TowerJazz Reports Fourth Quarter and Full Year 2013 Results

This press release includes forward-looking statements, which are subject to risks and uncertainties. Actual results may vary from those projected or implied by such forward-looking statements and you should not place any undue reliance on such forward-looking statements. Potential risks and uncertainties include, without limitation, risks and uncertainties associated with: (i) maintaining existing customers and attracting additional customers, (ii) cancellation of orders, (iii) failure to receive orders currently expected, (iv) the cyclical nature of the semiconductor industry and the resulting periodic overcapacity, fluctuations in operating results and future average selling price erosion, (v) material amount of fixed costs, debt and other liabilities and having sufficient funds to satisfy our fixed costs, debt obligations and other short-term and long-term liabilities on a timely basis, (vi) operating our facilities at high utilization rates which is critical in order to defray the high level of fixed costs associated with operating a foundry and reduce our losses, (vii) our ability to satisfy the covenants stipulated in our agreements with our lenders, banks and bond holders, (viii) our ability to capitalize on potential increases in demand for foundry services, (ix) meeting the conditions set in the approval certificates received from the Israeli Investment Center under which we received a significant amount of grants in past years, (x) our ability to accurately forecast financial performance, which is affected by limited order backlog and lengthy sales cycles, (xi) the purchase of equipment to increase capacity, the completion of the equipment installation, technology transfer and raising the funds therefor, (xii) the concentration of our business in the semiconductor industry, (xiii) product returns, (xiv) our ability to maintain and develop our technology processes and services to keep pace with new technology, evolving standards, changing customer and end-user requirements, new product introductions and short product life cycles, (xv) competing effectively, (xvi) achieving acceptable device yields, product performance and delivery times, (xvii) possible production or yield problems in our wafer fabrication facilities, (xviii) our ability to manufacture products on a timely basis, (xix) our dependence on intellectual property rights of others, our ability to operate our business without infringing others’ intellectual property rights and our ability to enforce our intellectual property against infringement, (xxi) our ability to fulfill our obligations and meet performance milestones under our agreements, including successful execution of our agreement with an Asian entity signed in 2009, (xxiii) retention of key employees and recruitment and retention of skilled qualified personnel, (xxiv) exposure to inflation, currency exchange and interest rate fluctuations and risks associated with doing business locally and internationally, (xxv) fluctuations in the market price of our traded securities may adversely affect our reported GAAP non-cash financing expenses, (xxvi) issuance of ordinary shares as a result of conversion and/or exercise of any of our convertible securities may dilute the shareholdings of current and future shareholders, (xxvii) successfully ramping new technologies at TowerJazz's Japan fab and engaging new customers to utilize this fab at a level that will cover all of its cost to avoid negative net cash flows and cash needs to operate the Japan fab; (xxviii) meeting regulatory requirements worldwide; (xxix) successfully closing the joint venture transaction with Panasonic, including the consolidation of our Japanese business, which may include fab consolidations between our Nishiwaki facility and the joint venture’s facilities; and (xxx) business interruption due to fire and other natural disasters, the security situation in Israel and other events beyond our control.

A more complete discussion of risks and uncertainties that may affect the accuracy of forward-looking statements included in this press release or which may otherwise affect our business is included under the heading "Risk Factors" in Tower’s most recent filings on Forms 20-F, F-3, F-4, S-8 and 6-K, as were filed with the Securities and Exchange Commission (the “SEC”) and the Israel Securities Authority and Jazz’s most recent filings on Forms 10-K and 10-Q, as were filed with the SEC. Future results may differ materially from those previously reported. The Company does not intend to update, and expressly disclaims any obligation to update, the information contained in this release.

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

December 31,

September 30,

December 31,

2013

2012

(Unaudited)

ASSETS

CURRENT ASSETS

Cash, short-term deposits and designated deposits

122,871

141,447

133,398

Trade accounts receivable

80,316

71,664

79,354

Other receivables

10,943

11,724

5,379

Inventories

64,804

70,364

65,570

Other current assets

11,480

15,815

14,405

Total current assets

290,414

311,014

298,106

LONG-TERM INVESTMENTS

14,494

13,529

12,963

PROPERTY AND EQUIPMENT, NET

350,039

369,628

434,468

INTANGIBLE ASSETS, NET

32,393

36,066

47,936

GOODWILL

7,000

OTHER ASSETS, NET

11,547

11,922

13,768

TOTAL ASSETS

705,887

749,159

814,241

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Short term debt

36,441

45,460

49,923

Trade accounts payable

66,358

63,383

81,372

Deferred revenue

3,166

2,218

1,784

Other current liabilities

33,951

39,893

36,240

Total current liabilities

139,916

150,954

169,319

LONG-TERM DEBT

316,885

305,929

288,954

LONG-TERM CUSTOMERS' ADVANCES

7,187

7,209

7,407

EMPLOYEE RELATED LIABILITIES

65,337

76,013

77,963

DEFERRED TAX LIABILITY

13,611

15,145

26,405

OTHER LONG-TERM LIABILITIES

21,703

22,314

24,168

Total liabilities

564,639

577,564

594,216

SHAREHOLDERS' EQUITY

141,248

171,595

220,025

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

705,887

749,159

814,241

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

RECONCILIATION OF REPORTED GAAP TO NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(dollars in thousands, except per share data)

Three months ended

December 31,

September 30,

December 31,

September 30,

December 31,

September 30,

2013

non-GAAP

Adjustments (see a, b, c, d, e, f below)

GAAP

REVENUES

134,571

132,555

134,571

132,555

COST OF REVENUES

88,635

93,069

36,995

(a)

35,115

(a)

125,630

128,184

GROSS PROFIT

45,936

39,486

(36,995

)

(35,115

)

8,941

4,371

OPERATING COSTS AND EXPENSES

Research and development

7,801

8,139

188

(b)

7,989

8,184

Marketing, general and administrative

10,368

10,241

556

(c)

764

(c)

10,924

11,005

Amortization related to a lease agreement early termination

1,866

(d)

1,866

(d)

1,866

18,169

18,380

2,610

2,675

20,779

21,055

OPERATING PROFIT (LOSS)

27,767

21,106

(39,605

)

(37,790

)

(11,838

)

(16,684

)

INTEREST EXPENSES, NET

(8,223

)

(8,416

)

(e)

(8,223

)

(8,416

)

OTHER FINANCING EXPENSE, NET

(11,109

)

(e)

(9,502

)

(e)

(11,109

)

(9,502

)

OTHER EXPENSE, NET

(380

)

(465

)

(380

)

(465

)

PROFIT (LOSS) BEFORE INCOME TAX

19,164

12,225

(50,714

)

(47,292

)

(31,550

)

(35,067

)

INCOME TAX BENEFIT

1,704

(f)

3,291

(f)

1,704

3,291

NET PROFIT (LOSS) FOR THE PERIOD

19,164

12,225

(49,010

)

(44,001

)

(29,846

)

(31,776

)

Loss per ordinary share*

0.62

0.68

(a)		Includes depreciation and amortization expenses in the amounts of $36,747 and $35,000 and stock based compensation expenses in the amounts of $248 and $115 for the three months ended December 31, 2013 and September 30, 2013 respectively.

(b)		Includes depreciation and amortization expenses in the amounts of $(49) and $(62) and stock based compensation expenses in the amounts of $237 and $107 for the three months ended December 31, 2013 and September 30, 2013 respectively.

(c)		Includes depreciation and amortization expenses in the amounts of $205 and $206 and stock based compensation expenses in the amounts of $351 and $558 for the three months ended December 31, 2013 and September 30, 2013 respectively.

(d)		Non cash amortization related to an early termination of an office building lease contract.

(e)		Non-GAAP interest expenses and other financing expenses, net includes only interest on an accrual basis.

(f)		Non-GAAP income tax expenses include taxes paid during the period.

*()**		Basic earnings per ordinary share according to non-GAAP results is $0.40 and $0.26 for the three months ended December 31, 2013 and September 30, 2013, respectively and the weighted average number of ordinary shares outstanding is 47.9 million and 46.6 million for these periods.

		Fully diluted earnings per share according to non-GAAP results would be $0.34 and $0.22 for the three months ended December 31, 2013 and September 30, 2013, respectively, and the weighted average number of shares outstanding would be 56.4 million and 55.6 million for these periods; fully diluted earnings results and quantities of number of shares outstanding exclude 23.2 million for the three months ended December 31, 2013 and September 30, 2013, of securities that carry exercise price or conversion ratios, which are above the average price of the company’s stock during these periods.

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

RECONCILIATION OF REPORTED GAAP TO NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(dollars in thousands, except per share data)

Three months ended

December 31,

2013

2012

2013

2012

2013

2012

non-GAAP

Adjustments (see a, b, c, d, e, f below)

GAAP

REVENUES

134,571

147,587

134,571

147,587

COST OF REVENUES

88,635

98,279

36,995

(a)

40,738

(a)

125,630

139,017

GROSS PROFIT

45,936

49,308

(36,995

)

(40,738

)

8,941

8,570

OPERATING COSTS AND EXPENSES

Research and development

7,801

7,138

188

(b)

194

(b)

7,989

7,332

Marketing, general and administrative

10,368

9,737

556

(c)

1,018

(c)

10,924

10,755

Amortization related to a lease agreement early termination

1,866

(d)

1,866

18,169

16,875

2,610

1,212

20,779

18,087

OPERATING PROFIT (LOSS)

27,767

32,433

(39,605

)

(41,950

)

(11,838

)

(9,517

)

INTEREST EXPENSES, NET

(8,223

)

(8,647

)

(e)

(8,223

)

(8,647

)

OTHER FINANCING EXPENSE, NET

(11,109

)

(e)

(7,614

)

(e)

(11,109

)

(7,614

)

OTHER INCOME (EXPENSE), NET

(380

)

(380

)

PROFIT (LOSS) BEFORE INCOME TAX

19,164

23,864

(50,714

)

(49,564

)

(31,550

)

(25,700

)

INCOME TAX BENEFIT (EXPENSE)

(1,937

)

1,704

(f)

4,248

(f)

1,704

2,311

NET PROFIT (LOSS) FOR THE PERIOD

19,164

21,927

(49,010

)

(45,316

)

(29,846

)

(23,389

)

Loss per ordinary share*

0.62

1.03

(a)		Includes depreciation and amortization expenses in the amounts of $36,747 and $40,539 and stock based compensation expenses in the amounts of $248 and $199 for the three months ended December 31, 2013 and December 31, 2012 respectively.

(b)		Includes depreciation and amortization expenses in the amounts of $(49) and $33 and stock based compensation expenses in the amounts of $237 and $161 for the three months ended December 31, 2013 and December 31, 2012 respectively.

(c)		Includes depreciation and amortization expenses in the amounts of $205 and $208 and stock based compensation expenses in the amounts of $351 and $810 for the three months ended December 31, 2013 and December 31, 2012 respectively.

(d)		Non cash amortization related to an early termination of an office building lease contract.

(e)		Non-GAAP interest expenses and other financing expenses, net includes only interest on an accrual basis.

(f)		Non-GAAP income tax expenses include taxes paid during the period.

*()**		Basic earnings per ordinary share according to non-GAAP results is $0.40 and $0.96 for the three months ended December 31, 2013 and December 31, 2012, respectively and the weighted average number of ordinary shares outstanding is 47.9 million and 22.8 million for these periods.

		Fully diluted earnings per shares according to non-GAAP results would be $0.34 and $0.44 for the three months ended December 31, 2013 and December 31, 2012, respectively, and the weighted average number of shares outstanding would be 56.4 and 49.5 million for these periods; fully diluted earnings results and quantities of number of shares outstanding exclude 23.2 million and 22.7 million for the three months ended December 31, 2013 and December 31, 2012, respectively, of securities that carry exercise price or conversion ratios, which are above the average price of the company’s stock during these periods.

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

RECONCILIATION OF REPORTED GAAP TO NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(dollars in thousands, except per share data)

Year ended

December 31,

2013

2012

2013

2012

2013

2012

non-GAAP

Adjustments (see a, b, c, d, e, f, g below)

GAAP

REVENUES

505,009

638,831

505,009

638,831

COST OF REVENUES

341,855

405,398

135,045

(a)

154,648

(a)

476,900

560,046

GROSS PROFIT

163,154

233,433

(135,045

)

(154,648

)

28,109

78,785

OPERATING COSTS AND EXPENSES

Research and development

32,543

29,075

521

(b)

2,018

(b)

33,064

31,093

Marketing, general and administrative

40,483

39,171

2,433

(c)

5,242

(c)

42,916

44,413

Reorganization costs

5,789

(d)

5,789

Amortization related to a lease agreement early termination

7,464

(e)

7,464

73,026

68,246

10,418

13,049

83,444

81,295

OPERATING PROFIT (LOSS)

90,128

165,187

(145,463

)

(167,697

)

(55,335

)

(2,510

)

INTEREST EXPENSES, NET

(32,971

)

(31,808

)

(f)

(32,971

)

(31,808

)

OTHER FINANCING EXPENSE, NET

(27,838

)

(f)

(27,583

)

(f)

(27,838

)

(27,583

)

OTHER EXPENSE, NET

(904

)

(1,042

)

(904

)

(1,042

)

PROFIT (LOSS) BEFORE INCOME TAX

56,253

132,337

(173,301

)

(195,280

)

(117,048

)

(62,943

)

INCOME TAX BENEFIT (EXPENSE)

(190

)

(852

)

9,578

(g)

(6,474

)

(g)

9,388

(7,326

)

NET PROFIT (LOSS) FOR THE PERIOD

56,063

131,485

(163,723

)

(201,754

)

(107,660

)

(70,269

)

Loss per ordinary share*

2.72

3.17

(a)		Includes depreciation and amortization expenses in the amounts of $134,448 and $153,746 and stock based compensation expenses in the amounts of $597 and $902 for the year ended December 31, 2013 and December 31, 2012, respectively.

(b)		Includes depreciation and amortization expenses in the amounts of $(6) and $1,304 and stock based compensation expenses in the amounts of $527 and $714 for the year ended December 31, 2013 and December 31, 2012, respectively.

(c)		Includes depreciation and amortization expenses in the amounts of $775 and $1,121 and stock based compensation expenses in the amounts of $1,658 and $4,121 for the year ended December 31, 2013 and December 31, 2012, respectively.

(d)		Includes reorganization costs.

(e)		Non cash amortization related to an early termination of an office building lease contract.

(f)		Non-GAAP interest expenses and other financing expense, net include only interest on an accrual basis.

(g)		Non-GAAP income tax expenses include taxes paid during the period.

*()**		Basic earnings per ordinary share according to non-GAAP results is $1.41 and $5.93 for the year ended December 31, 2013 and December 31, 2012, respectively and the weighted average number of ordinary shares outstanding is 39.6 million and 22.2 million for these periods.

		Fully diluted earnings per shares according to non-GAAP results would be $1.06 and $2.65 for the year ended December 31, 2013 and December 31, 2012, respectively, and the weighted average number of shares outstanding would be 52.9 and 49.6 million for these periods; fully diluted earnings results and quantities of number of shares outstanding exclude 23.2 million and 7.4 million for the year ended December 31, 2013 and December 31, 2012, respectively, of securities that carry exercise price or conversion ratios, which are above the average price of the company’s stock during these periods.

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