Company: TSEM
Filing Date: 2025-04-30
Form Type: 20-F
Source: 0001178913-25-001537
Chunk: 122

Company: TOWER SEMICONDUCTOR LTD
Filing Date: 2025-04-30
Form: 20-F
Item: Item 3
Chunk 122
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 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 December 31, 2024, the USD appreciated against the JPY by 10.7%, as compared to 7.2% appreciation during the year ended December
31, 2023. The net effect of USD appreciation against the JPY on TPSCo’s assets and liabilities denominated in JPY is presented in
the Cumulative Translation Adjustment (“ CTA”) as part of Other Comprehensive Income (“ OCI”) on the balance sheet.

As of December 31, 2024, we are subject to currency exchange rate
fluctuations of the JPY against the USD in connection with the following JPY-denominated debt financ