Tower Semiconductor(TSEM) - 2022 Q2 - Quarterly Report

Consolidated Financial Statements 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 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 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) 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 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 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 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 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] - The financial statements are prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP)[19] Note 2 - Initial Adoption of New Standards 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] Note 3 - Recent Developments 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] - 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] Note 4 - Subsequent Events 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] - 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]