EXHIBIT 99.2
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
Page
----
ACCOUNTANTS' REVIEW REPORT 1
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-21
[DELOITTE LOGO]
Brightman Almagor
1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel
Tel: +972 (3) 608 5555
Fax: +972 (3) 609 4022
info@deloitte.co.il
www.deloitte.com
The Board of Directors
Tower Semiconductor Ltd.
MIGDAL HA'EMEK
Gentlemen:
Re: Review of Unaudited Condensed Interim
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2005
At your request, we have reviewed the condensed interim consolidated financial
statements ("interim financial statements") of Tower Semiconductor Ltd. and
subsidiary ("the Company"), as follows:
- - Balance sheet as of June 30, 2005.
- - Statements of operations for the six months and three months ended June 30,
2005.
- - Statements of changes in shareholders' equity for the six months and three
months ended June 30, 2005.
- - Statements of cash flows for the six months and three months ended June 30,
2005.
Our review was conducted in accordance with procedures prescribed by the
Institute of Certified Public Accountants in Israel. The procedures included,
inter alia, reading the aforementioned interim financial statements, reading the
minutes of the shareholders' meetings and meetings of the board of directors and
its committees, and making inquiries with the persons responsible for financial
and accounting affairs.
Since the review that was performed is limited in scope and does not constitute
an audit in accordance with generally accepted auditing standards, we do not
express an opinion on the aforementioned interim financial statements.
In performing our review, nothing came to our attention which indicates that
material adjustments are required to the interim financial statements for them
to be deemed financial statements prepared in conformity with accounting
principles generally accepted in Israel.
Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The effect of the application of the latter on the financial position
and results of operations as of the date and for the periods presented is
summarized in Note 6.
Respectfully submitted,
Brightman Almagor & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu
Tel Aviv, Israel
August 2, 2005
- 1 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
AS OF JUNE 30, DECEMBER 31,
---------------------- ---------
2005 2004 2004
--------- --------- ---------
(UNAUDITED)
----------------------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 23,459 $ 19,115 $ 27,664
DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 16,953 42,279 53,793
TRADE ACCOUNTS RECEIVABLE 10,853 19,113 19,286
OTHER RECEIVABLES 8,862 20,067 11,365
INVENTORIES 17,058 25,712 25,669
OTHER CURRENT ASSETS 1,310 2,112 1,818
--------- --------- ---------
TOTAL CURRENT ASSETS 78,495 128,398 139,595
--------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS -- 4,918 5,134
OTHER LONG-TERM INVESTMENT -- 6,000 --
--------- --------- ---------
-- 10,918 5,134
--------- --------- ---------
PROPERTY AND EQUIPMENT, NET 562,962 589,271 609,296
--------- --------- ---------
OTHER ASSETS, NET 86,519 102,094 93,483
========= ========= =========
TOTAL ASSETS $ 727,976 $ 830,681 $ 847,508
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 59,640 $ 51,082 $ 65,326
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES 6,331 -- --
OTHER CURRENT LIABILITIES 8,467 8,853 10,678
--------- --------- ---------
TOTAL CURRENT LIABILITIES 74,438 59,935 76,004
LONG-TERM DEBT 497,000 461,000 497,000
CONVERTIBLE DEBENTURES 18,992 25,508 26,651
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 62,007 45,762 64,428
OTHER LONG-TERM LIABILITIES 9,175 8,209 15,445
--------- --------- ---------
TOTAL LIABILITIES 661,612 600,414 679,528
--------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED
250,000,000, 150,000,000 AND 250,000,000 SHARES, RESPECTIVELY;
ISSUED 67,586,187, 66,894,593 AND 66,999,796 SHARES, RESPECTIVELY 16,408 16,251 16,274
ADDITIONAL PAID-IN CAPITAL 518,286 517,041 517,476
SHAREHOLDER RECEIVABLES (26) (26) (26)
ACCUMULATED DEFICIT (459,232) (293,927) (356,672)
--------- --------- ---------
75,436 239,339 177,052
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 66,364 230,267 167,980
========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 727,976 $ 830,681 $ 847,508
========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
---------------------- ---------------------- ---------
2005 2004 2005 2004 2004
--------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
---------------------- ----------------------
REVENUES
SALES $ 42,375 $ 58,955 $ 19,208 $ 33,652 $ 124,111
REVENUES RELATED TO A JOINT DEVELOPMENT AGREEMENT 8,000 1,944 8,000 -- 1,944
--------- --------- --------- --------- ---------
50,375 60,899 27,208 33,652 126,055
COST OF SALES 122,468 104,399 61,254 54,250 228,410
--------- --------- --------- --------- ---------
GROSS LOSS (72,093) (43,500) (34,046) (20,598) (102,355)
--------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 8,649 7,256 3,886 3,751 17,053
MARKETING, GENERAL AND ADMINISTRATIVE 8,766 11,021 4,238 5,430 21,297
--------- --------- --------- --------- ---------
17,415 18,277 8,124 9,181 38,350
========= ========= ========= ========= =========
OPERATING LOSS (89,508) (61,777) (42,170) (29,779) (140,705)
FINANCING EXPENSE, NET (15,528) (13,340) (7,353) (6,809) (29,745)
OTHER INCOME, NET 2,476 94 2,283 56 32,682
--------- --------- --------- --------- ---------
LOSS FOR THE PERIOD $(102,560) $ (75,023) $ (47,240) $ (36,532) $(137,768)
========= ========= ========= ========= =========
BASIC LOSS PER ORDINARY SHARE
LOSS PER SHARE $ (1.56) $ (1.16) $ (0.71) $ (0.55) $ (2.13)
========= ========= ========= ========= =========
LOSS USED TO COMPUTE
BASIC LOSS PER SHARE $(102,560) $ (75,009) $ (47,240) $ (36,525) $(137,768)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 65,946 64,812 66,190 66,632 64,717
========= ========= ========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
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 CAPITL
---------- ---------- ---------- ---------
BALANCE - JANUARY 1, 2005 66,999,796 $ 16,274 $ 517,476 $ --
CHANGES DURING SIX-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 586,391 134 810
LOSS FOR THE PERIOD
---------- ---------- ---------- ---------
BALANCE - JUNE 30, 2005 (UNAUDITED) 67,586,187 $ 16,408 $ 518,286 $ --
========== ========== ========== =========
BALANCE - JANUARY 1, 2004 52,996,097 $ 13,150 $ 427,881 $ 16,428
CHANGES DURING SIX-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 2,358,746 530 15,979 (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 PERIOD
---------- ---------- ---------- ---------
BALANCE - JUNE 30, 2004 (UNAUDITED) 66,894,593 $ 16,251 $ 517,041 $ --
========== ========== ========== =========
BALANCE - APRIL 1, 2005 66,999,796 $ 16,274 $ 517,476 $ --
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 586,391 134 810
LOSS FOR THE PERIOD
---------- ---------- ---------- ---------
BALANCE - JUNE 30, 2005 (UNAUDITED) 67,586,187 $ 16,408 $ 518,286 $ --
========== ========== ========== =========
BALANCE - APRIL 1, 2004 66,882,383 $ 16,248 $ 516,962 $ --
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 11,960 3 78
EXERCISE OF SHARE OPTIONS 250 1
LOSS FOR THE PERIOD
---------- ---------- ---------- ---------
BALANCE - JUNE 30, 2004 (UNAUDITED) 66,894,593 $ 16,251 $ 517,041 $ --
========== ========== ========== =========
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 SIX-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 944
LOSS FOR THE PERIOD (102,560) (102,560)
----- ---------- -------- ----------
BALANCE - JUNE 30, 2005 (UNAUDITED) $ (26) $ (459,232) $ (9,072) $ 66,364
===== ========== ======== ==========
BALANCE - JANUARY 1, 2004 $ (26) $ (218,904) $ (9,072) $ 229,457
CHANGES DURING SIX-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 81
ISSUANCE OF SHARES, NET OF RELATED COST -
PUBLIC OFFERING 75,086
EXERCISE OF SHARE OPTIONS 666
LOSS FOR THE PERIOD (75,023) (75,023)
----- ---------- -------- ----------
BALANCE - JUNE 30, 2004 (UNAUDITED) $ (26) $ (293,927) $ (9,072) $ 230,267
===== ========== ======== ==========
BALANCE - APRIL 1, 2005 $ (26) $ (411,992) $ (9,072) $ 112,660
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 944
LOSS FOR THE PERIOD (47,240) (47,240)
----- ---------- -------- ----------
BALANCE - JUNE 30, 2005 (UNAUDITED) $ (26) $ (459,232) $ (9,072) $ 66,364
===== ========== ======== ==========
BALANCE - APRIL 1, 2004 $ (26) $ (257,395) $ (9,072) $ 266,717
CHANGES DURING THREE-MONTH PERIOD (UNAUDITED):
ISSUANCE OF SHARES 81
EXERCISE OF SHARE OPTIONS 1
LOSS FOR THE PERIOD (36,532) (36,532)
----- ---------- -------- ----------
BALANCE - JUNE 30, 2004 (UNAUDITED) $ (26) $ (293,927) $ (9,072) $ 230,267
===== ========== ======== ==========
BALANCE - JANUARY 1, 2004 $ (26) $ (218,904) $ (9,072) $ 229,457
CHANGES DURING 2004:
ISSUANCE OF SHARES 539
ISSUANCE OF SHARES, NET OF RELATED COST -
PUBLIC OFFERING 75,086
EXERCISE OF SHARE OPTIONS 666
LOSS FOR THE YEAR (137,768) (137,768)
----- ---------- -------- ----------
BALANCE - DECEMBER 31, 2004 $ (26) $ (356,672) $ (9,072) $ 167,980
===== ========== ======== ==========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
---------------------- ---------------------- ---------
2005 2004 2005 2004 2004
--------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
---------------------- ----------------------
CASH FLOWS - OPERATING ACTIVITIES
LOSS FOR THE PERIOD $(102,560) $ (75,023) $ (47,240) $ (36,532) $(137,768)
ADJUSTMENTS TO RECONCILE LOSS FOR THE PERIOD
TO NET CASH USED IN OPERATING ACTIVITIES:
INCOME AND EXPENSE ITEMS NOT INVOLVING CASH FLOWS:
DEPRECIATION AND AMORTIZATION 71,153 55,406 36,559 28,477 121,067
EFFECT OF INDEXATION AND TRANSLATION ON
CONVERTIBLE DEBENTURES (1,427) (366) (1,024) 534 676
OTHER INCOME, NET (2,476) (94) (2,283) (56) (32,682)
CHANGES IN ASSETS AND LIABILITIES:
DECREASE (INCREASE) IN TRADE ACCOUNTS RECEIVABLE 8,433 (7,482) 1,288 (3,558) (7,655)
DECREASE (INCREASE) IN OTHER RECEIVABLES AND OTHER
CURRENT ASSETS 2,660 (3,168) 624 (1,420) (413)
DECREASE (INCREASE) IN INVENTORIES 8,611 (6,330) 4,566 (4,128) (6,287)
INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE (160) 3,479 891 170 404
INCREASE (DECREASE) IN OTHER CURRENT LIABILITIES (1,465) (726) (202) 640 (970)
INCREASE (DECREASE) IN OTHER LONG-TERM LIABILITIES (7,077) 2,274 (6,510) 42 9,344
--------- --------- --------- --------- ---------
(24,308) (32,030) (13,331) (15,831) (54,284)
INCREASE (DECREASE) IN LONG-TERM LIABILITY
IN RESPECT OF CUSTOMERS' ADVANCES, NET (232) (504) (126) 13 19,384
--------- --------- --------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (24,540) (32,534) (13,457) (15,818) (34,900)
--------- --------- --------- --------- ---------
CASH FLOWS - INVESTING ACTIVITIES
DECREASE (INCREASE) IN DESIGNATED CASH, SHORT-TERM AND
LONG-TERM INTEREST-BEARING DEPOSITS, NET 41,974 1,693 5,732 35,802 (10,037)
INVESTMENTS IN PROPERTY AND EQUIPMENT (24,105) (80,287) (4,455) (55,033) (154,975)
INVESTMENT GRANTS RECEIVED 4,358 12,502 870 9,991 32,636
PROCEEDS RELATED TO SALE AND DISPOSAL OF PROPERTY AND EQUIPMENT 1,708 104 1,362 66 2,626
INVESTMENTS IN OTHER ASSETS (3,600) (702) (1,100) -- (702)
DECREASE IN DEPOSITS, NET -- -- -- 3,000 --
PROCEEDS FROM SALE OF LONG-TERM INVESTMENT -- -- -- -- 38,677
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 20,335 (66,690) 2,409 (6,174) (91,775)
--------- --------- --------- --------- ---------
CASH FLOWS - FINANCING ACTIVITIES
PROCEEDS FROM (COST RELATED TO) ISSUANCE OF SHARES, NET -- 75,225 -- (240) 75,225
PROCEEDS FROM LONG-TERM DEBT -- 30,000 -- 30,000 66,000
PROCEEDS FROM EXERCISE OF SHARE OPTIONS -- 666 -- 1 666
--------- --------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 105,891 -- 29,761 141,891
========= ========= ========= ========= =========
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,205) 6,667 (11,048) 7,769 15,216
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 27,664 12,448 34,507 11,346 12,448
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 23,459 $ 19,115 $ 23,459 $ 19,115 $ 27,664
========= ========= ========= ========= =========
NON-CASH ACTIVITIES
INVESTMENTS IN PROPERTY AND EQUIPMENT $ 12,502 $ 28,182 $ 6,461 $ 26,183 $ 47,675
========= ========= ========= ========= =========
INVESTMENTS IN OTHER ASSETS $ 187 $ 19
========= =========
CONVERSION OF LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS'
ADVANCES TO SHARE CAPITAL 944 $ 81 $ 944 $ 81 $ 539
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 15,904 $ 11,977 $ 7,588 $ 5,446 $ 25,205
========= ========= ========= ========= =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 83 $ 97 $ 79 $ 61 $ 130
========= ========= ========= ========= =========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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 June 30, 2005 and for the six 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 (4)
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 and results of operations.
- 6 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
A. BASIS FOR PRESENTATION (cont.)
(3) RECENT ACCOUNTING PRONOUNCEMENT 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 date this Statement is issued. Retroactive application
is not permitted. The adoption of this Standard is not
expected to have a material effect on the Company's
financial position and 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 principle. This
Statement applies to all voluntary changes in accounting
principle, 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 principle be recognized by including in net
income of the period of the change the cumulative effect of
changing to the new accounting principle. This Statement
requires retrospective application to prior periods'
financial statements of changes in accounting principle,
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
principle to all prior periods.
- 7 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
A. BASIS FOR PRESENTATION (cont.)
(3) RECENT ACCOUNTING PRONOUNCEMENT BY THE FASB (cont.)
C. SFAS NO. 154. ACCOUNTING CHANGES AND ERROR CORRECTIONS
(cont.)
This Statement defines retrospective application as the
application of a different accounting principle to prior
accounting periods as if that principle had always been used
or 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
principle. This Statement carries forward without change the
guidance contained 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 principle
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 and results of
operations.
(4) RECENT ACCOUNTING PRONOUNCEMENT BY THE ISRAELI ACCOUNTING
STANDARDS BOARD
ACCOUNTING STANDARD NO. 19 "TAXES ON INCOME" - In July 2004,
the Israeli Accounting Standards Board published Accounting
Standard No. 19 "INCOME TAXES" (the "Standard"). The
Standard established the guideline for recognizing,
measuring, presenting and disclosing income taxes in the
financial statements. The Standard is effective for
financial statements relating to reporting periods
commencing on, or after, January 1, 2005. The initial
adoption of the Standard is accounted for by the cumulative
effect of change in accounting method, for the beginning of
the period in which the Standard is initially adopted. The
implementation of the Standard did not affect the Company's
financial position, results of operations and cash flows.
- 8 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
A. BASIS FOR PRESENTATION (cont.)
(5) PRESENTATION
Certain amounts in prior periods financial statements have been
reclassified in order to conform to the June 30, 2005
presentation.
B. ESTABLISHMENT AND OPERATIONS OF NEW FABRICATION FACILITY ("FAB 2")
In January 2001, the Company's Board of Directors approved the
establishment of a new wafer fabrication facility in Israel ("Fab 2").
Fab 2 is designated to manufacture semiconductor integrated circuits
on silicon wafers in geometries of 0.18 micron and below on
200-millimeter wafers. The Company has entered into several related
agreements and other arrangements and has completed public and private
financing deals, which, as of the approval date of the interim
financial statements, have provided an aggregate of $1,269,000 of
financing for Fab 2.
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.
- 9 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (cont.)
C. FINANCING OF THE COMPANY'S ONGOING OPERATIONS
In the first half of 2005 and in recent years, the Company has
experienced significant recurring losses from operations and recurring
negative cash flows from operating activities and an increasing
accumulated deficit. According to the Company's 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 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. In addition, for details concerning
recent amendments to certain of 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. In light of the above described,
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, certain of
its Equity Investors, Wafer Partners, and its Banks have been holding
discussions 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 is subject to the fulfillment of certain closing
conditions, for providing the Company with up to $30,000, through the
end of March 2006 (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 $24,500 in the framework of the
preliminary rights offering prospectus the Company filed in July 2005
in the U.S. and Israel, described in Note 5D below. Further, the
Company is currently examining alternatives for additional funding
sources.
The Company's management estimates that it is probable that the
closing conditions to the amendment to the Facility Agreement will be
satisfied in a timely manner, the rights offering process will be
successfully completed 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.
- 10 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2005
(dollars in thousands, except share data and per share data)
NOTE 2 - INVENTORIES
Inventories consist of the following (*):
June 30, December 31,
----------------------- -------
2005 2004 2004
------- ------- -------
(unaudited)
Raw materials $ 6,354 $ 6,662 $ 9,260
Spare parts and supplies 3,407 3,433 3,950
Work in process 5,709 15,477 10,085
Finished goods 1,588 140 2,374
------- ------- -------
$17,058 $25,712 $25,669
======= ======= =======
(*) Net of aggregate write downs to net realizable value of $3,149, $2,004
and $2,665 as of June 30, 2005, June 30, 2004 and December 31, 2004,
respectively.
NOTE 3 - MAJOR CUSTOMERS
Revenues from major customers as a percentage of total revenues were as
follows:
Six months ended Year ended
June 30, December 31,
---------------- ----
2005 2004 2004
---- ---- ----
(unaudited)
Customer A 29% 19% 24%
Customer B 16 3 2
Customer C 2 14 8
Customer D 0 16 17
Other customers (*) 23 23 28
(*) Represents revenues from five different customers each of whom
accounted for between 2% and 10% of revenues during the six months
ended June 30, 2005, and to four and six different customers (each of
whom accounted for between 1%-9% and 1%-8%, respectively) during the
six months ended June 30, 2004 and during 2004, respectively.
- 11 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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
$155,005 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 June 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 process of reviewing the revised
business plan is in its early stages, and the Company's management
cannot estimate the outcome of the Company's efforts to obtain
approval for an expansion program to its Fab 2 approved enterprise
program.
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 signed also amended
certain of the financial ratios and covenants the Company is to
comply with during 2005, which were further revised in the
framework of the July 2005 amendment to the Facility Agreement
described below.
- 12 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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, further to a letter of intent signed between the
Company and its Banks in May 2005, the Company and its Banks
entered into a definitive amendment to the Facility Agreement.
The amendment provides, among other things, for Banks financing
of up to $30,000 to cover the Company's 2005 interest payments
under the Facility Agreement, subject to a similar amount being
raised by the Company from investors. In connection with the
amendment, certain of the Company's Equity Investors and Wafer
Partners, have committed and are obligated to invest an aggregate
of $23,500 towards such funding by investors in the context of
the rights offering described in Note 5D below.
The up to approximately $30,000 to be provided by the Banks under
the July 2005 amendment may be withdrawn 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 repayments dates should 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
Corporation 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 the Israel Corporation invests in the
context of the rights offering at least $14,000; (iii) any
amounts raised through March 31, 2006, up to $30,000 from the
investors as 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 to align them with
the Company's current working plan. The Company's management
estimates that it is probable that the Company will comply with
the revised financial ratios and covenants under the July 2005
amendment.
For warrants provided to the Banks in connection with the
amendment, see Note 5B(5) below.
- 13 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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.)
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 $497,000) plus penalties, and the
Banks would be entitled to exercise the remedies available to
them under the Facility Agreement, including enforcement of their
lien against all of the Company's assets.
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, 80,000 options were granted in
February 2005 to two newly appointed directors (40,000 options
each) at an exercise price of $1.87, which equals the market
price of the Company's shares on the grant date. As of the of the
balance sheet date, 240,000 options were outstanding under the
plan, with a weighted average exercise price of $6.08.
- 14 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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. These options are exercisable
at an exercise price of $1.56, the opening market price of the
Company's shares on the date of the board approval of the grant.
Granted options will vest over a four-year period, 25% over each
year of employment. The options granted are exercisable for a
period of ten years from the date of grant. The grant of the
options is subject to the approval of the Company's shareholders.
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 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 - In May 2005, the Company's Board of
Directors approved the grant of 2,900,000 options to the
Company's employees at an exercise price of $1.58, which equals
to the Company's share market price as of the date of grant. The
options granted will vest over a four-year period from the date
of grant and will expire ten years from such date. The net
increase to the total outstanding options under the Company's
various employee share option plans during the six-month period
ended June 30, 2005, amounted to 1,433,709 options.
- 15 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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 warrants) are exercisable for five years
ending in July 2010, and one-half (4,132,232 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 4,132,232warrants issued to the Banks in July 2005,
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 to be amortized as deferred financing charges over the
terms 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.
- 16 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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 for the distribution of transferable rights to purchase up
to $50,000 principal of convertible debentures of the Company. The
rights will 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.
Each recipient will receive one right for each 138.68 Ordinary Shares
or employee options held on the record date. Each right will entitle
the recipient to purchase, at a subscription price of $100.00, 100
debentures, each of $1.00 in principal amount. The debentures are
convertible into Ordinary Shares of the Company at a conversion rate
of one Ordinary Share per each $1.10 amount of outstanding principal
of the debentures. The conversion rate is subject to adjustments and
the debentures may be automatically converted into Ordinary Shares of
the Company under certain circumstances. The debentures will bear
interest at the rate of 5% per annum. Principal, together with accrued
interest, is payable in one installment in 2011.
The rights are expected to be listed for trading for a single day on
the NASDAQ Small Cap 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 $24,500 in the framework of the
rights offering.
The payment of the principal and the interest on the debentures is
subordinated to the prior payment of all amounts payable by the
Company to the Banks under the Facility Agreement. The debentures are
also 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, subject to shareholders approval.
- 17 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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 June 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 June 30, 2005, $16,953 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 June 30, 2005, an amount of $15,306 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 June
30, 2005 would have resulted in: an increase in other long-term
investments in the amount of $878; an increase in other long-term
liabilities in the amount of $1,299; a decrease in other comprehensive
loss for the six months ended June 30, 2005 in the net amount of
$2,649; an accumulated other comprehensive loss component of equity
balance as of June 30, 2005 in the amount of $ 4,406; and in a
decrease of $3,955 in property and equipment, net as of June 30, 2005.
- 18 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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 June 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:
Six months ended Three months ended
-------------------------- --------------------------
June 30, June 30,
-------------------------- --------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(unaudited) (unaudited)
PRO FORMA LOSS
Loss for the period, as reported
according to U.S. GAAP
(see G below) $(102,560) $ (75,023) $ (47,240) $ (36,532)
Add - stock-based compensation
determined under SFAS 123 (1,850) (2,322) (758) (991)
--------- --------- --------- ---------
Pro forma loss $(104,410) $ (77,345) $ (47,998) $ (37,523)
========= ========= ========= =========
BASIC LOSS PER SHARE
As reported according to U.S.
GAAP (see I below) $ (1.56) $ (1.18) $ (0.71) $ (0.56)
========= ========= ========= =========
Pro forma $ (1.58) $ (1.22) $ (0.73) $ (0.57)
========= ========= ========= =========
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 June 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.
- 19 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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 JUNE 30, 2005 AS OF DECEMBER 31, 2004
----------------------------------- -----------------------------------
U.S. AS PER AS PER AS PER AS PER
GAAP ISRAELI ADJUST- U.S. ISRAELI ADJUST- U.S.
REMARK GAAP MENTS GAAP GAAP MENTS GAAP
----- --------- --------- --------- --------- --------- ---------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 23,459 $ $ 23,459 $ 27,664 $ $ 27,664
DESIGNATED CASH AND SHORT-TERM
INTEREST-BEARING DEPOITS A 16,953 (16,953) -- 53,793 (53,793) --
TRADE ACCOUNTS RECEIVABLE 10,853 10,853 19,286 19,286
OTHER RECEIVABLES 8,862 8,862 11,365 11,365
INVENTORIES 17,058 17,058 25,669 25,669
OTHER CURRENT ASSETS 1,310 1,310 1,818 1,818
--------- --------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 78,495 (16,953) 61,542 139,595 (53,793) 85,802
--------- --------- --------- --------- --------- ---------
LONG-TERM INVESTMENTS
LONG-TERM INTEREST-BEARING DEPOSITS
DESIGNATED FOR FAB 2 OPERATIONS A -- -- -- 5,134 (5,134) --
OTHER LONG-TERM INVESTMENTS B, C -- 16,184 16,184 -- 16,350 16,350
--------- --------- --------- --------- --------- ---------
-- 16,184 16,184 5,134 11,216 16,350
--------- --------- --------- --------- --------- ---------
PROPERTY AND EQUIPMENT, NET C 562,962 (3,955) 559,007 609,296 (4,619) 604,677
--------- --------- --------- --------- --------- ---------
DESIGNATED CASH AND SHORT-TERM AND
LONG-TERM INTEREST-BEARING DEPOSITS A -- 16,953 16,953 -- 58,927 58,927
--------- --------- --------- --------- --------- ---------
OTHER ASSETS, NET E 86,519 (196) 86,323 93,483 (196) 93,287
========= ========= ========= ========= ========= =========
TOTAL ASSETS $ 727,976 $ 12,033 $ 740,009 $ 847,508 $ 11,535 $ 859,043
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
TRADE ACCOUNTS PAYABLE $ 59,640 $ $ 59,640 $ 65,326 $ $ 65,326
CURRENT MATURITIES OF CONVERTIBLE
DEBENTURES E 6,331 (640) 5,691 -- --
OTHER CURRENT LIABILITIES 8,467 8,467 10,678 10,678
--------- --------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 74,438 (640) 73,798 76,004 76,004
LONG-TERM DEBT 497,000 497,000 497,000 497,000
CONVERTIBLE DEBENTURES E 18,992 (1,919) 17,073 26,651 (2,559) 24,092
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 62,007 62,007 64,428 64,428
OTHER LONG-TERM LIABILITIES B, C 9,175 16,605 25,780 15,445 18,756 34,201
--------- --------- --------- --------- --------- ---------
TOTAL LIABILITIES 661,612 14,046 675,658 679,528 16,197 695,725
--------- --------- --------- --------- --------- ---------
SHAREHOLDERS' EQUITY
ORDINARY SHARES, NIS 1.00 PAR VALUE -
AUTHORIZED 250,000,000 SHARES; ISSUED
67,586,187 AND 66,999,796 SHARES,
RESPECTIVELY 16,408 16,408 16,274 16,274
ADDITIONAL PAID-IN CAPITAL E 518,286 2,363 520,649 517,476 2,363 519,839
SHAREHOLDER RECEIVABLES (26) (26) (26) (26)
ACCUMULATED OTHER COMPREHENSIVE LOSS C -- (4,406) (4,406) -- (7,055) (7,055)
ACCUMULATED DEFICIT (459,232) 30 (459,202) (356,672) 30 (356,642)
--------- --------- --------- --------- --------- ---------
75,436 (2,013) 73,423 177,052 (4,662) 172,390
TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072) (9,072)
--------- --------- --------- --------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 66,364 (2,013) 64,351 167,980 (4,662) 163,318
========= ========= ========= ========= ========= =========
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 727,976 $ 12,033 $ 740,009 $ 847,508 $ 11,535 $ 859,043
========= ========= ========= ========= ========= =========
- 20 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 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
six-month and three-month periods ended June 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:
Six months ended Three months ended
-------------------------- --------------------------
June 30, June 30,
-------------------------- --------------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(unaudited) (unaudited)
Loss for the period, according
to U.S. GAAP (see G above) $(102,560) $ (75,023) $ (47,240) $ (36,532)
Other comprehensive loss:
Reclassification of unrealized
losses on derivatives 664 664 332 332
Unrealized gains (losses) on
derivatives 1,985 5,917 (852) 6,705
--------- --------- --------- ---------
Net comprehensive loss
for the period $ (99,911) $ (68,442) $ (47,760) $ (29,495)
========= ========= ========= =========
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 six-month and three-month
periods ended June 30, 2005 would be $1.56 and $0.71, respectively
(during the corresponding periods - $1.18 and $0.56, respectively).
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