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, 2019


TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2019

 
Page
   
F - 2
   
F - 3
   
F - 4
   
F - 5
   
F - 6 - F - 7
   
F - 8 - F - 9


TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

   
As of
    
As of
  
   
June 30,
    
December 31,
  
   
2019
    
2018
  
   
(unaudited)
        
ASSETS
            
             
CURRENT ASSETS
            
Cash and cash equivalents
  
$
405,158
    
$
385,091
  
Short-term interest-bearing deposits
    
147,032
      
120,079
  
Marketable securities
    
146,893
      
135,850
  
Trade accounts receivable
    
123,789
      
153,409
  
Inventories
    
174,806
      
170,778
  
Other current assets
    
22,374
      
22,752
  
Total current assets
    
1,020,052
      
987,959
  
                 
LONG-TERM INVESTMENTS
    
36,874
      
35,945
  
                 
PROPERTY AND EQUIPMENT, NET
    
707,122
      
657,234
  
                 
INTANGIBLE ASSETS, NET
    
11,279
      
13,435
  
                 
GOODWILL
    
7,000
      
7,000
  
                 
DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET
    
89,171
      
88,404
  
                 
TOTAL ASSETS
  
$
1,871,498
    
$
1,789,977
  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
                
                 
CURRENT LIABILITIES
                
Current maturities of leases and debentures
  
$
45,173
    
$
10,814
  
Trade accounts payable
    
92,747
      
104,329
  
Deferred revenue and customers' advances
    
7,975
      
20,711
  
Employee related liabilities
    
57,540
      
50,750
  
Other current liabilities
    
8,364
      
17,117
  
Total current liabilities
    
211,799
      
203,721
  
                 
LONG-TERM DEBT
                
Debentures
    
109,079
      
120,170
  
Other long-term debt
    
166,835
      
136,499
  
                 
LONG-TERM CUSTOMERS' ADVANCES
    
27,230
      
28,131
  
                 
EMPLOYEE RELATED LIABILITIES
    
14,295
      
13,898
  
                 
DEFERRED TAX LIABILITY
    
46,434
      
50,401
  
                 
OTHER LONG-TERM LIABILITIES
    
969
      
952
  
                 
TOTAL LIABILITIES
    
576,641
      
553,772
  
                 
THE COMPANY'S SHAREHOLDERS' EQUITY
    
1,301,122
      
1,242,966
  
Non-controlling interest
    
(6,265
)
    
(6,761
)
TOTAL SHAREHOLDERS' EQUITY
    
1,294,857
      
1,236,205
  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  
$
1,871,498
    
$
1,789,977
  

 
See notes to consolidated financial statements.
                  

F - 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,
  
   
2019
    
2018
    
2019
    
2018
  
                         
REVENUES
  
$
616,171
    
$
647,848
    
$
306,064
    
$
335,138
  
                                 
COST OF REVENUES
    
499,613
      
503,155
      
252,657
      
256,610
  
                                 
GROSS PROFIT
    
116,558
      
144,693
      
53,407
      
78,528
  
                                 
OPERATING COSTS AND EXPENSES:
                                
                                 
Research and development
    
37,980
      
36,439
      
18,812
      
18,173
  
Marketing, general and administrative
    
33,479
      
32,109
      
16,838
      
16,115
  
                                 
     
71,459
      
68,548
      
35,650
      
34,288
  
                                 
OPERATING PROFIT
    
45,099
      
76,145
      
17,757
      
44,240
  
                                 
FINANCING AND OTHER INCOME (EXPENSE), NET
    
1,672
      
(9,222
)
    
947
      
(5,453
)
                                 
PROFIT BEFORE INCOME TAX
    
46,771
      
66,923
      
18,704
      
38,787
  
                                 
INCOME TAX BENEFIT (EXPENSE), NET
    
(649
)
    
(3,733
)
    
1,018
      
(2,778
)
                                 
NET PROFIT
    
46,122
      
63,190
      
19,722
      
36,009
  
                                 
Net loss attributable to non-controlling interest
    
1,030
      
670
      
1,214
      
1,733
  
                                 
NET PROFIT ATTRIBUTABLE TO THE COMPANY
  
$
47,152
    
$
63,860
    
$
20,936
    
$
37,742
  
                                 
BASIC EARNINGS PER ORDINARY SHARE:
                                
                                 
Earnings per share
  
$
0.45
    
$
0.65
    
$
0.20
    
$
0.38
  
                                 
Weighted average number of ordinary shares outstanding
    
105,829
      
98,693
      
106,321
      
98,888
  
                                 
DILUTED EARNINGS PER ORDINARY SHARE:
                                
                                 
Earnings per share
  
$
0.44
    
$
0.63
    
$
0.20
    
$
0.37
  
                                 
Net profit used for diluted earnings per share
  
$
47,152
    
$
63,860
    
$
20,936
    
$
37,742
  
                                 
Weighted average number of ordinary shares outstanding
                                
used for diluted earnings per share
   
 107,078
      
 101,090
      
 107,178
      
 101,066
  

See notes to consolidated financial statements.
                  

F - 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,
  
   
2019
    
2018
    
2019
    
2018
  
                         
Net profit
  
$
46,122
    
$
63,190
    
$
19,722
    
$
36,009
  
                                 
Other comprehensive income, net of tax:
                                
                                 
Foreign currency translation adjustment
    
2,672
      
2,301
      
4,323
      
(5,689
)
                                 
Change in employees plan assets and benefit obligations, net of taxes
    
115
      
(435
)
    
172
      
(217
)
                                 
Unrealized gain (loss) on derivatives
    
1,639
      
(814
)
    
(431
)
    
117
  
                                 
Comprehensive income
    
50,548
      
64,242
      
23,786
      
30,220
  
                                 
Comprehensive loss (income) attributable to non-controlling interest
    
(496
)
    
(576
)
    
(939
)
    
4,768
  
                                 
Comprehensive income attributable to the Company
  
$
50,052
    
$
63,666
    
$
22,847
    
$
34,988
  

See notes to consolidated financial statements.
        


F - 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
                    
                                 
Accumulated
    
Foreign currency translation adjustments
                                
   
Ordinary
    
Ordinary
    
Additional
                
other
                      
Non
        
   
shares
    
shares
    
paid-in
    
Capital
    
Unearned
    
comprehensive
    
Accumulated
    
Treasury
    
Comprehensive
    
controlling
        
   
issued
    
amount
    
capital
    
notes
    
compensation
    
income
    
deficit
    
stock
    
income
    
interest
    
Total
  
                                                                         
BALANCE AS OF JANUARY 1, 2019
    
105,066
    
$
418,492
    
$
1,380,396
    
$
20,758
    
$
93,226
    
$
(672
)
  
$
(22,716
)
  
$
(637,446
)
  
$
(9,072
)
        
$
(6,761
)
  
$
1,236,205
  
                                                                                               
Changes during the period:
                                                                                              
                                                                                               
Exercise of options and RSUs
    
271
      
1,127
      
(730
)
                                                                  
397
  
Capital notes converted into share capital
    
1,181
      
4,892
      
15,866
      
(20,758
)
                                                          
--
  
Employee stock-based compensation
                                    
7,707
                                                    
7,707
  
Profit
                                                            
47,152
            
$
47,152
      
(1,030
)
    
46,122
  
Foreign currency translation adjustments
                                                    
1,146
                      
1,146
      
1,526
      
2,672
  
Change in employees plan assets and benefit obligations
                                            
115
                              
115
              
115
  
Unrealized gain on derivatives
                                            
1,639
                              
1,639
              
1,639
  
Comprehensive income
                                                                          
$
50,052
                  
                                                                                                 
BALANCE AS OF JUNE 30, 2019
    
106,518
    
$
424,511
    
$
1,395,532
    
$
--
    
$
100,933
    
$
1,082
    
$
(21,570
)
  
$
(590,294
)
  
$
(9,072
)
          
$
(6,265
)
  
$
1,294,857
  
                                                                                                 
OUTSTANDING SHARES, NET OF TREASURY STOCK
AS OF JUNE 30, 2019
    
106,432
                                                                                          

See notes to consolidated financial statements.
      

F - 5
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)

   
Six months ended
  
   
June 30,
  
CASH FLOWS - OPERATING ACTIVITIES
  
2019
    
2018
  
             
Net profit
  
$
46,122
    
$
63,190
  
                 
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
    
104,867
      
107,470
  
Effect of exchange rate differences on debentures
    
6,205
      
(6,537
)
Other income, net
    
(445
)
    
(1,600
)
Changes in assets and liabilities:
                
Trade accounts receivable
    
31,271
      
(10,262
)
Other current assets
    
(5,755
)
    
9,083
  
Inventories
    
(3,017
)
    
(9,405
)
Trade accounts payable
    
(15,204
)
    
3,909
  
Deferred revenue and customers' advances
    
(13,649
)
    
(6,178
)
Employee related liabilities and other current liabilities
    
(1,846
)
    
9,136
  
Long-term employee related liabilities
    
39
      
(194
)
Deferred tax, net and other long-term liabilities
    
(1,564
)
    
(6,682
)
Net cash provided by operating activities
    
147,024
      
151,930
  
                 
CASH FLOWS - INVESTING ACTIVITIES
                
                 
Investments in property and equipment, net
    
(85,445
)
    
(80,195
)
Investments in deposits, marketable securities and other assets, net
    
(33,825
)
    
(30,451
)
Net cash used in investing activities
    
(119,270
)
    
(110,646
)
                 
CASH FLOWS - FINANCING ACTIVITIES
                
                 
Exercise of options
    
397
      
684
  
Proceeds from loans
    
--
      
99,964
  
Loans repayment
    
--
      
(101,314
)
Principal payments on account of capital lease obligation
    
(10,549
)
    
(1,497
)
Net cash used in financing activities
    
(10,152
)
    
(2,163
)
                 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE
    
2,465
      
1,798
  
                 
INCREASE IN CASH AND CASH EQUIVALENTS
    
20,067
      
40,919
  
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    
385,091
      
445,961
  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  
$
405,158
    
$
486,880
  

See notes to consolidated financial statements.
        


F - 6
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)

   
Six months ended
  
   
June 30,
  
   
2019
    
2018
  
             
NON-CASH ACTIVITIES:
            
             
Investments in property and equipment
  
$
35,529
    
$
33,493
  
Conversion of notes into share capital
  
$
20,758
    
$
--
  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
                 
Cash paid (received) during the period for interest, net
  
$
(1,226
)
  
$
2,376
  
Cash paid during the period for income taxes, net
  
$
10,178
    
$
2,139
  

See notes to consolidated financial statements.
        


F - 7
 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2019
(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, 2019 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) TowerJazz Texas Inc., and (ii) its 51% 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, 2018 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   -             INITIAL ADOPTION OF NEW STANDARDS
 
In February 2016, the FASB issued ASU 2016-02 “Leases” (“ASU 2016-02”), which primarily changes the leases accounting for operating leases by requiring recognition of lease right-of-use assets and lease liabilities. The amendments are effective January 1, 2019, and for interim periods within that year, with early adoption permitted.  In July 2018, the FASB issued ASU 2018-10 “Codification Improvements to Topic 842, Leases,” to clarify application of certain aspects of the new leases standard and to remove inconsistencies within the guidance and ASU 2018-11 “Targeted Improvements” (“ASU 2018-11“), which provides for an alternate transition method. Specifically, ASU 2018-11 allows the new lease standard to be applied as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings rather than retroactive restatement of all periods presented.   The Company has identified all existing operating and financing leases and implemented the new standard accordingly. As of June 30, 2019, the present value of the new lease assets and liabilities was approximately $36,000.


F - 8

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2019
(dollars in thousands, except per share data)

NOTE 3   -             RECENT DEVELOPMENTS
 

 A.
TPSCo new agreements

In March 2019, the Company, Panasonic Semiconductor Solutions (“PSCS”) and TPSCo signed three-year agreements, extending its previous agreements with Panasonic Semiconductor Solutions (PSCS) effective as of April 1, 2019. Under the agreements, among others, PSCS will continue to utilize TPSCo’s three manufacturing facilities in Japan for its semiconductor business. TPSCo’s wafer loading level from PSCS are expected to remain similar, with a new pricing structure, resulting in revenue reductions of approximately $20,000 per quarter.


 B.
Equity Grants to CEO and Directors

In June 25, 2019, 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) 128,797 time vested RSUs and 128,798 performance based RSUs to the CEO, which RSUs will vest linearly over a three-year period, 33% at the end of each year of the 3 years following the grant date for a compensation value of $3,900; in this regard, the Company has adopted stock ownership guidelines whereby the CEO will be required to own a minimum value that equals at least 3 times of his annual base salary in ordinary shares of the Company and the CEO has 5 years from May 2019 to accumulate said minimum, during which  the CEO must retain at least 20% of the vested time-based RSUs that are granted to him from May 2019 and such RSUs that may be granted to him in the future until the guideline is met; (ii) 19,815 time vested RSUs to the chairman of the Board of Directors (“the Chairman”) for a total compensation value of $300, to vest linearly over a three-year period, 33% at the end of each year of the 3 years following the grant date; and (iii) 4,953 time vested RSUs to each of the 8 members of the Board of Directors (other than the Chairman and the CEO), for an aggregate compensation value of $600, with 50% vesting on the first anniversary from the date of grant and 50% on the second anniversary of the date of grant.

F - 9