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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, 2013
     
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
 
(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

1
       
 
1
       
   
1
       
   
2
       
   
3
       
   
4
       
   
5
       
 
9
       
 
11
       
12
       
 
12
       
 
12
       
 
Exhibits                      
12
       
13
       
Index to Exhibits                                
13

 
i

 

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
 Tower Semiconductor, Ltd.) and Subsidiaries

Condensed Consolidated Balance Sheets
 (in thousands)
 
   
September 30, 2013
   
December 31, 2012
 
   
(unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 47,958     $ 43,306  
Receivables:
Trade receivables, net of allowance for doubtful accounts of $0 and $67 at
September 30, 2013 and December 31, 2012, respectively
    20,697       20,056  
Other receivables
    5,271       1,727  
Inventories
    30,156       24,020  
Deferred tax asset
    2,954       4,606  
Other current assets
    1,954       2,896  
Total current assets
    108,990       96,611  
Property, plant and equipment, net
    80,646       91,464  
Intangible assets, net
    31,258       39,126  
Goodwill
    7,000       7,000  
Other assets – related parties
    2,507       4,055  
Other assets – others
    1,488       1,903  
Total assets
  $ 231,889     $ 240,159  
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Short-term bank debt
  $ 19,100     $ 19,100  
Accounts payable
    16,774       16,113  
Due to related parties
    3,049       54  
Accrued compensation and benefits
    6,585       6,325  
Deferred revenues
    820       573  
Other current liabilities
    2,645       4,579  
Total current liabilities
    48,973       46,744  
Long term liabilities:
               
Notes
    79,404       74,584  
Deferred tax liability
    1,112       6,488  
Employee related liabilities
    7,369       7,592  
Other long-term liabilities
    12,619       12,602  
Total liabilities
    149,477       148,010  
Stockholders’ equity:
               
Additional paid-in capital
    63,576       63,576  
Cumulative stock based compensation
    2,218       2,093  
Accumulated other comprehensive earning
    (319 )     1,007  
Retained earnings
    16,937       25,473  
Total stockholders’ equity
    82,412       92,149  
Total liabilities and stockholders’ equity
  $ 231,889     $ 240,159  
 
 
See accompanying notes.

 
1

 
 
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, 2013
   
September 30, 2012
   
September 30, 2013
   
September 30, 2012
 
Revenues
  $ 43,914     $ 42,538     $ 118,095     $ 125,785  
Cost of revenues
    35,952       34,230       96,316       101,031  
Gross profit
    7,962       8,308       21,779       24,754  
Operating expenses:
                               
Research and development
    2,898       3,208       8,874       9,951  
Selling, general and administrative
    3,175       3,215       8,996       11,203  
Amortization related to a lease agreement early termination
    1,866       --       5,598       --  
Total operating expenses
    7,939       6,423       23,468       21,154  
Operating income (loss)
    23       1,885       (1,689 )     3,600  
Financing expense, net
    (3,590 )     (3,429 )     (10,678 )     (9,971 )
Other income (expenses), net
    (474 )     102       (433 )     95  
Net loss before income taxes
    (4,041 )     (1,442 )     (12,800 )     (6,276 )
Income tax  benefit
    1,049       374       4,264       1,730  
Net loss
  $ (2,992 )   $ (1,068 )   $ (8,536 )   $ (4,546 )

See accompanying notes.
 
 
2

 
 
Jazz Technologies, Inc. (A Wholly Owned Subsidiary of
 Tower Semiconductor, Ltd.) and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)

   
Three months ended
   
Nine months ended
 
   
September 30, 2013
   
September 30, 2012
   
September 30, 2013
   
September 30, 2012
 
Net loss
  $ (2,992 )   $ (1,068 )   $ (8,536 )   $ (4,546 )
Change in employees plan assets and benefit obligations
    (446 )     --       (1,326 )     --  
Comprehensive loss
  $ (3,438 )   $ (1,068 )   $ (9,862 )   $ (4,546 )

 
3

 
 
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, 2013
   
Nine months ended September 30, 2012
 
Operating activities:
           
Net loss
  $ (8,536 )   $ (4,546 )
Adjustments to reconcile net loss for the period to net cash provided by operating activities:
               
Depreciation and amortization of intangible assets
    32,931       25,338  
Notes accretion and amortization of deferred financing costs
    5,066       4,303  
Stock based compensation expense
    125       436  
Other expenses (income), net
    474       (95 )
Changes in operating assets and liabilities:
               
Trade receivables
    (959 )     (3,221 )
Inventories
    (6,136 )     1,662  
Other  receivables and other current assets
    (5,775 )     (1,098 )
Accounts payable
    663       3,308  
Due to related parties, net
    3,950       (2,089 )
Accrued compensation and  benefits
    260       2,635  
Deferred Revenue
    247       (1,542 )
Other current liabilities
    (1,934 )     (3,444 )
Deferred tax liability, net
    (3,724 )     --  
Employee related liabilities and other long-term liabilities
    41       285  
Net cash provided by operating activities
    16,693       21,932  
Investing activities:
               
Purchases of property and equipment
    (13,373 )     (16,234 )
Proceeds related to property and equipment
    1,332       13,465  
Net cash used in investing activities
    (12,041 )     (2,769 )
Financing activities:
               
Short-term debt from bank
    --       3,800  
Net cash provided by financing activities
    --       3,800  
Net increase in cash and cash equivalents
    4,652       22,963  
Cash and cash equivalents at beginning of period
    43,306       19,471  
Cash and cash equivalents at end of period
  $ 47,958     $ 42,434  
    Non cash activities:                
  Investments in property, plant and equipment   $ 5,124     $ 3,353  
    Supplemental disclosure of cash flow information:                
  Cash paid during the period for interest   $ 7,500     $ 7,635  
  Cash received during the period for income taxes   $ --     $ (1,106
 
See accompanying notes.
 
4

 
 
Jazz Technologies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2013

 
Note 1:   Business and Formation
 
Unless specifically noted otherwise, as used throughout these notes to the unaudited condensed consolidated financial statements, “Jazz” or the “Company” refers to the business of Jazz Technologies, Inc., and “Jazz Semiconductor” refers only to the business of Jazz Semiconductor, Inc.
 
The Company
 
Since the merger with Tower Semiconductor, Ltd. ("Tower") in 2008, the Company is a 100% subsidiary of Tower.
 
The Company is based in Newport Beach, California and is an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices. The Company’s specialty process technologies include advanced analog, radio frequency, high voltage, bipolar and silicon germanium bipolar complementary metal oxide (“SiGe”) semiconductor processes for the manufacture of analog and mixed-signal semiconductors. Its customers’ analog and mixed-signal semiconductor devices are used in cellular phones, wireless local area networking devices, digital TVs, set-top boxes, gaming devices, switches, routers and broadband modems.
 
Note 2:   Summary of Significant Accounting Policies
 
Basis of Presentation and Consolidation
 
The Company prepares its consolidated financial statements in accordance with 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 on September 30, 2013 and December 31, 2012, and the consolidated results of its operations and cash flows for the three months and nine months ended September 30, 2013 and September 30, 2012. All intercompany accounts and transactions have been eliminated. Certain amounts have been reclassified in order to conform to 2013 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.
 
 
5

 
 
Concentrations
 
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable.
 
The Company generally does not require collateral for insurance of receivables. An allowance for doubtful accounts is determined with respect to those amounts that were determined to be doubtful of collection. The Company performs ongoing credit evaluations of its customers.
 
Accounts receivable from significant customers representing 10% or more of the net accounts receivable balance as of September 30, 2013 and December 31, 2012 consists of one customer with 25% and 24% respectively.
 
Net revenues from significant customers representing 10% or more of net revenues consist of:
 
   
Three months ended
   
Nine months ended
 
   
September 30, 2013
   
September 30, 2012
   
September 30, 2013
   
September 30, 2012
 
Customer A
    22 %     16 %     23 %     16 %
Customer B
    10       --       *       *  
Customer C
    *       13       *       12  
 
* 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
 
On January 31, 2013, the FASB issued ASU 2013-01, which clarifies the scope of the offsetting disclosure requirements in ASU 2011-11. Under ASU 2013-01, the disclosure requirements would apply to derivative instruments accounted for in accordance with ASC 815, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending arrangements that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The adoption of ASU 2013-01 had no impact on our financial position or results of operations.
 
On February 5, 2013, the FASB issued ASU 2013-02, which requires entities to disclose the following additional information about items reclassified out of accumulated other comprehensive income (AOCI):
 
• Changes in AOCI balances by component (e.g., unrealized gains or losses on available-for-sale securities or foreign-currency items). Both before-tax and net-of-tax presentations of the information are acceptable as long as an entity presents the income tax benefit or expense attributed to each component of OCI and reclassification adjustments in either the financial statements or the notes to the financial statements.
 
• Significant items reclassified out of AOCI by component either on the face of the income statement or as a separate footnote to the financial statements.
 
The ASU does not change the current U.S. GAAP requirements, for either public or nonpublic entities, for interim financial statement reporting of comprehensive income. That is, a total for comprehensive income must be reported in condensed interim financial statements in either (1) a single continuous statement or (2) two separate but consecutive statements. However, public entities would also need to include information about (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI in their interim reporting periods. ASU 2013-02 is effective for annual and interim reporting periods beginning after December 15, 2012. Adoption of this guidance did not have a significant impact on the determination or reporting of the Company’s financial results.
 
In July 2013, the FASB issued ASU No. 2013-11 amending requirements for the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU No. 2013-11 requires entities to present in the financial statements an unrecognized tax benefit, or a portion of an unrecognized tax benefit as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward except to the extent such items are not available or not intended to be used at the reporting date to settle any additional income taxes that would result from the disallowance of a tax position. In such instances, the unrecognized tax benefit is required to be presented in the financial statements as a liability and not be combined with deferred tax assets. ASU No. 2013-11 is effective for annual and interim periods beginning after December 15, 2013. We do not expect the adoption of ASU No. 2013-11 to have a material impact on our financial condition, results of operations, or cash flows.
 
 
6

 
 
Note 3:   Other Balance Sheet Details
 
Inventories
 
Inventories, net of reserves, consist of the following on September 30, 2013 and December 31, 2012 (in thousands):
 
   
September 30, 2013
   
December 31, 2012
 
Raw material
  $ 5,593     $ 4,144  
Work in process
    16,169       9,366  
Finished goods
    8,394       10,510  
    $ 30,156     $ 24,020  
 
Property, Plant and Equipment
 
Property, plant and equipment consist of the following on September 30, 2013 and December 31, 2012 (in thousands):
 
   
Useful life (in years)
   
September 30, 2013
   
December 31, 2012
 
Building improvements
    10-12     $ 26,305     $ 25,237  
Machinery and equipment
    3-7       188,042       176,294  
              214,347       201,531  
Accumulated depreciation
            (133,701 )     (110,067 )
 
          $ 80,646     $ 91,464  
 
Intangible Assets
 
Intangible assets consist of the following on September 30, 2013 (in thousands):
 
   
Useful life (in years)
   
Cost
   
Accumulated Amortization
   
Net
 
Technology
    4;9     $ 3,300     $ 1,884     $ 1,416  
Patents and other core technology rights
    9       15,100       8,450       6,650  
In-process research and development
    --       1,800       1,800       --  
Customer relationships
    15       2,600       873       1,727  
Trade name
    9       5,200       2,910       2,290  
Facilities lease
    1,19       33,500       14,325       19,175  
Total identifiable intangible assets
          $ 61,500     $ 30,242     $ 31,258  
 
Intangible assets consist of the following on December 31, 2012 (in thousands):
 
   
Useful life (in years)
   
Cost
   
Accumulated Amortization
   
Net
 
Technology
    4;9     $ 2,300     $ 1,400     $ 900  
Patents and other core technology rights
    9       15,100       7,192       7,908  
In-process research and development
    --       1,800       1,800       --  
Customer relationships
    15       2,600       743       1,857  
Trade name
    9       5,200       2,477       2,723  
Facilities lease
    1,19       33,500       7,762       25,738  
Total identifiable intangible assets
          $ 60,500     $ 21,374     $ 39,126  
 
 
7

 
 
Note 4:   Credit Facility
 
Borrowing availability under the facility as of September 30, 2013, was $26.5 million. Outstanding borrowings were $19.1 million and $0.9 million of the facility supporting outstanding letters of credit on that date. As of September 30, 2013, the Company was in compliance with all of the covenants under this facility.
 
Note 5:  Notes
 
In July 2010, the Company issued notes in the principal amount of approximately $94 million due June 2015 (the “New Notes”).   Interest on the New Notes at a rate of 8% per annum is payable semiannually.
 
The New Notes constitute unsecured obligations of the Company, rank on parity in right of payment with all other indebtedness of the Company, are effectively subordinated to all secured indebtedness of the Company to the extent of the value of the collateral securing such indebtedness and are not guaranteed by Tower. The New Notes shall rank senior to all future indebtedness of the Company to the extent the future indebtedness is expressly subordinated to the New Notes. The New Notes are jointly and severally guaranteed on a senior unsecured basis by the Company’s domestic subsidiaries.
 
Beginning July 1, 2013, the Company may redeem some or all of the New Notes for cash at a redemption price equal to par plus accrued and unpaid interest plus a redemption premium equal to 4% if redemption occurs prior to July 1, 2014 and 2% if redemption occurs between July 1, 2014 and maturity.
 
The indenture of the New Notes contains certain covenants including covenants restricting the Company’s ability and the ability of its subsidiaries to, among other things, incur additional debt, incur additional liens, make specified payments and make certain asset sales.
 
Holders of the New Notes are entitled, subject to certain conditions and restrictions, to require the Company to repurchase the New Notes at par plus accrued interest and a 1% redemption premium in the event of certain change of control transactions.
 
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 subsidiaries of the Company other than the subsidiary guarantors are minor. Other than the restrictions in abovementioned credit facility, there are no significant restrictions on the ability of the Company and its subsidiaries to obtain funds from their subsidiaries by loan or dividend.
 
Note 6:   Income Taxes
 
 In 2013, the U.S. tax authorities commenced an audit of the Company’s 2011 tax returns, and asked the Company for certain reports and data in connection with said year’s tax returns. There is no indication to date whether the Company will be required to pay any additional taxes pursuant to said audit.
 
Note 7:   Employee Postretirement Benefit Plans
 
The pension and other post retirement benefit plans resulted in $0.4 million income and $0.1 million expense for the three months ended September 30, 2013 and 2012, respectively. For the nine months ended September 30, 2013 and 2012 results amounts were $1.3 million income and $0.2 million expense, respectively.
 
 
8

 
 
 Note 8:   Employee Stock Option Expense
 
During the nine months ended September 30, 2013, Tower awarded 364,354 non-qualified stock options exercisable for Tower’s ordinary shares to the Company’s employees. The Company recorded immaterial amount and $0.1 million of compensation expenses relating to options granted to employees for the three months ended September 30, 2013 and 2012, respectively. The Company recorded $0.1 million and $0.2 million of compensation expenses relating to options granted to employees for the nine months ended September 30, 2013 and 2012, respectively.
 
Note 9:    Related Party Transactions
 
Related Party Transactions consist of the following (in thousands):
 
   
As of September
30, 2013
   
As of December 31, 2012
 
Due from related parties (included in the accompanying balance sheets)
  $ 3,386     $ 6,100  
Due to related parties (included in the accompanying balance sheets)
  $ 3,049     $ 54  
 
Related parties balances are with Tower and TowerJazz Japan Ltd. (“TJP”) and are mainly for purchases and payments on behalf of the other party, tools sale, tools lease and service charges.
 
Note 10: Commitments and Contingencies
 
Leases
 
Since 2002, the Company has leased its fabrication facilities, land and headquarters from Conexant under non-cancelable operating leases through March 2017. 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 2017 and the Company’s unilateral options to extend the terms of each of these leases for two consecutive five-year periods through 2027. Under our amended leases with the new owner, the Company’s rental payments consist of  fixed base rent and fixed management fees and our pro rata share of certain expenses incurred by the landlord in the ownership of these buildings, including property taxes, building insurance and common area maintenance. These lease expenses are included in operating expenses in the accompanying consolidated statements of operations.
 
In regards to an office building lease, the Company’s landlord exercised its right to terminate the office building lease, effective January 1, 2014. The Company is in the process of moving its offices to the fabrication building and to nearby new leased office space. The Company and the landlord signed an additional amendment to the amended lease to reflect termination of the office building lease and certain obligations of the Company and the landlord, including certain noise abatement actions at the fabrication facility. This office building termination has no impact whatsoever on the Company’s fabrication buildings, facilities and operations and the Company’s ability to remain in the fabrication facilities through 2027 (including by exercising its two consecutive five-year extension periods which it can exercise in its sole discretion).
 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion and analysis should be read in conjunction with the financial statements and related notes contained elsewhere in this report. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 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;
 
 
9

 
 
 
·
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, 2012 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 nine months ended September 30, 2013, we had a net loss of $8.5 million compared to a net loss of $4.5 million for the nine months ended September 30, 2012.
 
 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, 2013
   
September 30, 2012
 
Net revenues
    100 %     100 %
Cost of revenues
    81.6       80.3  
Gross profit
    18.4       19.7  
Operating expenses:
               
Research and development
    7.5       7.9  
Selling, general and administrative
    7.6       8.9  
Amortization related to a lease agreement early termination
    4.7       --  
Total operating expenses
    19.9       16.8  
Operating income (loss)
    (1.4 )     2.9  
Financing expense and other expenses, net
    (9.4 )     (7.9 )
Income tax benefit
    3.6       1.4  
Net loss
    (7.2 )%     (3.6 )%
 
Comparison of Nine Months Ended September 30, 2013 and September 30, 2012
 
Revenues
 
Our net revenues for the nine months ended September 30, 2013 amounted to $118.1 million as compared to $125.8 million for the corresponding period in 2012. The revenue decrease is attributable to 7% decrease in quantities of wafers sold during the nine months ended September 30, 2013 while the average selling price per wafer remained unchanged.
 
 
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Cost of Revenues
 
 Our cost of revenues was $96.3 million for the nine months ended September 30, 2013 as compared to $101.0 million for the corresponding period in 2012. The decrease in cost of revenues was mainly due to the decrease in quantities of wafers sold, as described above.
 
Gross Profit
 
Our gross profit amounted to $21.8 million in the nine months ended September 30, 2013 as compared to $24.8 million in the corresponding period in 2012. Such reduction was mainly attributed to the decrease in revenues described above.
 
Operating Expenses
 
Operating expenses for the nine months ended September 30, 2013 amounted to $23.5 million, as compared to $21.2 million in the nine months ended September 30, 2012. The increase in operating expenses for the nine months ended September 30, 2013 is due to $5.6 million amortization related to an early termination of an office building lease contract offset by other expenses’ cost reduction amounted $3.3 million.
 
Financing Expense and Other Expenses, Net
 
Financing expense and other expenses, net for the nine months ended September 30, 2013 amounted to $11.1 million, as compared to $9.9 million in the corresponding period in 2012. The $1.2 million increase is attributed mainly to the New Notes accretion non-cash expenses which are increasing gradually.
 
Income Tax Benefit
 
Income tax benefit amounted to $4.3 million in the nine months ended September 30, 2013, as compared to income tax benefit of $1.7 million in the nine months ended September 30, 2012 due to the higher losses.
 
Net loss
 
Net loss for the nine months ended September 30, 2013 amounted to $8.5 million as compared to net loss of $4.5 million in the nine months ended September 30, 2012, due to the above described changes.
 
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.
 
 
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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, 2012. 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 September 30, 2013, formatted in XBRL
 
 
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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 08, 2013
JAZZ TECHNOLOGIES, INC.
     
 
By:
/s/ NABIL ALALI
   
General Manager and Site 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
 
Chief Financial Officer Certification required by Section 1350.
101
 
Financial information from the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL
 
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