FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the month of October 2002 (No. 2)
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 October 30, 2002, the Registrant announced its financial results for the
three months and nine months ended September 30, 2002. Attached hereto are the
Registrant's unaudited condensed interim financial statements as of September
30, 2002 and for the three month and nine month periods 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.
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2002
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 6-15
The Board of Directors
Tower Semiconductor Ltd.
Migdal Ha'emek
---------------
Gentlemen:
Re: Review of Unaudited Condensed Interim
Consolidated Financial Statements as of September 30, 2002
-----------------------------------------------------------
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 September 30, 2002.
- Statements of operations for the nine months and three months ended
September 30, 2002.
- Statement of changes in shareholders' equity for the nine months ended
September 30, 2002.
- Statement of cash flows for the nine months ended September 30, 2002.
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 shareholders' equity and financial position as of September 30, 2002 to the
extent summarized in Note 6.
Respectfully submitted,
Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
October 30, 2002
1
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data and per share data)
September 30, December 31,
--------------- ---------------
2002 2001
--------------- ---------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,046 $ 19,610
Short-term interest-bearing deposits 11,500 10,044
Cash and short-term interest-bearing deposits
designated for investments relating to Fab 2 34,743 3,548
Trade accounts receivable (net of allowance for
doubtful accounts of $250 and $215, respectively) 5,082 3,321
Other receivables 21,338 21,250
Inventories 10,085 8,428
Other current assets 2,030 1,219
--------- ---------
Total current assets 91,824 67,420
--------- ---------
LONG-TERM INVESTMENTS
Long-term interest-bearing deposits
designated for investments relating to Fab 2 11,544 --
Other long-term investment 6,000 6,000
--------- ---------
17,544 6,000
--------- ---------
PROPERTY AND EQUIPMENT, NET 435,485 340,724
--------- ---------
OTHER ASSETS 84,913 57,910
--------- ---------
TOTAL ASSETS $ 629,766 $ 472,054
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 4,000 $ 14,000
Trade accounts payable 54,559 64,484
Other current liabilities 8,819 5,271
--------- ---------
Total current liabilities 67,378 83,755
LONG-TERM DEBT 254,000 115,000
CONVERTIBLE DEBENTURES 23,369 --
LONG-TERM LIABILITY IN RESPECT
OF CUSTOMERS' ADVANCES 32,578 17,910
OTHER LONG-TERM LIABILITIES 5,332 2,584
--------- ---------
Total liabilities 382,657 219,249
--------- ---------
SHAREHOLDERS' EQUITY
Ordinary shares, NIS 1 par value - authorized
70,000,000 shares; issued 31,511,228 and
26,297,102 shares, respectively 8,537 7,448
Additional paid-in capital 338,777 307,865
Shareholder receivables and unearned compensation (74) (195)
Accumulated deficit (91,059) (53,241)
--------- ---------
256,181 261,877
Treasury stock, at cost - 1,300,000 shares (9,072) (9,072)
--------- ---------
Total shareholders' equity 247,109 252,805
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 629,766 $ 472,054
========= =========
See notes to condensed interim consolidated financial statements.
2
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except share data and per share data)
Nine months ended Three months ended
September 30, September 30,
----------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
SALES $ 36,229 $ 43,539 $ 16,187 $ 9,913
COST OF SALES 49,956 62,126 21,078 18,124
------ ------ ------ ------
GROSS LOSS (13,727) (18,587) (4,891) (8,211)
------- ------- ------ ------
OPERATING COSTS AND EXPENSES
Research and development 10,184 6,843 3,642 2,419
Marketing, general and administrative 11,807 11,263 4,680 3,464
------ ------ ----- -----
21,991 18,106 8,322 5,883
------ ------ ----- -----
OPERATING LOSS (35,718) (36,693) (13,213) (14,094)
FINANCING INCOME (EXPENSE), NET (2,100) 1,866 (1,300) 136
OTHER INCOME, NET -- 5,576 -- 1,539
-------- ----- ------- -----
LOSS FOR THE PERIOD $(37,818) $(29,251) $(14,513) $(12,419)
======== ======== ======== ========
BASIC LOSS PER ORDINARY SHARE
Loss per share $ (1.34) $ (1.53) $ (0.48) $ (0.60)
======== ======== ======== ========
Loss used to compute
basic loss per share $(37,818) $(29,155) $(14,513) $(12,419)
======== ======== ======== ========
Weighted average number of ordinary
shares outstanding - in thousands 28,129 19,099 30,211 20,783
====== ====== ====== ======
See notes to condensed interim consolidated financial statements.
3
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
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, 2002 26,297,102 $ 7,448 $ 307,865 $ (195) $ (53,241) (9,072) $ 252,805
Issuance of shares,
net of related costs 5,214,126 1,089 30,912 -- -- -- 32,001
Amortization of unearned compensation -- -- -- 121 -- -- 121
Loss for the period -- -- -- -- (37,818) -- (37,818)
---------- --------- --------- --------- --------- ----- ---------
BALANCE - SEPTEMBER 30, 2002 31,511,228 $ 8,537 $ 338,777 $ (74) $ (91,059) (9,072) $ 247,109
========== ========== ========== ========== ========== ====== ==========
See notes to condensed interim consolidated financial statements.
4
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands, except share data and per share data)
Nine months ended
September 30,
-----------------
2002 2001
---- ----
CASH FLOWS - OPERATING ACTIVITIES
Loss for the period $ (37,818) $ (29,251)
Adjustments to reconcile loss for the period
to net cash provided by (used in) operating activities:
Income and expense items not involving cash flows:
Depreciation and amortization 14,402 16,673
Other income, net -- (5,576)
Changes in assets and liabilities:
Decrease (increase) in trade accounts receivable (1,761) 6,800
Decrease (increase) in other receivables and other current assets (1,852) 1,717
Decrease (increase) in inventories (92) 6,041
Increase (decrease) in trade accounts payable 4,453 (4,985)
Increase (decrease) in other current liabilities 3,520 (446)
Increase in other long-term liabilities 2,748 642
----- ---
(16,400) (8,385)
Increase in long-term liability
in respect of customers' advances 14,668 17,910
------ ------
Net cash provided by (used in) operating activities (1,732) 9,525
------ ------
CASH FLOWS - INVESTING ACTIVITIES
Increase in cash, short-term and long-term interest-bearing
deposits designated for investments relating to Fab 2 (42,739) (42,671)
Investments in property and equipment (149,790) (198,606)
Investment grants received 25,305 36,601
Proceeds from sale of equipment -- 302
Investments in other assets (24,356) (26,966)
Increase in deposits, net (1,456) (5,976)
Proceeds from sale of long-term investments -- 7,555
-------- --------
Net cash used in investing activities (193,036) (229,761)
-------- --------
CASH FLOWS - FINANCING ACTIVITIES
Proceeds from issuance of shares, net 31,664 99,004
Proceeds from exercise of share options -- 272
Proceeds on account of share capital -- 53,733
Proceeds from exercise of a warrant -- 10
Increase (decrease) in short-term debt (10,000) 10,000
Repayment of long-term debt (3,000) (14,064)
Proceeds from long-term debt 142,000 82,000
Proceeds from sale of securities, net 21,540 --
------- -------
Net cash provided by financing activities 182,204 230,955
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,564) 10,719
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 19,610 10,262
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 7,046 $ 20,981
========= =========
NON-CASH ACTIVITIES
Investments in property and equipment $ 29,015 $ 78,654
========= =========
Exercise of a warrant $ 9,990
=========
Stock-based compensation related to
the Facility Agreement with the Banks $ 5,129
=========
Investments in other assets $ 3,716 $ 1,812
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 8,296 $ 1,532
========= =========
Cash paid during the period for income taxes $ 91 $ 1,770
========= =========
See notes to condensed interim consolidated financial statements.
5
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(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 September 30, 2002 and for the nine months and 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, 2001 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 results 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.
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 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.
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. 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 and the
government of Israel. 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 4 below
and Note 16A to the 2001 audited consolidated financial statements.
For details concerning non-capitalizable expenses and cash flows used
in operating activities relating to Fab 2, see Note 4F below.
D. Certain amounts in prior periods' financial statements have been
reclassified in order to conform to the 2002 presentation.
6
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 2 - INVENTORIES
Inventories consist of the following (*):
September 30, December 31,
2002 2001
---- ----
(unaudited)
Raw materials $ 4,163 $ 2,739
Spare parts and supplies 3,475 3,216
Work in process 2,260 1,673
Finished goods 187 800
------- -------
$10,085 $ 8,428
======= =======
(*) Net of write-downs to net realizable value of $317 and $412 as of September
30, 2002 and December 31, 2001, respectively.
NOTE 3 - MAJOR CUSTOMERS
Sales to major customers as a percentage of total sales were as follows:
Nine months ended
September 30,
2002 2001
---- ----
(unaudited)
Customer A 31% 29%
Customer B 15 18
Customer C 11 --
Other customers (*) 18 29
(*) Represents sales to four different customers each of whom accounted for
between 2% and 8% of sales during the nine months ended September 30, 2002,
and to five customers (3%-8%) during the nine months ended September 30,
2001.
NOTE 4 - RECENT DEVELOPMENTS RELATING TO FAB 2
A. Amendment to the Wafer Partner and Equity Investor Agreements
Through April 2002, the Company, its Fab 2 Wafer Partners and the
Equity Investors entered into amendments to their agreements with the
Company under terms described below, to provide for the acceleration
of the Fab 2 Third Milestone and Fourth Milestone scheduled
installment payments, each in the aggregate amount of $44,736.
Pursuant to these amendments the following investments were made:
7
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 4 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
A. Amendment to the Wafer Partner and Equity Investor Agreements (cont.)
(1) Towards the Third Milestone: During the second quarter of 2002,
the Wafer Partners invested in the Company an aggregate of
$36,669, of which $22,001 was credited as paid in capital in
consideration for an aggregate of 3,571,657 Ordinary Shares of
the Company, and $14,668 was established as long-term customer
advances; and the Equity Investors invested an aggregate of
$8,067 in consideration for the purchase of 1,309,524 Ordinary
Shares of the Company.
(2) Towards the Fourth Milestone: In October 2002, the Wafer Partners
invested in the Company an aggregate of $36,669, of which $22,001
was credited as paid in capital in consideration for an aggregate
of 4,482,763 Ordinary Shares of the Company, and $14,668 was
established as long-term customer advances; and the Equity
Investors invested an aggregate of $8,067 in consideration for
the purchase of 1,643,577 Ordinary Shares of the Company.
According to the amendments, the Wafer Partners and the Equity
Investors undertook to advance both their Third and Fourth Milestone
installment payments, prior to their achievement. In consideration for
their investment the Wafer Partners and the Equity Investors were
issued fully-paid Ordinary Shares of the Company equivalent to 60% and
100%, respectively, of the aggregate amount invested by them. The
remaining 40% of the advanced payments made by the Wafer Partners was
established as long-term customer advances to be credited, in general,
against future purchases by them. Under the amendments, Ordinary
Shares issued in consideration for the accelerated installments are
based on the lower of the average trading price for the Ordinary
Shares during the 30 consecutive trading days preceding the date of
any actual payment and $12.50.
B. Amendments to the Fab 2 Facility Agreement
According to the Facility Agreement with its banks, as amended during
2002, the Company is obligated to raise, by the end of 2003, $144,000
from specified financial sources, other than the already committed
funds by the Wafer Partners and Equity Investors, as follows: by
October 31, 2002, an aggregate of $76,000, which has been already
raised to date; by the end of 2002, an aggregate of $110,000; and by
the end of 2003 an aggregate of $144,000. According to the Facility
Agreement, raising these amounts by the dates stated is a material
provision.
8
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 4 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
B. Amendments to the Fab 2 Facility Agreement (cont.)
Pursuant to the amendments made during 2002, the banks agreed that the
Company may attribute up to $40,000 to be invested by the existing
Wafer Partners and Equity Investors by no later than July 31, 2002 on
account of the Third Milestone, to the April and June 2002 funding
milestones, provided that the Company raised $35,000 from other
specified financial sources by no later than October 31, 2002.
Accordingly, the Company attributed $40,000 out of the $44,736
invested in the second quarter of 2002 by the Wafer Partners and
Equity Investors (see paragraph A.(1) above) towards the April and
June 2002 funding milestones from the other specified financial
sources.
The Company achieved the October 2002 funding milestone in October
2002 through $20,492 raised from a rights offering (see 5C below),
$4,950 from proceeds paid under a technology agreement and a $15,000
investment made by OTPP (see D below).
C. New Technology Agreements
(1) In May 2002, the Company entered into a joint development and
royalty-free, non-exclusive cross-license agreement with a
Japanese semiconductor manufacturer corporation, for the joint
development of certain technology to be used by the Company in
its Fab 2 and by the Japanese manufacturer in its facilities. The
agreement calls for certain amounts to be paid by the Japanese
manufacturer to the Company following the signing of the
agreement and subject to achievement of certain milestones,
through a period ending 2005. Pursuant to the agreement, the
Japanese manufacturer may allocate, subject to certain conditions
stipulated in the agreement, part or all of the second half of
the total amounts paid by it to the Company as long-term customer
advances to be applied against future purchases made by the
Japanese manufacturer through 2007.
(2) In September 2002, the Company entered into a non-exclusive
technology transfer, development and licensing agreement with
Motorola Inc. ("Motorola"), a U.S. corporation. This agreement
provides for the transfer by Motorola to the Company of existing
and newly developed version of advanced semiconductor
manufacturing process technologies to be installed in Fab 2, and
for the provision by Motorola of related technology transfer
assistance, all in exchange for certain fees for patent and other
intellectual property licenses, technology transfer and
development, technical assistance and ongoing royalties based on
sales of products manufactured in Fab 2 with the transferred
technology. Subject to prior termination for cause by Motorola,
the licenses under the agreement are perpetual.
9
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 4 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.)
D. New Equity Investor
In July 2002, the Company entered into a definitive agreement with the
Ontario Teachers' Pension Plan Board ("OTPP") for an investment, which
was fully paid in October 2002, of $15,000 in the Company's equity in
consideration for 3,000,000 Ordinary Shares of the Company for $5.00
per share (the same as the subscription price per right in the rights
offering described in Note 5C below), and a warrant, exercisable for a
four-year period, to purchase an additional 1,350,000 Ordinary Shares
of the Company, at an exercise price of $7.50 per share (subject to
customary adjustments). Pursuant to the agreement, OTPP may not sell
these securities for a period of nine months from the closing date of
the agreement (October 2002).
E. Other Agreements
Through September 30, 2002 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
amounted to $153,788. Some of the agreements provide for cancellation
fees, subject to certain provisions and cancellation schedules in such
agreements.
F. Non-Capitalizable Expenses and Operating Activities Cash Flows in
Connection with Fab 2
In connection with establishing Fab 2, the Company incurred during the
nine-month period ended September 30, 2002 non-capitalizable expenses
in the amount of $19,383, of which $11,447 was included in cost of
sales and $7,936 was included in marketing, general and administrative
(during the corresponding period - $8,596, $3,323 and $5,273,
respectively). During the three-month period ended September 30, 2002,
non-capitalizable expenses amounted to $11,169 of which $7,821 was
included in cost of sales and $3,348 was included in marketing,
general and administrative (during the corresponding period - $3,320,
$1,479 and $1,841, respectively).
Net cash used in operating activities during the nine-month period
ended September 30, 2002 (excluding $14,668 increase in connection
with long-term liability in respect of customers' advances) was
$16,400. That amount includes net cash out flows in the amount of
$17,253 attributable to the establishing of Fab 2.
10
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 5 - OTHER RECENT DEVELOPMENTS
A. Sale of Securities
On January 22, 2002, the Company issued, based on a prospectus
published on January 15, 2002 in Israel, the following securities,
which are listed on the Tel Aviv Stock Exchange, for initial proceeds
of approximately $23,200. Costs in relation to the prospectus and the
issuance of the securities were approximately $1,750.
(1) Convertible Debentures - 110,579,800 convertible debentures each
of which is of NIS 1.00 in principal amount. The debentures were
issued at discount of 96% of their par value. Each debenture is linked
to the Israeli Consumer Price Index ("CPI") and bears annual interest
at the rate of 4.7%, payable on January 20 of each year commencing on
January 20, 2003. The principal on the debentures is payable in four
installments on January 20 of each year between 2006 and 2009. The
debentures may be converted until December 31, 2008 into Ordinary
Shares, at a conversion rate of one Ordinary Share per each NIS 41.00
($8.41) amount of the debentures (subject to customary adjustments).
The effective rate of interest on the convertible debentures, taking
into account the initial proceeds net of the discount and the related
issuance costs, is 7.26%. For US GAAP purposes, which requires taking
into account, in addition to the discount and the related issuance
costs, amounts attributed to the options described below, the
effective rate of interest on the convertible debentures is 9.88%.
(2) Options (Series 1) - 2,211,596 options (Series 1) for no
consideration. Each option (Series 1) is exercisable into one Ordinary
Share of the Company until January 20, 2006 for an exercise price of
NIS 39 (subject to customary adjustments), linked to the CPI (as of
September 30, 2002 - NIS 41.57, $8.53.
(3) Options (Series A) - 552,899 options (Series A) for no
consideration, to purchase additional debentures. These options, none
of which were exercised, expired in March 2002.
Subject to certain conditions, the Company may, commencing in July
2005, announce the early redemption of the debentures or part thereof,
provided that the sum of the last payment on account of the principal
shall be no less than approximately $700.
If on a payment date of the principal or interest on the debentures
there exists an infringement of certain covenants and conditions under
the Facility Agreement, the dates for payment of interest and
principal on the debentures may be postponed, depending on various
scenarios under the Facility Agreement until such covenant or
condition is settled.
11
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 5 - OTHER RECENT DEVELOPMENTS (cont.)
A. Sale of Securities (cont.)
Pursuant to a covenant in the Facility Agreement, the Company
deposited 50% of the principal amount (net of discounts) of the
unconverted convertible debentures (approximately $11,600 as of the
balance sheet date) in favor of the banks as security for payment of
the amounts the Company owes the banks. The said amount may be
released only as provided in the Facility Agreement, including
payments of interest on account of the convertible debentures.
The debentures are unsecured and rank behind the Company's existing
and future secured indebtedness to the banks under the Facility
Agreement, as well as to the government of Israel in connection with
grants the Company receives under the Fab 2 approved enterprise
program.
See Note 6D for the effect of the accounting treatment under U.S. GAAP
on this sale of securities.
B. 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, 999,884 options were added to the Company's share option
plans. Of that amount 812,974 options were granted to certain
employees during the nine-month period ended September 30, 2002. The
options were granted at an average exercise price of approximately
$5.89, the market price of the Company's shares on the dates of grant.
Options granted may not be exercisable beyond ten years from their
grant date, and become vested over a four-year period according to
various vesting schedules.
C. Rights Offering
In October 2002 the Company issued, based on a right offering
prospectus for the distribution of transferable rights published in
September 2002 in Israel and in the U.S., 4,098,365 Ordinary Shares of
the Company and 1,844,262 warrants to purchase Ordinary Shares of the
Company, in consideration for an aggregate of immediate proceeds of
$20,492. Of these amounts, 4,086,038 Ordinary Shares and 1,838,715
warrants were issued to Wafer Partners and Equity Investors in
consideration for an aggregate of $20,430. Each warrant may be
exercised for the purchase of one Ordinary Share at an exercise price
of $7.50 for a period ending on October 31, 2006. The securities
issued are listed on the NASDAQ and the Tel Aviv Stock Exchange. Costs
in relation to the prospectus and the issuance of the securities were
approximately $1,000.
12
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 5 - OTHER RECENT DEVELOPMENTS (cont.)
C. Rights Offering (cont.)
The rights were distributed to shareholders of the Company and
employees, who held options entitling them to participate in the
rights offering. Each recipient received one right for each 4.94
Ordinary Shares or employee options that he held on September 30, 2002
(the record date). Each full right entitled the recipient to purchase,
at a subscription price of $5.00, one Ordinary Share and 0.45 of a
warrant
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 E below for the presentation of the Company's unaudited balance sheet
as of September 30, 2002 in accordance with U.S. GAAP.
A. Presentation of Cash and Short-Term Interest-Bearing Deposits
Designated for Investments Relating to Fab 2
In accordance with U.S. GAAP, cash and short-term interest-bearing
deposits designated for investments relating to Fab 2 should be
excluded from current assets and presented separately as a non-current
asset. Accordingly, $34,743 and $11,544 were reclassified,
respectively, from current assets and long-term investments to a
long-term asset.
B. Hedging Activities in accordance with U.S. GAAP (SFAS 133)
Complying with SFAS 133 and SFAS 138 and the related interpretations
thereon with respect to the Company's hedging transactions as of
September 30, 2002 would have resulted in: an increase in the
Company's current liabilities in the amount of $13,339, an increase in
other comprehensive loss for the nine months ended September 30, 2002
in the net amount of $11,261; and in a decrease of $6,091 in property
and equipment, net as of September 30, 2002.
C. 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 $11,374 was reclassified from other
long-term liabilities to long-term investments.
D. Sale of Securities
Under Accounting Principles Board Opinion No. 14 ("APB 14"), the
proceeds from the sale of the securities described in Note 5A 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, would have resulted in an increase in shareholders' equity
in the amount of $2,363 (net of $196 related issuance expenses), and a
decrease in convertible debentures in the amount of $2,559. The effect
of the U.S. GAAP application on the convertible debentures' discount
amortization for the nine-month period ended September 30, 2002 is
immaterial.
13
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 6 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
E. Balance Sheet in Accordance with U.S. GAAP
Following are the condensed consolidated balance sheets in accordance
with U.S. GAAP:
September 30, December 31,
2002 2001
---- ----
(unaudited)
Current assets $ 57,081 $ 63,872
Long-term investments 17,374 16,334
Property and equipment, net 429,394 336,160
Other assets 84,717 57,910
Cash, short-term and long-term interest-
bearing deposits designated for
investments relating to Fab 2 46,287 3,548
------ -----
Total assets 634,853 477,824
======= =======
Current liabilities 80,717 87,360
Long-term debt 254,000 115,000
Convertible debentures 20,810 --
Long-term liability
in respect of customers' advances 32,578 17,910
Other long-term liabilities 16,706 12,918
Shareholders' equity (*) 230,042 244,636
------- -------
Total liabilities and shareholders' equity $634,853 $477,824
======== ========
(*) The balance as of September 30, 2002 includes accumulated other
comprehensive loss of $19,460 and net proceeds on account of options
(Series 1) in the amount of $2,363 (see also D above); as of December 31,
2001 - accumulated other comprehensive loss of $8,199.
14
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2002
(dollars in thousands, except share data and per share data)
NOTE 6 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.)
F. Statements of Operations in Accordance with U.S. GAAP
Complying with SFAS 133 and SFAS 138 (B above) and APB 14 (D above)
would not have resulted in a material change in the Company's loss for
the nine-month period ended September 30, 2002.
G. 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 F above, the basic
and diluted loss per share for the nine-month and three-month periods
ended September 30, 2002 would be $1.34 and $0.48, respectively.
15
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: October 31, 2002 By: /S/RAFAEL LEVIN
--------------------------------------
Name: Rafael Levin
Title: Co-Chief Executive Officer