FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the month of November 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 November 8, 2005, the Registrant announced its financial results for the
three and nine month periods ended September 30, 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 interim consolidated
financial statements for the three and nine month periods ended September 30,
2005.
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: November 8, 2005 By: /S/ Nati Somekh Gilboa
--------------------------
Nati Somekh Gilboa
Corporate Secretary
EXHIBIT 99.1
TOWER SEMICONDUCTOR ANNOUNCES
THIRD QUARTER AND NINE-MONTH 2005 RESULTS
IMPROVING REVENUES OUTLOOK FOR Q4 2005 AND 2006
MIGDAL HAEMEK, Israel -- November 8, 2005 -- Tower Semiconductor Ltd. (NASDAQ:
TSEM; TASE: TSEM), a pure-play independent specialty foundry, today announced
third quarter and nine-month results for fiscal year 2005. Revenues were $20.6
million for the third quarter of 2005, compared to $35.1 million for the third
quarter of 2004. For the nine months ended September 30, 2005, revenues were
$70.9 million, including $8 million from a previously announced
technology-related agreement, compared to $96 million for the nine months ended
September 30, 2004, which included $1.9 million from this same agreement.
The 2005 third quarter loss was $55.4 million, or $0.83 per share, including
$36.9 million depreciation and amortization expenses, compared with a loss of
$39.4 million, or $0.60 per share, which included $30.8 million depreciation and
amortization expenses, for the third quarter of 2004. For the nine months ended
September 30, 2005, the loss was $157.9 million, or $2.39 per share, including
$7.2 million net profit from a previously announced technology-related agreement
and $108 million depreciation and amortization expenses, compared to a loss of
$114.4 million, or $1.78 per share, which included $1.8 million net profit from
this same agreement and $86.2 million depreciation and amortization expenses for
the nine months ended September 30, 2004.
Third quarter 2005 sales from manufacturing activities showed an increase in
revenue of 7% over Q2. During the quarter, Tower shipped its first 0.18um CMOS
Image Sensor products and increased its Fab 2 customers in production from 9 to
13.
Tower expects substantial growth in revenues in the fourth quarter compared to
the third quarter and guides revenues of between $25 to $28 million.
"We are pleased with the progress Tower is making in our focus on differentiated
specialized products targeted toward our customers' needs and market success,"
said Russell Ellwanger, chief executive officer, Tower Semiconductor. "The
pipeline of new customers and the rate of qualifications give us confidence
about continued revenue growth in 2006."
-MORE-
Tower continues to focus on initiatives discussed in previous financial
releases:
1. DIVERSIFYING CUSTOMER BASE
AS OF END OF AS OF END OF AS OF END OF
TOTAL CUSTOMER COUNT Q3 2005 Q2 2005 Q3 2004
- -------------------- ------- ------- -------
95% of revenue generated by: 28 customers 27 customers 18 customers
Fab 2 production customers 13 9 6
Fab 2 pre-production customers 24 22 11
2. SALES BY CUSTOMER BASE PROFILE
NINE MONTHS ENDED NINE MONTHS ENDED
TYPE OF CUSTOMER SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
- ---------------- ------------------ ------------------
Fabless 58% 71%
IDM 42% 29%
3. SALES BY GEOGRAPHY
REGION Q3 2005 Q2 2005 Q3 2004
- ------ ------ ------- -------
U.S. 66% 68% 53%
Israel 7% 9% 29%
Pacific Rim (including Japan) 16% 8% 9%
Europe 11% 15% 9%
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 third quarter, Tower continued to focus on the specialized markets
and on increasing the contribution to total revenue by CMOS image sensors and
Mixed Signal devices, as can be seen in the table below.
TECHNOLOGY SEGMENT CONSOLIDATED Q3 2005 Q2 2005 Q3 2004
- ------------------------------- ------- ------- -------
Core CMOS 44% 54% 67%
CMOS image Sensors and Non-Volatile Memory 30% 27% 19%
Mixed Signal, RF and Power 26% 19% 14%
FAB1
Core CMOS 42% 31% 25%
CMOS image Sensors and Non-Volatile Memory 33% 48% 47%
Mixed Signal, RF and Power 25% 21% 28%
FAB2
Core CMOS 48% 72% 94%
CMOS image Sensors and Non-Volatile Memory 25% 10% 1%
Mixed Signal and RF 27% 18% 5%
Page 2 of 6
5. DIVERSIFYING REVENUES BY MARKET SEGMENT
Tower maintains its market segment diversification.
INDUSTRY SEGMENT Q3 2005 Q2 2005 Q3 2004
- ---------------- ------- ------- -------
Consumer 17% 29% 57%
Communication 22% 20% 11%
PC 5% 6% 5%
Industrial, medical and automotive 19% 21% 10%
Multi-market and others 37% 24% 17%
Tower will host a conference call to discuss these results today, November 8, at
11 a.m. Eastern time /6 p.m. Israel time. To participate, call 1-866-527-8676
(U.S. toll-free number) or 972-3-918-0609 (international) and mention ID code:
TOWER. Callers in Israel are invited to call locally 03-918-0609. The conference
call will also be web cast 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, (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) THE SUCCESSFUL COMPLETION OF THE RIGHTS OFFERING BY THE
DATES SET FORTH IN OUR AMENDED FACILITY AGREEMENT (VI) OUR ABILITY TO MEET
CERTAIN OF THE COVENANTS STIPULATED IN OUR AMENDED FACILITY AGREEMENT, (VII) THE
RECEIPT AND CONSUMMATION OF THE INVESTORS' COMMITMENTS TO INVEST AT LEAST $23.5
MILLION BY THE DATES SET FORTH IN OUR AMENDED FACILITY AGREEMENT, (VIII) OUR
ABILITY TO CAPITALIZE ON INCREASES IN DEMAND FOR FOUNDRY SERVICES, (IX) 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 EXPAND
THE FIVE-YEAR INVESTMENT PERIOD UNDER OUR FAB 2 APPROVED ENTERPRISE PROGRAM, (X)
ATTRACTING ADDITIONAL CUSTOMERS, (XI) NOT RECEIVING ORDERS FROM OUR WAFER
PARTNERS AND TECHNOLOGY PROVIDERS, (XII) FAILING TO MAINTAIN AND DEVELOP OUR
TECHNOLOGY PROCESSES AND SERVICES, (XIII) COMPETING EFFECTIVELY, (XIV) OUR LARGE
AMOUNT OF DEBT, (XV) ACHIEVING ACCEPTABLE DEVICE YIELDS, PRODUCT PERFORMANCE AND
DELIVERY TIMES, (XVI) THE TIMELY DEVELOPMENT, INTERNAL QUALIFICATION AND
CUSTOMER ACCEPTANCE OF NEW PROCESSES AND PRODUCTS, AND (XVII) BUSINESS
INTERRUPTION DUE TO TERROR ATTACKS, EARTHQUAKES, AND OTHER ACTS OF GOD.
Page 3 of 6
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 FILINGS ON FORMS 20-F, F-2 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.
Tower Semiconductor
Ilanit Vudinsky, +972 4 650 6434
ilanitvu@towersemi.com
or
Pacifico Inc.
PR Agency Contact
Mary Curtis, +1 408 293 8600
mcurtis@pacifico.com
Page 4 of 6
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
--------- ---------
2005 2004
--------- ---------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 11,719 $ 27,664
DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 17,972 53,793
TRADE ACCOUNTS RECEIVABLE 9,632 19,286
OTHER RECEIVABLES 8,099 11,365
INVENTORIES 20,902 25,669
OTHER CURRENT ASSETS 2,429 1,818
--------- ---------
TOTAL CURRENT ASSETS 70,753 139,595
--------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS -- 5,134
--------- ---------
PROPERTY AND EQUIPMENT, NET 534,661 609,296
--------- ---------
OTHER ASSETS, NET 83,313 93,483
========= =========
TOTAL ASSETS $ 688,727 $ 847,508
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 59,783 $ 65,326
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES 6,397 --
OTHER CURRENT LIABILITIES 9,203 10,678
--------- ---------
TOTAL CURRENT LIABILITIES 75,383 76,004
LONG-TERM DEBT 510,360 497,000
CONVERTIBLE DEBENTURES 19,192 26,651
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 60,577 64,428
OTHER LONG-TERM LIABILITIES 8,907 15,445
--------- ---------
TOTAL LIABILITIES 674,419 679,528
--------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES 16,499 16,274
ADDITIONAL PAID-IN CAPITAL 521,489 517,476
SHAREHOLDER RECEIVABLES (26) (26)
ACCUMULATED DEFICIT (514,582) (356,672)
--------- ---------
23,380 177,052
TREASURY STOCK (9,072) (9,072)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 14,308 167,980
========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 688,727 $ 847,508
========= =========
Page 5 of 6
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,
-------------------------- --------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
REVENUES
SALES $ 62,928 $ 94,046 $ 20,553 $ 35,091
REVENUES RELATED TO A JOINT DEVELOPMENT AGREEMENT 8,000 1,944 -- --
--------- --------- --------- ---------
70,928 95,990 20,553 35,091
COST OF SALES 179,598 162,242 57,130 57,843
--------- --------- --------- ---------
GROSS LOSS (108,670) (66,252) (36,577) (22,752)
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 12,849 11,208 4,200 3,952
MARKETING, GENERAL AND ADMINISTRATIVE 13,481 16,176 4,715 5,155
--------- --------- --------- ---------
26,330 27,384 8,915 9,107
========= ========= ========= =========
OPERATING LOSS (135,000) (93,636) (45,492) (31,859)
FINANCING EXPENSE, NET (25,428) (20,907) (9,900) (7,567)
OTHER INCOME, NET 2,518 108 42 14
--------- --------- --------- ---------
LOSS FOR THE PERIOD $(157,910) $(114,435) $ (55,350) $ (39,412)
========= ========= ========= =========
BASIC LOSS PER ORDINARY SHARE
LOSS PER SHARE (*) $ (2.39) $ (1.78) $ (0.83) $ (0.60)
========= ========= ========= =========
LOSS USED TO COMPUTE
BASIC LOSS PER SHARE $(157,910) $(114,435) $ (55,350) $ (39,412)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 66,190 64,392 66,671 65,625
========= ========= ========= =========
(*) Basic and diluted loss per share in accordance with U.S. GAAP are the same
as the Isr. GAAP data FOR THE NINE AND THREE MONTHS PERIODS ENDED SEPTEMBER
30, 2005 AND 2004.
Page 6 of 6
EXHIBIT 99.2
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
PAGE
----
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 3
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5-22
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
AS OF SEPTEMBER 30, DECEMBER 31,
-------------------------- ---------
2005 2004 2004
--------- --------- ---------
(UNAUDITED)
--------------------------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 11,719 $ 21,877 $ 27,664
DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 17,972 36,576 53,793
TRADE ACCOUNTS RECEIVABLE 9,632 25,961 19,286
OTHER RECEIVABLES 8,099 18,385 11,365
INVENTORIES 20,902 30,371 25,669
OTHER CURRENT ASSETS 2,429 1,243 1,818
--------- --------- ---------
TOTAL CURRENT ASSETS 70,753 134,413 139,595
--------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS -- 4,934 5,134
OTHER LONG-TERM INVESTMENT -- 6,000 --
--------- --------- ---------
-- 10,934 5,134
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET 534,661 613,561 609,296
--------- --------- ---------
OTHER ASSETS, NET 83,313 97,961 93,483
========= ========= =========
TOTAL ASSETS $ 688,727 $ 856,869 $ 847,508
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 59,783 $ 61,202 $ 65,326
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES 6,397 -- --
OTHER CURRENT LIABILITIES 9,203 9,082 10,678
--------- --------- ---------
TOTAL CURRENT LIABILITIES 75,383 70,284 76,004
LONG-TERM DEBT 510,360 497,000 497,000
CONVERTIBLE DEBENTURES 19,192 25,643 26,651
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 60,577 65,069 64,428
OTHER LONG-TERM LIABILITIES 8,907 7,792 15,445
--------- --------- ---------
TOTAL LIABILITIES 674,419 665,788 679,528
--------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED
250,000,000, 150,000,000 AND 250,000,000 SHARES, RESPECTIVELY;
ISSUED 68,007,609, 66,934,971 AND 66,999,796 SHARES, RESPECTIVEL 16,499 16,260 16,274
ADDITIONAL PAID-IN CAPITAL 521,489 517,258 517,476
SHAREHOLDER RECEIVABLES (26) (26) (26)
ACCUMULATED DEFICIT (514,582) (333,339) (356,672)
--------- --------- ---------
23,380 200,153 177,052
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 14,308 191,081 167,980
========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 688,727 $ 856,869 $ 847,508
========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 1 -
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,
------------------------ ------------------------ ---------
2005 2004 2005 2004 2004
--------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
------------------------- ------------------------
REVENUES
SALES $ 62,928 $ 94,046 $ 20,553 $ 35,091 $ 124,111
REVENUES RELATED TO A JOINT DEVELOPMENT AGREEMENT 8,000 1,944 -- -- 1,944
--------- --------- --------- --------- ---------
70,928 95,990 20,553 35,091 126,055
COST OF SALES 179,598 162,242 57,130 57,843 228,410
--------- --------- --------- --------- ---------
GROSS LOSS (108,670) (66,252) (36,577) (22,752) (102,355)
--------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 12,849 11,208 4,200 3,952 17,053
MARKETING, GENERAL AND ADMINISTRATIVE 13,481 16,176 4,715 5,155 21,297
--------- --------- --------- --------- ---------
26,330 27,384 8,915 9,107 38,350
========= ========= ========= ========= =========
OPERATING LOSS (135,000) (93,636) (45,492) (31,859) (140,705)
FINANCING EXPENSE, NET (25,428) (20,907) (9,900) (7,567) (29,745)
OTHER INCOME, NET 2,518 108 42 14 32,682
--------- --------- --------- --------- ---------
LOSS FOR THE PERIOD $(157,910) $(114,435) $ (55,350) $ (39,412) $(137,768)
========= ========= ========= ========= =========
BASIC LOSS PER ORDINARY SHARE
LOSS PER SHARE $ (2.39) $ (1.78) $ (0.83) $ (0.60) $ (2.13)
========= ========= ========= ========= =========
LOSS USED TO COMPUTE
BASIC LOSS PER SHARE $(157,910) $(114,435) $ (55,350) $ (39,412) $(137,768)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 66,190 64,392 66,671 65,625 64,717
========= ========= ========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
TOWER SEMICONDUCTOR LTD.
CONDENSED 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 NINE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 1,007,813 225 1,220
STOCK-BASED COMPENSATION RELATED TO THE
FACILITY AGREEMENT WITH THE BANKS 2,793
LOSS FOR THE PERIOD
---------- --------- --------- --------
BALANCE - SEPTEMBER 30, 2005 (UNAUDITED) 68,007,609 $ 16,499 $ 521,489 $ --
========== ========= ========= ========
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)
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 - JULY 1, 2005 67,586,187 $ 16,408 $ 518,286 $ --
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 421,422 91 410
STOCK-BASED COMPENSATION RELATED TO THE
FACILITY AGREEMENT WITH THE BANKS 2,793
LOSS FOR THE PERIOD
---------- --------- --------- --------
BALANCE - SEPTEMBER 30, 2005 (UNAUDITED) 68,007,609 $ 16,499 $ 521,489 $ --
========== ========= ========= ========
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 - 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 NINE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 1,445
STOCK-BASED COMPENSATION RELATED TO THE
FACILITY AGREEMENT WITH THE BANKS 2,793
LOSS FOR THE PERIOD (157,910) (157,910)
----- ----------- --------- ---------
BALANCE - SEPTEMBER 30, 2005 (UNAUDITED) $ (26) $ (514,582) $ (9,072) $ 14,308
===== =========== ========= =========
BALANCE - JANUARY 1, 2004 $ (26) $ (218,904) $ (9,072) $ 229,457
CHANGES DURING NINE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 307
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 - JULY 1, 2005 $ (26) $ (459,232) $ (9,072) $ 66,364
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 501
STOCK-BASED COMPENSATION RELATED TO THE
FACILITY AGREEMENT WITH THE BANKS 2,793
LOSS FOR THE PERIOD (55,350) (55,350)
----- ----------- --------- ---------
BALANCE - SEPTEMBER 30, 2005 (UNAUDITED) $ (26) $ (514,582) $ (9,072) $ 14,308
===== =========== ========= =========
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 - 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.
- 3 -
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,
----------------------- ----------------------- ---------
2005 2004 2005 2004 2004
--------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
----------------------- -----------------------
CASH FLOWS - OPERATING ACTIVITIES
LOSS FOR THE PERIOD $(157,910) $(114,435) $ (55,350) $ (39,412) $(137,768)
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 108,008 86,188 36,855 30,782 121,067
EFFECT OF INDEXATION AND TRANSLATION ON
CONVERTIBLE DEBENTURES (1,205) (280) 222 86 676
OTHER INCOME, NET (2,518) (108) (42) (14) (32,682)
CHANGES IN ASSETS AND LIABILITIES:
DECREASE (INCREASE) IN TRADE ACCOUNTS RECEIVABLE 9,654 (14,330) 1,221 (6,848) (7,655)
DECREASE (INCREASE) IN OTHER RECEIVABLES AND OTHER
CURRENT ASSET 720 (1,382) (1,940) 1,786 (413)
DECREASE (INCREASE) IN INVENTORIES 4,767 (10,989) (3,844) (4,659) (6,287)
INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE 5,320 3,332 5,480 (147) 404
INCREASE (DECREASE) IN OTHER CURRENT LIABILITIES (1,459) (802) 6 (76) (970)
INCREASE (DECREASE) IN OTHER LONG-TERM LIABILITIES (7,379) 1,766 (302) (508) 9,344
--------- --------- --------- --------- ---------
(42,002) (51,040) (17,694) (19,010) (54,284)
INCREASE (DECREASE) IN LONG-TERM LIABILITY
IN RESPECT OF CUSTOMERS' ADVANCES, NET (396) 19,438 (164) 19,942 19,384
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (42,398) (31,602) (17,858) 932 (34,900)
--------- --------- --------- --------- ---------
CASH FLOWS - INVESTING ACTIVITIES
DECREASE (INCREASE) IN DESIGNATED CASH, SHORT-TERM
AND LONG-TERM INTEREST-BEARING DEPOSITS, NET 40,955 7,380 (1,019) 5,687 (10,037)
INVESTMENTS IN PROPERTY AND EQUIPMENT (32,251) (131,622) (8,146) (51,335) (154,975)
INVESTMENT GRANTS RECEIVED 6,015 23,945 1,657 11,443 32,636
PROCEEDS RELATED TO SALE AND DISPOSAL OF PROPERTY
AND EQUIPMENT 2,106 139 398 35 2,626
INVESTMENTS IN OTHER ASSETS (3,732) (702) (132) -- (702)
PROCEEDS FROM SALE OF LONG-TERM INVESTMENT -- -- -- -- 38,677
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 13,093 (100,860) (7,242) (34,170) (91,775)
--------- --------- --------- --------- ---------
CASH FLOWS - FINANCING ACTIVITIES
PROCEEDS FROM LONG-TERM DEBT 13,360 66,000 13,360 36,000 66,000
PROCEEDS FROM ISSUANCE OF SHARES, NET -- 75,225 -- -- 75,225
PROCEEDS FROM EXERCISE OF SHARE OPTIONS -- 666 -- -- 666
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,360 141,891 13,360 36,000 141,891
========= ========= ========= ========= =========
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (15,945) 9,429 (11,740) 2,762 15,216
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 27,664 12,448 23,459 19,115 12,448
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 11,719 $ 21,877 $ 11,719 $ 21,877 $ 27,664
========= ========= ========= ========= =========
NON-CASH ACTIVITIES
INVESTMENTS IN PROPERTY AND EQUIPMENT $ 11,313 $ 40,229 $ 1,243 $ 33,054 $ 47,675
========= ========= ========= ========= =========
INVESTMENTS IN OTHER ASSETS $ 433 $ 366
========= =========
STOCK-BASED COMPENSATION RELATED TO
THE FACILITY AGREEMENT WITH THE BANKS $ 2,793 $ 2,793
========= =========
CONVERSION OF LONG-TERM LIABILITY IN RESPECT OF
CUSTOMERS' ADVANCES TO SHARE CAPITAL $ 1,445 $ 307 $ 501 $ 226 $ 539
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 23,999 $ 18,387 $ 8,095 $ 6,410 $ 25,205
========= ========= ========= ========= =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 86 $ 108 $ 3 $ 11 $ 130
========= ========= ========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 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 September 30, 2005 and for the nine months and 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 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.
(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 6.
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 paragraphs (3)b. and (4)a. below.
(3) RECENT ACCOUNTING PRONOUNCEMENTS BY THE FASB
A. SFAS NO. 151. INVENTORY COSTS, AN AMENDMENT OF ARB NO. 43,
CHAPTER 4 - In November 2004, the FASB issued SFAS No. 151,
"INVENTORY COSTS, AN AMENDMENT OF ARB NO. 43, CHAPTER 4".
SFAS No. 151 amends the guidance in ARB 43, Chapter 4,
"Inventory Pricing", which provides guidance on the
allocation of certain costs to inventory. SFAS 151 clarifies
that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) should be
recognized as current-period charges. In addition, SFAS 151
requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of
the production facilities. The provisions of this Statement
are effective for inventory costs incurred during fiscal
years beginning after June 2005. The provisions of this
statement shall be applied prospectively. This Standard is
not expected to have a material effect on the Company's
financial position or results of operations.
- 5 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
A. BASIS FOR PRESENTATION (cont.)
(3) RECENT ACCOUNTING PRONOUNCEMENTS BY THE FASB (cont.)
B. SFAS 153, EXCHANGE OF NON-MONETARY ASSETS - In December
2004, the FASB issued SFAS No. 153, "EXCHANGES OF
NONMONETARY ASSETS AN AMENDMENT OF APB NO. 29". This
Statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance.
The Statement specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the
exchange. This Statement is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June
15, 2005. Earlier application is permitted for nonmonetary
asset exchanges occurring in fiscal periods beginning after
the issuance date of this Statement. Retroactive application
is not permitted. The adoption of this Standard does not
have a material effect on the Company's financial position
or results of operations.
C. SFAS NO. 154. ACCOUNTING CHANGES AND ERROR CORRECTIONS -
This Statement, published in May 2005, replaces APB Opinion
No. 20, Accounting Changes, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
Statements, and changes the requirements for the accounting
for and reporting of a change in accounting principles. This
Statement applies to all voluntary changes in accounting
principles, and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions.
Opinion 20 previously required that most voluntary changes
in accounting principles be recognized by including the
cumulative effect of changing to the new accounting
principles in the net income of the period of the change.
This Statement requires retrospective application to prior
periods' financial statements of changes in accounting
principles, unless it is impracticable to determine the
specific effects or the cumulative effect of the change. The
Statement also provides guidance for cases in which it is
impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods
presented, and/or for cases in which it is impracticable to
determine the cumulative effect of applying a change in
accounting principles to all prior periods.
- 6 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
A. BASIS FOR PRESENTATION (cont.)
(3) RECENT ACCOUNTING PRONOUNCEMENTS BY THE FASB (cont.)
C. SFAS NO. 154. ACCOUNTING CHANGES AND ERROR CORRECTIONS
(cont.)
This Statement defines RETROSPECTIVE APPLICATION as (i) the
application of a different accounting principle to prior
accounting periods as if that principle had always been
used, or (ii) as the adjustment of previously issued
financial statements to reflect a change in the reporting
entity. This Statement also redefines RESTATEMENT as the
revisiting of previously issued financial statements to
reflect the correction of an error.
This Statement also requires that a change in depreciation,
amortization, or depletion method for long-lived,
non-financial assets, be accounted for as a change in
accounting estimate effected by a change in accounting
principles. This Statement carries forward without change
the guidance in Opinion 20 for reporting the correction of
an error in previously issued financial statements and a
change in accounting estimate. This Statement also carries
forward the guidance in Opinion 20 requiring justification
of a change in accounting principles on the basis of
preferability.
The provisions of this Statement are effective for
accounting changes and corrections of errors made during
fiscal years beginning after December 15, 2005. The adoption
of this Standard is not expected to have a material effect
on the Company's financial position or results of
operations.
(4) RECENT ACCOUNTING PRONOUNCEMENTS BY THE ISRAELI ACCOUNTING
STANDARDS BOARD
A. 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 income taxes in
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 or cash flows.
- 7 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
A. BASIS FOR PRESENTATION (cont.)
(4) RECENT ACCOUNTING PRONOUNCEMENTS BY THE ISRAELI ACCOUNTING
STANDARDS BOARD (cont.)
B. ACCOUNTING STANDARD NO. 22 "FINANCIAL INSTRUMENTS:
DISCLOSURE AND PRESENTATION" - In July 2005, the Israeli
Accounting Standards Board approved for publication
Accounting Standard No. 22 "FINANCIAL INSTRUMENTS:
DISCLOSURE AND PRESENTATION" (the "Standard"). A FINANCIAL
INSTRUMENT under this Standard is defined, in general, as
any contract that establishes a financial asset of an
entity, or a financial liability or equity instrument of
another entity. This Standard establishes the requirements
for presentation of financial instruments in financial
statements and indicates the information that should be
disclosed in relation thereto, and, in certain cases, the
method to measure their impact on the entity's financial
statements. The presentation requirements relate to the
classification of financial instruments as financial assets,
financial liabilities or equity instruments. It also deals
with the classification of related interest, dividends,
losses and gains and to the circumstances under which
financial assets and financial liabilities derived from
financial instruments are to be offset. The Standard
establishes requirements for disclosure of information
relating to factors affecting the amount, timing and
certainty of the entity's future cash flows relating to
financial instruments and accounting policy implemented in
respect of these instruments. The Standard also establishes
requirements for disclosure of information about the nature
and the extent of an entity's use of financial instruments,
the business purposes they serve, the risks associated with
them and management's policies for the oversight of those
risks.
The Standard is effective for financial statements for
periods commencing January 1, 2006 or thereafter. The
initial adoption of the Standard will be accounted for by
the "prospective method". Comparative financial statements
for prior periods are not to be adjusted.
The Company has recently commenced identifying the potential
future impact of applying the provisions of the Standard.
Though the Company is now in this process, the Company does
not believe that the effect of the adoption of its
provisions will have a material affect on the Company's
financial position or results of operations.
- 8 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
A. BASIS FOR PRESENTATION (cont.)
(4) RECENT ACCOUNTING PRONOUNCEMENTS BY THE ISRAELI ACCOUNTING
STANDARDS BOARD (cont.)
C. ACCOUNTING STANDARD NO. 24 "STOCK-BASED PAYMENTS" - In
September 2005, the Israeli Accounting Standards Board
published Accounting Standard No. 24 "STOCK-BASED
COMPENSATION" (the "Standard"), which calls for the
recognition in the financial statements of stock-based
payments, including transactions with employees and related
parties which are to be settled by the payment of cash, by
the other assets, or by equity instruments. Under Standard
No. 24, amongst other matters, costs associated with grants
of shares and options to employees will be expensed over the
vesting period of each grant. Said costs will be determined
based on the fair value of the grants at each grant date.
The Standard establishes guidelines for measuring the fair
value of each grant based on the settlement terms (either by
cash or equity instrument), and disclosure provisions.
The Standard is effective for financial statements for
periods commencing January 1, 2006 or thereafter (initial
adoption is recommended). The Standard provides that with
respect to stock-based compensation to be settled by equity
instruments, its provisions should be applied to all grants
made after March 15, 2005 that are unvested as of December
31, 2005. The Standard further provides that its provisions
should be applied to grants in the terms of which changes
were made after March 15, 2005, even if those grants are not
in the scope of the Standard.
The Standard is to apply to all options the Company granted
to employees and directors in the period between March 15,
2005 and December 31, 2005, which would be unvested as of
December 31, 2005. Such options as of September 30, 2005
amounted to 4,821,777. The Company has recently commenced
examining the extent that applying the Standard will impact
the financial position and results of operations of the
Company.
(5) RECLASSIFICATION
Certain amounts in prior periods' financial statements have
been reclassified in order to conform to the September 30,
2005 presentation.
- 9 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 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")
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 approximately
$1,300,000 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 12A to the 2004 audited consolidated financial
statements.
C. FINANCING OF THE COMPANY'S ONGOING OPERATIONS
In the nine months ended September 30, 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 approved
short-term working plan, based on the current prevailing semiconductor
market conditions, in the event the Company raises in a timely manner
approximately $60,000 in funds as contemplated by an amendment to the
Facility Agreement with the Company's Banks that was signed in July
2005, and by the commitments of certain of the Company's Equity
Investors and Wafer Partners, described in Note 4B below, the Company
will still need to raise additional funds in order to finance its
short-term activities and liabilities in 2006, at least until the
Company achieves positive cash flow from its operations. For details
concerning recent amendments to the Company's financial ratios and
covenants through the third quarter of 2006 under the amended Facility
Agreement with the Banks, which were obtained subsequent to a waiver
letter agreement signed between the Company and the Banks in January
2005, see Note 4B below and Note 12A(6) to the 2004 audited
consolidated financial statements.
- 10 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
C. FINANCING OF THE COMPANY'S ONGOING OPERATIONS (cont.)
In light of the described above, the Company has been taking
comprehensive measures to obtain the needed funds for its near-term
ongoing operations, as well as 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 has held discussion with its Equity
Investors, Wafer Partners, and its Banks to provide additional funding
for the Company of an aggregate amount of approximately $60,000.
Consequently, in July 2005, an amendment to the Facility Agreement was
signed between the Company and its Banks, which closed in August 2005,
providing the Company with up to approximately $30,000, through the
end of March 2006, provided that similar amounts will be raised by the
Company from investors (for additional details, see Note 4B below). In
addition, as of the approval date of the interim financial statements,
certain of the Company's Equity Investors and Wafer Partners have
committed and are obligated to invest $25,500 in the framework of a
rights offering. For details concerning a prospectus the Company filed
in the U.S. and Israel in connection with said rights offering, see
Note 5D below. Following the closing of the amendment to the Facility
Agreement in August 2005 as described above, through the approval date
of the interim financial statements, the Banks provided the Company
with an aggregate of $21,100 of loans. Further, the Company is
currently examining alternatives for additional funding sources,
including raising funds in the capital markets, private placements and
other sources.
The Company's management estimates that it is probable that the rights
offering process will be successfully completed in a timely manner and
the Equity Investors and Wafer Partners will invest the funds as
described above, and that additional funds the Company will need in
2006 from the additional funding sources the Company is currently
examining, as described above, will be achieved.
- 11 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 2 - INVENTORIES
Inventories consist of the following (*):
September 30, December 31,
------------------- -------
2005 2004 2004
------- ------- -------
(unaudited)
Raw materials $ 6,445 $ 8,343 $ 9,260
Spare parts and supplies 3,322 3,760 3,950
Work in process 8,638 16,415 10,085
Finished goods 2,497 1,853 2,374
------- ------- -------
$20,902 $30,371 $25,669
======= ======= =======
(*) Net of aggregate write downs to net realizable value of $3,973, $4,980
and $2,665 as of September 30, 2005, September 30, 2004 and December
31, 2004, respectively.
NOTE 3 - MAJOR CUSTOMERS
Revenues from major customers as a percentage of total revenues were as
follows:
Nine months ended Year ended
September 30, December 31,
--------------- ----
2005 2004 2004
---- ---- ----
(unaudited)
Customer A 23% 20% 24%
Customer B 12 5 5
Customer C 11 2 2
Customer D 3 10 8
Customer E -- 20 17
Other customers (*) 17 19 23
(*) Represents revenues from five different customers each of whom
accounted for between 1% and 5% of revenues during the nine months
ended September 30, 2005, to three different customers (each of whom
accounted for between 5%-8%) during the nine months ended September
30, 2004 and to five different customers (each of whom accounted for
between 1%-8%) during the year ended December 2004.
- 12 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 4 - 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
$156,662 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, the Company does not expect to complete Fab 2
investments by the end of 2005. As of September 30, 2005, the Company
completed approximately 71% of the investments under the approved
enterprise program.
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 approve a new expansion
program to commence on January 1, 2006. During the first half of 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
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 Company's management cannot
estimate when the Investment Center will conclude its review of the
revised business plan, when the Company will receive a formal response
to its request for a new expansion program to commence on January 1,
2006, or if the Investment Center will approve the Company's request.
B. AMENDMENTS TO THE FACILITY AGREEMENT
During 2005, the Company and the Banks entered into the following
amendments to the Facility Agreement:
(1) 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 also amended certain of
the financial ratios and covenants with which the Company was to
comply with during 2005, and which were further revised in the
framework of the July 2005 amendment to the Facility Agreement
described below.
- 13 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 4 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
B. AMENDMENTS TO THE FACILITY AGREEMENT (cont.)
(2) In July 2005, the Company and its Banks entered into a definitive
amendment to the Facility Agreement. The amendment provides,
among other things, for the Banks to provide additional financing
of up to approximately $30,000, subject to the Company raising
through the issuance of shares or convertible debentures $23,500
by October 31, 2005 (which was subsequently extended to November
30, 2005) and an additional $6,500 by March 31, 2006. In
connection with the amendment and prior to its closing, certain
of the Company's Equity Investors and Wafer Partners committed
and obligated themselves to invest an aggregate of $23,500
towards such funding in the context of a rights offering; see
Note 5D below. Following the closing of the amendment to the
Facility Agreement described above, in August 2005, in reliance
on the above commitments, the Banks provided the Company with
$21,100 in loans, of which $13,400 was provided through the
balance sheet date.
The up to approximately $30,000 to be provided by the Banks under
the July 2005 amendment, of which $21,100 has been provided in
two installments, may be drawn down in up to three installments
through the end of March 2006, will bear annual interest based on
the three-month LIBOR plus 2.5% and shall be repayable in a
period between twelve to fifteen months from each date any amount
is received by the Company. The amendment further provides that a
rescheduling of said repayment dates shall be discussed following
the closing date of the amendment. Any unutilized amount on
account of the up to approximately $30,000 amount will bear a
commitment fee at an annual rate of 0.25%.
The July 2005 amendment further provides that: (i) The Israel
Corp. undertaking, as detailed in Note 12A(6) to the 2004 annual
financial statements, shall be extended from June 30, 2006 to
December 31, 2006; (ii) such undertaking will be deemed to have
been fulfilled if Israel Corp. invests at least $14,000 in the
context of a rights offering; (iii) any amounts raised in equity
or in convertible debentures through March 31, 2006, up to
$30,000as detailed above, shall not constitute financing from
other sources towards the $152,000 fundraising milestone, as
detailed in Note 12A(6) to the 2004 annual financial statements;
and (iv) the last date in which the Company is to comply with the
$152,000 fundraising milestone is postponed from December 31,
2005 to June 30, 2006.
The amendment also revised certain of the financial ratios and
covenants through the third quarter of 2006.
- 14 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 4 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
B. AMENDMENTS TO THE FACILITY AGREEMENT (cont.) (2) (cont.)
For warrants provided to the Banks in connection with the
amendment, see Note 5B(5) below
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. According to the Facility Agreement,
satisfying the financial ratios and covenants is a material
provision.
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 $510,400) 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.
NOTE 5 - 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, 120,000 options were granted in
2005 to three directors who were appointed in 2005 (40,000
options each) at exercise prices of $1.87, $1.87 and $1.26, which
equals the market price of the Company's shares on the grant
dates. As of the balance sheet date, 280,000 options were
outstanding under the plan, with a weighted average exercise
price of $5.39.
- 15 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 5 - OTHER RECENT DEVELOPMENTS (cont.)
B. SHARE OPTION PLANS (cont.)
(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 in May 2005 625,800 of the
1,043,000 options granted to him, were fully forfeited.
(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, which was further approved by
the Company's shareholders in October 2005. These options are
exercisable at an exercise price of $1.56, which was the closing
market price of the Company's shares on the last trading day
prior to the board approval of the grant. These options will vest
over a four-year period, with 25% vesting 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 equity
financings consummated after April 30, 2005 (excluding the
exercise or conversion of existing warrants, options, convertible
debentures or other rights to acquire the Company's securities
outstanding on such date), 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 April 30, 2007, 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.
(4) OPTIONS TO EMPLOYEES - During 2005, the Company's Board of
Directors approved the grant of 3,544,500 options to the
Company's employees at an exercise price of $1.54, which equaled
the Company's share market price on 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. 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, 2005, amounted to 2,279,005 options.
- 16 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 5 - OTHER RECENT DEVELOPMENTS (cont.)
B. SHARE OPTION PLANS (cont.)
(5) WARRANTS TO THE BANKS - In connection with the July 2005
amendment detailed in Note 4B above, the Company agreed to issue
warrants to the Banks exercisable into an aggregate of 8,264,464
ordinary shares of the Company, with an exercise price of $1.21.
One-half 4,132,232 of the warrants are exercisable for five years
ending in August 2010, and one-half 4,132,232 of the warrants
shall be exercisable for a five-year period commencing on the
date on which the Company and its Banks will agree, if at all,
upon the rescheduled repayment dates of the new loans of up to
approximately $30,000, as described in Note 4B above. The cost of
the currently exercisable 4,132,232 warrants, determined based on
the fair value at the grant date in accordance with SFAS 123,
amounted to a total of $2,793. Such amount is amortized as
deferred financing charges over the term of the new loans of up
to approximately $30,000.
C. TERMINATION OF A JOINT DEVELOPMENT AGREEMENT
In April 2005, a Japanese semiconductor manufacturer corporation
elected, and the Company 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. Subsequent to the termination of the
agreement, and as a result of its termination, during the second
quarter of 2005, the Company recognized revenues in the aggregate
amount of $8,000.
- 17 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 5 - OTHER RECENT DEVELOPMENTS (cont.)
D. CONTEMPLATED RIGHTS OFFERING
In July 2005, the Company filed in Israel and the U.S. a preliminary
prospectus, which was amended in September 2005 and October 2005, for
the distribution of transferable rights to purchase up to $50,000 in
principal amount of convertible debentures. The rights are intended to
be distributed to the shareholders of the Company on the record date
and certain employees who on the record date hold options to purchase
the Company's Ordinary Shares under share option plans that entitle
the option holders to participate in a rights offering. Under the
terms described in the preliminary prospectus, the debentures will
bear interest at the rate of 5% per annum and principal, together with
accrued interest, will be payable in one installment in 2011. The
terms of the debentures set forth in the preliminary prospectus,
including the conversion rate and subscription price, are subject to
change and will be finalized in the prospectus to be declared
effective by the U.S. Securities and Exchange Commission and the
Israel Securities Authority.
The rights are expected to be listed for trading for a single day on
the NASDAQ Capital Market and the Tel Aviv Stock Exchange. The
debentures are expected to be listed and quoted on these exchanges.
Certain of the Company's Equity Investors and Wafer Partners have
committed and are obligated to invest $25,500 in the framework of the
rights offering.
The payment of the principal and the interest on the debentures will
be subordinated to the prior payment of all amounts payable by the
Company to the Banks under the Facility Agreement. The debentures will
also be effectively subordinated to amounts which the Company might
owe to the Investment Center of the Israeli Ministry of Industry,
Trade and Labor and to one of the Company's customers.
Completion of the rights offering is subject to the prospectus being
declared effective by the U.S. Securities and Exchange Commission and
the Israel Securities Authority.
E. In July 2005, the Company's Board of Directors approved the increase
of the authorized share capital of the Company from 250,000,000 to
500,000,000 shares; such increase was approved by the shareholders of
the Company in October 2005.
- 18 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 6 - 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 September 30, 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 September 30, 2005, $17,972
was reclassified from current assets to a long-term asset (as of
December 31, 2004 - $53,793 and $5,134, were reclassified from current
assets and long-term investments, respectively, to a long-term asset).
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, 2005, an amount of $15,296 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
September 30, 2005 would have resulted in: an increase in other
long-term investments in the amount of $1,327; an increase in other
long-term liabilities in the amount of $233; a decrease in other
comprehensive loss for the nine months ended September 30, 2005 in the
net amount of $4,496; an accumulated other comprehensive loss
component of equity balance as of September 30, 2005 in the amount of
$2,559; and in a decrease of $3,623 in property and equipment, net as
of September 30, 2005.
- 19 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 6 - 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, 2005 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,
------------------------- -------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(unaudited) (unaudited)
PRO FORMA LOSS
Loss for the period, as reported
according to U.S. GAAP
(see G below) $(157,910) $(114,435) $ (55,350) $ (39,412)
Add - stock-based compensation
determined under SFAS 123 (3,109) (3,584) (1,259) (1,261)
--------- --------- --------- ---------
Pro forma loss $(161,019) $(118,019) $ (56,609) $ (40,673)
========= ========= ========= =========
BASIC LOSS PER SHARE
As reported according to U.S.
GAAP (see I below) $ (2.39) $ (1.78) $ (0.83) $ (0.60)
========= ========= ========= =========
Pro forma $ (2.43) $ (1.84) $ (0.85) $ (0.62)
========= ========= ========= =========
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, 2005 and December 31, 2004 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 periods ended at such dates would
have been immaterial.
- 20 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 6 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
F. BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP
AS OF SEPTEMBER 30, 2005
-----------------------------------
U.S. AS PER AS PER
GAAP ISRAELI ADJUST- U.S.
REMARK GAAP MENTS GAAP
--------- --------- --------- ---------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 11,719 $ $ 11,719
DESIGNATED CASH AND SHORT-TERM
INTEREST-BEARING DEPASITS A 17,972 (17,972) --
TRADE ACCOUNTS RECEIVABLE 9,632 9,632
OTHER RECEIVABLES 8,099 8,099
INVENTORIES 20,902 20,902
OTHER CURRENT ASSETS 2,429 2,429
--------- --------- ---------
TOTAL CURRENT ASSETS 70,753 (17,972) 52,781
--------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS A -- -- --
OTHER LONG-TERM INVESTMENTS B,C -- 16,623 16,623
--------- --------- ---------
-- 16,623 16,623
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET C 534,661 (3,623) 531,038
--------- --------- ---------
DESIGNATED CASH AND SHORT-TERM AND
LONG-TERM INTEREST-BEARING DEPOSITS A -- 17,972 17,972
--------- --------- ---------
OTHER ASSETS, NET E 83,313 (196) 83,117
========= ========= =========
TOTAL ASSETS $ 688,727 $ 12,804 $ 701,531
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 59,783 $ $ 59,783
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES E 6,397 (640) 5,757
OTHER CURRENT LIABILITIES 9,203 9,203
--------- --------- ---------
TOTAL CURRENT LIABILITIES 75,383 (640) 74,743
LONG-TERM DEBT 510,360 510,360
CONVERTIBLE DEBENTURES E 19,192 (1,919) 17,273
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 60,577 60,577
OTHER LONG-TERM LIABILITIES B,C 8,907 15,529 24,436
--------- --------- ---------
TOTAL LIABILITIES 674,419 12,970 687,389
--------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED
250,000,000 SHARES; ISSUED 68,007,609
AND 66,999,796 SHARES, RESPECTIVELY 16,499 16,499
ADDITIONAL PAID-IN CAPITAL E 521,489 2,363 523,852
SHAREHOLDER RECEIVABLES (26) (26)
ACCUMULATED OTHER COMPREHENSIVE LOSS C 0 (2,559) (2,559)
ACCUMULATED DEFICIT (514,582) 30 (514,552)
--------- --------- ---------
23,380 (166) 23,214
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 14,308 (166) 14,142
========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 688,727 $ 12,804 $ 701,531
========= ========= =========
AS OF DECEMBER 31, 2004
-----------------------------------
AS PER AS PER
ISRAELI ADJUST- U.S.
GAAP MENTS GAAP
--------- --------- ---------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 27,664 $ $ 27,664
DESIGNATED CASH AND SHORT-TERM
INTEREST-BEARING DEPASITS 53,793 (53,793) --
TRADE ACCOUNTS RECEIVABLE 19,286 19,286
OTHER RECEIVABLES 11,365 11,365
INVENTORIES 25,669 25,669
OTHER CURRENT ASSETS 1,818 1,818
--------- --------- ---------
TOTAL CURRENT ASSETS 139,595 (53,793) 85,802
--------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS 5,134 (5,134) --
OTHER LONG-TERM INVESTMENTS -- 16,350 16,350
--------- --------- ---------
5,134 11,216 16,350
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET 609,296 (4,619) 604,677
--------- --------- ---------
DESIGNATED CASH AND SHORT-TERM AND
LONG-TERM INTEREST-BEARING DEPOSITS -- 58,927 58,927
--------- --------- ---------
OTHER ASSETS, NET 93,483 (196) 93,287
========= ========= =========
TOTAL ASSETS $ 847,508 $ 11,535 $ 859,043
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 65,326 $ $ 65,326
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES -- --
OTHER CURRENT LIABILITIES 10,678 10,678
--------- --------- ---------
TOTAL CURRENT LIABILITIES 76,004 -- 76,004
LONG-TERM DEBT 497,000 497,000
CONVERTIBLE DEBENTURES 26,651 (2,559) 24,092
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 64,428 64,428
OTHER LONG-TERM LIABILITIES 15,445 18,756 34,201
--------- --------- ---------
TOTAL LIABILITIES 679,528 16,197 695,725
--------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED
250,000,000 SHARES; ISSUED 68,007,609
AND 66,999,796 SHARES, RESPECTIVELY 16,274 16,274
ADDITIONAL PAID-IN CAPITAL 517,476 2,363 519,839
SHAREHOLDER RECEIVABLES (26) (26)
ACCUMULATED OTHER COMPREHENSIVE LOSS -- (7,055) (7,055)
ACCUMULATED DEFICIT (356,672) 30 (356,642)
--------- --------- ---------
177,052 (4,662) 172,390
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 167,980 (4,662) 163,318
========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 847,508 $ 11,535 $ 859,043
========= ========= =========
- 21 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 6 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
G. 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, 2005 and 2004.
H. COMPREHENSIVE INCOME (LOSS) IN ACCORDANCE WITH U.S. GAAP (SFAS 130)
Comprehensive income (loss) represents the change in shareholder's
equity during a reporting period from transactions and other events
and circumstances from non-owner sources. It includes all changes in
equity during a reporting period except those resulting from
investments by owners and distributions to owners. Other comprehensive
income (loss) represents gains and losses that under U.S. GAAP are
included in comprehensive income but excluded from net income.
Following are statements of comprehensive loss in accordance with U.S.
GAAP:
Nine months ended Three months ended
------------------------ ------------------------
September 30, September 30,
------------------------ ------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(unaudited) (unaudited)
Loss for the period, according
to U.S. GAAP (see G above) $(157,910) $(114,435) $ (55,350) $ (39,412)
Other comprehensive loss:
Reclassification of unrealized
losses on derivatives 996 996 332 332
Unrealized gains (losses) on
derivatives 3,500 3,638 1,515 (2,279)
--------- --------- --------- ---------
Net comprehensive loss
for the period $(153,414) $(109,801) $ (53,503) $ (41,359)
========= ========= ========= =========
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 G above), the
basic and diluted loss per share for the nine-month and three-month
periods ended September 30, 2005 would be $2.39 and $0.83,
respectively (during the corresponding periods - $1.78 and $0.60,
respectively).
J. STATEMENTS OF CASH FLOWS IN ACCORDANCE WITH U.S. GAAP (SFAS 95)
Complying with SFAS 95 would not have materially affected the cash
flows of the Company for the nine-month and three-month periods ended
September 30, 2005 and 2004.
- 22 -