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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, DC 20549
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, 2011
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Or
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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 x No o
(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 o 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 o
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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
Item 1.
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Financial Statements
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Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
Tower Semiconductor, Ltd.) and Subsidiaries
Consolidated Balance Sheets
(in thousands)
March 31, 2011
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December 31,
2010
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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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$ | 25,403 | $ | 29,031 | ||||
Receivables: | ||||||||
Trade receivables, net of allowance for doubtful accounts of $284 and $326 at March 31, 2011 and December 31, 2010, respectively
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29,962 | 29,687 | ||||||
Due from related party
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4,554 | 3,376 | ||||||
Inventories
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20,864 | 19,096 | ||||||
Deferred tax asset
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4,728 | 4,728 | ||||||
Prepaid expenses and other current assets
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4,857 | 3,768 | ||||||
Total current assets
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90,368 | 89,686 | ||||||
Property, plant and equipment, net
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99,638 | 96,908 | ||||||
Investments
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17,100 | 17,100 | ||||||
Intangible assets, net
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47,236 | 48,394 | ||||||
Goodwill
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7,000 | 7,000 | ||||||
Other assets – related parties
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19,522 | 22,392 | ||||||
Other assets - others
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2,031 | 1,895 | ||||||
Total assets
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$ | 282,895 | $ | 283,375 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
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Short-term bank debt and current maturities of notes
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$ | 53,886 | $ | 53,338 | ||||
Accounts payable
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10,937 | 13,023 | ||||||
Due to related party
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4,520 | 3,389 | ||||||
Accrued compensation and benefits
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5,441 | 5,677 | ||||||
Deferred revenues
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2,425 | 1,834 | ||||||
Accrued interest
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2,752 | 5,393 | ||||||
Other current liabilities
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5,240 | 7,418 | ||||||
Total current liabilities
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85,201 | 90,072 | ||||||
Long term liabilities:
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Long-term debt from bank
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10,000 | 10,000 | ||||||
Notes
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65,521 | 64,463 | ||||||
Deferred tax liability
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9,876 | 9,876 | ||||||
Accrued pension, retirement medical plan obligations and other long-term liabilities
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18,169 | 18,055 | ||||||
Total liabilities
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188,767 | 192,466 | ||||||
Stockholder’s equity:
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Additional paid-in capital
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63,531 | 63,531 | ||||||
Cumulative stock based compensation
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1,024 | 887 | ||||||
Accumulated other comprehensive loss (*)
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(1,903 | ) | (1,903 | ) | ||||
Retained earnings
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31,476 | 28,394 | ||||||
Total stockholders’ equity
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94,128 | 90,909 | ||||||
Total liabilities and stockholders’ equity
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$ | 282,895 | $ | 283,375 |
(*)
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Accumulated other comprehensive loss includes mainly plan assets and benefit obligation, net of taxes.
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See accompanying notes.
1
Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
Tower Semiconductor, Ltd.) and Subsidiaries
(in thousands)
Three months ended
March 31, 2011
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Three months ended
March 31, 2010
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Net revenues
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$ | 50,797 | $ | 53,906 | ||||
Cost of revenues
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34,785 | 33,972 | ||||||
Gross profit
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16,012 | 19,934 | ||||||
Operating expenses:
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Research and development
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3,157 | 3,281 | ||||||
Selling, general and administrative
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3,819 | 4,334 | ||||||
Amortization of intangible assets
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197 | 197 | ||||||
Total operating expenses
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7,173 | 7,812 | ||||||
Operating income
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8,839 | 12,122 | ||||||
Financing expense and other expense, net
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(4,293 | ) | (3,992 | ) | ||||
Net income before income taxes
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4,546 | 8,130 | ||||||
Income tax expense
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(1,464 | ) | (2,659 | ) | ||||
Net income
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$ | 3,082 | $ | 5,471 |
See accompanying notes.
2
Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
Tower Semiconductor, Ltd.) and Subsidiaries
(in thousands)
Three months ended
March 31, 2011
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Three months ended
March 31, 2010
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Operating activities:
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Net income
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$ | 3,082 | $ | 5,471 | ||||
Adjustments to reconcile net income for the period to net cash provided by operating activities:
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Depreciation and amortization of intangible assets
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8,853 | 7,757 | ||||||
Notes accretion and amortization of deferred financing costs
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1,617 | 1,360 | ||||||
Stock based compensation expense
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137 | 163 | ||||||
Changes in operating assets and liabilities:
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Receivables
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(275 | ) | (4,442 | ) | ||||
Inventories
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(1,768 | ) | 27 | |||||
Prepaid expenses and other current assets
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(1,089 | ) | 14 | |||||
Deferred tax assets
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-- | 1,958 | ||||||
Accounts payable
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(2,267 | ) | 1,440 | |||||
Due to related party, net
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1,197 | (2,764 | ) | |||||
Accrued compensation and benefits
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(236 | ) | 1,272 | |||||
Deferred Revenue
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591 | 505 | ||||||
Accrued interest
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(2,641 | ) | 1,923 | |||||
Other current liabilities
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(2,178 | ) | 642 | |||||
Deferred tax liability
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-- | -- | ||||||
Accrued pension, retirement medical plan obligations and long-term liabilities
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114 | 189 | ||||||
Net cash provided by operating activities
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5,137 | 15,515 | ||||||
Investing activities:
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Purchases of property and equipment
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(10,243 | ) | (5,800 | ) | ||||
Proceeds related to property and equipment
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1,478 | -- | ||||||
Purchases of intangible assets
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-- | (400 | ) | |||||
Net cash used in investing activities
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(8,765 | ) | (6,200 | ) | ||||
Financing activities:
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Short-term debt from bank
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-- | (5,000 | ) | |||||
Net cash used in financing activities
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-- | (5,000 | ) | |||||
Effect of foreign currency on cash
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-- | 51 | ||||||
Net increase in cash and cash equivalents
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(3,628 | ) | 4,366 | |||||
Cash and cash equivalents at beginning of period
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29,031 | 28,622 | ||||||
Cash and cash equivalents at end of period
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$ | 25,403 | $ | 32,988 | ||||
Non-cash investing activities:
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Investments in property, plant and equipment
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$ | 3,391 | $ | 3,423 | ||||
Supplemental disclosure of cash flow information:
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Interest paid
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$ | 5,559 | $ | 711 | ||||
Tax paid
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$ | 2,600 | $ | 318 |
See accompanying notes.
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Jazz Technologies, Inc.
March 31, 2011
Note 1: Business and Formation
Unless specifically noted otherwise, as used throughout these notes to the unaudited condensed 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. References to the “Company” for dates prior to September 19, 2008 mean the Predecessor which on September 19, 2008 was merged with a subsidiary of Tower Semiconductor Ltd., an Israeli company (“Tower”), and references to the “Company” for periods on or after September 19, 2008 are references to the Successor Tower subsidiary.
The Company
Jazz, formerly known as Acquicor Technology Inc., was incorporated in Delaware on August 12, 2005. The Company was formed to serve as a vehicle for the acquisition of one or more domestic and/or foreign operating businesses through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination.
The Company is based in Newport Beach, California and following the acquisition of Jazz Semiconductor, became 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 customer’s 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
We prepare our consolidated financial statements in accordance with SEC and U.S. generally accepted accounting principles (“US GAAP”) requirements and include all adjustments of a normal recurring nature that are necessary to fairly present our 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 our 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, 2011 and December 31, 2010, and the consolidated results of its operations and cash flows for the three months ended March 31, 2011 and 2010. All intercompany accounts and transactions have been eliminated. Certain amounts have been reclassified in order to conform to 2011 presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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.
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Comprehensive Income
Three months ended
March 31, 2011
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Three months ended
March 31, 2010
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(In thousands)
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Net income
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$ | 3,082 | $ | 5,471 | ||||
Foreign currency translation adjustment
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-- | 51 | ||||||
Comprehensive income
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$ | 3,082 | $ | 5,522 |
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 performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history, age of the balance and the customer’s current credit worthiness, as determined by a review of the customer’s current credit information. The Company monitors collections and payments from its customers and maintains an allowance for doubtful accounts based upon historical experience and any specific customer collection issues that have been identified. A considerable amount of judgment is required in assessing the ultimate realization of these receivables. Customer receivables are generally unsecured.
Accounts receivable from significant customers representing 10% or more of the net accounts receivable balance as of March 31, 2011 and December 31, 2010 consists of the following customers:
March 31, 2011
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December 31, 2010
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Customer 1
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25 | % | 20 | % | ||||
Customer 2
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13 | 15 | ||||||
Customer 3
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13 | 16 |
Net revenues from significant customers representing 10% or more of net revenues consist of the following:
Three months ended March 31, 2011
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Three months ended March 31, 2010
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Customer A
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19 | % | 14 | % | ||||
Customer B
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16 | 8 | ||||||
Customer C
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13 | 34 |
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
ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350) - Intangibles - Goodwill and Other.
In December 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350) - Intangibles - Goodwill and Other. ASU 2010-28 which amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The amendments to this update are effective in the first quarter of 2011. Any impairment to be recorded upon adoption will be recognized as an adjustment to the beginning retained earnings. The adoption of this update did not impact the Company’s consolidated financial position, results of operations or cash flows.
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Recently Issued Accounting Standards
ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805) - Business Combinations
In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (Topic 805) - Business Combinations (ASU 2010-29), to improve consistency in how the pro forma disclosures are calculated. Additionally, ASU 2010-29 enhances the disclosure requirements and requires description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to a business combination. ASU 2010-29 is effective in fiscal year 2011 and should be applied prospectively to business combinations for which the acquisition date is after the effective date. Early adoption is permitted. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
ASU 2011-1, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20
In January 2011, the FASB issued ASU 2011-1, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (ASU 2011-1). The FASB determined that certain provisions relating to troubled debt restructurings (TDRs) should be deferred until additional guidance and clarification on the definition of TDRs is issued. In April 2011, the FASB issued ASU No. 2011-2, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (ASU 2011-2). ASU 2011-2 amends ASC Topic 310 - Receivables, by clarifying guidance for creditors in determining whether a concession has been granted and whether a debtor is experiencing financial difficulties. The amendments are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. ASU 2011-2 also makes disclosure requirements deferred under ASU 2011-1 effective for interim and annual periods beginning on or after June 15, 2011. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Note 3: Other Balance Sheet Details
Inventories
Inventories, net of reserves, consist of the following at March 31, 2011 and December 31, 2010 (in thousands):
March 31, 2011
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December 31, 2010
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Raw material
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$ | 4,655 | $ | 4,684 | ||||
Work in process
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14,852 | 11,821 | ||||||
Finished goods
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1,357 | 2,591 | ||||||
$ | 20,864 | $ | 19,096 |
Property, Plant and Equipment
Property, plant and equipment consist of the following at March 31, 2011 and December 31, 2010 (in thousands):
Useful life (In years)
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March 31, 2011
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December 31, 2010
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Building improvements
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10-12 | $ | 24,305 | $ | 24,230 | |||||||
Machinery and equipment
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7 | 125,863 | 115,790 | |||||||||
Furniture and equipment
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5-7 | 2,308 | 2,308 | |||||||||
Computer software
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3 | 1,127 | 850 | |||||||||
153,603 | 143,178 | |||||||||||
Accumulated depreciation
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(53,965 | ) | (46,270 | ) | ||||||||
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$ | 99,638 | $ | 96,908 |
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Intangible Assets
Intangible assets consist of the following at March 31, 2011 (in thousands):
Weighted Average
Life (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 | $ | 2,300 | $ | 710 | $ | 1,590 | |||||||||
Patents and other core technology rights
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9 | 15,100 | 4,256 | 10,844 | ||||||||||||
In-process research and development
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-- | 1,800 | 1,800 | -- | ||||||||||||
Customer relationships
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15 | 2,600 | 440 | 2,160 | ||||||||||||
Trade name
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9 | 5,200 | 1,465 | 3,735 | ||||||||||||
Facilities lease
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19 | 33,500 | 4,593 | 28,907 | ||||||||||||
Total identifiable intangible assets
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14 | $ | 60,500 | $ | 13,264 | $ | 47,236 |
Intangible assets consist of the following at December 31, 2010 (in thousands):
Weighted Average
Life (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 | $ | 2,300 | $ | 612 | $ | 1,688 | |||||||||
Patents and other core technology rights
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9 | 15,100 | 3,836 | 11,264 | ||||||||||||
In-process research and development
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-- | 1,800 | 1,800 | -- | ||||||||||||
Customer relationships
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15 | 2,600 | 396 | 2,204 | ||||||||||||
Trade name
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9 | 5,200 | 1,321 | 3,879 | ||||||||||||
Facilities lease
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19 | 33,500 | 4,141 | 29,359 | ||||||||||||
Total identifiable intangible assets
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14 | $ | 60,500 | $ | 12,106 | $ | 48,394 |
The amortization related to technology, patents, other core technologies, and the facilities’ lease is charged to cost of revenues. The amortization related to customer relationships and trade name is charged to operating expenses.
Note 4: Credit Facility
Borrowing availability under the facility as of March 31, 2011, was $32 million. Outstanding borrowings were $22 million and $1.6 million of the facility supporting outstanding letters of credits on that date. The Company considers borrowings of $10 million to be long-term debt as of March 31, 2011. As of March 31, 2011, the Company was in compliance with all the covenants under this facility.
Note 5: Notes
In 2006, The Company completed private placements of convertible notes. The convertible notes bear interest at a rate of 8% per annum payable semi-annually and mature in December, 2011 (“Old Notes”). As of March 31, 2011, following the exchange agreement described below, approximately $43.7 million in principal amount of Old Notes remains outstanding.
On July 2010, the Company, together with its domestic subsidiaries and its parent, Tower, entered into an exchange agreement (the “Exchange Agreement”) with certain note holders (the “Participating Holders”) holding approximately $79.6 million principal amount of the Old Notes. Under the Exchange Agreement, the Participating Holders exchanged their Old Notes for newly-issued 8% non-convertible notes of the Company due June 2015 (the “New Notes”) with an exchange ratio of 1.175 New Notes for each 1.000 Old Notes. In addition, the Participating Holders received warrants to purchase approximately 25.3 million ordinary shares of Tower for a consideration of $1.70 per share (“Warrants J”). The Company’s obligations under the Old Notes and New Notes are not guaranteed by Tower. Interest on the New Notes at a rate of 8% per annum is payable semiannually. As of March 31, 2011, approximately $93.6 million in principal amount of New Notes remains outstanding.
Note 6: Income Taxes
The Company’s effective tax rate for the three months ended March 31, 2011 of 32% differs from the statutory rate primarily due to the Domestic Production Activities Deduction (“DPAD”). The DPAD reduces the effective tax rate for the quarter by approximately three percent.
7
Note 7: Employee Benefit Plans
The pension and other post retirement benefit plans expenses for the three months ended March 31, 2011 and 2010 were $0.2 million and $0.2 million, respectively.
Note 8: Employee Stock Option Expense
During the three months ended March 31, 2011, Tower awarded 1,490,000 non-qualified stock options exercisable to Tower ordinary shares to the Company employees that vest over a three year period from the date of grant. The weighted average exercise price was $1.42. The Company recorded $137 thousand of compensation expenses relating to options granted to employees, for the three months ended March 31, 2011. The Company recorded $163 thousand of compensation expenses relating to employees options, during the corresponding periods in 2010.
Note 9: Related Party Transactions
As of March 31, 2011
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As of December 31, 2010
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Due from related party (included in the accompanying balance sheets)
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$ | 24,076 | $ | 25,768 | ||||
Due to related party (included in the accompanying balance sheets)
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$ | 4,520 | $ | 3,389 |
Related party balances are with Tower and are mainly for purchases and payments on behalf of the other party, tools sale, tools lease and service charges.
Note 10: Litigation
During 2008, an International Trade Commission (“ITC”) action was filed by Agere/LSI Corporation (“LSI”), alleging infringement of U.S. patent 5,227,335 (the ‘335 patent) under Section 337 of the Tariff Act of 1930 (Section 337) by seventeen corporations. Following that initial filing, in October 2008, LSI amended the ITC complaint requesting to add the Company, Tower and three other corporations as additional respondents to the investigation. In September 2009, the ITC administrative law judge (“ALJ”) ruled against LSI and in favor of the respondents, determined that the ‘335 patent claims asserted by LSI are invalid. In November 2009, in response to a Petition for Review filed by LSI, the ITC determined that it would review the ALJ’s determination on patent invalidity. In March 2010, the ITC issued a notice of final determination that there was no violation of Section 337, ruling that the LSI ‘335 patent claims were invalid, and terminated the ITC investigation. LSI appealed the final determination to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). While that appeal was pending, the ‘335 patent expired. The ITC moved to dismiss LSI's appeal as moot, which LSI conceded. In November, 2010, the Federal Circuit issued an order vacating the ITC’s final determination and remanded the investigation to the ITC with instructions to dismiss the Investigation as moot. LSI also previously filed an action for patent infringement of the ‘335 patent against us and other corporations in the United States District Court for the Eastern District of Texas, which action was stayed pending the conclusion ITC Investigation. There are currently eight party defendants in the Texas district court action. The Texas action can proceed even though the ‘335 patent has expired, limited to damages that accrued prior to expiration of the '335 patent. The ITC determination, which was dismissed as moot, does not have a preclusive effect on the Texas District Court. The Company cannot predict the outcome thereof or estimate any losses that may be incurred therefrom, which could have a material and adverse effect on the Company’s business and financial position.
8
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 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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anticipated trends in revenues;
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growth opportunities in domestic and international markets;
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new and enhanced channels of distribution;
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customer acceptance and satisfaction with our products;
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expected trends in operating and other expenses;
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purchase of raw materials at levels to meet forecasted demand;
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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 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, 2011, we had a net profit of $3.1 million compared to a net profit of $5.5 million for the three months ended March 31, 2010.
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, 2011
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March 31, 2010
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Net revenues
|
100 | % | 100 | % | ||||
Cost of revenues
|
68.5 | 63.0 | ||||||
Gross profit
|
31.5 | 37.0 | ||||||
Operating expenses:
|
||||||||
Research and development
|
6.2 | 6.1 | ||||||
Selling, general and administrative
|
7.5 | 8.0 | ||||||
Amortization of intangible assets
|
0.4 | 0.4 | ||||||
Total operating expenses
|
14.1 | 14.5 | ||||||
Operating income
|
17.4 | 22.5 | ||||||
Financing expense and other expense, net
|
(8.4 | ) | (7.4 | ) | ||||
Income tax expense
|
(2.9 | ) | (4.9 | ) | ||||
Net income
|
6.1 | % | 10.2 | % |
Comparison of three Months Ended March 31, 2011 and March 31, 2010
Revenues
Our net revenues for the three months ended March 31, 2011 amounted to $50.8 million as compared to $53.9 million for the corresponding period in 2010, mainly due to reduction in wafers shipped during the three months ended March 31, 2011.
9
Cost of Revenues
Our cost of revenues increased to $34.8 million for the three months ended March 31, 2011 compared to $34.0 million for the corresponding period in 2010. The increase of in cost of revenues while revenues decreased is mainly due to higher depreciation expenses resulting from the recent capacity ramp-up announced by Tower on February 16, 2010.
Gross Profit
Gross profit decreased to $16.0 million in the three months ended March 31, 2011 as compared to $19.9 million in the corresponding period in 2010. Such $3.9 million decrease in gross profit was mainly attributed to the decrease in revenues described above.
Operating Expenses
Operating expenses for the three months ended March 31, 2011 decreased by $0.6 million to $7.2 million, as compared to $7.8 million in the three months ended March 31, 2010.
Financing Expense and Other Expense, Net
Financing expense and other expense, net for the three months ended March 31, 2011 amounted to $4.3 million, relating mainly, to our notes, substantially unchanged from the $4.0 million for the three months ended March 31, 2010.
Income Tax Expense
Income tax expense amounted to $1.5 million in the three months ended March 31, 2011, as compared to income tax expense of $2.7 million in the three months ended March 31, 2010. The $ 1.2 million decrease in income tax expenses is mainly as the result of the decrease in the operating profit. The Company’s effective tax rate for the three months ended March 31, 2011 of 32% differs from the statutory rate primarily due to the Domestic Production Activities Deduction (“DPAD”). The DPAD reduces the effective tax rate for the quarter by approximately three percent.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Based on their 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During 2008, an International Trade Commission (“ITC”) action was filed by Agere/LSI Corporation (“LSI”), alleging infringement of U.S. patent 5,227,335 (the ‘335 patent) under Section 337 of the Tariff Act of 1930 (Section 337) by seventeen corporations. Following that initial filing, in October 2008, LSI amended the ITC complaint requesting to add the Company, Tower and three other corporations as additional respondents to the investigation. In September 2009, the ITC administrative law judge (“ALJ”) ruled against LSI and in favor of the respondents, determined that the ‘335 patent claims asserted by LSI are invalid. In November 2009, in response to a Petition for Review filed by LSI, the ITC determined that it would review the ALJ’s determination on patent invalidity. In March 2010, the ITC issued a notice of final determination that there was no violation of Section 337, ruling that the LSI ‘335 patent claims were invalid, and terminated the ITC investigation. LSI appealed the final determination to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). While that appeal was pending, the ‘335 patent expired. The ITC moved to dismiss LSI's appeal as moot, which LSI conceded. In November, 2010, the Federal Circuit issued an order vacating the ITC’s final determination and remanded the investigation to the ITC with instructions to dismiss the Investigation as moot. LSI also previously filed an action for patent infringement of the ‘335 patent against us and other corporations in the United States District Court for the Eastern District of Texas, which action was stayed pending the conclusion ITC Investigation. There are currently eight party defendants in the Texas district court action. The Texas action can proceed even though the ‘335 patent has expired, limited to damages that accrued prior to expiration of the '335 patent. The ITC determination, which was dismissed as moot, does not have a preclusive effect on the Texas District Court. The Company cannot predict the outcome thereof or estimate any losses that may be incurred therefrom, which could have a material and adverse effect on the Company’s business and financial position.
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, 2010. 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.
Number
|
Description
|
|
31.1
|
Principal Executive Officer Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
31.2
|
CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
32
|
Section 1350 Certification. (Not provided as not required of voluntary filers)
|
11
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 20, 2011
|
JAZZ TECHNOLOGIES, INC.
|
||
By:
|
/s/ Rafi Mor
|
||
_____
(Principal Executive Officer)
|
|||
By:
|
/s/ SUSANNA H. BENNETT
|
||
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
|
CFO Certification required by Rule 13a-14(a) or Rule 15d-14(a).
|
|
32
|
Section 1350 Certification. (Not provided as not required of voluntary filers)
|
12