TOWER SEMICONDUCTOR LTD - 928876 - 2024
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of February 2024 No.5
 
Commission File Number 0-24790
 
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 of Form 20-F or Form 40-F:
 
Form 20-F ☒          Form 40-F ☐
 

On February 29, 2024, the Registrant announced its financial results for the year ended December 31, 2023. Attached hereto are the following exhibits:
 
 
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 29, 2024
By:
/s/ Nati Somekh  
  Name: Nati Somekh  
  Title: Corporate Secretary  
 

TOWER SEMICONDUCTOR LTD - 928876 - 2024
Marketable securities are available-for-sale securities; the amortized cost of such marketable securities of $188,826 and $181,247 as of December 31, 2023 and December 31, 2022, respectively, is presented net of an immaterial allowance for credit losses. Original cost includes ROU assets under capital lease in the amount of $204,230 and $223,716 as of December 31, 2023 and 2022, respectively. The depreciation expense of such assets amounted to $18,307 and $14,215 for the years ended December 31, 2023 and 2022, respectively. http://fasb.org/us-gaap/2023#LongTermDebtNoncurrenthttp://fasb.org/us-gaap/2023#OtherAssetshttp://fasb.org/us-gaap/2023#LongTermDebtNoncurrenthttp://fasb.org/us-gaap/2023#DebtCurrentExcluding accrued interest of $1,250. 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Exhibit 99.1
 
 
TOWER SEMICONDUCTOR LIMITED
AND SUBSIDIARIES
 
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2023
 

 
TOWER SEMICONDUCTOR LIMITED AND SUBSIDIARIES
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page
  
F-2 - F-3
  
F-4
  
F-5
  
F-6
  
F-7
  
F-8 - F-9
  
F-10 - F-52
 

https://cdn.kscope.io/58737d3a9efd6e83db8220ff548c1416-image0.jpg
 
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, 2023 and 2022, the related consolidated statements of operations, comprehensive income, changes in shareholders' equity and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
Critical Audit Matter
 
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
 
Income Taxes — Income Tax Provision — Refer to Note 19 to the financial statements
 
Critical Audit Matter Description
 
The Company's provision for income taxes is affected by income taxes in a multinational tax environment. The income tax provision is an estimate determined based on current enacted tax laws and tax rates at each of its geographic locations with the use of acceptable allocation methodologies based upon the Company’s organizational structure, the Company’s operations and business mode of work, and result in applicable local taxable income attributable to those locations. For the year-ended December 31, 2023, the consolidated provision for income taxes was $65.3 million comprised of amounts related to Israel, Japan, U.S. and Italy operations, as detailed in Note 19.
 
F - 2

 
We identified management’s determination of the taxable income and its related income tax provision as a critical audit matter because of the significant judgements and estimates management makes related to the charges between the sites located in different tax jurisdictions, the consideration of different tax status in each jurisdiction. This required a high degree of auditor judgement and an increased extent of effort, including the need to involve our income tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimate of the income tax provision.
 
How the Critical Audit Matter Was Addressed in the Audit
 
Our audit procedures related to the determination of the taxable income allocation and income tax provision included the following, among others:
 
 
We obtained the taxable income allocation used in calculating the income tax provision and tested that the taxable income allocation between Israel and corporate operations and the other subsidiaries is appropriate based on the specified services and margins determined in the Company's transfer pricing studies.
 
 
We tested the effectiveness of controls over the Company’s process to allocate its taxable income between the different subsidiaries based on the Company's transfer pricing studies.
 
 
We read and evaluated management’s documentation, including information obtained by management from external tax specialists that detailed the basis of the uncertain tax positions.
 
 
With the assistance of our income tax specialists, we evaluated:
 
 
The appropriateness of the transfer pricing analysis, including the transfer pricing methods and profit level indicators and ranges provided within the transfer pricing studies conducted by the Company’s external tax specialists.
 
 
The appropriateness of the transfer pricing methodology implemented by management as provided in the transfer pricing studies.
 
 
The relevant facts by reading the Company’s correspondence with the relevant tax authorities and any third-party advice obtained by the Company.
   
 

The Company’s measurement of uncertain tax positions related to transfer pricing based on our knowledge of international and local income tax laws, as well as historical settlement activity from income tax authorities.

 
/s/ Brightman Almagor Zohar & Co.
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in The Deloitte Global Network

 

Tel Aviv, Israel
February 29, 2024

 

We have served as the Company's auditor since 1993.
 
https://cdn.kscope.io/58737d3a9efd6e83db8220ff548c1416-image00003.jpg
 
F - 3

 
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars and shares in thousands)
 
   
As of
 
   
December 31,
 
   
2023
   
2022
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
 
$
260,664
   
$
340,759
 
Short-term deposits
   
790,823
     
495,359
 
Marketable securities (*)
   
184,960
     
169,694
 
Trade accounts receivable
   
154,067
     
152,935
 
Inventories
   
282,688
     
302,108
 
Other current assets
   
35,956
     
34,319
 
Total current assets
   
1,709,158
     
1,495,174
 
LONG-TERM INVESTMENTS
   
8,452
     
8,796
 
PROPERTY AND EQUIPMENT, NET
   
1,155,929
     
962,258
 
INTANGIBLE ASSETS, NET
   
5,115
     
7,031
 
GOODWILL
   
7,000
     
7,000
 
DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET
   
32,863
     
67,349
 
TOTAL ASSETS
 
$
2,918,517
   
$
2,547,608
 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Current maturities of long-term debt
 
$
58,952
   
$
62,275
 
Trade accounts payable
   
139,128
     
150,930
 
Deferred revenue and customers' advances
   
18,418
     
38,911
 
Employee related liabilities
   
51,054
     
58,920
 
Other current liabilities
   
9,286
     
76,352
 
Total current liabilities
   
276,838
     
387,388
 
LONG-TERM DEBT
   
172,611
     
210,069
 
LONG-TERM CUSTOMERS' ADVANCES
   
25,710
     
40,893
 
EMPLOYEE RELATED LIABILITIES
   
6,098
     
7,711
 
DEFERRED TAX AND OTHER LONG-TERM LIABILITIES
   
10,221
     
13,006
 
TOTAL LIABILITIES
   
491,478
     
659,067
 
Ordinary shares of NIS 15 par value:
   
443,631
     
440,150
 
150,000 authorized as of December 31, 2023 and 2022
               
110,912 and 110,825 issued and outstanding, respectively, as of December 31, 2023
               
110,041 and 109,954 issued and outstanding, respectively, as of December 31, 2022
               
Additional paid-in capital
   
1,380,917
     
1,384,398
 
Cumulative stock based compensation
   
202,343
     
174,121
 
Accumulated other comprehensive loss
   
(52,935
)
   
(47,537
)
Retained earnings (accumulated deficit)
   
467,615
     
(50,879
)
     
2,441,571
     
1,900,253
 
Treasury stock, at cost - 87 shares
   
(9,072
)
   
(9,072
)
THE COMPANY'S SHAREHOLDERS' EQUITY
   
2,432,499
     
1,891,181
 
Non-controlling interest
   
(5,460
)
   
(2,640
)
TOTAL SHAREHOLDERS' EQUITY
   
2,427,039
     
1,888,541
 
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
2,918,517
   
$
2,547,608
 

 

(*) Marketable securities are available-for-sale securities; the amortized cost of such marketable securities of $188,826 and $181,247 as of December 31, 2023 and December 31, 2022, respectively, is presented net of an immaterial allowance for credit losses.
 
See notes to consolidated financial statements.
 

F - 4


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share data)
 
   
Year ended December 31,
 
   
2023
   
2022
   
2021
 
REVENUES
 
$
1,422,680
   
$
1,677,614
   
$
1,508,166
 
COST OF REVENUES
   
1,069,161
     
1,211,306
     
1,179,048
 
GROSS PROFIT
   
353,519
     
466,308
     
329,118
 
OPERATING COSTS AND EXPENSES:
                       
Research and development
   
79,808
     
83,911
     
85,386
 
Marketing, general and administrative
   
72,454
     
80,282
     
77,221
 
Restructuring gain from sale of machinery and equipment, net
   
(52,168
)
   
(20,243
)
   
-
 
Restructuring expense
   
19,662
     
10,684
     
-
 
Merger-contract termination fee, net
   
(313,501
)
   
-
     
-
 
     
(193,745
)
   
154,634
     
162,607
 
                         
OPERATING PROFIT
   
547,264
     
311,674
     
166,511
 
FINANCING INCOME (EXPENSE), NET
   
30,531
     
(12,767
)
   
(12,873
)
OTHER INCOME (EXPENSE), NET
   
7,047
     
(6,934
)
   
1,461
 
PROFIT BEFORE INCOME TAX
   
584,842
     
291,973
     
155,099
 
INCOME TAX EXPENSE, NET
   
(65,312
)
   
(25,502
)
   
(1,024
)
NET PROFIT
   
519,530
     
266,471
     
154,075
 
Net income attributable to non-controlling interest
   
(1,036
)
   
(1,902
)
   
(4,063
)
NET PROFIT ATTRIBUTABLE TO THE COMPANY
 
$
518,494
   
$
264,569
   
$
150,012
 
BASIC EARNINGS PER SHARE
                       
Earnings per share
 
$
4.70
   
$
2.42
   
$
1.39
 
Weighted average number of shares
   
110,289
     
109,349
     
108,279
 
DILUTED EARNINGS PER ORDINARY SHARE:
                       
Earnings per share
 
$
4.66
   
$
2.39
   
$
1.37
 
Net profit used for diluted earnings per share
   
518,494
   
$
264,569
   
$
150,012
 
Weighted average number of ordinary shares outstanding
                       
used for diluted earnings per share
   
111,216
     
110,754
     
109,798
 
 
See notes to consolidated financial statements.
         

 

F - 5


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
 
   
Year ended December 31,
 
   
2023
   
2022
   
2021
 
Net profit
 
$
519,530
   
$
266,471
   
$
154,075
 
Other comprehensive income, net of tax:
                       
Foreign currency translation adjustment
   
(15,761
)
   
(27,595
)
   
(18,995
)
Change in employees plan assets and benefit obligations, net of taxes
   
(222
)
   
(938
)
   
709
 
Unrealized gain (loss) on derivatives and marketable securities
   
4,769
     
(690
)
   
(859
)
Comprehensive income
   
508,316
     
237,248
     
134,930
 
Comprehensive loss attributable to non-controlling interest
   
4,780
     
7,667
     
3,708
 
Comprehensive income attributable to the Company
 
$
513,096
   
$
244,915
   
$
138,638
 
 
See notes to consolidated financial statements.
         
 

F - 6


 

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
   
Retained
                         
   
Ordinary
   
Ordinary
   
Additional
         
other
   
currency
   
earnings
               
Non
       
   
shares
   
shares
   
paid-in
   
Unearned
   
comprehensive
   
translation
   
(accumulated
   
Treasury
   
Comprehensive
   
controlling
       
   
issued
   
amount
   
capital
   
compensation
   
income (loss)
   
adjustments
   
deficit)
   
stock
   
income
   
interest
   
Total
 
BALANCE AS OF JANUARY 1, 2021
   
108,010
   
$
430,996
   
$
1,393,095
   
$
124,762
   
$
(262
)
 
$
(16,247
)
 
$
(465,460
)
 
$
(9,072
)
       
$
(2,910
)
 
$
1,454,902
 
Changes during the year ended December 31, 2021:
                                                                                     
Exercise of options and RSUs
   
960
     
4,457
     
(4,044
)
                                                         
413
 
Employee stock-based compensation
                           
25,144
                                                   
25,144
 
Other comprehensive income:
                                                                                     
Profit
                                                   
150,012
           
$
150,012
     
4,063
     
154,075
 
Foreign currency translation adjustments
                                           
(11,224
)
                   
(11,224
)
   
(7,771
)
   
(18,995
)
Change in employees plan assets and benefit obligations
                                   
709
                             
709
             
709
 
Unrealized loss on derivatives and marketable securities
                                   
(859
)
                           
(859
)
           
(859
)
Comprehensive income
                                                                 
$
138,638
                 
BALANCE AS OF DECEMBER 31, 2021
   
108,970
     
435,453
     
1,389,051
     
149,906
     
(412
)
   
(27,471
)
   
(315,448
)
   
(9,072
)
           
(6,618
)
   
1,615,389
 
                                                                                         
Changes during the year ended December 31, 2022:
                                                                                       
Proceeds from an investment in a subsidiary
                                                                           
11,645
     
11,645
 
Exercise of options and RSUs
   
1,071
     
4,697
     
(4,653
)
                                                           
44
 
Employee stock-based compensation
                           
24,215
                                                     
24,215
 
Other comprehensive income:
                                                                                       
Profit
                                                   
264,569
           
$
264,569
     
1,902
     
266,471
 
Foreign currency translation adjustments
                                           
(18,026
)
                   
(18,026
)
   
(9,569
)
   
(27,595
)
Change in employees plan assets and benefit obligations
                                   
(938
)
                           
(938
)
           
(938
)
Unrealized loss on derivatives and marketable securities
                                   
(690
)
                           
(690
)
           
(690
)
Comprehensive income
                                                                 
$
244,915
                 
BALANCE AS OF DECEMBER 31, 2022
   
110,041
     
440,150
     
1,384,398
     
174,121
     
(2,040
)
   
(45,497
)
   
(50,879
)
   
(9,072
)
           
(2,640
)
   
1,888,541
 
                                                                                         
Changes during the year ended December 31, 2023:
                                                                                       
Proceeds from an investment in a subsidiary
                                                                           
1,960
     
1,960
 
Exercise of options and RSUs
   
871
     
3,481
     
(3,481
)
                                                           
--
 
Employee stock-based compensation
                           
28,222
                                                     
28,222
 
Other comprehensive income:
                                                                                       
Profit
                                                   
518,494
           
$
518,494
     
1,036
     
519,530
 
Foreign currency translation adjustments
                                           
(9,945
)
                   
(9,945
)
   
(5,816
)
   
(15,761
)
Change in employees plan assets and benefit obligations
                                   
(222
)
                           
(222
)
           
(222
)
Unrealized gain on derivatives and marketable securities
                                   
4,769
                             
4,769
             
4,769
 
Comprehensive income
                                                                 
$
513,096
                 
BALANCE AS OF DECEMBER 31, 2023
   
110,912
   
$
443,631
   
$
1,380,917
   
$
202,343
   
$
2,507
   
$
(55,442
)
 
$
467,615
   
$
(9,072
)
         
$
(5,460
)
 
$
2,427,039
 
                                                                                         
OUTSTANDING SHARES, NET OF TREASURY STOCK
AS OF DECEMBER 31, 2023
   
110,825
                                                                                 
 
See notes to consolidated financial statements.
 

F - 7


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
   
Year ended December 31,
 
   
2023
   
2022
   
2021
 
CASH FLOWS - OPERATING ACTIVITIES
                 
Net profit for the period
 
$
519,530
   
$
266,471
   
$
154,075
 
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
   
258,021
     
292,638
     
270,710
 
Effect of exchange rate differences and fair value adjustment
   
(1,632
)
   
10,362
     
1,138
 
Other expense (income), net
   
(7,047
)
   
6,934
     
(1,461
)
Changes in assets and liabilities:
                       
Trade accounts receivable
   
(3,160
)
   
(15,232
)
   
14,335
 
Other current assets
   
(9,541
)
   
20,427
     
(26,731
)
Inventories
   
8,682
     
(77,891
)
   
(44,192
)
Trade accounts payable
   
(8,254
)
   
(20,893
)
   
(25,004
)
Deferred revenue and customers' advances
   
(35,676
)
   
(30,069
)
   
74,524
 
Employee related liabilities and other current liabilities
   
(70,163
)
   
61,033
     
16,850
 
Long-term employee related liabilities
   
(1,210
)
   
2,956
     
(2,681
)
Deferred tax, net and other long-term liabilities
   
27,011
     
13,084
     
(10,270
)
Net cash provided by operating activities
   
676,561
     
529,820
     
421,293
 
CASH FLOWS - INVESTING ACTIVITIES
                       
Investments in property and equipment, net
   
(444,502
)
   
(366,403
)
   
(313,808
)
Proceeds related to sale and disposal of property and equipment
   
12,318
     
152,866
     
34,548
 
Proceeds from investment realization
   
12,458
     
2,574
     
-
 
Investments in other assets
   
(605
)
   
(1,037
)
   
(1,792
)
Deposits and marketable securities, net
   
(300,516
)
   
(117,448
)
   
(57,892
)
Net cash used in investing activities
   
(720,847
)
   
(329,448
)
   
(338,944
)
CASH FLOWS - FINANCING ACTIVITIES
                       
Proceeds from an investment in a subsidiary
   
1,932
     
11,685
     
-
 
Exercise of options, net
   
-
     
44
     
458
 
Proceeds from loans
   
24,180
     
-
     
96,143
 
Loans repayment
   
-
     
-
     
(97,174
)
Principal payments on account of capital lease obligation
   
(38,033
)
   
(38,536
)
   
(35,391
)
Debentures repayment
   
(18,493
)
   
(39,843
)
   
(40,893
)
Net cash used in financing activities
   
(30,414
)
   
(66,650
)
   
(76,857
)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE
   
(5,395
)
   
(3,893
)
   
(6,245
)
                         
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   
(80,095
)
   
129,829
     
(753
)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
   
340,759
     
210,930
     
211,683
 
CASH AND CASH EQUIVALENTS - END OF PERIOD
 
$
260,664
   
$
340,759
   
$
210,930
 
 
See notes to consolidated financial statements.

 

F - 8


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 
   
Year ended December 31,
 
   
2023
   
2022
   
2021
 
NON-CASH ACTIVITIES:
                 
Investments in property and equipment
 
$
164,667
   
$
169,376
   
$
$ 65,634
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                       
Cash received during the period from interest
 
$
30,475
   
$
12,358
   
$
$ 5,590
 
Cash paid during the period for interest
 
$
4,519
   
$
4,458
   
$
$ 4,561
 
Cash paid for income taxes, net during the period
 
$
12,739
   
$
12,802
   
$
$ 8,288
 
 
See notes to consolidated financial statements.
 
F - 9

 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(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) Tower Semiconductor NPB Holdings, Inc. and its wholly-owned subsidiary, Tower Semiconductor Newport Beach, Inc., an independent semiconductor foundry (Tower Semiconductor NPB Holdings, Inc. and Tower Semiconductor Newport Beach, Inc. collectively referred to herein as “TSNB”); and (2) Tower Semiconductor San Antonio, Inc. ( (“TSSA”); (ii) its 51% owned subsidiary, Tower Partners Semiconductor Co., Ltd. (“TPSCo”), an independent semiconductor foundry which operated three semiconductor facilities located in Tonami, Uozu and Arai (one of which, the Arai facility, ceased its operations in June 2022, (see Note 14B2), in Hokuriku Japan. The other 49% of TPSCo’s shares are held by Nuvoton Technology Corporation Japan (“NTCJ”), formerly named “Panasonic Semiconductor Systems Co., Ltd.” (“PSCS”); and (iii) its wholly-owned subsidiary Tower Semiconductor Italy S.r.l. (“TSIT”), incorporated during 2021 following the collaborative arrangement signed in June 2021 with ST Microelectronics S.r.l (“ST”) according to which TSIT will share a new 300 mm facility with ST in Agrate, Italy. TSIT is currently installing certain tools in the Agrate facility and developing certain processes and technologies that it expects to qualify and ramp-up at said facility (see Note 14E).
 
Tower and its subsidiaries are collectively referred to as the “Company”.
 
The Company is a leading global analog foundry of high value semiconductor solutions, providing technology, development and process platforms for integrated circuits (ICs) in growing markets offering a broad range of customizable process technologies including: SiGe, SiPho, mixed signal CMOS, RF CMOS, CMOS image sensor, non-imaging sensors and integrated power management. 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 capabilities for its customers, as of December 31, 2023, the Company owns two facilities in Israel (150mm and 200mm), two in the U.S. (200mm), two in Japan through TPSCo (one 200mm and one 300mm), is sharing clean room and capacity in a 300mm facility in Italy with ST, and has signed a contract to establish a capacity corridor in Intel Corporation’s (“Intel”) 300mm facility in New Mexico, USA (see Note 14F). 
 
Tower’s ordinary shares are traded on the NASDAQ Global Select Market and on the Tel-Aviv Stock Exchange (“TASE”) under the symbol TSEM.
 
On February 15, 2022, Intel and Tower announced the signing of a definitive agreement under which Intel was to acquire all of Tower’s outstanding ordinary shares for cash consideration of $53 per share, however, the closing conditions for this transaction were not met since certain regulatory approvals were not received, hence, on August 16, 2023, Intel and Tower announced the termination of this agreement. Pursuant to the terms of the agreement, and in connection with the termination, Intel paid Tower a termination fee of $353,000, which is presented, net of associated fees, in a separate line within the statement of operations for the year ended December 31, 2023 in the amount of $313,501.

 

F - 10


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
A. Basis of Presentation
 
The Company’s consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“US GAAP”).
 
B. Use of Estimates in Preparation of Financial Statements
 
The preparation of financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.
 
C. Principals 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.
 
D. Reclassifications
 
Certain prior year amounts have been reclassified to conform to the current financial statement presentation.
 
E. Cash and Cash Equivalents
 
Cash and cash equivalents consist of cash, highly liquid bank deposits and money market funds readily convertible to known amounts of cash with original maturities of three months or less as of the date of its purchase.
 
F.  Short Term Interest-Bearing Deposits
 
Short-term deposits include bank deposits with original maturities greater than three months and with remaining maturities of less than one year. Such deposits are presented at cost, including accrued interest, which approximates their fair value.
 
G. Marketable Securities
 
The Company accounts for its investments in grade debt securities in accordance with ASC 320 "Investments - Debt 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.
 
The Company classifies its marketable securities as "available-for-sale", as the Company intends to hold them for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity, mix of the Company’s assets and liabilities, liquidity needs and other similar factors. Securities classified as available for sale are measured at fair value, based on quoted market prices or independent pricing services valuation. Gains and losses are recognized on a specific identification basis, in the Company's consolidated statements of operations.
 

F - 11


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

G. Marketable Securities (continued)

 

Unrealized gains and losses are recorded in (i) the statement of other comprehensive income in periods the Company has no specific need and/or plan to use cash by selling such securities, or (ii) in the statement of operations as financing expense (income) in periods the Company has a specific need and/or intends to sell such securities.
 
The Company assessed the available-for-sales debt securities with an amortized cost basis in excess of estimated fair value to determine what amount of that difference, if any, is caused by expected credit losses in accordance with ASC 326, "Financial Instruments - Credit Losses".
 
Allowance for credit losses is recognized as a charge in financing income (expense), net, on the consolidated statements of operation, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income in shareholders' equity.
 
The Company concluded that the current expected credit losses on its available-for-sale investment portfolio were immaterial.
 
H. Trade Accounts Receivable - Allowance for Expected Credit Loss
 
The Company maintains an allowance based on specific analysis of each customer account receivable’s aging, assessment of its related risk and ability of the customer to make the required payment. In addition, in accordance with ASC 326, "Financial Instruments - Credit Losses", an allowance is maintained for such estimated expected losses. The amount of the allowance is determined principally on the basis of past collection experience and known financial factors regarding specific customers. Trade accounts receivables are written off using this allowance when it is probable that collection will not occur. Credit is extended to customers satisfying pre-defined credit criteria.
 
The total allowance for expected credit losses was $4,790 and $3,460 as of December 31, 2023 and 2022, respectively.
 
I.  Inventories
 
Inventories are stated at the lower of aggregate cost or net realizable value. If inventory costs exceed expected net realizable value, the Company writes-down 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. Work in progress is measured at cost including acquisition costs, processing costs and other costs incurred in bringing the inventories to their present stage.
 

F - 12


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

J.  Investments in Privately Held Companies
 
Long-term investments include equity investments in privately-held companies without readily determinable fair values. In accordance with ASC 321 - “Investments - Equity Securities”, the Company may elect to measure those investments at fair value or at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer (“Measurement Alternative”). The Company elected to use the Measurement Alternative for each of its investments. Any adjustments resulting from impairments and/or observable price changes are recorded under “other income (expense), net” in the consolidated statements of operations. See also Note 2M below.
 
K. 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 facilities and equipment, as well as technology transfer.
 
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 Note 2M below.
 
Property and equipment also include assets under capital leases, which are depreciated according to their applicable useful life.
 
L. 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 commonly used in the industry. Goodwill is not amortized and subject to impairment testing. Impairment charges on intangibles or goodwill, if needed, are determined based on the policy outlined in Note 2M below.
 

F - 13


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
M. 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 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 them. 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”. As of December 31, 2023, the Company concluded there was no impairment to its long-lived assets and intangible assets.
 
Impairment of Goodwill
 
The Company performs a qualitative analysis when testing goodwill for impairment. A qualitative goodwill impairment test is performed when the fair value of a reporting unit historically has significantly exceeded the carrying value of its net assets and based on current operations is expected to continue to exceed it. Otherwise, the Company is required to conduct a quantitative impairment test and estimate the fair value of the reporting unit using a combination of an income approach based on discounted cash flow analysis and a market approach based on market multiples. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recorded for the difference. As of December 31, 2023, the Company performed a qualitative impairment test for its reporting unit and concluded there was no impairment of goodwill.
 
Impairment of Investment in Privately Held Companies
 
Investments in privately held companies accounted for using the Measurement Alternative are subject to periodic impairment reviews. Based on ASC 321-10-35-3, the Company’s impairment analysis considers qualitative factors to evaluate whether the investment is impaired. As of December 31, 2023, no impairments were recorded.
 

F - 14


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

N. Leases
 
The Company recognize a right-of-use asset (“ROU”) and lease liability for all operating and capital leases with a term greater than twelve months upon lease arrangement inception.
 
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the terms of lease contracts. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Since most of the Company’s leases do not provide an implicit rate, the Company's incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. For additional information, see Notes 11D and 11E.
 
O. Revenue Recognition
 
The Company recognizes revenue in accordance with ASC 606 “Revenue from Contracts with Customers“ when it transfers the control of promised goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
 
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. Most of the Company’s sales are achieved through the effort of its direct sales and business development force.
 
Wafer sales typically contain a single performance obligation that is fulfilled on the date of delivery and recognized at a point in time, which is upon shipment of the Company’s products to unaffiliated customers, depending on shipping terms stipulated in the contract. Accordingly, control of the products transfers to the customer in accordance with the transaction's shipping terms. Taxes imposed by governmental authorities, such as sales taxes or value-added taxes, are excluded from net sales.
 
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 relevant events, 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 occurs over time when customers receive the services.
 

F - 15


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

P.  Research and Development
 
Research and development costs are charged to operations as incurred. Amounts received or receivable from the government of Israel and others, such as participation in research and development programs, are offset from 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. As of December 31, 2023, the grants receivable amount was immaterial.
 
Q. Income Taxes
 
The Company accounts for income taxes using an asset and liability approach as prescribed in ASC 740-10 “Income Taxes”. 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 measured using the enacted tax rates under applicable law effective for the year in which the differences are expected to reverse as of the balance sheet date. Deferred tax assets and liabilities, as well as any related valuation allowance, are classified as noncurrent items on the balance sheets.
 
The Company evaluates the potential realization 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 deferred tax assets and projected future taxable income.
 
A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized based on all available evidence.
 
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 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.
 

F - 16


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
Q. Income Taxes (continued)

 

In December 2021, the OECD released Pillar Two model rules imposing on large multinational corporations, with revenue above €750 million, a minimum effective corporate income tax rate of 15% in every jurisdiction in which they operate. As of January 1, 2024, the rules have been enacted or partially enacted in certain jurisdictions in which the Company operates. The Company is studying the rules and its potential impact on its future consolidated financial statements and tax payments, including the rules’ transitional safe harbors, which may enable to postpone the application of the rules to the Company until after January 1, 2026.
 
R. Earnings per Ordinary Share
 
Basic earnings per share are calculated in accordance with ASC 260, “Earnings Per Share” by dividing net 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 net profit attributable to ordinary equity holders of Tower, and the weighted average number of ordinary shares, taking into effect all potential dilutive ordinary shares.
 
S. 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 profit.
 
T.  Functional Currency and Exchange Rate Results
 
The currency of the primary economic environment in which Tower, TSSA, TSNB and TSIT 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 statements of operations of TPSCo have been translated using the average exchange rate for the reported period. The resulting translation adjustments are charged or credited to OCI.
 

F - 17


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

U. Stock-based Compensation
 
The Company applies the provisions of ASC Topic 718 “Compensation - Stock Compensation”, under which employees’ share-based equity awards (mostly restricted stock units and performance unit shares) are recognized based on the grant-date fair values.
 
The compensation costs are recognized using the graded vesting attribution method based on the vesting terms of each unit included in the award resulting in an accelerated recognition of compensation costs.
 
V. Fair Value Measurements of Financial Instruments
 
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 carrying value of the Company’s bank deposits, account receivables, payables and accrued liabilities, approximate their current fair values in accordance with 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 such as marketable securities and investments in privately-held companies.
 

F - 18


 

TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
W. Derivatives and Hedging
 
In accordance with ASC Topic 815, Derivative and Hedging ("ASC 815"), the Company recognizes all its derivative instruments as either assets or liabilities and carries them at fair value.
 
For derivative instruments that are designated and qualify as cash flow hedges, the derivative's gain or loss is initially reported as a component of OCI and is subsequently reclassified into earnings when the hedged exposure affects earnings, in the same line item as the underlying hedged item on the consolidated statements of earnings.
 
Cash flow hedges related to anticipated transactions are designated and documented at the inception of each hedge. Cash flows from hedging transactions are classified in the same categories as the cash flows from the respective hedged items.
 
X. Recently Adopted Accounting Pronouncements
 
The Company did not adopt any new standards or updates issued by the Financial Accounting Standards Board (“FASB”) during the fiscal year of 2023 that had a material impact on the Company’s financial position, results of operations, cash flows or financial statement disclosures.

 

Y. Recently Issued Accounting Pronouncements Not Yet Adopted
 
On December 23, 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09— Income taxes (topic 740): improvements to income tax disclosures.
 
Rate reconciliation:
 
The amendments in this Update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). Specifically, public business entities are required to disclose a tabular reconciliation, using both percentages and reporting currency amounts.
 
Income Taxes Paid:
 
The amendments in this Update require that all entities disclose on an annual basis the following information about income taxes paid: (1) The amount of income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and (2) The amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received).
 

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TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2023

(dollars in thousands, except per share data)