EX-99.1 2 exhibit_99-1.htm EXHIBIT 99.1
 
Exhibit 99.1

 TOWER SEMICONDUCTOR LTD.
 AND SUBSIDIARIES
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2017

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2017
 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
 
   
As of
    
As of
  
   
June 30,
    
December 31,
  
   
2017
    
2016
  
   
(unaudited)
        
A S S E T S
            
             
CURRENT ASSETS
            
Cash and cash equivalents
  
$
483,603
    
$
355,284
  
Short-term deposits
    
--
      
34,093
  
Trade accounts receivable
    
150,731
      
141,048
  
Inventories
    
139,010
      
137,532
  
Other current assets
    
34,391
      
30,041
  
Total current assets
    
807,735
      
697,998
  
                 
LONG-TERM INVESTMENTS
    
27,291
      
25,624
  
                 
PROPERTY AND EQUIPMENT, NET
    
628,279
      
616,686
  
                 
INTANGIBLE ASSETS, NET
    
23,848
      
28,129
  
                 
GOODWILL
    
7,000
      
7,000
  
                 
OTHER ASSETS, NET
    
4,355
      
4,447
  
                 
TOTAL ASSETS
  
$
1,498,508
    
$
1,379,884
  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                
                 
CURRENT LIABILITIES
                
Short-term debt and current maturities of loans and debentures
  
$
55,295
    
$
48,084
  
Trade accounts payable
    
95,328
      
99,262
  
Deferred revenue and customers' advances
    
25,689
      
26,169
  
Employee related liabilities
    
57,814
      
49,517
  
Other current liabilities
    
20,237
      
24,083
  
Total current liabilities
    
254,363
      
247,115
  
                 
LONG-TERM LOANS FROM BANKS
    
120,146
      
133,163
  
                 
DEBENTURES
    
177,463
      
162,981
  
                 
LONG-TERM CUSTOMERS' ADVANCES
    
29,061
      
41,874
  
                 
EMPLOYEE RELATED LIABILITES
    
14,652
      
14,176
  
                 
DEFERRED TAX LIABILITY
    
86,080
      
95,233
  
                 
OTHER LONG-TERM LIABILITIES
    
2,728
      
2,728
  
                 
Total liabilities
    
684,493
      
697,270
  
                 
THE COMPANY'S SHAREHOLDERS' EQUITY
    
820,405
      
690,032
  
Non controlling interest
    
(6,390
)
    
(7,418
)
TOTAL EQUITY
    
814,015
      
682,614
  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  
$
1,498,508
    
$
1,379,884
  
 
See notes to consolidated financial statements.
 
- 2 -
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars and shares in thousands, except per share data)
 
   
Six months ended
    
Three months ended
  
   
June 30,
    
June 30,
  
   
2017
    
2016
    
2017
    
2016
  
                         
REVENUES
  
$
675,139
    
$
583,046
    
$
345,059
    
$
305,003
  
                                 
COST OF REVENUES
    
499,310
      
448,971
      
253,998
      
232,275
  
                                 
GROSS PROFIT
    
175,829
      
134,075
      
91,061
      
72,728
  
                                 
OPERATING COSTS AND EXPENSES:
                                
                                 
Research and development
    
32,200
      
31,267
      
16,432
      
16,030
  
Marketing, general and administrative
    
33,475
      
32,443
      
17,238
      
16,520
  
Nishiwaki Fab restructuring and impairment cost (income), net
    
--
      
(627
)
    
--
      
--
  
                                 
     
65,675
      
63,083
      
33,670
      
32,550
  
                                 
OPERATING PROFIT
    
110,154
      
70,992
      
57,391
      
40,178
  
                                 
INTEREST EXPENSE, NET
    
(4,281
)
    
(6,355
)
    
(2,070
)
    
(2,997
)
                                 
OTHER FINANCING EXPENSE, NET
    
(3,071
)
    
(11,497
)
    
(1,053
)
    
(7,528
)
                                 
GAIN FROM ACQUISITION, NET
    
--
      
51,298
      
--
      
10,158
  
                                 
OTHER INCOME, NET
    
653
      
4,362
      
142
      
4,362
  
                                 
PROFIT BEFORE INCOME TAX
    
103,455
      
108,800
      
54,410
      
44,173
  
                                 
INCOME TAX EXPENSE
    
(4,682
)
    
(3,905
)
    
(2,683
)
    
(3,826
)
                                 
NET PROFIT
    
98,773
      
104,895
      
51,727
      
40,347
  
                                 
Net income attributable to non controlling interest
    
(3,247
)
    
(465
)
    
(1,710
)
    
(1,861
)
                                 
NET PROFIT ATTRIBUTABLE TO THE COMPANY
  
$
95,526
    
$
104,430
    
$
50,017
    
$
38,486
  
                                 
BASIC EARNINGS PER ORDINARY SHARE:
                                
                                 
Earnings per share
  
$
1.00
    
$
1.22
    
$
0.52
    
$
0.45
  
                                 
Weighted average number of ordinary shares outstanding
    
95,139
      
85,410
      
96,365
      
86,300
  
                                 
DILUTED EARNINGS PER ORDINARY SHARE:
                                
                                 
Earnings per share
  
$
0.95
    
$
1.09
    
$
0.49
    
$
0.40
  
                                 
Net profit used for diluted earnings per share
  
$
99,883
    
$
108,556
    
$
52,217
    
$
40,556
  
                                 
Weighted average number of ordinary shares outstanding
                                
used for diluted earnings per share
    
105,288
      
99,546
      
105,648
      
100,163
  
 
See notes to consolidated financial statements.
- 3 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
   
Six months ended
    
Three months ended
  
   
June 30,
    
June 30,
  
   
2017
    
2016
    
2017
    
2016
  
                         
Net profit
  
$
98,773
    
$
104,895
    
$
51,727
    
$
40,347
  
                                 
Other comprehensive income, net of tax:
                                
                                 
Foreign currency translation adjustment
    
6,010
      
19,500
      
9
      
11,221
  
                                 
Change in employees plan assets and benefit obligations
    
(315
)
    
(265
)
    
(157
)
    
(133
)
                                 
Unrealized gain (loss) on derivatives
    
1,016
      
62
      
(18
)
    
62
  
Comprehensive income
    
105,484
      
124,192
      
51,561
      
51,497
  
                                 
Comprehensive income attributable to non-controlling interest
    
(6,529
)
    
(9,498
)
    
(1,669
)
    
(8,476
)
                                 
Comprehensive income attributable to the Company
  
$
98,955
    
$
114,694
    
$
49,892
    
$
43,021
  
 
- 4 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(dollars and share data in thousands)
 
   
THE COMPANY'S SHAREHOLDERS' EQUITY
                    
     
Ordinary
    
 
Ordinary
      
Additional
              
Accumulated
 other
    
Foreign
currency
                       
Non
        
   
shares
    
shares
    
paid-in
    
Capital
    
Unearned
    
comprehensive
       translation    
Accumulated
    
Treasury
    
Comprehensive
    
controlling
        
   
issued
    
amount
    
capital
    
notes
    
compensation
    
income
     adjustments    
deficit
    
stock
    
income
    
interest
    
Total
  
                                                                         
BALANCE AS OF JANUARY 1, 2017
    
93,071
    
$
369,057
    
$
1,318,725
    
$
41,264
    
$
68,921
    
$
(544
)
  
$
(27,283
)
  
$
(1,071,036
)
  
$
(9,072
)
        
$
(7,418
)
  
$
682,614
  
                                                                                               
Changes during the period:
                                                                                              
                                                                                               
Issuance of shares
    
2,914
      
12,128
      
4,500
                                                                    
16,628
  
Exercise of options
    
1,064
      
4,352
      
6,021
                                                                    
10,373
  
Capital notes converted into share capital
    
930
      
3,792
      
16,714
      
(20,506
)
                                                          
-
  
Employee stock-based compensation
                                    
4,417
                                                    
4,417
  
Dividend paid to Panasonic
                                                                                  
(5,501
)
    
(5,501
)
Other comprehensive income:
                                                                                              
Profit
                                                            
95,526
            
$
95,526
      
3,247
      
98,773
  
Foreign currency translation adjustments
                                                    
2,728
                      
2,728
      
3,282
      
6,010
  
Change in employees plan assets and benefit obligations
                                            
(315
)
                            
(315
)
            
(315
)
Unrealized gain on derivatives
                                            
1,016
                              
1,016
              
1,016
  
Comprehensive income
                                                                          
$
98,955
                  
                                                                                                 
BALANCE AS OF JUNE 30, 2017
    
97,979
    
$
389,329
    
$
1,345,960
    
$
20,758
    
$
73,338
    
$
157
    
$
(24,555
)
  
$
(975,510
)
  
$
(9,072
)
          
$
(6,390
)
  
$
814,015
  
                                                                                                 
OUTSTANDING SHARES,
NET OF TREASURY
STOCK AS OF
JUNE 30, 2017
                                                                                                
     
97,893
                                                                                          
 
 
- 5 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
   
Six months ended
  
   
June 30,
  
   
2017
    
2016
  
             
CASH FLOWS - OPERATING ACTIVITIES
            
             
Net profit
  
$
98,773
    
$
104,895
  
                 
Adjustments to reconcile net profit for the period
                
to net cash provided by operating activities:
                
Income and expense items not involving cash flows:
                
Depreciation and amortization
    
102,087
      
96,701
  
Effect of indexation, translation and fair value measurement on debt
    
11,761
      
8,101
  
Other income, net
    
(653
)
    
(4,362
)
Gain from acquisition, net (a)
    
--
      
(51,298
)
Changes in assets and liabilities:
                
Trade accounts receivable
    
(7,713
)
    
(10,435
)
Other current assets
    
(11,746
)
    
(4,654
)
Inventories
    
267
      
(15,524
)
Trade accounts payable
    
(10,658
)
    
10,273
  
Deferred revenue and customers' advances
    
(13,299
)
    
23,324
  
Other current liabilities
    
3,776
      
9,241
  
Long-term employee related liabilities
    
(491
)
    
(388
)
Deferred tax liability, net
    
(5,670
)
    
(6,651
)
Net cash provided by operating activities
    
166,434
      
159,223
  
                 
CASH FLOWS - INVESTING ACTIVITIES
                
                 
Investments in property and equipment
    
(90,514
)
    
(113,243
)
Proceeds related to sale and disposal of property and equipment
    
8,854
      
1,387
  
Deposits and investments, net
    
34,093
      
29,600
  
Net cash used in investing activities
    
(47,567
)
    
(82,256
)
                 
CASH FLOWS - FINANCING ACTIVITIES
                
                 
Issuance of debentures, net
    
--
      
111,364
  
Exercise of warrants and options, net
    
27,010
      
6,241
  
Proceeds from loans
    
--
      
10,000
  
Short-term debt
    
--
      
7,000
  
Loans repayment
    
(11,245
)
    
(94,174
)
Debentures repayment
    
(6,215
)
    
--
  
Dividend payment to Panasonic
    
(4,378
)
    
(2,563
)
Net cash provided by financing activities
    
5,172
      
37,868
  
                 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE
    
4,280
      
20,652
  
                 
INCREASE IN CASH AND CASH EQUIVALENTS
    
128,319
      
135,487
  
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    
355,284
      
175,575
  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  
$
483,603
    
$
311,062
  
 
 
- 6 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
   
Six months ended
  
   
June 30,
  
   
2017
    
2016
  
             
NON-CASH ACTIVITIES:
            
             
Investments in property and equipment
  
$
25,256
    
$
16,962
  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
                 
Cash paid during the period for interest
  
$
6,308
    
$
5,988
  
Cash paid during the period for income taxes
  
$
9,814
    
$
2,510
  
                 
(a) ACQUISTION OF SUBSIDIARIES CONSOLIDATED FOR THE FIRST TIME:
                
                 
Assets and liabilities of the subsidiaries:
                
           
As of
  
           
February 1, 2016
  
                 
Working capital (excluding cash and cash equivalents)
          
$
10,775
  
Fixed assets
            
106,919
  
Intangible assets
            
2,799
  
Long-term liabilities
            
(28,021
)
             
92,472
  
Less:
                
Share capital
            
40,000
  
Gain from acquisition, net
            
52,472
  
             
92,472
  
                 
Cash from the acquisition of a subsidiaries consolidated for the first time
          
$
--
  
 
See notes to consolidated financial statements.
 
- 7 -
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2017
(dollars in thousands, except per share data)

NOTE 1       -         GENERAL
 
Basis for Presentation

The unaudited condensed interim consolidated financial statements of Tower Semiconductor Ltd. (“Tower”) as of June 30, 2017 include the financial statements of Tower and (i) its wholly-owned subsidiary Tower US Holdings Inc., the sole owner of: (1) Jazz US Holdings Inc. and its wholly-owned subsidiary, Jazz Semiconductor, Inc. and (2) since February 2016, Tower US Holdings is also the sole owner of TowerJazz Texas Inc., and (ii) its majority-owned subsidiary, TowerJazz Panasonic Semiconductor Co., Ltd. Tower and its subsidiaries are collectively referred to as the “Company”.

The Company’s unaudited condensed interim consolidated financial statements are presented after elimination of inter-company transactions and balances and are presented in accordance with U.S. generally accepted accounting principles (“US GAAP”).

The unaudited condensed interim consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements of the Company as of December 31, 2016 and for the year then ended, including the notes thereto.

In the opinion of the Company's management, the unaudited condensed interim consolidated financial statements include all adjustments necessary for a fair presentation of the Company’s financial position as of the dates presented and results of operations 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.
 
NOTE 2      -          RECENT DEVELOPMENTS
 
A.
Equity Grants to CEO and Directors

On June 29, 2017, the annual general meeting of the Company's shareholders approved the grant of the following Restricted Stock Units (‘RSUs’) to the Company's CEO and members of the Board of Directors under the Company’s 2013 Share Incentive Plan: (i) 85,228 time vested RSUs and 97,403 performance based RSUs to the CEO, for a total compensation value of $4,500; (ii) 12,176 time vested RSUs to the chairman of the Board of Directors (the “Chairman”) for a total compensation value of $300; and (iii) 3,044 time vested RSUs to each of the members of the Board of Directors (other than to the Chairman and the CEO), for an aggregate compensation value of $600.

B.
Debentures

The outstanding balances of debentures Series D and debentures Series F were fully redeemed in cash in January 2017.

- 8 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2017
(dollars in thousands, except per share data)
 
NOTE 3       -          INITIAL ADOPTION OF NEW STANDARDS
 
In November 2015, the FASB issued ASU 2015-17 “Balance Sheet Classification of Deferred Taxes”. ASU 2015-17 simplifies the presentation of deferred income taxes and requires that deferred tax assets and liabilities, as well as any related valuation allowance, be classified as noncurrent in a classified statement of financial position. The retrospective adoption of ASU 2015-17 effective January 1, 2017, has had no material effect on the Company's consolidated financial statements.
 
NOTE 4       -          ADDITIONAL INFORMATION - RECONCILIATION OF US GAAP TO IFRS
 
A.
Introduction

The Company’s financial statements are prepared and presented in accordance with US GAAP.

As many of the Company’s investors and analysts are located in Israel and in Europe and are familiar with and use the International Financial Reporting Standards rules (“IFRS”), the Company is providing on a voluntary basis a reconciliation from US GAAP to IFRS as detailed below (condensed interim consolidated statements of balance sheet, condensed interim consolidated statements of operations and additional information). IFRS differs in certain significant aspects from US GAAP, however the primary differences between US GAAP and IFRS related to the Company are accounting for goodwill, financial instruments, pension plans and termination benefits. The main adjustments and differences between US GAAP and IFRS relating to the Company’s financial statements are described in detail in Note 22 to the Company’s financial statements for the year ended December 31, 2016. In addition, the Company is providing on a voluntary basis its condensed IFRS financial statements as of June 30, 2017 and a reconciliation from US GAAP to IFRS as detailed below.
 
B.
Condensed Interim Consolidated Balance Sheet in Accordance with IFRS

   
As of June 30, 2017
  
   
US GAAP
    
Adjustments
    
IFRS
  
ASSETS
                  
  Current assets
  
$
807,735
    
$
--
    
$
807,735
  
  Property and equipment, net
    
628,279
      
--
      
628,279
  
  Long-term assets
    
62,494
      
(7,000
)
    
55,494
  
     Total assets
  
$
1,498,508
    
$
(7,000
)
  
$
1,491,508
  
LIABILITIES AND SHAREHOLDERS' EQUITY
                        
  Current liabilities
  
$
254,363
    
$
--
    
$
254,363
  
  Long-term liabilities
    
430,130
      
(1,531
)
    
428,599
  
     Total liabilities
    
684,493
      
(1,531
)
    
682,962
  
TOTAL EQUITY
    
814,015
      
(5,469
)
    
808,546
  
     Total liabilities and shareholders' equity
  
$
1,498,508
    
$
(7,000
)
  
$
1,491,508
  

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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2017
(dollars in thousands, except per share data)

NOTE 4       -         ADDITIONAL INFORMATION - RECONCILIATION OF US GAAP TO IFRS (Cont.)
 
C.
Condensed Interim Consolidated Statement of Operations in Accordance with IFRS

   
Six months ended June 30, 2017
  
   
US GAAP
    
Adjustments
    
IFRS
  
OPERATING PROFIT
  
$
110,154
    
$
(158
)
  
$
109,996
  
Interest expenses, net
    
(4,281
)
    
--
      
(4,281
)
Other financing expense, net
    
(3,071
)
    
52
      
(3,019
)
Other income, net
    
653
      
--
      
653
  
Profit before income tax
    
103,455
      
(106
)
    
103,349
  
Income tax expense
    
(4,682
)
    
--
      
(4,682
)
NET PROFIT
    
98,773
      
(106
)
    
98,667
  
Net income attributable to non-controlling interest
    
(3,247
)
    
--
      
(3,247
)
NET PROFIT ATTRIBUTABLE TO THE COMPANY
  
$
95,526
    
$
(106
)
  
$
95,420
  

D.
Reconciliation of Net Profit from US GAAP to IFRS:

   
Six months ended June 30,
  
   
2017
    
2016
  
Net profit in accordance with US GAAP
  
$
95,526
    
$
104,430
  
Financial Instruments
    
52
      
160
  
Pension plans
    
(314
)
    
(265
)
Termination Benefits
    
156
      
8
  
Net profit  in accordance with IFRS
  
$
95,420
    
$
104,333
  

E.
Reconciliation of Shareholders’ Equity from US GAAP to IFRS:

   
As of
June 30,
    
As of
December 31,
  
   
2017
    
2016
  
Shareholders’ equity in accordance with US GAAP
  
$
814,015
    
$
682,614
  
Financial Instruments
    
(185
)
    
(237
)
Termination Benefits
    
1,716
      
1,560
  
Goodwill
    
(7,000
)
    
(7,000
)
Shareholders’ equity in accordance with IFRS
  
$
808,546
    
$
676,937
  
 
 
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