TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2004
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2004
Page
----
ACCOUNTANTS' REVIEW REPORT 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-13
The Board of Directors
Tower Semiconductor Ltd.
Migdal Ha'emek
Gentlemen:
Re: REVIEW OF UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2004
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Tower Semiconductor Ltd. ("the
Company") and its subsidiary, as follows:
- - Balance sheet as of March 31, 2004.
- - Statement of operations for the three months ended March 31, 2004.
- - Statement of changes in shareholders' equity for the three months ended
March 31, 2004.
- - Statement of cash flows for the three months ended March 31, 2004.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention which indicates that
material adjustments are required to the interim financial statements for them
to be deemed financial statements prepared in conformity with accounting
principles generally accepted in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The effect of the application of the latter on the financial position
and results of operations as of the date and for the periods presented is
summarized in Note 5.
Respectfully submitted,
Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
April 28, 2004
- 1 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
AS OF MARCH 31, DECEMBER 31,
------------------------ ------------
2004 2003 2003
--------- --------- ---------
(UNAUDITED)
------------------------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 11,346 $ 12,150 $ 12,448
SHORT-TERM INTEREST-BEARING DEPOSITS 3,000 9,000 --
CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR INVESTMENTS RELATING TO FAB 2 78,265 21,924 44,042
TRADE ACCOUNTS RECEIVABLE (NET OF ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $0, $125 AND $0, RESPECTIVELY) 15,555 6,700 11,631
OTHER RECEIVABLES 14,852 24,558 11,073
INVENTORIES 21,584 10,765 19,382
OTHER CURRENT ASSETS 2,342 1,710 1,729
--------- --------- ---------
TOTAL CURRENT ASSETS 146,944 86,807 100,305
--------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR INVESTMENTS RELATING TO FAB 2 4,734 12,056 4,848
OTHER LONG-TERM INVESTMENT 6,000 6,000 6,000
--------- --------- ---------
10,734 18,056 10,848
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET 566,821 527,486 568,412
--------- --------- ---------
OTHER ASSETS, NET 105,397 105,718 108,770
-- -- --
--------- --------- ---------
TOTAL ASSETS $ 829,896 $ 738,067 $ 788,335
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
SHORT-TERM DEBT $ -- $ 4,000 $ --
TRADE ACCOUNTS PAYABLE 45,051 82,902 40,249
OTHER CURRENT LIABILITIES 8,198 7,583 9,564
--------- --------- ---------
TOTAL CURRENT LIABILITIES 53,249 94,485 49,813
LONG-TERM DEBT 431,000 282,000 431,000
CONVERTIBLE DEBENTURES 24,933 24,505 25,783
OTHER LONG-TERM LIABILITIES 8,167 5,749 5,935
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 45,830 47,246 46,347
--------- --------- ---------
TOTAL LIABILITIES 563,179 453,985 558,878
--------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED
150,000,000, 70,000,000 AND 150,000,000 SHARES, RESPECTIVELY;
ISSUED 66,882,383, 44,735,532 AND 52,996,097 SHARES, RESPECTIVELY 16,248 11,294 13,150
ADDITIONAL PAID-IN CAPITAL 516,962 400,887 427,881
PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- -- 16,428
SHAREHOLDER RECEIVABLES AND UNEARNED COMPENSATION (26) (34) (26)
ACCUMULATED DEFICIT (257,395) (118,993) (218,904)
--------- --------- ---------
275,789 293,154 238,529
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 266,717 284,082 229,457
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 829,896 $ 738,067 $ 788,335
========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data and per share data)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------
2004 2003 2003
--------- --------- ---------
(unaudited)
------------------------
SALES $ 27,247 $ 12,592 $ 61,368
COST OF SALES 50,149 17,934 122,395
--------- --------- ---------
GROSS LOSS (22,902) (5,342) (61,027)
--------- --------- ---------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 3,505 3,857 20,709
MARKETING, GENERAL AND ADMINISTRATIVE 5,591 5,644 22,615
--------- --------- ---------
9,096 9,501 43,324
--------- --------- ---------
OPERATING LOSS (31,998) (14,843) (104,351)
FINANCING INCOME (EXPENSE), NET (6,531) 493 (9,826)
OTHER INCOME (EXPENSE), NET 38 -- (84)
--------- --------- ---------
LOSS FOR THE PERIOD $ (38,491) $ (14,350) $(114,261)
========= ========= =========
BASIC LOSS PER ORDINARY SHARE
Loss per share $ (0.61) $ (0.33) $ (2.40)
========= ========= =========
LOSS USED TO COMPUTE
BASIC LOSS PER SHARE $ (38,484) $ (14,350) $(114,114)
========= ========= =========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 63,026 43,436 47,608
========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
TOWER SEMICONDUCTOR LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except share data and per share data)
SHAREHOLDER
PROCEEDS RECEIVABLES
ORDINARY SHARES ADDITIONAL ON AND
------------------ PAID-IN ACCOUNT OF UNEARNED ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL SHARE CAPITAL COMPENSATION DEFICIT STOCK TOTAL
---------- ------- --------- ------------- ------------ ----------- --------- ---------
BALANCE - JANUARY 1, 2004 52,996,097 $13,150 $ 427,881 $16,428 $(26) $ (218,904) $(9,072) $ 229,457
CHANGES DURING THREE-MONTH PERIOD
(UNAUDITED):
ISSUANCE OF SHARES 2,346,786 527 15,901 (16,428) --
ISSUANCE OF SHARES, NET OF RELATED
COSTS - PUBLIC OFFERING 11,444,500 2,550 72,536 75,086
EXERCISE OF SHARE OPTIONS 95,000 21 644 665
LOSS FOR THE PERIOD (38,491) (38,491)
---------- ------- --------- ------- ---- ---------- ------- ---------
BALANCE - MARCH 31, 2004
(UNAUDITED) 66,882,383 $16,248 $ 516,962 $ -- $(26) $ (257,395) $(9,072) $ 266,717
========== ======= ========= ======= ==== ========== ======= =========
BALANCE - JANUARY 1, 2003 44,735,532 $11,294 $ 400,808 $ -- $(53) $ (104,643) $(9,072) $ 298,334
CHANGES DURING THREE-MONTH PERIOD
(UNAUDITED):
STOCK-BASED COMPENSATION RELATED
TO THE FAB 2 CONSTRUCTOR 145 145
SHARE ISSUANCE COSTS (66) (66)
AMORTIZATION OF UNEARNED
COMPENSATION 19 19
LOSS FOR THE PERIOD (14,350) (14,350)
---------- ------- --------- ------- ---- ---------- ------- ---------
BALANCE - MARCH 31, 2003
(UNAUDITED) 44,735,532 $11,294 $ 400,887 $ -- $(34) $ (118,993) $(9,072) $ 284,082
========== ======= ========= ======= ==== ========== ======= =========
BALANCE - JANUARY 1, 2003 44,735,532 $11,294 $ 400,808 $ -- $(53) $ (104,643) $(9,072) $ 298,334
CHANGES DURING 2003:
STOCK-BASED COMPENSATION RELATED
TO THE FAB 2 CONSTRUCTOR 145 145
STOCK-BASED COMPENSATION RELATED TO THE
FACILITY AGREEMENT WITH THE BANKS 4,205 4,205
ISSUANCE OF SHARES,
NET OF RELATED COSTS 8,260,565 1,856 22,723 24,579
PROCEEDS ON ACCOUNT OF SHARE CAPITAL 16,428 16,428
AMORTIZATION OF UNEARNED COMPENSATION 27 27
LOSS FOR THE YEAR (114,261) (114,261)
---------- ------- --------- ------- ---- ---------- ------- ---------
BALANCE - DECEMBER 31, 2003 52,996,097 $13,150 $ 427,881 $16,428 $(26) $ (218,904) $(9,072) $ 229,457
========== ======= ========= ======= ==== ========== ======= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in
thousands, except share data and per share data)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------
2004 2003 2003
--------- --------- ---------
(UNAUDITED)
------------------------
CASH FLOWS - OPERATING ACTIVITIES
LOSS FOR THE PERIOD $ (38,491) $ (14,350) $(114,261)
ADJUSTMENTS TO RECONCILE LOSS FOR THE PERIOD
TO NET CASH USED IN OPERATING ACTIVITIES:
INCOME AND EXPENSE ITEMS NOT INVOLVING CASH FLOWS:
DEPRECIATION AND AMORTIZATION 26,929 4,664 54,611
DEVALUATION OF CONVERTIBLE DEBENTURES (900) -- (878)
OTHER EXPENSE (INCOME), NET (38) -- 84
CHANGES IN ASSETS AND LIABILITIES:
DECREASE (INCREASE) IN TRADE ACCOUNTS RECEIVABLE (3,924) 756 (4,175)
DECREASE (INCREASE) IN OTHER RECEIVABLES AND OTHER CURRENT ASSETS (1,748) (2,547) 1,264
INCREASE IN INVENTORIES (2,202) (44) (6,221)
INCREASE IN TRADE ACCOUNTS PAYABLE 3,309 3,409 801
INCREASE (DECREASE) IN OTHER CURRENT LIABILITIES (1,366) (508) 1,467
INCREASE IN OTHER LONG-TERM LIABILITIES 2,232 343 529
--------- --------- ---------
(16,199) (8,277) (66,779)
DECREASE IN LONG-TERM LIABILITY
IN RESPECT OF CUSTOMERS' ADVANCES (517) -- (899)
--------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (16,716) (8,277) (67,678)
--------- --------- ---------
CASH FLOWS - INVESTING ACTIVITIES
DECREASE (INCREASE) IN CASH, SHORT-TERM AND LONG TERM INTEREST-BEARING
DEPOSITS DESIGNATED FOR INVESTMENTS RELATING TO FAB 2 (34,109) 29,251 14,341
INVESTMENTS IN PROPERTY AND EQUIPMENT (25,254) (48,026) (179,310)
INVESTMENT GRANTS RECEIVED 2,511 6,720 33,811
PROCEEDS FROM SALE OF EQUIPMENT 38 -- 222
INVESTMENTS IN OTHER ASSETS (702) (5,760) (22,098)
DECREASE (INCREASE) IN DEPOSITS, NET (3,000) 1,500 10,500
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (60,516) (16,315) (142,534)
--------- --------- ---------
CASH FLOWS - FINANCING ACTIVITIES
PROCEEDS FROM (COSTS RELATED TO) ISSUANCE OF SHARES, NET 75,465 (115) 24,375
PROCEEDS FROM EXERCISE OF SHARE OPTIONS 665 -- --
PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- -- 16,428
REPAYMENT OF LONG-TERM DEBT -- (1,000) (13,000)
PROCEEDS FROM LONG-TERM DEBT, NET IN CONNECTION WITH RE-BORROWING -- -- 187,000
PROCEEDS FROM LONG-TERM DEBT -- 30,000 --
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 76,130 28,885 214,803
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,102) 4,293 4,591
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 12,448 7,857 7,857
--------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 11,346 $ 12,150 $ 12,448
========= ========= =========
NON-CASH ACTIVITIES
INVESTMENTS IN PROPERTY AND EQUIPMENT $ 16,259 $ 27,209 $ 17,160
========= ========= =========
STOCK-BASED COMPENSATION RELATED TO
THE FACILITY AGREEMENT WITH THE BANKS $ -- $ -- $ 4,205
========= ========= =========
INVESTMENTS IN OTHER ASSETS $ 35 $ 5,606 $ 3,153
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 6,531 $ 4,417 $ 15,674
========= ========= =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 36 $ 53 $ 239
========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 1 - BASIS OF PRESENTATION
A. The unaudited condensed interim consolidated financial statements as
of March 31, 2004 and for the three months then ended ("interim
financial statements") of Tower Semiconductor Ltd. ("the Company")
and subsidiary should be read in conjunction with the audited
consolidated financial statements of the Company and subsidiary as
of December 31, 2003 and for the year then ended, including the
notes thereto. In the opinion of management, the interim financial
statements include all adjustments necessary for a fair presentation
of the financial position and results of operations as of the date
and for the interim period presented. The results of operations for
the interim period are not necessarily indicative of the results to
be expected on a full-year basis.
B. The interim financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") in Israel,
which, as applicable to these interim financial statements, differ
in certain respects from GAAP in the United States of America ("U.S.
GAAP"), as indicated in Note 5.
The accounting principles applied in the preparation of these
interim financial statements are consistent with those principles
applied in the preparation of the most recent annual audited
financial statements.
C. ESTABLISHMENT AND OPERATIONS OF NEW FABRICATION FACILITY
In January 2001, the Company's Board of Directors approved the
establishment of a new wafer fabrication facility in Israel ("Fab
2"), at an expected cost of approximately $1,500,000. Fab 2 is
designated to manufacture semiconductor integrated circuits on
silicon wafers in geometries of 0.18 micron and below on
200-millimeter wafers. The Company has entered into several related
agreements and other arrangements and has completed public and
private financing deals, which, as of the approval date of the
interim financial statements, have provided an aggregate of
$1,226,100 of financing for Fab 2.
During the third quarter of 2003, in which Fab 2 was substantially
completed, the Company began commercial production and shipment of
wafers to its customers utilizing the 0.18 micron process
technology. With the commencement of Fab 2 operations, the Company
began to depreciate and amortize Fab 2 assets, as well as to expense
most of the ongoing direct costs related to the construction and
equipping of Fab 2 and transfer of the Fab 2 technology that had
been previously capitalized.
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, which were amended several
times, risks and uncertainties, see Note 13A to the 2003 audited
consolidated financial statements.
- 6 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 2 - MAJOR CUSTOMERS
Sales to major customers as a percentage of total sales were as follows:
Three months ended
March 31,
-----------------------
2004 2003
---- ----
(unaudited)
Customer A 29% --%
Customer B 18 22
Customer C 4 21
Customer D 1 23
Customer E -- 5
Other customers (*) 30 15
(*) Represents sales to five different customers each of whom accounted
for between 5% and 8% of sales during the three months ended March
31, 2004, and to four customers (3%-6%) during the three months
ended March 31, 2003.
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2
A. ORDINARY SHARES ISSUED TO THE PRIMARY WAFER PARTNERS AND EQUITY
INVESTORS
In January 2004, the primary Wafer Partners and Equity Investors
were issued an aggregate of 2,346,786 Ordinary Shares of the Company
in consideration for their final $16,428 committed investment made
in December 2003. The shares were issued at a per share price of
$7.00, a price equal to the offering price at the public offering
described in Note 4A.
B. APPROVED ENTERPRISE STATUS
Under the terms of the Fab 2 approved enterprise program,
investments in respect of Fab 2 are to be completed by December 31,
2005, five years from the date the approval certificate was
obtained. Due to the later than planned commencement of construction
of Fab 2 and prevailing market conditions, the Company does not
currently expect to complete Fab 2 investments by the end of 2005.
During 2003 the Company has notified the Investment Center of its
revised investment schedule contemplated in an updated plan for the
construction and equipping of Fab 2, and has also informed the
Investment Center of the reduced rate of annual investments and
lower than projected expectations for Fab 2 sales. As of the date of
the interim financial statements, the Company understands that the
Investment Center has completed its evaluation of the revised
investments plan. Accordingly, the company has been filing its
capital expenditure reports with the Investment Center by reference
to the revised investment schedule contemplated in the revised
investment plan, and has been provided with the related Investment
Center grants.
- 7 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
B. APPROVED ENTERPRISE STATUS (cont.)
While Israeli law currently limits the ability of the Investment
Center to extend the investment period beyond five years, the
Company's management estimates, based on discussions held with the
Investment Center, prior and subsequent to the balance sheet date,
that it is probable that satisfactory arrangements will be made to
enable the extension of the investment period.
C. HEDGING ACTIVITIES
During the reported period, the Company entered into hedging
transactions as follows:
(1) Foreign exchange agreements (cylinder options, options and
forward contracts) to hedge exposure related to purchase of
machinery and equipment and salary and wage costs, the
aggregate outstanding amount of which as of March 31, 2004 was
$19,390 and $5,200, respectively.
(2) Agreements to hedge interest rate exposure on long-term bank
loans under the Facility Agreement, in the aggregate amount as
of March 31, 2004 of $80,000. As a result, out of the total
$431,000 long-term bank loans under that agreement, as of the
balance sheet date, $292,000 is under hedging transactions.
NOTE 4 - OTHER RECENT DEVELOPMENTS
A. PUBLIC OFFERING COMPLETED IN THE FIRST QUARTER OF 2004
During the first quarter of 2004, the Company completed a public
offering of its Ordinary Shares at a price of $7.00 per share.
Following the offering, and including the partial exercise of
over-allotment option the Company granted the underwriters, the
Company issued 11,444,500 of its Ordinary Shares, in consideration
for gross proceeds of $80,112 (net of related costs - $75,086).
B. SILICONIX
In December 2003, the Company and chip maker Siliconix incorporated,
an 80% owned subsidiary of Vishay Intertechnology Inc., entered into
a memorandum of understanding ("MOU") for a long-term manufacturing
and supply arrangement. Pursuant to the MOU, Siliconix will place
with the Company orders for the purchase of wafers to be
manufactured at the Company's Fab 1 valued at approximately $200,000
over a seven to ten year period. Siliconix will advance the Company
$20,000 to be used primarily for the purchase of additional
equipment and other expenses required to satisfy Siliconix orders,
which will be credited towards the purchase price of the wafers. The
transaction is subject to the approval of both companies' board of
directors, the Company's Banks, the Investment Center and to the
negotiation of definitive documentation. A definitive agreement is
expected to be signed during the second quarter of 2004.
- 8 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 4 - OTHER RECENT DEVELOPMENTS (cont.)
C. CLASS ACTION
In July 2003, certain shareholders of the Company filed a
shareholders' class action complaint in the United States against
the Company and certain of its directors, Wafer Partners and Equity
Investors (the "Defendants"). The plaintiffs have 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. The plaintiffs seek damages in unspecified
amounts, which could be substantial, and unspecified rescissory
relief. The Company believes that the complaint is without merit and
is vigorously contesting it. In January 2004, the Company filed with
the court a motion to dismiss the action and in April 2004 the
plaintiff filed an opposition to the motion to dismiss. As of the
date of the interim financial statements, the Court has not rendered
a decision with regard to the motion to dismiss.
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP
With regard to the Company's interim financial statements, the
material differences between GAAP in Israel and in the U.S. relate
to the following. See G below for the presentation of the Company's
unaudited balance sheet as of March 31, 2004 in accordance with U.S.
GAAP.
A. PRESENTATION OF CASH AND SHORT-TERM AND LONG-TERM INTEREST-BEARING
DEPOSITS DESIGNATED FOR INVESTMENTS RELATING TO FAB 2
In accordance with U.S. GAAP, cash, short-term and long-term
interest-bearing deposits designated for investments relating to Fab
2 should be excluded from current assets and long-term investments
and presented separately as a non-current asset. Accordingly, as of
March 31, 2004, $78,265 and $4,734 were reclassified, respectively,
from current assets and long-term investments to a long-term asset
(as of December 31, 2003 - $44,042 and $4,848, respectively).
B. PRESENTATION OF NET LONG-TERM LIABILITIES IN RESPECT OF EMPLOYEES
Under U.S. GAAP, assets and liabilities relating to severance
arrangements are to be presented separately and are not to be
offset, while according to Israeli GAAP such an offset is required.
Accordingly, as of March 31, 2004 an amount of $14,587 was
reclassified from other long-term liabilities to long-term
investments (as of December 31, 2003 - $14,607).
- 9 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
C. HEDGING ACTIVITIES IN ACCORDANCE WITH U.S. GAAP (SFAS 133)
Complying with SFAS 133 and SFAS 138 and the related interpretations
thereon with respect to the Company's hedging transactions as of
March 31, 2004 would have resulted in: an increase in other
long-term liabilities in the amount of $10,448; an increase in the
Company's current liabilities in the amount of $260; an increase in
other comprehensive loss for the three months ended March 31, 2004
in the net amount of $456 and in the accumulated other comprehensive
loss component of equity as of such date in the amount of $16,353;
and in a decrease of $5,615 in property and equipment, net as of
March 31, 2004.
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 March 31, 2004 in accordance with SFAS 123, as amended by
SFAS 148, the Company's pro forma loss and loss per share would have
been as follows:
Three months ended
March 31,
-------------------
2004 2003
-------- --------
(unaudited)
PRO FORMA LOSS
Loss for the period, as reported
according to U.S. GAAP
(see H below) $(38,491) $(14,350)
Less - stock-based compensation
determined under APB 25
-- 19
Add - stock-based compensation
determined under SFAS 123 (1,331) (1,611)
-------- --------
Pro forma loss $(39,822) $(15,942)
======== ========
BASIC LOSS PER SHARE As reported according to U.S.
GAAP (see I below) $ (0.62) $ (0.33)
======== ========
Pro forma $ (0.65) $ (0.37)
======== ========
- 10 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
E. SALE OF SECURITIES
Under Accounting Principles Board Opinion No. 14 ("APB 14"), the
proceeds from the sale of the securities in January 2002 are to be
allocated to each of the securities issued based on their relative
fair value, while according to Israeli GAAP such treatment is not
required. Complying with APB 14, based on the average market value
of each of the securities issued in the first three days following
their issuance (in January 2002), would have resulted in an increase
in shareholders' equity as of March 31, 2004 and December 31, 2003
in the amount of $2,363 (net of $196 related issuance expenses), and
a decrease in convertible debentures as of such dates in the amount
of $2,559. The effect of amortization of the discount on the
convertible debentures under U.S.GAAP for the three-month period
ended March 31, 2004 would have been immaterial.
F. PRESENTATION OF PROCEEDS ON ACCOUNT OF SHARES IN ACCORDANCE WITH
U.S. GAAP (SFAS 150)
According to SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity", a
financial instrument that embodies an unconditional obligation (as
defined in that guidance), that the issuer must or may settle by
issuing a variable number of its equity shares, shall be classified
as a liability if, at inception, the monetary value of the
obligation is based solely or predominantly on, among others, a
fixed monetary amount known at inception. Accordingly, the $16,428
described in Note 3A, and which according to Israeli GAAP was
presented as of December 31, 2003 as "Proceeds on account of share
capital", were reclassified as of December 31, 2003 under SFAS 150
as "Liability in respect of variable number of shares to be issued".
Such presentation for the U.S. GAAP purposes was required since as
of December 31, 2003, the amount of shares the Company was to issue
in consideration of the aggregate of $16,428 was not determined as
of such date, and was actually based on mechanisms that embody a
variable number of shares. Following the issuance of shares, as
described in Note 3A, the $16,428 amount is presented for U.S. GAAP
purposes as well as paid in equity.
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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
G. BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP
AS OF MARCH 31, 2004 AS OF DECEMBER 31, 2003
--------------------------------- ---------------------------------
U.S. AS PER AS PER AS PER AS PER
GAAP ISRAELI ADJUST- U.S. ISRAELI ADJUST- U.S.
REMARK GAAP MENTS GAAP GAAP MENTS GAAP
------- --------- ----------- ----------- ---------- ---------- -----------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 11,346 $ $ 11,346 $ 12,448 $ $ 12,448
SHORT-TERM INTEREST-BEARING DEPOSITS 3,000 3,000 -- --
CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR INVESTMENTS RALATING TO FAB 2 A 78,265 (78,265) -- 44,042 (44,042) --
TRADE ACCOUNTS RECEIVABLE 15,555 15,555 11,631 11,631
OTHER RECEIVABLES 14,852 14,852 11,073 11,073
INVENTORIES 21,584 21,584 19,382 19,382
OTHER CURRENT ASSETS 2,342 2,342 1,729 1,729
---------- ----------- ----------- ----------- ---------- -----------
TOTAL CURRENT ASSETS 146,944 (78,265) 68,679 100,305 (44,042) 56,263
---------- ----------- ----------- ----------- ---------- -----------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR INVESTMENTS RALATING TO FAB 2 4,734 (4,734) -- 4,848 (4,848) --
OTHER LONG-TERM INVESTMENTS B 6,000 14,587 20,587 6,000 14,607 20,607
---------- ----------- ----------- ----------- ---------- -----------
10,734 9,853 20,587 10,848 9,759 20,607
---------- ----------- ----------- ----------- ---------- -----------
PROPERTY AND EQUIPMENT, NET C 566,821 (5,615) 561,206 568,412 (5,947) 562,465
---------- ----------- ----------- ----------- ---------- -----------
CASH AND SHORT-TERM AND LONG-TERM
INTEREST-BEARING DEPOSITS DESIGNATED
FOR INVESTMENTS RELATING TO FAB 2 -- 82,999 82,999 -- 48,890 48,890
---------- ----------- ----------- ----------- ---------- -----------
OTHER ASSETS E 105,397 (196) 105,201 108,770 (196) 108,574
---------- ----------- ----------- ----------- ---------- -----------
TOTAL ASSETS $ 829,896 $ 8,776 $ 838,672 $ 788,335 $ 8,464 $ 796,799
========== =========== =========== =========== ========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 45,051 $ $ 45,051 $ 40,249 $ $ 40,249
OTHER CURRENT LIABILITIES C 8,198 260 8,458 9,564 9,564
---------- ----------- ----------- ----------- ---------- -----------
TOTAL CURRENT LIABILITIES 53,249 260 53,509 49,813 -- 49,813
LONG-TERM DEBT 431,000 431,000 431,000 431,000
CONVERTIBLE DEBENTURES E 24,933 (2,559) 22,374 25,783 (2,559) 23,224
OTHER LONG-TERM LIABILITIES B, C 8,167 25,035 33,202 5,935 24,527 30,462
LIABILITY IN RESPECT OF A VARIABLE
NUMBER OF SHARES TO BE ISSUED F -- -- -- -- 16,428 16,428
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 45,830 45,830 46,347 46,347
---------- ----------- ----------- ----------- ---------- -----------
TOTAL LIABILITIES 563,179 22,736 585,915 558,878 38,396 597,274
---------- ----------- ----------- ----------- ---------- -----------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1 PAR VALUE - AUTHORIZED
150,000,000 SHARES; ISSUED 66,882,383 AND
52,996,097 SHARES, RESPECTIVELY 16,248 16,248 13,150 13,150
ADDITIONAL PAID-IN CAPITAL E 516,962 2,363 519,325 427,881 2,363 430,244
SHAREHOLDER RECEIVABLES AND UNEARNED COMPENSATION (26) (26) (26) (26)
PROCEEDS ON ACCOUNT OF SHARE CAPITAL F -- -- -- 16,428 (16,428) --
ACCUMULATED OTHER COMPREHENSIVE LOSS C -- (16,353) (16,353) -- (15,897) (15,897)
ACCUMULATED DEFICIT H (257,395) 30 (257,365) (218,904) 30 (218,874)
---------- ----------- ----------- ----------- ---------- -----------
275,789 (13,960) 261,829 238,529 (29,932) 208,597
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072) (9,072)
---------- ----------- ----------- ----------- ---------- -----------
TOTAL SHAREHOLDERS' EQUITY 266,717 (13,960) 252,757 229,457 (29,932) 199,525
---------- ----------- ----------- ----------- ---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 829,896 $ 8,776 $ 838,672 $ 788,335 $ 8,464 $ 796,799
========== =========== =========== =========== ========== ===========
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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2004
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
H. STATEMENTS OF OPERATIONS IN ACCORDANCE WITH U.S. GAAP
Complying with SFAS 133 and SFAS 138 (C above) and APB 14 (E above)
would not have materially affected the results of operations for the
three-month period ended March 31, 2004.
I. LOSS PER SHARE IN ACCORDANCE WITH U.S. GAAP (SFAS 128)
In accordance with U.S. GAAP (SFAS 128, including the implementation
of SFAS 133 and SFAS 138, and APB 14 as described in H above), the
basic and diluted loss per share for the three-month periods ended
March 31, 2004 and 2003 would be $0.62 and $0.33, respectively.
- 13 -