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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the month of May 2007 (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 1, 2007, the Registrant announced its financial results for the
three months ended March 31, 2007 and on May 2, 2007 issued unaudited condensed
interim consolidated financial statements as of March 31, 2007 and for the three
months period then ended. Attached hereto are the following exhibits:
Exhibit 99.1 Registrant's unaudited condensed interim consolidated
financial statements as of March 31, 2007 and for the three
months period then ended.
Exhibit 99.2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Form 6-K, including all exhibits hereto, is hereby incorporated by
reference into (1) all effective registration statements filed by us under the
Securities Act of 1933 and (2) Registration Statement No. 333-140174 and
Registration No. 333-141640 on Form F-3.
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 2, 2007 By: /s/ Nati Somekh Gilboa
--------------------------
Nati Somekh Gilboa
Corporate Secretary
EXHIBIT 99.1
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2007
PAGE
-----
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 3
STATEMENTS OF CASH FLOWS 4
NOTES TO FINANCIAL STATEMENTS 5-20
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data and per share data)
AS OF MARCH 31, DECEMBER 31,
---------------------- ---------
2007 2006 2006
--------- --------- ---------
(UNAUDITED)
----------------------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 38,592 $ 17,570 39,710
SHORT-TERM INTEREST-BEARING DEPOSITS 5,000 -- 1,230
DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS -- 15,126 --
TRADE ACCOUNTS RECEIVABLE:
RELATED PARTIES 14,941 6,938 13,625
OTHERS 21,186 11,944 17,873
OTHER RECEIVABLES 5,174 8,937 5,425
INVENTORIES 38,245 24,468 34,763
OTHER CURRENT ASSETS 1,676 1,350 1,473
--------- --------- ---------
TOTAL CURRENT ASSETS 124,814 86,333 114,099
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET 519,876 488,505 539,292
--------- --------- ---------
INTANGIBLE ASSETS, NET 42,590 59,724 44,981
--------- --------- ---------
OTHER ASSETS , NET 1,320 1,477 1,346
========= ========= =========
TOTAL ASSETS $ 688,600 $ 636,039 699,718
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES $ 6,597 $ 5,734 $ 6,632
TRADE ACCOUNTS PAYABLE 57,922 52,028 55,128
OTHER CURRENT LIABILITIES 20,188 8,913 22,096
--------- --------- ---------
TOTAL CURRENT LIABILITIES 84,707 66,675 83,856
LONG-TERM DEBT FROM BANKS 358,798 514,966 356,947
CONVERTIBLE DEBENTURES 57,853 34,429 62,175
LONG-TERM CUSTOMERS' ADVANCES 44,050 54,537 46,042
OTHER LONG-TERM LIABILITIES 21,353 10,238 17,708
--------- --------- ---------
TOTAL LIABILITIES 566,761 680,845 566,728
--------- --------- ---------
SHAREHOLDERS' EQUITY (DEFICIT)
ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED
800,000,000, 500,000,000 AND 800,000,000 SHARES,
RESPECTIVELY; ISSUED 122,182,946, 76,946,189
AND 102,052,767 SHARES, RESPECTIVELY 28,965 18,403 24,187
ADDITIONAL PAID-IN CAPITAL 584,400 531,123 564,580
CAPITAL NOTES 176,401 -- 176,401
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES AND CUMULATIVE
STOCK BASED COMPENSATION 25,218 19,550 23,576
ACCUMULATED DEFICIT (684,073) (604,810) (646,682)
--------- --------- ---------
130,911 (35,734) 142,062
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 121,839 (44,806) 132,990
========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 688,600 $ 636,039 699,718
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 1 -
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, DECEMDER 31,
---------------------- ---------
2007 2006 2006
--------- --------- ---------
(UNAUDITED)
----------------------
REVENUES $ 55,604 $ 35,875 $ 187,438
COST OF SALES 71,494 61,280 267,390
--------- --------- ---------
GROSS LOSS (15,890) (25,405) (79,952)
--------- --------- ---------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 3,597 3,354 14,984
MARKETING, GENERAL AND ADMINISTRATIVE 7,825 5,324 24,512
--------- --------- ---------
11,422 8,678 39,496
========= ========= =========
OPERATING LOSS (27,312) (34,083) (119,448)
FINANCING EXPENSE, NET (10,148) (11,524) (48,148)
GAIN ON DEBT RESTRUCTURING -- -- 80,071
OTHER INCOME, NET 69 551 597
--------- --------- ---------
LOSS FOR THE YEAR $ (37,391) $ (45,056) $ (86,928)
========= ========= =========
LOSS PER ORDINARY SHARE
BASIC AND DILUTED LOSS PER SHARE $ (0.36) $ (0.63) $ (1.05)
========= ========= =========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 105,060 71,872 82,581
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
TOWER SEMICONDUCTOR LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(dollars in thousands, except share data and per share data)
EQUITY
COMPONENT
OF
CONVERTIBLE
DEBENTURES
AND
ORDINARY SHARES ADDITIONAL CUMULATIVE
------------------------- PAID-IN CAPITAL STOCK BASED ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL NOTES COMPENSATION DEFICIT STOCK TOTAL
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - JANUARY 1, 2007 102,052,767 $ 24,187 $ 564,580 $ 176,401 $ 23,576 $ (646,682) $ (9,072) $ 132,990
CHANGES DURING THE THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES AND WARRANTS 19,730,545 4,684 19,438 24,122
CONVERSION OF CONVERTIBLE DEBENTURES TO SHARES 398,134 94 380 (170) 304
EMPLOYEE STOCK-BASED COMPENSATION 1,812 1,812
EXERCISE OF SHARE OPTIONS 1,500 -- 2 2
LOSS FOR THE PERIOD (37,391) (37,391)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - MARCH 31, 2007 (UNAUDITED) 122,182,946 $ 28,965 $ 584,400 $ 176,401 $ 25,218 $ (684,073) $ (9,072) $ 121,839
BALANCE - JANUARY 1, 2006 68,232,056 16,548 522,237 -- (26) (559,754) (9,072) (30,067)
CHANGES DURING THE THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 2,713,396 579 3,708 4,287
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES 21,979 21,979
CONVERSION OF CONVERTIBLE DEBENTURES TO SHARES 6,000,737 1,276 5,178 (2,782) 3,672
EMPLOYEE STOCK-BASED COMPENSATION 379 379
LOSS FOR THE PERIOD (45,056) (45,056)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - MARCH 31, 2006 (UNAUDITED) 76,946,189 $ 18,403 $ 531,123 $ -- $ 19,550 $ (604,810) $ (9,072) $ (44,806)
BALANCE - JANUARY 1, 2006 68,232,056 $ 16,548 $ 522,237 $ -- $ (26) $ (559,754) $ (9,072) $ (30,067)
CHANGES DURING 2006 :
ISSUANCE OF SHARES 16,729,145 3,860 21,235 25,095
EQUITY COMPONENT OF CONVERTIBLE DEBENTURES 27,997 27,997
CONVERSION OF CONVERTIBLE DEBENTURES TO SHARES 16,734,316 3,696 14,681 (7,758) 10,619
ISSUANCE OF WARRANTS 1,803 1,803
EMPLOYEE STOCK-BASED COMPENSATION 3,363 3,363
EXERCISE OF OPTIONS 7,250 2 9 11
EXERCISE OF WARRANTS 350,000 81 469 550
STOCK-BASED COMPENSATION RELATED TO
THE FACILITY AGREEMENT WITH THE BANKS 4,146 4,146
CAPITAL NOTES 176,401 176,401
LOSS FOR THE YEAR (86,928) (86,928)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 2006 102,052,767 $ 24,187 $ 564,580 $ 176,401 $ 23,576 $ (646,682) $ (9,072) $ 132,990
=========== =========== =========== =========== =========== =========== =========== ===========
SEE NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS.
- 3 -
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,
---------------------- ---------
2007 2006 2006
--------- --------- ---------
(UNAUDITED)
----------------------
CASH FLOWS - OPERATING ACTIVITIES
LOSS FOR THE PERIOD $ (37,391) $ (45,056) $ (86,928)
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 42,862 41,338 170,816
EFFECT OF INDEXATION AND TRANSLATION ON CONVERTIBLE DEBENTURES 1,181 (257) 2,569
OTHER INCOME, NET (69) (551) (597)
GAIN ON DEBT RESTRUCTURING -- -- (80,071)
CHANGES IN ASSETS AND LIABILITIES:
INCREASE IN TRADE ACCOUNTS RECEIVABLE (4,629) (2,106) (14,722)
DECREASE (INCREASE) IN OTHER RECEIVABLES AND OTHER CURRENT ASSETS 124 (477) (2,662)
INCREASE IN INVENTORIES (3,484) (4,308) (16,725)
INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE 9,402 1,348 (2,073)
INCREASE (DECREASE) IN OTHER CURRENT LIABILITIES (1,398) (179) 6,551
DECREASE IN OTHER LONG-TERM LIABILITIES (521) (1,206) (3,285)
--------- --------- ---------
6,077 (11,454) (27,127)
DECREASE IN LONG-TERM CUSTOMERS' ADVANCES, NET (528) (415) (2,306)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,549 (11,869) (29,433)
--------- --------- ---------
CASH FLOWS - INVESTING ACTIVITIES
DECREASE IN DESIGNATED CASH, SHORT-TERM AND LONG-TERM
INTEREST-BEARING DEPOSITS, NET -- 16,535 31,661
INVESTMENTS IN PROPERTY AND EQUIPMENT (23,836) (16,666) (161,187)
INVESTMENT GRANTS RECEIVED -- 872 5,219
PROCEEDS RELATED TO SALE AND DISPOSAL OF PROPERTY AND EQUIPMENT 69 551 600
INVESTMENTS IN OTHER ASSETS (911) (3,507) (5,074)
INCREASE IN SHORT-TERM INTEREST-BEARING DEPOSITS (3,770) -- (1,230)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (28,448) (2,215) (130,011)
--------- --------- ---------
CASH FLOWS - FINANCING ACTIVITIES
PROCEEDS FROM ISSUANCE OF CONVERTIBLE DEBENTURES, NET -- 22,203 58,766
PROCEEDS FROM LONG-TERM DEBT -- 8,590 18,295
PROCEEDS FROM ISSUANCE OF ORDINARY SHARES AND WARRANTS, NET 28,867 -- 20,673
PROCEEDS ON ACCOUNT OF A WARRANT -- -- 550
PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- -- 100,000
REPAYMENT OF CONVERTIBLE DEBEBNTURE (7,088) (6,476) (6,476)
PROCEEDS FROM EXERCISE OF SHARE OPTIONS 2 -- 9
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,781 24,317 191,817
========= ========= =========
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,118) 10,233 32,373
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 39,710 7,337 7,337
--------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 38,592 $ 17,570 $ 39,710
========= ========= =========
NON-CASH ACTIVITIES
INVESTMENTS IN PROPERTY AND EQUIPMENT $ 8,743 $ 1,901 $ 39,913
========= ========= =========
STOCK-BASED COMPENSATION RELATED TO
THE FACILITY AGREEMENT WITH THE BANKS $ -- $ -- $ 4,146
========= ========= =========
INVESTMENTS IN OTHER ASSETS $ -- $ -- $ 433
========= ========= =========
CONVERSION OF LONG-TERM CUSTOMERS' ADVANCES
TO SHARE CAPITAL $ 1,666 $ 4,287 $ 7,621
========= ========= =========
CONVERSION OF CONVERTIBLE DEBENTURES TO SHARES CAPITAL $ 304 $ 3,672 $ 10,619
========= ========= =========
CONVERSION OF LONG TERM DEBT TO CAPITAL NOTES $ -- $ -- $ 76,401
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 7,221 $ 10,546 $ 35,008
========= ========= =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 4 $ 14 $ 134
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(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, 2007 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, 2006 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"). The 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 paragraph 3 below.
(3) RECENT ACCOUNTING PRONOUNCEMENTS BY THE ISRAELI ACCOUNTING
STANDARDS BOARD
A. ACCOUNTING STANDARD NO. 29 "ADOPTION OF INTERNATIONAL
FINANCIAL REPORTING STANDARDS"
In July 2006, the Israeli Accounting Standards Board
published Accounting Standard No. 29 - "Adoption of
International Financial Reporting Standards" - IFRS ("the
Standard"). According to the Standard, an entity subject to
the Israeli Securities Law and authoritative regulations
thereunder (including dual listed companies), excluding
foreign corporations, that do not prepare their financial
statements in accordance with Israeli GAAP, as defined by
the Israeli Securities Law will be required to prepare
financial statements in accordance with the IFRS and related
interpretations published by the International Accounting
Standards Board, for the reporting periods commencing
January 1, 2008, including interim periods.
- 5 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(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 ISRAELI ACCOUNTING
STANDARDS BOARD (CONT.)
A. ACCOUNTING STANDARD NO. 29 "ADOPTION OF INTERNATIONAL
FINANCIAL REPORTING STANDARDS" (CONT.)
An entity adopting IFRS as of January 1, 2008 and electing
to report comparative figures in accordance with the IFRS
for only 2007, will be required to prepare opening
balance-sheet amounts as of January 1, 2007 based on the
IFRS. Reporting in accordance with the IFRS will be carried
out based on the provisions of IFRS No. 1, "First-time
Adoption of IFRS Standards", which establishes guidance on
implementing and transitioning from financial reporting
based on domestic national accounting standards to reporting
in accordance with IFRS. IFRS No. 1 supersedes the
transitional provisions established in other IFRSs
(including those established in former domestic national
accounting standards), stating that all IFRSs should be
adopted retroactively for the opening balance-sheet amounts.
Nevertheless, IFRS No. 1 grants exemptions on certain issues
by allowing the alternative of not applying the retroactive
application in respect thereof.
B. ACCOUNTING STANDARD NO. 26 "INVENTORY"
In August 2006 the Israeli Accounting Standards Board
published Accounting Standard No. 26 - "Inventory" ("the
Standard"), which outlines the accounting treatment for
inventory. The Standard applies to all types of inventory,
other than building earmarked for sale and addressed by
Accounting Standard No.2 ("Construction of Buildings for
Sale"), inventory of work in progress stemming from
performance contracts, addressed by Accounting Standard No.4
("Work Based on Performance Contract"), financial
instruments and biological assets relating to agricultural
activity and agricultural production during harvest.
The Standard applies to financial statements covering
periods beginning January 1, 2007 and onwards and should be
implemented retroactively. The Standard did not affect the
Company's financial position, results of operations and cash
flows.
- 6 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(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 ISRAELI ACCOUNTING
STANDARDS BOARD (CONT.)
C. ACCOUNTING STANDARD NO. 27 "FIXED ASSETS"
In September 2006 the Israeli Accounting Standards Board
published Accounting Standard No. 27 (the "Standard"), which
establishes the accounting treatment for fixed assets,
including recognition of assets, determination of their book
value, related depreciation, losses from impairment as well
as the disclosure required in the financial statements. The
Standard states that a fixed-asset item will be measured at
the initial recognition date at cost. The cost should also
include the initial estimate of costs required to dismantle
and remove the item.
Following the initial recognition, the Standard permits the
entity to implement in its accounting policy the measurement
of the fixed assets by the cost method or by revaluation so
long as this policy is implemented in regard to all the
items in that group.
Cost method - an item will be presented at cost less
accumulated depreciation net book value, less accumulated
impairment losses.
Revaluation method - an item whose fair value can be
measured reliably will be presented at its estimated amount,
which equals its fair value at the revaluation date, net of
depreciation accumulated subsequently and less accumulated
impairment losses. This increase in asset's value due to the
revaluation should be allocated directly to shareholders'
equity ("revaluation reserve").
This new standard applies to financial statements covering
periods beginning January 1, 2007 and onwards and
implemented retroactively. The Standard did not affect the
Company's financial position or results of operations,
except for reclassification in the balance sheet and cash
flows report of spare parts from inventory to fixed assets.
In April 2007 the Israeli Accounting Standard Board
published Standard no. 28 that amends Standard no. 27 to
allow, at transition, the exemptions allowed under IFRS 1
regarding fixed assets.
- 7 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(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 ISRAELI ACCOUNTING
STANDARDS BOARD (CONT.)
D. ACCOUNTING STANDARD NO. 23, "ACCOUNTING FOR TRANSACTIONS
BETWEEN AN ENTITY AND A CONTROLLING PARTY"
In December 2006 the Israeli Accounting Standards Board
published Accounting Standard No. 23, "Accounting for
Transactions between an Entity and a controlling party (the
"Standard"). The Standard applies to entities subject to the
Israeli Securities Law - 1968. The Standard establishes the
requirements for accounting for transactions between an
entity and its controlling party which involve the
disposition of an asset, the taking on of a liability,
reimbursement or debt concession, and the receiving of
loans. The Standard does not apply to business combinations
under common control. The Standard stipulates that
transactions between an entity and a controlling party will
be measured based on fair value; transactions which in
nature are owner investments should be reported directly in
equity and not be recognized in the controlled entity's
profit and loss; the differences between the consideration
set in transactions between an entity and a controlling
party and their fair value will be allocated directly to
equity; and current and deferred taxes pertaining to the
items allocated to equity due to transactions with
controlling parties will be allocated directly to equity as
well.
The Standard applies to transactions between an entity and a
controlling party taking place subsequent to January 1, 2007
and for loans granted from or given to a controlling party
prior to the Standard's coming into effect, starting on the
Standard's effective date. The Standard did not affect the
Company's financial position, results of operations and cash
flows.
E. ACCOUNTING STANDARD NO. 30 - "INTANGIBLE ASSETS"
In March 2007, The Israeli Accounting Standards Board
published Accounting Standard No. 30, "Intangible Assets"
(the "Standard"), which sets the accounting treatment for
Intangible Assets that are not covered by any other
standard, as well as the disclosure requirements in the
financial statements for the entity's Intangible Assets.
An intangible asset shall be measured initially at cost.
- 8 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(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 ISRAELI ACCOUNTING
STANDARDS BOARD (CONT.)
E. ACCOUNTING STANDARD NO. 30 - "INTANGIBLE ASSETS" (CONT.)
Expenditures arising from research (or from the research
phase of an internal project) shall not be recognized as an
asset and should be expensed when incurred. An intangible
asset arising from development (or from the development
phase of an internal project) shall be recognized if, and
only if, the criteria for recognition as an intangible asset
in the standard are met. Expenditure on an intangible item
that was not recognized initially, shall not be recognized
as part of the cost of an intangible asset at a later date.
After initial recognition, an entity may choose to measure
intangible asset at its cost less any accumulated
amortization and any accumulated impairment losses, or for
an intangible asset that have an active market, as defined
in the standard, may be carried at a revalued amount, being
its fair value at the date of the revaluation less any
subsequent accumulated amortization and any subsequent
accumulated impairment losses. An entity shall assess
whether the useful life of an intangible asset is finite or
indefinite. The amortization of an intangible asset with a
finite useful life shall be over its useful life using a
systematic basis. An intangible asset with an indefinite
useful life shall not be amortized. Instead, an entity is
required to test an intangible asset with an indefinite
useful life for impairment in a manner similar to the method
prescribed in Standard No. 15, annually, or whenever there
is an indication that the intangible asset may be impaired.
This Standard shall apply to financial statements for annual
periods beginning on or after January 1, 2007. The Standard
did not affect the Company's financial position, results of
operations and cash flows.
(4) Certain amounts in prior years' financial statements have been
reclassified in order to conform to 2007 presentation.
- 9 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(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 2001, the Company's Board of Directors approved the establishment
of the Company's second wafer fabrication facility in Israel ("Fab
2"). In Fab 2, the Company manufactures semiconductor integrated
circuits on silicon wafers in geometries of 0.18 to 0.13 micron on
200-millimeter wafers. In connection with the establishment, equipping
and financing of Fab 2, the Company has entered into several related
agreements and other arrangements and since 2001 has completed public
and private financing transactions. For additional information, see
Note 11A to the 2006 audited consolidated financial statements.
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, see Note 11A to the 2006 audited consolidated financial
statements.
C. FINANCING OF THE COMPANY'S ONGOING OPERATIONS
In recent years, the Company has experienced significant recurring
losses, recurring negative cash flows from operating activities and an
increasing accumulated deficit. The Company is working in various ways
to mitigate its financial difficulties and among them are the
following:
Since the second half of 2005, the Company increased its customer
base, mainly in Fab 2, modified its organizational structure to better
address its customers and its market positioning, improved its sales
and its EBITDA, reduced its losses, increased its capacity level and
utilization rates, raised funds totaling approximately $238,000 in
gross proceeds (see Note 3 below and Notes 12C(2); 12I; 12J; and 12K
to the 2006 audited consolidated financial statements) and
restructured its bank debt (see Note 11A(6) to the 2006 audited
consolidated financial statements).
In March 2006, the board of directors of the Company approved a plan
to ramp up Fab 2's capacity to approximately 24,000 wafers per month
in order to help meet customer needs and product qualification needs,
based on its customer pipeline and reinforced by forecasted market
conditions. The Company is currently in advanced stages of the Fab 2
ramp-up plan.
For details regarding the financing efforts of the ramp-up plan,
including the definitive amendment to the Company's facility agreement
with two leading Israeli banks ("Banks") for the restructuring of
approximately $527,000 in debt and the securities purchase agreement
with Israel Corporation Ltd. ("TIC") according to which TIC invested
$100,000 in the Company, which both closed in September 2006, see
Notes 11A(6) and 11A(4) to the 2006 audited consolidated financial
statements.
Further, the Company continues to examine alternatives for additional
funding sources in order to further ramp-up the equipping of Fab2.
- 10 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 2 - INVENTORIES
Inventories consist of the following (*):
March 31, December 31,
----------------- -------
2007 2006 2006
------- ------- -------
(unaudited)
Raw materials $11,741 $ 7,357 $11,234
Work in process 25,829 14,552 22,884
Finished goods 675 2,559 645
------- ------- -------
$38,245 $24,468 $34,763
======= ======= =======
(*) Net of aggregate write downs to net realizable value of $2,905, $4,018
and $6,707 as of March 31, 2007, March 31, 2006 and December 31, 2006,
respectively.
NOTE 3 - 2007 PRIVATE PLACEMENT
In March 2007, the Company completed a private placement of its securities
in which it sold ordinary shares and warrants for the purchase of ordinary
shares, raising a total of approximately $28,960 in gross proceeds. In the
private placement, the Company issued approximately 18.8 million shares,
warrants exercisable into approximately 9.4 million shares at an exercise
price of $2.04 (subject to downwards adjustments), exercisable until March
15, 2012 ("Series I Warrants"), and short-term warrants exercisable into
approximately 18.8 million shares at an exercise price which was identical
to the closing price of the Company's Ordinary Shares on the NASDAQ on the
trading day immediately prior to the closing of the private placement
("Series II Warrants"), exercisable until the later of December 31, 2007 or
90 days from the effectiveness of a registration statement covering the
resale of the shares issued and the shares issuable upon exercise of the
warrants (the "Registration Statement"). As of the date of approval of the
financial statements, the Registration Statement has not been declared
effective. Subject to the Registration Statement being effective, the
Company can compel the exercise of the Series II Warrants if during any 20
out of 30 consecutive trading days the closing price of the Company's
shares on NASDAQ exceeds $2.12.
In accordance with Standard No. 22 of the Isareli GAAP, the Series I
warrants have been initially classified as a liability and subsequently
marked to market through profit and loss.
See Note 5F for disclosure of the accounting treatment in accordance with
U.S. GAAP.
- 11 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 4 - SHARE OPTION PLAN
A. OPTIONS GRANTED TO THE CHIEF EXECUTIVE OFFICER ("CEO")
As of the balance sheet date, a total of 14,782,416 options were
granted to the CEO under his approved option plans. For additional
information, see Note 12B(1)(c) to the 2006 audited consolidated
financial statements.
B. EMPLOYEE OPTIONS
In May 2006, the Board of Directors approved that if the total number
of employee options, including the options to the CEO, during the then
upcoming 24 months will represent less than 8% of the Company's shares
on a fully diluted basis, additional options will be allocated for
grants to the Company's employees. As of the balance sheet date,
approximately 3,900,000 options are reserved for such allocation. For
additional information, see Note 12B(1)(d) to the 2006 audited
consolidated financial statements.
C. INDEPENDENT DIRECTORS OPTION PLAN
As of the balance sheet date, a total of 430,000 options granted to
the Company's independent directors (excluding the CEO and the
Chairman of the Board of Directors), were outstanding, following their
approval by the shareholders of the Company in January 2007. For
additional information, see Note 12B(1)(f) to the 2006 audited
consolidated financial statements.
D. OPTIONS TO THE NEW CHAIRMAN OF THE COMPANY'S BOARD OF DIRECTORS
As of the balance sheet date, a total of 3,158,090 options granted to
the Chairman of the Board of Directors of the Company, were
outstanding, following their approval by the shareholders of the
Company in January 2007. For additional information, see Note
12B(1)(b) to the 2006 audited consolidated financial statements.
- 12 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(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 Note 5(I) below for the presentation of the Company's unaudited balance
sheet as of March 31, 2007 in accordance with U.S. GAAP.
A. RECENT ACCOUNTING PRONOUNCEMENTS BY THE FASB
SFAS NO. 157, "FAIR VALUE MEASUREMENTS"
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" (SFAS No. 157). The purpose of SFAS No. 157 is to define
fair value, establish a framework for measuring fair value, and
enhance disclosures about fair value measurements.
The Company decided to early adopt the provisions of SFAS No. 157
effective January 1, 2007, concurrent with the adoption of FASB 159
"The Fair Value Option for Financial Assets and Financial Liabilities"
(SFAS No. 159) see H below.
Fair Value Measurements on earnings as of March 31, 2007:
Significant
Unobservable
Inputs
--------
Derivatives 10,911
Facility Agreement 358,349
--------
Total $369,260
========
Fair Value Measurements Using Significant Unobservable Inputs:
Facility
Derivatives Agreement Total
-------- -------- --------
Beginning balance $ 11,264 357,108 368,372
Unrealized gains or losses included in earnings (353) 1,241 888
-------- -------- --------
Ending balance $ 10,911 $358,349 $369,260
======== ======== ========
- 13 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (CONT.)
SFAS NO. 159, "THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND
FINANCIAL LIABILITIES"
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" (SFAS No. 159). SFAS
No. 159 permits companies to choose to measure certain financial
instruments and certain other items at fair value. The standard
requires that unrealized gains and losses on items for which the fair
value option has been elected be reported in earnings. SFAS No. 159 is
effective for the Company beginning in the first quarter of fiscal
year 2008, although earlier adoption is permitted. The Company decided
to early adopt the provisions of SFAS No. 159 effective January 1,
2007, and elected to carry at fair value the Facility agreement, see H
below.
FIN NO. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
On July 13, 2006, the FASB issued Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in
tax positions. This Interpretation requires recognition in the
financial statements of the impact of a tax position, if that position
is more likely than not of being sustained on audit, based on the
technical merits of the position. A tax position that meets the
more-likely-than-not recognition threshold shall initially and
subsequently be measured as the largest amount of tax benefit that is
greater than 50 percent likely of being realized upon ultimate
settlement with a taxing authority that has full knowledge of all
relevant information. Measurement of a tax position that meets the
more-likely-than-not recognition threshold shall consider the amounts
and probabilities of the outcomes that could be realized upon ultimate
settlement using the facts, circumstances, and information available
at the reporting date.
The provisions of FIN 48 are effective for the 2007 fiscal year with
the cumulative effect of the change in accounting principles recorded
as an adjustment to the opening balance of retained earnings. FIN 48
did not have a material effect on the financial condition and results
of operations of the Company.
B. PRESENTATION OF NET LONG-TERM LIABILITIES IN RESPECT OF EMPLOYEE
SEVERANCE PAY
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, 2007, an amount of $13,207 was
reclassified from other long-term liabilities as long-term
investments.
C. HEDGING ACTIVITIES IN ACCORDANCE WITH U.S. GAAP (SFAS 133)
Complying with SFAS 133 as amended and the related interpretations
thereon as they apply to the Company's hedging transactions, as of
March 31, 2007, such transactions would have resulted in: an increase
in other long-term investments in the amount of $1,420; an accumulated
other comprehensive loss component of equity balance as of March 31,
2007 in the amount of $241 ($203 as of December 31, 2006); and in a
decrease of $1,661 in property and equipment, net as of March 31,
2007.
- 14 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (CONT.)
D. ISSUANCE OF CONVERTIBLE DEBENTURES
Under Accounting Principles Board Opinion No. 14 ("APB 14"), the
proceeds from the sale of the securities in the Company's January 2002
Israeli public offering are to be allocated to each of the securities
issued based on their relative fair value, while according to Israeli
GAAP such treatment was not required. Complying with APB 14, based on
the average market value of each of the components issued in the first
three days following their issuance (in January 2002), would have
resulted in an increase in shareholders' equity as of the issuance
date in the amount of $2,363 (net of $196 related issuance expenses),
and a decrease in convertible debentures as of such date in the amount
of $2,559. The additional accumulated effect of amortization of the
discount on the convertible debentures under U.S. GAAP as of March 31,
2007 would have been $970. Commencing with the adoption of Standard
No. 22 in January 2006, allocation of proceeds in a unit, to its
components, is based on relative fair values under Israeli GAAP as
well as under US GAAP.
Under US GAAP, convertible debentures have to be evaluated to
determine if they contain embedded derivative that warrant
bifurcation. Conversion features embedded in convertible debentures
will need to be evaluated as to whether they can be classified as
equity based on the criteria established in EITF Issues 00-19 and
05-2. The Company evaluated the conversion features embedded in its
debentures (i.e., sale of convertible debentures in 2002 - "2002
debentures", sale of convertible debentures in 2005 - "2005
debentures" and sale of convertible debentures in 2006 - "2006
debentures") and concluded that the conversion feature embedded in the
2005 and 2006 debentures warrant bifurcation while the conversion
feature embedded in the 2002 debentures are scoped out.
2002 DEBENTURES:
Under US GAAP, the equity component, in the amount of $1,681,
classified in equity under Israeli GAAP was reclassified as liability.
2005 AND 2006 DEBENTURES:
Under US GAAP, the equity component of the 2005 and 2006 debentures,
in the amounts of $12,358 and $6,030 respectively classified as equity
under Israeli GAAP were reclassified to liabilities and the conversion
features were bifurcated from the debt host and marked to market
through earnings. The initial amount allocated to the bifurcated
conversion features were determined using the "with and without"
method based on the fair value of the embedded derivative prescribed
in DIG Issue B6.
All the above would have resulted, as of March 31, 2007, mainly in a
decrease in convertible debentures in the amount of $4,624; an
increase in the shareholder's equity in the amount of $5,404; and an
increase in other assets in the amount of $780. The Company's loss for
the three-month period ended March 31, 2007 would have increased in
the amount of $2,285.
- 15 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (CONT.)
E. ISSUED WARRANTS PRESENTATION
Under U.S. GAAP the Company's series 5 warrants were initially
recorded as liability due to the ratchet provision included in them.
Upon the effective date of the prospectus filed in Israel registering
such warrants, the ratchet expired and the series 5 warrants were
eligible for equity classification based on the criteria in EITF
00-19.
Complying with the above would have resulted as of March 31, 2007
mainly in a decrease in other long term liabilities and an increase in
shareholder's equity in the amount of $2,341. The Company's loss for
the three-month period ended March 31, 2007 would have increased in
the amount of $747.
F. 2007 PRIVATE PLACEMENT
Under US GAAP all components in the private placement should be
classified in equity. As of March 2007 this difference will result in
a decrease in liabilities and increase in shareholders equity in the
amount of $3,897.
G. EMPLOYEE STOCK BASED COMPENSATION
The Company adopted, effective January 1, 2006, SFAS 123R according to
which the compensation expense related to employee and directors share
option awards would have resulted in an increase in the compensations
expenses for the period ending March 31, 2007 in the amount of $289.
The Company elected the modified prospective method as its transition
method. The adoption of SFAS 123R for US GAAP along with the adoption
of Standard no. 24 for Israeli GAAP, decreased the potential
differences between US GAAP and Israeli GAAP as it related to stock
based compensation.
H. FACILITY AGREEMENT
Under US GAAP the debt modification under the Amendment to the
Company's facility agreement, which closed in September 2006, is
considered troubled debt restructuring within the scope of FASB No. 15
Accounting by Debtors and Creditors for Troubled Debt Restructurings
which requires the following: (i) the amount considered settled for
shares and classified in equity is based on the price per share as
quoted at the closing date; (ii) the remaining balance after deduction
of the amount used as proceeds for the share issuance in (i) above,
will remain outstanding ; (iii) a new, lower effective interest rate
will be calculated as the interest rate that equates future payments
to the outstanding balance; and (iv) no gains or losses are recognized
in the current period. During the first quarter of 2007 the Company
decided to early adopt the provisions of SFAS No. 159 THE FAIR VALUE
OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES. As required by
the standard the Company also adopted the provisions of FASB 157 FAIR
VALUE MEASUREMENTS. The adoption of the standard is effective January
1, 2007. According to the standard the Company can choose to carry at
fair value eligible items as defined in the standard, from the date of
early adoption and accordingly the Company decided to apply the fair
value option to the Facility agreement.
- 16 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (CONT.)
H. FACILITY AGREEMENT (CONT.)
The effect of applying the fair value option to the facility agreement
as of the January 1, 2007 was $65,207 which has been recorded as a
cumulative effect adjustment to retained earnings (no tax effects have
been recorded). The carrying amount of the facility agreement prior to
the adoption was $432,430 and immediately after was $ 367,223. The
Company reasoned it election of the fair value option for the facility
agreement on the fact that the application of FASB 15 to the facility
agreement did not reflect the economic benefits that has been achieved
with the consummation of the facility agreement and that the
application of the fair value reflect such benefits in more economic
way. Also the adoption of the fair value option will decrease the GAAP
difference that currently exist between Israeli GAAP and IFRS vs. the
US GAAP.
Under US GAAP the debt modification under the Amendment is considered
to include an embedded derivative that should be separately accounted
for. The Company considered the obligation to issue shares as agreed
with the Banks and determined that it contains two components (i) a
contingent component and (ii) an uncontingent component. The
contingent component is the obligation to issue shares equal to half
of the amount of the Decreased Amount if the Fourth Quarter 2010 Price
is less than $3.49. The uncontingent component is the obligation to
issue shares equal to half of the Decreased Amount regardless of the
Fourth Quarter 2010 Price. The Company accounted for the uncontingent
component as an additional interest expense and calculated the
effective interest rate to include such expense. The Company treated
the uncontingent component as an embedded derivative that needs to be
bifurcated and separately accounted for based on fair value. Initial
separation of the embedded derivative will be done using the "with and
without" method described in DIG Issue B6. Changes in the fair value
of the embedded derivative will be included in financing expenses.
All the above resulted in a decrease of $9,704 in the shareholders
equity and an increase of the same amount in the long-term loans from
the banks as of March 31, 2007. The decrease in the shareholders
equity includes cumulative effect as of December 31, 2006, which
decreased the accumulated deficit in the amount of $65,207. The
Company's loss for the three-month period ended March 31, 2007 would
have decreased in the amount of $572.
- 17 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31,2007
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP (CONT.)
I. BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP
AS OF MARCH 31, 2007 AS OF DECEMBER 31, 2006
----------------------------------- -----------------------------------
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 $ 38,592 $ 38,592 $ 39,710 $ 39,710
SHORT-TERM INTEREST-BEARING
DEPOSITS 5,000 5,000 1,230 1,230
TRADE ACCOUNTS RECEIVABLE :
RELATED PARTIES 14,941 14,941 13,625 13,625
OTHERS 21,186 21,186 17,873 17,873
OTHER RECEIVABLES 5,174 5,174 5,425 5,425
INVENTORIES 38,245 38,245 34,763 34,763
OTHER CURRENT ASSETS 1,676 1,676 1,473 1,473
--------- --------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 124,814 -- 124,814 114,099 -- 114,099
--------- --------- --------- --------- --------- ---------
LONG-TERM INVESTMENTS B,C 14,627 14,627 -- 15,325 15,325
--------- --------- --------- --------- --------- ---------
PROPERTY AND EQUIPMENT, NET C 519,876 (1,661) 518,215 539,292 (1,745) 537,547
--------- --------- --------- --------- --------- ---------
INTANGIBLE ASSETS, NET 42,590 42,590 44,981 44,981
--------- --------- --------- --------- --------- ---------
OTHER ASSETS, NET D 1,320 780 2,100 1,346 834 2,180
========= ========= ========= ========= ========= =========
TOTAL ASSETS $ 688,600 $ 13,746 $ 702,346 $ 699,718 $ 14,414 $ 714,132
========= ========= ========= ========= ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF CONVERTIBLE
DEBENTURES D 6,597 326 6,923 6,632 270 6,902
TRADE ACCOUNTS PAYABLE 57,922 57,922 55,128 55,128
OTHER CURRENT LIABILITIES 20,188 20,188 22,096 22,096
--------- --------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 84,707 326 85,033 83,856 270 84,126
LONG-TERM DEBT FROM BANKS H 358,798 9,704 368,502 356,947 75,483 432,430
CONVERTIBLE DEBENTURES D 57,853 (4,950) 52,903 62,175 21,688 83,863
LONG-TERM CUSTOMERS' ADVANCES 44,050 44,050 46,042 46,042
OTHER LONG-TERM LIABILITIES B,E,F 21,353 6,969 28,322 17,708 10,447 28,155
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES 566,761 12,049 578,810 566,728 107,888 674,616
--------- --------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1 PAR VALUE
- AUTHORIZED 800,000,000 AND
800,000,000 SHARES
RESPECTIVELY; ISSUED
122,182,946 AND 102,052,767
SHARES, RESPECTIVELY 28,965 28,965 24,187 24,187
ADDITIONAL PAID-IN CAPITAL D,E,F 584,400 38,819 623,219 564,580 6,404 570,984
CAPITAL NOTES 176,401 176,401 176,401 176,401
EQUITY COMPONENT OF CONVERTIBLE
DEBENTURES AND CUMULATIVE STOCK
BASED COMPENSATION D,G 25,218 (18,268) 6,950 23,576 (18,706) 4,870
ACCUMULATED OTHER COMPREHENSIVE
LOSS C (241) (241) -- (203) (203)
ACCUMULATED DEFICIT D,E,F,G,H (684,073) (18,613) (702,686) (646,682) (80,969) (727,651)
--------- --------- --------- --------- --------- ---------
130,911 1,697 132,608 142,062 (93,474) 48,588
TREASURY STOCK, AT COST
- 1,300,000 SHARES (9,072) -- (9,072) (9,072) -- (9,072)
--------- --------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 121,839 1,697 123,536 132,990 (93,474) 39,516
========= ========= ========= ========= ========= =========
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 688,600 $ 13,746 $ 702,346 $ 699,718 $ 14,414 $ 714,132
========= ========= ========= ========= ========= =========
- 18 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (CONT.)
J. STATEMENTS OF OPERATIONS IN ACCORDANCE WITH U.S. GAAP
Complying with FASB No. 159 (H above), SFAS 133 (C above), APB 14 (D
above) and SFAS 123R (G above) would have resulted in an increase in
the loss for the three months periods ended March 31, 2007 in the
amount of $2,851 and a decrease in the loss for the three months
periods ended March 31, 2006 in the amount of $4,861. Giving effect to
all the above, the loss for the three-month periods ended March 31,
2007 and 2006 would be $ 40,242 and $40,195, respectively.
For the cumulative effect adjustment to retained earnings in the
amount of $65,207 following the early adoption of SFAS 159, See H
above.
K. 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:
Three months ended
--------------------
March 31,
--------------------
2007 2006
-------- --------
(unaudited)
Loss for the period, according to
U.S. GAAP (see J above) $(40,242) $(40,195)
Other comprehensive loss:
Reclassification of unrealized losses on derivatives 332 332
Unrealized gains (losses) on Derivatives (370) 726
-------- --------
Net comprehensive loss for the period $(40,280) $(39,137)
======== ========
- 19 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2007
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (CONT.)
L. LOSS PER SHARE IN ACCORDANCE WITH U.S. GAAP (SFAS 128)
In accordance with SFAS 128, the basic and diluted loss per share for
the three-months ended March 31, 2007 and 2006 would be $0.38 and
$0.56, respectively.
M. 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 three-month periods ended March 31, 2007
and 2006.
- 20 -
EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE INFORMATION CONTAINED IN THIS SECTION SHOULD BE READ IN CONJUNCTION WITH (1)
OUR UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH
31, 2007 AND FOR THE THREE MONTHS THEN ENDED AND RELATED NOTES INCLUDED IN THIS
REPORT AND (2) OUR CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006 AND
RELATED NOTES FOR THE YEAR THEN ENDED AND (3) OUR REPORT OF FORM 6-K, FILED
FEBRUARY 8, 2007. OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") IN ISRAEL. DIFFERENCES BETWEEN
ISRAELI GAAP AND US GAAP AS THEY RELATE TO OUR FINANCIAL STATEMENTS ARE
DESCRIBED IN NOTE 5 TO OUR UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS AS OF MARCH 31, 2007 AND IN NOTE 19 TO OUR CONSOLIDATED FINANCIAL
STATEMENTS AS OF DECEMBER 31, 2006.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated.
THREE MONTHS ENDED
MARCH 31,
----------------------
2007 2006
-------- --------
(UNAUDITED)
----------------------
STATEMENT OF OPERATIONS DATA:
Total revenues 100.0% 100.0%
Cost of total revenues 128.6 170.8
-------- --------
Gross loss (28.6) (70.8)
Research and development expenses, net 6.5 9.3
Marketing, general and administrative expenses 14.1 14.8
-------- --------
Operating loss (49.1) (95.0)
Financing expense, net (18.2) (32.1)
Other income, net 0.1 1.5
-------- --------
Loss (67.2)% (125.6)%
======== ========
THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
REVENUES. Revenues for the three months ended March 31, 2007 increased by
55% to $55.6 million from $35.9 million for the three months ended March 31,
2006. This $19.7 million increase was mainly attributable to higher volume of
wafer shipments.
COST OF TOTAL REVENUES. Cost of total revenues for the three months ended
March 31, 2007 amounted to $71.5 million, compared with $61.3 million for the
three months ended March 31, 2006. This modest increase of 16.7% in cost of
revenues, despite the 55% increase in sales, was achieved mainly due to the
Company's cost structure, according to which, the Company has reasonable margins
for each incremental dollar of revenue.
GROSS LOSS. Gross loss for the three months ended March 31, 2007 was $15.9
million compared to a gross loss of $25.4 million for the three months ended
March 31, 2006. The decrease in gross loss was mainly attributable to the
improved margins described above.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the three months ended March 31, 2007 amounted to $3.6 million compared to a
similar amount for the three months ended March 31, 2006.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses for the three months ended March 31, 2007 amounted to
$7.8 million compared to $5.3 million for the three months ended March 31, 2006.
The increase is primarily due to stock based compensation expenses and increased
expenses resulted directly from the higher revenues mentioned above.
OPERATING LOSS. Operating loss for the three months ended March 31, 2007
was $27.3 million, compared to $34.1 million for the three months ended March
31, 2006. The decrease in the operating loss is attributable mainly to the
decrease in the gross loss described above.
FINANCING EXPENSES, NET. Financing expenses, net, for the three months
ended March 31, 2007 were $10.1 million compared to financing expenses, net, of
$11.5 million for the three months ended March 31, 2006. This decrease is mainly
due to a decrease of $3.3 million in connection with the successful consummation
of our debt restructuring with our banks in September 2006, pursuant to which
approximately 30% of the outstanding loans were converted into capital notes and
the interest rate applicable to the interest payments was decreased to LIBOR +
1.1% compared to LIBOR + 2.5%. This decrease was offset by an increase of $2.6
million in costs related to our convertible debentures attributable mainly to an
increase in the discount amortization which resulted mainly from the issuance of
a new series of convertible debentures (in June 2006) and the decrease in the
exchange rate of the dollar in relation to the NIS which caused an increase in
the dollar amount of the NIS denominated outstanding convertible debt (see below
for more details on currency fluctuations).
OTHER INCOME, NET. Other income, net, for the three months ended March 31,
2007 was $0.01 million compared to $0.6 million for the three months ended March
31, 2006.
LOSS. Our loss for the three months ended March 31, 2007 was $37.4 million,
compared to $45.1 million for the three months ended March 31, 2006. This
decrease is primarily attributable to the decrease in the operating loss of $6.8
million and a $1.4 million decrease in finance expenses.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
The dollar cost of our operations in Israel is influenced by the timing of
any change in the rate of inflation in Israel and the extent to which such
change is not offset by a change in valuation of the NIS in relation to the
dollar. During the three months ended March 31, 2007, the exchange rate of the
dollar in relation to the NIS decreased by 1.7%, and the Israeli Consumer Price
Index, or CPI, decreased by 0.2% (during the three months ended March 31, 2006
there was an increase of 1.4% in the exchange rate of the dollar in relation to
the NIS and an increase of 0.6% in the CPI).
We believe that the rate of inflation in Israel has not had a material
effect on our business to date. However, our dollar costs will increase if
inflation in Israel exceeds the devaluation of the NIS against the dollar, or if
the timing of such devaluation lags behind inflation in Israel.
Almost all of the cash generated from our operations and from our financing
and investing activities is denominated in U.S. dollars and NIS. Our expenses
and costs are denominated in NIS, U.S. dollars, Japanese Yen and Euros. We are,
therefore, exposed to the risk of currency exchange rate fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2007, we had an aggregate of $43.6 million in cash, cash
equivalents, and short-term interest-bearing deposits. This compares to $32.7
million we had as of March 31, 2006 in cash, cash equivalents, and short-term
interest-bearing deposits, of which $15.1 million was contractually restricted
for Fab 2 use only.
During the three months ended March 31, 2007, we received $28.9 million in
gross proceeds from the issuance of ordinary shares and warrants, and generated
a net amount of $5.5 million from our operating activities. These liquidity
resources financed the investments we made during the three months ended March
31, 2007, which aggregated $24.7 million, mainly in connection with the purchase
and installation of equipment and other assets for the ramp up of Fab 2 and
repayment of convertible debentures in the amount of $7.1 million.
As of March 31, 2007, we had long-term bank loans, at present value, in the
amount of $358.8 million we obtained in connection with the establishment of Fab
2. As of such date, we also had convertible debentures in the aggregate of $92.6
million, of which $6.6 million are presented as current maturities and $20.1
million are presented as equity component of the convertible debentures as part
of shareholders' equity.