Welcome to the TowerJazz third quarter 2012 results conference call. (Operator Instructions) Joining us today are Mr. Russell Ellwanger, TowerJazz's CEO; and Mr. Oren Shirazi, CFO. I would now like to turn the conference over to Ms. Noit Levi, Director of Investor Relations and Public Communications.

Thank you, and welcome to TowerJazz financial results conference call for the third quarter of 2012. Before we begin, I would like to remind you that some statements made during this call may be forward-looking and are subject to uncertainties and risk factors that could cause actual results to be different from those currently expected. These uncertainties and risk factors are fully disclosed in our Form 20-F, F-4, F-3, and 6-K, filed with the Securities and Exchange Commission, as well as filings with the Israeli Securities Authority. They are also available on our website. TowerJazz assumes no obligation to update any such forward-looking statements. Now, I'd like to turn the call to our CEO, Mr. Russell Ellwanger.

Thank you, Noit, and welcome everybody to our third quarter 2012 results conference call. Our third quarter revenues were approximately $155 million, if we exclude micron revenues, which revenue by our stated model decreases in the second and third year of our take-or-pay agreement. This represents a 13% increase in our core wafer business versus same quarter in 2011. During the quarter we improved our margins with a 4 point gross margin increase to 37% versus 33% for Q3 2011, and operating margins up 4 points or 18%, increasing to 26% operating margin for this past quarter versus 22% for Q3 2011. This is the result of efficiency and cost reduction measures we took as described during the second quarter review and completed during the third quarter of 2012. We are pleased with the performance and progress made in the quarter and especially in the activities that will drive continuous growth and improvements. I'll spend some time now to describe a few of these significant activities. For the first nine months, we recorded $491 million of revenue year-to-date, going 13% versus same period of last year. During this period we realized a record amount of new photo masks entering into our factories. To explain, the mask sets entering the factories is significant and one of the final milestones, and a new opportunity to design win cycle. From the time that the prototype mask set enters the factory, there's usually a nine to 12 months lead time to volume production ramp and then a typical two-year lifecycle at volume production. For these past nine months, we had 5,600 new mask into our factories, representing a 50%, 40% and 20% increase versus 2009, 2010 and 2011 respectively. This gives us confidence in continued growth in 2013 as is record number of prototypes…

Thank you, Russell, and hello everyone. Looking at our third quarter results, I would like to firstly review and explain these strong improvements across the board in our gross operating and net margins. We significantly improved our non-GAAP margins over the last year, with gross margins up to 37% versus 33% last year and operating margin at 26% versus 22% last year. Our non-GAAP operating profit for the nine months period improved by $17 million to $133 million in 2012 versus $116 million in 2011. The improved margins enabled us to maintain our profit at the same level in the third quarter of last year with lower revenues, demonstrating the success of the efficiency actions we undertook, reducing the workforce in our Nishiwaki facility and improving cost of layer and the wafer across the book. Our non-GAAP net margins improved this quarter to 20% as compared with 18% in the third quarter of last year. We achieved $40 million in EBITDA, and the EBITDA margin was 26% stronger than the 22% EBITDA margin in the third quarter last year, excluding a one-time gain from the sale of investment into HHNEC we recorded in 2011. We ended the quarter with $161 million in cash. We achieved $26 million in positive operating cash flow, excluding $11 million of termination and other payment associated with the Japan reduction in force efficiency plan, which we commenced on the second quarter of 2012 and completed during this quarter. Net cash from operating activities, including this $11 million payment, were positive at $15 million. The cost reduction plan in our Japanese facility also improved our margin significantly by enabling $30 million in annual savings. Our efficiency measures included a reduction in the workforce of approximately 300 employees from the Japanese employee base and other cost reduction…

Thank you, Oren. Before we open up the call to the Q&A session, I would like now to add the general and legal statements to our results in regards to statements made and to be made during this call. Please note that the third quarter of 2012 financial results have been prepared in accordance with U.S. GAAP and the financial tables in today's earnings release, include financial information that maybe considered non-GAAP financial measures under Regulation G and related reporting requirements as established by the Securities and Exchange Commission as they apply to our company. Namely, this release also presented financial data, which is reconciled as indicated by the footnotes below the tables on an non-GAAP basis, after deducting, one, depreciation and amortization, two, compensation expenses in respect to auctions grants, and three, finance expenses net other than interest accrued such that non-GAAP financial expenses net include only interest accrued during the reported period. Non-GAAP financial measures should be evaluated in conjunction with and are not substitute for GAAP financial measures. The tables also contains the comparable GAAP financial measures to the non-GAAP financial measures as well as the reconciliation between the non-GAAP financial measures and the most comparable GAAP financial measures. EBITDA presented is defined in our quarterly financial release. EBITDA is not required GAAP financial measure and may not be comparable to similarly titled measure employed by other companies. EBITDA and the non-GAAP financial information presented herein should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating investing and financing activities, sales share data or other income or cash flow statements that are prepared in accordance with GAAP and is not necessarily consistent with the non-GAAP data presented in previous filings. I would like now to turn the call over to the operator.

(Operator Instructions) The first question is from Jay Srivatsa of Chardan Capital Markets.

Russell, the Japan agreement, can you talk to us a little bit more about, first, when you expect this contract to start materializing in terms of meaningful revenues? And second, just longer-term what does it do to Tower in terms of penetrating some newer accounts in your customers in Japan?

Yes, certainly. So you're referring to the deal that I said is not yet finalized, but one that's in advanced stages of what I describe the model of factory closer, moving activities into our Nishiwaki facility with core team technical headcount. So the agreement would actually be in immediate revenue and there is a fair amount of non-recurring engineering expense that's associated with it. The actual production revenue would probably be somewhere about 14 to 18 months after the onset of the project, when the flows are qualified and start ramping in production. And that would last for an indefinite period of time. Now, the other question was what does it mean for the rest of the Japan industry? Actually, a few weeks ago I was in Japan, and in rounds of discussion with the specific customer, but also mentioned the model to others and many were very, very interested. And we're very excited to see the final press release of this activity as a motivation for them to move forward with something similar. So as in many areas and maybe Japan as more or so, it's fairly conservative and it's difficult for the first person to enter into a new type of a venture, but not very difficult for the second to jump in afterwards. And we commit that this model will be followed by others, I certainly can't do that, but I would believe that it has a very good chance, because the need is certainly there. There is many, many factories in Japan and owned by IDMs, that are not fully utilized. There's older factories still at 4 inch, 5 inch, 6 inch, that could make very good sense to take these flows, put them into an 8 inch flow, and really consolidate and shutdown factories. So I assume that this will move forward, one of the strong positives of this type of a deal, and it deals honestly just with the geographic location is the fact that, very few employers ever really want to put solid employees on the street to be able to transfer a core technical team along with transferring a product flow and insuring longtime employment of that team is a very, very big bonus. So I think that that has a very added plus just in the eyes of the perception of a Japanese executive as to how they will proceed in treating their employees and how they wish to treat their employee. So I hope that answers your question, does it?

So just so that I'm clear, you're talking about analog and mixed-signal process, well it's not CMOS we're talking about, are we?

That isn't very strong it bounced on a lot of flow, yes.

Next question is on Vishay, I know they have been a customer of yours for a while, help us understand, what has transpired in terms of engaging with them, in terms of new products that gives you the confidence, it's going to be a multi-hundred million type contract?

It's a committed contract as I mentioned. There is a take or pay agreement associated with it. So that's the basis of the confidence.

So are these newer products that you're going to be manufacturing for them or is it just a ramp up in their existing product engagements?

It's a many new flows. And it's a continuation of families that are already in the factories. I mentioned, two advanced flows are going into Nishiwaki, one of which is now entering into qualification. Those are advanced flows, I'm certainly not at liberty to release what flows we're working on with Vishay, but those are new flows. We had in the press release, the fact that we had an epicenter, jointly built epicenter, within the Migdal Haemek facility. That's definitely new flows. Those are super junction flows, multiple layers of epi, on top of which is a MOSFET flow. So there're new projects, obviously.

And so did you expect your contribution from Vishay to increase sequentially in 2013 versus 2012?

Yes. I think that's fair.

In terms of the Micron process flows itself, I mean where are you in terms of transferring TowerJazz's process flows into the fabs in Japan, is it being completed? And if so, when does the Micron business taper-off for you?

The Micron business is as well a contractual business. So the first 18 months of the business is by model cash flow positive. We're still within those first 18 months. From 18 months through the 36 month that decreases quarterly. At the end of the 36 months, it doesn't go to zero, but there is no contractual commitment after 36 months for any business at all. And the specific amount of wafers that we sell to micron, and what the contract specifically is on the ramp down or anything of that sort, has not been made public and that is guarded under non-disclosure agreements. But the fact of the ramp down from 18 months onward, that's very clear and that we have expressed. As far as the status of our flows, the bulk of everything is build off of the course of CMOS. I believe it was mentioned in my script, I know it was, the bulk point 0.18 CMOS flow is qualified in Nishiwaki. After that then we have variance that are build, lots that are added for the power flows, for the BCD, and those are in parallel being qualified, as we speak. But the core CMOS flow is qualified, as well as having mentioned a flow from Vishay, that is not a CMOS flow, that is going into production call or qualification. And there is as well, let's say, two other flows there that are customer-specific, that are qualified or are in the midst of being qualified.

Last question from me, in general there is the sense from the larger device manufactures that the semi market is clearly weak and many are looking ahead to 2013 to see some form of the recovery. What's your read on the market? When do you expect, we'll start to see meaningful growth in the market and consequently to your revenue line as well?

I really stay away from general predictions of the market. I don't know of any who has been very, very accurate on that. But we try to stay up on is really number one, being close to our customer forecast, although a year off they can be very, very off themselves. On a quarter-to-quarter basis, our customers are usually fairly correct. But the major thing that we focus on isn't necessarily the market trend, there is overall market trend. There is not so much that we can do towards that, one way or the other. Other than in times that the market is cautious to ourselves, be very, very cautious about spend. But the major thing we focused on is the market share growth, and is long as you have market share growth, you really can't out trend the market itself. The overall statements still remains true. When the tide is down all ships go down, when the tide is up all ships go up. But if you're continuingly growing market share, you have the ability when the tide goes down, to not go down as much as the others or maybe to not go down at all, but to not grow as much as you did in the past. If we look at the mid-range of our guidance in Q4, we'll certainly have growth this year. It's not a great growth for the market. 2009, I believe, that we were the only foundry, well, I know that we were the only foundry in the world to have the year-over-year growth at least those reported numbers. And so in years we have been able to outgrow the market, although it hasn't been big growth but by growth in market share. So that's really our big focus, and that's the only…

I guess one question for Oren, the ASC 470-20 rule that you've used in your balance sheet, I mean, is there a timeline on this or do you see this being too perpetually?

What do you mean timeline, for the accretion?

Yes.

It's throughout the life of the bond which is by the end of 2016. However, if it is converted before, it's not happening I mean. So the benefit stays with us, under the shareholders equity.

The next question is from Andrew Uerkwitz of Oppenheimer & Company. Andrew Uerkwitz - Oppenheimer & Company: I just had some housekeeping ones, trying to figure out, to think about the next couple of quarters. The first is on the expense side, looking at your expenses, it looks like OpEx has come down and back up. How should we kind of think about that over the next couple of quarters?

No, we usually don't give future-looking guidance on the specific items, but generally speaking the previous quarter, the second quarter of 2012 was exceptionally good. We had there in sum one-time, that we discussed I think in the previous call. And this quarter is good. It's not exceptionally good, but it is good. Like I mentioned, if you compare it to previous quarter, it's good. And we believe that the level that you see now, is supposed to stay pretty much. It could be that expenses, that there is some room for using of some of the fixed expenses, but it's not that significant amount from this quarter. Andrew Uerkwitz - Oppenheimer & Company: And Russell, just real quick, there is a lot of design wins, lot of inaudible tape-out to you, so I think it looks like '13 should be a good year. Are there any areas of weakness that are on the decline, that they are providing any headwinds, besides the one you mentioned? Is this sequential decline routine, is it broad-based macro related or, I mean, is there any real pockets of weakness?

In general or specific with our business? Andrew Uerkwitz - Oppenheimer & Company: Specific with your business.

No, I don't think there is, really any specific pockets of weakness. I had mentioned during the little script that I gave, that we see silicon-germanium in general growing very, very nicely for us in many, many applications especially within the millimeter-wave side as well as within the front-end module. Some businesses that we have had in the pasts are fully gone at this point. We no longer serve them. If we look at RF Transceivers, that was something that we had strong revenue on at some point two years ago to five years ago. And that technology has moved away from technology nodes that we serve. I wouldn't say that that's a weakness, it's just a technology node that moved from us and we focused on other things that needed higher voltages and capabilities that would be more suited for the nodes that we're involved in, maybe in other areas, some TV tuners. But in general and in specific, I don't see any real weaknesses in the markets that we're going after and the things that we're doing. We do have a reasonably-sized discrete business, and it's a strong business. I said that it's not growing at the rate that we had expected within our own plans, which is the case. Our Q4 guidance is not what we had initially expected at the beginning of the year. And one of the areas deals with really discreet growth that we didn't see, that we had expected. It's not that the discrete business is down. It's not down at all. It didn't grow as we had thought it would grow. And that has some very specific reasons. The biggest part is what I had mentioned in the call, that at least we believe this is the biggest part, and that is that tablet discrete content is greatly reduced versus PC discrete content. But overtime, with the rate of change of tablets, due to the price point of the tablet versus big PC, we think that that will take care of itself. And again, we're continually growing nice market share within that area. So I don't see specific weaknesses. I do think our growth will remain and will look very strong. To talk about growth in 2013, on top of pretty good base when anyone could take from the call that we've given, that the amount of revenue from micron will be dropping over 2013. So the top growth that means that our core business is extremely strong, because we're not just talking growth, after the 2012 base line, but we're talking growth off of the 2000 baseline minus, because some of that 2012 baseline will be diminished as the micron contract decreases through 2013. Andrew Uerkwitz - Oppenheimer & Company: And then last question, from a cash perspective, you guys have grown cash very nicely over the past several quarters, is there a target, minimum cash you think about. How you kind of think about your cash balance?

We can't look at as compared to the debt always, so our current debt is the like $480 million. So if we will use that cash, so we are at about $320 million net debt. And we compare that to the EBITDA. And the run rate if you take the last four quarters is $170 million, $180 million. So the ratio is about 2x or slightly below 2x, and if you take one-seventh of EBITDA, so it's 2x. And this is the place we want to be. This is pretty much our target to be, not higher than 2x. So we have created of course a maximum that we don't want to be above it. So if we can be between 1.5 to 2.5 we are targeting there, with the 2x it's reasonable. So this is to address your question about the cash. We're really looking it as net debt-to-EBITDA.

The next question is from Phelps Hoyt of Principal Global Investors.

It seems like you're running the company very well right now, just to go back to that net debt numbers, is $480 million is the perm amount of all of that outstanding right now, is that correct?

Yes, it's correct.

And then I had a question about the issuable shares, I see where the fully diluted shares are, but can you just give us an update, if it hasn't changed very much, but can you just give us what the total issuable shares are, including the capital notes, convertible bonds, and warrants, and option plans?

Phelps, it's exactly the number that I mentioned in my script. So $68 million also is written in the foot notes below the P&L, so $68 million.

So there is nothing excluded from that number?

No.

Last question is regarding the India, negotiations for the fab, there was an information earlier in the year about something might happen in India with a new fab, and you might be a participant somehow, can you update us on that?

Certainly, we'll be happy to. So what you're referring to, we had announced that there is a three-way consortium, its Jaypee, which is a large Indian infrastructure company, very strong in the power grid and in cement manufacturing and highway construction, et cetera. So there involves IBM's, the technology provider and ourselves as the integrator, a fab contractor builder and fab operator. That has moved through several levels of decisions. And two weeks ago, plus-minus a day, of had a face-to-face meeting with, what's called the empowered committee, it's the government appointed committee to make the decision on the program. I was there personally for that with Jaypee and IBM. The meeting went, I think very, very well. They had asked for not decrease scope, but increased scope in the project. And that was asked to be resubmitted by the 14. We did resubmitted increased scope, and they are now going to be calling another face-to-face meeting. They said within that meeting, which has been said by the government consistently, that they will be making a decision before the end of this year. And that's what we are waiting. As we stated before however, we believe that we're in very strong position. We believe at this point, it's just between us and one other consortium. And we cannot, however, predict the outcome or even if there will be an outcome. Now, it's difficult to say that a government will do, what it says it will do, when it says it will do it. But that's where the status is presently. So it looks positive. We're all very confident, and I think it would be a wonderful activity.

If it is a positive outcome, is there a way to size what the opportunity would be for Tower?

It's very big opportunity for Tower two-fold. There is a very large revenue stream during the point of building the facility. And once the facility is built, Tower would have a certain capacity of the factory that would be using towards its own customers, and possibly using other parts of the factory for its own customers, but under different models. So the revenue stream is large. And we haven't yet released specific numbers on it, but its large millions.

There are no further questions at this time. Mr. Ellwanger, would you like to make you concluding statement.

Thank you very much for your participation in the call, for your interest in the company. We really are more and more excited, as we look forward to the future, as we get prep to move into 2013, and many, many exciting things happening. We look forward to update to you on the activities with this Japan deal that we're talking about. There is actually something else that I said in the press release that I refer to, as well as an, advance stages of enabling agreement for one of our strong strategic initiatives. So I look forward to at the next conference call, giving an update on that as well as. I was little bit surprised, no one asked some specifics on that. But I'm happy and up that you didn't. But we look forward to that, and many, many exciting things to talk about over the next quarters and nominal years. In the very short-term, we'd very much like to invite anyone who would have the opportunity to our Global Symposium in Tokyo on December 4. If you can make it there, we'd personally love to host you at our factory at Nishiwaki. And then also, the second week of January, we'll be presenting at the Needham Conference, we don't have the specific date yet that we'll presenting. But would be very happy to meet anybody in New York, either at the conference itself, at the conference they have one-on-one's or the separate meetings sometime around that. So with that, thank you very, very much. And look forward to update with you at the end of Q4. Thank you.

Thank you. This concludes the TowerJazz third quarter 2012 results conference call. Thank you for your participation. You may go ahead and disconnect.