Tower US Holdings Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Tower US Holdings Inc.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - Tower US Holdings Inc.	exhibit_31-2.htm
EX-32.1 - EXHIBIT 32.1 - Tower US Holdings Inc.	exhibit_32-1.htm
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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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 September 30, 2011

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

Smaller reporting company o

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

	Item 1.	Financial Statements

		Unaudited Condensed Consolidated Balance Sheets	1

		Unaudited Condensed Consolidated Statements of Operations	2

		Unaudited Condensed Consolidated Statements of Cash Flows	3

		Notes to Unaudited Condensed Consolidated Financial Statements	4-9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-12

	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. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Consolidated Balance Sheets

(in thousands)

	September 30, 2011			December 31, 2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	51,801		$	29,031
Receivables: Trade receivables, net of allowance for doubtful accounts of $1,044 and $326 at September 30, 2011 and December 31, 2010, respectively		16,488			29,687
Other receivables		7,394			3,376
Inventories		26,466			19,096
Deferred tax asset		4,728			4,728
Prepaid expenses and other current assets		4,319			3,768
Total current assets		111,196			89,686
Property, plant and equipment, net		102,916			96,908
Investments		--			17,100
Intangible assets, net		44,919			48,394
Goodwill		7,000			7,000
Other assets – related parties		17,056			22,392
Other assets - others		2,423			1,895
Total assets	$	285,510		$	283,375

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank debt and current maturities of notes	$	40,599		$	53,338
Accounts payable		13,014			13,023
Due to related party		3,519			3,389
Accrued compensation and benefits		5,436			5,677
Deferred revenues		2,577			1,834
Accrued interest		2,581			5,393
Other current liabilities		3,510			7,418
Total current liabilities		71,236			90,072
Long term liabilities:
Long-term debt from banks		10,000			10,000
Notes		67,823			64,463
Deferred tax liability		9,876			9,876
Accrued pension, retirement medical plan obligations		12,776			12,522
Other long-term liabilities		14,507			5,533
Total liabilities		186,218			192,466
Stockholder’s equity:
Additional paid-in capital		63,531			63,531
Cumulative stock based compensation		1,382			887
Accumulated other comprehensive loss (*)		(1,970	)		(1,903	)
Retained earnings		36,349			28,394
Total stockholders’ equity		99,292			90,909
Total liabilities and stockholders’ equity	$	285,510		$	283,375

(*)	Accumulated other comprehensive loss includes mainly plan assets and benefit obligation, net of taxes.

See accompanying notes.

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands)

	Three months ended						Nine months ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Net revenues	$	35,240		$	64,019		$	131,866		$	178,075
Cost of revenues		32,233			39,158			98,249			108,938
Gross profit		3,007			24,861			33,617			69,137
Operating expenses:
Research and development		3,028			3,451			8,986			10,047
Selling, general and administrative		4,616			3,531			12,089			13,733
Amortization of intangible assets		197			197			590			591
Total operating expenses		7,841			7,179			21,665			24,371
Operating income (loss)		(4,834	)		17,682			11,952			44,766
Financing expense, net		(4,272	)		(6,422	)		(12,738	)		(14,398	)
Other income, net		14,048			27			13,728			27
Net income before income taxes		4,942			11,287			12,942			30,395
Income tax expense		(2,274	)		(3,666	)		(4,987	)		(9,859	)
Net income	$	2,668		$	7,621		$	7,955		$	20,536

See accompanying notes.

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of

Tower Semiconductor, Ltd.) and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Nine months ended September 30, 2011			Nine months ended September 30, 2010
Operating activities:
Net income	$	7,955		$	20,536
Adjustments to reconcile net income for the period to net cash provided by operating activities:
Depreciation and amortization of intangible assets		24,439			23,393
Notes accretion and amortization of deferred financing costs		5,189			4,231
Loss from notes exchange, net.		--			2,350
Stock based compensation expense		495			348
Other income, net		(13,728	)		(27	)
Changes in operating assets and liabilities:
Trade receivables		14,250			(9,533	)
Other receivables		(4,618	)		--
Inventories		(7,370	)		(2,000	)
Prepaid expenses and other current assets		(551	)		555
Deferred tax assets		--			1,958
Accounts payable		(2,969	)		(69	)
Due to related party, net		(1,256	)		(4,487	)
Accrued compensation and benefits		(241	)		1,111
Deferred Revenue		743			(240	)
Accrued interest		(2,812	)		2,030
Other current liabilities		(3,908	)		4,698
Accrued pension, retirement medical plan obligations and long-term liabilities		9,264			214
Net cash provided by operating activities		24,882			45,068
Investing activities:
Purchases of property and equipment		(24,264	)		(48,902	)
Proceeds related to property and equipment		5,463			600
Purchases of intangible assets		--			(400	)
Proceeds from investment realization		31,400			--
Net cash provided by (used in) investing activities		12,599			(48,702	)
Financing activities:
Debt repayment		(14,644	)		(5000	)
Net cash used in financing activities		(14,644	)		(5000	)
Effect of foreign currency on cash		(67	)		--
Net increase in cash and cash equivalents		22,770			(8,634	)
Cash and cash equivalents at beginning of period		29,031			28,622
Cash and cash equivalents at end of period	$	51,801		$	19,988

Supplemental disclosure of interest and taxes paid and non-cash investing and financing activities:

Investments in property, plant and equipment	$	1,662	$	2,992
Warrant contributed by Tower, see note 5	$	--	$	13,249
Interest paid	$	11,153	$	5,832
Tax paid	$	3,403	$	3,637

See accompanying notes.

Jazz Technologies, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2011

Note 1: Organization

Unless specifically noted otherwise, as used throughout these notes to the unaudited condensed consolidated financial statements, “Jazz” and “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. The Company’s 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 September 30, 2011 and December 31, 2010, and the consolidated results of its operations and cash flows for the three months and nine months ended September 30, 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 US 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 carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to their short maturities.

Comprehensive Income

	Nine months ended September 30, 2011			Nine months ended September 30, 2010
	(In thousands)
Net income	$	7,955		$	20,536
Foreign currency translation adjustment		(67	)		--
Comprehensive income	$	7,888		$	20,536

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 creditworthiness, 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 September 30, 2011 and December 31, 2010 consists of the following customers:

	September 30, 2011			December 31, 2010
Customer 1		15	%		20	%
Customer 2		13			15
Customer 3		--			16

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

	Three months ended						Nine months ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Customer A		17	%		15	%		17	%		15	%
Customer B		9			18			10			27
Customer C		--			10			6			8

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 Financial Accounting Standards Board (“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”). 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.

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.

ASU 2011-04, Fair Value Measurement (Accounting Standards Codification (“ASC”) Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Accounting Standards Codification (“ASC”) Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this ASU result in common fair value measurement and disclosure requirements in U.S. GAAP and international financial reporting standards (“IFRS”). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. To improve consistency in application across jurisdictions some changes in wording are necessary to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way. The ASU also provides for certain changes in current GAAP disclosure requirements, for example with respect to the measurement of level 3 assets and for measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity. The amendments in this ASU are to be applied prospectively, and are effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance is not anticipated to have an impact on our consolidated financial position, results of operations or cash flows.

ASU No. 2011-05, Comprehensive Income (ASC Topic 220) - Presentation of Comprehensive Income.

In May 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220) - Presentation of Comprehensive Income. The amendments from this update will result in more converged guidance on how comprehensive income is presented under both U.S. GAAP and IFRS. With this update to ASC 220, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it affect how earnings per share is calculated or presented. Current U.S. GAAP allows reporting entities three alternatives for presenting other comprehensive income and its components in financial statements. One of those presentation options is to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. This update eliminates that option. The amendments in this ASU should be applied retrospectively, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance is not anticipated to have an impact on our consolidated financial position, results of operations or cash flows.

ASU 2011-08 Intangibles – Goodwill and Other (Topic 350) – An Amendment on Goodwill Impairment Testing

In September 2011, the Financial Accounting Standards Board (FASB) issued authoritative guidance related to intangibles — goodwill and other, which allows for companies to first consider qualitative factors as a basis for assessing impairment and determining the necessity of a detailed impairment test. This guidance is effective for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of the new guidance will not have an impact on the Company’s consolidated financial statements.

Note 3: Other Balance Sheet Details

Inventories

Inventories, net of reserves, consist of the following at September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011		December 31, 2010
Raw material	$	5,269	$	4,684
Work in process		7,119		11,821
Finished goods		14,078		2,591
	$	26,466	$	19,096

Property, Plant and Equipment

Property, plant and equipment consist of the following at September 30, 2011 and December 31, 2010 (in thousands):

	Useful life (In years)		September 30, 2011			December 31, 2010
Building improvements		10-12	$	24,305		$	24,230
Machinery and equipment		7		142,011			115,790
Furniture and equipment		5-7		2,308			2,308
Computer software		3		1,280			850
				169,904			143,178
Accumulated depreciation				(66,988	)		(46,270	)
			$	102,916		$	96,908

Intangible Assets

Intangible assets consist of the following at September 30, 2011 (in thousands):

	Weighted Average Life (years)		Cost		Accumulated Amortization		Net
Technology		4;9	$	2,300	$	907	$	1,393
Patents and other core technology rights		9		15,100		5,096		10,004
In-process research and development		--		1,800		1,800		--
Customer relationships		15		2,600		526		2,074
Trade name		9		5,200		1,754		3,446
Facilities lease		19		33,500		5,498		28,002
Total identifiable intangible assets		14	$	60,500	$	15,581	$	44,919

Intangible assets consist of the following at December 31, 2010 (in thousands):

	Weighted Average Life (years)		Cost		Accumulated Amortization		Net
Technology		4;9	$	2,300	$	612	$	1,688
Patents and other core technology rights		9		15,100		3,836		11,264
In-process research and development		--		1,800		1,800		--
Customer relationships		15		2,600		396		2,204
Trade name		9		5,200		1,321		3,879
Facilities lease		19		33,500		4,141		29,359
Total identifiable intangible assets		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 September 30, 2011, was $6.7 million. Outstanding borrowings were $16 million and $1.3 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 September 30, 2011. As of September 30, 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”). In the exchange agreement described below, approximately $79.6 million principal amount of the Old Notes were converted to New Notes. As of September 30, 2011, approximately $35.1 million in principal amount of Old Notes remained outstanding as compared to $43.7 million as of December 31, 2010. In October 2011, the Company completed a voluntary transaction to redeem early the entire remaining $35.1 million in Old Notes, none of which remain outstanding.

In 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 September 30, 2011, approximately $93.6 million in principal amount of New Notes is outstanding.

The Company’s obligations under the New 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 Company has no independent assets or operations, the subsidiary guarantees are full and unconditional and joint and several and any subsidiaries of the Company other than the subsidiary guarantors are minor. Other than the restrictions in the credit facility agreement, there are no significant restrictions on the ability of the Company and its subsidiaries to obtain funds from their subsidiaries by loan or dividend.

The Company applied the provisions of ASC 470-50 "Modifications and Extinguishments" to account for debt exchange. The Company first determined that the exchange is not considered troubled debt, mainly due to the fact that no concession was given by the creditor. Based on the provisions of the ASC 470-50 the Company determined that the exchange resulted in an extinguishment of the old debt and the issuance of a new debt. As described above, warrants and New Notes were issued to settle the Old Notes. The Company considered the transaction to be at arm's length (the transaction was made between willing unrelated parties) and as such needed to provide evidence of fair value. Since the new debt was not traded and no quotes were available, the Company determined the fair value of the New Notes in a manner consistent with the manner used in the purchase price allocation in connection with the acquisition of the Company by Tower in September 2008, by giving weights to the present value techniques. This, together with the fair value of the warrants were used to determine the value of the Old Notes and resulted in an expense of approximately $2.4 million, which has been recorded in the statement of operations report for the year ended December 31, 2010.

The fair value of Warrants J was calculated based on the Black-Scholes formula. This fair value was also confirmed by independent calculation made by the investors as evidenced by the contract. The Company used the following assumptions:

Risk–free rate based on US Treasury bills of 1.79% per annum, term of the warrants of five years, Tower’s market price per share immediately prior to the closing date of $1.36 as Warrants J are exercisable to Tower’s shares, the exercise price of the warrants as agreed with the investors of $1.70 and the volatility of Tower shares of approximately 50%.

Note 6: Holdings in Hua Hong Semiconductor Ltd.

In connection with the acquisition of Jazz Semiconductor in February 2007, the Company acquired an investment in Hua Hong Semiconductor Ltd (“HHSL”), which owns 100% of Shanghai Hua Hong NEC Electronics Company Ltd (also known as “HHNEC”).

During the third quarter of 2011, the Company sold its 10% holdings in “HHSL”, in an HHSL buyback transaction for gross amount of approximately $32 million in cash, before tax and other payments. The Company recorded a gross gain of approximately $15 million from this transaction.

Note 7: Income Taxes

The Company’s effective tax rate for the nine months ended September 30, 2011 of 38% differs from the statutory rate primarily due to interest expense on unrecognized tax benefits. The interest expense related to unrecognized tax benefits increases the effective tax rate for the nine months ended September 30, 2011 by approximately 3 percent.

Note 8: Employee Benefit Plans

The pension and other post retirement benefit plans expenses for the three and nine months ended September 30, 2011 were $0.2 million and $0.7 million, respectively. The amounts for the pension and other post retirement benefit plans expenses for the three and nine months ended September 30, 2010 were $0.2 million and $0.7 million, respectively.

Note 9: Employee Stock Option Expense

During the nine months ended September 30, 2011, Tower awarded 1.5 million 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 $149,000 and $496,000 of compensation expenses relating to options granted to employees, for the three months and nine months ended September 30, 2011, respectively. The Company recorded $46,000 and $348,000 of compensation expenses relating to employees options, during the corresponding periods in 2010.

Note 10: Related Party Transactions

	As of September 30, 2011		As of December 31, 2010
Due from related party (included in the accompanying balance sheets)	$	21,209	$	25,768
Due to related party (included in the accompanying balance sheets)	$	3,519	$	3,389

Related party balances are with Tower and TowerJazz Japan Ltd. and are mainly for purchases and payments on behalf of the other party, tools sale, tools lease and service charges.

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:

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 and subsequent quarterly reports filed with the Securities and Exchange Commission. Such risks and uncertainties 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 nine months ended September 30, 2011, we had a net profit $8.0 million compared to $20.5 million for the nine months ended September 30, 2010.

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

	Nine Months Ended
	September 30, 2011			September 30, 2010
Net revenues		100	%		100	%
Cost of revenues		74.5			61.2
Gross profit		25.5			38.8
Operating expenses:
Research and development		6.8			5.6
Selling, general and administrative		9.2			7.7
Amortization of intangible assets		0.4			0.3
Total operating expenses		16.4			13.7
Operating income		9.0			25.1
Financing expense, net		(9.6	)		( 8.1	)
Other income, net		10.4			--
Income tax expense		(3.8	)		(5.5	)
Net income		6.0	%		11.5	%

Comparison of nine months ended September 30, 2011 and September 30, 2010

Revenues

Our net revenues for the nine months ended September 30, 2011 decreased by $46.2 million, or 26%, to $131.9 million from $178.1 million in the corresponding period in 2010, mainly due to reduction in wafers shipped during the nine months ended September 30, 2011. The decrease in revenues is mainly due to a reduced customer demand resulting from the world wide economic slowdown which resulted in approximately 27% lower wafers shipped offset by 2% increase in average selling price.

Cost of Revenues

Following the decrease in revenues, our cost of revenues decreased to $98.3 million for the nine months ended September 30, 2011 from $108.9 million for the corresponding period in 2010. The relatively small reduction in cost of revenues as compared to the revenue decrease is due to the high portion of fixed costs associated with operating a foundry and due to higher depreciation expenses resulting from the fab capacity ramp-up.

Gross Profit

Gross profit decreased to $33.6 million in the nine months ended September 30, 2011 as compared to $69.1 million in the corresponding period in 2010 following the revenue decrease.

Operating Expenses

Operating expenses for the nine months ended September 30, 2011 decreased by $2.7 million to $21.7 million, as compared to $24.4 million in the nine months ended September 30, 2010. The decrease in operating expenses is mainly due to cost reduction actions and effects of the revenue decrease.

Financing Expense

Financing expense, net for the nine months ended September 30, 2011 amounted to $12.7 million, as compared to $14.4 million for the nine months ended September 30, 2010. Financing expense, net mainly relate to our notes. Financing expense, net for the nine months ended September 30, 2010 include $2.4 million loss from notes restructuring.

Other Income , net

Other income, net for the nine months ended September 30, 2011 includes mainly gain from the sale of the investment in HHSL.

Tax Expense

Income tax expense amounted to $5.0 million in the nine months ended September 30, 2011, as compared to income tax expense of $9.9 million in the nine months ended September 30, 2010. The decrease in income tax expenses is due to the decrease in the profit before tax. The Company’s effective tax rate for the nine months ended September 30, 2011 of 38% differs from the statutory rate primarily due to interest expense on unrecognized tax benefits. The interest expense related to unrecognized tax benefits increases the effective tax rate for the nine months ended September 30, 2011 by approximately 3 percent.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Such limitations may be increased by “built-in gains” as provided under the Code, which are realized within a 5 year period as of the ownership change. The Company previously completed Code Section 382 studies to assess whether ownership changes occurred and the limitation with respect to the utilization of its NOLs, related to such ownership changes. During the three months ended September 30, 2011, the Company initiated an additional analysis to examine whether the loss limitations may be further increased as a result of certain realized “built-in gains” as regulated by the Code and the regulations promulgated thereunder. As a result of such analysis, the Company has increased the amount of unrecognized tax benefits by approximately $9.7 million.

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 principal 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 or will be 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, 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.

Item 6. 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).
32.1		Principal Executive Officer Certification required by Section 1350.
32.2		CFO Certification required by Section 1350.
101		Financial information from the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, 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: November 14, 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).
32.1		Principal Executive Officer Certification required by Section 1350.
32.2		CFO Certification required by Section 1350.
101		Financial information from the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL

Tower US Holdings Inc. - FORM 10-Q - November 14, 2011

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Tower US Holdings Inc. Reports