FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

For the month of February 2019 No.3

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

Ramat Gavriel Industrial Park
P.O. Box 619, Migdal Haemek, Israel 2310502
(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  ☒   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 ☒


On February 28, 2019, the Registrant announced its financial results for the year ended December 31, 2018. Attached hereto is the following exhibit.
 
 
 This Form 6-K, including all exhibits hereto, is hereby 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: February 28, 2019
By:
/s/ Nati Somekh  
    Name: Nati Somekh  
    Title: Corporate Secretary  
       


 

 
Exhibit 99.1
 
 TOWER SEMICONDUCTOR LTD.
AND SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018


 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page
   
F-1
   
F-2
   
F-3
   
F-4
   
F-5
   
F-6-F-7
   
F-8-F-54



 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Tower Semiconductor Ltd.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tower Semiconductor Ltd. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows, for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Member of Deloitte Touche Tohmatsu Limited

Tel Aviv, Israel
February 28, 2019

We have served as the Company's auditor since 1993.
 
F - 1

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars and shares in thousands)
 
   
As of December 31,
 
   
2018
   
2017
 
             
A S S E T S
           
             
CURRENT ASSETS
           
Cash and cash equivalents
 
$
385,091
   
$
445,961
 
Short-term interest-bearing deposits
   
120,079
     
--
 
Marketable securities
   
135,850
     
113,874
 
Trade accounts receivable
   
153,409
     
149,666
 
Inventories
   
170,778
     
143,315
 
Other current assets
   
22,752
     
21,516
 
Total current assets
   
987,959
     
874,332
 
                 
LONG-TERM INVESTMENTS
   
35,945
     
26,073
 
                 
PROPERTY AND EQUIPMENT, NET
   
657,234
     
635,124
 
                 
INTANGIBLE ASSETS, NET
   
13,435
     
19,841
 
                 
GOODWILL
   
7,000
     
7,000
 
                 
DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET
   
88,404
     
111,269
 
                 
TOTAL ASSETS
 
$
1,789,977
   
$
1,673,639
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Current maturities of loans, leases and debentures
 
$
10,814
   
$
105,958
 
Trade accounts payable
   
104,329
     
115,347
 
Deferred revenue and customers' advances
   
20,711
     
14,338
 
Employee related liabilities
   
50,750
     
50,844
 
Other current liabilities
   
17,117
     
15,886
 
Total current liabilities
   
203,721
     
302,373
 
                 
LONG-TERM DEBT
               
Debentures
   
120,170
     
128,368
 
Other long-term debt
   
136,499
     
100,355
 
                 
LONG-TERM CUSTOMERS' ADVANCES
   
28,131
     
31,908
 
                 
EMPLOYEE RELATED LIABILITIES
   
13,898
     
14,662
 
                 
DEFERRED TAX LIABILITY
   
50,401
     
63,924
 
                 
OTHER LONG-TERM LIABILITIES
   
952
     
2,343
 
                 
TOTAL LIABILITIES
   
553,772
     
643,933
 
                 
Ordinary shares of NIS 15 par value:
   
418,492
     
391,727
 
150,000 authorized as of December 31, 2018 and 2017
               
105,066 and 104,980 issued and outstanding, respectively, as of December 31, 2018
               
98,544 and 98,458 issued and outstanding, respectively, as of December 31, 2017
               
Additional paid-in capital
   
1,380,396
     
1,347,866
 
Capital notes
   
20,758
     
20,758
 
Cumulative stock based compensation
   
93,226
     
80,565
 
Accumulated other comprehensive loss
   
(23,388
)
   
(22,759
)
Accumulated deficit
   
(637,446
)
   
(773,025
)
     
1,252,038
     
1,045,132
 
Treasury stock, at cost - 86 shares
   
(9,072
)
   
(9,072
)
THE COMPANY'S SHAREHOLDERS' EQUITY
   
1,242,966
     
1,036,060
 
Non-controlling interest
   
(6,761
)
   
(6,354
)
TOTAL SHAREHOLDERS' EQUITY
   
1,236,205
     
1,029,706
 
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
1,789,977
   
$
1,673,639
 
 
See notes to consolidated financial statements.
 
F - 2

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share data)
 
   
Year ended December 31,
 
   
2018
   
2017
   
2016
 
                   
REVENUES
 
$
1,304,034
   
$
1,387,310
   
$
1,249,634
 
                         
COST OF REVENUES
   
1,011,087
     
1,033,005
     
946,534
 
                         
GROSS PROFIT
   
292,947
     
354,305
     
303,100
 
                         
OPERATING COSTS AND EXPENSES:
                       
                         
Research and development
   
73,053
     
67,664
     
63,134
 
Marketing, general and administrative
   
64,951
     
66,799
     
65,439
 
Nishiwaki Fab restructuring and impairment cost (income), net
   
--
     
--
     
(627
)
                         
     
138,004
     
134,463
     
127,946
 
                         
OPERATING PROFIT
   
154,943
     
219,842
     
175,154
 
                         
FINANCING EXPENSE, NET
   
(13,184
)
   
(15,447
)
   
(24,349
)
                         
GAIN FROM ACQUISITION, NET
   
--
     
--
     
50,471
 
                         
OTHER INCOME (EXPENSE), NET
   
(2,442
)
   
(2,627
)
   
9,322
 
                         
PROFIT BEFORE INCOME TAX
   
139,317
     
201,768
     
210,598
 
                         
INCOME TAX BENEFIT (EXPENSE), NET
   
(5,938
)
   
99,888
     
(1,432
)
                         
NET PROFIT
   
133,379
     
301,656
     
209,166
 
                         
Net loss (income) attributable to non-controlling interest
   
2,200
     
(3,645
)
   
(5,242
)
                         
NET PROFIT ATTRIBUTABLE TO THE COMPANY
 
$
135,579
   
$
298,011
   
$
203,924
 
                         
BASIC EARNINGS PER ORDINARY SHARE:
                       
                         
Earnings per share
 
$
1.35
   
$
3.08
   
$
2.33
 
                         
Weighted average number of ordinary shares outstanding
   
100,399
     
96,647
     
87,480
 
                         
DILUTED EARNINGS PER ORDINARY SHARE:
                       
                         
Earnings per share
 
$
1.32
   
$
2.90
   
$
2.09
 
                         
Net profit used for diluted earnings per share
 
$
135,579
   
$
306,905
   
$
212,160
 
                         
Weighted average number of ordinary shares outstanding
                       
used for diluted earnings per share
   
102,517
     
105,947
     
101,303
 
 
See notes to consolidated financial statements.
                       
 
F - 3

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
 
   
Year ended December 31,
 
   
2018
   
2017
   
2016
 
                   
Net profit
 
$
133,379
   
$
301,656
   
$
209,166
 
                         
Other comprehensive income, net of tax:
                       
                         
Foreign currency translation adjustment
   
3,599
     
5,681
     
923
 
                         
Change in employees plan assets and benefit obligations, net of taxes in the amount of $81, $171 and $184 for the years ended December 31, 2018, 2017 and 2016, respectively
   
269
     
511
     
(546
)
                         
Unrealized gain (loss) on derivatives
   
(2,704
)
   
1,796
     
266
 
                         
Comprehensive income
   
134,543
     
309,644
     
209,809
 
                         
Comprehensive loss (income) attributable to non-controlling interest
   
407
     
(6,565
)
   
(6,902
)
                         
Comprehensive income attributable to the Company
 
$
134,950
   
$
303,079
   
$
202,907
 
 
F - 4

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars and share data in thousands)
 
   
THE COMPANY'S SHAREHOLDERS' EQUITY
                   
                                 
Accumulated
   
Foreign currency translation adjustments
                               
   
Ordinary
   
Ordinary
   
Additional
               
other
                     
Non
       
   
shares
   
shares
   
paid-in
   
Capital
   
Unearned
   
comprehensive
   
Accumulated
   
Treasury
   
Comprehensive
   
controlling
       
   
issued
   
amount
   
capital
   
notes
   
compensation
   
income (loss)
   
deficit
   
stock
   
income
   
interest
   
Total
 
                                                                         
BALANCE AS OF JANUARY 1, 2016
   
82,144
   
$
326,572
   
$
1,273,545
   
$
48,553
   
$
58,209
   
$
(264
)
 
$
(26,546
)
 
$
(1,273,654
)
 
$
(9,072
)
       
$
(11,757
)
 
$
385,586
 
                                                                                               
Changes during the period:
                                                                                             
                                                                                               
Issuance of shares
   
3,297
     
12,504
     
27,496
                                                                   
40,000
 
Conversion of debentures and exercise of warrants into share capital
   
3,080
     
12,069
     
10,223
                                                                   
22,292
 
Exercise of options
   
3,650
     
14,412
     
3,192
                                                                   
17,604
 
Capital notes converted into share capital
   
900
     
3,500
     
3,789
     
(7,289
)
                                                         
--
 
Employee stock-based compensation
                                   
9,406
                                                   
9,406
 
Stock-based compensation related to the Facility Agreement with the Banks
                   
480
                                                                   
480
 
Dividend to Panasonic
                                                                                 
(2,563
)
   
(2,563
)
Accumulated amount due to adoption of ASU No. 2016-09, Compensation -
                                                                                             
Stock Compensation (Topic 718)
                                   
1,306
                     
(1,306
)
                         
--
 
Other comprehensive income:
                                                                                             
Profit
                                                           
203,924
           
$
203,924
     
5,242
     
209,166
 
Foreign currency translation adjustments
                                                   
(737
)
                   
(737
)
   
1,660
     
923
 
Change in employees plan assets and benefit obligations
                                           
(546
)
                           
(546
)
           
(546
)
Unrealized gain on derivatives
                                           
266
                             
266
             
266
 
Comprehensive income
                                                                         
$
202,907
                 
                                                                                                 
BALANCE AS OF DECEMBER 31, 2016
   
93,071
   
$
369,057
   
$
1,318,725
   
$
41,264
   
$
68,921
   
$
(544
)
 
$
(27,283
)
 
$
(1,071,036
)
 
$
(9,072
)
         
$
(7,418
)
 
$
682,614
 
                                                                                                 
Changes during the period:
                                                                                               
                                                                                                 
Issuance of shares
   
2,914
     
12,128
     
4,247
                                                                     
16,375
 
Exercise of options
   
1,629
     
6,750
     
8,180
                                                                     
14,930
 
Capital notes converted into share capital
   
930
     
3,792
     
16,714
     
(20,506
)
                                                           
--
 
Employee stock-based compensation
                                   
11,644
                                                     
11,644
 
Dividend to Panasonic
                                                                                   
(5,501
)
   
(5,501
)
Other comprehensive income:
                                                                                               
Profit
                                                           
298,011
           
$
298,011
     
3,645
     
301,656
 
Foreign currency translation adjustments
                                                   
2,761
                     
2,761
     
2,920
     
5,681
 
Change in employees plan assets and benefit obligations
                                           
511
                             
511
             
511
 
Unrealized gain on derivatives
                                           
1,796
                             
1,796
             
1,796
 
Comprehensive income
                                                                         
$
303,079
                 
                                                                                                 
BALANCE AS OF DECEMBER 31, 2017
   
98,544
   
$
391,727
   
$
1,347,866
   
$
20,758
   
$
80,565
   
$
1,763
   
$
(24,522
)
 
$
(773,025
)
 
$
(9,072
)
         
$
(6,354
)
 
$
1,029,706
 
                                                                                                 
Changes during the period:
                                                                                               
                                                                                                 
Conversion of notes into share capital
   
5,790
     
23,722
     
34,864
                                                                     
58,586
 
Exercise of options and RSUs
   
732
     
3,043
     
(2,334
)
                                                                   
709
 
Employee stock-based compensation
                                   
12,661
                                                     
12,661
 
Other comprehensive income:
                                                                                               
Profit
                                                           
135,579
           
$
135,579
     
(2,200
)
   
133,379
 
Foreign currency translation adjustments
                                                   
1,806
                     
1,806
     
1,793
     
3,599
 
Change in employees plan assets and benefit obligations
                                           
269
                             
269
             
269
 
Unrealized loss on derivatives
                                           
(2,704
)
                           
(2,704
)
           
(2,704
)
Comprehensive income
                                                                         
$
134,950
                 
                                                                                                 
BALANCE AS OF DECEMBER 31, 2018
   
105,066
   
$
418,492
   
$
1,380,396
   
$
20,758
   
$
93,226
   
$
(672
)
 
$
(22,716
)
 
$
(637,446
)
 
$
(9,072
)
         
$
(6,761
)
 
$
1,236,205
 
                                                                                                 
OUTSTANDING SHARES, NET OF TREASURY STOCK
AS OF DECEMBER 31, 2018
                                                                                               
   
104,980
                                                                                         
 
F - 5

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
   
Year ended December 31,
 
   
2018
   
2017
   
2016
 
CASH FLOWS - OPERATING ACTIVITIES
                 
                   
Net profit
 
$
133,379
   
$
301,656
   
$
209,166
 
                         
Adjustments to reconcile net profit for the period
                       
to net cash provided by operating activities:
                       
Income and expense items not involving cash flows:
                       
Depreciation and amortization
   
214,391
     
208,411
     
197,606
 
Effect of indexation, translation and fair value measurement on debt
   
(9,791
)
   
12,865
     
8,442
 
Other expense (income), net
   
2,442
     
2,627
     
(9,322
)
Gain from acquisition, net
   
--
     
--
     
(50,471
)
Changes in assets and liabilities:
                       
Trade accounts receivable
   
(3,096
)
   
(6,564
)
   
(30,104
)
Other current assets
   
11,260
     
(8,321
)
   
(265
)
Inventories
   
(26,344
)
   
(4,277
)
   
(22,069
)
Trade accounts payable
   
(3,562
)
   
(8,649
)
   
5,550
 
Deferred revenue and customers' advances
   
2,625
     
(21,803
)
   
23,581
 
Employee related liabilities and other current liabilities
   
(867
)
   
(8,219
)
   
(145
)
Long-term employee related liabilities
   
(795
)
   
(3,247
)
   
(798
)
Deferred tax, net
   
(5,354
)
   
(108,459
)
   
(4,564
)
Other long-term liabilities
   
(1,391
)
   
(385
)
   
861
 
Net cash provided by operating activities
   
312,897
     
355,635
     
327,468
 
                         
CASH FLOWS - INVESTING ACTIVITIES
                       
                         
Investments in property and equipment
   
(210,192
)
   
(187,676
)
   
(217,496
)
Proceeds related to sale of property and equipment
   
40,451
     
20,038
     
7,872
 
Investment grants received
   
--
     
2,921
     
--
 
Investments in other assets
   
(14,536
)
   
--
     
--
 
Deposits and marketable securities, net
   
(143,940
)
   
(80,643
)
   
(17,101
)
Net cash used in investing activities
   
(328,217
)
   
(245,360
)
   
(226,725
)
                         
CASH FLOWS - FINANCING ACTIVITIES
                       
                         
Issuance of debentures, net
   
--
     
--
     
113,149
 
Exercise of warrants and options, net
   
714
     
31,315
     
38,803
 
Proceeds from loans, net
   
98,990
     
--
     
55,960
 
Loans repayment
   
(142,285
)
   
(43,259
)
   
(132,018
)
Principal payments on account of capital lease obligation
   
(5,554
)
   
(781
)
   
--
 
Debentures repayment
   
--
     
(6,215
)
   
--
 
Dividend paid to Panasonic
   
--
     
(4,378
)
   
(2,563
)
Net cash provided by (used in) financing activities
   
(48,135
)
   
(23,318
)
   
73,331
 
                         
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE
   
2,585
     
3,720
     
5,635
 
                         
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(60,870
)
   
90,677
     
179,709
 
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
   
445,961
     
355,284
     
175,575
 
                         
CASH AND CASH EQUIVALENTS - END OF PERIOD
   
385,091
   
$
445,961
   
$
355,284
 
 
F - 6

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
   
Year ended December 31,
 
   
2018
   
2017
   
2016
 
                   
NON-CASH ACTIVITIES:
                 
                   
Investments in property and equipment
   
28,052
   
$
28,419
   
$
25,256
 
Conversion of notes into share capital
   
58,586
   
$
--
   
$
611
 
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                       
                         
Cash paid during the period for interest
   
11,835
   
$
14,068
   
$
10,543
 
Cash received during the period from interest
   
8,818
   
$
3,870
   
$
1,009
 
Cash paid during the period for income taxes, net
   
5,768
   
$
17,668
   
$
3,485
 
 
See notes to consolidated financial statements.
           
 
F - 7


 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 1        -        DESCRIPTION OF BUSINESS AND GENERAL
 
The consolidated financial statements of Tower Semiconductor Ltd. (“Tower”) include the financial statements of Tower, and (i) its wholly-owned subsidiary Tower US Holdings Inc., the sole owner of: (1) Jazz US Holdings Inc. and its wholly-owned subsidiary, Jazz Semiconductor, Inc., an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices (Jazz US Holdings Inc. and Jazz Semiconductor, Inc. collectively referred to herein as “Jazz”); and (2) since February 2016, Tower US Holdings is also the sole owner of TowerJazz Texas Inc. (“TJT”); and (ii) its 51% owned subsidiary, TowerJazz Panasonic Semiconductor Co., Ltd. (“TPSCo”), an independent semiconductor foundry which includes three semiconductor manufacturing facilities located in Tonami, Uozu and Arai, in Hokuriku Japan. Tower and its subsidiaries are collectively referred to as the “Company”.

The Company is a global specialty foundry leader manufacturing integrated circuits, offering a broad range of customizable process technologies including: SiGe, BiCMOS, mixed-signal/CMOS, RF CMOS, CMOS image sensor, integrated power management (BCD and 700V) and MEMS. The Company also provides a world-class design enablement platform for a quick and accurate design cycle, as well as Transfer Optimization and development Process Services (TOPS) to integrated device manufacturers (“IDMs”) and fabless companies that require capacity. To provide multi-fab sourcing and expanded capacity for its customers, the Company operates two manufacturing facilities in Israel (150mm and 200mm), two in the U.S. (200mm) and three in Japan through TPSCo (two 200mm and one 300mm), which provide leading edge 45nm CMOS, 65nm RF CMOS and 65nm 1.12um pixel technologies, including advanced image sensor technologies.

Tower’s ordinary shares are traded on the NASDAQ Global Select Market and on the Tel-Aviv Stock Exchange (“TASE”) under the symbol TSEM.

The Company’s consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“US GAAP”).
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
A.
     Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, affect the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

B.
Principles of Consolidation

The Company’s consolidated financial statements include the financial statements of Tower and its subsidiaries. The Company’s consolidated financial statements are presented after elimination of inter-company transactions and balances.
 
F - 8

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
C.
Cash and Cash Equivalents

Cash and cash equivalents consist of cash, bank deposits and short-term investments with original maturities of three months or less.

D.
Short-Term Interest-Bearing Deposits

Short-term deposits include bank deposits with original maturities greater than three months and to be matured within 12 months from balance sheet date.

E.
Marketable securities

The Company accounts for investments in debt securities in accordance with ASC 320 "Investments - Debt and Equity Securities". Management determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determinations at each balance sheet date.

Marketable securities classified as "available-for-sale" are carried at fair value, based on quoted market prices. Unrealized gains and losses are reported in a separate component of shareholders' equity in accumulated other comprehensive income (“OCI”). Gains and losses are recognized when realized, on a specific identification basis, in the Company's consolidated statements of income.

The Company's securities are reviewed for impairment in accordance with ASC 320-10-35. If such assets are considered to be impaired, the impairment charge is recognized in earnings when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period and the Company's intent to sell, including whether it is more likely than not that the Company will be required to sell the investment before recovery of cost basis. For securities with an unrealized loss that the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of their amortized cost basis, the entire difference between amortized cost and fair value is recognized in earnings.

For securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while declines in fair value related to other factors are recognized in OCI.

If quoted prices for identical instruments are available in an active market, marketable securities are classified within Level 1 of the fair value hierarchy. If quoted prices for identical instruments in active markets are not available, fair values are estimated using quoted prices of similar instruments and are classified within Level 2 of the fair value hierarchy.

F - 9

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
F.
Trade Accounts Receivables - Allowance for Doubtful Accounts

The allowance for doubtful accounts is computed on the specific identification basis for accounts whose collectability, in the Company’s estimation, is uncertain. As of December 31, 2018 and 2017, the amounts in the allowance for doubtful accounts totaled to $4,208 and $608, respectively, $3,000 of which is included in 2018 from one customer located in the Far East region.

G.
Inventories

Inventories are stated at the lower of aggregate cost or net realizable value. If inventory costs exceed expected net realizable value, the Company records reserves for the difference between the cost and the expected net realizable value. Cost of raw materials is determined mainly on the basis of the weighted average moving price per unit.

H.
Property and Equipment

The Company accounts for property and equipment in accordance with Accounting Standards Codification ASC 360 “Accounting for the Property, Plant and Equipment”. Property and equipment are presented at cost, including capitalizable costs. Capitalizable costs include only costs that are identifiable with, and related to the property and equipment and are incurred prior to their initial operation. Identifiable incremental direct costs include costs associated with constructing, establishing and installing property and equipment.

Maintenance and repairs are charged to expenses as incurred.

Property and equipment are presented net of investment grants received, and less accumulated depreciation.

Depreciation is calculated based on the straight-line method over the Company’s estimated useful lives of the assets, as follows:
 
Buildings and building improvements, including facility infrastructure
10-25 years
Machinery and equipment, software and hardware
3-15 years
 
Impairment charges, if needed, are determined based on the policy outlined in S below.

F - 10

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
 H.
Property and Equipment (Cont.)

The Company determines lease classification based on the criteria established in ASC 840. When the Company determines, based on the criteria, that a lease should be classified as capital lease, an asset and corresponding liability is recognized. Each capital lease is recorded as an asset and an obligation at an amount that is equal to the present value of the minimum lease payments over the lease term. Assets under capital lease are part of property plant and equipment and are depreciated accordingly.

I.
Intangible Assets and Goodwill

The Company accounts for intangible assets and goodwill in accordance with ASC 350 “Intangibles-Goodwill and Other”. Intangible assets include the values assigned to the intangible assets as part of the purchase price allocation made at the time of acquisition.
 
Intangible assets are amortized over the expected estimated economic life of the intangible assets commonly used in the industry. Goodwill is not amortized and subject to impairment test. Impairment charges on intangibles or goodwill, if needed, are determined based on the policy outlined in S below.

J.
Deferred Tax Asset and Other Long-Term Assets, Net

Deferred tax asset and other assets, net include: (i) deferred tax asset as described in Note 18; (ii) fair market value of derivative instrument used in hedging of Debentures Series G, see T below and (iii) prepaid long-term lease payments to the Israel Land Administration (“ILA”) for the land on which the Company’s Israeli fabs are established, net of accumulated amortization over the lease period, see also Note 14C.

K.
Debentures - Classification of Liabilities and Equity of Convertible Debentures

Convertible debentures are evaluated to determine whether they include conversion features or other embedded derivatives that warrant bifurcation. The Company applies ASC 815-40 “Contract in Entity’s Own Equity” in determining whether an instrument that may be settled in Tower’s shares is also considered indexed to a company’s own stock, for the purpose of classification of the instrument as a liability or equity.

L.
Revenue Recognition

ASC Topic 606 “Revenue from Contracts with Customers (“Topic 606”), supersedes the revenue recognition requirements and industry-specific guidance under Revenue Recognition. Topic 606 requires an entity to recognize revenue when it transfers the control of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. The Company adopted Topic 606 on January 1, 2018, using the modified retrospective method applied to contracts that were not completed as of January 1, 2018.

F - 11

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)

NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
L.
Revenue Recognition (cont.)

Under the modified retrospective method, prior period financial positions and results are not adjusted. There was no transition adjustment to the company’s retained earning upon adoption.
 
The Company’s revenues are generated principally from sales of semiconductor wafers. The Company, to a much lesser extent, also derives revenues from design support and other technical and support services incidental to the sale of semiconductor wafers. The vast majority of the Company’s sales are achieved through the effort of its direct sales force.
 
Wafer sales are recognized at a point in time, which is upon shipment or upon delivery of the Company’s products to unaffiliated customers, depending on shipping terms. Accordingly, control of the products transfers to the customer in accordance with the transaction's shipping terms. Sales revenue is recognized for the amount of consideration that the Company expects to be entitled to in exchange for its products. Taxes imposed by governmental authorities, such as sales taxes or value-added taxes, are excluded from net sales. The Company’s contracts typically contain a single performance obligation that is fulfilled on the date of delivery based on shipping terms stipulated in the contract.

The Company provides for sales returns allowance relating to specified yield or quality commitments as a reduction of revenues, based on past experience and specific identification of events necessitating an allowance, which has been in immaterial amounts.
 
The Company provides its customers with other services that are less significant in scope and amount and for which recognition is over time when customer receives the services.
 
M.
Research and Development

Research and development costs are charged to operations as incurred. Amounts received or receivable from the government of Israel and others, as participation in research and development programs, are offset against research and development costs. The accrual for grants receivable is determined based on the terms of the programs, provided that the criteria for entitlement have been met.

N.
Income Taxes

The Company accounts for income taxes using an asset and liability approach as prescribed in ASC 740-10 “Income Taxes” (“ASC 740-10”). This topic prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred taxes are computed based on the tax rates anticipated (under applicable law as of the balance sheet date) to be in effect when the deferred taxes are expected to be paid or realized. Deferred tax assets and liabilities, as well as any related valuation allowance, are classified as noncurrent in a classified statement of financial position.
 
F - 12

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
N.
Income Taxes (cont.)

The Company evaluates realizability of its deferred tax assets for each jurisdiction in which the Company operates at each reporting date and establishes valuation allowances when it is more likely than not that all or a part of its deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the same character and in the same jurisdiction. The Company considers all available positive and negative evidence in making this assessment, including, but not limited to, the scheduled reversal of deferred tax liabilities and projected future taxable income. In circumstances where there is sufficient negative evidence indicating that the Company's deferred tax assets are not more-likely-than-not realizable, the Company establishes a valuation allowance, see Note 18.

ASC 740-10 prescribes a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate tax positions taken or expected to be taken in a tax return by assessing whether they are more-likely-than-not sustainable, based solely on their technical merits, upon examination and including resolution of any related appeals or litigation process. The second step is to measure the associated tax benefit of each position as the largest amount that the Company believes is more-likely-than-not realizable. Differences between the amount of tax benefits taken or expected to be taken in its income tax returns and the amount of tax benefits recognized in its financial statements, represent the Company's unrecognized income tax benefits. The Company's policy is to include interest and penalties related to unrecognized income tax benefits as a component of income tax expense.

O.
Earnings Per Ordinary Share

Basic earnings per share are calculated in accordance with ASC 260, “Earnings Per Share” by dividing profit or loss attributable to ordinary equity holders of Tower (the numerator) by the weighted average number of ordinary shares outstanding during the reported period (the denominator). Diluted earnings per share are calculated, if applicable, by adjusting profit attributable to ordinary equity holders of Tower, and the weighted average number of ordinary shares, taking into effect all potential dilutive ordinary shares.

P.
Comprehensive Income

In accordance with ASC 220 “Comprehensive Income”, comprehensive income represents the change in shareholders’ equity during a reporting period from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a reporting period except those resulting from investments by owners and distributions to owners. Other comprehensive income (“OCI”) represents gains and losses that are included in comprehensive income but excluded from net income.

F - 13

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
Q.
Functional Currency and Exchange Rate Income (Loss)

The currency of the primary economic environment in which Tower, TJT and Jazz conduct their operations is the U.S. Dollar (“dollar”). Thus, the dollar is their functional and reporting currency. Accordingly, monetary accounts maintained in currencies other than the dollar are re-measured into dollars in accordance with ASC 830-10 “Foreign Currency Matters”. All transaction gains and losses from the re-measurement of monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate. The financial statements of TPSCo, whose functional currency is the Japanese Yen (“JPY”), have been translated into dollars. The assets and liabilities have been translated using the exchange rate in effect as of the balance sheet date.
 
The statement of operations of TPSCo has been translated using the average exchange rate for the reported period. The resulting translation adjustments are charged or credited to OCI.

R.
Stock-Based Compensation

The Company applies the provisions of ASC Topic 718 “Compensation - Stock Compensation”, under which employees’ share-based equity awards are accounted for under the fair value method. Accordingly, stock-based compensation granted to employees and directors is measured at the grant date, based on the fair value of the grant. The Company uses the straight-line attribution method to recognize stock-based compensation costs over the vesting period of the grant, except for grants that involve performance criteria, for which an accelerated method is used.

S.
Impairment of Assets

Impairment of Property, Equipment and Intangible Assets
The Company reviews long-lived assets and intangible assets on a periodic basis, as well as when such a review is required based upon relevant circumstances, to determine whether events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, considering the undiscounted cash flows expected from it. If applicable, the Company recognizes an impairment loss based upon the difference between the carrying amount and the fair value of such assets, in accordance with ASC 360-10 “Property, Plant and Equipment”.

Impairment of Goodwill
The Company evaluates goodwill qualitatively for impairment at least annually or whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. If the Company determines that a quantitative analysis is necessary, the impairment test for goodwill is currently a two-step process. Step one consists of a comparison of the fair value of a reporting unit against its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount of the reporting unit is in excess of its fair value, step two requires the comparison.

Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss.
 
F - 14

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
S.
Impairment of Assets (cont.)

Impairment of Goodwill (cont.)
The Company uses the income approach methodology of valuation that includes discounted cash flows to determine the fair value of the unit. Significant management judgment is required in the forecasts of future operating results used for this methodology.

T.
Fair value of Financial Instruments and Fair Value Measurements

ASC 820, "Fair Value Measurements and Disclosures" (“ASC 820”), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
 
ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
 
Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
 
Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
 
The Company's financial instruments of cash, bank deposits, marketable securities, account receivable and payables, accrued liabilities, loans and leases approximate their current fair values because of their nature and respective maturity dates or durations. The Company had no financial assets or liabilities carried and measured on a non-recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.

F - 15

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
U.
Derivatives and hedging
 
Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation.
 
For derivative instruments designated as fair value hedges, the gains (losses) are recognized in earnings in the periods of change together with the offsetting losses (gains) on the hedged items attributed to the risk being hedged.
 
For derivative instruments designated as cash flow hedges, the effective portion of the gains (losses) on the derivatives is initially reported as a component of OCI and is subsequently recognized in earnings when the hedged exposure is recognized in earnings. Gains (losses) on derivatives representing either hedge components excluded from the assessment of effectiveness or hedge ineffectiveness are recognized in earnings.
 
For derivative instruments that are not designated as hedges, gains (losses) from changes in fair values are primarily recognized in the same line of the item economically hedged.

V.          Accounts Receivable Factoring
 
From time to time, the Company uses non-recourse factoring arrangements, to sell accounts receivable to third-party financial institutions. The sale of the receivables in these arrangements are accounted for as a true sale.

W.
Reclassification and Presentation

Certain amounts in prior years’ financial statements have been reclassified in order to conform to the 2018 presentation.

X.          Recently Adopted Accounting Pronouncements
 
Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, which provides a principles-based, five-step approach to measure and recognize revenue from contracts with customers. Adoption of this ASU did not have a material effect on the Company’s financial position, results of operations or cash flows.
 
In October 2016, the FASB issued ASU 2016-16 to require the recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party, the amendments in this Update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments are effective January 1, 2018, and for interim periods within that year. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.


F - 16

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
Y.
Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement” Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels. The ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and regarding the range and weighted average of unobservable inputs used in Level 3 fair value measurements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The removal of certain disclosures is to be applied retrospectively for all periods presented, but the additional required disclosures are to be prospectively applied, and early application is permitted. The Company does not expect any transfers between Level 1 and Level 2 of the fair value hierarchy, and as of December 31, 2018, it has no assets or liabilities with fair value measurements in Level 3 of the fair value hierarchy. Accordingly, it does not expect adoption of this ASU to have a material effect on its financial position, results of operations or cash flows.

In June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation” (“Topic 718”): Improvements to Nonemployee Share-Based Payment Accounting. This ASU expands the scope of Topic 718 to include accounting for share-based payments for acquiring goods and services from non-employees except for specific guidance on assumptions used in an option pricing model and expense attribution. Topic 718is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. The Company currently does not have any stock-based instruments outstanding to non-employees and does not anticipate any such awards in the foreseeable future. Accordingly, the Company does not expect adoption of this ASU to have a material effect on its financial position, results of operations or cash flows.

In February 2018, the FASB issued ASU No. 2018-02 “Reporting Comprehensive Income” (“ASU 2018-02”): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU is intended to help companies reclassify certain stranded income tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”), which was enacted in December 2017. ASU 2018-02 provides for the elimination of stranded tax effects of the Act by allowing reclassification of stranded tax effects from AOCI to retained earnings. This ASU is applicable only to tax effects relating to the Act, and the existing guidance regarding effects of other changes in tax laws is not affected. This ASU was early adopted for the year ended December 31, 2018 and had no material effect on the Company’s consolidated financial statements.
F - 17

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
Y.
Recently Issued Accounting Pronouncements (cont.)
 
In January 2017, the FASB issued ASU 2017-04, which clarified its guidance to simplify the measurement of goodwill by eliminating the Step 2 impairment test. The new guidance requires companies to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendment will be effective beginning in its first quarter of fiscal year 2020. The amendment is required to be adopted prospectively. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The guidance is effective beginning in the first quarter of fiscal year 2018. The adoption of this guidance did not have an impact on the Company’s operating results.

In August 2017, the FASB issued (ASU 2017-12, which targets improvements to accounting for hedging activities which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company early adopted this guidance with no impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01 to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The provisions under this amendment are effective January 1, 2018, and for interim periods within that year. The impact of ASU 2016-01 on the Company’s consolidated financial statements was immaterial.
 
F - 18

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 2        -        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
 
Y.
Recently Issued Accounting Pronouncements (cont.)
 
In February 2016, the FASB issued ASU 2016-02 “Leases” (“ASU 2016-02”), which primarily changes the leases accounting for operating leases by requiring recognition of lease right-of-use assets and lease liabilities. The amendments are effective January 1, 2019, and for interim periods within that year, with early adoption permitted.  In July 2018, the FASB issued ASU 2018-10 “Codification Improvements to Topic 842, Leases,” to clarify application of certain aspects of the new leases standard and to remove inconsistencies within the guidance and ASU 2018-11 “Targeted Improvements”(“ ASU 2018-11 “), which provides for an alternate transition method.  Specifically, ASU 2018-11 allows the new lease standard to be applied as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings rather than retroactive restatement of all periods presented.   The Company has identified all existing operating and financing leases and is in the process of determining the present value of existing lease assets and liabilities under the new guidance.  The Company is also currently finalizing processes and controls to identify, classify and measure new leases in accordance with ASU 2016-02. 

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments Credit Losses. This update requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The update is effective January 1, 2020, and for interim periods within that year. Early adoption is permitted only after January 1, 2019.  The Company has previously incurred immaterial amount of bad debt and expecting no material impact from adopting this guidance on its consolidated financial statements and disclosures.
 
In November 2016, the FASB issued ASU 2016-18 to require amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective January 1, 2018, and for interim periods within that year. The adoption of this guidance did not have an impact on the Company’s consolidated financial statements.
 
NOTE 3        -        INVENTORIES
 
Inventories consist of the following:
 
   
As of December 31,
 
   
2018
   
2017
 
Raw materials
 
$
72,144
   
$
48,220
 
Work in process
   
92,047
     
92,764
 
Finished goods
   
6,587
     
2,331
 
   
$
170,778
   
$
143,315
 

Work in process and finished goods are presented net of aggregate write-downs to net realizable value of $1,206 and $1,352 as of December 31, 2018 and 2017, respectively.

F - 19

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 4        -        OTHER CURRENT ASSETS
 
Other current assets consist of the following:
 
   
As of December 31,
 
   
2018
   
2017
 
Tax receivables
 
$
3,997
   
$
9,144
 
Prepaid expenses
   
14,170
     
11,634
 
Interest on deposits and other receivables
   
4,585
     
738
 
   
$
22,752
   
$
21,516
 
 
NOTE 5        -        LONG-TERM INVESTMENTS
 
Long-term investments consist of the following:
 
   
As of December 31,
 
   
2018
   
2017
 
Severance-pay funds, net
 
$
13,615
   
$
13,317
 
Long-term interest bearing bank deposit
   
12,500
     
12,500
 
Others
   
9,830
     
256
 
   
$
35,945
   
$
26,073
 

NOTE 6        -        PROPERTY AND EQUIPMENT, NET
 
Composition
 
   
As of December 31,
 
   
2018
   
2017
 
Original cost:
           
Land and Buildings (including facility infrastructure)
 
$
347,798
   
$
343,247
 
Machinery and equipment          
   
2,482,609
     
2,282,042
 
   
$
2,830,407
   
$
2,625,289
 
Accumulated depreciation:
               
Buildings (including facility infrastructure)
 
$
(224,796
)
 
$
(215,515
)
Machinery and equipment
   
(1,948,377
)
   
(1,774,650
)
   
$
(2,173,173
)
 
$
(1,990,165
)
                 
   
$
657,234
   
$
635,124
 

As of December 31, 2018 and 2017, the original cost of land, buildings, machinery and equipment was reflected net of investment grants in the aggregate amount of $285,636 and $285,930, respectively.

F - 20

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 6        -        PROPERTY AND EQUIPMENT, NET (cont.)
 
The following is the composition of the leased equipment under capital lease agreements included under “machinery and equipment” above:

   
As of December 31,
 
   
2018
   
2017
 
Original cost - machinery and equipment
 
$
53,441
   
$
16,630
 
Accumulated depreciation - machinery and equipment
   
(5,500
)
   
(306
)
   
$
47,941
   
$
16,324
 
 
NOTE 7        -        INTANGIBLE ASSETS, NET
 
Intangible assets consist of the following as of December 31, 2018:

   
Useful Life
(years)
   
 
Cost
   
Accumulated Amortization
   
 
Net
 
Technologies
   
4;5;9
   
$
110,835
   
$
(108,888
)
 
$
1,947
 
Facilities lease
   
19
     
33,500
     
(22,953
)
   
10,547
 
Patents and other core technology rights
   
9
     
15,100
     
(15,100
)
   
--
 
Trade name
   
9
     
7,671
     
(7,547
)
   
124
 
Customer relationships
   
15
     
2,600
     
(1,783
)
   
817
 
Others
   
--
     
1,000
     
(1,000
)
   
--
 
Total identifiable intangible assets
         
$
170,706
   
$
(157,271
)
 
$
13,435
 

Intangible assets consist of the following as of December 31, 2017:

   
Useful Life
(years)
   
 
Cost
   
Accumulated Amortization
   
 
Net
 
Technologies
   
4;5;9
   
$
110,310
   
$
(103,897
)
 
$
6,413
 
Facilities lease
   
19
     
33,500
     
(21,665
)
   
11,835
 
Patents and other core technology rights
   
9
     
15,100
     
(15,100
)
   
--
 
Trade name
   
9
     
7,612
     
(7,009
)
   
603
 
Customer relationships
   
15
     
2,600
     
(1,610
)
   
990
 
Others
   
--
     
1,000
     
(1,000
)
   
--
 
Total identifiable intangible assets
         
$
170,122
   
$
(150,281
)
 
$
19,841
 
 
F - 21

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2018
(dollars in thousands, except per share data)
 
NOTE 8        -        DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET
 
Deferred tax and other long-term assets, net consist of the following:

   
As of December 31,
 
   
2018
   
2017
 
Deferred tax asset (see Note 18)
 
$
73,460
   
$
82,852
 
Prepaid long-term land lease, net (see Note 14C)
   
3,296
     
3,417
 
Fair value of cross currency interest rate swap (see Note 12D)
   
6,722
     
18,005
 
Long-term prepaid expenses and others
   
4,926
     
6,995
 
   
$
88,404
   
$
111,269
 
 
NOTE 9        -        OTHER CURRENT LIABILITIES
 
Other current liabilities consist of the following:
 
   
As of December 31,
 
   
2018
   
2017
 
Tax payables
 
$
12,096
   
$
8,567
 
Interest payable
   
986
     
3,160
 
Others
   
4,035
     
4,159
 
   
$
17,117
   
$
15,886
 
 
NOTE 10       -       DEBENTURES
 
A.
Composition by Repayment Schedule:

   
As of December 31, 2018
 
   
Interest rate
   
2019
   
2020
   
2021
   
2022
   
2023
   
Total
 
Debentures Series G (see B below)
   
2.79
%
 
$
--
   
$
35,676
   
$
35,676
   
$
35,676
   
$
17,839
   
$
124,867
 
Total outstanding principal amounts of debentures
         
$
--