restricted share units (“RSUs”) with a three year vesting schedule.

The Company measures compensation expense for the RSUs based on the market value of the underlying stock at the date of grant and uses the straight-line attribution method to recognize stock-based compensation costs over the vesting period of the award. The Company recorded $0.19 million of compensation expenses relating to the RSU’s for the three months ended June 30, 2015.

During the three months ended June 30, 2015, no options were awarded to employees. The Company recorded $0.19 million and $0.13 million, respectively, of compensation expenses relating to employee options for the three months ended June 30, 2015 and 2014. The Company recorded $0.60 million and $0.31 million, respectively, of compensation expenses relating to employee options for the six months ended June 30, 2015 and 2014.

Note 9: Related Party Transactions

Related Party Transactions consist of the following (in thousands):

	As of June 30, 2015		As of December 31, 2014
Due from related parties (included in the accompanying balance sheets)	$	23,436	$	3,828
Due to related parties (included in the accompanying balance sheets)	$	8,193	$	4,842

Related parties’ balances are with Tower and its subsidiaries and are mainly for purchases from, and payments on behalf of, the other party, tools’ sale, tools’ lease, service charges and advance payments as described in Note 9 to the financial statements as of December 31, 2014 as filed by the Company in its most recent Annual Report on Form 10-K.

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 option to extend the lease terms at its sole discretion from 2017 to 2022 and from 2022 to 2027. In 2015, the Company exercised its option to extend the lease term from 2017 to 2022, while maintaining the option to extend the lease term at its sole discretion from 2022 to 2027. Under the Company’s leases, the Company’s rental payments consist of fixed base rent and fixed management fees and the Company’s 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.

The Company’s landlord exercised its right to terminate the previous office building lease, effective January 1, 2014, subsequent to which the Company moved its offices to the fabrication building and to nearby new leased office space. In 2013, the Company and the landlord signed an amendment to the lease to reflect termination of the previous office building lease and certain obligations of the Company and the landlord, including certain noise abatement actions at the fabrication facility. This office building lease 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 as specified above.

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, 2014 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:

anticipated trends in revenues;

growth opportunities in domestic and international markets;

new and enhanced channels of distribution;

customer acceptance and satisfaction with our products;

expected trends in operating and other expenses;

purchase of raw materials at levels to meet forecasted demand;

anticipated cash and intentions regarding usage of cash;

changes in effective tax rates; and

anticipated product enhancements or releases.

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, 2014 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.

RESULTS OF OPERATIONS

For the six months ended June 30, 2015, we had a net profit of $19.7 million compared to a net loss of $10.5 million for the six months ended June 30, 2014.

The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated.

	Six Months Ended
	June 30, 2015			June 30, 2014
Revenue		100	%		100	%
Cost of revenue		73.7			83.2
Gross profit		26.3			16.8
Operating expenses:
Research and development		6.6			5.9
Selling, general and administrative		7.0			7.2
Total operating expenses		13.6			13.1
Operating profit		12.7			3.7
Interest expenses, net		(2.0	)		(4.3	)
Other financing expense, net		(1.1	)		(15.1	)
Income tax benefit		5.3			4.6
Net income (loss)		14.9	%		(11.1	)%

Comparison of Six Months Ended June 30, 2015 and June 30, 2014

Revenue

Our net revenue for the six months ended June 30, 2015 amounted to $131.9 million, as compared to $94.4 million for the corresponding period in 2014. The revenue increase is mainly attributable to the approximately 35% increase of quantities sold and 12% higher average selling price during the six months ended June 30, 2015, as well as higher engineering, design and other support services.

Cost of Revenue

Our cost of revenue was $97.2 million for the six months ended June 30, 2015, as compared to $78.6 million for the corresponding period in 2014. The increase in cost of revenue was mainly due to the increase in quantities of wafers shipped, as described above. As described in Note 3 above, the Company reassessed the estimated useful life of property, plant and equipment and determined that the estimated average useful lives of machinery and equipment should be increased to 15 years from 7 years. The Company reassessed the estimated useful life of these assets as a result of use of mature technologies, longer processes and products’ life cycles, the versatility of manufacturing equipment to provide better flexibility to meet changes in customer demand and the ability to re-use equipment over several technology cycles significantly extending the estimated usage period of the assets. For the six months ended June 30, 2015, the impact of these extended estimated useful lives has been approximately $4.2 million of reduced depreciation expenses which resulted in net increase of approximately $1.3 million to net profit.

Gross Profit

Gross profit amounted to $34.7 million in the six months ended June 30, 2015, as compared to $15.8 million in the corresponding period in 2014, an $18.9 million improvement that resulted mainly from the revenue growth and the cost of revenue components described above.

Operating Expenses

Operating expenses for the six months ended June 30, 2015 amounted to $18.0 million, as compared to $12.3 million in the six months ended June 30, 2014, reflecting approximately 13% of revenue in each period.

Interest Expenses, Net and Other Financing Expense, Net

Interest expenses, net and other financing expense, net for the six months ended June 30, 2015 amounted to $4.0 million, as compared to $18.3 million in the corresponding period in 2014. Such reduction is mainly due to: (1) approximately $9.8 million non-cash cost resulting from the 2014 Exchange Agreement included in six months ended June 30, 2014; and (2) lower interest and financing expenses recorded in the six months ended June 30, 2015 following the redemption of the remaining 2010 Notes in January 2015 in the amount of $44.7 million.

Income Tax

Income tax benefit amounted to $7.0 million in the six months ended June 30, 2015, as compared to income tax benefit of $4.4 million in the six months ended June 30, 2014. The statute of limitations with respect to tax year 2010 expired in March 2015. As a result, we recorded a tax benefit for such year in the amount of approximately $11 million during the three months ended March 31, 2015. Such benefit was partially offset by higher tax expenses attributable to higher pre-tax income reflecting the revenue and profit growth in the six months ended June 30, 2015.

Net Income (Loss)

Net profit for the six months ended June 30, 2015 amounted to $19.7 million as compared to net loss of $10.5 million in the six months ended June 30, 2014. The $30.2 million improvement in the net profit is mainly due to: (i) $13.3 million better operating profit as described above; (ii) $14.3 million lower interest and other financing expenses, net as described above; and (iii) $2.6 million higher income tax benefit as described 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.

PART II - OTHER INFORMATION

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, 2014. 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.

Item 6. Exhibits.

Number		Description

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 June 30, 2015, formatted in XBRL

SIGNATURES

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: August 28, 2015	JAZZ TECHNOLOGIES, INC.

	By:	/s/ MARCO RACANELLI
		Senior Vice President and Site General Manager (Principal Executive Officer)

	By:	/s/ RONIT VARDI
		Chief Financial Officer (Principal Financial and Accounting Officer)

INDEX TO EXHIBITS

Number		Description

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 June 30, 2015, formatted in XBRL

Tower US Holdings Inc. - FORM 10-Q - August 28, 2015

Attached files

Tower US Holdings Inc. Reports