UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
OR
For the fiscal year ended
OR
OR
Commission File number:
_______________________________________________
(Exact name of registrant as specified in its charter and translation of registrant’s name into English)
________________________________________________________________________________
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
_____________________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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|
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Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ |
☐ Accelerated filer |
☐ Non-accelerated filer |
☐ Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |
Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
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A. |
[RESERVED.] |
B. |
CAPITALIZATION AND INDEBTEDNESS
|
C. |
REASONS FOR THE OFFER AND
USE OF PROCEEDS |
D. |
RISK FACTORS |
• |
Other foundries may bid against us to acquire potential targets. This competition may result in decreased availability of, or increased
prices for, suitable acquisition candidates; |
• |
We may not be able to obtain the necessary regulatory or other approvals, and as a result, or for other reasons, we may fail to consummate
certain acquisitions; |
• |
Potential acquisitions and execution of an expansion plan may require the dedication of substantial management effort, time and resources
which may divert management from our existing business operations or other strategic opportunities; |
• |
We may not be able to retain experienced management and skilled employees from the businesses we acquire and, if we cannot retain
such personnel, we may not be able to attract new skilled employees and experienced management to replace them; |
• |
We may purchase a company with excessive unknown contingent liabilities and/ or a cost structure that is not as beneficial as anticipated
from the preliminary evaluation or that includes high cost that may result in losses incurred by us if we do not succeed in maintaining
high manufacturing levels to cover its cost; |
• |
We may not be able to obtain sufficient financing which could limit our ability to engage in certain acquisitions and strategic engagements;
and |
• |
The amount or terms of financing actually required before and after acquisition may vary from our expectations, resulting in a need
for more funding that may not be available to us in order to finance the acquisition, the operations of the target acquisition and/or
the acquisition of additional equipment that may be required to increase and/or adjust the target’s manufacturing line to address
our customer demand and specific technology flows, which may adversely affect our liquidity and balance sheet position. |
• |
JPY and NIS fluctuations against the USD -- see the risk factor below entitled: “Our exposure to currency exchange and interest
rate fluctuations may impact our costs and financial results”; |
• |
the burden and cost of compliance with foreign government regulation, as well as compliance with a variety of foreign laws, and the
imposition of regulatory requirements, tariffs, import and export restrictions and other trade barriers and restrictions, including the
timing and availability of export licenses and permits; |
• |
general geopolitical risks, such as political and economic instability, international terrorism, potential hostilities and changes
in diplomatic and trade relationships; |
• |
adverse foreign and international tax rules and regulations, such as withholding taxes deducted from amounts due to us
and not refunded to us by the tax authorities since we are not entitled to foreign tax credit in Israel; |
• |
weak protection of our intellectual property rights in certain foreign countries; |
• |
delays in product shipments due to local customs restrictions; |
• |
laws and business practices favoring local companies; |
• |
difficulties in collecting accounts receivable; and |
• |
difficulties and costs of staffing and managing foreign operations. |
• |
limiting our ability to fulfill our debt obligations and other liabilities; |
• |
requiring the use of a substantial portion of our cash to service our indebtedness rather than investing our cash to fund our strategic
growth opportunities and plans, working capital and capital expenditures; |
• |
increasing our vulnerability to adverse economic and industry conditions; |
• |
limiting our ability to obtain additional financing; |
• |
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete;
|
• |
placing us at a competitive disadvantage with respect to less leveraged competitors and competitors that have better access
to capital resources; |
• |
volatility in our non-cash financing expenses due to increases in the fair value of our debt obligations; |
• |
fluctuations of the payable amounts in USD of the JP Loan or other expenses which are denominated in JPY; and |
• |
potential enforcement by the lenders of their liens against our respective assets, as applicable, if an event of default occurs.
|
• |
fluctuations in the level of revenues from our operating activities; |
• |
fluctuations in the collection of receivables; |
• |
timing and size of payables; |
• |
the timing and size of capital expenditures; |
• |
the net impact of JPY/ USD fluctuations on our JPY income and JPY cost; |
• |
the repayment schedules of our debt service obligations; |
• |
our ability to fulfill our obligations and meet performance milestones under our agreements; and |
• |
fluctuations in the USD to NIS exchange rate. |
• |
attempting to negotiate cross-license agreements, which we might not succeed in negotiating or consummating; |
• |
acquiring licenses to the allegedly infringed patents, which may not be available on commercially reasonable terms, if at all;
|
• |
discontinuing use of certain process technologies, architectures, or designs, which could cause us to stop manufacturing certain
integrated circuits if we are unable to design around the allegedly infringed patents; |
• |
litigating the matter in court, which may result in substantial legal fees and paying substantial monetary damages in the event we
lose; or |
• |
developing non-infringing technologies, which may not be feasible. |
• |
no governmental authority in any jurisdiction has by any law or order, restrained,
enjoined or otherwise prohibited the consummation of the Merger; | |
• |
expiration or termination of the applicable waiting period under the Hart Scott Rodino
Antitrust Improvements Act of 1976, as amended (the “HSR Act”); | |
• |
expiration or termination of the applicable waiting period, or, where applicable,
approvals have been obtained, and all notices to, filings with and consents of the applicable governmental authority have been made or
obtained under the Required Clearances (as defined in the Merger Proxy Statement); | |
• |
at least 50 days shall have elapsed after the filing of the Merger Proposal with the
Companies Registrar of the Israeli Corporations Authority and at least 30 days shall have
elapsed after the approval of the Merger Agreement, the Merger and the consummation of the Transactions by the Company’s shareholders
has been received; and | |
• |
no Company Material Adverse Effect (as defined in the Merger Proxy Statement, excepting
any effects that, individually or in the aggregate, would not prevent or materially impair the Company from consummating the Merger or
performing any of its material obligations under the Merger Agreement) shall have occurred since February 15, 2022, and be continuing.
|
• |
loss of current customers; | |
• |
limitation on the execution of our strategy to expand our business through mergers,
acquisitions and other investments, as well as our ability to raise additional funds through offerings of equity and/or debt and/or other
financial vehicles; | |
• |
the diversion of management and employee attention from implementing our growth strategy
in our existing markets or in new markets that we are targeting; | |
• |
potential diversion of public attention from our positioning of our independent brand
and products in a manner that appeals to customers; | |
• |
the fact that we have incurred and will continue to incur expenses related to the
Merger prior to its closing; | |
• |
our potential inability to respond effectively to competitive pressures, industry
developments and future opportunities, in particular, given certain restrictions, limitations and commitments stipulated in the Merger
Agreement; | |
• |
we could be subject to costly litigation associated with the Merger; and |
|
• |
our current and prospective employees may be uncertain about their future roles and
relationships with the Company following completion of the Merger, which may adversely affect our ability to attract and retain key personnel.
|
A. |
HISTORY AND DEVELOPMENT
OF THE COMPANY |
B. |
BUSINESS OVERVIEW
|
Year ended December 31, |
||||||||||||
2021 |
2020 |
2019 |
||||||||||
United States |
41 |
% |
44 |
% |
52 |
% | ||||||
Japan |
22 |
% |
28 |
% |
29 |
% | ||||||
Asia, excluding Japan |
30 |
% |
22 |
% |
15 |
% | ||||||
Europe |
7 |
% |
6 |
% |
4 |
% | ||||||
Total |
100 |
% |
100 |
% |
100 |
% |
• |
technology offering and future roadmap; |
• |
product performance; |
• |
system level technical expertise; |
• |
research and development capabilities; |
• |
access to intellectual property; |
• |
customer technical support; |
• |
design services; |
• |
product development kits (PDKs); |
• |
manufacturing operational performance; |
• |
quality systems; |
• |
product quality; |
• |
manufacturing yields; |
• |
customer support and service; |
• |
pricing; |
• |
management expertise; |
• |
strategic customer relationships; |
• |
capacity availability; and |
• |
stability and reliability of supply. |
C. |
ORGANIZATIONAL STRUCTURE
|
D. |
PROPERTY, PLANTS AND EQUIPMENT
|
A. |
OPERATING RESULTS
|
Year ended December 31, |
||||||||||||
2021 |
2020 |
2019 |
||||||||||
Statement of Operations Data: |
||||||||||||
Revenues |
100 |
% |
100 |
% |
100 |
% | ||||||
Cost of revenues |
78.2 |
81.6 |
81.4 |
|||||||||
Gross Profit |
21.8 |
18.4 |
18.6 |
|||||||||
Research and development expense |
5.7 |
6.1 |
6.2 |
|||||||||
Marketing, general and administrative expense |
5.1 |
5.1 |
5.4 |
|||||||||
Operating profit |
11.0 |
7.2 |
7.0 |
|||||||||
Financing income (expense), net |
(0.8 |
) |
0.2 |
0.0 |
||||||||
Other income (expense), net |
0.1 |
(0.4 |
) |
0.3 |
||||||||
Profit before tax |
10.3 |
7.0 |
7.3 |
|||||||||
Income tax expense, net |
(0.1 |
) |
(0.4 |
) |
(0.2 |
) | ||||||
Net profit |
10.2 |
6.6 |
7.1 |
|||||||||
Net loss (income) attributable to non-controlling interest |
(0.3 |
) |
(0.1 |
) |
0.2 |
|||||||
Net profit attributable to the Company |
9.9 |
% |
6.5 |
% |
7.3 |
% |
B. |
LIQUIDITY AND CAPITAL RESOURCES
|
C. |
RESEARCH AND DEVELOPMENT,
PATENTS AND LICENSES, ETC. |
D. |
TREND INFORMATION
|
E. |
CRITICAL ACCOUNTING ESTIMATES
|
A. |
DIRECTORS AND SENIOR MANAGEMENT
|
Officer |
Senior Management Name |
Age |
Title(s) | |||
A |
Russell C. Ellwanger |
67 |
Chief Executive Officer and Director of Tower, and Chairman of the Board of Directors
of its subsidiaries Tower Semiconductor USA, Inc., Tower US Holdings, Inc., Tower Semiconductor NPB Holdings, Inc., Tower Semiconductor
Newport Beach, Inc., Tower Partners Semiconductor Co., Ltd. and Tower Semiconductor San Antonio, Inc. | |||
B |
Oren Shirazi |
52 |
Chief Financial Officer, Senior Vice President of Finance | |||
C |
Rafi Mor |
58 |
Chief Operating Officer | |||
D |
Dr. Marco Racanelli |
55 |
Newport Beach Site Manager and Senior Vice President and General Manager of Analog
Business Unit | |||
E |
Nati Somekh |
47 |
Senior Vice President, Chief Legal Officer and Corporate Secretary | |||
F |
Yossi Netzer |
58 |
Senior Vice President of Corporate Planning | |||
G |
Dalit Dahan |
53 |
Senior Vice President of Human Resources and IT | |||
H |
Guy Eristoff |
59 |
Chief Strategy Officer and Head of Pathfinder Activities | |||
I |
Dr. Avi Strum |
60 |
Senior Vice President and General Manager of the Sensors and Displays Business Unit
| |||
J |
Dani Ashkenazi |
59 |
Senior Vice President Excellence and Quality | |||
K |
Noit Levy |
38 |
Senior Vice President of Investor Relations and Corporate Communications
| |||
Directors Name(*) |
Age |
Title | ||||
L |
Amir Elstein |
66 |
Chairman of the Board of Directors | |||
M |
Kalman Kaufman |
76 |
Director | |||
N |
Dana Gross |
54 |
Director | |||
O |
Ilan Flato |
65 |
Director | |||
P |
Yoav Z. Chelouche |
68 |
Director | |||
Q |
Iris Avner |
57 |
Director | |||
R |
Michal Vakrat Wolkin |
50 |
Director | |||
S |
Avi Hasson |
51 |
Director |
B. |
COMPENSATION |
• |
the education, skills, expertise and achievements of the relevant office holder; |
• |
the role and responsibilities of the office holder, and prior compensation arrangements with the office holder; |
• |
the ratio of the cost of the terms of employment of an office holder to the cost of compensation of the other employees of the company
(including any employees employed through manpower companies), specifically to the cost of the average and median salaries of such employees
and the impact of the disparities between them upon work relationships in the company; |
• |
with respect to variable compensation, the possibility of reducing variable compensation at the discretion of the board of directors,
and the possibility of setting a limit on the exercise value of non-cash variable equity-based compensation; and |
• |
with respect to severance compensation, the period of employment or service of the office holder, the terms of his or her compensation
during such period, the company’s performance during such period, the person’s contribution towards the company’s achievement
of its goals and the maximization of its profits, and the circumstances under which the person is leaving the company. |
C. |
BOARD PRACTICES |
• |
The company’s shares are listed on certain foreign stock exchanges listed in the Relief Regulations, which include the NASDAQ
Global Select Market; |
• |
The company does not have a controlling shareholder; and |
• |
The company complies with the requirements of the securities laws and stock exchange regulations in the foreign jurisdiction where
its shares are listed relating to the appointment of independent directors and composition of audit and compensation committees as applicable
to companies that are incorporated under the laws of such foreign jurisdiction. |
• |
retaining and terminating our independent auditors, subject to the ratification of the board of directors, and in the case of retention,
to that of the shareholders, as applicable in accordance with the Companies Law; |
• |
pre-approving of audit and non-audit services and related fees and terms, to be provided by the independent auditors; |
• |
overseeing the accounting and financial reporting processes of our company and audits of our financial statements, the effectiveness
of our internal control over financial reporting and making such reports as may be required of an audit committee under the rules and
regulations promulgated under the Exchange Act; |
• |
reviewing with management and our independent auditor our annual and quarterly financial statements prior to publication or filing
(or submission, as the case may be); |
• |
recommending to the board of directors the retention and termination of the internal auditor, and the internal auditor’s engagement
fees and terms, in accordance with the Companies Law as well as approving the yearly or multi-year plan proposed by the internal auditor,
and review the results and findings of internal audits; |
• |
overviewing Company risk assessment and reviewing regulatory compliance; |
• |
determining whether to approve certain related party transactions (including transactions in which an office holder has a personal
interest) and whether any such transaction is extraordinary or material under Companies Law; |
• |
determining whether a competitive process must be implemented for the approval of certain transactions with controlling shareholders
or its relative or in which a controlling shareholder has a personal interest (whether or not the transaction is an extraordinary transaction),
under the supervision of the audit committee or other party determined by the audit committee and in accordance with standards to be determined
by the audit committee, or whether a different process determined by the audit committee should be implemented for the approval of such
transactions; |
• |
determining the process for the approval of certain transactions with controlling shareholders or in which a controlling shareholder
has a personal interest that the audit committee has determined are not extraordinary transactions but are not immaterial transactions;
and |
• |
responsible for the handling of employees’ complaints as to the management of our business and the protection to be provided
to such employees. |
• |
recommending to the Board of Directors for its approval (i) a compensation policy for officers and directors, (ii) once every three
years, whether to extend the compensation policy, subject to receipt of the required corporate approvals approval (either a new compensation
policy or the continuation of an existing compensation policy must in any case occur every three years); and (iii) periodic updates to
the compensation policy. In addition, the compensation committee is required to periodically review the implementation of the compensation
policy; |
• |
approving transactions relating to the terms of office and employment of office holders (within the meaning of the Companies Law),
which require the approval of the compensation committee pursuant to the Companies Law; and |
• |
reviewing and approving equity grants to non-executive employees under our equity-based incentive plans. |
• |
overseeing and assisting our board of directors in reviewing and recommending nominees for election as directors; |
• |
assessing the performance of the members of our board of directors; |
• |
reviewing and recommending to our board of directors the structure and members of committees of the board; |
• |
assisting our board of directors in carrying out its responsibilities related to chief executive officer succession planning;
|
• |
reviewing and overseeing our corporate governance practices and communication plans for shareholder meetings and to promote effective
communication for shareholder meetings; and |
• |
overseeing our commitment to Environmental, Social and Governance (ESG) matters and advising our board of directors on such matters.
|
D. |
EMPLOYEES |
As of December 31, |
||||||||||||
2021 |
2020 |
2019 |
||||||||||
Process and product engineering, R&D and design |
1,045 |
994 |
1,040 |
|||||||||
Manufacturing and operations |
4,168 |
3,858 |
3,569 |
|||||||||
Manufacturing support |
386 |
386 |
385 |
|||||||||
Sales and marketing, finance & administration |
288 |
273 |
285 |
|||||||||
Total |
5,887 |
5,511 |
5,279 |
E. |
SHARE OWNERSHIP |
A. |
MAJOR SHAREHOLDERS
|
Ordinary Shares Beneficially Owned |
||||||||
Name of Beneficial Owner |
Number |
Percent (1) |
||||||
Senvest Management, LLC (2) |
7,446,640 |
6.83 |
% | |||||
Clal Insurance Enterprises Holdings Ltd. (3) |
6,626,439 |
6.07 |
% |
(1) |
In accordance with the rules of the SEC, assumes (i) the holder’s beneficial ownership of outstanding ordinary shares and all
ordinary shares that the holder has a right to purchase within 60 days of March 31, 2022; and (ii) no other exercisable or convertible
securities held by other holders has been exercised or converted into ordinary shares. |
(2) |
Based solely upon, and qualified in its entirety with reference to, a notice provided to the Company by Senvest Management, LLC.
as of March 31, 2022. |
(3) |
Based solely upon and qualified in its entirety with reference to, a notice provided to the Company by Clal Insurance Enterprises
Holdings Ltd. as of March 31, 2022. |
B. |
RELATED PARTY TRANSACTIONS
|
C. |
INTERESTS OF EXPERTS AND
COUNSEL |
B. |
SIGNIFICANT CHANGES
|
A. |
SHARE CAPITAL |
B. |
MEMORANDUM AND ARTICLES
OF ASSOCIATION |
• |
amendments to our Articles of Association; |
• |
appointment, terms of engagement and termination of engagement of our independent auditors; |
• |
appointment and dismissal of our directors; |
• |
approval of certain related party transactions and certain officer and director compensation; |
• |
increase or reduction of authorized share capital in accordance with the provisions of the Companies Law or the rights of shareholders
or a class of shareholders; |
• |
any merger; and |
• |
the exercise of the Board of Directors’ powers by the general meeting, if the Board of Directors is unable to exercise its
powers and the exercise of any of its powers is essential for Tower’s proper management. |
C. |
MATERIAL CONTRACTS
|
D. |
EXCHANGE CONTROLS
|
E. |
TAXATION |
• |
if the interest or OID are business income in the hands of the recipient, |
• |
if the interest is recorded or should be recorded in the individual’s accounting books, |
• |
if the recipient is a substantial shareholder of the company, |
• |
if financing expenses related to the purchase of the debentures were deducted by the individual in the calculation of the individual’s
Israeli taxable income, or |
• |
if the individual is an employee, supplier, or service provider of the company or has another special relationship with the company
and the tax authorities have not been persuaded that the payment of interest was not affected by the relationship between the parties.
|
• |
if the recipient is a substantial shareholder of the company, |
• |
if the recipient is an affiliate of the company, or |
• |
if the individual is an employee, supplier, or service provider of the company and the tax authorities have not been persuaded that
the payment was not affected by the relationship between the parties. |
• |
Industrial companies meeting the criteria set out by the Investment Law for a “Preferred Income” of a “Preferred
Enterprise” (as defined below) will be eligible for flat tax rates of 7.5% or 16% in 2017 and thereafter, with the actual tax rates
determined by the location of the enterprise. The location of Tower's fabrication facilities in Israel (also referred to as “Zone
A”) entitles it to benefit from a tax rate of 7.5% on its Preferred Income. The tax incentives offered by the Investment Law are
no longer dependent neither on minimum qualified investments nor on foreign ownership. |
• |
A company can enjoy both government grants and tax benefits concurrently. Governmental grants will not necessarily be dependent on
the extent of enterprise’s investment in assets and/or equipment. The approval of “Preferred Enterprise” status by either
the Israel Tax Authority or the Investment Center will be accepted by the other. Therefore, a Preferred Enterprise may be eligible to
receive both tax incentives and government grants, under certain conditions. |
• |
Under the transition provisions, any tax benefits obtained prior to 2011 shall continue to apply until expired, unless the company
elects to apply the provisions of the new provisions to its income. |
• |
an individual citizen or resident of the United States; |
• |
a corporation created or organized in or under the laws of the United States or of any state of the United States or the District
of Columbia; |
• |
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
• |
a trust if the trust has elected validly to be treated as a United States person for U.S. federal income tax purposes or if a U.S.
court is able to exercise primary supervision over the trust’s administration and one or more United States persons have the authority
to control all of the trust’s substantial decisions. |
• |
insurance companies; |
• |
dealers in stocks, securities or currencies; |
• |
financial institutions and financial services entities; |
• |
real estate investment trusts; |
• |
regulated investment companies; |
• |
persons that receive ordinary shares as compensation for the performance of services; |
• |
tax-exempt organizations; |
• |
persons that hold ordinary shares as a position in a straddle or as part of a hedging, conversion or other integrated instrument;
|
• |
individual retirement and other tax-deferred accounts; |
• |
expatriates of the United States; |
• |
persons (other than Non-U.S. Holders) having a functional currency other than the U.S. dollar; and |
• |
direct, indirect or constructive owners of 10% or more, by voting power or value, of us. |
• | (a) | the stock of that corporation with respect to which the dividends are paid is readily tradable on an established securities market in the U.S., or |
• | (b) | that corporation is eligible for benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The Internal Revenue Service has determined that the U.S.-Israel Tax Treaty is satisfactory for this purpose. |
• |
that gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States, or
|
• |
in the case of any gain realized by an individual Non-U.S. Holder, that holder is present in the United States for 183 days or more
in the taxable year of the sale or exchange, and other conditions are met. |
• | (1) | a U.S. person; |
• | (2) | the government of the U.S. or the government of any state or political subdivision of any state (or any agency or instrumentality of any of these governmental units); |
• | (3) | a controlled foreign corporation; |
• | (4) | a foreign partnership that is either engaged in a U.S. trade or business or whose United States partners in the aggregate hold more than 50% of the income or capital interests in the partnership; |
• | (5) | a foreign person that derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the U.S.; or |
• | (6) | a U.S. branch of a foreign bank or insurance company. |
F. |
DIVIDENDS AND PAYING AGENTS
|
G. |
STATEMENT BY EXPERTS
|
H. |
DOCUMENTS ON DISPLAY
|
I. |
SUBSIDIARY INFORMATION
|
2021 |
2020 |
|||||||
(US dollars in Thousands) |
||||||||
Audit Fees (1) |
835 |
833 |
||||||
Audit Related Fees (2) |
9 |
2 |
||||||
Tax Fees (3) |
2 |
12 |
||||||
846 |
847 |
• |
Distribution of certain reports to shareholders. As opposed to the Nasdaq Listing Rule 5250(d), which requires listed issuers to
make annual reports available to shareholders in one of a number of specific manners, Israeli law does not require that we distribute
annual reports, including our financial statements. As such, the generally accepted business practice in Israel is to distribute such
reports to shareholders through a public regulated distribution website. In addition to making such reports available on a public regulated
distribution website, we plan to make our audited financial statements available to our shareholders at our offices and will only mail
such reports to shareholders upon request. |
• |
Independent director meetings. Our Board has not adopted a policy of conducting regularly scheduled meetings at which only our independent
directors are present, as permitted by Israeli law. We do not follow the requirements of Nasdaq Listing Rule 5605(b)(2). |
• |
Compensation of officers. We follow Israeli law and practice with respect to the approval of compensation for our chief executive
officer and other executive officers. While our compensation committee currently complies with the provisions of the Nasdaq Listing Rules
relating to composition requirements and Israeli law generally requires that the compensation of the chief executive officer and all other
executive officers be approved, or recommended to the board for approval, by the compensation committee (with respect to the compensation
of the chief executive officer and in certain other instances, shareholder approval is also required), Israeli law may differ from the
provisions provided for in the Nasdaq Listing Rule 5605(d) (see Exhibit 2.1 to this Annual Report, “Description of Securities”).
|
• |
Director nomination process. While our corporate governance and nominating committee currently complies with the provisions of the
Nasdaq Listing Rules relating to composition requirements, the process under which director nominees are selected, or recommended for
the Board of Directors selection, may not be in full compliance with the applicable Nasdaq Listing Rule 5605(e). Furthermore, although
we have adopted a formal written corporate governance and nominating committee charter, there is no requirement under the Companies Law
to do so and the charter as adopted may not be in full compliance with the requirements under Nasdaq Listing Rule 5605(e)(2). |
• |
Audit Committee Charter. Although we have adopted a formal written audit committee charter, there is no requirement under the Companies
Law to do so and the charter as adopted may not specify all the items enumerated in the Nasdaq Listing Rule 5605(c)(1). |
• |
Compensation Committee Charter. Although we have adopted a formal written compensation committee charter, there is no requirement
under the Companies Law to do so and the charter as adopted may not specify all the items enumerated in the Nasdaq Listing Rule 5605(d)(1).
|
• |
Quorum requirements. Under our articles of association and as permitted under the Companies Law, a quorum for any meeting of shareholders
shall be the presence of at least two shareholders holding a combined 33% of our outstanding ordinary shares, instead of 33 1/3% of the
issued share capital required under Nasdaq Listing Rule 5620(c). If the meeting was adjourned for lack of a quorum, if a quorum is not
present at the adjourned meeting within half an hour of the time fixed for the commencement of the adjourned meeting, the shareholders
present, in person or by proxy, shall constitute a quorum. |
• |
Related Party Transactions. We review and approve all related party transactions in accordance with the requirements and procedures
for approval of related party acts and transactions set forth in Sections 268 to 275 the Companies Law, which may not fully reflect the
requirements of the Nasdaq Listing Rule 5630. |
• |
Shareholder Approval. We seek shareholder approval for all corporate actions requiring such approval under the requirements of the
Companies Law, rather than seeking approval for corporate actions in accordance with Nasdaq Listing Rule 5635. Under the Companies Law,
shareholder approval is required (subject to certain limited exceptions) for, among other things: (a) transactions with directors concerning
the terms of their service (including indemnification, exemption, and insurance for their service or for any other position that they
may hold at a company), for which approvals of the compensation committee, board of directors, and shareholders are all required (subject
to exceptions) (see Exhibit 2.1 to this Annual Report, “Description of Securities”); (b) extraordinary transactions with controlling
shareholders of publicly held companies; (c) terms of office and employment or other engagement of a controlling shareholder, if any,
or such controlling shareholder’s relative; (d) approval of transactions with the chief executive officer with respect to his or
her compensation, or transactions with officers not in accordance with the approved compensation policy (see Exhibit 2.1 to this Annual
Report, “Description of Securities”); and (e) approval of the compensation policy for office holders (within the meaning of
the Companies Law) (see “Item 6 Directors, Senior Management and Employees–B. Compensation”). In addition, under the
Companies Law, a merger requires approval of the shareholders of each of the merging companies. |
TOWER SEMICONDUCTOR LIMITED
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page |
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( PCAOB ID |
F-2 - F-5 |
F-6 |
|
F-7 |
|
F-8 |
|
F-9 |
|
F-10 - F-11 |
|
F-12 - F-52 |
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
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.
F-2
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, 2021, the consolidated provision for income taxes was $1.02 million comprised of amounts related to Israel, Japan and U.S. operations, as detailed in Note 19.
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 ranges of outcomes utilized and the pricing conclusions reached within the transfer pricing studies conducted by the Company's external tax specialists. |
|
• |
The transfer pricing methodology utilized by management with alternative methodologies and industry benchmarks. |
|
• |
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 |
Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in The Deloitte Global Network
Tel Aviv, Israel
February 28, 2022
We have served as the Company's auditor since 1993.
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tower Semiconductor Ltd.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tower Semiconductor Ltd. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated February 28, 2022, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financing Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Certified Public Accountants
A Firm in The Deloitte Global Network
February 28, 2022
F - 5
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars and shares in thousands)
As of December 31, |
||||||||
2021 |
|
|
2020 |
|||||
ASSETS |
|
|
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|
|
|
||
CURRENT ASSETS |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
Short-term deposits |
|
|
|
|
|
|
|
|
Marketable securities (*) |
|
|
|
|
|
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|
|
Trade accounts receivable |
|
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Inventories |
|
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Other current assets |
|
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|
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|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
LONG-TERM INVESTMENTS |
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS, NET |
|
|
|
|
|
|
|
|
GOODWILL |
|
|
|
|
|
|
|
|
DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
|
|
|
$ |
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
|
|
|
$ |
|
|
Trade accounts payable |
|
|
|
|
|
|
|
|
Deferred revenue and customers' advances |
|
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Employee related liabilities |
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Other current liabilities |
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Total current liabilities |
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LONG-TERM DEBT |
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LONG-TERM CUSTOMERS' ADVANCES |
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EMPLOYEE RELATED LIABILITIES |
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|
|
DEFERRED TAX AND OTHER LONG-TERM LIABILITIES |
|
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|
|
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|
|
|
TOTAL LIABILITIES |
|
|
|
|
|
|
|
|
Ordinary shares of NIS |
|
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Additional paid-in capital |
|
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|
|
|
|
|
|
Cumulative stock based compensation |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Treasury stock, at cost - |
|
|
( |
) |
|
|
( |
) |
THE COMPANY'S SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Non-controlling interest |
|
|
( |
) |
|
|
( |
) |
TOTAL SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
|
$ |
|
|
|
$ |
|
|
(*)
the amortized cost of such marketable securities is $
See notes to consolidated financial statements.
F - 6
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share data)
Year ended December 31, |
||||||||||||
2021 |
2020 |
2019 |
||||||||||
REVENUES |
$ |
|
$ |
|
$ |
|
||||||
COST OF REVENUES |
|
|
|
|||||||||
GROSS PROFIT |
|
|
|
|||||||||
OPERATING COSTS AND EXPENSES: |
||||||||||||
Research and development |
|
|
|
|||||||||
Marketing, general and administrative |
|
|
|
|||||||||
|
|
|
||||||||||
|
||||||||||||
OPERATING PROFIT |
|
|
|
|||||||||
FINANCING INCOME (EXPENSE), NET |
( |
) |
|
|
|
|||||||
OTHER INCOME (EXPENSE), NET |
|
|
( |
) |
|
|
||||||
PROFIT BEFORE INCOME TAX |
|
|
|
|||||||||
INCOME TAX EXPENSE, NET |
( |
) |
( |
) |
( |
) |
||||||
NET PROFIT |
|
|
|
|||||||||
Net loss (income) attributable to non-controlling interest |
( |
) |
( |
) |
|
|||||||
NET PROFIT ATTRIBUTABLE TO THE COMPANY |
$ |
|
$ |
|
$ |
|
||||||
BASIC EARNINGS PER SHARE |
||||||||||||
Earnings per share |
$ |
|
$ |
|
$ |
|
||||||
Weighted average number of shares |
|
|
|
|||||||||
DILUTED EARNINGS PER ORDINARY SHARE: |
||||||||||||
Earnings per share |
$ |
|
$ |
|
$ |
|
||||||
Net profit used for diluted earnings per share |
$ |
|
$ |
|
$ |
|
||||||
Weighted average number of ordinary shares outstanding used for diluted earnings per share |
|
|
|
See notes to consolidated financial statements.
F - 7
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Year ended December 31, |
||||||||||||
2021 |
2020 |
2019 |
||||||||||
Net profit |
$ |
|
$ |
|
$ |
|
||||||
Other comprehensive income, net of tax: |
||||||||||||
Foreign currency translation adjustment |
( |
) |
|
|
||||||||
Change in employees plan assets and benefit obligations, net of taxes |
|
|
( |
) |
( |
) | ||||||
Unrealized gain (loss) on derivatives |
( |
) |
( |
) |
|
|
||||||
Comprehensive income |
|
|
|
|||||||||
Comprehensive loss (income) attributable to non-controlling interest |
|
|
( |
) |
|
|||||||
Comprehensive income attributable to the Company |
$ |
|
$ |
|
$ |
|
See notes to consolidated financial statements.
F - 8
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars and share data in thousands)
|
|
THE COMPANY'S SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
|
Ordinary shares issued |
|
|
Ordinary shares amount |
|
|
Additional paid-in capital |
|
|
Capital notes |
|
|
Unearned compensation |
|
|
Accumulated other comprehensive income (loss) |
|
|
Foreign currency translation adjustment |
|
|
Accumulated deficit |
|
|
Treasury stock |
|
|
Comprehensive income |
|
|
Non controlling interest |
|
|
Total |
|||||||||||||
BALANCE AS OF JANUARY 1, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
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|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
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$ |
( |
) |
|
$ |
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Changes during the period: |
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Exercise of options and RSUs |
|
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( |
) |
|
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Capital notes converted into share capital |
|
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|
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( |
) |
|
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||||||||||||||||||||||||||||||||
Employee stock-based compensation |
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Other comprehensive income: |
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Profit |
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$ |
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( |
) |
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|
Foreign currency translation adjustments |
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Change in employees plan assets and benefit obligations |
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( |
) |
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( |
) |
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( |
) |
Unrealized gain on derivatives |
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|
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
Comprehensive income |
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
BALANCE AS OF DECEMBER 31, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
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|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the period: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options and RSUs |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect upon adoption of ASC 326 |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in employees plan assets and benefit obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Unrealized loss on derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
BALANCE AS OF DECEMBER 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options and RSUs |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in employees plan assets and benefit obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
BALANCE AS OF DECEMBER 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
OUTSTANDING SHARES, NET OF TREASURY STOCK AS OF DECEMBER 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F - 9
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
|
|
Year ended December 31, |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
CASH FLOWS - OPERATING ACTIVITIES |
||||||||||||
Net profit for the period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate differences on debentures |
|
|
|
|
|
|
|
|
|
|
|
|
Other expense (income), net |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
|
|
|
|
|
( |
) |
|
|
|
|
Other current assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Inventories |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Trade accounts payable |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred revenue and customers' advances |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Employee related liabilities and other current liabilities |
|
|
|
|
|
|
|
|
|
|
( |
) |
Long-term employee related liabilities |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Deferred tax, net and other long-term liabilities |
|
|
( |
) |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS - INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in property and equipment, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds related to sale and disposal of property and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
Investments in other assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deposits and marketable securities, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
CASH FLOWS - FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options, net |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans |
|
|
|
|
|
|
|
|
|
|
|
|
Loans repayment |
|
|
( |
) |
|
|
|
|
|
|
|
|
Principal payments on account of capital lease obligation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Debentures repayment |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE |
|
|
( |
) |
|
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD |
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See notes to consolidated financial statements.
F - 10
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year ended December 31, |
||||||||||||
2021 |
2020 |
2019 |
||||||||||
NON-CASH ACTIVITIES: |
||||||||||||
Investments in property and equipment |
$ |
|
$ |
|
$ |
|
||||||
Conversion of notes into share capital |
$ |
|
$ |
|
$ |
|
||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||||||
Cash received during the period from interest |
$ |
|
$ |
|
$ |
|
||||||
Cash paid during the period for interest |
$ |
|
$ |
|
$ |
|
||||||
Cash paid for (received from) income taxes, net during the period |
$ |
|
|
$ |
( |
) |
$ |
|
See notes to consolidated financial statements.
F - 11
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
AS OF DECEMBER 31, 2021
(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. (formerly named “Jazz US Holdings, Inc.”) and its wholly-owned subsidiary, Tower Semiconductor Newport Beach, Inc. (formerly named “Jazz Semiconductor, Inc.”), an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices (Tower Semiconductor NPB Holdings, Inc. and Tower Semiconductor Newport Beach, Inc. collectively referred to herein as “TSNB”); and (2) Tower Semiconductor San Antonio, Inc. (formerly named “TowerJazz Texas, Inc.”) (“TSSA”); (ii) its
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 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 45nm CMOS, 65nm RF CMOS and 65nm 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.
In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a global pandemic. Since then, the impact of the COVID-19 pandemic continues to evolve as well as the global responses to curb its spread and to treat its impact, which have caused disruption to certain business sectors globally, resulting in economic and other difficulties in many regions worldwide, including supply chain shortages, absence of workforce due to infected and/or quarantined employees and service providers, as well as extended lead times for ordered equipment and supplies. To date, the COVID-19 pandemic has not had a material adverse effect on the Company's financial position or its financial stability.
F - 12
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(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. Cash and Cash Equivalents
Cash and cash equivalents consist of cash, bank deposits, money market funds and short-term investments with insignificant interest rate risk and original maturities of three months or less.
E. 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.
F. Marketable Securities
The Company accounts for its investments in grade 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.
The Company classifies its marketable securities as "available-for-sale", which are measured at fair value, based on quoted market prices. Unrealized gains and losses are reported in a separate component of shareholders' equity as 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 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 (loss) in shareholders' equity.
F - 13
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company concluded that the current expected credit losses on its available-for-sale investment portfolio were immaterial.
G.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 estimated forward-looking losses resulting from possible inability of customers to make required payments (current 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 against the allowance when it becomes evident that collection will not occur. Credit is extended to customers satisfying pre-defined credit criteria.
The total allowance for expected credit losses was $
H. 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. Work in progress is measured at production costs including acquisition costs, processing costs and other costs incurred in bringing the inventories to their present location and condition in the production line.
I. 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 between fair value and a measurement alternative of cost, less impairments, and further adjust up or down, based on observable price changes in orderly transactions for identical or similar investments 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.
F - 14
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
J. 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:
Impairment charges, if needed, are determined based on the policy outlined in Note 2L below.
Property and equipment also include assets under capital leases, which are depreciated according to their applicable useful life.
K. 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 2L below.
F - 15
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
L. 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, 2021, the Company concluded there was no impairment to its long-lived assets and intangible assets.
Impairment of Goodwill
The Company operates in one reporting unit. 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 do so. 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, 2021, 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
The Company concluded there was no impairment to its investments in privately held companies in 2021.
M. Leases
Effective January 1, 2019, the Company adopted ASC 842 “Leases” using the modified retrospective transition method and 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 lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Because 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.
F - 16
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
F - 17
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
F - 18
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Q. 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.
R. 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.
S. Functional Currency and Exchange Rate Income (Loss)
The currency of the primary economic environment in which Tower, TSSA and TSNB 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.
T. 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.
F - 19
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
U. 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 Company's financial instruments primarily consist of cash, bank deposits, account receivables and payables, accrued liabilities, loans and leases whose carrying values 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 such as marketable securities and investment in privately-held companies.
F - 20
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
V. Derivatives and Hedging
Effective January 1, 2019, the Company adopted ASU 2017-12, “Derivatives and Hedging (“Topic 815”): Targeted Improvements to Accounting for Hedge Activities”. The Company accounts for 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.
W. Recently Adopted Accounting Pronouncements
(i) In March 2020, the FASB issued ASU No. 2020-04,” Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional guidance to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and London Interbank Offered Rate (“LIBOR”). The guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform - Scope," which clarified the scope and application of the original guidance. This guidance is effective immediately and is only available through December 31, 2022. This guidance did not impact the Company’s consolidated financial position, results of operations or cash flows.
(ii) Effective January 1, 2021, the Company adopted ASU No. 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects of accounting for income taxes by eliminating certain exceptions within Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” and to clarify certain aspects of the current accounting guidance. Adoption of this standard did not materially impact the Company’s consolidated financial position, results of operations or cash flows.
X. Recently Issued Accounting Pronouncements Not Yet Adopted
The Company does not expect recently issued accounting standards or interpretations to have a material impact on the Company’s financial position, results of operations, cash flows or financial statement disclosures.
F - 21
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 3: INVENTORIES
Inventories consist of the following as of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Raw materials |
$ |
|
$ |
|
||||
Work in process |
|
|
||||||
Finished goods |
|
|
||||||
$ |
|
$ |
|
Work in process and finished goods are presented net of aggregate write-downs to net realizable value of $
NOTE 4: OTHER CURRENT ASSETS
Other current assets consist of the following as of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Tax receivables |
$ |
|
$ |
|
||||
Prepaid expenses |
|
|
||||||
Receivables from Hedging transactions - see Notes 10, 12A and 12D |
|
|
||||||
Insurance receivables - see Note 14E |
|
|
||||||
Other receivables |
|
|
||||||
$ |
|
$ |
|
NOTE 5: LONG-TERM INVESTMENTS
Long-term investments consist of the following as of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Severance-pay funds |
$ |
|
$ |
|
||||
Long-term bank deposits |
|
|
||||||
Investments in privately held companies |
|
|
||||||
$ |
|
$ |
|
F - 22
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 6: PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following as of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Original cost: (*) |
||||||||
Land and Buildings, including facility infrastructure |
$ |
|
$ |
|
||||
Machinery and equipment |
|
|
||||||
$ |
|
$ |
|
|||||
Accumulated depreciation: |
||||||||
Buildings, including facility infrastructure |
$ |
( |
) |
$ |
( |
) |
||
Machinery and equipment |
( |
) |
( |
) |
||||
$ |
( |
) |
$ |
( |
) |
|||
$ |
|
$ |
|
(*) Original cost includes ROU assets under capital lease in the amount of $
As of December 31, 2021 and 2020, the original cost of land, buildings, machinery and equipment was reflected net of investment grants in the aggregate amount of approximately $
NOTE 7: INTANGIBLE ASSETS, NET
Intangible assets consist of the following as of December 31, 2021:
Details |
Useful life (years) |
Cost |
Accumulated Amortization |
Net |
|||||||||||
Technologies |
|
$ |
|
$ |
( |
) |
$ |
|
|||||||
Facilities’ lease |
|
|
( |
) |
|
||||||||||
Customer relationships |
|
|
( |
) |
|
||||||||||
Total identifiable intangible assets |
$ |
|
$ |
( |
) |
$ |
|
Intangible assets consist of the following as of December 31, 2020:
Details |
Useful life (years) |
Cost |
Accumulated Amortization |
Net |
|||||||||||
Technologies |
|
$ |
|
$ |
( |
) |
$ |
|
|||||||
Facilities’ lease |
|
|
( |
) |
|
||||||||||
Customer relationships |
|
|
( |
) |
|
||||||||||
Total identifiable intangible assets |
$ |
|
$ |
( |
) |
$ |
|
F - 23
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(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, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Deferred tax asset (see Note 19) |
$ |
|
$ |
|
||||
Right of use - assets under operating leases |
|
|
||||||
Fair value of cross-currency interest rate swap (see Note 12D) |
|
|
||||||
Prepaid long-term land lease, net |
|
|
||||||
Long-term prepaid expenses |
|
|
||||||
$ |
|
$ |
|
NOTE 9: OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Tax payables |
$ |
|
$ |
|
||||
Hedging transactions payables |
|
|||||||
Interest payable on debt |
|
|
||||||
Others |
|
|
||||||
$ |
|
$ |
|
NOTE 10: SERIES G DEBENTURES
In June 2016, Tower raised approximately $
The Series G Debentures are payable in
As of December 31, 2021 and December 31, 2020, the outstanding principal amount of Series G Debentures was NIS
Composition by repayment schedule as of December 31, 2021:
Details |
Interest Rate |
2022 |
2023 |
Total |
||||||||||||
Series G Debentures |
|
% |
$ |
|
$ |
|
$ |
|
||||||||
Accretion of carrying amount to principal amount |
( |
) |
||||||||||||||
Carrying amount |
$ |
|
F - 24
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 11: OTHER LONG-TERM DEBT
A.Composition
As of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Long-term JPY loan - principal amount - see Notes 11B and 11C below |
$ |
|
$ |
|
||||
Capital leases and other long-term liabilities - see Note 11D below |
|
|
||||||
Operating leases - see Note 11E below |
|
|
||||||
Less - current maturities |
( |
) |
( |
) |
||||
$ |
|
$ |
|
B.Repayment Schedule of Long-term JPY Loan
As of December 31, 2021:
Details
|
Interest
Rate
|
2022
|
2023
|
2024
|
2025
|
2026
|
2027
|
Total
|
||||||||||||||||||||||||
Long-term JPY loan
|
|
%
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
C.Long-term JPY Loan
In December 2021, TPSCo refinanced its then existing loan with an
The JP Loan also contains certain financial ratios and covenants, as well as customary definitions of events of default and acceleration of the repayment schedule. TPSCo’s obligations pursuant to the JP Loan are not guaranteed by Tower, NTCJ, or any of their affiliates.
As of December 31, 2021, TPSCo was in compliance with all of the financial ratios and covenants under the JP Loan.
D.Capital Lease Agreements and other Long-term Liabilities
Certain of the Company’s subsidiaries enter into capital lease agreements from time to time for certain machinery and equipment, usually for a period of four years, with an option to buy the machinery and equipment after a period of between three to four years from the start of the lease period. The lease agreements contain annual interest rates of approximately
TPSCo leases its fabrication facility buildings in Japan from NTCJ under a long-term capital lease that was renewed in 2020 for continuation of the lease until at least March 2032.
F - 25
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 11: OTHER LONG-TERM DEBT (Continued)
As of December 31, 2021 and 2020, the Company’s total outstanding capital lease liabilities for fixed assets were $
The following presents the maturity of capital lease and other long-term liabilities as of December 31, 2021:
Fiscal Year |
Amount ($) |
|||
2022 |
$ |
|
||
2023 |
|
|||
2024 |
|
|||
2025 |
|
|||
2026 |
|
|||
2027 and on |
|
|||
Total |
|
|||
Less - imputed interest |
( |
) |
||
Total |
$ |
|
E.Operating Lease Agreements
The Company enters into operating leases from time to time for office space, operating facilities and vehicles. Operating lease cost for the years ended December 31, 2021, 2020 and 2019 was $
The following presents the composition of operating leases in the balance sheets:
Details |
Classification in the Consolidated Balance Sheets |
December 31, 2021 |
December 31, 2020 |
|||||||
Right of use - assets under operating leases |
Deferred tax and other long-term assets, net |
$ |
|
$ |
|
|||||
Lease liabilities: |
||||||||||
Current operating lease liabilities |
Current maturities of long-term debt |
$ |
|
$ |
|
|||||
Long-term operating lease liabilities |
Long-term debt |
|
|
|||||||
Total operating lease liabilities |
$ |
|
$ |
|
||||||
Weighted average remaining lease term (years) |
|
|
||||||||
Weighted average discount rate |
|
% |
|
% |
F - 26
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 11: OTHER LONG-TERM DEBT (Continued)
The following presents the maturity presentation of operating lease liabilities as of December 31, 2021:
Fiscal Year |
Amount ($) |
|||
2022 |
$ |
|
||
2023 |
|
|||
2024 |
|
|||
2025 |
|
|||
2026 |
|
|||
Thereafter |
|
|||
Total |
|
|||
Less – imputed interest |
( |
) |
||
Total |
$ |
|
F.Wells Fargo Credit Line
TSNB entered into an agreement with Wells Fargo Capital Finance, part of Wells Fargo & Company (“Wells Fargo”), for a secured asset-based revolving credit line in the total amount of up to $
The outstanding borrowing availability varies from time to time based on the levels of TSNB’s eligible accounts receivable, eligible equipment, eligible inventories and other terms and conditions described in the TSNB Credit Line Agreement. The obligations of TSNB under the TSNB Credit Line Agreement are secured by a continuing security interest in, and a lien upon, TSNB’s assets as set forth in the TSNB Credit Line Agreement. The TSNB Credit Line Agreement contains customary covenants and other terms, including customary events of default. TSNB’s obligations pursuant to the TSNB Credit Line Agreement are not guaranteed by Tower or any of its affiliates.
As of December 31, 2021, TSNB was in compliance with all of the covenants under the TSNB Credit Line Agreement.
As of December 31, 2021, borrowing availability under the TSNB Credit Line Agreement was approximately $
As of December 31, 2021, and 2020, no loan amounts were outstanding under the TSNB Credit Line Agreement.
F - 27
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company makes certain disclosures as detailed below with regard to financial instruments, including derivatives. These disclosures include, among other matters, the nature and terms of derivative transactions, information about significant concentrations of credit risk and the fair value of financial assets and liabilities.
A. Non-Designated Exchange Rate Transactions
As the functional currency of Tower is the USD and part of Tower’s expenses are denominated in NIS, Tower enters into exchange rate agreements from time to time to partially protect against the volatility of future cash flows caused by changes in foreign exchange rates on NIS-denominated expenses.
As of December 31, 2021, the fair value amounts of such exchange rate agreements were $
Changes in the fair values of such derivatives are presented in the statements of operations.
As the functional currency of the Company is the USD and part of TPSCo revenues and expenses are denominated in JPY, the Company enters into exchange rate agreements from time to time to protect against the volatility of future cash flows caused by changes in foreign exchange rates on JPY-denominated amounts. As of December 31, 2021, and 2020, the fair value amounts of such exchange rate agreements were $
B.Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, bank deposits, marketable securities, derivatives, trade receivables and government and other receivables. The Company's cash, deposits, marketable securities and derivatives are maintained with large and reputable banks and investment banks. The composition and maturities of investments are regularly monitored by the Company. Generally, these securities may be redeemed upon demand and bear minimal risk.
The Company generally does not require collateral for insurance of receivables; However, in certain circumstances, the Company obtains credit insurance or may require advance payments. An allowance for current expected credit losses is maintained with respect to trade accounts receivables and marketable securities. The Company performs ongoing credit evaluations of its customers.
F - 28
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
C.Fair Value of Financial Instruments
The estimated fair values of the Company’s financial instruments, excluding debentures, do not materially differ from their respective carrying amounts as of December 31, 2021 and 2020. The fair value of debentures, based on quoted market prices as of December 31, 2021 and 2020, was approximately $
D.Designated Cash Flow Hedge Transactions
The Company entered into designated cash flow hedging transactions using a cross-currency swap to mitigate the foreign exchange rate differences on principal and interest arising from the Series G Debentures’ denomination in NIS.
As of December 31, 2021, the fair value of the swap was $
As of December 31, 2021 and December 31, 2020, the effective portions of $
E.Fair Value Measurements
Valuation Techniques
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to the Company’s Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology applies to the Company’s Level 2 and Level 3 assets and liabilities.
F - 29
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Level 1 Measurements
Securities classified as available-for-sale are reported at fair value on a recurring basis. These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. Changes in fair value of securities available-for-sale are recorded in other comprehensive income.
Level 2 Measurements
If quoted market prices are not available, the Company obtains fair value measurements of similar assets and liabilities from an independent pricing service. These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors.
For cross-currency swap measured under Level 2, the Company uses the market approach using quotations from banks and other public information.
Level 3 Measurements
Investments in equity securities of privately-held companies without readily determinable fair values are measured using the Measurement Alternatives (see Note 2I). The Company reviews these investments for impairment and observable price changes on a quarterly basis and adjusts the carrying value accordingly. For the year ended December 31, 2021, the Company recorded a decrease of $
Recurring fair value measurements using the indicated inputs:
Details |
December 31, 2021 |
Quoted prices in active market for identical liability (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||
Cross-currency swap - net asset position |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Privately held companies |
|
|
|
|||||||||||||
Marketable securities held for sale |
|
|
|
|
||||||||||||
Foreign exchange forward and cylinders - net liability position |
( |
) |
|
( |
) |
|
||||||||||
$ |
|
$ |
|
$ |
|
$ |
|
F - 30
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Details |
December 31, 2020 |
Quoted prices in active market for identical liability (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||||
Cross-currency swap - net asset position |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Privately held companies |
|
|
|
|
||||||||||||
Marketable securities held for sale |
|
|
|
|
||||||||||||
Foreign exchange forward and cylinders - net asset position |
|
|
|
|
|
|
||||||||||
$ |
|
$ |
|
$ |
|
$ |
|
F.Short-Term and Long-Term Deposits and Marketable Securities
Deposits and marketable securities as of December 31, 2021 included short-term deposits in the amount of $
The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2021:
Details |
Amortized Cost (*) |
Gross unrealized gains |
Gross unrealized losses |
Estimated fair value |
||||||||||||
Corporate bonds |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|||||||
Government bonds |
|
|
( |
) |
|
|||||||||||
Municipal bonds |
|
|
||||||||||||||
Certificate of deposit |
|
|
|
|
||||||||||||
$ |
|
$ |
|
$ |
( |
) |
$ |
|
*
The scheduled maturities of available-for-sale marketable securities as of December 31, 2021, were as follows:
Details |
Amortized Cost |
Estimated fair value |
||||||
Due within one year |
$ |
|
$ |
|
||||
Due within 2-5 years |
|
|
||||||
Due after 5 years |
|
|
||||||
$ |
|
$ |
|
F - 31
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2020:
Details |
Amortized cost (*) |
Gross unrealized gains |
Gross unrealized losses |
Estimated fair value |
||||||||||||
Corporate bonds |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|||||||
Government bonds |
|
|
( |
) |
|
|||||||||||
Certificate of deposit |
|
|
|
|
||||||||||||
$ |
|
$ |
|
$ |
( |
) |
$ |
|
*
The scheduled maturities of available-for-sale marketable securities as of December 31, 2020, were as follows:
Details |
Amortized Cost |
Estimated fair value |
||||||
Due within one year |
$ |
|
$ |
|
||||
Due within 2-5 years |
|
|
||||||
Due after 5 years |
|
|
||||||
$ |
|
$ |
|
Investments with continuous unrealized losses for less than twelve months and twelve months or more and their related fair values as of December 31, 2021 and December 31, 2020, were as indicated in the following tables:
December 31, 2021 |
||||||||||||||||||||||||
Investment with continuous unrealized losses for less than twelve months |
Investments with continuous unrealized losses for twelve months or more |
Total investments with continuous unrealized losses |
||||||||||||||||||||||
Details |
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
||||||||||||||||||
Corporate bonds |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
|||||||||
Government bonds |
|
( |
) |
|
( |
) |
|
( |
) |
|||||||||||||||
Total |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
F - 32
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
December 31, 2020 |
||||||||||||||||||||||||
Investment with continuous unrealized losses for less than twelve months |
Investments with continuous unrealized losses for twelve months or more |
Total investments with continuous unrealized losses |
||||||||||||||||||||||
Details |
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
||||||||||||||||||
Corporate bonds |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
|||||||||
Government bonds |
|
( |
) |
|
( |
) |
|
( |
) |
|||||||||||||||
Total |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
TPSCo established a Defined Contribution Retirement Plan (the “DC Plan”) for its employees through which TPSCo contributes approximately
F - 33
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
Details |
2021
|
2020
|
2019
|
|||||||||
Net periodic benefit cost:
|
||||||||||||
Service cost
|
$
|
|
$
|
|
$
|
|
||||||
Interest cost
|
|
|
|
|||||||||
Amortization of prior service costs
|
|
|
|
|||||||||
Amortization of net loss (gain)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Total net periodic benefit cost
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Other changes in plan assets and benefits obligations recognized in other comprehensive income:
|
||||||||||||
Prior service cost for the period
|
$
|
|
$
|
|
$
|
|
||||||
Net loss (gain) for the period
|
(
|
) |
|
|
(
|
)
|
||||||
Amortization of prior service costs
|
|
|
|
|||||||||
Amortization of net gain (loss)
|
|
|
|
|||||||||
Total recognized in other comprehensive income (loss)
|
$
|
|
$
|
|
$
|
|
|
|||||
Total recognized in net periodic benefit cost and other comprehensive income (loss)
|
$
|
|
$
|
|
$
|
|
|
|||||
Weighted average assumptions used:
|
||||||||||||
Discount rate
|
|
% |
|
% |
|
% | ||||||
Expected return on plan assets
|
|
|
|
|||||||||
Rate of compensation increases
|
|
|
|
|||||||||
Assumed health care cost trend rates:
|
||||||||||||
Health care cost trend rate assumed for current year (pre-65/post-65 Medicare Advantage)
|
|
% |
|
% |
|
% | ||||||
Health care cost trend rate assumed for current year (pre-65/post-65 Non-Medicare Advantage)
|
|
% |
|
% |
|
% | ||||||
Ultimate rate (pre-65/post-65)
|
|
% |
|
% |
|
% | ||||||
Year the ultimate rate is reached (pre-65/post-65)
|
|
|
|
|||||||||
Measurement date
|
|
|
|
F - 34
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
Details |
2021
|
2020
|
2019
|
|||||||||
Change in medical plan related benefit obligation:
|
||||||||||||
Medical plan related benefit obligation at beginning of period
|
$
|
|
$
|
|
$
|
|
||||||
Service cost
|
|
|
|
|||||||||
Interest cost
|
|
|
|
|||||||||
Benefits paid
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Change in medical plan provisions
|
|
|
|
|||||||||
Actuarial loss (gain)
|
(
|
) |
|
|
(
|
)
|
||||||
Benefit medical plan related obligation end of period
|
$
|
|
$
|
|
$
|
|
||||||
Change in plan assets:
|
||||||||||||
Fair value of plan assets at beginning of period
|
$
|
|
$
|
|
$
|
|
||||||
Employer contribution
|
|
|
|
|||||||||
Benefits paid
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Fair value of plan assets at end of period
|
$
|
|
$
|
|
$
|
|
||||||
Medical plan related net funding
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
F - 35
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
As of December 31, 2021, 2020 and 2019:
Details |
2021
|
2020
|
2019
|
|||||||||
Amounts recognized in statement of financial position:
|
||||||||||||
Current liabilities
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Non-current liabilities
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Net amount recognized
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Weighted average assumptions used:
|
||||||||||||
Discount rate
|
|
% |
|
% |
|
% | ||||||
Rate of compensation increases
|
|
|
|
|||||||||
Assumed health care cost trend rates:
|
||||||||||||
Health care cost trend rate assumed for next year (pre-65/post-65 Medicare Advantage)
|
|
% |
|
% |
|
% | ||||||
Health care cost trend rate assumed for next year (pre-65/post-65 Non-Medicare Advantage)
|
|
% |
|
% |
|
% | ||||||
Ultimate rate (pre-65/post-65 Medicare Advantage)
|
|
% |
|
% |
|
% | ||||||
Ultimate rate (pre-65/post-65 Non-Medicare Advantage)
|
|
% |
|
% |
|
% | ||||||
Year the ultimate rate is reached (pre-65/ post-65)
|
|
|
|
Fiscal Year
|
Other Benefits
|
|||
2022
|
$
|
|
||
2023
|
|
|||
2024
|
|
|||
2025
|
|
|||
2026
|
|
|||
2027-2031
|
$
|
|
F - 36
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 13: EMPLOYEE RELATED LIABILITIES (Continued)
Details |
2021
|
2020
|
2019
|
|||||||||
Net periodic benefit cost:
|
||||||||||||
Interest cost
|
$
|
|
$
|
|
$
|
|
||||||
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Expected administrative expenses
|
|
|
|
|||||||||
Amortization of prior service costs
|
|
|
|
|||||||||
Amortization of net loss (gain)
|
|
|
|
|||||||||
Total net periodic benefit cost
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Other changes in plan assets and benefits obligations recognized in other comprehensive income:
|
||||||||||||
Prior service cost for the period
|
$
|
|
$
|
|
$
|
|
||||||
Net loss (gain) for the period
|
(
|
) |
|
|
|
|||||||
Amortization of prior service costs
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Amortization of net gain (loss)
|
(
|
) |
(
|
) |
|
|||||||
Total recognized in other comprehensive income (loss)
|
$
|
(
|
) |
$
|
|
$
|
|
|
||||
Total recognized in net periodic benefit cost and other comprehensive income (loss)
|
$
|
(
|
) |
$
|
|
$
|
|
|
||||
Weighted average assumptions used:
|
||||||||||||
Discount rate
|
|
% |
|
% |
|
% | ||||||
Expected return on plan assets
|
|
% |
|
% |
|
% | ||||||
Rate of compensation increases
|
|
|
|
F - 37
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
Details |
2021
|
2020
|
2019
|
|||||||||
Change in benefit obligation:
|
||||||||||||
Benefit obligation at beginning of period
|
$
|
|
$
|
|
$
|
|
||||||
Interest cost
|
|
|
|
|||||||||
Benefits paid
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Change in plan provisions
|
|
|
|
|||||||||
Actuarial loss (gain)
|
(
|
)
|
|
|
|
|||||||
Benefit obligation end of period
|
$
|
|
$
|
|
$
|
|
||||||
Change in plan assets:
|
||||||||||||
Fair value of plan assets at beginning of period
|
$
|
|
$
|
|
$
|
|
||||||
Actual return on plan assets
|
|
|
|
|
||||||||
Employer contribution
|
|
|
|
|||||||||
Expenses paid
|
(
|
)
|
(
|
)
|
(
|
) | ||||||
Benefits paid
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||
Fair value of plan assets at end of period
|
$
|
|
$
|
|
$
|
|
||||||
Funded Status
|
$
|
|
$
|
|
$
|
|
||||||
Amounts recognized in statement of financial position:
|
||||||||||||
Non-current assets
|
$
|
|
$
|
|
$
|
|
||||||
Non-current liabilities
|
--
|
--
|
--
|
|||||||||
Net amount recognized
|
$
|
|
$
|
|
$
|
|
||||||
Weighted average assumptions used:
|
||||||||||||
Discount rate
|
|
% |
|
% |
|
% |
||||||
Rate of compensation increases
|
|
|
|
Fiscal Year
|
Other Benefits
|
||||
2022
|
$
|
|
|||
2023
|
|
||||
2024
|
|
||||
2025
|
|
||||
2026
|
|
||||
2027-2031
|
$
|
|
F - 38
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
Details |
Level 1
|
Level 2
|
Level 3
|
|||||||||
Investments in commingled funds
|
$
|
|
$
|
|
$
|
|
||||||
Total plan assets at fair value
|
$
|
|
$
|
|
$
|
|
Details |
Level 1
|
Level 2
|
Level 3
|
|||||||||
Investments in mutual funds
|
$
|
|
$
|
|
$
|
|
||||||
Total plan assets at fair value
|
$
|
|
$
|
|
$
|
|
Asset Category
|
December 31, 2021
|
Target
allocation
2022
|
||||||
Equity securities
|
|
%
|
|
%
|
||||
Debt securities
|
|
%
|
|
%
|
||||
Total
|
|
%
|
|
%
|
TSNB’s primary policy goals regarding the plan’s assets are to (1) provide liquidity to meet the Plan benefit payments and expenses payable from the Plan, (2) offer a reasonable probability of achieving a growth of assets that will assist in closing the Plan’s funding gap, and (3) manage the Plan’s assets in a liability framework. Plan assets are currently invested in commingled funds with various debt and equity investment objectives. The target asset allocation for the plan assets is 90% debt, or fixed income securities, and 10% equity securities. Individual funds are evaluated periodically based on comparisons to benchmark indices and peer group funds and investment decisions are made by TSNB in accordance with the policy goals. Actual allocation to each asset category fluctuates and may not be within the target allocation specified above due to changes in market conditions.
The estimated expected return on assets of the plan is based on assumptions derived from, among other things, the historical return on assets of the plan, the current and expected investment allocation of assets held by the plan and the current and expected future rates of return in the debt and equity markets for investments held by the plan. The obligations under the plan could differ from the obligation currently recorded, if management's estimates are not consistent with actual investment performance.
F - 39
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 14: COMMITMENTS AND CONTINGENCIES
A.Liens
(1)Loans, Bonds and Capital Leases
For liens relating to the TSNB Credit Line Agreement, see Note 11F. For liens under TPSCo’s JP Loan, see Note 11C. For liens under the capital lease agreements, see Note 11D. For negative pledge under the Series G Debentures’ indenture, see Note 10.
(2)Approved Enterprise Program
Floating liens are registered in favor of the State of Israel on substantially all of Tower’s assets under the Investment Center’s approved enterprise status program.
B.Renewed Contract in Relation to TPSCo
In March 2019, agreements were signed between Tower, TPSCo and PSCS (a fully owned subsidiary of Panasonic Corporation) to extend the business relationship by an additional three-year period under certain amended terms, including a manufacturing agreement between TPSCo and PSCS, under which TPSCo manufactured products for PSCS under a revised pricing structure. Following the purchase of NTCJ (previously named PSCS) by Nuvoton from Panasonic Corporation in September 2020, NTCJ assumed the contracts at the same commercial terms, and leases three manufacturing facilities in Japan to TPSCo under a buildings lease that runs through March 2032 (see Note 11D).
As part of the agreement between the Company, NTCJ and TPSCo, it has been decided to re-organize and re-structure operations in Japan such that, while operations at the Uozu and Tonami facilities will remain unchanged, the Arai manufacturing factory, which is currently manufacturing products solely for NTCJ and is not serving the Company’s customers, will cease operations effective July 1, 2022. The Company evaluated the need for impairment charges and determined that no such charges are required as of December 31, 2021. All other restructuring related costs will be reported as incurred in 2022.
C.License Agreements
The Company enters into intellectual property and licensing agreements with third parties from time to time. The effect of each of them on the Company’s total assets and results of operations is immaterial. Certain of these agreements call for royalties to be paid by the Company to these third parties.
D.TSNB Lease Agreement
TSNB leases its fabrication facilities under an operational lease contract that is due to expire in 2027. In amendments to its lease, (i) TSNB secured various contractual safeguards designed to limit and mitigate any adverse impact of construction activities on its fabrication operations; and (ii) certain obligations of TSNB and the landlord are specified, including certain noise abatement actions at the fabrication facility. The landlord has made claims that TSNB’s noise abatement efforts are not adequate under the terms of the amended lease, and has requested a judicial declaration that TSNB has committed material non-curable breaches of the lease and that, in accordance with the lease, the landlord would be entitled to terminate the lease. TSNB does not agree and is disputing these claims.
E.IT Security System Event
In September 2020, the Company’s information technology (“IT”) security systems identified a security event on some of its computerized systems. As a preventive measure, the Company halted certain of its servers and proactively stopped operations in some of its manufacturing facilities for a few days, following which it commenced to gradually restore operations and return to full capability in all its facilities.
F - 40
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 14: COMMITMENTS AND CONTINGENCIES (Continued)
Due to the immediate procedures implemented, the functionality and quality of the work in progress, as well as customer and employee data, remained protected.
Tower maintains a cyber insurance policy and received compensation for the damage resulted from the event, including cost reimbursement and business interruption compensation. The event had no material impact on the financial position of the Company.
F.Definitive Agreement with ST Microelectronics
In 2021, TSIT, Tower’s wholly-owned Italian subsidiary, entered into a definitive agreement with ST to share under collaborative arrangement a 300 mm manufacturing fabrication facility in Agrate Italy. The fab is currently under construction by ST, and the parties will share the cleanroom space and the facility infrastructure, with the Company installing its own equipment in one-third of the total space. Both companies will invest in their respective process equipment, and work together to accelerate the fab qualification and subsequent ramp-up. Operations will continue to be managed by ST. In the early stage, technology processes for power, analog mixed signal and RF processes are planned to be qualified in the factory and the products in these technologies may be used in automotive, industrial and personal electronics.
G.Other Agreements
From time to time, in the ordinary course of business, the Company enters into long-term agreements with various entities for the joint development of products IPs and processes. The developed IPs may be owned separately by either the other entity or the Company, or owned jointly by both parties, as applicable.
NOTE 15: SHAREHOLDERS’ EQUITY
A.Description of Ordinary Shares
As of December 31, 2021, Tower had
F - 41
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 15: SHAREHOLDERS’ EQUITY (Continued)
B.Equity Incentive Plans
(1)Tower’s 2013 Share Incentive Plan (the "2013 Plan")
In 2013, the Company adopted a share incentive plan for directors, officers and employees of the Company, which in 2019 was extended to enable grants to third party service providers (“2013 Plan”). Options granted under the 2013 Plan bear an exercise price equal to the average closing price during the thirty trading days immediately prior to the date of grant, vest over up to a three-year period and are not exercisable beyond seven years from the grant date.
Under the 2013 Plan, the Company granted, in 2021 and 2020, a total of
F - 42
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 15: SHAREHOLDERS’ EQUITY (Continued)
During 2020, the Company's CEO and members of the Board of Directors were awarded the following RSUs under the 2013 Plan: (i)
During 2019, the Company's CEO and members of the Board of Directors were awarded the following RSUs under the 2013 Plan: (i)
Under the compensation plan of the Company, and as approved by the Company’s shareholders in September 2013, the awards to the CEO shall be accelerated upon the occurrence of a change of control event (as defined therein), subject to termination of his employment (or resignation due to diminution of responsibilities, as defined therein).
With respect to the members of the Board of Directors, including the Chairman, in the event of termination, such as termination due to a change of control event, each Director who served less than
Further grants may be approved subject to Compensation Committee, Board of Directors and shareholders’ approval, as may be required by law.
(2)i. Share Options awards:
Details |
2021 |
2020 |
2019 |
|||||||||||||||||||||
Number of share options |
Weighted average exercise price |
Number of share options |
Weighted average exercise price |
Number of share options |
Weighted average exercise price |
|||||||||||||||||||
Outstanding as of beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||||||
Granted |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||||||
Exercised |
( |
) |
$ |
|
( |
) |
$ |
|
( |
) |
$ |
|
||||||||||||
Terminated |
|
|
$ |
|
( |
) |
$ |
|
( |
) |
$ |
|
||||||||||||
Forfeited |
|
|
$ |
|
( |
) |
$ |
|
( |
) |
$ |
|
||||||||||||
Outstanding as of end of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||||||
Options exercisable as of end of year |
|
$ |
|
|
$ |
|
|
$ |
|
ii. RSUs awards:
Details |
2021 |
2020 |
2019 |
|||||||||||||||||||||
Number of RSUs |
Weighted average fair value |
Number of RSUs |
Weighted average fair value |
Number of RSUs |
Weighted average fair value |
|||||||||||||||||||
Outstanding as of beginning of year |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||||||
Granted |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||||||||||
Converted |
( |
) |
$ |
|
( |
) |
$ |
|
( |
) |
$ |
|
||||||||||||
Forfeited |
( |
) |
$ |
|
( |
) |
$ |
|
( |
) |
$ |
|
||||||||||||
Outstanding as of end of year |
|
$ |
|
|
$ |
|
|
$ |
|
F - 43
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 15: SHAREHOLDERS’ EQUITY (Continued)
(3)Summary of Information about Employees’ Share Incentive Plans
The following table summarizes information about employees’ share options outstanding as of December 31, 2021:
Outstanding |
Exercisable |
|||||||||||||||||||||
Range of exercise prices |
Number outstanding |
Weighted average remaining contractual life (in years) |
Weighted average exercise price |
Number exercisable |
Weighted average exercise price |
|||||||||||||||||
$ |
|
|
|
$ |
|
|
$ |
|
Details for the year ended December 31 |
2021 |
2020 |
2019 |
|||||||||
The intrinsic value of options exercised |
$ |
|
$ |
|
$ |
|
||||||
The original fair value of options exercised |
$ |
|
$ |
|
$ |
|
Details for the year ended December 31 |
2021 |
2020 |
2019 |
|||||||||
The intrinsic value of converted RSUs |
$ |
|
$ |
|
$ |
|
||||||
The original fair value of converted RSUs |
$ |
|
$ |
|
$ |
|
Stock-based compensation expenses were recognized in the Statement of Operations for the years ended December 31, 2021, 2020 and 2019:
Details |
2021 |
2020 |
2019 |
|||||||||
Cost of goods |
$ |
|
$ |
|
$ |
|
||||||
Research and development, net |
|
|
|
|||||||||
Marketing, general and administrative |
|
|
|
|||||||||
Total stock-based compensation expense |
$ |
|
$ |
|
$ |
|
C.Treasury Stock
During 1999 and 1998, the Company funded the purchase by a trustee of an aggregate of approximately
D.Dividend Restriction
Tower is subject to certain limitations on dividend distribution under the Series G Debentures indenture that allows for distribution of dividends subject to satisfying certain financial ratios.
F - 44
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 16: INFORMATION ON GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
A.Revenues by Geographic Area - as Percentage of Total Revenue
Years ended December 31, 2021, 2020 and 2019:
Details |
2021 |
2020 |
2019 |
|||||||||
USA |
|
% |
|
% |
|
% |
||||||
Japan |
|
|
|
|||||||||
Asia (other than Japan) |
|
|
|
|||||||||
Europe |
|
|
|
|||||||||
Total |
|
% |
|
% |
|
% |
The basis of attributing revenues from external customers to geographic area is based on the headquarters location of the customer issuing the purchase order; actual delivery may be shipped to another geographic area per customer request.
B.Long-Lived Assets by Geographic Area
Substantially all of Tower’s long-lived assets are located in Israel, substantially all of TSNB’s and TSSA’s long-lived assets are located in the United States and substantially all of TPSCo’s long-lived assets are located in Japan.
As of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Israel |
$ |
|
$ |
|
||||
United States |
|
|
||||||
Japan |
|
|
||||||
$ |
|
$ |
|
C.Major Customers - as Percentage of Net Accounts Receivable Balance
As of December 31, 2021, one customer exceeded 10% of the net accounts receivable balance and represented
F - 45
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 16: INFORMATION ON GEOGRAPHIC AREAS AND MAJOR CUSTOMERS (Continued)
D.Major Customers - as Percentage of Total Revenue
Years ended December 31, 2021, 2020 and 2019:
Details |
2021 |
2020 |
2019 |
|||||||||
Customer A |
|
% |
|
% |
|
% |
||||||
Customer B |
|
|
|
|||||||||
Other customers * |
|
|
|
* |
Represents aggregated revenue to four customers that accounted for between |
NOTE 17: FINANCING INCOME (EXPENSE), NET
Financing income (expense), net consists of the following for the years ended December 31, 2021, 2020 and 2019:
Details |
2021 |
2020 |
2019 |
|||||||||
Interest expense |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Interest income |
|
|
|
|||||||||
Series G Debentures amortization, related rate differences and hedging results |
( |
) |
( |
) |
( |
) |
||||||
Exchange rate differences and related hedging results |
( |
) |
|
|
( |
) |
||||||
Bank fees and others |
( |
) |
( |
) |
( |
) |
||||||
$ |
( |
) |
$ |
|
$ |
|
|
F - 46
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 18: RELATED PARTIES BALANCES AND TRANSACTIONS
A.Balance
The nature of the relationship involved as of December 31, 2021 and 2020:
Details |
|
2021 |
2020 |
|||||||
Long-term investment |
Equity investment in a limited partnership |
$ |
|
$ |
|
B.Transactions
Description of the transactions for the years ended December 31, 2021, 2020 and 2019:
Details |
Description of the transactions |
2021 |
2020 |
2019 |
||||||||||
General and administrative expense |
Directors’ fees and reimbursement to directors |
$ |
|
$ |
|
$ |
|
|||||||
Other income (expense), net |
Non-controlling interest income (loss) from a limited partnership |
$ |
- |
$ |
|
|
$ |
( |
) |
F - 47
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 19: INCOME TAXES
A.Tower Statutory Income Rates
Substantially all of Tower’s existing facilities and other capital investments made through 2012 have been granted approved enterprise status, as provided by the Law for the Encouragement of Capital Investment in Israel (“Investments Law”).
Tower, as an Israeli industrial company located in Migdal Ha’emek, may elect the Preferred Enterprise regime to apply to it under the Investment Law. The election is irrevocable.
Under the Preferred Enterprise regime, Tower’s entire preferred income is subject to the tax rate of
B.Income Tax Provision
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, operations and business mode of work, and result in applicable local taxable income attributable to those locations.
The Company’s income tax provision is consisted of the following for the years ended December 31, 2021, 2020 and 2019:
Details |
2021 |
2020 |
2019 |
|||||||||
Current tax expense: |
||||||||||||
Foreign |
$ |
|
$ |
|
$ |
|
||||||
Deferred tax expense (benefit): |
||||||||||||
Local |
|
|
|
|||||||||
Foreign |
( |
) |
( |
) |
( |
) |
||||||
Income tax expense: |
$ |
|
$ |
|
$ |
|
Details |
2021 |
2020 |
2019 |
|||||||||
Profit (loss) before taxes: |
||||||||||||
Domestic |
$ |
|
$ |
|
$ |
|
||||||
Foreign |
( |
) |
( |
) |
( |
) |
||||||
Total profit before taxes |
$ |
|
$ |
|
$ |
|
F - 48
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 19: INCOME TAXES (Continued)
C. Components of Deferred Tax Asset/Liability
The following is a summary of the components of the deferred tax assets and liabilities reflected in the balance sheets as of the respective dates (*), as of December 31, 2021 and 2020:
Details |
2021 |
2020 |
||||||
Deferred tax asset and liability - long-term: |
||||||||
Deferred tax assets: |
||||||||
Net operating loss carryforward |
$ |
|
$ |
|
||||
Employees benefits and compensation |
|
|
||||||
Accruals and reserves |
|
|
||||||
Research and development |
|
|
||||||
Others |
|
|
||||||
|
|
|||||||
Valuation allowance, see Note 19F below |
( |
) |
( |
) |
||||
Deferred tax assets |
$ |
|
$ |
|
||||
Deferred tax liabilities - long-term: |
||||||||
Depreciation and amortization |
$ |
( |
) |
$ |
( |
) |
||
Others |
( |
) |
( |
) |
||||
Deferred tax liabilities |
$ |
( |
) |
$ |
( |
) |
||
|
||||||||
Presented in long term deferred tax assets |
$ |
|
$ |
|
||||
Presented in long term deferred tax liabilities |
$ |
( |
) |
$ |
( |
) |
(*)
D.Unrecognized Tax Benefit
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Details |
Unrecognized tax benefits |
|||
Balance as of January 1, 2021 |
$ |
|
||
Additions for tax positions of current year |
|
|||
Reduction due to statute of limitation of prior years |
( |
) |
||
Balance as of December 31, 2021 |
$ |
|
F - 49
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 19: INCOME TAXES (Continued)
Details |
Unrecognized tax benefits |
|||
Balance as of January 1, 2020 |
$ |
|
||
Additions for tax positions of current year |
|
|||
Reduction due to statute of limitation of prior years |
( |
) |
||
Balance as of December 31, 2020 |
$ |
|
Details |
Unrecognized tax benefits |
|||
Balance as of January 1, 2019 |
$ |
|
||
Additions for tax positions of current year |
|
|||
Reduction due to statute of limitation of prior years |
( |
) |
||
Balance as of December 31, 2019 |
$ |
|
E.Effective Income Tax
The reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2021, 2020 and 2019:
Details |
2021 |
2020 |
2019 |
|||||||||
Tax expense computed at statutory rates, see (*) below |
$ |
|
$ |
|
$ |
|
||||||
Effect of different tax rates in different jurisdictions and Preferred Enterprise Benefit |
( |
) |
( |
) |
( |
) |
||||||
Change in valuation allowance, see Note 19F below |
|
|
|
|||||||||
Permanent differences and other, net |
( |
) |
( |
) |
( |
) |
||||||
Income tax expense |
$ |
|
$ |
|
$ |
|
(*)
F.Net Operating Loss Carryforward
As of December 31, 2021, Tower had net operating loss carryforward for tax purposes of approximately $
The future utilization of Tower US Holdings’ federal net operating loss carryforward to offset future federal taxable income is subject to an annual limitation as a result of ownership changes that have occurred. Additional limitations could apply if ownership changes occur in the future.
F - 50
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
NOTE 19: INCOME TAXES (Continued)
TSNB had two “change in ownership” events that limit the utilization of net operating loss carryforward. The first “change in ownership” event occurred in February 2007 upon Jazz Technologies’ acquisition of TSNB. The second “change in ownership” event occurred in September 2008, upon Tower’s acquisition of TSNB. TSNB concluded that the net operating loss limitation for the change in ownership which occurred in September 2008 will be an annual utilization of approximately $
As of December 31, 2021, Tower US Holdings has federal net operating loss carryforward of approximately $
As of December 31, 2021, Tower US Holdings had California state net operating loss carryforward of approximately $
Tower US Holdings recorded a valuation allowance against the deferred tax asset balances for its federal and state net operating loss carryforward.
As of December 31, 2021, and 2020, TPSCo had no net operating loss carryforward.
G.Final Tax Assessments
Tower possesses final tax assessments through the year 1998. In addition, the tax assessments for the years 1999-2016 are deemed final.
Tower US Holdings files a consolidated tax return including TSNB and TSSA. Tower US Holdings and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple states.
In general, Tower US Holdings is no longer subject to U.S. federal income tax examinations before 2018 and state and local income tax examinations before 2017. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount.
On March 27, 2020, the CARES Act was signed. The CARES Act provided numerous tax provisions and other stimulus measures, including but not limited to temporary changes regarding the prior and future utilization of net operating losses. Under the provisions of the CARES Act, Tower US Holdings received in 2020 a $
TPSCo possesses final tax assessments through the year 2020.
F - 51
TOWER SEMICONDUCTOR LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
(dollars in thousands, except per share data)
F - 52
1.2.1 |
Unless stated otherwise, any reference herein to Articles, Sections or Annexes refers to Articles or Sections of or Annexes to this Contract.
|
1.2.2 |
The words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Contract, shall refer to this Contract as a whole and not to any particular provision of this Contract.
|
1.2.3 |
All Annexes form an integral part of this Contract and are equally binding herewith. Any reference to this Contract shall include such Annexes.
|
1.2.4 |
Unless the context shall otherwise require, any reference to any contract, instrument, statute, rule or regulation is a reference to it as amended and supplemented from time to time (and, in the case of a statute, rule or regulation, to
any successor provision). Any references to a statutory provision shall include any rules or regulations under such statutory provision.
|
1.2.5 |
The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”.
|
1.2.6 |
The descriptive headings contained in this Contract are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Contract.
|
1.2.7 |
Any reference in this Contract to a “day” or a number of “days” (without the explicit qualification of “business”) shall be interpreted as a reference to a calendar day or number of calendar days. If any date provided for in this
Contract falls on a Friday, Saturday, Sunday or legal holiday in Italy or in Israel, such date shall be deemed extended to the next business day. For the purpose of this Contract “business day” means a day that is not a Friday, Saturday, a
Sunday or a legal holiday in Italy or in Israel.
|
1.2.8 |
Words, expressions, and phrases of a technical nature that are not otherwise defined herein, shall be interpreted under the recognized and well known technical and trade meaning used in the semiconductor industry.
|
(i) |
Tower becomes Insolvent;
|
(ii) |
Tower is in breach of this Contract pursuant to Section 2.3.
|
(i) |
ST or STMicroelectronics NV becomes Insolvent;
|
(ii) |
ST is in breach of this Contract pursuant to Section 2.3.
|
STMicroelectronics S.r.l.
_______________________________
Name:
Title:
|
Tower Semiconductor Ltd.
_______________________________
Name: Title:
|
1.1.1 |
Defined Terms. Capitalized terms used in this Agreement shall have the meanings specified in Exhibit A.
|
1.1.2 |
Interpretation. The following provisions shall apply in connection with the interpretation of this Agreement:
|
a) |
Unless stated otherwise, any reference herein to Articles, Sections or Exhibits refers to Articles or Sections of or Exhibits to this Agreement.
|
b) |
The words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
|
c) |
All Exhibits form an integral part of this Agreement and are equally binding herewith. Any reference to this Agreement shall include such Exhibits.
|
d) |
Unless the context shall otherwise require, any reference to any contract, instrument, statute, rule or regulation is a reference to it as amended and supplemented from time to time (and, in the case of a statute, rule or regulation, to
any successor provision). Any references to a statutory provision shall include any rules or regulations under such statutory provision.
|
e) |
The words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation”.
|
f) |
Any reference in this Agreement to a “day” or a number of “days” (without the explicit qualification of “business”) shall be interpreted as a reference to a calendar day or number of calendar days. If any date provided for in this
Agreement falls on a Friday, Saturday, Sunday or legal holiday in Italy or in Israel, such date shall be deemed extended to the next business day. For the purpose of this Agreement “business day” means a day that is not a Friday, Saturday,
a Sunday or a legal holiday in Italy or in Israel.
|
g) |
The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
|
h) |
Words, expressions, and phrases of a technical nature that are not otherwise defined herein, shall be interpreted under the recognized and well known technical and trade meaning used in the semiconductor industry.
|
• |
[***]
|
(i) |
In case the outcome of Board evaluation is that both Participants decide to increase the capacity beyond HBO clean room area in parallel, the CAPEX required for the facilities expansion, as reviewed and approved by the Board, will be
covered [***] with an agreed upon 33% of the required CAPEX to be paid [***].
|
(ii) |
[***]
|
• |
to aim at the highest level of equipment commonality to ensure future flexibility and benefit from possible CAPEX reduction;
|
• |
to use the toolset used by [***] as a guiding tool selection principle to which the Facility tool set has to converge as much as technically and economically feasible;
|
• |
to invest in the equipment required to install their respective agreed capacity, including required Tools;
|
• |
to align the process control plan requirements as much as possible to the [***] in order to ensure similar [***] Equipment requirements – both in terms of capabilities and capacity.
|
• |
Dedicated process Tools that are utilized by only one of the Participants will be purchased and installed at the cost of [***].
|
• |
The total CAPEX for the Common Tools required to achieve the agreed upon capacity for TSIT and ST will be determined by the required tool capacity of both Participants using the agreed upon [***]
|
• |
The total CAPEX for the Common Tools will be [***].
|
• |
The Common Tools will be assigned to the two Participants using the [***].
|
• |
This process will be repeated until all Common Tools have been allocated and both Participants contribute their overall CAPEX quota based on their overall capacity utilization.
|
• |
Any facility installation required exclusively for the installation and/or the operation of TSIT dedicated Tools [***] will be charged to [***]. In case TSIT decides to remove Tools dedicated to them that require a special and exclusive
installation, such installations have to be [***].
|
a) |
The Participants shall establish a Board, comprised of six members (collectively, the “Members”), who are appointed in writing by the Participants as set forth below. The Members shall be
identified and selected so that they will perform their assignments within the scope of their employment. ST shall have the right to appoint [***] Members in total, one of whom shall be a Co-Chairman as designated by ST, and TSIT shall have
the right to appoint [***] Members in total, one of whom shall be a Co-Chairman as designated by TSIT. At all times hereunder, each Participant shall have the right to substitute any Member whom such Participant has appointed or to appoint
a new Member in case of resignation or inability of such Member to discharge his or her duties. Moreover, each Member shall have the right to appoint by signed proxy another Member to vote at any Board meeting in the place and stead of such
absent Member.
|
b) |
The Members shall not be entitled to any remuneration or reimbursement for their position on the Board.
|
c) |
The Board shall:
|
i. |
[***]
|
ii. |
[***]
|
iii. |
[***]
|
iv. |
[***]
|
v. |
[***]
|
vi. |
[***]
|
vii. |
[***]
|
d) |
The Board Co-Chairmen shall jointly (1) coordinate the activities of the Board; (2) liaise with the Financial Team and the Managers; and (3) keep the Participants informed of the Board’s activities. The Board shall meet at least once
every calendar quarter. Each Member may propose agenda topics for the Board meetings.
|
e) |
Board meetings shall be called by either Co-Chairman, by way of registered letter or e-mail message to be sent at least [***] in advance (or, in case of urgency, at least one day in advance) of the proposed meeting to each Member.
Notwithstanding the foregoing, the Board may convene, even in the absence of a formal call, provided that all Members attend. In case of any urgent matter, both Participants have the option to call for an exceptional board meeting following
an agreed upon invitation procedure.
|
f) |
The Board meetings may also be held, and Members shall be entitled to participate in such meetings, by teleconference or videoconference, provided that in each such meeting all participating Members can be identified and can follow and
take part in the Board’s discussion in real time. Unless otherwise specified, the Board shall meet at [***]
|
g) |
The Board is considered validly convened and able to resolve upon the agenda with the presence of the majority of the Members in office, and the resolutions of the Board shall be validly adopted with the favorable vote of at least [***]
Members.
|
h) |
Members may also adopt their decisions through written consultation. Any Member may propose a resolution by sending it to all Members by mail, delivery service or in a PDF document by e-mail. The subject matter of the proposed
resolution, any relevant information and the precise wording of the proposed resolution shall be clearly stated in the written consultation. Members shall reply to written consultation within [***]; provided, however, if the proposal
indicates a different reply period, such period shall govern so long as it is not shorter than [***] nor longer than [***]. The reply shall be in a signed writing, sent to each Co-Chairman, by mail, delivery service or in a PDF document by
e-mail. The reply must either accept or reject the proposed resolution. If a reply is not received within the required period, the reply shall be considered as a rejection. For a resolution by written consent to be adopted by the Board,
signed replies from at least [***] Members accepting the resolution must be received by each Co-Chairman within the required period. The Co-Chairmen shall collect all replies and, without delay, communicate the results to the Members and
Participants and promptly register any validly adopted resolution in the Board’s resolution book.
|
i) |
The Co-Chairmen, without delay, shall communicate any resolution of the Board to the Participants and shall register such resolution in the book of the resolutions of the Board, which shall be prepared and kept by the Board and which
shall always be open to inspection by any Participant.
|
a) |
first, submit the matter that was the subject of the Deadlock to the CEOs of ST and TSIT by providing notice of the Deadlock to such persons, and the Participants shall use reasonable efforts to cause such persons to make a good faith
effort to hold at least [***] in-person meetings between them to resolve the Deadlock within sixty [***] of their receipt of the notice of Deadlock;
|
b) |
next, if the CEOs of each of TSIT and ST are unable to resolve the Deadlock in the given sixty [***], then submit the matter to the CEOs of each of ST’s ultimate parent company, STMicroelectronics N.V. (“ST
Parent”) and of TSIT ultimate company, Tower Semiconductor Ltd. (“TSIT Parent”) for resolution, and the Participants shall use reasonable efforts to cause such persons to make a good faith
effort to hold at least [***] in-person meeting between them to resolve the Deadlock within [***] days following the submission of the Deadlock to them;
|
c) |
next, if the CEOs of each of TSIT Parent and ST Parent are unable to resolve the Deadlock in the given thirty [***], either Participant may commence mediation by providing to the other Participant a written request for mediation, setting
forth the subject of the Deadlock and the relief requested. The Participants will cooperate with one another in selecting a neutral mediator, and in scheduling the mediation proceedings to be held in Milan, Italy during the [***] days
following the commencement of mediation. If the Participants are unable to agree on a neutral mediator within [***] days, then each Participant will select a neutral mediator, which neutral mediators will in turn select a third neutral
mediator, and the three-mediator panel will conduct the mediation. The Participants covenant that they will participate in the mediation in good faith, and that they will share equally in its costs. All offers, promises, conduct and
statements, whether oral or written, made in the course of the mediation by any of the Participants, by any of their respective agents, employees, experts and attorneys and by the mediator are confidential, privileged and inadmissible for
any purpose, including impeachment, in any litigation or other proceeding involving the Participants; provided that evidence that is otherwise admissible or discoverable shall not be rendered inadmissible or non-discoverable as a result of
its use in the mediation. Either Participant may seek equitable relief prior to the mediation to preserve the status quo pending the completion of that process. Any agreement reached through mediation process under this Section 6.3 (c) that
is violated by one Participant, may be enforced by the other Participant before any court of competent jurisdiction, and the prevailing Participant shall be entitled to an award of all costs, fees and expenses, including attorneys’ fees,
incurred for such enforcement to be paid by the losing Participant. If, after mediation, no agreement is reached by the Participants, then Section 13.3 shall apply.
|
a) |
The Financial Team shall be comprised of [***] members who are appointed in writing. ST shall have the right to appoint [***] member and TSIT shall have the right to appoint [***] member.
|
b) |
At all times and from time to time hereunder, each Participant shall have the right to remove and/or replace the member it appointed.
|
c) |
The members of the Financial Team shall not be entitled to any remuneration or reimbursement for their position as a Financial Team member and shall be identified and selected so that they will perform the above assignments within the
scope of their employment duties.
|
d) |
The Financial Team’s objectives and responsibilities are:
|
i. |
To ensure accurate financial reporting, information disclosure, data integrity and compliance with applicable accounting standards and procedures and ensure that the Consortium’s accounting procedures and internal controls comply with
the highest standard of the Participants’ financial reporting.
|
ii. |
To provide, upon any reasonable request that does not interfere with the normal financial support of the Facility operations, timely, clear, reliable, and relevant information and detailed analyses to the Board and the Reference
Management of each Participant.
|
iii. |
Upon invitation and as required, to attend meetings with the Reference Management of each Participant to explain (i) the activities of the Consortium and, (ii) with the simultaneous presence of the Board, the results of the Consortium’s
operational plans.
|
iv. |
To continuously monitor the Consortium’s costs in order to provide the Board with accurate actual and forecasted costs and to support the actions necessary to comply with the Consortium budget approved by the Board.
|
v. |
To provide regular (at least on a quarterly basis) financial reporting, including accurate and justified financial information to the Board and the Reference Management of each Participant.
|
vi. |
To monitor the Consortium’s commitments, budgets, rolling forecasts and actual results, as agreed between the Participants and in accordance with this Agreement.
|
vii. |
To support Ad-hoc and ROI various analyses as may be required by the Board.
|
viii. |
To perform the cost equalization calculation based on Exhibit B.
|
e) |
The members of the Financial Team shall regularly meet and shall meet at least once a month at the end of each month. The meetings may also be held by teleconference or videoconference.
|
f) |
The Financial Team will have access to the Facility, to all systems dedicated only to the Consortium, be authorized to audit and receive all relevant operational and financial records and supporting data, files, reports and documents
from the Participants necessary to verify and analyze the cost and operations of the Consortium. For other non-dedicated systems that support the Consortium, the Financial Team shall have authorization to Consortium-related information only
or receive such required information from the relevant Participant. For sake of clarity no access will be granted to each Participant internal reporting systems which are not dedicated only to the Consortium.
|
a) |
Comply with the obligations set forth herein, including the Operational and Accounting Procedures Manual and the intercompany secondment agreement.
|
b) |
Cooperate in good faith with the other Participant and the Board to accomplish the purposes of the Consortium.
|
c) |
Ensure compliance with all applicable tax, accounting, environmental, health and safety, labour, privacy and any and all other applicable laws concerning its business, assets and going concerns, so as to avoid any improper interference
with, or prejudice to, the other Participant or the Consortium operations.
|
d) |
Continue to conduct its business in the ordinary course and shall use reasonable care to ensure that any asset or property which, is relevant for the operations of the Consortium is carefully maintained and properly insured. Each of the
Participants will acquire property and business interruption (“BI”) insurance for its assets. [***].
|
e) |
Ensure the assets it dedicated to the Consortium will continue to be dedicated to the Consortium to the extent required for the manufacture of its products or the other Participant’s products without any significant impairment – it being
understood that each Participant may, with the prior written consent of the other Participant, which consent shall not unreasonably be withheld, conditioned or delayed, replace any of its dedicated assets with other substantially-equivalent
assets.
|
f) |
Subject to the limitations set forth in Section 13.5, indemnify and hold harmless the other Participant from any damage or loss such Participant may suffer as a consequence of the indemnifying Participant’s breach of this Agreement
provided that such indemnification shall not result in the duplication of indemnification for the same damage or loss.
|
g) |
Provide the other Participant with all required information, documents, in line data, access to systems subject to execution of a dedicated agreement, records and other information, to the extent related to Consortium operations, as may
be reasonably requested from time to time by the other Participant.
|
a) |
ST shall own all Intellectual Property Rights that are created solely by ST employees; For the purpose of the allocation of intellectual property rights, ST shall mean ST or its Affiliates. Nothing in this Agreement shall prevent, hinder
or condition the transfer of any IP right from ST to any ST Affiliate.
|
b) |
TSIT shall own all Intellectual Property Rights that that are created solely by employees of TSIT. For the purpose of the allocation of intellectual property rights, TSIT shall mean TSIT or its Affiliates. Nothing in this Agreement shall
prevent, hinder or condition the transfer of any IP right from TSIT to any TSIT Affiliate.
|
a) |
Jointly Created IP shall be owned by the Participant whose employee(s) (or whose Affiliates’ employee(s)) made the primary contribution(s) to the Jointly Created IP, as determined by the Board.
|
b) |
In the event that the Board is not able to allocate a particular Jointly Created IP pursuant to Section 9.4(a) above, such particular Jointly Created IP shall be jointly owned by the Participants (“Jointly Owned IP”). Each Participant
shall have the right to use and exploit such Jointly Created IP without a duty to (i) request permission or provide notice to license or enforce its rights thereunder, (ii) account to the other Party for any royalties or other consideration
it may receive or otherwise share any such consideration received with the other Party, and (iii) otherwise account to the other Party for any actions taken in relation to such Jointly Created IP, provided than neither of the Participants
shall grant exclusive license rights under the Jointly Created IP.
|
(a) |
upon the joint written consent of both Participants;
|
(b) |
by TSIT without cause effective at any time after the fifth (5th) anniversary of the Effective Date;
|
(c) |
by ST without cause effective at any time after the tenth (10th) anniversary of the Effective Date;
|
(d) |
by TSIT at any time with immediate effect in case ST becomes Insolvent;
|
(e) |
by TSIT in case a Change of Control of ST or ST Parent;
|
(f) |
by ST at any time with immediate effect in case TSIT becomes Insolvent;
|
(g) |
by ST in case a Change of Control of TSIT or TSIT Parent;
|
(h) |
by TSIT at any time in the event of a breach by ST of any of its obligations under Article 2 and/or Section 7.2 and or Section 7.6 and/or Article 10 not cured within thirty (30) days following ST’s receipt of the written notice by TSIT
of such breach;
|
(i) |
by ST at any time in the event of a breach by TSIT of any of its obligations under Article 2 and/or Section 7.2 and/or Section 7.6, and/or Article 10 not cured within thirty (30) days following TSIT’s receipt of the written notice by ST
of such breach.
|
a) |
This Agreement shall be governed by and construed in accordance with the laws of Italy, without giving effect to choice of law principles.
|
b) |
Any suit, action or proceeding brought by either Participant seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement will be brought in the Courts of Milan, Italy, and each of the
Participants hereby consents and submits to the exclusive jurisdiction of such court (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in such court or that any such suit, action or proceeding which is brought in such court has been brought in
an inconvenient forum. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of such court.
|
STMicroelectronics S.r.l.
Name: [***] Title: [***]
|
Tower Semiconductor Italy S.r.l.
______________________________ Name: [***] Title: [***]
|
Term
|
Definition
|
“ABC Laws”
|
Has the meaning set forth in Section 7.6.
|
“Affiliate”
|
With respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with, such Person.
|
“Agreement”
|
Has the meaning set forth in the preamble of this Agreement.
|
“Board”
|
The managing board of the Consortium.
|
“business day”.
|
means a day that is not a Saturday, a Sunday or a statutory public holiday in Italy.
|
“Change of Control”
|
Has the meaning set forth in Section 11.2.
|
“Co-Chairman”
|
Means each Co-Chairman of the Board.
|
“Code”
|
Has the meaning set forth in Section 4.1.
|
“Common Tool(s)”
|
means process Tool(s) that are defined to be used by both Participants.
|
“Competitor”
|
Has the meaning set forth in Section 11.2.
|
“Confidential Information”
|
Has the meaning set forth in Section 10.1.
|
“Consortium”
|
Has the meaning set forth in Section 4.1.
|
“Control”
|
“Control” (including, with correlative meanings, the terms “controlling”, “controlled by” or “under common control with”), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.
|
“Deadlock”
|
Has the meaning set forth in Section 6.2.
|
“Dedicated Costs”
|
direct substrate costs, masks, and dedicated personnel costs listed in Exhibit B and specific dedicated process Tools’ depreciation.
|
“Deputy Manager”
|
Has the meaning set forth in Section 6.6.
|
“Discussion Term”
|
Has the meaning set forth in Section 11.3.
|
“Effective Date”
|
Has the meaning set forth in Section 3.1.
|
“Facility”
|
Has the meaning set forth in the recitals and is better identified on the map attached hereto as Exhibit D.
|
“Financial Team”
|
Has the meaning set forth in Section 6.5.
|
“First Participant”
|
Has the meaning set forth in Section 13.4.
|
“First Refusal Right”
|
Has the meaning set forth in Section 11.5.2.3(a).
|
“Full Build Out/FBO”
|
Has the meaning set forth in Section 5.3.1.
|
“Half Build Out/HBO”
|
Has the meaning set forth in Section 5.3.1.
|
“Insolvent”
|
Has the meaning set forth in Section 11.2.
|
“Installation Completion Date”
|
Has the meaning set forth in Section 5.7.1.1.
|
“Intellectual Property Rights”
|
shall mean any industrial and intellectual property rights, registered or not, anywhere in the world, including but not limited to, the rights related to patents (including but not limited
to all patents (directly or indirectly) claiming priority to such patents, from which such patents claim priority, or having common priority with such patents, inclusive of all continuations, divisions, continuation-in-parts, provisional,
re-examinations, re-issues, utility, design, and the like), utility models, trademarks and all goodwill associated therewith, designs, semiconductor topographies, mask works, plant varieties, indications of origin, inventions (whether
patentable or not), know-how, technologies, drawings, technical information, trade secrets, confidential information, commercial signs, company names, copyrights, software (including the preparatory design material and any related
documentation, any application and all related source code and object code), domain names, websites and databases, production methods, recipes, program, literary and artistic property rights, sui generis rights of the database producer and
the related right of use; each of the foregoing including any and all rights of priority attached thereto and the right to sue and recover for past, present and future damages and seek injunctive relief.
|
“Jointly Created IP”
|
Has the meaning set forth in Section 9.4.
|
“Joint Inventions”
|
Has the meaning set forth in Section 9.4.
|
“Manager”
|
Has the meaning set forth in Section 6.6.
|
“Mask Level” or “ML”
|
Has the meaning set forth in Section 5.4.2.
|
“Members”
|
Has the meaning set forth in Section 6.1.
|
“Moves”
|
Means process steps in the manufacture and testing of wafers.
|
“Notified Participant”
|
Has the meaning set forth in Section 11.3.
|
“Operational and Accounting Procedures Manual”
|
Set forth in Exhibit B.
|
“Participants”
|
Has the meaning set forth in the preamble of this Agreement.
|
“Person”
|
Any individual, corporation partnership, association, limited liability company, trust, estate or other similar business entity or organization, including a governmental entity.
|
“Planned Purchase Date”
|
Has the meaning set forth in Section 11.5.2.3(a).
|
“Proposed Purchaser”
|
Has the meaning set forth in Section 11.5.2.3.
|
“Purchase Offer”
|
Has the meaning set forth in Section 11.5.2.3(a).
|
“Ramp-Up Deadline”
|
Has the meaning set forth in Section 5.4.3.
|
“Reference Management”
|
The operations, corporate, planning and finance departments of the respective Participants.
|
“Representative”
|
Has the meaning set forth in Section 7.6.
|
“Response Period”
|
Has the meaning set forth in Section 11.5.2.3(a).
|
“Sale Conditions”
|
Has the meaning set forth in Section 11.5.2.3.
|
“Sale Notice”
|
Has the meaning set forth in Section 11.5.2.3.
|
“ST”
|
Has the meaning set forth in the preamble of this Agreement.
|
“ST Parent”
|
Has the meaning set forth in Section 6.3.
|
“Tie Vote”
|
Has the meaning set forth in Section 6.2.
|
“Tool(s)”
|
Tool(s) purchased and owned by a Participant.
|
“Transferred Tools”
|
Has the meaning set forth in Section 11.5.2.3.
|
“TSIT”
|
Has the meaning set forth in the preamble of this Agreement.
|
“TSIT Parent”
|
Has the meaning set forth in Section 6.3.
|
“Variable Cost(s)”
|
[***]
|
Subsidiary
|
Jurisdiction
|
Ownership
|
||
Tower US Holdings Inc.
|
Delaware
|
100% directly
|
||
Tower Semiconductor NPB Holdings Inc.
|
Delaware
|
100% indirectly through Tower US Holdings Inc.
|
||
Tower Semiconductor Newport Beach, Inc.
|
Delaware
|
100% indirectly through Tower Semiconductor NPB Holdings Inc.
|
||
Newport Fab LLC
|
Delaware
|
100% indirectly through Tower Semiconductor Newport Beach Inc.
|
||
Tower Semiconductor San Antonio Inc.
|
Delaware
|
100% indirectly through Tower US Holdings Inc.
|
||
Tower Partners Semiconductor Co., Ltd.
|
Japan
|
51% directly
|
||
Tower Semiconductor Italy S.r.l.
|
Italy
|
100% directly
|
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M5E",W\7!& 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. (formerly named “Jazz US Holdings, Inc.”) and its wholly-owned subsidiary, Tower Semiconductor Newport Beach, Inc. (formerly named “Jazz Semiconductor, Inc.”), an independent semiconductor foundry focused on specialty process technologies for the manufacture of analog intensive mixed-signal semiconductor devices (Tower Semiconductor NPB Holdings, Inc. and Tower Semiconductor Newport Beach, Inc. collectively referred to herein as “TSNB”); and (2) Tower Semiconductor San Antonio, Inc. (formerly named “TowerJazz Texas, Inc.”) (“TSSA”); (ii) its 51% owned subsidiary, Tower Partners Semiconductor Co., Ltd. (formerly named “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. The other 49% of TPSCo’s shares are held by Nuvoton Technology Corporation Japan (“NTCJ”), formerly named “Panasonic Semiconductor Systems Co., Ltd.” (“PSCS”). PSCS’ name changed to NTCJ following the purchase of PSCS by Nuvoton Technology Corporation (“Nuvoton”) from Panasonic Corporation in September 2020; 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”) to share manufacturing capacity in a newly established 300 mm fabrication facility in Agrate, Italy (see Note 14F). 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 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 45nm CMOS, 65nm RF CMOS and 65nm 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. In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) a global pandemic. Since then, the impact of the COVID-19 pandemic continues to evolve as well as the global responses to curb its spread and to treat its impact, which have caused disruption to certain business sectors globally, resulting in economic and other difficulties in many regions worldwide, including supply chain shortages, absence of workforce due to infected and/or quarantined employees and service providers, as well as extended lead times for ordered equipment and supplies. To date, the COVID-19 pandemic has not had a material adverse effect on the Company's financial position or its financial stability. 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash, bank deposits, money market funds and short-term investments with insignificant interest rate risk and original maturities of three months or less. E. 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. F. Marketable Securities The Company accounts for its investments in grade 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. The Company classifies its marketable securities as "available-for-sale", which are measured at fair value, based on quoted market prices. Unrealized gains and losses are reported in a separate component of shareholders' equity as 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 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 (loss) in shareholders' equity. The Company concluded that the current expected credit losses on its available-for-sale investment portfolio were immaterial. G.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 estimated forward-looking losses resulting from possible inability of customers to make required payments (current 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 against the allowance when it becomes evident that collection will not occur. Credit is extended to customers satisfying pre-defined credit criteria. The total allowance for expected credit losses was $946 and $1,065 as of December 31, 2021 and 2020, respectively. H. 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. Work in progress is measured at production costs including acquisition costs, processing costs and other costs incurred in bringing the inventories to their present location and condition in the production line. I. 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 between fair value and a measurement alternative of cost, less impairments, and further adjust up or down, based on observable price changes in orderly transactions for identical or similar investments 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. J. 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: Impairment charges, if needed, are determined based on the policy outlined in Note 2L below. Property and equipment also include assets under capital leases, which are depreciated according to their applicable useful life. K. 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 2L below. L. 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, 2021, the Company concluded there was no impairment to its long-lived assets and intangible assets. Impairment of Goodwill The Company operates in one reporting unit. 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 do so. 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, 2021, 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 The Company concluded there was no impairment to its investments in privately held companies in 2021. M. Leases Effective January 1, 2019, the Company adopted ASC 842 “Leases” using the modified retrospective transition method and 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 lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Because 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. Q. 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. R. 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. S. Functional Currency and Exchange Rate Income (Loss) The currency of the primary economic environment in which Tower, TSSA and TSNB 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. T. 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. U. 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 Company's financial instruments primarily consist of cash, bank deposits, account receivables and payables, accrued liabilities, loans and leases whose carrying values 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 such as marketable securities and investment in privately-held companies. V. Derivatives and Hedging Effective January 1, 2019, the Company adopted ASU 2017-12, “Derivatives and Hedging (“Topic 815”): Targeted Improvements to Accounting for Hedge Activities”. The Company accounts for 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. W. Recently Adopted Accounting Pronouncements (i) In March 2020, the FASB issued ASU No. 2020-04,” Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional guidance to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and London Interbank Offered Rate (“LIBOR”). The guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform - Scope," which clarified the scope and application of the original guidance. This guidance is effective immediately and is only available through December 31, 2022. This guidance did not impact the Company’s consolidated financial position, results of operations or cash flows. (ii) Effective January 1, 2021, the Company adopted ASU No. 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects of accounting for income taxes by eliminating certain exceptions within Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” and to clarify certain aspects of the current accounting guidance. Adoption of this standard did not materially impact the Company’s consolidated financial position, results of operations or cash flows. X. Recently Issued Accounting Pronouncements Not Yet Adopted The Company does not expect recently issued accounting standards or interpretations to have a material impact on the Company’s financial position, results of operations, cash flows or financial statement disclosures. NOTE 3: INVENTORIES Inventories consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Raw materials $ 81,734 $ 60,855 Work in process 146,840 133,144 Finished goods 5,938 5,127 $ 234,512 $ 199,126 Work in process and finished goods are presented net of aggregate write-downs to net realizable value of $2,775 and $1,946 as of December 31, 2021 and 2020, respectively. NOTE 4: OTHER CURRENT ASSETS Other current assets consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Tax receivables $ 5,540 $ 5,019 Prepaid expenses 36,786 6,990 Receivables from Hedging transactions - see Notes 10, 12A and 12D 10,322 11,609 Insurance receivables - see Note 14E - 5,949 Other receivables 2,169 1,243 $ 54,817 $ 30,810 NOTE 5: LONG-TERM INVESTMENTS Long-term investments consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Severance-pay funds $ 11,942 $ 10,472 Long-term bank deposits 12,500 12,500 Investments in privately held companies 15,155 17,727 $ 39,597 $ 40,699 NOTE 6: PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Original cost: (*) Land and Buildings, including facility infrastructure $ 432,069 $ 430,258 Machinery and equipment 3,254,062 2,998,019 $ 3,686,131 $ 3,428,277 Accumulated depreciation: Buildings, including facility infrastructure $ (267,942 ) $ (255,353 ) Machinery and equipment (2,541,506 ) (2,333,753 ) $ (2,809,448 ) $ (2,589,106 ) $ 876,683 $ 839,171 (*) Original cost includes ROU assets under capital lease in the amount of $211,790 and $213,683 as of December 31, 2021 and 2020, respectively. The depreciation expense of such assets amounted to $14,037 and $13,421 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the original cost of land, buildings, machinery and equipment was reflected net of investment grants in the aggregate amount of approximately $285,000. NOTE 7: INTANGIBLE ASSETS, NET Intangible assets consist of the following as of December 31, 2021: Details Useful life (years) Cost Accumulated Amortization Net Technologies 4-20 $ 8,172 $ (3,332 ) $ 4,840 Facilities’ lease 19 33,500 (26,817 ) 6,683 Customer relationships 15 2,600 (2,303 ) 297 Total identifiable intangible assets $ 44,272 $ (32,452 ) $ 11,820 Intangible assets consist of the following as of December 31, 2020: Details Useful life (years) Cost Accumulated Amortization Net Technologies 4-20 $ 5,320 $ (2,799 ) $ 2,521 Facilities’ lease 19 33,500 (25,529 ) 7,971 Customer relationships 15 2,600 (2,130 ) 470 Total identifiable intangible assets $ 41,420 $ (30,458 ) $ 10,962 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, 2021 and 2020: 2021 2020 Deferred tax asset (see Note 19) $ 53,526 $ 57,802 Right of use - assets under operating leases 14,113 18,990 Fair value of cross-currency interest rate swap (see Note 12D) 4,372 10,661 Prepaid long-term land lease, net 2,934 3,055 Long-term prepaid expenses 24,993 2,893 $ 99,938 $ 93,401 NOTE 9: OTHER CURRENT LIABILITIES Other current liabilities consist of the following as of December 31, 2021 and 2020: 2021 2020 Tax payables $ 10,272 $ 4,935 Hedging transactions payables 3,040 Interest payable on debt 588 868 Others 2,109 2,102 $ 16,009 $ 7,905 NOTE 10: SERIES G DEBENTURES In June 2016, Tower raised approximately $115,000 through the issuance of long-term unsecured non-convertible debentures (“Series G Debentures”). The Series G Debentures are payable in seven semi-annual consecutive equal installments from March 2020 to March 2023 and carry an annual interest rate of 2.79%, payable semi-annually. The principal and interest amounts are denominated in NIS and are not linked to any index or to any other currency. The Company entered into cash flow hedging transactions to mitigate the foreign exchange rate differences on the principal and interest using a cross-currency swap. As of December 31, 2021 and December 31, 2020, the outstanding principal amount of Series G Debentures was NIS 201 million and NIS 334 million, respectively (approximately $64,000 and $104,000, respectively), with related hedging transactions net asset fair value of approximately $13,000 and $17,000, respectively. The changes in the fair value of outstanding principal amount of the debentures and in the fair value of the hedging transaction are attributed to the corresponding changes in the exchange rates during the reported periods (see Note 12D). The Series G Debentures’ indenture includes customary financial and other terms and conditions, including a negative pledge and financial covenants. As of December 31, 2021, the Company was in compliance with all of the financial covenants under the indenture. Composition by repayment schedule as of December 31, 2021: Interest Rate 2022 2023 Total Series G Debentures 2.79 $ 42,996 $ 21,495 $ 64,491 Accretion of carrying amount to principal amount (409 ) Carrying amount $ 64,082 NOTE 11: OTHER LONG-TERM DEBT A.Composition As of December 31, 2021 and 2020: Details 2021 2020 Long-term JPY loan - principal amount - see Notes 11B and 11C below $ 95,572 $ 106,719 Capital leases and other long-term liabilities - see Note 11D below 141,073 162,171 Operating leases - see Note 11E below 14,113 18,990 Less - current maturities (41,324 ) (65,658 ) $ 209,434 $ 222,222 B.Repayment Schedule of Long-term JPY Loan As of December 31, 2021: C.Long-term JPY Loan In December 2021, TPSCo refinanced its then existing loan with an 11 billion JPY (approximately $96,000) new asset-based loan with a consortium of financial institutions consisted of (i) JA Mitsui Leasing, Ltd., (ii) Mitsubishi HC Capital Inc., (iii) Taishin International Bank Co., Ltd. Tokyo Branch; and (iv) BOT lease Co. Ltd. (“JP Loan”). The JP Loan carries a fixed interest rate of 1.95% per annum with principal payable in seven semiannual payments from December 2024 until December 2027. The JP Loan is secured mainly by a lien over the machinery and equipment of TPSCo located in the Uozu and Tonami manufacturing facilities. Outstanding principal amount was $95,572 as of December 31, 2021. The JP Loan also contains certain financial ratios and covenants, as well as customary definitions of events of default and acceleration of the repayment schedule. TPSCo’s obligations pursuant to the JP Loan are not guaranteed by Tower, NTCJ, or any of their affiliates. As of December 31, 2021, TPSCo was in compliance with all of the financial ratios and covenants under the JP Loan. D.Capital Lease Agreements and other Long-term Liabilities Certain of the Company’s subsidiaries enter into capital lease agreements from time to time for certain machinery and equipment, usually for a period of four years, with an option to buy the machinery and equipment after a period of between three to four years from the start of the lease period. The lease agreements contain annual interest rates of approximately 2% and the assets under the lease agreements are pledged to the lender until the time at which the respective subsidiary acquires the assets. The obligations under the capital lease agreements are guaranteed by Tower, except for TPSCo’s obligations under its capital lease agreements. TPSCo leases its fabrication facility buildings in Japan from NTCJ under a long-term capital lease that was renewed in 2020 for continuation of the lease until at least March 2032. As of December 31, 2021 and 2020, the Company’s total outstanding capital lease liabilities for fixed assets were $139,037 and $159,650, respectively, of which $36,282 and $34,863 respectively, were included under current maturities of long-term debt. The following presents the maturity of capital lease and other long-term liabilities as of December 31, 2021: Fiscal Year Amount ($) 2022 $ 39,167 2023 29,086 2024 30,391 2025 15,599 2026 5,604 2027 and on 29,422 Total 149,269 Less - imputed interest (8,196 ) Total $ 141,073 E.Operating Lease Agreements The Company enters into operating leases from time to time for office space, operating facilities and vehicles. Operating lease cost for the years ended December 31, 2021, 2020 and 2019 was $7,535, $7,627 and $8,045, respectively. During 2021, cash paid for operating lease liabilities was $7,069. The following presents the composition of operating leases in the balance sheets: Details Classification in the Consolidated Balance Sheets December 31, 2021 December 31, 2020 Right of use - assets under operating leases Deferred tax and other long-term assets, net $ 14,113 $ 18,990 Lease liabilities: Current operating lease liabilities Current maturities of long-term debt $ 4,512 $ 6,550 Long-term operating lease liabilities Long-term debt 9,601 12,440 Total operating lease liabilities $ 14,113 $ 18,990 Weighted average remaining lease term (years) 4.8 5.1 Weighted average discount rate 1.94 % 1.94 % The following presents the maturity presentation of operating lease liabilities as of December 31, 2021: Fiscal Year Amount ($) 2022 $ 4,532 2023 2,711 2024 2,227 2025 2,202 2026 2,222 Thereafter 671 Total 14,565 Less – imputed interest (452 ) Total $ 14,113 F.Wells Fargo Credit Line TSNB entered into an agreement with Wells Fargo Capital Finance, part of Wells Fargo & Company (“Wells Fargo”), for a secured asset-based revolving credit line in the total amount of up to $70,000, maturing in 2023 (the “TSNB Credit Line Agreement”). The applicable interest on loans under the TSNB Credit Line Agreement is at a rate equal to, at lender’s option, either the lender’s prime rate plus a margin ranging from 0.0% to 0.5% or the LIBOR rate plus a margin ranging from 1.25% to 1.75% per annum. The outstanding borrowing availability varies from time to time based on the levels of TSNB’s eligible accounts receivable, eligible equipment, eligible inventories and other terms and conditions described in the TSNB Credit Line Agreement. The obligations of TSNB under the TSNB Credit Line Agreement are secured by a continuing security interest in, and a lien upon, TSNB’s assets as set forth in the TSNB Credit Line Agreement. The TSNB Credit Line Agreement contains customary covenants and other terms, including customary events of default. TSNB’s obligations pursuant to the TSNB Credit Line Agreement are not guaranteed by Tower or any of its affiliates. As of December 31, 2021, TSNB was in compliance with all of the covenants under the TSNB Credit Line Agreement. As of December 31, 2021, borrowing availability under the TSNB Credit Line Agreement was approximately $56,000, of which approximately $500 was utilized through letters of credit. As of December 31, 2021, and 2020, no loan amounts were outstanding under the TSNB Credit Line Agreement. NOTE 12: FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS The Company makes certain disclosures as detailed below with regard to financial instruments, including derivatives. These disclosures include, among other matters, the nature and terms of derivative transactions, information about significant concentrations of credit risk and the fair value of financial assets and liabilities. A. Non-Designated Exchange Rate Transactions As the functional currency of Tower is the USD and part of Tower’s expenses are denominated in NIS, Tower enters into exchange rate agreements from time to time to partially protect against the volatility of future cash flows caused by changes in foreign exchange rates on NIS-denominated expenses. As of December 31, 2021, the fair value amounts of such exchange rate agreements were $2,134 in an asset position, presented in other current assets with a face value of $67,500. As of December 31, 2020, the fair value amounts of such exchange rate agreements were $5,143 in an asset position, presented in other current assets with a face value of $51,000. Changes in the fair values of such derivatives are presented in the statements of operations. As the functional currency of the Company is the USD and part of TPSCo revenues and expenses are denominated in JPY, the Company enters into exchange rate agreements from time to time to protect against the volatility of future cash flows caused by changes in foreign exchange rates on JPY-denominated amounts. As of December 31, 2021, and 2020, the fair value amounts of such exchange rate agreements were $3,040 in a liability position and $150 in an asset position, respectively, presented in other current liabilities and other current assets, respectively, with a face value of $164,000 and $40,000, respectively. Changes in the fair value of such derivatives are presented in the statements of operations. B.Concentration of Credit Risks Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, bank deposits, marketable securities, derivatives, trade receivables and government and other receivables. The Company's cash, deposits, marketable securities and derivatives are maintained with large and reputable banks and investment banks. The composition and maturities of investments are regularly monitored by the Company. Generally, these securities may be redeemed upon demand and bear minimal risk. The Company generally does not require collateral for insurance of receivables; However, in certain circumstances, the Company obtains credit insurance or may require advance payments. An allowance for current expected credit losses is maintained with respect to trade accounts receivables and marketable securities. The Company performs ongoing credit evaluations of its customers. C.Fair Value of Financial Instruments The estimated fair values of the Company’s financial instruments, excluding debentures, do not materially differ from their respective carrying amounts as of December 31, 2021 and 2020. The fair value of debentures, based on quoted market prices as of December 31, 2021 and 2020, was approximately $66,000 and $107,000, respectively, compared to carrying amounts of approximately $64,000 and $102,000, for the above dates, respectively. D.Designated Cash Flow Hedge Transactions The Company entered into designated cash flow hedging transactions using a cross-currency swap to mitigate the foreign exchange rate differences on principal and interest arising from the Series G Debentures’ denomination in NIS. As of December 31, 2021, the fair value of the swap was $12,560 in an asset net position, of which $8,188 was presented in other current assets and $4,372 was presented in long-term assets. As of December 31, 2020, the fair value of the swap was $16,977 in an asset net position, of which $6,316 was presented in other current assets and $10,661 was presented in long-term assets. As of December 31, 2021 and December 31, 2020, the effective portions of $27 income and $323 loss, respectively, were recorded in OCI, of which a loss of $56 is expected to be recorded in earnings during the twelve months ending December 31, 2022. For the years ended December 31, 2021 and December 31, 2020, the hedging effect of the swap on the Company’s results of operations was income of $542 and $5,252, respectively, and was recognized as financing income, to offset the effect of the rate difference related to the Series G Debentures. E.Fair Value Measurements Valuation Techniques In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to the Company’s Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology applies to the Company’s Level 2 and Level 3 assets and liabilities. Level 1 Measurements Securities classified as available-for-sale are reported at fair value on a recurring basis. These securities are classified as Level 1 of the valuation hierarchy where quoted market prices from reputable third-party brokers are available in an active market. Changes in fair value of securities available-for-sale are recorded in other comprehensive income. Level 2 Measurements If quoted market prices are not available, the Company obtains fair value measurements of similar assets and liabilities from an independent pricing service. These securities are reported using Level 2 inputs and the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. For cross-currency swap measured under Level 2, the Company uses the market approach using quotations from banks and other public information. Level 3 Measurements Investments in equity securities of privately-held companies without readily determinable fair values are measured using the Measurement Alternatives (see Note 2I). The Company reviews these investments for impairment and observable price changes on a quarterly basis and adjusts the carrying value accordingly. For the year ended December 31, 2021, the Company recorded a decrease of $2,963 in the value of such investments, and for the year ended December 31, 2020, the Company recorded an increase of $358 in the value of such investments, presented in other income (expense), net in the statements of operations. Recurring fair value measurements using the indicated inputs: December 31, 2021 Quoted prices in active market for identical liability (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Cross-currency swap - net asset position $ 12,560 $ -- $ 12,560 $ -- Privately held companies 15,155 -- 15,155 Marketable securities held for sale 190,068 190,068 -- -- Foreign exchange forward and cylinders - net liability position (906 -- (906 -- $ 216,877 $ 190,068 $ 11,654 $ 15,155 Details December 31, 2020 Quoted prices in active market for identical liability (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Cross-currency swap - net asset position $ 16,977 $ -- $ 16,977 $ -- Privately held companies 17,727 -- -- 17,727 Marketable securities held for sale 188,186 188,186 -- -- Foreign exchange forward and cylinders - net asset position 5,293 -- 5,293 -- $ 228,183 $ 188,186 $ 22,270 $ 17,727 F.Short-Term and Long-Term Deposits and Marketable Securities Deposits and marketable securities as of December 31, 2021 included short-term deposits in the amount of $363,648, marketable securities with applicable accrued interest in the amount of $190,068 and a long-term bank deposit in the amount of $12,500; as of December 31, 2020, deposits and marketable securities included short-term deposits in the amount of $310,230, marketable securities with applicable accrued interest in the amount of $188,967 and a long-term bank deposit in the amount of $12,500. The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2021: Details Amortized Cost (*) Gross unrealized gains Gross unrealized losses Estimated fair value Corporate bonds $ 161,491 $ 1,453 $ (1,311 ) $ 161,633 Government bonds 27,332 1 (399 ) 26,934 472 472 Certificate of deposit 248 5 -- 253 $ 189,543 $ 1,459 $ (1,710 ) $ 189,292 * Excluding accrued interest of $776.
The scheduled maturities of available-for-sale marketable securities as of December 31, 2021, were as follows: Details Amortized Cost Estimated fair value Due within one year $ 22,547 $ 22,637 Due within 2-5 years 127,576 126,510 Due after 5 years 39,420 40,145 $ 189,543 $ 189,292 The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2020: Details Amortized cost (*) Gross unrealized gains Gross unrealized losses Estimated fair value Corporate bonds $ 154,577 $ 1,207 $ (735 ) $ 155,049 Government bonds 32,894 37 (53 32,878 Certificate of deposit 248 11 -- 259 $ 187,719 $ 1,255 $ (788 ) $ 188,186 * Excluding accrued interest of $781.
The scheduled maturities of available-for-sale marketable securities as of December 31, 2020, were as follows: Details Amortized Cost Estimated fair value Due within one year $ 22,772 $ 22,800 Due within 2-5 years 138,894 139,210 Due after 5 years 26,053 26,176 $ 187,719 $ 188,186 Investments with continuous unrealized losses for less than twelve months and twelve months or more and their related fair values as of December 31, 2021 and December 31, 2020, were as indicated in the following tables: December 31, 2021 Investment with continuous unrealized losses for less than twelve months Investments with continuous unrealized losses for twelve months or more Total investments with continuous unrealized losses Details Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Corporate bonds $ 87,495 $ (1,129 ) $ 11,182 $ (182 ) $ 98,677 $ (1,311 ) Government bonds 13,117 (164 ) 10,725 (235 ) 23,842 (399 ) Total $ 100,612 $ (1,293 ) $ 21,907 $ (417 ) $ 122,519 $ (1,710 ) December 31, 2020 Investment with continuous unrealized losses for less than twelve months Investments with continuous unrealized losses for twelve months or more Total investments with continuous unrealized losses Details Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Corporate bonds $ 24,699 $ (700 ) $ 9,434 $ (35 ) $ 34,133 $ (735 ) Government bonds 12,430 (50 ) 1,497 (3 ) 13,927 (53 ) Total $ 37,129 $ (750 ) $ 10,931 $ (38 ) $ 48,060 $ (788 ) TPSCo established a Defined Contribution Retirement Plan (the “DC Plan”) for its employees through which TPSCo contributes approximately 8% for 2021 and 9% for 2020 with employees’ average match of 1% of the employees’ base salary to the DC Plan. Such contribution releases the employer from further obligation to make any additional payments upon termination of employment. The contribution is remitted either to third party benefit funds based on employee preference, or directly, to those employees who elected not to enroll in the DC Plan. Total payments under the DC Plan in 2021, 2020 and 2019 amounted to $5,331, $6,132 and $6,572, respectively. Details Details As of December 31, 2021, 2020 and 2019: Details Details % % % Details % % % Details Details TSNB’s primary policy goals regarding the plan’s assets are to (1) provide liquidity to meet the Plan benefit payments and expenses payable from the Plan, (2) offer a reasonable probability of achieving a growth of assets that will assist in closing the Plan’s funding gap, and (3) manage the Plan’s assets in a liability framework. Plan assets are currently invested in commingled funds with various debt and equity investment objectives. The target asset allocation for the plan assets is 90% debt, or fixed income securities, and 10% equity securities. Individual funds are evaluated periodically based on comparisons to benchmark indices and peer group funds and investment decisions are made by TSNB in accordance with the policy goals. Actual allocation to each asset category fluctuates and may not be within the target allocation specified above due to changes in market conditions. NOTE 14: COMMITMENTS AND CONTINGENCIES A.Liens (1)Loans, Bonds and Capital Leases For liens relating to the TSNB Credit Line Agreement, see Note 11F. For liens under TPSCo’s JP Loan, see Note 11C. For liens under the capital lease agreements, see Note 11D. For negative pledge under the Series G Debentures’ indenture, see Note 10. (2)Approved Enterprise Program Floating liens are registered in favor of the State of Israel on substantially all of Tower’s assets under the Investment Center’s approved enterprise status program. B.Renewed Contract in Relation to TPSCo In March 2019, agreements were signed between Tower, TPSCo and PSCS (a fully owned subsidiary of Panasonic Corporation) to extend the business relationship by an additional three-year period under certain amended terms, including a manufacturing agreement between TPSCo and PSCS, under which TPSCo manufactured products for PSCS under a revised pricing structure. Following the purchase of NTCJ (previously named PSCS) by Nuvoton from Panasonic Corporation in September 2020, NTCJ assumed the contracts at the same commercial terms, and leases three manufacturing facilities in Japan to TPSCo under a buildings lease that runs through March 2032 (see Note 11D). As part of the agreement between the Company, NTCJ and TPSCo, it has been decided to re-organize and re-structure operations in Japan such that, while operations at the Uozu and Tonami facilities will remain unchanged, the Arai manufacturing factory, which is currently manufacturing products solely for NTCJ and is not serving the Company’s customers, will cease operations effective July 1, 2022. The Company evaluated the need for impairment charges and determined that no such charges are required as of December 31, 2021. All other restructuring related costs will be reported as incurred in 2022. C.License Agreements The Company enters into intellectual property and licensing agreements with third parties from time to time. The effect of each of them on the Company’s total assets and results of operations is immaterial. Certain of these agreements call for royalties to be paid by the Company to these third parties. D.TSNB Lease Agreement TSNB leases its fabrication facilities under an operational lease contract that is due to expire in 2027. In amendments to its lease, (i) TSNB secured various contractual safeguards designed to limit and mitigate any adverse impact of construction activities on its fabrication operations; and (ii) certain obligations of TSNB and the landlord are specified, including certain noise abatement actions at the fabrication facility. The landlord has made claims that TSNB’s noise abatement efforts are not adequate under the terms of the amended lease, and has requested a judicial declaration that TSNB has committed material non-curable breaches of the lease and that, in accordance with the lease, the landlord would be entitled to terminate the lease. TSNB does not agree and is disputing these claims. E.IT Security System Event In September 2020, the Company’s information technology (“IT”) security systems identified a security event on some of its computerized systems. As a preventive measure, the Company halted certain of its servers and proactively stopped operations in some of its manufacturing facilities for a few days, following which it commenced to gradually restore operations and return to full capability in all its facilities. Due to the immediate procedures implemented, the functionality and quality of the work in progress, as well as customer and employee data, remained protected. Tower maintains a cyber insurance policy and received compensation for the damage resulted from the event, including cost reimbursement and business interruption compensation. The event had no material impact on the financial position of the Company. F.Definitive Agreement with ST Microelectronics In 2021, TSIT, Tower’s wholly-owned Italian subsidiary, entered into a definitive agreement with ST to share under collaborative arrangement a 300 mm manufacturing fabrication facility in Agrate Italy. The fab is currently under construction by ST, and the parties will share the cleanroom space and the facility infrastructure, with the Company installing its own equipment in one-third of the total space. Both companies will invest in their respective process equipment, and work together to accelerate the fab qualification and subsequent ramp-up. Operations will continue to be managed by ST. In the early stage, technology processes for power, analog mixed signal and RF processes are planned to be qualified in the factory and the products in these technologies may be used in automotive, industrial and personal electronics. G.Other Agreements From time to time, in the ordinary course of business, the Company enters into long-term agreements with various entities for the joint development of products IPs and processes. The developed IPs may be owned separately by either the other entity or the Company, or owned jointly by both parties, as applicable. NOTE 15: SHAREHOLDERS’ EQUITY A.Description of Ordinary Shares As of December 31, 2021, Tower had 150 million authorized ordinary shares, par value NIS 15.00 each, of which approximately 109 million were outstanding. Holders of ordinary shares are entitled to participate equally in the payment of cash dividends and bonus share (stock dividend) distributions and, in the event of the liquidation of Tower, in the distribution of assets after satisfaction of liabilities to creditors. Each ordinary share is entitled to one vote on all matters to be voted on by shareholders. B.Equity Incentive Plans (1)Tower’s 2013 Share Incentive Plan (the "2013 Plan") In 2013, the Company adopted a share incentive plan for directors, officers and employees of the Company, which in 2019 was extended to enable grants to third party service providers (“2013 Plan”). Options granted under the 2013 Plan bear an exercise price equal to the average closing price during the thirty trading days immediately prior to the date of grant, vest over up to a three-year period and are not exercisable beyond seven years from the grant date. Under the 2013 Plan, the Company granted, in 2021 and 2020, a total of 1.0 million restricted stock units (“RSUs”) and 1.1 million RSUs, respectively, to its employees and directors (including the below-described grants to the CEO and Chairman), with vesting over up to a three-year period. The Company measures compensation expenses of the RSUs based on the closing market price of the ordinary shares immediately prior to the date of grant and amortizes it over the applicable vesting period taking into consideration compliance with performance criteria, if any. During 2020, the Company's CEO and members of the Board of Directors were awarded the following RSUs under the 2013 Plan: (i) 109 thousand time-vested RSUs and 163 thousand PSUs to the CEO (subject also to time-vesting, under which 33% of the RSUs and PSUs will vest at the end of each year for 3 years following the grant date), with a compensation value of approximately $5,000; (ii) 16 thousand time vested RSUs to the Chairman for a total compensation value of $300, to vest 33% at the end of each year following the grant date; and (iii) 5 thousand time vested RSUs to each of the nine members of the Board of Directors serving then (other than to the Chairman and the CEO), for an aggregate compensation value of $900, vesting over a two-year period, with 50% vesting at the first anniversary of the date of grant and 50% on the second anniversary of the date of grant. During 2019, the Company's CEO and members of the Board of Directors were awarded the following RSUs under the 2013 Plan: (i) 129 thousand time-vested RSUs and 129 thousand PSUs to the CEO subject also to time-vesting; which will both vest 33% at the end of each year following the grant date, for a compensation value of $3,900; (ii) 20 thousand time-vested RSUs to the Chairman for a total compensation value of $300, to vest 33% at the end of each year following the grant date; and (iii) 5 thousand time-vested RSUs to each of the 8 members of the Board of Directors serving then (other than to the Chairman and the CEO), for an aggregate compensation value of $600, vesting over a two-year period, with 50% vesting at the first anniversary of the date of grant and 50% on the second anniversary of the date of grant. Under the compensation plan of the Company, and as approved by the Company’s shareholders in September 2013, the awards to the CEO shall be accelerated upon the occurrence of a change of control event (as defined therein), subject to termination of his employment (or resignation due to diminution of responsibilities, as defined therein). With respect to the members of the Board of Directors, including the Chairman, in the event of termination, such as termination due to a change of control event, each Director who served less than 5 years on the Board of Directors would be entitled to acceleration of 50% of his/her unvested equity and each Director who served 5 years or more on the Board of Directors would be entitled to acceleration of all of his/her unvested equity. Further grants may be approved subject to Compensation Committee, Board of Directors and shareholders’ approval, as may be required by law. (2)i. Share Options awards: Details 2021 2020 2019 Number of share options Weighted average exercise price Number of share options Weighted average exercise price Number of share options Weighted average exercise price Outstanding as of beginning of year 32,805 $ 15.28 343,451 $ 8.79 508,493 $ 9.58 Granted -- $ -- -- $ -- -- $ -- Exercised (30,247 ) 15.12 (308,479 ) 8.14 (163,375 ) 11.28 Terminated -- $ -- (667 ) 9.90 (667 ) 9.90 Forfeited -- $ -- (1,500 ) 4.42 (1,000 ) 4.42 Outstanding as of end of year 2,558 17.16 32,805 15.28 343,451 8.79 Options exercisable as of end of year 2,558 $ 17.16 32,805 $ 15.28 343,451 $ 8.79 ii. RSUs awards: Details 2021 2020 2019 Number of RSUs Weighted average fair value Number of RSUs Weighted average fair value Number of RSUs Weighted average fair value Outstanding as of beginning of year 2,223,043 $ 19.45 2,013,613 $ 19.13 1,599,296 $ 22.27 Granted 1,002,275 29.91 1,105,155 19.86 1,159,881 18.06 Converted (929,466 ) 19.56 (806,993 ) 20.45 (484,665 ) 23.91 Forfeited (84,752 ) 20.28 (88,732 ) 18.62 (260,899 ) 21.19 Outstanding as of end of year 2,211,100 $ 24.11 2,223,043 $ 19.45 2,013,613 $ 19.13 (3)Summary of Information about Employees’ Share Incentive Plans The following table summarizes information about employees’ share options outstanding as of December 31, 2021: Outstanding Exercisable Range of exercise prices Number outstanding Weighted average remaining contractual life (in years) Weighted average exercise price Number exercisable Weighted average exercise price $ 17.16 2,558 0.27 $ 17.16 2,558 $ 17.16 Details for the year ended December 31 2021 2020 2019 The intrinsic value of options exercised $ 504 $ 4,429 $ 1,824 The original fair value of options exercised $ 188 $ 1,018 $ 665 Details for the year ended December 31 2021 2020 2019 The intrinsic value of converted RSUs $ 27,807 $ 15,971 $ 8,207 The original fair value of converted RSUs $ 18,183 $ 16,506 $ 11,588 Stock-based compensation expenses were recognized in the Statement of Operations for the years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Cost of goods $ 7,003 $ 5,197 $ 4,529 Research and development, net 4,855 3,568 2,900 Marketing, general and administrative 13,286 8,223 7,119 Total stock-based compensation expense $ 25,144 $ 16,988 $ 14,548 C.Treasury Stock During 1999 and 1998, the Company funded the purchase by a trustee of an aggregate of approximately 87 thousand Tower’s ordinary shares. These shares are classified as treasury shares. D.Dividend Restriction Tower is subject to certain limitations on dividend distribution under the Series G Debentures indenture that allows for distribution of dividends subject to satisfying certain financial ratios. NOTE 16: INFORMATION ON GEOGRAPHIC AREAS AND MAJOR CUSTOMERS A.Revenues by Geographic Area - as Percentage of Total Revenue Years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 USA 41 % 44 % 52 % Japan 22 28 29 Asia (other than Japan) 30 22 15 Europe 7 6 4 Total 100 % 100 % 100 % The basis of attributing revenues from external customers to geographic area is based on the headquarters location of the customer issuing the purchase order; actual delivery may be shipped to another geographic area per customer request. B.Long-Lived Assets by Geographic Area Substantially all of Tower’s long-lived assets are located in Israel, substantially all of TSNB’s and TSSA’s long-lived assets are located in the United States and substantially all of TPSCo’s long-lived assets are located in Japan. As of December 31, 2021 and 2020: Details 2021 2020 Israel $ 238,758 $ 215,006 United States 264,038 234,902 Japan 373,887 389,263 $ 876,683 $ 839,171 C.Major Customers - as Percentage of Net Accounts Receivable Balance As of December 31, 2021, one customer exceeded 10% of the net accounts receivable balance and represented 14% of such balance. As of December 31, 2020, two customers exceeded 10% of the net accounts receivable balance and represented 13% and 12% of such balance. D.Major Customers - as Percentage of Total Revenue Years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Customer A 21 % 25 % 27 % Customer B 13 11 7 Other customers * 20 24 26 * Represents aggregated revenue to four customers that accounted for between 4% and 7% of total revenue during 2021, to four customers that accounted for between 5% and 7% of total revenue during 2020, and to four customers that accounted for between 5% and 9% of total revenue during 2019. NOTE 17: FINANCING INCOME (EXPENSE), NET Financing income (expense), net consists of the following for the years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Interest expense $ (7,312 ) $ (6,755 ) $ (6,823 ) Interest income 5,368 8,484 12,949 Series G Debentures amortization, related rate differences and hedging results (1,773 ) (3,045 ) (3,299 ) Exchange rate differences and related hedging results (7,092 5,509 (1,271 ) Bank fees and others (2,064 ) (1,323 ) (1,544 ) $ (12,873 $ 2,870 $ 12 NOTE 18: RELATED PARTIES BALANCES AND TRANSACTIONS A.Balance The nature of the relationship involved as of December 31, 2021 and 2020: Details 2021 2020 Long-term investment Equity investment in a limited partnership $ 57 $ 57 B.Transactions Description of the transactions for the years ended December 31, 2021, 2020 and 2019: Details Description of the transactions 2021 2020 2019 General and administrative expense Directors’ fees and reimbursement to directors $ 771 $ 787 $ 783 Other income (expense), net Non-controlling interest income (loss) from a limited partnership $ -- $ 2 $ (55 NOTE 19: INCOME TAXES A.Tower Statutory Income Rates Substantially all of Tower’s existing facilities and other capital investments made through 2012 have been granted approved enterprise status, as provided by the Law for the Encouragement of Capital Investment in Israel (“Investments Law”). Tower, as an Israeli industrial company located in Migdal Ha’emek, may elect the Preferred Enterprise regime to apply to it under the Investment Law. The election is irrevocable. Under the Preferred Enterprise regime, Tower’s entire preferred income is subject to the tax rate of 7.5%. Any portion of Tower’s Israeli taxable income that is not eligible for Preferred Enterprise benefits, if at all, shall be taxed at the regular corporate tax rate of 23%. B.Income Tax Provision 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, operations and business mode of work, and result in applicable local taxable income attributable to those locations. The Company’s income tax provision is consisted of the following for the years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Current tax expense: Foreign $ 13,504 2,232 1,013 Deferred tax expense (benefit): Local 2,518 8,481 7,098 Foreign (14,998 ) (5,314 ) (5,163 ) Income tax expense: $ 1,024 $ 5,399 $ 2,948 Details 2021 2020 2019 Profit (loss) before taxes: Domestic $ 166,273 $ 100,145 $ 103,432 Foreign (11,174 ) (11,457 ) (12,411 ) Total profit before taxes $ 155,099 $ 88,688 $ 91,021 C. Components of Deferred Tax Asset/Liability The following is a summary of the components of the deferred tax assets and liabilities reflected in the balance sheets as of the respective dates (*), as of December 31, 2021 and 2020: Details 2021 2020 Deferred tax asset and liability - long-term: Deferred tax assets: Net operating loss carryforward $ 77,586 $ 72,658 Employees benefits and compensation 5,366 6,813 Accruals and reserves 7,863 3,312 Research and development 20,633 18,179 Others 3,737 3,453 115,185 104,415 Valuation allowance, see Note 19F below (11,644 ) (10,745 ) Deferred tax assets $ 103,541 $ 93,670 Deferred tax liabilities - long-term: Depreciation and amortization $ (72,678 ) $ (76,136 ) Others (1,114 ) (1,018 ) Deferred tax liabilities $ (73,792 ) $ (77,154 ) Presented in long term deferred tax assets $ 53,526 $ 57,802 Presented in long term deferred tax liabilities $ (23,777 ) $ (41,286 ) (*)
Deferred tax assets and liabilities relating to Tower for the years 2021 and 2020 are computed based on the Israeli Preferred Enterprise tax rate of 7.5%.
D.Unrecognized Tax Benefit A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Details Unrecognized tax benefits Balance as of January 1, 2021 $ 15,314 Additions for tax positions of current year 624 Reduction due to statute of limitation of prior years (8,175 ) Balance as of December 31, 2021 $ 7,763 Details Unrecognized tax benefits Balance as of January 1, 2020 $ 15,113 Additions for tax positions of current year 624 Reduction due to statute of limitation of prior years (423 ) Balance as of December 31, 2020 $ 15,314 Details Unrecognized tax benefits Balance as of January 1, 2019 $ 14,783 Additions for tax positions of current year 778 Reduction due to statute of limitation of prior years (448 ) Balance as of December 31, 2019 $ 15,113 E.Effective Income Tax The reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Tax expense computed at statutory rates, see (*) below $ 35,673 $ 20,398 $ 20,935 Effect of different tax rates in different jurisdictions and Preferred Enterprise Benefit (24,683 ) (15,046 ) (16,396 ) Change in valuation allowance, see Note 19F below 899 3,479 1,432 Permanent differences and other, net (10,865 ) (3,432 ) (3,023 ) Income tax expense $ 1,024 $ 5,399 $ 2,948 (*) The tax expense was computed based on regular Israeli corporate tax rate of 23%. F.Net Operating Loss Carryforward As of December 31, 2021, Tower had net operating loss carryforward for tax purposes of approximately $800,000 which may be carried forward indefinitely. The future utilization of Tower US Holdings’ federal net operating loss carryforward to offset future federal taxable income is subject to an annual limitation as a result of ownership changes that have occurred. Additional limitations could apply if ownership changes occur in the future. TSNB had two “change in ownership” events that limit the utilization of net operating loss carryforward. The first “change in ownership” event occurred in February 2007 upon Jazz Technologies’ acquisition of TSNB. The second “change in ownership” event occurred in September 2008, upon Tower’s acquisition of TSNB. TSNB concluded that the net operating loss limitation for the change in ownership which occurred in September 2008 will be an annual utilization of approximately $2,000 in its tax return. As of December 31, 2021, Tower US Holdings has federal net operating loss carryforward of approximately $83,000 of which approximately $66,000 does not expire and is subject to a taxable income limitation of 80%, and the remaining federal tax loss carryforward of $17,000 will begin to expire in 2022, unless previously utilized. As of December 31, 2021, Tower US Holdings had California state net operating loss carryforward of approximately $11,000. The state tax loss carryforward will begin to expire in 2029, unless previously utilized. Tower US Holdings recorded a valuation allowance against the deferred tax asset balances for its federal and state net operating loss carryforward. As of December 31, 2021, and 2020, TPSCo had no net operating loss carryforward. G.Final Tax Assessments Tower possesses final tax assessments through the year 1998. In addition, the tax assessments for the years 1999-2016 are deemed final. Tower US Holdings files a consolidated tax return including TSNB and TSSA. Tower US Holdings and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple states. In general, Tower US Holdings is no longer subject to U.S. federal income tax examinations before 2018 and state and local income tax examinations before 2017. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount. On March 27, 2020, the CARES Act was signed. The CARES Act provided numerous tax provisions and other stimulus measures, including but not limited to temporary changes regarding the prior and future utilization of net operating losses. Under the provisions of the CARES Act, Tower US Holdings received in 2020 a $2,100 income tax refund from carrying back federal net operating losses and a $1,100 refund of its minimum tax credits. TPSCo possesses final tax assessments through the year 2020. 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash, bank deposits, money market funds and short-term investments with insignificant interest rate risk and original maturities of three months or less. E. 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. F. Marketable Securities The Company accounts for its investments in grade 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. The Company classifies its marketable securities as "available-for-sale", which are measured at fair value, based on quoted market prices. Unrealized gains and losses are reported in a separate component of shareholders' equity as 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 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 (loss) in shareholders' equity. The Company concluded that the current expected credit losses on its available-for-sale investment portfolio were immaterial. G.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 estimated forward-looking losses resulting from possible inability of customers to make required payments (current 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 against the allowance when it becomes evident that collection will not occur. Credit is extended to customers satisfying pre-defined credit criteria. The total allowance for expected credit losses was $946 and $1,065 as of December 31, 2021 and 2020, respectively. H. 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. Work in progress is measured at production costs including acquisition costs, processing costs and other costs incurred in bringing the inventories to their present location and condition in the production line. I. 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 between fair value and a measurement alternative of cost, less impairments, and further adjust up or down, based on observable price changes in orderly transactions for identical or similar investments 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. J. 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: Impairment charges, if needed, are determined based on the policy outlined in Note 2L below. Property and equipment also include assets under capital leases, which are depreciated according to their applicable useful life. K. 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 2L below. L. 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, 2021, the Company concluded there was no impairment to its long-lived assets and intangible assets. Impairment of Goodwill The Company operates in one reporting unit. 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 do so. 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, 2021, 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 The Company concluded there was no impairment to its investments in privately held companies in 2021. M. Leases Effective January 1, 2019, the Company adopted ASC 842 “Leases” using the modified retrospective transition method and 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 lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Because 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. Q. 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. R. 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. S. Functional Currency and Exchange Rate Income (Loss) The currency of the primary economic environment in which Tower, TSSA and TSNB 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. T. 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. U. 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 Company's financial instruments primarily consist of cash, bank deposits, account receivables and payables, accrued liabilities, loans and leases whose carrying values 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 such as marketable securities and investment in privately-held companies. V. Derivatives and Hedging Effective January 1, 2019, the Company adopted ASU 2017-12, “Derivatives and Hedging (“Topic 815”): Targeted Improvements to Accounting for Hedge Activities”. The Company accounts for 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. W. Recently Adopted Accounting Pronouncements (i) In March 2020, the FASB issued ASU No. 2020-04,” Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides temporary optional guidance to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as interbank offered rates and London Interbank Offered Rate (“LIBOR”). The guidance includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform - Scope," which clarified the scope and application of the original guidance. This guidance is effective immediately and is only available through December 31, 2022. This guidance did not impact the Company’s consolidated financial position, results of operations or cash flows. (ii) Effective January 1, 2021, the Company adopted ASU No. 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes.” This ASU is intended to simplify various aspects of accounting for income taxes by eliminating certain exceptions within Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” and to clarify certain aspects of the current accounting guidance. Adoption of this standard did not materially impact the Company’s consolidated financial position, results of operations or cash flows. X. Recently Issued Accounting Pronouncements Not Yet Adopted The Company does not expect recently issued accounting standards or interpretations to have a material impact on the Company’s financial position, results of operations, cash flows or financial statement disclosures. Depreciation is calculated based on the straight-line method over the Company’s estimated useful lives of the assets, as follows: Inventories consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Raw materials $ 81,734 $ 60,855 Work in process 146,840 133,144 Finished goods 5,938 5,127 $ 234,512 $ 199,126 Other current assets consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Tax receivables $ 5,540 $ 5,019 Prepaid expenses 36,786 6,990 Receivables from Hedging transactions - see Notes 10, 12A and 12D 10,322 11,609 Insurance receivables - see Note 14E - 5,949 Other receivables 2,169 1,243 $ 54,817 $ 30,810 Long-term investments consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Severance-pay funds $ 11,942 $ 10,472 Long-term bank deposits 12,500 12,500 Investments in privately held companies 15,155 17,727 $ 39,597 $ 40,699 Property and equipment consist of the following as of December 31, 2021 and 2020: Details 2021 2020 Original cost: (*) Land and Buildings, including facility infrastructure $ 432,069 $ 430,258 Machinery and equipment 3,254,062 2,998,019 $ 3,686,131 $ 3,428,277 Accumulated depreciation: Buildings, including facility infrastructure $ (267,942 ) $ (255,353 ) Machinery and equipment (2,541,506 ) (2,333,753 ) $ (2,809,448 ) $ (2,589,106 ) $ 876,683 $ 839,171 (*) Original cost includes ROU assets under capital lease in the amount of $211,790 and $213,683 as of December 31, 2021 and 2020, respectively. The depreciation expense of such assets amounted to $14,037 and $13,421 for the years ended December 31, 2021 and 2020, respectively. Intangible assets consist of the following as of December 31, 2021: Details Useful life (years) Cost Accumulated Amortization Net Technologies 4-20 $ 8,172 $ (3,332 ) $ 4,840 Facilities’ lease 19 33,500 (26,817 ) 6,683 Customer relationships 15 2,600 (2,303 ) 297 Total identifiable intangible assets $ 44,272 $ (32,452 ) $ 11,820 Intangible assets consist of the following as of December 31, 2020: Details Useful life (years) Cost Accumulated Amortization Net Technologies 4-20 $ 5,320 $ (2,799 ) $ 2,521 Facilities’ lease 19 33,500 (25,529 ) 7,971 Customer relationships 15 2,600 (2,130 ) 470 Total identifiable intangible assets $ 41,420 $ (30,458 ) $ 10,962 Deferred tax and other long-term assets, net consist of the following as of December 31, 2021 and 2020: 2021 2020 Deferred tax asset (see Note 19) $ 53,526 $ 57,802 Right of use - assets under operating leases 14,113 18,990 Fair value of cross-currency interest rate swap (see Note 12D) 4,372 10,661 Prepaid long-term land lease, net 2,934 3,055 Long-term prepaid expenses 24,993 2,893 $ 99,938 $ 93,401 Other current liabilities consist of the following as of December 31, 2021 and 2020: 2021 2020 Tax payables $ 10,272 $ 4,935 Hedging transactions payables 3,040 Interest payable on debt 588 868 Others 2,109 2,102 $ 16,009 $ 7,905 Composition by repayment schedule as of December 31, 2021: Interest Rate 2022 2023 Total Series G Debentures 2.79 $ 42,996 $ 21,495 $ 64,491 Accretion of carrying amount to principal amount (409 ) Carrying amount $ 64,082 A.Composition As of December 31, 2021 and 2020: Details 2021 2020 Long-term JPY loan - principal amount - see Notes 11B and 11C below $ 95,572 $ 106,719 Capital leases and other long-term liabilities - see Note 11D below 141,073 162,171 Operating leases - see Note 11E below 14,113 18,990 Less - current maturities (41,324 ) (65,658 ) $ 209,434 $ 222,222 B.Repayment Schedule of Long-term JPY Loan As of December 31, 2021: The following presents the maturity of capital lease and other long-term liabilities as of December 31, 2021: Fiscal Year Amount ($) 2022 $ 39,167 2023 29,086 2024 30,391 2025 15,599 2026 5,604 2027 and on 29,422 Total 149,269 Less - imputed interest (8,196 ) Total $ 141,073 The following presents the composition of operating leases in the balance sheets: Details Classification in the Consolidated Balance Sheets December 31, 2021 December 31, 2020 Right of use - assets under operating leases Deferred tax and other long-term assets, net $ 14,113 $ 18,990 Lease liabilities: Current operating lease liabilities Current maturities of long-term debt $ 4,512 $ 6,550 Long-term operating lease liabilities Long-term debt 9,601 12,440 Total operating lease liabilities $ 14,113 $ 18,990 Weighted average remaining lease term (years) 4.8 5.1 Weighted average discount rate 1.94 % 1.94 % The following presents the maturity presentation of operating lease liabilities as of December 31, 2021: Fiscal Year Amount ($) 2022 $ 4,532 2023 2,711 2024 2,227 2025 2,202 2026 2,222 Thereafter 671 Total 14,565 Less – imputed interest (452 ) Total $ 14,113 Recurring fair value measurements using the indicated inputs: December 31, 2021 Quoted prices in active market for identical liability (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Cross-currency swap - net asset position $ 12,560 $ -- $ 12,560 $ -- Privately held companies 15,155 -- 15,155 Marketable securities held for sale 190,068 190,068 -- -- Foreign exchange forward and cylinders - net liability position (906 -- (906 -- $ 216,877 $ 190,068 $ 11,654 $ 15,155 Details December 31, 2020 Quoted prices in active market for identical liability (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Cross-currency swap - net asset position $ 16,977 $ -- $ 16,977 $ -- Privately held companies 17,727 -- -- 17,727 Marketable securities held for sale 188,186 188,186 -- -- Foreign exchange forward and cylinders - net asset position 5,293 -- 5,293 -- $ 228,183 $ 188,186 $ 22,270 $ 17,727 The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2021: Details Amortized Cost (*) Gross unrealized gains Gross unrealized losses Estimated fair value Corporate bonds $ 161,491 $ 1,453 $ (1,311 ) $ 161,633 Government bonds 27,332 1 (399 ) 26,934 472 472 Certificate of deposit 248 5 -- 253 $ 189,543 $ 1,459 $ (1,710 ) $ 189,292 * Excluding accrued interest of $776.
The following table summarizes amortized costs, gross unrealized gains and losses and estimated fair values of available-for-sale marketable securities as of December 31, 2020: Details Amortized cost (*) Gross unrealized gains Gross unrealized losses Estimated fair value Corporate bonds $ 154,577 $ 1,207 $ (735 ) $ 155,049 Government bonds 32,894 37 (53 32,878 Certificate of deposit 248 11 -- 259 $ 187,719 $ 1,255 $ (788 ) $ 188,186 * Excluding accrued interest of $781.
The scheduled maturities of available-for-sale marketable securities as of December 31, 2021, were as follows: Details Amortized Cost Estimated fair value Due within one year $ 22,547 $ 22,637 Due within 2-5 years 127,576 126,510 Due after 5 years 39,420 40,145 $ 189,543 $ 189,292 The scheduled maturities of available-for-sale marketable securities as of December 31, 2020, were as follows: Details Amortized Cost Estimated fair value Due within one year $ 22,772 $ 22,800 Due within 2-5 years 138,894 139,210 Due after 5 years 26,053 26,176 $ 187,719 $ 188,186 Investments with continuous unrealized losses for less than twelve months and twelve months or more and their related fair values as of December 31, 2021 and December 31, 2020, were as indicated in the following tables: December 31, 2021 Investment with continuous unrealized losses for less than twelve months Investments with continuous unrealized losses for twelve months or more Total investments with continuous unrealized losses Details Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Corporate bonds $ 87,495 $ (1,129 ) $ 11,182 $ (182 ) $ 98,677 $ (1,311 ) Government bonds 13,117 (164 ) 10,725 (235 ) 23,842 (399 ) Total $ 100,612 $ (1,293 ) $ 21,907 $ (417 ) $ 122,519 $ (1,710 ) December 31, 2020 Investment with continuous unrealized losses for less than twelve months Investments with continuous unrealized losses for twelve months or more Total investments with continuous unrealized losses Details Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Corporate bonds $ 24,699 $ (700 ) $ 9,434 $ (35 ) $ 34,133 $ (735 ) Government bonds 12,430 (50 ) 1,497 (3 ) 13,927 (53 ) Total $ 37,129 $ (750 ) $ 10,931 $ (38 ) $ 48,060 $ (788 ) Details Details As of December 31, 2021, 2020 and 2019: Details Details % % % Details % % % Details Details Details 2021 2020 2019 Number of share options Weighted average exercise price Number of share options Weighted average exercise price Number of share options Weighted average exercise price Outstanding as of beginning of year 32,805 $ 15.28 343,451 $ 8.79 508,493 $ 9.58 Granted -- $ -- -- $ -- -- $ -- Exercised (30,247 ) 15.12 (308,479 ) 8.14 (163,375 ) 11.28 Terminated -- $ -- (667 ) 9.90 (667 ) 9.90 Forfeited -- $ -- (1,500 ) 4.42 (1,000 ) 4.42 Outstanding as of end of year 2,558 17.16 32,805 15.28 343,451 8.79 Options exercisable as of end of year 2,558 $ 17.16 32,805 $ 15.28 343,451 $ 8.79 Details 2021 2020 2019 Number of RSUs Weighted average fair value Number of RSUs Weighted average fair value Number of RSUs Weighted average fair value Outstanding as of beginning of year 2,223,043 $ 19.45 2,013,613 $ 19.13 1,599,296 $ 22.27 Granted 1,002,275 29.91 1,105,155 19.86 1,159,881 18.06 Converted (929,466 ) 19.56 (806,993 ) 20.45 (484,665 ) 23.91 Forfeited (84,752 ) 20.28 (88,732 ) 18.62 (260,899 ) 21.19 Outstanding as of end of year 2,211,100 $ 24.11 2,223,043 $ 19.45 2,013,613 $ 19.13 Outstanding Exercisable Range of exercise prices Number outstanding Weighted average remaining contractual life (in years) Weighted average exercise price Number exercisable Weighted average exercise price $ 17.16 2,558 0.27 $ 17.16 2,558 $ 17.16 Details for the year ended December 31 2021 2020 2019 The intrinsic value of options exercised $ 504 $ 4,429 $ 1,824 The original fair value of options exercised $ 188 $ 1,018 $ 665 Details for the year ended December 31 2021 2020 2019 The intrinsic value of converted RSUs $ 27,807 $ 15,971 $ 8,207 The original fair value of converted RSUs $ 18,183 $ 16,506 $ 11,588 Details 2021 2020 2019 Cost of goods $ 7,003 $ 5,197 $ 4,529 Research and development, net 4,855 3,568 2,900 Marketing, general and administrative 13,286 8,223 7,119 Total stock-based compensation expense $ 25,144 $ 16,988 $ 14,548 A.Revenues by Geographic Area - as Percentage of Total Revenue Years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 USA 41 % 44 % 52 % Japan 22 28 29 Asia (other than Japan) 30 22 15 Europe 7 6 4 Total 100 % 100 % 100 % Substantially all of Tower’s long-lived assets are located in Israel, substantially all of TSNB’s and TSSA’s long-lived assets are located in the United States and substantially all of TPSCo’s long-lived assets are located in Japan. As of December 31, 2021 and 2020: Details 2021 2020 Israel $ 238,758 $ 215,006 United States 264,038 234,902 Japan 373,887 389,263 $ 876,683 $ 839,171 D.Major Customers - as Percentage of Total Revenue Years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Customer A 21 % 25 % 27 % Customer B 13 11 7 Other customers * 20 24 26 * Represents aggregated revenue to four customers that accounted for between 4% and 7% of total revenue during 2021, to four customers that accounted for between 5% and 7% of total revenue during 2020, and to four customers that accounted for between 5% and 9% of total revenue during 2019. Financing income (expense), net consists of the following for the years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Interest expense $ (7,312 ) $ (6,755 ) $ (6,823 ) Interest income 5,368 8,484 12,949 Series G Debentures amortization, related rate differences and hedging results (1,773 ) (3,045 ) (3,299 ) Exchange rate differences and related hedging results (7,092 5,509 (1,271 ) Bank fees and others (2,064 ) (1,323 ) (1,544 ) $ (12,873 $ 2,870 $ 12 A.Balance The nature of the relationship involved as of December 31, 2021 and 2020: Details 2021 2020 Long-term investment Equity investment in a limited partnership $ 57 $ 57 B.Transactions Description of the transactions for the years ended December 31, 2021, 2020 and 2019: Details Description of the transactions 2021 2020 2019 General and administrative expense Directors’ fees and reimbursement to directors $ 771 $ 787 $ 783 Other income (expense), net Non-controlling interest income (loss) from a limited partnership $ -- $ 2 $ (55 The Company’s income tax provision is consisted of the following for the years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Current tax expense: Foreign $ 13,504 2,232 1,013 Deferred tax expense (benefit): Local 2,518 8,481 7,098 Foreign (14,998 ) (5,314 ) (5,163 ) Income tax expense: $ 1,024 $ 5,399 $ 2,948 Details 2021 2020 2019 Profit (loss) before taxes: Domestic $ 166,273 $ 100,145 $ 103,432 Foreign (11,174 ) (11,457 ) (12,411 ) Total profit before taxes $ 155,099 $ 88,688 $ 91,021 C. Components of Deferred Tax Asset/Liability The following is a summary of the components of the deferred tax assets and liabilities reflected in the balance sheets as of the respective dates (*), as of December 31, 2021 and 2020: Details 2021 2020 Deferred tax asset and liability - long-term: Deferred tax assets: Net operating loss carryforward $ 77,586 $ 72,658 Employees benefits and compensation 5,366 6,813 Accruals and reserves 7,863 3,312 Research and development 20,633 18,179 Others 3,737 3,453 115,185 104,415 Valuation allowance, see Note 19F below (11,644 ) (10,745 ) Deferred tax assets $ 103,541 $ 93,670 Deferred tax liabilities - long-term: Depreciation and amortization $ (72,678 ) $ (76,136 ) Others (1,114 ) (1,018 ) Deferred tax liabilities $ (73,792 ) $ (77,154 ) Presented in long term deferred tax assets $ 53,526 $ 57,802 Presented in long term deferred tax liabilities $ (23,777 ) $ (41,286 ) (*)
Deferred tax assets and liabilities relating to Tower for the years 2021 and 2020 are computed based on the Israeli Preferred Enterprise tax rate of 7.5%.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Details Unrecognized tax benefits Balance as of January 1, 2021 $ 15,314 Additions for tax positions of current year 624 Reduction due to statute of limitation of prior years (8,175 ) Balance as of December 31, 2021 $ 7,763 Details Unrecognized tax benefits Balance as of January 1, 2020 $ 15,113 Additions for tax positions of current year 624 Reduction due to statute of limitation of prior years (423 ) Balance as of December 31, 2020 $ 15,314 Details Unrecognized tax benefits Balance as of January 1, 2019 $ 14,783 Additions for tax positions of current year 778 Reduction due to statute of limitation of prior years (448 ) Balance as of December 31, 2019 $ 15,113 The reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2021, 2020 and 2019: Details 2021 2020 2019 Tax expense computed at statutory rates, see (*) below $ 35,673 $ 20,398 $ 20,935 Effect of different tax rates in different jurisdictions and Preferred Enterprise Benefit (24,683 ) (15,046 ) (16,396 ) Change in valuation allowance, see Note 19F below 899 3,479 1,432 Permanent differences and other, net (10,865 ) (3,432 ) (3,023 ) Income tax expense $ 1,024 $ 5,399 $ 2,948 (*) The tax expense was computed based on regular Israeli corporate tax rate of 23%. 1%8YT+\,X@Z(1!-ZD_T=D [G="TMRD"TH_.9*,I[$1OZ?>:*(>])W
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shares in Thousands, $ in Thousands
Statement of Financial Position [Abstract]
Amortized cost | $
$ 189,543
[1]
$ 187,719
[2]
Ordinary shares, par value | ₪ / shares
₪ 15
₪ 15
Ordinary shares, authorized
150,000
150,000
Ordinary shares, issued
108,970
108,010
Common Stock, Shares, Outstanding
108,883
107,923
Treasury stock, shares
87
87
[1]
Excluding accrued interest of $776.
[2]
Excluding accrued interest of $781.
shares in Thousands, $ in Thousands12 Months Ended
Income Statement [Abstract]
REVENUES
$ 1,508,166
$ 1,265,684
$ 1,234,003
COST OF REVENUES
1,179,048
1,032,366
1,004,332
GROSS PROFIT
329,118
233,318
229,671
OPERATING COSTS AND EXPENSES:
Research and development
85,386
78,320
75,579
Marketing, general and administrative
77,221
63,965
67,376
TOTAL OPERATING COSTS AND EXPENSES
162,607
142,285
142,955
OPERATING PROFIT
166,511
91,033
86,716
FINANCING INCOME (EXPENSE), NET
(12,873)
2,870
12
OTHER INCOME (EXPENSE), NET
1,461
(5,215)
4,293
PROFIT BEFORE INCOME TAX
155,099
88,688
91,021
INCOME TAX EXPENSE, NET
(1,024)
(5,399)
(2,948)
NET PROFIT
154,075
83,289
88,073
Net loss (income) attributable to non-controlling interest
(4,063)
(987)
1,975
NET PROFIT ATTRIBUTABLE TO THE COMPANY
$ 150,012
$ 82,302
$ 90,048
BASIC EARNINGS PER SHARE
Earnings per share
$ 1.39
$ 0.77
$ 0.85
Weighted average number of shares
108,279
107,254
106,256
DILUTED EARNINGS PER ORDINARY SHARE:
Earnings per share
$ 1.37
$ 0.76
$ 0.84
Net profit used for diluted earnings per share
$ 150,012
$ 82,302
$ 90,048
Weighted average number of ordinary shares outstanding used for diluted earnings per share
109,798
108,480
107,438
$ in Thousands12 Months Ended
Statement of Comprehensive Income [Abstract]
Net profit
$ 154,075
$ 83,289
$ 88,073
Other comprehensive income, net of tax:
Foreign currency translation adjustment
(18,995)
7,830
3,478
Change in employees plan assets and benefit obligations, net of taxes
709
(394)
(1,118)
Unrealized gain (loss) on derivatives
(859)
(1,774)
3,696
Comprehensive income
134,930
88,951
94,129
Comprehensive loss (income) attributable to non-controlling interest
3,708
(4,914)
1,063
Comprehensive income attributable to the Company
$ 138,638
$ 84,037
$ 95,192
shares in Thousands, $ in Thousands
BALANCE at Dec. 31, 2018
$ 418,492
$ 1,380,396
$ 20,758
$ 93,226
$ (672)
$ (22,716)
$ (637,446)
$ (9,072)
$ (6,761)
$ 1,236,205
BALANCE, SHARES at Dec. 31, 2018
105,066
Exercise of options and RSUs
$ 2,727
(886)
1,841
Exercise of options and RSUs, shares
648
Capital notes converted into share capital
$ 4,892
15,866
(20,758)
0
Capital notes converted into share capital, shares
1,181
Employee stock-based compensation
14,548
14,548
Other comprehensive income:
Profit
90,048
$ 90,048
(1,975)
88,073
Foreign currency translation adjustments
2,566
2,566
912
3,478
Change in employees plan assets and benefit obligations
(1,118)
(1,118)
(1,118)
Unrealized loss on derivatives
3,696
3,696
3,696
Comprehensive income
95,192
95,192
BALANCE at Dec. 31, 2019
$ 426,111
1,395,376
0
107,774
1,906
(20,150)
(547,398)
(9,072)
(7,824)
1,346,723
BALANCE, SHARES at Dec. 31, 2019
106,895
Exercise of options and RSUs
$ 4,885
(2,281)
2,604
Exercise of options and RSUs, shares
1,115
Employee stock-based compensation
16,988
16,988
Cumulative effect upon adoption of ASC 326
(364)
(364)
Other comprehensive income:
Profit
82,302
82,302
987
83,289
Foreign currency translation adjustments
3,903
3,903
3,927
7,830
Change in employees plan assets and benefit obligations
(394)
(394)
(394)
Unrealized loss on derivatives
(1,774)
(1,774)
(1,774)
Comprehensive income
84,037
84,037
BALANCE at Dec. 31, 2020
$ 430,996
1,393,095
0
124,762
(262)
(16,247)
(465,460)
(9,072)
(2,910)
1,454,902
BALANCE, SHARES at Dec. 31, 2020
108,010
Exercise of options and RSUs
$ 4,457
(4,044)
413
Exercise of options and RSUs, shares
960
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
(859)
(859)
(859)
Comprehensive income
$ 138,638
138,638
BALANCE at Dec. 31, 2021
$ 435,453
$ 1,389,051
$ 0
$ 149,906
$ (412)
$ (27,471)
$ (315,448)
$ (9,072)
$ (6,618)
$ 1,615,389
BALANCE, SHARES at Dec. 31, 2021
108,970
OUTSTANDING SHARES, NET OF TREASURY STOCK AS OF DECEMBER 31, 2021 at Dec. 31, 2021
108,883
$ in Thousands12 Months Ended
CASH FLOWS - OPERATING ACTIVITIES
Net profit for the period
$ 154,075
$ 83,289
$ 88,073
Income and expense items not involving cash flows:
Depreciation and amortization
270,710
240,531
214,474
Effect of exchange rate differences on debentures
1,138
6,645
10,294
Other expense (income), net
(1,461)
5,215
(4,293)
Changes in assets and liabilities:
Trade accounts receivable
14,335
(33,087)
27,317
Other current assets
(26,731)
(7,999)
(4,600)
Inventories
(44,192)
(2,891)
(21,021)
Trade accounts payable
(25,004)
(18,576)
(339)
Deferred revenue and customers' advances
74,524
(3,072)
(10,331)
Employee related liabilities and other current liabilities
16,850
347
(9,435)
Long-term employee related liabilities
(2,681)
3,936
(310)
Deferred tax, net and other long-term liabilities
(10,270)
2,223
1,491
Net cash provided by operating activities
421,293
276,561
291,320
CASH FLOWS - INVESTING ACTIVITIES
Investments in property and equipment, net
(313,808)
(313,656)
(191,396)
Proceeds related to sale and disposal of property and equipment
34,548
57,117
19,230
Investments in other assets
(1,792)
(1,450)
(413)
Deposits and marketable securities, net
(57,892)
(105,620)
(132,515)
Net cash used in investing activities
(338,944)
(363,609)
(305,094)
CASH FLOWS - FINANCING ACTIVITIES
Exercise of options, net
458
2,512
1,842
Proceeds from loans
96,143
0
0
Loans repayment
(97,174)
0
0
Principal payments on account of capital lease obligation
(35,391)
(25,364)
(19,402)
Debentures repayment
(40,893)
(38,335)
0
Net cash used in financing activities
(76,857)
(61,187)
(17,560)
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGE
(6,245)
4,357
1,804
DECREASE IN CASH AND CASH EQUIVALENTS
(753)
(143,878)
(29,530)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
211,683
355,561
385,091
CASH AND CASH EQUIVALENTS - END OF PERIOD
210,930
211,683
355,561
NON-CASH ACTIVITIES:
Investments in property and equipment
65,634
35,271
39,184
Conversion of notes into share capital
0
0
22,600
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash received during the period from interest
5,590
10,524
14,436
Cash paid during the period for interest
4,561
6,633
7,456
Cash paid for (received from) income taxes, net during the period
$ 8,288
$ (2,436)
$ 13,026
12 Months Ended
Organization, Consolidation and Presentation of Financial Statements [Abstract]
DESCRIPTION OF BUSINESS AND GENERAL
12 Months Ended
Accounting Policies [Abstract]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Inventory Disclosure [Abstract]
INVENTORIES
12 Months Ended
Prepaid Expense and Other Assets, Current [Abstract]
OTHER CURRENT ASSETS
12 Months Ended
Investments, Debt and Equity Securities [Abstract]
LONG-TERM INVESTMENTS
12 Months Ended
Property, Plant and Equipment [Abstract]
PROPERTY AND EQUIPMENT, NET
12 Months Ended
Intangible Assets, Net (Excluding Goodwill) [Abstract]
INTANGIBLE ASSETS, NET
12 Months Ended
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
DEFERRED TAX AND OTHER LONG-TERM ASSETS, NET
Details
12 Months Ended
Other Liabilities, Current [Abstract]
OTHER CURRENT LIABILITIES
Details
-
12 Months Ended
Notes Payable [Abstract]
SERIES G DEBENTURES
Details
%
12 Months Ended
Loans Payable [Abstract]
OTHER LONG-TERM DEBT
12 Months Ended
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS [Abstract]
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Details
--
)
)
Municipal bonds
--
--
)
12 Months Ended
Postemployment Benefits [Abstract]
EMPLOYEE RELATED LIABILITIES
)
%
%
%
%
%
%
%
%
%
%
%
%
)
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
)
)
)
)
)
%
%
%
)
The estimated expected return on assets of the plan is based on assumptions derived from, among other things, the historical return on assets of the plan, the current and expected investment allocation of assets held by the plan and the current and expected future rates of return in the debt and equity markets for investments held by the plan. The obligations under the plan could differ from the obligation currently recorded, if management's estimates are not consistent with actual investment performance.
12 Months Ended
Commitments and Contingencies Disclosure [Abstract]
COMMITMENTS AND CONTINGENCIES
12 Months Ended
Stockholders' Equity Note [Abstract]
SHAREHOLDERS' EQUITY
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12 Months Ended
Segment Reporting [Abstract]
INFORMATION ON GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
12 Months Ended
Other Income and Expenses [Abstract]
FINANCING INCOME (EXPENSE), NET
)
)
12 Months Ended
Related Party Transactions [Abstract]
RELATED PARTIES BALANCES AND TRANSACTIONS
)
12 Months Ended
Income Tax Disclosure [Abstract]
INCOME TAXES
$
$
12 Months Ended
Subsequent Events [Abstract]
SUBSEQUENT EVENTS
12 Months Ended
Accounting Policies [Abstract]
Basis of presentation
Use of Estimates in Preparation of Financial Statements
Principles of Consolidation
Cash and Cash Equivalents
Short Term Interest-Bearing Deposits
Marketable securities
Trade Accounts Receivable – Allowance for Expected Credit Loss
Inventories
Investments in Privately Held Companies
Property and Equipment
Intangible Assets and Goodwill
Impairment of Assets
Leases
Revenue Recognition
Research and Development
Income Taxes
Earnings per Ordinary Share
Comprehensive Income
Functional Currency and Exchange Rate Income (Loss)
Stock-Based Compensation
Fair value Measurements of Financial Instruments
Derivatives and hedging
Recently Adopted Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
12 Months Ended
Accounting Policies [Abstract]
Schedule of Estimated Economic Lives
12 Months Ended
Inventory Disclosure [Abstract]
Schedule of Inventory
12 Months Ended
Prepaid Expense and Other Assets, Current [Abstract]
Summary of Other Current Assets
12 Months Ended
Investments, Debt and Equity Securities [Abstract]
Schedule of Long-Term Investments
12 Months Ended
Property, Plant and Equipment [Abstract]
Schedule of Property and Equipment
12 Months Ended
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Schedule of Intangible Assets, Net
12 Months Ended
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Schedule of Deferred Tax and Other Long-Term Assets
Details
12 Months Ended
Other Liabilities, Current [Abstract]
Schedule of Other Current Liabilities
Details
-
12 Months Ended
Notes Payable [Abstract]
Schedule of Maturities of Debentures
Details
%
12 Months Ended
Schedule of Other Long-Term Debt
Schedule of Repayment of Loans
Schedule of Maturity of Capital Leases liabilities
Schedule of Composition of Operating Leases
Schedule of Maturity of Operating Leases liabilities
12 Months Ended
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS [Abstract]
Schedule of Recurring Fair Value Measurements
Details
--
)
)
Schedule of Marketable Securities
Municipal bonds
--
--
)
Schedule of Maturities of Marketable Securities
Schedule of Investments with Continuous Unrealized Losses
12 Months Ended
Postretirement Medicare Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Schedule of Net Periodic Benefit Cost
)
%
%
%
%
%
%
%
%
%
%
%
%
Schedule of changes in Projected Benefit Obligations, Fair Value of Plan Assets, and Funded Status
)
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
Schedule of Future Benefit Payments
Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Schedule of Net Periodic Benefit Cost
)
)
)
)
)
%
%
%
Schedule of changes in Projected Benefit Obligations, Fair Value of Plan Assets, and Funded Status
)
Schedule of Future Benefit Payments
Schedule of Weighted Average Asset Allocations
Schedule of Assets Measured at Fair Value on a Recurring Basis
12 Months Ended
Stockholders' Equity Note [Abstract]
Schedule of Share Option Activity
$
$
$
$
$
$
$
$
$
$
Schedule of Restricted Shares Units Activity
$
$
$
$
$
$
$
$
$
Schedule of Information about Share Options Outstanding
Schedule of Intrinsic and Fair Values for Options Exercised
Schedule of Intrinsic and Fair Values for RSU's Exercised
Schedule of Stock-Based Compensation Expense in Statement of Operations
12 Months Ended
Segment Reporting [Abstract]
Schedule of Revenues by Geographic Area
Schedule of Long-Lived Assets by Geographic Area
Schedule of Revenues of Major Customers
12 Months Ended
Other Income and Expenses [Abstract]
Schedule of Financing Expense
)
)
12 Months Ended
Related Party Transactions [Abstract]
Schedule of Related Party Balances and Transactions
)
12 Months Ended
Income Tax Disclosure [Abstract]
Schedule of Income Tax Provision
$
$
Schedule of Profit (Loss) Before Taxes
Schedule of Deferred Tax Asset/Liability
Schedule of Reconciliation of Unrecognized Tax Benefits
Schedule of Effective Income Tax Rate Reconciliation
TPSCo [Member]
Property, Plant and Equipment [Line Items]
Percentage of interests acquired
51.00%
PSCS [Member]
Property, Plant and Equipment [Line Items]
Percentage of interests acquired
49.00%
$ in Thousands
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for current expected credit loss
$ 946
$ 1,065
12 Months Ended
Buildings and building improvements, including facility infrastructure [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, estimated economic life
10 years
Buildings and building improvements, including facility infrastructure [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, estimated economic life
25 years
Machinery and equipment, software and hardware [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, estimated economic life
3 years
Machinery and equipment, software and hardware [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, estimated economic life
15 years
$ in Thousands
Inventory Disclosure [Abstract]
Raw materials
$ 81,734
$ 60,855
Work in process
146,840
133,144
Finished goods
5,938
5,127
Inventory, net, total
234,512
199,126
Aggregate inventory write-downs
$ 2,775
$ 1,946
$ in Thousands
Prepaid Expense and Other Assets, Current [Abstract]
Tax receivables
$ 5,540
$ 5,019
Prepaid expenses and payments on account of purchases to silicon vendors
36,786
6,990
Receivables from Hedging transactions - see Notes 10, 12A and 12D
10,322
11,609
Insurance receivables - see Note 14E
0
5,949
Other receivables
2,169
1,243
Other current assets
$ 54,817
$ 30,810
$ in Thousands
Investments, Debt and Equity Securities [Abstract]
Severance-pay funds
$ 11,942
$ 10,472
Long-term bank deposits
12,500
12,500
Investments in privately held companies
15,155
17,727
Long-term investments, total
$ 39,597
$ 40,699
$ in Thousands12 Months Ended
Property, Plant and Equipment [Abstract]
Original cost - machinery and equipment
$ 211,790
$ 213,683
Aggregate investment grants received
285,000
285,000
Depreciation expense
$ 14,037
$ 13,421
$ in Thousands
Property, Plant and Equipment [Line Items]
Original cost:
[1]
$ 3,686,131
$ 3,428,277
Accumulated depreciation
(2,809,448)
(2,589,106)
Property and equipment, net
876,683
839,171
Land and Buildings and building improvements, including facility infrastructure [Member]
Property, Plant and Equipment [Line Items]
Original cost:
[1]
432,069
430,258
Accumulated depreciation
(267,942)
(255,353)
Machinery and equipment, software and hardware [Member]
Property, Plant and Equipment [Line Items]
Original cost:
[1]
3,254,062
2,998,019
Accumulated depreciation
$ (2,541,506)
$ (2,333,753)
[1]
Original cost includes ROU assets under capital lease in the amount of $0 and $213,683 as of December 31, 2021 and 2020, respectively. The depreciation expense of such assets amounted to $0 and $13,421 for the years ended December 31, 2021 and 2020, respectively.
$ in Thousands12 Months Ended
Finite-Lived Intangible Assets [Line Items]
Cost
$ 44,272
$ 41,420
Accumulated Amortization
(32,452)
(30,458)
Net
11,820
10,962
Technologies [Member]
Finite-Lived Intangible Assets [Line Items]
Cost
8,172
5,320
Accumulated Amortization
(3,332)
(2,799)
Net
$ 4,840
$ 2,521
Technologies [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Life
4 years
4 years
Technologies [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Life
20 years
20 years
Facilities’ lease [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Life
19 years
19 years
Cost
$ 33,500
$ 33,500
Accumulated Amortization
(26,817)
(25,529)
Net
$ 6,683
$ 7,971
Customer relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Life
15 years
15 years
Cost
$ 2,600
$ 2,600
Accumulated Amortization
(2,303)
(2,130)
Net
$ 297
$ 470
$ in Thousands
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Deferred tax asset (see Note 19)
$ 53,526
$ 57,802
Right of use - assets under operating leases
14,113
18,990
Fair value of cross currency interest rate swap (see Note 12D)
4,372
10,661
Prepaid long-term land lease, net
2,934
3,055
Long-term prepaid expenses
24,993
2,893
Deferred tax and other assets, net
$ 99,938
$ 93,401
$ in Thousands
Other Liabilities, Current [Abstract]
Tax payables
$ 10,272
$ 4,935
Hedging transactions payables
3,040
0
Interest payable on debt
588
868
Others
2,109
2,102
Total other current liabilities
$ 16,009
$ 7,905
$ in Thousands, ₪ in Millions1 Months Ended
12 Months Ended
Debt Instrument [Line Items]
Proceeds from non-convertible debentures
$ 96,143
$ 0
$ 0
Series G Debentures [Member]
Debt Instrument [Line Items]
Proceeds from non-convertible debentures
$ 115,000
Principal amount
$ 64,000
104,000
Interest rate
2.79%
2.79%
Number of installment payments | Item
7
Hedging transactions asset fair value
$ 13,000
$ 17,000
Series G Debentures [Member] | Israel, New Shekels INS [Member]
Debt Instrument [Line Items]
Principal amount | ₪
₪ 201
₪ 334
$ in Thousands
Repayment schedule (carrying amount):
Total
$ 230,972
$ 283,765
Accretion of carrying amount to principal amount
(409)
Carrying amount
$ 64,082
Series G Debentures [Member]
Debt Instrument [Line Items]
Interest rate
2.79%
Repayment schedule (carrying amount):
2021
$ 42,996
2022
21,495
Total
$ 64,491
$ in Thousands12 Months Ended
Line of Credit Facility [Line Items]
Outstanding capital lease liability
$ 139,037
$ 159,650
Lease liability
36,282
34,863
Operating lease cost
7,069
TSNP [Member]
Line of Credit Facility [Line Items]
Maximum borrowing amount
70,000
Borrowing capacity
56,000
Letters of credit outstanding amount
$ 500
TSNP [Member] | Prime Rate [Member] | Minimum [Member]
Line of Credit Facility [Line Items]
Basis spread over variable interest rate
0.00%
TSNP [Member] | Prime Rate [Member] | Maximum [Member]
Line of Credit Facility [Line Items]
Basis spread over variable interest rate
0.50%
TSNP [Member] | LIBOR [Member] | Minimum [Member]
Line of Credit Facility [Line Items]
Basis spread over variable interest rate
1.25%
TSNP [Member] | LIBOR [Member] | Maximum [Member]
Line of Credit Facility [Line Items]
Basis spread over variable interest rate
1.75%
Office space operating facilities and vehicles [Member]
Line of Credit Facility [Line Items]
Operating lease cost
$ 7,535
$ 7,627
$ 8,045
TPSCo [Member]
Line of Credit Facility [Line Items]
Annual interest rate of lease agreement
2.00%
TPSCo [Member] | Term Loan 2018 [Member]
Line of Credit Facility [Line Items]
Basis spread over variable interest rate
1.95%
$ in Thousands, ¥ in Billions
Debt Instrument [Line Items]
Outstanding principal
$ 96,000
Term Loan 2018 [Member]
Debt Instrument [Line Items]
Outstanding principal
$ 95,572
Term Loan 2018 [Member] | JPY [Member]
Debt Instrument [Line Items]
Outstanding principal | ¥
¥ 11
$ in Thousands
Debt Instrument [Line Items]
Operating leases - see Note 11E below
$ 9,601
$ 12,440
Tower's loans (including current maturities) [Member]
Debt Instrument [Line Items]
Long-term JPY loan - principal amount - see Notes 11B and 11C below
95,572
106,719
Capital leases and other long-term liabilities - see Note 11D below
141,073
162,171
Operating leases - see Note 11E below
14,113
18,990
Less - current maturities
(41,324)
(65,658)
Fair value
$ 209,434
$ 222,222
$ in Thousands12 Months Ended
Repayment schedule (carrying amount):
Total
$ 230,972
$ 283,765
JPY [Member]
Debt Instrument [Line Items]
Interest rate
1.95
Repayment schedule (carrying amount):
2022
$ 0
2023
0
2024
13,654
2025
27,306
2026
27,306
2027
27,306
Total
$ 95,572
$ in Thousands
Related Party Transaction [Line Items]
2021
$ 39,167
2022
29,086
2023
30,391
2024
15,599
2025
5,604
2026 and on
29,422
Total
149,269
Less - imputed interest
(8,196)
Total
$ 141,073
$ in Thousands
Lessee Disclosure [Abstract]
Right of use - assets under operating leases
$ 14,113
$ 18,990
Current operating lease liabilities
4,512
6,550
Long-term operating lease liabilities
9,601
12,440
Total operating lease liabilities
$ 14,113
$ 18,990
Weighted average remaining lease term (years)
4 years 9 months 18 days
5 years 1 month 6 days
Weighted average discount rate
1.94%
1.94%
$ in Thousands
Commitments and Contingencies Disclosure [Abstract]
2022
$ 4,532
2023
2,711
2024
2,227
2025
2,202
2026
2,222
Thereafter
671
Total
14,565
Less - imputed interest
(452)
Total
$ 14,113
$ 18,990
$ in Thousands12 Months Ended
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of swap in asset position
$ 12,560
$ 16,977
Fair value of swap in short-term liabilities
8,188
6,316
Fair value of swap in long-term asset
4,372
10,661
Effective portion of unrealized gains recorded in OCI
27
323
Gain (loss) of hedge on operations
542
5,252
Long term bank deposit amount
12,500
12,500
Marketable securities
[1]
190,068
188,967
Short term deposit
363,648
310,230
Investment income (expense)
2,963
358
Subsequent Event [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Amount of loss expected to be reclassified into earnings currently recorded as other comprehensive income, as a result of the maturity of currently held forward exchange contracts
$ 56
Tower US Holdings [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value liability face amount
164,000
40,000
Fair value of derivative liabilities
3,040
150
Tower and Jazz Debentures [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of debentures
66,000
107,000
Carrying amount
64,000
102,000
Fair value liability face amount
67,500
51,000
Fair value of derivative assets
$ 2,134
$ 5,143
[1]
Marketable securities are available-for-sale securities presented at fair value, net of an immaterial allowance for credit losses;
the amortized cost of such marketable securities is $189,543 and $187,719 as of December 31, 2021 and December 31, 2020, respectively.
$ in Thousands
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities held for sale
$ 189,292
$ 188,186
Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cross currency swap - net asset position
12,560
16,977
Privately held companies
15,155
17,727
Marketable securities held for sale
190,068
188,186
Foreign exchange forward and cylinders - net asset position
5,293
Foreign exchange forward and cylinders - net liability position
(906)
Total assets and liabilities
216,877
228,183
Recurring [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cross currency swap - net asset position
0
0
Privately held companies
0
0
Marketable securities held for sale
190,068
188,186
Foreign exchange forward and cylinders - net asset position
0
0
Total assets and liabilities
190,068
188,186
Recurring [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cross currency swap - net asset position
12,560
16,977
Privately held companies
0
0
Marketable securities held for sale
0
0
Foreign exchange forward and cylinders - net asset position
5,293
Foreign exchange forward and cylinders - net liability position
(906)
Total assets and liabilities
11,654
22,270
Recurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cross currency swap - net asset position
0
0
Privately held companies
15,155
17,727
Marketable securities held for sale
0
0
Foreign exchange forward and cylinders - net asset position
0
0
Total assets and liabilities
$ 15,155
$ 17,727
$ in Thousands
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Amortized Cost
$ 189,543
[1]
$ 187,719
[2]
Gross unrealized gains
1,459
1,255
Gross Unrealized losses
(1,710)
(788)
Estimated fair value
189,292
188,186
Accrued interest
776
781
Corporate bonds [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Amortized Cost
161,491
[1]
154,577
[2]
Gross unrealized gains
1,453
1,207
Gross Unrealized losses
(1,311)
(735)
Estimated fair value
161,633
155,049
Government bonds [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Amortized Cost
27,332
[1]
32,894
[2]
Gross unrealized gains
1
37
Gross Unrealized losses
(399)
(53)
Estimated fair value
26,934
32,878
Municipal bonds [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Amortized Cost
[1]
472
Gross unrealized gains
0
Gross Unrealized losses
0
Estimated fair value
472
Certificate of deposit [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Amortized Cost
248
[1]
248
[2]
Gross unrealized gains
5
11
Gross Unrealized losses
0
0
Estimated fair value
$ 253
$ 259
[1]
Excluding accrued interest of $776.
[2]
Excluding accrued interest of $781.
$ in Thousands
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS [Abstract]
Due within one year, Amortized cost
$ 22,547
$ 22,772
Due within two to five years, Amortized cost
127,576
138,894
Due after five years, Amortized cost
39,420
26,053
Due within one year, Estimated fair value
22,637
22,800
Due within two to five years, Estimated fair value
126,510
139,210
Due after five years, Estimated fair value
40,145
26,176
Amortized cost
189,543
[1]
187,719
[2]
Estimated fair value
$ 189,292
$ 188,186
[1]
Excluding accrued interest of $776.
[2]
Excluding accrued interest of $781.
$ in Thousands
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Investment with continuous unrealized losses for less than 12 months, Fair value
$ 100,612
$ 37,129
Investment with continuous unrealized losses for less than 12 months, Unrealized losses
(1,293)
(750)
Investments with continuous unrealized losses for 12 months or more, Fair value
21,907
10,931
Investments with continuous unrealized losses for 12 months or more, Unrealized losses
(417)
(38)
Total Investments with continuous unrealized losses, Fair value
122,519
48,060
Total Investments with continuous unrealized losses, Unrealized losses
(1,710)
(788)
Corporate bonds [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Investment with continuous unrealized losses for less than 12 months, Fair value
87,495
24,699
Investment with continuous unrealized losses for less than 12 months, Unrealized losses
(1,129)
(700)
Investments with continuous unrealized losses for 12 months or more, Fair value
11,182
9,434
Investments with continuous unrealized losses for 12 months or more, Unrealized losses
(182)
(35)
Total Investments with continuous unrealized losses, Fair value
98,677
34,133
Total Investments with continuous unrealized losses, Unrealized losses
(1,311)
(735)
Government bonds [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Investment with continuous unrealized losses for less than 12 months, Fair value
13,117
12,430
Investment with continuous unrealized losses for less than 12 months, Unrealized losses
(164)
(50)
Investments with continuous unrealized losses for 12 months or more, Fair value
10,725
1,497
Investments with continuous unrealized losses for 12 months or more, Unrealized losses
(235)
(3)
Total Investments with continuous unrealized losses, Fair value
23,842
13,927
Total Investments with continuous unrealized losses, Unrealized losses
$ (399)
$ (53)
$ in Thousands12 Months Ended
Severance pay fund, Israeli employees
$ 8,273
Long-term employee liabilties, Israeli employees
10,724
Israeli employee termination benefits
$ 5,941
$ 5,254
$ 5,597
Postretirement Medicare Plan [Member]
Discount rate
3.00%
2.80%
3.40%
Pension Plan [Member]
Discount rate
2.90%
2.50%
3.20%
TPSCo [Member]
Matching contribution (as a percent)
8.00%
9.00%
Employee contribution (as a percent)
1.00%
Cost recognized
$ 5,331
$ 6,132
$ 6,572
$ in Thousands12 Months Ended
Postretirement Medicare Plan [Member]
Net periodic benefit cost
Service cost
$ 5
$ 6
$ 7
Interest cost
52
57
72
Amortization of prior service costs
0
0
0
Amortization of net loss (gain)
(179)
(241)
(298)
Total net periodic benefit cost
(122)
(178)
(219)
Other changes in plan assets and benefits obligations recognized in other comprehensive income:
Prior service cost for the period
0
0
0
Net loss (gain) for the period
(23)
146
(1)
Amortization of prior service costs
0
0
0
Amortization of net gain (loss)
179
241
298
Total recognized in other comprehensive income (loss)
156
387
297
Total recognized in net periodic benefit cost and other comprehensive income (loss)
$ 34
$ 209
$ 78
Weighted average assumptions used:
Discount rate
2.80%
3.40%
4.50%
Expected return on plan assets
Rate of comprehension increases
Assumed health care cost trend rates:
Measurement date
Dec. 31, 2021
Dec. 31, 2020
Dec. 31, 2019
Postretirement Medicare Plan [Member] | Pre-65 [Member]
Assumed health care cost trend rates:
Health care cost trend rate assumed for current year, medicare advantage
6.00%
6.20%
6.90%
Health care cost trend rate assumed for current year, non-medicare advantage
6.00%
6.20%
6.90%
Ultimate rate
4.50%
4.50%
4.50%
Year the ultimate rate is reached
2029
2029
2029
Postretirement Medicare Plan [Member] | Post-65 [Member]
Assumed health care cost trend rates:
Health care cost trend rate assumed for current year, medicare advantage
6.50%
(5.00%)
13.10%
Health care cost trend rate assumed for current year, non-medicare advantage
6.50%
6.10%
7.90%
Ultimate rate
4.50%
4.50%
4.50%
Year the ultimate rate is reached
2029
2029
2029
Pension Plan [Member]
Net periodic benefit cost
Interest cost
$ 575
$ 687
$ 817
Expected return on the plan's assets
(788)
(909)
(930)
Expected Administrative Expenses
100
100
100
Amortization of prior service costs
3
3
3
Amortization of net loss (gain)
27
27
0
Total net periodic benefit cost
(83)
(92)
(10)
Other changes in plan assets and benefits obligations recognized in other comprehensive income:
Prior service cost for the period
0
0
0
Net loss (gain) for the period
(1,038)
149
1,158
Amortization of prior service costs
(3)
(3)
(3)
Amortization of net gain (loss)
(27)
(27)
0
Total recognized in other comprehensive income (loss)
(1,068)
119
1,155
Total recognized in net periodic benefit cost and other comprehensive income (loss)
$ (1,151)
$ 27
$ 1,145
Weighted average assumptions used:
Discount rate
2.50%
3.20%
4.40%
Expected return on plan assets
3.10%
3.80%
4.20%
Rate of comprehension increases
$ in Thousands12 Months Ended
Postretirement Medicare Plan [Member]
Change in medical plan related benefit obligation:
Benefit obligation at beginning of period
$ 1,882
$ 1,689
$ 1,628
Service cost
5
6
7
Interest cost
52
57
72
Benefits paid
(4)
(16)
(17)
Change in medical plan provisions
0
0
0
Actuarial loss (gain)
(23)
146
(1)
Benefit obligation end of period
1,912
1,882
1,689
Change in plan assets:
Fair value of plan assets at beginning of period
0
0
0
Employer contribution
4
16
16
Benefits paid
(4)
(16)
(16)
Fair value of plan assets at end of period
0
0
0
Funded status
(1,912)
(1,882)
(1,689)
Pension Plan [Member]
Change in medical plan related benefit obligation:
Benefit obligation at beginning of period
23,467
21,908
18,979
Interest cost
575
687
817
Benefits paid
(778)
(737)
(688)
Change in medical plan provisions
0
0
0
Actuarial loss (gain)
(1,183)
1,608
2,800
Benefit obligation end of period
22,081
23,467
21,908
Change in plan assets:
Fair value of plan assets at beginning of period
25,985
24,454
22,669
Actual return on plan assets
616
2,337
2,544
Employer contribution
0
0
0
Expenses paid
(73)
(69)
(71)
Benefits paid
(778)
(736)
(688)
Fair value of plan assets at end of period
25,750
25,985
24,454
Funded status
$ 3,669
$ 2,518
$ 2,546
$ in Thousands12 Months Ended
Postretirement Medicare Plan [Member]
Amounts recognized in statement of financial position:
Current liabilities
$ (48)
$ (62)
$ (50)
Non-current liabilities
(1,864)
(1,820)
(1,639)
Net amount recognized
$ (1,912)
$ (1,882)
$ (1,689)
Weighted average assumptions used:
Discount rate
3.00%
2.80%
3.40%
Rate of compensation increases
Pension Plan [Member]
Amounts recognized in statement of financial position:
Non-current assets
$ 3,669
$ 2,518
$ 2,546
Net amount recognized
$ 3,669
$ 2,518
$ 2,546
Weighted average assumptions used:
Discount rate
2.90%
2.50%
3.20%
Rate of compensation increases
Pre-65 [Member]
Assumed health care cost trend rates:
Year the ultimate rate is reached
2031
2029
2029
Pre-65 [Member] | Postretirement Medicare Plan [Member]
Assumed health care cost trend rates:
Health care cost trend rate assumed for next year
5.80%
6.00%
6.20%
Ultimate rate
4.40%
4.50%
4.50%
Pre-65 [Member] | Postretirement Non Medical Plan [Member]
Assumed health care cost trend rates:
Health care cost trend rate assumed for next year
5.80%
6.00%
6.20%
Ultimate rate
4.40%
Post-65 [Member]
Assumed health care cost trend rates:
Year the ultimate rate is reached
2031
2029
2029
Post-65 [Member] | Postretirement Medicare Plan [Member]
Assumed health care cost trend rates:
Health care cost trend rate assumed for next year
8.50%
6.50%
(5.00%)
Ultimate rate
4.50%
4.50%
4.50%
Post-65 [Member] | Postretirement Non Medical Plan [Member]
Assumed health care cost trend rates:
Health care cost trend rate assumed for next year
6.20%
6.50%
6.10%
Ultimate rate
4.40%
4.50%
4.50%
$ in Thousands
Postretirement Medicare Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
2022
$ 48
2023
55
2024
65
2025
71
2026
74
2027-2031
439
Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
2022
939
2023
1,029
2024
1,105
2025
1,161
2026
1,197
2027-2031
$ 6,249
$ in Thousands
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments in mutual funds
$ 0
$ 0
Total assets measured at fair value
0
0
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments in mutual funds
25,750
25,985
Total assets measured at fair value
25,750
25,985
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments in mutual funds
0
Total assets measured at fair value
$ 0
$ 0
Defined Benefit Plan Disclosure [Line Items]
Funded percentage
100.00%
Target allocation 2022
100.00%
Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Funded percentage
10.00%
Target allocation 2022
10.00%
Debt Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Funded percentage
90.00%
Target allocation 2022
90.00%
shares in Thousands
Stockholders' Equity Note [Abstract]
Ordinary shares, authorized
150,000
150,000
Ordinary shares, par value
₪ 15
₪ 15
Ordinary shares, issued
108,970
108,010
Common Stock, Shares, Outstanding
108,883
107,923
Treasury stock, shares
87
87
$ in Thousands1 Months Ended
12 Months Ended
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options outstanding
2,558
32,805
343,451
508,493
Period of directors service served
5 years
Percentage of acceleration of unvested equity
50.00%
RSU's [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards granted
1,002,275
1,105,155
1,159,881
Awards outstanding
2,211,100
2,223,043
2,013,613
1,599,296
2013 Plan [Member] | Employees and directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period
3 years
3 years
Awards granted
1,000,000.0
1,100,000
2013 Plan [Member] | Chief Executive Officer [Member] | Time Vested Restricted Shares Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage
33.00%
33.00%
33.00%
Non-option equity awards granted
80,000
109,000
129,000
Compensation cost
$ 5,000
$ 3,900
2013 Plan [Member] | Chief Executive Officer [Member] | Performance-based RSU's [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-option equity awards granted
132,000
163,000
129,000
2013 Plan [Member] | Chief Executive Officer [Member] | RSU's [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Awards granted
31,000
Non-option equity awards granted
6,000,000
Compensation cost
$ 1,000
2013 Plan [Member] | Chief Executive Officer [Member] | PSU’s [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-option equity awards granted
120,000
2013 Plan [Member] | Chairman of the board of directors [Member] | Time Vested Restricted Shares Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage
33.00%
33.00%
33.00%
Non-option equity awards granted
10,300
16,000
20,000
Compensation cost
$ 300
$ 300
$ 300
2013 Plan [Member] | New other directors [Member] | Time Vested Restricted Shares Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period
2 years
2 years
2 years
Non-option equity awards granted
4,300
5,000
5,000
Compensation cost
$ 900
$ 900
$ 600
2013 Plan [Member] | New other directors [Member] | Time Vested Restricted Shares Units [Member] | First Anniversary [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage
50.00%
50.00%
50.00%
2013 Plan [Member] | New other directors [Member] | Time Vested Restricted Shares Units [Member] | Second Anniversary [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage
50.00%
50.00%
50.00%
12 Months Ended
Number of share options
Outstanding as of beginning of year
32,805
343,451
508,493
Granted
0
0
0
Exercised
(30,247)
(308,479)
(163,375)
Terminated
0
(667)
(667)
Forfeited
0
(1,500)
(1,000)
Outstanding as of end of year
2,558
32,805
343,451
Options exercisable as of end of year
2,558
32,805
343,451
Weighted average exercise price
Outstanding as of beginning of year
$ 15.28
$ 8.79
$ 9.58
Granted
0
0
0
Exercised
15.12
8.14
11.28
Terminated
0
9.90
9.90
Forfeited
0
4.42
4.42
Outstanding as of end of year
17.16
15.28
8.79
Options exercisable as of end of year
$ 17.16
$ 15.28
$ 8.79
12 Months Ended
Number of RSU's
Outstanding as of beginning of year
2,223,043
2,013,613
1,599,296
Granted
1,002,275
1,105,155
1,159,881
Converted
(929,466)
(806,993)
(484,665)
Forfeited
(84,752)
(88,732)
(260,899)
Outstanding as of end of year
2,211,100
2,223,043
2,013,613
Weighted Average Fair Value
Outstanding as of beginning of year
$ 19.45
$ 19.13
$ 22.27
Granted
29.91
19.86
18.06
Converted
19.56
20.45
23.91
Forfeited
20.28
18.62
21.19
Outstanding as of end of year
$ 24.11
$ 19.45
$ 19.13
12 Months Ended
Share-based Payment Arrangement, Option, Exercise Price Range [Line Items]
Exercise price, maximum
$ 17.16
Number outstanding | shares
2,558
Outstanding, Weighted-average remaining contractual life
3 months 7 days
Outstanding, Weighted average exercise price
$ 17.16
Number exercisable | shares
2,558
Exercisable, Weighted average exercise price
$ 17.16
$ in Thousands12 Months Ended
Stockholders' Equity Note [Abstract]
The intrinsic value of options exercised
$ 504
$ 4,429
$ 1,824
The original fair value of options exercised
$ 188
$ 1,018
$ 665
$ in Thousands12 Months Ended
The intrinsic value of converted RSUs
$ 27,807
$ 15,971
$ 8,207
The original fair value of converted RSUs
$ 18,183
$ 16,506
$ 11,588
$ in Thousands12 Months Ended
The effect of stock- based compensation on the Statement of Operations is as follow:
Total stock-based compensation expense
$ 25,144
$ 16,988
$ 14,548
Cost of goods [Member]
The effect of stock- based compensation on the Statement of Operations is as follow:
Total stock-based compensation expense
7,003
5,197
4,529
Research and development, net [Member]
The effect of stock- based compensation on the Statement of Operations is as follow:
Total stock-based compensation expense
4,855
3,568
2,900
Marketing, general and administrative [Member]
The effect of stock- based compensation on the Statement of Operations is as follow:
Total stock-based compensation expense
$ 13,286
$ 8,223
$ 7,119
12 Months Ended
External Customers [Member]
Segment Reporting Information [Line Items]
Percentage
100.00%
100.00%
100.00%
USA [Member]
Segment Reporting Information [Line Items]
Percentage
41.00%
44.00%
52.00%
Japan [Member]
Segment Reporting Information [Line Items]
Percentage
22.00%
28.00%
29.00%
Asia (other than japan) [Member]
Segment Reporting Information [Line Items]
Percentage
30.00%
22.00%
15.00%
Europe [Member]
Segment Reporting Information [Line Items]
Percentage
7.00%
6.00%
4.00%
$ in Thousands
Segment Reporting Information [Line Items]
Long-Lived Assets
$ 876,683
$ 839,171
Israel [Member]
Segment Reporting Information [Line Items]
Long-Lived Assets
238,758
215,006
United States [Member]
Segment Reporting Information [Line Items]
Long-Lived Assets
264,038
234,902
Japan [Member]
Segment Reporting Information [Line Items]
Long-Lived Assets
$ 373,887
$ 389,263
12 Months Ended
Customer one [Member]
Concentration Risk [Line Items]
Percentage
14.00%
13.00%
Customer two [Member]
Concentration Risk [Line Items]
Percentage
12.00%
12 Months Ended
Customer A [Member]
Concentration Risk [Line Items]
Percentage
21.00%
25.00%
27.00%
Customer B [Member]
Concentration Risk [Line Items]
Percentage
13.00%
11.00%
7.00%
Other customers [Member]
Concentration Risk [Line Items]
Percentage
[1]
20.00%
24.00%
26.00%
Customer one [Member]
Concentration Risk [Line Items]
Percentage
4.00%
5.00%
5.00%
Customer two [Member]
Concentration Risk [Line Items]
Percentage
7.00%
7.00%
9.00%
[1]
Represents aggregated revenue to XX customer that accounted for 0% and 0% of total revenue during 2021, to four customers that accounted for between 4% and 7% of total revenue during 2020, and to four customers that accounted for between 5% and 9% of total revenue during 2019.
$ in Thousands12 Months Ended
Other Income and Expenses [Abstract]
Interest expense
$ (7,312)
$ (6,755)
$ (6,823)
Interest income
5,368
8,484
12,949
Series G Debentures amortization, related rate differences and hedging results
(1,773)
(3,045)
(3,299)
Exchange rate differences
(7,092)
5,509
(1,271)
Bank fees and others
(2,064)
(1,323)
(1,544)
FINANCING INCOME (EXPENSE), NET
$ (12,873)
$ 2,870
$ 12
$ in Thousands12 Months Ended
Related Party Transactions [Abstract]
Long-term investment
$ 57
$ 57
General and administrative expense
771
787
$ 783
Other income (expense), net
$ 0
$ 2
$ (55)
1 Months Ended
12 Months Ended
Tax Credit Carryforward [Line Items]
Net operating loss carryforwards
$ 2,100
Operation loss carryforwards limitation
taxable income limitation of 80%
Effective Statutory tax rate
23.00%
Preferred income subject tax rate
7.50%
Minimum tax credits
$ 1,100
Federal [Member]
Tax Credit Carryforward [Line Items]
Net operating loss carryforwards
$ 17,000
Tower [Member]
Tax Credit Carryforward [Line Items]
Net operating loss carryforwards
$ 800,000
Effective Statutory tax rate
7.50%
Preferred income subject tax rate
7.50%
Tower US Holdings [Member]
Tax Credit Carryforward [Line Items]
Net operating loss carryforwards
$ 83,000
Net operating loss carryforwards do not expire
66,000
Tower US Holdings [Member] | State and Local Jurisdiction [Member]
Tax Credit Carryforward [Line Items]
Net operating loss carryforwards
11,000
TSNP [Member]
Tax Credit Carryforward [Line Items]
Net operating loss carryforwards, annual utilization amount
$ 2,000
$ in Thousands12 Months Ended
Current tax expense:
Foreign
$ 13,504
$ 2,232
$ 1,013
Deferred tax expense (benefit):
Local
2,518
8,481
7,098
Foreign
(14,998)
(5,314)
(5,163)
Income tax expense
$ 1,024
$ 5,399
$ 2,948
$ in Thousands12 Months Ended
Profit (loss) before taxes:
Domestic
$ 166,273
$ 100,145
$ 103,432
Foreign
(11,174)
(11,457)
(12,411)
Total profit before taxes
$ 155,099
$ 88,688
$ 91,021
$ in Thousands
Deferred tax assets:
Net operating loss carryforward
[1]
$ 77,586
$ 72,658
Employees benefits and compensation
[1]
5,366
6,813
Accruals and reserves
[1]
7,863
3,312
Research and development
[1]
20,633
18,179
Others
[1]
3,737
3,453
Gross deferred tax assets - long-term
[1]
115,185
104,415
Valuation allowance, see F below
[1]
(11,644)
(10,745)
Deferred tax assets
[1]
103,541
93,670
Deferred tax liabilities- long-term:
Depreciation and amortization
[1]
(72,678)
(76,136)
Others
[1]
(1,114)
(1,018)
Deferred tax liabilities
[1]
(73,792)
(77,154)
Presented in long term deferred tax assets
53,526
57,802
Presented in long term deferred tax liabilities
$ (23,777)
$ (41,286)
[1]
Deferred tax assets and liabilities relating to Tower for the years 2021 and 2020 are computed based on the Israeli Preferred Enterprise tax rate of 7.5%.
$ in Thousands12 Months Ended
Income Tax Disclosure [Abstract]
Beginning balance
$ 15,314
$ 15,113
$ 14,783
Additions for tax positions of current year
624
624
778
Reduction due to statute of limitation of prior years
(8,175)
(423)
(448)
Ending balance
$ 7,763
$ 15,314
$ 15,113
$ in Thousands12 Months Ended
Income Tax Disclosure [Abstract]
Tax expense computed at statutory rates, see (*) below
[1]
$ 35,673
$ 20,398
$ 20,935
Effect of different tax rates in different jurisdictions and Preferred Enterprise Benefit
(24,683)
(15,046)
(16,396)
Change in valuation allowance, see Note 19F below
899
3,479
1,432
Permanent differences and other, net
(10,865)
(3,432)
(3,023)
Income tax expense
$ 1,024
$ 5,399
$ 2,948
[1]
The tax expense was computed based on regular Israeli corporate tax rate of 23%.
shares in Thousands, $ in Thousands1 Months Ended
Subsequent Event [Line Items]
Number of outstanding Ordinary Shares
108,883
107,923
Subsequent Event [Member] | Definitive agreement with Intel and Tower [Member]
Subsequent Event [Line Items]
Number of outstanding Ordinary Shares
109,000
Cash consideration
$ 53
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