Third Quarter 2022 Results Overview [Financial Performance Highlights](index=1&type=section&id=Financial%20Performance%20Highlights) Tower Semiconductor achieved record Q3 2022 revenue of $427 million, a 10% YoY increase, with a 16.2% net profit margin exceeding its target Financial Performance Highlights | Metric (in millions of USD) | Q3 2022 | Q2 2022 | Q3 2021 | YoY Change (Q3 22 vs Q3 21) | QoQ Change (Q3 22 vs Q2 22) | | :-------------------------- | :------ | :------ | :------ | :-------------------------- | :-------------------------- | | **Revenue** | 427 | 426 | 387 | +10% | +0.2% | | **Organic Revenue Growth** | - | - | - | +22% | - | | **Gross Profit** | 125 | 112 | 85 | +46% | +11.6% | | **Operating Profit** | 79 | 71 | 44 | +79% | +11.3% | | **Net Profit** | 69 | 58 | 39 | +77% | +19.0% | | **Net Profit Margin** | 16.2% | - | - | - | - | | **Basic EPS** | 0.63 | 0.53 | 0.36 | +75% | +18.9% | | **Diluted EPS** | 0.62 | 0.53 | 0.36 | +72% | +17.0% | - The net profit margin reached **16.2% in Q3 2022**, surpassing the company's publicly stated goal of achieving a 15% net profit margin in 2022, set in November 2021[5](index=5&type=chunk) [Cash Flow and Debt Repayment](index=2&type=section&id=Cash%20Flow%20and%20Debt%20Repayment) The company generated strong operating cash flow in Q3 2022 while investing in fixed assets and repaying debt Cash Flow and Debt Repayment | Metric (in millions of USD) | Q3 2022 | | :-------------------------- | :------ | | Cash flow from operations | 122 | | Net investments in fixed assets | 45 | | Debt repayments | 28 | Company Outlook and Corporate Information [Guidance and Conference Call](index=2&type=section&id=Guidance%20and%20Conference%20Call) The company is not providing Q4 2022 revenue guidance or holding a conference call due to its definitive agreement with Intel - Due to the definitive agreement with Intel Corporation, the company is not providing revenue guidance for the fourth quarter of 2022 and will not hold an earnings conference call[8](index=8&type=chunk) [About Tower Semiconductor](index=3&type=section&id=About%20Tower%20Semiconductor) Tower Semiconductor is a leading foundry for high-value analog semiconductor solutions serving various high-growth markets - The company is a leading foundry for high-value analog semiconductor solutions, offering customizable process platforms such as SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensors, non-imaging sensors, integrated power management (BCD and 700V), and MEMS[10](index=10&type=chunk) - The company operates multiple manufacturing facilities globally, including in Israel (150mm and 200mm), the US (200mm), Japan (200mm and 300mm, through a 51% stake in TPSCo), and a 300mm facility in Italy in partnership with STMicroelectronics[10](index=10&type=chunk) Non-GAAP Financial Measures [Definitions and Reconciliations](index=2&type=section&id=Definitions%20and%20Reconciliations) Non-GAAP measures like adjusted financials and EBITDA are used to provide a clearer view of operations by excluding specific items - Adjusted financial measures exclude: - Amortization of acquired intangible assets - Stock-based compensation expense - Restructuring costs (including approximately $4 million related to the 2022 shutdown of the Arai factory in Japan)[9](index=9&type=chunk) - EBITDA is defined as GAAP operating profit, excluding: - Depreciation expenses - Stock-based compensation expenses - Amortization of acquired intangible assets - Restructuring costs related to the Arai manufacturing facility in Japan[9](index=9&type=chunk) - Free Cash Flow is calculated as net cash provided by operating activities minus net investments in property and equipment[9](index=9&type=chunk) Legal Disclosures [Forward-Looking Statements and Risk Factors](index=3&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This release contains forward-looking statements, with actual results subject to numerous risks and uncertainties including the Intel acquisition - Forward-looking statements are subject to various risks and uncertainties, and actual results may differ from projections[11](index=11&type=chunk) - Key risk factors include: demand in customers' end markets, demand for foundry services exceeding capacity, customer retention and attraction, impact of high utilization on cycle time/yields/delivery, quarterly performance fluctuations, debt impact, M&A execution, cash flow volatility, global economic downturns, semiconductor industry cyclicality, technological developments, competition, intellectual property, retention of key employees, currency and interest rate fluctuations, regulatory requirements, and risks related to the Intel acquisition transaction (e_g_, regulatory approvals, termination, impact on business relationships, litigation)[11](index=11&type=chunk)[12](index=12&type=chunk) Condensed Consolidated Financial Statements (Unaudited) [Balance Sheets](index=5&type=section&id=Balance%20Sheets) Total assets and shareholders' equity increased as of September 30, 2022, compared to year-end 2021 Balance Sheets | Metric (in thousands of USD) | Sep 30, 2022 | Dec 31, 2021 | | :--------------------------- | :----------- | :----------- | | **Total Assets** | 2,384,410 | 2,231,241 | | **Total Liabilities** | 631,484 | 615,852 | | **Shareholders' Equity** | 1,752,926 | 1,615,389 | [Statements of Operations (Three Months Ended)](index=6&type=section&id=Statements%20of%20Operations%20(Three%20Months%20Ended)) The company demonstrated strong profitability in Q3 2022 with year-over-year growth in revenue and net profit Statements of Operations (Three Months Ended) | Metric (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | :----------- | | **Revenue** | 427,087 | 426,168 | 386,706 | | **Gross Profit** | 124,511 | 112,440 | 85,376 | | **Operating Profit** | 79,208 | 70,674 | 44,165 | | **Net Profit** | 66,682 | 58,173 | 40,367 | | **Basic EPS** | 0.63 | 0.53 | 0.36 | | **Diluted EPS** | 0.62 | 0.53 | 0.36 | [Statements of Operations (Nine Months Ended)](index=7&type=section&id=Statements%20of%20Operations%20(Nine%20Months%20Ended)) For the nine months ended September 30, 2022, revenue and profit metrics showed substantial growth over the prior year Statements of Operations (Nine Months Ended) | Metric (in thousands of USD) | Sep 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | | **Revenue** | 1,274,387 | 1,096,058 | | **Gross Profit** | 341,582 | 228,945 | | **Operating Profit** | 212,942 | 110,648 | | **Net Profit** | 180,629 | 102,198 | | **Basic EPS** | 1.66 | 0.91 | | **Diluted EPS** | 1.64 | 0.90 | [Reconciliation from GAAP Operating Profit to EBITDA](index=8&type=section&id=Reconciliation%20from%20GAAP%20Operating%20Profit%20to%20EBITDA) The reconciliation from GAAP operating profit shows EBITDA reached $157.6 million in Q3 2022, a significant sequential and annual increase Reconciliation from GAAP Operating Profit to EBITDA | Metric (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | :----------- | | **GAAP Operating Profit** | 79,208 | 70,674 | 44,165 | | Depreciation | 67,343 | 60,886 | 63,021 | | Stock-based compensation | 6,526 | 5,543 | 5,452 | | Amortization of intangibles | 509 | 508 | 504 | | Restructuring costs | 4,033 | -- | -- | | **EBITDA** | 157,619 | 137,611 | 113,142 | [Consolidated Sources and Uses Report](index=9&type=section&id=Consolidated%20Sources%20and%20Uses%20Report) Cash and cash equivalents increased significantly in Q3 2022, driven by cash from operations and net investment activities Consolidated Sources and Uses Report | Metric (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :--------------------------- | :----------- | :----------- | :----------- | | Beginning Cash and Cash Equivalents | 211,177 | 203,484 | 215,755 | | Net Cash from Operating Activities | 122,402 | 138,097 | 106,974 | | Net Investments in Fixed Assets | (45,134) | (49,377) | (87,714) | | Net Debt Repayments | (28,164) | (8,211) | (29,211) | | Net Investments in Short-term Deposits, Marketable Securities & Other Assets | 129,257 | (65,134) | 6,250 | | Ending Cash and Cash Equivalents | 390,369 | 211,177 | 211,503 | [Statements of Cash Flows](index=10&type=section&id=Statements%20of%20Cash%20Flows) In Q3 2022, net cash was provided by operating and investing activities, while financing activities used cash Statements of Cash Flows | Cash Flow Type (in thousands of USD) | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :----------------------------------- | :----------- | :----------- | :----------- | | Net Cash from Operating Activities | 122,402 | 138,097 | 106,974 | | Net Cash from Investing Activities | 84,123 | (114,511) | (81,464) | | Net Cash from Financing Activities | (22,695) | (8,211) | (29,165) |

[Consolidated Financial Statements](index=2&type=section&id=CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides an overview of the company's consolidated financial performance and position through its primary financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=BALANCE%20SHEETS) As of June 30, 2022, the company experienced growth in total assets and shareholders' equity, driven by significant increases in short-term deposits and trade receivables, alongside a substantial rise in trade payables, reflecting business expansion and working capital changes Key Balance Sheet Data (As of June 30): | Metric | 2022 (USD Thousands) | 2021 (USD Thousands) | Change (USD Thousands) | Change (%) | | :-------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | **Assets:** | | | | | | Total Assets | 2,324,423 | 2,231,241 | 93,182 | 4.18% | | Cash and Cash Equivalents | 211,177 | 210,930 | 247 | 0.12% | | Short-term Deposits | 468,298 | 363,648 | 104,650 | 28.78% | | Trade Receivables | 170,552 | 142,228 | 28,324 | 19.91% | | Inventories | 249,038 | 234,512 | 14,526 | 6.19% | | **Liabilities and Shareholders' Equity:** | | | | | | Total Liabilities | 635,873 | 615,852 | 20,021 | 3.25% | | Trade Payables | 127,762 | 78,712 | 49,050 | 62.31% | | Total Shareholders' Equity | 1,688,550 | 1,615,389 | 73,161 | 4.53% | [Condensed Consolidated Statements of Operations](index=4&type=section&id=STATEMENTS%20OF%20OPERATIONS) The company achieved significant revenue and profit growth for both the six and three months ended June 30, 2022, with operating profit and net income attributable to the company increasing over 88% year-over-year, demonstrating strong profitability Key Operations Data (As of June 30): | Metric | 6 Months 2022 (USD Thousands) | 6 Months 2021 (USD Thousands) | Change (%) | 3 Months 2022 (USD Thousands) | 3 Months 2021 (USD Thousands) | Change (%) | | :--------------------------------- | :---------------------------- | :---------------------------- | :--------- | :---------------------------- | :---------------------------- | :--------- | | Revenue | 847,300 | 709,352 | 19.45% | 426,168 | 362,138 | 17.68% | | Gross Profit | 217,071 | 143,569 | 51.19% | 112,440 | 73,755 | 52.45% | | Operating Profit | 133,734 | 66,483 | 101.15% | 70,674 | 34,003 | 107.84% | | Net Income Attributable to the Company | 112,110 | 59,188 | 89.41% | 58,077 | 30,866 | 88.16% | | Basic Earnings Per Share | 1.03 | 0.55 | 87.27% | 0.53 | 0.29 | 82.76% | | Diluted Earnings Per Share | 1.01 | 0.54 | 87.04% | 0.53 | 0.28 | 89.29% | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Despite substantial net income growth, comprehensive income for the six months grew less than net income due to foreign currency translation adjustments and increased unrealized losses on derivatives, while comprehensive income for the three months slightly decreased Key Comprehensive Income Data (As of June 30): | Metric | 6 Months 2022 (USD Thousands) | 6 Months 2021 (USD Thousands) | Change (%) | 3 Months 2022 (USD Thousands) | 3 Months 2021 (USD Thousands) | Change (%) | | :--------------------------------- | :---------------------------- | :---------------------------- | :--------- | :---------------------------- | :---------------------------- | :--------- | | Net Income | 113,947 | 61,831 | 84.29% | 58,173 | 31,317 | 85.75% | | Foreign Currency Translation Adjustments | (25,206) | (9,741) | -158.76% | (16,921) | 1,209 | -1500.00% | | Unrealized Gain (Loss) on Derivatives | (14,922) | (523) | -2752.96% | (8,151) | 1,134 | -818.96% | | Comprehensive Income Attributable to the Company | 71,962 | 53,488 | 34.54% | 32,995 | 33,058 | -0.19% | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY) As of June 30, 2022, total shareholders' equity increased from the beginning of the year, primarily driven by current period net income, though partially offset by foreign currency translation adjustments and unrealized losses on derivatives Shareholders' Equity Changes (As of June 30): | Metric | January 1, 2022 (USD Thousands) | June 30, 2022 (USD Thousands) | Change (USD Thousands) | | :--------------------------------- | :---------------------------- | :---------------------------- | :--------------------- | | Total Shareholders' Equity Attributable to the Company | 1,615,389 | 1,688,550 | 73,161 | | **Key Changes:** | | | | | Net Income | - | 112,110 | 112,110 | | Share-based Compensation | - | 11,258 | 11,258 | | Foreign Currency Translation Adjustments | - | (25,206) | (25,206) | | Unrealized Loss on Derivatives | - | (14,922) | (14,922) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=STATEMENTS%20OF%20CASH%20FLOWS) For the six months ended June 30, 2022, cash flow from operating activities significantly increased, but cash outflow from investing activities also expanded considerably due to increased investments in property, equipment, and marketable securities, resulting in only a slight increase in period-end cash and cash equivalents Key Cash Flow Data (As of June 30): | Metric | 6 Months 2022 (USD Thousands) | 6 Months 2021 (USD Thousands) | Change (USD Thousands) | Change (%) | | :--------------------------------- | :---------------------------- | :---------------------------- | :--------------------- | :--------- | | Net Cash Provided by Operating Activities | 274,668 | 180,663 | 94,005 | 52.04% | | Net Cash Used in Investing Activities | (224,962) | (124,265) | (100,697) | 81.04% | | Net Cash Used in Financing Activities | (38,706) | (48,780) | 10,074 | -20.65% | | Increase in Cash and Cash Equivalents | 247 | 4,072 | (3,825) | -93.93% | | Cash and Cash Equivalents at Period End | 211,177 | 215,755 | (4,578) | -2.12% | | **Non-cash Activities:** | | | | | | Investment in Property and Equipment | 82,526 | 74,142 | 8,384 | 11.31% | [Notes to Financial Statements](index=9&type=section&id=NOTES%20TO%20FINANCIAL%20STATEMENTS) The notes to financial statements provide detailed information on the company's consolidation scope, accounting principles, recent significant events such as the Intel acquisition agreement and Japan business restructuring, and subsequent financing activities like lease and credit line extensions [Note 1 - General](index=9&type=section&id=NOTE%201%20-%20GENERAL) This note outlines the company's consolidation scope and the accounting principles used in preparing the financial statements - The company's consolidated financial statements include Tower Semiconductor Ltd. and its subsidiaries, such as Tower US Holdings Inc., 51% owned Tower Partners Semiconductor Co., Ltd. (TPSCo), and Tower Semiconductor Italy S.r.l[18](index=18&type=chunk) - The financial statements are prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP)[19](index=19&type=chunk) [Note 2 - Initial Adoption of New Standards](index=9&type=section&id=NOTE%202%20-%20INITIAL%20ADOPTION%20OF%20NEW%20STANDARDS) This note confirms that no new accounting standards were initially adopted during the reporting period - No new accounting standards were initially adopted during the reporting period[21](index=21&type=chunk) [Note 3 - Recent Developments](index=9&type=section&id=NOTE%203%20-%20RECENT%20DEVELOPMENTS) This note details significant recent events, including a major acquisition agreement and a business restructuring in Japan - On February 15, 2022, Intel Corporation and Tower announced a definitive agreement for Intel to acquire all outstanding ordinary shares of Tower for **$53 per share in cash**; the transaction has been approved by both boards and Tower shareholders, pending regulatory approvals and customary closing conditions[22](index=22&type=chunk) - As part of an agreement between the company, Nuvoton Technology Corporation Japan (NTCJ), and TPSCo, the Japan business was restructured, leading to the cessation of operations at the Arai manufacturing facility on June 30, 2022, which previously produced products exclusively for NTCJ and not for the company's customers; the company assessed no material impairment to its long-lived assets as of June 30, 2022[23](index=23&type=chunk) [Note 4 - Subsequent Events](index=10&type=section&id=NOTE%204%20-%20SUBSEQUENT%20EVENTS) This note describes significant events that occurred after the reporting period, primarily related to financing activities - On July 1, 2022, the company's affiliates, including TPSCo, extended their existing capital lease facility with JA Mitsui Leasing, Ltd. for one year until June 2023, increasing the available amount to approximately **7 billion Japanese Yen (approximately 50,000 USD Thousands)**[25](index=25&type=chunk) - On July 14, 2022, TSNB entered into an agreement with Wells Fargo Capital Finance, LLC to extend its secured asset-backed revolving credit facility until September 2023, with a total facility amount of up to **70,000 USD Thousands**; as of June 30, 2022, there were no outstanding borrowings under this facility, and the available borrowing capacity was approximately **54,000 USD Thousands**[26](index=26&type=chunk)

[First Quarter 2022 Highlights](index=1&type=section&id=First%20Quarter%202022%20Highlights) Tower Semiconductor reported strong financial results for Q1 2022, with significant year-over-year growth across key metrics and an upgraded corporate credit rating [Financial Performance Overview](index=1&type=section&id=First%20Quarter%20of%202022%20Results%20Overview) Tower Semiconductor reported record revenue of **$421 million** in Q1 2022, a **21% year-over-year increase**, with organic revenue growing **29%**; gross profit, operating profit, and net profit also saw significant year-over-year increases, reaching **$105 million**, **$63 million**, and **$54 million** respectively, with basic EPS at **$0.50** and operating cash flow at **$137 million** Q1 2022 Key Financial Performance (Millions) | Metric | Q1 2022 (Millions) | Q1 2021 (Millions) | YoY Change | QoQ Change (vs Q4 2021) | | :------------------ | :----------------- | :----------------- | :--------- | :------------------------ | | Revenue | $421 | $347 | +21% | +2.18% (vs $412M) | | Organic Revenue | N/A | N/A | +29% | N/A | | Gross Profit | $105 | $70 | +50% | +5% (vs $100M) | | Operating Profit | $63 | $32 | +94% | +12.5% (vs $56M) | | Net Profit | $54 | $28 | +91% | +3.85% (vs $52M) | | Basic EPS | $0.50 | $0.26 | +92.3% | +4.17% (vs $0.48) | | Diluted EPS | $0.49 | $0.26 | +88.5% | +4.26% (vs $0.47) | | Operating Cash Flow | $137 | N/A | N/A | N/A | | Fixed Asset Investment (net) | $81 | N/A | N/A | N/A | | Debt Repayment | $31 | N/A | N/A | N/A | [Corporate Credit Rating](index=2&type=section&id=Corporate%20Credit%20Rating) Standard & Poor's Ma'alot upgraded Tower Semiconductor's corporate credit rating and bonds series G rating from 'ilAA-' to 'ilAA' with a stable outlook in May 2022 - Corporate credit rating and bonds series G rating increased from **"ilAA-" to "ilAA"** by S&P Ma'alot in May 2022, with a stable horizon[7](index=7&type=chunk) [Guidance and Conference Call Update](index=2&type=section&id=Guidance%20and%20Conference%20Call) Due to the definitive agreement with Intel Corporation announced on February 15, 2022, the company will not provide revenue guidance for Q2 2022 and will not host an earnings conference call - No Q2 2022 Revenue Guidance: Company is not providing guidance due to definitive agreement with Intel Corporation[8](index=8&type=chunk) - No Earnings Conference Call: Company will not host an earnings conference call[8](index=8&type=chunk) [Non-GAAP Financial Measures Disclosure](index=2&type=section&id=Non-GAAP%20Financial%20Measures%20Disclosure) This section clarifies the company's use of non-GAAP financial measures, including 'adjusted' financial measures, EBITDA, Net Cash, and Free Cash Flow, detailing their calculation and emphasizing they are not substitutes for GAAP measures - Adjusted Financial Measures: Calculated by excluding (1) amortization of acquired intangible assets and (2) compensation expenses in respect of equity grants to directors, officers, and employees[9](index=9&type=chunk) - EBITDA Definition: Consists of GAAP operating profit, excluding (i) depreciation expenses, (ii) stock-based compensation expense, and (iii) amortization of acquired intangible assets[9](index=9&type=chunk) - Net Cash Definition: Comprised of cash, cash equivalents, short-term deposits, and marketable securities less debt amounts[9](index=9&type=chunk) - Free Cash Flow Definition: Calculated as net cash provided by operating activities less cash used for investments in property and equipment, net[9](index=9&type=chunk) - Non-GAAP Disclaimer: These adjusted financial measures should be evaluated in conjunction with, and are not a substitute for, GAAP financial measures[9](index=9&type=chunk) [About Tower Semiconductor](index=3&type=section&id=About%20Tower%20Semiconductor) Tower Semiconductor is a leading foundry of high-value analog semiconductor solutions, providing technology and manufacturing platforms for integrated circuits in growing markets such as consumer, industrial, automotive, and mobile, operating multiple facilities across Israel, the U.S., and Japan, with a shared facility in Italy - Core Business: Leading foundry of high value analog semiconductor solutions, providing technology and manufacturing platforms for ICs[11](index=11&type=chunk) - Market Focus: Serves growing markets including consumer, industrial, automotive, mobile, infrastructure, medical, and aerospace and defense[11](index=11&type=chunk) - Technology Offerings: Customizable process platforms such as SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensor, non-imaging sensors, integrated power management (BCD and 700V), and MEMS[11](index=11&type=chunk) - Manufacturing Facilities: Owns two facilities in Israel (150mm and 200mm), two in the U.S. (200mm), three in Japan (two 200mm and one 300mm through 51% holdings in TPSCo), and is sharing a 300mm facility being established in Italy by STMicroelectronics[11](index=11&type=chunk) [Forward-Looking Statements and Risk Factors](index=3&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section outlines that the press release contains forward-looking statements subject to various risks and uncertainties, including those related to market demand, capacity, customer relationships, operational fluctuations, debt, acquisitions, global economic conditions, and specific risks associated with the Intel acquisition - Forward-Looking Statements: Subject to risks and uncertainties; actual results may vary from projections[12](index=12&type=chunk) - Key Risk Factors include: - Demand in customer end markets and over-demand for foundry services exceeding capacity[12](index=12&type=chunk) - Maintaining existing customers and attracting additional customers[12](index=12&type=chunk) - Impact of debt and other liabilities on financial position and operations[12](index=12&type=chunk) - Ability to successfully execute acquisitions, integrate them, and utilize expanded capacity[12](index=12&type=chunk) - Fluctuations in cash flow and operating results from quarter to quarter[12](index=12&type=chunk) - Risks associated with the Intel Corporation acquisition: timely receipt of governmental and regulatory approvals, potential for regulatory authorities to require divestitures, occurrence of termination events, impact on business relationships, integration delays, litigation, difficulties in retaining key personnel and customers, and diverting management's attention[12](index=12&type=chunk)[13](index=13&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) This section presents Tower Semiconductor's condensed consolidated balance sheets, statements of operations, EBITDA reconciliation, and cash flow reports for the period [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2022, Tower Semiconductor reported total assets of **$2,270,152 thousand**, a slight increase from the prior quarter; total liabilities decreased marginally to **$612,495 thousand**, while total shareholders' equity increased to **$1,657,657 thousand** Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2022 | December 31, 2021 | Change (QoQ) | | :--------------------------------- | :--------------- | :---------------- | :------------- | | **ASSETS** | | | | | Cash and cash equivalents | $203,484 | $210,930 | $(7,446) | | Short-term deposits | $402,873 | $363,648 | $39,225 | | Marketable securities | $184,539 | $190,068 | $(5,529) | | Trade accounts receivable | $176,443 | $142,228 | $34,215 | | Inventories | $247,826 | $234,512 | $13,314 | | Other current assets | $41,629 | $54,817 | $(13,188) | | Total current assets | $1,256,794 | $1,196,203 | $60,591 | | Long-term investments | $27,235 | $39,597 | $(12,362) | | Property and equipment, net | $879,781 | $876,683 | $3,098 | | Goodwill and other intangible assets, net | $16,665 | $18,820 | $(2,155) | | Deferred tax and other long-term assets, net | $89,677 | $99,938 | $(10,261) | | **TOTAL ASSETS** | **$2,270,152** | **$2,231,241** | **$38,911** | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | | Short-term debt | $78,165 | $83,868 | $(5,703) | | Trade accounts payable | $109,077 | $78,712 | $30,365 | | Deferred revenue and customers' advances | $49,444 | $39,992 | $9,452 | | Other current liabilities | $87,258 | $73,756 | $13,502 | | Total current liabilities | $323,944 | $276,328 | $47,616 | | Long-term debt | $190,383 | $230,972 | $(40,589) | | Long-term customers' advances | $63,872 | $69,968 | $(6,096) | | Employee related liabilities | $14,626 | $14,622 | $4 | | Deferred tax and other long-term liabilities | $19,670 | $23,962 | $(4,292) | | **TOTAL LIABILITIES** | **$612,495** | **$615,852** | **$(3,357)** | | **TOTAL SHAREHOLDERS' EQUITY** | **$1,657,657** | **$1,615,389** | **$42,268** | | **TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY** | **$2,270,152** | **$2,231,241** | **$38,911** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the first quarter of 2022, Tower Semiconductor reported revenues of **$421,132 thousand**, a significant increase from **$347,214 thousand** in Q1 2021, leading to a gross profit of **$104,631 thousand** and an operating profit of **$63,060 thousand**, with net profit attributable to the company at **$54,033 thousand** and basic earnings per share of **$0.50** Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | YoY Change (Q1 2022 vs Q1 2021) | | :--------------------------------- | :--------------- | :---------------- | :--------------- | :-------------------------------- | | REVENUES | $421,132 | $412,108 | $347,214 | +21.28% | | COST OF REVENUES | $316,501 | $311,935 | $277,400 | +14.09% | | GROSS PROFIT | $104,631 | $100,173 | $69,814 | +49.86% | | Research and development | $20,318 | $22,371 | $20,343 | -0.12% | | Marketing, general and administrative | $21,253 | $21,939 | $16,991 | +25.08% | | OPERATING PROFIT | $63,060 | $55,863 | $32,480 | +94.16% | | FINANCING AND OTHER EXPENSE, NET | $(2,133) | $(372) | $(7,842) | -72.82% | | PROFIT BEFORE INCOME TAX | $60,927 | $55,491 | $24,638 | +147.29% | | INCOME TAX BENEFIT (EXPENSE), NET | $(5,153) | $(3,614) | $5,876 | -187.69% | | NET PROFIT | $55,774 | $51,877 | $30,514 | +82.78% | | Net income attributable to non-controlling interest | $(1,741) | $(138) | $(2,192) | -20.58% | | NET PROFIT ATTRIBUTABLE TO THE COMPANY | $54,033 | $51,739 | $28,322 | +90.78% | | BASIC EARNINGS PER SHARE | $0.50 | $0.48 | $0.26 | +92.31% | | Weighted average number of shares (Basic) | $108,934 | $108,768 | $107,940 | +0.92% | | DILUTED EARNINGS PER SHARE | $0.49 | $0.47 | $0.26 | +88.46% | | Weighted average number of shares (Diluted) | $110,539 | $110,267 | $109,462 | +0.98% | [Reconciliation from GAAP Operating Profit to EBITDA](index=7&type=section&id=Reconciliation%20from%20GAAP%20Operating%20Profit%20to%20EBITDA) For Q1 2022, EBITDA was **$133,649 thousand**, representing a **41.4% increase** from Q1 2021, derived from GAAP operating profit by adding back depreciation, stock-based compensation, and amortization of acquired intangible assets Reconciliation from GAAP Operating Profit to EBITDA (in thousands) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | YoY Change (Q1 2022 vs Q1 2021) | | :--------------------------------- | :--------------- | :---------------- | :--------------- | :-------------------------------- | | GAAP OPERATING PROFIT | $63,060 | $55,863 | $32,480 | +94.16% | | Depreciation | $64,368 | $64,692 | $56,624 | +13.68% | | Stock based compensation | $5,715 | $8,815 | $4,906 | +16.49% | | Amortization of acquired intangible assets | $506 | $506 | $491 | +3.05% | | EBITDA | $133,649 | $129,876 | $94,501 | +41.43% | [Consolidated Sources and Uses Report](index=8&type=section&id=Consolidated%20Sources%20and%20Uses%20Report) The Consolidated Sources and Uses Report shows a net decrease in cash and cash equivalents for Q1 2022, from **$210,930 thousand** at the beginning to **$203,484 thousand** at the end, with net cash provided by operating activities of **$136,571 thousand** largely offset by investments in property and equipment and net debt repayment Consolidated Sources and Uses Report (in thousands) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | | :-------------------------------------------------- | :--------------- | :---------------- | :--------------- | | CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | $210,930 | $211,503 | $211,683 | | Net cash provided by operating activities | $136,571 | $133,656 | $87,413 | | Investments in property and equipment, net | $(80,840) | $(85,947) | $(49,415) | | Exercise of options | $44 | $48 | $364 | | Debt received (repaid), net | $(30,539) | $1,040 | $(29,375) | | Effect of Japanese Yen exchange rate change over cash balance | $(3,071) | $(2,102) | $(3,478) | | Investments in short-term deposits, marketable securities and other assets, net | $(29,611) | $(47,268) | $(1,611) | | CASH AND CASH EQUIVALENTS - END OF PERIOD | $203,484 | $210,930 | $215,581 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q1 2022, net cash provided by operating activities was **$136,571 thousand**, offset by net cash used in investing activities of **$110,451 thousand** and net cash used in financing activities of **$30,495 thousand**, resulting in a net decrease of **$7,446 thousand** in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | March 31, 2022 | December 31, 2021 | March 31, 2021 | | :------------------------------------------ | :--------------- | :---------------- | :--------------- | | Net profit for the period | $55,774 | $51,877 | $30,514 | | Depreciation and amortization | $70,780 | $73,693 | $62,053 | | Net cash provided by operating activities | $136,571 | $133,656 | $87,413 | | Investments in property and equipment, net | $(80,840) | $(85,947) | $(49,415) | | Investments in deposits, marketable securities and other assets, net | $(29,611) | $(47,268) | $(1,611) | | Net cash used in investing activities | $(110,451) | $(133,215) | $(51,026) | | Debt received (repaid), net | $(30,539) | $1,040 | $(29,375) | | Exercise of options | $44 | $48 | $364 | | Net cash provided by (used in) financing activities | $(30,495) | $1,088 | $(29,011) | | EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE | $(3,071) | $(2,102) | $(3,478) | | INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | $(7,446) | $(573) | $3,898 | | CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | $210,930 | $211,503 | $211,683 | | CASH AND CASH EQUIVALENTS - END OF PERIOD | $203,484 | $210,930 | $215,581 |

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ...

[REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM](index=3&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) This section presents the independent auditor's report, including their opinion on the financial statements and identification of critical audit matters [Opinion on the Financial Statements](index=3&type=section&id=Opinion%20on%20the%20Financial%20Statements) Independent auditors Brightman Almagor Zohar & Co. issued an unqualified opinion on Tower Semiconductor Ltd.'s consolidated financial statements for 2021 and 2020, affirming fair presentation in accordance with US GAAP - The auditors issued an **unqualified opinion** on the consolidated financial statements for the periods ended December 31, 2021, and December 31, 2020, confirming their fair presentation in all material respects in accordance with US GAAP[5](index=5&type=chunk) [Critical Audit Matter](index=3&type=section&id=Critical%20Audit%20Matter) The auditor identified management's determination of income tax provision as a critical audit matter due to significant judgment and estimation in cross-jurisdictional expense allocation and tax status considerations - The critical audit matter is the **income tax provision**, due to significant management judgment and estimation in allocating expenses across various tax jurisdictions and considering different tax statuses within a multinational tax environment[8](index=8&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk) [BALANCE SHEETS](index=5&type=section&id=BALANCE%20SHEETS) This section provides an overview of the company's consolidated balance sheets, highlighting changes in assets, liabilities, and shareholders' equity [Consolidated Balance Sheets Overview](index=5&type=section&id=Consolidated%20Balance%20Sheets%20Overview) As of December 31, 2021, total assets increased to $2,231,241 thousand, a 6.5% rise from 2020, while total liabilities slightly decreased and shareholders' equity significantly grew by 10.9% Consolidated Balance Sheets Key Data (As of December 31) | Indicator | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :-------------------------------- | :------------------ | :------------------ | :------------- | | Total Assets | $2,231,241 | $2,094,149 | +6.5% | | Total Liabilities | $615,852 | $639,247 | -3.7% | | Total Shareholders' Equity | $1,615,389 | $1,454,902 | +10.9% | | Cash and Cash Equivalents | $210,930 | $211,683 | -0.4% | | Inventories | $234,512 | $199,126 | +17.8% | | Property and Equipment, Net | $876,683 | $839,171 | +4.5% | | Accumulated Deficit | $(315,448) | $(465,460) | Decrease of 150,012 | | Accumulated Share-Based Compensation | $149,906 | $124,762 | +20.1% | [STATEMENTS OF OPERATIONS](index=6&type=section&id=STATEMENTS%20OF%20OPERATIONS) This section details the company's consolidated statements of operations, showing significant growth in revenue and net income for 2021 [Consolidated Statements of Operations Overview](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20Overview) In 2021, the company achieved significant revenue and profit growth, with revenue increasing by 19.1% to $1,508,166 thousand and net income attributable to the company doubling Consolidated Statements of Operations Key Data (For the Year Ended December 31) | Indicator | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | Year-over-Year Change (2021 vs 2020) | | :----------------------------------- | :------------------ | :------------------ | :------------------ | :----------------------- | | Revenue | $1,508,166 | $1,265,684 | $1,234,003 | +19.1% | | Cost of Revenues | $1,179,048 | $1,032,366 | $1,004,332 | +14.2% | | Gross Profit | $329,118 | $233,318 | $229,671 | +41.1% | | Operating Income | $166,511 | $91,033 | $86,716 | +82.9% | | Net Income Attributable to the Company | $150,012 | $82,302 | $90,048 | +82.3% | | Basic Earnings Per Share | $1.39 | $0.77 | $0.85 | +80.5% | | Diluted Earnings Per Share | $1.37 | $0.76 | $0.84 | +80.3% | [STATEMENTS OF COMPREHENSIVE INCOME](index=7&type=section&id=STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) This section presents the consolidated statements of comprehensive income, showing a substantial increase in comprehensive income attributable to the company in 2021 [Consolidated Statements of Comprehensive Income Overview](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20Overview) In 2021, comprehensive income attributable to the company significantly increased to $138,638 thousand, a 64.9% rise from $84,037 thousand in 2020, primarily driven by higher net income Consolidated Statements of Comprehensive Income Key Data (For the Year Ended December 31) | Indicator | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | Year-over-Year Change (2021 vs 2020) | | :------------------------------------- | :------------------ | :------------------ | :------------------ | :----------------------- | | Net Income | $154,075 | $83,289 | $88,073 | +85.0% | | Foreign Currency Translation Adjustments | $(18,995) | $7,830 | $3,478 | Significant Decrease | | Comprehensive Income Attributable to the Company | $138,638 | $84,037 | $95,192 | +64.9% | [STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY](index=8&type=section&id=STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS'%20EQUITY) This section outlines the consolidated statements of changes in shareholders' equity, detailing the factors contributing to the increase in equity during 2021 [Consolidated Statements of Changes in Shareholders' Equity Overview](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20Overview) In 2021, the company's shareholders' equity increased from $1,454,902 thousand in 2020 to $1,615,389 thousand, primarily due to net income and employee share-based compensation Consolidated Statements of Changes in Shareholders' Equity Key Data (For the Year Ended December 31) | Indicator | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | | :----------------------------------- | :------------------ | :------------------ | :------------------ | | Beginning Balance | $1,454,902 | $1,346,723 | $1,236,205 | | Net Income Attributable to the Company | $150,012 | $82,302 | $90,048 | | Share-Based Compensation to Employees | $25,144 | $16,988 | $14,548 | | Accumulated Other Comprehensive Loss | $(27,471) | $(16,247) | $(20,150) | | Ending Balance | $1,615,389 | $1,454,902 | $1,346,723 | [STATEMENTS OF CASH FLOWS](index=9&type=section&id=STATEMENTS%20OF%20CASH%20FLOWS) This section presents the consolidated statements of cash flows, highlighting significant increases in cash from operating activities and stable cash and cash equivalents at period-end [Consolidated Statements of Cash Flows Overview](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20Overview) In 2021, net cash provided by operating activities surged by 52.3% to $421,293 thousand, driven by increased net income and working capital changes, while cash and cash equivalents remained stable Consolidated Statements of Cash Flows Key Data (For the Year Ended December 31) | Indicator | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | Year-over-Year Change (2021 vs 2020) | | :----------------------------------- | :------------------ | :------------------ | :------------------ | :----------------------- | | Net Cash Provided by Operating Activities | $421,293 | $276,561 | $291,320 | +52.3% | | Net Cash Used in Investing Activities | $(338,944) | $(363,609) | $(305,094) | -6.7% | | Net Cash Used in Financing Activities | $(76,857) | $(61,187) | $(17,560) | +25.6% | | Decrease in Cash and Cash Equivalents | $(753) | $(143,878) | $(29,530) | Significant Decrease in Amount | | Cash and Cash Equivalents at End of Period | $210,930 | $211,683 | $355,561 | -0.4% | [Non-Cash Activities and Supplemental Disclosure](index=10&type=section&id=Non-Cash%20Activities%20and%20Supplemental%20Disclosure) This section details non-cash investing activities, including a significant increase in property and equipment investment in 2021, and provides supplemental cash flow information Non-Cash Activities (For the Year Ended December 31) | Indicator | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | | :-------------------------- | :------------------ | :------------------ | :------------------ | | Investment in Property and Equipment | $65,634 | $35,271 | $39,184 | | Conversion of Notes to Equity | $0 | $0 | $22,600 | Supplemental Cash Flow Information (For the Year Ended December 31) | Indicator | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | Cash Interest Received During the Period | $5,590 | $10,524 | $14,436 | | Cash Interest Paid During the Period | $4,561 | $6,633 | $7,456 | | Net Cash Paid (Received) for Income Taxes During the Period | $8,288 | $(2,436) | $13,026 | [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS](index=11&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed notes supporting the consolidated financial statements, covering business operations, accounting policies, and specific financial line items [NOTE 1: DESCRIPTION OF BUSINESS AND GENERAL](index=11&type=section&id=NOTE%201:%20DESCRIPTION%20OF%20BUSINESS%20AND%20GENERAL) Tower Semiconductor Ltd. is a leading global specialty foundry for integrated circuit manufacturing, offering diverse customizable process technologies across multiple global manufacturing facilities - The company is a leading global specialty foundry, offering a variety of customizable process technologies including SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensors, integrated power management, and MEMS[33](index=33&type=chunk) - The company operates manufacturing facilities in Israel (150mm and 200mm), the U.S. (200mm), and Japan (through TPSCo, including two 200mm and one 300mm)[33](index=33&type=chunk) - In 2021, the company signed a cooperation agreement with ST Microelectronics S.r.l to share manufacturing capacity at a new **300mm wafer fab** in Agrate, Italy, establishing a wholly-owned subsidiary, Tower Semiconductor Italy S.r.l[31](index=31&type=chunk) - As of now, the COVID-19 pandemic has not had a **material adverse effect** on the company's financial condition or stability[35](index=35&type=chunk) [NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=NOTE%202:%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's accounting policies under US GAAP, covering financial statement preparation, estimates, consolidation, asset valuation, equity, and recent accounting pronouncements - The company's consolidated financial statements are presented in accordance with **US GAAP**[37](index=37&type=chunk) - Available-for-sale securities are measured at **fair value**, with unrealized gains and losses recognized in other comprehensive income[43](index=43&type=chunk) - The allowance for expected credit losses on trade receivables was **$946 thousand** and **$1,065 thousand** as of December 31, 2021, and December 31, 2020, respectively[49](index=49&type=chunk) - Inventories are measured at the **lower of cost or net realizable value**[50](index=50&type=chunk) - As of December 31, 2021, and December 31, 2020, the company identified **no impairment** of long-lived assets, intangible assets, or goodwill[61](index=61&type=chunk)[62](index=62&type=chunk) - The functional currency for Tower, TSSA, and TSNB is the **U.S. dollar**, while for TPSCo, it is the **Japanese Yen**[68](index=68&type=chunk) - Share-based compensation cost is recognized based on the grant-date fair value using the **graded vesting method**[69](index=69&type=chunk) - Fair value measurements for financial instruments use a three-level hierarchy: **Level 1** (quoted prices in active markets), **Level 2** (observable inputs), and **Level 3** (unobservable inputs)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - Recently adopted accounting standards (ASU 2020-04 and ASU 2019-12) did not have a **material impact** on the company's financial position, results of operations, or cash flows[79](index=79&type=chunk)[80](index=80&type=chunk) [NOTE 3: INVENTORIES](index=19&type=section&id=NOTE%203:%20INVENTORIES) This note details the composition of the company's inventories, which totaled $234,512 thousand as of December 31, 2021, representing a 17.8% increase from 2020 Inventories Composition (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :-------------- | :------------------ | :------------------ | :------------- | | Raw Materials | $81,734 | $60,855 | +34.3% | | Work-in-Process | $146,840 | $133,144 | +10.3% | | Finished Goods | $5,938 | $5,127 | +15.8% | | **Total** | **$234,512** | **$199,126** | **+17.8%** | - Work-in-process and finished goods are net of write-downs to net realizable value of **$2,775 thousand** and **$1,946 thousand** as of December 31, 2021, and December 31, 2020, respectively[82](index=82&type=chunk) [NOTE 4: OTHER CURRENT ASSETS](index=19&type=section&id=NOTE%204:%20OTHER%20CURRENT%20ASSETS) This note outlines the composition of other current assets, which significantly increased by 77.9% to $54,817 thousand as of December 31, 2021, primarily due to a rise in prepaid expenses Other Current Assets Composition (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :------------- | | Taxes Receivable | $5,540 | $5,019 | +10.4% | | Prepaid Expenses | $36,786 | $6,990 | +426.3% | | Receivable from Hedging Transactions | $10,322 | $11,609 | -11.2% | | Insurance Receivable | $0 | $5,949 | -100.0% | | Other Receivables | $2,169 | $1,243 | +74.5% | | **Total** | **$54,817** | **$30,810** | **+77.9%** | [NOTE 5: LONG-TERM INVESTMENTS](index=19&type=section&id=NOTE%205:%20LONG-TERM%20INVESTMENTS) This note details the company's long-term investments, totaling $39,597 thousand as of December 31, 2021, a slight decrease of 2.7% from 2020, mainly due to reduced investments in non-public companies Long-Term Investments Composition (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :-------------------------------- | :------------------ | :------------------ | :------------- | | Severance Pay Fund | $11,942 | $10,472 | +14.0% | | Long-Term Bank Deposits | $12,500 | $12,500 | 0.0% | | Investments in Non-Public Companies | $15,155 | $17,727 | -14.4% | | **Total** | **$39,597** | **$40,699** | **-2.7%** | [NOTE 6: PROPERTY AND EQUIPMENT, NET](index=20&type=section&id=NOTE%206:%20PROPERTY%20AND%20EQUIPMENT,%20NET) This note details property and equipment, net, which increased by 4.5% to $876,683 thousand as of December 31, 2021, driven by higher machinery and equipment original cost, partially offset by accumulated depreciation Property and Equipment, Net (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :------------- | | Original Cost: Land and Buildings | $432,069 | $430,258 | +0.4% | | Original Cost: Machinery and Equipment | $3,254,062 | $2,998,019 | +8.5% | | Accumulated Depreciation: Buildings | $(267,942) | $(255,353) | +4.9% | | Accumulated Depreciation: Machinery and Equipment | $(2,541,506) | $(2,333,753) | +8.9% | | **Property and Equipment, Net** | **$876,683** | **$839,171** | **+4.5%** | - Original cost includes right-of-use assets under capital leases of **$211,790 thousand** and **$213,683 thousand** as of December 31, 2021, and December 31, 2020, respectively[85](index=85&type=chunk) - Original cost of land, buildings, machinery, and equipment is net of investment grants of approximately **$285,000 thousand** as of December 31, 2021, and December 31, 2020[86](index=86&type=chunk) [NOTE 7: INTANGIBLE ASSETS, NET](index=20&type=section&id=NOTE%207:%20INTANGIBLE%20ASSETS,%20NET) This note details intangible assets, net, which increased by 7.8% to $11,820 thousand as of December 31, 2021, primarily driven by an increase in net technology assets Intangible Assets, Net (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :------------------------------ | :------------------ | :------------------ | :------------- | | Technology (Net) | $4,840 | $2,521 | +92.0% | | Facility Lease (Net) | $6,683 | $7,971 | -16.2% | | Customer Relationships (Net) | $297 | $470 | -36.8% | | **Total Identifiable Intangible Assets** | **$11,820** | **$10,962** | **+7.8%** | [NOTE 8: DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET](index=21&type=section&id=NOTE%208:%20DEFERRED%20TAX%20AND%20OTHER%20LONG-TERM%20ASSETS,%20NET) This note details deferred tax and other long-term assets, net, which increased by 7.0% to $99,938 thousand as of December 31, 2021, primarily due to a significant rise in long-term prepaid expenses Deferred Tax and Other Long-Term Assets, Net (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :------------- | | Deferred Tax Assets | $53,526 | $57,802 | -7.4% | | Right-of-Use Assets - Operating Leases | $14,113 | $18,990 | -25.7% | | Fair Value of Cross-Currency Interest Rate Swaps | $4,372 | $10,661 | -59.0% | | Long-Term Prepaid Land Lease, Net | $2,934 | $3,055 | -3.9% | | Long-Term Prepaid Expenses | $24,993 | $2,893 | +763.9% | | **Total** | **$99,938** | **$93,401** | **+7.0%** | [NOTE 9: OTHER CURRENT LIABILITIES](index=21&type=section&id=NOTE%209:%20OTHER%20CURRENT%20LIABILITIES) This note details other current liabilities, which significantly increased by 102.5% to $16,009 thousand as of December 31, 2021, primarily driven by higher taxes payable and payables from hedging transactions Other Current Liabilities Composition (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :-------------------------- | :------------------ | :------------------ | :------------- | | Taxes Payable | $10,272 | $4,935 | +108.1% | | Payable from Hedging Transactions | $3,040 | $0 | Not Applicable | | Accrued Interest on Debt | $588 | $868 | -32.3% | | Other | $2,109 | $2,102 | +0.3% | | **Total** | **$16,009** | **$7,905** | **+102.5%** | [NOTE 10: SERIES G DEBENTURES](index=21&type=section&id=NOTE%2010:%20SERIES%20G%20DEBENTURES) This note details the Series G Debentures, with outstanding principal decreasing from approximately $104,000 thousand in 2020 to $64,000 thousand in 2021, and outlines their terms and repayment schedule Series G Debentures Outstanding Principal (As of December 31) | Year | Amount (thousand USD) | | :--- | :------------ | | 2021 | ~$64,000 | | 2020 | ~$104,000 | - Series G Debentures carry an annual interest rate of **2.79%**, are denominated in NIS, and are hedged against exchange rate risk using cross-currency swaps[91](index=91&type=chunk) - As of December 31, 2021, the company was in compliance with all financial covenants[92](index=92&type=chunk) Series G Debentures Repayment Schedule (As of December 31, 2021) | Detail | 2022 (thousand USD) | 2023 (thousand USD) | Total (thousand USD) | | :------------------ | :------------------ | :------------------ | :------------ | | Series G Debentures | $42,996 | $21,495 | $64,491 | [NOTE 11: OTHER LONG-TERM DEBT](index=22&type=section&id=NOTE%2011:%20OTHER%20LONG-TERM%20DEBT) This note details other long-term debt, which decreased by 5.7% to $209,434 thousand as of December 31, 2021, net of current maturities, and describes various loan and lease agreements Other Long-Term Debt Composition (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :------------------------------------------ | :------------------ | :------------------ | :------------- | | Long-Term JPY Loans - Principal | $95,572 | $106,719 | -10.4% | | Capital Leases and Other Long-Term Liabilities | $141,073 | $162,171 | -13.0% | | Operating Leases | $14,113 | $18,990 | -25.7% | | Less: Current Portion | $(41,324) | $(65,658) | -37.1% | | **Total** | **$209,434** | **$222,222** | **-5.7%** | - TPSCo refinanced existing loans in December 2021, securing a new asset-backed loan of **JPY 11 billion** (approximately **$96,000 thousand**) with a fixed annual interest rate of **1.95%**, repayable in seven installments from December 2024 to December 2027[97](index=97&type=chunk) - As of December 31, 2021, the company's capital lease obligations for fixed assets totaled **$139,037 thousand**, with **$36,282 thousand** included in the current portion of long-term debt[102](index=102&type=chunk) - Operating lease costs were **$7,535 thousand**, **$7,627 thousand**, and **$8,045 thousand** for 2021, 2020, and 2019, respectively[104](index=104&type=chunk) - TSNB has a secured asset-backed revolving credit facility agreement with Wells Fargo for up to **$70,000 thousand**, maturing in 2023, with no outstanding borrowings as of December 31, 2021, and 2020[106](index=106&type=chunk)[108](index=108&type=chunk) [NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS](index=25&type=section&id=NOTE%2012:%20FINANCIAL%20INSTRUMENTS%20AND%20FAIR%20VALUE%20MEASUREMENTS) This note discloses the company's financial instruments, including derivatives, credit risk concentrations, and fair value measurements, categorizing them into a three-level hierarchy - Non-designated exchange rate transactions: a **$2,134 thousand** asset position for USD/NIS (notional value **$67,500 thousand**) and a **$3,040 thousand** liability position for USD/JPY (notional value **$164,000 thousand**) in 2021[112](index=112&type=chunk)[114](index=114&type=chunk) - Credit risk is concentrated in cash, deposits, marketable securities, derivative instruments, and trade receivables, with an allowance for expected credit losses maintained[115](index=115&type=chunk)[116](index=116&type=chunk) - Designated cash flow hedges for Series G Debentures (cross-currency swaps) generated an operating gain of **$542 thousand** in 2021, with a net asset fair value of **$12,560 thousand**[119](index=119&type=chunk)[120](index=120&type=chunk) Fair Value Measurement Hierarchy (As of December 31, 2021) | Detail | Total (thousand USD) | Level 1 (thousand USD) | Level 2 (thousand USD) | Level 3 (thousand USD) | | :------------------------------------------ | :------------------- | :--------------------- | :--------------------- | :--------------------- | | Cross-Currency Swaps - Net Asset Position | $12,560 | $0 | $12,560 | $0 | | Investments in Non-Public Companies | $15,155 | $0 | $0 | $15,155 | | Available-for-Sale Securities | $190,068 | $190,068 | $0 | $0 | | Foreign Exchange Forwards and Options - Net Liability Position | $(906) | $0 | $(906) | $0 | | **Total** | **$216,877** | **$190,068** | **$11,654** | **$15,155** | Available-for-Sale Securities Amortized Cost and Fair Value (As of December 31, 2021) | Detail | Amortized Cost (thousand USD) | Estimated Fair Value (thousand USD) | | :------------------ | :---------------------------- | :-------------------------------- | | Corporate Bonds | $161,491 | $161,633 | | Government Bonds | $27,332 | $26,934 | | Municipal Bonds | $472 | $472 | | Certificates of Deposit | $248 | $253 | | **Total** | **$189,543** | **$189,292** | Available-for-Sale Securities Maturity Dates (As of December 31, 2021) | Detail | Amortized Cost (thousand USD) | Estimated Fair Value (thousand USD) | | :---------------- | :---------------------------- | :-------------------------------- | | Due in One Year | $22,547 | $22,637 | | Due in 2-5 Years | $127,576 | $126,510 | | Due After 5 Years | $39,420 | $40,145 | [NOTE 13: EMPLOYEE RELATED LIABILITIES](index=30&type=section&id=NOTE%2013:%20EMPLOYEE%20RELATED%20LIABILITIES) This note details employee-related liabilities, including severance pay obligations in Israel and Japan, and post-retirement medical and pension plans for TSNB, which saw actuarial gains in 2021 - Severance pay obligations for Israeli employees are primarily covered by monthly deposits to approved severance and pension funds or insurance policies, with **$5,941 thousand** paid in 2021[135](index=135&type=chunk)[136](index=136&type=chunk) - TPSCo maintains a defined contribution retirement plan for employees, contributing approximately **8%** and **9%** of employees' basic salaries in 2021 and 2020, respectively, with total payments of **$5,331 thousand** in 2021[137](index=137&type=chunk) - The TSNB post-retirement medical plan generated a net actuarial gain in 2021 due to an increase in the discount rate from **2.80%** to **3.00%**[143](index=143&type=chunk) - The TSNB pension plan generated a net actuarial gain in 2021 due to an increase in the discount rate from **2.50%** to **2.90%**, with a funded status of **$3,669 thousand** at the end of 2021[147](index=147&type=chunk)[148](index=148&type=chunk) - The TSNB pension plan's asset allocation target is **90%** debt securities and **10%** equity securities[149](index=149&type=chunk) [NOTE 14: COMMITMENTS AND CONTINGENCIES](index=37&type=section&id=NOTE%2014:%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's commitments and contingencies, including asset liens, contract renewals, intellectual property agreements, a lease dispute, a 2020 IT security incident, and a new 300mm wafer fab agreement in Italy - The Israeli government holds a **floating lien** on substantially all of Tower's assets under the Approved Enterprise status program[154](index=154&type=chunk) - TPSCo's business relationship with NTCJ (formerly PSCS) has been renewed for three years, and the Arai manufacturing facility in Japan will cease operations on **July 1, 2022**, with no impairment charges required as of December 31, 2021[155](index=155&type=chunk)[156](index=156&type=chunk) - TSNB's landlord claims a material breach regarding noise abatement and seeks to terminate the lease agreement, which TSNB disputes[158](index=158&type=chunk) - An IT security system incident in September 2020 did not have a **material impact** on the company's financial condition, and the company received cyber insurance compensation[159](index=159&type=chunk)[161](index=161&type=chunk) - TSIT signed a definitive agreement with ST Microelectronics in 2021 to share a new **300mm manufacturing wafer fab** in Agrate, Italy, where the company will install its own equipment in one-third of the space[162](index=162&type=chunk) [NOTE 15: SHAREHOLDERS' EQUITY](index=38&type=section&id=NOTE%2015:%20SHAREHOLDERS'%20EQUITY) This note details the company's common stock, share-based compensation plans, treasury stock, and dividend restrictions, including summaries of RSU and option grants and related expenses - As of December 31, 2021, the company had **150 million** authorized ordinary shares, with approximately **109 million** shares issued, each carrying equal voting rights[164](index=164&type=chunk) - The 2013 Share Incentive Plan grants options and RSUs to directors, officers, employees, and third-party service providers[166](index=166&type=chunk) RSU Grants (For the Year Ended December 31) | Detail | 2021 (Number of Shares) | 2020 (Number of Shares) | 2019 (Number of Shares) | | :-------------------------- | :-------------- | :-------------- | :-------------- | | Unexercised at Beginning of Year | 2,223,043 | 2,013,613 | 1,599,296 | | Granted | 1,002,275 | 1,105,155 | 1,159,881 | | Converted | (929,466) | (806,993) | (484,665) | | Forfeited | (84,752) | (88,732) | (260,899) | | Unexercised at End of Year | 2,211,100 | 2,223,043 | 2,013,613 | Share-Based Compensation Expense (For the Year Ended December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | | Cost of Revenues | $7,003 | $5,197 | $4,529 | | Research and Development Expenses, Net | $4,855 | $3,568 | $2,900 | | Selling, General and Administrative Expenses | $13,286 | $8,223 | $7,119 | | **Total Share-Based Compensation Expense** | **$25,144** | **$16,988** | **$14,548** | - Dividend distributions are restricted under the Series G Debentures indenture, subject to meeting specific financial ratios[181](index=181&type=chunk) [NOTE 16: INFORMATION ON GEOGRAPHIC AREAS AND MAJOR CUSTOMERS](index=42&type=section&id=NOTE%2016:%20INFORMATION%20ON%20GEOGRAPHIC%20AREAS%20AND%20MAJOR%20CUSTOMERS) This note provides revenue and long-term asset information by geographic area and identifies major customers contributing significantly to net trade receivables and total revenue Revenue by Geographic Area (Percentage of Total Revenue, For the Year Ended December 31) | Detail | 2021 | 2020 | 2019 | | :-------------------- | :--- | :--- | :--- | | United States | 41% | 44% | 52% | | Japan | 22% | 28% | 29% | | Asia (excluding Japan) | 30% | 22% | 15% | | Europe | 7% | 6% | 4% | | **Total** | **100%** | **100%** | **100%** | Long-Term Assets by Geographic Area (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | Year-over-Year Change (%) | | :-------------- | :------------------ | :------------------ | :------------- | | Israel | $238,758 | $215,006 | +11.0% | | United States | $264,038 | $234,902 | +12.4% | | Japan | $373,887 | $389,263 | -3.9% | | **Total** | **$876,683** | **$839,171** | **+4.5%** | - As of December 31, 2021, one customer accounted for over **10%** (**14%**) of net trade receivables; in 2020, two customers accounted for over **10%** (**13%** and **12%** respectively)[185](index=185&type=chunk) Major Customer Revenue (Percentage of Total Revenue, For the Year Ended December 31) | Detail | 2021 | 2020 | 2019 | | :---------- | :--- | :--- | :--- | | Customer A | 21% | 25% | 27% | | Customer B | 13% | 11% | 7% | | Other Customers | 20% | 24% | 26% | [NOTE 17: FINANCING INCOME (EXPENSE), NET](index=43&type=section&id=NOTE%2017:%20FINANCING%20INCOME%20(EXPENSE),%20NET) This note details financing income (expense), net, which shifted from a $2,870 thousand income in 2020 to a $12,873 thousand expense in 2021, primarily due to negative foreign exchange rate differences and increased bank fees Financing Income (Expense), Net (For the Year Ended December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | | :-------------------------------------------------- | :------------------ | :------------------ | :------------------ | | Interest Expense | $(7,312) | $(6,755) | $(6,823) | | Interest Income | $5,368 | $8,484 | $12,949 | | Amortization of Series G Debentures, Related Exchange Rate Differences and Hedging Results | $(1,773) | $(3,045) | $(3,299) | | Exchange Rate Differences and Related Hedging Results | $(7,092) | $5,509 | $(1,271) | | Bank Fees and Other | $(2,064) | $(1,323) | $(1,544) | | **Total** | **$(12,873)** | **$2,870** | **$12** | [NOTE 18: RELATED PARTIES BALANCES AND TRANSACTIONS](index=44&type=section&id=NOTE%2018:%20RELATED%20PARTIES%20BALANCES%20AND%20TRANSACTIONS) This note discloses related party balances and transactions, including long-term equity investments in limited partnerships and general and administrative expenses for directors' fees Related Party Balances (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | | :---------------------- | :------------------ | :------------------ | | Long-Term Investments | $57 | $57 | Related Party Transactions (For the Year Ended December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | General and Administrative Expenses (Directors' Fees) | $771 | $787 | $783 | | Other Income (Expense), Net (Non-Controlling Interests) | $0 | $2 | $(55) | [NOTE 19: INCOME TAXES](index=45&type=section&id=NOTE%2019:%20INCOME%20TAXES) This note details the company's income tax provisions, including statutory tax rates, deferred tax assets and liabilities, unrecognized tax benefits, effective tax rates, and net operating loss carryforwards - Under the Israeli Law for the Encouragement of Capital Investments, Tower's entire preferred income is subject to a **7.5%** tax rate under the Preferred Enterprise regime[191](index=191&type=chunk) Income Tax Provision (For the Year Ended December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | 2019 (thousand USD) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | | Current Tax Expense: Foreign | $13,504 | $2,232 | $1,013 | | Deferred Tax Expense (Benefit): Domestic | $2,518 | $8,481 | $7,098 | | Deferred Tax Expense (Benefit): Foreign | $(14,998) | $(5,314) | $(5,163) | | **Income Tax Expense** | **$1,024** | **$5,399** | **$2,948** | Deferred Tax Assets and Liabilities Composition (As of December 31) | Detail | 2021 (thousand USD) | 2020 (thousand USD) | | :------------------------------------------ | :------------------ | :------------------ | | Deferred Tax Assets | $103,541 | $93,670 | | Deferred Tax Liabilities | $(73,792) | $(77,154) | | **Presented as Long-Term Deferred Tax Assets** | **$53,526** | **$57,802** | | **Presented as Long-Term Deferred Tax Liabilities** | **$(23,777)** | **$(41,286)** | - As of December 31, 2021, Tower has approximately **$800,000 thousand** in net operating losses that can be carried forward indefinitely[199](index=199&type=chunk) - As of December 31, 2021, Tower US Holdings has approximately **$83,000 thousand** in federal net operating loss carryforwards, with about **$66,000 thousand** having no expiration date but subject to an **80%** taxable income limitation, and the remaining **$17,000 thousand** beginning to expire in 2022[202](index=202&type=chunk) - In 2020, Tower US Holdings received **$2,100 thousand** in federal net operating loss carryback refunds and **$1,100 thousand** in minimum tax credit refunds under the CARES Act[206](index=206&type=chunk) [NOTE 20: SUBSEQUENT EVENTS](index=49&type=section&id=NOTE%2020:%20SUBSEQUENT%20EVENTS) This note describes subsequent events, specifically Intel Corporation's announcement on February 15, 2022, to acquire Tower for $53 per share in cash, pending regulatory and shareholder approvals - On February 15, 2022, Intel Corporation announced a definitive agreement to acquire all of Tower's approximately **109 million** outstanding ordinary shares for a cash consideration of **$53 per share**[209](index=209&type=chunk) - The transaction has been approved by the boards of directors of both Intel and Tower but remains subject to customary closing conditions, including regulatory and Tower shareholder approvals[209](index=209&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q3 2021 was $387 million, representing a 25% year-over-year increase and a 40% organic growth [7][20] - Net profit for the quarter was $39 million, a 157% increase year-over-year, with adjusted net profit at $45 million [23][24] - The company anticipates Q4 2021 revenue to reach $410 million, indicating a 19% year-over-year growth [9][17] Business Line Data and Key Metrics Changes - RF mobile business accounted for 26% of revenues, driven by increased RF content in 5G handsets [9][10] - Power IC business represented 16% of total revenues, with significant growth in automotive applications [12] - Imaging business contributed over 15% of revenues, with strong demand in industrial and medical markets [13] Market Data and Key Metrics Changes - 200mm and 300mm wafer processing layers increased by 28% and 57% year-over-year, respectively [15] - The company is experiencing strong demand across all fabs, with a focus on capacity expansion to meet customer needs [20][26] Company Strategy and Development Direction - The company is executing a $250 million capacity expansion plan and ramping up the Agrate factory in Italy [20][26] - Focus on high-margin segments such as silicon photonics, which is expected to significantly contribute to margins in 2022 [10][11] - Long-term agreements with customers are becoming more common, indicating a shift towards securing capacity in a constrained market [39][42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong growth avenues, particularly in silicon photonics and RF technologies [31][32] - The company aims for a net profit margin of above 15% in 2022, driven by organic growth and improved product mix [17][78] - Management noted that customer willingness to invest in capacity has increased due to current market constraints [40][42] Other Important Information - The company has issued its first corporate sustainability report, highlighting its commitment to positive societal impact [79][80] - Shareholders' equity reached a record of $1.56 billion, indicating a strong financial position [28] Q&A Session Summary Question: Capacity and Revenue Growth - Inquiry about the expected 30% organic revenue growth and its timeline [30] - Management confirmed strong growth prospects, particularly in silicon photonics and RF technologies [31][32] Question: Customer Behavior Changes - Question regarding changes in customer behavior due to capacity constraints [38] - Management noted increased willingness from customers to secure long-term agreements [39][42] Question: CapEx Impact - Inquiry about the impact of CapEx on depreciation and cash flow [73] - Management explained that depreciation for new CapEx will start in 2023, with a gradual increase in amounts [74][75] Question: Product Line Margins - Question about which product lines will yield the highest gross margins in 2023 [48] - Management indicated that silicon photonics will have the highest margins, followed by power management and imaging [50][52]

Tower Semiconductor Reports Record Revenues and Strong Margins Growth Third quarter 2021 with 25% total and 40% organic year over year revenue growth Exhibit 99.1 Gross profit for the third quarter of 2021 was $85 million, 60% higher than $53 million recorded in the third quarter of 2020 and 16% higher than $74 million recorded in the second quarter of 2021. Operating profit for the third quarter of 2021 was $44 million, more than double the $19 million recorded in the third quarter of 2020 and 30% higher t ...

Financial Data and Key Metrics Changes - Revenue for Q2 2021 was $362 million, a record for the company, representing a 17% year-over-year increase and 26% organic growth [9][33] - Gross profit for Q2 2021 was $74 million, up 28% year-over-year, while operating profit was $34 million, a 54% increase year-over-year [38] - Net profit for Q2 2021 was $31 million, or $0.29 basic earnings per share, reflecting a 62% year-over-year increase [38] Business Line Data and Key Metrics Changes - RFSOI segment saw over 40% year-over-year organic growth, power IC grew by 35%, image sensors increased by 30%, and power discrete grew by 23% [9] - RF mobile business accounted for 25% of revenues and is expected to show strong growth, driven by the anticipated doubling of 5G handset shipments [20] - Imaging business represented 15% of revenues, with growth in medical, dental x-ray, and industrial sensors [24] Market Data and Key Metrics Changes - The company expects to achieve a revenue run rate exceeding $1.5 billion annually, with Q3 guidance set at $385 million, indicating a 24% total growth year-over-year and 38% organic growth [10][33] - Demand for 5G technology is increasing average selling prices in the RF mobile segment, expected to continue for several quarters [21] Company Strategy and Development Direction - The company is executing a $250 million capacity expansion plan to increase production capabilities in 8-inch and 12-inch fabs [34] - A partnership with ST Microelectronics aims to accelerate the ramp-up of the Agrate 300-millimeter manufacturing facility, expected to triple current capacity [12][13] - The company is actively involved in the CHIPS Act discussions, targeting funding for growth initiatives in the U.S. [15][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued top and bottom line growth, driven by strong customer demand and capacity expansions [11][42] - The company anticipates increased margins in Q3 and expects to exceed a 50% incremental gross profit model in Q4 [42][65] Other Important Information - The company is about to issue its first formal Environmental Social Governance (ESG) report, emphasizing its commitment to sustainability [30][31] - Current assets ratio stands strong at 3.7x, indicating a stable financial position [39] Q&A Session Summary Question: Gross margins outlook for the year - Management expects gross margins to exceed 50% in Q4 due to higher selling prices and a richer mix of products [49][51] Question: Partnership rationale with ST Micro - The partnership aims for a faster ramp to high utilization and reduced fixed costs, benefiting both companies [53][55] Question: Capacity expansion plans - The company is including silicon germanium in its capacity expansion plans, addressing growing demand in data centers [58] Question: Operating expenses expectations - Operating expenses are expected to remain flat, allowing for earnings leverage in the second half of the year [101][102]

Tower Semiconductor Ltd. (NASDAQ:TSEM) Q1 2021 Earnings Conference Call May 12, 2021 10:00 AM ET Company Participants Noit Levy - Senior Vice President of Investor Relations & Corporate Communications Russell Ellwanger - Chief Executive Officer Oren Shirazi - Chief Financial Officer Conference Call Participants Rajvindra Gill - Needham & Company Cody Acree - Loop Capital Richard Shannon - Craig-Hallum Mark Lipacis - Jefferies Operator Ladies and gentlemen, thank you for standing-by. Welcome to the Tower Sem ...

PART I [Key Information](index=6&type=section&id=ITEM%203.%20KEY%20INFORMATION) Outlines primary business, securities, and operational risks, including demand volatility, competition, and Israeli geopolitical instability [Risk Factors](index=6&type=section&id=D.%20RISK%20FACTORS) Identifies business, securities, and operational risks, including production bottlenecks, competition, debt, and cyber threats - **Over-demand** for foundry services could lead to production bottlenecks, an inability to fulfill customer orders, and the potential loss of customers and revenue[36](index=36&type=chunk) - The company's growth strategy relies on acquisitions and **capacity expansion**, which carries risks such as integration difficulties, competition for acquisition targets, and potential financing challenges[37](index=37&type=chunk)[40](index=40&type=chunk) - The **semiconductor foundry business** is highly competitive, with rivals potentially having greater manufacturing capacity, financial resources, and better cost structures[44](index=44&type=chunk)[45](index=45&type=chunk) - In **2020**, **one customer** (**NTCJ**, formerly **PSCS**) accounted for **25%** of **revenues**, and **five other customers** each generated between **4%** and **11%**, indicating significant **customer concentration risk**[52](index=52&type=chunk) - The **COVID-19 pandemic** presents risks such as raw material shortages, reduced employee attendance, and potential downturns in customer orders[54](index=54&type=chunk) - As of **December 31, 2020**, the company had approximately **$392 million** in consolidated **long-term debt**, which could limit its ability to fund strategic growth, increase vulnerability to adverse economic conditions, and place it at a competitive disadvantage[65](index=65&type=chunk)[67](index=67&type=chunk) - A **cybersecurity attack** in **September 2020** caused a temporary, proactive halt in operations at some manufacturing facilities, highlighting the risk of security breaches to operations and reputation[97](index=97&type=chunk) - Operations in **Israel**, which include **two manufacturing facilities** (**Fab 1** and **Fab 2**), are subject to risks from political, economic, and military instability in the region[104](index=104&type=chunk)[105](index=105&type=chunk) [Information on the Company](index=22&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Provides an overview of Tower Semiconductor's history, operations as a specialty foundry, structure, and global assets [History and Development of the Company](index=22&type=section&id=A.%20HISTORY%20AND%20DEVELOPMENT%20OF%20THE%20COMPANY) Details Tower Semiconductor's growth since **1993** through strategic acquisitions, expanding its global fab footprint - **Tower** was founded in **1993** by acquiring National Semiconductor's **150-mm** wafer **fab** (**Fab 1**) in Migdal Haemek, **Israel**[116](index=116&type=chunk) - In **2008**, the company merged with Jazz Technologies, acquiring **Fab 3** in Newport Beach, California, which specializes in **analog and mixed-signal semiconductor devices**[118](index=118&type=chunk) - In **2014**, **Tower** acquired a **51% equity stake** in **TPSCo** from Panasonic, gaining **three manufacturing facilities** in **Japan** and expanding its capacity to **300mm** wafers[119](index=119&type=chunk) - In **2016**, the company acquired a fabrication facility in San Antonio, Texas (**Fab 9**) from Maxim, further expanding its US manufacturing footprint[120](index=120&type=chunk) [Business Overview](index=23&type=section&id=B.%20BUSINESS%20OVERVIEW) Operates as a specialty foundry, focusing on advanced technologies and expanding through acquisitions amid intense competition - The company specializes in **manufacturing semiconductors** using technologies like **CMOS image sensors**, **RFCMOS**, **BiCMOS**, **SiGe**, **silicon photonics**, and **power management**[114](index=114&type=chunk) - Key focused process technologies include **RF CMOS**, **SiGe**, **CMOS image sensors** (**CIS**), advanced analog **CMOS**, **RFID**, **BiCMOS**, high voltage **CMOS**, and **SOI platforms**[142](index=142&type=chunk)[143](index=143&type=chunk) - The company competes with **specialty foundries** like **GlobalFoundries** and **Vanguard**, as well as large **pure-play foundries** like **TSMC**, **UMC**, and **SMIC**, and **IDMs** with foundry operations[177](index=177&type=chunk) Revenue by Geography (2018-2020) | Region | 2020 (%) | 2019 (%) | 2018 (%) | | :--- | :--- | :--- | :--- | | **United States** | **44%** | **52%** | **52%** | | **Japan** | **28%** | **29%** | **34%** | | **Asia, excluding Japan** | **22%** | **15%** | **10%** | | **Europe** | **6%** | **4%** | **4%** | | **Total** | **100%** | **100%** | **100%** | - In **2020**, **six significant customers** each contributed between **4%** and **25%** of **revenues**. This compares to **six customers** contributing **5%** to **27%** in **2019**, and **four customers** contributing **7%** to **33%** in **2018**[172](index=172&type=chunk) [Organizational Structure](index=36&type=section&id=C.%20ORGANIZATIONAL%20STRUCTURE) Details the company's structure, including its Israeli parent, wholly-owned US subsidiaries, and **51%** stake in **TPSCo Japan** - **Tower Semiconductor Ltd.** is the **parent company**, incorporated in **Israel**, directly operating **Fab 1** and **Fab 2**[205](index=205&type=chunk)[206](index=206&type=chunk) - US operations (**Fab 3** and **Fab 9**) are managed through **wholly-owned US subsidiaries**, including **Tower US Holdings Inc.** and its subsidiaries[206](index=206&type=chunk)[208](index=208&type=chunk) - The company holds a **51% equity stake** in the Japanese entity **TPSCo**, which operates **three fabs**. The remaining **49%** is held by **NTCJ**[207](index=207&type=chunk) [Property, Plants and Equipment](index=36&type=section&id=D.%20PROPERTY,%20PLANTS%20AND%20EQUIPMENT) Operates **seven global fabs** supporting diverse process geometries, with increased **2020 capex** for **capacity expansion** - The company manufactures semiconductor wafers at **seven facilities**: **Fab 1** & **2** (**Israel**), **Fab 3** (California, US), **Fab 9** (Texas, US), and **three TPSCo fabs** (**Japan**)[209](index=209&type=chunk) Net Capital Expenditures | Year | Net Capex ($M) | | :--- | :--- | | **2020** | **257** | | **2019** | **172** | - The lease for **Fab 3** in Newport Beach, California has been extended through **March 2027**, though there is an ongoing dispute with the landlord regarding **noise abatement actions**[218](index=218&type=chunk) - All **manufacturing facilities** are certified with key international standards, including **ISO 9001** (**quality**), **IATF16949** (**automotive quality**), **ISO 14001** (**environmental**), and **OHSAS 45001** (**health and safety**)[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) [Operating and Financial Review and Prospects](index=39&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Analyzes **2020 financial performance**, **liquidity**, **R&D**, and **industry trends**, noting revenue growth and increased **capex** [Operating Results](index=39&type=section&id=A.%20OPERATING%20RESULTS) Reports **2020 revenue growth** to **$1.27 billion**, stable operations despite challenges, and a slight net profit decrease Financial Performance Comparison (2020 vs. 2019) | Metric | 2020 ($M) | 2019 ($M) | Change | | :--- | :--- | :--- | :--- | | **Revenues** | **1,265.7** | **1,234.0** | +**$31.7M** | | **Gross Profit** | **233.3** | **229.7** | +**$3.6M** | | **Operating Profit** | **91.0** | **86.7** | +**$4.3M** | | **Net Profit Attributable to Company** | **82.3** | **90.0** | -**$7.7M** | - The **COVID-19 pandemic** did not materially adversely affect **2020** results; a significant revenue increase began in **H2 2020**, driven by demand for **RF products** for **data centers** and **cloud computing**[232](index=232&type=chunk)[234](index=234&type=chunk) - A **cyber event** in **September 2020** caused a temporary, proactive halt in some **manufacturing facilities** but had no material impact on the business due to quick restoration and insurance coverage[238](index=238&type=chunk) - **Capital expenditures** increased by nearly **50%** to **$256.5 million** in **2020** from **$172.2 million** in **2019** to address growing customer demand[237](index=237&type=chunk) Revenue by Geography (2020 vs. 2019) | Region | 2020 (%) | 2019 (%) | | :--- | :--- | | **United States** | **44%** | **52%** | | **Japan** | **28%** | **29%** | | **Asia (ex-Japan)** | **22%** | **15%** | | **Europe** | **6%** | **4%** | [Liquidity and Capital Resources](index=44&type=section&id=B.%20LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Details **2020 liquidity**, cash flow, and debt position, noting sufficient resources for operations but potential need for acquisitions Cash and Debt Position (as of Dec 31, 2020) | Item | Amount ($M) | | :--- | :--- | | **Cash and cash equivalents** | **211.7** | | **Short-term deposits** | **310.2** | | **Marketable securities** | **189.0** | | **Total Debt (Current + Long-term)** | **390.3** | - Major cash activities in **2020** included **$276.6 million** generated from operations, **$313.7 million** invested in property and equipment, and **$63.7 million** used for debt repayment[272](index=272&type=chunk) - The company has a shelf registration statement in **Israel**, providing a platform for future fundraising to support strategic opportunities like acquisitions or **capacity expansion**[275](index=275&type=chunk) - Key **long-term debt** includes approximately **$104 million** in **Series G debentures**, a **$107 million JP Loan** for **TPSCo**, and significant capital lease obligations[278](index=278&type=chunk)[279](index=279&type=chunk) [Research and Development, Patents and Licenses](index=46&type=section&id=C.%20RESEARCH%20AND%20DEVELOPMENT,%20PATENTS%20AND%20LICENSES) Focuses on **R&D activities** for process improvement, with expenses steadily increasing to **$78.3 million** in **2020** Net Research and Development Expenses | Year | R&D Expense ($M) | | :--- | :--- | | **2020** | **78.3** | | **2019** | **75.6** | | **2018** | **73.1** | [Trend Information](index=46&type=section&id=D.%20TREND%20INFORMATION) Addresses **semiconductor industry trends**, focusing on **specialty analog technologies** and **capacity expansion** for growth - The company's strategy focuses on **differentiated specialty analog technologies** to counter pricing pressure on larger geometry products[286](index=286&type=chunk) - **Tower** targets **high-growth end markets** including **IoT**, **mobile applications**, **wireless communications**, **consumer electronics**, **automotive**, and **industrial markets**[287](index=287&type=chunk) - The company is accelerating plans to expand **manufacturing capacity**, including its **300mm fab**, and is actively evaluating **acquisition opportunities** to secure additional capacity and technology[289](index=289&type=chunk)[291](index=291&type=chunk) [Directors, Senior Management and Employees](index=48&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) Details leadership, compensation, board structure, and global workforce, including **unionized** employees and compliance [Directors and Senior Management](index=48&type=section&id=A.%20DIRECTORS%20AND%20SENIOR%20MANAGEMENT) Outlines the executive team and board of directors, led by **CEO Russell C Ellwanger** and **Chairman Amir Elstein** - **Russell C. Ellwanger** has served as **Chief Executive Officer** since **May 2005**[294](index=294&type=chunk) - **Amir Elstein** has served as the **Chairman of the Board of Directors** since **January 2009**[308](index=308&type=chunk) [Compensation](index=53&type=section&id=B.%20COMPENSATION) Details the **performance-based compensation policy**, including **2020 aggregate pay** and **shareholding guidelines** - An amended and restated **compensation policy** for executive officers and directors was approved by shareholders on **September 17, 2020**[320](index=320&type=chunk) 2020 Aggregate Compensation for Directors & Senior Management | Compensation Type | Amount ($M) | | :--- | :--- | | **Salaries, Fees, Bonuses** | **7.3** | | **Social & Other Benefits** | **2.0** | - In **September 2020**, shareholders approved an equity grant to the **CEO** valued at **$5.1 million**, comprising **40% time-based RSUs** and **60% performance-based PSUs**, vesting over three years[335](index=335&type=chunk)[341](index=341&type=chunk) - The **compensation policy** includes **minimum shareholding guidelines** requiring the **CEO** to own shares valued at **3x** his annual **base salary** by **May 2024**, and other executives/directors to own **0.5x** their annual fee/salary by **July 2025**[343](index=343&type=chunk) [Board Practices](index=57&type=section&id=C.%20BOARD%20PRACTICES) Describes the **nine-member Board of Directors**, its committees, and compliance with **Nasdaq independence rules** - The **Board of Directors** is currently comprised of **nine directors**[345](index=345&type=chunk) - The company has elected to exempt itself from the Israeli requirement to appoint **external directors** and instead complies with **Nasdaq listing rules** for **independent directors** and committee composition[348](index=348&type=chunk)[349](index=349&type=chunk) - The **Audit Committee** consists of **four members**, all of whom are determined to be **independent** and are classified as **audit committee financial experts** under **SEC rules**[352](index=352&type=chunk)[355](index=355&type=chunk) - The **Compensation Committee** is comprised of **three independent directors**[357](index=357&type=chunk)[359](index=359&type=chunk) [Employees](index=61&type=section&id=D.%20EMPLOYEES) Reports **5,511 global employees** as of **2020**, with a majority in manufacturing and a portion **unionized** Employee Headcount by Year | Year | Total Employees | | :--- | :--- | | **2020** | **5,511** | | **2019** | **5,279** | | **2018** | **5,586** | Employees by Function (as of Dec 31, 2020) | Function | Number of Employees | | :--- | :--- | | **Manufacturing and operations** | **3,858** | | **Process/product engineering, R&D, design** | **994** | | **Manufacturing support** | **386** | | **Sales, marketing, finance & admin** | **273** | | **Total** | **5,511** | - As of **December 31, 2020**, the company had **2,561** employees in **Japan**, **1,518** in **Israel**, and **1,416** in the **United States**[367](index=367&type=chunk) - A portion of employees in the Newport Beach, CA fab and most employees in the **Japan fabs** are represented by unions and covered by **collective bargaining agreements**[370](index=370&type=chunk)[372](index=372&type=chunk) [Major Shareholders and Related Party Transactions](index=63&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) Discloses major institutional shareholders as of **March 2021** and confirms no material related party transactions Major Shareholders (as of March 31, 2021) | Shareholder | Ownership (%) | | :--- | :--- | | **Wellington Management Group LLP** | **8.11%** | | **Senvest Management, LLC** | **7.04%** | | **Phoenix Holdings Ltd.** | **6.07%** | | **Harel Insurance Investments & Financial Services Ltd.** | **5.48%** | - As of **March 31, 2021**, no individual director or senior manager beneficially owned **1%** or more of the company's outstanding **ordinary shares**[373](index=373&type=chunk) - The company has not been a party to any **material related party transactions** involving directors, executive officers, or major shareholders[383](index=383&type=chunk) [Financial Information](index=64&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) References financial statements, notes a **Fab 3 lease dispute**, and states no anticipated dividends due to growth focus - The company is in a **dispute** with the landlord of its **Fab 3** facility in Newport Beach, CA, regarding **noise abatement actions**, with the landlord claiming a right to terminate the lease[386](index=386&type=chunk) - The company does not anticipate paying **dividends** in the foreseeable future, intending to **retain earnings** for growth. **Dividend** payments are also restricted by **covenants** in its **Series G Debentures**[387](index=387&type=chunk) [Additional Information](index=65&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) Covers corporate and legal information, including articles of association, material contracts, exchange controls, and taxation [Material Contracts](index=66&type=section&id=C.%20MATERIAL%20CONTRACTS) Highlights the key **manufacturing** and **lease agreements** with **NTCJ** for the **three TPSCo fabs** in **Japan** - In **March 2019**, the **manufacturing agreement** with **PSCS** (now **NTCJ**) for production at the **three TPSCo fabs** in **Japan** was extended for an additional three-year period with a revised pricing structure[401](index=401&type=chunk) - In **September 2020**, **Nuvoton Technology Corp.** acquired **PSCS** from Panasonic, and the new entity, **NTCJ**, assumed the existing **manufacturing** and **lease agreements** with **Tower** and **TPSCo**[401](index=401&type=chunk) [Taxation](index=67&type=section&id=E.%20TAXATION) Details Israeli and US tax implications for the company and investors, including '**Preferred Enterprise**' status - The standard Israeli corporate tax rate is **23%**, but **Tower's Israeli facilities** qualify as a "**Preferred Enterprise**," entitling them to a reduced tax rate of **7.5%** on preferred income[404](index=404&type=chunk)[425](index=425&type=chunk)[431](index=431&type=chunk) - Non-Israeli residents are generally exempt from Israeli capital gains tax on the sale of shares in a publicly traded Israeli company, provided the gains are not from a permanent establishment in **Israel** and other conditions are met[410](index=410&type=chunk) - **Dividends** distributed to non-resident individuals are subject to a **25%** withholding tax (or **30%** for a "**substantial shareholder**"), which may be reduced by an applicable tax treaty. **Dividends** from a **Preferred Enterprise** are generally taxed at **20%**[416](index=416&type=chunk) - For **U.S. Holders**, **dividends** paid by the company may qualify for reduced tax rates as "**qualified dividend income**," as the company is eligible for benefits under the **U.S.-Israel Tax Treaty** and its shares are traded on an established U.S. market[447](index=447&type=chunk)[451](index=451&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=77&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Discusses **market risks** from **interest rate** and **foreign currency fluctuations**, and **hedging strategies** employed - The company's major debt instruments, including **Series G Debentures** and the **JP Loan**, bear **fixed interest rates**, limiting cash flow exposure to **interest rate fluctuations**[467](index=467&type=chunk) - The company is exposed to **foreign exchange risk** from its operations in **Israel** (**NIS**) and **Japan** (**JPY**). Appreciation of the **NIS** increases Israeli labor and purchase costs in **USD** terms[469](index=469&type=chunk)[472](index=472&type=chunk) - To mitigate **currency risk**, the company uses **foreign currency cylinder transactions** for a portion of its **NIS** and **JPY** exposure and has fully hedged its **NIS-denominated Series G Debentures** with a **cross-currency swap**[472](index=472&type=chunk)[473](index=473&type=chunk) - In **2020**, the **USD** depreciated **7.0%** against the **NIS** and **5.0%** against the **JPY**[471](index=471&type=chunk)[474](index=474&type=chunk) PART II [Controls and Procedures](index=79&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management and auditors concluded **disclosure controls** and internal financial reporting controls were **effective** in **2020** - Management concluded that the company's **disclosure controls and procedures** were **effective** as of **December 31, 2020**[483](index=483&type=chunk) - Based on an evaluation using the **COSO 2013 framework**, management concluded that the company's **internal control over financial reporting** was **effective** as of **December 31, 2020**[484](index=484&type=chunk) - The independent registered public accounting firm, **Brightman Almagor Zohar & Co. (Deloitte)**, audited and issued an **unqualified opinion** on the **effectiveness** of the **internal control over financial reporting** as of **December 31, 2020**[486](index=486&type=chunk) [Corporate Governance](index=81&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) Outlines **corporate governance practices** as a **foreign private issuer**, noting Israeli law divergences from **Nasdaq rules** - As a **foreign private issuer**, the company follows certain **home country (Israeli) corporate governance practices** in lieu of specific **Nasdaq Listing Rules**[496](index=496&type=chunk) - Exemptions taken include practices related to the distribution of annual reports, meetings of **independent directors**, officer compensation approval, and quorum requirements for shareholder meetings[496](index=496&type=chunk) - The company follows **Israeli law** for **shareholder approval** of **corporate actions**, which may not align with all requirements of **Nasdaq Listing Rule 5635**, particularly regarding **equity compensation plans**[497](index=497&type=chunk) PART III [Financial Statements](index=83&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) Presents audited consolidated financial statements for **2020**, with an **unqualified auditor's opinion** and key notes Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | Metric | Amount ($M) | | :--- | :--- | | **Total Assets** | **2,094.1** | | **Total Current Assets** | **1,102.9** | | **Property and Equipment, Net** | **839.2** | | **Total Liabilities** | **639.2** | | **Total Current Liabilities** | **272.9** | | **Long-Term Debt** | **283.8** | | **Total Shareholders' Equity** | **1,454.9** | Consolidated Statement of Operations (Year Ended Dec 31, 2020) | Metric | Amount ($M) | | :--- | :--- | | **Revenues** | **1,265.7** | | **Gross Profit** | **233.3** | | **Operating Profit** | **91.0** | | **Net Profit** | **83.3** | | **Net Profit Attributable to Company** | **82.3** | | **Diluted EPS** | **$0.76** | Consolidated Statement of Cash Flows (Year Ended Dec 31, 2020) | Metric | Amount ($M) | | :--- | :--- | | **Net Cash from Operating Activities** | **276.6** | | **Net Cash used in Investing Activities** | **(363.6)** | | **Net Cash used in Financing Activities** | **(61.2)** | | **Decrease in Cash & Cash Equivalents** | **(143.9)** | - The independent auditor, **Brightman Almagor Zohar & Co. (Deloitte)**, identified the determination of the **income tax provision** in a multinational environment as a **critical audit matter** due to the **significant judgments and estimates** involved[526](index=526&type=chunk)[527](index=527&type=chunk)