Tower Semiconductor Ltd. (NASDAQ:TSEM) Q3 2019 Earnings Conference Call - Final Transcript

Nov 13, 2019 • 10:00 am ET

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Tower Semiconductor Ltd. (NASDAQ:TSEM) Q3 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Oren Shirazi

assets ratio of 4.5x.

Moving on to elaborate on the tax line in the P&L. I would like to describe our applicable and effective tax rate. Our US affiliate Jazz Semiconductor and TowerJazz Texas which own our Newport Beach and San Antonio Fabs, respectively, were taxed at 21% rate, starting in 2018, following the US tax reform as compared to 35% prior to that reform.

TPSCo's profits from the Japanese operations are subject to an approximate 32% tax rates. Our profits in Israel from Fab one and Fab two operations were subject to a 7.5% statutory tax rate, are not expected to result in any tax payments in Israel for the foreseeable future. Since we have more than $1 billion in historical NOLs, still to be utilized, which can be carried favor -- forward indefinitely.

Considering these and since we have certain tax exemptions, discounts and credits, our all-in worldwide weighted average effective tax rate was 4% for the year ended 2018. And approximately 1% in 2019 to-date.

With regards to hedging activities, in relation to the euro currency, we have almost zero business in euros, hence no exposure to the euro. In relation to Japanese yen, since the majority portion of TPSCo's revenue is denominated in yen and the vast majority of TPSCo's cost are in yen, we have a natural hedge over most of our Japanese business and operations. In order to mitigate the remaining yen exposure, we execute zero-cost cylinder hedging transactions.

This zero-cost cylinder transaction hedge currency fluctuations to be contained in a narrow range as compared to the spot exchange rate, hence while the yen rate against the dollar may fluctuate, the impact on our margins is limited. In addition, in relation to the Japanese yen impact on the balance sheet, we have a natural hedge on cash and loan balances since the loans and the cash are both yen denominated. This helps to protect us from potential impact on -- of yen fluctuations.

Lastly, in relation to fluctuations in the Israeli shekel currency, we have no revenues in this currency and while less than 10% of our cost are denominated in the Israeli currency, we hedge a large portion of this currency risk using cylinder -- zero cost cylinder transactions as well.

And the last note on our share count as of September 30, 2019, we had 107 million outstanding ordinary shares. We no longer have any capital notes outstanding, since all were converted in the past into equity. The fully diluted share count is 109 million. The difference between the outstanding and the diluted share count is comprised entirely of ESOP related options and RSUs.

And now I wish to turn the call to the operator .