FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the month of May 2008 (No. 4)
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 May 20, 2008, the Registrant announced its financial results for the
three months ended March 31, 2008 and on May 21, 2008 issued unaudited condensed
interim consolidated financial statements as of March 31, 2008 and for the three
months period then ended. Attached hereto are the following exhibits:
Exhibit 99.1 Registrant's unaudited condensed interim consolidated
financial statements as of March 31, 2008 and for the three
months period then ended.
Exhibit 99.2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Form 6-K, including all exhibits hereto, is hereby incorporated by
reference into (1) all effective registration statements filed by us under the
Securities Act of 1933 and (2) Registration Statement No. 333-140174 and
Registration No. 333-141640 on Form F-3.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER SEMICONDUCTOR LTD.
Date: May 21, 2008 By: /s/ Nati Somekh Gilboa
--------------------------
Nati Somekh Gilboa
Corporate Secretary
EXHIBIT 99.1
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2008
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
INDEX TO UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2008
PAGE
----
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF CASH FLOWS 3
NOTES TO FINANCIAL STATEMENTS 4-9
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
AS OF AS OF
MARCH 31, DECEMBER 31,
-------- --------
2008 2007
-------- --------
(UNAUDITED)
--------
A S S E T S
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 32,374 $ 44,536
TRADE ACCOUNTS RECEIVABLE:
RELATED PARTIES 10,494 12,823
OTHERS 31,691 32,154
OTHER RECEIVABLES 3,805 4,748
INVENTORIES 34,398 27,806
OTHER CURRENT ASSETS 1,347 1,580
-------- --------
TOTAL CURRENT ASSETS 114,109 123,647
-------- --------
LONG-TERM INVESTMENTS 14,984 15,093
-------- --------
PROPERTY AND EQUIPMENT, NET 520,518 502,287
-------- --------
INTANGIBLE ASSETS, NET 31,855 34,711
-------- --------
OTHER ASSETS , NET 10,652 11,044
======== ========
TOTAL ASSETS $692,118 $686,782
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
CURRENT MATURITIES OF CONVERTIBLE DEBENTURES $ 8,426 $ 7,887
TRADE ACCOUNTS PAYABLE 55,988 49,025
DEFERRED REVENUE 9,935 --
OTHER CURRENT LIABILITIES 17,926 20,024
-------- --------
TOTAL CURRENT LIABILITIES 92,275 76,936
LONG-TERM DEBT FROM BANKS (*) 390,210 379,314
DEBENTURES (**) 116,618 117,460
LONG-TERM CUSTOMERS' ADVANCES 16,059 27,983
OTHER LONG-TERM LIABILITIES 59,793 40,380
-------- --------
TOTAL LIABILITIES 674,955 642,073
-------- --------
SHAREHOLDERS' EQUITY 17,163 44,709
======== ========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $692,118 $686,782
======== ========
(*) OF WHICH $360,210 AND $365,563 AT FAIR VALUE AS OF MARCH 31, 2008 AND
DECEMBER 31, 2007, RESPECTIVELY.
(**) OF WHICH $27,326 AND $28,484 AT FAIR VALUE AS OF MARCH 31, 2008 AND
DECEMBER 31, 2007, RESPECTIVELY
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 1 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except share data and per share data)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------------- ---------
2008 2007 2007
--------- --------- ---------
(UNAUDITED)
-------------------------
REVENUES $ 57,607 $ 55,604 $ 230,853
COST OF SALES 68,255 71,519 284,771
--------- --------- ---------
GROSS LOSS (10,648) (15,915) (53,918)
--------- --------- ---------
OPERATING COSTS AND EXPENSES
RESEARCH AND DEVELOPMENT 2,976 3,609 13,790
MARKETING, GENERAL AND ADMINISTRATIVE 7,768 8,077 31,604
--------- --------- ---------
10,744 11,686 45,394
========= ========= =========
OPERATING LOSS (21,392) (27,601) (99,312)
FINANCING EXPENSE, NET (7,800) (12,710) (34,976)
OTHER INCOME (EXPENSE), NET (428) 69 92
--------- --------- ---------
LOSS FOR THE PERIOD $ (29,620) $ (40,242) $(134,196)
========= ========= =========
BASIC LOSS PER ORDINARY SHARE
LOSS PER SHARE $ (0.24) $ (0.38) $ (1.13)
========= ========= =========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING - IN THOUSANDS 124,228 105,060 118,857
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2008 2007
-------- --------
(UNAUDITED)
-----------------------
CASH FLOWS - OPERATING ACTIVITIES
LOSS FOR THE PERIOD $(29,620) $(40,242)
ADJUSTMENTS TO RECONCILE LOSS FOR THE PERIOD
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
INCOME AND EXPENSE ITEMS NOT INVOLVING CASH FLOWS:
DEPRECIATION AND AMORTIZATION 35,421 43,585
EFFECT OF INDEXATION, TRANSLATION AND FAIR VALUE MEASUREMENT ON DEBT (742) 2,461
OTHER EXPENSE (INCOME), NET 428 (69)
CHANGES IN ASSETS AND LIABILITIES:
DECREASE (INCREASE) IN TRADE ACCOUNTS RECEIVABLE 2,792 (4,629)
DECREASE IN OTHER RECEIVABLES AND OTHER CURRENT ASSETS 1,170 455
INCREASE IN INVENTORIES (7,127) (3,484)
INCREASE IN TRADE ACCOUNTS PAYABLE 4,201 9,191
DECREASE IN OTHER CURRENT LIABILITIES (2,505) (1,259)
INCREASE (DECREASE) IN OTHER LONG-TERM LIABILITIES (150) 68
-------- --------
3,868 6,077
DECREASE IN LONG-TERM CUSTOMERS' ADVANCES, NET (183) (528)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,685 5,549
-------- --------
CASH FLOWS - INVESTING ACTIVITIES
INVESTMENTS IN PROPERTY AND EQUIPMENT (41,087) (23,836)
PROCEEDS RELATED TO SALE AND DISPOSAL OF PROPERTY AND EQUIPMENT -- 69
INVESTMENTS IN OTHER ASSETS AND INTANGIBLE ASSETS (21) (911)
INCREASE IN SHORT-TERM INTEREST-BEARING DEPOSITS -- (3,770)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (41,108) (28,448)
-------- --------
CASH FLOWS - FINANCING ACTIVITIES
PROCEEDS FROM ISSUANCE OF DEBENTURES AND WARRANTS, NET 1,440 --
PROCEEDS FROM LONG-TERM LOANS 32,000 --
PROCEEDS FROM ISSUANCE OF ORDINARY SHARES AND WARRANTS, NET -- 28,867
REPAYMENT OF DEBENTURE (8,179) (7,088)
PROCEEDS FROM EXERCISE OF SHARE OPTIONS -- 2
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,261 21,781
======== ========
DECREASE IN CASH AND CASH EQUIVALENTS (12,162) (1,118)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 44,536 39,710
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 32,374 $ 38,592
======== ========
NON-CASH ACTIVITIES
INVESTMENTS IN PROPERTY AND EQUIPMENT $ 14,351 $ 8,743
======== ========
CONVERSION OF LONG-TERM CUSTOMERS' ADVANCES
TO SHARE CAPITAL $ -- $ 1,666
======== ========
CONVERSION OF CONVERTIBLE DEBENTURES TO SHARE CAPITAL $ 3 $ 540
======== ========
CUMULATIVE EFFECT OF THE FACILITY AGREEMENT TO RETAINED EARNINGS $ -- $ 65,207
======== ========
RECLASSIFICATION OF BIFURCATED CONVERSION OPTION TO SHAREHOLDERS' EQUITY $ -- $ 28,377
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 6,956 $ 7,221
======== ========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ 4 $ 4
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2008
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL
A. BASIS FOR PRESENTATION
(1) The unaudited condensed interim consolidated financial statements
as of March 31, 2008 and for the three months then ended
("interim financial statements") of Tower Semiconductor Ltd. and
subsidiary ("the Company") should be read in conjunction with the
audited consolidated financial statements of the Company as of
December 31, 2007 and for the year then ended, including the
notes thereto. In the opinion of management, the interim
financial statements include all adjustments necessary for a fair
presentation of the financial position and results of operations
as of the date and for the interim periods presented. The results
of operations for the interim periods are not necessarily
indicative of the results to be expected on a full-year basis.
(2) The interim financial statements are presented in accordance with
U.S. generally accepted accounting principles ("US GAAP"). Prior
to the 2007 audited consolidated financial statements, the
Company prepared its financial statements in accordance with
generally accepted accounting principles in Israel ("IL GAAP")
and provided reconciliation to US GAAP in the notes to the
financial statements.
(3) RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2008, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No.
161, Disclosures about Derivative Instruments and Hedging
Activities ("SFAS 161"). SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities.
The Company will be required to provide enhanced disclosures
about (a) how and why derivative instruments are used; (b) how
derivative instruments and related hedged items are accounted for
under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Certain Hedging
Activities ("SFAS 133"), and its related interpretations; and (c)
how derivative instruments and related hedged items affect the
Company's financial position, financial performance, and cash
flows. This statement is effective for financial statements
issued for fiscal years and interim periods beginning after
November 15, 2008. The Company is currently evaluating the
additional disclosure requirements of SFAS 161.
(4) Certain amounts in prior years' financial statements have been
reclassified in order to conform to 2008 presentation.
- 4 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2008
(dollars in thousands, except share data and per share data)
NOTE 1 - GENERAL (CONT.)
B. ESTABLISHMENT AND OPERATIONS OF NEW FABRICATION FACILITY ("FAB 2")
In 2001, the Company's Board of Directors approved the establishment
of the Company's second wafer fabrication facility in Israel ("Fab
2"). In Fab 2, the Company manufactures semiconductor integrated
circuits on silicon wafers in geometries of 0.18 to 0.13 micron on
200-millimeter wafers. In connection with the establishment, equipping
and financing of Fab 2, the Company has entered into several related
agreements and other arrangements and has completed several public and
private financing transactions. For additional information, see Notes
9B,13A,14C and 14F-M to the 2007 audited consolidated financial
statements.
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, see Notes 9B and 13A to the 2007 audited consolidated financial
statements.
C. FINANCING OF THE COMPANY'S ONGOING OPERATIONS
In recent years, the Company has experienced significant recurring
losses, recurring negative cash flows from operating activities and an
increasing accumulated deficit. The Company is working in various ways
to mitigate its financial difficulties. Since the second half of 2005,
the Company has increased its customer base, mainly in Fab 2, modified
its organizational structure to better address its customers and its
market positioning, increased its sales, recorded ten consecutive
quarters of positive EBITDA commencing the fourth quarter of 2005 and
six consecutive quarters of positive cash flow from operations
commencing the fourth quarter of 2006, reduced its losses, increased
its capacity level and utilization rates, raised funds and
restructured its bank debt. See also Notes 9B, 13A(4), 14C and 14 I-M
to the 2007 audited consolidated financial statements.
The Company continues to examine alternatives for additional funding
sources in order to fund its Fab2 ramp-up plan.
- 5 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2008
(dollars in thousands, except share data and per share data)
NOTE 2 - INVENTORIES
Inventories consist of the following:
March 31, December 31,
------- -------
2008 2007
------- -------
Raw materials $12,594 $12,351
Work in process 19,549 14,964
Finished goods 2,255 491
------- -------
$34,398 $27,806
======= =======
Work in process and finished goods inventories are presented net of
aggregate write downs to net realizable value of $7,218 and $6,497 as of
March 31, 2008 and December 31, 2007, respectively.
NOTE 3 - FAIR VALUE MEASUREMENTS
The Company decided to early adopt the provisions of SFAS No. 157 effective
January 1, 2007, concurrent with the adoption of FASB 159 "The Fair Value
Option for Financial Assets and Financial Liabilities" (SFAS No. 159). In
February 2008, the FASB issued FASB Staff Position 157-2 ("FSP 157-2"),
which delayed the implementation of SFAS 157 until January 1, 2009 for
nonfinancial assets and liabilities that are not required to be measured at
fair value on a recurring basis. We early adopted FASB No. 157 as of
January 1, 2007 and as such would not be affected by the issuance of this
FSP.
The income approach was applied using a present value technique. For Loans
- The cash flows used in that technique reflect the income stream expected
to be used to satisfy the obligation over its economic life. For Embedded
Derivatives - the Company utilized the Black Scholes Merton formula. For
Over the Counter derivatives - the Company used the market approach using
quotation from dealer markets. For convertible debentures series E - The
market approach was applied using quoted prices for the same debentures.
- 6 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2008
(dollars in thousands, except share data and per share data)
NOTE 3 - FAIR VALUE MEASUREMENTS (CONT.)
Recurring Fair Value Measurements Using:
Quoted
prices in
active
market for
identical Significant
March 31, liability Unobservable
2008 (Level 1) Inputs (Level 3)
-------- -------- --------
Quoted securities - convertible
debentures series E $ 27,326 $ 27,326 $ --
Long-term debt 360,210 -- 360,210
Derivatives 5,672 -- 5,672
-------- -------- --------
$393,208 $ 27,326 $365,882
======== ======== ========
Asset Measurement on a Recurring Basis Using Significant Unobservable
Inputs (Level 3):
Long-term debt Derivatives
--------- ---------
As of January 1, 2008- at fair value $ 365,563 $ 7,313
Total gains unrealized in earnings (5,353) (1,641)
--------- ---------
As of March 31, 2008 - at fair value $ 360,210 $ 5,672
========= =========
Unrealized gain in earnings from liabilities
still held at period end $ (5,353) $ (1,641)
========= =========
Recurring Fair Value Measurements Using:
Quoted
prices in
active
market for Significant
identical other Significant
December 31, liability observable Inputs Unobservable
2007 (Level 1) (Level 2) Inputs (Level 3)
--------- --------- --------- ---------
Trading securities - convertible
debentures series E $ 28,484 $ 28,484 $ -- $ --
Long-term debt 365,563 -- -- 365,563
Derivatives 7,018 -- (295) 7,313
--------- --------- --------- ---------
$ 401,065 $ 28,484 $ (295) $ 372,876
========= ========= ========= =========
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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2008
(dollars in thousands, except share data and per share data)
NOTE 3 - FAIR VALUE MEASUREMENTS (CONT.)
Asset Measurement on a Recurring Basis Using Significant Unobservable
Inputs (Level 3):
Long-term debt Derivatives
--------- ---------
As of January 1, 2007- at fair value $ 367,223 $ 11,513
Total gains unrealized in earnings (1,660) (4,200)
--------- ---------
As of December 31, 2007 - at fair value $ 365,563 $ 7,313
========= =========
Unrealized gain in earnings from liabilities
still held at period end $ (1,660) $ (4,200)
========= =========
NOTE 4 - RECENT DEVELOPMENTS
A. REGISTRATION STATEMENT
In January 2008, the Company has filed a shelf registration statement
on Form F-3 with the U.S. Securities and Exchange Commission,
registering the possible offer and sale from time to time of up to
$40,000 of securities which the Company may elect to so offer and sell
during the three years following the effective date of the
registration statement. The registration form was declared effective
in February 2008. The Company has made no decisions as to when, if at
all, it will actually raise funds under this registration statement.
B. CUSTOMER AGREEMENT AMENDMENT
In 2004, the Company and Siliconix incorporated ("Siliconix"), a
subsidiary of Vishay Intertechnology Inc., entered into a definitive
long-term foundry agreement for semiconductor manufacturing in the
Company's Fab 1. During the first quarter of 2008, the parties amended
the agreement to revise the terms of the purchase of trench wafers
products as well as transfer additional product platforms to Tower for
manufacturing new products to Siliconix in Fab 1.
- 8 -
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS AS OF MARCH 31, 2008
(dollars in thousands, except share data and per share data)
NOTE 4 - RECENT DEVELOPMENTS (CONT.)
C. HEDGING ACTIVITIES
As of March 31, 2008 and December 31, 2007, the Company had
outstanding agreements to hedge the cash flows variability of interest
rate on loans, the aggregate amount of which was $370,000 and $80,000
respectively. These agreements resulted in realized interest income of
$168 and $276 for the three months ended March 31, 2008 and 2007,
respectively, and in realized interest income of $1,074 for the year
ended December 31, 2007. For additional information, see also Note 11A
to the 2007 audited consolidated financial statements.
D. ACQUISITION OF JAZZ TECHNOLOGIES
On May 2008, the Company entered into a definitive agreement (the
"Agreement") with Jazz Technologies(TM), Inc (AMEX: JAZ), the parent
company of its wholly-owned subsidiary, Jazz Semiconductor, a leading
independent wafer foundry focused on Analog-Intensive Mixed -Signal
(AIMS) process technologies based in NewPort Beach, California
("Jazz"), pursuant to which the Company is to acquire Jazz in a
stock-for-stock transaction.
The Agreement provides that, upon the terms and subject to the
conditions set in the Agreement, Jazz will merge with a wholly-owned
subsidiary of the Company (to be formed for that purpose), with Jazz
as the surviving corporation (the "Acquisition"). The Agreement has
been approved by the boards of directors of both the Company and Jazz
and is subject to the approval of Jazz's shareholders and other
customary closing conditions and other regulatory approvals. The
acquisition is expected to close in the second half of 2008.
- 9 -
EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE INFORMATION CONTAINED IN THIS SECTION SHOULD BE READ IN CONJUNCTION WITH (1)
OUR UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH
31, 2008 AND FOR THE THREE MONTHS THEN ENDED AND RELATED NOTES INCLUDED IN THIS
REPORT AND (2) OUR CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2007 AND
RELATED NOTES FOR THE YEAR THEN ENDED AND (3) OUR REPORT OF FORM 6-K, FILED
FEBRUARY 7, 2008. OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN UNITED STATES ("US GAAP").
Prior to the 2007 audited consolidated financial statements, the Company
prepared its financial statements in accordance with generally accepted
accounting principles in Israel ("IL GAAP") and provided reconciliation to US
GAAP in the notes to the financial statements. The Company recasted the
comparative amounts included in its financial statements and in this report to
US GAAP.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated.
THREE MONTHS ENDED
MARCH 31,
------------------
2008 2007
----- -----
STATEMENT OF OPERATIONS DATA:
Total revenues 100% 100%
Cost of total sales 118.5 128.6
----- -----
Gross loss (18.5) (28.6)
Research and development expenses, net 5.2 6.5
Marketing, general and administrative expenses 13.5 14.5
----- -----
Operating loss (37.1) (49.6)
Financing expense, net (13.5) (22.9)
Other income (expenses), net (0.7) 0.1
----- -----
Loss (51.4)% (72.4)%
===== =====
THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
REVENUES. Revenues for the three months ended March 31, 2008 increased by
3.6% to $57.6 million from $55.6 million for the three months ended March 31,
2007.
COST OF TOTAL SALES. Cost of total sales for the three months ended March
31, 2008 amounted to $68.3 million, compared with $71.5 million for the three
months ended March 31, 2007. This decrease of 4.6% in cost of sales despite the
increase in revenues was mainly attributable to a reduction in depreciation and
amortization expenses following the previously announced change in the estimated
useful lives of the Company's machinery and equipment in the second quarter of
2007 (and as a result, the Company's machinery and equipment is depreciated over
estimated useful lives of 7 years rather than 5 years).
GROSS LOSS. Gross loss for the three months ended March 31, 2008 was $10.6
million compared to a gross loss of $15.9 million for the three months ended
March 31, 2007. The decrease in gross loss was mainly attributable to the 4.6%
decrease in Cost of Total Sales and by the 3.6% increase in Sales as described
above.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
months ended March 31, 2008 decreased to $3.0 million from $3.6 million for the
three months ended March 31, 2007.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Marketing, general and
administrative expenses for the three months ended March 31, 2008 decreased to
$7.8 million from $8.1 million for the three months ended March 31, 2007.
OPERATING LOSS. Operating loss for the three months ended March 31, 2008
was $21.4 million, compared to $27.6 million for the three months ended March
31, 2007. The decrease in the operating loss is attributable mainly to the
decrease in the gross loss described above.
FINANCING EXPENSES, NET. Financing expenses, net for the three months ended
March 31, 2008 were $7.8 million compared to financing expenses, net of $12.7
million for the three months ended March 31, 2007. This decrease is mainly due
to measuring at fair value of our loans and convertible debentures derivatives
which was partially offset by the influence of the valuation of the NIS in
relation to the dollar.
OTHER (EXPENSE) INCOME, NET. Other expense, net, for the three months ended
March 31, 2008 was $0.4 million compared to other income, net of $0.1 million
for the three months ended March 31, 2007.
LOSS. Loss for the three months ended March 31, 2008 was $29.6 million,
compared to $40.2 million for the three months ended March 31, 2007. This
decrease is attributable to the decrease of $5 million in the gross loss and to
the $5 million decrease in financing expenses described above.
IMPACT OF INFLATION AND CURRENCY FLUCTUATIONS
The dollar cost of our operations in Israel is influenced by the timing of
any change in the rate of inflation in Israel and the extent to which such
change is not offset by the change in valuation of the NIS in relation to the
dollar. During the three months ended March 31, 2008, the exchange rate of the
dollar in relation to the NIS decreased by 7.6% and there was no change in the
Israeli Consumer Price Index, or CPI (during the three months ended March 31,
2007 there was a decrease of 1.7% in the exchange rate of the dollar in relation
to the NIS and a decrease of 0.2% in the CPI).
We believe that the rate of inflation in Israel has not had a material
effect on our business to date. However, our dollar costs will increase if
inflation in Israel exceeds the devaluation of the NIS against the dollar, or if
the timing of such devaluation lags behind inflation in Israel.
Almost all of the cash generated from our operations and from our financing
and investing activities is denominated in U.S. dollars and NIS. Our expenses
and costs are denominated in NIS, U.S. dollars, Japanese Yen and Euros. We are,
therefore, exposed to the risk of currency exchange rate fluctuations. The
recent devaluation of the US dollar in relation to the NIS mainly increased our
dollar expenses related to our NIS denominated debentures and the dollar amount
of our NIS denominated expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2008, we had an aggregate of $32.4 million in cash and cash
equivalents. This compares to $44.5 million we had as of December 31, 2007.
During the three months ended March 31, 2008, we raised $32 million through
long-term loans and generated a net amount of $3.7 million from our operating
activities. These liquidity resources partially financed the capital expenditure
investments we made during the three months ended March 31, 2008, which
aggregated to an amount of $41.1 million, in connection with the purchase and
installation of equipment for the ramp up of Fab 2 and repayment of convertible
debentures in the amount of $8.2 million.
We continue to examine alternatives for additional funding sources in order to
fund our Fab2 ramp-up plan, support our growth plans, including the Jazz's
acquisition described below, and improve our shareholders' equity, otherwise
expected to become negative.
As of March 31, 2008, we had long-term loans from banks in the amount of $390.2
million (most of which are presented at fair value), which we obtained mainly in
connection with the establishment of Fab 2. As of such date, we had an aggregate
of $125.0 million of debentures, of which $8.4 million are presented as current
maturities.
ACQUISITION OF JAZZ TECHNOLOGIES
On May 2008, the Company entered into a definitive agreement (the "Agreement")
with Jazz Technologies(TM), Inc (AMEX: JAZ), the parent company of its
wholly-owned subsidiary, Jazz Semiconductor, a leading independent wafer foundry
focused on Analog-Intensive Mixed -Signal (AIMS) process technologies based in
NewPort Beach, California ("Jazz"), pursuant to which the Company is to acquire
Jazz in a stock-for-stock transaction.
The Agreement provides that, upon the terms and subject to the conditions set in
the Agreement, Jazz will merge with a wholly-owned subsidiary of the Company (to
be formed for that purpose), with Jazz as the surviving corporation (the
"Acquisition"). The Agreement has been approved by the boards of directors of
both the Company and Jazz and is subject to the approval of Jazz's shareholders
and other customary closing conditions and other regulatory approvals. The
acquisition is expected to close in the second half of 2008.