Company: TSEM
Filing Date: 2025-04-30
Form Type: 20-F
Source: 0001178913-25-001537
Chunk: 253

Company: TOWER SEMICONDUCTOR LTD
Filing Date: 2025-04-30
Form: 20-F
Item: Item 11
Chunk 253
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ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk of Interest Rate Fluctuation

Our cash equivalents and short-term deposits are exposed to market
risk due to fluctuation in interest rates on our cash and deposits, which may affect our interest income. We manage this exposure by performing
ongoing evaluations of our investments in those deposits. Due to the short maturities of our investments, their carrying value approximates
their fair value.

The 2024 JPY Loan (with an outstanding principal of approximately
$100 million as of December 31, 2024) bears annual fixed interest of 2%, and approximately $45 million of our subsidiaries’ equipment
capital leases bear annual fixed interest of approximately 2%. Therefore, we are not subject to cash flow exposure, financing expenses
or interest rate fluctuations with respect to the 2024 JPY Loan or such equipment capital leases.

However, in the event that market interest rates for similar debt
decrease and are lower than the interest rate provided under our capital leases or loans, our actual financing costs would be higher than
they otherwise would have been had our loans or capital leases provided for interest at a floating interest rate. Assuming a 10% change
in market interest rate, the effective impact on our capital leases and loans would be immaterial.

Foreign Exchange Risk

We currently operate in four different regions: the United States,
Japan, Israel and Italy. The functional currency of our entities in the United States, Israel and Italy is the USD. The functional currency
of our operations in Japan is the JPY. Our expenses and costs are denominated mainly in USD, JPY, NIS and Euro, revenues are denominated
mainly in USD and JPY, and cash from operations, investing and financing activities are denominated mainly in USD, JPY and NIS.
Therefore, we are exposed to the risk of currency exchange rate fluctuations in Japan, Israel and Italy.

The majority of TPSCo’s revenues are denominated in JPY and
the majority of TPSCo’s expenses and costs are denominated in JPY, which limits the exposure to fluctuations of the USD-to-JPY exchange
rate on TPSCo’s results of operations. In order to mitigate a portion of the net exposure to the USD-to-JPY exchange rate, we have
engaged in cylinder hedging transactions to contain the currency’s fluctuation within a pre-defined, fixed range. During the year
ended