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FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the month of May 2005 No. 2 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 May 26, 2005, the Registrant announced its financial results for the three months ended March 31, 2005. Attached hereto as Exhibit 99.1 is the press release relating to such announcement and attached hereto as Exhibit 99.2 are the Registrant's unaudited condensed interim consolidated financial statements as of March 31, 2005 and for the three month period then ended. 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: May 26, 2005 By: /s/ Nati Somekh Gilboa -------------------------- Nati Somekh Gilboa Corporate Secretary

Exhibit 99.1 TOWER SEMICONDUCTOR ANNOUNCES FIRST QUARTER 2005 RESULTS COMPANY REINVIGORATED BY NEW LEADERSHIP; SIGNED A LETTER OF INTENT WITH ITS BANKS FOR UP TO $60 MILLION OF ADDITIONAL FUNDING, HALF TO BE FROM INVESTORS Q2 BEGINS WITH NEW CUSTOMER MOMENTUM; TAPE-OUTS EXCEED TOTAL FOR SECOND HALF OF `04 MIGDAL HAEMEK, Israel -- May 26, 2005 -- Tower Semiconductor Ltd. (NASDAQ: TSEM; TASE: TSEM), a pure-play independent specialty foundry, today announced first quarter results for fiscal year 2005, with revenues of $23.2 million. These revenues are compared with $27.2 million in the first quarter of 2004 and $30.1 million in the fourth quarter of 2004. The 2005 first quarter loss was $55.3 million, or $0.84 per share. This loss is compared with a loss of $38.5 million, or $0.61 per share, for the first quarter of 2004, and a loss of $23.3 million, or $0.36 per share, in the fourth quarter of 2004, which included $32 million, or $0.49 per share, of net capital gain from the sale of Saifun shares. Tower expects revenues in the second quarter of 2005 to be in the range of $26 to $28 million, including $8 million from a previously announced technology-related agreement. Russell Ellwanger, a former senior executive at Applied Materials, was appointed chief executive officer. Ellwanger brings more than 25 years of experience, strategic thinking, management skills and knowledge of the semiconductor industry. His appointment significantly strengthens Tower's senior management team. The company, some of its shareholders and banks are holding discussions for additional funding to the company in the amount of approximately $60 million. Accordingly, in May 2005, Tower signed a Letter of Intent ("LOI") with its banks, which states that financing in the amount of up to $30 million will be provided by the banks, subject to Tower raising a similar amount from investors. To date, certain shareholders of Tower have informed the company of their willingness to invest $23.5 million towards such funding. The LOI is further subject to reaching a definitive amendment to the agreement with the banks. Since Q4 2004 the company has seen an increase in new customer engagements, design starts and subsequent new product tape-outs to Fab 2. This trend continues during the first half of 2005 and is expected to yield increased new product revenue in the second half of 2005. During Q1, a lead customer started a 0.13-micron design for a high volume product. "Despite the apparent short term difficulties in our market, our pipeline of new customers, products and value-added technology projects is encouraging," Ellwanger said. "It is especially encouraging to hear from our customers that the added value in several of these tape-outs is significant, and hence will continue to position Tower as a leading specialty foundry for years to come."

In Q1, Tower's management proactively implemented measures to reduce expenses, cost structure and cash burn. In March, the company announced the completion of a workforce cutback, as part of an across-the-board savings plan focused on operational efficiencies. Tower's exceptional customer and technical support were recognized through an Award of Excellence from ON Semiconductor (NASDAQ: ONNN) for outstanding service and support to its Analog Products Group. In addition, Tower demonstrated benchmark-setting performance in the area of low power FPGAs through its cooperation with QuickLogic (NASDAQ: QUIK). Tower continues to focus on initiatives discussed in previous financial releases: 1. DIVERSIFYING CUSTOMER BASE TOTAL CUSTOMER COUNT Q1 2005 Q1 2004 - -------------------- ------- ------- 95% of revenue generated by: 25 customers 17 customers Fab 2 production customers 6 customers 5 customers Fab 2 pre-production customers 19 customers 4 customers 2. CUSTOMER BASE PROFILE TYPE OF CUSTOMER Q1 2005 Q1 2004 - ---------------- ------- ------- Fabless 76% 60% IDM 24% 40% 3. SALES BY GEOGRAPHY REGION Q1 2005 Q1 2004 - ------ ------- ------- U.S. 77% 77% Israel 5% 8% Pacific Rim (including Japan) 10% 12% Europe 8% 3% 4. DEVELOPING SPECIALIZED TECHNOLOGY OFFERINGS Tower continues to develop differentiated technologies, utilizing core technical knowledge in embedded NVM, CMOS image sensors, mixed-signal and RF technologies, according to its strategic roadmap. During the first quarter, Tower increased its CMOS image sensors share of total revenue, as can be seen in the table below. Non-volatile memory is reduced mainly to the inclusion of income related to a Fab2 technology agreement milestone in Q1 2004, as well as inventory reduction activity by certain NVM customers and pricing pressures in the stand-alone Flash market.

TECHNOLOGY SEGMENT CONSOLIDATED Q1 2005 Q1 2004 - ------------------------------- ------- ------- Core CMOS 69% 63% Non Volatile memory 8% 17% CMOS imager sensors 11% 4% Mixed Signal 12% 17% FAB1 Core CMOS 36% 39% Non Volatile memory 18% 22% CMOS imager sensors 20% 7% Mixed Signal 26% 32% FAB2 Core CMOS 92% 85% Non Volatile memory 1% 13% CMOS imager sensors 5% 0% Mixed Signal 2% 2% The company made progress in 0.13u technology, running initial shuttle with customers test chips and many IP blocks. Tower expects that production ramp will start during the last quarter of 2005 and will increase significantly in 2006. 5. DIVERSIFYING REVENUES BY MARKET SEGMENT Tower maintains its market segment diversification. INDUSTRY SEGMENT Q1 2005 Q1 2004 - ---------------- ------- ------- Consumer 48% 37% Communication 18% 18% PC 2% 16% Industrial, medical and automotive 12% 7% Multi market and others 20% 22% ***** Tower will host a conference call to discuss these results on May 26, at 11a.m. Eastern time/6 p.m. Israel time. To participate, call 1-800-406-5345 (U.S. toll-free number) or 1-913-981-5571 (international) and mention ID code: TOWER. Callers in Israel are invited to call locally 03-925-5910. The conference call will also be webcast live at www.companyboardroom.com and at www.towersemi.com and will be available thereafter on both websites for replay for 90 days, starting at 2 p.m. Eastern time on the day of the call.

ABOUT TOWER SEMICONDUCTOR LTD. Tower Semiconductor Ltd. is a pure-play independent specialty 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 standard and specialized process technologies and has a current capacity of up to 15,000 200mm wafers per month. Tower's website 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 OPERATE THE COMPANY AND TO COMPLETE THE FAB 2 PROJECT, INCLUDING IN THE EVENT THAT THE LETTER OF INTENT SIGNED WITH THE BANKS IN MAY 2005 WILL NOT MATERIALIZE INTO A DEFINITIVE AMENDMENT TO THE FACILITY AGREEMENT (III) THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY AND THE RESULTING PERIODIC OVERCAPACITY, FLUCTUATIONS IN OPERATING RESULTS, FUTURE AVERAGE SELLING PRICE EROSION THAT MAY BE MORE SEVERE THAN OUR EXPECTATIONS, (IV) OPERATING OUR FACILITIES AT SATISFACTORY UTILIZATION RATES WHICH IS CRITICAL IN ORDER TO COVER THE HIGH LEVEL OF FIXED COSTS ASSOCIATED WITH OPERATING A FOUNDRY, (V) OUR ABILITY TO MEET CERTAIN OF THE COVENANTS STIPULATED IN OUR AMENDED FACILITY AGREEMENT AND THE MATERIALIZATION OF THE LETTER OF INTENT SIGNED WITH THE BANKS IN MAY 2005 INTO A DEFINITIVE AMENDMENT TO THE FACILITY AGREEMENT (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 OR TO EXPAND 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, (XIII) ACHIEVING ACCEPTABLE DEVICE YIELDS, PRODUCT PERFORMANCE AND DELIVERY TIMES, (XIV) THE TIMELY DEVELOPMENT, INTERNAL QUALIFICATION AND CUSTOMER ACCEPTANCE OF NEW PROCESSES AND PRODUCTS, (XV) BUSINESS INTERRUPTION DUE TO EARTHQUAKES, TERROR ATTACKS AND OTHER ACTS OF GOD. 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 FORMS 20-F AND 6-K, AS WERE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE ISRAEL SECURITIES AUTHORITY. FUTURE RESULTS MAY DIFFER MATERIALLY FROM THOSE PREVIOUSLY REPORTED. WE DO NOT INTEND TO UPDATE THE INFORMATION CONTAINED IN THIS RELEASE.

CONTACT: Tower Semiconductor USA Michael Axelrod, +1 408 330 6871 pr@towersemi.com or Pacifico Inc. PR Agency Contact Mary Curtis, +1 408 293 8600 mcurtis@pacifico.com or Fusion IR & Communications Investor Relations Contact Sheldon Lutch, +1 212 268 1816 sheldon@fusionir.com

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data and per share data) MARCH 31, DECEMBER 31, --------- --------- 2005 2004 --------- --------- A S S E T S CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 34,507 $ 27,664 DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 17,614 53,793 TRADE ACCOUNTS RECEIVABLE 12,141 19,286 OTHER RECEIVABLES 9,430 11,365 INVENTORIES 21,624 25,669 OTHER CURRENT ASSETS 861 1,818 --------- --------- TOTAL CURRENT ASSETS 96,177 139,595 --------- --------- LONG-TERM INVESTMENTS LONG-TERM INTEREST-BEARING DEPOSITS DESIGNATED FOR FAB 2 OPERATIONS 5,071 5,134 OTHER LONG-TERM INVESTMENT - - --------- --------- 5,071 5,134 --------- --------- PROPERTY AND EQUIPMENT, NET 587,707 609,296 --------- --------- OTHER ASSETS, NET 92,478 93,483 ========= ========= TOTAL ASSETS $ 781,433 $ 847,508 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 53,249 $ 65,326 CURRENT MATURITIES OF CONVERTIBLE DEBENTURES 6,575 - OTHER CURRENT LIABILITIES 9,625 10,678 --------- --------- TOTAL CURRENT LIABILITIES 69,449 76,004 LONG-TERM DEBT 497,000 497,000 CONVERTIBLE DEBENTURES 19,724 26,651 LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES 63,326 64,428 OTHER LONG-TERM LIABILITIES 19,274 15,445 --------- --------- TOTAL LIABILITIES 668,773 679,528 --------- --------- SHAREHOLDERS' EQUITY ORDINARY SHARES 16,274 16,274 ADDITIONAL PAID-IN CAPITAL 517,476 517,476 SHAREHOLDER RECEIVABLES (26) (26) ACCUMULATED DEFICIT (411,992) (356,672) --------- --------- 121,732 177,052 TREASURY STOCK, AT COST (9,072) (9,072) --------- --------- TOTAL SHAREHOLDERS' EQUITY 112,660 167,980 ========= ========= TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 781,433 $ 847,508 ========= =========

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) THREE MONTHS ENDED MARCH 31, -------------------- 2005 2004 -------- -------- SALES $ 23,167 $ 27,247 COST OF SALES 61,214 50,149 -------- -------- GROSS LOSS (38,047) (22,902) -------- -------- OPERATING COSTS AND EXPENSES RESEARCH AND DEVELOPMENT 4,763 3,505 MARKETING, GENERAL AND ADMINISTRATIVE 4,528 5,591 -------- -------- 9,291 9,096 ======== ======== OPERATING LOSS (47,338) (31,998) FINANCING EXPENSE, NET (8,175) (6,531) OTHER INCOME, NET 193 38 -------- -------- LOSS FOR THE PERIOD $(55,320) $(38,491) ======== ======== BASIC LOSS PER ORDINARY SHARE Loss per share $ (0.84) $ (0.61) ======== ======== LOSS USED TO COMPUTE BASIC LOSS PER SHARE $(55,320) $(38,484) ======== ======== WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING - IN THOUSANDS 65,700 63,026 ======== ======== (*) Basic and diluted loss per share in accordance with U.S. GAAP would be $(0.84) for the three months ended March 31, 2005 and $(0.62) for the three months ended March 31, 2004.

Exhibit 99.2 TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY INDEX TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 PAGE ACCOUNTANTS' REVIEW REPORT 1 BALANCE SHEETS 2 STATEMENTS OF OPERATIONS 3 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 4 STATEMENTS OF CASH FLOWS 5 NOTES TO FINANCIAL STATEMENTS 6-15

[DELOITTE LOGO] 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 MARCH 31, 2005 At your request, we have reviewed the condensed interim consolidated financial statements ("interim financial statements") of Tower Semiconductor Ltd. and subsidiary ("the Company"), as follows: - - Balance sheet as of March 31, 2005. - - Statement of operations for the three months ended March 31, 2005. - - Statement of changes in shareholders' equity for the three months ended March 31, 2005. - - Statement of cash flows for the three months ended March 31, 2005. 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 period presented is summarized in Note 5. Respectfully submitted, Brightman Almagor & Co. Certified Public Accountants A Member Firm of Deloitte Touche Tohmatsu Tel Aviv, Israel May 26, 2005 - 1 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) AS OF MARCH 31, DECEMBER 31, ------------------------ --------- 2005 2004 2004 --------- --------- --------- (UNAUDITED) ------------------------ A S S E T S CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 34,507 $ 11,346 $ 27,664 SHORT-TERM INTEREST-BEARING DEPOSITS - 3,000 - DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 17,614 78,265 53,793 TRADE ACCOUNTS RECEIVABLE 12,141 15,555 19,286 OTHER RECEIVABLES 9,430 14,852 11,365 INVENTORIES 21,624 21,584 25,669 OTHER CURRENT ASSETS 861 2,342 1,818 --------- --------- --------- TOTAL CURRENT ASSETS 96,177 146,944 139,595 --------- --------- --------- LONG-TERM INVESTMENTS LONG-TERM INTEREST-BEARING DEPOSITS DESIGNATED FOR FAB 2 OPERATIONS 5,071 4,734 5,134 OTHER LONG-TERM INVESTMENT - 6,000 - --------- --------- --------- 5,071 10,734 5,134 --------- --------- --------- PROPERTY AND EQUIPMENT, NET 587,707 566,821 609,296 --------- --------- --------- OTHER ASSETS, NET 92,478 105,397 93,483 ========= ========= ========= TOTAL ASSETS $ 781,433 $ 829,896 $ 847,508 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 53,249 $ 45,051 $ 65,326 CURRENT MATURITIES OF CONVERTIBLE DEBENTURES 6,575 - - OTHER CURRENT LIABILITIES 9,625 8,198 10,678 --------- --------- --------- TOTAL CURRENT LIABILITIES 69,449 53,249 76,004 LONG-TERM DEBT 497,000 431,000 497,000 CONVERTIBLE DEBENTURES 19,724 24,933 26,651 LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES 63,326 45,830 64,428 OTHER LONG-TERM LIABILITIES 19,274 8,167 15,445 --------- --------- --------- TOTAL LIABILITIES 668,773 563,179 679,528 --------- --------- --------- SHAREHOLDERS' EQUITY ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED 250,000,000, 150,000,000 AND 250,000,000 SHARES, RESPECTIVELY; ISSUED 66,999,796, 66,882,383 AND 66,999,796 SHARES, RESPECTIVELY 16,274 16,248 16,274 ADDITIONAL PAID-IN CAPITAL 517,476 516,962 517,476 SHAREHOLDER RECEIVABLES (26) (26) (26) ACCUMULATED DEFICIT (411,992) (257,395) (356,672) --------- --------- --------- 121,732 275,789 177,052 TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072) --------- --------- --------- TOTAL SHAREHOLDERS' EQUITY 112,660 266,717 167,980 ========= ========= ========= TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 781,433 $ 829,896 $ 847,508 ========= ========= ========= See notes to condensed interim consolidated financial statements. - 2 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, ------------------------ --------- 2005 2004 2004 --------- --------- --------- (UNAUDITED) ------------------------ SALES $ 23,167 $ 27,247 $ 126,055 COST OF SALES 61,214 50,149 228,410 --------- --------- --------- GROSS LOSS (38,047) (22,902) (102,355) --------- --------- --------- OPERATING COSTS AND EXPENSES RESEARCH AND DEVELOPMENT 4,763 3,505 17,053 MARKETING, GENERAL AND ADMINISTRATIVE 4,528 5,591 21,297 --------- --------- --------- 9,291 9,096 38,350 ========= ========= ========= OPERATING LOSS (47,338) (31,998) (140,705) FINANCING EXPENSE, NET (8,175) (6,531) (29,745) OTHER INCOME, NET 193 38 32,682 --------- --------- --------- LOSS FOR THE PERIOD $ (55,320) $ (38,491) $(137,768) ========= ========= ========= BASIC LOSS PER ORDINARY SHARE LOSS PER SHARE $ (0.84) $ (0.61) $ (2.13) ========= ========= ========= LOSS USED TO COMPUTE BASIC LOSS PER SHARE $ (55,320) $ (38,484) $(137,768) ========= ========= ========= WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING - IN THOUSANDS 65,700 63,026 64,717 ========= ========= ========= 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, 2005 66,999,796 $ 16,274 $ 517,476 $ - CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): LOSS FOR THE PERIOD ---------- ---------- ---------- --------- BALANCE - MARCH 31, 2005 (UNAUDITED) 66,999,796 $ 16,274 $ 517,476 $ - ========== ========== ========== ========= BALANCE - JANUARY 1, 2004 52,996,097 $ 13,150 $ 427,881 $ 16,428 CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES 2,346,786 527 15,901 (16,428) ISSUANCE OF SHARES, NET OF RELATED COST - PUBLIC OFFERING 11,444,500 2,550 72,536 EXERCISE OF SHARE OPTIONS 95,000 21 644 LOSS FOR THE PERIOD ---------- ---------- ---------- --------- BALANCE - MARCH 31, 2004 (UNAUDITED) 66,882,383 $ 16,248 $ 516,962 $ - ========== ========== ========== ========= BALANCE - JANUARY 1, 2004 52,996,097 $ 13,150 $ 427,881 $ 16,428 CHANGES DURING 2004: ISSUANCE OF SHARES 2,463,949 553 16,414 (16,428) ISSUANCE OF SHARES, NET OF RELATED COST - PUBLIC OFFERING 11,444,500 2,550 72,536 EXERCISE OF SHARE OPTIONS 95,250 21 645 LOSS FOR THE YEAR ---------- ---------- ---------- --------- BALANCE - DECEMBER 31, 2004 66,999,796 $ 16,274 $ 517,476 $ - ========== ========== ========== ========= SHAREHOLDER RECEIVABLES AND UNEARNED ACCUMULATED TREASURY COMPENSATION DEFICIT STOCK TOTAL ------ ----------- --------- ---------- BALANCE - JANUARY 1, 2005 $ (26) $ (356,672) $ (9,072) $ 167,980 CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): LOSS FOR THE PERIOD (55,320) (55,320) ------ ----------- --------- ---------- BALANCE - MARCH 31, 2005 (UNAUDITED) $ (26) $ (411,992) $ (9,072) $ 112,660 ====== =========== ========= ========== BALANCE - JANUARY 1, 2004 $ (26) $ (218,904) $ (9,072) $ 229,457 CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES - ISSUANCE OF SHARES, NET OF RELATED COST - PUBLIC OFFERING 75,086 EXERCISE OF SHARE OPTIONS 665 LOSS FOR THE PERIOD (38,491) (38,491) ------ ----------- --------- ---------- BALANCE - MARCH 31, 2004 (UNAUDITED) $ (26) $ (257,395) $ (9,072) $ 266,717 ====== =========== ========= ========== BALANCE - JANUARY 1, 2004 $ (26) $ (218,904) $ (9,072) $ 229,457 CHANGES DURING 2004: ISSUANCE OF SHARES 539 ISSUANCE OF SHARES, NET OF RELATED COST - PUBLIC OFFERING 75,086 EXERCISE OF SHARE OPTIONS 666 LOSS FOR THE YEAR (137,768) (137,768) ------ ----------- --------- ---------- BALANCE - DECEMBER 31, 2004 $ (26) $ (356,672) $ (9,072) $ 167,980 ====== =========== ========= ========== See notes to condensed interim consolidated financial statements. - 4 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) THREE MONTHS ENDED YEAR ENDED MARCH 31, DECEMBER 31, -------------------------- --------- 2005 2004 2004 --------- --------- --------- (UNAUDITED) -------------------------- CASH FLOWS - OPERATING ACTIVITIES LOSS FOR THE PERIOD $ (55,320) $ (38,491) $(137,768) ADJUSTMENTS TO RECONCILE LOSS FOR THE PERIOD TO NET CASH USED IN OPERATING ACTIVITIES: INCOME AND EXPENSE ITEMS NOT INVOLVING CASH FLOWS: DEPRECIATION AND AMORTIZATION 34,594 26,929 121,067 EFFECT OF INDEXATION AND TRANSLATION ON CONVERTIBLE DEBENTURES (403) (900) 676 OTHER INCOME, NET (193) (38) (32,682) CHANGES IN ASSETS AND LIABILITIES: DECREASE (INCREASE) IN TRADE ACCOUNTS RECEIVABLE 7,145 (3,924) (7,655) DECREASE (INCREASE) IN OTHER RECEIVABLES AND OTHER CURRENT ASSETS 2,036 (1,748) (413) DECREASE (INCREASE) IN INVENTORIES 4,045 (2,202) (6,287) INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE (1,051) 3,309 404 DECREASE IN OTHER CURRENT LIABILITIES (1,263) (1,366) (970) INCREASE (DECREASE) IN OTHER LONG-TERM LIABILITIES (567) 2,232 9,344 --------- --------- --------- (10,977) (16,199) (54,284) INCREASE (DECREASE) IN LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES, NET (106) (517) 19,384 --------- --------- --------- NET CASH USED IN OPERATING ACTIVITIES (11,083) (16,716) (34,900) --------- --------- --------- CASH FLOWS - INVESTING ACTIVITIES DECREASE (INCREASE) IN DESIGNATED CASH, SHORT-TERM AND LONG-TERM INTEREST-BEARING DEPOSITS, NET 36,242 (34,109) (10,037) INVESTMENTS IN PROPERTY AND EQUIPMENT (19,650) (25,254) (154,975) INVESTMENT GRANTS RECEIVED 3,488 2,511 32,636 PROCEEDS RELATED TO SALE AND DISPOSAL OF PROPERTY AND EQUIPMENT 346 38 2,626 INVESTMENTS IN OTHER ASSETS (2,500) (702) (702) INCREASE IN DEPOSITS, NET - (3,000) - PROCEEDS FROM SALE OF LONG-TERM INVESTMENT - - 38,677 --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 17,926 (60,516) (91,775) --------- --------- --------- CASH FLOWS - FINANCING ACTIVITIES PROCEEDS FROM ISSUANCE OF SHARES, NET - 75,465 75,225 PROCEEDS FROM LONG-TERM DEBT - - 66,000 PROCEEDS FROM EXERCISE OF SHARE OPTIONS - 665 666 --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES - 76,130 141,891 ========= ========= ========= INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,843 (1,102) 15,216 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 27,664 12,448 12,448 --------- --------- --------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 34,507 $ 11,346 $ 27,664 ========= ========= ========= NON-CASH ACTIVITIES INVESTMENTS IN PROPERTY AND EQUIPMENT $ 9,205 $ 16,259 $ 47,675 ========= ========= ========= INVESTMENTS IN OTHER ASSETS $ 1,283 $ 35 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR INTEREST $ 8,316 $ 6,531 $ 25,205 ========= ========= ========= CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 4 $ 36 $ 130 ========= ========= ========= See notes to condensed interim consolidated financial statements. - 5 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 (dollars in thousands, except share data and per share data) NOTE 1 - GENERAL A. BASIS FOR PRESENTATION (1) The unaudited condensed interim consolidated financial statements as of March 31, 2005 and for the three months then ended ("interim financial statements") of Tower Semiconductor Ltd. and subsidiary ("the Company") should be read in conjunction with the audited consolidated financial statements of the Company as of December 31, 2004 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 period presented. The results of operations for the interim period are not necessarily indicative of the results to be expected on a full-year basis. (2) The interim financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") in Israel ("Israeli GAAP"), 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, except for the accounting principles detailed in (3) below. (3) RECENT ACCOUNTING PRONOUNCEMENT BY THE ISRAELI ACCOUNTING STANDARDS BOARD ACCOUNTING STANDARD NO. 19 "TAXES ON INCOME" - In July 2004, the Israeli Accounting Standards Board published Accounting Standard No. 19 "INCOME TAXES" (the "Standard"). The Standard established the guideline for recognizing, measuring, presenting and disclosing taxes on income taxes in the financial statements. The Standard is effective for financial statements relating to reporting periods commencing on, or after, January 1, 2005. The initial adoption of the Standard is accounted for by the cumulative effect of change in accounting method, for the beginning of the period in which the Standard is initially adopted. The implementation of the Standard did not affect the Company's financial position, results of operations and cash flows. B. ESTABLISHMENT AND OPERATIONS OF NEW FABRICATION FACILITY (FAB 2) In January 2001, the Company's Board of Directors approved the establishment of a new wafer fabrication facility in Israel ("Fab 2"). 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 $1,269,000 of financing for Fab 2. - 6 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 (dollars in thousands, except share data and per share data) NOTE 1 - GENERAL (cont.) B. ESTABLISHMENT AND OPERATIONS OF NEW FABRICATION FACILITY (FAB 2) (cont.) 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 12A to the 2004 audited consolidated financial statements. C. FINANCING OF THE COMPANY'S ONGOING OPERATIONS In the first quarter of 2005 and in recent years, the Company has experienced significant recurring losses from operations and recurring negative cash flows from operating activities and an increasing accumulated deficit. According to the Company's recently approved short-term working plan and based on the current prevailing semiconductor market conditions, assuming no funds are raised based on the Letter of Intent ("LOI") described below or otherwise, the Company foresees to be in a cash shortage. In addition, for details concerning management's current estimation that the Company may not comply with certain of the financial ratios and covenants for the third quarter of 2005 and thereafter contemplated in a letter agreement signed between the Company and the Banks in January 2005, see Note 3B below and Note 12A(6) to the 2004 audited consolidated financial statements. In light of the above described, the Company has been taking comprehensive measures to obtain the needed funds for its ongoing operations in the near future, as well as measures to reduce its short-term liabilities. The Company has also implemented cost reduction measures, including measures to reduce expenses, cost structure and cash burn, and in March 2005, the Company completed a workforce cutback, as part of an across-the-board savings plan focused on operational efficiencies. In this regard, the Company, certain of its Equity Investors, Wafer Partners, and its Banks are holding discussions for additional funding for the Company in the amount of approximately $60,000. Accordingly, in May 2005, an LOI was signed between the Company and its Banks which states that financing in the amount of up to $30,000 will be provided by the Banks to the Company, subject to a similar amount being raised by the Company from investors. As of the approval date of the interim financial statements, certain of the Company's Equity Investors and Wafer Partners have informed the Company of their willingness to invest $23,500 towards such funding by investors. The LOI is further subject to reaching a definitive amendment to the Facility Agreement. The execution of a definitive amendment to the Facility Agreement is subject, among other matters, to all required internal approvals by the Banks, including the approval of their boards of directors. The Company's management estimates that it is probable that the LOI will materialize into a definitive amendment to the Facility Agreement and that the Equity Investors and Wafer Partners will invest the funds as described above. - 7 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 (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: Three Months Ended March 31, --------- 2005 2004 ---- ---- (Unaudited) Customer A 42% 29% Customer B 12 2 Customer C 1 18 Other customers (*) 18 30 (*) Represents sales to five different customers each of whom accounted for between 1% and 7% of sales during the three months ended March 31, 2005, and to five different customers (each of whom accounted for between 5% and 8%) during the three months ended March 31, 2004. NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 A. APPROVED ENTERPRISE STATUS Under the terms of the approved enterprise program for Fab 2, 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 $154,135 has been already received from the Investment Center. Under the terms of the program, investments in respect of Fab 2 may 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, prevailing market conditions and slower than planned ramp-up, as of March 31, 2005, the Company completed approximately 70% of the investments under the approved enterprise program. Currently, the Company does not expect to complete Fab 2 investments by the end of 2005. Accordingly, and as a result of the Company's actual investments lagging behind the original terms of the program, the Company notified the Investment Center of its revised investment schedule contemplated in an updated plan for the construction and equipping Fab 2. Such plan reflects, among other things, a reduced rate of annual investments and lower Fab 2 sales than originally planned. In July 2004, the Company received from the Investment Center an approval to the revised investment schedule. - 8 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 (dollars in thousands, except share data and per share data) NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.) A. APPROVED ENTERPRISE STATUS (cont.) Since the approved investment period of five years ends on December 31, 2005, the Company has been holding discussions with the Investment Center to achieve satisfactory arrangements to allow for the extension of the approved investment period beyond December 31, 2005, or to approve a new expansion program that shall commence on January 1, 2006. During 2005, the Company received letters from the Israeli Minister of Industry, Trade and Employment and from the General Manager of the Investment Center stating that they will act under Israeli law to support such extension or expansion. In April 2005, at the Investment Center's request, the Company submitted a revised business plan to the Investment Center for the period commencing on January 1, 2006. As of the approval date of the interim financial statements, the process of reviewing the revised business plan is in its early stages, and the Company's management cannot estimate the outcome of the Company's efforts to obtain approval of an extension of the Fab 2 approved enterprise program or of a new expansion program. B. FACILITY AGREEMENT - FINANCIAL RATIOS AND COVENANTS AND ADDITIONAL FUNDING In January 2005, the Company and its Banks signed a waiver letter agreement according to which the Banks waived the Company's non-compliance with certain financial ratios and covenants for the fourth quarter of 2004. The agreement signed also amended certain of the financial ratios and covenants the Company is to comply with during 2005. As of the balance sheet date, the Company was in full compliance with all of the financial ratios and covenants under the amended Facility Agreement. Management currently estimates that the Company may not comply with certain of the financial ratios and covenants for the third quarter of 2005 and thereafter. However, management estimates that following the signing of the Letter of Intent described in note 1C above, it is probable that satisfactory arrangements with the Banks concerning the financial ratios and covenants for these periods 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) plus penalties, and the Banks would be entitled to exercise the remedies available to them under the Facility Agreement, including enforcement of their lien against all of the Company's assets. For a LOI signed with the Banks, see Note 1C above. - 9 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 (dollars in thousands, except share data and per share data) NOTE 4 - OTHER RECENT DEVELOPMENTS A. CLASS ACTION In August 2004, the United States District Court dismissed the class action filed in July 2003 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 December 2004, one of the lead plaintiffs filed an appeal of the decision dismissing the complaint. The Company believes that the complaint is without merit and is vigorously contesting it. B. SHARE OPTION PLANS (1) OPTIONS GRANTED TO DIRECTORS - In accordance with the Company's share option plan for directors, 80,000 options were granted in February 2005 to two newly appointed directors to the Company's Board of Directors (40,000 options each) at an exercise price of $1.87, which equals the market price of the Company's shares on the grant date. As of the approval date of the interim financial statements, 240,000 options were outstanding under the plan, with a weighted average exercise price of $6.08. (2) EXPIRATION OF OPTIONS GRANTED TO THE COMPANY'S FORMER CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER - Due to the resignation of the Company's former Chairman of the Board of Directors and Chief Executive Officer, all of the 1,043,000 options which were granted to him are fully forfeited as of May 2005. (3) OPTIONS TO THE COMPANY'S NEW CHIEF EXECUTIVE OFFICER AND DIRECTOR - In April 2005, the Company's Board of Directors approved the grant of options to purchase up to 1,325,724 Ordinary Shares to the Company's new appointed Chief Executive Officer ("CEO"), who was also appointed as a director. These options are exercisable at an exercise price of $1.56, the opening market price of the Company's shares on the date of the board approval of the grant. Granted options will vest over a four-year period, 25% over each year of employment. The options granted are exercisable for a period of ten years from the date of grant. If as a result of future equity financings (excluding the exercise or conversion of currently existing warrants, options or other rights to acquire the Company's securities), the CEO's total number of options granted to him through April 30, 2007 would represent less than 1.2% of the total number of issued and outstanding shares of the Company as of such date, additional options will be granted to the CEO to result in a 1.2% holding of the total number of issued and outstanding shares of the Company as of April 30, 2007. The grant of the options 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 MARCH 31, 2005 (dollars in thousands, except share data and per share data) NOTE 4 - OTHER RECENT DEVELOPMENTS (cont.) B. SHARE OPTION PLANS (cont.) (4) OPTIONS TO EMPLOYEES - In May 2005, the Company's Board of Directors approved the grant of 2,900,000 options to the Company's employees at an exercise price equal to the Company's share market price as of the date of grant. The options granted will vest over a four-year period from the date of grant and will expire ten years from such date. C. TERMINATION OF A JOINT DEVELOPMENT AGREEMENT In April 2005, a Japanese semiconductor manufacturer corporation has elected, and the Company has agreed, to cease the joint development of certain technology and to terminate the agreement entered into between the parties in May 2002 described in Note 12B(3) to the 2004 audited consolidated financial statements ("the Original Agreement"). According to the terms of the termination agreement, the Japanese manufacturer paid an amount of $2,500 in April 2005. In addition, each party expressly released the other party from any obligations or liabilities of any nature in connection with the Original Agreement. The license rights granted to the parties continue pursuant to the terms of the Original Agreement. As a result, during the second quarter of 2005, the Company expects to recognize revenues in the aggregate amount of $8,000, of which $5,500 is presented as deferred revenues and included as a long-term liability as of the balance sheet date. - 11 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 (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 F below for the presentation of the Company's unaudited balance sheet as of March 31, 2005 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 March 31, 2005, $17,614 and $5,071 were reclassified, respectively, from current assets and long-term investments to a long-term asset (as of December 31, 2004 - $53,793 and $5,134, 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 March 31, 2005 an amount of $16,055 was reclassified from other long-term liabilities to long-term investments (as of December 31, 2004 - $16,350). 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 March 31, 2005 would have resulted in: an increase in other long-term investments in the amount of $1,555; an increase in other long-term liabilities in the amount of $1,124; a decrease in other comprehensive loss for the three months ended March 31, 2005 in the net amount of $3,169; an accumulated other comprehensive loss component of equity balance as of March 31, 2005 in the amount of $3,886; and in a decrease of $4,287 in property and equipment, net as of March 31, 2005. - 12 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2005 (dollars in thousands, except share data and per share data) NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.) F. BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP AS OF MARCH 31, 2005 AS OF DECEMBER 31, 2004 ----------------------------------- ----------------------------------- 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 --------- --------- --------- --------- --------- --------- --------- A S S E T S CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 34,507 $ $ 34,507 $ 27,664 $ $ 27,664 DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS A 17,614 (17,614) - 53,793 (53,793) - TRADE ACCOUNTS RECEIVABLE 12,141 12,141 19,286 19,286 OTHER RECEIVABLES 9,430 9,430 11,365 11,365 INVENTORIES 21,624 21,624 25,669 25,669 OTHER CURRENT ASSETS 861 861 1,818 1,818 --------- --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS 96,177 (17,614) 78,563 139,595 (53,793) 85,802 --------- --------- --------- --------- --------- --------- LONG-TERM INVESTMENTS LONG-TERM INTEREST-BEARING DEPOSITS DESIGNATED FOR FAB 2 OPERATIONS A 5,071 (5,071) - 5,134 (5,134) - OTHER LONG-TERM INVESTMENTS B, C - 17,610 17,610 - 16,350 16,350 --------- --------- --------- --------- --------- --------- 5,071 12,539 17,610 5,134 11,216 16,350 --------- --------- --------- --------- --------- --------- PROPERTY AND EQUIPMENT, NET C 587,707 (4,287) 583,420 609,296 (4,619) 604,677 --------- --------- --------- --------- --------- --------- DESIGNATED CASH AND SHORT-TERM AND LONG-TERM INTEREST-BEARING DEPOSITS A - 22,685 22,685 - 58,927 58,927 --------- --------- --------- --------- --------- --------- OTHER ASSETS, NET E 92,478 (196) 92,282 93,483 (196) 93,287 ========= ========= ========= ========= ========= ========= TOTAL ASSETS $ 781,433 $ 13,127 $ 794,560 $ 847,508 $ 11,535 $ 859,043 ========= ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 53,249 $ $ 53,249 $ 65,326 $ $ 65,326 CURRENT MATURITIES OF CONVERTIBLE DEBENTURES E 6,575 (640) 5,935 - - OTHER CURRENT LIABILITIES 9,625 9,625 10,678 10,678 --------- --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 69,449 (640) 68,809 76,004 - 76,004 LONG-TERM DEBT 497,000 497,000 497,000 497,000 CONVERTIBLE DEBENTURES E 19,724 (1,919) 17,805 26,651 (2,559) 24,092 LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES 63,326 63,326 64,428 64,428 OTHER LONG-TERM LIABILITIES B, C 19,274 17,179 36,453 15,445 18,756 34,201 --------- --------- --------- --------- --------- --------- TOTAL LIABILITIES 668,773 14,620 683,393 679,528 16,197 695,725 --------- --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED 250,000,000 SHARES; ISSUED 66,999,796 SHARES 16,274 16,274 16,274 16,274 ADDITIONAL PAID-IN CAPITAL E 517,476 2,363 519,839 517,476 2,363 519,839 SHAREHOLDER RECEIVABLES (26) (26) (26) (26) ACCUMULATED OTHER COMPREHENSIVE LOSS C - (3,886) (3,886) - (7,055) (7,055) ACCUMULATED DEFICIT (411,992) 30 (411,962) (356,672) 30 (356,642) --------- --------- --------- --------- --------- --------- 121,732 (1,493) 120,239 177,052 (4,662) 172,390 TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072) (9,072) --------- --------- --------- --------- --------- --------- TOTAL SHAREHOLDERS' EQUITY 112,660 (1,493) 111,167 167,980 (4,662) 163,318 ========= ========= ========= ========= ========= ========= TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 781,433 $ 13,127 $ 794,560 $ 847,508 $ 11,535 $ 859,043 ========= ========= ========= ========= ========= ========= - 14 -