FORM 6-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                         For the month of October 2004

                            TOWER SEMICONDUCTOR LTD.
                 (Translation of registrant's name into English)


                          RAMAT GAVRIEL INDUSTRIAL PARK
                    P.O. BOX 619, MIGDAL HAEMEK, ISRAEL 23105
                    (Address of principal executive offices)


     Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.

                         Form 20-F [X]     Form 40-F[_]


     Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


                               Yes [_]     No [X]


On October 17, 2004, the Registrant announced that Israeli fabless companies represent fifth of its revenues. Attached hereto as Exhibit 99.1 is a copy of the press release. On October 21, 2004, the Registrant announced its financial results for the three and nine month periods ended September 30, 2004. Attached hereto as Exhibit 99.2 is the press release relating to such announcement and attached hereto as Exhibit 99.3 are the Registrant's unaudited interim consolidated financial statements for the three and nine month periods ended September 30, 2004. 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: October 21, 2004 By: /s/ Tamar Cohen ------------------- Tamar Cohen Corporate Secretary

EXHIBIT 99.1 TOWER SEMICONDUCTOR: ISRAELI FABLESS REPRESENT FIFTH OF OUR REVENUES TOWER IS HOSTING THE SECOND ISRAELI FABLESS CONFERENCE MIGDAL HAEMEK, ISRAEL - OCTOBER 17, 2004 - Tower Semiconductor Ltd. (NASDAQ: TSEM; TASE: TSEM) today announced that Israeli Fabless companies represent fifth of its revenues. Tower will host the Israeli Fabless conference on Wednesday, October 20, 2004 at the Daniel Hotel in Herzelia, Israel. Aimed towards strengthening the cooperation amongst Israeli fables companies, the conference is expected to host representatives from 40 companies. Tower conducts extensive relations with the Israeli semiconductor industry and has further increased the number of local customers since the commencement of operation of its new fabrication facility, Fab 2. At the conference, Tower will present its capabilities and plans for 0.13-micron manufacturing, and offer networking opportunities and technical sessions of common interest to the members of the growing Israeli Fabless community. In addition, Tower will present its design to production advanced customer services, its wide IP offering and cooperation with the industry's leading vendors. "We are pleased to host this conference for the second time and provide a forum for fruitful discussions among our customers, potential customers, strategic partners and providers of the semiconductor industry," said Carmel Vernia, chairman and chief executive officer of Tower. "Tower views its Israeli customers an important, strategic target and will continue to act towards strengthening the relations with the local industry, as well as providing them with the highest quality and service." "Being the sole foundry in Israel, Tower has an important role in promoting the local semiconductor industry at the global market, by increasing the Israeli capabilities, development and offering, while reducing costs and time-to-market," said Ephie Koltin, Regional Marketing Manager in Tower. "In last year's conference we presented Tower's 0.18-micron manufacturing plans, and now we are proud to show success stories in 0.18-micron and production plans for our next technology generations." For additional information and registration, please contact Iris Hirsch, Marcom Manager - Israel, at Tower, phone: +972-4-6506191, e-mail: irishir@towersemi.com -MORE-

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 0.13 micron; it also provides complementary technical 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 micron and can produce up to 16,000 150mm wafers per month. Fab 2 features 0.18-micron and below process technologies, including foundry-standard technology. When fully equipped, Fab 2 is expected to 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. 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) THE COMPLETION OF THE EQUIPMENT INSTALLATION, TECHNOLOGY TRANSFER AND RAMP-UP OF PRODUCTION IN FAB 2, (II) HAVING SUFFICIENT FUNDS TO COMPLETE THE FAB 2 PROJECT, (III) THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY AND THE RESULTING PERIODIC OVERCAPACITY, (IV) OPERATING OUR FACILITIES AT SATISFACTORY UTILIZATION RATES, (V) THE AFFECT THAT OUR EXPECTED DECREASE IN SALES IN COMING QUARTERS WILL HAVE ON OUR ABILITY TO MEET OUR COVENANTS IN OUR AMENDED FACILITY AGREEMENT, WHICH WE CURRENTLY FORECAST WE WILL NOT MEET IN THE NEXT SEVERAL QUARTERS, (VI) OUR ABILITY TO CAPITALIZE ON INCREASES IN DEMAND FOR FOUNDRY SERVICES, (VII) MEETING THE CONDITIONS TO RECEIVE ISRAELI GOVERNMENT GRANTS AND TAX BENEFITS APPROVED FOR FAB 2 AND OBTAINING THE APPROVAL OF THE ISRAELI INVESTMENT CENTER TO EXTEND THE FIVE-YEAR INVESTMENT PERIOD UNDER OUR FAB 2 APPROVED ENTERPRISE PROGRAM AND OF AMENDMENTS TO OUR MODIFIED BUSINESS PLAN, (VIII) ATTRACTING ADDITIONAL CUSTOMERS, (IX) NOT RECEIVING ORDERS FROM OUR WAFER PARTNERS AND TECHNOLOGY PROVIDERS, (X) FAILING TO MAINTAIN AND DEVELOP OUR TECHNOLOGY PROCESSES AND SERVICES, (XI) COMPETING EFFECTIVELY, (XII) OUR LARGE AMOUNT OF DEBT AND OUR SATISFYING THE COVENANTS SET FORTH IN OUR AMENDED FACILITY AGREEMENT, AND (XIII) ACHIEVING ACCEPTABLE DEVICE YIELDS, PRODUCT PERFORMANCE AND DELIVERY TIMES. 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 UNDER THE HEADING "RISK FACTORS" IN OUR MOST RECENT ANNUAL REPORT ON FORM 20-F AND IN OUR FORM F-3, AS AMENDED, AS WERE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE ISRAEL SECURITIES AUTHORITY. # # # PR AGENCY CONTACT INVESTOR RELATIONS CONTACT CORPORATE CONTACT Matt Beevers Sheldon Lutch Michael Axelrod Pacifico, Inc. IR & Communications Tower Semiconductor USA +1 (408) 293-8600 +1 (212) 268 1816 +1 (408) 330 6871 mbeevers@pacifico.com sheldon@fusionir.com pr@towersemi.com

EXHIBIT 99.2 TOWER SEMICONDUCTOR LTD. ANNOUNCES THIRD QUARTER AND NINE MONTHS 2004 RESULTS MIGDAL HAEMEK, Israel - October 21, 2004 - Tower Semiconductor Ltd. (NASDAQ: TSEM; TASE: TSEM) today announced results for the third quarter and nine months ended September 30, 2004. Revenues for the third quarter of 2004 totaled $35.1 million, an increase of 118 percent over $16.1 million reported in the third quarter of 2003. This is compared to revenues of $33.7 million in the second quarter of 2004. The loss in the third quarter of 2004 was $39.4 million, or $0.60 per share, compared to a loss of $37.1 million, or $0.77 per share, in the third quarter of 2003, and compared to a loss of $36.5 million, or $0.55 per share, for the second quarter of 2004. The loss for the third quarter of 2004 includes $29.7 million of depreciation and amortization. Revenues for the nine months ended September 30, 2004, were $96.0 million, an increase of 131 percent over revenues of $41.5 million for the nine months ended September 30, 2003. The company reported a loss of $114.4 million, or $1.78 per share in the nine months ended September 30, 2004, compared to a loss of $68.3 million, or $1.49 per share, in the nine months ended September 30, 2003. The increase in loss, as compared with the nine months ended September 30, 2003, is primarily attributed to depreciation and amortization, which was $83.2 million on the nine months ended September 30, 2004 vs. $29.6 million in the parallel period of 2003. "Tower achieved quarter over quarter revenues growth, in spite of the industry-wide challenging market condition," said Carmel Vernia, chairman and chief executive officer of Tower. "Looking to the near future, demand and average sale price are expected to decline, resulting in lower Q4-2004 and Q1-2005 sales. Our long-term outlook remains positive based on new customers that are in various stages of designing and prototyping into the fabs. We expect to see demand increase starting in Q2-2005." The company expects Q-4 2004 revenues to be in the range of $30 million and $33 million. The company is now targeting for positive EBITDA in the second half of 2005. "We continue to see progress in our specialized technologies," added Mr. Vernia. "We've added two new 0.18-micron CMOS image sensor committed customers this quarter and are running prototype silicon for a 0.18-micron embedded flash customer. We also increased the amount of mixed signal designs into our fabs, all of which are expected to increase our production levels during 2005."

Further to the dismissal of the class action filed in the United States District Court for the Southern District of New York on behalf of the shareholders of the company against the company and certain of its directors and shareholders, the company was informed in September 2004 that one of the lead plaintiffs filed a notice of appeal of the decision dismissing the complaint. The Company believes that the complaint is without merit and will continue to vigorously contest it. The company will host a conference call to discuss these results on Thursday, October 21, 2004 at 10:00 a.m. Eastern time / 16:00 Israel time. To participate, call 1-800-500-0177 (U.S. toll-free number) or 1-719-457-2679 (international) and mention ID code: TOWER. Callers in Israel are invited to call locally, at 03-925-5910. The conference call also will be Webcast live at www.companyboardroom.com and at www.towersemi.com. The call will be available on both Web sites for replay for 90 days. 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 0.13 micron; it also provides complementary technical 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 micron and can produce up to 16,000 150mm wafers per month. Fab 2 features 0.18-micron and below process technologies, including foundry-standard technology. When fully equipped, Fab 2 is expected to 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. 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) THE COMPLETION OF THE EQUIPMENT INSTALLATION, TECHNOLOGY TRANSFER AND RAMP-UP OF PRODUCTION IN FAB 2, (II) HAVING SUFFICIENT FUNDS TO COMPLETE THE FAB 2 PROJECT, (III) THE CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY AND THE RESULTING PERIODIC OVERCAPACITY, (IV) OPERATING OUR FACILITIES AT SATISFACTORY UTILIZATION RATES, (V) THE EFFECT THAT OUR EXPECTED DECREASE IN SALES IN THE COMING QUARTERS WILL HAVE ON OUR ABILITY TO MEET CERTAIN OF THE COVENANTS STIPULATED IN OUR AMENDED FACILITY AGREEMENT, WHICH WE CURRENTLY FORECAST WE MAY NOT MEET IN THE NEXT SEVERAL QUARTERS, (VI) OUR ABILITY TO CAPITALIZE ON INCREASES IN DEMAND FOR FOUNDRY SERVICES, (VII) MEETING THE CONDITIONS TO RECEIVE ISRAELI GOVERNMENT GRANTS AND TAX BENEFITS APPROVED FOR FAB 2 AND OBTAINING THE APPROVAL OF THE ISRAELI INVESTMENT CENTER TO EXTEND THE FIVE-YEAR INVESTMENT PERIOD UNDER OUR FAB 2 APPROVED ENTERPRISE PROGRAM, (VIII) ATTRACTING ADDITIONAL CUSTOMERS, (IX) NOT RECEIVING ORDERS FROM OUR WAFER PARTNERS AND TECHNOLOGY PROVIDERS, (X) FAILING TO MAINTAIN AND DEVELOP OUR TECHNOLOGY PROCESSES AND SERVICES, (XI) COMPETING EFFECTIVELY, (XII) OUR LARGE AMOUNT OF DEBT, AND (XIII) ACHIEVING ACCEPTABLE DEVICE YIELDS, PRODUCT PERFORMANCE AND DELIVERY TIMES. 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 UNDER THE HEADING "RISK FACTORS" IN OUR MOST RECENT ANNUAL REPORT ON FORM 20-F AND IN OUR FORM F-3, AS AMENDED, AS WERE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND THE ISRAEL SECURITIES AUTHORITY. # # # PR AGENCY CONTACT INVESTOR RELATIONS CONTACT CORPORATE CONTACT Matt Beevers Sheldon Lutch Michael Axelrod Pacifico, Inc. IR & Communications Tower Semiconductor USA +1 (408) 293-8600 +1 (212) 268 1816 +1 (408) 330 6871 mbeevers@pacifico.com sheldon@fusionir.com pr@towersemi.com

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) SEPTEMBER 30, DECEMBER 31, -------- -------- 2004 2003 -------- -------- A S S E T S CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 21,877 $ 12,448 DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 36,576 44,042 TRADE ACCOUNTS RECEIVABLE 25,961 11,631 OTHER RECEIVABLES 18,385 11,073 INVENTORIES 30,371 19,382 OTHER CURRENT ASSETS 1,243 1,729 -------- -------- TOTAL CURRENT ASSETS 134,413 100,305 -------- -------- LONG-TERM INVESTMENTS LONG-TERM INTEREST-BEARING DEPOSITS DESIGNATED FOR FAB 2 OPERATIONS 4,934 4,848 OTHER LONG-TERM INVESTMENTS 6,000 6,000 -------- -------- 10,934 10,848 -------- -------- PROPERTY AND EQUIPMENT, NET 613,561 568,412 -------- -------- OTHER ASSETS, NET 97,961 108,770 ======== ======== TOTAL ASSETS $856,869 $788,335 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 61,202 $ 40,249 OTHER CURRENT LIABILITIES 9,082 9,564 -------- -------- TOTAL CURRENT LIABILITIES 70,284 49,813 LONG-TERM DEBT 497,000 431,000 CONVERTIBLE DEBENTURES 25,643 25,783 LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES 65,069 46,347 OTHER LONG-TERM LIABILITIES 7,792 5,935 -------- -------- TOTAL LIABILITIES 665,788 558,878 -------- -------- SHAREHOLDERS' EQUITY ORDINARY SHARES 16,260 13,150 ADDITIONAL PAID-IN CAPITAL 517,258 427,881 PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- 16,428 SHAREHOLDER RECEIVABLES (26) (26) ACCUMULATED DEFICIT (333,339) (218,904) -------- -------- 200,153 238,529 TREASURY STOCK, AT COST (9,072) (9,072) -------- -------- TOTAL SHAREHOLDERS' EQUITY 191,081 229,457 ======== ======== TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $856,869 $788,335 ======== ========

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except share data and per share data) NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- ------------------------ 2004 2003 2004 2003 ---------- --------- --------- -------- SALES $ 95,990 $ 41,545 $ 35,091 $ 16,074 COST OF SALES 162,242 75,816 57,843 38,548 ---------- --------- --------- -------- GROSS LOSS (66,252) (34,271) (22,752) (22,474) ---------- --------- --------- -------- OPERATING COSTS AND EXPENSES RESEARCH AND DEVELOPMENT 11,208 12,551 3,952 3,895 MARKETING, GENERAL AND ADMINISTRATIVE 16,176 17,064 5,155 6,300 ---------- --------- --------- -------- 27,384 29,615 9,107 10,195 ========== ========= ========= ======== OPERATING LOSS (93,636) (63,886) (31,859) (32,669) FINANCING EXPENSE, NET (20,907) (4,293) (7,567) (4,264) OTHER INCOME (EXPENSE), NET 108 (87) 14 (153) ---------- --------- --------- -------- LOSS FOR THE PERIOD $ (114,435) $ (68,266) $ (39,412) $(37,086) ========== ========= ========= ======== BASIC LOSS PER ORDINARY SHARE LOSS PER SHARE (*) $ (1.78) $ (1.49) $ (0.60) $ (0.77) ========== ========= ========= ======== WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING - IN THOUSANDS (**) 64,392 45,788 65,625 48,360 ========== ========= ========= ======== (*) Basic and diluted loss per share data in accordance with U.S. GAAP are the same as the Isr. GAAP data for the nine and three months periods ended September 30, 2004 and 2003 (**) Weighted average number of ordinary shares outstanding in accordance with U.S. GAAP would be 64,280 thousands and 65,625 thousands for the nine and three months ended September 30, 2004 [45,788 thousands and 48,360 thousands in the nine and three months ended September 30, 2003, respectively].

Exhibit 99.3 TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY INDEX TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 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 6-15

DELOITTE. 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 SEPTEMBER 30, 2004 At your request, we have reviewed the condensed interim consolidated financial statements ("interim financial statements") of Tower Semiconductor Ltd. ("the Company") and its subsidiary, as follows: - - Balance sheet as of September 30, 2004. - - Statements of operations for the nine months and three months ended September 30, 2004. - - Statements of changes in shareholders' equity for the nine months and three months ended September 30, 2004. - - Statements of cash flows for the nine months and three months ended September 30, 2004. Our review was conducted in accordance with procedures prescribed by the Institute of Certified Public Accountants in Israel. The procedures included, inter alia, reading the aforementioned interim financial statements, reading the minutes of the shareholders' meetings and meetings of the board of directors and its committees, and making inquiries with the persons responsible for financial and accounting affairs. Since the review that was performed is limited in scope and does not constitute an audit in accordance with generally accepted auditing standards, we do not express an opinion on the aforementioned interim financial statements. In performing our review, nothing came to our attention which indicates that material adjustments are required to the interim financial statements for them to be deemed financial statements prepared in conformity with accounting principles generally accepted in Israel. Accounting principles generally accepted in Israel vary in certain significant respects from accounting principles generally accepted in the United States of America. The effect of the application of the latter on the financial position and results of operations as of the date and for the periods presented is summarized in Note 5. Respectfully submitted, Brightman Almagor & Co. Certified Public Accountants A Member Firm of Deloitte Touche Tohmatsu Tel Aviv, Israel October 21, 2004

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) AS OF SEPTEMBER 30, DECEMBER 31, ---------------------- --------- 2004 2003 2003 --------- --------- --------- (UNAUDITED) ---------------------- A S S E T S CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 21,877 $ 4,218 $ 12,448 SHORT-TERM INTEREST-BEARING DEPOSITS -- 2,500 -- DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS 36,576 1,659 44,042 TRADE ACCOUNTS RECEIVABLE (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $0, $110 AND $0, RESPECTIVELY) 25,961 9,302 11,631 OTHER RECEIVABLES 18,385 14,564 11,073 INVENTORIES 30,371 17,058 19,382 OTHER CURRENT ASSETS 1,243 1,681 1,729 --------- --------- --------- TOTAL CURRENT ASSETS 134,413 50,982 100,305 --------- --------- --------- LONG-TERM INVESTMENTS LONG-TERM INTEREST-BEARING DEPOSITS DESIGNATED FOR FAB 2 OPERATIONS 4,934 11,945 4,848 OTHER LONG-TERM INVESTMENTS 6,000 6,000 6,000 --------- --------- --------- 10,934 17,945 10,848 --------- --------- --------- PROPERTY AND EQUIPMENT, NET 613,561 576,425 568,412 --------- --------- --------- OTHER ASSETS, NET 97,961 105,260 108,770 ========= ========= ========= TOTAL ASSETS $ 856,869 $ 750,612 $ 788,335 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES SHORT-TERM DEBT $ -- $ 4,000 $ -- TRADE ACCOUNTS PAYABLE 61,202 65,772 40,249 OTHER CURRENT LIABILITIES 9,082 9,382 9,564 --------- --------- --------- TOTAL CURRENT LIABILITIES 70,284 79,154 49,813 LONG-TERM DEBT 497,000 347,000 431,000 CONVERTIBLE DEBENTURES 25,643 25,552 25,783 LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES 65,069 46,920 46,347 OTHER LONG-TERM LIABILITIES 7,792 5,869 5,935 --------- --------- --------- TOTAL LIABILITIES 665,788 504,495 558,878 --------- --------- --------- SHAREHOLDERS' EQUITY ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED 150,000,000, 100,000,000 AND 150,000,000 SHARES, RESPECTIVELY; ISSUED 66,934,971, 50,079,146 AND 52,996,097 SHARES, RESPECTIVELY 16,260 12,479 13,150 ADDITIONAL PAID-IN CAPITAL 517,258 415,645 427,881 PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- -- 16,428 SHAREHOLDER RECEIVABLES (26) (26) (26) ACCUMULATED DEFICIT (333,339) (172,909) (218,904) --------- --------- --------- 200,153 255,189 238,529 TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072) --------- --------- --------- TOTAL SHAREHOLDERS' EQUITY 191,081 246,117 229,457 ========= ========= ========= TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 856,869 $ 750,612 $ 788,335 ========= ========= ========= 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) NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, ---------------------- ---------------------- --------- 2004 2003 2004 2003 2003 --------- --------- --------- --------- --------- (unaudited) (unaudited) ---------------------- ---------------------- SALES $ 95,990 $ 41,545 $ 35,091 $ 16,074 $ 61,368 COST OF SALES 162,242 75,816 57,843 38,548 122,395 --------- --------- --------- --------- --------- GROSS LOSS (66,252) (34,271) (22,752) (22,474) (61,027) --------- --------- --------- --------- --------- OPERATING COSTS AND EXPENSES RESEARCH AND DEVELOPMENT 11,208 12,551 3,952 3,895 20,709 MARKETING, GENERAL AND ADMINISTRATIVE 16,176 17,064 5,155 6,300 22,615 --------- --------- --------- --------- --------- 27,384 29,615 9,107 10,195 43,324 ========= ========= ========= ========= ========= OPERATING LOSS (93,636) (63,886) (31,859) (32,669) (104,351) FINANCING EXPENSE, NET (20,907) (4,293) (7,567) (4,264) (9,826) OTHER INCOME (EXPENSE), NET 108 (87) 14 (153) (84) --------- --------- --------- --------- --------- LOSS FOR THE PERIOD $(114,435) $ (68,266) $ (39,412) $ (37,086) $(114,261) ========= ========= ========= ========= ========= BASIC LOSS PER ORDINARY SHARE Loss per share $ (1.78) $ (1.49) $ (0.60) $ (0.77) $ (2.40) ========= ========= ========= ========= ========= LOSS USED TO COMPUTE BASIC LOSS PER SHARE $(114,435) $ (68,266) $ (39,412) $ (37,086) $(114,114) ========= ========= ========= ========= ========= WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES OUTSTANDING - IN THOUSANDS 64,392 45,788 65,625 48,360 47,608 ========= ========= ========= ========= ========= SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS. - 3 -

TOWER SEMICONDUCTOR LTD. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) PROCEEDS ORDINARY SHARES ADDITIONAL ON ------------------------- PAID-IN ACCOUNT OF SHARES AMOUNT CAPITAL SHARE CAPITAL ---------- ---------- ---------- --------- BALANCE - JANUARY 1, 2004 52,996,097 $ 13,150 $ 427,881 $ 16,428 CHANGES DURING NINE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES 2,399,124 539 16,196 (16,428) ISSUANCE OF SHARES, NET OF RELATED COSTS - PUBLIC OFFERING 11,444,500 2,550 72,536 EXERCISE OF SHARE OPTIONS 95,250 21 645 LOSS FOR THE PERIOD ---------- ---------- ---------- --------- BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) 66,934,971 $ 16,260 $ 517,258 $ -- ========== ========== ========== ========= BALANCE - JANUARY 1, 2003 44,735,532 $ 11,294 $ 400,808 $ -- CHANGES DURING NINE-MONTH PERIOD (UNAUDITED): STOCK-BASED COMPENSATION RELATED TO THE FAB 2 CONSTRUCTOR 145 ISSUANCE OF SHARES, NET OF RELATED COSTS 5,343,614 1,185 14,692 AMORTIZATION OF UNEARNED COMPENSATION LOSS FOR THE PERIOD ---------- ---------- ---------- --------- BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) 50,079,146 $ 12,479 $ 415,645 $ -- ========== ========== ========== ========= BALANCE - JULY 1, 2004 66,894,593 $ 16,251 $ 517,041 $ -- CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES 40,378 9 217 LOSS FOR THE PERIOD ---------- ---------- ---------- --------- BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) 66,934,971 $ 16,260 $ 517,258 $ -- ========== ========== ========== ========= BALANCE - JULY 1, 2003 49,241,064 $ 12,291 $ 413,334 $ -- CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES, NET OF RELATED COSTS 838,082 188 2,311 LOSS FOR THE PERIOD ---------- ---------- ---------- --------- BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) 50,079,146 $ 12,479 $ 415,645 $ -- ========== ========== ========== ========= BALANCE - JANUARY 1, 2003 44,735,532 $ 11,294 $ 400,808 $ -- CHANGES DURING 2003: STOCK-BASED COMPENSATION RELATED TO THE FAB 2 CONSTRUCTOR 145 STOCK-BASED COMPENSATION RELATED TO THE FACILITY AGREEMENT WITH THE BANKS 4,205 ISSUANCE OF SHARES, NET OF RELATED COSTS 8,260,565 1,856 22,723 PROCEEDS ON ACCOUNT OF SHARE CAPITAL 16,428 AMORTIZATION OF UNEARNED COMPENSATION LOSS FOR THE YEAR ---------- ---------- ---------- --------- BALANCE - DECEMBER 31, 2003 52,996,097 $ 13,150 $ 427,881 $ 16,428 ========== ========== ========== ========= SHAREHOLDER RECEIVABLES AND UNEARNED ACCUMULATED TREASURY COMPENSATION DEFICIT STOCK TOTAL ------ ----------- --------- ---------- BALANCE - JANUARY 1, 2004 $ (26) $ (218,904) $ (9,072) $ 229,457 CHANGES DURING NINE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES 307 ISSUANCE OF SHARES, NET OF RELATED COSTS - PUBLIC OFFERING 75,086 EXERCISE OF SHARE OPTIONS 666 LOSS FOR THE PERIOD (114,435) (114,435) ------ ----------- --------- ---------- BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) $ (26) $ (333,339) $ (9,072) $ 191,081 ====== =========== ========= ========== BALANCE - JANUARY 1, 2003 $ (53) $ (104,643) $ (9,072) $ 298,334 CHANGES DURING NINE-MONTH PERIOD (UNAUDITED): STOCK-BASED COMPENSATION RELATED TO THE FAB 2 CONSTRUCTOR 145 ISSUANCE OF SHARES, NET OF RELATED COSTS 15,877 AMORTIZATION OF UNEARNED COMPENSATION 27 27 LOSS FOR THE PERIOD (68,266) (68,266) ------ ----------- --------- ---------- BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) $ (26) $ (172,909) $ (9,072) $ 246,117 ====== =========== ========= ========== BALANCE - JULY 1, 2004 $ (26) $ (293,927) $ (9,072) $ 230,267 CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES 226 LOSS FOR THE PERIOD (39,412) (39,412) ------ ----------- --------- ---------- BALANCE - SEPTEMBER 30, 2004 (UNAUDITED) $ (26) $ (333,339) $ (9,072) $ 191,081 ====== =========== ========= ========== BALANCE - JULY 1, 2003 $ (26) $ (135,823) $ (9,072) $ 280,704 CHANGES DURING THREE-MONTH PERIOD (UNAUDITED): ISSUANCE OF SHARES, NET OF RELATED COSTS 2,499 LOSS FOR THE PERIOD (37,086) (37,086) ------ ----------- --------- ---------- BALANCE - SEPTEMBER 30, 2003 (UNAUDITED) $ (26) $ (172,909) $ (9,072) $ 246,117 ====== =========== ========= ========== BALANCE - JANUARY 1, 2003 $ (53) $ (104,643) $ (9,072) $ 298,334 CHANGES DURING 2003: STOCK-BASED COMPENSATION RELATED TO THE FAB 2 CONSTRUCTOR 145 STOCK-BASED COMPENSATION RELATED TO THE FACILITY AGREEMENT WITH THE BANKS 4,205 ISSUANCE OF SHARES, NET OF RELATED COSTS 24,579 PROCEEDS ON ACCOUNT OF SHARE CAPITAL 16,428 AMORTIZATION OF UNEARNED COMPENSATION 27 27 LOSS FOR THE YEAR (114,261) (114,261) ------ ----------- --------- ---------- BALANCE - DECEMBER 31, 2003 $ (26) $ (218,904) $ (9,072) $ 229,457 ====== =========== ========= ========== 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) NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, ---------------------- ---------------------- --------- 2004 2003 2004 2003 2003 --------- --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) ---------------------- ---------------------- CASH FLOWS - OPERATING ACTIVITIES LOSS FOR THE PERIOD $(114,435) $ (68,266) $ (39,412) $ (37,086) $(114,261) 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 86,188 30,386 30,782 21,508 54,611 EFFECT OF INDEXATION AND TRANSLATION ON CONVERTIBLE DEBENTURES (280) (1,055) 86 (1,055) (878) OTHER EXPENSE (INCOME), NET (108) 87 (14) 153 84 CHANGES IN ASSETS AND LIABILITIES: INCREASE IN TRADE ACCOUNTS RECEIVABLE (14,330) (1,846) (6,848) (3,861) (4,175) DECREASE (INCREASE) IN OTHER RECEIVABLES AND OTHER CURRENT ASSETS (1,382) 782 1,786 1,431 1,264 INCREASE IN INVENTORIES (10,989) (3,897) (4,659) (3,783) (6,221) INCREASE (DECREASE) IN TRADE ACCOUNTS PAYABLE 3,332 4,765 (147) 901 801 INCREASE (DECREASE) IN OTHER CURRENT LIABILITIES (802) 1,285 (76) 60 1,467 INCREASE (DECREASE) IN OTHER LONG-TERM LIABILITIES 1,766 463 (508) (142) 529 --------- --------- --------- --------- --------- (51,040) (37,296) (19,010) (21,874) (66,779) INCREASE (DECREASE) IN LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES, NET 19,438 (326) 19,942 (326) (899) --------- --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (31,602) (37,622) 932 (22,200) (67,678) --------- --------- --------- --------- --------- CASH FLOWS - INVESTING ACTIVITIES DECREASE IN DESIGNATED CASH, SHORT-TERM AND LONG-TERM INTEREST-BEARING DEPOSITS, NET 7,380 49,627 5,687 854 14,341 INVESTMENTS IN PROPERTY AND EQUIPMENT (131,622) (143,975) (51,335) (40,311) (179,310) INVESTMENT GRANTS RECEIVED 23,945 27,839 11,443 10,483 33,811 PROCEEDS FROM SALE OF EQUIPMENT 139 184 35 120 222 INVESTMENTS IN OTHER ASSETS (702) (17,502) -- (1,005) (22,098) DECREASE IN DEPOSITS, NET -- 8,000 -- 2,500 10,500 --------- --------- --------- --------- --------- NET CASH USED IN INVESTING ACTIVITIES (100,860) (75,827) (34,170) (27,359) (142,534) --------- --------- --------- --------- --------- CASH FLOWS - FINANCING ACTIVITIES PROCEEDS FROM ISSUANCE OF SHARES, NET 75,225 15,810 -- 2,500 24,375 PROCEEDS FROM LONG-TERM DEBT 66,000 97,000 36,000 40,000 -- PROCEEDS ON ACCOUNT OF SHARE CAPITAL -- -- -- -- 16,428 REPAYMENT OF LONG-TERM DEBT -- (3,000) -- (1,000) (13,000) PROCEEDS FROM EXERCISE OF SHARE OPTIONS 666 -- -- -- -- PROCEEDS FROM LONG-TERM DEBT, NET IN CONNECTION WITH RE-BORROWING -- -- -- -- 187,000 --------- --------- --------- --------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 141,891 109,810 36,000 41,500 214,803 ========= ========= ========= ========= ========= INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,429 (3,639) 2,762 (8,059) 4,591 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 12,448 7,857 19,115 12,277 7,857 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 21,877 $ 4,218 $ 21,877 $ 4,218 $ 12,448 ========= ========= ========= ========= ========= NON-CASH ACTIVITIES INVESTMENTS IN PROPERTY AND EQUIPMENT $ 40,229 $ 30,612 $ 33,054 $ 17,990 $ 17,160 ========= ========= ========= ========= ========= STOCK-BASED COMPENSATION RELATED TO THE FACILITY AGREEMENT WITH THE BANKS $ -- $ -- $ -- $ -- $ 4,205 ========= ========= ========= ========= ========= INVESTMENTS IN OTHER ASSETS $ -- $ 6,357 $ -- $ -- $ 3,153 ========= ========= ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR INTEREST $ 18,387 $ 11,556 $ 6,410 $ 3,677 $ 15,674 ========= ========= ========= ========= ========= CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 108 $ 198 $ 11 $ 96 $ 239 ========= ========= ========= ========= ========= SEE NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS. - 5 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 1 - BASIS OF PRESENTATION A. The unaudited condensed interim consolidated financial statements as of September 30, 2004 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, 2003 and for the year then ended, including the notes thereto. In the opinion of management, the interim financial statements include all adjustments necessary for a fair presentation of the financial position and results of operations as of the date and for the interim 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, differ in certain respects from GAAP in the United States of America ("U.S. GAAP"), as indicated in Note 5. The accounting principles applied in the preparation of these interim financial statements are consistent with those principles applied in the preparation of the most recent annual audited financial statements. C. ESTABLISHMENT AND OPERATIONS OF NEW FABRICATION FACILITY In January 2001, the Company's Board of Directors approved the establishment of a new wafer fabrication facility in Israel ("Fab 2"), at an expected cost of approximately $1,500,000. Fab 2 is designated to manufacture semiconductor integrated circuits on silicon wafers in geometries of 0.18 micron and below on 200-millimeter wafers. The Company has entered into several related agreements and other arrangements and has completed public and private financing deals, which, as of the approval date of the interim financial statements, have provided an aggregate of $1,226,100 of financing for Fab 2. 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 13A to the 2003 audited consolidated financial statements. For further details concerning expected non-compliance with certain of the financial ratios and covenants under the Facility Agreement and the Company's plans for settling this non-compliance and its estimation that achieving satisfactory arrangement with the Banks is probable, see Note 3D below. During the third quarter of 2003, in which Fab 2's construction was substantially completed, the Company began commercial production and shipment of wafers to its customers utilizing the 0.18 micron process technology. With the commencement of Fab 2 operations, the Company began to depreciate and amortize Fab 2 assets, as well as to expense most of the ongoing direct costs related to the construction and equipping of Fab 2 and the transfer of the Fab 2 technology that had been previously capitalized. - 6 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 2 - MAJOR CUSTOMERS Sales to major customers as a percentage of total sales were as follows: Nine months ended September 30, ------------- 2004 2003 ---- ---- (unaudited) Customer A 20% 11% Customer B 20 -- Customer C 10 26 Customer D 6 15 Customer E 3 12 Other customers (*) 18 4 (*) Represents sales to three different customers each of whom accounted for between 5% and 8% of sales during the nine months ended September 30, 2004, and to two different customers each of whom accounted for 2% of sales during the nine months ended September 30, 2003. NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 A. ORDINARY SHARES ISSUED TO THE PRIMARY WAFER PARTNERS AND EQUITY INVESTORS In January 2004, the primary Wafer Partners and Equity Investors were issued an aggregate of 2,346,786 additional Ordinary Shares of the Company in consideration for their final $16,428 committed investment made in December 2003. The shares were issued at a per share price of $7.00, a price equal to the offering price at the public offering described in Note 4A. B. APPROVED ENTERPRISE STATUS Under the terms of the Fab 2 approved enterprise program, investments in respect of Fab 2 are to be completed by December 31, 2005, five years from the date the approval certificate was obtained. Due to the later than planned commencement of construction of Fab 2 and prevailing market conditions, the Company does not currently expect to complete Fab 2 investments by the end of 2005. Following the Company's notification to the Investment Center of its revised investment schedule contemplated in an updated plan for the construction and equipping of Fab 2, including, among other matters, its reduced rate of annual investments and lower than projected expectations for Fab 2 sales, the Company received from the Investment Center, in July 2004, an approval to said revised investment schedule. - 7 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 3 - RECENT DEVELOPMENTS RELATING TO FAB 2 (cont.) B. APPROVED ENTERPRISE STATUS (cont.) While Israeli law currently limits the ability of the Investment Center to extend the investment period beyond five years, the Company's management estimates, based on discussions held with the Investment Center, that it is probable that satisfactory arrangements will be made to enable the extension of the investment period. Under the terms of the approved enterprise program, 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 $141,956 has been already received from the Investment Center. C. HEDGING ACTIVITIES During the reported period, the Company entered into hedging transactions, primarily agreements to hedge interest rate exposure on long-term bank loans under the Facility Agreement, in the aggregate amount as of September 30, 2004 of $80,000. As of the balance sheet date, out of the total $497,000 long-term bank loans under that agreement, $292,000 is under hedging transactions. D. FACILITY AGREEMENT - FINANCIAL RATIOS AND COVENANTS According to the Facility Agreement with the Banks, the Company is obligated to comply with certain financial ratios and covenants. As of the balance sheet date, the Company was in full compliance with all these financial ratios and covenants. Due to the recent and current slow-down in the semiconductor markets, management currently estimates that the Company may not comply with certain of the financial ratios and covenants. The Company is currently in the process of preparing an updated working-plan for 2005 for Fab 2, which will be based on prevailing and the Company's forecast of market conditions. Accordingly, if required, management intends to request its Banks to agree to amend the financial ratios and covenants in order to align them with the updated Fab 2 working-plan for 2005. Management estimates that it is probable that satisfactory arrangements with the Banks will be achieved. According to the Facility Agreement, satisfying the financial ratios and covenants is a material provision. Achieving arrangements with the Banks is material for the continuation of equipping, operating and construction of Fab 2. 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), and the Banks would be entitled to exercise the remedies available to them under the Facility Agreement, including enforcement of their lien against all the Company's assets. - 8 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 4 - OTHER RECENT DEVELOPMENTS A. PUBLIC OFFERING COMPLETED IN THE FIRST QUARTER OF 2004 During the first quarter of 2004, the Company completed a public offering of its Ordinary Shares at a price of $7.00 per share. Following the offering, and including the partial exercise of an over-allotment option the Company granted the underwriters, the Company issued 11,444,500 of its Ordinary Shares, in consideration for gross proceeds of $80,112 (net of related costs - $75,086). B. SILICONIX In May 2004, the Company and chip maker Siliconix incorporated, an 80% owned subsidiary of Vishay Intertechnology Inc., entered into a definitive long-term foundry agreement for semiconductor manufacturing. Pursuant to the agreement, Siliconix will place with the Company orders valued at approximately $200,000 for the purchase of wafers to be manufactured in the Company's Fab 1 over a seven to ten year period. Approximately $53,000 of that amount will be delivered over an initial three year period starting after the completion of the transfer of Siliconix's technology to Fab 1. According to the agreement, in August 2004 Siliconix advanced the Company $20,000 to be used primarily for the purchase of additional equipment required to satisfy Siliconix's orders. The advanced amount will be credited towards the purchase price of wafers. The unused remaining balance of the $20,000 ($18,352 as of September 30, 2004) is included in designated cash and short-term interest-bearing deposits in the consolidated balance sheet. C. CLASS ACTION In August 2004, the United States District Court dismissed the class action filed 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 September 2004, one of the lead plaintiffs filed a notice of appeal of the decision dismissing the complaint. As of the approval date of the interim financial statements such an appeal was not submitted. The Company believes that the complaint is without merit and is vigorously contesting it. - 9 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 4 - OTHER RECENT DEVELOPMENTS (cont.) D. SHARE OPTION PLANS (1) EMPLOYEE SHARE OPTION PLANS - The net increase to the total outstanding options under the Company's various employee share option plans during the nine-month period ended September 30, 2004, amounted to 1,322,296 options. (2) SHARE OPTION PLANS FOR DIRECTORS - As of the approval date of the interim financial statements, the Audit Committee and the Board of Directors of the Company approved a new share option plan pursuant to which the Company's directors may be granted options to purchase up to 2,600,000 Ordinary Shares of the Company. The plan calls for initial grants of 40,000 options to each new director appointed to the Board of Directors following September 2004, and additional grants of 20,000 options per annum to each member of the Board of Directors, shall be made. According to the plan the exercise price will be equal to the market price of the Company's shares on each grant date. Options granted under the plan will vest twelve months after the date of grant and will be exercisable for a period that ends at the earlier of ten years from the date of grant or three years after termination of service. As of the approval date of the interim financial statements, the Board of Directors of the Company approved an extension of the exercise period of the outstanding options held by directors of the Company under the existing directors' share option plan (280,000 options), in the case of a director's termination of service from the Board of Directors. The exercise period was extended from ninety days following the date of termination to three years following the date of termination. The new directors' share option plan and the extension of the existing plan are subject to the approval of the Company's shareholders. E. AUTHORIZED ORDINARY SHARES In September 2004, the Board of Directors of the Company approved an increase in the Company's authorized ordinary shares from 150,000,000 shares to 250,000,000 shares. The increase is subject to the approval of the Company's shareholders. - 10 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP With regard to the Company's interim financial statements, the material differences between GAAP in Israel and in the U.S. relate to the following. See G below for the presentation of the Company's unaudited balance sheet as of September 30, 2004 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 September 30, 2004, $36,576 and $4,934 were reclassified, respectively, from current assets and long-term investments to a long-term asset (as of December 31, 2003 - $44,042 and $4,848, respectively). B. PRESENTATION OF NET LONG-TERM LIABILITIES IN RESPECT OF EMPLOYEES Under U.S. GAAP, assets and liabilities relating to severance arrangements are to be presented separately and are not to be offset, while according to Israeli GAAP such an offset is required. Accordingly, as of September 30, 2004 an amount of $16,553 was reclassified from other long-term liabilities to long-term investments (as of December 31, 2003 - $14,607). 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 September 30, 2004 would have resulted in: an increase in other long-term liabilities in the amount of $6,282; a decrease in other comprehensive loss for the nine months ended September 30, 2004 in the net amount of $4,634; an accumulated other comprehensive loss component of equity balance as of September 30, 2004 in the amount of $11,263; and in a decrease of $4,951 in property and equipment, net as of September 30, 2004. - 11 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (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 for awards made through September 30, 2004 in accordance with SFAS 123, as amended by SFAS 148, the Company's pro forma loss and loss per share would have been as follows: Nine months ended Three months ended -------------------------- -------------------------- September 30, September 30, -------------------------- -------------------------- 2004 2003 2004 2003 --------- --------- --------- --------- (unaudited) (unaudited) PRO FORMA LOSS Loss for the period, as reported according to U.S. GAAP (see H below) $(114,435) $ (68,266) $ (39,412) $ (37,086) Less - stock-based compensation determined under APB 25 -- 27 -- -- Add - stock-based compensation determined under SFAS 123 (3,584) (7,276) (1,261) (1,587) --------- --------- --------- --------- Pro forma loss $(118,019) $ (75,515) $ (40,673) $ (38,673) ========= ========= ========= ========= BASIC LOSS PER SHARE As reported according to U.S. GAAP (see I below) $ (1.78) $ (1.49) $ (0.60) $ (0.77) ========= ========= ========= ========= Pro forma $ (1.84) $ (1.65) $ (0.62) $ (0.80) ========= ========= ========= ========= - 12 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.) E. SALE OF SECURITIES Under Accounting Principles Board Opinion No. 14 ("APB 14"), the proceeds from the sale of the securities in January 2002 are to be allocated to each of the securities issued based on their relative fair value, while according to Israeli GAAP such treatment is not required. Complying with APB 14, based on the average market value of each of the securities issued in the first three days following their issuance (in January 2002), would have resulted in an increase in shareholders' equity as of September 30, 2004 and December 31, 2003 in the amount of $2,363 (net of $196 related issuance expenses), and a decrease in convertible debentures as of such dates in the amount of $2,559. The effect of amortization of the discount on the convertible debentures under U.S.GAAP for the nine-month and three-month periods ended September 30, 2004 would have been immaterial. F. PRESENTATION OF PROCEEDS ON ACCOUNT OF SHARES IN ACCORDANCE WITH U.S. GAAP (SFAS 150) According to SFAS No. 150, "Accounting For Certain Financial Instruments with Characteristics of Both Liabilities and Equity", a financial instrument that embodies an unconditional obligation (as defined in that guidance), that the issuer must or may settle by issuing a variable number of its equity shares, shall be classified as a liability if, at inception, the monetary value of the obligation is based solely or predominantly on, among other matters, a fixed monetary amount known at inception. Accordingly, the $16,428 described in Note 3A, and which according to Israeli GAAP was presented as of December 31, 2003 as "Proceeds on account of share capital", were reclassified as of December 31, 2003 under SFAS 150 as "Liability in respect of variable number of shares to be issued". Such presentation for U.S. GAAP purposes was required since as of December 31, 2003, the amount of shares the Company was to issue in consideration of the aggregate of $16,428 was not determined as of such date, and was actually based on mechanisms that embody a variable number of shares. Following the issuance of shares, as described in Note 3A, the $16,428 amount is presented for U.S. GAAP purposes as well as paid in equity. - 13 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.) G. BALANCE SHEETS IN ACCORDANCE WITH U.S. GAAP AS OF SEPTEMBER 30, 2004 AS OF DECEMBER 31, 2003 ------------------------------- -------------------------------- U.S. AS PER AS PER AS PER AS PER GAAP ISRAELI ADJUST- U.S. ISRAELI ADJUST- U.S. REMARK GAAP MENTS GAAP GAAP MENTS GAAP --------- --------- --------- --------- --------- --------- --------- (UNAUDITED) ------------------------------- A S S E T S CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 21,877 $ $ 21,877 $ 12,448 $ $ 12,448 DESIGNATED CASH AND SHORT-TERM INTEREST-BEARING DEPOSITS A 36,576 (36,576) -- 44,042 (44,042) -- TRADE ACCOUNTS RECEIVABLE 25,961 25,961 11,631 11,631 OTHER RECEIVABLES 18,385 18,385 11,073 11,073 INVENTORIES 30,371 30,371 19,382 19,382 OTHER CURRENT ASSETS 1,243 1,243 1,729 1,729 --------- --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS 134,413 (36,576) 97,837 100,305 (44,042) 56,263 --------- --------- --------- --------- --------- --------- LONG-TERM INVESTMENTS LONG-TERM INTEREST-BEARING DEPOSITS DESIGNATED FOR FAB 2 OPERATIONS A 4,934 (4,934) -- 4,848 (4,848) -- OTHER LONG-TERM INVESTMENTS B 6,000 16,553 22,553 6,000 14,607 20,607 --------- --------- --------- --------- --------- --------- 10,934 11,619 22,553 10,848 9,759 20,607 --------- --------- --------- --------- --------- --------- PROPERTY AND EQUIPMENT, NET C 613,561 (4,951) 608,610 568,412 (5,947) 562,465 --------- --------- --------- --------- --------- --------- DESIGNATED CASH AND SHORT-TERM AND LONG-TERM INTEREST-BEARING DEPOSITS A -- 41,510 41,510 -- 48,890 48,890 --------- --------- --------- --------- --------- --------- OTHER ASSETS, NET E 97,961 (196) 97,765 108,770 (196) 108,574 ========= ========= ========= ========= ========= ========= TOTAL ASSETS $ 856,869 $ 11,406 $ 868,275 $ 788,335 $ 8,464 $ 796,799 ========= ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES TRADE ACCOUNTS PAYABLE $ 61,202 $ $ 61,202 $ 40,249 $ $ 40,249 OTHER CURRENT LIABILITIES 9,082 9,082 9,564 9,564 --------- --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 70,284 -- 70,284 49,813 -- 49,813 LONG-TERM DEBT 497,000 497,000 431,000 431,000 CONVERTIBLE DEBENTURES E 25,643 (2,559) 23,084 25,783 (2,559) 23,224 LONG-TERM LIABILITY IN RESPECT OF CUSTOMERS' ADVANCES 65,069 65,069 46,347 46,347 LIABILITY IN RESPECT OF A VARIABLE NUMBER OF SHARES TO BE ISSUED F -- -- -- 16,428 16,428 OTHER LONG-TERM LIABILITIES B, C 7,792 22,835 30,627 5,935 24,527 30,462 --------- --------- --------- --------- --------- --------- TOTAL LIABILITIES 665,788 20,276 686,064 558,878 38,396 597,274 --------- --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY ORDINARY SHARES, NIS 1.00 PAR VALUE - AUTHORIZED 150,000,000 SHARES; ISSUED 66,934,971 AND 52,996,097 SHARES, RESPECTIVELY 16,260 16,260 13,150 13,150 ADDITIONAL PAID-IN CAPITAL E 517,258 2,363 519,621 427,881 2,363 430,244 PROCEEDS ON ACCOUNT OF SHARE CAPITAL F -- -- 16,428 (16,428) -- SHAREHOLDER RECEIVABLES (26) (26) (26) (26) ACCUMULATED OTHER COMPREHENSIVE LOSS C -- (11,263) (11,263) -- (15,897) (15,897) ACCUMULATED DEFICIT (333,339) 30 (333,309) (218,904) 30 (218,874) --------- --------- --------- --------- --------- --------- 200,153 (8,870) 191,283 238,529 (29,932) 208,597 TREASURY STOCK, AT COST - 1,300,000 SHARES (9,072) (9,072) (9,072) (9,072) --------- --------- --------- --------- --------- --------- TOTAL SHAREHOLDERS' EQUITY 191,081 (8,870) 182,211 229,457 (29,932) 199,525 ========= ========= ========= ========= ========= ========= TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 856,869 $ 11,406 $ 868,275 $ 788,335 $ 8,464 $ 796,799 ========= ========= ========= ========= ========= ========= - 14 -

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2004 (dollars in thousands, except share data and per share data) NOTE 5 - MATERIAL DIFFERENCES BETWEEN ISRAELI AND U.S. GAAP (cont.) H. STATEMENTS OF OPERATIONS IN ACCORDANCE WITH U.S. GAAP Complying with SFAS 133 and SFAS 138 (C above) and APB 14 (E above) would not have materially affected the results of operations for the nine-month and three-month periods ended September 30, 2004 and 2003. I. LOSS PER SHARE IN ACCORDANCE WITH U.S. GAAP (SFAS 128) In accordance with U.S. GAAP (SFAS 128, including the implementation of SFAS 133 and SFAS 138, and APB 14 as described in H above), the basic and diluted loss per share for the nine-month and three-month periods ended September 30, 2004 would be $1.78 and $0.60, respectively (during the corresponding periods - $1.49 and $0.77, respectively). - 15 -