EX-99 2 exhibit_99-1.htm EXHIBIT 99.1 exhibit_99-1.htm
Exhibit 99.1
 
TOWER SEMICONDUCTOR LTD.
 AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2014

 
 
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2014
 

 
 
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
  
 CONSOLIDATED BALANCE SHEETS
  
(dollars and shares in thousands)
  
 
   
As of
    
As of
  
   
June 30,
    
December 31,
  
   
2014
    
2013
  
   
(unaudited)
        
             
A S S E T S
            
             
CURRENT ASSETS
            
Cash and cash equivalents
   $ 192,220     $ 112,871  
Short-term designated interest bearing deposits
     --       10,000  
Trade accounts receivable
     106,569       80,316  
Other receivables
     8,450       10,943  
Inventories
     83,689       64,804  
Other current assets
     38,305       11,480  
Total current assets
     429,233       290,414  
                 
LONG-TERM INVESTMENTS
     14,386       14,494  
                 
PROPERTY AND EQUIPMENT, NET
     485,177       350,039  
                 
INTANGIBLE ASSETS, NET
     49,603       32,393  
                 
GOODWILL
     7,000       7,000  
                 
OTHER ASSETS, NET
     10,847       11,547  
                 
TOTAL ASSETS
   $ 996,246     $ 705,887  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                
                 
CURRENT LIABILITIES
                
Current maturities of loans and debentures
   $ 97,128     $ 36,441  
Trade accounts payable
     100,456       66,358  
Deferred revenue and short-term customers' advances
     3,752       3,166  
Employee related liabilities, inc. Nishiwaki retirement allowance
     80,423       25,957  
Other current liabilities
     26,548       7,994  
Total current liabilities
     308,307       139,916  
                 
LONG-TERM LOANS FROM BANKS
     161,131       108,739  
                 
DEBENTURES
     178,305       208,146  
                 
LONG-TERM CUSTOMERS' ADVANCES
     6,572       7,187  
                 
EMPLOYEE RELATED LIABILITES
     16,406       65,337  
                 
DEFERRED TAX LIABILITY
     100,135       13,611  
                 
OTHER LONG-TERM LIABILITIES
     33,925       21,703  
                 
Total liabilities
     804,781       564,639  
                 
TOTAL EQUITY
     191,465       141,248  
                 
TOTAL LIABILITIES AND EQUITY
   $ 996,246     $ 705,887  
 
See notes to consolidated financial statements.
 
- 1 -
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share data)
 
   
Six months ended
    
Three months ended
  
   
June 30,
    
June 30,
  
   
2014
    
2013
    
2014
    
2013
  
                         
REVENUES
   $ 366,725     $ 237,883     $ 234,072     $ 125,236  
                                 
COST OF REVENUES
     355,750       223,086       227,347       113,014  
                                 
GROSS PROFIT
     10,975       14,797       6,725       12,222  
                                 
OPERATING COSTS AND EXPENSES
                                
                                 
Research and development
     21,605       16,891       14,162       7,396  
Marketing, general and administrative
     27,343       20,987       16,527       10,942  
Nishiwaki Fab restructuring costs and impairment
     75,728       --       4,269       --  
Amortization related to a lease agreement early termination
     --       3,732       --       1,866  
Merger related costs
     1,229       --       --       --  
                                 
      125,905       41,610       34,958       20,204  
                                 
OPERATING LOSS
     (114,930 )     (26,813 )     (28,233 )     (7,982 )
                                 
INTEREST EXPENSES, NET
     (16,931 )     (16,332 )     (8,818 )     (8,305 )
                                 
OTHER FINANCING EXPENSE, NET
     (32,393 )     (7,227 )     (12,276 )     (8,213 )
                                 
GAIN FROM ACQUISITION, NET
     166,404       --       15,249       --  
                                 
OTHER INCOME (EXPENSE), NET
     203       (59 )     64       201  
                                 
PROFIT (LOSS) BEFORE INCOME TAX
     2,353       (50,431 )     (34,014 )     (24,299 )
                                 
INCOME TAX BENEFIT
     14,020       4,393       11,566       1,412  
                                 
PROFIT (LOSS)
     16,373       (46,038 )     (22,448 )     (22,887 )
                                 
Net loss attributable to the non controlling interest
     6,702       --       6,702       --  
                                 
NET PROFIT (LOSS) ATTRIBUTABLE TO THE COMPANY
   $ 23,075     $ (46,038 )   $ (15,746 )   $ (22,887 )
                                 
BASIC EARNINGS (LOSS) PER ORDINARY SHARE
                                
                                 
Earnings (loss) per share attributable to the company
   $ 0.47     $ (1.44 )    $ (0.31 )    $ (0.59 ) 
                                 
Weighted average number of ordinary
                                
shares outstanding - in thousands
     49,149       31,924       50,146       39,073  
                                 
DILUTED EARNINGS PER ORDINARY SHARE
                                
                                 
Earnings per share attributable to the company
   $ 0.39                          
                                 
Net profit used for diluted earnings per share
   $ 23,075                          
                                 
Weighted average number of ordinary shares outstanding
                                
 - in thousands, used for diluted earnings per share
     59,815                          
 
See notes to consolidated financial statements.
                        
 
 
- 2 -
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(dollars in thousands)
 
   
Six months ended
    
Three months ended
  
   
June 30,
    
June 30,
  
   
2014
    
2013
    
2014
    
2013
  
                         
Profit (loss)
   $ 16,373     $ (46,038 )   $ (22,448 )   $ (22,887 )
                                 
Foreign currency translation adjustment
     4,117       (10,432 )     3,169       (3,609 )
                                 
Change in employees plan assets and benefit obligations, net of taxes
     (1,130 )     (1,531 )     (565 )     (1,064 )
                                 
Comprehensive income (loss)
     19,360       (58,001 )     (19,844 )     (27,560 )
                                 
Net loss attributable to the non controlling interest
     6,702       --       6,702       --  
                                 
Comprehensive income (loss) attributable to the company
   $ 26,062     $ (58,001 )   $ (13,142 )   $ (27,560 )
 
See notes to consolidated financial statements.
 
 
- 3 -
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(dollars and share data in thousands)
 
    SHAREHOLDERS' EQUITY                    
   
Ordinary
    
Ordinary
    
Additional
                
Accumulated
other
     Foreign currency                      
Non
        
   
Shares
    
Shares
    
paid-in
    
Capital
    
unearned
    
comprehensive
     translatoin    
Accumulated
    
Treasury
    
Comprehensive
    
Controlling
        
   
issued
    
Amount
    
capital
    
notes
    
compensation
    
loss
     adjustments    
deficit
    
stock
    
income
    
interests
    
Total
  
                                                                         
BALANCE AS OF JANUARY 1, 2014
     47,956     $ 192,776     $ 1,084,011     $ 92,549     $ 45,380     $ 3,484     $ (19,610 )   $ (1,248,270 )   $ (9,072 )         $ -     $ 141,248  
                                                                                               
Changes during the period:
                                                                                              
                                                                                               
Establishment of a subsidiary
                                                                                   7,120       7,120  
Issuance of shares and warrant
     895       3,852       14,338                                                                     18,190  
Employee stock-based compensation
                                     2,507                                                     2,507  
Exercise of options
     699       3,017       23                                                                     3,040  
Capital notes
     1,454       6,276       5,502       (11,778 )                                                           -  
Other comprehensive income:
                                                                                              
Profit (loss) for the period
                                                             23,075             $ 23,075       (6,702 )     16,373  
Foreign currency translatoin adjustments
                                                     4,117                       4,117               4,117  
Change in employees plan assets and benefit obligations, net of taxes
                                             (1,130 )                             (1,130 )             (1,130 )
Comprehensive income
                                                                           $ 26,062                  
                                                                                                 
BALANCE AS OF JUNE 30, 2014
     51,004     $ 205,921     $ 1,103,874     $ 80,771     $ 47,887     $ 2,354     $ (15,493 )   $ (1,225,195 )   $ (9,072 )           $ 418     $ 191,465  
                                                                                                 
OUTSTANDING SHARES,
   NET OF TREASURY
   STOCK AS OF 
   JUNE 30, 2014
     50,918                                                                                          
 
 
- 4 -
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
   
Six months ended
  
   
June 30,
  
   
2014
    
2013
  
             
CASH FLOWS - OPERATING ACTIVITIES
            
             
Profit (loss) for the period
   $ 16,373     $ (46,038 )
Adjustments to reconcile net profit (loss) for the period
                
to net cash provided by operating activities:
                
Income and expense items not involving cash flows:
                
Depreciation and amortization
     109,595       77,258  
Effect of indexation, translation and fair value measurement on debt
     6,740       (3,631 )
Loss from notes exchange
     9,817       --  
Other expense (income), net
     (203 )     59  
Nishiwaki Fab restructuring costs and impairment
     75,728       --  
Gain from acquisition, net
     (166,404 )     --  
Changes in assets and liabilities:
                
Trade accounts receivable
     (25,406 )     (11,064 )
Other receivables and other current assets
     9,441       (6,560 )
Inventories
     11,545       (6,759 )
Trade accounts payable
     15,755       7,311  
Deferred revenue and customers' advances
     (43 )     1,270  
Other current liabilities
     575       (3,631 )
Deferred tax liability, net
     (16,031 )     (2,242 )
Other long-term liabilities
     2,148       3,179  
Net cash provided by operating activities
     49,630       9,152  
                 
CASH FLOWS - INVESTING ACTIVITIES
                
                 
Investments in property and equipment, net
     (25,937 )     (40,755 )
Investments in other assets, intangible assets and others
     --       (327 )
Acquisition of subsidiary consolidated for the first time (a)
     57,582       --  
Proceeds from interest bearing designated deposits
     10,000       --  
Net cash provided by (used in) investing activities
     41,645       (41,082 )
                 
CASH FLOWS - FINANCING ACTIVITIES
                
                 
Proceeds on account of equity and debt issuances
     11,451       20,042  
Proceeds from long-term loan
     85,884       --  
Loan repayment to Panasonic
     (85,884 )     --  
Debts repayment
     (25,431 )     --  
Net cash provided by (used in) financing activities
     (13,980 )     20,042  
                 
Effect of foreign exchange rate change
     2,054       (4,951 )
                 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     79,349       (16,839 )
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
     112,871       123,398  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
   $ 192,220     $ 106,559  
 
See notes to consolidated financial statements.
 
 
- 5 -
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  
(dollars in thousands)
  
 
   
Six months ended
June 30,
  
   
2014
    
2013
  
             
NON-CASH ACTIVITIES
            
             
Investments in property and equipment
   $ 10,906     $ 8,057  
Proceeds receivables related rights offering
   $ --     $ 1,325  
Shareholders' equity increase resulting from Jazz notes exchange transaction
   $ 9,609     $ --  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                
                 
Cash paid during the period for interest
   $ 16,413     $ 15,586  
Cash paid during the period for income taxes
   $ 103     $ 190  
                 
(a) ACQUISTION OF SUBSIDIARY CONSOLIDATED FOR THE FIRST TIME, SEE ALSO NOTE 2A:
                 
Assets and liabilities of the subsidiary as of March 31, 2014:
                
                 
Working capital (excluding cash and cash equivalents)
   $ 32,406          
Fixed assets
     245,278          
Intangible assets
     24,520          
Long-term loan
     (85,249 )        
Long-term liabilities
     (93,602 )        
      123,353          
Less:
                
Share capital
     14,531          
Paid-in capital
     166,404          
      180,935          
                 
    $ 57,582          
 
See notes to consolidated financial statements.
              
 
 
- 6 -
 
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2014
(dollars in thousands, except share data and per share data)
 
NOTE 1          -      GENERAL
 

 
A.
Basis for Presentation

The condensed interim consolidated financial statements of Tower Semiconductor Ltd. (“Tower”) include the financial statements of Tower and (i) its wholly-owned subsidiaries (1) Jazz Technologies, Inc. and its wholly-owned subsidiaries-, including Jazz Semiconductor, Inc., an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices (Jazz Technologies, Inc. and its wholly-owned subsidiaries are collectively referred to herein as “Jazz”), and (2) TowerJazz Japan Ltd. (“TJP”), an independent semiconductor foundry in Nishiwaki, Japan, and (ii) its majority-owned subsidiary, TowerJazz Panasonic Semiconductor Company, Ltd. (“TPSCo”), an independent semiconductor foundry which includes three semiconductor manufacturing facilities located in Uozu, Tonami and Arai, Hokuriku, Japan. Tower and its subsidiaries are collectively referred to as the “Company”.

The interim consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“US GAAP”).

The unaudited condensed interim consolidated financial statements as of June 30, 2014 of the Company should be read in conjunction with the audited consolidated financial statements of the Company as of December 31, 2013 and for the year then ended, including the notes thereto.

The Company’s consolidated financial statements include TPSCo’s balance sheet balances from March 31, 2014 and TPSCo’s results of operations commencing immediately following such date. The Company’s consolidated financial statements are presented after elimination of inter-company transactions and balances.

In the opinion of management, the interim financial statements include all adjustments necessary for a fair presentation of the financial position and results of operations as of the date and for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected on a full-year basis.

 
B.
Financing Debt Obligations and Other Liabilities

The Company, as an independent semiconductor manufacturer, operates in the semiconductor industry which has historically been highly cyclical and subject to significant and often rapid increases and decreases in product demand and manufacturing facilities’ utilization rates. The overcapacity, underutilization and downward price pressure characteristic of a downturn in the semiconductor market and/or in the global economy, such as experienced several times in the past, may negatively impact consumer and customer demand for the Company’s products, the end products of the Company’s customers and the financial markets, as well as our ability to create positive net cash flow, maintain such level of utilization rate that will cover our fixed costs, re-finance our debt, and/or raise funds and/or engage in debt restructuring activities.
 
 
- 7 -
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2014
(dollars in thousands, except share data and per share data)
 
NOTE 1          -      GENERAL (cont.)
 
 
B.
Financing Debt Obligations and Other Liabilities (cont.)

In order to finance Tower’s debt obligations and other liabilities, in addition to cash on hand and expected cash flow generation from operating activities, Tower is exploring opportunities and ventures to re-finance its debt obligations by engaging potential new lenders and existing lenders in order to exchange existing maturities to debt vehicles with longer maturities, and/or obtain funds from additional sources including debt issuance and/or other financing transactions and/or sale of assets and/or fund raising activities, as well as exploring additional financing alternatives.

See also details in Notes 4, 8B, 12B, 13, 17 to the 2013 audited consolidated financial statements and Note 2 below.

NOTE 2          -      RECENT DEVELOPMENTS
 
 
A.
Acquisition of 51% of the shares of TowerJazz Panasonic Semiconductor Co., Ltd.

In March 2014, Panasonic Corporation (“Panasonic”) has formed TowerJazz Panasonic Semiconductor Co., Ltd. (“TPSCo”), a newly established company. Upon TPSCo’s formation, (a) Panasonic transferred its semiconductor wafer manufacturing process and capacity tools of 8 inch and 12 inch at three of its fabs located in Hokuriku Japan (Uozu, Tonami and Arai) to TPSCo; and (b) Tower acquired 51% of the shares of TPSCo for a consideration of $7,411 paid through the issuance of ordinary shares to Panasonic.

The purchase price has been allocated on the basis of the estimated fair value of the assets purchased and the liabilities assumed. The estimated fair value of the assets, net amounted to $180,935. As the fair value of the net assets acquired less the non-controlling interest exceeded the purchase price, Tower recognized a gain on the acquisition of $166,404.

The Company believes that the gain realized from the acquisition derived from the following main reasons: (i) Panasonic’s fabs were not fully utilized in recent years and were anticipated to remain so in the coming years, hence any volume manufacturing and revenue resulting from the transaction with Tower, due to Tower customers’ base, contacts, technologies and foundry management and operations expertise will benefit Panasonic and directly increase the value of the transferred assets; and (ii) acquisition prices for used manufacturing equipment and fabs in the industry are very low primarily due to the fact that the used fabs’ technologies and platforms are not leading edge, their machines and manufacturing equipment are used and since the acquisition of used fabs involves material liabilities, contingencies and commitments with respect to employees, rules of production and others.
 
 
- 8 -
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2014
(dollars in thousands, except share data and per share data)
 
NOTE 2          -      RECENT DEVELOPMENTS (cont.)
 
 
A.
Acquisition of 51% of the shares of TowerJazz Panasonic Semiconductor Co., Ltd. (cont.)

The consideration and provisional valuation of assets acquired and liabilities assumed are as follows:
 
   
As of
March 31, 2014
  
Current assets 
   $ 91,414  
Machinery and equipment
     245,278  
Intangible assets
     24,520  
Total assets as of acquisition date
   $ 361,212  
         
Current liabilities
   $ 1,426  
Long-term Loan
     85,249  
Deferred tax liability
     93,602  
Total liabilities as of acquisition date
   $ 180,277  
         
Total net assets acquired
   $ 180,935  
The fair value non-controlling interests in TPSCo
     7,120  
Tower’s consideration
     7,411  
Gain on acquisition
   $ 166,404  

The fair value of the non-controlling interest in the table above was derived based on the purchase price Tower paid to Panasonic for its 51% shares of TPSCo.

The fair values set forth above are based on a preliminary valuation of TPSCo’s assets and liabilities performed by third party professional valuation experts hired by the Company to appraise the fair value of the assets in accordance with SFAS No. 141R, “Business Combinations”. The final valuation of TPSCo’s assets and liabilities may vary significantly.

Tower and Panasonic also agreed to the following, among others: (i) a five-year manufacturing agreement between Panasonic and TPSCo, under which Panasonic will acquire products from TPSCo; (ii) Panasonic will provide TPSCo with various transition services and support; (iii) TPSCo will lease the manufacturing buildings and related facilities infrastructure from Panasonic; and (iv) TPSCo will receive services from Tower including marketing, sales, general and administration services.

 
B.
Nishiwaki fab cessation of operations

The Company is in the process of restructuring its business and activities in Japan. In connection with said restructuring, the Company decided to cease the operations of the Nishiwaki fab and is in the process of terminating of certain agreements, sale of the Nishiwaki fab assets and a comprehensive reduction in the work force. In addition, a concerted effort is being made to move certain current customers and products from the Nishiwaki fab to the Company’s other fabrication facilities. Consequently, the Company recorded restructuring and impairment costs of approximately $76,000 for the six months period ended June 30, 2014, most of which are associated with fixed assets non-cash impairment costs.
 
 
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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2014
(dollars in thousands, except share data and per share data)
 
NOTE 2          -      RECENT DEVELOPMENTS (cont.)
 
 
C.
Long term loan agreement with Japanese Banking Institutions

In June 2014, TPSCo entered into a long term loan agreement with JA Mitsui Leasing, Ltd. and Bank of Tokyo (BOT) Lease Co., Ltd, under which it borrowed an amount of approximately $87,000 (8.8 Billion Japanese Yen) (the “Loan Agreement”), to be used for the newly established Japanese company, TPSCo. This loan has been used in order to repay a bridge loan that Panasonic granted to TPSCo in the same amount earlier this year.
 
The loan carry an annual interest of the TIBOR six months rate plus 1.65% per annum, to be paid on a semi-annual basis starting December 2014, with the principal to be repaid in seven semi-annual equal installments starting June 2016 and ending during the first half of 2019. Said loan is secured by an assignment of TPSCo’s right to receive any sums payable to TPSCo under its agreements with Panasonic dated March 31, 2014.
 
 
D.
Jazz notes transaction

In March 2014, Jazz, certain of its domestic subsidiaries and Tower entered into an exchange agreement (the “2014 Exchange Agreement”) with certain Jazz noteholders (the “2014 Participating Holders”) according to which Jazz issued unsecured 8% notes due December 2018 (the “2014 Notes”) in exchange for approximately $45,000 in aggregate principal amount of Jazz notes due June 2015 which were issued in 2010 (the “2010 Notes”).

Also in March 2014, Jazz, Tower and certain of the 2014 Participating Holders (the “Purchasers”) entered into a purchase agreement (the “Purchase Agreement”) pursuant to which the Purchasers purchased $10,000 in aggregate principal amount of the 2014 Notes for cash consideration.

Holders of the 2014 Notes may submit a conversion request with Jazz to be settled at Jazz’s discretion through cash from Jazz or ordinary shares from Tower, in which event Tower has to issue ordinary shares based on a conversion price of $10.07 per share. The 2014 Notes are jointly and severally guaranteed on a senior unsecured basis by Jazz’s domestic subsidiaries. The 2014 Notes are not guaranteed by Tower. The Indenture contains certain customary covenants.

As of June 30, 2014, approximately $58,000 principal amount of 2014 Notes was outstanding and approximately $45,000 principal amount of 2010 Notes was outstanding.
 
 
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