FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the month of October 2004
TOWER SEMICONDUCTOR LTD.
(Translation of registrant's name into English)
RAMAT GAVRIEL INDUSTRIAL PARK
P.O. BOX 619, MIGDAL HAEMEK, ISRAEL 23105
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F[_]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
On October 17, 2004, the Registrant announced that Israeli fabless
companies represent fifth of its revenues. Attached hereto as Exhibit 99.1 is a
copy of the press release.
On October 21, 2004, the Registrant announced its financial results for the
three and nine month periods ended September 30, 2004. Attached hereto as
Exhibit 99.2 is the press release relating to such announcement and attached
hereto as Exhibit 99.3 are the Registrant's unaudited interim consolidated
financial statements for the three and nine month periods ended September 30,
2004.
This Form 6-K is being incorporated by reference into all effective
registration statements filed by us under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER SEMICONDUCTOR LTD.
Date: October 21, 2004 By: /s/ Tamar Cohen
-------------------
Tamar Cohen
Corporate Secretary
EXHIBIT 99.1
TOWER SEMICONDUCTOR: ISRAELI FABLESS REPRESENT
FIFTH OF OUR REVENUES
TOWER IS HOSTING THE SECOND ISRAELI FABLESS CONFERENCE
MIGDAL HAEMEK, ISRAEL - OCTOBER 17, 2004 - Tower Semiconductor Ltd. (NASDAQ:
TSEM; TASE: TSEM) today announced that Israeli Fabless companies represent fifth
of its revenues. Tower will host the Israeli Fabless conference on Wednesday,
October 20, 2004 at the Daniel Hotel in Herzelia, Israel. Aimed towards
strengthening the cooperation amongst Israeli fables companies, the conference
is expected to host representatives from 40 companies.
Tower conducts extensive relations with the Israeli semiconductor industry and
has further increased the number of local customers since the commencement of
operation of its new fabrication facility, Fab 2. At the conference, Tower will
present its capabilities and plans for 0.13-micron manufacturing, and offer
networking opportunities and technical sessions of common interest to the
members of the growing Israeli Fabless community. In addition, Tower will
present its design to production advanced customer services, its wide IP
offering and cooperation with the industry's leading vendors.
"We are pleased to host this conference for the second time and provide a forum
for fruitful discussions among our customers, potential customers, strategic
partners and providers of the semiconductor industry," said Carmel Vernia,
chairman and chief executive officer of Tower. "Tower views its Israeli
customers an important, strategic target and will continue to act towards
strengthening the relations with the local industry, as well as providing them
with the highest quality and service."
"Being the sole foundry in Israel, Tower has an important role in promoting the
local semiconductor industry at the global market, by increasing the Israeli
capabilities, development and offering, while reducing costs and
time-to-market," said Ephie Koltin, Regional Marketing Manager in Tower. "In
last year's conference we presented Tower's 0.18-micron manufacturing plans, and
now we are proud to show success stories in 0.18-micron and production plans for
our next technology generations."
For additional information and registration, please contact Iris Hirsch, Marcom
Manager - Israel, at Tower, phone: +972-4-6506191, e-mail: irishir@towersemi.com
-MORE-
ABOUT TOWER SEMICONDUCTOR LTD.
Tower Semiconductor LTD. is a pure-play independent wafer foundry established in
1993. The company manufactures integrated circuits with geometries ranging from
1.0 to 0.13 micron; it also provides complementary technical services and design
support. In addition to digital CMOS process technology, Tower offers advanced
non-volatile memory solutions, mixed-signal and CMOS image-sensor technologies.
To provide world-class customer service, the company maintains two manufacturing
facilities: Fab 1 has process technologies from 1.0 to 0.35 micron and can
produce up to 16,000 150mm wafers per month. Fab 2 features 0.18-micron and
below process technologies, including foundry-standard technology. When fully
equipped, Fab 2 is expected to offer full production capacity of 33,000 200mm
wafers per month. The Tower Web site is located at www.towersemi.com.
SAFE HARBOR
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. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE,
WITHOUT LIMITATION, RISKS AND UNCERTAINTIES ASSOCIATED WITH: (I) THE COMPLETION
OF THE EQUIPMENT INSTALLATION, TECHNOLOGY TRANSFER AND RAMP-UP OF PRODUCTION IN
FAB 2, (II) HAVING SUFFICIENT FUNDS TO COMPLETE THE FAB 2 PROJECT, (III) THE
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY AND THE RESULTING PERIODIC
OVERCAPACITY, (IV) OPERATING OUR FACILITIES AT SATISFACTORY UTILIZATION RATES,
(V) THE AFFECT THAT OUR EXPECTED DECREASE IN SALES IN COMING QUARTERS WILL HAVE
ON OUR ABILITY TO MEET OUR COVENANTS IN OUR AMENDED FACILITY AGREEMENT, WHICH WE
CURRENTLY FORECAST WE WILL NOT MEET IN THE NEXT SEVERAL QUARTERS, (VI) OUR
ABILITY TO CAPITALIZE ON INCREASES IN DEMAND FOR FOUNDRY SERVICES, (VII) MEETING
THE CONDITIONS TO RECEIVE ISRAELI GOVERNMENT GRANTS AND TAX BENEFITS APPROVED
FOR FAB 2 AND OBTAINING THE APPROVAL OF THE ISRAELI INVESTMENT CENTER TO EXTEND
THE FIVE-YEAR INVESTMENT PERIOD UNDER OUR FAB 2 APPROVED ENTERPRISE PROGRAM AND
OF AMENDMENTS TO OUR MODIFIED BUSINESS PLAN, (VIII) ATTRACTING ADDITIONAL
CUSTOMERS, (IX) NOT RECEIVING ORDERS FROM OUR WAFER PARTNERS AND TECHNOLOGY
PROVIDERS, (X) FAILING TO MAINTAIN AND DEVELOP OUR TECHNOLOGY PROCESSES AND
SERVICES, (XI) COMPETING EFFECTIVELY, (XII) OUR LARGE AMOUNT OF DEBT AND OUR
SATISFYING THE COVENANTS SET FORTH IN OUR AMENDED FACILITY AGREEMENT, AND (XIII)
ACHIEVING ACCEPTABLE DEVICE YIELDS, PRODUCT PERFORMANCE AND DELIVERY TIMES. 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
OUR MOST RECENT ANNUAL REPORT ON FORM 20-F AND IN OUR FORM F-3, AS AMENDED, AS
WERE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE ISRAEL SECURITIES
AUTHORITY.
# # #
PR AGENCY CONTACT INVESTOR RELATIONS CONTACT CORPORATE CONTACT
Matt Beevers Sheldon Lutch Michael Axelrod
Pacifico, Inc. IR & Communications Tower Semiconductor USA
+1 (408) 293-8600 +1 (212) 268 1816 +1 (408) 330 6871
mbeevers@pacifico.com sheldon@fusionir.com pr@towersemi.com
EXHIBIT 99.2
TOWER SEMICONDUCTOR LTD. ANNOUNCES THIRD
QUARTER AND NINE MONTHS 2004 RESULTS
MIGDAL HAEMEK, Israel - October 21, 2004 - Tower Semiconductor Ltd. (NASDAQ:
TSEM; TASE: TSEM) today announced results for the third quarter and nine months
ended September 30, 2004.
Revenues for the third quarter of 2004 totaled $35.1 million, an increase of 118
percent over $16.1 million reported in the third quarter of 2003. This is
compared to revenues of $33.7 million in the second quarter of 2004.
The loss in the third quarter of 2004 was $39.4 million, or $0.60 per share,
compared to a loss of $37.1 million, or $0.77 per share, in the third quarter of
2003, and compared to a loss of $36.5 million, or $0.55 per share, for the
second quarter of 2004. The loss for the third quarter of 2004 includes $29.7
million of depreciation and amortization.
Revenues for the nine months ended September 30, 2004, were $96.0 million, an
increase of 131 percent over revenues of $41.5 million for the nine months ended
September 30, 2003. The company reported a loss of $114.4 million, or $1.78 per
share in the nine months ended September 30, 2004, compared to a loss of $68.3
million, or $1.49 per share, in the nine months ended September 30, 2003. The
increase in loss, as compared with the nine months ended September 30, 2003, is
primarily attributed to depreciation and amortization, which was $83.2 million
on the nine months ended September 30, 2004 vs. $29.6 million in the parallel
period of 2003.
"Tower achieved quarter over quarter revenues growth, in spite of the
industry-wide challenging market condition," said Carmel Vernia, chairman and
chief executive officer of Tower. "Looking to the near future, demand and
average sale price are expected to decline, resulting in lower Q4-2004 and
Q1-2005 sales. Our long-term outlook remains positive based on new customers
that are in various stages of designing and prototyping into the fabs. We expect
to see demand increase starting in Q2-2005."
The company expects Q-4 2004 revenues to be in the range of $30 million and $33
million. The company is now targeting for positive EBITDA in the second half of
2005.
"We continue to see progress in our specialized technologies," added Mr. Vernia.
"We've added two new 0.18-micron CMOS image sensor committed customers this
quarter and are running prototype silicon for a 0.18-micron embedded flash
customer. We also increased the amount of mixed signal designs into our fabs,
all of which are expected to increase our production levels during 2005."
Further to the dismissal of the class action filed in the United States District
Court for the Southern District of New York on behalf of the shareholders of the
company against the company and certain of its directors and shareholders, the
company was informed in September 2004 that one of the lead plaintiffs filed a
notice of appeal of the decision dismissing the complaint. The Company believes
that the complaint is without merit and will continue to vigorously contest it.
The company will host a conference call to discuss these results on Thursday,
October 21, 2004 at 10:00 a.m. Eastern time / 16:00 Israel time. To participate,
call 1-800-500-0177 (U.S. toll-free number) or 1-719-457-2679 (international)
and mention ID code: TOWER. Callers in Israel are invited to call locally, at
03-925-5910. The conference call also will be Webcast live at
www.companyboardroom.com and at www.towersemi.com. The call will be available on
both Web sites for replay for 90 days.
ABOUT TOWER SEMICONDUCTOR LTD.
Tower Semiconductor LTD. is a pure-play independent wafer foundry established in
1993. The company manufactures integrated circuits with geometries ranging from
1.0 to 0.13 micron; it also provides complementary technical services and design
support. In addition to digital CMOS process technology, Tower offers advanced
non-volatile memory solutions, mixed-signal and CMOS image-sensor technologies.
To provide world-class customer service, the company maintains two manufacturing
facilities: Fab 1 has process technologies from 1.0 to 0.35 micron and can
produce up to 16,000 150mm wafers per month. Fab 2 features 0.18-micron and
below process technologies, including foundry-standard technology. When fully
equipped, Fab 2 is expected to offer full production capacity of 33,000 200mm
wafers per month. The Tower Web site is located at www.towersemi.com.
SAFE HARBOR
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. POTENTIAL RISKS AND UNCERTAINTIES INCLUDE,
WITHOUT LIMITATION, RISKS AND UNCERTAINTIES ASSOCIATED WITH: (I) THE COMPLETION
OF THE EQUIPMENT INSTALLATION, TECHNOLOGY TRANSFER AND RAMP-UP OF PRODUCTION IN
FAB 2, (II) HAVING SUFFICIENT FUNDS TO COMPLETE THE FAB 2 PROJECT, (III) THE
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY AND THE RESULTING PERIODIC
OVERCAPACITY, (IV) OPERATING OUR FACILITIES AT SATISFACTORY UTILIZATION RATES,
(V) THE EFFECT THAT OUR EXPECTED DECREASE IN SALES IN THE COMING QUARTERS WILL
HAVE ON OUR ABILITY TO MEET CERTAIN OF THE COVENANTS STIPULATED IN OUR AMENDED
FACILITY AGREEMENT, WHICH WE CURRENTLY FORECAST WE MAY NOT MEET IN THE NEXT
SEVERAL QUARTERS, (VI) OUR ABILITY TO CAPITALIZE ON INCREASES IN DEMAND FOR
FOUNDRY SERVICES, (VII) MEETING THE CONDITIONS TO RECEIVE ISRAELI GOVERNMENT
GRANTS AND TAX BENEFITS APPROVED FOR FAB 2 AND OBTAINING THE APPROVAL OF THE
ISRAELI INVESTMENT CENTER TO EXTEND THE FIVE-YEAR INVESTMENT PERIOD UNDER OUR
FAB 2 APPROVED ENTERPRISE PROGRAM, (VIII) ATTRACTING ADDITIONAL CUSTOMERS, (IX)
NOT RECEIVING ORDERS FROM OUR WAFER PARTNERS AND TECHNOLOGY PROVIDERS, (X)
FAILING TO MAINTAIN AND DEVELOP OUR TECHNOLOGY PROCESSES AND SERVICES, (XI)
COMPETING EFFECTIVELY, (XII) OUR LARGE AMOUNT OF DEBT, AND (XIII) ACHIEVING
ACCEPTABLE DEVICE YIELDS, PRODUCT PERFORMANCE AND DELIVERY TIMES. 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 OUR MOST
RECENT ANNUAL REPORT ON FORM 20-F AND IN OUR FORM F-3, AS AMENDED, AS WERE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE ISRAEL SECURITIES AUTHORITY.
# # #
PR AGENCY CONTACT INVESTOR RELATIONS CONTACT CORPORATE CONTACT
Matt Beevers Sheldon Lutch Michael Axelrod
Pacifico, Inc. IR & Communications Tower Semiconductor USA
+1 (408) 293-8600 +1 (212) 268 1816 +1 (408) 330 6871
mbeevers@pacifico.com sheldon@fusionir.com pr@towersemi.com
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
-------- --------
2004 2003
-------- --------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 21,877 $ 12,448
DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 36,576 44,042
TRADE ACCOUNTS RECEIVABLE 25,961 11,631
OTHER RECEIVABLES 18,385 11,073
INVENTORIES 30,371 19,382
OTHER CURRENT ASSETS 1,243 1,729
-------- --------
TOTAL CURRENT ASSETS 134,413 100,305
-------- --------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS 4,934 4,848
OTHER LONG-TERM INVESTMENTS 6,000 6,000
-------- --------
10,934 10,848
-------- --------
PROPERTY AND EQUIPMENT, NET 613,561 568,412
-------- --------
OTHER ASSETS, NET 97,961 108,770
======== ========
TOTAL ASSETS $856,869 $788,335
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 61,202 $ 40,249
OTHER CURRENT LIABILITIES 9,082 9,564
-------- --------
TOTAL CURRENT LIABILITIES 70,284 49,813
LONG-TERM DEBT 497,000 431,000
CONVERTIBLE DEBENTURES 25,643 25,783
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 65,069 46,347
OTHER LONG-TERM LIABILITIES 7,792 5,935
-------- --------
TOTAL LIABILITIES 665,788 558,878
-------- --------
SHAREHOLDERS' EQUITY
ORDINARY SHARES 16,260 13,150
ADDITIONAL PAID-IN CAPITAL 517,258 427,881
PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- 16,428
SHAREHOLDER RECEIVABLES (26) (26)
ACCUMULATED DEFICIT (333,339) (218,904)
-------- --------
200,153 238,529
TREASURY STOCK, AT COST (9,072) (9,072)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 191,081 229,457
======== ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $856,869 $788,335
======== ========
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data and per share data)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ------------------------
2004 2003 2004 2003
---------- --------- --------- --------
SALES $ 95,990 $ 41,545 $ 35,091 $ 16,074
COST OF SALES 162,242 75,816 57,843 38,548
---------- --------- --------- --------
GROSS LOSS (66,252) (34,271) (22,752) (22,474)
---------- --------- --------- --------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 11,208 12,551 3,952 3,895
MARKETING, GENERAL AND ADMINISTRATIVE 16,176 17,064 5,155 6,300
---------- --------- --------- --------
27,384 29,615 9,107 10,195
========== ========= ========= ========
OPERATING LOSS (93,636) (63,886) (31,859) (32,669)
FINANCING EXPENSE, NET (20,907) (4,293) (7,567) (4,264)
OTHER INCOME (EXPENSE), NET 108 (87) 14 (153)
---------- --------- --------- --------
LOSS FOR THE PERIOD $ (114,435) $ (68,266) $ (39,412) $(37,086)
========== ========= ========= ========
BASIC LOSS PER ORDINARY SHARE
LOSS PER SHARE (*) $ (1.78) $ (1.49) $ (0.60) $ (0.77)
========== ========= ========= ========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS (**) 64,392 45,788 65,625 48,360
========== ========= ========= ========
(*) Basic and diluted loss per share data in accordance with U.S. GAAP are the
same as the Isr. GAAP data for the nine and three months periods ended
September 30, 2004 and 2003
(**) Weighted average number of ordinary shares outstanding in accordance with
U.S. GAAP would be 64,280 thousands and 65,625 thousands for the nine and
three months ended September 30, 2004 [45,788 thousands and 48,360
thousands in the nine and three months ended September 30, 2003,
respectively].
Exhibit 99.3
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2004
PAGE
----
ACCOUNTANTS' REVIEW REPORT 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-15
DELOITTE.
Brightman Almagor
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel
Tel: +972 (3) 608 5555
Fax: +972 (3) 609 4022
info@deloitte.co.il
www.deloitte.com
The Board of Directors
Tower Semiconductor Ltd.
MIGDAL HA'EMEK
Gentlemen:
Re: REVIEW OF UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Tower Semiconductor Ltd. ("the
Company") and its subsidiary, as follows:
- Balance sheet as of September 30, 2004.
- Statements of operations for the nine months and three months ended
September 30, 2004.
- Statements of changes in shareholders' equity for the nine months and three
months ended September 30, 2004.
- Statements of cash flows for the nine months and three months ended
September 30, 2004.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention which indicates that
material adjustments are required to the interim financial statements for them
to be deemed financial statements prepared in conformity with accounting
principles generally accepted in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The effect of the application of the latter on the financial position
and results of operations as of the date and for the periods presented is
summarized in Note 5.
Respectfully submitted,
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, Israel
October 21, 2004
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
AS OF SEPTEMBER 30, DECEMBER 31,
---------------------- ---------
2004 2003 2003
--------- --------- ---------
(UNAUDITED)
----------------------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 21,877 $ 4,218 $ 12,448
SHORT-TERM INTEREST-BEARING DEPOSITS -- 2,500 --
DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 36,576 1,659 44,042
TRADE ACCOUNTS RECEIVABLE (NET OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $0, $110 AND $0, RESPECTIVELY) 25,961 9,302 11,631
OTHER RECEIVABLES 18,385 14,564 11,073
INVENTORIES 30,371 17,058 19,382
OTHER CURRENT ASSETS 1,243 1,681 1,729
--------- --------- ---------
TOTAL CURRENT ASSETS 134,413 50,982 100,305
--------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS 4,934 11,945 4,848
OTHER LONG-TERM INVESTMENTS 6,000 6,000 6,000
--------- --------- ---------
10,934 17,945 10,848
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET 613,561 576,425 568,412
--------- --------- ---------
OTHER ASSETS, NET 97,961 105,260 108,770
========= ========= =========
TOTAL ASSETS $ 856,869 $ 750,612 $ 788,335
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
SHORT-TERM DEBT $ -- $ 4,000 $ --
TRADE ACCOUNTS PAYABLE 61,202 65,772 40,249
OTHER CURRENT LIABILITIES 9,082 9,382 9,564
--------- --------- ---------
TOTAL CURRENT LIABILITIES 70,284 79,154 49,813
LONG-TERM DEBT 497,000 347,000 431,000
CONVERTIBLE DEBENTURES 25,643 25,552 25,783
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 65,069 46,920 46,347
OTHER LONG-TERM LIABILITIES 7,792 5,869 5,935
--------- --------- ---------
TOTAL LIABILITIES 665,788 504,495 558,878
--------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED
150,000,000, 100,000,000 AND 150,000,000 SHARES, RESPECTIVELY;
ISSUED 66,934,971, 50,079,146 AND 52,996,097 SHARES, RESPECTIVELY 16,260 12,479 13,150
ADDITIONAL PAID-IN CAPITAL 517,258 415,645 427,881
PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- -- 16,428
SHAREHOLDER RECEIVABLES (26) (26) (26)
ACCUMULATED DEFICIT (333,339) (172,909) (218,904)
--------- --------- ---------
200,153 255,189 238,529
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 191,081 246,117 229,457
========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 856,869 $ 750,612 $ 788,335
========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
---------------------- ---------------------- ---------
2004 2003 2004 2003 2003
--------- --------- --------- --------- ---------
(unaudited) (unaudited)
---------------------- ----------------------
SALES $ 95,990 $ 41,545 $ 35,091 $ 16,074 $ 61,368
COST OF SALES 162,242 75,816 57,843 38,548 122,395
--------- --------- --------- --------- ---------
GROSS LOSS (66,252) (34,271) (22,752) (22,474) (61,027)
--------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 11,208 12,551 3,952 3,895 20,709
MARKETING, GENERAL AND ADMINISTRATIVE 16,176 17,064 5,155 6,300 22,615
--------- --------- --------- --------- ---------
27,384 29,615 9,107 10,195 43,324
========= ========= ========= ========= =========
OPERATING LOSS (93,636) (63,886) (31,859) (32,669) (104,351)
FINANCING EXPENSE, NET (20,907) (4,293) (7,567) (4,264) (9,826)
OTHER INCOME (EXPENSE), NET 108 (87) 14 (153) (84)
--------- --------- --------- --------- ---------
LOSS FOR THE PERIOD $(114,435) $ (68,266) $ (39,412) $ (37,086) $(114,261)
========= ========= ========= ========= =========
BASIC LOSS PER ORDINARY SHARE
Loss per share $ (1.78) $ (1.49) $ (0.60) $ (0.77) $ (2.40)
========= ========= ========= ========= =========
LOSS USED TO COMPUTE
BASIC LOSS PER SHARE $(114,435) $ (68,266) $ (39,412) $ (37,086) $(114,114)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 64,392 45,788 65,625 48,360 47,608
========= ========= ========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
TOWER SEMICONDUCTOR LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
PROCEEDS
ORDINARY SHARES ADDITIONAL ON
------------------------- PAID-IN ACCOUNT OF
SHARES AMOUNT CAPITAL SHARE CAPITAL
---------- ---------- ---------- ---------
BALANCE - JANUARY 1, 2004 52,996,097 $ 13,150 $ 427,881 $ 16,428
CHANGES DURING NINE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 2,399,124 539 16,196 (16,428)
ISSUANCE OF SHARES, NET OF RELATED COSTS -
PUBLIC OFFERING 11,444,500 2,550 72,536
EXERCISE OF SHARE OPTIONS 95,250 21 645
LOSS FOR THE PERIOD
---------- ---------- ---------- ---------
BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) 66,934,971 $ 16,260 $ 517,258 $ --
========== ========== ========== =========
BALANCE - JANUARY 1, 2003 44,735,532 $ 11,294 $ 400,808 $ --
CHANGES DURING NINE-MONTH PERIOD (UNAUDITED):
STOCK-BASED COMPENSATION RELATED TO
THE FAB 2 CONSTRUCTOR 145
ISSUANCE OF SHARES, NET OF RELATED COSTS 5,343,614 1,185 14,692
AMORTIZATION OF UNEARNED COMPENSATION
LOSS FOR THE PERIOD
---------- ---------- ---------- ---------
BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) 50,079,146 $ 12,479 $ 415,645 $ --
========== ========== ========== =========
BALANCE - JULY 1, 2004 66,894,593 $ 16,251 $ 517,041 $ --
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 40,378 9 217
LOSS FOR THE PERIOD
---------- ---------- ---------- ---------
BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) 66,934,971 $ 16,260 $ 517,258 $ --
========== ========== ========== =========
BALANCE - JULY 1, 2003 49,241,064 $ 12,291 $ 413,334 $ --
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES, NET OF RELATED COSTS 838,082 188 2,311
LOSS FOR THE PERIOD
---------- ---------- ---------- ---------
BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) 50,079,146 $ 12,479 $ 415,645 $ --
========== ========== ========== =========
BALANCE - JANUARY 1, 2003 44,735,532 $ 11,294 $ 400,808 $ --
CHANGES DURING 2003:
STOCK-BASED COMPENSATION RELATED TO
THE FAB 2 CONSTRUCTOR 145
STOCK-BASED COMPENSATION RELATED TO THE
FACILITY AGREEMENT WITH THE BANKS 4,205
ISSUANCE OF SHARES, NET OF RELATED COSTS 8,260,565 1,856 22,723
PROCEEDS ON ACCOUNT OF SHARE CAPITAL 16,428
AMORTIZATION OF UNEARNED COMPENSATION
LOSS FOR THE YEAR
---------- ---------- ---------- ---------
BALANCE - DECEMBER 31, 2003 52,996,097 $ 13,150 $ 427,881 $ 16,428
========== ========== ========== =========
SHAREHOLDER
RECEIVABLES
AND
UNEARNED ACCUMULATED TREASURY
COMPENSATION DEFICIT STOCK TOTAL
------ ----------- --------- ----------
BALANCE - JANUARY 1, 2004 $ (26) $ (218,904) $ (9,072) $ 229,457
CHANGES DURING NINE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 307
ISSUANCE OF SHARES, NET OF RELATED COSTS -
PUBLIC OFFERING 75,086
EXERCISE OF SHARE OPTIONS 666
LOSS FOR THE PERIOD (114,435) (114,435)
------ ----------- --------- ----------
BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) $ (26) $ (333,339) $ (9,072) $ 191,081
====== =========== ========= ==========
BALANCE - JANUARY 1, 2003 $ (53) $ (104,643) $ (9,072) $ 298,334
CHANGES DURING NINE-MONTH PERIOD (UNAUDITED):
STOCK-BASED COMPENSATION RELATED TO
THE FAB 2 CONSTRUCTOR 145
ISSUANCE OF SHARES, NET OF RELATED COSTS 15,877
AMORTIZATION OF UNEARNED COMPENSATION 27 27
LOSS FOR THE PERIOD (68,266) (68,266)
------ ----------- --------- ----------
BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) $ (26) $ (172,909) $ (9,072) $ 246,117
====== =========== ========= ==========
BALANCE - JULY 1, 2004 $ (26) $ (293,927) $ (9,072) $ 230,267
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 226
LOSS FOR THE PERIOD (39,412) (39,412)
------ ----------- --------- ----------
BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) $ (26) $ (333,339) $ (9,072) $ 191,081
====== =========== ========= ==========
BALANCE - JULY 1, 2003 $ (26) $ (135,823) $ (9,072) $ 280,704
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES, NET OF RELATED COSTS 2,499
LOSS FOR THE PERIOD (37,086) (37,086)
------ ----------- --------- ----------
BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) $ (26) $ (172,909) $ (9,072) $ 246,117
====== =========== ========= ==========
BALANCE - JANUARY 1, 2003 $ (53) $ (104,643) $ (9,072) $ 298,334
CHANGES DURING 2003:
STOCK-BASED COMPENSATION RELATED TO
THE FAB 2 CONSTRUCTOR 145
STOCK-BASED COMPENSATION RELATED TO THE
FACILITY AGREEMENT WITH THE BANKS 4,205
ISSUANCE OF SHARES, NET OF RELATED COSTS 24,579
PROCEEDS ON ACCOUNT OF SHARE CAPITAL 16,428
AMORTIZATION OF UNEARNED COMPENSATION 27 27
LOSS FOR THE YEAR (114,261) (114,261)
------ ----------- --------- ----------
BALANCE - DECEMBER 31, 2003 $ (26) $ (218,904) $ (9,072) $ 229,457
====== =========== ========= ==========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
---------------------- ---------------------- ---------
2004 2003 2004 2003 2003
--------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
---------------------- ----------------------
CASH FLOWS - OPERATING ACTIVITIES
LOSS FOR THE PERIOD $(114,435) $ (68,266) $ (39,412) $ (37,086) $(114,261)
ADJUSTMENTS TO RECONCILE LOSS FOR THE PERIOD
TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
INCOME AND EXPENSE ITEMS NOT INVOLVING CASH FLOWS:
DEPRECIATION AND AMORTIZATION 86,188 30,386 30,782 21,508 54,611
EFFECT OF INDEXATION AND TRANSLATION ON
CONVERTIBLE DEBENTURES (280) (1,055) 86 (1,055) (878)
OTHER EXPENSE (INCOME), NET (108) 87 (14) 153 84
CHANGES IN ASSETS AND LIABILITIES:
INCREASE IN TRADE ACCOUNTS RECEIVABLE (14,330) (1,846) (6,848) (3,861) (4,175)
DECREASE (INCREASE) IN OTHER RECEIVABLES
AND OTHER CURRENT ASSETS (1,382) 782 1,786 1,431 1,264
INCREASE IN INVENTORIES (10,989) (3,897) (4,659) (3,783) (6,221)
INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE 3,332 4,765 (147) 901 801
INCREASE (DECREASE) IN OTHER CURRENT LIABILITIES (802) 1,285 (76) 60 1,467
INCREASE (DECREASE) IN OTHER LONG-TERM LIABILITIES 1,766 463 (508) (142) 529
--------- --------- --------- --------- ---------
(51,040) (37,296) (19,010) (21,874) (66,779)
INCREASE (DECREASE) IN LONG-TERM LIABILITY
IN RESPECT OF CUSTOMERS' ADVANCES, NET 19,438 (326) 19,942 (326) (899)
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (31,602) (37,622) 932 (22,200) (67,678)
--------- --------- --------- --------- ---------
CASH FLOWS - INVESTING ACTIVITIES
DECREASE IN DESIGNATED CASH, SHORT-TERM AND LONG-TERM
INTEREST-BEARING DEPOSITS, NET 7,380 49,627 5,687 854 14,341
INVESTMENTS IN PROPERTY AND EQUIPMENT (131,622) (143,975) (51,335) (40,311) (179,310)
INVESTMENT GRANTS RECEIVED 23,945 27,839 11,443 10,483 33,811
PROCEEDS FROM SALE OF EQUIPMENT 139 184 35 120 222
INVESTMENTS IN OTHER ASSETS (702) (17,502) -- (1,005) (22,098)
DECREASE IN DEPOSITS, NET -- 8,000 -- 2,500 10,500
--------- --------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (100,860) (75,827) (34,170) (27,359) (142,534)
--------- --------- --------- --------- ---------
CASH FLOWS - FINANCING ACTIVITIES
PROCEEDS FROM ISSUANCE OF SHARES, NET 75,225 15,810 -- 2,500 24,375
PROCEEDS FROM LONG-TERM DEBT 66,000 97,000 36,000 40,000 --
PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- -- -- -- 16,428
REPAYMENT OF LONG-TERM DEBT -- (3,000) -- (1,000) (13,000)
PROCEEDS FROM EXERCISE OF SHARE OPTIONS 666 -- -- -- --
PROCEEDS FROM LONG-TERM DEBT, NET
IN CONNECTION WITH RE-BORROWING -- -- -- -- 187,000
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 141,891 109,810 36,000 41,500 214,803
========= ========= ========= ========= =========
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,429 (3,639) 2,762 (8,059) 4,591
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 12,448 7,857 19,115 12,277 7,857
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 21,877 $ 4,218 $ 21,877 $ 4,218 $ 12,448
========= ========= ========= ========= =========
NON-CASH ACTIVITIES
INVESTMENTS IN PROPERTY AND EQUIPMENT $ 40,229 $ 30,612 $ 33,054 $ 17,990 $ 17,160
========= ========= ========= ========= =========
STOCK-BASED COMPENSATION RELATED TO
THE FACILITY AGREEMENT WITH THE BANKS $ -- $ -- $ -- $ -- $ 4,205
========= ========= ========= ========= =========
INVESTMENTS IN OTHER ASSETS $ -- $ 6,357 $ -- $ -- $ 3,153
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 18,387 $ 11,556 $ 6,410 $ 3,677 $ 15,674
========= ========= ========= ========= =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 108 $ 198 $ 11 $ 96 $ 239
========= ========= ========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 1 - BASIS OF PRESENTATION
A. The unaudited condensed interim consolidated financial statements as
of September 30, 2004 and for the nine months and three months then
ended ("interim financial statements") of Tower Semiconductor Ltd.
("the Company") and subsidiary should be read in conjunction with the
audited consolidated financial statements of the Company and
subsidiary as of December 31, 2003 and for the year then ended,
including the notes thereto. In the opinion of management, the interim
financial statements include all adjustments necessary for a fair
presentation of the financial position and results of operations as of
the date and for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of
the results to be expected on a full-year basis.
B. The interim financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") in Israel, which, as
applicable to these interim financial statements, differ in certain
respects from GAAP in the United States of America ("U.S. GAAP"), as
indicated in Note 5.
The accounting principles applied in the preparation of these interim
financial statements are consistent with those principles applied in
the preparation of the most recent annual audited financial
statements.
C. ESTABLISHMENT AND OPERATIONS OF NEW FABRICATION FACILITY
In January 2001, the Company's Board of Directors approved the
establishment of a new wafer fabrication facility in Israel ("Fab 2"),
at an expected cost of approximately $1,500,000. Fab 2 is designated
to manufacture semiconductor integrated circuits on silicon wafers in
geometries of 0.18 micron and below on 200-millimeter wafers. The
Company has entered into several related agreements and other
arrangements and has completed public and private financing deals,
which, as of the approval date of the interim financial statements,
have provided an aggregate of $1,226,100 of financing for Fab 2.
The Fab 2 project is a complex undertaking, which entails substantial
risks and uncertainties. For further details concerning the Fab 2
project and related agreements, some of which were amended several
times, risks and uncertainties, see Note 13A to the 2003 audited
consolidated financial statements. For further details concerning
expected non-compliance with certain of the financial ratios and
covenants under the Facility Agreement and the Company's plans for
settling this non-compliance and its estimation that achieving
satisfactory arrangement with the Banks is probable, see Note 3D
below.
During the third quarter of 2003, in which Fab 2's construction was
substantially completed, the Company began commercial production and
shipment of wafers to its customers utilizing the 0.18 micron process
technology. With the commencement of Fab 2 operations, the Company
began to depreciate and amortize Fab 2 assets, as well as to expense
most of the ongoing direct costs related to the construction and
equipping of Fab 2 and the transfer of the Fab 2 technology that had
been previously capitalized.
- 6 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 2 - MAJOR CUSTOMERS
Sales to major customers as a percentage of total sales were as follows:
Nine months ended
September 30,
-------------
2004 2003
---- ----
(unaudited)
Customer A 20% 11%
Customer B 20 --
Customer C 10 26
Customer D 6 15
Customer E 3 12
Other customers (*) 18 4
(*) Represents sales to three different customers each of whom accounted
for between 5% and 8% of sales during the nine months ended September
30, 2004, and to two different customers each of whom accounted for 2%
of sales during the nine months ended September 30, 2003.
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2
A. ORDINARY SHARES ISSUED TO THE PRIMARY WAFER PARTNERS AND EQUITY
INVESTORS
In January 2004, the primary Wafer Partners and Equity Investors were
issued an aggregate of 2,346,786 additional Ordinary Shares of the
Company in consideration for their final $16,428 committed investment
made in December 2003. The shares were issued at a per share price of
$7.00, a price equal to the offering price at the public offering
described in Note 4A.
B. APPROVED ENTERPRISE STATUS
Under the terms of the Fab 2 approved enterprise program, investments
in respect of Fab 2 are to be completed by December 31, 2005, five
years from the date the approval certificate was obtained. Due to the
later than planned commencement of construction of Fab 2 and
prevailing market conditions, the Company does not currently expect to
complete Fab 2 investments by the end of 2005. Following the Company's
notification to the Investment Center of its revised investment
schedule contemplated in an updated plan for the construction and
equipping of Fab 2, including, among other matters, its reduced rate
of annual investments and lower than projected expectations for Fab 2
sales, the Company received from the Investment Center, in July 2004,
an approval to said revised investment schedule.
- 7 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
B. APPROVED ENTERPRISE STATUS (cont.)
While Israeli law currently limits the ability of the Investment
Center to extend the investment period beyond five years, the
Company's management estimates, based on discussions held with the
Investment Center, that it is probable that satisfactory arrangements
will be made to enable the extension of the investment period.
Under the terms of the approved enterprise program, the Company is
eligible to receive grants of 20% of up to $1,250,000 invested in Fab
2 plant and equipment, or an aggregate of up to $250,000, of which as
of the balance sheet date, an aggregate of $141,956 has been already
received from the Investment Center.
C. HEDGING ACTIVITIES
During the reported period, the Company entered into hedging
transactions, primarily agreements to hedge interest rate exposure on
long-term bank loans under the Facility Agreement, in the aggregate
amount as of September 30, 2004 of $80,000. As of the balance sheet
date, out of the total $497,000 long-term bank loans under that
agreement, $292,000 is under hedging transactions.
D. FACILITY AGREEMENT - FINANCIAL RATIOS AND COVENANTS
According to the Facility Agreement with the Banks, the Company is
obligated to comply with certain financial ratios and covenants. As of
the balance sheet date, the Company was in full compliance with all
these financial ratios and covenants. Due to the recent and current
slow-down in the semiconductor markets, management currently estimates
that the Company may not comply with certain of the financial ratios
and covenants. The Company is currently in the process of preparing an
updated working-plan for 2005 for Fab 2, which will be based on
prevailing and the Company's forecast of market conditions.
Accordingly, if required, management intends to request its Banks to
agree to amend the financial ratios and covenants in order to align
them with the updated Fab 2 working-plan for 2005. Management
estimates that it is probable that satisfactory arrangements with the
Banks will be achieved. According to the Facility Agreement,
satisfying the financial ratios and covenants is a material provision.
Achieving arrangements with the Banks is material for the continuation
of equipping, operating and construction of Fab 2.
The Facility Agreement provides that if, as a result of any default,
the Banks were to accelerate the Company's obligations, the Company
would be obligated, among other matters, to immediately repay all
loans made by the Banks (which as of the balance sheet date amounted
to $497,000), and the Banks would be entitled to exercise the remedies
available to them under the Facility Agreement, including enforcement
of their lien against all the Company's assets.
- 8 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 4 - OTHER RECENT DEVELOPMENTS
A. PUBLIC OFFERING COMPLETED IN THE FIRST QUARTER OF 2004
During the first quarter of 2004, the Company completed a public
offering of its Ordinary Shares at a price of $7.00 per share.
Following the offering, and including the partial exercise of an
over-allotment option the Company granted the underwriters, the
Company issued 11,444,500 of its Ordinary Shares, in consideration for
gross proceeds of $80,112 (net of related costs - $75,086).
B. SILICONIX
In May 2004, the Company and chip maker Siliconix incorporated, an 80%
owned subsidiary of Vishay Intertechnology Inc., entered into a
definitive long-term foundry agreement for semiconductor
manufacturing. Pursuant to the agreement, Siliconix will place with
the Company orders valued at approximately $200,000 for the purchase
of wafers to be manufactured in the Company's Fab 1 over a seven to
ten year period. Approximately $53,000 of that amount will be
delivered over an initial three year period starting after the
completion of the transfer of Siliconix's technology to Fab 1.
According to the agreement, in August 2004 Siliconix advanced the
Company $20,000 to be used primarily for the purchase of additional
equipment required to satisfy Siliconix's orders. The advanced amount
will be credited towards the purchase price of wafers. The unused
remaining balance of the $20,000 ($18,352 as of September 30, 2004) is
included in designated cash and short-term interest-bearing deposits
in the consolidated balance sheet.
C. CLASS ACTION
In August 2004, the United States District Court dismissed the class
action filed by certain of the Company's shareholders in the United
States against the Company and certain of its directors, Wafer
Partners and Equity Investors (the "Defendants"). The plaintiffs had
asserted claims arising under the Securities Exchange Act of 1934,
alleging misstatements and omissions made by the Defendants in
materials sent to the Company's shareholders in April 2002 with
respect to the approval of an amendment to the Company's investment
agreements with its Fab 2 investors. In September 2004, one of the
lead plaintiffs filed a notice of appeal of the decision dismissing
the complaint. As of the approval date of the interim financial
statements such an appeal was not submitted. The Company believes that
the complaint is without merit and is vigorously contesting it.
- 9 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 4 - OTHER RECENT DEVELOPMENTS (cont.)
D. SHARE OPTION PLANS
(1) EMPLOYEE SHARE OPTION PLANS - The net increase to the total
outstanding options under the Company's various employee share
option plans during the nine-month period ended September 30,
2004, amounted to 1,322,296 options.
(2) SHARE OPTION PLANS FOR DIRECTORS - As of the approval date of the
interim financial statements, the Audit Committee and the Board
of Directors of the Company approved a new share option plan
pursuant to which the Company's directors may be granted options
to purchase up to 2,600,000 Ordinary Shares of the Company. The
plan calls for initial grants of 40,000 options to each new
director appointed to the Board of Directors following September
2004, and additional grants of 20,000 options per annum to each
member of the Board of Directors, shall be made. According to the
plan the exercise price will be equal to the market price of the
Company's shares on each grant date. Options granted under the
plan will vest twelve months after the date of grant and will be
exercisable for a period that ends at the earlier of ten years
from the date of grant or three years after termination of
service.
As of the approval date of the interim financial statements, the
Board of Directors of the Company approved an extension of the
exercise period of the outstanding options held by directors of
the Company under the existing directors' share option plan
(280,000 options), in the case of a director's termination of
service from the Board of Directors. The exercise period was
extended from ninety days following the date of termination to
three years following the date of termination.
The new directors' share option plan and the extension of the
existing plan are subject to the approval of the Company's
shareholders.
E. AUTHORIZED ORDINARY SHARES
In September 2004, the Board of Directors of the Company approved an
increase in the Company's authorized ordinary shares from 150,000,000
shares to 250,000,000 shares. The increase is subject to the approval
of the Company's shareholders.
- 10 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP
With regard to the Company's interim financial statements, the material
differences between GAAP in Israel and in the U.S. relate to the following.
See G below for the presentation of the Company's unaudited balance sheet
as of September 30, 2004 in accordance with U.S. GAAP.
A. PRESENTATION OF DESIGNATED CASH AND SHORT-TERM AND LONG-TERM
INTEREST-BEARING DEPOSITS
In accordance with U.S. GAAP, the Company's designated cash,
short-term and long-term interest-bearing deposits should be excluded
from current assets and long-term investments and presented separately
as a non-current asset. Accordingly, as of September 30, 2004, $36,576
and $4,934 were reclassified, respectively, from current assets and
long-term investments to a long-term asset (as of December 31, 2003 -
$44,042 and $4,848, respectively).
B. PRESENTATION OF NET LONG-TERM LIABILITIES IN RESPECT OF EMPLOYEES
Under U.S. GAAP, assets and liabilities relating to severance
arrangements are to be presented separately and are not to be offset,
while according to Israeli GAAP such an offset is required.
Accordingly, as of September 30, 2004 an amount of $16,553 was
reclassified from other long-term liabilities to long-term investments
(as of December 31, 2003 - $14,607).
C. HEDGING ACTIVITIES IN ACCORDANCE WITH U.S. GAAP (SFAS 133)
Complying with SFAS 133 and SFAS 138 and the related interpretations
thereon with respect to the Company's hedging transactions as of
September 30, 2004 would have resulted in: an increase in other
long-term liabilities in the amount of $6,282; a decrease in other
comprehensive loss for the nine months ended September 30, 2004 in the
net amount of $4,634; an accumulated other comprehensive loss
component of equity balance as of September 30, 2004 in the amount of
$11,263; and in a decrease of $4,951 in property and equipment, net as
of September 30, 2004.
- 11 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
D. IMPLEMENTATION OF SFAS 123 AND SFAS 148
Had compensation cost for the Company's share option plans been
determined based on fair value at the grant dates for awards made
through September 30, 2004 in accordance with SFAS 123, as amended by
SFAS 148, the Company's pro forma loss and loss per share would have
been as follows:
Nine months ended Three months ended
-------------------------- --------------------------
September 30, September 30,
-------------------------- --------------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(unaudited) (unaudited)
PRO FORMA LOSS
Loss for the period, as reported
according to U.S. GAAP
(see H below) $(114,435) $ (68,266) $ (39,412) $ (37,086)
Less - stock-based compensation
determined under APB 25 -- 27 -- --
Add - stock-based compensation
determined under SFAS 123 (3,584) (7,276) (1,261) (1,587)
--------- --------- --------- ---------
Pro forma loss $(118,019) $ (75,515) $ (40,673) $ (38,673)
========= ========= ========= =========
BASIC LOSS PER SHARE
As reported according to U.S.
GAAP (see I below) $ (1.78) $ (1.49) $ (0.60) $ (0.77)
========= ========= ========= =========
Pro forma $ (1.84) $ (1.65) $ (0.62) $ (0.80)
========= ========= ========= =========
- 12 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
E. SALE OF SECURITIES
Under Accounting Principles Board Opinion No. 14 ("APB 14"), the
proceeds from the sale of the securities in January 2002 are to be
allocated to each of the securities issued based on their relative
fair value, while according to Israeli GAAP such treatment is not
required. Complying with APB 14, based on the average market value of
each of the securities issued in the first three days following their
issuance (in January 2002), would have resulted in an increase in
shareholders' equity as of September 30, 2004 and December 31, 2003 in
the amount of $2,363 (net of $196 related issuance expenses), and a
decrease in convertible debentures as of such dates in the amount of
$2,559. The effect of amortization of the discount on the convertible
debentures under U.S.GAAP for the nine-month and three-month periods
ended September 30, 2004 would have been immaterial.
F. PRESENTATION OF PROCEEDS ON ACCOUNT OF SHARES IN ACCORDANCE WITH U.S.
GAAP (SFAS 150)
According to SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity", a
financial instrument that embodies an unconditional obligation (as
defined in that guidance), that the issuer must or may settle by
issuing a variable number of its equity shares, shall be classified as
a liability if, at inception, the monetary value of the obligation is
based solely or predominantly on, among other matters, a fixed
monetary amount known at inception. Accordingly, the $16,428 described
in Note 3A, and which according to Israeli GAAP was presented as of
December 31, 2003 as "Proceeds on account of share capital", were
reclassified as of December 31, 2003 under SFAS 150 as "Liability in
respect of variable number of shares to be issued". Such presentation
for U.S. GAAP purposes was required since as of December 31, 2003, the
amount of shares the Company was to issue in consideration of the
aggregate of $16,428 was not determined as of such date, and was
actually based on mechanisms that embody a variable number of shares.
Following the issuance of shares, as described in Note 3A, the $16,428
amount is presented for U.S. GAAP purposes as well as paid in equity.
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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
G. BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP
AS OF SEPTEMBER 30, 2004 AS OF DECEMBER 31, 2003
------------------------------- --------------------------------
U.S. AS PER AS PER AS PER AS PER
GAAP ISRAELI ADJUST- U.S. ISRAELI ADJUST- U.S.
REMARK GAAP MENTS GAAP GAAP MENTS GAAP
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
-------------------------------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 21,877 $ $ 21,877 $ 12,448 $ $ 12,448
DESIGNATED CASH AND SHORT-TERM
INTEREST-BEARING DEPOSITS A 36,576 (36,576) -- 44,042 (44,042) --
TRADE ACCOUNTS RECEIVABLE 25,961 25,961 11,631 11,631
OTHER RECEIVABLES 18,385 18,385 11,073 11,073
INVENTORIES 30,371 30,371 19,382 19,382
OTHER CURRENT ASSETS 1,243 1,243 1,729 1,729
--------- --------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 134,413 (36,576) 97,837 100,305 (44,042) 56,263
--------- --------- --------- --------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS A 4,934 (4,934) -- 4,848 (4,848) --
OTHER LONG-TERM INVESTMENTS B 6,000 16,553 22,553 6,000 14,607 20,607
--------- --------- --------- --------- --------- ---------
10,934 11,619 22,553 10,848 9,759 20,607
--------- --------- --------- --------- --------- ---------
PROPERTY AND EQUIPMENT, NET C 613,561 (4,951) 608,610 568,412 (5,947) 562,465
--------- --------- --------- --------- --------- ---------
DESIGNATED CASH AND SHORT-TERM AND
LONG-TERM INTEREST-BEARING DEPOSITS A -- 41,510 41,510 -- 48,890 48,890
--------- --------- --------- --------- --------- ---------
OTHER ASSETS, NET E 97,961 (196) 97,765 108,770 (196) 108,574
========= ========= ========= ========= ========= =========
TOTAL ASSETS $ 856,869 $ 11,406 $ 868,275 $ 788,335 $ 8,464 $ 796,799
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 61,202 $ $ 61,202 $ 40,249 $ $ 40,249
OTHER CURRENT LIABILITIES 9,082 9,082 9,564 9,564
--------- --------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 70,284 -- 70,284 49,813 -- 49,813
LONG-TERM DEBT 497,000 497,000 431,000 431,000
CONVERTIBLE DEBENTURES E 25,643 (2,559) 23,084 25,783 (2,559) 23,224
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 65,069 65,069 46,347 46,347
LIABILITY IN RESPECT OF A VARIABLE
NUMBER OF SHARES TO BE ISSUED F -- -- -- 16,428 16,428
OTHER LONG-TERM LIABILITIES B, C 7,792 22,835 30,627 5,935 24,527 30,462
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES 665,788 20,276 686,064 558,878 38,396 597,274
--------- --------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE -
AUTHORIZED 150,000,000 SHARES;
ISSUED 66,934,971 AND 52,996,097
SHARES, RESPECTIVELY 16,260 16,260 13,150 13,150
ADDITIONAL PAID-IN CAPITAL E 517,258 2,363 519,621 427,881 2,363 430,244
PROCEEDS ON ACCOUNT OF SHARE CAPITAL F -- -- 16,428 (16,428) --
SHAREHOLDER RECEIVABLES (26) (26) (26) (26)
ACCUMULATED OTHER COMPREHENSIVE LOSS C -- (11,263) (11,263) -- (15,897) (15,897)
ACCUMULATED DEFICIT (333,339) 30 (333,309) (218,904) 30 (218,874)
--------- --------- --------- --------- --------- ---------
200,153 (8,870) 191,283 238,529 (29,932) 208,597
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072) (9,072)
--------- --------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 191,081 (8,870) 182,211 229,457 (29,932) 199,525
========= ========= ========= ========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 856,869 $ 11,406 $ 868,275 $ 788,335 $ 8,464 $ 796,799
========= ========= ========= ========= ========= =========
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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
H. STATEMENTS OF OPERATIONS IN ACCORDANCE WITH U.S. GAAP
Complying with SFAS 133 and SFAS 138 (C above) and APB 14 (E above)
would not have materially affected the results of operations for the
nine-month and three-month periods ended September 30, 2004 and 2003.
I. LOSS PER SHARE IN ACCORDANCE WITH U.S. GAAP (SFAS 128)
In accordance with U.S. GAAP (SFAS 128, including the implementation
of SFAS 133 and SFAS 138, and APB 14 as described in H above), the
basic and diluted loss per share for the nine-month and three-month
periods ended September 30, 2004 would be $1.78 and $0.60,
respectively (during the corresponding periods - $1.49 and $0.77,
respectively).
- 15 -