FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the month of May 2003
TOWER SEMICONDUCTOR LTD.
(Translation of registrant's name into English)
P.O. Box 619, Migdal Haemek, Israel 10556
(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 4, 2003, the Registrant announced its financial results for the
three months ended March 31, 2003. Attached hereto are the Registrant's
unaudited condensed interim financial statements as of March 31, 2003 and for
the three month period then ended.
This Form 6-K is being incorporated by reference into all effective
registration statements filed by us under the Securities Act of 1933.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER SEMICONDUCTOR LTD.
Date: May 4, 2003 By: /s/ Tamar Cohen
------------------------------------
Name: Tamar Cohen
Title: Corporate Secretary
NEWS RELEASE
TOWER SEMICONDUCTOR LTD. ANNOUNCES
FIRST QUARTER 2003 RESULTS
o FAB 1: STRONG FIRST 2003 QUARTER.
o FAB 2: FIRST PRODUCTION ORDERS RECEIVED.
MIGDAL HAEMEK, ISRAEL-- MAY 4, 2003-- Tower Semiconductor Ltd. (NASDAQ: TSEM;
TASE: TSEM) today announced results for the first quarter ended March 31, 2003.
Sales for the first quarter of 2003 were $12.6 million, an increase of 50% over
sales of $8.4 million in the first quarter of 2002. This represents an increase
of 9% over sales from operations in the prior quarter, when sales from
operations were $11.6 million (the company recognized in the prior quarter an
additional $4.0 million in revenue from a technology agreement). Total first
quarter loss was $14.4 million, or $0.33 per share, including non-capitalized
Fab 2 expenses (net) of $12.6 million, compared to a loss of $13.6 million, or
$0.33 per share, including non-capitalized Fab 2 expenses (net) of $10.8
million, for the fourth quarter of 2002 and compared with a loss of $12.0
million, or $0.47 per share, including non-capitalized Fab 2 expenses (net) of
$6.4 million, for the first quarter of 2002.
Fab 1 operating results improved in the first quarter of 2003 due to both better
unit sales and higher average selling price. Orders for Fab 1 increased relative
to the prior quarter, and the Company anticipates Fab 1 sales in the second
quarter of 2003 to continue to increase modestly over their Q1 2003 level. Tower
expects to continue to generate positive operating cash flow from Fab 1
operations.
Important advances were made in Tower's new flagship Fab 2 facility, for the
production of devices at 0.18-micron and below. In addition to successful
manufacturing of new prototypes for customers, the Company has received early
orders for volume production from two of its wafer partners. Tower continues the
installation of new equipment to ramp up production in Fab 2.
"We are very pleased by the strides that we made in the first quarter of 2003.
Both of our fabs performed well, strengthening our current position and laying
the groundwork for future growth. In the second quarter Fab 2 is entering
commercial 0.18 micron production with first volume customers orders," said Dr.
Yoav Nissan-Cohen, co-CEO, Tower Semiconductor.
Dr. Yoav Nissan-Cohen added: "We are proud that in the first quarter we were
honored by Motorola with Gold Performance Excellence Award, for the fourth
consecutive year. This award is another indication to Tower's position as a
quality leader in the foundry industry."
-MORE-
TOWER SEMICONDUCTOR LTD. ANNOUNCES FIRST QUARTER OF 2003 RESULTS
PAGE 2 OF 2
Tower continues to negotiate with its banks to amend its credit facility
agreement to reflect the company's previously announced amendments to agreements
with its major wafer and equity partners, related to their fifth milestone
investments and changes to the Company's Fab 2 plan, which reflect current
conditions in the semiconductor market and the world economy.
Tower will host a conference call to discuss these results on Monday, May 5,
2003 at 11:00 a.m. Eastern time / 18:00 Israel time. To participate, call
1-800-915-4836 (U.S. toll-free number) or 1-973-317-5319 (international) and
mention ID code: TOWER. Callers in Israel are invited to call local 03-925-5910.
The conference call also will be webcast live at www.companyboardroom.com and at
www.towersemi.com and will be available thereafter on both Web sites for replay
for 90 days, starting at 2:00 p.m. Eastern time on the day of the call.
ABOUT TOWER SEMICONDUCTOR LTD.
Tower Semiconductor Ltd. is a pure-play independent wafer foundry established in
1993. The company manufactures integrated circuits with geometries ranging from
1.0 to 0.18 microns; it also provides complementary manufacturing services and
design support. In addition to digital CMOS process technology, Tower offers
advanced non-volatile memory solutions, mixed-signal and CMOS image-sensor
technologies. To provide world-class customer service, the company maintains two
manufacturing facilities: Fab 1 has process technologies from 1.0 to 0.35
microns and can produce up to 20,000 150mm wafers per month. Fab 2 features
0.18-micron and below process technologies, including foundry-standard
technology, and will offer full production capacity of 33,000 200mm wafers per
month. The Tower Web site is located at www.towersemi.com.
SAFE HARBOR
This press release includes forward-looking statements, which are
subject to risks and uncertainties. Our actual results may vary from those
projected or implied by such forward-looking statements. Potential risks and
uncertainties include, without limitation, risks and uncertainties associated
with (i) obtaining required approvals of our shareholders and our banks to the
amendment to the Fab 2 investment agreements, (ii) our need to renegotiate our
Fab 2 credit facility to extend the deadlines by which were and are required to
raise additional financing in 2002 and 2003 and meet the fifth and sixth
milestones, which, in the absence of a renegotiated agreement, would result in
an event of default under the credit facility in which event the banks would
have the right to call our loans and exercise their liens against our assets,
(iii) the review of our Fab 2 plan currently being conducted by a leading
consulting company engaged by the Company which may affect the renegotiation of
the terms of the credit facility, (iv) the possible claim by our wafer partners,
financial investors and the Investment Center of the State of Israel of a breach
of and suspension of performance under our agreements if an event of default
should be declared under the credit facility, (v) raising at least $22 million
of additional funding for Fab 2 before the end of 2003, which is a condition to
completion of the fifth milestone investment by our major wafer and equity
partners, (vi) our ability to obtain additional financing for the Fab 2 project
TOWER SEMICONDUCTOR LTD. ANNOUNCES FIRST QUARTER OF 2003 RESULTS
PAGE 3 OF 3
from equity and/or wafer partners, the Israeli Investment Center, our banks,
and/or other sources, as required under the Fab 2 business plan and pursuant to
our agreements with our wafer and equity partners, banks and the Israeli
Investment Center (vii) our satisfaction of all other conditions under our
agreements with our Fab 2 equity and wafer partners, the Israeli Investment
Center and our banks, (viii) obtaining the approval of the Israeli Investment
Center of amendments to our modified business plan, (ix) ramp-up of production
at Fab 2, (x) completion of the development and/or transfer of advanced process
technologies to be utilized in our existing facility and in Fab 2, (xi) market
acceptance and competitiveness of the products to be manufactured by us for
customers using these technologies, (xii) obtaining additional business from new
and existing customers (xiii) conditions in the market for foundry manufacturing
services and in the market for semiconductor products generally and (xiv)
possible loss of our exclusive foundry license with Saifun if we fail to meet
certain sales levels and other conditions. A more complete discussion of risks
and uncertainties that may affect the accuracy of forward-looking statements
included in this press release or which may otherwise affect our business is
included at "Risk Factors" in our most recent Annual Report on Form 20-F, as
filed with the Securities and Exchange Commission and the Israel Securities
Authority.
# # #
PR Agency Contact Investor Relations Contact Corporate Contact
JULIE LASS SHELDON LUTCH TAMAR COHEN
Loomis Group Fusion IR & Communications Tower Semiconductor Ltd.
+1 (713) 526 3737 +1 (212) 268 1816 +972-4650-6998
lassj@loomisgroup.com sheldon@fusionir.com pr@towersemi.com
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data and per share data)
THREE MONTHS ENDED
March 31,
---------------------------
2003 2002
----------- -----------
SALES $ 12,592 $ 8,420
COST OF SALES (1) 17,934 13,394
----------- -----------
GROSS LOSS (5,342) (4,974)
........... ...........
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT (2) 3,857 2,972
MARKETING, GENERAL AND ADMINISTRATIVE (3) 5,644 3,419
----------- -----------
9,501 6,391
........... ...........
----------- -----------
OPERATING LOSS (14,843) (11,365)
FINANCING INCOME (EXPENSE), NET (4) 493 (649)
----------- -----------
LOSS FOR THE PERIOD $ (14,350) $ (12,014)
=========== ===========
BASIC LOSS PER ORDINARY SHARE
loss per share (5) $ (0.33) $ (0.47)
=========== ===========
Weighted average number of ordinary
SHARES OUTSTANDING - IN THOUSANDS 43,436 25,293
=========== ===========
(1)Cost of sales for the three months ended March 31, 2003 and March 31,
2002 includes $5.0M and $1.2M of non-capitalized expenses relating to
Fab 2, respectively.
(2)Research and development expenses for the three months ended March 31,
2003 and March 31, 2002 include $3.7M and $2.7M of non-capitalized
expenses relating to Fab 2, respectively.
(3)Marketing, general and administrative expenses for the three months ended
March 31, 2003 and March 31, 2002 include $4.5M and $2.1M of
non-capitalized expenses relating to Fab 2, respectively.
(4)Financing income (expense), net for the three months ended March 31, 2003
includes $0.6M of non- capitalized financing income, net relating to
Fab2. Financing income (expense), net for the three months ended March
31, 2002 includes $(0.4M) of non-capitalized financing expenses, net
relating to Fab 2.
(5)Basic and diluted loss per share in accordance with U.S. GAAP would be
$(0.33) and $(0.47) for the three months ended March 31, 2003 and March
31, 2002, respectively .
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data and per share data)
MARCH 31, DECEMBER 31,
-------------- ---------------
2003 2002
-------------- -------------
A S S E T S
CURRENT ASSETS
Cash and cash equivalents $ 12,150 $ 7,857
Short-term interest-bearing deposits 9,000 10,500
Cash and short-term interest-bearing deposits
designated for investments relating to Fab 2 21,924 51,338
Trade accounts receivable (net of allowance for
doubtful accounts of $125 and $155, respectively) 6,700 7,456
Other receivables 24,558 21,322
Inventories 10,765 10,201
Other current assets 1,710 1,407
---------- ----------
Total current assets 86,807 110,081
.......... ..........
LONG-TERM INVESTMENTS
Long-term interest-bearing deposits
designated for investments relating to Fab 2 12,056 11,893
Other long-term investments 6,000 6,000
---------- ----------
18,056 17,893
.......... ..........
PROPERTY AND EQUIPMENT, NET 527,486 493,074
.......... ..........
OTHER ASSETS 105,718 95,213
.......... ..........
---------- ----------
TOTAL ASSETS $ 738,067 $ 716,261
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 4,000 $ 4,000
Trade accounts payable 82,902 76,083
Other current liabilities 7,583 8,071
---------- ----------
Total Current liabilities 94,485 88,154
LONG-TERM DEBT 282,000 253,000
CONVERTIBLE DEBENTURES 24,505 24,121
OTHER LONG-TERM LIABILITIES 5,749 5,406
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 47,246 47,246
---------- ----------
Total liabilities 453,985 417,927
.......... ..........
SHAREHOLDERS' EQUITY
Ordinary shares, NIS 1 par value - authorized
70,000,000 shares; issued 44,735,532 shares 11,294 11,294
Additional paid-in capital 400,887 400,808
Shareholder receivables and unearned compensation (34) (53)
Accumulated deficit (118,993) (104,643)
---------- ----------
293,154 307,406
Treasury stock, at cost - 1,300,000 shares (9,072) (9,072)
---------- ----------
Total shareholders' equity 284,082 298,334
.......... ..........
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 738,067 $ 716,261
========== ==========
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
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 6-14
The Board of Directors
Tower Semiconductor Ltd.
Migdal Ha'emek
--------------
Gentlemen:
Re: REVIEW OF UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2003
------------------------------------------------------
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, 2003.
- Statement of operations for the three months ended March 31, 2003.
- Statement of changes in shareholders' equity for the three months ended
March 31, 2003.
- Statement of cash flows for the three months ended March 31, 2003.
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 application of the latter would have affected the determination
of the financial position and results of operations as of the dates and for
the periods presented to the extent summarized in Note 5.
Respectfully submitted,
Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
May 1, 2003
1
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data and per share data)
MARCH 31, DECEMBER 31,
--------------- -----------------
2003 2002
--------------- ---------------
(UNAUDITED)
A S S E T S
CURRENT ASSETS
Cash and cash equivalents $ 12,150 $ 7,857
Short-term interest-bearing deposits 9,000 10,500
Cash and short-term interest-bearing deposits
designated for investments relating to Fab 2 21,924 51,338
Trade accounts receivable (net of allowance for
doubtful accounts of $125 and $155, respectively) 6,700 7,456
Other receivables 24,558 21,322
Inventories 10,765 10,201
Other current assets 1,710 1,407
----------- -----------
Total current assets 86,807 110,081
........... ...........
LONG-TERM INVESTMENTS
Long-term interest-bearing deposits
designated for investments relating to Fab 2 12,056 11,893
Other long-term investments 6,000 6,000
-----------
-----------
18,056 17,893
........... ...........
PROPERTY AND EQUIPMENT, NET 527,486 493,074
........... ...........
OTHER ASSETS 105,718 95,213
........... ...........
----------- -----------
TOTAL ASSETS $ 738,067 $ 716,261
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 4,000 $ 4,000
Trade accounts payable 82,902 76,083
Other current liabilities 7,583 8,071
----------- -----------
Total current liabilities 94,485 88,154
LONG-TERM DEBT 282,000 253,000
CONVERTIBLE DEBENTURES 24,505 24,121
OTHER LONG-TERM LIABILITIES 5,749 5,406
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 47,246 47,246
----------- -----------
Total liabilities 453,985 417,927
........... ...........
SHAREHOLDERS' EQUITY
Ordinary shares, NIS 1 par value - authorized
70,000,000 shares; issued 44,735,532 shares 11,294 11,294
Additional paid-in capital 400,887 400,808
Shareholder receivables and unearned compensation (34) (53)
Accumulated deficit (118,993) (104,643)
----------- -----------
293,154 307,406
Treasury stock, at cost - 1,300,000 shares (9,072) (9,072)
----------- -----------
Total shareholders' equity 284,082 298,334
........... ...........
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 738,067 $ 716,261
=========== ===========
SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS.
2
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except share data and per share data)
THREE MONTHS ENDED
March 31,
-----------------------------
2003 2002
------------ -----------
SALES $ 12,592 $ 8,420
COST OF SALES 17,934 13,394
------------ -----------
GROSS LOSS (5,342) (4,974)
............ ...........
OPERATING COSTS AND EXPENSES
Research and development 3,857 2,972
Marketing, general and administrative 5,644 3,419
------------ -----------
9,501 6,391
............ ...........
------------ -----------
OPERATING LOSS (14,843) (11,365)
FINANCING INCOME (EXPENSE), NET 493 (649)
------------ -----------
LOSS FOR THE PERIOD $ (14,350) $ (12,014)
============ ===========
BASIC LOSS PER ORDINARY SHARE
Loss per share $ (0.33) $ (0.47)
============ ===========
Loss used to compute
basic loss per share $ (14,350) $ (12,014)
============ ===========
Weighted average number of ordinary
shares outstanding - in thousands 43,436 25,293
============ ===========
See notes to condensed interim consolidated financial statements.
3
TOWER SEMICONDUCTOR LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(dollars in thousands, except share data and per share data)
Shareholder
receivables
Ordinary shares Additional and
----------------------- paid-in unearned Accumulated Treasury
Shares Amount capital compensation deficit stock Total
------------ -------- --------------------------------------- ---------- -----------
BALANCE - JANUARY 1, 2003 44,735,532 $ 11,294 $ 400,808 $ (53) $ (104,643) $ (9,072)$ 298,334
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 44,735,532 $ 11,294 $ 400,887 $ (34) $ (118,993) $ (9,072)$ 284,082
============ ======== =========== ========= ============= ========== ===========
See notes to condensed interim consolidated financial statements.
4
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands, except share data and per share data)
THREE MONTHS ENDED
March 31,
---------------------------
2003 2002
------------ -----------
CASH FLOWS - OPERATING ACTIVITIES
LOSS FOR THE PERIOD $ (14,350) $ (12,014)
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 4,664 4,710
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable 756 (793)
Decrease (increase) in other receivables and other current assets (2,547) 695
Decrease (increase) in inventories (44) 500
Increase (decrease) in trade accounts payable 3,409 (213)
Increase (decrease) in other current liabilities (508) 95
Increase in other long-term liabilities 343 907
------------ -----------
Net cash used in operating activities (8,277) (6,113)
............ ...........
CASH FLOWS - INVESTING ACTIVITIES
Decrease (increase) in cash, short-term and long term interest-bearing
Deposits designated for investments relating to Fab 2 29,251 (27,823)
Investments in property and equipment (48,026) (55,426)
Investment grants received 6,720 10,173
Investments in other assets (5,760) (6,019)
Decrease in deposits, net 1,500 33
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (16,315) (79,062)
............ ...........
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from (costs related to) issuance of shares, net (115) 1,928
Repayment of long-term debt (1,000) (1,000)
Proceeds from long-term debt 30,000 60,000
Proceeds from sale of securities, net -- 21,654
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 28,885 82,582
............ ...........
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,293 (2,593)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 7,857 19,610
------------ -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 12,150 $ 17,017
============ ===========
NON-CASH ACTIVITIES
Investments in property and equipment $ 27,209 $ 18,737
============ ===========
Investments in other assets $ 5,606 $ 1,672
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 4,417 $ 2,167
============ ===========
Cash paid during the period for income taxes $ 53 $ 8
============ ===========
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, 2003
(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, 2003 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, 2002 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 as
of the dates 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, are
identical in all material respects to GAAP in the United States
of America ("U.S. GAAP"), except 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 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
millimeters wafers. The Company entered into several related
agreements and arrangements in connection with Fab 2, including
agreements and other arrangements with technology and Wafer
Partners, equity investors, the Company's Banks, the government
of Israel and others to provide an aggregate of $1,146,000 of
financing Fab 2. The Fab 2 project is a complex undertaking,
which entails substantial risks and uncertainties. For further
details concerning such agreements, risks and uncertainties, see
Note 3 below and Note 13A to the 2002 audited consolidated
financial statements. For details concerning non-capitalizable
expenses and cash flows used in operating activities relating to
Fab 2, see Note 3E below.
6
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(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,
2003 2002
---- ----
(unaudited)
Customer A 23 % 5 %
Customer B 22 31
Customer C 21 13
Customer D 5 10
Other customers (*) 15 22
(*) Represents sales to four different customers each of whom
accounted for between 3% and 6% of sales during the three months
ended March 31, 2003, and to four customers (5%-7%) during the
three months ended March 31, 2002.
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2
A. AMENDMENTS TO THE PRIMARY WAFER PARTNER AND EQUITY INVESTOR
AGREEMENTS
In February 2003, the Company's primary Wafer Partners and its
Equity Investors entered into amendments to their agreements with
the Company, pursuant to which the primary Wafer Partners and the
Equity Investors agreed to advance their fifth milestone
installment payment, in the aggregate amount of $41,069,
regardless of its achievement. Of that amount, $24,641 shall be
paid within five working days from obtaining all the approvals
for the amendments as outlined below, and the remaining $16,428
shall be paid subject to obtaining all the approvals as outlined
below and to raising by the Company of an aggregate of $22,000
(which under certain circumstances, may increase up to $26,000)
(the "Additional Raising Amount") from specified financial
sources, no later than December 31, 2003. Under certain
circumstances, primarily the Banks' agreement to provide the
Company with interim funding in the amount of $33,000 and that
the Investment Center has not informed the Company that it is not
continuing its funding of the Fab 2 project, and subject to the
approval of the Company's shareholders, the primary Wafer
Partners and Equity Investors agreed to advance an aggregate
amount of $13,300 up to $15,800 of the $24,641 first installment.
In consideration for their investments, for the first installment
the primary Wafer Partners and the Equity Investors will be
issued fully-paid Ordinary Shares of the Company, based on the
average closing sale price of the Company's Ordinary Shares for
the 30 trading days prior to the date the Company's Board of
Directors approved the amendments ($2.983 per share), and for the
second installment, based on the price at which the Company
raises the Additional Raising Amount from specified financial
sources.
7
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(dollars in thousands, except share data and per share data)
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
A. AMENDMENTS TO THE PRIMARY WAFER PARTNER AND EQUITY INVESTOR
AGREEMENTS (cont.)
Pursuant to the abovementioned amendments, the Company granted
the primary Wafer Partners an option to convert an aggregate of
up to $13,201 of the unutilized long-term customers' advances,
which they may have as of December 31, 2005, into fully-paid
Ordinary Shares of the Company, the amount of which shall be
determined based on the average closing sale price of the
Company's Ordinary Shares for the 30 trading days prior to such
date. The option is exercisable during January 2006. In case such
conversion occurs, and provided that the amount of shares issued
is equivalent to or greater than 5% of the Company's outstanding
share capital as of the conversion date, the Company undertook to
offer to all of its other shareholders rights to purchase shares
of the Company at the same price per share.
Under the Fab 2 investment agreements, the fifth and last
milestone towards the Wafer Partners and Equity Investors is to
be achieved by mid-July 2003, when taking into account a seven
and a half month grace period. Based on the current plan for Fab
2, the fifth milestone will not be achieved by its prescribed
completion date. As stated above, subject to obtaining all the
approvals for the amendments as outlined below, the Wafer
Partners and Equity Investors agreed to waive the achievement of
the fifth milestone.
As part of the Wafer Partner and Equity Investor investment
agreements, the Company undertook to raise a cumulative total of
$50,000 from new wafer partners by March 31, 2003. In the
framework of the amendments described above, and subject to
obtaining all the approvals as outlined below, the primary Wafer
Partners and Equity Investors have agreed to waive the
requirement to raise that amount.
The abovementioned amendments are subject to the approval of the
Company's shareholders, Banks and other regulatory bodies (as of
the approval date of the interim financial statements, the
approval of these regulatory bodies has been obtained); to that
the Investment Center shall not have informed the Company that it
is not continuing its funding of the Fab 2 project; and to the
receipt of the consent of the Banks to the amendments to the
Facility Agreement, as outlined in B below.
8
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(dollars in thousands, except share data and per share data)
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
B. AMENDMENTS TO THE FAB 2 FACILITY AGREEMENT
According to the Facility Agreement with the Banks, as amended
during 2002, the Company is obligated to raise $144,000 from
specified financial sources, other than the already committed
funds by the Wafer Partners and Equity Investors, as follows: by
the end of 2002, an aggregate of $110,000 and by the end of 2003,
an aggregate of $144,000. In the fourth quarter of 2002, the
Company submitted a request to the Banks for amending the
Facility Agreement by deferring the raising dates to be as
follows: by the end of 2002, an aggregate of $84,000; by the end
of March 2003, an aggregate of $110,000; and during 2004, an
aggregate of $144,000. The Company further requested that should
the primary Wafer Partners and Equity Investors make the first
installment payment of $24,641 described in A above, this
advanced amount will postpone the raising date of the aggregate
$110,000 funding milestone. Due to the length of time in which
the discussions with the Banks are held, the Company intends to
update these raising dates and request to further defer them.
During the negotiation period, the Banks have limited the full
amount which the Company may drawdown pursuant to the Facility
Agreement. Based on discussions held subsequent to the
balance-sheet date with the Banks, management estimates that
obtaining such deferrals is probable. According to the Facility
Agreement, raising these amounts by the dates stated is a
material provision.
According to the Facility Agreement, the Company is obligated to
comply with certain financial ratios, primarily total
shareholders' equity to total assets, and substantial additional
covenants in connection with the establishment of Fab 2 as
stipulated in such agreement, primarily production and capacity
milestones. As of March 31, 2003, the Company was in full
compliance with the existing financial ratios and covenants,
except for raising an amount of $24,000 from specified financial
sources by December 31, 2002 as provided by the Facility
Agreement with the Banks. The Company believes these financial
ratios will be revised according to the updated plan for the
construction of Fab 2, which is currently being reviewed by the
Banks and a world leading first-tier consulting firm. For a
request submitted by the Company in this regard, see the previous
paragraph.
Under the Fab 2 Facility Agreement, the remaining two milestones
towards the Banks (the fifth and the sixth milestones) are to be
achieved by mid-July 2003 and April 2004, respectively, when
taking into account a seven and a half month grace period. Based
on the current plan for Fab 2, these milestones will not be
achieved by their prescribed completion dates, which are expected
to be revised according to the updated plan.
9
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(dollars in thousands, except share data and per share data)
NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
C. 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, a date in which a five-year period from obtaining the
approval certificate terminates. 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 through 2005. The Company has notified the
Investment Center of its revised investment schedule, 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's
revised investments plan is currently being evaluated by the
Investment Center. In addition, Israeli law currently limits the
ability of the Investment Center to extend the investment period
over five years. However, based on discussions held with the
Investment Center, management estimates that obtaining
arrangements with the Investment Center is probable.
D. OTHER AGREEMENTS
Through March 31, 2003 the Company had entered into several
additional agreements related mainly to the construction,
equipping and transfer of technology for Fab 2. The Company's
aggregate commitment in connection with these agreements as of
such date, including the Fab 2 construction agreement, amounted
to $110,979.
E. NON-CAPITALIZABLE EXPENSES AND OPERATING ACTIVITIES CASH FLOWS IN
CONNECTION WITH FAB 2
In connection with establishing Fab 2, the Company incurred
during the three-month period ended March 31, 2003
non-capitalizable expenses in the amount of $9,489, of which
$5,027 was included in cost of sales and $4,462 was included in
marketing, general and administrative (during the corresponding
period - $3,351, $1,205 and $2,146, respectively).
Net cash used in operating activities during the three-month
period ended March 31, 2003 was $8,277. That amount includes net
cash out flows in the amount of $12,195 attributable to the
establishing of Fab 2 (during the corresponding period - $6,113
and $5,580, respectively).
10
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(dollars in thousands, except share data and per share data)
NOTE 4 - OTHER RECENT DEVELOPMENTS
SHARE OPTION PLANS
In the framework of the Company's Board of Directors resolution to
increase the total number of options available for grant under all the
Company's share option plans by an amount equal, in general, to 4% of
the outstanding Ordinary Shares of the Company at the beginning of
each year, 1,737,421 options were added to the Company's share option
plans. Of that amount no options were granted to employees during the
three-month period ended March 31, 2003.
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP
With regard to the Company's interim financial statements, the
material differences between GAAP in Israel and in the U.S. relate to
the following. See F below for the presentation of the Company's
unaudited balance sheet as of March 31, 2003 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, 2003 $21,924 and $12,056 were
reclassified, respectively, from current assets and long-term
investments to a long-term asset (as of December 31, 2002 -
$51,338 and $11,893, 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. Accordingly, an amount of $12,958 was reclassified from
other long-term liabilities to long-term investments.
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, 2003 would have resulted in: an
increase in the Company's current liabilities in the amount of
$278; an increase in other long-term liabilities in the amount of
$13,231; an increase in other comprehensive loss for the three
months ended March 31, 2003 in the net amount of $1,747 and in
the accumulated other comprehensive loss component of equity as
of such date in the amount of $19,584; and in a decrease of
$6,045 in property and equipment, net as of March 31, 2003.
11
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(dollars in thousands, except share data and per share data)
NOTE 5 - 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 of the awards
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,
-----------------------------------
2003 2002
---------------- -----------------
(unaudited)
PRO FORMA LOSS
Loss for the year, as reported $ (14,350) $ (12,014)
Less - stock-based compensation
determined under APB-25 19 52
Add - stock-based compensation
determined under SFAS 123 (1,611) (2,212)
---------------- -----------------
Pro forma loss $ (15,942) $ (14,174)
================ =================
PRO FORMA BASIC LOSS PER SHARE
As reported $ (0.33) $ (0.47)
================ =================
Pro forma $ (0.37) $ (0.56)
================ =================
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, 2003 and December
31, 2002 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 the U.S. GAAP application on the convertible
debentures' discount amortization for the three-month
period ended March 31, 2003 is immaterial.
12
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(dollars in thousands, except share data and per share data)
NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
F. BALANCE SHEET IN ACCORDANCE WITH U.S. GAAP
Following are the condensed consolidated balance sheets in
accordance with U.S. GAAP:
March 31, December 31,
2003 2002
---- ----
(unaudited)
Current assets $ 64,883 $ 58,743
Long-term investments 18,958 18,368
Property and equipment, net 521,441 487,347
Other assets 105,522 95,017
Cash, short-term and long-term interest-
bearing deposits designated for
investments relating to Fab 2 33,980 63,231
------------ -----------
Total assets 744,784 722,706
============ ===========
Current liabilities 94,763 88,282
Long-term debt 282,000 253,000
Convertible debentures 21,946 21,562
Long-term liability
in respect of customers' advances 47,246 47,246
Other long-term liabilities 31,938 29,726
Shareholders' equity (*) 266,891 282,890
------------ -----------
Total liabilities and shareholders' equity $744,784 $722,706
============ ===========
(*) The balance as of March 31, 2003 includes
accumulated other comprehensive loss of $19,584
and net proceeds on account of options (Series 1)
in the amount of $2,363 - see also E above (as of
December 31, 2002 - $17,837 and $2,363,
respectively).
13
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2003
(dollars in thousands, except share data and per share data)
NOTE 5 - 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 resulted in a material change in the
Company's loss for the three-month periods ended March 31, 2003
and 2002.
H. 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
three-month periods ended March 31, 2003 and 2002 would be $0.33
and $0.47, respectively.
14